Gold To Rise On Fiat Currency Crisis, Negative Real Interest Rates, Money Printing

A lot has been said as to what has fueled gold’s precipitous rise to all-time highs, from its characteristics as an inflation hedge to providing insurance against a deflationary recession.  While the recent, and tumultuous, correction from about $1,920 an ounce to almost $1,500, a 20% correction, shook market confidence confidence, the gold industry came together to express what will fuel the long-term bull in gold markets.

 

 Agustino Fontevecchia Forbes Staff

 

Speaking at the Argyle Executive Forum, hosted by the World Gold Council, gold investors and fund managers laid out their bull case for the yellow metal.  It rests on a series of interconnected causes stemming from the inherent weakness in developed economies.

“We’re in the middle of a gold bull market that’s been going on for ten years now,” explained Joe Foster, Van Eck’s head of actively managed gold funds, “this is not a bubble and we are nowhere near the end.”  Gold’s precipitous rise has come as a consequence of the fiat currency crisis, in which debt saddled countries have resorted to stimulative policies that involve money printing and competitive exchange rate depreciation.  This, in turn, has eroded purchasing power and fueled the rise of gold.

This argument can be made to fit practically any crisis situation.  Gold looks good in the face of mounting inflation, gold looks attractive as we approach a deflationary recession.  In reality, these gold bulls believe it doesn’t matter what’s causing the crisis, just that a crisis is coming. “Gold thrives on financial risk,” explained Foster, “the source of that risk doesn’t matter: inflation, deflation, currency crisis, debt crisis; and [current] financial stress is so acute that gold will thrive.”

And thrive it has.  After falling more than 20% to $1,500 and change an ounce, gold has rebounded strongly, rallying for at least four days straight on Wednesday to $1,721.24 an ounce, a nearly 7% gain.  Gold bulls point at the floor that formed at $1,500, were “organic demand came in,” in the words of the World Gold Council’s head of investment research, Juan Carlos Artigas.  UBS’ Edel Tully has supported Artigas’ claim, repeatedly noting the strength of physical demand the last couple of weeks.

Gold’s price action has responded, in part, to recent events.  Gold peaked after the crucial first two weeks of August, when the U.S. saw its credit rating axed by S&P and the ECB signaled it would begin purchasing Spanish and Italian bonds, a form of European QE.  Then gold tanked in late August and through September, as Fed Minutes revealed Bernanke faced a divided Fed and QE would be replaced by Twist, at least in the short term.

  Read more here….

Is Silver the Next Apple?

The following information was put together exclusively for the King World News blog by Kevin Wides, out of Switzerland.  It is a fascinating comparison between the bull move in Apple shares and silver bullion.  Kevin stated, “With everyone talking about Steve Job’s death and the wonderful investment Apple shares have been, a closer look shows how hard it is to catch a trend over the long run.  I still believe in the silver story, and one can see what it takes to hold on to long-term positions [throughout an entire bull market].”

Shares of Apple have gone up 70 fold, but in order to capture that move you had to sit through some gut wrenching corrections that tested even the most devout believers.

 

Apple’ 5 major corrections

1 -82%…

2 -27%…

3–41%…..

4 -43%

5 -56%

 

See chart below…

 

Apple shares – 13 years of a bull trend with 5 major sell offs

 

When you turn to the silver market, if the price of silver were to equal the bull move in Apple (so far), it would have to go up to $300 an ounce.

 

You can see the same type of gut wrenching corrections have taken place in silver which are very similar to those moves in shares of Apple.

 

Silver’s 4 major corrections

1 -36%

2 -38%

3 -61%

4 -47%

 

See chart below…

 

Silver price – 9 year bull market and 4 large corrections

 

Kevin put together the above charts exclusively for KWN readers globally.  Kevin also stated, “Bottom line, you have to suffer the tests of your convictions to catch the major trends.”

 

The lesson here reminds me of the great quote from Jesse Livermore:

 

“And right here let me say one thing:  After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this:  It never was my thinking that made the big money for me.  It always was my sitting.  Got that?  My sitting tight!  It is no trick at all to be right on the market.  You always find lots of early bulls in bull markets and early bears in bear markets.

 

I’ve known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit.  And their experience invariably matched mine – that is, they made no real money out of it.  Men who can both be right and sit tight are uncommon.  I found it one of the hardest things to learn.  But it is only after a stock operator has firmly grasped this that he can make big money.”

 

You have to buy into bull markets as early as possible and hold on to your position during violent gut wrenching corrections.  The very reason I have quoted Livermore so often is that few human beings have the capability to capture the vast majority of an entire bull move.  It takes incredible fortitude and discipline.

 

Some people may be concerned about the volatility in gold and silver and many of them will get shaken out of this bull market.  Somewhere down the road there will be a mania and investors will have to live through it one way or another, either holding positions or watching in despair as the bull market advances without them.

Global Money Supply And Currency Debasement Driving Gold Higher

Global Money Supply And Currency Debasement Driving Gold Higher

Gold is trading at USD 1,670.40, EUR 1,216.90, GBP 1,063.81, JPY 128,555.00, AUD 1,643.34 and CHF 1,500.20 per ounce.

 

Gold’s London AM fix this morning was USD 1,673.00, GBP 1,065.74 and EUR 1,218.05 per ounce.

Yesterday’s AM fix was USD 1,687.00, GBP 1,070.36 and EUR 1,222.02 per ounce.

Cross Currency Table

Gold is marginally lower in all currencies today and appears to be
steadying near four-week highs on further evidence of strong consumer
demand in Asia. Market concerns about contagion in the eurozone should
prevent significant price falls from these levels.

Jewellers and bullion dealers in India and China continue to stock up
prior to their various festivals – such as Diwali in India and Chinese
New Year in January 2012.

One of the primary drivers of higher gold prices in recent years has
been money supply growth in the US and globally and consequent concerns
about currency debasement.

Since 1998, increases in the price of gold have been correlated with
increases in global M2. If central banks in both the developed and
developing world continue to adhere to highly accommodative monetary
policies, global M2 should subsequently rise and support a further
increase in gold prices, as it has in the past.

Global Money Supply Growth – 1998 to Today
(Eurozone, US, China, Japan, South Korea, Australia, Canada, Brazil, Switzerland, Mexico, Taiwan and Russia)

Developing China’s M2 money supply has been rising by a large 20% and Russia’s by a very large 30%.

Even developed countries such as Switzerland have seen money supply
growth of 25%. Japan’s M2 is gradually moving higher after the ‘Lost
Decade’ and after recent events exacerbating an already fragile
situation.

Global money supply growth is increasing by 8%-9% per annum. Meanwhile annual gold production is less than 1.5% per annum.

We looked at money supply growth and charts regarding global money
supply, debt levels etc in a comprehensive article in early August (‘Is
Gold a Bubble? 14 Charts, the Facts and the Data Suggest Not’ –http://www.goldcore.com/goldcore_blog/gold-bubble-14-charts-facts-and-da… ) when gold was trading at $1,670/oz or much the same price level as today. The charts and conclusions remain apposite.

In order to fight economic problems brought about due to too much
debt, debt based paper and electronic currency has been created at
historically high levels. There is no sign of this abating any time soon
given the scale of the global financial and economic crisis.

Indeed, shuffling debt from one sector to another and creating more
debt to deal with what was essentially a problem of too much debt is
making the situation worse and leading to currency depreciation and
debasement.

Growth in global money supply, U.S. dollar, euro, pound and all fiat
currencies depreciation or currency debasement and massive uncertainty
in global financial markets and the real risk of contagion will likely
continue to lead investors and savers toward using precious metals, and
specifically gold and silver bullion, as stores of value and safe
havens.

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