BUY Gold and Silver to protect against INFLATION:

I would restate that asset classes like precious metals, base metals, agricultural commodities, stock
market and others; the performance of each asset classes will be directly linked to the movement of US
dollar (USD) currency. USD Index reached a high of 103 levels during first week of January’17 and also
declined during the year 2017 where every other asset classes performed with good returns
simultaneously. Along with mid-year volatility, mostly asset classes like gold, silver, base metals, crude
oil, emerging stock markets and currencies; remained with upward bias in the range of +/- 5% on annual
basis except base metals which did very well. Stock Markets in USA remained good whereas few
Emerging stock markets performed very well by the year end of 2017. Hard and soft commodities are
strongly correlated to money supply by way of money printing is adopted by most of the nations in the
world and Quantitative easing (by way of bond buying program adopted by US Government) which
promised a strong price gain in the year 2017. USD Index is still under pressure from long term point of
view but in recent past, it topped at 103 (early of January’17) and fell to 89 (as on 25th January 2018).
USD Index should break the crucial support level of 87 before it could stabilize and at the same time
Gold and other precious metals should start an upward rally and should reach historic high in coming
years. Crypto currency like BITCOIN is also special feature in this article where it can be compared to
Tulip Bubble and NASDAQ Bubble, and it is the classic example for the world in current scenario how
things can be still managed by the knowledge resourced human beings.

FUNDAMENTALS OF PRECIOUS METALS

One way or the other, US government and other developed nations are increasing money supply by the
means of quantitative easing and money printing which leads to inflation across the world. With no
choice left for the investors and the money managers, they shall shift to invest in assets like
commodities and precious metals. Since last 11 months USD Index did not perform well due to money
flowing into hard assets. Eventually, increase of money supply by US government and inherit weakness
of US economy by way of huge debts cannot be neglected, hence the tide would once again turn
towards weakness of USD index and higher prices of other assets classes like stock markets,
commodities and precious metals. There is approximately amount of USD 21 trillion of debt on US
Government with increasing trade deficit where recently Mr. Mnuchin, Secretary from US Treasury
announced that US favors weak US Dollar thereby indicating low confidence in foreign investor to invest
in USA, especially Treasury Bonds.
One can imagine a situation where:
 21 Trillion US Dollar Debt on US Government
 Weakening US Dollar
 8400 tonnes Gold Reserve with USA
 Increasing fiscal deficit
 Quantitative Easing by way of Bond buying, hence increasing money supply
 Money supply increase resulting inflation
Value of Gold has to go up at some point as every government is trying to keep their currency weak so
that they do not suffer trade imbalance so the opportunity is looking at an alternative fiat currency.
BITCOIN is on such example where the money poured into big time and historical bubble is created.
Such digital currency does not have hard asset to support the price or any kind of benchmark supported
by government agencies, so why one should be invested in such currency format? This shows precious
metal prices are kept artificially low. There shall be domino effect of bubble burst in US Treasury Bonds
and Crypto Currency, simultaneously weakening US$, that money will flow into hard assets like Crude
Oil, Gold, Silver, Copper, Steel and such other commodities. Gold and Silver are such precious metals
where historically at the times when there is no confidence in the economy, they are the saviors of
wealth. Once everybody starts realizing the importance of precious metals to protect the wealth from
depletion due to imminent rising inflation, that will be the time Gold and Silver will explode while we
shall experience the gigantic US debt collapse may be before US elections by 2020.

USD index face a strong technical support at 87 levels thereafter at 73 levels. It is very likely that USD
index could cross 87 levels downwards before settling at tad below 87 levels where it could rest for an
intermediate haul. Recently, US Congress passed a revised tax system which shall increase the deficit of
US but at the same time boosting the corporate profits, still it is the perception of the bulls and the
bears how to look at it, but currently the sentiment is in favor of the bulls. Problem still persists and it is
not yet addressed that how the governments of developed nations would reduce the huge debt, so
turmoil in future is obvious, hence rally in precious metals and commodities. Make hay while the sun
shines because the new bubble to unfold and burst shall take 3 more years (say by 2020) as the 1st
intermediate upward got completed along with the 2nd wave of correction in crude oil, base metals and
such other commodities where at the same time precious metals like Gold, Silver and others have not
yet participated with any kind of up move.

The following chart shows that gold held by each country and the total value of all gold ever mined
would exceed US$7.5 trillion at US$ 1250 per troy ounce and using World Gold Council (WGC) 2017
estimates. Percentage as gold share of forex reserves held by European countries and USA is very high
as compared to other nations in the world with an exception of Kazakhstan. It is very important to
understand that why nations across the world do not understand the importance of gold as reserve as
compared to USA and few European nations. Large part of debt can be paid by offloading gold at
valuations of ruling market price and it is a benchmark for some nations with high gold reserve to
receive higher debts by borrowing from others as confidence of debt repayment remains at all times.
China’s investment in US Treasury Bond is more than US$ 1.25 trillion where weak USD will erode the
wealth of investing nations, individuals and corporations. Recently China is exploring to park the surplus
USD into gold and there is enough evidence that gold reserves of China has doubled in last decade.
China lifted part of the veil over its gold reserves, breaking a six-year silence to reveal holdings of 1,658
tons as on June 2015 against the previously reported figure of 1,054 tons. China also moved to a market
valuation of gold, although this makes up only 2.1% of total Chinese international reserves (against gold
reserve shares of 60% to 70% held by USA and European countries). If China wishes to mount a genuine
long-term challenge to American monetary dominance, it is conceivable that China in coming years
could mount a more spectacular action to close the gold gap with the largest holders, either by taking
more Chinese-controlled production into its reserves, or by arranging some form of large-scale gold
purchase from international gold holders, private or official.
Investors across the world are aware of the situation where gold and other precious metals shall be the
only alternative to hedge against inflation and opportunity to safeguard themselves from realizing the
avalanche coming by the way of huge debt bubble burst of US Treasury.

Top 20 according to World Gold Council's latest rankings (as on December 2017)

Rank Country/ Organization Gold in tonnes Gold's share of forex reserves

1 United States 8,133.5 74.9%

2 Germany 3,373.6 68.9%

3International Monetary Fund 2,814.0 N/A

4 Italy 2,451.8 67.3%

5 France 2,435.9 64.9%

6 China 1,842.6 2.3%

7 Russia 1,838.2 17.7%

8 Switzerland 1,040.0 5.3%

9 Japan 765.2 2.5%

10 Netherlands 612.5 66.3%

11 India 557.8 5.7%

12 Turkey 525.8 18.3%

13 European Central Bank 504.8 29.3%

14 Taiwan 423.6 3.7%

15 Portugal 382.5 63.7%

16 Saudi Arabia 322.9 2.6%

17 United Kingdom 310.3 8.5%

18 Kazakhstan 291.9 37.5%

19 Lebanon 286.8 20.5%

20 Spain 281.6 17.0%

VEHICLE TO INVEST IN GOLD
If one can understand to invest in gold and silver then how to invest? Exchange Traded Fund (ETF),
physical metal and listed mining companies on stock exchanges are the ways to invest in metals.
Physical holding of precious metals is one way of investing but there is risk of losing it (robbery, misplace
and other ways). Investing in ETF is also one of the ways to invest in Gold and Silver. With high risk and
high return is investing in gold and silver mining companies listed on stock exchanges. Further pruning it
down, investment in streaming companies like Franco Nevada, Royal Gold Corp and Wheaton Precious
Metals, is far better to invest because these companies finance mining companies by entering into
contract to buy all mining of Gold and Silver at lower price which does not benefit mining companies but
get finance to keep themselves afloat.

DIGITAL CURRENCY
THE new digital currency called as Crypto Currency like BITCOIN exists since 2009 where the mechanism
of supply and demand is still a known knowledge to few only or term like miner. The term “miner” is an
automated computerized system where at various stages of process from beginning to end has to be
auto completed and at the end or completion of fool proof system, it has to be self-explanatory with
trusted system.
Block-chain is an automated program which executes the derived decision with logic at the happening
of the event but with an essence of execution in shortest possible time. The mechanism itself is self-
audit system where there should not be abuse of double spending of same digital money (crypto
currency) and to avoid the need for a trusted third party to validate transactions. Instead, transactions
are recorded in a public ledger called a blockchain. A transaction is considered valid when it is included
in the block chain that contains the programmed work with logic of fool proof system. This makes
double-spending impossibly difficult and more infeasible as the size of the overall network grows. There
is always a probability of government intervention and making Block chain a controlled system where
once again the essence of good spirit of self-governing independent body (promoter) may be lost just
like money printing policy which favors the few rich people those who are encircling the decision
makers.
Block time
The block time is the average time it takes for the network to generate one extra block in the
blockchain. Some blockchains create a new block as frequently as every five seconds. By the time of
block completion, the included data becomes verifiable. In crypto currency, this is practically when the
money transaction takes place, so a shorter block time means faster transactions. The block time
for ether (Ethereum) is set to between 14 and 15 seconds, while for bitcoin it is 10 minutes.

BITCOIN
The concentration is on price inflation and not to know the fundamental of such digital money called as
BITCOIN as a new asset class. BITCOIN is brand name of digital money and nothing else and it has the
same foundation of blockchain as explained above, in fact the first to launch the digital money or crypto
currency. Bitcoin was hovering around USD 1000 during 1st quarter of 2017 thereafter it rallied to USD
19200 in the middle of December 2017 resulting into 20 times return within 9 months which is a bubble
in crypto currency by any standards. There is a mad rush to buy crypto currency as there is word of
mouth as well as TV channel publicity and people all over the world are hoarding to it. Price inflation by
20 times and fall upto 50% (USD 9200 as on 17th January 2017) from its peak is itself an indication of
bubble burst but difficult to accept in reality as irrational exuberance shall never let it believe until the
price crashes to further low when investors are left “stranded decision-less”. It is very strongly
recommended to sell Bitcoin with a target to buy at USD 6300 with a speculative intention. 6300 is a
congestion zone before the rally started in 2017 and it is half of 12600 which is a resistance level as it
was a low formed on first fall from 19200. On the charts, it is showing a classic example of bear pattern
developing where prices are following the new lows and lower high pattern. USD 12600 has become a
resistant level with new low of USD 9200 and closing low of 10772 (as on 22nd January 2017). It is a
biggest bubble ever and shall be a case study in college syllabus how irrational exuberance persists even
after learning from the past as behavioral pattern of human psychology never change, where it can be
seen from economics as well as medical perspective.

GOLD AND STOCK MARKETS

The upward bias performance in emerging stock markets since more than one year, gave a foundation
of stronger rally ahead. From 1st quarter of the year 2016 to the end of 2017, the performance of most
of the stock markets remained upwards with least volatility as well as for base metals and crude oil.
After the long up move with periodic corrections for 12 to 18 months, majority of stock markets
remained sideways with upward bias since middle of 2016. The year 2017 was thoroughly sideways for
Gold, Silver and other precious metals. Gold looks like completing its final time-correction and shall be
ready for strongest historical rally which is justified to back the currencies in the world especially
Germany and USA, where the worth of currency shall be backed by strong Gold value and all the
investors and hedge funds would have no choice but to invest in gold. Correction in Gold price from
historical peak of USD 1940 in 2011, after 9 year bull rally from the level of 280, has completed its price
and time correction. Base metals shall move upward gradually in comparison to precious metals so
would be emerging stock markets. US treasury bonds at the time of low interest rates have gone to
historical low levels where bubble can burst when there shall be no confidence in powerful currencies as
well as increase of interest rates from mid-2018 as indicated by US Fed Reserve. Interest rates in US are
kept artificially low as well as increase in money supply which shall help inflation to go up by the means
of higher commodity prices. US government would be left with no choice but to increase interest rates
for curbing inflation which may happen in coming months.

The financial year 2018, shall be flushed with money and limited opportunities to invest, which would
result into inflating commodity prices, eventually leading to hyper-inflation in most of the economies of
the world. Situation will be vulnerable where adverse news shall keep on flowing during the year as well
as bull-run in commodities. Coming 2 years would bring more political crisis, geo-political problems
would arise, change to high interest rates, collapse of US treasury bonds, nation debt crisis, may be war
and any other new crisis in a new form shall emerge where the time shall tell. In scenario like this once
again safe haven would be Gold, other physical hard assets and commodity stocks.

By Ankur Sharda released on January 26, 2018