‘The time to repair the roof is when the sun is shining’. – John. F. Kennedy
The uncertainty that dominates the global markets is breeding fear which we believe will ultimately send precious metal prices higher. We have already looked into Italy’s banking crisis in a previous piece but now Europe’s model economic machine, Germany is seeing its largest lender facing a liquidity crisis. Deutsche Bank currently employs 100,000 people worldwide. The stock price has halved in value this year and the bank received a hefty fine of $5 billion (reduced from $14 billion after political pressure) by the U.S Department of Justice for its role in the mortgage crisis of 2008. This bank is no stranger to controversy as it finally admitted in 1999 to having financed the Nazi’s Auschwitz death camp. It has more recently been implicated in the LIBOR Interest rate scandal. The sharks are circling around this bloated belly fish as at least ten hedge funds have bid farewell and the shorting has begun. 9% of Deutsche’s workforce faces the chop including 4000 positions in Germany. Merkel & Co. are faced with an electorate that doesn’t want a bailout and a banking system that is desperate for one. It doesn’t end there with Germany’s second-largest bank, Commerzbank AG has just disclosed plans to cut a mere 9,600 jobs. Spain’s Banco Popular Espanol SA has announced a parting of the ways for 3,000 employees. The Amsterdam based lender, ING Group NV will shed 5,800 positions in the next 5 years to focus on Internet and Mobile banking.
Currency devaluations have been plentiful with 700 global interest rate cuts by central banks since the market crash of 2008. According to our metrics, 7 of the 9 major currencies are in position downtrends while 8 are in long-term downtrends. The big banks are insolvent and while another dose of money printing will push the ever-growing debt snowball down the road, they are just postponing the inevitable. The financial system is contaminated with excessive counter-party risk and precious metals are one of the few assets that are not exposed. It has been 45 years since the U.S. Dollar parted from Gold to become a 100% paper-based currency. Gold on the other-hand has been a popular medium of exchange and store of value for 5,000 years. Negative sentiment from the media and education faculties have made gold out to be an irrelevance within the financial system. The reason is that metals serve to restrain the overproduction of paper currency which in turn does not appease politicians or banks in need of bailouts when the time arises. Negative Interest rates have made the shiny metal even more appealing as a store of value and monetary crisis hedge. Investors worldwide now own the largest ever amount of liquid paper wealth while Gold makes up only 1.4% of globally owned liquid assets. If just 1-2% of global wealth moves into gold over the coming years, we will see the price rise rapidly.
For those of you wondering when you should buy, gold is looking good on the long-term chart. The short-term chart, however, raises doubts for the bulls among us. Gold is back below its 50 day Moving Average price (MA) and we have seen a series of lower highs over the past quarter. The big Commercial Banks are heavily short on the price. Support is to be found at $1300-$1308 with a more substantial support level at $1250 (also where the 200 MA is found) and we see this as the major support line if more selling intensifies. The 50 MA at $1336 is the immediate target on the upside. Clearing the $1350-$1375 range on rising volume would be a good place for bullish traders. Consider any downturns over the coming weeks and months as opportunities to buy if you are looking to invest in physical bullion. As for our own portfolio, we are holding up well in the markets. Volatility has been erratic of late but we have dividends streaming into the portfolio which balances the volatility. Following is a link to our current holdings: https://theimpartiallens.files.wordpress.com/2015/06/portfolio-2016-10-03.pdf