Aug 15, 2013
Eric Sprott sneaks GATA into the Toronto Globe and Mail
By Darcy Keith
The Globe and Mail, Toronto
Thursday, August 15, 2013
Last week at Inside the Market, we invited you to submit questions for Eric Sprott. We received over 100 questions.
We posed a selection of these to Mr. Sprott this week and present the questions and answers below. As youll read, the CEO of Sprott Asset Management is only becoming more entrenched in his bullish views, calling for a US$2,400 gold price within a year. And he sees nothing short of "explosive" gains in junior mining stocks. Thanks to all for participating.
Are we near the bottom of the decline in gold and what timeframe do you see for its appreciation to reach the old highs and possibly push through to new highs? -- Craig
Craig, I firmly believe that we reached the bottom on June 28 and that gold should double from that bottom within the next 12 months. So by next summer, I think that the price of gold will have made new highs and stand around $2,400 per ounce.
What is your view on the junior mining and exploration space? What has to occur in the mining sector to see a turn-around in the junior space? -- Anonymous
Given my outlook on gold prices, this sector will be explosive. The continuation of the gold bull market will lead the junior gold mining stocks higher by many hundreds of percent, just like it did during the 2008 recovery. By the way, since hitting the bottom on June 28, gold has rebounded by 12 percent while gold miners have gone up by about 25 percent.
Hello, Mr. Sprott. I think your analysis of what is happening with fiat currency is bang-on. I am wondering how do you think the U.S. Government can ever get out of this catch-22 they are in with their debt? If they let the interest rate rise by stopping QE (quantitative easing), then they will pay more interest on their debt. If the pay more interest on their debt, they will have a bigger deficit. Will they print money until the reset button is pressed? When? What will that mean for the average Joe? -- Kyle Brown
Mr. Brown, you are exactly right, and this is why I think that the Fed will remain accommodative for a very long time. However, the official debt is only the tip of the iceberg and, as we discussed in the most recent "Markets at a Glance" --
-- longer-term benefits such as Social Security and medical care will have to be cut as well. The promises made by governments are too generous and cannot be kept. Not just for the average Joe but for everyone, I think we should expect less from the government and prepare to fend more for ourselves. Money printing can hide financial problems for a while, but it cant provide tangible services to citizens.
Why do you think the bullion banks have so consistently shorted the gold market? Were one or more, in your view, acting as agents for the Fed to prevent gold from being seen as a secure store of value and a preferred alternative to the U.S. dollar? Do you have conclusive evidence to back your opinion? -- Derek White
Mr. White, there is strong evidence that central anks have surreptitiously colluded with bullion banks -- see our "Sprott Thoughts" article on the topic here --
-- and sold their gold in the market. This is further evidenced by recent comments at the Bank of England and the ridiculously long delays to repatriate German gold from the U.S. Furthermore, I would refer you to the Gold Anti-trust Action Committee website --
-- which discusses those issues at length, and our "Markets at a Glance" article series "Do Western Central Banks Have Any Gold Left?" Part 3 can be seen here:
Some prominent analysts claim that the commitment of traders reports from the U.S. CFTC are giving very bullish signals concerning the future direction of gold and silver prices. Do you agree, and why or why not? Andrew
Yes, I agree with this analysis and further details can be found in my recent article here:
Basically, we have seen a complete reversal of the situation in the futures market: commercial dealers covering their shorts, speculators selling (going short), and most importantly, COMEX inventories declining. The most important part of the equation is the covering of shorts by commercial dealers. That means they are no longer supplying (paper) gold to the market, which was depressing the price.
The price of gold appears to be set by the enormous volume of transactions in the paper gold market, which dwarf the physical. This price mechanism seems to have survived various significant events of almost physical default this year -- Dutch bank settlements, German gold recovery from the US, and India's domestic restrictions on gold investments. What therefore could possibly change this equation and cause (and allow) the real physical supply-demand reality to start driving price as classical economics dictates it must? -- Simon Lester
Mr. Lester, I think that you are absolutely correct in your analysis. Daily paper volumes are many times larger than annual mine production. I believe that the return to fundamentals driving gold prices will be triggered by a shortage of physical gold and ultimately a failure to deliver. We already see signs of physical gold shortages, as evidenced by the negative Gold Forward Offered Rates (GOFO) rates, record low physical inventories, and backwardation in the futures market. A full discussion can be read in the articles linked to above.
Why have your funds performed so poorly and why may you think that will change? -- Andrew
I have always believed that I am right and that markets are wrong, but throughout the years I have had to endure situations like this. It happened in 1998 and 2008, but my funds have always rebounded. In due course the markets will realize their failure. After this short pause, the gold bull market will continue and those that have been patient will be rewarded.
Whenever the Fed hints at tapering, gold takes a hit (as does the stock market in general). At some point, the Fed will have to taper as this bond purchasing cannot go on forever. Won't gold get crushed at that point? -- Anonymous
The Fed may or may not taper; I am in the disbeliever camp. As for gold, I happen to believe that the Western central banks, which have suppressed the price of gold, won't be able to do so for long.
How do you see the selling of paper gold and silver in the West and the aggressive purchasing of physical precious metals by the East resolving itself and what time frame would you give for some kind of resolution of this contradictory behaviour to occur? -- Dave
We have already seen some manifestations of this. See our article here:
Recently the China Gold Association announced that gold consumption increased 54 percent in the first half of 2013 (to 706.36 tonnes). As mentioned in previous answers, a shortage of physical gold will ultimately correct this discrepancy.
What if you are wrong in your case for gold to go up dramatically? What if gold falls below $1,000 this year and $800 next? Would you change your investment strategy? -- Richard Wiklo
Then I would need to admit that the timing was wrong, but we stand by our in-house analysis. We believe that the price is suppressed and, based on our work, I am not changing my investment strategy.
Gold producers are once again hedging their production. Does that mean that we are about to see a replay of a long period of depressed prices similar to what we saw when Barrick had massive hedging programs in the 1990s? -- Chuck
I sure hope not, as you would imagine. Barrick paid a huge price for hedging. I can't predict what producers will do but those that hedge will be penalized in the market. I hope that they won't.
The Western central bankers allegedly have 18,000 tonnes of gold. [10,000 Europe, $8,000 USA], the Bank of England sold off 1,300 tonnes of gold in recent months [7 percent of Western civilization's gold]. What's to stop them from using the rest of their gold to keep the price down for years to come? -- Jeff Spakowsky
Mr. Spakowsky, I believe that this is unlikely since I doubt that Western central banks have any gold left.
Good day, Sir. Do you believe there will be a major shake-up and consolidation among the junior gold producers who are "borderline price-point producers" and will not survive the current prolonged downturn in the gold market? -- Jamie Dillon
Mr. Dillon, it is an opportune time for intermediate and senior producers to be buyers of precious metals companies at those depressed valuations. With my expectations of a short-term turnaround in gold prices, there will be a high survival rate.
* * *
The bloody crackdown on the streets of Cairo features on this week's cover. The Generals' choice to unleash deadly force against their own people threatens to divide Egypt more deeply than ever and could be a precursor of worse to come. By suppressing the Muslim Brothers, who with other Islamic factions still command considerable popular support, the security state is ignoring the Arab spring's most important lessons.
John Micklethwait, Editor-in-Chief
|Politics this week|
SEE ARTICLE »
MORE FROM: BUSINESS THIS WEEK »
August 15, 2013
Compiled 20:45 GMT
Compiled 20:45 GMT
By DAVID D. KIRKPATRICK and ALAN COWELL
Violent new protests erupted in the country on Thursday, and world condemnation widened for the bloody assault by security forces on Wednesday, including an angry response by President Obama.
By MARK LANDLER
Speaking from Martha's Vineyard on Thursday, Obama warned of future steps but made no mention of cutting off $1.5 billion in military and economic aid to Egypt.
By KAREEM FAHIM and MAYY EL SHEIKH
The military-backed government in Egypt had hinted at a milder clearing operation that would last days. But when it came, protesters appeared stunned by its fury.
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Frank Bruni's Blog
By FRANK BRUNI
It's not just in Russia where a gay person can feel endangered, and be attacked for no reason.
By BEN HUBBARD and RICK GLADSTONE
The violence in Egypt has underscored how the Arab Spring revolutions have devolved into bitter political power struggles among competing groups.
By CARLOTTA GALL
Rachid al-Ghannouchi, leader of Ennahda, the ruling Islamist party, also appealed to Tunisians to draw lessons from the violent upheaval in Egypt.
By BRIAN STELTER
Mick Deane, a cameraman for Sky News who was shot on Wednesday, was the first Western reporter to die on assignment in Egypt since the Committee to Protect Journalists started keeping such records in the 1990s.
Jeff Nielson: World Gold Council can't spell 'decoupling': GATA | THE GATA DISPATCH AUGUST 15, 2013.
Jeff Nielson: World Gold Council can't spell 'decoupling'
Dear Friend of GATA and Gold:
With its latest report on gold demand, the World Gold Council is trying to conceal the distinction between paper gold and real metal, Jeff Nielson of Bullion Bulls Canada writes today. Gold demand can be said to have declined lately, Nielson notes, only if paper gold ownership is counted as the gold council counts it. But if only ownership of real metal is counted, demand is off the charts, he adds. That is, the world is figuring out what the World Gold Council can't admit: that paper gold is a fraud, a claim against metal that doesn't exist. Nielson's commentary is headlined "Q2 Gold Demand: WGC Can't Spell 'Decoupling'" and it's poted at Bullion Bulls Canada here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Thursday, August 15, 2013
Markets Slide as Wal-Mart Leads a Sell-Off Stocks on Wall Street fell the most since late June on Thursday in the wake of disappointing results from Wal-Mart and Cisco, and sturdy economic data that may set the stage for the Federal Reserve to scale back its stimulus soon. New claims for jobless benefits fell to near a six-year low last week, and consumer prices rose broadly in July, two reports that could draw the Fed closer to trimming its $85 billion monthly bond-buying program.
Rocky Market Debut for Third Point Reinsurance The reinsurance arm of Third Point, the hedge fund run by Daniel S. Loeb, opened at $12.25 a share, below its initial public offering price, before rebounding.
Spot Prices as of close of trading in New York
Thursday, August 15, 2013
Thursday, August 15, 2013
|Updated 8/15/2013||Today||Change||Week Ago||Month Ago||Year Ago|
Wall Street at Close Report by MarketWatch August 15, 2013: U.S. stocks slammed; Dow drops over 200 points
U.S. stocks slammed; Dow drops over 200 pointsBy Kate Gibson, MarketWatch
NEW YORK (MarketWatch) — U.S. stocks on Thursday thudded lower for a second day, with the Dow industrials posting their first back-to-back triple-digit drop since June, as Treasury yields spiked to 2011 highs and Wal-Mart Stores Inc. and Cisco Systems Inc. cut their forecasts.
Several upbeat economic reports spurred thinking that the Federal Reserve will begin to scale back its monthly bond buys in September.
The Dow Jones Industrial Average DJIA -1.47% dropped 225.47 points, or 1.5%, to end at 15,112.19, with Cisco Systems Inc. CSCO -7.17% pacing the drop, off 7.2%. Of the Dow’s 30 components, 28 fell. Wal-Mart’s shares were down 2.6%. Read more on Wal-Mart
The S&P 500 index SPX -1.43% lost 24.07 points, or 1.4%, to 1,661.32, with all its 10 major sectors ending lower; among them, consumer discretionary and technology were slammed the hardest. The Nasdaq Composite COMP -1.72% declined 63.16 points, or 1.7%, to 3,606.12.
Around 721 million shares traded on the New York Stock Exchange. Composite volume surpassed 3.3 billion.
Ahead of Wall Street’s open, Wal-Mart WMT -2.60% reduced its outlooks for 2013 sales and profit, with the world’s biggest retailer saying consumers are spending less. That warning came the morning after network-equipment maker Cisco Systems CSCO -7.17% offered a less-than-expected revenue outlook.
“Cisco speaks to enterprise and service-provider spending, so that outlook is cloudy. And even more disappointing, if you look at almost two-thirds of the economy is driven by the consumer, and it looks like the consumer took the month of July off,” said Art Hogan, a market strategist at Lazard Capital Markets, noting that Wal-Mart’s results come a day after another retailer, Macy’s Inc. M -0.06% , reported an unexpected drop in sales and cut its full-year profit targets.
The poor performance by retailers last month is also a concern heading into a seasonally important part of the year, as “we don’t want it to extend into back-to-school and holiday spending,” said Hogan.
But the market’s steep fall should also be viewed in the context of the calendar, offered Hogan, who said: “It’s August, and volumes are still dreadfully low. Low volume leads to high volatility.”
Yields on fast track?
Thursday’s economic reports including one showing an improving labor market helped cement the belief that the Federal Reserve would cut monetary stimulus soon.
“Judging by the reaction in bond yields, the overall reaction is positive for the economy and negative for Fed asset purchases,” Dan Greenhaus, chief global strategist at BTIG LLC, wrote in emailed commentary. The 10-year Treasury yield 10_YEAR +1.99% was lately up 4 basis points at 2.763%.
Jobless claims lowest since 2007
Brendan Conway joins the News Hub with a look at today's market action. Photo: Getty Images.
“The continued reduction in the pace of firings to the slowest since the fall of 2007 should point the Fed further into the camp of taper sooner rather than later, and it’s likely why the 10-year yield touched 2.80% immediately after versus 2.71% just yesterday and why the S&P futures are at the low of the morning,” said Peter Boockvar, chief market analyst at the Lindsey Group.
Stocks fell and the yield on the 10-year Treasury note surged after economic reports had consumer prices climbing 0.2% in July and the number of Americans filing for new jobless benefits falling by 15,000 to 320,000 last week.
“The 10-year Treasury market has added 120 basis points to its yield since the tapering conversation began on May 22. Is it the notional amount of 2.8% that has us nervous? No, it’s the fact that we added 120 basis points in 45 days. The world doesn’t stop turning with 3% on the 10-year, it’s the pace at which we got there,” said Hogan.
The U.S. dollar DXY -0.70% turned lower against the currencies of major U.S. trading partners, including the euro EURUSD +0.6841% and the yen USDJPY -0.8130%
The price of oil climbed, with futures for September delivery CLU3 +0.28% up 48 cents, or 0.5%, at $107.33 a barrel.
Getty Images Enlarge Image
In other economic news, the New York Fed’s “Empire State” index fell to 8.2 in August from 9.5 in July, worse than expected. And the Federal Reserve reported industrial production held steady in July, while June’s growth was revised lower.
The Philadelphia Federal Reserve’s index of regional manufacturing activity fell in August after hitting a more-than two-year high in July.
Another report had home-builder confidence in August rising to a near eight-year high.
The Dow on Wednesday posted its first triple-digit drop since June as investors fretted over a recent spike in borrowing costs.
Kate Gibson is a reporter for MarketWatch, based in New York.