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.

Expect $85 Silver, says Legendary Market Technician

As Asia continues to report soaring CPI statistics, with Vietnam’s 22% inflation rate as the most recent evidence of the Fed’s QE2 “liquidity” rippling through the world’s economies, legendary technician Louis Yamada told King World News (KWN) the precious metals are set to takeoff again as a result of Bernanke’s monetary actions.

Yamada’s fame as the market technician with a track record of “getting it right,” began as director and head of technical research at Smith Barney (now of Citigroup (NYSE: C)).  After being voted as the leading market technician in 2001-2004, she went off to found her own research group, Louis Yamada Technical Research Advisors, in 2005.

“Gold continues to be in an uptrend in our work,” Yamada told KWN.  “You had a little bit of a consolidation, seasonality would suggest a rise into the fall. The primary support level remains at $1,475 … Our next target is $2,000, and we did a gold special in our last piece that suggested from a very long-term perspective … we could see $5,200 on gold.”

Yamada is the latest of a raft of highly credible analysts, money managers and bullion dealers coming out during the past two weeks to tell KWN and other news organizations of the imminent explosion in the price of precious metals.  James Turk, Jim Sinclair, John Taylor, Ben Davies, John Embry, Peter Schiff, and Jim Rogers (who announced he is adding insult to injury to the U.S. dollar fiasco by shorting U.S. Treasuries) have all advised to go long the anti-dollar trade.

The lone hold-out of considerable import to the precious metals market is Marc Faber, the favorite go-to guy for the most steamy of quotes and anti-establishment rhetoric of all hard money advocates.  His forecast for this summer is for the monetary metals to succumb to the 30-year track record of weakness and relatively thin volume.

As gold makes new highs above $1,600 and silver makes its way past $40 amid a fierce “250 million ounces of silver in 1 minute” smack down attempt by the cartel last week, according to Precious Metal Stock Review’s Warren Bevan, the majority of our favorite talking heads, so far, have it right, and Marc Faber has it wrong.  But the summer isn’t over yet, and Faber hasn’t budged from his forecast for the metals.

Yamada, who, incidentally, didn’t offer a time frame for her targets for the gold and silver price, said her next target for silver is for a double “over time” from the $40 print.

“We hit part of our silver targets at $50, (expect) $65, even $80, $85 over time,” speculated Yamada in the KWN interview.  “We had an 88% rally in a very short period of time from January and a one third retracement, 34% down, so that was pretty normal. We saw some support at $33 and would loved to have seen it go sideways a little bit longer to be honest with you,” noting considerable dollar weakness in light of the  sovereign debt crisis with the PIIGS of Europe has revealed the dollar’s diminished status as the world’s safe haven currency.

“I think that one of the observations that one has to take into consideration is that with each of the Euro financial crises and our own financial crisis in 2008 to 2009, the dollar has rallied less!” she said.

“In other words you had a rally in 2009 that carried 25%,” Yamada explained.  “Then, in early 2010, the rally was only 19%.  And the second one in 2010 was only 7%.  And this time, you haven’t even seen 7% with the crisis that has evolved.  So that suggests to us that it (the dollar) is becoming less and less considered a really safe haven.”

While the systemic problems with the euro and dollar come fully into focus, we should be mindful of U.S. Treasury Secretary Tim Geithner’s recent comment on Meet the Press of July 10, when he said, for a lot of people, “it’s going to feel very hard, harder than anything they’ve experienced in their lifetimes now, for a long time to come.”  Bloomberg reported that Geithner may step down from the head of the Treasury.

As of 12:36 in New York, gold trades at $1,612.79 and silver at $40.05.

Silver’s a Good Buy in the Low 30s, says Peter Schiff

Schiff puts his money where his mouth is

As silver consolidates from its near-triple bull run to almost $50 on May 2 from last year’s July low of approximately $17.50, Peter Schiff said he believes silver represents a good buy in the low 30s.

Speaking to Eric King of King World News, the Europacific Capital president and author of several financial books told KWN that U.S. sovereign debt is the “grandaddy of all sovereign credit problems, credit problems and our crisis is going to be too big to hide beneath a bailout or to kick down the road.”

As an Anglo-American institution established in 1945 to oversee the global financial system, the International Monetary Fund (IMF) has been an integral part of negotiations and sources of funding for many member nations under financial duress.  As a means for smaller nations to access debt financing, the IMF has been involved in the vast majority of emergency loans throughout the world.

But when large member states become insolvent, analysts wonder what will happen then.

Greece’s GDP of $330 billion is akin to the total production of the U.S. state of Maryland.  Other EU members under financial stress, Portugal and Ireland, weigh in at approximately slender $230 billion a piece.  Those are relatively small potatoes when compared with Spain’s $1.5 billion and Italy’s $2.1 billion, respectively.  Many analysts have little doubt that if traders take Italian or Spain 10-year bonds to rates of more than 10%, the end of the euro in its present form is near.

But Schiff is looking far ahead.  He believes the euro is already on the slippery slope to a breakup, and has set his sights further down the road to the U.S. dollar and the zero chance of a bailout from a dollar crisis.

“The IMF is not going to step in with loans to the United States government,” said Schiff.  “The IMF is getting its money from the U.S., and of course we are getting our money from China.  So when we fail, there is no way out.”

To put the U.S. fiscal deficit in prospective: presently, the yearly U.S. budget shortfall per year is more than the entire GDP of Spain.  So when the music stops in the U.S. Treasury market, the yearly fiscal deficits could skyrocket more than the unprecedented $1.6 trillion deficit slated for fiscal 2012, which would then create a Greek-style negative feedback loop to “fiat currency graveyard,” as James Turk of Goldmoney likes to put it.

“We’re [U.S.] going to have the same problems as Greece,” added Schiff.  “The reason that Greece can’t pay its bills is that interest rates are rising and the Greeks don’t have the money.  Well, the same thing is going to happen in America.  When interest rates eventually rise, we can’t afford to pay because we’ve borrowed so much … and unless we can find new buyers of our debt, we’re going to have to default.”

What would happen to the price of silver and gold under that scenario?  Schiff, a big proponent of the precious metals since the early 2000s, said prices will move “straight up,” stressing to investors that the time to buy the metals is “before that atmosphere” comes upon us, not during the crisis.

His advice for silver aficionados is to stay the course through the volatile price swings in the metal and buy at discounts from recent highs, which today calculates to approximately a 33 percent discount.  In the Monday morning trade in New York, silver trades at $34.01.

“I think anything in the low $30s represents a pretty good entry point for people to buy … Once we go through $50 … I see silver going to $200 an ounce,” concluded Schiff.  “I own a lot of silver personally because of that outlook.”

Marc Faber again Calls for a Drop in Dow

Marc Faber told American news outlet Newsmax he expects stocks to tumble in May.

Following his call for a 10% decline in stocks—first, on Oct. 26, then, reiterated on Jan. 25, the Dow has refused to succumb to countless clues of an ailing U.S. economy failing to respond to herculean monetary stimulus from the Bernanke Fed.

The rally in the DJIA, following the post-crash March 9, 2009, low of 6,440.08, has since  taken the 30-stocks average to 12,928.45—or, a double—set on May 5.  Faber, the publisher and editor of Gloom Doom Boom Report, told Newsmax that the long-awaited 10% correction in the Dow is upon us.

Today, Faber said he’s troubled by several symptoms of fatigue appearing in the “internals” of the broader market, including a decline in the number of stocks reaching new 52-week highs, according to Wall Street Pit.

Another warning sign comes from metals prices, which have dramatically plunged in recent days, among them copper, also referred to as Dr. Copper for its highly correlated price pattern to equities.

While the Dow reached new intermediate highs earlier in the week, the price of copper failed to confirm the rally in stocks, lagging the Dow noticeably prior to Monday’s kick off to a commodities complex sharp reversal lower during the remainder of the week, further buttressing Faber’s case for an imminent continuation of the decline in stocks.

Confirming evidence of a reversal of global risk-on trades can be traced to both sharp declines in the U.S. Treasury 10-year note yield as well as a meaningful one-day 100+ pip rise in the USDX.

However, Faber’s recent call for a correction in stocks doesn’t make him a devout bear on the major indexes in the long run. With his overall underpinning thesis that a weak dollar encourages risk-capital flight into equities and commodities, Faber sees the Fed’s zero interest rate policy (ZIRP) lifting equities in nominal terms as long as real interest rates after inflation remain below zero.

In a Bloomberg interview on April 27, 2009, at a time of heightened fear in global equities markets, Faber cautioned, “Don’t underestimate the power of printing money,” arguing that a Fed in want of higher asset prices can achieve its objective through the proverbial printing press.

“The more things will go bad, the worse things become, the more the money printer at the Fed, Mr. Bernanke, will print,” added Faber. “He will print endlessly. Even if things go bad economically, you could have no revenues at companies and no earnings and stocks will go up because of money printing.”

Silver has to “Come Down,” says Jim Rogers

As the seemingly relentless climb in the price of silver neared the all-time Hunt Brothers high of $50.35, traders began to talk $100 as the next stop for gold’s kissing cousin.

The 68-year-old commodities trading legend Jim Rogers told CNBC on Thursday that he has no idea if rumors that his former partner at the Quantum Fund in the 1970s, George Soros, is selling gold, are, in fact, truth.  The implication of Soros, a noted “strong hand,” selling a closely price-correlated metal to the silver price would most likely impact sentiment among “weak hands” of the white metal.

“I have no idea, that was 31 years ago, you might as well ask me about my first wife, I haven’t seen her either,” said Rogers.

Rogers, who said last week on India television program, ET Now, he wants to accumulate more silver after the market “calms down,” now has an opportunity to add to his silver holdings during a market sell-off of silver.  After reaching a high of $49.79 in Asia on March 25, silver’s price has plunged 24.4% to $37.62, as of 06:52 ET Thursday in overseas trading.

“I hope we have a pull-back, I hope it goes down for a while, it’ll be good for the market,” Rogers said. “In 1987 stocks went down 30% to 40%, smart people went in and bought more. If it goes down I hope I’m smart enough to buy move silver.”

As the predominate currency of the USDX basket of other reserve countries, the euro’s outlook remains a strong factor in the dollar’s relative worth against other major FOREX cross pairings in addition to precious metals.

Though some European Community countries are “just bankrupt,” as he said, Rogers owns the euro as he sees the European Central Bank more vigilant in the fight against rising food and energy prices within the 23 countries collectively comprising the eurozone.

“I own the euro, I’m not thinking about selling the euro for fundamentally good reasons the ECB is doing a much better job than the U.S. central bank,” said Rogers.

“Nobody has ever been better off for debasing your currency and America is doing a terribly wrong thing. Britain debased its currency for decades and it didn’t help,” he added. “I as an investor would be even more bullish on the euro if the central bank takes action.”

Active silver stocks:

Coeur d’ Alene Mines Corp. (NYSE: CDE)

Pan American Silver Corp. (Nasdaq: PAAS)

Hecla Mining Co. (NYSE: HL)

Silver waits for Gold to reach $1,800 by June, says James Turk

In his latest observation of the silver price action, author as well as Goldmoney founder and Chairman James Turk said he expects silver to consolidate at present levels as gold plays catch-up to silver’s dramatic rally.

After climbing 27.1% ($47.87) for the month of April, 55.2% ($30.84) since the beginning of 2011, and 156.6% ($18.65) since the close of April 2010, the metal price could most likely consolidate in a “bullish flag” price pattern for a period of time, as it did earlier this year in March, Turk told Eric King of King World News yesterday.  Moreover, he warns of increased price volatility for silver as the bull market for the white metal attracts a wider investor following in the coming months and years.

“I believe if you look at the chart, silver is in the early stages of a bullish flag formation,” said Turk. “The size of this flag pattern is much broader in terms of size than the previous flag, but this should be expected because volatility increases as bull markets continue.  If this pattern holds, silver will continue its consolidation for some time before climbing to higher levels.”

If anyone needs a guide to the potential perils of the most volatile of “commodities” markets—the silver market, the lesser-known of the cadre of “real money” advocates, Turk, has navigated for investors turbulent waters of both precious for many years.

But more recently, Turk’s calls on the direction and timing for the precious metals as told to Eric King during his many appearances on King World News during the past six months have been notable, outpacing less bullion-centric investors Jim Rogers, Marc Faber and Richard Russell who all brilliantly comment upon multiple markets.

On January 20, while silver traders fretted about whether to lock in gains after a 7.8% pullback from an 81.2%, 6-month-run to the $31.21 high, set on January 3, Turk went on the record to suggest the risk he saw at that time was NOT holding silver and that the sell off from the January 3 high was most likely a head fake.

“The last time we spoke Eric, the two key overhead resistance levels I mentioned were $1,400 for gold and $30 for silver,” Turk told Eric King in a January 20, 2011 interview.  “I expect that we will be probing those resistance levels in the near future.  The real question in my mind is whether we can take out these resistance levels on the first attempt, or whether the market needs to trade sideways longer in order to build more of a base.”

“Regardless, the risk here is not being in the market,” added Turk, “because once these resistance levels are taken out, both metals are ready to explode to the upside.”

As history has it, the silver price rose and broke through $30 once again, decisively, on February 14. And as Turk suggested the price of silver did, indeed, explode to the upside as we witnessed from mid-February through to the end of the month of April—when the silver price nearly surpassed $50, a potential return of a near-double from the January 20 low of $27.40.

No one can accurately predict the movements of the most volatile and, arguably, the most “manipulated” market of any “commodity,” but investors may want to follow James Turk for his latest musings.

Today, he expects a side-way, range-bound action in the silver price for a spell until gold catches up to his $1,800 target for gold by the end of June—which, by the way, appeared to many long-term bullion holders at the beginning of January 2011 as an absurdly bullish call.

“You know my longstanding price projections have been $1800 gold and $50 silver by the end of June,” Turk told Eric King yesterday.  “Silver essentially reached my target already, so it would not be surprising for it to move sideways in a large trading range waiting for gold to catch up. But regardless of when those price targets are reached, KWN readers need to focus on the fact that the U.S. dollar remains in a long-term bear market.”

So, as many market participants expect a 2008-like swan dive in all risk-on assets due to the Fed’s telegraphed end of QE2 in June, Turk believes the risk until that time is for a “waterfall” decline, as he puts it, in the U.S. dollar, not in gold.  Gold, he said, could reach $1,800 by the end of the Fed’s controversial QE2 program.

Think you’ve Missed the Gold and Silver Rally? Think again, says Marc Faber

Each time the two monetary metals reach new highs, calls for the end of the bull market in gold and silver come quickly and frequently.

At $500, $850, and ever since gold first cracked $1,000 per Troy ounce in March 2008, the gold price remained the focus of those paid to report a popular view among those firmly entrenched in a fiat paper system that’s rewarded them handsomely for two generations.

Those unencumbered by a financial system—a system that pays its employees “more than four times the average salary in the rest of the economy,” economist Paul Krugman wrote in 2008—make a living by developing a reputation for accurately appraising the current state of the vilified gold and silver market.  Otherwise, these unleashed analysts and money managers will no longer retain their flocks and fortunes.

One such tell-it-like-it-is investment manager is the publisher and editor of the Gloom Boom Doom Report, Marc Faber—who, as a side matter, says that the choice for the name of his report, Gloom Boom Doom, came about from his observations of changing investor sentiment during complete market cycles.

So, is it Gloom, Boom or Doom for the precious metals?  Faber rejects the notion of a precious metals market soon entering a “Doom” stage.

“If it [gold] were a bubble a lot of people would have gold.  The whole world would be trading gold 24 hours a day,” he told CNBC’s Joe Kernen. “But I don’t think it’s really a bubble. I think gold is maybe cheaper today than it was in 1999, when it was $252.”

The rise in the gold price (but more spectacularly, in the silver price) has been primarily driven by the Fed’s unprecedented easy-money policies, first, following the popping of the NASDAQ bubble in 2000, then again, much higher in price following the collapse of the financial system, starting in March 2008, with the fall of Wall Street broker-deal/investment banking firm Bear Stearns.

Not unlike most global pricing, the world’s traditional monetary metals are denominated in U.S. dollars, so a decline in the dollar’s relative value to world supply of precious metals lifts the price of gold and silver in dollar terms.

The future of the gold price is bright as long as Fed chairman Ben Bernanke continues a policy of negative real interest rates—when compared, that is, with the rising rate in living costs, Faber has repeatedly stated.

Even if the Fed followed last week’s European Central Bank’s (ECB) quarter-point interest rate hike, the competition for dollars between paper assets and tangible assets won’t tip the tide among investors in favor of paper assets, according to Faber.

“One day they [the Fed] will increase it [federal funds] by a quarter percent. But what does it mean when commodity prices are going through the roof, energy prices are going up, health care costs are going up, insurance premiums are going up?” he said.

Therefore, Faber posits that cash and debt will lose value relative to “commodities, real estate, art, collectibles and so forth, anything that essentially cannot be multiplied at the same rate as paper money, that is subject to the printing presses of Mr. Bernanke.”