Sunday, April 1, 2012

Wise Men Say: Buy And Hold Silver And Gold

From Eric King,

Today billionaire Eric Sprott told King World News the central planners are desperately trying to convince the masses that everything is okay.  Sprott, who is Chairman of Sprott Asset Management, also said the mainstream media continues to bash gold.  But first, he had this to say about the global economy:  “I think it’s safe to say we’ve hit that ‘Minsky moment’ where the productive capacity of the country is not capable of paying off the debt.  All we’re trying to do is push it down the road so maybe there is some luck and these economies will come to life.”

“But all the data we get, whether it’s European PMI, UK GDP, almost any data point we get seems to point to a contraction in Europe.  So it’s pretty hard to imagine that anyone is going to pay off their debt when their GDPs are contracting.

So, I think it will be an ongoing process.  The powers that be are trying to convince the masses that everything is okay, but the opposite is the case....

“One of the things I’ve written is sort of the unintended consequences of this very liberal financial situation going on in the G6 countries.  I think if I was a non-G6 country looking in, such as China or Russia or India, I’d be thinking:  What are those guys up to here?

They keep propping up their banks and they keep buying their own bonds.  I’m no longer likely to be a buyer of those bonds, and if I’m not a buyer of the bonds, what am I going to do with my excess reserves?” 

Sprott also added: “I think the HUI Index might have been at this level when the price of gold was $850.  Here we are at $1670 and the HUI is where it is.  Obviously the multiples have contracted markedly.

The mainstream bashes gold, including Chairman Bernanke ... indicating gold was an old, worthless standard that shouldn’t be considered.  But I think those of us who have studied what’s going on in the world economic situation, the world money printing situation -- we’re very aware of the merits of gold.

The merits of gold get better by the day, but the mainstream tries to downplay it.  It’s not something new.  We’ve gone through this for twelve years now.  But the majority of the main prognosticators in the world seems to think that gold is not an appropriate investment.

I think those of us who have championed it (gold) over the last twelve years have obviously been way more correct and we will have our day.  There are strange things that happen in the paper COMEX market that negatively affect the prices of both (gold and silver).

My view here is that before we end the year we will hit new highs in both metals.  Then the (mining) stocks would react.  The big problem has been there is not this momentum in the prices of bullion, which is keeping people away from the gold stocks.  If we can get the price of gold and silver going back up, I’m sure people will come back into the mining stocks.”  

Eric Sprott discusses in detail exactly where the gold and silver markets are today and where they are headed.  He also talked about oil, what is really happening with the global economy, Europe and much more.  The KWN audio interview with Eric Sprott is available now and you can listen to it by CLICKING HERE. 

By Charles Hugh Smith, of two

Massive Federal deficits require higher taxes; ever-expanding public debt and higher debt service sets up a death spiral once new investment is crowded out by Federal borrowing.

In only three more years you're talking $20 trillion in public debt for the USA and a GDP going nowhere fast. And what does that look like in terms of the S&P 500?Courtesy of frequent contributor Chartist Friend from Pittsburgh, here is the SPX charted against total public debt. You'll notice it's crashing:

What this chart reflects is another aspect of the death spiral I described yesterday in The One Chart That Says It All: when depreciation outstrips new investment, then productivity, income and profit all decline. As interest on skyrocketing debt rises, then more income must be diverted to service debt, leaving less for new investment. That sets up a positive feedback loop, i.e. death spiral.

Here's how rising Federal debt creates a death spiral in the economy. As Federal debt skyrockets, the cost of debt service rises, even at super-low rates of interest. That means taxes must rise, because no constituency will allow its share of the Federal budget to decline by more than a symbolic amount. Higher taxes means there will be less money available for new investment, and the enormous sums of Federal debt that have to be sold crowds out other investment.

Interest rates have been manipulated lower for a few years via the Fed buying Treasuries with freshly printed money and a perceived "flight to safety," but eventually the Treasury will have to compete for investors' cash, and rates will rise.

The Federal government already borrows more per year than most country's gross national product: about $1.5 trillion a year. You can look it up here: Public Debt of the U.S. That's roughly 10% of the U.S. GDP, added to public debt each and every year.

Public debt on March 21, 2008, four years ago, was $9.39 trillion. Today it is $15.57 trillion. The difference is $6.18 trillion. Divide by four and voila, $1.5 trillion has been added to the debt annually.

Ignoring the politicos' shuck and jive about "balancing the budget" as tiresome political theater, let's multiply 3 X $1.5 trillion = $4.5 trillion, and add that to $15.57 trillion: in three years, Public Debt will top $20 trillion, on the way to $30 trillion.


From Eric King,

Today Egon von Greyerz told King World News that statements from European leaders claiming the crisis is “ebbing” and “almost over” are completely false.  Von Greyerz also said the first trillion euros printed is nothing compared to the trillions we will see in coming months.  Egon von Greyerz is founder and managing partner at Matterhorn Asset Management out of Switzerland.  Here is what von Greyerz had to say:  “I think these politicians are living in a different world, Eric.  They are just pretending that things have been remedied with the last trillion euros of the LTRO that the ECB has just issued.  But Spain is the next problem.”

Spain now has over 700 billion euros of debt, and of that about 14% has been issued in the last three months.  That’s over 100 billion euros of debt issued in the last three months.  So Europe is hemorrhaging and Spain will be the next Greece.  

The Spanish problem is a lot bigger and will be a lot worse.  Spanish banks have never taken the correct provision for their property collapse....

“The day a sound person becomes a politician, sadly they can no longer speak the truth.  So, yes it is propaganda coming from European leaders.  But people who understand what’s happening know that central banks will continue to debase all currencies by printing unlimited amounts of money.

Don’t listen to the short-term rhetoric of the politicians and don’t listen to the optimism of the central banks.  Just stay focused on what has to happen to keep the financial system functioning and that is unlimited money printing. 

Europe will implode if they don’t print massive amounts of money.  The banking system is bust and sovereign states are all running massive deficits, but I am convinced they won’t let it implode.  Instead they will continue to print and the printing will accelerate.

The needs will run into the trillions of euros.  The one trillion euros printed in the last four months is nothing compared to what they need to print in coming months.  We are talking many, many trillions of euros and it could be tens of trillions of euros over time.  

So don’t get fooled by politicians saying the news is better, it isn’t.  There is nothing that can make it better because the whole financial world is rotten at its core.

My message is consistent that investors must not listen to mainstream media.  Investors need to follow their instincts to protect themselves and their families against collapsing currencies, and the way to do that is by owning physical gold.

The world’s financial situation cannot be solved by any rhetoric or draconian measures governments take.  The only thing they can and will do is continue to destroy paper money and that’s why people need to own gold.

Gold has bottomed in this short-term correction and we will see gold moving strongly higher in April.  The critical $35 to $37 level on silver will be broken and thereafter we will also see a massive move in silver.”  

Tick Tock
From The Golden Truth

Central banks in the emerging markets increasing their holdings of gold has been a big part of the bull market in the metal. At the end of last year, official net purchases of gold started to rise dramatically. In the third quarter of 2011, central banks added 148.8 tonnes to their gold stocks, more than double the entire amount of government buying in 2010, according to the World Gold Council. Interestingly, the Greek central bank has been slowly adding to its holdings of gold, which would be sort of handy, should they happen to decide to re-introduce the drachmas one day That quote is from Matthew Lynn, a London-based financial journalist.  Here's the LINK from  The thesis of the article is based on comments from British Chancellor George Osborne, who stated the Britain needed to increase its "reserves," meaning that the Bank of England needs to begin stockpiling gold.

I bring this up because emerging market country Central Banks have been accumulating gold aggressively since 2010.  Not GLD, but physical gold sourced mainly in London and then - in many cases - delivered to facilities in the buying country.  The article linked cites the amount that has been reported to be purchased, but many of us who study this market strongly believe that countries like China have purposely understated the amount actually stockpiled.  It certainly wouldn't be the only case where a Government lies about economic/monetary numbers...

Now England is talking about accumulating physical gold.  At some point the ability of the paper fiat futures market to control the short term price of gold and silver will be eliminated by the sheer demand for physical gold/silver that is purchased and required to be physically delivered outside of New York/London bullion bank depositories.  These depositories, by the way, happen to be owned by the same bullion banks who make up by far the largest percentage of short interest open interest in New York Comex gold/silver futures and London forwards.

This brings me to the reason for the title of this post and the current open interest in Comex gold and silver futures.   The open interest report as of yesterday is as bullish as it has been since September 2009, which marked the beginning of the move that took gold from $950 to its 2011 peak of $1900.  I might add, for those of you who saw Jeffrey Christian's bearish remarks about gold yesterday, that Christian made the same bearish comments about gold at the September 2009 Denver Gold Show, right before gold made its 2-year run to just under $1900.  Wash, rinse, repeat.

Yesterday the Comex gold open interest dropped down to 407.3k contracts.  Because today is the final day of the "roll" period for the April gold contract, it will likely drop below 400,000.  The LAST time Comex gold open interest dropped below 400,000 contracts was 9/1/09, when it fell to 384,703.  The NEXT day it jumped up to 410,754 and gold began the move to its 2011 cyclical peak just below $1900.  During that run, open interest expanded to over  660,000 contracts. 

I call that move "cyclical" because, as veteran gold market participants know, the bullion banks use the Comex paper market as their manipulation tool.  They can't prevent ultimately the price of gold from going a lot higher over longer periods of time.  What they can do is short futures into the momentum-based hedge funds that charge into the market once the upside swing begins and then engineer an open interest liquidation which triggers hedge fund dumping, then shorting, and creates the heart-stopping price corrections.  The bullion banks use this selling to cover short positions established at much higher levels.  We have seen this cycle at least three times over the last 11 years - wash, rinse, repeat.

With open interest now back to late 2009 levels in gold and silver, we are on the cusp of another cyclical move higher.  It is quite probable that this move will take gold thru $2000 and up to at least $2500.  By virtue of the gold/silver ratio, that would imply a likely move for silver over $60.  I am throwing these levels out there conservatively.  Because the underlying fundamentals driving the price of gold and silver have strengthened significantly since the last cyclical peak, I am confident that we'll see gold and silver move to much higher levels on this next extended move. 

Here's the Comex open interest report as of yesterday's close:  LINK  Note that the silver open interest was actually up yesterday and that buying was concentrated in July and not May, the next front-month for silver.  That to me implies stronger-handed buying which will hang onto positions more readily than May buyers, who have to begin liquidating/rolling their holdings in about three weeks.  Silver o/i actually bottomed in December.  Everyone who trades this market agrees that the volatile price action in silver is the hallmark of an investment that is getting ready make a big move higher.

The bottom line is that the fundamentals AND technicals are now aligned such that they have created a high level of probability that the next cyclical move for gold and silver will happen soon.  I don't think it's coincidental that these factors are aligning with the likely announcement of the next big QE programs which will be initiated by the Fed, the ECB and the Bank of England.  It is now generally accepted that these programs have to occur in order to avoid systemic collapse...tick, gold?

The Seven Characteristics of Money
By Andy Hoffman, Miles Franklin

If there is one thing I try to relate, it is that gold is NOT an “investment,” but MONEY.

“Dollars” and “Euros” are currency, but currency is not MONEY.  In my presentation last night, Andy Schectman and I were allocated two slides each before opening the floor for Q&A.  Thus, I had to pick the most important topic in my repertoire, and this is what I chose:

First, a table listing the primary attributes of MONEY, which contrary to popular PROPAGANDA, is not just a medium of exchange.  In fact, the only definitional parameters the dollar satisfies are the least important, its divisibility and fungibility.  Conversely, it doesn’t come close to meeting the other four, all of which are vitally important to your financial health­ – particularly item #3, the necessity to maintain VALUE…
Definition - Money
…which the dollar has NOT been since the Federal Reserve was unconstitutionally created in 1913, per the chart below.  For that matter, you could replace the word “dollar” with ANY of the world’s nearly 200 fiat currencies, and the chart would look the same…
Worst Store of Value

I CANNOT EMPHASIZE THIS POINT ENOUGH, and felt compelled to reiterate it when I came across one of Miles Franklin’s marketing pamphlets, titled “GOOD MONEY MUST HAVE SEVEN CHARACTERISTICS.”  This timeless piece was taken from Richard Russell of Dow Theory Letters, and nothing proves my point better:
(1) It must be durable, which is why we don’t use wheat or corn or rice.
(2) It must be divisible, which is why we don’t use art work.
(3) It must be convenient, which is why we don’t use lead or copper.
(4) It must be consistent, which is why we don’t use real estate.
(5) It must possess value in itself, which is why we don’t use paper.
(6) It must be limited in the quantity that is available, which is why we don’t use aluminum or iron.
(7) It should have a long history of acceptance, which is why we don’t use molybdenum or rhodium.
Only GOLD and SILVER fit all seven characteristics.

When deciding how to allocate your wealth, think long and hard of what you consider wealth.  If you owned stocks or real estate for the past decade, there’s probably little wealth left, as well as essentially all bonds except Treasuries, which are only higher because the Federal Reserve purchases roughly two-thirds of all issuance, soon to be 100%.  Only PHYSICAL Precious Metals have maintained purchasing power over this period, or more accurately, dramatically increased it.  Actually, they have done so for more than 5,000 years, leaving in their wake THOUSANDS of failed currencies.

The dollar, Euro, and Pound (among others) are no different than the thousands of failed currencies, and are at the end of their lifespans – simultaneously.  It won’t be long before the lure of PHYSICAL gold and silver yields EXLODING DEMAND, wiping out supply so quickly that companies like Miles Franklin will no longer function.  Not to mention, the simultaneous collapse of the fraudulent PAPER markets, which will destroy the bullion business and any remaining opportunity for you to PROTECT YOURSELF.  When this occurs, gold and silver prices will go hyperbolic, and either you’ll be IN, or OUT.

ONLY PHYSICAL gold and silver are money, and shortly ALL seven billion of the world’s citizens will be painfully aware of this historical FACT.


Silver outperforms the S&P 500 and gold in Q1
From Arabian Money

US stocks enjoyed their biggest first quarter rise since 1998 with the S&P 500 up 12 per cent to above 1,400. But the price of silver was up 16 per cent in Q1. Gold trailed behind with a 6.3 per cent increase.

Silver is a standout winner, and was the ArabianMoney pick of the year (click here). Both precious metals benefited from a short-covering rally after a profit-taking sell-off at the end of last year. However, there is clearly more to this than technical short covering.

Money printing galore

Stock markets have rallied against a very poor economic background that arguably became less risky in the short-term as the eurozone came up with $1 trillion to prop up its banking sector. Still China has showed ominous signs of a slowdown and a surge in oil prices threatens to snuff out a US recovery as evidenced by falling durable goods orders.


From Eric King,

With gold holding near the $1,670 level, today the Godfather of newsletter writers, Richard Russell, starts off with a quote from legendary trader Jesse Livermore and goes on to discuss what is happening in gold and stock markets:  “A loss never bothers me after I take it.” Jesse Livermore.

“Wise words from Jesse Livermore except for one thing.  Losses to me are experiential lessons.  I always look at my losses and then ask, ‘What have I learned?’  If I've learned something valuable, I don't consider it a loss.  I take it as a lesson or an insight into my character -- laziness, greed, stupidity, impatience.  I've often said that the stock market is a great teacher, that is, if you are humble enough to learn from your mistakes or losses.

I was looking over the quarterly report of Tri-Continental Corp.  I think this was the first closed-end fund, founded in the 1920s prior to the '29 crash.  I don't know what TY sold for in July 1932, but in 1940 with the Dow at a price of 98 you could have bought TY at around 2. 

Buyers at that time merely had to load up on the fund and hold it, and they would be rich today.  The fund's assets are now near two billion.  I looked up their holdings of Apple; they hold 80,800 shares.  That shows you how huge some of these funds are, and the great buying power they possess.

What I want to illustrate is that great fortunes are made at super-bear market lows.  But you must have the money at the lows.  Which is why gold is so singular and valuable.  If you have gold at the bottom of the next bear market, you can exchange it for a collection of great common stocks or funds, and then sit back and relax.

You are then betting on the lasting power of the US.  If the US comes back, you will be rich beyond your wildest dreams.  But you have to have the guts to hang on to your gold.  And you need patience -- the patience of ten men.

And I wonder -- is there a super bear market waiting for us somewhere in the future?  The great ride from the end of WWII to today has never been fully corrected.  Some day it will be.  And impossible bargains in stocks will be lying around -- with very few willing or solvent buyers. 

Such is the fascination of the stock market.  In this business the ‘impossible’ never seems to be possible.  But the impossible definitely is possible in the strange and exotic world of Wall Street.  My opinion -- the retail public is buying the earnings while the big money is giving them all the stocks they want.  Gold gave a little (recently), but not enough to worry about.

As for gold, I have a long-term position in the yellow metal that I will probably never exit or sell.  My thinking is that sooner or later we will be subject to a major correction (bear market) that will wipe out or correct 60 years of inflation and leveraging.  When that happens, I want to own the only kind of money that the Fed can't destroy.

When the big deflation and deleveraging arrives, I see the Fed trying to halt it with QE3 and QE4 and QE5.  Why do I say that?  Because that's the way the Fed thinks, and that's what the Fed does.  They did it in 2007 and 2008, and we know that the current Fed head will not tolerate contraction, and has a record to prove it.”

From Eric King,

Today multi-billionaire Hugo Salinas Price told King World News a complete catastrophe is unfolding in Europe.   He also called Fed Chairman Bernanke “a vampire” and urged people to hold gold and silver because they will be the last things standing.  But first, Salinas Price warned about the serious dangers we are facing:  “I think that unless we see legislation, somewhere, that is rational and recognizes that gold and silver are really different forms of money, and that this whole scheme of paper is unworkable, then the world is going to go down in flames.  The only thing that would last will be people’s savings of gold and silver.” 

 “But what kind of a world that will be?  I think it will be a very nasty world.  In spite of having gold and silver, that may not be enough to save you.  They’re good things to have, but what we actually need to do is save our civilization and not go down in flames.

I think the first thing to do would be to insert silver coins into the monetary system.  That would be a healthy thing to do.  I was very happy to see Ron Paul pull out a silver coin.  To me it’s like he was facing the vampire Ben Bernanke with a silver coin, instead of a silver bullet.”

Hugo also issued this warning regarding Europe: “I was thinking this problem in Europe is going to eventually have to be felt here.... 

“I don’t think we can be isolated from such an enormous problem as Europe foundering.  The great French economist Jacques Rueff, back in 1950, when the idea of a closer union of European nations was being studied, he said, ‘Europe will be built upon a gold coin or it will not be built.’

In other words he knew perfectly well the relations between the European nations could find a satisfactory basis for mutual cooperation and growth only through gold.  That message of his was not heeded.  

Now we are seeing that the result is a complete catastrophe in Europe.  It’s going to be very grim.  I don’t really know what they are going to do at this point.  They are going into a terrible depression.  That is what they have right now and I think it’s going to get worse.

What happened to European society when the gold standard was abandoned was the same thing that happened to the United States.  Their industry has been undermined by accepting imports which can be paid for with euros, instead of with exports. 

It used to be that all trade was paid.  Exports paid for imports.  If you didn’t export, you couldn’t import.  A country that wanted to sell had to buy at the same time.

The Chinese have not been doing that as the Southeast Asians have accumulated enormous reserves of dollars because they could sell without purchasing.  That is the root of the world imbalances in trade which are leading to such conflicts. 

Now we are going to have protectionism.  I think we are going to see a rise of protectionism in Europe, maybe even between the different countries.  Sarkozy seems to be waffling if you noticed statements recently.  

He wants to protect the French.  Well, that doesn’t go with the plan of the original project, does it?  They are reverting back to protectionism.  I don’t know how, out of these ruins, Europe is going to rebuild.”

The KWN audio interview with Hugo Salinas is available now and you can listen to it by CLICKING HERE. 

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