GOLD
BULL WITH NUMEROUS LEGS
by Jim Willie CB
April 20, 2006
|
Jim Willie CB is the editor of the “HAT TRICK LETTER” For specific detailed analysis of the Gold, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and Fed monetary policy, see instructions for subscription to my newsletter research reports, which include stock recommendations positioned to rise in the commodity bull market. With the gold price past the $600 mark, many have asked how long the gold bull will run. Simply put, a long way. In fact, simply put, gold will continue to run and run hard as long as the USGovt and USFed resist change, resist a recession, resist a severe decline in the USDollar, and insist on relying upon the printing press to solve its economic and financial problems. These trends are nowhere in sight for change. Gold was doubted way back when it was vaulting past the $400 mark. The $500 mark was critical, passed last summer. Extremely powerful developments reinforce the gold bull, factors which are historically significant, items for the history books. The sign posts contained rather significant painted messages written in defiant language and bold tones, indicating global shifts, such as
These are very important developments, major events, financial equivalents of serious and damaging earthquakes which work to change the financial landscape. We have just began to dance on the FOREX dance floor. Last year, gold was stepping on euro toes and yen toes, wearing golden slippers and displaying some nifty foot work. In 2003 and 2004, gold stepped on USDollar toes repeatedly and without apology. The night is young, and gold is tireless. Fat and bloated, the USDollar, euro, and yen are fat hogs, slow afoot, clumsy in foot work. THE NEXT LEG The next chapter for gold has other strong messages, compounding the powerful forces pushing gold up. These almost as earth shaking as the above factor messages, indicating continued global shifts, such as
Don’t be too sure about USFed Governors will avert a mistake in hiking a few more times. They always do, and always will. That is what they do, their reason for being. They engage in blatant attempts to control the market with their “FedSpeak BS” tactics. See the clown Fisher for his “8th inning” analogous comment last summer. Now we have Yellin talking about being near the end of the tightening cycle, “which is data dependent.” In other words, the USFed still requires concurrent signals as it ignores future signal, a key indicator of their incompetence and ineptitude. What do you expect from the American Politburo freaks anyway? They are driving a giant bus and ignore signs, preferring to drive until they recognize having gone over the cliff. War costs huge sums of money and depletes huge supplies of commodities like oil, steel, and base metals. Lately, it seems our leaders refuse to negotiate and to prefer the push toward conflict, even citing opposing faction willingness to talk as a sign of weakness and a justification to cease those talks. War is good for business, certain businesses anyway. It sure does motivate big investments in gold across the globe. The USGovt can play its silly games of taking war costs off the budget, but continue to fund them. Heck, if they remove all expensive programs from the official budget, but continue to fund them, then these clowns can claim a surplus. The hedge book losses for the gold cartel are real. Soon we should hear about declining jewelry sales (their favorite disinformation tactic), which is great news for gold, since investment demands overwhelms jewelry demand when the gold bull roars. Stated Barrick losses are historically without precedent, with greater losses than any mining company in history. One must wonder if certain connected bank & brokerage houses have the inside track on illicit bailouts on their hedge books. See JPMorgan. Recall the M3 money supply statistic is dead, and JPMorgan has essentially merged with the US Federal Reserve. No longer can the gold cartel expect grand favors by the central banks in official gold sales. Rumblings in the European Union signal a clear unwillingness to play that stupid game. Before long, the only gold left will be in Asian hands. Then comes the decade dominated by Asia, driven off a strong bank foundation. Why is there no public outcry for the gradual merge of state and corporate interests? How is the public interest served by government when a large corporation has its mitts in there directing policy? Do corporations have the interest of the people close to their hearts & minds? Or do they have personal enrichment, control, and power as key motives? The claim of “government by the people” appears sorely missing. The Italian Fascism model is frightening in its political direction implications, yet has been sold so easily. Their giveaway for “dirty hands” is the infamous prevalent “no bid contract” doled out all too frequently. Amidst these additional current factors, gold will continue to shine with bright luster. Wait though, let’s get back to the major signposts and their major bull market messages, since they will carry the traffic on the multi-lane golden highway, the one widened last summer. They ensure the multiple year bull market will not be denied, since too many unresolvable problems persist. THE CHINA SYNDROME These are truly significant signposts, without precedent in modern history. The Chinese had been rumored to delink their yuan currency for so long that many within the mainstream doubted the event would ever occur. They did. Now the big rumor is that the Chinese are busy cleaning up their banking system in a preliminary maneuver to set up a gold-backed currency. They pursue the optimal currency index to store their vast horde of reserves, which are expected to top $1 trillion sometime this year. Their piggy bank has just surpassed Japan’s horde, over $850 billion in size. The next two key events are the foundation of the new pan-Asian credit market and the new payment system for international commerce in an indexed currency. The Asian credit market is in its formative stages. They are deciding up on a currency, and believe an index is most appropriate. Squabbles continue, like inclusion of the Taiwan Dollar. Beijing holds some sway in this region, still resentful of Taipei’s independence. Look for the Chinese yuan (based in an index) to take over in the Asian credit market denomination choice. Also, expect major major major hostility and resistance and objection and sabotage from the US authorities. International commerce, like for oil or copper or iron ore or coal or grains begs for reform in its payment system. The Asian Development Group has suggested a currency index for large scale commodity purchase settlements. The Chinese yuan is the natural choice, an evolution which seems to benefit from their route for a managed practical currency index. By its evolution as a balanced global index based upon Asian trade, the yuan is walking a clever path to displace the USDollar without the direct “in your face” challenge and insult to the United States. Any elevation and hoist of the yuan on a global platter of respectability and utility is an implicit supplant of the USDollar, a push off the table. Such evolution is monstrously bullish for gold, and such movement is very early, even embryonic. We are in the preliminary, not advanced, stages of removal of the USDollar from its place as world currency, from its place as the only petro-currency. Gold stands as the hidden “anti-US$” in function. In time, the yuan will serve that important role. In the tumultuous process, gold will gain respect, rise in value, and take center stage. Some foresee a time when both the Chinese yuan and the Russian ruble currencys are gold-backed. ARAB REVOLT The Western press seems to have attributed almost no importance to the death of King Fahd, the long ailing monarch from Saudi Arabia. Not me. It marked a sea change in the Persian Gulf. The newly anointed King Abdullah is much more a friend to Europe than to the United States, and maintains a quiet deep distrust for USGovt leaders and American culture generally. Abdullah has a stronger backbone, more willing to oppose the West. Within weeks he announced a desire to balance favor between Europe and the US, in commerce and in currency reserves management. The OPEC nations surrounding the Persian Gulf have been the beneficiary of doubled income since 2003 when crude oil sold for half the price. They have not materially changed in production output, hence revenues. They have gone nuts with a construction boom, have gone nuts with a boom and (in progress) mini-bust with their stock markets. As Saudi Arabia goes, so will many nations follow, like Kuwait, Qatar, United Arab Emirates, Bahrain, Oman. These guys are close friends. Since the EuroBond offers 1% less in yield versus the USTBond, money is directed toward gold purchase. Arabs have a longstanding love of and trust in gold. The United States, England, and Europe have not acted like saints toward Arabs over the past century. Arab royals don’t exactly trust the paper they are given in exchange for all the wonderful oil, lifeblood to our economies. Arabs take two steps to avert the long arm of the Western dominance. They purchase gold in Turkey. This eludes some detection, some formal accounting, and the clear snub to London and New York. They also handle brokered purchases of USTBond in London. This sidesteps any politically awkward gestures and reactions from neighbors Arab states. They can support the USTBond or not, with some measure of privacy. The London USTreasury data becomes thoroughly mixed with hedge funds and illicit USFed agency operations. If and when the permanent war spreads in the Persian Gulf region, if and when the Iraqi Civil War intensifies, if and when the Iran nation is attacked pre-emptively, if and when the Saudi gigantic oil operation facilities are attacked, look for gold to be purchased by Arabs, and their USTBonds to be sold, and even some of their EuroBonds to be sold. Gold held in the secure confines of Turkish bullion banks is far safer than London or New York in their eyes. War favors gold. Whether you do or don’t believe the war against radical Islam is for real and justified and managed with a deft hand in a capable manner, gold is an excellent hedge in an uncertain time of growing conflict. Whether you do or don’t believe the USGovt leaders resemble the Three Stooges, incapable of wiring or plumbing your 2-bedroom home, gold is an excellent hedge in a time of unprecedented waste, record deficits, and horrendous management. WEIMAR BEN, MASTER INFLATIONIST The whole world was given adequate notice. Ben Bernanke, who believes in the low-cost inflation solution with all his heart, has succeeded Alan Greenspan as US Federal Reserve Chairman. Ben, who never ran a business, is at the helm. Ben, who never had responsibility in a financial business, is running the USFed. Ben, who had zero banking experience under his belt, is now the leader of the US central bank. Ben, who served for two years as apprentice on the White House Council of Economic Heretics, is given full trust for his aegis. Ben, who claims that printing money costs only pennies for bill, regardless of ($1, $5, $10, $20, $50, $100, $1000) denomination, has control of that printing press. Ben, who once claimed prudence in dropping money from helicopters on household lawns, is making decisions. Woe is the USDollar. Ben Bernanke has big shoes to fill behind Greenspan, the falsely acclaimed maestro, who gave us crisis after crisis as the bitter fruit of his guidance, followed by ample liquidity to create the next bubble after the last bubble failed to survive more than a few years. The housing bubble has begun to fizzle. No, this Ben is “Little Ben” in my mind. The name of “Big Ben” goes to Ben Roethlisberger, who has a more impressive career so far as quarterback of the Super Bowl Champion Pittsburgh Steelers. In my mind, acting as Chairman to the Princeton University Economics Department is nothing more than an exercise in longwinded apologies for a debt-based USEconomy system and a debt-backed USDollar with adjoined banking system. While much useful theory and exercise takes place in Economics classrooms and faculty offices, most is a bunch of garbage. They spend so much time altering legitimate theory and practice, adopting new nonsense which has served as a series of one plank of mythology after another. With Ben Bernanke at the helm, an avowed advocate of inflation to cure all economic ailments and to treat all ills, trust in the USDollar is sure to wane. His denial of the importance of the Treasury yield curve is his first act and deed of heresy. Gold will thrive under Little Ben’s leadership of the U.S.S. Dollar, the lost ship at sea. Ben has no keen sense of the role of golden ballast on the ship decks. Disrespect leads to crises in events and crises in confidence, both of which feed gold demand. THE DEATH OF THE MONEY METER Late last year, arguments read by Doug Noland about the changing nature of money creation temporarily seemed convincing. He expressed his view that we live in a different world which no longer can have money be monitored and measured accurately anymore. He thought it to be no big deal that the M3 money supply series was to be discontinued. While it might be true that banks are only part of the formula nowadays, this seems like a smoke screen. Sure, mortgage agencys create new loans against properties, home builders finance new home sales, car companies finance car loans, retail vendors finance sales for home electronics purchases, finance firms finance bond speculator margin in futures contracts and in carry trades, corporations float colossal debt for operations and pensions, and more. Ok, so plenty of new money created in the form of debt comes onto the books. An M3 statistic which is imperfect might be better than none at all. Some reasonable justification is given for the numerous other non-bank sources. Credit is originating from other non-traditional sources, not just the bank intermediaries. This is without question. With all the imported products from Asia, why not discontinue the Consumer Price Index statistic? With all the outsourced jobs to Asia and Mexico, why not discontinue the unemployment rate statistic? With the prevalent usage of mutual funds and stock accounts and granted stock options to many levels of employees, why not discontinue the savings rate statistic? No, the terminated M3 money supply statistic can next conceal an entirely new inflation campaign. USTBonds might be purchased with printed money. Fanny Mae mortgage bonds might be purchased with printed money. S&P stock baskets might be purchased with printed money. Margin posted for gold short futures contracts or crude oil short contracts might be purchased with printed money. Heck, even General Motors and Ford vehicle output might be purchased with printed money. For that matter, thousands of properties sitting idle on the housing market might be purchased with printed money. The withheld M3 money supply statistic can next hide a multitude of inflation sins, even fraud on a grand scale with corporations merged with the USGovt. In my opinion the USFed under Little Ben will next transfer risk from the USTreasury Bond to the USDollar from rampant inflation. One must recall that the USGovt sells debt, and their debt securities must be kept legitimate with a viable functioning market. If push comes to shove, and the USGovt is demanded to support stocks, bonds, housing, and industrial output, be sure that #1 on the list of rescued and subsidized assets is USTBonds. They are likely to support stocks with ongoing Plunge Protection Team activities. However, bonds are king. It seems the path has been laid for perhaps colossal bond monetization, under the cover of the terminated M3 series. With the Bank of Japan starting up a tightening cycle, the yen carry trade to undergo an unwind reversal, mountains of USTBonds are to be sold. On the other side of the table, with failed GM corporate bonds, and profitable credit default swaps redeemed, huge demand for USTBonds will come to the table. A storm in USTBonds is assured, with plenty of large powerful cross currents. CONCLUSION This gold game is only heating up. In no way is it in a final chapter, its last leg. The gold bull is in the early part of a middle stage, an important phase. Disinformation continues against the merits of gold in a disgusting consistent unethical and perverse manner. Two factors work to the benefit of gold and silver investors. IN NO WAY IS THE GREAT GOLD BULL (OR SILVER BULL) ON ITS LAST LEGS, LONG IN THE TOOTH, OR WOBBLY IN ITS GAIT. Expect to see a $700 gold price before the end of 2006, easily. Wall Street is only beginning to sense that gold is far more than an inflation hedge. They are recognizing the geopolitical threat with the stench of war constantly in the air, actively pursued. They are detecting stress in the monetary system, with the world’s money printing presses overheating and straining in nonstop operations. They might actually awaken to the reality that Asia is not purchasing USTreasury Bonds anymore, despite all the data to reinforce that reality which stares them in the face. Let’s hope Wall Street takes a few more years to comprehend that gold has more value than for its vacant yield. Gold has given big capital gains, in fact four times what the crappy S&P500 index has given from its low since the gold bull awakened in 2001. As the price of crude oil, natural gas, and diesel rises, so does the cost of mining gold, silver, copper, and other crucial metals. If energy and steel prices remained flat, then mining costs would remain steady for producers. But they are not flat. Against this backdrop, gold output has barely risen by a mere 2% in 2005. The easy mine properties have been largely drained and picked clean. More challenging properties remain. A much higher gold price will be required in order to bring new gold to market, in order to offset the higher energy and construction costs. Demand rises for a host of reasons, not the least of which is the corrupted nature of money. We are fast approaching a monetary crisis, one of failed confidence in paper money. The market must work toward balance of supply and demand. Too much artificial supply has corrupted the market from gold cartel subversion. Their corrupt efforts have backfired. That phony supply is drying up. We are left with a ground swell of rising physical demand. The gold price must rise in order to achieve balance and deliver supply (gold bullion) to market at the prevailing price. Supply is losing the battle. A higher gold price awaits. Investment opportunities react to the rising gold price. Mothballed properties come into focus, mines which were uneconomical just years ago suddenly come to the fore. A mine in Nevada or British Columbia or Peru or Mongolia or Congo or East Armpit, which offered no profit with a gold price under $550 now has profitable prospects. A mine which offered no profit with a silver price under $9 now has profitable prospects. Some have mills adjacent. These properties have stocks living in a coma, now emerging as viable and hugely profitable as investments. As the gold and silver price rises further, wave after wave in new rounds of discovered stocks are potential treasure troves for the intrepid vigilant investor. More profits lie directly ahead. ©
2006 Jim Willie, CB
|
Jim
Willie CB is a statistical analyst in marketing research and retail
forecasting.