Financialisation – blame the carpenter or the tool?

Chris Powell of GATA took exception to my comments about the financialisation of the gold market in my post on Friday, saying that “the more that markets are ‘financialized,’ the more advantage passes to those with the greater access to financing”. I would argue that increasing financialisation increases the advantage of the average investor. [read more]

Interview on Precious Metals

On Friday I recorded an interview with Kerry Stevenson of Symposium, a firm which focuses on events promoting Australian resource companies and precious metals. The podcast was posted today and you can listen to it here. Kerry asks me how I got into the precious metals business and we discuss the purpose of precious metals in a portfolio. I talk about why I own gold, how banking has changed, money and debt and the Ponzi-like instability introduced into an economy if money is created for non-productive purposes. I also discuss how economies have been able to get away with excessive debt issuance, making mockery of calls for a reckoning.


The interview was a teaser for the Precious Metals Investment Symposium which will be held in Sydney on October 26-27th. I will be speaking on the Tuesday on:


Why hasn't the bullion banking system failed?


For years commentators have said that the failure of bullion banking is imminent and futures will default, yet nothing has happened. Why have they been so wrong? Bron will look into the mechanics of the paper/physical nexus to answer the question: will Paper always beat (pet) Rock?


The talk will partly cover the material in my fractional reserve bullion banking series of posts, but in a more easy to understand graphical way.


Kerry and Marcus have put together a really good speaker list, in addition to the mining company presentations. Well worth $199 for an early bird ticket. Look forward to meeting and chatting with my Australian readers in Sydney.


While I'm on conferences, I will also be speaking at Mines and Money in Hong Kong April 5-8th. I'm talking to our dealers in the region to see if they can line up some client seminars in Hong Kong and Singapore around that time.

Refinery view of the state of the gold market

Alex Stanczyk of the Physical Gold Fund has just posted a transcript of an interview with an executive at a Swiss refinery about the state of the market. It is well worth a read or listen to the podcast. Below are some quotes and my take on them. [read more]

Fractional Reserve Bullion Banking – Part 3

In our last post we discussed the risks a bullion bank faces when operating a fractional reserve system due to the mismatch between when its assets and liabilities fall due. The main way this risk is mitigated is by borrowing gold from another bullion bank or central bank. To understand how this works in practise, we need to understand how the bullion banks interact with each other. [read more]

Fractional Reserve Bullion Banking – Part 2

Discussion of fractional reserve ratios and maturity risk - read more

Chill out, gold-dudes

On Wednesday Bill Holter responded to my post Who is the player and who is being played? finishing up with “comments welcome (even from Bron Suchecki)”. So I emailed him last night. Right up I apologised for the inference that he was playing people – that was a rhetorical step too far. People who have been reading me since 2008 when I started my personal blog will know when I go after something I usually go hard. Probably something to do with growing up in a working class suburb, where you learn quick to get on the front foot.

 

Bill was surprised to get a reply from me, which I think reflects the expectation these days that many on the internet are willing to dish it out but can’t take it. I didn’t know how Bill would respond but the way he did speaks volumes. Others I’ve butted heads with get all personal or you can see the hate flowing through their responses. Indeed there was a lot of anger in some of the comments and tweets to my post and I found myself asking, why? [read more]

Fractional reserve bullion banking – Part 1

Re working some of my earlier posts on this topic on this blog, it seems to me that all the angry ranting about bullion bank failure is due to being constantly wrong yet not understanding why and thinking it is because figures are fraudulent or some such. Funny they never consider it might be because they don't understand how the system works and thus their interpretations of data and events is all wrong. One has to know thy enemy first http://research.perthmint.com.au/2015/09/16/fractional-reserve-bullion-banking-part-1/ and that means keeping a clear head.

Who is the player and who is being played?

New post on corporate site with some thoughts on articles about shortages of coins and comex stocks. And yes, I have read How to Win Friends and Influence People but I don't give a F. As Alex Stanczyk says "Price will not fix. West demands of physical delivery similar to Kyle Bass will fix price" and paying massive coin premiums just reduces the amount of physical drain out of the system and thus pressure on it.

Foreign currency denominated loans – what me worry?

If you only read mainstream media who just report press releases without any analysis you'll be surprised which Government is desperate or manipulative enough to do foreign currency denominated loans [read more]

Buying gold is not spending

Last couple of days I was in Malaysia meeting with our distributor Quantum Metal and their clients. While it is trite to say that the East views gold differently to the West, it is still striking when sitting in a meeting with a senior executive of a bank to hear them say “buying gold is not actually spending, it is just buying another currency”. Not something I could imagine a Western bank saying. Or for a Chairman of a large Malaysian co-operative to be keen to make it easy for their members to buy gold, seeing it as a smart way to save.

For Western “sophisticates” this would be considered backward but if they lived in a country where their exchange rate had depreciated over 30% in the space of one year, like the Malaysian Ringgit has, their views may be different.


While one does not need to educate Malaysians about why to hold gold, confidence in buying gold has been damaged by businesses like Genneva Sdn Bhd. It is unfortunate that gold trading is not regulated in Malaysia as this makes it a target for Ponzi schemes to use the affinity for gold as a way of attracting customers (although high monthly returns on investments should be a warning sign).

Skewness in gold and silver

Blogger John Koning recently posted on the negative skewness (or as he says: bulls walk up the stairs, bears jump out the window) of the stock market. He notes that “there are plenty of famous meltdowns in stocks, including 1914, 1929, 1987, and 2008, but almost no famous melt ups”. To demonstrate this, he produces a chart of 22,013 trading days since 1928 grouped by the daily return and showing the percentage of days that were negative.

 

The chart below replicates Koning’s figures but I have also included gold and silver London Fixes since 1968 for comparison, which is the longest data set I have. [read more]

Outlook for Aussie gold on exchange rate weakness

Back in July I said that “an investment in AUD gold may represent a reasonable bet” given that “the general consensus on the Australian dollar is that it will continue to weaken due to a poor economic outlook with commodity prices falling”.

Today, Australian media are reporting that the AUD/USD exchange rate will reach 0.60 by end of 2016. First is Deutsche Bank chief economist Adam Boyton quoted as saying that the dollar will keep falling to US60¢ by the end of 2016 and he “wouldn’t be surprised if the Australian dollar is printed with a ‘five’ handle in the next three years”. That article also says “Suncorp senior economist Darryl Conroy is also expecting the dollar to fall towards US50¢”. The Sydney Morning Herald was quoting AMP chief economist Shane Oliver as saying “he expects the dollar to reach US68¢ by the end of the year and slide to US60¢ throughout 2016”.


If the Australian exchange rate does fall to USD 0.60, then that puts a strong floor under the Australian gold price. The following conservative USD gold prices at that exchange rate equate to:


USD 800 = AUD 1,333
USD 1,000 = AUD 1,667
USD 1,200 = AUD 2,000


The chart below puts those moves into context. [read more]

Are platinum & palladium worth adding to your PM portfolio?

Reuters reported last week that “South Africa’s mining industry, unions and the government have committed to a broad plan to stem job losses, including boosting platinum by promoting the metal as a central bank reserve asset”. This is apparently an idea put forward by the World Platinum Investment Council in late 2014.

The idea got me thinking about the role of platinum and palladium in a precious metal portfolio. Generally I shy away from recommending them due to their lower liquidity compared to gold and silver and more volatile and industrial nature. As a theoretical exercise I thought I would extend the work done in this and this post to include platinum and palladium.


In those previous posts I was only dealing with two metals, which with 1% incremental changes only involves 101 different percentage allocations to run through. With four metals and a 5% increment, I was looking at over 1,771 different portfolios (assuming my macro was working correctly!)


Also, because I only had pricing data for the platinum group metals from mid 1990, I have just run the simulation from July 1990 to July 2015 with $100 being bought each month (total cash invested $30,000). The result in the chart below. [read more]