As we near the end of the first quarter of trading in 2017, here is a reminder from one of the greats in the business, John Hathaway, which says China is preparing to radically reprice gold higher as the demise of the COMEX & LBMA accelerates.

KWN wanted its global readers to review this masterpiece from Hathaway before we kickoff trading in the second quarter of 2017: 

By John Hathaway, Tocqueville Gold Fund
(King World News) – 
Gold rose 8.5% for the year while gold-mining stocks (XAU – Philadelphia Gold and Silver Index stocks) rose 75%. On an annual basis, results were highly satisfactory. However, there was considerable drama beneath the surface that left precious metals investors in a state of anxiety by year-end. Precious metals and mining shares rose sharply through August, and then spent the rest of the year giving back much of the first-half gains. The second half downtrend accelerated into early December, following the unexpected victory by Trump and a hawkish statement after the December Federal Open Market Committee (FOMC) meeting…

 

The Next Big Change In The Gold Price Will Be Substantially Higher
The question of the hour is whether the 2016 gains were merely a countertrend rally following a four-and-a-half-year decline from all-time highs in 2011, or the beginning of a new leg in the secular bull market that began in 1999, during which gold rose from less than $300/oz. to $1900 in August 2011. We judge the weight of current sentiment, mainstream media opinion, and technical analysis to be extremely bearish, comparable to year-end 2015 just prior to the dramatic gains that followed. We believe that, based on prevailing negativity, the next big change in the gold price will be substantially higher. If so, the 2016 second-half correction will have established a durable higher low from the advance that began at year-end 2015, and would be the precursor to the continuation of the secular advance that began in 2000.

Fundamentals of physical supply and demand remain positive, and are reinforced by the current extended regime of precious metals prices too low to justify expanded mine supply. Global mine output has plateaued; it now seems likely to decline through 2020 and perhaps into the middle of the next decade. As shown in the chart below, discoveries of new ore bodies are at a 25-year low, while the time required to bring new ore bodies into production continues to lengthen, and now stands at nearly 20 years.

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Physical demand continues to show steady secular growth, primarily in Asia. Consumption by Turkey, India, China, and Russia alone have exceeded global mine supply since 2013, which means that inventories of physical metal held in Western vaults are being depleted to meet that demand.

kwn-hathaway-ii-1132017

Two recent developments (largely ignored by mainstream media) will, in our opinion, significantly strengthen the demand for and usage of physical metal. First, a new Shariah gold standard was approved in December 2016:

The AAOIFI [Accounting and Auditing Organization for Islamic Financial Institutions], in collaboration with the World Gold Council (WGC) and Amanie Advisors, has approved what will become known as the Shariah Gold Standard. This is a set of guidelines that will expand the variety and use of gold-based products in Islamic Finance. (Jan Skoyles, Goldcore Research, 12/16)

We believe that this will lead to the creation of investment products such as gold ETFs for the Islamic world (25% of global population), a market that has not been penetrated. While estimates of the potential market size vary wildly, and this development is in its early days, it seems to us that it is a major positive for future physical gold consumption.

King World News - China gold backed yuanChina Moving To Dominate World Oil Trade In Yuan Backed By Gold
Second is the incorporation of gold as a settlement currency to facilitate trade between oil-producing nations and the world’s largest hydrocarbon importer, China. Russia, Saudi Arabia, and Iran are settling most, if not all, of their energy sales to China in yuan convertible into physical gold via the Shanghai Gold Exchange. That flow represents a significant and growing percentage of international oil commerce, which in turn represents a dominant share of all commodities.
….more here