Let’s start with this fact; fiat (paper) currencies die – often spectacularly. That is why precious metals may someday be needed for barter and trade. Anyone who thinks it is silly to worry about such a thing is putting blind faith in Federal Reserve Notes.

The U.S. dollar is having a great run, no question. It will soon be 50 years since Nixon closed the gold window, thereby converting the dollar to a purely fiat currency. Five decades is longer than most purely fiat currencies survive.

Humans carry a normalcy bias. That helps explain why so many assume the unbacked Federal Reserve Note, which has served so long as our currency, will continue to serve in the future.

If you test that assumption, it quickly gets hard to defend.

Point to the exponential growth in U.S. debt, the unrestrained government spending throughout both Republican and Democratic administrations, and the extraordinary monetary policies of the Fed (particularly in the past decade) and reasonable people should acknowledge that the reign of “king dollar” is unlikely to last forever.

Most people don’t know the first thing about the dark history of fiat currencies around the world. Governments use them to borrow and print without limits. Suffer no delusions – fiat currencies were invented for precisely that purpose. The gold in the treasury has never been sufficient for the wars, social programs, and graft which are the hallmarks of a growing government.

America is no exception. Nixon slammed the gold window shut because nations – France in particular – saw the U.S. spending beyond its means and devaluing the dollar. So, our trading partners began swapping dollars for bullion. In order to stop the hemorrhaging of U.S. gold reserves, Nixon reneged on the commitment to redeem Federal Reserve Notes in gold.

Honest money in the form of gold, or currency redeemable in gold, imposes restraints that no expansionist government can abide – ours included.

The chart showing the growth of our national debt since Nixon broke the last remaining tie between the dollar and gold is hard to refute.

Whether or not the federal government can be trusted to make good on its commitments over time is a serious question.

It would be silly not to prepare for a collapse in confidence, and, by extension, a collapse in the dollar. And nobody should wait. Currency crises through history catch most people by surprise, then it is too late to prepare.

Governments are like the Ernest Hemingway character:

“How did you go bankrupt?”

“Two ways. Gradually, then suddenly.”

History is full of nations and currencies rolling slowly downhill for a while, then plummeting over the cliff.

You can show naysayers a picture of the recent hyperinflation in Venezuela:

Venezuelans who entered 2016 with all of their savings in bolivars probably didn’t know it, but they were in serious trouble. Within weeks they would be searching for scarce food with nothing to exchange but devalued banknotes – slips of paper which merchants suddenly loathed.

The above chart is based on “official” data from the Venezuelan central bank. The reality is even worse.

Grocers can’t keep enough food on the shelves because suppliers don’t want bolivars. Instead, much of the food is bought and sold in black and grey markets where people offer something more compelling in exchange.

Once lost, it is extraordinarily hard to restore confidence.

The Venezuelan government, and their bolivar, are struggling to maintain any sort of legitimacy. Total collapse is all but assured.

Granted, the USA is not Venezuela. Our dollar is the world’s reserve currency and the U.S. is much larger and wealthier than that South American nation. But much of the difference boils down to scale and timing. Venezuela is simply ahead of the U.S. on the same road to national bankruptcy.

Absent a course correction, there is little reason to think we won’t arrive at the same destination – hyperinflation and disorder.

It is possible America can make reforms before it is too late. But even those who are optimistic about President Trump enacting change for the better, must admit it is very unlikely that he will ever get Congress to cooperate. And it is that august body which is responsible for spending and debt.

Federal debt and entitlement obligations have kept growing, regardless of which party is in control.

If the U.S. returns to honest money and limited government BEFORE a crisis, it may be the first nation in history to do so. Anybody who doesn’t like those odds would be wise to hold some gold and silver for a handful of good reasons. Having something to barter with is certainly one of them.

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

 

The post Preparing to Barter and Trade Is NOT a Loony Idea appeared first on Gold Silver Worlds.

First published here: http://j.mp/2uPnKxA

By Chris at http://j.mp/22bDW4a

Regular readers know I'm a big fan of discrimination.

As such, I choose my friends wisely.

I chat regularly with a select group of friends and colleagues whose particular areas of expertise and intellect I value deeply. Sometimes we agree... and sometimes we don't but always the thought process is extremely valuable. It is where we disagree that often the most value can be found.

One of those fine gentlemen is Brent Johnson. Brent runs the Santiago Capital gold fund and he recently published a video presenting his ideas - topics I've discussed at length with him in the past.

I've been asked often why I'm not heavily invested in gold.

The answer is in part because I'm very focused on what moves any market - global liquidity flows and an intricate web of moving pieces. Brent does an excellent job of bringing many of these moving pieces together and how this affects the price of gold in this presentation.

He is one of the only gold fund managers I know of who manages to look at the world rationally - as it is, rather than as he would wish it to be. He's one of the only ones who seems to understand that it's liquidity flows that moves markets.

I think it's really worth watching and ingesting:

 

Enjoy!

- Chris

"O Gold! I still prefer thee unto paper, which makes bank credit like a bark of vapour." — Lord Byron, Don Juan

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Liked this article? Then you'll probably like my other missives on

this topic as well. Go here to access them (free, of course).

--------------------------------------

First published here: http://j.mp/2vhvSYf

Via The Daily Bell

New technology can be scary. It certainly presents risks and challenges. But I have to admit, one technology I am very excited about is autonomous vehicles or self-driving cars.

We’ve talked about the potential for the Internet of Thing to leave us with nowhere to hide, and self-driving cars are part of that. We have also mused about the possibility of the government ruining self-driving cars.

But let’s take a moment to balance those positions with the benefits of autonomous vehicles.

First, it frees up so much valuable time for humans. Time is the most precious resource and morbidly limited. As many as 90% of working Americans drive a car to work. The average commute is about 25 minutes. This means an average American worker would get over 4 hours of their life back each week!

Granted, they would still be in a car, but most people have pressing tasks that can be accomplished on a smartphone or laptop. Over the course of a lifetime, this amounts to getting a full year of your life back, that would otherwise be spent flipping off other commuters, and beeping the horn in frustration. Nevermind that most people will use that year to scroll Facebook.

Second, way fewer people will die in car accidents. I know it is scary to let go of control, but automation of traffic patterns will lead to far fewer roadway fatalities. Currently, about 1.3 million people worldwide day each year in traffic accidents. Many more are seriously injured.

The possibility that cars will be hacked is scary. But seeing as this is a pressing concern for consumers, it would be very bad publicity for whatever company has their car taken over by hackers. So far no hacker has been able to do so in industry tests which reward hackers for finding vulnerabilities in their systems.

Also, most cars can already be hacked. It is much easier to make a murder look like an accident when humans are behind the wheel.

Third, economic resources that were once spent on cars and insurance will be freed up! Most people will not have to buy a car, they will simply use rideshare programs. The ones who do buy cars will likely have a much lower cost to insure the vehicle.

Fourth, we no longer have to worry about drunks, elderly, teen drivers, or distracted drivers. Think of all the social problems this immediately removes! No more debates about taking driver’s licenses away at a certain age. No more tweaking regulations and legislation in a fruitless attempt to curb teen accidents.

Go ahead and text in your car, talk on the phone, mess around with friends, and even crack open a beer! It doesn’t matter, the technology is in control.

In America, over 10,000 deaths per year from drunk driving accidents will be prevented when all cars on the road are self-driving.

Fifth, and possibly widely overlooked, is that autonomous vehicles really throw a wrench in most excuses for the police to engage you. Police can currently pull you over when driving for almost anything. If they see a taillight out, if you cross the center line, if you are driving a bit too fast, if you speed up for a yellow light, if you swerve, and so on and so forth.

Most people will be able to go from their own private property to the private property of a car. Then they will exit onto a business or individual’s private property, and never give the government a chance to violate their rights.

About 1.5 million people are arrested each year in the U.S. for Driving Under the Influence. Think of how much it costs taxpayers to send those people through the court system.

Then there are all the people arrested for drugs after the police search their vehicles during a traffic stop. Again, the court system is unburdened. Fewer rights will be violated. Fewer illegal searches will be conducted.

Cops will be safer since they won’t constantly be walking up to strangers in vehicles. People will be safer and not have to worry about being shot when a cop can’t see their hands for a split second. This removes entire swaths of dangerous interactions between the police and the public.

Autonomous vehicles might prove instrumental in changing the cultural acceptance of being stopped, questioned, and searched by officers for no real reason.

Like with any other new technology, there will be difficulties and unforeseen dangers to autonomous vehicles. But these five benefits only scratch the surface.

There will be changes in the landscape, social activity, and recreation. There will be new opportunities for shipping, selling, and conducting business.

What are you most worried or excited about for the advent of autonomous vehicles?

First published here: http://j.mp/2tY3TgA

AS ANYONE who flies regularly for work can attest, business travellers are not constantly being doted upon. Flights are not all booked by a travel manager, nor are never-ending drinks being poured by dutiful attendants. Indeed, corporate travel might be becoming a more independent affair.

According to a recent survey, a growing number of business travellers would prefer to avoid interaction with people when on the road, at least until something goes wrong. The research by Egencia, Expedia’s business-travel arm, questioned nearly 5,000 business travellers in Europe, America and Australia. Half of them said they want to avoid human contact while travelling.

That is not because business travellers find their time on the road repugnant and want to bury themselves in their smartphones....Continue reading
First published here: http://j.mp/2hgMcTI

That’s it. It’s the final straw. One of the alternative investing newsletters had a headline that screamed, “Bitcoin Is About to Soar, But You Must Act by August 1 to Get In”. It was missing only the call to action “call 1-800-BIT-COIN now! That number again is 800 B.I.T..C.O.I.N.”

Is it about to go up? Maybe. We don’t know. And everyone should by now be skeptical of all “rocket to take off on XYZ date” claims. Between them, surely these newsletters have predicted thousands of the past zero blastoffs of gold and silver since 2011.

We have discussed bitcoin in the past, to argue that it is not money (a video here, and articles here and here). Bitcoin is not money because it is not a good. It’s just a number in a database. Money is a kind of good (genus). The most marketable kind (differentia).

Money must be a good because we are physical beings in a physical world and final payment—which is not demanded all the time, or even often—must be a physical thing that you can hold and touch in your physical hands. Bitcoin is not a physical good, so it represents, not final payment, but intermediate payment. It is not final until you trade the bitcoin for a real good. In the language of economics, a real good has utility apart from one’s hope to exchange it for something else. Bitcoin has no utility apart from this hope of its value in exchange, its price.

There is not one price but always two prices: bid and offer. When one has a thing and relies on someone else to buy it (or accept it in exchange), it is the bid price which is relevant. The offer price may be close above the bid, or it may be much higher. Typically sellers are reluctant to sell below their cost, but that has nothing to do with buyers. Buyers make a bid based on how they value it (or not).

This fact right here is sufficient to debunk the labor theory of value. Suppose producing a painting takes you 50 hours of labor plus $100 in materials. That does not matter. If your name is Banksy, people might be happy to pay tens of thousands of dollars for the painting. If your name is Keith Weiner, not so much (Keith is not known for having any skill at painting, though he can take some mean photographs).

For all commodities, for all real goods, for all tangible products, there is always a bid. Even a junk car is worth something to the scrap dealer. Even sand is worth something to the landscape contractor.

If a commodity is useful for something, it will have a robust bid. The price may be low or high, but the bid will be set by those who have a productive purpose in mind. If you can buy something, add a little bit of value from labor (e.g. cleaning it up) and sell it for $1,000 then you are willing to pay up to, say, $900.

Take copper. Copper can be used for wiring and plumbing (and many other things). If you manufacture plumbing, and you know that with a dollar worth of labor you can turn copper into a pipe that sells for $3.75, what are you willing to pay for the copper? Perhaps you would go up to $2.50 (it’s now about $2.85). If the price of copper drops, this new buyer will come into the market (for now, plumbing is made of plastic).

In this light, we now get to the 64 billion dollar question. What is the bid on bitcoin? What is it useful for, and who would buy it for that purpose?

Right now, bitcoin is a lot of fun. Its price is being driven up by frenzied speculators. With each new price level, proponents become bolder and more aggressive. Bitcoin will replace the dollar, bitcoin will go up to $1,000,000, the dollar is failing, get yours before August 1, etc. Many of these arguments were popular when the price of gold was rising relentlessly up through 2011.

But what’s the ultimate bid? Where is the floor, where it cannot go below because it’s just too profitable to buy it, transform it into a higher-value good to sell at a profit? Where is the floor where individuals will buy more and more because they want bitcoin in their living room, or in the tank of the car, or in their refrigerator, or in their basement?

It doesn’t exist, does it?

This is not a prediction for tomorrow morning. Indeed timing these things is impossible. However, there will come a point when the speculators turn. Perhaps their collective thumbs will move the planchette on the price-chart Ouija board to paint an ugly chart pattern (much uglier than head-and-shoulders). Whatever its initial cause, what will happen is clear in light of the above discussion.

The price of bitcoin could drop to any level. Incidentally, bitcoin could be used in exchange as it is now, whether its price is $0.01 or $1,000,000.

People often say that bitcoin is like gold, or even say it is “digital gold”. They are just trying to cash in on gold’s good name. The problem of the bid is another key difference between bitcoin and gold. Gold is an extremely useful commodity. Bitcoin is not any kind of commodity at all. It does not have a real bid at all, only the ever-changing bid of the fickle speculator.

---

The prices of the metals rose some more this week, with gold +$13 and silver +$0.24. However, that leads to the question: is it speculators getting ahead of the fundamentals, or is it real?

Three weeks ago, with the price of gold $56 lower and the price of silver $1.15 lower than today, we asked if that was capitulation. We cited some circumstantial evidence (plus a rising scarcity of both metals as measured by the cobasis). We did not call for a moonshot, but a “normal trading bounce within the range.”

Today it is time to ask if the bounce is down, and if now is the time for a normal correction. And if it’s the same answer for both metals.

We will show graphs of the true measure of the fundamentals. But first charts of their prices and the gold-silver ratio.

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio moved down slightly this week. We find it interesting that the ratio did not fall farther.

In this graph, we show both bid and offer prices for the gold-silver ratio. If you were to sell gold on the bid and buy silver at the ask, that is the lower bid price. Conversely, if you sold silver on the bid and bought gold at the offer, that is the higher offer price.

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.

The dollar fell again this week (the mirror image of the rising price of gold). As the dollar fell, the cobasis increased—gold became more scarce.

Rising price + rising scarcity = rising fundamental price (fundamental price chart here).

Now let’s look at silver.

In silver, unlike in gold, as the dollar has dropped (i.e. the price of silver measured in dollars has risen), the metal has become more abundant.

Our calculated silver fundamental fell about 50 cents this week, or about 75 cents in the past few weeks. So while the price of gold may continue to rise to perhaps over $1,300 the price of silver could be a bit weaker. We calculate a fundamental gold-silver ratio of about 79 (chart here).

Coming back to the bid-ask spread, we thought we would publish another chart off our website. This one shows the bid-ask spread of spot gold and spot silver.

There are two salient features. First, note that the spread is really tight in both metals (though while the spread in gold dropped in mid-2016, in silver it increased). It is currently around 12 cents in gold. An ounce of gold is over $1,200 and the difference between bid and ask is $0.12 or 0.01 percent! In silver, it is around 4.2 cents, or 0.25 percent. Gold is more liquid, much more liquid.

Second, when the financial system buckled and nearly collapsed in 2008, the spreads widened to $2.40 and $0.10 in gold and silver, or 0.33 percent and 1.05% respectively. Compared to real estate in a normal market, both metals are extremely tight. Compared to illiquid assets during the peak of the crisis, it’s incredible. We recall a story of a guy who bought a famous painting by old master during the top in 2007. He paid, as we now recall, around $13 million. During the crisis, he was forced to sell it. He got $100,000. We assume the offer price on such a painting would still be $10 million or more. But $100,000 was the bid.

© 2017 Monetary Metals

First published here: http://j.mp/2f1KUva

Below looks at the Gold Futures/Silver Futures ratio over the past decade. The ratio bottomed in 2011 and started moving higher, sending a bearish message to both Gold & Silver. The ratio has rallied since the 2011 lows, where it could be creating a “topping pattern” over the past couple of years.

 

CLICK ON CHART TO ENLARGE

The long-term trend in the ratio remains up since 2011, which is hard on metals. Over the past couple of years, the ratio could be forming a head & shoulders topping pattern, with the head taking place at the highs back in 2008. The short-term rally of late, could have completed the right shoulder, of this pattern at (2).

If this would happen to be a topping pattern, what it does at (3) becomes very important for both Gold & Silver bulls. Metals bulls want to see this ratio break support at (3) and head lower. If the ratio would break support, historically Gold, Silver and Miners would attract buyers.

If staying on top of pattern in Gold, Silver, Copper and Miners is of interest to you, we would be honored if you were a Premium or Metals members, as charts like this are shared each week with these members.

 

 

from Kimble Charting Solutions.  We strive to produce concise, timely and actionable chart pattern analysis to save people time, improve your decion-making and results

Send us an email if you would like to see sample reports or a trial period to test drive our Premium or Weekly Research

 

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First published here: http://j.mp/2vfA1Mk

A truly massive scandal is brewing in Big Tech.

This scandal concerns the fact that 60% of advertising “clicks” are in fact NOT coming from humans; they are generated bots or automated algorithms that don’t buy anything. EVER.

If you don’t believe me, and think I’m just making this up, consider what Keith Weed had to say last month.

Weed is head of Marketing for the consumer goods giant Unilever. In this role, he oversees a marketing budget of $8+ BILLION per year. And here are his statements on the impact of bots in digital advertising.

With $8.4 billion in annual ad spend, the advertising industry pays attention when Unilever is unhappy. During the Cannes Lions Festival of Creativity, Unilever's chief marketing and communications officer Keith Weed outlined the three concerns that "keep him up at night."

"If you don't have your ad viewed, you are dead,” Weed told a Cannes audience on Wednesday.

He wants advertisers to "join up the dots in the digital industry." As Weed sees it, this ecosystem is corrupted. Some 60% of traffic online is bots. "We want to buy eyeballs of viewers not bots," says Weed. "If it is too good to be true, it probably is."

Source: Mediapost.

What does this mean?

The Tech Giants, Facebook and Alphabet (formerly Google), make the bulk of their money by charging advertisers a certain amount for every click the advertisers’ ads receive online.

The price that Facebook and Alphabet can charge for advertising space is based on the amount of web traffic that ads receive. The more traffic these ads receive, the HIGHER the prices Facebook and Alphabet can charge advertisers for ad space.

So if 60% of ALL AD CLICKS are in fact BOTS, not HUMANS, the reality is that these ad prices are in fact MASSIVELY overstated.

Again, if you think I’m making this up, consider that another consumer goods giant, Proctor and Gamble cut its online marketing budget by $100 million and found… ZERO IMPACT ON GROWTH.

Procter & Gamble Co. said that its move to cut more than $100 million in digital marketing spend in the June quarter had little impact on its business, proving that those digital ads were largely ineffective.

Almost all of the consumer product giant’s advertising cuts in the period came from digital, finance chief Jon Moeller said on its earnings call Thursday. The company targeted ads that could wind up on sites with fake traffic from software known as “bots,” or those with objectionable content.

Source: WSJ.

Again, Proctor and Gamble cut online advertising by $100 million and had ZERO impact on its results.

These are two massive companies both of which spent BILLIONS in advertising. And both of them are stating point blank that the value of digital advertising via companies like Facebook and Alphabet is MASSIVELY overstated.

What happens if these companies have to begin accurately pricing their ads? What happens if more advertising giants start pulling funding?

For more insights that can help you see serious returns from your investments, join our FREE daily e-letter, Gains Pains & Capital.

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Phoenix Capital Research

First published here: http://j.mp/2vfabrO

 

 

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First published here: http://j.mp/2tRfome

Bitcoin Fork, Hyped ICOs – Immutable Gold and Silver

 - Latest developments show risks in crypto currencies
- Confusion as bitcoin may split tomorrow
- SEC stepped into express concern over ICOs
- ICOs have so far raised $1.2 billion in 2017
- ICOs preying on lack of understanding from investors
- Physical gold not vulnerable to technological risk
- Beauty and safety in simplicity of gold and silver

Editor: Mark O'Byrne

Forks and ICOs solves bitcoin v gold debate

There is still a huge amount of noise in the bitcoin and cryptocurrency space but there have been a few developments of late which have pushed the space further into maturity.

From what I can tell from dinner party conversations people who are vaguely aware of bitcoin now know that there are two terms they need to throw into the chat in order to sound like they know what they are talking about. These two terms are ICO and Fork.

Price is also a major talking point at present. As ever the price of bitcoin remains volatile and headline-worthy.

This week will mark a point in cryptocurrency history as the most powerful of cryptocurrencies, bitcoin will experience a major technical change and the US regulator SEC has just made a significant announcement about fundraising in the space.

We have written previously about how bored we are with the bitcoin vs gold debate, but for those who still like to peddle it then they would do well to see how these latest developments put the issue to bed.

The break-up of the year

For a long time there has been a debate about the scaling of the bitcoin network. What is ultimately a required software upgrade has caused many arguments and fall-outs in recent years.

Pressure has been ramping up within the bitcoin community as to how certain problems can be resolved. The discussion may seem like something which is just technical but has at times become philosophical and political.

The main items up for debate are as follows:

Bitcoin is currently limited in the number of transactions it can process. Today, it can only process up to 1MB of transactions roughly every 10 minutes.

Owing to this limit, transactions take longer to approve during times of heavy use.

As all users pay a fee to miners to make transactions, this limitation on space has increased average fee costs.

Increasing the block size makes network nodes more costly, as node operators must store the entire copy of the blockchain as computer files.

Ref: CoinDesk

Ultimately, the above comes down to the fact that the bitcoin network has failed to address problems associated with its current block size which are long wait times and high fees for transactions.

The debate has become so heated for obvious reasons - bitcoin was delivered to the world with a fairly strong set of principles.

However many believe that these principles either have to change in order to protect the future of the currency, or that the software must be upgraded in order to protect the principles.

A solution (called SegWit2x) had seemingly been reached, a week or so back. However not everyone was in agreement. As a result, last week a separate group of users announced that on August 1st they will split from off from bitcoin and create a new cryptocurrency called Bitcoin Cash.

This will likely cause a fork in the bitcoin network and result in two versions of the Bitcoin blockchain and two separate digital currencies. At this point there is likely to be a taking of sides by companies that operate within the bitcoin space.

The main difference between Bitcoin Cash and bitcoin is the block size. Bitcoin Cash will have a block size of 8MB, compared to Bitcoin's 1MB block size. In theory Bitcoin Cash's larger block size could prompt investors to flee Bitcoin in favour of the new currency. This would be negative for the original Bitcoin’s price.

Already I have received multiple emails from companies telling me which version they will be supporting and their reasons why.

So far it looks like the original bitcoin will be gaining the initial surge of support due to the unpredictability of something which was only announced a few day ago.

However, bitcoin owners will also end up with Bitcoin Cash (and a futures market is already open for the new currency) so we will watch this development with some interest.

What this whole drawn-out scenario will do, however, is serve as a reminder to regular crypto buyers and observers that no cryptocurrency is entirely without counterparties that can affect and arguably impact the future of your assets and the future value of them.

SEC, ICO and more acronyms

If you’ve been catching up with the latest series of House of Cards then ICO might sound like a reason for bitcoin to be banned outright as it is the fictional equivalent of ISIS.

But ICO in the real world is a very different thing, it stands for Initial Coin Offering.

An ICO is defined as

‘An unregulated means by which funds are raised for a new cryptocurrency venture. ... In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.’

According to Autonomous NEXT, ICOs have raised $1.2 billion in 2017 alone. Given Ethereum raised ‘just’ $18.9 million in its 2014 ICO this shows phenomenal hype (or promise) in the space is growing rapidly.

The hype has even grabbed the attention of that expert-investor and cool-head that is Floyd Mayweather ahead of his big fight with Irish MMA champion Conor McGregor. McGregor is thought to be a bigger fan of gold than cryptos and has tweeted about bringing "more gold back to Dublin."

When you see this sort of thing it is an example of hype and suggests valuations may be frothy and on the speculative side.

An ICO is really just a promise about the future of a cryptocurrency and the underlying technology.

Most of them are attempts to bring innovation to the fintech space. However concerns have been raised over the lack of due diligence being carried out by investors’ and some ICO projects are playing on this.

ICOs are the offering of crypto tokens which are bought by investors. This then funds ventures in the space. Inevitably the majority of them will fail, but many show great promise as we have seen with Ethereum.

ICOs are almost certainly here to stay. Not only are we seeing a similar movement of people from traditional banking into ICOs  as we did in the early days of blockchain tech. But  we have also seen the SEC feeling the need to get involved. As we have seen with bitcoin, this network effect of growing stakeholders is justifying the ongoing existence and development of ICOs.

Last week the SEC issued a guidance note that tokens issued by an Ethereum project called The DAO were securities.

“The Commission applied existing U.S. federal securities laws to this new paradigm, determining that DAO Tokens were securities.  The Commission stressed that those who offer and sell securities in the U.S. are required to comply with federal securities laws, regardless of whether those securities are purchased with virtual currencies or distributed with blockchain technology.”

This means that all ICOs may be subject to regulations. This announcement was received relatively positively in the crypto space, however some experts believe the SEC are showing a lack of understanding as to how these things work:

Blockchain engineer Elaine Ou pointed out on Twitter, ICO’s are “Untraceable, international, [have] no central authority, [and] funds can’t be frozen. The SEC ICO warning is the best ad for ICO’s.”

What it ultimately shows, however, is that the blockchain space continues to impress with innovation and the amount of money it attracts. However, it is all extremely new, there is a lot of hype and open to a number of threats as well as opportunities.

There will be significant creative destruction in the space.

Conclusion - Beauty and safety in simplicity of gold and silver

Many people bought bitcoin in the early days and have just sat on it.

Happy in the knowledge that it didn’t cost them much and they’ll wait and see what happens to it. Most of these people check-in with the price and whilst the volatility might scare them they are ultimately delighted with the long-term price performance.

The bitcoin price has (of course) felt the impact of the recent changes and debates. However the overall crypto space remains relatively resilient as the market-cap has remained fairly constant in the last week. However, the bitcoin price has faltered.

The problem is that this so-called hard fork has got a lot of people worried.

It has reminded bitcoin holders of the presence of counter-parties in the network, who are able to make decisions about your assets without your say so, whether they are the bitcoin miners or the regulators.

Many googled terms include ‘will I still have my bitcoin after the hard fork?…What will happen to my bitcoin?…Will I own bitcoin cash as well as bitcoin?’

There is confusion and with confusion comes doubt which is never good for price.

The ultimate lesson from all of this debacle is that bitcoin and other cryptos are not worthy substitutes for gold and silver, no matter how much some would like to push this idea.

The joy of owning physical gold which is segregated and allocated in your name is that no-one can announce that they don’t like how gold is mined so they’re changing what you own.

It cannot be manipulated in such a way. If you own gold coins or gold bars, it cannot disappear. It cannot be diluted or suffer a company take over or be hacked. It cannot be affected by alternative versions of it.

Gold is gold and silver is silver. They do not change and are immutable. There is both beauty and safety in this simplicity.

 

News and Commentary

China's first-half gold output falls 10%, demand up (IndiaTimes.com)

India Trade Ministry Sees Scope for Lowering Gold Import Tax (Bloomberg.com)

EU explores account freezes to prevent runs at failing banks (Reuters.com)

IMF says dollar overvalued, euro, yen, yuan in line with fundamentals (Reuters.com)

Putin Says Hopes Retaliation Ends Once 755 U.S. Staff Ousted (BloombergQuint.com)

Draghi Pledged ‘Whatever It Takes.’ It Took 1.2 Trillion Euros (Bloomberg.com)

Very Bullish Scenario For Gold - Goldcorp CEO (video) (Bloomberg.com)

Baruch Sees Gold Rolling Through $1,300 (video) (Bloomberg.com)

Toxic Fruit of Financialization: Risk Is for Those at the Bottom (DailyReckoning.com)

Miraculous gold rush movies buried under the Yukon ice (TheGuardian.com)

Gold best performing asset "since Australia sold its gold" (TheAustralian.com)

Gold Prices (LBMA AM)

31 Jul: USD 1,266.35, GBP 965.59 & EUR 1,079.06 per ounce
28 Jul: USD 1,259.60, GBP 961.96 & EUR 1,075.45 per ounce
27 Jul: USD 1,262.05, GBP 960.29 & EUR 1,076.53 per ounce
26 Jul: USD 1,245.40, GBP 956.72 & EUR 1,071.29 per ounce
25 Jul: USD 1,252.00, GBP 960.78 & EUR 1,074.59 per ounce
24 Jul: USD 1,255.85, GBP 962.99 & EUR 1,077.64 per ounce
21 Jul: USD 1,247.25, GBP 958.89 & EUR 1,071.39 per ounce

Silver Prices (LBMA)

31 Jul: USD 16.76, GBP 12.77 & EUR 14.29 per ounce
28 Jul: USD 16.56, GBP 12.66 & EUR 14.15 per ounce
27 Jul: USD 16.79, GBP 12.77 & EUR 14.34 per ounce
26 Jul: USD 16.37, GBP 12.54 & EUR 14.06 per ounce
25 Jul: USD 16.31, GBP 12.52 & EUR 14.00 per ounce
24 Jul: USD 16.50, GBP 12.66 & EUR 14.17 per ounce
21 Jul: USD 16.43, GBP 12.63 & EUR 14.11 per ounce

Recent Market Updates

- This Is Why Shrinkflation Is Making You Poor
- Gold A Good Store Of Value – Protect From $217 Trillion Global Debt Bubble
- Why Surging UK Household Debt Will Cause The Next Crisis
- Gold Seasonal Sweet Spot – August and September – Coming
- Commercial Property Market In Dublin Is Inflated and May Burst Again
- Gold Hedges Against Currency Devaluation and Cost Of Fuel, Food, Beer and Housing
- Millennials Can Punt On Bitcoin, Own Gold and Silver For Long Term
- “Time To Position In Gold Is Right Now” says Jim Rickards
- Bloomberg Silver Price Survey – Median 12 Month Forecast Of $20
- “Bigger Systemic Risk” Now Than 2008 – Bank of England
- “Financial Crisis” Coming By End Of 2018 – Prepare Urgently
- Video – “Gold Should Probably Be $5000” – CME Chairman
- India Gold Imports Surge To 5 Year High – 220 Tons In May Alone

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

First published here: http://j.mp/2vfaJOe

Submitted by Koos Jansen, BullionStar.com.

My best estimate as of June 2017 with respect to total above ground gold reserves within the Chinese domestic market is 20,193 tonnes. The majority of these reserves are held by the citizenry, an estimated 16,193 tonnes; the residual 4,000 tonnes, which is a speculative yet conservative estimate, is held by the Chinese central bank the People’s Bank of China.

I’m aware I’ve been absent from writing about the Chinese gold market for a long time, so for some of you it can be burdensome to pick up where we left a few months ago. It is not feasible for me to explain the entire structure of the Chinese gold market again; my suggestion would be to follow the links provided in the text for more background info. Most knowledge is covered in previous BullionStar posts, Mechanics Of The Chinese Domestic Gold Market, Chinese Cross-Border Gold Trade Rules and Workings Of The Shanghai International Gold Exchange. 

To substantiate my estimates on above ground gold reserves in China mainland, we’ll first discuss private gold accumulation in China through the Shanghai Gold Exchange (SGE), after which we’ll address official purchases by the People’s Bank of China (PBOC) and its proxies that operate in the international over-the-counter market.

Chinese Private Gold Accumulation

A few days ago, you could read on the BullionStar Gold Market Charts page that withdrawals from the vaults of SGE in June accounted for 156 tonnes. Year to date SGE withdrawals have reached 984 tonnes, which is 16 % shy of the record year 2015 when 1178 tonnes were withdrawn by this time. Since 2013 gold demand in China has remained extremely elevated - don’t let the World Gold Council tell you anything different - which exposes spectacular years of physical gold accumulation by the Chinese.

Exhibit 1.

The amount of SGE withdrawals provides a fairly good proxy for Chinese wholesale gold demand, although not all gold passing through the SGE adds to above ground reserves. In China, most scrap supply and disinvestment flows through the Shanghai bourse as well, next to mine output and imports. Needless to say, recycling gold within China doesn’t change the volume of above ground reserves. So, simply using SGE withdrawals won’t fly for calculating above ground reserves. What we’re interested in are net imports and mine production in the Chinese domestic gold market.

Although gold exports from the Chinese domestic market are prohibited, exports from the Shanghai Free Trade Zone (SFTZ) where the Shanghai International Gold Exchange (SGEI) is located, are permitted. Before calculating Chinese net imports, let’s have a brief look at exports from the SFTZ - which reflects to what extent the SGEI is developing as a physical gold hub in Asia. As far as I can see, China’s gold bullion export from the SFTZ is still negligible. From the United Nations’ international merchandise trade statistics service COMTRADE, it shows the only countries that have imported tiny amounts from China in 2017 are the UK and India. But the amounts are so small, they carry little importance for our analysis.

There is one region that is importing significant amounts of gold from China, which is Hong Kong, though, this likely isn’t exported from the SFTZ but from the Shenzhen Free Trade Zone. The vast majority of China’s jewellery manufacturers are in Shenzhen, and for quite some years gold jewellery, ornaments, industrial and semi-manufactured parts are being exported from this Chinese fabrication base to Hong Kong. These events haven’t got anything to do with the SGEI in my opinion. Thereby, Hong Kong exports far more gold to China than vice versa.

For computing net gold export from Hong Kong to China we’ll subtract “imports into Hong Kong from China” from “exports and re-exports from Hong Kong to China” (as you know China doesn't disclose gold trade statistics itself). Imports into Hong Kong accounted for 23 tonnes, while exports and re-exports to China accounted for 333 tonnes. Accordingly, China net imported 311 tonnes from Hong Kong in the first five months of 2017.

Exhibit 2. In 2016 rumours circulated Hong Kong’s elevated gold exports relative to gold re-exports possibly hinted at fallacious trade data. This year the numbers show no sign of such activities.

If we apply the same math to Switzerland’s customs data, it shows China net imported 172 tonnes from the Swiss in the first six months of this year.

Most definitely Australia has exported gold bullion directly to China in 2017 as well, but the Australian Bureau of Statistics (ABS) has changed its methodology regarding this data somewhere in 2016 and is reluctant to share the details with me. Using my old way to compute Australia’s export directly to China results in 23 tonnes (this number is provisional and will be amended).

The UK, a large gold exporter directly to China in 2014 and 2015, hasn’t shipped any gold directly to China year to date, according to Eurostat.

Exhibit 3. Annualised Chinese gold import for 2017 stands at 1,159 tonnes.

What’s remarkable is that Chinese true gold demand is far greater than what the World Gold Council (WGC) and GFMS are reporting as “Chinese consumer gold demand”. This is due to incomplete metrics applied by the WGC and GFMS. The immense tonnages imported by China have been waived in previous years, by the aforementioned Western consultancy firms, with dishonest arguments. (If you like to study the details regarding gold demand metrics read this.) In reality, thousands of tonnes are being imported into China and this metal is not coming back in the foreseeable future; causing a bull run on steroids if institutional interest for gold rebounds in the West. Ascending above ground reserves within China imply declining above ground reserves in the rest of the world. And the more scarce the metal in the West, the higher price when demand revives. I’ve described this phenomenon in my previous post How The West Has Been Selling Gold Into A Black Hole. In a forthcoming posts I will add more texture to my analysis.

Domestic mine production in China is not allowed to be exported, effectively all output can be added to above ground reserves. The China Gold Association (CGA) wrote on April 28, 2017, that Chinese domestic mine output in the first quarter accounted for 101 tonnes. Lacking the data for the second quarter, makes me estimate mine production from January until June by doubling 101, which is 202 tonnes. By the way, the CGA added:

Gold is a special product with the dual attribute of general commodity and currency. It is the cornerstone of important global strategic assets and the national financial reserve system. It plays an irreplaceable role in safeguarding national financial stability and economic security.

Based on data publicly available, in the first six months of 2017 China net imported at least 506 tonnes into the domestic market and mined 202 tonnes. An addition of 707 tonnes to Chinese private gold reserves.

Chinese Official Gold Purchases

I can be short on PBOC gold purchases: the Chinese central bank does not buy any gold through the SGE - its increments must be treated in addition to all visible flows - and it buys in secret not to disturb the global market. I’ve shared my analysis regarding the PBOC buying gold through proxies in the international over-the-counter (OTC) market for several years on these pages. Although, my reasoning has been confirmed countless times, it’s worth noting it was affirmed once more not long ago.

Early 2017 world renowned gold analyst Jim Rickards was in a meeting with the three heads of the precious metals trading desks of largest Chinese bullion banks. These gold dealers told Rickards that indeed the PBOC does not buy any gold through the SGE. Rickards stated in the Gold Chronicles podcast published January 17, 2017 (at 25:00) [brackets added by Koos Jansen]:

What I [J. Rickards] don’t know is about the Shanghai Gold Exchange sales, they’re pretty transparent, how much of that is private and how much of that is the government [PBOC]. And I was sort of guessing 50/50, 70/30, whatever. What they told me, and these guys are the dealers [the three heads of the precious metals trading desks], it’s 100 % private. Meaning, the government operates through completely separate channels. The government does not operate through the Shanghai Gold Exchange. … None of what’s going on on the Shanghai Gold Exchange is going to the People’s Bank Of China.

In fact, the PBOC uses Chinese banks as proxies to buy gold in countries like the UK, Switzerland and South-Africa after which the metal is transhipped to Beijing. Note, monetary gold shipments do not show up in customs reports of any country.

I haven’t come across any clues in the past months that have changed my estimate on the PBOC’s true official gold reserves. My best substantiated guess still is 4,000 tonnes (in contrast, the PBOC publicly discloses it holds about 1,840 tonnes). For more information on how and when the PBOC stacked up to 4,000 tonnes, continue reading at the BullionStar Gold University by clicking here.

Estimated Total Gold Reserves China 20,000 Tonnes

Let us put the pieces of the puzzle together. We know the PBOC doesn’t buy gold though the SGE, but prior to 2007 the Chinese gold market wasn’t fully liberalized and back then the PBOC was primary dealer in the domestic market. Any PBOC purchases prior to 2007 could have been from Chinese gold mines. What else do we know? China is said to be a gold importer since the 1990s, suggesting domestically mined gold was not exported after, say, 1994. In the next screen shot from the China Gold Market Report 2010 we can read “China has been a gold importer since the 1990s”.

Exhibit 4. Courtesy China Gold Market Report 2010.

For the sake of simplicity, we’ll calculate from 1994 onwards. Precious Metals Insights (PMI) has estimated that 2,500 tonnes of gold jewellery were held by the Chinese population in 1994. Furthermore, I have data on Chinese non-monetary gold import starting in 2001 - which started slowly but ramped up in 2010 (exhibit 2).

In 1994 PBOC official reserves accounted for 394 tonnes and Chinese domestic mine output accounted for 90 tonnes. So, our starting point in 1994 is:

2,500 (jewellery base) + 394 (official reserves) + 90 (mining) = 2,984 tonnes

From here, we can aggregate domestic mine output and net imports for every succeeding year. As stated above, my assumption is that the PBOC sourced its official gold from domestic mines prior to 2007, but shifted these acquisitions to the international market after 2007. The official gold increments in 2001 (105 tonnes) and 2003 (100 tonnes) I’ve subtracted from “aggregate domestic mine output”, the increments in 2009 (454 tonnes) and onwards I did not subtract from “aggregate domestic mine output”.

The previous calculation has resulted in the following chart:

Exhibit 5. Aggregate net import reflects non-monetary gold.

In the chart the green, blue and grey bars represent private gold reserves, and summed up account for an estimated 16,193 tonnes at the time of writing. The red bars reflect the PBOC's official gold reserves - I would like to stress this number is speculative - and currently account for 4,000 tonnes. My best estimate as of June 2017 for total above ground gold reserves within the Chinese domestic market is 20,193 tonnes.

First published here: http://j.mp/2tRFt4o