Gold Sellers

Is the Gold Rally over?  Or, has it just begun? 

September 15, 2008 - The U.S. credit crisis erupted with the failure of Lehman Brothers.  Overnight, $600 billion vanished in the largest bankruptcy in American History.  Panic set in to the already beleaguered markets.  In just 3 weeks the Dow lost 2,937 points, the S&P lost 356 and the NASDAQ  624.  It is said, we were just minutes away from economic Armageddon. 

By October 3, with seemingly no choice, the Troubled Asset Relief Program (TARP) was signed into law.  It provided $700 billion be used to purchase toxic assets from banks deemed too big to fail.  However, that alone wasn't enough to halt a market freefall.  Not until late November, when the Fed announced its infamous $600 billion round of Quantitative Easing (QE1), did market stability return.  

By March 2, 2009, as the last of the $600 billion was spent, it became apparent QE1 wasn't enough as the markets teetered on the brink of total meltdown.  The DOW had fallen from record highs above 14,000 to just 6,626, the S&P 500 fell from a record high above 1,500 to 683 - the NASDAQ fell from 2,810 to 1,293.

Then, in the markets' darkest hour, the Fed once again came to the rescue with an extension of QE1.  On March 18, 2009, it announced another trillion dollars would be committed to easing.  Immediately, markets reacted positively and proceeded to rebound. 

The rebound was strong seeing a steady rise over the next 12 months.  Then, in anticipation of March 31, 2010 (the end of QE1), the markets began to crash.  The four months to follow saw the S&P fall 16% creating fear of another wholesale collapse back to March 2009 lows. 

By August 23, 2010, yielding to market pressures, the Fed, during  Jackson Hole, hinted at another round of easing.  The markets immediately sent a signal of approval and edged higher.  On November 3, 2010 the Fed confirmed another $600 - $900 billion for the purchase of treasuries.  QE2 would now run to June 30, 2011. 

In the time between Jackson Hole and the expiration of QE2, markets soared.  The S&P climbed 28%.  Then QE2 ended and the markets threatened another crash.   Printed money had become to the markets what a drug is to an addict.  Take away the drug and a crash is inevitable.  Again the Fed was cornered.   

In response, the Fed made an August 9, 2011 announcement of plans to hold interest rates at already  historic  lows.  Shortly after, on September 21, it announced the Twist - a fancy term for "refi".  The quick successive moves were intended to produce similar rescuing effects on the markets as quantitative easing without having to print more money.   Instead, confidence failed to be restored as today's markets flounder in volatility.  Hence, rumors of QE3 have surfaced. 

It's clear, past stimulus efforts have had only a temporary effect.  Numbers don't lie.  Since Lehman, the markets have produced Zero Gains.  This is especially troubling when you consider an additional $5.2 trillion of national debt incurred for government's own stimulus and bailout programs.  That's $8 trillion dollars or more spent with zero results. 

One investment, however, has been a consistent winner.  GOLD! 

Since Lehman, gold prices have doubled as rising demand suggests that, with or without stimulus Gold is in a win-win situation.  Without stimulus it's believed markets will crash leaving gold as the safe haven investment that's never been worth zero.  And, with stimulus and higher deficits, paper currencies lose value, inflation sets in and gold prices rise as the purchasing power of paper money falls. 

Will QE3 become a reality?  Will deficits continue to climb?  According to a special report released by Lear Capital that deals with the question, Is Gold still the answer for investors?,  "The Fed may have no choice but to print more money."  And, when we asked Kevin DeMeritt, President of Lear Capital what that would mean for the gold price, DeMeritt responded, "More stimulus would set the stage for gold to repeat its performance of the last 3 years.  That would mean another 30% rise in 2012." 

He quickly added however, "But more stimulus and rising debt are just 2 of the 7 reasons we've identified that could send gold prices 30% higher this year.  If a combination of 3 or more play out at the same time, gold could go much higher than that."   

Lear Capital is not alone in its call for higher gold prices ahead.   In December, Citi Bank released its report The 12 Charts of Christmas wherein Citi projects gold at $2400 an ounce in 2012 and $3400 in 2013.  That's a 50% rise in 2012 and more than 100% by 2013.  Morgan Stanley joins the chorus with a $2200 projection and a 35% rise this year.  Merrill Lynch and Goldman Sachs, while less aggressive, are also bullish on gold projecting 33% and 23% gains respectively.  

As revealed in Lear's report, many factors are driving these bullish outlooks on gold.  The report delves deeply into the global debt crisis and its effect on gold prices, geopolitical tensions surrounding Iran and the now insatiable demand for gold by the Central Banks of the world.  Last year, for the first time in 20 years, Central Banks turned from being net sellers of gold to net buyers.  As Lear points out, it is especially intriguing when those who have the power to print more paper money are demanding gold.  

Perhaps it's time for a little self-examination.  How many 30% winners are in your portfolio right now?  No one has a crystal ball, but the case for rising gold is making a lot of people wonder if the gold rally is over or just beginning. 

For the first time since 1964, global central banks are net buyers of physical gold, rather than sellers of physical gold. In my mind, that speaks volumes. They must no longer trust their own paper currencies! How predictable! Add the European banks to this list of halting their physical gold selling. Read this article here to become fully informed. The reasoning given in the article?

“The shift away from gold selling comes as European central banks reassess gold amid the financial crisis and Europe’s sovereign debt crisis.”

How to protect yourself? Investing in gold from us at Lear Capital!   

From the Agora Financial 5 Minute Forecast yesterday, as they describe why the Wall Street Journal sees strong gold demand:

“Gold's strength,” the Wall Street Journal offers, “indicates investors view the European Union and International Monetary Fund rescue package as a short-term fix that doesn't reduce uncertainty on how governments will reduce their high debt levels.” We might have written something similar ourselves…”   

And, from an analyst that I have followed for over seven years now – his predictive ability is very strong. This from Dan Denning, writing for The Daily Reckoning – Australia:

“Prior to last Monday, I had imagined that the end of the super-cycle in fiat money would take years to unfold. I'm revising my forecast. The end may be approaching even faster than I expected. “

AND:

“The biggest inflation, though, could come in precious metals. In fact, as a hedge against the central bank monetization strategy, precious metals are about the only sensible speculation in a market which has essentially been reduced to total speculation by the distortion of values from the flood of money.”

Here’s the link.

Here at Lear Capital, we have a firm where gold sellers and gold buyers come together. When you think "Safe Haven Gold" from the rain of choppers dropping helicopter money, think Lear Capital.

"In a move that demonstrates just how clueless politicians in Washington are about the U.S. economy, a group of U.S. senators introduced legislation this week in an attempt to make the Obama administration take action against China over its currency policy. The so-called "currency manipulation bill" being proposed would seek penalties against countries that fail to address misaligned currencies. Concurrently, 130 congressmen from both sides have signed a letter asking Treasury Secretary Timothy Geithner to take action on the issue.

These politicians are criticizing China for keeping their currency at artificially depressed levels, which they say gives China an unfair advantage in the global trade market and is causing the U.S. to have huge trade deficits. They fail to realize it is China's artificially low yuan and their willingness to accept the inflation that we export to them, which allows the U.S. to import cheap goods and Americans to live beyond their means. We should be kissing China's feet and thanking them for allowing us to consume the goods they produce in return for a worthless piece of paper that we print. Instead, we are blaming them for the problems that our politicians created.

Nobody in Washington understands just how fragile the U.S. dollar is. It's absurd for Congress to say they are going to penalize China, when China has the power to make the U.S. dollar collapse overnight using words alone. Although a collapse in the U.S. dollar would cause China to lose close to $1 trillion, their resilient manufacturing-based economy would quickly recover. On the other hand, without China, U.S. citizens would be forced to consume the goods we produce in this country.

The last thing the U.S. should do is upset its largest creditor. Think about all of the products in your home that were made in China. Imagine if all of these goods suddenly disappeared and you had to replace them with goods that were made in the U.S. Years ago we had U.S. companies like RCA and Zenith that produced televisions. RCA went bankrupt and Zenith was acquired by a Korean company LG Electronics. Today, there are no American television manufacturers left.

Up until the 1850s, Americans made all of their clothing at home on their own. With the invention of the sewing machine in the 1850s, the production of clothing became industrialized. By the end of the 1860s, Americans bought nearly all of their clothes from clothing manufacturers. By 1900, clothing trade became the largest industry in New York, with more than triple the output of its second largest industry, sugar refining. In 1910, 70% of U.S. women's clothing and 40% of U.S. men's clothing was produced in New York.

Today, the textile industry in New York is nearly nonexistent. 34.5% of the clothing purchased in the U.S. is imported from China. With the federal minimum-wage laws that are currently in place, it is impossible for an American company to profitably produce affordable clothing in this country.

The reason for our huge trade deficit is the lack of a real manufacturing base in the U.S. It is impossible for the U.S. to rebuild its manufacturing base without savings and it is impossible for Americans to save with the Federal Reserve artificially suppressing interest rates at 0%-0.25% and the government running record budget deficits. China inevitably will allow the yuan to strengthen and the U.S. trade deficit will shrink. However, a decrease in the trade deficit won't come from rising U.S. exports. The trade deficit will decline because we will no longer be able to afford imported goods from China.

It was just announced this week that China reduced their U.S. treasury holdings for a third straight month in January by $5.8 billion to a six-month low of $889 billion. NIA expects China to remain a net seller of U.S. treasuries, especially now that Washington is antagonizing them. It won't be long before the Federal Reserve is the only buyer of U.S. treasuries.

It's no coincidence that the Canadian dollar just reached a new 52-week high, less than two weeks after the Canadian government announced a plan to balance its budget by 2016. The U.S. will never achieve a balanced budget ever again and by 2016, it's possible that half of U.S. tax receipts will be needed to pay the interest on our national debt. We pray that all NIA members are accumulating gold and silver."

"Global demand for US financial assets weakened in January as both China and Japan, the two biggest holders of Treasuries, reduced their positions. The Net Long-term TIC Flows were expected to come in at $47.5 billion for the month, but instead just $19.1 billion of US financial assets were purchased. Including short-term securities, total investment flows show foreigners sold a net $33.4 billion in January after a net buying of $53.6 billion the previous month.

AND:

China has been a net seller of US Treasuries for three straight months now, and Japan doesn't seem to have the ability to pick up the slack. We have been warning of this for some time now, and it looks like we may be finally seeing a reduction in demand for US investments.

AND:

Alan Ruskin, chief international strategist with RBS Securities Inc., said that was "a long enough period to hint strongly at a trend."

He went on to write... "Much of China's selling has been in short-dated Treasury bills, but China has not indicated that instead it will buy longer maturity U.S. government notes and bonds. "That is the bad news for the U.S. dollar and the Treasury market."

Folks, I believe gold demand will rise on this news - it sure did yesterday! Gold predictions of $1,300 to $1,600 per ounce by year end seem reasonable. There is your hint - buy gold!