Five thousand dollar Aussie gold?

  • Goodbye to the rate rise
  • Gold a bad investment? Not likely…
  • This is what ‘tiny stocks’ think of Brexit
  • In the mailbag

This’ll make you laugh. From Bloomberg:

Federal Reserve Chair Janet Yellen seems to be coming around to what her one-time rival, Lawrence Summers, has been arguing for a while: Some of the forces holding down interest rates may be long-lasting and secular.


According to the report, Yellen’s exact quote was that interest rates remain low due to ‘factors that are not going to be rapidly disappearing, but will be part of the new normal.

Again: Hah!

Those factors Dr Yellen, you know what they are, don’t you? That’s right…they’re the central banks…including the US Federal Reserve.

Dr Yellen’s comments betray either an extraordinary lack of awareness, a high level of ignorance…or complete bold-faced denial.

It’s like when your annoying friend grabs hold of your hand, slaps you across the face with it, and then tells you to stop hitting yourself!

But that’s the academic central banker for you.

Newsletter writer, James Grant, talks about this period of monetary policy as a ‘PhD Standard’. It’s not a ‘gold standard’ or a ‘US dollar standard’. Instead, the money system is under the complete control of PhD-wielding academics.

And in our view, these people are having a bigger, more negative, and more dangerous impact on the world than a gun-toting terrorist in a nightclub.


Overnight, the Dow Jones Industrial Average fell 34.35 points, or 0.2%.

The S&P 500 index dropped 3.82 points, or 0.18%.

In Europe, the Euro Stoxx 50 index gained 33.12 points, or 1.18%. Meanwhile the FTSE 100 added 0.73%, and Germany’s DAX index closed up 0.92%.

In Asian markets, Japan’s Nikkei 225 index is down 437.05 points, or 2.75%. China’s CSI 300 is lower by 0.14%.

In Australia, the S&P/ASX 200 is down 2.95 points, or 0.06%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$47.49 per barrel. Brent crude is US$48.52 per barrel.

Gold is US$1,301 per ounce, and silver is US$17.77 per ounce.

The Aussie dollar is worth 73.88 US cents.

Goodbye to the rate rise

How things change. Check out the chart below. Market watchers call these the Fed’s ‘Dots’ charts.

The charts aren’t meant to imply a Federal Reserve member’s voting intentions for the future. They simply reflect their view of where they think the Fed Funds Rate will be at the end of each calendar year.

The first chart is from the previous Fed meeting, showing at that time where they thought the rate would be in the future:

chart image

Source: Bloomberg
Click to enlarge

For the end of 2017, the median forecast for the Fed Funds Rate was 1.875%. The median for the end of 2018 was 3%.

That was following the Fed’s March meeting. So, has anything changed since then? Yes. Yes it has.

Here’s the latest chart, based on new forecasts from Fed members:

chart image

Source: Bloomberg
Click to enlarge

It may be difficult to see the difference, so I’ll tell you. Now, the median view of Fed members is that the Fed Funds Rate will be 1.625% at the end of 2017, and 2.375% at the end of 2018.

That, my friend, is a big difference.

Remember that economic recovery? You know, the one that’s a result of the Fed’s gajillion-dollar money printing spree? Turns out things may not be going quite to plan.

The recent rubbish jobs numbers from the US put paid to the idea that the Fed would raise interest rates anytime soon.

The Financial Times confirms as much:

Slower jobs growth and overseas hazards such as a possible UK exit from the European Union prompted the Federal Reserve to keep rates unchanged on Wednesday and trim back its longer-term interest-rate forecasts, in a sign of greater caution at the central bank.

Your editor will admit, we’ve flip-flopped more times than we care to mention on whether the Fed will raise rates or not.

We were convinced they wouldn’t. Then we saw a rate rise as the perfect chance for the Fed to instigate a stock market crash…which would give them the cover they needed to print more money.

Now we’re back to our original position. We just don’t see how the Fed can possibly raise rates. Not that we want rates to stay this low. Simply because we know the world’s economy isn’t as strong as most central banks think.

And the longer rates stay low, the more that it can only mean one thing: good news for gold.

Gold a bad investment? Not likely…

The fact that the Fed believes rates will stay lower for longer is great news for gold.

You can see that in the gold price action on the chart below:

chart image

Source: Bloomberg
Click to enlarge

In US dollar terms, gold is now trading at the highest price since mid-2014. After trying for a few weeks, it has now busted back above the US$1,300 level.

From here, we can only see good news ahead for gold — providing we’re right about interest rates (and providing we don’t flip-flop again).

One of the key anti-gold arguments that many folks make is that gold is just a lump of metal. Importantly, unlike money in the bank, gold doesn’t earn interest.

Well, isn’t that funny? Because for a long time now, US dollars in the bank haven’t earned interest either. In which case, it’s much harder to make the argument that holding gold is a bad idea.

We’ll argue that, in a low interest rate and negative interest rate environment, gold is a great asset to own. And based on the evidence we’ve found, the data backs it up.

Take this chart. It’s the gold price in Japanese yen:

chart image

Source: Bloomberg
Click to enlarge

Japan cut its interest rate to zero in the late 1990s. What do you know? Since then, the gold price in yen has risen 374%.

Check out the chart below. It’s the gold price in Swiss francs:

chart image

Source: Bloomberg
Click to enlarge

The Swiss National Bank cut its interest rate to near zero in 2009. It now has a negative interest rate. But since 2009, the gold price has risen over 26%.

Sure, it’s not quite to the scale of the rise denominated in yen, but heck, compared to Japan, the Swiss are only just getting started.

The US cut its interest rate to zero late in 2008. Since then, even though the US dollar gold price is down from the peak, it’s still up over 81% from late 2008:

chart image

Source: Bloomberg
Click to enlarge

Finally, the gold price in Aussie dollars. Local commentators and analysts (bizarrely) continue to suggest that gold is a terrible investment for Aussies.

We don’t know why. To our mind, this chart looks pretty good for Aussies. It goes back to 2002:

chart image

Source: Bloomberg
Click to enlarge

Since then, the gold price in Aussie dollars is up 225%. We haven’t annotated a gain on this chart, because Aussie interest rates are still well above zero, at 1.75%.

After such a strong run, on comparatively high interest rates, we can only imagine what a dose of even lower, and perhaps negative interest rates, will do for the Aussie dollar gold price.

How does $5,000 or more take your fancy? That would be nice.

This is what ‘tiny stocks’ think of Brexit

The market is fretting. It seems investors now think the UK could actually leave the European Union following next Thursday’s referendum.

It’s big news, and it’s having a big impact on the markets and stocks. What you may wonder (and we’ll tell you even if you don’t wonder), what is the impact of all this on the market’s ‘tiny stocks’?

Here, we’ll show you:

chart image

Source: Bloomberg
Click to enlarge

One stock is up 100%. Six other stocks are up 50% or more. And (not all shown on this list) another 17 stocks are up 20% or more…in one day.

So if you want to know how the Brexit effects a whole bunch of the market’s ‘tiny stocks’, there’s your answer.

Look out for more on our ‘tiny stock’ initiative soon.

In the mailbag

Here’s a good letter (and by good, I mean a letter from someone who agrees with me), from subscriber, Andrew H:

I like your article re No guns for you. I don’t like guns or wars but we have been throwing rocks and sticks at our neighbours ever since there were more men than women on earth!

“According to statistics in 2012 from the United Nations Office on Drugs and Crime, there were 127,607 firearm homicides that year.”

So how many people were killed in MV [motor vehicle] accidents for the same period/locations? Let’s think about this a bit. There is the driver, passengers and sometimes, more often, 3rd party victims too! Let alone the maimed for life victims too, where do their stats get measured and accounted for! What about the medical bills, hospital staff and beds set aside to cater for these MV fatality/injury stats? Who pays that combined big bill?

Should we do a MV buyback program and get these horrible killers off the road and into the crusher and send the scrap to China/India? What about the MV manufacturers? Chuck them a few more billion next GFC/Recession?

I like MV’s. How would we live without them today/tomorrow? I guess there was a time when we rode horses and carried guns and thought how would we ever live without either considering they gave us transport, food and security. So today we get food from the supermarket, transport via the MV and security via the government (no wonder the yanks want to keep their guns!).

Go back to the horse and cart…not likely and btw my Great Grandmother was killed in a horse and buggy accident in Hay Street Perth!

Driverless cars should solve this problem yes? Can you imagine the software, antivirus and hacker swell into this area. The lone hackers would be just like the lone shooters I guess.

I remember reading somewhere that most people were caused by accidents!

Have we really come a long way since the rocks and sticks days.

We’re glad Andrew asked. Here’s what the United Nations World Health Organisation said about motor vehicle deaths in October 2015:

Some 1.25 million people die each year as a result of road traffic crashes, according to the WHO’s Global status report on road safety 2015, despite improvements in road safety.

Well, well, well. Who’d have thunk it?

Give or take a few deaths here or there, each year around 10-times as many people die on the roads worldwide than die from civilian homicidal gunfire.

Let’s break the number down even further. According to the US Federal Bureau of Investigation (FBI), in 2012, there were 8,897 firearm-related homicides.

In the same year, there were 33,561 deaths resulting from motor vehicle accidents.

We know state governments in Australia have gone over-the-top with their ‘cut the road toll to zero’ nonsense, so it wouldn’t surprise us if the government eventually banned cars.

There you have it…the raw unadulterated statistics. Sure, you can make almost any statistic fit any argument you like. And we’re sure the anti-gun lobby are huffing, puffing and spluttering in exaggerated indignation as we speak.

But don’t argue with me, argue with the numbers. According to the numbers, guns are safer than cars!

On that note, see you tomorrow.