PIMCO on Gold.
- For more than a millennium, gold has broadly managed to maintain its real value, even as various currency regimes have come and gone.
- The supply of gold is constrained, and we see demand increasing consistent with global economic growth on a per capita basis.
- Given current valuations and central bank policies, we believe investors should consider including gold and other precious metals in a diversified investment portfolio.
Guest post by Gold Silver Worlds.
John Williams, who is the founder of ShadowStats.com, stated during a recent interview that the US is on track to become victim of hyperinflation the latest in 2014. He believes that “open ended QE” (which is nothing more than monetizing debt) is the key problem. He explains there is an annual deficit of 5 trillion dollar per year in the US, which includes the unfunded liabilities. He declares the situation “beyond containment”. Central planners are responding to the current economic problems by simply increasing the amount of printed money. John Williams his expectations are that we’ll soon see a heavy sell off in the dollar, quickly followed by a significant first spike in inflation. That will ultimately lead to hyperinflation the latest somewhere in 2014. We are just before the kick off of inflation.
We recently mentioned in our article “Money printing and inflation” that in fact inflation IS the expansion of the money supply. Inflation results in price inflation (the phenomenon of rising prices). Usually there is a time period between those two events, which makes it hard for most people to relate them to each other. Inflation and price inflation are often confused in spoken language but it’s mandatory to understand this fundamental difference.
Hyperinflation is a situation that most people can’t imagine they could go through in their lives. Among economic and financial experts and commentators, it’s a subject that triggers a lot of debate. The least you can say is that there is a consensus on when and how hyperinflation hits. If you think about it, it’s very strange as the world has experienced so many periods of (hyper)inflation. Even in the 20thcentury, the number of countries that were hit by severe hyperinflations exceeds what most of us expect (see table below; courtesy of Miles Franklin). Honestly, it’s beyond us that even in the scientific world there is no consensus. The funny result is that most people belong to one of the two camps: either they think that inflation and possibly hyperinflation will hit, either they expect a deflationary situation.
With Gold taking out new levels in Euro terms, here are a few thoughts by Jessie.
Gold and silver had sharp rallies today as the selling going in to the end of quarter and the gold option expiry dissipated and a sharp short squeeze ensued.
Gold hit a new high in euros today on the back of fresh uncertainties in Europe, particularly in Spain.
As you know money market funds are savings vehicles with a fixed unit price that pay dividends, like a savings account. They arose as alternatives to bank deposit accounts because they were able to present higher returns than the regulated banks.
The Banks, and their regulatory friends who have been mostly among the Republicans want the money markets to have a floating price like a stock, opening the possibility for negative returns on savings. Turbo Timmy G. came out today calling for reforms in the money market funds, and a ‘floating price’ for the money market fund.
Et tu Timmy? All day long. The young man is getting ready to leave Washington after the election and take a lucrative trip through the crony capitalist revolving door, and probably into the banking sector.
The increased uncertainty, the chance of negative returns on your savings if the funds are allowed to fluctuate below one dollar per unit, is sure to drive quite a bit of risk adverse money out of the money market funds. And it opens the door to price manipulation and fraud, doing nothing to help promote transparency and confidence.
Guest post by Gold Silver Worlds.
On September 13th, the Fed announced QE3, a policy of open-ended bond purchases which would add $1 trillion annually to the Fed’s balance sheet. The Fed’s decision to provide liquidity ad infinitum, i.e. QE etc, was framed in reasonable and carefully chosen language:
…These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative…
The measured wording gave the Fed sufficient cover to mask its increasingly desperate condition, i.e. how to keep its fatally-wounded credit and debt ponzi-scheme functioning while searching for a solution that doesn’t exist.
CAPITALISM’S CONSTANTLY COMPOUNDING DEBT IS THE DEVIL’S WHIP OF GROWTH
In capitalist economies, capital, i.e. money, is introduced by central banks into the economy in the form of loans; and because interest constantly compounds, economies must constantly expand in order to pay down and/or service those loans. This is why economists in capitalist systems are obsessed with growth.
Guest post via GoldSilverWorlds.
There is much discussion these days as to whether the price of gold is being manipulated. The answer is simply “yes.”
It is likely that most potential gold investors would agree that the major financial institutions have theability to influence the gold price. They would also agree that to do so would be of benefit to those institutions. Yet, many investors still have difficulty making the final leap to agree that, if the institutions can manipulate the gold price and, by doing so, will profit from it, they will actually manipulate the price. Odd, as this would seem to me to be the easiest of the three premises to accept.
However, there are also many investors who do believe that manipulation exists. From time to time, investors have commented to me, “I don’t know how they’re going about it, but I’m sure it’s being done.”
This view suggests that the method of manipulation is difficult to understand.
Much of the manipulations that financial institutions perform are complex and confusing to those who are not involved in the industry, and this is intentional. The muddier the waters, the less transparent the activities are.
So, let’s take away the detail and express one common method of gold price manipulation in simple terms:
Guest post by Gold Silver Worlds.
My advice to everyone is simple and clear: “Get out of the current financial system, avoid paper money and the banking system in general and move into physical precious metals.” David Stockman has put it this way: “ABCD – Anything Bernanke Cannot Destroy!”
Confiscation is already here. I am not talking about outright confiscation of assets, but the confiscation of the buying power by inflating the money supply. If you keep your money in a bank account or “invest” it in bonds, you are actually losing money in real terms (i.e. after inflation). The decrease of your wealth basically results in an increase of the wealth of governments and banks, hence fulfilling the definition of confiscation.
John Maynard Keynes, British economist who lived from 1883 till 1946, once said:
“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
If you believe that the only confiscation will be through inflation and that the current system will still exist for the next 10 or even 20 years, then you can easily invest in assets that use paper solutions with claim status such as funds, ETFs, certificates, claim accounts etc. However you should consider that these solutions all depend on a functioning financial system. Furthermore, most of those instruments contain a “cash settlement clause”, which gives the issuer the right to suspend all redemptions and services in the case of “unusual market conditions” and the like.
Is Silver about to totally explode? A few thoughts via Gold SIlver Worlds.
We are a long-time fan of John Embry, as we consider him one of the most experienced people in the precious metals world. In his latest interview on King World News, he confirmed once again what is happening particularly with silver: manipulation of silver prices is still going on but signs of shortage in physical silver are increasing by the day and hence a silver price explosion is almost unavoidable.
Manipulation vs opportunity
Just like several other precious metals experts, John Embry is confirming the ongoing suppression of the gold and silver prices. This is what he had to say on King World News in yesterday’s interview: “Two days before the QE announcement they dropped the price of silver about $1.50 in a nanosecond. It’s the same games being played by the same people, and it’s going to end horribly because all the manipulation is doing is creating wonderful buying opportunities for the Chinese, the Russians, and the rest of the central banks that know full well what’s going on. “
Guest post by GoldSilverWorld.
What a day for gold and silver … September 13th 2012 could become a historic day for the precious metals.
At the center of the stage today was the US Fed meeting and the announcement of their decisions by Mr Bernanke at 14h15 EST. Here is what came out of it in a nuthsell:
- A new round of quantitative easing was decided, with a key objective to decrease the unemployment rate in the US. Mr Bernanke said that “We’re looking for ongoing, sustained improvement in the labor market”. He calls the current unemployment rate of approximately 8% a “grave concern.”
- The monetary stimulus includes 40 billion US dollar per month of bond buying; that amount could be extended by an additional 40 billion per month if required to meet the objectives.
- Zero interest rate policy will be extended till 2015.
It seems like “QE to infinity”, a term that was introduced by the much respected Jim Sinclair, is for real. Jim Sinclair whose nickname is “Mr Gold”, has been forecasting for a long long time that $ 1764 was a key pivot point in the long term bull market, marking the start of the third and final phase. In the last phase of a bull market, prices tend to accelerate to the upside. That’s where incredible gold prices of $5000 or $10000, forecasted by several experts quite some time ago already, could eventually be reached.
Now we have seen gold touching the magic $ 1764 a couple of times before. But here is what Jim Sinclair had to say on his website today. It’s maybe the shortest but potentially the most powerful blog post ever: “It looks like Gold hit $1764 for the 3rd time. Gold is usually 3 hits and out.”
Say no more. The next QE 3 is priced in. What could possibly go wrong here?
Full video below.
Guest post by Gold Silver Worlds.
Question: You described in a recent newsletter article, that the next round of Quantitative Easing will be massive and that it will be globally coordinated. Why are you so convinced? What to expect from the gold price in the light of all of this?
Answer from Grant Williams: We have reached the point now where the Europeans (in particular Mario Draghi, head of the ECB) have realized that the only solution to the problem facing Europe, is to print a lot more money. They simply cannot solve this debt problem. They have been trying to treat a solvency problem like if it was a liquidity problem. That’s not going to work.
You only have a couple of options when you have so much debt:
- Either you default …
- Or you pay it back …
- But you can inflate it away as well.
The easiest solution, with the least amount of political pain in the short term for the politicians, is to inflate the debt away. That’s undoubtedly what they are planning to do.
And it’s not just Europe. The US has a significant debt problem and the UK as well. China is planning to print money to stimulate their domestic economy.