By Warren Bevan, Precious Metal Stock Review
What a fantastic week for those in the camp who’ve known that all was not as it seemed in the Silver market. I delve a bit more into it later, but there are a few widely quoted “personalities” who have so much egg on their face now that it will take weeks or months to get every last crack clean.
In general, the markets didn’t do a heck of a lot this past week, but the precious metals markets seem to have now resumed their upwards trajectory with nary a real correction which means I’m not positioned trading wise as of yet, but that should change over the next few trading days.
Both the US elections and a major Fed meeting are taking place this coming week and I expect markets and metals to be volatile one way or the other. I think being cautious as these events unfold is the right approach.
But I’ve been wrong before.
Gold rose and unexpected by myself 2.26% this past week. It seems things are not as they used to be. A correction that could be counted on as sharp and violent is simply not taking place this leg higher in Gold’s secular bull market.
You’d think I must be a bit unnerved as my trading positions were exited some time back, at a nice profit mind you. But no. I’m quite happy actually as this near non-existent correction means Gold is trading much more powerful now than in the past.
Investors want it, and they are not waiting for the big moves lower. They are scared of the path economies are on and need a safe place to park some cash.
We certainly could see a move lower, but Gold did break it’s flag pattern Friday which would target the $1,580 or so level in around a month and a half…just in time for Santa Clause.
Gold has cleared the resistance level at $1,355 and is now looking to surpass all-time highs again, at just above $1,380.
The GLD ETF volume for the week was mediocre with slight ticks up later in the week, but Friday’s breakout did not see a big volume increase. Normally this would be bearish, and it may be. But the story is getting out, that you really do need physical Gold, not a supposedly physically backed product.
My view remains to trade ETF’s, and sit tight on your physical position.
Once again I ask you, how many people do you know who own even one Gold coin?
I get anecdotal emails of this every day and I can tell you when someone brings a coin into work for the fun of it, the reactions are priceless! Try it.
Try it with Silver too, the reactions are usually something like “That’s it? It’s only worth $25. Maybe I should get some!”
Gold still remains cheap in the big picture, even if we correct hard next week.
Holy smokes!!! How about Silver this week! There is much to get into which I will in the fundamental section below, so let’s start with this stunning chart.
Silver got up and went higher 6.23% for the week, half of which came on Friday alone. The revelations (talked about below) have been a long time coming and have woken the silver dragon which looks headed much higher, quickly.
As with Gold, Silver broke it’s flag pattern which is much more defined here in Silver. This chart is powerful and measuring the move takes us to about the $30 level in about a month.
However on the way to $30 the level slightly above $25 dating back to the very early 80’s should act as slight resistance. After that it’s all but clear sailing all the way to $50.
I’m not saying this will happen in a couple months, but it could as the now now more accepted public fundamental are in the open. I’ve said before that Silver has a lot of catching up to do when compared to Gold. If it were to have broken it’s all-time high to the same magnitude as Gold has done, it should be above $80.
The SLV had strong, but not explosive volume for the week with the most coming on Friday’s breakout. The ETF’s may be becoming more and more irrelevant as investors realize
buying the real deal is the way to go.
Palladium ripped higher by 6.58% on the week and left the important $600 level in the dust. It’s broken out and is now on it’s way to much higher levels. It should over time again surpass the $1,000 mark. And it will do it much more quickly than Gold did from the $600 level.
Palladium is near the upper end of it’s uptrend channel now and could slow it’s ascent for a short time, but perhaps not. Commodities remain in a powerful move higher, easily seen by looking at the CRB index, which keeps hitting new recent highs after new recent highs.
The PALL ETF saw strong volume with the highest day of the week being Thursday, not Friday’s large move higher which is slightly suspect.
Everything points to higher prices here and now though.
Platinum rose a small, but constructive 1.67% for the week as it works it’s way through this high level chart pattern. There was no breakout in Platinum as the other three metals I cover here left it behind.
It’s only a matter of time now though until it breaks above this little triangle or wedge and heads towards resistance at $1,770. Once that level is cleared it will be heading towards it’s all-time highs at $2,300.
As the great Jim Rogers said many years ago, commodities are the place to be invested. Obviously, he remains right for the foreseeable future, which in my eyes is at least five years, and likely at least double that.
The PPLT ETF saw quite weak volume except for the mid-week down day. Low volume in the consolidation pattern is great, and what I like to see before the next leg higher. Basically it means nobody wants to sell it here.
Well let’s not beat around the bush any longer and get right into the bombshell news issued this past week by CFTC commissioner Bart Chilton. In regards to Silver he said; “There have been fraudulent efforts to persuade and deviously control that price,”
Here is a video interview between the perennial bear John Nadler, and the bull David Morgan. It’s a must hear.
I do not understand why Jon and several other’s remain such bears on the precious metals prices and continue to refute any allegations of nefarious trading.
It takes the most courage to admit you were wrong, but it is the only way to earn or regain respect. Heck, I’m wrong all the time and have no problem admitting it, as long as I cut my losses relatively quickly it’s no big deal.
Laughter is the best medicine, even if it’s at yourself.
The following day a lawsuit was issued against the obvious perpetrators of the price controlling scheme. It’s obvious because these entities control the largest amount of Silver in the futures market where this fraud occurs.
I don’t have much to say other than, it’s about time. The admission speaks for itself.
Actually, come to think about it, I would like to once again thank the perpetrators for holding Silver and Gold lower for so long. It’s allowed myself and so many individuals and subscribers to accumulate physical product at far lower prices than we should have been allowed to, for far too long.
Unfortunately, it appears we will all have to pay up, and pay up significantly for our next purchases.
Thank you very, very much from the bottom of my heart, bank account and vault
Larry Kotlikoff said recently that the US government debt is in fact $200 trillion, or 840% of current GDP rather than the underreported number issued by the government of $13.5 trillion or 60% of GDP. Now THAT is scary, and just in time for Halloween!
He echoes something I’ve said many a times, the US is bankrupt.
A report was released last week which includes a short video. It states that US unemployment is actually 17.5%, and 22% in California.
It’s also emerged from the shadows that the US hid losses from the great bailout of the huge insurer. Apparently the US Treasury hid $40 billion in taxpayers losses which were discovered after they abandoned their fairytale method of valuing investments earlier this month. The original lie was that taxpayers only lost $5 billion, still a hefty sum.
If you still believe Government numbers, stats and reports to be accurate, give your head a shake. Not to be rude or disrespectful, but seriously, wake up!
Santa’s not real, nor is the Easter Bunny or Tooth Fairy.
The game is rigged and the only way to survive and prosper is to accept and understand this and use it to your advantage. It’s your choice. Be ignorant, stubborn and broke, or wise, skeptical and rich.
Sorry for being so brutally honest, but it is what it is, and there is no point in me sugar coating anything for you.
Can you handle the truth?
I wish I could value my investments as the US government has. It would be all roses and chocolate covered strawberries then!
But the reality is I have losses all the time, but as long as the winners outpace the losses and I keep the losses relatively small, it all works out.
It’s still my plan and method to have a large percentage of my wealth in physical metals and a portion of the rest I trade. I use options, ETF’s, and stocks to try and grow that. I trade anything. From the big tech companies to Oil indexes to Gold and silver indexes. I don’t care, as long as I think it has a chance to grow the trading portfolio.
You can get real-time updates on the trades I do make which have a reasonable chance to work out, and we even get the odd huge gainer. Well over 100% in a short amount of time even. But wether you subscribe to my daily morning updates and real-time trades or not, you should be holding and still buying physical metals.
On the subject of trading, more and more stocks have weekly options now in addition to the traditional monthly ones. Prices would always seem to be pegged to a certain strike price as options expiration approached maximizing the option sellers gains.
It was very evident Friday that this is now occurring every Friday as the weekly options expire. It’s just one more of the many, many little intricacies to watch out for when trading options.
You can easily find a list of the weekly options available at the CBOE website or by simply looking at option chains for any stock you are interested in trading.
While this is certainly an extra pain in the butt, it can be used to your advantage by trading intra-day nearer options expiration. Or even selling options.
Last week I brought the farcical article to your attention where Timmy Geithner was so adamant about not devaluing the US Dollar. In sharp contrast this week the Chinese Commerce Minister said the US dollar printing is “out of control”. And this coming week we have the QE 2 announcements. I can’t wait to hear what other creditor nations to the US have to say after this announcement.
I won’t get into the devices on planes which arrive on US soil late Friday other than to say, if they were discovered in Dubai, why didn’t they deal with them there? Obama said he became aware of the “threat” on Thursday evening.
Why was the plane allowed to continue to the US?
What if they were bombs and exploded over US soil with some kind of chemical agent being released or any scenario like that.
It could be a practice run by terrorists. It could be a ploy by the current powers who can now say. Look at the job we just did to protect America. Vote for us!
I don’t know and won’t spend any more time on this issue, but so far to me it’s really an event that was handled poorly. Something definitely smells fishy, IMHO.
The IMF sold more of their allotted 400 tonne Gold sale in September. They sold 32.3 tonnes, which is 1.04 million oz, with 320,000 going to Bangladesh. It’s not been disclosed who the rest went to. This arouses my suspicions, but I haven’t a clue as to why they don’t say where the Gold went. Maybe they sold it back to themselves!
This is something that should be done elsewhere in the world and especially in the US. Vietnam has stopped banks from selling customers Gold and using the funds for loans or other self-serving purposes. It should be illegal everywhere for the bank to loan out something a customer has deposited with them. After all, you let the bank hold something to keep it safe, secure and there.
There will come a day when the customers demand their Gold, and if it’s gone there will be hell to pay. Vietnam realizes this. So do other countries. Sadly, they don’t care.
When it comes down to it, the issue will be settled in cash. You must have physical possession or as close to it as possible of your metals or else you likely don’t actually have them. Also, if a bank sells your Gold it adds to supply in turn keeping prices lower, or letting them rise more slowly which should not be your goal.
Well that’s it for this week, I hope you have a great, happy and safe Halloween and I’ll leave you with this incredibly cute, hilarious video of some little kids fighting Zombies like their live actually did depend on it.
Until next week take care and thank you for reading.
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By Richard (Rick) Mills, Ahead Of The Herd
se, no clean drinking water or water for irrigation and shortages of food or unaffordable food can all cause socio-economic pressure to build in many countries that were once stable environments for investment.
In 2007 and 2008 roughly 40 food riots occurred – two of the more publicized examples were when people took to the streets after rising corn prices made tortillas very expensive in Mexico and skyrocketing food prices in Haiti led to the overthrow of that country’s Prime Minister.
The U.N. Food and Agriculture Organization (FAO) reported a five per cent increase in the international price of food over July and August 2010.
“I think everyone is wondering if we are going to have a repeat of 2008 when there were food riots around the world.” Johanna Nesseth Tuttle, director, Global Food Security Project
The world’s developing economies mostly rely on food imports to sustain themselves. On average their citizens spend a much larger percentage of their wages on food than do their counterparts in developed nations. Some published estimates are as high as 50 to 60 percent of income going towards food.
Our agriculture system is concentrated on producing a very few staple crops – there is a very serious lack of crop diversity. Corn, wheat, rice and soy are the main staples and production is oftentimes half a world away from where the majority of the crop would be consumed. Taken together, this means if we get hit by a particularly bad harvest in one area, if a severe El Nino strikes, or more localized severe weather phenomena strikes, food supplies can get totally out of control in many countries.
Considering that the global food supply chain is weak (easily disrupted by lack of transportation, weather, insurgency, stealing) and non-existent in many areas then you have a recipe for potential disaster in many regions of the world. When, not if, this food supply shortfall happens, for whatever reason, then almost any city, and almost any countryside could be aflame with strikes, riots and civil disobedience.
The worry about, and direct threat of, ongoing climate change impact on agriculture isn’t about the slow almost imperceptible changes caused by a gradual shift in our weather patterns. The greatest worry is that climate change might intensify already extreme events.
This seems to be happening today, witness the incredible drought and massive wildfires in Russia, the flooding in Pakistan, unbelievable hailstorms in Texas and unprecedented cold snaps in China.
And with extreme events being exacerbated by climate change an already stressed agricultural industry (by loss of arable land, shortage of fresh water for irrigation, increasing human population, staple food crops used for bio-fuel production, increasing energy costs and developing countries changing diets) is increasingly having a more difficult time feeding and clothing the world.
Many climatologists believe that the ongoing climate change the earth is undergoing will increase the frequency and severity of extreme weather events.
As I said, the most severe consequences of non-existent or more expensive staple foods are felt in developing countries whose citizens spend an exorbitant percentage of their incomes feeding themselves and their family compared to families in the western world. The recent riots in Mozambique were caused by a 30 percent hike in the price of bread after a double digit increase for water and energy – this happened in a country where many spend nearly 75 percent of the household budget on food. People in the poorer countries simply cannot afford increases in the price of food – in Mozambique the per-capita income is $800 per year.
The USDA believes food inflation will quicken it’s pace during the final months of 2010 and into 2011. “Although inflation has been relatively weak for most of 2009 and 2010, higher food commodity and energy prices are now exerting pressure on wholesale and retail food prices.” USDA food economist Ephraim Leibtag
“We continue to be shocked and amazed at the size of the cotton moves. These are, without question, going to translate into higher prices for consumers but more at the low end.” Sharon Johnson, cotton analyst, First Capital Group
There was a massive hailstorm in Texas (the centre of U.S. cotton production) and a severe cold snap in China (the world’s top cotton producer). Both these extreme weather events happened on top of already record low cotton inventories. With cotton inventories drawn down to record lows farmers might be tempted to shift their production focus from soybeans and grains to cotton.
Fresh water for irrigation and drinking is getting harder to source and more expensive. Food, the energy used to produce our food, and cotton – most of the world lives in cotton – are all moving higher.
The Rising Cost of Survival
It seems to this author that the increase in the price of food is the straw that breaks the camel’s back. The real cause of angst is the rising cost of living being felt in developing areas of the world. Many of these people, already living in poverty, and those on poverties edges, are far less capable of absorbing the increased costs of what is really just basic survival for themselves and their families. Yet this is the first group of people who are impacted by the coming unstoppable waves of inflation and real shortages - whether localized or temporary because of supply chain breakages or poor harvests.
Hundreds of millions of marginalized people, people perhaps counted by the billions, across all nations, will feel the extreme pinch of increased prices, across all asset classes, on their household budgets. But especially so in what those people need the most – water, food and clothing – the bare essentials necessary for survival.
One of the most serious and, in many cases now unpredictable, risks facing investors is “country risk” – where the political and economic stability of the host country is questionable and abrupt changes in the business environment could adversely affect profits or the value of the company’s assets.
When a countries citizens get upset, when the drama hits the streets, when the riots start and those in power fear they are losing control and are in danger of being overthrown – regime change in many of these developing countries can quickly become a reality – they will act to please their populace. One of the first actions often taken is the nationalization of foreigners assets – often accompanied by placing the blame for the countries woes on anybody but the government, misdirecting the mobs attention.
All governments fear social unrest – social unrest breeds an upswing in regional militancy and insurgency – the 2007-08 food shortages and consequent rioting recently helped to trigger the collapse of governments in Haiti and Madagascar. Today, in Egypt, half the population depends on government subsidized bread. If Egypt’s present government cannot continue to subsidize bread for the masses upcoming parliamentary elections will be effected. In Serbia a public warning about a coming 30 per cent hike in the price of cooking oil has led to threats of demonstrations by trade unions.
The bottom line? Foreigners, no matter how entrenched in the country, have always made easy targets. Greedy, capitalist hating Marxist governments have never before needed an excuse to nationalize others assets, and they did so time after time. Now investors have something else to ponder and monitor – one that concerns all food importing countries governed by any political ideology.
The United Nations Food and Agriculture Organization acknowledges that higher prices are causing hardships. But they quickly add the situation that exists today is far less dire than the one in 2007-08. Hmmmm maybe, but this author does not believe that is going to be the case for long.
The relief we’ve seen, in the last two years – from this food, or rather from this higher cost of survival driven social unrest - is very temporary, a calm before the storm. A shortage of fresh clean water for irrigation and drinking, fragile and easily disrupted food supply chains and extremely expensive (or non-existent) food, clothing and energy basics for emerging and developing nations is going to be the coming norm. And it’s going to cause chaos.
“Long-term growth in global demand for agricultural products – in combination with the continued presence of U.S. ethanol demand in the corn sector and EU biodiesel demand for vegetable oils – holds prices for corn, oilseeds, and many other crops well above their historical levels.” USDA
Quantitative easing and a global currency race to worthless. Inefficient supply chains, intensified weather phenomena and a race to secure dwindling supplies of commodities by developed economies (and their richer inhabitants) all mean the very basics of human survival will become increasingly scarce for the poorer people in the developing world.
Are there storm clouds on your radar screen…no?
Well, there’s a storm brewing on the horizon. Maybe you should be keeping a weather eye on developments in the countries you’ve invested in.
Richard (Rick) Mills
PS – Let’s never forget, in our rush for profit, that there is a real human cost involved. There are untold millions of adults and children who go to bed every night hungry, thirsty and cold.
If you’re interested in learning more about the junior resource market please come and visit us at www.aheadoftheherd.com.
Membership is free, no credit card or personal information is asked for.
Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell.com, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.
By Toby Connor, Gold Scents
Certain conditions were met on Friday that convinced me that gold is now entering the final leg up in this particular phase of the ongoing C-wave advance. The final spurt higher last year tacked on a very healthy 19% in a little over 1 month.
A similar performance this year would drive gold to $1578. Although this year we have the added benefit that the entire sector is trading at new all time highs. It is the only sector in the world that is in this position. This is an incredibly powerful combination that could drive the precious metal sector even further than it did last year.
At the moment there is a very low risk (-3%) entry for investors and traders to get on board this final run.
I explained the setup in depth in the weekend report.
For one day only I’m going to offer the 15 month yearly subscription rate again. That works out to a monthly price of $13.33.
15 months should be long enough to get investors not only through this final spurt higher but also back in for the final phase of the C-wave this spring. Get you out of the precious metals market in time to avoid the severe D-wave correction. And then back in to ride the next powerful A-wave advance.
We have an incredible opportunity ahead of us over the next several months and year.
If you want to take advantage of the discounted yearly subscription click here and follow the Paypal link.
A financial blog primarily focused on the analysis of the secular gold bull market.
Most serious gold investors follow a basic principle: that gold is stable in value. Changes in the “gold price” represent changes in the currency being compared to gold, while gold itself is essentially inert.
This is why gold was used as a monetary foundation for literally thousands of years. You want money to be stable in value. The simplest way to accomplish this was to link it to gold. Today, we summarize this quality by saying that “gold is money.”
From this we can see immediately, that if gold doesn’t change in value – at least not very much – then it can never be in a “bubble.” There may be a time when many people are desperate to trade their paper money for gold, but that is because their paper money is collapsing in value. It has nothing to do with gold.
Let’s take a look at some of the great gold bull markets of the last hundred years:
- From 1920 to 1923, the price of gold in German marks rose from 160/oz. to 48 trillion/oz.
- From 1945 to 1950, the price of gold in Japanese yen rose from 140/oz. to 12,600/oz.
- From 1948 to 1967, the price of gold in Brazilian cruzeiros went from 648/oz. to 94,500/oz.
- From 1970 to 1980, the price of gold in US dollars went from 35/oz. to 850/oz.
- From 1982 to 1990, the price of gold in Mexican pesos went from 8,000/oz. to 1,025,000/oz.
- From 1989 to 2000, the price of gold in Russian rubles went from 1,600/oz. to 8,120,000/oz.
Each of these situations was an episode of paper currency depreciation. Today is no different. The rising dollar/euro/yen gold price is simply a reflection of the Keynesian “easy money” policies popular around the world today.
We can also see that, if gold remains stable in value, then the supply/demand considerations that affect industrial commodities do not affect gold, which is a monetary commodity. This is why gold is used as money. If its value was affected by industrial supply/demand factors, we would not be able to use it as money.
Thus, “jewelry demand” or “peak gold,” or any other such factor, has little meaningful effect on gold’s value. Day-to-day money flows will affect the price at which currencies trade vs. gold, but this ultimately affects the currency in question, not gold.
None of these historical “gold bull markets” resulted from jewelry demand or mining supply.
Any attempt to attach a valuation to gold is mostly a waste of time. Concepts like the “inflation-adjusted gold price” or the “gold/oil ratio,” or a ratio of outstanding debt or currency to a quantity of gold bullion, are a distraction. An item that doesn’t change value is never cheap or dear. That’s what “gold is money” means.
The “price of gold” may reach five thousand, ten thousand, a hundred thousand, a million, or a billion dollars per ounce. The gold bubble-callers will be frothing at the mouth, until they finally have the realization that there was never a bubble in gold, but only a crash in paper money.
Gold is money. Always has been. Probably always will be. This time it’s different? I don’t think so.
Gold Never Has Been (and Never Will Be) in a Bubble originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
The world waits…
Stocks barely budged this week. Gold bobbed around like an anchorless sailboat, adrift in a vast ocean of guesses, speculation and rumor. All eyes, meanwhile, are on US Fed Chairman Ben Bernanke, who is widely expected to announce his next round of systematic dollar debasement a few days from now – a strategy otherwise known as “quantitative easing,” or “QE” for short. Trepid investors, unsure of what the value of the world’s reserve currency will be a week from now, sit on the sidelines, awaiting their cue from the man with the magic chopper.
Fellow Reckoners will recall Bernanke’s statement that, should it become “necessary,” he could cure what ails the financial world by dropping money from helicopters. He’s not quite there yet. Readers are invited to have a little patience…
Of course, the battle between central bank-created fiat money and its arch nemesis, gold, is not a new tale. Money meddlers have been tussling with the precious metal since the coin clipping days of the Romans. You’d think the bozos would have learned their lesson by now. But, as Bill likes to say, what one generation learns, the next is quick to forget.
“Gold vs. the Fed: the Record is Clear,” reads a headline from The Wall Street Journal this week. The article goes on to highlight a few of the dollar’s lowlights during its ongoing battle with the Midas Metal.
“From 1947 through 1967, the year before the US began to weasel out of its commitment to dollar-gold convertibility,” the story begins, “unemployment averaged only 4.7% and never rose above 7%. Real growth averaged 4% a year. Low unemployment and high growth coincided with low inflation. During the 21 years ending in 1967, consumer-price inflation averaged just 1.9% a year. Interest rates, too, were low and stable – the yield on triple-A corporate bonds averaged less than 4% and never rose above 6%.
“What’s happened since 1971,” the article wonders aloud, “when President Nixon formally broke the link between the dollar and gold? Higher average unemployment, slower growth, greater instability and a decline in the economy’s resilience.”
And that’s not all.
“For the period 1971 through 2009, unemployment averaged 6.2%, a full 1.5 percentage points above the 1947-67 average, and real growth rates averaged less than 3%. We have since experienced the three worst recessions since the end of World War II, with the unemployment rate averaging 8.5% in 1975, 9.7% in 1982, and above 9.5% for the past 14 months. During these 39 years in which the Fed was free to manipulate the value of the dollar, the consumer-price index rose, on average, 4.4% a year. That means that a dollar today buys only about one-sixth of the consumer goods it purchased in 1971.”
And to think the Journal is referring only to official statistics! The real story, when adjusting for the number torture going on in the government’s chamber of statistics – what Orwell might call the Ministry for Truth – is far, far worse. But readers get the point. The evidence is in. The facts have been observed. The arguments made. The case against a fiat money system would seem as open and shut as they come.
So why continue down the path leading to the very same cliff every other fiat money leapt from? Ahh… As every liar worth his salt well knows, a mistruth must beget a fraud, which, in turn, must give rise to another lie.
The world is brimming with stories of people who blindly cling to crackpot ideas in the face of any and all rational argument to the contrary. In fact, research shows that, far from inspiring a level-headed change of opinion, a well constructed argument dismantling this or that hocus pocus theory often has the opposite effect, emboldening the purveyors of such falsehoods. Leon Festinger introduced the theory, known as “cognitive dissonance” in his well-known book When Prophecy Fails, co-written with Henry Riecken, and Stanley Schachter.
In it, Festinger and his colleagues infiltrate a cult whose leader, Dorothy Martin, convinces a bunch of fellow village idiots that an apocalyptic flood is going to ravage the earth and that their only hope rests with a group of strangely benevolent aliens who would swoop down at the hour of reckoning to save the believing souls form certain death. One might reasonably expect that, when the fated day came and went without a drop of rain (or alien appearance), the group, no doubt embarrassed but otherwise none the worse for wear, would simply disband and go home. Not so.
Ed Yong, an award-winning British science writer who addressed the subject in a recent article for Discover magazine, describes what happened next. “In a reversal of their earlier distaste for publicity, [the group] started to actively proselytize for their beliefs. Far from shattering their faith, the absent UFOs had turned them into zealous evangelists.”
What corners we humans allow our theories to paint us into!
Perhaps it is the same psychological disposition, a cerebral partitioning of sorts, giving rise to the popular belief that a man can grow prosperous by spending more than he earns. Or that problems caused by too much debt can be cured…with more debt. Or that leaving a central banker in charge of the value of money can end in anything other than currency destruction and eventual financial ruin.
So, what does a central banker do when one round of money printing doesn’t bring about the desired effect? Does he revisit first principles and reexamine the evidence? Or does he double down on his bets, defending his actions with increasingly zealous evangelism? Bernanke gives the world his answer on Wednesday.
All Eyes On the Fed: Awaiting Bernanke’s Decision originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
By Jeff Nielson, Bullion Bulls Canada
The question being asked all across the world of business news is “will QE2 be successful?” Because this policy is literally economic suicide, the question becomes “will the Federal Reserve be successful in the assisted economic-suicide of the U.S. government?” I find this an utterly appalling question – which highlights the intellectual bankruptcy of government policy-makers, and the bankers which goad them onward.
“Quantitative easing” is nothing more than a euphemism for printing money “out of thin air”. Its one-and-only purpose is to destroy the currency being printed. It is pure dilution, and absolutely no different than a corporation vowing to improve its fiscal performance simply by printing-up a lot of new shares.
We can illustrate the inherently evil nature of this monetary abomination by working through the “mechanics” of this policy. First, the explicit goal of “QE2” is to increase inflation. By now, all readers should be familiar enough about “inflation” to know that it is literally nothing more than the speed with which our currencies are being destroyed.
In the case of the Federal Reserve, we understand all too well how “successful” it has been in creating inflation. Since it was invented in 1913, the Federal Reserve has been directly responsible for the U.S. dollar losing 97% of its value (i.e. inflation has raised prices by more than 20 times what they were in 1913) – despite the official mandate of the Federal Reserve for “price stability” (i.e. protecting the dollar). Now, Ben Bernanke (the Fed’s latest and most potent dollar-destroyer) is vowing to “succeed” in destroying the remaining 3% of value of the world’s reserve currency.
Here is how printing-up money accomplishes Bernanke’s “goal”. First of all, as with any kind of dilution, printing-up new dollars makes all of the ‘old’ dollars worth less (worthless?). So, right there, the Federal Reserve is already 100% guaranteed of “success”. In fact, the Federal Reserve has already been “very successful” in creating inflation – in the real world.
Visit Shadowstats.com, operated by respected U.S. economist John Williams, and you will hear that U.S. inflation has been in the range of 8.5% – 9.5% all this year. Williams performs his calculations using the exact same methodology used by the U.S. government a generation ago, before the U.S. government intentionally incorporated various statistical lies into this measurement.
Understand the enormous “rewards” which a government receives for lying, by grossly under-stating the rate of inflation. Pay-outs on $100’s of billions of U.S. government benefits per year are indexed to the rate of “official” inflation. By grossly understating inflation (and cheating all of the recipients of those benefits), the U.S. government can get an instant, multi-billion dollar windfall from that one lie, alone (every year).
Secondly, every quarterly and annual GDP report must be “deflated” by the real rate of inflation. The raw data must be stripped of all inflation, in order to accurately represent real, economic growth. By grossly understating the rate of inflation, the government falsely inflates the rate of GDP “growth” by several percentage points – et voila we have a “U.S. economic recovery”.
Immediately, we see Bernanke exposed for the charlatan that he is. He claims there is U.S. “economic growth”, when all that “growth” actually represents is an illusion of doctored numbers. He claims the Federal Reserve has “failed” to create enough inflation (i.e. to destroy the U.S. dollar fast enough), when in fact the real data shows that Bernanke has been doing a wonderful job of destroying the dollar.
However, the ultimate “indictment” of “QE2” as failed policy comes from the fact that “QE1” never ended. Of all the fraudulent shams perpetrated by the U.S. government and the Federal Reserve, none of them are as obvious as the U.S. government’s manipulation of the market for U.S. Treasuries.
Here are the facts. Previously, the U.S. government was able to find (real) buyers for its Treasuries, due to the need of other governments to recirculate/reinvest the money from their trade surpluses and fiscal surpluses. Thanks to the Wall Street-engineered “Crash of ‘08”, the vast majority of those surpluses have disappeared.
At the same time, the U.S. government is cranking-out much more “supply” than at any other time in the history of the United States. Thus, we are told by the U.S. government (and the Federal Reserve) that there are more “buyers” for U.S. Treasuries than at any time in history – despite the fact those buyers have no money. But that is literally less than half of this farce.
Not only are we being told that buyers-with-no-money are purchasing more Treasuries than at any other time in history, we’re also told that these buyers are joyfully paying the highest prices in history (by a large margin) for these debt instruments. However this still doesn’t capture the absurdity of this scenario.
Paul Volcker wrung inflation out of the system. Ben Bernanke is wringing cash-savers’ necks…
If it were, the last decade’s four-fold rise would be missing, and gold wouldn’t have dropped by three-quarters during the 1980s and ’90s.
Sure, the cost of living has increased since 2001 – no doubt about that. And yes, the real value of money has contracted as global money supplies have surged. But the pace of change doesn’t compare with the 25% suffered by UK consumers in 1978, nor the 8% annual average hitting US consumers between 1971 and the end of 1980.
So the common link between the 1970s and the last decade of rising Gold Prices is a little more complex than inflation alone. But only a little.
Because it’s the failure of interest rates to keep pace with inflation that matters.
- The 1970s saw 3-month Treasury bills pay an average of 0.1% per year less than domestic US inflation. That decade saw gold prices rise 24 times over vs. the Dollar;
- The 1980s and ’90s then saw 3-month bill rates average 3.1% more than inflation each year. Gold Prices fell by 81%;
- The last 11 years have since seen real T-bill rates sink alongside Federal Reserve rate and longer-term Treasury bond yields, averaging just 0.3% since Jan. 2000. Gold has risen 450% low-to-peak.
- Most recently – and thanks as much to the flight-to-safety after Lehmans collapsed as to Ben Bernanke’s response – real rates have now averaged fully 1.0% below US inflation since the global financial crisis began in summer ’07. Professional wholesale dealers meantime ask 1,350 US Dollars for an ounce of gold, up from $649 before the crisis broke.
A caveat: You shouldn’t try trading in and out of Gold Bullion using this indicator. That plunge in real rates on the chart above, for instance, of early 1980 proved a feint, as investors soon discovered after piling back into gold when it bounced from a 40% plunge. Similarly, the rise in real rates of 2006 didn’t make for a sell signal. The underlying trend, it turned out, was still down for rates…and up for gold. And short term, plenty of other factors can get in the way as well – be it mid-term US elections, the Indian festival season, or a global guessing-game of whether the Fed will print eleven or twelve zeroes after the figure $1 when it meets next week.
That policy, remember, is designed to mimic an interest-rate cut. Because interest rates already have already been slashed to zero, known as the "lower bound" amongst policy wonks, who now feel they need to somehow overcome the "zero bound" by printing money to help devalue it faster. Goldman Sachs reckons that, creating $4 trillion next Wednesday, would be "equivalent to a cut in interest rates of 3%". Even so, the investment bank’s analysts complain that we’ll probably get a measly $2 trillion instead.
So, let’s take the vampire squid at its word, and imagine that the Fed goes for a two and twelve zeroes – whether immediately, or dripped out of Washington over a period of months. On Goldman’s maths, that would eat a further 1.5% off the real rate of interest (not) being paid by 3-month T-bills…and so such a move (and notional outcome) would take real returns down to minus 3.9%.
For US savers, that would be the worst level of real returns to cash since the start of 1975, back when US inflation was running above 10%. That same month, almost 36 years ago, the Gold Price hit what proved an intermediate peak, slipping by almost one-half as real interest rates then climbed up towards zero. (Like we said, real rates aren’t a dead-set signal for short-term direction.)
Real returns paid to cash then failed at zero, however, and slipped back – while gold rose 8-fold again – before the Volcker Fed finally set about "wringing inflation out of the system" in mid-1980 with double-digit overnight rates.
If you expect Ben Bernanke to wring anything but cash-savers’ necks in the next year, then please – go ahead and sell Gold Bullion. And if you want to know what happens if inflation subsides, as he keeps claiming it will, watch out for Part II next week.
Get the safest gold at the lowest prices by using BullionVault today…
U.S. silver prices hit a fresh 30-year high on Friday, capping a weekly increase of 6.3 percent and an October rally of 12.6 percent.
Precious metals moved as group this week, supported by expectations that the Federal Reserve will attempt to stimulate the economy with another round of quantitative easing. Bull camps opined that further easing [...]
Markets await more money printing and key midterm elections
GDP meets expectations
Gold broke $1,350 today just before data showed the U.S. gross domestic product grew by 2 percent in the third quarter on high consumer spending, meeting economic forecasts. In a big meeting Tuesday – also Election Day – the Federal Reserve will discuss the prospect of further quantitative easing, or QE, which will have a major impact on the dollar, inflation expectations, and gold prices. “The Fed meeting next week has been dominating the markets,” said Standard Bank analyst Walter de Wet. “We think the gold market has priced in around a $500 billion QE exercise by the Fed,” he said. “If the Fed comes out with a higher figure, we think gold will move higher.”
The trillion-dollar question: How much money will the Fed print next?
All eyes are on the Fed and its next anticipated round of QE. Most experts agree that some form of QE will be launched at the conclusion of a two-day meeting of its policy-making committee next Wednesday. It’s now just a question of how many billions worth of assets it will purchase and how much the financial markets have already priced in that QE.
“Shock and awe”?: Goldman Sachs thinks the Fed ultimately might buy $2 trillion of assets – a figure close to its “shock and awe” purchase of $1.7 trillion in longer-term Treasury and mortgage-related bonds at the height of the financial crisis. “We expect an announcement of $500 billion or perhaps slightly more over a period of about six months,” said Goldman economist Jan Hatzius. “The key question, however, is not the size of the first step, but how far Fed officials will ultimately need to move to achieve their dual mandate of low inflation and maximum sustainable employment.” The Fed also might announce a monthly purchase rate of perhaps $100 billion that will remain in place until the outlook for jobs and inflation improve “significantly,” he wrote. Goldman thinks as much as $4 trillion of additional asset purchases might be needed to bring inflation and unemployment into line with the Fed’s targets.
Likewise, Bank of America-Merrill Lynch Global Research has forecast $1 trillion in QE, and a Reuters poll showed Wall Street analysts expect the Fed to buy between $80 billion to $100 billion in assets per month.
Or “a measured approach”?: However, on Tuesday, The Wall Street Journal downplayed expectations of a major round of QE: “The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis. … Officials want to avoid the ‘shock and awe’ style used during the crisis in favor of an approach that allows them to adjust their policy, and possibly add to their purchases, over time as the recovery unfolds.”
Gold stands to gain: The launch of any significant QE should have an uplifting effect on gold prices. Gold could rise to $1,400 an ounce and the dollar could lose another 2 percent to 3 percent if the Fed buys $500 billion over the next six months, HSBC analysts said Monday. The Fed could eventually buy up to $2 trillion in bonds – way more than the government will issue this year, according to HSBC.
Unbottling the inflation genie
In leading the Fed into uncharted monetary territory, Chairman Ben Bernanke is risking unleashing 1970s-style inflation – against which gold is your best protection. “By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment,” said Miller Tabak & Co. chief economic strategist Dan Greenhaus. “The risk is a late-1970s type of scenario where the inflation genie gets out of the bottle.”
Treasury sale anticipates inflation
Also agreeing is CNBC anchor Larry Kudlow, who commented this week on a major event in the world of U.S. Treasuries:
An extraordinary event for bond markets occurred [Monday] when the Treasury sold $10 billion of 5-year inflation-protected securities, or TIPS, at an auction with a yield of negative 0.55 percent. That’s right. Negative. Can’t remember when that’s happened before. In other words, investors were willing to pay the Treasury 105 cents in order to buy $1 of inflation protection. Now how does that square with the Fed’s new-found fear of deflation? Does the central bank ever listen to markets? Ever since Ben Bernanke announced his QE2 pump-priming monetary-stimulus idea late last August, inflation-sensitive markets have been going wild. The dollar is down. Gold is up. Commodities are up – big time. … You can’t print $1 trillion of new money without sinking the currency. The dollar is already overproduced. Just ask China and other Asian countries, or Brazil, each of which is fighting against the inflow of excess dollars. Again, judging by inflation-sensitive markets, rising prices are the fear, not falling prices.
Wall Street strategist Peter Boockvar writes about the CRB index rising to its highest level in two years, including booming cotton and copper. He also notes companies like Starbucks, McDonald’s, General Mills, Goodyear, and Kimberly-Clark, which have all reported higher cost inflation. And then comes this priceless sentence: ‘Ahead of next week’s FOMC meeting, where the Fed wants higher inflation, all will be okay as long as you don’t drive, eat, drink, wear cotton-based clothes, use copper wire for any type of construction, blow your nose, diaper a kid, or wipe your arse.’ Boockvar is right. The Fed is wrong. Investors will even take negative real yields to protect against inflation. What does that tell you?
Inflation evident in soaring commodity prices
Research analyst Jake Weber of Casey Research highlights the discrepancy between skyrocketing commodity prices versus the U.S. government’s official, anemic inflation statistics in his article “Chart of the Week: Inflation in the Real World”:
The Real Cost of Living
As is often the case, there is a big difference between what the government statistics are reporting and what’s going on in the real world. According to the most recent inflation reading published by the Bureau of Labor Statistics (BLS), consumer prices grew at an annual rate of just 1.1 percent in August. The government has an incentive to distort CPI numbers, for reasons such as keeping the cost-of-living adjustment for Social Security payments low.
While there’s no question that you may be able to get a good deal on a new car or a flat-screen TV today, how often are you really buying these things? When you look at the real costs of everyday life, prices have risen sharply over the last year. For simplicity’s sake, consider the cash market prices on some basic commodities. On average, our basic food costs have increased by an incredible 48 percent over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23 percent on average (heating oil, gasoline, natural gas). A little protein at dinner is now 39 percent higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36 percent since last October.
You probably aren’t buying new linens or shopping for copper piping at the hardware store every day, but I included these items to show the inflationary pressures on some other basic materials that will likely affect consumer prices down the road. The jump in gold and silver prices illustrates that it’s not just supply and demand issues driving the precious metals higher – the decline in purchasing power of the dollar is also showing up in the price of physical goods. It is because stashing wheat and cotton in the garage is an impractical way to protect purchasing power that investors are increasingly looking to protect themselves with the monetary metals – a trend that is now very much in motion.
China blasts the dollar
Money printing by the United States is “out of control,” China’s commerce minister said Tuesday. “Because the United States’ issuance of dollars is out of control and international commodity prices are continuing to rise, China is being attacked by imported inflation,” Chen Deming said. “The uncertainties of this are causing firms big problems.” Chinese officials have criticized U.S. monetary policy as being too loose before, but rarely in such explicit language. At the G20 meeting in South Korea that ended Saturday, Chinese Finance Minister Xie Xuren said issuers of major reserve currencies – code for the United States – must follow responsible economic policies. Along with posing an inflationary risk, a weak dollar also places appreciation pressure on China’s yuan since its value is so closely tied to the U.S. currency.
China eyes more gold
China should boost the amount of gold held in state reserves to a level equal with the U.S. holdings, a newspaper run by China’s Ministry of Commerce said Wednesday, citing local researcher Meng Qingfa. U.S. reserves stand at 8,133 tons versus China’s 1,054 tons. “Doubtlessly, if the yuan is set to become an international currency like the dollar or the euro, China has to get a huge gold reserve to support it, and a reserve of 1,054 tons is far from being enough,” Meng said. He added that China could build up a gold reserve as large as the U.S. stash by using only 10 percent of its $2.65 trillion stockpile of foreign-exchange reserves. Meng’s view does not represent China’s official stance, but the domestic appeals for China’s foreign-exchange reserve regulator to buy bullion has been intensifying in recent years. According to UBS analyst Edel Tully: “This … supports the general market consensus that China will add to its gold reserves. While the implications of potential QE and its size have monopolized market attention, the China report reminds us that the current mood amongst central banks, particularly in Asia, is to increase exposures to gold.”
Beware mass insider stock selling
Is now the time to buy gold for safety’s sake? This worrisome report from CNBC suggests yes:
“The overwhelming volume of sell transactions relative to buy transactions by company insiders over the last six months in key leading sectors of the market is the worst Alan Newman, editor of the Crosscurrents newsletter, has ever seen since he began tracking the data. … ‘Clearly, insiders are seeing great value only in cash. Their actions speak volumes for the veracity for the current rally.’ … Newman isn’t alone in warning about insider selling. The latest report from Vickers Weekly Insider, a publication that makes investments based upon these transactions, shows that total insider sell transactions relative to purchases on the New York Stock Exchange are running at a ratio of more than four to one over the last eight weeks. … Newman … sees the insider selling as just the latest reason, along with the mortgage foreclosure mess and fully invested mutual fund managers with no fresh powder to put to work, to be cautious on the market. ‘At the risk of sounding like a broken record, we expect a significant correction,’ said the newsletter editor.”
Gold vs. silver is a win-win
Gold vs. silver: Which is the better investment? To find out, CNBC put two precious-metals experts in a boxing ring, in the form of Goldmoney chief James Turk and Charlie Morris of HSBC Global Asset Management. In this Oct. 26 interview, Morris argues that gold will outperform silver. “We’re in a massive bull market for all precious metals,” but silver is more volatile, he says. In the long term, gold will triumph because gold is “a more precious precious metal, so I think over the long term you’re going to get a better return at a lower volatility.” Turk argues that silver will outperform gold – though he endorses both metals because both avoid counter-party risk: “I’m a long-term accumulator. I see buying gold or silver as a form of savings – you’re saving sound money and you’ve done very, very well this decade, and I think that’s going to continue regardless whether you buy gold or silver. … My recommendation is generally to have two-thirds of your bullion portfolio in physical gold and one-third in physical silver, and if silver does outperform, it will become increasingly part of your portfolio.”
- Gold falls 2 percent to 2-week low on oil slide
- Gold Drops for Third Day in London as Euro Trades Near Week-Low
- 20th Century Gold Club Holds Fascinating Meeting During FUN Convention
9:12a CT Sunday, October 31, 2010
Dear Friend of GATA and Gold (and Silver):
In the presentation he prepared for the New Orleans Investment Conference, the Got Gold Report’s Gene Arensberg joins those anticipating silver’s return as de-facto money. Arensberg’s commentary is titled “Lust for Silver Returning” and you can find it at the Got Gold Report’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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