Gold Shorts to soar Gold Price, says James Turk

After a slew of positive gold news of the past two weeks, James Turk weighed in on his latest thoughts with King World News (KWN) yesterday, and reiterated his forecast for a golden summer rally led by the unrelenting Asian buyers.

“It is very important that demand in Asia for physical metal has reappeared,” said Turk in the KWN interview.  “I continue to be amazed how the Asian buying adjust so quickly to the rising gold price.”

As the never-ending crisis in Europe, and now, the U.S., dominate mainstream news, more and more nervous investors waiting for cheaper gold prices find the strain of watching gold slip away to new record highs in all major currencies increasingly too much to bear.

“Clearly people are worried about the train leaving the station without them, so demand for physical metal adjusts quickly to the reality of higher prices,” Turk told KWN.  “After all, what would you rather own – gold or the dollar?”  Or the euro?

The effects of QE2 have already slammed the purchasing power of the Chinese, Vietnamese, Indians, Koreans, Thais, as well as most of the rest of Southeast Asia.  And as the shockingly poor data on U.S. jobs, GDP, manufacturing, housing, personal income, consumer sentiment and stubbornly high food and energy costs, show no signs of turning around, Asia investors fear yet another round of money printing by the Fed will send another inflation shock wave their way, knowing, too, that the full effects of QE2 have yet to come.

International bullion dealer, GoldCore, recently wrote, “South Korea’s central bank bought 25 tonnes of gold over the past two months . . . a 17 fold increase in their gold reserves. . . . Thailand’s gold reserves rose by 15.5% in the two months and rose to about 4.07 million ounces in June, from about 3.523 million ounces in May, according to figures on the Bank of Thailand’s Web site.”

All of that sudden buying out of Asia, on top of the already rapidly increasing rates of gold purchases from China and India, has the gold shorts (commercials) on the ropes, according to Turk.

“You have to remember, Eric, that the commercials have a massive short position in gold that is severely underwater,” he said.  “What the commercials try to do is trade for short-term gains while the longer-term positions go against them as gold climbs relentlessly higher.  They have this done for over 10 years, so this is nothing new to them.  What they (the commercials) fear is the strong physical buying coming out of Asia because they are powerless to fight that tidal wave.”

Back up the Truck on Gold and Silver, says James Turk

The slow summer months for the precious metals market will be anything but slow this year, according to precious metals expert, James Turk.

In an interview with Eric King of King World News, the founder of bullion storage firm, Goldmoney.com, said he expects gold and silver to rally strongly this summer, bucking the 30-year established seasonal trend of softness in metals prices during the summer months of July and August—the time of year when gold and silver typically put in lows for the year.

However, Turk believes the lows were already made in May during the cascading sell off in silver from its perch of nearly $50, taking the white metal to the $32 level and the yellow metal to $1,480 in a sell off—triggered by some profit taking and multiple, rapid succession, and controversial futures margin hikes instituted by the Chicago Mercantile Exchange.

“What we are seeing right now is a double-bottom in silver with gold staying strong near $1,500,” Turk said to KWN.  “With options expiration on both exchanges now behind us, we can expect a bounce from here.”

Turk cites growing tensions among populations around the world as politicians increasingly shift the burden of bad loans made by banks onto the public books.  Greece’s spectral will prove to be only the beginning of civil unrest in Europe this summer, Turk predicts.

“We’ve got civil disobedience growing in different countries,” said Turk.  “People are becoming fed up by bad decisions made by politicians that favor bankers rather than taxpayers.”

“People just have not come to grips with the fact that governments are running out of money,” Turk added, “which brings to mind my favorite Margaret Thatcher quote, ‘The problem with socialism is that eventually you run out of other people’s money.’  There is also a great deal of non-union tension as rising costs are continuing to erode people’s living standards.”

In sharp contrast to predictions made this week by Swiss money manager Marc Faber, who said on CNBC TV12 on June 29 that all asset prices will sink from a lack of Fed “stimulus” from its QE programs this summer and early Fall, Turk sees a rerun of the summer of 1982, instead.

It was then that the government of Mexico failed to make interest payments on its dollar-denominated sovereign notes during Paul Volker’s (the, then, chairman of the Federal Reserve) punishing interest rate increases of both the federal funds rate and discount rate.  Through several currency devaluations, which ensued through to the end of the year of 1982, the Mexican government  kicked off a run on the peso to the safe haven of gold.  Gold soared to more than $520 by the first quarter of 1983, from approximately $290—the low set at the start of the crisis in July of 1982.

Turk expects another run to gold, but this time the people of Europe’s peripheral PIIGS (Portugal, Ireland, Italy, Greece and Spain) will trigger another golden summer of 1982.

“In fact, with bankruptcies of governments becoming more and more likely, the reasons for owning gold and silver have become even more pronounced,” Turk continued.  “Summer has only just started, but I still see this as a summer that will be like 1982, one for the history books.”

Additionally, Turk points out that the gold/silver price ratio has widen significantly since the 31:1 print reached on April 28.  The ratio has since moved back sharply to levels not seen since the 45:1 ratio was taken out to the downside in February during the silver price breakout above the closing high of $30.84 set on Dec. 31, 2010.

“I actually like the action of the gold/silver ratio; yesterday it closed at 44.5 so it is back at support,” said Turk.  “This is a further indication to me that the correction has reached its nadir.  The interesting thing about corrections like this Eric is how rapidly bullish sentiment evaporates even while the fundamental factors driving the metals higher this past ten years remains very favorable.”

Jim Rogers’ Top Two Commodities

In an after-the-bell interview with CNBC’s Maria Bartiromo, Wednesday, commodities king Jim Rogers said he’s a bull on all commodities now, but especially likes silver and rice.

The 68-year-old Rogers, known for his partnership with George Soros at Quantum Fund, spelled out what he expects of Ben Bernanke and other central bankers as the financial crisis plays out—that is: print money.

Strong demand from Asia’s growing middle class from a pool of a 3-billion-plus population as well as an anticipated continuation of loose monetary policies by central banks worldwide will lift commodities prices, he said.

“It [print money] is all they know to do in Washington, Tokyo and a few places,” said Rogers.  “They’ll print more money.  And if they print money, you should own silver and rice and real assets.”

If the world economy grows, Rogers likes commodities.  If the world economy goes back into recession, Rogers likes commodities.  It’s a heads you win, tails you win play, he explained.

What happens after QE2 expires at the end of June?  Rogers didn’t venture a guess on the effects on the equities markets as the end of June approaches, but he expects more money printing from the Fed, especially in front of an election year.

“QE2 definitely will go away.  Now it may come back with a different name,” he speculated.  “They may call it cupcakes.  Who knows what they’ll call it, if it comes back.  But they’re going to bring it back, because he’ll be terrified and Washington will be terrified.  There’s an election coming up in 2012.  Washington’s going to print more money.”

On the subject of the debt ceiling impasse in Washington, Rogers doesn’t expect a U.S. government shutdown.  But if the U.S. government didn’t raise the debt ceiling, he surmises that “the dollar would go up,” he quipped.

But a shutdown of the U.S. government won’t happen, he said.  Governments throughout history have all opted to try to inflate out of burdensome debt levels, and this time the response by today’s governments won’t play out any differently, Rogers has repeated stated in the past.

But at some point, the currency crisis comes, and we may be coming close to that tipping point.  “The markets won’t put up with this much longer,” said Rogers.

The billionaire investor’s portfolio is long some currencies (likes the Chinese renminbi) and commodities.  He has no long positions in the U.S., and is short emerging markets and U.S. technology stocks—with the latter, he believes, are in the midst of a bubble, mentioning Facebook (presumably referring to valuation estimates of the social network leader) in particular.

Rogers is also short a U.S. bank stock, but refused to state the name of the bank on two separate occasions during the Bartiromo interview.  Since Rogers initially mentioned more than a month ago that he’s short a U.S. bank, rumors have spread throughout the Web that the bank in question is Bank America (NYSE: BAC).

Peter Schiff: We are on the Precipice

In his typical candid style, Peter Schiff said he believes the U.S. is again on the brink of another banking collapse—this time the crisis will be worse than the scary swan dive of 2009.

“The stimulus is wearing off and the much anticipated hangover is starting to set in.  The economy is now in worse shape because the government stimulated it,” Schiff told King World New’s Eric King.  “The stimulus merely interfered with the corrective process.  So instead of resolving some of our economic imbalances, the government has made them worse.  Now we are on the precipice of a bigger economic decline than the one the stimulus interrupted back in 2009.”

The irascible president of Europacific Capital, Schiff (known for his no-nonsense responses to interviewer questions), is well-liked by investors who cherish forthrightness amid the legion of perma bulls paraded on financial television programs throughout both bull and bear markets.  The stock bulls of 2000 and 2008 as well as the housing bulls of 2006 still regularly appear on those financial programs.

Schiff has stated many times that he wonders why those who have gotten it consistently wrong are still asked to appear on television in front of a mass audience, while on the other hand, he, who’s gotten it right, is periodically browbeaten for their “fear mongering.”

Schiff, like many independent investors, doesn’t trust the Federal Reserve and the Treasury to come clean on articulating the core problematic issues surrounding the reasons for the precipitous decline of the U.S. dollar against nearly all Forex currencies, commodities and precious metals. Schiff has not only offered blunt assessments when asked about the dollar, he’s been spot on the mark with his predictions, too, which in turn has steadily increased the size of his flock of Schiff disciples.

Those fortunate enough to have followed Schiff’s commentary prior to the collapse of Bear Strearns, Lehman (LEHMQ), AIG (AIG), Fannie and Freddie (FNMA, FMMC)—or have read his book, Crash Proof: How to Profit From the Coming Economic Collapse, weren’t taken by surprise by the dramatic swings and crashes that followed the Bear Stearns fiasco.

So what’s Schiff saying about the U.S. dollar at this juncture?

He told Eric King, Monday, “It’s going lower, last Friday the U.S. dollar closed at a new low against the Swiss Franc.  You need a $1.18 to buy a single Swiss Franc.  I think you are going to see much more of the safe haven money going into other currencies or precious metals and the dollar is going to lose that bid, especially if the Fed launches QE3.”

Schiff continued, “… If you look at the economic relapse that’s going on right now, look at Friday’s abysmal job numbers, look at the housing numbers, understand that all of this is taking place with record monetary and fiscal stimulus.  What happens if we remove those supports?”

Schiff told KWN he believes the Fed’s actions to bailout the banking system throughout the years 2009 and 2010 have made the initial problem of highly leveraged banks vulnerable to a downturn in the economy more acute, so the next crisis will result in a bigger problem for the Fed and less options to cope with bank and broker/dealer insolvencies.

“I think it’s a certainty,” said Schiff in his response to KWN’s question on the chances of another banking system meltdown.  “The financial crisis in our future is bigger than the financial crisis in our past.  We are more vulnerable as a nation, we are more heavily leveraged now than we have been at any other time.  We are more vulnerable to an increase in interest rates or a run on the dollar and either of things or both of things could happen soon.”

Just as Schiff predicted before the crisis began in 2008 that the Fed would fight a U.S. economic collapse with massive money printing, Fed chairman Ben Bernanke will print again if the U.S. economy cannot grow on its own, Schiff warned.

“It [the Fed’s balance sheet] just hit a record size on Friday.  It’s $2.77 trillion, almost $2.8 trillion,” he said.  “We’re approaching a $3 trillion balance sheet, but the thing is in order for the Fed to keep this phony economy on life support that balance sheet has to continue to grow.”

He continued, “Once that happens we can build a lasting and sustainable period of prosperity.  The one we have now is doomed, it’s an abomination, it can’t survive.  It depends on ever and ever greater injections of credit so that we can keep on borrowing to consume and import.  If we try to do that indefinitely we will destroy the economy completely because we will destroy the currency completely.”

Schiff predicted gold’s ascent well before the debt crisis became apparent to everyone in 2008, and he again expects more bullish moves in the monetary metals in the months and years to come as the beginning of “Act II” of the global crisis—as George Soros described the volatile financial markets in March 2010 (during the Greece sovereign debt crisis)—plays itself out around the globe.

“The more mistakes the Fed makes, the more stimulus the government pours into the economy, the brighter gold and silver are going to shine.  Since I am optimistic that the government will keep doing the wrong thing, I’m optimistic that gold and silver prices will keep rising.”

Peter Schiff sees Buying Opportunity in Silver

Peter Schiff believes the vicious pullback in the silver price has created a buying opportunity for investors seeking an entry point back into the metal.

Speaking with Eric King of King World News, the Europacific Capital CEO said the precious metals will benefit from weak economic data expected to be released this summer, forcing Fed chairman Ben Bernanke to reverse the U.S. central bank’s money printing hiatus and embark again on another “quantitative easing” program.

“I think it’s a buying opportunity,” Schiff said about the white metal.  “I do believe the U.S. economy is slowing down, in fact I think it’s going to slow a lot more than people realize.  But for that reason, I think that quantitative easing will not end over the summer.  In fact, I think the Fed is going to step it up. QE3 could be even bigger than QE2 and that’s very bullish for precious metals and very bearish for the dollar.”

Aside from Schiff’s expectations of a renewed decline in the U.S. economy absent the Fed’s wide open money spigots, Bill Gross of PIMCO asked a more germane and most troubling question back in March, a question that Schiff, too, has posed for many months.

“Who will buy Treasuries when the Fed doesn’t?”

In Bill Gross’ March Outlook piece, Gross posited that question—the piece, by the way, was originally published on the PIMCO Web site (now removed), but a copy can be found at zerohedge.com.

Among other important musings in his 1,800 word letter to investors, Gross runs down the list of significant buyers of U.S. Treasury paper, noting that he expects surplus sovereigns will be “good for their standard $500 billion annually,” but banks and bond funds are cutting back on Treasury paper buying—in case of the former, lending again in place of parking capital in U.S. paper, and in the case of the latter, buying less Treasuries due to slower inflows of investor capital.

Moreover, Gross, who agrees with Schiff about the underlying weakness of the U.S. economy absent the Fed’s herculean money printing, questions the Fed’s ability to maintain artificially low interest rates as the Fed halts its buying spree of bills and notes, which by most accounts represents more than 50%, on average, of all maturities along the curve.

So, “who’s left?” Gross asked in his March letter.

Someone will buy them, and we at PIMCO may even be among them,” stated Gross.  “The question really is at what yield and what are the price repercussions if the adjustments are significant … What I would point out is that Treasury yields are perhaps 150 basis points or 1½% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%.”

Gross continues along the lines of Schiff’s argument, that is: all components of the Leading Economic Indicator (LEI) have been artificially inflated through money printing, a dangerous phenomenon of false signals once observed decades ago by the Austrian economist Ludwig von Mises.

“Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market hand-off and stability in currency and financial markets,” Gross concluded.

Therefore, Schiff, who approaches the problem at the Fed in the same way as Bill Gross, believes rates are bottoming and have no where to go but higher, which will eventually give rise to talk at the Fed and on the Street that further QEs are necessary to hold the U.S. economy ship up a little longer to see if it will float on its own.

The argument will be made (already being made by Princeton economist and former Fed vice chairman Alan Blinder): if no Fed intervention, the U.S. economy will flounder into more lower economic growth territory, which will tank tax receipts and balloon an already out-of-control federal budget deficit—therefore necessitating further central bank intervention.

According to Schiff (and Gross), that negative feedback loop should put a strong tailwind to both silver and gold until the Fed refrains from its unprecedented “liquidity” operations—a scenario most unlikely, for now.

Schiff thinks the silver price at the recent $50 high “is not going to hold,”  adding, “We are going to take that [$50 high] out and move a lot higher.”