Gold Up-Date

In one of the most audacious hearings I have seen, Apple CEO Tim Cook, was summoned to Congress last week to explain why his company has not paid any corporate income tax to any national government on more than $74 billion in overseas earnings.  While most regulators don't even understand how real money works, what is important to understand is that what Apple's doing is nothing new or unique, and it is perfectly legal.

By using an Irish incorporated corporation, Apple has been able to channel dividends and earnings from offshore investments in such a way as to not incur tax liabilities...in any country. Frankly, this is a perfect illustration of financial ingenuity that I have often recommended to wealthy individuals as a way to protect their assets and minimise their tax burden.

Many multinational corporations operate in the same way and in spite of media propaganda which tends to suggest that this type of practice is used mainly by money launderers and drug dealers nothing can be further from the truth. Frankly, it is a disgrace that Tim Cook was faced by a bunch of financial parasites that persist on trying every avenue they can to suck more money to fund their financial failures. And, while governments find it alright to lie to their citizens, they demand individuals tell them the truth. Frankly, instead of wasting the time of innocent people, the regulators should concentrate on their own tax policies and government spending.

The costs of the 2003-2010 Iraq War for example far surpass Apples earnings. A recent report on these costs comes from Brown University in the form of the Costs of War project, which said the total for wars in Iraq, Afghanistan, and Pakistan is at least $3.2-4 trillion. The report disavowed previous estimates of the Iraq War's cost as being under $1 trillion, saying the Department of Defence’s direct spending on Iraq totalled at least $757.8 billion, but also highlighting the complementary costs at home, such as interest paid on the funds borrowed to finance the wars and a potential nearly $1 trillion in extra spending to care for veterans returning from combat through 2050. An update in 2013 topped this at US$6 trillion. Add to this the amount of money the US government wastes on aid programmes to alleviate poverty on the African continent where most of the money is never used for its intended purposes but simply disappears into bank accounts of their greedy politicians.  How long must Africa be reliant on aid? The current situation seems to be an on-going saga.

I have long advocated owning an offshore bank account, gold and silver as these are the only ways, one can protect your wealth from governments. While I agree on paying taxes, but when the hard earned money of individuals is simply squandered or used to enrich a group of politicians, then the game changes. You have to do whatever it takes to preserve your wealth and you have every right to pay the minimum amounts of taxes allowed by law.

In current times, when governments can confiscate your savings, or impose ridiculous taxes while depreciating the value of your money, it is essential to accumulate physical gold and silver as a long-term insurance against further currency depreciation.

Recently, even though the price of gold has bounced off its recent lows, it is still struggling to hold above the key resistance level at $1400 an ounce. After each attempt to trade above this level, the price of gold has met with considerable selling pressure.

On Friday, the price of gold fell by around 2% after the latest U.S. economic data showed low inflation and improving consumer confidence.   The price of spot gold fell by around $25 an ounce to close out the week at $1388.30 per ounce. On Monday, it traded close to $1418 an ounce and today, it has fallen back below $1400 an ounce.

The Chicago PMI surged to a reading of 58.7 in May, up from 49.0 in April, marking the best reading in over a year, just a month after the worst reading in three-and-a-half years. Then, the latest ISM manufacturing index unexpectedly dropped to 49.0 in May which showed a contraction for the first time in six months, raising concerns about the health of the U.S. recovery.

The Case-Shiller 20 City Composite Home price index was up by 10.9% for the 12 month period ending in March. Prices in all 20 cities were up, with some (Las Vegas, Phoenix, and San Francisco) notching gains of more than 20%. Meanwhile the National Association of Realtors announced that April pending home sales volume reached the highest level in nearly three years.

While the US media tend to take the strong housing data has proof that the economy is now improving, and that a recovery is under way, the higher prices have merely reacted to government monetary policies that have pushed money into real estate in order to reflate prices that have been collapsing for the last five years.

It is all part of the US Federal Reserve’s strategy of beguiling people into feeling more wealthy. The concept is that if your house price or share portfolio increases in value then you are going to feel wealthier and thus spend more. And, the new spending is going to generate economic growth. And, while some  people may believe that rising home prices are a good barometer of economic health, in truth it does nothing to reduce the high level of unemployment nor does it generate any economic growth. Frankly, it is a totally flawed concept with no basis whatsoever. The US economy remains stagnant and unemployment still remains elevated.

While prices of US equities have risen over the last few months, first quarter US GDP growth was revised slightly lower to 2.4% and the latest initial jobless claims increased more than expected to 354,000 in the week ended May 24.

At the moment, the price of the yellow metal is trading in a tight range between $1380 an ounce and $1410 an ounce responding to every latest piece of economic data most of which would normally have little impact on the price. However, these reports have had an impact on the value of the US dollar, global bonds and global equities which have caused investor sentiment to change often.

A few weeks ago, economic optimism and growing investor interest in better-performing assets such as equities explained the declining interest in the safe-haven assets such as gold. But, suddenly when the Nikkei fell by 7% in one day, investors were spooked and scrambled back into gold.

At the same time, the crisis in the Eurozone is deteriorating and not improving, despite all the meetings and policy decisions of the financial leaders of the region. The latest unemployment figures are absolutely dismal and merely reinforce studies that show that the monetary policies of the ECB have not done anything to stimulate economic growth.

Unemployment in the Eurozone has reached another record high. The seasonally-adjusted rate for April was 12.2%, up from 12.1% the month before. An additional 95,000 people were out of work in the 17 countries that use the euro, taking the total to 19.38 million.

Both Greece and Spain have jobless rates above 25%. The lowest unemployment rate is in Austria at 4.9%. According to Eurostat, Germany had an unemployment rate of 5.4%, while Luxembourg's was 5.6%. The highest jobless rates are in Greece (27.0% in February 2013), Spain (26.8%) and Portugal (17.8%).

In France, Europe's second largest economy, the number of jobless people jumped to a new record high in April.

Unemployment among young people is approaching one in four across the Eurozone and it is 40% or higher in a few countries - Greece, Spain, Portugal and Italy. In April, 3.6 million people under the age of 25 were out of work in the Eurozone, which translated to an unemployment rate of 24.4%.

In the 12 months to April, 1.6 million people lost their jobs in the Eurozone.

The Eurozone is in its longest recession since it was created in 1999. At 1.4%, inflation is far below the 2% target set by the European Central Bank (ECB) despite the expansionary monetary policies of the ECB.

Last Wednesday, the European Commission outlined its economic targets for EU nations desperately seeking growth and jobs in the fallout from the debt crisis but gave France and Spain extra time in return for deeper reforms.

Although, EU governments opted initially for tough austerity measures, soaring unemployment and popular unease have switched the emphasis to growth now, rather than stabilising the public finances.

EU leaders are expected to discuss the Commission's recommendations at a summit at the end of June before they are formally approved later by finance ministers of the 27 EU member countries.

It will be interesting to see what new policies the leaders propose especially since their current monetary policies are not succeeding and there is not much else the central bank can do.

While the prices of gold and silver remain range bound, I urge individuals to accumulate more physical gold and silver. There is a huge dislocation between the paper market and the physical market and when this corrects, I expect to see higher prices.

TECHNICAL ANALYSIS
 
It appears that the price of gold is making a double bottom, but a break above $1480/oz. would be required to confirm this. In the meantime, prices are consolidating between $1380/oz. and $1400/oz. I expect to see a decisive break above $1400/oz. shortly.

ABOUT THE AUTHOR

David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients. 

His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. The largest gold refinery in the world use his daily and weekly commentaries on gold.

David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.

For more information go to: www.lakeshoretrading.co.za

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.