Ainslie Bullion - Daily news, Weekly Radio and Discussions

SAFE HARBOURS AMID CYCLONE TRUMP

Right on cue after our article yesterday on the looming debt ceiling, overnight shares fell and gold and bonds rose as the market became increasingly concerned about Trump getting this passed.

At a rally in Phoenix yesterday Trump threatened closing down the Government to get Congress to pass funding for his beloved wall, declaring “If we have to close down our government, we’re building that wall,” ..and… “One way or the other, we’re going to get that wall.”

Reports via the New York Times that the relationship between Trump and Senate Majority Leader Mitch McConnell is becoming toxic added to fears and even prompted Fitch Ratings to warn the country risks a review of its sovereign rating if it fails to raise the limit next month. The NYT said the latest twist regarding the wall “dramatically raises the spectre of a shutdown in October”.

Whilst the market focus is on the debt ceiling, this is intertwined with the other big hurdles before Trump in passing the budget and the long awaited tax reform that was so pivotal in the Trump share rally. Indeed a recent Morgan Stanley client update called this the “three-headed policy monster”.

These are also independent issues too in that we could well see the debt ceiling raised but still have a Government shutdown in October on the back of a ‘wall’ standoff. Any one of the ‘three heads’ can and might bite and this Trump administration has not had a great track record so far of getting anything through itself let alone Congress.

The other big Trump bogey-man is his trade agreement reforms and the impact this will have on global trade markets, not just the US. This came to the fore as well yesterday with Trump reiterating his intentions to end NAFTA.

It was all a lot for the market to digest and there was another shift to ‘safety’ which saw both gold/silver and bonds up. What we find just a tad ironic is that bonds are up amid talks of the US potentially defaulting on the very same instrument. US Treasuries are the ‘go to’ paper safe haven as they are backed by the mighty US Government. Gold is the other safe haven backed by 5000 years of history, intrinsic value, and not a piece of IOU paper in sight…. Which would you trust?

 

Gold v Bitcoin – it is becoming a common question. But should the ‘v’ be there?

Tomorrow (26/8/17) we will be presenting at the Understanding Money Conference, helping young people understand money in all its various forms. Spoiler alert…. We will be repeating one of favourite quotes from Mark Twain that goes like this:

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just isn’t so.”

Why do we like that? Because it strikes to the heart of what we preach, and that is balance. It’s our Trademark - “Balance your wealth in an unbalanced world”.

You see we all have our investment biases. Property guys think property ALWAYS goes up, shares guys think it is the only way to go, gold bugs think the other 2 will crash any minute and are ‘ALL IN’ gold. We even reinforce that bias by only reading material that agrees with our own narrative. The fact is that neither you nor we have any idea what will happen, or at least when it will happen. For all we know this apparent financial bubble could continue for years…. or end tomorrow.

What you need is a mix of uncorrelated assets. We wrote most recently on this here. For the presentation tomorrow we updated our 15 year look back at the main investment classes. As usual we levelled the playing field for the non yielding gold and silver by adding in rent for property (sorry for the Brisbane focus for interstate readers), dividend reinvestment plans for shares and compounded the interest for cash. No surprises that property wins the race, it’s had a stellar run. (You might want to read our recent article here though for context.)





But what about bitcoin you say? To be honest, the chart wouldn’t fit it.

You see bitcoin essentially started from scratch in 2010. It traded at $0.003 on the first exchange. Putting a c180m% gain on the graph doesn’t work. Just in the last 12 months it’s up over 620%.

Year to date its up over 300% versus gold (in AUD) up just 2%. Based on that, the human temptation is to choose bitcoin over gold. There are endless people that “know for sure” that bitcoin is going to the $10’s of thousands and likewise those that say gold and silver will shoot to the moon soon too. Again, neither group really know. The allure of bitcoin is strong. It looks to exhibit many of the same properties we love about gold – it’s value is intrinsic, it appears not to be correlated to financial markets, it has no counterparty risk, it’s ‘out of the system’, it’s easy to trade, and it ticks all 7 fundamentals of what constitutes money.

Bitcoin is also becoming a more ‘mainstream’ investment asset. One of the world’s largest asset managers, VanEck in the US is a long term provider of gold ETF’s, indeed they launched the first US gold fund in 1968. This gold specialist is now launching a bitcoin ETF. Casey Research today had this to say about why the two can coexist:

“… the global gold market is already worth $7 trillion. With a market that size, it just can’t compete with the profit potential of bitcoin.

Bitcoin has a market cap of just $66 billion. It doesn’t have to displace gold to rise another 10 times from here.

It just needs to become an alternative “chaos hedge,” and we could see bitcoin at $40,000 per coin.”

In other words bitcoin may have the greater speculative potential, but gold and silver are the steady, 5000 year old, known assets. In other words don’t back one horse, balance your exposure. Both appear to have enormous potential in these uncertain times and that is why Ainslie now offer both. Importantly, as opposed to an ETF (which introduces counterparty risk as you are relying on that certificate they give you to actually own all the underlying metal or bitcoin), you get the real thing from Ainslie. Even the bitcoin is completely off line. Read more here about buying bitcoin from Ainslie and here for details on why to be wary of ETFs.

Finally here is what VanEck had to say about bitcoin:

“VanEck believes that the technology underlying digital assets, known as distributed ledger technology [blockchain], has tremendous potential to revolutionize finance and trade. Digital assets are an investable asset class in their own right and continue to be integrated into the broader economy.”

For all links and further news, please visit our website.

 

NEW RECORDS HIT ON DEBT

Sometimes a graph can do all the talking…. You should be sitting up and listening to the following graphs. Firstly let’s get an update on the margin debt on the New York Stock Exchange (NYSE), being the amount of money borrowed on margin to buy shares…



You will note two things. First, the S&P500 coincidentally hit a new all-time high as did the amount of money borrowed to get it there. That was fundamentally the role of QE (Quantitative Easing) and ZIRP (zero interest rate policy)… get you borrowing and making everything look awesome beyond lagging fundamentals. You might also notice an historic trend of a sharp reduction in margin debt preceding each sharemarket crash. The above graph was released by the NYSE as at end of June, it would be interesting to see if that red line has dropped since then.

Certainly valuations are not looking any better as at July… Remember the classic quote from Warren Buffet… “Price is what you pay and value is what you get”.



Finally, leaving Wall Street and looking at Main Street, American households just passed an ominous threshold…. US Household Debt is now higher than it was before the GFC, another new all-time record high. Reminder: US Mortgage debt was the catalyst for the GFC…



What might be a little more concerning is the phenomenal growth in auto loans (you know, low doc loans on depreciating assets…) and student debt amongst that mix.

Debt is making things look better than they are right now, but that burden of debt always has the same ultimate outcome.

 

GOLD ROCKETS THROUGH US$1300

News broke this morning on North Korea launching rockets directly over Japan in what is the most brazen “test’ yet by the rogue nation and described by Japan as a "serious, grave security threat".



The gravity of the incident was not missed by markets. Gold and silver jumped immediately off an already strong night climbing over 2.2% and the rush to the Yen saw our AUD fall making those gains more pronounced in our local currency. Wall Street was saved by the bell but futures trading on the Dow Jones has seen over 120 points lost, S&P500 down 0.7% and Japan’s Nikkei suffered a 225 point fall on opening to the news. The volatility index (VIX) spiked to 14 as well.

Jim Rickards tweeted: “Wasn't sure at first if this was a gold price chart or a missile trajectory. Probably both.”

 

TECHNICAL ANALYSIS – GOLD AT 2017 HIGHS

Something different today. One of our favourite technical analysts is Andrew Hecht of the Hecht Commodity Report. He provides a balanced, unemotional view of commodity markets. Here is his latest gold analysis. It’s longer than we normally post but a fascinating read.

“Gold tends to be a thoughtful commodity. The yellow metal has all of the characteristics of a raw material, but at the same time, it is a financial asset and a means of exchange or a currency. The historical volatility of gold tends to be lower than other commodities, but it is typically higher than the foreign exchange instruments of the world. While central banks and monetary authorities manage the exchange rates between their respective currencies, they hold gold as part of their foreign exchange assets. Gold is in a class by itself, and it has been around longer than all other financial instruments. The price of gold is often a reflection of fear and uncertainty in markets, and it is also a barometer of inflationary pressures on the global economy. Gold is an instrument that also has a long history as flight capital.

The price of gold has not traded below $1,000 per ounce since October 2009, and it reached an all-time nominal high at $1,920.70 per ounce in September 2011. In December 2015, gold found its most recent bottom at $1,046.20 per ounce. It moved to a high of $1,377.50 in July 2016, and after making a higher low at $1,123.90 in December 2016, it began to rebound. On Monday, August 28, gold finally traded to the highest price of 2017 as it took out technical resistance and moved above the $1,300 per ounce level.

Gold takes out technical resistance

Active month December gold futures contracts that trade on the COMEX division of the Chicago Mercantile Exchange had been flirting with the $1,300 per ounce level since the middle of August.



Source: CQG

On Monday, August 28, the patient and thoughtful yellow metal finally took off above $1,300 and rose to a high of around $1,317 per ounce. Gold moved higher as the dollar index fell to a new low for 2017, and bond prices strengthened after the market interpreted comments by Fed Chairperson Janet Yellen in Jackson Hole, Wyoming, as dovish. As the daily chart shows, open interest has been rising alongside price since late July. Open interest is the total number of open long and short positions in COMEX gold futures. On July 31, the metric stood at 436,962, and by August 25, open interest was at 516,831 contracts. Open interest increased by 18.3% over the period. Meanwhile, December gold rallied from lows of $1,211.10 on July 10 to highs of $1,317.10 on August 28, a rise of 8.8%. Rising open interest when the price is moving higher tends to be a technical validation of an emerging bullish trend in the futures market. At the current price, gold is at the highs of this year; it has taken out technical resistance and now has its sights set on the highs from last year.

The next target is the 2016 highs

In 2016, gold hit its highest price since 2014 following the shocking results of the Brexit referendum.



Source: CQG

As the weekly chart illustrates, the next level of technical resistance for December gold futures stands at $1,377.50, the July 2016 highs. Momentum in the gold futures market is currently higher, and gold has been making higher lows and higher highs since last December. If gold can make it above the 2016 highs, we could be looking at a price that is north of $1,400 per ounce.

The signs have been supportive for a higher gold price over recent weeks, and after digesting market action in the commodities and foreign exchange markets as well as on the geopolitical and economic landscape, the yellow metal has decided that it was time to go back into bullish mode.

Other assets and the dollar have been signaling bullish prospects for the yellow metal

We have witnessed a rebound in raw material prices since late May and June of this year. The price of iron ore, the critical ingredient in steel has rallied from $52.31 per ton to over $75 since June 13, an increase of over 43% in two and one-half months. The Baltic Dry Index, which is a barometer of the cost of shipping dry bulk cargos around the world, has moved from 820 on July 10 to over 1,200, an increase of over 46% in less than two months. Copper, the red metal that often diagnoses the state of the global economy has rallied to the highest price since 2014 and is trading above $3.05 per pound, making its latest new high on August 28 at $3.0870. The prices of other metals and minerals have also posted significant gains over recent months.

While gold is a commodity, it is also a financial asset. The rise of a new breed of assets, digital currencies, has been nothing short of spectacular in 2017.



Source: Bitcoin Price Index - Real-time Bitcoin Price Charts

Bitcoin has appreciated from $968.23 on December 31, 2016, to over $4,402 on August 28. The leading digital currency has more than quadrupled in value this year.



Ethereum Price - CoinDesk

The price of Ethereum has increased by over 43-fold since the end of last year moving from $8 to over $345 as of August 28. These digital currencies have certain characteristics in common with gold. They are means of exchange, and their price paths are outside of the control of the world’s central banks, monetary authorities, and governments. At the same time, equities have moved to new all-time highs over recent weeks. It was about time for gold to make a move after thoughtfully evaluating the state of global markets. Additionally, the geopolitical landscape continues to reflect the potential for fear and uncertainty in the weeks and months ahead. The U.S. relationship with Russia has deteriorated to a post-cold war low, North Korea has become a nuclear power, and the rogue nation has made no secret about threatening the United States. China has tried to play the role as mediator as the tension on the Korean peninsula increases, and trade issues between the U.S. and China continue to present problems for the relationship.

With the dollar moving lower, bonds higher, the geopolitical landscape rife with potential for conflict and other commodities prices moving higher, gold has attracted buying. The yellow metal has broken to the upside in a move that could just be the beginning of a powerful leg that will take the price much higher over the coming weeks and months. The technical picture for the yellow metal is now looking better than it has in a very long time.

The monthly chart is bullish

Longer-term charts for gold have turned bullish as the price has finally climbed above the $1,300 per ounce level.



Source: CQG

As the monthly chart shows, the slow stochastic which is a momentum indicator crossed to the upside in April, and after a period of consolidation, the metric now points to a rising trend for the price of the yellow metal. If gold can power through the next level of technical resistance at $1,377.50, the next target will become the August 2013 highs at $1,428 per ounce. Above there, it could be off to the races on the upside.

A quarterly key reversal could prove as a launching pad

The weaker dollar, stronger bond market, rallying raw material prices, and economic and geopolitical landscapes have combined to create a perfect storm for the price of gold. On the quarterly chart, a close above last quarter’s highs could ignite the price of the precious metal from a technical perspective.



Source: CQG

As the quarterly chart shows if the price of gold closed at the end of September above $1,295.20 the yellow metal will put in a bullish key reversal trading pattern. Gold traded below the Q2 lows at $1,214.30 during Q3 as it fell to $1,204 on the continuous contract. The Q2 high was at $1,295.20, and a close on the final day of September above that level would provide a significant technical signal for the gold futures market. The last time we witnessed a bullish key reversal trading pattern on the quarterly gold chart was back in the third quarter of 1999 when gold was below $300 per ounce. While it took a few years for the precious metal to explode to the upside, the lows of $252.50 per ounce in Q3 1999 still stand as the bottom dating back to 1979.

Gold broke out to the upside on Monday, August 28, and all of the evidence adds up to a continuation of bullish conditions as gold seems prepared to make its next leg higher over the weeks and months ahead. At the same time, gold is the most liquid metal in the precious metals sector, and a continuation of the rally could prove explosive for the prices of silver, platinum, and palladium.”

 

HOW GOLD CAN PREVENT THE SHUTDOWN

The Chief Economist at Standard & Poors, Beth Ann Bovino, just stated that “failure to raise the debt limit would likely be more catastrophic to
the economy than the 2008 failure of Lehman Brothers and would erase
many of the gains of the subsequent recovery.” Whilst most believe this could not rationally eventuate, she tellingly also said "betting on a rational US government can be risky." To be clear, these are the words of the world’s largest rating agency.

Such is the gravity of the situation the recent actions of Secretary of the Treasury Steve Mnuchin and Senate Majority Leader Mitch McConnell have got some in the market talking. Only last week they went and visited the infamous Fort Knox to verify the gold holdings of the US Government. That visit is only the third visit by a Treasury Secretary in history and the first government official inspection in nearly 45 years! The US reportedly holds 4,582 tonne of gold in Fort Knox, the biggest holding in the world, valued at around US$193billion. In the context of a Government about to default, that gold sits on the Treasury’s balance sheet valued at just $42/oz, not the $1308/oz at the time of writing this.

Why could this extraordinary visit be telling? Put simply, under the US Gold Reserve Act of 1934, the Treasury could revalue the gold at today’s price and monetise this uplifted value through the issuance of ‘gold certificates’ to the Fed and have them issue newly ‘printed’ money accordingly. No new National Debt and no need for a new debt ceiling (for a little longer). Problem solved….for now….

BUT… this would go against decades of strategy of deliberately undervaluing gold so as not to highlight the lack of ‘value’ in the constantly eroding fiat currency adopted since they left the gold standard. The last time this accounting trick was deployed was by President Eisenhower in 1953.

An extraordinary action indeed but let’s revisit S&P’s quote "betting on a rational US government can be risky."

Trump is infamously anti-establishment, commercial and politically reckless. In that context such a move doesn’t seem out of the ordinary. Such a move would clearly be momentous for gold. Watch this space, 29 days to go….

 

DEBT, INEQUALITY & SOCIAL REVOLT

Gold continued its upward trajectory Friday night thanks to an awful jobs report out of the US (and at the time of writing is taking off again on North Korean tensions growing, up $15 on the open this morning).

The monthly non-farm payrolls report for August was a shocker, hitting just 156,000 new jobs against expectations of 180,000 and also another quiet revision of June and July down by another 41,000. The unemployment rate rose to 4.4% and, importantly, average weekly earnings declined, taking the year-on-year rate to the lowest since the beginning of the year at just 2.2% (though still higher than Australia’s….). The number of Americans not in the labour force increased by another 128,000 to 94.785 million people.

Shares actually went up on the news because bad news is good news when it comes to the main thing driving today’s sharemarket… debt. So bad was the report, and combined with hurricane Harvey, few now expect the Fed to raise rates this year. The free money game continues… It is this point and that declining wage growth that may be at the heart of what sees this epic credit cycle come to an end. You can’t enrich the few and leave the rest behind and expect social harmony. We have written often of the social impacts of QE and zero interest rates. But this is not solely a post GFC problem, it is a credit expansion problem that started way earlier. Indeed the GFC was just a reality check of what happens with too much debt. The next will be far far worse.

The charts below clearly show how this has played out over the last 40 years. It’s probably ‘coincidence’ but remember when looking at the first chart that we left the discipline of the gold standard in 1973… Since then governments could create fiat money out of thin air through debt…



You can see it starts to really diverge from around 1980 and the graph below compares 1980 wealth growth (as a percentage) across the percentile range of income. It is reasonably weighted with lower incomes gaining more as a percentage than the top earners (remembering a higher percentage of a smaller number is still a small number). You then look at 2014 where the vast majority of growth is in that very top 1%. These are the people who hold the majority of the financial assets and jobs that have been inflated by the expansion of debt. The GFC saw ‘mums and dads’ try to enjoy this through getting subprime loans, growing house values, and redrawing off the same subprime loans. It didn’t end too well for them but Wall Street seemed to come out just fine thanks very much….



The graph below puts it in even clearer terms where you see the top 0.01%’s income up 76.2% in the decade to 2012, whilst the bottom 90% dropped 10.7%. Critically too, this chart excludes capital gains, where again it is the top percentile that own most of the assets that have been wildly inflated by all the monetary expansion.



Please don’t underestimate the importance of this phenomenon. Credit cycles end badly not just because the debt ends up too burdensome for the weak underlying economy, but the social divide and ensuing revolt make it unsustainable too. Brexit, Trump, etc are but tiny examples of what happens when the 90% voice their dismay. Suppressing rates for longer and throwing more debt to fix it, as will be the result of Friday night’s jobs report, will only make it worse… ironically for the very reason the report was so bad. The gold price can see what’s coming….

 

GOLD AND BITCOIN

Before we get into today’s article we’ve had a number of disgruntled customers voicing their concern over a misleading headline late yesterday (after the AFR article) saying “SHOCK! Aussie bullion dealer dumps gold for Bitcoin”. Whilst the text under the heading didn’t suggest we were ‘dumping gold’, loyal customers still took umbrage with the heading. Thanks for your many emails. We are on record as being fans of the publishing house from where this came. It was just a bit of sensationalist, loose wording, nothing more. We also don’t believe there was any malice in it.

So if you are a newcomer to Ainslie off that heading, please let us clarify our position. We are in no way moving our core business away from gold and silver. We are however adding another monetary asset in the form of bitcoin to our customer offer. We are even expanding that offer to Ether and Litecoin. Why? Because that is what our customers want and no one else was offering the ease and security to purchase in person that we do. We also are the first to acknowledge, as stated in the above article, that some crypto currencies exhibit the same fundamental monetary properties as gold and silver. We are simply offering another monetary asset, not moving from another. We actually think they are quite complimentary.

The analogy provided to the AFR but not printed was that gold and silver are most certainly the pre-eminent monetary asset with over 5,000 years of proven history. The periodic table we all learned at school tells us you simply can’t create gold 2.0 or silver 2.0 or platinum 2.0 out of the blue either. Bitcoin has been around now for just over 7 years. HOWEVER, we acknowledge that 5,000 years ago when money was shells etc, people may have queried these new shiny kids on the block, gold and silver. Maybe the same will be the case for bitcoin and the like?

As we said in our article yesterday, some very smart people are saying the advent and use of the blockchain today is what the internet was to society 25 years ago. That is big. That is a generational game changer.

Now let’s move on and look at some market analysis. The chart below (courtesy of SomaBull) shows a critical breakout in the gold price has recently occurred:



Perhaps more importantly the second chart shows the monthly MACD in the positive again after those awful (for sellers) / wonderful (for buyers) years post the 2011 / 2013 price corrections. That essentially means momentum is to the upside and we are absolutely nowhere near any perceived ‘over bought’ situation. For newcomers to technical analysis Investopedia defines MACD as:

“Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices.”

Coincidentally, going back to our earlier gold v crypto discussion, that same analyst had this to say:

“As worldwide government debt explodes, the search for other new or alternative forms of currencies is taking place. I'm not here to debate the merits of these cryptocurrencies, but to rather point out that I believe they signal the eventual rise of gold back to the top of the global currency game.

While some postulate that cryptos are used mainly for nefarious activities, and that is the only reason for their existence, I believe their recent rise in popularity is because of the sorry state of government balance sheets.

The level of distrust in government "paper" is starting to increase, as consumers (and investors) are slowly coming to the realization that these national debts CANNOT be repaid under normal conditions. As a result, new "forms of currency" are sniffing out this weakness and attempting to take the place of the old guard. While this is still occurring on an extraordinarily small scale level (considering the amount of government issued paper there is in existence), these currencies are clearly taking root and beginning to threaten the established order. Needless to say, while these new forms of "money" might have been ignored before - written off as a fad that will eventually die - they are now starting to raise some eyebrows given their continued surge in popularity.”

In other words both gold/silver and crypto are currently on the rise on people all around the world seeking uncorrelated, monetary assets to protect their wealth. Sound familiar? It’s the heart of our trademark:

“Balance your wealth in an unbalanced world”

 

END OF THE UNLOVED BULL MARKET

Goldman Sachs are one of the biggest and most respected investment houses in the world. They have just undertaken a review of the current US sharemarket bull run and concluded their clients should be worried.

This bull run has just become the 3rd longest in history per the graph below:



Goldmans apply economic ‘science’ to their analysis by examining no less than 40 different variables in what triggers a bear market. Of the 40 examined they then condensed this to 5 dominant factors – Valuation (using the pre-eminent Shiller PE metric), ISM (to measure growth momentum), bond yield curves (gauging safe haven investment) , and finally unemployment. And the result… a 2/3 chance of a bear market being imminent.



One of the most telling charts for us however is the following one. We often talk about how this market is more to do with monetary stimulus than fundamentals – the “central bank bubble”. That a good look at all the asset bubbles below and then look at the various gauges of the real economy….



That one graph explains so much of what is wrong in the world today. Not only does it highlight the monetary stimulus effect, it highlights how ‘Main St’ has been left behind by ‘Wall St’, and the social discord that has created. It also explains why this bull market is often considered the ‘most unloved’. It just doesn’t feel ‘right’. Over to Goldmans:

“Since the 2007 financial crisis, fears of recession and secondary bear markets and corrections have never been far away; for much of the past few years investors have struggled to shake off the shadow of the global financial crisis and the great recession. This has meant that the current bull market is likely the least ‘loved’ and in many ways the most unusual in history. The current upswing in equity prices is already among the longest and strongest in history, and many investors are clearly wondering how much longer it can last. This reflects both the very unusual nature of the economic and stock market recovery of recent years (plagued by weak economic and profit growth and persistent fears relating to the financial system), as well as the unprecedented role played by policy adjustments (and QE) adopted to soften its impact.”

To summarise all of this in one historic chart:



Now going back to that very first chart and you could well see this bull market continue on into 2019 if it were to outlast the 1990-2000 bull run. On some level you might even expect that given the unprecedented amount of stimulus applied to it since the GFC. There are 3 things to consider however. Firstly there is growing talk of the stimulus being unwound. Indeed this Wednesday the US Fed is widely expected to start it’s deleveraging of its massive QE amassed balance sheet. Secondly, logic would indicate the bigger the rise (especially when ‘artificial’ in nature) the bigger the potential fall. The GFC was because of too much debt and we’ve added over 50% more in the 8 years since. That 1990-2000 record we are chasing saw 80% declines on the NASDAQ at its end. Third and finally, Goldman Sachs just assigned a 2 in 3 chance of it happening soon. Feeling lucky?

 

ETHER & LITECOIN JOIN THE AINSLIE BITCOIN OFFER

Today we officially launch Ether and Litecoin to the crypto offering beside Bitcoin. We’ve been selling these in the office for some time now but they are all now available for purchasing on line.

Both coins are different to Bitcoin albeit Litecoin aims to be a better version whereas Ether (using the Ethereum network) is a completely different proposition. As usual the guys at VisualCapitalist are the masters of condensing a lot into little and visually too. Here is how they describe each:

BITCOIN
Bitcoin is the original cryptocurrency, and was released as open-source software in 2009. Using a new distributed ledger known as the blockchain, the Bitcoin protocol allows for users to make peer-to-peer transactions using digital currency while avoiding the “double spending” problem.

No central authority or server verifies transactions, and instead the legitimacy of a payment is determined by the decentralized network itself.

Bottom Line: Bitcoin is the original cryptocurrency with the most liquidity and significant network effects. It also has brand name recognition around the world, with an eight-year track record.

LITECOIN
Litecoin was launched in 2011 as an early alternative to Bitcoin. Around this time, increasingly specialized and expensive hardware was needed to mine bitcoins, making it hard for regular people to get in on the action. Litecoin’s algorithm was an attempt to even the playing field so that anyone with a regular computer could take part in the network.

Bottom Line: Other altcoins have taken away some of Litecoin’s market share, but it still has an early mover advantage and some strong network effects.

ETHEREUM
Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications.

In the Ethereum blockchain, instead of mining for bitcoin, miners work to earn ether, a type of crypto token that fuels the network. Beyond a tradeable cryptocurrency, ether is also used by application developers to pay for transaction fees and services on the Ethereum network.

Bottom Line: Ethereum serves a different purpose than other cryptocurrencies, but it has quickly grown to displace all but Bitcoin in value. Some experts are so bullish on Ethereum that they even see it becoming the world’s top cryptocurrency in just a short span of time – but only time will tell.”

The following graphic walks you through each (and some others as well). Click on the graphic to go to the high resolution version at their website.

As with Bitcoin you can buy Ether (ETH) or Litecoin (LTC) in 3 ways on our website, by phone or in store –

New Wallet - you come in to our store and we produce and load a completely off line Ainslie Crypto Wallet in front of you;

Existing Wallet - you already have a wallet and upon payment you tell us the address to send your crypto to;

Ainslie Storage Account – we look after this all for you with individual offline wallets held at Reserve Vault. (additional fee applies).

Go to Buying Bitcoin for more info or to our Web shop to purchase.

Now, check out this fascinating info graphic….

 

This guy is calling your bluff. Lol. He seems to think that his silver is much better than your cryptos. I guess time will tell.

 

AUSTRALIA TO LOSE ITS SILVER GOLD MEDAL

For some time now Australia has been the world’s second biggest gold producer behind China. The table below shows the top 5 producers in the world and Russia has been closing the gap on Australia’s second place for the last few years. In 2016 they were just 20 tonne behind.



According to Russian giant Polyus’s CEO Pavel Grachev this week

"The largest facility in Russia and one of the largest worldwide has been launched in the Magadan Region. The volume of ore processing will exceed 10m tonnes per year, while the volume of gold production will equal 13 tonnes per year. This brings the country’s gold production up by 5%, which makes Russia the second-biggest gold producer in the world after China,"

Now our math still has 13 tonne as less than the 20 tonne gap we saw last year but maybe they know of another 8 tonne somewhere not mentioned. Also the mine won’t be in full production until 2018 so our 2017 mantel looks safe. Irrespective the trend of closing in on our ‘silver’ medal in gold world production continues.

As usual there are some interesting takeaways from this announcement. Again when you look at the yields of just 1.3g per tonne of rock mined you are reminded of gold’s intrinsic value. It’s certainly far harder than the $13.5 trillion dollars the world’s central banks have printed since the GFC…

The Russian central bank buys practically ALL the gold mined. China, too, does not export any of its gold. Australia on the other hand, sees most of its gold production leave the country. Perth Mint processes practically all our gold ore mined and most of that is exported.

Russia has around 1715 tonne in gold reserves, China reports 1845 tonne (but no one believes it is that small), whilst Australia has just 79.85 tonne, and all of that held in London. 2 of the 3 above see what’s coming and are getting ready.

 

“NEXT FINANCIAL CRISIS” – MUST READ

A bit of a break from our usual self penned short and sweet article, but only because we think this is so insightful and credentialed that it deserves to come to you unedited. It’s a clear warning to have uncorrelated monetary assets like gold and silver in your portfolio. It’s from a report the “Next Financial Crisis” by Deutsche Bank’s credit strategist Jim Reid.

“We think that the post Bretton Woods (1971-) global financial system remains vulnerable to financial crises. A simple internet search of financial crises through history (Figure 1, LHS chart) confirms that the frequency has increased over this period. Examples include the UK secondary banking crisis (1975), the two Oil shocks (1970s), numerous EM defaults (mid-1980s), US Savings and Loans mass failures (late 80s/early 90s), various Nordic financial crises (late 80s), Japanese stock bubble bursting (1990-), various ERM shocks/devaluations (1992), the Mexican Tequila crisis (1994), the Asian crisis (1997), the Russian & LTCM crisis (1998), the Dot.com crash (2000), the various accounting scandals (02/03), the GFC (08/09) and the Euro Sovereign crisis (10-12).



A more quantitative search backs this up (Figure 1, RH chart). We show the number of DM countries (%) in our sample back to 1800 experiencing one of the following on a YoY basis; -15% Equities, -10% FX, -10% Bond move, a sovereign default, or +10% inflation. This is our crisis/shock indicator. 0% equals no country with one of these conditions met, 100% equals all in our sample with one being met.

It would therefore take a huge leap of faith to say that crises won’t continue to be a regular feature of the current financial system that has been in place since the early 1970s. The near exponential growth of finance and its liberalisation since this point has encouraged this trend.

Indeed as we’ll show in this report there are a number of areas of the global financial system that look at extreme levels. This includes valuations in many asset classes, the incredibly unique size of central bank balance sheets, debt levels, multi-century all-time lows in interest rates and even the level of potentially game changing populist political support around the globe. If there is a crisis relatively soon (within the next 2-3 years), it would be hard to look at these variables and say that there was no way of spotting them.

Having said that, crises tend to have a large element of unpredictability. If they didn’t then surely more would predict their imminent arrival. So while we highlight a lot of the main global vulnerabilities in this report, history would tell us that there is still a chance that when the next crisis comes its origin will take us by surprise to a certain degree. As will its timing. In the remainder of this executive summary we highlight the conditions that have encouraged crises through history and the main areas of worry as to why we may be vulnerable for another financial crisis relatively soon.

Periods with a higher number of crises/shocks coincide with higher levels of debt….



…and with it higher budget deficits. G7 Government Debt was only previously higher with impact of WWII and before the early 1970s, persistent budget deficits only really existed in war time. Now a permanent feature.



We think the final break with precious metal currency systems from the early 1970s (after centuries of adhering to such regimes) and to a fiat currency world has encouraged budget deficits, rising debts, huge credit creation, ultra loose monetary policy, global build-up of imbalances, financial deregulation and more unstable markets.

The various breaks with gold based currencies over the last century or so has correlated well with our financial shocks/crises indicator. It shows that you are more likely to see crises/shocks when we break from hard currency systems. Some of the devaluation to Gold has been mindboggling over the last 100 years.



Perversely, the current post Bretton Woods system also allows for huge operations/stimulus to overcome any crisis/shock. We also shouldn’t underestimate the positive impact that this can have on nominal asset prices. Cash is arguably a far more dangerous asset in a fiat currency but unstable regime than it is in a more stable less crisis prone one. However, by continually using stimulus to deal with crises and not letting creative destruction take over, you make a subsequent crisis more likely by passing the problem along to some other part of the global financial system, and usually in bigger size. In a fiat currency world, intervention and money creation is the path of least resistance. In a Gold standard world, mining new gold was the only stable way of increasing the money supply.

We think this leaves the current global economy particularly prone to a cycle of booms, busts, heavy intervention, recovery and the cycle starting again. There is no natural point where a purge of the excesses is forced by a restriction on credit creation.

So we’re quite confident that there will likely be another financial crisis/shock pretty soon with their frequency continuing to be high until we create a more stable global financial framework.



So where will the next crisis come from?

An obvious issue is how we resolve the combination of the unwinding of unparalleled central bank balance sheet sizes at a time of record peacetime government debt and multi-century record low yields (Figure 5).



We also still have extreme levels of global imbalances (Figure 6) which pose a risk as international capital flows are necessary to support the status quo. These are harder to control by authorities or predict.



All this is occurring at a time of extremely high global asset prices and still low economic growth relative to the past. Could we be vulnerable to a major asset price correction that creates the conditions for a crisis?



Global central banks have facilitated these elevated asset prices. A long series of global financial problems have now been passed through all parts of the financial system with most of these problems stacked up and now resting with central banks and Governments. The buildup of debt that this has created has forced central banks to keep yields at ultra-low levels, thus raising the prices of a variety of other global assets.

Italy and Japan have seemingly unsustainable debt burdens and are likely vulnerable to a crisis outcome. However both have had this for some time which mitigates short-term risks. Italy is perhaps more vulnerable because of precarious and fragile politics, elevated levels of populism and a central bank that is regional and not domestically controlled. Japan shows how long a crisis can be avoided but that doesn’t automatically mean we should be complacent, especially as the BoJ now owns over 40% of the JGB market (from under 10% in 2012).



On populism, our index (Figure 9) tracking its rise across key DM countries shows that we are close to the 1930s highs. Is this a precursor to a big crisis? Does it make for more unpredictable politics, economics and markets?



We see China’s credit growth post GFC as also an area of great concern. As an example, in a recent IMF report they analysed 43 global cases of credit booms in which the credit to GDP ratio increased by more than 30 percentage points over a 5-year period. Only 5 cases ended without a major growth slowdown or financial crisis immediately afterwards.

The IMF also caveated that these 5 cases, considering country specific factors, provided little comfort. If that wasn’t enough, the fund also points out that all credit booms that began when the ratios were above 100% ended badly.



These are perhaps the main observable risks out there but we go through a list of other potential catalysts in the piece. As we discuss at the top, by their very nature, financial crises or shocks are generally unpredictable.

While we can’t be confident of where and when the next crisis will occur we can be pretty confident that the conditions remain in place for a world of frequent crises.”

 

SILVER PRODUCTION TAKES BIG HIT

Yesterday we highlighted the incredible amount of ‘money’ that has been created out of thin air by central banks. We use the term ‘money’ in that sentence loosely as that very same practice of the central banks undermines the ‘intrinsic value’ fundamental of what constitutes real money.

In contrast, silver has intrinsic value by virtue of its rarity and how difficult and expensive it is to mine. We recently were reminded of this when 4 of the world’s biggest primary silver producers saw huge production reductions in the second quarter of this year per the charts below:





The reasons are mixed and varied but they largely come down to falling yields, the ramifications of budget cut backs when the silver price was barely above production cost just a couple of years ago, and the labour and environmental challenges many of these mine experience in their remote and undeveloped locations.

Of course this is not really reflected in the price at the moment as our new ‘paper’ world doesn’t care for such fundamentals as supply and demand… until the day when everyone wants the real thing and there simply isn’t enough. There are only 3 variables in the supply/demand/price economics 101 equation. Unlike central bank money you can’t simply add silver supply out of thin air. Silver supply is slow and constrained. When demand overcomes the paper trades or faith is lost in those paper contracts, that only leaves one variable… price.

 

LEAVING THE 99% BEHIND

The recent German elections that saw a surge in support of the far right leaving Merkel with a slim victory and need to form a coalition, was yet another reminder of the rise in populism. This rise in populism is largely due to the “90%” feeling disenchanted, not only due to the immigration issues in Germany but the less spoken of effects of globalisation – the enrichment of the elite at the cost of the 99%. This same sentiment fuelled Brexit and Trump and now has the anti EU anti establishment party in the lead before the upcoming Italian elections. History is littered with examples of social uprising following years of suppression.

Last night the US Fed released its Survey of Consumer Finances report which again added to the evidence of this social economic dislocation. It was a US Fed document so they tried to play up the wealth creation they had created without dwelling too much on where it went. But the evidence was there and it was damning. By their own words: “The distribution of income and wealth has grown increasingly unequal in recent years”

Try this for “unequal” wealth distribution - the top 1% of Americans hold 38.6% of the nation’s wealth, while that held by the bottom 90% is 22.8%, meaning just 1% of the nation are 70% richer than the bottom 90%. The graph tells the story:



This of course has been amplified since the GFC with central banks easy money policies seeing financial and property asset bubbles ensue, most of which are held by that top 10%. The following graph shows the change across all income percentiles:



So whilst Trump’s election has many scratching their heads, these graphs are a salient reminder why. This phenomenon is certainly not contained to the US, it is a global issue.

Let us leave you with the following graph and the insightful commentary from Charles Hugh Smith:



“Well-meaning conventional economists have identified a number of structural causes of rising wealth/income inequality, dynamics that I've often discussed here over the past decade:

1. Global wage arbitrage resulting from the commodification of labor, a.k.a. globalization

2. A winner-takes-most power law distribution of the gains reaped from new technologies and markets

3. A widening mismatch between the skills of the workforce and the needs of a rapidly changing economy

4. The concentration of capital gains in assets such as high-end real estate, stocks and bonds that are owned almost exclusively by the top 10% of households

5. The long-term stagnation productivity

6. The secular decline in the percentage of the economy that flows to wages and salaries

While each of these is real, the elephant in the room few are willing to mention much less discuss is financialization, the siphoning off of most of the economy's gains by those few with the power to borrow and leverage vast sums of capital to buy income streams--a dynamic that greatly enriches the rentier class which has unique access to central bank and private-sector bank credit and leverage.”

 

WHY BITCOIN BLAST PAST $4400 AGAIN

The Bitcoin market has shot back up through US$4400 again just 2 weeks after the double hit of Jamie Dimon’s “fraud” call, and then the news of China closing down exchanges. News over the weekend showed both the power of a peer to peer network and also the growing acceptance at the highest level (Mr Dimon possiblyexcluded).



Firstly, whilst China has shut down some of the biggest exchanges, Chinese traders have highlighted the beauty of a distributed ledger and a monetary asset with no intermediary. Whilst exchanges may be shut, the Chinese traders have simply turned to peer-to-peer marketplaces such as LocalBitcoins.com and messenger applications to trade directly with each other, negating the need for an exchange.

We then heard from Christine Lagarde, the head of the IMF, who said the likes of bitcoin “... can replace national monies, conventional financial intermediation, and even puts a question mark on the fractional banking model we know today.” She acknowledged the current shortcomings of many crypto’s are all fixable over time and provided this salient reminder to the ‘old guard’ who dismiss it:

"Not so long ago, some experts argued that personal computers would never be adopted, and that tablets would only be used as expensive coffee trays. So I think it may not be wise to dismiss virtual currencies."

We then had reports out of the Wall Street Journal that Goldman Sachs are taking a different view to Mr Dimon and looking to deal directly in crypto currencies, joining the now more than 70 hedge funds active in investing in crypto currencies.

Just back to Jamie Dimon speaking on behalf of his J P Morgan… There was evidence presented shortly after his statements showing that very same J P Morgan buying crypto in large volumes. Whilst they would most likely, and maybe correctly, argue they were buying for their clients at their request, one can’t help but wonder if the very same J P Morgan who is massively short silver futures but massively long physical silver holdings is playing its usual, alleged, tricks….

Irrespective it would seem bitcoin and other crypto’s are proving yet again they are resilient, real, disruptive and not going away lightly. And this demand driven price action all on just 0.3% of the world owning it….

 

CHINA’S GOLDEN PLAN?

On Friday we revealed China’s plan to offer gold backed yuan denominated oil contracts. It’s a must read if you missed it.

There are various hypotheses around for what China’s agenda is for all their gold accumulation. (They are not alone by the way, Russia has bought around 200 tonne the last 2 years and is on track to do so again this year). Jim Rickards is on the gold backed SDR theory where the size of your gold pile is your pecking order at the table and equates that to seeing a gold price of $10,000 / oz. Bill Holter just this last week has changed his view from thinking China would never want the yuan to be the new reserve currency due to their trade balance and the headaches that come with being the reserve currency. He now has a new thesis and it makes a lot of sense. The following is in the context of our story Friday. Rather than paraphrase, here it is verbatim and you can make your own mind up….

“By making yuan convertible into gold, China in essences is creating a demand they know cannot be met by supply ... (again) AT CURRENT PRICES! Why would they do this? It is actually so simple I feel dumb for not seeing this previously. China actually kills an entire flock of birds at one time!

First, they are THE largest owner of gold on the planet so they are in fact marking the value of their treasury up by multiples. The higher future price of gold will also make it very difficult if not impossible for other nations to catch up in gold accumulation. By freeing the gold price, China is assuring their place as a world financial leader for many years if not many centuries as that is their mindset. They know quite well, gold is lasting wealth and also the phrase "he who has the gold makes the rules"!

Second, they will in essence be devaluing the yuan versus gold. This will have many benefits and too broad of a subject to breach here but think back to 1934 when the U.S. devalued the dollar versus gold, it creates "inflation" and makes debt easier to pay and service as well as giving a bump to the real economy.

Next and of great importance, moving the world "naturally" to a gold standard means moving away from the dollar standard and all the unfairness that goes with it. A world moving toward gold (China) is a world moving away from the dollar. Surely the dollar will devalue versus the yuan via lower demand from the oil trade and also the lessening of "power" afforded as issuer of the reserve currency. The U.S has enforced the dollar standard by military use for years. Is this action by China "neutral" enough and free market enough to avoid military conflict? We can only hope and pray the U.S. does not kick the table over in reaction.

Lastly and possibly most important, this scheme avoids the main pitfall Bretton Woods fell into, bleeding out treasury gold. If China refuses to convert yuan into treasury gold but instead buys the bullion on open markets they will never have their "De Gaulle moment". I know what you are thinking, there just isn't enough gold? And again I will remark "at the current price". You see, under this scenario China does not care how high the price of gold moves because they are along for the ride. The only thing they care about is not leaking ANY of the gold they have so carefully and methodically have accumulated over these years! Make no mistake, China will not convert yuan into THEIR gold, they will purchase gold on the open market to make the conversion.

Wrapping this up, China can effectively use Mother Nature and free markets to create a gold standard where they are the wealthiest ones at the table. You can be sure China did not dream this up recently, Chairman Mao purportedly said back in 1971 "this is the beginning of the end for the dollar". He was of course correct and as usual had a view far further into the future than any Westerners at the time. This course of action is logical and can certainly be considered "financial war". The only question in my mind is whether or not it leads to an actual hot war?”

 

If there is some major change in golds position and it does return to back currencies, leading to a huge increase in value, is it a given that silver would move in lockstep?

 

RBA V US FED - LOOSEN OR TIGHTEN?

Gold and silver saw a nice rally Friday night as the monthly US NFP employment numbers showed the first negative print in 7 years, losing 33,000 jobs.



This was offset by a strong BLS Household Survey print of 906,000, and the market reacted in an understandably confused manner. Whilst gold rallied the shares didn’t really know what to do as analysts focused on the positive news and upped their odds of a December rate hike by the Fed. As we’ve discussed before this potentially works for gold both ways as a December rate hike could be ‘that hike’ into weakness that causes the crash.

At home it was a little clearer as the awful retail sales print last week (the second, seeing both July and August weak) prompted RBA member Prof Ian Harper hinted at a possible rate DROP here if the trend continues. From The Australian:

“ “The thing that is causing an issue for us (the RBA board) is slow growth in wages, which is feeding into slow growth in household income,” Professor Harper said in an interview with The Wall Street Journal. “If you start to lose that momentum, that might be the basis of some sort of policy action,” he said.

The Australian dollar dropped after Professor Harper’s comments hit the wires, from US77.97c to US77.75c.

Retail sales fell 0.6 per cent in August, the biggest drop since 2013. It followed a 0.2 per cent fall in July, shifting momentum in the opposite direction to economists’ expectations, and fanning fears that record household debt and stagnant wages growth will sideline consumers and slow the economy.

Professor Harper said the latest retail sales outcome was disappointing, but not alarming.

“It is yet another indication that we are not out of the woods,” he added.

Incomes in Australia are growing at their slowest pace in a quarter of century, and the International Monetary Fund recently highlighted Australia’s high levels of household debt in a global report on financial stability.

Household debt is reaching its upper limits, while there are also limitations on how much people can rein in saving to sustain their spending, he added.”

Gold owners should take note as a reduction in interest rates would ordinarily see a drop in the Aussie dollar and hence a rise in the Aussie gold spot price. It also reaffirms what most are ‘feeling’ and that is things aren’t as ‘awesome’ as markets would want you to believe and that an allocation to an uncorrelated or safe haven asset is prudent…

It highlights too the dislocation between the two central banks of the US Fed looking to tighten and the RBA looking at easing.

 

BLOCKCHAIN THREATENS USD

You will note more and more stories of late adding weight to the pressure on the USD as the world’s reserve currency. Many of these revolve around China (most recently here and here) or the IMF’s plans for the SDR (Special Drawing Rights), the latest of which saw their chief (Christine Lagarde) over the weekend publicly contemplate a blockchain based, bitcoin style, crypto SDR in the future to help achieve just that.

Russia too is one to watch. The recent visit of Saudi’s King Salman to Moscow certainly drew a lot of attention. Saudi has long been a staunch ally of the US and integral to the petro dollar agreement which is a huge support to the USD’s reserve status. The Saudi’s are non too happy about the US acceptance of Iran and Russia looks to be capitalising on this.

Jim Rickards recently wrote:

“The World Gold Council has reported that the Central Bank of Russia has more than doubled the pace of its gold purchases, bringing its reserves to the highest level since Putin took power 17 years ago.

Russia’s desire to break away from the hegemony of the U.S. dollar and the dollar payment system is well-known. Over 60% of global reserves and 80% of global payments are in dollars. The U.S. is the only country with veto power at the International Monetary Fund, the global lender of last resort.

Perhaps Russia’s most aggressive weapon in its war on dollars is gold. The first line of defence is to acquire physical gold, which cannot be frozen out of the international payments system or hacked.”

In addition to being party to the new Chinese gold backed yuan oil contracts, he reports that the Russians have created an alternative to the US dominated SWIFT international payments platform.

“Russia’s development bank, VEB, and several Russian state ministries are reportedly teaming up to develop blockchain technology. They want to create a fully encrypted, distributed, inexpensive payments system that does not rely on Western banks, SWIFT or the U.S. to move money around.”

The blockchain keeps rearing its head as a ‘new currency’ vehicle that mounts pressure on the USD hegemony. Any weakening of the USD is normally great for gold….