Reasons to Own Gold

Wild Bill’s Weekly Wanderings 15 June 2010

This week, in our musings, we consider the following issues.

•  BP undersea oil volcano?
•  National Inflation Association Follow-Up.
•  John Embry lays out the case for Gold.

Overshadowing the US, and indeed the world at this time, is the terrible disaster unfolding in the Gulf of Mexico. We include a commentary this week from Rick Ackerman, respected market technician, trader and commentator, on this issue. I also discovered, while reading David Kaiser’s blog, that, in Canada (in contrast to the US), oil companies are required by law to drill a relief well right along with the original well. According to Paul Craig Roberts, whom we have featured in these pages before, safety in the Gulf has been severely compromised, due to very heavy lobbying by Big Oil – aided and abetted by Dick Cheney – which has resulted in Congress essentially being bribed to turn a blind eye as so-called “deregulation” of the offshore drilling industry has taken place.

As ye sow, so shall ye reap, indeed.

Has BP Summoned the Fires of Hell?


We’ve railed at traders and speculators recently for their arrogant and sometimes breathtaking stupidity in failing to discount an onslaught of world-shattering news. If the dolts, rubes, bozos and mountebanks who have kept stocks afloat even remotely understood what has been going on in this world, we wrote here recently, the Dow Industrials would plummet 6000 points in mere days.  And the news has been grave, indeed.  America’s wholly imagined economic recovery died for good on Friday with the release of shocking retail figures for May. Household incomes have been falling, consumer credit imploding, M3 plummeting, and now it turns out that corporations have allowed $1.8 trillion to sit idle in low-yielding bank accounts, hastening the economy’s deflationary collapse and the onset of a Second Great Depression. We face the impossible task of getting out from beneath $130 Trillion of debt and liabilities amassed by government at all levels. The nation is adrift under a weak president whose radical politics have sharply divided the voters. Iran and Turkey (a NATO member!) have declared war on Israel, sending warships to run the Gaza blockade. Europe’s financial house of cards is within months, or even weeks, of total collapse.  The jihadists may be turning the tide against U.S. and British forces in Afghanistan.
Vision of Hell
Unfortunately the list does not end there. For in fact, there is one crisis that greatly overshadows all of them:  the seabed irruption in the Gulf of Mexico. We won’t even pretend any longer that there is a market “angle” to this story.  In fact, the markets are a sideshow, and politics a droll burlesque, in comparison to the geophysical dreadnought taking shape in the Gulf.  Because it could eventually threaten all life on this planet, there may be no “investable issues” here.

Seabed Fissures

The problem is no longer a leak or a spill, you see, but a volcanic gusher – one that appears to be defeating the efforts of the most capable petroleum engineers in the world. More and more, it is looking like a sci-fi disaster film with no hero and an unhappy ending. Even our supposed best hope for containing the gusher – a second well that would intersect and plug the leak by sometime in August – may be doomed to failure, since the well casing itself may be too damaged to seal off. But the scariest story currently making the rounds is that there are fissures springing up all over the seabed, and that if the weak bedrock that holds the oil gives way, it will release a quantity of hydrocarbons greater in volume than the Gulf itself.
Whenever we’ve tried to predict the “black swan” event that might eventually send the U.S. and global economies into deepest coma, we believed in our heart that, no matter what happened, everything would turn out all right.  The real estate market might collapse, taking our standard of living with it, but Americans would somehow get through hard times together and emerge better and stronger for it.  Even the prospect of a nuclear conflagration in the Middle East implied a beginning and an end — a radioactive half-life, as it were.

Human Error

Who could have imagined that there was an even bigger disaster lurking — or that mere human error could trigger a cataclysm of seismological proportions?  Or will it be of Biblical proportions, with rivers and seas turned into wormwood?   Has BP tapped, not an oil well, but a hole into volcanic Hell?  While these questions are almost too frightening to contemplate, the answers may be staring us in the face within months or even weeks.  For the moment, though, it has become difficult to sort out fact from fiction.  Are clean-up workers getting sick from toxic hydrogen sulfide fumes? Is the Obama administration covering up the true magnitude of the crisis to avoid a panic?  Why are nearly all of the satellite photos of the spill on the Web a month old?  Can BP really handle a crisis whose costs may soon mount into the trillions?  Is the problem even solvable?

And from David Keiser’s blog…

It was only last Tuesday, and quite by accident, that I stumbled on the real tragedy of the oil spill. I was on my weekly Tuesday night bike ride, which includes a guy who actually maintains oil storage tanks for a living. He and others in the know confirmed that a relief well, which will take months to drill, is the only real safeguard against a blowout and a massive leak like this one. And in Canada, I discovered–get this–oil companies have to drill a relief well right along with the original well. Why doesn’t the President propose such a law for any new drilling in the future–and demand that current offshore wells start working on relief wells now, too? They could pay for it themselves–worthwhile insurance against the next environmental disaster–and it would have a job-creation effect. If ever the American people were willing to spend more to protect the environment, now is the time.

National Inflation Association Follow-Up

Here is the latest (short – 7 mins) video from the National Inflation Association (NIA) in the US. It is an update of events that have taken place in the past month since the release of their acclaimed video documentary “Meltup”, and it speaks for itself…

John Embry lays out the case for Gold

Last but not least, we turn to John Embry, of Sprott Asset Management, featured in Eric King’s blog.

John Embry’s latest piece entitled “Reasons To Own Gold” is nothing short of outstanding.

From his piece: “The U.S. dollar is the world’s reserve currency and thus anchors the world’s monetary system. Unfortunately, by virtually any measurement we look at, the United States is beyond the point of no return with respect to its financial position”.

John goes on to say: “Imbedded federal government debt of nearly $13 trillion, unfunded future liabilities in Medicare, Social Security, etc. well in excess of $50 trillion, and a current budget deficit of over 10% of GDP virtually ensures ongoing massive monetary debasement. When the near bankruptcy of the majority of the fifty states in the union is factored in, the situation looks even more dire”.

John goes on to warn about the possibility of hyperinflation: “To combat the massive deficits that inevitably resulted, widespread quantitative easing was undertaken. That policy is here to stay and the fiscal deficits in many countries have now reached percentages of GDP that have almost always resulted in  eventual currency collapse”.

He also warns about paper gold investments: “Investors should also have strong reservations about gold ETFs, gold pooled accounts and gold certificates where the gold is unallocated and thus not specifically accounted for”.

Regarding central bank price suppression: “The western central banks, who have supplied massive quantities of gold to the market over the past fifteen years, both to meet burgeoning demand and to suppress the price, are running dangerously short”.

Credit given to GATA: “The work of the Gold Anti-Trust Action Committee (GATA), which has been remarkably accurate over the past ten years, is finally receiving belated acknowledgment following years of being studiously ignored. The extent of the suppression has been so great that it virtually guarantees a far greater upward explosion in the gold price than would otherwise have occurred”.

John puts things in perspective: “All the gold mined since the beginning of time is worth less than $6 trillion currently and the total capitalization of all the world’s gold stocks barely exceeds that of Walmart. This pales in comparison to the amount of paper money that could seek refuge in the world’s eternal money…I expect gold to trade at several multiples of the current price before this bull market breathes its last breath”.


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