1 Dec 2011

GOLD TO GO PARABOLIC : Interview with Marshall Auerback

Q: Let’s talk about the effect of the turmoil in Europe on the markets. The line we get from financial reporters is that gold has fallen from $1,900 because of a flight to safety and that people are liquidating their positions in order to cover losses elsewhere. And yet we are confidently informed that not that many people are invested in gold.

Marshall Auerback: A November 25 Interview
A: They’re both right. It’s a small market ultimately, and you don’t have the same level of participation in the gold market that you did in the 1970s where I think 5% of pension funds were in gold. You’ve had a lot of leverage speculators that have held large positions in gold and when they get margin calls, they dump the stuff, and that has an impact on the price. I would argue that gold behaves in a textbook bull market fashion. It goes up; it falls back, it bases at a higher level. Now it’s basing at $1,600, $1,700. Earlier, it was basing at in the $1,400s, but it keeps edging up, and I think it’s poising for another explosive move to the upside. Clearly when de-leveraging strains are very acute, people just want to go for cash. So they sell the profits they’ve been sitting on, and gold gets hit like everything else. In many instances, investors are going after dollars to offset the impact of de-leveraging. How much longer that goes on for I don’t know. If these strains in Europe continue to intensify, I think that will be bullish for gold. I think the policy response you’re ultimately going to see is going to be gold bullish because I think ultimately it will create additional currency turmoil everywhere, and the bid for gold will remain as an insurance policy against it.

Q: When do you see this explosive movement in gold?
A: It could happen in the next six months or so.

Q: How high would you expect gold to go?
A: Ultimately, I think it could go to $3,000 to $4,000 an ounce before this is all played out. I think we’re at the start of a short-term relief rally. I think there will be some short-term fix placed on Europe. I don’t know what form it will take. Then you’ll see the markets bounce. Then there will be an increasing realization that the impact of fiscal austerity policies and all this financial dislocation over the last few months has been to create the certainty of a recession in Europe and the UK. China seems to be slowing down, and the US is likely to slow down as well. At that time I think you’ll get one last global inflationary push, and in that stage I think you’ll see gold go parabolic. That’s something I expect in the first half of next year.

Q: I read an interview with John Embry of Sprott Asset Management where he said, “These guys are brutal, and the CFTC doesn’t regulate a damn thing.” He takes the GATA view of gold and silver suppression for granted. How valid is this thesis?
A: I have no doubt there’s an element of suppression going on, but it’s been going on for 10 years, and it’s not as if it’s totally effective. In the early 1990s, there always seemed to be an invisible hand that wouldn’t allow gold to go above $400 dollars. The idea was that the central banks had enough to hold it forever at this price. Then $1,000 was the base, and now who knows what the level is. The government intervenes in currency markets and bond markets; they could be intervening in equity markets; and so the idea of them intervening in gold and silver markets is not such an extraordinary idea to me. Can they do it with total effectiveness? No. It’s a smaller market, and they have above-ground stocks of gold which makes it easier for them to manipulate than bond markets or currency markets. But they are running out of this stuff, and a lot of the official stockpiles have been lent out. Therefore they don’t have the same kind of resource they did 15 years ago to control the gold price.

Q: How is it possible to have a realistic gold price when we don’t know how much gold exists?
A: The answer is the markets will figure that out. My guess, for what it’s worth, I think at some point in the endgame that they will have to come clean on this. I think the central banks have not actually been selling a lot of gold but lending out a lot of gold. It’s loaned out, melted into bars and the stuff is delivered to some Indian woman as a part of her dowry. Whether it’s a loan or a sale doesn’t really matter; the effect on the market flow is the same. The gold market has been in a perpetual deficit, and if not for these ongoing leasing programs, the price likely would have been a lot higher. I suspect that at some point central banks will realize that they are not going to be able to get that gold back, and they will effectively ratify those loans by converting them into sales and in effect acknowledge they’ll never get it back. They’ll retroactively say these loans were sales and reclassify them on their accounts. This will give us a clearer picture of what the official above-ground stockpile is
I think gold could go to $3,000 to $4,000 an ounce before this is all played out —Marshall Auerback
Q: What will be the effect of the bankruptcy of MF Global and the allegations of co-mingling of accounts on confidence in the integrity of the futures trading system?
A: It’s devastating, because if you don’t think your money is going to be safe, you won’t play as much. The cynic in me says that’s one of the reasons why the feds let MF Global go—they were worried about the number of speculators in commodities. They’ve issued repeated warnings; the Justice Department said they were aware of what was going on. They were giving signals that they were prepared to take the hammer out. I think what MF Global has done is outrageous. Tragically, it may not be illegal. It will impact confidence and drive speculators out of those markets. Over a longer term that may not be a bad thing, but it’s a terrible way to resolve a financialization for the commodities complex.

Q: I saw a video by Jon Stewart where talked about Jon Corzine lobbying the SEC to relax the regulation requiring MF Global to keep more capital to back its positions. He said it was rather like someone being stopped for speeding by the cops and calling up the police commissioner and saying get this guy off my back, I’ve got places to go.
A: Absolutely. My understanding is that you could co-mingle the accounts that brokers could buy risk-free assets, like US government bonds. I think that Corzine lobbied to extend this to European government bonds which clearly have more of a solvency risk than US government bonds. He will likely make the case that he has done nothing illegal. To me, what he has one is comparable to a builder who has spent the last 10 years lobbying his local municipality, or local state government, to ease the building and safety regulations on the stuff that he builds, and then one of his buildings collapses. He can easily say, I didn’t do anything illegal; I built it according to the code, not specifying that he spent the last 10 years gutting the code.

Q: Have you seen Gerald Celente video talking about his own experience with MF Global? He gets into the role of Goldman Sachs, all these Goldman Sachs people everywhere. If it becomes a popular belief that there’s a handful of men pulling the strings behind the scenes, enriching themselves and remaining untouchable, what effect will this would have on the markets and on politics?
A: I think it’s going to have a very radicalizing effect on politics, and it will lead to a different political environment where these guys are brought to heel. It may take a considerable social dislocation first, so it’s not going to be very pleasant to live through the next three years. I’ve been writing about this for 15 years, government by Goldman Sachs. This is nothing new to me, but we’re seeing now more and more people are unafraid to call a spade a spade. But you probably won’t see the change until you start seeing blood literally flowing on the streets of Athens, Madrid and Paris.

Q: Precious-metals equities have largely collapsed since spring, and I keep seeing the explanation that the prices of gold and silver must stabilize before equities recover.
A: That’s a lousy explanation. The problem is that you have a market frozen into inaction because of volatility. There’s a premium being placed on liquidity. In this environment, for good or for worse, small caps tend to get hurt because people don’t want to play. The other problem is that these companies are particularly capital intensive and aren’t getting the funding. That’s why they’re not trading well. People think, why should I buy this, if they’re going to have fundings at a discount, and they’ll attach a warrant to it? It’s a sort of self-feeding negative cycle. My guess is that at some point the good ones do ultimately take care of funding, and you get some sort of great story developing and some speculative interest, but you’ve got to get these macro environments out of the way first. You’ve got to get Europe sorted out; you’ve got to get some more clarity on the physical front in the US before you actually see people prepared to leap into those markets again. They will; they always come back, but it has nothing to do with the stability of the gold or silver price per se.

Q: Couldn’t this uncertainty in Europe drag on for another six months to a year?
A: Possibly, but I don’t think it will. The fact that it has spread into Germany—the core has been infected—means that the policy responses will become more urgent.

Marshall Auerback is Director of and Corporate Spokesperson for Pinetree Capital Ltd, a Toronto-headquartered diversified investment, financial advisory and merchant banking firm focused on investing in early stage micro and small-cap resource companies. Pinetree is invested primarily in Uranium and Coal, Oil & Gas, Precious Metals, Potash, Lithium and Rare Earths and Base Metals. Mr Auerback was previously an advisor to a number of fund management organizations, such as PIMCO, the world’s largest bond fund management group, RAB Capital and David W Tice & Associates. He has a BA from Queen’s University and a law degree from Corpus Christi College, Oxford.


29 Nov 2011

The Endgame is Fast Approaching for Europe

Gobble, gobble: The economic shark is already devouring Greece and Italy, Portugal, Spain and others may well be next. Gobble, gobble: The economic shark is already devouring Greece and Italy, Portugal, Spain and others may well be next. Photo: Getty Images

EIGHTEEN months into a sovereign debt crisis - and after many futile efforts to resolve it - the endgame appears to be fast approaching for Europe.
While its leaders may well hold to the path of offering piecemeal solutions, nervous investors are fleeing Europe and its banks.
Two main options exist: Either the euro zone splits apart or it binds closer together. Each of these paths - Greece, and possibly others, dropping the euro or the emergence of a deeper political union in which a federal Europe takes control of national budgets - would lead to serious political, legal and financial consequences.
But with financial panic now threatening to move from Italy and Spain to Belgium, France and even Germany, the euro zone's paymaster, the pressure on Europe for a solution is at its most intense.
Even Britain's satirical weekly Private Eye has weighed in, proposing last week that the answer was for Europe itself to leave the European Union.
But underlying these scenarios, from the absurd to the less so, has been Europe's persistent inability to rectify the central conundrum of its common currency project: how to get money from the few countries that have it, mainly Germany and the Netherlands, to the many that need it - Greece, Italy, Spain, Portugal, Ireland and perhaps even France.
The consequences for continued inaction are dire. Uncertainty and austerity have killed the euro zone's growth prospects and analysts now expect the euro area's economy to shrink by 0.2 per cent next year - a blow for the many US companies that export there.
US financial institutions are also at risk. According to the Institute of International Finance, US financial institutions have $US767 billion ($A789 billion) of exposure via bonds, credit derivatives and other guarantees to private and public sector borrowers in the euro zone's weakest economies.
And as the European Central Bank continues to hold back from printing money as its counterparts in the US and Britain have done, investors now see a much higher likelihood of a broad market crash and a worldwide recession.
Such anxieties were on display last week when Vitor Constancio, vice-president of the ECB, addressed investors in London.
It was billed as an address on the international monetary system but, given the circumstances, there was little interest from investors in Constancio's views about fixed versus floating exchange rates and quite a lot in terms of what steps the ECB might take to tackle the crisis.
One somewhat frantic investment banker noted that beyond the Italians and the Spanish, even the Germans were having problems selling their bonds. What, he asked, was the ECB going to do about it?
Constancio mentioned the bank's bond-buying program and making loans available to banks, but he was blunt in saying that unless countries such as Greece and Italy reduced their budget deficits, there was not much he could do.
''The countries must deliver,'' Constancio said. ''In the end it is governments that are responsible for the euro area, not just the ECB.''
But it is this eat-your-spinach policy approach that many analysts are now saying is making the situation worse as countries throughout the euro area cut spending and raise taxes to meet budget deficit targets.
In a recent paper, Simon Tilford, an economist at the London Centre for European Reform, points out that imposing more rules in place of a federal framework, whereby the euro zone can commonly transfer or borrow money, will end in disaster.
Bernard Connolly, a long and persistent critic of Europe, estimates that it would cost Germany, as the main surplus country in the euro area, about 7 per cent of its gross domestic product a year to transfer sufficient funds to bail out the deficit countries, including France.
Analysts say it is Germany's unbending attitude that has so far stymied progress on the widely supported idea of a euro area able to issue its own bonds.
Lack of movement on a federal Europe has pushed investors to consider what would happen if a country such as Greece left the euro zone. Analysts predict dire consequences for the departing country, ranging from default to a collapse of its banking system.
Such a move may be legally impossible: there is no provision in any European treaty for a country to leave or be expelled from the euro zone.
But if a country made such a decision, it would have to leave the 27-member European Union as well, thus entering a more profound state of exile.
A view is now taking hold among many European leaders that the ever-worsening crisis may result in Brussels being given direct control over the budgets of countries that continue to run excessive deficits - a proposal made recently by the euro's most passionate advocate, Jean-Claude Trichet, a former president of the ECB.
In this vein, several economists at Bruegel, a Brussels-based research institute, have come out with a plan for a euro-area-wide finance minister, elected by the European Parliament, who would have limited federal powers to raise revenue, a radical measure, to be sure. Not only would that challenge the sovereignty of nations, but it would also require time and treaty changes.
With time in short supply, pressure is building on the ECB to defy German objections and buy more distressed government bonds, although there is little indication the bank has decided to do so.
''We are not financing the deficits of countries,'' Constancio said

Read more:

28 Nov 2011

Proof that Gold ETFs Are a Fraud

Over the course of the last eight years — since the creation of the precious metals ETFs — I have maintained and repeatedly stated my opinion that these gold and silver financial products were dangerous and a FRAUD.
I have also stated that those who hold these precious metals ETFs or certificate programs would sooner or later find out just how fraudulent these products are, and not reap the full benefits of rising gold or silver prices.
Several years ago, during the 2008 meltdown, the Perth Mint certificate program was exposed for not holding the gold they told their customers was backed by the Western Australian government.
And now, once again, precious metals fraud is in the media — this time with the ETFs and the MF Global situation.
One of the victims of this scandal, popular trends forecaster Gerald Celente, joined Alex Jones on "Infowars Nightly News" to detail how a six-figure sum was looted from his gold futures account, which, unbeknownst to Celente, was being held under the auspices of an MF Global subsidy.
As the Financial Times reported, the hundreds of millions in looted funds from customers’ accounts later “turned up at JPMorgan Chase, the failed broker-dealer’s custody bank.”
What a surprise (NOT) that the name JP Morgan Chase would be at the epicenter of this latest criminal behavior!
Despite Mr. Celente’s account being fully funded, Celente was hit by a margin call as Chapter 11 trustees stepped in to take control of his funds, leaving his account empty... and thereby closing his positions and preventing him from taking physical delivery of his gold which was due in December.
When Celente rejected demands to transfer more money into the account, it was hastily closed.
Those words above in bold tell the real story, because they owed gold they didn’t have. So they resorted to theft of customers accounts. In my opinion, this is criminal behavior, pure and simple.
It’s horrifying.
Ann Barnhardt, a commercial hedge broker specializing in cattle and agriculture futures, eloquently explains the MF Global situation (she’s also getting a ton of publicity for closing down her operations):
The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.
Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global.
What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.
I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1...
Read that last sentence very closely.
If it’s true that MFG was leveraged 100:1, that’s suicide. It also means this crisis isn’t over by a long shot.
Back to Celente...
Speaking with Alex Jones, Celente expressed his fury at the move, labeling it an example of “economic martial law,” and speculating that the real reason for the looting was because the broker never had the gold and silver to deliver in the first place.
Celente encouraged Americans to cash out of all gold ETFs and withdraw their funds from the bank because “they are going to steal all our money.”

The trends forecaster savaged MF Global CEO Jon Corzine, labeling him a “cheap S.O.B.” who was responsible for the collapse because of his using customer funds to bet on losing European bonds.
“How come he’s not in jail, because he’s one of the white shoe boys from the Goldman Sachs crowd,” Celente fumed, going so far as to say Corzine “should have died” in his recent car accident.
Celente said that he had sufficient funds stored in a safe place that could not be looted, and that if anyone did try to steal them and threaten his life, he wouldn’t hesitate to "blow their brains out."
Celente reiterated his plea to Americans to withdraw all their money from the banks and leave only operating capital in their accounts, warning that “the merger of state and corporate powers” has brought “fascism” to America.
You must take physical possession of your gold and silver if you want to have your assets protected from collapsing government fiat currencies and government sanctioned corporate theft like the MF Global example.
Time is running out, folks. Make your necessary arrangements while you still can.