Reasons to Buy Gold and Silver in 2015: US Dollar, Currency Wars, Russian Reserves, Central Bank QE

Gold and Silver Market Ripe For Rapid Growth

Though stateside gold prices may appear docile, from a foreigner's perspective precious metal prices are already too high because in much of the rest of the world the key precious metals have become a lot more expensive to purchase thanks to currency wars : the mighty US dollar.

Seventy-five percent of silver production (mine production) happens at gold mines - this means that, when gold production slows down (companies shuttering mines which started happening in the middle of last year) silver output declines.  This keeps the gold silver ratio intact despite the delinking of the two metals at London's commodities bourse.

The core price is set by comex, the commodities exchange in NYC and thus is traded in USD.
The fact that the price of both pcm's has barely increased over the past six months in my opinion makes both ripe for the picking ! 
Elsewhere the strong US dollar is making gold increasingly harder to afford, but that's inflation spurred by changes in local currency rates;  though quantitative easing and changes in interest rates are wreaking havoc on other currencies, the USD already has that factored into its value.. with The Fed at its side nothing aside from a shaking of the Fed's basic policy of money creation can shake its value... or of course a tiring by currency traders of the endless excuses for more QE.

In my opinion however, gold should've gained much more than nothing in US dollar terms.  Demand is still rising especially among those seeking a tangible hedge against inflation, as well as by those transferring money out of equities in response to growing global economic uncertainty, a shrinking middle class. 

The Gold Supply Problem

Now there's also the inevitable gold supply problem : let's face it, prices crashed last year - and the big producers responded by shuttering mines, big mines that weren't producing at reasonable cash costs.  Restarting those mines doesn't happen overnight - it can take years to complete new shaft reconstruction, bring in the necessary capital investment funding, and in some cases may even involve reapplying for licenses and approvals.  The big gold companies are now worth a lot less making it increasingly difficult for them to get banks to lend them the billions of dollars needed to make the mines work.  Then of course there's the shareholders who need to be convinced that the metal prices won't collapse again.

As of 2014 there is an estimated 24 billion ounces of silver existing in the form of jewelry.  Total historic production of silver is about 52 billion ounces, eighty percent of that mined since the dawn of the twentieth century.  However, much of the 52b oz will never be available to the bullion market due to its historical value (in the form of religious items, museum pieces, non-scrap jewelry).

India Imports Record Amount Of Gold From Switzerland

According to data from November 2014 Indian imports of gold from Switzerland totaled CHF2.9 billion up a whopping 600% versus the previous year; it's not just that month either, in October it was up 280%; January through November gold imports amounted to 457 kilos.

Russia Continues To Add To Gold Reserves
Russia purchased 20.73 tonnes of bullion in December - note also that in December gold prices were up for the first time in five months (+1%).  Makes Russian reserves fifth largest at 1210 tonnes.
Also notable - Ukraine held onto its reserves after selling 16 of 40 tonnes in Oct/Nov. 

Then there's the other central banks who cumulatively only became net buyers of gold since 2010 after 20 years of being net sellers.

Russia is key here - July through September 2014 it accounted for 59% of the 92.8t of net gold purchases by central banks.  Gold comprises just under 11% of Russian reserves up from 8% in 2013.  Those purchases allowed it to leapfrog China (1150 vs 1054).
Gold imports from HK by China were down last year but it was still the second highest on record at 813 tonnes.  Demand for gold should continue to increase into February as a result of Chinese new year festivities.

Don't Bet Against The Canadian Dollar !

I don't consider the current CDN/USD fxrate to be sustainable -  Beginning in 2016 oil prices are forecast to go up possibly by as much as 50% ($45->$65 per barrel).  Also note that Canada's federal government is starting to run a balanced budget while the USA has a severe, structural deficit which ultimately will lead the United States into a situation where it will be forced to run up high payments to foreign bondholders further weakening its long term outlook.

Don't Let Yesterday's Gold Selloff Turn You Off

- gold responds positively to durable goods numbers
- most global currencies are either under pressure (canada, australia, euro) or being deflated (asia) - this strengthens the US dollar in the near term but makes it increasingly vulnerable over the long term
- when the dollar shows any sign of weakness expect a big jump in precious metal prices
- Greek debt bailout 80 out of 240 billion is owed to Germany - If Greece doesn't pay up Germany will undoubtedly rethink its financial obligations to the Eurozone and that weakens Europe, its central bank and its structure.

Gold Prices In Limbo, BlackBerry BBRY Gradual Trend Upwards, Heinz Takeover A Foreign Acquisition HNZ

A lot has happened since my last post so I'll be brief. 
Gold and silver price shows weakness despite a surge in demand.
The price of gold (and even moreso silver) has been weak despite

1) Record sales of silver eagles during the months of January and February
2) Increasing demand on the comex for both precious metals
3) Russia and China continuing their buying spree
4) Growing evidence that some of the popular gold and silver ETFs have only paper claims - which they can't physically backup.

Though I maintain that over the long run, you're safest investment route is in physical gold and silver, over the short term, prices might trend lower ... much lower.
In fact Goldman Sachs thinks that gold is on its way down to $1200 an ounce - a fall of almost 30% from current levels, pushed down by US interest rates which are on their way up (whether the economy stabilizes or not, interest rates can't get any lower than they are now).

I can both agree and disagree with their assessment.  Higher interest rates can depress prices but I think that other factors will eventually come into play that will counteract the effect.  The fiscal cliff is just starting to kick in which will eventually create a need for more quantitative easing: QE3, followed by QE4, QE5, ... etc.  The US trade deficit remains only marginally lower than it was in 2011 ($540.4b vs $559.9b) despite big jumps in fuel sales to overseas buyers/crude output reaching 766,000 bpd which is a 15 year high, so imagine what would happen if oil production and fuel sales declined, which John Kerry's policies appear to favor.

But with the Chinese yuan renminbi continuing to depreciate against the American dollar, there's no reason to expect the trade gap with China to alter significantly anytime soon.
What about China ?  The world's second largest economy and key purchaser of US and European debt (electric grid in Portugal now owned by Chinese company) is facing new problems of its own some geopolitical others domestic.  Foxconn (Hon Hai Precision Industry) which is the leading supplier of components for America's biggest company Apple Inc (AAPL), has stopped hiring new workers - a stock selloff ensued as investors took that to mean that sales of Apple's products are falling off.  However, at the same time Foxconn expressed an interest in opening new manufacturing centers overseas (suggesting that perhaps the problem is with China/ Apple wants more American workers).
For January 2013, foreign direct investment (FDI) into China was down 7.3% to $9.3 billion which is a four year low, in fact it's the largest decline since November 2009 (-9.9%)

Interest in BlackBerry is Growing and it's not just from Business Clients

                    This month, BlackBerry launched the first in a line of QNX powered smartphones running on the totally redesigned blackberry 10 platform.  I spent a lot of time last year defending RIM's strategy, technology and reputation and so it's refreshing to finally see the company get credit for all the R&D that went into developing their current products (the Z10 is groundbreaking and that's just what RIM needed to keep detractors at bay, otherwise, attacking them would be very easy to do considering BlackBerry's US market share remains quite low). 

The company took quite a beating the last two years for sticking to its own platform (and apps) while remaining steadfast in their dedication to security and to serving the needs of corporate clients.  Though the PlayBook remains a work in progress (sales steady but only because the market is growing) the new line of handheld devices are proving popular among both business and non business clients, giving shareholders more reason to be optistic.  Investors take note ! - The new BlackBerry Z10 was first released in the UK followed by Canada (February) then finally the United States (March) meaning that sales figures won't fully show up in quarterly reports until the summer (next results will be released in March followed by June).  Over the last 3 months BlackBerry (Nasdaq : BBRY) is up +23.6% which outperforms other techstocks Nokia (+18.93%), Apple (-23.96%) and even Google (+19.24%). 

Demand for the BlackBerry Z10 must be solid given that RIM has already increased  production capacity.

According to CEO Thorsten Heins

"we still have an installed base of 79 million subscribers. And BlackBerry 10 offers something that Windows Phone cannot, namely, the strict separation of business and personal information. The Microsoft operating system cannot imitate times just between evening news and weather reports". 

Heinz Gets Acquired But Who's Really In Control ? Brazil's 3G Capital or Omaha's Buffet ?

                   And finally, Heinz Ketchup gets taken over by investment firms Berkshire Hathaway, 3G Capital.  It's $23 billion in cash with the rest of the $28 billion figure stemming from Heinz's $5 billion debt load ($4.1 billion long term).  What's notable about this takeover is that 3G Capital, the foreign company involved is actually the company receiving a controlling interest not Berkshire Hathaway.  Former shareholders are obviously happy with the 20% premium they received but what about the employees in Pittsburgh, who will now have to accept that most important decisions concerning the company will be made in Brazil.