Gold soaring to “Much Higher Highs,” says Swiss’s Felix Zulauf

As the world celebrates the 40th anniversary of the dollar falling off the gold standard, the subject of holding gold as a means for surviving the simultaneous devaluations of the U.S. dollar is growing in intensity once again.

But for now, it’s the European monetary experiment with the euro that’s overshadowing profound dollar woes, driving Europeans of 23 nations across the eurozone into hard currencies such as the Swiss franc and gold.

If Germany’s resolve to step in to bailout the eurozone periphery of Portugal, Ireland, Italy and Spain (PIIGS) falters, “all hell could break loose in the [euro] next couple of weeks or months,” Felix Zulauf told Financial Sense Newshour over the weekend.

The 40-year veteran of the financial markets from Switzerland said intra-bank lending is freezing up in Europe in a similar way to the banking system in the U.S. post Lehman Brothers.  Germany, now, is about to face the same dilemma as U.S. policymakers had faced in the wake of a simultaneous collapse of Fannie, Freddie, Lehman and AIG in early 2009.

“The final decision is coming up this year,” Zulauf said, referring to the German government’s response to the crisis.   Europe is experiencing a “slow motion bank run in Italy.”  And that is no small matter, he said, as Italy’s debt market is the third-largest of the world, behind No. 2 Japan, and the U.S. Treasury market.

In the end, Zulauf estimates support of the PIIGS will cost Germany more than 1 trillion euros ($1.4 trillion)—a staggering amount when compared with Germany’s $3.3 trillion GDP, which, in his opinion, is too much money given the outrage expressed by the German people already regarding the bailout package  for tiny Greece.  An equivalent proposal made in the U.S. to, say, bailout troubled states, would cost approximately $6 trillion against an American economy of $14 trillion.

“Either the EC [with Germany as the lynchpin] bails out the PIIGS, or these countries must revert back to its former national currencies,” said Zulauf, which means the respective currencies of the PIIGS would have to be “devalued 30%, 40%, 50%, or so.”

And if Germany expects help from France’s second-largest economy of $2.7 trillion to maintain the integrity of the euro in its present form, Zulauf isn’t sanguine on that likelihood, either, stating, “France will become a problem later on.”

“It’s an ugly situation,” he said.

“For a limited time,” gold, and to a lesser-extent, U.S. Treasuries,” are the  vehicles investors have been fleeing Europe’s euro as the crisis drags on month after month, starting with the initial meltdown of Greece during the first quarter of 2010—which ultimately led the Greek government to seek a EU/IMF bailout on April 23, 2010.

“The old models have broken down, and do not work anymore,” Zulauf said of central banking policies on both sides of the Atlantic.

“QE by central banks is working well on financial assets and commodities . . . but it’s not working well to stimulate final demand in the economy,” he added.

Financial markets used to lead the economy, but not today, due to central bankers expanding balance sheets to fight insolvencies of both public and private balance sheets, Zulauf explained, fooling many economists into believing that an elevated stock market is the key leading economic indicator for eventual economic growth on main street.

As more and more investors realize that the economy is in much worse shape in Europe and the U.S. than well-regarded economists now believe, the run to gold will push the price of the world’s ultimate store of value to successive all-time highs.

“It [serial central bank devaluations] will push gold to much higher highs, because people’s mistrust of governments, central banks, and the value of money, of our major currencies will continue to decline, and a rising gold price is just a reflection of that,” Zulauf stated.

Jim Rogers: Take refuge in Real Assets and Gold

Speaking with The Economic Times of India, Commodities King Jim Rogers, of Rogers Holdings, said he’s betting on gold as he expects Europe’s member nations  to receive downgrades of its sovereign debt.  However, the U.S.-born 68-year-old Singapore resident is not adding to his position in the yellow metal at this time.

“Governments all over the world are debasing currency; yesterday, the U.S. Federal Reserve said it will continue to debase their currency. The more the governments will debase paper currency, people will take refuge in real assets, and gold is one of them,” he said.

Rogers has continuously stated that Federal Reserve’s policy to maintain low interest rates has pushed food and energy prices in emerging countries much higher as a percent of personal income than their counterparts’ incomes in the developed world, and that will continue, in his opinion.

As Asians flee to protect their savings from higher food and energy prices, many have taken refuge into gold.  According to UK-based gold consultants GFMS, China, alone, is expected to import 400 metric tons of the yellow metal—and that’s on top of China central bank’s enormous apatite for the yellow metal.

The world’s financial community now awaits the next shoe to drop in the continuing saga in Europe, now that the budget drama out of Washington has been knocked off center stage.  The turmoil in the Italian bond market has prompted the ECB to step in to buy Italian sovereign debt for the fourth straight day in its effort to prevent another collapse in another much bigger member of the EU.  Asian buyers expect the ECB to continue debasing the euro through another wave of money printing, leading to new rounds of food and energy price rises down the road.

And, as the bond vigilantes move from one debt market to the next, with rumors of impending attacks on French bonds swirling, Rogers is looking ahead to the UK and its atrocious debt loads as a likely target in the future.

“The U.S. has been downgraded, and countries like the UK that have very high debt will have to be downgraded too,” said Rogers. You can’t have the UK as triple ‘A’ and the U.S. as not a triple ‘A’.”

Like many on the Street, Rogers wonders why Moody’s and S&P have not mentioned the UK for possible downgrade.

“You need to be asking S&P or Moody’s why they haven’t got around doing that. I don’t think, the European countries deserve their rates,” he continued.

Irrespective of the timing of the inevitable calamitous events in Europe, Rogers expects the global financial crisis to roll along from one nation to the next, with each of its populations running to gold as a place to store savings during the latest stage of the global meltdown.

Gold Short Squeeze is ON

In a dramatic change of events from decades-long control of the gold market by the gold cartel, led by JP Morgan (NYSE: JPM) and HSBC  Holdings (NYSE: HBC), the cartel shorts took a bloodbath in the overnight trade after Monday’s close in New York.

The long awaited short squeeze is ON in the gold market.

“Well, what’s happened with the shorts that were in there is they were absolutely crushed on that overnight rise on Monday,” said King World News’ (KWN) anonymous London trader in a Tuesday interview with Eric King.

Anonymous added, “These guys in London woke up with their asses handed to them and I don’t think some of these guys will ever be short again, if they are still in business.  So some of these perennial shorts that have always joined in the party got screwed, I mean literally lost everything.”

After the Fed announced Tuesday afternoon it would extend its ZIRP through mid-2013, the 2 and 3-year Treasury notes soared, while the Swiss franc jumped 400 points against the dollar in a matter of minutes.  And gold, it sold off $50 after short covering in the pits took the metal to a new record price of $1,782.50.

But in New York trading this morning, gold trades at less than $5 from its all-time high.

Earlier, on February 10, Goldmoney’s James Turk told KWN he was watching the gold futures chain closely for signs of a breakdown in the dollar.

As of the close Tuesday in New York, the gold futures chain now look like the silver futures chain, all but completely inverted, a sign that Turk’s backwardation scenario in gold could be near.

“It will be interesting to see whether the backwardation in silver will lead to a backwardation of gold,” said Turk.  “If it does, the end game for the U.S. dollar is near.”

Last month, Turk had warned investors that this summer was shaping up to look like the summer of 1982, the time when the Mexican government devalued the peso, creating a 50% firestorm rally in the gold market.

Back to KWN’s anonymous London trader, who said Tuesday some gold shorts won’t be playing in the pits anymore, and predicted a possibility of the yellow metal achieving the $1,800 print soon.

“Gold just gapped up and didn’t come back and these guys were heavily short,” the anonymous London trader said.  “I believe there is still enough momentum to push gold into the $1,800’s.”

“I fully expect to have $2 moves in silver and $50 moves in gold as absolutely normal at this point.”

Another new normal.

Silver to reach $75 following Wild Volatility, says Silver Guru

Silver investors have become routinely accustomed to silver’s rapid price advances during less-impressive advances in the gold price,and vice versa, on the way down; silver has plunged sharply while gold merely “corrected” during the decade-long 2-steps-forward-and-1-step back bull market.  Silver can be said to act as a leveraged play to the gold price.

But during a period when global market participants suddenly get hit in the face with the chilling reality of how bad the state of the financial and political system of the West really are (and, now, how this mess could affect China), a lot of unwinding of trades dependent upon the prospects for silver’s industrial demand will greatly dampen, or depress, the upward move in the silver price which otherwise would result from buyer of silver as a safe haven monetary metal.

But not to worry about silver’s temporary disconnect with gold, according to life-long silver aficionado, David Morgan, the publisher of The Morgan Letter.

In an interview with The Gold Report, Morgan said it’s hard to predict the amount of hot money in the silver trade at any one time compared with committed money in the metal.

“As people figure out that there really is no solution to the global financial system without a great deal of pain and some defaults along the road, more will seek the safety of precious metals,” said Morgan.  “So, even when things calm down for the moment, it does not mean the precious metals will not get pushed down.”

In the event of a tragic solvency crisis turning into outright signs of a Depression coming, the bloodletting in the silver market may continue until it’s flushed of weak hands jumping from one trade to the next—which is a considerable amount when considering the ratio of dollars held in paper silver against physical silver is approximately 100:1, according to GATA.

“You could see gold and silver react to the downside, perhaps dramatically—$5/ounce (oz.) silver is not entirely out of the realm of possibility,” Morgan speculated in the event of another 2008-like sell off, though the catalyst for today’s crisis centers on the insolvency of governments and the shock of much weaker-than-expected economic growth from debtor nations.

“My best guess is we will see some pullback going into mid-August,” he added, as investor demand comes back in to pick up silver at bargain prices before the traditional September to April buying season and strong demand accelerating out of Asia.

But more importantly, Morgan, who agrees with Swiss money manager Marc Faber suspects that the endgame in the Bretton Woods currency scheme failure is near, and that governments will opt to continue debasing their respective currencies in lieu of outright default.  But where the two men differ from Goldmoney’s James Turk and the legendary Jim Sinclair is, first, a sell off before the historic advance in the silver price past the all-time high of $50.35.

As the crisis deepens in Europe, banks have stopped lending to each other, as no one really knows the extent of hidden liabilities on the books of their brethren banks.

“It seems interbank lending is starting to freeze up in Europe,” said Morgan.  “This was one of the main factors contributing to the financial crisis of 2008. So there is much to consider and it boils down to the fact we are in the final stages of a currency depreciation on a global basis.”

And like 2008, Morgan expects the same volatility in silver in the coming weeks, though maybe not as dramatic as 2008′s swoon.  And this time, the strong hands, who understand the unpleasant symptoms of volatility during the currency crisis in progress, will be rewarded on the other side—as was the case in 2008.

“What happened in 2008 was a silver sell-off that caused a shortage, pushing the physical price of silver at the retail level to around $13/oz., while paper silver traded under $9/oz. on the futures exchanges,” concluded Morgan.  “Excessive short selling then ran the price from about the $20/oz. level to the brink of $50/oz. The next leg up could take out the $50/oz. level after a few tries and then not look back until establishing a new nominal level of $65/oz.–$75/oz.”

Peter Schiff on Gold and Treasury Downgrade

For those of you who have followed Peter Schiff through the years, you already know of his long-term prediction for U.S. Treasuries to eventually reach “junk” status.  Friday’s Standard and Poor’s downgrade of U.S. Treasuries to AA+ (with a negative outlook) from AAA was the first step in what could be a successive chain of downgrading events to come for U.S. debt from the credit rating agencies.

As Treasury Secretary Tim Geither jumps up and down at the injustice of S&P’s downgrade, the Wall Street Journal chimes in with its propaganda piece entitled, U.S. Debt Remains ‘Gold Standard’ to do its part in the Soviet-style disinformation campaign perpetrated to prolong the 40-year fraud of the U.S. dollar.

Euro Pacific Capital CEO Schiff, on the other hand, just tells it like it is—an apparent genetic characteristic inherited from his father, Irwin Schiff, a prominent figure in the protest of the U.S. tax code and author of The Biggest Con: How the Government is Fleecing You.

“The dollar used to be the safe haven, Treasuries used to be the safe haven, well if you are downgrading U.S. Treasuries, obviously they are not the safe haven anymore,” Schiff told King World News (KWN).

“For those people who believed foolishly that Treasuries were the safe haven, S&P is finally saying they’re not,” he continued.  “In fact they (Treasuries) are on negative watch for a reason.  I think S&P is going to downgrade again … by then, I’m sure Moody’s and Fitch will have also downgraded U.S. Treasuries.”

As equities markets in Asia, Europe and the U.S. plunge in anticipation and eventual announcement of the unprecedented downgrade of U.S. Treasury debt (post Civil War), further ratings downgrades across the debt markets will follow, as in municipal and corporate debt, according to Reuters Insider, which stated on Monday, “Announcements should be expected this morning about effects to corporations from S&P’s downgrade of U.S. credit rating, David Beers, head of S&P’s sovereign ratings.”

The street-smart Schiff also pegged Moody’s for not coming clean on its outlook for U.S. Treasuries, knowing that the kept team-player Warren Buffett holds a significant share of Moody’s through his Berkshire Hathaway fund, and was probably the biggest beneficiary on the planet of Uncle Sam’s largesse in the rescue of AIG during the meltdown of March 2009.  How could Buffett then downgrade U.S. debt after thanking Uncle for his assistance in a New York Times Op-Ed piece?

“Well he [Buffett] owns a big chunk of Moody’s, doesn’t he?” Schiff asked rhetorically.  “Moody’s hasn’t lowered their [U.S. Treasuries] rating, so somebody is mistaken, it’s either Moody’s or S&P.  It stands to reason that Buffett would say his competitor was mistaken rather than himself.”

In contrast to legendary commodities trader, Jim Rogers—who doesn’t bother following the very same rating agencies who failed to warn of an impeding debt collapse in 2008—the significance of S&P’s downgrade, as well as the abstention to follow suit from the other two rating agencies, Moody’s and Fitch, shouldn’t be understated, according to Schiff.  He believes Moody’s and Fitch have given politicians a debating point to continue debasing the dollar.

“I think that this is a real wake up call, this is kind of an ‘Emperor has no clothes’ moment,” said Schiff.  “If we get downgraded and interest rates don’t spike up, that’s just going to embolden our politicians to say, ‘Hey, It doesn’t matter what our credit rating is.  Let’s just run up the debt even more because we can borrow just as cheaply with a AA+ as we can with AAA.  Hey, why not really go for broke?’”

Smart investors, however, have been buying gold and selling stocks for many years now, as they knew this day would come—and will repeat, a la Greece, not withstanding Treasury Secretary Geithner’s firm conviction only weeks ago that there was “no risk” of a U.S. downgrade.

And as gold prints new highs above $1,700 in the wake of the calamity of sovereign debt woes from both sides of the Atlantic, how can the WSJ’s headline, U.S. Debt Remains ‘Gold Standard’, make any sense when U.S. Treasuries are denominated in U.S. dollars?

Ah, lest we forget: Fed Chairman testified to Congress that gold is not money, though the U.S. Treasury claims to hold 8,130 tons of the yellow metal for reasons of tradition.

Gold Market: Anonymous London Trader eyes $1,680

The anonymous London gold trader is back with King World News (KWN) to offer his latest thoughts perched with a bird’s-eye view of the gold market.

Confirming the report from Goldmoney’s James Turk, who said that the gold shorts have been under tremendous pressure to cover above $1,600, the anonymous London trader told KWN he sees a lot of shorts unwinding positions above the $1,680 level.  If the gold price can maintain a move above $1,680 at the close, the short squeeze will be on in earnest, according to the anonymous trader.

“The action is very positive,” the trader told Eric King.  “If there is a pit (Comex) close above $1,680, gold will race to $1,705 because of all of the buy stops above $1,680.  There are a tremendous number of shorts in the gold market and a significant number of them will capitulate and close out their shorts above that level.”

As early as two months ago, Goldmoney’s Turk issued the same warning to traders who are not positioned to ride the gold (and silver) market higher in the event of a short squeeze, which Turk said is very likely.

As today’s market action shows the Dow falling hard to 11,650, while gold advances to $1,678, the Dow-to-gold ratio has dropped below the important 7-1 level within the first 90 minutes of New York trading.  If the trend continues, it could indicate traders have lost faith in a U.S. recovery and the prospects of a profitable “risk-on” trade.

On that point, Marc Faber told CNBC on Tuesday that equities have kicked off a fresh bear market, while Barton Biggs, on the other hand, said that yesterday was the day to beginning buying equities for the next 7%-9% rally higher.

According to the London trader, the Faber thesis for the future trend in stocks will show up in the gold and silver market—if the gold price can be sustained above $1,680, and above $42 for silver.

The London trader continues, “The same guys who are shorting gold have been shorting silver.  And if we get the covering in gold above $1,680, silver should move $2.50 higher on short covering as well, which at that time should be roughly the $45 level.”

Moreover, the trader said the strong buyers, who typically accumulate at the best prices for the two precious metals during the seasonally soft summer period, have not yet bought, waiting instead for the pullback.  But, those buyers may have to chase prices higher, creating even more trouble for the shorts, which then may begin a virtuous cycle of higher prices, similar to the massive precious metals rally during the April run-up.

Adding to the drama in the gold market is tomorrow release of the U.S. jobs report.  Another horrendous report on top of June’s (released on the first Friday of July) nasty surprise could trigger the next wave of short covering, according to the London trader.

“The physical buyers in gold have not been chasing the market at this point,” the trader said.  “They have been waiting for their usual summer gift, and it hasn’t come.  Usually they are filled by now, so we are going to see those guys come in shortly, possibly after non-farm payrolls.  They (the physical buyers) have moved their levels way up now and they are going to start chasing price at some point.”

So far today, gold briefly pierced $1,680 to trade as high as $1,682.15 on the Comex before it was slapped back to $1,675.

“Remember, $1,680 is the key here,” the trader said.

Marc Faber: Bear Market is Starting

Here comes the bear market, Marc Faber, the editor and publisher of The Gloom Boom and Doom Report, told CNBC Europe Tuesday.

“The bear market is starting. When you compare equities to bonds and cash I don’t think equities are very positive,” said Faber.

Faber, who last month said the Dow had already reached its high for the year, cites the rallying bond market for his outlook for equities.

At the close of Tuesday’s trading, the 10-year Treasury reached 2.6%, and the 30-year cracked below 4% for the first time since the 700-point decline in the Dow of December 2008.

“The Treasury market is telling you that the economy is in recession,” said Faber. “So if the bond market is telling you that the economies of the Western world are weakening, but at the same time the stock market is still relatively high, I think the stock market is vulnerable.”

Faber’s usual castigation of politicians for the handling of the crisis also included a few mild snipes at analysts who predict a surprise rebound in the U.S. economy slated for the second half.

“The politicians are all useless individuals. Nobody is reducing the problems in the US or Europe, just putting on a band aid and postponing the problems endlessly,” he said.

“Some analysts think that there’s a chance economic data will surprise on the upside but I think, if anything, it will be on the downside,” Faber added.

He also expects corporate earnings and guidance will disappoint the Street.

But topping his list of lurking problems for the U.S. and Europe is not sovereign debt issues or corporate profits; it’s China.  Faber believes China is vulnerable to a slowdown from the nation’s largest buyers of its goods, which, he said, “is a much bigger risk for the global economy than the U.S. because the U.S. is no longer a major commodities buyer.”

If China’s industrial production slows, the bright spots in the global economy coming from resources-rich Australia and Canada as well as oil producers of the Middle East will fade as well, according to Faber.

“If commodity prices are falling, then commodity producers will buy fewer goods from China,” he pointed out. “This is something that the world central bankers can’t deal with.”

As far as the outlook for the euro, Faber didn’t expect the euro to survive, let alone to trade above 1.40 to the dollar.

“What surprises me more is actually the strength of the euro and that it has not collapsed yet,” he said, but believes that the PIIGS will eventually by “chucked out” if the euro is to maintain its present secondary reserve status to the dollar.

“I would have chucked out Greece three years ago, straight away, and it would have been much cheaper,” Faber said.

Faber has turned very bearish on equities, bonds, and currencies—in real terms—and recommends accumulating gold to weather the storm.  Personally, he will add to his own gold position if the price drops $150.

Gold Shorts to soar Gold Price, says James Turk

After a slew of positive gold news of the past two weeks, James Turk weighed in on his latest thoughts with King World News (KWN) yesterday, and reiterated his forecast for a golden summer rally led by the unrelenting Asian buyers.

“It is very important that demand in Asia for physical metal has reappeared,” said Turk in the KWN interview.  “I continue to be amazed how the Asian buying adjust so quickly to the rising gold price.”

As the never-ending crisis in Europe, and now, the U.S., dominate mainstream news, more and more nervous investors waiting for cheaper gold prices find the strain of watching gold slip away to new record highs in all major currencies increasingly too much to bear.

“Clearly people are worried about the train leaving the station without them, so demand for physical metal adjusts quickly to the reality of higher prices,” Turk told KWN.  “After all, what would you rather own – gold or the dollar?”  Or the euro?

The effects of QE2 have already slammed the purchasing power of the Chinese, Vietnamese, Indians, Koreans, Thais, as well as most of the rest of Southeast Asia.  And as the shockingly poor data on U.S. jobs, GDP, manufacturing, housing, personal income, consumer sentiment and stubbornly high food and energy costs, show no signs of turning around, Asia investors fear yet another round of money printing by the Fed will send another inflation shock wave their way, knowing, too, that the full effects of QE2 have yet to come.

International bullion dealer, GoldCore, recently wrote, “South Korea’s central bank bought 25 tonnes of gold over the past two months . . . a 17 fold increase in their gold reserves. . . . Thailand’s gold reserves rose by 15.5% in the two months and rose to about 4.07 million ounces in June, from about 3.523 million ounces in May, according to figures on the Bank of Thailand’s Web site.”

All of that sudden buying out of Asia, on top of the already rapidly increasing rates of gold purchases from China and India, has the gold shorts (commercials) on the ropes, according to Turk.

“You have to remember, Eric, that the commercials have a massive short position in gold that is severely underwater,” he said.  “What the commercials try to do is trade for short-term gains while the longer-term positions go against them as gold climbs relentlessly higher.  They have this done for over 10 years, so this is nothing new to them.  What they (the commercials) fear is the strong physical buying coming out of Asia because they are powerless to fight that tidal wave.”

U.S. Budget Deal is Gold Bullish, says Peter Schiff

As the economic data continues to point to a rollover in the U.S. economy, with the latest ISM data for July moving down sharply in step with equally horrible employment and GDP prints, Euro Pacific Capital’s Peter Schiff said that in light of the further evidence of a declining economy, Washington won’t make the bold moves needed to bite the bullet on spending and arrest the gold price.

Washington’s announcement on Sunday that a deal was reached, which includes $900 billion in spending cuts over 10 years, the authorization for raising the debt ceiling by $2.1 trillion by 2013, and a promise to seek additional cuts of $1.5 trillion through a bipartisan, bicameral congressional committee won’t change the course of gold’s ascent in the least, according to Schiff.

On Sunday, Schiff wrote of four possible scenarios coming out of Washington on dealing with the $1.6 trillion projected deficit and the effect it most likely would have on the gold price.  In fact, Schiff has said in the past that today’s projected deficit is much too optimistic, and any proposed spending cuts will become diluted on a deficit-to-GDP percentage basis.

Under Schiff’s four scenarios, he predicted the scenario that Washington has always chosen when faced with a sick economy and a consumer dependent on transfer payments from the public coffers, that, for this year, has reached 20% of total income.  That scenario is: “they will raise the debt ceiling and make spending cuts which sound substantial, but which only mange to slow the accumulation of new debt.”

“The plans on the table suggest cutting a couple trillion in cumulative spending over the next decade,” Schiff continued. “In other words, they propose cuts that only reduce deficits by about 10%-20%; they do nothing to reduce actual debt levels. So if these talks are successful, then instead of a $1.5 trillion deficit each year, perhaps we only suffer a $1.2 trillion deficit. Meanwhile, the debt continues growing. This is ‘success’ in Washington.”

So, the deal, if passed by both Congressional bodies, “is bullish for precious metals. It means more of the same – more spending, more debt, and necessarily more money-printing,” he stated.

After dropping to $1,608 in overseas trading, gold has retraced the post-announcement decline and actually advanced past Friday’s close to reach above $1,630 per ounce in late morning trading in New York, thanks to bargain hunters and a miserable ISM number.  So, the gold pundits who predicted steep declines in the gold price on an announced deal have so far been dead wrong.

Schiff, who’s predicted the rapid decline of the U.S. and the dollar in his book “Crash Proof – How to Profit from the Upcoming Economic Collapse,” hasn’t backed off from his prediction of a U.S. collapse of more than three years ago.    In fact, since his call for a grand bull market in gold in 2000, Schiff has gained a tremendous following as more and more investors seek an investment professional who’ll tells the truth as sees it and offer ways to protect from Washington’s profligacy.