August 13, 2022

As World’s Most Predicted Financial Crisis Approaches Precious Metals Move Higher

Precious metals gained across the board for the third week in a row.  Silver and palladium were the top performers this week with each advancing almost 4%.

July has seen an explosive move in the precious metals group as worries intensify about the twin debt crises in Europe and the U.S.  In both cases, governments and central banks are avoiding the tough choices that must be made when debt levels reach unsustainable amounts.  Common sense dictates that over leveraged borrowers with insufficient income to service debt must eventually default, or gradually reduce the debt through a combination of austerity measures and income growth.

Common sense, however, is a trait sorely lacking in politicians.  Nor does preaching austerity to your constituents enhance the odds of being re-elected.  The preferred solution, which has been employed since the 1980’s, is to add more debt and let the future take care of itself.  What’s different this time is the growing realization that at some point the compounding of debt becomes unsustainable, enslaving future generations and inhibiting economic growth.

The widely discussed study by Rogoff and Reinhart definitively documents that when public sector debt to GDP approaches the 90% level, economic growth slows dramatically – (see This Time Is Different: Eight Centuries of Financial Folly).  Since most of the developed world economies are already at or above the 90% debt to GDP ratio, the prognosis for future economic growth to gradually reduce debt levels becomes a tenuous prospect.

Despite the obvious risks of a growing debt burden, a significant number of the Washington elite insist that the debt limit be raised by another $2.5 trillion which would represent a doubling of the national debt in a little over five years.

Raising the debt limit, which became a routine ritual in past years, has suddenly morphed into a potential default situation as a growing number of responsible political leaders refuse to rubber stamp another massive increase in public borrowing.  As debt limit negotiations broke down today, the odds of a potential default by the United States became a distinct possibility.

Will a temporary default become a seismic event?  Who knows, but if gold had advanced by one dollar per ounce for each time I’ve seen an article predicting financial Armageddon, if the debt limit was not raised, gold would be well over $4,000 per ounce.   If the U.S. does “default”, it will not be the end of the world.  In the best case scenario, a brush with default may convince more members of our EZ spending Congress to come around to the financial common sense of men such as Ron Paul.

Summary of Ron Paul’s comments to Congress:

  • Countries that are as indebted as the U.S. always default.
  • The real increase in the debt this year, counting entitlements, is $5 trillion.
  • In the past 3 years, the dollar has been devalued by 50% against gold.
  • Default will be through inflation.

Gold advanced by $15 on the week and is up $119 since July 1st.  Silver advanced by $1.50 on the week and has gained $5.82 since July 1st.

Platinum and palladium both advanced on the week by $33 and $30 respectively.  Platinum has gained $85 and palladium $57 since the first of the month.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,602.00 +$15.00 +0.95%
Silver $39.67 +$1.50 +3.93%
Platinum $1,793.00 +$33.00 +1.88%
Palladium $807.00 +$30.00 +3.86%

Gold and Silver Rocket Higher As Bernanke Oils Up The Printing Presses

The precious metals group continued higher this week, with standout performances by gold and silver.

As politicians continue to engage in reprehensible scare tactics in order to increase the debt limit by another $2.5 trillion, it has become increasing clear that the policies of more debt and dollar debasement will continue.  In an interview today, Ron Paul said that he expects “nothing will change” and that the U.S. is already defaulting on the debt via the devaluation of the dollar.

Gold and silver, which had already been strongly advancing in the prior week, soared after Fed Chairman Bernanke spoke before Congress on Wednesday.   Mere days after the end of QE2, Bernanke said that he stands ready to rescue the American economy with more accommodative monetary measures.   Although the exact mechanism by which future monetary easing  will be deployed remains to be seen, the end result will be the further debasement of the U.S. dollar.

As measured by the London PM Fix Price, gold hit new highs, soaring by $45.50 on the week, putting its two week gain at $104.00 per ounce.  Gold prices continued higher in New York trading with gold closing at $1,594.30, up another $7.30.

Gold has become the currency of last resort as it becomes clear that money printing is the only option left to prevent massive sovereign debt defaults by world governments.   Accordingly, there is really no upside limit for gold and silver prices.   Legendary trader Jim Sinclair told King World News that the stage has been set for gold to move up to $12,000 per ounce.

Silver has been the standout performer in the precious metals group.  After basing in the mid 30’s range after the May correction, silver has exploded upwards.

 

Silver - courtesy kitco.com

After rallying by over 7% last week, silver tacked on another 5% this week.  As measured by the closing London PM Fix Price of $38.17, silver has advanced by $4.32 or 12.8% over the past two weeks.   After the close in London, silver continued to gain in New York trading, closing at $39.37.

Silver is in a long term super cycle advance backed by fundamentals that guarantee higher prices. The accelerating exodus from paper money will quickly push silver prices to new highs – see For Silver , This Time Is Different.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,587.00 +$45.50 +2.95%
Silver $38.17 +$1.89 +5.21%
Platinum $1,760.00 +$20.00 +1.15%
Palladium $777.00 +$1.00 +0.13%

Platinum advanced by $20 on the week after a $32 dollar advance in the previous week.  Palladium ended essentially unchanged on the week after an advance of $26 last week.

Ron Paul – The U.S. Is Already Defaulting On The Debt

Ron Paul, the embodiment of common sense and classic American values, spoke today about the U.S. debt crisis in an interview on The Daily Ticker.

Rep. Paul made the point that few people see any real value in U.S. government debt securities and are holding them only as a temporary place to keep their money.  “That’s why people are going to gold as a reserve and a place to put their money”.

Ron Paul said that Washington does not understand how dangerous a situation the Country is in and that “nothing will change”.  Default on the debt would be “a big deal” and Paul thinks that Congress will raise the debt limit and that all payments on U.S. debt will made.

Ron Paul noted, however, that governments like our “always default, the default is we pay our debts with money with less value.  Bernanke is actually working very hard at this, he wants the price inflation to go up so that the dollar goes down in value.  So we get to the point in two years or so that you can take the national debt of $14 trillion and turn it into $7 trillion or real value.  They want the dollar devalued – that’s how countries default.  So the default is ongoing and that is very dangerous…”.

Meanwhile, President Obama said “America is stressed out”.  Yes, Mr. Obama, the country is stressed out – by failed economic policies propagated by the elite political class and special interest groups in Washington who serve Wall Street and the Big Banks rather than the American public.

America has reached the tipping point from policies that have given us a crash in housing values, no job gains over the past decade, zero return on our savings, higher inflation, dollar debasement and a decline in real incomes.   Middle class households who have not allocated a substantial portion of their savings to gold or silver have seen their wealth decimated.

In a rare display of candor, Treasury Secretary Geithner admitted in an interview this week that  “It’s going to feel very hard, harder than anything they’ve experienced in their lifetime now, for a long time to come.”  Now if only the politicians would be honest with us,we might be able to establish a better plan for a path to recovery other than unlimited money printing.

 

“Gold Is Not Money” – Ron Paul Shreds Bernanke

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.

 

 

 

 

Steve Forbes Joins Ron Paul’s Call For Gold Backed Currency

Steve Forbes, CEO of Forbes Magazine, said the U.S. should return to a gold backed currency to prevent further debasement of the U.S. dollar.  Mr. Forbes joins a growing chorus of intellectually honest Americans who view the Federal Reserve as the greatest danger to the American economy and way of life.

The quest to preserve the value of the U.S. currency and rein in the Federal Reserve has long been championed by Rep. Ron Paul.  Apparently, Ron Paul’s message is beginning to make sense to more and more Americans as they watch the purchasing power of their dollars decline daily.

http://youtu.be/3CG9UVagFQ0

Bloomberg is reporting that the public approval rating of Fed Chairman Bernanke has dropped to the lowest level in two years. Bernanke has an approval rating of only 30% compared to 41% in late 2009.  Bernanke’s response to every problem has been to lower interest rates and print money, which have done little to improve the fundamental financial health of consumers or the government.

According to Bloomberg, the public has grown increasing skeptical of increased debt and money printing since unemployment is still near 10%, home values are still in a free fall and the declining purchasing value of the dollar has lowered the standard of living for most Americans.  The Bloomberg Poll showed that a resounding two thirds of Americans think the country is on the wrong track, with 55% expecting their children to have a lower standard of living.

Professor Bernanke can wax eloquent on the benefits of “quantitative easing” but the average American is smart enough to know that a country that needs to print money to pay its bills is in desperate financial condition.

Steve Forbes noted that the ability of the government to print money encourages reckless spending since money can be created out of “thin air.”  According to Mr. Forbes, if the country returned to a gold standard, unlimited spending could not occur.  Ironically, the ability to expand credit and print money is exactly why the government abandoned the gold standard.  The concept of a Federal Reserve and a gold backed currency have become almost mutually exclusive concepts.

 

Ron Paul’s Call For Gold Backed Currency Would Value Gold At $54,300 Per Ounce

FORT KNOX

Ron Paul said today that the creation of a sound U.S. currency, “backed by gold or some other commodity respected by the market” was the most important first step to create new jobs and encourage capital investment in America.

In an article published on the Ron Paul website entitled “The Keys to Economic Growth“, Ron Paul argued that the U.S. economy was in “terrible shape” and that the trillions of dollars borrowed and printed by the U.S. government have done nothing to turn things around.  Rep. Paul noted that the real unemployment rate was closer to 20% rather than the officially published rate of 9.1% and that real job growth would only come from private capital financing existing business or entrepreneurial growth. New job growth will not occur, said Ron Paul, if we continue to punish those who accumulate capital needed for business expansion.

Ron Paul listed four essential steps that must be taken to turn around the American economy through new job creation.

  1. The U.S. economy cannot be restored, according to Ron Paul, until we “prohibit the Treasury and Federal Reserve from essentially creating money and credit from thin air.”  A currency that is rapidly being debased will not attract private capital.  In order to ensure a sound currency, the dollar should have its value legitimatized via gold or commodity convertibility.
  2. The extreme regulatory burdens on business have greatly inhibited job growth.  The vast bureaucracies and compliance nightmares being created by Obamacare and the Dodd-Frank Act have served to choke off business growth and new jobs since businesses cannot cope with “unknowable regulatory compliance burdens.”   Rep. Paul said it is time to “start shrinking the federal registry.”
  3. The trillion of borrowed dollars spent on foreign wars has reduced our economic growth by sapping the private sector and increasing the Federal debt. Rep. Paul declared that “There is no point in debating a foreign policy we cannot afford.”
  4. According to Ron Paul, the U.S. tax system needs to be revamped to allow U.S. foreign income to be repatriated tax free to the U.S. to allow the funds to be deployed in the domestic economy.   Ron Paul also said it would be better to simply “abolish the income tax altogether.”

Ron Paul noted that free market capitalism and respect for property rights was essential in allowing the creation of U.S. wealth.  The poorest nations on earth routinely demonstrate hostility to free markets, private property and the rule of law, with the predictable result of widespread poverty.

Ron Paul’s attempt to preserve the integrity of the U.S. dollar by backing the currency with gold has little chance of succeeding.  A gold backed currency would prevent Congress and the Fed from running deficits and printing money, something they would fight to avoid at all costs.

It is interesting to speculate, however, on what the value of gold would need to be to in order to back the massive debts and obligations that the U.S. government has piled up.  The United States has issued the most amount of debt of any nation on earth.  Ignoring the trillions in unfunded and off balance sheet obligations, the United States has official debt of $14.2 trillion dollars outstanding, including both marketable Treasuries and intergovernmental debt.

If the U.S. used its official gold reserves of 261.5 million ounces to back the $14.2 trillion of U.S. debt, gold would need to be valued at $54,300 per ounce.

 

 

 

US Mint To Increase Production Of Silver Bullion Coins To Meet “Unprecedented” Demand

The United States Mint announced that it will commence production of American Eagle Silver Bullion Coins at its San Francisco Mint.  For several years now, the Eagle Silver Bullion coins had only been produced at the Mint’s West Point facility.

In a press release this week, the US Mint noted that “Demand for American Eagle Silver Bullion Coins remains at unprecedented high levels.   Adding production at the United States Mint at San Francisco provides manufacturing flexibility across the bullion and numismatic product lines to meet customer needs.”

In the face of huge demand for the silver bullion coins, the US Mint has been allocating orders among its authorized purchasers.  The high demand and limited production has lead to high premiums of up to $5 per coin for purchasers of the silver bullion coins.

The US Mint recently came in for criticism for its failure to meet demand for physical bullion coins.  In early April, during a hearing by the House Financial Services Subcommittee, Rep. Ron Paul criticized the Mint for its failure to meet public demand for silver and gold bullion coins.  Ron Paul linked the shortage of bullion coins to the “huge debasement” of the United State currency and said that it was “imperative” that the US Mint meet public demand for bullion coins.

The US Mint said that it has capacity to mint up to “several hundred thousand coins per week” at the San Francisco facility.  The Mint will use the same packaging and manufacturing process at San Francisco that it uses at West Point and the coins will not have a mint mark.

Although demand for the American Eagle Silver Bullion coins remain high, the purchase of 90% silver coins is becoming a more cost effective and popular way to invest in silver.  There is a very small premium or even a discount from bullion value on the purchase of 90% silver coins.

APMEX is currently selling a $1,000 face value bag of 90% silver coins which contain 715 ounces of pure silver for $27,541.80.  Based on today’s closing New York price for silver of $38.16 per ounce, the silver value of the bag of coins being sold by APMEX is $27,284.

Gold and Silver Reach Record Highs While Ron Paul Weighs In On Spending Fiasco

Silver was again the star performer in the precious metals group, hitting a new yearly high of $42.61.  For  the second week in a row, silver has added over $2 per ounce as measured by London PM Fix Price.  After soaring $2.59 in the previous week, silver capped another standout week with a gain of $2.39.

As a long time patient investor in silver, the moves over the past couple of years have been nothing less than amazing.  In the early 1990’s, a one ounce silver eagle  did not cost much more than $5 per coin.  In just the past two weeks we have witnessed silver increase in value by $4.98 per ounce.  Am I nervous about the rapid appreciation or worrying about a correction that the main stream press is calling for?

Not in the least – I am in silver for the long term and the policies of our government and central bank virtually guarantee much larger profits in the future (see Why Gold and Silver Have No Upside Limit, and Budget Fiasco Sends Wrong Message To Creditors and The Perfect Storm for Gold and Silver).

Any price corrections in the precious metals (and yes they will happen) should be viewed as opportunities to increase positions.

Precious Metals Prices
Fri PM Fix Since Last Recap
Gold $1,476.75 +7.25 (+0.49%)
Silver $42.61 +2.39(+5.94%)
Platinum $1,787.00 -16.00 (-0.89%)
Palladium $772.00 -26.00 (-3.26%)

Gold, as measured by the closing London PM Fix Price, hit another all time high, closing at $1,476.75, up $7.25 on the week after running up $51.50 in the previous week. After breaking out of its base in the $1,450 range, gold could be getting ready for a substantial move upwards.

Paper money is all about confidence and, to anyone paying attention, last week’s “budget compromise” proved conclusively that our government is absolutely incapable of reducing spending.  After threatening us with a government shutdown and terrifying half of the citizens of this Nation with a potential cutoff of entitlements, both political parties proclaimed victory with an inconsequential  spending reduction of $38 billion.  Keep in mind that this year’s deficit is almost 37 times the proposed spending cuts.

The problem with the “compromise cuts”  is that both political parties lied to us and they were called out by the Congressional Budget Office (CBO) which said actual spending would be reduced by only a laughable $352 million.  Futhermore, the CBO noted that when “emergency spending” and the cost of multiple wars is factored in, actual spending would actually be $3 billion higher than the 2011 budget forecast.  It is not by accident that gold and silver have been soaring.

Ron Paul, one of the very few courageous and honest politicians that this country is lucky to have, said the following in a commentary about the latest events in Washington.

Last week, Congress and the administration refused to seriously consider the problem of government spending.  Despite the fear-mongering, a government shutdown would not have been as bad as claimed.

A compromise was struck at the last minute, but until Democrats agree to rein in entitlement spending, and Republicans back off the blank checks to the military industrial complex, it all amounts to political gamesmanship.

Unfortunately, the compromises always seem to be just the opposite.  Instead of the left agreeing to cut social spending and the right agreeing to cut military spending, the right agrees to more welfare and the left agrees to more warfare.  In spite of all the rhetoric, we will go deeper in debt, the Fed will print more money, and the value of the dollar will continue to plummet.  How long will it be before foreigners stop buying our debt, and hyperinflation arrives?  Throughout history, empires have always overextended themselves through conquests and wealth transfers leading to eventual collapse, from the Roman Empire to the Soviet Union.  We are headed in the same direction and it seems only the chaos of the collapse of the dollar will stop the spending spree.  Arguing over funding for Planned Parenthood and NPR, though important, only shows that leadership in Washington either won’t face reality, or don’t understand how serious the problem is.

Of course, an actual government collapse would create serious problems for many people who have come to depend on government payments for healthcare, retirement income, their children’s education, and even food and housing.  However, these so-called entitlement programs are unconstitutional to begin with and have engendered a culture of dependence on wealth transfer payments that is out of control. It concerns me greatly that instead of dealing seriously with our situation, so many in Washington would rather allow the chaos that will ensue when all of the dependent people are suddenly cut off.  Better to look reality squarely in the face and tell people the difficult truth that government is simply not capable of managing people’s lives from cradle to grave as was foolishly promised.  We face trillions in deficits with any of the budgets under consideration.  Keeping those promises is, sadly, just not one of our options in the long run.  Better to admit the nanny state is coming to an end and we are no longer working on “compromises” but a transition – to a sustainable way of life, one that respects the constitution, the rule of law and property rights.

In a sign that perhaps the economy may not be as strong going forward as some seem to think, industrial metals platinum and palladium both sold off on the week.   Platinum ended down $16 at $1,787 while palladium lost $26 to $772.