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The Coin Analyst: Could Cyprus Be the Catalyst for Upward Momentum in Gold?
By Louis Golino on March 19, 2013 10:52 AM
by Louis Golino for CoinWeek ………
Over the weekend we learned that the EU was giving the small country of Cyprus, with an economy smaller than that of any U.S. state, a bailout of 10 billion euros, or 13 billion dollars. Then we found out that based on an initial plan by European authorities that holders of bank accounts could lose up to 10% of their bank deposits to pay for the EU bank bailout through a bank deposit levy.
According to accounts on March 18 in Market Watch (www.marketwatch.com), those with under 100K euros would pay 3%, those with 100-500K in euros would pay 10%, and those with over half a million would pay 15%. The details were expected to be worked out later in the week, and banks in Cyprus will remain closed until Thursday to help prevent a bank run.
Cyprus is a kind of mini-Switzerland or Cayman Islands because it is a banking haven, and some of its largest depositors are foreigners, including large numbers of Russians and
reportedly, Russian organized crime members. Cyprus is also unusual because its banking sector is eight times the size of the economy, which is not the case in other European countries.
Over the course of the day on March 18 most international markets seemed to largely take these developments in stride, and gold saw its first decent bounce in weeks, moving up about $15 for the day.
By the end of the day, the initial plans were beginning to change. The Euro Group issued a statement indicating that those with under 100,000 euros in bank accounts should be protected, though there is no guarantee of that happening, even though Cyprus actually has an FDIC-type guarantee on smaller deposits up to 100,000 euros.
Some people see the beginning of the end for the euro and even the European Union in these dramatic events, but we have learned over the last few years that it is wise not to count the Europeans out. To be sure, the EU economy remains mired in deep recession with very high unemployment levels. But the consensus over the last couple years is that the euro would disappear, and so far it is still worth 30% more than the dollar, which is a big part of why the EU economy is not doing well since the EU is an exporting economy.
UPDATE: On March 19, following strong pushback from Cypriot politicians and the public, and Russian government authorities, the Cypriot parliament rejected the bank levy plan. That leaves the situation in limbo, as a bank ran may now be averted, but Cypriot banks could still collapse without funding from the EU.
For some the events in Cyprus could point to what may happen elsewhere in Europe, or even possibly here in the U.S. But each country has its own problems, and we will see whether Cyprus turns out to be some sort of banking or economic domino, portending more trouble down the line in other countries.
However the Cyprus bank crisis ends up playing out, these developments are forcing many people to think hard about how they protect their assets. Gold and other precious metals are obviously seen as safe havens of choice in such situations, and I would not be surprised to see physical gold premiums rising dramatically in Cyprus in the coming days and weeks, as they did in Greece during the worst moments of that crisis.
As I wrote recently, gold has been in the doldrums in 2013, which experts often see as bullish because when everyone is chasing an asset, it has usually peaked, or may even be approaching bubble status. But when sentiment is negative assets often move up.
The events in Cyprus have at least momentarily helped push gold up a little, and if we really do see something like bank runs, which I am not sure we will, there is little doubt the metal would continue advancing.
The Cypriots and the EU may be able to contain this crisis at least for a while, but the real danger is if something like this were to happen in a larger EU country like Italy that has serious economic problems, and a political class that seems largely unable or unwilling to face these problems, with the exception of outgoing Prime Minister Mario Monti, whose painful economic reforms were helping to get Italy on track.
The outlook for an EU-wide banking union to help support the euro currency also seems substantially diminished now.
In such an environment of ongoing banking crises coupled with long-term economic problems, the European Central Bank is likely to need to continue its version of quantitative easing. Mario Draghi, the Italian who heads the ECB, famously said he would do “whatever it takes” to defend the euro.
The European situation therefore does appear to provide good reasons for owning some gold.
At the same time, as I have argued many times, the world does not need to end for gold to go up in value, and of course if we really did find ourselves in a truly calamitous economic situation, things more practical than gold would probably be more in demand.
My point is that if the European and/or world economic environments deteriorate, investors are likely to seek haven in precious metals. But if instead we continue a slow but steady progression towards economic normalcy, as we appear to be in the U.S., precious metals will still be a useful asset class, as inflation rises due to improved economic activity.
Finally, for those who are more sophisticated investors than the average person, it is also useful to bear in mind that gold prices in currencies other than the U.S. dollar has done much better than gold in dollar terms, even this year. This is a point that Dennis Gartman, long-time commodities trader and author of the Gartman Letter, makes frequently.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.
Silver Stalls, Gold Gains as CFTC Clarifies London Fix Investigation, US Inflation Rises
By BullionVault on March 15, 2013 8:52 AM
GOLD ticked higher but silver prices stalled Friday morning, as a rise in Asian stock markets failed to carry over into European or pre-opening trade in US equities.
The Euro currency rose sharply through $1.30, knocking the gold price in Euros back below €1220 per ounce, virtually unchanged for the week.
Sterling gold prices slipped to £1050, some 2.3% below Tuesday’s new 4-month high.
For Dollar investors, Friday morning’s London Gold Fix came in at $1593.25 per ounce – more than $6 above yesterday afternoon’s level and the highest AM fixing in more than two weeks.
Silver achieved only a 2-day high at its London Fix on Friday, set at $28.91 per ounce.
“Given what we have seen in Libor [the interbank lending rate], we’d be foolish to assume that other benchmarks aren’t venues that deserve review,” said Bart Chilton of US regulator the Commodity Futures Trading Commission in an email Thursday, clarifying reports that the London Fix is under investigation by US derivatives regulators.
The CFTC has not begun an investigation, but is “discussing internally” whether the global benchmark for valuing and pricing gold – a snapshot taken at 10:30am and 3pm for gold, and at midday for silver – may be open to “manipulation”, along with “energy, swaps…and the whole litany of ‘bors,” as Chilton said in testimony more than 2 weeks ago.
Back in today’s markets, “Gold prices are not being supported by the current confluence of events,” says French investment bank and bullion dealer Natixis in its latest weekly comment.
“[The] stronger Dollar predicated upon fiscal retrenchment suggests further downward pressure upon gold prices, while any move by the Fed to scale back QE3 in response to a pick-up in growth…also represents a downside risk for gold prices.”
Consumer price inflation in the US rose to 2.0% annually in Feb, new data showed today, with gasoline prices rising at the fastest pace since 2009.
“Inflation is still contained, but there’s a fear that it’s starting to rebound,” Bloomberg quotes Hideo Shimomura, chief fund investor for $63 billion in assets at Mitsubishi UFJ in Tokyo.
“Treasury yields at 2.0% show people expect improvement in the economy.”
Money markets are now pricing in 2.6% inflation, the newswire adds, the highest level of inflation expectations since September.
“The American economic revival, diverging monetary policy expectations and the unfinished Euro area crisis…all point in the same direction,” says a note from SocGen analyst Sebastien Galy – “a stronger Dollar.”
“Gold’s fate will largely ride on what direction US equity markets will take,” counters Thursday night’s note from INTL FCStone, saying that “only a sizable correction in US equities will likely prompt funds to get back into gold.”
Noting that silver investment has risen while ETF trust fund holdings in gold fell, “We find this divergence surprising given that silver investment demand tends to be closely linked to sentiment towards gold,” says Anne-Laure Tremblay, precious metals strategist at BNP Paribas.
Trimming her silver price forecast from a 2013 average of more than $34 per ounce to $31.35, “A reversal in trend is likely in the next two months if our forecast for a subdued gold price performance [also] proves correct.”
3/5/13 4:07 AM
A notable feature of the investment landscape over the past few months has been the 12 percent drop in the price of gold since September.
During that time, we’ve heard some incredibly bearish calls on gold from strategists at Goldman Sachs and Credit Suisse, among other shops. Rising real interest rates are said to be the death knell for gold.
Morgan Stanley, which for a while has touted gold as its number-one investment idea in the commodity space, isn’t ready to throw in the towel just yet.
In fact, according to the bank’s Chief Metals Economist, Peter Richardson, “The reasons for owning gold may be evolving.”
What does that mean, exactly? Richardson argues that over the past 10 years, gold has actually undergone numerous evolutions in this manner.
From 2001 to 2008, Richardson writes, gold went up because of “1) a persistent increase in investment demand, 2) acceleration in producer de-hedging, 3) a decline in net official sector sales, and 4) a persistent failure on the part of the mining companies to respond to the incentive of a steadily rising price and materially lift production.”
Then, from 2008 to 2012, gold was driven higher by “investors’ waning confidence in the stability of the global financial system and an unprecedented monetary easing by central banks.”
In 2011, though, gold became tightly correlated with the trade-weighted U.S. dollar. Richardson attributes this to slowly declining financial stress and less surprises on the central bank liquidity front as time progressed.
“As this has happened, gold has returned to what BCA Research Inc has called its default setting – a tick-for-tick correlation with a range-bound US dollar in TWI terms. In the past, these periods of particularly strong and close correlation with the USD have proven to be consolidation phases before the next upside gold catalyst has appeared,” writes Richardson.
The chart below shows this latest “evolution.”
What happens next?
Morgan Stanley’s house view as espoused by Richardson is that “we are about to witness the third installment of the Great Monetary Easing.” That’s a reference to the extremely loose monetary policy set to hit Japan and the attempts of other countries to not let their currencies strengthen too much in the face of a weaker Japanese yen.
To sum it all up, Richardson concludes, “In these circumstances, we believe that gold has demonstrated considerable technical strength, offers good value at current prices both as an entry level to the trading range between US$1,540/oz and US$1,800/oz and as an option on any remaining upside surprise above this range that might result from the third part of the Great Monetary Easing.”
That’s why Morgan Stanley remains bullish on gold for now
Gold Upside Limited Despite Comex Repositioning
By BullionVault on March 4, 2013 8:20 AM
THE SPOT gold price dropped to $1575 per ounce Monday morning in London, broadly in line with where it ended last week, while stocks ticked lower and the Euro held steady near two-month lows against the Dollar ahead of this Thursday’s European Central Bank policy meeting.
“For gold, the trending and momentum indicators are pointing lower,” says a note from UBS, “indicating any upside in the near-term must be limited.”
Gold in Sterling dipped below £1050 an ounce, while gold in Euros fell back below €39,000 per kilo (€1213 per ounce) this morning as the Euro traded either side of $1.30.
“The political uncertainty in Italy is a good reason to be bearish on the Euro,” says Saxo Bank currency strategist John Hardy.
On New York’s Comex exchange, the so-called speculative net long position of gold futures and options traders – calculated as the overall difference between ‘bullish’ and ‘bearish’ contracts held by hedge funds and other professional money managers – rose in the week ended last Tuesday, a week after hitting its lowest reported level since 2008, weekly data from the Commodity Futures Trading Commission show.
The number of short gold futures positions held by professional money managers fell meantime.
The previous Tuesday saw the highest number of short gold positions held by speculative traders reported this century.
The week ended last Tuesday saw gold fall below $1600 an ounce for the first time since August.
“Clearly, [futures market] participants were encouraged to re-position at these lower prices,” says Standard Bank commodities strategist Marc Ground.
“From a risk/return perspective, we believe that the value in being short gold has declined substantially and that the largest part of the decline in the gold price has taken place already.”
The world’s biggest gold exchange traded fund, SPDR Gold Trust (ticker: GLD), continued to see outflows last week, with the volume of gold held to back its shares hitting a seven-month low at 1253.9 tonnes Friday.
“While ETF investors have been making a significant retreat from the gold market of late, demand for coins has not dropped off,” says today’s commodities note from Commerzbank, citing February’s US Mint sales.
In China meantime, the world’s second-largest gold buying nation, today’s closing price for the Shanghai Gold Exchange’s most popular gold forward contract was 320 Yuan per gram, equivalent to just under $1600 an ounce, a premium of around $20 an ounce over the international spot price.
“Most likely we will see banks bringing the metal onshore to take advantage of the wide spread,” one Hong Kong-based trader told newswire Reuters this morning.
Gold dealers in world number one India meantime reported light demand as the Rupee touched a two-month low against the Dollar.
Silver dipped below $28.70 an ounce this morning, while other industrial commodities were broadly flat.
In the US, interest rates are likely to stay near record low levels until the economic situation improves significantly, Federal Reserve chairman Ben Bernanke said in a speech on Friday.
“In the current environment,” Bernanke told an audience in San Francisco, “both policymakers and market participants widely agree that supporting the US economic recovery while keeping inflation close to 2% will likely require real [inflation-adjusted] short-term rates, currently negative, to remain low for some time.”
In the UK meantime the Bank of England could announce a further £25 billion of quantitative easing when it makes its latest policy decision this Thursday, according to a note from Standard Bank.
The nominee to be next Bank of Japan governor, Haruhiko Kuroda, said Monday the BOJ “will do whatever we can do” to end deflation in Japan.
Speaking at his confirmation hearing, Kuroda added that the central bank has not bought enough assets and should buy longer-dated bonds, saying it should send a clear anti-deflationary message.
Patience Thin for Gold Investors on Worst Price-Drop in 9 Months, ETF Liquidation
By BullionVault on February 28, 2013 8:39 AM
The PRICE of gold slipped again below $1600 per ounce on Thursday – a level first reached on the way up in July 2011 – to head for its worst one-month drop since May as world stock markets rose.
Broad commodity markets were little changed, while silver bullion crept back above $29 per ounce.
Down 4.5% in Dollar terms since the end of January at $1590 per ounce, gold for Euro investors was headed for a 1.8% monthly drop at €1212.50.
The Sterling price of investment gold was 0.9% lower at £1049.
“Patience with gold seems to be wearing thin amongst many investors,” says a note from BNP Paribas, “as illustrated by the low positioning in Comex gold futures and outflows from ETF [trust fund] holdings.”
Exchange-traded trust funds backed by gold – a new vehicle for cash-price exposure when launched a decade ago – have seen their assets shrink by a record 100 tonnes this month to hit a 5-month low of 2,508 tonnes according to Bloomberg.
“We have seen a massive reshuffling [in precious metals investment] in the past two months,” says Commerzbank’s daily note, pointing to the sharp rise in platinum and palladium ETF holdings so far in 2013.
“The gold price is unlikely to make any significant gains for as long as outflows from the gold ETFs continue. Nonetheless, we do not believe the current weakness in the price of gold to be sustainable.”
Turning bearish on gold late in 2012, however, Credit Suisse analysts today write that “For the gold price to perform better than we expect, there needs to be not just an end to liquidation…but a return to net buying by exchange-traded fund investors.
“It is notable, we think, that the liquidation has been spread across funds listed in the USA, London and Zurich.”
European stock markets meantime rose Thursday morning, after the S&P500 index in New York closed last night above 1500 points – a level reached in Jan. 2000 and July 2007, but with near-50% drops in between.
The Euro currency gained and then lost half-a-cent at $1.3100, but Italian bond yields eased back despite there being no progress in Rome building a new government after this week’s national elections.
“Inconclusive result is credit negative,” said the Moody’s rating agency yesterday, as anti-austerity comic Beppe Grille – winner of the popular vote, and speaking only to the BBC rather than Italian media – spurned the idea of dealing with either Democratic Party chief Pier Luigi Bersani or former prime minister Silvio Berlusconi.
“Italy cannot but follow the European path,” said Italian president Giorgio Napolitano this morning on a visit to Berlin, “taking on its responsibilities and making its share of sacrifices.”
Napolitano set a date of 15th March for “possible consultations” on a coalition solution to begin.
Noting how Pope Benedict has addressed “ethical concerns” about economics during his 8 years in the role, “Catholic Social Doctrine makes absolutely clear,” said European Central Bank president Mario Draghi yesterday, “that subsidiarity has to be paired with support.
“What binds these together is trust…Trust that each will put its own house in order – even if it is politically difficult.”
Pope Benedict was today set to be airlifted from the Vatican to the popes’ summer residence, where he will relinquish the Papal seal and retire as a monk.
Data revisions meantime showed Spain’s economy shrinking faster than first reported at the end of 2012, down by 1.9% in the final 3 months.
Spain’s inflation rate held at 2.8% this month, new data said. Across the 17-nation Eurozone however, consumer prices actually fell 1.0% in Jan. from Dec. according to the Eurostat agency.
Germany’s unemployment level fell this month to 6.9%.
“[In Spain] more than fifty percent of young people cannot currently find jobs,” said Draghi on Wednesday.
“But our answer – both to those who want [the ECB] to do less and to those who want us to do more – is the same: we will preserve price stability. This is our mandate.”
Spain’s giant Bankia group today reported a record €19 billion loss for 2012, when it also received €18bn in aid according to the BBC.
Speaking to the US House Financial Services Committee meantime, Fed chairman Ben Bernanke repeated his comments from Tuesday about the benefits of quantitative easing. But he also spoke at length about potential “exit strategies” from the policy.
– Posted Thursday, 28 February 2013 | Share this article| Source: GoldSeek.com
The gold market is all smoke and mirrors. But now the bankers’ house is on fire, the smoke is getting thicker, the mirrors are cracking and the screams of the trapped will soon be heard.
GOLDMAN TARGETS $1200 GOLD
Like most truisms, the old adage, ‘connecting the dots’, is easier said than done. Choosing the correct dots is far more difficult than merely connecting them. If you connect the right dots, you are called a soothsayer. Connect the wrong dots, you look like a fool.
Regarding what is currently happening in the gold and silver markets, long-time and highly regarded gold analyst Jim Sinclair appears to be a soothsayer. Four months ago, on October 21, 2012, ArabianMoney.net noted that Jim Sinclair had warned subscribers the bullion banks were going to push gold prices lower.
Because central banks had become net accumulators of gold, Sinclair said to make money in the new environment the bullion banks—Goldman Sachs, JPMorgan, Deutsche Bank, HSBC—were going to change their strategy regarding precious metals.
According to ArabianMoney.net, Sinclair predicted the banks’ new strategy would involve a change in ‘spread management’:
Spread management is rather technical for non-industry specialists. This is the profit per ounce when gold is sold, and the bullion banks juice this profit by taking both long and short positions in the marketplace to improve their real profit…What Mr. Sinclair foretells is an upcoming move by the bullion banks to dump their short positions and go fully long…
Sinclair said the bullion banks would look to pull gold down one last time to allow them cover to reverse their own huge short positions in the market. Once this is safely accomplished they will go fully long in their own positions and take the gold price far higher.
Regarding the timing of this move by the bullion banks, ArabianMoney.net wrote:
Right now the preoccupation in the bullion market is over a short-term correction, and the more alarming potential for a repeat of the 30 per cent price crash of 2008-9. Mr. Sinclair seems to be hinting that this will provide precisely the environment for the shedding of shorts and the creation of long-only positions in the market.
DRS cartoon, p. 87, Time of the Vulture, How to Survive the Crisis and Prosper in the Process, Darryl Robert Schoon, 3rd ed. 2012
…all that is required is a change in spread management by the gold banks and you will have whatever price the gold banks want from $3,500 to $12,400.
Jim Sinclair, October 2012
GOLDMAN SACHS TALKS GOLD LOWER
Six weeks after Sinclair’s warning, the bullion banks set the stage for a drop in the price of gold as Reuters reported Goldman Sachs predicts turn in gold bull market. In December 2012, Goldman Sachs lowered its three, six and 12-month forecasts for gold and predicted the gold cycle would turn lower in 2013.
Absent additional easing in late 2013, we expect gold prices to decline at a faster pace in 2014 and to reach $1,625 an ounce by year-end.
Goldman Sachs, December 5, 2012
On December 6th, AabianMoney.net reported: Goldman Sachs has put out a negative call on gold saying that the bull market is over, exactly the sort of market maneuver predicted six weeks ago by ‘Mr. Gold’ Jim Sinclair…
On January 16th, Goldman analysts whipped up even more fear among gold investors by predicting a long-term price of gold of $1200:
…we expect that gold prices will continue to trend lower over the coming five years and introduce our long-term gold price of $1,200/oz from 2018 forward.
THE CHINESE NEW YEAR GOLD MASSACRE February 11th to February 22nd
To put their strategy into play, the bullion banks waited for Asian demand to slow during the two week Chinese New Year celebration; and when the Chinese New Year began on February 11th the bullion banks began forcing gold and silver lower.
On Monday February 11th, gold was at $1660. On Friday, gold closed at $1610. The following week, gold reached a low of $1,558 on Thursday, Feb 21st before finishing Friday at $1,581.
The strategy worked. The Chinese New Year’s route of gold had caused nervous investors to sell and investment funds to exit their long positions and instead go short allowing the bullion banks to exit their positions on the short side.
On Friday February 22nd, gold trader Andrew Maguire noted: The paper market longs have been tricked into selling. Obviously the managed money and the specs are now being tricked into short selling. Who do you think is on the long side of those trades?
These bullion banks have actually successfully transferred massive short positions into very weak hands. And this next week is going to provide large short fuel above the market. As soon as this leveraged selling is insufficient to meet the bullion bank buying, which will happen, if not today it will be early next week.
The record number of gold shorts held by speculators usually presages a rally in gold prices.
The gross short position held by speculative traders in US gold futures and options has neared or exceeded 60,000 contracts only 5 times before in the last 8 years…The average 6-month change in gold prices, according to analysis by BullionVault today, has then been +28%.
A 28% rally in gold at today’s [February 27, 2013] price of $1,598 would take gold to $2,045.
GOLD LIFTOFF SOON? MAYBE SO, MAYBE NOT
Now that bullion banks have exited their short positions and are long gold, the bankers are still going to protect their highly profitable paper money scheme and are not going to roll over and cede victory to gold unless forced by circumstances to do so.
Exiting their short positions removed the possibility the bullion banks would suffer catastrophic losses if gold prices exploded upwards. Now, the banks will instead be able to profit by being on the long side of the trade leaving the managed funds and speculators to bear the losses.
This does not mean, however, the bullion banks will abandon the credit and debt paper money cartel in their battle against gold. What it does mean is that the cartel has suffered a significant loss and gold’s victory is now one significant step closer.
Supply and demand in the battle between gold and paper money has been offset by the use of credit and debt by the paper money cartel. Up until 2001, the paper money cartel had the momentum. After 2001, gold did. It still does today.
GOLD IS A MOMENTUM TRADE
The truth about geopolitics as well as finance is distorted by the media to serve those in power. This does not change the truth although it does change what people believe. The current controversy surrounding Iran is a case in point. My current youtube video, Why Iran Went Bonkers, addresses that question, see http://youtu.be/oWen9rChnuA .
Perhaps a squeeze on gold shorts will soon take gold to $3,500 to $12,400 as predicted by Jim Sinclair or, it may come later. Have faith, it will come.
Buy gold, buy silver, have faith.
Darryl Robert Schoon
Why Hyperinflation is Coming and How to Survive It and Prosper
By Barry Stuppler on February 25, 2013 4:09 PM
By Barry Stuppler, a CoinWeek Contributor …….
I have just completed a 40-page booklet with the same title, which I am proud to say was the completion of a 3-year research project. I believe it is the best study of Hyperinflation, Gold Standard and Gold confiscation that I have ever seen and it’s available to read and download at www.coinmag.com.
This study describes the steps leading up to hyperinflation in the US, from leaving the gold standard domestically in 1933 and internationally in 1971 through the recent and ongoing creation of trillions of fiat dollars through “stimulus” and “quantitative easing” programs.
Hyperinflation has happened twice in the US, during and after the Revolutionary War and the Civil War. Globally, it happened 31 times in the 20th Century. One common prelude to hyperinflation (in addition to creating money to monetize national debt) is financing wars by borrowing money.
Although there are many warning signs, when hyperinflation finally strikes, it strikes suddenly, so it’s imperative to prepare before it’s too late. Iran’s rial recently sank 80% against the US dollar. The Iranian government suspended gold trading and closed access to currency exchanges for ordinary citizens.
Owning gold and silver is the best way for investors to protect their capital and even profit from inflation. However, the federal government may take steps that would adversely affect owners of bars and modern bullion coins.
As chairman of the Gold & Silver Political Action Committee (www.goldandsilverpac.com), I’ve spoken with many federal legislators and regulators. As inflation accelerates, measures that might come into effect regarding the purchase and sale of gold and silver bullion include
• Increased reporting regulations
• An excess profit tax
• Export/import limitations
• Imposition of a value added tax (VAT)
When hyperinflation itself kicks in, there are two more extreme actions the federal government might take: gold and silver confiscation, as happened in the US in 1933, or a return to the gold standard.
Pre-1934 gold coins would almost certainly be exempted from gold confiscation, and would be likely to greatly rise in value if there were a confiscation. In the event of a return to the gold standard, the value of bars and modern bullion coins would be fixed by the government, but pre-1934 coins with numismatic value would have the potential to further rise in value.
Everybody has a picture of hyperinflation—frantic searches for basic necessities and wheelbarrows full of paper money come to mind. In 1956, economist Phillip Cagan famously defined hyperinflation as an average monthly price increase of 50% or more. At that rate, a $10 item would cost $1,946 just one year later. Unfortunately, most of the 31 episodes of hyperinflation in the 20th Century followed the Cagan model.
Ordinary inflation precedes hyperinflation. Many politicians, Fed governors, economists and pundits (the same ones that said the housing crisis would be restricted to subprime mortgages and would be over in a year) say inflation is low and under control. They point to Bureau of Labor Statistics (BLS) data showing the Consumer Price Index (CPI) running at 2.2%.
The BLS uses complicated social assumptions and mathematical formulae to arrive at the CPI. These assumptions and calculations have changed over time. Shadow Government Statistics reports that if the rate of inflation were calculated today as it was in 1990, it would be 5.8%. If it were calculated based on 1980 metrics, it would be 10%.
I assume that, like me, you buy food, gas, clothes, health insurance and/or medical care, and pay or have paid for college tuition. Based on real life, do you agree with the official BLS data that the rate of inflation is low?
From November 2002 to November 2012, despite the Great Recession, the index of all commodities (including metals, grains, agricultural products, oil, and coal) is up 202%. Do you believe manufacturers and processors are eating those costs rather than passing them on to consumers?
|Central Bank Gold Purchases|
Are central banks concerned that the US dollar and other major currencies are undergoing devaluation? Until 2010, the world’s central banks were net sellers of gold. Suddenly, they turned into net buyers. Central bank leaders assure us that they have inflation under control, yet they buy gold. Actions speak louder than words.
Central banks, including the Fed, operate on the assumption that their chief weapon for fighting inflation is increasing interest rates. They tend to believe that even tiny increases in interest rates will curb inflation by slowing economic growth and giving investors alternatives to buying gold and silver as inflation hedges. However, in the 1977-1980 gold bull market, the price of gold rose even while the prime interest rate reached 11% and tripled with the prime at over 15%. That bull market ended without hyperinflation. A combination of historically high interest rates and wage and price freezes sent the country into a recession and gold into a bear market.
The United States is in a different place today, facing stiffer global competition, higher federal deficits and national debt, and more committed to stimulating the economy through prolonged low interest rates. In 1980 the US federal debt was below $1 trillion. With its debt now above $16 trillion—and having to constantly borrow money to make debt payments—it’s virtually inconceivable that the federal government would allow interest rates to approach those levels, unless the US dollar were already essentially worthless as a result of hyperinflation.
I talked about the importance of owning pre-1934 gold and silver coins. I also advise my clients to own physical gold and silver as opposed to ETFs or mining shares. My booklet goes into this question in detail. Here, suffice it to say that ETFs are paper assets which, under the social and economic disruption accompanying hyperinflation may well be inaccessible (or, worse, not fully backed by precious metal). As for mining shares, the very factors that cut into mining profits—labor strife and shortage, energy costs, environmental regulation, nationalization, tax increases—make physical gold and silver scarcer and drive their prices higher.
It may take 3-4 years, but as the velocity of money going through our economy increases, it will drive down US unemployment and reenergize our real estate market. However, we will also see serious global inflation with a high likelihood of hyperinflation within the United States. By the time we reach that stage many of the central banks of economically strong nations such as China, India, Brazil and Russia will have exchanged much of their US Dollar holdings for gold, helping push the price of gold to over $6,000 per oz. We are also likely to see some governmental regulations, restrictions, limitations or additional taxes on gold investors by that point, in an attempt to slow the exodus from paper money. The price of silver will be over $100 per oz. How much over will depend on the strength and speed of the global economic recovery and any barriers to ownership implemented by western nations.
For a detailed examination of the evidence for hyperinflation and my conclusions about how to survive it and prosper, please read the full report, available free at www.coinmag.com.
Barry Stuppler has been a professional numismatist for over 50 years and is well known as an advocate for collectors and investors. He has helped thousands of first-time and experienced coin and precious-metals investors and collectors become successful. Barry is the current chairman of the Federal and California State Gold & Silver Political Action Committee (www.goldandsilverpac.com) and is in constant communication with legislators and lobbyists regarding political events that affect the rare coin and precious metals community.
The past president and a lifetime member of the 30,000-member American Numismatic Association, Barry currently serves as president of the California Coin and Bullion Merchants Association. Barry also serves as a board member of the largest association of professional numismatists, the Professional Numismatists Guild. He co-founded and is a current board member of the Industry Council for Tangible Assets, which represents the coin and bullion community in Washington DC.
Barry publishes articles and a daily blog at www.stupplerblog.com, along with other educational materials on Stuppler & Company’s rare coin and precious metals website, www.mintstategold.com. You can reach Barry directly at 888-454-0444 or email@example.com.
Start of slide or opportunity?
By Steve Roach | 02-25-13
Article first published in March 11, 2013, Expert Advice section of Coin World
This Uncirculated 1991-W Mount Rushmore Golden Anniversary gold $5 half eagle is one of the many collectible modern era U.S. Mint issues with a value that is almost entirely dependent on the .24187 ounce of gold it contains.
After enjoying a long period of stability for the past several months at the $1,650 to $1,700 an ounce level, gold dipped below $1,600 on Feb. 20, closing at $1,588.50 an ounce in the London markets. Gold had reached a low of $1,564.30 in London during the day’s trading, and on Feb. 21 gold hovered around the $1,575 an ounce level.
The drop created a seven-month low for gold that represented the worst one-week drop since May 2012. It was also the first time that gold closed below $1,600 an ounce since Aug. 14, 2012, when it closed at $1,597.75 an ounce.
After the most recent dip, Citigroup lowered its ratings on several gold mining companies and wrote in a report, “The problem with gold is that it is a very ‘long cycle’ metal and if it IS in the process of peaking now, then history suggests that it could go into hibernation for a long, long time.”
Under that logic, if gold has already peaked, then it may have further to fall. At this time in 2011 gold was at the $1,400 an ounce level, and back in February 2008 it hovered at the $1,000 an ounce level, reaching a five-year low of $712 an ounce in the fall of 2008.
An impetus for the recent sell-off was the release of the January 2013 meeting minutes of the Federal Reserve’s policy committee. The report suggested that it may scale back its monetary stimulus. This reduced gold’s appeal as an inflation-hedge.
The drop below the psychological barrier of $1,600 an ounce was also caused in part by economic data showing that the U.S. economy is slowly improving and a growing perception that the global economy has stabilized. This stability can lead people away from assets like gold and silver, and toward assets perceived as riskier.
Some people saw buying opportunities in the quick drop. APMEX’s Bullion Center on eBay reported that it enjoyed its second best sales day on Feb. 20, stating in a press release that buyers concluded that “precious metals were on sale and at a discount relative to the expected future values.”
Wild price swings have the greatest impact on coins that trade at levels close to bullion. This group includes both traditional bullion products and many collector coins with values closely tied to bullion.
A quick drop in the price of gold can have a big impact on dealers big and small who are working on a tight profit margin with bullion products. ■
Gold Uptrend Could See Significant Damage
By BullionVault on February 25, 2013 7:47 AM
U.S. DOLLAR gold prices climbed back above $1590 an ounce Monday morning, extending gains from Friday following sharp losses last week, while stock markets also rallied, although the FTSE 100 in London saw smaller gains that other European indexes following news of a downgrade to Britain’s credit rating.
“Support [for gold] sits at $1522, the low from December 2011,” says the latest technical analysis from Scotia Mocatta.
“A break of that level will do significant damage to the long-term uptrend.”
The gross short position held by speculative traders in gold futures and options on the Comex has neared or exceeded 60,000 contracts only five times before in the last eight years. On these occasions the average six-month change in the gold price, according to analysis by BullionVault today, has then been a gain of more than 28%.
Silver meantime climbed back above $29 an ounce Monday morning, as other industrial commodities also gained and US Treasuries fell.
On the currency markets the Pound fell to its lowest level since July 2010 against the Dollar this morning, dropping more than 1% from Friday’s close before recovering some ground as the morning went on, as markets reacted to ratings agency Moody’s decision late Friday to strip the UK of its Aaa credit rating.
“The downgrade was expected and priced into credit markets,” says a note from Morgan Stanley.
“Hence, we expect only a limited currency response in the short term.”
The Sterling gold price ticked back above £1050 an ounce for the first time in just over a week this morning.
The Yen meantime fell to a 33-month low against the Dollar at the start of Monday’s Asian trading, following reports that Japan’s government is set to nominate Asian Development Bank president Haruhiko Kuroda as governor of the Bank of Japan.
“Kuroda is a fan of a weaker Yen and of deflation bashing,” explains Societe Generale strategist Kit Juckes in London.
The government is also reported to be planning to nominate university professor Kikuo Iwata as one of Kuroda’s deputies.
“Perhaps thanks to the inclusion of Iwata the market will expect more eye-catching bold easing measures,” says Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo.
The world’s biggest gold exchange traded fund SPDR Gold Trust (ticker: GLD) saw a further 9.6 tonnes in outflows Friday. Over the whole of last week, the volume of gold held to back GLD shares fell 3.2% to 1280.7 tonnes.
The world’s biggest silver ETF iShares Silver Trust (ticker: SLV) by contrast saw its bullion holdings grow by 0.8% to 10,602.8 tonnes.
The amount of gold held by all exchange traded funds tracked by Bloomberg saw its biggest weekly drop since August 2011 last week, falling to a five-month low of just over 2560 tonnes.
“Market participants appear cautious after last week’s sharp sell-off,” says Nick Trevethan, senior commodities strategist at ANZ.
“While we have downgraded our near-term views, gold prices should accelerate in the second half [of 2013] on improving demand from India and China.”
Indian gold industry insiders will be watching for any further measures aimed at reducing bullion imports in this Thursday’s budget, after India hiked import duties on gold to 6% last month.
“Suppose you take the worst case scenario and the government completely bans the import of gold.
Do you think that Indian people would stop buying gold?” asks Prithviraj Kothari, director at
Riddhi Sidhi Bullions in Mumbai, adding that such a move would increase demand for smuggled gold.
India is traditionally the world’s biggest gold buying nation, a position it held in 2012 according to the most recent World Gold Council data, and has to rely heavily on imports, which contribute to its trade deficit.
A report published by India’s central bank earlier this month suggests encouraging people to invest in gold-linked financial products rather than buy gold outright as one of way of reducing the reliance on gold imports. Seeking to increase the amount of gold people deposit with banks was another proposal.
“The government should come out with a voluntary gold deposit program where it won’t ask any questions about the source of gold, and offer an annual interest rate to depositors,” suggests Bachhraj Bamalwa, president of the All India Gems & Jewellery Federation.
Kazakhstan and Russia meantime both added to their gold reserves last month for the fourth month running, according to International Monetary Fund data, while Azerbaijan bought gold for the first time in a decade.
Monday sees the second day of voting in Italy’s general election, with newswire Reuters reporting a “surge in protest votes” for parties such as the Five Star Movement led by comedian Beppe Grillo.
“There are similarities between the Italian elections and last year’s ones in Greece, in that pro-euro parties are losing ground in favor of populist forces,” says Riccardo Barbieri, chief economist at Mizuho International in London.
“An angry and confused public opinion does not see the benefits of fiscal austerity and does not trust established political parties.”
Gold Falls Below $1600 for First Time in 6 Months, Sharp Move Could Trigger Stronger Demand
By CoinWeek on February 20, 2013 7:43 AM
THE SPOT gold price dropped below $1600 an ounce for the first time in six months Wednesday, as the Dollar strengthened and stock markets were broadly flat, ahead of the publication of the latest Federal Reserve policy meeting minutes later today.
Silver fell to $29.19 an ounce, also a six month low, while other commodity prices were little changed on the day.
Major government bond prices fell, with UK Gilts dropping sharply along with the Pound following the latest Bank of England minutes.
Dealers in India reported an increase in gold buying today, with some citing next week’s budget as a factor.
“Most people in the market are concerned about policy changes in the budget,” one dealer in Mumbai told newswire Reuters this morning.
“Some sort of measures to curb gold imports can be there, that’s why bullion players, especially jewelers, are increasing their stock levels.”
Over in China, trading volumes on the Shanghai Gold Exchange continued to fall Wednesday, having set a record on Monday as the exchange re-opened following Lunar New Year week.
“We have seen quite strong interest in the domestic market as prices weaken,” says one trader in Beijing, “although such demand is unable to push prices much higher…once prices stabilize around this level, we may see demand dwindle. But another sharp retreat or rally in prices will trigger a lot of investment and physical gold demand.”
Less than three months after setting a new all-time record, the Euro gold price fell below €1200 an ounce for the first time since December 2011 this morning.
The Pound meantime fell to a nine-month low against the Dollar this morning, dropping sharply immediately after the publication of the latest Bank of England Monetary Policy Committee minutes. The minutes show that three of the nine MPC members – including the current governor Mervyn King – voted earlier this month to increase the size of the Bank’s quantitative easing program from £375 billion to £400 billion, with the majority voting to leave it unchanged.
“The Committee agreed that, as long as domestic cost and price pressures remained consistent with inflation returning to target in the medium term, it was appropriate to look through the temporary, albeit protracted, period of above-target inflation,” the minutes read.
“The BoE minutes surprised on the dovish side,” says Citigroup strategist Valentin Marinov, “which could be seen as disappointment for those thinking that a lot of negatives are [already] in Sterling price by now.”
“This lowers the bar for further intervention,” adds Deutsche Bank economist George Buckley, “though we still argue that if the BoE’s forecasts for sticky inflation and GDP growth gradually recovering are proved right no more quantitative easing will be needed.”
Gold in Sterling jumped to £1048 per ounce immediately following publication of the minutes, slightly above the previous high for this week, before trading lower towards lunchtime in London.
The UK’s three-month unemployment rate meantime rose to 7.8% in December, up from 7.7% a month earlier, data published this morning show, although January’s claimant count figure fell by more than anticipated.
In the US, the Federal Reserve publishes the minutes of last month’s Federal Open Market Committee later today.
“The Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens,” said the statement published immediately after that meeting.
“We suspect the [Fed] will again spell out its prolonged easing stance in very clear terms,” says Ed Meir, analyst at brokerage INTL FCStone, “but whether this is going to be enough to trigger a round of renewed [gold] buying is doubtful.”
“We don’t think there should be anything in the minutes to spook the markets,” adds Standard Bank currency strategist Steve Barrow, “[but] we definitely sense that the market is more sensitive to hawkish comments [implying tighter policy] than dovish ones.”
Ahead of the Italian elections starting on Sunday, former prime minister Silvio Berlusconi’s party has sent out thousands of letters to voters pledging to reimburse their IMU property tax. The letter told voters that should Berlusconi become economy minister, they will be able to collect their tax rebate from the post office.
“Silvio Berlusconi may be an effective campaign strategist,” German finance minister Wolfgang Schaeuble said last week, “but my advice to the Italians is not to make the same mistake again by voting for him.”
Despite recent weakness in the Yen, Japan’s trade deficit set a new record last month, figures published Wednesday show.