Sunday, July 21, 2013

The Gold War Has Begun In Earnest* Updated- The Sunday Collage

*Gold is up nearly 20 bucks as of 5 PM MST.

In mid April of this year, unknown forces began driving the price of gold down in dramatic fashion. At the end of the slaughter, or nadir, gold rested at 1200 an ounce. A price it had not seen in 3 years.

Most people do not care. The vast majority of folks do not understand commodity markets nor do they own gold. Historically speaking, gold has HUGE significance. It is real money. It is rare and it is coveted and it has remained that way for 6000 years. The bankers have never been able to counterfeit gold. So they do the next best thing. They use paper markets to manipulate the price. The bullion banks loan gold in amounts well beyond that which they actually possess. Because there has never been a run on gold in a worldwide sense, bankers have always gotten away with leasing gold they do not have. A world wide run has begun.

In short, bullion banks are going to have to produce the physical commodity in amounts they do not have. They have written a check that their collective asses can't cash.

The gold war has begun. Make no mistake about it. It is ON.

The first story I read on Tuesday completely blew my mind. I mulled it over the entire week. In short, Grant Williams graphed the gold price following two dates. The date Hugo Chavez and Venezuela said they wanted their 100 tons of gold back from England and the date Germany demanded 300 tons of gold from New York.

With all of that supply gone, unavailable for lease, you would think that the price of gold would go up. Not so. In fact, gold traded down almost two hundred dollars after the Venezuela announcement. After the German announcement, the price of gold was pounded clear down to 1200. A loss of 400 dollars per oz. The law of supply and demand had apparently been repealed.

That happened three months ago. I have always believed bullion banks manipulated the price. Banks and their commodity trading desks have driven down the paper price of gold in order to purchase the actual metal for future delivery at a much cheaper price. They don't dare wait for a few years or they might be paying 5000.00 an oz. for it then. In the case of New York, the U.S. told the Germans they couldn't deliver for SEVEN YEARS! Here is Grant Williams and his fantastic take on what happened.

On Tuesday, I began buying gold miners in earnest. I am 100% cash invested in 5 junior miners with some long term options in Kinross. I also bought into SLV. I am fully cash invested at this point.

I believe that this is the opportunity of a lifetime. But you have to see it and act before the rest of the herd sees it. For the past 5 years, the price of mining stocks have been annihilated. You will never buy miners cheaper, ever, on a relative basis. I bought a couple of junior producers at price to earnings multiples of 4.

What if the world is out of gold? What if all of the existing gold was re-hypothecated and leased just like the bankers do with fiat deposits? Some think bullion banks have leased gold fractionally in amounts of 100 ounces for every one ounce on deposit. If that's the case, as existing gold evaporates, banks will claim force majeur and just settle accounts in cash, or go bankrupt, after all of the gold is claimed. Of course the price will skyrocket. And the only place to get gold will be- gold mines.

For weeks I have been reading about shortages everywhere. Harvey Organ's blog runs a daily total on the disappearing gold in the bullion bankers' vaults. JP Morgan only has one ton left with claims to settle far more. This is going to get real interesting- real fast. Maybe it begins this week. Here's a piece from one of my favorite blogs.

If all of this has still not convinced you that the gold war has begun- I have saved the coup de grace' for last.

Ben Bernanke is a genius by just about every measuring tool we have. He has perfect SAT scores, he graduated at the top of his class at M.I.T. He is a financial genius who has studied economics his whole life. He is, for all practical purposes, the Federal Reserve.

This is what he said, just the other day, when questioned about gold.

Mr. Bernanke also offered a major caveat to his assertions about gold: “Nobody really understands gold prices and I don’t pretend to understand them either,” he said.

If Bernanke doesn't understand how gold is priced- just who the hell does? Think he is trying to act stupid and transmit an uncertainty about gold? I do. Calculated and intelligent stupidity. With a motive.

I will rest my case right there. When the world's smartest man says stupid shit like that- it's time to get real nervous. I think the gold war has begun.


Unknown said...

So Brian, are you at least clever enough to be picking up some more phys Silver @ these prices? Regards, Spartacus

Brian said...

No actually, I am satisfied with what I have. I bought PSLV instead. I have run out of money. lol

Anonymous said...

Let's not get too excited. The cartel has many many tricks up their sleave. I think that the drawdowns are a positive. The issue that seems to be being ignored in all areas of media is that a major war is brewing in the middle east. Russia and China will not allow for Syria to be overrun by Isreal and or the U.S. If a conflict (war)breaks out, the price of gold and silver will be an after thought.

Brian said...

You make an excellent point. Every time we think we have these bastards- they pull some trick and get out of the trap. Having said that- there comes a time in every poker game where you have to show your cards or fold. Barring an alchemist, it appears that time is drawing near.

Anonymous said...

Great post Brian.

I have been looking into buying some junior mining shares lately but I have to say, how on earth did you go about choosing the ones you did? From what I understand most of these companies will go bankrupt or end up running at a loss. The ones that survive will go to the moon but how do you choose those? I looked into investment newsletters that specialise in these kinds of stocks but most seemed like a waste of time (and money).

I guess I feel overwhelmed and out of my depth when it comes to the junior miners which is a shame as I reckon there must be some great opportunities out there!!

Brian said...

I found 4 junior miners that are actually producing gold. Two trade near 7 bucks, one was 51 cents a share, one was 1.10 a share. My criteria was simple.

They must have long term provable reserves in a stable country, they must actually be producing gold, and they must be able to get it out of the ground and processed for about 900.00 an oz.

Then I screened them for performance and selected 4 that were beaten down the most for no apparent reason.