Gold: Brace for Bizarre QE3 Hail Mary and Hyperinflation

By Dominique de Kevelioc de Bailleul

If a 1.53 percent yield on 10-year U.S. Treasuries isn’t enough to spook investors of a global economy on the verge of implosion, Michael Pento of Pento Portfolio Strategies expects the Fed to aggressively respond by ceasing to pay interest on excess reserves held at the U.S. central bank—and removing all reserve requirements on purchases of sovereign debt.  Fed Chairman Bernanke has his sites on negative rates.  The gold bugs will surely like that.

The one-two punch of a bazooka QE3 of that size, the potential onslaught of capital fleeing into hard assets as a result of a no-reserve global banking system, could be more than the Fed bargained for, and clearly indicates how desperate central bankers have become to prevent the largest Ponzi scheme of history from collapsing, according to Pento.

“So let me put it together for your listeners,” Pento told King World News (KWN), Sunday.  “We have $1.42 trillion of excess reserves.  We are now going to be told that there will be no capital reserve requirements on owning sovereign debt. You will have commercial banks flooding the market with the purchase of sovereign debt.  Not just U.S. debt, Portuguese debt, Spanish debt, Greek debt, all of that debt will have zero capital requirements.”

In other words, the Fed intends to lower the rate of the riskiest of all sovereign debt while punishing cash hoarders of the least risky sovereign debt, because, surely, rates on the shorter end of the Treasury curve will turn negative and it’s hoped will move the 10-year Treasury that much closer to zero, as well.  Ditto for sovereign and commercial debt across the entire spectrum of the global credit markets.

That’s the plan, according to Pento, but the market reaction to such a desperate, high-risk policy move is expected to soar commodities and the precious metals, as the last step beyond a no-reserve requirement banking system is ‘helicopter money’ directly into the hands of consumers.

“Let me be clear on this, I’m not saying it could increase M2 money supply to $15 trillion, this could increase it by $15 trillion,” Pento continued.  “So we’re talking perhaps about $24 trillion.   It has the potential to increase to rapidly increase the global money supply, and it would be a tremendous boost to commodities, oil and precious metals.”

Pento’s expectations for such a move is consistent with earlier policy suggestions made by the Treasury Borrowing Advisory Committee in January 2012 (reported by zerohedge, Feb. 1, 2012), which stated in its report to the Secretary of the U.S. Treasury, “There was a lengthy discussion regarding the bid-to-cover ratios at recent Treasury bill auctions. It was broadly agreed that flooring interest rates at zero, or capping issuance proceeds at par, was prohibiting proper market function.

“The Committee unanimously recommended that the Treasury Department allow for negative yield auction results as soon as logistically practical.”

And it would make no sense for the Fed to impede the plan by requiring reserves on top of the U.S. Treasury actually charging bill and note holders of U.S. debt for lending the U.S. government money.  In this perverse environment of targeting negative interest rates, it’s become clear that the Fed has given up on the U.S. economy, and more broadly, hopes of the global economy pulling the U.S. out of its nosedive; Bernanke and Company are merely playing out a losing hand—a hand that ShadowStats economist John Williams has said will lead to hyperinflation by the close of 2014.  Lowering borrowing costs to offset lower tax receipts to service $15.8 trillion of U.S. debt in addition to the fiscal 2013 budget is the only option left open to the Fed.

“Outside timing on the hyperinflation remains 2014, but events of the last year have accelerated the movement towards this ultimate dollar catastrophe,” Williams said in an interview with KWN, Jan. 26, 2012.  “Following Mr. Bernanke‘s extraordinary efforts to debase the U.S. currency in late-2010, the dollar had lost its traditional safe-haven status by early-2011.  Whatever global confidence had remained behind the U.S dollar was lost in July and August [2011].”

Pento agrees, understating the Fed’s goal of negative interest rates—on top of zero reserve requirements—as “not a good idea.”

Pento said in his July 8 interview with KWN, “What he [Bernanke] needs to do is let the free market work, and I can tell you that unleashing $1.5 trillion into the American economy, and having that money roll-over and multiply (to $15 trillion), through the money-multiplier-effect, is not a very good idea.”

Indeed, it is not a good idea, but there is no other idea left for the Fed to execute.

Spot gold: $1,569 per Troy ounce.

Buy Gold & Silver for the Long Haul, says Jim Rogers

As global investors fret about the March 20 deadline for Greece to demonstrate whether it will sink or swim, Jim Rogers of Rogers Holdings advises to hold gold, silver and commodities for the long, rough haul anticipated for the remainder of the decade. Sign-up for my 100% FREE Alert

In other words, currencies are ultimately bound for a trip to the graveyard, according to Rogers.  Greece is only the beginning to the contagion in Europe and the U.S.

“Probably none of us are going to own any paper money at all ultimately, but that’s later in this decade, because paper money is becoming very suspect everywhere in the world,” Rogers, told CNBC from Singapore. “I don’t own any U.S. equities,” adding “I don’t own the pound sterling, although I do love the UK a great deal.”

Rogers, who made his fortune trading commodities during his partnership with George Soros in the 1970s, sees a repeat of central bank monetary profligacy,  which, back then, took gold to $800 per ounce from $35 within nine years—a 42 percent compound return throughout the nine-year bull market run.

“Everybody’s having a wonderful time running the printing presses,” said Rogers.  “The way to protect yourself at a time like that, historically anyway, has been to own real assets. Those are my longs, and currencies.”

While unprecedented imbalances between debtor nations and creditor nations work their way through Europe and, eventually, the U.S., either debtor nations outright default on their debts or they debase their currencies, with the latter the more traditional method of reducing the relative size of debt to revenue.

But the 69-year-old Rogers has hedged for any outcome regarding the two primary reserve currencies, the U.S. dollar and the euro, through the ownership of the monetary metals, gold and silver.

“But I own the euro, I own the U.S. dollar. I own various currencies hoping to get through all this, but someday, none of us are going to own paper money at all,” adding that he’s “not thinking about selling” his precious metals.  In fact, Rogers likes silver over gold at these prices levels.

Gold and silver currently trade at $1,720 and $33.20 per ounce, respectively.

Echoing Rogers sentiments on the yellow metal comes from billionaire hedge fund manager John Paulson of Paulson & Co, who told investors to grab some gold before consumer price inflation takes another jump higher in coming years.

“By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold,” Paulson stated in a letter to investors obtained by Bloomberg on Friday. Sign-up for my 100% FREE Alerts

Eastman Kodak Silver Scandal?

As we move into the next silver delivery month of February and the controversy surrounding the MF global bankruptcy still swirling in the minds of investors, the world’s largest consumer of silver, Eastman Kodak, files bankruptcy.  Sign-up for my 100% FREE Stock Alerts

The timing of Eastman Kodak’s bankruptcy, the massive amount of silver it consumes each year, as well as the consulting firm hired to sort out the mess will most likely make for another interesting conspiracy theory, indeed.

Eastman Kodak filed for Chapter 11 bankruptcy on Jan. 19.  The 131-year-old company manufactures photography equipment and paper, printers and other products.  According to Bloomberg News, Eastman Kodak consumes approximately 8.5 million ounces, or $300 million worth of silver, each year for its manufactured goods and supplies.

Though 8.5 million ounces of silver doesn’t appear to be a lot of consumption each year, at this time of questionable supplies, it could be quite significant, especially when demand from investors and China for the white metal is rising at an alarming rate, while alleged inventories at the COMEX hover at 35 million ounces of unencumbered silver.

Economist and author of Red Alert: How China’s Growing Prosperity Threatens the American Way of Life, Stephen Leeb, believes Sprott Asset Management’s recent communique to investors (mere days before the EK bankruptcy) that stated the Sprott’s Canada-based silver PSLV fund intends to purchase 10 million ounces of silver, an amount slightly more than Eastman Kodak’s annual 8.5 million ounces, is quite a big deal.

“What people don’t realize about silver is how illiquid silver is, and how little physical silver that is available in the market,” Leeb explained.  “Now you have the Canadian, (Eric) Sprott, who has really been spot on for more than a decade, Sprott has just raised money and needs to take delivery of another 10 million ounces of silver.  My question is, from whom?  That’s the question.

“Who is he going to buy it from?  The Chinese, who need it for solar?  It’s not around.  10 million ounces doesn’t sound like such a big number, but when you have such illiquid markets, it is a big number.  In reality, it’s a very big number, especially when you already have shortages.  People are already hoarding silver.  The Chinese are also hoarding silver.

“When you have a situation like that, you haven’t seen anything yet in the way of a bull market in silver.  There’s no way of saying how high silver is going to go, but this is going to become an exceptionally scarce commodity.”

The Internet is already abuzz at the timing of the EK bankruptcy, and for obvious reasons.  If it weren’t for the mysterious and troubling case surrounding the MF Global scam, the EK bankruptcy would probably have gone away quietly into the night as the latest example of U.S. hegemonic decline.

But, like the handlers of the MF Global bankruptcy, who have demonstrable ties to the ringleader of the silver cartel, JP Morgan, EK’s bankruptcy will be handled by a ‘turn-around’ specialist from FTI Consulting, Vice Chairman Dominic Di Napoli, a man who has been unfortunate enough to have worked for the most sleazy operators of the financial industry, behind the kingpins of JP Morgan and Goldman Sachs.

“The company [EK] . . . named Dominic Di Napoli, a vice chairman at FTI Consulting Inc., as its chief restructuring officer to help steer the company through bankruptcy court,” the Wall Street Journal reported on Thursday.

From its Web site, it appears that FTI Consulting sports a rather long list of well-known financial clients, including JP Morgan, with several consultants listed and assigned to JP Morgan.  But the most interesting consultant at FTI Consulting is Dominic Di Napoli, himself.

From the FTI Consulting Web site:

Before joining FTI Consulting, Mr. Di Napoli led the consulting practices at PricewaterhouseCoopers (“PwC”) and Coopers & Lybrand. While at PwC, he also served as the managing partner within its U.S. Business Recovery Services practice, where he initiated the discussion that led to the subsequent acquisition by FTI Consulting. Emphasis added.

A review of PwC’s involvement in scandal reveals quite a few.  In fact, PwC has been the auditors of the most notorious financial scandals of the past 15 years, with the most recent black eye coming from its involvement with MF Global and the theft of client money by another cartel operative ‘The honorable’ Jon Corzine.

MF global is only the latest of PwC’s trail of ‘negligence’ and ‘bad behavior.’  According to Wiki, PwC was involved in improprieties with the companies AIG, Refco, General Re Corp, Berkshire Hathaway, Tyco, the Sityam fraud, Yukos prosecution scandal, the Global Trust Bank misconduct (leading to a one-year ban by India’s central bank from doing business in India), the Transneft Russia scandal and Britain’s Northern Rock case.

Prior to PwC, Mr. Di Napoli worked diligently for another firm, which apparently couldn’t play it straight either.  That firm is Zolfo Cooper, a company for whom he worked in the 1980s, according to Crain’s NY Business, but this fact was neglected as a mention on Di Napoli’s biography on the FTI consulting Web site.

“The Jersey City native and Montclair State College graduate joined Price Waterhouse’s fledgling corporate recovery division in 1984 after practicing at a bankruptcy boutique firm, Zolfo Cooper & Co,” Crain’s wrote in a ‘puff piece’ regarding the up-and-coming superstar of auditors, Dominic Di Napoli.

Zolfo Cooper, the same Zolfo Cooper whose partner, Neil Cooper, has been indicted in the Carroll Trust case, a case dubbed by Global Forensics Magazine as “bigger than Madoff.”

International News Networks reported:

New sensational disclosures in the Carroll Foundation Charitable Trust huge fraud scandal has revealed that Zolfo Cooper LLP the insolvency and restructuring firm’s principle partner Neil Cooper an accountant is understood to be confronting serious ongoing criminal allegations of conspiracy to defraud and racketeering following new revelations exposed in the American and British media reports on the case. It is understood that the FBI Washington DC field office has obtained explosive further Carroll Trust case files which are thought to contain Coutts Bank Gerald Carroll fraudulent accounts “linked” to dummy fraudulent HSBC International offshore corporations which effectively impulsed this massive offshore tax evasion fraud heist operation which stretches the globe.

So what is the point of all of this and Di Napoli?  Maybe nothing.  But couldn’t someone else have handled the EK bankruptcy case?  Couldn’t Bilderberg Group member Laura Tyson, an EK board member who resigned her post a couple of months before the bankruptcy announcement, have suggested someone else to handle the impending bankruptcy who wouldn’t possibly remind us of a criminal cartel operating in the global financial system?  Sign-up for my 100% FREE Stock Alerts

Iran Could Make Silver Bugs Filthy Rich

If the first year of the Iraq War of 2003 offers up some clues to the potential move in the silver price following an invasion of its neighbor Iran, then grab as much of the white metal as you can and enjoy the ride.  This ride could be for the record books.  Sign-up for my 100% FREE Alerts

On the officially day of the U.S. invasion of Iraq on Mar. 20, 2003, silver traded at the lowly price of approximately $4.35.  On the first anniversary of the invasion, the silver price reached nearly $8.00, for an 83 percent return (see graph, below).

But an attack on Iran could make an 83 percent return seem miniscule.

Backing up for a moment, however, an obviously important question, first, should be: how likely is an imminent attack on Iran?

With reports of American troop movements into Israel, along with Reuters reports of two U.S. aircraft carriers headed to the Persian Gulf and a lot of chatter from Washington command appearing on television as salesmen for an attack, a military strike on Iran is likely, according to Jim Rickards, adviser to government personnel on U.S. national security issues and frequent guest of King World News.

“Eric, this really could not be more serious,” Rickards told Eric King’s KWN.  “The fact that we, meaning the United States, are on a path to a war with Iran is very clear at this point.  It does seem the countdown has begun and it’s coming to a head sooner rather than later.”

And following Iran’s announcement that it will no longer accept U.S. dollars for Iranian oil, the U.S., really, must respond (1).  If not, OPEC gets the green light to dump the dollar and it’s game over for the U.S. without a shot being fired.

Consider, too, recent data from the Fed, which show clearly that foreigners aren’t buying enough Treasuries to even remotely match the increase to the central bank’s balance sheet.  In fact, according to the chart, below, a war with Iran is a most likely stab at coaxing global money back into preventing a waterfall in the dollar after bond vigilantes are done with Europe.

Source: zerohedge.com, Foreigners Sell Record $85 Billion In Treasurys In 6 Consecutive Weeks – Time To Get Concerned?

But here’s why the silver price could triple, or more!

The difference between the Iraq War and a war with Iran is:  Iran isn’t Iraq!  Saddam Hussein’s regime had no friends in the region, and certainly didn’t attract meaningful help from Russia or China before, or during, the conflict.

Hussein was essentially a rogue operator, according to William Clark, author of Petrodollar Warfare: Oil, Iraq, and the Future of the Dollar, which, by the way, offers a good foundation to Jim Rickard’s book, Currency Wars: The Making of the Next Global Crisis.

Because of the well-known and long-standing commitment from Russia and China to defend Iran, a war with Iran could turn into a proxy for WWIII, a notion widely offered in the public domain.

In other words, if Iran is attacked, the move in the silver price could be monstrous—with two and three-bagger returns very likely, with oil and other commodities soaring to unthinkable levels as China utilizes one of its financial weapons in response to military aggression.

The cost of a war with Iran will soar off the charts to an already hopeless U.S. debt level.  In fact, a planned dollar devaluation could be the motive behind an Iranian attack.

According to a policy paper penned by Felix K. Chang and Jonathan Goldman for the U.S. Army and posted on the U.S. Army Web site, titled Meddling in the Markets: Foreign Manipulation, the threat by China, Russia and sympathetic nations against U.S. aggression, a war with Iran will not be a cakewalk by any stretch of the imagination.  Link to document file, here.

According to Chang and Goldman, Iran puts at risk the U.S. dollar in a very meaningful way.

The simultaneous dramatic devaluation of the U.S. dollar and a sharp increase in oil prices would immediately unsettle global equity and bond markets. During such times of uncertainty, institutions and investors normally seek a safe haven where their assets will hold value. For much of the twentieth century, that haven has been the dollar. In this hypothetical, however, the dollar would be at the epicenter of uncertainty, as China unloads its U.S. Treasury securities in favor of gold or euros. Aggravating the situation, institutions and investors of all stripes would magnify the selling pressure as they tried to shed their own devalued U.S. assets—liquidity would rapidly disappear. [emphasis added.]

While many of traditional media may repeat the mantra that precious metals are risky investments, the facts about war and money show otherwise.  At risk here is the dollar.  Sign-up for my 100% FREE Alerts

Footnote:
(1) The Invasion of Iraq: Dollar vs Euro: Re-denominating Iraqi oil in U. S. dollars, instead of the euro

The unprovoked “shock and awe” attack on Iraq was to serve several economic purposes: (1) Safeguard the U.S. economy by re-denominating Iraqi oil in U.S. dollars, instead of the euro, to try to lock the world back into dollar oil trading so the U.S. would remain the dominant world power-militarily and economically. (2) Send a clear message to other oil producers as to what will happen to them if they abandon the dollar matrix. (3) Place the second largest oil reserve under direct U.S. control. (4) Create a subject state where the U.S. can maintain a huge force to dominate the Middle East and its oil. (5) Create a severe setback to the European Union and its euro, the only trading block and currency strong enough to attack U.S. dominance of the world through trade. (6) Free its forces (ultimately) so that it can begin operations against those countries that are trying to disengage themselves from U.S. dollar imperialism-such as Venezuela, where the U.S. has supported the attempted overthrow of a democratic government by a junta more friendly to U. S. business/oil interests.

Jim Rogers, Ron Paul for President

Commodities investor, Jim Rogers, likes Congressman Ron Paul as the next president of the United States.

Though the 69-year-old Singapore resident said he doesn’t formally endorse candidates, Rogers told Australian Financial News Network (AFFN) he likes what he hears from Ron Paul, in as much as Paul at least addresses the issues of restoring fiscal and monetary responsibility in Washington.  Sign-up for my 100% FREE Alerts

“Gary Johnson and Ron Paul seem to understand the problems that are facing America, but I’m not in the business of endorsing political candidates,” said Rogers.

However, Rogers does endorse prudent, yet very painful, remedies to debt levels in the U.S., including real budget cuts, including draconian cuts in military spending, a Ron Paul theme throughout his campaign and throughout the more than two decades as a U.S. Representative from Texas.

The Austrian school of economics advocate, Rogers, also insists the Fed should go, another strong message from Paul, who was heavily influenced by Friedrich Hayek’s book, The Road to Serfdom, while Paul was a medical resident in the 1960s.

“The U.S. Government should abolish the Federal Reserve [System] that’s the first thing they should do.  And they are not going to do that, but they should do is let the interest rates find their normal rate their realistic level,” Rogers told The Street in a Dec. 7 interview.  “Right now, masses of people in America the people who have save and invest the people who have done what we would say as the right thing to do are being destroyed . . .”

And Rogers affinity for Ron Paul is not a recent one; he’s been an advocate for Paul since 2008, as evidenced by his interview with Financial Times of London soon after the election of Barrack Obama.

John Authers of FT started the interview with Rogers, “Now you correctly predicted a year ago that Ron Paul was not going to be elected president, partly because you want him to be.”  Smiling, Rogers interjected, “Right.”  Authers continued, “How worried are you now that we do know who the next president is going to be, are you worried about what you see from president-elect Obama so far do you think that could worsen the situation still more?”

Rogers replied, “Are you worried?  Now, I didn’t vote for McCain.  So I don’t think this is some kind of sour grapes or something.  But Mr. Obama has said his two economic planks are: he’s going to tax capital . . . and he’s going to protect American workers.”

Rogers continued, stressing that he was hopeful that cooler heads in Washington would prevail to stop Obama with his plan from protectionist policies and higher taxes, the precise elixir that torpedoed any chance of recovery during the Great Depression.

Fast forward to today’s AFFN interview, Rogers sounded much more resigned to the fate of a terrible crisis worsening in America.  What Rogers feared in 2008 has progressed into horror, as previous interviews with Rogers suggested that he is concerned that a Fed printing record amounts of money only exacerbates the U.S. economy with the addition of inflation, on top of high unemployment and still higher levels of unserviceable debt.

“We’ve lost one decade In the West . . . as you know, stock markets in America are below where they were 10 or 12 years ago, so we’ve already lost one decade in the economy and the markets,” Rogers explained.  “We’re going to lose at least one more decade, if not two or three.  The Japanese have already lost two decades so far.”

When asked about the prospects of a turnaround in the U.S. political system in time to prevent an economic collapse in the U.S., Rogers isn’t betting on it.

“I’m not confident at all, I have absolutely no confidence that anything’s going to be done,” he said.  Rogers predicts a much worse crisis than the 2008 near-total-collapse of the financial system, starting next year, or 2013.

Rogers has never venture to say what Washington’s response to profound civil unrest would be to U.S. economic Armageddon.  Was it a factor in his decision to uproot and move to Singapore?  One of the regular reporters from his typical media outlet rotation should ask Rogers about this very question.

And what possibly could change Jim Rogers’ mind about the U.S.?  Maybe a Ron Paul win in the Republican primaries and a win in Nov. 2012 would be a promising start to regain some confidence that all is not loss.  Sign-up for my 100% FREE Alerts

Marc Faber Fears Gold Confiscation

Aside from the cherished and entertaining Faberisms deployed from time to time in his fight to preserve the truth in front of television audiences controlled by a media-based establishment propaganda machine, Marc Faber also demonstrates why he’s the go-to man for clarity and thoughtful insights in the midst of today’s Orwellian headache.

Speaking with FinancialSense Newshour’s (FSN) James Puplava on Wednesday, Faber, the editor and publisher of the Gloom Boom Doom Report discusses a range of topics, from geopolitics, to freedom and tyranny, to his concerns of people living in an age of central bank monetary cannons gone completely rogue.  He also touched on one of his favorite asset classes, gold, and the third-rail subject of interest to every gold bug: government confiscation.  Sign-up for my 100% FREE Alerts

Note: James Puplava’s FinancialSense.com Web site is loaded with some of the most informative interviews from the brightest minds assembled on the Internet.  See its audio archived interviews.

As far as how high the price of gold can go, it depends upon who has control of the printing presses, according to Faber.  Right now, he said, the power hungry in Washington won’t let gold bugs down, as each sign of a lurking systemic collapse or stock market meltdown has been propped up by the Fed.

“If I could show you a picture of Mr. Ben Bernanke and Mr. Obama, then I would have to say that the upside is unlimited,” said Faber.

And the downside risk to gold rests on the shoulders of central bankers, as well, as the Fed, and now the ECB, will go to any length to feed the global financial system with creative and backdoor credit expansion mechanisms.

“In my view the downside exists if money printing by government is insufficient to revive or maintain credit growth at this level and you have a credit collapse,” he said, and also noted that competing asset classes would most likely fall more, thus retaining gold holders purchasing power during a bona fide deflationary collapse.

But, first, the globe will undergo roaring inflation, according to Faber, then, second, the Robert Prechter, Gary Schilling and David ‘Rosie’ Rosenberg deflationary spiral scenario will play out.

“One day there will be a credit collapse, but I think we aren’t yet there.  Before it happens they’re going to print,” Faber speculates.  “And when printing as it has done in the last 12 years in the U.S. leads to discontent populations, because when you print money then only a few players in the economy that benefit, not the majority of households.”

However, Faber warns that the gold market’s extremely volatile, a normal symptom of a fiat-backed financial system inducing the public into schizophrenia—of clinging to the familiarity of a 67-year-long financial system, moving to periods of fearing total loss at the currency graveyard—will chase investors out.

“A 30 percent correction or 40 percent correction cannot be ruled out, but as I maintain, again and again, I’m not going to go and sell my gold,” Faber said forcefully, as he explained that owning gold is should be viewed as the ultimate insurance policy to cover financial calamity, a viewpoint shared by famed Dow Theory Letters’ Richard Russell—another periodic guest of FSN.

Whether the gold price is in bubble territory, as a few prominent analysts claim, Faber doesn’t see it that way, at all.  In fact, he said, very few people own it or talk about it.  History clearly demonstrates that every bubble will suck in the very last investor before collapsing under its own weight.

Besides, the powerful propaganda machine, which endlessly repeats the party line of a system predicated on a fiat system of dollar hegemony, will not allow cheerleaders of the gold bugs to expend too much airtime away from Wall Street advertisers and obvious shills (to the trained eye) of CNBC, Bloomberg and other ‘mainstream’ media.

So far, the propaganda has only delayed the inevitable rush into gold—the next and longest stage of the bull market.

“I have one concern about gold.  I was recently on Taiwan and South Korea, at two large conferences, nobody owned any gold,” Faber said.  “Gold is owned by a minority, even in the U.S..  Most people in the U.S. have no clue what an ounce of gold is or looks like and so forth.  The same in Europe.”

But as the ‘wealthy’ begin to acquire gold, the chasm between the ‘rich’ and poor will widen substantially, not just between the 1 percent and the rest, but between the upper 10 percent and the growing-poorer middle class.  That’s when the democratic process turns ugly, morphing from a society of rights to a nation ruled by a tyrannical banana republic political dynamic.  See FSN interview, Ann Barnhardt: The Entire Futures/Options Market Has Been Destroyed by the MF Global Collapse.  Or transcript.

Populist political leaders vying for votes from the masses will opt to score easy points with the 90 percent have-nots at the expense of the haves, with draconian taxes on assets such as gold and silver held by the haves, not just through taxes on capital gains, but maybe even through a wealth tax on the holdings.

“This is what the tyranny of the masses can do,” Faber explains.

“You can make it, advertise it to the masses by just taking away from a few people, he added.  “I’m worried most about is the case of gold, not the price; that I’m not worried . . . but I’m worried about the government taking it away.”

The interview moves on to the discussion of the bull rally in gold and silver.  After 11 years of continuous gains in the price of gold, why, then, do so few investors hold the metal?

Faber explains that there remains too many deflationists holding to their thesis of a tumbling gold price, though, as Faber suggests, there has been no factual evidence to support the argument since the pop of the Nasdaq bubble of 1999.

What deflationists point to as proof of their contention, declining housing prices and stock prices, are really manifestations of inflation moving out of those asset classes into others, such as commodities, precious metals and overseas assets, of all kinds.  Inflation, Faber has stated in the past, doesn’t move all asset prices up simultaneously.

“I don’t hear about gold.  I lived through the last gold bubble between 1978 and January 1980.  The whole world, whether you were in the Middle East or in Asia or Europe or in America was trading London gold, buying and selling every day,” he recalls.  “This has not happened yet, and it hasn’t happened.  Your friends, the deflationists, have been telling people that gold will collapse to $200 an ounce for the last 10 years and that’s it was in a bubble.

“[They] said it [gold] was in a bubble at $500; they said it at $600, and they’re still maintaining it.  So a lot of people they don’t own it; they bought it and sold it again.  But in the meantime, gold has moved into sold hands.

“In my case, I’m not going to sell my gold unless I have to.  In other words, everything else is bankrupt, bond market, stock market, cash and real estate.”

Faber also points out, even though the price of gold appears to look like and quack like a bubble duck, with the price of the yellow metal sporting gains of 700 percent since the year 2000, the monetary base and credit creation by the Fed has been so large for so long, the gold price has much more room to move higher to reach ‘fair value’.  See Goldmoney Founder James Turk’s analysis on this very point: BER article, Goldmoney’s James Turk, $11,000 Gold Price.

“I can turnaround and say, look if I consider the price of gold, an average price in mid-1980s, then we take $400 or $450, or whatever it is,” Faber explains, “and we take the monetary base at that time; we take the international reserve; we take into consideration that China hasn’t really begun in earnest to open up; and we haven’t had this wealth expansion in emerging economies, and so forth and so on.  Then, I can maintain, well, actually the gold price is not up; it’s just the price of money, or the value of money, has declined so much against a stable anchor.  So I don’t think that we’re in a bubble stage.”

For the newcomers to the gold market, Faber stresses, “Don’t buy it on leverage.”

Reiterating his previous comments during the interview, Faber leaves the FSN listener with his overriding observations of a U.S. government (other Westerner countries, as well) that shows signs of eventually taking the next steps in its fight to maintain a hopelessly broken political and financial system: confiscation, not necessarily though a highly unlikely and dangerous door-to-door search of proof of non-paid taxes on a citizen’s bullion stash, but through confiscatory levels of taxation and possible criminal penalties to those who daring to escape the Marxist or Fascist regime’s grip on power over its population’s wealth.

“My only concern with the gold insurance is government will take it away,” Faber concluded.  “That is my only concern.  I’m not concerned about the price.

“I also have a concern generally speaking about our capitalistic system.  For sure people with assets, they will be taxed more heavily, that’s for sure.”

James Turk’s Silver Price Target, $70

While the silver price moves higher with the gold price during this latest consolidation phase in the bull market for precious metals, Goldmoney’s James Turk expects another violent move higher for the metals, especially the price of silver.

“This move [in the silver price] is going to catch a lot of people by surprise as evidenced by the extremely low sentiment readings,” Turk told King World News, Monday, pointing to the lack of overall enthusiasm in the precious metals market of late, with a relatively steep contango in the silver futures market chain serving to support his thesis.  “Those low readings are a clear indication that there is a lot of money on the sidelines that is waiting to jump on board.”  Sign-up for my 100% FREE Alerts

Such low sentiment readings and steep contango prices in the silver futures haven’t been seen since the first quarter of 2010, when problems in the Greek sovereign debt market first emerged.  At that time, fears of another Lehman event, this time from Europe, took the DJIA sharply lower from its intermediate post-crash peek of 11,250, down to 9,600, a nearly 15 percent correction in the  30 Industrials.

In contrast, after ttading between the $15 and $18 range during a nine-month period of September 2009 and June 2010, the silver price climbed higher in the face of a risk-off-then-risk-on-again trade in stocks of 2010 as the white metal never looked back, soaring to just shy of $50, from the $15 base of the previous flagpole pattern.

The tremendous rally in the silver price took Wall Street by surprise, as any asset rising this rapidly typically begets a much wider audience beyond the silver bug watchers.  That contrarian signal suggested to legendary commodities investor Jim Rogers that the silver price would need to “settle down” before he’d become a buyer again.  The weak hands had taken over the silver market.

But as the silver bugs remember, all too well, the steep and dramatic drop in the silver price to $25 sent the weak hands to slaughter, as a series of five margin hikes compound the pressure of a rapidly falling market to sell into the hands of the strong.

“During a big correction like the one we’ve just gone through, a lot of weak hands get shaken out of the market,” said Turk.  “We know that has happened because of the change in open interest and also because of the smaller volumes of late.”

Today, the situation has reversed direction, according to Turk.  Silver futures are back in contango and Jim Rogers is talking about silver once again.  Moreover, as the crisis in Europe escalates, Europe’s new ECB chief, Goldman Sachs alumnus Mario Draghi is now printing approximately 30 percent more than the Fed is—and the European central bank needs to print more, and could get some needed help from the Fed, according to zerohedge.com.

“Throughout history, when things have gone wrong, they [central banks] print money … when they print money, you should own silver, you should own rice, you should own real assets,” Rogers said in an interview with CNBC of Nov. 23.  See BER article.

Back to Turk, who said he’s calculated a target for the silver price during the upcoming next leg higher.  By taking the April 2011 high and subtracting the September 2009 and June 2010 base price—a common and fairly successful technique applied in the use of technical analysis—Turk expects the next move higher will achieve an all-time record price for the metal.

“The first we have already spoken about, namely the bullish flag pattern on the weekly silver chart (above). When silver breaks out to the upside, this flag measures to a target price of around $68 to $70,” Turk explained.  “More importantly, the jump out of the flag should happen more quickly than the $18 to $50 move we saw back in 2010 and early 2011, which took about nine months.”

Jim Rogers, “You Should Own Silver”

Fence sitters of the silver market are forewarned: buy more silver.   That advice, according to Jim Rogers of Rogers Holdings, is the heads-you-win-tails-you-win investment proposition in the years ahead.

In a Nov. 23 CNBC interview, Rogers has little doubt of more central bank intervention planned in the wake of a global economic slowdown, but if he’s off the mark, silver (and commodities, generally) investors will win anyway, as Asia’s production-export model gears to supply what the world needs—including lots of existing and new products containing silver. Sign-up for my 100% FREE Alerts

“I’m long commodities and currencies, because if the world gets better, the shortages in commodities will make sure I make money,” the 69-year-old Rogers told CNBC.  “If the world economy doesn’t get better, I’d rather own commodities because they’re [central banks] going to print money.”

It’s interesting to note that of all commodities investors of which investors can buy, Rogers singles out the ‘commodities’ silver and rice, with the latter, a staple of the Asian diet, and the former, a critical metal used in the manufacturing of alternative energy products—a sector, in which, China has taken an enormous interest and investment due to long-term strategic reasons, according to researcher and author of Red Alert: How China’s Growing Prosperity Threatens the American Way of Life, Dr. Steven Leeb.

Leeb points out in his book that China has invested more $500 billion per year in windmills, solar and other forms of clean energy, not because Beijing is necessarily concerned about the environment as a principal objective use of its $3 trillion reserves, but because it seeks to ween the Peoples Republic off rapidly rising fossil fuels prices while at the same time reducing the odds of a military confrontation with the West over remaining accessible global oil reserves.

“I mean, once the Chinese build out their solar energy, and they haven’t up to this point, but they will, they’ll start accumulating silver,” Leeb said in a September interview with Goldseek Radio. “In fact, I wouldn’t be surprised right now if they weren’t accumulating a lot of silver.”

“And my prediction is that silver will go high enough, and if we recognize it’s so critical, that the government may even ban public ownership of it, like the government banned public ownership of gold during the Depression,” Leeb continued.  “I think, well, silver over $100 per ounce—I almost think it’s inevitable, that silver hits three digits to be honest with you.”

Apparently, agreeing wholeheartedly with the Leeb thesis about the future value of silver as a vital metal to alternative energies, Rogers said at a RBS conference on Nov. 22 that he expects wind and solar to be among the leading forms of alternative energy in the 21st century and recommends investing in the sector for its long-term potential.

Given the assumption of China’s planned strategic initiatives in the area of alternative energies, the demand for silver to achieve a China-wide roll out of alternative energy is projected to surpass available silver mine production by as late as 2020, according to Leeb.  Rogers sees a similar potential of China’s demand for critical metals.

“I am very optimistic about energy sources, yes wind power, solar power and all alternative energy sources have a good future.” Rogers told the RBS conference attendees.  “ . . . the politicians love wind power, they love solar power for many reasons so they would subsidize it.”

And if the global economy takes a turn for the worse, which Rogers said, recently, is inevitable in 2012, central banks will print money to prevent a collapse of the global financial system—a system much too leveraged to weather another slowdown so soon following the Lehman crisis.

In that case, silver’s role as hard money could get another big boost, as previous so-called QEs from the Fed, and now from a Draghi-led ECB, may cause another flee out of paper currencies and into the tiny market of the white monetary metal.

“Throughout history, when things have gone wrong, they print money…when they print money, you should own silver, you should own rice, you should own real assets,” Rogers said, noting previously in the interview that the collapse in MF Global has created some forced selling in all commodities and precious metals.

While the MF Global liquidation plays itself out, how much lower silver and gold will continue to drop in prices is unclear, according to Rogers, but he will be ready with his checkbook if the metals fall further from here.  He said the liquidations of gold and silver contracts provide an opportunity for accumulators of the metals to catch better prices.

Roger concluded, “Gold could go down a fair bit more…but I’m certainly going to buy more gold if it goes down and silver.”

 

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.”

Peter Schiff: Silver “will bust through” $50

As precious metals traders brace for a potentially stormy September in the financial markets, Euro Pacific Capital’s CEO Peter Schiff told King World News to expect another splendid surge in the silver price.

Schiff, one of the most effective and courageous critics of central bankers and their deceptive practices, said Bernanke, knowing the U.S. economy is in big trouble, continues “sugar coating” terrible data and “cheerleading” an economy he knows won’t improve enough to slow the slide of the U.S. dollar.  In fact, Schiff is down right negative on the prospects of the U.S. dollar and other competing currencies.

As gold surges in response to central banking monetization (QE-x) of unserviceable debt—dead debt, historical data show that silver runs faster and longer than its kissing cousin, gold, as investors eventually sober up to realities and flee from fiat currencies.  As the next wave of defaults and QEs from the Fed and ECB are announced, Schiff sees an explosive move ahead for silver.

“ . . . if you look at silver around this $40 level, it’s still hanging on to a lot of its gains and I do believe that it will rebuild and make another assault at that $50 mark and eventually it will just bust through it,” Schiff said.

In support of Schiff’s assertion that the global economy is headed for another injection of cheap dollars and, by association, cheap euros, Bloomberg published a chart (republished on zerohedge.com) which shows each time (post-WWII) U.S. GDP slows to below stall speed, a compelling case can be made for forecasting a recession around the corner. So far, that indicator has a 100% track record of accuracy.

According to Bloomberg, the chart shows: “Since 1948, every time the four-quarter change has fallen below 2%, the economy has entered a recession. It’s hard to argue against an indicator with such a long history of accuracy.”

Expect terrible employment numbers and housing weakness (two critical data points) for years to come, Schiff has repeatedly stated since the collapse of Lehman Brothers, and has suggested front-running the gold and silver trade before the remaining Johnny-come-latelys finally capitulate and wake up to the Fed’s “sugarcoating” and “cheerleading” tactics.

“So the demand for gold is going to expand as more and more people wake up to this reality and discover that gold is the only safe haven,” Schiff stated.  “The fiat currencies can be created at will in infinite quantities.”

And to further buttress Schiff’s warning of a coming super rush of retail investors into gold and silver, zerohedge.com published another chart courtesy of John Lohman.  It’s definitely worth a look.

The chart can be found here, at the bottom of the zerohedge.com post.

Zerohedge wrote:  “. . . sealing the deal for the ‘recession’ argument is the following data from John Lohman which finds that the collapse in real-time economic data over the past three months is the sharpest in history.”

Facts speak for itself.  On the other hand, the Fed claims it didn’t see the housing bubble in 2006-2007; it didn’t expect GDP to come in so slow in the first half of 2011; it didn’t anticipate inflation this year; it cannot explain the rise in precious metals; and it relentlessly “sugar coats” the health of the U.S. economy and the Fed’s effects of its monetization programs (QE-x).

On the other hand, Schiff saw this house of cards coming to a tearful ending a long time ago.  Read just one of his several books, each one foretelling events we witness today.  Now Schiff says to buy some gold, better yet, silver. Who can argue against success?  Go with guy who’s gotten it right.