Gresham’s Law

This year’s Nobel prize in economics was awarded to Richard Thaler, a pioneer of behavioral economics. But there is a tale told by a lesser known Nobel laureate, Kenneth Arrow. As a World War II weather officer, he was tasked with analyzing the reliability of the army’s long-range weather forecasts. His conclusion: statistically speaking, the forecasts weren’t worth the paper they were printed on. Captain Arrow sent along his report only to be told, ‘Yes, the General is well-aware the forecasts are completely unreliable. But, he needs them for planning his military operations.’
Okay, maybe you don’t actually need a Nobel prize to know that rationality in the decision-making department is often lacking. Case in point: the capital markets. While subtle and ingenious in construction, the capital markets are, nonetheless, driven by the mass action of millions. They are a reflection of ourselves and necessarily express both the summit of our knowledge as well as the pit of our fears, and everything else in-between. And, this brings us to the subject at hand: Gresham’s Law. Sir Thomas Gresham was a financier in the time of King Henry VIII and his name is, of course, attached to the principle that ‘bad money drives out good money.’ Coin collectors of a certain age are familiar with the near immediate disappearance from circulation of all silver American coins once Congress had mandated the use of base metals beginning with the 1965 vintage. While all coins – silver and copper alike – carried identical legal tender value, it was the silver coins that vanished. Perhaps you are wondering what this has to do with bond investing? Everything!
Consider the state of financial markets as witnessed by metrics of implied volatility:

This post was published at Zero Hedge on Nov 19, 2017.


Perspective on the Gold/Oil Ratio, Macro Fundamentals and a Gold Sector Bottom

With all due caveats about the non-stellar gold CoT data (we’ll update in #474) I wanted to note a constructive situation in gold vs. oil, which is a key sector fundamental consideration. Now, there is still a constructive situation in play for nominal crude oil, so take this post for perspective more than anything.
Pardon the massive charts (click to expand) but I am going to start using these personally so that I can fully take into account the historical market aspects that go further back on a daily chart. They just don’t present as well at the website, unless clicked. So I’ll mostly use the smaller, clearer charts for public consumption.
Au/WTI bottomed in December of 2016 as the sector bottomed that same month. The first positive signal was a rise above the daily EMA 10. That is what Au/WTI did this week (until today, as it pulls back below the EMA 10, in-day). Pullbacks will happen even if this is a successful bottoming process. The relative downside volume into an oversold RSI (14) and even higher upside relative volume out of the oversold reading is interesting.

This post was published at GoldSeek on 19 November 2017.


Lithium – the new White Gold

Lithium is known as ‘white gold’ since electric cars require a lot of batteries. This has resulted in transforming the metal into a valuable and sought-after commodity. The demand keeps rising as there is a need for energy storage that can only be produced if lithium is available in sufficient quantities.
The price has soared from $1,550 to $9,100 a metric ton. This interesting metal was once used as a treatment for brain disorders. It was also the title of a song by Nirvana for its effect on the brain. Lithium is often found in salt flats when water repeatedly evaporates from a shallow lake, leaving behind a crusty layer of salt minerals. Consequently, Lithium is unique because it is the lightest known metal.

This post was published at Armstrong Economics on Nov 18, 2017.


Gold Gains As Stocks Slide, Yield Curve Crashes, & Dollar Dumps

Economic Data continues to surprise to the upside (compared to what had been terrible expectations)…is this as good as it gets?
But credit, the yield curve, and now stocks are not loving it…
Small Caps were the only major index green today…
The Dow and S&P 500- fell for the 2nd week in a row – something they haven’t done for 3 months…Small Caps best on the week (followed by Nasdaq thanks to yesterday’s panic buy)…

This post was published at Zero Hedge on Nov 17, 2017.


Asian Metals Market Update: November-17-2017

Gold and silver are steady on increasing chances of the passage of the US tax cut bill. Resurgence in bitcoins and other crypto currencies is preventing investment interest in bullion. Short term hot money has moved to cryptos from bullion. The price moves in gold and silver are mainly dependent on physical demand and physical premiums in Asia.
In India I see more and more retail trading volumes in Industrial metals than gold and silver. This year’s rise in industrial metals has attracted brokers, retail traders and everyone alike. Aluminum was untouchable a few years ago and has attracted good trading volumes. Nickel’s recent breakout has also resulted more numbers of daily traders. Some of the head core silver traders have moved to industrial metals as it gives more profits than silver. A word of caution to industrial metal traders. The rise in industrial metals has been mainly on expectation that the global switch to electric vehicles can result in a long term shortage. But in my view traditional auto makers are making their vehicles more fuel efficient buy making engines from Aluminum instead of cast iron. The global switch to electric transport may not happen overnight. A sharp correction in industrial metals can happen anytime. Nickel has seen a very sharp correction over the past seven days. Other industrial metals could follow Nickel soon.
Traders will start taking positions for the first week of December from now. Geopolitical risk and political instability in the UK and some Eastern European nations can cause furor. Economic data releases from anywhere in the world will affect markets if and only if they indicate a slow down next year.

This post was published at GoldSeek on November-17-2017.


Is a December Rate Hike Necessarily Bad News for Gold?

Conventional wisdom holds that an interest rate hike in December will be bad for gold.
But will it?
There is actually evidence the opposite could be true.
Higher interest rates generally boost the dollar. This puts downward pressure on the price of gold. So, one would expect a rate hike to cause gold to tank. But over the last two years, the opposite has happened. In fact, we have seen double-digit increases in the price of gold after rate hikes.
So what gives?
The biggest factor is that we generally know the Federal Reserve is going to raise rates long before it actually acts. We’ve heard talk of a December rate hike since July. In fact, analysts say the likelihood of a quarter point December hike stands at 97%.
So, with several months to anticipate a hike, it is generally already baked into the price of gold by the time it happens. The market has been factoring it in all along. The Economic Times of India provides a succinct explanation of what has happened over the last two years.

This post was published at Schiffgold on NOVEMBER 17, 2017.




Stocks and Precious Metals Charts – The Willful Mispricing of Risk

Today was a stock options expiry.
Gold and silver rallied smartly, back up to the levels where they roughly were before they were bushwhacked on the Comex into the FOMC meeting and Non-Farm Payrolls boogie woogie.
I guess the theory that this smackdown of gold to retest 1270 earlier this week was a gambit ahead of stock option expiry was tradeable.
We are in a new era. I am hearing this on TV and in comments and on chat forums.
We are in an era where risk has been abolished by the central banks and their free money. So there is little difference between prime and subprime, between 2 year and 10 year Treasuries, and between stocks and bonds.
According to some of the Pied Piper pundits stocks are better than riskless cash, because stocks are going to keep rallying forever after, and cash is trash. Buy buy buy, and don’t be left behind.
This is the kind of mantra that the sell-side and the wiseguys of the Street too often resort to when they are taking profits from their pool after a big price run higher, and unloading mispriced junk on mom and pop, through the funds and institutions.
Once the selling starts in earnest, and it will beyond any doubt at some point, by whatever event that may happen to trigger it, this is going to get ugly very quickly. But this is the system that we have today. This will be the third bubble and bust since the repeal of Glass-Steagall, one of the highest funded PR and political campaigns in modern history.

This post was published at Jesses Crossroads Cafe on 17 NOVEMBER 2017.


Global Silver Investment Demand Maybe Down, But Still Double Pre-2008 Market Crash Level

While physical silver investment demand experienced a pronounced decline this year, the volume is still much larger than the level prior to the 2008 U. S. Housing and Banking Crash. Investors frustrated by a silver market plagued with lousy sentiment and weak demand, may not realize that silver bar and coin demand is projected to be double what it was in 2007.
Thus, long-term precious metals investors continue to acquire silver on price dips while others may be selling out and placing their bets into the bubble stock market or cryptocurrencies. It’s not the larger precious metals investor who is worried about the short-term price, rather its the smaller investor.
Regardless, according to the Silver Institute’s 2017 Interim Report, global silver bar and coin demand are projected to fall to 130 million oz (Moz) in 2017 compared to 206 Moz last year. Even though physical silver investment demand will drop by 37% this year, it will still be more than double the 62 Moz in 2007:

This post was published at SRSrocco Report on NOVEMBER 17, 2017.