On a day when gold took out $1,350 and silver pushed back above the key psychological level of $20, fake gold and silver bars are emerging as gold prepares to surge above $1,400.
By Bill Fleckenstein President Of Fleckenstein Capital
September 6 (King World News) – Overnight equity markets were initially modestly higher, but closed modestly lower, and had no impact on our market. In fact, after opening higher and reversing, I think trading here helped tug European markets lower — although I’m not even sure why I mention it, because I don’t think it mattered much…
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They Might Be Running Out of Cans
However, bond markets were interesting in Japan, which arguably has the single most out of control central bank on the planet (and that’s saying something, given the other lunatics), where bond rates have risen pretty aggressively on a percentage basis over the last week, although — as I have noted many times — 20 or 30 basis points in reality isn’t all that much. Nonetheless, last night yields were higher and 10-year JGBs now have a yield-to-maturity of just -2.8 basis points, which is a long way from the -28 bps they saw at their most extreme.
I am inclined to believe this is noise. However, I am bringing it up because the Lord of the Dark Matter touched base with me over the weekend and wanted to make sure I was paying attention because he thinks the move might be meaningful, and it may have to do with the Bank of Japan’s upcoming announcement on September 21 regarding what it plans to do next. He thinks there is some chance they may alter the way they purchase assets, including, “yield caps instead of a run rate of 80 trillion yen per month.”
Of course, yield caps could involve even more money printing, but they could also require less. I myself am not sure exactly how that would upset the apple cart, because they could always set the cap at a ridiculously low level — which they most likely would — but the LODM pointed out to me that that would make the exit strategy even more complicated and ultimately more violent, although it seems to me that it would still succeed at kicking the can down the road, which is all these central banks ever seem inclined to do.
Make Yourselves Comfortable, This Could Take a While
All that said, the point of this discussion is to note that perhaps the recent rise in yields in the land of the rising sun may be more than noise, but it is too early to decide that and even more too early to decide what to do about it. If it is in fact a sign that the central banks are starting to lose control, they will fight that, then the big beneficiary of that will be gold, which I assume most readers have a position in. So there is no reason to go out and take additional action just yet.
Turning back to the action, in the afternoon, as if someone had flipped a switch, equities stormed back into the green, but then the rally fizzled. When I left, with an hour to go, the market was just a freckle higher.
Away from stocks, green paper was weaker. Apparently after giving it some thought over the three-day weekend the dollar bulls have lost a little of their bravado concerning what their favorite central bank might do at the FOMC meeting in two weeks. Fixed income was higher, oil gained 1%, and the metals were higher, with silver up over 2% to gold’s 1.5%, and the latter knocking on the door of the upper end of the range that has contained it for months.
Up and Running?
If gold is able to punch through $1,350/$1,360, I believe we could get a run to and through $1,400, although we might have to do some work up there. I think the fact that the dollar and the metals have moved as they after a holiday weekend in the wake of disappointing jobs data is indicative of those markets shifting their opinions in a meaningful way, which, if true, would be a big deal.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Bonus Q&A
CAUTION: Beware Fake Gold & Silver Bars!
Question: Warning, I visited a very active coin dealer in the 48331 Zip today. He said there are many counterfeit 1 ounce gold bars circulating in Michigan. They are gold plated brass with the hallmarks of Pamp Suisse and other well know gold bars. The weight and length is correct but they are thicker. They are sealed in plastic. One can easily be taken. He will no longer buy 10 ounce bars without an assay. He showed be a whole box of one ounce “silver” bars with SilverTown hallmarks that looked and felt right to me. All FAKE. Be very careful what you buy and who you buy from.
Answer from Fleck: “Thanks, I assume most people know to only do business with someone they are sure they can trust.”
Question: Bill: With the Fed distorting the free markets so much, can they ever get back to normal? If no, what’s on the other end? This is scary stuff IMHO…
Answer from Fleck: “They will, but not until the central banks finally lose control, which will require a shift in psychology, but it will happen – we just can’t say when in advance.”
Question: Bill, I currently have 35% of my net worth in gold mining stocks, mainly through GDX which I know you don’t like but is what I was able to get comfortable with. When I read stories like the Swiss National Bank buying up stock in U.S. companies with their fake money, the Japanese central bank being on track to be the largest holder of 55 of the largest Japanese companies by next year and think about the fact that there is no way all of the debt in this world could ever be repaid – that the only way out is for governments to inflate their way out through their central banks destroying the purchasing power of currency – it scares me to death. Buying say $100,000 worth of physical gold and trying to store it is not practical for me, or at least I don’t feel comfortable doing this. My questions are:
1) do you think my position in gold miners through GDX will protect me from the central banks, or do I need “physical gold” too because my holdings in the gold miners could become worthless?
2) if you think physical is also necessary; while I know GLD is not “physical gold” and I couldn’t use it to buy goods on the street, would it be good enough to provide the inflation protection provided by physical gold that I might not get from the miners, or should I not even bother if I’m not willing to buy actual physical gold?
I am sorry to ask these questions, but I am really at a loss when I read about the current world we live in, and you have much more experience than me. Thank you.
Answer from Fleck: “Gold miners won’t become worthless, IMO… Physical gold and gold ETF’s (or futures) are a different investment than miners. Miners are leveraged to gold’s price in both directions… Your position will protect you, IMO. Physical gold is different, as you actually have something in your possession (more or less). At some point down the road, I will cut miners back and just own physical gold, but that probably won’t be for some time yet… I trade gold futures but I keep physical gold, FWIW… Hopefully that will give you some food for thought.”
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