Dear Reader,

If you are caught up in the dispute between Southern Rail’s management and the Aslef Union, my thoughts really do go out to you. Having lived and worked in the South East and London my whole life prior to moving to the South West I still have memories of the exhausting commute that can bring a momentary shudder.  I send you my very best and hope in some minute way these blogs will ease a very frustrating, slow journeys.

Tomorrow is the day we will hear if the U.S. Federal Reserve is going to once again rise its interest rates:

“The U.S. Federal Reserve is expected to announce Wednesday (Thursday GMT) that it will raise its benchmark federal funds rate by a quarter percentage point to 0.75 per cent. The Federal Open Markets Committee, which sets the Fed’s interest rate policy, met Tuesday. Going into the meeting, the outcome seemed a foregone conclusion. 

Last month Fed Chair Janet Yellen hinted that rates could rise “relatively soon.” It’s little surprise, then, that every one of the 78 economists tracked by Bloomberg expects the Fed to raise the upper bound of the federal funds rate to 0.75 from 0.50 per cent. That would be the first rate increase in a year.

The real focus on Wednesday will be the language that accompanies the rate announcement.  The U.S. economy has been performing strongly, and a lot of economists expect Wednesday’s anticipated rate hike to be the first in a series. Still, they’ll be reviewing every word in the announcement with the same fervor as an evangelist ponders every syllable in one of St. Paul’s epistles.” 

“We suspect one key takeaway from all the day’s policy pronouncements will be that we won’t have to wait another year for rate hike three,” wrote Michael Gregory, deputy chief economist with BMO Capital Markets, in a note.

Donald Trump has yet to be sworn in as U.S. President, and there is uncertainty on what he will actually do in the coming year. Trump has promised tax reform, infrastructure spending and deregulation. Those should have fiscal impacts, but it’s too early to determine their degree, economists say.” (Financial Post, 13 December 2016)

There’s a sentence in there which is gobbledygook. “The U.S. economy has been performing strongly.” Say what now?  Yes, I believe many U.S. stocks are in an over-inflated bubble. But that is not the same as an economy performing strongly – that would be an economy producing and exporting more than it imports and having a G.D.P. higher than its debt; with the ability to pay off that debt, not be in debt at all and/or holding a healthy percentage of its capital reserve in Gold and Silver. 

EconMatters writes today in a piece entitled “The Market is Setting Up for a Massive Sell Off” that; “Assets often take the escalator up, and the freight elevator down as everybody tries to exit at the same time. Buying stocks at the top of the market, going into a rate hiking cycle is tantamount to just begging somebody to take your money.” (14 December 2016)

As LPL Financial Research discussed back in July; “Economist John Maynard Keynes noted, “The market can stay irrational longer than you can stay solvent.” With the S&P 500 and Dow both making new all-time highs amid a bevy of reasons the market should be much lower, there has been more “bubble” talk creeping into conversations. So, the big question for investors becomes, is the market acting irrationally or not? Whether the market is in a bubble usually isn’t known until well after the fact, but there are typically clues along the way that things are getting extremely stretched. 

Probably the best way to determine if something is in a bubble is by how vertical the price has been. Looking at a seven-year annualized return of the S&P 500 (back to when the bull market began), it recently reached 15%, which last happened during the tech bubble and right before the 1987 crash. If all you had was this chart, you could argue prices are extended and maybe a bubble could be forming.” (LPL Financial Research, July 2016)

Rate rises equals inflation, which we’ve been writing about for some time.  A small increase in savings might not off-set a larger increase in debt, credit payments and mortgage bills for many households: “The average interest rate on long-term savings bonds has picked up for the first time in more than a year amid signs that better rates could be around the corner. Savings bonds with a term of 18 months or more now pay an average rate of 1.27pc. Last month it was 1.26pc, so the increase is small: it is the difference between earning £63 and £63.50 a year on savings of £5,000.” (The Telegraph, 9 December 2016) To put that measly amount of increase into perspective against the Gold and Silver market, if that £5,000 had been invested in Gold over the last year it would have increased by 29.11% – instead of 1.27% – and that’s accounting for the recent pull-backs in price.  For Silver it would have enjoyed a 47.66% increase and those figures are correct as of buying on 14th December last year and selling today. [NB: Silver usually incurs a 20% V.A.T. rate so that increase may or may not be deducted by said amount leaving an increase of approximately 27%. To buy low V.A.T./V.A.T. paid Silver please call Bleyer.]  

As previously discussed, “Inflation certainly appears to be on the way back in the UK in numbers released yesterday, which showed that CPI hit its highest levels in two years driven primarily by clothing and fuel prices, while a rise in import prices to their highest levels since 2011 was an unwelcome portend of what could be around the corner in 2017.” (Michael Hewson, CMC Markets, for The Guardian, 14 December 2016)

Markets have opened quiet as everyone waits with baited wallets. World First tweeted earlier this morning: “It was the night before Fedmas and all through the house, no one was stirring, not even the pound.” 

Markets also wait for the the U.K.’s Employment Report today in addition to the Fed’s announcement.  Jeremy Warner of The Telegraph believes that the Fed decision will be more central to our interest rate policy than Europe. I’m not sure I agree, especially regarding the contagion of a market into which the U.K. is so economically entwined. None-the-less, he confidently stated yesterday that “It’s the US we’ll be following for interest rate policy, not Europe.”

If only economics were in a protective academic bubble, separate from the real world. Then it would be much simpler to predict what is going to happen to our investments. But sadly, markets get themselves into inflated bubbles which get popped not just by their own internal economic contradictions but also for the geo-political and natural world around us.  So markets get themselves into “bubbles” but economies cannot be predicted in a bubble. What a dichotomy.

How will Gold and Silver fare in all of this?  It is impossible to say but Caroline Peers, Bleyer’s C.E.O. and I allowed ourselves a very brief moment of shop-talk chat over our Christmas Meal with the team at the end of last week and we both acknowledge that the U.S. interest rate rise may tend to push Gold and Silver prices down, into a buying opportunity.

But here’s a quick update on some of the stories on which I’ve been commentating over the recent months and let’s see if the world out there isn’t getting bumpier:

China: “While paper gold traders can’t seem to dump the precious metal fast enough, physical gold demand is soaring around the world. Local China premiums soar to a 3-year-high (as capital controls loom). Gold was sold in China at about $24 an ounce ABOVE the international spot benchmark this week.  Premiums went as high as $30 last week, the most since January 2014, according to Thomson Reuters.” (Zerohedge, December 2016)

India: [Gold] “retail premiums are spiking (amid demonetization) “Bankers have been making several trips to the central bank’s headquarters in Mumbai to get a sense of whether currency availability will improve.  Some automated teller machines haven’t been filled even once since the old Rs 500 and Rs 1,000 notes ceased to be legal tender [on 8 November], they said.  Typically, households pay milkmen, domestic helps, drivers, etc, at the start of the month in cash. The idea is that all these payments should become electronic, using computers or mobiles. This strategy however, appears to not have been conveyed to the public, and as Bloomberg adds, “bankers are bracing for long hours and angry mobs as pay day approaches in India.” (Zerohedge, December 2016)

The U.S.: “Coin sales from the US Mint have risen for the 4th straight month, accelerating post-election to the highest since July 2015 since Trump’s victory at the election.” (Zerohedge, December 2016) “According to sales data, the U.S. Mint sold a total of 67,500 ounces in various denominations of American Eagle and Buffalo gold coins last month, an increase of 65% from August (Kitco

The U.K.: “House prices fell in London between September and October, as growth slowed across the country, pulled down by a lack of affordability and a general uncertainty in the market. Mr Cook added that “this points to a really sober market next year” (The Telegraph, 13 December 2016) The housing market’s bubble is something I have discussed in previous blogs over the last year in some depth.”

Europe: “The Austrian election was not a turning of the tide at all. At the end of a year of stunning political shocks, it was merely history’s little joke, a trick to lull Brussels into a false sense of security before the roof fell in. Mr Renzi’s [Italy’s] referendum, a complicated constitutional reform package to amend the powers of the Senate, might seem bafflingly arcane.  But to British eyes, the details of the Italian crisis seem reminiscent of what happened here on June 23. In Italy, as in Britain, a centrist Prime Minister called a controversial referendum and ran a complacent campaign, only to become the victim of a grass-roots rebellion. And as in Britain, the political establishment seemed incapable of understanding millions of people whose patience with the status quo had simply run out. For in the febrile atmosphere of European politics after Brexit, the Italian referendum was in effect, a colossal political showdown.

The central issue, as so often these days, was Europe. Mr Renzi is a keen European, yet in Italy, as in Britain, resentment of the EU has been growing for years. Unemployment in Italy is almost 12 per cent, but youth unemployment stands at a staggering 38 per cent. The Italian economy is far from perfect, but many young Italians blame Brussels and Berlin for imposing austerity policies that have made growth effectively impossible. Exit polls suggest that voters under 35 rejected Mr Renzi’s reforms – and by implication, the German-dominated Eurozone project – by a stunning 81% to 19% margin.” (Daily Mail, Why the EU might not last beyond next year, 6 December 2016)

France: In April the French also go to the ballot for their next Presidential election: “I think there is every chance that where Italy has led, France will follow. And if Mme le Pen does win, then I suspect the EU itself, at least in its current form, might not see the end of 2017. The great mystery of all this to me is that the EU elite have had warning after warning. They have known for years the euro was a calamitous mistake, that austerity was destroying the prospects of an entire generation from Athens to Alicante, that mass immigration was enormously unpopular. And they have known voters were outraged by their bungling of the Middle Eastern refugee crisis. Even now, it is not too late to change tack — but on they go, charging towards disaster. And when, at last, they find themselves contemplating the blackened ruins of their European project, they should not blame the voters. The only people they should blame are themselves.” (Daily Mail, December 2016)

Israel: The only democratic state in the currently seething Middle East, this economic powerhouse the size of Wales just had its credit rating increased in November, which considering the global economic outlook and difficulties of the neighbourhood, is one to watch regarding investment: “Standard & Poor’s credit rating for Israel stands at A+ with stable outlook. Moody’s credit rating for Israel was last set at A1 with stable outlook. Fitch’s credit rating for Israel was last reported at A+ with stable outlook. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Israel thus having a big impact on the country’s borrowing costs.” (Trading Economics)

Fitch gives the U.K. a AA negative outlook, so I sincerely hope the two economies are not becoming passing friends on two opposite escalators.  The U.K. may have to ride its current escalator down a little until she can get off and join the Free International Trade escalator back up again.

But good news for our little nation just in minutes ago: “Unemployment has fallen to a 10-year low in the latest official figures from the Office for National Statistics. The number of people seeking work dropped by 16,000 to 1.62 million – or 4.8% – in the three months to October. The UK now has one of the lowest unemployment rates in the EU, with only Germany and the Czech Republic having a lower figure. Average earnings also edged upwards by 0.1% on the previous month, with workers seeing an average increase of 2.5% in the year to October.” (ITV News, 14 December 2016)

So, in conclusion, it is of no surprise that Money Morning produced a key piece earlier this year on Top Tips for Buying Gold. Their first point was to focus on owning Physical Gold (and of course here I would again draw our readers attention to owning Silver also).

“Buying Gold should be on most investors’ “to do” lists, if it hasn’t been done already. Gold has long been hailed as the best way to hedge investments over the long haul. It’s a tangible metal that is able to retain its value over time and endure the volatility of economic downturns. Gold is meant to be a long-term investment. Gold bars and coins offer investors something tangible to hold onto. Many investors like the idea of investing in physical Gold bullion bars and coins because it protects them from credit risks that are often associated with other types of gold investing. Of course, along with owning physical gold comes the task of storing it whether it’s in a safe at home or in a bank vault.” 

If you’d like to learn more of the Secure Storage offered by Bleyer, either for Gold and Silver you purchase from us, or for your precious metals which you are currently holding at home but would like to store securely elsewhere, or to view our range of industry approval home safes, contact one of our team now on 01769 618618.

We wish you and your loved ones a good week and, as always, look forward to hearing from you soon.

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