Silver is Shining Bright, Sales are Through the Roof

People see the perfect buying opportunities for silver and have been stockpiling the metal. Demand is currently through the roof, so, what will this mean for the future of the metal? Find out here.

Reuters reports that the global silver-coin market found itself under an unprecedented supply squeeze. Both the U.S. and Canadian Mints had to set weekly sales quotas in July because demand was too high. Australia's Perth Mint responded to a record of 2.5 million ounces sold in September by rationing supply of a new line of coins.

When North American and Australian coin producers could no longer keep up, demand spilled over to Asia and Europe, creating a worldwide “domino effect”. Roy Friedman, vice president of sales and trading at a large U.S. coin dealer, says he never witnessed demand spilling over to other markets in his 35 years as a precious metals dealer.

“Silver [coin] demand is absolutely through the roof,” said Perth Mint wholesale manager Neil Vance. “There seems to be a bit of frenzy as people think there is a shortage of silver. But in fact it is a (crunch in) manufacturing capacity.”

While the U.S. Mint in West Point is operating three shifts and paying overtime, the Austrian Mint had to increase production of silver blanks and has begun allocating sales of its Philharmonic coins. But what is really driving the frenzy?

As the article notes, some investors like using these precious metals to protect themselves from volatility, especially in currencies and stocks. Since the Chicago Board Options Exchange (CBOE) Volatility Index briefly jumped to its highest since January 2009 earlier this year, it's easy to see why one would want to seek shelter for their assets.

Regardless of investors' reasoning, the industry will continue feeling the effects of increased demand for the time being. “We can only get a fraction of what we could sell,” said Terry Hanlon, president of Dillon Gage, with dealers adding that this buying binge has lasted longer and been more pronounced than previous ones.

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China Begins to Report Their Gold Reserves Monthly, But Are They Massively Understated?

Beginning in the last month, China has begun to report their gold reserves monthly. But with many questioning the accuracy of the numbers, what could be China’s ultimate goal? Find out here.

Most countries report their gold holdings to the International Monetary Fund (IMF) on a monthly basis. Until recently, China was among the few who elected not to do so, having created no such reports in six years.

But within the past month, that has changed. Now, they seem to have adopted the monthly report system in an effort to get in the IMF's favor and thus increase the chances of the yuan being included in the Special Drawing Rights (SDR) basket.

China hasn't just been criticized about the lack of reserves reports. Their first report after six years was met with widespread disbelief, as most analysts estimated that their holdings were high above the 'official' figure of 1,658 tons. It would be strange for China to have such small reserves considering how they view the metal. While the West recognizes the value of gold, many Asian countries – with China perhaps at the forefront – go a step further and see it as the ultimate money.

At any rate, Lawrence Williams finds the way China reports their gold reserves to be in stark contrast with how the West does it. Whereas Western countries will inflate their reserves by including leased and swapped gold in the figures, China seems to be hugely understating their holdings by using “non-reportable” government-controlled accounts.

Williams writes, “It also seems to be the situation that in China, a very substantial gold holding – far above the currently stated ‘official’ figure – is considered to be a prerequisite for attaining a stronger position for the yuan in global trade.” Despite this, it seems as though China prefers to avoid “rocking the U.S. economic boat” with a report of massive reserves – at least for the time being. But what happens once the yuan finds its way into the SDR basket is anyone's guess. After all, Williams does point out that Chinese gold holdings “magically” increased by 600 tons from 2009 to 2015.

Aside from frequent holdings reports, China is also devaluing the yuan in response to the IMF's recent criticism. Yet should the IMF delay the yuan's inclusion for too long in spite of China's efforts, Williams notes that the Chinese could see this as an unfriendly act and respond accordingly by trying to destabilize the U.S.' global position using their forex holdings.

While the time might not yet be right, Williams warns that “the game could change” should China's plans of joining the SDR be thwarted. “China thinks long term in a way the West mostly does not. It may lose the odd battle but ultimately aims to win the economic war,” he says.

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India’s Hunger for Gold Continues, Shows No Signs of Slowing Down

In India, gold consumption continues to rise. With a holy day further driving demand, their thirst for the yellow metal does not appear to be slowing down any time soon.

The Chinese stock market situation might have caused gold to lose some steam recently, but not all parts of the world are following suit. China and India have long competed for the spot of the world's top consumer, with China usually coming out ahead.

But now, with many Chinese investors being locked in the stock market, Business-Standard.com reports that India finally edged out China for the top spot after 6 months of relative equality.

Retail investment in India remained steady year-on-year at 50 tons. However, the biggest drive for gold demand proved to be the Akshaya Tritiya, a holy day in the country – gold purchases notably surge ahead of most Indian holidays. Overall, gold demand in India rose 2.5 percent year-on-year, bringing India's share in the global gold demand to 24.21 percent.

Indians are also stockpiling gold for this very important reason. Find out here.

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Why Gold Prices Took a Hit Last Week

Gold prices hit their lowest levels in five years last week, trading below $1,100. What was the real driving factor behind the price's decrease?

Without a doubt, many will use recent developments in the global economy as an excuse. The Grexit no longer looks like a certainty thanks to a bailout of questionable sustainability. China's gold cravings seem to be lesser-than-usual. There's also the looming threat of an interest rate hike and a subsequent strengthening of the dollar.

Yet, upon further examination, none of these seem to be the guilty party that sent gold plummeting. China's gold demand is strong despite day-to-day deviations, and the U.S. rate hike isn't nearly as 'around the corner' as many believe. Most importantly, perhaps, gold is fundamentally different from other commodities, having different demand drivers.

Instead, Mining.com's Frik Els points out two recent events that he refers to as a 'one-two punch that floored gold price'; one from the U.S. and one from China.

Els argues that the U.S.'s part in gold's fall came via speculators in the Commodity Futures Trading Commission slashing their net-long positions, with managed-money accounts significantly reducing their exposure to gold futures. Many of these sales came as a result of uncertainty regarding the direction that the gold market is heading in.

Similarly, Els notes that China played its part by performing a massive gold sale worth $2 billion in just a matter of minutes. Due to its size, the Monday Shanghai Gold Exchange sale of 4.7 tons immediately caused gold to drop by 4.3 percent – gold sales usually average no more than 96 kilograms a minute on the SGE.

Els adds that these seemed an "almost concerted cross-continental effort to push price through support levels that the metal has bounced off numerous times before." Yet despite these drawbacks, gold still managed to bounce back to $1,100 almost immediately.

While such falls in the price of gold are universally viewed as negative, many buyers still see them as little more than a buying opportunity. As gold fell by over 3 percent in both India and Turkey, consumer interest in these markets grew – the metal's low correlation with other assets makes it ideal as a safety-net investment to diversify one's portfolio.

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China's new gold fix to rival the establishment of the West

For years, the gold fixed has been based in London. But with increasing concerns of manipulation, China is seizing an opportunity to take over the reigns.

With the recent introduction of the London gold fix, there has been some speculation in the markets that China would also participate in the new system to price they yellow metal. However, recent indications are that the country is in fact now looking to have a pricing system of its own. Reuters reports that China is already working on a yuan-denominated gold fix, which is expected to go live later this year.

The yuan gold fix would launch on the international platform of the Shanghai Gold Exchange (SGE), with the SGE acting as the medium for the trading. This is somewhat in contrast to the existing London gold fix, whose trades are done between banks without a governing body. That said, the SGE did work with major Chinese banks (and even some foreign ones) when creating the benchmark.

Despite the process already being significantly underway, a participant directly involved in the testing told Reuters: "No final proposal on the fix has been given yet. This was like beta testing and there is still some room for discussion."

This step is seen as yet another move meant to establish China as a global financial force. With the country being among the top in the world both in terms of gold production and consumption, it's not too surprising that they are using the yellow metal to establish their currency by imposing their own benchmark on any Chinese gold trades. Indeed, considering its share of the global gold market, much of this decision stems from China feeling entitled to its own fix.

While the creation of an additional fix itself isn't a direct move against the existing gold pricing system, it's possible that the Chinese gold fix might end up pressuring and competing against the one currently based in London.

It's probably no coincidence that China is pushing for its own gold fix at a time when the established pricing system in London has found itself under heavy criticism due to lack of transparency. To counter such claims against its own system, and reduce concerns about potential manipulation, the SGE will look to trade a 1 kilogram contract a few minutes every day.

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5 Popular Myths About Gold, And Why You Shouldn't Believe Them

There's plenty of misinformation in the public domain about investing in gold and silver. Here are some reasons to be skeptical.

Stefan Gleason of TheStreet recently tackled the five most common gold myths, why they are wrong, and how this misinformation can cause investors to shy away from gold. Gleason lists the myths as follows:

Myth #1: A rise in interest rates will cause the price of precious metals to go down.
Analysts who support this idea ignore the fact that gold and silver had a successful run in the late 1970s, when interest rates were steadily on the rise. Gleason argues that only real interest rates affect the price of precious metals; as long as these are below the rate of inflation, and thereby considered negative, gold prices will likely be strong.

Myth #2: The possibility of government confiscation.
The 1933 Executive Order by President Franklin D. Roosevelt, which ordered U.S. citizens to exchange their gold bullion for cash, was not nearly as far-ranging as many are lead to believe. The government did not seize bullion kept in citizens' homes, and while there was some minor confiscation of bullion from safety deposit boxes in failed banks, another raid of this type is highly unlikely given that the dollar is no longer on a gold standard.

Myth #3: Numismatic coins are "confiscation-proof".
Often perpetuated by dealers of rare coins, the simple fact is that no law says that numismatic coins are not at risk for confiscation. In fact, Gleason suggests American Eagles as an option to consider, saying, "They are considered to be legal tender coins in the U.S., which would seem to provide at least some legal barrier to any potential gold prohibition effort."

Myth #4: Mining stocks can offer greater gains than bullion.
Gleason writes that gold and silver bullion is notably safer, as it experiences much less severe downturns than mining stocks. He adds that "while mining stocks can be attractive at times for speculators or traders, they aren't suitable for most buy-and-hold investors."

Myth #5: The possibility that greater powers are keeping gold's price down.
Price manipulation occurs in all asset markets – not just in the gold market – meaning that no asset class is completely immune. Regardless of whether there is large-scale manipulation or on a smaller level by a few rogue traders, the constant industrial demand for precious metals will likely always make them a safe investment for the "little man" who avoids future markets and owns actual bullion.

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The Dollar or Gold: What's the Best Form of Money?

We all accept the fact that the U.S. Dollar is currency. But is gold a better alternative?

A recent Forbes column from Keith Weiner touches on what money really is contrary to what the popular belief might be, and how using gold as opposed to the dollar when assessing value would benefit everyone. Weiner, a long-time advocate of the gold standard, reminds readers that a large reason why the dollar is used as a medium of exchange as opposed to gold is because the government taxes the precious metal.

Weiner points out that the dollar is considered money because the government imposes it as such. Further, the government hinders the circulation of gold as a currency by treating it as a commodity (as opposed to currency), which thus subjects it to taxation.

Weiner strongly disagrees with such a view, insisting that gold is the actual money and that "the dollar may circulate, but it's not money. It's just a small slice of the government's debt. It's an I.O.U., a promise to pay, though most have long forgotten what the government once paid — gold."

He further argues that, ultimately, the "government can't change the laws of economics, such as transforming its paper into money." Weiner also believes that re-introducing gold into commerce would improve the free markets and, overall, have a positive impact on the economy.

Weiner concludes by noting that the dollar can't be an appropriate measure of value as its own value is on a constant decline, saying that a "falling unit of measure doesn't work." According to Weiner, there needs to exist a better way to gauge value than merely using whatever is currently the accepted medium of exchange, especially if said medium is an imposed one, stating that "gold is, by far, the best measure of value. Nothing else comes close, certainly not the dollar."

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The simple reason the Swiss are moving away from cash deposits and into gold

With negative interest rates sweeping the nation, investors are turning to gold to avoid cash charges

Swiss bank and wealth manager, Vontobel Holding AG, reports that Swiss investors are turning to gold as the Swiss National Bank is forcing banks to add charges to cash deposits. Coupled with concerns over Greece's potential exit from the eurozone and the possibility of increased conflict in Ukraine, this means that an increasing number of investors will be looking for safe haven assets to protect their holdings.

Gold has already climbed 4.2 percent this year in spite of potentially higher interest rates in the U.S. strengthening the dollar, as investors' holdings in gold-backed funds are reaching a peak not seen since October. Chief Executive Officer of Vontobel, Zeno Staub, told reporters that they "keep noticing that gold is coming back into favor with investors" when the company announced their yearly earnings on Wednesday.

The negative yield from holding onto Swiss francs and bonds is making bankers and their clients look for alternate investment options. The increased charges imposed by the Swiss National Bank on banks keeping their franc deposits in the central bank saw Vontobel increase their proportion of gold in discretionary managed investments by two percent.

Several prominent Swiss banks, including UBS Group AG and Credit Suisse Group AG, as well as Geneva's biggest banks are all introducing additional deposit charges to certain types of customers in order to compensate for the introduction of negative interest rates by the Swiss National Bank. In order to avoid the cash charges, many investors are turning towards gold.

While Staub said that Vontobel charging some clients more is only meant to dissuade large investors (like banks) from seeking security and that smaller and private clients won't be affected by the changes, Chief Executive Officer of UBS Group AG, Sergio Ermotti, voiced his concerns that this might not be the case.

Ermotti believes that the franc's surge and negative interest rates in Switzerland and other euro areas might end up putting pressure on profitability should they continue, suggesting that private clients might end up being affected by the cost of negative rates as well.

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Official casts doubt on Federal Reserve policies

A long-time Fed is worried: "We're not going to be able to hold the line anymore."

In a recent interview with the New York Times, Charles Plosser, president of the Federal Reserve Bank of Philadelphia, voiced some serious concerns over the long-term effects and ramifications of the Fed's ongoing loose monetary policies.

Plosser, whose term as a key policy maker in the bank will end in March, has often criticized the Fed's policies during his nine-year term on the board.

Plosser maintains that history has proven that monetary policy is only a temporary way to assist economic growth and that, once we reach a tipping point with the Federal Reserve's loose monetary policies (such as Quantitative Easing and near-zero interest rates), we will experience significant negative backlashes. Most recently, the European Central Bank experienced this first-hand when the Swiss National Bank de-pegged the franc from the euro, thus sending the value of the euro plummeting. According to Plosser,

"At some point the pressure is going to be too great. The market forces are going to overwhelm us. We're not going to be able to hold the line anymore."

Plosser argues that the idea that low inflation somehow indicates a weak economy was rebutted in the 1970s, and therefore calls for raising short-term interest rates ahead of time – regardless of what the move's effects may be on inflation. By taking such an action, one of his primary hopes is to avoid reaching a point in the future when market forces dictate that the Fed must increase interest rates quickly. Such a scenario could be disastrous to the economy and cause significant volatility.

Plosser also stresses that any monetary or fiscal policies, especially as loose as those of the Federal Reserve, cloud our view of normal market conditions. He argues that we must deal with the economy in a realistic fashion rather than through unrealistic or overzealous application of stimuli. If anything, he believes that most of the Fed's loose policies should have ceased as soon as the financial crisis was over.

One major concern is what the consequences of the Federal Reserve's monetary policy will end up being, especially over the next five to ten years. Plosser claims that the real cost of what the Fed is doing has not yet been determined:

"I think the jury is still out on the costs. Because the cost I was worried about was the longer-term cost of unraveling all of this. So maybe I was right, maybe I was wrong. That remains to be seen."

Once the market realizes that the Fed can no longer keep holding interest rates back in order to increase liquidity, a snap-back in premiums will become unavoidable. This threatens to further plunge the economy into uncertainty and volatility as everyone would suddenly finds themselves with less money.

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Gold hits a 4-month peak

On the back of a stunning move by the Swiss National Bank, the dollar slumps and gold moves higher

No one saw it coming. Switzerland shocked the world last week when it abandoned its three-year cap on the franc. As a result, European shares and bonds yields tumbled and the dollar moved lower. Gold, however, rose to a 4-month high.

According to investment specialists, this rise has can be attributed to the uncertainty prevailing in the market. Ole Hansen, Senior Manager at the Saxo Bank explained, "Gold is gaining from a risk-off situation because nobody expected the Swiss central bank not to keep that cap." According to him, this has created "potential big losses in many places and is obviously triggering some flight to safety."

On the other hand, the dollar fell 0.2% percent and European stocks plummeted as a result of the move from the Swiss National Bank, which many believe was spurred on by the European Central Bank potentially announcing a money-printing program in the coming days.

Hansen further added that this could add more pressure on the euro as all this happened just "a week before the ECB meeting." Because of this, "gold in euro terms" is sure to benefit further.

Since the financial crisis in 2008, central banks have opted for more liquidity. This has over the years has had a very positive impact on the price of gold. The price of Euro-dominated gold rose to its highest level since May 2013 to 1,077.09 euros an ounce.

Though there is still some uncertainty about what the metal will do in the rest of the year, it has risen six percent in just this month.

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Are bonds a safe investment? Not according to veteran investment specialist

Ian Williams advises against investing in bonds, says gold a far better option

For more than 300 years, bonds have been one of the safest investment options available. No longer, according to Ian Williams, veteran investment specialist and Chief Executive Officer of Charteris Treasury Portfolio Managers. Why? Because bonds have been enjoying a bull run for the last 40 years, one which he predicts will end soon "with interest rates set to rise and lower oil prices boosting growth."

According to Williams, "Bonds are a highly-dangerous asset class" and carry extremely asymmetric risk as compared to the possible reward. In an email statement, he referred to the yields of UK government bonds, currently at their lowest since first launched in 1703. Williams adds, "Buying any asset at 300-year highs carries huge risks."

The 62-year-old Williams believes in 40-year cycles. And as the cycle for bonds is near its end, he has not only launched a special fund that will see higher payments as interest rates increase, but he has turned his attention to gold and silver, saying that they are set to become some of the best performing assets.

Of his new New Strategic Bond Fund, Williams says, "the expectation is that this fund will be in the one percent that does not lose capital when the bear market in bonds begins." And according to him, "If our 40-year cycle analysis is correct, that bear market is not very far away."

This trend is sure to be further accentuated in Europe where government debt has become a proportionately larger share of the GDP. As a result, bonds from some countries like France and Italy are no longer an attractive investment option, since they offer lower returns while the risk that the governments might renege on their debts is growing.

Interestingly, the yield rates on French and Italian bonds dropped to all-time lows amid rumors that the European Central Bank is planning to buy bonds to reduce deflation and bolster growth. The rate for French 10-year bonds went down as low as 0.718 percent while 5-year Italian bonds were knocked down to 0.781 per cent.

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