‘Golden Cross’ Signal Suggests $3,500 Gold Price

By Dominique de Kevelioc de Bailleul

Probably the most significant indicator employed by technical traders to signal them to initiate trades triggered a very important ‘Buy’ signal on Thursday.

The well-known and ubiquitously-used technical indicator, called the ‘Golden Cross’, gave the ‘green light’ to scores of buyers of gold bullion, when the price settled above the $1,770 level on Thursday.

And the last time the gold market reached a Golden Cross moment, the point at which the 50-day MA crosses the 200-day MA, gold bullion rallied to $1,917.90 on Aug. 23, 2011, from approximately $938.00 set on Feb. 11, 2009—a slightly more than a double price move within 31 months.

Prior to that, the Golden Cross triggered another major buy signal on Aug. 10, 2005, when gold touched $441.  Twenty months later, the gold price broke through $1,000 for the first time ever, touching $1,032 on Mar. 17, 2008, for a gain of 134 percent.

Seemingly lofty and daring predictions of gold $3,500 may not seem so lofty or daring, after all.  While the gold price has resumed its 12-year secular bull market, following the QE3-to-infinity decision by the FOMC on Sept. 12, the target price for gold to top out at the peak of the next bull phase calculates to $3,894—$1,770 X 120 percent.

The average of the two time periods of higher gold prices, following the Golden Cross buy signal, is 25 months, taking the anticipated rally in the gold price to Oct. 2014.

Considering the more serious implications to the global economy of the Fed’s policy of QE3-to-infinity, compared with QE1, Twist and QE2, Egon von Greyerz’s most sensational expectations for $3,500 gold within 18 months is quite reasonable.

Little Doubt! $3,500 Gold Price, a Minimum

By Dominique de Kevelioc de Bailleul

To the ‘man on the street’, a price target of gold $3,500 must sound to him like the typical hyperbole of gold peddlers.  It must; sentiment of the gold-market-ignorant American public of the future price of gold still remains  low.

As Bill Murphy’s GATA has said, “They don’t even know how to spell gold.”

That’s because the public really has to see the effects of the Fed’s QEs.  In fact, a relatively few Americans haven’t an idea what so-called ‘quantitative easing’ truly means to him, personally, just as few understood similar Fed monetary practices orchestrated by Arthur Burns and William Miller during the inflation-roaring ’70s.  But he sure will see how inflation is eroding his lifestyle in the coming months—starting with a much higher oil price, and his coincidental savior, gold.

But something convenient for the monetary ‘authorities’ just happened.

A day before Bernanke pulls the trigger on indefinite purchases of mortgage-back debt, anti-American sentiment suddenly flares up in the Middle East and North Africa.

Coincidental?

The thinking behind the “there’s no such thing as a conicidence” may be driven by the assumption that Bernanke and his handlers knew that during the aftermath of the collapse of Lehman, AIG and the rest, the talking point, that the threat of another dip in the housing market will lead the U.S. economy into ‘deflation’ can only be told for so long.  Bernanke knew that food and energy prices are poised to soar faster than these dollar-sensitive ‘things’ rose during the 1970s.

Thinking that the Fed believes its own BS regarding the living costs of the average American reveals profound ignorance of the Fed’s real mandate, especially at this late stage of the Kondratiev debt cycle.  That mandate is: to protect its member banks.

And protected they will be.  With the Fed coming in at the last moment to cope with the mess at JP Morgan and Morgan Stanley, the effects of an addition of $1.3 trillion (estimated by the close of calendar year 2013) expansion of the central bank’s balance sheet in the coming months will necessitate a new mantra from the Fed and MSM to now explain rapidly increasing food and energy prices during a global recession.

This time, China, alone, can no longer be blamed for stubbornly high oil prices.  Its economy is dropping like a stone, too.  Therefore, a new scapegoat for the future price of $150 to $200 per barrel of oil will emerge in the Middle East and North Africa, instead.  It will be called, either the “Arab Fall” or “WWIII”.

With the latest Fed announcement, it should be abundantly clear by now: the Fed is intentionally debasing the dollar, and it appears that the central bank will continue to debase the dollar until it fears a currency collapse—a course that Ron Paul said is a “detachment from reality,” after hearing of the press release of Fed’s FOMC meeting decision, Friday.

The Fed lives in reality, and it knows what it’s doing many months ahead of a carefully coordinated plan of public distraction.

There’s little doubt; gold will take off and begin the final stage of this tremendous secular rally.  Today’s low sentiment among mom and pop for holding gold will change this year and accelerate in 2013, taking gold to great heights.  Gold has reached new highs against the Indian rupee and near-highs priced in euros.

As far as the dollar, an ultimate price target for the gold price of $2,000 will turn out to be much, much too low.  It’s much more likely that Egon von Greyrz’s target price of $3,500 to $5,000 within 18 months will make much more sense, in retrospect.

Here’s why.

The following chart provides a rational for a target gold price of $3,500.

As an example of the Swiss economist and money manager Marc Faber comments about the effects of inflation, the chart (above) shows that inflation doesn’t manifest in all markets at the same time.

In the chart, the data show inflation had flowed into the oil market months following the peak in the gold price at the end of 2011 through to today.  The expected next rally in the gold-to-oil ratio is poised to test the Aug. 2011 high of 24.  But, instead of oil surging while gold was coming off its Apr. 2011 all-time high, today, both ‘commodities’ are expected to move much higher as a result of QE++, with the gold price outperforming the oil price by a considerable clip.

With predictions of a minimum oil price of $150 as a result of the Fed’s new QE-to-no-limit plan (to north of $200 in the event of an attack on Iran) and the multiple of the all-time high gold-to-oil ratio of 24 applied to the oil price, the gold price calculates to $3,600.  In the event of a $200 per barrel handle, $the target price moves up to $4,800.

Gold Price: Beware! Government Spooks Infest Gold Market

Today’s revelation of China’s surge in gold imports in the month of November from its principal gold dealer, Hong Kong, exposes Western financial media for the umpteenth time for its blatant propaganda (at the behest of central bankers) against one of the only assets that will protect wealth during these most turbulent times.  Sign-up for my 100% FREE Alerts

“Mainland China’s imports from Hong Kong surged to 102,779kg/oz from 86,299kg/oz in October,” stated bullion advisory group, GoldCore.  “This is a 20% increase from the already high number seen in October and a 483% y/y increase.”

See zerohedge.com for the full article from GoldCore.

Note: see the staggering trend of Beijing gold purchases in the Reuter’s chart, below, halfway through the article.

While a media blitz campaign waged against the gold market kicks into full gear, the Chinese buy tons.

And let’s not forget India, the country that, last year, bought more gold than Switzerland claims it stores with the SNB, which is approximately 1,000 tons.

“Gold traders in India, the world’s biggest buyer of bullion, stepped up buying for the upcoming wedding season, as gold prices stayed near the week’s trough, giving silver a boost,” India’s Economic Times stated on Jan. 11.

The two largest bulk buyers of gold are stepping up with increasingly larger orders as the spot price retreats, but the U.S. and UK media tell readers the gold bull market is over—or that gold should be seriously questioned as to its validity for wealth protection during the biggest financial crisis since the 1930s.

Goldmoney’s James Turk, who told King World News on Jan. 9 that he sees the propaganda machine blitz at full throttle throughout the pullback in the gold price from its incredible rise to $1,920.

Whatever happened to the “buy on the dips” mantra from ‘traditional’ media?

“There is a war going on with regard to gold and people are lined up on both sides,” Turk told KWN’s Eric King.  “The central planners want gold to disappear, but gold is not going to disappear because it’s been money for 5,000 years.  What the central planners and the manipulators and government agents and everybody else are doing is they are putting out a lot of anti-gold propaganda.” [emphasis added]

For those not familiar with James Turk, it was he who broke the story about the UK-based financial magazine The Economist for its peculiar track record for publishing significantly bearish articles at, or near, gold price bottoms.  In two articles, Gold’s Infallible Indicator and Gold’s Infallible Indicator—Six Months Later, Turk demonstrates why gold bugs should watch for that out-of-the-blue gold article from The Economist.

And the Fed’s co-conspirators extend beyond The Economist, the Wall Street Journal, Financial Times (FT) of London, Bloomberg and CNBC serve as propaganda tools (at critical moments) for central bankers as well, according to several reliable sources, one of which is the UK-based Guardian in an article penned by journalist David Miller in Feb. 2006.

“A succession of scandals in the U.S. has revealed widespread government funding of PR agencies to produce ‘fake news’,” Miller stated.

“World Television produces the fake news, but its efforts are entirely funded by the Foreign Office, which spent £340m on propaganda activities in the UK alone in 2001.”

And in the U.S., it’s no surprise that the feds fund propaganda budgets of its own, but presumably much larger than those of the UK.  From ComputerWorld, written by Darlene Storm in February 2011.

It’s recently been revealed that the U.S. government contracted HBGary Federal for the development of software which could create multiple fake social media profiles to manipulate and sway public opinion on controversial issues by promoting propaganda. It could also be used as surveillance to find public opinions with points of view the powers-that-be didn’t like. It could then potentially have their ‘fake’ people run smear campaigns against those ‘real’ people. As disturbing as this is, it’s not really new for U.S. intelligence or private intelligence firms to do the dirty work behind closed doors. 

It can be assumed a lot of UK and U.S. propaganda focus primarily on foreign policy issues.  Wars are tough sell, and a lot of propaganda must be bought in the same way commercial enterprises utilize ‘advertising’ of its products.  Makes sense.

However, instead of outside foes endangering the sovereignty of nations (again, propaganda has us believe otherwise), the 16 intelligence agencies, which make up the NSA, stated in a 2009 report to Congress, that the economy has become an immediate national security concern.

Reuters, February 2009:

“The financial crisis and global recession are likely to produce a wave of economic crises in emerging market nations over the next year,” said the report. A wave of “destructive protectionism” was possible as countries find they cannot export their way out of the slump.

“Time is our greatest threat. The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests,” the report said.

According to The New American in an article in September 2011, titled, Fed Plotting to Monitor Critics, Tailor Propaganda, in response to the 2009 NSA report, the Federal Reserve issued a “Request for Proposal” to “monitor billions of conversations” and to “reach out to key bloggers and influencers [sic]” in an effort to massage opinion.

Apparently, CNBC’s Steven Liesman can’t do all the spin work and propaganda for the Fed, himself.

The Fed’s “Request for Proposal” explains that the institution needs a platform to “monitor billions of conversations” and “identify and reach out to key bloggers and influencers.” Information collected will be used to measure the effectiveness of the central bank’s “public relations” and “communication strategies” — known in laymen’s terms as propaganda operations.

“There is need for the Communications Group to be timely and proactively aware of the reactions and opinions expressed by the general public as it relates to the Federal Reserve and its actions on a variety of subjects,” the document states. News outlets, Facebook, Twitter, forums, blogs, YouTube, and other social media platforms will all be targeted.

Government, media and central bankers want the public out of gold and work full time to make it happen.  ‘Analysts’, too, are deployed to spew misinformation about the economy and gold.  No surprise there.  Though, no one has publicly proved that any one particular analyst is involved in the anti-gold propaganda campaigns, but three men have been labeled the worst gold analysts since the gold bull market began in 2001.

Those three, or the “Three Stooges”, gold analyst Peter Grandich had called them recently, Jon Nadler, Dennis Gartman and Jeff Christian, sport truly horrendous records, similarly to The Economist dismal calls, as James Turk had pointed out.

In December 2010, Richard Russell of the famed Dow Theory Letters attacked on both fronts against the these three Lord Haw-Haws, one, the traditional media and, two, Nadler, in particular—though Gartman and Christian could easily have been interposed instead.

“I listened to Kitco’s Nadler on the Bloomberg channel this morning,” Russell stated. “He’s been bearish on gold for months, and I thought he sounded like a know-nothing fool today. Why didn’t Bloomberg interview someone who’s been bullish and right about gold?”

“What’s with the Wall Street Journal and gold?” Russell asked rhetorically. “In the Dec. 6 paper, the front page blares, ‘ETFs and Gold.’ So I turned to the gold article, which included a rare error in its headline, ‘Resisting Gold’s Glister.’ I assumed they meant gold’s ‘glitter.’ The article was written by a Tim Medley, a random guy I had never heard of. Mr. Medley’s main half-assed complaint about gold is that it is too expensive today and therefore dangerous in that it may correct. Worse, claims Medley, there is a current ‘euphoria’ regarding gold. Too many people are bullish on gold. Therefore, gold is about to lose its ‘glister.’”

Gold investors, beware of what you read and who you follow for advice.  As a general rule, stick with analysts interviewed on King World News and not from infrequent or other Wall Street analysts on traditional news outlets.  Sign-up for my 100% FREE Alerts

Also read BER articles on this subject,

Gold Market hit by Chinese Bailout PSYOP; $2,000 Gold “in 45 days,” says James Turk

Gold Price: Lord Haw-Haw Dennis Gartman announces “Death of a Bull”

Richard Russell Doesn’t Trust the Media to Cover the Gold Market

Gold Price War: Nouriel Roubini vs Windmills

In a Tweet yesterday, the ingenious gentleman Nouriel Roubini de la Milan taunted the gold bugs, “Where is 2,000?”

Someone should have Tweeted the self-described ‘global nomad’, “Ask Bernanke, my Lord; he’s almost done building that windmill for you to fight.”  Sign-up for my 100% FREE Alerts

But, it appears the errant-knight isn’t ready to go home, quite yet.  And like Don Quixote, whose repeated follies resulted in his uneducated squire paying  Quixote’s damages, the investor who follows Roubini will most likely receive a similar bill at the end of a failed monetary system.

In December 2009, when gold traded at $1,100/oz, Roubini exclaimed, “all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense.”

On the other hand, Marc Faber, the man, who, not only has worked hard protecting the public from American pathocracy, has been right more often about a subject he knows something about: gold—and its critical role as a competing medium to mismanaged state currencies.

But the modern-day high priest charlatan of Milan pretends he’s never heard of Martin Luther or Copernicus.

When Faber was asked in a Dec. 7 FSN interview why gold hasn’t crashed the U.S. dollar yet, Faber blamed the countless deflationists who still follow the likes of Roubini, Prechter, Shilling and David Rosenberg (who appears to have recently defected, from his note to clients, titled, Eight Areas of Behavioral Change to Watch for in 2012, where he sneaks out the back door of deflationists headquarters).

“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 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.”

See BER article, Marc Faber Fears Gold Confiscation

In the FSN interview, Faber is talking about Roubini, for one.  The graph, below, reveals whether Roubini has been right about gold since his bold statement of Dec. 2009.

So far, Roubini has cost us 33.8 percent at the supermarket and gas station.  How much has the Larry Summers and Jeffrey Sachs protégé cost us to purchase a lousy 2 percent dividend yield of the DJIA?

Roubini cost us 20.1 percent to receive 2 measly percent, which loses us money after inflation, anyway.

Listen to his economic outlook because he’s good at that, but ignore his advice of where to put your savings.  Stick with Faber, Rogers, Sinclair and others about wealth preserving positions.  And visit the Web sites of James Turk and Eric Sprott for how and where to protect your assets.

Wouldn’t it be nice to see $1,200 gold?

Gold $1,200?  It would be great, sure.  But we’d have to listen to Roubini’s I-told-you-so nonsense.  Preserving wealth not only making the right decisions, it involves resisting the psychological warfare waged by possible plants who will discourage the silver bullet option (gold and silver) away from the Federal Reserve system.  In fact, many have questioned whether Roubini, Dennis Gartman and Jeff Christian are today’s Lord Haw-Haws.

Sounds like another tin-foil-hat conspiracy theory?  Who knows the truth about anything when a bunch of sociopaths have taken over the financial industry, government and media.  Ask yourself how well would you have fared listening to Bernanke, Greenspan, Roubini, Gartman or Christian?  Ask Gerald Celente.

“I think it is absolutely essential in a democracy to have competition in the media, a lot of competition, and we seem to be moving away from that.” —Walter Cronkite

“Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States.” —Sen. Barry Goldwater (Rep. AZ)

“It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” —Henry Ford

“Government spending is always a ‘tax’ burden on the American people and is never equally or fairly distributed.  The poor and low-middle income workers always suffer the most from the deceitful tax of inflation and borrowing.” —Congressman Ron Paul

“All the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense.” —Nouriel Roubini de la Milan

Wow! China Gold Imports Spike 4,000% y-o-y

UK-based International Business Times reports China’s gold imports spiking 50 percent in October from September, and soaring 4,000 percent from October of a year ago, to an all-time single-month record high of 85.7 tons.  Sign-up for my 100% FREE Alerts

Though India’s anticipated record gold imports of a 1,000 tons this year could slow due to signs of slowing jewelry demand from a recent 20.3 percent crash in the rupee, since August, investors can no doubt count on China to, not only take over the gold market slack, but soon-to-dominate the New York-London gold cartel

As a reminder to evolving drama in the gold market, WikiLeaks exposed China’s plan to break from its sadistic recycling of trade surpluses into U.S. Treasuries, a shift in strategy by Beijing that’s prompted other Asian nations to follow suit.  See BER article, WikiLeaks Drops Bombshell on gold Market, GATA right again!

Source: U.S. embassy cable – 09BEIJING1134

According to China’s National Foreign Exchanges Administration, China’s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the United States and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the renminbi.

And the promotion of the “internationalization” of the renminbi has noticeably accelerated this year.  On a year-over-year basis, the amount and rate of increase of gold purchases by the People’s Republic of China is no less impressive than the $3.2 trillion of foreign reserves slated to be deployed by Beijing.

IB Times quotes Credit Suisse analysts Thomas Kendall, who sees “Chinese imports of the yellow metal hitting 470-490 tonnes for the full year, up from last year’s 245 tonnes,” a near-double spike in volume anticipated at the close of 2011.

And it appears that the Chinese are patient when accumulating gold, outside of its steady purchases from its own China-based mining industry, buying on opportunistic dips created by periodic hedge funds selling.  In fact, the notorious sell offs in the gold market plays into the hands of the masters of Sun Tzu (1), as September’s swoon from one large hedge fund manager provided attractive prices for Beijing’s rapid gold accumulation program.

“Analysts said the [gold] buying, led by emerging market central banks intent on diversifying their growing foreign exchange reserves, helped explain gold’s rebound from a low of $1,534 a troy in September as large hedge funds such as Paulson & Co were forced to sell some gold to cover losses elsewhere,” stated the Financial Times of London on Nov. 17.

After dominating the world economy in production and exports of the past two decades, Beijing’s next Mao-like ‘Great Leap Forward’ enlists 100s of million of China’s middle class in a joint venture with its central bank to now wrest control of the gold market away from New York and London.

As the world witnessed the powerful rise of China, post Tiananmen Square, the power of 1.3 billion Chinese, encouraged and mobilized by a centrally-commanded political structure to achieve an objective vital to its national security can produce awesome results.  As the WikiLeaks cable exposes, today, Beijing is out to break the gold cartel with its awesome population might.

Since 2002, after lifting the 53-year ban on gold ownership under Mao Zedong, the Chinese have eagerly scooped up gold coins and jewelry at rapid rates, to numbers which now rival India’s colossal demand for the yellow metal.

Forbes Magazine reported in March, “Believe it or not Ripley! The People’s Bank of China (PBOC) recommended yesterday that 1 billion Chinese consider buying gold as a hedge against inflation and to preserve values in a world where currencies can fall. . . . Wow! Be like the Fed telling you to buy oil stocks or crude oil futures due to expectation higher gasoline prices this summer.”

According to the World Gold Council, total gold demand in the PRoC will reach 750 tons in 2011.  In the third quarter, consumer demand for the precious metal continued to soar, led by a 24 percent increase in demand of 60.2 tons of gold bars and coins, from last year’s third quarter total of 48.5 tons, while demand for jewelry rose 13 percent.

Front-running China’s demand

Frank Holmes, contributing editor for Forbes Magazine penned an article, today, titled, Central Bank Appetite And The Monetary Case For $10,000 Gold.  Holmes sees what the Chinese see: a tsunami of money creation coming out of the U.S. and the ECB, whose combined currencies comprise approximately 88 percent of all central bank reserves.

In the Forbes article, he quotes long-time friend and founder of Goldcorp’s Silver Wheaton, Frank Giustra:

The bottom line is that the money needed to bail out Europe and to fund America’s spiraling debt and future unfunded obligations is in the tens of trillions. IT DOES NOT EXIST.

It has to be created by printing money in massive quantities, and despite all the rhetoric you will hear against such policies, in the end it’s the path of least resistance. Printing money is an invisible tax on savings, much easier to initiate, than, say, raising taxes or cutting back on services and entitlements.

Under the Holmes scenario, which, incidentally, has become an ever-increasingly common conclusion, drawn by many well-respected analysts, the gold price could move as high as $10,000 per ounce in coming years.  That means: the dollar and euro are expected to erode significantly in purchasing power during that time period.

As far as the question: when is a good time to buy gold?  Stephen Leeb, author of Red Alert: How China’s Growing Prosperity Threatens the American Way of Life, has researched China and its strategic initiatives for the coming 20 years.  According to him, just jump in and wait, because a few hundred dollars here, or there, won’t amount to much in the long run.

“So how low gold will go here is literally meaningless,” Leeb told King World News on Monday.  “My advice to investors is don’t try to catch a bottom and be a hero.  It could happen any time.  It could be happening as we speak, it could be happening today.  But it’s really irrelevant.  Let’s say gold is at $3000, $4,000 or $5,000 in three or four years, which I think is very, very likely–are you really even going to remember that it went to $1,650 or $1,550?  No.”

(1) From Wiki: The book was first translated into the French language in 1772 by French Jesuit Jean Joseph Marie Amiot, and into English by British officer Everard Ferguson Calthrop in 1905. Leaders as diverse as Mao Zedong, General Vo Nguyen Giap, Baron Antoine-Henri Jomini, GeneralDouglas MacArthur, Napoleon, and leaders of Imperial Japan have drawn inspiration from the work. The Art of War has also been applied to business and managerial strategies.

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.”

Gold Price to ‘Double’ in 2012, says Guru

Get the checkbooks out, because the flight into gold is about to commence, says economist and NY Times best selling author Dr. Stephen Leeb.  But a liquidity crisis sell off in gold may provide that opportunity, first.

The dramatic move by six central banks on Wednesday to lower dollar swaps rates flashed a big red light to markets that liquidity, which has been drying up between banks in Europe, had become acute and created the risked of another 2008 Lehman-like meltdown event, taking the U.S. banks along with Europe’s down the path to Armageddon.  Sign-up for my 100% FREE Alerts!

“There are liquidity concerns right now.  I think the world, and in particular Europe, really does have a liquidity problem,” Leeb told King World news on Monday.  “If Europe has a liquidity problem that obviously has the potential to affect everybody, especially the U.S.”

Contrary to claims made by U.S. bank executives and analysts, featured endlessly on television programming (especially BofA’s cheerleader, Dick Bove), that U.S. banks are only marginally exposed to European sovereign debt defaults and could weather the storm, advisor to the IMF, Robert Shapiro, told the BBC that nothing that analysts such as Bove have said about the low possibility of a contagion in the U.S. could be further from the truth.

“If they [EU] cannot address the financial crisis in a credible way, I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system,” said Shapiro.  “We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom; it will spread everywhere because the global financial system is so interconnected. [emphasis added]

In fact, one could argue that the Panic of 1907, which created systemic collapse on both sides of the Atlantic following the banking system collapse in the U.S., serves as a fine example of what would most likely happen to U.S. banks if Europe’s financial system collapses, as a higher degree of interconnectedness between many more banks between the U.S. and Europe exists today.

Following the announcement of Wednesday, initially, gold and stocks soared on the news of the central bank coordinated effort to ease the liquidity (ultimately solvency) strains, but, not unlike 2008, gold has since come under pressure.

According to Leeb, the weak hands of bankers need to raise capital, which leaves the most liquid asset they’ve got to raise quick cash, gold.  But not to worry, said Leeb, the snap back to higher gold price could be as fierce as it was in 2008.  He, instead, suggested preparing for the volatility lower in the price of the yellow metal prior to its glorious “rubber band” launch higher.

Don’t fight the inevitable volatility, instead, embrace it as fact of life during the bull market in gold, according to Leeb.

“We did see a similar event back in 2008 where gold dropped on liquidity needs,” he said, “but once central banks got their act together and once liquidity was flushed into the system, gold took off like a rocket ship.  So you just have to expect this in the kind of world we are in.

“This is the kind of world that is consistent with a very powerful and persistent bull market in gold and it will carry many, many times higher than the gold price is today.  But those very conditions are going to be conditions that do lead, from time to time, to liquidity crises.”

Many street-smart observers of the European drama suggest that the ramifications of a sovereign debt and banking system collapse are too unimaginable for political leaders to allow another Lehman, so the crisis will be resolved, one way or another, even if it means breaking treaties or progressing toward a plan in an undemocratic and authoritarian-like way.

But, if Europe does falter, count on the Fed to step in—to do the right thing.

“I think eventually they will do the right thing,” Leeb speculated.  “I think that if they don’t do the right thing, we will.  It’s a lot easier for the US to act as a single entity than it is for Europe to act.

“One way or another there has to be money printing.”

Leeb’s advice on the possibility of a gold correction as a direct result of a failure among Europe’s political leaders in their effort to flood of the financial system with a ECB printing press of euros is to prepare for the event, psychologically and financially.

“I can say this, right now is no time to back out of your gold position.  I mean gold going down is telling you why it’s such a good investment,” Leeb explained.  “It’s is literally being used as liquidity because conditions are so dire.

“Any way to correct these dire conditions is going to involve massive amounts liquidity.  So buy gold on these dips and say, ‘This is a gift that will reward me in the next twelve months by at least a double or more.’  Let me put it this way, it’s a rubber band, the further gold goes down now, the more it’s going to bounce back.”

Eric Sprott: Another Lehman “almost has to occur”

Little did Sprott know at the time of his latest interview, it appears the triggering event took place early this morning.

Speaking with Goldmoney’s James Turk in Munich, Eric Sprott warned of another Lehman-like event stemming from the European debt crisis, which this morning took a definitive leap forward toward Sprott’s prognostication. Sign-up for my 100% FREE Alerts!

As the bellwether 10-year Italian bond blew through 6 percent on Monday, now through 7 percent, to 7.46 percent, this morning, it appears that the ECB has either given up on containing the contagion through its Italian bond purchases (as it had threatened on Monday), or worse, has been active in the market but cannot stem the avalanche of selling.

It was all CNBC has been talking about this morning, with an audio track from the movie “Godfather” playing between commercial breaks to add to the morning discussion.  Jim Rogers was there, too, providing commentary and his usual straight talk.  Rogers reminded viewers he’s short European stocks while the CNBC bugs flashed big red down arrows.

Like Rogers, Sprott doesn’t believe the banks balance sheets in Europe.

Sprott points out the obvious to those familiar with the bogus accounting out of the European banking system (and U.S. system).  Aside from the tier-3 assets (derivatives) not accurately reported by the banks, the tier-1 assets-to-equity that is reported reveals that European banks are grossly more leveraged than the US banks were prior to Lehman’s collapse.

“The level of derivative that are not even on the [banks] balance sheets is staggering.  So even if you’re looking at 20-to-1 you don’t even know if it’s 20-to-1 anyway.  It could be 50-to-1,” Sprott said, whose estimate may in fact be true given how net exposures turn into gross exposures at time of an event, to wit, Dexia and MF Global.

And Barclays Capital agrees, whose latest communique suggests that due to the collapse in Italian bonds this morning, “it seems Italy is now mathematically beyond point of return.”

Barclay’s reasoning is simple, it stated after the close of trading Tuesday, “Simple math–growth and austerity not enough to offset cost of debt,” and “reforms . . . in and of itself not enough to prevent the crisis.”

And as far as the EFSF backstopping Italy (if it can actually get funded), Barclays states, it’s “not adequate,” anyway, a conclusion FX Concepts John Taylor had drawn during the summer.

What to do? Zerohedge wrote, “Hint: Not good.  Sell euro, buy gold.”

Back to Sprott, who said on Financial Sense Newshour on Oct. 19, gold has been the de facto reserve currency during the ongoing crisis, as its price has appreciated in all currencies since the Lehman meltdown three years ago.

“The markets have made gold the reserve currency.  That’s what I believe, that’s gone up 100 percent against every currency in the world,” Sprott explained.  “So, it is the world’s reserve currency, as far as the markets go.”  “And as an offset to that, gold is not going to be a reserve currency without silver playing a hand here.”

Fast forward back to the Turk interview, Sprott, when asked about the possibility of another Lehman-like moment, Sprott said, “it almost has to occur.”

Sprott’s expected falling dominoes could be in motion now.  It appears market maker LHC.Clearnet has become a little nervous about its clients holdings of European debt, issuing a notice on Nov. 8 to holders of Italian 10-year debt of a deposit hike to 11.65 percent, from 6.65 percent.  After today’s rout, which by the way, has inverted the Italian 2y-10y yield curve for the first time throughout the 20-month drama (as Greece debt had, and is), we suspect LHC will issue further notices.

Gold Price: Chinese to Bust Gold Cartel

A higher gold price is inevitable for a variety of fundamental reasons, not least of which is the yellow metal’s limited ‘available’ supply against a backdrop of overall growing demand from private parties across the globe.  But Tangent Capital’s Jim Rickards points out that strong demand for gold coming from that very same global banking system should buoy the gold price, as well, every step of the way to, maybe, just maybe, Jim Sinclair’s $12,500 price tag.

Rickards explains the simple dynamic between the three dominant currencies in play during the epic global re-balancing act—the U.S. dollar, euro and the yuan (renminbi).   Each government behind these currency will ensure a long-term tailwind to the gold price for, we hope, many years, because an abrupt revaluation of the gold price could suggest untold social unrest, revolutions and war—which is a scenario Swiss money manager Marc Faber predicts.

“The main event is the three-ring circus of the U.S., Europe and China and their respective currencies, the dollar, euro and the yuan,” he wrote in a piece posted on King World News on Sept. 18.  “The dynamic is straightforward – all three would like a cheaper currency, relative to the others, to help exports.”

Correct.  Each country has its own constituency to reasonably satisfy under the most difficult of circumstances since at least as far back as the Great Depression.  Ultimately, no one wants a trade war, though during political seasons the hyped jingoism stirred up among pols to garner votes from the Colosseum crowd rears its ugly head as the true degenerates of societies play the old as it is tired game of tribalism rhetoric.

Cutting through the politics, Rickards explains why owning gold is important during the present state of war, a currency war, between the three blocks.

“This dynamic plays out as you might expect. The U.S. devalues against yuan and the euro – it gets all of what it wants. China revalues upward against the dollar, but keeps a peg to the euro – it gets half of what it wants,” he explained. “And the euro remains strong against the dollar and pegged against yuan – so it gets none of what it wants. This has been the prevailing paradigm since June when the Chinese finally let the yuan appreciate against the dollar in a serious way.”

Aside from the stresses between Germany and the PIIGS as a sequel to Rickard’s thesis, Beijing has a big problem with the way this currency war is playing out. That is, rapid inflation in China.

There is no way that China, nor any country, can escape rising consumer prices under the scenario, above.  But, between the U.S. dollar and the euro, representing 88% of total central bank reserves, China has been, and will continue to be mired in inflation for ever at the pace of devaluation of the dollar and euro must achieve to right global imbalances between debtors and creditors.

A U.S. or European citizen can absorb some inflation due to relatively high per capita purchasing power parities (though painful to the bottom of the economic ladder), but China’s $8,500 per capita PPP is too low to keep the natives calm during this expected protracted process.  Do Tunisia, Egypt and Libya come to mind?  All three countries weigh in with under $4,000 per capita PPPs.

The plan, then?  Beijing must grab as much gold for its central bank and its people as fast as possible without disrupting the gold price too much in an effort to absorb the inflationary effects of the depreciating U.S. dollar and euro of the future.

According to a WikiLeaks cable,

CHINA’S GOLD RESERVES

“China increases its gold reserves in order to kill two birds with one stone”

The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): “According to China’s National Foreign Exchanges Administration China ‘s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.”

It’s laughable to think the gold price means nothing to the Fed and ECB (Jeff Christian, are you listening?).  But, in this case, the price of gold is important to Beijing, as well.  As China accumulates gold to buttresses its reserves, a steady rise in the gold price, not a rapid one, is preferable to its long-term plan to introduce the yuan as a fully convertible reserve currency—backed by gold.  Strong evidence from bullion dealers, KWN’s anonymous London trader, Jame Turk and Eric Sprott indicate that Beijing was the big buyer (India, too) during gold’s drop to below $1,600 per ounce.

How this will all play out and who will get what they want from the new reserve currency regime down the road is unclear, but it’s no matter, according to Rickards.  Throughout history, the winners of currency devaluations have a 100 percent track record of emerging from the heap of paper.  No exceptions.

He concluded his piece, “ . . . it is not quite true there are no winners in a currency war. There is always one winner – gold.”

Just in from the Financial Times of London (subscription required, but excerpted by zerohedge.com):

Analysts expect the September import surge to continue until the end of the year as Chinese gold buyers snap up the yellow metal in advance of Chinese New Year, China’s key gold-buying period.

In September we saw some bargain hunters come back into the market on the price dip,” said Janet Kong, managing director of research for CICC, the Chinese investment bank.

Data from the Hong Kong government showed that China imported a record 56.9 tonnes in September, a sixfold increase from 2010. Monthly gold imports for most of 2010 and this year run at about 10 tonnes, but buying jumped in July, August and September. In the three-month period, China imported from Hong Kong about 140 tonnes, more than the roughly 120 tonnes for the whole 2010.

The last two months of this year are likely to see China’s gold imports surge further ahead of Chinese New Year, supporting gold prices, according to Ms Kong. “We’ve noted a quite strong seasonality in gold prices, typically prices go up in the months before the Chinese New year.

Silver Price: “10-bagger” from here

Cazenove Capital’s Robin Griffiths believes that when the ‘big reset’ finally comes to the global financial system, the price of silver in today’s dollars could reach a ten to twenty “bagger”—that’s 10 to 20 times from $34, or $340 to $680 per the ounce. Sign-up for my 100% FREE Alerts!

“I believe going forward that silver will be a ten or twenty bagger, one just has to tolerate the short-term volatility,” Griffiths told King World News.

Griffiths suggested that today’s price for silver reflects a continued lack of awareness among the general investor public of its safe haven status and store of wealth, especially when widely-quoted exchange rates don’t reflect the carefully orchestrated currency devaluations among central banks.

The lessons of drastic changes in currency crosses leading up to the 1987 stock market crash and Asian currency crisis of 1997 must remain fresh in the minds of policymakers.  In hindsight, the G-5 Plaza Accord and the rapid rise of capital flows into the ‘Asian Tigers’ destabilized the global financial system, respectively, resulting in market convulsions, bankruptcies and unprecedented (at that time) central bank interventions.

Big swings in currencies and in the proxies for those currencies, debt markets, bring on sudden bankruptcies to highly levered participants, such as a Dexia and MF Global as well as the temporarily hidden losses between counter parties of the two entities.  In those two cases, the lesser-understood sovereign debt market crisis was the culprit and overshadowed any sizable swings in the dollar-euro cross.

That may explain, to a rather limited degree, why demand for precious metals remains remarkably low in the U.S., still, among the vast majority of American investors who’ve had little to no experience coping with the fallout of a grossly mismanaged currency.  The knee-jerk reaction to a financial crisis for many is to run to cash—not gold and silver, as many investors still believe in the integrity of the US Treasury market.

“There is no euphoria in the gold market at the moment,” said Griffiths.  “It’s not an over-owned trade. There are still a few gold bugs and prudent people who are using gold as a hedge against paper money being overprinted, but we are nowhere near the exponential, runaway move yet.”

Those above the age of 60-years were probably old enough to remember high inflation and high unemployment of the 1970s—a time of rapidly deteriorating dollar value overseas, and wealth, domestically.  Both inflation and sluggish consumer demand can coexist.  Gold preserved wealth, while holders of Treasuries were decimated in purchasing power.

At this stage of the financial crisis, it feels more like 1974 all over again.  The threat of deflation (according to the Fed and commentators) grips the markets, as was the case in 1974, corralling investors into Treasuries—a move that famed commodities trader Jim Rogers said is “the wrong thing to do.”  Rogers made his first fortune getting it right in the turbulent 1970s.

Moving into cash, Griffiths believes, will be the trade in the coming months as the European mess gets even messier.  That means a rally in the USDX, according to him.

“The dollar should go higher than 81 and I could see it running up into the high 90s on the DXY.  That would be a significant dollar run,” Griffiths speculated.

“People are still worried, and the dollar, still, for the moment, is the world’s leading currency,” he added.  “Once they go into cash that’s what they go into.  So I think we are in a period, from now until the beginning of the year, where you should be long the U.S. dollar.”

In a way, Griffiths sees the world as FX Concepts John Taylor sees it, parting, however, from Taylor on the outlook for gold during a hypothetical dollar rally.  Griffiths envisions a higher dollar and higher gold prices.

When KWN’s Eric King asked Griffiths if his outlook for the dollar meant lower gold prices, Griffiths said, “Not necessarily, when you are worried you buy a bit of both don’t you?”

On the other hand, FX’s Taylor expects gold to drop to $1,000 before jettisoning to new highs—similarly to gold’s plunge from its nearly $200 all-time high in 1974 before dropping back to $100 during an 18-months sell off period—which lasted until 1976.  The yellow metal, then, made its big move to eventually reaching a high of $850 in Jan. 1980.  In disbelief, most investors were left behind until the very last moment of the end to the trade.  Taylor, presumably, believes gold will be sold to satisfy redemptions among hedge funds.

Euro Pacific Capital’s Peter Schiff has a different take from both men.  He believes the move down in the dollar to its last bastion of major support at the USDX 72 level is imminent and will fail that support, leading to a panic out of the dollar in coming months.  He said investors will be shocked by the contrarian move in the dollar.

So what to do among the disparate opinions from some of the smartest in finance?  As Dow Theory Letter’s famed author Richard Russell puts it, just buy enough gold as an “insurance policy” and “forget about it.”  But if investors seeking leverage to the gold price, they should buy more silver.  That’s the advice of nearly all hard money advocates, including the latest to come aboard the silver train, Gerald Celente.