Tuesday, March 15, 2011

Gold Rush 2011

Gold Retraces All Losses After Official Says "China Should Take Every Chance To Buy Gold, Especially When Gold Prices Fall"
9 March 2011
, by Tyler Durden (Zero Hedge)


Li Yining, a senior economist at Peking University and member of the Chinese People's Political Consultative Committee, an advisory body to the national parliament, said that

China should use the precious metal to hedge against risks of foreign currency devaluations.

"China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall," Li was quoted by the official Xinhua news agency as saying."

And so the immaculate record of all those calling for the "inevitable" correction in gold continues with a roughly 0% success rate.

James Turk - Forget $8,000, Gold Headed Much Higher
8 March 2011
, by Eric King (King World News)

With gold near all-time highs and silver near multi-decade highs, today King World News interviewed James Turk out of London. Turk remarked, “Eric I have really been focusing a lot on what central banks are doing and how their actions might be impacting my long-standing forecast for the price of gold. You probably know back in 2003 I stated in a Barron’s interview that the Dow/Gold ratio would be 1 to 1 again sometime between 2013 and 2015. My thinking had been that gold would be $8,000 and the Dow would be 8,000, but now my thinking has changed.”

Turk continues:

“I think that my gold forecast was too conservative. Given the way central banks are printing money when they are buying government debt, I think the 1 to 1 ratio is going to be reached at a much higher price.

People don’t understand how much wealth destruction has yet to occur as this financial bust that we are in works to its inevitable conclusion. In effect, the Dow has to lose 90% vs gold. This wealth destruction is going to devastate a great many investors, in fact most of them will never recover from this event.

As I said earlier Eric, my thinking has changed as we have been going through this cycle. This time around is not going to be like the gold bull market of the 1970’s. The dollar is going to lose its status as the world’s reserve currency. This is fundamentally different than what occurred in the 1970’s.

The US government has been running some of the largest deficits in history. That means a lot of dollars are going to be created by the Federal Reserve to fund this newly created debt. Recently we have been focusing on the US dollar and I want to be clear that I expect the dollar to drop to levels never seen before in history, and the scary part Eric is that it could do it very, very quickly.

When we take out the all-time low of 71.33 on the dollar index, we move into uncharted waters and there is no telling where the collapse of the dollar will end. Some states are already taking steps to protect their citizens from the collapse of the dollar. The Utah House just passed a bill calling for the return of the use of gold as a currency and there are at least half a dozen other states considering similar legislation.

I’m often asked by people when do I think they should sell their gold? I tell them this time around it’s going to be easy because you are not going to sell your gold, you’re going to spend it. In other words, gold will once again become currency.”

The dollar collapse will be like a thief in the night for most people. As Turk mentioned previously it will shock the world, and as Sam Zell stated recently, it will cause a disastrous decline in the standard of living for Americans. For investors who are overweight the Dow they stand to lose 90% vs gold. I agree with Turk, most of those people will never ever recover from that wealth destruction.

The Gold Standard 2.0 is Coming
11 March 2011
, by Phoenix Capital Research (Zero Hedge)


This is not mere conjecture or prediction. It’s fact. Utah has already passed a bill allowing Gold and Silver to be used as legal tender. Similarly, Virginia has passed legislation (though the Governor has yet to sign the bill) that would permit the state to mint its own Gold and Silver coins.

You can see this on the international stage as well. China’s Gold demand rose 500% last year. And world central banks became net buyers of Gold for the first time in 2010 as well.

These are of course baby steps. China and all central banks’ reserves are only minimally invested in Gold at this time. However, these changes DO mark the beginning of necessary structural changes to the global monetary system that will eventually culminate in a Gold standard of some kind being adopted again.

It’s not difficult to see why. We’ve been on this insane “paper only” since the early ‘70s. While everyone wants to claim we’ve seen a massive boost in GDP and stocks since that time, the reality is that when you account for inflation, it’s clear that most GDP and stock strength has been a result of inflation, NOT real organic growth.

Indeed, Bill King, Chief Market Strategist M. Ramsey King Securities recently published the following chart comparing REAL GDP (light blue), GDP when you account for inflation (dark blue), and the Dow Jones’ performance (black) over the last 30 years.

What follows is a clear picture that since the mid-70s MOST of the perceived stock gains have come from inflation. You should also note that MOST of the GDP growth we’ve seen since the early ‘70s has been the result of inflation as well (REAL GDP, the light blue line, is MILES below the “claimed” GDP, dark blue line).

What does all of this mean? That the inflationary system in place for the last 30+ years is crumbling, that paper money is going to become more and more worthless, and that we’re going to return to some kind of Gold standard in the coming years.

Prepare Now!

Graham Summers

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