As weak as precious metals prices have been since the U.S. elections, it is still possible that they may yet decline a bit more before the end of this year.
Having said that, however, there are multiple significant reasons to expect noticeably higher gold and silver prices in 2017 – maybe even by the end of January. The following are not necessarily in order of importance.
Reason 1: On Dec. 7, new motions were filed in the silver-market price rigging private anti-trust lawsuit originally filed in 2014 against Bank of Nova Scotia, Deutsche Bank, HSBC and UBS (In re: London Silver Fixing, Ltd., Antitrust Litigation in the U.S. District Court for the Southern District of New York, case #1:14-md-02573). Earlier this year, Deutsche Bank had reached a settlement with the plaintiffs, agreeing to pay $38 million and cooperate in providing evidence against the other defendants.
Since then, the judge apparently dropped UBS from the suit.
In the filing last week, the plaintiffs acknowledged receiving 350,000 pages of documents and 75 audio tapes from Deutsche Bank. Among them were some described as “smoking gun evidence of silver price rigging.”
As a result of these new motions, the judge will allow the plaintiffs to again sue UBS. In addition they are also allowed to expand or refile their original complaint to add four new banks: Bank of America/Merrill Lynch, Barclays, BNP Paribas Fortis and Standard Chartered.
The lawsuit may not stop there. In the motion, plaintiffs said, “Jane Doe Defendants Nos. 1-100 are other entities or persons, including banks, interdealer brokers, cash brokers and other co-conspirators whose identities are currently unknown to Plaintiffs. The Jane Doe Defendants participated in, furthered, and/or combined, conspired, aided and abetted, or agreed with others to perform the unlawful facts alleged herein.” Thus, it is possible that many more defendants may be added to this case.
Incidentally, two weeks ago Deutsche Bank agreed to a settlement of $60 million to pay as their share of a pending gold price fixing private anti-trust lawsuit.
Because this case is proceeding, the plaintiffs now have access to discovery of records from a greater number of banks and other companies. My expectation is that there is already enough damaging evidence of price fixing that it is likely that more banks will quickly try to reach settlement and avoid going to trial.
As news of the progress of this lawsuit spreads, look for more of the public to understand that silver prices have been massively suppressed in recent years or decades. For this reason all by itself, I anticipate a surge in buying demand that will boost gold and silver prices early in 2017.
Reason 2: On Nov. 28, it was announced that a new sharia-law compliant standard had been accepted by the Accounting and Auditing Organization for Islamic Financial Institutions that will allow the world’s 1.4 billion Muslims to acquire gold and silver as an investment.
Owning gold and silver is highly regarded by Muslims, but up to now ownership has been restricted to owning it as money or for use in fabrication that required immediate delivery and payment for any transactions.
As Muslims around the world become aware of their new opportunities to own physical gold and silver, which may take a few months, I again look for a significant increase in demand that helps push up prices.
Reason 3: The Dec. 4 solid rejection of the Italian referendum to overhaul how that nation’s government operated led to the resignation of Prime Minister Matteo Renzi the following day. There is a significant prospect for new elections there in the near future, where the political parties that advocate for Italy to depart from the Eurozone are likely to make enough gains that the country may cease using the euro currency.
Italy has one of the larger economies within the European Community. Should it exit from the euro, this move would almost certain lead to two results – 1) a decline in the value of the euro, or 2) the eventual collapse of the euro. As the uncertainty of what will occur heightens, look for alternative currencies (such as the U.S. dollar) to initially appreciate versus the euro. However, the ultimate end result is likely to be a greater fear of holding all currencies. Should this come to pass, gold and silver prices are bound to rise.
Reason 4: Even if Italy remains in the Eurozone, the combined economies of the member nations are precarious. Perhaps the top three problems are the soaring amounts of government debts, the growing delinquencies on paying back private debt, and the disruption caused by high rates of immigration in these countries. As these problems become ever more difficult to patch (in my judgment, it is beyond the point where a “cure” is possible), look for the euro and eventually other currencies to decline, especially against the prices of gold and silver.
Reason 5: From the beginning of 2016 through early last week, prices of aluminum, copper, crude oil, cobalt, molybdenum, nickel, natural gas, lead, tin, steel billet and zinc were all up more than 17 percent to almost 80 percent! With energy and raw material prices rising to this extent, look for consumer prices to rise by much higher percentages in 2017 than they have over the past several years. As consumer prices rise, that effectively lowers the value of currency around the globe. As paper currencies decline, gold and silver prices tend to appreciate.
Reason 6: On Nov. 6, India Prime Minister Narendra Modi announced that 500- and 1,000-rupee notes would be immediately demonetized. Unfortunately, 86 percent of that country’s outstanding currency, where 90 percent of all transactions are paid in cash rather than with checks or electronic payments such as credit or debit card, consist of just these two denominations. The government and central bank apparently did no advance planning of the economic disruption that this currency recall would engender.
India’s government has thoroughly mishandled this monetary changeover, harming the economy and increasing public distrust of the government. In the first three days after this announcement, it looked like jewelers in that country sold about a half million ounces (about 0.5% percent of worldwide annual gold supplies!) of gold bullion and jewelry at prices as high as 65 percent above what they were before the announcement. Then the India excise tax authority contacts jewelers to file reports on large gold transactions from Nov. 7 onward. Although these reports would not identify specific customer transactions, once such reports were filed, the government could easily request that information.
When this new government snooping was publicly reported, demand for physical gold almost immediately came to a halt. The government was forced to announce that it was not planning to make it illegal to purchase gold or implement a gold redemption program. Still, with greater distrust of the national government, citizens of India quickly shifted to buying silver products.
In recent years, India has been the world’s second largest gold consuming nation, after China. It is also one of the world’s largest silver consuming nations. This increase in demand to own physical gold and silver is almost certain to lead to higher prices early in 2017.
Reason 7: In response to the election of Donald Trump to be the next U.S. President, a former member of the People’s Bank of China policy committee wrote an article advocating that China allow its yuan currency to depreciate against the U.S. dollar before Trump assumes the office. In China, policy changes are rarely officially announced. Instead, they tend to be unveiled indirectly as is likely in this instance. If the yuan does fall against the dollar in December and January, that could trigger another round of nations pushing down the value of their currencies relative to each other and against gold and silver.
Reason 8: Within the past two weeks, the Chinese government has put restrictions on the amount of gold that can be imported. Between the government and the private sector, that nation already absorbs all domestic gold mine output and close to 100 percent of all new global gold mine output. Since these restrictions were put in place, the prices of gold and silver traded on the Shanghai Gold Exchange have reached much higher premiums to the corresponding prices in the London market. Late last week, the Shanghai gold price was almost 3 percent higher than London. The premium for Shanghai silver was much greater – almost 10 percent. When prices in the world’s largest gold and silver-consuming nation are running that much higher than prices elsewhere, that will exert significant influence to rising prices everywhere.
As you look at the foregoing list, understand that it will only take one of these events to lead to higher silver and gold prices. In my mind, I am especially confident of much higher silver levels. Looked at from the opposite side, in order to silver and gold prices to remain at current levels or maybe decline more than a modest amount would require that all eight of these factors somehow are magically resolved. I just don’t see much likelihood of that result in 2017. We shall see what should prove to be an interesting year.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He was also honored by the Numismatic Literary Guild in 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).
This article was originally printed in Numismatic News. >> Subscribe today.
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