As maybe I’ve mentioned before, of the plethora of supposedly independent information and reports which come through to me in my daily emails, one I will always read assiduously is Grant Williams’ Things that make you go hmm… twice monthly (usually) newsletter. Not only does he take a pretty jaundiced view of much of what passes for mainstream economic analysis and media comment, but he expresses his opinions forthrightly and with good humour as anyone who has attended one of his conference presentations will be well aware.
Grant is both a Singapore-based fund manager and very well followed commentator on geopolitics and economics and he occasionally touches on gold as a part of this terrific coverage in his subscription-based newsletter. He makes you sit up and think – and understand that much of what data is released by governments, central banks and government funded economists is more akin to some of the claptrap often put out by junior mining and exploration companies (and some bigger ones too) and their PR companies in trying to hoodwink investors by putting a strong positive spin on financial and drilling results which often, on deeper analysis, should be suggesting quite the opposite.
His latest newsletter, entitled ‘The 60 Second Excitement’ looks in some depth, inter alia, at the latest U.S. non farm payroll figures, the possibility of a Brexit (Britain leaving the European Union) and their combined effect on the gold market, gold stocks and the gold price should the initially unexpected materialize – as it has already done with the U.S. jobs figures.
Let’s take all these in order:
Firstly the latest U.S. jobs statistics which showed an increase in non-farm payroll figures for April of only 38,000 – hugely below the consensus expectation of 160,000 – coupled with also reducing the figures for the prior two months as well. Yet in Fed terms the positive spin was that the overall unemployment rate fell to 4.7% (below the Fed 5% target), but conveniently ignoring the incontrovertible fact that according to government stats this relatively low unemployment rate has only been achieved by an ever-continuing rise in the percentage of people who have somehow withdrawn from the labour market altogether. One is thus drawn to John Williams’ (no relation to Grant or myself – we Williamses seem to be getting around!) Shadow Stats, which looks at such government statistics more in the way they used to be calculated before goalposts were moved (several times in some cases). According to Shadow Stats the U.S. unemployment rate is, in reality, is somewhat north of 20%, which would seem confirm reality rather than manipulated government statistics.
Prior to the latest jobs announcement observers had seen the likelihood of the Fed raising rates 25 basis points in June much more likely and gold had been suffering as a consequence. After the jobs announcement the likelihood of a June rate rise receded substantially, although some observers feel a July rate rise still on the cards if U.S. economic data between now and then looks supportive – and if the U.K votes to stay in the European Union in the referendum on June 23rd. Others think September, or even later, will see the next Fed rate rise. Undoubtedly the Fed has talked itself into imposing another rate increase this year, or perhaps two, just to maintain what little credibility it may have left in its ability to really jumpstart the U.S. economy and promote sustainable growth.
But now back to Brexit. As we have pointed out here before there’s a substantial underswell amongst the British public of anti-EU feeling. Whether this will express itself in a Brexit vote remains uncertain – a set of opinion polls published today (so after the latest TTMYGH newsletter was written) – suggest that the Brexit vote may indeed carry the day, although the high powered government-based Remain propaganda machine may yet prevail. But if the Brexit option does emerge triumphant in just over 2 weeks’ time, with its decidedly uncertain, and almost certainly immediately negative impact on the U.K. economy, there are a growing number who believe the impact on the whole European Union concept – and even on the global economy – could actually be even more severe.
There has been a huge ‘project fear’ campaign unleashed on the U.K. electorate by the Remain camp, but as Grant Williams points out all the statistics being put about predicting doom and gloom for the U.K. economy as a whole and for the wealth of the person in the street, are totally unquantifiable – much as the positive spin on some drilling results from exploration juniors could be equally speculative but on the positive side. Not that the pro-Brexit campaigners are not equally guilty of disseminating unquantifiable statistics and suppositions of their own.
So what has all this to do with gold? Gold tends to thrive on uncertainty and the Fed’s dithering over rate increases, growing concerns about whether the U.S. economy is actually growing, and the potential effects of a Brexit should it come about – which looks to be much more of a possibility now than it did only a couple of weeks ago, are all uncertainties gold could thrive on. Add to that the apparent beginnings of a downturn in global gold production and doubts about continuing supply availability, coupled with what has been enormous gold ETF demand so far this year, and this is all gold supportive. True, Asian demand has slipped. Indeed this fall in demand from the East coupled with the huge ETF demand shows there has been something of a reversal in gold flows with more flowing into the Western gold ETFs than into India and China combined. But virtually no-one believes that Asian demand will not pick up again – quite probably later this year and if this is accompanied by a continuation of ETF inflows the doubts about availability of unattributable (i.e. freely available physical gold) will multiply.
Grant Williams also points to another supportive phenomenon in the performance of gold stocks which have been hugely outstripping the rise in the metal price, and which have been remaining relatively strong even through the recent correction in the gold price. Some of the biggest gold stocks of all have more than doubled and the most significant gold stock indexes and ETFs have been outstanding performers vis-à-vis the gold price itself. Gold stocks are often the precursors of significant moves in the gold price rather than just being followers.
But while the TTMYGH newsletter highlighted just the three factors noted above, Grant Williams goes on to end with the comment: There are plenty more (such factors). He mentions China, the upcoming US elections, the explosion in corporate debt levels and perhaps the biggest problem of all—unfunded pension liabilities—which will all have a big part in determining what kind of outcome the world gets as the ghosts of 2008 return. You have been warned.