The Miles Franklin Newsletter
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From The Desk Of David Schectman
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Revenge Is A Dish Best Served Cold.
David's Commentary (In Blue):
Kahn said that in the 1982 Star Wars movie, The Rath of Khan. Do you think the Iranians have decided to forget about revenge in the targeted execution of the second most influential man in Iran? Or do you think they will wait, pick the time and the target or targets? No one can see the future, but we can still have a personal opinion on how this plays out. Sooner or later, I believe the confrontation will give gold a boost and should it happen when gold is already moving up fast for fundamental reasons, it will be dramatic. Even if the Iranians do not retaliate, the real confrontation will take place as they acquire the remaining capabilities to build a nuclear weapon. It is their stated intention to do just that and it is Trumps stated intention to never let that happen, and Israel’s too. The escalation is coming, sooner or later. I’m planning on sooner because I based my portfolio on the later and if I am wrong, it will be very costly.
Rely on fundamentals. Whip saw. Back to where it started. Is the threat over though?
One of the market analysts said he expects the Dow to hit 45,000 by 2030. At first I thought – 45,000, wow. But then I realized it’s only a 60% gain over ten years. With gold today at $1,550, a comparable gain, over the next ten years, would put gold at $2,500. Do you think gold at $2,500 within ten years is unrealistic? I do. It is unrealistically low. Gold, in ten years, in my humble opinion, gold will be priced thousands of dollars higher. No way the debt bubble, the interest rate bubble, the stock market bubble can hold it all together for another 10 years.
I can’t think of anything that is more relevant to the gold market in my 37 years in the precious metals industry than what has just happened.
Silver to Gold Ratio
An 85 to 1 ratio is a rare event. It has only happened a few times in the last 150 years. This is a true price anomaly. It is a price distortion. The average in the last 150 years is about 42 to 1. The last time we saw this ratio was 2010. Gold was 1900 and silver was 50. That’s a 38 to 1 ratio.
The idea behind this trade is not to convert all your gold into silver, but it is a vehicle to exploit the price anomaly. JPMorgan has amassed over 900 million ounces of silver. It is the single largest position in physical silver ever accumulated. It is nine times the amount of the Hunt brothers position when they tried to “corner the market” in 1980. They have used the leveraged paper price on the Comex to accumulate all of this physical silver, at very cheap prices.
In 2008, JPMorgan inherited Bear Stearns position. Bart Chilton, the former head of the CFTC admitted that Bear Stearns struck a deal with Hank Paulson and the Treasury Dept. JPMorgan has been keeping the price in check shorting the paper market on the Comex and accumulating physical silver ever since. He said he went to his superiors and discussed prosecuting JPMorgan but was told NO. In every silver short trade since 2008 they have a 100% success rate. If that’s not manipulation then what is? That is impossible without manipulation.
Throughout history there is a 90% correlation between gold and silver, so even though silver has not kept up with gold (recently), it will follow gold.
Silver is now being mined at a ratio to gold of 9 to 1 (9 ounces of silver for each 1 ounce of gold) so you can see how out of whack the 85 to 1 price ratio is. JPMorgan sees this coming.
Put a ruler on the following chart at 86 to 1 and nearly all of the past 100 years the price resides below this level.
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What can you buy today that cost’s one third of what it cost in 1980? Silver, that’s what.
Have you heard of Basil III?
That’s where the Bank if International Settlement is located and they host a meeting every year. They are the central bank’s Central Bank. Ever since the Bretton Woods Agreement at the end of WW2, that established the US dollar as the world’s reserve currency, US Treasuries have been the only Tier One asset. It can be used at full value as collateral. Gold was labeled a Tier Three asset. If the banks wanted to hold gold as a reserve asset, it could only be valued at one half its value. For a number of years, central banks sold their gold reserves. In the 1990s the central banks signed on to the Washington Agreement, which limited the amount of gold that they could sell into the market each year at a total of 500 metric tonnes per year.
Here is why this is such a watershed moment in the gold industry. At the meeting in Basel in 2017 the Bank of International Settlement told the central banks that gold’s status was going to be changed from Tier 3 to Tier 1 in 2019. Last April gold officially became a Tier 1 asset. Remember, a Tier 3 asset can only be calculated on the bank’s balance sheet at 50% of its value.
The new school young central bankers ignored gold’s history as a long-term store of value and went on a selling spree, dumping their bank’s gold and using the proceeds to buy Treasuries which paid interest AND was worth 100% of the value instead of 50% of the value as collateral. Until gold was revalued as a Tier 1 asset there was no real reason for central banks to own gold until Basel III changed that.
In 2018 central banks BOUGHT more gold than at any time in the previous 60 years. In 2019 that number is up by 90%. You could say the central banks have been given a green light to divest of the dollar and replace it with another Tier 1 asset. Gold is the only other Tier 1 asset and you can see what is happening here. Gold is up about $250 an ounce since 2017 and the added demand due to central bank purchases is no small part of the move.
For the first time since Miles Franklin was established, the central banks are on OUR side. This is a game changer. Gold will move up and silver will tag along with it. Silver is gold on steroids.
But the increased demand is also coming from another major source, the ETFs.
The following chart shows that ETFs and central banks are increasing their accumulation of gold in 2019. Total global production of gold is estimated to only be about 3,500 tonnes. It is not surprising that the price of gold has been moving up lately. There isn’t enough physical gold coming into the market to satisfy demand. That always results in higher prices.
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The retail investor has yet to join the party, but that’s coming too. The US Mint is selling virtually no gold – but in the past, when the price starts rising, the Mint moves out around 5 tonnes per month. Add that to the above mentioned new demand. Gold is set up to rock and roll.
Here are two charts that show the dismal retail sales of gold and silver coins from the US Mint in December.
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How Does the Dollar Play Into This?
Last spring, JPMorgan sent a letter out to their wealthiest clients (minimum of $100 million or more on account) advising them to sell dollars and buy foreign currencies and gold because the dollar’s status as the world’s reserve currency is in question.
China has set up the Shanghai Gold Exchange and has created a petro-yuan bond, which is a vehicle to buy natural gas from Russia and oil from Iran and pay them with the bond, which is denominated in yuan, which is convertible into gold on the Shanghai Exchange. In the last two years, the Shanghai Exchange has delivered 90 times more gold than the Comex, which sets the price.
The biggest issue is in oil but that has been addressed with the new Chinese petro-yuan bond, which enables them to sell bonds to pay for oil.
They have also set up a new system to bypass the SWIFT system, which will allow countries to side-step sanctions and dollar-based transactions. All of these events are taking a shot at the dollar.
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World’s super-rich are hoarding physical gold in secret bunkers
The strategic case for owning gold remains strong, according to analysts at Goldman Sachs. They point to such factors as political uncertainty, recession fears and other worries among the global elite.
Data from Goldman research showed that owning the physical metal
seems to
the global elite’s preferred way to hedge against tail events. Physical buying of gold has increased at a rapid pace in the past three years, statistics showed.
"Since the end of 2016 the implied build in non-transparent gold investment has been much larger than the build in visible gold ETFs (Exchange-traded funds)," Goldman said in a note sent to clients and seen by Yahoo Finance.
That simply means that for those including gold in their luxurious bunkers, demand for which has been growing at a fast pace, owning bullion is a must.
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Ed Steer
Looking at the 6-month charts below, there's a rather terrifying amount of altitude between their current prices and their respective 50-day moving averages...particularly in gold, so I'm as nervous as long-tailed cat in a room full of rocking chairs at the moment. Will they...or won't they...or even can they? I just don't know, nor does anyone else -- and only time will tell.
But as I've mentioned in more than one spot in this commentary, this week's COT Report showed that some of the Big 8 commercial traders were covering short positions at a loss during this reporting week. And as Ted says, it's the very first time they've done that...so under the surface, things are not the way they always have been.
But as Gregory Mannarino has been correctly going on about for several months now, the deep state, Wall Street and the New York banking fraternity desperately want higher oil prices -- and this Iran war thingy was their ticket to that.
Higher oil prices is another way of getting higher inflation, which is desperately needed to inflate away the massive piles of debt that currently exist. I suspect that the oil card was to be used instead of the gold card...with the rising price of oil setting the stage for the end of the price management scheme in the precious metals in the process. That in turn would drive commodity prices hugely higher -- and they would then have more inflation than they could possibly want. Now this particular chain of events is very much in doubt.
As Ted has been pointing out for some time now, how silver and gold prices unfold from here depends on whether or not the Big 7/8 commercial traders on the short side are able to snooker the Managed Money traders out of their historic and unprecedented net long positions. To date, they haven't been very successful. And as occurred in this week's COT Report, some of the commercial traders/Big 7 covered their short position for big loses for the very first time. I look forward to what Ted has to say about this in his weekly review later today. But as for the negative start to the year for the precious metals...this too shall pass.
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Kitco News
Gold prices kick off new bull run: $1,700 is 'initial resistance' — Bloomberg Intelligence
Gold prices are starting a new bull run, according to Bloomberg Intelligence, which is eyeing $1,400 an ounce as initial support and $1,700 as initial resistance.
“Gold is embarking on a new bull market,” wrote Bloomberg Intelligence senior commodity strategist Mike McGlone in his January commodity outlook. “The dollar-denominated precious metal is ending 2019 at the best level in six years and has made new highs in other currencies, notably the euro.”
It will be just “a matter of time” before gold in U.S. dollar terms follows the price of gold in euro terms to new highs, McGlone said.
“About $1,400 an ounce, which held resistance for five years, is good initial support at the start of the 2020s. The 2013 peak of about $1,700 is initial resistance,” the strategist highlighted.
The two major supporting drivers in the next decade will be higher stock market volatility and a weaker U.S. dollar.
“A primary component for more gold-price gains in 2020 and the coming decade is higher stock-market volatility … In the next year and decade, it's unlikely stock-market volatility can sustain such depressed levels, which favor appreciating gold,” McGlone pointed out.
“The unlikeliness of the record-high greenback to keep appreciating with similar velocity as it has since 2014 is an additional tailwind for gold prices,” he added.
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Greg Hunter
Financial writer and book author John Rubino sees the world careening toward a debt reset at an increasing pace. Rubino explains, “The coming monetary reset and what that means for gold and what that means for the rest of the global financial system, you don’t need a war to bring that about because we are making enough financial mistakes that will get us there in no time flat now without geopolitical turmoil. If you add a big war in the Middle East into the equation, then anything can happen. A scenario right now that is very, very feasible is we start shooting in the Middle East and Russia and China is on the other side of this in one way or another. They help Iran, and we have our allies helping us, and we start using these next generation weapons that are breathtakingly powerful. Nobody has any idea what’s going to happen when we start throwing these things at each other. . . . Oil spikes to $100 – $150 per barrel, and that tips the already extremely fragile global financial system over the edge. So, we get the ‘Greater Depression’ or the monetary reset or a hyperinflation or whatever we get sooner rather than later. It’s a disaster for everybody when it happens that way.”
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JSMineset
Bill/Jim,
A supposed party with possible knowledge inside IRGC says that since yesterday evening, 56 IRGC commanders have been arrested by the IRGC’s intelligence organization. I have not confirmed this as I have no reason to do so, so take this as plausible rumor.
This would presume IRGC being cleared of spies at the moment so no Iranian response until spy/spies found. This is believable as they did this about a year ago. One imagines they have much dissent within the ranks.
So if missiles have hit Iraq as you said, then they must feel confident in their cleansing.
By way, Putin was in Syria today.
Early today several” B2 Stealth Bombers departed their facilities at Whiteman Air Force Base. Cannot mention the specific takeoff time. The Callsigns for these aircraft were “Death-(#)”
Also earlier today, a “herd” of C-130 Hercules transport aircraft took off together from the US East Coast.
You no doubt saw that the coalition have started to move to Kuwait. I can only imagine that a departure from Iraq will be a reality, regardless of what is being said. And I still think there are chess pieces in play not visible.
I am more concerned about the impact potential hostilities will have on the markets with bank fallout as the liquidity is not there. On the Monday the 6th the Fed offered $76.9 billion in the overnight Repo facilities, while their exposure for the 1st of January was $255billion. This is not going away anytime soon.
As I have told you this is an international crisis of liquidity that has been brewing for a long time overseas and clearly has grown to domestic issues where markets tie together. There is simply not enough liquidity in the system at this time to alter the mess to come as the Fed is trying to fix a domestic problem while it is being played internationally, while the Primary Dealers in the US are more than happy to profit from the cheaper rates the Fed is trying to maintain. Meanwhile Main Street is being clobbered and many jobs are risk as liquidity woes tank companies.
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Egon von Greyerz
GOLD AND FINANCIAL SURVIVAL IN THE 2020s
2020 – what an ominous year and even more so what an inauspicious decade.
2020 is of course perfect vision or “facilely accurate judgment or assessment” as Webster’s defines it.
So why should we be able to forecast the 2020s better than we have the 2000s or the 2010s? Well, I can with confidence say that we won’t.
Global debt up 2x & Nasdaq 7x
Who, 10 years ago, could have forecast that the Nasdaq would have gone up 7x since the 2009 bottom. Or that global interest rates would be around zero or negative for most of the last decade. Or that global debt would double since the Great Financial Crisis started in 2006 from $125 trillion to $260 trillion. And with all that money printing, who would have believed that gold in US dollars would still be below the 2011 peak of $1,920 nine years later.
Forecasting is a mug’s game
It all comes to show that forecasting is a mug’s game. But many lucky successful investors would disagree with this statement. So would my good friend Alfred whom I wrote about in
February last year
. Alfred has been fully invested in the US stock market since 1945 and has made a fortune in spite of many vicious pullbacks.
Alfred proved that by always being long the market, you outsmart at least 99% of the professional investment managers who unsuccessfully try to time the market and turn over their portfolio frequently.
So Alfred had another good year with the Dow up 24% in 2019. What a good life, you just follow the index, don’t do any analysis, don’t time the market, never sell and just, never read any financial news and just enjoy your retirement. Alfred has done this for soon 75 years and is unlikely to change his simple investment strategy. Why should he since by just investing his savings he now has a portfolio today worth $16 million (chart shows $14M). Will Alfred be lucky for another year? As always, we will know afterwards
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Private Safe Deposit Boxes
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Unencumbered / Segregated Storage
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About Miles Franklin
Miles Franklin was founded in January, 1990 by David MILES Schectman. David's son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin's primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.
We are rated A+ by the BBB with zero complaints on our record. We are recommended by many prominent newsletter writers including Doug Casey, Jim Sinclair, David Morgan, Future Money Trends and the SGT Report.
For your protection, regardless of where you live, we are licensed, regulated, bonded and background checked per Minnesota State law.
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