Gold Markets Get Strange – Is Economic Danger Near?

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Brandon Smith

Traditionally, metals markets are supposed to be a solid fundamental signal of the physical and psychological health of our overall economy. Steady but uneventful commodities trade meant a generally healthy industrial base and consumption base. An extreme devaluation was a signal of deflation in consumer demand and a flight to currencies. Extreme price hikes meant a flight from normal assets and currencies in the wake of possible hyperinflation.

This is how gold and silver markets were originally designed to function – however, I welcome you to the wacky world of 2013, where bad financial news is met with the cheers of investors who believe stimulus will last forever, where foreign investors dump the U.S. dollar in bilateral trade while mainstream dupes argue that the Greenback is invincible, and where everyone and their uncle seems to be buying precious metals yet the official market value continues to plunge.

Is this weird? As Bill Murray would say: “Human sacrifice! Dogs and cats living together! Mass hysteria...!”

The reason our entire fiscal system now operates in a backwards manner is due to one simple truth - every major indicator of our economy today is manipulated by our central bank, which uses its printing press to prop up everything from equities to treasuries to municipal bonds. They openly admit to it. They are proud of the fact. They swagger about as if they are the heroes of the day. They act as if we should be thankful. But what is reality here?

Report: Brinks Vaults Are Being Depleted: “This Has the Appearance of a Run On the Bank”

Mac Slavo

The price of gold and silver has seen a massive decline as of late, prompting one analyst to suggest that there is no compelling fundamental reason to own precious metals and the only thing investors can do now is “hope and panic, in that order.”

But while current prices and technical charts may leave some with the feeling that gold’s bull run is over and the bubble has popped, others are scooping up as much yellow and silver metal as they can find, and in some cases they’re doing it by the tens of thousands of ounces.

The Solar Silver Thrust

Jeff Clark
Casey Research

In early July, Japan set a premium price for solar energy that was three times the rate of conventional power. This meant utility companies would be paid three times more for electricity sourced from solar. It's widely expected that the premium will ignite the use of solar power – and solar uses a lot of silver.

Silver Demand from PV Panels

As you may know, silver is used in photovoltaic (PV) technology to generate solar power. A typical solar panel uses a fair amount of the metal – roughly two-thirds of an ounce (20 grams). To put that in perspective, a cellphone contains around 200 to 300 milligrams (a milligram weighs about as much as a grain of sand). A laptop contains 750 milligrams to 1.25 grams.

Photovoltaic technology is relatively young, but each year its use is growing rapidly. Just since 2000, the amount of silver consumed by solar-panel makers has risen an average of 50% per year. Demand grew from one million ounces in 2002 to 60 million ounces in 2011. Last year demand from the PV industry represented almost 11% of total industrial demand for the metal (excluding jewelry). 

The Bottom Line on Gold, the Dollar, and the Euro

Louis James
Casey Research

One of the points we've made several times over the last year is that traders stuck in an old paradigm are frequently selling gold for the wrong reasons.

The most egregious (or just plain silly) example is that gold often drops when the euro drops.

This happens, not because there's anything wrong with gold at such times, but because gold is priced in dollars. Instead of being thought of as a store of value in many investors' minds, gold is viewed as a hedge against weakness in the dollar.

But what are dollars priced in?

Nothing, actually.

What to Do When – Not If – Inflation Gets Out of Hand

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Jeff Clark
Casey Research

The cheek of it! They raised the price of my favorite ice cream. Actually, they didn't increase the price; they reduced the container size. I can now only get three servings for the same amount of money that used to give me four, so I'm buying ice cream more often.

Raising prices is one thing. I understand raw-ingredient price rises will be passed on. But underhandedly reducing the amount they give you ... that's another thing entirely. It just doesn't feel ... honest.

You've noticed, I'm sure, how much gasoline is going up.

Food costs too are edging up.

My kids' college expenses, up.

Car prices, insurance premiums, household items – a list of necessities I can't go without. Regardless of one's income level or how tough life might get at times, one has to keep spending money on the basics. (This includes ice cream for only some people.)

According to the government, we're supposedly in a low-inflation environment. What happens if price inflation really takes off, reaching high levels – or worse, spirals out of control?

Silver Mania? (Video)

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Central Banks Buying Gold At Record Pace

Gold bar Wikimedia Commons image

Activist Post

One would think the record price for gold would cause some profit taking by large institutions. Indeed, the media is trying to convince people that now is the time for individuals to take their profits on old jewelry and coins. 

However, Bloomberg reported this week that central banks around the world, who were net sellers of gold a decade ago when it was a bargain, are now net buyers of gold, indicating that gold may be poised to reach $2000 an ounce:

In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in official-sector purchases by countries including Bolivia, Sri Lanka and Mauritius, according to World Gold Council data. China, with more than $3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.

Keiser Report: You Can't Negotiate with Financial Terrorists (Video)

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Use the Dollar or Else

Only use our monopoly money.
Terrorists use silver and gold
Dees Illustration

Llewellyn H. Rockwell Jr.
Lew Rockwell

Look up the phrase "a unique form of domestic terrorism" on a search engine and you will turn up a story about a man whom the US government is trying to cage from now until the time of his death.

And his crime? His unique form of terrorism? He minted silver and copper coins and sold them. In other words, he did what innumerable entrepreneurs from the beginning of time have done. He attempted to provide consumers with a store of value. No one was forced to buy. He met a market demand, and that’s it.

Whom did he hurt? No one. Unlike illegal drugs, which the government bans on grounds that it doesn’t want us to hurt ourselves, these silver coins did not endanger their users. They only gave people an option on what to do with their money. Did the proprietor attempt to claim that these were legal tender for monetary exchange? No, he sold them for what they are.

Federal government seeking to make forms of bartering illegal after court ruling

Kenneth Schortgen Jr
Examiner

The Federal government is trying to establish bartering private currency of any type as an illegal enterprise in a false interpretation of the court's recent conviction of Liberty Dollar's owner Bernard Von NotHaus.

In a case where the government used conspiracy and counterfeit charges against NotHaus to establish that he intended to mint and illegally replace US currency with a private one using silver coins, the US Attorney is now parlaying the conviction to say that this ruling sets a precedent against any private barter transactions which use any form of currency besides established Federal Reserve Notes.

The Federal government also is seeking on April 4th to take receipt of the $7 Million dollars in silver 'Liberty Dollars' that were minted and sold by Von NotHaus.

The idea for using private currency for barter transactions is not new, and in fact is currently being done in a few cities around the country.  In Detroit for example, a group of businesses created their own barter currency known as 'Detroit Cheers', and several businesses agreed to the use of local currencies in leiu of federal reserve notes.

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RELATED ARTICLE:
Monetary Reform Begins with Competing Currencies

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Gold near record, silver tops $37 on safe-haven bid

Silver Eagle Wiki Commons image

Frank Tang
Reuters

Gold rose to within a whisker of its all-time high on Wednesday, as record low U.S. new home sales stirred talk of extended central banks' accommodative policies, and a possible collapse of Portugal's government rekindled euro zone debt worries.

Bullion rose 0.7 percent to $1,439.76 per ounce, just short of its record $1,444.40 set on March 7, rebounding over 4 percent in the last eight sessions amid safe-haven buying and ongoing Western air strikes on Libya.

"Gold rose on a culmination of further concerns about the European debt issue, coupled with the situation in Libya and very strong crude prices," said Brian Hicks, portfolio manager of U.S. Global Investors' Global Resources Fund (PSPFX.O) with about $1 billion assets under management.

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Dollar Quietly Losing Safe Haven Status During Crisis
5 Collapse-Proof Investments with Tangible Fundamentals

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Politicians Push Gold Standard: Have Americans Totally Lost Trust in Our Institutions?

The sudden public interest in reforming banking and money signals a loss of trust in our future.

Joshua Holland
AlterNet

People across the United States are losing trust in the dollar. Georgia, Virginia and 9 other states have considered so-called “Constitutional tender” laws that would require, in at least some cases, that state governments collect and make payments only in gold or silver. South Carolina and Virginia are considering creating their own currencies. Utah legislators just passed a bill allowing the use of gold and silver currency.

Animated by doomsday scenarios about crashing currencies and wild hyperinflation, speculators have sent the prices of gold, silver and other precious metals skyrocketing.

At the same time, a growing movement to establish state-chartered banks that could better serve the needs of their communities – and act as “mini-feds” to help stabilize local economies -- is also taking hold across the country.


But what explains this sudden fascination with radically reshaping the contours of a monetary system to which few people gave much thought just a few short years ago?

While the words “In God We Trust” appear on the back of every dollar in circulation, in reality it should read, “In Institutions We Trust.” Our money, after all, is what's known as “fiat currency,” meaning that it's created out of thin air, unmoored from any tangible good. The dollar has value because we believe it has value – we work for green pieces of paper only because we have confidence that we'll be able to exchange those slips for food and shelter and whatever else we need to get by.

That's the way modern economies work, which allows central bankers to respond to turns in the economy by adjusting the money supply. Yet, policy-makers are human, and can err, meaning that we not only have to have a belief in the value of a dollar for the system to work, but also in the competency and motivation of those central bankers. And while they're supposed to be detached technocrats calmly steering our ship through troubled waters, the reality is that the interests of bankers and workers are anything but overlapping.

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RELATED ARTICLES:
Monetary Reform Begins with Competing Currencies
The After-the-Fed Solutions Debate Begins

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Gold May Beat Silver, Lifting Ratio by as Much as 20%: Technical Analysis

Nicholas Larkin
Bloomberg

Gold may outperform silver, lifting the ratio between the two metals by as much as 20 percent, according to technical analysis by Societe Generale SA.

The attached chart shows the ratio of gold to silver steadied after dropping as low as 46.6 last week, near a two- year channel support line and the lows of 2008 and 1999. The second chart shows the ratio may climb to between about 56 and 58, which are retracement levels of the decline from June that are singled out in so-called Fibonacci analysis.

“The gold-silver ratio reached an important support at 47.5/46,” said Stephanie Aymes, a cross-commodity technical analyst with Societe Generale in London. “Gold will outperform silver to 56/58.”

An ounce of gold bought as little as 46.6 ounces of silver in London on Dec. 7, the least in almost four years. Precious metals gained this year on demand for a protection of wealth and an alternative to currencies. Some investors betting that silver may benefit from an economic recovery pushed the metal’s 2010 advance to 70 percent, outperforming gold’s 26 percent gain. Silver is used more in industry than gold.

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Report: Swiss Bank Refuses to Release Gold

Bloomberg image: Adrian Moser 

Julie Crawshaw
Money News

A client of a major Swiss bank was recently refused access to his physical gold and had to hire attorneys and threaten to expose the bank publicly before finally getting it back in his own hands, according to Jim Rickards of Omnis.

“My inference is that that gold was not there,” Rickards told King World News. “The bank had to scramble, go out and find it somewhere before they could make good delivery.”

Rickards expects the world will eventually go to a gold standard-backed currency.

“To me, the big issue is, is it going to be intelligent or is it going to be ugly?” Rickards says. “Is it going to be something we think about, we have a public debate, hearing in Congress … we give some thought to, and then, over time … we do it in stages” so that markets can adjust.

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What's behind the 2010 gold rush?

Investors and central banks are buying up the yellow metal at unprecedented levels, but will its allure last as fears over the global economy ease?

Richard Blackden
Telegraph

In the 19th century, San Francisco's citizens couldn't read about the gold rush happening little more than 200 miles from their city.

Most who worked for the local newspaper had dashed to the fields in the foothills of the Sierra Nevada mountains, where James W Marshall had unearthed a nugget in a riverbed in January 1848.

Rapid waves of immigration followed by ship and across the Midwest, with about 80,000 people braving the threat of cholera to make the journey in wagons.

Less than a month after Marshall's find and a few hundred miles further south, a defeated Mexican government signed the Treaty of Guadalupe Hidalgo, ending a two-year war with its northern neighbour and ceding swathes of territory to the US.


"The discovery of gold was little short of a revolution and came as California became American," explains Malcolm Rohrbough, author of Days of Gold: The Californian Gold Rush and the American Nation. "People were celebrating."

The yellow metal had of course dazzled many civilizations before, and from the middle of the 19th century added America to that list.

It has bewitched the country ever since and never more so than in the three years since the financial crisis erupted.

And as gold closes in on a 10th straight year of gains, a debate is raging across the country on whether the longest rally since at least 1920 can last.

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Is the world running out of food, alongside oil, metals, water and much else?

The Fed is fuelling the catastrophe of fast rising raw material prices

Jeremy Warner
Telegraph

The answer to this question, according to a recent OECD and UN Food and Agriculture Organisation report is a definitive no; global agricultural production is on track to satisfy the expected long-term increase in demand, the OECD reckons.

Yet it's little thanks to public policy, which in combination with the current craze among financial speculators for commodities, seems hell bent on driving up prices to what for millions of the world's poor may be starvation levels.

There are two main ways in which policymakers are insidiously interfering with the usual rules of supply and demand for raw materials, and myriad different smaller ones. We'll leave aside the smaller ones, such as China's attempt to leverage its monopoly of rare earth metals for geo-political purposes, and concentrate instead on the two biggies.

One is the policy of ultra-cheap money in advanced economies to fight the economic crisis; and the other, more commodity-specific one, is massive public subsidy for the production of bio-fuels. Food is being elbowed out by pursuit of "clean fuel".


As long as the US Federal Reserve remains accommodative, commodity prices are likely to keep rising. We are not yet back to anything like the extremes seen in the bubble of 2007/8. Oil prices at $140 a barrel, it will be recalled, were what helped tip the world economy into recession. Yet by long-run historic standards, both food and mineral prices are still exceptionally elevated and going higher.

The underlying reasons are well known. Rapid industrialisation and urbanisation in the developing world has created a "super-cycle" that won't ease until these countries bump up against the limits of their growth potential. Most would agree there's some way to go.

Into this already troubling mis-match between growing demand and finite supply stumbles the US Fed with a loose money policy of unprecedented proportions.

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10 Reasons Our Shallow Water Supply is in Deep Trouble
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Inflation to Make All Americans Billionaires by 2020

National Inflation Association

One of the Federal Reserve’s original stated purposes was to manage the nation’s money supply through monetary policy that provides for stable prices without inflation or deflation. Shocking just about the whole world except for NIA members, the Federal Reserve this past week shifted its purpose from being an inflation fighter to now being an inflation advocate. Charles Evans, President of the Federal Reserve Bank of Chicago, is now saying that inflation in the U.S. is too low and the Federal Reserve needs to publicly declare a new goal of having inflation that is much higher than its informal 2% target. William Dudley, President of the New York Federal Reserve, is calling current low levels of U.S. inflation “a problem” because “it means slower nominal income growth”.

Dudley believes “slower nominal income growth” is unacceptable because it “means that less of the needed adjustment in household debt-to-income ratios will come from rising incomes. This puts more of the adjustment burden on paying down debt.” In other words, he wants to monetize our debts by printing so much money that all Americans are earning enough income to pay back their debts. NIA fears that one of the unintended consequences of such a policy will be an insurmountable currency crisis; this will lead to a U.S. societal collapse with class warfare, millions of Americans starving to death, and a return to a barter based system that will last until we can come up with a new form of workable government based on sound money that is backed by gold and silver.

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