A Gold crash coming?

If you’re loaded up on gold, silver and commodities, congratulations, you’re in good company.  Mega hedge fund managers John Paulson, David Einhorn, and George Soros (rumored to have sold his GLD for gold stocks) are with you.  Iconic investors and gurus, Marc Faber, Jim Rogers, Jim Sinclair, James Turk and Richard Russell are on board the gold train, as well, along with many more lesser-known brilliant investors.

So, should the above-mentioned investors be frightened by articles published by Reuters, entitled, “Gold crash: What could trigger the inevitable”?  That’s the title of a piece posted on the news agency’s Web site over the long weekend.

From the start, the premise of the article’s title, that a gold crash is inevitable, is flawed.  Long-time gold expert Jim Sinclair, Richard Russell of the Dow Theory Letters, James Grant of Grant’s Interest Rate Observer, and World Bank president Robert Zoellick would most likely disagree with a gold crash theory, as these three men suggest highly that some form of a gold-backed currency, including a gold-backed U.S. currency, or not, must eventually become part of the new international monetary regime.

Under that scenario, as outlined on many occasions by James Sinclair, gold would most likely trade within an elevated band (instead of fixing the price) as central banks become locked in a gold-backed regime that loosely resembles the articles set forth at Bretton Woods in 1944.

The inevitable gold crash?  It’s much more likely that a crash in the U.S. Treasury market should be assessed as inevitable.  PIMCO’s Bill Gross would be loaded to the gills with U.S. Treasury notes bonds if gold was destined to crash.  Gross is not. In fact, the Bond King has no bonds in his BOND fund.

Can you imagine McDonald’s not offering hamburgers?

The article goes on to suggest that betting on the dollar’s next direction is akin to gambling.  In the short run, the author is spot on.  But, as a long-term investors, which the author believes is the only way to play this financial debacle, betting on the dollar’s demise is for the foolhardy—better yet, for the “nervous Nellies.”

“The clearest threat to gold’s reign as the reserve currency of nervous Nellies is a possible rebound of the dollar,” according to Reuters. “Given the congressional wrangling over the debt limit, budget and growing inflation, betting on the buck is like trying to figure out whether a racehorse will finish. They often pull up lame.”

The author suggests that a miracle is in the offing and that politicians who know that shutting down the U.S. Government to save the dollar is political suicide (the 1992 Congress comes to mind) and will miraculously learn the meaning of noblesse oblige and do the right thing for the country.  But, until we see Ben Bernanke and Ron Paul scheduled to a duel on the White House front lawn, the author may be onto something.

Holders of gold will take the other side of this author’s bet in a New York second, and have, by betting on a racehorse that’s come in first, without except, for more than 5,000 years. And not only have the heavy weights of finance mentioned above taken that bet, but central banks around the world, who have collectively become net buyers of gold, are increasingly placing that bet, too.  According to another Reuter’s article published in April 2010, central banks have become net buyers of gold in 2009, a first since 1989.

And as far as the author’s points regarding a “strengthening U.S. economy and rising interest rates . . . derailing the epic yellow metal mania,” they are as flawed as the title of the piece.

Mania?  This Reuters writer originally suggested that gold investors are nothing but “nervous Nellies,” which is quite the opposite mindset to the greed thesis characterized by manias?  So, which is it? Is fear or greed driving the decade-long gold price rise?

Reuter’s point that a strengthening U.S. economy will save the day and stop the embarrassing ascent in the gold price may well be true in a relativistic context, but not in real terms, however, which is the whole point of the Fed’s zero interest rate policy (ZIRP) and the investor revolt into the gold market.  Real interest rates at, or below, zero propel the gold price, not nominal GDP.  So, the notion that gold doesn’t throw off income is a species one within today’s financial environment of near-zero Treasuries at the short end while food and energy prices soar well past the double-digit mark.

And as far as the case that higher stock prices presage an economic turnaround in the U.S. economy has less to do about a real strengthening economy, but has more to do with institutional investors locked into the bond/stocks allocation charters betting on a devaluation, a la Zimbabwe—wherein the Zimbabwe stock market, in one year, outpaced the returns of the S&P over its entire history as an index.

And lastly, higher interest rates, as Swiss money manager Marc Faber has stated, mean nothing if the rate of inflation is higher than the Fed’s federal funds rate—as during the 1970s. Maybe the author was too young to remember that golden decade of wealth destruction, which in real terms eclipsed the the wealth destruction of the Great Depression.

And since this present crisis is expected to dwarf the financial pain of the 1970s, it makes a lot of sense for investors to become “nervous Nellies”—and fast.

Yamana Gold Inc. (NYSE: AUY)

Gold Corp. Inc. (NYSE: GG)

Barrick Gold Corp. (NYSE: ABX)

3 thoughts on “A Gold crash coming?

  1. There is not that simple with silver.

    And it’s not because of inflation and some investors or speculators.
    Do you know how called silver in China among the small circle of insiders?
    “SILVER – is the OIL of 21st century.”

    Each square foot solar array – it is silver.
    Each element of the solar battery contains about 1.2 grams of silver per 1 watt of energy.http://www.commodityonline.com/news/It-is-time-for-silver-hunting-30198-3-1.htmlIndia announced plans to increase its power of solar energy to 20 GW per year by 2020 from zero at the moment.The Chinese have announced plans to raise capacity from 5.5 gigawatts to 30 gigawatts by 2020.And in fact, the U.S. had already announced the same.
    There’s your answer to the question of why China, traditionally a major exporter of silver in 2010, suddenly found himself among the largest importers of “energy metal.
    Silver was a unique metal even before of introduction of “green energy”
    Silver combines both the monetary property of gold and industrial properties of palladium and platinum.
    With the advent in the silver third property – energy component, rise of world prices on this metal has become inevitable.
    For a long time monetary governance in the U.S. has artificially held back, and continue to keep the prices of silver and gold.
    http://news.goldseek.com/GATA/1305320456.php
    Why do they do this? Let’s find it out.
    Silver prices are inextricably linked with gold prices through so-called gold/silver ratio.
    Millions of private and institutional market participants build they own trading strategy which based on the fact that for 40 ounces of silver they can buy one ounce of gold. When it’s well-established value of one ounce of gold that expressed directly in a few ounces of silver shifts in one direction or another, then market participants through their actions are driving it back.
    Whether we like it or not, but even today who controls the world gold market – controls the world monetary system as a whole.
    Only thanks to initial binding of dollar to gold, America’s national currency gets the status of world reserve currency with all the ensuing consequences.
    After that the U.S. starts manipulating with gold.
    Goals of that were not only turning gold in the “goods” relatively of paper U.S. dollar, but and artificially keeping the price of gold. A special role in these manipulations, belong the organization with the maximum degree of instability in gold prices, denominated in “a far more stable and predictable – the U.S. dollar.
    Ruling in FRS bankers and appointed in their interests the U.S. government is quickly realized one simple truth: If gold will have a true price on goods and thus it will be stable, then who in the world will need their green paper called “dollars”?
    But the worlds gold market is huge and it is difficult to control even for FRS – holder of the world monetary printing presses under the brand name “U.S.”
    And then, in the bowels of FRS solution was made:  to regulate the price of gold, through silver prices via referred above gold/silver ratio.
    Silver market is very small and its regulation is not difficult and does not require huge expenditures from such a major regulator, as the U.S. FRS.
    Summing up we can draw the following obvious conclusions:
    - Who controls the world market for silver, controls the world price of gold.
    - Who controls the world price of gold, controls the world monetary system.
    But all this controlling idyll come to an end when China start to use FRS manipulations with the prices of silver and gold in order to replenish their own Official reserves (Gold reserves) In exchange on the accumulated trillions of dollars. From this moment any manipulation of the U.S. FRS with the prices of silver and gold began play into the hands of not only the U.S. dollar, but also the interests of China.
    Any manipulation with the FRS with the prices of precious metals China has become used to supplement to replenish their gold reserves by these metals with possible lowered prices.
    And FRS’s management was stunned. On the one hand, they forced to permanently reduce and hold prices of precious metals for providing inviolability of the world’s position of dollar, but in the other hand, each of that operation for decrease leads to the release in the market from china billions of dollars and irrevocable buying-out from the market any volume of gold and silver at the lowest possible prices.
    In this year, China for the first time in history has overtaken India in terms of purchasing gold.

    Yes, there is not that simple with silver. Among the properties of silver appeared radically new “energy» component.
    Besides that, with silver starts big game – battle with U.S. and China for a control for world prices for gold. And therefore battle for a control over the entire world monetary system in total.

    All this leads to the following prediction:
    The index of gold / silver ratio will gradually shift from the current ratio 1:40 to 1.16 and higher.
    That is, silver will go up more quickly than gold. I do not exclude that such appreciation will occur through the reduction of silver to $ 20 per ounce. However, I have no doubt that the next target for silver is far beyond the $ 50 per ounce.
    http://www.commodityonline.com/news/Silver-prices-up-3733-last-time-what-about-now-39361-3-1.html

    For each ounce of gold that exists on the planet, there are approximately only 5 ounces of silver. http://www.oroyfinanzas.com/2011/05/el-ratio-de-las-existencias-totales-de-oro-y-plata(Spanish)
     

  2. There is
    not that simple with silver.

     

    And it’s
    not because of inflation
    and some investors or speculators.

    Do you know how called silver in China among the small circle of insiders?

    “SILVER
    – is the OIL of 21st century.”

     

    Each
    square foot solar array – it is silver.

    Each element of the solar battery contains about 1.2 grams of silver per 1
    watt of energy.

    http://www.commodityonline.com/news/It-is-time-for-silver-hunting-30198-3-1.html
    India announced plans to increase its power of solar energy to
    20 GW per year by 2020 from zero at the moment.
    The Chinese have announced plans to raise capacity
    from 5.5 gigawatts to 30 gigawatts by 2020.
    And in fact, the U.S. had already announced the
    same.

    There’s
    your answer to
    the question of why China,
    traditionally a major exporter of silver in 2010, suddenly found himself among the largest importers
    of “energy metal.

    Silver was a unique metal even before of introduction of “green
    energy”

    Silver combines both the monetary property of gold and industrial properties of palladium and platinum.

    With the
    advent in the silver third property – energy component, rise of world prices on
    this metal has become inevitable.

    For a long
    time monetary governance in the U.S.
    has artificially held back, and continue
    to keep the prices of silver and gold.

    http://news.goldseek.com/GATA/1305320456.php

    Why do they do this? Let’s find it out.

    Silver
    prices are inextricably linked with gold prices through so-called gold/silver ratio.

    Millions
    of private and
    institutional market
    participants build they own trading strategy which based on the fact that for 40 ounces of silver
    they can buy one ounce of gold. When it’s well-established value of
    one ounce of gold that expressed directly in a few ounces of silver shifts in
    one direction or another, then market participants through their actions are
    driving it back.

    Whether we like it or not, but even today who controls the world gold market – controls the world monetary system as a whole.

    Only thanks to initial binding of dollar to gold, America’s national currency gets the status of world
    reserve currency
    with all the ensuing
    consequences.

    After that
    the U.S.
    starts manipulating with gold.

    Goals of
    that were not only turning gold in the “goods” relatively of
    paper U.S.
    dollar, but and artificially keeping the price of gold. A special role in these
    manipulations, belong the organization with the maximum degree of instability
    in gold prices, denominated in “a far more stable and predictable – the
    U.S. dollar.

    Ruling in
    FRS bankers and appointed in their interests the U.S. government is quickly realized
    one simple truth: If gold will have a true price on goods and thus it will be stable, then who in the world will need their green paper called “dollars”?

    But
    the worlds gold market
    is huge and it is difficult to control even for FRS – holder of the world monetary printing presses under the brand name “U.S.”

    And then, in the bowels of FRS solution was made:  to regulate the price of gold, through silver prices via referred above gold/silver ratio.

    Silver
    market is very small and its regulation is not difficult and does not require huge expenditures from such a major regulator, as the U.S. FRS.

    Summing up we can draw the following obvious conclusions:

    -
    Who controls the world market for silver, controls the world price of gold.

    -
    Who controls the world price of gold, controls the world monetary system.

    But all
    this controlling idyll come to an end when China start to use FRS manipulations
    with the prices of silver and gold in order to replenish their own Official
    reserves (Gold reserves) In exchange on the accumulated trillions of dollars. From
    this moment any manipulation of the U.S. FRS with the prices of silver and gold
    began play into the hands of not only the U.S. dollar, but also the interests
    of China.

    Any
    manipulation with the FRS with the prices of precious metals China has
    become used to supplement to replenish their gold reserves by these metals with
    possible lowered prices.

    And FRS’s
    management was stunned. On the one hand, they forced to permanently reduce and hold prices of precious metals for providing inviolability of the world’s position of dollar, but in the other hand, each
    of that operation
    for decrease leads to the release in the market from china billions
    of dollars and irrevocable buying-out from the market any volume of gold and silver at the lowest possible prices.

    In
    this year, China for the
    first time in history has overtaken India in terms of purchasing gold.

     

    Yes, there
    is not that simple with silver. Among the
    properties of
    silver appeared
    radically new “energy» component.

    Besides that, with silver starts big game – battle with U.S. and China for a control for world prices for gold. And therefore battle for a control over the entire world monetary system in total.

     

    All this leads to the following prediction:

    The index of gold / silver ratio will gradually shift from the current ratio 1:40 to 1.16 and higher.

    That is,
    silver will go up more quickly than gold. I do not exclude that such appreciation will occur through the reduction of silver to $ 20 per ounce. However, I have no doubt that the next target for silver is far beyond the $ 50 per ounce.

     

    http://www.commodityonline.com/news/Silver-prices-up-3733-last-time-what-about-now-39361-3-1.html

    For each ounce of gold that exists on the planet,
    there are approximately only 5
    ounces of silver.

    http://www.oroyfinanzas.com/2011/05/el-ratio-de-las-existencias-totales-de-oro-y-plata
    (Spanish)