Gold & Silver: Go “All-In”

By Dominique de Kevelioc de Bailleul

Calls for the Fed to make a QE announcement in September by Jim Rickards and John Taylor got another handicapper, Michael Pento, to go on the record for a likely announcement following the annual Jackson Hole meeting of the world’s central bankers in late August.

“My first impression was that the reports we had from the Wall Street Journal that the Fed was imminently going to interfere with the markets (with more QE), once again proved to be untrue,” Pento told King World NewsThursday.  “Bernanke is waiting for Jackson Hole.  He’ll make some kind of announcement, like he did back in 2010, and then he will start to put his plan to destroy the currency in effect, probably in September.”

That’s the situation in the U.S., as Pento sees it.  But within the EU, the situation is more dire and murky.  Laws there don’t allow for the ECB to intervene in the bond market like the Fed can.  But Pento has drawn the same conclusion as former Asst. Secretary of Treasury Paul Craig Roberts has: the laws will be broken in Europe—again, Germany’s outrage to the suggestion that the euro be monetized away will be ignored, and the EU will be taken over by a supranational cabal.

“In my estimation, the ECB is about three or four weeks away from giving a banking license to the EFSF and the ESM,” said Pento.  “This will lead to unlimited purchases of European debt, and an unlimited dilution to their currency.”

With Spanish 10-year yields soaring back over 7 percent today, ECB President Mario Draghi’s “do whatever it takes to preserve the eurozone” speech to save the euro from cracking 1.20 lasted only three days.  After touching approximately 6.5 percent Tuesday, the 10-year yield soared right back up past the 7 percent mark Thursday, likely putting more pressure on the euro in the coming days.

In the meantime, ‘main stream media (MSM)’ paints a picture of Draghi as an independent, yet dependent, central banker, pointing to the hurdles of corralling 17 sovereign nations before the ECB can intervene in a Fed-like manner to purchase Spanish sovereigns, implying that Draghi is in a box and panicked Monday when he awoke to a 7.6 percent Spanish yield.

“From a communication point of view, he [Draghi] misguided the markets,” Commerzbank’s chief economist Jörg Krämer told the New York Times. “He raised expectations which he could not fulfill.”

Analysis such as Kramer’s observation of what the ECB can or cannot do is either naive or intentionally misleading the markets, according to former U.S. Asst. Secretary of Treasury Paul Craig Roberts.

In an interview with Slovakia’s TV24li, Roberts stated that Greece and Italy have been taken over by former Goldman Sachs bureaucrats in Europe, with Italy’s president and entire cabinet appointed by those close to the nefarious U.S. investment banker.  The entire drama played out in Europe is a scam to save banks and to consolidate power to a supranational body, according to Roberts.

“Democracy [in Europe] is being destroyed.  And of course the EU bureaucrats are using the crisis [in the EU] to takeover the economic policies of the individual countries,” said Roberts.  “They say, we can’t trust the governments.  Look what’s happened, and so we are going to consolidate and we will make the tax decisions, budgets decisions for all the countries.”

To Pento’s credit, he’s picked up on Robert’s theme playing out in Europe, and has advised clients of Pento Portfolio Strategies to expect a dual last-minute ‘stick save’ from both the Fed and ECB.  Reports by the MSM of an imminent death of the euro are greatly exaggerated, he speculated.

“I am telling my clients, I am gearing them towards the inevitable inflation.  But I think it’s silly to go ‘all-in’ right now,” Pento concluded.  “We have significant holdings in precious metals and we have written covered calls against that strategy.” Then, we are ready to go all-in once we have a firm commitment on the part of these two central bankers to massively monetize the debt.”

Watch for Bernanke’s speech at Jackson Hole for hints of a ‘favorable’  announcement following the FOMC meeting in September.  All inflation-sensitive assets should soar, “but you will see the most salient moves in precious metals, base metals, energy and agricultural stocks and commodities,” he said.

Gold: Brace for Bizarre QE3 Hail Mary and Hyperinflation

By Dominique de Kevelioc de Bailleul

If a 1.53 percent yield on 10-year U.S. Treasuries isn’t enough to spook investors of a global economy on the verge of implosion, Michael Pento of Pento Portfolio Strategies expects the Fed to aggressively respond by ceasing to pay interest on excess reserves held at the U.S. central bank—and removing all reserve requirements on purchases of sovereign debt.  Fed Chairman Bernanke has his sites on negative rates.  The gold bugs will surely like that.

The one-two punch of a bazooka QE3 of that size, the potential onslaught of capital fleeing into hard assets as a result of a no-reserve global banking system, could be more than the Fed bargained for, and clearly indicates how desperate central bankers have become to prevent the largest Ponzi scheme of history from collapsing, according to Pento.

“So let me put it together for your listeners,” Pento told King World News (KWN), Sunday.  “We have $1.42 trillion of excess reserves.  We are now going to be told that there will be no capital reserve requirements on owning sovereign debt. You will have commercial banks flooding the market with the purchase of sovereign debt.  Not just U.S. debt, Portuguese debt, Spanish debt, Greek debt, all of that debt will have zero capital requirements.”

In other words, the Fed intends to lower the rate of the riskiest of all sovereign debt while punishing cash hoarders of the least risky sovereign debt, because, surely, rates on the shorter end of the Treasury curve will turn negative and it’s hoped will move the 10-year Treasury that much closer to zero, as well.  Ditto for sovereign and commercial debt across the entire spectrum of the global credit markets.

That’s the plan, according to Pento, but the market reaction to such a desperate, high-risk policy move is expected to soar commodities and the precious metals, as the last step beyond a no-reserve requirement banking system is ‘helicopter money’ directly into the hands of consumers.

“Let me be clear on this, I’m not saying it could increase M2 money supply to $15 trillion, this could increase it by $15 trillion,” Pento continued.  “So we’re talking perhaps about $24 trillion.   It has the potential to increase to rapidly increase the global money supply, and it would be a tremendous boost to commodities, oil and precious metals.”

Pento’s expectations for such a move is consistent with earlier policy suggestions made by the Treasury Borrowing Advisory Committee in January 2012 (reported by zerohedge, Feb. 1, 2012), which stated in its report to the Secretary of the U.S. Treasury, “There was a lengthy discussion regarding the bid-to-cover ratios at recent Treasury bill auctions. It was broadly agreed that flooring interest rates at zero, or capping issuance proceeds at par, was prohibiting proper market function.

“The Committee unanimously recommended that the Treasury Department allow for negative yield auction results as soon as logistically practical.”

And it would make no sense for the Fed to impede the plan by requiring reserves on top of the U.S. Treasury actually charging bill and note holders of U.S. debt for lending the U.S. government money.  In this perverse environment of targeting negative interest rates, it’s become clear that the Fed has given up on the U.S. economy, and more broadly, hopes of the global economy pulling the U.S. out of its nosedive; Bernanke and Company are merely playing out a losing hand—a hand that ShadowStats economist John Williams has said will lead to hyperinflation by the close of 2014.  Lowering borrowing costs to offset lower tax receipts to service $15.8 trillion of U.S. debt in addition to the fiscal 2013 budget is the only option left open to the Fed.

“Outside timing on the hyperinflation remains 2014, but events of the last year have accelerated the movement towards this ultimate dollar catastrophe,” Williams said in an interview with KWN, Jan. 26, 2012.  “Following Mr. Bernanke‘s extraordinary efforts to debase the U.S. currency in late-2010, the dollar had lost its traditional safe-haven status by early-2011.  Whatever global confidence had remained behind the U.S dollar was lost in July and August [2011].”

Pento agrees, understating the Fed’s goal of negative interest rates—on top of zero reserve requirements—as “not a good idea.”

Pento said in his July 8 interview with KWN, “What he [Bernanke] needs to do is let the free market work, and I can tell you that unleashing $1.5 trillion into the American economy, and having that money roll-over and multiply (to $15 trillion), through the money-multiplier-effect, is not a very good idea.”

Indeed, it is not a good idea, but there is no other idea left for the Fed to execute.

Spot gold: $1,569 per Troy ounce.