9 Apr 2011

Twin “Dollar Destroyers” to Create Earthshaking Collapse

With gold trading at all-time highs and silver at multi-decade highs, today King World News interviewed James Turk out of Spain. 
When asked about the US dollar Turk stated, “The key development is that the US dollar is in fact breaking down. This is something that we have been talking about for a few weeks now and the dollar index here in Europe is at the lowest levels since November of 2009. We’re closing in on those lows of 74.17, once that level breaks the floodgates open. Put another way, the dollar falls of the edge of the cliff.”

“Let me give you some reasons why I am focusing so much on the dollar. Here in Europe they have started acknowledging the growing inflationary pressures. As a consequence the ECB yesterday raised interest rates a quarter of a percent. It’s a small step but going in the right direction. What the KWN readers globally need to understand is that what we are seeing is a trend change in interest rates, a directional change in the cycle.

So it is not too surprising to see the Euro breaking above the $1.42 level that we discussed in our last interview. That was an important tactical point and suggests that the Euro is headed toward the $1.50 mark. Meanwhile, on the other side of the Atlantic, the Federal Reserve is asleep at the switch because they contend there is no inflation. Here we have crude oil prices at $112 a barrel and gasoline prices are putting a big dent in the consumer’s pocketbook.

It is important for the readers to understand that there are two “dollar destroyers” at work here. In addition to the Federal Reserve, the politicians in Washington DC are spending money so quickly that the federal deficit for the first six months of this year has already eclipsed the first six months of last year by roughly 10% despite promises to control spending. These twin “dollar destroyers” have created a significant possibility of a waterfall decline leading to an earthshaking dollar collapse.”

When asked about the ramifications for gold Turk replied, “We finally broke through resistance of $1,440 and in my opinion we’re starting to see the beginning stages of an upside explosion in gold. It’s sort of amazing to think Eric that here we have gold at record highs and it still hasn’t yet caught the public’s attention.

There is no frenzy, there is no bubble mentality. One can only reasonably conclude that it is still early days in gold’s bull market. But it will be interesting to see when gold hits my $1,800 target if it begins to awaken the masses.

As soon as the XAU breaks its previous high of 232.72 this will confirm the new highs already made in gold, silver and the HUI. Get ready for an upside explosion in the mining shares; I expect it will breathtaking.”

When asked about silver Turk remarked, “The natural question now that we have broken through $40 on silver is whether $40 will emerge as a barrier? Given the positive backdrop for silver I don’t see why $40 should be a barrier anymore than $30 was. I just see it as a stepping stone on the way to my target of $50 which I still think is possible by the end of June.

You know there can be a temptation to sell when you see prices so much higher than they were just a few months ago, but that is more of an emotional response rather than a logical one. What you need to focus on is value, not price. Here is the important thing Eric, even though the price of gold and the price of silver have been rising, they still remain exceptionally good values. The reason these monetary metals are undervalued is because the Federal Reserve continues to debase the dollar.

As you are always so fond of saying Eric, the line from the great Jesse Livermore really applies here: “Be right and sit tight.”
Jesse Livermore had many great lines, but another legendary trader Jim Sinclair commented in a King World News interview that the eventual mania in gold, “Will light you hair on fire.” As Richard Russell has also remarked, it takes incredible patience and a strong stomach to stay in a bull market from start to finish, this is why so few human beings are able to accomplish this remarkable feat.   

Have you seen the price of silver today?

new 31-year high

SILVER PRICE NEWS – The silver price surged above $40 per ounce Friday, climbing to as high as $40.335 in morning trading. The rally in the price of silver marked the ninth day this year in which the silver price reached a new 31-year high.

The only record remaining now for the silver price is its all-time high above $50 per ounce, set in 1980 as the Hunt Brothers attempted to corner the market.

With today’s advance, the silver price extended its year-to-date gain to 30.3%, far surpassing that of almost any other commodity. Moreover, the price of silver has now doubled since only September 2010, having last traded below $20 per ounce on September 13th.

Silver stocks continued to climb alongside the silver price, with the Global X Silver Miners ETF (SIL) jumping $0.75, or 2.5%, to $30.85, a new record high. Notable advancers among silver stocks included Silver Wheaton (SLW) and Silver Standard Resources (SSRI), which each posted gains of 2.3% this morning.

8 Apr 2011

Why you should buy gold and silver now

Few investments can make that claim. The only one we know of is silver, which has soared 790% over the last eight years, and now at a 31 year high. Gold hits new record; silver at 31-year high.
This leads some to believe that these markets are in a bubble, but we don’t agree. We still recommend buying gold and silver as they will likely remain top performers, rising even further in the years ahead.


Inflation growing

Inflation is starting to pick up. It’s set to intensify and this will be an important factor fueling these trends.
Most people think of inflation as rising prices. And while it does push prices higher, it’s not the cause of inflation.
The direct cause is excessive money creation. And the fact is, more money has been created over the past couple of years than at any time in U.S. history. So the cause has already taken place. The effect is just getting started.
We know that commodity prices have been moving up rapidly, especially food and oil prices. As a result, producer prices have been picking up a lot of momentum over the past four months. This month, however, was a real eye opener.
Producer prices soared at an annualized rate of 19% due to the biggest jump in food prices in more than 36 years. Food prices alone surged an unbelievable 47% annualized in their largest rise since 1974.
This is already equivalent to the inflationary 1970s and, unfortunately, no one knows how this will all unfold. The point is, we’re in uncharted territory.

Government spending gone wild

Government spending has created the biggest debt hole ever. In fact, the government is spending so much money, it can no longer rely on foreign lending as a last resort. So the Fed has stepped in to fill the void. It’s been buying massive quantities of U.S. government bonds, essentially funding this unprecedented spending, and creating money out of thin air to do so.
Meanwhile, the latest monthly deficit hit $223 billion, the biggest in recorded history. This comes at a high price, and that’s inflation. Remember, too much money means a weaker dollar. That is, it takes more dollars to buy things, which drives up prices.
This is not anything new. It’s happened over and over in many countries for thousands of years, and it’s happening again.


Ben Bernanke to Eradicate the Middle Class

Today King World News interviewed Barron’s roundtable member Dr. Marc Faber.  When asked to compare the 70‘s cycle to the current one Faber responded, “Well I think we have had in the 70’s rapidly escalating commodity prices, and in some cases they went up much more than what we’ve seen so far in the last ten years.  Of course the financial position of the US is much worse than what we had in the 70’s.  In the 70’s, total credit as a percent of the economy was just at 140%, we’re now at 379% and we have the unfunded liabilities which we didn’t have at that time.  So I would say the financial position of the US has continuously worsened over the last 30 years.”

When asked about the proposed $5.8 trillion in cuts to the US budget Faber stated, “Well I think what they are discussing in terms of cutting the budget is far too little, and the problem is that you can’t actually cut a lot of expenditures because they have to be met.  In other words social security, medicare, medicaid, that you can’t really cut.  Also the military budget is really difficult to cut because the military complex in the Unites States, the lobbyists are very powerful.” 

When asked about silver specifically Faber remarked, “Well my friend Eric Sprott he maintains that there is a genuine shortage of silver and that may be the case so silver may still move up...Now with the loss of purchasing power of the dollar and other currencies people are concerned if they have say a million or a billion dollars that the value of these dollars will one day be next to nothing.  

So they have to invest in something and so they look for real estate, they look for equities and of course they come to realize slowly, I have to say very slowly that gold and silver are not commodities in the sense of industrial commodities, but that they are currencies.  Precious metals are basically currencies that are honest because you can’t increase the supply indefinitely.  You can’t have QE2, QE3, QE4 in the gold market.

...If you print money everything will go up...and now the money printing doesn’t go into housing because we have an oversupply of housing, but it goes into equities and for Mr. Bernanke unfortunately into commodities.  And this is lifting the cost of living of the median household, of the typical household in the US...Mr. Bernanke is a murderer, he’s a murderer of the middle class and the working class.” 

The destruction of the middle class will be a huge issue going forward for the United States.  As the chasm between the rich and the poor widens, in all likelihood we will see civil unrest in the US.  I suspect in the end Faber will be right, Bernanke will continue to be a murderer of the middle class.  He will be the “great destroyer” of the standard of living for most Americans.  

The KWN interview with Marc Faber is available now CLICK HERE to listen.

7 Apr 2011

Gold, Silver And Oil Are All Skyrocketing And That Is Bad News For The U.S. Economy

The following is one statement that you should get used to seeing: "The price of gold set another record today."  Today, spot gold reached a new all-time record of $1461.91 an ounce before settling back a little bit.  Silver is also skyrocketing.  At one point today silver hit $39.75 an ounce.  It seems inevitable that at some point we are going to be talking about $50 silver.  The price of oil is also continuing to relentlessly march upwards.  At last check U.S. oil was at about $108 a barrel.  All of this is great news for those that are investing in gold, silver and oil, but all of this is also really bad news for the U.S. economy.  Why?  Well, because when these commodities go up in price it is a sign that the U.S. dollar is dying and that our country is getting closer to economic collapse.
Traditionally, there has been an inverse correlation between the price of gold and the value of the U.S. dollar.  Usually when the U.S. dollar goes down, the price of gold goes up.
One of the main reasons why gold has been so strong over the past year is because the U.S. dollar has been rapidly losing value.
So why is the U.S. dollar declining?
Most economists point to all of the quantitative easing that the Federal Reserve has been doing.
So exactly what is quantitative easing?
Well, it is basically like playing Monopoly with someone that reaches under the table and pulls out a bunch of extra money when they are almost broke.
The Federal Reserve has been creating huge amounts of money out of thin air and has been pumping it into the financial system.  It is essentially cheating, and it is highly inflationary.  The rest of the world has not been amused.
But quantitative easing is not the only issue.
The truth is that whenever the U.S. government goes into more debt, more money is created.  The U.S. has been running trillion dollar deficits for several years now, and this has created a lot of new money.
This is another reason why it is so important to get the U.S. government debt situation under control.  The Obama administration is projecting that the budget deficit for this fiscal year will be about 1.6 trillion dollars.  This is highly inflationary and it will continue to destroy the value of the dollar.
In addition, the rest of the world is beginning to have serious doubts about the sustainability of U.S. government debt.  They are starting to lose faith in the U.S. dollar and in U.S. Treasuries.
In fact, investors are losing faith in paper currencies all over the globe.  The euro is on the verge of a massive crisis.  On Tuesday, Moody's downgraded Portuguese government debt for the second time in a month.  Portugal needs a bailout, but they are far from alone.  A half dozen European nations are experiencing a financial meltdown and the European debt crisis could spiral out of control at any moment.
Because of all of this financial instability, investors have been seeking some place safe to put their money.
For many investors, precious metals and commodities have been the answer.
In fact, silver has been doing even better than gold lately.  On Wednesday, silver set a new 31-year high for the third day in a row.
People are even starting to talk about the possibility of $50 silver.  Most analysts would have considered such talk complete nonsense a year ago.
But now nobody is laughing.
The price of oil is also soaring.  Some of that is due to inflation, but not all of it.  The truth is that when it comes to oil there are other factors at play.
Unfortunately, a high price for oil is far more damaging to the U.S. economy than a high price for gold is.
The U.S. economy has been designed to use massive amounts of cheap oil to transport massive quantities of goods over vast distances.  When the price of oil goes to $100 or $150 a barrel, it fundamentally changes the dynamics of our economic system.
Nobody has ever been able to prove that the U.S. economy can successfully handle a price for oil over $100 for an extended period of time.
Do you remember what happened back in 2008?  The price of oil hit a record high in June and then the entire financial system came unglued just a few months later.
The price of oil affects the price of almost everything else.  Almost all forms of economic activity use energy.  Almost all goods have to be transported a significant distance.
When the price of oil goes too high, some types of economic activity simply become unprofitable.  If the price of oil stays this high from now on, there are many businesses across America that will be forced to close.
A high price for oil is also going to hit U.S. consumers really hard.  According to AAA, the average price of a gallon of gasoline in the United States is now $3.70.
Many are convinced that the average price of gasoline is going to shatter the all-time record of $4.11 that was set back in July 2008.
So how much did a gallon of gas cost a year ago?
One year ago the average price of a gallon of gasoline was just $2.83.
Over the past 12 months the average price of gasoline has gone up about 30%.
So has your paycheck gone up by 30% over that time?
The truth is that wages have been very stagnant in the United States for a long, long time.
That means that U.S. household budgets are being increasingly stretched.  People have to fill up their cars so that they can get to work or to school.  Americans can cut back on pleasure driving to save money, but most of the driving that all of us do is to get to places that we have to be.
So if gas costs more that means that consumers are going to have less to spend other places.  Consumer spending accounts for approximately 70 percent of the U.S. economy, so any slowdown in U.S. consumer spending would be extremely significant.
Already a substantial percentage of the American people are feeling quite stressed about gas prices.
According to a recent Associated Press-GfK poll, approximately two-thirds of the American people believe that rising gasoline prices will cause significant hardship for their families over the next six months.
We are heading for some really difficult economic times.  As I wrote about recently, this economy has millions of Americans feeling depressed, but that is not the appropriate response.
Rather, once we understand how bad our economic problems are we should feel empowered because then we can start focusing on real solutions.
And somebody really needs to start focusing on solutions because panic is starting to abound.  Many top corporate insiders are selling off stock like there is no tomorrow.  The biggest bond fund in the world, PIMCO, has been getting rid of all of their U.S. Treasuries.  When Wall Street big shots start freaking out you know that the hour is late.
It certainly doesn't help that the Middle East is in a state of chaos and that theJapanese economy is falling apart as a result of the recent disasters.
In these uncertain times investors are seeking something safe.  They are turning to real "global currencies" such as gold, silver and oil.  Paper currencies are rapidly losing favor and rampant inflation is on the horizon.

The Financial System Designed To Self Destruct

As each day passes the US dollar loses prestige and its status as a world reserve currency. Washington and Wall Street pay little attention to its slide and the changes a lower dollar and loss of reserve status will bring. Once the dollar is dethroned Americans will have to learn to live on the edges of the economic and financial world.
I suggest you read Masterminds invented perpetual money making system that the Government can never repay
Also, those of you who have not read  G. Edward Griffins’ “Creature from Jekyll Island” should. It tells you why the Federal Reserve was created and why the Federal Reserve was created and what its function is. It also shows you why except for Wall Street, banking and selected elitist corporations why the system was designed to self-destruct. If you read economic and financial history you will discover why such economic and financial destruction takes place repeatedly and that more often than not does not happen due to incompetence, war or error, but it is planned that way.
What has happened to the dollar since Bretton Woods and the planned removal of gold backing from the dollar is an example of deliberate destruction and in that process the destruction of the greatest nation in history. In that process of 97 years the wealthy and connected have become wealthier and powerful and have become even more so. They truly expect to exit this maelstrom and war as the leaders of the future.
We have news for them. The power of talk radio and the Internet stretches worldwide and the world now understands what they are up too, and they are not going to be successful in their efforts to bring about world government. The collapse of the dollar is but one aspect in the change planned in the shift in world power.

The US budget deficit is a manifestation of the decline of America, its Executive, House and Senate 95% controlled by interests from behind the scenes. The agenda is not for the American people, the constituents, who put these people in power, but for the moneyed few who totally control them via campaign contributions, lobbying and other various nefarious means. We presently are being offered up a budget cut in a $1.7 billion budget deficit. What can the people behind the scenes be thinking of unless they want the government debt structure to implode? Virtually no change in out of control spending. The deficit is accelerating not decelerating. It is obvious that these intelligent elitists and politicians know exactly what they are doing and that is destroying the financial system and the American economy. By the end of the year and perhaps sooner the deficit will be more than 100% of GDP, a role reserved for Banana Republics and there is no end in sight. No reality check, no control, no attempt to stop the deficit hemorrhage. War spending rages out of control, as we engage in another war. This is deliberate and very probable for the military and industrial complex, which could care less what the budget deficit climbs too. The nation is being ripped apart internally and there is no respite in sight. The government, municipalities, states, banking, Wall Street, the US Chamber of Commerce and transnationals all advocate more aid and spending, as the public demands more handouts. Nobody seems to understand that things cannot go on this way; austerity is going to be thrust upon us and there is going to be economic chaos. In the meantime nothing the Fed and the Treasury have done has done anything to solve the problems. Everything temporarily has been papered over with debt. The Executive Office for 11 years has never told the truth about fiscal debt or future fiscal debt. They tell the public what they want them to hear. Over and over again just more lies and propaganda.
The Federal Reserve group of 12 banks are about evenly split on QE3. Whether the front is just making things interesting will remain to be seen. We do know Mr. Bernanke could care less. He takes his orders from the elitists and does exactly as he is told, just like Mr. Greenspan did. He and others are in the process of destroying the US economy so that the US economy will be so bad that Americans will be forced to accept world government. That is really what this is all about. The Fed is destroying the monetary system, the President and Congress are burying the economy in debt and our transnational conglomerates along with this gang of criminals has made America uncompetitive and destroyed its industrial base. It is not any simpler than that. The dollar is not a financial or monetary refuge anymore. Its place as a world reserve currency has been destroyed and that mantel has again been assumed by gold. This is the result of deliberate insane monetary and fiscal policy that is destroying America.
The monetization in process is not just manifest in America. England, Europe, China and Japan and many others have done the same thing. The debt that has to be serviced, rolled and created is more than $5 trillion. In Europe alone the bailout of the sick 6 PIIGS will cost $4 trillion. If the solvent euro zone and European countries funded this debt they’d all end up bankrupt. Will the Fed be allowed to again bail out foreign central banks as they did three years ago? Probably not because the Fed now has to bail out the US government with more money and credit created out of thin air. The Fed, foreign central banks and other commercial banks cannot raise the trillions of dollars needed to keep the western world afloat.
We ask how can anyone accept QE3 when QE1 and QE2 have been such failures? Part of the result of such folly has been a weakening of the dollar and strengthening of gold and silver. We believe you will see QE3, because there is no way to stop. Inflation will roar this year and next and if we have QE3 and stimulus there is a good chance we’ll see hyperinflation. Close to zero interest rates and an endless supply of Treasury paper has driven away foreign buyers. Who wants to buy US 10-year T-notes yielding 3.5%, when inflation is 8% and climbing, especially when the dollar is moving lower? Two and a half years ago 66% of foreign central bank assets were in US dollar investments. Before that it was 70% and today it is 61.3%.
The Fed should have let the economy go into depression 3-1/2 years ago and purged the system. For whatever reasons that was not to be. Classical economics tells us malinvestment has to be removed from the system and the longer it takes to do that the worse the correction will be. Once a nation embarques on continued use of money and credit, inflation has to ensue and often that leads to hyperinflation. Not having solved the problems at hand a never-ending funding mechanism is put in motion in an attempt to buy time to fix the problem. As you can see thus far it has not worked. We are sure the Fed has added much more liquidity to the system already that they won’t admit too. This is why an outside independent forensic audit is needed to find out just what they have been up too.
Yields and currency risk are driving foreign investors out of US dollar investments and it is accelerating. Americans still do not realize you cannot survive as a first-world nation without a strong industrial base. It has been official US policy and that of Wall Street and banking to denude America of that capacity. Eighty percent of the destruction has already taken place and the only way to reverse that is by implementing tariffs on goods and services.
That brings us to the insolvency of the banking system. Does anyone really believe that putting another 1.7 million foreclosures on your books is good? That is where the lenders are headed. If they are to survive they’ll have to be quantitative easing for years to come. The deception continues, but it gets weaker with each passing day. This past week we were exposed to the vicissitudes of what the Fed spent two years trying to hide. Who were the 271 banks and others who received bailout funds to gamble, speculate with and to try to create more assets then liabilities. The funds monetized by QE1 and 2 and stimulus 1 and 2 are turning into a giant wave of inflation that will stretch over 2011 and 2012 and beyond. If QE3 and stimulus 3 become reality add another year or more to inflation to reach hyperinflation in excess of 50%.
On top of what the Fed and Treasury are engaged in you have the states, individuals and corporations to consider. Despite assurances there are going to be many insolvencies in these areas. After viewing these problems you have to say to yourself, where does this all end? As inflation grows the cost of everything increases making the situation even more difficult. Wall Street and banking tell us a recovery is underway. Unfortunately employment and housing sales and prices haven’t been informed as yet. Of course, the same gang lies about the economy and everything else. Then again, white-collar crime today is socially acceptable. Just look at the movie, “Insider Job.” Nobody cares and the SEC, CFTC and government are all working in tandem to enrich Wall Street at the expense of the public and later to enrich themselves.
There is no question the US government will have ongoing deficits of $1.3 to $2.2 trillion annually for some time to come. If this is the case there is no chance of the debt of government ever being paid. That means official devaluation and default, although we believe it will be done jointly by many countries. The US debt limit will be raised. The Republicans are playing politics and remember the same group of thieves overwhelmingly controls both parties. It will also be interesting to see how, before the end of the year, the Treasury places more than $2 trillion in bonds. We bet the Fed buys about $1.7 trillion. This has to push up real interest rates by ½% to ¾% by the end of the year and the same should happen in 2012. Foreigners and even PIMCO does not want to purchase Treasury bonds, notes and bills. In order to entice such buyers yields will have to move up a point now and a point later. As part of that sequence of actions by buyers quantitative easing would have to end, as well as stimulus, and budget deficits would have to be cut realistically, not by $33 billion paltry dollars. Incidentally GDP growth under those circumstances would be minus 3 to minus 6 percent. The Fed has little trouble holding up and manipulating the short end of the bond market, but the long end is another matter. It is not only QE2 and manipulation, but also the Fed’s continuing to purchase CDO’s and MBS, which are toxic waste from banks to get the debt off of banks’ books and to liquefy them. The purchase of US dollar denominated bonds, especially Treasuries, is coming to an end. We cannot expect the Fed to continue indefinitely to do what it is doing. It can only end in hyperinflation. We might add that JPMorgan Chase soon will forge a civil settlement concerning fraud relating to CDOs and MBS. Again no jail time; it is a national disgrace. Those people should have been prosecuted criminally. As you can see money buys everything. If QE3 is implemented, and we believe it will be, classical economics says the result, hyperinflation, is inevitable.
Most economists and analysts describe the possibility of what we have discussed in economic terms. It is judged as a chain of incompetent mistakes and they have no answers, because the result and conclusions are too terrible to contemplate. They do not understand the real underlying motives and goals of who created this quagmire. It has been done deliberately to force the population of the world to accept world government. If one does not understand that this is why all this is happening there can be no solution, and the elitists can have another war to blame what they have done on. This is classic. It has been done over and over again in history.
While this charade continues, and the mainline media covers it up, the major lenders are guilty of a number of varieties of fraud. In fact, HSBC has halted all foreclosures. We are told that the majority of mortgages written over the last decade were done so fraudulently. Civil cases have been filed by the thousands and this financial load alone is enough to take some of the major banks down. There are billions of dollars in losses awaiting the banks. The game for the big banks is over; it is now just a question of when. In addition you have JPM sitting on over $50 billion in losses in the silver market, which is unpayable. Morgan just may go down this time. Can you imagine these criminal banks are demanding a fraud settlement where losses are limited? What kind of jurisprudence is that? All these banks including Bank of America and Wells Fargo are carrying two sets of books fully sanctioned by government, the Bank for International Settlements and the FASB, the accounting watchdog. This has been going on for 2-1/2 years. All the good loans go on one set of books and the bad loans go on a different set of books. If you did that in your business you would go straight to jail. Incidentally, the bad loans are to be written off over the next 50 years. All these banks face massive legal action for fraud and improper conveyance.

So whats the problem if JP Morgue have a Vault licensed by the CRIMEX?

JP Morgan now has its own silver vault licensed by the COMEX. They can take delivery of their huge short position and lie about having the actual physical silver.
But, JP Morgan would never lie to the COMEX and investors and falsify their balance sheets……
This vault will NEVER have an independent audit. And if they do, observe the line of Brink’s trucks before and after the official visit.
JP Morgan must resort to this slight of hand because if they had to liquidate their silver short positions, they would be bankrupt. And the government and COMEX will let them lie, because they would be bankrupt (dollar would crash, market would fall) without JP Morgan.
You don’t know it yet, but the physical silver in your hand just became extremely rare. Soon price will meet and exceed reality. It is only a matter of time.
Here is Harvey Organ’s post about the latest from JP Morgan. Click here. So will JPM “let” silver rise since they now can write in any amount to cover the short positions?

The Bedrock of the Gold Bull Rally

Last week I had the pleasure of participating in a webcast for Bloomberg Markets Magazine regarding gold investing. It was a very insightful presentation and I suggest you view the replay at http://www.bloombergmarkets.com/.

What struck me on the call was the negativity surrounding the gold market. Call it a bubble, a frenzy or mania, there seems to be a large number of voices in the marketplace who just are not fans of gold, whether prices are moving up, down or sideways.
Naysayers started calling gold a bubble back when prices hit $250 an ounce and though gold’s bull market has tossed and flung the bubble callers around for almost a decade now, their voices have only gotten increasingly louder as prices broke through $1,000, $1,200 and now $1,400 an ounce.
However, gold prices appear asymptomatic of the signs generally associated with financial bubbles.
For instance, we haven’t seen price spikes. Despite rising from under $1,000 an ounce to over $1,420 over the past six months, that represents only a 0.7 standard deviation move for gold prices, according to Credit Suisse (CS). The average standard deviation move of other bubbles - Japanese equities in 1986, the tech boom in 1999, the GSCI in 2005 and gold in 1979 - is 5.3. Gold’s 180 percent move in 1979 represented a 10.3 standard deviation move, more than 14 times the magnitude we see today.
The reality is that gold doesn’t possess the traits necessary for a financial bubble to form. Rodney Sullivan, co-editor of the CFA Digest, has done some great research on the history of markets and bubbles going all the way back to the 1600s. He discovered three key patterns in the 47 major financial bubbles that occurred over that time period.
These three ingredients of asset bubbles are financial innovation, investor exuberance and speculative leverage. The process begins with financial innovation, which initially benefits society as a whole. In the exuberance stage, usage of these innovations broadens; they become mainstream and attract speculation. The third step, the tipping point for a bubble to form, is when these speculators pile on massive leverage hoping to achieve greater success. This excessive leverage adds increased complexity, which mixes with irrational exuberance to create an imbalance in the marketplace. Eventually, the party comes to an end and the bubble bursts.
This is what happened with the housing bubble in the U.S. as Main Street home buyers leveraged themselves 100-to-1, Fannie Mae leveraged itself 80-to-1 and Wall Street investment firms leveraged themselves over 30-to-1.
Gold as an asset class is far from being overbought by speculators. Eric Sprott recently did a fascinating presentation explaining how underowned gold is as an asset class. Sprott wrote that despite a 30 percent increase in gold holdings during 2010, gold ownership as a percentage of global financial assets has only risen to 0.7 percent. That’s a big increase from the 0.2 percent level in 2002, but Sprott points out that it’s misleading because the majority of that increase was fueled by gold appreciation, not increased level of investment.
Sprott estimates that the actual amount of new investment into gold since 2000 is about $250 billion. Compare that to the roughly $98 trillion of new capital that flowed into other financial assets over the same time period.
Gold equities have seen even lower levels of investment. From 2000 to 2010, $2.5 trillion flowed into U.S. mutual funds, but only $12 billion of that went into precious metal equity funds. Of course, those figures were significantly impacted by the advent of gold ETFs during the decade. Despite the growth of the SPDR Gold Trust (GLD), which held more 1,200 tons of gold as of March 31, gold remains largely underowned as a portion of global financial assets.
The bar chart from CPM Group shows gold as a percentage of global financial assets over time. In 1968, gold represented nearly 5 percent of financial assets. In 1980, the level had fallen below 3 percent. That figure had shrunk to less than 1 percent by 1990 and has remained there since. Sprott wrote that “it is surprising to note how trivial gold ownership is when compared to the size of global financial assets.”

That point is magnified by the pie chart from Casey Research. Dr. Marc Faber included it in his April newsletter to show just how small a portion gold and gold stocks are for large institutional investors like pension funds.

Investors who don’t think gold is a bubble but fear they’ve missed the boat need to look at the short- and long-term factors supporting gold at these historically high price levels. In the near-term, gold prices are being buoyed by continued weakness in the U.S. dollar.
The Trade-Weighted Dollar Index (DXY) is just above the lows experienced during November 2009 and is only 8 percent above the “critical” March 2008 low, according to BCA Research. BCA says the U.S. dollar’s weakness is driven by four factors:
  • Federal Reserve balance sheet expansion via QE2
  • Combination of low real interest rates, steeply upward-sloped yield curve and perky inflation expectations that should continue in the U.S.
  • Plans by the European Central Bank to raise rates later this month
  • Willingness of Chinese authorities to allow for yuan (RMB) appreciation when the U.S. dollar is weak
This is part of what we call the Fear Trade. This graphic illustrates that the Fear Trade is a function of two separate government policies: monetary and fiscal. Whenever there is a structural imbalance between a country’s monetary and fiscal policies, gold tends to perform as a “safe haven” currency. Currently, the quantitative easing measures implemented by the Federal Reserve and the significant size of the deficit spending by the government to increase entitlements to ward off a recession have created a significant imbalance between monetary and fiscal policies. This has devalued the U.S. dollar which, in turn, has boosted gold prices.

We believe that as long as the U.S. government refuses to trim entitlement and welfare programs and continues to keep Treasury bill yields below the inflation rate to battle deflation, gold will remain an attractive asset class.
Longer-term, our experience shows that whenever you have increased deficit spending, rapid money supply growth and negative real interest rates - that’s when the inflation rate is higher than the nominal interest rate - gold tends to perform well in that country’s currency. So far we have not seen rapid money supply growth here in the U.S., but the other two factors have been the main thrust behind gold’s record rise.
GFMS CEO Paul Walker echoed those drivers in an interview with MineWeb this week. Walker said that “ultra-low interest rates, macro-economic dislocation, fears of global imbalances…the wrath of these things still remain solidly in place and that’s really the bedrock of the gold bull rally.”
CS says the combined $6.3 trillion of excess leverage in the G4 economies (U.S., eurozone, Japan and Great Britain) means that their central banks will be forced to push real interest rates down to abnormally low levels. You can see from the chart that this is quite bullish for gold prices. Any time the real Fed funds rate is below 2 percent, gold tends to rise.

Current projections from the Congressional Budget Office (CBO) have the U.S. federal deficit at $1.5 trillion this year. To show the effect this has had on gold prices, we overlaid the rise in U.S. federal debt with the price of gold.

You can see from the chart that gold’s bull run began in 2002, about the same time federal debt began to rise significantly. Gold played catch up at first, but the two have tracked each other rather closely. Since 2002, gold prices have risen 308 percent versus a 119 percent increase in federal debt. This means that gold’s sensitivity to a rise in federal debt is just over 2-to-1. With lawmakers in Washington, D.C. still squabbling over where and by how much to cut the budget, it’s unlikely the federal debt level will recede any time soon.
This is very constructive for long-term gold prices, but just how bullish depends on who you ask. The team at CS sees gold at $1,550 per ounce by year end. BCA estimates gold to remain in the $1,400-$1,600 range in 2011. Walker of GFMS said he believes gold will surpass the $1,500 mark by year end because “all of the structural factors supporting gold are in place.” Perhaps the most bullish forecast has come from Rob McEwen, former gold analyst and founder of GoldCorp, who said late last year, and reiterated last week, that he thinks gold could hit $5,000 per ounce in the next three to four years.
It’s important to remember the strong cultural attraction that many people in emerging countries have toward gold. It’s a much stronger connection than that of the developed world and essential for rising gold demand.
We like to compare the G-7 countries to our E-7 - the world’s seven most populous nations. Interestingly, the G-7 is 50 percent of global GDP but only 10 percent of the total global population. The E-7, on the other hand, represents roughly 50 percent of global population but only 18 percent of global GDP. We would like to point out that money supply and GDP per capita is rising substantially faster in the E-7 than it is in the G-7, 17.7 percent money supply growth in the E-7 versus 3.7 percent in the G-7. If money supply growth in the E-7 continues at a rate of 15 percent or more for the E-7, it would be a strong catalyst for higher gold prices.
In conclusion, based on the above factors and trends, we believe gold could double over the next five years.


6 Apr 2011

Silver Metal Investment- A Presidential Bombshell

I’ve just learned something about silver that I was only vaguely familiar with previously, and I’d like to share it with you. It had a big impact on me. When I shared it with my friend and mentor, Izzy Friedman, the person who first got me interested in silver, he said it was something he never knew and he called it a bombshell. I can tell you that Izzy doesn’t use that term often. As always, I’ll let you decide for yourself.

One reason I was only vaguely familiar with the subject was because it dates back 44 years, to 1965. I was only 18 years old and had just graduated from high school. I was thinking about college, the Vietnam War, the rest of my life, cars and girls, though not necessarily in that order. I was definitely not thinking about silver.
Izzy hadn’t even come to America yet and also thought nothing about silver. Most of you reading this may not have been born then, as the median age in this country is under 37. Even if you are 80 years-old today, you were only 36 in 1965. In a lot of ways, 44 years is a very long time ago.

In historical terms, of course, 44 years is almost a blink of the eye. It’s all about putting things in perspective. Just like time, who may say something, even if it’s the exact same thing being said as someone else, alters our perspective about the message. This applies to silver as well. I suppose many expect me to say bullish things about silver, because I do so regularly. Even though I always try to present hard evidence and the facts, and I am sincere in my presentation (and mostly correct), let’s face it - it’s somewhat expected when I conclude that silver is a great investment. But I would imagine it would be somewhat shocking, even a bombshell, if the President of the United States said what I have been saying about silver. No, not President Obama, as he was only three years-old in 1965.

Thanks to a poster on the Internet (hat-tip to Cajun Coin), I had the opportunity to read the speech that President Lyndon Johnson made on July 23, 1965, in which he announced the US Government’s plan to remove silver from coinage. http://www.presidency.ucsb.edu/ws/?pid=27108 I had not read the speech before. The President said this was the first change in our nation’s coinage in 173 years, since the very first Coinage Act of 1792. Talk about historical.

Allow me to excerpt the pertinent sections of the President’s speech. Please remember that these are his words, not mine:
"Now, all of you know these changes are necessary for a very simple reason--
Silver is a scarce material. Our uses of silver are growing as our population and our economy grows. The hard fact is that silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins.
If we had not done so, we would have risked chronic coin shortages in the very near future.

Some have asked whether our silver coins will disappear. The answer is very definitely-no.
Our present silver coins won't disappear and they won't even become rarities. We estimate that there are now 12 billion--I repeat, more than 12 billion silver dimes and quarters and half dollars that are now outstanding. We will make another billion before we halt production. And they will be used side-by-side with our new coins.
Since the life of a silver coin is about 25 years, we expect our traditional silver coins to be with us in large numbers for a long, long time.
If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content."
President Johnson’s words were unnerving to me, as I used them repeatedly over the years, completely unaware of this speech. The President of the United States, arguably the most powerful man in the world, using words like, "scarce," "shortage," and the need to reduce silver consumption for money. From an analyst, we expect discussions of silver production and consumption shortfalls and growing population and economic growth. But from a President?

The fact is that President Johnson and his economic team at the Treasury Department were proved both remarkably correct and incorrect with the passage of time. They were spot on in their fear that the demand for silver and the inability of production to meet that demand would soon deplete US inventories. They were dead wrong in their expectation that the US Government could hold down silver prices and prevent investors from making a profit. In just a few years, most silver coins were removed from circulation by investors. In less than 15 years, the price of silver rose from $1.29 at the time of the President’s speech to more than $50 in early-1980.
The speech prompted me to reflect and dig deeper into the facts. I hope it has the same effect on you. The deeper I looked, the more compelling the silver story became. It always does. Here are the facts, using the Silver Institute and others as data source, followed by my conclusions.

Six years earlier, in 1959, the US Treasury Department held approximately 2.1 billion ounces in silver bullion inventories plus 1.3 billion ounces in circulating coinage, for a total of 3.4 billion ounces. By 1971, through a combination of outright bullion sales and use in new coinage, the Treasury held only 170 million ounces of silver bullion and most silver coins were removed by investors from circulating coinage and eventually melted into bullion.
More than 3.2 billion ounces of silver were transferred from the US Government to the private sector, over this 12 year period, or around 94% of what the government controlled. Much of this silver was consumed in industrial and other fabrication during this time period. Eventually, all the transferred silver would be so consumed.
1959 would be the last year the US Government would be a buyer of silver, as it had been for decades, until 2001, when it began buying silver for the American Eagle and commemorative coin programs. In 1959, when the US Government held 3.4 billion ounces of silver, the US population was approximately 180 million.
That means the Government held almost 19 ounces of silver, for every man, woman and child in the nation. Today it holds none. This also means that the US Government can never be a physical silver seller again, until and unless it buys silver first.

In 1959, there were about 5 billion ounces of silver physically held on US soil. This includes the 3.4 billion Government holdings plus privately held silver, including hundreds of millions of ounces of silver objects that would be subsequently melted in the early 1980’s. Today, I think I may be exaggerating if I say there are more than 300 million ounces held on US soil, including all the 118 million ounces in COMEX-approved warehouses and privately held silver. Before you disagree, please remember that the more than 400 million ounces in ETF-type vehicles are held outside the US.
If my numbers are accurate (as I believe them to be), then the amount of physical silver held on US soil is down 94% in 50 years.

In 1959, there were about 9 billion ounces of silver bullion-equivalent in the world (half of that in the US, both public and private). With a world population of 3 billion, there was a per-capita amount of 3 ounces for each of the world’s citizens. Today, 50 years later, there is a per capita amount of silver of 0.15 of an ounce remaining (1 billion ounces divided by 6.8 billion population).
That is not a misprint. The per-capita amount of silver bullion equivalent in the world has declined by 95% over the past 50 years. By way of comparison, the per-capita amount of gold bullion equivalent in the world has remained remarkably stable at around three-quarters of an ounce per person, for more than 100 years. In 1900, there were around 1 billion ounces of gold versus a world population of 1.5 billion. In 1959, there were about 2.3 billion ounces of gold against a world population of 3 billion. Today there are roughly 5 billion gold ounces and 6.8 billion people.

I make these comparisons with gold, not to bad-mouth gold. I make them to provide a legitimate perspective. I make the comparisons because gold and silver are the perfect items to compare. I make them to show how undervalued silver is, not that gold is overvalued. In spite of evidence of manipulation, gold has done what it has been expected to do - it has kept pace with inflation and money and population growth. That’s proven by it’s price increase over the past 50 years and it’s incredibly stable per-capita amount in existence. Since 1959, gold has increased in price more than 25-fold ($35 to $900).

It’s a much different story in silver. Yes, silver has increased in price by more than fifteen-fold in 50 years ($.90 to $14), but that’s only half the comparison story. The other half is that 90% of the silver in the world has been vaporized over that time, put into forms that may or may not ever be recoverable, even at shockingly high prices. This, at the same time the amount of gold in existence has doubled. Yet the price of gold rose from 30 times the price of silver back then to more than 85 times last fall, and today is still double what it was 50 years ago. Only two reasons can account for this - a manipulation in silver and a global unawareness of these facts. I guarantee you that both reasons will be terminated in time.

The US Government and other nations around the world didn’t remove silver from coinage for any reason other than there wasn’t enough silver available. President Johnson’s words are crystal clear. They knew they couldn’t keep issuing coins pegged at an artificially low price. They were correct. But what no one knew 50 years ago was that even if the world stopped using silver as money, we would still run out of silver because of industrial demand. Even the investors in the 1960’s who bought and took away from the US Government the 3 billion+ ounces didn’t buy silver with an eye towards the day when silver inventories would be depleted by industrial consumption.
Please allow me to explain.
The investors in the 1960’s who bought the silver from the government did so because it was an almost a no-lose proposition. Those who removed silver coins from circulation were further fortified with the knowledge that the face value of the coins provided a floor, making coins a no-risk proposition. Intuitively, investors back then knew that silver prices were artificially depressed by government dumping. They also knew the silver dumping had to end at some point. And it did, when the government depleted its inventory. Then prices rose and those early and intuitive investors did what made sense: they took profits and sold. Why not, as they doubled and tripled their investment, in a few years, with little to no risk?
Because the early investors sold what silver they bought or withdrew from coin circulation, the silver that was originally taken away from the US Government was in turn taken away from the early investors, albeit at a sizable profit to them. And who took it away from the early investors? The answer is not a who, but a what. What took the silver away was growing world population and industrial and fabrication demand over the next 40 years. My point is simple - whereas many billions of silver existed in the world 50 years ago, very little of that, maybe 10%, remains today.

So what can we conclude from all of this? First, that huge and verifiable inventories of silver did exist back then, and they no longer exist, due to decades of a continuous structural deficit. These former silver inventories are not hiding, they are gone. No longer can the US Government (or any other) dump massive amounts of silver on the market. Let’s face it - back then, the US Government was openly manipulating and controlling the price of silver, by selling at fixed prices. When they ran out of silver to sell, the manipulation and control ended in a flash and prices exploded.

Today, the manipulation is different. No longer is the US Government selling physical supplies at fixed prices. Instead, a Government-protected entity, most likely JPMorgan, sells paper silver contracts at artificially depressed prices. I contend that this abhorrent paper manipulation will vanish in a flash at some point, just like the Government physical manipulation of 50 years ago. Only this time the impact on the market and the rewards to investors will be greater, precisely because there is so little silver remaining.
Consider these facts.
Back then, the US Government was the world’s largest silver seller. Today, the Government is a large buyer, perhaps the largest in the world, through the American Eagle and Commemorative silver programs. This year, the US Mint is on pace to produce and sell over 30 million ounces of Silver Eagles and other silver coins. Because the Government holds no silver and must buy on the open market, this makes the Mint a very large consumer, perhaps the largest in the world. Incredibly, just this buying by the Mint alone uses up 80% of what the US produces in a year, as the world’s eighth largest silver producing country.

Finally, it’s not just that the world had many billions of silver ounces then and does not have them anymore. It’s not just that the world economy and population will grow over time, demanding more silver than ever before. It’s not just the fact that most of the new technologies require silver’s unique qualities, like never before. It’s not just that the paper manipulation on the COMEX is becoming more apparent and less feared. There is something else that runs through my head when I contemplate President Johnson’s words and observing what took place over the past half-century.

The 1960’s were a simpler time. Communication and knowledge didn’t travel as fast back then, as it does now. It won’t take long for the world to focus on the silver story, once prices begin to reflect true value.
Fifty years ago, we didn’t have a small fraction of the amount of investment money in existence as we do today. We didn’t have the concentrated pools of investment money looking for home, including hedge and sovereign wealth funds. We didn’t have then the surge of government simulative money being created as we do today.
It’s impossible to imagine that given how the world is structured today and how much investment money exists versus how little silver remains, that we won’t have the greatest price explosion as the facts become known.
Remember, it’s not about the facts turning in silver’s favor. It’s about investors becoming educated to the facts.


US to default on its debts- Tim Geithner

Treasury Secretary Timothy F. Geithner said the U.S. will hit the limit on its borrowing capacity by May 16 and could start defaulting on some of its debts about seven weeks later unless Congress acts soon to raise the debt ceiling.

The Treasury Department had estimated that the nation would reach its $14.29-trillion debt limit between April 5 and May 31. But in a letter to congressional leaders, Geithner said new calculations based on projections of income tax receipts showed that the date will be no later than May 16.

The Obama administration is pushing Congress to increase the debt limit for the 76th time since 1962. The nation has never failed to increase the limit, Geithner said.

But Republican congressional leaders, including House Speaker John Boehner, and at least one Democrat, Sen. Joe Manchin III of West Virginia, have said they won't vote to increase the debt limit unless the move is accompanied by action to address the soaring budget deficit.

"Speaker Boehner has been perfectly clear: The American people will not tolerate an increase in the debt ceiling without serious spending cuts and real reforms to make sure we keep cutting spending," Boehner spokesman Michael Steel said.

As the date approaches, Geithner warned Congress in a letter Monday that it is risking "unthinkable" consequences if the U.S. no longer can borrow to pay its bills.

"If Congress failed to increase the debt limit, a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds," he wrote.

"This would cause severe hardship to American families and raise questions about our ability to defend our national security interests," he said.

"In addition, defaulting on legal obligations of the United States would lead to sharply higher interest rates and borrowing costs, declining home values and reduced retirement savings for Americans," Geithner continued.

"Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover," he said.

The Treasury Department has the ability to maneuver some of its payments to buy some time, he said. But such "extraordinary measures" would push the deadline only to about July 8.

"At that point, the Treasury would have no remaining borrowing authority, and the available cash balances would be inadequate for us to operate with a sufficient margin to meet our commitments securely," Geithner wrote.

5 Apr 2011

US Dollar Collapse Will Accelerate

With gold and silver strong as of late, the Godfather of newsletter writers Richard Russell had this to say in his latest commentary, “(Bill) Gross warns that 75% of the US budget is nondiscretionary and is entitlement-based. With Medicare, Medicaid and Social Security, notes Gross, we are seeing $1 trillion deficits as far out as the eye can see. These three entitlements amount to 44% of Federal spending and their share is steadily rising.”

“Concludes Bill Gross, "Unless entitlements are substantially reformed, I am confident that this country will default on its debts, not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies -- inflation". . . . . "You must attack entitlements," warns Gross, "and make 'debt' a four-letter word." 

Bill Gross manages the largest bond fund on the planet. Gross means what he says. I'm guessing that Gross thinks that the US will NOT ACT until the crisis is actually upon us. The crisis that I believe Gross foresees is a collapse of the US dollar at a time when no foreigner will want to buy Treasuries. In anticipation of such a disaster, Gross has eliminated all US Treasury bonds from his huge, multi-billion dollar fund.

I ask myself, "Is this our fate? Is Congress going to allow the dollar to crash, will Congress, through its procrastination, allow the US to lose its greatest advantage -- the reserve status of the US dollar? Could this really happen? A collapse of the dollar is too grotesque to even contemplate. Yet I am definitely considering that such an horrendous set of circumstances could occur.

I've shown chart after chart of the US dollar. I've shown how the Dollar Index has been violating support levels. To refresh your thinking, I've included an up-dated chart of the US Dollar Index (above). What we see here is a giant head-and-shoulders top with a right shoulder that is in the process of breaking down. 

Even as the dollar sinks, the public seems blissfully unaware of it. However, the public is aware of the effects of the sinking dollar. The public does note that it takes more dollars to buy food (price of food rising), the public does note that is takes more dollars to fill up the tanks of their cars (gasoline prices rising). The public notes that their college tuition bills and their medical bills are rising. In other words, the public experiences that their dollars buy less and less, with each passing month.

The public may be slow to learn, but you can't fool all the people all of the time. The great American public sees gold and silver rising. They learn about it through their newspapers, their radios and their TV sets. In due time, the public will want to protect themselves by buying gold and silver. It's only a matter of time. 

Watching the relentless decline of the US dollar, I get the sense that the whole process is accelerating. Some of the smartest people in the land are warning about the decline of the dollar and the coming inflation. 

As Bill Gross warns, we're heading for debt default via inflation. 

The Russell advice, is the same as it's been for many years -- buy and own gold and silver. And forget about what “can't happen.” 

Russell has been doing this for over half a century and is legendary for some of his long-term secular calls so global readers should take his warnings about a dollar collapse seriously.  For years he has been pleading with his subscribers to protect themselves by purchasing physical gold and silver.  My advice at this point is to accumulate physical gold and silver on a monthly basis.  This method will give you a dollar cost average and you will learn to view pullbacks, even gut-wrenching ones as your friend because it will help your average cost basis