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)

Richard Russell says Dollar must be backed by $5,000 Gold

The legendary financial newsletter writer Richard Russell stated in his Wednesday edition that the U.S. will eventually have to back the dollar by gold to halt its decline.

As the dollar has climbed against the euro in the wake of renewed concerns in Greece, and to a lesser extent, concerns in Portugal, both the euro and dollar have dropped in terms of gold.

The dollar: what was once the ultimate safe haven has taken a backseat to the truly ultimate safe haven asset, gold.  “Is this a preview of the future?” Russell asks.

“To compete, I believe that somewhere head the U.S. will have to back its current irredeemable fiat currency with gold” he stated.  “In order to do that, the U.S. will have to boost the price of its huge gold hoard to a level where the dollar may be backed anywhere from 50% to 100% with gold. That could mean unilaterally raising the price of gold to maybe $5000 and ounce or more. ..I  thought that gold, closing higher, in the face of the stronger dollar, was significant.”

As most of the components of the the Conference Board’s Leading Economic Indicators (LEI) roll over, portending a downturn in the U.S. economy in the next three to six months, the Fed’s decision to halt its purchases of newly minted Treasuries in June comes at a time when the Fed’s liquidity may be needed most (many theorize).

Russell believes the numerous pundits of the Fed’s quantitative easing policies (including two Fed governors) need quelling before announcing further money printing.  And a way to do that is to allow a significant market decline, or crash, as some predict, leaving little hope for employment, retail sales, production and housing gains.

“With inflation heating up as far as American consumers are concerned, the pressure is on the Bernanke Fed to ‘cool it’ on its quantitative easing,” Russell noted.  “I think the stock market (now slumping) and the dollar (now rising) are reflecting this. Thus the Fed might be setting off a temporary slump in the summer economy.”

“If so, Bernanke could announce, ‘See, if we ease up, the economy eases up as well.’ All of which strengthens the case for QE3. Of course, President Obama would love a late pick-up in the U.S. economy as the nation moves into the 2012 election period.”

So what’s the game plan for investors?  Russell suggests holding gold during the roller-coaster ride and to be happy you did following an anticipated Fed announcement of some form of a continuation of its quantitative easing some time in the second half of 2011.

As Bill Gross stated in March, without the Fed buying newly issued Treasuries, who will buy them?  And the Fed’s plan to re-liquify the banks and to debase the dollar won’t be feasible if the 10-year Treasury yields north of 5%.

Therefore, Russell stated, “Prepare for the summer doldrums (maybe even a slump), and then be ready for an economic revival in the fall and into 2012.  Also get ready for all-out inflation as the Fed steps on the QE3 accelerator in late 2011.”

He added, “I think the gold action goes along with the above scenario. Why take profits or sell your gold, when the real move in gold is slated for 2012 and beyond?”

The most ominous point Russell made was regarding gold’s record advance against sterling and the euro this past week.  Investors fleeing currencies have bought dollars and gold during the recent unwind out of the anything-but-dollars trade, while gold advanced against all major currencies.  If this is, indeed, a preview of things to come, more investors could wake up in horror with the realization that there is no place to hide from sovereign debt crises other than gold.

And Russell’s thoughts on stocks?  That asset class doesn’t look appealing either based on his technical work.  As the Fed, presumably, ends QE2, it’s also assumed that the Fed’s POMO operations to boost stock prices will also go.  There’s nothing like getting the attention of the Fed’s nay-sayers with a quick drop in the Dow to turn some hearts around.

“Warning — I have applied the ‘fan-line principle’ to the NYSE Composite Index. Here we see three consecutive trendlines violated,” Russel wrote.  “According to the fan-line principle, three trendlines are drawn from the same base. When the third fan-line is violated the trend has reversed and turned down. Based on this chart (above), I would not be holding stocks at this point.”

Marc Faber could be right about Stocks

Marc Faber’s noticeable absence from financial reporters and television interviewers questions in the past two weeks hasn’t left investors without his previous guidance.  His last call, reported by Wall Street Pit, in which he stated that U.S. equities markets are in the midst of a correction, appears to be still operative.

In his last interview of May 4, Dr. Faber, the publisher and editor of Gloom Doom Boom Report, told Wall Street Pit he anticipates a tumble in U.S. stocks of 10%, noting weakening market internals, including a drop in the number of stocks reaching new 52-week highs.

The S&P500 peaked at 1,364.14 on April 29, a 10% decline from the April high calculates to 1,228.10, or 43 points higher from the close of 1,185.64 on Oct. 26, 2010—the date Faber made his first call for a 10% correction in the 500-stock average—which illustrates the difficulty of timing market tops, even among the best.

In contrast, Faber’s miraculous call of a market bottom on March 6, 2009, when the S&P500 did, indeed, reach the low of 666.79 was much easier for him.  In fact, the call for a bottom on the day during the panic of March 2009 was the easiest call he’s ever made, according to the Swiss money manager who lives in Chiang Mai, Thailand.  As a contrarian market timer, Faber noted the record bearishness in sentiment for stock on March 6 as the basis for his call for an imminent rebound rally in stocks.

But calling tops involves more than watching for extremes in market sentiment. Among many popularly followed indicators and a rather reliable one, is the price of copper, which is also referred to as Dr. Copper for its highly correlated and leading price patterns to equities.

While the S&P500 reached new multi-year highs early this month, the copper price failed to confirm the rally in the S&P, moving lower in May from its February highs, further buttressing Faber’s case for an imminent decline in stocks.

On Feb. 15, copper reached $4.65 per pound, but the price has trended sideways to down since then, trading as high $4.05 in the June contract, yesterday.

However, Faber’s call for a correction in stocks shouldn’t be construed that he is an U.S. equities bear.  Though, when priced in gold, the S&P500 will drift significantly lower, he has repeatedly said, but in nominal terms, Faber expects equities to move higher as long as the Fed continues its zero interest rate policy (ZIRP)—that is, real interest rates after the inflation rate is deducted from the Fed’s overnight federal funds rate target.  Presently, overnight real interest rate is  negative.

In an April 27, 2009, Bloomberg interview, at a time of heightened fear of a global meltdown in the equities markets, Faber cautioned investors to not be too pessimistic as long as the Fed has the power to inject endless capital into the banking system.

“Don’t underestimate the power of printing money,” said Faber.

“The more things will go bad, the worse things become, the more the money printer at the Fed, Mr. Bernanke, will print,” he added. “He will print endlessly. Even if things go bad economically, you could have no revenues at companies and no earnings and stocks will go up because of money printing.”

Shocking Gold Prediction for the Summer; 3 Hot Gold Stocks

James Turk, gold guru and founder of bullion storage service Goldmoney, predicts a rapid rise in the gold price during the precious metals historically seasonally weak summer months.

Commenting on King World News today, Turk said the gold market won’t follow the past 29-year history of seasonal weakness during the summer months of June through August.  Instead, he expects a rerun of the breathtaking move in gold that took place during the summer of 1982, during which time the gold price soared 50% amid speculation that the Mexican government would be denied credit amid fiscal and economic conditions in that country.

In 1982, Mexico had devalued the peso three times and nationalized the banking system in an effort to right imbalances in the country’s national debt levels and trade.

“I think this summer is going to surprise a lot of people,” said Turk. “Many are thinking this is going to be another typical summer where precious metals prices are weak, but it doesn’t always happen that way Eric.  Sentiment is set up this way because it has been 29 years since we have seen a big rally in the summer. Back in 1982, the Mexican debt default lit a fire under the precious metals and the gold price nearly doubled over the next six months.”

Turk sees similarities to Mexico in Europe.

Today, Greece’s fiscal problems rival Mexico’s of 1982, said Turk, and further complicated by the added instability in the currency markets that may develop from the Federal Reserve’s stated intention to end new debt purchases in the U.S. Treasury market in June.

“This year it is not Mexico in the headlines, but rather Greece that is ready to default,” Turk explained.  “Of course the other big news item coming up this summer is the Federal Reserve’s announced intention to end QE2.  It’s amazing that so many market participants are taking the Federal Reserve at their word.”

As a regular guest of King World News, Turk had previously made similar statements regarding his expectations of lofty targets for gold during the seasonally weak period for the yellow metal.

On May 3, as gold and silver were in the midst of a sell off phase, Turk said, “You know my longstanding price projections have been $1800 gold and $50 silver by the end of June.  Silver essentially reached my target already, so it would not be surprising for it to move sideways in a large trading range waiting for gold to catch up. But regardless of when those price targets are reached, KWN readers need to focus on the fact that the U.S. dollar remains in a long-term bear market.”

Turk appears to be sticking with his May 3 target of $1,800 for gold, even after its $100 pullback of two weeks ago.

Incidentally, Turk’s interview comes on the heels of reports out of the former Soviet Union satellite country, Belarus, that authorities there had devalued its nation’s currency, the ruble, by 36% against the U.S. dollar.

Bloomberg reported that Belarusian Prime Minister Mikhail Myasnikovich said the Russian-led Eurasian Economic Community is prepared to lend Belarus at least $3 billion in response to the crisis.

As Turk has always held, currency crises are typically foreshadowed somewhat but happen quickly and suddenly.  He expects further surprises in the months and years to come.

Newmont Mining Corp.  (NYSE: NEM)

Goldcorp Inc. (NYSE: GG)

Barrick Gold Corp. (NYSE: ABX)

 

Jim Rogers’ latest on Gold, Dollar and Commodities

Jim Rogers, commodities and currencies trader extraordinaire, said he will sell dollars during the current dollar rally, reiterating his view of the Chinese Yuan as the “safest investment,” the Associated Press reported.

He characterized the commodities trade as a “big bubble,” although the prices of materials and agriculture have a long-term run ahead, suggesting investors wait for a pullback in gold before purchasing the yellow metal.

“Don’t put all your eggs in the U.S. dollar,” warned Rogers at a conference in Singapore.

“I happen to own some dollar at the moment, but only because it is so beaten down … If everybody is negative on it, including me, it’s time to rally. If the dollar rallies, I suspect I’ll sell all my U.S. dollars and put my money in other currencies.”

Rogers anticipates demand for the Yuan with the next few years. “The Chinese Yuan has been too low, either artificial or not. It doesn’t matter. In fact I’m buying some renminbi (Yuan) this afternoon.”

He also likes commodities-based currencies which have stable central banking policies such as the Aussie dollar and Canadian dollar.

The 68-year-old founder of the Rogers Holdings said he expects U.S. bonds to enter a long-term bear market, cautioning against any dollar holdings.

Rogers, a long-term commodities bull, holds commodities and currencies in his portfolio, and has shorted emerging markets and U.S. technology equities.

Commodities, he said, will rise in prices as supplies remain difficult meeting growing demand, especially from Asia, where population and income growth are expected to grow rapidly.  Rogers expects the bull market in commodities will extend to between 2018 and 2020.

“Raw materials is a big bubble, but it still has a long way to run,” Rogers said.

On the gold price, Rogers sees a consolidation, and maybe a decline, from current price levels.  On pullbacks in the precious metal, he said he will be a buyer.

“I would expect gold will need a little rest. If prices go down, I will buy more gold,” he said. “I expect gold to go much, much higher in a bull market over the course of the next 10 years. Everything is going much higher because currencies are being debased everywhere.”

Richard Russell says Second Half of 2011 to be “Wild and Wooly”–sees “Urgent Buying” of Gold

Richard Russell has warned investors to buckle their seats.  It’s about to get “wild and wooly” in the second half of 2011, he stated in his latest newsletter to investors.

In the Thursday edition of his daily published Dow Theory Letters, the octogenarian survivor of WWII and countless bear markets of one asset class or another, the highly respected and longest-running financial newsletter writer, Russell, stated that he anticipates a 2011 second half replete of serious volatility. That’s great news for traders, but the rest of us, however, may not enjoy the ride—that is, those who don’t possess the precious metals, as Russell has repeatedly recommended holding for nearly a decade.

As the price and gold and, especially silver, took a plunge in the first week of trading in May, Russell stated he wouldn’t be surprised if the gold price retreated down as far as its 150-day moving average of approximately $1,400—a point of near perfect support on several significant pullbacks in the yellow metal since the summer of 2009.

But today, Russell’s intuition tells him that gold may be done consolidating and may again be poised to make another run from near present levels of between $1,480 and $1,510.  Strong buying had come to the gold market at the bottom of the early-May sell off, and Russell knows that when an opportunity to slam the gold price in the midst of a deep (but not unusual) plunge in the commodities sector doesn’t materialize, something must be different this time.

“The latest action shows gold holding well ABOVE its 150-day MA and consolidating,” writes Russell.  “Frankly, I thought gold was in for another test of its 150-day MA, but I may have been too pessimistic. Gold does not seem to want to test its MA (so far) this time, and that’s a bullish factor. As I write this morning June gold is up over 19 points, and there seems to be urgent buying in gold.”

Russell’s excerpts of his latest musings can be found on King World News.

Incidentally, precious metals market guru James Turk, of Goldmoney, has gone on the record this month with a similar assessment that the gold market won’t be correcting below the lows of May 5 of just above $1,460 for very long.  Turk anticipates a break from gold’s seasonal low summer period, in which he sees gold rallying in the summer instead of drifting downward as has been the average case for the past 31 years.

Followers of Russell’s most recent thoughts on the state of affairs in the markets and American-led geopolitical events across the globe are not likely to be surprised by Thursday’s edition of his letter.  In his January “predictions” letter, he dropped a bombshell on his readers.  He wrote:

“This year might even be a black swan year,” Russell wrote. “Certain events are now in place, events that have never been seen before in human history.  We are dealing with debts so monstrous, so huge, that most people can’t fathom them. The Muslim community is huge, and it has moved heavily into many European nations. The radical Muslims intend to express their world leadership. Dictators in North Korea and Burma and Iran and Africa are no longer safe in that they can no longer keep their populations ignorant and in slavery.”

All the makings of a “black swan” event are in place for 2011, he concluded.

Russell’s bulls-eye prediction of social unrest and revolution, kicking off, first, in Tunisia in February, which has since spread across North Africa and to the Middle East, is nothing short of remarkable for a man presumably not tied to any number of government intelligence agencies.

Given the backdrop of Russell’s demonstration of having a sensitive finger on the pulse of these markets and geopolitical events, coupled with FX Concept’s John Taylor’s recent warning of a significant “risk-on” unwind (though, he wouldn’t comment on the gold market, specifically) period for the markets in the near horizon, one has to wonder if another big move higher in the gold price is just around the corner.

The G-7 cartel and Chicago Mercantile Exchange have thrown everything they can at the gold bull, but it keeps on coming.  Russell senses the “urgent  buying,” as he wrote, foreshadows an event, or events, which could provide the catalyst for a stampede in gold, finally, from the retail investor.

 

 

If this doesn’t get you to buy Gold . . .

Not much will.

While the bullish case for buying gold bullion as a store of wealth primarily centers on financial protection from central bankers’ dirty deeds of the West, as well as the gold accumulation by central bankers of the East, little is mentioned of the Indian retail market and how this market will play a major factor in keeping gold supplies tight for many years to come.

Instead, China’s burgeoning “middle class” has been the talking point for make the case for everything going up—as with the “peak everything” theory—from oil consumption, base metals, food, John Deere tractors, pharmaceuticals to hair gel.

Gold demand for China is, you guessed it, going to go up, too, and not just from China’s central bank accumulating as much as it can before the world’s major reserve currencies no longer serve as reserves, but from the buying power of China’s emerging middle class too.

India, however, is another market—the market of many individuals, which comprise the big buyer, which is poised to grow by mind-bending numbers of tens of millions during this decade.  India’s 1.1 billion population is going middle class, just as everyone knows China’s 1.3 billion population is.

But Indian culture (Asian culture, in general) stands apart from other cultures in that gold is synonymous with wealth.  Indians have never heard of Maynard Keynes and his “barbarous relic” propaganda and economic theories which center on the premise that politicians are uniquely qualified to manage a people’s currency.  Indians know better.

“The rise of India as an economic power will continue to have gold at its heart. India already occupies a unique position in the world gold market, and as private wealth in India surges over the next ten years, so will Indian demand for gold,” World Gold Council (WGC) managing director for India and the Middle East, Ajay Mitra said in Mumbai in late March.

While stockholders of the West saw their holding swoon in 2008, India was buying gold on the big dip, importing between 700 metric tons and 800 metric tons of the precious metal in 2008, or approximately 30% of total global demand.  Two years later, in 2010, India imported 963 tons.  And according to Albanian Minerals president and CEO Sahit Muja, India is expected to break the 1,000 ton mark.

At that rate, approximately 10% increases per year, the World Gold Council’s recent estimate of India’s gold imports reaching 1,200 tons by 2020 appears to be an easy slam dunk. If India remains in its present trajectory, gold imports into India will reach 2,240 tons by 2020.

If India leveled off to the expected 1,000 tons this year, that amount is more than three times the UK’s 310.3 tons of total gold reserves held by the Bank of England, and is on par with China’s officially stated gold reserves of 1,054 tons, according to the World Gold Council’s 2010 statistics.  In fact, in any one year, India’s gold imports would rank it somewhere between sixth and eighth, globally, in total banking reserves.

Since 1997, India’s GDP growth has averaged more than 7% per year, according to the World Bank, and correlated strongly with India’s gold imports during that 13-year period.  And according to the World Gold Council, the strong upward trend is expected to continue.

“We predict that the new demand for gold will be driven by rapid GDP growth, urbanisation, the emergence of a strong middle class and a sustained and potentially rising savings rate of 30%-40% of income,” WGC’s Mitra said.

And according to Marcus Grubb, managing director at the WGC, the emerging middle class buyers of gold will number in the tens of millions by the close of this decade.

He told MineWeb in mid-May, “With the building of infrastructure, with the increased urbanisation of populations – in India you are probably going to see another 100 million Indians move into urban conurbations in the next ten years, you are going to see the middle class go from 15 million to possibly as many as 90 million by income bracket in 10 years. Indian households will probably be 4 to 5 times wealthier than they are today in ten years time.”

So as gold bugs ponder whether the International Monetary Fund (which reports holding 2,827 tons of gold as of the close of 2010) will make another surprise announcement of its intentions to dis-hoard a measly 100 tons of gold in its  alleged attempt to shake some longs out of their gold holdings, remember that India presently needs that nearly each month just to satisfy its population’s demand for the precious metal.

And considering gold supplies have been declining, falling 4.4% in the first quarter of 2011, year-over-year, to 872.2 metric tons, according to the WGC, with future supplies expected to struggle from declining all through this decade, how will demand from India, alone, be met with available mining and recycled gold supplies in the coming years?

As gold prices rise amid growing demand and tight supplies, wouldn’t high prices, at some point, kill demand?  One would think so.

But in Indian culture, “gold will remain auspicious given its connection with tradition, whether religious or attitudinal, will remain powerful,” said Mitra.

He added that Indians lean toward being risk averse, and religiously view gold as a traditional means of wealth preservation, which inspires security and stability to the people of India.  It has been so for thousands of years.

“Therefore, the view that Indian demand for gold will be driven by the concept of enduring value, not price,” he said.

Peter Schiff sees Buying Opportunity in Silver

Peter Schiff believes the vicious pullback in the silver price has created a buying opportunity for investors seeking an entry point back into the metal.

Speaking with Eric King of King World News, the Europacific Capital CEO said the precious metals will benefit from weak economic data expected to be released this summer, forcing Fed chairman Ben Bernanke to reverse the U.S. central bank’s money printing hiatus and embark again on another “quantitative easing” program.

“I think it’s a buying opportunity,” Schiff said about the white metal.  “I do believe the U.S. economy is slowing down, in fact I think it’s going to slow a lot more than people realize.  But for that reason, I think that quantitative easing will not end over the summer.  In fact, I think the Fed is going to step it up. QE3 could be even bigger than QE2 and that’s very bullish for precious metals and very bearish for the dollar.”

Aside from Schiff’s expectations of a renewed decline in the U.S. economy absent the Fed’s wide open money spigots, Bill Gross of PIMCO asked a more germane and most troubling question back in March, a question that Schiff, too, has posed for many months.

“Who will buy Treasuries when the Fed doesn’t?”

In Bill Gross’ March Outlook piece, Gross posited that question—the piece, by the way, was originally published on the PIMCO Web site (now removed), but a copy can be found at zerohedge.com.

Among other important musings in his 1,800 word letter to investors, Gross runs down the list of significant buyers of U.S. Treasury paper, noting that he expects surplus sovereigns will be “good for their standard $500 billion annually,” but banks and bond funds are cutting back on Treasury paper buying—in case of the former, lending again in place of parking capital in U.S. paper, and in the case of the latter, buying less Treasuries due to slower inflows of investor capital.

Moreover, Gross, who agrees with Schiff about the underlying weakness of the U.S. economy absent the Fed’s herculean money printing, questions the Fed’s ability to maintain artificially low interest rates as the Fed halts its buying spree of bills and notes, which by most accounts represents more than 50%, on average, of all maturities along the curve.

So, “who’s left?” Gross asked in his March letter.

Someone will buy them, and we at PIMCO may even be among them,” stated Gross.  “The question really is at what yield and what are the price repercussions if the adjustments are significant … What I would point out is that Treasury yields are perhaps 150 basis points or 1½% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%.”

Gross continues along the lines of Schiff’s argument, that is: all components of the Leading Economic Indicator (LEI) have been artificially inflated through money printing, a dangerous phenomenon of false signals once observed decades ago by the Austrian economist Ludwig von Mises.

“Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market hand-off and stability in currency and financial markets,” Gross concluded.

Therefore, Schiff, who approaches the problem at the Fed in the same way as Bill Gross, believes rates are bottoming and have no where to go but higher, which will eventually give rise to talk at the Fed and on the Street that further QEs are necessary to hold the U.S. economy ship up a little longer to see if it will float on its own.

The argument will be made (already being made by Princeton economist and former Fed vice chairman Alan Blinder): if no Fed intervention, the U.S. economy will flounder into more lower economic growth territory, which will tank tax receipts and balloon an already out-of-control federal budget deficit—therefore necessitating further central bank intervention.

According to Schiff (and Gross), that negative feedback loop should put a strong tailwind to both silver and gold until the Fed refrains from its unprecedented “liquidity” operations—a scenario most unlikely, for now.

Schiff thinks the silver price at the recent $50 high “is not going to hold,”  adding, “We are going to take that [$50 high] out and move a lot higher.”

Jim Rogers says Oil Price to Rise “beyond anyone’s expectations”

Speaking with the BBC, Tuesday, Jim Rogers said he believes oil prices will rise “beyond anyone’s expectations” in coming years.

The billionaire investor, author and co-founder of the legendary Quantum Fund also said the U.S. economy will “slow down” as a result of headwinds brought on from higher oil prices.

In firm responses to the host of BBC Hardtalk Stephen Sackur’s contentious questions, the 68-year-old Rogers reminded viewers of last year’s published IEA data, which strongly suggest that world oil production appears to have peaked in 2006—though the agency’s 2010 annual report didn’t make a definitive statement along the lines of the ‘peak oil’ theses.

Instead, the report, entitled, 2010 IEA World Energy Outlook, offered an assumption for plateauing conventional oil production through the year 2035 as a basis for withholding a ‘peak oil’ conclusion that many oil analysts now believe is reality.

“The IEA, the International Energy Agency, says the world’s known reserves of oil are declining at a rate of 6% per year.  There is no oil,” Rogers asserted.

When asked how high oil can go from today’s plus-$100 price tag, Rogers wouldn’t provide his best guess, knowing that bull markets can take prices to levels few people can imagine at the start of a multi-year rise in prices.  Instead, in typical Rogers’ style, he offered a couple of numbers he presumably knows will be easily achieved.

“Well, during the course of the bull market, during the next 10 years, 150, 200 [dollars].  You pick the number,” he said.  “I don’t know, but it’s going to go beyond anyone’s expectations, including mine. And I’m the bull.  But there will be corrections along the way.”

Rogers concurred with the BBC’s Sackur’s assessment that $200 oil will hurt many people within the U.S. and, indeed, other nations throughout the world, but also said many will benefit from high oil prices as well.

Just last month, the United Nations released an intergovernmental study on Climate Change which stated that as much as 77% of global consumption of energy will be met with solar power, wind and other forms of alternative energy sources by the year 2050.

That 190-nation UN study suggests that though some jobs will be eliminated from high oil prices, millions of new jobs in many new industries will be created worldwide as the result of soaring oil prices.

Moreover, the UN report stated that $12.3 trillion of investment into alternative energy sources to crude oil would be needed throughout the next two decades, or half way to the report’s 2050 year endpoint, to achieve 77% consumption of alternative energy sources by 2050.

“Some people will benefit,” Rogers said.  “Remember, there are lots of people in the world.  Somebody’s always benefiting and somebody’s always suffering.”

When asked to comment on the public’s perception that high oil prices are a result of speculators in the oil patch, Rogers said, “I know that’s great on TV and politicians like to say.  If you don’t have investment in the oil industry, where are we going to get the oil?”

Silver: One Top Trader’s Viewpoint

Starting afresh this week, following a week of death-spiral plunges and rebound, recovery and retest of the $33 level in the silver price, traders have been seeking guidance from their favorite gurus and chart technicians.

Is this the dip in silver that should be bought aggressively?  Or will silver succumb to the seasonal pattern of weakness into the summer months?  Do silver bulls buy now or wait for an opportunity during the seasonally weak summer months of July and August?

One professional trader known for his level-headed perspective, experience and discernment in several active markets has weighed in recently.

Dan Norcini of Jim Sinclair’s Web site, JSMineset.com, told Eric King of King World News (KWN) the silver price looks has looked attractive to traders at the $33 levels, according to volume statistics in the SLV Exchange Traded Fund (ETF) and the cash market, with the latter rumored to be coming from large Asian buyers.

“Trader Dan,” as he’s called on JSMineset.com, told KWN he’s looking for at least one more successful test of the $33 level accompanied with high volume before he’ll feel comfortable suggesting a bottom for silver is most likely in.

On the initial breathtaking 30%+ drop in the silver price during the first week of May, large volume from ‘strong hands’ came into the market as gold’s kissing cousin fell back to the $33-$34 range last Thursday.

After trading briefly above the $39 handle during Tuesday’s New York session, silver sold off again sharply on Wednesday, and again, on Thursday, dropping to Norcini’s short-term target range low of $33 and $34.  Again, very large volume came in during New York’s trading hours, lifting silver to above $35 in its first successful test of Norcini’s target range.

“Well it looks like Eric, based on what I’m seeing on the chart right now for silver, when it drops down below $34, anytime it gets down below there, it seems to be uncovering some pretty good buying,” Norcini told King.  “It does not stay down there very long.  That’s promising. As long as that continues, silver is in pretty good shape.”

If silver can hold the $33-$34 range, the price may trade within a 10% range for a while before making its next move, according to Norcini, who mentioned he saw a lot of hedge funds, who were playing the narrowing price spread between gold and silver, now unwinding their trades, as well as highly leveraged latecomers who couldn’t make margin increases to satisfy the Chicago Mercantile Exchange’s (CME) five hikes within eight days.

So for now, traders could witness the price of silver bouncing around on high volatility until the market stabilizes and demarcates a floor over time, according to Norcini.

“It [silver] will just range trade, Norcini added.  “That would be a good situation for us, to let it range trade between $33 and $34 on the bottom and run up near $36, $37 on the top, maybe work a little higher, but just work back and forth and consolidate, work the froth out of the market, work the emotion out—what we need to get out of the market and calm it down a little bit.”