December 2, 2022

How To Avoid Financial Fraud In The Gold Market

By Vin Maru

Financial Alchemy and Fraud In Gold

The gold bull market is alive and well as the summer doldrums come to a close and gold accumulation and trading starts to heat up going into the fall.  As the gold bull market matures and it draws more attention from investors all around the world, it does open up the doors for fraud.  By now we have heard many stories and accusations about manipulations by central planners, bullion banks, short-sellers and futures traders.  The regulators in the West have largely ignored these accusations and have looked the other way when it comes to oversight and creating a fair and legal market place for precious metals.

Financial Fraud in the Gold Market

When it comes to opportunity for fraud, the East is not innocent either.  Last month, police in Central China rounded up 33 people suspected of illegal gold-futures trading.  The case involved 5,000 investors and at least 380 billion Yuan ($59.62 billion) in which the suspects claimed to be agents of overseas companies dealing in London gold with the promise of huge returns.  They promoted investments in Loco London gold and charged exorbitant consulting fees without warning investors of the risks of these transactions or having a signed detailed contract.  This had been going on since October 2008 in a low key operation using private bank accounts, mobile phones and online messaging services.  Several suspects were caught and detained since March 2, 2012 while more arrests are expected to be made across China as the investigation continues.

As observers of the precious metals market, we know that many Eastern central banks are accumulating physical gold.  It is in their best interest to accumulate the physical metal and diversify out of toxic Western paper assets that were sold to them by the western financial puppet masters.   It is obvious that Western cartels like Goldman Sacs and JP Morgan are great at creating and selling financial instruments of mass destruction.

One only has to look at the CDO market or the mortgage backed securities sold in the past decade.  These paper products were backed by mortgages from over inflated real estate bought by people who could not afford to buy property and were thus set up to fail.  Another example is the derivative market which is reportedly over $600T worth of contracts used for “hedging” all the toilet paper assets sold by Western institutions.  This includes derivatives and “insurance” products to protect from default or significant changes in valuation on assets such as government bonds, interest rates & credit default swaps and most other paper assets.  There is no way these contracts are backed by any real asset and when they are called to perform, the system will collapse.  This is most likely why they changed the name and structure of the recent Greek default on bonds; they cannot afford to trigger the derivative time bomb.

Any observer of the financial markets can see that the derivative market is just an insurance scam being sold as a hedging tool for paper products.  They cannot and will not every pay out on derivatives because the cascading effect would bring down the system.  Yet the paper pushers are still selling these “contract assurances” in volumes in order to create a “financial hedge” of the entire system.    When push comes to shove, planners may not let Goldman or JPM collapse because they are TOO connected to fail and they are the ringleaders in pushing paper products for the world to buy in their pump and dump scams.

Masters of Alchemy – Turning Paper in to GOLD

This past week, it was reported that George Soros was unloading investments in major financial stocks and started investing back in gold by way of GLD.  We always question the choice of investment vehicles used by large fund managers.  As a investor in the gold sector, why wouldn’t anyone stick with the physical metal vs. an ETF such as GLD which is supposedly backed by gold?  There have been lots of questions around GLD and its physical holdings, which was primarily sold by JP Morgan, one of the many bullion banks with a questionable short position in the precious metals market (Silver in particular).  If the past decade is any indication of paper manipulation (and they are known to have a track record for selling paper products which turn out to be fraudulent), why would anyone buy an ETF like GLD from these Masters of Financial Alchemy when they have the proven ability to turn paper into gold?

When looking at GLD and the many other “un-backed” gold trading vehicles being sold into the market, these products are very questionable on how much gold they have held on storage or available for delivery.  Even if there was significant amounts of gold, with the lack of good auditing practices, who knows how much is really owned by the fund.  Much of it could be used as collateral, hypothecated, leased out or swapped in contracts by the issuers of these products.  When called to perform and deliver the gold, expect questions of ownership and scandals much like MF Global or PFGBest.  This is the nature of products created by the Wall Street paper pushers; everything should be questioned eventually.  But for now and most of this bull market, GLD will not be questioned or audited.  It will be used as another tool for selling an ETF in a particular asset class, one that will become more and more in demand as the bull market for gold evolves.  This ETF will be used by the likes of all major trading houses, funds, sovereigns and investors because it is a trading vehicle and a proxy for gold, and it could be used for hedging purposes much like the derivative market.

Going back to why Soros would invents in such a fund:  Our suspicion is that Soros is reducing exposure in financials because they have structural problems and have many questions surrounding the assets they hold.  While a $50M withdrawal is not much for a fund his size, a purchase of $130M in GLD is significant.  His strategy is probably to take these funds and go long on GLD as a hedging tool for the exposure he still has remaining in financials.  Soros is just being smart and realizing that he must hedge using gold, even if it has to be with GLD.  He knows the paper pushers need GDL as a tool for hedging, so do not expect it to collapse anytime soon.   This means more than likely that the “Masters of Financial Alchemy” such as JPM Morgan and Goldman Sacs will continue to sell paper with promises of gold backing and it will get accepted by the market as “Good as Gold”. We at TDV, however, know better.

At this point, it is a very wise move for anyone who doesn’t have any exposure to gold to start getting exposure immediately.  If you have not taken this necessary step to protect your assets and hedge against any potential financial storm that may be brewing, you are placing yourself and any remaining assets at risk.  Owning the physical is always suggested as a private investor, but if need be look at GLD as a trading and hedging vehicle.

In a strange and ironic way, we need GLD to continue its paper scams as it still legitimizes gold as an investible asset class.  The more GLD grows and continues to gain attention, the stronger and longer this bull market will last in precious metal.   As much as we realize that GLD could be a scam and owning the physical is the prudent thing to do, we cannot discount the need for GLD as a tool for hedging.  There is no way the physical market for gold can absorb demand coming from central banks, pension funds, sovereigns and the general investing public all at the same time.  It would make gold reach sky high prices in very short order which would not be healthy for a strong and long gold bull market.  Unfortunately, we need GLD and more gold ETFs around the world.  There is way too much fiat paper floating around and much more coming, the physical market couldn’t absorb this amount of funny money coming into the physical sector.  As much as I hate to say this, GLD is a necessary evil for the longevity of this bull market.   There is many more reason why we need more gold backed ETFs and products such as GLD mentioned above, however using this ETF as a hedging tool is a very important one.

In the near future we will look at additional reasons for owning gold through the various ETFs as a tool for trading and hedging.  We will also explore the various options available for owning paper or physical gold in the numerous ETFs around the world.  This information will be made available on our blog to everyone interested in evaluating gold specific ETFs. If you enjoyed reading this article and are interested in protecting your wealth with precious metals, you can receive our free blog by visiting TDV Golden Trader.

Buy The SPDR Gold Trust – You Don’t Argue With Paulson and Soros

Despite the correction in gold prices since last summer, investors in gold ETFs have increased their stakes.  Worldwide holdings of gold ETFs are now at a record 2,417 metric tons according to Bloomberg News.

The SPDR Gold Trust (GLD) is the largest gold ETF and has returned a lustrous annual return of 18.4% since the fund’s inception on November 18, 2004.  The GLD currently holds 1,258.15 tonnes (40.45 million ounces) of gold in trust valued at $64.8 billion.  The all time record high holdings of the SPDR Gold Trust was 1,320.47 tonnes on June 29, 2010.

The slight decline from record gold holdings of the GLD do not represent a lessening of gold demand by investors.  Numerous competing gold trusts such as the iShares Gold Trust (IAU) which holds $9.3 billion of gold bullion have simply given investors a wider choice of options and expanded the overall market for gold ETFs.

Word that two of the world’s most successful investors have increased their stakes in the SPDR Gold Trust highlight the fact that the bull market in gold is far from over.   Billionaires John Paulson and George Soros, both long time investors in the GLD , both recently increased their holdings.

Courtesy yahoo finance

While Paulson has increased his massive stake in the GLD over time, Soros attempted to time the market.  In the first quarter of 2011, Soros sold 4.7 million shares of the GLD which brought his holdings down to a token 49,400 shares.  Subsequent to his sale, gold soared about $500 per ounce higher to $1,900 during August 2011.  Short term trading is difficult for anyone, including one of the world’s most successful investors.  Since the fundamental reasons for owning gold have only become more compelling, small investors would be best advised to hold long term instead of trying to trade a temporary price pullback.

Courtesy kitco.com

According to Bloomberg, Paulson and Soros Add Gold As Price Declines Most Since 2008.

Billionaire investors George Soros and John Paulson increased their stakes in the biggest exchange- traded fund backed by gold as prices posted the largest quarterly drop since 2008.

Soros Fund Management more than doubled its investment in the SPDR Gold Trust to 884,400 shares as of June 30, compared with three months earlier, a U.S. Securities and Exchange Commission filing for second-quarter holdings showed yesterday. Paulson & Co. increased its holdings by 26 percent to 21.8 million shares.

Paulson, 56, who became a billionaire in 2007 by betting against the U.S. subprime mortgage market, lost 23 percent in his Gold Fund through July as lower bullion prices and slumping mining stocks contributed to declines.

Still, prices have rallied for 11 consecutive years, gaining more than sevenfold, as investors snapped up the metal after government and central bank stimulus programs boosted speculation that inflation would accelerate. The metal is up 2.4 percent this year.

“People expect prices to rise in the third quarter since historically it has been proved that it’s one of the best periods for gold, and investors who see easing coming in from various central banks are either increasing or holding on to their positions,” Donald Selkin, the New York-based chief market strategist at National Securities Corp., which manages about $3 billion of assets, said by telephone.

Paulson’s increased stake in the GLD should come as no surprise.  In a previous post during July, it was noted that Paulson remained steadfastly bullish on gold with a $4,000 target.

The Bright Side Of Plunging Gold Stocks

Each day another gold stock blows up.  Last week it was NovaGold (NG) and then Newmont Mining (NEM) and before that a long list too painful to mention.  Although I strongly prefer holding physical precious metals over mining companies, the gold stocks that I do own have put in less than a sterling performance.

I won’t bother going through the reasons why gold stocks could recover or mention the fact that many of them are trading at a fraction of what they were worth when gold was a thousand dollars lower.  Stocks are ultimately valued on earnings and for a variety of reasons, many of the mining companies have not been able to translate higher gold prices into higher dividends or earnings.

To put this all into perspective, I was pondering on two innate character traits I possess that can be confirmed by anyone who knows me.

First and foremost, I procrastinate on everything in life, but actually have a very profound theory to validate the benefits of a trait that many would view as indolence.  Despite the occasional guilt for not doing something today instead of next week, I have conclusively proved to myself that a large percentage of those “today to do list” items somehow resolve themselves without my intervention.  Perhaps just a rationalization but it seems to work.

My second dominate character trait, and this one actually relates to plunging gold stocks, is my innate belief that somehow there is a blessing lurking next to each catastrophe.  What often times seems like Armageddon may be a benefit.  So how exactly do plunging gold mining stocks wind up benefiting long term gold investors?  The answer is actually in the details of each poor earnings report delivered regularly by gold miners.  When you drill into the core reasons for poor earnings, the answers all correlate  to lower gold production due to overestimates of ore reserves, mining difficulties and the higher cost of mining lower grade ore reserves.

The fundamental fact is that the quantity of high grade ore reserves has declined dramatically making it much more costly and difficult to produce gold.  In a recent article the Wall Street Journal estimated that at current production rates, all known gold reserves would be depleted within ten years.  It wouldn’t take much of a bump in demand to eventually propel gold to multiples of today’s price.

Here’s a neat info graphic from visual.ly.  Note that net gold supply has been static for the past decade and large scale high grade gold deposits are rarer than ever.

Gold Part II: Mining and Supply 


Hong Kong’s Secret $50 Billion Gold Bullion Vault

Bloomberg TV asks Where do you hide $50 billion of gold in Hong Kong?

The location is secret but the reason for building a new massive bullion vault in Hong Kong is not.  According to Bloomberg, the decision by Malca-Amit to build the bullion vault was based on unrelenting physical demand for gold in Asia.  During 2011, gold demand in China increased by 20%.  In addition, customers vaulting their holdings want the gold to be kept close to home.

The new gold bullion vault is designed to hold 1,000 metric tonnes of gold, worth about $51 billion at today’s price.  The vault already holds 2,400 tonnes of gold owned by gold exchange traded funds (ETF).

Beyond its importance as a storage location, the massive amount of gold holdings that the vault will eventually hold signals a fundamental change for the gold market.  The massive holdings of Asian gold will shift price setting action away from the London and the U.S. exchange cartels which dominate and manipulate gold pricing.

Gold’s Fundamental Role In The Financial System

By Vin Maru

It is currently estimated that the largest 110 central banks have 16% of their reserves as gold.  Anyone who follows the gold market knows that many central banks have become net buyers of gold in the last few years, and the pace of accumulation seems to be growing.  While central banks continue to accumulate gold, the misinformed mainstream media are still chanting the “gold is in a bubble” mantra.   What they are not acknowledging is the clear evidence that the highest level of bankers and regulators are proposing that gold become a Tier 1 asset class with zero risk, which can also be used for collateral in financial transactions.

Recently, we wrote an article about a proposal made by the FDIC to make rule changes and allow gold bullion to be recognized as a Tier 1 asset class with zero percent risk weighting.  Even the Bank of International Settlements (BIS), which is the central bank for central banks, is considering reclassifying gold as a risk-free assets as part of the Basel III framework. In their recent progress report, on page 26 under the section for other assets, they state the following (in footnote 32):

“At national discretion, gold bullion held in own vaults or on an allocated basis to the extent backed by bullion liabilities can be treated as cash and therefore risk-weighted at 0%.”

The Basel Committee on Banking Supervision is an international regulatory agency that brings together banking regulators from 27 nations including the US, the UK, and China. This past week they published a draft of standards which creates “International consistency” with regards to margin requirements and seek tougher rules for non-centrally cleared swaps in the over-the-counter derivatives market.  This proposal helps to align rules for the $648 trillion market for OTC derivatives in which regulators are seeking tougher oversight after the 2008 collapse.  The proposal sets out a partial list of assets that companies can use as collateral for trading in the OTC derivatives market.  It includes a range of financial instruments to be used as collateral, including cash, government debt, “high-quality corporate and covered bonds,” gold and equities listed on “major” stock exchanges.   This is just another example of how the gold role in the financial system is changing; it is becoming viewed as a safe asset class to hold as collateral.  If implemented, financial firms trading in the OTC derivative market will be able to use gold as collateral for posting and meeting margin requirements.

The evidence is clear as day when you look at the facts.  Gold is moving towards the financial system, not away from it.  The bankers and regulators are now considering rule changes to introduce gold back into the financial system.  If these proposals take effect in January 2013, the world will realize that gold is here to stay; maybe even MSM will warm up to the idea that gold is a safe asset to own.  The only question is at what price gold will be trading at when all this happens.

The current weakness during the summer doldrums seems like a good time to accumulate physical while support holds above $1530.   If the paper manipulators decide to push gold below support, it should be short lived and expect a quick rebound to current prices.  The worlds financial problems have not gone away, the debts continue to grow, and inflation by way of the printing press is here to stay.  Gold may not cure all of the world’s financial problems, but it is here to stay and the gold bull run is far from over.  Expect to see higher prices in 2013 and beyond, especially as the central bankers and regulators voluntarily introduce gold back into the financial system as a risk free, Tier 1 asset class.

Hard asset advocates have always known the value of owning and holding gold.  Central bankers and regulators are now finally acknowledging gold’s value in the monetary system as an asset class.  Next year MSM will be touting the virtues of owning gold once again.  The key is to be ahead of this curve before it happens.  If any of these proposals take effect, you want to be ahead of the herd as more and more banks and financial institutions stampede towards gold in the years ahead.

 

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

Have Gold Stocks Hit Bottom Yet? Richmont Mines Latest Disappointment

The price of gold is almost exactly unchanged on the year.  The first trading day of the year saw gold close at $1598 per ounce.  After reaching a high of $1781 on February 28th, gold has drifted lower and at today’s closing price of $1604 gold is up a fraction of a percent on the year.

 

The story has been quite different for stockholders in gold mining companies.   Gold stocks have gone through a brutal sell off during 2012 despite the neutral price action of gold bullion.  Stock prices of the junior gold miners have been particularly brutalized as shown by the Market Vectors Junior Gold Mine ETF (GDXJ) which is down over 50% from its high late last year.

 

GDXJ - Courtesy stockcharts.com

The shares of the largest gold miners have also seen major losses during 2012.  The PHLX Gold and Silver Index (^XAU), comprised of 16 major gold and silver producers, has decline by 21% from its peak reached in early February.

 

XAU - courtesy stockcharts.com

The latest casualty in the junior gold mining sector was Richmond Mines (RIC) which recently lowered its estimate of reserves and production and took a major write down on assets.  Richmond, a highly regarded gold mining company with excellent reserves and earnings prospects, was only one of the latest blowups in the junior gold mining sector.  Richmond Mines has collapsed 70% from its $13 per share price in late January, closing today at $3.97.

 

Courtesy stockcharts.com

Is the decline in gold mining shares a harbinger for the future trend in gold bullion or is the latest sell off a major buying opportunity?

Here are some thoughts from two of the brightest minds in the industry who both have superb long term track records.

Legendary gold investor John Hathaway of the Tocqueville Gold Fund (TGLDX) remains bullish as discussed in his latest Gold Strategy Investment Letter.

Why would anyone own them other than for the possibility of a higher gold price?  While we do not wish to minimize such issues as capital spending cost pressures, resource nationalism, or competition from GLD and similar instruments, we believe those concerns will fall by the wayside with the resumption of the bull market in the metal.  If gold were to trade at $2,000/oz. later this year, and should the ratio of gold mining shares (XAU basis) return to the mid -point of its range since the launch of GLD in 2004, or roughly 15% versus the current level roughly 10%, mining stocks could  double on a 25% increase in the gold price.

The policy challenges facing the Volcker Fed and the Reagan administration that ultimately capped the previous bull market in gold seem mild by comparison to those of today.  We believe that gold remains under owned and misunderstood notwithstanding a thirteen year bull market.  It is considered a fringe strategy to most, a little bit exotic and slightly risqué to the mainstream investor.  While policy makers attempt to buy time by inventing solutions that are incomprehensible to most, the dream of mainstream investors for robust growth amidst stable economic conditions remains alive.  Faith in half-baked policy improvisations that are nothing more than repackaging bad debt in the envelope of sovereign credit, along with hope that ever increasing quantities of sovereign debt will generate growth is, in our opinion, delusional.

Peter Grandich gives an excellent in-depth analysis on both gold stocks and gold bullion in a recent post on the Grandich Letter website.  The full post is a must read – here are some of his latest thoughts.

Despite general metals prices much, much higher than a decade or two ago, the mining and exploration industry is far more challenged now than ever before. This is especially true as you move further down the food chain in the junior resource sector.

I’m certain there are other reasons, but I believe the above is a good part of why we’re where we are today. The question now is does this mean the mining and exploration stocks are no longer worthy?

The “mother” of all bull markets continues thanks to four key reasons:

  • Once dominant sellers that capped any advances, Central Banks are now net buyers.
  • Gold producers, who once “cut their noses to spite their faces” by selling forward large quantities of future production and helped capped the price by doing so, now operate under the belief hedging is a “four-letter” word among investors.
  • Gold Exchange Traded Funds (ETFs) greatly changed the balance between supply and demand. Investors who never or rarely sought exposure to gold beforehand (because of difficulties associated with physical bullion buying) and/or who ended using mining shares for exposure only to see them not come close to correlating movements in the gold price themselves, embraced ETFs in a big and powerful way in order to have exposure to gold. Whether or not those ETFs are really direct ways to physical ownership doesn’t concern them, but their large-scale appetite for them combined with the changes among Central Banks and gold producers greatly altered the supply versus demand in favor of demand.
  • Gold is money. There’s no Central Bank printing it like it’s going out of style. There’s no government(s) borrowed up to their eyeballs in it. Where you find real growing wealth in the world you find those people acquiring it are using gold as a storer of their wealth.

FDIC Assigns Gold A “Zero Risk Rating” When Calculating Bank Capital

Although Federal Reserve Chairman Ben Bernanke refuses to acknowledge that gold is money, another major regulatory agency views the value of gold money as a risk free asset for calculation of Tier 1 regulatory capital by banks.   Meanwhile, as Ben Bernanke dismisses the value of gold, other central  banks around the world continue to increase gold reserves.  As the world financial system spirals closer to a complete breakdown, it is the holders of paper currencies that are squarely placed at the highest point of the risk spectrum.

TDV Golden Trader examines the current state of the financial system, the role of gold in wealth preservation and suggestions for protecting your gold from government confiscation.

Gold Becomes a Tier 1 Asset Class for Banks

Despite what the Main Stream Media (MSM) or “Financial Pundits” tell you, the gold bull market is far from over.  In fact, it is just starting, in our opinion.  While the misdirected financial world tell you that gold is in a bubble and it has burst, the central bankers and government organizations all know it is far from over.  In fact, gold is moving towards the banking system and not away from it.  We all know that many central banks are now net buyers of gold and their holdings are increasing as their need to diversify away from risky assets and foreign bonds only grows.

Central banks around the world are continuing to stock up on gold. We can now add Kazakhstan’s central bank to the grow list of bankers wanting to hold gold as a part of their currency reserve.  The Kazakh central bank intends to have 20% of reserves in gold, this is up from the current 14-15% currently held.  They plan to purchase 20 tonnes of gold this year, mostly from local producers.  They also mentioned a few weeks ago that they would cut their Euro holding to 25 % from 30%.  We can also add Kazakhstan to the growing number of central bankers which are building up gold holdings including China, Russia, Mexico, Colombia and South Korea.

The price of gold is now hitting all time highs in India, one of the biggest buyers of gold around the world.  Prices have reached an all-time high of $544.74 US (Rs 30420) per 10 grams.  With a slowing economy and low demand for the Indian rupee, it has been losing value lately and still remains weak.   However, gold demand is still robust even at these elevated prices as investors in India still consider gold a safe haven as it counters the effects of inflation and exchange rate fluctuations.

Over the past five years, gold has provided Indian investors with a 27.19% annualized return versus a pathetic 2.67% in the equity market.  This trend and move to gold has only grown in the last year.  Gold assets under management by funds have increased almost 100% $1.83 billion by April 2012, last year the value was $981 million.  In 2011, the gold ETFs in India saw a net inflow of $725 million.  For thousands of years the Indian culture has had an affinity for gold, and that will never change, and neither will their demand for physical at elevated prices.  Why?  Indians understand that gold is money and a true form of saving.  It’s the only way to protect assets and wealth from government theft, something the West is still learning.

Even the good ol’ USSA is starting to recognize gold as a tier one asset class. The Federal Deposit Insurance Corporation (FDIC) just issued a notice regarding a new policy proposal on how banks should revise the measurement of risk-weighted assets by implementing changes made by the Basel Committee on Banking Supervision (BCBS) to international regulatory capital standards and by implementing aspects of the Dodd-Frank Act.  Under the proposal the following assets would carry a zero percent risk weighting, notice how gold bullion is listed as the second item:

A. Zero Percent Risk-Weighted Items

The following exposures would receive a zero percent risk weight under the proposal:

  • Cash;
  • Gold bullion
  • Claims on certain supranational entities (such as the International Monetary Fund) and certain multilateral development banking organizations
  • Claims on and exposures unconditionally guaranteed by sovereign entities that meet certain criteria (as discussed below).

So regardless of what the MSM says, we continue to see more central bankers buying and hoarding gold.  New proposals by government banking agencies are being introduced into the system and gold is included as a tier one asset to hold with ZERO RISK.  All the signs are in place and what the MSM hasn’t been told yet is that gold is coming back into the banking system.

We are in a world where currency wars are being fought daily, and as the system continues to collapse under its own weight of paper printing, gold will be the go to asset and possibly the last man standing.  Don’t be fooled by what the MSM says, they rarely know what they are talking about and are paid to misdirect the puppets. Gold is here to stay.

European Capital Controls and a Flight to Safety

The Greek Elections are over and the pro-bailout New Democracy party won with approximately 29.7% of the vote.  By winning the popular vote, they were given a 50-seat bonus.  This combined with the support of the Pasok Socialist (who took 12.3% of the vote), will have 162 seats in the 300 seat parliament.  Combined, they have the ability to pass government policy with a majority vote, so they can now rig policy for keeping with the Euro.

The Euro experiment may have been saved from breaking up for now, but the bailouts will continue for the foreseeable future.  Since the socialists are realizing that austerity is not working, a new movement and calls for a policy of growth are afoot.  We can expect lots more money printing coming out of Europe now and in the foreseeable future.   While in a normal world that would hurt the Euro, the markets relief that the Euro will not collapse immediately should stop the downward pressure on the Euro. In fact, we could see a slight bounce off the recent lows from this news, but I suspect that will be short lived.  None of the problems have been addressed and printing money to fund the bailout will still be the cure central bankers will prescribe to the Euro financial system mess.

Capital controls are already in place within Euroland and this trend is growing quickly as the hot days of summer go on.  Recently, major Italian banks have given notice that customer’s accounts would be frozen for one month because of financial difficulties. This caught many bank customers off guard and completely unaware that they would not have access to their funds.  This should not be startling news for TDV subscribers as we have been warning for months that capital controls are coming and Europe is fast out of the gates in implementation.  For weeks, Europe has been planning bank withdrawal restriction to deal with Greece exit, the only one that hasn’t told you about it is the MSM.

Recently, a businessman was stopped at the Swiss border with £1.6m worth of gold in his car only to have it confiscated by the authorities and was subsequently charged with smuggling.  Italians know very well that the trend of confiscation by the “Mafia” government has only grown recently.  They have been exporting gold to Switzerland and this trend has grown 35% year over year in February 2012.  About 120 tonnes of gold have left Italian boarder in 2011, that is up 65% from 2010.  The Italian Prime Minister Mario Monti has been promising a crackdown on tax evasion as he continues to fight the trend of people wanting to avoid paying extortion fees (taxes).  It was estimated that more than £96 billion [€119.6bn] in taxes were dodged in Italy during 2009.

As much as we like gold as an investment and store of wealth, you must take the necessary precaution of protecting your gold from confiscation.  As desperate European governments continue to steal your wealth via inflation and outright theft, you must create a plan of protecting your gold.  Keeping it close at hand where only you have access to it is the first step.

Secondly, you should consider diversifying your precious metals holding internationally, which seems to be more difficult as capital controls in Euroland become stricter.  At TDV, we saw this trend coming a long time ago and have been warning subscribers to plan ahead.  Earlier this year, we published a 100 page report on how to diversify and internationalize your precious metals holding called Getting Your Gold Out Of Dodge (GYGOOD).  If you live in Europe and are interested in protecting your precious metals, this report is something you should consider getting right away; your time to act may be limited by your own government.

Gold Update

The price of gold is still consolidating.   The price needs to stay above support at the 50 dma of $1615.  If this support holds, then it could move toward resistance at $1675 and the 200 dma.  A break below $1610 could trigger selling and the price could still see one more wave of selling to test support at $1530 or slightly lower again.   If we do get one more wave of selling, I suggest you consider backing up the truck as this could be that last time we see prices this low, possibly forever.

Gold and Silver News and Headlines – Gold Owners Get Nervous

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

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

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

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

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

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

US Mint Drops Price of Gold Products

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

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

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

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

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

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

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

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

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

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

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

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

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

Bernanke Spooks Gold

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

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

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

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

Buy Japanese Bonds At 0.05% And Get A Gold Coin

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

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

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

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

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

The Volatile Ride To Higher Gold

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

 

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

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

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

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

Gold Falls In “Manic” Plunge

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

Gold, Silver Tumble on Heavy Profit Taking

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

Kitco Interviews GATA Chairman

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

Bernanke Tries Talking Down Commodities

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

First Eagle’s Eveillard Openly Suspects Gold Market Rigging

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

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

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

Today Window Dressing Fall In Gold

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

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

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

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

What Is Google Trends Telling Us About Gold?

It has been some time since we last looked at what Google Trends can tell us about the future price of gold.

Google Trends allows us to see volume trends for specific search items related to gold.  In the past, extreme spikes in search volume have correlated closely with major turning points in the gold market.  What is the predictive power of Google Trends telling us about gold today?

When we looked at Google Trends in March 2009, we examined search engine results for “Sell Gold” and “Buy Gold” (see What Can Google Trends Tell Us About Gold?).  It was observed that as gold was hitting its peak in March 2008, there was a spike in search volume for “Sell Gold”.  After the brutal sell off that correlated with the substantial decline in all asset categories due to the financial meltdown during 2008, there was a spike in “Buy Gold” search inquiries that correlated closely to the gold bottom in late 2008.

What is Google Trends telling us today, after gold’s increase of $183 per ounce since the beginning of the year?

As we can see from the chart below, a huge spike in search queries for “Sell Gold” corresponded closely to the all time high in the price of gold at $1,895 reached in September 2011.  The current lack of search volume queries for “Sell Gold” as well as the decline in news reference volume (despite gold’s large price increase since the beginning of the year) is a clear bullish signal for gold.

"Sell Gold"

 

Another indicator suggesting that the general public is totally apathetic on gold is seen by viewing the Google Trends results for “Gold Investment”.   Last year, search queries for “Gold Investment” spiked as gold was reaching its September highs.  Despite the huge gold rally of 2012, low news volume and search queries for “Gold Investment” indicate very low interest in gold and constitute a contrary bullish indicator.

"Gold Investment"

 

Finally, a look at the volume of search queries for “Gold” also indicates that the current gold rally has a long ways to go.  Even as the price of gold has increased non stop since January, the volume of search queries and news references has plunged.

"Gold"

 

The very low search inquiries for gold as shown in Google Trends is a strong contrary bullish indicator.  The risk of buying gold right now seems exceptionally low and the rewards exceptionally high.

Last year, Google Trends search inquiries on gold did not flash a sell signal until after gold had spiked by 26%.  If the same ratio applies going forward, “Google Gold Trends” won’t flash a sell signal until gold prices reach the $2,250 range.