Posts Categorized: Guild Investment

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Dear CIGAs,

Recently we have been hearing from some of our old friends from the gold world.  Except for the occasional trading position, we have not been positive on gold for about four years.  Our attitude has recently changed.  A few weeks ago, and last week as well, we mentioned that gold was becoming more attractive.  In this note we hope to explain our renewed optimism about gold in the intermediate term.

First, a little history.

We view a core holding of gold as an “insurance policy,” and like many Europeans of the 20th century, who lived through two world wars, the Weimar Republic, and all sorts of political irrationality, we believe some gold bullion or coins should be kept in one’s home or in an appropriate facility for safekeeping.  We continue to recommend an “insurance policy” in gold to everyone.

We began investing in gold and gold shares in the 1970s.  When Richard Nixon closed the gold window in 1971, we began to buy aggressively for clients.  We were out of gold for clients above $850/ounce, and received a lot of criticism for abandoning gold, which (some believed) was surely going much higher.  We stuck to our view, and did not buy gold back for all clients until 2003, at $325/oz.  Since late 2011, we have argued for investors to be patient and wait for an entry level for an intermediate-term up move.  Traders have been advised to trade occasionally.

Since we believe that a new entry level has been found for a longer-term move upward, we are using weakness in price to gradually increase positions in gold. We may go further into gold if conditions warrant in the coming weeks and months.

Gold has gradually been moving up for several weeks now, and we see the outline of a bullish case for gold taking shape:

1.  A weaker U.S. Dollar.  As we have been saying in these pages for a few weeks, a weaker or sideways Dollar is necessary for stocks, foreign currencies, oil, and gold to do well.  We have been seeing the Dollar move sideways for several months.

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Source: Bloomberg

2.  Inflation heating up a little in some countries (India is one of them).

3.  The U.S. labor market is tight, and although no data has yet been disseminated about higher wages, we see many individual companies raising wages.  Walmart (NYSE: WMT), with about 1.4 million U.S. employees, is raising its minimum wage by 25 percent to $10/hour by February, 2016, in addition to raises for other workers and managers.  Wages are also rising in restaurants and other service industries where qualified employees are in short supply; the same is true in construction.  Unemployment is at a multi-year low, and new claims for unemployment for the week ending October 10 came in at 255,000 — the lowest in over a decade.  Low unemployment means higher wages, and we are already seeing that in several sectors of the US economy.

4.  The probability that El Niño this winter will be one of the most powerful on record; that could upset the price for grains in the U.S. by affecting the production of feed grains in the U.S., South America, and Canada.  This year’s El Niño has already brought an underperforming monsoon in India, leading to expectations of lower agricultural production in the current growing season.  Less crop production creates higher prices for crops, feed grains, and food.  The data to defend these views have not yet become completely clear, but if we wait for the data, gold will already be higher by the time the mass of investors realize that inflation is coming.

5.  Middle Eastern instability and the return of Russia as a serious regional player for the first time in decades.  Henry Kissinger recently wrote an about this in The Wall Street Journal.  Mr. Kissinger has been a shrewd, realistic, and prescient advisor on global political events for decades.  His recent comments in the Journal are a key to understanding the region, as well as past and present U.S. involvement in it.  (Interested readers can find it here: A Path Out of the Middle East Collapse.)  We could summarize his main points simply by saying that the current situation in the Middle East — including the collision of rigid Shi’ite and Sunni blocs, the retreat of the U.S. as a competent power-broker, the rise of non-state actors, the arrival of Russian power, and the threat of nuclear proliferation — presents an exceptionally difficult picture for U.S. policymakers.  Our takeaway is that there are many obvious and hidden triggers and flashpoints which could powerfully affect gold and oil prices.  Given the rising prospects for disruptive events in the region, it seems naïve not to hold substantial positons in gold and oil.

6.  The Chinese Yuan (renmenbi) is growing in clout as a world trade currency, not a reserve currency.  Because the Chinese banking system is not open, the Yuan has a long way to go to become a world reserve currency.  However, it is increasing in stature as a currency of world trade.  We see the formation of a new trade bloc in Asia, with China at the head, as well as the potential for China to be a backup currency for the International Monetary Fund’s SDR basket (along with the Euro, Japanese Yen, British Pound, and U.S. Dollar).  This inclusion is a technical matter, but will increase the status of the Yuan.  A rising Yuan will mitigate upward pressure on the U.S. Dollar, and thus be bullish for gold.

7.  Gold is acting better technically.  Gold hit its recent low in the middle of the night on July 17, 2015 at $1,072/oz.  After most participants have gone to bed, the markets are thin and easier to manipulate.  We have often noticed such manipulations in gold and other commodities over the last four decades.  Often when such manipulations fail to create another downward panic, they lead to market bottoms.

8.  The efficiency of gold mining operations is increasing due to cost-cutting and technological advancements.  Inefficient gold producers are losing money and being forced to sell assets or liquidate.  Well-managed gold mining companies are becoming increasingly efficient (which is bullish for efficient operators).

9.  Last but not least, fear.  Fear of the Fed and its interest rate policy, first, but that’s only a part of something greater: the fear that those entrusted with the reins of the global economy will fail in their charge, whether that’s the Fed, central banks in general, or national politicians.  Investors doubt that these groups have the wisdom or courage to implement a solution to the slowing economic growth that is gripping the world economy.  When investors are generally unsettled or modestly frightened, they walk slowly in the direction of gold.  When investors fear inflation or imminent war, they run to gold.

The rise will gradually continue as the public and government buyers of gold come to the realization that some or all of the following may come to pass.

  • Major disruptions take place in the production of oil.
  • Greater instability begins to be seen in the Middle East, and for the first time in decades the U.S. has little of no control over the outcome, endangering western interests and allies in the region.
  • Global economic growth continues to stagnate in spite of QE, because of unwise actions by politicians as they pander to special interests and neglect their countries’ economic growth.
  • Governments come to the realization that more fiscal and monetary action will be required to maintain growth.
  • Currencies of most countries need to be depreciated to handle debt repayments.
  • Inflation turns out not to be as quiescent as some expect.
  • World gold production falls due to high cost of mining.
  • Short sellers begin to take profits and seek other avenues for investment.
  • Central banks increase the percentage of gold in the foreign exchange reserves in order to protect themselves from economic disruptions.

Until a few months ago we were in the “lower-for-a-few-years” inflation camp.  We changed our view based upon many of the variables mentioned above.

What are the investment implications?  We also made one new recommendation this week.

To learn more about Guild Investment Management, please visit Guild Investment

Posted by & filed under Guild Investment.

Dear CIGAs,

As you know we are bullish on commodities and do not believe the deflation thesis. You might read "America’s Global Retreat" in Saturday or Sunday’s Wall Street Journal opinion piece by Niall Ferguson. This is a big reason why commodity prices will rise

Respectfully yours,

Monty Guild
Guild Investment Management, Inc.
www.guildinvestment.com

Niall Ferguson: America’s Global Retreat
Never mind the Fed’s taper, it’s the U.S. geopolitical taper that is stirring world anxiety. From Ukraine to Syria to the Pacific, a hands-off foreign policy invites more trouble.
By NIALL FERGUSON
Feb. 21, 2014 6:49 p.m. ET

Since former Federal Reserve Chairman Ben Bernanke uttered the word "taper" in June 2013, emerging-market stocks and currencies have taken a beating. It is not clear why talk of (thus far) modest reductions in the Fed’s large-scale asset-purchase program should have had such big repercussions outside the United States. The best economic explanation is that capital has been flowing out of emerging markets in anticipation of future rises in U.S. interest rates, of which the taper is a harbinger. While plausible, that cannot be the whole story.

For it is not only U.S. monetary policy that is being tapered. Even more significant is the "geopolitical taper." By this I mean the fundamental shift we are witnessing in the national-security strategy of the U.S.—and like the Fed’s tapering, this one also means big repercussions for the world. To see the geopolitical taper at work, consider President Obama’s comment Wednesday on the horrific killings of protesters in the Ukrainian capital, Kiev. The president said: "There will be consequences if people step over the line."

No one took that warning seriously—Ukrainian government snipers kept on killing people in Independence Square regardless. The world remembers the red line that Mr. Obama once drew over the use of chemical weapons in Syria . . . and then ignored once the line had been crossed. The compromise deal reached on Friday in Ukraine calling for early elections and a coalition government may or may not spell the end of the crisis. In any case, the negotiations were conducted without concern for Mr. Obama.

The origins of America’s geopolitical taper as a strategy can be traced to the confused foreign-policy decisions of the president’s first term. The easy part to understand was that Mr. Obama wanted out of Iraq and to leave behind the minimum of U.S. commitments. Less easy to understand was his policy in Afghanistan. After an internal administration struggle, the result in 2009 was a classic bureaucratic compromise: There was a "surge" of additional troops, accompanied by a commitment to begin withdrawing before the last of these troops had even arrived.

Having passively watched when the Iranian people rose up against their theocratic rulers beginning in 2009, the president was caught off balance by the misnamed "Arab Spring." The vague blandishments of his Cairo speech that year offered no hint of how he would respond when crowds thronged Tahrir Square in 2011 calling for the ouster of a longtime U.S. ally, the Egyptian dictator Hosni Mubarak.

Mr. Obama backed the government led by Mohammed Morsi, after the Muslim Brotherhood won the 2012 elections. Then the president backed the military coup against Mr. Morsi last year. On Libya, Mr. Obama took a back seat in an international effort to oust Moammar Gadhafi in 2011, but was apparently not in the vehicle at all when the American mission at Benghazi came under fatal attack in 2012.

Syria has been one of the great fiascos of post-World War II American foreign policy. When President Obama might have intervened effectively, he hesitated. When he did intervene, it was ineffectual. The Free Syrian Army of rebels fighting against the regime of Bashar Assad has not been given sufficient assistance to hold together, much less to defeat the forces loyal to Assad. The president’s non-threat to launch airstrikes—ifCongress agreed—handed the initiative to Russia. Last year’s Russian-brokered agreement to get Assad to hand over his chemical weapons is being honored only in the breach, as Secretary of State John Kerry admitted last week.

The result of this U.S. inaction is a disaster. At a minimum, 130,000 Syrian civilians have been killed and nine million driven from their homes by forces loyal to the tyrant. At least 11,000 people have been tortured to death. Hundreds of thousands are besieged, their supplies of food and medicine cut off, as bombs and shells rain down.

Worse, the Syrian civil war has escalated into a sectarian proxy war between Sunni and Shiite Muslims, with jihadist groups such as the Islamic State of Iraq and Syria and the Nusra Front fighting against Assad, while the Shiite Hezbollah and the Iranian Quds Force fight for him. Meanwhile, a flood of refugees from Syria and the free movement of militants is helping to destabilize neighboring states like Lebanon, Jordan and Iraq. The situation in Iraq is especially dire. Violence is escalating, especially in Anbar province. According to Iraq Body Count, a British-based nongovernmental organization, 9,475 Iraqi civilians were killed in 2013, compared with 10,130 in 2008.

The scale of the strategic U.S. failure is best seen in the statistics for total fatalities in the region the Bush administration called the "Greater Middle East"—essentially the swath of mainly Muslim countries stretching from Morocco to Pakistan. In 2013, according to the International Institute of Strategic Studies, more than 75,000 people died as a result of armed conflict in this region or as a result of terrorism originating there, the highest number since the IISS Armed Conflict database began in 1998. Back then, the Greater Middle East accounted for 38% of conflict-related deaths in the world; last year it was 78%.

More…

Posted by & filed under Guild Investment.

Hi Jim,

Like you, we have been buying gold shares and we are also long wheat and corn. It looks like the Fed will underestimate inflation numbers and again be slow to raise rates (preponderance of Keynesians and neo-Keynsians on the committee).

Many investors are fighting the last war and expecting deflation when they should be looking ahead to inflation. Russia, India and many other countries are having growing inflationary problems, and food prices have been on the rise globally for a few months now . We think inflation has a chance to get to 3% in the US in late 2014 .

Our daily reading of global news indicates to us that the QE everywhere that we have seen for years is for some time been having and will continue to have deep inflationary effects.

Here is an under-recognized reason for the massive off take of gold by Asians… Much gold demand is originating in China due to the crackdown on bribes and corruption by the top levels of Chinese bureaucracy.

Historically a huge amount of money (we believe it could be well over a trillion dollars) has been earned via corruption in China and has left the country to buy real estate in Australia, Singapore, the US, Canada, UK and many other countries. If you are a lower or middle level communist party functionary who has made big money from connections and corruption you can’t buy so many houses in China any more due to new Communist party policies to stop corruption. It is also likely that if your offshore assets are currently or may become known to the higher ups, you are afraid of being purged.

Why not buy gold and have your relatives buy gold? It can be bought at any major bank in China and stored somewhere. In our opinion this is what is happening.

Respectfully yours,
Monty

PS – In our opinion, many ghost cities in China are actually partially completed projects where part of the money for the project was stolen( via corruption) before the project was finished so they just never became occupied by tenants.

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Jim Sinclair’s Commentary

Subscribing to Monty’s service has significant benefits. You must understand that those who I recommend to you as resources is because I believe in them and their ethics.

There is no business relationship with those I recommend, directly or tangentially.

Conference Call Announcement:

Next Friday, October 12, 2012 at 10:00 AM PST / 1:00 PM EST Guild Investment Management is hosting our third conference call,  Global Investing In the Current Macro Environment (1 CE Credit), for Investment Management Clients and Gold Subscribers.

As a courtesy, we would like to extend this invitation to and interested family members, close friends, CPAs, financial planners, or estate attorneys of yours who you feel may benefit from our perspective or who need introduction to our investment mindset.  To accept this extended invitation, please provide us with the contact information of the interested individual, so that we may reach out to them with details.

We have designed and created these periodic conference calls to help our Gold Subscribers with their investment strategies.

Certified Financial Planners you will be able to earn 1 CE credit for attending the event.

Please see below for conference call details.


Global Investing in the Current Macro Environment (1 CE Credit)

During the conference, we will not only discuss what is happening in the markets today, but how we believe you should approach investing over the next several years as markets cycle through periods of crisis and euphoria.

Call Schedule:  Friday, October 12, 2012 at 10:00 AM (PST) / 1:00 PM (EST).

Please click here for details and to register for the event.

Posted by & filed under Guild Investment.

Jim Sinclair’s Commentary

A note regarding Monty’s subscription service.

The information and analysis you get in our commentaries is not obvious.  It’s the knowledge and research of seasoned investors.

Guild Investment Management will be hosting it’s 3rd conference call for Gold Subscribers (Global Investing In The Current Macro Environment) on October 12th, 2012 at 10:00AM PST. 

Gold Subscribers please submit your questions via email to Tim Shirata (tshirata@guildinvestment.com)

You may also submit your questions via chat box, during the conference call.

Certified Financial Planners may receive 1 CE credit for participating in the conference call.

Login details and presentation will be sent one week prior to the call.

Posted by & filed under Guild Investment.

Dear CIGAs,

We are bullish on the Indian stock market, which in our view is underpriced and is a beneficiary of large foreign investment flows coming into the India investing firmament.  India is under-owned among professional investors, and has become cheap as the Indian rupee has had a major decline over the past twelve months.  We believe that the Indian rupee and Indian stocks will both rise as Indians purchase stocks to hedge against the rising inflation, and as foreigners buy stocks to benefit from the low valuations.

www.GuildInvestment.com

Posted by & filed under Guild Investment.

Dear CIGAs,

To all the readers of JSMineset and Tanzanian Royalty Exploration websites:

I am writing to give thanks to the most brilliant, seasoned and clear mind in international economics and finance, Jim Sinclair.

Events of the past weeks in Europe, the US, and many other parts of the world have conclusively brought to fruition the predictions of Jim Sinclair in an unmistakably clear manner for the entire investing universe to see.

Jim’s repeated, steadfast and consistent statements that QE to infinity would be the result of government behaviors have been clearly verified and demonstrated by the action of the US Federal Reserve yesterday.

Taken alone, the $40 billion per month QE is stunning. We remember this is being done while maintaining all previous programs, operation twist and etc. When taken with consideration of the context provided by the recent actions in Europe, China, Japan, UK and many other countries to do types of QE, it provides an irrefutable example of how QE to infinity is playing out.

For all of your readers may I gratefully say many thanks for your wisdom and guidance, Jim.

Monty Guild