Gold & Silver, STAFF NEWS & ANALYSIS
Whither Gold During a 'Dangerous End Game'?
By Daily Bell Staff - December 10, 2015

It's going to get much worse for gold … It's been another tough year for gold. The precious metal has fallen 10 percent in 2015 and is tracking for its longest yearly losing streak since 1998. And according to one technician, the pain will continue heading into 2016. "I think there's still downside here," Rich Ross said Monday on CNBC's "Trading Nation." – CNBC

Dominant Social Theme: Gold is headed toward the basement and then to the garbage can.

Free-Market Analysis: The knives are out again for gold as Wall Street waits impatiently for the Federal Reserve to hike interest rates, thus strengthening the dollar, which – so we are told – will result in another tumble for gold against the mighty greenback.

Of course, the mainstream media generally doesn't miss an opportunity to bash precious metals even though for nearly a decade earlier in the 2000s the dollar tumbled against both gold and silver. That hasn't been the case lately, as CNBC points out in this report posted a few days ago.

The article quotes Ross (see excerpt above) as discerning a distinct downward trend for gold. The article then summarizes gold's progression by pointing out that precious metals and commodities generally have been in a "free fall" in the past year "as the dollar has ripped higher."

Ross is quoted again, saying, "The path of least resistance for gold is down. I would be a seller into any strength." And yet … how can anyone look at the US economy and come away thinking that the dollar will hold its strength in the long term? More and more, prices seem to reflect a distinct divergence with reality.

Over at LewRockwell,com, we find evidence of this divergence in a report initially posted at GoldCore entitled, "Gold Buying Surges At U.S. Mint In November – China Buys 21 Tonnes In November Alone."

Despite gold at near 6 year lows, global demand for physical bullion remains very high. This is clearly seen in the recent demand data from the U.S. Mint and other mints. It is also seen in demand data from GFMS and the World Gold Council which shows very robust demand from Germany, India and of course, China.

There is also the very high official demand from central banks and, in particular, the Russian central bank and the People's Bank of China (PBOC). Today came news that China's gold reserves rose by another 21 tonnes in November, the biggest bout of GOLD BUYING since China began disclosing monthly data on China's gold reserves in June.

At some point, demand surely must begin to track the larger price action. Will it be sooner rather than later? We find a post at PeakProsperity.com (also submitted to ZeroHedge), entitled, "The Screaming Fundamentals For Owning Gold" by Chris Martenson.

Martenson explains that he dumped 50 percent of his net worth into gold way back in the early 2000s. But he confesses to being stumped as to why the dollar has gained so much ground against gold in the past five years.

Here at PeakProsperity.com, we admit that we initially were utterly baffled that the vicious secular decline [that] began at almost the exact same time that the US Federal Reserve announced the largest and most aggressive money printing operation in all of history – known as QE3 – which pumped over $1.7 trillion into the financial system between 2012-2014, throwing an astonishing $85 billion dollars of newly created 'thin air' money into the financial system every month!

Such an unprecedented and excessive act of monetary desperation should have sent GOLD'S PRICE to the moon; but in fact, the opposite happened. Strange times. As we'll soon explain, even as THE PRICE OF GOLD futures were being relentlessly driven down in the US paper markets, the purchase of physical gold by China exploded. It's as if the West suddenly decided gold wasn't worth owning.

Martenson, nonetheless, believes every investor ought to have some exposure to precious metals. He writes: "We are now at the dangerous end-game period of a very bold but very reckless and disappointing experiment with the world's fiat (unbacked) currencies. If this experiment fails – and we observe it's in the process of failing – gold will provide one of the best forms of wealth insurance."

He goes on to characterize the world's central banks "as perform[ing] increasingly bizarre and desperate maneuvers to keep the financial system from falling apart."

Even seasoned pros running gigantic funds are baffled by the unusual set of conditions created by 4 decades of excessive borrowing and 7 years of aggressive money printing by central banks.

He lists three main reasons for owning gold (physical bullion). First, it protects the individual holder against the "monetary recklessness" of central banks and others who have control over the economy.

Second, bullion provides insurance against the possibility of a swift economic disaster – especially the possibility of a banking collapse. As many of the world's major banks remain perilously close to insolvency, the idea of a banking collapse is disturbingly feasible.

Third, he cites the possibility of gold's remonetization. While admitting this is not a very likely scenario, he points out that if gold were to back all existing money, "the implied price for an ounce of gold is $54,455 per troy ounce."

The situation with economies around the world is so bad that almost all central banks have announced plans to keep rates near the zero-bound and some are actually venturing into negative territory. True, the Federal Reserve intends to hike, but with obvious reluctance, considering how long the Fed is taking to do so.

Maybe later this month a hike will take place, but the consequences are perhaps unknown given the leverage present in the current system. The larger issue is that the world's perilous economic condition may be in a sense a purposeful one designed to usher in a true world currency.

If this is the case, ownership of physical bullion would not only be prudent, it would seem to be a kind of necessity. The argument can certainly be made (and we have made it) that the world's current condition is not simply accidental. There are certainly globalist forces working to destabilize Western economies so as to reconstitute them on a broader scale.

The Golden Bull never completed its cycle, in our view. The big blow-off still awaits and it will benefit the junior mining sector as well as the price of physical bullion – which could push well past US$2,000 an ounce if there is a serious crisis.

After Thoughts

The mainstream economists and journalists may not believe there is a good case for significant precious metals exposure in investor portfolios but common sense seems to tell us otherwise.

Posted in Gold & Silver, STAFF NEWS & ANALYSIS
  • robertsgt40

    Remember the first time(after the Fed was hatched), gold and the dollar went head to head? Gold was made a crime to own and was confiscated in 1933. It stayed that way for 40yrs. Pretty harsh punishment for owning a “pet rock”, eh?

    • jackw97224

      True allowing for the fact that one was allowed/permitted in the Land of the Free and Home of the Brave to keep 100 dollars worth of gold, say 5 twenty-dollar gold pieces. Excerpt of EO 6102 of March 9, 1933. Notice “except the following” qualification which a lot of people miss.

      Section 2. All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following:

      (a) Such amount of gold as may be required for legitimate and customary use in industry, profession or art within a reasonable time, including gold prior to refining and stocks of gold in reasonable amounts for the usual trade requirements of owners mining and refining such gold.

      (b) Gold coin and
      gold certificates in an amount not exceeding in the aggregate $100.00 belonging
      to any one person;

      • robertsgt40

        Correct. For more intellectually challenged, here’s a comparison. Say you buried 5 $20 gold coins in a Folgers can in 1933. Next to it you buried a Maxwell House can with 5 crisp $20 bills. Which would prefer to have today? That’s assuming the 20s didn’t rot.

        • Lol

          I have a different question for you. Given the choice between returning your gold for crisp dollar bills or going to jail, which one will you choose?

          The Greeks have just been ordered to report all the cash (exceeding 15.000 euros) and valuables (exceeding 30.000 euros) that they own. It’s coming everywhere eventually.

          Oh, and those who think that gold protects you from inflation, here is a back-of-the envelope calculation. Suppose you own $1.000 worth of gold. Due to inflation, the US dollar collapses by 90%. Your gold is now worth $10.000. Gold’s buying power didn’t change, so these $10.000 buy the same amount of “stuff” that $1.000 used to. You think that you have succeeded protecting your wealth? Not so fast. You now owe capital gains taxes on the $9.000 “appreciation” of your assets. So, unless you are a criminal who thinks can evade paying taxes (good luck with that), or gold has become money again (yeah, good luck with that, too), your wealth has still diminished considerably and your standard of living has decreased.

  • natural human

    We live in the era of fakery. Virtually everything is fake. “We’ll know our disinformation program is complete when everything the
    American public believes is false.”– William
    Casey, CIA Director (from first staff meeting in 1981) Stanley Kubrick admitted he faked the moon landings http://www.zengardner.com/stanley-kubrick-confesses-to-faking-moon-landings/ The skies are filled with fake “clouds” of coal fly ash and other toxins probably designed for population control among other things http://www.zengardner.com/wake-the-fake-up-zombie-sleep-no-more/ The mainstream media nooz is almost all fake propaganda now that the Smith-Mundt Act has been repealed http://sgtreport.com/2013/07/cia-will-now-openly-propagandize-americans/ And the entire financial market landscape is now faked by the same forces using the power of a central banking cartel married with debt based fiat money issued solely by cartel-licensed banks. It’s all part of the same system run by the same criminals toward the same end: a new order of complete psychopathic control, a neofeudal technocracy borne out of chaos. Wake the fake up, folks. If it ain’t natural, it ain’t natural.

    • natural human

      I wish to retract the reference to the Kubrick interview. It is a hoax as can be verified by viewing the unedited version which I found here: https://www.youtube.com/watch?v=KPHRpFFRDUk This could have been a simple publicity stunt by a struggling documentary producer, or it could have been contrived by the same forces that actually did fake the moon landings in an attempt to discredit the truth movement. That’s how they roll. Regardless, it takes nothing away from the epic level of fakery we now live within – a veritable Truman Show. Maybe that was predictive programming or, perhaps more likely, revelation of the method.

  • jackw97224

    The MSM hate gold but why? Hate is evidence of fear. So then why does MSM fear gold? I suspect because gold has the power to expose MSM for their profoiund dishonesties; their spewings of logical fallacies; for their intentional deceptions on economics, i.e. their refusal to recognize the truths of Austrian School economics.

  • ZebBlanchard

    Emotions but not human behavior, totally, can be controlled and are controlled by TPTB thru the media. When emotions are driven to some breaking point between anxiety, fear and greed PM will appreciate, significantly.

  • alohajim

    Agreed. But you’re preaching to the choir here. Nothing wrong with that, the choir needs many more members. What is interesting imo is the virtual complete lack of coverage of silver by MSM. We get that gold is a pet rock, pays no interest, is a barbarous relic, is not money, and it’s impossible to return to a gold standard because there is not enough gold in the world. Ok. But silver was used far more than gold as money in human history, is a tiny market, and has a large and ever growing ‘industrial’ demand in a wide variety of uses. The gold and silver ratio is way out of whack at 75-1 yet only 10 ounces of silver or so gets mined for every one ounce of gold. All time high’s for the two precious metals is also way out of whack. Today silver is ‘priced’ at $14.00 US dollars per ounce. What can you buy today for $14.00? So we get zero coverage of silver, not even bad news, and they’ve got silver at a price that is stupid cheap. Thank the money changers.

    • Bruce C.

      There’s another fun fact you left out that’s even more bizarre: There is less above-ground refined silver today than there was 100 years ago because – unlike gold – it gets “consumed” (i.e., small quantities used in myriad components are uneconomic to recycle because of its low price and so they end up in landfills.) There’s now only about 1 billion oz of silver compared to 6 billion ounces of gold, so silver is actually rarer than gold.

      Go figure.

  • Bruce C.

    I disagree with Martenson’s back-of-envelope calculation of the potential price of gold in case of 100% gold backing. He got that figure (approx. $54,000/oz) by dividing the estimated US dollar value of currencies and credit in the global economy by the amount of gold held by central banks (about 31,000 tonnes, or about 1 billion ounces). A more accurate calculation would be to include ALL of the above-ground refined gold in the world which is estimated to be about 185,000 tonnes (or about 6 billion ounces). That would mean the gold price in dollars could be more like $10,000 oz, which I think is more believable and sustainable (i.e., not just a fleeting spike).

    The reason I say that is because about 50% of all the gold in the world is already locked up in jewelry, about 20% is owned by investors and central banks own about 16%. (I’m going off my memory here, so some of you may want to check this.) The main point, however, is that central banks don’t own most of it by a long shot. That I know. If gold went to $10,000/oz people would very glad to have the jewelry they have (never mind investors their bullion) and be reminded of gold’s historical value during crazy times, and either hoard it until the dust settles or they’ll have to sell/trade it because who knows what else most people would have to use for “currency” under those circumstances.

    • jackw97224

      So are you saying convert all the fiat currencies in the world to “dollar” denominated US fiat currency and then deviding that by the 185,000 tonnes (~6 billion Troy Ounces)?

      • Bruce C.

        Right. There is said to be about “$55 trillion” in total currency and credit in the world, which includes foreign currency and debt equivalents.

    • James Clander

      Actually you don’t give Martenson the credit he deserves -You left out what follows:

      “Clearly that’s a silly number (or is it?). But even a 10% partial backing of money yields $5,400 per ounce. The point here is not to bandy about outlandish numbers, but merely to point out that unless a great deal of the world’s money stock is destroyed somehow, or a lot more official gold is bought from the market and placed into official hands, backing even a small fraction of the world’s money supply by gold will result in a far higher number than today’s ~$1,080/oz.”
      That’s better isn’t it?

      • Bruce C.

        That’s fine, but I wanted to point out that there is a lot more gold in the world than that owned by central banks and that it makes no sense to consider only central bank gold in any calculation of gold’s price. Gold (all PMs) is fungible. Even his statement, “or a lot more official gold is bought from the market and placed in official hands” doesn’t make much sense. What is “official” vs “non-official” gold? And whose hands are “official?”

  • Norman

    does anyone try to deal with gold and silver, day in and out?> and not just talk about it.

  • perger

    Bell backs gold, this is good to know.

  • Price of gold in FRNs breaks multi year downtrend after long rates bottom

  • James Clander

    Martenson’s Article is excellent -well worth the read.

    http://www.peakprosperity.com/blog/95636/screaming-fundamentals-owning-gold “We’re at a moment of historic opportunity”

    In fact Martenson clearly spells out —–we admit that we INITALLY were utterly baffled (about Gold falling in Value against fiat)
    Not stumped for a reason at all!

    and he then goes on much further down to say:

    “In my mind, the absolute slamming of gold in 2013 was done by a few select entities and represents one of the clearest cases of price manipulation on the recent record. While we can debate the reasons ‘why’ gold was manipulated lower or ‘who’ did it, to me, there’s no question about how it was done. Or that it was done.

    Massive amounts of paper gold were dumped into a thin overnight market with the specific intent of driving down the price of gold.

    It’s an open and shut case of price manipulation. Textbook perfect.

    Even if these bear raids were performed by self-interested parties that made money while doing it, you can be sure the Fed was smiling thankfully in the background and that the SEC wasn’t going to spend one minute looking into whether any securities laws were broken (especially those related to price manipulation).

    Gold’s falling “thermometer” was exactly what the central planners wanted the world to see.”
    This is/has been one of the best Gold articles of recent times.

    • Lol

      If the powers that be are so efficient at suppressing the gold price, then clearly there is no reason at all to own gold.

  • Danny B

    Here are the numbers for the gold program in India. You turn in your gold to the bank. They give you 2% interest when inflation is 5%. You are repaid with rupees that the government has historically devalued at up to 15% per year. So far, of the 20,000 tons privately held, ONE KILO has been turned in. Indian GOV is showing a LOT of interest in the gold held by the temples. Since GOV is not a wealth generator, it must depreciate everything it touches.
    There is not the slightest bit of doubt that we are going into a worldwide collapse, probably set off by EM default. Yes, there will be enormous destruction of currency. As the meltdown proceeds, there will be a flight from paper. There can’t be an enormous devaluation/deflation without huge valuations going up in smoke. We just saw billions of barrels of proven oil reserves vanish because they can’t be economically recovered. This devaluation will work it’s way down Exeter’s Pyramid. Gold, silver, FRNs, Farmland will devalue the least.

  • majorx

    No matter what the lying establishment politicians say the chickens need to come home to roost. There is no escape from the massive default that must occur to balance the books finally and the insane leverage game that has been played to create the appearance of World financial stability. Only one monetary asset has been the worlds retainer of true value throughout history and that’s Gold. The lying World leaders are trying their best to leave the middle class investor holding the final bag for their sins. Hence the resulting massive transfer of wealth to the elites and leaving the Worlds people in immense poverty and at their mercy. This is the most wretched and despicable scheme in World history. The resulting World backlash however could find many of these elite conspiracy perpetrators in a very fragile predicament. Payback is a bitch.

  • Marcopolo

    I chuckle at all the MSM outlets and shills on gold. The price of gold is set by COMEX. For every 300 contracts issued there is one ounce of gold backing it up. 300 “owners” of the same item. Since most contracts are settled in cash, this hasn’t been a problem in the past. Want to buy a COMEX future; they just print one up for you. Want to cash out for a profit/minimal loss, the transaction is settled in cash.
    The amount of unallocated gold in COMEX depositories isn’t that big. The allocated is larger, but its owners are not going to part with it and move it into COMEX to back delivery of contracts trading at these prices.
    Look at all commodities. They are consumed. Gold is made into jewelry so you could say it’s “consumed,” but it’s still gold, and jewelry is a tiny portion of the supply. All other commodities are consumed, most can’t be reverted back to their original state, excepting copper. So, I would posit that gold doesn’t behave like a commodity. There’s only a tiny amount mined every period you wish to use, and that amount is getting smaller. But China, India, Russia, many of the “stans” and Central banks continue to buy.
    Why do you think that is? My view is gold as a “barbaric relic;” fading into history, etc. are all just one big fat meme that has been going on since 73 when currency wasn’t backed by it.
    So, for about 6,000 years it has been the preferred medium of exchange of many cultures before us, and current behavior quietly whispers it still is ( and silver-but silver doesn’t have the concentration of value per oz, though I would posit on a %age basis it will do better than gold-there are new industrial uses for it which is crimping supply).
    Long running paper like the uSD on the outside, last a bit more than 100 years and then the John Law’s, politicians, etc., screw with it and it reverts to just paper.
    As all currency is debt, you need more debt to pay the interest on the debt, ergo “inflation” has to be built into the system and why the Fed needs it.
    Yes most transactions today are conducted electronically. But the exchange value of what’s being transacted is what’s important. Countries/CB’s are already starting to put the screws to Bitcoin. I didn’t think it would last, but what it really spawned is blockchain technology which makes transactions between two parties on any good or service easy, safe, and cuts out a lot of bureaucracy.
    China’s too exposed to the uSD so they’re not going to rock the boat. But someday soon likely post 2016, but no longer than 2020, someone is going to go long COMEX gold and stand for delivery…and it can’t be delivered. For the next 6 months to a year, gold will move in single digits up and down, maybe some double digits. During our exit from 2016 it is very likely it will move in 3 digit increments, and none of them will be down.
    The reason is the smart money is buying or has already bought and there’s not enough left when we get our monetary reset with SDR’s and the uSD isn’t “king of the hill.”
    Patience grasshopper:-)

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