Last week, I took a sweeping view of the global economic factors affecting the demand for Physical Gold and Silver investment. Today, I'd like to look very closely at just one section of the canvas as it were. Some of us go through life seeing the big picture, some of us spend most of our time in the detail. I tend to look at both in a cyclical manner; looking very closely at one aspect of the canvas and then drawing away, to see what it looks like.
Today, I came across one particular article in The Guardian, which raises some key questions, the answers to which I'd like to examine today, because I believe it is very useful to learn how to “read” articles. To state my position at the outset, I agree with one conclusion in the article but disagree with the over-riding conclusion and will be providing cross references. I try to read both The Guardian and The Telegraph every day. The former is very left leaning and the latter is middle-right leaning on the political spectrum. This means, on any one day, I can read the same "story" but each coming to a diametrically opposed opinion. Each does this by quoting similar facts but slanting them in varying degrees. Sometimes facts are omitted, which the other news source includes, to add or subtract from the opposing view. Sometimes, opinion is stated as fact. It's a fascinating exercise and I'd encourage every curious reader to try it. As a trainee lawyer back in Law School, I was instructed that after I'd prepared my own case, to prepare the other side’s! This way I would understand their weaknesses and strengths, as well as my own, and be able to counter-move them. This discipline has stayed with me.
So, on Monday, The Guardian's Debbie Carlson, an author I haven’t come across before, wrote a piece called, "Gold's price has diehard fans excited but for how long?" I'm suspicious of anyone who uses emotive language to prove their point. Facts prove points, emotive language usually is designed to cloud them and a good argument can support itself.
So, I read on and here is the next line: "Gold prices may rise a bit more if the economic uncertainty continues, but the environments that fostered gold's all-time higher moves aren't the same now." I literally found myself saying, "No, they're much, much worse." And I wondered what facts within the markets the author would use to back up the above statement, which is repeated verbatim a second time, later in the piece.
Carlson introduces her conclusion that “the environment that fostered the previous economic collapse aren't the same now” with the following; "China is wobbling, oil is plummeting, Britain is threatening to quit Europe. And the gold bugs couldn’t be happier. With a 15% gain in 2016, gold’s rally has its diehard fans excited. But for how long? This is the metal’s best start since 1980, when gold prices rallied about 270% to then all-time highs of $850 an ounce on an oil-supply shock crisis and raging inflation. This year gold prices are higher on worries over economic weakness in China and Europe, and the Bank of Japan’s surprise move to negative interest rates.” So far so good but I can tell this is a “set-up” preamble leading to a take-down!
She continues, “All the bad news has stoked some concerns of a recession, if not a full-blown economic crisis, like in 2008. After that meltdown gold prices doubled, lifting values to more than $1,900 by 2011, a nominal all-time record. Gold prices ended 2015 in a funk, but the global stock markets’ shakiness and global economic worries “were just what the doctor ordered for gold bulls”, said Sean Lusk, director of the commercial hedging division at Walsh Trading. Gold bugs dream of a time when the metal’s value will soar, lifted by economic doom and hyperinflation from central banks’ extraordinary monetary policy to revive global growth. Gold bugs’ dreams have been deferred, but will this time be different? Is the yellow metal’s current strength a harbinger of another move like 1980 or 2011? Doubtful, say several gold-market watchers. Gold prices may rise a bit more if the economic uncertainty continues, but the environments that fostered gold’s all-time higher moves aren’t the same now."
Apart from the fact this tone of writing gets me a little protective of our readers, in that I hope we're all rational, well-read people trying to figure out a way to protect our wealth, within the confines of a devaluing fiat currency, the conclusion is, I believe, factually wrong and I’ll outline below how I've come to that conclusion.
Carlson continues; "Joe Foster, portfolio manager of the Van Eck International Investors Gold Fund, said the surprise negative interest rate move by the BoJ, and European Central Bank president Mario Draghi’s talk of more monetary stimulus, encouraged safe-haven buying. “Markets are losing faith in central banks with the radical monetary policy. We’re not seeing any economic results,” he said. Yet the rally may stall here. Robin Bhar, head of metals research at Societe Generale, thinks gold has fully priced in the current economic uncertainty, and they would not tell their clients to buy gold now. There are not enough reasons to propel it into a new bull market. “I think right now it’s as good as it’s going to get. The US economy is healthy,” he said. Job growth and consumer sentiment is up, despite some recent softer manufacturing data reports, he said."
Here's where the whole argument for me starts falling apart when held up to the facts. The U.S. economy is, very obviously, not healthy!
"If the U.S. economy really is improving, then why are big U.S. retailers permanently shutting down thousands of stores? The truth is that middle class U.S. consumers are tapped out. Most families are just scraping by financially from month to month. For decades, the U.S. economy was powered by a free spending middle class that had plenty of discretionary income to throw around. But now that paradigm is changing. Americans families simply do not have the same resources that they once did, and that spells big trouble for retailers.” Except from "Major U.S. Retailers Are Closing More Than 6,000 Stores." And this isn't recent news, which the Guardian writer may have just missed. These retail figures were released last May!
So, as any judge knows, if some views put forward by a witness cannot be backed up by fact, then the witness’s opinion becomes just that, an opinion - which we're all free to have about many things. But when it comes to my finances, I like to make financial decisions based on facts.
But, it's not just one opinion against one list of facts, the International Monetary Fund also disagree with Carlson's quoted expert, that propositions the idea that, "the U.S economy is healthy."
"The International Monetary Fund (or IMF) reduced its growth forecasts for the US economy and global growth by 0.2% each in January. These downward revisions follow many such revisions made last year. This points to a climate of uncertainty and further deteriorating economic trends." This is taken from a non-newspaper source called, "The Market Realist" which looks widely across all markets, is a technical website filled with graphs and says what it sees. What it concludes is that, "It is under this environment of uncertainty and risk-off that gold investors thrive."
So, it's probably safe to conclude that the U.S. economy is not healthy!
Here's another statement in The Guardian piece that immediately jumped out at me; "Physical demand from top global buyers China and India is also subdued, said Afshin Nabavi, head of trading at MKS (Switzerland) SA in Geneva." But that opinion directly contradicts the figures:
"China’s physical gold demand, as shown by imports from Hong Kong, has been exceptionally strong. China imported 111 tons of gold from Hong Kong in December 2015, which is the highest monthly number since October 2013. It also implies an import growth of 89% year-over-year (or YoY) and 67% month-over-month. Investors in China are looking at other investment alternatives as domestic equity markets continue to slump and as the yuan continues to be devalued."
"India’s gold imports for December 2015 totaled $3,806 million, up 179% YoY. This is despite the government’s efforts to curb imports that result in increasing trade deficit for the country. The government of India had introduced schemes such as the gold monetization scheme and the sovereign bond scheme last year to reduce gold imports and the current account deficit.”
I wouldn't ever describe a Year on year increase in gold imports of 179% as "subdued demand."
(Larry Elliot - Economic editor of the Guardian)
But here's where it just gets weird. Here's another article, this time written by Larry Elliot, economic editor of the Guardian. The article is called "Beware the great 2016 financial crisis, warns leading city pessimist" This piece talks about how bad the U.S. economy really is: "The City of London’s most vocal “bear” has warned that the world is heading for a financial crisis as severe as the crash of 2008-09 that could prompt the collapse of the eurozone. Albert Edwards, strategist at the bank Société Générale, said the west was about to be hit by a wave of deflation from emerging market economies and that central banks were unaware of the disaster about to hit them. His comments came as analysts at Royal Bank of Scotland urged investors to “sell everything” ahead of an imminent stock market crash. “Developments in the global economy will push the US back into recession,” Edwards told an investment conference in London. “The financial crisis will reawaken. It will be every bit as bad as in 2008-09 and it will turn very ugly indeed. Fears of a second serious financial crisis within a decade have been heightened by the turbulence in markets since the start of the year. Share prices have fallen rapidly and a slump in the cost of oil has left Brent crude trading at barely above $30 a barrel. “Can it get any worse? Of course it can,” said Edwards, the most prominent of the stock market bears – the terms for analysts who think shares are overvalued and will fall in price. “Emerging market currencies are still in freefall. The US corporate sector is being crushed by the appreciation of the dollar.” The Soc Gen strategist said the US economy was in far worse shape than the country’s central bank, the US Federal Reserve, realised. “We have seen massive credit expansion in the US. This is not for real economic activity; it is borrowing to finance share buybacks. “If the global economy goes back into recession, it is curtains for the eurozone.” Countries such as France, Spain and Italy would not accept the rising unemployment that would be associated with another recession, he said. “What a disaster the euro has been: it is a doomsday machine in favour of the German economy.” This was written on 12 January 2016. Why is this where it gets really weird? Because this too was written in The Guardian!
Ah, but quality news reporting looks at both sides of the coin right? Sure, but each conflicting Guardian article quotes one person as their main voice; Carlson quotes a Robin Bhar, Head of Metals Research (on 29th February) and the other Guardian article, concluding the exact opposite, quotes Albert Edwards at economic strategist (on 12th January.) But, like I said, I like looking at both the big picture and also at the details. And did you catch the detail of where each opposing "expert witness" worked? At the same bank! Société Générale! That is weird isn't it?!
One of the major ways to cause people to become paralysed into inaction is to confuse them. When our minds are confused, we tend to find it harder to come to a confident conclusion by ourselves and we therefore don't take any action at all! This is an effective way to stop people taking the one action we don't want them to take. Tell them to take it, then tell them not to, tell them to take it, then tell them not to. And to be most effective the general populace mustn't remember where the opposing view came from, just that it's in their psyche somewhere. In the end, being confused by the to and fro of opposing views, they lose confidence and don't take any action at all, even an action they were quite sure of taking. The worst part is they will believe they made this decision themselves. Did I mention I took a Psychology degree before my Law Degree? I'm not assuming or saying this is the intention of the writer at the Guardian of either article. I'm just stating a very interesting psychological observation.
Now, back to the facts about holding Physical Gold and Silver: We at Bleyer like to un-entangle our readers from the "noise" out there and keep focussing on the facts. A bank, after all, is from within the system of fiat currencies. Owning Physical Gold and Silver coins and bars is about holding some of one's wealth outside of the system, just in case that system crashes.
Remember, at the outset I said that there was one opinion in the Guardian article with which I did agree? That was this: "Other investment banks also say gold’s strength is temporary, such as Goldman Sachs, which recently renewed its 12-month price target of $1,000, saying fear is driving the price. Edward Meir, commodities consultant for INTL FCStone, said he advocates buying gold as an insurance policy against stock-market losses." (The Guardian)
I agree to a point, in that, I believe the Gold and Silver price will fall back somewhat and I also fully agree with the tag-on quote that one should buy "gold (and as importantly silver) as an insurance policy against stock-market losses."
And I quote myself from last week's article for Bleyer: "I believe this process of price adjustment [in Gold and Silver prices] is just the beginning. By that I mean I believe the price of Gold and Silver will go much higher, not necessarily straight away and not necessarily in a straight line, in fact it may be pushed back a little for a while but I would just see those dips and corrections as further buying opportunities." (Rising Gold and Silver prices; all the pieces are coming together)
Why do I believe that we are not yet at the exponential rises in price of both safe haven metals? Because the markets need to get through the Euro Zone referendum and the repatriation of massive amounts of Physical Gold to national central banks (see Germany's 7 year deal with the Federal Reserve to repatriate their physical gold.) But I wouldn't state this timescale as fact. I would state this as I just have; as a belief - in both this week's blog and my previous ones. It's a hunch. Yes, the world can feel chaotic at times, and very sad at others, but I don't believe it's quite got to that crisis point just yet. I believe we have up to 18 months of increasing negative interest rates and a slide into a much worse recession than 2008. I could be wrong. We could suddenly jolt into it; dependent on unforeseen and sudden external events.
Soon, I would like to dedicate an entire piece to Gold's sister, Silver. She is one to watch as an investment that has an even higher potential for return than Gold, pound for pound. And her price - and the commentary on her price - is much quieter, particularly over these last three months, which means the crowd aren't following her quite so much.
But for now, we hope our readers have enjoyed going a little deeper into just one of the ways our minds are directed each week; by the "news" we read and the words which wash over us, whether intentional or accidental.
I'll conclude by quoting another banker and The Telegraph, just to even out that left-right political balance! "A global recession is on the way. This truism of economics holds at any point in which the world is not in the grips of a contraction. The real question is always when and how deep the upcoming downturn will be. “The crash will come, but it would be nice if it came two years from now”, Thomas Thygesen, head of economics at SEB told over 200 commodity investors and analysts in London last month. “They tell you should start your presentations with a joke, but making jokes at a commodities seminar is hardly appropriate these days,” Thygesen told his nervous audience. “We are in a very unusual situation where market sentiment is of a different nature to anything we’ve seen before,” says Thygesen." (Debt, defaults, and devaluations: why this market crash is like nothing we've ever seen before, The Telegraph, 6th February 2016)
Like I said, I believe it's much, much worse than the crash of 2008. We have more quantitative easing, more global debt and the introduction of an unprecedented level of zero interest rates as a signal of a steep deflationary crisis.