June 19, 2024

Soaring Gold and Silver Prices Should Not Be a Surprise to Anyone

bars-of-goldThe precious metal markets caught on fire in a big way today.  Gold prices surged the most in nine months by over $40 per ounce and silver closed in on $21 per ounce.  After losing 28% last year as short term hot money investors sold out their holdings, gold and silver were ready for a huge rally from both a fundamental and technical standpoint (see Why Gold and Silver Could Outperform Every Other Asset Class in 2014).

Precious Metals June 19, 2014

GOLD $1319.00 +40.50 3.17%
SILVER $20.89 +0.88 4.45%
PLATINUM $1472.00 +24.00 1.66%
PALLADIUM $841.00 +12.00 1.46%

The reasons for today’s huge gains in precious metals varied in the mainstream press but soaring prices should have been no surprise to long term investors who understand why gold and silver should be a part of every portfolio.

Gold and silver constitute a fundamental defense for wealth preservation against the rapidly eroding value of paper currencies backed by broke governments which is Why All Governments Hate Gold.

The various governments of the world and their central banks produce and distribute a product – paper currencies. Those currencies are backed by confidence, faith, and credit, but not by gold, oil, or anything real. Those currencies are digitally printed to excess, since almost all governments spend more than their revenues. The UK, Japan, and the USA are prime examples.

Politicians want to spend more money, but they also need to maintain the illusion that the money is still valuable, that it will retain most of its purchasing power over time, and that inflation is under control. The illusion weakens when food, gasoline prices, and other consumer goods are wildly rising in price. At a more abstract level, gold indicates the same lack of confidence in the printed pieces of paper that our central banks distribute.

If last year’s price correction shattered your conviction in owning gold and silver please consider The Fundamental Reasons for Owning Gold and Silver Are Stronger Than Ever.

One of the best methods for protecting wealth against a constantly depreciating paper currency is to own precious metals.

The bull case for precious metals remains intact as central bankers worldwide have become the lenders of last resort for nations that have exhausted their borrowing capacities.  Very little has changed since 2008 when the world financial system stood at the abyss of collapse.  Unsustainable debt levels continue to increase even as the capacity to service the debt diminishes.

Virtually every government in the world has taken on debts and liabilities that are clearly unsustainable.  Governments “don’t go broke” is the sustaining mantra for those with faith in paper currencies but governments do and will continue to print money that accelerates the loss of purchasing power of fiat currencies.  Please consider the following charts courtesy of John Mauldin Economics.

Eventually, as people realize that the central bank emperors have no clothes it will become clear Why There is No Upside Limit for Gold and Silver Prices.

The increase in the value of gold and silver is due to the fiscal and monetary policies of nations struggling to deal with massive levels of debt – policies that virtually guarantee a continued rise in the price of gold and silver.  Central banks, having exhausted all conventional means of monetary easing, have moved on to the last resort option of quantitative easing and currency debasement.

Government officials argue that unprecedented deficit spending and quantitative easing are necessary to stimulate economic  growth, but this theory has not worked in the real world.  Despite trillions in stimulus spending,  job creation and economic growth have been extremely weak and are likely to remain so according to economists Kenneth Rogoff and Carmen Reinhart who wrote This Time Is Different: Eight Centuries of Financial Folly.  According to Rogoff and Reinhart, economic growth is subpar when public sector debt exceeds 90% of GPD which the U.S. and many other developed nations have already surpassed.  In addition, a recovery of the job and housing markets after a financial crisis take many years due to the burden of excessive levels of debt.  Ultimately, Rogoff and Reinhart predict that austerity measures will need to be imposed along with some type of debt restructuring.

Is the U.S. capable of reducing spending and  instituting austerity measures? Cutting deficits means cutting payments to a long list of incomeless recipients who really don’t care where the entitlement money comes from.  Those still actually paying taxes will object strongly to any proposed tax increase to fund government spending.  Unable to cut spending or raise taxes leaves the Government with one bad option – print more money.

Politicians, who value getting elected above all else, are likely to strong arm the reliably compliant Federal Reserve to “come to the rescue” again with additional printed dollars.   In the minds of politicians and Federal Reserve officials, there will always be very compelling reasons to continue borrowing and money printing.

A nation that has reached the limits on taxation and borrowing has few viable policy options other than a continuing series of quantitative easing programs.  Current government policies, if left unchanged, virtually guarantee a continued increase in the price of precious metals.


Closed Platinum Mines Offset By Stockpile Surplus – Is A Surprise Platinum Rally Coming?

As noted in a recent post, the price of platinum has plunged almost $500 per ounce since last summer (see Platinum – Time To Buy Or Will The Bears Win?).  Industrial and jewelry demand for platinum has decreased substantially due to decreased car sales and a slowing world economy.  Potentially offsetting the weak demand for platinum is the increasingly violent labor strife in South African platinum mines which supply about 75% of world platinum production.

Earlier this year, Impala Platinum Holdings lost production of 120,000 ounces of platinum due to a six week strike and yesterday the world’s third largest platinum producer, Lonmim PLC, suspended most production after violence by rival labor unions left 10 people dead.  According to The Wall Street Journal, “the company was only able to produce metal from previously mined material, with very little fresh mining taking place…The sharply curtailed output threatened year-end targets and crimped supplies of a metal used primarily in automobiles and jewelry.”

What was the impact on the price of platinum due to the sudden closing of a major platinum mine?  Absolutely nothing as can be seen in the chart below.

Courtesy – kitco.com

The disruptions to platinum production have so far been offset by a reduction in demand and a surplus of platinum in world stockpiles according to MiningMX.

A STOCKPILE of 4.5m oz of platinum has accumulated in the global market in the past four years, and this would dampen any liveliness in the price of the valuable metal for at least the next two to three years. “The only solution is a cut in production. I would say a reduction of at least 400,000 oz per year in production capacity is called for,” said Paul Walker, head of precious-metals research at the authoritative Thomson Reuters GFMS, whose annual survey of the platinum market was released last week.

According to him, disruptions in production, like the strike at Impala Platinum in January and February, as well as the recent trend of safety stoppages – which cost about 300,000 oz in lost production – would do nothing to help the recovery in the platinum price. The accumulated global stockpile and waste metal recovered from car wrecks and the jewellery market absorb such shocks.

“I fear the accumulated 4.5m oz has become an obstacle in the market and can no longer just be shrugged off as a statistical deviation as was the case in the past two or three years. Previously we could ascribe it to factors like the downturn in 2008, but we can’t do that anymore,” he said.

The revival in the motor industry also did nothing to help the price to recover, because palladium is increasingly being used in place of platinum in diesel engines.

The stockpile of palladium was even bigger, namely 11.2m oz.

Despite the recent cutbacks in South African platinum production due to labor strife, production has actually increased by small amounts over the past years despite the growing stockpile surplus.

According to industry statistics, a price of $1,900 per ounce is necessary in order to justify new investment in platinum mines.  At current prices, platinum production from existing mines is barely profitable.  World platinum consumption is about 5.5 million ounces.  Under the unlikely scenario that all platinum production in South Africa comes to a complete halt, existing stockpiles would quickly be depleted within a year.

Until the stockpile of surplus platinum is worked off and the auto industry recovers, platinum prices could remain under pressure.  Hedge funds currently have the largest short positions in platinum ever in the futures market.

On a bullish note, all of the bearish factors affecting the price of platinum are well known and therefore discounted into the current price.  The platinum market just might surprise everyone with a rally to higher prices.

What Precious Metal Has Performed Best In 2012 And Where Do We Go From Here?

After the recent volatility in precious metals, let’s take a look at the year to date performance of gold, silver, platinum and palladium.  The new year started off with a strong rally across the entire precious metals group which erased some of the losses seen in the second half of 2011.

The across the board rally in precious metals came to an abrupt halt in early March after serial dollar printer Fed Chairman Bernanke made comments suggesting that further quantitative easing was unnecessary (see The Flash Crash In Gold).  Gold, which had closed at $1781 on February 28, sold off sharply, losing $136.75 per ounce by March 14.  Silver, platinum and palladium also sold off and are currently below the highs of the year seen in late February.

The precious metal with the largest gain to date for 2012 is platinum with an impressive 19% gain.  Silver is up 12.72% on the year, followed by palladium with a 5.72% gain and gold is now in last place with a year to date gain of 4.5%.

Platinum may be the most undervalued of all the precious metals based on the fact that the platinum to gold ratio is at levels not seen since 1986  (see Platinum To Gold Ratio Plunges – Buy Signal or New Metric?).

JAN 3RD $1,590.00 $28.78 $1,406.00 $664.00
MARCH 19TH $1,661.50 $32.44 $1,673.00 $702.00
$ GAIN $71.50 $3.66 $267.00 $38.00
% GAIN 4.50% 12.72% 19.00% 5.72%

Based on previous history, serious precious metal investors probably gave little credence to Bernanke’s suggestion that further Fed monetary easing was not in the cards.  Indeed, barely a week passed before the Fed Chairman was again discussing a new version of quantitative easing known as “sterilized bond-buying.” The always astute James Grant of Grant’s Interest Rate Observer, dismissed the notion that central bank money printing was about to end anytime soon.  In a recent interview with Bloomberg Television, Grant had this to say.

The price of gold is the reciprocal of the world’s faith in the deeds and words of the likes of Ben Bernanke. The world over, central banks are printing money as it has never been printed before. The European Central Bank has increased the size of its balance sheet at the annual rate of 89%. It’s amazing. The Fed is far behind at only 15%. The Bank of England 67% over the past few months. These are rates of increases in the production of paper currencies we have never seen in the modern age. It takes no effort at all. They simply tap the computer screen.

The full interview with Grant is well worth listening to and can be accessed below.

Where do we go from here in what could turn out to be a very interesting year for precious metals?  Here’s a brief roundup of interesting thoughts and analysis from around the web.

The Golden Trader discusses paper trading and manipulation of precious metal prices along with a technical assessment of gold and silver.

Mint State Gold explains why “all the major signs are showing that the quality rare coin market is starting its long awaiting rally. Let me explain why we could see a 30% move higher by year end.”

Why financial repression should be the focus of investor attention.

Gold and Silver News and Headlines – Gold Owners Get Nervous

Precious metals advanced across the board today, with palladium the stellar performer with a 2.86% gain.  Gold gained $9.70 to $1685.30, silver tacked on $0.48 to $33.53, platinum rose $18 to $1633.00 and palladium jumped $19.00 to $689.00.

Although precious metals recently hit a selling storm (see The Flash Crash in Gold), precious metals remain up strongly on the year and gold is up $257.20 per ounce or 18% over the past year.  The following chart show the gains for the year on the precious metals group.  All prices per the London PM Fix closing price.

JAN 3RD $1,590.00 $28.78 $1,406.00 $664.00
MARCH 7TH $1,677.50 $33.17 $1,627.00 $678.00
$ GAIN $87.50 $4.39 $221.00 $14.00
% GAIN 5.50% 15.25% 15.72% 2.11%

Here’s a brief round up of some of the latest thoughtful coverage on gold and silver related news.

Free Von Nothaus from the tyranny of unjust government actions – Judging Silver or Something Else?

As I look at the circumstances, I do not see that von Nothaus or his Liberty Dollar products victimized anyone. In contrast, those who chose to keep Federal Reserve Notes and coinage of the U.S. Mint have been victimized by loss of purchasing power. If anything, and I say this with all due respect, it seems to me that it would be more sensible and appropriate to prosecute those who have victimized American citizens through the depreciation of the “money” issued by the U.S. government.

US Mint Drops Price of Gold Products

With all of the pricing data now available, the US Mint’s gold numismatic products are set for a two tier decrease. This will reduce prices by the equivalent of $100 per ounce of gold content.

Owning gold is a “privilege, not a right”.  Why The US Confiscated Gold in 1933 and Can It Happen Again?

We previously stated that gold ownership was made illegal on 1st May 1933. What we did not tell you was that U.S. citizens, under Order 6102, were allowed to own up to $100 in gold coin [+5 ounces].

Congress could easily revoke the privilege again. In fact, at no time during this century has the U.S. government recognized the right of private gold ownership.

The privilege, not right, to own gold was restored to U.S. citizens on the 15th August 1974 (not 1971, when Nixon floated the USD against gold and stopped foreign central banks from converting USD to gold). It is pertinent to the thinking behind this series, to understand the importance to government of gold and that the right to confiscate may not be restricted to individuals or institutions but could embrace a nation or two.

It’s believed that some 60% of Germany’s gold is stored outside of Germany and much of it in the Federal Reserve Bank of New York. If this is the case one has to ask, in the light of the massive currency swaps engineered by the Fed and the E.C.B. to raise the two tranches of cheap money for European banks, “Was gold swapped too, or was it pledged as collateral?”

The public pressure to repatriate national gold reserves has heightened considerably in the last year. Should Germany want its gold back home, we ask, “Can it get it back or has it already been used in these ways?

Germany to Review Bundesbank Gold Reserves in Frankfurt, Paris, London and Federal Reserve Bank of New York

German lawmakers are to review Bundesbank controls of and management of Germany’s gold reserves.  Parliament’s Budget Committee will assess how the central bank manages its inventory of Germany’s gold bullion bars that are believed to be stored in Frankfurt, Paris, London and the Federal Reserve Bank of New York, according to German newspaper Bild.

There is increasing nervousness amongst the German public, German politicians and indeed the Bundesbank itself regarding the gigantic risk on the balance sheet of Germany’s central bank and this is leading some in Germany to voice concerns about the location and exact amount of Germany’s gold reserves.

The eurozone’s central bank system is massively imbalanced after the ECB’s balance sheet surged to a record 3.02 trillion euros ($3.96 trillion) last week, 31% bigger than the German economy, after a second tranche of three-year loans.

The concern is that were the eurozone to collapse, Bundesbank’s losses could be half a trillion euros – more than one-and-a-half times the size of the Germany’s annual budget.

In that scenario, Germany’s national patrimony of gold bullion reserves would be needed to support the currency – whether that be a new euro or a return to the Deutsche mark.

Bernanke Spooks Gold

Instead, this selloff was sparked not by a development, but a non-development. In his address to Congress, Fed Chairman Ben Bernanke offered no clue as to when the Federal Reserve would unleash its next round of quantitative easing.

The markets took this as a sign that the monetary madness is coming to an end, which would bode poorly for precious metals. Metals are increasingly seen as substitutes for continuously debased fiat money, and tend to do well when new liquidity injections are announced.

Bernanke’s failure to telegraph more printing means nothing. Investors are craving a return to normalcy, which means more prudent monetary policy. As a result, many are grasping at straws. But I believe these hopes are premature, and that gold will be buoyed by easy money for quite some time.

In addition, gold will likely be favored by the greatest financial struggle of the coming decade: China’s plans to replace the United States as the dominant economic power.

Buy Japanese Bonds At 0.05% And Get A Gold Coin

Japan began selling special government bonds Monday aimed at raising funds for reconstruction from the March 2011 earthquake and tsunami, saying it will present buyers with commemorative gold coins imprinted with an image of the “miracle pine” that survived the killer tsunami when the bonds mature in three years.

The coins — worth ¥10,000 each, and silver coins worth ¥1,000 — are engraved with the design of the 30-meter-high pine in Rikuzentakata, Iwate Prefecture, that was the only one of about 70,000 pines on a stretch of coast to survive the massive tsunami.

Peter Schiff on why Buffett is wrong about gold – Buffett’s Bursting Bubble

The gold doomsayers have found their champion in the media’s favorite financial advisor and one of the world’s richest men. Warren Buffett, the man dubbed the “Oracle of Omaha,” has repeatedly and publicly denied that gold is an investment, and called gold buyers “speculators” and people “who fear almost all other assets.” In fact, Buffett claims that gold’s rise has the same characteristics as the housing and dot-com bubbles, and it is only a matter of time before it reverses course. He doesn’t mean that the price will decline because of austerity measures and a free-market interest rate, mind you. He just asserts that because he’s deemed it a bubble, it will inevitably burst.

Gold prices will only go down when governments change course and make significant cuts. Until then, gold is not in a bubble. It’s the only way to protect your wealth; and in the current economic condition, it’s poised to go much higher. I think it’s high time Buffett takes to heart his father’s wise words: “For if human liberty is to survive in America, we must win the battle to restore honest money.”

The Volatile Ride To Higher Gold

Back in 1980, Phase Three only lasted for 21 days, but increased 66% in that time span. Considering the ten year time span of Phase One, and my projection for Phase Two, I feel that Phase Three (which starts in 2015) will last for six months and drive gold up to over $6,000 per ounce. If the world’s financial leaders decide to return to a Gold Standard, or if gold bullion confiscation becomes the government’s reaction to severe inflation, my projections would escalate. Possible other government reactions that can affect my projections negatively are: limiting gold ownership, restrictions on transporting or trading, and any Gold windfall profits tax.


Gold and Silver Plunge On Bernanke’s Remarks – What Happens Next?

The price of gold and silver plunged today after investors concluded that the Federal Reserve had no immediate plans for further quantitative easing.  In testimony to Congress Fed Chairman Bernanke made positive comments on future U.S. economic growth.  When Bernanke gave no indication that further monetary easing  would be necessary, a selling stampede began in the precious metals markets.

In New York trading, gold closed down $87.20 for a 4.9% loss on the day and silver declined by $2.29, down 6.2%.  Platinum got rocked with a $40 decline to $1,685 and palladium gave up $18 to close at $707.

Why the violent sell off in precious metals when the Federal Reserve and other central banks worldwide are still printing money on a massive scale?  For some thoughts on today’s precious metals rout and what’s likely to happen next, here are some links to excellent gold and silver related stories and blog posts:

Gold Falls In “Manic” Plunge

Explanations from various money managers on why gold and silver sold off.  Investors expecting continued monetary easing were disappointed.  William O’Neill, partner at Logic Advisors said “Bernanke’s comments seem to have eliminated hope of U.S. quantitative easing coming anytime soon.”

Gold, Silver Tumble on Heavy Profit Taking

Importantly, the gold and silver futures markets were ripe for corrective, technical and profit-taking pullbacks following recent strong gains that had sent gold and silver prices to multi-month highs. The Bernanke testimony gave many traders and investors an excuse to “ring the cash” register and take some profits. Also, veteran commodity market watchers know these markets can make sudden, unexpected price moves to temporarily roil investors and traders.

Kitco Interviews GATA Chairman

Interview with GATA Chairman Bill Murphy on today’s smashdown in the gold and silver markets.

Bernanke Tries Talking Down Commodities

If one basically states that the economy is doing better – not out of the woods yet but better – and all the hedgies are leveraged to the gills because the FED GAVE THEM THE GREEN LIGHT TO DO EXACTLY THAT when it first announced that it would keep this near zero interest rate policy out to the end of 2014, then it is a simple matter of throwing a bit of uncertainty in that regards to generate a bout of selling. Toss in the same permabears as always capping at the highs of the day and the algorithms did the rest of the work as the stops were picked off.

First Eagle’s Eveillard Openly Suspects Gold Market Rigging

Gold fund manager Jean-Marie Eveillard has just told King World News that he suspects that today’s pounding of the gold price was a matter of central bank intervention:

Eveillard, who manages $50 billion in assets, is among the few respectables in the gold world, and his stunning acknowledgment today is the price the Western central banks must begin paying for their increasingly brazen market rigging. It is a sign that GATA is making progress, however slow.

Progress could be made a lot faster, as Eveillard and a few other respectables might blow the market rigging to smithereens if they mustered a little courage and activism, such as a donation to GATA, which has been documenting, litigating against, and screaming about gold market rigging for years:

Today Window Dressing Fall In Gold

Please do not be bothered by today’s intervention. The following news is what creates the absolute need for QE.

It is the thesis of my Formula of 2006 of no major recovery that gives the foundation to my thesis of QE to Infinity.

Has serial money printer Bernanke suddenly converted to become a staunch proponent of a sound dollar?  Don’t bet your gold on that one.  As noted in a previous post, The Federal Reserve Can’t Produce Oil, Food or Jobs But They Will Continue to Produce Dollars.

Late note – gold is up $20.60 in Asian trading.

A Perspective On The Plunge In Gold and Silver

Fed Chairman Ben Bernanke set the world on fire this week as his latest scheme to “twist” long term interest rates lower pleased no one and triggered a 737 point drop in the Dow.  In addition, the Fed panicked investors by admitting that there were “significant downside risks to the economic outlook”.

Virtually every asset class except U.S. treasuries went into full scale meltdowns.  The U.S. stock market registered its worst weekly drop since the dark days of October 2008 when the  U.S. banking system was collapsing.

The rush to liquidity and forced margin selling sent precious metal prices into a tailspin. London silver plunged by $7.07 or 18%, to $32.90, the biggest decline since 1987.  Gold, as measured by the closing London PM Fix Price, dropped $105 on the week to $1,689, the largest weekly decline since 1983.  Spot prices for both gold and silver continued lower in New York afternoon trading with gold settling at $1658.20 and silver at $31.03.

Platinum dropped by $147 on the week to $1,651 and palladium dropped by $73 to $659 for losses of 8.18% and 9.97%, respectively.  Silver, with 60% of its demand relating to industrial use,  took the largest plunge in the precious metals group as economic indicators pointed to a rapidly slowing economy worldwide.

Precious Metals Prices Sept 23
9/23PM Fix Weekly Change
Gold $1,689.00 -105.00 -5.85%
Silver $32.90 -7.07 -17.69%
Platinum $1,651.00 -147.00 -8.18%
Palladium $659.00 -73.00 -9.97%

Although the sharp declines in gold and silver are unsettling, the fundamental reasons for owning gold and silver remain intact.  The rapid price increases in gold and silver since July attracted large investment flows from hedge funds and other short term speculators, who rapidly liquidate large positions based on short term technical sell signals.

Despite this week’s panic selling, long term gold investors have seen their investment rise from $1,405.50 at the beginning of the year, for a gain of $283.50 (20.2%).  Silver, despite this week’s painful sell off, is still higher by $2.23 or 7.3% from the beginning of the year, as measured by the closing London PM Fix Price.

For additional perspective on the relative performance of the gold and silver markets, here’s the record for various stock indices and the 10 year bond since the beginning of 2011.  (Note that the 10 year bond shows yield, not price.)

Asset Performance - courtesy schwab.com

Meanwhile, as the global financial system rapidly moves towards the precipice, faith in the ability of governments to contain the crisis is quickly eroding.  2011 is not a replay of the 2008 financial meltdown – it’s much more dangerous.  The sovereign governments that “saved the system” in 2008 incurred massive amounts of debt which have brought them to the brink of insolvency.  The bankruptcy of one country could ignite a financial firestorm that world governments cannot contain.

The inability of European leaders to effectively act in concert to resolve the Euro debt crisis has drawn the United States into the center of the crisis.  According to The New York Times, the U.S. is pushing Europe to mount a massive bailout to avoid financial Armageddon.

The Obama administration, increasingly alarmed by the spillover effects of Europe’s financial crisis, has begun an intensive lobbying campaign to persuade Chancellor Angela Merkel of Germany and other leaders to ramp up efforts to stem any contagion from the debt crisis in Greece.

In phone calls and meetings over the last week, President Obama urged Mrs. Merkel and President Nicolas Sarkozy of France to take coordinated measures — including spending billions in additional funds to bail out Greece and bolster European financial institutions — to prevent Greece’s debt woes from spreading to its neighbors.

“The biggest single risk to the United States today is that the European situation will spiral out of control,” said Edwin M. Truman, a former Treasury official who is now at the Peterson Institute for International Economics. “Europe is not going to save the U.S. economy, but it could be the straw that breaks it.”

Kenneth Rogoff, a Harvard economist who has written about the history of financial crises, puts Europe’s effect on the United States in blunt political terms. “The downside scenario is awful,” he said…

American officials have also emphasized the Fed’s outsize role in responding to the financial crisis here and urged Europe to view the Fed as a model. It made trillions of dollars in loans so that investors remained able to buy and sell a wide range of financial products.

Given the risks to the United States economy from a banking collapse and sovereign defaults in Europe, anyone who thinks that the United States will not be getting deeply involved in the financial bailout of Europe is delusional.  The “rescue” of Europe will ultimately involve the same techniques (zero interest rates and money printing) used by Bernanke in the United States.  The resulting negative interest rates and worldwide debasement of paper currencies will ultimately send gold soaring to new highs.

Gold and Silver Soar On Fears Of Massive Central Bank Stimulus

Precious metals soared across the board this week.  The dismal jobs report released on Friday showed that the American economy has come to a standstill with zero new jobs added in August.

The specter of the US economy plunging back into recession along with imminent banking crises in Europe and the US have fueled speculation that the Federal Reserve is on the verge of conducting another massive wave of monetary stimulus which will further debase the value of the US dollar.  Apprehension is also growing that the magical Obama plan for “creating” new jobs will involve further borrowing by an already bankrupt  American empire.

Also lurking in the background is the fear of coordinated US and European central bank intervention (money printing) to contain the collapse of the European banking system.  Despite the purchase of hundreds of billions of dollars of Spanish, Greek and Italian debt by the European Central Bank, rising interest rates are forecasting default by numerous sovereign states in the European Union.   Rates are rising again on Italian debt and the rate on one year Greek paper now exceeds 70%.  The yields on Greek debt indicate that default is now a certainty and the losses by insolvent European banks holding PIGS debt will require unprecedented government bailouts to prevent complete financial chaos.

Soaring gold prices have been predicting the collapse of paper money currencies.  As measured by the closing London PM Fix Price, gold soared on Friday by $54.25 to $1,875.25.  In later New York trading, gold continued higher closing at $1,885.20.  Gold is only $2.25 below the all time London close of $1,877.50 reached on August 22nd.

Precious Metals Prices Sept 2
PM Fix Since Last Recap
Gold $1,875.25 +87.25 +4.88%
Silver $42.50 +1.44 +3.51%
Platinum $1,873.00 +61.00 +3.37%
Palladium $785.00 +38.00 +5.09%

As measured by the closing London PM Fix Price, silver gained $1.44 on the week to $42.50 and continued to rise in later New York trading to $43.35.   After consolidating in the $34 range, silver has resumed its uptrend and is likely to hit new all time highs before year end.


Silver - courtesy stockcharts.com

Platinum soared by $61 on the week to close at $1,873 while palladium finished up $38 to close at $785.

Precious metals may correct after strong advances, but the fundamental case for owning them is growing geometrically.  Expanding deficits and wild money printing will continue as policy makers continue their futile attempts to produce economic recovery by adding more debt to a system already collapsing from the burden of excessive debt.   Continue to increase gold and silver positions on any pullbacks.


Gold - courtesy stockcharts.com

Ultimate Price Of Gold Will Shock The World As Loss Of Global Confidence Leads To Economic Collapse

Gold had another stellar week while stock markets gyrated wildly.   As measured by the closing London PM Fix Price, gold gained $77.25 on the week, hitting all time highs and closing at $1,736.   After the London close, gold recovered from an earlier pullback and closed in New York trading at $1,747.30, up $11.30 from the London close.

Silver ending the week down slightly at $38.29 while platinum gained $91 to $1,800 and palladium edged up $5 to $747.

Gold has gained $253 or 17% since July 1st when it closed at $1,483.00.  The rapid price gains have pushed gold above its long term trend line.  Gold is now trading at $290 (or 20%) above its 200 day moving average.  On previous occasions in late 2009 and the fall of 2010 gold also traded more than $200 dollars above the 200 day moving average and the result was a minor pullback or sideways consolidation.


Gold - courtesy kitco.com

Gold may be overbought on a short term basis but the fundamental reasons for owning gold are expanding exponentially.  Public realization that dysfunctional governments are incapable of solving our economic problems is resulting in a loss of confidence.  A loss of confidence combined with a debt crisis and out of control spending can have only one result – increasingly worthless paper money and stocks as the  world central banks attempt to prevent an economic collapse with zero interest rates and printed money.

Gold Outperforms paper stocks

Government and  central bank policies have been destroying the value of the US currency for decades and have given birth to crashing housing markets, lower incomes, depression level unemployment and numerous stock market crashes.  When one  considers that the last hope of preventing an all out depression now lies in the hands of the very central banks who have already brought Hell down upon us, we should all be very, very scared.

If the last ditch efforts of the Central Banks fail to contain the financial collapse that is imminent, expect to see governments institute totalitarian measures in order to maintain a semblance of organized society.  As bankrupt empires collapse, they also attempt to expropriate every last dollar of wealth from its citizens in order to maintain their grip on power as long as possible.

The most recent large scale example of the implosion of an empire was the USSR, whose sudden collapse surprised CIA analysts who had been studying the Soviet Empire in detail for decades.  Ironically, those even more surprised by the collapse of the USSR were the politicians and bureaucrats who ran the country into the ground as they remained oblivious to their economy killing policies.  Tragically, misguided and misinformed middle class citizens of the USSR saw the value of their rubles collapse along with pension plans, bank savings and other financial assets.  Those who walked away with more than they had, other than corrupt politicians, were those few citizens who converted paper money into gold or silver before the financial system imploded.

A potential short term price correction in gold is a meaningless concern.  Developed world economies are in inexorably decline from which there is no escape.  The primary concern for most US citizens should be to develop a financial strategy that does not leave them impoverished when the end game arrives.

Unfortunately, most Americans have a religious conviction that “The Government” will save and nourish them as has been promised by every politician of this century.  These promises will all be broken but Americans won’t believe it until it happens, at which point there is no financial escape.

As a worldwide systemic financial collapse grows more probable with each passing day, Americans remain in denial and place their life savings in US government debt and bank accounts, secure with the promise that they are “guaranteed by the government”.   Sorry folks, bankrupt governments don’t keep promises.  The proof of American citizens’ faith in paper assets is their very low commitment to gold and silver.  The public will belatedly turn to gold and silver en masse when the system starts crashing down around them.  This event will be the real rush to gold and at that point, prices will rise thousands of dollars per week.

When establishment journalists warn of a “bubble” or “top” in gold, don’t get annoyed – simply buy more gold, especially on pullbacks.  The ultimate price of gold will wind up shocking even the biggest gold bulls.  When gold demand is insatiable and supply very limited, attempting to figure out the ultimate high price for gold is a fruitless exercise. (see Why There Is No Upside Limit For Gold and Silver).

Precious Metals Prices 8/12/11
PM Fix Since Last Recap
Gold $1,736.00 +$77.25 +4.66%
Silver $38.29 -$0.95 -2.42%
Platinum $1,800.00 +$91.00 +5.32%
Palladium $747.00 +$5.00 +0.67%


Gold Rallies On Week – Is The World Economy At The Precipice?

Gold continued its winning ways this week.  As measured by the closing London PM Fix Price, gold gained $26.50 to close the week at all an time high of $1,628.50.

Gold has closed higher for the past four consecutive weeks.  The rally that began at the beginning of the month has pushed gold higher by $145.50 or 9.8% since July 1st.  Investors worried about the solvency of sovereign states in Europe have now switched their focus to the United States.

The impasse over raising the US debt limit has morphed into a crisis of confidence over the ultimate value of the US dollar.  There is no clear consensus on how the debt limit negotiations in Washington  will be resolved.  The only certainty is that, regardless of how the debt limit crisis ends, confidence in the “full faith and credit” of the United States will be greatly diminished.

China and Russia, two large holders of US debt, have watched in horror as the US deliberately debases its currency value through money printing and a parabolic increase in debt.  At a time when the US needs to borrow trillions of dollars in new debt, there is likely to be a greatly diminished appetite to purchase additional US debt.

The global debt crisis and a lack of confidence in paper money has resulted in a steady increase in the price of gold.  Will gold continue to soar if global economies start collapsing or will gold be drawn into the deflationary abyss along with all other asset values?  Opinions vary but here are some good thoughts on the matter.

-John Browne of Euro Pacific Capital warns that gold could be subject to a price pullback based on the deflationary impact of a global recession or short term optimism over the US avoiding default.

Decision Point’s Carl Swenlin wonders if gold is too much of a “sure thing” investment and ponders the fate of gold in a deflationary collapse.

-A Citigroup analyst speculates that gold could quickly reach $5,000 based on a “worst case scenario for Euro sovereign debt and USA fiscal problems”.

Confidence is vital in a fiat money based world.  The ongoing global debt crisis may be the trigger that ultimately destroys faith in paper currencies.

Precious Metals Prices 7/29/11
PM Fix Since Last Recap
Gold $1,628.50 +$26.50 +1.65%
Silver $39.63 -$0.04 -0.10%
Platinum $1,779.00 -$14.00 -0.78%
Palladium $824.00 +$17.00 +2.11%

Silver and platinum were essentially unchanged on the week after posting strong advances since the beginning of July.  Palladium advanced by $17 or over 2% on the week and is up $74 since July 1st.

As World’s Most Predicted Financial Crisis Approaches Precious Metals Move Higher

Precious metals gained across the board for the third week in a row.  Silver and palladium were the top performers this week with each advancing almost 4%.

July has seen an explosive move in the precious metals group as worries intensify about the twin debt crises in Europe and the U.S.  In both cases, governments and central banks are avoiding the tough choices that must be made when debt levels reach unsustainable amounts.  Common sense dictates that over leveraged borrowers with insufficient income to service debt must eventually default, or gradually reduce the debt through a combination of austerity measures and income growth.

Common sense, however, is a trait sorely lacking in politicians.  Nor does preaching austerity to your constituents enhance the odds of being re-elected.  The preferred solution, which has been employed since the 1980’s, is to add more debt and let the future take care of itself.  What’s different this time is the growing realization that at some point the compounding of debt becomes unsustainable, enslaving future generations and inhibiting economic growth.

The widely discussed study by Rogoff and Reinhart definitively documents that when public sector debt to GDP approaches the 90% level, economic growth slows dramatically – (see This Time Is Different: Eight Centuries of Financial Folly).  Since most of the developed world economies are already at or above the 90% debt to GDP ratio, the prognosis for future economic growth to gradually reduce debt levels becomes a tenuous prospect.

Despite the obvious risks of a growing debt burden, a significant number of the Washington elite insist that the debt limit be raised by another $2.5 trillion which would represent a doubling of the national debt in a little over five years.

Raising the debt limit, which became a routine ritual in past years, has suddenly morphed into a potential default situation as a growing number of responsible political leaders refuse to rubber stamp another massive increase in public borrowing.  As debt limit negotiations broke down today, the odds of a potential default by the United States became a distinct possibility.

Will a temporary default become a seismic event?  Who knows, but if gold had advanced by one dollar per ounce for each time I’ve seen an article predicting financial Armageddon, if the debt limit was not raised, gold would be well over $4,000 per ounce.   If the U.S. does “default”, it will not be the end of the world.  In the best case scenario, a brush with default may convince more members of our EZ spending Congress to come around to the financial common sense of men such as Ron Paul.


Summary of Ron Paul’s comments to Congress:

  • Countries that are as indebted as the U.S. always default.
  • The real increase in the debt this year, counting entitlements, is $5 trillion.
  • In the past 3 years, the dollar has been devalued by 50% against gold.
  • Default will be through inflation.

Gold advanced by $15 on the week and is up $119 since July 1st.  Silver advanced by $1.50 on the week and has gained $5.82 since July 1st.

Platinum and palladium both advanced on the week by $33 and $30 respectively.  Platinum has gained $85 and palladium $57 since the first of the month.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,602.00 +$15.00 +0.95%
Silver $39.67 +$1.50 +3.93%
Platinum $1,793.00 +$33.00 +1.88%
Palladium $807.00 +$30.00 +3.86%