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GATA Finally Gets The Recognition It Deserves

January 30, 2013 by Leave a Comment

Every gold and silver investor owes a debt of gratitude to the Gold Anti-Trust Action Committee (GATA).  Long fluffed off by the mainstream media, GATA has been a voice in the wilderness in exposing the manipulative schemes of governments and central banks to suppress gold prices.

With printing presses running wild world wide, the issue of gold price suppression will become ever more critical as the public eventually realizes that the only viable alternative to paper money backed by nothing is a gold backed currency system.

The tireless efforts of GATA, spearheaded by Secretary/Treasurer Chris Powell,  in documenting surreptitious gold price suppression schemes by central banks has finally been recognized by a major mainstream financial publication.

The Financial Times, in an article regarding the repatriation of gold from the Fed by the Bundesbank, talks about the lack of transparency by central banks in the gold market.  (Read the full article here.)

The gold market barely shrugged when the Bundesbank announced it would move 674 tonnes of the stuff from Paris and New York to Frankfurt.

But the move is important: not for what it says about Germany’s faith in French or American vaults; nor for the cost of shifting 674 tonnes of gold; but because it is a major victory for transparency in the gold market.

Central banks are notoriously secretive about their gold-trading activities.

Most report, on a monthly basis, their gold reserves to the International Monetary Fund. But these data fall a long way short of full transparency. They tell us nothing about derivative positions in the gold market — for example, gold loans, agreements for future sales, or options transactions.

The historical lack of transparency among central banks is somewhat understandable.

With 29,500 tonnes between them (a decade of global mine supply) they have the ability to disrupt the market significantly if their trades are too public. See, for example, the reaction to the UK’s announcement that it would sell a large part of its reserves in 1999.

Maybe at some point, the rest of the mainstream media will finally decide to take a critical look at the dealings of central banks in the gold market.

Filed Under: Currency debasement, Featured, Gold, Silver Tagged With: , , , , ,

The Fed’s Outrageous Attempt To Debase The Dollar Will Send Gold Soaring

October 18, 2012 by Leave a Comment

By Axel Merk

Doubling down on QE3, the Federal Reserve (Fed) Chairman Bernanke tells China and Brazil: allow your currencies to appreciate. One does not need to be a rocket scientist to conclude that Bernanke wants the U.S. dollar to fall. Is it merely a war of words, or an actual war? Who is winning the war?

The cheapest Fed policy is one where a Fed official utters a few words and the markets move. Rate cuts are more expensive; even more so are emergency rate cuts and the printing of billions, then trillions of dollars. As such, the Fed’s communication strategy may be considered part of a war of words. Indeed, the commitment to keep interest rates low through mid 2015 may be part of that category. But quantitative easing goes beyond words: QE3, as it was announced last month, is the Fed’s third round of quantitative easing, a program in which the Fed is engaging in an open-ended program to purchase Mortgage Backed Securities (MBS). To pay for such purchases, money is created through the strokes of a keyboard: the Fed credits banks with “cash” in payment for MBS, replacing MBS on bank balance sheets with Fed checking accounts. Through the rules of fractional reserve banking, this cash can be multiplied on to create new loans and expand the broader money supply. The money used for the QE purchases is created out of thin air, not literally printed, although even Bernanke has referred to this process as printing money to illustrate the mechanics.

Why call it a war? It was Brazil’s finance minister Guido Mantega that first coined the term, accusing Bernanke of starting a currency war. Here’s the issue: like any other asset, currencies are valued based on supply and demand. When money is printed, all else equal, supply increases, causing a currency to decline in value. In real life, the only constant is change, allowing policy makers to come up with complex explanations as to why printing money does not equate to debasing a currency. But even if intentions may have a different primary focus, our assessment is that a central bank that engages in quantitative easing wants to weaken its currency. It becomes a war because someone’s weak currency is someone else’s strong currency, with the “winner” being the country with the weaker currency. The logic being a weaker currency promotes net exports and GDP growth. If the dollar is debased through expansionary monetary policy, there is upward pressure on other currencies. Those other countries like to export to the U.S. and feel squeezed by U.S. monetary policy. Given that politicians the world over never like to blame themselves for any shortcomings, the focus of international policy makers quickly becomes the Fed’s monetary largesse.

Bernanke speaking at an IMF sponsored seminar in Tokyo pointed to the other side of the coin: if China, Brazil and others don’t like his policies because they create inflation back home, they should allow their currencies to appreciate. But these countries are reluctant as stronger currencies lead to a tougher export environment.

Now keep in mind that it is always easier to debase a currency than to strengthen it. Switzerland, the previously perceived safe haven by many investors, has taken the lead. Using a central bank’s balance sheet as a proxy for the amount of money that has been printed, the Swiss National Bank’s printing press has surpassed that of the Federal Reserve considering relative growth since August 2008. Again note that no real money has been directly printed in these programs; also note that some activities, such as the sterilization of bond purchases by the European Central Bank, cause a central bank balance sheet to grow, even if sterilization reflects a “mopping up” of liquidity:

Japan has warned about intervening in the markets on multiple occasions, but the size of the Japanese economy as well as the lack of political will make an intentional debasement more difficult. Indeed, the Japanese did their money printing in the 1990s, but forgot we had a financial crisis in recent years.

Bernanke does acknowledge the concerns of emerging markets, but argues they are blown out of proportion. He elaborates that undervaluation and unwanted capital inflows are linked: allow your currencies to appreciate (versus the dollar) and you won’t have to be afraid of excessive capital inflows, inflation and asset bubbles. Ultimately, and importantly, Bernanke says the Fed will continue its course, suggesting that it will strengthen the U.S. economic recovery; and by extension, strengthen the global economy.

Let’s look at the issue from the viewpoint of emerging markets: policy makers like to promote economic growth, among other methods, through a cheap exchange rate, up to a certain point. They don’t want too much inflation or too many side effects. Historically, they manage these side effects with administrative tools. However, taking China as an example, taming price pressure through, say, price controls, has not been very effective. We believe that’s a good thing, as China would otherwise experience product shortages akin to what the Soviet Union experienced. Conversely, however, China must employ a broader policy brush to contain inflationary pressures. We believe – and Bernanke appears to agree – currency appreciation is one of the more effective tools.

So how will this currency war unfold? The ultimate winner may well be gold. But as the chart above shows, it’s not simply a race to the bottom. If one considers what type of economy can stomach a stronger currency, our analysis shows an economy competing on value rather than price has more pricing power and therefore the greater ability to handle it. Vietnam mostly competes on price; as such, the country has, more than once, engaged in competitive devaluation. At the other end of the spectrum in emerging markets may be China: having allowed its low-end industries to move to lower cost countries, China increasingly competes on value. Within Asia, we believe the more advanced economies have the best potential to allow their currencies to appreciate. It’s not surprising to us that China’s Renminbi just recently reached a 19-year high versus the dollar.

What we have little sympathy for is an advanced economy, e.g. the U.S., competing on price. We very much doubt the day will come when we export sneakers to Vietnam. As such, a weak dollar only provides the illusion of strength with exports temporarily boosted. Yet the potential side effects, from inflation to the sale of assets to foreign investors with strong currencies, may not be worth the risk.

Please register to join us as we discuss winners and losers of the unfolding currency wars in our Webinar this Thursday, October 18, 2012.

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

Filed Under: Currency debasement, Featured, Gold, US Debt Crisis Tagged With: , , , , , , , , ,

Gold Could Soar When Canadian Housing Bubble Bursts

August 17, 2012 by Leave a Comment

By Vin Maru

Bank of Canada may be ahead of all its peers in ensuring its banks meet the Basel capital requirements. And it may have done a better job in regulating the banking sector, but they are not innocent of allowing bubbles in Canada to form.  Even Mark Carney feels that the housing market is overheated. Carney made recent comments about the health of Canadian banks.

As for Canada’s banks, Carney said they may have some exposure to record household debt levels and the overheated housing market, but he noted that high risk mortgages are insured by the federal government.

The Canadian real estate housing bubble still seems to get inflated in some major cities like Toronto.

I recently heard a story of someone who bought a house pre-construction for $701K about 18 months ago. The house is now selling for $850K by the builder.  Let’s say the buyer put down 25% or about $180K.  Their $180K investment in the house provided a $149K return, or 82.78% profit on paper already in less than a year and a half.  Annualized, this is a 55.19% return on the initial investment thanks to buying pre-construction, which is something you still don’t get in the regular real estate market by trying to buy and flip already built homes.

But even the homes that are already built and occupied are keeping up with real inflation.  It still seems the average house is rising by 5% a year.  Let’s say you own a modest $400k starter house in the suburbs, and have 25% down, or $100K.  The house value is going up 5% a year or $20K/year on a $400K home, this would mean your equity portion of $100K is now worth $120K after one year and on paper, you just made 20% ROI on your house.  The cost to carry a $300K mortgage at a 4% interest rate is about $12k if you’re paying just on a straight home equity line of credit (interest only).  Even if you add $3000 for taxes, the cost of living in that house is only $15k a year. Yet your investment appreciates by $20K.  So essentially, putting $100K down to buy a house, the Canadian market is paying you on paper $5K net (which is almost the same as the inflation rate) to live in a house for free.

Under this scenario, your initial investment in the house earns you the same rate as inflation, so your purchasing power of that investment remains constant.  But because the value of the house is rising by 5%, the house price at $400k is rising by $20K a year of which $5k or 25% can be attributed to your investment ($100K down payment) and $15k or 75% is the bank’s mortgage. However, the banks portion of $15K appreciation does not go to them directly. It’s attributed to the market value of your house “on paper” and you are just making payments to them by way of $12K/year interest payments.  So you pay the bank’s interest payments of $12K/year on real money you must first earn from hard labour and in return the inflation of the housing price pays you $20K a year on paper.  Under this system, the paper inflation of the housing bubble is allowing a homeowner to live for free in that house and still make about 5% on your initial investment.  What a great system we have in Canada, where the ongoing housing bubble is allowing the homeowner to live for free and pays him a return on his initial investment, which keeps up with inflation!

This scenario is a win-win for all parties involved.  The homeowner lives for free (on paper) and earns a 5% return on their initial investment.  The banks get paid 4% a year by issuing a mortgage almost out of thin air under fractional reserve and fiat banking.  The government earns property taxes, income taxes, VAT and whatever other tax scams they create to steal wealth from the citizens. The only person who doesn’t win under this scenario is a person who doesn’t have enough down to pay for the deposit of an inflated house.  But then there is a cure for that too.

The Canadian gov’t also has a program for insuring mortgages for people who can’t put enough down for a house.  It’s called the Canada Mortgage and Housing Corporation (CMHC), similar to Freddy and Fanny down in the United States. So we don’t have to worry about these people not being able to afford a house.  Their high-risk mortgages are insured by the federal government, which means the Canadian taxpayers are on the hook if the housing bubble ever burst (see Mark Carney’s statements above).  Of course, Mark Carney is totally encouraging this privatization of benefits and socialization of costs.  He is guaranteeing this boom will continue by leaving interest rates low in order to keep interest payments low on Canada’s growing debt and help the export economy by preventing a stronger Canadian dollar.

 

Good Intentions Create Bad Behaviours

While the concept of owning a house sounds good, especially given the housing inflation scenario above, is it really sustainable?  The record debt levels by Canadians are on average just as high as all other western nations.  The average salary or wage earnings are not rising and in a world of global competition the westerns salaries should continue to deteriorate with economic slowdown.

The artificial affordability of houses despite inflated prices makes it more difficult to enter the real estate market as a first time home buyer.  Why?  Everyone is now a real estate investor because it keeps rising in certain markets, thus pushing the prices higher and fuelling the boom.  Given the scenario above, why not become a real estate investor?  On paper, you get paid to own a house and the prices keep rising as more and more investors continue to bid up real estate.  The average Canadian real estate investor now owns multiple properties which were acquired with very little down and they’ve made out a like bandits while prices keep rising. And then there’s the fact they can collect rent from people who can’t afford to buy inflated houses.

The real estate agents are also making out like bandits in the Canadian real estate boom.  Many of them were buyers in preconstruction deals, so they bought really cheap and saved on the real estate commission.  They also cashed in from the buying and selling real estate for clients and lately their job has never been easier. They simply list the homes on the MLS and collect commissions with very little effort on their part since the houses and condos literally sell themselves in a real estate boom.  The agents on average are making 5-6% helping investors buy and sell houses as an investment, so their motive to keep the boom going is clear.

With rising and elevated home prices, their incomes continue to rise as long as the boom continues.  With the advent of technology such as the internet and MLS, their job is even easier.  An average $500K home yields $25K in commissions at a 5% rate, which is split between the buying and selling agent.  This is a great payday for simply listing a house on the MLS, then doing a one day showing and waiting for a willing and eager buyer to show up (which is not difficult in boom times).  Then do some simple paperwork to close the deal.  Being a real estate lawyer surely doesn’t pay off like that, however.  Real estate lawyers only make about $1500 for either involvement in the transaction. They are definitely in the wrong field.

All this goes back to a question we have been asking for years.

How Long Can The Real Estate Boom In Canada Last?

The real estate boom will last as long as we have the same environment that created and maintains this boom lasts. We still have low interest rates, a stable and strong economy and buyers believing that real estate prices will continue to rise. This real estate boom in Canada has gone on much longer than we would have thought, but here we are and the prices are still trending higher.  The boom will last until there is triggering event that will turn it into a bust.  All booms and busts are usually created by a triggering event which is mostly a result of central bank actions such as the increase or decrease of the money supply or interest rate manipulation.

The housing boom in the US came after the tech bust and a drop in interest rates and a loosening of lending policies.  The US real estate bust came with the subprime scandal.  The US bankers’ fraud in bundling mortgages came to light and blew up in their faces.  Who paid for that bust?  Everyone in the world paid for it with the financial meltdown we saw in 2008. Since then most real estate markets around the world have gone bust.  In fact I can’t think of many countries around the world that haven’t had a decent correction in real estate.  Most have corrected or are in the process of correcting.  Yet certain markets in Canada seems to defy economic gravity. These Canadian real estate markets haven’t gotten sucked down like the rest of the world.

Why?  Because no one is willing to prick this bubble.  After all it’s a win-win for everyone.  The investor wins with appreciation on their investment and gets to live for free.  The banks win with continued interest revenues.  Government win with continuous tax revenues.  The central bank looks like a hero for maintaining a stable banking system and everyone working in the industry wins with continuous record incomes and commission.  Why would anyone want such a wonderful party to end?

While there have been some recent efforts to contain the bubble, such as higher deposit requirements and shortening of the amortization period of mortgages, that doesn’t seem to be enough of a deterrent to cool down the real estate bubble.  For the most part, having the low interest rate policy still makes being a real estate investor a profitable endeavor, especially if the properties can continue to provide cash flow.  The investor in real estate still wins because he makes good cash flow from a renter who cannot afford to buy at these prices and so must pay rent, which goes to paying off the investor’s mortgage.  If a first time homeowner is able to scrape up the 10% deposit and get the CMHC, he will most likely buy even at these inflated prices because he has very little choice… either he is paying inflated rental prices or inflated home prices.  His income has not risen significantly, but he is still forced to pony up a higher percentage of his income just to live in Canada because of the inflated real estate prices.

This turns out be a vicious cycle that benefits only the investor/owners/bankers/government and everyone else who is involved in gaming the system with ever increasing real estate prices.   As a result of this inflationary real estate policy the percentage of income that goes toward rent or homeownership keeps rising for new entrants to the market.  If you purchased a home a while ago, you are fine.  But good luck to a young couple or a new immigrant who is looking to be a first time home buyer.  They have been priced out of the market by everyone that has an interest in keeping the real estate inflation game alive and well.  Frankly, they should have gotten into the real estate racket earlier on in the cycle.

 

Canada’s Ponzi Real Estate Market

Like most bubbles or ponzi schemes, the real estate bubble will continue as long as new entrants/buyers are willing to buy from the people who got in earlier.  When it comes to investing, asset prices will continue to rise as long as there are new entrants to the market and the belief holds that the asset class will continue to reward everyone involved.  Real Estate is probably the most heavily invested asset class there is in Canada so everyone involved would love to see the status quo maintained.  As long as you are involved in the ponzi scheme and it continues to pay you, you have no motivation in wanting to see it collapse.

For someone who is new to the RE market as an investor, my suggestion is to look at other markets or countries which have already corrected.  You will find much more value than in Canada’s over inflated RE market.  The ponzi scheme here still continues and you don’t want to be the investor stuck at the bottom of the pyramid with an over inflated investment hoping to sell it to some other sucker later on down the road.  What happens if that sucker wises up and realizes he is being played for a fool in a market that continues to get inflated because it’s rigged to benefit only the people already involved?

The other real estate ponzi schemes around the world have already busted, but Canada’s real estate market continues to inflate because no one is willing to burst it.  When it comes to a world of ponzi investing with fiat paper, you want to be at the top of the next great ponzi scheme.  You want to be rent/income collector and not the payer.  It’s tough entering today’s RE market in Canada as in investor.  You would be at the bottom of the ponzi pyramid, so your chances of success get limited.  In fact there is a lot of evidence that the ponzi real estate market in Canada is already popping.  It seems like a few pockets of RE such as Vancouver and in Alberta are already cooling off, more so because they got way more over inflated than the average real estate market during the commodities boom and influx of money from China.  Yet many areas in southern Ontario and especially GTA Toronto are still seeing price rises similar to the scenario mentioned above. Still, these markets are probably closer to busting than continuing down this ponzi path.

In a world where central banks create booms and busts, you are better off finding another ponzi scheme they are creating and get in early.  The real estate market in Canada may continue to rise, but in our opinion you are already too late to this party and more than likely it is ready to burst.   If you are heavily invested in real estate, you may want to take profits while they are still available or create a hedge.

The central banks and governments around the world have created another massive bubble in the government bond market which continues to grow.  This will most likely be the next bubble that will pop in the next few years.  Once it starts bursting, easy profits will be made shorting the bond market, something we will keep readers aware of when the time looks right.  Once this bond market starts to burst, we expect the gold market will start rising significantly.  While many media outlets claim that gold is in a bubble, it has not even come close to bubble territory.  The average investor hasn’t even considered gold as an investible asset class. He doesn’t own any and probably hasn’t even considered owning any.  This will all change and everyone will rush into gold over the coming years once the government debt bubble bursts.  While one bubble bursts (bonds), money rushes into another asset class and the only bubble that hasn’t been fully inflated is precious metals.

If you enjoyed reading this article and are interested in protecting your wealth with precious metals, you can receive our free blog by visitingTDVGoldenTrader.

Cheers,

Filed Under: Featured, Gold Tagged With: , , , , ,

Did Central Bank Coordinated Easing Also Include Manipulation of The Gold Market?

November 30, 2011 by Leave a Comment

On a day when coordinated central bank monetary easing sent stocks and commodities soaring into orbit, the price action in the gold market was curiously muted.

The Dow Jones, S&P 500 and Nasdaq all increased by over 4%.  Gains in various S&P sectors ranged from 4.75% for the transportation sector to 7.51% for the financial sector.  Gold, by contrast, rose a mere 2%.

INDEX PERCENTAGE INCREASE
DOW 4.24%
S&P 500 4.33%
NASDAQ 4.17%
S&P 500 DIV FINANCIAL IX 7.51%
S&P 500 AUTO & COMP IDX 6.99%
S&P 500 BANKS INDEX 6.92%
S&P 500 MATERIALS INDEX 5.91%
S&P 500 INSURANCE INDEX 5.60%
S&P 500 SEMI & SEMI EQP 5.62%
S&P 500 ENERGY INDEX 5.49%
S&P 500 CAPITAL GDS IDX 5.32%
S&P 500 REAL ESTATE INDX 5.17%
S&P 500 TRANSPTN INDEX 4.75%
GOLD – CLOSING NEW YORK PRICE 1.98%

The massive monetary easing by central banks should have sent the price of gold into the stratosphere.  It has become crystal clear that central banks will continue to create whatever amount of money is necessary to prop up a collapsing, debt saturated system.

Why would central banks collude to restrain the price of gold?  GATA has explored this question in depth and in a recent exchange between Lawrence Williams of Mineweb and GATA, Williams writes  “If one assumes that governments as a matter of course manipulate currency exchange rates, then there is logic in their manipulating the gold price too, as many throughout the world consider gold as money (currency) and a rise in the gold price thus equates to a depreciation in currencies — notably the U.S. dollar.”

Most of the world already suspects that the “emperor has no clothes” when it comes to central bank money creation.  Had the value of gold been allowed to soar hundreds of dollars per ounce today, under free market conditions, the entire crumbling edifice of fiat currencies would have been exposed.

Gold is the only currency that central banks cannot destroy.  If central banks did not suppress the price of gold, the true extent of the debasement of paper  currencies would become blatantly obvious and thereby threaten the entire system of fiat currencies.  Central banks have every motive in the world to suppress the price of gold.  How long they can remain successful at it (as they engage in blatant, massive and world wide money printing) is the question on most gold investors’ minds.

More on this topic:

Where In The World Is The Gold?

 

 

 

 

Filed Under: Featured, Gold, US Debt Crisis Tagged With: , , , , , ,

Ron Paul Calls Central Bank Intervention A “Form of World Wide Quantitative Easing”

November 30, 2011 by Leave a Comment

Central banks, spear headed by the U.S. Federal Reserve, launched a massive joint effort to provide liquidity to a European banking system that was teetering on the verge of collapse.

The six central banks involved in the emergency lending program were the U.S. Federal Reserve, the Bank of Japan, the Swiss National Bank, the Bank of England, the Bank of Canada and the European Central Bank.  The central bank actions provided European banks with cheap access to  funding through U.S. dollar swap lines.  Under dollar swaps, the U.S. Federal Reserve supplies dollars to foreign central banks which in turn lend the dollars to banks that need U.S. dollars to meet funding needs denominated in U.S. dollars.

In a joint statement, the six central banks said “The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”  As one European bank after another appeared to be on the verge of collapse, the calls for central bank intervention to “save the world” had become deafening.  Today, the central banks obliged, effectively endorsing the theory that more debt is the solution to the debt crisis.

In an early day interview on CNBC, Ron Paul gave his take on the massive central bank intervention, calling it “a form of worldwide quantitative easing.”

Ron Paul also noted that the central bank actions “penalize the American people” and that the Federal Reserve actions will simply result in “more debt and more inflation.”

Ron Paul said the Fed is doing the same thing that it has done for the past 40 years.  “Spending excessively, running up debt, printing up money, and manipulating interest rates.  We’re up against the wall now, it doesn’t work anymore. Lowering interest rates is essentially impossible.   That’s what they’re desperately trying to do today.  But, you know, when our interest rates to the banks are down to zero, what are they going to do next?  Used to be that Congress would just spend more money and that would help.  How can they spend more money when there’s no more money in the Treasury?”

The answer to Ron Paul’s last question is obvious and should deeply concern every American.  Funding needs of the Treasury will continue to be supplied by the Federal Reserve with printed money and the U.S. currency will continue to lose value.  The rising price of gold has reflected the systematic destruction of our currency.  Based on the predictable response of central banks worldwide to print their way out of the debt disaster, there is effectively no upside limit to the price of gold.

Filed Under: Featured, Gold, US Debt Crisis Tagged With: , , ,

Gold Will Soar On Imminent U.S. Bailout of Europe

September 14, 2011 by 7 Comments

It is only a matter of time before the U.S. becomes deeply involved in the bailout of Europe.  Consider Geithner Takes Tougher Tone On Europe as reported by Bloomberg.

Treasury Secretary Timothy F. Geithner will urge European governments to step up their crisis- fighting efforts amid Obama administration concerns that the region’s woes may hurt the U.S. economy.

Geithner will press European Union finance ministers when he meets with them this week, a euro-area official said.“The U.S. has always been discretely preoccupied and discretely present, and now it’s starting to be intensely preoccupied and intensely present,” said Nicolas Veron, a senior fellow at Bruegel, a Brussels-based economics research group.

Geithner’s trip to Wroclaw will be his second to Europe in a week.The visit “underlines the nervousness of the administration in the U.S. about what’s happening in Europe” and the effect the region’s debt crisis is having on U.S. financial markets, Julian Jessop, chief global economist at Capital Economics Ltd. in London, said in an interview yesterday.

President Barack Obama told a group of Spanish-language journalists at the White House on Sept. 12 that “we’re deeply engaged with Europeans to try to solve this crisis.”

The European crisis was “very, very damaging in the American economy last summer,” Geithner told Bloomberg Television on Sept. 9.

“The way the U.S. handled the financial crisis and the lessons learned from that could become a much more important part of the IMF message to Europe,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and a professor at Cornell University in Ithaca, New York.

Treasury’s Geithner is clearly laying the groundwork for a major role by the United States in bailing out the European Union.  The potential for a collapse of the European banking system is viewed as an unequivocal threat to the economic health of the United States by the U.S Treasury, the White House and the Federal Reserve.

U.S. participation in bailing out Europe will not be unilateral but rather in conjunction with the IMF and the European Central Bank.  The U.S. financial commitment, however, will be open ended.  The blueprint for saving the EU will be similar to that used by the U.S. during the financial meltdown of 2008 – virtually unlimited lending to prevent the sovereign default of insolvent European Union members.

The looming bailout of insolvent European nations, particularly Greece which is hopelessly bankrupt, will be the definitive signal that a return to sound finances has been utterly abandoned.  Rather than allowing market forces to correct the systemic imbalances in the financial system, the problem will be papered over by more debt, more printed money and massive debasement of paper currencies.

Gold, the enemy of central banks, will soar as governments frantically print and borrow to “save” Europe.

Filed Under: Featured, Gold, US Debt Crisis Tagged With: , , , , , ,

Gold and Silver Recap: Precious Metals Prices Mixed

December 19, 2010 by Leave a Comment

Another Precious Week: Unsettled

Despite the general downward appearances, this was a very mixed week for precious metal prices.  Business Week, that fantastic contrarian indicator has announced that gold is in a  three month slump.  As Christmas is coming, there does not tend to be the large buying from India and (increasingly) China that there is over the autumn wedding season.  Unlike the three wise men, westerners don’t tend to give each other as much gold as the Indians do, although this may change if the expected retail gold breakthrough happens.  It has not happened (if it ever does) and so it’s still cheap Chinese electronics that are waiting for you under the tree, rather than discrete pieces of gold jewelery.  Sorry about that.

Precious Metals Prices
Fri PM Fix Weekly Change
Gold $1,368.50 -6.75 (-0.49%)
Silver $28.78 -0.01 (-0.03%)
Platinum $1,696.00 +23.00 (+1.37%)
Palladium $738.00 +1.00 (+0.14%)

Gold-Silver Ratio: 47.55 (was 47.77)

The Central Banks and investment funds also seem to be winding down for Christmas, and there is no discernible activity from these two sources. As they have been net buyers for the year, this is going to have a softening effect on prices.  The Central Banks of countries with sovereign wealth funds still think of themselves as being underweight in non-paper money, so they are likely to kick off buying in January, or if there is a dramatic dip.

On the currency side, it must be said that the fundamentals for precious metals are looking a lot more solid.  The European Central Bank is talking about printing a whole load of new Euros now that Spain looks very wobbly, and they realize that the stabilization cupboard is particularly bare.  The United States is also seriously unimpressive with benefits being extended for the poorest and tax cuts being extended for the richest.  This looks like a really nasty deficit in the making and so default by printing.

It must also be remembered that the Chinese are suffering some very real inflation, as even the People’s Daily has noticed. It is still a bit weird to realize that the Chinese press is quite free, by despotic communist standards, and that these pieces of news are getting reported.  There is also talk of the Chinese shifting some of their massive US government bond holdings into gold, which even at the margin will be massive.

If the big Asian buyers, particularly the private buyers, start to get as interested in silver, then 2012 could be a real bull market.

Filed Under: Featured, Weekly Recap Tagged With: , , , , ,