A Global Gold Controversy: Where’s Germany’s Gold?

This week, Ivan Lo gives you his thoughts on the so-called promising data coming out of the U.S. government, a global gold controversy headlining Germany, and the price of gold.

Dear Readers,

When all else fails, run.

That’s what Bernanke told his friends last week; that he will not stand for a third term as Fed Chairman, even if President Barack Obama wins the November 6 election. His term ends January 2014.

Treasury Secretary Timothy Geithner has already made it clear he wants to leave by the end of the year.

It seems those who helped put us in this mess, will leave the cleanup to us. But even when they leave, will things be any different?

Bernanke told us last month, “There is a consensus that even as the personnel change and so going forward, that this is (QE3 and low interest rates) the appropriate approach.” He’s right.

It doesn’t matter who is elected or who plays puppet at the Fed, the end result will be the same: We’re either going to print and inflate, or crash. We are in too deep now and there is no turning back.

More Good Numbers? Think Again…

The recently released numbers by the U.S. government show promising data, but I won’t rely on them for one second.

On Wednesday, sales of new single-family houses in September 2012 were at a seasonally adjusted annual rate of 389,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is the highest number since April of 2010.

But just like the recent unemployment numbers, there’s a fine print (see Another Record High.)

These numbers were based on a September unadjusted number of 31K in actual sales. This unadjusted number of 31k consisted of 10K homes Not Started, 10K Under Construction, and 11K homes actually completed. What happens if the 10k homes Not Started and the 10k Under Construction never get completed, or payments stop? Doesn’t matter, they still count.

In other words, they took the sale of 11k new and completed homes and turned it into an annualized seasonally adjusted number of 389k sales.

But let’s play Devil’s Advocate.

Let’s say those numbers are correct. Let’s say that the unemployment numbers from a few weeks ago can be trusted. Assuming the recent surveys are real and conclusive, we should see better numbers everywhere else; because money for housing must come from somewhere, and stronger unemployment numbers must mean there’s more hiring. But is there?

The Highest Since 2010

If unemployment numbers are the best they have been January 2009, then why are “firings”, not “hirings,” the highest since 2010?

North American companies have announced plans to eliminate more than 62,600 positions at home and abroad since Sept. 1, the biggest two-month drop since the start of 2010, according to data compiled by Bloomberg.

Firings total 158,100 so far this year, more than the 129,000 job cuts in the same period in 2011.

Here are just some of the massive job cuts:

  • Colgate-Palmolive Co. will cut 2,300 jobs
  • 5,500 cuts were announced by Dow Chemical, DuPont Co. and Advanced Micro Devices Inc. (AMD) this past week
  • Hewlett-Packard Co. announced 29,000 cuts in September
  • Banks are eliminating more than 19,000 positions
  • AMD, the second-largest maker of processors for personal computers, said last week it will cut 15 percent of its staff, or about 1,665 jobs
  • Dow Chemical is shutting down about 20 plants in the U.S. and abroad, eliminating about 2,400 jobs
  • Cummins Inc. said it expects to erase as many as 1,500 jobs by the end of 2012

If there are so many people being fired, where are the jobs coming from? Can someone help answer that? Anyone?

The Merry-Go-Round

Let’s talk housing numbers.

If people are losing their jobs, how can they afford new homes?

Because the banks are lending at negative zero interest rates, which means that should translate into more easily affordable housing and a spike in housing demand, of course.

As PIMCO’s bond King Bill Gross just tweeted:

“Fed merry-go-round: inflate stocks til 2000. Then inflate housing til 2007. Then inflate stocks til 2012. Now inflate housing again.”

But are the banks lending?

The Fed is currently monetizing $40 billion in Mortgage-Backed Securities every month and keeping interest rates as low as possible in a plan to inflate housing. This should, in effect, work; low interest rates and swelling cash reserves causes banks to lend more freely.

So why aren’t we seeing this reflected in the housing market?

Let’s go back to what happened just a few years ago when the government inflated housing by giving free money to the banks.

The banks did what they were told and lent lots of money out; it led to the housing crash.

As a result, many of the banks were are being sued* because of the same lending policies that were practically forced onto them.

*(Just look at the hundreds of mortgage-related lawsuits against Country Wide and Merrill Lynch (now BofA) and the just announced $1 billion lawsuit against Bank of America by the US)

Count on It

If you can’t bet on both housing and employment numbers, then what can you bet on?

QE. No matter what happens, you can bet more money will be printed. There are already talks that the Fed will decide to expand QE3 to more than $85 billion per month, and with Treasurys instead of MBS. This is expected to be announced at the December meeting.

The U.S. public debt is now well over $16 trillion, which means US Debt-to-GDP, is now 102.94. I’ve been keeping track of the debt clock for a long time and in December 2009, public debt sat at $12 trillion. That means U.S. public debt has gained more than $1.3 trillion every year.

What About Canadians?

We’re not doing much better. Last week, the Bank of Canada released a note stating:

“…the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required consistent with achieving the 2 per cent inflation target.”

The loonie fell four days in a row, the longest losing streak versus its U.S. counterpart since May*.

(This is a good thing for trade, but it won’t last. Soon the U.S. will inflate and the Canadian dollar will bounce back against USD.)

Those who think the housing sector in Canada still has legs are out to lunch and haven’t listened to anything I have said in the past year.

Global Gold Controversy

There have been some very important gold-related events happening over the last few years.

A year ago, and more recently, I reported on the repatriation of gold by countries around the world. But now the second largest holder of gold, Germany, is apparently doing the same.

Germany Under Investigation & Gold Repatriation

According to the Telegraph, Germany withdrew two thirds of its vast holdings of gold from Bank of England vaults shortly after the launch of the euro more than a decade ago, according to a confidential report by German auditors:

Via the Telegraph:

The revelation came as Germany’s budget watchdog demanded an on-site probe of the country’s remaining gold reserves in London, Paris, and New York to verify whether the metal really exists.

The country has 3,396 tons of gold worth €143bn (£116bn), the world’s second-largest holding after the US. Nearly all of it was shifted to vaults abroad during the Cold War in case of a Soviet attack.

Roughly 66pc is held at the New York Federal Reserve, 21pc at the Bank of England, and 8pc at the Bank of France. The German Court of Auditors told legislators in a redacted report that the gold had “never been verified physically” and ordered the Bundesbank to secure access to the storage sites.

It called for repatriation of 150 tons over the next three years to test the quality and weight of the gold bars. It said Frankfurt has no register of numbered gold bars.

The report also claimed that the Bundesbank had slashed its holdings in London from 1,440 tons to 500 tons in 2000 and 2001, allegedly because storage costs were too high. The metal was flown to Frankfurt by air freight.

The revelation has baffled gold veterans. The shift came as the euro was at its weakest, slumping to $0.84 against the dollar. But it also came as the Bank of England was selling off most of Britain’s gold reserves – at market lows – on orders from Gordon Brown.

The watchdog report follows claims by the German civic campaign group “Bring Back our Gold” and its US allies in the Gold Anti-Trust Committee that official data cannot be trusted. They allege central banks have loaned out or “sold short” much of their gold.

The refrain has been picked up by German legislators. “All the gold must come home: it is precisely in this crisis that we need certainty over our gold reserves,” said Heinz-Peter Haustein from the Free Democrats (FDP).

The Bundesbank said it had full trust in the “integrity and independence” of its custodians, and is given detailed accounts each year. Yet it hinted at further steps to secure its reserves. “This could also involve relocating part of the holdings,” it said.

There’s obviously more to this story…and we shall soon see.

Central Bank Buying Continues

Both Brazil and Turkey’s central banks increased their gold holdings last week.

According to the IMF, Brazil added to its gold reserves for the first time since December 2008, and Turkey also raised its holdings.

China also continues to increase its gold holdings.

The latest release from the Hong Kong Census and Statistics Department, through the end of August, showed that China had imported a whopping gross 512 tons of gold, 10 tons more than the latest official ECB gold holdings.

Furthermore, according to Australian Bureau of Statistics, gold became the second most valuable physical export to China, surpassing coal and only behind iron ore.

Australia’s gold sales to China hit $4.1 billion in the first eight months of this year, surging by a whopping 900 percent.

Gold isn’t the only thing China wants. Bloomberg reports that Chinese silver demand is set to climb nearly 10% next year.

November Rally

Gold has taken a major hit in October, as I had predicted in Watch the Throne late September; it’s down more than 5% for the month, falling again Friday for a third straight week.

There’s strong support at the $1,700/oz range and physical demand from Asia is very strong down at these levels as they continue to accumulate on dips. However, with gold momentarily hitting below $1,700/oz, there is a risk that gold could test the 200 and 100 day moving averages of $1,663.30/oz and $1,664/oz respectively.

From a technical perspective, we still have some room to fall before gold moves back up on trend. There are few days before November officially starts and months end can often bring in intermediate lows. However, technical analysis in an age of high frequency algomachine trading doesn’t work as well as it used to.*

(That’s why so many old school technical guys are confused)

We’re in an election year and it would interesting to see how gold fares leading up to the actual election date of November 6.

Regardless, as I had mentioned before, I would take any of these dips as a buying opportunity.

In the last 10 years, November has been the strongest performing month for gold; in the last 40 years, its been the second. Furthermore, with the upcoming uncertainty surrounding the US “fiscal cliff” and the yet another possible announcement of an increase in QE in December, we should see gold continue to move up. That could be very beneficial for gold and related stocks.

Focus on fundamentals.

When High Grade Speaks, it’s Time to Listen.

Corvus Gold (TSX: KOR) (OTCQX: CORVF)

We just released our report on Corvus Gold last week and the stock has been performing very well.

If you missed it, you can find it here: http://equedia.com/reportarchive/corvusgoldreport/

No aggressive selling has been shown, despite the fact it’s now near its 52-week high; setting a new one earlier in the week. I credit this to great share structure and strong shareholders.

Corvus has major catalysts in the coming months and no one wants to bet against management’s capacity to deliver.

An updated PEA is expected shortly, while completion of a feasibility study is scheduled for Q1 2013 (which should be a significant factor in a higher valuation).

However, I am more excited about the high grade zones that Corvus is attacking at Yellow Jacket right now. They should have some results from the follow up drill holes throughout November and early December.

As I mentioned in my report last week, if Corvus can continue to see success with the high grade zones, it will be a massive game changer.

I am not kidding – it will rewrite Corvus’ story completely.

Until next week,

Ivan Lo

Equedia Weekly

Equedia Logo

Disclosure: I am long gold and silver through ETF’s and bullion, as well as long both major and junior gold and silver companies. We’re biased towards Corvus Gold Inc. because they are an advertiser and we own shares through their most recently announced financing dated October 15, 2012 as well as in the open market purchased after the initial release of our original report, and we own options. You can do the math. Our reputation is built upon the companies we feature. That is why we invest in every company we feature in our Equedia Reports, including Corvus Gold Inc. It’s your money to invest and we don’t share in your profits or your losses, so please take responsibility for doing your own due diligence. Remember, past performance is not indicative of future performance. Just because many of the companies in our previous Equedia Reports have done well, doesn’t mean they all will. Furthermore, Corvus Gold Inc. and its management have no control over our editorial content and any opinions expressed are those of our own. We’re not obligated to write a report on any of our advertisers and we’re not obligated to talk about them just because they advertise with us.

Disclaimer and Disclosure

Equedia.com & Equedia Network Corporation bears no liability for losses and/or damages arising from the use of this newsletter or any third party content provided herein. Equedia.com is an online financial newsletter owned by Equedia Network Corporation. We are focused on researching small-cap and large-cap public companies. Our past performance does not guarantee future results. Information in this report has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. This material is not an offer to sell or a solicitation of an offer to buy any securities or commodities.

Furthermore, to keep our reports and newsletters FREE, from time to time we may publish paid advertisements from third parties and sponsored companies. We are also compensated to perform research on specific companies and often act as consultants to many of the companies mentioned in this letter and on our website at equedia.com. We also make direct investments into many of these companies and own shares and/or options in them. Companies do pay us to advertise on our website and we often distribute our reports on featured companies. While we are never paid to write a rosy and positive report on any company, we do market our reports using the advertising fees paid for by our featured companies.

This process allows us to continue publishing high-quality investment ideas at no cost to you whatsoever. Our revenue is generated by sponsor companies and we grow our readership by using the advertising fees we charge to distribute our reports. This helps both Equedia and our client companies gain exposure and allows us to provide you with our research at no cost.

Therefore, information should not be construed as unbiased. Each contract varies in duration, services performed and compensation received.

If you ever have any questions or concerns about our business or publications, we encourage you to contact us at the email or phone number below.

Equedia.com is not responsible for any claims made by any of the mentioned companies or third party content providers. You should independently investigate and fully understand all risks before investing. We are not a registered broker-dealer or financial advisor. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report OR ON Equedia.com will be the full responsibility of the person authorizing such transaction.

Please view our privacy policy and disclaimer to view our full disclosure at http://equedia.com/cms.php/terms. Our views and opinions regarding the companies within Equedia.com are our own views and are based on information that we have received, which we assumed to be reliable. We do not guarantee that any of the companies will perform as we expect, and any comparisons we have made to other companies may not be valid or come into effect. Equedia.com is paid editorial fees for its writing and the dissemination of material and the companies featured do not have to meet any specific financial criteria. The companies represented by Equedia.com are typically development-stage companies that pose a much higher risk to investors. When investing in speculative stocks of this nature, it is possible to lose your entire investment over time. Statements included in this newsletter may contain forward looking statements, including the Company’s intentions, forecasts, plans or other matters that haven’t yet occurred. Such statements involve a number of risks and uncertainties. Further information on potential factors that may affect, delay or prevent such forward looking statements from coming to fruition can be found in their specific Financial reports. Equedia Network Corporation., owner of Equedia.com has been paid $9166 plus HST per month for 12 months which totals $110,000 plus hst of media coverage on Corvus Gold Inc. plus any additional expenses we may incur as a result of additional distribution. Corvus Gold Inc. has paid for this service. We have also been granted 150,000 options at $1.08 which expires on September 27, 2014 with a full vesting period of one year, by Corvus Gold Inc. Equedia.com may purchase shares of Corvus Gold Inc. without notice and intend to sell every share we purchase for our own profit. We may sell shares in Corvus Gold Inc. without notice to our subscribers. We currently own shares of Corvus Gold Inc., and are participating in Corvus Gold Inc.’s most recently announced non-brokered private placement financing dated October 16, 2012, because we believe in the Company’s ability to deliver results. The shares will have a hold period of 4 months from the date of closing.

Equedia Network Corporation is also a distributor (and not a publisher) of content supplied by third parties and Subscribers. Accordingly, Equedia Network Corporation has no more editorial control over such content than does a public library, bookstore, or newsstand. Any opinions, advice, statements, services, offers, or other information or content expressed or made available by third parties, including information providers, Subscribers or any other user of the Equedia Network Corporation Network of Sites, are those of the respective author(s) or distributor(s) and not of Equedia Network Corporation. Neither Equedia Network Corporation nor any third-party provider of information guarantees the accuracy, completeness, or usefulness of any content, nor its merchantability or fitness for any particular purpose.

Leave a Reply

Your email address will not be published. Required fields are marked *

The Complete Package: Corvus Gold

The Complete Package: Corvus Gold

An in-depth report on why Corvus Gold is the complete package and the reasons

A Storm is Gathering: Greece Risk is Back

A Storm is Gathering: Greece Risk is Back

This week, Ivan Lo talks about the upcoming election, fiscal cliff and debt

You May Also Like