Wednesday, 24 July 2013

The bizarre price action in gold – counter to logical assumptions

By Lawrence Williams

Whether you believe his point of view or not, Grant Williams’ ‘Things that make you go hmm’ newsletter is always a fascinating, and thought-provoking read and the latest one is no exception.

In it Williams to an extent covers ground he has written about before – primarily about what he sees as the hugely illogical way the gold price has performed in recent months.  He describes this as “the bizarre price action over the last six months, which has run counter to most logical assumptions”  When everything would logically have pointed to a sharp rise in price, what has happened?  Gold has fallen – and fallen sharply.  Indeed, if he was not fully in it beforehand, Williams is now firmly in the camp of believers that the gold price is very definitely being manipulated downwards by the global financial elite to try and hide the fact that there is a huge shortage in physical gold developing – or already developed.

What Williams sees as virtual proof of his viewpoint is that there are various triggers which should have had gold moving up heavily - notably the repatriation of some of Venezuela’s gold and the even bigger furore over the repatriation of 300 tonnes of  Germany’s gold supposedly held by the New York Fed and that it is going to take 7 years to complete the transfer of its gold held in the U.S.  Indeed on the announcement of these, gold did move up initially and briefly, but then dived – a pattern that has been followed since on a number of other announcements which would normally have led to gold moving upwards in price.

His basic conclusion is that the reason the German gold repatriation fiasco in particular was the most significant trigger is that the evidence would overwhelmingly seem to suggests that the 300 tonnes of German gold to be repatriated just isn’t available – with the assumption that, over the years, it has been leased out to the bullion banks, thereby earning revenue.  The banks have then sold it on and currently have no means of repaying it in kind – at least not inside maybe 7 years! There has thus been a huge move to smash the price of gold so that the banks may be able to buy it back and return it to the U.S. Fed under the terms of the leasing agreements.

He pointed out the logistics of actually shipping the U.S. held gold from New York to Frankfurt – a point made by Mineweb at the time – the whole 300 tonnes could be carried by three Boeing 747 freighters which make the 7 year period illuminating.  Mineweb’s comment back in January was as follows: Back to the logistics of moving the gold. The Boeing 747-8F freighter, of which a number are in service with commercial operators, can carry a payload of 140 tonnes over a 4,000 mile plus range so the gold from the Fed, and more, could be delivered by air comfortably in three plane loads which really does beg the question why seven years? Something the Bundesbank may well be called upon to answer by the German people.  Williams makes the point that if this kind of quantity split over three shipments is not insurable, then perhaps shipping 1 tonne at a time would still enable the German gold to be transported inside a month or two.

But Williams’ analysis doesn’t end there.  Over the past two years there have been a host of announcements that under normal circumstances would have seen gold kick up   The same pattern emerges – an initial price rise immediately followed by a big take down as huge volumes of paper gold are unleashed on the futures market.  It seems that after initial success in achieving this kind of manipulation of the gold price without any action being taken against them , the bullion banks and their allies have become ever more blatant in their moves.

The regulators don’t want to get involved – indeed the suggestion is that they may be implicit in these actions, as would be the Central Banks which do not want the fact that gold leasing may well have left them devoid of the amount of attributable gold they claim to have in their vaults.  Indeed, most classify their gold holdings as inclusive of leased and swapped bullion, no matter that the leased gold may never be able to be returned as physical metal.

Now we have additional ammunition for the manipulation theorists from Williams’ research in that there has been a steep fall in COMEX gold inventories, and also in those held by JP Morgan and Brinks  – ably illustrated by a charts from Bloomberg and Sharelynx – and also the big sell offs of gold from ETFs has also been going somewhere.  A recent Natixis comment suggested that the ETF sell-offs in particular have virtually alone led to a huge increase in gold supply, swamping demand and consequently leading to the lower prices that could yet see gold falling to $1,000, but this seems to conveniently forget the huge gold inflows into China alone which have dwarfed the ETF sell-offs, as well as high demand for physical gold reported elsewhere..

(Re. the Central Bank gold leasings and ongoing sales of the metal by the recipient bullion banks, there has been a report from a Hong Kong refiner that they have been recasting Central Bank gold bars for the Asian market.  This leads to yet another suggestion that the Central banks which have leased gold don’t necessarily expect to ever get it back, but still continue to present it as part of their reserves.)
As we noted earlier, Williams has covered much of this ground before, but this edition of ‘Things that make you go hmm’ includes further research and analysis of the situation.  He makes a strong case for his viewpoint, although it is perhaps unlikely to affect the views of those who feel there is no manipulation under way like CPM’s Jeff Christian and that the gold price fall has been purely due to normal market criteria.  And perhaps if one considers financial manipulation by big money as being an integral part of normal market conditions in any sector these days, perhaps Christian has a point .  But to ignore the increasingly strange sales patterns in the gold futures markets and its effect on the physical gold price, does seem to be a case of burying one’s head in the sand.

Now maybe as COMEX influence on metal pricing starts to wane, perhaps replaced by the Shanghai Exchange as the most important trading platform, things will gradually change – but then perhaps the Chinese will establish their own agenda for market control – markets are jsut not transparent any more – indeed if they ever were.

To read Williams’ latest edition of ‘Things that make you go hmmm’ – click here.  It’s recommended whether you believe in his views or not.  It’s a great read regardless.


The Powerful Case For Silver

By Peter Schiff

I am a well-known "gold bug" because of my strongly voiced opinion that gold has been one of the best assets for protecting yourself from the US dollar's prolonged decline.

Lately, the precious metals have taken a beating, and I've been called to defend gold's future prospects in the media countless times. While I am confident that gold will rebound with a vengeance before long, I think investors are potentially missing an even greater opportunity in that other monetary metal: silver.

To address this oversight, I have compiled a special report called The Powerful Case for Silver, which is available at This 14-page report report contains in-depth analysis of what I believe to be the strongest arguments for owning the white metal. What follows is a general overview of the key arguments I make in the report.

The People's Money

After a couple generations of purely fiat currency in the United States, a lot of people have forgotten that money used to be backed by something of value - gold and silver. It wasn't until 1965 that the US stopped making its dimes and quarters out of 90% silver, and the dollar was backed by gold internationally until 1971.

In spite of fiat money's ubiquity, more and more people around the world are waking up to the dangers of paper currency and turning to gold and silver to protect their savings. Silver is particularly useful to everyday citizens around the world because of its smaller value-to-weight. A half-ounce of silver can buy you dinner. A half-ounce of gold can buy dinner for you and 60 of your closest friends. That's why for centuries, gold has been considered the money of kings, while silver is known as the people's money.

It's not hard to see the growing importance of a stable medium of exchange worldwide - look to the Cypriot banking crisis or the barter markets evolving spontaneously in economically devastated countries like Argentina or Greece. Here are places where having a stash of silver versus a roll of banknotes can mean the difference between keeping your family well-fed and having to beg for assistance.

Developed nations are also waking up to this reality, translating into record silver sales at the US Mint and other major bullion producers despite the recent correction in global spot prices. This investment demand is providing a baseline of support to silver's price and helping to re-establish silver as a universally recognized form of money.

Growing Industrial Demand

Silver conducts heat and electricity better than any other metal on Earth. It is also anti-bacterial. These amazing properties make silver indispensable in a vast array of modern industrial and technological applications.

This industrial demand has been shifting dramatically since the turn of the century, as defunct applications for silver like photographic film have been replaced by new technologies like photovoltaic power. The evolution of silver's industrial applications continues unabated, with new uses being developed every year.

In spite of a recent dip in demand for industrial silver due to global economic volatility, the fundamentals of the industries consuming silver look promising. The Powerful Case for Silver delves deeper into the latest silver technologies like nanosilver and demonstrates why I believe industry will provide growing demand for silver over time.

Undervalued Relative to Gold

For the majority of human history, the prices of silver and gold have been closely tied to each other. There is estimated to be about 19 times as much silver as gold in the earth, and only 11.2 times more silver than gold has ever been mined. Today, the silver:gold price ratio on the markets is about 65:1. That is out of sync with the relative scarcity of the metals and with the long-standing historic bounds from 12:1 to 16:1.

To understand why silver is being undervalued by the market, it is important to trace the histories of the two precious metals. Over the last two centuries, as world markets were forcibly detached from their monetary backing, clumsy attempts at setting fixed exchange ratios at first cleared and then flooded Western markets with silver. Then, with both metals taken out of circulation, precious metals investment was confined to saving - a role more suited to gold.

As the fiat currency system collapses around us, I expect the precious metals to return to circulation, and silver to once again be valued for its advantages in this role. Though I expect both metals to appreciate significantly, silver may rise much faster in order to realign with its historical price ratio to gold.

Take The Time to Understand Your Investment

I've just brushed the surface of The Powerful Case for Silver. Inside the report, you'll find more detail on all of these points, accompanied by helpful charts and graphs illustrating silver's future prospects.

The Powerful Case for Silver also provides advice on which silver products are investment-grade and how to go about purchasing them safely.

For those who have been on the fence during this bull market, the recent correction is an excellent opportunity to learn about silver and build a position.


Gold Bug Bashing, 1976 Edition

by Peter Schiff

The New York Times published what it thought was a definitive take on the vicious sell off in gold in August 1976. Their analysis sounded a lot like the current conventional wisdom—that gold was finished. Gold, however, was about to embark on a historic rally that would push it up more than 700% a little over three years later. Is history about to repeat?

At the time, gold had had a furious run up following the closing of the gold window in 1971. Official forecasts were that the gold price would fall. That could not have been more wrong, with gold’s initial ascent fuelled by inflation and a failing US economy. When gold reversed course for a short period, the obituaries came thick and fast.

When inflation and recession returned in the late 1970s, the second leg of gold’s rise, bigger than the first, commenced, and the parallels between the 1970s and today are even more striking when you examine the numbers.

The mainstream is saying now, as it did then, that gold’s pullback has invalidated fears that rising US budget deficits, easy monetary policy, and weakening economy will combine to bring down the dollar and ignite inflation. But 1976 was not the end of the game for gold. In all likelihood, 2013 will not be either.

Unfortunately, as in 1976, a true economic recovery is not just around the corner. More likely we are in the eye of an economic storm that will blow much harder than the stagflation winds of the 1970s. Once again the establishment is using the declining gold price to validate its misguided policies and discredit its critics. But none of the problems that led modern-day gold bugs to buy gold ten years ago have been solved. In fact, monetary and fiscal policies have actually made them much worse. The sad truth is that as bad as things were back in 1976, they are much worse now.

Schiff is confident that gold will rise much higher, and that its final ascent will be that much more spectacular the longer we continue on our current policy path. Don't believe the mainstream. Just as before, they will likely be wrong again.

Your Personal Gold Standard

By James Rickards, The Daily Reckoning

There isn’t a central bank in the world that wants to go back to a gold standard. But that’s not the point. The point is whether they will have to.

I’ve had conversations with several of the Federal Reserve Bank presidents. When you ask them point-blank, “Is there a theoretical limit to the Fed’s balance sheet?” they say no. They say there are policy reasons to make it higher or lower, but that there’s no limit to the amount of money you can print.

That is completely wrong. That’s what they say; that’s how they think; and that’s how they act. But in their heart of hearts, some people at the Fed know it’s wrong. Luckily, people can vote with their feet.

I always tell people who say we’re not on the gold standard that, in a way, we are. You can put yourself on a personal gold standard just by buying gold. In other words, if you think that the value of paper money will be in some jeopardy, or confidence in paper money may be lost, one way to protect yourself is by buying gold, and there’s nothing stopping you.

The typical rejoinder is, “What’s the point of owning gold? They’re just going to confiscate it, like Roosevelt did in 1933?”

I find that extremely unlikely.

In 1933, we’d just come through four years of the Great Depression, and Roosevelt was new in office. People talk about the first hundred days, but he closed the banks right after he was sworn in. And he confiscated gold only a few weeks later.

And it wasn’t as if Elliot Ness was going door to door, breaking into your house and taking gold. They wanted to get a small number of people who had 400-ounce bars in bank vaults. And they got those people because they were able to close the banks and use them as intermediaries to confiscate that gold. But now, it’s far more dispersed, and there’s far less trust in government.

If the government tried to confiscate gold today, there would be various forms of resistance. The government knows this. So they wouldn’t issue that order, because they know it couldn’t be enforced, and it might cause various kinds of civil disobedience or pushback, etc.

As long as you can own gold, you can put yourself on your own gold standard by converting paper money to gold. I recommend you do that to some extent. Not all in, but I recommend having 10% of your investable assets in gold for the conservative investor, and maybe 20% for the aggressive investor — no more than that.

Those are pretty high allocations relative to what people have. Most people own no gold, and all the institutions combined have an allocation to gold of about 1.5%. So even if you take the low end of this range, you’re still nowhere near 10%. In fact, institutions could not double their gold allocation even to 3%. There’s not enough gold in the world — at current prices — to satisfy that demand. So it’s got this huge upside associated with it.

Still, central banks don’t want to go to a gold standard. But if gold is a barbarous relic, if gold has no role in the monetary system, if gold is a “stupid” investment, then why do the Chinese have 5,000 tonnes? Are they stupid?

If some scenarios play out, you are going to see the price of gold go up… a lot. And it may go up a lot in a very short period of time. It’s not going to go up 10% per year for seven years and the price doubles. It’s going to chug along sideways, maybe in an upward trend, with a lot of volatility. It will have a kind of a slow grind upward… and then a spike… and then another spike… and then a super-spike. The whole thing could happen in a matter of 90 days — six months at the most.

When that happens, you’re going to have two Americas. You’re going to have an America that was not prepared. Paper savings will be wiped out; 401(k)s will be devalued; pensions, insurance and annuities will be devalued through inflation… Because remember, it’s not just the price of gold going up.

It’s like putting a thermometer in a patient, getting a 104-degree temperature and blaming the thermometer. The thermometer’s not to blame; it’s just telling you what’s going on. Likewise, the price of gold is not an economic object or aim in itself; it’s a price signal. It tells you what’s going on in the economy. And gold at the levels I’m talking about would mean that you’ve now verged into hyperinflation, or something close to it, because nothing happens in isolation.

At that point, you have to give more credence to gold. Now you’ve crossed the threshold. The minute you think of gold and paper money side by side, or having some relationship, you get to these price levels of $7,000-8,000 an ounce. They’re not made up. They’re not there to be provocative. They’re actually the math. Those are the numbers you get when you simply divide the money supply by the amount of gold in the market.

People are going to have to pay attention to that. And either the Chinese are dopes — which they’re not — or people will start to get gold, which they will.

But if there’s a run on paper currencies (which is entirely possible) and there’s borderline hyperinflation (which is entirely possible), they may have to go to a gold standard… Not because they want to, but because they find it necessary to calm the markets.

I suggest you buy your gold at current levels — $1,200, $1,250 — and ride the wave up to these much higher levels ($4,000-5,000 an ounce) and then assess the situation. Be nimble. You can’t just write a game plan today and follow it step by step. That’s nonsense. You have to be nimble; you have to be following developments; you have to be prepared to change your mind based on new news.


Thursday, 20 June 2013


The past few years of silver smashing has been all about letting JP Morgan extract themselves from that Silver short hot potato. That’s why the CFTC has not filed charges against them (yet) for silver manipulation. That’s why the banking cabal has sat on the price of silver this whole time. That’s why Citibank added $7.5B in OTC silver shorts. That’s why sentiment in the silver market has never been worse.

It’s all about extricating JP Morgan from the silver short position they were likely REQUIRED to take on by the US Treasury after the collapse of Bear Stearns.

So knowing what is happening it might not be surprising to you that during the 1st Quarter of 2013 JP Morgan has INCREASED their physical silver holdings in SLV for their own account by 500%!


PLEASE Get your Assets out of the Banking System

by Egon von Greyerz - Matterhorn Asset Management

I have pleaded with investors for years to get their assets out of the banking system.

One of the very few men who understands what is happening within the financial system has done the same. Time and time again he is both advising and imploring investors to protect themselves by getting out of the financial system and to own physical gold stored in private vaults in safe jurisdictions. Jim has also advised investors in detail how to achieve direct registration of their precious metals stocks.

Please read and re-read the extremely wise words of Jim SInclair how to protect yourself.

Here is a link to his latest GOTS (Get Out of The System) advice:

In this post Jim states that there is 
I fully agree with Jim’s statement. But investors must also remember that the world financial system is totally interconnected and a single problem in one major bank is likely to lead to a worldwide systemic problem.
Therefore due to the risk of contagion, any asset in any bank is at risk. The ultimate investment for preserving wealth is physical gold (and possibly some silver at the present ratio) stored in your name, outside the banking system in a safe jurisdiction and with direct personal access to your metals.
After the collapse of the Cyprus financial system I wrote an article called 
Please re-read this article which I am republishing below.
Please also remember that 

you cannot buy fire insurance after your house has burnt down..
Egon von Greyerz
“Get Your Assets out of the Banks – NOW”

by Egon von Greyerz - March 18 2013


The Cyprus event may later, in the history books, be seen as the catalyst of the fall of a century long Ponzi scheme. This could rank in line with the shot in Sarajevo as the start of WW1 or the collapse of Kreditanstalt in 1931 as the start of the Great Depression.

Isn’t it ironic that exactly 100 years after the creation of the Fed (a private bank created for the benefit of bankers) that the fragile and bankrupt financial system is likely to fall due to the insolvency of a couple of Cypriot banks.

But what is happening in Cyprus will not be the reason for a collapse but just the trigger for what has always been inevitable.

There are only two possible outcomes of the crisis we are now in:
- Either there will now be a run on the massively leveraged (25-50 times) banking system which would lead to no debt being repaid and a deflationary collapse.

- Alternatively, we will now see the beginning of the most massive money printing that the world has ever experienced, leading to a hyperinflationary depression.
The second outcome is the most likely although the risk of an systemic implosion is very high if central banks are too slow in flooding the system with money. The deflationary outcome would lead to no banks surviving and no money in the system. And the hyperinflationary outcome would lead to money being totally worthless. In both cases gold will be a major beneficiary.
But printing money will of course not solve anything since worthless pieces of paper with ZERO intrinsic value can never create wealth. At best it will just kick the can down the road for a very short time.
Cyprus is a mini model of the world financial system. The IMF, ECB and the politicians thought they could get away with the depositors taking part of the loss. But they have clearly not considered the consequences. This action (if ratified) will not only lead to a run on the Cypriot banks but also on banks in other weak areas such as Ireland, Spain, Portugal, Italy, Greece etc. Eventually it could spread worldwide.

The IMF, Fed, ECB, BoE, BoJ and other central banks are likely to very soon come out with a concerted action to support the financial system in order to avoid a total collapse.
For well over ten years I have advised investors to get their assets out of the banking system. This doesn’t mean just their money but also all other investments (stocks, bonds, gold etc) which are likely to be lost when banks go bankrupt.
Wealth preservation is now absolutely critical. This involves eliminating counterparty risk whenever possible. EverythIng within the banking system has counterparty risk even if it is segregated or allocated. Lehman, MF Global and Sentinel are all examples of client assets being lost in the financial system.
Gold (and silver) will continue to reflect the total destruction of paper money that the unlimited money printing will lead to. But investors must hold physical precious metals and they must be stored outside the banking system.

It is Imperative to Invest in Physical Gold and/or Silver NOW – Here's Why

Asset allocation is one of the most crucial aspects of building a diversified and sustainable portfolio that not only preserves and grows wealth, but also weathers the twists and turns that ever-changing market conditions can throw at it. However, while the average [financial] advisor or investor spends a great deal of time carefully analyzing and picking the right stocks or sectors, the basic and primary task of asset allocation is often overlooked. [According to research by both Wainwright Economics and Ibbotson Associates and the current Dow:gold ratio, allocating a portion of  one's portfolio to gold and/or silver and/or platinum is imperative to protect and grow one's financial assets. Let me explain.] Words: 1060

So says Nick Barisheff (  in an article* which Lorimer Wilson, editor of (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Barisheff goes on to say:
Asset allocation is usually taken for granted as being a mix of the three main asset classes: stocks, bonds and cash. Many investors believe that a broad mix of equities (financials, healthcare, utilities and telecoms), an exposure to foreign stocks, some emerging market plays, some bonds and a foundation of cash, equals diversification. However, this traditional approach is not only outdated, but also completely excludes several key asset classes such as foreign currency, real estate, collectibles,precious metals, natural resources and life settlements…(which should all be examined and, if necessary, rebalanced…annually because markets are constantly changing due to the unstable global economic climate). Also, as Figure 1 shows, the three main asset classes are all positively correlated. A portfolio that consists entirely of positively correlated asset classes cannot achieve optimal diversification.
Long-Term Trends
  • Stocks: The Dow has experienced several cyclical up and down trends throughout the last century. Identifying which trend the market is currently experiencing is of paramount importance. For example, a 60-year-old investor allocating to stocks in 1968 would have been 87 before breaking even, adjusting for inflation, in 1995.
  • Bonds: The bond portion of a portfolio faired just as poorly during the 1970s. Bonds are decimated during periods of rising inflation, and in the 1970s inflation rose to over 13%. A mutual fund bond investment fared even worse during that decade; the net asset value of a bond fund drops as inflation takes hold and subsequent interest rate rises eat into the purchasing power, and then the price, of the fund.
  • Commodities: Perhaps more crucially, a portfolio limited to stocks and bonds during the 1970s would have missed one of the greatest commodity booms ever experienced. From 1971 to 1980, gold rose by 2,300%, silver by 2,400% and platinum by 900%, while oil rose 900%.
Changing Times Require Changing Mindsets
Most investors’ experience with investing is based only on the last cycle. They find it difficult to rebalance their portfolios in order to align them with changing trends, having become entrenched in one mindset…Today’s investors are convinced that equities will continue to provide superior returns during the next 20 years. Many feel the financial turmoil of 2008 is behind us, that the worst is over, and are blindly looking forward to further gains on the stock market. This mindset fails to acknowledge today’s financial reality.

Who in the world is currently reading this article along with you? Click here to find out.
In fact, economic conditions today are much worse than in the 1970s. Government spending around the world has exploded and continues to do so. Fiat (paper) currency supply, along with government debt in the world’s major economies, is spiraling out of control. The situation is worsening daily, and burgeoning inflation can be the only result.  Crucially, the world’s debt will inhibit governments from substantially raising interest rates– today’s economies couldn’t withstand a high interest rate environment. These are the reasons gold has risen constantly, year after year for nine years, and will continue to do so. In truth, gold isn’t just rising; fiat currency values are falling through debasement by their governments. The more dollars created, the less each one is worth. Gold protects investors against inflation, because it is a non-depreciating asset.

Equity markets are topping. From a purely analytical point of view we can see that equity valuations are high, and there is more potential risk than reward. It is time to rebalance portfolios.

The Dow:Gold Ratio
The Dow:Gold Ratio, which measures trend changes in the price of gold versus a basket of stocks as represented by the Dow, supports the idea that investors today should have an allocation to precious metals. Essentially, the Dow:Gold Ratio divides the Dow by the US-dollar gold price. Figure 1 shows that when the ratio is rising, as it did in the 1920s, 1960s and 1990s, portfolios should be overweight equities. When the ratio is falling, as it did in the 1970s and is doing today, portfolios should be overweight precious metals. Currently the ratio is 8.18:1 and, equally important, it is falling, meaning there is still plenty of time for investors to rebalance into gold and precious metals.

What is an Appropriate Allocation?
Today’s typical “balanced” portfolio, consisting of 60% equities and 40% bonds, will simply lose value year-after-year in real terms during the coming high-inflation cycle. According to a study by Ibbotson Associates, a 7% allocation to gold is needed in conservative portfolios and a 16-17% allocation is required for aggressive portfolios. Those amounts are required simply to have a balanced, diversified portfolio during stable times, i.e. strategic allocation.
From a tactical allocation standpoint, Wainwright Economics [read article here (1)] looks to gold as being a leading indicator of future inflation. In a high inflation environment, which the ongoing currency creation around the world all but guarantees, their conclusion is that you need 15% in a bond portfolio and the same percentage in an equity portfolio just to insure your investments against further inflationary damage.

The percentage mix is debatable; what is certain, however, is that the historic three-asset-class allocation mix is outdated, out of touch with today’s economic and financial reality and a recipe for loss of wealth. To protect your portfolio and preserve your wealth, a 5 to 20% allocation to precious metals is an absolute necessity.