Most
technical analyses of the gold bullion and precious metals mining stocks are
useless ... indeed misleading. As I see it gold and silver's parabolic rise
will coincide with future sovereign debt defaults, currency
inflation/devaluations and rampant asset price inflation. This should happen
from mid 2011 thru 2012 with gold reaching a parabolic top of $10,000.
Not
surprisingly, I have company in that view:
- Peter Schiff told Business
Week recently that, "People are afraid of the debasement of all the
currencies. What's surprising is that gold is still as low as it is ... Gold
could reach $5,000 to $10,000 per ounce in the next 5 to 10
years.”
- According to David
Rosenberg, "There is no doubt that gold can easily double from here.
Demand is always difficult to forecast ... but central banks bought
more gold last year (425 tons) than at any other time since 1964.
(Furthermore) the supply backdrop supports a sustained bull market, as
production has fallen in 5 of the last 8 years. We know what the marginal
cost curve is doing because there is so little cheap supply left in the
ground that gold companies now have to drill as much as 2.3 miles to get to
the yellow metal in South Africa (and all Bernanke has to do is press a
button)."
THE CAUSES
1. No
History of Consequence
Gold has only been trading
unencumbered from backing fiat currencies since Nixon's 1971 decision to
stiff the French, etc. when trying to repatriate their paper dollars for the
metal. As such, there is little history of consequence (of value) to
measure market action.
2. Market
Manipulation
The Commodity Futures Trading
Commission (CFTC) recently held a major hearing which blew the doors off the
bullion metals trading markets - the "sleeper" which I predict will
be viewed retrospectively as the gold price liberation event.
We all knew JP Morgan Chase
had been manipulating the metals markets on behalf of the FED and other
central banks and this event proved it! The hearing (specifically Jeff
Christensen’s statements) inadvertently confirmed that trading has been
occurring using naked shorts/no hedging and that there was little bullion
(only about one ounce of metal for 100 ounces of a trade) backing up such
trades should the holders ask for it rather than cash or roll their futures
into other futures paper. This revelation was much worse than even critics,
such as the Gold Anti-Trust Action Committee (GATA), had expected.
3.
Insufficient Physical Inventories
It seems
that the Asian and Mid East buyers and owners of bullion have been removing
gold from the "normal" bank and bullion dealers vaults and taking
it "home" thus leaving much less than previously thought in the
London and New York and Toronto vaults. A case in point is that of a major
metals investor in Toronto who finally got to view his stash of metal in the
Scotia Macotta vault and noted that there wasn't
nearly enough metal to back up his certificates, even though he was paying
storage and all kinds of other fees on his metal.
The above begs the question:
“Do these large ETF bullion funds actually have any or much bullion at
all?” The answer is clearly that they do not and that, in the near
future, when some serious speculators from Asia, Russia and the mid-East get
their acts together, they will force the issue.
THE
EFFECT
The revelation that there is
insufficient physical inventory to meet this new demand for physical
ownership of the actual bullion (i.e. show me the money!) is about to blow
the price lid skyward.
$10,000
per ounce by 2012
This
should happen from mid 2011 thru 2012 and I wouldn't be surprised to see a US
$10,000 per ounce top during this period!
The 2008/2009 crash
originated with the financial institutions which governments bailed
out. This time there is no institution - certainly not the IMF - to
bail out the governments. Gold and silver metals and mining shares (the new Homestakes) will be the clear winners.
Conclusion
Call me nuts; assume I do too
much reading; assume I don't have access to appropriate reality checks;
assume what you want - but I am increasingly confident that the fundamental
realities of fragile sovereign debt, market manipulation, insufficient
physical supply and the need for a safe haven investment refuge, will drive
precious metals particularly, and commodities generally, dramatically higher
in the not too distant future.
Get
yourself positioned to take advantage of this once in a lifetime ride.
Arnold Bock
www.FinancialArticleSummariesToday.com
Arnold Bock is a Canadian living abroad retired from a career in
government. He has a substantial
background in partisan politics and public policy development as well as in
project and program management within the public sector.
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