Archive for Opinions

Historical Repetition in the Precious Metals Arena

By The Gold Report

Source: Michael Ballanger for Streetwise Reports   08/19/2018

Sector expert Michael Ballanger muses on the potential for a historical reprise of market events of 2015-2016, as well as on how algobots and bankers affect the precious metals markets.

History doesn’t repeat itself but it often rhymes.
– Samuel Clemens (Mark Twain)

I decided that before I sat down to write the weekly recap and outlook for the gold and silver markets that I would go to a few of the great commentary sites such as Streetwise, 321Gold, Goldseek and Gold-Eagle and read what the other “experts” are saying about the precious metals markets before I attack the keyboard. Earlier in the week, I had been working on a Western Uranium Corp. story and was astounded how stress-free it was writing about an energy deal as opposed to a sound money deal. After perusing perhaps two hundred paragraphs from some pretty smart guys and gals, it occurred to me that we are all looking at the same data and the same charts and reading the same headlines in an effort to sound original in our assessment of the metals

But what we are all missing are two very important and, in fact, crucial realities of today’s markets and I am going to focus on these in today’s missive. I could write about the COT report due out any moment (which I predict will be a doozy, with the Commercials recording a net long position for the first time ever), or I could drone on and on about RSI and MACD and the histograms and inverted teacups and screaming Dojis and hallucinating haramis, but it is all meaningless drivel in the context of the primary drivers for gold and silver. All that matters is that since the 2016 top at around $1,365 per ounce, gold has been unable to sustain any upward momentum thanks largely to the drivers.

Driver #1: Computerized Trading and Algobots
In 1998, I was first introduced to the concept of pattern-recognition algorithms that could trade stocks based upon the software’s uncanny ability to scan predictive movements and formations and execute buy or sell programs on such interpretation. The growth of computer-driven money management has now resulted in trading “floors” nearly devoid of human interaction, with carbon units only present to make sure the machines don’t go berserk (which they have on multiple occasions).

In vast, highly liquid markets like Forex and bonds and stocks, these algobots can operate fairly effectively, but in thin markets like commodities (and especially gold and silver), the algobots have a habit of feeding off each other. Once a short-term trend has been established, the ‘bots pounce and, in fact, extend and exaggerate it to the point of insanity. Once the ‘bots get control of the near-term trend, all other life forms join the party and the meme-du-jour becomes status quo, and there is no economic, financial or geopolitical event that will reverse it. The ‘bots do not analyze; they simply react and execute.

For this reason, I refute the idea that the Chinese are rigging the gold market by pegging the yuan to gold via the USD/CNY exchange rate. For most of the 2014-2018 period, a number of the blogger-gurus chortled on about how gold mirrored the JYP/USD cross—and before that the USD/EUR cross—but all that was, IMHO, was the pattern-recognition software picking up a working correlation and reacting to it. The more it worked, the more the ‘bots did it, and the cycle repeats itself over and over and over until the algo-scanners detect a “new kid on the block” of correlation. At that point, they run with it.

And because it is so completely warped in its extent and its intensity, the carbon-based trading units get on the keyboards and post accusatory rants about some sovereign entity rigging the price with all the fancy gold-yuan overlay charts being irrefutable “proof.” All it really proves is that the ‘bots have detected a correlation trend, and they have hijacked it. If any trading platform can abuse the system with not even the slightest of regulatory repercussion, it is the computers.

So, driver #1 is the existence of the algobots, and while it is entirely possible they are the riggers of the precious metals markets, they do so not from anything sinister or policy-driven; they are simply following the code written for them by the programmers.

Driver #2: Central Banks and Currency Regimes
Lord Rothschild said, “Give me control of a nation’s money and I care not who makes its laws.” And nowhere is that more evident than in the attitude of the banking community toward sound money. Bankers make fees from currency, and the more currency they control, the more fee income they derive.

For this reason, currency debasement is the primary incentive of all bankers. Take the financial crisis of 2007-2008. The global economy was humming along just fine, with the exception of the U.S. mortgage and housing market, where lack of adequate regulation allowed the markets to get out way ahead of their skis, resulting in a crash.

However, the only people affected were the banks and, technically, they were all toast. But since that would have vaporized shareholder equity for the elite class (primarily the bankers), it would have been a relative non-event for the rest of the working and middle class.

Now, this is a point of fierce debate because it is said that everyone was going to be impacted because “the system was freezing up,” which included deposits, but the vast number of Americans whose balances were well below the federal deposit insurance guarantee ($100,000 in Canada) were not at risk. Only the owners of the banking shares were at any real risk, so rather than allow the natural elimination of those entities that took unnecessary risks and failed, Hank Paulson begged Congress for, and received, a massive bailout through printed, fabricated, phony counterfeit money. In this manner, the utility of gold and silver as the rightful providers of safe-haven attributes was snatched away and replaced with the utmost of moral hazard.

Ten years later, with stock valuations stretched on the crest of a $14 trillion injection wave, gold and silver have been relegated to the role of cult-status investing. Only old people in North America (and citizens of Argentina, Venezuela and Turkey) believe in the safe-haven utility of gold and silver. Further, the youngsters would rather own pot stocks and cryptodeals (or Elon Musk’s Rocket to Mars for the price of a pizza deal) rather than two metals representing 5,000 years of monetary functionality.

In a nutshell, central banks and politicians knowthat if gold succeeds as a replacement for the rotting paper currency that underpins the “system,” then the Emperor’s-New-Clothes-Ponzi-scheme gig will be up and they will be unable to sustain this tax-and-spend, boom-and-bust cycle that allows the banker/politician criminal partnership to flourish.

The investing pubic also knows that gold is the mortal enemy of the money-printers/credit-creators because it shines an embarrassing and incriminating light on the banking cartel and their Machiavellian maneuvers. It is for this reason that they opt for Bitcoin as a receptacle for excess currency units and an alternative to bank accounts that can be subject to bail-ins and other confiscatory procedures.

These are the two primary drivers that dominate the demand-supply conundrum that infuriates fundamental analysts in their assessment of the balance of money flow between the buyer and seller of gold and silver. Their influence has dwarfed all forms of fundamental and technical analysis, and has completely negated their impact on pricing. It has been further exacerbated by driving participants away from the market because of the constantly inexplicable behavior whereby price defies historical directional stimuli and moves as if guided by some “invisible hand.” This type of behavior is always, and without fail, the result of interventions that free market advocates abhor.

The COT Report
Just as I complete a thorough debunking of “all that has worked in the past,” and having declared it obsolete, out comes the COT report. It is a wildly bullish report from a couple of perspectives. First, the Commercial aggregate short position is now within 5,000 contracts of the December 2015 bottom in gold at $1,045. Second, the net shorts for Large Specs (dumb money) at 215,500 contracts is 45% higher than it was at the bottom in December 2015. In a normal world, absent the criminal interventions and manipulations mentioned earlier, I would go “all in” on options on the JNUG and NUGT, and buy several hundred GLD contracts for January expiry. However, I am awaiting evidence of a short squeeze, engineered and triggered by the Commercials and agonizingly executed by the Large Specs, who stand to get annihilated if gold turns now.

I would also observe that in referring back to primary Driver #1, there is no rational human being, analyst or otherwise, who would allow a position in anything to grow as large as what we have witnessed in the Large Spec aggregate short position. Prudent portfolio management would prune down, but since the algobots are only reactive (to trends), they have simply followed the programming code and piled on. When the programming rules instruct them to cover, there will be a mad scramble to do so, and that is what will send this pendulum of doom in the opposite and welcomed direction.

Once I see evidence of distressed buying (hopefully this week), I will be adding to the GLD options, where a month ago I took a 25% opening position in the October $120s (some $5 higher). The beauty of scaling into positions over a number of days (or weeks) is that you can be wrong in your timing but still live to fight another day. I still have 75% of the original funds available to add to positions, but at levels far more palatable than they were thirty days ago. In this manner, I am able to avoid taking a sledgehammer to my forehead in self-recrimination and loathing.

As the title of this missive implies, conditions for the gold and silver markets are today similar, but not identical, to conditions in 2015, when prices bottomed and set up one of the most breathtaking rallies of my career, which lasted until August of 2016. The HUI followed later, on January 19, 2016, with a bottom tick of 99.17 before screaming to over 280.

Yes, it is true that history never repeats, but as for rhyming, this is a “Casey-at-the-Bat” poem in full regalia. Everything about the bottom of December 2015 is now in place, with even greater force and conviction. We shall soon see whether a historical repetition of the events of 2015-2016 unfold, unleashing a cavalcade of stampeding buyers in gold and silver bullion, futures, junior and senior gold miners and, of course, the explorers.

Bring it.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

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Disclosure:
1) Statements and opinions expressed are the opinions of Michael Ballanger and not of Streetwise Reports or its officers. Michael Ballanger is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. Michael Ballanger 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 interview or the decision to write an article, until one week after the publication of the interview or article.

Charts courtesy of Michael Ballanger.

Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.

Gold Miner Announces Assay Results for Nevada Project

By The Gold Report

Source: Streetwise Reports   08/19/2018

Company reported results for drilling at Tuscarora Gold Project in Elko, Nevada.

American Pacific Mining Corp. (USGD:CSE;USGDF:OTCPK) recently announced assays of the remaining 11 holes from the Phase 1 drill program at the Tuscarora Gold Project in Elko, Nevada. According to the news release, a total of 3,143 meters has been drilled by the company in 16 holes focusing on the South Navajo zone. This property is a 1,818 acre land package containing a series of high-grade vein systems and stockworks, optioned from NOVO Resources in late 2017, the company noted.

Some of the highlights from the final results are:

  • APTU18-013: 1.5m at 10.30 g/t Au (drilled in an area approximately 450 meters north of main South Navajo zone)
  • APTU18-015: 12.2m at 3.44 g/t Au (including 1.5m at 18.40 g/t Au)
  • APTU18-015: 13.7m at 1.74 g/t Au
  • APTU18-016: 6.1m at 2.06 g/t
  • AuAPTU18-016: 9.1m at 5.88 g/t Au (including 3m at 13.42 g/t Au).

“I’m extremely pleased with these initial drill results. Assays have confirmed the historic results while also displaying a new level of disseminated mineralization on the property and adding considerable strike length to the mineralization. The focus of this project will expand to the other veins and structures that we know exist at Tuscarora, but have yet to be drill-tested,” said Warwick Smith, CEO of American Pacific Mining.

The company reported it has yet to assay any mineralized intervals for silver, but work is in progress and is expected to add to the value of the gold intercepts.

Tuscarora is a high-grade gold project located in a prime precious metals district in Nevada, 35 km northeast of the Carlin Trend, 20 km southwest of the Jerritt Canyon deposit and 50 km east-northeast of the Midas deposit, the company reported.

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Disclosure:
1) Jake Richardson compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: American Pacific Mining. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The 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.
5) 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 interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of American Pacific Mining, a company mentioned in this article.

( Companies Mentioned: USGD:CSE;USGDF:OTCPK,
)

Why Oil Prices Fell — Stockpiles or Price Pattern?

You be the judge…

By Elliott Wave International

Let’s cut right to the chart below. The shaded triangle highlights the dramatic price action in crude oil prices on August 15, when crude plummeted 3% to its lowest level in over nine weeks.

Crude Oil Image 3

Now, according to the mainstream experts, the number one catalyst for crude’s collapse was a shockingly bearish same-day Energy Information Administration (EIA) weekly inventory report, marked with the orange arrow in the bottom right of the chart.

What made the report so bearish was the fact that analysts forecast a 2.5 million decrease in oil stockpiles in the week ending August 10, while the EIA data showed a 6.8 million-barrel increase! Wrote one August 15 news source: “Crude Oil Prices Slammed by Surprise U.S. Inventories Build.” (Seeking Alpha)

It’s a perfect fit — in the popular, news-moves-markets model, that is. The market was expecting one thing and got the complete opposite. Cue brutal selloff.

The problem with that model, however, is that it does investors and traders no favors. At best, it offers convenient explanations for price moves — after they’ve already occurred.

Let’s go back to the chart and consider the other arrow, the blue one labeled EWP, for the Elliott Wave Principle.

On August 14 — one day before the bearish EIA report was released — our Energy Pro Service identified a bearish Elliott wave setup on crude oil’s price chart. There, Energy Pro Service editor Steve Craig outlined the most probable course for crude oil in the days ahead:

“Crude should be in the final leg of a countertrend advance, be it wave ii, or the larger-degree wave ((ii)). Resistance above the 68.37 intraday high is around 68.48 and then 69.11. On the downside, trade below 67.38 would offer an aggressive hint that a downward reversal is underway… the key point is that the larger trend is down.”

Crude Oil Image 1

What happened next?

The chart below sums it up best: Crude oil finished its wave ii and hit the skids in the 3% selloff on August 15.

Crude Oil Image 2

Elliott wave analysis posits that the main driver of market trends is investor psychology, which unfolds as Elliott wave patterns directly on price charts.

These patterns are measurable and predictable, so they enable Elliotticians to anticipate future price moves — before they arise.

If you are prepared to take the next step in educating yourself about the basics of the Wave Principle — access the FREE Online Tutorial from Elliott Wave International.

The Elliott Wave Basic Tutorial is a 10-lesson comprehensive online course with the same content you’d receive in a formal training class — but you can learn at your own pace and review the material as many times as you like!

Get 10 FREE Lessons on The Elliott Wave Principle that Will Change the Way You Invest Forever.

This article was syndicated by Elliott Wave International and was originally published under the headline Why Oil Prices Fell — Stockpiles or Price Pattern?. 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.

Dollar strengthened as Turkish lira crisis unfolded

By IFCMarkets

US dollar short bets fell last week to $21.34 billion from $22.02 billion against the major currencies during the previous week, according to the report of the Commodity Futures Trading Commission (CFTC) covering data up to August 14 released on Friday August 17. The dollar strengthening accelerated as the demand for dollar increased against the backdrop of Turkish lira crisis following doubling of US tariffs on steel and aluminum.

 

CFTC Sentiment vs Exchange Rate

August 14 2018 Bias Ex RateTrend Position $ mln Weekly Change
CAD bearish negative -201 -9
AUD bearish positive -3748 298
EUR bearish positive -254 -1785
GBP bearish positive -4828 -70
CHF bearish negative -5768 21
JPY bearish positive -6561 489
Total -21359

 

commitment of traders net long short
commitment of traders weekly change
market sentiment ratio long short positions

Market Analysis provided by IFCMarkets

Note:
This overview has an informative and tutorial character and is published for free. All the data, included in the overview, are received from public sources, recognized as more or less reliable. Moreover, there is no guarantee that the indicated information is full and precise. Overviews are not updated. The whole information in each overview, including opinion, indicators, charts and anything else, is provided only for familiarization purposes and is not financial advice or а recommendation. The whole text and its any part, as well as the charts cannot be considered as an offer to make a deal with any asset. IFC Markets and its employees under any circumstances are not liable for any action taken by someone else during or after reading the overview.

Construction Continues to Advance at Idaho Cobalt Project

The Energy Report

Source: Streetwise Reports   08/18/2018

The company reports it is on target for commercial production to begin in 2020.

eCobalt Solutions Inc. (ECS:TSX; ECSIF:OTCQX; ECO:FSE) recently reported construction continues to progress on time and on budget at its Idaho Cobalt Project, which is the only near-term environmentally permitted primary cobalt deposit in the United States. The project is located near the town of Salmon, within the Idaho Cobalt Belt.

The company stated that the construction highlights include:

  • Completed the WTP building foundation and slab. Building steel erection and placement of large components to commence August 18th.
  • Started lining the Tailings Waste Storage Facility (TWSF) and ponds for September completion.
  • Completed potable water system connection to site admin building.
  • Completed the power distribution system to the ponds and wells.
  • Water Treatment Plant (WTP) equipment has been mobilized to site.

“Very good progress has been made at the ICP by our exceptional team of mining professionals. We remain on target for commercial production to begin in 2020. In addition, discussions continue to progress with strong interest from multiple potential off-take partners and project financiers in numerous jurisdictions. We remain focused on the execution of our strategic plan to create long term value for all shareholders by pursuing a clean cobalt concentrate favourable to the battery manufacturing market,” stated Paul Farquharson, president & CEO of eCobalt.

Development of the concentrate roasting process utilizing a rotary kiln continues as planned. Bench scale testing, conducted by Expert Processing Solutions, a Dundee Sustainable Technologies partner laboratory, was completed in July. Pilot-level testing to confirm the updated process flow sheet was also conducted in July at Hazen Research, Inc., the company reported.

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Disclosure:
1) Jake Richardson compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: eCobalt Solutions. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The 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.
5) 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 interview or the decision to write an article, until one week after the publication of the interview or article.

( Companies Mentioned: ECS:TSX; ECSIF:OTCQX; ECO:FSE,
)

Sampling at Historical Core at Mexican Asset Shows up to 1,285 g/t Silver Equivalent

By The Gold Report

Source: Streetwise Reports   08/18/2018

Following this finding, the project owner continues sampling and exploring.

Goldplay Exploration Ltd. (GPLY:TSX-V;GLYZF:OTCQB) reported that initial results from sampling historical core holes drilled at its San Marcial project showed “significant silver values, supporting the high-grade nature” of this asset and “upside potential for resource expansion,” according to a news release. These new data are from one of 22 holes drilled in 2010.

That hole, SM10-22, showed 19.5 meters at 157 grams per ton Ag eq, including 1.5 meters at 1,285 grams per ton Ag eq. “The high-grade interval from this hole represents the deepest intersection outside of the historical resource to date in the San Marcial project,” the release noted.

Indeed, further upside could come from resource expansion because the 22 historical holes had been excluded from the 2008 NI 43-101 resource. Upside also could come from the continuity of the silver, lead, zinc and gold mineralization down dip, outside of the historical resource, and the existing geological features, all of which already have been identified via previous drilling, the company noted.

“The core reviewed to date reveals a structurally controlled mineralized system with silver mineralization associated with significant concentrations of lead, zinc and gold, hosted by hydrothermal breccias and fault zones,” said President and CEO Marcio Fonseca in the release.

As for the other 21 historical core drill holes, Goldplay began sampling those as well. It plans to use all of the new data to develop a fresh three-dimensional, geological and silver mineralization model of San Marcial. The goals of these sampling efforts are to expand the resources and delineate mineralized zones such that they would support a high-grade, open-pit mine on the property.

Once the company receives new drill permits, expected in Q3/18, it will launch a drilling program at San Marcial to continue expanding the resource along strike and down dip in the area of the historical resource. Goldplay aims to release a new resource estimate in Q4/18, the company stated.

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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following company mentioned in this article is a billboard sponsor of Streetwise Reports: Goldplay Exploration. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The 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.
5) 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 interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this interview, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Goldplay Exploration, a company mentioned in this article.

( Companies Mentioned: GPLY:TSX-V;GLYZF:OTCQB,
)

Spot Prices Are Falling, But Premiums Are on the Rise

By Money Metals News Service

Gold and silver premiums – the price dealers add to the melt value of an item to cover manufacturing and overhead – began climbing in the past two weeks.

Many clients see falling gold and silver spot prices as an opportunity to buy, but some are disappointed to find the premium for the item they want is suddenly higher, negating some of the price drop.

The challenge they face is that lots of other bargain hunters are trying to jump on the same opportunity.

Supply & Demand

Premiums are very sensitive to supply and demand in the retail market for finished coins, bars, and rounds, and the reasons are pretty straightforward.

First, when prices drop, retail bullion investors stop selling and start buying. That has a profound effect on the availability of resale, or secondary market, product inventory.

The large quantities coins, bars, and rounds coming back to market in the past year or two have driven premiums to the extraordinarily low levels we saw recently. Now, supply from the secondary market is drying up fast.

Second, there are only a few mints and refiners making coins, bars, and rounds. Like any manufacturer, they gear production to market demand. Scaling up takes a bit of time, and it isn’t something most will do without first developing some confidence that the higher demand will persist.

If prices stabilize or begin to rise and the wave of bargain hunting subsides, we’ll see pressure come back off of premiums. If spot prices fall further, or we see a spike in demand for some other reason, they will be pushed higher.

All that said, the rising premiums of the past two weeks have not overtaken the reduction in spot prices.

For now at least, buyers can capture most of the savings on spot prices on most products. They just can’t capture it all.

Retail buyers have wondered if dealers are simply raising prices to avoid taking a “loss” on falling value of their inventories.

We can’t speak for the practices of smaller or less experienced businesses, but as a larger national dealer with lots of volume, Money Metals Exchange uses prudent hedging strategies to insulate against big swings in gold and silver prices and to ensure we always have inventory available for sale at fair prices.

On the other hand, many less sophisticated online dealers and particularly local coins shops do not hedge their inventory – choosing to introduce risk and distortive forces into their business models.

More than anything else, though, the main driver behind premiums on coins, bars, and rounds is the forces of supply and demand described above.


The Money Metals News Service provides market news and crisp commentary for investors following the precious metals markets.

Drill Results from Great Basin Project Reveal Gold Mineralization

By The Gold Report

Source: Streetwise Reports   08/19/2018

A gold explorer announces drill results for the Goldstrike Oxide Gold Project in Utah that show gold mineralization above the cut-off grade.

Liberty Gold Corp. (LGD:TSX) recently announced the results from initial reverse circulation drill testing of the historical heap leach pads and one area of historical mine waste backfill at the Goldstrike project.  This work is the flagship of its three principal gold projects located in the Great Basin of the United States.

Results confirm that the historical leach pads, the back fill below the pad linings and bedrock to depth contain areas of gold mineralization above the cut-off grade used in the Goldstrike Preliminary Economic Assessment.

Some of the highlights of the work are:

  • The results to date support Liberty Gold’s thesis that considerable gold remains in surficial deposits created during the historical mining operation, which operated during a period of very low gold prices and much higher ore-to-waste cut-off grades. Heap leach technology has advanced considerably in the last 20 years, with recovery of gold possible from previously leached material.
  • The heap leach pads are underlain by considerable thicknesses of mineralized backfill material.
  • Drill holes encountered areas of unmined mineralization in the pit floors and walls under backfilled areas.
  • Cyanide solubility tests carried out in conjunction with fire assaying of the drill samples from the heap leaches show moderate cyanide solubility. Additional testing will be carried out to determine potential recovery and the best methods to achieve it.
  • Cyanide solubility of backfill material averages 86%.

The company noted that to aid in further advancement and de-risking of the Goldstrike Property, drill testing of the historical heap leach pads, stockpiles, waste dumps and pit backfill is underway.  Most of the areas currently being tested lie within the PEA pit and are classified as waste in the model. Conversion of any of these areas to mineralized leach material would potentially add low-cost ounces to the resource, consisting of gold in material previously drilled, blasted and placed on surface.

An RC drill program is currently underway with two drills, with over 16,000 metres drilled to date.  In addition to testing of the historic heap-leach, stockpile and waste dump areas, infill and step out drilling around the existing resource and testing of new targets property-wide is also underway, Liberty Gold indicated.

Goldstrike is located in the eastern Great Basin, immediately adjacent to the Utah/Nevada border, and is a Carlin-style gold system, similar in many ways to the prolific deposits located along Nevada’s Carlin trend, Liberty stated and indicated that, like Kinsley Mountain and Newmont’s Long Canyon deposit, Goldstrike represents part of a growing number of Carlin-style gold systems located off the main Carlin and Cortez trends in underexplored parts of the Great Basin.

[NLINSERT]

Disclosure:
1) Jake Richardson compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Liberty Gold. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The 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.
5) 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 interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this interview, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Liberty Gold, a company mentioned in this article.

( Companies Mentioned: LGD:TSX,
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COT Report: 10-YR Bets Set New Record. Gold, Silver & Euro Bets Go Bearish

By CountingPips.com

Here is this week’s links (below) and short summaries to the latest Commitment of Traders changes that were released on Friday.


Currency Speculators go bearish on Euro, raise US Dollar Index bets for 17th week

This week’s data showed 7 out of 8 major currency levels are bearish

The latest data for the weekly Commitment of Traders (COT) report, released by the Commodity Futures Trading Commission (CFTC) on Friday, showed that large traders and currency speculators continued to increase their bets for the US dollar Index this week while dragging euro bets into a new bearish standing. See full article


WTI Crude Oil Speculators reduced their bullish bets for 2nd week

The non-commercial contracts of WTI crude futures totaled a net position of 573,428 contracts, according to data from this week. This was a slide of -35,499 contracts from the previous weekly total. See full article


Gold Speculators net positions go bearish for 1st time since 2002

The large speculator contracts of gold futures totaled a net position of -3,688 contracts. This was a weekly decline of -16,376 contracts from the previous week. See full article


10-Year Note Speculator bets surged to new record high bearish position

The large speculator contracts of 10-year treasury note futures totaled a net position of -698,194 contracts. This was a weekly reduction of -111,895 contracts from the previous week. See full article


S&P500 Mini Speculators bullish bets bounced back this week

Large stock market speculators boosted their bullish net positions in the S&P500 Mini futures markets this week. See full article


Silver Speculators dropped their net positions into new bearish level

The non-commercial contracts of silver futures totaled a net position of -2,836 contracts, according to data from this week. This was a weekly fall of -7,177 contracts from the previous totals. See full article


Copper Speculators edged their bullish bets slightly higher this week

The large speculator contracts of copper futures totaled a net position of 3,088 contracts. This was a weekly boost of 898 contracts from the data of the previous week. See full article


Article by CountingPips.com

The Commitment of Traders report data is published in raw form every Friday by the Commodity Futures Trading Commission (CFTC) and shows the futures positions of market participants as of the previous Tuesday (data is reported 3 days behind).

To learn more about this data please visit the CFTC website at http://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

Metals Market Gets Smashed; Dr. Englehardt: Economy Beholden to Fed Interest Rate Policy

By Money Metals News Service

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up we’ll hear from Dr. Lucas Engelhardt, associate professor of economics at Kent State University and well-known Austrian economist and regular guest lecturer at the Mises Institute. Dr. Engelhardt enlightens us on some of the major flaws in our current monetary policy and the dangers and economic trouble it will eventually produce. He also discusses a couple of different ways we could reintroduce a gold standard to save us from what appears to be an inevitable economic catastrophe. Don’t miss a fascinating interview with Dr. Lucas Engelhardt, coming up after this week’s market update.

Well, there’s no way to soft-pedal it. Precious metals markets got smashed this week.

A currency crisis in Turkey sent a wave of fear through other emerging markets and hard assets at large. That emboldened short sellers who had already piled onto gold and silver futures with historically large positions.

What were already deeply oversold conditions have now become total washout conditions. We haven’t seen selling this intense and this one sided in several years. There will be a snap back to come – and probably a big one at that – but in a selling panic, fundamental reasons to sit tight don’t matter to traders who are facing margin calls.

As of this Friday recording, gold shows a $34 or 2.8% loss for the week to bring spot prices to $1,179 an ounce. Gold lost round number support at $1,200. However, the market is still holding above the primary low of late 2015 and the secondary low of late 2016.

A pattern of higher highs remains intact. In technical terms, it’s still a bull market, believe it or not – at least according to the longer terms charts. It hasn’t been pretty, and gold investors don’t have much to show for it at this point. But they do have good reason to keep holding and add to their position as they are able. With the market so severely beaten down, it’s not even possible for many mines to produce gold at these prices.

Silver prices are also now trading below all-in production costs. The white metal lost $0.62 or 4.0% of its value this week and currently comes in at $14.74 an ounce. Prices got as low as $14.35 during Wednesday’s big washout.

The depressed state of the silver and gold markets has naysayers and perma-bears declaring the money metals to be obsolete in the era of all-digital payment platforms. There are a couple big flaws with this analysis, however.

For one, the current monetary order is unsustainable. Even with the recent boost in U.S. economic numbers, the U.S. government is still projected to be running trillion dollar deficits by 2020. As the $21 trillion national debt grows exponentially, tens of trillions more in unfunded Social Security and Medicare liabilities will come due. The only way out of an eventual default is a massive inflation leading inevitably to a currency crisis.

The other flaw in the thinking of anti-gold digital bugs is that digital platforms are coming under increasing pressure to de-platform people who hold politically incorrect opinions. Just over the past couple weeks, Apple, Google, Facebook, Twitter, and all the other major social media sites have decided to de-platform one of the most prominent and vocal Donald Trump supporters in the alternative media, Alex Jones.

Known for his high-energy rants and conspiracy theories, Jones has spewed the same type of content for many years. But suddenly and simultaneously, dozens of internet platforms have found Alex Jones to be in violation of their “hate speech” policies. It’s a nebulous Social Justice term that can mean anything Social Justice Warriors want it to mean.

First they came for the neo-Nazis. Then they came for Alex Jones. Now prominent Democrats including Howard Dean, Keith Ellison, and Chris Murphy are calling for a blue wave of censorship to be carried out by their technocrat allies in Silicon Valley ahead of the mid-term elections.

The politically intolerant left is going after platforms and pocketbooks. New York Governor Andrew Cuomo is trying to prevent the NRA from obtaining insurance or banking services within his state. Mastercard, JP Morgan Chase, and other Fed-subsidized financial companies are denying services to legal gun shops and banning right-wing political commentators from collecting funds through online payment processing services. PayPal and mobile payment apps are now financially de-platforming people who are accused by leftist groups of “hate speech.”

You may not have a hateful bone in your body. But that doesn’t necessarily ensure you won’t ever wind up on some Orwellian hate list… or be found to have violated some obscure term of service that causes your accounts to be digitally deleted.

The point is that while your access to the digital economy is seemingly just a click or a swipe away… you could also be banned from online financial services with a click or a swipe. The same is true of countries and regimes that run afoul of the dictates of the global elite.

That’s why holding some forms of money that are tangible rather than digital is as important as ever… it’s simply a matter of personal security. You simply can’t be digitally blocked by politicians or financial institutions or Silicon Valley overlords from accessing gold and silver bullion you own directly in physical form.

Well now, without further delay, let’s get right to this week’s exclusive interview.

Dr. Lucas Engelhardt

Mike Gleason: It is my privilege now to welcome in Dr. Lucas Engelhardt associate professor of economics at Kent State University. Dr. Engelhardt is an Austrian economist who has been a guest lecturer at the Mises Institute and in his teaching specializes in macro-economics in the examination of the business cycle, and it’s certainly a real pleasure to have him on with us today. Lucas, thanks so much for taking the time and welcome.

Dr. Lucas Engelhardt: Well thank you for having me on.

Mike Gleason: Well, I’m excited to have you on today because there is a lot to discuss with you. For starters I think a good place to begin is the business cycle. Now, but before we get into the misunderstandings that the Keynesians seems to have about this, explain the business cycle if you would and why it’s important in order to have a proper understanding of monetary policy.

Dr. Lucas Engelhardt: Sure. Now, as you mentioned, I come from the Austrian economic framework. And Austrian economics describes the business cycle as the consequence of manipulations happening in the money supply, specifically in credit markets. So starting from that point, so how the business cycle happens is that we have somebody in the banking system. We know in modern America it would be the Federal Reserve is generally responsible for this. Decides to push down interest rates, normally to stimulate the economy.

Austrians, we definitely do not deny that this actually does work for a while. That the lower interest rate does actually encourage investment, especially in very long structures of production. The types of things that won’t pay off maybe for five, 10, or even more years. We see lots of research and development, lots of construction, these types of things happening when interest rates get pushed down.

The problem is that the way that the Fed pushes interest rates down, as I suspect most of your listeners know, is by adding additional money into the economy through the banking system. Eventually this money gets out into the economy and prices start going up. You have more money, the money loses value, the flip side of that is that prices are higher. It takes more money to buy anything.

Now, there are a couple ways this can go. The central bank could just ignore this fact and continue with the low interest rate policy, just pumping out more and more money to the point where the money is worthless. We see that happen right throughout history, and we see that happening today in places like Venezuela. Now, what the Fed has done historically most of the time is get nervous about this rise in prices and start tamping back on the increase in the money supply. Of course, as soon as they do that interest rates go up. Once interest rates go up, all these investments that looked great when interest rates were low, that research and development, building new houses and what have you, stop looking as good.

So, we see all of these areas that expanded then start contracting, and that’s where we see the bust of the business cycle come in. We see there it’s really all centered on what the Federal Reserve in modern America is doing in interest rates.

Mike Gleason: Now, you come at things from an Austrian viewpoint as you mentioned. I’m curious if sometimes you feel like a lone wolf in the wilderness, because nearly everyone in the mainstream financial world and among the central bankers and central planners throughout the globe seems to have that Keynesian mindset where government and a tight management of monetary policy is the answer to every economic problem. So, why is it dangerous in your view, expand the point if you would about a centrally planned economy instead of letting the free market forces dictate things. What are they so afraid of?

Dr. Lucas Engelhardt: Yeah, that’s a funny question. I think, like to me, a lot of the error that’s out there is because somewhere along the lines economists, and I think people more generally have gotten into their mind that money is somehow totally different from other goods. You ask almost any economist out there, for most goods, things like shoes and shirts and whatever, they’re generally perfectly happy to have the government stay out and let the market be in charge of deciding what kinds of shoes are being produced for whom and what have you.

But, then money suddenly, even people who are relatively free market, like Milton Friedman for example, they feel like money’s different in some way and the government needs to have more of a role there. I’m not entirely sure where that comes from to be perfectly honest. It’s this odd inconsistency. But, in terms of the danger of that, I think we already described the business cycle is something we see precisely because we’ve put the central bank in charge of the money supply, and them interacting with the credit markets.

Whereas, we wouldn’t see the same type of process play out if instead we had private money producers using some kind of commodity, probably something like gold or silver historically, just producing as people want the good. Like we do with anything else. We don’t really find that to be necessarily problematic.

Honestly, I don’t have any great explanation for why most of my profession does seem to have this weird hang up when it comes to having markets in money.

Mike Gleason: Obviously, a lot of mal-investment does happen as a result of low interest rate policy. As you mentioned, as interest rates rise that no longer is a good way to use funds, and then the whole thing sort of implodes. Talk about that a little bit more if you would, and why it is that an economy really does need to go through these contractive periods, that it doesn’t seem like central planners really want to allow nowadays.

Dr. Lucas Engelhardt: I think probably the best explanation of it I’ve seen of this comes from Ludwig Von Mises. The analogy that he gives is the analogy of the home builder. So you imagine that we have this home builders building this neighborhood, and they’ve been reported to them that there are a certain number of bricks available for them to use.

So, they then begin laying foundations and building these various houses in this neighborhood. But, then they discover part way through that there are not as many bricks available as was believed. The question is then, what are the lessons we can pull out of this?

First, the earlier we learn that the better. So, if we’ve just laid the foundations and then we find out we don’t have as many bricks as we thought, we can salvage most of what we’ve done. On the other hand, if we get to the point where we’ve already built the first floor of every single house and then we find out we’re running out of bricks, that totally changes our plans in a way that’s much more destructive. So, the earlier we learn the better.

Also, it tells us that the closer we were to right at the beginning the better. The less error there was in that initial report is better. So, what in the world does this have to do with business cycles?

So then, we back up and think about in a free market economy where we don’t have manipulation of interest rates, what does the interest rate mean? Well, the interest rate then would come out of peoples willingness to save for the future. If you’re willing to save a lot then interest rates are going to generally be fairly low. We don’t have to convince people to save if they’re already will to. On the other hand, if people are not willing to save very much, then interest rates will generally be very high.

This in turn means that those low interest rates are a signal to investors that they can undertake these long processes of production. They can start doing things like mining, construction, research and development. These people are willing to save up for that eventual product that will come far in the future.

On the other hand, high interest rates send exactly the opposite signal. People are not willing to save for the far future, and that signals to investors that they won’t have the resources to complete these very long investment products. So, that’s where the signaling role of interest rates is absolutely key in getting the economy to work properly. And that’s something that we lose when we have something like the Federal Reserve in charge of determining what interest rates are going to be.

The more they manipulate interest rates; the worse things are going to be. So, the more they try to keep interest rates really, really low in order to try to stimulate the economy, the longer we’re going thinking we have more bricks than we do. Or, believing that people are willing to save up for the future when they’re not actually willing to do that, and the further we get in more and more of these investments that aren’t going to pay off.

So, the sooner we can hit that point where we’ve realized the error we have made, the smaller the error actually is. I think that’s the way it is with most things in life. The earlier we catch ourselves making a mistake, the better off we are because we can fix it before things have gotten too bad.

Mike Gleason: Very well put. Talk about this idea of inflation targeting that the Federal Reserve seems to be holding so dear. This magic number of two percent inflation that they so desperately want to achieve. Talk about the flaws in that practice and then maybe also discuss some of the dangers of inflation in general, which is really just a hidden tax on the citizens at the end of the day, isn’t it?

Dr. Lucas Engelhardt: Oh yeah. So, inflation targeting, the idea is, and this is actually something, it’s kind of an interesting idea. The first place I know that implemented this was New Zealand a few years ago, where they were having this problem where they had very high rates of price inflation. So, they decided what they were going to decrease inflation to some more reasonable level. Something like three percent. I don’t remember the exact number they were going.

They found that they actually managed to pull it off. Prices fell, they didn’t have a horrible recession as would often be the case if you tried to pull this off some other way, because people seemed to believe them. So, after this example from New Zealand, it seems to have caught on as this great idea that everybody needs to do.

What’s then the problem with this, it seemed to work at least that time. Well, to me the fundamental problem is how do we measure the thing? So, we know that here that the most common measure that we would use in the U.S. is the Consumer Price Index. We have this basket of goods, right, things we think normal people would buy, and we look at how the cost of this basket changes over time.

Now, there are a number of errors that can show up in this index, which really anybody who takes the first semester of macroeconomics gets taught the weaknesses. It doesn’t matter who’s teaching it, you learn the weaknesses of this particular index. Things like it totally ignores relative price changes.

So, if say both apples and oranges are in this consumer basket, and apples go up in price, but oranges drop, that is not taken into account when we’re calculating the cost of the basket in the future… despite the fact that I would guess that basically most normal people if apples are getting more expensive and oranges are getting cheaper, are going to change what they buy. So, we get things like that. Or people will change where they shop based on what prices are doing. So, if prices are going up a lot in specialty stores they start shopping more at big box stores, or vice versa.

So, we can see all of these little changes at the micro level that people will actually make in their lives, we just don’t catch. So, the CPI is the most common way we would measure this, but it’s not the only one. There are other measures of inflation out there, and all of them have various weaknesses attached to them.

Then, the question is if we know that all of our measures are going to be mis-stating the thing that we’re actually trying to shoot for in some way or another, and it’s not always predictable which direction or how much, then what’s really the point in having a target for this thing? We won’t actually ever know if we’ve hit it. So, that to me is a rather significant problem.

Another issue is, it feels like an abusive language to me. Because, if you read the act that… I’m trying to remember the name of the most recent one that influences the Federal Reserve’s targets, I forget exactly what it was called. But, they’re supposed to aim for price stability, and bizarrely this means prices increase on the average two percent per year.

I don’t know about you, but if my height increased by two percent two year, I would not consider it to be stable. I’d say that I was actually growing. Similarly I’d say with prices if they’re going up two percent per year, that’s not stability that’s actually an increase in prices.

Mike Gleason: Right, the opposite of stability.

Dr. Lucas Engelhardt: Right, exactly. Okay, maybe they’re not flying all over the place unpredictably, but it’s still not stable. But, in any case, what does this do even if it is predictable? Well, this does change people’s behavior. If for example we have prices are increasing overtime, that changes the way we decide to hold money versus invest in riskier financial assets, for example.

Where we know that if we’re under a much more stable currency, we know that over the long run the gold standard was very stable. If you look at prices when you try to compile what these price indices might look like in 1650 and you compare that to 1900, the basket of goods basically costs the same amount. Over the course of a 250 year period we saw very little change in terms of an overall trend. What that means then is that holding money itself is not necessarily a terrible investment in that type of society.

That makes it very easy for people who are relatively low income, actually. You don’t have to know a lot about stocks, you don’t have to know a lot about how financial markets work. You just hold onto your gold coins until you want to use them and that’s going to work pretty well for most people. But then, when you have a system like ours where every single year, if the Fed accomplishes its goal, all the money you have has just lost two percent of its value. You don’t want to do that.

You have to start searching out other things that are actually going to pay you something. And we know that with interest rates being what they are right now, just sticking the money into a savings account, being a relatively safe, easy thing to do, well that’s not going to help at all. I know my savings account I believe pays .01%, which they may as well just round that down to zero. So, you have to start searching out things that are riskier, at which point knowledge about financial markets becomes much more important.

It turns out, I would suggest inflation, and I’m not the only one suggesting this, inflation does play a big role in driving things like inequality. It makes it much more difficult relatively for those with lower incomes than for those with higher incomes. Precisely because it’s taken away all of these relatively easy, relatively stable sorts of investments that were available under more stable currency.

Mike Gleason: Yeah, it certainly does create a bigger divide. The wage earner seems to be the one that is most harmed by this inflationary policy, for sure. Now, the Austrians talk a lot about the gold standard, you referenced that in your previous answer. It’s a good way to keep politicians in check, keeping government debt in check. So, in a perfect world, how would a gold standard be reintroduced at this point, Lucas, and what problems do you believe it would correct, or would some other type of monetary reform be better to solve our issues for instance?

Dr. Lucas Engelhardt: Yeah, that’s kind of a tricky question of, “Okay, if we have this system we like how do we possibly get there?” Well, there are a couple different plans that some of the big name Austrian economists have come up with to try to move us back towards say a gold based currency. Ludwig Von Mises, his plan was, the first step is we stop issuing additional paper dollars. Then, whenever the price of gold stabilizes, we just declare that that is going to be the parity between dollars and gold, and then we have a conversion agency that will guarantee conversion in either direction from these.

So, say that the price of gold stabilizes at, I don’t know, $2,500 an ounce. In that case, you can go to this conversion agency, if you have $2,500 they guarantee providing you with an ounce of gold. If you provide them with an ounce of gold, they guarantee providing you with $2,500. So, in that way, the paper currency we’re all using now would become as good as gold again, because it would in fact be backed by gold.

He also suggests eliminating any larger bills, which at the time he was writing this was several decades ago, he considered a large bill to be five dollars and up… which tells you something about what prices have done over the past few decades if that’s a large bill.

He said we need to eliminate all these large bills and instead use gold coins. Get people used to the idea that gold is in fact money, and so we have this psychological connection with the metal itself.

So, I did some math just to find out, say if we had a dime that was made of gold how much that would be worth. Turns out, it would be about $120 roughly, right, would be a gold dime. Which, makes sense looking at gold prices. One ounce of gold is around $1,200, a dime is about a 10th of an ounce of gold.

Mike Gleason: Yeah, we often talk about that in the 10th ounce of gold products that we sell…. very close in size to a dime.

Dr. Lucas Engelhardt: Right. Yeah, so that was Mises’s idea of how we could reconnect, the money we use now with gold. One thing I really like about Mises’s plan, is Mises was very aware of some of the difficulties that can show up with the transitions. So, you can see where the plan is designed to not necessarily be that disruptive. We’re just stopping one thing we’re doing, that is the printing of additional paper dollars, we’re letting the market stabilize, and then reacting to what the market does.

Another plan came from Murray Rothbard, his plan I think was, in my mind, a little bit more radical. What he suggested is that the Federal Reserve does have claim to some gold holdings, so what they could do is take all of the money supply using some measure of the money supply, pick M1, M2, whatever, and then basically do the division.

So, we know that there are however many trillion dollars nowadays of M2. There are this many ounces of gold that the fed has claim to, so there’s this many dollars per ounce of gold, that’s the price of gold. And then, if everybody rushes to hand in their paper dollars we don’t have any problem, which could be a problem potentially under Mises’s plan. When I did the math there, it turns out if we tried to back all of M2, which would be all of the paper currency, checking accounts, savings accounts, small time deposits like small certificates of deposit would be included in there as well, and money market mutual funds held by individuals… all of those would be included in that.

If we backed all of that money by gold, that would make the price of gold $54,000 per ounce. Which is a bit different from what we’re currently seeing in the market.

Mike Gleason: Yeah, just a little bit. Just a little bit higher.

Dr. Lucas Engelhardt: Yeah, a touch. A touch. Now, if we wanted to do something more narrow, like M1 would basically just be paper currency plus our checking accounts, that would still be looking at $14,000 per ounce, would be required to just back that. So, we’re looking at a rather drastic change, and I suspect that would very much change things like how much are we exploring for new gold, how much are we putting into gold mining, that kind of thing. I suspect we’d see significant economic changes there. But, that would be a one-time adjustment, really.

Mike Gleason: Yeah, it certainly would be something that could finally have an effect on the out of control government spending, it just doesn’t matter who’s in power, it just continues to get bigger and bigger all the time.

Switching gears here a bit, and as we begin to wrap up here, right now most of America is basking in the economic recovery. Their stock portfolios are moving higher and home values are rising. Unemployment is low, at least in the way the Bureau of Labor Statistics measures it. The 2008 financial crisis is a pretty distant memory now, but in our way of thinking of at least, the fundamental problems, things like too much debt and too much government have not been solved. In fact, they are compounding and it is likely not to end well. But, give us your assessment on this recovery, and can we get a few more years of expansion here?

Dr. Lucas Engelhardt: I feel like a few more years is asking quite a bit. The big thing that I look at, and really, this is a strange thing, while as an Austrian I’m a strange creature, yet many of the things I look at are things that other economists would look at all the time. I pay a lot of attention to the yield curve.

It turns out there are good Austrian reasons that we should pay attention the yield curve, and the yield curve has gotten extremely flat, which is generally not a good sign. Especially if the yield curve inverts, so that short term interest rates are higher than long term. That indicates that we should probably have a recession, usually starting within about a year from that point.

We’ve not seen it invert yet, but we’re looking really, really flat. And the Fed has indicated that they’re going to be pushing up interest rates, and we know that they have the most influence over short term rates. So, I would not be surprised that if say within the next two years we see some kind of recession start.

There are certain things they can try to do to delay that. Not so much the Fed – the Fed basically has interest rates, which is what they’re playing with – but we could see, say, I don’t know, Congress try to pass another tax cut or something like, which could potentially offset this for a bit. I don’t really see that we’re going to be able to put it off for long, especially given that we just had this tax cut, I don’t know that we can afford to have another one. We see government debt piling up as it is.

Mike Gleason: Yeah, they always seem to want to cut taxes, which of course is a good thing and we’re all for that, but it never seems to be accompanied by cuts in government spending.

Dr. Lucas Engelhardt: Right, exactly. It’s very much like if I decided, you know, I’ll work less and earn less money but I’m going to keep living my life as it is. You can’t do that forever. Eventually you’re going to have to adjust to get these things to line up, and that’s going to be very painful when it happens. Especially with how out of alignment we see between our revenue and our spending. We’re going to have to see big cuts in spending, or a big tax bite coming to bring that back into line.

Like, right now, at least from what I’ve seen, it seems like we’re trying to cover up most of that difference by printing money and if the Fed is increasing interest rates, they’re basically signaling they’re not willing to continue printing money to do this, so interest rates are on their way up.

And go back to the story we told at the beginning, interest rates being on the way up is what starts making those investments that looked good a couple years ago when interest rates were lower, they’re going to start looking bad and we see things turn for the worse.

Mike Gleason: Yeah, very well summarized there, and I think that kind of crystallizes the whole situation there with interest rates and the end of the speculative period, and the mal-investment that’s been driving this economy for quite a while. Obviously, we have a very debt driven economy, cheap money, and that appears to be coming to an end. And it’s going to get very interesting.

I would like to consider this conversation with you down the line, a lot of stuff we didn’t actually get to today, but I did really enjoy. Thanks for coming on, we appreciate you sharing your insights, and I hope we can speak with you down the road. Best of luck to you in influencing those young minds for good. We wish you well, and take care. Thanks for coming on.

Dr. Lucas Engelhardt: Yeah, yeah, thank you very much and thanks for having me.

Mike Gleason: Well, that will do it for this week. Thanks again to Dr. Lucas Engelhardt, associate professor of economics at Kent State University.

Well, I hope you enjoyed the replay of that interview with Guy Christopher as much as I did. It was always a joy to speak with Guy and he will be missed. After his passing a couple months back, we announced we are naming an academic scholarship award annually in memory of our late friend. The Guy Christopher People’s Choice award will be given to the student whose essay on sound money is the most popular of all our entries each year – a fitting tribute to Guy Christopher, who connected with our readers and customers in a remarkable way.

Be sure to check back here next Friday for our next Weekly Market Wrap Podcast, until then, this has been Mike Gleeson with Money Metals Exchange, thanks for listening, and have a great weekend everybody.


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