Lear Capital: Gold Preparing For War

2010_01_05_17_53_260001As I perused one of the financial channels today I happened upon a commentary about gold.  The lead-in to the interview was, “Gold is having a rough go of it …”  The anchor went on to say gold is “range bound.”

My immediate thought was, which market are you watching?  If Gold is having a rough go of it what can we say about the markets?  So as not to spout off without facts, I immediately pulled up charts on the Dow, NASDAQ and S&P 500.

Year-to-date the Dow is up .7%, the NASDAQ is up 5.9% and the S&P is up is up 5.5%.  Now let’s see how rough of a time gold is having.  Year-to-date gold is up 7.3%.  Cleary this is a prime example of media bias.  For 14 years this has been the kind of reporting that has kept gold investing a dirty little secret shared by only a small percentage of investors who see through the smoke screen of data released on a daily basis.

Now let’s take a little broader look at the markets as compared to gold.  Over the last 14 years gold has had one down year and is still up more than 350%.  The Dow on the other hand is barely up 41% over the same 14 year period.  The S&P is up 32% and the NASDAQ is up 8%.  Incidentally, since the beginning of year 2000 silver is also up more than 250%.  While gold bugs get blasted on nearly a daily basis for their loyalty to the yellow money, the markets are failing miserably to outperform gold or silver.

Can there be any question that a portion of one’s portfolio diversified into gold or silver over the last 14 years was not a bad thing.  That was then this is now.  We cannot change the past and it is counter-productive to ponder what may have been lost instead of thinking ahead.  For one minute, let’s forget about gold and silver and just look at the markets and what might affect them in the coming months and years.

First, we have a national debt that is 80% higher than it was prior to the 2008 financial crisis.  Make no mistake, this debt is still rising.  If debt crashed the markets once, why can’t it happen again? Secondly, our workforce has only risen by 2 million workers since 2008.  At the same time our population has grown by 14 million.  Food stamp recipients are up 14 million. Social Security payments are up 38%.  Medicare/Medicaid payments are up 38%.  Do you see what’s happening here?  You can’t support all this new debt when the work force has only risen by 1.3%.

To think debt is not a problem in the face of so much overwhelming evidence of another impending financial crisis, is just plain irresponsible.  It’s not ok!  How much money could you borrow if your earning potential rose just 1.3% while your debt increased by 80%?  Are we so desensitized to the truth that facts and hard data no longer have meaning?

Unfortunately, that’s not the worst of it.  We are at war again.  I am not talking about shooting guns and dropping bombs (although we are doing that too).  I am talking about a war that can have far greater consequence.  Well known analyst and intelligence expert, James Rickards says we are at financial war.  It’s Russia and China against the dollar. Russia just kicked Benjamin in the teeth and dumped a record amount of treasuries.  What did they buy with the money? — Gold!  China has been secretly buying gold since 2009.  Some say, if you do the math and add up all the gold that can no longer be accounted for by the West, China has likely quadrupled its gold reserves to more than 4000 tons.

It is possible that today, China and Russia have a combined 5,000 or 6,000 tons of gold.  It’s widely written that China would like a gold backed currency to challenge the dollar’s status as the world’s reserve currency.  If that happens and Russia joins in along with an untold number of anti-dollar partners, the only way to fight back would be to use our own gold reserves to back the dollar.  Steve Forbes says we will have another gold standard.  This could be why.

God help us if the stories of no gold in Ft. Knox are true.  We will be defenseless.  A financial war such as this, is one that would be fought door to door.  Every person for themselves.  If you have gold you may survive as it will be the only affective weapon against massive inflation and retirement account devaluation. Are you ready for battle?  Gold is!

As always, these are just my opinions formed on a base of data that I believe is telling a terrifying tale.  Agree or not I would be happy to have you follow me @DaveTheGoldDr for constant updates.

Lear Capital: In Gold We Trust – In Stocks We Bust

2010_01_05_17_53_260001Whether you are a gold bug or not, there are some irrefutable facts to consider about today’s markets.  For weeks we have heard, “Dow in record territory” as though that is the universal signal to buy, buy, buy!  At the same time, gold has been cast as the Rodney Dangerfield of investing – it gets no respect from the mainstream media.  A look at the facts should cause anyone to take pause and consider the truth.

Since the beginning of this year, gold has never traded in negative territory.  On the first trading day of 2014, gold began to rise from $1220 an ounce.  Only once did it threaten to trade down for the year, but, did not.  Even today, with gold off its yearly high, it still trades up 6% on the year.

Now, this will shock you.  Not once this year, was the Dow up 6%.  Even at record highs, which we heard about for weeks, the Dow was barely up 4%.  If we reason, that little voice tells us anything at record highs is in danger of a correction if not a total reversal in trend.  Throw in debt levels 80% higher than we had prior to 2008 and concern should rule the day.

Remember that old saying?  “Kicking the can down the road?”  I find it a little crazy to think  the can will not be kicked to the end of the road and stocks can continue to ignore the fact that each day we move closer and closer to a “Crash Point.”  I have referred to the Crash Point in the past.  Just to refresh, the Crash Point is when we do not bring in enough revenue to pay even the interest on our debt.

We may not be able to predict exactly when the crash point cometh but if you watch the debt clock, you see today’s total interest on debt is something over $2.2 trillion.  Interest on debt would include payments for Medicair/Medicaid, Federal Pensions, Social Security and interest paid on new borrowing.  Don’t be fooled.  All of these payments are interest payments.  Your social security is money that has been borrowed from you and owed.  The same is true for Medicair/Medicaid and Federal Pensions.  These are all unfunded liabilities.

At the same time total revenue is $2.9 trillion and change.  The minute interest rates rise, the gap begins to close at warp speed.  Do the math.  If interest on $18 trillion of debt goes up just 1%, that adds $180 billion to our interest expense.  A 2% rise in rates would close the gap between interest debt and revenue by 50% in a blink.  With the outlook being for debt to keep rising forever, you can see how fast interest expense and revenue can converge at a crash point.

As some of you may now be doing the math you may think we still have time for some financial miracle to occur.  I hate to burst that bubble but so far I have been using the wrong debt data to illustrate this point.  Total debt is not something just short of $18 trillion, the true total national debt, including unfunded liabilities, is nearly $120 trillion dollars.  If you don’t believe me, look at the national debt clock.  It’s right there in red ink at the bottom.  Now you see how a 1% rise in interest rates could immediately add $1.2 trillion to interest payments.  That would not just close the gap between interest payments and revenue, it would crash through that point of no return.

This is why highly regarded experts believe any rise in interest rates could deal a death blow to stocks, the economy and the dollar.  It would happen quickly but not without warning.  The Fed, behind a smoke screen of data suggesting the economy is recovering, intimates a rise in interest rates IS coming.  Some speculate as early as the beginning of 2015.

Today, as stocks capped off a 500 point 4-day losing streak, the experts seem baffled at the move in the face of stronger job data.  It is my opinion that the big money now fears rising interest rates.  They know what happens if we get just the slightest tick up in rates. Some say rising rates do not bode well for gold and silver.  I say they are the fuse on a ticking bomb that could cause metals prices to explode.  In a recent interview, Ron Paul said gold could rise to infinity.  It only takes some simple math to know why.

The opinions expressed herein are just that.  My opinion based on someone else’s facts.  If you agree with them, from time to time, it would be an honor to have you follow me @DaveTheGoldDr.

Lear Capital: Chinese Gold Demand – Is it Really Falling?

2010_01_05_17_53_260001Yesterday, Gold prices drifted lower on news that Chinese gold demand fell 19% over the first half of this year.  Silver prices followed as some investors question whether or not the gold and silver bull markets are still intact.  Perhaps it is time to reflect on the purpose of diversifying a portfolio with precious metals.

Historically, gold and silver have been used as a means to store wealth and to protect against unforeseeable financial disaster.  In pre-currency times, if crops failed, a store of gold and silver allowed a farmer to purchase what they could not grow or produce themselves.  In our modern economy, precious metals have also assumed the role of inflation hedge.  As the purchasing power of paper money falls, gold and silver help to preserve that power.

Indeed, smart investors agree that a diversified portfolio is necessary to protect against potential disaster.  To a person, I think smart investors would also agree that the best time to take a defensive position is before the disaster strikes when economic times are good or, at least appear to be.  If you wait for the disaster to invest, you will either miss out entirely or the protection you seek will be unaffordable.

I can see China drooling now at the prospect of buying more cheap gold.  On news that its gold purchases dropped 19% from last year’s record highs, gold prices slipped to a five week low.  It always amazes me how the news of something that already happened has more effect on the price than the actual event.  In a true supply demand economy, the price varies along with supply and demand.  It happens in real time.

So, let’s get this straight.  While China was supposedly buying less gold the price was rising.  But, because we discovered, after the fact, that China was buying less gold, we are supposed to conclude the price should have been falling.  The markets had it wrong.  In real time the markets were pricing gold like there was more demand than supply.

This is tantamount to saying the laws of supply and demand no longer apply.  The real-time price they dictate on any stock, bond, commodity or product is wrong.  The actual price, something should have sold for, cannot be determined until months after the actual trades have taken place.  And the herd believes.  Now we know why the one-percenters have all the money.

When I heard the reports, I immediately heard something different than what was being said.  In real time, I heard…

“Today we learn that in the first half of 2014 China has been buying 19% less gold than they did last year during the same period.  But, despite this apparent cutback in purchases, the gold and silver prices outperformed the markets, rising as high as 10% in the first half of the year.  This begs the question, if China is buying less gold, who is buying more?”

Then they should have called an expert and asked, “If China is buying less gold, who is buying more?”  The expert could then answer…

“Dabney, it’s not a question of who’s buying more – this is a supply issue.  The Gold supply is shrinking.  Naturally, if there is less gold on the market to sell there is less gold to buy.  That’s why the price rose on seemingly, less demand”

For months, stories of a shrinking supply of gold and silver have been pervasive throughout the Internet.  Yet, the story has yet to get any traction in the mainstream media.  Instead we hear China is buying less gold.

China has become the tail that wags the Western dog.

If China has engaged in a long term plan to corner the market on gold they have to be laughing at how easy it is to drive the gold price down by simply backing off purchases for a few months.

It’s no secret that both India and China have been buying silver as well.  In one month, according to Eric Sprott, India bought 22% of the silver produced.  According to another report, China demand alone could help drive the silver price to $250 an ounce by 2015.

Now we see another potential story behind the story.

Headline: In the First Half of 2014, China Backs Off of Gold Purchases and Like India, is Buying More Silver.

Imagine what a headline like this would do to the silver price.  In my humble opinion, I think we just got confirmation that gold and silver supplies are shrinking while demand is rising.  And, the only way the story could have been told, in a manner that brought both prices down, was the story we heard.

To me this is all great news.  It means the window of opportunity to accumulate more disaster protection is still open.  I believe that debt, which has risen 80% higher since before the last crisis, could bring about another crisis of epic proportion.  I believe the world is secretly accumulating physical gold and silver in preparation thereof.  What do you think?

As always, this is just my opinion often not shared.  Although today may be different.  Both Gold and silver prices are rebounding amid reports that both the gold and silver bull markets are over.  If you share my opinion, even once in awhile, I would be honored to have you follow me @DaveTheGoldDr.

Lear Capital: Bail-outs vs. Bail-ins – Gold vs. Bank Deposits

2010_01_05_17_53_260001It could be the greatest threat to your wealth you have ever experienced.  Yes!  Even bigger than another financial crisis.  In fact, if this comes to pass it could mean two financial crises in one.  Remember this word – “Bail-in”.  And each time you hear it know that we are one day closer to another banking crisis – one that could dwarf 2008 by multiples.

A Bail-In is at it sounds.  It is the opposite of a Bail-Out although it has nothing to do with sinking boats or being arrested.  Just as a Bail-Out, a Bail-In has to do with finances, banking, debt and the economy.   The Fed and Government have been orchestrating Bail-Outs since the crisis of 2008 unfolded.  Money has been created out of thin air and given to financial institutions, car companies, insurance companies and the list goes on.  The purpose of such has been to prevent financial Armageddon and jump start a failing economy.

So, if a Bail-Out is the giving away of printed money and a Bail-In is the opposite …you got it!  A Bail-In means no money is printed and instead of money being given away it is TAKEN!  I can explain that in one word – Cyprus!  In the case of the Cypriot bank, one day the doors were open and the next a banking holiday was declared.  That is code for, “we are in trouble and if we dare open the doors, there would be a run on the bank and the bank would fail, taking everyone’s money with it.”  Then if one bank failed, they would all fail.

To avoid this disaster, enter the Bail-In.  It was deemed that the disaster could be avoided by simply taking an amount of money from depositors that could keep the bank solvent.  Hence, the Bail-In.  While assurances were given that Cyprus was an isolated incident, the wheels were set in motion to make the Bail-In an accepted measure to avoid future bank failures.  By 2015, the Bail-In mechanism will be in place in Europe.  It will be accepted and legal.

Of course no one will say plans to use it currently exist.  Imagine making such a statement now.  Who in their right mind wouldn’t pull money out of the bank?  It would be safer in your mattress.  But, here’s the truth.  Word has gotten out and people ARE pulling their money out of banks and putting it in a safe place.  Money is moving en masse out of currencies and into gold, silver and other tangible assets.

Russia, perhaps the hardest hit by the Cypriot bank crisis just sold a record amount of treasuries and bought 900,000 ounces of gold.  Japan’s pension funds are moving into gold for fear of currency devaluation.  It has also been duly noted that China and India are making moves to buy up all the physical gold and silver the market has to offer.  China is on such a rampage it has been determined that since 2009, it has quadrupled its reported holdings of physical gold.

Of course a Bail-In is something that can happen to someone else but not us.  Not here in America.  Don’t be so sure.  I just read a report by the New York Fed that makes a case for the Bail-In.  YES!  Here in America!  Canada is also preparing.  And we wonder why the Fed is trying to get out of the Bail-Out business ……. They want to put You in it!.

The whole world is preparing for crisis, yet, all we hear of is recovery.  Let us not forget the last crisis struck with little warning.  To the extent warnings were sounded, they were ignored.  Two major Bear Stearns Funds, related to sub prime mortgages, went under yet that was an isolated incident.  Fannie and Freddie were drowning but nobody believed it.  GM was broke but that was impossible.  AIG, Merrill Lynch, Enron were all solvent one day but worthless the next.  It wasn’t until September 15, 2008 that the world began to believe.  That was the day Lehman brothers went bankrupt and no one was there to bail them out.  The rest is history and it can’t happen again. [sarcasm added]

It’s time to consider the consequences of another crisis.  It’s time to weigh the benefits of diversification into precious metals.  What have you got to lose?  Current metals prices are cheap as compared to production costs; stocks are at an all-time high; the number of working Americans is shrinking; our national debt is 80% higher than it was before the last crisis struck; actual inflation is systematically eating away at the purchasing power of your savings and retirement; and, banks pay you virtually nothing to keep your money in a safe place.  The big fight is now being promoted.  Gold vs. Bank Deposits   Who do you think will win?

Of course these are just my opinions.  But if you share them I would be honored to have you follow me @DaveTheGoldDr.

Lear Capital: China Declares War – Gold is Secret Weapon

2010_01_05_17_53_260001The China Gold story has been swirling about the internet for some time.  As with many gold stories, at least of late, it has been muted by rising stocks, higher bond prices and complacency.  Now it is being shouted from the rooftops.

As the story goes, China is trying to corner the gold market.  Lear Capital was first to bring this story to the national media via the Rush Limbaugh Show.   Interest was massive and now the story is taking on a new dimension.  The internet is buzzing with reports, videos have gone viral and I suspect the mainstream press will not be able to ignore the elephant in the room much longer.

It was 2009 when China last reported to the world its “official” gold holdings.  At that time, its holdings had essentially doubled, rising to 1054 metric tons.  It had been 6 years since China last made an official report.  It’s been five years now since the 2009 report with the next report due any time.

Premier Gold Analyst Jim Rickards has flat out proclaimed that China has declared war against the dollar.  It intends to dethrone the dollar as the world’s reserve currency by backing its own currency with gold. Literally thousands of tons of gold have disappeared from COMEX Gold Warehouses, Gold ETFs, and big banks like JP Morgan.  In February JP Morgan was said to have lost 44% of its gold inventory in just 4 days.  COMEX has been losing gold for nearly 2 years and Gold ETFs have been draining gold as investors are said to be losing interest.

But everyone knows, you can’t sell anything without there being a buyer on the other end.  For every sale there is a purchase.  For every seller there is a buyer.  When someone sells low, someone else buys low.  It is the other side of the sell story that has been the mystery.  Gold is sold and it goes nowhere.  It vanishes.

Once you get past the notion that gold inventories can just vanish, the question starts to burn.  Who IS buying all the gold?  Russia just announced it had sold treasuries and bought 900,000 ounces of gold.  Whatever their motive for making the announcement, they did make it.  From China, we haven’t heard a peep for 5 years.  During that period, we do know China does not export any gold it produces on its own.  We know China has been buying up stakes in gold mines around the globe and according to reports, we know China built a new vault that can hold 2200 tons of gold, an amount near equal to an entire year of global production.

Considering the vanishing of known gold inventories and annual production, analysts believe China’s true gold reserves have quadrupled since last reports.  That would make China the second largest gold holder in the world, second only to the U.S.  What do you think will happen if China does make such an announcement?  Russia announced its purchase of a measly 900,000 ounces and helped the gold price climb 12% off its recent low.  Imagine someone shocking the world with reports of an additional 3,000 tons of gold in its reserves.

The minute this happens, the gold price skyrockets.  All the rumors and claims that China has been trying to corner the gold market will become real life.  The dollar will be squarely in China’s sights.  The treasuries bubble would burst, interest rates would soar and inflation would seize any remaining value from your savings and retirement accounts.  Such an announcement would crush flimsy reports of economic recovery.  Let’s face it, the mere fact that we debate, near daily, whether or not the economy is recovering only proves that it is not.  If it was truly recovering we would know it.  An announcement from China that its gold reserves have quadrupled would end the debate.

If there was one reason and one alone for a person to add gold to their portfolio it would be this.  Check it out.  Connect the dots.  Reports of disappearing physical gold inventories are burning up the internet.  And what do you think would happen to the silver price if it became common knowledge that physical gold inventories have been depleted and now owned by China?  A chain reaction would occur.  Silver prices would follow gold higher.  Investors would clamor to own anything real in lieu of watching their dollars shrink in value to nothing.  The rush to silver may also have already begun.  According to Eric Sprott, in one month India bought 22% of all silver produced.  Did they buy because there was no option to buy gold?

Today both silver and gold are up a solid 12% from recent lows.  Still, other data cannot be ignored.  Since July of 2013, the dollar index has dropped 5%.  What does this tell you?  It tells me that if gold is being used to destroy the dollar, I should own some to protect my dollar investments.  Silver too.

As always, these are just my opinions.  If you share them I would be honored to have you follow me @DaveTheGoldDr.

Lear Capital: Shorts are Gone – Bell Curves Filling – Silver Headed Higher

2010_01_05_17_53_260001When it comes to investing, a technician I am not.  I don’t try to be, I don’t pretend to be, I don’t even wanna be.  To me watching technicals is like going to a horse race and watching everything but the horse.  It’s just one gambler trying to out-gamble another.  And, just when you think you got it figured out, a fresh horse enters the race and the favorite loses.  Or… overnight, subprime mortgages wipe out 20 years of savings and send all the technicals into the trash bin.

Ever hear the line, “When the markets go up – you make money!  When the markets go down – you make money!”  These are words spoken by a true technician.  They make you believe if you watch the technicals, it’s impossible to lose.  Need I say more?

Then there are the fundamentalists.  If I had to be cast in a specific investor light, this is where you would see me.  What’s the big picture?  What’s the long term prospect for success?  How can I position myself to take advantage of rising stocks, rebounding real estate and buy low opportunities.  In the long run I think fundamentals win.  A good horse can have a bad day but in the long run it’s a winner.  A good stock can be pushed around by short sellers but in the long run the company makes money and pays dividends.  And a good commodity can be stuck in technical doldrums at the same time supply is vanishing.  In the long run fundamentals win.  To me, the secret is diversification.  Hope for the best but prepare for the worst.  Never put all your money on one horse.

I speak like there are only two types of investors – two ways to make decisions about what to invest in.  Truth be told there are those in each camp that have amassed great wealth.  They not only diversify their investments but they are diversified in their strategies.  One of my analyst friends, Brian, is one such investor who watches both the technicals and the fundamentals.  He watches futures contracts and weighs the longs against shorts. He watches the scrap metal market and uses supply demand fundamentals to get a pulse on industrial growth and he watches charts.

About 10 days ago, Brian called and said it’s looking good for silver.  Silver was below $19 an ounce and Brian said the technicals indicate a quick 10% move to the upside.  I was especially intrigued, because I think the supply demand fundamentals are screaming – Buy silver now at today’s low prices!  Perhaps silver technicals and fundamentals are aligning.  Last night, at one point, silver traded above $21.20 for a short period.

So I called Brian today and congratulated him on his call.  I couldn’t help but ask, “what next?”  The answer I got was way beyond my comprehension but it seemed to again coincide with my beliefs on the direction of silver.  In short, Brian said, “the shorts are gone and the longs are free to run, the bell curves are empty and beginning to fill which will cause a stair-step rise in the silver price.”  He went on to say, “Silver bottomed in July 2013.  It hit that bottom again a few days ago which clears the way to the upside.”  Then he concluded, “If we see silver break through $22 an ounce we could quickly see it in the high $20s.”

Then he asked me what I think.  I said, “I told you so.”  ………..Surely I jest, but it does look like technicals and fundamentals are now sending the same message.  Silver is headed higher.  For more on the Brian indicator I would be honored to have you follow me @DaveTheGoldDr.  And if you disagree with anything I say here or otherwise, remember these are just my opinions that are sometimes shared and other times not.

Lear Capital: Silver to Rise 1000% . . . Really?

2010_01_05_17_53_260001At the outset of 2014 silver prices rested in the doldrums near $19.50 an ounce.  Judging strictly by the price, one could develop the opinion that no one cared anymore about Gold’s little sister.  That, however, could not have been further from the truth.  As the price fell, physical demand skyrocketed.  Those that knew better saw the opportunity to buy low in order to one day sell high.

In fact, demand was so robust, it put the U.S. Mint on pace to break last year’s sales records.  Low prices, it seems, are to true silver investors what honey is to bears.  They just can’t resist.  By late February, the increased demand for physical silver was strong enough to push silver up 10%.  But that little jump in price was short-lived.  By May, the silver price dipped into negative territory for the year.

If anything should have dashed the spirits of the silver faithful, that should have done it.  Instead, investors observed the signs, stayed the course and bought more.  Here are but a few of the signs that caused investors to savor the opportunity to buy low.   .

  • On average the Silver price was 25% below a mine’s cost to dig it out of the ground;
  • In one month India reportedly bought 22% of all the silver produced indicating rising global demand;
  • New Industrial uses such as Apple’s Solar Sensors and an array of smart watches about to hit the markets will only increase demand.

Now, in case you haven’t noticed, Silver prices, as I write, have pushed out of negative territory and are up nearly 8% on the year.  Hope is back.  Where will it take us from here?

Peter Krauth is a noted metals specialist.  Early in the year, as the silver story began to unfold, Krauth said it is possible for us to see another 1000% rise in the silver price.  He likened our situation today to 2001.  In 2001 the tech bubble burst and stocks crashed.  At the time silver traded at $4 an ounce and subsequently rose to $48 an ounce.

In 2008, when stocks began their monster slide, silver prices had fallen from prices above $20 an ounce to $9.  If Krauth’s speculative comments come true, the path to $90 silver is paved.

But, let’s not get too carried away.  From post-crash 2001 to pre-crash 2008 the silver price quadrupled.  If the post-crash 2008 price fell to $9 an ounce and we saw the same kind of move again, we could see Silver at $36 before the next crash occurs.  Then, after the next crash, the sky may be the limit for silver prices as suggested by Krauth.

Did Krauth make this prediction in blood?  No! He only made an observation. So did I.  And, if we learn anything from these observations it is that crises are stepping stones for the silver price.  Throughout all of history, both gold and silver have risen in price to effectively protect purchasing power.  Today’s silver has just added a little tasty twist to its historical purpose.  Because supply is being depleted every day, the potential for huge gains does exist.

As always these are just more of my opinions.  You may agree or not.  If you do, I would be happy to have you follow me @DaveTheGoldDr.

 

Lear Capital: Silver Prices Bypass Moon and Head for Sun

2010_01_05_17_53_260001Amazing it is, how the silver supply can be so depleted yet the price remains so low.  By most accounts, spot silver today is lower than what it costs most mines to produce.  Some say manipulation.  I say I hope that is true.  Why?  Because it cannot go on forever before the truth wins… and the truth always wins.

Take the Fed for example.  Its job is to manipulate the economy.  It does so primarily by controlling interest rates.  Rising and falling rates dictate disposable income and it is disposable income that drives the economy.  Too much disposable income and we get inflation.  Not enough and we get recession.

No one disputes that it is the Fed’s job to manipulate rates and in turn the overall condition of the economy.  The question is, has it been successful?  You be the judge.  In 2008, after years of easy money policies, our entire financial system arrived at the brink of economic Armageddon.  $7 trillion of wealth vanished overnight.  Clearly the Fed failed at its job of manipulating rates and controlling the economy.

So badly did it fail, that rate manipulation is now just a broken tool.  The truth has won.  You can’t borrow your way to prosperity.  Sure, the Fed has other tools, other ways to manipulate the overall economy.  With the rate manipulation tool broken the Fed has had to drag out an even bigger tool – money printing!  Will it work?

As the Fed rolled out QE1 then QE2 and QE3, even the mainstream media was critical.  They said the Fed was just kicking the can down the road.  We heard it for years, then the cries subsided.  No one wanted to hear it so no one wanted to keep saying it.  That, however, does not mean the end of the road is not still approaching.  Manipulation will fail again.  You can’t print your way to prosperity.

If the silver price were being manipulated lower, what could the reasons be behind such effort?  One often discussed is that low prices cause the weak hands to fold and sell, making supply available to those who know better.  One could also believe that price manipulation has dissuaded new investors from buying.  That would also leave more supply for those who see low prices as an opportunity to own more… not sell.  Remember no one buys low without the intent to one day sell high.  If the price is being manipulated, so be it.  Just as every effort to manipulate anything ultimately yields to the truth so it will be in the case of the silver price.

When it comes to silver, what is the truth?  The story has not changed.  For all intents and purposes the above ground supply is gone.  The Technology revolution has used up nearly all that has been produced over the last 5000 years.  All that remains is production and of that, the majority of silver now produced is bought up by industry.  Technological breakthroughs have not stopped.  In fact they are coming at us from all directions.

One of the latest comes from Apple.  Solar cells as light sensors.  Nearly every cell phone and modern computer utilizes ambient light sensors to automatically adjust the brightness of the screen.  Apple intends to replace current light sensors with solar cells that can be embedded right into the screen.  Current sensors reside in the bezel of various devices.  It’s a simple concept, embed the sensor into the screen and bezel space can be utilized to expand the size of the screen.

What does this all have to do with silver?  Well, you can’t make solar cells without silver and the point to drive home is that as technology continues to expand so will the need for silver.  That is the truth.  We are not using less silver as time goes on, we are using more and if the above ground supply is virtually gone, that makes every ounce of silver produced a most valuable commodity to possess.

This is why demand for physical silver is rising.  Savvy investors see the future, know the truth and are responding to it.  If you think you are going to get the truth watching or listening to domestic market reports – forget it!  One peep about a silver shortage and the price would skyrocket.  This would be counter-productive to industry and those trying to accumulate at these low prices.  Step outside the U.S. though, and the story is different.  In a recent Shanghai Metals Market report we learn just how short the silver supply may be.  Last year the U.S. Mint sold more than 42 million ounces worth of silver coins.  That was a record.  This year the mint is on pace to break that record.

Interestingly, the mint only buys silver from domestic sources which means last year the mint bought and sold an amount of silver equivalent to more than one year’s worth of domestic production.  If the mint is on pace to sell more than 42 million ounces of silver this year, we could see another silver shortage announcement by the mint before year end.

If the silver price is indeed manipulated and if the supply data is accurate, a collision between theory and fact could be as explosive as the events of September 15, 2008 – the day Lehman Brothers declared bankruptcy.  That was the day the truth came to light about the real state of our debt.  I believe such a day is coming for silver.  A day when the silver price bypasses the moon and heads for the sun.

As always, these are my opinions and not necessarily shared by others.  If you do agree I would be honored to have you follow me @DaveTheGoldDr.

 

 

 

 

 

Lear Capital: Asian Gold Contagion Spreads

2010_01_05_17_53_260001Like a tsunami heading West to East, more gold is headed to Asia.  So many reports on China’s secret gold purchases are surfacing that it’s just not a secret anymore.  Don’t be surprised, one day, if you hear China’s gold reserves have tripled.  It has been suggested that if news gets out of China’s massive gold buying, worldwide gold demand could spread like a contagion and send gold prices to $2500 an ounce.  We see evidence now, the contagion has begun.  Japan has joined the effort to accumulate gold in a big way.

In case you haven’t heard, Japan is printing money like it’s free – dah!  Isn’t all printed money free?  Last year, in an attempt to charge their deflating economy, the Bank of Japan embarked on a money printing spree that could see the equivalent of $1.4 trillion printed by the end of 2014.  The target is 2% inflation, something not seen in Japan for 22 years.

This effort has some deeply concerned.  Pension funds, who revel in deflation are concerned that inflation will rot away the purchasing power of money saved.  In a deflating economy, cash is king as purchasing power increases.  Consider for yourself, the value of your own retirement savings if 2% deflation persisted over the next 10 years.  Then compare that to just 2% inflation and you see how your savings and retirement could lose 40% of its purchasing power within a decade.

Fearing the inevitable – Inflation! – pension funds in Japan are implementing strategies to combat eroding purchasing power.  THEY ARE BUYING GOLD!  According to Peter Krauth, a highly regarded metals market analyst, “Japan’s government and private pension funds are second in size only to the U.S.  Together, there’s the equivalent of over $3.36 trillion sitting in these funds waiting to be distributed to Japan’s aging population.”  Hundreds of pension funds have begun to make their move.

Funds making the move are re-allocating 1.5% to 3% of their holding into physical gold.  According to Krauth, here’s some facts that “will blow your mind.”  If just 1% of this money moves into gold over the next 2 years, we could see the gold price run to $1552 an ounce.  If we get a 3% move we could see the gold price run to $2258 an ounce.

If Japan and China are both on a gold buying spree, where is all the gold coming from?  As we examine inventories of COMEX Gold, we see that since January 1, 2013, some 4 million ounces of gold have left the exchange.  That’s the equivalent of 126 tonnes or $5.2 billion dollars.  That may answer part of the equation, but is still a drop in the bucket compared to the demand that could rip through inventories of every available ounce of gold for sale.

With 4 million ounces of gold gone from the COMEX, that leaves only about 7 million ounces, less than $10 billion dollars worth.  If my math is correct, 1% of $3.36 trillion is $33.6 billion.  According to Krauth, that’s the minimum potential gold demand from just Japan’s nervous pension fund managers.  Bump that demand to 3% or $100 billion and throw in another hundred or two billion dollars of demand from China and you can see why the Asian Gold Contagion could light up the gold ticker in the months ahead.

As always, the opinions expressed herein are mine but the facts are all borrowed from respected analysts and writers.  If I was you I would stay tuned as the Gold Contagion Spreads.  And the best way to do that would be to follow me @DaveTheGoldDr.

Lear Capital: Markets Set To Implode – Gold Set To Explode

2010_01_05_17_53_260001Remember hearing the phrase “Kick the can down the road?”  We heard it for months, even years after the credit crisis unfolded and wiped out $7 trillion of wealth – overnight – and without warning.  It’s a phrase we haven’t heard now for months, as though there should never have been any concern over massive money printing and rising debt in the years post crisis.

I guess we are just supposed to believe that debt, rising from $10 trillion to $12 trillion then $15 trillion should have caused concern.  But, now that debt is $17 trillion, headed for eighteen then twenty, means WE ARE IN THE CLEAR!!!  Any talk now of another debt crisis has become folly in the face of report after report that says the economy is in recovery.  That which we hear the most has indeed become the truth we accept.

Not all of us, however, have forgotten the crisis.  Or, that it struck without warning after claims the economy was growing, there was nothing wrong with Fannie and Freddie and home prices could keep rising at a blistering rate of 20% per year.  These too, were things we heard that became the truth we accepted after hearing it a billion times.

Today, there remains but a few voices who have not forgotten the 2008 crisis and how it blind-sided the world.  But, just as the shepherd boy cried “wolf” these cries are now falling on ears of unbelievers.  Once again the stage is set.  Should a crisis strike now, millions of investors would be caught unawares.

For those who actually listen to the cries and seek justification for the alarm caused, some horrifying truths begin to emerge.  Two indicator lights are beginning to blink and signal an all out market crash.  The first blinks yellow.  This headline from zerohedge.com.

The Last Two Times This Happened, the Stock Market Crashed

The last two times when margin debt reversed and fell after a record-breaking spike, all hell broke loose. In 2000, it was simultaneous. In 2007, it was delayed by a few months. Today, on the surface, everything is still hunky-dory. The Dow is just fractions below its all-time high . . . But beneath the surface, parts of the stock market are already coming unglued . . .

Still not concerned?  The second indicator is flashing red.  This headline from MoneyNews.com.

WARNING: Stocks Will Collapse by 50% in 2014

The “Warren Buffett Indicator,” also known as the “Total-Market-Cap to GDP Ratio,” is breaching sell-alert status and a collapse may happen at any moment.

Others join the cry of the wolf. (Remember the wolf ultimately came to devour the sheep.)
Famed Investor Marc Faber says a crisis could strike again any day.  Chris Martenson says it’s not a matter of “if” but “when”.  And, David Stockman leads the chorus with extremely dire warnings of another even more devastating crisis.
In the face of all these warnings, it is hard to imagine a stock market has legs enough to blast on to new record highs.  I remember as a kid saying, “last one in is a rotten egg.”  Never will that be more true than when the next debt crisis hits.
More and more investors are tuning in to the reality, the can may now have been kicked to the end of the road.  Despite reports to the contrary, global demand for physical gold and silver is skyrocketing.  Tune in to my next report on Japan Gold.  See what Japan is really doing with all the money they have been printing.
To be sure not to miss my next report I encourage you to follow me on twitter @DaveTheGoldDr