THE VALUE VIEW GOLD REPORT

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Kimberly Chambers
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1 THE VALUE VIEW GOLD REPORT Disciplined Analysis of GOLD Purchase Timing for Profits Volume 2017, No. 4 April 2017 FOMC & BOND BEAR MARKET Quantitative easing, wholesale flooding of the banking system with near free reserve, accomplished nothing but keeping alive some large, poorly run banks. The Federal Reserve balance sheet today holds $4.5 trillion dollars of securities acquired from banks and other investors. U.S. banks now hold $2.3 trillion of excess reserves. Banks must hold required reserves, a percentage of deposits. Reserves, largely deposits at Federal Reserves, in excess of required reserves are excess reserves. IF U.S. economy is in an expanding mode, banks could lend those excess reserves out to businesses and consumers. Each dollar of loans would create multiple dollars of money. That money creation would have the risk of causing prices to rise. Given the massive size of those reserves, the potential money supply creation is also massive. Federally reserve would like to lower the risk of that all happening. To that end, Federal Reserve would like to sell some of those trillions of dollars of bonds it owns. Term being used to describe this effort is unwinding the balance sheet. To sell those bonds they must be priced to encourage dealers and banks to buy them. Those means prices for bonds being sold must be lower than those currently trading in the marketplace. A lower bond price means a higher yield is being offered. As long as Federal Reserve is in a selling mode and on a path to normalize interest rates, U.S. interest rates, and ultimately those in other countries, will rise and bond prices will fall. Welcome to a bond bear market. Federal Reserve is expected to announce a plan for reducing its balance sheet sometime this year. Questions: How many bonds will they plan on selling? Initially $1 trillion or less, so as to not spook the markets. Over what time frame? That is the tricky part, and history suggests the Federal Reserve will get it wrong. Ned W. Schmidt,CFA Publisher Schmidt Management Company 2017is our 30 th Year Beach Boulevard Unit 812 Jacksonville FL Phone: nwschmidt@earthlink.net OUR WEB SITE FOR SUBSCRIBING IS This written effort is simply an attempt to report on global financial matters, and the foolishness of policymakers around the world. Wise people should not believe everything we write. Investing should only be done after research and study.

2 Syria, et al: Does Syrian situation have an upside, or is peaceful resolution possible? NO! Does Syrian situation have a downside, or will it likely deteriorate more? YES! When possible outcomes of an event are skewed to the negative then one should seek out investments that should benefit from that negative vent. Answer is not more Tesla stock. Answer is more Gold and Silver. Selling of Silver after missile attack was incredibly stupid. Likely done by dumb rocks, or the teenage traders we often write about. Read: Last War of the World-Island: The Geopolitics of Contemporary Russia by Alexander Dugin, and The Black Swan by Nassim Taleb. Above chart plots the history of U.S. margin debt over past six decades, and came from an article on marketwatch.com by Ryan Vlastelica. Linked below. Our interpretation is somewhat different from perma bulls in article. First thing to note is date of when margin debt turned sharply higher. Greenspan was running the Federal Reserve, and determined to lower rates and hype the stock market. Three short-term parabolic curves exist in chart. They are highlighted by arrows. First one drove the internet and technology stocks to unbelievable highs. Debt peaked in 2000 when stock market technology bubble crashed. Second short parabolic drove the financial stocks to highs on the mortgage mania. That situation crashed on bust of Lehman Brothers and Bear Sterns. Third, and probably final, parabolic debt rise is the current one. Margin debt recently hit a new high as stocks like Tesla are pushed to dubious prices. As we write this morning, Tesla s market capitalization is now larger than GM. Utter nonsense! HOWEVER, Big Message in that chart is the massive parabolic curve shown which dates back to about 1992, or roughly 25 years ago. A parabolic curve is one in which the slope, or steepness, of the curve accelerates. That condition is highlighted by two straight lines to show the steepening slope. We know one important thing about such curves. They always fail, and painfully so. However, we never know when the parabolic formation will collapse, only that they inevitably do. At the present time the risk in the U.S. stock market is extremely high due to the current bull market being debt financed. Only ultimate beneficiary of such a situation is Gold and Silver. Link to Margin Debt Article In the above chart, as noted above, two small margin debt cycles developed and collapsed. One was connected to the Internet Bubble and the other was associated with Housing/Mortgage Bubble. In each of those cycles the popular belief was that they would not end. As we now know, they did end, and in a painful manner. That factual reality is good reason to expect that the Mega Cycle pictured in the chart will also end. As can be observed in Page -2-

3 the early part of that graph, big debt cycles were not the norm. They only developed after the irresponsible monetary policy of Greenspan that was continued by Bernanke. Yellen is on a different path, one that does not use the stock market as a primary goal. VIEW GOLD REPORT April 2017 Thus far we have talked on two topics. One was the unwinding of the massive balance sheet of the Federal Reserve that will likely begin later this year. Second was massive margin debt being used to finance the mania in U.S. stock market. An important question arises. What happens when these two developments clash with each other? Remember, margin debt arises from the excess reserves of the banking system. When Federal Reserve begins to reduce its balance sheet, those excess reserves will decline, reducing the amount of margin debt available. Potential damage to U.S. stock market could be catastrophic. Relative Valuation: Gold is cheap. U.S. stocks are expensive. Analysis of $Gold / S&P 500 Ratio Data: Years Current Ratio Probability Gold Higher > 75% Average Ratio 1.15 Standard Deviation 0.86 If S&P 500 = 2,329 $Gold should be: $2, % If $Gold = $1,287 S&P 500 should be: 1,129-52% Top chart is our index for the value of the dollar. Black line highlights the current support level. Most recently the index turned sharply down on comments made by President Trump. He said that China was not a currency manipulator and that the dollar was over valued. While probably correct on each of those, why did he say that at this time? China has been surprisingly cooperative over U.S. missile strike on Syria and whatever is going on in Korea. Our view is that Trump and Xi may have agreed on many things over dinner, and this statement was likely a consequence of that happy get together. Page -3-

Bottom chart on previous page is a ranking of currencies based on a statistical test. While dollar went down in response to Trump s comments, it has been weak for some time.

One that is likely headed down is South African rand due to miserable politics developing there. III-1 III - 2 III-3 FOMC S next meeting is 2-3 May.

4 Bottom chart on previous page is a ranking of currencies based on a statistical test. While dollar went down in response to Trump s comments, it has been weak for some time. Only Canadian dollar has been weaker. Given the miserable fundamentals, dollar should be weak. Cannot fully explain Canadian dollar weakness. One that is likely headed down is South African rand due to miserable politics developing there. III-1 III - 2 III-3 FOMC S next meeting is 2-3 May. No interest rate action is expected at that meeting. 14 June is then the next announcement date. Do expect a 25 basis point increase in U.S. interest rates at that time. Another negative event for U.S. stock market, especially NASDAQ 100. Will we get another buying opportunity in Gold at that time? Probably yes. II Top chart, using monthly average Gold price, is the right-hand portion of the longer term chart we have used. As indicated in chart, we continue to believe $Gold in a Major Wave III, Minor Wave 3. That means that $Gold is still headed higher. As highlighted by small fat arrow, the latest move up is to a new high for the wave. Middle chart is of a shorter view of $Gold along with the short-term oscillator. We raised the upper limit on that chart to $1,350, which is just shy of the current bull market s high of $1,376 on an intra day basis. So, it kind of gives an idea of how far Gold is from a new bull market high. Also added to that chart is what looks like trading range for the current situation from last December s low. That low was the second major low and confirmed the new Page -4-

bull market. In that chart the oscillator is over bought as would be expected after strong move of past week.

Note that in the bottom chart on previous page that the intermediate oscillator is only modestly over bought.

Doing so would be consistent with the shape of the trading range projection. Latest intra day high is $1,289.40. The Global Gold Bull Market seems alive and healthy.

do not see Tesla as a long-term store of wealth. Many nights in our time zone we see Gold move higher as it trades around the world.

5 bull market. In that chart the oscillator is over bought as would be expected after strong move of past week. Note that $Gold did close out the week strong as many are worried about the Korean situation. Note that in the bottom chart on previous page that the intermediate oscillator is only modestly over bought. What seems most likely is that Gold might pedal slowly for a while, perhaps only a few days, before making a thrust above $1,300. Doing so would be consistent with the shape of the trading range projection. Latest intra day high is $1, The Global Gold Bull Market seems alive and healthy. In both of the top charts below we see Gold in local currencies attempting to break out into blue sky territory. Most people in the world outside the U.S. do not see Tesla as a long-term store of wealth. Many nights in our time zone we see Gold move higher as it trades around the world. Then, when the teenage traders arrive at work in U.S. it is sold off. Only bears on Gold seem to be in the U.S. where they believe we should put our money in wonderful fantasies like Tesla. Korea: Current situation is Chinese troops on border with North Korea to handle refugees from North Korea should something happen. U.S. has an aircraft carrier battle group offshore Korea to provide a protective umbrella for any ground action. And, North Korean leadership is not going to go away quietly and open the gates to South Page -5-

6 Korean army. That leaves really only one possibility. South Korean air commandos, backed up by U.S. special operation teams, will attempt to neutralize North Korean dictator. Do not believe that on the ground North Korean army can repel South Koreans. That scenario suggests we will get much higher Gold prices sooner rather than later. Stalemate of current situation is not a viable option. Probability Kim Jong Un leaving country: 20% VALUATION US$ GOLD RENMINBI CNY/$ $/CNY US$ SILVER Target Price $2, % $ % $ % Fair Value $965-25% $ % Current Price $1, / $ $18.50 Signal Oscillator 74% 84% Probability of BULL trend 90% 70% 90% Bear Market Low $1, Dec 15 $ Dec 2016 $ Dec 15 % Change From Low + 23% +0.5% + 37% Days Since Low Day Moving Average Current - Value $1,251 +$ 36 $ $0.60 Virtual Demand: Total demand for Gold and Silver is composed of two elements, physical demand and demand for paper Gold. Charts below are of the net long position of large speculators, trading funds, in Gold and Silver futures. Page -6-

Most likely was those teenage traders that had decided the missile attack was an isolated event and meaningless. World thought different and pushed Silver back up. Latest intra day high $18.67, kitco.

7 SILVER seems to be in a good position at the present time. It is above the 200-day moving average. It has risen above the last short-term high. And in the latest week it did a good reversal to punish sellers. That reversal did give us a strong candidate for Dumbest Trade of Day after the Syrian missile attack Silver was sold off hard. Most likely was those teenage traders that had decided the missile attack was an isolated event and meaningless. World thought different and pushed Silver back up. Latest intra day high $18.67, kitco.com basis. GOLD STOCKS Gold stocks, on average, had a good month. Our index of Gold stocks is portrayed in the middle chart. In that chart is our approximation of the major trading range. Currently, that index seems to be moving along the lower edge of that trading range. Normal, and reasonable, expectation would be that the index should move toward the upper boundary of that trading range, given our expectations for Gold. Should start getting first quarter earnings reports at end of month. Will be interesting to seem how revenue growth develops with that data. That is red bars in bottom chart. Put in some extra work on the valuations which are shown in table on next page. About half were reduced and half raised. Those were one time adjustments. We would expect those valuations to rise as the price of Gold moves higher. Page -7-

8 GOLD STOCKS ISSUES HI Denotes New 52 Week High in Month CURRENT US$ PRICE % CHANGE ESTIMATE of VALUE % TO VALUE % GROWTH NOW / LAST* Yamana Gold (AUY) $ $ % - 2% / + 2% Kinross Gold (KGC) $ $ % + 6% / + 3% Gold Fields (GFI) $ $ % + 2% / + 5% Newmont (NEM) $ $ % + 5% / + 3% Goldcorp. (GG) $ $ % - 3% / - 5% Randgold (GOLD) $ $ % + 8% / +16% Agnico Eagle (AEM) $ $ % + 0% / + 7% Barrick Gold(ABX) $ $ % + 1% / - 0% MEAN +14% + 9% + 2% / + 3% MEDIAN +12% + 2% + 1% / + 3% *Six month rate of change for trailing twelve month revenues. GOLD FIELDS (GFI) is portrayed in chart to right. Let us start with a look at the solid, red line for revenue growth. The trend in revenue growth does seem to have been the driver for the stock s price. Revenue growth did become positive in the middle of last year. As a consequence stock price did rise to an unsustainable level, well above the valuation. Some heavy profit taking then occurred. Stock is now under valued. Should revenue growth continue in a positive fashion the stock should move higher over the next year. That ride will probably be fairly bumpy, and suitable only for those with a lot of patience. Web site is Page -8-

9 GOLD STOCK ETFs Charts below are for GDX, the ETF for producing Gold miners, and the bottom chart is for GDXJ, the ETF for smaller mining companies. Charts present pictures that are similar, but GDX has had a more favorable development pattern. GDX is just shy of the 200- day moving average, $24.7. The $25 level is providing some kind of resistance that goes back to Fall of last year. That means when GDX does move above that level a further strong move higher should develop. However, overbought condition could hold it back some, until Gold moves higher. Resistance price to watch for is ~$26 on GDX. GDXJ has not been able to move above last short-term high for some reason. Resistance prices to watch for GDXJ is ~$40 to $44. Of the two, GDXJ seems the better opportunity at this time. APPROPRIATE ACTIONS: Investors should be holding their Gold. Gold should be bought on price weakness. Investors should be establishing investments in Chinese Renminbi deposit accounts. Be selective, seek value, and take care of the dog, NED ned@valueviewgoldreport.com Follow Page -9-

10 Publication schedule: Next Trading Thoughts: 30 April Next monthly issue: 15 May VALUE VIEW GOLD REPORT MAJOR BUYS SIGNALS ON $GOLD Based on buy signals from Intermediate oscillator. Starting Date of This Record 8 July 2002 Ending Date for This Record $Gold = $1,287 on 14 Apr 2016 Number of Buy Signals 67 Correct Buy Signals 47 Percent Correct 69% Average Gain on Signals +56% Average Buy Price of Gold $1,049 Gain on Average Price +23% The signals are from the published record. They do not represent actual trades. This record is not a prediction of future performance. Wish it was! VALUE VIEW GOLD REPORT MAJOR BUYS SIGNALS ON GDX, GOLD STOCK ETF Using Intermediate Oscillator Starting Date of This Record 21 February 2006 Ending Date for This Record GDX = $24.54 on 14 Apr 2016 Number of Buy Signals 55 Correct Buy Signals 12 Percent Correct 22% Average Gain on Signals -25% Average Buy Price of GDX $36.32 Gain on Average Price -32% The signals are from the published record. They do not represent actual trades. This record is not a prediction of future performance. Wish it was! Page -10-

11 Subscribe to THE VALUE VIEW GOLD REPORT. One(1) Year =US$199 Two(2) Years = US$348, SAVE $50 VALUE VIEW GOLD REPORT can be delivered each month by to you. Use our web site to subscribe: Or, use form below to order by credit card. To pay by check: Checks must be made out to: Schmidt Management Company, Beach Blvd., Unit 812, Jacksonville FL, 3222 Credit Card Billing Information. (All sales final, and no refunds.) NAME ADDRESS 1 ADDRESS 2 CITY/STATE or PROVINCE / COUNTRY/ MAIL CODE / CARD TYPE & NUMBER MC / VISA / AMEX SECURITY NUMBER Back of card. Front on AMEX. EXPIRE DATE PHONE NUMBER ADDRESS SIGNATURE Per one of U.S. founding fathers: A useless man is a disgrace. Two useless men is a law firm. Three or more is the U.S. Congress. Page -11-

THE VALUE VIEW GOLD REPORT

THE VALUE VIEW GOLD REPORT AND an end to a grand technology fantasy seem to be at hand. Such a development suggests that markets may be offering up new opportunities for investors. Might we humbly suggest