Monday, February 20, 2006

When Gold Flies to the Moon

When Gold Flies To The Moon
by David Andrews

Fabulous Wealth In Paper Money

Just this weekend, all the talk around my office centered on the record $365 million Powerball lottery jackpot, the largest in history. And who would not jump at the chance to become a multi-millionaire? It seems to be everyone's dream. What occurred to me was that this was also the dream of most gold and silver bulls. Sure, we all know that gold is real money, has been for 6,000 years, and when it takes its moon-shot, it will make us fabulously wealthy. Our chances are much better than the 1 in 146 million odds for Powerball. Then we will all live like kings!

Or will we? In order to realize those profits in the millions (should we be so fortunate), we believe that we will have to trade our precious metals back into paper money. Federal Reserve Notes are not what has been real money for 6,000 years. That distinction belongs to gold and silver. There seem to be some assumptions here that don't make a lot of sense. One of them is that precious metals are just an investment, to be cashed in - if one is nimble enough - as close to the blow-off top as possible. Another is that large gains in paper dollars are the ultimate objective. Throw in the uncertainty that paper money will even be around in another five years, or that the US dollar will remain the world's reserve currency.

In financial matters, one is best advised to deal with reality, not idealism. All the talk about gold being "real money" means nothing, if it isn't backed up by facts. It is clear that most people don't really care which is the real money, as long as they have plenty of it.

Too Late For Paul Volcker

The situation with the US dollar is much more precarious now than it was in 1980, when the price of gold rose to $850, and silver to $50 per ounce. Paul Volcker was brought in as Fed chairman in 1979 to deal with the last real dollar crisis, when the US economy was still strong. Exports were vigorous, there was full employment, and the consumer was flush with savings. However, inflation was out of control. Volcker rolled up his sleeves to manage the money spigots while letting the interest rates rise north of 20%. He later expressed regret that he did not control the price of gold.

Could Ben Bernanke do the same today? Not without collapsing the system. There is too much debt in the US now. The economy is far more fragile. Employment is not as strong, the consumer has negative savings, and the yield curve is about to invert. Gold has been sold short, loaned, swapped, and heaped on a mountain of derivatives that threaten to unwind if hit with so much as a strong breeze. It is far too late for Volcker's strategies.

Given the fundamentals of the US dollar today, who would want to trade precious metals for this paper? Apparently, even the most ardent "gold-is-real-money" advocate would do just that. It is also one reason why so many are so willing to invest in the various forms of "paper gold", and to take their profits in paper. This implies a return of confidence to fiat money. Is someone expecting the dollar to turn around and become strong? Too much liquidity has flowed under the bridge for that outcome.

"Nervous Nellies" and The Great Speculation

While pondering this seemingly contradictory state of affairs, it dawned on me that Hugo Salinas Price of Mexico had addressed many of these concerns recently in a presentation for GATA's Gold Rush 21 symposium. A DVD of that historic Dawson City, Yukon conference is now available on-line for a modest fee and is well worth the time spent viewing the speeches given by some of the most prominent international advocates of sound money.

Silver and gold, argued Salinas Price, must be monetized from commodities to legal tender status before they will cease to be a speculation. "Money" cannot be something that can go down in value. Yet, gold and silver have done just that, after the last top in 1980. Altogether too many investors were burned the last time, and are determined to get out before the same thing happens again. Nobody wants to be left holding the gold bag next time. This type of thinking leads to many analysts and gold commentators jumping the gun to call a "blow-off top" before the bull even gets started. Utilizing such warning calls, investors hope to return to the "safety" of paper dollars before the gold bear market resumes.

This trigger-happy mentality causing investors to leap in and out at the slightest sign of market volatility - or the other bane of precious metals bulls, long range-bound behavior - leads to the very real possibility of missing the boat altogether. What the precious metals investor needs to understand is that jumping back into paper dollars is no longer a return to safety. There is no safety in paper currencies. We are truly on the threshold of a world where, if you don't have some physical precious metal, you won't have any money.

How High Is The Moon?

Adam Hamilton of has recently provided us with two excellent analyses of the real 1980 tops in gold and silver prices, in terms of 2006 dollars. His inflation-adjusted charts (five in each article) reveal that all is not what it seems. According to Adam, gold has reached only a 13-year high, and has not retraced its 50% price level. In 2006 dollars, gold would have to rise to $2,176 per ounce, and silver to $122 per ounce, just to reach their 1980 highs! We can't be certain that the precious metals will exactly match their 1980 highs. It is likely that they will rise much higher, for reasons outlined above, and due to their lower stockpiles now than in 1980.

A primary driver of this current bull has been the willingness of western central banks to sell their gold into the market to depress its price, only to watch with chagrin as the Russians, South Africans, Asians, and Arabs buy it hand over fist. Americans have seen their jobs exported to China and India. Now, our real wealth is following those jobs, in the form of our gold.

The possibility exists, then, that the height of the moon will never be determined. When (not if) the US dollar reverts to its intrinsic value - zero - how can we measure the price of gold? We can't. We either will have it, or we won't. It is likely that the wealth of the Powerball jackpot winner(s) will be short-lived. Why invest in gold, when you are already a multi-millionaire?

Paper To Paper: To Dust It Shalt Return

Of all the ways to invest in precious metals, paper is the most common. Futures, ETFs, certificates of ownership in pool accounts, derivatives, loans and swaps...what the imagination can conceive, paper dollars can buy. Why would an investor care that his gold or silver is no longer in a pool account - that it has been lent out to be sold into the market and used against him? He may still make a profit on it when prices rise. He doesn't worry about taking physical delivery. Who needs the expense and hassle of storage fees and moving heavy bars of metal from one place to another?

It is perhaps this aspect of gold and silver investment that is most disturbing. The ease and speed with which paper is traded today can be a blessing or a curse. It goes right back to the idea that the whole purpose of trading in markets - any market - is to bag a quick dollar profit. Nothing wrong with that, if that's all you want. You take the risk that your paper will end up worthless.

But for those who claim that gold is real money, that silver is real money, that honest money is the only way to build a truly strong and enduring economy, this is not the way to invest. This is not the way to prepare for an uncertain future. We are dealing with bankers and thieves here, with crooked politicians who would sell their souls down the river for re-election. We are up against collectivists who would tax us to oblivion to further their socialist agenda.

The true Patriot always fights with strong weapons. Time is running out. Buy some physical, and never give it away for paper.

And the cat's in the cradle with the silver pool,
Little Boy Blue when gold hits the moon.
When you taking profits?
Son, I don't know when. I'll pay the taxes then.
You know I'll be a rich man then.

(from Guns'N'Roses)

David Andrews
Glastonbury, CT USA

Thursday, February 02, 2006

Cheuvreux - Credit Agricole Report on Gold Price Suppresion

Cheuvreux, the equity brokerage house of Credit Agricole, the huge French bank, this week distributed a 56-page report that completely endorses in detail the findings of the Gold Anti-Trust Action Committee (GATA) that the gold price has been surreptitiously suppressed by Western central banks and that those banks do not have the gold they claim to have.

This is possible one of the most important reports since this gold bull market began.
It is a historic document and will have enormous consequences.

Credit Agricole is the equivalent of a Bank of America in the US. The ranking of their research department in Europe is as follows:

The 2005 All-Europe Research Team ranking Credit Agricole:
No. 1 in France
No. 2 in the Netherlands
No. 3 in Belgium
No. 4 in Spain and Nordic countries
No. 5 in Germany

The 2005 All-Europe Research Team ranking
Cheuvreux is ranked No. 2 for Western European country research, with 6 rankings in the Top Five

Here is a quote from the Press Release put out by GATA regarding the Cheuvreux/Credit Agricole report:

The report, written by Cheuvreux's mining sector analyst in London,
Paul Mylchreest, is titled "Remonetization of Gold: Start Hoarding."
It repeatedly cites GATA by name and foresees an "unprecedented"
rise in the gold price, possibly accompanied by a spike to as much
as USD2,000.

The report's executive summary says:

"We are raising our mid-cycle gold price estimate to USD900/oz from
USD750/oz and see the possibility of a spike to USD2,000, or higher.
Covert selling (via central bank lending) has artificially depressed
the price for a decade."

"Central banks have 10,000-15,000 tonnes of gold less than their
officially reported reserves of 31,000. This gold has been lent to
bullion banks and their counterparties and has already been sold for
jewelry, etc. Non-gold producers account for most and may be unable
to cover shorts without causing a spike in the gold price."

"There is a supply deficit in the gold market of around 1,300 tonnes
per year before any central bank selling and perhaps 700 tonnes per
year after 'official' sales but before covert selling. This compares
with world gold mine output of only 2,500 tonnes per year. Some
central banks, notably Russia, are starting to buy gold.

"Gold acts as an early warning of potential crisis such rising
inflationary/deflationary pressures and general confidence in paper
currency, especially the U.S. dollar. A strongly rising gold price
could have severe consequences for U.S. monetary policy and the U.S.
dollar. History suggests that gold always wins against an inflating
paper currency (that is, one subject to excessive supply growth)."

"Gold and gold mining stocks are poised for an unprecedented rise in
prices and profile. Investors in UK/European equities need to assess
the implications for their portfolios. ..."

The Cheuvreux/Credit Agricole report details GATA's findings in
Chapter IV, "Analysis of the Gold Market," and concurs in them
as "broadly correct."

"No financial house in Europe could be more part of the
establishment than Credit Agricole," GATA Chairman Bill Murphy said
today, "and now its endorsement of GATA is circulating among other
big financial houses in Europe and around the world.

"This evokes what Adam Fleming, former chairman of Harmony Gold, now
chairman of Wits Gold, said at GATA's Gold Rush 21 conference in
Dawson City, Yukon Territory, Canada, last August, just hours before
the current sharp rally in gold began: that just a little investment
demand could take the central banks out of their gold 'in the blink
of an eye.'

"A LITTLE investment demand? Credit Agricole's brokerage house has
just declared: Start hoarding!"

Gold Rush 21, Murphy said, "was truly historic and decisive. It
gathered the world's top experts on gold to spell out, explain, and
publicize the gold price suppression scheme, and the conference
issued the Dawson Declaration, an appeal for free markets in the
precious metals as a matter of basic human rights."

A two-DVD set of the proceedings of the Gold Rush 21 conference,
including a dramatic 25-minute video summarizing the conference,
produced by the brilliant Vancouver videographer Trevor Johnston,
can be obtained through this Internet link:

Gold Rush 21

The Cheuvreux report on the gold market can be obtained at GATA's main Internet site here:

"As for gold itself," Murphy said, "you can get some from coin and
bullion dealers, but as the Cheuvreux report gets around, there may
not be much left."

Source: GATA press release via Business Wire Thursday, February 2, 2006

Wednesday, February 01, 2006

Ten Reasons Why Gold is Going Higher According To JP Morgan

Ten reasons why the gold price is going higher according to JP Morgan:

* Falling supply

* Continuation of strong fabrication demand from India

* China might surprise as the dog chases the rooster away

* The Dollar's godfather has retired after 18 relatively stable years

* When baby boomers cash out, where to invest?

* Inflation-maybe; but currency uncertainty-absolutely

* Gold still at moderate levels vs. the historical real level

* Paper gold gaining popularity globally with ETFs in India

* Gold market remains small vs. other investible assets

* Terrorism: The risk that the unthinkable becomes reality

Source: Ten reasons why gold is going higher Reported on Jim Sinclairs