Gold in Perspective - the 1970’s compared to today

In a similar vein to our recent article When will you know it’s time to sell gold?, David Galland of Casey Research ponders the “is gold overvalued?” question.  He has a couple of great charts comparing the 1970’s to today…

By David Galland, Managing Director, Casey Research

As the price of gold rises and the inevitable quacking begins again about the “barbaric” metal being overvalued, I thought a quick check-in with the historical perspective might prove useful.The first of two charts that follow shows the long-term picture of gold from 1970 to the present, correctly adjusted for inflation. 

In the second chart, we overlay the inflation-adjusted price of gold from the last secular gold bull market in the 1970s, with the secular bull market we’re now in.

As you can see, if the current bull ends with the sort of grand finale we saw at the end of the last big blow-off, then prices have a long way to go from here. That said, a credible case can be made that this time around, the price could go much higher.

For starters, in the 1970s, though not good by any means, the economy was in much better shape than it is today. The chart here uses long-term unemployment as a proxy for that contention.

As you can see, at the end of the 1970s, the employment picture was quite healthy.  Today, in addition to wildly out-of-control debt on both the private and public levels, we have a massive problem with unemployment and the consequences of a burst housing bubble. Thus, Paul Volcker’s somewhat simplistic solution to inflation – and the trigger for the end of the last gold bull market – seriously ratcheting up interest rates, is off the table. (Since we’re trying to gain perspective, I’ll remind you that at the beginning of the 1980s, mortgage rates topped 18%.)

But wait, I heard someone in the back shout, “There is no inflation today!” Wrong, there is unprecedented inflation – properly defined as an increase in the monetary base. What’s missing, so far, is the inevitable consequence of the inflation – steadily rising prices.

That will come, and when it does, the government will find it is going into a gunfight with a (dull) knife – because raising interest rates in the Kingdom of Debt will lead to a predictable outcome.

Unfortunately, thanks to the inflation, interest rates are going up no matter what the government would prefer to happen, a contention of ours that is now gaining traction in the mainstream.

And, yes, up to a point, history shows gold and interest rates moving upwards in concert.

Don’t go crazy about buying gold, but by all means, if you don’t own some, begin a monthly program of purchases.

While it would be perfectly natural to see the gold stocks give back some of the big gains they have offered since last year’s correction, any further corrections should be viewed as opportunities. But again, don’t go overboard. If you have an investment portfolio with 20% to 30% in a combination of precious metals bullion, large-cap and small-cap stocks, you’ll be well positioned – and protected – for what’s coming. 

To learn where to buy physical gold and where to store it… and which major gold stocks, mutual funds, and ETFs are the safest while giving you handsome upside… read Casey’s Gold & Resource Report. At $39 per year, it’s a steal for the value you get out of it. Click here for more.

Professor Fekete and the Armageddon Signal

If you’ve been with us for a while you’ve heard before from Darryl Schoon.  In this, his latest article he draws on a couple of brilliant books that perhaps not too surprisingly - given their topics - had very little coverage.   In the process also covering Central Banks and gold manipulation, the Euro, and what might predict the eventual flight from paper assets into gold.  We heard Prof Fekete and Sandeep Jaitly in Canberra last year speak on this very topic…

PROFESSOR FEKETE AND THE  

ARMAGEDDON SIGNAL

When the end comes, it will be a surprise even to those who expect it 

When Professor Antal E. Fekete began lecturing on Austrian economics in Hungary in the spring of 2007, the global economy had not yet experienced the collapse which Austrian economist Ludwig von Mises had predicted over a half century before, to wit,

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Human Action, a Treatise on Economics, Ludwig von Mises (Fox & Wilkes, 4th rev. ed., 1963)

A quarter century of uninterrupted and unprecedented credit expansion begun by the US in the 1980s, however, came to an abrupt halt months later in August 2007 when global credit markets froze, precipitating an economic crisis the severity of which surprised all except those who expected it.

Among those who foresaw the crisis was Peter Warburton. In 1999, Warburton warned in his extraordinary book, Debt & Delusion, that changes in our financial system masked deep maladjustments that would someday make themselves known, that rapidly rising valuations would readjust, perhaps violently, and that we were particularly blind in recognizing the dangers which confronted us.

Warburton was not an Austrian economist who believed in the inevitable collapse of excessive credit driven markets. Warburton instead believed that debt-based money and credit aggregates controlled by central bankers were critical components of modern functioning economies.

In an article in 2001, Warburton wrote:

We called ourselves international monetarists then and we had a model that determined the inflation rate from the growth of money stock per unit of output, with long and variable lags… We felt sure that if the authorities could regulate the growth of the money supply, all would be well.

He then added,

How wrong we were.

WARBURTON’S CONTRIBUTION

Warburton’s contribution to the current economic dialogue derives from his belief in that which he now critiques. Warburton’s blinding insights are those of one who was himself previously blind.

Warburton’s Debt & Delusion, published in 1999, is a seminal work explaining what went wrong and where. His explanation of the changed role of banks and government in the issuance of credit is uniquely insightful; and, whereas Austrian economics offers a wide-angle view of the present crisis, Warburton’s Debt & Delusion gives what only a jeweler’s loupe can provide, a close-up focus that explains and exposes the blind spots of those who still purport to see.

 the leading economies..have fallen victim to a dangerous illusion, related to the anarchic development of global capital and credit markets. … the thesis is very straightforward: that both citizens and governments have become heavily addicted to borrowing and no longer care about the consequences.

Seen through Warburton’s eyes, the delusions of modern economists are many, such as central banking’s believed containment of inflation, what economists such as Paul Samuelson and Ben Bernanke call “the great moderation”, which is, in fact, but a communal delusion; a collective and fatal error the consequences of which have yet to be fully experienced.

PUBLISHING THE TRUTH

A THREAT TO THEIR KINGDOM

Published in 1999, the first printing of Debt & Delusion sold out, befitting a work of elegantly written prose and unique insights. In the book industry, it is expected that a sold out first printing is followed by a second and a third and so on until public demand is satisfied.

For those knowledgeable about book selling, the currently failing model is based on costly first time marketing and distribution efforts by publishers who hope their initial costs will be recouped. If so, publishers can then sell additional printings to a waiting audience. But although Debt & Delusion sold out, it was never reprinted by its original publisher.

Instead, Debt & Delusion was to share the fate of another book of significant monetary importance, The of Future of Money by Bernard Lietaer. Bernard Lietaer’s reputation in the world of money and economics is well-deserved. Retained by both nations and multi-national corporations to consult on issues of monetary importance, Lietaer was, in addition, once named the world’s top currency trader by Business Week.

As such, Lietaer is a respected financial figure and his criticism of today’s monetary system is not to be taken lightly. Lietaer’s criticisms, however, are far more fundamental than those of either Warburton or Austrian economists—Lietaer in The Future of Money directly targets the system of money itself and specifically the US dollar, warning among other things that:

..Unless precautions are taken, there is at least a 50-50 chance that the next five to ten years will see a dollar crisis that would amount to a global meltdown.

The Future of Money, Bernard Lietaer, Century/Random House 2001

Although written in English and published by Random House, the world’s largest English language trade publisher, Lietaer’s book was never sold in the US: and, like Warburton’s book, monetarily significant with a sold-out first printing, a second printing was never forthcoming.

Perhaps coincidentally—or perhaps not—a book with the same title, The Future of Money, written by another author, Benjamin J. Cohen, was later published by Princeton University Press with instead a strongly positive message about the US dollar.

Today, a hardcover copy of Lietaer’s The Future of Money is available from resellers on amazon.com for $249.95 and softcovers for $180.91, a testimony to the still current popularity and demand for his book.

Peter Warburton’s Debt & Delusion also commanded prices in the $100 and $200 range for aftermarket copies; and, although the demand was evident for both books, for other, less evident, reasons, they were never reprinted by their original publishers.

In the East, Mao Tse-Tung had concluded that power comes out of the barrel of a gun. But, in the West, for 250 years power has come from the bankers’ issuance of debt-based paper money and the franchise for that power is not going to be easily relinquished—or its shortcomings and vulnerabilities readily allowed to be revealed.

THE ARMAGEDDON SIGNAL

At the Gold Standard Institute session in Hungary in March, Sandeep Jaitly explained the origins and intricacies of the calculating the basis and co-basis, the two elements he uses in anticipating movements in the price of gold.

It was Peter Warburton who had first directed Sandeep Jaitly to the writings of Professor Fekete and it was Professor Fekete who encouraged Mr. Jaitly to study the basis. Both the professor and Mr. Jaitly share a deep respect for the theories of Carl Menger, the Austrian economist; and, at the conference, Professor Fekete announced a curriculum where the ideas of Austrian economists such as Menger will be taught, (see YouTube video below) 

Mr. Jaitly believes there is no better signal than the basis for anticipating the eventual flight out of paper assets into gold—an event he believes will be predicted by the basis, i.e. the Armageddon signal, a sign that the tipping point has been reached. My interview with Mr. Jaitly on this subject can be viewed below.

MONEY, POWER, ELITES & THE EURO

The euro is an attempt by European elites to imitate the 250 year-old Anglo-American franchise of global power derived from the ability to issue debt-based money from a central bank and parlay this into increased economic and political power. The intent was to return Europe to a position of power more equal to that of the US.

By the end of the 20^th century, it was clear that the US dollar was increasingly vulnerable. Since 1971, the US dollar could no longer be converted to gold, giving Europe the opportunity to issue its own currency, the euro. But from its inception, the euro contained flaws which were ignored by the European elites in their determination to achieve their political ends.

In Debt & Delusion (in 1999), Peter Warburton questioned the efficacy of the eurozone’s goals:

…The determination of a political elite to bring the single European currency into being has swept aside all forms of opposition…However, the gravity of the commitment that these politicians have made on behalf of their electorates will take time to become fully apparent.

…They have been led to believe that their economic lives will become more straightforward and that a single currency will enhance the economic standing of Europe on the world stage…On the contrary, the political independence of the constituent countries is at stake in this bold venture…The ability and the desire of the EMU countries to abide by new fiscal rules must be seen in the light of past budgetary lapses and heavy net interest burdens. [bold, mine]  pp. 230, 233

The elites of the EMU countries, however, did want to hear about possible problems. Elites have agendas and arguments opposing those agendas are rarely given serious consideration.

While the European elites were correct that the Anglo-American empire was vulnerable; they were wrong in believing the euro would provide a meaningful alternative as the euro, like the dollar, would not be backed by gold.

It is now clear that US opposition to a gold-backed euro would have prevented its implementation. In The Future of Money, Lietaer refers to US opposition to any new global reserve currency. This is because the US dollar is the foundation of US power just as the British pound was the basis of the British empire.

The foundation of the Anglo-American franchise of global power was debt-based paper money backed by gold. But, in the 1930s, England could no longer maintain its gold backing; and the US was unable to do so after 1971, a process I describe in The Traveler’s Tale (2005), a story of how America lost its wealth in its pursuit of empire, a pursuit that would cost it far more than it would ever gain, see http://www.drschoon.com/articles%5CTheTravelersTaleCanteburyTalesRedux.pdf

THE WEST’S WAR ON GOLD

After 1971 when gold was no longer anchored the currencies of the West, Western central banks embarked on a campaign to defend their now fiat paper currencies against any rise in the price of gold, oil and other commodities that would expose the declining value of their paper currencies.

Thus began the West’s war on gold, a war directed by the West’s central banks. In an article written in 2001, Peter Warburton expertly deconstructs and details what to most is still opaque, the reason why the gold market is manipulated by Western ruling elites.

Warburton’s article exposes why the US Commodity Futures Trading Commission last month chose to ignore charges that gold and silver markets are manipulated. The central banks (and the CFTC) are well aware of the manipulation; the reason being that central banks are responsible for the manipulation and Warburton explains why:

What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.

It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200bn, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks have over-traded their capital so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil and commodity prices.

Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.  http://www.gata.org/node/8303,

WHY GOVERNMENTS HELP BANKS INSTEAD OF PEOPLE 

When the global economy collapsed in 2008, governments rescued the banks, the very ones responsible for the collapse. This is because without the banks’ debt-based paper money, governments could not spend the vast amounts they do not really have.

Politicians seek power and bankers seek profit and their collusion is responsible for the present crisis. Do not be surprised at the current state of affairs, the motives of the participants are clear and so are the consequences.

These are exceptional times and while we are helpless to prevent what is about to happen, so, too, are bankers and politicians. They have brought this state of affairs upon themselves and for this we should be grateful—for without their demise we would be enslaved forever.

Peter Warburton’s Debt & Delusion is now available at amazon.com reissued by WorldMetaview Press. The price is $75. The truth is priceless.

Buy gold, buy silver, have faith.

 

Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
Blog www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=81

When will you know it’s time to sell gold?

“The ultimate asset bubble is gold” said George Soros in late January. 

This was widely reported as Gold is now the ultimate bubble.  A subtle but very significant difference, thereby implying that Soros was stating that gold was in a bubble right now.

Only Mr Soros knows what the true intent of his remarks were.  However the fact that he had been purchasing shares in both gold mining companies and the Gold ETF at the end of last year would make you think he was likely doing his best to talk the gold price down so he could buy some more.  Most likely these were very carefully chosen words that he knew would be misinterpreted by an uninformed mainstream media and help to prod the masses to sell gold.

History proves that Gold is in fact the ultimate bubble.  5 years after the 1929 stock market crash, gold’s investment purchasing power rose 17 times.  From 1970 to 1979 it rose 15 times.  But from 2000 to now gold is up 4 times (Source: Bullionvault).  So with only a 4 fold rise so far in this bull market, the ultimate bubble seems like it is a few years away yet.  Or put another way gold is in fact the anti-bubble, the ultimate extinguisher of debt as per John Exter’s Inverse liquidity pyramid (A whole other topic in and of itself).

But the oft asked question is “When will I know it’s time to sell my gold?”‎

Unfortunately there is not likely to be someone holding up a sign proclaiming ‎‎“The top is in – Sell Gold Now!”  However history shows there may be some ‎not quite so literal signs we can still look out for.   Below is a list of them and ‎our verdict on their “bubblishness”.‎

1.  Dow Gold Ratio.  The Dow Gold ratio is simply the Dow Jones Industrial ‎average (a measure of the US stock market) divided by the price of gold.  It is ‎useful as a guide as to when stocks are cheap and when they’re overvalued.  ‎See the below chart care of sharelynx.com for these extremes. ‎

Towards the end of the 1930’s depression the ratio reached a low of 2 and at ‎the end of the inflationary 1970’s it reached a low of just over 1.  It’s currently ‎at just under 10.  So history shows the time to sell gold will be when the ratio ‎reaches these levels again.  Interestingly the below Log scale graph (hat tip to ‎Sharelynx.com again – a must visit site for great graphs) shows the ratio has ‎made higher highs each time it has peaked over the last century.  It also ‎made a lower low in 1980 so could fall below 1 at the end of the current ‎monetary crisis.  ‎

So while the ratio has fallen it’s still at 10.  Verdict: No Gold Bubble.  (For more on ‎the Dow Gold ratio see this earlier article Expert gold miners opinion on the dow gold ‎ratio.)  ‎

2.  Housing gold ratio. Much like the Dow Gold ratio the Housing gold ‎ratio also indicates when housing is over and undervalued.  In New ‎Zealand the ratio last bottomed out in 1980 at just over 50.  ‎

It’s currently at 250 so when it gets close to 100 that might be the time ‎to swap some gold for property.  We covered the US, UK and NZ housing gold ratio in ‎great depth previously here: Could NZ House Values drop by 80%.  Verdict: No Gold Bubble.

‎3.  Real interest rates rise.  A common misconception is that gold ‎performs poorly when interest rates rise as gold pays no dividend or ‎interest.  However the key is what real interest rates are doing.  That is ‎the nominal interest rate less the rate of inflation.  Currently there is ‎very little reward in the form of interest for keeping your money in the ‎bank, and real interest rates are actually negative as per the graph ‎below from McClellan Financial Publications, www.mcoscillator.com ‎

You’ll notice how gold continued to rise throughout the 1970’s until real ‎interest rates finally turned positive again.  However, today central ‎banks find themselves in a worse position than 1980 as it will be very ‎difficult to raise interest rates sufficiently to head off gold without ‎destroying their economies in the process. So interest rates could rise ‎from here but if inflation rose too then real rates would stay below zero, ‎and gold would continue it’s rise as there would still be insufficient ‎reward for dollars in the bank.  Verdict: No Gold Bubble.  ‎

4. Governments become fiscally responsible.  At the end of the ‎inflationary 1970’s we had the likes of Margaret Thatcher in the UK ‎cutting government spending and Paul Volker for the US Federal ‎Reserve raising interest rates significantly to fight inflation.  Here in NZ ‎the 80’s saw “Rogernomics” and some harsh medicine for the country ‎to swallow.  Worldwide generally this period saw taxes cut along with ‎government spending.  Cast our eyes across the planet at the politics ‎of today and generally we see more government spending and ‎increasing public debt and likely higher taxes - as much as they would ‎have us believe otherwise.  Verdict: No Gold  Bubble.  ‎

5.  People discuss how much their gold mining shares have risen at ‎dinner parties and where to buy the cheapest gold coins.  Most ‎likely you currently know very few people in your wider circle of friends ‎and acquaintances that have any gold or gold related investments.  ‎When the tables turn and gold is dominating discussions at social ‎gatherings and regularly on the mainstream news we are likely getting ‎near a top.  A long way from there yet I’d say.  Verdict: No Gold  ‎Bubble.  ‎

6.  There are Gold kiosks selling gold bars and coins popping up in ‎shopping malls everywhere.   As we have mentioned previously ‎here, we are seeing the opposite of this currently ‎with kiosks popping up buying gold from the public.  Verdict: No Gold  ‎Bubble.   (However, the counter to point 5 and point 6 above is that ‎Joe Public may be so tapped out and broke that he won’t be able to ‎afford to buy any gold.  In this case it will be institutions that are buying ‎gold bullion and gold mining shares.) ‎

7.  Our website visitors rise exponentially!  Highly likely if more and ‎more people start paying an interest in gold.  They’re rising steadily ‎currently.  Don’t worry we’ll let you know if our visitor numbers start ‎exploding without us doing anything to warrant it.  Verdict: No Gold  ‎Bubble.  ‎

 The other possibility to consider is that you may not have to sell your gold ‎at all.‎

‎“Huh?”  You may be thinking, “I’ve read stories of people who didn’t sell ‎gold when it was in the $800’s at the end of the 1970’s and then watched it drop all ‎the way down to $300 or less.”‎

Well, you see, the possibility exists that gold could become widely accepted ‎again as money.  This could come about in a couple of ways…‎

‎1.‎   The elites may be forced to reintroduce a gold standard and hopefully a ‎true gold standard as existed prior to WW1.  Whereby an ounce of gold ‎is worth a specific dollar amount.  So gold = money.‎

2.‎   The above doesn’t happen and so the global financial system totally ‎breaks down, maybe hyperinflation ensues, paper money is worthless ‎and people resort to trading and bartering.  Gold will still buy the same ‎amount of goods and services as it always has.  Again gold = money.‎

Another possibility bandied about by the likes of Jim Sinclair of jsmineset.com, ‎is that the elites merely introduce a loose gold link.  This would possibly be by ‎way of a new global currency with gold trading in a narrow range but at a ‎much higher price.  This would allow the master planners to still control the ‎currency issuance - albeit with a partial handbrake on their money creating ‎powers.‎

Whatever the final outcome, it appears that paper currency is slowly (or ‎maybe not so slowly) dying.  Who knows what will deliver the death blow, and ‎it could be a way off yet, but none of the above signs of a “gold bubble” are ‎here yet so don’t sell gold…..‎

Buy gold (and silver).‎ 

Hold gold (and silver).‎

Learn, observe and wait.‎

Why Are Silver Sales Soaring?

Yikes.  

This is especially explosive when you consider that roughly 40% of all silver is used for industrial applications, 30% for jewelry, 20% for photography and other uses, and only 5% or so for coins and medals.

To be sure, mine production is not the only source of silver. In 2009, approximately 52.9 million ounces were recovered from various sources of scrap. Further, the U.S. imported a net of about 112.5 million ounces last year. (Dependence on foreign oil? How about dependence on foreign silver!) So it’s not like there’s a worry there won’t be enough silver to produce the Eagle you want next month. 

Still, why so much buying? The silver price ended the quarter up 15.5% from its February 4 low – but it was basically flat for the quarter, up a measly 1.9%. We tend to see buyers clamoring for product when the price takes off, so the jump in demand wasn’t due to screaming headlines about soaring prices.

I have a theory.

For some time, silver has been known as the “poor man’s gold.” Meaning, silver demand tends to increase when gold gets too “expensive.” The gold price has stubbornly stayed above $1,000 for over six months now and spent much of that time above $1,100. You’d be lucky to pay less than $1,200 right now for a one-ounce coin (after premiums), an amount most workers can’t pluck out of their back pocket. But Joe Sixpack just might grab a “twelve-pack” of silver.

What would perhaps lend evidence to my theory is if gold sales were down in the face of these higher silver sales.

The U.S. Mint reported a decline in gold bullion sales of 20.8% this past quarter vs. the same quarter in 2009. Further, other world mints have seen sharp declines in gold bullion coin sales as well: the Austrian Mint reported an 80% drop in sales for the first two months of the year and the Royal British Mint a 50% decline in gold coin production for the first quarter.

What’s even more dramatic is the difference in the dollar value of the sales. Gold Eagle sales in the U.S. dropped $10,263,500 from a year earlier – but silver sales increased by $61,855,290. So, not only did silver sales make up the drop in gold sales, they exceeded them by $51,591,790.

Is the rush into “poor man’s gold” underway?

Why the answer to that question is significant is that a shift toward silver for this reason could signal we’re inching closer to the greater masses getting involved in the precious metals arena. And that – for those of us who’ve been invested for awhile now – would be music to the ears. Because when they start getting involved, the mania will be underway, and from that point forward, it’s game on.

I’m not saying the mania is starting, and I actually think we could see another sell-off before things take off for good. Gold could dip to $1,000 and maybe even $950, with silver going to the $14-$15 range. But as clues like these begin to build up, we’ll know we’re getting closer. (And any drop to those ranges would clearly be a major buying opportunity.)

Everyone talks about gold, myself included, but a meaningful portion of one’s precious metals portfolio should be devoted to silver. The market is tiny, making the price potentially explosive. Remember that in the ‘70s bull market gold advanced over 700%, but silver soared over 1,400%.

Don’t be a “poor man” by ignoring gold’s shiny cousin.

While buying silver is a must, it’s the silver stocks that will truly soar in a mania. And I’m convinced we recommend the two best silver producers in the world. Get their names and our suggested entry points with a risk free trial to Casey’s Gold & Resource Report… click here.

The Smoking Gun – Proof of Manipulation in the Gold and Silver ‎Markets

Last week in our Weekly Wanderings, we brought you the story of Andy Maguire’s whistle-blowing testimony to the CFTC (Commodity Futures Trading Commission).

Despite the importance of this financial news, it has received virtually zero coverage by the mainstream press. However, the alternative media, via the internet and the blogosphere have covered the story in detail. So much so, that King World News, which carried an exclusive scoop interview with Andy and Adrian Douglas of GATA, was subject to an intensive denial-of-service cyber-attack for several hours. Kudos must go to Eric King, who has been building up a huge worldwide readership for his pungent and informative interviews with highly placed people around the globe, particularly those connected with the precious metals markets. If you are at all interested in these markets, I cannot stress enough the importance of checking out Eric’s site regularly.

In this article I will summarize what has happened last week in connection with this story, which reads like the plot for a Hollywood thriller.

As we said last week, Andrew Maguire, a long-time precious metals trader in London, contacted the CFTC some time ago, explaining to them how the precious metals market was rigged – providing full evidence for his claims. Last week, there was a hearing of the CFTC to examine the position limits for precious metals trading. Bill Murphy and Adrian Douglas of GATA were in attendance, as was Jeff Christian, representing the bullion banks. During the hearing, Andrew Maguire was identified as having sent e-mails to Bart Chilton, a CFTC commissioner, and Eliud Ramirez, head of the commission’s enforcement division, alleging that JPMorgan had used its massive metals positions to manipulate the commodities markets.

In one e-mail, Maguire wrote, “It is common knowledge here in London among the metals traders that it is JPM’s intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits,” referring to last week’s CFTC hearings.

Andy confirmed also that he knew JPM metals market traders in London, as the community of metals traders is small, and most participants are known to each other. Several of the JPM traders have bragged openly about their actions to manipulate the markets. Andy has come forth with this information at considerable risk to himself and his family. He and his wife were victims of a hit and run accident, just after he made this information public. Coincidence? I don’t think so….

Now a most extraordinary event occurred at the CFTC hearing. Just to set the scene, GATA have been toiling for 10 years to find evidence to show that the physical gold market is fraudulent, and that physical gold is being counted multiple times.  At the hearing, Bill and Adrian must have felt that all their birthdays had come at once! Jeff Christian, who was presented to the hearing as an expert in precious metals trading representing the bullion banks, made the astonishing admission that the physical gold market at the LBMA (the London Bullion Market Association) was really a paper market, and that the paper was leveraged against the physical market at 100 to 1!

Now what are the implications?

·         Firstly, GATA’s claims have now been substantiated – and by a member of the cartel!

·         Secondly, many people (and/or institutions) who think they own physical gold definitely do not. If they tried to take delivery, 99 out of 100 would not obtain it.

·         Thirdly, what has been stated above must be true in spades for silver – the silver market is much smaller.

·         Fourthly, this revelation makes an enormous short squeeze in the metals likely, if not imminent.  Andy says he has been contacted by wealthy individuals out of Asia who have asked for confirmation that the short positions are naked. Getting this assurance, they are now planning an attack from the long side against these markets.

Get ready for the mother of all short squeezes in the metals!! The time to take delivery of physical gold and silver is now!!

Update 7 April 2010:  Here is a short video on this topic we’ve just come across…

And here is the link to the article they reference:

http://inflation.us/silvershortsqueeze.html