Global Uncertainty Leads Utah away from Federal Government, Chavez Away from West

The Gold market, like other markets, is reflecting the chaos present in global markets and geopolitics. With wild fluctuations of $50-$100 in single days, gold remains in the headlines, whilst silver continues consolidation between the $39 and $42 range, after having tested $32.50 to $36 upwards of ten times. As margin requirements are hiked, speculators continue to be shaken out of the market, meaning that those left in gold and silver are those who have paid cash upfront for their holdings. It is these folks who are not easily scared out of the market. Instead, they hold on for the longterm, anticipating appreciation of commodities and resources in the face of money market devaluation. It is these folks who represent the growing and longterm buying pressure in gold and silver.

In this environment, the need for sound money is gaining attention, as Ron Paul’s movement in the United States demonstrates. The clearer it is to the public that the internationalist Federal Reserve is a private body above and beyond the control of any U.S. institutions, the more talk of an alternative money system there is. In the interim, people are discussing the few ways in which they can preserve the wealth they have now, while U.S. policy continues dollar devaluation, if not through QE3, but through other covert means. In Utah, gold and silver is increasingly being seen as money.

The United States Utah Legal Tender Act recognizes gold and silver as legal tender in the state of Utah. This movement has gained attention worldwide. Even state-run China TV has interviewed the man who spearheaded the act, Ken Ivory. He has said that the Chinese were curious what he thought the impact would be with respect to the federal government…we explained to them the very simple example; a silver dollar in 1960 would buy approximately five gallons of gas. Well, that dollar today won’t buy you one fourth of a gallon, but the silver will nearly fill your tank.”

“Then with respect to the federal government, we have about eleven states now that are looking at running the same legislation.  And to the extent that we get the states standing in unison, that sends a very strong political message to Washington that the guardians of the liberty of the people in the states are not going to tolerate any longer the unchecked devaluation of our earnings and savings.”

As for why he founded the Act:  “… We’re seeing a federal government $14 trillion in debt, overspending by over $1 trillion+ per year, that’s paying for 57% of the government as we go and pushing 43% off to our children and seeing the devaluation of our currency.  It’s that same idea that we really need to look at something to preserve the purchasing power for our citizens....

You know…like everybody else we saw the things that are going on and we wanted to preserve the purchasing power of the earnings and savings of our people of Utah.  So the Utah Legal Tender Act recognizes gold and silver, federal government issued coins as legal tender in Utah.”

Meanwhile, as Utah prepares itself to move forward without federal funding, Venezuela’s president Hugo Chavez has lost confidence in western markets, in particular the international mega-banks which function as shepherds of most nation-states and global markets. Deeming U.S. and European economic prospects too uncertain, Chavez has decided to place Venezuela’s gold reserves and other liquid assets in China, Russia, and perhaps even Iran.  Chavez’s decision, in part, might have to do with his domestic petroleum reserves. He can sit on his petroleum reserves at home, with a stash of off-shored gold in emerging nations.

Venezuela’s gold holdings, 440 tons, ranks 15th in the world. And so, Venezuela holds more gold than Saudi Arabia or the United Kingdom. So, with this in mind, markets should not expect Libyan gold to hit the markets, resulting in a drop in the gold price. Instead, much of this gold might find its way onto the balance sheets of Venezuela. In order to drop the price of gold, with demand as high as it is, only further margin hikes will do the job.

UBS has raised its 3 month forecast in silver from $30/oz to $50/oz, suggesting, as LCPM did in last week’s post, that investors were not shorting gold, and choosing instead to buy silver, which sits today still more than 16% below the nominal high seen in late April 2011 and January 1980.

Liberty Coin and Precious Metals Radio Update 8.18.2011

Gold and Silver Wrap Up Week of August 8

Amid global market turmoil, gold’s parabolic run-up from $1500 per ounce to $1800, about a 15%  rise in price, spells a clear shift for the global economy. Firstly, anybody shorting the gold price leading into such a parabolic move upwards has lost much. They will not be participating in gold shorts any longer.  Presumably, many of them have transferred their shorts to the smaller PM market, silver. As they try and convince the world silver is not a monetary instrument, they will trade all the paper they can to keep the price of silver below $40. Recently, they’ve had no trouble doing so.  That these shorts have been moved to the silver market, thus keeping silver below $40, therefore leaves gold looking vulnerable, taking some of the steam out of its historic, 1982-esque, price run.  JP Morgan, HSBC, and other keystone financial institutions cannot keep silver down for much longer, as traders of gold and silver, worried about buying gold near its top, will look to the quiet silver for potentially quick returns. 

 One possible effect of these shorts being shaken out of the market is that we might not see gold dip $150, retracing half of its recent run-up as bull-market stocks tend to do (not to say that gold is a stock, but just to compare).  Rather, as volatility picks up in the currency markets, as suggested by the Swiss Franc’s drop of 5% compared when compared with the Dollar and the Euro, gold might head towards $2,000 in the near-term. 

Supply is being squeezed as the rush continues in the gold market, as 24K gold bars were delayed this last week for delivery. Further evidence of financial panic, rumor has it that Swiss 20 francs and Rooster French 20 Francs in Europe are being sold at premiums of 8.5% and 10.7%, respectively. The French are withdrawing money from banks, nervous that the instability plaguing Greece, Portugal, Ireland, Spain and Italy will soon come to France. 

As for silver, as an industrial metal as well as a monetary metal, it is prone to wild fluctuations. Over the past couple of weeks, though, the price of silver has traded between the $38 and $40 range. Considering the wild fluctuations in global markets, this betokens a surprisingly quiet silver market.  Not only ought the fear that has gripped the global market spur safehaven buying into the metal, but so too should the violent crashes in the markets spur serious moves to the downside for the silver. Instead, silver has moved up-and-down only 2% in either direction, representing a schizophrenic couple of weeks. The take-home point of such a steady silver price is that silver has broken the chains, if not from the paper manipulators, from its status as an industrial metal. Instead, increasingly so, the white metal is being viewed as tangible money. 

History shows that political volatility and financial crisis drive silver up. Consumer confidence today has reached its lowest point since 1980, that year in which silver ran to $50 per ounce. In 2008, the DOW crashed 1,874 points over the course of one week, and the silver price was cut by more than half. These past two weeks, the DOW has crashed 2,000 points, but, instead falling to $20 per ounce, silver has held in the high $30’s, a price which it has tested now seven or eight times. Expect silver to takeoff in the near future. 

The volatility, as CNN reports, is here to stay. “Massive volatility and headline-to-headline driven trading are now just part of the average day.”  Firms with high-frequency trading technologies benefit most from such wild swings.  Thus, panic will drive average investors away from paper assets into tangible assets, such as gold and silver.

*the aforementioned is not financial advice by which to trade, but a look at possible outcomes in the ongoing, long-term silver and gold PM market.

Ron Paul: We have not Learned Our Lesson

Gold and Silver Spike Despite Assurances by G7

The G7 announced on Sunday that it will do everything it can to stabilize financial markets and to ensure liquidity in the markets. The Finance Ministers and Central Bank Governors of the G7 also stated that currency rates should be decided by markets. Specifically, in regards to the US and to Europe, the G7 stated:

The U.S. has adopted reforms that will deliver substantial deficit reduction over the medium term. In Europe, the Euro area Summit decided on July 21 a comprehensive package to tackle the situation in Greece and other countries facing financial tensions, notably through the flexibilisation of the EFSF.

Despite the assurances on behalf of the G7—a beleaguered group of industrialized nations—precious metal markets spiked sharply at the beginning of Asian trading on Sunday. Gold futures surged to yet another record of $1697.70 an ounce, as the dollar slumped following S&P’s downgrade of US long-term credit rating. As of Sunday evening at 7pm west coast time, the gold spot price was up $30 from its Friday close, sitting at $1694.

 “Gold will most likely be a sharp recipient of safe- haven flows” said the London-based Edel Tully over the weekend. Our previous one-month forecast of $1725 is likely to be easily met in the short term.”

US stock futures and crude oil plunged, after a week during which investors sold equities and most raw materials for the perceived safety of Treasuries, the Swiss franc and gold. Before Sunday’s move up, the metal had already appreciated 16% on the year.

 “Most likely there will be a quest for physical gold, from both U.S. and European investors,” Tully stated. “The fear trade, as seen through the purchase of small bars and coins, will intensify as confidence diminishes, not just in the U.S., but fear of contagion to other AAA nations will prompt additional physical buying in European.”

Silver too returned to its trading price of last week, before it crashed from $42 to the high $37 range, furthering the case that, as global economic uncertainties steepen, the white metal will break free from its manipulated market status. Expect silvers price to continue to act in accordance with its safe haven demand, as opposed to its industrial demand.

Mckiernan, Patrick. Gold Futures Surge to Record on Haven Demand, Bloomberg 7 August 2011.

http://www.bloomberg.com/news/2011-08-07/gold-futures-surge-to-record-as-investors-seek-haven-after-u-s-rating-cut.html

S&P Downgrade and Looming Market Uncertainty

On Friday Standard & Poor’s, one of the three leading rating agencies, downgraded the US government’s credit rating Friday, marking the first time in history since the rating was given in 1917. The rating agency cited the recent plan worked out to raise the debt ceiling, claiming that it “falls short” of what’s needed. The two other leading ratings agencies left their rating of US debt at AAA.

S&P also cited the discord in the two-party system as a hurdle to reducing the nation’s soaring debt.  To be sure, the ratings agencies lost a great deal of credibility during the credit crisis of 2008 by failing to foresee it, when so many others did.

"The political brinkmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective and less predictable than what we previously believed," said S&P.

"The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy."

From now on, the US will carry an S&P debt rating of AA-plus, as opposed to the much-desired AAA, thus joining countries such as Japan, China, Spain, Taiwan and Slovenia. 

The downgrade may increase US borrowing costs, since its bonds may be considered riskier. The real decisions, however, will come as markets open back up Sunday evening. Higher interest rates charged by the US Treasury could lead to higher rates in other areas, such as mortgages and student loans. 

Come Monday, despite the S&P decision, Treasury Bonds might still be considered a safehaven, especially in dire economic conditions. Moreover, both Moody’s Investors Service and Fitch Ratings, the other two main credit rating agencies, have kept the US’s AAA rating “for now.”

To be sure, those firms did warn that a downgrade could come if the US did not do more to reduce its debt, which sits now well-above $14 trillion.

The timing of the S&P downgrade, which came late Friday night after a long week of market turmoil, whilst markets were closed, “seems like a sucker punch,” said Mark Vitner, a senior economist at Wells Fargo.

“Why would you do this now?” he asked. 

Indeed, it seems the timing of the announcement, and not the announcement itself, is the most mysterious part of the whole equation. The timing enabled central planners at the G20 to prepare comments and actions for Sunday. The ECB, too, held an emergency meeting over the weekend, inspired not only by the S&P downgrade, but Germany’s announcement that it will not bailout Italy or any further nations. Moreover, it is unlikely there is in peripheral Eurozone countries the will to take on such loans and the economic dependence on core nations derived therefrom. 

"The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners," Harry Reid (D-Nev.) said.

Competent chartist Dan Norcini said, in an interview with King World News, “The downgrade underscores just how severely the US financial balance sheet has degraded as the total federal debt is now at 100% of GDP and looks to be rising in the immediate years ahead. History teaches us that nations which reach a Debt to GDP ratio of 90% soon begin a process of economic deterioration. The US is will not be an exception.”

Should the “safest investment on the planet” (US Treasury debt)… not be as sure a bet at current yields as it once was, where do nervous investors park their money? This should continue to provide a good floor of buying support beneath the metal of kings.” 

Back in April, when S&P downgraded its outlook on US government debt to negative, fresh safe-haven buying interest was prompted, and both gold and silver futures rallied sharply. Back then, the gold price closed in on the major psychological resistance point of $1,500 for each troy ounce, and set what was then another record high. Today, what many view as the next major psychological resistance level, $1,750USD per troy ounce, seems certainly plausible, as former intelligence officer Bob Chapman has stated. Bob says gold could hit $1,750 an ounce by the end of August. This, to be sure, was said before the downgrade.

Certainly, the beginning of this week could hold some major changes in global financial markets, as sovereign investors and central planners move wealth to those economic spaces they feel will bring the largest yields or are safe. Taking pressure off the Dollar is Germany’s recent announcement they will not bailout Italy, and the increasingly clear picture that, to save the Eurozone, not hundreds of billions, but trillions of Dollars will be needed. In the end, I anticipate mindboggling amounts of money to be thrown at the Cause of European Unity. In the US, QE3 is sure to sometime soon to be officially announced.

No Debt Deal, Nothing New, Central Banks Go Long Gold

And, at long last, the Republicans and the Democrats compromise to ensure the United States government will be saddled with yet more debt.  It was a “historic, bipartisan compromise” to procrastinate. 

The deal is comprised of severely limited cuts, and, for the most part, merely speaks of future cuts. The $1 trillion in immediate cuts consist of almost only caps on future spending. Further, none of these cuts are required to be implemented by congressional bodies of the future. 

Still to come, a bipartisan committee of Representatives and Senators has been issued the task of finding an additional $1.5 trillion in savings from the federal deficit.  Of course, as the two parties will squabble in the public eye over what exactly can be cut, the powers-that-be at central banks and capstone international financial institutions will come up with decisions behind closed doors. 

Playing the part of opposition, for the time being, Speaker of the House John Boehner said that it is “effectively…impossible for [the] Joint Committee to increase taxes.”

The officials in the White House disagreed, saying that “revenue-increasing reform” (higher taxes and lower social services) remains an option, despite the fact that Congress would likely not pass such proposals. 

No matter if the aforementioned Committee can reach a near-term agreement, “deep ‘real’ spending cuts, which are painful to both sides, will take effect.” This, of course, means the men, women and children on the streets would be strapped with IMF-modeled austerity measures and structural readjustments. (1)

Yet again, the can has been kicked down the road. Are you surprised?

The “wise-men” who make markets and “our” politicians love to trumpet progress, but, when one reads through real history, it is clear not much has changed over the centuries. Maybe this is what progress is all about?

The world learned from Dutch modern finance. For example, the Anglo-Dutch merger in 1688 introduced our once arch-nemesis turned Anglo-American axis partners, the British, to a number of Dutch-pioneered financial institutions.

In 1694, the Bank of England was founded to manage the government’s borrowing as well as the national currency in a manner similar (to be sure, not exactly) to the workable Amsterdam Wisselbank founded eighty-five years prior. 

London, namely the City of London, managed to import also the Dutch system of national public debt, which was funded through a Stock Exchange, in which long-term bonds could easily be bought and sold. 

This allowed governments to borrow at significantly lowered interest rates. Thus, large-scale projects, which rarely benefited the people of the country, were far easier to afford. 

Daniel Defoe notes what such cheap credit could do for/to a country:

Credit makes war, and makes peace; raises armies, fits out navies, fights battles, besieges towns; and, in a word, it is more justly called the sinews of war than the money itself….Credit makes the soldier fight without pay, the armies march without provisions…it is an impregnable fortification…it makes paper pass for money…and fills the Exchequer and the banks with as many millions as it pleases, upon demand.

Sophisticated financial institutions had made it possible for Holland not only to fund its own brand of globalism, but also to protect itself with state-of-the-art naval power. Such institutions, starting with the Bank of England, were now to be put to use on a larger-scale in England.

This sophisticated financial system altered the way of the world,  allowing a scary few to orchestrate British international policies for the centuries to come. Moreover, these very few ensured the system spread to much of the globe through central banks. They were keen on the interdependence of nations, and not, as is so crucial to the American tradition, the sovereignty of nations. (2)

These central banks, today, are now net-buyers of gold and commodities in general. In other words, for them, paper does not pass for money. (3)

1.      Miller, Zeke. “The Truth About the Debt Deal: It’s Pretty Much Meaningless, Business Insider, 1 August, 2011.

Accessible at: http://www.businessinsider.com/truth-about-debt-deal-2011-8

2.      Ferguson, Niall (2004). “Empire: How Britain Made the Modern World,” Penguin Press, pages 23 and 293.

For purchase at Amazon: http://www.amazon.com/Empire-Britain-Made-Modern-World/dp/0141007540/ref=sr_1_4?ie=UTF8&qid=1312265646&sr=8-4 

3. Tong, Sebastian. “Central banks turn net gold buyers, cut euro zone debt: survey, Reuters, 12 April, 2011.