With each passing day, Physical PM demand is rising whilst supply is falling. Cumulatively, fundamentals, technicals and sentiment scream that today's "New York Gold Pool" is on the verge of being permanently overrun, just as the London Gold Pool and all other failed attempts to usurp "Economic Mother Nature." As you can see below, the past year's vicious PM suppressions - amidst the most aggressive and ultimately futile money printing scheme of all time - have inadvertently created massive triple-bottom formations in both metals, at levels well below their respective costs of production.
As we head into the year's second half, the stars are aligning for an ugly turn in global, political, economic, social and potentially military activity. Consequently, the "precious metal teapot" is whistling more loudly than ever, prompting the leading names in our "shadow world" to trumpet the end of the PM "bear market."
I have lots to cover including Jim Sinclair's Denver Q&A session Saturday afternoon which motivated today's principal topic. Thus, let's get right to the day's myriad "horrible headlines," starting with the expanding violence in both Iraq and the Ukraine. Both have the potential to catalyze exploding global energy prices - and consequently, an implosion of global trade from levels already broaching their 2008-09 crisis lows. There's no need to repeat every headline, but suffice to say, neither situation has a chance of improving any time soon; and at worst, could beget the third world war. From a pure economic standpoint, nothing is more universally damaging than soaring energy prices; and now that gasoline prices are higher than at any time since the summer of 2008 - i.e., just before Global Meltdown I - the odds of a new global economic cataclysm are sky high. This morning's news of a six-month low in the European PMI index and an equally abysmal Chinese "beige book" report only heightens such odds, as the Baltic Dry Index (a broad measure of global trade) has fallen by an astounding 60% in the past six months.
Equally important, the U.S.'s dirty hands are all over both crises creating a higher degree of anti-American sentiment than at any time in the nation's 238-year history. Actions speak louder than words; and at this point, to believe America's government is not actively seeking war is naïve in our view. Be it Afghanistan, Libya, Syria, Iran, Iraq or Russia itself, there can be no doubt the "military-industrial complex" is on the verge of asserting itself in a big way. History tells us desperate economic situations are typically addressed with attention-diverting wars; and since today's economic situation has never been direr - on a worldwide basis - there's no telling how aggressive military action might be.
Consequently, the world's major players are actively forming "anti-U.S." policies, including the dumping of U.S. Treasuries (can you say "QE to Infinity") to military partnerships, to "de-dollarized" trade agreements. It couldn't be clearer that the 40-year reign of the "petro-dollar" is on its last legs; as the BRICS - led by China and Russia - are rapidly emerging as the new global superpowers. To that end, we'd be shocked if the dollar's status is not dramatically reduced in the coming years - or perhaps months, if TPTB's "best laid plans" explode in their faces.
Globally, inflation is creating widespread social unrest; and clearly, the world's seven billiondenizens are starting to realize the issuer of the world's "reserve currency" is principally responsible. As are the 300 million Americans experiencing rocketing prices of items they "need versus want" - as depicted by the ugly charts below, of how American health insurance is by far the world's most expensive; and simultaneously, of the lowest quality of any "civilized" society. FYI if you think these are ugly statistics, just wait until they are fully consumed by the Obamacare cancer.
Foreign investors can directly use offshore yuan to trade gold on the SGE international board, which is promoting the internationalization of the renminbi. The international board will form a yuan-denominated gold price index system named "Shanghai Gold". Shanghai Gold will change the current gold market "consumption in the East priced in the West" situation. When China will have a right to speak in the international gold market, pricing will get revealed.
- Xu Luode, Chairman, Shanghai Gold Exchange, May 15, 2014
Which brings me to today's ultra-important topic; i.e., the overwhelming likelihood that gold and silver permanently bottomed last summer following the most vicious Cartel raids yet. I'll start the discussion with last week's quote from perhaps the wisest market commentator of our generation - the great Richard Russell - and let you decide whether he's right or not.
"The bear market in gold is over, and gold again is in a bull market."
Here at the Miles Franklin Blog, we do not view the past three years' PM raids as a "bear market"; certainly, no more than the "bull market" in stocks created by the PPT or bonds care of "QE to Infinity." In other words, while "technically" such declines constitute "bear markets," they were no more "real" than the tooth fairy or Easter bunny. That said such action has clearly created a bear market mentality amidst Westerners; whom unlike Easterners, erroneously view gold and silver as "investments" instead of what they really are savings.
Fortunately, the stars appear to be finally aligning to end the past three years' torture for real money believers; although sadly, such a change in fortune for gold and silver prices will likely accompany an ugly downturn in global political, economic, social and military trends. And after attending Jim Sinclair's fantastic Denver Q&A forum on Saturday, I am more convinced than ever of what the near-term future holds.
In January 2004, I flew to Jupiter, Florida to watch Sinclair hold a similar event to which I was eternally grateful. His knowledge of economics and financial markets were surpassed only by his dedication to the CIGA or "Comrades in Gold Arms" community, and I felt privileged to have attended. Back then, the PM bull market was just commencing; and thus, attendants' consternation was limited. However after the past three years' of market hell when real money believers have been watched their holdings get smashed by manipulation whilst stocks and bonds have been unjustly levitated global "shadow worlders" have never felt more cumulatively downtrodden. And yes, that goes for me personally; not to mention Miles Franklin which has experienced a significant decline in trade volume (quite ironic, given Eastern demand is at record highs). Last year, we penned "Saluting Sinclair" in honor of his efforts to empower readers that their decision to hold precious metals is the right one; and since then, he has hosted similar Q&A events in a dozen cities worldwide on three continents. His goal is to ease CIGA fears through this extremely trying period, just as the Miles Franklin Blog does each and every day. And to that end, I believe he has largely succeeded. Fortunately, he believes said period is ending, after which he plans to return home and "smell the roses."
To a crowd of 100, Sinclair forcefully introduced "30 reasons the bear phase in gold ends this summer" featuring a variety of reasons "old" and "new," why dollar hegemony is about to be challenged - and with it, the evil Cartel that relentlessly suppresses gold and silver prices. He, too, focused on the fact that gold and silver are not investments, but savings; and most importantly, that just because intervention - in all the aforementioned markets - has been successful in the past three years; it doesn't mean it will last indefinitely. In other words, the sheep always get slaughtered and the eternal truism that "past is not prologue" must be heeded at the risk of going broke. This is particularly the case in precious metals where for millennia governments have been attempting to usurp "Economic Mother Nature" by substituting fiat currency for real money. In all 600 prior attempts they have failed, and as the current "mad experiment" in global fiat currency is unprecedented, it logically stands that the inevitable collapse of such manipulations will be equally unprecedented - and catastrophic.
In Sinclair's view, gold and silver have decidedly bottomed; and this Fall, he expects a significant global attack on dollar hegemony. To that end, he anticipates the dollar index to fall well into the 70s and a material increase in global inflation. And help us if Iraq or the Ukraine catalyzes exploding energy prices; which as noted above, would precipitate dramatic political, economic, and social ramifications.
Moreover, he believes gold will reach $2,000/oz. this year - that is, in the next six months; and if things get particularly ugly, as much as $3,500/oz. In his view, silver is "gold and steroids;" and thus, when gold gets going, silver should easily take out the previous high of $50 oz. - i.e., the "ultimate quadruple top breakout" - en route to $70-$90/oz. Only time will tell if he's right, but all we can say is this. If gold hits $2,000 in the next six months, we can guarantee your cost of living will be significantly higher; and at $3,500, we can equally forcefully guarantee that the world will be a scary, ugly place. And oh yeah, there will be ZERO physical gold and silver to buy as the window to PROTECT yourself from hyperinflation may have permanently closed.
Whether "the big one" occurs in late 2014 - as he, John Williams of Shadow Stats and other luminaries anticipate - or 2015 or 2016, is immaterial. All that truly matters are it is inevitableand rapidly approaching. And when it arrives, it will be too late to save yourself financially - and for many, mortally as well. Thus, with the prices of both gold and silver trading below their respective costs of production, we continue to plead with you to take action while you still can. The "eye of the hurricane" will soon pass and when it does people will likely look back at the 2008 crisis as the "good old days."