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

Timing gold purchases is quite often very difficult, even for the so-called pros.  So if you think you don’t have what it takes to trade among the best, don’t feel bad, even the ‘pros’ get it wrong.  Sign-up for my 100% FREE Alerts

Taking Virginia-based economist and publisher of the Gartman Letter, Dennis Gartman, for example.  His track record for forecasting gold prices is so bad that he’s become known as the latest contrary indicator—a ‘professional’ punter, if you will.

Moreover, it’s been suggested that the reason for Gartman’s subscription base is to get fast-track knowledge of Gartman’s trade so that a trader can take the other side.

Just last week, Gartman told Bloomberg News, “we are out of gold” as of Monday (Dec. 12) and “the beginnings of a real bear market, and the death of a bull.”

Sounds dreadful, doesn’t it?  So what should gold holders do?  Well, let’s see how the advice of the gold market’s Lord Haw-Haw panned out for investors during previous corrective phases—which, by the way, are those very times when buying gold makes more sense in a secular bull market.

“I feared the whole financial system was coming to a halt, and you need a little gold in that case,” Gartman told Bloomberg News on Nov. 3, 2008.  “I doubt it will anymore. But it sure felt like it a month ago. There’s no value in gold now.”  (See chart, below.)

Three weeks later, on Nov. 25, Gartman didn’t change his mind; he got more bearish when he should have been a raving bull!

“We are short of gold,” he said in a Bloomberg interview. “We shall always sell rallies such as these that retrace as classically as this market has.”

As the market continued to rally, Gartman became ever more aloof, stating on November 16, 2009 that there was, indeed, “a gold bubble” and anyone thinking otherwise is “naive.”

Apparently, ‘Mr. Gold’ James Sinclair of JSMineset hasn’t been a long-term subscriber to the Gartman Letter.  Eight weeks earlier, Sinclair saw gold for what it is: a hedge against currency devaluations.

“The carry trade has dropped the dollar as a currency of choice,” Sinclair told Bloomberg Radio in a Oct. 7, 2009.  “Gold is competition to currencies,” and added that he expects gold to reach $1,650 per ounce by the first quarter of 2011.  Sinclair was off by five months, as gold soared during the summer of 2011, reaching his $1,650 price target in August.

Back to Gartman:

Somewhere between the dates Nov. 16, 2009 and May 18, 2010, Gartman became to think, maybe, it was he who was naïve about the gold market, jumped back into the “bubble” at some point during the six-month period, then proclaimed to Reuters on May, 18, 2010, “We want out and are heading for the sidelines.”

Now Gartman tells us gold is done.  Finished.  The Fed is done bailing out banks on both sides of the Atlantic and a deflationary collapse is coming.

Apparently, others, too, have noticed Gartman’s poor record of calling bull market tops.  Didn’t Marc Faber make reference to these misguided souls in his interview with Financial Sense Newshour?  See BER article, Marc Faber Fears Gold Confiscation.

From zerohedge.com:

“In August 2011, Gartman said that gold was the biggest bubble of our lifetime. Inconsistently, only last week, Gartman said on CNBC that he is ‘long gold’ and has been for ‘six or seven months’,” zerohedge’s ‘Tyler Durden’ wrote.

“Gartman’s short term calls on gold and silver have been wrong more often than not in recent years. He tends to turn bearish after gold has already experienced a correction and is close to bottoming.

“Those wishing to diversify and add gold to their portfolio will use his call as a contrarian signal that we may be getting close to a low in this most recent sell off. Our advice is to ignore gurus, price predictions and noise – up and down – and focus on the real fundamentals driving the gold market.”

The obvious question, therefore, is: Why subscribe to the Gartman Letter while others steeped in the gold market have gotten it right?  One doesn’t have to pay for some good advice.  Just point your browser to King World News and listen to Eric King’s interviews with the gold market’s real McCoys, or read James Sinclair’s JSMineset.com blog.  Sign-up for my 100% FREE Alerts

James Turk: Lehman type Collapse in Weeks

Brace for impact and volatile trading, because Europe teeters to the brink, this time for real, according to James Turk.

Turk, the chairman of Goldmoney, told King World News he sees the signs of a rapidly approaching collapse in Europe’s debt markets, and the ramification will rival the collapse of the U.S. banking system in 2008 following the fall of Lehman Brothers. Sign-up for my 100% FREE Alerts!

Initially, what was a tiny Greek problem (2 percent of EU GDP), has moved to the heart of the eurozone through Italy (GDP of 2.1 trillion, or 13 percent of EU GDP), Though not a surprise, the attack on Italian debt this week has sped up the timetable for the needed chain of events to occur for a final resolution to the euro.

As Italian 10-year bonds trade above 7 percent, the line in the sand that Morgan Stanley said is where traders say Italy won’t recover, the crisis has moved definitively to the next step to resolution, one way or the other—monetize debt, break the euro, or allow the system to collapse.

If Italy won’t recover, the euro cannot recover—though “illegal intervention,” according to zerohedge in yesterday’s Italian 1-year bill by new ECB chief and former Goldman Sachs operative Mario Draghi served to grant more time for the euro—again, though not a surprise.  But an extended period of Fed-like shenanigans in European debt markets by the ECB is highly unlikely.  The Germans would recoil violently at the idea of a re-run to Weimar, taken behind closed doors, of course.

“Clearly the two percent plus drop today by the euro against the U.S. dollar is a warning sign that a major crisis is brewing,” Turk told KWN on Wednesday.  “I mentioned before that the Dexia and MF Global collapses are not the Lehman event I’ve been expecting before year end. But the markets are telling us that a major crisis is now brewing.  So be prepared for another Lehman type of collapse which will bring the financial structure to its knees.”

Turk’s grave assessment of Europe’s of the situation echoes countless among the media (not counting rumor mill central, The Financial Times of London), where the dialogue between the markets and the endless closed-door meetings of European leaders has been fancied.

French President Sarkozy and German Chancellor Merkel have already released some trial balloons to the effect of a euro breakup, a suggestion floated around by Wall Street and Main St. analysts for months.  Reuters served the European leaders their outlet to the markets yesterday regarding the latest solution.

“German and French officials have discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone, EU sources say. French President Nicolas Sarkozy gave some flavour of his thinking during an address to students in the eastern French city of Strasbourg on Tuesday, when he said a two-speed Europe — the euro zone moving ahead more rapidly than all 27 countries in the EU — was the only model for the future.”

While the foundation for a breakup of the euro is laid, the toothless apparatchiks of Europe will bark and humiliate Italy until it’s finally released along with the other Club Med fiscal basket cases to a second tier euro, knowing full well what Morgan Stanley had rightfully stated is a “mathematically impossible” future of Italy’s ability to service its public debt.

“The EU and the IMF telling Italy that it must adopt austerity measures is advice that comes about five years too late,” Turk explained.  “The Italian government cannot cut enough or fast enough to improve their financial picture.  The bottom line is the fallout from Italy is going to get very bad very quickly.”

He added, “ . . the wheels are finally coming off the cart and they [KWN readers] need to be prepared for some volatile and cataclysmic events over the next several weeks.”

Turk suggests holding gold, physical gold, that is, while the banks attempt to seize Italy’s 2,450 tons of the yellow metal.

Silver Price much too Low, Eric Sprott

Nervous about the silver price during the worsening global economic slowdown?  Don’t be, according to Eric Sprott, CEO of Canada’s largest independently-owned securities firm Sprott Asset Management.  Silver (and gold) have become de facto reserve currencies, according to him.

In the silver market, “we’re going hand to mouth these days,” Sprott told listeners of Financial Sense Newshour.  And Sprott, of all people, should know; the last significant order placed in the open market by his firm in late 2010 took three months to arrive, he said, “and some of the silver that was delivered to us was manufactured after we purchased it.”

Following the massive ambushed on the silver market by Fed proxy JP Morgan during the month of May, Sprott, has noticed a radical change in the dynamics between the paper market for silver and the physical market for the white metal.

“The physical market is what I analyze more than anything else, and all I see is buyers,” Sprott said, at which point FSN host James Puplava chimed in, “That’s what the dealers are telling me.”

In the past, a Fed ‘take down’ caused demand for physical to cool significantly.  Today, however, typical supply/demand norms have been righted—that is, lower prices increase demand and visa versa.  In other words, the silver market has become functional through its physical market participants.

“It was very convenient for central bankers and governments, the price of gold fell off exactly as Europe hit its sort of peak in risk of the financial arena in the sovereign thing,” Sprott mused.  But, this time, the Fed-led take down of silver and gold prices revealed a large crack this time in its scheme to suppress precious metals demand in the physical market.

Sprott suggested that the evidence gathered from buyer demand in physical bullion at his firm, and others he deals with, has led him to conclude that gold has finally taken on the role as the preferred reserve currency, a conclusion also drawn by Grant’s Interest Rate Observer author and publisher James Grant, World Bank President Robert Zoellick, Euro Pacific Capital’s Peter Schiff, as well as bullion experts James Sinclair and Goldmoney’s James Turk.

“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.” Get my next ALERT 100% FREE

If an investor takes a three to five-year horizon of the silver market, according to Sprott, the historical ratio between gold and silver of approximately 15:1 (a geological observation of relative scarcity of earth deposits) will, again, be achieved as investors realize that a decision to buy precious metals to offset ongoing devaluation of fiat currencies across the globe will more likely favor the relative cheaper of the two metals to the other.

Moreover, as Sprott points out, mining production statistics throughout recent years reveal a decline in the historical ratio of availability between silver and gold ores.  Today, it appears that the ratio has been stuck at approximately 10:1 for some time now, suggesting to some analysts that maybe ‘peak silver’ is upon us.

“So why should it trade to a 50:1 multiple?” posits Sprott. “Give it three to five years; we’re going to get back to ratios which are way more appropriate to the underlying fundamentals of gold and silver.”

At today’s gold price, a reversion to the historical norm calculates to a silver price of $110, or a whopping 70% discount to today’s $32 price tag, under the Sprott thesis.

As approximately 57% of the world’s GDP, that percentage, which is the combined GDP of the U.S., EU and China, appears to be collapsing—again (see IMF), a well-founded sense of gloom for a coming worse economic time has gripped global markets rather quickly, creating fear of another Lehman-like unwind of money flows out of dollar and euro-denominated assets, back into those currencies, which could, then, take down the precious metals complex.

Sprott believes that argument will ultimately prove to be a specious one, a throwback to another time when the U.S. dollar (and euro) was readily accepted as a reliable medium of exchange.  Today, investors should, instead, focus upon horrendous supply constraints and mushrooming investor demand, driven by eroding faith in the both the dollar and euro.  Violent short-term swings shouldn’t dissuade investors from holding silver for a three to five-year outlook, according to Sprott.

“God forbid that we actually end up with a seriously declining economy,” he said facetiously.  “Because if you think it’s bad for banks, today, wait until you have to deal with a couple years of negative GDP growth and what happens to value of those paper assets that they own.”

Sprott added, “The ultimate destiny for gold and silver is that people will prefer to own those investments rather than have money in the bank.  And there’s a lot of money in banks.  People don’t yet perceive that gold and silver are the superior investment, but in my mind they are.  Because when you have money in the bank, there is tremendous counter-party risk.”

Counter-party risk?  That’s a Goldmoney’s James Turk’s theme—a theme, Turk believes will seep into investor consciousness over time, catapulting silver to phenomenal heights in the coming years.  Ditto for Eric Sprott, who said in a MineWeb interview of April 5—“Silver is the investment of this decade as gold was the investment of the last decade.  So we’re sitting back waiting for things to evolve here.”

James Turk on Gold: Getting Close to the Endgame

James Turk increasingly sees the tell-tale signs of the endgame for the U.S. dollar rapidly emerging right before his eyes.  Ergo, a move in gold that will “light people’s hair on fire,” as the Nostradamus of the gold market, Jim Sinclair, has predicted, moves ever closer to reality.

“What we are seeing today is just like we saw in the 1970s when hot money was flying around the world from place to place,” Turk told King World News on Monday.  “Despite the fact that the Federal Reserve is buying long-term paper, interest rates are still rising.”

And rising rates on the long end of the curve, not only have demonstrated the dangers of levering up the Fed’s balance sheet but extending its average maturity (one of the many problems with Greek sovereign debt), it’s extraordinarily costly to the Fed and those who’ve made a living front-running the Fed, a la PIMCO’s Bill Gross, who, by the way, just released his crocodile tears mea culpa address to investors on Friday.  It appears the insiders at Gross and Co. have had a bad year.

“So the high in government [Treasuries] prices is probably behind us,” Turk speculated.  “This will eventually [lead] to questions about the Federal Reserve’s solvency.  The Fed has a lot of low-yielding paper and as interest rates rise, the price of that paper will fall.”

It appears that while Turk’s legion of tin-foil hat wearers have so far weathered this year the most vicious turmoil in currencies, sovereign debt and stocks since the 2008-2009 meltdown, Bill Gross has been busy taking a bullet for the Fed (Buffett, too, from his purchase of BofA ahead of the most dreadful earnings releases for the banks in recent memory) at the expense of his shareholders.

What?  Bill Gross?  Sounds like another tin-foil conspiracy theory.

Consider the real threat of a military invasion of any OPEC nation that threatens to bypass the U.S. dollar in oil transactions.  Collectively, OPEC holds approximately 30 percent less Treasuries than the potential holdings of PIMCO’s $1 trillion.  It’s a far-reaching conclusion to support a case that Gross has not been touched by someone at the NY Fed—and at a most critical time when ‘Operation Twist’ needed a little help beyond the initial reaction to the news of its deployment.

That’s a sign of desperation, or fear, at the Fed.  As the founder of bullion storage company Goldmoney reviews his proprietary model, called the ‘Fear Index,’ Turk has not backed off from his earlier prediction of $2,000 by November 1.  But from the looks of things, gold may not reach Turk’s $2,000 target with only 10 trading days left for October, but given his widely-followed track record, reaching as far back to the year 2000, Turk can only be faulted for his intermittent flubs in the precise timing of his calls.

That precision, of course, only proves that Turk is not included in the loop of cc’ed memos following ad hoc conference call pow-wows held by Bernanke, Geithner, JP Morgan and CFTC cabal.

Besides, a review of Turk’s record for timing major moves reveals miscalculations of only mere weeks, for the most part, but more importantly and typical of Turk, it shows his willingness to stick his neck out for investors time and time again—unlike the endless lame calls made by big Wall Street firms that issue target prices 5% from present levels and on a time horizon that nearly assures a correct call.

Turk continued, “It won’t take a big jump in interest rates to cause people to question the Federal Reserve solvency, especially given the poor quality of the assets on the Fed’s books from the bailouts it has engineered.  This is all part of the the overall trend of increasing fear as part of my ‘Fear Index.’”

And that’s where the dollar dominoes are mostly likely to fall first.  In line with Turk’s belief that a dollar collapse will show up first in the U.S. Treasury market, Donald Coxe, former Global Portfolio Strategist for BMO Capital Markets (the firm of the iconic CEO Jeremy Grantham) told listeners of Financial Sense Newshour that the dollar’s Achilles heal can be gleaned from the stresses on the Fed’s balance sheet and from the participation (or lack, thereof) at Treasury market auctions.

Keeping a careful eye on the amount of direct bid take-downs by the Fed’s primary dealers in relation to the indirects (mostly central banks and the likes of PIMCO) may provide investors a heads up to the stress the Bernanke Fed feels.  Zerohedge.com does a good job keeping investors apprised of the capital flows at the Fed’s custodial accounts.

As the Fed stresses, gold moves higher.

“What we are seeing in the metals right now is the quiet before the storm, Eric,” said Turk. “These are excellent times to be accumulating gold and silver on the dips because longer-term you are going to see price levels for the metals that today would be considered unimaginable.  This is how secular bull markets work and this one won’t be any different.  It will end in a mania that will, ‘Light people’s hair on fire,’ as Jim Sinclair is fond of saying.”

Peter Schiff’s Outlook for Gold & More QE

Speaking with Eric King of King World News yesterday, Euro Pacific Capital CEO Peter Schiff suggested that central bankers and policymakers remain resolute in keeping the financial system from collapsing by printing more money.  Contrary to the growing chorus of lemmings paraded on CNBC who chant the Fed is “out of bullets,” Schiff insists that the group-think conclusion drawn among analysts is utter nonsense.

“The Fed is not out of bullets in the sense that it is not out of ink, they can keep printing,” Schiff told KWN.  “They can’t lower interest rates, but they can print more money and buy more stuff.  That’s what the Fed is going to do, it’s not going to help the economy, but it’s going to help the price of gold.”

Unlike the deflationists, who claim that irrespective of monetary policy, all asset classes except best-quality sovereign debt (cash) preserve wealth during periods of debt destruction, Schiff’s street-smarts as well as his firm grasp of economic history lead him to advise his clients against holding cash. Instead, Schiff tells his clients to hold precious metals during times of debt destruction and to ignore the media-driven propaganda leveled against investing in gold and silver.

On France’s 222nd anniversary of the storming of the Bastille (La Fete Nationale), July 14, Schiff, in an essay, exposed Fed Chairman Bernanke for his incorrectly drawn conclusion (self-serving, maybe) for the reason behind the relentless highs reached in the gold price throughout the past decade.  Bernanke told Congress gold’s inexplicable rise was probably due to investors hedging “tail risks.”

“If it were true that people bought gold to protect themselves from market uncertainty, as the chairman claims, then the metal should have spiked in the midst of the ’08 credit crunch,” Schiff explained in his July 14 piece.  “Instead, it fell along with most other assets.”

And, since the 2008 crash (in all asset prices, except U.S. Treasuries) and two QEs from the Fed in response to the meltdown, spot gold nearly trebled in price to $1,930 in September of 2011 from its October-2008 crash-low of $680.

A more complete picture of the crash aftermath can be gleaned on a relative basis between hard money and paper assets.  In purchasing power of gold against the dollar (Schiff’s point all along), it took 12 ounces of gold to buy one share of the DJIA in October-2008; today, the Dow can be purchased for 6.78 ounces—a 77% increase in purchasing power in dollar terms in three years—and that purchasing power muscle includes the steep decline from the September high of $1,930 in the gold price to today’s 13.5% discounted price of $1,670.

Just as the global markets in 2008 rushed from one side of the boat to the other in another convulsing liquidity crunch, the history of knee-jerk reactions back into the dollar repeats.

Schiff stated in his July piece, “[In 2008] people instinctively fled into U.S. dollars and Treasuries because of their long record of stability. What Bernanke doesn’t understand is that his irresponsible monetary policy is undermining that faith in U.S. assets, built up over generations. That is what’s driving gold: easy money, negative interest rates, and quantitative easing.”

Schiff agrees with famed commodities investor Jim Rogers on that point.  Both agree the Fed will continue debasing the U.S. dollar (the underlying catalyst for the bull market in gold), but in the meantime liquidity concerns outweigh that strong underlying fundamental of the gold market.

Rogers said in an Oct. 4 interview with Russia Today, “The standard reaction is in times of confusion is to run to the U.S. dollar.  It’s the wrong thing to do in my view, but I know they’re all going to do it, so I’ve done it [before the run].”

So what does Schiff (and Rogers) think, today, is in store for the dollar and gold market?

“QE3 is coming, if it is not here already,” Schiff told KWN yesterday.  Rogers echoed Schiff’s observation (conclusion) in the October 4 interview with RT.

“Gold prices are going a lot higher,” Schiff said.  “There is a lot of upside left in the gold market and I think we are years and years away from making a top [as a result of QE3 and subsequent QEs].”

Schiff continued, “We’ve had a large selloff and so it would be a big move for gold to make new highs and get above $2,000 before the end of this calender year, but it’s certainly not impossible.  If it doesn’t happen in 2011, it will happen in 2012, we could end up a lot higher.”

Marc Faber releases Gloom Boom Doom Report

Hold onto your seats, says Swiss money manager and publisher of the Gloom Boom Doom Report, Marc Faber; it’s going to be a rough ride ahead for investors.

In his latest view on the markets, the quintessential contrarian suggested in his October edition of the Gloom Boom Doom Report that the real threat to global markets is China, not the global financial crisis epicenter of Europe.

China, he stated, may be on the verge of economic collapse, stemming from the dreaded one-two punch of rapidly increased capital goods overcapacity to match significant reductions of global demand for its products.

The recent precipitous decline in the price of cooper tells Faber that China’s rapid GDP growth may have been somewhat of a mirage for a spell.  What was once thought of as a clever means for China to dump U.S. dollars in favor of ramped-up infrastructure spending in the People’s Republic, with numerous reports streaming into the West of newly-built cities erected in anticipation of millions of soon-to-come inhabitants, may, instead, result in another example of a Mao-like central planning scheme gone bust.

In 2010, at a conference in Russia, hedge fund manager Hugh Hendry of Eclectica Asset Management opined about the very same risk he had seen to the Chinese economy, quipping, at that time, “Confucius say: Though shall not invest in overcapacity.”  Hendry proceeded to warn of a surprise economic collapse in China reminiscent of Japan’s meltdown of 1989.

In recent years, massive infrastructure increased as a percent of GDP in China, while consumer spending dropped as a percent of the total output of the Chinese economy, temporarily front-loading stellar growth results that, it appears, now, are unsustainable and at risk of collapsing the Asian juggernaut.

Faber, who’s been spot on, so far, with his prediction for weaker gold prices in the short term (before a next leg up in the metal becomes a play against serial central banking mishaps), stated that this latest correction in gold may last a while longer, still—and might take the precious metal to the $1,100-$1,200 level before the bottom is reached—a la 1974-76.

“We’re now close to bottoming at $1,500, and if that doesn’t hold it could bottom to between $1,100-1,200,” Faber told CNBC’s Steve Sedgwick on Sept. 25. It appears Faber hasn’t backed off his call of the 25th.

As a backdrop to Faber’s thinking at this time, it should be noted, too, legendary currencies strategist John Taylor of FX Concepts suggested a 50% decline from the $1,900 mark was in the cards for gold.  But, more impressively, Taylor told Bloomberg during the summer months of 2011 that gold could touch $1,000 after reaching a new high of $1,900.  Eerily, Taylor made those calls when gold traded at approximately $1,500 per ounce while the gold market was about to enter the seasonally slowest months of the calendar year of July and August.

Faber suggested in his latest report to subscribers that a drop he envisions for gold to the $1,100-1,200 range would mimic the historical performance of the gold price during the 1970s.  In 1974, gold traded as high as $200, up nearly six-fold from the official $35 peg of 1971, then sold off off to $100 by 1976.

But as history shows, the damage to the dollar had already been done following the Nixon Administration’s executive order to decoupled the dollar from its gold backing in 1971.  After the 1974-76 decline of 50% in the gold price, from the $200 high of 1974, back down to $100 in 1976, the gold price never looked back, skyrocketing to $850 per ounce by January 1980—a nearly 85% compounded return during that 42-month period.

Could Faber be right again, or has he gone too with in his prediction in the wake of ongoing fat-tail moves in emerging market currencies and European sovereign bonds?  Conventional wisdom today is Europe is going down and it’s about to get uglier than the Lehman crisis ever got.  But, unlike the Lehman event, everyone’s expecting the worse outcome in Europe this time around.  Has the gold market already priced in a catastrophe in Europe, or not?  We’ll see.

Occupy Wall Street Revolt reaches Silver Market

Arab Spring spreads to the United States.

As operation Occupy Wall Street buds into a potential monstrous patch of weeds scattered throughout, what would be, otherwise, a bankers Garden of Eden, with unconfirmed reports of the Transportation Workers Union, Teamster’s Union and Verizon Workers slated to join in on the bankers bashing this week in NYC, the silver market, too, is undergoing its own protest—of sorts—against the Monopoly money of the bankers—the U.S. dollar.

Speaking with Financial Sense Newshour’s James Puplava, CEO of KDerbes Precious Metals, Kathy Derbes, told listeners that September’s swoon in the silver price sparked a shocking revolt against paper money, as her clients came in with “extraordinary buying” for all silver products “across the board” in a frenzy to trade paper for precious metals, especially silver.

Derbes account corroborates reports out of King World News’ Eric King, who interviewed Eric Sprott of Sprott Asset Management last week, in which Sprott said his firm had been wiped clean of its silver stock during the huge price drop of the week ending September 30.

Similar to Sprott’s clients, Derbes’ explained that her clients are well-healed, shewed investors who are acutely aware of the bullish fundamentals underpinning the bull market in silver.  In fact, in the minds of these investors, according her, the reasons for converting paper money to hard-money have intensified.  “They know what’s going on,” she said.

While the selling intensified in the silver futures pits last week, Derbes said her clients previously had picked up on the paper game played at the Chicago Mercantile Exchange (CME) and don’t interpret the price drop as a disappointment.  The opposite reaction, she said, is true: these investors see the calamity as a gift.

“That [silver's 30+ percent drop within three days] was intense selling for a myriad of reasons, Derbes explained.  “But while that was going on, my clients on the physical side have had just extraordinary buying.”

“I think investors are really smart; they know what’s going on.  They understand that these price breaks, particularly this time around, are not telling us anything about fundamentals of gold and silver,” she continued.  “In fact, I think the reasons for owning it have gotten a lot stronger.  It’s basically a reaction to, in my opinion, short-term liquidity needs brought about by a number of different issues going on in the macro environment.”

Not only have premiums increased for sovereigns and privately-minted silver coins at bullion dealers during last week’s sell off, dealer delivery times are expected to match the delays following the aftermath of the global 2008-9 sell off.  At that time, reports from dealers across the globe indicated long lead times for larger orders, most notably, of which, came from Sprott Asset Management  and the subsequent ongoing drama associated with protracted delays in delivery of its 694-ton silver order in late 2010.

On Jan. 10, 2011, Sprott issued the following news release: 

As of Nov. 10, 2010, the Trust had contracted to purchase a total of 22,298,525 ounces of silver bullion. As of Dec. 31, 2010 a total of 20,919,022 ounces of silver bullion had been delivered to the Trust. The Trust expects to take delivery of the final 1,379,503 ounces of silver bullion by Jan. 12, 2011.

Derbes believes the market for silver may become tighter, still, in subsequent weeks and moths ahead following last week’s massive drop in the spot price at the COMEX.  Coin premiums have soared on Thursday and Friday of last week, just as they had during the last steep correction in paper silver two years ago.

“We’re probably in the beginning stages of what could be shortages; it certainly looks that way, so we’ll have to wait and see what happens,” she reckons.  “I’ll tell you this, the buying has not stopped.  If anything, it’s intensified this week.  It’s pretty amazing.”

“We have to remember that it’s [silver] a market that cannot be printed into existence like the paper currencies.”

The Occupy Wall Street movement is the latest in, what appears to be, an ongoing and more intensified crises in confidence in US institutions.  While protestors descend on Wall Street to voice their anger regarding its government taking side with big bankers and the Fed during the toughest economic times since the Great Depression, investors in droves are casting their vote against the paper dollar and in favor of hard money—gold and silver.

Is the QE Train finally Coming?

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

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

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

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

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

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

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

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

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

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

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

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

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

–Ludwig von Mises

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

The final outcome of the credit expansion is general impoverishment.

–Ludwig von Mises

Who needs a break?

Peter Schiff: Message to Gold & Silver Investors

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

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

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

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

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

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

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

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

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

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

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

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

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

“That’s why we’re buying gold.”

Marc Faber on the Gold Price

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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