Game Changer: It Will Be Shocking for the Average American: “Your Cost of Living Will Quadruple”

Posted on June 19th, 2014

Inflation

By Max Slavo

It’s no secret that the U.S. government is in serious fiscal trouble. So much so that our Treasury Secretary recently noted that should the debt ceiling fail to be increased, the fall-out would be “catastrophic” and last for generations.

Given that sobering report, consider that everything in America, from food to fuel, is subsidized in one way or another. Those subsidies are being paid with ever-increasing debt. It is inevitable that at some point the world’s reserve currency, the US dollar, will be wiped out. The trigger for such an event is irrelevant. What is relevant, is how average Americans will be affected when that day comes.

In recent months working Americans have seen their health care costs triple. But this is just the beginning. When America’s debt problems come to a head the subsidies will be removed, and that will lead to cost of living increases that will leave those who never saw it coming in a state of confusion and bewilderment with no way out.

Marin Katusa of Casey Research, who has met with business and political leaders in over one hundred countries and is one of the most successful contrarian investment analysts out there, has some thoughts on the matter.

It will be shocking for the average American… if the petro dollar dies and the U.S. loses its reserve currency status in the world there will be no middle class.

The middle class and the low class… wow… what a game changer. Your cost of living will quadruple.

In the following must-watch interview with the Sound Money Campaign, Marin outlines the reasons for why our cost of living is going through the roof, the effects of geo-politics on our future, and ways to insulate yourself from what’s coming.

 http://www.youtube.com/watch?v=_XQKfEr18jQ&feature=player_embedded

Imagine this… take a country like Croatia… the average worker with a university degree makes about 1200 Euros a month. He spends a third of that, after tax, on keeping his house warm and filling up his gas tank to get to work and get back from work.

In North America, we don’t make $1200 a month, and we don’t spend a third of our paycheck on keeping our house warm and driving to work… so, the cost of living… food will triple… heat, electricity, everything subsidized by the government will triple overnight… and it will only get worse even if you can get the services.

For the average citizen, they should be thinking, ‘I should store some gold here and there as insurance for all of this.’

Now, I don’t know when it will happen. But it will happen, because it’s happened to all currencies.

I don’t think the people of Rome thought that Rome would ever fall as an empire… but it did.

So, you have to be prepared and protect your family. That’s why you want leverage to things that have major upside when the dollar does collapse. And the best insurance for that is gold.

As Marin notes, the assets you hold should be such that they maintain or increase their value as the Petrol dollar crashes and America’s debt bubble bursts.

For those with retirement investments like 401k’s, IRA’s or cash, Marin suggests you look to healthy gold companies as insurance. Back in the Great Depression of the 1930′s, as stocks crashed and then stagnated, those with investments in gold mining companies were able to not only preserve wealth, but grow it.

Those who prefer to keep their assets in physical holdings should look to gold and silver bullion, as well as those items that will become difficult to obtain when prices sky rocket. These core physical assets might mean long-term food stores, land with productive capacity, and personal energy production facilities that may include wind, solar or hydro.

If there is one trend that has taken hold over the last decade it’s continued price rises for the basic necessities of modern life. Given that we are now in more debt as a nation and individuals than ever before, it’s not hard to see where this is headed.

If you need a mainstream forecast to confirm what’s going to happen, then we point you to the words of President Barack Obama, who several years ago stated unequivocally that, “electricity rates will necessarily skyrocket.” He should know, because his policies are a significant contribution to what’s going to happen in the very near future.   (my emphasis)

Look out below.

By Max Slavo for SHTF Plan

By permission Max Slavo

www.shtfplan.com

http://www.shtfplan.com/headline-news/game-changer-it-will-be-shocking-for-the-average-american-your-cost-of-living-will-quadruple_03092014

Jim Rogers: Governments Will Loot Pensions, Savings – Hold Onto Your Gold

Posted on May 21st, 2014

Gold Coin Background_23341940By Henry Bonner

Jim Rogers co-founded the Quantum Group of Funds in 1973. He has warned investors that governments could loot savings and pension plans soon. With gold coming down again over the last month, I asked him about his gold holdings now.

Why still own gold?

You see, there is going to be chaos out there over the next decade,” he began. “It could be a monetary disaster or even war. This turmoil could come from a gigantic debt problem, for instance, which could cause world economies to fall apart as well. Politicians don’t know what to do besides printing money – so that’s what they end up doing. We will see a wave of turmoil from all this that will surely take gold higher.

“I am on the record extensively since the fall of 2011, saying that gold would be going down for quite some time. Well, correcting, I should say. That is still happening; I am not rushing in to buy gold. I also have not sold any of my gold. A 50 percent correction from the top would put gold under 1,000 dollars. I am not predicting that will happen, but it is possible.”

Could certain countries really go to war over the next 5 years?

“Well, wars start with absurd actions by absurd politicians – they always have. I wouldn’t expect there to be a war over the Ukraine, for instance, or over a few rocks in Asia. But wars always seem completely unthinkable until they happen.

“When you look at how wars start, it’s always one group of politicians doing something foolish, followed by another group doing something even more foolish. Before you know it, they go beyond the point of no return. Take the First World War, for instance. Nobody could have conceived that such carnage and destruction would happen. Within six months, people were looking at each other and asking ‘How the hell did this happen?’ It was insane and absurd. And yet, it went on for four more years, costing millions of lives. This can happen.”

Mr. Rogers adds that conflicts become more likely when people are becoming poorer. Wars often occur during economic depressions, when there is mass poverty and unemployment. And we are headed right for such a period:

In the next two or three years, when we start to have more economic problems and more inflation, it will become more likely that a war will break out. Wars typically start when people are unhappy about the economic situation and suffering from high inflation or food shortages. We are getting closer to the day where the price of wheat and the price of sugar go much higher, causing discontent among populations around the globe.”

How will governments react to a global economic decline? How will they keep themselves afloat?

For one, there will be more confiscation of wealth,” says Mr. Rogers. Americans and Europeans have already made it legal to take money from private bank accounts, or at least parts of them, in order to bail out banks. They will likely help themselves to pension plans too.

Gold and silver should provide investors some protection against government confiscation,” he says. “They will probably go for bank accounts and retirement funds, because they need cash. In fact, that is already happening in Argentina and Poland. Gold and silver are no longer part of the monetary system, which they were back in the 1930s’ when they last confiscated gold and silver. From the government’s point of view, gold and silver are not ideal – it is money they need.”

Is the broad stock market in a bubble? Can it keep going any higher?

“I don’t know if the stock market is at a peak,” says Mr. Rogers, “but stocks are certainly at an all-time high. I am not inclined to buy things that are making all-time highs. I would rather buy things that are depressed. For instance, I am more interested in stocks in Russia, China, and Japan – because these markets are depressed. I am not at all keen on buying the U.S. stock market now.”    (my emphasis)

By Henry Bonner for Sprott Global Resource Investments

By permission Sprott Global Resource Investments

http://sprottglobal.com

http://sprottglobal.com/thoughts/articles/jim-rogers-governments-will-loot-pensions-savings-hold-onto-your-gold/

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Full-Spectrum War, Peak Complexity, and Real Assets

Posted on May 6th, 2014

Russia's takeover of Crimea Cold War by Patrick Chappatte, Le Temps, Switzerland

By John Rubino

Not so long ago — say when the Soviet Union was crushing rebellions in Czechoslovakia and Hungary in the 1960s or the US was invading half the Middle East in the 2000s — a big country picking on a small one was mostly a physical activity. Tanks would roll in, buildings and people would be blown up, and that would be that. The aggressor might face the occasional trade sanction from otherwise-impotent “powers,” but this was relatively painless in a world that was not yet financially or technologically integrated.

Contrast those simpler times with today’s Ukraine crisis, where a whole range of new battlefields might soon open up. First is telecommunications, where both sides apparently have the ability to launch a cyber-strike:

Watching for a Crimean Cyberwar Crisis

An info-war is under way as websites are blocked and telecom cables to Crimea are mysteriously cut.

Russia’s takeover of the Crimean peninsula has been accompanied by elements of an information-control campaign: telecom cables connecting that region to the rest of Ukraine have been severed, and the Russian government has moved to block Internet pages devoted to the Ukrainian protest movement.

But so far there is no public evidence of more serious cyberattacks against military or government institutions. Indeed, Russia may need to tread a fine line with such tactics, since they could be seen as acts of war under evolving military doctrine. A report from a NATO group chaired by Madeleine Albright, a former U.S. Secretary of State, has said that if NATO infrastructure were the victim of a cyberattack, it could lead to a physical response such as a bombing.

So far, anyway, “Russia has limited themselves to the things they usually do in the onset of a conflict to try to shape opinion, stifle critics, and advance their own viewpoint,” says James Lewis, director of the Center for Strategic and International Studies, a think tank in Washington, D.C. “They are doing the informational side, which is the opening move in the playbook.” Over the weekend, though, Ukraine’s national telephone company, Ukrtelecom, said that unknown vandals had seized telecommunications nodes and cut cables, severing much of the data and voice links between Crimea and the rest of Ukraine.

Info-war tactics have been seen on the Ukrainian side too. Someone sympathetic to the Ukrainian cause managed to hack the Russian government’s English-language news organ, Russia Today, and substitute the word “Nazi” for “military” in some headlines, with results such as “Russian Senators Vote to Use Stabilizing Nazi Forces on Ukrainian Territory.”

The region has a colorful history of cyberattacks against smaller states and organizations seen as opposing the Kremlin. In Estonia in 2007, the local government antagonized Russia by relocating a bronze statue commemorating Russian soldiers. A flood of attacks against government, media, and telecom websites in Estonia followed, paralyzing them for weeks. (The attacks were “denial-of-service” events, flooding servers with page requests to overload them.) The Russian government denied responsibility, saying “patriotic hackers” were to blame.

In 2008, similar events played out when Russia invaded South Ossetia, part of the neighboring republic of Georgia. Again, the attacks—on sites associated with government offices and the embassies of the United States and United Kingdom, among others—could not be provably linked to Russia’s government (see “Georgian Cyberattacks Traced to Russian Civilians”).

Ukraine may be something of a different case. Both Ukraine and Russia are well-known centers of international cybercrime, and both are home to talented computer engineers. But for whatever reason, this sort of mass cyberattack is not happening. “In Georgia you had cyber incidents coördinated with military operations. But the Russians haven’t done that here,” Lewis says. “If violence breaks out in the Crimea, I think they will bump it up a notch.”

The events provide a way for the United States to see what Russia’s cyberwar capabilities are, says Stewart Baker, a former policy chief at the U.S. Department of Homeland Security and now a lawyer in private practice. “From the U.S. point of view, it is an opportunity to watch one country that has integrated cyber [tactics] into their military–Russia–and see what their current doctrines suggest they do,” he said. “But it may be they have decided they don’t need to show what they’ve got, and won’t do it.”

Four years ago, Vladimir Sherstyuk, a member of Russia’s National Security Council and director of the Institute for Information Security Issues at Moscow State University, boasted of significant capacities. “Cyberweapons can affect a huge amount of people, as well as nuclear,” he said in an interview with MIT Technology Review (see “Russia’s Cyber Security Plans”). “But there is one big difference between them. Cyberweapons are very cheap—almost free of charge.”

Even more serious, or at more least wide-ranging, is the fact that Russia owns a lot of dollars and could disrupt the global financial system by dumping them:

Putin Advisor Threatens With Dumping US Treasurys, Abandoning Dollar If US Proceeds With Sanctions

While the comments by Russian presidential advisor, Sergei Glazyev, came before Putin’s detente press conference early this morning, they did flash a red light of warning as to what Russian response may be should the west indeed proceed with “crippling” sanctions as Kerry is demanding. As RIA reports, his advice is that “authorities should dump US government bonds in the event of Russian companies and individuals being targeted by sanctions over events in Ukraine.” Glazyev said the United States would be the first to suffer in the event of any sanctions regime.

The Americans are threatening Russia with sanctions and pulling the EU into a trade and economic war with Russia,” Glazyev said. “Most of the sanctions against Russia will bring harm to the United States itself, because as far as trade relations with the United States go, we don’t depend on them in any way.”

From RIA:

We hold a decent amount of treasury bonds – more than $200 billion – and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner,” he said. “We will encourage everybody to dump US Treasury bonds, get rid of dollars as an unreliable currency and leave the US market.”

To be sure, a high-ranking Kremlin source was quick to distance his office from Glazyev’s remarks, however, insisting to RIA Novosti that they represented only his personal position. Glazyev was just expressing his views as an academic, and not as a presidential adviser, the Kremlin insider said.

That said, putting Russia’s threat in context, the Federation held $138.6 billion in US Treasurys as of December according to the latest TIC data, making it the 11th largest creditor of the US, which appears to conflict with what the Russian said, making one wonder where there is a disconnect in “data.” This would mean the Fed would need just two months of POMO to gobble up whatever bonds Russia has to sell.

The bigger question is if indeed, as some have suggested, China were to ally with Russia, and proceed to follow Russia in its reciprocal isolation of the US, by expanding trade with Russia on non-USD based terms, and also continue selling bonds as it did in December, when as we reported previously it dumped the second largest amount of US paper in history.

Chinese vs US Holdings Graph

Some thoughts

Basically, what this means is that in a world where everyone’s networks are vulnerable and where countries that are emphatically not US allies own a mountain of dollar-denominated paper, small, obscure conflicts can spread in a heartbeat from the physical battlefield to cyber-space and/or Wall Street.

The Ukraine crisis sounds, at the moment, like more of a chance to threaten such attacks than to actually try them. So no cyber or financial Pearl Harbor is likely this week.

But that such things are now on the table and would, should they occur, be sudden, adds yet another layer of complexity to a financial world that already has too many black swans cluttering up its sky. And it raises the appeal of hard assets that 1) don’t reside in accounts that can be hacked and 2) don’t depend on the value of fiat currencies that can simply evaporate. Put another way, the proper response to peak complexity is hyper-simplification via gold, silver, and farmland.    (my emphasis)

By John Rubino for Dollar Collapse

By permission John Rubino

http;//dollarcollapse.com

http://dollarcollapse.com/currency-war-2/full-spectrum-war-peak-complexity-and-real-assets/

High-Frequency Trading and the Shrinking Trust Horizon

Posted on April 10th, 2014

Wall street rigged high frequency trading by John Darkow, Columbia Daily Tribune, Missouri

By John Rubino

The list of markets where big players are cheating the rest of us (and each other) keeps growing. First there was the Libor interest rate, then foreign exchange, then gold. And now comes high-frequency trading (HFT), where Wall Street banks use supercomputers to monitor incoming stock market orders, analyze their likely impact on prices, and place orders ahead of those trades to capture a bit of the price impact. In an HFT-dominated market, individual investors get fractionally-less-favorable prices, which they seldom notice, while in the aggregate billions of dollars are siphoned each year from retail investors, pension funds and even some hedge funds to big Wall Street banks.

Since this practice adds absolutely nothing to the efficiency of the equity markets, and since “front running” is clearly illegal, HFT is a crime without offsetting social benefits. But Wall Street gets away with it — and will continue to get away with it — because the major banks and exchanges make a lot of money from it and donate sufficiently to both major parties to buy a degree of immunity.

Because HFT is the topic of Michael Lewis’ best-selling book Flash Boys, and Lewis is showing up on mainstream outlets like CNN and Good Morning America where he explains the con in layman’s terms, the powers that be now feel compelled to appear to investigate it.

Like the ongoing probes of Libor, foreign exchange and gold, the result will be more show than substance. A few fines will be paid and possibly a few mid-level quants will be sacrificed, while Wall Street’s bonus pool stays deep and wide. So HFT’s exposure, rather than being that big a deal in and of itself, should be seen as part of a pattern of systematic corruption, yet another brick in the wall that separates the financial/political/con artist class from the vast bulk of people who are being harvested.

But the fact that this scandal is being explained on mainstream outlets by a best-selling author means that it is reaching a much broader audience. Lewis isn’t preaching to the choir; he’s bringing the idea that the financial system is a rigged casino to people who hadn’t previously given it much thought. In so doing, he’s accelerating the shrinkage of the trust horizon.

This last term comes from Nicole Foss at Automatic Earth and refers to the process by which people gradually realize that their country’s big systems — the government, banks, national currency, etc. — have been captured/corrupted by people who now run those systems for their rather than the public’s benefit. Seeing this, individuals stop trusting those big systems and shift their attention and resources to people and institutions that they can see and judge face-to-face. They start buying local food rather than national brands, home school their kids, stop identifying with the two major political parties, put their money in local rather than money center banks, and buy hard assets like precious metals and farmland rather than financial assets like stocks and bonds.

When a critical mass of people start behaving this way the big systems are starved for capital and begin to fail. Banks go bust, governments run out of money, the currency collapses, etc. That day appears to be coming, and HFT may have given the trend a little added momentum.     (my emphasis)

By John Rubino for Dollar Collapse

By permission John Rubino

http://dollarcollapse.com

http://dollarcollapse.com/trust-horizon/high-frequency-trading-and-the-shrinking-trust-horizon/

Paper Gold Ain’t as Good as the Real Thing

Posted on February 14th, 2014

Investment In Gold As Gold Bullion_9526103By Doug French, Contributing Editor

For the first time ever, the majority of Americans are scared of their own federal government. A Pew Research poll found that 53% of Americans think the government threatens their personal rights and freedoms.

Americans aren’t wild about the government’s currency either. Instead of holding dollars and other financial assets, investors are storing wealth in art, wine, and antique carsThe Economist reported in November, “This buying binge… is growing distrust of financial assets.”

But while the big money is setting art market records and pumping up high-end real estate prices, the distrust-in-government script has not pushed the suspicious into the barbarous relic. The lowly dollar has soared versus gold since September 2011.

Every central banker on earth has sworn an oath to Keynesian money creation, yet the yellow metal has retraced nearly $700 from its $1,895 high. The only limits to fiat money creation are the imagination of central bankers and the willingness of commercial bankers to lend. That being the case, the main culprit for gold’s lackluster performance over the past two years is something else, Tocqueville Asset Management Portfolio Manager and Senior Managing Director John Hathaway explained in his brilliant report “Let’s Get Physical.

Hathaway points out that the wind is clearly in the face of gold production. It currently costs as much or more to produce an ounce than you can sell it for. Mining gold is expensive; gone are the days of fishing large nuggets from California or Alaska streams. Millions of tonnes of ore must be moved and processed for just tiny bits of metal, and few large deposits have been found in recent years.

Production post-2015 seems set to decline and perhaps sharply,” says Hathaway.

Satoshi Nakamoto created a kind of digital gold in 2009 that, too, is limited in supply. No more than 21 million bitcoins will be “mined,” and there are currently fewer than 12 million in existence. Satoshi made the cyber version of gold easy to mine in the early going. But like the gold mining business, mining bitcoins becomes ever more difficult. Today, you need a souped-up supercomputer to solve the equations that verify bitcoin transactions—which is the process that creates the cyber currency.

The value of this cyber-dollar alternative has exploded versus the government’s currency, rising from less than $25 per bitcoin in May 2011 to nearly $1,000 recently. One reason is surely its portability. Business is conducted globally today, in contrast to the ancient world where most everyone lived their lives inside a 25-mile radius. Thus, carrying bitcoins weightlessly in your phone is preferable to hauling around Krugerrands.

No Paper Bitcoins

But while being the portable new kid on the currency block may account for some of Bitcoin’s popularity, it doesn’t explain why Bitcoin has soared while gold has declined at the same time.

Hathaway puts his finger on the difference between the price action of the ancient versus the modern. “The Bitcoin-gold incongruity is explained by the fact that financial engineers have not yet discovered a way to collateralize bitcoins for leveraged trades,” he writes. “There is (as yet) no Bitcoin futures exchange, no Bitcoin derivatives, no Bitcoin hypothecation or rehypothecation.”

So, anyone wanting to speculate in Bitcoin has to actually buy some of the very limited supply of the cyber currency, which pushes up its price.

In contrast, the shinier but less-than-cyber currency, gold, has a mature and extensive financial infrastructure that inflates its supply—on paper—exponentially. The man from Tocqueville quotes gold expert Jeff Christian of the CPM Group who wrote in 2000 that “an ounce of gold is now involved in half a dozen transactions.” And while “the physical volume has not changed, the turnover has multiplied.”

The general process begins when a gold producer mines and processes the gold. Then the refiners sell it to bullion banks, primarily in London. Some is sold to jewelers and mints.

“The physical gold that remains in London as unallocated bars is the foundation for leveraged paper-gold trades. This chain of events is perfectly ordinary and in keeping with time-honored custom,” explains Hathaway.

He estimates the equivalent of 9,000 metric tons of gold is traded daily, while only 2,800 metric tons is mined annually.

Gold is loaned, leased, hypothecated, and rehypothecated, over and over. That’s the reason, for instance, why it will take so much time for the Germans to repatriate their 700 tonnes of gold currently stored in New York and Paris. While a couple of planes could haul the entire stash to Germany in no time, only 37 tonnes have been delivered a year after the request. The 700 tonnes are scheduled to be delivered by 2020. However, it appears there is not enough free and unencumbered physical gold to meet even that generous schedule. The Germans have been told they can come look at their gold, they just can’t have it yet.

Leveraging Up in London

The City of London provides a loose regulatory environment for the mega-banks to leverage up. Jon Corzine used London rules to rehypothecate customer deposits for MF Global to make a $6.2 billion Eurozone repo bet. MF’s customer agreements allowed for such a thing.

After MF’s collapse, Christopher Elias wrote in Thomson Reuters, “Like Wall Street cocaine, leveraging amplifies the ups and downs of an investment; increasing the returns but also amplifying the costs. With MF Global’s leverage reaching 40 to 1 by the time of its collapse, it didn’t need a Eurozone default to trigger its downfall—all it needed was for these amplified costs to outstrip its asset base.”

Hathaway’s work makes a solid case that the gold market is every bit as leveraged as MF Global, that it’s a mountain of paper transactions teetering on a comparatively tiny bit of physical gold.

“Unlike the physical gold market,” writes Hathaway, “which is not amenable to absorbing large capital flows, the paper market, through nearly infinite rehypothecation, is ideal for hyperactive trading activity, especially in conjunction with related bets on FX, equity indices, and interest rates.”

This hyper-leveraging is reminiscent of America’s housing debt boom of the last decade. Wall Street securitization cleared the way for mortgages to be bought, sold, and transferred electronically. As long as home prices were rising and homeowners were making payments, everything was copasetic. However, once buyers quit paying, the scramble to determine which lenders encumbered which homes led to market chaos. In many states, the backlog of foreclosures still has not cleared.

The failure of a handful of counterparties in the paper-gold market would be many times worse. In many cases, five to ten or more lenders claim ownership of the same physical gold. Gold markets would seize up for months, if not years, during bankruptcy proceedings, effectively removing millions of ounces from the market. It would take the mining industry decades to replace that supply.

Further, Hathaway believes that increased regulation “could lead, among other things, to tighter standards for collateral, rules on rehypothecation, etc. This could well lead to a scramble for physical.” And if regulators don’t tighten up these arrangements, the ETFs, LBMA, and Comex may do it themselves for the sake of customer trust.

What Hathaway calls the “murky pool” of unallocated London gold has supported paper-gold trading way beyond the amount of physical gold available. This pool is drying up and is setting up the mother of all short squeezes.

In that scenario, people with gold ETFs and other paper claims to gold will be devastated, warns Hathaway. They’ll receive “polite and apologetic letters from intermediaries offering to settle in cash at prices well below the physical market.”

It won’t be inflation that drives up the gold price but the unwinding of massive amounts of leverage.

Americans are right to fear their government, but they should fear their financial system as well. Governments have always rendered their paper currencies worthless. Paper entitling you to gold may give you more comfort than fiat dollars.

However, in a panic, paper gold won’t cut it. You’ll want to hold the real thing.

There’s one form of paper gold, though, you should take a closer look at right now: junior mining stocks. These are the small-cap companies exploring for new gold deposits, and the ones that make great discoveries are historically being richly rewarded… as are their shareholders.

However, even the best junior mining companies—those with top managements, proven world-class gold deposits, and cash in the bank—have been dragged down with the overall gold market and are now on sale at cheaper-than-dirt prices. Watch eight investment gurus and resource pros tell you how to become an “Upturn Millionaire” taking advantage of this anomaly in the market—click here.

http://www.caseyresearch.com/go/vytq3-2/WIM

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“Gold Stocks Are About to Create a Whole New Class of Millionaires”

Posted on January 30th, 2014

Gold Bars In A Stack_25573121By Jeff Clark, Senior Precious Metals Analyst

Bear markets always end. Has this one?

Evidence is mounting that the bottom for gold may be in. While there’s still risk, there’s a new air of bullishness in the industry, something we haven’t seen in over two years.

An ever-growing number of industry insiders and investment analysts believe the downturn has come to a close. If that’s true, it has immediate and critical implications for investors.

Doug Casey told me last week: “In my lifetime, the best time to have bought gold was 1971, at $35; it ran to over $800 by 1980. In 2001, gold was $250: in real terms even cheaper than in 1971. It ran to over $1,900 in 2011.

“It’s now at $1,250. Not as cheap, in real terms, as in 1971 or 2001, but the world’s financial and economic state is far more shaky.

“Gold is, once again, not just a prudent holding, but an excellent, high-potential, low-risk speculation. And gold stocks are about to create a whole new class of millionaires.”

Just a couple of months ago, you would have had a hard time finding even one analyst saying something positive about gold and gold stocks—even some of the most bullish investment pros had gone silent.

But that’s changing. Case in point: When Chief Metals & Mining Strategist Louis James and I attended last week’s Resource Investment Conference in Vancouver, we witnessed quite a few very optimistic speakers.

Take Frank Giustra, for example, a self-made billionaire and philanthropist who made his fortune both in the mining sector and the entertainment industry. He’s the founder of Lionsgate Entertainment, which is responsible for blockbuster movies like The Hunger Games, but he was just as heavily involved with mining blockbusters such as Iamgold, Wheaton River Minerals, Silver Wheaton, and others.

I’m telling you, you’ve seen the bottom of the gold market,” he told the rapt audience at the conference, offering a bet to the Goldman Sachs analyst who claimed gold is going to $1,000.

The stakes: Whoever loses has to stand on a popular street in downtown Vancouver dressed in women’s underwear.

Tom McClellan, editor of the McClellan Market Report, stated in a recent interview on CNBC: “The commercial traders are at their most bullish stance since the 2001 low, and they usually get proven right. It’s a hugely bullish condition for gold, and I’m expecting a really large rebound.

“The moment we see a major gold producer announce that it’s curtailing production or it’s going out of business,” McClellan continued, “that’ll be the moment we mark the low in gold. I expect to have one of those announcements any minute. We’re getting down to the production price of gold right now, and they won’t continue producing gold at that level for very long.”

Are they just guessing? To answer that, first consider the historical context of this bear market—it’s getting very long in the tooth:

  • The current correction in gold stocks is the fourth longest since 1879. The decline of 66% ranks in the top 10 of recorded history.
  • In silver, only two corrections have lasted longer—the ones that ended in 1936 and 1983.

Some technical analysts have pointed to positive chart formations, most notably the powerful “double bottom” that can portend a strong upward move. Based on intraday prices…

  • Gold formed a double bottom last year, hitting $1,180.64 on June 28 and $1,182.60 on December 31, a convincing six-month span.
  • Silver formed a higher low: $18.20 on June 28 vs. $18.72 on December 31, a bullish development.
  • Gold stocks (XAU) formed a slightly lower low: $82.29 on June 26 vs. $79.73 December 19, 2103, a difference of 3.2%. However, as our friend Dominick Graziano, who successfully helped us earn doubles on three GLD puts last year, recently pointed out…
  • The TSX Venture Index, where most junior mining stocks trade, has stayed above its June low. In fact, it recently soared above both the 50-day and 40-week moving averages for the first time since 2011.

Meanwhile, Goldcorp (GG) sent a huge bullish signal to the market earlier this month. It decided to pounce on the opportunities available right now, launching a takeover bid of Osisko Mining for $2.6 billion. The company wouldn’t be buying now if it thought gold was headed to $1,000.

As Dennis Gartman, editor and publisher of The Gartman Letter, says, “It’s time to be quietly bullish.”

The smart money, like resource billionaire Rick Rule, is not just quietly bullish, though—they are actively buying top-quality junior mining stocks at bargain-basement prices to make a killing when prices rise.

To make sure that you can invest right alongside them, we decided to host a sequel to our 2013 Downturn Millionaires event, titled Upturn Millionaires—How to Play the Turning Tides in the Precious Metals Market.

Back then, we made a strong case for this once-in-a-generation opportunity—but it was still undetermined when the bottom would be in. It looks like that time is now very near, and we believe it’s time to act.

On February 5 at 2 p.m. EST, resource legends Frank Giustra, Doug Casey, Rick Rule, and Ross Beaty, investment gurus John Mauldin and Porter Stansberry, and our own resource experts Louis James and Marin Katusa will present the evidence and discuss the possibilities for life-changing gains for investors with the cash and courage to grab this bull by the horns.

How do we know the absolute bottom is in? I’ll answer that with a quote from a recent Mineweb interview with mining giant Rob McEwen, former chairman and CEO of Goldcorp:

“I’d say we’re either at or extremely close to the bottom, and as an investor I’m not prepared to wait to see if the bottom’s there because it’s very hard to pick it. Because … if you’re not taking advantage of it right now, you’re going to miss a big part of the move. And when you look at the distance these stocks have to travel to get to their old highs, there’s some wonderful numbers in terms of performance that I think we’re going to see.”

Granted, these voices are still in the minority—but that’s what makes this opportunity wonderfully contrarian. After all, once “Buy gold stocks” is investor consensus, we’ll be approaching the time to sell.    (my emphasis) 

Our Upturn Millionaires experts believe that our patience is about to be rewarded. And when that happens, gold stocks will be easy doubles—and the best juniors potential ten-baggers.

Don’t miss the free Upturn Millionaires video event—register here to save your seat. (Even if you don’t have time to watch the premiere, register anyway to receive a video recording of the event.)

http://www.caseyresearch.com/go/vtt4m-2/WIM

© 1998-2013 by Casey Research, LLC.

The Casey Research web site, Casey’s Investment Alert, Casey’s International Speculator, BIG GOLD, Casey’s Energy Confidential, Casey’s Energy Report, Casey’s Energy Opportunities, The Casey Report, Casey’s Extraordinary Technology, Conversations With Casey, Casey’s Daily Dispatch and Ed Steer’s Gold & Silver Daily are published by Casey Research, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information.

Doug Casey, Casey Research, LLC, Casey Early Opportunity Resource Fund, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.

Any Casey publication or web site and its content and images, as well as all copyright, trademark and other rights therein, are owned by Casey Research, LLC. No portion of any Casey publication or web site may be extracted or reproduced without permission of Casey Research, LLC. Nothing contained herein shall be construed as conferring any license or right under any copyright, trademark or other right of Casey Research, LLC. Unauthorized use, reproduction or rebroadcast of any content of any Casey publication or web site, including communicating investment recommendations in such publication or web site to non-subscribers in any manner, is prohibited and shall be considered an infringement and/or misappropriation of the proprietary rights of Casey Research, LLC.

Casey Research, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Casey publication or website, any infringement or misappropriation of Casey Research, LLC’s proprietary rights, or any other reason determined in the sole discretion of Casey Research, LLC.

Too Big to Pop

Posted on January 8th, 2014

Fed begins tapering by Luojie, China Daily, China

By Peter Schiff, CEO of Euro Pacific Capital

Most economic observers are predicting that 2014 will be the year in which the United States finally shrugs off the persistent malaise of the Great Recession. As we embark on this sunny new chapter, we may ask what wisdom the five-year trauma has delivered. Some big thinkers have declared that the episode has forever tarnished freewheeling American capitalism and the myth of Wall Street invincibility. In contrast, I believe that the episode has, for the moment, established supreme confidence in the powers of monetary policy to keep the economy afloat and to keep a floor under asset prices, even in the worst of circumstances. This represents a dramatic change from where we were in the beginning of 2008, and unfortunately gives us the false confidence needed to sail blindly into the next crisis.

Although the media likes to forget, there was indeed a strong minority of bearish investors who did not drink the Goldilocks Kool-Aid of the pre-crisis era. As the Dow moved up in 2006 and 2007 so did gold, even though a rising gold price was supposed to be a sign of economic uncertainty. The counter intuitive gold surge in those years resulted from growing concern among a committed minority that an economic crisis was looming. In the immediate aftermath of the crisis in 2009 and 2010, gold shifted into an even higher gear when those investors became doubly convinced that the extraordinary monetary measures devised by the Fed to combat the recession would fail to stop the economic free fall and would instead kick off a new era of inflation and dollar weakness. This caused many who had been gold naysayers and economic cheerleaders to reluctantly jump on the gold band wagon as well.

But three years later, after a period of monetary activism that went far beyond what most bears had predicted, the economy has apparently turned the corner. The Dow has surged to record levels, inflation (at least the way it is currently being measured) and interest rates have stayed relatively low, and the dollar has largely maintained its value. Ironically, many of those former Nervous Nellies, who correctly identified the problems in advance, have thrown in the towel and concluded that their fears of out of control monetary policy were misplaced. While many of those who had always placed their faith in the Fed (but who had failed – as did Fed leadership – from seeing the crisis in advance) are more confident than ever that the Central Bank can save us from the worst.

A primary element of this new faith is that the Fed can sustain any number of asset bubbles if it simply supplies enough air in the form of freshly minted QE cash and zero percent interest. It’s as if the concept of “too big to fail” has evolved into the belief that some bubbles are too big to pop. The warnings delivered by those of us who still understand the negative consequences of such policy have been silenced by the triumphant Dow.

The proof of this shift in sentiment can be seen in the current gold market. If the conditions of 2013 (in which the Federal Government serially failed to control a runaway debt problem, while the Federal Reserve persisted with an $85 billion per month bond buying program and signaled zero interest rates for the foreseeable future) could have been described to a 2007 investor, their conclusions would have most likely been obvious: back up the truck and buy gold. Instead, gold tumbled more than 27% over the course of the year. And despite the fact that 2013 was the first down year for gold in 13 years, one would be hard pressed now to find any mainstream analyst who describes the current three year lows as a buying opportunity. Instead, gold is the redheaded stepchild of the investment world.

This change can only be explained by the growing acceptance of monetary policy as the magic elixir that Keynesians have always claimed it to be. This blind faith has prevented investors from seeing the obvious economic crises that may lay ahead. Over the past five years the economy has become increasingly addicted to low interest rates, which underlies the recent surge in stock prices. Low borrowing costs have inflated corporate profits and have made possible the wave of record stock buybacks. The same is true of the real estate market, which has been buoyed by record low interest rates and a wave of institutional investors using historically easy financing to buy single-family houses in order to rent to average Americans who can no longer afford to buy.

But somehow investors have failed to grasp that the low interest rates are the direct result of the Fed’s Quantitative Easing program, which most assume will be wound down in this year. In order to maintain the current optimism, one must assume that the Fed can exit the bond buying business (where it is currently the largest player) without pushing up rates to the point that these markets are severely impacted. This ascribes almost superhuman powers to the Fed. But that type of faith is now the norm.

Market observers have taken the December Fed statement, in which it announced its long-awaited intention to begin tapering (by $10 billion per month), as proof that the dangers are behind us, rather than ahead. They argue that the QE has now gone away without causing turmoil in the markets or a spike in rates. But this ignores the fact that the taper itself has not even begun, and that the Fed has only committed to a $10 billion reduction later this month. In fact, it is arguable that monetary policy is looser now than it was before the announcement.

Based on nothing but pure optimism, the market believes that the Fed can somehow contract its $4 trillion balance sheet without pushing up rates to the point where asset prices are threatened, or where debt service costs become too big a burden for debtors to bear. Such faith would have been impossible to achieve in the time before the crash, when most assumed that the laws of supply and demand functioned in the market for mortgage and government debt. Now we “know” that the demand is endless. This mistakes temporary geo-political paralysis and financial sleepwalking for a fundamental suspension of reality.

The more likely truth is that this widespread mistake will allow us to drift into the next crisis. Now that the European Union has survived its monetary challenge, (the surging euro was one of the surprise stories of 2013), and the developing Asian economies have no immediate plans to stop their currencies from rising against the dollar, there is little reason to expect that the dollar will rally in the coming years. In fact, there has been little notice taken of the 5% decline in the dollar index since a high in July. Similarly, few have sounded alarm bells about the surge in yields of Treasury debt, with 10-year rates flirting with 3% for the first time in two years.

If interest rates rise much further, to perhaps 4% or 5%, the stock and real estate markets will be placed under pressure, and the Fed and the other “Too Big to Fail” banks will see considerable losses on their portfolios of Treasury and mortgage-backed bonds. Such developments could trigger widespread economic turmoil, forcing the Fed to expand its QE purchases. Such an embarrassing reversal would add to selling pressure on the dollar, and might potentially trigger an exodus of foreign investment and an increase in import prices. I believe that nothing can prevent these trends from continuing to the point where a crisis will be reached. It’s extremely difficult to construct a logical argument that avoids this outcome, but that hasn’t stopped our best and brightest forecasters from doing just that.

So while the hallelujah chorus is ringing in the New Year with a full-throated crescendo, don’t be surprised by sour notes that will bubble to the top with increasing frequency. Ultimately the power of monetary policy to engineer a real economy will be proven to be just as ridiculous as the claims that housing prices must always go up.     (my emphasis)

By Peter Schiff, CEO of Euro Pacific Capital

www.europac.net

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.

Precious Metals in 2014

Posted on January 2nd, 2014

Gold Bars In A Stack_25573121By Alasdair Macleod, GoldMoney Head of Research

“Now the New Year reviving old desires

The thoughtful Soul to Solitude retires”

Rubaiyat of Omar Khayyam

Yes folks, it’s that time of year again; but unlike old Khayyam who reflected bucolically on the continuing availability of wine, we must turn our thoughts to the dangers and opportunities of the coming year. They are considerable and multi-faceted, but instead of being drawn into the futility of making forecasts I will only offer readers the barest of basics and focus on the corruption of currencies. My conclusion is the overwhelming danger is of currency destruction and that gold is central to their downfall.

As we enter 2014 mainstream economists relying on inaccurate statistics, many of which are not even relevant to a true understanding of our economic condition, seem convinced that the crises of recent years are now laid to rest. They swallow the line that unemployment is dropping to six or seven per cent, and that price inflation is subdued; but a deeper examination, unsubtly exposed by the work of John Williams of Shadowstats.com, shows these statistics to be false.

If we objectively assess the state of the labour markets in most welfare-driven economies the truth conforms to a continuing slump; and if we take a realistic view of price increases, including capital assets, price inflation may even be in double figures. The corruption of price inflation statistics in turn makes a mockery of GDP numbers, which realistically adjusted for price inflation are contracting.

This gloomy conclusion should come as no surprise to thoughtful souls in any era. These conditions are the logical outcome of the corruption of currencies. I have no doubt that if in 1920-23 the Weimar Republic used today’s statistical methodology government economists would be peddling the same conclusions as those of today. The error is to believe that expansion of money quantities is a cure-all for economic ills, and ignore the fact that it is actually a tax on the vast majority of people reducing both their earnings and savings.

This is the effect of unsound money, and with this in mind I devised a new monetary statistic in 2013 to quantify the drift away from sound money towards an increasing possibility of monetary collapse. The Fiat Money Quantity (FMQ) is constructed by taking account of all the steps by which gold, as proxy for sound money, has been absorbed over the last 170 years from private ownership by commercial banks and then subsequently by central banks, all rights of gold ownership being replaced by currency notes and deposits. The result for the US dollar, which as the world’s reserve currency is today’s gold’s substitute, is shown in Chart 1.

Fiat Money Quantity Chart

The graphic similarities with expansions of currency quantities in the past that have ultimately resulted in monetary and financial destruction are striking. Since the Lehman crisis the US authorities have embarked on their monetary cure-all to an extraordinary degree. We are being encouraged to think that the Fed saved the world in 2008 by quantitative easing, when the crisis has only been concealed by currency hyper-inflation.

Are we likely to collectively recognise this error and reverse it before it is too late? So long as the primary function of central banks is to preserve the current financial system the answer has to be no. An attempt to reduce the growth rate in the FMQ by minimal tapering has already raised bond market yields considerably, threatening to derail monetary policy objectives. The effect of rising bond yields and term interest rates on the enormous sums of government and private sector debt is bound to increase the risk of bankruptcies at lower rates compared with past credit cycles, starting in the countries where the debt problem is most acute.

With banks naturally reluctant to take on more lending-risk in this environment, rising interest rates and bond yields can be expected to lead to contracting bank credit. Does the Fed stand aside and let nature take its course? Again the answer has to be no. It must accelerate its injections of raw money and grow deposits on its own balance sheet to compensate. The underlying condition that is not generally understood is actually as follows:

The assumption that the Fed is feeding excess money into the economy to stimulate it is incorrect. Individuals, businesses and banks require increasing quantities of money just to stand still and to avoid a second debt crisis.

I have laid down the theoretical reasons why this is so by showing that welfare-driven economies, fully encumbered by debt, through false employment and price-inflation statistics are concealing a depressive slump. An unbiased and informed analysis of nearly all currency collapses shows that far from being the product of deliberate government policy, they are the result of loss of control over events, or currency inflation beyond their control. I expect this to become more obvious to markets in the coming months.

Gold’s important role

Gold has become undervalued relative to fiat currencies such as the US dollar, as shown in the chart below, which rebases gold at 100 adjusted for both the increase in above-ground gold stocks and US dollar FMQ since the month before the Lehman Crisis.

Gold Ajusted for US$ FMQ Chart

Given the continuation of the statistically-concealed economic slump, plus the increased quantity of dollar-denominated debt, and therefore since the Lehman Crisis a growing probability of a currency collapse, there is a growing case to suggest that gold should be significantly higher in corrected terms today. Instead it stands at a discount of 36%.

This undervaluation is likely to lead to two important consequences. Firstly, when the tide for gold turns it should do so very strongly, with potentially catastrophic results for uncovered paper markets. The last time this happened to my knowledge was in September 1999, when central banks led by the Bank of England and the Fed rescued the London gold market, presumably by making bullion available to distressed banks. The scale of gold’s current undervaluation and the degree to which available monetary gold has been depleted suggests that a similar rescue of the gold market cannot be mounted today.

The second consequence is to my knowledge not yet being considered at all. The speed with which fiat currencies could lose their purchasing power might be considerably more rapid than, say, the collapse of the German mark in 1920-23. The reason this may be so is that once the slide in confidence commences, there is little to slow its pace.

In his treatise “Stabilisation of the Monetary Unit – From the Viewpoint of Monetary Theory” written in January 1923, Ludwig von Mises made clear that “speculators actually provide the strongest support for the position of notes (marks) as money”. He argued that considerable quantities of marks were acquired abroad in the post-war years “precisely because a future rally in the mark’s exchange rate was expected. If these sums had not been attracted abroad they would have necessarily led to an even steeper rise in prices on the domestic market”.

At that time other currencies, particularly the US dollar, were freely exchangeable with gold, so foreign speculators were effectively selling gold to buy marks they believed to be undervalued. Today the situation is radically different, because Western speculators have sold nearly all the gold they own, and if you include the liquidation of gold paper unbacked by physical metal, in a crisis they will be net buyers of gold and sellers of currencies. Therefore it stands to reason that gold is central to a future currency crisis and that when it happens it is likely to be considerably more rapid than the Weimar experience.

I therefore come to two conclusions for 2014: that we are heading towards a second and unexpected financial and currency crisis which can happen at any time, and that the lack of gold ownership in welfare-driven economies is set to accelerate the rate at which a collapse in purchasing power may occur.     (my emphasis)

By Alasdair Macleod for Gold Money

By permission Alasdair Macleod and Gold Money

www.goldmoney.com and www.financeandeconomics.org

Alasdair Macleod runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist. He is also a contributor to and Head of Research for GoldMoney – The best way to buy gold online.

The Greatest Opportunity in 30 Years

Posted on November 21st, 2013

Mining Stock Bull Market-2399699By Jeff Clark, Senior Precious Metals Analyst

I caught myself daydreaming last week…

It’s October 27, 2008, and Silver Wheaton (SLW) just hit $3 per share. I buy 10,000 shares, more than I’ve ever devoted to any one stock. I sell half when it hits $33 per share and pocket $150,000 after a 1,000% gain. I pay off the mortgage, and my wife quits work—and I still have 5,000 shares…

Not a bad daydream, eh? I don’t know how many investors actually had the intestinal fortitude to plunk down a big lump of cash on a stock at that time—but Silver Wheaton did indeed offer that 1,000% return, and more.

When you look back at the investments that have made the most money over the past few decades, they’ve always been assets that had reached an extreme—an extreme low or an extreme high. Buying gold at $250 per ounce in 2001… buying tech stocks in the early ’90s or Apple Computer at $8 per share in 2003… shorting real estate in 2007 or the stock market in 2008… the list goes on.

Each of those speculations led to massive returns only because the price of the respective asset was either dramatically undervalued and poised to take off or, in the case of the short sales, a bubble ready to pop.

Paradoxically, such opportunities aren’t that hard to find—the truth is, they sprout up all the time. What is hard to find is the type of investor who has the guts to take advantage of those opportunities.

Fact is, most people run from assets that are at an all-time low… and happily buy into stocks that are reaching their peak. As legendary resource investor Rick Rule likes to say, “You’re either a contrarian or you’re a victim.”

When you think about it, the strategy for getting rich—a strategy regularly applied by the Doug Caseys and Rick Rules of the world—is deceptively simple:

  • Find an asset at an extreme (low or high) and determine if it’s headed in the other direction anytime soon;
  • Take a significant position and hold the fort while market forces play out.

That’s all. The difficult part is to muster the courage to hold on when all your senses are screaming that it’s a huge mistake, that your investment will never pan out, that today’s fool (you) is tomorrow’s loser.

If, on the other hand, you don’t mind going where others fear to tread, opportunities practically jump into your outstretched hands.

Here’s the best one I know of right now: gold stocks.

Actually, to say they’re a “good opportunity” is a laughable understatement: Gold stocks are at an extreme low we haven’t seen in over 30 years in this industry.

Let me prove it to you.

An effective way to measure the true value of gold stocks is to compare them to the gold price. Other things being equal, a gold producer selling for $20 per share at a $1,500 gold price is a heck of a lot cheaper than when gold’s at $1,000. (When the price of a product is higher, the stock is more valuable, and vice versa.)

The XAU (Philadelphia Gold and Silver Index) consists of 30 gold and silver stocks and began trading in December 1983. Here are the first 23 years of the Index’s ratio to gold.

XAU Gold Ration Gives Buy and Sell Clues Graph

Any time the ratio reached 0.20 or below, gold stocks were undervalued in relation to gold, and investors who bought at those inflection points made a profit. Conversely, once the ratio reached 0.34 or above, stocks were overvalued and due for a pullback.

For 23 years, from its inception through 2007, the XAU/gold ratio provided fairly reliable feedback for investors.

Now let’s add the rest of the data.

Gold Stocks at Historic Undervaluation Graph

Today, the XAU/gold ratio is at a historic low of 0.07.

To fully appreciate what this means, look at these former lows for comparison:

  • It’s lower than the 2008 gold stock selloff;
  • It’s lower than the “nuclear winter” of the mid-’90s;
  • It’s lower than the very beginning of the gold bull market in 2001.

Right now, gold stocks are like a rubber band that’s being stretched to an extreme. As all rubber bands do, it will snap back. And not just that; based on how extreme the undervaluation has become, they’re bound to be among the most profitable investments of this generation.

A year ago, I pointed out how cheap gold stocks were—and yes, they managed to get cheaper still. But that fact only underscores how vast this opportunity really is.

Current sentiment in the precious metals sector, especially the stocks, is beyond dreary: it’s pitiful. At the Toronto Stock Exchange, where most mining stocks are traded, security guards are now doubling as suicide watchmen. (OK, I made that up.)

What I didn’t make up is that your chances of following in Doug Casey’s or Rick Rule’s footsteps—and making similar breathtaking returns—have never been higher. Upside is at its greatest when even the cab driver laughs at the thought of buying a gold stock.

As conditions return to normal, huge profits will be made… by those who didn’t listen to the investing herd and its mouthpieces in the mainstream financial media.

Is there a guarantee gold stocks will rebound and deliver life-changing profits? I’m sure you’ve heard the “death and taxes” thing, so I don’t have to answer that question.

And there are some scenarios that could conceivably prevent gold and silver from rebounding—possibly killing off the miners for a generation:

  • If billions of Chinese, Indians, and other Asians finally realize that unbacked paper currencies are much more desirable to hold than physical gold and silver…
  • If Ben Bernanke vows never to print another bloody greenback again, and neither does his successor…
  • If Congress unanimously agrees to lower, instead of raise, the debt ceiling and drastically cut all but core spending, for the health of the country and its citizens (I know, don’t make me laugh)…
  • If solar panel manufacturers and dozens of other industries find a valid replacement for silver in their products…
  • If the insane amount of $700 trillion in derivatives circling the world like a cloud of toxic particles suddenly evaporates…
  • If Beijing calls a press conference and proclaims they were mistaken and now feel no need to diversify out of the US dollar, that it’s the one and only reserve currency the world will ever need…

… then we might see that happen. But I’m not holding my breath on any of these. (A phrase about snowballs and hot places comes to mind.)

In the meantime, I bought another gold Eagle last month.

But even if you don’t have $1,300 lying around, you can now add to your bullion in an easy and cost-effective way. I just told BIG GOLD readers of an exciting new program to accrue gold and silver—a program that deducts money from your bank account every month and buys the metal for you automatically.

But the best part is: it’s the first auto-accumulation program that stores metal at an international vault. Every other similar program offers domestic storage only or doesn’t have a service for automatic purchases.     (my emphasis)

Specifically for BIG GOLD subscribers, the company has agreed to lower the minimum amount from $250 to just $100 per month. If you sign up for a risk-free 3-month trial to BIG GOLD today, you can read all about this unique program and get the link to take advantage of this special subscribers-only offer… as well as our portfolio of deeply undervalued gold stocks.

You have 3 months to decide if it’s right for you—if not, for whatever reason, just cancel for a full refund, or a prorated refund after the 3 months are up. Click here to read more about BIG GOLD or start your risk-free trial now.

By Jeff Clark, Senior Precious Metals Analyst

http://www.caseyresearch.com/go/vuu7n-2/WIM

© 1998-2013 by Casey Research, LLC.

The Casey Research web site, Casey’s Investment Alert, Casey’s International Speculator, BIG GOLD, Casey’s Energy Confidential, Casey’s Energy Report, Casey’s Energy Opportunities, The Casey Report, Casey’s Extraordinary Technology, Conversations With Casey, Casey’s Daily Dispatch and Ed Steer’s Gold & Silver Daily are published by Casey Research, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information.

Doug Casey, Casey Research, LLC, Casey Early Opportunity Resource Fund, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.

Any Casey publication or web site and its content and images, as well as all copyright, trademark and other rights therein, are owned by Casey Research, LLC. No portion of any Casey publication or web site may be extracted or reproduced without permission of Casey Research, LLC. Nothing contained herein shall be construed as conferring any license or right under any copyright, trademark or other right of Casey Research, LLC. Unauthorized use, reproduction or rebroadcast of any content of any Casey publication or web site, including communicating investment recommendations in such publication or web site to non-subscribers in any manner, is prohibited and shall be considered an infringement and/or misappropriation of the proprietary rights of Casey Research, LLC.

Casey Research, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Casey publication or website, any infringement or misappropriation of Casey Research, LLC’s proprietary rights, or any other reason determined in the sole discretion of Casey Research, LLC.

Gold: Hold It or Fold It?

Posted on November 18th, 2013

Gold Coin Background_23341940By Peter Schiff, Chairman, Euro Pacific Metals

It’s starting to feel like we are part of a giant poker game against the US government, whose hand is the true condition of the American economy. The government has become so good at bluffing that most people feel compelled to watch how the biggest players in the game react to determine their own investment strategy.

Unfortunately, this past month revealed that even pros like Goldman Sachs have no idea what sort of hand Washington is really hiding.

Goldman Bets Against Gold

A week into the government shutdown, Jeffrey Currie, head of commodities research at Goldman Sachs, declared that gold would be a “slam dunk sell” if Washington resolved the budget debate and raised the debt ceiling. The call was based on an underlying narrative that the US economy is experiencing a slow, but inevitable, recovery.

Taking this recovery as a foregone conclusion, conventional Wall Street analysts saw two clear choices for Washington. On the one hand, Congress could reach an agreement, raise the debt ceiling, and allow the recovery to continue. This would allegedly have been the final nail in the coffin of the safe-haven appeal of gold.

On the other hand, if no agreement were reached, the government would have been forced to default on its debt. This would have erased any signs of recovery and sent the economy spiraling back into a terrible recession – while boosting the gold price.

Goldman reasoned that Washington would never allow the latter to unfold and suggested investors prepare to short or sell gold.

While Washington did kick the debt can down the road as predicted, gold rallied 3% on the news – the complete opposite of expectations. That is, expectations outside of Euro Pacific.

Misreading the Signals

After seeing an investment theory crushed by reality, a rational investor would take a moment to reexamine his premises. In Goldman’s case, this would mean second-guessing the conventional belief in an imminent or ongoing US economic recovery.

Yet, the day after Washington reached an agreement, Currie reaffirmed to Goldman’s clients that his US economic outlook for 2014 is positive and that he believes gold faces “significant downside risks.”

Currie must not have wanted to muddy his message by acknowledging that his original forecast was flat wrong. He did, however, hedge his statements by acknowledging that the Federal Reserve would likely hold off on tapering its stimulus until next year.

Major Wall Street investment houses have come to rely on the investing public’s short-term memory to skate by on these bad calls. When the next forecast is issued, clients and subscribers quickly forget that Goldman was blindsided by the Fed’s taper fakeout in September. [Read more about the taper fakeout in my previous Gold Letter.] That Currie accepted the government’s new taper timeline within a month of being burned by the last shows how little stomach they have for sticking to the fundamentals – and how little accountability they face for getting it wrong.

Instead, major players like Goldman Sachs are betting their books on the government’s fearless bluff. In the eyes of Wall Street, the economic indicators support this conclusion – inflation is subdued, GDP is growing!

The Bluff Exposed

I’ve been an outspoken critic of this official data for years. Over the course of my career, I have witnessed the government dramatically change the way it calculates inflation, GDP, and other statistics. While Washington’s latest figures show a year-over-year CPI increase of just 1.2%, the private service ShadowStats, which recalculates the data along the lines that the government used to, finds that real consumer inflation is closer to 9%.

My guess is the true number lies somewhere in between, but that it would be much higher were the US not able to export much of its inflation abroad. The process works as follows: the Fed prints money (inflation) and uses it to buy Treasuries and mortgages. The government and banks, in turn, pass much of that money to consumers, who spend it on imported goods. The money then flows to foreign manufacturers of those products, who then sell it to their own central banks, who print their own currencies (inflation) to buy it. This money goes out to pay wages, rents, etc., which the recipients then spend on goods & services. Finally, the foreign central banks use the dollars they buy to purchase US Treasuries and mortgages, starting the cycle again.

It’s a complicated relationship, but the end result is that inflation created in the US ultimately bids up consumer prices abroad and Treasury prices at home. In other words, our trading partners have to pay much more for goods & services while Americans get to borrow limitless money for next to nothing. The products our trading partners “sell” us increase the supply of goods available to American consumers while simultaneously decreasing the supply available to everyone else. That is what I mean by “exporting inflation,” and the important thing to remember is that its result is to mask inflation at home and transfer wealth from emerging markets to the US.

Consumer Inflation thru September 2013

The bluff gets worse. These understated CPI numbers distort real GDP, which would be lower if the true inflation rate were applied. The GDP calculations also include items like government expenditures, which are possible only because of money printing and not a result of any real economic production. Again, compare the official figure of 1-2% GDP growth in the second quarter of 2013 to ShadowStat’s figure of negative 2%.

GDP Annual Growth Annual Change thru 2013 2ndQtr

If investors can’t bring themselves to question official data, there’s another way to see through the government’s bluff: look to foreign central banks, which are actively preparing for the day when the dollar is no longer the world’s reserve currency.

The Bank of Italy recently affirmed that its gold reserves are essential to its economic independence, while the World Gold Council reported that this past year, European central banks held onto more of their gold reserves than ever before. China, the largest holder of US debt and the biggest consumer of gold in the world, has started openly talking about ending the dollar’s reserve status. And while we don’t know the total gold reserves of the Chinese government, there are signs that they are stockpiling.

Even US Treasury officials admit that the US will never sell its gold reserves to deal with debt obligations. One spokesperson said, “Selling gold would undercut confidence in the US both here and abroad, and would be destabilizing to the world financial system.”

Time to Cash Out

So, who should investors believe about gold? Wall Street bankers who directly benefit from asset bubbles created by the Fed’s inflationary stimulus?

No, it’s time for individual investors to leave the table and redeem their chips. Just remember – the longer you wait to cash out of the US dollar, the less you’re going to get for your winnings.    (my emphasis)

 

By Peter Schiff, Chairman, Euro Pacific Metals

 

www.europacmetals.com

 

Peter Schiff is Chairman of Euro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known bullion coins and bars at competitive prices.

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