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.

Silver traders: Stop Cryin’ and Start Buyin’!

As another financial crisis comes to a head, another silver crash ensues.  Oh, the tears of sorrow!

Background:

Though there still exists economists, portfolio strategists and corporate CEOs who still don’t see or admit to seeing a double-dip coming to America [did you watch CNBC yesterday?], everyone’s favorite sleaze, George Soros, on September 21, told—that very same 24-hour propaganda doubly-sleaze outfit—CNBC, that the U.S. is in “a double dip already.”

Sometimes, Soros, too, tells the truth, as long as it aligns well with his fascist global-community agenda.

But if you’ve been listening to John Williams of shadowstats.com, you’d already know the fake recovery was just that, fake, and that the worse days for the U.S. are yet to come.

“As activity begins to turn down again, you are going to see things get even worse, and the continued economic trouble is going to be very long and very deep,” Williams told KWN on July 11.  “That puts the Fed in a circumstance where you virtually are assured of a quantitative easing three. That in turn will weaken the U.S. dollar further.”

But as we all know, Bernanke, instead of giving the market what it perceived it needed on Wednesday, crushed the dollar slide, instead.  No QE3!  Not today, anyway.  But Williams will most assuredly be proved correct after the fight from Republicans on Capitol Hill turns Captain Queeg ‘yellow stain’ as it did during Speaker Newt Gingrich’s 1995 noble fight to turn the money spigots off by shutting down the Treasury-Fed cabal.

At some point, the mob will beg for QE3!  Ask Gingrich, who went from Time’s Man of the Year to the bum who authored the ‘Contract ON America” —which leads us to today’s Fed puzzle.

“The markets apparently were hoping for a large, magic pill for an anemic economy that feels like it’s catching the flu,” Barton Biggs told Bloomberg News.  He’s now been quoted by the Washington Post as saying we may be “on the eve” of a financial crisis.

And Dr. Feelgood at the Fed can’t wait for his patient to beg for that shot, thereby garnering support in Washington and within his own ranks to play catch up in the race to minimize the impact of a crushing debt load plaguing the U.S. economy.

John Williams (as well as BU’s Laurence Kotlikoff) has worked the numbers and concludes that the federal budget is “beyond containment.”  The U.S., too, is standing inline for a Greek moment—a Minsky Moment—but that moment is temporarily frozen in time.

What Bernanke showed us Wednesday is that he is indeed very concerned about commodities prices forking the wrong way during that critical phase of a debt-based monetary system gone hopelessly broken, a phase that von Mises referred to as the ‘Crack-up Boom.’

Bernanke doesn’t want hyperinflation; he’s not stupid.  But he does want some inflation in the money supply (however it’s defined)!  “The Bernanke” just doesn’t want his helicopter money printing of U.S. dollars to become expected by market participants.  Admittedly, in hindsight, he had no choice but to punish the markets for even suggesting, at this time, for that whopper monetary shot.  Bernanke wants everyone on the same page begging for QE3.

The Bernank refers to inflation expectation incessantly in his testimonies, speeches and writings.  Believe it or not, The Bernank (and Greenspan, and every Fed chairman since Marriner Eccles (from whom we get the name of the politburo headquarters in Washington) has heard of von Mises and has read his brilliant works.

Austrian economics professor Ludwig von Mises (September 29, 1881 – October 10, 1973) stated that the Crack-up Boom we’re immersed in today can lead to two outcomes: deflation or hyperinflation.  Von Mises wrote:

“If once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse).”

Money supply dropped post 1929 crash, and the student of the Great Depression vowed to Milton Friedman that it won’t happen again.  Take Bernanke at his word.  That’s why he was chosen to head the Fed.

But there’s a catch to the money pumping, many, in fact, but most notably the expectations for the direction of consumer prices.  Are inflation expectations “firmly anchored”? as Bernanke likes to state.

And the best way to crush exceptions is to coordinate an attack, initially, on the Swiss franc and commodities complex, then the precious metals, then, everything connected to the inflation trade.  Bravo.  Well done.

Bless CNBC’s Bob Pisani, too, for his repetitive comments regarding traders “gaming the Fed” the week prior to the FOMC meeting.  He was right!  And Bernanke certainly was on board with that observation along with every hedge fund manager from Tokyo to Greenwich, Connecticut.  Even Greenwich’s has-been Barton Biggs ended up looking like a chump for making a call for a market bottom in August.

Well, it’s Revenge of the Nerds.  Isn’t it?  Cool hedge fund managers getting clocked by a bearded policy wonk.

So what is a fiat-money slave to do?: 

Well, has anything materially changed in the outlook for currencies debasement in the coming zillion years?  Read a little from BU’s Laurence Kotlikoff or subscribe to John Williams Shadowstats.com for an instant primer on the disaster that has been covered up by everyone who’s been benefiting from the cover up.

So, stop cryin’ and start loading up the basket of silver goodies left behind by those unfortunate, scared, stupid, impetuous, lazy, distracted or drugged out to know the tsunami will eventually move from the entire world back to U.S. shores.

And, by the way, if you happen to live in Brazil and were clever enough to hold gold (silver prices will be a commin’, too), gold hit a record high in Reals yesterday.  What?  No coverage on CNBC?  So, the inflation generated by, and led by, the gang of four at the Fed, ECB, BOE and BOJ has reached the ‘invincible’ Brazil.  A crushing 22% collapse in the Real since July 26 spells potential civil unrest from those lagging behind its approximate $10,000 PPP national average.

Watch for a potential Brazilian Real-like crash in the Malaysian Ringgit, Thai Baht, Philippines Peso, Indonesian Rupiah and other currency escape routes out of the U.S. Dollar.  The tide has gone out fully now, and the Bernanke knows it will eventually come back to the shores of the U.S.

MP Nigel Farage said it well; he told King World New’s Eric King, yesterday, “Yeah, we’ve had a setback, a little bit of a settling of the gold price after what was a meteoric rise.  I think the worst in the financial system is yet to come, a possible cataclysm and if that happens the gold price could go (higher) to a number that we simply cannot, at this moment, even imagine.  Gold is in an uptrend and professional traders should be buying the dips.”

Naturally, it’s dittos for buying silver.

Silver to reach $75 following Wild Volatility, says Silver Guru

Silver investors have become routinely accustomed to silver’s rapid price advances during less-impressive advances in the gold price,and vice versa, on the way down; silver has plunged sharply while gold merely “corrected” during the decade-long 2-steps-forward-and-1-step back bull market.  Silver can be said to act as a leveraged play to the gold price.

But during a period when global market participants suddenly get hit in the face with the chilling reality of how bad the state of the financial and political system of the West really are (and, now, how this mess could affect China), a lot of unwinding of trades dependent upon the prospects for silver’s industrial demand will greatly dampen, or depress, the upward move in the silver price which otherwise would result from buyer of silver as a safe haven monetary metal.

But not to worry about silver’s temporary disconnect with gold, according to life-long silver aficionado, David Morgan, the publisher of The Morgan Letter.

In an interview with The Gold Report, Morgan said it’s hard to predict the amount of hot money in the silver trade at any one time compared with committed money in the metal.

“As people figure out that there really is no solution to the global financial system without a great deal of pain and some defaults along the road, more will seek the safety of precious metals,” said Morgan.  “So, even when things calm down for the moment, it does not mean the precious metals will not get pushed down.”

In the event of a tragic solvency crisis turning into outright signs of a Depression coming, the bloodletting in the silver market may continue until it’s flushed of weak hands jumping from one trade to the next—which is a considerable amount when considering the ratio of dollars held in paper silver against physical silver is approximately 100:1, according to GATA.

“You could see gold and silver react to the downside, perhaps dramatically—$5/ounce (oz.) silver is not entirely out of the realm of possibility,” Morgan speculated in the event of another 2008-like sell off, though the catalyst for today’s crisis centers on the insolvency of governments and the shock of much weaker-than-expected economic growth from debtor nations.

“My best guess is we will see some pullback going into mid-August,” he added, as investor demand comes back in to pick up silver at bargain prices before the traditional September to April buying season and strong demand accelerating out of Asia.

But more importantly, Morgan, who agrees with Swiss money manager Marc Faber suspects that the endgame in the Bretton Woods currency scheme failure is near, and that governments will opt to continue debasing their respective currencies in lieu of outright default.  But where the two men differ from Goldmoney’s James Turk and the legendary Jim Sinclair is, first, a sell off before the historic advance in the silver price past the all-time high of $50.35.

As the crisis deepens in Europe, banks have stopped lending to each other, as no one really knows the extent of hidden liabilities on the books of their brethren banks.

“It seems interbank lending is starting to freeze up in Europe,” said Morgan.  “This was one of the main factors contributing to the financial crisis of 2008. So there is much to consider and it boils down to the fact we are in the final stages of a currency depreciation on a global basis.”

And like 2008, Morgan expects the same volatility in silver in the coming weeks, though maybe not as dramatic as 2008′s swoon.  And this time, the strong hands, who understand the unpleasant symptoms of volatility during the currency crisis in progress, will be rewarded on the other side—as was the case in 2008.

“What happened in 2008 was a silver sell-off that caused a shortage, pushing the physical price of silver at the retail level to around $13/oz., while paper silver traded under $9/oz. on the futures exchanges,” concluded Morgan.  “Excessive short selling then ran the price from about the $20/oz. level to the brink of $50/oz. The next leg up could take out the $50/oz. level after a few tries and then not look back until establishing a new nominal level of $65/oz.–$75/oz.”

Dow Theory’s Richard Russell: Gold $1,880

As the gold price doggedly trades above $1,600, the Godfather of stock market newsletter writers, Richard Russell, recently wrote that he’s targeting $1,880 for the king of currencies, gold.

“There isn’t much clear and defined in this market except for gold,” stated Russell, the author of The Dow Theory Letters.   “How much of this is based on the Washington shenanigans I don’t know, but once the debt boost is solved the test will be whether gold tends to hold its gains.  By the way, the P&F [Point & Figure] chart shows a price objective of 1,880.”

Incidentally, according to stockcharts.com, the technical rule for a breakout price objective for gold suggests a target of $1,910.

Nevertheless, today’s GDP report only buttresses Russell’s assessment for the future direction of the gold price.  Friday’s GDP report came in at a dismal 1.3% rate for the second quarter, while the real shocker in the Commerce Department announcement was the drastic downward revision for the first quarter to 0.4% from the initially published pace of 1.9%.

Plunging GDP and jobs puts the Fed in a situation not dissimilar to the summer of 1933, but, back then, the debt levels were a mere fraction of Boston University Professor Laurence Kotlikoff’s estimate of $200 trillion in today’s unfunded federal liabilities—which is an amount too unimaginable for creditors to anticipate anything other than a some form of default.  Under that scenario, gold could be just beginning to gather additional steam.

“I’ve studied bull and bear markets for over half a century,” added Russell.  “In my experience, great extended bull markets, such as the current ten-year bull market in gold, don’t die with a wheeze and a whimper.”

The gold market is telling Russell the American public has yet to fully comprehend the no-win policy decisions yet to be made in Washington and at the Fed, as well as much higher food and energy prices in store for Americans during the second half of 2011 due to the Fed’s QE2 (inflation) program—a prediction made this week by Euro Pacific Capital’s Peter Schiff.

And like Schiff, the older Russell relies upon his more than 50 years of acquired instincts for anticipating another gold craze he thinks is destined to be launched by the retail investor—a craze he’s stated in the past could dwarf the gold mania of 1979-80.

“They [gold bull markets] die amid excitement, torrid speculation and finally the wholesale entrance of the retail public,” continued Russell.  “I’ve yet to see any of those characteristics in the current gold bull market.  Therefore, I’m trusting history, and I’m sitting (in) the gold bull market.”

Russell also sees the possibility for a divergence in the Dow and gold, which, from the start of the rebound in both assets off the March 2009 lows have moved in tandem between a ratio of as high as 10:1 and 7.8:1.  But this week, the Dow-to-gold ratio has fallen through the 7.8 level to the 7.5 level—a sign that gold has usurped the dollar as the premier safe haven asset.

“Wait, does it make sense for the Dow to sink while gold moves higher?” Russell asked rhetorically.  “Under one scenario it does.  Here’s the scenario.  Bernanke continues to stimulate, but the newest stimulation (like the old ones) don’t work, and the declining stock market is already discounting Bernanke’s continuing failure.”

And what does Russell say about this year’s rage of the precious metals—silver?

In his latest edition of his daily newsletter, he wrote, “Silver broke out above both its 50-day and 200-day moving averages, and its MACD has turned bullish.”

Growth in gross domestic product — a measure of all goods and services produced within U.S. borders – rose at a 1.3% annual rate. First-quarter output was sharply revised down to a 0.4% pace from a 1.9% increase.

Economists had expected the economy to expand at a 1.8% rate in the second quarter. Fourth-quarter growth was revised to a 2.3% rate from 3.1%.

Marc Faber makes his Case: Gold is “Inexpensive”

Speaking with King World News (KWN) earlier this week, Marc Faber said when compared to the Federal Reserve’s monetary base, today’s gold is “inexpensive.”

As physical buyers of the yellow metal trounced the paper shorts in yesterday’s option expiration trading, taking the gold price to $1,620 at the close, the typical price smack down, followed by a rally, and then, a subsequent smack down wasn’t evident throughout the day.  If Asian buyers were stepping in to pick up the new shorts, the operation went off seamlessly.

It appears that something very different is going on in the flow to safe haven buying this month.

The ponytailed, Swiss-born, eccentric money manager, who calls Thailand and Hong Kong his stomping grounds, sees the simultaneous fiscal woes in Europe and the United States leaving investors little choice in the duck-and-cover maneuvers since the collapse of Bear Stearns in March 2008.

“Well I think investors are gradually realizing that it’s unusual, with all of the problems in Europe that the euro is actually relatively strong against the U.S. dollar,” said Faber.  “They are realizing U.S. holders don’t want to hold euros because they don’t trust the euro and the Europeans don’t want to hold dollars because they don’t trust the dollar.”

At the open of European trading at 3 a.m. EST, significant dollar weakness could be seen across a broad range of currencies.  In earlier Asia trading, the Aussie dollar broke through 1.10, the Swiss franc cracked 1.25, the NZ dollar reached 86.6, and the Canadian dollar as well as the Malaysian ringgit both trounced the greenback to finish strongly at the close.

Traders fleeing the dollar have been diversifying into “Canadian dollars, Australian dollars, New Zealand dollars, Singapore dollars and so forth,” said Faber.  “But, basically, the ultimate currency and the ultimate safe asset,” he said, “is gold and silver.”

At the open of trading in New York, the Dow-to-gold ratio had breached the 20-year support at 7.8 ounces of gold to buy the Dow.  Except for a brief breakout (to the downside) in the Dow-to-gold ratio during the panic of March 2009, the 7.8 level has been a base of long-term support since 1991.

In 1992, the U.S. economy emerged from recession and simultaneously reinvigorated the bull market in stocks and resumption of the bear market in gold until the peak in the ratio of above 43 was achieved in the second half of 1999—the year the NASDAQ popped.

Since 1999, the Dow-to-gold ratio has moved in a downward trend, with many analysts forecasting a 1:1 ratio when the gold bull market ends.

Investors fearing they missed the boat on the gold trade may take solace in that Faber believes the rally in the gold price is actually still in the early innings.  In fact, when calculated in terms of the Fed’s balance sheet (monetary base), today’s gold price is a comparative bargain.

“I just calculated if we take an average gold price of say around $350 in the 1980s and then we compare that to the average monetary base in the 1980s, and to the average U.S. government debt in the 1980s,” explained Faber.  “But if I compare this to the price of gold to these government debts and monetary base, then gold hasn’t gone up at all.  It’s gone actually against these monetary aggregates and against debt it has actually gone down.  So I could make the case that probably gold is today very inexpensive.”

According to St. Louis Fed statistics, the Fed’s balance sheet stood at approximately $150 billion, compared with the latest report which shows that the Fed’s balance sheet has reached $2.7 trillion, or an expansion of 18 times in 31 years.  If gold topped out at $850 in 1980, a rough estimate of gold’s potential climb in terms of the Fed’s balance sheet could take the world’s ultimate currency to more than $10,000—a number, by the way, that jibes with Jim Sinclair’s $12,500 gold price prediction.

Citigroup’s call for the Silver Price

Here comes yet another prediction for the precious metals.  This time, Citigroup Global Markets chimes in with its price prediction for the most popular “thing” to front run the coming full-blown repudiation of paper money in our future—silver.

“If the final rally in the last bull market repeated then we can expect $100 over the long term,” Citigroup’s (NYSE: C) Tom Fitzpatrick and two other analysts wrote in a research report of July 15. “While the high so far this year was at the same level as the peak in January 1980, we are not convinced that the long-term trend is over yet.”

Fitzpatrick’s mention of January 1980, the month of panic, mania and silver’s meteoric rise to $50 on the backs of the Hunt Brothers, takes us back to a time when Jimmy Carter was president, Abba and the Bee Gees dominated the music charts, and a new home could be built for $76,400—though, the median-size of a new home back then was approximately 20% smaller than today’s, according to U.S. Consumer Financial Protection Bureau Special Advisor to President Obama, Elizabeth Warren.

Nevertheless, a comparison of some reasonable benchmarks between 1980 and today reveals some food for thought regarding the ultimate price silver can achieve during a riot rally soon to spark in gold’s kissing cousin.

In 1980, the Dow reached a high of $903.84 on February 13, 1980, and a low of $759.13 on April 21, 1980. The average close of the Dow 30 Industrials in January 1980 was $860, about the same price as an ounce of gold at that time, and 17 times the peak price of silver at $50.

For the same ratio to be reached between the Dow and the silver price, today, silver needs to climb to $735 per ounce, the Dow must drop significantly, or the two must meet somewhere in the middle—or, in the deep out-of-the-money hyperinflation scenario, the Dow and the silver price could add a bunch of zeros to today’s levels.

As the federal debt limit talks move into the bottom of the ninth inning in Washington, the Tea Party pushes Republicans to make the $14 trillion federal debt an issue during the upcoming 2012 political campaign.  Similarly, in 1980, Americans were up in arms regarding a federal budget nearing the, outrageous at the time, $1 trillion mark.  A few years later, Ronald Reagan became the first $1 trillion president during his first term in office (1981-84).

Using the federal budget as a comparative metric, the peak price of silver at $700 wouldn’t seem that crazy.  In fact, some pretty intelligent and steady-handed bullion analysts have suggested numbers not too far off that number.

In 1980, U.S. GDP reached $2.8 trillion, while federal spending topped $590 billion at the end of fiscal 1981.  Fast forward to today, and we find Washington spending $3.6 trillion, which includes interest on $14 trillion of accumulated debt.  The silver price when compared with federal spending and total federal debt (not including more than $150 trillion in unfunded liabilities, according to B.U. professor, Laurence Jacob Kotlikoff and economist John Williams), calculates to $305 and $250, respectively.

In terms of the Fed’s monetary base statistics, the monetary base in 1980 stood at $133 billion, compared with the $2.7 trillion at the close of business on July 17, according to Federal Reserve statistics.

“The price of silver would have to reach $980.57 before it is in 1980 bubble territory,” according to CQCA Business Research, the firm that posted on its Web site the calculations when comparing the Fed’s monetary base and a $36 silver price.

Using 1980s peak price of $50, the silver price of $1,325 would look like today’s gold price at the end of this bull rally.

Back to Citigroup’s research report.  The boys at Citi feel the nosedive decline in the silver price, which began in May, is now over, giving investors the green light to back up the truck and load it up with silver.  A less gutsy call than James Turk’s call for a bottom (presumably) when silver was still in free fall as it hit the $33 level.

“The move down from the April high this year has come to an end and the double bottom is a good platform for a turn back up,” the three Citigroup analysts said in their report.

At today’s price of $40 the ounce, silver has already soared 650% from the average price of $5.33, set in 1999.  If investors had hooked onto the likes of James Turk, Jim Sinclair, Peter Schiff, Richard Russell, and the raft of bullion experts and old hands frequently interviewed on King World News, the massive profits could have already been made in silver.

But, after reviewing the particularities between the years 1980 and 2011, Citi’s call for $100 silver isn’t quite going out on the limb.  Jim Sinclair’s call for $12,000 gold and, presumably, $600+ silver (given the historical ratio between the tow metals at their peak prices), is, indeed, a bold call—but not an unreasonable one.

Look who’s predicting $1,900 gold by October

Predictions of lofty prices coming from regular hard-money advocates and gold bugs are certainly not hard to find.  Predictions of $2,000, $5,000, $10,000 and $100,000 targets for the top in the gold market are numerous.  But when a mainstream money manager of the highest esteem projects a major move higher in Wall Street’s most despised asset—gold, traders should sit up and take notice.

Speaking with Bloomberg on Wednesday, FX Concept’s founder, John Taylor, the man who pioneered the analysis of foreign exchange cycles, expects the gold price to soar to $1,900 by October, or a 20% rally from today’s price within a time frame of between 11 to 14 weeks.

Taylor sees gold as the ultimate safe haven asset while the developed nations deal with crushing debt loads; but he singles out the euro as the more likely currency in the U.S. dollar/euro cross to devalue against the other on the way down against gold during the next leg down in the global debt crisis, which he said could begin “within three or fours weeks time from now.”

Taylor also sees the euro dropping to $1.15 against the dollar during the next down leg.  And, if correct, then, he expects the gold price in euros to achieve 1,650 euros per ounce by October, which calculates to a nearly 50% jump in euro terms.  And it gets worse for the euro.  By next year, the euro is going to par with the dollar, he said.

When asked why the euro has held up so well up til now, Taylor quipped, “because the dollar is so weak.”  But as the euro zone flounders in the handling of Greece’s sovereigns, it will eventually become apparent that “the euro has to be restructured, and not just a little restructuring, but very, very significantly restructured to make it work,” he said.

But after the fireworks of new highs in gold in every currency, he expects the rally to turn ugly, as the second leg of the global debt crisis takes every asset down in a heap, including gold.  And how far will the gold price drop as the U.S. and Europe plunge back into a deeper recession?  Taylor believes gold will touch $1,100, a target which may seem incomprehensible during the gold mania, but will be the result, he said, of institutions and hedge funds scrambling to get liquid to meet redemptions.

$100 Silver in 6 Months, says $9B Sprott Asset Management

Here we go again.  Silver is on the move in chunks of up to 7% moves to the upside, yesterday, and as high as another 3.4% in European trading this morning.  Silver reached a peak of $39.36 before JP Morgan’s earnings report brought in some sellers at 8 a.m.

Sprott Asset Management’s John Embry told King World News he believes that when the investing public comes into the precious metals market, in earnest, the price of silver could go hyperbolic.  While the silver market is razor thin to begin with, adding the effect of the largest concentrated short positions in history will explode the price of silver, according to Embry.

“I totally agree with James Turk.  I think the thing (silver) has been abused on the downside and it’s just like a coiled spring ready to explode,” he said.  “I think silver will go back to those highs we saw before that May raid faster than most people can imagine.”

Unlike other beloved hard-money advocates Jim Rogers and Marc Faber, Embry is as fearless as James Turk and Jim Sinclair when he’s asked to put a price tag on the mercurial gray metal.

“We haven’t even really seen money start to significantly flow into hard assets, when that occurs and it will occur, it’s going to have an outsized impact on the price of these things,” explained Embry.  “The gold price should be $2,000 within the next six months and I believe the gold/silver ratio will decline tremendously in that environment.  I have no problem with $100 silver, none, and that might just be jacks for openers.”

The implications of Embry’s suggestion of a 20 to 1 ratio between the prices of gold and silver appear, on its face, extraordinary or apocalyptic.  A move of 25% in gold that sparks a 150% in silver may be hard to take in for newcomers to the bullion market.  But let’s consider the last gold and silver rally.

In August 2010, gold and silver traded at approximately $1,150 and $18, respectively.  Eight months later, in late April 2011, gold reached $1,575 and silver spiked to nearly $50—a 37% and 175% moonshot, respectively, in the price moves of gold and silver.

As gold knocks on the door at $1,600, and for silver, at $40, a move of 25% in gold to $2,000 and another blast of 150% to $100 for the price of silver isn’t that crazy—it’s an aggressive call, but not a crazy one at all!

Embry cites an important point of leverage as an explanation for his enthusiasm  for silver.  Several competent analysts have worked the numbers (including Bill Murphy and Chris Powell of GATA), and have come to the conclusion that for every ounce of silver in known inventories there are approximately 100 paper contracts trading (a fractional bullion system, if you will) on various exchanges across the globe.

To put the ratio between the paper and physical silver market in better prospective, a 1 percent silver “reserve” betters Lehman Brothers’ ridiculously low (criminally low, some say) reserve of 1.6% just prior to its implosion.  It just took one hint of a breakdown in confidence in Lehman that took it down so quickly—through its use of the over-the-counter derivatives market.  The same scenario could play out at the Comex, according to Embry.

“What’s been fascinating, and what was unappreciated by me in the early stages, was the enormous number of derivatives that have been created in the financial system,” said Embry.  “Because of the derivatives they’ve been able to keep this thing going for infinitely longer than any rational mind would have thought possible.

“Because the balloon was blown up so much, I just think the aftermath in its finale is going to be extraordinarily unpleasant.”

James Turk: just “several more days of silver in the 30s”

With silver and gold rallying strongly against the tide of the risk-off trade, bullion expert James Turk forecasts that silver is about to launch into the 40s, as more nervous investors come to terms with the inevitability of further devaluations and/or sovereign defaults, forced upon the world’s central banks by investors and weak politicians.

“One never knows exactly how the markets will unfold, but my sense is that we only have several more days of silver in the 30s,” Turk told King World News. “Once silver clears $38 on a closing basis, you are going to get back into the mid 40s in a heartbeat.”

Turk, the founder and president of overseas precious metals storage firm Goldmoney.com has warned long ago of the events playing out in Europe today, so his words carry significant weight among the bullion community.  The timing of his call back in January for silver to reach $50 by June 30 was considered reckless and daring at the time.  But history has proved him correct.  Silver reached an intraday high of $49.70 on May 2, just pennies shy of $50 and a month sooner than he expected.

Recently, Turk (along with another PM giant, Jim Sinclair) has differed with another hard-money advocate, Marc Faber, on the direction of precious metals prices during the months of July and August.  Faber expects the precious metals to meander in the hot summer months, which is a bet that the long-standing historical record of weakness during that time is most likely.  On the other hand, Turk anticipates a repeat of 1982, the year of the Mexican peso devaluations.

“The action in gold and silver so far this summer indicates to me that this is in fact poised to be explosive on the upside,” Turk explaind.  “Nobody is talking about this, but it could be a reality in short order.  Here it is nearly 30 years after the breathtaking summer of 1982, and history is about to repeat all over again.”

Turk’s battle with Marc Faber in the fight to be right on the outcome of precious metals during the summer months favors Turk, at the moment.

Gold and silver took center stage during the flurry of bullion-friendly news coming from both sides of the Atlantic, yesterday.  The timing of the news releases from both sides of the Atlantic seemed contrived, timed and salvo-like, as the dollar and euro battle it out in the race to cut sovereign debt loads through currency devaluations.  Gold reached new highs in the euro and new closing high in dollars.  Overall, gold was the winner in the scramble out of euros.

Tuesday’s news of widening spreads between the German and Italian 10-year notes, as well as soaring CDS pricing of Italian debt; an IMF warning launched by the new French (but Ameri-centric) chief, Christine Lagarde, at Italy, chiding the Italians for dragging its feet on implementing its own austerity plan; Moody’s downgrading Ireland to junk; FOMC minutes release, which strongly hints at the possibility of further stimulus from the Fed is coming; the posturing war that’s broken out between Democrats and Republicans over the U.S. federal budget; and the timely strengthening of the Japanese yen to save the day from a dollar breakout of 76 on the USDX have demonstrated the desperation among the officialdom and the equally fearful investor who searches for a truly safe haven.

“Eric this is the start of the next big leg higher in the precious metals,” suggested Turk.  “We’re at a new record closing high in gold today, that is extraordinary considering it is happening against the headwind of a stronger dollar.  There is an important message here, Eric, money fleeing the Euro is not just going to the dollar, it’s flowing into the metal of kings.”

As the public enjoys summertime vacations and respite from the daily slew of bad economic and political news, Turk sees the investor public mostly unaware of the theft of purchasing power currently in progress.  But for the precious metals stalwarts and recent converts, this summer could be a very profitable one.

“People are recognizing that the only true safe haven is the precious metals,” said Turk.  “There are still so few people talking about gold and silver having an explosive summer.  The only place I’ve heard it is on KWN.  The fact that there is still so little bullish sentiment just reconfirms my view that gold and silver are ready to rocket higher.”

It will be mighty interesting to see if silver does indeed exceed $38, and if an assault on the May 2 high is in store for the silver faithfuls.

3 Gold Stocks to Watch: AngloGold Ashanti (NYSE: AU), Goldcorp Inc. (NYSE: GG), Kinross Gold Corp. (NYSE: KGC)

3 Silver Stocks to Watch: Silver Wheaton (NYSE: SLW), Coeur d’Alene (NYSE: CDE), Helca Mining (NYSE: HL)

Gold market: Pan-Asia Gold Exchange IS a Game-changer

Andrew Maguire’s assertion that China’s Pan-Asia Gold Exchange will wrest power away from the JP Morgan bullion market suppression scheme is already under attack.

Maguire, the so-called “whistleblower” who alerted U.S. authorities of JP Morgan’s  bullion market price manipulation scheme and went public in March 2010 with his complaint, told King World News he expects the illegal naked shorts in the gold and silver market will be destroyed and that a true price discovery environment will result of China’s 1.3 billion population becoming empowered to buy the precious metals.

The primary argument against Maguire’s analysis is that markets don’t move price with the addition of the Pan-Asia gold Exchange.

It’s true, markets don’t move price – participants do.  But the point Maguire makes has everything to do with the participants having access to the marketplace—hundreds of millions of anxious Chinese, who have so far driven up the price of everything that doesn’t have a dead president stamped it, such as copper, oil, lumber, food and every other commodity.

For 50+ years, starting with Mao Tse Tung, the Chinese were precluded from owning gold.  In 2005, that all changed.  Beijing understands the importance of the gold market in its efforts to establish the RMB as major reserve currency and the privileges that come with that status.

In the first quarter of 2011, Chinese investors bought 93.5 tons of gold coins and bars.  After considering that China’s gold production reached only 340 tons of gold last year, with a consumption rate of 700 tons along with investor demand expected to top 20% per year, the expanded access through the Pan-Asia Gold Exchange to an expanded market will supercharge the public’s participation in the gold market.

Through the Pan-Asia gold Exchange distribution network and introduction of innovative gold products for the Chinese masses—a quite different model from the Shanghai Gold Exchange—the ease of access to market for the most populated country of the globe is Maguire’s point.

Consider the effect on the gold price of 320 million retail customers and 27 million corporate customers who conduct business through a network of 24,000 branches, and who now are able to buy gold through the Internet with a click of a mouse.  That’s the network established between the Pan-Asian Exchange and The Agricultural Bank of China.   Minimum contracts of only 10 ounces may be purchased, as opposed to the 100-ounce minimum required in Shanghai and Hong Kong.

And the Pan-Asian Gold Exchange goes live this month!

During the CFTC hearings earlier this year, Jeffrey Christian of the CPM Group said he estimates that the London Bullion Management Association (LBMA) has on deposit $153,000 worth of claims for each ounce of physical gold—which calculates to approximately 100 to 1 leverage to actual gold available for delivery.

What if there’s a sudden demand for physical gold, say, from China?  Who will deliver it?

Maguire’s conclusion that the shorts operating under protection of the CME should be frightened is entirely appropriate.