Swiss Voters Reject Gold Referendum; India Ends Restrictions on Gold Imports

It was reported by Reuters this morning (Sunday) that the proposal stipulating the Swiss National Bank (SNB) hold at least 20 percent of its balance sheet in gold was voted down, according to projections by Swiss television SRF as of 1:00 p.m. local time. The initiative “Save Our Swiss Gold” also would have prohibited the SNB from ever selling any of its bullion and required the 30 percent currently stored in Canada and the U.K. to be repatriated. Polls, including one by gfs.bern, had correctly forecast the Initiative’s rejection.

However, in a surprise move mid-day on Friday, India announced that it has scrapped a rule mandating traders to export 20 percent of all gold imported into the country. This action is expected to cut smuggling and raise legal shipments of gold into the world's second-biggest consumer of the metal after China. India had introduced the so-called 80:20 import rule tying imports to exports of jewelry last year to bring down inbound shipments and narrow the current account deficit that had hit a record.

"It has been decided by the Government of India to withdraw the 20:80 scheme and restrictions placed on import of gold," the Reserve Bank of India (RBI) said on Friday, without giving a reason for the change in the rule. 

Traders said before the decision on Friday that India's gold imports could climb to around 100 tonnes for a third straight month in November as dealers bought heavily ahead of the wedding season.

October shipments to India, the world's No.2 gold consumer behind China, jumped to about 150 tonnes from less less than 25 tonnes a year earlier and 143 tonnes in September, according to India's Finance Ministry. The October jump follows a 450 percent increase in September imports to $3.75 billion.

The rejection of the Swiss Gold Referendum is clearly a blow to gold bulls. However, since this negative result was widely expected, perhaps India's bullish surprise announcement late Friday may be at least partially offsetting. It's not hard to imagine that if the Swiss Gold Referendum had passed, the Swiss National Bank would have found a way to circumvent the Referendum's constraints by using the derivatives market in some creative way. India's announcement may actually be more bullish for gold when all the dust settles early this coming week. Last year, India imported 825 tonnes of gold. In the January-September period, gold imports stood at 525 tonnes. With almost 300 tonnes imported in October and November, total gold imports for all of 2014 will almost certainly exceed last year's total!

Postscript (Sunday 5:15 PM CT): In the futures market, Gold just opened down about $8.00/oz. If you are long gold, you never like to see it down on the day, but given this morning's negative vote on the Swiss Golf Referendum, this decline seems extremely modest. And I think it is fascinating that there have been more than three dozen stories today so far on the Swiss vote to reject its Gold Referendum, but NO stories all weekend long on the much more important shocking news out of India that its 80:20 import rule has been totally scrapped! If the Swiss Gold Referendum had been approved, the Swiss National Bank would have had to buy a minimum of 25 tonnes of gold per month for the next five years. Imports of Gold into India are on a pace to exceed 900 tonnes this year, or 75 tonnes/month on average (more than triple!). Since total global mined production this year will probably not exceed 3,000 tonnes, India is now on pace to import more than 30% of total annual mined production this year alone!

Update: Gold And The U.S. Dollar

Following an avalanche of bearish articles and forecasts for gold from the financial media and Wall Street "research" analysts in early November near the exact bottom in gold prices, a few brave souls have finally surfaced in support of the yellow metal this week. Barron's Magazine is front and center now with two recent articles that strongly suggest that a major bottom may now be in place for gold and precious metals mining shares. Links to these articles are attached here.

In the interest of full disclosure, I am long precious metals mining shares and short the S&P 500 Index.

I think it may be noteworthy that the price of gold was up more than 1% last week despite the fact that the U.S. Dollar Index (DXY) was also up sharply (+0.89%) on the week. The U.S. Dollar Index is now up 11.91% since May 9th, 2014 (see chart below), but gold prices have remained resilient against the backdrop of the most negative sentiment that I have ever witnessed in my 36-year career in the securities industry.

Was November 7th THE major bottom in gold and silver prices? Yes, I think so!

Will Swiss voters approve the Swiss Gold Referendum on November 30th? Based upon everything that I have read about this issue (and all the latest poll information), I believe that the outcome here is a "toss up" right now. However, in a surprise move, the Netherlands announced last week that it has repatriated 122.47 tonnes of gold from the vaults of the Federal Reserve in New York to the Dutch Central Bank in Amsterdam. This is approximately 4 million ounces valued at about $5 billion. Officially, the Dutch Central Bank said that this repatriation was just part of a larger re-balancing of where its gold was stored. Unofficially, it's not hard to imagine that the Dutch Central Bank has a diminished level of confidence in the U.S. Federal Reserve and that maybe Netherlands is better off having its own gold stored on its own soil. Could this timely announcement by the Dutch Central Bank have any impact on the Swiss Gold Referendum? Perhaps YES! More importantly, however, I strongly believe that even a "No" vote on this key referendum will NOT derail the current rally in gold prices which began on November 7th. And in my view, a "YES" vote on the Swiss Gold Referendum will result in at least a 10% surge in gold prices over the very near term (before the end of this year)!

In terms of the potential outcome, why is the Swiss Gold Referendum different than the Scottish Vote For Independence?  Many uninformed research analysts, gold naysayers, and inexperienced journalists in the financial press are comparing the upcoming Swiss Gold Referendum with the recent failed Vote for Scottish Independence. The outcome will be the same they claim, with the "NO" votes prevailing. Swiss Nation Bank (SNB) President Thomas Jordan was out in full force this morning (11/23) strongly suggesting that "The [gold] initiative is dangerous because it would weaken the SNB". Of course, that's the whole point of the Swiss Gold Referendum! The SNB has been printing money at a pace equal to or greater than the U.S. Federal Reserve over the last 5 1/2 years. Interventions by the SNB in the foreign exchange market to effectively "cap" the Swiss Franc against the Euro at 1.20 have resulted in serious ongoing devaluation of the Swiss Franc.The Swiss Gold Referendum won't stop this outrageous and ill-fated action, but it WILL slow it down! The Vote For Scotland's Independence failed because the people of Scotland were threatened using heavy-handed tactics. Older people were actually told they would lose their pensions. Business owners were told they would lose all of their international business (and also business within the UK) because the Bank of England said it would not allow an independent Scotland to use the British Pound as it currency. Almost the entire "No" vote on Scottish Independence came from voters over the age of 55! However, most of the threats that were used to defeat the Scottish Independence Vote are irrelevant and don't apply with respect to the Swiss Gold Referendum. While the Swiss people ARE being told by the SNB and Swiss central government officials that the Swiss economy will suffer and that Swiss unemployment will rise significantly if the "YES" vote prevails, it is my strong view that Swiss voters will see through these trumped up threats of disaster, discount them appropriately, and then seriously consider a "YES" vote to this key Gold Referendum.

The following charts are attached for your review, with all signals from my computer-based trading system reflected on each chart:

1. Gold ETF (GLD) Weekly Chart
2. Gold ETF (GLD) Monthly Chart
3. Silver ETF (SLV) Weekly Chart
4. Silver ETF (SLV) Monthly Chart
5. Pan American Silver shares (symbol PAAS) Monthly Chart
6. S&P 500 Index ETF (SPY) Weekly Chart
7. U.S. Dollar Index (DXY) Weekly Chart
8. U.S. Dollar Index (DXY) Monthly Chart


Recent Gold-related articles in Barron's Magazine:

Gold: It’s Time to Buy by Michael Kahn (online commentary 11/19)

 http://online.barrons.com/articles/gold-its-time-to-buy-1416432694

Gold No Longer Slumbers by Randall Forsyth (Barron's Cover yesterday, 11/22)

http://online.barrons.com/articles/gold-no-longer-slumbers-1416626100?mod=BOL_hp_we_columns&cb=logged0.33949157019902076

Gold ETF Monthly Chart

Gold ETF Weekly Chart

Silver ETF Monthly Chart

Silver ETF Weekly Chart

Pan American Silver (PAAS) Monthly Chart

S&P 500 ETF (SPY) Weekly Chart

U.S. Dollar Index (DXY) Weekly Chart

U.S. Dollar Index (DXY) Monthly Chart

Gold & Silver Prices: The Big Bang, Spontaneous Combustion!

Yesterday, Friday, November 14th, the near-term December Comex Gold contract traded down to $1146.00/oz in early morning dealings. Around the same time, the December Comex Silver contract traded down to a low at $15.25/oz. While both of these intra-day lows were above the November 7th panic lows, sellers clearly had the upper hand and it was questionable at that time whether key support would hold.

And then there was THE BIG BANG!  

Gold and Silver prices suddenly caught a strong bid around 9:30 AM Eastern Time. While it's difficult to exactly pinpoint the reason for this spontaneous combustion, ZeroHedge.com suggested that a research report from Robin Winkler at Deutsche Bank (DB) may have been the trigger. Here are selected key passages from that DB report, courtesy of www.zerohedge.com:

• On 30 November, the Swiss will vote in a referendum to decide whether the SNB’s constitutional mandate should be changed to require the central bank to 1) never sell any gold reserves once acquired, 2) store all its gold on Swiss territory, 3) hold at least 20% of its official reserve assets in gold.
• The likelihood of a yes vote is considerable. The proposal requires a simple country-wide majority to pass, as well as a majority in at least 50% of Swiss cantons. Current polling shows the ‘yes’ campaign with a narrow but clear lead and there are reasons to believe that factors on the day could be favorable for the amendment. If an affirmative vote was recorded, there is little political leeway to delay or dilute implementation.

In the absence of official polls, the proposal’s likelihood of success can only be gauged from polls conducted by newspapers and other media outlets. The most respected polls are published by the radio and TV platform SRG. According to their latest poll (another poll is due next week), 44% of respondents intended to vote in favor of the amendment, with 39% rejecting it.

From JP Morgan, "If the referendum is passed, the Swiss National Bank (SNB) will be forced to increase reserves by around 1,500 tonnes over five years, i.e. 300 tonnes per year. This 300 tonnes per year accounts for 7.5% of annual gold demand of 4,000 tonnes per year." I think is may be noteworthy that JP Morgan used annual "gold demand" estimates in its attempt to place the potential consequences of a "YES" vote from the Swiss Gold Referendum in perspective. In this specific analysis, I believe the more relevant and more important number is annual "gold SUPPLY" from mined production. In 2013, mined gold production was approximately 3,000 tonnes, and it's not hard to guess that 2014's production will be less than 3,000 tonnes given the 30% decline in gold prices over the last two years and the current average "all in" cost of production of about $1,250/oz. In this light, if the Swiss Gold Referendum is passed, then the Swiss National Bank will have to purchase more than 10% of the global annual Gold production every year for the next five years!!

In a 4-hour stretch between 9:00 AM and 1:00 PM Eastern Time, Gold rallied 4.09% and Silver surged 7.41%! And both precious metals ended the day near their highest levels at $1192.90/oz and $16.38/oz, respectively. A significant rebound in Crude Oil prices probably contributed to the stronger precious metals market on Friday. Crude bounced 3.66% from its intra-day low at $73.25/barrel to end the day at $75.93.

Not surprisingly, daily chart buy signals were triggered by my computer trading system in the following Gold/Silver-related stocks and ETF's:

GLD, SLV, XAU, GDX, GDXJ, SIL, SILJ, AEM, AG, AU, AUY, ABX, EXK, GG, NEM, PAAS, and PPP.

To add insult to injury for the Gold bears, a daily chart sell signal was triggered in the U.S. Dollar Index (DXY) yesterday, which tumbled 1.03% from its intra-day high while Gold and Silver prices were soaring.

Clearly, it's a new dawn for Gold, Silver, and related investments!

Postscript (written Sunday, November 16th):  

For Gold bulls and bears alike, I think the upcoming Swiss Gold Referendum is a sentinel event. In one of my recent columns I referred to Abraham Lincoln's famous quote that begins "You can fool some of the people some of the time...". Almost every major central bank has been printing money for several years, but because ALL of them are executing this questionable strategy simultaneously, purchasing power parity across major currencies has been mostly preserved and the citizens of the world have been successfully duped. I think it's safe to say that the global "monetizing" of debt by central banks will end at some point, but how it will end and when it will end are two great unknowns. Here are a few questions that may be especially relevant at this point in time, and just for fun I have answers for all of them:

1. Are central banks omnipotent? For the last 5 1/2 years since March 2009, the answer has clearly been yes! We know the real answer is NO, but when will the financial markets finally see the real power of the "wizard behind the curtain"? The Swiss National Bank (SNB) has been successful so far in defending the 120 level against the Euro, but for how much longer? The Eurozone as we know today is doomed (Greece, Italy, Spain, Portugal, and others will not remain in the EU in its current form). How much longer can the SNB stem the tide of repatriation from Euro's to Swiss Francs by Swiss citizens (who already know this end game)? My guess is that the 120 level gets broken convincing over the very near term!

2. If you had to pick a country that had the most financially savvy citizens (and you couldn't pick your own country), what country would you pick? My guess is that Switzerland would be at the top of almost everyone's list. The SNB has been printing money at almost the same pace as the U.S. over the last six years. AND the Swiss National Bank sold over 1300 tonnes of gold (half its reserves) between 2000 and 2005 at an average price LESS than 40% of today's prices. If you were a Swiss citizen right now, would you trust the current protests by officials at the SNB that a YES vote on the Gold referendum would be disastrous and cost Switzerland the necessary flexibility it needs to deal with any potential monetary crisis ahead? My guess is that a majority of Swiss citizens really DO understand all the implications of a YES vote right now, AND that THEY WILL ACTUALLY EMBRACE A YES VOTE!

3. It is my strong belief that a YES vote in the upcoming Swiss Gold Referendum will dramatically change the landscape for ALL major central banks throughout the world. As a gold bull right now, I still greatly fear the power of the central banks. I saw what happened to the Scotland Independence Vote. The massive (successful) effort by government politicians (and the Bank of England) to preserve the UK was off-the-charts with its fear mongering and disinformation campaign (claims that pensions would be at risk, claims that vendors would lose all their business, claims that Scotland would not be able to compete on the world stage without the British Pound, etc., etc). Could that happen here? You bet! With only two weeks to go, you can bet your last Swiss Franc that the SNB and the entire leadership of the Swiss government will do everything they can to defeat the Swiss Gold Referendum. However, it is my humble view that the SNB and all its uninformed supporters are too late! They have underestimated the resolve of those ready to vote "YES", and the majority of the Swiss people are too smart to fall for last minute claims by the SNB that disaster awaits Switzerland if the YES vote succeeds.

Gold ETF (symbol GLD) Weekly Chart

Silver ETF (symbol SLV) Weekly Chart

U.S. Dollar Index (DXY) Daily Chart

Mid-morning Special Update: Gold/Silver Mining Stocks

This special update was written at 10:55 AM Eastern Time on Friday, November 14th.

 

A major upside reversal is now underway in the Gold/Silver mining shares. Daily chart buy signals will probably be triggered by my computer trading system at today's close. I strongly believe that today's intra-day lows in most of the stocks in this unloved group will mark the beginning of an extraordinary advance which could easily result in gains of 50% to 100% (or more) in most of these issues over a very short time horizon of three or four months.

 

A complete update will be available here later this weekend. In the interest of full disclosure, I am long several Gold/Silver mining shares and also short the S&P 500 Index and the Russell 2000 Index.

Russell 2000 Stock Index: Daily Chart Sell Signal Triggered Today

Just a quick note here this evening, Thursday, November 13th.

A daily chart sell signal was triggered by my computer trading system in the Russell 2000 Index at today's NY close. At today's intra-day high at 1188.65 in this closely watched stock market barometer, the Russell 2000 Index had rallied 14.25% from its intra-day low at 1140.45 as set on October 15, 2014.

Daily chart sell signals were also triggered in the related indexes as follows:

Russell 2000 Index ETF (symbol IWM)
Russell 2000 Value Index ETF (symbol IWN)
Russell 2000 Growth Index ETF (symbol IWO)

In the interest of full disclosure, I am long Gold/Silver mining shares and short the S&P 500 Index.

Russell 2000 Index Daily Chart with Computer-generated Buy & Sell Signals

Special Update: Gold

Here are just a few of the negative headlines on the price of Gold in the financial media today:

"Gold is doing something it hasn't done in 17 years"
 

"Gold loses luster"
 

"Here's why gold could be headed to $800: Insana"
 

"A final purge to $700? What gold bulls' surrender might look like"

You would think with all these bearish headlines, Gold prices must have totally collapsed recently and that there is no hope for any rebound or sustained advance for Gold on almost any time horizon.

Holdings in the SPDR Gold Shares (symbol GLD), the biggest exchange-traded product backed by the yellow metal, fell to a six-year low today, contracting for a seventh day in the longest run of declines since June 2013. And the Gold price is heading for the first consecutive annual retreat since 2000.

As of this writing (8:00 PM Central Time on Wednesday evening), Gold for December delivery is trading at about $1,159 an ounce on the Comex in New York.

Wow! Has bearish sentiment in the Gold market ever been higher? Maybe so, but not in my recollection.

If holdings in the Gold Shares ETF (GLD) are at the lowest in 6 years, and if almost every financial media article and research report is negative, and if large vocal Wall Street trading firms are calling for Gold prices to soon fall below $1,000/oz, perhaps we should ask the question ARE THERE ANY WEAK HANDS LEFT IN THIS MARKET?

Gold prices were about unchanged today, despite all the negative rhetoric. And Gold is actually up about 2.65% since the recent intra-day bottom at $1,130/oz on November 7th. And the GDX Market Vectors Gold Miners ETF posted a plus day today and is now up 10.88% from its recent low!

What am I missing? 

Recent price action in Gold looks extremely bullish to me! Recent price action in many Gold mining shares looks extremely bullish to me! Recent buying patterns in the actual physical gold market look extremely bullish to me. Real interest rates in most of the major global economies are actually negative despite loud central bank protests claiming that "deflation" is a looming threat to growth and prosperity. Negative real interest rates will provide the "rocket fuel" for sharply higher Gold prices immediately ahead!

In the interest of full disclosure, I am long Gold/Silver mining shares and short the S&P 500 Index.

Gold/Silver: You Can Fool Some Of The People...

"You can fool some of the people all the time, and all of the people some of the time, but you cannot fool all of the people all the time." Abraham Lincoln

Friday was an interesting day in the precious metals futures market, to say the least. Silver and Gold prices traded sharply lower in overnight dealings, but then found a strong bid as the sun rose on Wall Street. The rally that followed was exceptional!

Gold traded down to an intra-day low at $1130.40/oz and then rebounded sharply to an intra-day high at $1179.00 before ending the extended session at $1178.00 (+3.16% on the day). Silver traded down to an intra-day low at $15.04/oz, then rallied to an intra-day high at $15.88 before ending the extended session at $15.81 (+2.58% on the day). In morning dealings, Silver futures actually stopped trading at one point because of an Exchange software glitch when prices reached $15.88/oz, up 0.84 cents/oz or +5.60% from the intra-day low. I think the timing of the trading "glitch" in this market is noteworthy!

Precious metals mining shares, which have been absolutely battered recently, also rebounded sharply on Friday. The most popular Gold Mining Shares ETF, symbol GDX, advanced 8.31% on Friday. The Silver Mining Shares ETF jumped 7.87%. Stories of shortages in the global Silver coin market are now commonplace, and the U.S. Mint announced to dealers on Thursday last week that it had actually "sold out" of all its Silver Eagle 1-ounce coins (temporarily, of course). Despite sharply lower Gold and Silver prices over the last several months, sales of Gold and Silver freshly minted coins are "through the roof" according to the latest sales figures from the U.S. Mint.

Was Friday, November 7th, a significant day in the precious metals market? Most definitely! Was Friday THE turning point in a major new bull market for this unloved and under-weighted investment class? I think so!

You cannot fool all of the people all the time! Gold and Silver are REAL currency! Government paper money is what? Perhaps the answer is as simple as "Fiat" currency, which is easily debased and often subject to massive manipulation! Which "currency" would you like to own in this environment right now? "Real" or "Fiat"? Is the recent surge in Gold and Silver coin purchases one measure of how "people" are now voting on this issue? YES!!
 

Gold ETF (symbol GLD) Monthly Chart

Gold ETF (symbol GLD) Weekly Chart

Silver ETF (symbol SLV) Monthly Chart

Silver ETF (symbol SLV) Weekly Chart

U.S. Dollar Index (DXY) Weekly Chart

U.S. Dollar Index (DXY) Monthly Chart

Race To The Bottom: Worldwide Debasement Of Fiat Currencies

In the interest of full disclosure, I am long gold/silver mining shares and short the S&P 500 Index. The gold/silver mining share position has been accumulated over the last two weeks, while the short S&P 500 position was first initiated last Monday, October 27th. While it may be an understatement to write that this "hedge" was less than ideal late last week, I remain convinced that the next major move in precious metals prices will be sharply higher, and the next major move in U.S. equity prices will be sharply lower.

As of 8:00 PM Central Time Sunday night, when this latest column is being written, Gold is trading at $1,165/oz, while Silver is trading at $15.85/oz. Both prices are modestly lower than Friday afternoon's close.

On Friday, October 31, the Bank of Japan fired the latest cannon with respect to the debasement of worldwide currencies. The BOJ said it will increase its purchases of government bonds and other assets by between 10 trillion yen and 20 trillion yen ($91 billion to $181 billion) to about 80 trillion yen ($725 billion) annually. The European Central Bank will clearly be next with its own massive QE program, and China is the largest culprit of all, of course, with its ongoing stealth program of currency debasement.

With the U.S. Federal Reserve effectively "on hold" with no QE program currently in force, the U.S. Dollar has been exceptionally strong in foreign exchange dealings recently. The U.S. Treasury will soon have to halt this advance with intervention against the Dollar to prevent the complete collapse of U.S. exports and the related importation of less-than-desirable deflationary pressure on domestic prices for goods and services.

The race to the bottom for fiat currencies has accelerated, and the winner will soon be Gold/Silver prices!
 

Gold ETF (GLD) with 3-Std Deviation Bollinger Bands and Fibonacci Retracement Lines