He Who Hesitates . . . ?

The price of gold has jumped about $150 per ounce (about 14%) during the past 30 days.   This increase has been remarkable, persistent and almost unstoppable.  Almost every day, gold goes up a little or sometimes a lot.  If it falls, the fall is temporary, and quickly overcome by another day of rising prices.

If you had $50,000 worth of gold bullion 30 days ago, today, that same gold would be valued at nearly $57,000.  If you had $50,000 in numismatic gold, the price of your coins over the past 30 days might’ve risen closer to $65,000.

As a result of the past month’s price increases, those who have gold are practically giddy in the expectation of seeing a comparable (greater?!) price increase over the next month.

However, a handful of economists and  commentators have warned that gold may be rising too fast and too far.  Some have described the gold market as another “bubble” that may be near to poppin’.  Some claim the price of gold has pretty much “peaked”.  All suggest that a “major correction” may be imminent.

These commentators may be right.  A significant “correction” is possible.  In fact, during the “wee small hours” of Friday morning, while the Western world was fast asleep, the Hong Kong market took gold down from $1,190 to $1,140—a one-day, $50 “correction”.  That was kinda scary.  But by 11 AM East Coast time on Sunday, gold was back up to $1,177 for $13 dollar loss.  As I post this article (Monday, Nov. 30th at 12:45 PM) gold is back up to $1,180.   So it’s down $10 an ounce from its recent peak.  No big deal.

More importantly, gold was vulnerable after the $50/ounce loss.  If there was going to be a major correction, it should’ve happened this last weekend.

In fact, I believe the concerns about a major “correction” in the current price of gold are mistaken.  I don’t believe for one minute that price of gold has reached its “peak”.  Instead, I suspect that the price of gold has just begun to rise.

Here are some of my reasons:

•  American demand for gold is going mainstream.  This week’s headlines say it all:

Wall Street Journal:  “A Mad Rush as Gold Bugs Get the Boot.  Fleets of armored trucks piled with gold bars and coins have been streaming out of midtown Manhattan in one unexpected consequence of the gold craze.  Amid gold’s rise—it has gained 32% this year and reached a record on Monday—investors have been loading up on bullion and coins.”

Business Day:  “Gold’s record run heads towards $US1200.  Gold hit a record high above $US 1,192 today as sentiment remained solid on expectations of more central bank buying of bullion and further dollar weakness.”  

Reuters:  “US Mint to suspend American Eagle gold 1-oz coins. The U.S. Mint said on Wednesday it will suspend sales of the popular American Eagle one-ounce bullion coins as strong demand depleted its inventory.  The Mint said it expects to resume sales in early December.”

MarketWatch:  “New gold bugs making gold investments mainstream.  Gold has long been favored by a fringe of the investment world, but this year some of the world’s leading hedge-fund managers have loaded up on the precious metal amid concern government efforts to avoid another Great Depression that could undermine major currencies and fuel rampant inflation.”

Here’s my point: gold is no longer an investment for American “kooks” (or visionaries, depending on your perspective) operating on the economic “fringe”.  The mainstream media has been forced to recognize gold as a mainstream investment.  With that public recognition, more and more mainstream Americans will begin to purchase gold.  With the increased demand, the price of gold should rise.

•  Asian governments buying more (and more) gold

The China recently announced buying another 10,00 tons of gold.  The government of India bought 200 tons of gold from the International Monetary Fund—and is considering buying another 200 tons.  Increased demand should translate into higher prices.

•  Asian people buying gold.

India has been a gold “sink” for centuries.  Common Indian people have always sought gold for jewelry, dowries and savings.  More recently, the government of China has expressly advised its people to buy gold.  I.e., the Chinese government has advised its people to dispose of whatever paper dollars they’ve squirreled away in their mattresses by spending them to get gold.   The Asian demand for gold is rising.  Increased demand should push prices higher.

•  The driving force behind the price of gold is shifting to Asia.

A friend called me last Sunday to ask “Have you seen what the markets did to gold today?!”

I replied, “It’s Sunday—the markets are closed.”

He said, “No—not the US markets—the Asian markets!”

He was right. The price of gold—which had closed Friday in New York at $1,150 had been pushed up on Sunday to $1,161 in Hong Kong.  When US markets opened Monday morning, they followed Hong Kong’s lead.

My friend made me recognize that a profound shift is taking place.  Increased demand for gold from Asian governments and Asian people is shifting the primary force behind the price of gold from New York and London markets to the markets of Hong Kong and New Delhi.  The consequences will be profound.

For example, prices that rise in Hong Kong are being followed later that day by increases in US prices.

Asian billionaires are buying futures contracts for gold and—rather than merely accepting a check denominated in dollars or pounds—demanding to take physical delivery of tons of gold.  Result?  US and London commodity markets are facing exposure for selling tons of “paper” gold that did not really exist.  Such “naked short selling” is a felony.  Exposure of that naked short selling will cause it to stop.  Result?  Higher prices for gold.

•  US gov-co control of the gold market is over and influence is waning.

As the driving force behind gold prices shifts to Asia, the folks who truly manage the US and London gold markets will be less able to manipulate the price of gold.  As Asian governments and Asian billionaires demand physical delivery of gold futures, US and London gold bullion banks won’t dare to continue their “naked short selling” schemes.  Result?   The Federal Reserve, U.S. gov-co and Bank of England will be less able to artificially suppress the prices of gold in order to maintain the illusion that the paper dollar has value.   Result?  The price of gold should rise.

•  The price of gold—suppressed for most of a generation—will rise.

Insofar as the US/London financial interests can no longer safely manipulate and suppress the prices of gold, formerly suppressed gold prices will rise quickly (perhaps suddenly) from “un-free,” manipulated market prices to true “free” (un-manipulated) prices.  The release of the pent-up “free market” energy could help cause the price of gold to suddenly double or even triple in a relatively short period.

•  The US$ Index “Line in the Sand” will be breached.

Over the past month, I noticed that every time the US Dollar Index approached (or sometimes dropped briefly below) the 75 level, the dollar would respond strongly and almost “magically” to rebound back up to 75.5 or 75.9, etc..  Based on these observations, I’ve come to suspect that gov-co has become adamant about maintaining the US$ Index above the 75 “line in the sand”.

I have no supporting evidence, but I strongly suspect that this “line” was not arbitrarily selected by the Federal Reserve or Washington DC.  The line seems defended with such passion (desperation?), that I suspect some other significant political body (China?) has told gov-co that if the US$ Index falls below 75, something dramatic (like dumping dollars on the open market) may take place.

I’m not predicting that a fall below 75 will precipitate economic Armageddon.  After the 75 “barrier” is broken, gov-co may establish a new “line in the sand” at, say, 72—and then 70 . . . and then 68, etc..  But I do suspect that when the US$ Index inevitably and permanently falls below 75, we’ll soon see some dramatic consequences on the international financial markets that will translate into higher gold prices.

•  Reports of a gold/tungsten scandal have circulated on the internet for the past 2 or 3 weeks.  In essence, these reports suggest that several hundred thousand (perhaps as many as one million) 400 ounce gold bars may have been “counterfeited” in that they allegedly consist of tungsten cores ($10/pound) surrounded by a relatively thin coatings of 24-ct. gold.  The actual extent of this problem remains to be confirmed, but if it turns out that several hundred thousand bars have been “counterfeited,” then the world’s perceived supply of gold will be proportionally reduced.

For example, suppose it was confirmed that 100,000 400-ounce gold bars were counterfeit.  The world’s presumed supply of gold would be thereby reduced by about 1,250 tons.  That’s not a lot, but insofar as the presumed supply of gold were reduced while demand remained steady (or grew), we can expect the price of gold to rise.

More, while investors become wary of buying gold bars that might be primarily composed of tungsten, such fears should not apply to gold coins.  Result?  The tungsten/gold bar scandal may cause a shift towards buying gold coins.  This should result in a higher coin demand, and even higher prices for gold coins.

•  Repudiation of the value of paper debt instruments.  An un-manipulated gold commodity market, rising domestic and international demand, and falling supplies of gold point to towards three consequences:  1) increased prices for gold; 2) decreased purchasing power for dollar; and 3) loss of purchasing power of paper debt instruments denominated in dollars such as stocks, bonds, pension funds, bank account books, cash, etc..

Implication:  If you’re holding your wealth in the form of paper debt instruments, you’d better think long and hard about how much longer you’re willing to assume that risk.  I’ve predicted since July of ’08 that the total American debt has grown so large that at least 80% (I now suspect 90%) of existing US paper-debt instruments could not be paid and therefore will not be paid.  If my prediction is roughly correct, those of you holding your wealth in the form of paper debt instruments denominated in dollars will, on average, lose at least 80% of your “paper” wealth.

Of course,  I could be wrong.  But everything I see tells me that those who remain invested in paper—any paper—denominated in dollars are going to lose most of their wealth.

Solution:  Liquidate your paper now and purchase as much gold and silver as you can.

And don’t pussy foot around.  Understand that as the great gold rush heats up, more and more people will necessarily seek to buy gold.  Where will they get the “money” to purchase the gold?  Answer:  Some of the money will come from their weekly paychecks, but most payments for gold will come from savings.  How are those savings kept?  As paper debt instruments like stocks, bonds, pension funds and bank accounts.

Thus, in order to buy gold, most will have to liquidate some or all of their paper debt instruments.   But note that as more people try to sell their stocks, bonds and pension funds to acquire the cash needed to buy gold, the supply of paper debt instruments available for purchase on the public market will rise at the same time the demand for paper debt instruments falls.

Result?  The price of paper debt instruments could fall almost as dramatically as the prices of gold and silver rise.

More, there’ll probably be a kind of self-fulfilling “prophecy” in this phenomenon.  As more people sell unlimited supplies of paper debt instruments to buy limited supplies of gold, gold will necessarily become ever more expensive while paper becomes increasingly worthless.  Soon—and I mean soon—the market’s psychology could shift from selling paper debt instruments for the purpose of buying gold, to buying gold to escape increasingly worthless paper.   At that point we could see both a simultaneous “gold rush” and “paper panic”.

If and when such psychological shift takes place, it won’t be gradual.  “Panic,” by definition, is a sudden and explosive phenomenon.  If the falling value of paper debt instruments causes a real “paper panic,” the value of gold should suddenly skyrocket at the same time the values of paper debt instruments fall like hailstones.

The process of liquidating paper debt instruments to not simply purchase tangible assets like gold but to flee from paper has already begun.  “Insider Trading” reports indicate that “insiders” (executive in major corporations) are selling 17 of their own shares for every one that they buy.  Why are these insiders selling?  Because they know or believe (and who would know better?) that their corporation’s paper stocks are going to fall in value.  After liquidating their stocks, where do you suppose these insiders invest their money?   One answer must be Gold.

Unless they act soon, those “outsiders” who are still holding their wealth in the form of paper debt instruments may soon see their wealth disintegrate before their eyes.  Paper “holders” could easily lose as much as 2% to 5% in value per day.  In a worst case scenario, they might be virtually wiped out in 90 days, maybe even less than a month.

While it’s possible that we’re witnessing a “bubble” in the gold market, that bubble is only beginning to inflate and unlikely to “pop” anytime soon.  Despite other commentators’ concerns that gold may have gone up too far and too fast, I believe we’re going to see at least another 18 to 24 months of dramatic, perhaps spectacular, increases in the price of gold.

Implication:  Time’s a’wastin’.  Do not hesitate.  Sell your paper debt instruments while you can.  Buy gold and silver while they’re still relatively cheap.

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