James Turk: Good News for Silver Bulls

There is also good news for silver as it has come to life too, Eric. Silver has been struggling, and recently the gold/silver ratio was over 89. It hadn’t been at that level since the early 1990s. So it demonstrates how undervalued silver is in comparison to gold, which itself is undervalued. But look at this chart. Silver is above its downtrend line.

Silver Surge Targeting 2nd Major Breakout Above $15

A couple of days action does not mean a trend reversal has occurred and the precious metals are headed higher. There is never any certainty when it comes to markets. But new uptrends have to start from somewhere, so we need to give silver every benefit of the doubt on what is happening.

A Mini-Rocket Launch In Silver

Actually, I’m expecting a mini-rocket launch in silver, just like we have seen in gold now that its downtrend line has been broken. Silver needs to catch up to gold.

So look for the gold/silver ratio to fall from its current heights, which is a bullish sign for the precious metals. Because silver is more sensitive to money flows into the sector, a falling ratio is a good omen.

So there are two things we need to be watching here, Eric. These will indicate that the next step confirming a new uptrend in the precious metals has begun.

Gold needs to follow through to the upside and continue climbing higher and away from $1300. And silver needs to hurdle $15.

If these two things happen, look for the precious metals and the shares of the companies that mine them to surprise a lot of people who are still watching from the sidelines and hoping for a pullback. It could be that the train has already left the station, meaning that last week’s bargain basement prices are history.

- Source, King World News

We Are Now Witnessing A Mini-Rocket Launch In London’s Physical Gold Market

On the heels of Friday’s rally in the gold market, today James Turk told King World News that we are now witnessing a mini-rocket launch in London’s physical gold market. He is also expecting the same rocket launch in silver.

“We are finally getting the strength in gold and silver that everybody has been watching and waiting for, Eric. Both gold and silver are breaking out from their downtrends. We’ve had a couple of false starts because, until recently, $1,300 has been impenetrable. But that has changed…

Gold has now blown through $1,300. Silver is still below critical overhead resistance at $15, so we need to watch that level. If silver hurdles $15, it will be important confirmation that both metals are turning higher.

Both gold and silver are acting well today in London’s market for physical metal – not paper, the real thing. The accumulation of physical metal is actually a continuation of a major trend. So the demand for physical metal has been strong. Buyers want a tangible asset. They know that paper gold only gives them exposure to the gold price.

So you get two things by owning physical metal – exposure to the gold price and safety. There is no counterparty risk when you own physical gold, which is of growing importance given all the shaky banks around the world.

Here is a current chart of gold’s spot price in London for physical metal. It’s been a mini-rocket launch."

- Source, King World News

Bitcoin VS Gold: A Definitive Comparison

My exposition of the soundness of Money may have already alerted you to some of the attributes that have made proof-of-work cryptocurrencies such as Bitcoin nascent Moneys over such a short period of time, especially as compared to baseless fiat currencies, which took millennia to be adopted by human cooperative societies. It is true that Bitcoin has been designed to mirror the properties which have made Gold the natural Money throughout history. 

It was precisely for this reason that I found myself involved with Bitcoin so early on and why, even today, the thrust of my efforts in this paper are not advocating the idea that investors should “drop” it. The issue for me is that the Bitcoin community cannot, on the one hand, base its entire future on the Proof-of-Work argument while maligning Gold, which is the natural ideal which any proof-of-work currency strives to embody. As I shall show in the remaining sections of this paper, pursuing this flawed intellectual path introduces a necessary comparison which, unfortunately for Bitcoin, renders it inferior to not just Gold, but most corporeal units of metabolic energy made manifest in naturally scarce elements that survive through time.

Bitcoin is a paradox. On the one hand, its creation involves a proof-of-work predicated on the exertion of metabolic energy (the massive energy expenditure made in the form of the electricity used by the computers that “mine” it). On the other hand, this exertion is an effective opportunity cost for a cooperative society’s surplus of metabolic energy, which, due to the infinite demands of Bitcoin, is unsustainable through time.

The reason for this is that without the act of “mining” Bitcoins, there could be no Bitcoins. That is because the genius of Bitcoin is also its Achilles heel: its apparently decentralized properties which induce cooperation to secure a growing ledger of transactions requires that an increasing amount of metabolic energy be invested in the validation of mining blocks every few minutes. Each block serves a dual purpose of validating the latest transactions and, equally important, as the definitive ledger that tells every holder how much Bitcoin they own. This interweaving of the payment systems with the actual ledger affirming who owns what is how Bitcoin attempts to emulate Gold’s physical properties as being a measure of toil and motivator of merit, and these attempts are what contribute to its adoption as Money. Alas, as we shall soon see, this adroit design was achieved by mortgaging the future, and presents a serious issue for Bitcoin in the long-term.

The term “mining,” in this case, is really a misnomer. Instead of the word “mining,” consider the Bitcoin proof-of-work hashing and block validation as a massive, continuous investment of energy to maintain the network. Without this investment, Bitcoin (or any other cryptocurrency for that matter) is merely an abstraction—nothing more than lines of code, or, more specifically, mathematical operations that any ordinary person could simply write down with pen and paper. In contradistinction, Gold is mined because it is naturally rare and naturally immutable according to the first-order laws of nature. The act of mining does nothing to validate Gold’s continued existence just as the act of breathing does nothing to validate the existence of Oxygen. As a natural element, Gold’s inherent attributes of being extremely rare and non-reactive with air make it a perfect embodiment of metabolic energy, allowing it to serve as a measure of toil and motivator of merit in the objective present within any human cooperative society while remaining physically constant through time. In other words, the natural properties of Gold make it Money par excellence.

Mining more Gold makes more Gold available, which then circulates forever within and between human cooperative societies. There is no existential need on the part of Gold for a continued investment of energy, and the Gold, which serves as an embodiment of previously expended metabolic energy, can be worn as a ring or stored in one’s place of shelter. There is no shared ledger here, nobody can truly know how much Gold exists or is being owned at any one specific moment in time.

The point here is that Gold doesn’t need to refer to a blockchain to know what it is...it merely exists and continues to exist effortlessly and without the need for any subsequent investment of metabolic energy. Both energy and entropy are intrinsic to our existence as first order properties of the natural order. Likewise, Gold is born of the same natural mysteries, a first order property of nature, but it is, in its physical form, the only matter in nature which is immune to the forces of entropy through time—an idea I initially expounded in my 2017 essay: The Natural Order of Money and why Abstract Currencies Fail.

Bitcoin and other cryptocurrencies require us to constantly divert our collective metabolic energy and time into supporting the integrity of a mathematical abstraction. This activity is, therefore, secondary to the first order laws of nature. When a farmer produces a crop, it feeds society’s hunger. When a miner produces copper, it powers society’s energy infrastructure. 

When a wildcatter discovers oil, it propels humanity’s transportation systems. When a miner decides to take a risk and mine Gold, that opportunity cost results in additional Gold which can be used in computer chips to conduct electromagnetic energy without tarnishing or be employed as money—a lasting, objective measure for the other, more quickly decaying first order products of nature.

Based on the experience of debating this issue for over a decade, I find that this concept has been very difficult to grasp for modern economists, academics, and members of the so-called “service economy,” but the simple fact is that it is a self-evident truth.

On the other hand, I often find that primary cooperators have an easier time understanding this feature of our natural world. It is often members of the primary cooperative, such as farmers, fishermen, and miners, that recognize Gold is no different than the tomatoes or the lithium or the apples they toil so hard to produce. It is a first order manifestation of human toil and merit via direct negotiation with nature.

The secondary cooperative, the “service economy” (to use the current expression), is where Bitcoin lives. It is within this mathematical computation realm that crypto appears to be rare, appears to move around with ease, and seems to represent the realization of a long-lasting and immutable state. Alas, none of this is real. At the end of the day, Bitcoin is nothing more than a poorly conceived monetary system which taxes metabolic energy rather than preserving it—a system that simply tries to mimic what nature has already perfected and made self-evident.

If the world’s Gold miners stopped mining tomorrow, nobody that owns Gold would care. One gram of Gold would remain one gram of Gold. The Bitcoin story is different. Any owner of Bitcoin only owns what the latest version of the ledger says they own. That version exists based on the continued operation of massive computational servers somewhere out there requiring society to constantly divert its metabolic energy to maintain the apparent utility of the service.

Having laid out the foundational philosophical differences between Bitcoin and Gold, I shall now conclude my paper by providing several proofs for why Gold is superior to Bitcoin. I shall do so by employing the languages of mathematics to abstract physical phenomena from the natural world, and thermodynamic physics to convey the dynamics at the heart of the corporeal world.

- Source, Goldmoney

Time preference and fiat money

Today’s economists do not recognise time-preference. For them, economics is about Jevon’s mathematics, state-issued currencies and the exclusion of human interest. They say we have moved on from the household economics of yester-year, and they despise classical stick-in-the-muds. But we can see from their repeated failure to tame human action in order to conform to their economic models that modern economists do not have the answers either. All they have done is cover up their failures through monetary inflation.

The ubiquity of unbacked state currencies certainly introduces new dimensions into prices and deferred settlement. Not only is the saver isolated from borrowers through bank intermediation and the belief his deposits are still his property, but his savings are debased through monetary inflation without his knowledge. The interest he expects is treated as an inconvenient cost of production, to be minimised. Interest earned is taxed as if it were the profit from a capitalist trade, and not compensation for a temporary loss of possession.

Consequently, the saver has been driven to speculate well beyond the possibility of not being repaid by a borrower by buying equities instead. He swaps credit risk for entrepreneurial risk. And because the expansion of bank credit out of thin air favours the entrepreneur over the saver, the theory goes that over time he is compensated for the loss of interest. The whole system has changed, and even consumers, who under the classical economic model would defer some of their consumption, have become unsecured borrowers themselves.

It is this evolution away from the strictures of time preference that has taken us to zero and negative interest rates. Yet, if the cost of money was simply its interest rate, the economy would be permanently mended and there would be no credit cycle. Why on earth it took the planners so long to understand the benefits of free money, and to even pay borrowers to borrow, would have been a mystery. Yet, experience and an understanding that economics is a human science tells us otherwise. Despite handing out free money, the Eurozone is in a worse economic and systemic condition than it was before the Lehman crisis ten years ago, with major bank share prices languishing at all-time lows. And all zero interest rates have achieved, together with aggressive monetary debasement, was the deferment of a banking and systemic crisis.

But credit cycles still exist. At their root is the issuance of money and credit on terms that do not reflect time preference. The value of ownership compared with the promise of future ownership has to be respected. It is not something a monetary planner can decide, because it is wholly a market phenomenon. No one but individual consumers can contribute to the collective judgments that say this any species of bird is worth more than two of them in the bush.

Ignoring time preference is the fundamental error behind monetary planning. It is why in a successful economy, monetary intervention by the state is kept to a bare minimum, or preferably banished altogether. Instead, it builds on the error of Jevon’s mathematical approach and the banishment of the people’s choice of money, which throughout history has been metallic.

- Source, Goldmoney

The Interest Rate Fallacy

There is a widespread assumption that interest rates represent the cost of borrowing money. In the narrow sense that it is a rate paid by a borrower, this is true. Monetary policy planners enquire no further. Central bankers then posit that if you reduce the cost of borrowing, that is to say the interest rate, demand for credit increases, and the deployment of that credit in the economy naturally leads to an increase in GDP. Every central planner dreams of consistent growth in GDP and they seek to achieve it by lowering the cost of borrowing money.

The origin of this approach is mathematical. William Stanley Jevons in his The Theory of Political Economy, first published in 1871, was one of the three discoverers of the theory of marginal utility and became convinced that mathematics was the key to linking the diverse elements of political science into a unified subject. It was therefore natural for him to treat interest rates as the symptom of supply and demand for money when it passes from one hand to another with the promise of future repayment.

Another of the discoverers of the theory of marginal utility was the Austrian, Carl Menger, who explained that prices were subjective in the minds of those involved in an exchange. He argued it was fundamentally a human choice and therefore could not be predicted mathematically. This undermines the assumption that interest is simply the cost of money, suggesting that some sort of human element is involved, separate from pure cost. Eugen von Böhm-Bawerk, who followed in Menger’s footsteps saw it from a more capitalistic point of view, that a saver’s money, which was otherwise lifeless, was able to earn a saver a supply of goods through interest earned upon it.

Böhm-Bawerk confirmed interest produced an income for the capitalist and was a cost to the borrowing entrepreneur, but agreed with his mentor there was also a time preference element, the difference in the value of possessing money today compared with the promise of possessing it at a future date. The easiest way to understand it is that savers are driven mainly by time-preference, while borrowers mainly by cost. This was why borrowers had to bid up interest rates to attract savers into lending, the explanation for Gibson’s paradox.

In those days, money was gold, and currencies were gold substitutes, that is to say they circulated backed by and freely exchangeable into gold. Gold was the agency by which producers turned the fruits of their labour into the goods and services they needed and desired. Its role was purely temporary. Temporal men valued gold as a good with the special function of being money, but as a good, its actual possession was worth more than just a claim on it in the future. But do they ascribe the same time preference to fiat currency? To find out we must explore the nature of time preference as a concept.

- Source, Goldmoney

Bitcoin makes a comeback. Here’s more on the mystery rally

Surprising many, after dragging its feet the past few months, Bitcoin suddenly surged in value by almost 100% against the US Dollar and peaked at over $8,000. Some experts have said this trend is possibly the end of the cryptocurrency bear market, while others are chalking it up to a temporary and unexplainable bullish surge.

On May 19, Bitcoin was pumped with over $18 billion in capital as a response to the unexpected increase. Bitcoin Cash, Binance Coin, and Dash were trading at 7% higher than usual and EOS, Litecoin, Stellar, IOTA, Monero, and Etherum were trading at 4% higher.

This is the second time this year that Bitcoin has made a mysterious sharp uptick since its lowest value of $3,150 in December 2018.

In April, Bitcoin briefly hovered over $5,000, an almost 20% or $950 increase in value in minutes.

James Turk, banker-turned-founder of online investment platform Goldmoney, tweeted a graph showing Bitcoin’s increase in April after a four-month low.

What is Bitcoin?

Bitcoin is a kind of cryptocurrency that has a reputation for being volatile.

The IMF explains that cryptocurrency like Bitcoin, Litecoin, and Ripple are digital currencies that can be created through cryptography and mathematics. People who want to ‘mine’ cryptocurrency have to solve complex algorithm with powerful computers and servers.

Bitcoin exists only on virtual networks. When people use Bitcoin, their transactions are recorded anonymously in a permanent digital ledger called blockchain.

Reuters says, “Blockchain works by providing a shared record of data held by a network of individual computers rather than a single party. Its supporters say this makes it hard to tamper with, thereby ensuring a secure way to track goods along with the supply chain.”

While cryptocurrency removes middlemen, is decentralised, and can be accessed through mobile apps, it is poorly regulated and risky to invest it because its value fluctuates greatly.

Coin Central says its value fluctuates as much as 20% every 48 hours. Bitcoin owners can even lose all their money if they forget the password to their digital wallets.

RBI, too, has warned against cryptocurrencies, saying their value is unpredictable. In 2018, it even issued a circular saying that the country does not recognise cryptocurrencies as legal tender.

Regardless of its volatile nature, tech companies like Facebook have been researching more into how cryptocurrency can be used. Facebook is working on developing cryptocurrency for WhatsApp in India.

The Commerce Ministry also launched a new blockchain-based e-commerce marketplace that is a pilot project for Indian coffee farmers. On this blockchain processor, Indian farmers can directly sell their produce to exporters and roasters.

France and Ethiopia also use blockchain processors for coffee sales.

Possible explanations for Bitcoin’s surge

When Bitcoin’s valued jumped in April, experts suggested that less stringent regulations in the US might be the reason.

The US Securities and Exchange Commission was reviewing applications that would create a separate exchange traded fund for Bitcoin.

New York’s Department of Financial Services also just approved Tagomi Trading LLC’s bid for a cryptocurrency trading licence, saying it wanted to give consumers more choice.

Top financial institutions, such as JPMorgan and Goldman Sachs, have also embraced cryptocurrency.

JPMorgan is launching its own cryptocurrency called JPM Coin that it will use to settle payments via a blockchain. However, JPMorgan has taken a very cautious stock of such digital currencies.

CNN reported JPMorgan’s response to the surge this week: “Over the past few days, the actual price has moved sharply over marginal cost. The divergence between actual and intrinsic values carries some echoes of the spike high in late 2017, and at the time, this divergence was resolved mostly by a reduction in actual prices.”

CNN added that people need not fall prey to JPMorgan’s “fear mongering” because the cryptocurrency is “proving to be a solid alternative investment” in the background of the trade war between the US and China, fluctuating oil prices, and lacklustre gains from gold investments.

This is probably why Bitcoin seems to be in a bullish phase, because investors are gaining confidence in the cryptocurrency and expecting its value to hold steady for a while or keep increasing.

Galaxy Digital CEO Michael Novogratz has also predicted that Bitcoin will likely hit $10,000 in the coming months and its current value is a “stall point”.

-Source, Qrius

BTC Emerging from the Clouds in Heaven Bitcoin as a Haven Asset

James Turk of Goldmoney says investors are de-risking their portfolios by pivoting away from bonds and stocks into assets like bitcoin and gold. The banking, investments, and commodities expert speaking to King World News said dovish central banks policies, a weak European banking system, and the U.S. – China trade tussle will eventually have a negative blowback on the mainstream market.

Bitcoin and Gold Lead Bullish Breakout

Both bitcoin and gold are enjoying renewed price resurgence since the start of April 2019. Gold is currently looking to break beyond the $1,300 resistance price, which would cement the bull case for the precious metal.

Bitcoin is up more than 120 percent since the beginning of 2019 and has gained more than 100 percent between April and May 2019 alone. In the last six days, the top-ranked cryptocurrency has added about $2,000 to its pricewith a market capitalization approaching $150 billion.

While gold and bitcoin are on the up, stock markets have been taking a beating. The Dow plunged 600 points on Monday (May 13, 2019) but managed to claw back 200 points the following day. However, as at the time of writing this article, fears over a trade deal failure with China has seen the Dow fall another 175 points.

Dovish Central Bank Policies Doomed to Fail

According to Turk, the main reason for the uptrend in bitcoin and gold is because investors are wary of the vulnerabilities in the banks and mainstream assets. Thus, they are moving money away from markets with counterparty risk to assets like bitcoin and gold.

With the U.S. Federal Reserve adopting a dovish approach to its monetary policy by enacting quantitative easing and slashing interest rates, other central banks have also adopted the trend. European banks, in particular, might be significantly more vulnerable to any negative blowback from this policy and may end up being unable to service bad debt further weakening the economies of many member states.

US-China Trade War

The U.S. – China trade war further exacerbates the situation as rising U.S. tariffs could see Beijing not only retaliating with increased tariffs of their own but massive dumping of U.S. Treasuries. These extenuating circumstances might be putting the market on the path of another crisis.

Many experts are espousing the belief that bitcoin’s lack of correlation with mainstream assets makes it a suitable hedge against any risks in the market. Thus, more investors may decide to safeguard their wealth in bitcoin with the situation of the global market becoming more tenuous.

- Source, BTC Manager