The Fed Just Quietly Backstopped Japan, and Gold Noticed | This Week In Focus

All right, what a week. Gold ran about $300 in just a matter of days. Copper set a new record in New York and the reason for both had almost nothing to do with anyone wanting more of them. Now this week, Congo banned exports of copper and cobalt concentrate. A quarter of the world's sulfuric acid supply went missing. And the biggest underground copper mine on earth paused its expansion. Meanwhile, China's largest gold miner walked away from a $4 billion takeover and the Federal Reserve opened a new window that lets Japan borrow dollars against the American debt it already owns. Now there's also a trillion dollars of American gold on the government's books at $42 an ounce. We asked an economic historian who collects when a government reprices its gold and the answer was that the people holding the coins don't. Three guests this week, a historian, a technical trader, and a man who owns 168 mining companies and refused to name his top three. Okay, welcome back. I'm Jerry Safra. Now gold started this run near $4,000. It printed 4,305 on Kitco's spot data, the highest since June, and then finished the session lower. Keep the scale in mind, though. That's the record, I guess, was January 28th, about $5,600 an ounce. So even after a $300 week, gold is a quarter below where it was in the winter. Silver's worse. It touched 63, went the other way, and it's still about half of its own record. Now the move that mattered most this week didn't happen in a mine or on an exchange. Japan's finance ministry said it will use a Federal Reserve facility called the FEMA repo to fund its currency interventions. And here's why that matters. Now Japan owns about a trillion dollars of American government debt. If Tokyo sells those bonds to raise dollars, U.S. interest rates go up. This lets Japan pledge the bonds instead of borrowing against them, and nothing gets sold. Now Treasury Secretary Scott Besson said Washington would consider making the facility bigger. It caps at $60 billion per institution. And Florian Grumus runs Midas Touch Consulting, and he reads the chart for a living. He'd been sitting on cash since January. He hadn't planned to lead with this. It was the first thing out of his mouth. Yes. I think in the, I mean, basically in the last few days, I changed my allocation. I've been very cautious for the last two, three months, basically since the start of the Iran crisis, Iran war end of February. And we've been also getting very bearish in late January already on the metals. But I think, I mean, not only that I was expecting a summer rally at some point for the metals, and it seems it's starting today, but we have also seen a big move by the Fed in the last few days. And I think that changes everything again. So basically what we all are talking about for years and decades here it's back to money printing. And the reason basically is that the Fed has been building or created a pressure release valve so that Japan can defend its currency without destroying the U.S. markets, without basically pushing the interest rates for U.S. bonds higher. So I think that's been a big important move. Maybe not as obvious for many people, but I think that's once again flooding the market with fresh liquidity. And hence, yeah, I needed to reduce my cash position dramatically. All right. So back to money printing, that's his phrase, not ours. And of course he compared the facility to the swap lines used in the Credit Suisse rescue and called it a liquidity event that's also inflationary. Now there's an older version of this story and it runs through a fund created back in 1934. Earlier this week, the United States joined Japan in buying the yen. The first American intervention to strengthen that currency since 1998. Now the New York Fed paid for it by selling euros out of something called the Exchange Stabilization Fund. And that fund was capitalized with $2 billion, 1934 dollars, I should say. Now out of the profit that the Treasury booked when it repriced gold from $20 $67 to $35. So the money Washington used to defend the yen this week traces back to a gold re-evaluation 92 years ago. Now the number I wanted to flag at the top, the United States holds about 261.5 million ounces of gold, roughly 8,100 tons. And on the federal books, it's carried at $42.22 an ounce, a price fix in the law in 1973. Now that values all of America's gold, by the government's own accounting at least, at about $11 billion. At the market price, it's north of a trillion. Philip Magnus is an economic historian at the Independent Institute and I asked him why that number is still there. Yeah, this is one of the great mysteries that comes out of the Nixon era. It's really another hodgepodge of policies. So Nixon severs the gold link. This is August of 1971 with the shock, but he's still trying to reconstitute and preserve this fixed exchange rate system under Bretton Woods. So he needed a new number to put on the books. And that's effectively what happened. So he signed a couple of international agreements. There was a successor to the Nixon shock called the Smithsonian Accord, and it brought the Western European powers into an agreement that yes, they'd maintain their exchange rates with the dollar at this new, almost $43 an ounce, revalued accounting statement of gold. But they also discovered that the United States, even under this new situation, was effectively printing money through the Federal Reserve System to pay off growing deficits, budgetary pressures, all sorts of things like that, backdoor inflation effectively by printing money. Well, what does this do? It maintains a strain on the official accounting number that's on paper of the value of gold versus the dollar. And the answer to that, basically, they stumble backward into is to complete severance of that link. And part of it comes about. So the European powers start to call Nixon's bluff. They say, we're no longer going to participate in this fixed exchange rate system that you're essentially manipulating behind the scenes and aren't even allowing us to exchange dollars for gold at any more because you closed the window. So it's in around February and March of 1973, the European powers start to balk and they draw out of the Smithsonian Agreement. So there's a period of monetary chaos that really isn't settled until 1976. There's a formal accord through the International Monetary Fund where they effectively suspend the obligations of the old Bretton Woods system and allow instead currencies to float against each other on the open market. And that's effectively what we've had ever since. The idea here being that the individual central bank decisions of each country affect how much currency it issues in the circulation, what type of open market operations it engages with. Whatever that happens to be, that particular currency unit nonetheless floats on an international exchange relative to all other currency units and suddenly starts becoming kind of like its own price unto itself through competitive pressures of a marketplace. And that's what we've been operating under ever since. And on who collects if it's ever repriced, January 1934, the official price goes from $20.67 to $35. The Treasury books a gain of roughly $2.8 billion. Americans already handed in theirs at the old number. The gain went to the government. There is a live version of this and it's modest. A House bill introduced in May orders Treasury and Commerce to study whether more Bitcoin could be bought without new taxes or new borrowing. One mechanism it names for the study is revaluing the gold certificates held by the Federal Reserve Banks. Now it authorizes nothing. It orders a study. The idea surfaces every few years and it doesn't advance. And the question that fills our comments every single week. Yeah, and I actually don't know the exact final last date of an audit other than there has not been one in a long time. There was some talk, especially in the early 2010s right after the financial crisis, some bills in Congress that suggested and tried to nudge the administration into doing an actual audit of what exists in Fort Knox. Now Senator Rand Paul from Kentucky was a major champion of this, as was his father, Ron Paul, when he was in Congress a decade earlier. They were always going, audit the Federal Reserve, audit Fort Knox, see what we actually hold to see if it's still there. And although I'm not going to buy into conspiracy theories that it's been secretly moved to some other vault or sold off or something over the years, the fact that there's intense political resistance to this, I think is symptomatic of a bigger problem. And that is that the Federal Reserve knows that its books are full of accounting trickery, knows that it's exceeded its legislative mandate in terms of original powers and has engaged in all sorts of market manipulation. And any type of audit would reveal some of the, it's like peeking behind the curtains and you see some really fishy tricks that we didn't really understand or know that our Federal Reserve was doing because it has invented powers for itself over the arc of its history. This is another thing with central banks. So they did this during the 1930s. You know, even though they are part of the reason we fall into the Great Depression in 1929, in the 1930s, the Federal Reserve uses their own self-created emergency to expand their power. They do that again in the 1970s after Nixon severs the gold window. They do it again during the financial crisis in 2008, 2009, taking on new tools that are supposedly designed to help weather a crisis that they in part created. And you know, whatever happens after every time of these crises, it's like a one-way ratchet. The new power claimed by the Federal Reserve never goes away and they still retain it a decade later and are still engaging in tools that were invented in 2009 as temporary emergency measures. They're now a permanent feature of how the Federal Reserve maintains its balance sheet. Now, one number to sit beside that. Global debt hit a record $353 trillion at the end of the March, according to the Institute of International Finance. Now, the metal that actually made history, copper, for September delivery touched $6.70 a pound on the COMEX, a new all-time high in the United States, up about 17% in New York this year and more than 50% over 12 months. Then look at what happened to supply. All of this inside just one week. Congo banned exports of copper and cobalt concentrate, effective immediately. That's from a government order Reuters reviewed, fourth attempt since 2013. And in Chile, Codalco paused expansion work at the El Teniente, the largest underground copper mine in the world, after six months of study found that the seismic risks it says it had never monitored before. Its chairman has said that the company's production target isn't reachable in four to five years. And then there's the chemistry. Disruption in the Gulf has knocked out about half of seaborne sulfur shipments, and China has halted its own sulfuric exports until December. Now, together, close a quarter of the world's supply. A new study this week from Gem Mining Consulting puts more than 15% of global copper production on leach acid, or sorry, excuse me, on acid leach processing. Now their point is the one worth keeping. The next shortage in critical minerals is more likely to start in a region tank or a port than inside of a mine. And I guess also two deals moved in opposite directions. Xinjian gold walked away from a $3.9 billion takeover of Canada's allied gold after Chinese regulators wouldn't sign off and took about 9% instead. Bloomberg's read is that Beijing is stepping back from larger deals after 20 years is the most inquisitive buyer in mining. And Equinox Gold went the other way and completed its combination with Orla about $5.1 billion. Pierre Lassonde among the backers. Anglo and Tech are still working towards theirs near $53 billion. Now look at what those are though. Producers buying producers. Now Don Durrett tracks about 870 gold and silver companies in a database he builds himself and he owns 168 of them. Now he's been buying since 2004. He owned allied gold and sold it before that deal collapsed because he thought an all cash bid at 30% premium gave the company away and he hasn't gone back in. He also made an observation. You can check silver is traded above $50 for a year and by his count, not one silver producer has ever been bought in that time. Only producers, which sets us up for a question I wasn't expecting, or I guess an answer I wasn't expecting, asked what kills a developmental kind of stage miner and you'll hear permitting, cost overruns, or the mind that never gets financed. That's not his answer. They're, you know, they all bite you, right? You don't know which one's going to bite you. But the one, the number one one that bites you is they sell. They tell you they're not going to sell and they do anyway. Right. That's the number one is they sell. And when they do sell, your upside just goes bye bye. You get the average of their upside and the company that buys you, depending on the size of the company that buys you out. But it's usually that one. It's usually they're so cheap that they get acquired and they get taken out. Like one of the ones I've been looking at is I looked at McFarland Lake was basically nobody even knew who's McFarland Lake. So I usually find these stocks early because I have my website. I have about 3,400 subscribers and I have a forum on there. And so any new company that shows up, somebody posted in the forum. So they post in the forum and I add it to the database. And when I add it to, a lot of times I'll add these stocks to the database and like really early, nobody's even heard about that. McFarland Lake, about 8 million ounces. And they were valued, I think they're like $50 million and I also have a Saturday night podcast and I told everybody, okay, McFarland Lake, this thing looks great, guys. And then Michael Gentile got involved in the thing, it's really starting to rip. But I think McFarland Lake, the only thing I'm worried about McFarland Lake is they're going to sell. That's my risk. But if they build it, the free cash flow, that thing's going to absolutely rip. So that's my number one worry about McFarland Lake. And I worry about other companies. Abra Silver is another one. I've always said, I think Abra is going to sell. But I want to own these stocks because whoever buys them, if somebody does buy McFarland and somebody does buy Abra, I want to own the project. And so sometimes New Pacific, that's another one, I don't think they'll build it. But they have two beautiful projects, two beautiful silver projects. But whoever buys it, I want to own the project. So sometimes I'll buy these even though I'm worried about them getting taken out. And I always look for insiders of about 25%. If it's below 25%, so sometimes if a company has very low insiders, 50% or less, I'll avoid it because I just know they're going to sell. And even if they have 25%, I think McFarland Lake is around 25, 30, they still can sell. They don't necessarily have to, but they can. And sometimes they do, even with significant insiders. But I avoid these development plays that have very low insiders. I use a checklist and there's like six items on my checklist. And I want companies to check all the boxes and insiders is one of those checks. All right, so they sell. The company gets bought and the upside you were waiting for goes to the buyer. Now his screen for it is inside ownership. He wants about 25%. Below the 15, he assumes they're going. Now he also wrote this week that leg two of this bull market might have already started. In the same piece, he wrote that he expects one more correction below 4,000 before November. So I asked him which. I think there's a dip coming still. I want to be wrong. And so the first leg started last year in August, like right around this time. And it went all the way until January. So we went to $5,600 gold and $120 silver. And that was leg one. And now we had a correction out of leg one. And now we're going to get, I firmly believe we will get a leg two and a leg three, possibly a leg four. So the leg two we're waiting for. And so what is a leg two? Leg two is basically a higher high. So we get a new all time high in both gold and silver. And so has it started yet? The reason why I don't think it has is because of the S&P 500. We're at 7,700. I do not believe that this bull market can continue much longer. And so I actually think that we're going to correct before the midterms, before November. We'll see what happens in August here. A lot of people think that the S&P is going to go to 8,000 here in August. And that's a possibility. But then it has to go through September as well. These are the two are the weaker months seasonality wise for the S&P. So the reason why I say that this leg might not have it started yet. In other words, people could be catching a falling knife here, buying here at 4,100. And then we turn around and we go below 4,000. 3,750 is actually my target for the correction. That would be a pretty steep correction here from 4,200. And so I actually think that that's in play here. And I want to be wrong. You know, I would love if leg two has started here and we're not going to go back below. We're not going to go back and retest 4,000, which is a possibility. I think it's about 50, 50 coin flip here if we retest 4,000 or if this is a breakout. But it all depends on the S&P and the AI trade, how strong that can remain. But I think the AI trade is starting to show some kinks in the armor, if you will. If you look what's going on with the Cosby, you know, every day up 5%, down 5%. That's telling you that it is absolutely topping here. Plus, the Cosby was at 9,000. And now it's in the mid-6,000s. It was down 20% in July. So can the Cosby get back on its feet? Is the Cosby kind of front running the S&P? I think that's a possibility here. All right. So a coin flip in his words, $3,750 on gold if the correction comes and he'd rather be wrong. Grumus went the other way and put numbers on it. $4,500 gold and $70 silver this summer. Bitcoin bottoming near $60,000. Then a ceiling most bulls won't really say out loud. No new record in gold this year. And here's something worth putting side by side. Both of our market guests were asked about silver. And they're three times apart. Grumus trades it. He has $70 silver for this summer. Durit doesn't trade it at all. He uses $200 silver to value the mining companies two, three years out. Silver finishes the week near $61. Same metal, same week, different jobs. One, I guess, is calling the price. Now, the other is running on assumption through a spreadsheet. Another is being careless. And neither number means what the other one means. It's worth remembering the next time somebody quotes you a target. Now, we promised you three names. Durit tracks 870 companies, owns 168. So I asked him to strip down to three. He wouldn't. And the reason, I guess, is kind of the useful part. There's no way I'm doing three. So the one thing that I try to do is I try not to care about stocks. I talk about the Mormons being married to them. But stocks are going to bite you. And you can't care. You got to take the emotion out of it. And so if you're only going to do three stocks, just do ETFs. So for me, and I talked about this in my master class, if you have the personality to be a trader, then you can do 10 to 30 stocks. But if you do 10, I think 5 to 10 is really, really difficult to do. But if you do 10 to 30, you have to trade. You have no choice because of the volatility in these miners. You just don't know. There's so many things that can go wrong. You can have a roadblock. You can have a flood. You can have a strike. You can have so many things. You can have a piece of equipment break. You can have mudslides or slides. So many things can go wrong. So you don't know what's going to bite you. So if you only have 10 to 30, you're going to have high allocations. And so if you have high allocations, you're going to need to be a trader. You're going to have to be proactive. I don't have that personality. If you have a personality, it's kind of 10 to 30. I believe that most people don't really have a trader mentality. Plus, it's a slippery slope. If you start trading, you're going to start thinking you're good at it. Nobody's good at trading. So you start moving your money here, moving it here, trying to pick winners. I don't try to pick winners. I try to pick potential winners. So for me, I think 40 to 80 is a really good number. That's too many. The only reason I have 168 is because I've been doing it for 20 years. But I think 40 to 80, 60 is a really good number. And you can find 60 really good stocks, I believe, and kind of take the emotions out of it, take the risk away, lower the risk. So instead of owning three, go for this. And the thing is that now, OK, I'm going to do, say, 40 to 60, 40 to 80. How am I going to build a portfolio? And I said you can avoid explorers completely, right? So you're going to probably load up. And then you're going to do some ETFs. You're going to do some majors. You're going to do some mid-tiers. You're going to do some developers. And the developers, basically, that's where you're going to go for your alpha. And there's three groups of developers. The first one is your near-term producers. The next one is going to be your companies that are going to get into construction within three years. And the third group is the ones that's beyond that. And you're going to want to allocate more to the near-term producers. And so you allocate correctly and basically build a nice portfolio and then just sit back and ride the train to the top of the mountain. So if you only want to buy three names, buy an ETF. That's his answer. And he owns seven of them himself. And at his number, the silver ETFs print as a five-bagger and the gold ETFs, the gold miner ETF, as a four. 10 to 30 holdings make you a trader, whether you're meant to be one or not, because the volatility forces your hand. 40 to 80 is his number. And on trading itself, he was blunt. Nobody is good at it, he said. I mean, he wants also to be clear about what thinks he's doing. Not investing, he says he's speculating, betting on two things at once, that gold goes up and that the American economy runs into trouble. He says you need both, which is why he kind of describes the business. It's a way of worth hearing. I love the numbers. Thank you so much. That was beautiful. That showed how investors are only focusing on the near-term. They missed, oh my God, let's sell this thing, right? What people don't understand, so gold and silver mining stocks, it's complicated, it's complex. It takes about two years, in my opinion, to really understand the sector. And it's not a normal business. And so it takes a while to wrap your head around how this thing actually works. First of all, they don't have any customers. I mean, how many businesses don't have customers? They have buyers. They can sell to whoever they want to sell to, right? And the other thing that's crazy about the business, they don't have competitors. Barrick and Newmont don't compete against each other. They compete against themselves, what their margins are, and then what mines they can find, what mines they can acquire. It's a weird business. Plus, their mines are constantly being depleted and they got to go replace them. It's a terrible business on top of it. But the one thing that's beautiful about it, we're speculating, makes it so good. Number one is the foundation of what they sell is money, right? Money is the anchor. Gold is the anchor, literally the anchor of the economy. You have the bond market, the bond market, US bond market, because US economy is the largest economy in the world. And without the bond market, without the ability to borrow $2 trillion a year, or maybe three or $4 trillion a year, the bond market burns down. The gold market doesn't burn down. The gold market, the only thing that can really hurt the gold market is a strong economy where people don't say, I don't need no stinking gold. But gold is literally the anchor. So you have these gold and silver miners that are over here making, they're basically mining money, right? And as long as the price of gold goes up and they have margins, it's like printing money. Nobody really grasps this. But if you really holistically understand that gold's going to be the winner here because the US has already entered a doom loop, it's an unbelievable situation here for the gold and silver mining space. This is probably the trade of a lifetime, trade of a generation. I've been talking about this. I wrote the first, my book came out, I think, in 2011. I talk about this is a trade of the generation. For me, it's a trade. It's the same thing that Michael Burry did from 2005 to 2007, but his was shorter. His was like three years long, but it was a trade. He went all in. He was a value investor. He sold all of his value stocks and he went into mortgage-backed securities. And I forget how much he put in, 100 million or something, but he put everything in and all his eggs in one basket for basically, and he said it in the movie, The Big Short, he said, it's a certainty. And I feel the same way, but it's about timing. In other words, gold is going to be the winner. The question is when. This is the reason why I own 168 stocks and try to take the motion out of it, because I don't know how long it's going to take. But now we're getting close. I've been waiting 20 years for this, but now we're getting close. All right. No customers, no competitors. Barrick, Newmont don't compete with each other. They compete with themselves. Mines deplete and have to be replaced. By his description, a terrible business, except the thing they sell is money. And finally, from Grumus on what he's staying away from. Well, shorting, generally speaking. I'm not a fan of shorting anyway, and it's always tempting. And of course, as a trader, it's tempting if you see a big move in gold like today, and maybe you even missed it, then you're tempted to short. But that's usually the anger trade and the trade that comes because you missed it. So I'm avoiding shorting, generally speaking, because they're increasing the money supply all the time. So you're betting against the system, basically. I'd rather stay at the sidelines and do nothing than shorting. I avoid the semiconductors still, even though it looks like they can have a bounce now. I avoid AI stocks currently. And I also avoid any more speculative positions in the crypto world, because I still think this turning point takes more time. Yeah, my eyes right now are back on the metals and on the juniors. I've been taking a break basically for the last six months, and I think it's time to be really invested and bullish again. All right. Dates worth kind of marking down here. The U.S. employment report is obviously due on Friday. Colombia swears in a new president replacing an administration that had banned new hydrocarbon exploration. The Colombian Mining Association says that between 3.6 and 4 billion dollars of mining investment could follow over the next four years. Meanwhile, Washington is holding a roundtable with mining executives on critical minerals. And on this trade up, Hormuz, the United States, Iran and Oman are reported to be preparing a 60-day shipment arrangement. Talks are expected to resume on Monday. And China's suspension of sulfuric acid exports runs into December, by the way. Also, the Federal Reserve does not meet in August. The next decision comes in September. Now, that's the week gold higher and still a long way from its record. Copper, though, at a new record and short of the chemicals it takes to produce it. Meanwhile, trillion dollars of gold carried on the books at forty two dollars an ounce and two men who own this metal for a living three times apart on where silver goes. So here's my question. And I do read the comments. Should the United States carry its gold at the market price? What would that do? Or obviously leave it here at forty two. Twenty two. And tell me below. Full interviews with Phil Magnus, Florian Grumus and Don Durette are all on this channel. Subscribe so you don't miss what's next. I'm Jeremy Saffron. We'll see you next week. This has been this week in focus for Kiko News.