The Price Of Silver Is Set To Soar As Inventories Collapse

With continued volatility in global markets and oil still trading near the $106 level, today John Embry told King World News the price of silver is set to soar as inventories continue to collapse.  Embry also spoke at length about the gold market.  Below is what Embry had to say in this powerful interview.

Embry:  “I am becoming far more comfortable with the gold and silver markets after what can only be construed as an extraordinarily ugly few months.  These violent takedowns in the paper market, which bore no relation to what was going on fundamentally, have discouraged so many people.

I guess price action is the thing that drives them crazy because people then start to doubt the fundamentals.  But what I see now is very promising….

“I see falling gold inventories almost everywhere.  We have seen how much gold has come out of the ETFs, and how much the COMEX inventories have shrunk.  And the gold that JP Morgan holds for its customers in its own accounts has also dwindled.  All of this is a precursor to a much higher move in the gold price.

At the same time I am getting extremely excited about silverEric Sprott’s revelation about all of the silver going into India because of the difficulty in that country obtaining gold due to official impediments, I think it’s a classic case of unintended consequences on the part of the Indians.  The last thing the silver market needs is a huge new demand source in terms of trying to keep the price under control.

I am also seeing that JP Morgan is feverishly trying to acquire as much physical silver at the same time they are reducing their paper short position.  So I don’t think we have much longer to wait for a real explosion in silver prices.  And if I’m right on both gold and silver, this will be seen as the single finest buying opportunity in the entire bull market which is now in its 13th year.”

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/16_The_Price_Of_Silver_Is_Set_To_Soar_As_Inventories_Collapse.html

$10,000 Gold

I interviewed Nick Barisheff, who is calling for $10,000 gold. Normally, I shy away from these “sky-high” predictions but after seeing him interviewed more than once, I felt he presented a realistic and legitimate case.

Nick Barisheff is President and CEO of Bullion Management Group Inc., a bullion investment company that provides investors with a secure, cost-effective and transparent way to purchase and store individual Good Delivery gold, silver and platinum bullion bars. Recognized worldwide as a bullion expert, Barisheff is the author of $10,000 Gold: Why Gold’s Inevitable Rise is the Investor’s Safe Haven. He is a speaker and financial commentator on bullion and current market trends.

Here’s the interview:

Is the gold bull over or, as you contend in your new book, is it headed to $10,000 an ounce?

The first thing people have to realize is that no fiat currency, ever, has resulted in anything except decline followed by default, while gold has always maintained its value in mankind’s history of money exchange. Today we have a coordinated, and in terms of fiat currency creation epic, decline orchestrated by the world’s largest central banks. Debt-fueled fiat currency creation is among several long-term irreversible trends I spell out in $10,000 Gold. All of these trends have been in place since the late 1990s, when gold was trading below $300 an ounce.

2. What evidence can you put forward to support the case for gold in light of recent events?

There is no question gold is going to resume its bull market trend after blatant market interference in April and Fed jawboning in June about tapering bond purchases.

If you examine the April gold price decline, sales estimates for the COMEX on Friday April 12 and Monday April 15 were between 125 and 400 tonnes. It was, purely and simply, a deliberate paper gold attack as indicated by the size and speed of the sales that then triggered sell stops and margin calls. There are only a few large global institutions that could have flooded the market in that manner.

In June, this price raid on gold was reinforced by the idea that the U.S. Fed Chairman, Ben Bernanke, is somehow going to end his crescendo of computer-generated currency creation based on a mending economy. From German car sales being at a 20-year low to the slowdown in China’s GDP growth to Japan’s failing stock market to the U.S. record in food stamp usage, there is dominant evidence that the global economy is coming undone.

What people seem to have overlooked is the Fed Chairman’s admission that, should the economy worsen, he will expand, not taper or discontinue, quantitative easing. Observers such as John Williams at ShadowStats point to U.S. household income that’s flatlined since 2009. Williams has also stated that any talk of tapering is pure propaganda to placate global markets on the U.S. dollar while trying to suppress gold. [1]

3. If one supports the fact that the paper market has been manipulated and/or jawboned into temporary submission, what is the physical market signaling?

In India, one of the world’s most robust markets for physical gold, the government has tried to curb gold imports through a series of warnings, and now actual restrictions.  Yet India’s national body of jewellers, the All India Gems & Jewellery Trade Federation, says reports of gold smuggling at different airports in India rose by 2,200 percent last year. The GJF also stated that despite an increase in the import duty from 1 percent to 8 percent in January last year, gold consumption has gone up, not down. [2]

In the United States, even after the April gold price shock, the following month we noted that the 40 percent premium U.S. consumers were willing to pay for one-tenth ounce coins from the U.S. Mint priced gold at $1,932 an ounce, a physical price that is higher than the $1,900 an ounce record for paper gold set in 2011.

In China, the premium that gold buyers paid to take immediate delivery of bullion jumped four-fold in the six weeks following the gold price “crash.”[3]

If this were truly a natural correction or actual bear market, then physical gold market participants would be panic selling, not panic buying. Over the long term, these artificial declines in the price of paper gold are good for gold, because they allow a lot of big, smart, long-term investors to enter the markets. Allowing for what often is a slow summer season, I would not be surprised to see gold hit new highs before year end.
4. Let’s talk about more of the long-term irreversible trends in $10,000 Gold. What is the link that oil, population growth and the aging population have with the price of gold?

As I state in my book, the world’s rising population, aging population and outsourcing all create the need for more government debt to compensate for slowing growth, and increased government debt equals more currency, lower purchasing power and a higher gold price.

When natural economic growth does not come through productivity, or the manufacturing and production of natural resources, then the government must fuel growth through debt creation. In 2012, it cost the U.S. government $2.47 to grow its GDP by $1.00.

Despite the claims of energy independence because of shale oil in the United States, the world’s growth has been fueled by cheap land-based oil, located mainly in the Middle East. Oil sands and shale oil are extremely expensive to produce by comparison, and are therefore inflationary. Apart from currency printing creating inflation, the rising price of oil will also be inflationary because it is used for virtually everything.

These irreversible trends all impact growth negatively, reduce taxation revenues, cause inflation and require ever greater government expenditure, which lead to ever-increasing government debt. Therefore, the world’s citizens will suffer through increasing waves of currency debasement, which naturally causes the value of gold to appear stronger against currencies.
5. Is $10,000 gold a price limit in your mind?

We are in uncharted financial territory. If you look back over the history of fiat currencies it’s actually extraordinary. Several reputable analysts are calling for $10,000 gold, such as Société Générale’s Edward Alberts. Jim Sinclair, the man Barron’s labeled “Mr. Gold” because of his proven understanding of the gold market, has stated he expects gold to eventually trade at $50,000 an ounce.

Given systematic global currency debasement, people need to understand that it is not necessarily gold that will rise in value, but currencies that will lose value against gold. Yet due to the temporary manipulation of the paper gold price, I would suggest that those with foresight have a historic opportunity to acquire uncompromised physical gold.

“Policymakers Should Be Cautious Seeing Gold’s Drop As A Vote Of Confidence”

In principle, holding gold is a form of insurance against war, financial Armageddon, and wholesale currency debasement. And, from the onset of the global financial crisis, the price of gold has often been portrayed as a barometer of global economic insecurity. So, does the collapse in gold prices – from a peak of $1,900 per ounce in August 2011 to under $1,250 at the beginning of July 2013 – represent a vote of confidence in the global economy?

To say that the gold market displays all of the classic features of a bubble gone bust is to oversimplify. There is no doubt that gold’s heady rise to the peak, from around $350 per ounce in July 2003, had investors drooling. The price would rise today because everyone had become convinced that it would rise even further tomorrow.

Doctors and dentists started selling stocks and buying gold coins. Demand for gold jewelry in India and China soared. Emerging-market central banks diversified out of dollars and into gold.

The case for buying gold had several strong components. Ten years ago, gold was selling at well below its long-term inflation-adjusted average, and the integration of three billion emerging-market citizens into the global economy could only mean a giant long-term boost to demand.

That element of the story, incidentally, remains valid. The global financial crisis added to gold’s allure, owing initially to fear of a second Great Depression. Later, some investors feared that governments would unleash inflation to ease the burden of soaring public debt and address persistent unemployment.

As central banks brought policy interest rates down to zero, no one cared that gold yields no interest. So it is nonsense to say that the rise in the price of gold was all a bubble. But it is also true that as the price rose, a growing number of naïve investors sought to buy in.

Lately, of course, the fundamentals have reversed somewhat, and the speculative frenzy has reversed even more. China’s economy continues to soften; India’s growth rate is down sharply from a few years ago. By contrast, despite the ill-advised fiscal sequester, the US economy appears to be healing gradually. Global interest rates have risen 100 basis points since the US Federal Reserve started suggesting – quite prematurely, in my view – that it would wind down its policy of quantitative easing.

With the Fed underscoring its strong anti-inflation bias, it is harder to argue that investors need gold as a hedge against high inflation. And, as the doctors and dentists who were buying gold coins two years ago now unload them, it is not yet clear where the downward price spiral will stop. Some are targeting the psychologically compelling $1,000 barrier.

In fact, the case for or against gold has not changed all that much since 2010, when I last wrote about it. In October of that year, the price of gold – the consummate faith-based speculative asset – was on the way up, having just hit $1,300. But the real case for holding it, then as now, was never a speculative one. Rather, gold is a hedge. If you are a high-net-worth investor, or a sovereign wealth fund, it makes perfect sense to hold a small percentage of your assets in gold as a hedge against extreme events.

Holding gold can also make sense for middle-class and poor households in countries – for example, China and India – that significantly limit access to other financial investments. For most others, gold is just another gamble that one can make. And, as with all gambles, it is not necessarily a winning one.

Unless governments firmly set the price of gold, as they did before World War I, the market for it will inevitably be risky and volatile. In a study published in January, the economists Claude Erb and Campbell Harvey consider several possible models of gold’s fundamental price, and find that gold is at best only loosely tethered to any of them. Instead, the price of gold often seems to drift far above or far below its fundamental long-term value for extended periods. (This behavior is, of course, not unlike that of many other financial assets, such as exchange rates or stock prices, though gold’s price swings may be more extreme.)

Gold bugs sometimes cite isolated historical data that suggest that gold’s long-term value has remained stable over the millennia. For example, Stephen Harmston’s oft-cited 1998 study points to anecdotal evidence that an ounce of gold bought 350 loaves of bread in the time of Nebuchadnezzar, king of Babylon, who died in 562 BC. Ignoring the fact that bread in Babylon was probably healthier than today’s highly refined product, the price of gold today is not so different, equal to perhaps 600 loaves of bread.

Of course, we do not have annual data for Babylonian gold prices. We can only assume, given wars and other uncertainties, that true market prices back then, like today, were quite volatile.

So the recent collapse of gold prices has not really changed the case for investing in it one way or the other. Yes, prices could easily fall below $1,000; but, then again, they might rise. Meanwhile, policymakers should be cautious in interpreting the plunge in gold prices as a vote of confidence in their performance.

Source: http://www.zerohedge.com/news/2013-07-08/ken-rogoff-policymakers-should-be-cautious-seeing-golds-drop-vote-confidence