Gold & Silver: Explosive 2010 Rally Poised to Repeat

By Dominique de Kevelioc de Bailleul

“The precious metal markets feel just like the summer of 2010,” Goldmoney Chairman James Turk told King World News, Monday. With European woes presently the primary focus among investors, as it was at about the same time in 2010, Turk suggested the monster rally that began in the summer of 2010 is overdue for a major move to well past $2,000 and $50 for gold and silver prices, respectively.

In the summer of 2010, gold and silver prices took 31 months to recover and eventually breakout to new bull market highs following the Lehman collapse.

It’s been 14 months since the brutal correction in PM prices from the April 2011 highs, but Turk believes the corrective phase may have run its course, with “sentiment being at rock bottom” as an historically reliable hint of an imminent market about-face to higher prices.

To illustrate Turk’s point, in order to match today’s abysmally low market sentiment in the precious metals, we have to go back to October 2008, the month of panic from the post-Lehman debacle.

During that month of impending doom, which coincided with the absolute bottom of the silver crash of $8.50, off from the high in March 2008 of $21, Bloomberg wrote, “It looks like we’re on the edge of a bottomless pit in precious metals … Confidence is at rock bottom. No one wants to be long any commodity.”

From Reuters, a month later, in November 2008, “Fears of a global recession will continue to weigh on silver prices. Globally, we’re in a new paradigm. It’s difficult for anyone to know exactly where the bottom is.”

Fast forward to the summer of 2010, Turk famously predicted a seasonally-unusual late-summer rally in the precious metals—a rally which, in retrospect, was the result of market participants front-running an expected announcement of further ‘quantitative easing’ from the Fed.

It turns out, the front-runners were correct. On Nov. 3 2010, the Fed announced QE2, the buying of $600 billion of U.S. Treasury securities. Gold and silver prices soared, with gold jumping from $1,175 to $1,920 and silver soaring from $17.50 to nearly $50 throughout a 13-month rally in the precious metals.

Today, the market is on the cusp of another monster rally, according to Turk, and the “eery” feeling he has of a replay from the Fed, the catalyst for the entire bull market rally in the monetary metals, could be gleaned from post-FOMC comments as well as speeches and writings of Fed ‘officials’ of late. The latest speech comes from San Francisco Fed President and CEO, John Williams, who attempts to condition the markets to incorrectly conclude that the Fed’s QE initiatives don’t correlate to consumer price inflation—a point also, coincidentally, made by the Tokyo Rose of the gold market, Jon Nadler, in an interview with Bloomberg Television on Jun. 22. See BER article, Jon Nadler, Another Fed Whore

In a speech by the Fed’s Williams, Tuesday, titled,Monetary Policy, Money and Inflation, he stated, “In a world where the Fed pays interest on bank reserves, traditional theories that tell of a mechanical link between reserves, money supply, and, ultimately, inflation are no longer valid.

“Over the past four years, the Federal Reserve has more than tripled the monetary base, a key determinant of money supply. Some commentators have sounded an alarm that this massive expansion of the monetary base will inexorably lead to high inflation, à la Friedman. Despite these dire predictions, inflation in the United States has been the dog that didn’t bark.”

Economist, John Williams (the other John Williams) of ShadowStats.com, disagrees. According to the ShadowStats.com website, Williams published (see chart, above) how the Fed attempts to divorce Fed actions from market effects by jury-rigging consumer price data. ShadowStats Williams’ CPI model of 1980 reveals inflation running at nearly 10 percent, not the 2.1 percent published by the Fed.

According to Goldmoney’s Turk, investors of precious metals should buy during these phases of very low market sentiment and lulls in Fed policy, because when the Fed actually makes the announcement for more ‘quantitative easing’, a good amount of the move in the precious metals will happen before the announcement, as was the case in 2010.

The silver price, for example, climbed nearly 50 percent to $25, leading up to the day of the QE2 announcement of Nov. 3, up from its summer 2010 low of $17.33. After the Fed QE2 announcement of further U.S. Treasury buying of $600 billion, silver doubled in price within six months.

Turk expects another big move, like the one that began in the summer of 2010, and he urges investors to accumulate more metals before the formal announcement of QE3, not after.

Jon Nadler, Another Fed Whore

By Dominique de Kevelioc de Bailleul

If there’s an interview that almost proves beyond a shadow of a doubt that Kitco’s Jon Nadler has an agenda outside the interests of the American investor, the Jun. 22 interview on Bloomberg with Tom Keene serves as strong evidence.  It’s a remarkable demonstration of complete ignorance, or worse.

Keene asked Nadler, what is the ‘natural value’ of gold?  Whatever ‘natural value’ means.

“If we didn’t have the melange of easy monetary policy from the Fed, the aggressive dehedging of the world’s mines and, of course, the advent of gold-oriented ETFs and the hedge fund speculators that instrument brought to the marketplace since about 2005,” Nadler began his interview in his typical affected speech, “my opinion is that we would probably be muddling along somewhere in the $860 area.  And that’s fair value currently in gold,” Nader continued, throwing in the word, “melange” to give his presentation a bit of James Grant gloss, simialr to Dennis Gartman’s affected speech.

“I think $1,200-$1,300 could be in the cards [for the price of gold] inside less than a year,” he speculated.

Instead of Wall Street’s lackey Keene challenging Nadler by saying, “Well, Jon, why are mining companies dehedging?  Isn’t it logical for investors to hedge against negative real rates?  How do you derive at ‘fair value’ of gold at $860?  Since, you’ve been wrong about the direction of gold for so many years, why did my producer ask you onto the program?”

And it’s gets better.  Nadler tried to paint the picture that everyone was expecting hyperinflation after the Fed embarked on QEI and QEII.

“Another interesting chart I noticed in you interview of Mr. Bullard was this great disinflation since we’ve had in place since 2009,” Nadler revealed his love of Fed statistics.  “You know, that’s a long-term process of deleveraging and you know an adjustment back to norm, which, albeit, with some interruption, has really disproved the case for this advent of this Zimbabwe on the shores of the Hudson.  And I think that is also playing into this equation to some degree, because after QEI and QEII, we still haven’t had this hyperinflation that everybody was convinced would result.

Firstly, Nadler has to tighten up his sloppy language when using the word, “everybody”.

Secondly, if he was listening carefully to economists who don’t whore for the Fed, such as Mr. Bullard, he would have noticed that most credible analysts of the gold community (independent analysis) said the Fed has embarked into the process of hyperinflation, and that, hyperinflation is not a monetary event, it’s a political one.  Read a little von Mises for a primer on the subject of hyperinflation, Jon!

Moreover, the process of triggering an eventual panic out of a currency, as von Mises explained so diligently, through, in this case, the Fed’s debt monetizing plan (which it hides through its primary dealer network), can take some time as the global community finally loses confidence in the U.S. dollar as a viable store of value.  Psychologically, the global investor is presently at the stage which precedes a complete loss of confidence in the U.S. dollar; that is, the fear-of-losing-principal stage.  Seeking a store of value from currency debasement years comes next.

von Mises called the process to hyperinflation, the Crack-up Boom, whereby there is a period of ‘disinflation’ as the financial system ‘deleverages’, then followed by a period of awareness, a tipping point, that debt obligations cannot ever be repaid.  Then, the fight against the Kondratiev Winter by central banks begins in earnest through hyper-inflating the currency into oblivion after the markets reprice debt to reflect erosion of purchasing power and default risk, such as the case with Greece, and now Spain and Italy.

In fact, according to the economist many ‘gold bugs’ follow to yardstick the Crack-Up Boom process is John Williams of ShadowStats. Williams has recently move up his hyperinflation scenario to some time in 2014, from his original estimate of the end of the decade.  So who is Nadler taking of when he says ‘everyone’ expected hyperinflation during QEII?

Keene asked, “What do the gold bugs have wrong, Jon?  I mean, are they trying to relive those early 80s?”

“In part, I’m afraid that’s exactly what they’re trying to relive,” Nadler said with a chuckle.

He added, “But I think the other part they have wrong is that they believe the Fed is some how going to take its hand off the steering wheel, lose control, and careen into the hyperinflation ditch.  And I think we’ve had proof enough, with all the criticism that we can level at the Fed, one thing they’re cognizant of is what happens when they don’t watch the brake pedal.”

Ha?  Does Nadler have some advice for the Fed as to when to apply that proverbial brake? So far, the Fed has stated in it FOMC statements that the brake won’t be touched until 2014, at the earliest.  And of course, the Fed is aware of what could happen if it doesn’t apply the brake.  The question is, Jon, how can the Fed apply the brake without soaring carrying costs of $15.2 trillion of federal debt (not to mention state and local interest costs) without entering into a Greece-like fiscal debt spiral?

Nadler really come across sounding as silly as Warren Buffett, Charlie Munger and Bill Gates have.

The last crazy analysis by Nadler comes from his response from Keene’s question regarding the idea proposed by the EU of a gold-backed version of an ESF.  Nadler said it would end up being a “double-edge sword” for the gold price, with the initial plan being bullish for gold as central banks would highlight to the world that gold has no counter-party risk.   But in the end, according to Nadler, it would be bad for the price of gold in the event of default.   The gold backing the lending scheme would end up being dumped into the market, therefore depressing the price.  A sophomoric analysis, at the very least, and at the most, proof that Nadler is completely full of bull—a whore for the Fed.

If the arrangement to back a default by the Italians, Spanish, Ireland, Portugal and any other country which foolishly decides to sign onto such a suicidal arrangement by pledging its gold, why would Germany, the supposed lender in the scheme, dump the gold into the market after a default?  Wouldn’t these indebted countries and the eurozone be right back to where they started?  And what would prevent China, or any other central bank, from buying the gold?

And finally, why won’t Jon Nadler take up Peter Grandich on the $2 million bet that gold will reach $2,100 before it hit $1,000?

Nadler is all talk and a fraud.  He appears to suffer from the same disease as Dennis Gartman and Jeff Christian suffer from.  None has any shame and appear to not be moved by an entire gold community laughing at the spectacle of these three men appearing on television programs after making one bad call after another.  It took Goldman Sachs years to ‘downgrade’ Abby Joseph Cohen.  How long will it take Bloomberg to figure out that the viewer has figured out that Bloomberg intentionally gives Nadler airtime to whore for the Fed?