Peter Schiff’s Latest Comments About Gold and Gold Stocks

With the dismal performance of gold stocks testing the patience of even hardcore gold bugs, Euro Pacific Capital CEO Peter Schiff believes investors should not panic and sell, but hold on, the bottom in the gold mining stocks is probably in.

And if the bottom is not in, hold on anyway.

“We could see another 10% pop in a week or two in the mining shares,” Schiff told King World News on May 23.  “There’s a very good chance that the bottom is in, especially if we can get a rally in gold.”

At this time, it may be worth repeating a famous quote from economist John Maynard Keynes: “The market can stay irrational longer than you can stay solvent.”  On the way up and on the way down, markets can mis-price assets to ridiculous levels for longer periods of time than appears rational.  Today, it’s the U.S. dollar, U.S. Treasury market and gold, which have been mis-priced for so long.

“Right now the U.S. dollar has been rising because of worries about Europe, but the dollar is sicker than the euro,” Schiff said.  “So both currencies should be falling against gold and gold should be taking off here.”

To put into better context how “sick” the U.S. dollar really is, consider an article penned by USA Today journalist Dennis Cauchon, who outlined in his May 23rd piece the horrific fiscal shortfalls in Washington—a fiscal debacle so large that economist John Williams of ShadowStats.com expects hyperinflation in America some time in 2014 as global investors might eventually witness 100 percent Fed monetization of fresh U.S. Treasury debt.

Under the Generally Accepted Accounting Principles (GAAP) rules of reporting financial disclosures, “the [U.S. budget] deficit was $5 trillion last year under those rules,” stated Cauchon.  “The official number was $1.3 trillion. Liabilities for Social Security, Medicare and other retirement programs rose by $3.7 trillion in 2011, according to government actuaries, but the amount was not registered on the government’s books.”

Whether investors are aware of the fraudulent U.S. Office of Management and Budget (OMB) accounting, or not, the reality of millions of baby boomers retiring each year and the growing budget deficits that come with an aging population will reach an inflection point, whereby investors of all stripes come to expect money printing as a way of life and begin trotting, then running, to gold and the gold shares in an effort to protect from a Greece-like financial collapse.

And the quick-fix to Washington deficits through Fed ‘stimulus’ and the higher tax receipts that result from a U.S. “bubble economy” has finally reached that ‘Minsky Moment’, according to Schiff.  After trillions of dollars of Fed stimulus since 2009, the economy just isn’t responding like it had for nearly 70 years of Fed intervention—a prediction made by 20th century economists Hyman Minsky and Ludwig von Mises, among others, of the ramifications of chronic central bank money supply injections.

“The market is just rolling over, as it’s coming to grips with the fact that the fantasy they believed in is just that: fantasy,” Schiff said in an earlier KWN interview of May 18th, referring to the recently reported poor economic numbers from Washington and private sources.  “It’s not reality.”

Schiff went on to say that gold—and by extension gold shares—will rise “as investors realize that QE3 [quantitative easing] is coming, because the Fed has already said that.  If the economy needs it, it’s going to get it.  And the economy is addicted to it [stimulus].  I mean, this economy needs QE like a heroin addict needs another fix.”

Back to the May 23rd interview:  Schiff suggested that the relative strength of the HUI index of mining shares to the gold price so far this week indicates to him a bottom is in and a buying opportunity is at hand.   As far as the gold mining shares, “we could have a pretty serious up-move in the gold stocks in a very short period of time.”

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.

WikiLeaks Exposes Germany’s Euro Exit, Gold, Diamonds, Oil to Soar

It’s the German way or the highway in the eurozone, according to the latest hot cable released by WikiLeaks.  Sign-up for my 100% FREE Alerts!

U.S. ambassador to Germany, Philip Murphy (Goldman Sachs alumnus), issued cable 10BERLIN181 to Washington on Feb. 12, 2010, which essentially states that Germany leadership’s reluctance to backstop the PIIGS’s profligate spending of the past centers upon its sense that, in the end, Germany’s political and economic survival would be placed in jeopardy.

It appears Germany has no intentions of running a U.S.-style print-and-spend economy, nor does it want to hand over decades of productively earned savings to a bunch of layabouts from Club Med, either, especially those in Greece, where a Greek civil servant is able to retire at age 50, and, while employed, can take 14 months pay for 12 months work, for, presumably, spending-money during vacations.

Approximately 40% of the population of Greece works for the public sector. In comparison, nearly 20% of U.S. jobs come from U.S. tax dollars—a bloated number even by U.S. standards.

Gross inequity.  That’s the predominate mood in Germany, according to German news organization Die Welt (translated to English), which published a poll revealing that 71% of Germans insist upon a referendum on further steps taken regarding German’s obligations under the euro currency block.  Sixty-three percent of Germans want Greece to leave the euro.

One can only wonder about the rational of the other 29% and 37%, respectively, who agree to pay for early retirements and lucrative government jobs for so many Greeks.

Moreover, it’s no secret that Greeks don’t even want to pay for their own government’s spending habits.

CNN reported, “Greece is renowned for its history of tax evasion, estimated last year as worth 4% of GDP—$11 billion.”  That amount equals to approximately $560 billion to the U.S. Treasury derived from a $14 trillion economy—per year.  But the UK Telegraph suggests the amount of tax payments evaded is much higher. Greece loses €15bn ($20.5bn) a year to tax evasion, is the headline by the Telegraph.  Now, we’re talking nearly 7% of Greece’s $304 billion GDP (World Bank statistic).

And the New Yorker Magazine writes, “Greeks . . . see fraud and corruption as ubiquitous in business, in the tax system, and even in sports.”

So Germans, who’ve prided themselves as the most productive workers of the most extraordinary products for centuries, are now asked to pay into a broken system that the Greek people, themselves, don’t have confidence in?

In all, the WikiLeak’ed cable doesn’t add much new to what is already known, but it’s an interesting note that Washington has been bantering around the German question for some time, and has probably added fuel to the fire in Europe, too, in the hopes Treasury can skate a little while longer with its dollar debasement program of scare tactics, herding fund managers into the ‘safety trade’ of the U.S. dollar—another grotesque excuse for a currency.

Little attention by the U.S. media has been paid to the U.S. dollar’s noticeably weak response to the circus-like atmosphere in Europe—with no qualms, either, from the rumor mill of the Financial Times of London, as the Anglo-American tag team place center stage each and every sideshow act, as well, though Berlusconi’s narcissistic behavior can be quite amusing and compelling to report.

If the outrageous situation between the Germans and Greeks isn’t enough to crash the euro experiment in a heap with the Ford Edsel, the best tidbit within the Murphy cable briefly outlines the most difficult bolder to roll in the effort to force Germany to bailout Europe (which it mathematically cannot anyway): the legal one.

“In 1990, Germany’s Constitutional Court ruled that the country could withdraw from the Euro if: 1) the currency union became an ‘inflationary zone,’ or 2) the German taxpayer became the Eurozone’s ‘de facto bailout provider,’” Murphy stated in the cable to Washington.  “Mayer [Thomas Mayer is Chief Economist of Deutsche Bank Group] proposes a ‘Chapter 11 for Eurozone countries,’ which would place troubled members under economic supervision until they put their house in order.”

Under these bizarre circumstances, a blog entry by Pippa Malmgren, former economic adviser to President George Bush (George II), has been given some traction since her post about her thoughts on the euro, in September.

She believes that the Greeks will default, the euro will fall, the Germans will walk, and gold, oil as well as other commodities will soar.

She writes, “Greece defaults. . . The Germans announce they are re-introducing the Deutschmark. They have already ordered the new currency and asked that the printers hurry up.”

As a result, she add, “Gold, diamonds, agricultural assets, energy prices and mined asset prices will rise. Default reduces the debt burden and allows growth and inflation to return.  If central banks (other than the ECB) throw huge liquidity out into the market because of this event then the liquidity is going to lean away from paper financial assets other than the most trusted and liquid (U.S. Treasuries), and lean toward hard assets.”

Anyone wondering how the U.S. Treasury intends to come up with $628 billion by Mar. 31, 2012, to keep the illusion of the U.S. dollar alive without herculean efforts by the Fed’s balance sheet may see the crisis in Europe as possible or partial answer.  As German protects itself from another Weimar, the U.S. needs a solution to its own reichsmark.  So far, the dying PIIGS have provided Treasury a temporary one.

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.

Buy Gold Stocks, Peter Schiff & David Einhorn

Speaking with KWN’s Eric King, Euro Pacific Capital’s Peter Schiff recommends gold stocks at this time due to the meaningful lag of the sector relative to the high price of gold. Sign-up for my 100% FREE Alerts!

“I think if you look at the underperformance relative to bullion, they (gold stocks) are the cheapest they have ever been.” Schiff told KWN.

Anyone following Schiff’s commentary knows he’s liked gold stocks, especially as the gold bull market enters its second stage—a stage when hedge fund managers start jumping aboard more broadly in both the bullion and stocks.

One such manager, Greenlight Capital’s David Einhorn, has been getting lots of press lately for his decision to lighten up on gold bullion to buy gold shares for his clients.   Einhorn has been a gold bull for several years, but he anticipates that after 30 months of poor performance of the gold stock relative to the metal the time is now to change to a faster horse.

“A substantial disconnect has developed between the price of gold and the mining companies,” Bloomberg News reported Einhorn saying in a conference call to investors. “With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk-adjusted returns even if gold does not advance further.”

He added, “Since we believe gold will continue to rise, we expect gold stocks to do even better.”

According to Bloomberg, Einhorn has chosen the gold miners ETF, GDX, to expose his fund to the sector’s major producers.  He still favors the metal, but he now wants to get more for his buck from the leverage to the gold price that gold stocks offer investors.

As with any stock, management and operation risks remain as primary concerns to investors taking on exposure to the gold bull market through the ownership of mining shares.  Einhorn’s choice of mitigating that risk through the GDX ETF is a good one, in that a diversified holdings of the world’s major producers reduces his exposure to either a surprise nationalization of a mine somewhere in the world or some other negatively impacting event to one or two of the stocks which make up the GDX.

The graph, below, demonstrates Schiff’s assessment and Einhorn’s bet.  The ratio of the gold price to the GDX has risen to approximately 30 while the gold price rallies to above $1,750.  One would think the gold:GDX ratio would drop rapidly. Not yet.

Note the low gold:GDX ratio between the years 2002 and 2008.  While gold traded below $1,000 (except briefly for a short spell in 2008), the gold:GDX ratio stood at below 20 nearly consistently throughout the six-year+ period.

Today, however, the majors have enjoyed bullion prices above $1,500 for quite some time.  The gold price to the oil price is quite high, which is also favorable to the majors.  Margins of the majors should be ballooning quite rapidly.  It’s only a matter of time investors notice some pretty hefty earnings from the majors, decompressing those P/Es through higher stock prices.  That’s the Einhorn bet.

Silver Price: Silver “Could Easily See $75”, James Turk

Silver bugs anxiously waiting for a the next big move in silver could get one soon enough.  Goldmoney’s Founder James Turk is out with his next call for the silver price.  He believes silver could reach between $60 to $75, “easily,” but wouldn’t put a time period for that target range.

Turk does, however, expect a technical breakout of the silver price from its consolidation to take place sometime in November, which he expects will embolden the bulls to race prices through $50 and to all-time highs.  After $50, the sky’s the limit for silver. Get my next ALERT 100% FREE

“Silver is forming a beautiful, long-term, flag consolidation pattern,” Turk told King World News, Monday.  “The flagpole started in 2010 at $18 and peaked at $49 earlier this year.  We are now in the flag and we can expect a breakout, I think, within the next few weeks.”

As one of several old hands of the bullion business, Turk understands what drives gold prices—therefore, silver prices.  He takes publicly available Federal Reserve data to estimate the expected change in the Fed’s balance sheet and calculates to a ‘fair price’ for gold and silver.  He calls his simple, yet elegant, model, “The Gold Money Index”.

As traders watch for any hint of a Fed announcement regarding more QE, the matter before the Fed appears to be fait accompli.  As a reminder of the grotesque U.S. budget deficit, expected to reach at least $1.6 trillion for fiscal 2012, the U.S. Treasury issued a news release on Monday, announcing its funding needs for the quarters of Oct. – Dec. and Jan. – Mar., totaling $628 billion, or a 35 percent jump from the equivalent six-month period a year ago.

Here’s the widely-known problem with Treasury’s plan to fund additional deficits at this time:

Foreigners, who have propped up U.S. deficit spending for more than two decades through increasingly higher amounts, have been net sellers of Treasuries lately, not net buyers—and that 35% increase in additional funding needs comes at a time when foreigners are withdrawing from the dollar to debase their own currencies.

One question looms large.  Will the Fed have to buy the entire $628 billion net issuance?  If so, the Fed’s balance sheet will grow at a 47.9% rate from its approximately $2.9 trillion total.

A collision course with a big precious metals move is near, as auction results should show larger and larger take-downs of Treasuries from its primary dealer network.  That should spook the markets.

The formation for silver’s recent consolidation indicates the market expects the Fed to mop up Treasury issuance in another QE operation.  What else can it do? Talk of ‘inflation expectations’ and U.S. GDP is an obvious and tired smoke screen to the reality of Treasury’s funding needs.

“. . . it [silver price consolidation formation] projects to a $60 silver price, but given the strength of this pattern, one could easily see $75,” said Turk.  “The shakeout over the past six months has put a lot of people on the sidelines.  I don’t expect that money to come back into the market until silver goes back above $43.  When silver takes out $43 it should rocket just like it did earlier this year when it nearly doubled in price.”

The graph, below, illustrates James Turk’s confidence of rapidly rising silver prices in the coming months, though the extent of the anticipated damage to the Fed’s balance sheet, which drives precious metals prices, is unclear.

It’s no secret that higher interest rates cannot be tolerated by the Fed.  Near-zero rates at the short end of the curve until at least June 2013 is already entered into the record.  That is clear.  Therefore, if foreigners cannot be counted on (they don’t have the additional cash) to buy U.S. Treasuries, no one else but the Fed can buy them.

PIMCO’s Bill Gross asked the rhetorical question in one of his missives last summer, “Who will buy Treasuries if the Fed doesn’t?”  A better question might be, “How much Treasuries will the Fed buy?”

Or . . . and may be classified as a tin-foil hat proposition: what if an outrageous event occurred somewhere in the world that would scare investors into Treasuries at any price?  We could see Treasuries mopped up at lower yields and soaring precious metals prices simultaneously.  Who knows?  But traders of both gold and silver shouldn’t be disappointed in any event.

Silver price: Launch Underway!

With the global shift back to the dollar-flight trade, let’s look at the silver price’s technicals to see where we are in the trade, with the emphasis on one-way bets on silver—long!  With physical buying pouring into the market, taking a short position is suicide.

During the massive plunge (normal for the silver market) in the silver price, noticed where the heavy buying came in—right below Richard Russell’s 20-month moving average.  Russell looks for where to 20-month MA is relative to the 40-month for long-term buy and sell decision points.

“I’m looking right now at a chart of 20-month and 40-month moving averages of gold [said can be said of silver],” Russell said in a roundtable discussion with FinancialSense Newhour’s, “and May of 2002 . . . the 20-month moving average finally moved above the 40-month moving average.”  Coincidentally, the buy signal in the precious metals followed UK’s Chancellor of the Exchequer Gordon Brown’s dump of 60% of British of England gold reserves.

With no foreknowledge of the schemes of the gold and silver cartel, it appears the sell-off in silver is complete.  Notice the similarities between the sell-off during the de-leveraging event brought on by the collapse of Lehman Brothers in 2008 and the sell-off in the silver price during the coordinated raid by the cartel in May, made easy for the cartel from all the shallow-pocket speculators jumping on a moving train.  A simple margin raise was in order and watch the speculative longs fall like dominoes.

Volume statistics, as shown in the above graph, suggest a confirmation of COT reports which show speculative longs flushed out of the market during the May sell-off.  But note the volume; it’s reached levels not seen since the summer of 2010 when silver traded below $20.

More importantly, the difference between the two sell-offs cannot be gleaned from the charts.  The action is in the physical market is decidedly different this time, as a slew of reports coming from bullion dealers across the globe tell of physical buyers jumping into the market with both feet at these lower prices—in stark contrast to the 2008 sell-off.  Goldmoney’s James Turk and Eric Sprott of Sprott Asset Management (read article here) have both reported experiencing equal dollar amounts of purchases between gold and silver.  Significant order of silver run weeks to delivery—again!

Considering the price ratio of gold and silver is 50:1, already-long delays in securing a supply of silver provides a critical disincentive for the cartel to act anytime soon—if at all, in the future.

Tocqueville Gold Fund manager John Hathaway told KWN, “To the extent that this is a rigged game, the game is now over.”

He notes that commercial physical buyers may panic to secure silver at any price to keep production of its products moving.  Due the small amounts used by commercials in the production of most consumer electronics, to them, silver is an inelastic commodity.  JP Morgan is very well aware of this dilemma and most likely won’t push this manipulation scheme to a de facto force majeure (may never officially acknowledge one) at the COMEX intentionally.

Chief Investment Strategist of Sprott Asset Management John Embry agrees. “Right now we are in the throes of something similar to the old ‘London Gold Pool’ getting overrun,” Embry told KWN.  “I remember the London Gold Pool situation quite well, you have to be old to remember it but I do.  I see absolutely no difference this time except conditions are infinitely worse this time around and there is less central bank gold [silver supplies worse] available for the manipulation.”

Embry added, “So to me if the seventies were fantastic as a result of the London Gold Pool being broken, this one is going to be way better.”