What is next for Gold & Silver? (obsolute prices now removed)

gold spot price advanced $4.84 to $1,291.98 per ounce - 22Sept10 at CoB.

 

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QE2(the ship) did not sink but just the hint of QE2 (FED resuming buying Treasury bonds etc.) seems to be sinking the dollar:

"...Copper for delivery in three months gained 1.4 percent to $8,064 a metric ton on the London Metal Exchange. China is the world’s largest buyer of copper. Crude oil futures for November delivery rallied 2.3 percent to $77.90 a barrel. Gold futures rose to a record $1,314.80 an ounce, and silver climbed above $22 an ounce for the first time since 1980. ..."

From: http://noir.bloomberg.com/apps/news?pid=20601087&sid=aPy4ZE0wDv78&pos=2
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Billy T adds:
Spot gold is above $1300/oz, I think.
Note that US stocks are completing the best September run up in 71 years. They too are priced in dollars. It is taking more of the ever weaker dollars to buy most everything, but I think we are still a few years from the run on the dollar which will make it have less purchasing power than a dime has today.

Silver is at an all time high except for the huge and rapid run up to about $50/oz for a few days when the Hunt brothers tried to corner the silver market. Essentially using their fortune to buy up all the readily available silver a few decades ago. I think there is a reasonable chance that could happen again. Silver consumption has been above production for a long time and I suspect there is less available than when the Hunts tried to buy it all. Certainly there is not a lot in circulating coin to melt down as there was prior to 1966. In interest of full disclosure I do have large position in stocks that profit with rise in silver prices.

PS I think this poll is still open for voting. Now that the first part of choice 3 has been satisfied, are there no Gold bears out there willing to bet on a pull back to 1200 before hitting 1400?

 

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Friday close: Gold @ $1322/oz, Silver @ $22/oz and Crude's above $81 per barrel.

Could it be that the dollar is losing value more rapidly now?

 

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Wait till oil hits peak.....

Oh, if I had the $1,322 to invest......

 

Ah....! The economics of dependence......

 

Bloomberg gold spot price jumped $14.00 to $1,347.55 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-was 0.2% lower at 77.26. DOW JONES +57.90 to close at 11006.48

 

"Gold closed at a new high of $1,370.50 an ounce in New York yesterday (Wednesday), the sixteenth record close in the last five weeks. "

 

A really interesting video on the subject...

"$10 Oil? Mike Maloney Schools Bankers on Deflation, Gold and Silver"
Part 1: http://www.youtube.com/watch?v=uzef43gdupk
Part 2: http://www.youtube.com/watch?v=0Wrrzsrb-wg&feature=related

 

Thanks for your links. I watched both. The most interesting thing I learned was the surprising, but easily understood, fact the US currency supply, M3, is actually going down now. I'll quickly explain how this is happening (much better than he did, I think):

The Fed and Treasury are creating trillions of new "thin air" money, which gets deposited in banks and that alone tends to boost the money supply; BUT we have a fractional reserve banking system. Via it, with a 10% reserve ratio, each new dollar deposited, lent out and redeposited, etc. can create up to nine (or 10?) others.
But in fact banks do not lend out the legal max, so to illustrate assume that only five, not nine, new dollars were created in normal times (pre end of 2008). Thus the total money supply back then was 6 times what the FED and Treasury had made.

Now the bank are not lending much so the multiplier effect is greatly reduced. Perhaps less than one "bank made" dollar for every FED/Treasury dollar being made now. Also everyone, people and corporations* are both "deleveraging" and hoarding their cash. (Deleveraging is just fancy financial speak for paying off debts) This "paying off debts" is the inverse of the multiplier effect when the banks were creating dollars. I.e. the population and corporations are now destroying many of those 5 fold increased by banks dollar the loans of a few years ago made.

The net effect of the destruction of earlier made dollars by this deleverageing is greater than the FED/Treasury creation of new thin air dollars. Ben Bernanke understand this well. That is why he is so concerned about deflation.

Inflation is caused by net growth in the money supply (beyond the production of new goods and services). Likewise deflation is caused by the money supply contracting, as it currently is, (or even just staying constant as the population and their needs grows).

I hope you understood the above. It was a new, but easily explained surprising fact for me.

Again thanks for these links. Based on his analysis he concludes that run-away DEFLATION is coming and oil will go to $10 a barrel. I have my doubts about that.

I put most of my asset in to TIP like funds (or Brazil & India stocks when I told all here to do the same some years ago) and I am now in the process of moving most of my remaining free cash into the TIP funds as I think the next G20 meeting will again fail, as the IMF has, to prevent a "currency war." One thing very nice about TIPs, especially if he is correct that sever deflation is coming, is that the TIP principle values are only adjusted upwards - You will always get your nominal dollars back, which if deflation does come, buy even more.

Fortunately also for me, about a year ago I sold some of my early stage drug companies and bought mainly silver, but some gold, miners plus a lot of SLW which is a "silver streamer." (SLW has no cost of mining, but has paid for fixed price options on 15 different, mainly silver, mine's production)

The storm (GWB's depression) may be coming sooner than I predicted back when George was POTUS. IMHO, it is now time to "batten down the hatches." Better too soon than too late.

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* Corporations don't hire or expand as the lack confidence that their market will grow. Thus they are sitting on huge and growing piles of cash. That is reducing the money supply even when they use it to buy a competitor as it stays in the now larger company or share holders who were not selling and spending. Only buying back their stock or paying dividends gives their funds a chance to to circulate, but the typically better off person receiving these payments, just pays down their mortgage, etc. which effectively destroys the money, just as well as if it were stuck in the bank, without any lending. Ben needs to get his helicopter into the air and throw out money over poor neighborhoods. Poor Joe, will spend/ circulate it but soon it will pass into stronger hands and just be saved.

 

Here is a good discussion of what I explained in post 109 presented by president of the Chicago FRB at:
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aC8.YlVG8JuE&pos=1
He calls the fact that the new money created by FED/Treasury is not appearing in the economy (only in the growing US debt), the "Liquidity Trap" which he defines/ describes as: " In a liquidity trap, additions to the money supply fail to stimulate the economy. " IMHO, QE2, if ever is made, will be more of the same useless piling up the debt for the banks to get richer, "clipping" treasury bond coupons, bought with their zero cost money.

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Here we show year-to-year growth as a measure of the changing money supply.

Note: A downward slope in this growth curve does not necessarily mean that the money supply is dropping. Only if the curve goes below zero does that show money supply having contracted over a full twelve months. {The red curve above ends as government ceased to tell an official M3 when it started growing too fast. In last graph, FBR = Federal Reserve Board's official adjusted rate. The SGS is the independently adjusted rate. - show slightly more rapid decline.}

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From: http://www.shadowstats.com/alternate_data
All three graphs are "Courtesy of ShadowStats.com" This line required to reproduce. They may be "hot-linked" I.e. automatically are updated.

Billy T notes: The blue curve, M3, of the first, top graph dipped below zero (indicating a contraction of the money supply, YoY) in the last months of 2009. This has happened only once before in US history - Just before the great depression. It happened back then for the same reason it is happening now. It is just a reflection of the collapse of excessive optimism. Back then it was the "roaring 20s" and the "flapper girl era" Now it is the collapse of the "Dot Com" and "Housing" bubbles' "excessive optimism". The peak of the top blue curve shows, with a few months delay, when the mode of the US changed from "excessive optimism" to pessimism and fear, but my mode changed a few years earlier and allowed me to predict that GWB's depression was inevitable.

Santa Anna said it well: "Those who cannot remember history, are condemned to repeat it." Human nature, psychology, doesn't change much: when excessive optimism switches to pessimism and fear, they "tighten their belts" and M3 then contracts so the situation grows steadily worse. Again the collapse will not stop until in deep despair of a depression the people come to truly believe that things cannot get any worse. Governments printing fiat money will make that take longer this time, compared to when money was backed by gold. I.e. as governments hand out ever more worthless dollars, some hope will remain until the dollar will not buy anything.

 

Executive Order 6102 required U.S. citizens to deliver on or before May 1, 1933 all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange for $20.67 per troy ounce. ... violation of the order was punishable by fine up to $10,000 ($167,700 if adjusted for inflation as of 2010) or up to ten years in prison, or both. ... The price of gold from the treasury for international transactions was thereafter raised to $35 an ounce ($587 in 2010 dollars). The resulting profit that the government realized funded the Exchange Stabilization Fund established by the Gold Reserve Act in 1934. ...

There was only one prosecution under the order ... Frederick Barber Campbell had on deposit at Chase National over 5,000 troy ounces (160 kg) of gold. ... A federal prosecutor then indicted Campbell ... for failing to register his gold.[3] Ultimately the prosecution of Campbell failed {on technicality that the President, not the Sec of Treasury had signed 6102} but the authority of federal government to seize gold was upheld. ..."

Condensed from: http://en.wikipedia.org/wiki/Executive_Order_6102.

Billy T comment: It could happen again, possibly with the turn in value set at inflation corrected $587/oz, the inflation corrected old $35/oz. The US will need some profits to pay its debt even with cheapened dollars. Part of why I don't own gold but miners of gold and silver. the main other reason for not owning physical gold is a "dead asset," which cost just to store (or if at home has great risk of being stolen and if it is there is no way to prove it was yours as melted down, all gold is the same.) Historically the miners value rises faster than gold its self as they have a quasi fixed production cost.

To give simple example: If production cost $500/oz and gold is selling for $1000/oz but then goes to $1500/oz the miner sees a 100% increase in his profits ($500 to $1000) but the gold owners see only a $500/oz advance or a 50% increase in his wealth (1000 to 1500). The Inverse is also true: If gold drops to $500/oz the miner has 100% loss but the gold owner only a 50% loss. If the government confiscates gold again, miners with production in the US would very likely be required to turn over to the government their production (which would soon go to zero) at the government's set "confiscation price."

When hard pressed financially, many governments do confiscate very liquid assets. For example, about a decade or so ago, Brazil confiscated, bank accounts above a fixed value. In a certain sense England did this yesterday: I.e. reduced the pension payments promised to the retired. US will do the same with Social Security someday, if the inflation correction now applied to those payments is not eliminated. (Without the CPI adjustment the US can pay in cheapened dollars by just printing them.)

 

The gold silver ratio will return to more normal historic values.

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1325/24 = 55.2 currently
Probably because silver will rise much more rapidly than gold, especially if the following is even partly true (or my speculation about China in the footnote is correct):

“… announced late Wednesday that two lawsuits have been filed in Manhattan federal court against JP Morgan and HSBC Holdings Inc. accusing them of manipulating the price of silver by "amassing enormous short positions". The suits were filed by Brian Beatty and Peter Laskaris, who each claim they lost money trading COMEX silver futures and options contracts as a result of JP Morgan's alleged manipulation.

NIA exposed in 'Meltup' that JP Morgan was short 30,000 silver contracts representing 150 million ounces of silver. This is one of the largest concentrated short positions in the history of all commodities, representing 31% of all open COMEX silver contracts. Imagine* if just one central bank of any major country announces a large silver purchase.

The world is only producing 709.6 million ounces of silver per year worth a measly $16.8 billion. … Total annual silver demand is already 729.8 million ounces, which is greater than silver production. If a central bank decides to purchase silver, the market is so tight that silver prices could literally rise to $50 per ounce overnight. NIA estimates that $50 per ounce silver would mean approximately $4 billion in losses to JP Morgan. …” From: National Inflation Association <editor@inflation.us>

Billy T comment: I have not checked any of this. Perhaps someone can get court filing of the first paragraph law suit, assuming it exist? I am inclined to believe major banks have sold to investors a great deal of silver and gold they don’t have in their vaults as doing that is very profitable but does expose them to the risk that coustmers may someday want to take position of the metal. Then they must buy it in the open market, where there is an annual short fall already. IMHO, $50/oz resulting is a very low estimate, should that happen.

*Also of some importance is that China has asked its population to buy and hoard silver. China would love to use some of the dollars in its reserves to buy Silver on the open market and then sell it to its citizens. I.e. convert US paper promises into silver inside of China, which they could confiscate as the US did gold - see prior post 111.

For example: suppose China had to pay an average of $35/oz for silver in order to buy 10% of one year of global production (7.1E7 oz), that cost is 2.485 billion dollars - only a tiny fraction (0.001) of China's 2.4 trillion dollars. As China is very concerned about the falling value of its reserves I think China would be dumb not to do this.

In the interest of “full disclosure” I hold a total positions of $113,572 in CDE, BVN, FRMSF, HL, PAAS, RVMIF, SLW, OSKFF & NEM at prices just before posting this.

 

(At approximately market open)"... Bloomberg gold spot price is up $27.70 at $1,376.25 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is down 0.7% at 75.81. ..." Minutes ago from: http://noir.bloomberg.com/apps/news?pid=20601087&sid=a5bK2ClXdoNo&pos=2

last week people for first time in history paid so they could lend the US money (which would not lose its purchasing power) I.e. they bought 10 billion in TIPS (Treasury Inflation Protection Securities). Silver is over $25/ oz now.

Thus, now the Gold / Silver ratio is about 55 slightly lower than 6 days ago so silver is still gaining on gold. This ratio will drop as China bring its policy for Chinese to buy and hoard silver on line. The CCP will like that as China can send part of its 2.5 trillion in paper reserve outside of China (buying the silver) and later, if need be, confiscate the silver from its population as the US did for gold on 1 May 1933.

PS As poll is still open, I notice a later comer has put down a near sure bet. I.e. option 4 has gone from 4 to 5 in the last few days.

Later by edit: Gold closed out the market day at $1,391.70 /Oz It is not that gold is increasing in value - it is the falling value of the dollar effect with more (and probably useless) QE2 printing of money - Simple supply and demand lowering the value of what is in excess supply.

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1391.7/26.1 = 53.32 I.e. silver is rapidly gaining on gold as an investment. But this is just the start as China will soon be buying hundreds of tons to resell to their population. China was the world's third largest Exporter of silver, but exports in second half of 2010 are down 60% as internal demand is soaring. Probably by end of 2011 China will be one of the world's greatest IMPORTERS of silver. Their new policy of asking population to hoard silver is a way to spend falling value dollars from their reserves when they switch to being an importer of silver. This new policy also helps to control inflation in China as it takes money out of the people's hands. See photo of 20gm "panda bar" in post 115.

 

Sounds like a big loser is this is anyone with savings in $$$.

 

By edit on 22 Feb 2011: I just noticed I made a serious error in the calculation below. A 20 gram bar is 0.02Kg, not the 0.002Kg I used. Thus this possible Chinese demand (each Chinese buying one bar per year on average) would by itself exceed total global production of silver! (End of edit.)

Here is image of the silver "panda bars" China issued to commemorate 60 years of communistic rule and prosperity which China is now encouraging its population to hoard:

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1.33E9 Chinese each hoarding one bar (on average) per year is 1.33E9x0.002 Kg = 2.66E6Kg / year or 5,852,000 lbs/year or 93,632,000 ounces / year. That is more than 10% of global new silver production which is ~800 million oz. Silver consumption & investment demand is already greater than global production. Where do you think silver prices are going? I think well above the $50/oz that briefly resulted from the Hunt brothers failed effort to lock up the total supply, but even that would not be enough increase in the price of silver to make the gold/ silver ratio return to its historic value (~15 :1). Of course Gold will not remain at $1380/ oz so Silver probably needs to go to about $150/ oz to drive the ratio back to its historic level.

Note the sealed plastic package makes burying in the ground feasible. That is what the peasants will do as they grow richer - they don't trust either the government or the banks.

 

at 13:58 NY time 8 Nov 10, gold is $1405.10 and climbing. Yesterday's end of day silver price was: $26.9837 an ounce. Thus with these numbers the ratio is 52.07 but probably lower as today's silver price is probably higher now. I.e. silver still gaining on gold.

At end of market day (spot prices): Gold @ $1409.77 & Silver @ $27.71 so ratio is 50.88 I.e. not only is silver gaining on gold but doing so more rapidly now.

 

Well I voted 1400 but only because you didn't have a higher option. Looks like they pyramid scheme they are calling monetary systems, is gonna tumble. Deserves them (an all of us) right for fucking with that shit.

 

Seems that way and probably more so by end of this week as the G-20 meeting in S. Korea, confirms that they can only agree to try to paper over their conflicts but do nothing about the US lead "currency wars". FED is printing more money, which will mainly flee the US to economies growing several times faster and lower the purchasing power of your savings. China today just introduced new controls on "hot money" flooding in. Brazil now has a 6% entry tax on it, but needs to make it still higher, IMHO to stem the flood of dollars still entering.

IMHO, QE2 printing press funds will not aid the US economy, unless you consider raising the price of everything, including stocks, food, oil, etc. helpful, BUT it will drain some existing funds from the US into these faster growing economies as no one who can will just leave funds in the US and passively watch their purchasing power drop. I.e. QE2 is probably only helpful in making the US debt easier to repay, but DAMAGING to the US economy.

BTW, I just looked as future contract prices: Gold @ $1418.80 and Silver @ $28.385 which is a ratio of less than 50 now. I.e. silver still going up faster than gold.

I think it should be called a Ponzi rather than pyramid scheme as the earlier investors with bonds now maturing are being paid off by the later buyers of bonds, which happens now to be manly the FED.

 

No curve is shown below for silver, but it is steeper up than gold's

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Volatility is going to pick up. Fear and greed

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