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Trichet: Debt Crisis Is Flashing “Red” - Marc Faber Continues To Like Gold And Silver And Accumulating

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From Gold Core

Trichet: Debt Crisis is Flashing “Red” - Marc Faber Continues to Like Gold and Silver and Accumulating

Gold is marginally lower in U.S. dollars but continues to eke out gains in euros. The euro has fallen again today possibly as markets digest Trichet’s grim warning regarding financial contagion.  Gold at €1,081.40/oz is less than 1% away from record nominal highs in euros at €1,088/oz.

Currency debasement and sovereign debt and systemic risk remains high which is leading to gold consolidating near record highs in most currencies.

Cross Currency Rates

Bernanke and the FOMC and the BOE minutes yesterday both suggest ultra lose monetary policies and zero percent interest rates are to continue for the foreseeable future.  This is a continuing positive for gold prices.

Given the increasingly precarious nature of the U. S. economic recovery, it will be very difficult for the Federal Reserve to end QE2 and thus the money printing experiment of recent years is likely to continue – although in a repackaged manner.

Gold looks set to again reach new record highs in all major currencies. It is important to remember that these are only nominal highs. In order to properly understand the real performance of any asset it is crucial to adjust for inflation.

Gold in Euros Targets €1,000/oz – Well Below Inflation Adjusted High of €1,800/oz

Gold’s record nominal high in 1980 was $850/oz. When adjusted for inflation that high was at $2,400/oz. This means that
gold is some 45% below its real record price in dollars in 1980. This is just one good indication that gold is not a bubble. 

Gold in Euros – 1 Year (Daily)
 
Gold rose from below 75 Deutsche marks to over 600 Deutsche marks in the 1970’s (see chart below). Gold rose 8 fold and gave a return of 700% in just 9 years in Deutsche marks. The German mark was one of the stronger currencies in the world during that period.

When one adjusts the euro (Deutsche mark converted) for inflation, the record high price of gold in 1980 in Deutsche mark (converted to euros) was over €1,800/oz.

Gold remains nearly half of its price in 1980 when adjusted for inflation in many currencies which should give those calling gold a bubble pause for thought.

Rather than gold rising in price, what is actually happening is that the world’s major currencies are being devalued.

This has happened throughout history. Yet, today it is happening on a scale never seen before through unprecedentedly loose monetary policies and currency debasement which is seeing paper currencies fall in value versus the finite currency that is gold.

Gold in Euros (Deutsche Mark converted) in Nominal Terms and Not Adjusted for Inflation

The paper and digital money creating experiment looks set to continue for the foreseeable future.

Until politicians in the US and other major industrial nations are able to withdraw stimulus spending and restrain public spending, as Ireland has been doing to its cost, gold will likely remain in a bull market.

More importantly, until central bankers raise interest rates to more normal levels and create positive rates of return again (above the rate of inflation) - paper currencies will continue to depreciate.

Unlike bonds, property, equities and most asset classes (and even commodities like oil) which have risen to multiples of their historical record nominal highs, gold is well below the price it was in 1980 in dollars ($2,300/oz) and other major currencies when adjusted for inflation.  In January 1980, gold became a bubble after rising by nearly 100% in 1979 alone and a massive 2,400% in dollar terms in just 9 years.

The euro ‘single’ currency experiment looks increasingly shaky and there is the increasing likelihood of a return to European national currencies (drachma, peseta etc).

The euro as we know it today is unlikely to survive the current crisis and therefore gold’s performance in Deutsche mark terms in the 1970s is likely to be repeated and surpassed in euro terms. A 700% increase would see gold in euro terms rise from €250/oz in 2000 to some €2,000/oz in the coming years.

Gold would obviously rise by much more in lira, drachmas, punts or pesetas in the event of voluntary or forced ejection from the monetary union.

Given the scale of the current crisis and the fact that the U.K. and U.S. fiscal positions are far worse than they were in the 1970s, gold’s bull market looks on a very sound footing.

Real diversification and an allocation silver and particularly gold remains very prudent.

Trichet Debt Crisis is Flashing “Red” – Risk of “Potential Contagion Effects Across the Union and Beyond”

The European Central Bank President, Jean-Claude Trichet, was not as optimistic as he usually is, when he raised the alarm level on the debt crisis to “red” late yesterday.

After the meeting of the European Systemic Risk Board in Frankfurt, Trichet who chairs the ESRB, said that risk signals for financial stability in the euro area are rising and flashing “red”. He said “on a personal basis I would say yes, it is red”.

Trichet warned market participants that the crisis is nowhere close to be resolved. Trichet warned of “potential contagion effects across the union and beyond.”

Marc Faber Continues to Like Gold and Silver and Accumulating – Warns Against Trusting Central Banks

Overnight Marc Faber, publisher of the Gloom, Boom & Doom report, told Bloomberg this morning (see interview below) that he still favours gold and silver. He said there could be short term weakness but that he will keep accumulating gold. Faber warned against shorting the precious metals as they are likely to keep going up.

He also warned regarding recent incidents of fraud and corruption by newly listed Chinese companies and said this was indicative a bubble.

In his usual contrarian and witty manner, he said that “not to own any gold is to trust central bankers and that you do not want to do in your life.”

NEWS

(Wall Street Journal) -- PRECIOUS METALS: Gold Slips A Tad In Asia On Profit-Taking, Strong Dollar
http://online.wsj.com/article/BT-CO-20110623-701196.html

(MarketWatch) -- Gold eases slightly after Fed, China data
http://www.marketwatch.com/story/gold-eases-slightly-after-fed-china-data-2011-06-23?link=MW_latest_news

(San Francisco Chronicle) -- Gold May Jump to $2,000 as Dollar Declines, Foxhall Capital Says
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/06/22/bloomberg1376-LN72XS1A74E901-0C285JMM3HNRLB1R1DNLUA4DG8.DTL

(Barrons) -- Despite Dollar’s Gain, Gold Pushes Higher As Fed Leaves Rates Low
http://blogs.barrons.com/focusonfunds/2011/06/22/despite-dollars-gain-gold-pushes-higher-as-fed-leaves-rates-low/?mod=google_news_blog 

(Bloomberg) -- Silver Surge Makes ‘Headwind’ for Solar
http://www.bloomberg.com/news/2011-06-22/silver-surge-makes-headwind-for-solar-in-fossil-fuel-rivalry.html

COMMENTARY

(Bloomberg) -- Video: Faber Likes Gold, Silver; Will Keep "Accumulating" Gold
http://www.bloomberg.com/news/2011-06-23/faber-liking-gold-silver-says-to-keep-accumulating-gold-1-.html

(MoneyWeek) -- How to insure your wealth against a Greek default
http://www.moneyweek.com/news-and-charts/economics/europe/how-to-insure-your-wealth-against-a-greek-default-54222

(Resource Investor) -- Is Gold About to Have Its Status Upgraded?
http://www.resourceinvestor.com/News/2011/6/Pages/Is-Gold-About-to-Have-Its-Status-Upgraded.aspx

(King World News) -- Richard Russell - Chinese Billionaires Buying Gold & Diamonds
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/6/21_Richard_Russell_-_Chinese_Billionaires_Buying_Gold_%26_Diamonds.html

(Zero Hedge) -- Jim Grant Says All The Things That Ben Bernanke Avoided During His Press Conference, And Much More
http://www.zerohedge.com/article/jim-grant-says-all-things-ben-bernanke-avoided-during-his-press-conference-and-much-more

(CNBC) -- CNBC Interview: Rickards "Fed could buy gold to devalue dollar, ease debt"
http://video.cnbc.com/gallery/?video=3000029081

 


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Thu, 06/23/2011 - 07:29 | Link to Comment swissaustrian
swissaustrian's picture

Marc Faber current issue of the Gloom, Boom & Doom report says that he accumulates PMs but thinks there would be a major correction in all commodities...

----

Tyler, today, 2 pm, Ron Pauls hearing on auditing us gold reserves:

Hearing entitled “Investigating the Gold: H.R. 1495, the Gold Reserve Transparency Act of 2011 and the Oversight of United States Gold Holdings”
Thursday, June 23, 2011 2:00 PM in 2128 Rayburn HOB
Domestic Monetary Policy and Technology

WITNESS LIST

http://financialservices.house.gov/Calendar/EventSingle.aspx?EventID=247243

The opening remarks of the witnesses have been published:
http://financialservices.house.gov/UploadedFiles/062311thorson.pdf
http://financialservices.house.gov/UploadedFiles/062311engel.pdf

Thu, 06/23/2011 - 07:49 | Link to Comment Crisismode
Crisismode's picture

There have been several significant corrections to the PMs since the lows of the late 1990s, but the long-term trend since then goes only one way -- up.

 

This short-term correction too shall pass.

Thu, 06/23/2011 - 07:26 | Link to Comment hugovanderbubble
hugovanderbubble's picture

I have to disagree with Mr.Faber

 

Tactically Silver is a short  play from 36´s till 31$ (dilutive QEending effect)

 

ZSL is the play for next weeks

Thu, 06/23/2011 - 07:34 | Link to Comment GubbermintWorker
GubbermintWorker's picture

And when he says “not to own any gold is to trust central bankers and that you do not want to do in your life.” he is not talking about etf's. Its all about owning physical gold and silver.

Thu, 06/23/2011 - 07:42 | Link to Comment achmachat
achmachat's picture

I have started putting spare cash into silver way too late!
It's been something like 2 months now.
I was able to put together around 2500 ounces during this time but the problem is that I think fiat will start losing value much faster very soon and I won't be able to add much more to the stash.

Thu, 06/23/2011 - 07:45 | Link to Comment jackbooted gauleiter
jackbooted gauleiter's picture

Either that, or silver will start to lose value and you won't want to add much more to the stash.

Thu, 06/23/2011 - 07:53 | Link to Comment achmachat
achmachat's picture

But the only way for silver to lose value is not only that they stop creating more money out of thin air, but also start destroying all the money they have created since Q1.
What are the odds of that happening?

Thu, 06/23/2011 - 08:16 | Link to Comment qussl3
qussl3's picture

Value and price are distinct.

The fiat price may come down soon over the summer but the value of silver as a long term hedge against fiat shenanigans will only increase.

 

Thu, 06/23/2011 - 09:00 | Link to Comment hamurobby
hamurobby's picture

OWN the physical pm (savings), and PLAY the markets with leverage, sleep well.

Thu, 06/23/2011 - 10:48 | Link to Comment Thisson
Thisson's picture

WTF do you need 2500 ounces of silver for?  If you have that much it weighs more than you do (I should hope).  Have you considered shifting into gold?

Thu, 06/23/2011 - 12:21 | Link to Comment achmachat
achmachat's picture

i just checked (we work with kilos here, so had to do a little conversion) and yes.. it is more than I weigh.

Never thought of it that way. But it is extremely difficult for me to change silver into gold here... you can't just do a swap here. I'd have to find somebody who wants to buy that amount of physical silver and then with that cash get the gold.

But it really doesn't matter, because it's not some kind of liquid asset I need to have access to. It's just in case the fiat loses too much value.

Thu, 06/23/2011 - 07:40 | Link to Comment HelluvaEngineer
HelluvaEngineer's picture

What about Europeans trying to protect their wealth?  Don't think this will put a bid under silver?

Thu, 06/23/2011 - 07:42 | Link to Comment jackbooted gauleiter
jackbooted gauleiter's picture

No, who wants silver? If you want to protect your wealth you need to put your money into something that people want and are willing to trade for, i.e. cigarettes and whisky.

Thu, 06/23/2011 - 10:42 | Link to Comment tamboo
tamboo's picture

cigareets and whiskey

and wild wild women

they'll drive you crazy

they'll drive you  insane

http://www.youtube.com/watch?v=x2Gz6Wndg3Q

Thu, 06/23/2011 - 07:46 | Link to Comment qussl3
qussl3's picture

Europe is an odd case, it now has a supra national political class that is paired with its own CB, the ECB.

Only in hyperinflation will people truly abandon fiat, in the past govts were sometimes cornered into printing and open debasement for political survival.

However, now the ECB can strangle nations through deflation, yet the political consequences will be borne by the local pols.

The ECB may never pursue open debasement like the FED.

Thu, 06/23/2011 - 07:52 | Link to Comment LawsofPhysics
LawsofPhysics's picture

If europeans thought like american patriots it would.  Unfortunately, they don't.

Thu, 06/23/2011 - 08:08 | Link to Comment Hobbleknee
Hobbleknee's picture

They pay up to 25% VAT on silver in Eurofagland, so prbably not.  Gold has no VAT however.

Thu, 06/23/2011 - 07:42 | Link to Comment KlausK
KlausK's picture

@hugovanderbubble

I don't think Mr. Faber will be bothered with such "plays". He has been buying the stuff for years and years.

Thu, 06/23/2011 - 08:23 | Link to Comment hugovanderbubble
hugovanderbubble's picture

With lower monetary offer, Precious Metals gonna drop, just that sir.

Thu, 06/23/2011 - 08:26 | Link to Comment KlausK
KlausK's picture

They will, you're right. It's just that Mr. Faber quite surely will not care ;) It's part of the fascination emanating from him that it is hard to think of *anything* he really and deeply cares about.

Thu, 06/23/2011 - 08:13 | Link to Comment Tater Salad
Tater Salad's picture

I subscribe to Faber and I will tell you that he's been saying for quite some time that Gold and Silver both will come in during the summer months and to simply accumulate, dollar cost average into physical.  So, no he's not wrong in saying buy here as he's been very careful to say accumulate, much different than get long now.

I prefere selling calls on SLV and GLD versus selling here and trying to catch perfect bottoms.  The premiums are huge on both.

Thu, 06/23/2011 - 08:25 | Link to Comment 10 Euro Münze
10 Euro Münze's picture

Silver VAT in Germany is 7%.  I've bought silve from pawn shops and gold buying places in Germany for spot and paid not VAT.  I'm not sure if they have to charge it on stuff they buy back from the public.     In Germany there are not capital gains on your nominal gains in Gold, unlike in the states where they want to tax you on the inflation appreciation.    No matter how you slice it, savers get screwed by the system.  

Thu, 06/23/2011 - 09:23 | Link to Comment uranian
uranian's picture

buy ex-circulating currency from around europe...there's no VAT due on (for example) pre-1947 british silver coinage in the UK because it was in circulation. i hope you have a similar loophole in german VAT laws.

Thu, 06/23/2011 - 08:28 | Link to Comment flyr1710
flyr1710's picture

so if they raise rates in july, will it be maroon?

Thu, 06/23/2011 - 09:29 | Link to Comment Atomizer
Atomizer's picture

We typically see a PM correction in late summer.

Lastly, Jean-Claude Trichet is losing traction in meeting his objectives. He sure enjoys using the word 'crisis'.

http://www.cfr.org/business-and-foreign-policy/global-governance-today/p21989

Thu, 06/23/2011 - 09:57 | Link to Comment ElvisDog
ElvisDog's picture

Of course, you never know if what Trichet said is what he really thinks, or if he's just doing the same, old, "give me what I want or the world will end" approach.

Thu, 06/23/2011 - 10:02 | Link to Comment Eireann go Brach
Eireann go Brach's picture

The same color as Geitners arse hole after a meeting with Wall St bankers!

Thu, 06/23/2011 - 10:13 | Link to Comment Crusader79
Crusader79's picture

Dr. Faber began recommending the accumulation of physical gold in 2002 and anyone who did is sitting pretty.

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