December 7, 2010
December 3, 2010
November 17, 2010
GoldMoney founder and GATA consultant James Turk was interviewed today by Eric King of King World News about the continuing increases in margin requirements for gold and silver futures longs. Turk says he expects a sharp snap back in precious metals prices:
Turk commented, “This may explain why Comex is raising margins a second time so quickly, they aim to put more pressure on the buyers. Obviously the Comex is trying to put more pressure on market participants by forcing them to liquidate their longs.”
“Eric, here we are at $25.50 which is the price that was identified by your London source last week. So they painted the tape, but the Comex open interest shows that they haven’t driven out any buyers which is very surprising. Normally you would expect to see some longs liquidating on any pullback like the one that we have seen over the past few days, but that hasn’t happened this time around.
The buying pressure in the physical market remains, we are starting to see the industrial buyers coming back in to secure supply. My guess Eric is that the industrial users will be there on any price dip like we have had at present. Up to this point we haven’t seen the boomerang effect that I have been anticipating but I am still expecting a sharp snap back in prices.
As we pointed out in the piece which had Mark Lundeen’s illustration in it, gold is dramatically undervalued and this can only result in much, much higher prices over time. I would just add that I expect the gold/silver ratio to decline over time to under 20 to 1, so silver will be exploding along with the price of gold.
As you know Eric I have been projecting gold to hit $8,000 by 2013 to 2015, so that would equate to silver hitting $400, and that is well within the realm of possibility as silver reverts back to its historical mean.”
This is what happens in bull markets, prices climb to levels that previously seemed unimaginable.
October 29, 2010
Sprott Asset Management's chief investment strategist, John Embry, covers many topics related to gold and silver in a 14-minute interview today with Eric King of King World News, which you can listen to at the King World News Internet site here:
Or try this abbreviated link:
A copy of the silver market manipulation lawsuit filed yesterday in U.S. District Court for the Southern District of New York against J.P. Morgan Chase & Co. and HSBC Bank has been posted at GATA's Internet site here:
GATA board member Adrian Douglas, who helped publicize London silver trader Andrew Maguire's disregarded silver market manipulation complaint to the U.S. Commodity Futures Trading Commission, said of the lawsuit:
"The Gold Anti-Trust Action Committee has worked tirelessly for more than 10 years to expose the suppression of gold and silver prices. The filing of this lawsuit is a milestone in stopping the fraud that has been occurring in these markets and punishing the bullion banks responsible. The suppression of the monetary metals has facilitated an overvalued dollar and mispriced debt that in turn have caused the massive imbalances at the root of the worldwide financial crisis. This fraud has hurt everyone except those on the inside who have profited at the expense of the public. I applaud the integrity of Andrew Maguire, whose whistleblower testimony has made this lawsuit possible, and the dedication of CFTC Commissioner Bart Chilton, who has had the courage to fight systemic corruption."
October 28, 2010
With gold and silver strong today, King World News interviewed James Turk out of London. When asked about silver specifically Turk commented, “I like this flag pattern because when you breakout to the upside you reach your target in half the time it takes the flagpole to form. The flagpole formed over 36 trading days, so the next leg up to $30 will be over in less than 18 trading days.”
“The other thing Eric is that this time frame is not too far off from the three to four weeks window that I mentioned would take place when silver pierced $21.
We have been saying it is different this time because the ongoing accumulators of physical metal are right underneath the market. This aggressive buying is one of the key reasons why prices are poised to explode.
What I expect to see is a strong close today, and follow through tomorrow. That scenario requires more short covering tomorrow which is likely to happen anyway going into the weekend.
Even though silver is continuing to lead, gold will continue higher as well. Gold will eventually take out the previous high of $1,400. $1,400 is a pit stop on the way to $1,500.”
James Turk sent the above chart to go along with his comments. It shows the flag formation and the corresponding breakout he is discussing in this interview. When silver takes out the previous highs near $25, you should expect to see some serious fireworks to the upside. Gold will be in tow.
October 3, 2010
This from the Got Gold Report:
"We believe that today’s (Thursday’s) close for silver is the second highest nominal close at a quarter-end ever. We note remarkably little in the way of quarter-end profit taking. Silver closed in New York at $21.75 on the cash market, about even with Tuesday’s close and down a couple of dimes from Wednesday’s last print in the electronic session. That is after silver tested as high as $22.10 in early Thursday trade. Subscribers to Got Gold Report can look at the linked charts (near the bottom of the last full report) for more on the silver and gold price action."
Please click HERE for the full Report.
September 19, 2010
GoldMoney founder James Turk, editor of the Freemarket Gold & Money Report and consultant to GATA, says the silver price chart has nearly completed a three-year accumulation pattern with $21 as the crucial resistance level. Turk expects silver to vault higher when $21 is breached. His commentary is headlined "The Battle for $21 Silver Begins" and you can find it here:
James Turk-The Battle for $21 Silver Begins
August 30, 2010
"Silver turned in an “outside reversal” Tuesday, August 24 (which happened to coincide with COT reporting cutoff day), and in the process it surged up and out of the wide triangular consolidation which, as regular readers know, we have been following here at Got Gold Report all along. An outside reversal occurs when the trading breaks below the previous day’s lows and then reverses to close higher than the previous day’s high. Outside reversals often, but not always, mark significant turning points and technically minded traders view such action as a more bullish event...."
Gene Arensberg's weekly "Got Gold Report" concentrates on silver and he writes that something changed in the silver market last week, starting with silver's "outside reversal" day on Tuesday, and it looks bullish.
Arensberg's commentary is headlined "Focus on Silver" and you can find it at the Got Gold Report Internet site HERE
August 9, 2010
GoldMoney founder James Turk, editor of the Freemarket Gold & Money Report and consultant to GATA, observes in commentary today that silver has been appreciating just as much as gold has over the last nine years and may be an even better buy now for investors who are prepared to deal with its greater volatility. Turk's commentary is headlined "Is Silver Ready to Move Higher?" and you can find it at the GoldMoney Internet site here:
July 22, 2010
May 15, 2010
Within a half hour of each other today the leading business television networks in North America reported doubts that gold exchange-traded funds either have the gold they claim to have or can get enough real gold to meet likely demand.
The first doubt was expressed on CNBC in the United States, where market analyst Rick Santelli comments at 5:30 into this segment:
The second doubt was expressed on BNN in Canada, where reporter Niall McGee commented at length:
There seems to be growing consensus in favor of what GATA long has been urging gold and silver investors to do: to take possession of their metal or make certain that any custodian has got it in allocated and audited form, especially since the custodians of the largest gold and silver ETFs are also the biggest gold and silver shorts, a grotesque and unacknowledged conflict of interest:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
April 24, 2010
In his weekly interview with Eric King of King World News, silver market analyst Ted Butler remarks that "the worst is behind us" for gold and silver investors dealing with the recent decline in prices; that the big silver short, JPMorgan Chase, is not increasing its short position in silver; and that investors should get out of "pooled" and unallocated gold and silver accounts and shift to accounts that identify their gold and silver bars by hallmark and serial number. The interview is not quite 13 minutes long and you can find it at the King World News Internet site HERE
April 11, 2010
Trader Blows Whistle on Gold and Silver Price Manipulation
By Michael Gray
New York Post
Sunday, April 11, 2010
There is no silver lining to the activities of JPMorgan Chase and HSBC in the precious-metals market here and in London, says a 40-year veteran of the metal pits.
The banks, which do the Federal Reserve's bidding in the metals markets, have long been the government's lead actors in keeping down the prices of gold and silver, according to a former Goldman Sachs trader working at the London Bullion Market Association.
Maguire was scheduled to testify last week before the Commodities Futures Trade Commission, which is looking into the activities of large banks in the metals market, but was knocked off the list at the last moment. So he went public.
Maguire -- in an exclusive interview with the Post -- explained JPMorgan's role in the metals pits in both London and here, and how they can generate a profit either way the market moves.
"JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses" on their short positions "by the Fed and/or the US taxpayer," Maguire said.
In the gold pits, Maguire sees HSBC betting against the precious metal's price without having any skin in the game in the form of a naked short.
"HSBC conducts an ongoing manipulative concentrated naked short position in gold. Silver is much easier to manipulate due to its much smaller [market] size," Maguire added.
"No one at JPMorgan is familiar with Andrew Maguire," said Brian Marchiony, a company spokesman. HSBC declined to comment.
Also during the CFTC hearing, Jeff Christian, founder of the commodities firm CPM Group, said that the LBMA, the physical delivery market for gold and silver in the UK, has been using leverage, which is another way to depress the price of gold and silver.
Christian said that the LBMA -- the same market Maguire trades in -- has leverage of about 100-1 on the gold bars settled on the exchange. In layman's terms, that means if 100 clients requested their bullion bars be delivered, the exchange could give only one client the precious metal.
The remaining requests would have to be settled for cash equivalent. "That is tantamount to a default on the trade," says Bill Murphy, chairman of the Gold Anti-Trust Action Committee.
Maguire goes further and calls it a fraud: "If you sell something you do not own, then that is fraud."
Back in 2007, Morgan Stanley agreed to settle a $4.4-million lawsuit brought by precious-metal clients, who alleged that Morgan offered to buy gold and silver and store it for the investors, but never purchased any metal and still charged them storage fees.
Morgan Stanley denied the charges at the time but "settled the case to avoid the cost and distractions of continued litigation," the firm said.
Despite gold's rise each of the last 10 years, Murphy believes the price of gold today would be closer to $2,300 an ounce if the price just moved with inflation.
Maguire believes the price should be even higher given the fear trade that would have sent prices spiking during the financial crisis in 2008-09.
Both precious metals have seen a recent spike since Maguire's e-mails became public. Gold has gained 6.5 percent to close at $1,161.55, while silver has spiked 10 percent to $18.38.
According to the e-mails Maguire sent to CFTC regulators, he was spot-on in his expectations of how the precious metals would trade on release of the January jobs report.
This message is to "confirm that the silver manipulation was a great success and played out exactly to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview?," Maguire wrote to a staff investigator after the trading day.
CFTC commissioner Bart Chilton said, "I'm appreciative of the information Mr. Maguire provided and I'm glad it was introduced into the investigation."
... High, low silver
The prices of gold and silver have been allegedly suppressed by JPMorgan Chase and HSBC, according to a London whistleblower.
Andrew Maguire, who laid out the banks' plan in e-mails to the CFTC prior to trading on the Comex on Feb. 5.
1.) From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Cc: BChilton [CFTC]
Sent: Wednesday, February 03, 2010 3:18 PM
Subject: Re: Silver today
Thought it may be helpful to your investigation if I gave you the heads up for a manipulative event signaled for Friday, 5th Feb. Scenario 1. The news is bad (employment is worse). This will have a bullish effect on gold and silver as the US dollar weakens and the precious metals draw bids, spiking them higher. This will be sold into within a very short time (1-5 mins) with thousands of new short contracts being added.
Scenario 2. The news is good (employment is better than expected). This will result in a massive short position being instigated almost immediately with no move up. This will not initially be liquidation of long positions but will result in stops being triggered, again targeting key support levels. Kind regards,
2.) From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Cc: BChilton [CFTC]; GGensler [CFTC]
Sent: Friday, February 05, 2010 3:37 PM
Subject: Fw: Silver today A final e-mail to confirm that the silver manipulation was a great success and played out EXACTLY to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview? Kind regards,
3.) Andrew T. Maguire
From: Ramirez, Eliud
To: Andrew Maguire
Sent: Tuesday, February 09, 2010 1:29 PM
Subject: RE: Silver today Good afternoon, Mr. Maguire, I have received and reviewed your email communications. Thank you so very much for your observations.
March 30, 2010
London metals trader and CFTC whistleblower Andrew Maguire was interviewed with GATA board member Adrian Douglas for 40 minutes Tuesday by Eric King of King World News.
Maguire explained how he came to complain to the CFTC about silver market manipulation by JPMorgan Chase traders in London and then to Douglas when the CFTC failed to call him to testify at its hearing last week on futures trading in the metals market.
March 22, 2010
Jon Matonis, who describes himself as an economist of the Austrian school living in Gibraltar, has written at his blog, The Monetary Future, a fascinating account of the infamous attempt of the Hunt Brothers to get hold of a lot of silver in 1979-80.
The biggest lesson of the story may be that, then as now, position limits in the U.S. commodity markets are to be applied against longs but not against shorts. Of course that's the big issue underlying the U.S. Commodity Futures Trading Commission's hearing on the precious metals futures markets on March 25, and GATA will try to raise it.
Matonis' essay is headlined "Hunt Brothers Demanded Physical Delivery Too" and you can find it at The Monetary Future HERE
February 21, 2010
February 20, 2010
"...Gold is inert. Lifeless. Incorruptible. But inherently shiftless. It never gets out of bed in the morning. It has never earned a penny in its entire life.
Gold won’t make you rich. It toils not; neither does it spin. Since it doesn’t hustle, it won’t increase your wealth. That’s why, in the Bible, the slave who kept his master’s wealth safe in gold got beaten. Gold won’t earn a profit. It won’t pay you a salary or give you a company car. All it will do is help keep you from getting poor. We’ve never heard of a man who had 100 ounces of gold who was poor. On the other hand, we’ve read about millions of people with stacks of paper money who couldn’t afford a cup of coffee. In our wallet, for example, is a 10 Trillion Dollar bill from Zimbabwe. A dear reader gave it to us. You could have a stack of those a foot high. You still wouldn’t be able to buy a latte at Starbucks. On the other hand, imagine you had a stack of Krugerrands or maple leafs. Well, you still couldn’t buy a cup of coffee at Starbucks. Because the dumb clerk wouldn’t know what it was. And if he did take the gold coin in exchange for coffee, he’d probably rush over to the mall where some sharp dealer offered to take it off his hands in exchange for PAPER MONEY!
You see, the average person has no idea what real money is. One dollar bill looks the same as another to him. And gold? He’s probably never seen gold, unless it was wrapped around his finger..."
To enjoy Bill Bonner's full article on investing and the wealth preservation aspect of owning gold please click HERE
February 18, 2010
In his latest market letter, Murray Pollitt of Pollitt & Co. in Toronto, the grand and not that old man of Canadian mine finance, remarks that the world's policy makers lack the courage to accept the discipline necessary to shore up the world's finances. So, Pollitt writes:
"Our best guess is that markets, not policy makers, will determine the next monetary system. And, as much for lack of alternatives as the traditional reasons, gold will be somehow involved. Meanwhile markets will be characterized by volatility, defaults, lots of uncertainty, and a rush for the hard stuff. Before they get around to a monetary system, governments will wake up to the need for wealth creation and, since the quick fix for wealth creation is competitive devaluation, we expect governments to get at it with vigour. Shades of the 1930s."
Pollitt's commentary is headlined "Farewell to All the Emperors" and he has generously consented to GATA's posting it HERE
February 16, 2010
January 31, 2010
Kevin Bambrough and David Franklin of Sprott Asset Management in Toronto argue in an essay just published that central banks no longer have any interest in maintaining the value of their currencies and that, as a result, gold is the only currency that can safeguard wealth.
Their essay is headlined "Beware Counterfeiters" and you can find it at the Sprott Internet site HERE
January 30, 2010
Remarks by John Embry Chief Investment Strategist,
Sprott Asset Management,
Toronto Vancouver Resource Investment Conference
Hyatt Regency Hotel
Vancouver, British Columbia, Canada
Monday, January 18, 2010
It is once again a great pleasure for me to address a knowledgeable gathering at Joe Martin's always excellent Cambridge Conference.
When I was here last year gold was around $850 and there was the usual angst among mainstream commentators fearing a drop to $600 per ounce or worse. Today the price is roughly $300 higher and the same individuals continue to try to frighten the public with prophesies of vertiginous falls in the gold price. Despite this ongoing aggravation, I am even more bullish on the prospects for gold than I was a year ago.
However, despite my consistent enthusiasm for the yellow metal once termed a "barbarous relic" by Lord Keynes, I still have the strong feeling that the vast majority of investors outside this room still haven't got a clue about gold and they are certainly not aware that gold is experiencing a historic bull market with much, much further to go. What we have seen to date is merely a prelude, and the appreciation we are going to see in future years is going to greatly exceed what we have seen to date. This opinion is based on a number of factors I will expand on, but the predominant theme is that gold is re-establishing itself as money.
It has been money for thousands of years, a reality that was succinctly summed up by J.P. Morgan in 1912 when he said, "Gold is money and nothing else." But we go through periods when that reality is obscured, and the decades of the 80s and 90s represent living proof of that. Gold retreated to commodity status in that era, when disinflation was in vogue and the real returns on financial assets were truly remarkable in historic terms.
Gold fell from a peak of $850 per ounce in January 1980 to a low of $252 in July 1999 in an extended bear market. To be fair to gold, it got a significant push to the downside in the latter part of that period from the central banks that were dumping enormous quantities of gold by leasing it through their bullion bank cronies. I would contend that the gold price overshot its economic value by perhaps $150 on the downside. Contributing to this fiasco was the ludicrous auction of half the British gold reserves within 10 percent of the bottom. Today this egregious error is referred to as "the Brown bottom" in recognition of the idiocy of the current British prime minister, who was then finance minister.
However, this is all water under the bridge and I don't particularly want to dwell on it other than to say that we are now in the phase of the gold market where we are about to benefit mightily from the central bankers' awesome stupidity at that time.
It is important, though, that everyone realize exactly what happened. The Western central banks supplied massive quantities of gold to the market for at least the past 15 years. Initially this facilitated excessive producer hedging. Then it helped to fund a huge carry trade that greatly enriched their bullion bank cronies. Now it occurs in large part to protect existing huge short positions held by those same banks.
You might be inclined to ask why the central banks would do such a thing. The official explanation for the transparent portion of their activities (i.e., direct sales) was to diversify their reserves. Essentially, why hold gold when you can own an interest-bearing piece of paper in its stead?
But that explanation is purely fatuous and a total smokescreen. The whole process, with the clandestine leasing and swapping of huge quantities of gold, was orchestrated by the United States. It was designed to reduce critical scrutiny of the central banks' increasingly reckless monetary policy, to allow interest rates to remain at unrealistically low levels and to maintain the U.S. dollar's supremacy. That this undertaking would inevitably spawn serial financial bubbles, the very same bubbles that brought the world financial system to its knees, was conveniently ignored.
This was all foreshadowed by some remarkable comments by then-Federal Reserve Chairman Alan Greenspan at a Federal Open Market Committee meeting in the early 1990s, remarks that came to light only recently when a transcript of that meeting was scrutinized. Greenspan referred to gold as a "thermometer" and speculated that if the Treasury Department sold a little gold in the market and the price broke as a result, not only would the thermometer no longer be a measuring tool but the lower gold price could affect underlying psychology. Greenspan was unfortunately right in his perverse judgement and shortly thereafter the systematic dumping of gold by the Western central banks moved into high gear.
It really makes you love free markets, doesnβt it?
But what a sorry mess they have created. While in the '90s, their gambit played out spectacularly with gold collapsing and financial assets flourishing, it sowed the seeds for what has happened subsequently: a robust bull market in gold since 2001 and increasing chaos in the stock, debt, and real estate markets worldwide. To this day the central bankers have remained undaunted and have increasingly intervened in all markets, but despite their annoying periodic raids, their influence is waning dramatically in the gold market.
I would suggest that today central banks are discovering to their increasing discomfort what history has always demonstrated -- and that is that manipulation of the free-market process ultimately fails. No amount of government interference and price manipulation can change the reality of the free market over the long term.
In the whole sordid process of the gold suppression scheme for the past 15 years, what has been particularly intriguing to me is that an earlier generation of central bankers unsuccessfully tried to same ploy with gold in the 1960s. Using the considerably more transparent London Gold Pool, they succeeded in holding gold at the then-official price of $35 per ounce for a number of years before being overwhelmed by the reality of the situation. In the following decade of the 1970s, gold rose a mere 2,300 percent.
Armed with the knowledge of that fiasco, one would have surmised that our current central bank geniuses might have considered that their new attempts at price control, albeit considerably more secretive, could meet a similar fate. Alas, the hubris of central bankers is well known, and this just represents another graphic example of their arrogance and awesome incompetence.
However, what remains to play out is the denouement of their current folly. Markets that have been artificially capped tend to catapult upward when the suppression inevitably fails. In my opinion the last experience in the '60s and '70s was a mere bagatelle in comparison to what is unfolding today. It has always been accepted that "the greater and longer the manipulation, the greater the eventual price rise is going to be."
In the latest episode, there has been dramatically more central bank gold expended. Credible estimates suggest that more than 15,000 tonnes, or roughly half of the central banks' supposed reserves, have already hit the market and are long gone, dangling from the wrists and necks of Indian women, filling vaults in the Middle East and Russia, and, in ever-greater quantity, migrating to China.
In the era of the London Gold Pool, only around 3,000 tonnes were sold to maintain the $35 price. This time the exercise has been dramatically larger and has occurred over a much longer time frame against the backdrop of a considerably more fragile financial structure, particularly in the West. So all of you are free to use your imagination to estimate how high gold is going to go this time.
It is critical to understand what the central banks have done because, in the absence of that knowledge, one cannot appreciate the whole gold story and will find it extremely difficult to recognise the investment opportunity being presented.
However, that is only one critical factor, and, as I said at the outset of my remarks, it is gold's return as money that is going to be really instrumental in driving gold to prices that would seem fanciful to most at the present time. In reality, it isn't gold that is changing, because it has been a constant store of value for 6,000 years. It is the value of fiat paper money in which gold is priced that is on the slippery slope to oblivion.
I could talk extensively about what is happening to the value of paper money, but to shorten things up, there is only one expression that you have to know: "quantitative easing." What a joke that is!
The authorities would have you believe it is some sort of magic elixir and a panacea, but all it represents is the monetization of various forms of debt by unfettered printing of money by central banks. Because the inflationary impact has yet to occur, the linear thinkers would assure you that it isn't going to be a problem. However, because of ongoing deleveraging and falling velocity of money in the short term, it is only being delayed.
As sure as death and taxes, continuing excessive money creation by the central banks will lead to accelerating inflation. When it begins to manifest itself, the velocity of money will pick up rapidly as people around the world rush to get rid of their increasingly worthless paper currency. In that event, we will rapidly progress from relatively benign inflation to truly frightening levels in a fairly short time.
At this point, I would like to repeat a quotation I used in a recent Investor's Digest article. It comes from Ludwig Von Mises, the brilliant originator of the Austrian school of economics, which is the only formal economics that makes much sense to me. Long before I was born, which was a long time ago, Von Mises observed:
"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner, as the result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency system."
That comment is pretty germane to what is unfolding today. Following what was arguably the most abusive credit cycle in history, Fed Chairman Ben Bernanke and his central banking confreres have clearly chosen the latter option, and accordingly, in my opinion, all forms of fiat paper money are headed for a train wreck. Ironically, Bernanke tipped his hand seven years ago in the infamous speech he gave before becoming Fed chairman. He claimed that he could combat deflation by the use of a printing press or, if need be, by dropping money from helicopters to sustain demand. To me his theories were ludicrous at that point and remain so today. Yes, he may avert deflation for a considerable time but at the very probable cost of hyperinflation and the social chaos that inevitably results.
Today the only question in my mind is whether investment demand for gold is going to go berserk as the result of a U.S. dollar collapse or because all the fiat currencies go down the drain together. The U.S. dollar is in its death throes, but will other countries print massive quantities of their own currencies to buy the dollar in an attempt to depress their currencies and keep their economies relatively competitive? To date, I would say that despite the considerable weakness in the dollar, there is abundant evidence that many other countries are printing aggressively to prevent their currencies from rising too much against the dollar.
In any case, I believe we are fated to see a continuing policy of ridiculous monetary ease around the globe, despite rhetoric to the contrary. This will occur because the idea of a double-dip recession or depression, as the case may be, is anathema to the powers that be. Very simply, withdrawing any significant amount of stimulus, be it monetary or fiscal, in the foreseeable future would virtually guarantee another deflationary event, and this time it may be impossible to stop.
Clearly, the United States is the lynchpin of the whole debacle, but most other countries are up their necks in the mess as well.
To begin, let us consider the United States' fiscal quandary, with a federal government deficit currently running above 10 percent of gross domestic product and representing roughly 40 percent of government expenditures. These numbers are horrific for a country that is providing the world's reserve currency. A recent study looked at the 28 examples of hyperinflation in various countries since 1980 and included Argentina, Zimbabwe, and many other banana republics. It noted that one common trait was that when the national government deficit exceeded 40 percent of expenditures, the point of no return had been reached. The U.S. is there as we speak and the $389 billion deficit in the first quarter of the 2010 fiscal year was far from reassuring.
While the preceding information is historical and thus factual, there is the matter of the Obama administration having recently admitted that its budget deficits would total $9 trillion (a number that I believe to be wildly optimistic) over the next 10 years. The question that obviously has to be asked is: What person, institution, or government, for that matter, in its right mind would lend money to the United States for the pathetically low interest rates currently on offer?
In reality, who would really be comfortable lending the United States money at any interest rate in the current circumstances, considering that higher rates would just ensure even higher deficits?
So it seems reasonable to assume that more of the deficits will have to be monetized, the dollar will inexorably decline as a result, and the question of confidence will become paramount. If confidence in the dollar is lost, chaos will ensue and those trapped in dollar-based fixed-income assets will see their wealth destroyed, the same fate that befell those who believed in the system in the Weimar inflation in Germany after World War I.
But the United States is far from the only country that is in serious difficulty. Things are as bad, and in certain cases worse, in many other countries. For example, Great Britain is a basket case, which incidentally looks real good on that hypocritical jerk Gordon Brown, who has led his country to ruin. Britain's central bank has been forced to intensify its quantitative easing program several times to keep the economy barely afloat and its financial system semi-intact.
Japan, with its rapidly aging population, has seen its accumulated public debt reach 200 percent of GDP with no end of that trend in sight.
Europe is no bed of roses either. Despite the soothing words of the head of the European Central Bank, Jean Trichet, and some very vocal comments about current monetary excess from Germany's Angela Merkel, they appear to have little choice but to keep the money flowing to save Club Med, Ireland, and a whole swath of eastern Europe from oblivion.
China, that paragon of all things economic and financial, had to resort to mandating a humongous increase in bank lending in the first half of last year to keep its economy moving. The ultimate outcome of this endeavor remains to be seen, although it certainly had a salutary impact on Chinese share prices and world commodity quotes. Unfortunately, the resulting massive over-capacity throughout the entire Chinese economy may become an issue.
That brings us to the favorite country of everyone in this room, Canada. I suspect that the Canadian authorities will be forced to deal with reality soon. Despite the hedge funds' love affair with the Canadian dollar, the economic and financial fundamentals in this country don't support the current level of the loonie. We are attached at the hip economically to the United States and as our dollar rises, our manufacturing industries or what's left of them are being destroyed. Budget deficits are exploding at all levels of government.
One year ago the feds didn't have one, but now the deficit is annualizing somewhere north of $60 billion. Ontario is homing in on $25 billion and even hydrocarbon power Alberta has ruefully admitted that its deficit forecast has risen to $6.9 billion, as very low natural gas prices, among other things, take their toll.
Bank of Canada head Mark Carney and Finance Minister Jim Flaherty know these problems all too well, although much of the public seems blithely unaware, and I am eagerly awaiting Carney and Flaherty's response. Rumors of aggressive quantitative easing are growing, adding yet another nation to the expanding list practicing this dark art.
Why is all of this significant?
Very simply, it ensures that the demand side of the gold-silver equation is baked in the cake. Investment demand is exploding on a worldwide basis as those with wealth to protect are beginning to comprehend the true extent of the monetary debasement under way. This is only going to intensify as inflation begins to rear its ugly head as the result of the money-printing orgy.
As I mentioned earlier, the velocity of money is going to accelerate as people figure out what is occurring. Why would anyone want to hold a rapidly depreciating monetary asset when it yields next to nothing? At that juncture we will see if the powers that be have the courage to remove significant amounts of stimulus. Since I believe that our debt-logged economies will remain relatively weak and our financial structure exceedingly fragile, I donβt believe they will.
So I find it laughable when people concern themselves with reduced jewellery demand as a factor in the pricing of gold in the current circumstances. Any decline is being dramatically exceeded by rising investment demand, and this phenomenon is only going to intensify. Besides, all great bull markets in precious metals are driven by investment demand as gold reasserts itself in its true role as money. They most certainly don't occur as the result of gold's attraction a bauble or as an adornment.
However, as bullish as I am on the demand side of the equation, an equally compelling case can be made on the supply side, which consists of three primary elements -- mine supply, scrap recovery, and central bank dispositions. The least important is scrap recovery, but it was briefly a negative in early 2009, when a lot of people around the world couldn't wait to get rid of their jewelry and realize a little cash for the gold contained in it. However, that sharply abated in the second half of the year and the focus is now back where it should be, on mine supply and central bank dispositions.
One of the key factors that is going to contribute to the ongoing bull market is mine supply, or more accurately stated, lack thereof. Mine supply has been in a steady decline since early in the new century despite the constant rosy predictions of greater supply from the alleged industry expert GFMS Ltd. I have long been of the mind that the decline will continue for some time irrespective of what the gold price does. I base my opinion on numerous factors, including a dearth of quality projects ready for mining, continuing geopolitical and environmental issues, less high-grading as the gold price rises, ongoing capital constraints, and a chronic shortage of skilled miners and mine builders.
Thus I was fascinated when Aaron Regent, the new head of the world's largest gold company, Barrick Gold, was quoted at RBC's annual gold conference in London lamenting the state of the gold mining business. He went so far as to suggest that global gold production was in terminal decline despite record prices and Herculean efforts by mining companies to discover new orebodies in remote areas. He alluded to "peak gold," implying that production has reached levels that can't be exceeded, an expression that is commonplace in the oil industry, where the subject has been under discussion for some time.
Following this pessimistic assessment, a more horrifying prediction was revealed in the South African Journal of Science. Chris Hartnady, the research and technical director of a Cape Town based consultancy, stated that South Africa's famous and extremely prolific Witwatersrand gold fields are around 95 percent exhausted and predicted that production rates should fall permanently below 100 tonnes per year within the next 10 years.
This is truly shocking in that gold production from the Witwatersrand, the largest gold field ever discovered, peaked at around 1,000 tonnes per annum in 1970 and, though falling steadily since, still contributes around 230 tonnes per year or roughly 10 percent of world production.
In view of these two evaluations by knowledgeable industry players, my negative view on production has been reinforced. Gold mine production is in the neighborhood of 2,350 tonnes per year, and I continue to believe that odds strongly favor it continuing to fall rather than show any meaningful increase for the next several years.
That brings me back to the central banks, and I apologize if I am belaboring the point, but I believe their role in the whole saga is neither widely appreciated nor well understood. Because of the remarkable obfuscation in the area, most observers do not realize how much central bank gold has entered the market in the past 15 years to fill the huge and growing gap between true demand and mine and scrap supply.
This is the direct result of misleading accounting by the central banks -- accounting, incidentally, that has been endorsed by the International Monetary Fund, the very same IMF that has been threatening the gold market with potential massive sales for a number of years. The central banks have been permitted to use a one-line entry on their balance sheets, which does not differentiate between gold in the vault and gold receivables.
There is copious evidence, if you look for it, that supports the contention that gold receivables have grown dramatically as the result of central banks surreptitiously mobilizing their gold through leasing and swaps. This gold has been dumped in the market and has been essential in filling the natural demand- supply gap, which has probably exceeded 1,000 tonnes per year in most of the years since the mid- to late 1990s. That it also served to significantly depress the price wasn't an accident.
The significance of the 1,000-tonne-per-annum number is two-fold. First, it represents in the neighborhood of 25 percent of the physical gold supply during the period, showing how truly deficient real sustainable supply is. Second, it virtually guarantees that Western central banks are getting dangerously short of reserves to continue this activity. Just as importantly a number of Eastern central banks -- including China and Russia, to name but two -- have acknowledged their intentions and are accumulating and will continue to accumulate gold as one avenue to diversify their reserves away from the U.S. dollar.
But India may have stolen a march on all of them when it announced recently that it had purchased 200 tonnes of the well-advertised and long-awaited IMF sale. This was the event that really kicked off the latest leg in the gold bull market, and unquestionably the Indian move drew widespread attention to a historic shift in the attitudes of central banks toward gold. It coincided with a complete cessation of selling by the European central banks, which under the terms of the recently renewed European Central Bank Gold Agreement could sell up to 400 tonnes per year.
Thus just as the Western central banks are being forced to wind down their incessant selling and leasing, the Asians have stepped up as buyers. This is a truly dramatic development and is going to have extremely positive ramifications for the gold price.
In view of the foregoing powerful positive fundamentals for the gold price, I find it almost nauseating that various pundits are referring to gold as overpriced and in a bubble phase. Nothing could be further from the truth, and, in reality, gold continues in its stealth bull market, which has now seen nine consecutive higher year-end closes. Despite this, as I mentioned earlier, it has attracted very little attention from the investing public in general.
The dedicated goldphile has participated throughout, and a number of sophisticated financial players have come on board recently, the latest being the legendary trader Paul Tudor Jones. But the average investor remains uninterested. It is instructive to remember that at the end of the last bull market in 1980, people were lined up around the block outside the Bank of Nova Scotia in downtown Toronto to purchase physical gold. Today the only lines that have formed are outside emporiums set up so the unsuspecting public can unload their gold jewelry for cash. To have a bubble of any significance, there has to be wide public belief, and it certainly isn't on display in the gold market.
More importantly, if gold were overpriced, the gold producers would be experiencing an earnings bonanza. A close examination of the recent earnings statements of most major gold companies reveals that they are earning very little and are certainly not achieving the return on capital necessary to justify their involvement in a very risky and difficult business.
I find sentiment in the sector to be remarkably subdued in the face of compelling fundamentals. Many attractive junior gold stocks are not even keeping up with the rise in the gold price. If history were any guide, these stocks would be rising at three to four times the rate of the gain in the gold price, but investor skepticism is holding them back.
From a media perspective, if we were approaching the end of a bull market, the newspaper articles and television clips would be universally bullish touting the obvious merits of the yellow metal. There is indeed more coverage recently because of the relentless price rise, but it tends to be skeptical with the bearish commentators continuing to get the most exposure despite having been continuously wrong.
There is no better example of this than an individual who my compliance department would prefer that I not identify. However, Iβll give you a broad hint -- he writes virtually daily for a noted Canadian gold Internet site. Dubbed the Tokyo Rose of gold commentators, he is always quoted in articles with a negative slant despite having been consistently wrong since the inception of gold's bull market. In my opinion, as long as he gets any press at all, we are a long way from the end of this bull market in gold.
Finally, it is widely acknowledged that if the peak gold price in the last great bull market ($850 in January 1980) were to be adjusted to reflect the U.S. inflation rate in the intervening period, it would be equivalent to $2,300 today. That the current gold price is approximately half of that should put to rest any suggestion that this is a bubble.
That's not to say there aren't several bubbles forming in other financial markets (most notably in government debt instruments) as a result of a new bout of central bank madness, but gold is not on the list. In fact, I believe that we are many years and several thousands of dollars in price away from the end of this powerful bull market.
In conclusion, I now firmly believe that the chances of gold ever trading below $1,000 per ounce are remote. The only caveat I would offer is that if the world suffered a catastrophic deflationary collapse, an outcome long predicted by the noted Elliot Wave theorist Robert Prechter, gold could briefly be swept under but would then re-emerge with even greater relative strength as the only true safe haven. However, in a world of pure fiat currency, I think that a near-term deflationary outcome is highly unlikely. In fact, I strongly suspect that gold is going to stage a parabolic rise from current levels in the not-too-distant future, a development that will come as a shock to the many detractors of the world's only real money.
Gold is the only real money because it isn't someone else's liability.
This remains one of the best supply-demand imbalance stories I have encountered in my long career and it will only be enhanced by the existence of massive short positions that will be impossible to cover amid myriad paper claims on gold that dwarf the physical supply, which, by the way, is a subject for another day.
Thanks very much for listening. It has been an honor to speak to you.
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January 29, 2010
January 28, 2010
This is from UK's The Guardian:
"Bill Gross deals blow to government with warning to his investors that Britain's debt makes it a 'must to avoid'
The government's hopes of claiming credit for reviving the British economy suffered a severe blow today when the world's biggest buyers of bonds warned that the UK was a "must to avoid" for his investors as its debt was "resting on a bed of nitroglycerine".
The intervention by Bill Gross, co-founder of California-based fund managers Pimco, came on the day official figures confirmed that Britain had emerged from the deepest recession since the 1930s – but only by the narrowest of margins.
The economy grew by 0.1% in the final three months of last year, much weaker than even the most cautious expectations in Westminster and the City. The unexpectedly sluggish performance prompted Alastair Darling to warn that Britain could yet fall back into recession, telling the Guardian "there will be hiccups along the way".
The chancellor insisted, however, that he would not be required to revise his forecast growth of 1-1.5% over 2010."You cannot come through a recession of this magnitude, dust yourself down and walk off as if nothing happened," he said. "Things will be steadily improving, but we have got to negotiate some bumps in the road."
But the remarks by Gross, whose pronouncements on bond markets are regarded as highly influential, added to the sense that the economy remained in a dangerously parlous state. "The UK is a must to avoid. Its gilts are resting on a bed of nitroglycerine," he said."High debt with the potential to devalue its currency present high risks for bond investors."
His views are particularly painful for the government as the head of Pimco's European team is Andrew Balls, the brother of cabinet minister Ed Balls. Gross described the UK as posing risks for investors because it has "the highest debt levels and a finance-oriented economy – exposed like London to the cold dark winter nights of deleveraging". He warned that the UK was in Pimco's "ring of fire" where a country's public debt could exceed 90% of GDP in a few years' time. Darling's current projections are for the debt to GDP ratio to peak at 77% in 2014.
Pimco has been trying to attract new clients by sounding the alarm about the UK for some time, most recently earlier this month when it unsettled markets by saying it was cutting back on its bond investments in the UK and the US."
January 22, 2010
You can punish the "too big to fail" elite and its banksters by withdrawing deposits from market-manipulating, derivatives-mongering, bailout-receiving, and grotesque bonus-paying money-center banks and moving them to community banks and credit unions.
This idea has been organized into an Internet site by The Huffington Post's Arianna Huffington and a few friends and is being publicized with a clever video you can find HERE
January 2, 2010
In his new commentary today, GoldMoney founder, Free Gold Money Report editor, and GATA consultant James Turk celebrates the spectacular performance of gold and silver in 2009.
Turk reports that gold rose in all major currencies except the Australian dollar, and silver beat even that. Turk's commentary is headlined "Gold Shines for the Ninth Consecutive Year" and you can find it at GoldMoney's Internet site HERE
Turk reports that gold rose in all major currencies except the Australian dollar, and silver beat even that. Turk's commentary is headlined "Gold Shines for the Ninth Consecutive Year" and you can find it at GoldMoney's Internet site HERE