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Ever since the
Berlin Wall came down back in 1989 we have seen the very things we protested
against so vigorously with regards to Russia come to pass in the U.S. without
so much as a peep. If we do not now have a centrally planned economy and
stock market then I do not know what else you would call it. Our Central Bank
decides what interest rate level and how much money production is just right
for the economy. We even have a Working Group on Financial Markets to tame
any market response that does not reflect the intentions of all of the
Central Planning. Somehow they are allowed to expand these non-market related
powers which in turn continue to move the system to one that is more and more
centrally planned. Finally, we have arrived to the point where it apparently
is okay for the Fed to print money from thin air, (which only translates a
portion of the purchasing power of all of the people's money into the pocket
of JP Morgan), so that JP Morgan can turn around and purchase Bear Stearns
and in effect stick us with the tab.
This signal event
was the all clear signal for us to back up the truck and buy all the physical
gold and silver you possibly can for protection from this type of thievery.
They are flat out telling you that your money is theirs and they will take it
and use it whenever and for whatever purpose they choose without your
agreement. On top of that the mainstream commentary drones on how the $130
oil is going to cause inflation
while, in reality, it is the inflation from the example above that has caused the $130 oil. These so called experts are in
fact financial illiterates. Even more pathetic is the fact that Congress is
trying to figure out what to do about speculators since they are buying
commodities, driving their prices up which they believe is the cause of inflation. These are not highly trained
economists if they believe that knocking the price of commodities down will
not result in even higher demand and eventually even higher prices. It never
occurs to them that the centrally planned economy has set interest rates in
the neighborhood of 10% below inflation which
amounts to paying buyers to spend money on real things which can not be
expanded at a mere whim like today's money from air. It has gotten so bad
that even the clueless reporters on CNBC are making fun of the government's
inflation releases. The activity in commodities is not speculative; it is
totally rational as people exchange increasingly worthless scrip for items
which take tremendous work and inputs to produce.
There has been much
commentary about the huge short interest in gold and silver markets and how
it is not manipulative but as Jason Hommell and Ted
Butler intelligently point out there are limits on the buy side yet no limits
on concentration and size on the short side. The latest explanation I have
seen ridiculing the manipulation crowd explains away any manipulation by
showing us how the short interest is totally rational due to the yen carry
trade. This guy just doesn't get that the entire yen carry trade is one big
manipulation as that financing would never be available in a true free
market. The availability of yen at such low rates is due to, again, a
centrally planned and pegged exchange rate system. This is the very reason
that physical gold and silver is the only true defense
from this centrally planned rigging. Gold and silver is outside this system
and there are limited quantities available. Now that the world is slowly but
increasingly in large numbers waking up to the fact that money is being
diluted in their pockets they will seek out a defense
and gold and silver answer that need. I contend that the Gold and Silver ETFs were created to hasten this process. In effect, the ETFs are an attempt, (and one that has been more than
mildly successful), to "fiat"-ize gold
and silver. I am amazed how readily acceptable that these instruments have
become to the gold community which should know better, particularly in light
of the firms that are responsible for bringing these options to the public;
the banks and money powers that are the biggest enemies of true money which
endangers their very existence. On this point it has gotten so bad that some
of the leading advisers in gold and silver feel these are totally fine
alternatives. There is one gold stock adviser and newsletter writer whom I
have the highest regards for as far as analysis and stock picking ability
that has always had a top ten list of gold stocks through all types of gold
markets bull and bear. Several months ago he dropped his top ten to six and
recommended putting the remaining 40% in the Gold ETF. His reasoning was that
he liked it better than cash. It is only one step away from cash; a promise
of gold rather than a promise of nothing. I am glad to see he has since, and
in very short order, brought his top ten back to eight and this week it is
going back to a top ten. Maybe he thought better of the possibility that the ETFs are empty promises. At any rate, I for one rate the ETFs as far, far more risky than gold or silver stocks
and the reason is I believe the ETFs are a total fraud.
In the first
part of this article, I explained why I believe the ETF is a fraud and
even if it weren't it could not possibly function as presented. I believe a
third grader could understand the logic yet I received around ten letters
explaining to me that the ETF represented 98.5% of the gold that is (supposed
to be) there due to the management and handling fees as outlined in the
original prospectus. Well at least it's good to see that some other people
have read the prospectus so they are at least trying to understand what they
own. The major point that I was trying to make and that many did not
comprehend is that the Gold and Silver ETFs are
many times their original size so they have had to constantly buy more gold
and silver to back the shares with actual metal. There is no economic way for
them to do that with the Gold ETF trading at a constant discount to spot
gold, gold futures and physical gold. As an example, right now with spot gold
at $885.90, gold futures at $887.90, and physical gold at $917, how do you
take shares of GLD at $87.45 which equates to $874.50 and buy physical gold
when new shares are issued. There is not even enough to buy the gold never
mind shipping it, storing it, guarding it, or insuring it. Even if gold is
being purchased the shares reflect less and less gold every day and the
shares should trade at a bigger and bigger discount which going forward
allows buying less and less gold. In addition, the rules of the ETF make it a
possibility that the gold can be swept away by big redeemers. It is very
unlikely that big institutional investors such as Calpers,
for example, would sell and take delivery of actual gold or silver since they
very likely have nowhere set up to actually store it. Small investors are
priced out of the market for redeeming since you can only actually redeem a
minimum of 10,000
ounces which is almost $10 million. So who does that
leave that would take possession? When the bullion banks and the money powers
are no longer successful in capping the gold price through their various
means including the GLD and SLV ETFs, they can
quite easily purchase huge positions even if it causes
the gold price to go up $100's of dollars in one day. Since the banks get
first dibs on new money which materializes from thin air at the whim of the
Fed, it would not matter what price they pay for the shares. Then they could
sell the next day by redeeming and take possession of all the gold they have
been herding into the ETFs over the past several
years. The ETFs could see the majority of their
physical backing pulled right out from under them without any warning. This
may seem far-fetched to some yet it remains a very big risk to the holders of
GLD and SLV now that the physical metal markets are so tight. In addition, by
buying the gold and silver ETFs you are handing the
suppressors of gold and silver a pool of metal so they can be used to lease
or sell gold during critical periods to delay the metals from reaching true
market levels. I believe that if only 10% of the holders of GLD and SLV sold
their shares and put the proceeds into physical metal in their own possession
immediately, the price of gold and silver would skyrocket. There is no better
sign that this would happen than the fact that the latest takedown in silver
from above $21 an ounce to the $16 range directly after the Working Group on
Financial Markets meeting on March 17th resulted in a massive number of coin
and bullion dealers almost completely out of most products as amply
documented by Jason Hommell @ silverstock.com.
As I said before
people are catching on in increasing numbers. Some will only catch on when
food prices are so high that they are starving. It is the same as with oil.
Although oil may be higher than it would be due to financial buyers there are
other factors which can not be derailed. Little is spoken of how not only has
the US
been filling its strategic petroleum reserve, but many, many other nations
are taking similar actions. If this buying were to dry up over night the oil
price would surely plummet, however, since the necessary investments have not
been made to find huge new pools of oil, it would only be a short-term
respite. We can easily see how this has played out in the gold market with
gold production still on the decline for the past six years despite a more
than tripling in the price. Silver has at least had some supply response but
this is more than offset by the many new uses and patents on the industrial
side for silver, not the least of which is a new discovery of how to replace
platinum with silver in catalytic converters, keeping in mind that platinum
is over a hundred times the price of silver. Gold has been termed a bubble by
many fools in the media yet demand is soaring and we already know there was
no room for any more investment demand in the gold and silver markets as
supply and demand has been so tight; thus the creation of the fiat gold and
silver markets, the GLD and SLV ETFs. I have also
heard some commentators hammer that if you have some gold or silver being
held for you then you are safe if you get the serial numbers of the allocated
bars that you hold. As I recall in the original audit
of the ETF some numbers appeared twice and a few were even listed three
times. The point here is that just because
someone gives you a number does not necessarily mean you are safe and are
absolutely not as safe as if you have the metal in your own possession. The US government
gives out knowingly bad economic numbers as policy regularly so why that
would give someone confidence is beyond me. For example, this week the
government released a number showing first quarter inflation was the lowest
for the past four years. Does that make you feel confident in receiving a
number or does it terrify you?
As mentioned
earlier, when even the commentators on financial TV have caught on and make fun of the latest government
inflation reports, the public at large will not be far behind in recognizing
the farce of most anything the government reports. The next step is they will
seek out a way to protect from further having the value of their money picked
from their very pockets through inflation. The people of other nations are
far ahead in this process; they have been taking physical metal off the
market and into the safety of their own possession. It is time Americans wake
up, it is not too late to act to avoid becoming a victim but time is growing
very short and if you haven't gotten your financial house in order it will
only cost you more to protect yourself from what is coming the longer you
wait. It is time to buy all the physical silver and gold that you can and if
you can not do that you are much better off with gold and silver stocks than
to shoot yourself in the foot by taking the unnecessary risks mentioned above
of the ETFs. There are many small gold and silver
stocks trading at very low earnings and cash flow ratios and growing at very
high rates that are being totally ignored due to the fact that they have been
made to "look bad" on their price charts. The junior sector is just
overflowing with incredible bargains that are cheap by just about any
measure. Remember, if they are priced in dollars that is what is truly going
down as are all paper currencies. Once you come to grips with that fact you
should know what to do. BUY SILVER AND GOLD AND BEYOND THAT THERE HAS NEVER
BEEN A BETTER TIME TO BUY STOCK OF THE JUNIORS.
Richard
J. Greene
Managing Partner,
Portfolio Manager
Thunder Capital Management
More articles by
the author can be accessed by the
"Research Articles" choice at: www.thundercapital.com
Information contained herein is obtained from
sources believed to be reliable, but its accuracy cannot be guaranteed. It is
not intended to constitute individual investment advice and is not designed
to meet your personal financial situation. The opinions expressed herein are
those of the author and are
subject to change without notice. The information herein may become outdated
and there is no obligation to update any such information. The author, 24hGold, entities in which they have an
interest, family and associates may from time to time have positions in the
securities or commodities discussed. No part of this publication can be
reproduced without the written consent of the author.
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