January 2, 2020
The Miles Franklin Newsletter
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From The Desk Of David Schectman
As to where we go from here in the precious metals over the very short term...the next few weeks...I'm not about to venture a guess.
But as Ted Butler has been pointing out for some time now, the current record and unprecedented Managed Money long position vs. the record short position of the Big 8 traders...sansJPMorgan... still has to be resolved one way or another. Either it's the same old, same old engineered price declines in silver and gold that we're all too familiar with...or some of the smaller traders in the Big 8 category rush to cover and book big loses for the very first time. This thought should be front and center in your mind. They certainly are in mine. – Ed Steer
December goes into the record books as the worst sales month for bullion products in U.S. Mint history...2,000 troy ounces of gold eagles -- 1,500 one-ounce 24K gold buffaloes -- zero silver eagles -- and 25,000 of those 5-ounce 'America the Beautiful' silver coins.
Year-to-date  the mint sold 152,000 troy ounces of gold eagles -- 61,500 one-ounce 24K gold buffaloes -- 14,863,500 silver eagles -- and 312,700 of those 5-ounce 'America the Beautiful' silver coins.
Compared to mint sales in 2018...gold eagles sales were down 38 percent...silver eagles by 5 percent -- and the one-ounce 24K gold buffaloes by 49 percent. - Kitco

David's Commentary (In blue)

Note the dichotomy here – nothing is moving on the retail level in the U.S. yet look at the performance of gold and silver in 2019. There were buyers and the largest of them turned out to be the central banks.

Central banks have purchased 4,538 tonnes of gold since 2008 and have recovered more than half the amount they sold between 1965 and 2008, 

The price of gold has just climbed to its highest level since September and many investors are looking to bullion as a safe bet for their 2020 portfolios amid falling dollar prices.
2019 Year End Charts
It was a pretty good month and year...with better things in store for 2020.
N ot a bad year at all.
The Commercial net short position in silver is now up to 426.6 million troy ounces...which is a bit over six months of world silver production. 
The commercial net short position in gold is now up to a 34.03 million troy ounces, which is virtually a new record high.
According to Ted Butler, “The concentrated short position of the eight largest traders set what appears to me to be an all-time record of 301,741 contracts (30.2 million oz.) held short. The concentrated short position in gold is more intense as of Dec 24 than it was back on September 24, when the overall commercial short position was larger."
What that means in real numbers is that the Big 8 traders are short just about 89 percent of the entire commercial net short position in gold.
The Fed’s Role In All Of This
The Fed kept the stock market and the economy in plus territory with a historic surge in the Fed's balance sheet.
Due to the Fed’s frenzied efforts, the money supply is in a ripping bull market of its own. The correlation between M2 (the main money supply metric) and the stock market recently has been remarkable.

Other central banks have joined in opening up the liquidity fire hose. It’s certainly been glorious for investor portfolios as 2019 winds down but a rational person with a knowledge of history must realize the eventual payback. There’s never been a time in the past when central bank debt monetization hasn’t ultimately led to an unhappy ending. (Sorry for the double negative but this is a topic that deserves serious negativity!) Yet, it seems like almost no one is thinking about the eventual agonizing hangover these days; rather, it’s all about the intoxicating near-term returns.
In the short-term, though, we could see a scenario that both John and another very wise man, David Rosenberg, anticipate. In their view, and I suspect they are right, we could have a recession in 2020. This becomes much more probable, in my opinion, should financial markets correct hard next year after this year’s historic and euphoric rally. It’s during the next recession that we are likely to see governments and central banks launch a coordinated blitz made up of additional trillions of pseudo-money (pseu-dough?) and unbridled spending (even more than we have today, which is expecting the truly surreal).

To quote David: “Remember that what follows this period of recessionary deflation will be MMT or some facsimile thereof. That is the ‘big bomb of debt monetization that ends up sending gold beyond a bull market towards a parabolic surge.” In other words, the next recession and/or bear market (believe me, dear EVA reader these are both certain to happen again) will set off the chain reaction that leads to the atomic event which creates the inflationary burst central banks so dearly desire. It’s likely to be a classic case of “Be careful what you wish for—you may get it good and hard.”
Another rich irony is that the central banks – the very perpetrators of this bizarre world in which we find ourselves, with all of its long-term inflationary implications – are in many cases buying gold in massive quantities. In 2018, central bank gold purchases were the highest in 50 years and 2019 might see a similar pace. Those based in the developing world and in Russia have been the most avid buyers. The former USSR now has almost 20% of its total foreign reserves in the yellow metal.

In China, however, that number is under 3%, implying that gold could become a far larger component. This is particularly true given the trade war with the US and China’s increasingly dim view of the dollar’s long-term purchasing power. (I can’t blame them, can you?)
To reiterate a theme from several recent EVAs, Evergreen believes (or at least it’s Chief Investment Officer does) that the next decade will be very different than the past for financial markets. The last 10 years have seen receding inflation and interest rates, both of which have been jet-fuel for bonds and equity sectors such as consumer staples/discretionary, healthcare, and, of course, tech. These all fall under what I would call the “paper asset’ category. * Conversely, the “hard asset” sectors and sub-sectors like energy producers/transporters, gold miners, copper producers, and agriculture nutrient companies have been the ultimate St. Bernards—i.e., huge dogs. (Real estate is one hard asset that has flourished in the last decade, after its disastrous collapse in 2008 and 2009. However, the high degree of leverage and inflated prices that characterize much of the property market today is worrisome.)
With most US portfolios heavily skewed toward the paper asset category and nearly devoid of hard assets, the stage is set for one of those paradigm shifts that is exceedingly painful for backward-looking, trend-following investors . As noted in last week’s EVA, that is everyone who is heavily involved with today’s most popular investment vehicles--US-focused stock index funds.

Per Jack Ma’s quote at the opening of this EVA,  when money is too abundant bad decisions are made and they typically involve the recent performance stars . There’s never been a time in American history when there has been this much excess liquidity greasing the markets for paper assets. If there was ever time to channel your inner contrarian, this is it—a.s.a.p. if not sooner!
This Is Where Your Focus Should Be This Year.

The only way that the blatant, in-your-face manipulation on Comex will come to an end is when there is a physical shortage of gold available for delivery. The central banks increasing interest in accumulating gold might just do the trick. Once the paper price is forced to catch up to the rising prices necessary to purchase actual physical gold (and silver), the banks that have shorted gold and silver to the moon will have to cover their shorts, and hopefully will lose their ass in the process. I believe the catalyst will be increased buying by the central banks.
Central banks have purchased significant amount of gold since 2008
By Omkar Godbole

Central banks have purchased 4,538 tonnes of gold since 2008 and have recovered more than half the amount they sold between 1965 and 2008, 

Jeroen Blokland, portfolio manager for the Robeco Multi-Asset funds, tweeted on Dec. 30.
The world official gold reserves fell from 38,347 tonnes in 1964 to 29,936 tonnes in 2008 and stood at 34,501 tonnes at the end of last month, according to the chart prepared by popular analyst Dan Popescu. 

The rise in the official gold reserves likely represents the speeding up of the de-dollarization process by Russia, China, and Europe, as noted by mises.org in September. 
Gold prices could benefit from continued de- dollarization over the long run. At press time, the yellow metal is trading at $1,520, representing an 18.66% yearly gain.
Bill Holter
The physical market cannot accommodate this anywhere near current pricing…!
Petrodollar Shock: Russia Could Invert Part Of Its National Wealth Fund In Gold
 December 29, 2019
In the past two years Russia has been quite explicit in its shifting preference between fiat, in the form of the world’s reserve currency, US Dollars and hard assets, i.e., gold: after liquidating almost all of its Treasury holdings in mid 2018, roughly around the time relations between the US and Russia hit rock bottom and started digging, Russian gold holdings continued to climb and just a few months back rose to a record, more than doubling in the past 4 years.

Russia produced over 185.1 tonnes of gold in the first six months of 2019, fresh data released by the country's finance ministry has revealed. The figures mark a 17.77 percent increase compared to the same period last year, when production reached 157.2 tonnes.
During the same period, finance ministry figures showed that silver production fell by 6.05 percent to 549.89 tonnes (down from 585.29 tonnes as of July of 2018).
With strong demand from investors driven by the state's eagerness to reduce dependence on the U.S. dollar, and with some of the largest estimated gold assets in the world, Russian gold producers have enjoyed a major boom in gold production in recent years.
According to central bank figures, the country's bullion stockpile topped 2,261 tonnes as of December 1, ranking fifth in the world behind the U.S., Germany Italy and France in total holdings. The bullion, estimated to be worth an estimated $110 billion, is part of Russia's growing $548.7 billion national reserve cushion.
This  brief  gold-related news item put in an appearance on the  sputniknews.com  Internet site back on December 22. Another link to it is  here .
Germans Rush to Buy Gold As Draft Bill Threatens to Restrict Purchases

Reports have emerged depicting long lines in front of a physical gold sales location in Germany, in view of pending legislation which would once again lower the anonymous purchase limit, this time from €10,000 to €2,000. The last drop happened in 2017 when the limit was set at €15,000. A draft bill from the German finance ministry is being pointed to as the reason for the change, which is scheduled to take effect from Jan. 10, 2020.
Germans Rush to Buy Gold
In a tweet posted Wednesday, precious metals consultant and analyst Dan Popescu shared a picture of a long line of people waiting in front of "Degussa store to buy gold in Köln." Popescu described, "From Jan. 1, 2020, the limit to buy gold anonymously drops from €10,000 down to €2,000. Only two years ago the limit was €15,000." One user posted his own photo and replied "This is me line at Degussa in 23rd. The employees said they haven't seen anything like it before." To give an idea of the relatively small amount of gold €2,000 (~$2,224) can buy, even a 50g gold bar is currently too expensive.
After the new legislation takes effect, reports from German media state that purchases of the precious metal over €2,000 will now require customer identification for buyers, including criminal background checks for businesses. The news outlet details:
If a dealer suspects, he must report his potential customer to the authorities. If a trader fails to adequately comply with these obligations, he may face severe fines.
If given final approval, the German draft bill designed to implement E.U. guidelines as laid out in the anti-money laundering directive AMLD5, will take effect on Jan. 10. This is the stated deadline for member states to implement legislation accommodative of the directive.
This  gold-related  news story showed up on the  activistpost.com  Internet site last Friday -- and the first reader through the door with it was Mike Watt. Another link to it is  here
Ed Steer

There is no indication that the big commercial shorts have covered any of their concentrated short positions – to the contrary, there is every indication the concentrated short positions have increased. This further sets the stage for a dramatic resolution of an existing market structure that must be resolved. Either the big commercial shorts will prevail in the end and succeed in driving prices lower and inducing massive managed money selling on lower prices or they won’t. The “or they won’t” part includes the big commercial shorts taking it on the chin and buying back short contracts at higher prices and big realized losses for the very first time.

While no one knows how this will turn out, it goes to the essence of what has driven gold and silver prices for decades, namely, the changes in futures positioning between the big commercials and the managed money traders on the COMEX. As I have long pointed out, the popularity of the COT report has grown remarkably in acceptance among those who analyze the markets for a very good reason – knowing who is buying and selling is invaluable information. And there can’t be much argument, up until now, how it always has turned out in the past, namely, with the big commercial shorts always winning or at least avoiding taking big realized losses.

In essence, the market structure premise that I and many others adhere to is based upon the commercials always prevailing in the end and the managed money traders always failing in the end, even when they have amassed big open profits (like now). Recently, I have taken pains to describe the current lopsided market structures in gold and silver as being extremely bearish or bearish in conventional historical terms; however, with some very strong doubts that it will turn out as it always has in the past with the big commercials prevailing. But there should be little doubt that among those who have come to embrace the COT market structure premise, the vast majority expect the ultimate resolution to result in lower prices in which the commercials escape big realized losses.
A shortage of physically deliverable gold is developing in London. This is exactly what I am talking about – the spark to rest control of the price from the Commercials on Comex and usher in an era where the marketplace decides the price, not some hot shot bankers and traders using highly leveraged paper contracts in NYC.
LeMetropole Café

Money Printing And Physical Demand Will Drive Gold Higher
Dave Kranzler

I’m growing more confident that we’re on the cusp of a big move higher in the precious metals sector because of the Fed’s massive money printing. Also, because the money printing and near zero interest rates are visibly not stimulating economic growth, we’re at the point at which unless the Fed continues increasing the amount of money it puts into the system, the melt-up in the stock market is completely unsustainable.

This is very similar to late 1999/early 2000 when Alan Greenspan tried to reverse his Fed’s massive money printing operation ahead of that notorious boogieman, the Y2k Bug. Not only did the tech stocks collapse then, but also the precious metals sector transitioned from the end of a 19-year bear market into the current secular bull market.

From what I’m hearing – and something that’s been referenced by Alasdair Macleod and Egon von Greyerz – a shortage of physically deliverable gold is developing in London. The action this past week fits the information. Given the size of the derivative short position (futures, LBMA forwards, leased gold, OTC derivatives, hypothecated gold) in London and New York, if obligated counterparties begin to default on delivery demands, the precious metals sector could become explosive next year.

The paper gold open interest continues to hit new all-time highs almost on a daily basis. The current open interest is 765.5k contracts. That’s 76 million ozs of paper gold. The quantity is a little less than double the average open interest on the Comex over the last 10 years. The amount of open interest has nearly doubled since the end of 2018, with record o/i levels almost every day since October 29th.

Never in the recent history (last 20 years) has the Comex sustained this many open interest hit record highs without being followed by a significant price takedown. Hidden factors seem to preventing this as evidenced by the inability of the Comex banks to implement a run-of-the-mill open interest liquidation price attack operation. These used to be good for over $100 of downside in a short period.

The Comex gold vaults reportedly hold 8.6 million ozs of gold. That figure has remained fairly constant with perhaps 10% variability up or down for at least the last 10 years. If just 10% of the open interest stands for delivery in any given month, there would be a short squeeze of Biblical proportions in the price of gold.

Notwithstanding that, the soaring open interest in paper gold in relation to the amount of underlying physical gold on the Comex is evidence of the degree of effort required for the banks to at least regulate the rate at which the gold price is rising.

Circling back to rumors of a growing shortage of physical gold in London – see this analysis for instance:   GATA  – it’s interesting to note that every attempt to push down the price of gold when the LBMA and Comex trading floors are open is quickly repudiated.
But there are other signs. I don’t monitor the LBMA a.m./p.m. fix on a daily basis, but I’m apprised of it when there’s unusual activity. It required 19 iterations for Friday’s operation to balance out heavy bidding with enough offerings. The price of gold rose from the start to the finish. I have never observed even close to this many iterations needed to establish a price-fix in either the a.m. or p.m. sessions.  Some entity wanted to buy a lot physical gold on Friday afternoon and it took time and effort to find enough offerings to fill the bids.
Of course, smart money has been quietly accumulating large positions in the speculative micro-cap junior exploration stocks for the last three years via private placements or direct investments in many of these companies. As well, there’s been a rise in gold and silver mining company M&A.
Just like in the early 2000’s, October 2008 and December 2015, we will wake up one day to the start of a long streak of incessant daily gold and silver price moves higher in the overnight market. Those who are not positioned ahead of this will find themselves running for the train as the doors close and it pulls out of the station.
Ed Steer
I mentioned about six months ago that it was my opinion that this precious metals price management scheme would end by the start of the new year and decade. That has obviously not come to pass. But with the DoJ [amongst others] continuing to breath down everyone's necks over at JPMorgan, one would think that this event should occur in the not-to-distant future.
And as Ted has also pointed out on too many occasions to count, JPMorgan's short positions in both gold and silver are about the lowest they've ever been -- and that's in the face of the record high commercial net short position in gold -- and close to a new record high Commercial net short position in silver.
And with at least 25 million ounces of gold -- and 900+ million troy ounces of silver squirreled away in various and sundry depositories in the U.S. and in the U.K...the potential for a double cross of the other Big 7 short holders [and every other short holder in the COMEX futures market] by JPMorgan, still looms large. But whether or not they'll pull the trigger, remains to be seen.
To give you some idea how extreme these concentrated short positions in gold and silver are...the total open interest in gold was 748,737 COMEX contracts in Monday's COT Report. The Big 8 traders are short 40.3 percent of that amount...301,741 contracts. The commercial net short position is 340,396 contracts. So doing the division... the Big 8 are short 88.6 percent of the entire commercial net short position in gold in the COMEX futures market..., which is beyond preposterous .
And if you think that's preposterous...take a look at silver...which is extreme beyond belief. In Monday's COT Report, the total open interest was reported as 223,046 COMEX contracts -- and the Big 8 traders were short 49.1 percent of that amount...109,515 contracts. The Commercial net short position in silver in that COT Report worked out to 85,327 contracts. Doing the division, that means that the  Big 8 traders are short 128.3 percent of the Commercial net short position in silver in the COMEX futures market  -- and yes, you read that right!
Yet the CFTC and the CME Group do nothing -- and the mining companies we all own stock in, just sit there in total silence and take what is being dished out to them. There's not a gonad amongst them. You couldn't make this stuff up!
Against these same Big 8 commercial traders stand the record net long positions of the Managed Money traders who were most reluctant to sell on the last engineered price decline that began at the beginning of September -- and are now going even more long during this recent rally over the last few weeks. This forces the Big 8 to go even more short to prevent prices from exploding higher.
And as Ted keeps mentioning over and over again...something has got to give at some point -- and he's absolutely correct in that belief.
But standing above all is the kingpin of the price management scheme...the capo di tutti i capiin every sense of the word -- and that is Jamie Dimon over at JPMorgan...at the ready to double cross all. As I said two paragraphs ago...you couldn't make this stuff up if you tried.
When this all blows sky high, there will someone to make a movie out of the book I just know that Ted will write at some point.
So based on all the information provided above, you can place your bets as to how things play out in the precious metals world in the weeks and months ahead.
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