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Gold Breakout Imminent!

Gold Breakout Imminent!

Authored by James Rickards via DailyReckoning.com,

This is getting ridiculous. And that’s a good thing.

By “this,”…

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This article was originally published by Zero Hedge

Gold Breakout Imminent!

Authored by James Rickards via DailyReckoning.com,

This is getting ridiculous. And that’s a good thing.

By “this,” I mean the price of gold, and by “ridiculous,” I mean repetitive to the point of absurdity. That’s OK. The prospects for gold from here are highly positive.

By now, readers are tired of my description of gold trading as range-bound between $1,700 per ounce on the low side and $1,900 per ounce on the high side, with $1,800 per ounce as the central tendency. That’s completely accurate but also highly repetitive, since it has held true with only brief and minor exceptions for the past year.

This pattern emerged in November 2020 after gold fell from its all-time high of $2,069 per ounce on Aug. 6, 2020. The predictable question from investors is: “Fine, we get it. But, when does the pattern break either to the upside or downside? What’s next for gold?”

That’s where the good news begins. Yes, gold has been range-bound, but the range is getting smaller. While swings of 5% in a matter of days were common as recently as last summer, that volatility has cooled off. Gold still moves up and down in price, but the swings are much more compact.

The central tendency is still $1,800 per ounce, but the swings are more tightly bunched between $1,750 and $1,850 (again, with a few exceptions). That’s a 5.5% band to replace the prior 11.0% band.

We’re also seeing a pattern of lower highs and higher lows as compression continues. That’s a technical pattern called a pennant because it looks like a sports pennant if you draw converging lines through the highs and lows.

A pennant is a setup for a breakout. The breakout can occur in either direction, but it’s more common for the breakout to continue the trend that existed before the consolidation.

Whether we take the $1,685 price on March 30, 2021, the $1,725 price on Aug. 9, 2021, or the $1,722 price on Sept. 29, 2021, it’s clear that this pennant formed in the wake of an uptrend. This suggests that the breakout will be to the upside and it will occur soon.

There’s a run of fundamental data that supports this technical view.

The first piece of evidence is that the real price of physical bullion today is not $1,864 per ounce (according to the COMEX gold futures contract price), but closer to $2,000 per ounce according to my gold bullion dealer sources.

The difference between the two prices is about 8%.

The problem with this pricing method is that a normal dealer commission is around 2.5%. Any commission higher than that is not really a commission. It’s a reflection of scarcity, delivery delays and other logistical issues in getting actual physical bullion instead of paper gold contracts.

In other words, $1,925 per ounce is the real price of real physical bullion. Everything else is just paper.

The second fundamental factor is that Russia is back in the game. As readers know, Russia has increased its gold reserves by 1,700 metric tonnes since 2009. Gold reserves were 600 metric tonnes in 2009 and are 2,298.5 metric tonnes today, a 283% increase in the past twelve years.

The Central Bank of Russia has pursued this acquisition plan in a steady and incremental way under President Putin and Central Bank Chief Elvira Nabiullina. Acquisitions of gold were regular in amounts of about 5 to 30 metric tonnes per month like clockwork to avoid disrupting the market.

In April of last year, the clock stopped. Russia reduced its holdings slightly in April, July, August, September and October 2020 and January and April 2021. Holdings were unchanged in November and December 2020 and February, March, May and June of 2021.

Now, Russia is back on the buy side. It purchased 3.1 metric tonnes in July 2021 and another 3.1 metric tonnes in September 2021 (August was unchanged). Analysts should not mistake this renewed purchasing as a buying binge by Russia. It’s something more subtle.

Russia is running the world’s most sophisticated hedging operation inside its global reserve account of hard currencies and gold. The object is to maintain gold at about 20% of total reserves. This goal was achieved in early 2020, which accounts for the fact that purchases tailed off after that.

Russia’s reserves are now bulging because of the steeply higher price of oil. This increases Russia’s dollar reserves since oil is priced in dollars. If dollar reserves are increasing and Russia wants to maintain gold at 20% of total reserves, it has to buy more gold to maintain the allocation. This is no different than what everyday investors do when they rebalance target portfolios to account for large gains or losses in a particular asset class.

It’s also consistent with Russia’s hedging objectives. If the dollar retains its value, gold may not move much in price. Still, the allocation of gold in the portfolio acts as insurance. If the dollar crashes in value, the dollar price of gold will soar and Russia’s losses on its dollar portfolio will be offset by gains on its gold portfolio.

In its current form, the dollar is losing value, at least in relation to oil. The dollar price of gold has not moved much. So, that’s an opportune time to buy gold to maintain the hedge without paying a premium. The Russians are masters of this kind of dynamic hedging (unlike Americans). They just proved it again through the combination of expensive oil (generating revenue) and steady gold prices (offering an attractive entry point at which to maintain the hedge).

But Russia’s not alone. Other major central banks that have added materially to their gold reserves in recent months are Thailand (90.20 metric tonnes), Brazil (53.75 metric tonnes), Turkey (8.67 metric tonnes), India (8.4 metric tonnes) and Qatar (3.12 metric tonnes). Some central banks were net sellers, but the total sales of the top five were less than 25 metric tonnes, far smaller than the total additions.

And of course, China has acquired massive amounts of gold in recent years, which has been part of a concerted overall strategy. And recently, Chinese gold imports from Hong Kong hit a five-month high, up nearly 60% in September.

These central bank purchases were in anticipation of a declining dollar and higher dollar inflation. The central banks are buying gold to stay ahead of the curve. Shouldn’t you do the same?

Tyler Durden
Thu, 11/18/2021 – 06:30




Author: Tyler Durden

Economics

Popularity Doesn’t Seem to Be Helping Dogecoin Grow Its Market Cap

New research suggests Dogecoin (CCC:DOGE-USD) is the most-googled cryptocurrency so far in 2021.
Source: shutterstock.com/Igor Igorevich
According to The…

New research suggests Dogecoin (CCC:DOGE-USD) is the most-googled cryptocurrency so far in 2021.

Dogecoin coins with doge faces peeking out of brown leather wallet. The coins have the words "wow much coin how money" embossed on them.Source: shutterstock.com/Igor Igorevich

According to The Advisor Coach, a business that helps financial advisors get more clients, Dogecoin is the most-googled cryptocurrency in 23 states, far exceeding Bitcoin (CCC:BTC-USD), which was tops in 10. In comparison, Ethereum (CCC:ETH-USD) came third with eight states. 

There is no question that cryptocurrencies of all sizes are on the receiving end of more web searches. After all, in a year, crypto assets have grown from $500 billion to $3 trillion. 

But I have to wonder if these web searches are translating into actual Dogecoin purchases. 

Let’s consider the possibility. 

Dogecoin Could Fall Out of Top 10

According to CoinMarketCap, Dogecoin has a market capitalization of $28.4 billion. That puts it in the 10th spot amongst crypto assets, ahead of Avalanche (CCC:AVAX-USD) at $25.9 billion and behind USD Coin (CCC:USDC-USD) with $37 billion. 

So, at this point, it’s more likely to fall out of the top 10 than move up to ninth position. That’s because AVAX-USD had been on a tear in November until it started to cool off on Nov. 22. Up until then, it was up 111%. In the same period, DOGE-USD was down 18%. 

Markets Insider reported the following about Avalanche on Nov. 22:

“Avalanche has climbed 37% over the last 7 days whilst the rest of the top 10 cryptos have seen red. The significant driving factor for AVAX’s entrance into the top 10 was the partnership with Deloitte, one of the ‘Big Four’ accounting organizations and the largest professional services network in the world,” GlobalBlock sales trader Freddie Williams said.

As this is the first time I’ve covered Avalanche – and it’s not a crypto I’ve been following – the reference to Deloitte catches my interest. 

On Nov. 16, the consultant announced its strategic alliance with Ava Labs, the developers of Avalanche. Reading through the press release, it screams utility, which can’t be said for Dogecoin.

In a nutshell, the Close As You Go (CAYG) platform allows state and local governments to easily apply for disaster reimbursements from the Federal Emergency Management Agency. 

“Our new Close As You Go platform can play a critical role in helping these leaders be prepared to aggregate and validate the documentation necessary to demonstrate eligibility for funding and reduce the risk of adverse audit findings down the road,” Deloitte & Touche LLP principal Alex Haseley said in its press release announcing the strategic alliance. 

A few more of these announcements from Ava Labs and it won’t matter how many internet searches there are for Dogecoin, investors will understand and support Avalanche’s actual utility. Something Dogecoin can’t provide.

The Top States Owning Dogecoin and Other Cryptos

Coinbase (NASDAQ:COIN) produced a report in 2019 entitled The United States of Crypto. And while the information is dated, by understanding it, I think one can make some assumptions about the ownership of Dogecoin versus googling the word Dogecoin. 

For example, the 10 states with the largest crypto ownership are California (Shiba Inu), New Jersey (Dogecoin), Washington (Shiba Inu), New York (Shiba Inu), Colorado (Cardano), Utah (Ethereum), Florida (Dogecoin), Alaska (Bitcoin), Nevada (Shiba Inu), and Massachusetts (Dogecoin). The crypto with the most web searches for each state is in parentheses.  

Now, I know the ownership stats have likely changed some, but the one thing that we do know is that Shiba Inu (CCC:SHIB-USD) appears to have gotten more traction from its internet searches than Dogecoin. 

How’s that, you ask?

Well, SHIB-USD has appreciated by 49.5 million percent in 2021 compared to 4,404.5% for Dogecoin. Based on Shiba Inu’s relative growth, it’s no surprise that it rocketed to 13th place with a market cap of $20.8 billion, just $7.6 billion from catching Dogecoin. 

While I don’t believe Shiba Inu has any utility, much like DOGE-USD, it certainly is the crypto of the two that’s got some momentum heading into 2022.

The Bottom Line

Interestingly, of the top 10 states owning crypto according to Coinbase research, Shiba Inu is the leading crypto in web searches, one more than Dogecoin. Two of the top 10 states for crypto ownership are California and New York. In those states, Shiba Inu has the most web searches. Their combined population of 59 million is 18% of the entire U.S. 

So, while I might not have proven that Dogecoin’s popularity has done little to grow its market cap, I think it’s fair to say that Shiba Inu’s popularity has.

That’s not good if you own DOGE-USD. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 

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Economics

Rivian IPO Suggests Gores Guggenheim Ought to Be Worth More Today

Gores Guggenheim (NASDAQ:GGPI) reported on Nov. 15 that its combination with Polestar will happen sometime in the first half of 2022. Assuming the deal…

Gores Guggenheim (NASDAQ:GGPI) reported on Nov. 15 that its combination with Polestar will happen sometime in the first half of 2022. Assuming the deal gets done, I’m amazed GGPI stock isn’t worth more than Rivian Automotive (NASDAQ:RIVN) at this point in the proceedings.

Source: Jeppe Gustafsson / Shutterstock.com

Here’s why.  

GGPI Stock Trades at 1% of Rivian’s Market Cap

Page 9 of the merger presentation shows Polestar sold 10,000 vehicles in 2020 and should sell 29,000 in 2021, at prices between $50,000 and $155,000. In 2021, Polestar should have $1.59 billion in revenue from those sales and a $700 million EBITDA (earnings before interest, taxes, depreciation and amortization) loss. 

Rivian expects to have 1,000 vehicles delivered by the end of 2021. Based on retail prices for its R1T pickup (starts at $67,500) and R1S SUV (starts at $70,000), that’s $70 million in revenue.

So, let me see if I get this straight. 

Polestar sells 29x as many vehicles in 2021 while generating 23x as much revenue, yet it’s valued at 1% of Rivian’s market capitalization of $102 billion. And, sure, Rivian does have some excellent investors in Ford (NYSE:F) and Amazon (NASDAQ:AMZN), but that hardly justifies the $101 billion valuation gap between the two businesses.

I find it hard to believe that GGPI stock is trading at less than $14 despite having substantial revenues post-merger.

Is it purely because investors don’t think the merger will happen? I think so.

How’s That?

InvestorPlace’s Joanna Makris discussed the Polestar IPO valuation in mid-November:

GGPI’s merger with Polestar pegs the company at a roughly $20 billion enterprise valuation. That’s a fraction of LCID and Rivian, which command market capitalizations of approximately $70 billion. Notably, Rivian upsized its recent IPO valuation, reflecting bullish investor sentiment. Put another way, Polestar’s implied valuation represents a price-to-sales multiple of 3x estimated 2023 sales and 1.5x estimated 2024 sales. In contrast, rivals Tesla (NASDAQ:TSLA), Lucid (NASDAQ:LCID), Nio (NYSE:NIO) and Xpeng (NYSE:XPEV) trade at multiples of between 4x and 11x 2023 sales. Unlike the Titanic, GGPI stock looks more likely to go up than down.

The big thing to remember is that Polestar is rolling 100% of its equity into the merger. So after the closing, it will own 94.1% of the overall business. Gores Guggenheim investors will own 3.8%, its sponsor will own 0.9%, and the PIPE (private investment in public equity) investors will own the remaining 1.2%.

So, the non-Polestar equity holders will own 125.4 million of the 2.13 billion pro-forma shares. At current prices, that values the non-Polestar equity at $1.7 billion, $620 million higher than its current value. However, you have to take out $250 million for the PIPE investors. But even still, that leaves a valuation of $1.45 billion, $370 million higher than its current market cap.

So, by my back-of-the-napkin calculation, GGPI’s share price assuming the merger goes through should be worth at least $17.98, 32% higher than its current price.

  

The Bottom Line

Nanalyze discussed the Polestar/Gores Guggenheim merger in October, focusing on the potential stumbling blocks to GGPI lifting off any time soon. Of particular concern is the company’s supply chain. 

Between chip and lithium battery shortages, the tech investor has warned off its readers, saying it’s best to wait until the merger is completed before plunking down your hard-earned capital.

Fair enough.

I often suggest to InvestorPlace readers that if a stock is destined to be a long-term winner (five to 10 years out), there is no rush to run out and buy it. Instead, get to know the company a little better. You might even get a better price in the process.

As for rosy predictions, these are numbers come from a business that is currently owned by Volvo (OTCMKTS:VLVLY), whose trailing 12-month sales and operating profits are 366.8 billion Swedish Kroner ($40.4 billion) and 47.3 billion Swedish Kroner ($5.2 billion), respectively. 

I think it’s safe to assume it knows what it’s doing regarding actuals versus projections. Like any investment, there is risk present. 

However, from where I sit, GGPI seems like a better buy for the aggressive investor than RIVN. We’ll know for sure sometime in 2022. 

Vroom. Vroom.    

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 

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Author: Will Ashworth

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Economics

Only US Bonds Were Spared From Last Week’s Widespread Losses

Was Friday’s selling wave overdone? Too early to tell, but the damage from last week’s sudden bout of risk-off left all the major asset classes in…

Was Friday’s selling wave overdone? Too early to tell, but the damage from last week’s sudden bout of risk-off left all the major asset classes in red – except US bonds, based on a set of ETFs as of Friday’s close (Nov. 26).

Vanguard Total US Bond Market (BND) bucked the trend and posted a fractional 0.05% weekly gain. The slight advance marks the second straight weekly increase for the fund, which holds a variety of investment-grade fixed-income securities.

Otherwise, it was losses across the board for the major asset classes, ranging from a mild -0.1% retreat in foreign government bonds in developed markets (BWX) to a hefty 4.0% tumble in emerging markets stocks (VWO).

Another week of widespread losses weighed on the Global Market Index (GMI.F) — an unmanaged benchmark (maintained by CapitalSpectator.com) that holds all the major asset classes (except cash) in market-value weights via ETF proxies. GMI fell 2.1%, a third straight weekly loss.

There are signs in early trading today (Mon., Nov 29) that global markets are stabilizing after Friday’s rout. But some analysts are preparing for more volatility.

“Despite the irresistible pull of buying-the-dip on tenuous early information on omicron, we are just one negative omicron headline away from going back to where we started,” Jeffrey Halley, a senior market analyst at Oanda, advises in a research note. “Expect plenty of headline-driven whipsaw price action this week.”

But other strategists are inclined toward a contrarian approach. “We would be aggressive buyers of this pullback,” advises Fundstrat’s Tom Lee in a note to clients on Sunday night. “As with the case for Beta and Delta variants, the ‘bark’ has proven worse than the bite in each of those precedent instances. The market carnage, in our view, will be short-lived and transitory.”

Maybe, but the uncertainty about Omicron inspires caution, writes the co-chief investment officer and chief market strategist at Truist Advisory Services. “The pandemic and COVID variants remain one of the biggest risks to markets, and are likely to continue to inject volatility over the next year(s),” counsels Keith Lerner via a note on Friday. “It’s hard to say at this point how lasting or impactful this latest variant will be for markets.”

Meanwhile, reviewing the major asset classes through a one-year trend reflects a mixed bag of results. The top performer: US real estate investment trusts (REITs) via Vanguard US Real Estate (VNQ), which is up a strong 31.2% for the year through Friday’s close.

At the opposite extreme: bonds issued by governments in emerging markets (EMLC) – the loss in this corner is approaching -9% over the past year.

GMI.F’s one-year performance is a solid 15.3% at the moment.

Drawdowns are starting to deepen across the major asset classes after last week’s selling. The smallest peak-to-trough decline is currently found in US inflation-indexed Treasuries (TIP), which ended last week at -0.8% below its previous peak.

Otherwise, most drawdowns are in the -2% to -9% range. The big downside outliers: stocks and bonds in emerging markets (VWO and EMLC, respectively) and commodities (GCC).

GMI.F’s current drawdown: -3.0%.


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