Analyst: U.S. Debt and Record-Low Yields Are Driving Gold Prices

Although gold has had many drivers powering its remarkable summer upswing, Forbes contributor Frank Holmes highlights two tailwinds that could prove to be key players for the metal’s value in the short- and long-term: the ballooning U.S. debt and the record-low yields, both domestic and global.

In his analysis, Holmes points to some very concerning statistics regarding domestic debt. The federal budget deficit for the 2020 fiscal year has passed $1 trillion, an unprecedented development during a time of perceived economic stability. The figure goes in line with the constantly expanding U.S. national debt, which now sits at $22.5 trillion. Holmes is also wary of the latest estimate by the Congressional Budget Office (CBO), which forecasts a federal debt amounting to 144% of local GDP by 2049.

Regarding yields, it’s well-known that many top economies have sunk their bonds into low or negative territory, and the landscape looks very much alike on the corporate side. This has revived the issue of corporate debt, which was a major ingredient in the 2008 financial crisis. Large companies made full use of all-time low yields for corporate bonds, as they rushed to borrow as much money as they could. As Holmes notes, giants like Apple and Coca-Cola have been among the record 49 companies to borrow a combined $54 billion through the past Wednesday.

In regards to central banks, Holmes cites Rick Rieder, chief investment officer at BlackRock, who believes that the official sector has entered something he calls the “monetary policy endgame”. Recent years have shown that central bankers have no qualms about slicing rates into negative territory and employing as much quantitative easing (QE) as they wish. The latter point has sparked talks about currency debasement, with many investors feeling that previously-marquee fiat currencies are no longer instilling the confidence that they once did.

Rieder and Holmes agree that we are approaching an era where negative-yielding bonds and zero-yielding currencies will become the norm, each of the two being in infinite supply. In such an environment, investors will have to look elsewhere to protect themselves from an incoming global financial crisis.

Holmes has little doubt that gold is among the best asset to do just that. Its independence and cherished scarcity make it an ideal choice of a shield against dubious government policies. Yet gold offers more than just the assurance of wealth protection. While the metal recently sparked above $1,500 an ounce in spectacular fashion, Holmes thinks that the callous actions of central bankers, especially in regards to currency debasement, could bring its price to $10,000 an ounce in the coming years.

The Fed Raised Interest Rates. Now What?

Not only has the Fed raised interest rates, they want to keep on doing it through 2018. Can our economy sustain the ongoing increases?

The Fed Raised Interest Rates. Now What?

From Filip Karinja, for Birch Gold Group

This week, the Federal Reserve voted to raise interest rates a quarter of a percent to 0.5%, the first rate risesince 2006.

But this wasn’t the only bold announcement the Fed made. In a report released the same day, titled “Economic Projections“, they predicted that by 2018 they would raise rates to 3.3%.

It seems odd that they would come out with such a view on rates when, just last month, Janet Yellen said she would consider lowering rates into negative territory if the market was to fall considerably, like in 2008.

Considering the astronomic levels of our federal debt, having rates at 3.3% would be economic suicide; the United States simply would not be able to meet its obligations to its debt.

Interest rate target Federal Reserve The Fed Raised Interest Rates. Now What?

Projected Federal Reserve interest rate target (SOURCE)

So what does the Fed see changing in the next three years so positively — not only in the United States, but around the world — to be able to raise rates so sharply?

Here are the present day facts:

  • The global economy is beginning to contract, with many central banks already printing money like crazy and reducing rates into negative territory.
  • Retail sales have been falling short of expectations.
  • New housing has dropped off sharply.
  • The United States is becoming more polarized than ever — on politics, race, religion, etc.
  • The possibility of war in Syria and the Middle East region is ever intensifying, with nations taking turns dropping bombs all over the region.
  • Terrorism is increasingly spreading into the western world.
  • The threat of conflict with nations such as China, Russia, Syria and Iran is on the rise. Consider how Turkey shot down a Russian jet earlier this month.
  • Youth unemployment in Europe is reaching worrying levels.

For some reason, none of these factors seem to be weighing in on the Fed’s projections for the coming years. But ask yourself: How many of these problems do you think will be solved any time soon?

If you think any of this is overly cynical, take a look at this video, from Mr. Positive himself, motivational coach Tony Robbins. In it, he explains the nation’s debt problem and how there is no solution for it. Even if the rich were to be taxed a full 100% on earnings, it would not put a dent in the deficit.

Now, pretend you’re over two years in the future, in 2018. Would you guess that the debt will increase or decrease?

With the debt already so absurdly high, if the Fed moved rates out to 3.3%, the interest on this debt would be practically impossible to pay.

So put yourself two years in the future, and think about what it may hold for our nation. If you have any concerns, you may want to consider protecting your savings with some precious metals. Give us a call — we’re ready to help.

Is the bond market the next shoe to drop in Wall Street? Read why here.

photo credit: Perspectived, lines, madame #instaprol via photopin (license)

China’s Next Power Play For The Gold Metal


China’s Next Power Play for the Gold Metal

This week, Your News to Know rounds up the most important news stories from the gold market. Stories include: China to launch gold benchmark in April, one chief economist remains optimistic on gold, and why gold makes for a great gift this holiday season.


News of a yuan-denominated gold benchmark has been circulating for months. The launch was supposed to happen before the end of this year, but India’s Economic Times now reports that two sources close to the matter claim the benchmark will go live in April 2016.

“It will start in April with Chinese banks and some foreign banks,” one source inside a local bank said. “Jewellers, miners and banks could use this price as a benchmark.” The Shanghai Gold Exchange (SGE) has not yet made itself available to comment and has neither confirmed nor denied this.

The decision to launch a yuan-backed gold benchmark is seen as a power play, as China feels it should be a price-setter for the metal given its market weight. While a yuan fix won’t immediately rival those coming from London and New York, it stands to become a legitimate threat if the Chinese currency becomes fully convertible.

China recently made an unprecedented move of allowing foreign banks to trade yuan-denominated contracts on the SGE and also gave them import licenses, no doubt to increase the likelihood of these banks participating in the benchmark-setting process, which is another condition for its success.


The most recent China Gold & Precious Metals Summit held in Shanghai saw many analysts express their view on what the future has in store for the yellow metal, especially in the wake of the recent rates hike.

As seen on Forbes, many of them expressed neutral or negative short-term outlooks, with a more positive long-term view. The factors that could weigh down on gold’s price in the near future included: lackluster sentiment by traders and investors, the absence of inflation, continuing strength of the dollar and the possibility of two to four additional rate hikes in 2016.

Yet not all analysts were bearish in the short-term. Martin Murenbeeld, chief economist for Dundee Capital Markets, remained optimistic, as he said he doesn’t expect any additional raises of interest rates in 2016. He added that some attendees even called for a ‘relief rally’ that would move gold’s price back above $1,200 before year’s end.

Douglas Groh, another presenter at the summit, was pessimistic on the dollar rather than gold: “He argued that buying low, as in buying right now, is what investment is all about,” Murenbeeld reminisced.

As the conference was held in Shanghai, there was no shortage of Chinese presenters who were bullish on gold and bearish on the greenback. Murenbeeld quotes Lu Dongshang from the Shandon Zhaojin Group Co. saying that the “U.S. dollar and U.S. dollar assets is ‘futureless’; the ‘overlord’ status of the U.S. dollar is being challenged, and the U.S. monetary system will experience a complete crash”, encouraging Chinese investors to turn to gold instead.


According to Lawrence Williams, gold is the perfect gift for this festive season. After all, in Christian tradition, gold was one of the three gifts that baby Jesus received, and Williams reminds us it has held up much better than the other two (frankincense and myrrh) over the years.

Members of virtually every religion and even those of little faith have always had a deep-seated appreciation for the metal. The reason Chinese and Indian religious festivals stand out from the crowd is the two countries’ enormous populations – a small amount of per capita consumption adds up to a massive national total.

With how quickly China’s economy is growing and with signs of improvement for India as well, these two countries are sure to remain the most prominent connoisseurs of the metal. More and more Chinese people are ‘dragged into’ the middle class, as evidenced by Chinese consumers spending more on their “Singles’ Day” than U.S. citizens did over the entire Black Friday/Cyber Monday weekend. Compared to Westerners, Asians are far more likely to allocate some of their ‘spending money’ to gold in one of its many forms.

While gold is no less prominent in the West, it’s certainly less favored, as Western investors have a taste for the quick returns that could potentially come from equity markets. Yet many are now worrying how much time the stock bubble has left, bringing Williams to another reason why gold makes a stellar gift for these (and any other) festive times. Aside from its past and present appeal, at its current price of $1070 per ounce, the metal’s potential for value growth is “inordinately strong”. A single event could be sufficient to remind Westerners of gold’s safe-haven appeal, in turn allowing it to regain its fondly-remembered upwards momentum from a few years back.

Wall Street Has The Death Star Pointed At The Bond Market

star wars movie comes out first before hike Wall Street has the Death Star Pointed at the Bond Market

From L Todd Wood, for Birch Gold Group

This is shaping up to be a monumental week. Depending on your interests in life, you may be looking forward to the new Star Wars release, camped outside the movie theater for first crack at the coveted golden ticket.

Or, you could be anticipating the much heralded twenty-five basis point increase in the Fed’s short term interest rate. Either one is likely to be talked about over and over in the press for some time to come.

However, I think it’s telling that we have waited longer for the Star Wars movie than a Fed rate hike.

Birch Gold has written much recently about the consequences of an interest rate hike in this weakened economy. Although, there is one issue that is only starting to be discussed in the financial press that is the weakness in the credit markets and lack of liquidity since the Dodd-Frank bill was implemented.

As an ex-bond trader, I can tell you that life on this part of the ‘Street’ has gotten very difficult. Electronic systems are replacing many trading jobs as it did with the equity markets over the last decade.

However, the bond market is unique. Some bonds are not freely traded and it takes a good trader to know where the bones are buried and how to make sure liquidity in a certain security is adequate. Periods of stress in the interest rate markets make this job all the more difficult.

In addition to technology destroying jobs in the bond market, Dodd-Frank disincentivized large banks from participating in the market. This consequence may turn out to be extremely destructive as the Fed begins to raise rates. Investors holding certain bonds may see the need to sell those securities as a rise in interest rates will make the paper less valuable going forward.

The problem is, with big banks out of the market, there is no one to take the other side of the trade. In the past, hedge funds and such could just sell a large position to a broker, who would take it on their balance sheet and ‘work’ the sale over several weeks or months, limiting the impact on the price of the security.

Now, there is no one to off-load the position to. If you call a large trading desk (if there are any left), they will offer to ‘try and find a buyer.’ If you need to sell right away, to cover a margin call or other financial need, you could devastate the price of the bond. This is what market crashes are made of.

Over the past few trading days, there have been failures of three bond mutual funds at last count, due to this very reason. The liquidity in the market is just not there. I saw in 1994 when the Fed raised unexpectedly, investors who thought they were in ‘safe bond funds’ saw their principal reduced by upwards of thirty percent.

It seems many others are remembering these days as well and are attempting to get their money out. Why they waited this long is a mystery as the Fed has been looking to raise for some time now. However, these funds are now trying to sell bonds and there are no buyers. So they close and go into bankruptcy and investor money is held up longer.

This risk is very real. The Federal Reserve hiking rates will have all kinds of unintended consequences and as with roaches in the kitchen, if there is one, there are many. I can almost guarantee, if three bond funds fail, there will be many more. All of this negative activity could land us in a new recession. The bond market may just be the proverbial canary in the coal mine.

Don’t let your portfolio be destroyed as the markets readjusts. Make sure your savings is protected and back your money with a safe-haven asset such as physical precious metals.

If you’re on Twitter, be sure to follow us here. We will keep you up to date on all relevant and important financial news you need to know.

Photo credit

[Read more…]

Will Economic Disaster Follow After The Fed Raises Interest Rates?


fed interest raise december Will Economic Disaster Follow After the Fed Raises Interest Rates?

From Filip Karinja, for Birch Gold Group

With the Federal Reserve set to meet next week to vote on what to do with interest rates, many are speculating that we may see a rate hike.

This is something Janet Yellen has hinted at over the past few months but has kept delaying.

Should the Fed raise rates, it would be the first hike in 7 years since rates were lowered to 0.25%. Prior to these past years, it was unheard of to have rates so low, and for such a long time.

With some financial experts claiming that the economy is likely headed for another recession, why would Yellen want to raise rates now? According to the L.A. Times, ”…she said one reason to raise the so-called federal funds rate… is so the Fed has the flexibility to lower it if those risks cause the economy to falter in the future.”

In other words, the claim is that Yellen is buying herself some breathing room. By raising rates now, if (and when) crisis strikes in the future, she can lower them again back to today’s levels, and thus avoid having to lower rates all the way down to 0% (or negative) and/or launch QE4.

So by next week, backed by her dubious claims that the economy is finally on solid footing, we may see Yellen increase rates rise to 0.5%. And in the coming months, she may even go as high as 0.75%.

Here’s the problem: This illusion of a recovery put on by the Fed has so many holes in it that a growing number of people are beginning to see through. And more people are also questioning, Why further stunt growth of our plodding economy by increasing rates?

Can you imagine how embarrassing it will be if they raise rates next week and the economy slows even further, or we see a sell-off in stocks? What will they do then?

They won’t be able to raise rates any higher, as it will just compound the problem. But lowering rates immediately may not work either, as it would be a huge blow to confidence in the Fed’s ability to forecast the economy, something for which they already have a poor track record.

After next week’s decision, if the Fed needs to take steps in the future to begin easing monetary policy again, the only other option it will have is to fire up the printing presses again and print money through some form ofquantitative easing (QE). In fact, some experts are predicting that QE4 will be launched early in 2016.

Keep in mind that on a global level, Europe is already printing money as the global network of central banks collude and take turns in trying to prop up the frail global economy.

When it’s the Federal Reserve’s turn to print money, you can rest assured that we are nearing the end game.

But until our economy reaches that final point of no return, you can count on Yellen to continue to do whatever is necessary to keep the economy going, even if her decisions aren’t sustainable.

Is such an aimless monetary policy something you want to tie your savings to? If you want to put at least some of your savings into an asset that can provide a counterbalance, give us a call.

What will happen to gold if the Fed raises interest rates? Find out here.

photo credit: Federal Reserve Chairman Janet Yellen testifies before the House Finance Committee with Senior Fellow Donald Kohn observing. via photopin (license)

Is China Headed For A Serious Socio-Economic Crash?


Chinas collapsing Is China Headed for a Serious Socio Economic Crash?

From L Todd Wood, for Birch Gold Group

The Communist Party of China still is a totalitarian government. Many people around the world forget this fact. The world’s second largest economy is run by a committee of dictators, where the people aren’t free and neither are the securities markets.

It is for this reason that the inclusion of the offshore version of the renminbi, the yuan, into the International Monetary Fund’s Special Drawing Rights, or SDR, may not be the panacea for China that their leaders think it will be.

You have to think about the marriage of the yuan’s rise to a convertible, global reserve currency, with the dramatic slowdown, or crash, of the manufactured, Chinese economic miracle. Although China has allowed some capitalistic thought and practice into its economic fiber, the economy is still “managed” — hence the term, managed capitalism.

This means that the markets are not truly allocating capital; on the contrary, China is still issuing five-year economic plans. In short, all China has done over the last several decades — in addition to making things cheaply and exporting them — is misallocate capital to keep its billions of people working, and to prevent social unrest.

Now, the decades of building ‘ghost cities’ are coming home to roost.

The Economic Times reports, “Now, with increased convertibility the yuan may be used for two purposes; one to attract more investment and two to enhance flight of capital to safer and more stable economies. It can also trigger off conversion of hoards of black money to safer havens…Therefore, inclusion of the yuan in the IMF’s basket of currencies may not be a good thing if things turn bad for China.”

In other words, with the yuan becoming a convertible, international currency, money can flow into China as well as go out. Only a small portion of the Chinese population is benefiting from the Chinese “economic miracle.” It is not sustainable.

The wealthy in China are hauling boat loads of cash out of the country as fast as possible. They know it is a ponzi scheme and they don’t want to be the last ones holding the empty bag. The convertibility of the yuan will allow this massive capital drain to increase.

Investors are going to be wary of a system where the sellers of securities in a market downturn are arrested and put in jail, where company intellectual information is stolen and there is not a level playing field in regard to competition with local firms. But that’s not all China has to worry about.

China could be headed for serious social unrest as well. There are millions of people, effectively serfs, who are disenfranchised from the wealth that has been created. They are angry. Their land is being taken for a factory, a city, a wealthy person’s palace. The ghost cities in China are surrounded by ghettos filled with people whose land was stolen to build the empty metropolis.

To summarize, China is headed for a serious socio-economic crash with all of the negative effects that will entail.

The problem to you and me is that this will damage the global economy as well. You can’t have a collapse of the world’s second largest economy and not have outsized, collateral damage.

The fact that wealthy Chinese people will be able to remove billions of dollars in stolen wealth from the system, while a collapse happens, will only add gasoline to the proverbial fire.

The bigger the economic bubble, the bigger the consequences when it pops. China is history’s biggest. The world’s financial system is teetering on many levels. All the more reason to make sure you have a properly diversified portfolio, one that includes more than just the paper assets that could be worth no more than the paper they’re printed on.

China has also been drastically hoarding gold. Read about it here.

[Read more…]

What The Heck Should I Be Doing With My Money

Posted on


feel lost What the Heck Should I Be Doing With My Money?

From L. Todd Wood

Having been a financial professional most of my adult life, I can remember many instances at a lunch, a dinner party or after a speech, where I was asked, So where should I put my money? I have found that most people – even hyper-successful businessmen or women – are clueless when it comes to handling their personal accounts. I’ve talked with executives who own a few million shares of their own stock tell me, since they also own a dozen penny stocks, they’re savings are diversified. I have to laugh at those.

[Read more…]

Our Dollar Crisis Deepens: More Nations Turn Their Back On Our Currency

Posted on


trash pile Our Dollar Crisis Deepens: More Nations Turn Their Back on Our Currency

From Filip Karinja

In recent history, for as long as the U.S. dollar has reigned as the global reserve currency, countries have traditionally paid for goods in trade by converting their currency into the dollar. Thus there has usually been a huge (but artificial) demand for the greenback.

[Read more…]

Interest Rates Just Dropped From 20% To Zero – What Happens From Here

Posted on


rob with fountain pen Interest Rates Just Dropped from 20% to Zero – What Happens From Here?

L. Todd Wood

For the past several decades, bond yields have grinded lower and lower, now reaching effectively 0%. Yet despite such a decline, there has been a lot of talk in the financial press of a growing bubble in the market.

[Read more…]

Is Europe’s $1.28 Trillion Economic Plan A Recipe For Disaster

Posted on


mario draghi ecb qe Is Europes $1.28 trillion economic plan a recipe for disaster?

From Filip Karinja

Here we go again – only this time, in Europe.

This past Thursday, Mario Draghi, president of the European Central Bank (ECB), announced that the ECB will launch its own Quantitative Easing program in March, purchasing €60 billion ($67 billion) in government debt each month. [Read more…]