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Here is what hyper-inflation in Germany looked like after WWI. It’s stunning how quickly the currency lost value. Those who owned gold were saved while all others fell into poverty. Are you prepared for the same thing to happen in the U.S.?
Major Buy Signal For Gold And Why Stock Markets Are Ignoring Predictions Of Economic Collapse
Predictions that the global economic system will collapse have been coming at an accelerated pace lately. Usually, many of the most extreme scenarios are from sources more interested in gaining publicity rather than offering a balanced analysis.
What's unusual is that lately, many of these apocalyptic predictions are coming from some of the most normally sedate institutions in the world such as the IMF and the World Bank.
Central bankers and the heads of world financial organizations usually speak in oblique and obfuscated terms designed to convey confidence. Either the financial powers are writing a new book of rules or we are all headed for some unimaginably horrific scenario of financial and social chaos.
Here's a small sample of the latest warnings from the sedate and not so sedate.
IMF Chief Warns Europe Must Fuel Growth
BERLIN—The head of the International Monetary Fund warned that in addition to cutting yawning budget deficits Europe needs to do more to promote growth and stop the crisis from spreading to the world economy.
" It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand," IMF Managing Director Christine Lagarde said before the German Council on Foreign Relations. " A moment, ultimately, leading to a downward spiral that could engulf the entire world," she said.
World Bank Projects Global Slowdown
“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” said Justin Yifu Lin, the World Bank’s Chief Economist and Senior Vice President for Development Economics.
Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.
“An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09” said Andrew Burns, Manager of Global Macroeconomics and lead author of the report. “The importance of contingency planning cannot be stressed enough.”
Feliz Zulauf Sees More Trouble Ahead
Felix Zulauf: Yes, I believe the peripheral nations have entered recession territory, and I believe it will get worse.
So, the situation in Europe will get worse before it gets better. Moreover, the ECB, which has its roots in the German Bundesbank, will see to it that the ECB does not become the lender of last resort until they are absolutely forced into it by the market. For investors, this is very important to understand. The new leader Mr. Draghi may leave Trichet’s conservative path, however, as since he is in power he has talked one way and acted in another way. This is delicate as the credibility of the ECB could be lost quickly.
Euro Breakup Would Cause Global Meltdown
In his speech at Davos, Soros will say it is “now more likely than now” that Greece will formally default in 2012, Newsweek said. Soros nevertheless thinks the euro will survive, according to Newsweek.
The world is facing a period of “evil,” Soros said, adding that he foresees Europe descending into chaos and conflict, while rioting in the streets of the U.S. will lead to a curtailment of civil liberties and the global economic system possibly collapsing altogether, Newsweek reported.
All of the risks to global prosperity mentioned above have been well known by investors for months now. The day the IMF Chief warned of a global depression worse than the 1930's, the Dow Jones yawned and drop by 10 points.
Is there a major disconnect from reality by U.S. investors or has the worst already been discounted after the steep stock market sell off last August? Ever since an inside out day on October 3 of last year, the Dow Jones has powered higher, ignoring all the bad news and warnings of Armageddon. Exactly what is going on?
Dow Jones - courtesy yahoo.com
The answer is positive for both stocks and gold. The " collective wisdom" of the markets saw a resolution to the imminent threat of the European debt crisis last fall, and that resolution is known as quantitative easing. As previously noted in this blog last December, Every Solution To the Euro Crisis Involve Printing Money, which is exactly what happened. Both the European Central Bank (ECB) and the Federal Reserve stand ready to print whatever quantity of money is required to paper over the European and U.S. debt crisis.
The massive first phase of the ECB's Long Term Refinancing Operation advanced about $780 billion to Europe's insolvent banking system, buying time and postponing the day of reckoning. The ECB will hold a similar operation in February.
Long term this does little to solve Europe's fundamental problems, but is short term bullish for stocks and extremely long term bullish for gold and silver.
Gold surges 2.5 percent, above $1,700 after Fed
A man melts down gold jewellery in Los Angeles, California August 23, 2011.
Credit: Reuters/Lucy Nicholson
NEW YORK/LONDON (Reuters) - Gold surged 2.5 percent on Wednesday to above $1,700 an ounce, its biggest one-day gain in four months, as the U.S. Federal Reserve said interest rates would likely remain near zero into late 2014.
Bullion's rally dwarfed the slight gains in equities and other commodities as the U.S. central bank affirmed views that the pace of U.S. economic recovery remained sluggish.
Investors piled into gold on fears that their portfolio values will shrink due to currency depreciation as global central banks use easy monetary policies to flood markets with cash to boost ailing economies, a fund manager said.
" Ben Bernanke is saying if you keep your money under your mattress you lose out as the purchasing power of the U.S. currency is being eroded," said Axel Merk, portfolio manager of Merk Funds with $750 million in assets under management.
" If you hold gold, the purchasing power is better when all other major currencies are being debased," Merk said.
Benchmark interest rates set by Group of Seven economies currently average 0.5 percent.
The metal also received a boost from the central bank's more sanguine outlook on inflation. It suggested that prices were now rising at a pace consistent with policymakers' goals.
Low interest rates particularly benefit zero-yielding gold, unlike stocks and bonds. Minimal borrowing costs also tend to fuel a gradual increase in commodity prices, supporting the metal's traditional role as a hedge against inflation.
Spot gold was up 2.7 percent at $1,710.44 an ounce by 4:33 p.m. EST (2133 GMT), after rising to a session peak of $1,712.80, its highest since December 12.
U.S. February gold futures settled up $35.60 at $1,700.10 an ounce.
Trading was hectic as volume rose above 300,000 lots, one of the largest turnovers since September and double its 30-day average.
Technical buying also lifted prices after the metal broke above chart resistance at its 100-day moving average for the first time in 1-1/2 months.
Silver rose more than 4 percent on gold's coattails, while U.S. equities measured by the S& P 500 index finance/markets/index?symbol=us%21spx" > .SPX and the euro -- with which gold had traded in lockstep in late 2011 -- climbed less than 1 percent.
" From an equity standpoint, it's not a good story as the Fed was anticipating a much slower rate of growth than the market was," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.
" Gold was reacting to the Fed's guidance of historically low rates all the way until 2014, which suggests that there will be plenty of investment money around for an extended period of time," he said.
Gold is up 9 percent for the year after the metal briefly entered a bear market and fell 10 percent in December as the metal appeared to lose its safe-haven status.
COMEX OPTIONS EXPIRE THURSDAY
With the gold market already more choppy than usual at the end of a two-day meeting of the Fed Open Market Committee, Thursday's expiry of February gold options could further increase volatility in the precious metal.
Prior to the FOMC, the gold options market showed that investors would like to protect against downside risk in underlying futures, as most open interest is clustered around puts with lower strike prices.
Put options give the holder the right, but not the obligation, to sell gold at a set price by a set date.
George Gero, vice president of RBC Capital Markets, said Wednesday's gains could be partly attributed to huge short covering ahead of Thursday's option expiration.
Silver rose 4.1 percent on the day to $33.31 an ounce.
Platinum group metals also rose, with platinum up 2 percent at $1,575.85 an ounce, while palladium rose 2 percent to $690.47 an ounce.
Bearish Gold Forecasts Suggest Soaring Gold Prices In 2012
Will gold soar this year as central banks go wild with money printing? Or will gold collapse as debt defaults overwhelm the system and propel the world economy into a deflationary black hole?
Members of this week's Barron's Roundtable were asked what they thought about gold. Panel members offered their usual variety of informed opinions on what could happen to the price of gold during 2012 - here's what they had to say.
Marc Faber, editor of the Gloom, Boom & Doom Report, expects massive money printing by central banks during 2012 and a continuing correction in gold prices.
The worse the news gets, the more the U.S. and the European Central Bank and China will print money.
In the past 10 years gold and silver have performed superbly. The gold price overshot on the upside when it reached $1,921 an ounce on Sept. 6. Now it is in a correction phase and could fall another $200.
It is not that the gold price will go up. It is that the value of paper money will go down. Diversification is important, and people should put 15% to 25% of their assets in gold.
Brian Rogers, Chief Investment Officer of T. Rowe Price, sees oil as a good investment but does not foresee a big rally in gold prices.
It is easier to get your arms around oil than gold in terms of the numbers and demand. Oil is a good investment in the next few years, with optionality to the upside if something extreme happens in the Middle East. Gold is a good diversifier, but not a great way to make money.
Fred Hickey, editor of The High-Tech Strategist, predicts higher gold prices this year and views gold stocks as a relative better value than gold bullion.
Gold will rally, then have a seasonal selloff. By the end of the year it could be up 15%, as has been typical in this 11-year secular bull market for gold.
Gold stocks have been terrible. They dropped 20% last year, so that makes them a better buy relative to the price of gold. Last year I owned a lot of gold. Now I have more money in gold stocks than in physical gold or the GLD [ SPDR Gold Trust].
I own a smaller amount of exploration companies through the GDXJ [ Market Vectors Junior Gold Miners exchange-traded fund] and a larger percentage of producers.
Felix Zulauf, President of Zulauf Asset Management, sees gold prices soaring as the world economy approaches depression like conditions, forcing central banks to print money on a vast scale.
The world economy will experience a brutal slowdown. Deflationary forces are going to strengthen and commodities in general will decline. You can buy oil to hedge a decline in base metals. Gold started a cyclical correction within a secular bull market last summer. The first wave of selling is ending now. Gold has to be bought some time this year, probably in the second half, below $1,600. Then the monetary authorities will load their guns again and print more money, which will make investors buy more gold. The gold market is so tiny that when people want to shift just a small piece of their wealth into gold, the price flies to new highs.
Scott Black, President of Delphi Management, favors a modest position in gold stocks but thinks that people holding gold as a hedge against inflation are misguided.
A lot of people own gold as a hedge against inflation. I don't see inflation in the cards in the U.S. Capacity utilization in the manufacturing sector it is only 77%. We own a couple of gold stocks but buy them as we do other stocks. We look for high returns on equity and low P/Es. We own Barrick Gold [ABX], which trades for 7.8 times this year's expected earnings. Even absent a big upswing in gold prices, it will do well because production is growing.
Putting things into perspective, the rather lukewarm endorsement for gold by the Barron's Roundtable should be viewed as a bullish indicator for gold prices. The healthy and normal correction in the price of gold from the high of $1,900 in August has resulted in rampant bearishness and numerous predictions that the bull market in gold is over. Ironically, many of the most bearish gold forecasts are coming from the same " analysts" who were predicting the end of the gold bull market multiple times over the past decade.
Bearish sentiment on gold has reached extreme levels according to the Hulbert Gold Newsletter Sentiment Indicator. The average gold timer has thrown in the towel. Over leveraged speculative investors panicked at the first sign of weakness in gold and sold out. According to Hulbert, " this is building a strong foundation for a fresh assault on gold's recent all-time high above $1,900 an ounce."
Bearish sentiment on gold stocks has also reached extreme levels as seen by the Gold Miners Bullish Percent Index.
Courtesy: Stockcharts.com
After briefly falling below the 200 day moving average, gold rebounded strongly, rising from $1,598 at the start of the year to a Friday closing price of $1,635.50. Over the past decade, the few times that gold previously fell through the 200 day moving average set the groundwork for a major price advance.
Courtesy: stockcharts.com
The fundamental and technical indicators for gold remain rock solid. Gold may very well wind up shocking the bears by outperforming every other asset class in 2012.
10 Countries With The Largest Gold Reserves
, On Wednesday 7 September 2011, 1:07 SGT
The chemical element Au with atomic number 79 " has never been worth zero." King Tutankhamen and the Incas had at least one thing in common - they understood the value and scarcity of gold and used it as a symbol of wealth and power. Nothing has changed since.
Even though gold is no longer used to back currencies like the dollar, it is still stockpiled by countries around the world. Since the price of gold has fluctuated dramatically, the holdings are expressed in metric tons (or tonne = 1000 kg) as documented by the World Gold Council in August 2011. One U.S. ton is approximately 0.9 tonnes. Here's a look at the countries holding the largest gold reserves and the amount of holdings.
United States - 8,133.5
While the U.S. permanently abandoned the gold standard in 1971, it has the largest holdings of any country by a wide margin. While most of the gold is held at Fort Knox in Kentucky, gold is also held by the U.S. Mints in Philadelphia and Denver and several other locations.
Germany - 3,401.0
Germany's central bank, the Deutsche Bundesbank in Frankfurt, is the manager of the country's reserves. However, reports have surfaced that the bulk of Germany's gold is in the physical custody of the New York Federal Reserve. Two years ago, international journalist, Max Keiser received an acknowledgment of these holdings in the U.S. directly from the Bundesbank.
International Monetary Fund (IMF) - 2,846.7
The IMF overseas the economic activity of its 187 member countries around the globe. While its gold policies have changed over time, the reserves are intended to aid national economies and stabilize international markets. Depending on market conditions, it will buy or sell portions of its reserves in support of specific economic initiatives.
Italy - 2,451.8
Italy's reserves are held and managed by the Banca D'Italia. Italy is one of the PIIGS nations (along with Portugal, Ireland, Greece and Spain), all of which are suffering financial woes that threaten the entire eurozone. Parliament approved austerity measures in exchange for financial assistance, but the country is also embroiled in a political crisis that centers on Prime Minister Silvio Berlusconi. In addition to being charged with paying for sex with a minor, his government is under investigation for influence peddling and corruption.
France - 2,435.4
The Banque de France is the central depository for France's gold reserves.
After World War II, the Bretton Woods Agreement established a standard that pegged the dollar at the gold exchange rate of $35 (USD) per ounce. Subsequently, President Charles de Gaulle reduced French dollar reserves by exchanging them for gold from Fort Knox. As a result of this action and other economic considerations, President Richard Nixon ended the convertibility of dollars to gold in 1971.
China - 1,054.1
While the world's most populous country is sixth on the list of total holdings, gold accounts for only 1.6% of China's foreign reserves. It is the largest foreign holder of U.S. Treasuries with a total investment of $1.166 trillion as of June 30, 2011.
China is the world's largest producer of gold and can buy gold from its own mines without reporting those transactions publicly. It has reasons to buy gold off the open market since open market transactions would push the price even higher and devalue its U.S. Treasury holdings.
The Wall Street Journal has reported that China dramatically increased its gold purchases in response to inflation fears. Because of possible stealth transactions, China's total gold holdings and the prices it pays are uncertain.
Switzerland - 1,040.1
Switzerland's seventh place rank on this list is notable considering its economy is the 38th largest and its population is the 95th largest in the world.
The Swiss National Bank is charged with managing the gold reserves and the country's monetary policy.
Russia - 775.2
Russia's gold reserves are in the custody of the Central Bank of the Russian Federation. The country has been on a buying spree, increasing its holdings by 21% in 2009 as it opened several new mines, and another 24% in 2010. The Wall Street Journal has reported that Russia plans to buy an additional 90 tonnes per year to replenish its reserves.
Japan - 765.2
Gold accounts for only 3.3% of Japan's total foreign reserves which are managed by the Bank of Japan.
Netherlands - 615.5
The gold reserves and national finances are managed by the Netherland Bank.
The Bottom line
The biggest holders of gold are governments, central banks and international entities that currently account for 30,500 of the world's estimated 160,000 tonnes. The current rate of new production from mining is about 2,497 tonnes per year. As the price has risen, more mines have become economically feasible to open or reopen.
Gold has gotten much attention lately as the price has risen to new highs, although it is still well below the January 1980 inflation-adjusted high of about $2,400 per ounce. Unlike money, you can't print more gold, so it's likely to continue to be a safe haven investment during uncertain economic times.
Today gold has hit another all-time record high. After topping out overnight at $1,880/ounce, gold closed at $1,860. Gold has gone parabolic as investors world-wide seek a safe haven for their money. There is a real risk that gold will correct hard over the next few weeks so I would not be a buyer now. This week I fielded numerous calls from clients and radio listeners asking me if they should buy gold (where were they three years ago when I was pounding the table to buy?) a sign of a speculative, short-term top. If bad news comes out of Europe next week and the stock market continues to crash (the stock market is very oversold and due for a relief rally) gold will continue to run higher. If the markets calm down a nasty 10-15% correction is probable. Silver is also having some fun, trading over $42/ounce but still almost $8 from it’s high in late April. Silver I would consider buying here, $50 bucks is likely in the weeks ahead. I have called precious metals “financial life insurance” and they sure are acting like it.
