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Friday, September 28, 2018

The Dollar is Central to the Next Crisis

It is now possible to pencil in how the next credit crisis is likely to develop. At its centre is an overvalued dollar over-owned by foreigners, puffed up on speculative flows driven by interest rate differentials. These must be urgently corrected by the European Central Bank and the Bank of Japan if the distortion is to be prevented from becoming much worse.

The problem is compounded because the next crisis is likely to be triggered by this normalisation. It can be expected to commence in the coming months, even by the year-end. When flows into the dollar subside and reverse, bond yields can be expected to rise sharply in all the major currencies. There will also be a number of other unhelpful factors, particularly rising commodity prices, the timing of the Trump stimulus and trade tariffs pushing up price inflation. Coupled with a declining dollar, price inflation and therefore interest rates are bound to rise significantly.

Then there is another problem: when it comes to rescuing the global financial system from the systemic fall-out, not only will the challenge be greater than at the time of the Lehman crisis, but legislative changes, such as confusing bail-in provisions, have made it more difficult to execute.

There is also evidence that during the last credit crisis in 2008, the Russians were tempted to interfere with the Fed’s rescue attempts, potentially crashing the whole US financial system. At that time, they failed to get the support of the Chinese. Now that Russia has disposed of most of its dollar investments in return for gold, and following an escalation of geopolitical conflicts, a new financial crisis may be regarded as an opportunity by America’s enemies to emasculate America’s financial and geopolitical power.

The outlook for the dollar and all dollar-dependent assets is not good. The only protection will be the possession of physical gold and silver, beyond the reach of systemically-threatened banks.

Mega-currency strains

The chattering classes in financial markets have droned on and on about how the Fed’s interest rate policies are creating crises in emerging markets. But emerging markets are likely to be just bit players in a new global tragedy. As Shakespeare put it in Macbeth, they are “but walking shadows, a poor player who struts and frets his hour upon the stage, and then is heard no more….”

In the process the real problem has been under-reported, and that is the strains between the mega-currencies: the dollar, the euro and the yen. Could they be the leading players in the next credit crisis, and if so how will the tragedy unfold?

You only have to note the disparity in bond yields, particularly at the short end of the yield curve, to see what is moving money. Two-year US Treasuries yield 2.74%, while the two-year German bund yields minus 0.55%. Two-year JGBs at minus 0.12% are also out of whack with USTs. You do not get disparities like this at the short end of the yield curve without moving massive quantities of short-term money.

Putting currency risk to one side for a moment, a Eurozone bank, insurance company or pension fund is taxed on short-term investments in bunds through negative yields, while being offered a tempting and potentially increasing yield on similar risk USTs.

Tempting, isn’t it?

Obviously, we can’t ignore currency risk. For simplicity, we will assume that fully matched risk insurance more or less eliminates the profit opportunity. It is possible to use out-of-the-money currency derivatives to cap the risk, and indeed, that’s one reason why OTC foreign currency derivatives stood at over $87 trillion in the second half of last year.

But we digress slightly. Maximum profits are obtained by taking a naked punt, and here, the trend is your best friend. If you feel sure the dollar is going up against the euro, not only will a euro-based financial institution gain more than three per cent by holding two-year USTs over equivalent sovereign risk two-year bunds, but there is the juicy prospect of a currency gain as well. We will also note that the Fed still plans to raise interest rates while the ECB does not. That should ensure currency risk is kept safely at bay.

Euro-based financial institutions must be sorely tempted. Furthermore, the dollar stopped falling in April and since then its trend has been up. Talk in the market is of dollar shortages as emerging-market governments may be forced to cover dollar liabilities, which coupled with Fed-induced interest rate rises makes further dollar gains against the euro, and even the yen, appear to be a racing certainty.

Convinced yet?

- Source, Alasdair Macleod via James Turk's Goldmoney

Saturday, September 22, 2018

Gold Skyrocketing In Price In Turkish Lira

We are seeing, in Venezuela, one of the greatest gold bull markets in history, and Turkey is not far behind. This brings up a very important point: Gold is your safety net. Gold is good money, and every national currency pales in comparison. National currencies don’t measure up and never will. 

But here’s the key point, which I think will become increasingly important in the days and weeks ahead as this emerging market currency crisis deepens: In contrast to national currencies, physical gold does not have any counterparty risk. It is money you can hold in your hand. Gold is money you own.”

We are now in the final phase of liquidation and capitulation in the battered gold and silver sector. For those who have the mental strength to execute aggressive accumulation of physical gold and silver at these levels, on this final liquidation, it will provide the last of the cheap prices for the metals. When $1,400 is breached on the upside, the price of gold will move extremely quickly to the $1,800 level.

As for where silver will be trading at $1,800 gold, who knows? One thing is certain, it will be trading a hell of a lot higher than what is being quoted today. It is also important to remember that when the sh*t hits the fan, nobody cares about paper instruments, but across the globe they will accept gold as payment in any crisis, regardless of how bad the meltdown is.

- Source, James Turk via King World News

Tuesday, September 18, 2018

James Turk: Relentless Gold & Silver Takedown Continues

"It’s been a tough day for the precious metals, Eric, but you know how I view these types of situations. We’ve spoken about it many times before — you always have to look at the big picture on a day like today. …

The central planners have a fix on gold that over the past few months has been relentless. They are going all out to trash gold and silver in the paper markets. So far it has worked out for them. But even though they are winning a battle, they will lose the war.

Gold has been used as money for 5,000 years. It would be silly to assume that something with that kind of proven track record is no longer needed. The price suppression of the precious metals of late has been very effective. But you can only hold a beachball under water for so long, and right now gold and silver are trading under extreme conditions.

The reality is that asset prices are always, in the final analysis, driven by fundamental factors. Undervalued assets eventually go up in price, and overvalued assets eventually go down in price. The Venezuelan bolivar was overvalued and crashed, just like is now happening to the Turkish lira. Look at this chart of gold priced in liras."

- Source, James Turk via King World News

Sunday, September 9, 2018

Real Vision: A New Bull Market in Gold?


James Turk is widely respected as one of the true legends of the gold market, with over 40 years in the business. In conversation with Grant Williams, James looks back on his career, which is entwined with the modern history of gold, examining the potential for the next break to the upside and what comes next when empires of money end.

- Source, Real Vision

Tuesday, September 4, 2018

James Turk: Using Goldmoney to Preserve your Wealth


James Turk, founder and chairman of GoldMoney, explains how owing gold with their system works and gives details on how you can preserve your wealth with gold.

- Source, Jay Taylor Media