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Bank Liquidity Crunch Continues to Raise Concerns

Craig Hemke: Ignore the Elliott Wave "Buffoons" Calling for a Gold Crash


Don't want to listen? Read the podcast below!

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Coming up Craig Hemke of the TF Metals Report joins me for an explosive conversation on a range of topics. Find out whether Craig believes we’re going to have a repeat of 2010 – when metals took off – or if it’ll be more like 2016 – when metals had a false breakout before pulling back. He also calls out Elliot Wave chartists and why he thinks you are doing yourself a great disservice if you are following these “buffoons,” as he calls them. So, don’t miss an eye-opening interview with Craig Hemke, coming up after this week’s market update.

Gold and silver markets are off to a strong start in the early goings of the fourth quarter. After getting through some end-of-Q3 selling on Monday, the precious metals proceeded to post gains in the first three trading days of October.

As of this Friday recording, gold prices come in at $1,509 per ounce, up 0.7% for the week. Silver is unchanged week over week to come in at $17.61 an ounce. Platinum is off 5.6% to trade at $882. And finally, palladium prices are off slightly at $1,688, a 0.2% decline now since last Friday’s close.

While the platinum group metals struggle for the time being, gold and silver are proving to be effective safe havens from stock market volatility. The Dow Jones Industrials Average swung more than 1,000 points this week from high to low. Disappointing manufacturing data stoked investor concerns about an economic slowdown.

In turn, the U.S. Dollar Index dropped as futures markets reflected a big jump in the odds of another Federal Reserve rate cut later this month. It’s hard to believe that just a year ago, the financial media were talking about how many times the Fed would hike. Rate cuts weren’t even on the table for 2019.

Now, not only are central bankers cutting, they are also massively expanding their balance sheet in order to prop up the repo market on a daily basis. Clearly not all is well in the world of banking and finance.

Perhaps Jerome Powell and company will succeed in getting out in front of the liquidity problems plaguing big banks. But the prospect of ongoing emergency interventions, and the apparent inevitability of further interest rate reductions, may help stimulate investor demand for hard money in the final three months of the year.

Although investment demand for physical precious metals is showing some signs of picking up, it remains soft compared to what it was a few years ago. The public remains complacent to risks in financial markets and skeptical of holding bullion as an alternative.

Surprising as it may seem to those of us who view owning some gold and silver outside of the financial system as common sense, lots of investors don’t understand the first thing about precious metals. They don’t know where to buy them, or what to do with them, or what the point of owning them even is.

They understand stocks, bonds, and bank accounts – perhaps even cryptocurrencies. But for some reason they can’t grasp the least complicated and most enduring way to hold wealth.

It could be our lousy educational system, our biased financial media, our corrupt monetary system, or all three that are leaving much of the public dangerously ignorant about sound money.

Perhaps, too, the bullion industry needs to do a better job of communicating the benefits and features of gold and silver ownership and combatting the myth of the “barbarous relic.”

Physical precious metals offer far more versatility than conventional paper assets in terms of what you can do with them. About all you can do with a stock or bond is sell it for cash, donate it, or in some cases borrow against it.

You can do all those things with bullion – and much more. Since precious metals exist outside of the financial system, they can serve many non-financial purposes.

Bullion coins and rounds can certainly be appreciated for their aesthetic qualities, which confer a pride in ownership and add a special sentimental value when given as gifts. Since gold and silver have near-universally recognized value, they can be used as money around the world in transactions with any willing party.

Gold and silver can also be used to achieve conventional financial goals such as estate planning and tax savings. Precious metals IRAs are a great way to shield gains from taxation.

Precious metals can be used as collateral to obtain loans with favorable terms. Money Metals Exchange is proud to play a leading role in helping people tap the hidden utility of gold and silver. And Money Metals Capital Group can now extend to you cash loans on gold, silver, platinum, or palladium bullion.

If you own at least $70,000 of precious metals and store them in the Class 3 vaulting facility operated by Money Metals Depository, you may be eligible for a loan of $50,000 or more.

Borrowing against your precious metals can be a more efficient way of accessing their buying power as compared to selling and facing transaction costs along with potential tax consequences.

To be sure, this strategy is not suitable for everyone. It’s only available for those with large holdings in our secure depository – and you must have an acceptable credit rating, agree to use loan proceeds for business or investment purposes only (rather than for personal or household needs), and don’t use loan proceeds to purchase additional precious metals for at least 30 days.

All that said, for some folks wanting to access liquidity, our metals-backed loan program is just another service that Money Metals provides… which other dealers do not.

Well now, without further delay, let’s get right to this week’s exclusive interview.

Craig Hemke

Mike Gleason: It is my privilege now to welcome back Craig Hemke of the TF Metals Report. Craig is a well-known name in the metals industry and runs one of the most highly respected websites in our space and provides some of the very best analysis on banking schemes, the flaws of Keynesian economics, and evidence of manipulation in the gold and silver markets that you will find anywhere.

Craig, welcome back, and thanks for joining us again. How are you today?

Craig Hemke: Mike, my friend, it's always a pleasure. Thanks for the invite.

Mike Gleason: Absolutely. Love to get you back on and thanks for the time. Well, the recent smash in the metals prices was reminiscent to what we saw in the markets in 2016, at least in silver. Prices ran higher up to about $20 an ounce and then got hammered back down where they continued trading in a range between about $14 and $17 until this year's breakout. Do you think we'll see the metals once again be put back into their box here or do you think it will be different this time around? I guess that's the million-dollar question for silver bugs, what do you think?

Craig Hemke: That's the question everybody has to answer, right? Everybody has to answer that for themselves. Now, I have been, and then you and I have been discussing this all through the year, I've been forecasting this year to be like 2010. You recall those conversations, I'm sure Mike. Going back to late last year, all the talk was about rate hikes, right? And all the seven-figure sell side economists and analysts on Wall Street were talking about three to four rate hikes this year and I got in front of that and said, no, no, no. That's not going to be the case. All the political uncertainty, economic uncertainty, trade wars, all this kind of stuff, it's going to lead to a loss of confidence that ripples through the economy, not just at the individual level, but at the business level, and you get this slowdown. The central banks cannot afford a slowdown, which is why they've worked so hard to keep the plates spinning for 10 years.

So, therefore they were going to reverse policy. You're going to get rate cuts instead of rate hikes. You're going to get more QE as well and in the end it looks a lot like 2010 where we entered the year, everybody was talking about great the economy was and there was green shoots and it was a one off that financial crisis, and bliss and joy and rainbow and Skittles for everybody.

As it turned out there was some economic growth in 2010 until about the third quarter and then we began to slow. By the fourth quarter it was negative growth and we entered into a recession beginning in 2011. Of course, the Fed reverse policy, then began QE2. Anyway, anybody that's been the metals for the last decade knows what happens next point. Well, anyway, we're on the same path. Like you said, we've been trapped in a price range for about six years until we finally broke out back in May. And again, this is following along the path.

Now, here's the thing. Is this 2010, or as you said, is it 2016 because '16 saw many of the same underlying fundamentals, if you will. You had the Brexit thing, which is amazingly still talked about three years later, but 2016 was all about a slowing economy, interest rates just collapsing around the globe. We got over $10 trillion in negative yields for the first time and the 10-year note got down to about 1.9, 1.7% even got close to 1.5.

Everybody thought, “Okay, here we go. This is bad.” And gold was rallying, but then the economy recovered and then there was this theme put out there when Trump was elected that, "Oh, now things are going to be great and the dollar is going to soar and all this infrastructure spending and blah, blah, blah. The bond market's going to burst all." All that stuff which didn't come to pass but it reversed everything in 2016. So, ultimately to answer your question, is this like 2016 or is it like 2010?

The bond market selloff last month got everybody worried that this was just like 2016. Interest rates started back up. Gold rolled over. But now here we are reality setting back in in October. We've had the PMIs this week which have shown both in the manufacturing and the service sectors, sharp, sharp slowdowns. We're going to get an employment report on Friday which is likely to come in poor but you never know the way they fabricate the numbers. At any rate, the Fed is going to cut again later on this month. Probably going to have to cut again in December, so we're not, in my opinion, headed back like we were in 2016. Instead we are headed forward like we were in 2010.

Mike Gleason: We wanted to talk about manipulation in the futures markets. You have been a leading voice on the topic for many years. For a long time people seemed to ignore the evidence or dismissed the whole thing as a few “boys just being boys.” Isolated traders trying here and there to rig a price in their favor. They mocked anyone sounding the alarm as conspiracy theorists. What's amazing is that still hasn't changed.

There have been several traders arrested or indicted. Banks have pleaded guilty. Evidence has come out of a scheme that involved multiple people on the trading desks of pretty much all of the major bullion banks. It went on for the better part of a decade and it involved thousands of traders. We know rookie traders underwent training from their superiors on how to cheat. The fact is this fraud was long running, wide ranging and pervasive. Now the Department of Justice may use RICO laws to prosecute these bankers because it was organized crime. What do you make of the people who are still claiming the futures markets are basically fair and honest?

Craig Hemke: Well, there's a lot in your question that we probably need to talk about. I'll get to the Baghdad Bob newsletter writers in a second. The RICO statutes are important because RICO statutes were written so that you could get the Don of the mafia family, not just the assassin. The Don might order Jimmy No Knees to go take out Frankie the Tongue and then he does. And then maybe Jimmy No Knees is the guy that gets prosecuted. Well, the RICO laws allow you to go after the Don and that's what we're seeing now. We had under guys, just simple vice presidents get convicted. And you've got this guy, Edmonds who's now been convicted, but he hasn't been sentenced yet. He's obviously singing like a songbird and implicating his superiors. So, now the guys that have been indicted include this guy, Nowak, who was the head of precious metals trading for JPMorgan.

Eventually, this is probably going to lead up to Blythe Masters who was Nowak's boss during the period in question that the Department of Justice has been looking at… and then even beyond there perhaps, but look at it, whatever, that's fine… but where these Baghdad Bob types get lost, these traders, these Elliot wave counters, whatever, what they don't understand is they just think gold is this thing, this dot that moves on the screen. And everybody cheats and everybody tries to spoof and help their trading desk and all that kind of stuff.

But man, gold and silver are different because these banks, the term you use is correct, they are bullion banks. What does that mean? They are the banks that are on the hook for maintaining the physical market in London. Everybody knows there's no physical delivery in New York. This physical market, to what extent it's actually physical, it's not just unallocated gold getting shifted back and forth across the line in the vault, but they're the ones that are responsible. They're the one that are on the hook. They're the ones that have the leases that they have to match up almost on a daily basis. And so where the conspiracy lies that just that none of these losers who just simply are generalists, that you know, they don't understand these markets but they think they're know-it-all because they have to convince their dupe subscribers that they're know-it-alls.

What these guys miss out on is that the trading desks that JPMorgan in this example, trading desk worked hand in glove with the physical desk in London. That's where the conspiracy is. So, say the physical desk in London has an order that they took a few weeks back and they've got to fill, they've got to get a ton, 50,000 ounces, whatever. And they've got to fill that order and they don't have it, right? So they've got to go buy it. Well, first they got to get that metal shook free, so, they’ve got to convince somebody to sell, but at the same time they might want to save a few bucks when buying that metal and so they get the desk in New York to rig the price lower.

The guy in London calls up Michael Nowak and says, "Mike, hey, I really could use price down $10 from here. Could you take care of that for me?" Mike gets Edmonds on the phone. They start spoofing away, boom. And you get these waterfall declines where we all sit back and scratch your head going, wait a second. Who in their right mind sells 10,000 contracts in 30 seconds.

So anyway, to your newsletter writers, like you said, and you got, you know who these buffoons are. Look, they've got so much invested, they got their flag planted in the ground going back years saying, "Well, there's no manipulation," because if they admit there's manipulation in any market, their subscribers are going to go, "Well what's the point of your little wave counting service if there's manipulation? Geez, what good is that?" So then they become like Baghdad Bob. I may be revealing my age here, but folks that were around 15 years ago and they remember the second Iraq war remember Baghdad Bob was that Iraqi defense ministry guy, right?

Mike Gleason: Sure. There's nothing to see here, right? “Nothing to see.”

Craig Hemke: Right, exactly. There were all these, the American tanks are coming at him from every direction. Every morning he'd get up and say, "Oh no, everything's fine. Don't worry about it. We're good. No, the great leader's got everything under control." Well, he was so vested in saying that it didn't even matter how patently false that was. He was going to keep saying it because he couldn't turn around at that point and that's what these cats are doing.

Who cares? I mean, seriously, I can't believe I've just wasted time talking about it. Who gives a darn what some of these guys have to say? It doesn't matter. It doesn't matter what some newsletter writer, Elliot wave counter says. It doesn't. What matters going forward is that one, this news is getting out. The Department of Justice is on the case. The authorities in London are on the case.

Eventually, this is going to get to the point where it's just no longer worth the trouble for the bullion banks to stay in this business. So we're headed in that direction. Outside of that, what really matters is that the global economy's in the tank. The U.S. economy continues to slow. The central bankers are reversing course, and this demand for gold in all its forms is only going to continue to grow in the months ahead.

Mike Gleason: Some of the recent news here over the last month has been the Fed's work in the repo markets injecting billions and billions of dollars into that overnight lending market and it doesn't seem like it's had that much of an effect on the price in the various assets whether it's the stock market, although it has taken it on the chin here this week, maybe it's a lag effect there, but certainly metals have not rallied like you would have expected. What do you have to say about all that?

Craig Hemke: Well, there's a little bit of that I guess on the safe haven, if you want to call it that bit in the bond market. And again, I can't stress enough how important lower rates are and rising bond prices are to sustaining this rally in gold. Again, it was when the bond market kind of rolled over with a very sharp correction in early and mid-September, that gold rolled over too. And so getting the bond market chugging back in a bullish direction is important to getting gold chugging back as well. And there are some key technical levels that gold's going to cross sometime before the end of the year that's going to really generate its own bit of excitement. But at the end of the day it's all about the bond market and so you've got these liquidity concerns and people worried about what this might mean until you get to kind of a safe-haven bid.

And we're seeing the two-year note as an example, rally harder than the 10-year note. Now the 10 year's all the way back down to 1.55. It was 1.90 at the last Fed meeting not even three weeks ago. The two-year note has fallen even further. It was 1.80 and now today is like 1.37. So, think about that… the Fed cuts, the Fed funds rate tries to say that they're now neutral because at the time they cut the Fed funds to 1.90 and that's what the 10-year was. The two year was 1.80. Basically you had a flat yield curve from overnight after 10 years. Well, in the two or three weeks since, you've got 1.90 Fed funds and now you've got 1.40 two-year and 1.50 for a 10 year.

That assures you, provided things don't completely turn in the next couple of weeks, that assures you the Fed's going to cut again at the next FOMC which is around about Halloween four weeks from now. In fact, the odds of that are now 92% but it also means you're probably going to get another Fed cut in December. Well, you go back two weeks ago we were told the Fed's now neutral and that was reason why gold was going to keep going lower and all this kind of stuff. Well it's not.

Getting back to your original question, Mike, this liquidity thing is a real concern. The Fed with their policies over the last couple of years, has sparked a really kind of a dollar shortage crisis, if you will, and it's revealing itself in all these different ways. One of them is this need now for almost a permanent repo facility. They are going to act to create more dollars to try to fend in this off because what else can they do? And again, you put all those pieces together and you realize, "Oh, you know what? I think I need to buy the dips because prices are going higher, not lower for gold.”

Mike Gleason: Speaking of that, what are some of those key technical levels that you're looking for to maybe be taken out later in this, later in the year? What are you expecting for metals over the last quarter?

Craig Hemke: Well, on the daily chart, let's start there, because we've had now a series of two lower highs and lower lows. There's a trend line there that anybody can see. In fact, there's a pennant on the daily chart that we bounced off the lower band back on Monday. First, we got to get above on a closing basis, probably $1,530 to 35. How soon that happens, anybody's guess, but it's going to happen. More important is that kind of the long-term look of these charts, explain that why in just a second. And the long-term it's extremely positive. When you get a weekly close in the front month contract, which is now December, you get a weekly close above $1,550. Now we tried twice at the end of August and in early September and we traded above there intra week but we can never close above there.

The significance of closing above there is that level held as a floor for 19 months at the end of that previous bull market. And so a move back above $1,550 on a weekly closing basis would really open a lot of eyes. So, now to the point, why does that even matter? "Manipulation, that doesn't matter. Make TA worthless," and all that stuff. Yeah, look, you may think that, whatever, but I can assure you again we get back to these people that don't think there's any manipulation at all.

You think this is a regular hedge fund manager, institutional money manager, pension fund manager, whatever. They look at this stuff. They look at charts. They look at price trends. They look at the data they get on their screen at the end of every quarter, at the end of the year that says, "Here's the best performing sector," and then all of a sudden you look at chart and you go, "Wow, look at this. This gold, not only are the miners, is the best performing sector in the precious metals and hard assets doing great. Now look at the breakout on this chart back above $1,550… oh my gosh, I better start putting some money there."

And it's when that money starts to flow into the sector, all these trillions of dollars that have been created by the central banks in the last 10 years, we get just a little piece of that and we're going to see things that are going to blow your doors off. And what I mean by that is, again, I'm sorry for these long-winded answers, Mike, but had too much coffee today. Here's the thing. I got this little nugget from Rick Rule when I did a little panel with him, I don't know, a couple months ago.

Everybody knows, you know, everybody hates the sector. You've seen the Grant Williams thing about how nobody cares, and everybody hates the sector and that's absolutely true. Over the last 40 years, the amount of global asset allocation to the precious metals in all their forms, whether it's the metals, the futures contracts, there weren't ETFs 40 years ago, that kind of thing… but there were mining shares. It ranged from high of 8% back in 1980 to as low as one half of 1% really each of the last couple of years. Now you got to figure that's about as low as going to go. The median is 2 1/2%.

No, I don't know if we'll get back, who knows, but let's just say we do, just for fun. We go back to 2 1/2% global asset allocation, the precious metals, which doesn't seem to be very much. We're at one half of 1%. That would mean five times the investible assets, dollars, euro, yen, whatever looking for a home. Looking for an investment in the sector so they can get some exposure, whether that's futures contracts, ETFs, unallocated metal, some mint or the mining share… you get five times the amount of cash chasing really a finite number of investment opportunities, prices are going to go up.

It doesn't matter what your little wave counts says or some cycle or whatever, knock yourself out. You just get a wad of cash chasing a finite number of assets, prices go up. I mean that's just how it works. And so there's some importance to breaking these technical milestones. There's importance in keeping this trend going because it begins to feed on itself. And that's really what I expect to happen. Maybe not right away later this year, there's only three months left, but certainly next.

Mike Gleason: Yeah. Obviously the self-fulfilling prophecy of the technical side of things, it matters because people think it matters as you say.

Craig Hemke: Yeah, no, that's true. And see that's the funny thing. Look, I do, you can call it technical analysis, really it's more of a manipulation analysis because we know the banks use the technicals against the traders to try to flush them out by breaking a moving average or paint the chart with a head and shoulder top or whatever. But what's so odd, and here I am talking about these wave counters again, but look, when I broke into the business in 1990 there was some validity to a technical analysis, maybe on a small scale because everybody was looking at the same charts and like you said, it becomes kind of a self-fulfilling thing. If everybody's looking at the price in a pennant, in a wedge, in a moving average and all that kind of stuff in a small, little market and it breaks out and everybody moves at once then it kind of becomes self-fulfilling.

But, these guys still treat this technical analysis as if it all operates in a vacuum. I see on Twitter everyday people try to say, "Well, wave three of sub wave Z microwave X means that we're going to go down to $1,330 (in gold).” I'm like, "Not if the bond market keeps rallying." I mean these things don't happen in a vacuum. They don't happen independently. You can't look at gold on the chart and go, "Well I've got this wave count and that's it." No, no.

If the employment report shows a contraction in jobs on Friday and the bond market rallies 10 basis points, it doesn't matter what your silly little wave count said was going to happen. In 2020, man, with everything connected by computer and everything done by pre-programmed algo and all of this cash sloshing around the planet, and the central bank intervention and all this kind of stuff, you simply cannot use your little tools from 30 years ago to try to make predictions about where things are headed. It just doesn't ... I'm sorry. Here I am just ranting. I apologize, Mike.

Mike Gleason: No problem. It's well put. It's a different market now than it was a decade or two ago and people do need to recognize that. Well, we'll leave it there for today, Craig. Thanks very much for your time. Before we go though, let's hear more about the TF Metals Report and have you tell people what it is that they'll find if they visit your site.

Craig Hemke: Well, thank you Mike. It's really a community like none other in that we've got people from all around the world, of all different political stripes, and net worth categories and all that kind of stuff. But we all interact. The first rule of the site is treat others how you want to be treated, so it's not like your standard website where people blast away and the trolls show up and just try light threads on fire and that kind of stuff.

And so the real value is the interaction amongst the members there. I do my analysis, my podcast every day, post every morning, and then to be a part of that it's 12 bucks a month, so it's 40 cents a day. So, it's not like some exorbitant thing like these newsletter writers charge. And I want to stress, what's really important here is that people need to understand how these things all relate here in 2019 and now heading into an election year and all that stuff and the efforts that the central banks have made since 2009 to make it appear that they've got control. To make it appear, "Oh, no, everything's fine, man. The banks are all re-liquefied. Everything's great."

No, it's not. No, it's not. And it was all due to eventually come to an end and you can't keep the plate spinning forever and that's where we're headed now. The economies are slowing globally and the central banks are going to react with the only tools that they know. That's why gold is rallying. That's why silver is eventually going to move to catch up. And it's just vital that people understand this so that you don't go, you don't see $20 silver and think, "Yippee, I can finally sell all the silver I bought six years ago," and what, get dollars for it? And then what are you going to do with those dollars, man? Every smart holder of dollar reserves in the world is selling dollars and buying hard assets. I'm talking like the Russian Central Bank and the Chinese and the Indians and the like. These are the kinds of things we talk about at TF Metals Report. And I think, like I said, if we can keep you focused on the big picture, then I think it's worth the 40 cents a day.

Mike Gleason: Yeah, absolutely. Highly recommend it. We look at it very closely in our office here. It's fantastic information. You have a great way of connecting those dots and showing people how things are so inter-related and connected and parsing through all that and I think people just heard that here in this discussion and I hope they'll check it out.

Well, thanks again, Craig. Appreciate all the time. Have a great weekend. Keep up the great work there at TF Metals Report, and we'll talk to you again down the road. Take care.

Craig Hemke: Mike, it's my pleasure. I look forward to seeing where prices are the next time we talk.

Mike Gleason: Well, that will do it for this week, thanks again to Craig Hemke. The site is TFMetalsReport.com, definitely a fantastic source for all things precious metals and a whole lot more. We urge you to check that out so you can get some of the very best commentary on the metals markets that you will find anywhere.

And be sure to check back here next Friday for our next Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great weekend, everybody.

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