01 July, 2015

Newsletter - The DELAIRE Report

Despite the fact that the Greek government has now imposed capital controls and has instructed banks to close for this week, the price of gold had a rather muted response while global equities experienced a sharp sell-off.

As gold prices underwent a minor rally, European shares tumbled more than 2%. German and French shares each suffered their worst loss since Nov. 1, 2011. The Stoxx Europe marked its sharpest decline since October, dropping 2.6% to 386. The Greek stock market will be closed all week.

Greece has now defaulted when it missed a €1.6 billion ($1.72 billion) payment to the International Monetary Fund (IMF). Greece had met with its creditors over the weekend to try work out a deal, but the two sides couldn’t reach an agreement. The next important date to watch is July 5. That’s when Greek citizens will vote on whether to accept an emergency loan from Greece’s creditors. Accepting the loan would require Greece to raise taxes, cut entitlements, and reform its pension program. If the Greeks vote “no,” Greece might leave the Eurozone.

The Greek government has closed the banks and has imposed capital controls after the European Central Bank (ECB) froze vital funding support to Greece’s banks, leaving Athens with little choice but to shut down the system to keep the banks from collapsing.

Banks are expected to be closed all this week, and there will be a daily 60 euro limit on cash withdrawals from cash machines, which will reopen on Tuesday. Capital controls are likely to last for many months at least.

Greece is bankrupt. The government has more obligations than they can possibly meet. The Greek banking system has been relying on special liquidity support from the European Central Bank (ECB) in the face of a spate of withdrawals by worried citizens.

On Sunday, the Greek Parliament approved Prime Minister Alexis Tsiparis’ motion to hold a referendum on Greek creditors’ fiscal reform proposal. The vote, scheduled for July 5, will ask Greek citizens whether they should accept a debt financing deal negotiated with European lenders.

The announcement of the referendum resulted in massive cash withdrawals by individuals around the country– further jeopardizing the country’s fragile banking system.

The surprise decision by Tsipras, prompted lines of people at ATMs across the country as Greeks worried the crisis could shortly lead to restrictions on capital movements and potentially an exit from the European single currency.

Fears are growing over the health of Greek banks after indications that savers have withdrawn billions of euros in the past week. More than one-third of automated teller machines across Greece ran out of cash on Saturday before they were replenished as Greeks pulled out money on fears their country was set to crash out of the euro.

According to sources working at the banks, about 35% of the ATM network — some 2,000 out of the 5,500 ATMs across Greece — ran out of euro banknotes at one point during the day and were being replenished. Banks were working in coordination with the central bank to keep the network fed with cash, they said.

Around 600 million euros was withdrawn from the banking system on Saturday, one senior banker at one of Greece’s four big lenders told Reuters. A second banker estimated the outflow at more than 500 million euros.

Though that was below the level of over 1 billion euros seen on some days over the past two weeks, the figure was almost exclusively from ATM withdrawals, where the average daily limit of cash that can be taken out is 600 to 700 euros, bankers said.

I maintain that the only solution will be a Greek exit. It’s for the best interest of that country. While in the short term, Greece will suffer financially, I have little doubt that the country will recover within a year after dropping the euro. I also think we’re going to see more of the European countries move towards having relationships with Russia because they want to do trade.

Many European businessmen have expressed their dissatisfaction with the sanctions that have been imposed on Russia by the Eurozone leaders. And, many of these individuals are tired of hearing the anti-Russian/Putin rhetoric of Western governments, especially when many of their claims against Russia cannot be substantiated.

Meanwhile, there are signs that Chinese investors might be converting some of their financial assets into physical gold as demand for physical gold in China increases.

Withdrawals of physical gold from the Shanghai Gold Exchange and Shanghai International Gold Exchange jumped 41% in the trading week 8-12th June from the previous week, while year-to-date withdrawals are up 20% cent to an incredible 1,061 tons. That’s more than China’s entire last officially declared gold reserve. It represents a massive conversion of paper assets into bars of the precious metal.

The 8-12th June gold rush came before the Shanghai Composite began to sell-off late last week, quickly entering a bear market with stocks down more than 20%.

In other news, according to the latest Swiss export data which show that in May this year, Hong Kong (36.4 tons) was the largest importer of Swiss gold, followed by India (24.7 tons) and Mainland China (18.8 tons), thus again showing that 34% of the combined Swiss gold exports to Hong Kong plus Mainland China went directly to the latter, bypassing Hong Kong altogether.

These figures also suggest that overall Chinese demand remains relatively strong while Indian demand may be slipping ahead of the monsoon, although total exports to the three nations has fallen off somewhat compared with earlier in the year.

With so many reasons as to why the gold price should be a lot higher, one wonders why gold prices continue to languish near major lows. The main factor behind this weakness is extreme shorting by speculators and bullion banks on Comex. However, their actions are helping prudent investors to accumulate more physical as they diversify out of paper assets and into precious metals at the current low prices.
Let the Greek crisis be a lesson for individuals who believe that “it can’t happen to them.”

Governments will resort to desperate measures when they are bankrupt. They will impose capital controls, exchange controls, and they will even confiscate your money on deposit. And, if they depreciate the currency to pay off their debts, the purchasing value of your money will become worthless, just as in the case of Zimbabwe.

Individuals in Greece have left it to the last moment to act. Now, they have to stand in line at ATM machines across Greece with empty garbage bags trying to figure out how to survive against strict capital controls. And, they are restricted in the amount of money they can withdraw.

It seems that there is a very clear purpose for governments wanting to create a cashless society and that is, once they have your money in the system, it belongs to them. In order to protect your funds against this shameless act, put some of it into gold and silver. Gold and silver bullion coins and bars are traditional diversification tools.

No one knows where the world economy is ultimately heading. But, what is for sure, is that major governments have created artificially high stock markets, fragile economies, oppressive banking policies and unprecedented debt levels.

Prepare yourself for an imminent financial collapse.

That’s why the safest course of action remains not keeping all your eggs in one basket. Instead, you should diversify a portion of your assets to non-paper assets such as gold.

Newsletter - The DELAIRE Report

The price of silver has been very disappointing for months now. All it has done is move sideways to lower after hitting a 30 year high in April 2011 of just under $50 an ounce.

Very little has happened since then as speculators and bullion banks using the futures markets of Comex in the US, continue to pound the silver market using naked shorts and contracts that will never see delivery. However, I don’t see the prices of silver falling too much from here because the current price is below the cost of producing by the primary silver miners.

At the same time, the demand for physical silver remains very strong, in particular the demand from India. India has been making news of late due to the amount of silver it’s been importing recently.
While investors were amazed by the massive volume of Indian silver imports last year, 2015 may turn out to be a real whopper. Indians are buying so much silver they are on track to surpass 2014’s record by a wide margin.

According to analyst, Koos Jansen,India imported a record 7,063 metric tons of silver in 2014. This was up 15% from 6,125 metric tons in 2013.

This means, India imported 25% of world silver mine supply in 2014.

The latest data shows that India’s silver imports for the first four months of the year are 30% higher than 2014 and are on track to reach 300 million ounces for the entire year. If this happens, this would mean that imports of silver by India this year could be equivalent of about a third of total silver supply or around 300 million ounces—9300 tons.

We must not forget that both the U.S and China are also net importers of silver. U.S. silver imports continue to be elevated in 2015 compared to last year. The US has been one of the largest importers of silver in the world due to industrial demand as well as increasing investment demand.

The demand for silver bullion coins remains very strong.June sales for both the U.S. Eagles and the Canadian Maple Leafs have been very high. The Royal Canadian Mint had record sales on silver Maples in the first quarter and sales of silver eagles have already reached 21,786,000.

Even if prices drop further, I strongly believe that the current levels represent incredible value for money. If prices do fall further, India and China will buy more that’s for sure.

At the moment the gold silver ratio is almost 75:1. Usually, when it gets this high we can expect an increase in silver prices.

The world has over $200 trillion in debt, which is expanding exponentially. It is simply unsustainable. Since the financial crisis in 2008, governments have increased total debt, increased leverage, and reduced interest rates. They have saved banks and financial institutions but have done little to stimulate economic growth.

The situation in Greece could occur in other countries that cannot pay their debt. If they can’t they can of course default. Each day, the level of debt increases making our financial system more precarious. Like gold silver has no counter party risk. And if there is another financial crisis would you rather hold real silver or fiat paper debt issued by a dodgy government denominated in a sure-to-be-devalued currency?

About the author

David Levenstein is a leading expert on investing in precious metals.  Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients.

His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. Rand Refineries, the largest gold refinery in the world use his daily and weekly commentaries on gold.

David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.

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Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.