Saturday, November 13, 2010

Buy Gold and Silver (Part 2)

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Silver at $936 per ounce? Believe it. GATA's Adrian Douglas makes the case for bullion bank metals price supression, and for the TRUE value of one ounce of gold.
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Too big too fail banks like JPM and HSBC have been artificially manipulating the price of silver and gold, scamming the tax payer, and ultimately will lead to the biggest financial disaster in the history of human financial civilization. The run on the comex has begun. The COMEX offered dollars instead of physical metal on December 1st silver deliveries. GAME OVER. Crash the JP. Buy physical.
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Is Gold In a Bubble ... How Much Further Can It Rise Before It Pops?
by Washington's Blog
Global Research, November 15, 2010
When everyone from Jim Cramer to Mr. T is hawking gold - and when the price has risen to all-time highs - it sure feels like a bubble.
On the other hand, the super rich - who presumably know a thing or two about investing - are buying gold by the ton.
Deutsche Bank's head commodities researcher Michael Lewis said last week that gold and agriculture are the safest long-term investments.
Lewis wrote in September:
Gold prices would need to surpass USD 1,455/oz to be considered extreme in real terms and hit USD 2,000/oz to represent a bubble.
Bloomberg notes:
Myles Zyblock, chief institutional strategist at RBC Capital Markets, said last month gold may soar to $3,800 within three years as it follows the pattern of previous “investment manias.”
Barron's points out:
Louise Yamada, the eminent technical analyst who for many years worked at the various firms that have coalesced into Citigroup and now presides over LY Advisors, last week remarked in a client note that gold—based on its current trajectory—most likely wouldn't represent a true bubble unless and until it gets to $5,200 an ounce (from its $1,317.80 December-contract close on Friday) within a couple of years.
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University of Michigan economics professor Mark J. Perry noted in July that inflation-adjusted gold prices are lower now than in 1980:
Adjusted for inflation, the price of gold today is 41.5% below the January 1980 peak of more than $2,000 per ounce (in 2010 dollars).
Frank Holmes, the CEO of US Global Investors said recently:
“If you take a look at previous cycles, super cycles, we're far from it,” he said.
“If gold were to go to 1980 prices like most commodities have gone to, gold would be over $2 300/oz,” Holmes commented.
WJB Capital Group's John Roque pointed out in May that the current gold bubble is still much smaller than the bubble in the 1970s when priced against the S&P.
MSN's Money Central noted last month:
Brett Arends, a columnist for The Wall Street Journal and MarketWatch, estimated that "individuals bought $5.4 billion worth of gold, and sold about $2.7 billion, (so) their total net investment comes to $2.7 billion" in 2010, through early summer.
Arends contrasted that with the $155 billion they shoveled into bond funds through July. That may be the real bubble.
Arends also concluded that "if it continues along the same trajectory (of past bull markets) -- a big if -- gold today is only where the Nasdaq was in 1998 and housing in 2003."
In May, Arends wrote in the Wall Street Journal:
Before we assume the gold bubble has hit its peak, let's see how it compares with the last two bubbles—the tech mania of the 1990s and the housing bubble that peaked in 2005-06.
The chart is below, and it's both an eye-opener and a spine-tingler.
It compares the rise in gold today with the rise of the Nasdaq in the 1990s and the Dow Jones index of home-building stocks in the 10 years leading up to 2005-06.
They look uncannily similar to me.
So far gold has followed the same path as the previous two bubbles. And if it continues along the same trajectory—a big if—gold today is only where the Nasdaq was in 1998 and housing in 2003.
In other words, just before those markets went into orbit.
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Tyler Durden notes:
[JP Morgan's] Michael Cembalest indicat[es] that ownership of gold in dilutable terms (aka dollars), as a portion of global financial assets has declined from 17% in 1982 to just 4% in 2009. And even though the price of gold has double in the time period, as has the amount of investible gold, the massive expansion in all other dollar-denominated assets has drowned out the true worth of gold. Were gold to have kept a constant proportion-to-financial asset ratio over the years, the price of gold would have to be well over $5,000/ounce.
(Durden points out that when derivatives are factored in, the percentages are even more dramatic).
Aden Forecast argues in its November 12th forecast:
Debt is in a mega trend. Eventually, the magnitude of the situation and its repercussions will become more obvious. That’s also why the U.S. dollar will continue to fall because more spending and money creation makes the dollar worth less, and gold will keep rising because it is real money. This is one main reason why they’re in mega trends too.
We clearly believe that gold and silver are far from being in a bubble.... The value of the whole monetary system is under question and until this very issue is resolved, gold and silver will prevail.
Many people think that the Federal Reserve's QE2 will boost gold prices. And since QE2 will continue for many months, that augers well for gold.
With all of the money printing worldwide, it is not surprising that gold has continued to rally against all currencies.
For extensive background information regarding gold, see this.
Note: I am not an investment advisor and this should not be taken as investment advice.
Even if the gold bull market has further to run, gold prices might correct sharply downward in the short-run, and you shouldn't buy gold unless you're willing to lose your investment.
In addition, if the government decides to confiscate gold like it did in the 1930s - or to heavily tax gold - this could considerably change the cost-benefit analysis.
Remember also that if the Fed raises interest rates, gold could fall rapidly.
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Silver: Still The Investment Of A Lifetime
By Giordano Bruno
Neithercorp Press – 11/12/2010
http://neithercorp.us/npress/?p=912
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Silver is the common man’s currency. It always has been, and it always will be. While gold holds its place in history as the great stabilizer of economies and the shield against hyperinflation, its shine and its safety should not distract us from its brother, silver, whose uses are numerous and whose value is often more attainable for those seeking a solid investment outside of precarious paper securities.
Gold’s unprecedented upsurge in price the past year alone is now becoming the stuff of legend, and it is also something we at Neithercorp have been predicting for a while now:
http://neithercorp.us/npress/?p=184
http://neithercorp.us/npress/?p=579
The mainstream media attacks on precious metals were so extreme last year that they began to border on the bizarre. The “cult of fiat” was relentless in their attempts to slander gold investors and it seemed as though no matter how well the yellow stuff did, or how dismal the dollar’s performance was, they would never get tired of the disinformation game. Fast forward a year later, however, and they have been utterly silenced. What a difference twelve short months can make…
As I write this, gold is holding after a spectacular drive at around $1390, which is in line with my prediction of $1350 to $1450 by winter 2010, and on track to meet my prediction of $1500 by the beginning of next year. We’ll have to wait and see, but what seemed absolutely out of reach during this summer is now looking rather simple to achieve today. Of course, silver has been a bit harder to put a finger on, and there are many unfortunate reasons for this.
The silver market was wholly dominated for at least two decades by only a few corporate banks, but primarily through the infamous JP Morgan and the HSBC. Using coordinated naked short selling and massive amounts of capital, they have been able to knock silver down every time its value fell below a certain ratio to gold; usually 60:1. Only recently has that ratio moved slightly closer to the true wealth of silver. The historical average ranges between 16-33 ounces of silver for every ounce of gold.
These banks have also been issuing paper silver securities, usually in the form of ETF’s, which have no REAL silver backing them. These securities give investors the illusion that there is too much silver on the market, and not enough buyers. This causes devaluation in the metal.
Gold has suffered from the same manipulation in the past, but the silver market is even more tightly controlled, at least, until this year…
In November of 2009, a metals trader in London by the name of Andrew Maguire contacted the CFTC with inside information that JP Morgan Chase Bank was deliberately interfering with the silver market on an enormous scale. He not only told the CFTC how the bankers were doing it, he PREDICTED when they would do it again! Maguire gave two days advanced warning that JP Morgan would attack silver on Feb 5, 2010. The market played out exactly as he said it would:
http://www.gata.org/node/8466
The bankers were now caught red handed. The market could only go up from there….
Indeed, silver is now holding at around $27 an ounce, up from less than $10 an ounce two years ago, closing in on a 300% gain. If you bought silver in 2008 as I did, then you’ve made out incredibly well in a very minimal time span. But what about people who were afraid to dive into the market back then, or who just weren’t aware of silver as an investment at all? Have they missed out? Is the $30 mark as good as it gets? I believe that silver still has a long way to go before it peaks, and room yet for millions of new buyers who are in need of a safe haven against the imploding dollar but don’t have the finances to purchase gold. Here’s why…
Bank Fraud Exposure Hitting Mainstream
The Andrew Maguire incident was just the beginning and the event acted as a springboard. Both JP Morgan and HSBC are now under investigation for silver manipulation pending a lawsuit filed in New York. The suit accuses the banks of using their 85% commercial net short position in the silver market to control its value on the COMEX:
http://www.benzinga.com/news/10/11/579017/jp-morgan-chase-hsbc-face-charges-in-manipulating-the-market
CFTC Commissioner Bart Chilton has announced his belief that there is, in fact, manipulation of the silver market. In his statement he said:
“I believe that there have been repeated attempts to influence prices in the silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told by members of the public, and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act (CEA) have taken place in silver markets and that any such violation of the law in this regard should be prosecuted.”
http://www.cftc.gov/PressRoom/SpeechesTestimony/chiltonstatement102610.html
This is an extremely rare admission by the CFTC, which has for many years ignored all complaints and evidence pointing to bank interference in precious metals.
The Department of Justice has also launched a parallel probe into criminal wrongdoing on the part of JP Morgan (though I doubt much good will come out of the DOJ):
http://www.nypost.com/p/news/business/feds_probing_jpmorgan_trades_in_gZzMvWBqOJpB55M7Rh9vwM
The bottom line is that the corruption in silver trade has been brought into the light of day, which means banks will have to, at the very least, back away from their activities to a point, which will allow PM’s to grow according to free market fundamentals, instead of global banking whims. This explains why silver has jumped to $27 an ounce so quickly, but it also signals the possibility of even greater gains in the near future, especially in light of QE2 and the weakening dollar.
Silver Supply Declining
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Just as with gold, silver availability, from mining to inventories, is in decline. This would not be so much of a catalyst if demand remained at levels similar to a decade ago. That is not the case. Demand is skyrocketing.
In June, the U.S. Mint announced it had run out of silver bullion blanks for the production of coins like the American Eagle:
http://www.zerohedge.com/article/us-mint-runs-out-silver
While COMEX silver inventories continue to decline because of constant customer withdrawals of physical bullion:
http://news.coinupdate.com/comex-silver-inventories-continue-to-decline-0368/
Mining in many areas is also beginning to fall, including in Peru, a major source of metals like copper, gold, and, of course, silver:
http://www.commodityonline.com/news/Copper-gold-silver-production-down-in-Peru-33052-3-1.html
On top of all this, silver is used in the making of many industrial and consumer products, including electronics, photography, batteries, and engine components. This puts an extra strain on silver supplies that is not felt as prominently with gold. Meaning, the ability of silver to outperform gold in terms of demand and investment potential is very high.
Dollar On Its Last Leg
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The private Federal Reserve has been injecting fiat into our financial system for quite some time. The acceleration in 2008 heralded a new stage, however, in the devaluation of the dollar. Contrary to popular belief, the bailouts and quantitative easing implemented that year never actually ended. The bailouts of Fannie Mae and Freddie Mac, for instance, have continued non-stop every quarter since the mortgage crisis unfolded. Without a full audit of the Fed’s accounts, there is no way of telling how much money has been created out of thin air. We do know that it is enough to drive foreign investors and central banks out of the dollar and into gold and silver en masse:
http://www.commodityonline.com/news/Why-Central-Banks-continue-to-buy-gold-32803-2-1.html
The announcement of QE2 has compounded the precious metals issue (not because the Fed is creating more fiat, they were already doing that unhindered). No, it is because the Fed signaled to the world OPENLY that they were about to deliberately devalue the Greenback, instead of just doing it under the radar. They erased any delusions left in the investment world had that they would try to protect the stability of our currency. As a result, the dollar index has dropped like a rock into the recesses of some distant Grand Canyon, while PM’s have spiked.
As gold climbs into the $1500 range, the effect on silver will be evident. Gold will be less and less attainable by average people with lower incomes, but these same people will still be exposed to dollar devaluation, and the need for a hedge against inflation; enter silver.
I believe silver will become the single most important investment of our age, filling the void in the wage gap gold leaves behind. As gold shoots into the stratosphere, it will be silver that people turn to most for smaller investment needs, which means much higher demand and much greater returns for those who are smart enough to buy now. $27 an ounce is incredibly affordable, especially when considering that the metal has the potential to reach $75-$100 an ounce in the next two years (and that is a conservative estimate).
There is little doubt that the dollar plunge will continue to drive people towards PM’s. While Ben Bernanke and Timothy Geithner have both made claims pre-G20 that QE2 is not a move to devalue, the rest of the world is unconvinced. Reuters recently called the meeting in Seoul, Korea “G19 plus 1”, as foreign nations become infuriated with the Federal Reserve’s actions:
http://www.reuters.com/article/idUSTRE6A62BC20101107
Even Alan Greenspan has come out in opposition to QE2, saying it is a dangerous act of devaluation:
http://www.reuters.com/article/idUSTRE6AA00320101111
Now, why is Greenspan of all people suddenly coming out against blasting the financial system with fiat? It’s hard to say. We have written here often at Neithercorp about the deliberate destabilization of the American economy in order to remove the dollar as the world reserve currency and replace it with the IMF’s Special Drawing Rights (the SDR). We have also written about the possibility that the IMF will attempt to insinuate itself into the U.S. system as a “savior”, implementing supranational control over our fiscal infrastructure, just as it is trying to do in Ireland today:
http://www.bloomberg.com/news/2010-11-12/shadow-of-imf-spooks-irish-taking-pay-cuts-to-avoid-greece-style-bailout.html
It is perhaps possible that the Fed itself (the institution, not the people who run it) may one day be offered up to Americans as a sacrificial proxy to be torn down as the lone culprit of global collapse, only to then be replaced with the IMF (which is worse, because they don’t even live in this country). In any case, the dollar is going for a ride into the backwaters of historical infamy, and it will take us all with it if we do not protect ourselves from its demise. Gold, and most especially silver, give us the power to do this.
The Return Of Real Money
While many people in the Liberty Movement are preparing diligently for the inevitable dollar plunge, some have still not delved into the world of PM’s, either because they are afraid it will be too complicated, or because they feel it is unnecessary. Obviously, survival goods are absolutely imperative, along with a solid plan for keeping one’s self and his family safe. However, the need for an alternative economic outlet to take the place of the failing dollar should not be overlooked, even by the average prepper. A system of barter is a tremendous starting point for such an alternative, but eventually, expanded trade also requires some form of currency. Preferably, one based on a tangible commodity that can’t be recreated to infinity. Precious metals have fulfilled this role for thousands of years, outliving every fiat currency ever printed. Of these metals, silver was always the one most commonly used.
Beans and bullets aside, Americans need a way to protect their savings from what is coming, as well as a way to support a replacement market outside of elitist control. There is a reason why central banks across the globe are stocking up on PM’s; because they know full well that the dollar’s days are numbered, and they plan to capitalize on its death. If the banks are allowed to dominate the supply of PM’s, simply because only a few people had the good sense to stock them while they were readily available, then our options for a free economy grow that much slimmer.
There will always be dips, corrections, and fluctuations in metals, and this should not deter us psychologically from their ultimate benefits. Every citizen of this country can and should purchase at least some insurance against hyperinflation and monetary catastrophe, and the most affordable insurance with the greatest potential today is physical silver, bar none.
You can contact Giordano Bruno at: giordano@neithercorp.us
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How high will gold go? There are some scary visions out there
CTV News
Martin Mittelstaedt
12 November 2010
In normal times, the price of gold wouldn't be anywhere near the lofty $1,400 (U.S.) an ounce it breached for the first time ever this week.
Consider the barbarous relic's run to once-unthinkable highs as a sign of Act 2 of the world financial crisis. In Act 1, investors learned that many apparently impregnable institutions, such as Lehman Bros., could implode. Now they're learning that many nations and their currencies might be facing a similar crisis of confidence, led by the United States and its dollar, closely followed by Europe and its euro.
Just as investors in the heat of the panic two years ago dumped stock in Lehman and other financial institutions, telegraphing to everyone that the economic system was in deep trouble, the sharp runup in gold could be a sign of something even more ominous. The big rise in the price of gold represents the dumping of government-issued currencies for the perceived safety of the yellow metal.
Hard-core gold bugs have been predicting such a bonfire of the currencies for ages. But a number of more
mainstream financial commentators are starting to believe much the same thing.
For one, Fred Hickey, the publisher of the influential High-Tech Strategist newsletter, is so nervous about the possibility of a free-fall in the U.S. dollar that he's stashed half his assets in gold. He frets that Washington is on a path of currency debasement that isn't going to end prettily.
“There are instances upon instances and it's always the same thing,” he says. “The economies are weak and the governments think they can pump it up with money printing. We're following that path.”
What has got Mr. Hickey and others like him most nervous is that the U.S. Federal Reserve Board announced a $600-billion “quantitative easing” program in early November, the second such effort since the financial crisis began. Essentially, it means creating new money out of thin air by purchasing U.S. treasury bonds.
Bullion has risen about $150 an ounce since late August, when Federal Reserve boss Ben Bernanke first hinted he'd fight the slump by running the printing presses. One or two rounds of quantitative easing probably wouldn't be a big problem, but what if there is round 5, 6 or 7?
And it's not just the U.S. Many countries have been trying to jump-start their economies this way. Japan has been printing money; ditto for the United Kingdom. Even the European Central Bank, often thought of as a bastion of the hard-money crowd, has been buying dubious bonds from basket-case countries like Ireland and Greece.
That is why gold has risen sharply against not only against U.S. dollars but pounds, euros, yen and even Canadian dollars. The Bank of Canada isn't engaged in quantitative easing. But the crisis is making investors suspect all currencies. The loonie is just losing value relative to gold at a slower rate.
“The [U.S.] dollar hasn't taken a really big hit yet. That's the thing to watch for,” says John Williams, the economist behind Shadow Government Statistics, a newsletter that analyzes official U.S. financial data to see where government is fudging figures.
What could ultimately take down the dollar?
Mr. Williams worries that the weak U.S. economy will cause the country's deficit to expand, and ultimately investors will become so worried about the solvency of the United States that they will refuse to buy U.S. Treasury securities, just as they're balking about bonds from Greece and Ireland.
If it included the real cost now accumulating of future obligations for social security and Medicare, Mr. Williams says, the U.S. annual deficit would be a gargantuan $4-trillion to $5-trillion, rather than the commonly used figure of around $1.3-trillion. If the Fed had to step in and cover that size of a deficit, it could cause hyperinflation, a quick dollar collapse and absolutely astronomical prices.
“If the dollar is worth nothing, [gold] could be $100-million an ounce in terms of the U.S. dollar,” Mr. Williams says, laying out the most apocalyptic scenario. “I mean, you divide by zero, you get very big numbers.”
That view may be extreme, but other analysts at least agree gold's bull run still has legs. Recently, Shayne McGuire, a manager with a Texas' teachers pension fund, one of the few big money managers in the U.S. to invest heavily in gold, wrote a book predicting the metal could hit $10,000 an ounce.
But many analysts are skeptical that the dollar is about to implode and gold reach nosebleed levels as a second instalment of the financial crisis.
Although a dollar collapse may happen at some point, “in no way are we yet in a currency crisis,” contends
Martin Barnes, an analyst at BCA Research, a Montreal-based investment research firm. If we were, he says, the U.S. stock market would be plunging as it did in 2008, and so would U.S. bonds.
And despite its record price in nominal terms, gold is still far below the $2,300 it would have to reach to exceed its 1980 high, taking inflation into account – a sign that things aren't as bad as three decades ago.
But Mr. Hickey doesn't believe the U.S. has the political will to inflict upon itself the painful budget cuts and grinding recession that would be needed to bolster the dollar, rebuild confidence in government finances and shrink the economy's debt burden to a manageable level.
If you accept that alarmist point of view, his advice is that the dollar crisis is in its early days. He says investors should go on dumping dollars for gold. If gold levels off, as markets periodically do, use the dips to load up on more. “This is the most dangerous moment possible for money holders.”
Martin Mittelstaedt covers investing for The Globe and Mail.
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Risk comes from not knowing what you're doing. - Warren Buffet
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Also See:
Buy Gold and Silver (Part 1)
08 April 2009
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