May 28, 2022

The Rationale for Owning Gold and Silver Is Stronger Than Ever

1933-double-eagle1By: GE Christenson

Consider our economic world from two perspectives:

The Deviant View – as represented by those who visit deviantinvestor.com, read alternate media, are skeptical of the “official” news, and who critically examine the financial world.
or
The others – call it the mainstream media view.
Deviant readers are more likely to believe:

  • The US government gold supposedly stored in Fort Knox and at the NY Federal Reserve is mostly gone. (Deviant Investor survey showed that over 81% believe that less than 20% of the gold is actually available.)
  • The Federal Reserve will eventually be forced to increase QE instead of reducing it. (Deviant Investor survey showed that 62% believe that QE will be increased to $100 Billion per month, or more, by the end of 2014.)
  • Gold bottomed in December and is going to new highs. (Deviant Investor survey indicates that 92% believe that gold has bottomed and is going to new highs.)
  • The Federal Reserve has, over the past 100 years, debased the dollar, produced inflation, and substantially increased the profits for the financial industry mostly at the expense of the American people.
  • Dollars are unbacked debt based Federal Reserve Notes that work well for daily commerce. However, they have no intrinsic value and, in terms of decades, been not been a good store of value.
  • Gold and silver are excellent for savings and investing at the present time, have intrinsic value, and are a store of value over the long term.

SILVER DOLLARS

Mainstream Media View

  • Of course the gold is still physically stored in Fort Knox and at the NY Federal Reserve! Why would it not be there?
  • QE will be reduced, the economy is beginning to grow, and the economy will appear much healthier in time for the 2016 elections.
  • The Syria intervention that did not happen was mostly about human rights, not gas pipelines or control over energy markets.
  • The stock market is a good measure of economic health, even though it primarily benefits the upper ten percent of the US populace.
  • Pension funds are seriously underfunded, but they will be fine – with only a few exceptions – as always.
  • Social Security is a “pay as you go” retirement plan for Americans; and even though it is a legally sanctioned “Ponzi Scheme,” it is a solid system.
  • Politicians will be politicians, but for the most part, the US political system works with only a modest amount of corruption and inefficiency.
  • If you like your health plan, you can keep it. If Crimea votes to join Russia, they can. If you don’t want to pay taxes, … well, that is a different issue.
  • If you run a too-big-to-fail bank, you need not worry about breaking the law or prosecution, since the bank is necessary for the survival of the economy.
  • Stocks are good, gold is bad. Per Warren Buffett, “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it.” From Charlie Munger, “Civilized people don’t buy gold.”

And there you have it – a simple summary of the Deviant view versus the Mainstream view.

Implications

Suppose that 50% to 80% of the gold in Fort Knox and the NY Fed is either gone, leased, or rehypothecated. Suppose that China has amassed the largest horde of gold in the world. Do these suggest the price of gold is likely to increase over the next few years?

Suppose that the Federal Reserve is forced via market conditions (interest rates rising, the S&P crashing, war, dollar collapse, financial melt-down, or other possibilities) to expand the QE program and to “print and purchase” $100,000,000,000 or more per month of distressed paper, damaged derivatives, flaky mortgage-backed securities, and increasingly large quantities of dumped T-bonds and notes. Do you think this will support the price of gold over the next few years?

money printing

Suppose that gold double bottomed in June and December 2013 after being crushed by the naked short sales in April and June of 2013. Suppose that the unintended consequence of that market take-down was increased demand for physical gold, particularly from Asia and the Middle East. Does the new uptrend and increasing world-wide demand for gold suggest higher prices in the next few years?

Suppose that, for whatever reason, the world launches into another cycle of war, several countries send troops to various spots around the world, and the US engages in one or several hot wars. Will this increase the deficit, increase the national debt, increase financial and social anxiety, upset the stock market, and suggest higher gold prices?

Summary

The Deviant View: Gold has bottomed, the US deficit will expand, the national debt will continue its exponential increase, and consumer prices for the things we need, such as food and energy, will substantially increase. War, fraud, and corruption will increase prices more rapidly.

The Mainstream View: You can keep your health plan, NSA spying on everyone is mostly good, wars keep the economy healthy and moving, the stock market will continue to roar higher, and, as former Vice President Dick Cheney stated, “Reagan proved that deficits don’t matter.”

Another View On Gold: The following are comments that I have paraphrased from another site that dislikes gold. (I disagree with all of these comments.)

  • If and when humanity advances, the value of gold will be zero.
  • The problem is that gold is not an asset because it produces no return.
  • Gold is not only high-risk but also costly since it pays no return.
  • Gold is not a savings vehicle.

I express my opinions, and I expect others to do the same. There will be disagreements. We all experience the consequences of our thoughts and actions. This is why it is so important to perceive economic reality clearly. A belief in current delusions and the uselessness of gold will be expensive.

Additional Reading

Andrew Hoffman: “Deflation,” and Why You Must Own Precious Metals – Now!

Hugo Salinas Price: We Cannot Get Away From Gold or Silver

GE Christenson
aka Deviant Investor

Gold’s Next Big Move Is Up – Every Bull Market Has Pullbacks

gold generalBy: GE Christenson

Gold peaked in August of 2011 and fell erratically into December 2013.

Was that the end of the collapse, or is there more downside coming in gold prices?

Bearish Scenario: Listen to the banks who are forecasting weak prices in 2014 and thereafter. “Nothing to see here folks, the dollar has weakened drastically since 1971, gold sells for 30 times its 1971 price, but it’s all good. Just move on and pretend… Gold will drop below $1000 before you can say 2016 elections…”

I’m not a fan of:

The bearish gold scenario when decades of Federal Reserve “printing” and US government budget deficits have all but guaranteed continued destruction of the purchasing power of the dollar.

Belief that even though dollar debasement practices have accelerated since the 2008 crash, gold prices will fall because bankers say so.

Propaganda that gold is useless and that unbacked debt based fiat currencies are solid and stable.

Large High Frequency Trading companies that short the gold market, loudly proclaim that gold prices will fall, dump a huge number of paper contracts on the Comex, quietly cover their shorts after the gold price crash, book huge profits, and then reverse the process as they push prices up. These traders are in the business of making profits so none of this is surprising.

Instead of listening to self-serving banker opinions, let’s examine the data. The following chart shows monthly prices for gold since 2000. Note that highs and lows as listed in the monthly data are slightly different from actual hourly highs and lows. For this analysis over 14 years, the differences are immaterial.

This table shows the price and approximate number of years.

table3102014

Summary: The price of gold bottomed in 2001, rallied for 3.0 years, fell for 1.1 years, rallied for 2.8 years, fell for 0.6 years, rallied for 2.8 years, and fell for 2.4 years. Lows were about 4 years apart, highs were about 3.5 years apart, and the rallies lasted, on average, about 3 years.

Gold in December of 2013 had dropped to the lower logarithmic
trend line after falling for 2.4 years. The patterns suggest that the next move should be a rally that lasts approximately 3 years to new highs near the top of the trend channel well above $3,500.

roosevelt

But there is more: (If you distrust Technical Analysis, skip this section.)

  • Gold prices made a double-bottom in June and December 2013 thereby indicating a successful test of the lows formed in June.
  • The MACD – a technical indicator (first chart) which tracks the difference between two moving averages – registered a very low reading in December 2013. Further, the moving averages in the indicator have turned up. This is strongly supportive of the analysis that December marked a major low in gold prices.
  • The TDI-Trade-Signal line – another technical indicator (first chart) – registered its lowest reading in 15 years at the June 2013 low and has also turned up. This is another strong indication that gold bottomed in December.
  • The RSI – Relative Strength Index – as shown on the second chart was at a 15 year low at the June 2013 gold price lows. It has turned upward.
  • The disparity index, which is simply the deviation between the monthly prices and the 12 month simple moving average (second chart), was at a 30 year low and flashing a buy signal after the June 2013 gold price lows.

For those who have no faith in technical analysis:

Consider this GEM – Gold Equilibrium Model (thanks to Nick Migliaccio for the name). I summarized the model in this short article. The model is based on three variables and calculates the equilibrium gold price with no reference to oscillators or technical indicators. The GEM model projects a “fair” or equilibrium price for gold in March 2014 of approximately $1,580. Gold prices, based on this long-term model, are currently low and are likely to move much higher over the next several years. This long-term model produced an excellent statistical correlation with the smoothed price of gold over the 42 years from 1971 – 2013.

Conclusions

  • The GEM indicates that, over the next several years, gold prices are headed much higher.
  • The chart of gold prices since the year 2000 (log scale) shows a “megaphone pattern” of higher lows and higher highs. Currently the gold price is near the bottom of the exponentially up-trending pattern.
  • Technical oscillators indicate important bottoms in June and December – at levels not seen in more than a decade.
  • The disparity index shows that gold prices in June were well below the 12 month moving average. Similarly daily and weekly prices were well below their moving averages. Prices tend to regress to the mean – another indication that prices are likely to rise from the deep lows in June and December.
  • Short term prices could rise or fall a little from here – I’m offering no opinion – but gold prices should be much higher in 2015 and 2016.
  • Gold is for savings and investing, not trading. Dollars buy groceries while gold buys safety, insurance, and peace of mind.
  • As Darryl Robert Schoon always says, “Buy gold, buy silver, have faith.” It is good advice.

GE Christenson, aka Deviant Investor

Gold Bear Forecasts $500 Price Plunge Even as Gold Prices Climb

Physical-GoldWhen gold was hitting new highs during 2011 the mainstream media was full of articles with “experts” predicting further price gains but the exact opposite happened.

As speculators, short term traders, and price manipulators  took the price of gold down by over $600 an ounce the experts switched their tune and the chorus of gold bears grew steadily.  By the end of 2013 when declining prices had shaken out all the weak hands in the gold market and all the experts were bearish, prices had nowhere to go but up.

With the start of the new year gold ignored the bears and has been on a tear in 2014.  Two months into the new year with gold bullion and gold stocks far outpacing the gains in stocks and bonds, the “experts” still insist that it’s time to bail out of gold before prices collapse.

Gold vs stocks and bonds

Courtesy: yahoo finance

The Top Two Gold Forecasters selected by Bloomberg remain steadfast in their views that gold is undergoing a dead cat bounce that will soon run out of steam.

“I just see this as a corrective move,” said Robin Bhar, the head of metals research at Societe Generale SA in London and the most-accurate forecaster tracked by Bloomberg in the past two years. “We would still want to be bearish gold,” said Bhar, who expects a fourth-quarter average of $1,050.

“Haven demand plays well when gold is cheap, but it’s no longer cheap,” said Justin Smirk, a senior economist in Sydney at Westpac Banking Corp. and the second most-accurate forecaster tracked by Bloomberg in the past two years. “I’m a little surprised by the volatility in the market, but it really doesn’t change my overall view,” said Smirk, who expects a slide through the year to a fourth-quarter average of $1,020.

Barron’s took note this week of The Gold Rally’s Fatal Flaws forecasting that a tighter Fed policy, low inflation along with an easing of investment demand from China and India will send gold prices lower.

Another concern is that gold prices are already up so much that investors in China and India are suffering sticker shock. The two nations together account for roughly half of the world’s gold demand, buying gold gifts to celebrate weddings, birthdays, and religious festivals. These regular purchases help create a floor for the market and were instrumental in stemming the violent sell-offs that gold suffered last year.

BUT WHILE SOME Indian and Chinese buyers felt they were getting gold on sale in December, when prices dipped below $1,200 an ounce, this is no longer the case. “For gold, physical demand keeps slipping as the price moves up,” says Walter de Wet, head of commodity strategy at Standard Bank.

Even more bearish was commentary by respected analyst Mark Hulbert who notes that the sentiment among short term gold market timers has soared to the bullish side in the past month, typically a contrary bearish omen.

Even more wildly bearish is Claude Erb, a professor at Duke University interviewed by Hulbert who is forecasting a major crash in the price of gold.

 

Erb, along with Duke University finance professor Campbell Harvey, was the co-author of a January 2013 study published by the National Bureau of Economic Research — which I featured in a February 2013 column for Barron’s on the price of gold. The study suggested that gold remained significantly overvalued, even though its bear market at that point was already 16 months old. By the end of the year gold had shed nearly $500 an ounce.

Unfortunately for the gold bulls, Erb’s and Harvey’s study suggests gold is still overvalued. One valuation indicator they point to is equivalent to a stock’s price/earnings ratio: It is the ratio of gold’s price to the Consumer Price Index. According to their calculations, and given the historical average level for this gold/CPI ratio and where the CPI index currently stands, gold’s “fair value” today is around $820 an ounce — about $500 lower than where it now trades.

The reasons articulated above for being bearish on gold and silver have already been well advertised and discounted by the markets which is probably why gold and silver have been soaring this year.  It wouldn’t be surprising if the “experts” are wrong and gold and silver turn out to be the best place to keep your money this year.

U.S. Mint Bullion Coin Sales for February 2014 Show Silver Up, Gold Down

2013-w-gold-eagleSales of bullion coins by the U.S. Mint were mixed in February with silver bullion coins showing an increase and gold bullion coins a decline.

After hitting all time record sales in 2013 sales of the American Silver Eagle bullion coins are off to a slower sales pace in 2014.  According to the U.S. Mint a total of 3,750,000 silver bullion coins were sold in February, up by 381,500 ounces or 11.3% over the comparable prior year period.  February 2014 year to date sales of silver bullion coins total 8,525,000 ounces, down by 2,341,500 ounces or 21.5% from the previous year.

Retail investors have long regarded silver bullion coins as an excellent investment.  The price pullback in silver since 2011 provided an excellent opportunity to make additional purchases at bargain prices and investor took advantage of the situation.  Silver bullion coin demand soared last year to almost 42 million ounces and the U.S. Mint could not keep up with demand.  Demand for silver coin was so great that the U.S. Mint ran out of coins and suspended sales for most of December and part of January 2014.

Sales of silver bullion coins are shown below by year.  The sales for 2014 are through February 28th.  Sales of silver bullion coins have exploded since the financial meltdown of 2008 when the Federal Reserve began printing trillions of dollars out of thin air, a program which continues to this day.

Sales of the American Eagle gold bullion coins slowed dramatically in February compared to last year.  Total sales of gold bullion coins was 31,000 ounces compared to 80,500 last February.   2014 year to date sales through February totaled 122,500 ounces compared to 230,500 ounces for the comparable prior year period.

Gold coin sales can fluctuate considerably from month to month but sales have exploded since the financial crisis in 2008 and remain very high by historical standards.  After declining for three years in a row, sales of gold bullion coins strengthened during 2013 with sales above 2012 levels.

2014 totals through February 28th.

According to Reuters the decline in gold bullion coin demand was due to large sales of coins by hedge fund speculators and other large investors.  As the sale of these coins flooded into dealer vaults they had less need to purchase coin from the U.S. Mint.

american-silver-eagle

The American Eagle silver bullion coins cannot be purchased by individuals directly from the U.S Mint.  The coins are sold only to the Mint’s network of authorized purchasers who buy the coins in bulk based on the market value of silver and a markup by the U.S. Mint.  The authorized purchasers sell the silver coins to coin dealers, other bullion dealers and the public.  The Mint’s rationale for using authorized purchasers is that this method makes the coins widely available to the public with reasonable transaction costs.

U.S. MINT BULLION COIN SALES
MONTH GOLD SILVER
2014 2013 2014 2013
JANUARY       91,500   150,000    4,775,000     7,498,000
FEBRUARY       31,000      80,500    3,750,000     3,368,500
TOTALS     122,500   230,500    8,525,000   10,866,500

With economic and political turmoil spreading across the globe and central banks standing ready to flood the world with paper currencies, gold and silver continue to remain a safe haven for many investors.  It would not be surprising to see gold and silver surge in price this year in defiance of the bearish calls of many analysts.

Yellen’s Remarks to Senate Committee Constitute an All Out Buy Signal for Gold and Silver

money printingFed Chairman Yellen’s less than sparkling performance before the Senate Banking, Housing and Urban Affairs Committee on Thursday constitutes a complete affirmation for continued purchases of gold and silver.  The Chairman’s testimony was so disjointed that two major news organizations published completely contradictory headlines of her stuttering remarks.

Tapering – will she or won’t she was the question on everyone’s mind regarding future actions of the Fed and here’s the yes and no answer to the big question based on Yellen’s testimony.
The Wall Street Journal reported that Yellen Says Rethinking Bond Pullback is Possible.

Federal Reserve Chairwoman Janet Yellen said she isn’t sure how much of the recent deterioration in U.S. economic growth is due to weather, adding the central bank might consider a pause in its reduction of bond buying if the weakness persists.

“Asset purchases are not on a preset course, so if there’s a significant change in the outlook certainly we would be open to reconsidering, but I wouldn’t want to jump to conclusions here,” Ms. Yellen told the Senate Banking Committee Thursday.

“A number of data releases have pointed to softer spending than analysts had expected,” Ms. Yellen said. “That may reflect in part adverse weather conditions, but at this point it is difficult to discern exactly how much.”

Since Feb. 13, U.S. economic data has shown signs of weakness. The softness has been broad-based, with retail sales falling 0.4% and industrial production sliding 0.3% in January. The recovery in housing, a crucial gauge for the success of Fed policies, has also shown signs of fraying. Some economists have blamed harsh winter weather for the slowdown.

Meanwhile, Yellen’s remarks were viewed in a different light by a Bloomberg headline stating that Yellen Repeats Fed Likely to Keep Trimming Asset Purchases.

Federal Reserve Chair Janet Yellen said the central bank is likely to keep trimming asset purchases, even as policy makers monitor data to determine if recent weakness in the economy is temporary.
Yellen repeated the Fed’s statements that the central bank intends to reduce asset purchases at a measured pace, and she said in response to a separate question that the bond-buying program was likely to end in the fall.

Does Yellen have a dissociative identity disorder (DID), commonly referred to as a multiple personality disorder? According to Wikepedia, DID is characterized by two identities or dissociated personalities that alternately control a person’s behavior. The disorder is a controversial subject in the field of psychiatry and there is no consensus regarding either diagnosis or treatment so we can give Yellen a pass of this one.
Here’s the facts we do know about Yellen and Fed policies and they all represent some of the best reasons for increased ownership of both gold and silver.

2013-gold-eagle
The Fed stands ready to increase its $4 trillion balance sheet at the slightest sign of weakness in the stock market or the economy despite the lack of conclusive evidence that their money printing spree has helped the real economy.

The money surging out of the Fed has created multiple asset bubbles which will eventually pop, prompting further asset purchases with printed money to contain the damage and the cycle stays on auto repeat until the entire empire of debt and printed money completely collapse.

The Fed is firmly committed to an annual inflation target of at least two per cent to combat the threat of deflation.   The Fed is terrified of deflation since it increases the value of money and decreases  the ability of borrowers to service their debt burdens relative to income.   Deflation would make it difficult and eventually impossible for governments to continue borrowing to stay current on their mountains of debt and entitlement obligations.

Inflating away the debt is the Fed’s solution for keeping U.S.A. Inc. in business.  The Fed’s inflation targeting will help the U.S. government from being overwhelmed by debt but long term it guarantees that the future purchasing power of the dollar will continue its relentless decline and the downward spiral in real inflation adjusted wages will continue.

There will be a “next recession” and when it comes the Fed’s only option is money printing since short term rates are already at zero.

1881-CC-Morgan-Dollar
Yellen has acknowledged that she has a soft spot in her heart for the unemployed. The Fed’s conflicting mission of ensuring a stable value of the dollar and promoting employment has morphed into a full blown effort to create economic wealth and jobs through higher inflation and printed money.

Courtesy: zerohedge

The monetarist fools at the Fed, lead by Yellen, seem fully committed to solving every economic problem with more monetary printing. This policy may keep the wheels from falling off in the short term but guarantee disastrous long term results.  Bernanke had his critics but Yellen seems like a novice by comparison – maybe she should grow a beard.

17 Questions About Gold and Silver The Federal Reserve Needs to Answer

Yikes!  We Have to Look at This for the Next Four Years

Yikes! We Have to Look at This for the Next Four Years

By: GE Christenson

1.  Germany requested that the NY Federal Reserve return the gold that Germany shipped to the United States decades ago. If the gold were physically in the vaults, it would be relatively simple to ship the gold back to Germany. It has not been returned, which begs the question, where is Germany’s gold?

2.  If Germany’s gold is “missing,” what about other gold from other countries that is supposedly stored at the NY Fed?

3.  Does the U.S. gold supposedly stored at Fort Knox and at the NY Fed still exist in those vaults?

4.  The U.S. believes in paper dollars and an unbacked debt based currency. Such currency can be created with little more than a few keystrokes on a Federal Reserve computer. Would the Fed and the U.S. government sell gold into the world market to slow the inevitable weakening of the U.S. dollar? Would the Fed and the U.S. government ship (via intermediaries) substantial quantities of gold to China to prevent dumping of T-bonds and dollars? Are gold sales a “delaying action” to extend the reserve currency status of the U.S. dollar?

CPI INFLATION

5.  If China is converting their excess of dollars and T-bonds into gold, buildings, land, businesses, mines, and so much more, what do they believe is the real value of those dollars and T-bonds?

6.  If much of the German, Italian, French, English, and U.S. gold is “missing” and is now in very strong hands, is the price of gold too low and likely to rise?

7.  What will happen to world bond and stock markets if confidence in the financial system evaporates? Would confidence in the financial system be damaged if the world became aware that most of the gold supposedly stored in government and central bank vaults in the western world is “missing?” Is this the primary reason why the U. S. gold vaults have not been audited for over 50 years?

8.  Why are China and Russia buying large quantities of gold from the western world as well as all of their domestic production?

9.  Paper dollars were, years ago, backed by gold or silver. They are no longer backed by either. Why?

feature-300x200

10.  JP Morgan testified before congress in 1912 and stated, Gold is money. Everything else is credit.” Do you understand what this means?

11.  You have $100,000 to invest today into either gold or S&P 500 Index ETFs. Which investment do you believe will purchase more gasoline in three years?

12.  If you had $100,000 to invest into either gold or Confederate paper money and Confederate bonds in 1862, which would have been the better investment 20 years later?

13.  Voltaire stated about 3 centuries ago that “paper money eventually returns to its intrinsic value – zero.” Most paper money systems throughout history have failed. The current paper systems seem likely to fail in the future. What is the intrinsic value of 80 ounces of gold (about $100,000 at today’s prices)? What is the intrinsic value of 5,000 $20 bills ($100,000)? Which seems likely to purchase more food in three years?

14.  Mayer Rothschild supposedly stated, “Give me control of a nation’s money and I care not who makes its laws.” Was he thinking that if he can create the currency and the legislature can be “influenced” with currency, then he can buy the legislation that his banking interests needed? Was he also thinking that if he can create the currency and he can trade that currency for physical gold, he had procured real wealth for his family?

15.  Nixon closed the gold window in 1971 and assured us that it was only temporary. Since then the (official) U.S. national debt has increased from approximately $398 Billion to over $17 Trillion – up by a factor of over 40. Interest must be paid on that debt. Was the creation of $17 Trillion in debt beneficial for the majority of the people and the economy of the U.S. or only for the political and financial elite?

FEDERAL DEBT

16.  Is the current U.S. paper money experiment going to end differently from any other failed fiat currency system?

17.  In 1971 gasoline in the U.S. cost approximately $0.35 per gallon. Today it costs approximately $3.50 per gallon. The rising national debt correlates with the rising prices of gasoline, tuition, health care, postage, coffee, stocks, gold, copper, rent, food, and so much more. Some of those prices have risen faster (others slower) than the debt, but the trend is the same since 1913 and especially since 1971 – all up substantially. Do you think this is a coincidence? Do you think the ongoing increase in national debt will continue to cause consumer price inflation or that it will, somehow, miraculously, cause prices to go down, in spite of 40 + years of contrary experience?

Conclusions

Is this the end of the world? No! But it is past time to realize that a debt based financial system is largely detrimental to most of the people outside the political and financial elite. Such a debt based system has a limited lifespan and a reset seems both imminent and inevitable. Actions to consider:

  • Eliminate non-mortgage debt and reduce the amount of other debt.
  • Convert variable rate mortgage debt to fixed interest rate debt.
  • Be wary of a stock market that has risen for almost five years and seems to be based more on QE, hope, and artificially lowered interest rates than upon earnings and the health of the economy.
  • Convert paper and digital dollars to gold and silver and store them in a safe depository outside the banking system.
  • Be careful in this increasingly dangerous world.

GE Christenson, aka Deviant Investor

The Ultimate Irony – Gold Bullion Is a Poor Investment According to “Too Big To Fail Banks”

coinAnalysts at the “Too Big To Fail” banks are unanimously predicting lower gold prices and telling their clients to dump gold.

On January 12, 2013 Goldman Sachs predicted that gold could fall to as low as $1,000 this year due to a less expansive monetary policy by the Federal Reserve.

In a report to clients this week Morgan Stanley analysts cut their price targets on gold for both 2014 and 2015 citing a strong global economy, rising interest rates and a reduced need for safe haven assets.

Not wanting to miss out on the “gold is dead party” Wells Fargo chimed in this week with their opinion that investors should eliminate their gold exposure on any rallies.

banks gone wild

The irony of the herd mentality on gold by the Too Big To Fail banks is beyond incredible.  Yes, these are the same “Too Big To Fail” banks who were selling billions of A rated mortgage backed securities to clients in 2007 that suddenly all defaulted in 2008.  Cynical types who remember the financial meltdown in housing of a few years back may also recall that the same banks now advising clients to dump gold were telling home buyers with shit credit and no income that, yes, you can afford that $800,000 house.

The big banks analysts seem to be engaging in a major group think exercise that justifies their dire predictions for future gold prices based on nothing more than an extrapolation of the gold price over the past two years.  We won’t even get into the part about how everyone at the big banks that almost blew up the financial world wound up getting bonuses instead of jail terms.

bankers

In any event there are many people who are ignoring the sage advice of the “Too Big To Fail” banks and buying gold anyways.

Japanese investors, who are growing increasingly alarmed by the concerted efforts of Prime Minister Abe to put Japan back on the “right track” by creating inflation with printing press money, are buying gold at a frenetic pace.

Gold sales by Japan’s biggest bullion retailer surged 63 percent to a five-year high as prices slumped and investors sought refuge from Prime Minister ShinzoAbe’s campaign to stoke inflation and weaken the yen.

Sales of bars to local investors by Tanaka Kikinzoku Kogyo K.K. soared to 37.3 metric tons in 2013, from 22.9 tons a year earlier, the Tokyo-based company said in a statement today. Sales exceeded purchases for the first time since 2004.

Demand for physical gold in China is also exploding as investors seek a safe haven asset that cannot be produced in infinite supply by the central banks of over indebted nations.

Increased demand in China, which probably overtook India as the world’s largest consumer last year, helped gold rebound from a six-month low of $1,182.52 on Dec. 31. China imported 1,017 tons of gold from Hong Kong in the first 11 months of 2013, almost double 2012’s total, Hong Kong government data show.

With the universally bearish outlook for gold by big money managers don’t be surprised if gold outperforms all other assets classes in 2014.

14 Tough Questions Gold Investors Have for the Federal Reserve

Liberty-EagleBy: GE Christenson

“Those who cannot remember the past, are condemned to repeat it.” George Santayana.

1. What mistakes from the past are we condemned to repeat?

2. Since unbacked paper currency systems have always failed in the past, why have bankers and economists promoted an unbacked paper currency system since 1971?

3. Would the Federal Reserve, which is owned by private banks, seek to enrich its member banks and the financial elite by implementing monetary policies such as QE that purchase distressed bank assets and boost the stock and bond markets?

4. Janet Yellen is the new leader of the Fed and new leaders are almost always confronted with a financial crisis early in their term. What should we expect during the next 18 months?

economic collapse

5. ALL paper money systems have eventually failed due to excessive “printing” of the paper currency. How many years of “printing” $85 Billion per month qualifies as excessive “printing”?

6. Human nature changes very slowly if at all. Politicians have lied to most of the people most of the time during the past several thousand years to serve their own self-interest. Are politicians currently lying about ObamaCare, strength of the economy, employment, the NSA, big banks, the IRS, Syria, and so much more?

7. Why does gasoline currently sell for approximately $3.50 per gallon even though it cost only $0.15 per gallon about 50 years ago? Why does a cup of restaurant coffee no longer sell for $0.10? Why do $20 gold coins containing nearly an ounce of gold now sell for over $1,250?

8. The S&P 500 Index is trading near an all-time high and is by most measures and sentiment severely over-bought on a weekly and monthly basis. Is it ready to correct downward?

9. Why is the official unemployment rate falling even though fewer Americans are working and the labor participation rate is at 30 year lows?

10. The Federal Reserve has been levitating the stock market and bailing out banks. Is it possible the Fed policies will backfire and those policies will eventually accomplish the opposite of what the Fed wants?

11. If the national debt of $17 Trillion can never be repaid, and if the U.S. government must borrow to pay the interest every year, and if the Federal Reserve must “print” those dollars, what is the real value of that debt? Is it $17 Trillion or perhaps a great deal less? The economist Hyman Minsky called this “Ponzi Finance” – the final stage of a debt based economic system when payments on the debt must be made from additional borrowing.

money printing

12. If a soaring gold price encouraged people to question the value of the U.S. dollar, and if the U.S. government had the means to suppress the price of gold, would the U.S. government manipulate the price of gold lower?

13. Germany requested their gold be returned from the NY Federal Reserve vaults about a year ago. It has NOT been returned. What happened to the German gold? Further, how much, if any, of the gold supposedly stored in Fort Knox is physically there and not “leased” or otherwise encumbered?

14. Gold has been money – a store of value, divisible, a medium of exchange, a unit of accounting, and intrinsically valuable – for 5,000 years. Paper money has usually been little more than a politician’s promise of integrity and responsibility. Which do you trust – gold or a politician’s promise?

These questions and their answers suggest that:

Drastic restructuring of the current monetary system seems inevitable, whether or not it is imminent.

Before the system resets it seems likely that governments around the world will scramble to locate and nationalize assets in order to maintain their power for a while longer. Capital controls and financial repression via artificially lowered interest rates are already in place. Pension plans, savings accounts, and IRA and 401(k) plans seem vulnerable to partial confiscation, bail-ins, or mandatory investment in government bonds. Such confiscations and bail-ins have already occurred in other parts of the world and could easily happen in the United States.

toned-morgan-dollar

Gold and silver have protected purchasing power and assets for 5,000 years. In this twilight period of the current debt based monetary system it seems likely gold and silver will increasingly be necessary for protection of purchasing power and assets. Are you prepared?

GE Christenson

aka Deviant Investor

Is a Monster Rally Brewing in Gold and Silver?

herbert-hooverBy: GE Christenson

The year 2013 was a great year for the S&P and a terrible year for silver and gold investors. There are many indications that it is time for a reversal.

If a market moves too far (up or down), too fast, or for too long, expect a reversal. Examples:

  • The S&P 500 index has moved MUCH higher during the past 57 months – a very long time. Expect a reversal soon.
  • Silver prices rose from $8.53 in October of 2008 to almost $50 in April of 2011, and then crashed (with help from JP Morgan and others) to under $19 in June and December of 2013. More currently, silver was priced about $34 just 13 months ago and is now down over 40% in that short time. Expect a reversal soon.
  • The NASDAQ 100 Index rose from under 1,100 in October of 1998 to nearly 5,000 in March of 2000 and then collapsed to under 800 in October of 2002. This was a mania and crash reversal.
  • Crude Oil rose from $51 in January of 2007 to $147 in July of 2008, and then collapsed to $36 that same year. What happened here? It was NOT a change in fundamentals!

The fundamentals for these markets did not change from normal to fantastic to terrible in a short time. It is clear that High Frequency Trading (HFT) algorithms, speculators, momentum players, the Fed, and others pushed the markets higher or lower to unsustainable levels and then reversed those markets.
How do Silver Prices Compare to the S&P?

Examine the data back to 1975 and calculate the ratio of the price of silver to the S&P 500 index. We see that:
1. SI / SP Ratio 38 year average: 0.029
2. SI / SP Ratio 38 year low: 0.003 November 2001
3. SI / SP Ratio 38 year high: 0.365 January 1980
4. Last 8 years average: 0.016
5. Last 8 years low: 0.007
6. Last 8 years high: 0.038 About 1/10th of 1980 high
7. Current ratio: 0.010 December 2013
8. The ratio declined from 1980 until 2001 during the silver bear market and the bull market in stocks.
9. Since 2001 the ratio has been rising along with the renewed bull market in silver.
10. Excel calculated a linear trend line for the ratio during the last eight years so that the deviation of the ratio, above or below, averages to zero. See the SI / SP Ratio and Linear Trend graph.

11. Plot that deviation, above or below the linear trend line, and it is easily seen that the ratio was very high in April of 2011 (silver too high) and is currently quite low – yes, silver is deeply oversold. See the Silver vs. Ratio Deviation From Linear Trend graph.

12. When the silver to S&P ratio increases to the average ratio since 2006 then the ratio of silver prices to the S&P should nearly triple – silver prices should rise substantially while the S&P is likely to fall.
Silver Prices are Too Low Compared to the S&P 500 Index

What else supports that analysis?

  • Silver prices have been going down, on average, for 32 months while the S&P has been rallying, on average, for 57 months – a very long time for both trends. A reversal is due.
  • In the shorter term, silver is oversold and the S&P is overbought, based on their 200 day moving averages. Silver is about 10% BELOW its 200 day moving average and the S&P is 10% ABOVE its 200 day moving average. Prices will regress to their means – higher for silver and lower for the S&P.
  • MANY other oscillators confirm that silver is oversold and the S&P is overbought. Expect reversals.
  • The U.S. national debt is huge – over $17 Trillion and doubling approximately every 7 years. Over the past three decades the smoothed prices of silver and gold have correlated with the national debt. We KNOW the national debt will continue increasing so we can be assured that, ON AVERAGE, the prices of silver and gold will continue to rise.
  • The S&P has been levitated by QE money printing, continual hype about the “recovery” and High Frequency Trading. Margin debt is at an all-time high, similar to just before the 1987 and 2000 stock market crashes. A trend change is due. An S&P crash is certainly possible.
  • Paper gold and silver prices have collapsed in the past year while demand for physical gold has risen to multi-year highs. Normal and honest markets do not operate this way for long. We can plan on continuing or increasing demand for gold in China, India and Russia as they trade dollars and T-bonds for hard assets. Expect gold prices to accelerate higher in 2014. Silver will follow.
  • Compare the price of silver to its 40 week moving average over the past eight years. See the Silver vs. Deviation From 40 wk MA graph. The deviation above/below the 40 week MA indicates that silver is oversold and due to rally.

Confidence in the silver market is low and only “die-hard” silver investors in the U.S. seem interested. Market sentiment is terrible and that suggests a trend change is likely.
Silver cycles: I understand that in our current environment (HFT, currency wars, manipulation of paper prices by JP Morgan and others, and QE) the prices of gold and silver can be easily pushed higher and lower. Consequently I trust cycles only a little, but consider:

Silver Long Cycles

Date Comment Time since last low
Feb. 1993 Important low
July 1997 Low 4.4 years
Nov. 2001 Important low 4.3 years
Aug. 2005 Low 3.7 years
Oct. 2008 Important low 3.2 years
June 2013 Important low 4.7 years
(Average 4.1 years)

It seems likely that the June 2013 will not be broken, or if it is, only briefly.

Silver Shorter Cycles

Date Comment Time since last low
June 2006 Intermediate low
Aug. 2007 Intermediate low 14 months
Oct. 2008 Intermediate low 14 months
Feb. 2010 Intermediate low 16 months
May 2011 Intermediate low 15 months
June 2012 Intermediate low 13 months
June 2013 Important low 12 months
(Average 14 months)
Conclusions

Silver and gold prices have been forced lower in the paper markets while the S&P has been levitated with zero-interest rates, HFT and QE. The financial powers-that-be, the political and financial elite, Wall Street, China, India, Russia, and the U.S. Treasury have all benefitted from the suppression of gold and silver prices. Most have also benefitted from QE and the S&P levitation. The surprise is not that gold and silver prices have been pushed lower after their 2011 blow-off rallies, but that the “smack down” has lasted so long in the face of such strong physical demand.

Regardless, regression to the mean is relevant, even in manipulated markets. Expect a trend change in 2014 and much higher gold and silver prices as they rally above their 200 day moving averages.

The ratio of silver prices to the S&P is back to 2008 levels and substantially below the linear trend since 2006. Expect the ratio to regress (rise) to its mean while silver prices rally substantially from here.

Both long and short term time cycles indicate that an important bottom occurred in June of 2013. It appears that a double-bottom occurred in December of 2013. If this double-bottom holds, time cycles suggest that silver will rally strongly in 2014.

GE Christenson aka Deviant Investor

Gold and Silver Can Defeat Government Taxes, Corruption and Theft

gold-buffaloBy: Vin Maru, TDV Golden Trader

As everyone rings in the New Year with a toast and a cheer for a prosperous 2014, Wall Street started celebrating many months ago and is ringing in the New Year with a glass of Dom Pérignon. They surely have a reason to celebrate as 2013 brought them good fortune and financial prosperity, having rung in the New Year with new all time highs on many of the US-based major indexes.

While there are many ways to measure prosperity, for Wall Street it’s all about profits and the bottom line. They only know one thing, how much wealth they can steal from others by “gaming” the system. I say “steal” because today’s markets are no longer about valuations and true price discovery. It’s more about computer algorithms, access to unlimited funds, having insider knowledge on buy and sell orders, front running the average investor and the ability to extract risk free profits by gaming the system. Of course this is nothing new for big Wall Street investment houses; over the last decade they have mastered the art of investing by gaming the system and extracting wealth from others.

Financial prosperity in today’s world means having the Federal Reserve central bank in your corner ready to bail you out in case any of your bets go bad. Becoming “Too Big to Fail” is a necessity to financial survival and having the regulators in your pocket also helps. Of course, we can’t forget about using extreme leverage, derivatives, credit default swaps and futures to squeeze some additional profits from the system.

With all these tools and means to game the system, investment banking for profit becomes a game of how much wealth you can steal from others before you get caught with your hand in the cookie jar. Of course when you do get caught, all you get is a slap on the wrist in terms of fines and penalties. If you get caught laundering money, rigging interest and foreign exchange rates — no problem, there is a fine for that, as long as you are one of the “Too Big to Fail” banks.

Today’s financial system is setup to steal your wealth. The bankers steal from you by rigging the system for their gain, and then the government fines the bankers for stealing. In order to maintain banking control and growth, the bankers have to resort to rigging the game even more so they maintain profit growth. This corrupt system of theft is definitely a win win situation, a win for the bankers and a win for the government, it’s only the average person who loses by having their pockets picked.

We can’t blame all of this on the bankers, the corruption in the Western financial world runs right to the root of the problem, government. By allowing central banking to exist, governments can ensure their own financial safety net and survival from having a system which continuously prints money to fund deficit spending. To remain in power, Government’s control only exists and grows because of taxation and the rules and regulations they impose on their citizens. Take France for example, their constitutional council and highest court just gave the green light to Hollande to introduce a top tax rate of 75 percent on earnings over one million Euros.

Of course, the most corrupt government in the world is the United States. Having the status of the world’s currency reserve empowered them to build the biggest army, thus giving them the ability to bully any other nation state by way of force or death. And if they don’t attack you directly, they surely will spy on you electronically via the NSA and they will definitely tax and fine you for non-compliance to their rules and regulations.

I always wondered if the US will ever get their deficits under control and how they will reduce their debt burden. One way for sure is that the US will tax and regulate their way out of financial debt by taking wealth that was hidden from them. After reading an article on how Swiss regulators recommended banks take provision for US tax deal, it became pretty obvious that all international bankers will be forced to comply with the US regulators or get shut out of their system.

The real irony of the situation is how this system is gamed right from the beginning to end, which then comes full circle to help governments. The bankers have been cashed up via the central banks and are making tremendous profits trading rigged markets. All this new wealth now on the banker’s balance sheet will be heavily taxed over the coming years and used to pay off fines imposed on them by governments and regulators.

proof-silver-eagle

In short, the corruption in US banking to help government finances, spending and debts goes like this:

  • The Federal Reserve central bank print money from nothing.
  • The CB then gives this newly printed money to big banks to buy US debt.
  • The “To Big to Fail” banks then sell the US debt back to the Fed (for a nice profit) and receive more money.
  • The big banks who are now cashed up, conduct proprietary trading to rig markets for even more profits.
  • All this extra ill-gotten cash sitting with the banks is then taxed, and/or regulated and fines are imposed for illegal rigging of markets.
  • This money is then given back to the US government which probably helps extinguish some debt or pays for gov’t expenses.

In this system of corrupt Western finance, the only people that lose are the people or entities who don’t see it happening or can’t take the necessary steps to avoid the theft and confiscation, and then actually profit from it happening. Anyone with savings will also get burned by either the devaluation of fiat currencies or outright theft of deposits at the banks by way of bail-ins or nationalization of retirement savings. Either way, the average person is at a disadvantage in a no win situation if they leave their assets in the western financial system.

The window to get your wealth out of the traditional western financial system is closing. Anyone who does so now will be saved from the ever growing corruption and theft that is coming down the road. Precious metals are one of many assets that should be continuously accumulated now and on any further pullback. At this point the rigged price of the metals is not as relevant as the number of ounces you own and hold outside the financial system, and that window is rapidly closing.

This is why I researched and wrote the special report for TDV called “Getting Your Gold out of Dodge”, to help you protect your precious metals assets. If you are also interested in coverage and trading opportunities in precious metals and technology, you can sign up for the TDV Golden Trader newsletter.