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How Inflationary and Deflationary Outcomes Might Affect Your Bullion and Mining Shares

Editor — Tue, 07 Feb 2012 03:34:01 +0000

Whilst we, as staunch Austrians, would prefer less liquidity provision and more allowance for markets to naturally self-correct and deleverage… we suspect that as markets try to self-correct, the authorities generally will be forced to print more and more [as] it is the easiest course for them to take and the typically all too human option…As such we look once more at how inflationary and deflationary outcomes might affect precious metal investors. Words: 1323

So says Will Bancroft (http://www.stockopedia.co.uk) in edited excerpts from his original article* which Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Bancroft goes on to say, in part:

Inflation and perhaps hyperinflation.

An inflationary, and possibly hyperinflationary, scenario is naturally an outcome we are lead to by desperate authorities becoming locked into the printing press as a policy response. We believe Bernanke is pretty much well down this road now as, should he try to flip-flop back to austerity as a new response, his previous raison d’etre would be completely undermined and his legitimacy busted.

We believe this month’s announcement by the world’s leading central banks to act collectively to provide essentially unlimited liquidity to the financial system is further consolidation towards this collective policy response.

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We continue to urge investor cynicism with the inflation figures reported by the authorities who naturally have their interests to protect. Note the differences found in the official American data, and the data released by John Williams’ Shadow Government Statistics. When it comes to managing our portfolios and returns, we would prefer to use Mr Williams’ inflation in-puts [and,] in such a scenario when the inflationary genie starts to emerge further and further from the monetary lamp, and as the world’s savings and purchasing power are depleted, the precious metals should shine.

In this scenario, as we experience higher and higher prices…for gold and silver, their upside price limits…are only limited to how enthusiastically the authorities increase the money supply. [Refer to "Gold: $3,000? $5,000? $10,000? These 151 Analysts Think So!" for what] more adept forecasters than us…look for [ in future] gold prices… [We, too,] find gold and silver fundamentally undervalued today in relation to recent levels of money printing and the attendant risk in the financial system, so should easing become the general global policy response gold and silver are set to move significantly higher.

[Read these articles for their understanding of the implications such quantitative easing will have on the future price of gold:

Within this scenario we would also see the mining shares rewarding investors richly. In fact we like Jim Sinclair’s hypothesis that the precious metals miners will become the most significant dividend payers and will thus become the ‘utilities of the future’. The use of the term ‘utility’ in relation to the gold and silver sector might be a new way of thinking for some, but should gold and silver return to the heart of the monetary system, these miners are essentially supplying our money. They would be supplying an essential commodity, not that different to water or electricity. We are sympathetic to this prediction, and the gold miners are thinking more intelligently about the issue of dividends, admirably lead by Newmont Mining. It would be the precious metal miners acting as such dividend payers and utility stocks that would start to bring in some larger more long term focused investors that have as yet remained on the sidelines; the pension funds. So far pension funds have had minute allocations to the bullion and the miners. [Read "Pension Funds: Why $5,000 Gold May Be Too Low!"]

Deflation

This is where our analysis will perhaps become more controversial, because we believe that a significant deflation in today’s financial system will also be positive for precious metal investors.

Although we feel precious metal investors would be rewarded in this scenario, this may occur more slowly than in a significantly inflationary scenario. We would suggest that deflation would gradually put unbearable pressure on banks’ balance sheets, and bank failures would become more and more common. Fiat currencies, working hand in hand with a highly leveraged reserve banking model, have conspired to deliver us to our current situation. Investment banking failures might not capture the immediate attention of Main Street, but as this contagion spreads to commercial banks, savers would open their eyes further to the potentially risky nature of keeping cash in a bank. As Eric Sprott continually reminds us, ‘keeping money in a bank is a risky investment’…

Given the degree of leverage still at work in the banking system a domino effect of failures is not difficult to imagine. The depositors of the world would then increasingly have to reconsider what vehicle is more apt for holding their savings. The market will simply have to find a new savings mechanism in which to contain its money and liquidity. Where would the market turn to in this reallocation of capital? Well, the market has typically chosen gold and silver as money throughout the history of human development. As gold and silver’s almost unique properties are more widely appreciated once more, the fact that these assets are no-one else’s liability will again be greatly appreciated. [Read "Surprise, Surprise – Gold Is A Safer Investment Than Any Other!"]

Within this deflationary scenario, we also see the mining shares rewarding investors, and find the case of Homestake Mining during the 1930s in America a useful guide post. Amidst a wider deflation of significant proportions, pretty much the only capitalist endeavour one could get financing for was for a gold mine. During this decade there were close to 100,000 gold mines in North America. The share price of Homestake went from $80 in October 1929 to $495 in December 1935, but this capital appreciation was not the only reward for investors. During these six years Homestake paid out a total of $128 in cash dividends, and the 1935 dividend alone was $56 per share. A 70% dividend yield pay-out (basis year 1929) in only one year is pretty exceptional in a wider deflation. It is for these reasons we are so encouraged by Newmont Mining’s previously mentioned moves regarding dividend pay- outs. As John Hathaway at the Tocqueville Gold Fund comments, these mining stocks are going to be growth stocks.

Some readers may be wondering about how silver miners might perform in this scenario given silver’s industrial demand component. We are bullish on silver

and thus quality silver miners, in such a scenario because of our previously articulated analysis of silver’s fundamentals…[which] may be high level, macro, and contain some premises which are new to readers, but it is because of our opinions above on gold and silver’s potential performance during inflation or deflation that we are so attracted to these asset classes. This is why we find gold and silver bullion as an excellent place to hold some of your liquidity or money [read "Your Portfolio Isn’t Adequately Diversified Without 7-15% in Precious Metals – Here’s Why"] (gold first, then silver as a more speculative allocation), and the precious metal miners as one of the best places to allocate your investment capital.

*http://www.stockopedia.co.uk/content/inflation-deflation-and-precious-metals-what-a-future-might-look-like-for-your-bullion-and-your-mining-shares-62642/

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What Does QE Really Do – and NOT Do?

Editor — Tue, 24 Jan 2012 06:54:43 +0000

[As you know, earlier] this week the Federal Reserve…promised to keep short-term interest rates low through late 2014 … up from a previous pledge of 2013. Not only that, the Fed also said it would continue with its “Operation Twist” policy of selling shorter-term Treasuries and buying longer-term ones. The goal [is to] hold down long-term interest rates but what does QE really do – and not do? [Let me explain.] Words: 500

So says Mike Larson (www.moneyandmarkets.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Larson goes on to say, in part:

What is QE – REALLY?

QE is money printing by a country’s central bank – and…

it devalues the currency of the country doing the printing,
it erodes the purchasing power of the country’s citizens,
it inflates the price of commodities, making every gallon of gas you buy and many of the groceries you purchase more expensive,
it drives down the yield on virtually all of your savings vehicles, forcing you to scrounge for pennies in your couch cushions or take on huge risks to generate the same amount of income you made previously and
it artificially boosts the value of paper assets, including everything from junky bonds to stocks.

In other words, if you’re an average American, you get screwed, but if you’re a seven-figure-salary investment banker at Goldman Sachs, you hit paydirt. You can peddle more stocks and bonds, make a lot of money doing so, and maybe afford a new Ferrari or house in the Hamptons. Ain’t life grand?

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The fatal flaw of QE, though, at least in terms of its impact on the REAL economy, is those pesky side effects. Sure, QE temporarily juices stock prices but because it also drives up the cost of living, it drives down the disposable income of everyday citizens. Eventually prices rise so high that no one can afford them, and that’s when the economy collapses…

What to Do

Never mind that [QE] won’t work, at least if by “work,” you mean help the real economy. Fed policymakers like Ben Bernanke aren’t going to let the facts get in the way of a good story. They need to look like they’re not just sitting on their hands so they’re going to keep doing the same wrong things, expecting a different result.

The best way to protect yourself is to own some gold, own select fixed income investments that do NOT pose excessive risk, and own select stocks with solid fundamentals.

*http://www.moneyandmarkets.com/fed-pledges-low-rates-forever-what-it-means-48834?FIELD9=2

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1. 2012: More Money-printing Leading to Accelerating Inflation, Rising Interest Rates & Then U.S. Debt Crisis! Got Gold?

Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.] Words: 660

2. IMF Begs Policymakers to Prevent World Economy From Falling into a 1930s-style Death Spiral!

The International Monetary Fund (IMF) painted a stark picture of the global economy this week slashing the outlook for world growth while forecasting a damaging recession in Europe that will leave no country, including Canada and the U.S., unscathed. The report stated that financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated and, as such, policymakers must immediately move forward together to save the world economy from falling into a 1930s-style death spiral because the longer corrective action is put off the worse it will actually get. Words: 640

3. Why More QE is Coming and What That Means for the Future Price of Gold

Most traders and some economists believe the Fed will step in with another round of Quantitative Easing (QE3) in the first half of 2012. This will pump up the stock market, particularly bank stocks, giving the impression that the US economy can’t be that bad, after all, [but in the process] debase the dollar and reduce purchasing power. [This, in turn, will result in higher]…inflation causing prudent investors to buy more gold. [Let me explain further what I see transpiring this quarter and why.] Words: 718

4. These 5 Apocalyptic Engines Causing Hyperbolic Growth in US Money Supply

I recently wrote an article showing how US True Money Supply (TMS) appeared to be growing at a hyperbolic rate [see here], and that gold was also on a hyperbolic course…Hyperbolic growth in the quantity of money ends with hyperinflation… [and] both TMS and the dollar price of gold are pointing to a hyperinflationary outcome. This article explains why this might be so. Words: 764

5. Economic System a Legal Ponzi Scheme on the Verge of Collapse!

Countries around the world, particularly in the West, are hopelessly in the red, with debt rising every day. Even worse, politicians seem paralyzed, unable — or unwilling — to do anything about it. It is a global disaster that threatens the immediate future… [Let me explain.] Words: 1132

6. What is Money – Really – and Why Do We Need to Own Gold – Really?

Have you ever wondered what money really is [and why we need to own some gold as a result]? You’ll notice that everyone you read has a strong opinion , but who’s right? [Let look at the situation and see if we can come to an answer that we both can agree on.] Words: 3086

7. Egon von Greyerz Interview on Future QE, Hyperinflation and the Price of Gold

A final or total catastrophe of the currency system will occur as a result of unlimited money printing that will lead to hyperinflation. Stock markets will benefit temporarily from this QE [but we expect that the] markets will fall 90% against gold in the next few years. The correction in the precious metals [will] likely [soon] be over and we should see the metals going to new highs in 2012. Words: 450

Why More QE is Coming and What That Means for the Future Price of Gold

Editor — Tue, 24 Jan 2012 05:27:00 +0000

So says Scott Silva (www.thegoldspeculatorllc.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Silva goes on to say, in part:

QE3 to Buy Up Toxic Mortgage Backed Securities

This round [of QE] would be huge, as much as $1 Trillion and targeted to support the ailing housing market. Under QE3, the Fed would purchase [those] Mortgage Backed Securities (MBS) – the derivative instruments that bundle thousands of home mortgages into a single, collateralized package – …considered “toxic” assets because they contain subprime mortgages that defaulted, making them very difficult to price in secondary markets…

The next FOMC meeting is scheduled for this week, but there is little chance that the Chairman will announce the new round of bond-buying [then] but listen for Bernanke to list the continuing woes of the housing market, and its drain on the economy and growth. Housing will be the new demon and Ben will excise it with a Trillion dollar dose of his favorite restorative quantitative elixir.

Why Previous QE Effors Failed

The Fed has already injected $2.9 Trillion into the banking system through expanded credit [but it] has failed to turn the ailing economy around. GDP is limping along at 2% or less. Unemployment remains at record highs. Capital is on strike, or out of the country. Adding another $1 Trillion to the Fed balance sheet is not likely to make a positive difference [either]. The technical reason is we have been stuck in a liquidity trap, where no amount of additional easing is effective.

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Austrian economics gives the answer why. Fed intervention created a bubble in the housing market by artificially depressing interest rates. This encouraged malinvestment in housing assets by homeowners and speculators. Federal social engineering embodied in the Community Reinvestment Act, permitted unqualified applicants to receive taxpayer guaranteed mortgages, many of which ultimately defaulted. Government intervention in the markets is the cause, not the cure for our economic problems.

What the Price of Gold is Saying

One indicator cuts through the conflicting themes that affect the markets and the economy is the price of gold [which] is telling us that:

we are not out of the woods yet, and that there are many risks facing the U.S. economic recovery,
to expect more volatility in the equity markets,
to expect more pain from the European debt crisis, and maybe
to expect a military showdown with Iran and that
the bull market for gold has a long way to go yet.

*http://www.kitco.com/ind/Silva/jan232012.html

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Related Articles:

1. True Money Supply Is Already Hyperinflationary! What’s Next?

Economists are telling central banks to accelerate monetary growth even faster…to avoid a bank balance sheet implosion with all the deflationary consequences that implies. [As such,] the prospects for 2012, and thereafter, are for Total Money Supply to continue its hyperbolic trend – and when such a trend becomes established it becomes almost impossible to stop because the whole debt-based economy and the banking system would collapse. [Let me explain further.] Words: 550

2. 2012: More Money-printing Leading to Accelerating Inflation, Rising Interest Rates & Then U.S. Debt Crisis! Got Gold?

3. Alf Field’s 7 “D’s” of the Developing Disaster Revisited

When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…[Let me explain this further by reviewing the 7 major problems facing the U.S. (and thus the world) and how they all will lead to problem #7 - devolution.] Words: 1520

4. Buy Gold NOW Ahead of Further QE – Here’s Why

Due to high unemployment and a weak recovery world central bankers are focused on weakening their currencies to boost exports. [As such,] I think [even more] quantitative easing and other currency intervention is in our future…[and this will further increase]…both inflation and the price of gold. Let me explain with a few charts.] Words: 350

Buy Gold NOW Ahead of Further QE – Here’s Why

Editor — Mon, 23 Jan 2012 00:56:14 +0000

So says Bear Fight (pseudonym) in edited excerpts from the original article* as posted at www.SeekingAlpha.com.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

The articles goes on to say, in part:

Further QE to Cause Higher Inflation and Rise in Gold Price

The chart below [of] the U.S. monetary base, the price of gold and the U.S. consumer price index [clearly] shows [that] gold prices and the consumer price index have responded to historical growth in growth of the monetary base.

[The price of] gold experienced a euphoric bubble in the 1980s when gold exceeded the monetary base [and during this current] 10 year bull market in the price of gold the growth in the monetary base has kept pace [see chart below].

Investor Gold Holdings Only at 0.96% of Assets

Similar to the first chart outlining the bubble territory in the 1980s, [the chart below shows that] gold as a percentage of assets was three times higher in 1980 [than currently is the case]…

Conclusion

While I believe that QE3 will be a catalyst for further increases in the price of gold, similar to QE1 and QE2, the thesis on gold is not linked to another QE program. The thesis on gold is simply monetary debasement by world governments and debt growth since 1971.

*http://seekingalpha.com/article/320554-buying-gold-on-more-qe?source=email_macro_view&ifp=0

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Related Articles:

1. These 5 Apocalyptic Engines Causing Hyperbolic Growth in US Money Supply

2. True Money Supply Is Already Hyperinflationary! What’s Next?

3. 2012: More Money-printing Leading to Accelerating Inflation, Rising Interest Rates & Then U.S. Debt Crisis! Got Gold?

4. Economic/Currency Collapse Could Bring Martial Law and Confiscation of Your High-priced Gold! Got Silver?

Do we really honest-to-God no-fingers-crossed cherry-on-top believe that the powers-that-be will simply allow us to mosey up to the cashiers cage and redeem or convert our Gold for whatever monetary unit reigns supreme or is created [should our current financial system and currencies collapse? As such,] IF there comes a time when the best move forward is to sell most of our Gold and switch to another asset class, one more likely to survive the transition intact, will we be able to see this as obvious and a no brainer? [Let me explain what could well happen and the effect such a development would have on all things Gold.] Words: 3037

5. What is Money – Really – and Why Do We Need to Own Gold – Really?

6. Egon von Greyerz Interview on Future QE, Hyperinflation and the Price of Gold

7. Goldrunner Called $1,920 Gold High Exactly; Now Expects $3,000 – $3,500 by Mid-Year

Short-term volatile moves in Gold, as we have seen over the past few months, do not affect our projections for the future price of Gold based on our fractal (pattern) “model” off the late 70′s Gold Bull. Just as we correctly projected the $1,920 high in our April article entitled Goldrunner: Gold on track to Reach $1860 to $,920 by Mid-year (gold reached $1,917.20 in late August and $1,923.70 in early September, 2011), our current analysis indicates that Gold will enter a range between $3,000 and $3,500 by mid-year 2012. Words: 975

8. 2012: Is This How U.S. Financial Crisis Will Unfold Later This Year?

As economic and political matters become more desperate in the U.S., so will what the government considers acceptable. If a debt default cannot be engineered via continuous inflation as the Fed’s current money-printing is attempting to do, it will occur via a direct repudiation of obligations or a quasi-surreptitious one such the hypothetical one I present in this article. Here is… a look (not a prediction) at a series of not improbable events that could develop [and which] would change our economic world overnight[ - and your financial well-being too]. Words: 1365

9. We Have Reached the End of the Road and are Staring into the Abyss! Got Gold?

With most of the world’s major economies as well as the financial system bankrupt…most people will rely on governments and central banks to save us but how can anyone possibly believe that totally incompetent and clueless politicians and central bankers could solve the problem they created in the first place… The main objective of governments is to stay in power and thus to buy votes, therefore they are incapable of taking the right decisions and the opposition, aspiring to power, is even less suitable since they will lie through their teeth and promise the earth in order to be elected. So what is the solution? Read on! Words: 2391

2012: More Money-printing Leading to Accelerating Inflation, Rising Interest Rates & Then U.S. Debt Crisis! Got Gold?

Editor — Fri, 30 Dec 2011 07:59:59 +0000

So says Alasdair Macleod (www.goldmoney.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) edited the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Macleod goes on to say:

The one chart which defines the background to all the events [that will unfold] in the coming years is the Mises Institute’s True Money Supply (TMS) for the US dollar. TMS consists of cash, checking accounts and no-notice deposit accounts, as well as a few other minor cash balances. It represents the actual cash and electronic cash in the system that is instantly available for purchases of goods and services, and the chart goes back to 1959.

The Hyperbolic Course of the True Money Supply

The dotted line [in the graph above] is the exponential growth trend, in other words the maximum rate of growth that can continue for ever. This trend was valid until mid-2002…[at which time the] TMS began accelerating at a faster rate telling us that TMS growth [had] entered a hyperbolic phase when the Fed eased rates in the wake of the dot-com collapse. Put another way, TMS is already hyperinflationary.

Bear in mind that economists are now telling central banks to accelerate monetary growth even faster to offset the tendency for bank credit to contract. They see no other way to avoid a bank balance sheet implosion with all the deflationary consequences that implies. [As such,] the prospects for 2012 and thereafter are for TMS to continue its hyperbolic trend…[as it] supply funds for a government deficit completely out of control. Also bear in mind that when such a trend becomes established it becomes almost impossible to stop, since the whole debt-based economy and the banking system would collapse.

The Hyperbolic Course of the Price of Gold

The chart [below] shows gold’s established hyperbolic course…[as] put together by Armand Koolen… In Koolen’s words, the hyperbola fits in with the official gold price in the early 1900s, the revaluation to $35 in 1934, the onset of the secular bull market in 2001, the bottom in October 2008 and its approximate track since then.

His discovery is interesting. Singularity for this curve, or the point where the gold price goes to theoretical infinity, is in February 2014, only 26 months away. Unless this long-term trend is somehow broken, gold is also telling us the dollar is heading for hyperinflation.

It would be a mistake to vest magical powers in such an extraordinary discovery, but given [that] TMS itself is showing signs of going hyperbolic we must sit up and take notice… [It will prove to be virtually impossible] to stop printing money at an accelerating rate [as evidenced by the fact that when the ECB showed a reluctance to do so it threatened]… to collapse the eurozone. Will the Fed pull the trigger on the US economy or chicken out? The answer is clear.

What Does the Future Hold?

We can expect:

a further escalation of money-printing in 2012…
followed by unexpected and accelerating price inflation
nominal interest rates will then rise at the market’s behest
bringing a sovereign debt crisis for the dollar with it as the cost of borrowing for the government escalates…

*http://www.goldmoney.com/gold-research/alasdair-macleod/money-supply-explosion-will-lead-to-accelerating-inflation.html

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3. Continuing High Unemployment = More Money Printing = Higher Gold & Silver Prices

The Federal Reserve has a dual mandate set by Congress of maximum employment and stable prices. During Chairman Bernanke’s most recent press conference he indicated that the Federal Reserve has done a better job of maintaining price stability while falling short of fostering maximum employment. [As such,] we believe the Federal Reserve will continue to increase the monetary base and weaken the dollar as long as unemployment remains elevated. While the economy (measured by real GDP) and the unemployment rate have not benefited from a substantial increase in the monetary base, the price of gold and silver have benefited from money printing. We believe this statement is quite important for monetary policy and for investors. [Let us explain further.] Words: 388

4. The U.S. is Headed Toward a Complete and Utter Collapse of its Financial System

The U.S. is headed inexorably toward a systemic failure, a complete and utter collapse of the financial system. TARP and all the other machinations have not improved the underlying insolvency of the banking system. They have, however, deferred a collapse and ensured that it will ultimately be worse. [Let me explain.] Words: 1385

5. There Are 2 Ways Out of Global Economic Mess – Hope for One of Them & Prepare for the Other

It all comes down to this: We have to match growth to debt. If we can’t create miracles from growth, we have to consider inflation to reduce the value of our debt. [Those are the] only two ways out of our current global economic mess – innovation and inflation. As the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation). [Let me explain why that is the case.] Words: 1195

6. Alf Field’s 7 “D’s” of the Developing Disaster Revisited

7. New Boom-bust Cycle Risks Hyperinflationary Depression and Much Higher Gold Price – Here’s Why

It is my view that the world has entered a new boom-bust cycle driven by oil prices. Oscillating oil prices – as opposed to credit cycles – will repeatedly stimulate and crash the highly levered global economy. Governments have not recognized this new cycle, and as part of a fruitless effort to retain control over deteriorating real growth and rising unemployment central banks will print more and more money, risking a hyperinflationary depression (stagflation at best). [As such,] the only respite for many investors is gold. [Let me explain.] Words: 925

8. Why Negative Real Interest Rates + Stimulative Money Supply = $10,000/ozt. Gold

Question: What do you get when you mix negative real interest rates with stimulative money supply efforts by global central banks? Answer: An exceptionally potent formula for higher gold prices that could send gold to the unimaginable level of $10,000 an ounce. [Let me explain further.] Words: 1049

9. Niall Ferguson: U.S. Playing “Russian Roulette” Assuming Interest Rates Will Remain Low

Countering Krugman’s argument that today’s low interest rates show that no one is worried about lending money to us and, therefore, that we should borrow and spend our way to prosperity, Ferguson argues that today’s interest rates are irrelevant. When countries get into trouble, he says, they get into trouble quickly – the way Greece and…

10. Debt Bubble: We’re in a Dangerous New Phase – Here’s Why

The head of the International Monetary Fund, Christine Largarde, said Friday the world economy is entering a “dangerous new phase.” Lagarde is referring to a debt bubble, the likes of which the planet has never seen before, and the possibility that it could all unravel at any moment. Uncertainty over the debt crisis in Europe is what caused the Dow to crash more than 300 points at the end of last week. What is Lagarde going to do about the debt problem? Words: 1752

11. Brace for Impact: U.S. About to Go Off a Financial Cliff!

The kind of impact [our economy is] going to have will not be like flying into the side of a mountain. It will be the kind of crash that skids over land, clipping trees and buildings until the plane ends up wingless in a smoldering heap. I just hope the fuel tanks don’t ignite when the long rough ride is over. [Let me explain.] Words: 832

12. Another Economic Collapse and Great Depression are Coming! Here’s Why

It really is hard to find the words to describe the true horror of the national debt of the U.S. The U.S. government has been on the greatest debt binge in all of human history, and a day of reckoning is coming that is going to be so painful that it is going to shock America to the core. We have lived so far above our means for so long that none of us really has any concept of what “normal” is like anymore. The United States has enjoyed the greatest party in the history of the world, but now this decades-old party is ending and the bills are coming due. Our current system is headed for an inevitable collapse. There is no way of getting around it – a horrific economic collapse is coming [and] it is going to change the world. You better get ready. [Let me explain further.] Words: 1771

13. America’s Future: Growing Deficit, Shrinking Economy, Imploding Dollar and Exploding Inflation

The new [debt ceiling deal] legislation will add $2.4 trillion to the $14.3 trillion national debt in a little over a year – and we don’t even start saving money until after the debt reaches $16.7 trillion! This bill doesn’t even cut the deficit. It just slows the growth of government spending to around 8% a year! So, even if Congress cuts $2.1 trillion out of the budget over the next 10 years, we will still be running annual deficits of more than $1 trillion…[That means that in addition to a deficit that will continue to grow we can look forward to a shrinking economy, an imploding U.S. dollar and exploding inflation. Some future! Let me explain.] Words: 827

14. What Would USD Collapse Mean for the World?

I came to the conclusion several years ago that it was just a matter of time before the world realized that the relative functionality of the U.S. dollar was about to go belly up – to collapse – and that that time happened to coincide with that fateful date all the prophecies are going crazy about – 2012! Words: 881

15. The U.S. Dollar Crisis is About to Accelerate! Here’s Why

If the debt ceiling deal agreement is fully implemented [it is only going to exacerbate America's financial and economic woes and accelerate the demise of the U.S.] Dollar Standard which is inherently flawed and increasingly unstable. Its demise is imminent. The only question is will it be death by fire—hyperinflation—or death by ice—deflation? Fortunes will be made and lost depending on the answer to that question. [Let me explain how the collapse of the dollar could well unfold.] Words: 944

Egon von Greyerz Interview on Future QE, Hyperinflation and the Price of Gold

Editor — Fri, 23 Dec 2011 07:00:38 +0000

So said Egon von Greyerz (www.goldswitzerland.com) in an interview* with Eric King.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) von Greyerz’ comments to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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von Greyerz went on to say, in part:

In summary, this is what I said (with some additions) in the interview with King:

The current correction in gold is technical. There is very little physical selling and refiners have their order books full well into the second half of 2012.
Technically this correction could last to the end of the year but it could end already at the end of next week. Support is at $1,530-50 and $1,410-20. Thus we could go that far down but this would be a golden opportunity to add to positions.
The market is smelling deflation. With no QE we would have a deflationary collapse. No bank would survive a deflationary collapse. Nor would any government. There would be total chaos and no functioning financial system.
Governments are petrified of deflation. They know the consequences which are unacceptable to them.
Therefore, whatever governments say, there will be unlimited money printing led by the Fed, IMF and ECB plus other central banks.
QE will not solve the problem, only kick the can down the road. There is no solution as I wrote in my latest piece “Deus ex Machina” [which is posted on munKNEE.com under the title We Have Reached the End of the Road and are Staring into the Abyss! Got Gold?].
Worldwide QE will lead to currencies collapsing, a hyperinflationary depression and surging precious metals.Physical gold and silver (stored outside the banking system) is the ultimate method for preserving wealth.

*Click here for the KWN interview page with Egon von Greyerz – then click the ‘Listen to MP3′ link or go here for a printed version of the interview.

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1. Why Negative Real Interest Rates + Stimulative Money Supply = $10,000/ozt. Gold

2. Investing in the Stock Market is for Losers! Here’s Why

This article clearly demonstrate how the millions of investors who invested in the stock market over the past decade actually fared when their performance was measured in gold instead of dollars. You will be shocked at how poorly they (and you?) have really done and you, too, will come to the consclusion that – investing in the stock market is for losers. Words: 790

3. We Have Reached the End of the Road and are Staring into the Abyss! Got Gold?

4. Alf Field’s 7 “D’s” of the Developing Disaster Revisited

5. Where Is This Unprecedented Global Financial Crisis Headed? A Retrospective from Alf Field

6. Alf Field: America’s Current Account Deficit Causing World’s Financial Crisis! Here’s Why

The onset of the world’s worst financial crisis in many decades is one of the most important factors (if not the most important factor) currently influencing investment decisions. The crisis has created chaos and confusion. Not many people understand how the world has arrived at this unfortunate situation. This report endeavours to identify the underlying causes of the crisis and explains why the USA current account deficit has been the main destabilising force in world finance. Words: 3806

7. Fiat Money: Exactly What Is It? Why Is It Such A Scourge?

Considering the fact that you can fool some of the people some of the time but you cannot fool all of the people all of the time, is it any wonder millions, both through the Tea Party demonstrations and now the Occupy Wall Street Movement across the country and elsewhere around the world, are protesting the abysmal scourge that fiat currency has brought upon us as a result of that fateful day back on July 25th, 1965. To appreciate the significance of that historic day we must fully understand what fiat currency is and why such a concept is about to implode and this article does just that. Words: 1372

Goldrunner: Gold Now on Its Way to $3,000+ By mid-2012

Editor — Sun, 18 Dec 2011 07:03:45 +0000

Our work with Gold is based on a “Model” off the late 70’s Gold Bull that has been replicating nicely since we started the Fractal Work with Gold back in 2002 and 2003. Short-term volatile moves in Gold, as we have seen over the past weeks, do not affect our projections based on the model, leaving the expectation of a move in Gold up to $3,000 into mid-year intact as outlined in our previous article entitled Gold Tsunami: on the Cusp of $3000+? Words: 996

Those are the views of Goldrunner (www.GoldrunnerFractalAnalysis.com) as conveyed in his original article* which was edited by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!). Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Goldrunner goes on to say:

This is no different than our projection calling for Gold going to $1860 to $1920 back in April in an article entitled Goldrunner: Gold on track to Reach $1860 to $,920 by Mid-year. Many thought Gold’s run was finished, but then Gold shot up to tag our $1920 price target on the nose.

The Gold Bull in US Dollars is a parabolic cycle that is created by the fall in value of the US Dollar.

1) The “US Dollar Index” has little relationship to the “Value of the Dollar” once the other paper currencies in the basket are being devalued aggressively. Thus, the Dollar is no safe haven except for very short periods of time late in major Gold Bulls. The global competitive currency devaluation process started in earnest in 2010 – much like it did in the late 70’s cycle. Once the GCCDs start in earnest, the US Dollar Index becomes little but a “fake pricing oscillator”, mostly moving sideways and inversely to the Euro, the largest component of paper currency in the US Dollar Basket.

2) The USD Index is trading much like it did at the same point in the late 70’s once it became a simple oscillator, and the analogous rise in the late 70’s suggests that it will top in the current period somewhere in the 81 to 84 area – and then it will move back down to its lows as Gold rockets higher.

3) Last week gold corrected down into the area of support near its long-term channel uptrend line on the arithmetic chart. The support came at the channel bottom and at angled line support over old tops as seen in the chart below.

Everybody is waiting with baited breath for the Fed to announce the next round of QE while looking at the false pricing index rise for the Dollar. The fact is that the Fed just announced the printing of $600 Billion of new Dollars that are yet to be factored into the $Gold price. That $600 Billion amount is equal to the total amount of the last course of QE that jettisoned the price of Gold in Dollars much higher, and we still expect the Fed to announce a round of QE on top of that so the US Government can pay its bills.

Back in 2007 we had pointed out the expected Deflation Scare correction that was obvious in the late 70’s Fractal Gold Chart. Working off the same Gold Chart Model, back then, we simultaneously pointed out the coming upside into early 2008, and the expected sharp drop into the 4^th quarter of ‘08 on the same chart “model.”

There is no equivalent to “another deflation scare” at this point in the cycle off the late 70’s Gold Chart Model, and we believe it is for obvious reasons. The Gold Bull that is created by the aggressive Dollar inflation is driven into the form of a parabola by a relatively constant accelerating inflation of the US Dollar. We expect that the market will very soon turn its attention away from the false pricing Dollar Index, and revalue Gold sharply higher against the US Dollar due to the true increased supply metrics at hand.

THE $GOLD ARITHMETIC CHART

On the chart below you can see the lower channel in green that Gold traded within during the early part of the current Gold Bull running up the low channel base before busting out of the green channel with a huge move out of the top and into a more parabolic growth rate into the blue channel and then underwent parabolic growth as it busted upward into the blue channel.

At this stage in the late 70’s, $Gold made a similar sharp run higher and busted out of the top of the blue channel on the $Gold Chart, much like we saw as Gold busted out of the lower channel in 2005. This is how the Golden Parabola grows. We see a relatively constant acceleration in price per period of time – acceleration in price driven by the devaluation of the Dollar in response to more Dollars being printed in an accelerating way or Dollar Inflation.

If the Dollar Index reflected the value of the Dollar at this point in the cycle, the Dollar Index would have fallen to new lows as $Gold was revalued to new highs against the Dollar as it rose up to $1920, but it did not. The USD basically traded sideways to down from this point forward in the late 70’s while Gold was revalued massively higher against the Dollar into 1980.

Sharp volatility down into the channel bottom can easily be converted into sharp upside momentum if price bottoms and reverses causing investor psychology to reverse sharply.

THE 2008 DEFLATION SCARE GOLD CHART PROJECTIONS

Above and below, are two of the Fractal Gold Charts I posted back in September of 2007 showing where we were in the Fractal Model off of the late 70’s, using two of Dan Norcini’s Gold charts. Note the sharp correction into late 2008 that was denoted on one of the two charts for 2008. Also note that there is no similar sharp correction further along in the late 70’s Gold chart to match “a second deflation scare for today” as the parabola powered onward and upward.

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* (Goldrunner maintains a subscription (go here for information) at www.GoldrunnerFractalAnalysis.com where he has posted this article on the public part of the site.)

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There’s no corner of the market more emotional than gold investing and, with bullion down more than 10% this month and 20% since early September, a war of words has broken out among North America’s most influential bullion investors. [For an understanding of who said what, please read on.] Words: 1315

2. New Analysis Suggests a Parabolic Rise in Price of Gold to $4,380/ozt.

According to my 2000 calculations, if interest rates and inflation stay constant over the next 2 years, we could expect to see (with 95.2% certainty) a parabolic peak price for gold of $4,380 per troy ounce by then! Let me explain what assumptions I made and the methods I undertook to arrive at that number and you can decide just how realistic it is. Words: 740

3. Gold Will Reach $3,000/$4,000/$5,000 Before This Bull Market Is Over! Here are 12 Factors Why

I believe that the price of gold will… reach… $3,000, $4,000, and even $5,000 [per troy] ounce…during the course of this long-lasting bull market, a bull market that still has years of life left to it…[although] prices will remain extremely volatile – with big swings both up and down along a rising trend…The future price of gold is a function of past and prospective world economic, demographic, and political developments [and in this article] I review some of these developments and trends – so that you can come to your own “golden” conclusions. Words: 3800

4. These Charts Say It All: GOLD Is STILL a BUY

With what is happening with the price of gold these past few days it is imperative to take a look at the long and short of it all (the trends, that is). In doing so it shows that we are still very much in a long-term bull market but in a short-term (yes, short-term) bear market. Let’s take a look at some charts that clearly outline where we are at and where we could well be going. Words: 625

5. Don’t Look a Gift Horse in the Mouth – Buy Gold Now With Both Hands! Here’s Why

Since the fundamentals still point to gold’s long-term viability… why [are] investors responding by selling gold…? I was always told not to look a gift horse in the mouth… [so] take advantage of the dip. Words: 962

6. Gold Bugs: You Were “Had” in the Recent Decline! Here’s How to See It Coming Next Time

Record lease rates are a primary driver for the near historic sell-off we have experienced but, when negative gold lease rates drop like they are now doing, the underlying tension in the supply and demand for gold as a source of liquidity collapses suggesting that the gold sell- off is likely coming to an end. That said, the next time we approach the previous thresholds..it will likely indicate that another gold-derived liquidity rubberband “breach” is imminent. [Let me explain further so you won't be "had" next time.] Words: 1054

7. Goldrunner: Gold, Silver and HUI Index to Bounce Back to Major Highs by May 2012

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8. Gold Tsunami: on the Cusp of $3,000+?

Early this year we suggested a 50% rise in Gold to $1860 – $1,920 into mid-year. Now, we see the Gold tsunami realizing an approximate 100% rise that will crest at $3,000+ into the middle of 2012, drowning any doubters in its wake. Below are a number of factors that support that view. Words: 1250

9. Gold: Will it Go to $12,500 – $24,000 – or $39,000/ozt. – by End of Decade? Here’s the Rationale for Each

From questions whether gold is in a bubble to predictions that soaring prices are just around the corner, one thing is clear: a new phase of awareness for gold is upon us. How far might it move before these troubling times are over? [Let's take a close look at a variety of factors and scenarios before coming to a conclusion.] Words: 5717

10. Update of Alf Field’s Elliott Wave Theory Based Analysis of the Future Price of Gold

The Elliott Wave Theory (EW) gives superb results in predicting the gold price. [While] it is a complicated system with many difficult rules [which] I explain in simple terms in this article, [I have determined that] once this present correction in gold has been completed it should [undergo] the largest and strongest wave in the entire gold bull market. The target for this wave should be around $4,500 with only two 13% corrections on the way. [Let me explain how I came to that conclusion.] Words: 1924

11. Alf Field is Back! The “Moses” Generation and the Future of Gold

I have come out of retirement for this one off, once only, speech to warn that the good ship “Life As We Know It” is sinking. You have the choice of getting into a life boat now or going down with the ship. The life boats consist of precious metals and other assets that will survive the coming currency destruction. [Let me explain.] Words: 1400

12. What Do Gold Measurements “Troy” Ounce and “Karat” Really Mean?

You have no doubt read countless articles on the price of gold costing x dollars per “troy ounce” or perhaps just x dollars per “ounce” but the difference between the two measurements is significant. For that matter, what’s the difference between a 24 karat gold ring and an 18 karat gold ring? Let me explain. Words: 863

Why Negative Real Interest Rates + Stimulative Money Supply = $10,000/ozt. Gold

Editor — Wed, 14 Dec 2011 07:21:47 +0000

So says Frank Holmes (www.usfunds.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Holmes goes on to say, in part:

Negative real interest rates and strong money supply growth are two key factors of what I refer to as the Fear Trade. Negative real interest rates occur when the inflationary rate, or CPI, is greater than the current interest rate. A quick account of the G-7 and E-7 countries [in the table below] shows that the majority have negative real interest rates.

Across the developed G-7 countries, British citizens are the worst off with real interest rates in the U.K. sitting at negative 4.5 percent. U.S investors aren’t doing much better with rates at negative 3.25 percent and the Fed has all but guaranteed rates will remain there. Only Japan has a positive real interest rate among the G-7 and that rate is barely above zero.

Conversely, the most populous nations making up the E-7 have mostly positive real interest rates. However, the grouping’s grandest economic powerhouses, China and India, have negative real interest rates sitting around negative 2 percent.

Click here to enlarge

Simply put, investors in those countries who have parked their savings in cash and low-yielding investments, such as Treasury bills and money market accounts in the U.S., are actually losing money due to inflation. That can be tough for any investor, but when you’re the central bank of a country with millions of dollars in reserves, it can be catastrophic. This is why central banks around the globe have sought protection by diversifying their foreign-exchange reserves into gold bullion this year.

VTB Capital’s Andrey Kryuchenkov told The Wall Street Journal this week that, “Central banks are diversifying, and it has intensified to a rate that nobody had expected.” Latest estimates predict global central banks will purchase between 475-500 tons of gold in 2011. This amount of capital flowing into gold has the potential to push prices up a level in 2012. John Mendelson from ISI Group sees gold prices reaching $2,200 an ounce during the first six months of 2012. While real interest rates look to remain in the red for the foreseeable future, many of these same countries are printing record amounts of “green” with accommodative monetary policies.

U.S. Global’s director of research John Derrick says central banks around the world have focused their attention on stimulating growth. Beginning with Brazil’s interest rate cut in late August through the European Central Banks (ECB) cut this week, there have been 40 easing moves by global central banks, according to ISI Group. John says this also means we will likely see more quantitative easing in 2012. The Bank of England has already started its quantitative easing, and many experts believe the ECB and the Federal Reserve will follow in its footsteps.

Bloomberg reports that global money supply (M2) is “set to increase the most on record in 2011.” The chart below shows the year-over-year change of global money supply has been gradually moving higher and higher since mid-2010.

Click here to enlarge

The reason global central banks have shifted the printing presses into overdrive is simple: they need the money. My long-time friend Frank Giustra reminded us of this new reality in an op-ed piece for the Vancouver Sun last week. Frank writes:

“The bottom line is that the money needed to bail out Europe and to fund America’s spiraling debt and future unfunded obligations is in the ten of trillions. IT DOES NOT EXIST. It has to be created by printing money in massive quantities, and despite all the rhetoric you will hear against such policies, in the end it’s the path of least resistance. Printing money is an invisible tax on savings, much easier to initiate, than, say, raising taxes or cutting back on services and entitlements.”

As central banks print money and increase supply, currencies become devalued. Whereas in the recent past, one currency may be reduced in value compared with other currencies, this time there is global competitive devaluation as excess liquidity is put into the system. Historically, this excess liquidity has made its way to riskier assets, i.e. stocks and commodities. Gold is generally a benefactor of this flight to riskier assets as many investors see it as a store of value. This chart illustrates the interconnectivity of gold and global money supply growth.

Click here to enlarge

However, [the above] image doesn’t tell the whole story. While the price of gold has followed the same upward path as money supply over the past 14 years, it hasn’t been able to keep pace with M2 growth, says the Bloomberg Precious Metal Mining Team. In fact, if the global money supply were backed by gold, gold prices would be much higher, according to Bloomberg.

The yellow line below shows how gold would be greater than $5,000 per troy ounce if just half of global money supply were backed by gold. If all of the money supply in the world were to be backed by gold, the price of one troy ounce would need to rise above $10,000. It’s unlikely, of course, that this will happen, but it serves as a useful illustration for the disappearing value of the world’s fiat currencies.

Click here to enlarge

Giustra reminds us that we have been down this path before saying, “When great nations mature and over-extend themselves, they revert to the paths of least resistance: borrow and/or print money. They all did it and they all failed; this time will be no different.”

The beneficiary of this type of event has historically been gold.

*http://www.usfunds.com/investor-resources/frank-talk/

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1. Stealth Taxation in the Form of Financial Repression is Coming! Here’s Why – and How

Financial Repression is a form of wealth confiscation and redistribution that is in some ways as effective as taxation – but the government never directly calls it that. It never appears in the budget (directly), and while it is dependent on a comprehensive network of laws and regulations – none of those go through the legislature with a stated intention of creating Financial Repression. So while the economic net effects are similar to a huge and comprehensive set of investor taxes being used to pay down the national debt, the “taxes” are never a campaign issue because voters and investors don’t understand what is happening – they only feel the results. [In this article I lay out for you what is slowly developing and expected to escalate dramatically in the next few years.] Words: 5800

2. We Have Reached the End of the Road and are Staring into the Abyss! Got Gold?

3. Alf Field’s 7 “D’s” of the Developing Disaster Revisited

4. “Financial Repression” May Soon Become Our Worst Nightmare! Here’s Why

A new financial policy initiative known by the label “Financial Repression” may soon become our worst nightmare. ‘Repression’ rhymes with ‘depression’ which could be what we have to look forward to as rampant price inflation and permanently lower living standards take hold. Get ready to be conscripted into a citizen army assembled for the greater cause of saving the nation from being swamped by a tsunami of debt. Let me explain. Words: 1585

5. Yes, the Debit Crisis Could Spread To The U.S.! Here’s Why

[Unfortunately,] for the U.S….its budget deficit is growing in spite of the fact revenues into the treasury continue to grow…Given the low level of interest rates on the Treasury’s debt it would not take much of an interest rate spike in the U.S. to negatively impact the government’s budget. [So, in reply to the unspoken question on everyone's mind, "Yes, the debit crisis could most definitely spread to the U.S." Let me explain further.] Words: 633

6. Brace for Impact: U.S. About to Go Off a Financial Cliff!

7. Another Economic Collapse and Great Depression are Coming! Here’s Why

8. America’s Future: Growing Deficit, Shrinking Economy, Imploding Dollar and Exploding Inflation

Don’t Look a Gift Horse in the Mouth – Buy Gold Now With Both Hands! Here’s Why

Editor — Fri, 02 Dec 2011 07:19:12 +0000

So says Peter Schiff (www.europac.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Schiff goes on to say:

Unchanging Fundamentals

It’s important to understand the fundamental reasons for owning gold, and those reasons have not changed. The U.S. government embarked on a decades-long spending spree of historic proportions. To finance the resulting debt, the Federal Reserve is printing money furiously. Because most every central bank governor appears indoctrinated in the Keynesian economic philosophy, foreign central banks are simultaneously printing euros, yen, francs, yuan, and pounds to “keep up.” Of course, this competitive devaluation actually represents countries shooting themselves in the foot.

Don’t expect any abrupt changes [in the abovementioned approach], either. The Fed’s philosophy – a resolute faith in central planning and debasement – has been unchanged since Paul Volcker stepped down as Chairman in 1987. Rather than considering any change of direction, the Federal Reserve Board is likely asking itself: “Should we print $50 billion or $500 billion in our next round of stimulus?Can the ECB bailout Greece now or do we first need to bail out the ECB? Should we call our money-printing ‘liquidity assistance’ or ‘quantitative easing’?” Or perhaps, “Do we have enough ink refills for all those printing presses?” You may think I’m joking, but this is quite serious. While monetary policy was bad under Greenspan, Ben Bernanke has literally instituted a revolutionary devaluation program for the dollar – and gold is the only way to avoid his guillotine.

True-value vs. Spot Price

Let’s remember that it is the fundamental value of an asset which dictates its long-term market price. Yet for some reason, many see this relationship backwards – they use the short-term market price to extrapolate the fundamental value. Consider a car on the dealer’s lot: if the price of the car falls tomorrow, it becomes a better deal. If the price rises tomorrow, the car has becomes less attractive. This principle is equally true in long-term investments. I believe that gold’s fundamental value is far higher than $1,600, and far higher than $2,000. So, while it may be unsettling for some of those who own gold to see steep short-term price declines, remember to focus on the fundamental value of the asset, not the spot price on the market today. Has the fundamental value of gold fallen in these past two weeks? Quite the opposite.

A Debt-laden House of Cards

The Fed is still trying to find ways to manipulate the bond market with…[its] “Operation Twist.” This is yet another plan to suppress yields, encourage spending (as if too little spending was America’s problem), and paper-over the untenable interest payments hanging over Washington. The manipulated US bond market is perhaps the greatest bubble in existence. Further manipulation only makes it more unstable in the long-term, and when that bubble bursts, gold should skyrocket.

Meanwhile, the European debt crisis…[has] spread to Italy…The ECB may be able to keep Greece afloat, but Italy is the eurozone’s third largest member. That’s a load too heavy for the ECB to bear. This is especially true in the wake of Moody’s downgrade of two of the largest French banks – Societe Generale and Credit Agricole. As reported in the Wall Street Journal, “[Moody's] said its decision to downgrade the banks included the assumption of debt restructuring that would cost investors up to 60% on Greek sovereign debt, 50% on Portuguese and Irish debts, 10% on Spanish debt and 7% on Italy’s debt.”

In other words, the Western financial system is a debt-laden house of cards. This is the root of the current market panic… What’s harder to explain, [however,] is why investors are responding by selling gold and buying dollars and euros. Then again, I was always told not to look a gift horse in the mouth.

Keep Calm and Carry On

Do not get caught in the exuberance or pessimism of short-term movements, even if they’re sharp. Observe the fundamentals:

the events in Europe,
the looming budget calamity in the U.S.,
central bankers’ steadfast strategy of debasement, and
emerging markets’ continued diversification into precious metals.

These are the main drivers for gold’s long-term appreciation.

To my readers who may have purchased metals just before this pullback, your concern is understandable but I believe this bull market has a long way to run, and the rise up ahead looks even steeper from these levels.

*http://www.thedailybell.com/3016/Peter-Schiff-On-the-Recent-Gold-Pullback

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As I see it, worsening financial crises lead initially to lower gold prices which are followed by some form of government intervention to alleviate the crises and that action, in turn, eventually results in renewed appreciation in the price of gold. The basic steps in such a transition are really quite straightforward. Let me explain. Words: 686

3. Deja Vu? Is Gold Just in a Correcting Phase on Its Way to Parabolic Peak of $4,294?

The current volatility in the precious metals market doesn’t necessarily indicate a change in secular direction. [In fact,] if today’s gold price was to rise by the same degree over the next 14 months [as it did from the beginning of 1979 into 1980, it would hit $4294/ozt. by Jan 2013! Let me explain.] Words: 420

We Have Reached the End of the Road and are Staring into the Abyss! Got Gold?

Editor — Thu, 01 Dec 2011 07:34:44 +0000

So says Egon von Greyerz (www.goldswitzerland.com) in edited excerpts from his original article* Deus ex Machina.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The report’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

von Greyerz goes on to say, in part:

Ludwig von Mises said,

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final or total catastrophe of the currency system involved.”

and he was absolutely correct: “There is no means of avoiding a final collapse of a boom brought about by credit expansion”. Whatever politicians, bankers, economists or others experts say, there is no solution to this crisis. We have reached the end of the road and are now staring into the abyss.

The credit manufacturing system that started in 1913 when the Fed was founded, began its terminal phase in 1971 when Nixon abolished gold backing of the dollar. It has been clear to us for at least 20 years that the outcome was inevitable. It was never a question of “if” but only “when” it would happen. It is now clear to us that the false prosperity that the world has experienced by printing unlimited amounts of money will very soon come to an end. Thus the “if” and “when” conditions are now satisfied so the remaining question is HOW?

To try to answer this let’s return to Mises: “The alternative is only whether the crisis should come sooner as a result of voluntary abandonment of further credit expansion.” To stop the money printing and credit creation would be the only sensible way of ending the failed quasi-capitalist, socialist experiment which is in the process of destroying the structure of the Western world.

For almost 100 years we have lived on a system based on debt which has created a false prosperity as well as false values. The transfer of capital from private enterprise to government by massive taxation is approaching 50% in many countries (see table below). The average for 18 industrialised countries is almost 40%. This means that on average 40% of the productive economy is transferred to a non-producing entity (government) which wastes most of the money in the process of redistribution. Not only that but, since the state has taken over up to 50% of the economy in these countries, the desire to work, to strive, to take risk and to invent has been taken away from a major part of the population.

For a great many people it is now totally natural to rely on the state for their needs rather than on themselves – and the state needs to borrow/print ever increasing amounts to perpetuate this economy based on an illusion. This situation is totally untenable. Since any additional money printing will only exacerbate the crisis and make the final collapse so much greater, the swiftest solution would be let the financial system implode now. We need to reset the world to a level which is sustainable.

The consequences of this implosion would be a collapse of the financial system and a reset of debt to zero. Although this is unthinkable to any government or politician, it would be by far the quickest way to get the world back on its feet with no major debts, minimal government interference, and no central bank that can print money. It would be like a forest fire getting rid of all the dead wood. Out of that would rise masses of green shoots in the form of strong unchequered growth. The transition will of course be traumatic and the current generation will experience enormous hardship but not voluntarily abandoning the money printing now will just delay the inevitable and the consequences will be dramatically greater and affect many future generations.

Anyone who has followed my articles will know my view that governments worldwide are totally incapable of stopping the money printing. This is their only means of staying in power and buying votes. Not only that, this is the only method they know. This has been their patent solution to all economic problems in the last decades. Not that this is new in history. Most empires have resorted to diluting the value of money by reducing the gold/silver content of coins or printing paper money. But as far as I know it has never before been done by so many countries simultaneously to such an extent.

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Since there won’t be any voluntary abandonment of credit creation what will the likely outcome be? Again let’s use Mises words: “…… a final or total catastrophe of the currency system involved”. The problem this time is that we are not talking about one currency or one country. No, we are talking about most of the world’s major currencies.

We have been used to measuring currencies and economies on a relative basis i.e. against each other, but this is a total fallacy since all major currencies have been in a race to the bottom for the last 100 years. Most currencies have lost between 97% and 99% against real money – GOLD – since 1913. Since most currencies have lost 80% or more against gold since 1999, paper money has been a very poor measure of wealth in the last 100 years. Governments are creating credit and paper money and consequently, through their fraudulent actions, “stealing” from the people whilst at the same time increasing the people’s dependence on the state…The people [do] not understand that the value of paper money is declining continuously… but gold reveals [it clearly]. This is why governments do not like gold and try to suppress the gold price.

How will the currency system collapse? The answer to this question is very simple – through endless money printing. There will be no lasting austerity programmes in any country that can print money. Governments are incapable of sticking to austerity measures since in the end that is a guaranteed way of losing power. As power is the main purpose of all governments, they will use any method to retain it. Within the Eurozone, individual countries can…not print money but the ECB and the IMF will take care of that. So whilst world leaders are procrastinating and bickering in G8, G20 and all other “summit” meetings, it is absolutely guaranteed that the final outcome will be one QE package after the next. Governments and central banks know that without limitless money printing there would be a deflationary collapse of the banking system and world economy.

The table below shows the financing requirements of the PIGS countries in the next few years. Just Italy and Spain will require €1 trillion in the next 4 years and, of that, 1/2 trillion Euros in 2012 [alone]. Only printed money will take care of that.

For many years it has been absolutely crystal clear to some of us (sadly a very small minority) that many major sovereign nations are bankrupt as well as the world financial system. Banks are only surviving because they, with the blessing of governments, are allowed to value trillions of dollars of toxic and worthless assets at full value. On top of that, there are more than $1 quadrillion outstanding in derivatives. These are outside the banks’ balance sheets and there are virtually no reserves against them. The banks are netting the value down to virtually nothing and then applying a miniscule reserve against this net amount.

The netting is only valid when the counterparty pays. When there is a counterparty failure, which is very likely in the coming financial collapse, gross remains gross and the $1 quadrillion remains $1 quadrillion.
A major part of the derivatives are worthless or not protecting the investors as we have seen with, for example, Freddie Mac, Fannie Mae, Lehmans and, lately, MF Global. MF Global had bought CDs to hedge their investment in Greek debt but they hadn’t understood what they had bought and it turned out it offered no protection at all.

Hyperinflation

The “final or total catastrophe of the currency system” will occur as a result of the QE or unlimited money printing that will very soon start in the EU, USA, UK, Japan and many more countries…[which] will lead to hyperinflation as I have stated for many years. Throughout history, substantial government deficits leading to money creation or printing have always been the cause of hyperinflation because hyperinflation is always the result of a collapsing currency and not of excess demand.

To any thinking individual, it is totally incomprehensible that governments and central banks believe that an insolvent world can be saved by debt issued by bankrupt nations and then bought by the issuers themselves as there is no other buyer. This is the perfect recipe for self-destruction and “total catastrophe of the system.” I don’t think that even Mises envisaged at the time that this could involve a major part of the world rather than just one country. This is why this catastrophe will be unprecedented in world history and have consequences that will affect the world economically, socially and geopolitically for a very long time.

Wealth Preservation – Gold

Since 2002 we have advised investors to put up to 50% of their assets into physical gold, stored outside the banking system. [As the table below shows] gold has appreciated between 15% and 20% per annum since 2002 depending on the base currency [while] most stock markets have declined 70-85% against gold in the last ten years. In fact, whilst stock markets are down between 1% and 24% in 2011, gold is up more than 20% against all major currencies. In spite of this most major investor groups (institutional, funds, asset managers or individuals) own no gold…

Stock markets will benefit temporarily from QE but it is still our view that they will fall another 90% against gold in the next few years. The correction in the precious metals [will] likely [soon] be over and we should see the metals going to new highs in 2012.

I had the pleasure of becoming acquainted with Alf Field at the recent Gold Symposium in Sydney where we were both speakers together with Eric Sprott, John Embry and Ben Davies amongst others. Alf is one of the few in the world, if not the only one, who knows how to apply the Elliott Wave principle successfully to gold. Alf’s next intermediate target is at least $4,500 [see my recent edit of said speech in 2 parts entitled Update of Alf Field’s Elliott Wave Theory Based Analysis of the Future Price of Gold and Alf Field is Back! The “Moses” Generation and the Future of Gold] and the ascent to this target could be rapid. That would probably mean a silver price of $150 [see my article entitled History Says Silver Could Become the Next 10-Bagger Investment! Here’s Why on the historical gold:silver ratios and what that means for the future price of silver]. These technical forecasts certainly confirm the fundamentals as outlined in this article.

Conclusion

The world is in a total mess and there is absolutely no solution to this unprecedented crisis. The hyperinflationary depression that we will experience in the next few years will totally destroy the majority of the credit based wealth that has been created in the last few decades. As such, in order to preserve wealth and keep capital intact, it is critical to keep a major part of investment assets in precious metals held outside the banking system…

*http://goldswitzerland.com/index.php/deus-ex-machina-egonvongreyerz/

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3. History Says Silver Could Become the Next 10-Bagger Investment! Here’s Why

If you concur with the 159 analysts (see below) that maintain that physical gold is going to go parabolic in price in the next few years to $3,000, $5,000 or even $10,000 or more then you should seriously consider buying physical silver. Why? Because the historical gold:silver ratio is so way out of wack that silver should appreciate much more than gold as it goes parabolic in the years to come. Indeed, silver could easily reach $100 – $200 per troy ounce, maybe even $300 and conceivably in excess of $400 depending on how high gold goes. The aforementioned may be hard to believe but an analysis below of the historical price relationship between silver and gold suggests that such will most likely occur if gold does, indeed, go parabolic. Take a look. Words: 1423