Seven Questions Gold Bears Must Answer

By Jeff Clark, Senior Precious Metals Analyst

A glance at any gold price chart reveals the severity of the bear mauling it has endured over the last three years. More alarming, even for die hard gold investors, is that some of the fundamental drivers that would normally push gold higher, like a weak U.S. dollar, have reversed.

Throw in a correction defying Wall Street stock market and the never ending rain of disdain for gold from the mainstream and it may seem that there’s no reason to buy gold; the bear is here to stay.
If so, then I have a question. Actually, a whole bunch of questions.

If we’re in a bear market, then…..

Why Is China Accumulating Record Amounts of Gold?

Mainstream reports will tell you Chinese imports through Hong Kong are down. They are.
But total gold imports are up. Most journalists continue to overlook the fact that China imports gold directly into Beijing and Shanghai now. And there are at least 12 importing banks—that we know of.
Counting these “unreported” sources, imports have risen sharply. How do we know? From other countries’ export data. Take Switzerland, for example:

So far in 2014, Switzerland has shipped 153 tonnes (4.9 million ounces) to China directly. This represents over 50% of what they sent through Hong Kong (299 tonnes).

The UK has also exported £15 billion in gold so far in 2014, according to customs data. In fact, London has shipped so much gold to China (and other parts of Asia) that their domestic market has “tightened significantly” according to bullion analysts there.

Why Is China Working to Accelerate Its Accumulation?

This is a growing trend. The People’s Bank of China released a plan just last Wednesday to open up gold imports to qualified miners, as well as all banks that are members of the Shanghai Gold Exchange. Even commemorative gold maker China Gold Coin could qualify to import bullion. Not only will this further increase imports, but it will serve to lower premiums for Chinese buyers, making purchases more affordable.

As evidence of burgeoning demand, gold trading on China’s largest physical exchange has already exceeded last year’s record volume. YTD volume on the Shanghai Gold Exchange, including the city’s free trade zone, was 12,077 tonnes through October vs. 11,614 tonnes in all of 2013.

The Chinese wave has reached tidal proportions—and it’s still growing.

Why Are Other Countries Hoarding Gold?

The World Gold Council (WGC) reports that for the 12 months ending September 2014, gold demand outside of China and India was 1,566 tonnes (50.3 million ounces). The problem is that demand from China and India already equals global production!

India and China currently account for approximately 3,100 tonnes of gold demand, and the WGC says new mine production was 3,115 tonnes during the same period.

And in spite of all the government attempts to limit gold imports, India just recorded the highest level of imports in 41 months; the country imported over 39 tonnes in November alone, the most since May 2011.

Let’s not forget Russia. Not only does the Russian central bank continue to buy aggressively on the international market, Moscow now buys directly from Russian miners. This is largely because banks and brokers are blocked from using international markets by US sanctions. Despite this, and the fact that Russia doesn’t have to buy gold but keeps doing so anyway.

Global gold demand now eats up more than miners around the world can produce. Do all these countries see something we don’t?

Why Are Retail Investors NOT Selling SLV?

SPDR gold ETF (GLD) holdings continue to largely track the price of gold—but not the iShares silver ETF (SLV). The latter has more retail investors than GLD, and they’re not selling. In fact, while GLD holdings continue to decline, SLV holdings have shot higher.

While the silver price has fallen 16.5% so far this year, SLV holdings have risen 9.5%.

Why are so many silver investors not only holding on to their ETF shares but buying more?

Why Are Bullion Sales Setting New Records?

2013 was a record-setting year for gold and silver purchases from the US Mint. Pretty bullish when you consider the price crashed and headlines were universally negative.
And yet 2014 is on track to exceed last year’s record-setting pace, particularly with silver…

• November silver Eagle sales from the US Mint totaled 3,426,000 ounces, 49% more than the previous year. If December sales surpass 1.1 million coins—a near certainty at this point—2014 will be another record-breaking year.

• Silver sales at the Perth Mint last month also hit their highest level since January. Silver coin sales jumped to 851,836 ounces in November. That was also substantially higher than the 655,881 ounces in October.

• And India’s silver imports rose 14% for the first 10 months of the year and set a record for that period. Silver imports totaled a massive 169 million ounces, draining many vaults in the UK, similar to the drain for gold I mentioned above.

To be fair, the Royal Canadian Mint reported lower gold and silver bullion sales for Q3. But volumes are still historically high.

Why Are Some Mainstream Investors Buying Gold?

The negative headlines we all see about gold come from the mainstream. Yet, some in that group are buyers…..

Ray Dalio runs the world’s largest hedge fund, with approximately $150 billion in assets under management. As my colleague Marin Katusa puts it, “When Ray talks, you listen.”

And Ray currently allocates 7.5% of his portfolio to gold.

He’s not alone. Joe Wickwire, portfolio manager of Fidelity Investments, said last week, “I believe now is a good time to take advantage of negative short-term trading sentiment in gold.”

Then there are Japanese pension funds, which as recently as 2011 did not invest in gold at all. Today, several hundred Japanese pension funds actively invest in the metal. Consider that Japan is the second-largest pension market in the world. Demand is also reportedly growing from defined benefit and defined contribution plans.

And just last Friday, Credit Suisse sold $24 million of US notes tied to an index of gold stocks, the largest offering in 14 months, a bet that producers will rebound from near six-year lows.

These (and other) mainstream investors are clearly not expecting gold and gold stocks to keep declining.

Why Are Countries Repatriating Gold?

I mean, it’s not as if the New York depository is unsafe. It and Ft. Knox rank as among the most secure storage facilities in the world. That makes the following developments very curious:

• Netherlands repatriated 122 tonnes (3.9 million ounces) last month.

• France’s National Front leader urged the Bank of France last month to repatriate all its gold from overseas vaults, and to increase its bullion assets by 20%.

• The Swiss Gold Initiative, which did not pass a popular vote, would’ve required all overseas gold be repatriated, as well as gold to comprise 20% of Swiss assets.

• Germany announced a repatriation program last year, though the plan has since fizzled.

• And this just in: there are reports that the Belgian central bank is investigating repatriation of its gold reserves.

What’s so important about gold right now that’s spurned a new trend to store it closer to home and increase reserves?

These strong signs of demand don’t normally correlate with an asset in a bear market. Do you know of any bear market, in any asset, that’s seen this kind of demand?

Neither do I.

My friends, there’s only one explanation: all these parties see the bear soon yielding to the bull. You and I obviously aren’t the only ones that see it on the horizon.

Christmas Wishes Come True…..

One more thing: our founder and chairman, Doug Casey himself, is now willing to go on the record saying that he thinks the bottom is in for gold.

I say we back up the truck for the bargain of the century. Just like all the others above are doing.

With gold on sale for the holidays, I arranged for premium discounts on SEVEN different bullion products in the new issue of BIG GOLD. With gold and silver prices at four-year lows and fundamental forces that will someday propel them a lot higher, we have a truly unique buying opportunity. I want to capitalize on today’s “most mispriced asset” before sentiment reverses and the next uptrend in precious metals kicks into gear. It’s our first ever Bullion Buyers Blowout—and I hope you’ll take advantage of the can’t-beat offers.

Someday soon you will pay a lot more for your insurance. Save now with these discounts.

The article 7 Questions Gold Bears Must Answer was originally published at casey research.

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International Buying & Your Shot at 1,000% Gains

By Jeff Clark, Senior Precious Metals Analyst

 

As a gold investor in North America, it sometimes feels like I'm living in some far off land where everyone believes in fairy tales and unicorns.


Most people around me don't seem to see anything wrong with the Fed creating $65 billion a month out of thin air, hey, it's not $85 billion anymore, what a relief! It's business as usual for the US government to spend billions more than it takes in, and a public debt hovering at $17.2 trillion—up from $7 trillion just 10 years ago—seems no more alarming than a rainbow.

No surprise then that these people don't feel any need to own assets that might help them in times of crisis. Hard assets like…..gold.

I'm reminded of a visit I made to China several years ago. One night, I awoke in the middle of the night—something was crawling under the bed sheet. I shot up like a cannonball, trampolined out of bed, and hit the light switch. I searched and searched for whatever bug had made its way under the sheet, but never did find the little vermin. Still, I was so creeped out, I spent the rest of the night on the couch.

I told the staff the next morning what happened—and they did nothing. They just stared at me. They spoke English, so it wasn't that they didn't understand me. It was just that none of them seemed to think it was a big deal. One of them even chuckled. They obviously didn't appreciate the potential health hazard and had no sense of customer service. I left bemused, wondering how people could accept bedbugs as normal—or even if they did, how they could not care about a customer's experience. It was like being on another planet.

I have some of those same feelings when I think about mainstream investors today. How can they not appreciate the potential financial hazard inherent in something as obviously dangerous as today's unprecedented levels of money printing? How can they not care that they have nothing solid, like gold, at the core of their investment portfolios? It's like these people think they live on Planet Sesame Street.

Most people seem to really believe that today's heavy-handed government interventions are not only the right course of action, but will have no negative fallout. Massive currency dilution, unstoppable tides of rising debt, and never-ending fiscal imbalances are hardly a way to cure decades of money mismanagement, and certainly aren't consequence-free. How is it that this is not obvious to all?

I honestly don't know. Perhaps people are aware at some level, but the truth is just too awful to face, and so people don't.

Very few of my friends and neighbors own any gold. Rarely am I asked about it anymore, even by those who know what I do for a living. The doctor I saw last month gave me the distinct impression I could be doing better things with my money. Most of the mainstream media ignore gold, while many of the big banks loudly proclaim their latest short position as if they had some sort of divine insight.

I'm starting to feel like the proverbial lone voice in the woods….

 

But We're Not Alone!

As deluded as most Americans seem to be, that is definitely not the case for everyone in the world—the Japanese, for example, are much more prudent and levelheaded.

I wonder if my fellow citizens would feel differently if they lived in any of these countries where people have witnessed economic insanity firsthand, and are acting accordingly:

Japan was a net importer of gold in December, the first time in almost four years. Net purchases totaled 1,885 kilograms (60,604 ounces). It was only the tenth time Japan was a net monthly buyer since the end of 2005. There are reports that Japan's pension funds, which hold the world's second-largest pool of retirement assets, are buying gold.

Dubai gold jewelers just reported the strongest gold sales in seven years. Pure Gold Jewelers, one of the largest dealers in the country, reported a 25% increase in gold jewelry sales during the Dubai Shopping Festival this year.

The state of Gujarat in India reported that silver bullion imports hit a five year record from April 2013 to January 2014. Imports were more than 450% higher than the same period a year ago. The Indian government has since hiked the import duty on silver to 15%, the same rate as gold, and official imports in January subsequently fell. Smugglers will surely add silver to all those secret luggage compartments they've been using for gold.

Australia's Perth Mint said gold sales jumped 41% and silver 33% in 2013. In January, gold demand was up 10% and silver 8%.

Mexico's pension funds are now investing in gold after strict investment regulations were recently lifted. The World Gold Council says it spoke to 10 of the country's most influential pension fund managers (with over $160 billion in assets) and was told that they began investing in gold and commodities in 2013.

Central banks were once again big buyers last year. Of those that have reported so far…

• Turkey purchased 150.4 tonnes (4.83 million ounces)
• Vietnam 110 tonnes (3.53 million ounces)
• Russia 57.3 tonnes (1.84 million ounces)
• Kazakhstan 24.16 tonnes (776,762 ounces)
• Azerbaijan 16.02 tonnes (515,054 ounces)
• Sri Lanka 6.51 tonnes (209,301 ounces)
• Nepal 6.22 tonnes (199,977 ounces)
• Ukraine 6.22 tonnes (199,977 ounces)
• Indonesia 4.04 tonnes (129,889 ounces)
• Venezuela 1.87 tonnes (60,121 ounces)

 

And of Course, There's China….

 

Last year's record import number is impressive enough, but it's the pace that's mind-blowing. 1,139 tonnes is…

• More than 2011 and 2012 imports combined.

• Over 42% of global mine production last year.

• Roughly twice as much as the amount GLD sold in all of 2013.

 

Meanwhile, Back in the Good Ol' US of A…

Gold coin demand for 2013 jumped 24%. Some headlines have pointed out that January 2014 gold and silver coin sales were down compared to a year ago—but January 2013 was the all-time record for single-month sales. Further, Eagle and Buffalo gold coin sales were more than double December's sales, and were the highest since last April. Silver coin sales in January were almost four times more than in December.

There, now I feel better.

Even if you sometimes feel like a lone wolf investing in this market, understand that worldwide demand for gold and silver bullion continues unabated. If you live in the US, realize that people in many other countries are seeing more positive headlines about gold, have more friends who own gold, and heck, could even walk into a bank to buy gold.

I don't think the people in these other countries are stupid. Whatever consequences result from the historic levels of currency dilution across the globe, they seem as sure as I do that they'll be good for gold.
What should you buy? I first recommend buying gold and silver bullion to establish a financial safety net. And then, to maximize gains on the more speculative end of your portfolio, you should look at Louis James' just-released "10-bagger List for 2014" in the February issue of International Speculator. A 10-Bagger is a stock with the potential to gain 1,000% or more—that's not a typo, we really did make 10 times our money on junior gold stocks the last time the sector rebounded, and Louis thinks that's about to happen again.

For example, one of those prospective 10-Baggers is a junior with a multimillion-ounce gold project that's run by one of our Explorers League honorees. This company is on the verge of securing the funds needed to build its exceptionally high-margin gold mine, but it's on sale. Speaking of the potential, Louis said: "If the company delivers, it'd be easy to see these 40-cent shares trading for $4" by 2015.

Investing in these stocks, and there are nine of them on Louis' list, could quite literally make you a fortune, but the opportunity to get in on the ground floor is fading fast.

Click here to learn more about Louis' 10 Bagger List for 2014 or watch the recording of our just aired one hour video event "Upturn Millionaires" to learn why the time to act is now.


International Buying & Your Shot at 1,000% Gains

EIA: Saudi Arabia was world's largest petroleum producer and net exporter in 2012

Saudi Arabia was the world's largest producer and exporter of petroleum and other liquids in 2012, producing an average of 11.6 million barrels per day (bbl/d) and exporting an estimated 8.6 million bbl/d (net). Saudi Arabia produces more than three times as much of these liquids as the next largest member of the Organization of the Petroleum Exporting Countries (Iran), and as much as the rest of the Arab Middle East put together.

In addition to leading the world in production and exports, Saudi Arabia has an estimated 268 billion barrels of proved oil reserves, over 16% of the global total, and is the only country in the world with extensive spare oil production capacity, which can help cushion market disruptions. While Saudi Arabia has about a hundred major oil and natural gas fields, more than half of its proved reserves are contained in eight fields. Saudi Arabia's (and the world's) largest oil field (Ghawar) alone contains an estimated 70 billion barrels of proved reserves, more than the proved reserves in all but seven other countries.

 

In 2012, 16% of Saudi liquids exports were sent to the United States, accounting for 13% of total U.S. liquids imports. While Canada is the prime supplier of U.S. liquids imports, Saudi Arabia remains an important supplier.

Although leading the world in exports, Saudi Arabia's own liquids consumption is growing. Unlike the United States, Saudi Arabia uses significant amounts of oil for electricity generation, reaching as much as one million bbl/d during hot summer months. Electric demand has doubled since 2000 and is expected to continue its rapid growth. Without initiatives to facilitate fuel switching and increase efficiency, growing volumes of oil, expensive in relation to other fuels, will be consumed domestically.

Finally, as EIA has previously discussed, the choice of accounting conventions for measuring liquids production can also affect which country is considered the world's leading producer at a given date.

Get John Carter's new "Options Trading Strategies for 2013"

EIA: U.S. Imports of Nigerian Crude Oil Have Continued to Decline in 2012

The trend of declining crude oil imports into the United States continued in the first month of 2012. There has been a particularly sharp decline in imports from Nigeria due to the idling in late 2011 of two refineries on the East Coast, which were significant buyers of Nigerian crude, and reduced imports by refiners on the Gulf Coast. Prior to the idling of the refineries, Nigeria typically accounted for about 10% of the crude oil imported into the United States; in January, that share dropped to about 5%.



 In January 2012, imports from Nigeria totaled just 449 thousand barrels per day (bbl/d), a 54% (519 thousand bbl/d) decrease from January 2011, marking the lowest monthly import total from the country since 2002. One third of this decline was the result of two idled Philadelphia area refineries. ConocoPhillips' Trainer refinery (idled in September 2011) and Sunoco's Marcus Hook refinery (idled in December 2011) imported a combined 173 thousand bbl/d of Nigerian crude in January 2011. Most of the remaining decrease in Nigerian imports was the result of several Gulf Coast refiners reducing Nigerian imports in favor of domestically produced crude.

The idled refineries were suited to run light-sweet crude oils, and Nigerian crude oils tended to match well with that requirement. However, because of their quality, Nigerian crude oils are often expensive compared to heavier or more sour crude oils used by many of the Gulf Coast refineries.

 Additionally, Nigerian crudes are currently expensive compared to some of the inland domestic light sweet crudes of similar quality such as West Texas Intermediate (WTI), Bakken, and Eagle Ford. Given the growing production from the Bakken and Eagle Ford formations and associated transportation constraints, these inland crudes have been selling at a discount to waterborne crudes on the Gulf Coast, providing refiners in that area further incentive to switch from imported crude to inland, domestically produced crude when available.

Preliminary weekly data indicate the trend of decreasing Nigerian imports continued in February and March with March imports averaging just 301 thousand bbl/d, which, if confirmed in the monthly data, would represent a 64% decrease compared to March 2011.

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

India Anticipates $76 Billion Investment in Oil and Gas Sector

India expects INR3.90 trillion ($76 billion) to be invested developing its oil and gas sector from April 2012 to March 2017, the country's junior oil minister said Tuesday.

The development plan includes exploration, production, refining, marketing, storage, petrochemicals and related engineering activities to increase availability of petroleum and petroleum products, RPN Singh said in a written reply to lawmakers in the upper house of Parliament.

India currently meets 80% of its total crude needs through imports. Crude oil imports accounted for 29% of its total import bill of $350 billion in the year ended March 31. Imports are expected to surge over the next few years as an expanding economy drives demand for fuel products, pressuring the country's fiscal position.....Read the entire article.


Is This December Similar to 2007 & 2008 for Gold & Stocks?

Today's Trends: Crude Imports Decline, But Critical to U.S.

U.S crude oil imports grew rapidly from mid-20th century until the late 1970s, but fell sharply from 1979 to 1985, according to the U.S. Energy Information Administration (EIA) Annual Energy Review 2009. The trend resumed upward from 1985 through 2004, then remained flat through 2007 before dropping in 2008 and 2009.

In 2009, crude oil imports were 9.1 million b/d; petroleum product imports were 2.7 million b/d; and exports were 2.0 million b/d mainly the form of distillate and residual fuel oils.

U.S. petroleum imports rose sharply in the 1970s, and reliance on petroleum from the Organization of Petroleum Exporting Countries (OPEC) grew. In 2009, 41 percent of U.S. petroleum imports came from OPEC countries, down from 70 percent in 1977. After 1992, more petroleum came into the U.S. from non-OPEC countries than from OPEC countries.

Saudi Arabia, Venezuela, and Nigeria were the three key suppliers among OPEC countries of petroleum to the U.S. market. The amount of petroleum each country has sold to the U.S. has widely fluctuated over the decades. In 2009, Iraq supplied .4 million b/d of petroleum to the U.S., EIA reported.

Canada and Mexico were the largest non-OPEC suppliers of petroleum to the U.S. In 2009, U.S. imports from Canada reached a new high of 2.5 million b/d. Imports from Mexico were insignificant until the mid-1970s, when they began to play a key role in U.S. supplies. Canadian and Mexican petroleum together accounted for 32 percent of all U.S. imports in 2009.

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Crude Oil Extends Decline After Inventories Increase More Than Predicted

Crude oil fell for the first time in seven days after a government report showed a bigger than forecast increase in U.S. inventories as imports surged. Supplies rose 1.98 million barrels to 356.2 million last week, the Energy Department said today. Stockpiles were forecast to climb by 1.35 million barrels, according to a Bloomberg News survey of analysts. Imports gained 5.5 percent to 9.56 million barrels a day, the most since September. Refineries operated at the highest rate since October.

“The fundamentals don’t support prices at these levels,” said Michael Fitzpatrick, vice president of energy at MF Global in New York. “Oil supplies increased even as refineries boosted operating rates, which shows there is no problem with supply.” Crude oil for May delivery fell 22 cents, or 0.3 percent, to $86.62 a barrel at 1:43 p.m. on the New York Mercantile Exchange. Prices reached $87.09 yesterday, the highest level since Oct. 9, 2008. Futures are up 9.1 percent this year.

Imports of crude oil increased by an average 501,000 barrels a day last week, the report showed. Fuel imports climbed 7.5 percent to 2.76 million barrels, the highest level since the week ended Feb. 5. “Imports were very strong at over 9.5 million barrels a day,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “That tells me that refiners are stocking up now because they are concerned that prices will rise further in the months ahead”....Read the entire article.

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Crude Oil Rises for First Time in Four Days as Dollar Weakens

Crude oil rose for the first time in four days as the dollar declined, bolstering the appeal of commodities as a hedge against inflation. Oil climbed as much as 2.9 percent as the U.S. currency slipped to $1.4821 per euro, its weakest level since Sept. 23, 2008. Net crude oil imports by China, Asia’s biggest energy consuming country, increased 18 percent to 17.92 million metric tons in August, the second highest level on record.

“More than anything else, we are seeing a reaction to the incredible weakness of the dollar,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Yesterday, the dollar strengthened and oil fell more than $2. Now the dollar’s plunged to the lowest level against the euro in a year and look what’s happened”.....Read the entire article

China Imports Record Oil, Iron Ore as Economy Expands

China bought record volumes of oil and iron ore in July as automakers, steel producers and builders expanded output to meet rising demand driven by the nation’s $586 billion stimulus spending. Oil imports jumped 18 percent to 19.6 million metric tons, and iron ore purchases rose 5 percent to 58.1 million tons from a month ago, the Beijing based customs said today on its Web site. The second largest energy user and biggest iron ore buyer spent a combined $13.8 billion on the commodities.....Complete Story