While some investors may think they are getting wealthier because they see the value of their equity portfolio increase, others are seeing the value of their hard earned cash gradually erode due to the low interest rate environment. And, while mainstream media particularly in the USA claim that the economy is recovering due to the recent stock market rally, this rise in prices is due to an economic stimulus programme engineered by the US Federal Reserve and has nothing to do with a vibrant economy.

If you believe that there is not going to be any repercussion from central banks unprecedented money printing and that governments will be able to sustain their current record high levels of debt when interest rates rise, then you have nothing to worry about. However, if you believe as I do, that these monetary policies will result in further currency devaluation, rising commodity prices, steep inflation which may end in hyperinflation and then a complete collapse of the current global monetary system, then you had better prepare yourself now.

It is obvious that the policies of central bankers have been a total failure when it comes to stimulating economic growth. The scenario they have created seems to be playing out in an almost textbook manner. And, if history does repeat itself, then this nominal rise in asset prices will be followed by a period of rising inflation. The ensuing increase in interest rates will prevent governments from being able to pay the interest on their debt which will lead to a total loss of confidence in their respective currencies.

Meanwhile, Western governments continue their insidious actions to rob their citizens of their hard earned wealth and individual liberties. These bankrupt Western governments will blame the war on terror, or the war on drugs, and will impose new taxes, and capital controls on their citizens as they try to inflate their way to higher tax revenue. They will also continue to interfere and manipulate the markets
Only recently, Bloomberg reported that traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates to set the value of trillions of dollars of investments.

Evidently, employees have been front-running client orders and rigging WM/Reuters rate by pushing through trades before and during the 60-second windows when the benchmarks are set.

According to certain traders, dealers colluded with counterparts to boost chances of moving the rates. This happened daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, two traders said.

The currency market, estimated at around $4.7 million a day is the largest market in the world as well as one of the least regulated.

While hundreds of firms participate in the foreign-exchange market, four banks dominate, with a combined share of more than 50%, according to a May survey by Euromoney Institutional Investor Plc. Deutsche Bank is No. 1, with a 15.2% share, followed by New York-based Citigroup with 14.9%, Barclays Plc., with 10.2% and UBS AG with 10.1%.

The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, after three lenders were fined about $2.5 billion for rigging the London Interbank offered rate, or Libor. Regulators also are investigating benchmarks for the crude-oil and swaps markets.

Singapore’s monetary authority has ordered, 20 banks at which 133 traders tried to manipulate the Singapore interbank offered rate, swap offered rates and currency benchmarks to set aside as much as S$12 billion ($9.6 billion) at zero interest pending steps to improve internal controls.

Nineteen firms were asked to post reserves ranging from S$100 million to S$1.2 billion — depending on the severity of the attempts by their traders to manipulate rates — for a year and will earn zero interest on that money.

As governments together with their financial leaders try to manipulate the currency markets, financial markets and stock markets, they also attempt to suppress the prices of gold and silver. Owning gold and silver is taking money out of the system, something which governments despise and something that every single individual should do.

In his speech at the Open for Growth conference at Lancaster House in central London on Saturday, UK prime-minister, David Cameron pledged to tackle tax evasion and transparency at the upcoming G8 summit on Monday. Cameron claims that trade, tax and transparency are vital factors in the global effort to eradicate poverty.

During their meeting in Northern Ireland which began on Monday, one topic clamping down on tax havens, launching EU-US trade talks and progress towards a Syrian peace conference. British Prime Minister David Cameron has put clamping down on tax avoidance top of the agenda for this G8 summit. Cameron is seeking an agreement on clamping down on corporation tax loopholes, and creating an international registry of company ownership to stop companies hiding profits in shell companies registered in tax havens.

Emma Seery from aid agency Oxfam said: “We don’t even know the scale of how much developing countries are losing because there are so many secretive deals and tax havens are secretive places, but we know that just because of companies are dodging their taxes, developing countries lose $160 billion every year.”

While so called tax havens receive more bad publicity once again, nothing is said about the billions of tax payers’ money that governments have squandered in hopeless aid programmes as well as financial assistance to corrupt governments, not to mention the cost of financing all these so called aid agencies.

Over the last 50 years, developed countries have dished out more than $2.5 trillion of tax payers’ money in foreign aid and yet there is still an overwhelming amount of poverty. Approximately $568 billion was spent on aid programs in Sub-Saharan Africa from 1960 to 2003, yet, corruption and poverty remain its defining features. The region remains poverty stricken while corrupt government officials become very wealthy. Add to this the cost of on-going wars as well as the cost to finance ever expanding governments. Suddenly, a few offshore bank accounts look insignificant to the amount of money governments have wasted. Furthermore, industrialised nations are under no obligation whatsoever to provide any aid to developing countries; contrary to what many politicians in Africa may like believe.

The African Union estimates corruption costs the continent $150 billion annually, far outstripping global development spending. The World Bank reckons over a quarter of its entire lending portfolio has been tainted by graft. Yet aid agencies funded by tax payers’ money continue to pour hundreds of millions into this bottomless pit every year.

Personally, I think leaders such as David Cameron, together with the Secretary-General of the OECD, Angel Gurría, should focus their energies on clamping down on global government corruption instead of trying to invent ways to extract more taxes from legal companies and hard-working individuals who have legitimate offshore bank accounts. And, they should be held accountable, for squandering tax payers’ money by funding these corrupt governments. They should receive a prison sentence for all the hundreds of millions of tax payers’ money that simply disappears into the bank accounts of corrupt politicians.

Unfortunately, while governments continue to waste tax payers’ money, they also continue to bully their citizens with their tax authorities. Also, they expect individuals to tolerate their actions as they invade your privacy, devalue currencies, manipulate markets, and destroy the value of your savings and pensions.

As an individual you cannot change the system, but you can take certain steps to prevent yourself from being totally wiped out by these insidious actions. One way is to make sure you own physical gold and silver.

TECHNICAL ANALYSIS

As gold prices fail to break above the key resistance (R) of $1400/oz., I expect to see more consolidation before prices move upwards.

David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients. For more information go to: www.lakeshoretrading.co.za

From the WSJ – The lower house of Switzerland’s parliament voted against adopting a plan for banks to step around the Alpine nation’s banking secrecy laws and hand information about their dealings with suspected American tax evaders to U.S. authorities in an attempt to reach a sweeping resolution.

The vote sends the measure back to the upper house, which approved it last week, for further debate.

The proposed plan would have many of the country’s roughly 300 banks start providing details to the U.S. Department of Justice about their past relationships with American clients and the employees who assisted those clients.

The Swiss cabinet, which announced the plan last month, cautioned Parliament to act swiftly to approve it—implying that if banks don’t come forward now, U.S. authorities may ultimately come down hard on them with indictments and heavy fines. Wegelin & Co., Switzerland’s oldest bank, was hit with a U.S. indictment last year and is now defunct.

Critics have called the plan a violation of Swiss sovereignty, which unfairly exposes local bankers, advisers and attorneys to legal prosecution in the U.S. Critics have also said the plan lacks important details on the potential size of fines for the banks that opt to participate.

Now, following a 126-67 vote in the lower house against considering the measure, it is being tossed back to the Swiss Parliament’s upper house for further consideration Wednesday. Parliament’s summer session is scheduled to end Friday. The autumn session begins Sept. 9.

About a dozen banks have already been under investigation by U.S. authorities, including Credit Suisse Group AG and Julius Baer GroupAG. Those banks have begun handing over information as part of the U.S. crackdown on American tax evasion. UBS AG, the country’s biggest bank, resolved its issues with the DOJ with a deferred prosecution agreement in 2009.

Credit Suisse has already set aside 295 million Swiss francs ($319.8 million) to deal with the U.S. tax probe. Julius Baer hasn’t made a specific provision, but analysts generally estimate the Zurich-based bank could be hit with fines ranging from 200 million francs to 500 million francs.

The proposed plan for banks to resolve their issues with the U.S. by skirting banking secrecy laws drew criticism from the largest political parties in the lower house of Parliament.

The right-wing Swiss People’s Party has railed against the measure as “blackmail” on the part of U.S. authorities pressing Swiss officials to do their bidding, while the left-leaning Social Democrats have said banks should be left to resolve their legal issues on their own.

Though they haven’t been given specific details about the fines in store for participating banks, lawmakers have estimated penalties will amount to as much as 10 billion francs.

While banks would be expected to hand over data on their business with American clients, the exact identities of U.S. account holders would remain unknown.

Swiss officials have said the country remains unable to hand over such detailed information on clients until the U.S. Senate passes a 2009 amendment to a long-standing tax treaty between the countries.

Looking for monetary protection? Then we recommend to consider Global Gold, a Swiss-based service with high security storage in Switzerland, Hong Kong and Singapore. It is one of the few truly solid international solutions.

And now I know exactly what the next five years will bring. Without a doubt, the next five years are sure to bring inflation. Perhaps double-digit inflation.

Unless, of course, we have a sustained period of deflation.

At the risk of being too cute, I’ll just say that there was no consensus among the economists, investors, and attendees. And how could there be, really? I heard well-reasoned and convincing arguments for both sides of just about every major question facing investors today. The arguments for inflation and deflation were equally compelling.

One statement I did not hear was, “Everything is going to be fine.”

There were, however, three common themes that should be of interest to precious metals investors.

1. The Expansion of Quantitative Easing in the Developed World

Japan is taking QE to new levels. They make the US Fed’s quantitative easing look almost laissez faire by comparison. Japan’s commitment to generating 2% inflation will come through an almost doubling of its monetary supply. The goal? To make Japanese companies more competitive in global markets through the devaluation of the Japanese yen, thereby stimulating growth and breaking their decades-long bout of deflation.

But Japan does not operate in a vacuum. Its actions will force other nations – think South Korea – to respond in kind. Samsung and Kia have made great strides over the past 10 years in the global marketplace. South Korea will not let Sony and Toyota compete on price without a fight. Which leads me directly into the second common theme discussed.

2. Currency Wars

The EU, the UK, and US are all continuing their easy-money policies. Mohamed El-Erian described the unfolding stress among the G20 nations as “currency tension.” Less polite investors would call this the beginning of a currency war, and on a scale never seen before. I don’t see this ending well.

It’s another compelling reason to own precious metals.

3. Precious Metals On Sale

The third common theme was the agreement that precious metals have been put on sale. Not surprisingly, there was no true consensus to explain the price volatility we’ve seen in the metals market over the past several weeks. So what did cause the dramatic price drop? A better question might be, “Will we ever know what caused the dramatic price drop?”; and I’m reasonably confident the answer to my last question is No. I like this analysis of JP Morgan’s explanation from the folks at Zero Hedge.

THE LAST COUPLE OF MONTHS IN REVIEW

Rather than rehash what you’ve undoubtedly heard in the past few weeks, let’s evaluate what happened after the price drop.

• Dealers large and small across North America ran out of inventory and had to wait days or weeks for their stocks to be replenished. The Hard Assets Alliance saw an unprecedented level of buying immediately after the price drop – and we were not alone. This phenomenal level of buying was matched the world over. Precious metal went on sale, and purchasers flocked to take advantage of the discount.
• The Chinese continue to increase their precious metals purchases. Joe Yasinski from Gold Bullion International shared an interesting statistic with me. This year, the Shanghai Gold Exchange has taken delivery of over 1,030 tonnes of gold – just shy of all the gold mined this year.
• Overseas demand for physical precious metal remains as robust as ever. And while premiums for gold coins in the US have not kept pace with premiums for silver coins, they shot up dramatically overseas. Friends in Asia reported premiums on gold Maple Leafs of 25% at local dealers.

ENQUIRING MINDS WANT TO KNOW

I’ve fielded numerous questions since the correction. I answer almost every question with a question – frustrating, I know, but necessary. The first question I ask all investors interested in precious metals is, “What are your investment goals?”

As a tool for traders, physical metal is not ideal. You are likely better served investing in an ETF. Speculation is a big contributor to price volatility. Large investors with leveraged positions are forced to redeem when their margin calls are triggered. Those of us in the business of selling physical metal are hopeful that the speculators have been chased out of the metals market with this latest correction.

Once you’ve determined that there is a place for physical precious metals in your portfolio, the next question you’ll likely ask is, “Is now the right time to buy?”

THE BOTTOM LINE FOR PRECIOUS METALS INVESTORS

The best way to invest in precious metals is to take advantage of price drops, average into your position, and don’t stress over the daily price. The financial experts at John Mauldin’s Strategic Investor Conference agree that precious metals have been put on sale. Could prices go lower from here? Of course; but remember, you are investing in precious metals to bring stability to an unstable world. Owning precious metals is an insurance policy for your wealth.

Grant Williams of Things that Make You Go Hmmm… may have said it best when he wrote, “I am a seller of gold. Just not yet – and certainly not anywhere close to this price.”

>> Receive the Smart Metals Action Kit for free

Does anyone really think that gold is unencumbered, unleased, and actually physically there?  Yes, I know…

a)   They would not lie to us, right?

b)   The official numbers must be true, right?

c)   They seem like trustworthy people, right?

d)   Why wouldn’t it be there?

Glad you asked that question.  Why wouldn’t it be there?  Gold is a bit like an “anti-dollar.”  The Federal Reserve creates new dollars by the trillions – dollars are their product.  Gold has been real money for 5,000 years world-wide.  Federal Reserve notes have been passed off as money for a few decades, and in that time they have lost most of their value as measured against commodities such as wheat, gasoline, and cigarettes.

It could have been worse!  Western central banks (officially) and governments sold a considerable sum of gold during the 1990s to help repress the price of gold and to slow the apparent decline in the value of paper money.  They also “leased” an unknown amount of gold to bullion banks who also sold that gold into the market.  The leases are still “on the books” so the central banks officially still own the gold, even though it is probably long gone – likely to China, Russia, India and the Middle East.

Yes, central banks and governments have motive, means and opportunity to suppress the price of gold.  They want to support their product (dollars, euros etc.) and to defeat the competition – gold.  If you were a central banker or treasury official who was inflating his currency and consequently reducing its purchasing power, wouldn’t you want to suppress the price of gold to delay recognition of your involvement in the devaluation process?

So why not just do an audit?  This is a simple question with a complex set of answers.  Here are a few.

a)   The US gold has not been audited in over 50 years.  This must seem strange to any thinking person but it appears unlikely to change.

b)   If the Treasury agrees to an audit and the gold is not there, the result will be much unpleasantness – possible indictments, damaged reputations, social unrest, chaos, disillusionment, and destroyed trust – and there is plenty of disillusionment and destroyed trust already.

c)   If the Treasury performs an audit and the audit claims the gold is actually there, will anyone believe the results of the audit?  Is it truly unencumbered – not sold, leased, or hypothecated?  Would we even believe an audit had been actually performed?

d)   If the Treasury acknowledges the lack of a credible audit for over 50 years, and then says “we don’t think it is necessary,” will anyone take them seriously?

e)   The Treasury might claim an audit would be too expensive, but the US government probably wastes the cost of an audit every few hours, so that explanation is likely to sound hollow and stupid.

Bottom line:  The whole subject of an audit is fraught with potential trouble for both the Treasury and the Fed.  The simple solution is to stonewall the audit question and “extend and pretend.”

The problem is that the questions just won’t die.  GATA has researched the subject thoroughly and suggests that much of the Treasury gold is probably gone.  Eric Sprott has examined the export numbers (official US government export data) and concluded that somehow the US exported about 4,500 tons of gold more than can reasonably be accounted for.

Germany asked for their gold back – a measly 300 tons – and was told it would take seven years to return their gold.  It the gold was physically in the vault and unencumbered, it should have taken a few weeks at most.  Seven years – really?  This must seem strange to any thinking person.

From Bill Holter:  “I would like to address the biggest (in my mind) conspiracy theory (fact) of all.  It has been “said” for nearly 60 years that the U.S. has 8,400 tons of gold left.  First off, there has been no audit done since 1956, not even Senators or Representatives (except for one time in the ’70′s for glance) have been allowed to actually see the gold.  “Trust us” is what the population has heard, “trust us” is what foreigners are told…trust us, trust us, trust us.  The problem is that so much anecdotal evidence has been dug up by GATA and others.  Eric Sprott just last month looked at the U.S. gold export numbers going back 10 years or more and found that 4,500 tons OVER AND ABOVE what are reported as production has been shipped out.  Where did that gold come from?  When looked at with your 3rd grade mind in gear, there is no way that the gold is really there.

… Forget about all of the past official memos uncovered.  Forget all of the evidence that GATA has uncovered over the last 15 years.  Forget that Germany asked for their gold and were told “wait 7 years.”  Forget that gold and silver prices have not acted like any other market since the mid 90’s and those prices have now crashed 3 times in the face of massive demand.  Forget that 2 of the smash downs occurred WHILE the CFTC was supposedly “investigating” the silver market.  Forget that 40% of the world’s total gold production was sold in reckless fashion in less than 12 trading hours (who would, could, do this?)  FORGET IT ALL!  …trust us.  …  All of this “conspiracy stuff” when put together rather than separately makes sense.”

I don’t know how much of the US Treasury gold remains, but I have two (only slightly serious) suggestions:

a)   A very large number of readers on the www.deviantinvestor.com site have voted over the past several months regarding what % of the gold they think remains in the US Treasury.  The choices were all of it, most of it (>75%), about half (40% to 75%), some (20% – 40%) or very little (<20%).  Readers clearly do not believe the official story – about 60% believe very little remains and another 21% believe less than 40% remains.  Only 3% think it is all there.  A weighted average suggests that the voters on this site believe approximately 20% of the gold physically remains and is unencumbered.

b)  Nixon temporarily closed the “gold window” almost 42 years ago.  Since that time, the official CPI shows that the dollar has lost about 83% of its value.  For simplicity, let’s assume that 17% of the dollar’s purchasing power remains, and assume that 17% of the gold remains.

We don’t know how much of the gold remains.  Does it really matter?

Do any of the following matter?

a)   Government promises

b)   Central bank promises

c)   Integrity of politicians

d)   Integrity of hundreds of present and past Treasury employees

e)   Backing for $Trillions in debt besides “full faith and credit”

f)    A possible solution to the massive debt problem of the US government.  If the gold is still there, value it at some large number, say $15,000 – $30,000 per ounce, and then back the dollar with gold.  This is not my idea – some very intelligent people have advocated it.  If the gold is mostly gone, this option is less likely.

Summary:

• Fort Knox:  Per the voting and dollar devaluation “method” – assume about 20% of the official gold remains – physically in the vaults, unencumbered, not hypothecated or leased to bullion banks.  Yes, I know, this is not defensible, scientific, statistically significant, or verifiable.  But it sounds about right to me.
• Denver:  Assume about the same
• West Point:  Assume about the same
• Federal Reserve Bank of New York:  Ask the Germans!  Assume very little remains.

How much physical gold do you have?  How much do you want when you contemplate nearly $17,000,000,000,000 in official US government debt, another $100 – $200 Trillion in unfunded liabilities, and nothing backing that unbelievable amount of debt except the “full faith and credit” of what is clearly a government that won’t balance a budget and must resort to printing dollars to pay its bills?

How much gold do you have stored in a secure (off-site) facility? Learn more about physical gold outside the banking system.

GE Christenson  |  The Deviant Investor

The only limits on this process of money creation are the banker’s instinctive fear of making a bad loan that will lead to a loss, and the fraction of deposits held as liquidity against the possibility that depositors suddenly want their money back – hence the term “fractional reserve banking”.

The author links that with credit bubbles and banking crises. He points out how money is being destroyed and the money supply contracts in such situations.

It is at this stage of the credit cycle that the process of money creation goes violently into reverse. As the bank shrinks its balance sheet by calling in loans, it destroys deposits with the same vigour it created them on the way up.

The most remarkable passage is the one related to the 100% reserve banking. The author points out that a 100% reserve system has no risks of bank runs, no credit cycle and too-big-to-fail problems, and a dramatic reduction of both public and private debt.

In the UK a young organisation called Positive Money has been propagating the reform of the monetary system. The focus of the Positive Money reform proposal is to prevent banks from creating money in the process of making loans, while returning the power to create money to the state. A detailed explanation of the Positive Money reforms is available in the book MODERNISING MONEY.

Positive Money’s founder, Ben Dyson, was invited to speak during a recent Conference. The video below was recorded during that event. In it, Dyson explains that – under the current monetary system – banks create money when they make loans. The economy can only grow by adding more money to the system. Money is based on debt. Reducing the debt results in less money in the economy. The only way to break out of this is dichotomy is to have the power to create money taken away from the (commercial) banks and return it to the central bank. That’s how money can be created in the public interest and put into the economy through government spending. That money can be used in the real economy to pay down the existing debt and get the economy going again.

Readers are adviced to support the activities of Positive Money by subscribing to their newsletter.

At the same time people in Argentina are suffering from new capital controls. Casey Research reported this week how Argentines are doing everything they can to circumvent a new dollar clamp which is imposed by the Uruguayan government. They take risks traveling to Uruguay to extract US dollars from their peso-based Argentine credit cards. Casey writes “the day-tripper “tourism” has become so extreme that Cristina Fernández has passed a new credit-card limit to Argentines. An Argentine overseas now may extract only US $800 per month. More pointedly, if the destination is a neighbouring country (read: Uruguay), the limit is $100 every three months.”

Argentina provides us with a very useful lesson. Over the decades, its politicians have repeatedly collapsed the economy through the classic progression of governmental overspending/creation of massive debt/dramatic inflation/currency controls. Historically, this progression has always led to an eventual collapse of the economic system (wherever and whenever it has occurred, not just in Argentina). We can therefore observe the developments as they occur in Argentina and project out as to what may be on the way in the First World.

At this point, anyone whose primary address is in a First World country might wish to ask the question, “Is there a dollar clamp in my future? Will my government soon be at the stage that my national currency will be inflating dramatically; and if I choose to divest myself of it, shall I find that I am unable to do so, as a result of hastily implemented government controls?” The answer is unequivocally “Yes.” Governments are in the habit of claiming that their first priority is the safety and well-being of their citizens. However, when a citizen of any country chooses to exit from the relationship, either physically or monetarily, governments have a nasty habit of turning, suddenly and forcefully, vindictive.

That’s how an economic system works; profits can only be made because someone is bearing losses. It’s a zero sum game.

Argentina is a prime example of currency depreciation and capital controls. The sad thing is that their citizens are suffering from that disease for a decade already. In 2001, Argentina’s economy was in deep trouble, suffering from high unemployment, high debt, and a recession. Literally in one day life became a hell. On December 2nd, the bankrupt Argentian government imposed measures freezing everyone’s bank accounts. Can you imagine how it is to have access to your bank account, and the next day being completely cut off?

Within a matter of days, people were out in the streets doing battle with the police. The government soon defaulted on its debt, and the currency went into freefall. What follows is a testimonial from an Argentinian student who was living in the US at that moment. It was reported by SovereignMan this week.

Everything became scarce. The electricity went out all the time. Even food on the grocery store shelves ran low. You would eat what you had available at home.

And in a way, food became a medium of exchange. Within just a few days, people went from having confidence in their currency to not trusting it at all. No one wanted to accept paper money anymore, especially for something as valuable as food. And if they did, it would be at 2-3 times the normal price. With all of this unfolding, I flew back down to see my family.

My father called me and said he had stashed his life savings in US dollar cash in a bank safety deposit box. He needed my help getting it out. When we arrived to the bank, there were thousands of people in the streets rioting. The police were there in paramilitary gear. It was so tense, we had to bribe someone just to get inside the bank. Fortunately we were able to get access to the box. But… we had to walk 3 or 4 blocks to the car. It was half panic, half adrenaline rush walking past an angry crowd with my father’s life savings shoved down our pants.

Looking back, this was crazy. But at the time, it was the only way. Then came the even harder part– getting it out of the country. We had friends who would take rowboats full of cash to neighboring Uruguay. But this was incredibly risky.

At the time, the only legitimate way to get money out of the country was buying ADRs (Argentine public companies listed on the New York Stock Exchange). And the only reason we were even able to do this was because we had the contacts. But we got killed on the fees. The commission alone was 20%, and then, of course, the stocks we purchased took a dive.

So my father ended up losing about half of his savings trying to get it out of the country at the wrong time.

What’s funny is that we eventually ended up suing the government. They had destroyed everyone’s life savings, and even seized pensions as well. The government dragged out the legal process for years, almost a decade. They were hoping that all the retirees who were suing them would simply die off, and the problem would go away. Eventually, we won the case (along with thousands of others). But the judge gave the government a ‘suspended sentence’. So, no penalty.

He continued describing how life is to without money.

The best way I can describe it is despair. And this is really the worst emotion you can have. Because when you’re in a state of despair, you’re hopeless. It’s a terrible position to be in. Life becomes hell because you do not know whether you are going to be able to put food on the table the next day.

And in such a state of despair, you’re not in a position to make good decisions. It’s all about survival.

Of course, we kept thinking, “why didn’t we see this coming? Why didn’t we do something sooner?”

If only we had moved some money out of the country before, or taken steps to safeguard his pension, life would have turned out much differently.

It’s like that old saying– better to be a year (or decade) too early than a day too late. Because one should never underestimate the speed with which things can unravel.

Why are we sharing this with our readers? Because we fundamentally believe that this issue (occurring in one of the emerging countries in the world) could equally occur in a developed country. Are we sure? No, but it is becoming very likely given the economic and monetary trends. Our sytem is flawed. An unprecedented number of financial scandals is the proof that the system has reached a tipping point. Nobody knows how this will end, but chances are that it will end badly. Think of the Argentinian story; that’s how life could look like during such a period. Holding physical precious metals outside the banking system could literally save you in such a situation.

We wrote about this subject a while ago in The Truth About Gold Price Predictions & Market Forecasts. In it, we stated that less than half the forecasts are correct and that a lot of writers have marketing and PR objectives. We also adviced to work with scenarios and probabilities, rather than single future outcomes.

In this article, John Mauldin looks in a critical way to the (very) positive economic forecasts of mainstream economists. He points to the very low statistical probability that we will not have a recession in the US for the rest of the decade. Presumably, we all agree with that statement. Yet not one budget projection assumes a slowdown, let alone a recession, which would absolutely devastate any budget as far as deficits are concerned.

His research shows how bad economists really are at forecasting. He points to the core problem which is that economists take predictions so seriously, and so do politicians and investors. Source: MauldinEconomics.com

Why is this information important, and are we sharing it on GoldSilverWorlds.com? Because we believe everyone should do his own research and forecasting, based on several sources. That way you avoid ending up in a situation where your “hoped for” scenario appeared to so different than reality. That applies to precious metals as well. One of the learnings of this article is that you should be extremely careful when trusting figures from the government, for sure when it is a forecast. Put in another way: listen to forecasts of economists to know what probably will NOT happen.

Economists Are Still Clueless

If you’ve suspected all along that economists are useless at the job of forecasting, you would be right. Dozens of studies show that economists are completely incapable of forecasting recessions. But forget forecasting. What’s worse is that they fail miserably even at understanding where the economy is today. In one of the broadest studies of whether economists can predict recessions and financial crises, Prakash Loungani of the International Monetary Fund wrote very starkly, “The record of failure to predict recessions is virtually unblemished.” He found this to be true not only for official organizations like the IMF, the World Bank, and government agencies but for private forecasters as well. They’re all terrible. Loungani concluded that the “inability to predict recessions is a ubiquitous feature of growth forecasts.” Most economists were not even able to recognize recessions once they had already started.

In plain English, economists don’t have a clue about the future.

If you think the Fed or government agencies know what is going on with the economy, you’re mistaken. Government economists are about as useful as a screen door on a submarine. Their mistakes and failures are so spectacular you couldn’t make them up if you tried. Yet now, in a post-crisis world, we trust the same people to know where the economy is, where it is going, and how to manage monetary policy.

Central banks say they will know the right time to end the current policies of quantitative easing and financial repression and when to shrink the bloated monetary base. However, given their record at forecasting, how will they know? The Federal Reserve not only failed to predict the recessions of 1990, 2001, and 2007, it also didn’t even recognize them after they had already begun. Financial crises frequently happen because central banks cut interest rates too late and hike rates too soon.

Trusting central bankers now is a big bet that (1) they’ll know what to do, (2) they’ll know when to do it. Sadly, given the track record, that is not a good wager. Unfortunately, the problem is not that economists are simply bad at what they do; it’s that they’re really, really bad. They’re so bad that it cannot even be a matter of chance. The statistician Nate Silver points this out in his book The Signal and the Noise:

Indeed, economists have for a long time been much too confident in their ability to predict the direction of the economy. If economists’ forecasts were as accurate as they claimed, we’d expect the actual value for GDP to fall within their prediction interval nine times out of ten, or all but about twice in eighteen years.

In fact, the actual value for GDP fell outside the economists’ prediction interval six times in eighteen years, or fully one-third of the time. Another study, which ran these numbers back to the beginning of the Survey of Professional Forecasters in 1968, found even worse results: the actual figure for GDP fell outside the prediction interval almost halfthe time. There is almost no chance that economists have simply been unlucky; they fundamentally overstate the reliability of their predictions.

So economists are not only generally wrong, they’re overly confident in their bad forecasts.

If economists were merely wrong at betting on horse races, their failure would be amusing. But central bankers have the power to create money, change interest rates, and affect our lives in multiple ways – and they don’t have a clue.

Despite this, they remain perennially confident. There’s no overestimating the hubris of central bankers. On 60 Minutes in December, 2010, Scott Pelley interviewed Fed Chairman Ben Bernanke and asked him whether he would be able to do the right thing at the right time. The exchange was startling (at least to us):

Pelley: Can you act quickly enough to prevent inflation from getting out of control?

Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.

Pelley: You have what degree of confidence in your ability to control this?

Bernanke: One hundred percent.

There you have it. Bernanke was not 95% confident, he was not 99% confident – no, he had zero doubts about his ability to know what is going on in the economy and what to do about it. We would love to have that sort of certainty about anything in life.

We’re not just picking on Bernanke; we’re picking on all central bankers who think they’re infallible. The Bank of England has had by far the largest QE program relative to the size of its economy (though the Bank of Japan is about to show it a thing or two). It also has the worst forecasting track record of any bank, and the worst record on inflation. Sir Mervyn King, the head of the Bank of England, was asked if it would be difficult to withdraw QE. He very confidently replied, “I have absolutely no doubt that when the time comes for us to reduce the size of our balance sheet that we’ll find that a whole lot easier than we did when expanding it.”  (Are central bankers just naturally more overconfident than regular human beings, or are they smoking some powerful stuff at their meetings?)

Forecasting unemployment and recessions

When most people think of economic forecasts, they almost always think of recessions, while economists think of forecasting growth rates or interest rates. But the average man in the street only wants to know, “Will we be in a recession soon?” And if the economy is actually in a recession he wants to know, “When will it end?” The reason he cares is that he knows recessions mean job cuts and firings.

Recessions lead to falls in GDP and spikes in the unemployment rate:

Unfortunately, economists are of little use to the man in the street. If you look at the history of the last three recessions in the United States, you will see that the inability of economists and central bankers to understand the state of the economy was so bad that you might be tempted to say they couldn’t find their derrieres with both hands.

Economists have yet to corrrectly call a recession:

Let’s remind ourselves what a recession is and how economists decide that one has started. A recession is a downturn in economic activity. Normally, a recession means unemployment goes up, GDP contracts, stock prices fall, and the economy weakens. The lofty body that decides when a recession has started or ended is the Business Cycle Dating Committee of the National Bureau of Economic Research. It is packed with eminent economists – all extremely smart people. Unfortunately, their pronouncements are completely unusable in real time. Their dating of recessions is authoritative and more or less accurate, but this exercise in hindsight comes long after a recession has started or ended.

The Federal Reserve and private economists also missed the onset of the last three US recessions – even after they had started. Let’s look quickly at each one.

• Starting with the 1990-91 recession, let’s see what the head of the Federal Reserve – the man who is charged with running American monetary policy – was saying at the time. That recession started in August 1990, but one month before it began Alan Greenspan said, “In the very near term there’s little evidence that I can see to suggest the economy is tilting over [into recession].” The following month – the month the recession actually started – he continued on the same theme: “… those who argue that we are already in a recession I think are reasonably certain to be wrong.” He was just as clueless two months later, in October 1990, when he persisted, “… the economy has not yet slipped into recession.” It was only near the end of the recession that Greenspan came around to accepting that it had begun.
• The Federal Reserve did no better in the dotcom bust. Let’s look at the facts. The recession started in March 2001. The tech-heavy NASDAQ Index had already fallen 50% in a full-scale bust. Even so, Chairman Greenspan declared before the Economic Club of New York on May 24, 2001, “Moreover, with all our concerns about the next several quarters, there is still, in my judgment, ample evidence that we are experiencing only a pause in the investment in a broad set of innovations that has elevated the underlying growth rate in productivity to a level significantly above that of the two decades preceding 1995.”
• Charles Morris, a retired banker and financial writer, looked at a decade’s worth of forecasts by the professionals at the White House’s Council of Economic Advisers, the crème de la crème of academic economists. In 2000, the council raised their growth estimates just in time for the dot-com bust and the recession of 2001-02. And in a survey in March 2001, 95% of American economists said there would not be a recession. (John forecast it in September 2000 in this letter). The recession had already started that March, and the signs of contraction were evident. Industrial production had already been contracting for five months.

You would have thought that failure to forecast two recessions in a row might have sharpened the wits of the Federal Reserve, the Council of Economic Advisers, and private economists. Maybe they would have tried to improve their methods or figured out why they had failed so miserably. You would be wrong. Because along came the Great Recession, and once again they completely missed the boat.

Revenge of the Minsky moment

Let’s look at what the Fed was doing as the world was about to go up in flames in 2008. Recently, complete minutes of the Fed’s October 2007 meeting were released. Keep in mind that the recession started two months later, in December. The word recession does not appear once in the entire transcript.

It gets worse. The month the recession started, the Federal Reserve was all optimistic laughter. Dr. David Stockton, the Federal Reserve chief economist, presented his views to Chairman Bernanke and the meeting of the Federal Open Market Committee on December 11, 2007. When you read the following quote, remember that, at the time, the Fed was already providing ample liquidity to the shadow banking system after dozens of subprime lenders had gone bust in the spring, the British bank Northern Rock had been nationalized and had spooked the European banking system, dozens of money market funds had been shut due to toxic assets, credit spreads were widening, stock prices had started to fall, and almost all the classic signs of a recession were evident. These included an inverted yield curve, which had received the casual attention of New York Fed economists even as it screamed recession. (John had pointed to it numerous times here in Thoughts from the Frontline.)

Read these words of the Fed’s Chief Economist and weep. You can’t make this stuff up:

“Overall, our forecast could admittedly be read as still painting a pretty benign picture: Despite all the financial turmoil, the economy avoids recession and, even with steeply higher prices for food and energy and a lower exchange value of the dollar, we achieve some modest edging-off of inflation. So I tried not to take it personally when I received a notice the other day that the Board had approved more frequent drug-testing for certain members of the senior staff, myself included.”

I can assure you, however, that the staff is not going to fall back on the increasingly popular celebrity excuse that we were under the influence of mind-altering chemicals and thus should not be held responsible for this forecast. No, we came up with this projection unimpaired and on nothing stronger than many late nights of diet Pepsi and vending-machine Twinkies.

All other government economists were equally awful. The President’s Council of Economic Advisers’ 2008 forecast saw positive growth for the first half of the year and foresaw a strong recovery in the second half.

Unfortunately, private-sector economists didn’t do much better. With very few exceptions, they failed to foresee the financial and economic meltdown of 2008. Economists polled in the Survey of Professional Forecasters also failed to see a recession developing. They forecasted a slightly below -average growth rate of 2.4 percent for 2008, and they thought there was almost no chance of a recession as severe as the one that actually unfolded. In December 2007 a Businessweek survey showed that every single one of 54 economists surveyed actually predicted that the US economy would avoid a recession in 2008. The experts were unanimous that unemployment wouldn’t be a problem, leading to the consensus conclusion that 2008 would be a good year.

As Nate Silver has pointed out, the worst thing about the bad predictions isn’t that they were awful; it’s that the economists in question were so confident in them. Now, this was a very bad forecast: far from growing by 2.4%, GDP actually shrank by 3.3% once the financial crisis hit. Yet these economists assigned only a 3% chance to the economy’s shrinking by any margin at all over the whole of 2008, and they gave it only about a 1-in-500 chance of shrinking by 2 percent, as it did.

It is one thing to be wrong; it is quite another to be consistently and confidently and egregiously wrong.

As the global financial meltdown unfolded, Chairman Bernanke, too, continued to believe that the US would avoid a recession. Mind you, the recession had started in December 2007, yet in January ’08 Bernanke told the press, “The Federal Reserve is not currently forecasting a recession.” Even after banks like Bear Stearns needed to be rescued, Bernanke continued seeing rainbows and candy-colored elves ahead for the US economy. He declared on June 9, 2008, “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.” At that stage, the economy had already been in a recession for the past six months!

Why do people listen to economists anymore? Scott Armstrong, an expert on forecasting at the Wharton School of the University of Pennsylvania, has developed a “seer-sucker” theory: “No matter how much evidence exists that seers do not exist, suckers will pay for the existence of seers.” Even if experts fail repeatedly in their predictions, most people prefer to have seers, prophets, and gurus tell them something – anything at all – about the future.

So, we have cataloged the incredible failures of economists to predict the future or even to understand the present. Now think of the vast powers Fed economists have to print money and move interest rates. When you contemplate the consummate skill that would actually be required to manage post-Great Recession policies, you realize they’re really just flying blind. If that reality doesn’t scare the living daylights out of you, you’re not paying attention. The longer the Federal Reserve sticks to its current policy, the more likely that policy will end in tears. Call it the Revenge of the Minsky Moment.

Already 6 months ago the premium subscribers of Amanita Market Forecasting were warned of gold. Also, the December 4, 2012 free Amanita newsletter (written in late November with gold near $1,750) already redflagged gold, by quoting: “The gold bugs don’t like to hear that but without doubt the precious metals are an ugly investment *today*…” I made this statement with – or in spite of? – my background of being perhaps the only forecaster who called the beginning of the gold market. In 2000 a multi-year bull market was projected to begin either in early April or May 2001 – as a matter of fact, it started on April 2, 2001.

In December 2012 this super-bearish gold call was corroborated in several interviews with European print media (see here).

On January 29, 2013 with gold trading just short of $1,700 I wrote in the protected premium area (2-5 updates a month on average): “While my assessment for the precious metals sector has deteriorated a lot the past months, my outlook now suggests the ultimate nightmare. […] the ‘trapdoor to hell’ is open & $500-$1,000 is not just realistic but likely. […] Maybe I am now one of the biggest gold bears on the planet, which is a huge caesura.“ This unprecedented warning was issued just in time, as the plunge started in February…

Since mid-2012 we had exactly 2 tactical LONG signals: the first was exited on the day of the bull market high 10/5/12 (all-time high in euro terms), the other at the retest high before the crash.

The Amanita gold signals beat buy-and-hold by 14.0% in 2012, which was enough to be ranked #2 by the rating agency „Timer Digest“ which monitors the leading market timers around the globe.

For many years I have stressed the paramount importance of the August 2013 timeline. This starts the 40 quarters of testing & purification of mankind until the summer of 2023: end times in the narrow sense of the word (in a wider sense the end times already started in 1972). Since 2012 the late March 2013 timeline has been discussed as a precursor for August 2013. The Cyprus bank robbery by the illuminati in late March indeed turned over a new leaf: for the first time since WW2 the industrial states have engaged in direct dispossession, instead of indirect confiscation through fiat money inflation. Another effect of this timeline was the coldest March (actually the entire beginning of the year) in large parts of Europe since records began.

What is the impact of the end times on the financial markets? They will change more in the coming years than in the past 60+ years in total. That’s why the time needed to participate in the financial markets will explode: while in the past 60+ years maybe 2- 3 hours were enough for hobby speculations, be prepared for a half-time employment in the future! That’s why everyone not being a financial professional should make a big decision in 2013: either go fully into the markets – or say good-bye to them altogether. I like the ship metaphor to demonstrate that: with fine weather (= the past 60+ years, in spite of dark clouds since 2008) you can set sail with a cockleshell, but when the sea is heavy (= the coming 10 years) you can’t go without the best ship & best crew you can find.

The coming decade marks the biggest investment plight in 5,000 years. From 2013 on you only have the ‘choice’ between bad, ugly & preposterously ugly investments. Satisfying or even good investment choices will no longer exist, let alone a ‘safe haven’. That’s why from August 2013 on you should only trade the best financial instruments, especially futures & FOREX. Holders of retail instruments (warrants, but also ETFs/ ETNs, certificates) could face a total loss, as already in 2008 with securities issued by Lehman.

As the latest and greatest scandal, act of tyranny, unfolds before the United States citizenry, we have to look back and ask why. Why would the government need to collect every stroke of the keyboard, every phone call made and every website visited? If the government isn’t out of control and attempting something that’s very sinister in nature, then why would this information be necessary? What is the point of collecting all this information on each and every citizen? I understand the NFL pre-season is about to begin and most folks really can’t be bothered with such trivial questions of politics and liberty, but what if the NFL was deemed too violent to be broadcast into your living room and you could only enjoy a game at centralized locations with the other people that wanted to watch a game?

This question merely opens the door to a whole host of other questions. If the government is not attempting to control every aspect of our lives then why would cameras need to be mounted at most of the major intersections on our roadways? What is the purpose of collecting photos of vehicles that are passing through this intersection or that intersection? Who is monitoring these cameras? What are they doing with the information? Why is it important? You probably passed several this morning on your way to work and didn’t really notice as they have become part of the landscape.

Over the past two decades we have seen more and more cameras popping up in locations that seem very benign on the surface. These cameras can pop-up at will and in any location the police deem necessary. This is, of course, done under the false guise of “protecting the citizenry from terrorism”. You are more likely to be killed by lightening or an auto accident than you are by an act of terrorism. I personally knew several people that are no longer living that were killed in auto accidents. I do not know one person whose life has been affected by terrorism, much less ended. Yes, the disgusting acts of 9/11, the Atlanta Olympics, the Boston Marathon and Oklahoma City were very tragic and I am sorry for the families that lost loved ones in these crimes. The question is did it affect your life directly? Did any of these criminal acts, especially in light of the current scandals, ever leave you wanting or questioning exactly how these criminal acts could have manifested? Would another camera have helped in any of these situations? Do you have a camera built into your phone? What about a microphone for use hands-free? I have often wondered why a phone would all the sudden become, not only a phone, but a camera. It always seemed a little odd, but now we know. According the reports that are coming out, the camera in your phone has played a very integral part in information gathering. Now, not only has the government been listening to and recording your conversations, they have been watching where these calls have originated. Why is that important? No, I do not have anything to hide, however, I do have my privacy to protect that is guaranteed under the 4th Amendment of the Constitution. I do have conversations that are private. I would like to believe that where I go, what I discuss with another person and the scenery I am enjoying is between me, the person involved in the conversation and our Creator. Alas, that is not the case and apparently has not been the case for almost three decades! Main Core was developed and implemented in the 1980’s and is the backbone of the new PRISM information gathering nightmare.

This brings up another question. Why is the federal government buying so many hollow-point bullets and fully-automatic assault rifles? Over the course of the past eighteen months the Department of Homeland Security (DHS) has ordered roughly 2 billion rounds of hollow-point bullets. For what purpose? The DHS is an agency that was put into place to combat “terrorism”. The DHS is supposed to be protecting the citizenry of the United States. The volume of ammunition that has been ordered is the equivalent of arming the United States Armed Services for a 35 year war!

When the Boston Bombing occurred the city of Boston enacted Martial Law; it was not called Martial Law. The Governor, Deval Patrick, declared (another word for “ordered”) the citizens of Watertown, Waltham, Newton, Belmont, Cambridge and Allston Brighton to “shelter-in-place” (another word for martial law) and proceeded to call in the militarized police. The “police” began going door-to-door conducting warrantless searches of private citizens property. The “police” began removing people from their homes. This was unprecedented in the United States. Was “shelter-in-place” declared after 911? Was a militarized police force sent in to conduct warrantless searches? Were any of the same tyrannical tactics used in Boston enacted in the city of New York following our country coming under direct attack from a foreign enemy? Yes, we know more today regarding “terrorism” than we did in 2001. Yes, we have a better understanding that the United States is no longer immune from “terrorist” attacks. However, what was our response to the 911 attacks, regarding the CITIZENS of the United States? Were we immediately all considered to be a suspect? Were we, the citizens, subjected to “suspicion” of being the terrorist? Was the military going door-to-door and ordering people out of their homes and conducting searches? Remember we were told this was an attack by a foreign enemy. What happened on 911 was coming at us, you and me, at break-neck speed. We did not have time to really think about what was happening, who was doing what and how everything unfolded. Although, we were not so blind as to not see if something was out of balance with our military, local police and local government officials. According to page 4 as published by the Center for Disease Control (CDC) terrorism does not even make the list of causes of death in the United States of America in 2011, the latest year information is available.

Why was every home, ordered by Congress, to be required to have cable or satellite television? Why would this be important and who benefits from this legislation? After the Telecommunications Act of 1996 was passed television went from a free service to a paid service. No longer would television be delivered, for free, to our homes or businesses. We would have to pay for the privilege of having a monitor in our homes. What comes through the cable that enters into our homes? What information is gathered as our television is turned on or even in an idle, off stage? Before last week this question would have come straight from the “Tin-Foil Hat Club”. Not so any more. With the information presented above you should be asking this question. You should be asking why the criminal federal government is spending $85 billion annually to spy on all of us. You should be upset. Please get upset and please begin asking questions. The evidence is no longer coming from the “internet”, it is coming from concerned citizens who have been asking questions for several decades while you have been dreaming of winning the lottery or watching the latest episode of CSI. Please join us in the “Conspiracy Nut Land” known as the internet and begin gathering real information before the government takes it all away.

That pretty much sums up what has been proposed and “re-proposed” as to the lofty heights that both gold and silver will/may/should attain. For many, the anticipated higher prices should have already been attained. In fact, over the past several months, many opinions have been “re-proposed” as often as central bankers have re-hypothecated their gold holdings. With all the known information: strong demand, [for the physical], inability to deliver the contracted physical, etc, gold and silver remain at recent lows. Hence, the value of opinions.

While opinions can never be asserted with “complete certainty,” there is any absolute certainty about them: they will never go away. Who does not have one? A brief editorial on the above follows, followed by the charts.

Some say their eyes glaze over when confronted with charts. However, there is a high degree of logic within them, so for those with glazed-eye tendencies, maybe the appeal to your logic will help, considerably, when reading our comments on/about them.

We look for certainty in the charts, for they are absolute and the final word at the end of day, week, month, etc. There can be no dispute over a bar’s high, low and close, plus the volume, for whatever the time period under consideration. There can be differences of opinion over their interpretation, but establishing a fixed set of parameters can mitigate most any potential dispute.

Little can be added to the ongoing developments, from a fundamental perspective, that has not already been painfully scrutinized and presented. When a change does occur, it always, [or almost always, to stave off picky detractors] shows up in the charts in some form of a change in price/volume behavior.

In defense of charts, and for clarity of purpose, they present nothing more than up to the moment past tense facts in the form of price and volume. They are not predictive in value, contrary to many misconceptions, but they can be helpful to read the market’s intent. When one can get a fix on the intent, what is then required is confirmation in order to then act upon the developing information.

If one forms an opinion, based upon a reading of a chart’s developing market activity, the opinion can be proven wrong, with the blame being assessed against the “faulty” chart, surely not one’s opinion. Alternatively, if one makes a reasoned determination about a market’s intent and then waits for confirmation to validate the intent, the odds of being successful increase dramatically.

For many who played the futures market, expecting to score big time on the anticipated sharp increase in gold/silver prices, the losses have been huge over the past 20 months. Opinions can be costly. However, if one had waited for confirmation that prices were in a clear up trend, as opposed the protracted trading range and now down trend, losses would not have occurred or would have been relatively smaller.

Without rules for engaging the markets, opinions do not matter, and blaming charts for the wrong reasons is a refusal to accept responsibility for not using confirming rules. No one can escape from forming an opinion. The difference comes in how it is executed in the marketplace. An “unconfirmed” opinion can be dangerous. Even a confirmed one can still prove wrong, but the circumstances are totally different. To the charts.

We can assert the trend is down because of lower lows and lower highs. June is now just half-way through the month, so not much credence can be placed on the abbreviated information. What can be seen, at this point, is a very small range, so far, following a small range in May that closed poorly.

What we know for certain is that the downtrend has not yet changed, so lower prices can be expected. Whether lower prices develop cannot be known, but it would be a safe bet to not buy into a declining market. We may hold an opinion that gold will ultimately be considerably higher in value, but there is no confirmation that price has begun to rally.

We have repeatedly advocated buying, and personally holding physical gold, but for a different stated purpose, as a measure of insurance and the potential for creating wealth, based upon past history.

We have stated that wide range bars with closes in the middle tend to contain prices for some time, moving forward. That is an assessment based upon fact from proven market behavior. [See Markets Provide Us The Best Information, see first 3 gold charts, as examples].

There is insufficient market activity from which to draw a conclusion, at this date. There will be some kind of developing market activity that will alert us to a potential change, and even that will have to be confirmed by subsequent market behavior.

Can this be stopping activity from which price will turn around, or is it a temporary resting area before price resumes the trend lower? We do not know. In fact, no one knows. What we do know is that it does not matter. All we, or anyone, need do is wait for the market to confirm its [advertised] intent, and then follow the market. Too many try to lead the market, based on [ego] opinion[s].

The daily confirms the weekly and monthly, at least in that the[paper] futures market is not going up.  There we see the power of a wide range bar containing subsequent price activity, and the last 18 TDs, [Trading Days] show how weak the rally attempts have been.

The chart “story” remains the same:  the price of gold is not going up, for now, no matter whose “opinion” you hear/read.

Silver is a bit more interesting, as we suggested last week.  Past swing highs can often act as support, and how price reacts to the potential support factor will determine if the high will hold.  Right now, the April 2008 swing high has slowed, if not stopped, the decline.

Confirmation of the “opinion” comes from the position of the close 3 months [bars] ago. It was in the middle of the range, telling us buyers were present at the lows, [an example of the logic mentioned earlier], and the following 2 bars have also held.  In addition, we are seeing a clustering of closes.  What that means is a balance between the forces of supply and demand.  From balance comes imbalance, so at some point, we can expect directional
movement, up or down, from this area.

The obvious question is posed on the chart:  “Where are the sellers?”

Silver did not hold the wide range down bar in April, as gold did, but in the process of breaking and going lower, it has not gone much lower.  The momentum has stopped, and we see that in how some of the bars have formed, [based on factual observations].  More developing price/volume activity is needed to determine the market’s intent.  For sure, the paper market is not headed higher, at this juncture.

We said silver was more interesting. The two failed probe lower bars are important pieces of information. They are a demonstrated form of buyers supporting the market. Will it hold is the question? [Will that observation be confirmed?]

Additional information helped to give added confirmation to what we posed last week, will it hold? The past 5 trading days say yes, at least for now. That could change next week, with additional information, but next week has not yet happened, so one can only base a decision on what is.

In the previous week and now with last week added, we are seeing a slowing of the downward momentum, [remember the monthly swing high potential support]. Is it enough to stop the decline? It is a question many would like to know, but not important to know, because the market will provide us with confirming market behavior that will then put us in a position to possibly take a position.

If this happens, Then do that. Just like not putting the cart before the horse, one does not “do that” before the If.

What we know for certain, based upon facts presented in the charts as derived from the market, the best source of all, is not to be buying the paper futures market. We covered some of this approach in a different market, the S&P, if anyone wants to learn/read more on the topic of learning to be more successful in trading markets. [See S & P - Trend, Facts, Rules = Successful Trading].

Our subscribers have made fortunes trading gold stocks over the past decade.  Between November 2000 and September 2011, the flagship HUI gold-stock index rocketed up an astounding 1664%!  This dwarfed gold’s 603% gain over that same span, and the general stock markets as represented by the mighty S&P 500 actuallylost 14%!  Gold stocks were almost certainly the past decade’s best-performing sector.

Though their secular bull has truly been glorious, it’s been far from an easy ride.  The gold miners have always been a very volatile sector, with massive swings that can persist longer than anyone expects.  I’ve seen them loved near major highs and loathed near major lows.  But the visceral antipathy towards them these days is something special.  It’s the worst I’ve ever seen, even exceeding that in 2008’s stock panic.

It’s not hard to understand why.  Gold stocks as a sector have not made new highs since September 2011, a couple weeks after gold’s last new highs.  They corrected with gold and were stuck in a high consolidation until the end of 2012.  And then the bottom fell out this year.  At worst in May, the HUI had plummeted a gut-wrenching 44.6% year-to-date!  This was driven by gold’s parallel and unprecedented 18.8% selloff.

Gold stocks were long overdue to surge as 2013 dawned, and are radically more bullish now after 2013’s gold debacle.  A perfect storm of low-probability events hammered gold and destroyed investor interest in the gold miners.  Melting-up general stock markets seduced stock traders into dumping GLD gold-ETF shares en masse, flooding the global markets with far more gold supply than could quickly be absorbed.

This wildly unprecedented extreme GLD liquidation is either ending or over, as I explained in depth in our newmonthly newsletter.  So the fierce gold headwinds sparked by levitating stock markets are already abating.  And as gold rebounds dramatically in its new upleg, gold stocks are going to catch a monster bid.  They are so universally despised that not much buying at all will catapult them dramatically higher.

Unfortunately a lot of investors, including me, have been burned trying to game the long-overdue gold-stock bottom earlier this year.  But getting stung by ultra-low-probability events shouldn’t discourage contrarians.  If I’m playing poker, and I draw four of a kind, I’m going to bet huge.  It’s a fantastic hand with 4,200-to-1 odds.  In nearly every situation, that high-probability-for-success hand will easily win big.

But if my opponent happens to draw a straight flush, an ultra-low-probability hand with 72,000-to-1 odds, I will lose despite my strong position.  That sucks, but such is life.  I wouldn’t quit playing poker because an exceedingly rare event trumped my strong hand.  And I certainly won’t quit investing because gold stocks I bought really cheap were pummeled even cheaper by an ultra-low-probability perfect storm in gold.

If you liked gold stocks last autumn with the HUI near 500, you ought to love them this spring near 250!  It is never easy fighting the crowd, being brave when others are afraid, but that’s when a sector has the greatest odds of soon soaring.  Gold stocks are epically oversold after such extreme selling in 2013, and I’ve never seen any sector so viscerally abhorred.  Their recovery upleg ought to be massive beyond belief.

The extreme contrarian appeal of gold stocks today is readily evident both technically and fundamentally.  This first chart examines the former front.  It looks at the benchmark HUI gold-stock index superimposed over a technical indicator I created called the Relative HUI (rHUI).  Gold stocks as a sector have only been this oversold one other time in their decade-plus secular bull, and that was during 2008’s crazy stock panic.

Just look at the HUI’s (blue) path over the past decade or so, it’s been one wild ride.  Gold stocks are a really volatile alternative sector not for the faint of heart.  While casual investors can thrive during the HUI’s massive uplegs, it takes tough-as-nails battle-hardened contrarians to not be scared away during the subsequent brutal corrections.  I can’t even count the number of sharp selloffs we’ve had to weather.

In pure technical terms, the absolute level of any market price at any given time doesn’t matter all that much.  The important question is how fast the price got to prevailing levels.  The slower the move the more durable the price, the faster the move the more precarious.  When prices move too far too fast in either direction, sentiment gets unsustainably excessive.  And then a mean reversion soon reverses the trend.

In order to measure how fast a price has moved, you need some kind of objective yet slowly-evolving baseline.  My favorite is the 200-day moving average.  Looking at prices relative to their own 200dmas is the basis for my highly profitable Relativity Trading system.  A price is divided by its 200dma, and the resulting multiple is charted over time.  These tend to form quite distinctive horizontal trading ranges.

For most of gold stocks’ enormous secular bull, the rHUI multiple (red) revealed this sector was too oversold when it slid below 0.95x.  Once the HUI was sold off quickly enough to slump 5%+ under its own 200dma, a reversal from correction to new upleg was imminent.  There were periodic exceptions when fear flared particularly potent, but they didn’t last long.  Oversoldness, prices falling too far too fast, was short-lived.

So it was generally exceedingly profitable to buy gold stocks whenever the HUI slid under 95% of its 200dma.  The great exception was 2008’s once-in-a-lifetime stock panic, an ultra-rare event like drawing a straight flush in poker.  Much like in 2013, a rare confluence of stock-market events led futures traders to dump gold while the SPX was plummeting.  So as gold plunged, gold stocks plummeted even faster.

With the VIX fear gauge skyrocketing to 80, we’d never seen and never will see such extreme fear again in our lifetimes.  With it feeling like the global markets and economy were imploding, this unprecedented selling was understandable.  The HUI ultimately plummeted 70.6% in less than 8 months!  At its October 2008 nadir, it was trading at an rHUI low of just 0.382x.  The HUI was pummeled 60%+ below its 200dma!

As you may remember, the gold-stock despair then was overpowering and universal.  It reminded me a lot of today, although today feels more extreme in some ways because during the stock panic the wounds were still fresh enough that some gold-stock investors still held out hope this sector would rally again.  These days all hope is abandoned, the true contrarians still bullish have dwindled to inconsequential levels.

Gold stocks were hyper-oversold during that stock panic.  Virtually everyone thought the fact that gold was sucked into the stock panic instead of surging was the final nail in its secular bull’s coffin.  Endless commentaries came out making bearish cases for gold and gold stocks to keep falling indefinitely on rotten fundamentals.  But as always at technical extremes, the consensus was dead wrong.  The HUI would soar.

Starting from those very black depths of despair, the HUI gold-stock index would more than quadruple over the subsequent several years!  It easily powered to new all-time highs, earning fortunes for brave contrarian investors like us and our subscribers.  Hyper-oversoldness is always short-lived.  The faster a price falls, the more extreme the technical anomaly becomes, the more bullish that market actually is.

The HUI didn’t get hyper-oversold again until May 2012, after a healthy correction following its massive multi-year upleg.  If you dig up any historic gold-stock commentary (except mine) from the middle of that month, it was overwhelmingly bearish and pessimistic.  The rHUI read 0.714x, a massive divergence from this index’s 200dma baseline.  Traders had abandoned and forsaken the gold-stock sector yet again.

But as usual they did it at the worst possible time!  Extremely oversold technical conditions are never sustainable.  Over the next 4 months, including in the summer which is traditionally weak seasonally for gold, the HUI surged 39.9% higher.  The carefully-researched high-potential smaller gold miners we prefer far exceeded these sector gains.  Peak gold-stock despair was the most bullish time to buy.

And that brings us to 2013, which vies with 2008’s stock panic as the single most difficult psychological trial gold-stock investors have faced in this secular bull.  As capital fled GLD shares to chase the levitating SPX, gold and especially gold stocks plummeted in a seemingly endless death spiral.  By mid-May this year, the HUI had been hammered so low that the rHUI fell to a shocking stock-panic-like 0.598x!

Think about that a second.  This year’s gold-stock selling was so extreme that the main gold-stock index was crushed 40% below its own 200dma.  Other than during that once-in-a-century stock panic, this had never happened before in gold stocks’ entire decade-plus secular bull.  The sheer magnitude of selling necessary to force a price that far under its 200dma is staggering, betraying epically extreme levels of fear.

I’ve been a hardcore student of the markets for decades, living and breathing them every day of my life.  I’ve forgotten more about markets than most will ever know.  So I can pretty much guarantee you that in any market in the world at any time, any price being driven 40% below its 200dma marks extreme unsustainable oversoldness.  The huge bearishness, fear, and despair necessary to spawn this is inherently self-limiting.

There are only so many investors susceptible to being scared into selling into any extreme selling event.  And once they have all sold, only buyers are left.  So prices soon start rallying, forcing the legions of shorts that glommed on during the selloff to aggressively buy to cover.  Thus the more oversold any price gets, the bigger and more powerful the subsequent rebound upleg.  The HUI is now due for a massive one.

With panic-level oversoldness in both gold stocks and gold in recent months, the mean reversion out of this technical and sentimental extreme is going to be big.  After the stock panic, gold stocks as measured by the HUImore than quadrupled in the subsequent years, with high-potential smaller ones dwarfing those gains.  We are due for a similar gigantic upleg in the coming years out of recent months’ crazy extremes. 

While huge rebound uplegs out of extreme oversoldness are utterly inevitable solely for technical and sentimental mean-reversion reasons, if there is fundamental support it’s all the better.  And gold stocks also happen to be dirt-cheap fundamentally, screaming buys.  A great proxy for their valuations is the classic HUI/Gold Ratio, since gold prices drive gold miners’ profits.  And earnings ultimately drive all stock prices.

I’ve written about this relationship extensively in the past, but I still believe this chart is one of the most compelling in all the markets.  For 5 full years before 2008’s stock panic, a secular time frame, the HGR averaged 0.511x.  The HUI tended to trade at about half the prevailing gold price.  As gold climbed, the profits for mining it leveraged its rise.  So gold stocks were bid up accordingly and generally thrived.

But the extreme selling from that ultra-rare stock panic shattered that long-standing fundamental relationship between gold stocks and gold.  Despite me raving at the time about how wildly bullish gold stocks were during that panic, a dead-right contrarian play, countless former gold-stock investors gave up and walked away.  The markets’ straight flush beat their four of a kind, so they sold low and never came back.

Nevertheless, smart new investors arrived to fuel the HUI’s inevitable mean reversion out of such extreme panic oversoldness.  And gold stocks climbed much faster than gold for the first year or so, nearly pushing the HGR back into its pre-panic fundamental range.  Over the next year and a half gold started climbing so fast that the HUI merely paced its gains, so the HGR stabilized not far under 0.40x.

As gold stocks started falling out of favor again in mid-2011, the HGR began losing ground.  This is natural during a gold correction.  Gold miners have profits leverage to the gold price, a given percentage move in gold itself translates into much larger changes in profitability for mining it.  So they always fall faster than gold when this metal is correcting.  The upside of this is their stock prices usually leverage gold’s rallies too.

The HGR had finally stabilized in late 2012 and was starting to climb again, a very bullish sign.  That was the gold-stock equivalent to that four-of-a-kind poker hand, a high-probability-for-success bet in early 2013.  But then the Fed-driven SPX melt-up started sucking copious amounts of capital out of GLD, flooding the world with too much marginal gold supply to quickly absorb.  So gold and therefore gold stocks crumbled.

This GLD mass liquidation was so far beyond precedent it should have been impossible.  It was the straight flush, an exceedingly unlucky hand for the contrarians on the other side of the trade.  So as the HUI fell even faster than gold this year, the HGR plummeted lower.  It hit an astounding 0.181x in mid-May, well below the stock-panic extreme of 0.207x in October 2008.  This was the lowest in gold stocks’ entire secular bull!

But is such an absurdly-bad HUI/Gold Ratio sustainable?  History argues no way.  After that stock-panic extreme, the HGR more than doubled over the subsequent year as gold stocks soared in their mean-reversion recovery upleg.  And even if the pre-panic average HGR isn’t attained again, the 2009-to-2012 post-panic average HGR will certainly be hit in gold stocks’ necessary and inevitable mean reversion.

That number is 0.346x, and is 91% higher than mid-May’s extreme HGR low.  What this means is if the HUI merely returns to its post-panic average relative to gold, and gold does nothing but languish at its current oversold levels, gold stocks would rally 90% from their mid-May lows!  Even if the 2013 extreme selling anomaly is included, the full post-panic average HGR is still 0.333x.  That is 76% higher than today’s 0.189x.

Gold stocks were also just pounded to the cheapest levels of their entire secular bull by traditional valuation metrics including price-to-earnings ratios.  The HUI has been trading around just one-third of its 2007-to-2012 average P/E ratio.  So fundamentally gold stocks are a screaming buy too, making their mean-reversion massive-upleg case based purely on technicals and sentiment all the stronger today.

Gold stocks are the ultimate contrarian buy.  No sector in the entire stock markets is cheaper fundamentally, no sector is more oversold, and no sector is more despised.  It is never easy fighting the crowd and being brave when others are afraid, but that’s when fortunes have been made in this secular gold-stock bull.  The best time to buy is when you least want to, when it literally feels nauseating.

All these factors make gold stocks look like a royal flush today, the rarest of poker hands (650,000-to-1 odds) that beats everything else.  No matter what any other markets do, gold stocks are way overdue for an enormous new upleg to accelerate higher.  Most investors will miss this mean reversion, and fail to get interested in gold stocks until the HUI is several times higher a couple years from now.  You don’t have to.

At Zeal we’ve spent more than a decade helping our subscribers grow rich trading gold stocks.  We’ve got lots of fundamentally-elite gold and silver stocks on our newsletter books now that are incredibly beaten down thanks to this 2013 anomaly.  You can buy these great stocks much cheaper now than we did.  And if you want the ultimate contrarian play within this contrarian sector, then the junior gold stocks are it.

We just spent 3 long months painstakingly researching over 600 junior gold stocks trading in the US and Canada.  We gradually whittled them down to our dozen favorites with the best fundamentals.  All these are profiled in depth in a fascinating new 24-page report.  For just $95, you can enjoy the fruits of hundreds of hours of expert world-class research.  These stocks won’t be insanely cheap for long, so buy your report todayand get deployed!

We have long published acclaimed weekly and monthly newsletters for contrarian speculators and investors.  In them I draw on our deep experience, knowledge, wisdom, and ongoing research to explain what is going on in the markets, why, and how to trade them with specific stocks as opportunities arise.  Since 2001, all 637 stock trades recommended in our newsletters have averaged annualized realized gains of +33.9%!  If you like these web essays, please subscribe today and support our hard work!

The bottom line is gold stocks are the ultimate contrarian bet today.  An unprecedented confluence of events that is already abating drove 2013’s incredibly anomalous selloff.  This left gold stocks extremely oversold, extremely undervalued, and extremely unloved.  But the deeper out of favor any sector falls, the higher the odds for a massive mean-reversion rebound.  And they’re approaching certainty for gold stocks.

With gold emerging from a similar hyper-oversold extreme, it won’t take much buying at all to push the yellow metal higher.  And any meaningful gold rally at all will be taken as the all-clear signal by the contrarians awaiting gold stocks’ long-overdue recovery.  Soon buying will beget more buying, and within a few years the HUI should again more than quadruple.  Great small gold miners will fare much better.

While comparing the Silver Eagle figures of the last 5 years with the first 5.5 month figures of this year, we see the following picture:

• First 6 months of 2013 equal 119% of total 2008 US Mint sales of Silver Eagles
• First 6 months of 2013 equal 81% of total 2009 US Mint sales of Silver Eagles
• First 6 months of 2013 equal 67% of total 2010 US Mint sales of Silver Eagles
• First 6 months of 2013 equal 57% of total 2011 US Mint sales of Silver Eagles
• First 6 months of 2013 equal 73% of total 2012 US Mint sales of Silver Eagles

The point is very simple: US Silver Eagles are in very high demand, whether looking at yearly of half yearly sales figures, or comparing it with the Gold Eagle sales.

Moreover, the ratio for the first half year stands at roughly 40, which means that 40 times more ounces of silver coins have been bought by the US Mint than gold coins. When calculating the dollar value of this (with an average price of 1550 for gold and 28 for silver), it appears that the silver value accounts for 71% of the total gold value. Those are revealing figures, for sure because this takes place in the midst of a severe price decline and extremely pessimistic public sentiment vis-à-vis the grey metal (see chart below, courtesy Sentimentrader.com).

The most plausible explanation for this trend is that people (in this case retail investors) realize the dangers and severity of the ongoing crisis, and seek some form of “safety” (whatever that means in a centrally managed economy). Silver being “poor man’s gold” is more affordable to the retail public. The ironic fact is that prices have been declining, and that they could still go lower. At the same time, the monetary protection from the metal(s) has never been more required. We should start accepting that such a disconnect is part of “the new normal” we are living in.

 One remark: we have explained in the past that a higher demand does not necessarily translate into higher prices, at least not directly or in the short run. Readers should think of all the gold and silver in the world as one big pool, where the metal is simply changing hands.