Nov 15

This Week on "States in Crisis"

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Ireland, Gold Futures, commodity speculation, and the rest of this week’s news – in advance…!

THIS WEEK’s episode of “The WelfareState in Crisis” features a guest appearance by the Emerald Isle,currently seeking about $110 billion in bailout money from theEuropean Union, writes Dan Denning in his Daily Reckoning Australia.

Actually, Ireland is not seeking that money, and that appears to be a part of the problem. The Irishgovernment is content that it’s managing its problems well,independent of European meddling.

But with 10-year Irish bond yieldsblowing out to a spread of 646 basis points over 10-year German debtlast week, European officials are worried that problems in Irelandare problems for the Euro. And if problems for the Euro get worse,that means problems for Portugal and Spain too.

No wonder the US Dollar quit fallinglast week. And no wonder commodities fell like a stone. Friday was anugly day for commodities speculators. The CRB Index in New York fell3.6%. Every single one of its 19 components was down. Sugar contractsfell 12% in London and corn and soybeans traded limit down.

Part of the shocking action incommodities futures markets is the raising of margin requirements byexchanges. It happened in silver last week. And it happened for sugartoo, when the ICE futures boosted margins on sugar contracts by 81%to shake out speculators. It will probably happen on Gold Futurestoo, and that might explain the $40 thud last Friday, among otherthings.

No one is forced to speculate, ofcourse. But this is what the Bernanke Fed has wrought. ItsQuantitative Easing action has put dollar owners in the position ofdoing nothing and losing money to inflation, or speculating intangible assets that go up in price relative to the dollar. And it’s not just commodities. It’s currencies too.

The G-20 summit in Seoul failed toproduce any result on competitive currency devaluations. No onereally expected it to. But what’s next? Since there is no quick andeasy solution to replacing a broken world currency system, the slow,difficult, and ugly scenario must take place. It will probably beslow, difficult, and ugly.

One thing you should expect more of isan escalating level of capital controls. Ironically, the firstmanifestation of this has been in export-oriented economies likeBrazil, where the government tripled a tax on foreign investment inlocal bonds from 2% to 6%. It was designed to prevent furtherappreciation in Brazil’s currency, which yields over 10% and is up35% in trade-weighted terms since last year.

China, South Korea and other countriesare taking similar measures. For big exporters, a stronger currencytranslates into a loss of competitiveness. And when capital marketsare wide open and you find yourself on the receiving end of hugeinflows, it can lead to rapid asset price appreciation and otherforms of less desirable inflation.

By the way, this shows you how everyoneis complicit in trying to return to the status quo ante GFC. Theexport-driven BRIICs want to pretend that the credit-financed Welfarestates don’t have real structural deficit and demographic issuesthat prevent a return to “normal” rates of consumption. They wantthe world be the way it was.

Here in Australia, other than houseprices being utterly unaffordable, it looks like things have neverbeen better. The rising Aussie dollar (up 17% since the end of Junealone) helps “contain” some of the inflation from booming coaland iron ore exports. That’s why the Reserve Bank of Australia isone of the only central banks in the world that does not appear to beactively trying to weaken its currency.

Maybe the RBA agrees with Bloombergthat on a purchasing power parity basis, the Aussie is trading at a30% premium to fair value. That makes it the most over-valuedcurrency in the world at the moment. If it’s a short-term trade(instead of long-term or secular trend in which the Aussie surpassesthe USD), the currency will weaken and not do any permanent damage toAustralia’s own export competitiveness by making Aussie exportsmore expensive than alternatives from Africa.

For now, the Aussie is the placeeveryone wants to be as well; a high-yield commodity currency from acountry with comparatively low public sector debt (although highhousehold debt), low unemployment, and economic growth correlated toAsia. What could possible go wrong when things can’t’ get anybetter?

Speaking of Asia, the other non-Irishnews that rocked commodity markets last week was that China againraised reserve requirements at key banks and may raise interest ratesto ward off inflation being poured into China from the U.S. Stocksand commodities fell hard.

What do you make of all this mess?

To us, it means that anxiety about theAussie being too strong for too long may be short-lived. China couldbe doing a dress-rehearsal for a much more dramatic fall in assetprices as the authorities try to prevent inflation from surging. Thishas obvious and bearish implications for commodity prices.

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Nov 08

Casino Inflation in Junior Stocks

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QEII makes a casino of investing. Place your bets…!

SO WHAT IF the Fed pushes short-term yields so low on US notes and bonds that it forces everyone else to takes heaps of risks and buy stocks and commodities? asks Dan Denning in his Daily Reckoning Australia.

That is the question that kept us tossing and turning Sunday night. By monetizing so much of the debt at the shorter end of the US yield curve (note and bonds that mature in 10 years or less) the Fed makes those instruments extremely unattractive to anyone who wants a return that beats inflation.

And in point of fact, yields on two-, five- and 10-year notes are all at or near record lows. Prices go up a bit, but not really enough to make buying US debt a winning trade. That means investors have to go out and buy junk bonds, or corporate bonds, or emerging market bonds. Or equities. Ahh, yes. Equities.

Perhaps that is why the stock market went up on the QE announcement last week. The size of the Fed’s move wasn’t a big surprise. But perhaps the dynamics of its movement – crowding everyone else out of the short-end of the bond market – is setting off the hunt for other assets…and stocks are an easy option. This is why stocks could make new nominal highs without any real improvement in the earnings prospects for major companies (ex financial).

Meanwhile, in the derivatives market, Gold Futures were knocking on the door of US$1400 per ounce, about to kick down the door. We’re here in Sydney to talk about gold to the Gold Symposium on Tuesday. The easy thing to do now is make a price forecast. Goldman Sachs did that last week, setting a price target of $1,650 for gold in the medium term. But all the action in the precious metals is pretty bullish right now, including silver, platinum, and palladium. And we mentioned on Friday that some analysts are even saying the base metals will thrive in the QE II trade, with some copper forecasts hitting $12,000 per tonne.

Reuters reported on Friday that copper hit a 27-month high, just a couple of hundred Dollars off its all-time high on the London Metals Exchange. It was a kind of delayed reaction to Wednesday’s Fed news. First, a possible strike at a major mine in Chile clouded the supply picture. But really, it’s as if everyone started to think the same thing at exactly the same time: Inflation!

The fact is that each phase of global financial crisis has been met with a money flood from the authorities. That money usually (and first) finds its way into the share market, and it takes the small fry up fastest. To me, this is the definition of financial gambling. That is, the Fed is turning the entire global stock market into a casino. It’s also probably accelerating the flow of capital out of Dollar denominated assets and into other markets with less destructive central bankers and politicians. That said, it could be bullish for tangible assets and thus, junior resources.

Says Barron’s magazine:

"This year, for the first time ever, China has been investing more overseas in assets like iron, oil and copper than it puts into US government bonds. China in this year’s first half spent $31 billion on hard assets, compared with $23 billion on Treasuries and other US government bonds. Experts say China’s investments in each of these asset classes will total about $55 billion for the full year. But even a tie marks a major turnaround from China’s previous practices."

So yes. That seems all very bullish and favorable for Aussie stocks. Almost too good to be true, though. The devaluation of the Dollar isn’t likely to be so easy to profit from. And it’s probably going to get a lot more political.

Buying Gold or physical Silver Bullion today…?

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Nov 01

Copper prices jump on China, US factory output

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Copper prices were higher Monday on new manufacturing data from the United States and China, although gains were limited when the US dollar strengthened on the factory output figures.
In China, the Federation of Logistics & Planning’s purchasing managers index rose from 53.8 in September to 54.7 in October, while in the US the Institute for [...]

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Nov 01

Financial Extremists

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Financialization has led to a world of useless analysts and "extremist" naysayers…

OH WOULD the International Monetary Fund please shut up and leave Australia alone? asks Dan Denning in his Daily Reckoning Australia.

According to a report in The Age, the IMF is about to release a report in which it reveals that Australian house prices are "moderately" overvalued by 15%. This is not nearly extreme enough, in our view…which makes us an "extremist" to use the words of our friend Rory Robertson, with whom we debated about house prices a few months ago.

Rory used the word like it was a bad thing, which, we suppose, it IS, when you’re using about people who blow things up for religious reasons (probably the image/impression he wanted to conjure). But we’ll let you in on a little secret…

When asset prices become unhinged from values – as they do in a worldwide credit boom – the world has become an extreme place. Extreme asset values are the rule and not the exception during a credit boom.

We are all extremists now, Rory. Because the Fed has forced us to be.

Incidentally, this is why returns on most asset classes are so tightly correlated during a crack up boom. There’s no point in differentiating between what’s cheap and what’s dear when everything goes up. Thus, bad credit (or too much credit) clouds good judgment.

To follow up on this thought, this explains how too much credit perverted Wall Street. Yes, the money was easy which probably lowered the threshold for committing fraud on a mass scale (subprime mortgage lending and securitisation). But if credit elevates asset values, then there is no need to an analyst anymore. You can’t distinguish yourself by virtue of the quality of your work. In fact, the quality of your work has less and less influence over the result, which is foreordained because of the flow of money into markets. This is why Wall Street (and America, and a lot of the Western world) have moved from a culture of merit-based achievement to a culture of "who can legally loot the most money."

This gradual corruption of the value of honest work and honest money is the result of the financialization of our economies. We’d argue that it all stems from the corruption of our money (fiat money). When the basic unit of value and of conducting transactions for goods and services becomes unreliable, unstable, and is designed to erode over time, is it any surprise that other values erode too?

Gold, which as a noble metal does not rust (or erode), is currently trading at US$1341. Everyone is wondering what the Fed will say next week. Everyone is expecting "the big one". But as our colleague Murray Dawes notes, the Fed is probably going to drip-feed support markets (through large-scale asset purchases) on an as-needed basis. This month could be a big fat nothing-burger if you’re expecting…a big fat policy announcement.

Or, in narcotic terms, the markets are looking for their next big hit. They are already nervous that if the Fed doesn’t bring more liquidity (smack) the big indexes will correct (come down) to reflect how they have mis-priced the Fed’s actual efforts. The Fed has left everyone guessing, but generally buying, which is probably what it wanted.

For our money, and probably because we just wrapped the October issue of Australian Wealth Gameplan (AWG) in which we wrote about the matter extensively, the real game changer in the world currency scene will come from the slowly but inexorably imploding US mortgage market. The recapitalization of US banks and improving their earnings is the real target of the Fed’s Dollar devaluation policy – which makes perfect sense when you recall that the Fed is a cartel of those very same banks. Of course it would act to save its member banks, even if it cost US taxpayers hundreds of billions and a real loss in American standards of living as a result of the end of the Dollar standard and lower US purchasing power.

Australia seems to be perfectly positioned for Dollar devaluation to the extent that it’s a commodity producer (commodities are priced in Dollars and thus growing in value as the supply of Dollars increases). It doesn’t hurt that Australia – like Singapore and Malaysia – is also a kind of China-proxy.

That is, those currently exiting the Dollar may be looking for a currency with a chance of growing in purchasing power. That would be China’s currency – if and when it ever lets that happen. This is also an issue we covered in the AWG report. But if you can’t buy Chinese assets or own Chinese currency directly because of capital controls, you have to do the next best thing.

Get the safest Gold Bullion at the lowest prices using BullionVault…

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Oct 22

What Geithner Wants & What Geithner Gets

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Living standards in the West are certain to fall as Asian wealth grows…

"There are more tears shed over answered prayers than over unanswered prayers…"
– Teresa of Ávila, patron saint of headache sufferers

IT’S NOW five years and $1.7 trillion of Chinese foreign-currency reserves since the People’s Bank ended a decade-long peg to the Dollar, writes Adrian Ash of BullionVault.

Throughout the mid-to-late 1990s’ Asian Crisis, and again as the US currency first began its long decline in the early Noughties, Beijing had defended 8.3 per Dollar. Its rising power – plus grumblings from trade partners – made some level of appreciation inevitable, but only if Beijing kept it strictly controlled. So back then, as today, China refused to even begin making the Yuan freely convertible – and thus accessible to foreign investment – but for very different reasons.

The fear when China carefully recalibrated its Dollar peg in 2005 was of foreign speculators driving the Yuan lower. Whereas in 2010, it’s got the opposite problem. Grabbing export share (and that mountain of foreign-exchange reserves) by suppressing its currency way below any measure of "fair value", Beijing clearly fears a repeat of the Japanese bubble-and-bust that followed 1985′s Dollar-weakening Plaza Accord. Because since first loosening the Yuan’s Dollar peg (if only a little) half-a-decade ago, China has overtaken Japan as the world’s No.2 economy, and become the world’s top importer of copper, biggest user of cement, No.1 consumer of energy, edible oils, soybeans, rice and wheat, and the No.2 destination for physical Gold Bullion.

Yes, China’s currency should reflect this growth, at least according to non-Confucian theories of floating currencies and trade rebalancing. No doubt it will in due course, too. But if US Treasury Secretary Tim Geithner were to get his wish at the G20 meeting this weekend – which he won’t, not yet – and the Chinese Yuan did bear a greater share of the Dollar’s global devaluation, Beijing’s impact purchasing power in the food, energy and mineral markets would only grow greater.

So where Timmy might want to watch out is that the appreciation in China’s purchasing power must come at the expense of today’s freely convertible currencies.

First, Beijing likely holds some $2 trillion or more of the "big four" reserve currencies – Dollars, Euros, Sterling and Yen. Gresham’s Law says it’s more likely to spend those holdings ahead of its own, increasingly valuable money, as it buys ever-more food, energy and mineral resources to meet its surging domestic demand for a better standard of living.

Second, and should the Yuan extend its global usage from this year’s McDonalds’ bond float to central-banking reserves, the relative loss of purchasing power in Dollars, Euros, Sterling and Yen will only accelerate further. Together, the Big Four account for 96% of forex reserves according to the IMF, but that’s the lowest proportion since before the late ’90s Asian Crisis – a crisis which Beijing managed to avoid but remembers all too well.

Third, and most critically amid the global currency war – a war which will not be settled over the conference table for as long as Western central-bank policy remains fixated on currency inflation – flows of "hot money" are rightly expected, not least from US, UK and Japanese wealth fleeing zero-per-cent rates at home.

As it is, China is gently loosening controls on money outflows, but only a little, and actual outflows of Yuan remain blocked. So trying to preserve its global value, retained wealth in the West cannot get direct exposure to the currency (nor the equities at present) which will increasingly put a price on the biggest trend of the 21st century – the Eastward shift of global demand and consumption.

Even if China does liberalize (which it won’t any time soon) retail investors will be last in the queue. So a fair proxy, meantime, remains buying hard assets and natural resources. It also gets to the heart of the problem, because living standards in the West (by way of our global purchasing power) are certain to fall long-term. Asia’s growing use of world resources must come at our expense, in just the same way as the Pound Sterling’s first fall from top-dog currency status – starting some seven decades ago, and running pretty much ever since – made for a relative loss of wealth to the United States.

Most clearly amid the currency turmoil only just getting started, China’s ever-growing demand for Physical Gold and silver highlight that big, fat 21st century trend in action. By the time (if ever) that Yuan deposits become widely available through retail banking in the US, Eurozone, UK or Japan, this morning’s $1319 price-tag on gold might look a great bargain.

Buying Gold today…?

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Oct 19

"More Inflation Needed"

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Fed policy is creating a surge across raw material prices, not just in gold and silver…

SO MOST INVESTORS know that the Federal Reserve’s "easy money" policy is creating an enormous amount of new credit and new money, write Porter Stansberry and Braden Copeland at Stansberry & Associates.

And most people know this policy has created an explosion in the prices of gold and silver.

But most people have no idea where the bulk of the Fed’s new money is actually finding its home: in Asia. This has enormous implications for you as an investor, which I’ll show you in a moment…

According to Bill Gross, who manages the world’s largest pile of fixed-income assets at Pimco, the Federal Reserve is going to resume large-scale quantitative easing at the rate of $100 billion per month. News of this plan has been leaking out for the last two months following an important speech Bernanke gave in Jackson Hole, Wyoming this summer. He said, essentially, we needed a lot more inflation.

If the Fed does resume quantitative easing at the $100 billion-per-month range, it would be buying the equivalent of all of the new debt the US Treasury is issuing – all of it. This represents an increase of roughly 30% to the money supply in the first year…an extraordinary amount of new cash.

Trade and capital flows are transferring most of the inflation the Fed is creating to the Chinese economy. US politicians continue to stimulate consumption in the US, while most of the production to meet this demand comes from China. We borrow and spend. They produce and profit. Hopefully, you understand printing more money and buying government bonds won’t change this dynamic. It simply results in still more money being sent to China.

What will China do with the flood of capital? Lots of things. But one thing it will certainly do is build more coal-fired power plants. Coal-fired plants produce 80% of the electricity in China, and demand for electricity is growing roughly 9% a year. It’s hard to comprehend how fast demand for coal is growing in China, but consider these facts…

China is now the world’s second-largest consumer of electricity, after the United States. A decade ago, China’s installed generation base was only 315 gigawatts. Today, it’s 900 gigawatts – and 78% of its production is still coal-based.

Today, China consumes three times more coal than the US – more than three billion tons. But China only has about half of the US’s coal reserves. And that means it must import a lot of coal.

At current growth rates, China would exhaust its current reserves in only 16 years. Obviously that’s not going to happen – more mines will be dug. But just as obviously, it will take a long time to build the mines and lay the railroad infrastructure required. In the meantime, China will need a lot of coal.

Current market surveys show China will import 150 million tons of coal this year. That’s only 5% of China’s total coal demand, but it represents 15% of the total US demand. Right now, almost all of this coal comes from Australia, where China takes up about 60% of the export supply of coal.

And here’s the crucial fact: China’s coal imports doubled in the last year.

We know total power production in China is scheduled to double over the next eight years. It’s building a new coal-fired plant nearly every week. The United States has built only 12 new coal-fired power plants since 1990. Assuming China’s coal imports double again (and they will), Chinese demand will exhaust Australia’s export capacity. And when China’s import demand doubles again after that (to 600 million tons per year), it will exhaust the world’s total export supply.

China’s not the only problem…Don’t forget about India.

India’s installed power base exceeds 600 gigawatts, and demand is growing at about the same pace as in China. India also relies on coal for most of its power (70%). It currently burns 500 metric tons of coal a year, mostly from domestic sources. But Vinay Kumar Singh, the CEO of India’s Northern Coalfields, says the country will need to import at least 250 million tons of coal a year by 2020. India’s imports of coal from South Africa rose 74% last year.

It’s no exaggeration to say China and India’s demand for electricity is the future of global power. Already China’s coal production represents more than twice the amount of energy produced from all of Saudi Arabia’s oilfields.

What’s fueling all of this demand for coal-fired power plants? Huge urban populations in China and India. Consider these figures. In America, the baby boomers – the 50 million Americans born in the years after World War II – produced the demand for vast amounts of new infrastructure in America.

There are 300 million newly urban Chinese people. And 300 million newly urban Indians. That’s 600 million people moving out of the Stone Age and into the modern world – a group 12 times bigger than the baby boomers. While it’s true these people will want to buy lots of things – from Cokes to Buicks – the thing they need most is electricity.

Americans don’t yet realize the Fed’s attempts to paper over our debts come with serious consequences. As our money loses its purchasing power, costs will rise – especially power costs. Undoubtedly, our politicians will blame "speculators" for the soaring price of coal. But the truth is, the paper that will push prices higher came from the Federal Reserve, not from any hedge fund.

Whether we realize it or not, we compete with other nations around the world for resources. Historically, our currency – as the world’s reserve currency – has given us an enormous advantage. Coal, for example, is priced in Dollars. But we stand on the verge of losing that advantage…and the consequences will be drastic. We will face higher prices for coal, among other sources of energy.

To hedge yourself from this coming Fed disaster, buy coal stocks is our advice. They’re going to go much higher in the coming years.

Get the safest gold at the lowest prices – go to BullionVault now…

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Oct 11

Gold Investment Demand: Tight Supplies Ahead?

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Gold investors wanting coins and small bars might be surprised if another "crisis" hits the markets…

WE’VE GOT IT pretty easy right now, writes Jeff Clark of Doug Casey’s Gold & Resource Report.

Click or call, and you can quickly and conveniently own a Gold Coin or small bar to keep at home. But if global concerns cause another panic – or the Dollar breaks down – you could find yourself standing in a line at the local coin shop or getting a busy signal from a larger coin dealer.

Simply, for reasons I’ll discuss here, you may find it very difficult to buy physical gold when that time comes.

It’s happened before. Though there were no precious metal ETFs in 1980, the demand for physical gold was so great that you literally had to wait in line at a coin shop to buy, with plenty of occasions when you would have been turned away due to lack of inventory. And you’ll recall we saw serious shortages, unexpected delays, and soaring premiums for retail investment products in late 2008.

Given the fragile state of global affairs and the waiting-in-the-wings crisis for the US Dollar, I’ll be surprised if we don’t see another panic into physical gold. And the question is, will there be enough metal to go around when the public – 95% of which own none – wakes up and wants to buy it?

Answer: No.

Contrary to some claims, it isn’t because we’re about to run out of supply. While global mine production peaked in 1999 at 82.1 million ounces and has trended down since, take a look at the second largest source of supply – scrap. As you would expect, bad economic times and the surge in Gold Prices have triggered an increase in supplies from that source.

In fact, since 1999, as the price of gold climbed, the scrap supply nearly doubled. (Scrap comes mostly from jewelry, 75% of which derives from India, East/Southeast Asia, and the Middle East.)

So when you examine the total supply of gold coming to the market, it’s actually nudged up for three consecutive years, hitting 116.6 million ounces in 2009, a modest 8% increase over 1999. In the greater scheme of things, the total supply of gold to market has changed very little.

So what’s the problem?

First, you’d think a higher price would lead to rising mine production – but that’s not happening. From 1999 through 2009, the average annual Gold Price rose 248%, yet gold production fell 6.6%.

This means that as gold continues higher, we cannot count on miners producing more yellow metal for us to buy. This concern will become increasingly obvious as more buyers enter the market.

Second, although scrap has more than supplemented the fall in mine production, as I’ll show you in a moment, it’s still not enough to fully satisfy current demand, let alone any increase in buying.

Meanwhile, the third major source of gold supply is reversing trend. Until last year, central banks around the world had been selling gold, adding a reliable tributary to the flow of metal year after year. This has stopped. As recently as 2007, 17 million ounces came to market from central banks; last year they acquired 7 million ounces. The era of central banks as large net gold sellers has likely ended.

The conclusion we can draw from these signals is clear: known gold supply conduits will not deliver any significant new supply in the future. This will have serious repercussions. While it’s certainly bullish for the price, I think many investors have overlooked a critical angle:

If more and more people want to Buy Gold and the supply doesn’t increase, what happens to your ability to get it? You can’t turn a profit if you can’t own it. Realistically, though, how much more demand can we expect?

One way to estimate this is to compare today’s percentage of global assets in gold to the last great bull market…

While gold’s share of the global financial landscape has grown since 2001, a whopping 385% leap is needed to equal its 1980 peak.

Certainly some of that percentage could result from a decrease in the value of other assets. For example, residential and commercial real estate values will continue to fall as bad loans are unwound, and stock markets will adjust lower as global economies slow from cutbacks in government spending. But the gap is so enormous that investment in gold could easily increase significantly before this bull market is over.

Another way to measure potential future demand for Gold Investment is to look at today’s bar and coin demand compared to the last bull market. The following chart first looks at what portion investment in gold comprises of the total uses for gold (i.e., including jewelry and industrial uses). Then we look at the percentage coin buying represents today vs. the peak in 1979. The point is to see if we’ve already reached high investment levels in gold similar to the last bull market peak – or if there’s room for more.

When Gold Investment demand – whether for physical metal or bank buying etc – peaked in 1979, it represented 54% of all uses for gold that year, a far cry from last year’s 32%.

Of course, this is just arithmetic; lower jewelry demand could make investment demand look bigger as a share of total demand. But this data makes clear that an increase in investors wanting more gold could rise dramatically.

The picture is more striking when we look at Gold Coin demand. Coin buyers represented 36% of all gold investments in 1979; today it’s barely 14%. Coin demand would have to grow by 157% to match the last bull market peak. Yes, gold ETFs have and will continue to replace some of the demand for physical metal, but this shows there remains tremendous room for growth for investors wanting more Gold Coins.

Based on this data, I believe that despite the strong demand for gold investments we see today, it can go much, much higher in the coming years.

Here are some examples of coin demand straining current supply that you may find surprising…

  • The Rand Refinery in South Africa, the world’s largest, forecasts it’ll sell 1 million Krugerrands this year. Sounds like a lot – until you consider that from 1974 to 1984, they sold 2.6 million ounces per year. And that was when the world’s population was roughly 35% lower than today;
  • The US Mint has had difficulty meeting heightened demand when annual sales are only slightly above historical averages;
  • So far this year, Gold Mining production in world No.1 China is up 5%, but demand for physical gold in the world’s No.2 market is up 30%;
  • During two tense weeks of the Greek crisis in April/May, the Austrian Mint, one of the world’s five largest, sold a quarter-million ounces, an amount that exceeded all of first-quarter sales. And Pro-Aurum, one of Europe’s largest online precious metals traders, had to temporarily suspend sales due to a backlog of orders and insufficient supply. If Greek-style sovereign debt fears spread to other nations – something looking all but assured – rolling bullion shortages could resurface.

While all this is bullish for the price of gold, it’s alarming what it suggests might happen to the availability of physical gold.

So my question is this: if the Dollar is collapsing and gold is screaming to $5,000 an ounce, will you feel like you own enough?

Better get some now while you still can.

Quit paying retail and get into the deepest, safest and most cost-effective Gold Bullion market – the professional wholesale trade – using world No.1 BullionVault…

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Oct 07

Gold Price: "Never See $1000 Again"

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Gold Prices are set to hit $1500 sooner, not later, says this senior advisor and analyst…

SO GOLD broke through a new record earlier last week and this, topping $1300 an ounce for the first time before rising still further, says Hard Assets Investor.

Psychologically, that $1300 level was important – it appears to have pumped more steam into the gold rally and transformed even the most dedicated gold bears into bulls. But the uptrend shows no signs of reversal anytime soon, says Jeffrey Nichols, senior economic adviser to Rosland Capital and the managing director of American Precious Metals Advisors.

A widely recognized expert in precious metals, Nichols has worked with everyone from mints to Gold Mining companies to develop financing and investor relations. Here he tells Hard Assets editor Lara Crigger about whether gold’s nearing bubble territory, why food prices affect gold, and why $1500 gold by year end is just the beginning.

Hard Assets Investor: Gold just broke $1300 per ounce earlier this week, and you’ve publicly stated you believe it could go as high as $1500 per ounce by the end of the year. Why is $1300 such an important level? And why do you see $1500 in our near future?

Jeffrey Nichols: $1300 is an important level mostly for psychological reasons, because it’s a round number. People love round numbers, particularly technically oriented traders. So that’s one reason. The other is, it worked hard the last couple of months to finally break through. And now that it has, it seems to be establishing a new floor above or around $1300. So, from a technical point of view, it looks to me like it’s gathering steam for another effort at moving higher from these levels.

I’m optimistic about the $1500 per ounce forecast by year end, which, incidentally, is the forecast that we’ve had for a year or longer. In the next couple of months, gold has a variety of factors going for it. First and most simply, seasonal demand.

HAI: Right. We’re getting into the holiday season, all across the world.

Jeffrey Nichols: That’s probably what pushed us over $1300. In the Western world, jewelry manufacturers start gearing up and building inventory for the Christmas season, so that brings Christmas forward for jewelry manufacturers and that’s just now beginning to kick in.

But gold demand for jewelry and small investment items in India also has a very strong seasonal aspect to it. Some of it is because of festivals and the marriage season; some of it is because the beginning of September is harvest time for many of the farm communities in India.

This year, harvests will be quite good, because we’ve had, from the Indian point of view, a very good monsoon. Unfortunately, in Pakistan, the same storm caused all that havoc, but India got none of the problems, only the benefits. So agrarian income will be good this year, and some of that income naturally finds its way into gold.

One of the important things about Southeast Asian demand, in general, and Middle Eastern demand, is that it doesn’t require economic crises to do well. What it requires is good growth in personal income. From India to China, to Malaysia, Thailand, Vietnam, the Philippines – all these countries are enjoying very strong economic growth. People in these regions Buy Gold for a variety of reasons, one of which is as a form of savings. So when incomes are strong, some portion will go into gold.

HAI: Now as gold moves higher, are we starting to near bubble territory?

Jeffrey Nichols: I don’t think that at all. In fact, over the last couple of years, there have been several episodes where analysts and investors have either said we’re in a gold bubble, or worried that soon we’d be in a bubble. I don’t think that’s the case.

First of all, participation in the gold market may be more than ever before, but it’s still fairly limited in terms of Western investment demand. For investors in Europe and the US, their participation in gold is still relatively small scale compared to their holdings of stocks and bonds.

Also, we haven’t seen a rush into gold. It’s been orderly, and it’s been for good reasons. Now, come back to me in three years or whenever we’re nearing the top of the Gold Price cycle, and I might give you a different answer, because when you get to a top, you often get that type of action. In 1980, you could say we were in a bubble. All that activity and demand for gold compressed into a very small period of time. In the matter of literally a few days, gold just went through the roof.

HAI: Right. Now we often overlook the effect of the commodity markets on gold, but gold is a commodity, first and foremost, and what happens in those markets does make an impact. You’ve said we’ll see higher food prices in the future; how do rising food prices impact the price of gold?

Jeffrey Nichols: Rising food prices are an element of overall inflation. When we go to the supermarket, we see tighter prices for foodstuffs across the board. It’s not just one or two items that are out of whack. It’s agricultural commodities in general, and we can literally see and feel that effect on our household budget. People don’t see the consumer price index when they go shopping; there’s no shelf that says Consumer Price Inflation.

But on the shelves are all sorts of things where prices are higher from week to week: cocoa prices, given poor harvests; coffee prices are very high. Beef prices are rising, not only because feed stocks are more expensive, but also because of changing dietary patterns in what was once the developing world.

One of the things I’ve always loved about being a gold analyst is the fact that so many things around the world – whether it’s politics, economics, food prices, oil prices, currency markets, monetary policy in the US, monetary policy in Europe, developments in China and India – come to play in the gold market. And it makes it very interesting as an analyst.

HAI: When you invest in gold, you have to take a holistic sort of approach, right?

Jeffrey Nichols: Absolutely, and I think the mistake that many people make when they’re looking at the gold market is the focus on one or two things, which tends to be US monetary policy and what’s happening to the Dollar. That’s very important, and that’s playing a role in this whole bull market, at least over the last couple of years and for the next year or two, probably.

But it’s not the only factor and many people talk about it as if it were. They’re missing out on what’s happening in China and India, what’s happening with central banks, the stagnation in mine supply, the introduction and development and expansion of new gold investment products, or what I call the "Gold Investment infrastructure"…

HAI: Right. Gold ETFs opened up the space for new investors.

Jeffrey Nichols: That, in combination with other factors, has had a phenomenal influence on the price, and will continue to do so. ETFs have made gold investing easier and more accessible to more investors around the world, both individual investors and institutional investors. Many of the institutions now Buying Gold would not be in the market were it not for these new instruments.

And for other institutions, it’s just made it easier. They don’t have to deal with gold dealers who they’re not familiar with, haven’t done business with. They don’t have to deal with understanding how the physical markets trade. They don’t have to deal with transportation, storage and insurance issues. They Buy Gold and can sell gold just like they would sell any equity.

HAI: In some ways, I think the physical market is almost like the Wild West. There are certainly a lot of very reputable places to get your bullion, but there’s a heck of a lot of places looking to screw you, too.

Jeffrey Nichols: There are. And it’s difficult for somebody who’s not in the industry to discern one from the other sometimes.

And it’s not just that we have one or a few ETFs here in the United States. ETFs are springing up, and will continue to do so, in other important geographic markets. We have ETFs in India, Europe, Switzerland and the UK.

HAI: How does central bank buying factor into the Gold Price? Certainly we’ve seen massive uptake on their end recently, particularly in China.

Jeffrey Nichols: The central bank, I believe, continues to Buy Gold surreptitiously and does not report its regular purchases of gold. You read the newspapers and it says what central banks this year bought, but whatever the analyst says in the article, you can imagine that it’s actually a good deal more, because of unreported purchases. And it’s probably by more central banks than just the Chinese.

The Chinese announced in April of 2009 that in the prior six years, they had bought many hundreds of tons. And since then, there’s been no increase in reported reserves. I can’t possibly imagine that suddenly they just stopped buying. The impetus and rationale for buying was to diversify their official reserves and reduce dependency on the US Dollar, and both have grown in importance.

HAI: Right. Now gold production has begun to slow down, and mine activity is on the decline. Do you think we’ve hit "peak gold"?

Jeffrey Nichols: It’s hard to say. I don’t think we’re going to see any big increase in gold mined supply at least for several years – probably five or 10 years, if we have a new wave of gold mine exploration and development. But it takes years and years to move from exploration to significant production.

There is exploration going on, and there is new mine development and new production from mines, some of which did not exist a few years ago. But it’s merely offsetting the erosion in production and the depletion of existing mines.

A lot of South Africa is that way: South Africa went from the world’s biggest producer of gold to way down on the list. And it’s going to continue shrinking. Because in South Africa, you have not only a depletion of ore reserves and the need to go deeper and deeper, which makes it more expensive, but you also have labor issues. You have rising electricity and energy costs, and actually insufficient supplies of electricity for the mining industry. The country hasn’t kept pace in developing power sources, so there are periodical electrical shortages and outages. Unions which have much greater power than ever before are demanding higher and higher wages and other benefits – maybe rightly so, but it makes every ounce of gold that much more expensive to mine.

HAI: Meaning miners will just go elsewhere instead.

Jeffrey Nichols: So I think at best, gold’s primary supply – mining production – will plateau over the next few years. Maybe it will go up a little bit, but not enough to matter from a world market supply-and-demand point of view. But it’s possible that we’ll see big discoveries. It’s possible that those big discoveries five or 10 or 15 years from now will result in significant increases in mine production, but not for many years.

But to say that we’re never going to see big increases again I think is a mistake. For one thing, I expect much higher Gold Prices in the future. Not just $1500, but multiples of that. I think in the future the average of the notional long-term Gold Price is going to be much higher than anybody imagined. I don’t think we’re ever going to see gold below $1000 again.

And those higher Gold Prices will make gold mining more effective than it has been in the recent past years.

Buying Gold – now easy, safe and cost-effective at world No.1 BullionVault…

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Oct 04

Inflation Or Deflation?

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The inflation/deflation debate rages on. But why…?

The INFLATION/DEFLATION debate is now the ‘topic du jour’ and although we have discussed this issue in the past, we want to throw more light on this very important subject, writes Puru Saxena of PuruSaxena Wealth Management in Hong Kong, China, for the Daily Reckoning.

Today, many prominent economists (Nouriel Roubini, David Rosenberg and Paul Krugman) and fund managers (Bill Gross and Jeremy Grantham) are forecasting deflation and according to these folks, a deflationary contraction is now ‘baked in the cake’. In fact, these deflationists are extremely worried about the ongoing private-sector debt-deleveraging in the developed world and they are also concerned about the lack of aggregate demand in the industrialized nations. Bearing in mind these two factors, these prominent people believe that deflation is now almost guaranteed and inflation is out of the question.

On the other end of the spectrum, and in stark contrast to the deflationist camp, many prominent market participants (Paul Tudor Jones, John Paulson, Jim Rogers, Marc Faber and Peter Schiff) are now warning about high inflation or even hyperinflation. According to these people, the large fiscal deficits and massive debt overhang almost guarantee runaway inflation.

It goes without saying that such conflicting views are extremely strange when you consider that all these highly experienced and successful people are reviewing the same economic data! Well, everyone is entitled to their opinion, but as far as we are concerned, deflation is an urban myth and the global economy will have to contend with very high inflation.

It is our conjecture that inflation is always a monetary phenomenon and willing policymakers have the ability to create inflation. Now, before we delve any further, we want to make it clear that inflation is an increase in the supply of money and debt. Conversely, deflation is a decrease in the supply of money and debt.

Furthermore, it is critical to understand that an increase in the general price level is a consequence of inflation and a decrease in the general price level is a consequence of deflation. Most importantly, despite what you may hear elsewhere, you should keep in mind that a booming economy (operating at maximum capacity) is not a pre-requisite for inflation.

Now, if you reside in the deflation camp and believe that inflation cannot occur in a weak economic environment, you need to visit Zimbabwe and meet Mr. Mugabe who will explain how you can create hyper-inflation at a time when a nation is facing an economic depression! Whether you like it or not, Zimbabwe’s hyper-inflationary saga clearly shows that despite a huge output gap, surging unemployment and a bankrupt economy, reckless policymakers can succeed in creating massive inflation.

Look – we do acknowledge the fact that the economies of the developed world are struggling and they will probably remain weak for several years. We also accept the fact that the aggregate demand in these troubled economies will stay well below the available capacity (output gap). However, contrary to the deflation camp, we totally respect the money-creation abilities of the central banks. Accordingly, we firmly believe that in order to avoid sovereign defaults in the near-term, the Federal Reserve and the European Central Bank will create unprecedented inflation.

Already, short-term interest-rates in the US and in Europe are at extremely low levels and real short-term interest-rates are negative. If such a loose monetary policy fails to create inflation, you can bet your bottom Dollar that these central-banks will unleash even more rounds of ‘Quantitative Easing’. Needless to say, such reckless monetary-inflation will dilute the existing money-stock even further and reduce the purchasing power of money. Okay, enough about the inflationary bias of the public-sector, let us now move on to the private-sector.

As far as the private-sector is concerned, you may recall that after the credit-bubble burst two years ago, commercial-bank credit in the US started to contract. After all, this debt repayment by the private-sector was a logical response to the crisis and for 17 months, commercial-bank credit declined by roughly US$700 billion. In fact, it was this private-sector debt contraction, which prompted many economists and investor to enter the deflation camp.

Whilst it is true that the private-sector in the US did experience deflation (contraction in debt) for a brief period of time, it is notable that this ‘austerity’ did not last very long! Figure 1 shows that US commercial-bank credit bottomed out earlier this year and since then, it has risen by roughly US$400 billion. So, it should be clear to all observers that the private-sector in the US is no longer de-leveraging and this is inflationary.

Furthermore, we would like to point out that even though commercial-bank credit in the US contracted between October 2008 and March 2010, during that period, America’s federal debt went through the roof!

Ironically, during the time-frame when American households and corporations were tightening their belts, the US-Treasury borrowed almost US$2 trillion; thereby stopping deflation in its track. The truth is that at no point during the recession did total debt (private-sector plus federal) in the US contract, so deflation did not occur. Now, it is conceivable that the private-sector in the US may abruptly start repaying its debt again. However, if such a debt-contraction occurs, Mr. Bernanke will create money like there is no tomorrow.

Today, America’s total liabilities (including social security, Medicare and Medicaid) are around 800% of GDP and federal debt has climbed above 90% of GDP (Figure 2). Given the fact that deflation will increase the real value of this debt, you do not have to be a brain surgeon to figure out that before the US government declares bankruptcy, it will desperately try and inflate its way out of trouble. By unleashing another ‘stimulus’, Mr. Obama’s administration will try and maintain nominal GDP growth, so that nominal incomes and tax receipts are sufficient to service the outstanding debt.

It is interesting to observe that in order to fund its spending binge, so far the US administration has succeeded in borrowing huge amounts of money at low interest-rates.

It is notable that up until now, demand for US Treasuries has been strong and the US administration has not had much trouble raising money. Perversely, in today’s volatile economic environment, US government debt is still viewed as a safe haven. However, every good thing comes to an end and investors’ perception could change at short-notice. When that happens and the bond market starts to focus on America’s ballooning deficits, demand for government-debt will dive. At that point, the Federal Reserve will have no option but to create new money so that it can lend it to the US Treasury. In fact, the Federal Reserve has already announced that it will use the proceeds from the sale of its mortgage-backed securities to buy US Treasuries. In our view, this is only the beginning and outright asset-monetisation will intensify over the following years.

Throughout history, periods of massive money-creation have always been inflationary and this time should be no different. Over the following months, if the economies of the developed world take a turn for the worse, you can be sure that the respective policymakers will respond by creating copious amounts of paper money.

If you still believe that deflation will prevail, perhaps you should review the table below, which highlights the inflation rates in various countries. It is noteworthy that the inflation rate depicted here for each nation is in fact the Consumer Price Index (CPI), which significantly understates the price increases within an economy. Let there be no doubt that the majority of government agencies make seasonal and hedonistic adjustments to bring down the level of the CPI. Regardless, you can see that despite such ‘feel good’ adjustments to bring down the reported ‘inflation’ rate, every nation (except Japan) is currently experiencing ‘inflation.’

Bearing in mind this compelling data, we are left wondering how anybody can get hoodwinked by the deflation hype!? Perhaps, the deflationists know something the rest of us do not, but at this point, hard data does not support the deflation thesis.

Given the inflationary environment we find ourselves in, we do not like cash or fixed-income securities. In our view, both cash and bonds will lose considerable real value over the following years and the ongoing strength in the government bond-market may turn out to be an exceptional selling opportunity. Conversely, we maintain our view that precious metals, energy and the stock markets of the fast growing developing markets in Asia will provide stellar returns in this inflationary environment.

Buy Gold at the lowest prices and store it – for $4 per month – in the very safest locations using world No.1 BullionVault today…

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Oct 02

LBMA 2010: Part II

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Forget mining and
central banks. Here’s the single most important gold supply issue today…

SO IT WAS TOUGH yet
again to meet any gold "bears" at the London Bullion Market
Association’s annual conference last week, this year hosted in Berlin’s Hotel
Adlon.

The bullish arguments you know already no doubt. Low-to-zero
Western interest rates…plus a growing clamor to buy gold amongst Chinese
households (the Middle Kingdom’s demographics are more bullish still, as
Mitsubishi’s Matthew
Turner showed)…make a compelling case for rising gold investment demand,
even without the risk of government-bond defaults, rising inflation or
continued losses on "mainstream" financial assets.

The Berlin conference had plenty more to say on those
stories too, as we’ll see below (and as you can see on the slides now freely published
on the LBMA’s
website). But first, what of supply?

Well, all the gold ever produced in history came from a
mine, as Paul Burton of GFMS World Analyst
reminded the conference. But in the last decade, gold mining has failed so spectacularly
to meet the surge in demand, he could only question its "relevance" to
the market’s net outlook. Dollar gold prices quadrupled from
2000 to 2009, another speaker noted, yet annual mine output rose just 1%. And allowing
for the intervening slide in output, said Burton, gold mining output is now so
price inelastic, it took eight years of rising prices to produce any meaningful
blip in output (2009′s year-on-year increase of 7%).

Further output gains look unlikely, Burton went on, thanks
to the gold mining
sector’s "production lag" – both because of an "exploration
lag" (new investment only turned higher in 2003) and because new
discoveries of 1-million ounce deposits have collapsed regardless. The five
years to 2009 saw record-high levels of exploration spending, perhaps totaling
the previous 12 years added together (at least on BullionVault‘s skew-eyed reading of
Burton’s chart from the conference floor. See what you make of it on page 9 here). Yet
all told, GFMS’s best forecast is now for annual gold mining production to
decline by 13% between 2012 and 2019.

That other constant drip-drip of gold supply – the
"official sector" of central banks and outfits like the International
Monetary Fund (IMF) – also looks irrelevant for now, as Burton’s GFMS colleague
Philip Klapwijk
showed in his speech. European states are now holding, not selling their
reserves, but emerging markets (for now) remain mere ankle-biters compared to
the weight of private investment or jewelry demand each year. So net-net, said
the GFMS chairman, central bank activity looks "neutral", despite the
bullish picture for emerging-market demand he also laid out. More notably, and
"something we haven’t seen before", private-sector investment
holdings now outweigh central-bank gold reserves overall. Making investor
sentiment a key plank of any longer-term forecast.

Even without the end of central-bank sales, however, or the
failure of mine output to rise, "The single most important gold supply
issue is scrap," as John Reade of Paulson Europe said in his conference
summary. Re-selling unwanted jewelry "has gone mainstream" noted Jeffrey Rhodes,
CEO of INTL Commodities DMCC, becoming "socially acceptable" in a way
that using pawnbrokers to raise cash never was. Throw in gold coins, dental
bridges, bonding wire from microchips and any other supply "not from a
primary [ie mining] source", and scrap gold matched more than one fifth of
global gold mine output last year, up from just 7% a decade ago. Turkey has
overtaken India as the No.1 source of scrap gold supplies (217 tonnes in 2009,
equal to almost a tenth of world mining supply), but the most dramatic change
has come in the developed West, where "sophisticated electronic assay
equipment has seen the captain’s ball at your local golf club replaced with
gold buying parties," as Rhodes said.

Since 2005 alone, US scrap supply has more than doubled
according to data from GFMS Gold Survey, taking United States’ re-sales from fifth
to second position worldwide in 2009 with 124 tonnes. Italy’s re-sale market
moved from seventh to sixth with a tripling to 78 tonnes of scrap, and the UK
& Ireland have leapt 1505% from virtually nothing a decade ago to nearly 60
tonnes in 2009, bagging the world No.6 slot in the first-half of this year.
Throw in Germany and France, and four European nations make the top 10 scrap
supply nations by growth since 2000. In the first six months of this year,
scrap supplies from each of the US, Italy and UK & Ireland had all outpaced
India (the former No.1, remember), enabling scrap to become the "only
credible counter to investment buying." But should these massive supplies
of scrap in fact be overwhelming investment pressure on prices?

Since "investment buyers and scrap sellers are driven
by the same motivation of price expectations" as Rhodes reminded the LBMA
conference, this price-elastic source of supply could threaten "a perfect
storm of selling once sentiment changes," he believes. But first, that
would require higher prices again, because (for now) even scrap-gold merchants
have turned bullish, he reported, capping flows to refineries in anticipation
of stronger gains ahead. And second (and more critically given the source of
the last few years’ real jump in scrap supplies), "Is the drawer
empty?" as Paulson Europe’s John Reade
wondered in his quick-fire recap before the conference adjourned.

Cash-strapped households, remember, can only sell their
unwanted gold bracelets once. How high would prices need to go before more
cherished pieces could be sent to the smelters? Apply the same question to
private gold investments in fact (ETF holdings have proven notably
"sticky", if not yet as "long-term means forever" as gold
coins), and you get to the nub of the "bubble or boom?" debate.
Because at some point, according to pretty much every speaker, the circumstances
now boosting global investment demand will recede – and with them, therefore,
the gold price will fall back as well. As we’ve already seen (in Part I),
the bubblicious frenzy needed to mark the top of spike remains plainly absent.
Leaving only the circumstances behind this current boom to consider.

"The current bull market has much deeper roots than the
credit crisis," the LBMA was reminded by former Blackrock head of natural
resources Graham
Birch (now a farmer). Pointing to gold’s nadir of 1999, "continuous
disinvestment" was needed to keep prices down, and when Europe’s big
central banks agreed to cap their sales that September, it marked the start of
this rise. Roll on 11 years and 350%, however, and "Just because gold’s a
safe haven doesn’t mean it’s a cheap safe haven," Birch warned Berlin.
Which raises the question of cost and utility for new buyers today.

"I think people long gold should not be concerned
reading this slide," said John Reade in his summary, pointing to slide 14
of William White’s opening
keynote speech. Chairman of the OECD’s Economic & Development Review
Committee, White had prefaced his 20 minutes of gloom-and-doom (salted with
uncertainty, fear and doubt) by saying that the OECD itself would certainly
disagree with everything he was about to say. Reade reminded the delegates that
White’s copyrighted sales-line should be "Scaring investors since
2003," as he accurately picked the shape of the bubble well ahead of
schedule, and hasn’t been proven wrong yet.

"Investors should be positioning for ‘tail
events’," White concluded. "But which ones?" Somewhere between
deflation, slow growth, de-coupling of Asia from the West, or a lurch into
rapid hyperinflation or a new series of bubbles fed by ultra-loose monetary
policy, "Is there room for gold in a world like this?" asked the former
Bank for International Settlements forecaster.

"The answer has got to be yes. But quite what
role…well, that’s for you to decide!"

A handful of private investors have begun to make that
decision, as Wolfgang
Wrzesniok-Rossbach of the Heraeus refinery showed in detail. But the real
weight of money – the institutional mandates caring for your insurance and
pension savings – has scarcely bothered to buy gold ’til now, a point made at
length by both Shayne McGuire and Graham Birch on Monday morning. Across in
Asia, "People don’t need convincing on gold," said David Gornall of
Natixis, noting that 81% of global "bar hoarding" demand comes from
Asia, with buying amongst the "traditional buy-side countries" such
as India and Thailand – as well as the fast-growing world No.2 for gold demand,
China – continuing to grow despite record-high gold prices.
Even there, "the emergence of retail physical gold investors has resulted
in structural changes in distribution, product and buying behavior," as
Sunil Kashyap, managing director of Bank of Nova Scotia-ScotiaMocatta
explained. Yet all told (and absent the "bubble" idea which the
conference demolished time and again), what looks like a new paradigm might in
fact mean more a return to old patterns – globally – of gold buying and
hoarding…with a little "mobilization" thrown in by the scrap market
when times get tough.

India and Turkey, after all, have long been both top buyers
and scrap suppliers to the international gold market. Rising investment demand
here in the "rich West" (which, to repeat, remains well off a
"bubble" today) represents a simpler, unleveraged way of retaining
your savings than most Western households have grown used to. But gold was a
core chunk of private wealth holdings not so long ago, back before the
debt-fuelled boom we’ve enjoyed since WWII began – a boom which must now end
with "rebalancing" between the world’s debtors and creditors, as George Magnus of
UBS made plain Monday morning. The kind of dislocation required won’t be much
fun for either, which again looks good for gold demand, if not necessarily
prices.

All told today – and seeing the world’s fastest-growing
economies continue to buy and hold ever more gold as their wealth increases –
maybe US and European savers are only just getting back to the future. Either
way, that "bubble in gold" doesn’t exist. Not by a long way just yet.


The safest gold at the lowest prices – start with a free gram of Zurich bullion right now at BullionVault…

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