Running out of physical gold and silver

Last week we brought you David Morgan’s current assessment of the silver market. It’s timely then that an interview with macroeconomic analyst Michael Pento was released yesterday where issues surrounding gold and the broader global economy were discussed. 

In the lengthy interview, some key points were raised. Firstly, Michael describes the issue that we wrote about last Tuesday regarding the record number of COMEX claims against each ounce of physical gold as being indicative of a very highly leveraged physical gold market. This he sees as a dangerous situation. For those who missed it, see the graph of the COMEX paper gold claim ratio below. Secondly, Michael recommends buyers take physical possession of gold, recommending the use of a local and ideally independent vault. He claims that the more physical demand there is, the more likely liquidation and margin calls are to expose manipulation in the metal market through short covering. Lastly, Michael sees us rapidly approaching a point where COMEX will be required to settle in cash due to the fact that “they’re absolutely running out of physical gold and silver” and that in this event, the likely fallout will not be contained to the metal market.

Speaking more broadly, Michael discusses the now 200 trillion dollars of global debt and the fact that China alone since 2007 is up 300% on their debt. Most of this was by government edict resulting in the construction of empty cities, airports without planes, bridges without cars and other economically unproductive outcomes. Michael’s warning is that there is no isolation from these problems any more. China was responsible for almost all of the global demand since 2008 and now that this demand is collapsing, regions such as Brazil, Russia, Japan, Europe and Australia are “either in recession or growing with a 1% handle”. 

With the FOMC rate decision being all topical this week, Michael talks about what he calls the myth of a "one-and-done rate hike” citing limited historical examples of such with previous rate hikes “generally being around 300 basis points and the last cycle being 425”. There are precedents then for a protracted hike cycle and the Federal Reserve by means of its own median dot-plot projection wants to be at 1.6% by the end of 2016. Michael forecasts that this target will never be achieved however because “the global economy is imploding” and supports this by highlighting that the Atlanta Fed is on record saying that Q3 growth will be just 1.5%. 

As a final note to readers, the change of Prime Minister last night overshadows the fact that today marks 7 years since the collapse of Lehman Brothers in 2008. Buried in the main stream media this morning are warnings of investor complacency as the lessons of past are forgotten with time.