All That Glitters Is Gold

Aubie Baltin CFA, CTA, CFP, PhD.

"[A] wise and frugal government ... shall restrain men from injuring one another, but shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government." -- Thomas Jefferson

"It has been said that all Government is an evil. It would be more proper to say that the necessity of any Government is a misfortune. This necessity however exists; and the problem to be solved is, not what form of Government is perfect, but which of the forms is least imperfect." -- James Madison, 1833

LIARS & THIEVES

There's a strong connection between Wall Street's moneymaking policies and Washington's law-making policies. They both cost and steal money, while giving no guarantees for performance. It takes a healthy dose of skepticism and independent thought as well as a whole lot of courage of your convictions to both make and protect your own wealth.

BLOOD IN THE SAND AND ON THE MOON

The "Arab Spring" is as I have warned you not a welcomed groundswell of Democracy, Instead it has unleashed a 1,300-year-old wave of destruction that is poised to reach around the globe unleashing death and destruction into the middle of your life. Unfortunately, millions of unprepared and unthinking Pollyanna's will experience unprecedented financial pain and loss while others like my readers will reap great gains due to their thinking and preparedness.. The Price of GOLD and OIL Will explode as the worst DEPRESSION HISTORY hit the world.

Burying the Truth

Over 100 years ago, novelist Emil Zola of Richard Dreyfus fame stated "If you silence the truth and it be hidden and buried, it will grow and gather such explosive power that the day it bursts through it will blow up everything in its way." This is a key reason why economies crumble, World Wars begin and entire empires wind up in the junkyard of history". It is also why investors lose fortunes and lives are destroyed.

It's become my mission to give you a direct, immediate pathway to the truth no matter how lonely that endeavor may be and no matter how much opposition and risk I face.

So now, finally, others are beginning to see what I saw many years ago. Socialism doesn't work and only Capitalism can save us and the world.

SELF DELUSION IS NO WAY TO MAKE PRUDENT INVESTMENT DECISIONS.

Fitch has warned that a comprehensive euro-zone deal is now "beyond reach," placing six euro zone countries on short-term downgrade watch. Fitch has also downgraded Goldman Sachs, Bank of America, and Morgan Stanley among others.

Moody's has downgraded Belgium by two notches, warning that their soaring borrowing costs are straining their Financial Foundations.

Standard & Poor's reported planning potentially traumatic and devastating ratings changes of the heavily indebted countries like Belgium and France and possibly even Germany.

The IMF has in its strongest warning yet, that the global economy could soon see another Great Depression.

Why a 2008-Type Scenario and much worse Is Now Unavoidable!

We are one headline away from a massive spike in gold prices as well as a bursting of the Treasury BUBBLE. And $300 to $400 OIL. We are ignorant to believe a 1600 year-old war and simmering hatred between the Sunnis and the Shia will fade away simply because we lowered our flag and basically pulled out of the Middle East. Instead we left a vacuum and everybody knows that the world abhors a vacuum. It will soon be filled, but by whom?

The sad truth is we are in worse shape now than we were four years ago: And in Graver Danger the ever in our history. If what we think is about to happen becomes reality, GOLD and OIL will skyrocket as world stock markets and Financial Systems crash.

Just like Hitler who told the world exactly what he was going to do and the World disregarded him until it was too late: We are ignoring today's Megalomaniacs and Psychopaths as well.Will it be too late once again.

Will America Survive Humanism?

Waves of pessimism have overwhelmed the European Union; its economy has stalled, good will between its members has dissolved, and its leaders watch helplessly as ever-increasing populations of Muslim immigrants establish hostile, independent communities within European borders. Europe is going the way of the Roman Empire, but how did it get here? Europe as a Mirror for America, outlined the advance of enlightenment FREEDOM and Free Thinking in the West, and then explains how humanist philosophy has already destroyed Europe and is in the process of destroying America. Applying little-known historical examples establishes that America's restoration and the salvation of Europe can be achieved but only by a wholesale return to the foundation that originally made the West great:

Free Market Capitalism Embodied In Optimistic Judaic Christianity

WHERE TO NOW?

Most every other day, we get another "out-of-the-blue rally", thanks to another new European bailout plan - a "three-year long-term refinancing operation (LTRO)" which is just another acronym for "kick the can down the road." In a nutshell, the European Central Bank (ECB) offered European banks an opportunity to re-finance their assets at 1%, over a three-year term instead of just a few weeks or months. So now, 523 over-leveraged banks just borrowed another $650 billion in order to buy the sovereign debt of down-graded troubled countries. But the euphoria after each piece of so called good news does not last the day. Then the actual auction results created another spike in euphoria that lasted the morning- but then the Euro faded. And so did stock futures, gold futures, copper futures, and just about every asset out there. Why?

Because the markets know adding cheap liquidity to shaky banks is like giving whiskey to alcoholics. Plain and simple - it's dangerous, maybe even deadly! We saw what this did in Japan in the 1990s to 2010 and we will soon be seeing it in Europe in the 2010s. and yet we in America cannot see the writing on the Wall, as Obama just asked for another $1,5 trillion debt increase.

This Latest Bailout Effort Only Puts Us CLOSER
too the Ultimate Day of Financial ARMAGEDON.

No amount of "liquidity" (easy money) is going to magically solve the fact that too many people (and nations) borrowed too heavily and spent too freely during the boom years. Easy money for European banks doesn't solve the global economic slowdown that we're witnessing either and that I started predicting 1 1'2 years ago. Nor will it prevent corporate earnings growth from tanking along with both the Stock and Bond markets.

AMERICA'S FINANCIAL DOOMSDAY

JIM RODGERS over a year after my 1st warnings, STATED THAT THE NEXT BUBBLE TO BURST Is the BOND BUBBLE. This is going to end very badly and you need to make sure you're prepared. "Buying U.S. government bonds at this stage is a terrible mistake; it is one of the few bubbles left in the world."

Instead, Rogers believes that owning hard assets is the best plan. He opines that the Federal Reserve will be continuing their massive quantitative easing efforts. "I am not short bonds yet, but I plan to be short bonds," he said. "If the world economy gets better, you are going to make money in commodities because that's where the shortages are. If the economy doesn't get better, they are going to print money." (And we will make money in GOLD.) Finally, Rogers said that the Federal Reserve is already engaging in another round of quantitative easing, they just haven't told the public about it yet. I am a nobody so he gets all the Press.

If all of that is not enough: Our Government is talking about "Sustainable Development". Translated into plain English, that means more regulatory power for the EPA. GOD will we ever learn or is it already too late.

Gold's glitter will soon SHINE BRIGHTLY

The Santa Claus Rally has come and gone without too much fanfare this year. Even gold, a traditional seasonal favorite and safe haven has been caught up in the Euro/USA turmoil. Indeed, the precious metal has dropped some $400 or 23% from the all-time high registered in early-September. It dipped below its 200-day moving average for the first time since January 2009, which brought to an end the longest ever streak - 732 days. Not surprisingly, the breakdown has prompted the Bears to come out of their lairs to declare that the 11 year bull market in gold is finally over. The many "barbarous relic" proponents, who have been dead wrong for 11 solid years and have completely missed out on the world's top performing asset, insist that gold's price action is nothing more than a dangerous asset bubble. This kind of misguided thinking fails to explain why gold has been ascribed value by humankind for at least the last 5,000 years and has never become worthless. Could the long sweep of history truly be wrong?

It's more than a decade later and the non-believers' message remains the same. Investors who heeded such advice have missed the opportunity to reap a near sevenfold increase in capital investment in the precious metal over the last decade. Of course, past returns are no guarantee of future performance and although it may be fair to say that the bull market in gold time wise is closer to its end than it is to its beginning: Price wise we still have another 400% to look forward too. Meanwhile the underlying fundamentals suggest that there is still another 4 to 6 years left for the metal to shine. And I would rather stick with an unblemished 10 year track record than any Johnny-Come-Lately trying to vindicate their last 10 years of folly.

It is important to note that its stubborn critics are not the only ones to demonstrate a complete lack of understanding of gold's attributes. So have a great many of the so called Gold Bugs who recommended taking profits on your gold holdings that they wished they had. They did so in 2006 and 2008 much to the chagrin of their followers.

Such thinking is dangerously misguided, but technically welcomed as quantitative easing and the associated increase in banking sector deposits held at the central bank will soon lead to a concomitant increase in the money supply. The traditional multiplier model taught in Economics 101 is wrong since banks no longer make loans according to the level of reserves in excess of statutory requirements but on the basis of adequate levels of capital (which are now suspect) and the availability of profitable loan opportunities. The evidence from both Japan and more recently, the US demonstrates that quantitative easing does not work through the lending channel when the banking sector is capital-constrained and the private sector which cannot print its own money is reluctant to borrow. Simply put, the large increase in consumer prices anticipated by bulls, who only view gold as nothing more than an effective inflation hedge, will only materialize when it's least expected: But it will materialize as the Natural Laws of Economics dictate.

For the time being, deflation remains the clear and present danger, particularly so in the Euro zone following the latest summit, which hopes to enshrine pro-cyclical monetary policy while proclaiming austerity. Good Luck to that.Perhaps I should offer the all a course in Economics 101.

Fortunately for us, the historical record demonstrates that gold performs equally well, if not better, in the presence of a destructive debt deflation.

The logic is easy to understand. Individuals scramble for liquidity and flee financial assets during deflations. The deteriorating credit quality of currency issuers, as well as currency's lost function as a STORE of Value and the resulting loss of confidence in the Banking system, means gold by default becomes preferred to paper currency as a hoarding vehicle (Store of Value) simply because the precious metal is no-one's liability and always pays off. In essence, gold is an effective insurance policy against a black swan event such as debt deflation or Hyper Inflation. Or may I dare say Currency Default?

It is important to appreciate that gold does not require a black swan event to perform well. Its market thrives on uncertainty, something that the equity markets abhor and that typically attracts investors during periods of increased risk aversion.

It is said that the only thing that rises during bouts of market turbulence is correlations, but the historical record demonstrates that gold's correlation with stock prices turns decidedly positive when equity markets are turbulent. In other words, the precious metal acts as an effective portfolio diversifier and helps to mitigate losses during uncertain times.

GOLD also serves as a viable currency alternative, competing directly with the world's major currencies.

Since gold is a non-interest bearing asset, its relative attractiveness is enhanced as the interest rates fall. The opportunity cost of holding gold decreases and consequently its relative appeal rises. Near-zero interest rates across the developed world combined with quantitative easing programs that place downward pressure on the associated currencies means the hurdle for gold has seldom been this low and its attractiveness this high.

The gold price has come under pressure during the last 4 months, which has seen bulls declare an end to the spectacular run of the precious metal for all the wrong reasons. A closer examination of the facts, however, reveals that gold is most likely to glitter even brighter in 2012 and beyond. Does anyone really believe that the printing of trillions of US Dollars, Euros, Yen, Yuan, Rupees, etc. have no negative consequences and the printing and QEing have really only just begun?

ARE YOU TEMPTED TO SELL OR EAGER TO BUY?

My advice is to spend a little more time watching the drivers for gold and a lot less time worrying about the price. Until those things change, look for an entrance, not an exit.

Interestingly enough, financial market stress has indirectly dragged gold prices down and weakened the euro. That's rather shocking to many analysts, I among them, who thought gold could surpass the $2,000 mark by the end of 2011.

On the contrary prices have fallen to a point where investors with longstanding positions are liquidating some of their holdings to secure profits and momentum-driven traders are selling heavily mostly to raise cash needed for redemptions. But these are temporary factors that are about to change and provide the best opportunity to buy Gold cheaply of the Decade.

Negative factors contributing to the recent price slump

They include year-end book squaring, sales to secure profits and more importantly margin calls as well a liquidation to pay unrelated Mutual Funds liquidations. A temporary pause in emerging market demand, (primarily in INDIA because a weak Rupee) has lifted the gold price in India to record highs prices in Rupees; reduced positions due to successive increased margin costs as the prices rose. Protective stops as well as sales triggered by the manipulative breakdown of support levels. The Taking of profits while retaining of loosing positions.

Please note the difference - On the bullish side, there are solid long-term reasons why the gold price should rise. On the bear side, the reasons are short-term and they are engineered and manipulated reasons to sell gold.

Why else would the prices be falling after London is closed and before Asia opens? It is this kind of selling that is forcing the price down, but not for much longer.

Additionally, some experts are suggesting that there is a link between the gold price and the price of the Euro. While a common denominator is difficult to determine there, many investors are worried where gold will go from here and how much further it could fall. If you are one of these investors interested in selling, you still want to get the best price for whatever gold you currently possess. According to Mineweb, your greatest chance of successfully doing so would be to sell in the market where you can "sell the most gold at a price that is achieved on (your) entire sale at one time."

In these volatile times, you really need a good understanding of the worst and best ways to sell large quantities of gold. This is why the two daily Fixing sessions were set up in London. The AM Fix usually achieves the highest price, incorporating as it does the emerging -particularly the Indian and Chinese markets- world. In the afternoon, the Fix is usually set lower because the gold price usually falls in the U.S. After the afternoon Fix, the gold price is usually at its daily weakest in a relatively 'thin' market. So sales after the afternoon Fix are almost guaranteed to achieve the lowest price and have the most detrimental impact on the gold price. And this is particularly so if the sales are heavy in a "thin market". Certainly, unless immediate demand responds to this in Asia's day or in London's morning to the extent that they chase prices, the gold price will remain at the lower levels.

But the sales of gold - both on the fall from $1,900 and from $1,700 -- took place after both Fixes were done. Why on earth would a seller want to sell when he would achieve only the worst price? Why sell persistently to make the gold price fall further? Unless that is precisely what is wanted to achieve. With lease rates in negative territory, it appears that heavy lending has taken place encouraging just such falls. Is the motive the same as it was when Central Banks sold gold in the later fifteen years of the last century? It could be so! Their motive then was to ensure the dollar's dominance.

If you've got a lot of gold to sell, you might consider selling to Central Banks especially and the emerging markets.. They want quantity, so you may be better able to negotiate a higher price if you've got the type of volume they're looking for. Keep in mind that Central Banks' demand for large volumes of gold may well turn things around in the gold market. Despite gold's slacking prices lately, there are still a lot of bullish fundamental characteristics to gold. Such as: Central bank demand, limited mine supply growth, a surge in jewelry demand, and gold's position as a safe-haven and potential to become a currency standard in the ever-evolving world of finance will soon stimulate a recovery in the gold market. The most compelling reason is the ever increasing interest in increasing the money supply by China, the USA and Europe.

GOLD IS ALWAYS A SUPERIOR GOOD

I have explained what a superior good means in economic terms more than once: That is when prices increase and demand increases instead of shrinking as prices rise, which is exactly what has happened for the last 10 years. Gold has not dropped, but has continued to rise both as to volumes traded and price for 11 consecutive years. The recent decline in price in US Dollar terms makes it only look that way, since it is actually up in terms of other currencies like the Rupee (India is still the world's largest buyer of gold) and the Euro has been dropping in terms of gold.

GOLD STOCKS

Gold prices are set to break upwards to $2,500 in the next 6 to 10 months. That's more than 35% in gains for those who have the courage of their convictions and are not afraid to stand alone. Besides, you are not alone, most of my readers and I will be right there beside you. If you do, those 35% 40% gains will look like child's play compared to the 100% to 150% you could earn investing in the group of "stretched rubber band" gold stocks that could start rebounding as early as this month. In fact, these gold stocks are stretched to the limit right now and the slightest trigger could send them soaring.

There's an important ratio between gold bullion and gold stocks that has been stretched out of proportion by gold's rapid rise and the gold stocks out of proportion fall. This ratio - between the gold indexes and the spot price of gold - has been maintained for decades. Traditionally, these investments, which average a 2:1 ratio with gold - meaning if gold goes up 10%, these stocks double that, going up 20%. If gold goes up more than 60% - like it did from mid-2010 to mid-2011, these stocks should go up 120%. But the recent run up in gold prices has gone too high, too fast for these investments to keep up. And that 2:1 ratio has been thrown completely out of whack, with these stocks trading nearly sideways, despite much higher returns as gold prices surged. That's about to change... After more than 6 months of fluctuating gold prices, these "rubber band" stocks have been stretched thin. And as they snap back, they could easily bring 100% gains or higher - just to come up even with the current price of gold. HOWEVER, the normal is that just as they sold off to below their normal ratio, they will in turn over shoot on the up side. IN SPITE OF GOLD'S RECENT SELLOFF, GOLD HAS DEVELOPED AN ALLURE LIKE NOTHING ELSE HAS, SO THAT BOTH 2011 and 2012 will end their 11th and 12th consecutive years making new HIGHS. If any of you know of a better investment, please let me know about it.

 

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