Precious Metals’ Ultimate Downside Protection

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Published : June 30th, 2017
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Category : Gold and Silver

With each passing day, the deception Central bankers stoop to, in a desperate attempt to maintain a status quo that has enriched the “1%” at the expense of all others, stair-steps inexorably higher.  Frankly, it’s surreal watching it all play out – knowing full well, that the only thing standing between the spectacular, terrifying final act of history’s largest, most destructive fiat Ponzi scheme is the historic, unfathomably blatant rigging of all financial markets; utilizing the most advanced “manipulation technology” imaginable; and a propaganda barrage Joseph Goebbels would blanche at, from the “evil Troika” of Washington, Wall Street, and the “fake news” Mainstream Media.  These sub-humans will say and do anything to destroy any semblance of truth and beneficence they come across; and anyone perceived to be a “threat” to its “un-masking.”  Don’t believe me?  Than please attempt to refute one of CNN’s most vicious anti-Trump propagandists being caught, red-handed, admitting the past year’s Russia-related impeachment push was based on lies.

In yesterday’s “Central bank hubris that would make Icarus blanche,” I, in painstaking detail, de-constructed the comically contradictory, blatantly misleading “strategy” the Fed and ECB have apparently committed to; to maintain easy monetary policy, yet talk a big game when the pressure of actually doing something is nil.

“Goldman Mario” Draghi.  Who, just two weeks after the June 8th ECB meeting; at which, it dramatically, unexpectedly, reduced its long-term inflation expectations well below its arbitrary 2% target; whilst proclaiming “the Governing Council expects the key ECB interest rates to remain at their present for an extended period of time, and well past the horizon of the net asset purchases”; stated in a press conference earlier this week that – following two weeks of plunging commodity prices, no less; “the threat of deflation is gone.”  Which aside from contradicting his prior statement to the point of lunacy; and having zero basis in reality; was espoused after the ECB maintained its negative 0.4% interest rate and historic QE program.

Next, we have the Federal Reserve – whose historically hubristic Chairperson, Whirlybird Janet, had the gall to claim – yesterday – that due to the “soundness” of the banking system (but don’t tell that to Banco Popular or Bank Monte Paschi), another financial crisis is highly unlikely in our lifetimes.  This, as she and the Fed’s #2 and #3 governors, Stanley Fischer and Bill Dudley, “warned” investors that it intended to tighten monetary policy further – despite not only the worst economic data in years, but interest rates in real financial markets falling to the lowest levels since Election Day.  Moreover, for all the bluster about the Fed’s “tightening,” all they have actually done is raise the Fed funds rate, over an 18-month period, from 0% to 1%; whilst maintaining its record-high $4.5 trillion balance sheet.  Furthermore, even if they actually intend to tighten further – “data permitting,” of course – the expectations they have set are that, in the worst-case scenario, they raise rates by a measly quarter-point six months from now; and perhaps, also “data permitting,” allow its balance sheet to start unwinding extremely slowly.  Like the ECB, all talk and no action.  Not to mention, not a shred of consistency with economic reality.

Fast forward to mere hours later, when it became crystal clear that the title of this morning’s Zero Hedge article, “Central banks deliver coordinated message,” is indeed the latest hare-brained scheme – starting with Canada, whose exposure to collapsing oil prices is as acute as any nation on Earth.  To wit, just last month, the Bank of Canada maintained the 0.5% policy rate that has been in place for two years; and since then, the oil price has plunged from $50/bbl to as low as $43/bbl earlier this week.  This, in an economy whose GDP growth rate over the past four quarters – like all other GDP growth rates, dramatically overstated by government accounting fraud – have been, despite oil prices doubling from their February 2016 lows, the pitifully low levels of -0.3%, +1.0%, +0.7%, and +0.9%.  And yet, “out of the blue,” the Bank of Canada’s #2 Governor incredulously espoused “the oil shock is largely behind us”; and thus, that low interest rates may no longer be needed.  I mean, you can’t make this stuff up!

Simultaneously, Bank of England Governor “Goldman Mark” Carney, just two weeks after maintaining the 0.25% interest rate that has been in place since last August, after having spent the seven prior years at 0.50%; supposedly “caused the pound to surge” with incrementally hawkish comments.  Mind you, aside from the oil price plunge – which has a significantly negative economic impact on the North Sea oil industry; the only incremental change in the UK’s outlook over the past month has been, oh yeah, the political chaos of its shocking election result.  In other words, not a single reason to believe the UK’s economic or inflation outlook have increased in the past two weeks; and yet, we’re to believe the Bank of England – coincidentally, in perfect synchronization with the equally “all talk, no action” Fed, ECB, and Bank of Canada – is about to aggressively tighten monetary policy.  Which, I might add, if they – or any of these Keystone Kop Central bankers – actually enacted such criminally stupid plans, it would make the worst global economic conditions of our lifetimes dramatically worse.

Then again, below is the statement Carney read, which was “interpreted” by the fake news financial media as “hawkish”; – likely, due to the simple fact that the dollar is crashing against the Euro (despite the Fed raising rates, and despite talking more hawkishly than any other Central bank; in turn, causing the Pound to rise in sympathy.  Irrespective of the noise of exchange rates between competing fiat toilet papers, I challenge you to read through his statement, and find a single “hawkish” comment.  Frankly, it’s no different than the purposefully vague, “disclaimer-like” statements all Central banks publish, all of the time, to “hedge their bets.”

When the MPC (Monetary Policy Committee) last met earlier this month, my view was that given the mixed signals on consumer spending and business investment, it was too early to judge with confidence how large and persistent the slowdown in growth would prove.  Moreover, with domestic inflationary pressures, particularly wages and unit labor costs, still subdued, it was appropriate to leave the policy stance unchanged at that time.  Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional.  The extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand – including business investment, whether wages and unit labor costs begin to firm; and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations.  These are some of the issues that the MPC will debate in the coming months.”

And thus, a new, comically stupid, historically hubristic “meme” is born – that for some completely illogical, and unstated reason or reasons; contrary to all they have said and done for years; the leading Western Central banks are, seemingly “out-of-the-blue,” simultaneously considering tighter monetary policy, amidst the weakest global economic conditions of our lifetime; which, if enacted, would weaken economic conditions dramatically more.  Case in point, the U.S. economy; whose GDP growth has weakened to its lowest level since the 2008-09 crisis, as a direct result of the seemingly infinitesimal rate hikes of the past 18 months (although comically, we learned that the final 1Q GDP growth rate was revised from the initial 0.7% estimate to a still pathetically low 1.4%; based on, I kid you not, a “surge” in consumer spending).  To that end, can someone tell me how March’s negative 0.3% retail sales result was incorporated into the calculations as a “surge?”  And better yet, given that automobile sales are quite literally, in freefall mode, how on Earth can the BLS claim the aforementioned “surge” was led by purchases of…drum roll please…”recreational vehicles!”

Hopefully, the intense level of detail – and FACT – the Miles Franklin Blog is providing, about topics every economic publication should, but doesn’t touch – helps you make the correct investment decisions, whatever your personal due diligence process deems them to be.  And consequently, if they involve the purchase, sale, or storage of Precious Metals, we humbly ask you to give Miles Franklin Precious Metals – in business for 28 years without a single registered complaint – the opportunity to earn your business.

All that said, it’s time for today’s principal topic; i.e., Precious Metals’ “ultimate downside protection.”  Which, despite the fact that countless issues are aggressively competing for this “title” – from hyperinflationary money printing, to accelerating economic malaise, surging political and geopolitical tensions, and countless “Black Swan” possibilities – is, plainly and simply, the supply and demand outlook, of a mining industry that has been decimated – perhaps, permanently so – by a combination of accelerating depletion; relentless, decade-long capital strangulation; and exploding operational risks.

Not that this is new news to long-time readers; given that, as a Chartered Financial Analyst with more than two decades of analytical experience in commodities businesses, I have exhaustively produced irrefutable evidence that the Precious Metal supply and demand balance – for gold, silver, and platinum – is as tight as it’s ever been; with, for all intents and purposes, ZERO chance of loosening any time in the foreseeable future.  Or perhaps, significantly longer.

After having published countless articles about the fact that production – for all three major Precious Metals – has decidedly peaked; whilst demand, on a global basis, is at or near all-time highs; as above-ground, available-for-sale inventories have been reduced to “fumes”; I’m not going to rehash the myriad FACTS supporting these claims.  However, in reading Steve St. Angelo’s latest article; amidst yet another blatant Cartel attack – exemplified by Monday’s “fat finger” paper raid, just after the COMEX open; I felt compelled to highlight his conclusion that one of the world’s lowest cost primary silver miners, Pan American Silver, has a current production cost of roughly $16.50/oz; whilst the entire global silver industry, on average has breakeven variable costs of between $15 and $17/oz.  Not to mention, his estimate that the global gold mining industry’s current breakeven cost is between $1,100 and $1,500 per ounce – suggesting at least half of all gold mining companies are currently in the red.

And by “breakeven cost,” I’m just talking about the cost of producing currently operating mines – as opposed to the all-in cost of not just producing, but exploring for and developing additional reserves.  Which is clearly much higher; given that for gold, silver, and platinum, industry-wide reserves have been plunging for years – with ZERO chance of improving any time soon, given that historically suppressed prices are too low to justify aggressive drilling; industry-wide capital is too low to fund such programs; capital availability is scarcer still; and share prices are too low to cost effectively re-finance via the equity (or “warrant” markets).  Not to mention, now that essentially all the world’s “low hanging fruit” has been found – to the point that, no major discoveries have been made in decades, it couldn’t be clearer that “peak production,” of all three metals, has already passed.  To that end, it was five years ago that the CEO of Goldfields, one of the world’s ten largest gold miners, said the gold mining industry could not be sustained at prices below $1,500/oz; and I assure you, since then, the industry all-in cost has not declined.

Silver’s production unquestionably peaked in 2015 – as predicted in the first Miles Franklin All-Star Panel Webinar in 2014, and validated in this year’s third installment.  Care of Steve St. Angelo’s fantastic work, we now know that silver production is plunging in nearly every major silver-producing nation – from the U.S., to Canada, Mexico, and Peru; and as for gold and platinum, these are the mainstream Wall Street production forecasts.

In a nutshell, it matters not what Central banks’ “monetary policies” are – particularly as, given the nature of the fiat Ponzi schemes they “manage,” the only viable solution is hyper-inflation.  Nor does it matter what the economy does; or financial markets of any kind, be they freely traded or manipulated.  As ultimately, Precious Metals’ “downside risk” is as low as any global asset class – given that not only are the world’s political, economic, and monetary winds blowing at their back, but their respective supply/demand balances have never been tighter; with essentially no chance of them loosening any time soon.  Throw in the fact that the Cartel has – be it purposefully or inadvertently – created historically low prices for gold, silver, and platinum; not to mention, historically unprecedented valuation anomalies; and it couldn’t be clearer how favorable Precious Metals’ reward/risk ratio has become.

Data and Statistics for these countries : Canada | Georgia | Mexico | Peru | Russia | All
Gold and Silver Prices for these countries : Canada | Georgia | Mexico | Peru | Russia | All
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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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