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Monday, August 22, 2011

What Gold Is Desperately Trying To Tell You

A little over a week ago, Venezuela's version of Obama- Hugo Chavez...said something that I don't think any bullion bankers expected. He said, "we want all of our gold back."

That's about 211 tons. They have more but that's already in the country. I'm not sure who-all-has-what of Venezuela's but that amount of gold has to make some assholes pucker. Here's why. 

There are a lot of reputable people that think bullion banks have leveraged gold, the underlying asset, at a ratio of 100-1. If that's true, bullion banks have to unwind 21,000 tons of leverage. To put that in perspective, the United States "reportedly" has about 8500 tons of gold. (No audit has taken place for 30 years) We have more than anybody in the world. Therefore, the bullion banks and I believe there are only 5 of them- have to unwind claims on a chunk of gold 2.5 times greater than all of our reserves.

Here is an article, a little over a year ago, that is absolutely dead on in predictive value. In fact, they claimed that 2000 dollar gold would be breached far faster than anyone thought possible.  There are other interesting data points that back up the things I am saying here.

So to deliver the real, actual, physical commodity you have to pay off existing claims at huge prices- find unencumbered gold- move a bunch of other gold around to satisfy claims you cannot unwind. And then remove that underlying amount of that commodity from future trading. Since Venezuela's announcement, gold has made a straight up move.

If you owned gold would you want to trade it for worthless currency? In other words, during the endgame, what would prevent a country like the U.S. from printing a boatload of fiat currency and trading it for gold prior to a dollar collapse? What gold is trying to tell you is that the world's debt levels and currencies are growing more and more valueless by the day. That the world economy is sick. That bonds yielding 2% when the inflation rate is 4%- are guaranteed losers. There is no safe haven left. The people who panic first will panic best. Those will be the people who buy a significant stake in precious metals and offset the losses and pain in other investments.

You don't make money in silver and gold. You simply preserve buying power. Unless you are completely invested in precious metals, the buying power you lose with inflated Federal Reserve Notes is recaptured with your precious metals. So we are treading water. But at least we are not losing 2% on treasuries. I have made nearly 40% on precious metals this year. I have lost God knows what to REAL inflation, lost purchasing power-zero savings rates, and taxes which keep going up.

What gold is telling you is that cash is trash. Everywhere. And for the foreseeable future. Gold cannot stop it's inverse relationship with worthless fiat currencies and debt levels gone berserk until someone, somewhere pegs a currency to an item of value. Historically that has been gold and silver. Until that happens...get ready for crazy precious metals prices and hyper-inflation. There is no gold bubble. There is a fiat currency bubble and if the FED does something really crazy like announcing QE3 at Jackson Hole later this will go bonkers. These are crazy times. Gold is your friend. It does not lie. It's just trying to tell you how sick the world economy is right now.


texlahoma said...

I agree with your analysis. I bought a small amount of silver when it was cheaper but now it's hard to come up with any extra money as prices go up. I know that will only get worse though. For the people that can't afford gold or silver they should stock up on food, water and things that can be traded, later when the dollar is worthless.

Brian said...

I've got the same problem. I over committed what savings I had on a repo home. PM's are getting so fact...I know some people hoarding copper (pre 1982) pennies and nickles. If copper and nickle hit 10 and 20 respectively...those old nickles will more than quadruple in price...copper pennies right now are trading at 3x face value v melt value.

Good point about trading things of value. Merchants wont want worthless paper....

Anonymous said...

According to a story at Fox News a survey of "economist" say we won't have another recession but we won't have much of a recovery either. Are these jerks ever right?

Brian said...

No. They are part of the matrix. ^^See above.