The British Pound Sterling lost its status as the primary basis of global trade in 1944. Why? Because the Treasury of the United States held title to about 4/5ths of the world’s officially-held gold reserves [more than 20,000 tons after WWII]. The dollar became the world’s “reserve currency” because U.S. government creditors could convert their dollars to U.S. gold [from 1792 until Aug. 15, 1971].
Since gold convertibility was suspended in 1971, the U.S. dollar has retained its “reserve-currency” status because of the dollar’s forty-year monopoly in settling OPEC oil trades [the “Petro-Dollar” system].
After the 2007 credit-collapse, China began to implement a strategy to slowly ‘de-peg’ from the petro-dollar and aggressively* add gold to its foreign exchange reserves.
China is now ‘de-dollarizing’ [unloading U.S. Treasuries]; and U.S. debt is rising. Since the world debt-crisis began, U.S. debt has more than doubled [up 114% in only nine years]. This chart shows how rapidly the monetary base has been expanding:
The official money supply quadrupled from 2009 to 2014. But the Federal Reserve no longer reveals how much or how fast the total monetary base is expanding. To avoid the spotlight on the ballooning total, the Fed quit publishing the “M3” monetary aggregate in 2006. [Image of the Adjusted Monetary Base courtesy of Zerohedge.]
Money-printing is showing up in the inflated stock market, select real estate markets, and the rising costs for insurance, rent, utilities, tuition, medical care, bitcoin, groceries, gold.
The year before markets crashed, gold was $525/oz [Jan. 5, 2006]. The day credit FROZE worldwide [Aug. 9, 2007], the gold price was $662.60/oz [London p.m. fix]. On March 14, 2008, people were shocked when gold surged past $1,000/oz for the first time ever.
THE EAST IS DRAINING BULLION FROM THE WEST.
Who is buying all the gold? Since the 2007 crash, Chinese, Russian, Indian, and Middle Eastern purchases of gold bullion have been unprecedented. Buyers from the Eastern Hemisphere [VietNam, Turkey, Singapore, Hong Kong, Shanghai, Dubai, Bangkok, etc.] are vacuuming available bullion supplies on every price-dip. (Recently, Russian buying has dwarfed purchases by China!)
In the last nine years, there has been a massive draw-down of deliverable gold at the LBMA [London Bullion Market Association] and the NY COMEX [New York Commodities Exchange]. As a result of “scrap” shortages, the world’s five major refineries have waiting lists for deliveries of pure bullion. Today, warehouse inventories of available “Good Delivery Bars” [400 oz gold bars, 1,000 oz silver bars] are extremely low at major bullion banks.
Two of the bullion banks under pressure are JPMorganChase Bank: JPMorganChase Bank is custodian of “SLV” the silver Exchange Traded Fund [ETF]; and the Hong Kong & Shanghai Banking Corp: HSBC Bank is custodian of “GLD” the gold Exchange Traded Fund [ETF].
PAPER SILVER • PAPER GOLD
Today, more than half of the world’s population believe that the only real money is gold and silver. On the other hand, less than ½ of 1% of Americans own physical precious metals. Most U.S. investors buy PAPER gold and PAPER silver ‘derivatives’ [options, commodities futures contracts, Exchange Traded Funds “ETFs”].
The PAPER market is an entirely ‘different breed of cat’ than the PHYSICALS market. Physical bullion cannot be printed; the supply is limited. The highly leveraged PAPER market has an unlimited, ‘virtual’ supply of silver and gold. In this securitized, fractional-reserve system, they sell gold and silver contracts without the bullion to back the contracts [100-500-to-1 oz; the practice is naked shorting].
NAKED SHORTING DISTORTS SUPPPLY AND DEMAND. As long as ‘naked shorting’ controls the pricing mechanism, physical shortages of silver and gold can be hidden.
Today, the digital market is in control. Thanks to an unlimited supply of PAPER silver and PAPER gold, today’s prices do not reflect actual supply and demand for physical bullion. During intervals in 2013, 2014, and July 2015, supplies of silver were so tight, U.S coin dealers were unable to satisfy over-the-counter demands. But each time, the market was flooded with massive tonnage of PAPER silver to suppress the price.
The last time free-market forces prevailed against the trading desk of the New York Federal Reserve was in 2011. When silver and gold supplies completely dried up around the world, silver climbed 160% in only nine months. Coin dealers across the nation were “Bid only” – “No offer.”
DON’T END UP HOLDING A PIECE OF PAPER.
The next move up in precious metals will be propelled by even greater supply deficits. Extreme product shortages always end up triggering runs to higher highs in metals. Take delivery while silver and gold coins are readily available in North America. Deliverable bullion in the West is in short supply; and a whole lot more money-printing is headed our way.
Silver is the poor man’s gold. Old U.S. 90% silver dimes and
quarters [pre-1965 coins] could be used in small transactions.
Coins made of silver and gold store value over time. The paper dollar loses value over time — it is guaranteed! In 1971, a $1 bill was equivalent to 1/35th of one ounce of gold. Today, a $1 bill is worth 1/1,295th of a one-ounce gold coin.
Submitted by Denise Rhyne
* The Eastern Hemisphere is buying physical bullion aggressively in anticipation of the coming economic upheaval. The 2017 headlines below from Luke Gromen @LukeGromen:
“Shanghai Gold Exchange February Withdrawals Highest on Record, up 67% y/y.”
“Indian silver imports rose 96% in February 2017.”
“Indian Gold Imports Surge: Imports rose 65% in February from January imports. February 2017 Indian gold imports were up 148% from February 2016.”
“Russia adds another huge pile of gold to reserves in March.”
“China 1q gold bar/coin sales up 30% y/y”
“Indian physical gold buying may be behind Dubai tightness” London (Platts) 25 Apr 2017
“India’s April gold imports more than double fr yr ago”
“UPDATE: China’s net-gold imports via Hong Kong more than doubles in March” Reuters http://www.reuters.com/article/china-gold-imports-idUSL4N1HX3GL
There is always a ‘lag time’ before massive expansion of the money supply causes a sudden, sharp rise in prices. Today, dollar debasement is being obscured by new ways to calculate the Consumer Price Index [CPI] and Gross Domestic Product [GDP]. The method uses hedonics, weighting and substitution. Most changes in costs for essentials are excluded from indices.
by Aran Murphy
The market-makers wondered aloud at the end of 2016: Which way will our economy turn with new policy makers in Washington? Will our national debt become difficult to service with higher interest rates? Will our unfunded pension liabilities force broad-scale local bankruptcies? Or will we pull the government back, liberate our taxpayers and traders, and allow our entrepreneurial base to do what it does best?
A consensus emerged in December that our days of forestalling hard debt and demographic-driven choices are limited. Many worry that it is too late, or that the incoming President is too politically inexperienced to put our national finances back on track. Others think – with the recently elected – we may see tremendous opportunity to re-establish growth and loose our economic fetters. From bonds to stocks to more pure measures of market volatility, President-elect Trump continues to bring opposing views out after long years of – what many will consider stagnating – policy consensus.
After the US elections, stock market indices took off. The bond markets tumbled. The Federal Reserve Bank raising rates didn’t help bonds, of course. Gold, silver and platinum prices eased as the world creeps out from under the Sword of Damocles that has long been the official policy of zero interest rates(One can’t have functioning capital markets when central banks are pricing capital at zero). The markets overall seem tentative about what direction, economically, the US should expect. Will the US experience crisis, or will it find the real growth in incomes and economic opportunity that has eluded us for the past 12 years?
Uncertainty and Opportunity – Platinum can reduce the former, but increase the latter in one’s portfolio.
Following the mixed signals of the markets at year-end 2016, one could be forgiven for being conflicted. Should an investor protect investments against debt deflation, or worse, Venezuela or Zimbabwe style inflation? Or should one avoid more overt economic collapse by staying out of markets altogether? On the more optimistic side, might an investor sell stocks for cash and therefore miss a massive potential economic revival?
We believe that physical platinum holdings in a portfolio will allow protection against inflation and financial asset deflation, while allowing positive upside in value when the US economy regains its freedom and hence its strength.
Platinum has typically traded at huge premiums over gold (graph below). Today, with gold at $1,192 and platinum at $974, you can buy it at a 18% discount! An old investment rule of thumb is “when platinum sells at a discount to gold, back up the truck, Chuck, and load ‘em up!”
What makes platinum different in a portfolio than gold? For starts, there is relatively little reserve platinum above ground. This is unlike gold, for which nearly all the gold ever mined is readily available above ground. This helps stabilize prices as stocks flow to market in response to price moves. A relative lack of above-ground supply makes platinum more volatile. Volatility can make Monday morning quarterbacking a temptation, second- guessing a better price for one’s transaction no matter what one invests in. However, platinum’s volatility makes it ideal as a portfolio diversifier. With low correlation to other asset classes and high volatility, the metal packs disproportionate weight per dollar investment. Professional portfolio managers who follow Markowitz portfolio theorymight see platinum as a diversifier of returns…as “high octane gold.”
How does a hedge against downturns allow one to participate in upsides?
At the risk of sounding like a breakfast cereal company, gold and silver and platinum(!) should be part of a portfolio’s complete breakfast. Bond and stocks have their primary roles for income and stability, but both asset classes (excepting maybe TIPS) tend to fall apart when radiated with inflation. The metals, specifically the precious metals, usually do well when the controlling central bank loses control of the money supply.
Next we should take the time to ask what for many might seem obvious: Does gold really diversify against inflation? Inflation diminishes the real returns that bonds and stocks normally might offer. Markowitz diversifiers want to add assets with values that are low or – even better – negatively correlated to their other assets. The relationships between gold and inflation are worth looking at, however, particularly before we discuss platinum.
Beyond a general awareness that gold has a positive relationship to inflation, for those who’ve tried it, it is difficult to statistically establish their correlations. What endpoints to use, what periodicity, and what interest and inflation rates to pair in a series for correlation? Beyond the awareness that gold is a better way to hold wealth when one’s currency is collapsing, the actual numbers can make it tough. It is much more reliable to show – over time – the relationship between real interest rates and gold.
Real interest rates – benchmark rates minus the benchmark inflation rate – point to the economy’s demand for capital. In low real rate markets, investors aren’t as penalized for holding gold as when markets take off and people are hungry for capital they can use towards new building new technologies, fleets, plants, new markets… things that (hopefully) generate more income than what gold might normally offer.
We argue that platinum has a similar association with inflation as gold. If the local unit of account is buying less and less, which can idicate a crisis or be its own crisis, then it is better to hold assets that are not so susceptible to default. PHYSICAL Platinum is, like gold, an asset that is not another person’s, corporation’s, or government’s liability. In times of declining confidence in fiat currencies or overall instability, platinum has typically held its relative value.
Yet beyond its relation to inflation (generally inverse) platinum also holds a particular positive relationship with demand for capital. In periods of strong, inflation adjusted, demand for investment capital, the platinum markets tend to show demand growth and potential price appreciation. Capitalists need platinum for their refineries, products, buildings, and their technologies, and for their employees to populate their shopping malls and boutiques. This strong correspondence of platinum demand with economic growth demonstrates a reason behind platinum’s differences from gold. So, unlike gold, platinum is both a tangible asset for investors and rises when economies rise results in more industrial demand.
Positive economic growth and global demand contribute to the annual demand for platinum. While gold and platinum jewelry demand both benefit from rising consumer wealth, increasing incomes mean not only more jewellry demand but more industrial and consumer goods purchased. Many of our most demanding technologies – catalytic converters, hard disk drives, cancer drugs, crucible for nuclear payloads, industrial paints, conventional explosives, to name a few… often require platinum.
No matter where we are in a market / economic cycle, owning physical platinum can be a means to protect investors from the vagaries of financial and currency market downturns. And, if an economy grows, industries buy more platinum to produce products, causing investor-owned bars and coins to rise in price.
As of January 11, 2017, gold is $1,192 and platinum is at $974. This means you can buy platinum at a 18% discount to gold. Clearly, platinum is a bargain! The conservative approach is to simply favor buying platinum bars or coins and take delivery of them, instead of gold coins or bars. If you are a trader in the commodity markets, and you like the reasoning above, you could simultaneously short gold and buy an equal number of ounces of platinum.
Editor’s Note: Aran Murphy was the Sr. Economist for the Platinum Guild International in New York. More recently, he was a Director at one of the largest pension fund managers in the country. I asked him if he could take a break from his extended convalescence (in his fourth year fighting cancer) to write his thoughts down for us in a personal capacity. My hope is that he will get well, and also, that you find his observations helpful.
Gold is the true “safe-haven” currency. The U.S. dollar is “strong” only when compared to more toxic currencies. Since the 2007 crash, the dollar has fallen about 100% against gold.
On the day markets FROZE worldwide [Aug. 9, 2007], the price of gold was $662.60/oz [London p.m. fix]. It now takes twice as many dollars to buy the same Troy ounce of PHYSICAL gold. The rising price of gold is signaling declining confidence in the dollar-reserve system.
THE DAY LIQUIDITY EVAPORATED
It is generally acknowledged the current crisis in financial markets began with a liquidity freeze on August 9, 2007. France’s largest bank, Banque BNP Paribas, cited that date as “the day liquidity completely evaporated from certain segments of the U.S. securitisation market.”*
After confidence in the banking sector collapsed and interbank lending seized up, the Federal Reserve created many trillions of dollars [of brand-new credit] to bail out financial institutions and restore confidence.
From nowhere — trillions of U.S. dollars sprang into existence [$1 TRILLION = ONE MILLION MILLION DOLLARS].
Americans were told bailouts were necessary to ‘stimulate’ the economy: Quantitative Easing [QEI, QEII, and QEIII-$1,020,000,000,000/ per year]; the “Stimulus Package;” “Operation Twist;” “Term Asset-Backed Securities Loan Facility” [TALF]; “Troubled Asset Relief Program” [TARP]; AIG bailout; Chrysler bailout; General Motors bailout; Extended Unemployment Benefits, “Cash for Appliances,” “Cash for Clunkers;” $8,000 “Home-Buyer Tax Credit.” (And the U.S. funds 17.9% of United Nations IMF/ World Bank bailouts.)
THE BIG WEALTH-TRANSFER
Although the Federal Reserve is a private entity and cannot be audited, Congress acquired documentation of post-crash bail-outs exceeding sixteen trillion dollars [$16,000,000,000,000 went to financial institutions in China, Europe, etc.]. After that, the Federal Reserve bought up “troubled assets” [about $1.3 trillion of “Mortgage-Backed Securities”], becoming the largest private holder of residential real estate in the United States.
The stock market rose significantly after the 2007/ 2008 crash — with very little retail participation. But after QE money injections ended the summer of 2011, the market declined; and world credit markets FROZE up once again.
The Fed’s resumption of pumping QE trillions into the market [purchasing corporate bonds and stocks] has resulted in stock market highs. But since October 2014, market “events” have been increasing in magnitude and frequency — with triple-digit swings, flash crashes, and diminished liquidity in junk bonds and derivatives. Volatility went crazy in August 2015 and in the first quarter of 2016.
Today, prices for stocks, rent, healthcare, and gold are rising because the value of the dollar is declining. ‘Stimulus’ trillions water down the purchasing power of the dollar just as water dilutes the potency of a shot of whiskey.
NOTE: Prices are rising faster than the government’s Consumer Price Index [CPI] indicates. On the following chart, the blue line represents calculations based on traditional methods of accounting, courtesy of John Williams, ShadowStats.com.
ALARMING TRENDS IN THE REAL ECONOMY
Besides early signs of surging price inflation, earnings growth has never been lower and production is slowing down sharply. Bill Gross recently said ‘the trend for productivity is negative.’
GDP [Gross Domestic Product] is the annual measure of the market value of all goods and services produced by a nation. GDP is equal to total consumer spending plus total government spending plus total investment plus the value of all exports — minus the value of all imports.
LOW WORK-FORCE PARTICIPATION
More than 94 million able-bodied workers are not counted in the government’s unemployment statistics. The ShadowStats Alternate Unemployment Rate for August 2016 is 23%.
High unemployment is structural. Over many decades, “FREE TRADE” treaties have served to hollow out the manufacturing base. Foreigners now supply the majority of the manufactured products Americans use [manufacturing employment down 14% since 2006]. The jobs that have been lost are not coming back to America’s shores.
HOW DID WE GET HERE?
In the twenty-five years leading up to the financial crisis, the American consumer —rather than manufacturing— was the engine of growth for the U.S. economy. Personal Consumption Expenditures [PCE debt] kept growing and compounding.** For a long time, the debt-based economy seemed to work.
From 1998 until 2007, consumer spending [debt] plus U.S. government spending equaled 96% of the growth in GDP. During the same period, U.S. exports plus business investment accounted for only 3% of GDP growth. **
Before the bottom dropped out of the U.S. housing market, many people carried the maximum amount of debt their income levels would allow them to bear. Personal, maxed-out debt bubbles began to pop about a year before the crash.
For years, the Federal Reserve has been praised for United States economic “RECOVERY.” However, the central bank merely “papered over” the crisis — with unprecedented money printing and zero percent [0%] interest rates. The results of the insane “CURE” for the debt-crisis are textbook:
• Public debt is growing.
• Tax revenues are declining.
• Corporate profit margins are narrowing.
• Industrial demand and manufacturing are collapsing.
• Consumer spending, retail earnings and sales are contracting.
WE ARE HERE: Deteriorating household wealth, falling consumer confidence, stagnant incomes, and low work-force participation. Instead of spending and consuming, anxious savers are sitting on their money; fearful businessmen and worried individuals are trying to pay down debt.
AMERICA’S PONZI ECONOMY IS MALFUNCTIONING
There are three phases in a credit collapse. In 2013, the U.S. economy passed into the second stage. America’s shrinking consumer base is no longer sufficient to drive GDP growth; and economic conditions are deteriorating. During Phase II, money-printing will increase and business activity will slow to a crawl.
The combination of rising public debt, falling production, and currency debasement always ends in credit collapse. There are no historical exceptions.
As the Federal Reserve explores “broader asset purchases” [direct interventions in the market] and negative interest rates [Mrs. Yellen, Feb. 2016], smart investors are trying to escape from the banking system [and third-party risk].
Protect your wealth by taking delivery of actual silver and gold. After 9 years of monetary ‘stimulus,’ new dollars by the wheelbarrow are chasing a limited supply of PHYSICAL coins.
Submitted by Denise Rhyne
* Schumpeter blog at economist.com; Aug. 9, 2012, Associated Press.
** William Emmons Jan 2012 Federal Reserve Bank of St. Louis. In the 25 yrs. leading up to the 2007 crisis, Personal Consumption Expenditures [PCE] drove GDP growth. Consumer spending [debt] accounted for 82.5% of real GDP growth. Each year, PCE grew 3.5% continuously compounded. “…in terms of its contribution to average quarterly real GDP growth during the decade ending in the third quarter of 2007, PCE accounted for 81.3%.” http://www.stlouisfed.org/publications/re/articles/?id=2158
After WW II, the U.S. was a manufacturing dynamo. Rapid growth –driven by manufacturing- wiped out a large portion of the WWII debt. The maximum debt-to-GDP ratio (debt as a % of Gross Domestic Product) was 108.7% in Dec. 1946. The minimum debt-to-GDP ratio was 23.9% – Dec. 1974. White House Office of Management and Budget.
Too much debt causes a nation to lose financial flexibility. At some inflection point, the ratio of debt-to-GDP reaches a critical imbalance. When debt exceeds the critical thresh-hold, economic growth begins to deteriorate rapidly. Suddenly, manageable debt becomes unmanageable. WEIMAR: First DEFLATION Then INFLATION
Everything has gotten bigger since the last major silver short squeeze (2011). Debt is bigger, leverage is bigger, and the number of major players taking delivery of physical silver is bigger.
The concentrated short positions in silver held by a small number of “bullion banks” DWARF the Hunt brothers’ 1980 long position of only 100 million oz.
Based on supplies of actual, available bullion and the last six months of demand, we expect to see a short squeeze (RUN) on silver [and gold] in 2017. Odds are: SILVER COINS will be the trade of the year.
Since August 2015, and especially since the beginning of 2016, large private banks, central banks, mega-investors, China, India, Russia and other sovereigns have been aggressively dumping dollars in exchange for precious metals. As “good delivery” bars have become available, buyers have been taking delivery of gold and silver by the metric tonne (gold 400 oz bars; silver 1,000 oz bars).
HOLD ON TO YOUR HAT!
A scramble for actual silver (and gold) is coming. When silver and gold began moving like this five years ago, demand overwhelmed supplies. Supplies of coins and bars quickly dried up around the world. As a consequence of shortages at the five major mints, silver climbed 160% in less than a year. Coin dealers could not get delivery of bars or coins for 8-12 weeks.
THE U.S. SILVER STOCKPILE IS GONE.
Before World War II, the United States owned about two billion ounces of silver for national defense. Now, that strategic stockpile of silver is gone. That means the U.S. Mint must acquire silver bullion on the open market.
1 oz American Silver Eagle
In the last few years, demand for American Silver Eagles has gone through the roof. But although demand for U.S. silver coins has been extraordinary, the U.S. Mint has stopped allocations of 1 oz American Silver Eagles to primary dealers in 2016.
1 oz Canadian Silver Maple Leaf
Something has been fishy in the silver market since 2011. We have had supply disruptions because of high demand— yet, silver has been selling at the price it costs to get metal out of the ground. (Most miners break even at $18/oz.)
Compared to the gold market, the silver market is very small. It is estimated the value of the entire silver market is somewhere between $30 to $45 billion. Certain financial institutions have been able to manipulate the silver market by using a trading technique known as naked silver shorting.
The price of silver has been easier to suppress than the price of gold. That is why the ratio of gold to silver has gotten so far out of whack (78 to 1). Short-sellers have been able to keep a lid on the silver price since the last run on precious metals. Each time silver began to explode to the upside, the shorts went into high gear, increasing short positions until the price was either brought down, or the directional move was stopped.
Premiums on “bullion” coins are rising. The spot price quoted by the exchanges in London and N.Y. is disconnecting from the price buyers have to pay to acquire PHYSICAL silver. The physicals market is determining the price of actual silver.
For now, the NAKED PAPER SHORTS have provided you with the opportunity to buy actual silver at a bargain price. Buy silver now while we dealers still have coins: (Model Precious Metals Portfolios).
Buy real U.S. silver money. Pre-1965 dimes,
quarters and halves are 90% silver.
By Denise Rhyne
Physical silver coins (and bars) carry a premium over the benchmark “spot price.” A dealer’s cost includes the coin or bar premium. Premium is a function of supply and demand. Both the spot price and the premium on a particular bar or coin are constantly fluctuating. Premiums are bid up if supply is low and demand is high.
During the coming economic upheaval, gold and silver will perform as “monetary metals” and the world’s only real money: GLOBAL DEFLATION WILL LEAD TO CREDIT COLLAPSE/ CURRENCY FAILURES.
Call (206) 719-6368
We are living in an age of manipulated financial markets – interest rates are artificially low, and the stock market is artificially high. Demand for physical gold is at historic highs, supplies are strained, yet the price is relatively low. When will manipulation of the price of gold come to an end? 2016.
First, it is important to understand why the Federal Reserve is pulling out all the stops to repress the price of gold. A high gold price makes the dollar look bad. No one would want dollars if the price of gold were allowed to rise according to actual demand and actual supply of PHYSICAL bullion.
Over many decades until 2007, the Federal Reserve kept the price of gold artificially low by selling tons of bullion. However, coordinated gold sales by central banks stopped after the 2008 crash.
Since then, central banks (especially in the Eastern Hemisphere) have been buying gold — feverishly. That is when rumors began flying about shortages in New York and London.
Since the crash, there has not been enough gold to go around. Although the world’s biggest refiners have been working 24/ 7, shortages and delays have occurred every year at the five major mints.
Many nations have demanded repatriation of their gold “stored” at the N.Y. Federal Reserve Bank; but they are still waiting. The Fed has returned only a few hundred tons of the thousands of tons requested by countries around the world.
The West’s supply of “good delivery” bars is depleted. Most of the 400 oz bars in London/ Canadian/ New York vaults are spoken for. What happened to the gold? It flowed into the Eastern Hemisphere and the private vaults of the central banks and the über-rich.
Now that most of the good delivery bars have been sold, what do bullion banks sell to keep the price of gold artificially low? Instead of PHYSICAL gold, agent bullion banks such as GoldmanSachs, HSBC, and JPMorgan flood the market with massive supplies of PAPER gold (derivatives sold in the commodities futures market).
When will the manipulation STOP? When the COMEX and the LBMA openly default. Gold price manipulation will stop when the exchanges openly settle delivery contracts with cash (this has already been occurring in SILENT DEFAULTS).
Exchange PAPER currency for REAL money
while gold and silver coins/bars are still available.
In 1933, the price of a 1 oz $20 gold piece was $20; today, the price of an old $20 Gold Piece is about $1,280. In 2000, the price of a new 1 oz gold coin was only about $300; today a new American Gold Eagle is more than $1,230.
The Federal Reserve has been manipulating the price of gold ever since its creation in 1913. For forty years, the Fed held gold at the artificial price of $35 per ounce while the central bank wildly inflated the monetary base of the United States.
In 1971, the dollar was completely de-linked from gold. In time, all currencies in the world were de-linked from gold and silver. That means all governments are now paying their sky-rocketing debts with printing-press-money (paper currency that is backed merely by faith).
“Hard currencies” are backed by gold/ silver. In the past, nations with hard currencies kept countries with “fiat currencies” honest. The existence of national hard currencies discouraged countries from wildly inflating their money supplies. If one nation debased its money, people could flee from the fiat money, and flock to available hard currencies.
For the first time in the history of the world, no paper currency is backed by gold or silver. The Federal Reserve has no restraints because the dollar is backed by nothing but faith. With a key stroke, the central bank creates trillions of dollars of credit. For the first time, gold and silver coins are the only hard currencies and the only real competition for the pound, dollar, Euro, yen, etc.
That is why central banks coordinated gold bullion sales (1971-2007) in an effort to keep the gold price low. Gold cannot be printed; but imagine the unrestrained growth in the supply of paper dollars and other currencies in the last forty years.
To maintain the illusion of king dollar, an all-out war has been waged to trash gold in the mind of the public. Although gold is and has always been the premier currency, only about ½ of 1% of Americans own gold bars and coins.
In the long-term, holding dollars guarantees a loss. Compared to the dollar, the price of a 1 oz gold coin is UP about 6,000% in 80 years. Paper dollars have lost that purchasing power over time.
By Denise Rhyne
Call (206) 719-6368
$5,000 $10,000 $25,000 $50,000 $100,000 $250,000
For almost 150 years, the United States owned 1 oz of gold for every 20 paper dollars. It is now estimated the U.S. owns 1 oz of gold for every 25,000 paper dollars. But does the U.S. own any gold at all? Is U.S. gold in private hands? (According to the 1981 Gold Commision, government officials have been denied thorough auditing rights to Fort Knox, etc. No thorough audit has been allowed since 1955.)
From where did the Federal Reserve acquire the gold that was periodically dumped on the market until 2007? Did the Fed dispose of more than 8 tons (261.5 million oz) of U.S. gold?
Global financial markets are integrated and inter-dependent. The markets look ahead and trade on anticipation. It is now extremely bullish for gold!
Zero% Interest Rate Policy (ZIRP)
Since 2008 (for the first time in the history of the world), 90% of the developed countries have had 0% interest rates and a steady flow of “Quantitative Easing” (QE). A small number of “too-big-to-fail banks” [domestic and foreign] have been able to borrow from the Federal Reserve at or just above 0%. (For seven years, overnight/inter-bank lending was 0% to .25%. On Dec. 16, 2015, the nominal rate was raised to .25%; the maximum rate is now .50%).
PROSPERITY BY PRINTING PRESS
Credit markets FROZE worldwide on August 9, 2007. In response, the Federal Reserve created many trillions of dollars of credit to bail out failing financial institutions [here and abroad] and “to stimulate” business activity. Economists said the “wealth effect” of rising asset prices would propel the world economy from stall-speed to escape-velocity.
People placed their faith in the wisdom of the central planners. Nations, large corporations, and small businesses mis-diagnosed risk because their perceptions of risk were based on rosy forecasts of “economic recovery.”
Coordinated central bank interventions created bull markets in stocks from the East to the West. Commodity prices soared as a result of the “credit glut.” Hyper-credit caused distortions in prices for real estate, art, collectibles, and bonds. During the boom, malinvestment led to tremendous over-production.
Artificially low interest rates
cause a boom, and then a bust.
As a consequence of over-production, the over-supply put downward pressure on prices, driving crude oil from $105 (June 2013) to $32 per barrel (Jan. 2016). Today, asset deflation is dragging down the economies of commodity-exporting countries. Exporters to China are suffering. Cratering commodity prices and the drop in the price of oil have been causing “credit events” and violent turmoil in all market sectors.
During the boom phase, nations borrowed heavily in cheap dollars. Now, the countries must service huge debts with expensive dollars. They borrowed in anticipation of a strong “recovery;” now those loans are going bad.
Around the world, debt is rising, bank credit is contracting, and money velocity is SLOWING. Deflation means a sharp slow-down in global production, corporate credit down-grades, diminishing liquidity in bond markets, bankruptcies, defaults.
THE SOVEREIGN DEBT CRISIS IS SPREADING.
Here at home, the real economy is shrinking. Money velocity is slowing dramatically: people are not spending (and banks are not lending). More Americans are closing businesses than starting businesses (bankruptcy numbers are soaring); 6,000 retail chain-stores will close this year; U.S. manufacturing is collapsing; record numbers of shopping malls are closing; and corporate profits are tanking (the entire S & P 500 index).
RADICAL MONETARY INTERVENTIONS
Zero per cent interest rates are driving world economies toward systemic instability. Since the crash, the world credit system has come close to locking up in Nov. 2011, Oct. 2014, and Aug. 2015. As a result, emergency monetary interventions are becoming increasingly radical (bail-ins, capital controls, negative interest rates).
Negative Interest Rate Policy (NIRP)
Negative interest rates are a tax on money that began in Europe. In June 2014, Europe began taxing deposit money with negative interest rates; it now costs –0.3% to keep money in Euros.
As a consequence of the weaker Euro (and yen), capital flowed to the U.S.; and the dollar rose 9% to 25% against all other fiat currencies. That is why the price of gold is a bargain in dollars compared to the price of gold in all other currencies.
Government bond yields throughout Europe have gone negative. The European Central Bank (ECB) has suggested it will cut the deposit rate from -.3% to a further negative level (-.5%?). The chief of the Bank of Canada said (Dec. 8) rates could be negative (-.5%) in Canada later in 2016. Federal Reserve Bank officials (including Mrs. Yellen) have suggested negative rates are on the table for the U.S.
SAVINGS WILL BE TAXED.
One way or another, Americans are going to be taxed on their money. As revenues continue to fall, the government will fix its sights on your retirement funds and savings. Expect more Quantitative Easing (QE4), negative interest rates, and further capital controls.
Precious metals have provided safe-haven from
out-of-control governments for 1,000s of years.
In all history, there has never been a “supply
glut” in precious metals. Silver and gold are rare.
The Federal Reserve cannot print gold and silver.
Submitted by Denise Rhyne
Call (206) 719-6368
$5,000 $10,000 $25,000 $50,000 $100,000 $250,000
The golden constant is portfolio insurance: Coins and bars will retain purchasing power during periods of hyper-deflation, hyper-inflation, credit collapse, or war. GOLD IS A PRUDENT INVESTMENT.
In 44 years, the U.S. economy has been fundamentally transformed: America’s Fundamental Transformation.
The last time gold and silver moved like a freight train was in the 2011. One country triggered the RUN on gold and silver. Overnight, supplies of gold and silver dried up; and mints worldwide ran out of deliverable bullion.
In less than nine months, gold and silver made new highs. Gold rose $600; silver climbed 160%. Silver was just as scarce as gold. (Silver was $9 Sept. 2005; $50 April 2011.)
A LITTLE GOLD HISTORY FOR THE BIG PICTURE
When the leading currencies were backed by gold, the United States exported more than 40% of all manufactured products used by the world. While today the U.S. is the greatest debtor nation, fifty years ago, America was the greatest creditor nation. Back then, other countries needed sufficient gold to buy made-in-America products.
AP photo by David Karp
INTERNATIONAL GOLD RESERVES
To make foreign exchange easy (and to keep their gold safe during World War II), nations stored a large percentage of their gold reserves at the Federal Reserve’s vaults in New York. From transaction to transaction, the 400 oz gold bars did not move. The central bank simply transferred the numbered bars from the account of one country to another – on paper.
After the dollar’s tie to gold was severed in 1971,
countries were content to keep part of their gold
reserves “safely stored” in New York..… until 2011.
THE RUN ON SILVER AND GOLD IN 2011
In that year, Venezuela rocked world markets by its highly-publicized demand for delivery of its gold reserves. Venezuela was the catalyst for the worldwide run on precious metals that drove silver to $50/oz and gold to $1,900/oz.
Venezuela’s demand for physical delivery of 210 metric tonnes proved the gold was not safely stored and allocated (about half had been stored in the Bank of England). Gold markets in London and New York went crazy in the ensuing four months until “bullion banks” could locate the gold bars for shipment to South America.
Venezuela took delivery of 17,000 “good delivery”
bars. Each bar weighed between 350 and 430 ounces.
After the 2011 run on gold, citizens of other countries began to question whether their own numbered bars of gold had been “rehypothecated” — lent, leased, swapped, shipped, sold, resold (the same bars sold to multiple owners), or pledged as collateral multiple times. How many owners would claim title to their gold?
“REHYPOTHECATION is the practice of using the assets held as collateral for one client in transactions for another. This allows the prime broker to re-lend client securities (or gold) held as collateral… COLLATERAL is used by investment banks for their own purposes.” Financial Times Lexicon.
REQUESTS FOR GOLD REPATRIATION
When Germany requested gold “repatriation” in 2012 (150 metric tonnes), the Federal Reserve would not allow them to verify the gold was there. Deutsche Bundesbank was denied auditing rights to check serial numbers on their bars.
In 2013, Germany tried again (requesting 300 tonnes). The Federal Reserve told Germany it would have to wait seven years for the return of only 300 of their 1,536 metric tonnes “stored” in New York. The watching world began to lose confidence, and the trend for “repatriation” gained momentum.
Central banks and many gold-owning nations decided they wanted their gold transferred to their own countries: Ireland, Netherlands, Ghana, Iran, Switzerland, Romania, France, Ecuador, Iraq, Libya,Mexico, Azerbaijan, Portugal, Belgium, Finland, and others made requests to the Federal Reserve to return all or part of their gold.
By the end of 2013, Germany had received
only 5 of the 450 tonnes it had requested.
The next year only 85 tonnes were repatriated. All of the gold returned to the Bundesbank came in the form of re-poured bars with brand-new serial numbers. In June of 2014, it was reported Germany would not pursue further repatriation of its gold (1,447 tonnes). Six months later (Nov.), the Dutch central bank (De Nederlandsche Bank) announced it had secretly repatriated one fifth of the Netherlands’ gold (122.47 tonnes).
IN ALL, THE FEDERAL RESERVE HAS RETURNED
ONLY A FEW HUNDRED TONNES OF GOLD.
The Federal Reserve has failed to satisfy repatriation requests representing thousands of tonnes of gold. Many believe the central bank has denied on-site inspections and engaged in delay tactics because the allocated, numbered bars have been rehypothecated.
The Federal Reserve is the custodian of a large portion of the world’s gold reserves (including 1,225 tonnes of Italy’s gold).Will sovereign nations and powerful families eventually discover their 400 oz bars have been “rehypothecated” to suppress the price?
GOLD & SILVER ARE MONETARY METALS.
From 1933 to today, a $20 Gold Piece is up 6,000% against the dollar (from $20 to $1,280). In 1971, 1 dollar was worth 1/35th of 1 oz of gold; 1 dollar is now worth only 1/1,304th of this new 1 oz coin. Compared to all gold coins, the dollar has gone down about 2,700% in 44 years.
People think gold has gone up 2,700%;
actually the dollar has lost that purchasing power.
DUMPING DOLLAR RESERVES for GOLD RESERVES
Since 2008, foreign central banks and countries around the world (especially in the Eastern Hemisphere) have been exchanging their dollar reserves for gold reserves. Gold purchases have been unprecedented. In a quiet and systematic way, banks and nations have been accumulating gold faster than occurred just before the U.S. went off a gold standard (1971). The massive draw-down of warehouse inventories (in America, Canada, and England) has depleted gold and silver supplies.
THE WEST IS VIRTUALLY OUT OF DELIVERABLE GOLD.
The relentless draw-down of inventories has reduced bullion bank supplies of ‘good delivery’ bars (400 oz bars) to all-time lows at the COMEX (Commodities Exchange) and for “GLD,” the gold ETF (Exchange Traded Fund).
There are more than 100 claims for every
1 oz of PHYSICAL gold at the N.Y. COMEX.
We are in uncharted territory. During our lifetimes, public debt has grown exponentially. Now, Emerging Market currencies are in free-fall; and the global debt bubble is deflating. BUT ALL CURRENCIES WILL BE AFFECTED… and the mega banks know it. That is why they have been purchasing gold by the tonne since 2008.
A confidence-shattering event is going to
shock the world... and it will happen overnight.
During financial panics, two things always disappear: LIQUIDITY and PRECIOUS METALS. Leading up to the 2008 financial crisis, silver and gold shortages showed up big-time. On January 5, 2006, gold was at $525/oz. During the crash, gold went to $1,000 for the first time (March 14, 2008). Gold had doubled in only two years because of physical shortages.
HIGHER HIGHS, HIGHER BOTTOMS
Over the last forty-five years, there have been six major upside moves in gold and silver which were followed by prolonged periods of price consolidation. Each time, gold and silver hit higher highs and established higher “bottoms.” After four years of price consolidation, precious metals are poised in 2016 for ferocious price moves that will take out former highs.
VERY LITTLE DELIVERABLE GOLD IS LEFT IN THE WEST. Acute supply shortages will trigger panic buying and the next run on gold and silver. “Hedge” your portfolio (like the mega banks) with at least 10% to 20% in actual precious metals.
TAKE DELIVERY of physical coins. Gold, platinum, and silver in your possession will give you control over that portion of your capital — with no third-party risk.
By Denise Rhyne
Call Craig Rhyne (206) 719-6368
Model Precious Metals Portfolios
$5,000 $10,000 $25,000 $50,000 $100,000 $250,000
♦ On June 16, 2015, even the State of Texas got in line to “repatriate” their gold from the Federal Reserve.
♦ Goldman Sachs is currently negotiating with cash-strapped Venezuela to ‘claw back’ the gold hoard from South America. (By 2016, Maduro shall have sold the entire amount of gold Chavez returned to Venezuela in 2011. To meet debt payments, about 1/5th of the gold was sold in 2015 alone.)
♦ The last complete inventory of America’s gold reserves was made in 1953. For sixty years, the Federal Reserve has denied Congress auditing rights for on-site inspections of all the gold stored at Fort Knox and West Point. Were 8,000 tonnes of U.S. gold rehypthecated?
24 karat gold (.9999 fine) kilo bars are popular in Asia.
Canadian Maple Leaf 1/10th oz gold (.9999 fine) coins (below)
“Things go from perfectly stable to completely unstable very quickly… When you see things like Argentina, Greece, Cyprus, Ireland, Italy – you see how fast things go from perfectly stable to completely unstable… We have always had a position in gold… I just view gold as another currency. It’s that simple.”
Kyle Bass, Bloomberg TV.
Save SILVER dollars, not PAPER dollars.
Editor: I have seen first-hand what happens to prices when shortages of PHYSICAL bars and coins are extreme. During the January 1979 to January 1980 short-squeeze, gold and silver prices quadrupled. Supply shortages are much worse today. The lion’s share of the West’s gold has traveled to the Eastern Hemisphere and the U.S. silver stock-pile is gone (more than two billion ounces gone since WW II).
Question: “Do you think that gold is currently a good investment?”
Alan Greenspan: “Yes. Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” Alan Greenspan address to the Council on Foreign Relations, November 2014 CFR meeting; from Gillian Tett, The Financial Times.
Global deflation began in 2007. The result has been increased government spending and declining tax revenues. The worldwide recession is just getting started because money printing and artificially low interest rates are here to stay.
Unprecedented debt bubbles can continue for a very long time. However, exponential debt growth is unsustainable and cannot persist forever. In the next few years, insolvent governments will default, and contagion will lead to a sovereign debt crisis.
BIG MONEY is scrambling to beat the rush out of public debt. This can be seen in extraordinary asset price inflation (luxury real estate, farmland, art, collectibles, etc.). Equity prices have been inflated to unbelievable levels.
Since last October, we have seen a sharp drop in liquidity, violent currency moves, foreign exchange shocks, currency panics, and flash crashes
Gold is a hedge against 15-20% currency moves. Central banks are stock-piling gold bullion, using a purchasing method called dollar-cost-averaging. “Gold remains a big chunk of central bank reserves… China has stock-piled gold as part of a plan to diversify $3.7 trillion in foreign exchange reserves.” Bloomberg, April 20, 2015.
Recent gold purchases by central banks in the Eastern Hemisphere have been eye-popping. Russia recently purchased one million ounces of gold bullion.
Now is the time to diversify into gold and silver. Decide early where you want to put your capital because more capital controls are coming. It will be too late when it is obvious to everyone the train is off the rails. The majority will panic and rush to sell PAPER (derivatives) when they no longer believe governments are in control.
When sellers need liquidity, it will vanish. Buyers for government bonds will disappear. Overnight, most investors will be locked out of positions or locked in positions. Monetary metals will move suddenly as bond liquidity evaporates.
By Denise Rhyne
Call (206) 719-6368
Model Precious Metals Portfolios
$5,000 $10,000 $25,000 $50,000 $100,000 $250,000
What is JPMorgan buying while prices are artificially low? GOLD, PLATINUM MINES, and SILVER BULLION. (JPMorgan, 1 Fricker Rd, Illovo, Johannesburg, 2196, South Africa / world’s largest gold producer – Sibanye Gold Ltd)
At current prices, there is blood in the streets in the platinum market. The largest South African mining companies (80% of global supply) are operating at a loss, and are selling off assets.
J. Pierpont Morgan said, “Buy when there is blood in the streets.” The notorious financier took his own advice. He became fabulously wealthy by buying assets when others were selling.*
What is JPMorgan looking to buy during this “platinum fire sale?” PLATINUM MINES. (mission accomplished Sept. 2015)* JPMorgan Cazenove’s long-term forecasts have not altered from previous forecasts.
Sept. 9, 2015: Sibanye Gold Ltd. purchased the Rustenburg platinum shafts from Anglo American Platinum (sale price: 4.5 billion rand plus shares).
The economies of the world are in uncharted territory. No one knows when the music will stop. However, we all know a debt crisis is
coming here. During financial panics, two things always disappear: LIQUIDITY and PRECIOUS METALS.
Shortages of gold, silver and platinum showed up big-time in 2008. During the financial crisis, gold went to $1,000/oz for the first time (March 14, 2008). On the same day, platinum jumped to $2,107/oz. Leading up to the crash, both metals had doubled in only two years because of acute, physical shortages.
Jan. 5, 2006: GOLD $525/oz
Jan. 3, 2006: PLATINUM $982/oz
For years, the price of one ounce of platinum was two times the price of one ounce of gold. Over the decade, the average premium for platinum was 39% over gold. Why? Because the supply of platinum is so small compared to gold.
• Platinum is ten times more rare than gold.
• The entire platinum market is only 7 million ounces.
• Platinum is a strategic metal; essential in high-tech.
• In the 2008 crisis, platinum jumped to $2,300/oz.
BLOOD IS IN THE STREETS
Today, the platinum spot price is $860, $211 under gold. When platinum is selling at a discount to gold, it is a BUY SIGNAL! (The bare cost to mine platinum is $1,100/oz.).
Recommended: Canadian 1 oz Platinum Maple Leaf.
We have analyzed the fundamentals of actual platinum supply and global demand: Platinum Buy Signal: 62% below high.
By Denise Rhyne
On December 8, 2015, Anglo-American (world’s largest platinum producer) announced restructuring will reduce its assets by about 60%. The world’s fifth largest miner will lay off almost two thirds of its employees (85,000).
* Sibanye Gold Ltd is Africa’s largest gold producer. July 6, 2014: Prior to joining Sibanye, James Wellsted (Sibanye spokesman, Sr. V.P) was a South African mining analyst at JPMorgan (Qatar Tribune). On April 8, 2014, James Wellsted said, “…there’s a lot of potential to replicate what we’ve done with the Sibanye assets in the platinum sector” (“referring to purchasing more platinum mines, a precious metal that is in short supply;” Metallix). On Aug. 1, 2014, Business Day Live reported: “Bolstering its platinum plans is the recruitment of Steve Shepherd, a highly regarded analyst who retired in June from JPMorgan Cazenove to help it find the right assets.” On May 27, 2015, BizNews.com reported: “Sibanye still keen to buy Anglo Platinum mines.”