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6.3.2017 - Free Investing Newsletter Bookmark

Oh no, Not Gold Again!

Yeah, it’s Gold again. Maybe. Let’s chat about why....

Go back to October of last year and I wrote an article about how the Islamic Society was looking into ways in which Muslims could use gold as a savings or investment or even a method of payment. Previously, there had been an age old rule on the books that says gold is a ribawi item, which means that it must be sold on weight and measure, and cannot be traded for future value or for speculation. In order for a gold instrument to be Shariah-compliant, the precious metal must be the underlying asset in related transactions.
As you can imagine that kept tens of millions, (if not billion) Muslim’s from investing in gold. If you have to buy it on weight and measure and it can’t be traded for future value... what the heck good is it? None. So, for well over 2 years, the Accounting and Auditing Organization for Islamic Financial Institutions, along with the folks at the world gold council, were looking into a way to introduce gold to the 2 billion plus Muslim’s of the world.
Well, in December they announced their findings, and for the first time there was some clarity in how a billion plus Muslim’s could indeed begin to use gold. In fact GoldCore came out with this the very next day (granted, they’re in the gold business)

The sharia gold standard announced yesterday allows the over 110 million investors in the Islamic world to invest in
a) vaulted gold
b) gold savings plans (such as GoldCore’s GoldSaver)
c) gold certificates
d) physical gold ETFs including “probably” the SPDR Gold Trust, the biggest exchange-traded gold (GLD)
e) gold mining shares (within certain Shari’ah parameters)
We know three things that the new Shariah gold-standard will achieve:
a) Increase diversity in the number of available Shariah gold compliant investment products
b) Greater emphasis on the role of physical gold in gold transactions
c) Islamic finance will have greater say in the setting of the gold price
Well, it didn’t take some smart people long to figure out a way to take advantage of these new rules. A new Crypto currency has been launched out of Dubai, called OneGram.  This is blockchain technology, wherein each Onegram coin will literally be backed by one gram of real gold, held in a vault.  Because the digital currency is indeed backed by gold, the Muslim community can indeed use it.
I think the ramifications of the new gold rules for Muslim’s is huge. While it hasn’t had a ton of impact yet, don’t forget we’re talking about hundreds of years of uncertainty by that community on the legality of using gold in any form. But as you can see by the launch of this digital currency backed by gold, this is going to change.
So what “could” be the benefit to the gold situation? Well, let’s see what GoldCore had to say again...
If Islamic Finance institutions were to allocate just one per cent of assets into new gold products then we would expect to see demand climb by about 500-1000 tonnes, per annum. Given that recent demand and supply figures showed a surplus of just 172 tonnes of gold in the market, we could begin to see some tightening with the increase of Shariah-compliant gold instruments, which will have a positive impact on the price.
It is not unreasonable to expect a minimum one per cent move of Islamic finance assets into gold, especially when you look at how it has performed. WGC data shows that in the last eight years the major Islamic asset classes (including REITs, the Takaful index, the Dow Jones Islamic Equities Index and the Dow Jones Sukuk Index) have all underperformed compared to gold, as have the major currencies used in the Islamic world.
Few appreciate that the launch of a Shari’ah gold or Islamic gold standard signals a changing dynamic in the gold market. Gold bullion  will be additionally appealing to Islamic banks due to Basel III rules that require banks own high liquidity and quality, low counter party risk assets such as physical gold in allocated and segregated storage.
I agree with this. In fact, interestingly, I saw a tweet go by on Friday morning from Jim Rickards and he said that “Scotia Ottawa branch is now a gold buyer only; will not sell to retail clients. Get it while you can; war on gold is here”
Interesting. Another interesting note is that I’ve heard from some at the bullion level that inventory is really low and no one wants to sell gold bars. Sure you can buy your one ounce gold eagles, but try and buy a 2 Kilo bar.... It’s very hard to do. No one wants to part with them. That means some very big players like Sovereigns, and Central banks have mopped up most of the supply.
So is the launch of a new digital currency which is backing each of its coins with a gram of gold going to change the gold market? No. What it is going to do however is put even more pressure on a market that I think is already strained. The manipulators have been suppressing the price of gold for so long that it is becoming apparent that “at these prices” no one wants to sell any more. They’re going to want higher prices to part with their gold.
However I will say this... of all the crypto currencies out there, and there is now 830 of them, the two big ones are bitcoin and Ethereum. Yet they’re only “backed” by the concept of built in rarity. This OneGram is obviously different because no matter what, your digital coin can never be worth less than the current price of a gram of real gold. That is going to sound pretty darned nice to folks that  would like a little more backing than just electronic digits.
There’s little question that the world seems to be evolving towards a new money system. We see China and the BRIC nations had attempted at least on face value to float trial balloons of finding ways to get around being dollar centric. We saw the mess down in India as they tried to remove “cash” out of their system. We see the move toward blockchain “money”,  as last June, the Federal Reserve met with leaders of that technology to explore the possibility of using an alternate digital money.
But my contention is that “people” will feel a lot better about using a digital currency if they can be trained to believe that their digits are grounded in something more substantial than zero’s and one’s on a computer chip. If the concept of OneGram backing their coins with grams of gold catches on in the Muslim world, it could breed similar copycat type crypto currencies in other areas of the world. If that happens, then there HAS to be a corresponding increase in gold demand.
Us crazy gold and silver people, always talk about the metals as the insurance policy against calamity and shock events. That’s still true. It is also true that there’s something “about” the idea of holding something physical in your hand. It feels good. It’s tangible. You can pick it up, fiddle with it.  Not so much with digital currency. While a system based on nothing but digits is the Globalists wet dream, since they could control everything about you, getting people there is going to be a tough sell.  OneGram could be their first step in pushing the Muslim population to consider it. From there?  We’ll see.
The Market....

Another new all time closing high.  Pretty interesting considering the economic news of the day, don’t you think?  I find it interesting, but not without explanation. Who cares about fundamentals of an economy, when by using “digital” currency ( which is really what the Fed’s print) they can conjure up billions at a whim and buy stocks?? 
Friday was jobs day. After seeing the ADP employment report on Thursday, they were convinced we’d get 200K jobs. But no, Uncle Sam says that we only got 138K jobs. Now lets play with things for a minute. 
March and April had to be revised DOWN by 66,000 jobs. Evidently they simply didn’t exist when they released the jobs reports in March and April and they had to go back and erase them.  So I ask, if they didn’t exist...how’d they get in the original report??  Many ways, but we’ll get to that.
The “household” survey, where they literally pick up the phone and call families gave a much more bleak look at the jobs picture. Their reports state that we LOST 233,000 jobs in May. Ouch, eh? 
So stay with me here. The BLS says we got 138K jobs, but the household survey says we lost 233K.  Where then did we get “any” jobs from? Enter the BLS birth/death model once again. The Birth/death model injected 230,000 jobs into the report.  Do these jobs exist? Heck no. There’s no proof of them, no tax receipts, nothing but a wild assed guess.  ( it’s things like the birth/death model that adds to why they have to go back and “revise down” earlier reports. The jobs they say were there, were in deed not there)
If it was just the lousy jobs number you could maybe give things a pass. But it wasn’t “just” the jobs number. Challenger grey says layoffs increased by 40%.  Initial jobless claims hit a 5 week high. Radio Shack closed 1000 stores since Memorial day. Payless says it isn’t 400 stores they’re closing it’s 800. Manufacturing PMI just hit a 9 month low. Shall I go on? Nah, youget it.
So with a lousy jobs number the stock market soars to an all time new high. With Ford and GM pondering layoffs, we hit a new high. With subprime auto loans going belly up we hit a new high.  Is the market simply climbing a wall of worry? Nope. It’s climbing the wall of Central bank hopium. 
On February 13th the DOW pushed above 20400 and spent the next 3.5 months bouncing up and down in a range box. The high was basically 21000 and the low was 20400. Now we’ve broken out of that range to the upside with the DOW closing Friday at 21206.  The S&P closed at 2439.  Is the next stop 2450? Probably, why not?  If no jobs, rising layoffs, closing malls, sour auto sales, dropping manufacturing doesn’t stop things, what will?
I get this eerie feeling that we’re in the late stages of 1999. The final blow off push to ever more highs, that ends spectacularly. Granted I don’t think this ends until the central banks won’t, or can’t push it any further, but I don’t know when that is. For now we latch onto things and try and go with the flow.
That said, keep an eye on the Gold miners folks. Once again they’re getting pounded into oblivion, and there will be a reversal. While right now we’re having a ball in MMM for instance, as it’s gained 8 bucks in 5 days for us, the next 100% moves are going to be in those beaten bloody gold miners again.
The silver miners have held up “fairly” well over the past month, but a lot of the smaller gold miners have just been pummeled unmerciful. When they flip and run, is it a stretch to think that a stock that’s come all the way down from 6.75 in February, to 2.86 now...can’t make it back to 6? I don’t think it’s a stretch at all. Not considering it was 9 bucks Just a year and a half ago.  I hope they fall some more to be honest...
Right now the FANG stocks, the big names like MMM and DE and even CAT are the market leaders. The market is pretty narrow, as they push the leaders higher. Try and stick with it until it doesn’t work any more. It’s all you can do. 

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