May 10, 2019
The Miles Franklin Newsletter
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From The Desk Of David Schectman-
David's Commentary (In Blue):

I bet this graph will surprise you. The naysayers will claim that you can get whatever result you desire by carefully choosing the time period. True enough, but what’s wrong with using the beginning of the 21 st Century as the starting point?
Larry Edelson passed away two years ago this March. He was one of the most interesting and well-respected writers in our industry. They say “hindsight is 20-20” so let’s see if his predictions came to pass.
 
I expect gold to enter a mostly sideways trading range, including a correction in the months ahead, which could retest the $1,200 level or a tad lower on the downside. Gold inevitably will skyrocket to $5,000 or more. The Dow is going to 31,000.

Larry was in the ballpark with his gold call. In the summer of 2008 Gold did retest $1,200. His upside is $5,000 or higher.

Larry prediction for the Dow is off – or it’s been delayed, depending on your point of view. It’s currently 20% below his target of 31,000. But give credit where credit is due. Predicting the price of anything in the future is at best an educated guess. His predictions were based on half a dozen different cycles converging in this time frame. That just goes to show, that you can’t use previous cycle data to get a reliable timeline. If the markets were not manipulated, then perhaps the cycles would work. When the Fed and JPMorgan can do pretty much as they please with interest rates, money supply and in the futures markets, what you end up with is what suits them. It will come to an end, eventually, and then the markets will have the last laugh.

"Ultimately for gold to erase its bubble and get back to its bubble origin, it would be $400-450."

He adds, he would be a buyer at $400 - $450. Ya don’t say! Looks like Harry (I Love To Bash Gold) will never own any gold. 

Here is a chart that looks back on gold’s performance. It bottomed at $1,050 in the summer of 2016. In other words, he missed his target by a country mile.
 
Do you think that he learned from this? Never. His latest prediction to hit my Email in box

Harry Dent here.
I’ve been watching recently as the colossal financial bubble we’re living in stretches closer and closer to its breaking point.
When this thing pops … soon, and very soon … it’s not only going to take down the entire stock market – it’ll absolutely crush many of your other assets, too.
Including GOLD.
I hear from readers every day that they’ve moved their money into gold to prepare for the coming crash. That’s when I’m forced to give them the harsh truth —  gold will NOT protect your money .
In fact, owning gold during this crisis will only LOSE you MORE money!
My opinion is the polar opposite of what a lot of “experts” will tell you — but I’ve got the facts and the research to back it up.
 
Based on his track record on gold, why would you listen to anything he has to say about gold?

In a major financial “crisis” it is safe to say the Fed will try to come to the rescue. They will revive QE and NIRP and God knows what else. Money will flow from the printing press. The banks will be rescued, no matter what the cost. We know that’s what will happen because we already lived through it 10 years ago. So I ask you, what happened to gold when the Fed did what they had to, to save the banks and the economy? Did gold go down, or did it go Up? Sure looks like gold shot up by $1,000 an ounce between 2008 and 2011 - during the last financial crisis. 
Further, at this point in time, Russia and China are moving out of dollars and increasing their gold reserves. In fact, central banks in general are increasing their gold holdings. 
In Dent’s “financial crisis” I would expect gold to RISE to new all-time highs, not to collapse. For me, Harry Dent is the last person I would listen to on where gold is headed. 
A year ago SRSrocco pointed out a major flaw in Harry Dent’s gold prediction. They point out that rising energy costs guaranty that gold can never go back to the levels Dent talks about.

Harry Dent has been making the rounds suggesting that for gold to get back to its pre-bubble price, it would need to fall to $400 or $450. If we were to believe Mr. Dent, then it would be bad news for gold investors. However, Harry Dent’s gold price forecast is quite faulty because he fails to consider the most critical factor.

Harry Dent has become well-known on the internet for his $750 gold price forecast. He bases a low gold price upon what he calls “The end of the Commodity Super-Cycle.” Dent sees nothing but massive deflation ahead. Thus this will cause the gold price to fall along with all commodities.

Unfortunately for Dent, his gold price forecast is incorrect because he fails to incorporate the Falling EROI (Energy Returned On Investment) and energy into his analysis.  Dent, like many in the financial industry, believes in the “Energy Tooth Fairy” (a term coined by Louis Arnoux). What I mean by the Energy Tooth Fairy is the notion that economy will continue to grow forever because plenty of cheap energy will always be available. Thus, economic and business cycles, forecasted by Dent, will also continue forever.

Dent makes several forecasts in the interview, but his price target for gold is the most startling for precious metals investors.  He says gold is heading for $650-$750, but that is just the first target.  Dent then says, “Ultimately for gold to erase its bubble and get back to its bubble origin, it would be $400-$450 . Once gold hits $400 or $450, then Dent would be a buyer.

I gather Dent is suggesting that gold became a bubble in 2004 when it went above $400 an ounce:
As we can see in the chart above, the gold price never fell below $1,050 since the 2008 Financial Meltdown. Is Harry Dent suggesting that the gold price will drop another $600 from its low of $1,050 in 2015??

I imagine Dent arrives at his $400 gold price forecast from using the Eliot Wave Theory of technical analysis. While technical analysis is an excellent tool to forecast price, it doesn’t incorporate the changing energy dynamic that controls the price of most goods, commodities, metals, energy, and services.  Which means, Harry Dent is forecasting in a vacuum, or without the most crucial component… ENERGY.

For example, does Dent realize the cost of gold production has skyrocketed since 2004? The following chart shows the top four gold miners estimated total cost versus the gold market price:
In 2004, the top four gold miners (Barrick, Newmont, AngloGold & Goldcorp) average estimated total production cost was $340 an ounce based on an average $396 realized price. I calculate the estimated total production cost by using the net income or adjusted income as a percentage of total revenues.  Thus, the average profit margin for the top gold miners in 2004 was 16% .

Now, compare that to an estimated production cost of $1,146 in 2017 while the group received $1,260 an ounce for selling their gold. The top four gold miners average margin of profit in 2017 was approximately 10%. So, the gold miners aren’t getting rich producing the King Monetary metal.

Again, how can Dent forecast a pre-bubble $400 gold price, if the average total production cost is nearly three times higher?
Dent’s failure to understand how energy is impacting the gold price (and everything else) will come back to bite him hard in the future. If the gold price fell back to $400, that would utterly destroy the gold mining industry. I haven’t seen one gold mine profitable at a price anywhere near $400-$450.

Of course, this doesn’t change the fact that analysts such as Dent will continue to make short-sighted and incorrect forecasts because they haven’t taken into account the vital ENERGY COMPONENT.

Now, if we take a very conservative approach at the gold mining industry’s basic cost of production, the price is still more than double than Dent’s $400 price:
The gold mining companies now put out a new financial metric called the AISC – “All-In-Sustaining Cost.” However, this does not include all costs and is not a realistic figure for the gold mining industry to survive for long.  Regardless, the average $890 All-In-Sustaining Cost that the top four gold miners reported is still 122% more than Dent’s $400 low price.

Furthermore, the gold mining industry’s costs are rising a great deal more in percentage terms than the oil price. For example, let’s take a look at the change in oil price and the top four gold miners total production cost:

2004 oil price = $38.26
2017 oil price = $54.13
2004-2017 oil increase = 41%
2004 gold cost = $340
2017 gold cost =$1,146
2004-2017 gold cost increase = 237%

While the oil price has increased by 41% since 2004, the top four gold miner’s total production cost has increased by 237%.  How can the gold price be in a bubble if it costs 237% more to produce it today than it did in 2004?? Does Dent believe really believe that the Eliot Wave Theory or supply and demand forces are the only indicators of the price??
The next chart shows the total production cost from Barrick and Newmont versus the gold market price:
As we can see, the gold market price was never below Barrick and Newmont’s total production cost. If gold was ever in a small bubble, then it may have been a bit frothy in 2012 when the average spot price was $1,669 versus a $1,272 average cost for Barrick and Newmont.

If we are going to utilize “supply & demand” forces in determining price, then more demand in 2012, pushed the gold price nearly $400 above Barrick and Newmont’s total production cost.    Analysts need to realize that supply and demand move the price of goods, commodities, metals, and energy above or below their cost of production trend line.   However, the gold mining industry continues to sell gold for more than its total cost. And, I believe this has been true for quite some time.

Now, if we want to spot a real bubble, let’s compare the Gold Chart with the Dow Jones Chart:

Now, if we want to spot a real bubble, let's compare the Gold Chart with the Dow Jones Chart:
If we take the most conservative technical analysis for gold using the 200-Month Moving Average (MMA), it's $975 versus (Red Line). Thus, the current gold price is 33% above its 200-MMA. However, the Dow Jones Index is 90% above its 200-MMA:
Now, I am not saying that the gold price will fall to its 200-MMA of $975, but to claim that gold is going to its pre-bubble price of $400 in 2004 is preposterous when we understand the tremendous production cost increase to produce the shiny yellow metal.

While Dent believes most assets will decline during the next big deflation, he argues that the safe place to be is in cash or U.S. Treasuries. While it may be a good idea to hold some cash during a meltdown, U.S. Treasuries, especially the 30-Year Bond, are going to be toast when the world experiences a "Seneca Cliff" decline in U.S. and global oil production. Without cheap and abundant oil, all the debts will implode in the future.

We must remember, U.S. Treasuries are not assets per say, they are obligations or debts to be paid in the future.  Because Dent does not understand how the Falling EROI of oil is destroying the global economy, he can claim that gold will go to $400 .
However, as debts and assets disintegrate in the future, the safe assets to own will be the precious metals. Thus, gold will hold (or increase significantly) its value versus the majority of assets.

It appears that a confluence of events are quickly coming together that might be allowed to send precious metals higher, although I just might be imagining things. There's this trade issue with China -- and trouble with Iran...both of which were instigated by the U.S. deep state. With the Mueller Report a big 'nothingburger'...the only remaining way for them to get rid of Trump would be for a war of some kind, a stock market in precipitous decline, a falling dollar -- and commodity prices soaring to the heavens. All led by significant rise in precious metal prices.
 
This care and maintenance of the U.S. equity markets, the U.S. dollar -- and the price management scheme in commodities, can't go on forever. With the precious metals being the poster boys for that...particularly silver and gold. Maybe we're on this 'care and maintenance' thingy until whatever is allowed to happen, happens.
 
I've always stated that a sharp fall in the prices of all things paper, accompanied by a precipitous rise in hard asset prices, would not happen in an economic or political news vacuum -- and I still feel that way.
 
And as I said at the start of all this, this is all pure speculation on my part.
 
So we wait some more.
Here are two interesting articles that I borrowed from Ed Steer’s site.

 
This story appeared on the  moneymetals.com  Internet site on Wednesday sometime -- and I found it in a  GATA  dispatch yesterday. Another link to it is  here .
 
Here's an interesting chart that Larry Galearis dug up for me yesterday, that I didn't have room for in Wednesday's column. It's from J.P. Morgan -- and from Page 64 of their 71-page Q4/2018  Market Insights: Guide to the Markets . It's entitled " 2-year annualized returns by asset class [1998-2017] ".  As you can see, gold came in second place.
 
There was also a similar JPMorgan chart for the year ending 2018 floating around the Internet as well the other day -- and gold was in No. 2 spot on that chart too, but it was just too tiny to post here. But ' click to enlarge ' feature works just fine with this one.
 
U.S. Representative Alex Mooney (R-WV) introduced legislation this week to provide for the first audit of United States gold reserves since the Eisenhower Administration.

The Gold Reserve Transparency Act (H.R. 2559) - backed by the Sound Money Defense League and government accountability advocates - directs the Comptroller of the United States to conduct a "full assay, inventory, and audit of all gold reserves, including any gold in 'deep storage,' of the United States at the place or places where such reserves are kept."
 
HR 2559 requires more than just a physical assay, inventory, and audit, however. Even if all United States gold can be physically accounted for, it may nevertheless be encumbered with third-party obligations - or otherwise be impaired by bank financialization.
 
Therefore, Mooney's gold audit bill also requires " a full accounting of any and all sales, purchases, disbursements, or receipts... a full accounting of any and all encumbrances, including those due to lease, swap, or similar transactions presently in existence or entered into in the past 15 years , and an analysis of the sufficiency of the measures taken to ensure the physical security of such reserves."
 
Over the years, the U.S. Treasury has faced allegations that it has sold, swapped, leased, or otherwise placed encumbrances upon some of America's gold reserves.


Are we perhaps finally getting some clarity on where the latest U.S. blustering on Iran is actually headed? On the one-year anniversary of the Trump administration pulling out of the Iran nuclear deal (JCPOA), the president issued new statements affirming the deal is "broken beyond repair" and placed new sanctions on Iran's industrial metals sector.
 
The newly announced sanctions seeks to prevent countries from importing Iranian iron, steel, aluminum, and copper exports, targeting a sector that makes up 10% of Iran's export economy. Yet simultaneously, White House special envoy for Iran Brian Hook stressed to reporters that the U.S. is not seeking war with Iran, but it remains that "any Iranian attack against the United States or allies will be met with force."
 
The White House statement said, "The United States will aggressively enforce its sanctions, and those who continue to engage in sanctionable activity involving Iran will face severe consequences." Toward this end, other nations have been put "on notice that allowing Iranian steel and other metals into your ports will no longer be tolerated," according to the statement.
 
The statement justified its increasingly toughening sanctions on because "the regime continues to engage in destructive and destabilizing activities," including maintaining "its nuclear ambitions and continues to develop its ballistic missile capabilities and support terrorism".
 
But new sanctions, including ending the waiver program which allowed up to eight countries to purchase Iranian crude, as well as threats - including this week's supposed deployment of a carrier and bomber strike group (it was pre-scheduled but "moved up" after Bolton's claim of immediate threats facing U.S. troops in the Middle East) -- don't appear to be working.
 
These increasing levels of sanctions remind me of the ever-increasing sanctions placed on Japan by the U.S. prior to Pearl Harbor. But the Iranians are too smart to goad the U.S., so it's a given that a 'false flag' event may occur that will be blamed on them anyway. This  Zero Hedge  article put in an appearance on their website at 3:50 p.m. EDT on Wednesday afternoon -- and I thank Brad Robertson for pointing it out. Another link to it is  here .
 
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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.

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