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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

July 2018 - Week 3 Edition

Bitcoin can be Dangerous to Own – It’s Down 63% in Price and Subject to Theft and Fraud

The price for a single Bitcoin peaked at $19,783.21 on December 17, 2017.  Yesterday, the quoted price was $7,317.41, down 63% in seven months.  This decline was very predictable since Bitcoin was not a “real” financial market before late 2017.  You could buy or sell Bitcoin on electronic exchanges, but you could not sell Bitcoins “short,” which you could do with most other financial products. Traders can sell stocks or gold or any other financial product short, which means they can “borrow” the product to sell it now, hoping they can buy it back later (“cover their shorts”) at a cheaper price, pocketing the difference.

Last December 11, the Chicago Board of Exchange (CBOE) launched Bitcoin futures accounts. At the time, this move was widely seen as a sign that Bitcoins were finally being “legitimized” as a valid global currency, but that sword cut two ways. These CBOE accounts allowed “shorting” of Bitcoins, which happened almost immediately, sending Bitcoin prices down 65% (below $7,000) by February 6, 2018.

In the last few months, we have heard rumors about thefts from cryptocurrency accounts by Russian hackers being used to meddle in U.S. elections and other mischief. We don’t know if that’s true (the Russians certainly have access to a lot of cash from other sources), but now we have confirmation from the July 16 Wall Street Journal (“Thefts of Cryptocurrencies Mount”) that many cryptocurrency accounts have been subject to massive thefts.  Since 2011, according to Autonomous Research, a London-based financial-services research firm, there have been 56 cyberattacks directed at cryptocurrency exchanges, initial coin offerings and other digital-currency platforms around the world, causing a total of hacking-related losses to reach $1.63 billion.  The two biggest hacks were in Japan: The Mt. Gox exchange in 2014 and Coincheck in January, 2018, totaling nearly $1 billion in losses. The most recent loss was last week, when hackers stole $23.5 million in cryptocurrencies from an Israeli platform called Bancor.

There’s an old saying, “What one man can invent, another man can circumvent.” Clever programmers created Bitcoin and hundreds of other cryptocurrencies, but an invisible army of other, even more clever hackers are busily working around the clock finding ways to burrow into those electronic “safe” places.

The crypto-crowd is proud of their lack of government regulation, but that independence has backfired on them. They have nobody to turn to for protection.  When these private exchanges store cryptocurrencies for their customers, that makes these exchanges “sitting ducks,” says the Journal. “Thieves who manage to break in can do something akin to robbing a bank.” One cybersecurity expert said that cryptocurrency exchanges are “easy to breach, with minimum effort and expense from attackers and with maximum return on investment.” There have been five such robberies netting over $800 million total this year alone.

By contrast, U.S. gold and silver rare coins have a long-term track record of rising in value. Although the Chinese have accelerated their pace of counterfeiting bullion and rare coins, we have helped to pioneer the effort to detect and prosecute these efforts. By choosing the right coin dealer, who is adept in spotting counterfeits and who can counsel and train you in storing and preserving your coins in safe deposit boxes near you, you have added several layers of security over the cyber-currency fad seducing other investors. We are here to help you.  Please don’t hesitate to call us!

Bloomberg Commodities Index Lost 2.7% Last Week

Gold and silver are down along with most other commodities due in large part to the brewing trade war.  The Bloomberg Commodities Index, a measure of 26 raw materials, lost 2.7% last week, the most in any week since February.  Copper prices hit a near-one-year low. Also, July is typically a slow time for the gold market, which usually starts rising in mid-to-late August, followed by a strong September. If historical trends repeat, gold should recover next month, although a weaker dollar would also help.

The Senate Need Only Be Fair (not Political) in Judging Judge Brett Kavanaugh

We have entered an era in which nearly every nomination to federal office seems to be contentious, but I recall a time when a person’s abilities were the paramount consideration in their acceptance to public office. Sandra Day O’Connor, the first female Supreme Court Justice, was confirmed, 99-0, in 1981, as was Antonin Scalia – a Catholic conservative – who was confirmed, 98-0 in 1986.  Ruth Bader Ginsburg was confirmed 96-3 in 1993.  From 1970 to 1994, 13 Supreme Court justices came up for confirmation vote. Five were confirmed unanimously, one with a single “nay” vote, one with 3 against, one with 9 against and only two votes were close – one to confirm Clarence Thomas, 52-48 and one to reject Robert Bork, 58-42.  Recent votes have usually been close, including the vote to approve Neil Gorsuch, 54-45.

Historically, judicial skills and temperament mattered more than the political views of the appointee or the Senators voting for the nominee. Now, politics seems to matter more.  More important is how the nominee respects the Constitutional text and the federal balance of powers.

 

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