Here’s why the Gold Price Goes Higher, according to Peter Schiff

In his latest interview with King World News, Euro Pacific Capital CEO said the U.S. economy is dropping quickly, gold will go much higher as a result of his bleak outlook, and the U.S. Treasury market is not a permanent safe haven for investors seeking shelter from market volatility brought on by sovereign bailouts, which, he added, will move across the Atlantic to the United States.

“We are going to fall off the edge of a cliff; it’s just a different cliff than most people are looking for,” Schiff told King World News’ Eric King.  “I don’t think the stock markets are going to fall off the edge of a dollar cliff, or nominal cliff, but the US economy is going over the cliff.”

Schiff, the author of several financial books on the subject of investment strategies investors should take to preserve wealth during the ongoing global financial crisis, suggested one of the ways American investors can protect themselves from the crisis slated to come in the United States is to hold gold bullion.

Though the gold price can be volatile due to fund managers, governments and  institutions liquidating gold to cover losses in other assets during the protracted crisis, gold, in the end, will remain as the ultimate safe haven as a store of wealth.

“Anything could happen in the short-run, but in the long-run, gold goes a lot higher,” Schiff explained.  “Everything that is happening right now that is pushing the price of gold down, is actually bullish for the price of gold.  That is why long-term the gold price will be higher.”

Just as famed commodities trader Jim Rogers of Rogers Holdings and Swiss money manager Marc Faber, publisher of the Gloom Boom Doom Report, Schiff’s betting on the Fed and U.S. Treasury to team up for providing further ‘stimulus’ to the U.S. economy in an effort to stave off a crisis in the U.S. dollar a little longer.  That plan, he said, is the primary driver of the gold price—currency debasement to offset stagnant, or lower, GDP.

“We have this completely phony economy going, this bubble economy, it is still going to deflate and that hasn’t happened yet,” said Schiff.  “The world is trying to keep the air in it, but ultimately the air will escape.”

In fact, the air has been escaping for quite some time, according to Jeffrey Gundlach of Los Angeles-based DoubleLine Capital.

Arguably the most respected bond fund manager, though lesser-known than PIMCO’s Bill Gross, the Wall Street Journal reported that Gundlach told approximately 100 financiers and reporters at a gathering at the New York Yacht Club, Thursday, “We’re in a recession right now.”

Co-founder & COO of Economic Cycle Research Institute (ECRI), Lakshman Achuthan, agrees.  Earlier today, the leading business cycle research firm posted to its Web site, businesscycle.com, “Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off.” (emphasis added).

Schiff expects the aborted recovery back to lower economic output in the U.S. spells doom for the U.S. dollar.  Up till now, investors fleeing the euro into dollars will ultimately play out to have been the wrong move, according to Schiff.

“The dollar has been rallying, but I don’t think it should be,” he said.  “The dollar is a risky asset.  People are trying to hide out in dollars, in Treasuries, which are just future dollars, but I think that’s ultimately the riskiest place to move.  These people who are buying dollars are making a mistake.  People bought dollars in 2008, early 2009 and if they held them, they obviously lost a lot of money.”

“When we see an eventual precipitous decline in the dollar, you will see consumer prices rising and interest rates rising.”

At that time, the gold price in U.S. dollars will soar.

Is the QE Train finally Coming?

Suddenly, the talk of the threat of deflation has coincidentally been put forward as a deep concern at the Fed.  And the suggested remedy is, you guessed it, more quantitative easing.  Ben has come to save us.

“It is something that we’re going to be watching very carefully,” Fed Chairman Ben Bernanke said in response to a question during a Q&A at forum sponsored by the Cleveland Fed.

“If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to because we do not want deflation,” Bernanke said.

Like a corrupt dictator with ambitions of painting a perfect world for his nation, Bernanke has come to protect us from that lurking nemesis of state—deflation!

My, my, my … so soon after the FOMC meeting?  Even after the markets were so hopeful of a Fed save, built up to a crescendo of excitement following the newsflash that a last-minute change in schedule, away from the normal 1-day FOMC meeting to an extended 2-day one was, instead, needed?   Surely something big was afoot!

Bernanke surely needed that extra day to convince those three sticks-in-the-mud at the FOMC (as well as those disloyal Republicans so concerned about inflation) that inflation was less important than job growth, and that only he was destined to regain the glory of the 50-states by simultaneously averting a Wiemar style collapse of the dollar and a crushing Japanese-style lost double decade with his books in hand.

Well, Bernanke showed them all why he was destined to seize control of the hearts and minds of a fearful public plagued by a falling empire, didn’t he?  He was so prescient when he said commodities prices were “temporarily elevated” by “transitory factors” and demonstrated single-handed why those three dissenters at the Fed are, in fact, enemies to the state.

It’s as if Bernanke was awarded divine understanding of what truly ails the great red, white and blue: it’s those evil speculators in the commodities pits who’ve got to be dealt with.

As in a 1933 Reichstag-like event, The Bernanke, as he is affectionately called, now, made sure commodities traders got their just due for their crimes—through a coordinated maneuver with its allies at the SNB to crush the Swiss franc at the precise moment the gold price was about to breakout to fresh all-time highs.

In an out-of-the-blue sale of a massive 4,000-gold futures position (naked short?) for December delivery which coincided with the SNB announcement, instead of the gold price soaring to $2,000, it was burned to the ground along with the franc.

And to permanently rid the state of those evil freegold speculators who misguidedly sought to flee the tyranny of theft, fear and persecution, The Bernanke led them to a train out of, they thought, the clutches of a dying fiat currency.  Instead, the train whisked them to away to captivity and slaughter at the hands of a conniving ideologue.

The message is clear: the U.S. Treasury gets the carrot, gold gets the stick!

The salesman thanks the customer for patronizing his shop and asks him to come again. But the socialists say: Be grateful to Hitler, render thanks to Stalin; be nice and submissive, then the great man will be kind to you later too.

–Ludwig von Mises

And to top it off, injecting comic relief—in a gallows humor way—the Wall Street Journal publishes former vice chairman of the Fed, Alan Blinder (1994-96, another Princeton boy) piece (on the same day as Bernanke’s remarks in Cleveland) entitled, Ben Bernanke Deserves a Break.

The final outcome of the credit expansion is general impoverishment.

–Ludwig von Mises

Who needs a break?

Jim Rogers: Don’t sell your Gold; buy the Dips

Commodities king Jim Rogers made the rounds with the media yesterday, speaking to, among others, the The Economic Times of India regarding his latest thoughts on the gold price.

Now living in Singapore, the 68-year-old American citizen reckons the gold price may meander lower in coming weeks, but strongly suggests that weaker prices present an opportunity for investors who missed the boat on this roaring bull market to jump aboard to higher prices he sees in the future due to the protracted sovereign debt crisis in the Europe, then, in the United States.

“ . . . gold has been up 10 years in a row, which is very unusual in any asset class,” Rogers told India’s largest financial daily publication The Economic Times.  “So if it is up this year or 11 years in a row, gold is overdue for a correction and it could have a nice substantial correction given that it has been so strong.”

“I have no idea what is going to happen this year.  I doubt if it will go to $2000 an ounce in 2011, it is more likely to have a correction which will last for several weeks, several months,” he continued. “It has been very strong. If it goes down some more, I would buy more gold.”

Just as two other hard-money advocates Peter Schiff and Marc Faber have already suggested in their comments earlier this week, Rogers said he sees the pullback in the gold price as a healthy one within a larger contextual outlook for the precious metal in the longer term.  He, as both Schiff and Faber have indicated, view the pullback in gold—and silver—as, yet, another buying opportunity for investors seeking protection from the endgame of expected currency debasements of the euro and U.S. dollar.

But, as on several occasions of the past decade, the pendulum has swung to fear again in the gold market, as Mr. Market—with a little help from regulators and central bankers who apply pressure points to leveraged paper traders at seemingly the most opportune times—took latecomers and momentum traders to the woodshed as punishment for their short-term greed indiscretions.  Buyers of the physical metals, however, swamped dealers with orders during the vicious sell off (see $10 billion Sprott Asset Management’s Eric Sprott interview on King World News).

Rogers continued: “When fear permeates a market, everybody sells, especially the last ones in frequently have to jump out. They have raised margin requirements for both silver and gold. So that makes it more and more difficult for people to hold on.”

Incidentally, the uber-U.S.-centric Forbes Magazine’s takeaway from Rogers’ sanguine comments borrowed from the ET interview, regarding the recent turmoil in the gold market, was subtly skewed by its headline—omitting of his most salient point: buy the dips!

Forbes Magazine headline: Jim Rogers Tells India Press Gold Will Decline For ‘Months’.

On the other hand, the original price from the 40-year-old ET is entitled:

Gold price correction will last for several months; buy on dips: Jim Rogers. (emphasis added).

Though the Forbes’ piece does include the entire Rogers quote, which includes the “buy the dips” statement, one has to wonder how hard the magazine has been hit in advertising revenue now that U.S. dollar-denominated paper assets have taken a beating against real money, gold?  As Keynesians have previously indicated, higher gold prices are a barometer of the public’s disaffection of stewards of the purchasing power of the U.S. dollars—and the euro, at this time, too.

But in fairness to Forbes, it hadn’t spread comments from unconfirmed and anonymous sources during the never-ending crisis out of Europe as CNBC’s Steve Liesman and Financial Times of London have.

The crisis was a long time in coming, as Jim Rogers has repeated stated for years, and the Kremlin-like credibility of those reporting the crisis have only served to underscore Rogers’ comments regarding his reasons for owning gold.  Freegold for free people.

Peter Schiff: Message to Gold & Silver Investors

For those losing sleep over the recent three-day plunge in gold prices, signaling an abrupt change in the fundamentals for bullion’s bull market rally, Euro Pacific Capital’s Peter Schiff said, not only have the fundamentals not changed, they’ve grown “stronger than ever!”

In his Sept. 26 Schiff Report, he stated, “In fact, the recent price declines simply adds further support for, I believe, the decision to buy gold and silver.”

Schiff echoes sentiments of $10 billion Sprott Asset Manager’s Eric Sprott, who recently reported on King World News that his firm had been stripped clean of every once of physical silver in his vaults—ranging from small orders for 10-ounce bars to multimillion dollar orders from very wealthy individuals and institution buyers.

Schiff, who’s been recommending bullion for more than a decade, said severe drops in gold and silver are mere par for the course, and that new investors should not get discouraged by these massive drops, but should, instead, buy more metal if they’re in position to do so.  And for those believing the train has left the station without you, Schiff said, it “has turned around and come back, giving you a chance to get on board.”

Harkening back to the Lehman collapse and subsequent financial crisis, which centered on the U.S., gold and silver prices plunged into a death spiral—along with stocks, commodities and overseas currencies.  Gold plunged more than 35% from its recent high, at that time, of more than $1,000 per ounce, to as low as $680.  Silver, on the other hand, got a glimpse of an end-of-the-world scenario when its price fell from more than $20 to $8.50 in days—a nearly 60% decline from the previous high.

But as we know, gold prices went on to reach new highs, nearly trebling from its crash low of 2009 to then trade as high as $1,930 as late as a few weeks ago, while the silver price soared during that same time period to a nearly six-bagger price of $49.85—all within only 26 months.

So, as long as Marc Faber’s most pessimistic of his calls (as well as John Taylor’s call) for the gold price reaching, possibly, $1,000 per ounce, this most recent swan dive drop in the metals is child’s play in comparison.

“There is an old expression in the stock market, that bull markets take the stairs up, but the elevator down,” Schiff continued.  But the precious metals’ decline this time didn’t take the elevator down, “they just fell down the shaft.”

From greed to fear, the bull market has twisted, said Schiff.  Others may tell you, we told you so; we warned you, but Schiff said to expect such comments, pointing out that such talk creates fear and doubt.  “That’s what builds a bull market; it’s built on fear; it climbs that proverbial Wall of Worry.”

So what created the big drop in prices?  Schiff said leveraged speculators were “being forced to sell.”  Stops were triggered and margin calls were raised, creating a virtuous cycle of more and more sellers, triggering more and more stops, and creating panic among the weak holders.  On the other hand, physical buyers don’t have the problems of brokers asking for more money to hold positions, he said.

“I think the catalyst that started this sell off was the announcement by Ben Bernanke that the U.S. economy faced even more significant downside risks than he believed,” Schiff explained. “Well, the reason why we’re buying our gold and silver is precisely because the U.S. economy is much worse than the Fed chairman believes, or would readily admit.”

Schiff suggested that acknowledgment by the Fed of the terrible fundamentals in the U.S. economy means “more government stimulus; it means more money printing, more quantitative easing.”

Schiff believes Bernanke is playing coy with markets—for now, and with an election coming up Helicopter Ben will come to the rescue once again.  “At the end of the day, Bernanke will do the only thing he knows, which is to print more money.”

“That’s why we’re buying gold.”

Marc Faber on the Gold Price

In early morning trading in Europe today, publisher of the Gloom Boom Doom Report Marc Faber gave CNBC his latest take on a plunging gold market.

“We overshot on the upside when we went over $1,900,” he told CNBC’s Steve Sedgwick.

“We’re now close to bottoming at $1,500, and if that doesn’t hold it could bottom to between $1,100-1,200.”

So far, spot on, as Faber’s call for gold to fall to $1,500-1,600 at a conference in Mumbai a little more than a week ago has materialized.  Faber said he holds 25% of his portfolio in gold.

Spot gold traded as low as $1,536 in Asia, Monday.  With less than two hours before the open in NY, gold is $100 off its low to trade at $1,636.  Silver, too, is up more than 10% off its low of $26.05.

Faber’s next level of support, between $1,100 and 1,200, coincides with gold’s 60-month moving average—and level that could be tested if the global financial crisis turns profoundly more ugly than the already terrible expectations implied by the colossal move into U.S. dollars and out of emerging market currencies during the past two weeks.

The Brazil real and Mexican peso, for example, have gotten clobbered since mid-September, registering staggering 22 and 16% total declines against the dollar in the past 5-6 weeks.

Though not nearly as dramatic, Asian currencies, too, have been hit with 6% to 10% declines against the dollar during the same time period.

Currencies guru John Taylor of FX Concepts nailed that prediction in July, when he told Bloomberg that the dollar was primed for a very strong rally against emerging markets currencies in the fall season.

Incidentally, Taylor also predicted in July that gold would reach $1,900 per ounce.  Then, he said, the yellow metal would crash to Faber’s most recent pessimistic call of approximately $1,000 mark before gold resumes its bull market ways.

However, for now, Faber suggests the bounce in gold may begin as early as Wednesday.  And, at that time, he may turn into a buyer again.

“Both equity markets and gold markets have become very oversold,” he said, “and I think a rebound is occurring.”

Unlike many analysts, who point to Greece as the catalyst for the sell off in every asset except U.S. Treasuries, Faber thinks heightened fears of a meaningful slowdown in China could be behind the global mass exodus out of assets associated with the Asia growth story.

China, he believes, has “overcapacities” in some areas of its economy, which were brought about, partially, by Beijing’s rapidly increased capital spending programs following the collapse of Lehman Brother on Sept. 15, 2008.

“Asian markets are weak, Asian currencies are weak and economically sensitive stocks are weak because there’s a more meaningful slowdown in China,” he said.

“You have a capital goods level where capital spending increases dramatically and companies keep spending to a high level, but because of the acceleration, it can lead to recession simply by the economy growing at a steady rate, and I think we are at this point in China.”

Though, Faber didn’t say so, specifically, during the CNBC interview, he may be looking to the industrial metals price action for clues to where gold, in the short term, would go from here.

Silver traders: Stop Cryin’ and Start Buyin’!

As another financial crisis comes to a head, another silver crash ensues.  Oh, the tears of sorrow!

Background:

Though there still exists economists, portfolio strategists and corporate CEOs who still don’t see or admit to seeing a double-dip coming to America [did you watch CNBC yesterday?], everyone’s favorite sleaze, George Soros, on September 21, told—that very same 24-hour propaganda doubly-sleaze outfit—CNBC, that the U.S. is in “a double dip already.”

Sometimes, Soros, too, tells the truth, as long as it aligns well with his fascist global-community agenda.

But if you’ve been listening to John Williams of shadowstats.com, you’d already know the fake recovery was just that, fake, and that the worse days for the U.S. are yet to come.

“As activity begins to turn down again, you are going to see things get even worse, and the continued economic trouble is going to be very long and very deep,” Williams told KWN on July 11.  “That puts the Fed in a circumstance where you virtually are assured of a quantitative easing three. That in turn will weaken the U.S. dollar further.”

But as we all know, Bernanke, instead of giving the market what it perceived it needed on Wednesday, crushed the dollar slide, instead.  No QE3!  Not today, anyway.  But Williams will most assuredly be proved correct after the fight from Republicans on Capitol Hill turns Captain Queeg ‘yellow stain’ as it did during Speaker Newt Gingrich’s 1995 noble fight to turn the money spigots off by shutting down the Treasury-Fed cabal.

At some point, the mob will beg for QE3!  Ask Gingrich, who went from Time’s Man of the Year to the bum who authored the ‘Contract ON America” —which leads us to today’s Fed puzzle.

“The markets apparently were hoping for a large, magic pill for an anemic economy that feels like it’s catching the flu,” Barton Biggs told Bloomberg News.  He’s now been quoted by the Washington Post as saying we may be “on the eve” of a financial crisis.

And Dr. Feelgood at the Fed can’t wait for his patient to beg for that shot, thereby garnering support in Washington and within his own ranks to play catch up in the race to minimize the impact of a crushing debt load plaguing the U.S. economy.

John Williams (as well as BU’s Laurence Kotlikoff) has worked the numbers and concludes that the federal budget is “beyond containment.”  The U.S., too, is standing inline for a Greek moment—a Minsky Moment—but that moment is temporarily frozen in time.

What Bernanke showed us Wednesday is that he is indeed very concerned about commodities prices forking the wrong way during that critical phase of a debt-based monetary system gone hopelessly broken, a phase that von Mises referred to as the ‘Crack-up Boom.’

Bernanke doesn’t want hyperinflation; he’s not stupid.  But he does want some inflation in the money supply (however it’s defined)!  “The Bernanke” just doesn’t want his helicopter money printing of U.S. dollars to become expected by market participants.  Admittedly, in hindsight, he had no choice but to punish the markets for even suggesting, at this time, for that whopper monetary shot.  Bernanke wants everyone on the same page begging for QE3.

The Bernank refers to inflation expectation incessantly in his testimonies, speeches and writings.  Believe it or not, The Bernank (and Greenspan, and every Fed chairman since Marriner Eccles (from whom we get the name of the politburo headquarters in Washington) has heard of von Mises and has read his brilliant works.

Austrian economics professor Ludwig von Mises (September 29, 1881 – October 10, 1973) stated that the Crack-up Boom we’re immersed in today can lead to two outcomes: deflation or hyperinflation.  Von Mises wrote:

“If once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse).”

Money supply dropped post 1929 crash, and the student of the Great Depression vowed to Milton Friedman that it won’t happen again.  Take Bernanke at his word.  That’s why he was chosen to head the Fed.

But there’s a catch to the money pumping, many, in fact, but most notably the expectations for the direction of consumer prices.  Are inflation expectations “firmly anchored”? as Bernanke likes to state.

And the best way to crush exceptions is to coordinate an attack, initially, on the Swiss franc and commodities complex, then the precious metals, then, everything connected to the inflation trade.  Bravo.  Well done.

Bless CNBC’s Bob Pisani, too, for his repetitive comments regarding traders “gaming the Fed” the week prior to the FOMC meeting.  He was right!  And Bernanke certainly was on board with that observation along with every hedge fund manager from Tokyo to Greenwich, Connecticut.  Even Greenwich’s has-been Barton Biggs ended up looking like a chump for making a call for a market bottom in August.

Well, it’s Revenge of the Nerds.  Isn’t it?  Cool hedge fund managers getting clocked by a bearded policy wonk.

So what is a fiat-money slave to do?: 

Well, has anything materially changed in the outlook for currencies debasement in the coming zillion years?  Read a little from BU’s Laurence Kotlikoff or subscribe to John Williams Shadowstats.com for an instant primer on the disaster that has been covered up by everyone who’s been benefiting from the cover up.

So, stop cryin’ and start loading up the basket of silver goodies left behind by those unfortunate, scared, stupid, impetuous, lazy, distracted or drugged out to know the tsunami will eventually move from the entire world back to U.S. shores.

And, by the way, if you happen to live in Brazil and were clever enough to hold gold (silver prices will be a commin’, too), gold hit a record high in Reals yesterday.  What?  No coverage on CNBC?  So, the inflation generated by, and led by, the gang of four at the Fed, ECB, BOE and BOJ has reached the ‘invincible’ Brazil.  A crushing 22% collapse in the Real since July 26 spells potential civil unrest from those lagging behind its approximate $10,000 PPP national average.

Watch for a potential Brazilian Real-like crash in the Malaysian Ringgit, Thai Baht, Philippines Peso, Indonesian Rupiah and other currency escape routes out of the U.S. Dollar.  The tide has gone out fully now, and the Bernanke knows it will eventually come back to the shores of the U.S.

MP Nigel Farage said it well; he told King World New’s Eric King, yesterday, “Yeah, we’ve had a setback, a little bit of a settling of the gold price after what was a meteoric rise.  I think the worst in the financial system is yet to come, a possible cataclysm and if that happens the gold price could go (higher) to a number that we simply cannot, at this moment, even imagine.  Gold is in an uptrend and professional traders should be buying the dips.”

Naturally, it’s dittos for buying silver.

Fed Shocks; Marc Faber could be Right on Gold Price

Expectations for a David Rosenberg surprise scenario playing out at the conclusion of the FOMC meeting shattered into a heap of broken crystal balls, yesterday.  Every asset class not nailed down, save long-term Treasuries, were piled high in the demolition, too.

Not only did the Fed tell the markets more bags of tokens in the Max Keiser ‘Casino Gulag’ economy won’t be handed out after all, the 12-member cabal of interest-rate-price-fixers handicapped the U.S. economy to a downgrade of a less than show—and by the pancaking nature on the yield curve envisioned by the Fed through ‘Operation Twist,’ financials are looking worse than ever today, too.  Will CNBC have Dick Bove back on to defend BofA again?  He’s got a lotta splainin’ to do.

And, as if in a coordinated attack to assure another September event, Warren Buffett’s Moody’s downgraded Warren Buffett’s BofA (NYSE: BAC) and Wells Fargo (NYSE: WFC).  Surely, someone on zerohedge.com will take on the task of explaining that one to the fans.

Moving on to gold.

Those expecting a shock and awe from Bernanke and the Feds, well, certainly got it yesterday, which brings up Marc Faber’s loose call for the gold price to retreat in the coming weeks.  As improbably as it may have appeared on Tuesday, Faber could turn out to be right this time on the short-term direction for the precious metal.

If you’ve been keeping track of the divergent calls for the future gold price for the months of September and October between Goldmoney’s James Turk and Gloom Boom Doom Report’s Marc Faber, Faber had been looking for a pullback in the yellow metal to the $1,500-$1,600 range (approximately the 12-month moving average) before considering making a buy recommendation.  On the other hand, Turk sees an assault on the $2,000 mark by the end of October amid the crisis in Europe signaling an imminent major event of announcement out of the Troika about Greece—or worse, from the bond vigilantes in the Italian, Spanish and Belgium markets.

Though Halloween is still far off, in overnight trading in Europe, gold and silver have cratered to $1,736 and $37.29, respectively—as of 13:23 London time.  So it appears that out of the gates, Faber has taken the lead here.  But given the explosive moves these metals can muster, at anytime, Turk could still ultimately win again on his contrarian call in the face the headwinds of October’s bad seasonals to match gold’s ‘extremely overbought’ technicals.

But for those ready to throw in the towel for Turk, he, too, has shocked the fans with his seemingly call for an implausible huge rally in gold during the seasonally low summer months.  He turned out to be on the money.

Following the demolition work ordered through the Eccles Building in Washington, yesterday, Turk refused to back off on his prediction for gold $2,000, and told King World News, “While we may move sideways [ in the gold price] for a few more days until everybody reads the writing on the wall, I think we should be preparing for much higher prices. So I am sticking to my $2,000 target before the end of October.”

Silver trades “astounding $2.48 premium” to COMEX

Shanghai traders suddenly have become rabid buyers of silver, said an anonymous King World New (KWN) trader out of London, taking the price in Shanghai to a mind-blowing 6% premium to the COMEX, yesterday.

“China is trading gold at a $17 premium today vs COMEX futures,” Anonymous told KWN’s Eric King.  “Silver is trading at a premium of $2.48 vs futures price (COMEX).”

What does that ultimately mean to silver bugs?

The game of contracting to buy physical silver in Shanghai after New York’s routine price pounding with naked shorts has trapped the manipulators into systematically booking bigger and bigger losses at JP Morgan.  Ahhh, the ole’ Chinese Water Torture technique.

Either the situation in the silver market is the eventual result of another failed attempt to fight the invisible forces of the hand, or it’s a convenient method for Beijing to acquire this critical metal for its infrastructure plans as well as to provide its people with financial protection above and beyond Beijing’s massive gold accumulation activities.

In any event, this Yellow Brick Road to force majeure in the silver market could be the cumulative result of decades of Karma payback and Sun Tzu tactics rolled up into one neat one-world multi-cultural package.  We wonder if New York Times’ Thomas Friedman had all of this in mind when he wrote his version of Mao Tse-Tung’s The Little Red Book, entitled, The World is Flat.

Back to Anonymous: “If there is that strong of a bid for gold out of the Eastern hemisphere, what that tells me is that all of the heavily leveraged paper manipulation in the West will not have much more downside impact,” said Anonymous.  “All the manipulators are doing at this point is compressing a spring, but at some point this market is eventually going to gap up incredibly hard against them.”

And that “some point” is nearing, said Anonymous, and will usher in “a religious experience” for the cartel and record prices in both gold and silver as these  market goes into a Jim Sinclarian liftoff.

But, as many in the hard-money camp icons have always warned through the years, patience is the key to scoring big in the silver (and gold) trade.  The great stock trader Jesse Livermore (1877-1940) — and incidentally, a once partner of Jim Sinclair’s father, Bert Seligman—once said, “It never was my thinking that made the big money for me. It always was my sitting. Got that?  My sitting tight!”

And even the Department of Homeland Security has graced silver traders with its wisdom for patience in the fight against the evil forces of darkness.

“We ask for cooperation, patience and a commitment to vigilance in the face of a determined enemy.”

—Janet Napolitano

Smart lady.

Here’s how the Fed could Shock the Gold Price Tomorrow

Sentiment between holding paper assets and hard assets will be tested shortly, as the FOMC deliberates on the multitude of troubling data from around the globe.

As of 6:37 a.m. EST, September 20, the Dow:Gold ratio stands at 6.37, just below its overhead resistance of 6.50.

For those preferring silver as a potentially much more exciting vehicle for fleeing paper assets, the Gold:Silver ratio trades at 45.26, or just north of its resistance of 45.

As the FOMC begins hashing out its next policy moves, beginning today, it appears traders are mixed on the prospects of a Fed surprise beyond ‘Operation Twist’ (Fed sales of short-term Treasury debt and simultaneous purchase of longer-term maturities) expected as a result of the scheduled two-day meeting.

So if the next big moves in gold and silver (equities and bonds, too) could well be predicated on the Bernanke Fed on Wednesday, what can we expect?  One interesting take on the Fed’s next move comes from David Rosenberg, chief economist at Gluskin Sheff.  He speculates that the Fed may be out to surprise the markets big time on Wednesday in its effort to juice equities markets as its only direct policy move to ignite an already dangerously fragile U.S. economy.

In a note, Rosenberg postulates:

“The consensus view that the Fed is going to stop at ‘Operation Twist’ may be in for a surprise. It may end up doing much, much more.  Look, we are talking about the same man who, on October 2, 2003, delivered a speech titled Monetary Policy and the Stock Market: Some Empirical Results. I kid you not. This is someone who clearly sees the stock market as a transmission mechanism from Fed policy to the rest of the economy. In other words, if Bernanke wants to juice the stock market, then he must do something to surprise the market.”

Since the market is already abuzz with expectations for ‘Operation Twist’, another money-printing scheme above and beyond will be announced, according to Rosenberg, in the Fed’s desperate effort to put some animal spirits back into, what Max Kieser refers to as, the ‘Casino Gulag Economy.

Rosenberg continued:

“’Operation Twist’ is already baked in, which means he has to do that and a lot more to generate the positive surprise he clearly desires (this is exactly what he did on August 9th with the mid-2013 on- hold commitment). It seems that Bernanke, if he wants the market to rally, is going to have to come out with a surprise next Wednesday.”

But here’s the danger for traders betting on the Bernanke put, he said, and clearly will be on the mind of Bernanke during the two-day central-planning powwow.  What if Bernanke doesn’t come through with the votes for the next step on the road to Weimar’s Hell Hole?  Rosenberg stated, “If he doesn’t, then expect a big sell-off.”

A sell-off in what, you may ask?  Well everything benefiting from the inflation trade, according to Rosenberg, including precious metals.  But if the Fed insists upon keeping the casino doors wide open, the Dow:Gold and the Gold:Silver ratio will most likely drop like a stone once again.

Here we go again! Turk vs. Faber on the Outlook for Gold

Two heavy weights of the hard-money camp, James Turk and Marc Faber, once again disagree on the short-term outlook for the gold price.

For those new to the competition in the Fight-to-be-Right, Goldmoney’s James Turk of Team Sinclair-Turk won the first bout against Faber in its predictions for the gold price during the summer months of July and August.

Back in June, Team Sinclair-Turk told its respective readers to expect an uncharacteristic boom in the gold price during the seasonally slowest time period of the year, July and August, while the Gloom Boom Doom Report’s Faber said he expected the price to follow the 30-year historical bias to the downside in the metal.

As we now know, Sinclair-Turk won hands down, as the gold price soared nearly 25% in the face of expected marginal declines—a truly bold call by Sinclair and Turk, who both stood out from the pen of gold bulls reticent of taking one side or the other.

So here we go again.  On September 12, Goldmoney’s Turk told KWN’s Eric King that gold’s short-term outlook is for still higher prices—technically overbought conditioned be damned—targeting $2,000 as the next stop for gold by the end of October—which, once again, defies historical data that suggest October is the month when gold typically sells off pretty meaningfully from September’s typical strong rally post Labor Day weekend.

“I was expecting closer to 50% [rally from July 1 $1,480 low] by the end of September; and even though we are not at the end of the month and may not reach that 50%, there is a lot more left in this move,” Turk told KWN.  “Gold is headed over $2,000 and if it doesn’t happen this month, it will probably happen in October.”

On the other side of the ring, gold bulls’ favorite pony-tailed Swiss eccentric money manger (who’s lived in Chiang Mai Thailand for the past 20+ years), Faber, of the Gloom Boom Doom Report, told an audience in Mumbai last week he believes the gold price is “extremely overbought” today and wouldn’t be surprised if the yellow metal drops to the $1,500 to $1,600 before resuming its secular bull market rally.

As followers of Faber already know, he’ll “never sell” his gold, but doesn’t recommend adding to a position above the $1,800 level.  Though Faber doesn’t make an outright call for the metal in the short term, Faber apparently doesn’t like the looks of the gold chart in the face of another seasonally weak period coming up for the month of October and believes market volatility could prompt some selling in the metal as a means of raise cash to settle hedge fund redemptions.

“I am not selling any gold but traders should realize the gold price is extremely overbought,” India-based Business Standard reported Faber saying at a Mumbai conference, “and that it could easily drop toward the 200-day moving average – that is, between $1,500 and $1,600 (not a prediction).”

So there you have it, two informed and studied men take diametrically opposed positions on the short-term outlook for the gold price.  Once again, Turk has thrown away the seasonal charts and has come out with another scary call for a $2,000 gold price “in 45 days,” as we moving into the most dangerous time of the year for the stock market—the seasonally lowest period for money inflows into stocks.

Will hedge funds need to raise cash (from their profitable gold positions) if the Fed disappoints at the close of its FOMC meeting on Wednesday?  What if the German parliament rejects funding of the EFSF after its scheduled vote on September 29?  What if Greece doesn’t get its second tranche from the IMF?  What if Berlusconi opens his mouth again?