December 2, 2022

Would Auditing The Fed Send Gold Higher?

By Vin Maru

The House Passes H.R. 459 Bill from Ron Paul to Audit the Fed

July 25, 2012 should go down in history as the date the Federal Reserve may become fully accountable to the US government. A motion to pass the bill as amended was unanimously approved by the house to require a full audit of the boards of governors of the Federal Reserve System and banks. This will be done by the Comptroller General of the US before the end of 2012 and they are required to issue their report within 12 months of enactment.  The votes in the House in the bill’s passing this was 326 yea votes to 99 nay votes with 7 non votes.  Interestingly enough it was the Republicans that strongly supported this bill with 239 yea and 1 nay vote, while the Democrats voted 88 yea and 98 nay.

There are many hurdles ahead of this bill before it takes effect; it still has to be ratified by the Senate and the President.  However, finally getting approved in the House is a step in the right direction.  Even if it does pass how much effect will the audit have in reality?  Probably not much since the banking institution known as the Federal Reserve operates outside of any law.  Even if they are found guilty of any wrong doing in managing the value of the US dollar or being involved in rigging the Libor rate, who will be there to prosecute them?  Remember they operate outside the law, so even if they are found guilty, it will be the US citizens and holders of paper/digital US dollars that will somehow pay for it.

In a world where bank’s losses are socialized, the Federal Reserve (the banker for banks) misconducts have always been socialized on the people.  Of course, this socialization of losses by the Fed has been taking place ever since its illegal inception.  In 1913, the Federal Reserve stole the power to issue and control money by introducing the Federal Reserve note, something we call the US dollar.  Since then, it is estimated that the dollar has lost 95% of its purchasing power by way of inflation (the increase of the money supply), so it really has only 5% left to go.   As the value of the US dollar moves towards its intrinsic value of zero, gold and silver as true money has only one way to go and that is up.

Usually first reactions are correct and looking at this news the value of the US dollar reacted negatively, while gold went higher in most major currencies around the world.

Could This be the Catalyst that Gold Needs for a Major Break Out to the Upside?

In a manipulated market, it’s tough to say, but the fact that there is support for auditing the Fed and making it accountable is definitely a step in the right direction.  With the recent news about major banks manipulating the Libor rate, any investigation into the Fed’s involvement is most welcome and has to be gold-positive.  Recently, we have been writing about how gold is moving towards the financial system with several different proposals for making it a tier 1 asset class and its use as collateral by financial institutions. If these proposals take effect, they are planned for January 2013, which coincides nicely with this audit being completed by the end of 2012.

Normally, the summer doldrums represent the lows in price for precious metals with a significant rally occurring in the fall and winter.  With this recent down turn, we have most likely seen the lows, and there are many catalysts for G&S to move higher into next years.

For example:

1. Food inflation is rising with this drought.

2. Gold could carry a zero risk weighting on bank books by Jan 2013 (BIS and FDIC are proposing this).

3. Paper currencies are Fiat, essentially worthless, but they will be used to create inflation, there is no other choice at the moment—QE to Infinity.

4. Market manipulation by bullion banks will be overrun by physical buyer (mostly now coming from central banks).

5. The investment community is only 1% invested in gold; historically this has been 5-10%.

6. Political tensions with Iran could heat up again later this year or early next, causing higher oil prices and as such gold.

7. More banking manipulation and scandals are emerging this summer, the Libor scandal is just the tip of the iceberg.

8. They system for true price discovery is broken, regulators have failed and the LBMA & Comex have lost all control and credibility.

9.  The price suppression by the west will be overrun by the East and physical buyers. The West cannot win this paper game.

10. MOST importantly: GOLD and SILVER is a hard asset and it has a history of over 5000 years being REAL MONEY. This paper/digital money has been only in place over the last 100 years and is doomed to fail.

Now is the time to be investing in gold and silver, during this consolidation.  A long period of consolidation is usually followed by a major move either to the upside and downside.  Given gold and silver’s favourable fundamentals, the break out will most likely be to the upside as gold moves towards the financial system.  Today’s positive price action could be the start of a new trend higher going into the fall and early next year.  If this trend plays out, there will be several opportunities to trade in and out of several precious metals ETFs.  The gold miners are great value compared to gold and we have been evaluating several that have great upside potential and production growth.

The key is to be ahead of the curve before it happens, take a position and place a tight stop loss in case this is a fake break out and gold continues to correct lower against its fundamentals.  If the correction in gold is over and we are at a start of a new trend higher over the next year, this summer will prove to one of the best buying opportunities we have seen in a very long time.  Significant profits could be made buying gold and many of the producers during the summer doldrums and then selling into the fall and winter, the only question is are you positioned to take advantage of a trend change in gold when it happens.

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.

Cheers

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, Dow and Oil All Plunge On Economic Weakness – Is Gold Still A Safe Haven?

The combination of increasingly ominous economic reports along with the Fed’s failure to announce bold new monetary initiatives resulted in a brutal reassessment of risk by investors.  Stock, commodity and precious metal markets all plunged with the Dow down 250 points, gold down by $41.60 per ounce  to $1,566 and silver off by 4.4% to $26.98.  Crude oil in New York trading was off 4%, dropping below $80 a barrel for the first time in eight months.

Since the end of May, the Dow had rallied over 700 points on rumors of massive coordinated central bank easing.  Investor optimism changed in a flash after yesterday’s FOMC announcement that Operation Twist would continue in an effort to further reduce long term interest rates.  Markets were clearly expecting more concerted action.  The Fed has already suppressed interest rates to all time lows with little to show for it.  In addition, the crisis in the Europe is on the verge of spinning out of control as insolvent sovereign states comically attempt to bail out insolvent banks.

The steep sell offs in oil and other commodities since early May have been a screaming warning sign of a steep slowdown in the global economy.   Further adding to investor concerns is the inability of policy makers to address fundamental economic problems that have beset the global economy since 2008.  Government borrowing, spending and a storm of money printing  has only made the fundamental problem of excessive debt burdens worse.  Now, as the world rapidly slides back into recession, we have to wonder – where do we go from here?

 

Oil - courtesy stockcharts.com

Gold - courtesy stockcharts.com

Despite Bernanke’s frequent remarks that “We stand ready to act” and his assertion that the Fed has many “tools in the toolbox”, the worst nightmare seems to be unfolding – a Fed that is out of options (or out of touch) as the world economy marches to the brink of a financial meltdown.

Will the world slide into a deflationary abyss as central banks stand aside and allow free markets to clear the debt excesses of the past two decades?  Not likely based on the entire history of the Federal Reserve.  What is highly likely, however, is that as the United States reaches the limits of credit expansion and taxation, neither the public nor our elected politicians will accept austerity as the road to restructuring the economy and national balance sheet.   Reality be damned as we reach the tipping point – the public will demand their entitlements and the politicians who resist will be voted from office.  The pressure on the central bank to “solve” our economic problems through an endless series of QE follies will result in a national financial nightmare.

Where does gold go from here as the world financial system totters on the brink?  No one can predict the short term moves in gold, but in a very uncertain world, there is one undeniable  dictum – “Gold is money.  Everything else is credit.”  (JP Morgan -1912).

Gold Currency – An Escape From A Failing Paper Money System

Fed Chairman Bernanke’s statement that “gold is not money” seems to be an increasingly lonely position.  No less an authority than Alan Greenspan, his predecessor at the Federal Reserve, directly contradicted Bernanke by calling gold a “currency.”

In remarkably candid language, Greenspan spoke in Washington about the Euro ‘Breaking Down’, the European banking crisis and the deterioration of the fiat money system.

“The euro is breaking down and the process of its breaking down is creating very considerable difficulties in the European banking system,” Greenspan said today in Washington.

A lack of confidence in euro-denominated debt is straining the region’s banks, Greenspan said. “That stuff has always been thought of as the ideal collateral and now it’s getting highly questionable,” he said in a question-and-answer session at the Innovation Nation Forum in Washington.

Greenspan also said that he did not think gold, which reached a record above $1,900 an ounce this week, was in a bubble.

“Gold, unlike all other commodities, is a currency,” he said. “And the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating.”

While Bernanke contemplates additional ways to debase the US currency his counterparts at other Central Banks are retaining gold to help manage debt and adding to their gold reserves at a record pace.  Meanwhile, before providing more bailout funds to insolvent member of the European Union, the German labour minister is demanding that gold be put up as collateral.

Central banks, net buyers of gold for the first time in a generation, are likely to retain their holdings even if they need to raise cash to counter an escalating debt crisis, according to Morgan Stanley.

“Once they’ve sold, that’s it, and buying back would be extremely expensive,” Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., said in an interview. “They would rather have the backing of a rising asset within their reserve portfolios than use it to reduce debt.”

“Under conditions of austerity we’re going to see a further deterioration of debt,” said Richardson, who has studied metals markets for 20 years. “Rising risk argues in favor of holding on to their gold reserves rather than selling them because they’ve only got one shot at selling.”

“The European central banks won’t sell their gold because while it may be a means to raise cash, it definitely won’t be enough to settle their debts,” said Duan Shihua, head of corporate services at Haitong Futures Co., China’s largest brokerage by registered capital. “Besides, none of the central banks believe in the currencies of other countries.”

Bernanke can deny reality and history by saying that gold is not money while he wildly prints more paper currency, but the rest of the world isn’t buying it.