We Are Beginning To Approach The End Game

With tremendous volatility continuing in global markets this summer, John Williams, of Shadowstats, released an incredibly important report which contained an ominous warning.  Below is a key portion of this tremendous report, and King World News wanted to pass it along to our global readers:

Here is the ominous warning from John Williams of Shadowstats:

Beginning to Approach the End Game.  “Nothing is normal: not the economy, not the financial system, not the financial markets and not the political system.  The financial system still remains in the throes and aftershocks of the 2008 panic and near-systemic collapse, and from the ongoing responses to same by the Federal Reserve and federal government.  Further panic is possible and hyperinflation remains inevitable.

Typical of an approaching, major turning point in the domestic- and global-market perceptions, bouts of extreme volatility and instability have been seen with increasing frequency in the financial markets, including equities, currencies and the monetary precious metals (gold and silver).  Consensus market expectations on the economy and Federal Reserve policy also have been in increasing flux.  The FOMC and Federal Reserve Chairman Ben Bernanke have put forth a plan for reducing and eventually ending quantitative easing in the form of QE3.  The tapering or cessation of QE3 is contingent upon the U.S. economy performing in line with overly-optimistic economic projections provided by the Fed.  Initially, market reaction pummeled stocks, bonds and gold.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/3_John_Williams_-_We_Are_Beginning_To_Approach_The_End_Game.html

Peak Gold: Demand Will Soar As Global Supplies Dwindle

peakgold

It’s been said that all of the gold mined throughout the history of mankind could fit into just three Olympic-sized swimming pools.

With rising fuel and labor costs, successful mining operations have been few and far between, simply because there’s very little, if any, easily accessible gold, as well as its close cousin silver, left in the ground. According to Peak Resources, the supply of gold is now so limited that just 1 in 1600 new gold projects ever get off the ground. One of the key reasons for this is because mine operators have to dig deeper and spend much more money than ever before – often times just to break even.

When you consider the supply fundamentals, and couple them with the high levels of demand experienced in recent months, you can see that regardless of what is listed as the official ‘paper market’ price, gold is likely going much higher. And that’s before we even get into the monetary expansion aspect of the discussion.

While economists like Federal Reserve Chairman Ben Bernanke vehemently deny gold’s value as a mechanism of exchange, and leading market analysts take to writing obituaries for gold’s demise amid recent price swings, the fact is that all signs point to a continuation of the long-term trend.

Gold is going higher.

Michael Wittmeyer, the President of leading online gold and silver dealer JM Bullion, shares the sentiment of many precious metals investors regarding recent price movements:

There seems to be a segregation between paper and physical metals at the moment, as physical demand has never been so strong, yet metals continue to slide in the paper markets and fail to find support at any of the historical key levels thus far.

My personal recommendation is to stay the course, try to lock in the lower prices to average in a lower overall cost-basis on your metals portfolio, and stay focused on the big picture, where the fundamental reasons to own physical metals are as strong as ever.

If you’ve been paying attention, then you’ve no doubt realized that the fundamentals Mr. Wittmeyer speaks of are pretty clear cut.

The big picture is that the fundamentals for gold, despite a massive hit to its price in recent months, have not changed.

The following micro-documentary explains why we may well be on the cusp of Peak Gold, a turning point in the precious metals market that will continue to strain supply while demand across the world explodes to unprecedented levels:

Gold has no flag or allegiance… as the fiat currencies get devalued to deal with the sovereign debt crisis, gold demand will soar.

The problem and opportunity we see is that the supply is already maxed out. So, if a wave of demand comes, we can see the gold price move rapidly on supply and demand fundamentals.

The inflation will simply be icing on the cake.

Via Peak Resources:

So, the question is, do we follow the direction of Federal Reserve Chairman Ben Bernanke, who suggests gold is simply a relic, and focus our investments on his preferred asset class – the US dollar denominated Treasury Bond?

Or, do we side with over 5,000 years of history, which has shown precious metals to be the go-to store of wealth during times of uncertainty and upheaval?

Source: http://www.shtfplan.com/precious-metals/peak-gold-demand-will-soar-as-global-supplies-dwindle-video_05312013

Understanding Gold Market Dynamics

To an extent that reveals a thorough misunderstanding of the market forces, the financial media has failed to consider the different motivations and beliefs that drive the different types of investors who are active in the gold market. By treating the gold market as if it were comprised of just one type of investor, analysts have drawn false conclusions about the recent volatility.

Broadly speaking, the gold market consists of long-term investors, which are comprised of primarily private individuals who believe in gold as a better store of value than fiat currencies, and short-term traders, who are primarily financial professionals looking to play on momentum trades. The groups invest with different time horizons and with varying goals.

Those with a long-term view tend to see gold as a hedge against inflation and as security against financial uncertainty. They tend to buy both paper gold (in the form of ETFs), and physical gold (in the form of coins, bars and, in some cases, jewelry). The physical market is divided between these small buyers and the central bank bullion buyers who acquire gold as national currency reserves.

In contrast, short-term players, like hedge funds, mutual funds, and institutional day traders tend to be much more sensitive to trends and technical analysis. Trading effectively both ahead of and behind a particular asset price trend requires quick decisions and precise trade execution. To achieve this, these players tend to buy the vast majority of their gold in the form of easily traded ETFs. Certainly over the last decade, gold had established a clear upward momentum that such traders could not afford to ignore. To profit from this trade, participants did not need to care why gold was rising. A simple understanding of chart dynamics was sufficient.

Short term traders also tend to pay very close attention to activities of leading institutions.  When they sense that sentiment has turned among big market players, they will follow the expected momentum. On April 10th of this year, Goldman Sachs downgraded its 2013 gold forecast substantially. Gold fell hard on Friday of that week and then on April 15th gold had its biggest down day in 30 years. The GLD traded over 93 million shares that day, up from an average of 14 million. The price decline led to large liquidations by many gold ETFs.

While the big institutions are driven by momentum into gold, they also relied on fears related to inflation and economic uncertainty. However, many have now abandoned these concerns. In reaching its bearish conclusion on gold, Goldman Sachs cited low global inflation, and surging equity markets in the U.S. and Japan as reasons to believe that the bull run in gold had come and gone. However, their conclusions are hasty.

In seeing a diminished threat of inflation, mainstream analysts fail to appreciate that much of the trillions of dollars of Quantitative Easing (QE) continues to be hoarded in bank deposits. The velocity of money, which has much to do with rising prices, remains at generational lows.  It is not until banks lend this money out, usually on a leveraged or fractional basis, that it becomes part of the money supply and therefore actively push up prices. Therefore, while QE creates a risk of future inflation, even hyperinflation, it remains only as a latent risk. In addition, as we have argued many times, official government statistics have tended to hide the true extent of rising prices. Faced with low inflation and QE driven stock and bond markets reaching new nominal highs almost daily, inflation hedgers have sold gold and reallocated funds into stocks, bond markets, and even real estate. But recent sell offs in Japanese equities and bonds could hint at the limit in such an expectation.

However, demand for physical gold continues to rise in China and India, while central banks added 109.2 tonnes to their reserves in Q1, 2013. Even in the U.S., demand for gold jewelry rose for the first time since Q3, 2005 and global demand for gold coins and bullion rose by 10 percent on a year-over-year basis. Additionally, the U.S. Mint announced it would be resuming its suspended sales of 1/10 oz. American Eagles at 40% over spot price. Despite this strong demand for physical gold, ETFs saw outflows of 176.9 tonnes in Q1 2013. Clearly a disconnect between physical long-term investors and short term traders has begun to emerge.

This past week, Fed Chairman Ben Bernanke hinted that if economic conditions were to continue improving there could be a ‘tapering’ off of the Fed’s massive $85 billion a month QE program. The mere hint of even a reduction in QE was enough to send stock markets tumbling. Most likely the market turmoil strengthened the hand of policy doves on the FOMC. The Fed can harbor few illusions about the ability of stock and real estate prices to hold up when Fed support is withdrawn. This suggests QE virtually without limit.

As the central banks of Japan, England and the EU appear to have followed with their own programs of unprecedented QE, it looks as if the tightening expectations that are driving the sell off in gold are poorly founded. I would expect that ever greater torrents of fiat cash will continue to drive stock and bond markets up and interest rates and currency values down. Based on the dynamics of the physical market, it would appear that many smaller investors agree.  As a result, we could conclude that the overall sentiment towards gold is not nearly as negative as we have been recently led to believe.

Source: http://www.zerohedge.com/news/2013-05-29/understanding-gold-market-dynamics