Global Market Commentary

August 5, 2016

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Market Summary

We remain bullish on gold and silver.  We remain bullish on Brazil bonds and Indian stocks for the long term.  We are aware that the Brazilian government is unhappy that their currency has risen so much, and they are trying to intervene to slow down the real’s appreciation.  We are entering the often problematic August-to-early-October period.  Our investment management clients’ accounts have cash, and we would not be surprised to see a market correction in the next few weeks or months which will give us an opportunity to buy quality stocks more cheaply.  Historically, stocks often bottom in mid-October, and with the election in early November, we will be aware of opportunities to capitalize on the ongoing change that characterizes the current U.S. market.

Gold and Silver

As regular readers know, we believe that history shows that gold can work well in periods of both deflation and inflation as a means to protect capital and maintain buying power.  More important than the direction of the economy is the current psychology about governments’ ability to avert economic problems, and about the integrity of government actors that is projected to the business community and to the consuming and investing public.

Silver is both a precious metal and an industrial metal.  It is widely used in electrical and electronic circuitry and it is used along with copper in the current massive global build-out of solar projects in those countries which are not rich in oil and gas and which need to import energy resources in huge quantities.  These big imports are expensive, and a switch to solar makes a lot of sense for countries like India and China, which are currently undertaking the world’s largest solar build-out projects in the next few decades.  Their silver and copper consumption will increase dramatically.

As we examine the demand for gold and silver today, we see a much larger and more interested gold/silver participant group than we have seen in many years.

We bring this up because wherever we look we see a lot of demand for gold and silver.  Where is this demand coming from?
1.  From those who see deflation ahead, and want something with the ability to protect capital over the long term.
2.  From those who see Asian countries hoarding gold, and realize that they intend to use gold as a mechanism to conduct trade in the future.  Rumors abound that China may partially back its currency by gold.
3.  From those who are industrial and commercial consumers of silver and copper for solar development in India, China, and worldwide.
4.  From those who traditionally hold gold as a store of family wealth, e.g., India.
5.  From those who see gold as a safe store of value in a world where in order to support increased exports, many countries are trying to devalue their currencies.
6.  From those who are worried about the buying power of their home currency as it depreciates.
7.  From those who see inflation ahead, and are seeking preservation of the buying power of capital.
8.  From professional speculators who notice that CFTC commitment of traders report shows large commitments to gold and silver futures from  professionals and from industrial consumers.
9.  From those who believe that the gold/silver ratio is out of touch with historical norms.
10.  From those concerned that Brexit is just the first of many potential defections from the E.U., and that slower economic growth is in store for Europe.
11.  From those concerned about the upcoming U.S. election who realize that both political parties have made statements that could easily damage the U.S. economic and trade situation.
12.  From those who believe that the U.S. has kept interest rates too low for too long.
13.  From those who notice that it now takes $10 of U.S. credit creation to create $1 of GDP growth — a very dangerous situation.
14.  From those who have been concerned that some U.S. politicians are calling for higher U.S. taxes, and thus lower U.S. corporate profits.
15.  From those who are not receiving any interest on their short-term bank deposits and are looking for alternative sources of asset growth.
16.  From those who believe that a shortage of deliverable silver and gold exists among those who have promised to deliver gold and silver in metal  form to buyers.

From those prominent investors who are arguing that gold will be the primary way to protect assets in the case of another economic problem like 2007.

Those are just a few…  There are many more.