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.

Silver Bugs: Toughen Up & Hang Tight

In his latest comments on King World News, Trader Dan Norcini of Jim Sinclair’s JSMineset.com makes a great point—a point which may turn out to be the most critical to newcomers of the silver market.  Volatility has been tremendous lately in all commodities markets. But in the silver market, volatility is the norm.

Bottom line for silver investors: if volatility scares you, get over it, or get out!  Sign-up for my 100% FREE Alerts

Unless you’re in this thing for the long haul, trade AAPL or some other stock, because the Fed is intentionally creating volatility in the commodities markets to keep wimps, amateur traders the uninformed out of the silver market.  In fact, Bernanke would like to punish traders.

“We have tremendous whipsaw action in commodities.  It’s so wild right now in terms of the trading swings. . . ,” Norcini told King World News, Friday.

“In my opinion, the Fed and the Working Group on Financial Markets have been actively manipulating key markets.  The Fed has been doing this manipulation in an attempt to push investors back into the stock market and out of commodities and hard assets.”

If you’re new to the silver market because due diligence brought you to the precious metal, stick to the buy side, first of all.  Second, don’t be a fool and trade it.  You must exhibit discipline.  And third, stop waiting for wonderful prices!  Anything below $50 is a wonderful price, if your research has told you anything.

As a suggestion, Google “Stephen Leeb site: kingworldnews.com” or go to FinancialSense.com and listen to Leeb’s past three interviews.  You feel good at buying silver at $30, $40 or $50.  So, at $32, silver, according to Leeb, is a joke.

Back to Norciini: “The Working Group on Financial Markets (aka Plunge Protection Team—PPT) then goes in and starts putting heavy pressure on key commodities, which triggers a cascade of sell orders,” Norcini added.

So the point is: unless you’re privy to the PPT’s next attack, stop trading silver!  The Max Keiser Casino Gulag is stacked against the trader in the silver market.

Norciini rightfully points out as well that, part of the Fed’s plan of incrementally capping commodities prices is to make the markets very volatile for the 90 percent of the public who can’t take the heat—the wimps, if you will.  If you’re looking for another smooth ride from a lifeboat off this sinking Titanic, too bad, there’s is none.

“The Fed is literally undercutting the value of the dollar and they are causing a lot of repercussions around the globe. . . ,” Norcici continued.  “The other countries are not run by fools and they understand the destructive policies of the Fed.”

Norcini makes another good point:  Mom and pop investors have traditionally played the fool.  Nation states with lots of capital move money into extended macro trends, and so should you.  As prices fall, sovereign wealth funds go to work by accumulating what they want.  Copy the flows of the big money and you’ll be carried along for the ride, not whipsawed.

And finally, if you’ve listened to Jim Sinclair for any length of time, you should be laughing each time the Fed threatens to stop its so-called ‘quantitative easing’ or Bernanke suggests that the U.S. economy is on the mend, which would then preclude further money printing.

When the aforementioned wimps panic out of the silver market because they continue to play the mom-and-pop fool to Bernanke’s lies and deceit, you better be buying with the Chinese on the pullbacks.

The only troubling decision to be made in the silver market is when to ultimately sell your stash, if it all.  Buying the metal and holding it should be a very easy thing to do.  Sign-up for my 100% FREE Alerts

Gold:Silver Ratio Screams BUY SILVER

If ever a chart signaled a time to buy, it’s the silver chart.  Breakouts are everywhere, with the big one at $37 still ahead of us.  Then there’s nothing between that price and $50.   Sign-up for my 100% FREE Alerts

But it may get much better, of course.  Silver investors are already aware of the explosive moves in the metal.  The chart (gold:silver ratio), below, serves as a visual reminder of how wild the runs can get when compared with the more tame precious metal cousin, gold.

Previous violent compressions of the gold:silver ratio manifested, starting on Oct. 3, 2003, when the ratio briefly touched 80 on a Friday (keep that in mind).  Silver closed at $4.80 on the day.  Six months later, on Apr. 6, 2004, the ratio bottomed at 51, for a drop of 36 percent in the ratio.  The silver price closed at $7.21, a gain of 50.2 percent for that period.

The more recent and ever more dramatic decline in the gold:silver ratio began on Jun. 4, 2010, when the ratio briefly touched 70, on a Friday.  The silver price closed at $17.41 per ounce.  Nearly 11 month later, on Apr. 29, 2011, the ratio pierced 31, for a drop of 56 percent.  Silver ended the day at $48.48, for a 178 percent gain for the 11-month hyperbolic move.

Then, of course, the raid on silver began within 30 minutes of the open of trading on Globex.  The silver price plunged nearly $6 in literally minutes, according to Kitco’s database for May 1 (May Day).

It appears that another compression rally is underway.  This time, on Dec. 30, the gold:silver ratio touched 57, again on a Friday.  Since then, the silver price has soared, taking the ratio back down to 51.  Silver closed at $27.86.  A ratio of 50, if broken, could start the avalanche to a much tighter ratio.  Everyone is watching closely.

So a compression in the gold:silver ratio to, say, the extent of the Oct. 3, 2003 – Apr. 6, 2004 rally of 36 percent, the new ratio calculates to 36.5 for this present move.  If the compression reaches the Jun. 4, 2010 – Apr. 29, 2012, rally, the ratio calculates to 25.

During the Oct. 3, 2003 – Apr. 6, 2004, silver rally, gold closed at $372.50 on Oct. 3 and $418.50, respectively, for a gain of 12.3 percent for that time period.  Silver rallied 50.2 percent during that period, or a 4.08 times more powerful move in favor of silver.

The monstrous rally in silver from Jun. 4, 2010 to Apr. 29, 2011, was a 178 percent move, against gold’s move of 28.3 percent—from $1,220 to $1565.70.  Silver’s move again trounced gold’s to the tune of 6.3 times!

Assuming gold and silver are indeed in a power move up and that Jon Nadler and Nouriel Roubini are dead wrong, the combinations of potential gold prices and ratios are too numerous to present here.

But let’s assume the 2010-11 rally in the precious metals repeats.  A 28.3 percent return on gold from the Dec. 29, 2011, close of $1,565.70 calculates to $2,009.  Taking a gold:silver ratio of 25 and dividing that number into $2,009, that calculates to a silver price of $80.36.

If to match the duration of 11 months from the 2010-11 silver rally to the present one, by year end, silver would reach $80.

But of course, after silver passes the $50 threshold, $100 is assumed to be the next target.  That’s the Stephen Leeb scenario, and it makes a lot of sense.  Traders love round number targets.  But then there’s the cartel who’s watching, too.  $100 might be their target, as well.

Richard Russell once stated that as far as the price of gold is concerned, traders will look at $2,000, $2,500, then $5,000, and then $10,000.  So, at $2,500 gold on this move and a ratio of 25 gives us that $100.  Sure makes David Morgan’s target of $60 tame, but traders would still make out like bandits.   Sign-up for my 100% FREE Alerts

Marc Faber’s latest take on the Gold Price

After gold’s nearly $150 rebound from its December low, Marc Faber continues to believe that gold is not done with its correction, but he recommends the precious metal during an environment of negative real yields on U.S. Treasuries engineered by a Bernanke Fed. Sign-up for my 100% FREE Stock Alerts

Speaking with Fox Business on Jan. 17, the publisher of the Gloom Boom Doom Report suggests that, in response to record-low interest rates, investors should accumulate a “little bit” of gold each month instead of trying to pick a bottom in the gold price and going all in.

For approximately a decade, Faber has liked assets, which have historically benefited from widening U.S. current account deficits and central bank money printing, especially following 9-11.  For most investors, today, that means holding stocks and precious metals.

“Well, I think that eventually you want to be positioned more in equities than in government bonds, and you want to own some precious metals as well,” Faber said as a response by investors to future inflationary pressures he expects as a result of rapid money supply expansion and continued $1+ trillion U.S. budget deficits.

When asked about a gold price within range of $1,650, Faber took the contrarian viewpoint held by many gold market analysts and technicians.

Taking the opposing position of those held by 40-year veteran Jim Sinclair of JSMineset.com, currency specialist Jim Rickards, and another veteran gold analyst GoldMoney’s James Turk (who believe the lows in gold had been reached in early January), Faber apparently still harbors the notion that gold could drop to as low as the $1,100 to $1,200 range before beginning its next move to all-time highs.

“Well, I like it [gold], yes, but I think the correction is not over yet,” he said.  “I think, we had a big correction from the peak September 6 when gold hit $1,921.  We went down to around $1,522 at the end of December.  Now we’ve rebounded above $1,600.  I think we can have another leg down.”

In September 2011, Faber told CNBC, ““We’re now close to bottoming at $1,500, and if that doesn’t hold it could bottom to between $1,100-1,200.”  So, Faber remains unconvinced that the gold price has bottomed.  See BER article, Marc Faber Releases Gloom Boom Doom Report.

In countless previous interviews, Faber has said he would never sell his gold due to its special historically based role as insurance against profligate government spending, expansionary central bank monetary policy or financial disaster.

“If I were an investor or a saver I would buy every month, a little bit, and not everything at the same time, because what you want to essentially have is an insurance policy,” Faber suggested.

As no surprise to those already familiar with Faber’s thinking, he has recommended that investors stay far away from U.S. Treasury debt, a viewpoint also held by another popular investment guru, Jim Rogers of Rogers Holdings—who, by the way, is short U.S. bonds.

Faber has said repeatedly that at some point bonds will fall and interest rates will rise, but he doesn’t know when that will happen.

“It’s very difficult to tell when the central banks are manipulating and keeping interest rates artificially low,” he said.

Though not asked during this interview, Faber routinely gives a similar response to journalists who ask him how high gold can go before the gold bull market comes to an end.  His pat response is usually, “I don’t know; you’ll have to ask Mr. Bernanke.”  Sign-up for my 100% FREE Stock Alerts

Peter Schiff Takes-on FX’s John Taylor; Commodities, PMs, Stocks “Go Higher”

Everyone’s favorite Wall Street irritant is out with his latest call for the gold and silver price—as well as calls for every other anti-dollar trade, for that matter.  Euro Pacific Capital’s Peter Schiff recommends loading up on your favorite precious metal because the launch in stocks, oil, and even, the euro!, is about to begin.

“You’ve got the euro now at about 1.39, and I think you’ve got a head and shoulders bottom in the euro,” Schiff told King World News yesterday.  “Our short-term target for the euro, maybe, by year end, will be up near 1.48.”  The implications, suggested from Schiff’s bullish call for the euro, at this critical time are enormous.

For the watchful of those very best in the forecast of currency moves, you should recognize Schiff’s ‘in your face’ dual with famed FX’s currency guru John Taylor, whose forecast for a move down to euro 1.20 on its way to parity with the dollar is nothing more than heresy to the Schiff thesis.

Schiff continued, “I think that’s [euro bullish move] going to catch a lot of people off guard who were writing the obituaries for the euro, to see the euro approaching the 1.50 level.  The dollar index should be headed back down to the 72 level.”

He added, “Certainly I think there is too much pessimism on the euro and what was going to happen to the euro visa vis the dollar.  The euro is also rallying now as the stock markets are rallying and in fact the dollar is selling off against all of the currencies in the world, not just the euro.”

Reminiscent of the-fight-to-be-right in July between heavyweights Goldmoney’s James Turk of Spain and Thailand’s bon vivant Marc Faber on the outlook for precious metals for the historically-weak summer season, Turk had slammed Faber to the mat as gold soared 30% leading into Labor Day—though Faber did recover nicely after that, as September ushered in the hair-raising decline in gold to the $1,500 and $1,600 range—a range that Faber was looking for before considering buying more metal for himself.

Back to today’s match up: As Schiff looks for renewed dollar weakness against the euro, the venerable Taylor sees nothing but disaster for the euro going into 2012.  Schiff expects $2,000 gold ahead, while Taylor anticipates $1,000 gold, first, before a 1976-like comeback in the yellow metal takes it to record highs in the longer term.  Read more about John Taylor’s summer interview.  His call for a top in gold at $1,900 on its way to a fall, back to $1,000 in Apr.-May 2012, is an eery one, to say the least.

“I would be surprised to see the euro hold above $1 through this crisis,” Taylor told Bloomberg Television’s Michael McKee on Oct. 11 (reported by BusinessWeek). “It’s not over. The banks are going to be in trouble when Europe goes into a recession next year.”

Schiff, the energetic 48-year-old makes up for his noticeably diminished appearances on widely-watched CNBC and Bloomberg TV by popping his head everywhere else, it seems, from broadcasting his own YouTube radio show to appearances on Russia Today, then over to The Keiser Report and King World News, and back again, littering articles and interview segments on GoldSeek.com, 321Gold.com and every financial news outlet hungry for some good copy on the way.  Get my next ALERT 100% FREE

So, for now, Schiff sees the reflation trade going into the Fed’s FOMC meeting, scheduled for Nov. 1 & 2, and beyond the meeting.  A full-blown QE3, he said, is a done deal; it’s only a matter of when, not if.

“ . . .  China is going to print more money, the U.S. is definitely going to print more money,” Schiff surmised.  “We have QE3 coming up.  Part of the reason for the sell off in August was because the markets were disappointed that we weren’t getting QE3.”

“Then we had ‘Operation Twist’.  People were disappointed that there wasn’t more but I think more is coming,” Schiff added.  “That’s not good for the economy, it’s not good for the average American who is going to see his cost of living go up, but it’s going to be good for nominal stock prices and that’s what I think we are seeing in this rally.”

It’s difficult to know whether Taylor would expect a squiggle up in the euro to test the high of 1.50, as Schiff suggests, before it crashes to parity with the dollar some time in 2012.  It’s unlikely Taylor would be comfortable at that point with his call, maybe.

But, what Schiff is really saying is: the U.S. dollar is about to test the level of the abyss at USDX 72 at a time when the U.S. recession deepens (if the Economic Cycle Research Institute and John Williams of ShadowStats.com are to be entrusted with such calls).  A sustained drop below 72 for the U.S. dollar could unravel into another Lehman-like chaotic mess and to who knows what in the deleveraging of the banking system on both sides of the Atlantic.

It should be noted, too, that all through the Keystone Cops antics in Europe, the lies, rumor milling by FT and CNBC’s Steve Liesman, the failed EFSF, as well as the Berlusconi sideshow, the dollar really hasn’t made a meaningful bounce of the USDX 72 lows as one expects it would.  Schiff may be onto something.

On Gold: Team Sinclair-Turk 1, Marc Faber 0

Unless the gold price tumbles $400 in response to a surprise 500,000 rise in the Labor Department’s Non-farm Payroll Report, scheduled to be released prior to the NY open today, it appears the team of James Sinclair and James Turk have won the gold in the fight to be right on the move in gold this summer.

On June 23, as gold settled at $1,511, Sinclair stated, “Be prepared for covert QE between July 1st and late August when stimulation goes wild.  Be prepared for gold to take out $1,650 on the upside as magnets at $12,544 come into play.”

At that time, the gold community opined that Sinclair’s multi-year $1,650 gold price prediction may not be reached this year, after all.  Not only was the Sinclair call a gutsy one in the wake of 30+ years of seasonal data which suggested otherwise, it showed a man who’s willing to put his reputation on the line for the greater good of the investment community.  He sells nothing on his Web site, takes calls from anyone seeking his advice at all hours of the day—gratis, and doesn’t grumble or seek credit for his deeds.

And the other man of the gold medal team, James Turk, a man whose knowledge base and, more importantly, integrity, within the global bullion community, had said repeatedly the move in gold during the summer of 2011 will emulate the 50 percent move in the precious metal during the summer of 1982—the time of the Mexican peso devaluation.  He warned traders in June to hold gold during strength, not sell into the seasonal low period as is the custom.

James Turk is founder of bullion storage service GoldMoney.com.

On June 14, Turk told King World News to expect the unexpected in the price of gold during the summer’s intermission period of June-August.

“Everything is all set for new record high prices in both metals this summer, which is going to surprise a lot of people,” he said.  “I just think that people don’t really understand what can happen this summer.  We’ve spoken before about the summer of 1982 when the gold price rose 50% from June to September, propelled back then by the Mexican debt default.”

Turk added, “This summer, you could see a move higher in gold and silver that literally shakes the world.”
And shake the world they did.

For the first time in the infomercial CNBC’s 20-year history, the echo chamber of Wall Street’s tread-worn stock hucksters such as the likes of Morgan Stanley’s David Darst, decided it’s best to hedge its bet against plunging into the credibility abyss along side Morgan Stanley, or worse, Standard & Poor’s, by finally covering gold’s 11-year rally and by beginning to admit that the world may not be flat after all.

Gold’s emergence as a bona fide asset at CNBC is especially telling, as the duped legion of Lord Haw-Haws for the 40-year “in-crowd” intellectual dictatorship presently ruled by economist icons Paul Krugman, Ben Bernanke, Alan Krueger and other pseudo intellectuals at Princeton’s Woodrow Wilson School appear to sense that these despicable frauds will soon be exposed as a two-bit pack of 15th century shamans—at the very least!

And it could turn out that the year 2011 will be seen as the turning point of tyrannical rule of the U.S. dollar, in smaller part, in Libya and Egypt, but in a much more meaningful way in the fall of the evilest of empires of them all, The Fed—and just maybe a mass movement back to the principles of the U.S. Constitution is underway.

Jim Sinclair and James Turk are due some credit for their parts in exposing the most ruthless of tyrannies, The Fed, over the many years, and luckily have been afforded a mic now that the decade-long bull rally in gold has made their points illustrative.

And for the runner up to this inconsequential sideshow “bet” among raging gold bulls, Marc Faber, he is, indeed, not only the most entertaining money manager of the planet, he’s woken up more people to gold as the ultimate form of money than both Sinclair and Turk over the past several years through his made-for-television personality and cover of his Swiss-national status.  Americans can’t get away with making fun of the dollar like a Swiss can.  Ask U.S.-born Peter Schiff, another one who’s gotten it right.

These three man have gotten the overall trend in gold right for a decade, which is really all that investors need to know.  Long-term investors of gold did equally well irrespective of the hard-money advocate you follow.