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Ponzi Finance and Gold Stocks

September News Recap:

THE FEDERAL RESERVE met and talked.

The unofficial statement issued after their meeting was, “Yada, Yada, Yada.” Their statement was translated by an obscure web site, link unavailable, which interpreted their statement as:

“The Federal Reserve along with other important central banks and G-20 nations have created a pyramid of debt. This debt is ever-increasing and will be repaid by issuing new debt. Example:  Issue $2 trillion in new debt to repay $1.5 trillion in old debt plus $0.5 trillion in excess expenditures. Call it a Ponzi Scheme!

 Ponzi Schemes inevitably implode and a correction or crash is coming. Consequently the search for distractions and scapegoats has intensified. Central banks and G-20 governments are hopeful that appropriate distractions will be identified and blame for the disaster will be directed elsewhere. Every effort shall be made to enhance the power, wealth and status of the financial and political elite.”

DISCLAIMER:  This translation cannot be verified so act accordingly. Portions of the above translation may not be accurate. If in doubt about the usefulness of any statement from central banks, buy gold and silver, and avoid currency units issued by central banks unless you have done appropriate “due diligence” and understand the risks of debt based fiat currencies.

Other useful interpretations of Fed policies are here and here.

 Petro-Dollars:

  • Venezuela has stopped accepting U.S. dollars in exchange for their crude oil. Consequences are uncertain as of late September 2017.
  • As usual the Middle-East is in turmoil. Petro-dollars remain important.
  • China announced plans for exchanges that sell crude oil for yuan and yuan for gold. This will promote sales of global crude oil in exchange for gold. Exchanges are not fully operational but could soon become an important force in global economics.

It is easy to see how sales of crude oil for gold will:

  1. Support the global price of gold bullion.
  2. Weaken the importance of paper gold exchanges, COMEX and LBMA.
  3. Support the Chinese gold and crude oil exchanges.
  4. Diminish the economic power of the U.S. government and the use of U.S. dollars in global trade.
  5. Further strain western economies.
  6. Weaken the exchange value of the dollar against other currencies.
  7. Increase consumer price inflation in the U.S. based on a weakening dollar, which will drive up prices for imported goods.
  8. Increase the U.S. trade deficit, government budget deficit, and official national debt.

For additional commentary on gold and the dollar, read:

Hugo Salinas Price:  My Views Regarding Prospects for Gold Price

Charles Hugh Smith:  The Demise of the Dollar: Don’t Hold Your Breath

Hugo Salinas Price: Further comments on gold, crude oil and the yuan.

HURRICANES HARVEY, IRMA, AND MARIA have devastated portions of Houston, Florida, Puerto Rico, and the Caribbean Islands. There will be few beneficiaries from these disasters and many ugly consequences. The cost in dollars, debt and human misery will be catastrophic.

EQUIFAX has been discussed in the news. Supposedly their servers have been hacked several times, the data on 143 million Americans has been stolen, management insiders sold shares before the breach was announced publicly, and Equifax encouraged people to go to a fake site.  The words “stupid” and “incompetent” come to mind.

NORTH KOREA:  The distraction game continues and escalates. The process and consequences will be interesting and possibly deadly.

Gold and Silver Stocks:

The Deviant Investor is NOT an expert on gold stocks, their management, or prospects, so do your own research. Consider the following big-picture analysis:

  • Gold and silver prices bottomed in 2001, rallied for ten years, and declined into December 2015. Prices have risen since then. Expect higher prices after this short-term correction.
  • Gold and silver stocks peaked in 2011 along with gold and silver prices, and fell into January of 2016. Prices have risen since then. Gold stocks compared to gold prices are historically low. When gold and silver prices rise one hundred percent their stocks should rise several hundred percent.

Examine the monthly and weekly graphs of the XAU, an index of gold and silver stocks, for the past 20 years. Prices hit an all-time spike low in January 2016, even lower than in 1999 – 2001 when gold sold for less than $300. These mining stocks have been crushed, down over 80% since 2011 at their lows.

In the long-term, higher U. S. debt means more currency in circulation, continued devaluation of the dollar, and higher gold prices. Gold and silver stocks will soar as a consequence of higher precious metals prices. A weakening dollar and less global reliance on petro-dollars will support gold bullion prices.

Individual Gold and Silver Stocks:

Freeport-McMoran Copper and Gold (FCX):

Freeport-McMoran has announced an understanding with the Indonesian government regarding long-term operating rights and investment plans in Papua.

Freeport-McMoran’s “portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits; significant mining operations in the Americas, including the large scale Morenci minerals deposit in North America and the Cerro Verde operation in South America.”

Stock price for FCX has tripled since January 2016.

 Iamgold (IAG):

Iamgold confirms significant gold discovery exceeding initial targets at Saramacca – strategically located near its Rosebel Gold Mine.”

“The resource estimate comprises 14.4 million tonnes of indicated resources averaging 2.20 grams of gold per tonne for 1,022,000 ounces and 13.6 million tonnes of inferred resources averaging 1.18 grams of gold per tonne for 518,000 ounces.”

“Iamgold is a mid-tier mining company with four operating gold mines on three continents.” They mine in North America, South America, and Africa.

Their stock price has quadrupled since January 2016.

Novo Resources (NVO.V):

The President and Chairman, Dr. Quinton Hennigh, presented at the Denver Gold Forum on September 25. He discussed exploration plans in Western Australia and showed a “live feed” from the Karratha Project in Australia.

From Bob Moriarty of www.321gold.com:  [Read his comments.]

“By skipping the show this year I missed the sound of hundreds of jaws hitting the floor, all in unison, when Quinton Hennigh live streamed a video from the Karratha gold project in Western Australia.”

The stock price is selling for about five times its June price.

 Royal Gold (RGLD):

From Reuben Gregg Brewer:  “Why I Love Royal Gold, Inc.”

“The first thing to understand is that Royal Gold isn’t a miner – it’s a streaming company. It makes money by giving cash up front to miners for the right to buy gold and silver at reduced rates in the future.”

 “Royal Gold has increased its dividend in good years and bad for 16 consecutive years.”

 The stock price spiked to a low under $30 in January 2016. Current price is about $75.

 First Majestic Silver Corp (AG):

First Majestic is run by Keith Neumeyer, a well-respected CEO. Stock prices are volatile, were over $25 in 2011 and under $3 in January 2016. Current price is about $7. Silver prices will rise with increasing demand, restrained supply, and devaluing currency units. As silver prices increase, silver stocks should rise considerably more. News and financial reports from First Majestic are available here.

 CONCLUSIONS:

  • Ever-increasing global debt (in excess of $200 trillion), continually devaluing currency units, central bank “printing” (over $14 trillion and counting), and global policies all but guarantee much higher gold and silver prices in coming years. The mining stocks will increase more rapidly than bullion prices.
  • Central banks, governments, leaders, and hurricanes will do what they will. Many consequences will be unpleasant, destructive and deadly.
  • Financial preparation is important UNLESS you believe that stocks will rally for several more decades without a major correction, interest rates will decline from multi-century lows, debt and currency in circulation will grow exponentially for decades with few consequences, and the Easter Bunny stands ready to support our economies and markets.
  • Wars are profitable for select groups and industries. Corporations purchase and influence politicians. Expect more expensive and larger wars. World peace is an admirable but unlikely goal. Peace is unprofitable for arms suppliers.
  • Higher gold and silver prices will create MUCH higher prices for their stocks. The leverage that crushed the XAU Index after 2011 will benefit the XAU during the next three – ten years.

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Article written for Gold Stock Bull by Gary Christenson of The Deviant Investor

By | 2017-09-28T10:42:56+00:00 September 28th, 2017|Gold & Silver Commentary|

About the Author:

Gary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of several books, including “Fort Knox Down!” and “Gold Value and Gold Prices 1971 – 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy, and central banking. Many years ago he did graduate work in physics (all but dissertation), so he strongly believes in analysis, objective facts, and rational decisions based on hard data.