Rafi Farber: Signs of Serious Financial Plumbing Stress Are Now Obvious | Arcadia Economics

So this is a specifically gold stretch in open interest up to 600,000 contracts, 600,000, 10,000 contracts. Something is happening in the banks, and banks are the ones that really trade gold derivatives. Oh, hello there, my friends. Rafi here from the end game investor with this week’s silver report for Arcadia Economics. And I wanted to begin this week’s report with some interesting news I had a very eye-opening interview with a man named Brian Kuzma who owns a little shop, gold and silver retail coin shop in Fort Lauderdale. And he told me one very interesting bit of news.

He began the interview and it will be on my channel early next week, probably Monday or Tuesday. And he told me how his business is doing great. And I asked him, it doesn’t really make sense because premiums are down. I asked him how premiums work exactly. And judging by the premium levels, it seems that bullion sales are down and demand for gold and silver bullion is low right now. So how is it that his business is doing so well? And he said, well, it’s not exactly the coin sales, but the liquidation of numismatic collections by people in his neighborhood and his city in Fort Lauderdale.

He goes around and people give him their numismatic coin, rare coin collections to liquidate either a relative diet and they don’t want to continue the collection or whatever it is. And he makes money on the spread of numismatic collections that people want to liquidate. So what that tells me is that we are in the beginnings of a dollar crunch that people want liquidity. And if dollars are getting tight, you would expect an effect on the bullion market and people liquidating collections in order to maximize their liquidity, which tells me that the final crunch is getting very close.

And I will show this to you in the plumbing itself, in the repo numbers, and QT continues. We can expect one final liquidity event before gold and silver go vertical or however vertical they’re going to go. There’s going to be one final crunch and then one final printing round. And in my opinion, from there, we will head to the end game, as I’ve been saying ever since I started the in-game investor. And so before we get to the specific slides this week, this week’s Silver Report, as always, is sponsored by FSM Fortuna Mining, which has been doing quite well in the recent gold stocks.

Boom. This is news from last week. Fortuna Report solid production of 116,570 gold equivalent ounces for the second quarter of 2024. See here all of their main mines. The biggest source of growth is, of course, the Segella mine, up from 4,000 tons to 33,000 tons of gold. Yaramoko is stable. Lindero is stable, slightly down. San Jose is pretty much stable. And Kailoma, a very minor mine at this point, is up slightly to 143 ounces compared to 89 ounces. The main source of growth right now is Segella. And as new projects come online, this number should continue to grow.

I don’t know if it’s going to grow as fast as it has this quarter. But of course, we will see as the weeks move on. If we go to the technical picture, we can see how Fortuna has been acting during the latest gold stock bull market we’ve seen since around March. We have here Fortuna in the candles. And on a six-month chart, it is up 61 percent versus 44 percent for the GDXJ ETF. You can see here on pretty much every time length that Fortuna is outpacing the ETF on a one-year chart, we’re up 31 percent versus 20.7 percent.

On a two-year chart, we are up 98 percent versus 54 percent for the GDXJ. On a five-year chart, we’re up 34 percent versus 20 percent. And on a max chart going out as far as we have data, FSM is up 152 percent versus I can’t even see the number there. It’s around 50 percent, but it’s covered by the volume. So you get the point Fortuna outperforms the GDXJ on pretty much every time scale mid to long term. And given that I trust the people involved and that the company is on a growth trajectory, this is why I own FSM.

Of course, if you want to own it, you should do your own due diligence as they say and decide for yourself. And with that, let’s go into this week’s slides for this week’s silver report brought to you by Fortuna Mining. I said last week that the gold teachers market is making me a bit nervous. Not that I don’t trust the rally, but these numbers are hinting to me that we’re going to have a smash down in gold specifically. I don’t know exactly how silver will react, but I’ve seen these numbers before in open interest.

And it suggests that we are also on the cusp of some kind of liquidity crunch. I don’t know how extreme it will be. But just to show you why I think that. So this chart is one day old. We are actually at six hundred nine thousand three hundred sixty nine contracts for gold open interest open interest at the bottom here. Now you can see that the last time we had open interest at this level was the March 7th 2022 nickel Armageddon. And from there we had a big sell off in gold going down to the 1610 low.

I’m not saying we’re going to have a prolonged sell off in gold at this point lasting months or even half a year as it was from March to about September October 2023. Don’t think that’s going to happen. But open interest has gone here from about 440,000 contracts just a few months ago, two or three months ago to now six hundred and ten thousand contracts. And this is all bank concentrated. This is not in the physical markets and it’s not in the ETFs. Something’s going on in the bank system to encourage banks to open these positions.

And the fact that so many contracts are now open means that a lot of dollar liquidity is tied up in the gold futures market, which could contribute to a dollar crunch. Now we see here back in 2019 2020 that we went from about the same level, 440,000 contracts open to an all time record of 800,000 contracts. Gold open interest had never been that high. So we almost doubled open interest from 440,000 to 800,000 contracts in about is about 10 months or so, maybe less than 10 months. And we are up now 150,000 contracts in a very short amount of time.

So something is going on in the banking system to encourage this hoarding of futures of gold derivatives. Basically, what I’m saying is that when you have this amount of open interest, you want to be careful because something is going on in the banking system, not necessarily in the physical gold markets. So just stay careful here and be careful with your trading and don’t be on leverage. I’m not on leverage. I’m never on leverage. And especially now is a dangerous time for it. So we’ll see what happens with gold in the next few days to weeks.

I expect a reset back down and a little bit of a hit in the price, at least in the futures market, but not really in the physical markets because premiums should compensate for any fall in the spot price. And I wanted to compare here, I did some stretching of the gold charts or us charts over here. So the numbers look a little bit unnatural as they are. I just wanted you to see the contrast here. This is gold open interest on the top. We’re now at 609,000, so even higher than this number here, which is from yesterday.

And in silver, silver has not followed gold. So this is a specifically gold stretch in open interest up to 600,000 contracts, 110,000 contracts. Something is happening in the banks and banks are the ones that really trade gold derivatives. Features, sorry, silver derivatives are not really afforded that much by banks. Gold derivatives are driven by the bullion banks and the bullion bank cartel. So we’ll see what they do in the weeks ahead, but it looks a little bit unstable. Now to silver, I wanted to give a little bit of a perspective here going back to about 1928, 1930.

This is silver relative to the S&P 500. So we see here from about 1928 to 1972, right? That’s this area over here. This let’s say here is around 1928 before the crash of 29, silver relative to stocks. The higher this is, the lower silver is relative to stocks. So bubble territory from about 1928, just before the Great Depression until about 1972, just after the closing of the Nixonian gold window, bubble territory for stocks relative to silver was around 65, 70 ounces to the Dow. And then after 1980, we went from what is, I don’t even know what that number is, maybe five or 10 or something.

Looks like five, maybe even the last three, two, I came to read that number. You can look at the number yourself, look up the data. You can pause the video here and look it up for yourself. It’s a very, very low number, all time record low. And we go up to about 300 ounces for the, for, sorry, not the Dow, the S&P 500. And we only go below the 1928 to 1972 bubble territory in the 2011 parabolic top here. But we can see here that silver has been very volatile or really stocks.

If you can say silver has been volatile, you can say stock has been volatile, either one, whichever, whichever perspective you want to take here, it’s been pretty volatile. And this looks kind of toppy to me, right? We have a top at around 200 ounces for the Dow. We’re now at 182. And this is going to deflate, meaning silver is going to rise relative to the S&P 500. And the Dow is pretty much the same chart if you look at the Dow also, whether that means silver is going to rise parabolically or the S&P 500 is going to fall or crash or something.

It really makes no difference for silver stackers. Either way, you gain the same amount of purchasing power. So I just wanted to show you where we are here relative to stocks. Let’s go to the next chart. This I’m going to show you this little slide here. And then we’re going to go into the interactive chart on Fred just so you can get an idea what I’m saying. So this is the SOFR rate. That’s the basically the repo rate. This is what went to five and a half percent overnight on September 17th, 2019, the Repocalypse.

And this is how I’m judging what is going on in the plumbing or the financial system. And so I said that evidence from Brian Kuzma of Fort Lauderdale Precious Metals, Golden Silver Precious Metals, I think the store is called. He doesn’t even have a website. He’s a very old fashioned guy. So he was saying again about making his profit margins on the sale of numismatic collections rather than the sale of bullion at this point in time. And we can see here that this evidence of a dollar punch is being reflected in the repo markets because, and I’ll show you this on the interactive chart in a second, that the SOFR rate, the repo rate is getting very wobbly, specifically not around month, monthly ends.

At month ends, the repo rate goes up because banks balance their books and for other regulatory reasons. But now it’s getting wobbly outside of month ends. And this suggests to me that the repo market is getting very tight. So just to show you this on an interactive chart for a second, here’s the interactive chart. So you can see here, this is the last Fed rate hike, and that was in July 27th. So this really is a reflection of the Fed’s rate hike over here at the end of July 2023. Really, the SOFR rate, the repo rate is supposed to be about 5.3%.

And again, this is the rate at which banks loan to each other overnight. So we see here the spikes, right? When it gets wobbly is at month end. So moving from September to October, you see here that we were up to 5.33% from 5.3%. And over here, as October moves to November, we have another spike at month end. And here, same thing, November to December spike at month end. And here is the year turn, which we have a bigger spike, which also makes sense. And then we can go all the way to here, to March 2024, we have a spike from March going into April, and then calming down again.

And finally, we can see another one here from May to June, we have a move up to 5.35. Now, at the month end, we did have a spike from going into June to July, up to 5.4, which is, you know, equivalent to the year end spikes. So the spikes, first of all, the spikes are getting more strong, stronger, they’re getting stronger, they’re getting steeper. And here we have, what’s going on now is that we’re up to 5.35, which is generally the month end spike point, but we’re just in July 16, July 17.

And we’re stuck here at 5.35. And along with that, we have repo volume, the amount of dollars being traded in this market consistently above $2 trillion now. So things are probably getting pretty tight in the repo market. And at some point, as QT continues, as it is, though at a slower rate, there’s going to be a blowup in the repo market. And the Fed is going to have to print exactly when I don’t know, but it’s getting closer. You can see in this wiggly SOFR line outside of month end bursts.

Let’s get through these slides. I wanted to do a few slides on China. What is going on there looks a little bit also crunchy in terms of liquidity crunch, which should be reflected in China as well as the US. We’re getting closer to some kind of event. So here we see the Yuan, which is near 10 year lows, still near 10 year lows. And that’s just a setup for the next slide, which is Chinese yields are at an all time low. China has not participated in the rise in interest rates globally. They are an exception.

We are at almost an all time low of 2.27% in Chinese 10 year yields. So that means they do not have a lot of room to expand their little bubble or big bubble, as the case may be. We go to the next slide. We see here an almost perfect triangle that is converging on pretty much the point we are exactly now. And if you look closely, this is the Chinese stock market. I think it’s the Shanghai stock exchange composite index going back to 2008. So the triangle is going back 2005. This is the 2008 spike, the 2008 crash.

And we see here a perfect triangle or a wedge you could call, I don’t know what techies call these things, triangles, wedges, whatever. And also on the top side here, you can see that, wow, this is perfectly adjacent. And look at this. It looks like we have broken below the triangle here. And this is just a few months ago. And it looks like we’ve barely broken below it. So there could be some kind of event in the Chinese stock market imminently. It looks like a deflationary event. And that’s being reflected in the real estate market over here.

Look at this. Chinese real estate collapse intensifies. This is going back 2011 as far back as trading economics has data. And so you see here the crash of 2014, 2015, when the one I think had to be revalued or whatever it was. And here you see from this is either 2021 or 2022, I’m not sure. And we have the longest housing slump, according to this chart on record in China. And it’s intensifying now, right? The rate is going lower and lower and lower. Housing prices are falling. And we know that the housing market in China is pretty messed up with all those ghost towns, and they’re going to pay for it soon if they’re not paying for it already.

And it’s going to get worse. In the meantime, China is accumulating gold at its most sustained pace. Going back to 2000, we see here that there were bursts of gold purchases. And sustained gold purchases from 2015 to about 2017, 2016, whatever that was. But now we have sustained gold buying every month. This is the longest streak of gold buying monthly by the People’s Bank of China. And I don’t think this has any impact on the yuan really, because if the yuan does collapse, and it will collapse with the dollar because the yuan is a derivative of the dollar, then what happens is that the trust in the yuan is lost.

And the only way it can get gained is if it becomes convertible to gold, which I don’t think the Chinese bank wants to do. So it will affect the price of gold, but I don’t think it will affect faith in the yuan or their fiat currency system. And so the point here, my friends this week, is that I see evidence of growing dollar crunch in the US and is being reflected in China, the main trading partner. We’re getting close. We’re seeing in the plumbing. We’re seeing it on the front end, according to Brian Kuzma, with my interview, which should be up next week, early next week, on my channel, Rafi Farber, check it out on YouTube.

And we’re seeing in the plumbing. We’re seeing it in different directions, and it’s coming. It could be weeks, it could be months, but it is on the way. Axiomatically, that must be the case because QT continues. This is Rafi of the Endgame Investor. If you enjoyed this video, then please become an Endgame Investor subscriber on Substack, endgameinvestor.substack.com. And I’ll see you guys next week. [tr:trw].

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