May 2, 2024

John Paulson Remains Bullish On Gold With $4,000 Target

July 2, 2012 by 2 Comments

John Paulson, hedge fund titan, seemed invincible in the opening days of 2011.  Based on a huge bearish position in mortgage bonds, Paulson’s hedge funds earned an astonishing $15 billion during 2007.

Paulson’s winning streak continued for three years and by the end of 2010, Paulson’s success had attracted huge amounts of new investor money.   By the end of 2010, the amount of money under management in Paulson’s funds had swelled to  over $32 billion.  During 2010 Paulson personally made $5 billion and had become an investment legend.

No one, least of all John Paulson, could have imagined the disaster that was ready to unfold during 2011.  Paulson’s two largest funds got crushed during 2011 with the Paulson Advantage fund down 36% and the Paulson Advantage Plus fund down a staggering 52%.  Bad bets involving financial stocks and a large investment in Sino-Forest, a Chinese timber company, proved disastrous during 2011.

Although Paulson is well known for his long term bullish bets on gold this did not save him during 2011.  Despite a 10% increase in the price of gold during 2011, Paulson’s positions in gold stocks contributed to his losses  as gold shares dramatically underperformed gold bullion.

In a wide ranging interview with Bloomberg Businessweek, Paulson explained why 2011 turned out to be the year of pain for both himself and fund investors.

The firm had made four major mistakes, according to Paulson, “overweighting long event equity,” underestimating Europe’s debt crisis, overestimating the U.S. economy, and some plain-old terrible stock picking. “Our performance in 2011 was clearly unacceptable,” he wrote. “However, we believe 2011 will be an aberration in our long-term performance.”

Despite the huge losses of 2011, Bloomberg notes that Paulson still registered gains of $22.6 billion for investors over the lifetime of his funds, the third best in the hedge fund industry.

Paulson told Bloomberg that he considers 2011 an “aberration” and expects his long term strategies, including his large bet on the gold market to rack up large gains going forward.  During an interview in October 2010 at the University Club in New York, Paulson predicted that the price of gold would hit $4,000 per ounce.

Paulson explained his view on gold during the Bloomberg Businessweek interview as follows:

“We view gold as a currency, not a commodity,” Paulson says. “Its importance as a currency will continue to increase as the major central banks around the world continue to print money.” He adds that as the market keeps shuddering, demand for gold will stay high, and soon enough all of his depressed gold holdings should shoot up. He also thinks that anyone in Greece, Italy, and France should pull all their money out of the banking system and purchase gold bars before the Continent collapses.

Although Paulson remains committed to gold long term, he did substantially reduce his holdings in the SPDR Gold Shares ETF (GLD) during 2011.  At March 31, 2011, Paulson’s funds held 31.5 million shares of GLD valued at $4.4 billion but by the end of 2011, the position had declined to 17.3 million shares valued at $2.85 billion.   In Paulson’s latest Form 13-F filing with the SEC at March 31, 2012, Paulson’s position in the GLD remained unchanged from 2011 year end holdings.

GLD - courtesy yahoo finance

In hindsight, Paulson should have gone “all in” on gold during 2011 as he did with his bearish mortgage bets in 2007.  Gold closed at $1388.50 on the first day of trading in 2011 and closed the year at $1,531.  Had Paulson been 100% in gold bullion or the GLD during 2011 his portfolios would have increased in value by about 10.3%.

2011 Gold - courtesy kitco.com

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

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

June 22, 2012 by Leave a Comment

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.

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

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

June 21, 2012 by 1 Comment

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).

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

Gold And The Dow Both At 12,000? – Here’s How It Could Happen

June 7, 2012 by 1 Comment

During his almost 20 year reign as Chairman of the Federal Reserve, Alan Greenspan’s easy money policies seemed to work like magic.  Ever lower interest rates and easy bank lending resulted in vast asset price inflation of both stocks and housing.  Flipping stocks and houses became the national past time as the asset bubbles continued to grow.  The average American envisioned a cushy retirement buoyed by ever rising housing values.

In 2004 George Bush nominated Alan Greenspan for an unprecedented fifth term as Chairman of the Federal Reserve, convinced that the “maestro” would continue to ensure a permanent national prosperity.  By the time Greenspan retired in January 2006, he had attained rock star cult status.  Who would have thought that a mere two years later, the 20 year Greenspan cycle of false “prosperity”, engineered through excessive borrowing, consumption and leverage would explode, hurtling the world into financial chaos?

Even worse, who would have thought that the same failed policies would be continued by Greenspan’s successor?  Bernanke’s attempts to re-inflate the burst bubbles of a past era are being defeated as a debt choked system crashes asset values as it deleverages.  Bernanke has proven himself to be equally maladroit at recognizing both housing bubbles and liquidity traps.

Meanwhile, the debt laden sovereign nations of the Eurozone are waking up to discover that their credibility in the bond markets has been vaporized.  How will it all end?  Some see hyperinflation in our future, others an all encompassing deflationary crash.  Either way, Vin Maru at TDV Golden Trader sees the Dow/gold ratio moving towards 1:1.

The Dow/gold Ratio Will Move Towards 1:1, Are You Positioned To Profit From It?

After spending the last month consolidating (around 8:1) the Dow/gold ratio broke down on Friday to close at 7.47.  This is a major shift, as the upward trend line in favour of the Dow since September has been broken with a significant drop.  This is a significant event that should trigger the selling of the boarder equity sector as money moves out of the Dow and S&P and into gold and related equities. Gold has once again become a safe haven as uncertainties around the Euro and fiat paper currencies persist. In addition, the growing consensus of a global economic slowdown and possibly a recession in the U.S. in the coming quarters, is bullish for gold.

Gold is on the rise, especially compared to the Dow, as we move from a 7.5 ratio (Dow at 12,000 and gold at $1600) towards a 5:1 ratio and lower in the coming year.  Within a few years, we wouldn’t be surprised to see a Dow to Gold ratio of 1:1. History tells us that this ratio should be revisited again in the coming years.  If the longer term chart of the Dow/gold ratio is any indication of how quickly it will happen, it will be sooner rather than later. If you are invested in the broader stock market or mutual funds, this is the time to act and protect your wealth.  Once the final waterfall on the Dow develops and gold begins rising, it can move very quickly. By all indications on the charts and given the current market conditions, we believe it has already started.

HOW DO WE REACH THE DOW/GOLD RATIO OF 1:1?

The Inflationary Path

With the Dow now slightly above 12,000 and gold around $1620, the ratio is contracting fast as we move towards and below 5:1 in the coming years. How this will manifest itself is anyone’s guess at the moment.  If the Dow remains at 12,000, in an inflationary environment, gold will gravitate towards to the 1:1 ratio as it moves to a fair market value based on the outstanding debts and currency units floating around in the system. In the coming years, if the central bankers continue the path of papering over the financial mess that they have created, gold can easily reach $10K+. During a currency event, gold could climb to that price objective and it will take silver along with it.  If we return to the historical gold/silver ratio of 15:1, we could easily see silver at over $650 per ounce. Silver has been trading at around 55:1, and a currency event could move it towards the 15:1 ratio. At today’s price, silver has a lot of upside compared to gold.

Under this scenario, this assumes that currency inflation remains constant and that the financial markets continue to leave the Dow at 12,000.

The Deflationary Path

A deflationary spiral that unwinds debt around the world and leads to revaluations of paper currencies could also be in the cards.   The unravelling of the Euro could cause just such an environment. In this case, central bankers will not be able to stop the deflationary spiral that ensues as individuals start opting out of the paper/debt based system.  The bankers are pulling out all the stops and printing endless amounts of money to prevent this, but psychological forces can easily overwhelm this; economic law has a way of correcting imbalances created by man.   Under this scenario, the Dow will crash in a deflationary spiral towards gold’s price and possibly meet somewhere in the middle or at the lower end of gold’s trading range.

WATCH FOR 1:1

Either way, history has shown us that we are moving towards a long term cycle of low stock prices and higher gold prices; this should play out in the next few years, as it has already has started.  Trying to predict the price of gold is futile, what is most important is the Dow/gold ratio if 1:1.  Once we reach that objective or close to it, it will be time to get out of gold and move to other undervalued asset classes such as the Dow, until then stay long gold and short the Dow.

Once a trend based on fundamentals is in motion, it is very difficult to stop, as much as the masters of the paper universe would like to maintain control.  If a loss in confidence by the population of the world in purchasing power of fiat currency and  the value of the assets based on that paper price starts, (something we think has already started) then the there is no stopping this trend.  All the bankers can do is try and maintain the illusion of control, but eventually their efforts will fail.  The gold market senses this. As a result gold and gold related equities will outperform every other paper market and asset class moving forward for the next few years.  The price action on June 1, 2012 is just the beginning for the golden days ahead; just make sure your financial survival kit contains a percentage of gold, it may be the only thing that maintains its value as the paper currencies and paper assets around the world devalue compared to gold.

STRATEGY FOR HEDGING YOU PAPER ASSETS

Many of our readers already have a long position in physical gold and positions in several key mining companies and juniors.  We have kept a core position in the gold sector and will continue to add on additional weakness.  We are also evaluating potential gold producers and precious metals juniors/explorers which will have significant upside in the coming years as the nominal value of gold rises compared to other asset classes.

If you are looking for ideas and strategies for protecting your wealth and trading opportunities in the precious metals sector, please visit our site and sign up for our regular updates and blog posts.  We regularly provide technical analysis on the price of gold and the HUI index which can help you identify good entry and exit points for trading.
Filed Under: Featured, Gold, Gold Stocks, Silver Tagged With: , , , , , , , , , ,

Correction In Gold and Gold Stocks Spells Opportunity For Long Term Investors

May 16, 2012 by 3 Comments

It is no secret that the price of gold has been declining since reaching almost $2,000 per ounce last year.   After rallying in the early part of the year, gold prices have now fallen to $1,556, representing a decline of $42 per ounce or 2.6% below the closing price on the first trading day of 2012.

The devastating declines in the stock prices of major gold mining companies since early 2012 have been far out of proportion to the decline in the price of gold bullion.  Viewing the gold stocks in isolation, one would assume that the price of gold had collapsed by hundreds of dollars per ounce.

While opinions vary on where we go from here, the deeply bearish price action and bearish press articles on gold and gold stocks lead this writer to believe that we are setting the groundwork for a major rally at some point in the future.  Actions by global central banks to prevent a collapse of the financial system via the creation of oceans of newly printed paper currencies leads to the inevitable conclusion that at some point gold and gold stocks will soar far beyond the most bullish gold price forecasts.  As always, however, the question is the timing of gold’s ascent.

TDV Golden Trader has examined the current factors impacting the gold market and cautions that a return to new highs in gold, gold stocks and silver, although inevitable, may not be imminent.

Is This The Bottom For Gold and Gold Stocks? Not So Fast…

Since the speculative highs of 2011, the precious metals are continuing to correct and head lower, even in the face of Operation Twist and the ECB’s Long Term Refinancing Operation (LTRO) printing.  And with the elections in France and even more socialism on its way, it looks like Euroland is ready to run the printing press again and the Fed will join the party. But I am not convinced that gold and silver will take off right away.  Everyone knows that the central banksters are running the printing presses on overtime, so in effect, we always had and always will have QE, yet the price of the metals continues to drift lower.

When comparing the 2007-2008 peak and crash to what we are dealing with now, I think we have to look beyond the chart patterns and timing.  Looking at market conditions and sentiment for clues to turning points is just as important.  Back in ’08 we had a liquidity event which caused the nose dive in the markets.  Once the system was liquefied by TARP and then QE, the precious metals came bouncing back fairly quickly and then went on to make new highs right after QE2.

We appear to be in a period where the gold price will not run away quickly anytime soon, but we are also in the midst of a long drawn out liquidation of the metals as the central banksters keep accumulating gold at lower prices. Many central banks have been net buyers and importers of gold, and that trend looks sure to continue.  So, where is the selling coming from?

FROM WHERE COMES THE SELLING?

The paper selling we are witnessing is most likely squeezing the weak hands into coughing up their gold. Hopefully it’s only paper gold that is getting liquidated.  Investors in gold and silver may get frustrated and then capitulate into selling as the paper pushers continue to force them out of their positions.  But there are two potential catalysts that could reverse this trend:

1. If the shorts are forced to cover their position and decide to jump on the long side
2. The paper traders are forced to deliver the physical, which will most likely never happen.

Black swans are always lurking in the background, but they have yet to rear their ugly heads and the gold market is not anticipating any of them at the moment.  Until they appear, the precious metals may continue to drift lower.

The metals have been in a great bull run for the last decade.  But, what we haven’t seen yet is a 1974 style peak and trough that lasts for a couple of years. That is where we could be heading with precious metals right now.  In September of 2011, the price of gold peaked over $1900 and ever since then has been correcting lower (now almost nine months later).  During 1974 the peak price was just under $200 at which point it went into a tail spin falling to just above $100 in the summer of 1976.  After the negative trend continued for almost 2 years and then a sideways base during 1977, the gold bull market raced to its 1980 high around $850.

Until we see the fundamental shift back to gold, we are more than likely to continue correcting and then build a base just like in the mid 1970s.  The one thing to note is that gold peaked in early 1974, corrected for about six months and then went on to make a high by the end of 1974 before the major correction started that lasted almost two years. If a similar scenario plays out, then the correction we are currently in may end at the support and third test of the $1550 price range.  If this is the case, we could see a strong rally which would take the price of gold right back up to $1900 or higher before starting another bear phase in the long term bull market.

THE END MAY NOT BE NEAR

This standstill could last for some time still.  Especially since all the “speculators” are getting wrung out of the system as they have been taken to the cleaners in the last year.  More than likely, the average investor will stay away from precious metals until we have a major currency crisis.  Something that is more than just the problems that we currently see in Euroland. Until then we can expect the downtrend to continue and move sideways. If this scenario plays out like it did in the mid 1970s, we could still be in a period of time where the gold price continues to correct lower. This could bring the price of gold towards $1200-$1400 in the coming year.

If gold can hold support at $1530, then this correction may be over and the price of gold will continue higher toward the end of this year or early next year.  If the broader stock market continues to sell off, the Fed may pull the trigger on more easing, which could reverse gold’s negative trend and then we are looking at a target price of around $2100.

There seems to be no consensus among investors or analysts on which way the price of gold will go from here. But if the mid 1970s bull market in gold is any guide, be mentally prepared for a lower price. Then be ready to take advantage of the coming basing period and average down on your physical holdings at these lower prices. If the correction is over and we get a strong bounce from here, expect higher prices and a much better opportunity to sell.  We are currently in the eye of the storm of The End Of The Montetary System As We Know It (TEOTMSAWKI).  The pain is not over yet and neither is this gold bull market, the looming currency and debt crisis will make sure of that.  Just remember that the hardest thing to do as a trader and investor is to stay long for the full extent of the bull market.  This rough patch is again testing the mettle of investors.

THE TDV GOLDEN TRADER STRATEGY AND OUTLOOK

We have been lucky to have played the last six months almost perfectly.  We were strong buyers of the junior gold stocks throughout December and then after they rose significantly on March 2nd we issued a dispatch to TDV Golden Trader subscribers entitled, “Trade Alert: Close Out Many Of Our Trading Positions”.  We sold most of our trading positions on that day… something that has worked out tremendously well as shown by the chart of Market Vectors Junior Gold Miners ETF (GDXJ).

Will this be the bottom?  Nobody knows.  But we are remaining patient and waiting until we see the whites of their eyes before we reload and buy back in.  In the meantime we are advising subscribers to do the same and looking for stink bid opportunities to buy some of our favorite gold stocks at ludicrously low prices should a seller need to get out in an illiquid market.

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

Gold Stocks Remain Frozen In Time

March 29, 2012 by 4 Comments

Investors in gold mining stocks have had a tough five years.  Since 2008, the price of most gold stocks have remained frozen in time even as gold bullion has doubled in price.  Is the disparity in price performance between gold stocks and gold bullion a bullish set up or another false dawn for gold stock investors?

Gold - courtesy kitco.com

The PHLX Gold and Silver Index (XAU), which is comprised of 16 major gold and silver producers, is no higher than it was during the last quarter of 2007.   The large cap gold stocks represented by the Market Vectors Gold Miners ETF (GDX) have shared the same fate with no gain for the past five years.

GDX - courtesy yahoo.com

Beginning in 2011, the divergence between the price of gold bullion and gold stocks has widened even further.  Comparing the SPDR Gold Trust (GLD) to the PHLX Gold and Silver Index, we see that gold has dramatically outperformed gold stocks by a factor of five since early 2007.

XAU vs GLD - courtesy bigcharts.com

At this point, gold stocks are incredibly oversold and, in addition, represent sound fundamental value based on the price of gold bullion.  Given the notorious volatility of gold stocks, a move by gold above its high of last year could be the spark that ignites a huge rally in the gold stocks.

John Hathaway of the Tocqueville Gold Fund (TGLDX), who has produced fabulous investment returns over the past decade, had this to say in his latest Investment Update.

Gold and gold stocks appear to be bottoming in the wake of a four month correction which began in mid -August when the metal peaked at $1900/oz. Bearish sentiment is at extremes not seen in many years. This and a number of other indicators, such as stocks that have been hit by negative sentiment, the downtrend in gold prices since August, and tax loss selling, support our view that a rally lies ahead. This very bullish market set-up, in our opinion, mirrors the extraordinary investment opportunity of the despondent year end in 2007. Even though gold prices have been declining for several months, they finished the year with substantial gains. This suggests that the value represented by gold mining equities held in our portfolio could be extraordinary.

Disarray in Europe is, in our opinion, a slow motion version of the global market meltdown in 2007. It appears to us that the U.S. Fed is once again acting as the lender of last resort to European central banks in their efforts to save the euro. As in 2007, U.S. sovereign credit will be substituted for failing credits, in this case, peripheral European states. The fig leaf to justify such action on the Fed’s part is sado-fiscalism, or extreme austerity packages administered by technocrats. Tough restraints on profligate public spending, which has become a way of life in all Western democracies, will not go down easily. These measures are deflationary and will be ultimately met by howls of protests from mobs demanding renewed money printing and deficit spending. In our opinion, the fundamentals for gold are stronger than ever because the outlook for paper currencies is dire. The difficult correction of the last four months has shaken out all but the strongest holders, a perfect set-up for advances to new all-time highs in 2012.

Over the past ten years the Tocqueville Gold Fund has had an average annual return of 24%, far exceeding the 3% return by the S&P500.   The top ten holdings and percent of total assets of the Tocqueville Fund are listed below.

TGLDX Holdings

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

Fed Manipulating Markets In Zero Sum Game To Create Higher Inflation

March 8, 2012 by 4 Comments

Presidential hopeful Mitt Romney recently said that “You know, I’m not willing to light my hair on fire to try and get support. I am who I am.”  If only the Federal Reserve Chairman could be so restrained.  Based on recent comments from Fed Chairman Bernanke, it seems likely that he would gladly set both his hair and beard on fire in order to accomplish his mutually exclusive goals of increasing employment while maintaining price stability.

With a stubbornly high rate of unemployment, massive fiscal deficits, very slow economic growth, declining incomes and debt levels that are strangling the U.S. consumer, the Fed is facing a quandary.  How can economic growth be stimulated without simultaneously igniting inflation?

Lower interest rates, the most powerful tool in the Fed’s arsenal, has already been fully exploited while providing  a zero net benefit for consumers.  The zero sum game of lower rates did not prevent the housing market from crashing, has not helped it to recover and has resulted in dramatically reducing interest income for millions of consumers.  Every dollar of interest saved by one consumer means one less dollar of income for savers, many of them retirees who suddenly have seen their CD rates drop to near zero.

With rates at zero, the Fed is now forced to use the last resort option of QE, risking higher inflation as it stokes the economy with digitally created dollar bills.  Increased inflation is the high risk option that the Fed is willing to take as explained in  Bernanke Seen Accepting Faster Inflation as Fed Seeks to Boost Employment.

Federal Reserve Chairman Ben S. Bernanke spent six years pushing for an inflation goal. Now that he has it, some investors are betting he’ll breach the 2 percent target in the short run to lower unemployment.

“The chairman seemed to suggest they will tolerate a misdemeanor on inflation as unemployment continues to fall toward their goal” over several years, said Mark Spindel, chief investment officer at Potomac River Capital, a hedge fund that manages $250 million in Washington.

Policy makers at a March 13 meeting probably won’t deviate from their commitment to hold the main interest rate close to zero at least through late 2014, even if their forecast shows a burst of energy-driven inflation, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. They’ll probably be more concerned that rising prices will hold back real spending, impeding growth and improvement in the job market, he said.

Crude oil prices have risen 32 percent since the end of the third quarter of 2011 and 6 percent this year. Energy prices could hold the Federal Open Market Committee’s inflation target benchmark, the personal consumption expenditures price index, above the Fed’s 2 percent inflation objective for much of 2012, Crandall said. The PCE rose 2.4 percent for the 12 months ending in January.

Also, workers have weak leverage for increasing wages to compensate for higher costs. Real average weekly earnings have fallen for 10 consecutive months on a year-over-year basis. As energy costs eat up more of consumer expenditures, companies have difficulty raising prices on other goods and services.

“To the extent that PCE inflation is somewhere around 3 percent while unemployment is still above 8 percent, I think there will still be no reaction from the Fed,” said Worah, who’s based in Newport Beach, California.

The expectation among investors that the Fed will allow for a temporary overshoot on the price goal has been “unambiguously bullish” for Treasury Inflation-Protected Securities, Worah said.

Gold, up 18% over just the past year, is also telling us that the Fed is likely to shoot past its goal of attaining a 2% inflation rate.  Furthermore, the Fed’s goal of accepting increased inflation as an acceptable risk for increased economic growth is a self defeating zero sum game.  By driving up inflation, the Fed has increased living costs for the average consumer, negating any positive net affect from stronger economic growth. Consumers, whose spending makes up 70% of GDP, ultimately can’t spend more without real income growth.

In an interview with CNBC, Jim Grant of Grant’s Interest Rate Observer, and a frequent critic of destructive Federal Reserve monetary policies, says the Fed is manipulating interest rates for the sake of achieving “desirable macro outcomes”.  Discussing the Fed’s latest scheme to expand money printing, known as “sterilized bond-buying”, Grant says he is uncomfortable with the program which will create inflation and distortions that will destabilize the entire debt market.

Grant also feels that Bernanke, a self proclaimed “expert’ on the depression of the 1930’s is making fundamentally flawed decisions to forestall Depression II that many feel is looming in front of us.  According to Grant, Bernanke can’t “stop talking about the ’30s”, but when the economy fell off a cliff in 1920 – 1921, the government actually balanced the budget and the Fed raised interest rates and the economy soon recovered on its own and not due to running “immense deficits”.

The full interview with Grant is worth listening to. Please click on this link if the video below does not play.


The Fed has only one hand left to play and it will continue to print money, a fact that has not gone unrecognized by the gold and precious metals markets.

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

Gold and Silver News and Headlines – Gold Owners Get Nervous

March 8, 2012 by 1 Comment

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.

 

Filed Under: Bullion Sales, Featured, Gold, palladium, Platinum, Silver, Statistics, US Mint Tagged With: , , , , , , , , , , ,

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

February 29, 2012 by 1 Comment

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.

Filed Under: Featured, Gold, palladium, Platinum, Silver Tagged With: , , , , , , , ,

What Is Google Trends Telling Us About Gold?

February 29, 2012 by Leave a Comment

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.

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