Entries Tagged as 'Precious Metals'

This Is What Gold Does In a Currency Crisis

by John Rubino on December 16, 2014

To say that gold is in a bear market is to misunderstand both gold and markets. Gold isn’t an investment that goes up and down. It is money in the most basic store-of-value sense. Most of the time it just sits there, and when its price changes in local currency terms that says more about the local currency than about gold.

But when currencies collapse, gold shines.

Consider the above from the point of view of a typical Russian. The ruble is tanking (no need to understand why — all fiat currencies go this way eventually and the proximate cause is almost irrelevant). Russians who trusted their government and kept their savings in, say, a bank account, are losing their shirts. But those who own boring, doesn’t-pay-interest, in-a-bear-market gold have seen their capital appreciate in local currency terms by about 60 percent in just the past month. They’re not “making money,” but they are preserving wealth.

Russian gold price Dec 2014

This is how it has gone always and everywhere when governments have destroyed their currencies. In the Roman Empire, revolutionary France, revolutionary America, most of Latin America in the 20th century, and now big parts of the developing world, local currencies evaporate but gold just sits there, buying the same amount of stuff as ever, impervious to the games governments play.

It won’t be long before this chart is replicated in a whole lot of other places. But by then it will be too late to prepare. The gold will be gone and those who trusted their governments will have to make do with promises.

Gold Price Charts Widgets

It all started with an innocent email from someone I follow on Linkedin suggesting I take a look at a gold widget. It said, “Please find below our gold spot price widgets. Updated every minute and available in 119 currencies, they will allow your visitors to precisely monitor the evolution of the gold price.” What followed was an interactive gold chart going back 10 years. The chart shows strong support at $1,200

Gold in Bullion and Coins

Gold

I then went to Market Club to see latest pricing of gold. Hmmm $1222! I noticed that Silver was $17.75. The ratio between gold and silver ranges from 15 to 85. Quickly dividing $1222 by $17.75 yielded 68.81. I Googled gold/silver ratio and found Gold Silver website showing the ratio in various time periods:

Gold Silver Ratio History Charts

30 Day gold silver ratio 5 Year gold silver ratio
60 Day gold silver ratio 10 Year gold silver ratio
6 Month gold silver ratio 20 Year gold silver ratio
1 Year gold silver ratio 36 Year gold silver ratio
2 Year gold silver ratio

While the ratio is very high right now, it is still shy of 85, but it sure looks like something to watch closely. Suppose you are bullish on gold and think price could go to $2,000 per ounce. From this price that is a 64% increase. If the ratio stays the same between gold and silver at 68.81, silver would sell at $29. What if the ratio declines to qa more reasonable level. based on the charts a more reasonable level would be 45. If gold went to $2,000 45 times the price of silver, silver would sell at $44.44, a 150% increase.

That is exciting to me!

U.S. Military Reliant On Russian Rocket Engines

“The Air Force said it has begun looking for alternatives to the RD-180 rocket engines for its Evolved Expendable Launch Vehicle program — the fourth largest line item in the U.S. defense budget — now that Russia has threatened to cut off the technology in its tit-for-tat struggle with the U.S.

“Lawmakers and national security analysts said they were aghast that the military allowed itself to become so dependent on Russian military technology during an era of uneasy relations.

“What were we thinking? It’s clear now that relying on Russia for rocket engines was a policy based on hope, not good judgment,” said Michael V. Hayden, a four-star Air Force general who headed the National Security Agency and the Central Intelligence Agency before his retirement in 2009.”

Rocket Engines are not our only vulnerability. Our semiconductors are made overseas and rare earths primarily come from China.

Lakeview Earth Quakes

Lakeview earthquake activity

Lakeview earthquake activity

There has been a swarm of quakes 65 miles from Lakeview, OR, centered on the extreme north west corner of Nevada between the Dheldon Study area and the Massacre Rim Study area. So far in the last 7 days there have been a total of 69 earthquakes and in the last 30 days, 16 quakes of 2.5 magnitude or greater have occurred.  The largest occurred today and measured a 3.2.

A 1987 Mineral Land Assessment report found no precious minerals, but didhave this to say about the geology:

“No surface manifestations of the postulated caldera (U.S. Geological Survey and U.S. Bureau of Mines, 1984) were found in the study area, and possible caldera-associated resources could not be evaluated. Elsewhere in the Basin and Range, calderas are associated with disseminated gold, mercury, and uranium epithermal mineralization (Rytuba, 1981). Exploration for undiscovered subsurface resources would be expensive, and it is unlikely that disseminated deposits could be profitably mined by underground methods.” (emphasis added)

The word caldera caught my eye. Is this area just restless or do we have volcano stirrings?

Inflation: Higher And Higher We Go

Economics / Inflation
Jul 08, 2014 – 10:48 AM GMT
By: Darryl_R_Schoon

Economics
In the end game, truth is found only at the margins

In Time of the Vulture: How to Survive the Crisis and Prosper in the Process(2007, 2012 3rd edition), I wrote about inflation and its root cause:

In a credit-money system, over time the constant infusion of increasing amounts of credit will inevitably lead to higher and higher rates of inflation. Because common knowledge of this fact is not in the best interests of those benefiting from the system, it is hidden away. And in the US, hiding the real rate of inflation is done the old-fashioned way, by lying about it.

Prior to the 1990s, the cost of a basket of standard goods and services was compiled. This was called the consumer price index, the CPI, and any rate of increase was considered to be the actual rate of inflation. However, in the early 1990s, this began to change.

Perhaps the old method of tracking inflation seemed outdated or quaint, much like the Geneva Accords [which outlawed torture], to Alan Greenspan and Michael Boskin, the chief economist under President Bush Sr., and a newer way of calculating the CPI was needed.

What was needed was a way that would show a slower rate of increase rather than the actual rate, a way that would save the US government money by lowering social security payments and Medicare benefits tied to the CPI, a way that would convey to global investors that all was well in America, that inflation was under control.

The government keeps changing the rules

Changing the way inflation is calculated

Irrespective of what the newly reconstituted CPI says about inflation, its effects cannot be hidden. Remember Motel 6? A low cost motel chain started in Santa Barbara, California in 1962 whose advertised price was a part of its name, $6.00 per night for accommodations.

I recently checked the prices Motel 6 charges, forty-four years later. The current room rates of Motel 6 at three different locations in Santa Barbara are:

1962 2006

Motel 6 location #1 $6.00 $105.99 an increase of 1,767 %

Motel 6 location #2 $6.00 $82.99 an increase of 1,383 %

Motel 6 location #3 $6.00 $61.99 an increase of 1,033 %

Home prices are also higher as advertised in Morris County New Jersey.

1966 2006

Three bedroom home $15,900.00 $399,900.00 an increase of 2,515 %

Four bedroom home $19,000.00 $624,900.00 an increase of 3,289 %

Marijuana also shows a similar increase in price since the 1960s.

1966 2006

One lid of pot $10.00 $250.00 an increase of 2,500 %

The cost of attending college at the University of Minnesota also rose.

1968 2004

Cost per unit $8.25 $183.00 an increase of 2,218 %

THE DIFFERENCE IN PRICES

BETWEEN THEN AND NOW

IS DUE TO INFLATION

INFLATION IS THE INCREASING COST

OF GOODS AND SERVICES CAUSED

BY THE CONSTANTLY DECLINING

VALUE OF PAPER MONEY OVER TIME

THE MORE MONEY YOU PRINT

THE LESS IT’S WORTH

ECONOMICS – SHILL OR SCIENCE

Gold/Oil Ratio Redux

I continue to monitor the Gold/Oil ratio (GOR). The last time I wrote about it was December, 2008. At that time Gold closed that day at $837 and Oil closed at $42.36. That is a GOR of 19.75.

Here’s the chart at that time:

Gold/Oil Ratio chart

20-Year History of GOR

Notice there were two peaks, a three step drop, a double bottom and then a BIG rally. We are experiencing the same thing again.

Gold/Oil Ratio from 2011

Gold/Oil Ratio from 2011

We don’t see the first peak in 2011, then we have a three step drop, a double bottom and then… I think we may be setting up for another rally in Gold (and Silver). Oil is now at $106, Gold is $1,317. At a GOR of 20, assuming Oil stays the same, Gold could be trading at $2,120. With all the chaos in the world, suppose Oil goes to $150. Gold could then be $3,000. Silver is currently $21. At $2,120 Gold Silver could be $141; At $3,000, Silver could be $200.

No guarantees, of course.

When Real Interest Rates Fall, Gold Rises

Mike Burnick writing for Money and Markets has this informative piece:

Real Yields Sink

Historically, real interest rates (long term bond yields minus the inflation rate) have always had a very close, inverse correlation with the price of gold. In fact, it’s the single most predictive factor for gold prices.

When real rates fall, gold inevitably rises, and vice versa. As you can see in the chart below, real interest rates declined steadily after the financial crisis and Great Recession in 2008, and gold rose every step of the way.


Click for larger version

But as you can see above, real yields began rising again in 2012, which continued last year. This corresponds almost perfectly with a sharp decline in gold prices, but recently real rates stopped rising and are now rolling over again, as you can see at the far right.

While interest rates around the world are declining steadily this year, inflation is beginning to edge higher.

This is pushing real (inflation adjusted) interest rates down again … which is precisely when gold shines!

Forget the Consumer Price Index. We all know this flawed gauge of inflation is way behind the curve in measuring the true cost of living and it’s a backwards-looking indicator. Instead, focus on leading indicators of future inflation pressure: Higher commodity prices, rising wages, higher rental rates and soaring health-care and education costs … these are all pointing to higher inflation down the road.

Spend A Few Minutes With Jim Rickards

Controversial best-selling author James Rickards sits down with Hedgeye CEO Keith McCullough to discuss a number of important subjects in this wide ranging interview such as the FED, USD, the flagging economy and much more.

Alex Stanczyk: Physical Gold Supply Never Been Tighter

In an interview at IN GOLD WE TRUST, Alex Stanczyk, Chief Market Strategist for the Anglo Far- East group of companies, who just returned from a trip to Switzerland. Alex confirmed to me the distribution of gold from west to east is not slowing down whatsoever. Refineries in Switzerland are still working 24 hour a day to cast bars for China, sometimes having difficulties sourcing the gold.

What I do know is that we are on the threshold of a situation that has never occurred before. A (Gold) squeeze is imminent, it could take 3 months or 6 months, but all I know is that it’s coming, and I know that with 100 % certainty.

What this means to me is at some point soon, we will wake to a new paradigm: Gold will be unavailable at any price and Silver won’t be far behind.

Got Gold?

Jim Rickards “Currency Wars”

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