October 2, 2022

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.

How Gold Could Plunge to $500

coinBy GE Christenson

Yup, that is the story. The following arguments explain why Charles and I think gold will plummet to around $500 per ounce. Also, after my luncheon date with Elvis, I have a large bridge for sale. If you are interested and willing to make a SERIOUS OFFER, see below.

The price of gold has roughly followed (up, up, and away) the growth of the U.S. national debt since 1971. The national debt is rising like 8% per year or like $1,000,000,000,000 per year. But don’t jump to the conclusion that gold prices will continue rising along with the debt! Charles Ponzi and I have faith in congress, lobbyists, and the sincerity of the budget process. We believe the national debt will rapidly fall due to the positive economic stimulus from ObamaCare, from actual budget cuts, and therefore gold should drop to new lows. Mr. Ponzi thinks it could go real low – like $450 or $500.

courtesy: www.michaelianblack.net

courtesy: www.michaelianblack.net

The other day an out-of-work economist friend and I had lunch. He is a bright guy and he used to work for one of them central banks, or maybe a rating agency, or the IMF. Anyway, the subject of economic forecasting came up, he got this “far-away” look in his eyes, and he started babbling. Perspiration formed on his forehead, and his left eye started twitching. The mood was weird, like really, really strange. I ordered a fourth martini for each of us and gently suggested, “Show me how it is done.” He pulled out a handful of bones from his coat pocket and tossed them onto the table. He babbled something about magic Emu bones from the 19th century. Then his eyes bugged open wide and he started panting. He studied the bones for at least a minute and then pronounced, with a slur in his raspy voice, gold will drop to $496 by the end of 2014. Now folks, that was the most compelling forecast I have ever heard. Gold is going much lower, say to $496, fairly soon. Believe it!

It has been widely reported that nearly 50,000,000 people in the U.S. are receiving food stamps or, as it is now called, the SNAP program. I figure those people need the program to help buy food, and that means their job market is still weak. No jobs, no excess cash. No excess cash, no gold purchases by food stamp recipients. No gold purchases, and the price drops. Simple! This is one more reason why the price of gold will drop much lower – back down to the $450 – $550 range.

I read that the recent agreement with Iran was a breakthrough in middle-east politics – sort of a win-win for all parties involved, except for maybe the native tribes of northern Canada. I checked my perception with a bartender friend who works in D.C. where congressional staffers get drunk and hustle lobbyist funding. Based on what he overheard from staffers, he agreed. But I needed confirmation, so I called the White House and read several editorials in liberal newspapers and they all confirmed the triumphant break-through. Stay with me here! If the mid-east problems are solved and the political premium on the price of crude disappears, then gasoline will be a lot less expensive, people will have more confidence in the economy, and, like totally obviously, they will sell gold and buy lots more stuff. I figured I had another big winner – sell gold, sell oil company stocks, and buy consumer stocks. This new mid-east agreement is another big reason why I think gold will drop below $550 per ounce in the upcoming year.

pm high-relief-gold

Congressional approval ratings are so bad that I bet I can find more people who have had lunch with Elvis than who think congress is doing a bang-up good job. I figure it is high time for Elvis to make a comeback national tour and for congress to better manage the economy and the dollar. Hence, gold should drop to new lows. Look for $450 – $500 and a new Elvis love song.

Everybody knows the Chinese have been buying all the gold they can grab for the past several years. Even with all their buying, the price of gold has dropped a bunch. Now this is simple – if the price dropped when the Chinese were aggressively buying, how much further will it drop when they slow their buying or totally stop buying gold? Why do I think the Chinese will stop buying gold? Simple – they have bought so much in the past five years, they gotta stop soon – the world might even run out of gold. I figure 2014 is the year they give up on gold purchases and that will cause the price of gold to plummet, maybe even below $400.

I also saw an article in a newspaper called the “D.C. Rag” about a new gold rush. The story ranted on about this scandal of insider democrats buying land in California. They didn’t want the land but they wanted the massive deposit of gold that had been recently discovered there in a shallow mine. The “Rag” mentioned that the only problem was the area was overrun by the native Sasquatches, but I’m confident those congressmen will figure something out and get the gold. More gold mined, more supply, lower prices! This stuff is not difficult. Gold is going down!

ST G

So there you have it! Gold is gonna drop hard in 2014. Why? Simple! The national debt will go down because Charles Ponzi believes ObamaCare is a good plan and that congress will cut the budget and actually produce a surplus, a weak job market is limiting gold purchases by the people on food stamps, an economist predicted that gold will drop to $496 in 2014, we expect peace in the mid-east, the Chinese will reduce their purchases of gold in 2014, and a new supply of gold has been discovered in the Sasquatch zone of California. I figure it is “an open and shut case.” Gold prices are going through the floor, and I just proved it, with help from Elvis, Charles Ponzi, my economist and bartender friends, and simple logic.

Now, about that bridge I have for sale, I can give you a 30% discount if you act today. Serious offers only! Send your information requests to:

GE Christenson
aka Deviant Investor

U.S. Marches Down the Road to Financial Perdition – No One Cares Until It Matters

american-gold-eagleBy: GE Christenson

The reality is relatively simple even though the appearance is complicated and confusing. What are we talking about?

  • Wars that are hugely profitable for a few individuals and businesses
  • Unauditable Pentagon accounting
  • Government debt that will never be repaid
  • Levitation of S&P and bond markets
  • Gold price suppression
  • So much more

We all know “something is wrong” but we keep riding the same corrupt “gravy train” because it works for many powerful people. Consider the interlocking complicity involved in the following:

Iraq and Other Wars

The previous administration produced “evidence” that Iraq had weapons of mass destruction and then claimed it was necessary to invade Iraq, distribute oil contracts to American and British oil companies, initiate “no-bid” contracts to politically connected American military contractors, massively increase government debt, and create huge profits for selected companies and industries. Those profits flowed back to the financial elite, agreeable congressmen, others in government, and to many American workers.

Even though it is now generally agreed that Iraq had no weapons of mass destruction and no means of launching those non-existent weapons against the United States, a great many connected people and businesses benefited financially from the Iraq War. Interlocking complicity worked well to promote the war and to profit from it.

Pentagon Accounting

About 12 years ago, Secretary of Defense, Donald Rumsfeld revealed that $2.3 Trillion was “missing” from the Pentagon books. (“War Racket Update” by acting-man.com – site down temporarily)

“A number of knowledgeable observers admitted that the Pentagon’s ‘books are cooked’ and that in essence, a giant cover-up was going on. A mixture of waste and theft on a truly breathtaking scale was and still is underway.”

It has been my experience that bad or fraudulent accounting is enabled, encouraged, or actively created by management. We can safely assume that the many highly intelligent people who work at the Pentagon could more accurately and transparently manage their operations if they wanted to do so. Hence, fraud and theft exist because management wants it – many people benefit while accountability is neither encouraged nor beneficial to those who are actually in charge. The powers-that-be, congress, the administration, and military contractors are complicit in working the system so that all parties benefit, other people pay the costs, there is minimal accountability, and the necessary payoffs are made. Interlocking complicity works well for those in charge of Pentagon funds and for those receiving the funds.

money printing

Government Debt

Congress has not passed a budget in five years and has been deficit spending for decades. The shortfall between revenues and expenses is borrowed with the understanding that the debts will never be paid – just “rolled over.” The financial and political elite benefit, government pays out massive amounts for military contracts, health care, prescription drugs, retirement programs, Social Security payments, Medicare, unemployment, aid to states, and it goes on and on. That explains how the U.S. government is officially in debt over $17 Trillion and has accrued another $100 – $200 Trillion in liabilities that have been promised but are not currently funded. Since most Americans are benefitting from one or more of these government distributions, most Americans are complicit in this giant borrow, spend and print Ponzi scheme. Because so many people benefit, few individuals or businesses want the process materially changed. Of course many people talk about balancing the budget, cutting spending, and fiscal accountability, but it is only talk. Because Congress has been unable to pass a budget in five years and must borrow a $Trillion or so each year there will be no accountability or budget cutting anytime in the near future. Interlocking complicity rules while we ride the giant government gravy train.

mart1

QE and the Levitation of Stock and Bond Markets

Even a quick glance at the last five years of market prices shows that QE has been a huge benefit to the stock and bond markets and that much of the funny money being “created out of thin air” by the Fed finds its way into those markets. Hence the stock and bond markets have been levitated while “main street” and the bottom 90% (those who have little of their net worth in stocks and bonds) have derived minimal or no benefit from QE. However, most of us realize that the US government cannot limit spending to only the revenue it collects, and that QE greatly benefits the financial and political elite. Interlocking complicity dictates that QE will continue as long as possible, even though “printing money” and debasing the currency have never successfully worked throughout history.

mart2

Central Banks and Gold Price Suppression

Central Banks (Bank of England, Federal Reserve, ECB) have sold or “leased” gold into the market, via bullion banks, to suppress the price of gold and to promote the idea of Pound, Dollar and Euro strength. Since central banking rules allow them to claim that gold is still their asset, even though it is physically gone, this process can work until the central banks are unwilling or unable to sell or “lease” additional gold. The Chinese, Indians, and Russians have purchased the gold directly from bullion banks, or taken delivery on futures contracts, shipped the gold to Switzerland where it has been melted down into kilo bars, and then moved it to the Eastern countries. A huge amount of gold has left the west where it is undervalued and now is vaulted in the East where it is better appreciated.

During the past several years the Chinese have vastly increased their gold holdings at favorable prices while dumping some of their depreciating dollars. The Western central banks further the illusion of value in unbacked debt based paper money while claiming gold is in a bubble, gold and the gold standard are barbarous relics, and enabling paper currencies to survive for a while longer. Interlocking complicity in the gold leasing and gold price suppression scheme currently benefits both the eastern and western countries.

Summary

The Pentagon cannot account for $Trillions. Since there is little incentive to stop the fraud, waste, and phony accounting, and since there is a large incentive for it to continue, expect the graft, corruption, black budget items, and payoffs to continue. Interlocking complicity works especially well at the Pentagon.

The US government does not want to cut spending and has a limited ability to increase revenues. Expect borrow and spend politics to dominate until a “reset” occurs and then expect a crisis and many speeches from important politicians who just noticed what has been obvious for decades. Interlocking complicity works well for congressional payoffs, reelection speeches, increasing power to the administrative branch, and, of course, massive profits to the industries that benefit the most from deficit spending, such as military contractors, banking, health care, pharmaceuticals and others.

Gold price suppression benefits western governments and central banks while the Chinese and Russians benefit by purchasing valuable gold with increasingly devalued dollars. Expect gold price suppression to continue until the west runs out of gold that can be melted down and shipped east. However, demand for physical gold is quite strong while supply is limited. Expect gold to trade MUCH higher in the next few years.

Interlocking complicity produces a degree of stability as it helps maintain the status quo, which is very important to the powers-that-be. Interlocking complicity ensures that accountability, oversight, and ethical practices are low priorities, while payoffs and no-bid contracts will maintain their important role in government operations. Interlocking complicity ensures that little change will occur until it is forced upon us.

Ask yourself

  • Are you prepared for a reset of our financial and social systems?
  • The Chinese are trading increasingly less valuable dollars for increasingly more valuable gold and silver. Should you do likewise?
  • Can a government spend more than it collects in revenue – forever?
  • Debasing the currency has never worked well in the past. Will this time be different for Japan, Europe and the United States?
  • Will Wall Street, Congress, military contractors and the pharmaceutical industry lobby for what is good for you or for them?

GE Christenson
aka Deviant Investor

Statistically Speaking Gold Should Have Been Strong In November – What’s Next?

gold1November has traditionally been a kind month for gold investors.  Since 2004 the price of gold during November (as measured by using the SPDR Gold Shares (GLD) as a proxy)  has been up 75% of the time with an average return of almost 5%.

As shown in a chart by @RyanDetrick, statistically speaking, the price of gold should have been up in November.

Instead of rising this November the GLD dropped from $126.95 to $120.70 for a price decline of 4.92%, the worst November for gold in 35 years.

GLD NOVEMBER

Conclusion?  Don’t rely on historical data to make current investment decisions.  Gold is in a downtrend and the selling is so overdone that the current market price of gold is below the production costs of most gold miners.

When will the price of gold recover?  No one can perfectly time price moves, but markets that are brutally oversold can come screaming back in a heartbeat when sentiment changes.  Long term gold investors only need to remember one important fact – the Federal Reserve is committed to a campaign that will continue to destroy the purchasing power of the dollar thus making gold a solid long term investment strategy for wealth preservation.

DOLLAR PURCHASING POWER

Monetizing Government Debt – Bernanke Says No, Common Sense Says Yes

2013-w-gold-eagleBy: Axel Merk

Fed Chair Bernanke vehemently denies Fed “monetizes the debt,” but our research shows the Fed may be increasingly doing so. We explain why and what the implications may be for the dollar, gold and currencies.

What is debt monetization? A central bank is said to monetize a government’s debt if it helps to finance its deficit. The buying of Treasuries by the Federal Reserve is a clear indication that the Fed is doing just that, except that Bernanke argues the motivation behind Treasury purchases is to help the economy, not the government.

The no-taper decision increased the Fed’s monetization of US debt. Gold may be more than insurance. Brace yourself for an escalation of Currency Wars.

To what extent does the Fed monetize the debt? The below chart shows that since the onset of the fall of 2008, the Fed has purchased enough Treasuries and Mortgage-Backed Securities (MBS), together, “quantitative easing” or (QE) to finance a substantial part of the government deficit. Indeed, by deciding not to “taper” off its purchases, the Fed is engaging in sufficient QE to purchase all debt issued and then some.

Shouldn’t one exclude MBS purchases in analyzing debt monetization? Buying MBS may provide the appearance that the Fed is not monetizing the debt when in fact it is. Don’t take our word for it, but the market’s: in a recent presentation to the CFA society in Melbourne, Merk Senior Economic Adviser and former St. Louis Fed President Bill Poole points out that the spread between 30-year fixed-rate mortgages and 10-year U.S. Treasury bonds have been virtually unchanged as a result of MBS purchases; from 1976 to 2006 the average spread was 1.74%. From May 2011 to April 2012 it averaged 1.76%. As such, the direct impact of QE on spreads has been extremely limited. If it sounds surprising, consider that investors have an array of choices that are highly similar: aside from currency risk, how different are German Treasuries versus U.S. Treasuries? Highly rated U.S. corporate issues versus U.S. Treasuries? They all have distinct risk profiles, but there’s a good reason why absent of issuer-specific news, these securities tend to trade in tandem. As such, the Fed is really just sipping with a straw from the ocean: setting rates may be more a result of communication (the “credibility of the Fed”) rather than the actual purchases.

gold-bullionIf rates are set by words rather than action, doesn’t that prove the point the Fed is not monetizing the debt? We agree that talk is cheap. But talk doesn’t always move the market; as confidence in the Fed’s ability to control rates erodes, policy becomes ever more expensive: cutting rates, emergency rate cuts, Treasury purchases, Operation Twist, and moving to an explicit employment target are all escalations of a policy to “convince” the market to keep rates low. And along the way, the Fed has to spend more money. Ask the Fed, and they’ll tell you their operations are profitable. Clearly, as the Fed creates money out of thin air to buy income-generating fixed income securities, the more the Fed “prints”, the more profitable it is. Except that there’s no free lunch and pigs still can’t fly. By all means, no central bank in their right mind would start out with a policy to monetize debt. But as the chart above shows, the Fed now spends over 150% of government deficit to hold rates down, suggesting that its firing power is eroding. If and when we come to the stage that the Fed were to explicitly monetize the debt, it may need to buy a high multiple of what it currently does and might still fail to keep rates low. It’s a confidence game.

What happened when the Fed decided not to “taper” its bond purchase program? As the chart above shows, something went wrong, very wrong. As tax revenue has picked up throughout the year, government deficits have come down. As such, reducing QE would have been warranted. By choosing not to “taper,” one can argue that QE has actually increased, as the Fed is buying above and beyond newly issued debt. Note the Fed will push back yet again, arguing it cannot buy debt directly from the government only in the secondary market. But that may well be semantics. As a large bond manager has pointed out: in the absence of QE, we might have to sell debt to one another, rather than to the Fed.

rooseveltWhere’s debt monetization heading? The way we see the dynamics playing out, this confidence game will go on for some time, yet we may increasingly be seeing cracks. Lower government deficits may be a short-term phenomenon as over the long-term the cost of entitlements and interest payments may rise substantially, highlighting that deficits may not be sustainable. In 10 years from now, the Congressional Budget Office (CBO) estimates the U.S. government may be paying $600 billion more a year in interest expense alone; indeed, if the average cost of borrowing went back up to the average cost of borrowing since the 1970s, the government may need to pay $1 trillion more per year in interest expense alone. To us, this suggests the biggest threat we are facing may be economic growth. That’s because the bond market has been most sensitive to good economic data; yet, should the bond market sell off (increasing the cost of borrowing), the cost of financing U.S. government deficits may escalate. We already have a Fed that has indicated interest rates will stay low for an extended period. In some ways, the Fed has all but guaranteed that it will be slow in raising rates. We interpret that as the Fed being slow to rising inflationary pressures that are likely to increase should the economy ever pick up again.

This is all too abstract – how will this play out? If you think this is abstract, think Japan. Let the Japanese be successful with their policies, let them achieve sustained economic growth. What do you think will happen to Japanese Government Bonds (JGBs)? JGBs might plunge, making it difficult, if not impossible, to finance Japan’s massive government debt burden. Few observers doubt that the Bank of Japan (BoJ) may step in to help finance government deficits. That’s debt monetization. We think the valve for Japan will be the yen that won’t survive this. When we discuss this with investors, most agree that this is a real risk for Japan. But don’t kid yourself: even if we may be able to kick the can down the road for longer in the U.S., we think it may be hazardous to one’s wealth to ignore the risks posed to the dollar due to a toxic mix of monetary and fiscal policy.

paper moneyHow do I prepare as an investor? The way we look at the world is in terms of scenarios: if a scenario is sufficiently likely, we think investors should take it into account in their portfolio allocation; professional investors may even have it as their fiduciary duty. To us, the short answer is that there is no such thing anymore as a risk free investment and investors may want to take a diversified approach to something as mundane as cash. Investors may want to consider throwing out the risk free component in their asset allocation. That’s because the purchasing power of the U.S. dollar may be at risk.

Is gold the answer? Gold has performed rather poorly this year and is increasingly being written off. Yet, those writing off gold should think twice about where they see the economy and the Fed heading. If one believes we will return to a “normal” environment and we’ll live happily ever after, maybe those gold naysayers have a point. But keep in mind that incoming Fed Chair Janet Yellen stated during her confirmation hearings that we shall return to a normal Fed policy once the economy is back to normal. To us, that’s an oxymoron: we cannot return to a normal economy when the Fed prevents risk being priced by market forces. To us, gold is more than “insurance” to adverse scenarios as some say, as we find it difficult to see how we’ll be facing positive real interest rates for an extended period over the coming decade.

Is a basket of currencies the answer? The Chinese government diversifies its reserves to a basket of currencies, clearly adding currency risk to their portfolio. Conversely, U.S. investors may want to consider diversifying to a basket of currencies if they believe we ultimately have the better “printing press” than the rest of the world?

But isn’t it more complex than that? In some ways, yes. Governments won’t give up without a fight. We believe policy makers want to do the right thing, except that the road to hell might be paved with good intentions. Just consider if Japan truly has a problem: Japan is no Cyprus, meaning that shockwaves of a Japanese government in turmoil might be felt around the world. Aside from cash not being “safe,” political stability may also continue to erode throughout the world, as citizens worldwide dissatisfied that their wages don’t keep up with an increasing cost of living elect ever more populist politicians. The only good news we can see is that our policy makers may be predictable and an investment strategy based on staying a step ahead of policy makers might be worth considering. Think currency wars, and think diversifying on a more pro-active basis. We are not suggesting investors become day traders, but we think the currency markets may be well suited to take positions on how one believes these dynamics may play out.

Axel Merk
Axel Merk is President and Chief Investment Officer, Merk Investments,
Manager of the Merk Funds.

November Gold Drop of 5.5% Worst in 35 Years as “Unidentified Sellers” Continue to Dump Gold

tenth oz gold-eaglesNovember was a miserable month for gold investors as prices dropped by 5.5% for the Worst November in 35 Years.  Adding to the misery, gold is almost certain to have its first yearly decline after rising 12 years in a row.

NEW YORK—Gold prices logged their worst November since 1978 as a brighter economic landscape fanned fears of reduced stimulus efforts by the Federal Reserve.

Gold prices dropped 5.5% in November. The declines help put gold on track to end 2013 in negative territory, disrupting a 12-year winning streak that saw the precious metal set price records.

“Nothing goes up forever,” said Frank McGhee, a senior precious-metals dealer with Integrated Brokerage Services LLC. in Chicago.

“You’ve got the beginning of an economic pickup without any inflationary signs…[and] you have the specter of the end of easy money, and that’s bearish for gold,” Mr. McGhee said.

A record-breaking rally in U.S. equities also lured many traders away from the precious-metals market. On Friday, the S&P 500 touched a record high of 1813.

Gold’s losses haven’t been limited to the futures market, analysts at Barclays PLC said. Exchange-traded funds backed by physical gold, which take the hassle out of purchasing and storing physical gold for individual investors, have seen their holdings drop 38.4 metric tons through Nov. 26 as sales picked up from the prior month.

Still, November is far from the worst month for the precious metal—gold prices fell 12% this June and nearly 18% in October 2008.

Investors in both gold and silver are looking at losses as precious metal prices decline despite record demand for physical gold and silver.

money printing

Exactly who is causing the price of gold to drop by indiscriminately dumping gold  remains an intriguing mystery that the major news organizations have essentially ignored.   Zero Hedge recently questioned why a rational seller would dump large amounts of gold at odd hours into illiquid markets unless they were deliberately trying to drive the price of gold down.

Shortly after 1amET this morning, someone with no apparent fiduciary duty to their client’s for best execution or any apparent trade allocation expertise decided it was time to dump 1500 contracts into an entirely illiquid gold futures market. The 150,000 ounce notional sell order ($184.5 million), captured graphically by Nanex, sent the price down $10 instaneously, tripped the exchange’s circuit breakers and halted the market’s trading for 20 seconds (once again). This is now the 4th market halt in the past 3 months (and this time on no news whatsoever), as the manipulative monkey-hammerings from who knows whom (BIS?) is becoming increasingly obvious.

Via Nanex,

This sort of thing is happening far too often: see also the drops on April 12, 2013, September 12, 2013, October 11, 2013 and November 20, 2013 which also resulted in trading halts.

Will the mystery of who hates gold ever be solved?

gold-buffalo

As documented many times by the Gold Anti-Trust Action Committee (GATA), the “fat finger” on the gold manipulation button seems to have its origins at the highest levels of government and central banks; this being the case, no one should hold their breath waiting for an honest explanation of the mystery of pricing in the gold market.

Silver Fundamentals Guarantee Gains For Long Term Investors

american-silver-eagleBy: GE Christenson

Ryan Jordan, Ph.D., is a professional historian, author, and college professor. He is the author of
Silver – The People’s Metal, which I highly recommend.

He sees silver fundamentals from the perspective of a historian and as an astute observer of present conditions. He studies the drivers of the silver market, supply, demand, mining, inflation, investment sentiment, central bank bond monetization policies, and politics.

What does he think?

Demand for silver is strong!

Silver Demand As Guide for Silver’s Next Price Move

“Yesterday, the US Mint confirmed a record year for sales of silver coins– and we still have six weeks in the year to go. Yes, the roughly 40 million ounces of silver only accounts for maybe 5% of overall demand, but it also represents a huge increase from a decade ago when it comes to investor interest in physical metal. In fact, globally, silver investment demand is up essentially from ZERO just 10 short years ago (take some time to allow that to sink in when thinking about the change in investor sentiment toward precious metals in recent years.)

And demand for silver isn’t just an American phenomenon. Last month, somewhat surprising news came out of India of a roughly 130 million ounces of silver imported into that country in just the first six months of the year. This was in response to the shutdown of gold imports into that country.”

Inflation will be increasingly important. As long as the world monetary systems are run by central banks, particularly the Federal Reserve, we can expect inflation in the money supply, debt, and consumer prices. The weakness in gold and silver since 2011 is, in our opinion, a temporary correction in the four decade uptrend for debt, spending, and gold and silver prices.

silver treasure

Gold and Silver: The Big Picture

“Another long term, fundamental factor in the rise of gold and silver comes from the belief of central planners that inflation is nonexistent currently and actually needs to increase. This is the view held by many among western central bankers, and is part of the reason why FED bond purchases will not decline much from the nearly 1 trillion a year mark, as made clear this week by the US central bank. FOMC statements released Wednesday continue to affirm that the deflationary threats from the 2008 crisis remain. The ultra-loose stance of the world’s largest central bank should be of concern to anyone who wonders if inflation might one day get out of hand.

And in India, known as one of the world’s leading gold markets, inflation is already making its presence felt. The Indian central bank continues to raise interest rates while attempting to curtail demand for gold among Indian citizens. Many observers note the similarity to policies once adopted by the US government in the late 1960s and 1970s, and how those policies failed to dampen demand for gold as both inflation and interest rates rose strongly.

My question for any gold or silver bear is this: if gold and silver went up nearly 7 times over the last 10 years with no meaningful inflation in western nations, how much more will the metals go up when inflation is officially recognized as a problem by those in charge?”

Precious metals have been largely ignored for over 30 years. Yes, they are occasionally mentioned in the mainstream media and on financial television, but the media’s primary focus is on stocks and bonds – paper promises and paper debt – not on something real like a gold bar or a stack of silver coins. Dr. Jordan thinks that gold and silver will become an increasingly important part of more investment plans and that this transition will accelerate.

Silver ETF

Precious Metals: The Emerging Asset Class

“Over the past year, the cult of equities has made a return, as indices roar to all-time highs, and as many look to cash in on new IPOs like they did in the last tech boom 15 years ago.”

“But I’d like to make some historical comparisons between the two periods, to explain how even with stocks catching all the attention, this hardly means that gold and silver will continue to be left out in the cold.

Here are three main reasons why I do not believe gold, silver, PGMs, or mining shares will behave as they did in the 1980s and 90s:

 

  1. Just last month, President Obama actually made reference to the reserve status of the U.S. dollar as being in jeopardy based on current dysfunctional behavior in Washington, D.C. I don’t ever recall Presidents Reagan through Clinton saying something similar– and for good reason. To take the case of President Reagan’s first term in office, the US Dollar rallied something like 50% at one point. While I don’t expect the dollar to crash anytime soon, too many players globally are looking to diversify away from the greenback for the dollar to re-enter a secular bull market. A big question mark remains over the US dollar’s reserve status and this represents one of the most powerful reasons to continue to own precious metals– or even to acquire more.
  2. The challenges facing mining companies these past couple of years signals a downshift in global gold and silver production. This decline won’t happen immediately, since it takes a while to shudder mine projects – but ore grades can only decline so much before it becomes uneconomical to attempt to increase overall mine output. This reality stands in marked contrast to the 1980s and 1990s, where mine output for both metals made significant increases during those decades. Supply constraints – especially if they are coupled with new industrial demand for the white precious metals – will eventually lead to higher prices.
  3. The growth in the global middle class outside of the West is a trend that began 20 years ago, but the trend has accelerated in recent years. Many commentators believe that the shift in wealth from west to east will mean that upwards of 50% of new entrants to the global middle class in future years will come from areas outside the U.S. and Western Europe. As has been seen all year, buyers in Asia and the Middle East possess an attachment to physical gold- ranging from the person buying jewelry to the central banker buying bullion bars– that is hard to break. Oftentimes these attachments speak to the cultural memory of volatile local currencies or political malfeasance in these nations.

Overall there remain some big differences between today and 20 or 30 years ago when it comes to precious metals. While faith in central planners and their ability to levitate equity markets is strong among some, there are others like myself who do feel that 2008 mattered–and not in a good way. Zero percent interest rates, a stagnant economy for upwards of 80% of people in the U.S. and Western Europe, continued discussion of unsustainable debt levels, and the existence of a black hole of derivatives and other “off balance sheet” financial sleights of hand are just a few issues facing investors currently.

It may be hard to believe it now, but I don’t think the precious metals will remain under-owned forever.”

Dr. Jordan encourages us to believe that the conventional investment perspective is not the only valid approach.

Don’t Drink Too Deeply From the Well of Conventional Thought

“The inability of people to see the world for what it is was quite apparent with the nonsensical discussion of Fed tapering over the last several months. Many in positions of power sought to convince the unwashed that somehow these extreme monetary measures can be undone, or taken back. And many still believe them. As part of this naivety we then get people believing that entire asset classes, like gold, silver and mining shares are only for crazy people- that genuine tangible asset investing need not play any role in a given portfolio. My only advice for people is to please be very careful about drinking too deeply from the well of conventional thought. It is not that the world is going to end, but by the same token the days of 4 or 5% economic growth coupled with a strong and growing middle class are gone for a long time. This new reality requires a new attitude towards investing. Don’t let the recent weakness in the precious metals sector mislead you.”

Conclusions

silver

Ignore for the moment moving averages, technical analysis, relative strength indicators, partial differential equations, econometric analysis, Federal Reserve economic models, and all the other tools of the technician and just listen to the historian. He thinks:

  • Demand for silver is strong in the United States, India and China.
  • Central banks are printing currency and attempting to create inflation.
  • The reserve status of the dollar is weakening. Many countries are bypassing the dollar in their international trade.
  • Mining companies will have reduced output because their revenues have declined while expenses have increased. Hence the supply of silver and gold will remain relatively flat while demand is increasing.
  • The global middle class will demand more gold and silver for savings. Americans may not understand gold and silver but over 2,000,000,000 Chinese and Indians do, and that demand for actual physical metals will grow.
  • The cult of equities is flying high but it may not last. There is room for a shift from equities and bonds to precious metals. Even a small shift in demand away from stocks and bonds could cause the relatively tiny gold and silver markets to rise to new highs.
  • Fundamentally and historically speaking, there are many reasons to own gold and silver.

GE Christenson
aka Deviant Investor

U.S. Mint Runs Out of Silver Bullion Coins – Gold and Silver Coin Sales Hit Record Levels in November

rooseveltLong term proponents of sound money cannot seem to get enough of U.S. Mint produced gold and silver bullion coins.  Ever since the financial crash of 2008 many Americans remain profoundly skeptical of the paper dollar system backed by the “full faith and credit” of a nation that has borrowed itself into poverty and promised more in social benefits than the economy can possible provide.

From 2000 to 2007 sales of the U.S. Mint American Eagle gold bullion coins averaged about 341,000 ounces annually.  After the crash of 2008 exposed the risk of paper assets, sales of the gold bullion coins have averaged about 1,011,300 ounces annually from 2008 to 2013.

Year to date sales of the American Eagle gold bullion coins as of the end of November totaled 800,500 ounces, surpassing total 2012 sales of 753,000 ounces.  For November the U.S. Mint sold 48,000 ounces of gold bullion coins, slightly below the sales figures of 48,500 for the previous month.  Since 2000 investors have stashed away 8.8 million gold bullion coins currently worth about $11 billion.

Gold has retained its value throughout human history and strong demand for gold over the ages has resulted in the depletion of most gold deposits on the planet.  As noted in a previous post, about 75% of all gold deposits have already been mined which forebodes a future gold shortage.

american-silver-eagleAs noted in a previous post, sales of the U.S. Mint American Eagle silver bullion coins hit record annual sales volume in  November.  The U.S. Mint sold a total of 41,475,000 silver bullion coins as of November 30th, surpassing the previous record sales year of 39,868,500 coins in 2011.

Sales of the American Eagle silver bullion coins for November came in at 2,300,000, a decline of 787,000 coins compared to 3,087,000 in the previous month.  The lower sales figures for November do not reflect a drop in demand for silver bullion coins but rather the opposite due to the fact that the U.S. Mint has run out of coins due to unprecedented demand.

This same shortage situation existed last year when the Mint ran out of silver bullion coins in mid December  with orders for the new 2013 silver bullion coins not being accepted until January 7, 2013.  This situation resulted in a three week period during which the American Eagle silver bullion coins were simply not available.

The period of time during which silver bullion coins will be unavailable from December 2013 to January 2014 will be even longer than last year.

peace dollar

According to coinupdate.com silver bullion coins will not be available for investor purchase for over a month and supplies will be rationed when available.

The United States Mint recently provided authorized purchasers with information on year end ordering procedures and the availability of 2014-dated releases for the American Eagle and American Buffalo bullion programs. Based on the details provided, it seems that the American Silver Eagle bullion coins will experience roughly one month of unavailability between the final allocation of 2013-dated coins and the release of the first 2014-dated coins.

The situation for American Silver Eagle bullion coins differs from the prior year. Authorized purchasers will be offered the last weekly allocation of 2013-dated coins on Monday, December 9, 2013. With demand continuing to run ahead of the available supplies, the allocation will likely be quickly depleted.

The 2014-dated Silver Eagle bullion coins will not be available to order until Monday, January 13, 2014. The initial release will be subject to the US Mint’s allocation program, which rations supplies amongst the authorized purchasers.

With such a severe shortage of silver bullion coins, expect buyer premiums to increase significantly over the next two months.