Gold Price entering Phase 3 of Bull Market: Jim Sinclair

$1,764.  That’s the demarcation price for gold’s move into the next phase of the bull market, the third and most exciting phase, characterized by widespread participation by the mainstream investor, according to Jim Sinclair.

As one of the world’s foremost “scholars” on the subject of gold and money, Sinclair believes the long-awaited awakening of the retail investor to the dollar endgame lies just ahead.

Phase 2 of the gold bull, he said, began at $524.90, and has now ended.

“$1764 has the same significance as $524.90 because it represents phase 3, the point when a runaway price market for gold would gain exponential properties,” stated Sinclair, on his Web site, JSMineset.com.

Anecdotal evidence of increased traffic at bullion dealers in the U.S. have been streaming in, as investors there already see the handwriting on the wall for the dollar, and want to front-run a replay of 1979.

Certainly, in Europe, the reports of periodic bank runs in Greece, Ireland, Spain and Italy (with the latter two through electronic withdrawals) have been well-reported since 2010, leaving Americans anxious for refuge as the back-end of the eye of the currency storm reaches the shores of the U.S.

So far, the assets of choice at this stage of the global financial crisis have been deep government paper markets, the Swiss franc, yen and gold, with most of the scared money presumably bypassing reasonable (and not so reasonable) facsimiles of money, and moving straight into gold.

“Some of the finest minds in gold anticipate a very short but brutal reaction in price,” added Sinclair. “The dollar market seems to not agree with a gold correction here.”

“Market wise, the Fed has thrown the U.S. dollar into the wind. Under .7400, the dollar denies a reaction in gold at these levels.”

Sinclair’s $1,764 marker for the price of gold is a key point in the bull market, he has repeatedly stated over the years.  That is the price where the most dramatic devaluation of the dollar begins, with a target north of $10,000 per ounce as a projected peak price for the metal, following the final months of the predictable mania period of phase 3—a phase much similar to the 100% move in the Nasdaq during the last six months of the tech bubble of 1999.  But, first, the fight for entry into phase 3 rages on before the real fun begins for holders of gold, according to Sinclair.

“Because $1,764 is such a significant number, you can expect one of the more serious price battles before the price departs to Alf Fields’ and Armstrong’s predictions,” he stated, referring to five-digit projections for the gold price from fellow hard-money advocates, Alf Fields and Martin Armstrong.

With price targets above $10,000, $1,764 gold is a screaming buy, according to the JSMineset think tank.

“To sum up the situation, you haven’t seen anything yet,” exclaimed Sinclair.

3 Gold Stocks to Watch

Goldcorp Inc. (NYSE: GG)

 

SPDR Gold Trust (NYSE: GLD)

Yamana Gold Inc. (NYSE: AUY)

 

 

 

Economist John Williams: Hyperinflation by 2014

Ridiculing Europe’s handling of the financial crisis has become a popular go-to talking point for the dollar bulls.  Yes, there are still some diehard old timers on Wall Street (Art Cashin, not among them) who cannot image their Wall Street careers without the benefit of a credit bubble gravy train.  Those same tired cheerleaders also tell us that a rebound in the U.S. economy is inevitable “because we always bounced back before” in the hopes of sucking the public into the markets one more time in order to make those bonuses.

The U.S. may bounce back in nominal terms, priced in dollars, but not in real terms, argues economist John Williams of www.shadowstats.com.  Williams told listeners of Financial Sense News this weekend he believes the March 2009 collapse is merely a precursor of even more grave consequences for an already battered dollar following the $5+ trillion of stimulus the Fed has injected into the financial system since the start of QEI during the spring of 2009.

“Hyperinflation in the United States will be particularly painful,” said Williams, noting that the U.S. has no backup currency to the dollar in the event of a sudden panic out of the dollar, which he believes will be not later than 2014.  At least in Zimbabwe, he said, commerce continued via a black market settled in U.S. dollars.  But in the U.S., “we don’t have a backup system here,” he said.

Williams acknowledges the hesitancy among central bankers to trigger a run on the U.S. dollar until they’ve diversified enough dollars into other currencies (such as the euro, some of the hard currencies, and gold) to weather the coming collapse.  That is especially true in the case of the Bank of China, which has on numerous occasion complained about U.S. monetary policy and the effects on food and energy prices in the People’s Republic of China.

Moreover, China’s state-sponsored rating agency has already stated that the dollar is systematically being devalued, and has lowered its rating of U.S. Treasury debt.  The Chinese want out of the dollar.

“They [the Chinese] want to get out of the dollar as quickly as they can,” said Williams.  “No one wants to create a panic.  Everyone wants to get out as whole as possible.”

Williams expects the inevitable fate of the dollar will shock the world. It’s going to zero—in real terms, in purchasing power.

“Gold is the primary hedge against what’s happening here and what going to happen to the purchasing power of the U.S. dollar, which is eventually going to decline to zero,” he warned.

As far as the timing of a dollar collapse, Williams told FSN’s Jim Puplava it could happen at any time.  There are numerous possibilities or surprises lurking that could trigger a panic, precipitated by politicians or a Black Swan event.  But the outside of his timetable for a dollar collapse is 2014; but he gives a better than 50 percent chance of the event happening sooner.

3 Gold Stocks to Watch

Yamana Gold Inc. (NYSE: AUY)

Goldcorp Inc. (NYSE: GG)

Barrick Gold Corp. (NYSE: ABX)

Jim Rogers: Silver is going to go much, much higher

Speaking with CNBC’s Geoff Cutmore on Squawk Box in London on Monday, Jim Rogers said the silver price “is going to go much, much higher—much higher, over the next decade.”

The 68-year-old chairman of Rogers Holdings is betting big that central bankers across the globe will continue to debase currencies.  Moreover, global industrial and commercial demand for silver will remain robust throughout the remainder of this decade as the purchasing power among the growing middle class in Asia increases.

When asked for a six-month prediction, the cagey Rogers, as usual, quipped, “Over the next six months, I don’t have a clue.  You should watch CNBC.

“But I own silver; and if silver goes down, I hope I’m smart enough to buy more silver.  Silver is going to go much, much higher—much higher, over the next decade.”

So who’s the big buyer of silver, driving its price to nearly an all-time record?

This time, Roger’s didn’t mention his favorite go-to response by name: China.  But, instead, he pointed to individual investors, collectively, as the cause, as the catalyst for strong demand for gold’s kissing cousin (in addition to gold) in response to central bankers inflating global money supplies.

“Well silver actually has more industrial and commercial uses than gold does, and they’re finding more all the time for silver,” said Rogers.  “So that’s one buyer; but also more and more people are worried about the debasement of currencies.  Currencies all over the world, Geoff, are being debased by politicians.  There are no sound currencies anymore.  And I’m not the only person figuring that out.”

When asked if he’s worried about news reports of gold vending machines popping up around the world, Rogers didn’t miss a beat.

“Gold will end in a huge bubble someday—someday; but that years away right now,” he said, noting little signs of telltale characteristics of a gold bubble entering the mainstream investor community. “Most people still have not owned gold; if you go to the U.S., there are shops everywhere that says we buy gold.  And the public is lining up to sell their bracelets and necklaces and their old gold.”

When any investment moves into bubble territory, the public will tell us by their actions at the retail counters, as was the case during the gold fever of late-1979 and early-1980.  Back then, bullion dealers across the U.S. were swamped with customers waiting in line for the opening of business, much like what takes place today as soon as new Apple product becomes available.

“Someday you’re going to see people queued up outside those shops buying gold,” Rogers predicted.  “Then you start worrying.  But most people still don’t own gold and never have.”

And how far will the gold price go?  Rogers wouldn’t bite.

“Oh gosh, you gotta watch CNBC.  You can’t ask me a question like that.  Two-thousand, 5,000, 10,000.  It depends what happens with the currencies.”

Silver and gold stock highlight: Yamana Gold (NYSE: AUY), Silver Wheaton Corp. (NYSE: SLW)

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)

Is Yamana Gold (AUY) a buy?

Shares of Yamana Gold Inc. (NYSE: AUY) traded above $12 per share during the first half-hour of trading Wednesday after nearing its 200-day moving average support by a quarter on Tuesday.

Traders following intermediate gold producers will be watching AUY for entry points while spot gold holds steady above $1,500 on the COMEX.

“Traders wanting to establish a position on Yamana Gold will be looking at the price action for evidence of buying near the 200-day moving average,” stated Traders Huddle, “and opening a position as close as possible to this important level.”

In addition to an expected successful test of the 200-day moving average, Yamana board of directors had further enticed traders to take a look at AUY’s value following Tuesday’s company announcement that it had approved a 50 percent increase in the stock’s dividend to $0.18 from $0.12.  The dividend increase will be effective in the third quarter of 2011, according to the company.

“If we were to compare the level of the dividend from the beginning of 2010 to current levels, we would show over a four-fold increase from $0.01 to $0.045 per share per quarter,” commented Peter Marrone, chairman and CEO.  “This is a reflection of our earnings generation capability, driven partially by our industry low cost structure and our robust and growing cash flows and cash balances.”

Yamana is a Canadian-based gold producer with gold production, gold development stage properties, exploration properties, and land positions in Brazil, Argentina, Chile, Mexico and Colombia.

With gold’s rebound above $1,500 on Monday, a further rally past the yellow metal’s all-time high of $1,575.10 achieved on May 2 could spark another rally in AUY, possibly testing $12.92—a price target, according to Traders Hurdle, which has been past resistance for the stock.

The AUY chart suggests that a breakout above $12.92 could send the stock to test $13.40, if gold’s wild bull wakes up again after last week’s sell off.

Fundamentally, AUY’s gross, operating and net margins have averaged 56.9, 19.3 and 14.4 percent, respectively, according to analysis conducted by The Motley Fool.

And the trend in all margin metrics is up, too.  The Motley Fool reported that AUY’s trailing 12-month (TTM) gross margin is 64.6%, up 770 basis points from the five-year average.  TTM operating margin is 37.1%, up a wide 1,780 basis points, and net margin is 25.8%, up another impressive 1,140 basis points from the five-year average.

 

 

 

 

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Gold stocks breakout!

—Short covering rally could be imminent, John Hathaway

Yesterday’s continuation of Tuesday’s record high close in the Gold BUGS Index (HUI) has gold traders speculating whether the big rally in gold shares is finally near.

The Gold BUGS Index, which stands for Basket of Un-hedged Gold Stocks, closed at a record high of 597.14 on Wednesday from its previous record high of 576.48 set on Dec. 7, 2010.

As gold traded within a relatively tight range of $1,306.00 and $1,444.40 set on Sept. 29, 2010, and March 7, 2011, respectively, a significant number of gold stock traders remained convinced that gold’s rally would stall for a while, then correct.

Fears of another trigger for a “risk-off” event from growing uncertainties in the Middle East, the protracted European debt crisis, unresolved U.S. budget woes, then, black swan events in Japan, oil and commodities prices, or the steady accumulation of all those episodes would finally crack the equities market’s winning streak.

“Gold shares have been hesitant, acting as if gold didn’t belong at $1,440; and now that gold seems to want to stay there I think people have to revise their expectations for the gold stocks,” John Hathaway, director and general partner of Tocqueville Asset Management, told King World News on Tuesday.

Hathaway’s view of the gold stocks sector is consistent with larger marquis name hedge fund managers John Paulson, George Soros and David Einhorn, who presently hold significant amounts of gold shares among their top picks, according to SEC documents.

But many lesser-known hedge fund managers hold insignificant portions of gold shares, if at all.  In fact, hedge fund managers as a group have taken outright short positions on the gold miners while simultaneously taking long positions in the world’s preeminent monetary metal—a net bet that gold shares will underperform the metal on the way up, or down.  That could change dramatically, according to Hathaway.

“I just see three, four, five percent moves in some of the big cap stocks, not the little ones,” he said, “and that’s a sign of money coming in either to cover shorts or to initiate positions on a breakout.”

Since the start of the gold rally in 1999, gold stocks had outperformed the metal (HUI/Gold ratio) until Jan. 2004.  Since the start of 2004, however, the ratio dropped until May of 2005, at which time the ratio began to rise again.  But as the HUI/Gold ratio neared the Jan. 2004 high in Feb. 2006, the ratio again declined and has not come close to an assault on the Jan. 2004 high since.

Today, the ratio is 0.409 (above the 50-day and 200-day moving averages), down 35% from the Jan. 2004 high of approximately 0.625.

However, the gold stocks may soon have their day in the sun as the HUI achieves a new high, and will soon burn those hedge funds on the wrong side of the gold stocks trade, said Hathaway.

“I keep breadth on my screen and I think it was a 9-to-1 upside day which is very, very good.  You know there was nothing wishy washy about this at all so yeah, I think these hedge funds are going to get roasted.”

3 Gold Stocks on the Move

Goldcorp Inc. (NYSE: GG)

Barrick Gold Corp. (NYSE: ABX)

Yamana Gold Inc. (NYSE: AUY)