Gold Equities are on their way to a parabolic rise
Gold declined from $1,900 in September 2011 to $1,188 on December, 19, 2013. Silver declined from $48.50 to $18.50 over approximately the same time frame. Precious metal equities declined by approximately 70% over this period. This move down played out exactly as was scripted. However, let us review the causes of this decline. We start out with the most important words ever written by a regulator: BaFin, the German equivalent of the SEC, said that precious metals prices were manipulated worse than LIBOR. What are we to read into this, particularly the word “worse”? Obviously, worse than LIBOR could not mean that more money was fraudulently earned since the LIBOR markets are many orders of magnitude larger than the precious metals markets. Then it must mean that the egregiousness of the pricing dysfunction was materially larger in precious metals.
The Inteligencia Financiera Global blog (Global Financial Intelligence Blog) is honored to present another exclusive interview now with GATA’s Bill Murphy.
A common argument that has been made to explain the precipitous decline of the price of precious metals in 2013 (in spite of the significat demand for the physical bullion) is of investors’ disenchantment with gold and silver, which had been piling up in exchange traded products as a way for investors to gain exposure to the metals. However if redemptions are a symptom of investors' disenchantment with precious metals as an investment, shouldn't silver have suffered the same dramatic redemptions fate as gold? Indeed it should have, but we think the reason silver ETFs were not raided like gold was that Central Banks do not have a silver supply problem, they have a gold problem...
One would think that value investors from outside the industry would be all over this vacuum.
Dear World Gold Council Executives;
As you very well know, the business environment for gold producers has been extremely challenging over the past few years. While demand for physical gold remains extremely strong, prices on the COMEX have fallen precipitously. This contradictory situation is the single most important obstacle to a healthy gold mining industry.
In my opinion, the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading...
I like Professor Shiller and respect his work. Really, I do, but... Massive bubbles, the sort of the proportion of the 2008 crisis, are nigh impossible to miss if you can add single digits successfully and are able to keep your eyes open for a few minutes at a time. Yes, I truly do feel its that simple. I saw the property bubble over a year in advance, cashed out and came back in shorting - all for a very profitable round trip. Was I a genius soothsayer? Well, maybe in my own mind, but the reality of the situation is I was simply paying attention. Let's recap:
The problem is clear; every level of government has promised too much and is now faced with the politically unappealing prospect of either drastically increasing taxes for the working age population or significantly reducing benefits for the retired (or future retired). As evidenced by the Detroit bankruptcy, the longer we wait, the worse it will get. The greater the delay, the more pain and suffering citizens will face when the benefits and safety nets they have come to expect from the government suddenly disappear. Over time, politicians from all stripes have proven adept at cognitive dissonance, but these increases in taxes and cuts to benefits will have to happen, one way or another; it is just a matter of time.
Recent dramatic declines in gold prices and strong redemptions from physical ETFs (such as the GLD) have been interpreted by the financial press as indicating the end of the gold bull market. Conversely, our analysis of the supply and demand dynamics underlying the gold market does not support this interpretation. As we have shown in previous articles, the past decade has seen a large discrepancy between the available gold supply and sales. Many recent events suggest that the Central Banks are getting close to the end of their supplies and that the physical market for gold is becoming increasingly tight. The recent sell-off was all orchestrated to increase supply and tame demand. We believe that central planners are now running out of options to suppress the gold price. After taking a pause, the secular gold bull market is set to continue.
The recent decline in gold prices and the drain from physical ETFs have been interpreted by the media as signaling the end of the gold bull market. However, our analysis of the supply and demand dynamics underlying the gold market does not support this thesis. In our view, the bullion banks’ fractional gold deposit system is testing its limits. Too much paper gold exists for the amount of physical gold available. Demand from emerging markets, who do not settle for paper gold, has perturbed the status quo. Thus, our recommendation to investors is the following: empty unallocated gold accounts and redeem your gold in physical form (while you still can).
It should come as no surprise to most ZeroHedge readers but sometimes the facts and data need to be reiterated to ensure the message is not getting lost. As Michael Snyder rhetorically asks, did you know that U.S. banks have more than 1.8 trillion dollars parked at the Federal Reserve and that the Fed is actually paying them not to lend that money to us? We were always told that the goal of quantitative easing was to "help the economy", but the truth is that the vast majority of the money that the Fed has created through quantitative easing has not even gotten into the system. Instead, most of it is sitting at the Fed slowly earning interest for the bankers. Our financial system is a house of cards built on a foundation of risk, leverage and debt. When it all comes tumbling down, it should not be a surprise to any of us.
Recent comments by the Federal Reserve Chairman Ben Bernanke have shocked the world financial markets. Since the first allusion to tapering, volatility has been on the rise across the board (stocks, currencies and bonds). The chaotic reaction by market participants and the corresponding increase in yields now risks destabilizing this very fragile equilibrium. It is yet unclear whether or not the damage control from the other Fed Presidents will put a lid on yields and market volatility, or if the damage to the Fed’s (poorly executed) exit strategy is permanent.
This past March, Jeroen Dijsselbloem, the head of the finance ministers of the eurozone, shocked the markets with seemingly off-the-cuff comments suggesting that the Cyprus banking solution will, “serve as a model for dealing with future banking crises.”1 Depositors across Europe took a collective gasp of horror – could banks possibly confiscate depositors’ funds in a form of daylight robbery? Indeed they could, and last week the Bank for International Settlements (“BIS”), the Central Bank's Central Bank, published what we have referred to as ‘the template’; a blueprint outlining the steps to handle the failure of a major bank and the conditions to be met before ‘bailing-in’ deposits.
"Zero hour" - the day you can mark on a calendar when the price of real metal breaks away forever from the quoted price on media's ticker. The "zero hour" scenario is the ultimate emperor-has-no-clothes moment. Hans Christian Andersen’s original 19th-century tale The Emperor’s New Clothes has become a 20th- and 21st-century touchstone for obvious truths overlooked by the masses. It is almost a cliche. But it is singularly appropriate for our purposes today. The "emperor" here consists of central banks, commercial and investment banks and the commodities exchanges. The day everyone recognizes them as being buck naked — or in this case, stripped of the gold they claim to hold — will be "zero hour." At root, zero hour will come when everyone knows gold supply can no longer meet gold demand.
Recent outflows from physical gold exchange traded products have been interpreted by the financial press as a sign of weakness in the demand for gold as an investment vehicle. However, a closer look at the evidence suggests otherwise - the evidence presented here suggests that, contrary to what has been stated in the financial press, the flows out of the SPDR Gold Trust may have been generated by the bullion banks to take advantage of an arbitrage opportunity in the physical market. This arbitrage opportunity occurred because of the intense demand for gold stemming from Asia and the inability of traditional suppliers to provide this gold (hence the large Shanghai premium). We believe that this activity further supports our hypothesis that there is a lack of availability of physical gold and an obvious dislocation between the physical and paper gold markets.