Valuation Anomalies Suggest Historic Precious Metal Lows

Today, we’re going to start with an interview with billionaire Frank Giustra – perhaps, Canada’s most famous mining stock promoter.  Who, in this interview, comes as close to accusing gold of being manipulated as mainstream investors are “allowed.”

Do you think the gold market is manipulated?

No, I don’t think it is manipulated.  Manipulation is a strong word. But I do believe it is managed, by the policy makers who need to keep confidence in a system when it goes sideways.  Any major spike in the gold price undermines confidence in the financial system; and I think there are many players – including Wall Street players, the Fed, and the government – that would see that as a bad thing.  

I think gold has been talked down by a number of Fed officials – that it is not money, that people don’t understand it.  All sorts of things, to make gold sound like a barbarous relic that does not belong in a portfolio.  And I think it has worked in North America, but not other parts of the world.  There are still many buyers of physical gold in Asia and other places; but here in North America, gold has been seen as something that is not important in your portfolio.  And I think that it is managed; the expectations, and the views of gold are managed.

Than what keeps you in the space?

Because ultimately, when everything goes wrong, which it will, one way or the other, gold will be the only real asset left – that will act not only as a store of value but a currency. It is a currency, and has been for a very long time – and every portfolio should own gold, a bit of it.  It’s your hedge against the world going bonkers – and the world is going bonkers right now, at all sorts of levels.

There is still a tremendous amount of belief that the system will continue…and that policies will be implemented to reflate the economy – Iike infrastructure spending; tax cuts; and the rollback of regulations that were promised by the Trump campaign.  And it’s my view that a lot of this isn’t going to happen.  In fact, I don’t see any of it happening.  

 I think the entire system is deadlocked, so I don’t think you’re going to see anything that’s going to change the economy to get the kind of growth we’ve seen in the past.  I think growth is going to be subpar for a very long time.  This is the new normal now; this is Japan 30 years ago – and I don’t see anything that’s going to change it.  Easy money policy is here to stay, one way or the other.  All of this talk about raising rates is not going to happen.  Whatever happens is going to be insignificant; and at any sign of trouble, it will be rolled back.  So we’re heading into a very long period of creating an accident, that’s ready to happen.

Are you confident that the gold bull market has returned?

Absolutely.  I think what you saw from 2011 until about a year ago was a hiatus, much like you saw in the mid-1970s.  Gold had a major bull market from 1971 to 1980, but around 1973 to 1974 it had a nearly 50% correction.  This time it lasted longer, and I think it was the result of so much liquidity being put into the system – free money, in essence.  And what did people do with this free money?  They bought stocks and real estate…it really didn’t help the economy much, but it made a lot of people rich.

So where do you think the gold price should be?

I don’t know.  I’ve never predicted where the gold price will be.  I just think you will see it change course, and it will surprise everybody.  But I do think we will surpass the 2011 highs.

Are you all in mining stocks, or are you also in physical gold?

There are only two areas that I truly believe in.  Physical gold, because you can see it, touch it, and store it.  And gold mining stocks – because if you buy the right companies, you know the gold is in the ground.  What I am leery of is paper gold – the $10 trillion of paper gold that was traded last year, which is 233 times the amount of physical gold that was traded.  It’s ridiculous – and who knows where the underlying gold is, and who’s got a claim on it.  I have no way of telling.  I think it’s great for trading, but I would certainly not use it as an investment vehicle.

Great interview, with my only comments being the following…

1. Let’s call a spade a spade. Aside from naming the gold Cartel – along with the Fed, Exchange Stabilization Fund, and President’s Working Group on Capital Markets – this is what manipulation   And by the way, the COMEX was launched in – what do you know – 1974, via a mandate to suppress gold (and silver) demand.

2. The reason North American demand is temporarily weak is the dramatically more advanced market manipulation occurring in the government-rigged U.S. markets. Not to mention, the fact that until now, the majority of the inflation the Fed has created with its “reserve currency” printing press has been exported overseas – which is exactly why the average fiat toilet paper has lost half its purchasing power since the 2008 Financial Crisis.

3. The “spikes in gold” that scare the powers that be so much, in the past year alone, to name but a few instances – occurred after the BrExit; Trump’s Election; the Syrian attack; North Korean missile launches; and oh yeah, the disastrous retail sales, wholesale inventories, and CPI reports the morning of last week’s FOMC policy statement – undertaken, when gold hit a post-Election Day high of $1,295/oz.

4. Last but not least, I could not disagree more that “if you buy the right mining companies, you know the gold is in the ground.” I mean, give me a break!  You don’t know anything until the gold is mined – and more often than not, even if it’s “in the ground,” it is not mineable.  Let alone, profitable – even if it is eventually mined, after a miserable, capital intensive decade or so.  This, from the man behind the “IPO” of a (non-Precious Metal) mining company I worked for from 2008-2010 – that raised $100 million of stock at $3/share, on the premise that its mine project would cost $120 million to develop.  Three years later, the money was gone, with estimates of the true mine cost pushing $1 billion.

Today’s principal message is extremely poignant, for those seeking to not only protect and insure themselves, but profit from historical anomalies that in my view, signal that not only are Precious Metal valuations as low as at any time in modern financial history, but sentiment; and consequently, the investment logic that few people possess – which, when properly utilized, has the potential to make or break fortunes.

But before I get to it, a word from the Miles Franklin Blog’s eternal sponsor, PiMBEEB; i.e, the Precious-Metal-bullish, everything-else-bearish headlines from the past 24 hours – for those seeking ongoing empowerment, that their decision to invest in “unconventional” assets (at least, here in North America) like the “barbaric relics” gold and silver was right one…

1. The Saudi king removed his 57-year old nephew as heir to the throne, replacing him with his 31-year old son. Which, per yesterday’s “my newest most likely to catalyze the big one” – i.e, Saudi Arabia – demonstrates the accelerating chaos in one of the world’s most important geopolitical hotspots.

2. The PBOC, for the first time ever, officially intervened in the Chinese bond markets, by “monetizing” bonds. Too bad the yield curve continued its historic, recession-screaming inversion – in yet another example of pitifully failing government intervention.

3. The Illinois comptroller’s quote of the day – “the State can no longer function, we have reached a new phase of crisis.”

4. Plunging emerging market currencies – as oil prices were decimated to bear market levels, taking the high yield (i.e., junk bond) market with it

5. Remember that manufacturing plant Ford promised Trump would NOT be moved from Michigan to Mexico? Well guess what, it’s instead being moved to…drum roll please…China!

6. The U.S. Treasury yield curve has flattened to its lowest level since 2007, just before the worst financial crisis in a century. What could possibly go wrong?

7. An historic poster child of hyperinflation, Argentina, sold 100-year sovereign bonds in an offering that was 3.5x oversubscribed – in what can only be described, in my view, as the denouement of yield-reaching insanity.

8. Trump tweeted that China’s “help with North Korea” failed – likely, presaging yet another “go it alone” military boondoggle, halfway across the world.

9. General Electric – once, along with General Motors – America’s symbolically strongest company, apparently has a $31 billion pension shortfall, 50% greater than any other S. corporation. This – just as was the case with yet another former American icon, IBM – due to $45 billion of debt-financed share buybacks and dividend payouts over multiple decades; that produced ZERO shareholder value, but billions of windfall gains for “the 1%.”

10. A plunging UK Pound – as apparently, the aftermath of Theresa May’s failed election gambit, and the commencement of actual BrExit discussions, is NOT a “market positive.”

11. A plunging Brazilian Real, after a landmark labor reform bill was shockingly defeated.

12. In the wake of the “most PiMBEEB transaction of all time” – i.e., Amazon’s purchase of Whole Foods; Amazon launched yet another nuclear salvo in the ongoing, economy-destroying Retail Armageddon; i.e., “Prime Wardrobe.”

13. A U.S. warplane shot down a Syrian army drone, whilst a provocative Russian jet came within five feet of a U.S. reconnaissance aircraft – in the ongoing escalation of what could easily become a major military conflict. But aside from that, Mrs. Lincoln, how was the play?

Yes, another typical day in the “bonkers” world Giustra describes; which I assure you, will only become more so with each passing day; until eventually, inevitably, the “Big One” hits, with the force of 1929, 1987, 2000, and 2008 combined.  Which is the perfect segue into today’s discussion, of the “valuation anomalies suggesting historic Precious Metal lows.”

Not that this is new news to sound money – and free market – advocates, who have been forced to endure historic ignominy in recent years; but particularly since Election Day, when the powers that be doubled their manipulative efforts, after they nearly lost control.  That said, PM prices decidedly bottomed in December 2015 – “coincidentally,” the day the Fed first raised interest rates; and ever since, have slowly, painstakingly, crept higher; no doubt, due to the “many Asian physical buyers” Giustra describes.

However, following Giustra’s line of thinking, North American demand has been extremely weak, despite (slowly) rising prices – given the historic level of market manipulation, and serial bubble blowing in the stock, bond, and real estate markets.  It can’t last forever – and with 100% certainty, will end catastrophically for those attempting to alter “Economic Mother Nature’s” immutable laws.  However, in the meantime, Precious Metal sentiment has gotten so weak, we at Miles Franklin – one of the nation’s oldest, most trusted bullion dealers – are seeing valuation anomalies unlike any in the 28 years we’ve been in business.  Which, given the historically PiMBEEB environment, strongly suggest, in my very strong view, “historic Precious Metal lows.”

In recent weeks, I’ve written several articles about these anomalies – like gold trading at an all-time inflation-adjusted low; the silver/gold ratio trading near historic lows; and the platinum/gold ratio, just last week, hitting a fresh all-time low.  That said, Miles Franklin’s President and Co-Founder, from way back in 1989 – Andy Schectman – took this argument a step further, in a must listen podcast with Kerry Lutz, “five unusual Precious Metal opportunities.”  In which, aside from the platinum/gold and silver/gold anomalies, he discussed the plunge in junk silver premiums to nearly zero; the unfathomable decline of platinum’s price to nearly that of palladium; and most telling of all, the decline of numismatic premiums to, in some cases, nearly zero relative to brand new American Gold Eagles.  Which, I might add, prompted me, immediately after hearing the podcast, to purchase some MS-62 Liberty gold pieces for prices that would have been 50%-100% higher a decade ago!

Ultimately, only you can decide what defines value.  However, given such historic valuation anomalies – in a market with historically bullish fundamentals, and the tightest supply/demand outlook in memory – my view is that such value has not been seen in decades.  In other words, the perfect time to either initiate new positions, add to old ones, or swap them into portfolios with more favorable risk/reward profiles.

If you have an interest in any of these strategies, we humbly ask you to call Miles Franklin at 800-822-8080 – and give us a chance to earn your business.