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.

James Turk’s Silver Price Target, $70

While the silver price moves higher with the gold price during this latest consolidation phase in the bull market for precious metals, Goldmoney’s James Turk expects another violent move higher for the metals, especially the price of silver.

“This move [in the silver price] is going to catch a lot of people by surprise as evidenced by the extremely low sentiment readings,” Turk told King World News, Monday, pointing to the lack of overall enthusiasm in the precious metals market of late, with a relatively steep contango in the silver futures market chain serving to support his thesis.  “Those low readings are a clear indication that there is a lot of money on the sidelines that is waiting to jump on board.”  Sign-up for my 100% FREE Alerts

Such low sentiment readings and steep contango prices in the silver futures haven’t been seen since the first quarter of 2010, when problems in the Greek sovereign debt market first emerged.  At that time, fears of another Lehman event, this time from Europe, took the DJIA sharply lower from its intermediate post-crash peek of 11,250, down to 9,600, a nearly 15 percent correction in the  30 Industrials.

In contrast, after ttading between the $15 and $18 range during a nine-month period of September 2009 and June 2010, the silver price climbed higher in the face of a risk-off-then-risk-on-again trade in stocks of 2010 as the white metal never looked back, soaring to just shy of $50, from the $15 base of the previous flagpole pattern.

The tremendous rally in the silver price took Wall Street by surprise, as any asset rising this rapidly typically begets a much wider audience beyond the silver bug watchers.  That contrarian signal suggested to legendary commodities investor Jim Rogers that the silver price would need to “settle down” before he’d become a buyer again.  The weak hands had taken over the silver market.

But as the silver bugs remember, all too well, the steep and dramatic drop in the silver price to $25 sent the weak hands to slaughter, as a series of five margin hikes compound the pressure of a rapidly falling market to sell into the hands of the strong.

“During a big correction like the one we’ve just gone through, a lot of weak hands get shaken out of the market,” said Turk.  “We know that has happened because of the change in open interest and also because of the smaller volumes of late.”

Today, the situation has reversed direction, according to Turk.  Silver futures are back in contango and Jim Rogers is talking about silver once again.  Moreover, as the crisis in Europe escalates, Europe’s new ECB chief, Goldman Sachs alumnus Mario Draghi is now printing approximately 30 percent more than the Fed is—and the European central bank needs to print more, and could get some needed help from the Fed, according to zerohedge.com.

“Throughout history, when things have gone wrong, they [central banks] print money … when they print money, you should own silver, you should own rice, you should own real assets,” Rogers said in an interview with CNBC of Nov. 23.  See BER article.

Back to Turk, who said he’s calculated a target for the silver price during the upcoming next leg higher.  By taking the April 2011 high and subtracting the September 2009 and June 2010 base price—a common and fairly successful technique applied in the use of technical analysis—Turk expects the next move higher will achieve an all-time record price for the metal.

“The first we have already spoken about, namely the bullish flag pattern on the weekly silver chart (above). When silver breaks out to the upside, this flag measures to a target price of around $68 to $70,” Turk explained.  “More importantly, the jump out of the flag should happen more quickly than the $18 to $50 move we saw back in 2010 and early 2011, which took about nine months.”

James Turk on Gold: Getting Close to the Endgame

James Turk increasingly sees the tell-tale signs of the endgame for the U.S. dollar rapidly emerging right before his eyes.  Ergo, a move in gold that will “light people’s hair on fire,” as the Nostradamus of the gold market, Jim Sinclair, has predicted, moves ever closer to reality.

“What we are seeing today is just like we saw in the 1970s when hot money was flying around the world from place to place,” Turk told King World News on Monday.  “Despite the fact that the Federal Reserve is buying long-term paper, interest rates are still rising.”

And rising rates on the long end of the curve, not only have demonstrated the dangers of levering up the Fed’s balance sheet but extending its average maturity (one of the many problems with Greek sovereign debt), it’s extraordinarily costly to the Fed and those who’ve made a living front-running the Fed, a la PIMCO’s Bill Gross, who, by the way, just released his crocodile tears mea culpa address to investors on Friday.  It appears the insiders at Gross and Co. have had a bad year.

“So the high in government [Treasuries] prices is probably behind us,” Turk speculated.  “This will eventually [lead] to questions about the Federal Reserve’s solvency.  The Fed has a lot of low-yielding paper and as interest rates rise, the price of that paper will fall.”

It appears that while Turk’s legion of tin-foil hat wearers have so far weathered this year the most vicious turmoil in currencies, sovereign debt and stocks since the 2008-2009 meltdown, Bill Gross has been busy taking a bullet for the Fed (Buffett, too, from his purchase of BofA ahead of the most dreadful earnings releases for the banks in recent memory) at the expense of his shareholders.

What?  Bill Gross?  Sounds like another tin-foil conspiracy theory.

Consider the real threat of a military invasion of any OPEC nation that threatens to bypass the U.S. dollar in oil transactions.  Collectively, OPEC holds approximately 30 percent less Treasuries than the potential holdings of PIMCO’s $1 trillion.  It’s a far-reaching conclusion to support a case that Gross has not been touched by someone at the NY Fed—and at a most critical time when ‘Operation Twist’ needed a little help beyond the initial reaction to the news of its deployment.

That’s a sign of desperation, or fear, at the Fed.  As the founder of bullion storage company Goldmoney reviews his proprietary model, called the ‘Fear Index,’ Turk has not backed off from his earlier prediction of $2,000 by November 1.  But from the looks of things, gold may not reach Turk’s $2,000 target with only 10 trading days left for October, but given his widely-followed track record, reaching as far back to the year 2000, Turk can only be faulted for his intermittent flubs in the precise timing of his calls.

That precision, of course, only proves that Turk is not included in the loop of cc’ed memos following ad hoc conference call pow-wows held by Bernanke, Geithner, JP Morgan and CFTC cabal.

Besides, a review of Turk’s record for timing major moves reveals miscalculations of only mere weeks, for the most part, but more importantly and typical of Turk, it shows his willingness to stick his neck out for investors time and time again—unlike the endless lame calls made by big Wall Street firms that issue target prices 5% from present levels and on a time horizon that nearly assures a correct call.

Turk continued, “It won’t take a big jump in interest rates to cause people to question the Federal Reserve solvency, especially given the poor quality of the assets on the Fed’s books from the bailouts it has engineered.  This is all part of the the overall trend of increasing fear as part of my ‘Fear Index.’”

And that’s where the dollar dominoes are mostly likely to fall first.  In line with Turk’s belief that a dollar collapse will show up first in the U.S. Treasury market, Donald Coxe, former Global Portfolio Strategist for BMO Capital Markets (the firm of the iconic CEO Jeremy Grantham) told listeners of Financial Sense Newshour that the dollar’s Achilles heal can be gleaned from the stresses on the Fed’s balance sheet and from the participation (or lack, thereof) at Treasury market auctions.

Keeping a careful eye on the amount of direct bid take-downs by the Fed’s primary dealers in relation to the indirects (mostly central banks and the likes of PIMCO) may provide investors a heads up to the stress the Bernanke Fed feels.  Zerohedge.com does a good job keeping investors apprised of the capital flows at the Fed’s custodial accounts.

As the Fed stresses, gold moves higher.

“What we are seeing in the metals right now is the quiet before the storm, Eric,” said Turk. “These are excellent times to be accumulating gold and silver on the dips because longer-term you are going to see price levels for the metals that today would be considered unimaginable.  This is how secular bull markets work and this one won’t be any different.  It will end in a mania that will, ‘Light people’s hair on fire,’ as Jim Sinclair is fond of saying.”

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.

Here’s how the Fed could Shock the Gold Price Tomorrow

Sentiment between holding paper assets and hard assets will be tested shortly, as the FOMC deliberates on the multitude of troubling data from around the globe.

As of 6:37 a.m. EST, September 20, the Dow:Gold ratio stands at 6.37, just below its overhead resistance of 6.50.

For those preferring silver as a potentially much more exciting vehicle for fleeing paper assets, the Gold:Silver ratio trades at 45.26, or just north of its resistance of 45.

As the FOMC begins hashing out its next policy moves, beginning today, it appears traders are mixed on the prospects of a Fed surprise beyond ‘Operation Twist’ (Fed sales of short-term Treasury debt and simultaneous purchase of longer-term maturities) expected as a result of the scheduled two-day meeting.

So if the next big moves in gold and silver (equities and bonds, too) could well be predicated on the Bernanke Fed on Wednesday, what can we expect?  One interesting take on the Fed’s next move comes from David Rosenberg, chief economist at Gluskin Sheff.  He speculates that the Fed may be out to surprise the markets big time on Wednesday in its effort to juice equities markets as its only direct policy move to ignite an already dangerously fragile U.S. economy.

In a note, Rosenberg postulates:

“The consensus view that the Fed is going to stop at ‘Operation Twist’ may be in for a surprise. It may end up doing much, much more.  Look, we are talking about the same man who, on October 2, 2003, delivered a speech titled Monetary Policy and the Stock Market: Some Empirical Results. I kid you not. This is someone who clearly sees the stock market as a transmission mechanism from Fed policy to the rest of the economy. In other words, if Bernanke wants to juice the stock market, then he must do something to surprise the market.”

Since the market is already abuzz with expectations for ‘Operation Twist’, another money-printing scheme above and beyond will be announced, according to Rosenberg, in the Fed’s desperate effort to put some animal spirits back into, what Max Kieser refers to as, the ‘Casino Gulag Economy.

Rosenberg continued:

“’Operation Twist’ is already baked in, which means he has to do that and a lot more to generate the positive surprise he clearly desires (this is exactly what he did on August 9th with the mid-2013 on- hold commitment). It seems that Bernanke, if he wants the market to rally, is going to have to come out with a surprise next Wednesday.”

But here’s the danger for traders betting on the Bernanke put, he said, and clearly will be on the mind of Bernanke during the two-day central-planning powwow.  What if Bernanke doesn’t come through with the votes for the next step on the road to Weimar’s Hell Hole?  Rosenberg stated, “If he doesn’t, then expect a big sell-off.”

A sell-off in what, you may ask?  Well everything benefiting from the inflation trade, according to Rosenberg, including precious metals.  But if the Fed insists upon keeping the casino doors wide open, the Dow:Gold and the Gold:Silver ratio will most likely drop like a stone once again.

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.

Today’s Silver Price Critical, says James Turk

With silver hanging ruggedly firm above the $40 battlefield, the naked silver short cartel could completely lose control this time, James Turk told King World News  (KWN).  But today is a critical day, as the cartel typically throws everything they’ve got at the paper market before the August options expiration of July 26.

The result of that expected struggle will be telling, he said.

“The fact that we are breaking through $40 [for silver], which has provided overhead resistance for so long, is a clear sign that the shorts are losing control,” Turk told Eric King of KWN.  “The upper hand is shifting to the buyers of physical silver.”

Coincidentally, signs of another break from the correlated moves up and down in the Dow and the precious metals market are evident in the Dow-to-gold ratio, which has been teetering on collapsing below the 7.8 mark this week.  If broken, as it was in the panic month of March 2009, the precious metals could attract buyers of the metals this time around and trigger another short squeeze, especially in the razor-thin silver market.  In 2009, the rush to liquidity took the gold price down.  Today, the problem in the global financial system is solvency—not liquidity.

“My near-term target is still something in the mid $40s, but if gold starts moving higher, as I expect, silver will be testing that $50 level by next month,” said Turk, who has warned of that scenario nearing reality all year.  “That is going to spoil the summer vacations of many of the silver shorts who will be left shocked and in disbelief as they buy hand over fist to limit their losses.”

Several bullion experts have expressed disbelief that the Commitment of Traders report (COT) indicates subdued bullish sentiment in silver under the circumstances in Europe and the U.S.  It appears that possibly the large speculators (specs) have mistaken the summer of 2011 as any other summer of the past 29 years, according to Turk, and may not fully appreciate why this summer could be one for the record books.

“I’m surprised by all of the bearish sentiment, particularly in view of the fact that both metals look ready to rocket higher,” Turk continued in the interview.  “The summer is just getting started and this is already looking more and more like the summer of 1982 when gold was up 50% in three and a half months.”

The continuing crisis in Europe and renewed weakness in the U.S. dollar against the commodities producing nations of Australia and Canada, as well as the record print against the Swiss franc, could indicate the dollar’s morphing status from safe haven to one of just another currency in line for trouble after the euro and sterling.  With the euro under threat of unraveling, the dollar, remarkably, still trades at near 1.44 against the dollar, or only $0.16 off its all-time high before the crisis began.  At this time last year, the dollar traded at near parity, and has lost approximately 25% against the Swiss franc within those 12 months.

Is the Swiss franc’s strength foreshadowing the summer rally in the metals?  Today’s silver price action could give traders a clue as to the possibility of such a rally.  If the price of silver can struggle to trade above $40 amid the expected cartel onslaught, Turk could be spot on with his analysis of a breakout and test of the $50 mark.

“So tomorrow [July 26] is shaping up to be an interesting battle between the option sellers and the physical buyers,” he said.