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Nov 8, 2010

Another day, Another Spectacular Move Up of Gold and Silver Price

They can go parabolic any time from now on.  Just look at the jump in the last hours below! (Feel free to change the timeline up to 10 years back on the site linked from the images).
Bernanke is on a mission to make us gold and silver bugs filthy rich! Thanks Ben!
And every serious analyst says that this is just the start, for many reasons. Gold has already won the world currency war hands down, silver is moving up about 3x faster, and from now on they will move upper and upper, possibly parabolic, while most of world "reserve" currencies collapse.
This is just to say that if you did not buy gold and silver as I am advising here since I started this blog, then you are a moron, but if you have liquidity you are still in time to save your butt buying gold and silver before now with both of your hands.  Otherwise, good luck and good bye.






For background and some sharp analysis I paste below some snippets from Gold Report, a Peter Schiff's newsletter that I just received in my mailbox:


THE CURRENCY WAR - GOOD FOR GOLD
by Peter Schiff

Peter Schiff

As the world awaits another $500 billion flood from Bernanke's printing press, central bank governors from Brasília to Tokyo are preparing to respond in kind. This is the monetary equivalent of a nuclear war, except instead of radiation, bombs of inflation threaten to make the world economy uninhabitable for saving and productive enterprise.

While much of the attention has been focused on China and accusations that it is a "currency manipulator," the first shot in this war was clearly fired by the US Federal Reserve. Last month, the Fed came out with a statement that, for the first time ever, said inflation is rising at a rate "below its mandate." That is, they acknowledged that the deflation threat had passed, that prices were stable - but they still intended to send prices higher.

Since the Bretton Woods Agreement was signed in the wake of World War II, the global monetary system has been based on the US dollar. This means that when the Fed decides to create trillions of dollars of inflation, other countries can't simply say, "let them dig their own grave." Instead, because their international transactions are denominated in dollars, they feel a pressure to maintain relatively stable exchange rates between their currencies and the dollar.

Most countries do this informally and have their own (bad) reasons for maintaining a certain level of inflation. China, however, is more literal in its devotion to the dollar system, perhaps due to its psychology as a new arrival on the world stage. So, in recent history, the People's Bank of China has largely maintained a "peg," by which it currently offers to pay 6.8 RMB for every dollar deposited, no matter how many extra dollars the Fed prints. To put it another way, China, and to a certain extent the entire world, is on a Dollar Standard -- like the Gold Standard, but based on another fiat currency instead of a precious metal.

What this also means is that China does not intentionally devalue its currency against the dollar, but only to keep pace with the dollar. Chinese Commerce Minister Chen Deming said as much in an interview on October 26: "Uncontrolled" issuance of dollars is "bringing China the shock of imported inflation." Most emerging markets are the same way. In order to prevent rapid economic dislocations, and often to appease their powerful export lobbies, these countries seek to maintain a status quo versus the dollar - whether through inflation as with China or capital controls as with Brazil and South Korea, or both.

In short, the currency war is really just the rest of the world trying to shield itself from a barrage of nuclear dollars.

The end result is that the entire civilized world is locked in a race to inflate, and no fiat currency is truly safe. In my brokerage business, I advise clients to buy companies - not currencies - in countries that I believe will thrive in the war's aftermath. China could dump the peg tomorrow and, after a period of adjustment and write-offs, would continue to grow apace. The UK, on the other hand, is happy to be locked in a competitive devaluation as it helps the government avoid imminent default while it puts through budget reforms. But regardless of their strategic positions, all major central banks will likely engage in some money printing to keep their currencies level with the rapidly devaluing US dollar - until the greenback loses its reserve status. (This may happen sooner than later, if an agreement this month between China and Turkey to stop using dollars in their transactions is any indication.)

As the Fed seeks to blow up the global monetary system, I take comfort in the fact that gold cannot fight a currency war because it is not a currency. Gold is money. Currencies used to be backed by money until the global fiat system was introduced under President Nixon. Fiat currency can be printed at will until the economy collapses, as has happened many times in history. Money is impossible to devalue at the whim of politicians because it is naturally scarce. Even in the ruins of Europe after the Second World War, when there was no central authority and chaos reigned, an ounce of gold was worth what it always had been.

If we are witnessing a fight to the death among fiat currencies, then gold is surely the Red Cross - a peaceful arbiter and source of mercy for our accumulated savings. While I do believe that life will go on after this war, as with all others, the thought of the world's savers all hiding their assets safely in gold brings to mind the old question: What if they gave a war and nobody came?

If you would like more information about Euro Pacific Precious Metals, click here or go to our website, www.europacmetals.com. For the fastest service, call 1-888-GOLD-160.



QE2 DWARFS GOLD SUPPLY
by Jeff Clark of Casey Research
Jeff ClarkQE2 is the latest buzzword in the investment community, referring to the second "quantitative easing" program the Fed is likely to dispense. While Peter examined the impact of the  Fed's policies on other countries, I want to compare it exclusively to gold. Warning: you may be offended at what you're about to see.

Though QE2 is not yet official, it's largely expected to transpire. Bernanke himself stated on October 15 that "a case could be made for a further easing in US monetary policy." And, according to Reuters, of the twelve policymakers that vote, the average score in favor of a second round of purchases of US debt is "2," with "1" signifying they're most likely to support further easing and "5" that they're likely to oppose. Half the members are rated with a "1," and none are rated with a "5." The odds of QE2 proceeding are thus high. 

The next question is: how much "easing" could the Fed do? Bill Gross, at investment management firm PIMCO, believes the Federal Reserve will resume quantitative easing at the rate of $100 billion per month. If the Fed actually bought Treasury bonds at that pace, it would be buying nearly all the new debt being issued by the US Treasury. The Federal Reserve would be financing the government's deficit.

How much effort does it take to create $100 billion per month? It's done electronically, a few strokes on a keyboard. In contrast, what is required to make a gold coin or bar? It takes the best geologists in the world many years and millions of dollars to locate an economic gold deposit; five to ten years and sometimes billions of dollars to develop that deposit; and then dozens of parties, from banks to mints to dealers, assuming myriad risks before a bar or coin gets to you and me.

Let's assume Bill Gross is correct in his projection. How does $100 billion of money printing compare to the amount of gold coming to market each month?

Chart 1

Using 2009 data, the monthly total of new gold supply coming to market averages 9.71 million ounces, or about $13.1 billion (at $1,350/oz gold). That means the Federal Reserve is about to print 663% more in dollars every month than the value of what the entire world can supply in gold from all sources.

Monthly mine production is about 6.39 million ounces, or $8.62 billion, per month. The Fed will be creating 1,060% more in dollars every month than the value of what every gold company in the world can dig up.

Net investment demand (investment minus retail sales) is just over 3 million ounces, or $4.1 billion, per month. And total global coin production amounts to a measly 3 million ounces, or half a billion dollars, per month. The Fed will be creating almost 20,000% more dollars than the value of what all the mints in the world can create in gold coins.

While it remains to be seen how inflationary this will all be, there's no denying it will add to the inflation already baked in the cake. Cause has effect, and just because the government says the Consumer Price Index was only 2.1% through the first half of the year doesn't mean the problem isn't building. It's intensifying, and at some point the dam will give way.

What does the investor do with this information? Make sure you own sufficient protection against the ramifications of promiscuous currency debasement. The more assets you have denominated in gold, the greater your protection. The investable assets you hold in dollars should be viewed as having a serious long-term risk of devaluation.

I'm buying the dips in gold because the government's efforts to reach "an appropriate level of inflation" are destined to work. I think inflation will ultimately go much higher than most are prepared for - or can even imagine. If I'm right, what's your plan of defense?

Jeff Clark is the senior editor of Casey's BIG GOLD advisory from Casey Research. Jeff gained early experience in the metals industry while working on his family's gold claims in California and Arizona. Every month, he informs subscribers of the status quo of the current gold bull market as well as prudent precious metals-related investments, such as large-cap gold stocks, ETFs, and physical gold.


Special Offer: Subscribers to Peter Schiff's Gold Report can receive a year of BIG GOLD for only $39 - with a 3-month, 100% money-back guarantee. Offer expires this Friday, November 7th. Click here for details.



GOLD AND SILVER BLAST OFF
by Mary Anne & Pamela Aden
The Aden Sisters
October saw gold soaring to record highs while silver shot up even more, reaching a 30-year high. Yes, the stronger phase of the bull market is flexing its muscles.

Gold's exceptional rise has now reached our current target level at $1,350. It's been a super rise, up 55% since April 2009... or, to put it another way, gold has soared 17% in the last 10 weeks alone!

BUBBLE, BUBBLE, TOIL & TROUBLE?

Gold is still far from the mania stage. The average investor is just starting to appreciate the rise in gold. They know things aren't right and they are learning that gold is a safe haven. They see the dollar falling, the economy dragging with debt, and the Fed trying to keep it together. The public is concerned, but a gold mania is clearly not here yet.

Remember, it's not just the US, Europe is also hurting. Whether we like it or not, no country wants a strong currency right now. With stiff competition for exports in the global economy, governments believe a weaker currency gives them an edge on trade.

This is one important reason why gold is rising in all currencies, as Chart 1 shows. Gold reached a record high last June in euros and Swiss francs, and it's holding near its highs versus the Australian dollar.

Chart 1
CHART 1
Most interesting is the Swiss franc. It's been one of the strongest currencies, reaching a record high against the dollar in recent weeks at the same time gold hit a record high. Yet when comparing gold to the Swiss franc, you can see it's holding near its record high. In other words, gold is stronger than the Swiss franc.

PARADIGM SHIFT

It took the financial crisis and the ongoing aftermath to change the way people view gold. Confidence is growing and the change in the central banks' actions and attitude toward gold was key in giving a green light to investors.

Central banks stopped selling gold and they've become net buyers this year for the first time in two decades. They're expected to buy 15 metric tonnes of gold this year, which is a major turnaround. Gold is becoming an important reservable asset.

Gold miners have been shutting down their hedging too. Anglo Gold Ashanti, the third largest mine, is closing their hedging by 2011. This means gold miners also believe gold is going higher. Plus, the global holdings of gold exchange-traded funds (ETFs) are at a record.

HOW LONG CAN IT LAST?

Some people claim that gold is in a bubble and it's ready to fall. If you think a substantial rise in government confidence and a bull market in the dollar is at hand, then you would be correct to think gold is due to slide. We don't see it.

Historically low interest rates in the US and Europe are providing another boost for gold because it doesn't have to compete with the currencies, since gold does not pay interest. But actually, during the 1970s bull market, interest rates rose with gold. The key here is inflation as CHART 2 shows.
Chart 2
CHART 2
You can see that when inflation is higher than the T-Bill rate (above zero, shaded area), it coincides with a bull market in gold. So, as long as inflation is higher than short-term interest rates, the environment will continue to be positive for gold.

SILVER SHINES BRIGHTER

Silver has jumped up to a 30-year high, gaining 31% in 10 weeks. It beat our previous $23 target. And as much as silver has already risen, it's still clearly not overbought. It's on a roll and our next target is the $27-$30 level.

When silver is stronger than gold it tends to coincide with a rising resource sector. Silver then gets the benefit of being both a precious metal and a base metal. This is another way of saying that if the emerging economies remain strong and demand for resources stays high, silver should continue to outperform gold.

TOO LATE TO BUY?

For new buyers, our suggestion is to buy gradually this month and next. Buy gold, silver and mining shares on weakness. Palladium has been very strong, rising 38% since July. Platinum is following. Both are in major uptrends above $420 and $1500, respectively.

Mary Anne and Pamela Aden are authors of The Aden Forecast, an investment newsletter now in its twenty-ninth year. It is one of the longest continually published investment newsletters in the world. They specialize in the precious metals and foreign exchange markets, as well as the US and international equity and credit markets.

We recommend their newsletter highly. Subscription information, including a no-risk trial, can be found by clicking here.




THIS MONTH IN GOLD

Super-Rich Investors Buy Gold by Ton
Reuters - A survey of private wealth managers catering to high net worth individuals has shown that the world's ultra-rich are selling currencies and buying gold "by the ton." One notable difference from past downturns is the demand for physical gold, as opposed to just ETFs and mining stocks. Anecdotal evidence from bankers shows the wealthy buying tons of gold for physical delivery, then storing the assets away from the banking system. Read full article >>

Drinks Are Free as Bartenders Refill Punchbowl
Bloomberg - Noted Bloomberg columnist William Pesek openly challenges the myth of central bank independence. In the 13 years since the Bank of Japan was granted "independence," it has left interest rates near zero the entire time. To explain why, Pesek brings the illustration to American shores. He imagines what would happen if Fed Chairman Bernanke were to try to raise interest rates under present conditions. The answer? Immediate Congressional subpoena, followed by a quick resignation. ECB President Trichet is in the same boat, but with 16 irrational captains. And Pesek sees the problem as only getting worse. Come to think of it: when was the last time you heard anyone in Washington say the words "exit strategy"? Read full article >>
Gold May Climb to Record $1,650 an Ounce on Fed Easing, Goldman Forecasts
Bloomberg The headline says it all. Goldman Sachs, which in August cautiously raised its guidance on gold to $1,300 by the end of this year, is now forecasting that the bull trend will continue until this time next year. This is all predicated on the Fed continuing its easy-money policies with abandon. If trends were to reverse, then a re-evaluation would be necessary. Meanwhile, with no sign that the Fed is even considering a reversal, Goldman's new price target is looking to become obsolete faster than Betamax. Read full article >>

South Korean Central Bank Looks to Gold
Financial Times - South Korea, an Asian Tiger and a state largely dependent on the US military for its continued existence, has publicly declared that it intends to diversify its "dollar-heavy" portfolio into gold. Seoul holds virtually no gold in reserve at present. To increase its reserve to a world average of 10%, the Bank of Korea would have to purchase some $29 billion in gold, or some 21 million ounces at current prices. Bank officials' historic trust in Treasury bills over precious metals has apparently been shaken by the commodities rally and record low US interest rates. Gold is seen as a "neutral asset" in what is becoming a "currency war situation." Read full article >>

Commodities to Extend Rally on Federal Reserve's "Game Changer," UBS Says
Bloomberg - The Fed's second round of quantitative easing (QE2) will be a "game changer" for copper, gold, and palladium, according to a report from UBS commodities analysts. A new round of inflation is a "virtual certainty", which is bullish for commodity prices. The report cited a Goldman Sachs estimate that the ultimate tally for QE2 will be $1 trillion. UBS' gold target for 2011 has been raised to $1,400/oz. Read full article >>

China is key to next rally in gold pricesFinancial Times - David Hale of David Hale Global Economics forecasts that gold is in a multi-year bull market that will drive the price to "at least $2,000/oz by 2015." The 2005 introduction of gold ETFs and the erupting currency war have been important factors. But China's domestic situation will be the main driver of gold's continued run, according to Hale. Only 1.7% of the People's Bank of China's $2.4 trillion in exchange reserves are currently held in gold, and those reserves are due to swell to $6 trillion in the next five years. If that allocation is maintained, that means another 1,500 tonnes in purchases - but the likelihood is that China will want to increase its gold allocation. Meanwhile, yuan inflation and recent deregulation of the gold market has led to a surge in private demand for gold among the Chinese. Hale sees China's hunger for gold "dwarf[ing] all other factors during the next quarter century," regardless of what happens to the US dollar. Read full article >>
Get more information now!
In This Issue
The Currency War - Good for Gold
QE2 Dwarfs Gold Supply
Gold and Silver Blast Off
This Month in Gold

Quick Links

Ron Paul Comments On QE2, Says Fed Will Self Destruct, Shocked That Krugman Has "Any Credibility Whatsoever"

From Zero Hedge:



There were few surprises in today's commentary by Ron Paul on QE2: the only man in Congress (with Grayson now gone) who is sufficiently intelligent to realize that the primary culprit behind the US economy's boom-bust cycle is the Federal Reserve, continues to press for the termination of Ben Bernanke's public "service" which has resulted in a collapse in American purchasing power in the 100 years since the first Jekyll Island meeting. Yet Paul takes a 'John Lennon' approach to the problem, believing that active intervention may not even be needed, as the Fed ends up cannibalizing itself: "I think the Fed will self-destruct. People will desert the dollar. I think the Chinese are hinting that already. They are not wanting our dollars as much as raw materials. This is a deeply flawed monetary system. Here we have a small group of people who can create $600 billion with the stroke of a pen... I don't know where people are coming from to think that this can work. What really astounds me me is how tolerant the people are, the people in Congress and the financial market, where did this authority come from? Now somebody outside of the government can spend trillions of dollars and not think anything about it. It doesn't work, it's a failure. And next year it will be more. Bernanke is very clear on what he is going to do - he is going to create money until he gets economic growth and there is no evidence to show that just creating money causes economic growth." All logical and expected. Which is why nobody will endorse the Paul stance, it as it means an end to the trillion dollar wealth transfer system from the middle class to the kleptocracy.
Yet the funniest thing is Ron Paul's commentary on that irrelevant, and now completely discredited Fed puppet, Paul Krugman,
Krugman is the exactly the opposite of a free market economist. I would think by now he would have been totally discredited and it's tragic - i pray every night that his views will just disappear because what he wants to do is more of the bad stuff...He is leading the intellectual charge for the total destruction of the dollar. I don't see how he has any credibility whatsoever.
Nobody but the NYT has an answer to that question.
_____________


Related:

Krugman Dementia Alert: Former Enron Consultant Says Jim Rogers "Has Been Absolutely Wrong About Everything"

Eurointelligence Daily Briefing - 8 November 2010: ECB stepped up bond purchasing programme last week

  • Traders report that the ECB last week intervened in bond markets more than ever since the launch of the bond purchasing programme in May;
  • bond spreads stabilise as a result;
  • Robert Zoellick calls for the establishment of a gold-backed Bretton Woods II system;
  • German politicians are in uproar over the Fed’s decision to start another programme of quantitative easing;
  • Merkel says she wants to raise the issue at this week’s G20 summit;
  • there won’t be another general election in Greece, after Papandreou’s Socialists did relatively well at the regional elections;
  • Juncker said he will make a proposal for a common European bond;
  • Mario Draghi says the heart of Italy’s economic malaise is low-skilled employment;
  • Dominique Baert argues that France faces a debt sustainability problem;
  • Portugal’s opposition leader calls for budget slippage to become a criminal offense;
  • Ireland seeks EU support amid bond buyers strike;
  • Belgium TV, meanwhile, is to air a programme discussing how a break-up of the country could be managed.