Your Road Map to the Bull Market in Gold

By Jeff Clark, editor, BIG GOLD

Does this sound like your world?

You trudge to the office, nervous about keeping your job. Some of your friends are out of work. The economy struggles, and recession seems just around the corner. Stores where you once shopped are now closed. Americans are still shooting and being shot at in the Middle East. The price of oil is far off its peak but remains high.

The government has promised action, but frankly you don’t like the president’s ideas nor trust the government’s judgment, since they don’t seem to notice that the budget and trade deficits are huge and show no sign of easing. 

You invested in some gold and gold stocks, but they’re all down. Everything has lost value. Things are looking grim indeed.

If any of this sounds familiar, you’ve got a good memory. It’s what was happening in November 1975.

Yes, things didn’t look so rosy back then, either. And yet look how November 1975 fits into gold’s bigger picture:

Gold During the 1970s Bull Market

Now compare that chart to today’s…

Gold During the Current Bull Market

You’ll see that from 1970 to 1974, gold rose 400%. In our market (2000 to 2008), gold climbed 290% to its March 2008 peak.

From 1974 to 1976, gold fell 40%. In the current market, gold has fallen 31% in eight months, a much steeper decline.

Finally, during the three-year rise leading to gold’s peak of $850 in 1980, it gained 670% from its 1976 low.

This year’s gold price has been behaving much as it did in 1975.

So where will the price be a few years from now? I can tell you that Casey Research expects gold’s chart to look more and more like the 1970s before this is over. The U.S. government has only very recently fired the starting gun for racing inflation, but it has fired it very loudly.

In just the last two months, the Fed has increased the basic money supply (cash in circulation plus deposits held by commercial banks at the 12 Federal Reserve Banks) by nearly 50%. Nothing close to such a rapid increase has ever happened before in the U.S. It’s the kind of news that normally comes only from desperate banana republics. And it always means rapid price inflation is on the way.

What the Federal Reserve has done in the last two months guarantees high inflation. But the timing is unknown. In fact, it’s unknowable.

Looking at the past, a pop in the basic money supply gets felt strongly throughout the financial markets within six months or so. But that’s just the average experience, with some inflationary episodes running much faster and others running much slower. And our current situation is anything but average – very recent but extreme money growth colliding with a years-old but extreme credit crisis.

So we’ll have to sit and let the timing show itself. And if what you are sitting on is gold, you should sit comfortably. Patience served gold investors well in the mid-70s. It will serve them well again.

Regards,

Jeff Clark

You are an investor in physical metal and like Marty of “Back to the Future II” you have stumbled into a nightmare world of $10.00 and whatever cents silver (you may have bought back when it was $15-$20 and thought you were doing well) wondering how can you change this distorted world to a peaceful “Hill valley” of the movie and a reality of honest pricing.

Biff / Griff Tannen aka the SEC/CFTC (Securities exchange commission and Commodity Futures Trade Commission) should look like this picture of a nice old chap that cleans your car and keeps the house in order. Not unreasonable given its position of watchdog to the markets.

Instead its accusers of late charge it with sitting in a Jacuzzi laughing at all of us who have invested in real metal or stocks or anything it has involvement with and we only need to look at the decimated mining industry savaged by naked short selling to understand real investors have been getting hammered of late.

If the odds are so stacked then what can I do?

Make Sure you have physical metal and consider the importance of international diversification where you have privacy and ease of deposit / withdrawal as well as physical holdings on your person.

I say that because history has a bad way of correcting in as abrupt a way as Marty and Doc saving the day!

Let’s look at Nickel in 2006. One moment it was meandering happily nowhere while physical shortages built up and the watchdogs did nothing and then out of the blue it exploded

Check out the fine print of the SEC’s announcement back then and my graph showing the rocket launch in price

LME’s press release of August 16 –
“Those with short positions in nickel falling prompt on Friday 18 August 2006, and on subsequent prompt dates until further notice, who are unable to effect physical delivery an/or unable to borrow metal at a backwardation of no more than $300.00 per tonne per day, shall be able to defer delivery for a day at a penalty of $300.00 per tonne. Those with long positions for prompt on those days who are subject to deferred delivery shall be entitled to compensation of $300.00 per tonne per day

I have spoken openly about the laughable situation back in March where silver and gold broke fresh heights all on the back of a Monday morning “ Bears Stern” collapse and that was hardly up there with the plethora of banking collapses of late. It was just a lower pecking order bank and if you watch CNBC, the promo of Dylan Ratigan, host of “Fast Money” saying “tonight your money is safe” in their advertising of the channel now looks hilarious referring to the following day when Bears Sterns affairs were taken over and gold and silver came off sharply supposedly signaling - we are all ok now!

Yay!

Hey Dylan, hello, hello (I am holding the staff now banging away to anyone listening) … that was back then, is everything ok now?

I am not poking fun at Dylan as this TV commercial promo is just a simple clip  of the deception people seem trapped in right now .Who and what do you believe because clearly there are millions around the world asking this very question “ is their money safe”?

Anyway I digress- back to the future!

Oh yes, we all know that Biff will get biffed out of his own hotel and the regulatory authorities will stand and say “this is a new day” and they have fired the old guys cleaned the rules up….blah..blah (just listen to McCain yell out what he plans for Chris Cox, head of the SEC assuming either he or Obama win)……but that’s a fat lot of good to investors holding paper un backed by anything. You only have to look at the heads of failed institutions that presided over the mess and then walked away with fat severance packages. You are still left in the cold!

I ask one of the heads of the company I affiliate to who deal every day with the suppliers as to what is happening right now re premiums given they buy the 1000 oz LBMA good delivery bars at the best price. He replies “there is a disparity albeit modest but who knows where that can go as the paper and real market head opposite direction” says Director -Simon Heapes.” We spend a few minutes discussing the London gold pool of the 60’s and how $35.00 supposed gold price traded in terms of real metal at $44.00 to quote actual events.

If you can have disparity at refinery account supplier level then its small wonder the smaller bars can command even bigger premiums. Have you ever asked yourself what happens when there is a run on a market clearing stock as to what goes first?

A/ the most expensive largest items or
B/ the smaller retail sized items

Anyone looking at this hydro dam of cracks and water spouts would have to be blind to see it needs some engineers to fix it and fast and that is exactly where the SEC and CFTC are supposed to stand in the breach and do their jobs

Histories most ancient of money becomes ever more worthless in this alternate “Back to the future reality” and you must ask yourself the same question all do when a real crisis hits

What is money?

Well hold on to the real stuff as you are about to find out!

http://www.anglofareast.com/afeannouncementbailment2.html

AFE locked away 5 metric ton of allocated silver bars and tens of 1000’s more oz’s of gold in this bailment. Independent Auditor from Grant Thornton, Zurich  in attendance during bailment of silver bars, Philip Judge holding a 400oz gold ‘Good Delivery Bar’ alongside several ton of silver bars during AFE’s  Bullion bailment at ViaMat Securities, Zurich.

Word on the street is large buyers ex comex are getting called and attempted persuasion to settle in cash, not in physical delivery. This is a rare opportunity to dollar cost average previous purchases as some are already doing or simply get in at one of those exceptionally low moments just like last Friday!

10 October , 2008 gold closes 849.90 and silver 10.14

For me, at this low price level of a few years ago, I do the best when my clients can get more bang for buck as I earn in ounces as a percentage of what they get so the sooner we have 1000 oz bars going for $1.00 an ounce and a free set of steak knives thrown in, the better we are all off and the faster we can all move on just as history has done before and go “Back to the real future!”

Disclosure ; Duncan Cameron is an affiliate of “Anglo Far East” and endorses bullion holdings on your person mixed with international diversification via this company that has rigorous 3rd party auditing procedures to verify clients holdings. Whilst I trade, make no mistake, trading is a pastime that can never replace core bullion holdings.

http://www.anglofareast.com/broker/dc-001

This week has seen the US Government bail out a growing number of Wall Street firms, the largest insurance company in the world, and finally end at printing money without subjecting the backing instruments to international market scrutiny.

(Treasury is now selling T-Bills DIRECTLY to the Fed, no pretense of going through an investment bank anymore)

This is pretty shady stuff, and thats being kind.

To understand why this is BAD, we have to understand why inflation is bad.

Yes of course, inflation is bad because prices go up, but that is not what inflation really is, prices going up is just what happens AFTER inflation occurs.

Put simply, inflation is when you add more currency to the currency supply.

Price increases happen, because when you add more currency then each unit of currency already in existence becomes worth less.

So prices rising arent so much because what you are buying is worth MORE than it was a year ago, but simply because your dollar is worth LESS.

So, the reason I explained that to you, is so you can understand what happens when the Government “bails out” all these failing financial institutions.

Really, two things happen:

1. The government creates Treasury Bills, which it then sells to someone, usually an investment bank and now, the Federal Reserve. In exchange, Congress gets currency from the investment bank, or the Federal Reserve, to spend on Bridges to no-where, military toys, and bailouts of corrupt, overpaid, Wall Street Slicksters who are their buddies.

Guess who gets to pay for that? Thats right, US Taxpayers! Arent you excited?!

2. The second thing that happens is, “liquidity”, which is a fancy term for more money, gets injected into the currency supply because this currency was essentially just “created” in order to bail out these silly greedy Wall Street slicksters and the firms who happen to be buddy buddy with our Congressman and Senators.

Ok, so, what happens when we inject all this currency into the system? Thats right, you guessed it, the value of your dollar goes down, prices go up!!!

So essentially, each time one of these Wall Street firms gets bailed out, the value of your dollar to buy groceries and gas, GOES DOWN, so groceries and gas become more expensive.

Now obviously, if you are a Wall Street Slickster,  you are happy with this deal, because you get to do all kinds of stupid things, then get some silly taxpayer shmuck to pay for your severance package of hundreds of millions of dollars anyway.

If you are a Congressman or Senator of course, this is all good, because lots of cash flows into your tax haven bank accounts from your Wall Street buddies, you get to ride around in fancy cars and go to fancy fundraiser dinners, and you get a HUGE pension for life, even if you dont do crap your entire time in office.

AWESOME! Its good to be the King. Or in this case, a Congressman or Senator.

Now now, Mr. taxpayer, dont complain, you should just shutup and eat your gruel, and be happy to get it! Peasants! Your lucky we dont raise taxes to 85% and then make you WALK to work!

But whats really got me miffed right now, even beyond the fact that our “leaders” have no problem raping the wealth of US Citizens to bail out a bunch of greedy, stupid, people who are already rich anyways, all the while destroying the buying power of the common man AND taxing the common man on top of it to pay for all this shenanigans…

Is that just when we think its IMPOSSIBLE for our leaders to get any more stupid, this happens:

President Bush approved the use of existing authorities by Treasury secretary Hank Paulson to make available as necessary the assets of the Exchange Stabilisation Fund for up to $50 billion to buy more illiquid mortgage assets.

When the Government bailed out the the Government Sponsored Enterprises it promised to buy illiquid mortgage backed securities, but this announcement extends that pledge.

The ESF was created after the Great Depression and uses the US gold reserve as collateral for financial stability.

So what does all that mean?

Basically, it could very well be the dumbest thing any group of government officials has ever done, in history.

This is a quote from the website of the US Treasury describing what the “Exchange Stabilization Fund” is:

The Exchange Stabilization Fund (ESF) of the United States Treasury was created and originally financed by the Gold Reserve Act of 1934 to contribute to exchange rate stability and counter disorderly conditions in the foreign exchange market. The Act authorized the Secretary of the Treasury, to deal in gold, foreign exchange, securities, and instruments of credit, under the exclusive control of the Secretary of the Treasury subject to the approval of the President.

This is my translation:

This thing gives Mr. Paulson, who already has WAY to much authority, the ability to sell off the gold stocks of the United States, manipulating the gold price down, to prop up the US Dollar and make all the sheeple think that gold is falling and the markets and USD are rallying, so all the stupid people can pour more money into the markets, bail out the corrupt Wall Street Slicksters, impoverish and steal the wealth of US Citizens, and perpetuate the scam that the USD which happens to be backed by nothing is actually worth something insteading doing whats smart and backing our currency in gold.

They are going to sell off gold into the international market, which is going to depress the gold price, and use the money to prop up the US Dollar, the stock market, and to try and ‘neutralize’ all this garbage derivative crap that Wall Street has been creating over the last ten years or so.

This isnt just any gold mind you, its the reserves of the United States, belonging to citizens of the United States.

So not only are these guys willing to tax you to pay for bailouts, which then adds currency to the currency supply, which then reduces your buying power, but now, they are selling off the bedrock of the nations financial health, the gold stocks that belong to YOU as a US Citizen, to again save a bunch of fools who probably should have been hung from the gallows a long time ago.

If that does not infuriate you, well….

A brief prediction.

I dont like to make predictions, because predictions usually make a guy look stupid later, but here it is:

The gold price will drop, they will use this as another means to manage the gold price, stocks and the USD will rise or remain level, they HOPE through the elections in November.

This of course is only short term. A band-aid on a gushing severed limb, if you will.

They are willing to sacrifice the nations financial future, and the well being of our children and grandchildren, just to get one more US President in office and perpetuate the non-sense.

But at what cost?

Ultimately, Gold ALWAYS revalues to match the amount of currency that gets pumped into a currency system.

This is not a theory, its not conjecture, history proves it happens over and over, every single time, as predictable as the seasons.

Over the long term we will see the US Dollar devalued, the gold stocks of the United States depleted just when they are needed the most, the common citizen robbed of everything he has through inflation and taxation to bail out those who do not deserve to be saved, and worse case scenario, it could cost citizens of America our freedom and form of government in the end.

We will see the government start to directly monetize debt as a matter of habit, and once that occurs the United States is on the road to hyperinflation.

Solution?

Anchor your finances in gold and silver now while you still can.

“Unjust weights and measures are an abomination unto the Lord” - What is an unjust weight and measure? How about a piece of currency that changes in value constantly? If something is a “measure” it has to remain constant, not change in value.

If you were a carpenter trying to build a house, and the tape measure you used to measure your cuts changed all the time, how solid would your house be?

I am of the opinion that if this thing goes down the tubes, and there is no indication that Congress, the Senate, The President, The Secretary of the Treasury, or the Federal Reserve Chairman have any inkling as to how to prevent it based on recent decisions, then the ONLY safe place in this coming storm is gold and silver.

Those who have gold and silver, will see a huge transfer of wealth to them. Those who dont….well….sorry. Get used to gruel and string vests.

Join Our Newsletter

Buy Gold and Silver Bullion

Dont Look, and Dont Tell..Paper Gold Prices have decoupled from Physical Gold Demand and Supply

I was having a chat with several colleagues of mine in the precious metals industry over the last few days, and a few things have become readily apparent.

1. The massive sell off in paper gold contracts has forced the paper price down substantially

2. The majority of this sell off appears to be coming from large financial entities in liquidity crisis, and desperate for some relief and cash flow that are divesting themselves of metals

3. This does not reflect what the common man investor of gold and silver is looking for, as demand at the retail level is many fold higher than it has been in some time, with some of my colleagues completely inundated with buy orders that they cannot keep up with, nor find physical stocks to provide from

4. Physical supply at the retail level has seriously dried up, especially in silver, but now in gold as well, as it seems the US Mint has ceased taking orders for new American Eagle Gold 1oz coins. In addition, throughout the US on a retail level reports of physical shortage are common.

So what gives here? How is it possible that the prices of metals have plummeted, yet there is no metal to be found anywhere at retail?

A few possibilities come to mind:

If hedge funds are divesting themselves of metal, yet individual investors are buying like never before at the retail level, it may not impact the paper gold or silver price at all, except for the downside, because its doubtful that the few options traders are going to be able to meet what hedge funds can dump. A hedge fund that is on emergency life support and demanding liquidity may exit its metal positions at any cost, and not be met by buyers, as most retail investors are buying at coin shops and not the COMEX or NYMEX.

I have a colleague who has informed me that he has personal knowledge of a default of a delivery of metal on COMEX, the contract holder being forced to take Fiat currency instead of the metal because he got “bumped” at the warehouse because an Industrial user took precedence. What does something like this say about our markets if true?

Is it possible we are looking at trading defaults on a larger scale? Will such trades move to other exchanges in London and Asia? Will such defaults cause a London Gold Pool type escalation in valuation as history records of similar events?

Will actual physical prices decouple from the paper spot price? I suspect this is likely, and in fact we are already seeing such premiums at the retail level. It is my opinion this will only continue, and accelerate as we move farther into this bull market.

While the paper markets will continue to see sharp volatility over the next few years as financial institutions require liquidity infusions to offset the massive write-offs that have still not been reported from the credit crisis, mom and pop investors are buying all they can get their hands on, and not reselling back into the market as has been normal for many years.

No, this marks a definate turning point, and while some will only watch the price action and continue to declare gold no more than a commodity and barbarous relic, some will understand the deep fundamental factors in the economy that will force gold to revalue higher over time.

Yes, some of us will be doing quite well as this unfolds. The question now is, will you? Time is running out. You will either be a fool or a prophet.

Join Our Newsletter

Buy Gold and Silver Bullion

The Case for Gold Today

by: Charlie Bottle posted on: July 28, 2008

“With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.” - Friedrich Von Hayek

I’m not advocating a return to the gold standard but when governments lose on printing money, as is the case today, investors should buy gold.

The analysis set forth in this article is focused on gold but the same conclusions are largely applicable to the other precious metals with monetary characteristics: silver and platinum.

Gold has been trading in a $900-$1,000 which all time high, slightly above the 1980 brief peak above the $800 range, however, on an inflation adjusted basis (please see chart below) it is still way below the peak and average range during the stagflation period of the seventies; a period that greatly resembles of current macro-economic setting.

I expect gold to continue to appreciate substantially in the medium and long term, with strong chances of moving in a sustained fashion above $2,000 within the next two to three years.

There are perhaps about 130,000 tons of gold above the ground, with about half in jewelry, 40% in bars and coins (of which 30% with central banks and 10% with individuals) and the remaining 10% are in dental and industrial applications.

The total annual demand of gold is currently just under 4,000 tons and breaks down roughly as follows:

• Industrial and Dental: 400 tons (10%)
• Consumer: 3,600 tons (90%)
  o Fashion jewelry: 800 (20%)
  o Investment jewelry: 2,600 tons (60%)
  o Investment (bars and coins) 400 tons (10%)

This demand far outpaces mining production of 2,600 tons, and is met by the following supply:

• Mining: 2,600 tons (65%)
• Net central bank net sales: 800 tons (20%)
• Scrap: 600 tons (15%)

Demand growth should accelerate fueled by the need for a hedge against increased inflation, and against ongoing political and financial uncertainty, as well as growth in emerging markets middle class income.

Gold as an inflation hedge and insurance against political and financial distress

The point on inflation is self-evident as many emerging markets have double digit inflation rates (e.g. Russia 15%, Vietnam 20%, Turkey 11%, Chile 10%, Argentina 10%), or close to that (China 7%, Brazil 6%, India 8%).

In the United States, headline inflation is at about 5% and the public is becoming increasingly aware of the lack of accuracy of the reported inflation figures.

There is much controversy about the effectiveness of gold as an inflation hedge, with substantial research pointing to real estate and stocks as being better hedges. Even if this is the case, considering the ongoing bursting of the real estate bubble and negative trend in equity prices, it seems quite likely that gold will be the preferred hedge. In any case, there is consensus that there is a negative correlation between the value of the dollar and gold prices (see chart below) and that gold substantially maintains its buying power over long periods of time.

The risks of insolvency of the domestic financial system, with a growing number of financial institution bankruptcies, and the resulting risk of ballooning US government debt (from propping up GSEs and possibly in the near future FDIC and Federal Home Loan Bank systems), provide politically expedient incentives for the US government to keep interest rates low and print money to inflate its way out of this crisis.

With growing unemployment and the social costs of high inflation, protectionism and international political instability will be on the rise.

In times of uncertainty, investors turn to gold as a hedge against unforeseen disasters since gold is one of the few investments that is not simultaneously an asset and someone else’s liability.

Emerging Asian middle class income growth

Growth of middle class incomes in emerging economies in Asia with a traditional strong appetite for gold will favor demand growth, independently of the above cited factors.

Indian middle classes have strong appetite for precious metals jewelry. India is already the largest worldwide consumer with annual demand of 650 tons. India, China and Turkey, for example, spend a much higher % of their GDP in gold than the US or Western Europe) and witness the reaction of the Vietnamese public to inflation, at least until a government ban became the largest worldwide importer of gold bullion.

Gold ETFs

The emergence of gold and precious metals ETFs such as GLD, CEF, and several others, and their growing availability to investors around the world is also likely to fuel demand. The first gold exchange-traded fund to trade in the United States, the StreetTracks Gold Shares (GLD), was launched in November 2004 and has been a success since. By the end of 2007 GLD reported holdings of 600 tonnes of physical gold bullion held in trust for its investors. If GLD was a central bank, it would nearly make the top 10 in the world for gold holdings. Gold ETFs provide the same economic benefits, although not entirely, of holding physical gold for ultimate insurance against extreme scenarios when the four horsemen of the apocalypse are unleashed and physical ownership is irreplaceable.

Gold supply

Supply is growth is likely to lag demand as central banks, which have been heavy until recently, are likely to curtail their sales of gold and will likely become net buyers (more on this below). Increased mining production and scrap recovery is unlikely to make up entirely for this.

Gold production has been rather flat for the last ten years (please see chart below) in spite of healthy price growth which indicated there is limited spare capacity. Brand new mine locations, especially the larger ones, can take 8-12 years for production to commence. Smaller mines can begin more quickly but if in the newly discovered category, they require eight years as a probable minimum. Open pit operation start-ups are faster, but not that much faster, and re-opening former operating mines requires the permitting process to start all over again, adding several new layers of paperwork not formerly encountered.

Chart courtesy of GFMS, Ltd.

Also, to some extent, the same problems as the oil industry arise with the gold industry. Gold mines are located in many regions where the political climate (see chart below) makes it difficult for private sector investment, particularly foreign investment, as the risks of nationalization are high. On the other hand, government owned companies often lack the skills and incentives to invest in exploration and adding capacity.

Central banks: from net sellers to net buyers.

We are presently witnessing a change of financial paradigm with the diminution of the dollar’s role as the single dominant global transaction and reserve currency, and the emergence of a multi-currency system, where gold as a percent of global reserves will increase.

Gold as a percent of monetary mass may also increase, but this does not necessarily mean a return to the gold standard. However, it may be the natural reaction to the excesses that are currently being committed by monetary authorities in the United States.

Central banks held relatively little foreign exchange [FX] reserves sixty years ago - the bulk of their reserves were in gold. FX reserves totaled $10.96 billion in 1949, gold reserves were just shy of 28,879 tons, and the gold reserve ratio was over 70%. Today it has declined to under 10%. This is decline is likely to reverse as emerging market economies diversify their reserves and increase their gold holdings. The IMF is a big seller as it uses up its reserves to make up for its operational deficit, reflecting the reduced need for its lending.

Below is a raking of central bank gold reserves:

Emerging markets have remarkably low ratios of gold reserves, particularly China. China’s foreign exchange reserves, the world’s largest, hit 1.53 trillion dollars at the end of 2007, around 70 percent of which is believed to be in U.S. currency-denominated assets, particularly U.S. Treasuries. Thirty years ago China held 95% of its foreign reserves in gold.

For example, the Qatar Central Bank quadrupled its gold holdings in the first quarter of 2007. It didn’t have much to begin with but now it has more - but not nearly as much as it had back in the 1980s according to World Gold Council statistics.

Russia announced a couple of years ago a long term goal of increasing its gold holdings to 10% of total reserves. India, Turkey and the Middle-East have also been important buyers.

Investors choosing to ignore these trends do so at grave peril to their wealth. As Churchill once said: “The time for procrastination and delays and excuses is over, we are into a period of consequences”.

Join Our Newsletter

Buy Gold and Silver Bullion