“Rich Dad”: Gold should reach $15,000/oz

Robert Kiyosaki, along with friend, and author of the Rich Dad Advisor Book, Guide to Investing in Gold and Silver, Mike Maloney, explains why gold and silver are vital investments for todays economy.

 

Sprott on US$: Safe Harbour no more

“The US dollar (USD) is the world’s “reserve currency”. This status is arguably the greatest privilege enjoyed by the US as an economic entity. Most people don’t appreciate its significance. As the world’s reserve currency, the USD is used by other countries across the globe to back up their own respective paper currencies. In some cases, it’s as basic as a country stockpiling US dollars in their central bank vaults. When asked what supports their Pesos, Rubles, or Yen, the powers that be simply point to their pile of US dollars as proof of value. Upon reflection, it’s quite obvious how tenuous it is to back up one’s currency with a pile of paper issued by another country, but this is exactly how the world of international currency has worked for decades. And it has worked quite well…until now.”

“…We keep coming back to the numbers for the US debt, and they don’t add up. Even Alan Greenspan, former Chairman of the Federal Reserve, believes that the rising budget deficits in the United States are “unsustainable”. Because the US Government is printing dollars to fund their liabilities, it is highly unlikely that we will ever see a failed bond auction similar to that of Poland. The far more likely outcome, therefore, will be a US dollar crisis. It is for this reason that we have positioned our hedge funds and mutual funds so heavily in precious metals.

At the end of the day, when the world finally realizes what the US has done to the world reserve currency, international investors will shift into an asset that no government can print. In our opinion the US dollar’s status as a ‘port’ in the financial storm has officially come to an end.“

Click HERE to access Sprott Asset Management’s assessment of the US$ position today.

 

Hyperinflation Nation!

The following is a -must see- video documentary (in 3 parts) entitled, “Hyperinflation Nation” which tells all about the past, present, and future state with regards to the outlook of the USD.

 

In uncertain times, all that glisters is a gold standard…

By Gillian Tett
Financial Times, London
Thursday, April 9, 2009

A few months ago, Terry Smith, head of Tullett Prebon, the interdealer broker, chaired a panel at the World Economic Forum meeting in Davos which was asked to produce one concrete recommendation to fix the global financial crisis.

The top pick? Not anything on toxic assets or fiscal spending. Instead, this gaggle of leading financiers called for a new reserve currency, akin to an old-style gold standard.

“Two-thirds of the world’s assets are denominated in a fiat currency issued by a country whose authorities are taking policy actions which seem inevitably to lead to its debasement,” explains Mr Smith, noting that “it seems … the Chinese have now concluded that this is not acceptable.”

Just a bit of pie-in-the-sky posturing of the sort that often occurs in high-altitude Davos? Perhaps. But Mr Smith is hardly a do-gooding, state-loving dreamer; on the contrary, Tullett Prebon is about as ruthlessly free-market as they come.

Moreover, these musings about a gold standard are currently cropping up in all manner of unlikely places. One savvy European property developer (who aggressively sold most of his holdings in early 2007) recently told me that he is now moving a growing proportion of his assets from government bonds into gold, even at today’s elevated prices.

“The logical conclusion of where we will end up eventually is with some type of gold standard,” he explains, arguing that future inflation will almost inevitably cause a future collapse in government bonds.

Half a world away in the Middle East, some sovereign wealth funds now say that they are stocking up enthusiastically on food and gold, due to similar reasoning.

Meanwhile, in New York a (still) formidable American hedge fund recently circulated private research that echoes the reasoning of Mr Smith. Most notably, this hedge fund points out that since the world abandoned the gold standard on August 15, 1971 credit creation has spiralled completely out of control.

But this four-decade long experiment with fiat currency is not just something of a historical aberration, it argues – but potentially very fragile too. After all, the only thing that ever underpins a fiat currency is a belief that governments are credible. In the past 18 months that belief has been tested to its limits. In coming years it could be shattered, particularly if the current wave of extraordinary policy measures unleashes a wild bout of inflation.

Hence that chatter about a gold standard. Indeed, as the debate bubbles up, some financiers are now even e-mailing each other an extraordinary little essay that Alan Greenspan himself wrote in support of a gold standard back in the 1960s, called “Gold and Economic Freedom“:

http://www.financialsense.com/metals/greenspan1966.html

In the years since he penned this essay, Greenspan has partly backed away from those ideas (and he blatantly ignored their implications when he was at the Fed) But now they look prescient.

“Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets . . . [but] in the absence of the gold standard … there is no safe store of value,” Greenspan wrote back then, pointing out that without a gold standard in place, there is little to prevent governments indulging in wild credit creation. “Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

Of course, for the moment all this muttering about gold is simply wild speculation. Even if Western leaders suddenly were to decide they wished to turn back the clock, the logistics of embracing a new gold standard would be mind-boggling. UBS, for example, calculates that the US reserves of gold are so small, relative to its monetary base, that a price above $6,000 an ounce would be needed to reintroduce a gold standard. To implement that standard in Japan, China and the US, the price would be more than $9,000. Moreover, right now few western governments have any motive to even entertain the debate, given that inflation may soon seem the least bad way to tackle the current overhang of debt.

But what this debate does show is just how much cognitive dissonance — and utter uncertainty — continues to stalk the markets. It might seem almost unthinkable to propose a return to a gold standard, in other words. However, the key point is that the last 18 months have already produced a stream of once unimaginable events.

Given that, shell-shocked investors are increasingly reluctant to rule anything out, as they stare at such uncharted waters. So while I would not bet today on a gold standard returning any time soon, I would also not bet that the debate dies away. Nor would I bet that the gold price crashes too far from its current rate of $900, while so much fear continues to stalk the world.

* * *

 

Emerging economies may seek gold as dollar fears rise

John Irish and Luke Pachymuthu
Reuters
Monday, March 2, 2009

DUBAI — Major emerging economies are seeking to raise their central banks’ gold reserve holdings as fears of a sharp depreciation in the U.S. dollar mount, senior industry officials said on Monday.

Investors have been piling into gold as a safe haven as the the world’s worst financial crisis since the 1930s depression sent global stock markets crashing.

“In this recession it is India and China that are going to grow at a slow rate, but they are growing,” said Aram Shishmanian, chief executive officer of the World Gold Council.

“And they will naturally be looking to gold as part of their reserve asset management strategy, and I see them buying.”

China, the biggest foreign holder of dollar-denominated treasury securities with some $681.9 billion or about 12 percent of treasury papers outstanding, could reverse that by paring its dollar holdings.

“China has $2 trillion of reserves, and only 1 percent in gold and nearly all of the rest is in U.S. dollars,” said Marcus Grubb, managing-director of investment research and marketing at the industry-sponsored World Gold Council.

“What we are seeing is a reassessment of the risk associated with the high exposure to the dollar. Obviously at the moment you see the dollar appreciating 25 to 30 percent against most currencies around the world, but a lot of that is obviously driven by liquidity.”

European central banks, which hold about half of global gold reserves, saw gold sales fall to their lowest levels since 1999, according to Grubb as governments store the precious metal as a buffer against worsening markets.

“Sales were underneath the Central Bank Gold Agreement cap. … The cap was about 400 metric tonnes and I think they sold 356 tonnes. … Something is going on.”

Under the terms of the agreement, signed in 1999 by key European institutions including Germany’s Bundesbank and the European Central Bank and renewed in 2004, members can sell up to 500 tonnes of gold a year.

The dollar hit a three-year high against a basket of six major currencies on Monday, with news that the U.S. government would pour a further $30 billion into troubled insurer AIG hastening risk-averse flows. The dollar index hit 88.822 — its highest since April 2006.

But Grubb said the strength of the U.S. dollar is likely to be short-lived.

“That is a temporary phenomenon. If you look at the size of the bailout packages in North America the fact that the U.S. economy may well enter a depression … there is a real fear of that,” he said. “In that scenario I wonder what will happen to the U.S. dollar.”

Such a decline would apply pressure on Gulf Arab states, which have faced popular pressure to ditch their currencies link to the greenback and switch to fight imported inflation when the dollar was weak.

“It would certainly be (a concern) to all regions pegged on the dollar. … Because they have run surpluses, and the Western countries have been in deficits, they have huge accumulation of dollar reserves,” Grubb said.

“In that scenario you could see an increased demand for gold then.”

* * *

 

Somehow in the FT: Gold primed to be ‘mania asset’

By Steve Ellis
Financial Times, London
Wednesday, February 18, 2009

Gold is exhibiting all the classic signs of being in a structural bull market. On fears of inflation in early 2008, it rallied. Then, on fears of deflation in late 2008, it rallied again.

So does gold perform better during inflation or deflation?

In our view, that question is the wrong starting point. On the contrary, the rationale for owning gold, as it once again approaches the $1,000-an-ounce level, is the prospect of mounting monetary disorder.

The US Federal Reserve, having flooded the market with liquidity by more than doubling its balance sheet in less than six months, may be unable or unwilling to withdraw it in time for fear of precipitating a secondary relapse in economic activity. Other central bankers will also face intense pressures to “support” their domestic economy by weakening the currency, leading to competitive currency devaluations.

The race to the bottom in fiat currencies has begun and hard assets, particularly gold and silver, should be the primary beneficiaries.

Gold is a prime candidate to become a “mania asset” once its demand becomes chiefly financially driven as opposed to jewellery and/or industrial demand driven where its upside could be capped by “sticker shock.”

In fact, gold is currently one of the few remaining major asset classes where a case could be made for it to rise in a parabolic fashion. Once the psychologically significant $1,000-an-ounce is breached convincingly, the speed of the move beyond that level could accelerate sharply. One precondition for a mania is there must be uncertainty about how the asset is properly valued which allows “new era” thinking to take hold. This is very true for gold.

Price explosion might not be imminent, however. Gold is experiencing unprecedented buying by exchange-traded funds, offset by substantially reduced jewellery demand. The fall in the Indian rupee has meant Indian gold prices have reached record levels. This is causing a slowdown in jewellery purchases (even though rupee expenditure levels are holding up, the tonnage of gold imports is suffering).

The long-term story for gold, however, is as a remonetisation play as investors lose faith in fiat currencies. Keep an eye on gold lease rates; a spike would be a good lead indicator that gold is about to punch higher as this would reflect a shortage of lendable bullion. Rising lease rates will cause gold to go into backwardation as holders of gold may not want to sell their gold forward under any circumstances a trend currently evidenced by the high physical premium being paid for gold coins.

Rising lease rates prefigured the last big move in gold back in the spring of 2007 just as the two Bear Stearns hedge funds were blowing up. Central Banks feared counterparty risk for the first time in 20 years and substantially curtailed gold lending and sales. This led to a 40 per cent rally in gold from $700 to over $1,000.

How high can gold ultimately go? A Dow Jones Industrial Average/gold ratio of 2:1 would be a good sign the bull market in gold is getting well advanced. We saw this in 1932 and 1980. Only nine years ago in 2000, however, this ratio reached over 40:1.

Arriving at 2:1 again does not necessarily mean the Dow must decline significantly from here; more likely gold prices surge and the Dow stays range-bound but volatile. Investors are looking for good risk/reward investments.

I cannot say with any confidence that gold will not be without risk and volatility but at least it offers early participants plenty of upside reward to compensate them for the wild ride.

Speaking to central bankers, this is the first time I can recall them actually favouring a high gold price. Normally they see high gold prices as a lack of trust in the financial system (not to mention their ability as central bankers). Alan Greenspan, the former Fed chairman, for example, used to target a gold price of around $400 to $500 an ounce.

Recently, the central bankers have become more enamoured of higher gold prices as it would suggest that their attempts to stave off deflation were starting to work.

Central bankers in favour of higher gold prices? Things really have changed.

—–

The writer is manager of the RAB Gold Strategy.

* * *

 

Jim Sinclair: Let’s Make it Official, It’s Out of Control

Dear Friends,

I have sent you certain emails that I consider to be the most important communications issued in my career which started in 1958.

I am the son of the man that I consider to be the greatest Lone Wolf trader in Wall Street history, Bertram J. Seligman. He was a past master at his business and was naturally sensitive to market conditions. I apprenticed to him, learned from him and inherited some of his ability. But not all, however.

From this background of experience, understanding and sensitivity to the market the following flows.

I want to bring your attention to the following emails of note:

1. Said: “This is it.”
2. Said: “It is now.”

This communication is to inform you as of 2/13/09 that “It is totally out of control.” There is no longer any means of reversal of the beginning of the final phase of the downward spiral now solidly set in motion. For your sake, protect yourselves immediately.

Be prepared for disruptions in distribution common to hyperinflation.

1. You should have already distanced yourself from your financial agents. If you haven’t, you are headed for significant displeasure and strain.

2. Make sure you stay three months ahead on necessary items that could experience distribution delays such as prescribed medicine and preferred foods.

3. Even though real estate is far from a buy, if you can afford a second home outside of major cities it would serve a good purpose.

4. Own gold.

5. Consider that good gold shares of non-US companies incorporated in a non-US country, operating in a third country and traded on multiple exchanges are a means of money expatriation legally and in broad daylight if required.

6. For currencies, all you can do is own a spread held by a true custodialship wherever that might be.

Simply said, as of Friday February 13th, 2009 the situation is confirmed as being in “Out of Control” mode as this well engineered downward spiral enters into its terminal phase.

The root cause of this mess was profit and the degree of disintegration it caused in the pursuit of this goal was not anticipated.

The key event that set things in motion was when Lehman was flushed – all hell broke loose. The hell cannot be contained in any practical manner.

I seek nothing of you but the protection of yourselves.

Respectfully yours,

Jim Sinclair

 

Peter Schiff Lays it Down Again

Peter D. Schiff is the president of Euro Pacific Capital Inc., a brokerage firm based in Darien, Connecticut.
Schiff is an Austrian school economist and supporter of the Ludwig von Mises Institute. Schiff frequently appears as a guest on CNBC, Fox News, CNN, CNN International, and Bloomberg Television and is quoted in major financial publications…

 

Russia’s biggest bank notes surging demand for gold

By Dmitry Sergeyev
Reuters
Wednesday, February 11, 2009

MOSCOW — Russia’s biggest lender, Sberbank, saw retail precious metal accounts double in 2008 as people rushed to protect their savings in a time of financial and economic crisis, a bank official said on Wednesday.

Russians opened 170,000 new accounts which track the price of precious metals last year, taking the total number of such deposits at the state-controlled bank to around 300,000, said Vladimir Tarankov, the director of Sberbank’s currency and non-trade operations department.

“We have clients who bought 200-300 kilograms of gold and a 10-kilogram gold coin only spent two days in our safe,” he said.

The instability of Russia’s 1000-plus banking system, a 30 percent depreciation of the rouble against the dollar since August 2008 and double-digit inflation have left Russians seeking lasting value for their investments.

Sberbank sold the equivalent of 55 tonnes of precious metals in 2008, including 40 tonnes for precious metals accounts, and the peak of sales came in the second half of the year when the global crisis gripped Russia with full force.

Russians are not alone in their rush for gold. Investors and ordinary people all over the world are buying precious metals to hedge against currency volatility.

The U.S. mint sold 2.6 tonnes of popular Golden Eagle Coins in January 2008, or four times as much as during the same period of 2007, Russian Vedomosti daily paper reported on Wednesday.

Tarankov said Sberbank has never seen such a great demand for Russian investment coins as in 2008.

“Gold coins are simple and clear and we have an order for as much as 3,000 coins from one client,” he said.

“If you bought gold in the end of last October and sold it yesterday, it could give you a return of almost 58 percent” in roubles, Tarankov said.

In dollar terms, such an investment would have made around 30 percent.

As the global financial crisis seems far from its end, the demand for precious metals remains strong, Tarankov said. This January Sberbank’s retail clients purchased the equivalent of 6 tonnes of precious metals.

* * *

 

Bank of England: oiling the printing presses…

Reform Plan Raises Fears of Bank secrecy

By Edmund Conway
The Telegraph, London
Saturday, January 10, 2009

The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.

The Government is set to throw out the 165-year-old law that obliges the Bank to publish a weekly account of its balance sheet — a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel’s Government in 1844 that originally granted the Bank the sole right to print UK money.

The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.

However, some have warned that it means “there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.”

It comes after the Bank’s Monetary Policy Committee cut interest rates by half a percentage point, leaving them at the lowest level since the bank’s foundation in 1694.

With the Bank rate now at 1.5 percent, most economists suspect that the Government and Bank will soon be forced to start quantitative easing — directly increasing the quantity of money in the economy — in a drastic attempt to prevent a recession of unprecedented depth.

Although the amount of easing is likely to be limited, news of this increased secrecy will spark comparisons with Weimar Germany and Zimbabwe, where uncontrolled use of the central banks’ printing presses ultimately caused hyperinflation.

The Bank said it will still publish details of its balance sheet, but, significantly, the data — the main indicator of the extent of quantitative easing — will not be presented until more than a month has elapsed. For instance, under the new terms of the law, if the Bank were to have embarked on a policy of quantitative easing last month, the figures on this would not be published until the end of this month.

The reforms, which are likely to be implemented later this year, will make the Bank of England by far the most secretive major central in the world, experts said.

In the US, where the Federal Reserve has already cut rates to close to zero and started quantitative easing, the main way to track its purchases of securities and the expansion of its balance sheet is through precisely these same weekly accounts.

“Quite why the Bank has to keep its operations so shrouded in secrecy is a mystery to me,” said Simon Ward, economist at New Star. “This will make it much more difficult to track what the Bank is doing.”

Among the details which will no longer be published are those revealing the extent to which London’s banks are using the Bank’s deposit facilities — a yardstick of pressure in the financial system.

Debating the issue in the House of Lords recently, Lord James of Blackheath, a Conservative peer, said: “Remove [this] control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.

“If we went down that path we would be following a road which starts in Weimar, goes on through Harare, and must not end in Westminster and London. That is the great fear that the abolition of that section will bring about — but the Bill abolishes it.”

* * *

 

Merrill Lynch says rich want gold bars, not gold paper

By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, January 8, 2009
___________________

Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or “paper” proxies.

Gary Dugan, the chief investment officer for the US bank, said there has been a remarkable change in sentiment. “People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs,” he said, referring to exchange trade funds listed in London, New York, and other bourses.

“They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands,” he said.

Merrill predicted that gold would soon blast through its all time-high of $1,030 an ounce, and would hit $1,150 by June.

The metal should do well whatever happens. If deflation sets in and rocks the economic system it will serve as a safe haven, but if massive monetary stimulus gains traction and sets off inflation once again it will also come into its own as a store of value. “It’s win-win either way,” said Mr Dugan.

He added that deflation may prove the greater risk in coming months. “It’s very difficult to get the deflation psychology out of the human brain once prices start falling. People stop buying things because they think it will be cheaper if they wait.”

Merrill expects global inflation to hover near zero, with rates of minus 1pc in the industrial economies. This means that yields on AAA sovereign bonds now at 3 percent will offer a real return of 4 percent a year, which is stellar in this grim climate. “Don’t start selling your government bonds,” Mr Dugan said, dismissing talk of a bond bubble as misguided.

He warned that the eurozone was likely to come under strain this year as slump deepens. “There is going to be friction as governments in the south start talking politically about coming out of the euro. I don’t see the tensions in Greece as a one-off. It is a sign of social strain in countries that have lost competitiveness.”

* * *

 

Evans-Pritchard: gold to break $2000 by next year

Citigroup says gold could rise above $2,000 next year as world unravels

By Ambrose Evans-Pritchard
Telegraph.co.uk
Last Updated: 4:48PM GMT 26 Nov 2008

Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity, according to an internal client note from the US bank Citigroup.

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist.

“The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

“Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes,” he said.

“This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.”

“What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We’re already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore,” he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. “If true, this is a very material change,” he said.

Mr Fitzpatrick said Britain had made a mistake selling off half its gold at the bottom of the market between 1999 to 2002. “People have started to question the value of government debt,” he said.

Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.

Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.

***

N.B. You can read the 9-page Citigroup report on gold, cited above and written by CitiFX analysts Tom Fitzpatrick and Shyam Devani, HERE