April 6, 2026

“Gold Is Not Money” – Ron Paul Shreds Bernanke

July 14, 2011 by 3 Comments

Ben Bernanke’s head must have been spinning after Ron Paul’s rapid fire series of questions on gold at a hearing by the House Financial Services Committee.

Ron Paul’s confrontational and decisive questioning left the former Princeton professor looking uncomfortable and befuddled.

Ron Paul started off by noting that instead of spending $5.1 trillion bailing out banks and enriching corporations with no discernible economic benefit, the Fed could have simply given each and every American $17,000.  Ron Paul also suggested that the huge amount of money injected into the economy by the Fed has caused a real inflation rate of about 9%, far above the government inflation statistics.

Bernanke, obviously annoyed with Paul’s remarks started to elaborate on why the Fed was actually a “profit center” for the government, but was quickly cut off by Ron Paul who noted that he had only five minutes of allocated time to ask questions.

Ron Paul then followed up with a series of devastating questions that left the Chief Money Printer reeling.

Paul:  “When you wake up in the morning do you care about the price of gold?”

Bernanke:  “I pay attention to the price of gold.  I think it reflects a lot of things. It reflects global uncertainties. I think the reason people hold gold is as protection against what we call tail risks, really, really bad outcomes. And to the extent that the last few years have made people more worried about the potential of a major crisis they have gold as a protection.”  (Editor’s note: Gold has been steadily rising for the past ten years.)

Paul: “Do you think gold is money?”

Bernanke: (after a long awkward pause) “No, it’s not money, it’s a precious metal”.

Paul:  “So even if it’s been money for the past 6,000 years, somebody reversed that, eliminated that economic law?”

Bernanke:  ”It’s an asset.  Would you say Treasury bills are money? I don’t think they’re money either but they’re a financial asset.”

Paul:  “Why do central banks hold it?”

Bernanke:  “Well it’s a form of reserve”.

Paul:  “Why don’t they hold diamonds?”

Bernanke: “Well it’s tradition, long term tradition”.

It’s unfortunate that Ron Paul was only allowed to question the Fed Chief for five minutes.  In a couple of hours, Ron Paul would have shredded the foundations of the dollar’s value.  In an interview with thestreet.com, Ron Paul says “Gold, if you pick up a coin minted 6,000 years ago, you’d still have your money. If you pick up a piece of paper printed a year ago, it might be worth half its value. So history is on my side of the argument.”  Gold as money has retained its value over the millennia – does anyone really expect any modern currency to retain value over the long term?

In Bernanke’s world he is right – gold is not money.   All contemporary monetary systems are now based on fiat money with no intrinsic value other than the full faith and credit of the government issuer.  Unfortunately, the world’s short term experiment with a fiat money system seems to be swirling towards financial disaster in Europe as nation after nation totters at the edge of default.

The real disaster is that the hoax of fiat currency has been very effectively promoted by Bernanke, Governments and Central Banks.  The middle class citizens of most countries still hold the unshakeable, religious conviction that their paper money will retain its value because it is backed by an all powerful government that can protect their bank savings, pension plans, etc.  If this profound belief in paper money did not exist, gold would be thousands of dollars higher as currency holders of insolvent countries such as Greece, Ireland, Portugal and Spain desperately lined up to buy gold.

As the looming financial crisis explodes, bank depositors will discover that a bankrupt nation cannot protect their savings.  It will be too late for many as bank holidays and the financial collapse of financial institutions prevent depositors from accessing their money.  Middle class savers will be financially destroyed.  If depositors eventually get paid back in printed paper money, it will be worth a fraction of its original value.

Bernanke can say that gold is not money but time will prove him wrong.

 

 

 

 

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

Gold and Silver ETF Holdings Increase As Precious Metals Explode Higher

July 13, 2011 by Leave a Comment

The iShares Silver Trust (SLV) showed a gain in holdings of 101.55 tonnes on the week after declining by a modest 48.21 tonnes in the previous week.  A decline from record holdings of 11,390.06 tonnes on April 25th paralleled the sell off in the silver market that occurred in early May.  Since mid June, holding of the SLV have stabilized in the range of 9,500 to 9,600 tonnes.

Silver has surged in price since the lst of July when silver closed at $33.85.  Today’s closing New York price of $38.33 gives silver a gain of $4.48 or 13.2% through July 13th.  The price of silver surged today after Fed Chairman Bernanke, mere days after the end of QE2, announced that he was ready to “come to the rescue” of the American financial system again with another round of quantitative easing.   Bernanke’s continued policy of dollar debasement may not do much to revive the economy, but it is certain to send gold and silver prices to all time highs.

The SLV Trust now holds 309.7 million ounces of silver valued at $11.4 billion dollars.  The all time high in the value of silver holdings by the Trust occurred on April 28th at $17.3 billion.

After basing in the $35 range since early May, the SLV looks ready to begin challenging its all time high. The SLV closed today at $37.23 up $2.03.

 

SLV - COURTESY YAHOO FINANCE

GLD and SLV Holdings (metric tonnes)

July 13-2011 Weekly Change YTD Change
GLD 1,225.41 +19.60 -55.30
SLV 9,633.95 +101.55 -1,287.62

Holdings of the SPDR Gold Shares Trust (GLD) gained 19.60 tonnes last week after small drops in the previous two weeks.  The price of gold has retained virtually all of its price gains this year even as sell offs hit stocks, commodities and other precious metals.  Gold opened the year at $1,388.50 and has steady increased in value.

As it became clear that the deficit talks in Washington would resolve nothing and with easy Ben Bernanke ready to put the printing presses into overdrive, the price of gold soared to all time highs.  The continuing debt crisis in Europe will only get worse, eventually forcing the European Central Bank to engage in its own money printing operations on a massive scale.

As measured by the London PM Fix Price, gold opened the month at $1483.00 and closed in New York trading today at $1,583.60 for a gain of $100.60 or 6.8%.  In later trading in Asian markets, gold continued to soar, climbing another $6.10.  James Turk, a highly respected analyst with a superb track record is forecasting a gold price of between $5,000 and $8,000 before 2015.  Given the pace at which debt trapped countries are tipping over, I suspect that those price targets may be reached much sooner.

The GLD currently holds 39.4 million ounces of gold valued at $62.2 billion.

 

Gold - Courtesy stockcharts.com

 

 

 

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

Precious Metals Advance Strongly On Week

July 9, 2011 by Leave a Comment

Precious metals roared back this week after consolidating in the previous week.

Gold gained $58.50 on the week closing at $1,541.50.  As measured by the London PM Fix Price, gold reached a closing high this year of $1,552.50 on June 22nd and has stubbornly refused to decline.  Gold’s technical position looks excellent and a breakout above June’s high should set the stage for the next major advance.

Meanwhile, depending on how you look at it, the comedy or tragedy unfolding in Europe continues as insolvent nations line up for handouts.  The credit rating agencies are falling over each other in a race to downgrade the debt of country after country, adding Portugal’s debt this week to the status of junk paper.  Quite a difference from how they bestowed  A+ credit ratings on every piece of toxic mortgage paper produced by the banks prior to the financial crisis.

As Europe keeps center stage on the debt crisis, attention has been diverted from some other looming train wrecks, including Japan, the world’s third largest economy.   From a debt standpoint, Japan is in solid first place for the highest ratio of debt to GDP of almost 250%.  Can Europe forestall a debt crisis by piling up even more debt like the Japanese?  Who knows, the story is still unfolding, but the one certainty is that not only Europe, but the entire world is moving inexorably to a major financial crisis as debt burdens reach the level where massive defaults become the only option.

Investors in gold, meanwhile, can take comfort in the fact that gold has no credit risk.

Silver rebounded strongly this week, closing at $36.28, up over 7% on the week.  Prior to this week’s rally, silver had declined for three consecutive weeks, dropping by $4.10 per ounce.

Platinum rally strongly, climbing $32 to $1,740, after a $12 advance in the previous week.

Palladium jumped $26 or 3.5% on the week to $776, continuing last week’s rally of $11.

 

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,541.50 +58.50 +3.94%
Silver $36.28 +2.43 +7.18%
Platinum $1,740.00 +32.00 +1.87%
Palladium $776.00 +26.00 +3.47%

 

 

 

 

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

Gold and Silver ETF Holdings Decline On Week While Europe’s Debt Crisis Expands

July 7, 2011 by Leave a Comment

The iShares Silver Trust (SLV) showed a decline in holdings of 48.21 tonnes from the previous week, after rising by 21.23 tonnes in the previous week.   The net outflow of the SLV since the start of the year now totals 1,389.17 tonnes.

Silver opened the year at $30.67 per ounce and closed at $35.38 on July 6th. Despite the fact that silver has gained 15.4% since the start of the year, SLV holdings have declined by 12.7%.  Although increases or decreases in iShares silver holdings can be a guide to silver demand, physical holdings of the SLV do not correlate exactly with the price movements on the underlying metal.  This is due to the complex structure of the SLV which allows authorized participants to create or redeem shares in the SLV (see How Wall Street Made Profits On Silver ETF As Small Investors Sold).

There was, however, a close correlation between holdings of the SLV and the price of silver in late April.  As silver prices surged to a high of $48.70 on April 28th, holdings of the iShares Silver Trust hit an all time high of 11,390.06 tonnes on April 25th.

The iShares Silver Trust currently holds 306.5 million ounces of silver valued at $10.84 billion.  The all time high value of silver holdings by the SLV was reached on April 28th when the Trust held silver valued at $17.3 billion.

The SLV moved up on the week and is basing in the mid 30’s range.

 

SLV - COURTESY YAHOO FINANCE

Holdings of the SPDR Gold Shares Trust (GLD) declined slightly on the week by 2.42 tonnes after a small decline in the previous week of .91 tonnes.  The decline in GLD gold holdings since the beginning of the year totals 74.91 tonnes. The price of gold has increased 10% from $1388.50 at the beginning of the year to yesterday’s closing price of $1527.25.

The GLD currently holds 38.8 million ounces of gold valued at $59.2 billion.

Gold moved up $32.25 this week after dipping below $1,500 last week.  As measured by the closing London PM Fix Price, gold closed on Wednesday at $1527.25.  Gold has refused to give up its gains this year as distrust of paper money continues to justifiably expand.  The inevitable default by multiple member states of the European Union will require massive monetary support for insolvent banks holding trillions of dollars of sovereign junk debt.   The European Central Bank is desperately trying to maintain the facade of a successful debt restructuring by issuing more loans to insolvent nations.

Bloomberg this week discusses the looming debt crisis in Italy which has over 2 trillion in Euro denominated debt.

Italy, though, has close to 2 trillion euros in debt outstanding. It’s inconceivable that Germany or the IMF could provide a rescue to protect its creditors. Such a package would have to involve loans and guarantees of at least 500 billion, and possibly 1 trillion, euros to impress the markets. This would be a significant fraction of Germany’s gross domestic product of about 2.5 trillion euros. With a debt-to-GDP ratio of about 80 percent, Germany’s ability to take on new debt is limited.

The Netherlands, Finland and Austria, combined with Germany, have a GDP of about 3.5 trillion euros. France adds 2 trillion more, but its debt, already 85 percent of output, is expected to grow over the next several years.

It all adds up to one sobering fact: Europe does not have enough fiscal firepower to handle an Italian crisis — at least in such a way as to protect creditors completely. Beyond the difficult numbers, why would Germany or other EU countries lend to Italy, particularly when its politicians show no sign of coming to grips with their new reality?

The slow motion collapse of overly indebted countries in Europe is picking up speed.  Rising gold prices reflect the coming financial crisis which equity and debt markets have not yet fully discounted.  Expect to see gold prices soar as the debt crisis moves into high gear.

 

GOLD - COURTESY KITCO.COM

GLD and SLV Holdings (metric tonnes)

July 6-2011 Weekly Change YTD Change
GLD 1,205.81 -2.42 -74.91
SLV 9,532.40 -48.21 -1,389.17

 

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

Gold Resource Asks Why Short Positions Soared Prior To Negative Barron’s Article

July 6, 2011 by Leave a Comment

The latest edition of Barron’s published an extremely negative article on Gold Resource Corp.  Barron’s raised questions about the gold miner’s reserves, stock sales by company insiders, mine production delays, gold production below targeted results and the use of stock dividends to “promote” Gold Resource’s stock price.

In response to the Barron’s article, Gold Resource issued a press release disputing all of the Barron’s allegations.  In addition, Gold Resource also raised serious questions about the massive increase in short positions prior to the publication of the negative Barron’s article.

By way of background, Mr. Santoli contacted the Company on May 18, 2011 which was just after the short interest in the Company’s common stock jumped by 1,585,906 shares to its largest short position of 2,235,554, an increase of 41%, according to the Amex May 2011 short interest report. As Mr. Santoli pointed out in his article, the short position has continued to increase substantially since that time to approximately 3.4 million shares, according to the latest NYSE report.  However, one thing Mr. Santoli failed to mention in his article is that he was in direct contact with investors holding short positions during the time he was preparing his article.  While we can only speculate about his motivations while creating this article and the reason why the short position increased significantly during this time period, we are going to focus our energy on correcting a few of Mr. Santoli’s incorrect factual assertions.

As  previously discussed, one week prior to the publication of the Barron’s article, the trading volume in Gold Resource exploded to  7.7 times the daily average volume with the stock down about 5%.  The massive increase in short positions prior to the publication of Barron’s article appears to be more than a coincidence.  Short sellers appeared to know in advance that a negative article on Gold Resource was due to be published and dramatically increased short positions.

The shorts profited handsomely as the stock plunged in the first day of trading after the Barron’s article was published.  After trading as low as $20.55, GORO closed at $22.63, down $1.47.  Shareholders of Gold Resource certainly deserve more information on the circumstances relating to the massive short position in Gold Resource stock and hopefully the Company will pursue this matter further.

The Gold Resource press release disagrees with every negative point in the Barron’s article and defends the Company’s approach in not using an SEC compliant reserve report.

Gold Resource effectively reputes the Barron’s charge that management “have been consistent sellers of the stock”.  The amount of stock sales by management amounted to only $13.7 million in the past year which is immaterial in relationship to total stock holdings by management, who remain the largest shareholders of Gold Resource.

One issue not resolved by either Barron’s article or the Gold Resources press release is a definitive answer on the amount of gold reserves in the El Aguila mine.  Since Gold Resource never conducted a study to assess the “proven and probable reserves” of El Aguila, this question will ultimately be resolved as mine production progresses.  Indications that mine production is increasing was provided by another Gold Resource press release on July 5th, in which the Company disclosed record production, revenue and earnings for the second quarter.

If Gold Resource continues to put up records results, the stock price of GORO could soar as nervous short sellers scramble to cover short positions.

 

GORO - COURTESY YAHOO FINANCE

 

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

Will Gold Resource (GORO) Become A $5 Stock?

July 4, 2011 by 5 Comments

Gold Resource Corp (GORO)  has been one of the best performing gold stocks over the past five years, outperforming the appreciation in gold bullion by around 2,000%.  From a price of $1 per share in September 2006, Gold Resource rose to the $5 per share range by mid year 2007 and earlier this year hit an all time high of $31.38.  GORO closed at $24.10 on Friday and may head much lower in the aftermath of a devastating article published in this week’s Barron’s.

Highlights of the disclosures and questions raised about GORO in the Barron’s article include the following:

  1. The company is run by the Reid family and Bill Conrad, who helped the company in its initial public stock offering in 2006.  Barron’s discloses that the Reids and Conrad “have been consistent sellers of the stock” with $13.7 million of sales in the just the past year.
  2. Gold Resource’s primary mine in El Aguila, Mexico, has seen constant production delays despite promises since 2007 that production would soon increase.  In April of this year, according to Barron’s, the mine produced only 20,000 ounces  after being targeted for 70,000.  The expenditure of $95 million, raised in equity offerings, has produced minimal results in terms of gold production.
  3. The El Aguila mine was abandoned by Apex Silver Mines after they explored the site in the early 2000s.
  4. Gold Resource has never conducted a study to accurately assess the “proven and probable reserves” of the El Aguila mine.  According to Barron’s, investors only have the Reids’ word to rely on for estimates of gold deposits and the cost of extraction them.
  5. The two largest investors in Gold Resource are Hochschild Mining of Peru and the Tocqueville Gold Fund.  According to Barron’s, “the largest holders, who have known the company the longest, have not been buying stock at anywhere near the current price”.   Legendary gold investor John Hathaway of the Tocqueville Gold Fund told Barron’s that his geologist has visited the El Aguila mine twice and ore samples are “consistent with a potential deposit of two to three million ounces of gold equivalent”, worth up to $4.5 billion in gross revenue.  Almost 4% of the Tocqueville Gold Fund is invested in Gold Resources.
  6. Barron’s discloses that Gold Resource President Jason Reid sold $700,000 of stock “on May 19th, a day after Barron’s  first emailed him some questions”.
  7. Barron’s claims that Gold Resource management is “promoting the stock” with cash dividends despite the fact that “the company has never, in a single quarter, produced positive cash flow”.
  8. Barron’s concludes that investors shorting the stock “are probably wise” not to take management’s word on how much gold Gold Resource actually has or how much it will cost to mine.

The recent trading action in Gold Resource Corp stock raises some intriguing questions.  On June 24th, GORO traded down $1.47 as trading volume exploded to 3.3 million shares, the highest volume in the stock’s history and 7.7 times the stock’s daily average trading volume.  The massive surge in trading and lower stock price a mere week before the damning Barron’s article was published suggests that some investors knew in advance what was coming.  Investors also have a significant short interest position in GORO of almost 11% of the stock’s float.

 

GORO - COURTESY YAHOO FINANCE

If Barron’s doubts about Gold Resource prove correct, the stock may be looking at a return trip to $5 per share.

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

Gold and Silver Decline As World Turns Upside Down After Resolution of Debt Crisis

July 2, 2011 by Leave a Comment

It wasn’t supposed to be like this.

A default on Greek debt was supposed to have set off a chain reaction collapse of other weak sovereign debtors including Ireland, Spain, Portugal and Italy.   European banks holding huge amounts of Greek debt would be rendered insolvent pushing Europe into a banking crisis.  U.S. banks, holding large positions in credit default swaps and derivatives would follow the European banks into a downward spiral as both confidence and liquidity evaporated.

Money market funds, piled high with toxic debt securities issued by insolvent European banks would be facing a massive run by nervous shareholders.  Central banks, the last great hope of insolvent nations, would be forced to come to the rescue with oceans of printed money.  Nervous holders of paper currencies would rush into gold driving prices sharply higher.

The plausible scenario of default by insolvent members of the European Union suddenly got turned upside with stocks exploding higher and gold prices hitting a six week low.

Bloomberg – Gold Falls to Six-Week Low Amid Reduced Concern Greece May Default On Debt

Gold futures tumbled to a six-week low as Greece progressed in staving off a default, curbing demand for the metal as an investment haven.

Greece may get as much as 85 billion euros ($124 billion) in new financing, including a contribution from private investors, in a second bailout aimed at preventing default and ending the euro region’s debt crisis, according to an Austrian Finance Ministry official. Gold dropped 2.2 percent last month.

“Gold’s inability to extend further gains in recent sessions, despite a weaker dollar, could be a warning sign heading into the third quarter,” Australia & New Zealand Banking Group Ltd. (ANZ) said in a report.

The Austrian finance official effectively said that the euro region’s debt crisis was solved by extending further credit to a blatantly insolvent Greece – too much debt was cured with more debt.

The extend and pretend policies, used extensively by policy makers in every past crisis would be employed again, this time to a nation with the lowest rated sovereign debt in the world.

The success of extending further loans to Greece would be guaranteed by the sale of Greek national assets and forcing every citizen of Greece to endure a depressionary lifestyle.  Other members of the EU facing a debt crisis could be handled in the same manner.  The European Central Bank and Wall Street popped the champagne corks and celebrated the end of the debt crisis.

The surreal events of the past two weeks only reinforce the certainty of a greater debt unwind at a fast approaching future date. Expecting Greece to repay its obligations is simply not economically feasible.  Greek citizens, rioting against austerity measures, have made it clear that default is the best option.  Political leaders of Greece, the birthplace of democracy, must eventually accept the public will.

The debt crisis has not been resolved, it has been expanded.  Investors foolish enough to convert precious metal holdings back into paper currency are giving serious long term gold and silver investors a gift opportunity to accumulate at bargain prices.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,483.00 -31.75 (-2.10%)
Silver $33.85 -0.88(-2.53%)
Platinum $1,708.00 +12.00 (+0.71%)
Palladium $750.00 +11.00 (+1.49%)

Gold  and silver both declined on the week by over 2%, while platinum and palladium saw modest gains.

As measured by the closing London PM Fix Price, gold has declined by $69.50 since June 22.

Silver has now declined three weeks in a row.  Since June 1st, as measured by the London PM Fix Price, silver has declined by $4.10 per ounce or 10.8%.

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

Silver ETF Holdings Gain As Gold ETF Holdings Decline Slightly

June 29, 2011 by Leave a Comment

Silver holdings of the iShares Silver Trust (SLV) gained by 21.23 tonnes on the week.  In the previous three weeks,  SLV silver holdings had declined by a total of 381.95 tons, bringing the net outflow for the year to 1,340.96 tonnes.

The all time high holdings of the SLV was 11,390.06 tonnes on April 25, 2011.   The decline in SLV holdings from the all time high totals 1,809.45 tonnes, a decline of 15.9%.  The yearly high for the price of silver of $48.70 on April 28th correlates closely to the date of record holdings of the SLV.

The iShares Silver Trust currently holds 308.0 million ounces of silver valued at $10.6 billion.  The total net assets of the SLV have plunged by $6.7 billion since reaching an all time high of $17.3 billion on April 28th.  The dramatic 39% decline in the total net asset value of the SLV reflects the combination of much lower silver prices and reduced silver holdings.   Silver, at today’s close, has declined by $14.31 per ounce (29.4%) from the high of $48.70 on April 28th.

 

SILVER - COURTESY STOCKCHARTS.COM

Silver, as measured by the closing London PM Fix Price, closed today at $34.39, up $0.43 per ounce.  In later hour New York trading, silver continued to move up and closed at $34.98.  Silver has been in a narrow trading range in the mid 30’s since its decline in early May.

GLD and SLV Holdings (metric tonnes)

June 29-2011 Weekly Change YTD Change
GLD 1,208.23 -0.91 -72.49
SLV 9,580.61 +21.23 -1,340.96

The holdings of the SPDR Gold Shares Trust (GLD) declined slightly on the week by 0.91 tonnes, bringing the decline for the year to 72.49 tonnes.  The GLD currently holds 38.85 million ounces of gold valued at $58.4 billion.

Gold closed in London at $1504.25 and continued to move up in late New York trading, closing at $1512.80, up $9.70.  Gold has remained in the $1,500 range even as oil, stocks, silver and a large number of other commodities have declined in price since early May.

Filed Under: Gold, Silver, Statistics, Weekly Recap Tagged With: , , , , ,

Is The Plunge In Gold Stocks Predicting A Drop In Gold?

June 29, 2011 by 2 Comments

American Gold Buffalo

Gold stocks have been under performing gold bullion for the past three years.

The poor performance of gold stocks is reflected in the sub par returns of gold mutual funds run by two of the countries largest investment companies.  The three year return on Vanguard’s Precious Metals Fund (VGPMX) has actually had a negative return over the past three years as the price of gold has soared by 80%.  The Fidelity Select Gold Portfolio (FSAGX) has returned only 16.2% over the past three years. (See Physical Gold Outperforms Vanguard and Fidelity Gold Mutual Funds).

Senior gold producers such as Newmont and Kinross Gold are increasing gold production and solidly positioned for significant earnings increases but their stock prices have not been able to match the returns of gold bullion.

Although there are many reasons to expect that gold stocks will catch up to gold and deliver large gains to investors, so far this has not been the case.

Adding fuel to the investor debate over the relative merits of gold stocks versus gold bullion has been the drastic price divergence exhibited since the beginning of 2011.  While gold has held virtually all of its gains, the price of many gold stocks has plunged.  An investor in gold stocks not tracking the price of gold would probably conclude that the price of gold had collapsed during 2011.

Since January 1st, the price of gold has gained $116 per ounce or 8.3%.  From January lst to recent June lows, the price of Newmont Mining is down  by $9.27 (15.2%), Kinross Gold is down by $3.96 (20.8%) and Agnico-Eagle Mines is down by $16.01 (20.9%).  A broad basket of gold stocks, as measured by the Gold Miners ETF (GDX) has declined by $9.69 or 15.8%.

Adding to concerns about the recent sell off in gold stocks is the especially wide price divergence seen since May lst.  Although many individual gold stocks have long lagged the returns of gold, the GDX, a broad based index of gold stocks has generally tracked the price movement of gold over the past several years.  Since the beginning of May, however, the linkage between gold stocks and gold completely broke down, leaving investors to ponder the significance of such a wide divergence.

 

STOCKS VS GOLD - COURTESY YAHOO.COM

 

 

On past occasions, weakness in the gold mining shares has been a harbinger of a sell off in the gold market.  Is the current weakness in gold stocks currently forecasting a decline in the price of gold?  The end of the Fed’s money printing campaign, the world wide debt crisis, concerns about deflation, a weakening economy and the decline in commodity prices lead some to believe that a liquidity driven crisis could result in lower gold prices.

Despite short term concerns over the price of gold, the reasons for remaining long term bullish on gold are numerous.  The fundamental problems of excessive debt, debased currencies, widespread insolvency among sovereign states and out of control spending by the U.S. government all suggest that we remain on the precipice of another economic crisis.  Governments and central banks have no solutions except for the printing presses, which will be turned up to full speed at the inception of the next financial crisis.

At the margin selling may temporarily drive down gold prices in the short term, despite the solid long term bullish fundamentals for gold.  The long term trend for gold remains higher and any temporary price weakness would be a buying opportunity for gold investors.

 

 

 

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

Gold, Silver, Platinum and Palladium All Decline On Week

June 25, 2011 by Leave a Comment

It was a dismal week for precious metals as prices declined across the board.  Platinum declined by over 3%, palladium and silver by 2% and gold by 1.5%.

As measured by the London PM Fix Price, gold declined on the week by $22.75 after a gain of $8.25 last week.  After closing Wednesday at $1,552.50 gold was hit by selling that drove the price down by $37.75 at Friday’s close.  Gold has now dipped below its 50 day moving average as it has done on numerous occasions since early 2009 but remains solidly above the 200 day moving average.  Since early 2009 the price trend of gold has remained in a solid uptrend and every sell off to the 200 day moving average was followed by significant upward price moves.  The 200 day moving average for gold is currently at $1,410.

 

Gold - Courtesy Stockcharts.com

Silver declined modestly on the week, losing $0.66 and has remained in a tight trading range over the past two weeks between $36.22 and $34.68.

Platinum was down $55 on the week, closing at $1,751, after losing $78 in the previous week.  Palladium was also weak, falling $15 to $739 after retreating $61 in the previous week.  Both metals have large industrial uses and sold off as numerous economic indicators suggest a slowing world economy.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,514.75 -22.75 (-1.48%)
Silver $34.73 -0.66(-1.86%)
Platinum $1696.00 -55.00 (-3.14%)
Palladium $739.00 -15.00 (-1.99%)

Markets had been positioned for an improving economy, higher interest rates, higher inflation and additional monetary stimulus by the world’s central banks.  Since early May, the consensus has reversed considerably.  Commodity prices have declined substantially and U.S. interest rates, contrary to the expectations of many, have declined sharply.  Contributing to the sell offs in equity and precious metal markets were midweek comments by Fed Chairman Bernanke that, despite lower expectations for economic growth, the central bank had no plans for QE3.  Markets, confronting the loss of both fiscal and monetary stimulus along with slower economic growth, sold off sharply.

The Dow Jones has plunged over 900 points since early May.

 

DOW JONE - COURTESY YAHOO.COM

Commodities have tanked by 16%.

 

COMMODITIES - COURTESY YAHOO.COM

Oil, after peaking in early May at over $112 per barrel, has declined to the low $90’s.

 

OIL - COURTESY STOCKCHARTS.COM

Interest rates, expected to soar after QE2 ended, have declined substantially with the 10 year Treasury note dropping from 3.6% to 2.9%.

10 year treasury - Courtesy yahoo finance

 

The massive amounts of debt in the system can no longer be supported by economic growth.  Bernanke knows this which is why he is terrified of deflation.  The collapse of asset bubbles have resulted in debt that is now unsupported by collateral value, threatening the solvency of banks and countries.

As the current market sell offs turn into a rout, the Fed will again turn to the only option left – money printing on a scale that will dwarf QE2.  As reported by Bloomberg, former Fed Governor Lyle Gramley said,  “The hurdle for QE3 is obviously high. But if large downside risks materialize and the economy slows enough so that the unemployment rate starts to increase again, QE3 would have to be considered.”

The Federal Reserve can’t create jobs, increase incomes, reduce unemployment or maintain the integrity of the dollar.  The one thing the Fed can and will do is produce dollars in infinite quantities to prevent a 1930’s type debt induced deflationary depression.

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