Doug Nolan of the Prudent Bear succinctly echoes our criticism of Easy AL: "Our greatest criticism of the Greenspan Fed has been its coddling of the leveraged speculators. Never before had central bankers enjoyed such a powerful and instantaneous monetary mechanism. This expedient was negligently abused and is now largely impotent. The residual is truly frightening."
Young Japanese are flocking to gold in unprecedented numbers reminiscent of their fathers and grandfathers in the past. Their faith in stocks is gone as are the quick profits of three to six years ago. The young are becoming risk conscious, as they realize they may not have a job in the future. If you recall we have said over and over as gold rose jewelry sales would fall but investment in gold would rise by an equal amount or more. Well, that is exactly what is taking place. It is the first-time buyers that are really bolstering Japanese demand, they are worried about job security or their pensions, something that was unheard of three or four years ago. In 2001 investment demand was 64.8 metric tons but in the first three quarters of 2002 it was 80 tons. Soon the same thing will be taking place all over the world.
We are enmeshed in a perfect storm of fundamental economic factors, and social, political and technical factors on the world scene. In addition we have N. Korea, Iraq and Israel on the brink of war and Venezuela in social chaos for the past month. The US equity market is being held up by our government, the dollar is falling and money is leaving the US in a flight to quality. As an outgrowth of US and Israeli foreign policy in the Middle East and a shut down of all facilities in Venezuela we have a developing oil crisis. In October 2001 in Calgary we predicted the dollar would finally fall and it has ever since. That has been accompanied by a falling stock market, which we also predicted in April 2000 and the end of a strong dollar policy, the brainchild of elitist Robert Rubin.
Gold resistance has been broken at $330 - $336 - $350 and now the 1987 downtrend line at $355 is about to be broken. Once that is broken it is clear sailing to $840 an ounce. The gold price has already breached the 15-year resistance line and will soon break the 20-year resistance line at $470. In late December open interest was 285,668 contracts or 28.6 million ounces, up 91% from August 2001. Since April 2000, non-commercial net short positions have increased from 56,000 to 60,000 contracts.
Virtually zero interest rates have caused a strong inverse relationship between the price of gold and short-term interest rates. As rates have fallen gold has risen. Low rates reduce the opportunity cost of holding gold and producer hedging is not attractive at low interest rates. We have followed gold for over 42 years and we know once interest rates rise gold's trajectory accelerates on the upside. We don't see interest rates higher for nine months to a year, so gold should move to $840 an ounce during that period.
The last major move to $1,500 to $3,000 an ounce will come as interest rates rise again. Governments lie so much we don't know whether any of them have any gold left at all. We also don't want to forget the hedged producers who are very short gold and the derivative-banking cartel that is short gold. They have to be in the process of covering their shorts. Hedging is not profitable with 1% interest rates, particularly in a rising gold market, thus that will no longer be a detriment to rising gold prices. That leaves many reasons for higher gold prices and they are the breaking of the bubbles in real estate; debt; pensions and derivatives; a possible terrorist attack in Europe or the US; a major political scandal; botched or protracted military action in Iraq, North Korea or Israel; a continued fall in the value of the dollar; a collapse in consumer spending and a collapse in the stock market. All of these are imminent and plausible. It's only a question of which one when.
There is no chance of a surge in gold production. It takes a minimum of a year or two to get any mine up and going and in two years gold will already be going where it's going. In fact, it takes five to 10 years to bring mines into production. As you can see it is absolutely inevitable that gold will move to higher prices.
Strong gold buying is now coming out of the Middle East. We also heard the Australians, who are mega-hedged, are feeling pain, especially the Sons of Gwalia. Wall Street and CNBC avoid talking about gold and silver as if it were akin to the plague.
The CRB index hit another high at 240.19. By the time you read this gold should be through $355 an ounce on its way to $500. Load up on the metals and stocks now. This is the last time they'll be cheap. The base for both gold and silver is monumental.
It's already obvious Asians, Indians, Chinese and those of the Middle East don't trust the dollar. When will Americans and Europeans wake up? They will wake up and when they do the buying volume will knock your socks off. This is such an incredible opportunity for you subscribers. It's truly once in a lifetime. We are in transition from paper fiat money back to gold-based currencies. This is a return to ancient cultural roots. That is why Asians, Indians and Middle Easterners are in the vanguard. They are far more suspicious of fiat money than we Westerners. These people in these gold-buyer regions have been accumulating gold since the advent of the suppression period beginning in 1987 while Westerners have been sitting on their hands. They have been accumulating the real wealth, gold. Wait until you see a stampede out of the dollar.
Everything is in place and it is now beginning to happen. The fraud that has been perpetrated by Barrick and other hedge producers and gold bullion banks such as JP Morgan Chase, Goldman Sachs and the US Treasury will soon be at an end. We are entering one of the most turbulent times in the history of mankind and many of us won't make it. We are not disturbed about that because finally this time once and for all we expect to defeat the forces of evil.
We have been told that the US Mint has no gold coins available. JP Morgan Chase, due to its credit rating, can no longer deal with Deutsche Bank. We find it laughable when JPM management says they have no gold exposure and all you have to do is go to the Office of the Comptroller of the Currency and you can see JPM's derivative positions in living color. Yet there is no challenge from the media. We know Morgan lies; there are e-mails to prove that. Of course JPM has gold exposure. They have $41 billion in precious metals derivatives; they have $39 billion exposure in other commodities and $199 billion in equity derivatives. That is 45% of total assets and 6.5 times core capital. JPM may have dodged a fatal bullet with the assistance of the US government on the Enron caper and insurance payoffs, but it only buys time. Morgan will go down because gold is going higher due to a falling dollar, and no economic stimulus package can save the US economy. Don't get fooled by the game playing. Keep your eye on the big picture and that is there is no way out of a purge of the world's economic and financial system.
"Monetary policy, unleashed from the constraint of domestic gold convertibility, has allowed a persistent over issuance of money", says Sir Alan Greenspan. Domestic gold convertibility means a gold exchange standard, where anyone at any time may go to a bank and trade fiat dollars for gold bars or coin. A persistent over issuance of money degrades existing specie and is the cause of inflation. Previously we had a gold standard that only allowed other nations to redeem dollars. Just this one line by Sir Alan leaves us to believe that the elitists are definitely returning to a gold reserve and by his always-careful wording, a gold exchange standard. That leaves us to believe that if it is a gold exchange standard then there will be no attempt to confiscate gold coins or bullion. Three years ago the powers behind government realized that the more gold they sold, the more investors bought. Thus, we saw the culmination of 4 events recently with the breakout in prices over $350 an ounce as proof positive that the suppression game is over. They have capitulated and the people have won.
Now and in the future you'll hear gold is good. All those who sold are out of luck. That leaves the big hitters in excellent shape. They are France, Switzerland and if they haven't sold theirs off, the US, Germany and Italy. There is now no question; the language is all there. That could mean that Switzerland, scheduled to sell 283 tons in September, may change its mind and not sell. It will now be interesting to see if everyone with gold on lease gets his or her gold back. We believe some will not get their gold back due to bankruptcy. The remainder will have to buy in the market or try to get the banks to accept dollars. We don't see banks taking dollars when they know gold is headed higher. Remember at $500 an ounce and a 15% current holding of gold reserves would move that reserve percentage to 23%. That percentage could actually be higher if 70% of reserves are held in US dollars and the dollar falls another 15 to 25%. That is very convenient if in fact the US, Germany and Italy still have the reserves they say they have. It would also be the appropriate time for a public auditing of sovereign gold reserves for each country, just to keep them honest. As we look back, the Washington Agreement could have been totally misconstrued. It may have been an agreement to stop selling because three years ago the elitists realized that the game was over and they¹d use derivatives as long as possible to suppress the market. The exception was sales by England and Switzerland. That would mean the Washington Agreement would be extended with its 500-tonne annual maximum. Italy, Germany and Switzerland could sell but we believe they'd back off. Britain won't be selling, being the laughing stock they already are and France will never sell. The agreement not only limited sales, it allowed the central banks to manage the price, manipulate it, as it moved upward. They did this with the willing help of various gold bullion banks.
The next step for Sir Alan as we have said for three years, now is to create enough monetary aggregates to neutralize deflation and bring what stability he and the Fed can to the financial world. We believe he will fall short in the use of inflation for fear of a Weimar episode and we will sink into deflation and depression. He is handling a truly explosive mix we believe will become extremely toxic.
The outcome will be financial, monetary and economic chaos. If Japan can't surmount depression with the savings base they have, Sir Alan doesn't stand a chance. The US and China will export deflation, the US with a plunging currency and China with cheap goods. As the dollar falls so does the value of foreign reserves. Nations throughout the world are going to get clobbered. Unemployment in the US will go out of sight and the public will demand the end of free trade and globalization. The only way left for other nations is to also inflate and devalue their own currencies. That means gold will go ballistic. As long as interest rates stay relatively low, there can be no gold leasing and what reason could there be to lease gold, when the chances of getting it back are slim, and who wants more dollars in place of gold? Central bankers can't sell because now it's a hot asset and everyone wants it. If they sell they lose their jobs or get lynched. Gold is telling us we were right and the central bankers were wrong, and this time they are going to pay for their criminality. First will be the abolishment of the privately owned Federal Reserve and second only criminal charges. These elitists will have been stopped once and for all.
January 10, 2003
THE INTERNATIONAL FORECASTER An international financial, economic, political and social commentary. Published and Edited by: Bob Chapman FOR A FREE INTRODUCTORY COPY GO TO: [email protected]
