The Art of Speculation


After 50 years of global investing, my chief mantra is “There is always something we don’t know!”   

This fact rules the price of gold and precious metals which is why I look at owning them is never an investment but a speculation.  Precious metals are financial insurance against inflation for sure.  But isn’t all insurance a speculation ?  I have never had a fire in my house, yet fire insurance does make sense.

So let’s look at how to refine the process of buying, selling and owning precious metals a bit more.   For example see why the Kunlun mountains (below) can have an impact on the price of gold, that’s not even related to mining.

india

The Kunlun Mountains.

In February and March 2017, a significant economic event took place that can have an impact on the price of gold.

Updates in our Purposeful investing Course look at ideal speculative opportunities in precious metals.   One ideal condition we track is the gold platinum ratio when the price of platinum is lower than the price of gold.

Platinum dropping below gold is a historical distortion that rarely happens.

Unless there has been a most basic change in the relationship between these two precious metals, whenever platinum costs less than gold, we speculate on the simple fact that platinum’s price will rise faster than gold’s until this distortion has equalized.

Yet the facts that dictate the prices of precious metals are rarely simple.

For example, there is conjecture that the growth of electric cars will reduce the need for platinum in catalytic converters.  This could be since about half of platinum’s demand has been for this purpose.  Yet let’s keep in mind, it is estimated, that one-fifth of everything we use either contains platinum or requires platinum in its manufacture.  Plus the gold platinum relationship existed well before catalytic converters and platinum still sold for more than gold.

Another example is that the price of gold could drop.  Platinum’s price could rise faster than gold, but if gold is plunging, platinum could outperform gold but stagnate or drop as well.

The relationship between gold and platinum is simple, but there are many factors that have an impact on the price of gold.  European interest rates, US and global inflation, US interest rates, US dollar strength, US job market, US economic growth, US trade deficit, crude oil are a few.   The chart below shows the importance of gold to interest rates.  So the current rising trend of US interest rates could hinder a rise in the price of gold.

gold

Chart from Marketrealist.com (1).

An article at Marketrealist.com:  “Why real interest rates impact gold prices?” (1)  helps explain why US interest rates matter to the price of gold.

Gold is used as an investment alternative.  Investors think that it protects money’s purchasing power.  As an investment, it has to compete against other investments that are available in the market.  The interest rate is a big factor here because it determines the attractiveness of those investment alternatives.  As real interest rates rise—interest rates adjusted for inflation—other investments usually become more attractive.  This reduces the demand for gold and vice versa.  Gold usually has an inverse relationship with real interest rates.

Rising US interest rates are a downwards pressure for gold prices and gold-backed exchange-traded funds (ETFs).  Since gold and platinum (and silver) are related, US interest rates also have an impact on these precious metals.

What many investors miss is the fact that Chinese and Indian interest rates are also important factors that affect the price of gold.  Both Chinese and Indian cultures have a historical leaning towards trusting and owning gold.  They are becoming increasingly important factors as China and India become larger parts of the global economy. 

If one eliminates Switzerland (the biggest importer of gold with over 70 billion worth of gold imports), Asia is the largest importer of gold (90 + billion worth compared to Europe’s 30 + billion).  China and India are the two largest Asian importers by far.

Increasing yuan and rupee real interest rates will stimulate investors to build up savings in those currencies instead of gold.  This is a downward pressure on gold prices and gold-backed ETFs.

After more than a year of steady interest rates, in both February and March 2017, the People’s Bank of China raised yuan interest rates.

yuan

Indian interest rates continue to fall, but should also be watched.

indian interest

Indian Rupee interest rate – both charts from www.tradingeconomics.com (2)

Here is another interesting question.  If interest rates in these Asian countries impact gold’s price, what would be the impact of an Indian/Chinese conflict or war?  China and India have long had border tensions.  There was a Sino-Indian War in 1962 over disputed Himalayan borders.  At that time, the Chinese launched offensives in Ladakh and across a line (McMahon Line) regarded by India as the legal national border that disputed by China.  Disagreements have remained since that time.

The book “Why India Is Not a Great Power (Yet)” by Bharat Karnad, outlines a number of events that could lead to a Chinese Indian conflict. One of the causes could be these tensions that include border skirmishes. Tibetan protests and maritime disputes are others.

Karnad, a professor of National Security Studies at the Centre for Policy Research in New Delhi, suggest that India should be more aggressive to increase its position on the world stage.

His suggestions include nuclear land mines in the Himalayan passes, arming China’s neighbors like Vietnam with cruise missiles and atomic weapons, and actively assisting armed uprisings in Tibet.

Could any of these steps create a spike in the price of gold and consequently silver and platinum?

Screen Shot 2017-04-10 at 9.11.49 AM

Learn more about “Why India is not a great power (yet)?”

This image from India.org (3) shows a meeting between Chinese and Indian military at a conflicted border.  What happens if minor arguments as described in the article turn into something more serious?

Screen Shot 2017-04-10 at 9.20.36 AM

The distance of Tibet to the US east cost is about 8,500 miles.  What events, so many miles and times zones away, might be taking place that can have a serious impact on our wealth?

The answer is that we do not know and this is why ownership of precious metals is a speculative proposition.  Rising interest rates in China and India could cause prices to fall, but a skirmish or two or the planting of a few atomic mines and precious metal prices could skyrocket like they are nuclear powered.  Well, in a way they would be.

There is always something we do not know which is why when we speculate, especially in precious metals, we never risk more than we can afford to lose.  We leave plenty of time for the investments to mature.  Our recent Pi Update explains how to calculate profit and loss in precious metal speculations.

Gary

(1) Tradingeconomics.com:  Yuan interest rate

(2) Marketrealist.com:  What rising US real interest rates mean to gold investors

(3) Zeenews.india.com  China upset by reported hut demolition on India border

Three Rivulets in an Economic Flood

Our world turned upside down when, starting in late 2007, the real estate bubble popped.  Many Americans saw their homes slide underwater, their stock prices plummet and the earnings on their safe savings collapse to zero return.  That  financial ruin was created very much in part by banks that were “Too Big to Fail”.

Now as stock markets reach all time highs, another debacle is rising.  The tremors have already started, aftershocks from 2009, that can create a greater economic landslide.  There are numerous scandals at US and overseas big banks.  These calamities can make the safety net of “Too Big to Fail”, too small.  The disintegration that ensues could ruin average investors in three ways.

The risk is systemic because the bigger the bank, the more corrupt it seems to be.  This makes sense.  These banks have little to lose.  Why not cheat and take risks?  When fraud and speculation fail, the bank is bailed out by taxpayers.  No one, except the customer, gets too badly harmed.

Wells Fargo is an example.  Even after new regulations and backups were put in place after 2009, this entire organization continued to treat clients with complete disdain.

There are several risks.

First, banks will have more opportunity to cheat because of increased stock market turmoil.  Every part of the US stock market has reached an all time high.  Global stock market volatility has also picked up.  The world is in a period of technological, political and economic transformation.  None of the old rules are as certain as they used to be.  Nothing makes markets shakier than the unknown.

Second, the new administration will reduce bank regulations.  Reduced regulations are good for business but big overseas banks have especially taken advantage of investors and home owners.  Foreign big banks have acted with impunity and need to be regulated.

Third, we’ll see rising interest rates.  Banks will raise interest rates as fast as they can.  The key to bank profitability is “Net Interest Margin”, the difference between the rate banks pay for deposits and money and what they charge for loans. 

The chart below from the St. Louis Federal Reserve Bank shows that bank net interest margin has been at an all time low.  The figures also reflect how and when the US Treasury bond rates rise, that there is an even higher Net Interest Margin increase shortly after.

fed chart

When interest rates collapsed in the late 2000s, banks made extra profit one time.  Their securities portfolios rose, loan defaults slowed and the cost of deposits fell.  Yet over time as new loans brought lower yields and the one-time boosts were gone, the lower interest rates squeezed bank profit margins.

The government and the Fed will want higher rates to avoid runaway inflation.  As the government increases borrowed spending, inflation will rise higher than the Federal Reserve’s target of 2 percent.  The Fed will increase interest rates.  The Fed is against inflation.  There is a powerful motivation to protect the aging population as more and more boomers go onto a fixed income.   This increases the odds that as inflation picks up, the government and the Fed will be aggressive at increasing interest rates.  This will strengthen the US dollar short term but hurt the US stock market because the strong dollar reduces the value of revenue generated overseas.

The rising interest rates will be accompanied by inflation.  The government and the Fed do not want inflation but they will create it anyway.  They will spend more and reduce tax that increases US debt financed by savings from Europe, China and Japan.  Currently, America’s gross debt is more than $19 trillion, or 105 percent of GDP.  This has been sustainable in recent years because interest rates have been at historic lows.  As rates rise from slightly over 2 percent today to over 4 percent by 2019, government interest payments will more than triple from $250 billion in 2016 to more than $800 billion in 2026.  By 2030, interest alone will represent over 14 percent of the federal budget.  If interest rates rise even higher,  Federal payments will be even greater—a one percentage point increase costs the country an additional staggering $1.6 trillion over a decade.  If interest rates returned to the record-high levels of the 1980s, the country would pay $6 trillion more in interest alone.

The dollar will fall because almost half of this debt will be owed to countries abroad, especially Japan and China.

rate charts

The U.S. dollar has soared on bets that the US will see inflation.  The U.S. dollar recently hit a one year peak.  Currencies especially in emerging markets have fallen to new lows.  The higher interest rates and stronger U.S. dollar are causing the weakest risky assets to plummet.  Interest rates on U.S. Treasury 30-year paper at 3% are triple that of Germany’s 30-year yields of barely 1%.  A closing of this gap as Europe increases its interest will create a US dollar drop.

The cost of living will rise.  Higher interest rates will push up prices for almost everything and push stock prices low.  All of this hurts banking profitability and makes it more likely that big banks will cheat more.

Here are three steps to take that can protect your investments in this scenario. 

Protection #1: Avoid Too Big to Fail Banks.  When you use a global bank, you are not using just one institution.  You are dealing with a big business that owns multiple banks in different regions.  This has costly implications for how far the bank’s equity goes, and how small safe the particular bank you choose really is.  Plus banks with two or more sub banks have more ways to take advantage of investors.  For example, one division of a bank can be recommending an investment to customers while having another unit in another country sell the investment short.  The bank makes money in three ways: creating the investment, selling the investment to customers and selling it short when the investment implodes.

Distinct national or regional entities held locally are much simpler to repair or dismantle when things go wrong.  Banks create such ringfenced operations in several places, so regulators cannot see the big picture and to keep their ripped off rewards from fines and penalties.

Use local community banks where you can know your bankers, what they are doing and where their reputations are their most important asset.

Protection #2:  Use Math to Spot Value. 

Whether you like to trade or invest and hold, math based financial information works better than the spin, rumor and conjecture of the daily economic news.   Invest in a diversified portfolio based on fundamental value.  When you do, you’ll be on a solid path to everlasting wealth that is not so easily diverted by the daily drama that seems to be unfolding in the modern world.

For example, our Purposeful investing Course teaches  three mathematically based routines that have been proven to out perform the market over time .

The first routine in the course is the quarterly examination by Keppler Asset Management of 43 equity markets and analysis of their value.  This makes it possible to create a base portfolio of Country ETFs based on basic value.  This passive approach to investing in ETFs is simply to invest in Country ETFs of good value equity markets.

For example, the January 2017 Keppler analysis shows that the “Good Value Developed Market” Portfolio is twice the value of a US market index fund and a much better value than any of the other indices shown.  These are based on the cornerstones of value, price to book, price to earnings and dividend yield (except the European dividend yield).

The Good Value Developed Market Portfolio offers even better value than the Morgan Stanley Capital Index  Emerging Market Index.

keppler

The Spring 2017 Keppler analysis shows that the “Good Value Emerging Markets”

Investing in this broad spectrum of good value does not mean that profits will come over night.  Often markets remain distorted for extended periods of time.

History shows, though, that over the long run, math and value drive the price of markets.

This tactic is a simple, easy and low cost way to diversify in the predictability of good value.

The second tool Pi provides is a way to actively monitor and shift the good value markets using trending and volatility algorithms.  These algorithms allow us to trade good value markets through downtrends and upticks to increase profits in a diversified even more.

The third tool Pi provides is a way to spot ideal position speculations to use sparingly to enhance performance with greater risk.

Protection #3:   Spot Distortions that Create Ideal Condition for Speculation.

Pi teaches the Silver Dip strategy.  This investing technique is only exercised when speculative conditions are absolutely ideal.  The Silver Dip relies instead on a really simple theory… gold should rise about the same rate as other basic goods and the rise and fall of silver’s price should maintain a parity with gold.

Because of a dip in the price of silver, the Silver Dip 2015 returned 62.48% profit in just nine months.   In 2017 another precious metal speculation is even better.

silver chart

SLV share chart from www.yahoo.finance.com (1).

Imagine investing ahead of a spike like the silver spike shown above.  A new spike, but in another metal, is looming ahead.

In September 2015, I prepared a special report “Silver Dip 2015” about a silver speculation, leveraged with a British pound loan, that could increase the returns in a safe portfolio by as much as eight times.  The tactics described in that report generated 62.48% profit in just nine months.

I have updated this report and added how to use the Silver Dip Strategy with platinum.   The “Silver Dip 2017” report shares the latest in a series of long term lessons gained through 40 years of speculating and investing in precious metals.  I released the 2015 report, when the gold silver ratio slipped to 80 and the price of silver dropped below $14 an ounce.  I knew I needed to share this experience with readers immediately.

In September 2015 I wrote, “The low price of silver offers special value now as silver’s price could begin to rise at any time”.

Here is what happened in the next nine months:

Shares in SLV (a silver ETF) rose from $13.50 to $19.35.  There was also a forex profit.  The British pound moved almost exactly as it did 30 years ago falling from 1.55 dollars per pound to 1.34 dollars per pound.

pound chart

Pound dollar chart at finance.yahoo.com (2)

6,451 pounds borrowed 9 months earlier at 1.55 converted to $10,000 to invest in the silver ETF SLV.   At 1.34 it only required  $86,440 to pay back the loan.  This created an extra forex profit.

This position has not run out of steam.  The price of SLV is likely to rise more though British pounds are no longer the currency to borrow.  The “Silver Dip 2017” report shows why replacing pound leverage with US dollar leverage is better.

There is a Better Metal to Speculate in Now

“Silver Dip 2017” has been written to show how to determine good value in precious metals and ways to use gold, silver, platinum or other precious metals to spice up returns in safe, diversified stock portfolios.

Here is some history of the Silver Dip strategy.   “The Silver Dip” report of 1986 was the first specific investment report I ever published.  Silver had crashed in 1986, I mean really crashed, from $48 per ounce to $4.85 an ounce.  After I wrote that 1986 report, silver’s price skyrocketed to over $11 an ounce within a year.  The 1986 Silver Dip described how to turn a $12,000 ($18,600) British pound loan (investors only had to put up $250 and no other collateral) into $42,185.

Circumstances relating to precious metals in 2015 were similar to those of 1986.  In May 1986, the dollar pound rate was 1.55 dollars per pound.  The pound then crashed to 1.40 dollars per pound.   The loan could be paid off for $13,285 immediately creating an extra $5,314 profit or total profit of $47,499 in just a year.

Gold is the cornerstone of the Silver Dip.  When silver prices are too high or low versus gold, then the conditions become ideal for a silver speculation, if gold’s price is stable or too low.

Yet gold is one of the hardest assets to value.  As a gold bug who has been investing in gold since the mid 1970s, I know this is true.  I have seen too many predictions over the decades that have been wrong and I doubt that this will change in our lifetimes.

In early 2017, when the “Silver Dip 2017” report was released, gold did not fit the ideal criteria for speculation.  Gold was simply fairly valued.  A study in the “Silver Dip 2017” shows that the same amount of gold is needed today to buy a car, go to a movie or rent a home as was required in 1942.  The price of gold has risen 33 times since 1942, but since 1942 US median income increased 29 times.  House prices rose from 1942 until 2016 47 times.  Cars jumped 36 times.  This is true of going to a movie, up 33 times or renting an apartment.  Apartment rentals are up 34 times.  Had you stored a pile of the precious metals away in 1942 to buy a car today, you could do it.

Gold in the $1,200 range in January 2017 is a little low, but about where we would expect it should be.  Silver offers better opportunity than gold.  When the price of gold is 80 times (or more) higher than the price of silver history suggests that silver is very undervalued to gold and will rise faster than gold.  Rarely has the ratio been as high as 80, only three times in 36 years.  The gold silver ratio was in the 70s at the beginning of 2017, an indicator that silver prices may rise faster than gold, but this ratio of 70, is not high enough to be called ideal.

Platinum conditions are ideal

Since 2014 the price of platinum has fallen below the price of gold and at the beginning of this year reached a historical low.  The distorted gold platinum spread suggests that platinum is a very good value.

The “Silver Dip 2017” explains how to speculate in platinum plus outlines the following:

  • How to use the Silver Dip strategy in platinum without adding a penny of cash if you already have investments.
  • How to invest as little as a thousand dollars in platinum if you do not have a current investment portfolio.
  • Why this is a speculation, not an investment and who should and should not speculate and how to limit losses and take profits.
  • Three reasons conditions are better for a Platinum Dip now.
  • Three different ways to invest and speculate in gold, silver or platinum in the US or abroad.
  • How to buy gold and silver or platinum with or without dollar leverage margin accounts.

The “Silver Dip 2017” also contains four matrices that calculate profits and losses so investors can determine cut off positions in advance to protect profits and/or losses.  The report also looks at how to switch time horizons for greater safety.

Rising interest rates make the stock market highly dangerous in the short term. “The Silver Dip 2017” shows how to create a safe, diversified good value stock portfolio and use it to generate much higher returns with a little controlled speculation in platinum.

Learn how to get platinum loans for as low as 1.58%.  See why to beware of  certain brokers and trading platforms, how to choose a good bank or broker and how platinum profits are taxed.

The report includes a complex comparison of gold and silver with other costs of living from 1942 to today to help determine the real value of gold, silver and platinum.

Finally, learn why and how to use advisers to manage profits from the gold and silver dips.

Current circumstances could cause the price of platinum to rise rapidly at any time.  Do not delay reading this report.

The Silver Dip sold for $79 in 1986.  Due to savings created by online publishing (we have eliminated the cost f paper and postage), we are able to offer this report for $39.95.

Order now by clicking here.  Silver Dip 2017  $39.95

Get the Silver Dip 2017 FREE when you subscribe to the Purposeful investing Course.  Act Now.

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.  You also receive the $39.95 report “Silver Dip 2017” FREE.

You also receive FREE

  • The $29.95 report “Three Currency Patterns For 50% Profits or More”
  • The $49 report “How to Grab Sequential Value Profits”.

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Enroll in Pi.  Get the first monthly issue of Pi and the three reports right away. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free purposeful investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the three reports as my thanks for trying.

You have nothing to lose except the fear.  You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Gary

(1) finance.yahoo.com echarts slv

(2) http://finance.yahoo.com echarts gbp-usd

 


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