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Bullish fundamentals for gold
Last week we reported on SNL's latest gold mining report. If you haven't read it, we urge you to here. The following quote from Hebba Investments provides insight in to how important a respected analyst thinks it is too
"There is much more to be gleaned from this report, but for gold and mining investors, it is absolutely critical to understand what we think are the major conclusions discussed in the report:
Discoveries of gold resources and reserves have been falling and are not keeping up with gold production
The trend of falling gold discoveries has accelerated over the last decade and the replacement rate is around 50% of the production rate
The time it takes to bring a discovery to production has increased substantially to close to twenty years
As the supply and production picture only worsens despite the rising gold price, we believe prudent investors should recognize a significant opportunity to make money by buying and holding gold (and their paper equivalent the gold ETFs (GLD, CEF, PHYS)) - though we stress that physical gold and paper gold are two VERY different investments and investors should only invest in the ETFs after creating a comfortable physical gold position.

This is not a complicated trade and everything which we've said so far has nothing to do with the many other catalysts that we write about on a regular basis (such as theUS fiscal position,the battle between bondholders and the Fed,increase in central bank purchases of gold, or the deteriorating world order). In fact, even the supposed improvement in the US economic picture (the main reason investment banks forecast a falling gold price) would still have no effect on this much more important fundamental issue."

This article contains links to other articles : Visit https://www.ainsliebullion.com.au/g...amentals-for-gold/tabid/88/a/682/default.aspx

 

GDP
Tonight the US gives its first report of their Q2 GDP after the woeful negative 2.9% Q1 result for which they largely blamed the weather. Our regular readers and more particularly listeners to our Weekly Wrap radio will know the much prophesised US recovery is not as clear as the equities punters would like to believe. But we should all be reminded just what GDP reports. Gross Domestic Product = C + G + I + NX, where simplistically C is private and public consumption, G is government outlays, I is investments and NX or Net Exports is exports less imports. We have seen little since Q1 that indicates any sizeable turnaround and remember 2 negative quarterly results in a row is a recession. But do you see something missing? Something topical in much of what we discuss? Debt. With enough easy money, enough printed money, enough debt fuelled Government spending, and an artificially deflated dollar (making your exports stronger) anyone can create a decent GDP if they 'need to'. The IMF and the US themselves have continually downgraded their 2014 GDP estimates, the latest to only 1.7% which after -2.9% still needs some pretty good numbers for the other quarters. The more cynical will not be surprised by a robust GDP print tonight given how it can be manipulated with debt and is nowadays so often quietly 'corrected' down on subsequent adjustments to the 'final'.
This is not just a US phenomenon by any means. The graph below illustrates very clearly the disconnect in the world today. Global GDP is still falling despite all the easy money fuelling the "I" in the equation above and global sharemarkets rising. Greed, riding that never ending sharemarket rocket, too often overrules common sense. Common sense looks at the graph below when equities are at all time highs and gold/silver, the safe haven when things collapse, at relative lows, and looks to buy low and sell high. In the US gold has outperformed shares so far this year as more and more people are applying common sense. Are you?


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we are not in the US and gold has not out performed our share market


please know your audience and dont rehash crap from other sites

 

I think when discussing US GDP figures that comparing gold to US share market is appropriate.

 

THANK YOU CJ.
I attempted to point this out previously but like their customer service, arrogant and supported by "die hard" members

 

When QE is gone
Last night the US Fed tapered another $10b off its monthly Quantitative Easing (QE) money printing program (and announced a 4% estimate of Q2 GDP!! if you haven't read yesterday's missive on GDP you should to put that in context). QE is now down to 'only' $25b per month and on course for being phased out by October. So why aren't stockmarkets crashing and interest rates rising? Casey Research penned a great article yesterday that simply says they went so hard with QE3 that there is some slack in the system i.e. the Fed's balance sheet grew much faster than US Gov debt but once this is 'used up' history would suggest we will see the sharemarket crash. The graph below tells the story..
Don't forget too that we have a US Gov that hasn't run a real budget surplus since 1969 and need to keep selling debt (US Treasuries/Bonds) to pay for this (and the interest on the $17.6t already accumulated). We also have a world getting increasingly frustrated by this and not buying that debt like they used to. So when the Fed stops buying it, who will? And if they let interest rates rise how will they pay their interest?

NOTE if you haven't spotted it, we have put up a new video on the home page of our website. It paints a very clear and compelling case for silver's supply and demand dynamic. A must watch!

Casey Research Article - http://www.caseyresearch.com/articles/why-the-feds-taper-hasnt-hurt-the-stock-market-yet


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Economic Drugs
We are in interesting times Japan yesterday reported its worst industrial production fall since the 2011 tsunami and nuclear plant scandal. That industrial production was across nearly all sectors and coincides with rising inventories (making it even scarier) and last week's increased trade deficit as exports fall. It is also seeing economic growth falling with some analysts predicting a negative 3% GDP figure for the last quarter. Japan has arguably the most aggressive stimulus program in the world as it has printed $75b/month and facilitated zero interest loans to the same industries that are falling, together with devaluing its Yen. Whilst this program dragged Japan out of its multi decade deflationary trap and saw great gains in sharemarkets it is now looking to be not enough, and incredibly there are calls for more stimulus. i.e. the heroin is no longer good enough so lets move on to ice both of which are hiding the real problem and creating a bigger one.
There are parallels with the US that can't go unnoticed. The US is in rehab, easing itself off the heroin (which drove up sharemarkets etc) with tapering and are now down to "only" $25b/month and planning to be 'clean' by October albeit continuing with the zero interest rate 'methadone' for the foreseeable future. The 4% GDP estimate this week is seen as a sign of a recovering patient. But as we reminded readers on Wednesday debt fuelled stimulus can always help GDP, and estimates seemingly always now get downgraded (Q1 US GDP started at 0.1% before revisions to -2.9%). Furthermore, just as Japan has growing inventories, 1.7% of the 4% US GDP number was growing inventories (you know, stuff produced but with no buyers yet) and easy money fuelled investments takes that up to 2.5%. As we discussed yesterday, the US is yet to feel the effects of QE/heroin withdrawal. Some analyst are saying last night's stocks plunge was the penny dropping with the market after the Fed's talk on Wednesday night.
And now it is looking increasingly likely that Europe (who last night saw the worst CPI figure since 2009) will be hitting the hard stuff to try and get their party going just as Argentina couldn't pay their dealer.
There is an increasing feeling that this is all about to go horribly horribly wrong. For those not holding gold and silver that is.

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Also, today's Ainslie Radio is now live - Listen here - http://goo.gl/FVkDTm

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Nervous times in shares
Consider the graph below in the context of what is going on in the world right now. As Argentina defaults (with as yet unknown CDS derivative consequences), US and Europe sanction Russia (with as yet unknown consequences), wars escalate in Gaza, Ukraine, Syria, Libya, etc etc, struggling economies continue with or ramp up easy money / debt, the BRICS alliance continues it move away from the USD (with the latest being India and Russia looking to commence non USD trade), etc etc.
The graph below is a collection of global equities indices weighted 41% to US shares. The graph is clearly at heady heights and Friday just a small glimpse of how flighty it could be in the above environment. No one knows how long or high it could go but in this current environment a bit of safe asset hedging just seems common sense.


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Shanghai Silver v COMEX
As we've seen in gold there is an interesting development in silver trading as well where the largely 'paper/cash' traded COMEX futures, which incredibly inform a lot of the pricing we see, is being overtaken by the Shanghai Futures Exchange which sees most trades settled in real metal not cash. So at a time where the big commercial (JP Morgan et al) traders are massively 'short' silver on COMEX, the inventories in the Shanghai Futures Exchange are running low. two very different tales and only one 'real'. The 'East' is taking more and more control of precious metals and that is a good thing for those who hold physical metals. SRSrocco reported recently that trading volume on the Shanghai Futures Exchange and Shanghai Gold Exchange are nearly 3 times higher than the volume at the COMEX. If you were holding a heap of paper short contracts on COMEX, you'd surely be getting pretty nervous looking at the graph below, especially in a world in economic and geopolitical turmoil.

- We've just started stocking XAG's, with the closest to Spot pricing (cheaper than coins) it's a great way to stack some fine silver.
https://www.ainsliebullion.com.au/p...27c3-51e3-4cf3-aae9-d2c6bf7345e3/default.aspx


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Too Big To Fail
TBTF the acronym at the heart of the systemic risk of global economic meltdown. In the week that saw Portugal's central bank take control of the failed Banco Espirito Santo's assets and deposit-taking operations with a "loan" (bail out) of $6.6 billion we now see US regulators reject their big bank's "Living Wills". Living Wills are supposed demonstrate how any one of them can fail without bringing down broad economic failure or the need for tax payer funded bail outs as we saw in the GFC and again this week in Portugal. In response to examining 11 banks with assets over $250b each, via the Wall Street Journal the FDIC said "Despite the thousands of pages of material these firms submitted, the plans provide no credible or clear path through bankruptcy that doesn't require unrealistic assumptions and direct or indirect public support,". The FDIC has given these banks until July 2015 to improve their plans.
What makes this particularly scary are the following 2 graphs courtesy of Zero Hedge. The first shows no less than $230 trillion in derivatives exposure by the banks. The second shows just 4 hold $213t of that! No "Living Will" or bail-in will cover the domino effect just one of these failing will cause.
Think we are immune in Australia? If you are wondering how the major banks are offering these new cheap 5 year fixed rates when our cash rate is unchanged, you may be surprised (shocked/scared) to know it is through accessing cheap funds from overseas banks. We are as linked into this mess as anyone




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Zero Hedge is the Michael Bay of financial reporting. Lots of entertaining explosions but only a tenuous connection to reality.

The banks may see an extended period of disinflation or even secular stagnation.

 

Euro on the brink?
Overnight we saw Italy's GDP negative for a second consecutive quarter and hence in recession, making this its 3rd recession since the GFC. Italy is the Eurozone's 3rd largest economy after Germany and France. In addition to negative growth they also have over EUR2t in debt making their debt to GDP (2013, so worse this year) ratio 128% and youth unemployment over 43%. We discussed in last week's weekly wrap radio too that after the supposed powerhouse Germany printed a 0.1% CPI figure and the Eurozone as a whole only 0.4% (the lowest since 2009), fears of deflation are escalating. The second largest economy France, just reported an all time record high 3.4m people unemployed which is up 4% on a year ago. Russia ramping up retaliation for the sanctions (and the imminent threat of outright war of which sent gold and silver up strongly overnight) and fears of contagion of the Portugal banking failure, will only exacerbate an already perilous Euro economic situation.


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A bird in the hand.
We haven't talked about backwardation for some time but it is now happening again, the first time since May. As a reminder, the following is a nice little summation by James Turk:
"Whenever backwardation occurs - which in theory should not happen at all because of the arbitrage opportunity it represents - it is a sign of stress in the physical market for gold. Basically, it means that there is not sufficient metal on hand at current prices, or to put it another more meaningful way, people would rather own physical gold and pass up the profit available from the arbitrage by selling their physical metal and owning a national currency instead.Backwardation is eventually eliminated when sufficient physical metal turns up to bring the market back into balance. This generally means that the metal has to come from existing stocks because physical metal cannot be conjured up out of thin air with bookkeeping entries, which occurs all the time with national currencies. This reality conveys one of physical gold's key strengths, and why it has served so well as money for 5,000 years."
Any holder of real, physical gold and silver should take great comfort in these sorts of forces at play.

 

Waning Chinese Gold Demand
After headlines of softer jewellery gold demand in July for China and slower Hong Kong imports (because they can now officially bring straight into Beijing 'quietly') the graph below puts it back into perspective. Respected analyst Koos Jansen digs into the Shanghai Gold Exchange (SGE) more than most and says this in regard to the graph below:
"Using SGE withdrawals as a reference, China mainland has net imported 670.7 tonnesyear to date. Based on net imports, Chinese mining, a jewellery base of 2,500 tonnes in 1995 and guessing how much the PBOC has accumulated since 2009,total estimated Chinese gold reserves stand at 14,901 tonnes as of July 25."
If you are wondering about the "guess" bit, the Peoples Bank of China has not told the world how much gold it holds in reserves since 2009 when it revealed 1054t, a relatively small amount at 2% of foreign reserves. Since then they, as a country, have been rampant buyers and producers, now the biggest in both. What we don't know for sure is how much the government has kept. Koos estimates around 4000t (and there are others estimating well above that), which the Chinese know that if officially confirmed would send shockwaves around the world and end their wonderful run of buying up cheap.
On any account this is not a graph showing any material signs of waning demand.


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Turbo boosting your Precious Metails purchase
An often overlooked element of investing in precious metals by new comers is the AUD / USD dynamic. A recent BusinessDay survey predicted an Aussie dollar of 86c by 30 June 2015. In recent months the AUD has been trading between 93c and 94c. Gold and Silver spot prices are determined in USD so without any change in the spot metal price, those that buy in AUD now would see a 9% increase in the value of their metal in AUD terms. Combining that with any increase in the PM spot prices which have a host of compelling fundamentals in their corner, and it gets pretty exciting.
The BusinessDay forecasting panel comprises 25 of Australia's leading forecasters in the diverse fields of market economics, academia, consultancy and industry associations. It includes several former Treasury forecasters. Over time its average forecasts have proved to be more reliable than those of any of individual member.

We're also proud to announce, 'The Year of the Goat' gold and silver coins - will be available for Pre-Order from 1st September 2014 with Ainslie Bullion.


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Seasonality of Gold Prices
Many don't realise there is a reasonably predictable pattern to the gold price within each calendar year. The graph below shows gold price gains per month over the last 30 years. There are a number of factors that influence this. Over half of all gold produced is used in jewellery and after the northern hemisphere summer vacation the price starts to rise as demand for jewellery ramps up for the harvest and wedding festivals beginning in September in India (until last year the world's largest consumer of gold). This is followed by festive season holidays in the United States and then Chinese New Year, with China now the largest consumer in the world. We are now at about that sweet spot where prices historically start to rise in earnest.


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Gold as Insurance....

The motive for investing in gold and silver varies widely from person to person. For some it is simply because it is real money, for others it is a speculative play for huge capital growth, and for some it is a defensive hard asset amongst all the 'paper' instrument exposure. Many think of it simply as insurance. For many of us our house is our biggest investment. We all insure our house against the potential ravages of fire, flood or wind when the vast majority of us have and probably will never see that eventuate, yet we do it unequivocally.

Why then do so many not insure the balance of their wealth against forces beyond their control the ravages of financial crisis, stockmarket crash, war or high inflation? Throughout the ages gold and silver have outperformed in times of economic or political crisis. Unlike your house insurance premium though, it is not a sunk cost to do so. Indeed gold and silver provide capital appreciation on your investment (insurance premium) over time. Those regular readers of ours and observers of what is really happening in the world can see the global debt and easy money fuelled cyclone approaching. Those that own gold and silver do not fear it as they will likely profit from it.

 

WGC Q2 report
The World Gold Council's second quarter report on Gold Demand Trends revealed jewellery demand, which represents 53% of all demand, has maintained its broad upward trend since 2009; investment demand increased 4% to 235t as a whole from Q2 2013 but physical bar and coin demand is down with outflows from ETF's much lower making up the net increase; technology use fell just 3% to 101t as manufacturers look for alternative and retail sales are subdued globally; central bank net purchases were up strongly at 28% or 118t; and mine supply increased 13% taking the total supply increase to 10% to 1078t.
Topically on the central bank figure the following quote came from Russia late last week which says it all..
"Due to the worsening geopolitical situation, the Central Bank actively redistributed foreign exchange reserves, replacing US Treasury bonds with gold,"

And here is a Panda.

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The other 'safe haven'

Never was there a more conflicting or confusing graph than that below. Whilst gold and silver are widely regarded as a safe haven in times of economic or geopolitical upheaval, so too (traditionally) are treasuries or government bonds.
When people are concerned about protecting their wealth, demand for treasuries goes up and so does their price, and correspondingly down goes their yield. So why is the yield dropping on 30 year US Treasuries at the same time as shares are increasing (supposedly a sign 'all is good')? For a start we've spoken before about the direct correlation between money printing and the share price, and whilst since tapered, it is still happening and apparently still working. Also large publicly listed companies are using the cheap money available to buy up their own shares hence reducing the number of outstanding shares and hence increasing their price in response and making it look like 'all is good'. So there seems to be a growing number of people prepared to buy treasuries at yields barely above or even below the rate of inflation to protect their money at the expense of growing it. Last week German treasuries dropped below 1% yield!
The problem with treasuries is you still have the counterparty risk of that government paying you back and limited prospects of capital gain. In gold and silver you have a safe haven that is at low prices (not high like Treasuries), that presents no counterparty risk, and the prospect of considerably more capital gain.



Philharmonic Gold Coin - Available with Ainslie - http://goo.gl/oMXY2b

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Now your beginning to make it look like an ad for yourself's
This should really be in the sales section