Despite Pullback Gold Headed To New All-Time Highs

On the heels of Ben Bernanke signaling that the U.S. economy is weak and needs a highly accommodative Fed policy, today one of the top economists in the world said that despite the recent capping of gold at $1,300, gold is heading to new all-time highs.  Michael Pento, founder of Pento Portfolio Strategies, wrote this piece for KWN.

Pento: “The prevailing mantra on Wall Street is that gold’s bull market is now over and it’s time to bury precious metals as an investment theme for the indefinite future.  The rational for this is based on the belief that many investors held misguided fears during the credit crisis about a breakout of massive inflation and economic chaos, which drove gold to nearly $2,000 per ounce….

“Of course, (the perma-bulls on stocks claim) those worries have now completely failed to materialize and will never be a genuine risk in the future.  This argument is patently false because it assumes that the final chapter has been written on the Great Recession and debt crisis that paralyzed the entire globe back in 2008.

The truth is the most pernicious effects of the devastating economic collapse that began five years ago have been merely held in abeyance due to record low interest rates and an aggressive expansion of central bank assets; which is being used to boost real estate values, equity prices and the economy.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/17_Pento_-_Despite_Pullback_Gold_Headed_To_New_All-Time_Highs.html

More U.S. states looking to legalize gold and silver as currency while ditching dollars

As the U.S. government continues to crank out dollars like they were Monopoly money, more and more states – fearing an eventual collapse of the currency, most likely – are looking at ways to legalize and utilize gold and silver as currency.

Shunning trust in the Fed chairman Ben Bernanke, the Treasury and the economic policies of the Obama administration, more than a dozen states are considering adoption of the alternative currencies.

Utah lawmakers and Gov. Gary Herbert enacted legislation in 2011 that authorizes bullion for use as currency; now, similar bills are under consideration in Kansas, South Carolina and other states, according to Bloomberg News.

The measures are being supported by limited government advocates in these states yet for now passage of such laws are largely symbolic. You can’t, for instance, go grocery shopping in Utah and pay for your items with gold.

Concern about impending ‘collapse of the dollar’

These measures are important because they are reflective of growing concerns over the longevity and viability of the U.S. dollar – concerns that have been heightened by the Fed’s rather unconventional moves (like massive printing of trillions of excess dollars) in recent years, in some weird attempt to “stabilize” the economy, says Loren Gatch, a politics professor at theUniversity of Central Oklahoma.

“The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing,” Gatch, who studies alternative currencies at the Edmond, Oklahoma-based school, told Bloomberg. “There is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar. That’s what is behind it.”

There is good reason for such concern.

For one, Bernanke and the other money masters have been manipulating currency and the markets for years, all in a way that benefits the Wall Street and banking elites. The Fed chairman has been keeping interest rates near zero since the beginning of the Great Recession in December 2007 primarily because elevated rates would devastate the federal government, which is paying hundreds of billions in interest payments on borrowed money as it is.

And this irresponsible fiscal manipulation is ongoing. Per Bloomberg News:

The Fed said in March it would continue buying $85 billion in securities each month in a program known as quantitative easing that has ballooned its assets beyond $3 trillion and is aimed at keeping long-term borrowing costs low to support economic growth.

Moreover, economic figures are being fabricated. According to an inflation measure “favored by the Fed,” Bloomberg notes, consumer prices rose just 1.3 percent in February over the previous year. Yet anyone who is trying to earn a living knows that two of the most purchased items – food and gas – are chiefly responsible for the dramatic cost of living rises in recent years. And yet, they aren’t even factored into the government’s inflation figures because they are considered too “volatile.”

Gold, silver making comebacks

Investors bet that inflationary pressures would increase because of the government’s phony “economic stimulus” measures that did nothing but pile on more debt. Still, that speculation led to a 78 percent rise in gold prices since December 2008. The historic precious metal hit a high of $1,923.70 an ounce in 2011; since then, prices have retreated and have remained flat. Now they are around $1,535 an ounce, which is still high.

But when inflation does kick in – and it will – the value of gold and the other historically valuable currency, silver – will increase as well. States considering using these precious metals as currency once more seek to use them as a fall-back when the dollar finally does collapse.

Texas gold is not just in the oil fields

One state, in fact, is so concerned about the dollar’s economic future it is considering legislation to regain physical possession over its gold.

Texas Gov. Rick Perry and a number of lawmakers want to establish the Texas Bullion Depository to store some 6,643 gold bars valued at about $1 billion that are currently being held in a New York bank warehouse. The gold, which is owned by the University of Texas Investment Management Co., or UTIMCO, took delivery of the bars in 2011 over concerns that rising demand would eventually outpace supply.

The facility would also accept deposits from the general public, and serve as a basis for a payments system in the state in case a “systemic dislocation in a national and international financial system” were to occur, the legislation says.

Jim Rickards, the senior managing director at the Tangent Capital Partners LLC in New York, and author of Currency Wars: The Making of the Next Global Crisis, said if Texas were to enact its legislation, it would mean sovereign backing of deposits, like when the dollar was based on the gold standard, and make the purchase and storage of gold easier.

“We are seeing a distinct movement back to a world where gold is considered money,” Rickards told Bloomberg News.

Source: http://www.naturalnews.com/039984_gold_currency_states.html

Wall Street And Gold Were Never A Good Match

In the opening years of the last decade, most mainstream investors sat on the sidelines while “tin hat” goldbugs rode the bull market from below $300 to just over $1,000 per ounce. But following the 2008 financial crisis, when gold held up better than stocks during the decline and made new record highs long before the Dow Jones fully recovered, Wall Street finally sat up and took notice. The new devotees helped to push gold to nearly $1,900 by September of 2011. For the next year and a half it held relatively steady, trading mostly between $1,500 and $1,800 as more mainstream investors caught the fever. But now it appears that the brief love affair is at an end. It was really only a flirtation as the two were never a good match in the first place. Gold’s new suitors never understood the fundamental case for gold and now they are turning their affection back to their true love: U.S. equities.

This is creating a brutal season for gold investors. The metal is in the midst of its largest pull back in nearly five years, and as the selling has gathered momentum powerful Wall Street voices as diverse as Goldman Sachs and George Soros have declared the end of its nearly fifteen year run of dominance.

The story line put out by most of these analysts is that gold shined as a safe haven during the Great Recession, but its allure has evaporated with the recent “improvements” in the global economy, particularly in the United States. Ironically, this ignores the fact that gold actually performed better in the years leading up to the 2008 financial crisis than it did during or following the crisis. That may be because the inflationary monetary policy that fueled the housing bubble also powered gold. Deflation fears led to gold’s 35% decline in 2008, but once the Fed reopened the monetary spigots gold rallied to new highs. But in 2008 gold fell in concert with nearly every other asset class. This time, it’s falling while other assets are rising. The negative spotlight makes the current decline potentially more meaningful.

Neither the new round of Keynesian expansion in Japan nor the recent fallout from the Cypriot solvency crisis produced gold rallies. Bears cite these failures as the signs that the bull is dead. The latest warning bell came late last week when the Bank of Cyprus announced that it would be selling its gold reserves in order to raise the cash to pay its debts. Concerns quickly spread that other heavily indebted Mediterranean countries with large gold reserves like Greece, Portugal, Italy and Spain would follow suit. The tidal wave of selling would be expected to be the coup de grace for gold’s glory years. While this neat narrative may be sufficient to convince the financial media that an historic shift is underway, wiser minds will see more nuance.

While the vast majority of economists see gold as the “barbarous relic” described by Keynes, the sentiment has not stopped many central bankers from holding huge quantities as currency reserves. It is a curious phenomenon that the countries with the most daunting debt problems have the highest percentage of gold in their foreign exchange reserves. Many of these countries were formerly prosperous, and at various points in their histories had gold-backed currencies that required large reserves. These legacy assets now account for the bulk of their reserve wealth.

The United Stated leads the pack with both the largest amount of gold in reserve (8,133 tons) and one of the highest percentages (76%). Other heavily indebted developed countries are not far behind: Italy has 2,450 tons and 72% of reserves, France has 2,435 tons and 71% reserves, Portugal has 382 tons and 90% reserves, and Greece has 112 tons and 82% reserves. Tiny Cyprus, whose travails are creating global ripples, has just 14 tons (58% of reserves).

In contrast, the quickly developing emerging market economies are conspicuous for very small gold reserves, particularly in comparison to their much larger reserves of foreign currencies. Many of these countries have generated large amounts of U.S. dollar reserves as a result of ongoing trade surpluses. While China has more than 1,000 tons of gold, the cache only represents 2% of their enormous foreign exchange coffers. Even gold loving India has just 10%. Neither Russia, Taiwan, Thailand, Singapore, Mexico, South Korea, Indonesia, Malaysia, Saudi Arabia, nor Brazil has more than 10% (with most having far less than 5%). Bankers and political leaders in all of these countries, particularly India and China, have lamented publicly about the very high percentage of U.S. dollars in their reserves, and have even spoken fondly about the reliability and importance of gold.

The heavy debtors in the Eurozone have few pleasant options to deal with their insolvency. As illustrated by Cyprus, the choices may come down to painful austerity or raiding supposedly sacred bank deposits. The sale of gold reserves may provide a much more palatable option for politicians. After all, do voters really care how much gold sits in national vaults? For now at least, international central bank gold agreements limit the amount of gold that they can sell in a given year. But as these sovereign debt crises deepen for countries like Italy and Portugal, many justly question how long these paper agreements will keep the selling pressure at bay.

While I believe that they may indeed succumb to the temptation, such moves may not be disruptive, or even negative for gold. Large divestitures by some countries may lead to corresponding accumulations cash rich, but gold poor, creditor nations like India, China, Russia, and Indonesia. Such transactions would likely take place through private, direct, and tightly communicated sales. As a result, they would be far less disruptive than would be the case were they to occur in relatively thinly traded public markets as many now fear.

Such a transfer in gold holdings would be the logical result of the drift of the global economy over the past half century. Despite its current disfavor, gold is real wealth. Governments and bankers know this. As the emerging economies gain wealth, and the developed countries dissipate wealth through welfare-state debt accumulation, it is inevitable that the gold follows. It’s not a question of if, but when.

While nations buying gold will pay for their purchases with dollars, the sellers will not re-invest the proceeds into Treasuries. Dollars raised through gold sales will be converted to local currency and used to repay debt. This will put downward pressure on both the U.S. dollar and Treasuries. In addition, emerging market central bankers will be more likely to hold onto gold for the long-term, thereby providing a bullish impact on the market. In essence, such a shift would flush out the weak hands who don’t have the resources to protect their wealth in favor of stronger hands that do.

Creditor nations that buy gold cheap from bankrupt nations forced to sell at distressed prices will see the value of their reserves swell, thereby gaining the independence and confidence they need to finally break their reliance on the U.S. dollar as their principal reserve asset. When the reign of “king dollar” finally comes to a belated end, let’s hope all the gold we allegedly have stored in Fort Knox is actually there. We’re going to need every ounce of it.

Source: http://www.prisonplanet.com/schiff-wall-street-and-gold-were-never-a-good-match.html