Gold World News Flash

Cyclical Bear in Stocks, a Catalyst for Gold and Silver
How a Mission to Mars Explains an Inevitable US Dollar Collapse
Gold Crybabies Are Born to Lose
Central Bankers Know All About Gold
Fed Responsible for EM Crisis?
Gold To See A Rapid $280 Super-Surge From Current Levels
This Is How Gold Will Trade As Inflation/Deflation War Rages
JPMorgan Warns "Avoiding China Defaults Now Will Amplify The Future Problem"
A Mission to Mars Illustrates the Insanity of the Federal Reserve
Kaye on gold, Fleckenstein on 'tapering,' Farage on EU's growing fascism
"The (Other) Shoe" - IceCap Monthly Commentary
The Gold Price Validated it's $1,250 Support Closing Up at $1,262.20
The Gold Price Validated it's $1,250 Support Closing Up at $1,262.20
The Gold Price Reset Will Stun The World In 2014
In The News Today
Gold Stands Strong After US Fed Taper II
Fleckenstein – Year Of “Fantasy” Is Over, Expect Turmoil Now
Marc Faber: 5 Investment Insights Related To Gold, Stocks, Property
Gold Daily and Silver Weekly Charts - Bounce on FOMC Day - 2014 Comex Options Calendar
Gold Daily and Silver Weekly Charts - Bounce on FOMC Day - 2014 Comex Options Calendar
Fleckenstein - Year Of “Fantasy” Is Over, Expect Turmoil Now
Ben Bernanke We Hardly Knew Ye
A Fatal Disease: The Inevitable Result of Inflation
Few Realise How Undervalued Silver Is At Current Prices
China's Impact on Gold Prices in 2014
China's Impact on Gold Prices in 2014
China's Impact on Gold Prices in 2014
A Growing List of Lies in the Debt Ceiling Debate
Gold prices edge lower as stock markets recover
SA gold miner Pan African forecasts significant earnings increase
Anglo Asian misses 2013 Azerbaijan gold output target
Gold flows and their huge potential market impact
Me Again (after more than three months)
Market Monitor – January 29th
Gold Stocks Are About to Create a Whole New Class of Millionairesâ€
Gold and Silver Price Ready To Rumble Higher?
Economic Collapse 2014 -- Yuan becoming a reserve Currency Instead of The US Dollar
Gold Dealers Cut Shanghai Premium as Chinese New Year Begins But Price Jumps Ahead of US Fed "Taper" Vote
Shadowy Problems With the Global Banking System
Why Gold Looks Good to Me in 2014
The â€œVanishingâ€ First-Time Home Buyer; What It Means for the U.S. Housing Market
Don’t Fight the Fed
Gold Crybabies Are Born to Lose, Says Lawrence Roulston
Gold Crybabies Are Born to Lose, Says Lawrence Roulston
Gold Crybabies Are Born to Lose, Says Lawrence Roulston
Economic Collapse 2014 -- Doug Casey : Bond Bubble ready to Burst
Turkey Moves, Focus Shifts to Fed

Cyclical Bear in Stocks, a Catalyst for Gold and Silver

Posted: 30 Jan 2014 12:58 AM PST

The non-static, changing correlation between precious metals and equities is something we’ve written about several times in the past few years. We last wrote about this in June in Epic Opportunity in the Gold Stocks. The mainstream is entirely oblivious to the fact that gold stocks (and precious metals) can have rip-roaring bull markets when equities are in a bear market. The precursor to this is two-fold: precious metals are in a secular bull and the correlation between the two has been negative for more than a year. The current negative correlation has been in place for more than two years and now gold stocks have bottomed (in our view) and equities are looking toppy.

How a Mission to Mars Explains an Inevitable US Dollar Collapse

Posted: 30 Jan 2014 12:30 AM PST

from SmartKnowledgeU:

Gold Crybabies Are Born to Lose

Posted: 30 Jan 2014 12:25 AM PST

Geologist, engineer, Midas-touch investor and financial newsletter publisher Lawrence Roulston has little patience for investors without the nerves to hold onto a good thing during tough times. Gold has been the main embodiment of value for thousands of years, Roulston points out, so why should tomorrow be different? In this interview with The Gold Report, Roulston has some tips on how to double down on gold investments and wipe away the tears. The Gold Report: Let us be brutally frank, Lawrence. Is investing in gold dead as a reasonable investment strategy?

Central Bankers Know All About Gold

Posted: 29 Jan 2014 11:30 PM PST

by Rein de Vries, SilverBearCafe.com:

Alan Greenspan and Nout Wellink, former Dutch central banker, know all about gold, they just don’t express it while they are central bank presidents in office.

It is peculiar to say the least that central bankers, who were once at the helm of the most powerful institutions the western world has seen, get some of their common sense back once they leave office. Of course Alan Greenspan is a good example of that. Nowadays he occasionally says something sensible. Before he became Fed Chairman he had a particularly clear view on monetary matters. The man was good friends with Ayn Rand and once wrote in her book "Capitalism, the Unknown Ideal" in 1967:

Read More @ SilverBearCafe.com

Fed Responsible for EM Crisis?

Posted: 29 Jan 2014 10:30 PM PST

by Axel G. Merk, Gold Seek:

From the bully pulpits in São Paulo to the blogosphere in cyberspace, the Fed is blamed for the turmoil in Emerging Markets (EM). That's a bit like blaming McDonald's for obesity. Blaming others won't fix the problems in EM economies, it won't fix investors' portfolios and it is an unlikely way to lose weight. Investors and policy makers need to wake up and realize that they are in charge of their own destiny. Let us explain:

The Blame Game

Talking to politicians around the world, they have a few things in common. One of them is that it's always somebody else's fault. However, few tears should be shed for countries that have missed the opportunity to take advantage of the good years to engage in structural reforms to make their economies (and, as a result, their markets) more resilient against the whims of the Federal Reserve.

Read More @ GoldSeek.com

Gold To See A Rapid $280 Super-Surge From Current Levels

Posted: 29 Jan 2014 09:01 PM PST

With investors around the world now wondering what to expect from major markets in the aftermath of the Fed decision, today Kevin Wides out of Switzerland sent King World News a fantastic piece which illustrates the roadmap for gold from current levels. Below is what Wides had to say along with his outstanding charts:

This posting includes an audio/video/photo media file: Download Now

This Is How Gold Will Trade As Inflation/Deflation War Rages

Posted: 29 Jan 2014 08:00 PM PST

em>from KingWorldNews:

At Incrementum we evaluate all of our investments not only from the perspective of the global economy but also in the context of the current state of the global monetary regime. This analysis produces what we consider a truly holistic view of the state of financial markets.

Financial markets have become highly dependent on central bank policies….

Grasping the consequences of the interplay between monetary inflation and deflation is crucial for prudent investors.

Ronald Stoferle continues @ KingWorldNews.com

JPMorgan Warns "Avoiding China Defaults Now Will Amplify The Future Problem"

Posted: 29 Jan 2014 07:04 PM PST

Investors in China have been running scared of a default on a high risk trust product; but, as Bloomberg's Tom Orlik notes, they should embrace it. The implicit guarantee that no investments will go sour is one of the key problems with China’s financial system as Orlik adds it encourages reckless lending often to borrowers whose only merit lies in backing from a deep-pocketed government. Crucially, as JPMorgan warns in a recent note, "avoiding defaults is not the right answer, as it will only delay or even amplify the problem in the future."

A default that encourages lenders to price in risk would be a positive development and the CEG#1 was an ideal product to 'fail' with its 11% yield and clear idiosyncratic company problems. However, regulators won't have to wait long for a second chance as JPM warns "There will be a default in China’s shadow banking industry this year as economic growth momentum slows."

Via Bloomberg's Tom Orlik,

Investors Should Embrace Defaults in China’s Fragile Financial System

...

In the years before the 2008 financial crisis, nominal growth outstripped the lending rate. Outstanding credit relative to GDP was low, keeping a lid on the burden of repayment. Against that backdrop, most borrowers were able to cover their costs and the chances of a default were low.

The situation today is different. Nominal growth has more than halved to 9 percent in 2013 from close to 23 percent in 2007.

Borrowers from trusts and other parts of the shadow financial system face interest rates in excess of 20 percent. An explosion in lending has increased the burden of repayment to more than 30 percent at the end of 2013 from about 19 percent of GDP at the end of 2008.

Lower growth, higher borrowing costs and mounting repayment costs mean defaults by borrowers and even bankruptcy at some small lenders are likely. After initial turmoil, that could actually be beneficial.

...

And JPMorgan adds:

China may narrowly escaped the first default in its shadow banking industry

Absence of default has become a major market distortion

The challenge is to contain the contagion risk if a default happens

...local media reported that the China Credit Trust has reached a last-minute agreement with investors, with all principal and most accrued interest to be repaid. That means China will again narrowly escaped the first default in its shadow banking. However, the worries remain.

The absence of default has become a major distortion in China’s shadow banking, and we believe that default will happen in 2014 amid economic slowing. The concern is that, if a default occurs, whether investors will walk away and put the whole shadow banking market into a liquidity-driven credit crisis.

But contagion is possible...

The concern about the contagion risk is not groundless. In the past several years, non-bank financing (or the so-called shadow banking) has grown rapidly.

We estimate that the gross amount (i.e. with possible overlapping among sub-components) of non-bank financing in China reached RMB 36 trillion by the end of 2012 (or nearly 70% of GDP), compared to RMB 18.3 trillion in 2010 (or 46% of GDP).

Non-bank financing continued to grow fast in 2013. An update of our estimate suggests that nonbank financing has further increased to RMB 46.7 trillion by September 2013 (or 84% of GDP). The increase was most dramatic for trust assets (an increase of RMB 2.66 trillion in the first nine months of 2013), wealth management products (an increase of RMB 2.82 trillion), entrust loans (an increase of RMB 1.8 trillion) and bank-security channel business (i.e. banks use security firms as a channel to extend loans, which more than doubled in the first three quarters in 2013 and reached RMB 2.79 trillion).

The rapid growth in non-bank financing activities, especially for trust loans, WMPs and banksecurity channel business, has been driven by the perception of implicit guarantee from product issuers and distributors. The absence of default confirmed such perception.

...

In addition, there is substantial overlap between interbank assets and other components, for instance WMPs investing on interbank assets or claims on trust assets being traded in interbank markets. Nonetheless, banks are closely connected to shadow banking activities, hence possible turbulence in shadow banking will also affect the banking system.

We believe that default will happen in 2014 as the growth momentum slows down, and it will help restore market discipline and mitigate the moral hazard problem in the long run. However, the challenge is how to contain the near-term negative impact, as there could be three possible outcomes (in the order of increasing severity) if a default occurs.

The first possibility is that it is perceived as an idiosyncratic event, i.e. no spillover at all. This is the least likely outcome.

The second possibility is that the contagion risk is contained within a manageable level, i.e. only to similar products or sectors. For instance, if "Credit equals Gold No 1" defaults, investors will move away from collectively trust products that are only sold to wealthy individuals (but not affecting WMPs that are sold to retails investors); investors will worry about the credit quality of similar loans (non-SOE borrowers in mining industry), but not spillover to other products (e.g. local government debt, real estate companies and SOEs); investors question about the safety of trust companies but not banks. We can call it "limited spillover".

The third possibility is a “systemic spillover”. In a mild scenario, it will affect the vulnerable components such as trust loans (48% of trust AUM), WMP investment on non-standard credit products (estimated to be 35-50% of total WMPs) and bank-security channel business. In a worse scenario, it will affect the whole trust industry, WMPs and channel business (with a total gross size of RMB 23 trillion). Rollover of trust products (we estimate 30-35% trust products will mature in 2014) and WMP (64% WMPs has maturity less than 3 months) becomes extremely difficult. The liquidity stress could evolve into a full-blown credit crisis.

What can the government do? In our view, avoiding defaults is not the right answer, as it will only delay or even amplify the problem in the future. Meantime, there are measures the government can take to contain the contagion risk.

First, let defaults happen but establish a transparent legal process (rather than under-table arrangements) to resolve the dispute between different parties.

Second, regulators should tighten supervisory and regulatory framework to contain regulatory arbitrage activities, and clarify the responsibilities in various shadow banking products. The uncertainty in regulatory and legal responsibility behind each product is an important caveat in the market, and could amplify the contagion risk.

Third, impose hard budget constraints on local governments and SOEs, so as to avoid crowding out of credit to other business borrowers and establish risk-based pricing practices.

Finally, avoid defaults that could be easily linked to systemic concerns, such as the default of banks (rather than non-bank financial institutions as the perception of government protection on banks is stronger) or local government financial vehicles or SOEs. Similarly, the default of a WMP could have a bigger impact than a trust product, as the latter does not have maturity mismatch problem and are sold to wealthy individuals rather than retail investors. In that sense, China may miss an "ideal” first default if “Credit Equals Gold No 1” gets bailed out.

Investors in China have been running scared of a default on a high risk trust product; but, as Bloomberg's Tom Orlik notes, they should embrace it.

And they are going to get a chance again soon as there are considerably more of these maturing in the next quarter...

Perhaps that is why 3mo SHIBOR has been rising 9 days in a row...

A Mission to Mars Illustrates the Insanity of the Federal Reserve

Posted: 29 Jan 2014 06:53 PM PST

"The last duty of a central banker is to tell the public the truth" – US Federal Reserve Vice Chairman Alan Blinder, 1994

By now, everyone knows that bankers lie…all the time. They tell one group of clients to sell an asset while secretly telling another group of clients to buy the same asset. They tell other clients to buy assets and then short that very asset behind their clients' backs. They tell the world they don't engage in any type of gold swaps nor do they rehypothecate gold, but yet when Germany asks for its 300 tonnes back from the US Central Bank, they respond by telling Germany that they have it all but only return 5 tonnes in the whole of 2013. Five tonnes represents 0.06% of the alleged gold the US Central Bank claims is in deep storage somewhere in the United States.

Yesterday the US Central Bank said that they are cutting their purchases of US Treasuries yet again from $75B a month to $65B a month. But as I stated yesterday in our weekly newsletter sent to thousands before the FOMC announcement, "I do not care if the US Central Bank's FOMC lies later today when they announce policy and if they state they are going to taper QE more just to knock down gold and silver prices again in the short-term, because the REALITY is not only can they not maintain such a policy other than for the very short-term, but that they will eventually need to INCREASE QE just to prevent disaster and all the huge bubbles they have created all over the world from popping."

In today's world, it simply doesn't matter what any of the bankers say because the only thing we know to be true is that their words are never to be trusted. The only thing that matters is what bankers are actually doing behind closed doors after spouting propaganda lies to the public. Below, we use a mission to Mars to clearly illustrate the insanity of Central Bank-speak.

Other recent SmartKnowledgeU videos for your viewing pleasure:

War is a Bankster Racket

Does Your Gang Affiliation Prevent You From Thinking Clearly?

About the author: JS Kim is the Managing Director of SmartKnowledgeU, a fiercely independent research & consulting firm that focuses on precious metals. Subscribe to our YouTube channel here and our Twitter feed here.

Kaye on gold, Fleckenstein on 'tapering,' Farage on EU's growing fascism

Posted: 29 Jan 2014 05:52 PM PST

8:50p ET Wednesday, January 29, 2014

Dear Friend of GATA and Gold:

King World News has interviews tonight with Hong Kong fund manager William Kaye about gold's prospects --

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/1/29_Th...

-- with fund manager Bill Fleckenstein about the effect on the markets of the Federal Reserve's continued curtailment of its bond buying --

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/1/29_Fl...

-- and with the leader of the United Kingdom Independence Party, Nigel Farage, about the European Union's new reach into fascism:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/1/29_Ni...

Farage isn't making it up, as this report from the London Telegraph can attest:

http://www.telegraph.co.uk/news/worldnews/europe/eu/10605328/EU-has-secr...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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"The (Other) Shoe" - IceCap Monthly Commentary

Posted: 29 Jan 2014 05:39 PM PST

Select excerpts from this month's client letter by IceCap Asset Management

The World is Booming

If one were only to look at the stock market and the buzz within New York, London, San Francisco, Sydney or Toronto; they would conclude that the world is indeed booming.

After all, people say the stock market is a leading indicator and that is telling us that the world is bursting at the seams with accelerating growth. In addition, business in restaurants, shops and real estate in these major cities are also off the charts. And of course, the leading financial news stations are tripping over themselves with gushes of great news.

Now, we don't mean to be the party pooper; however one must understand what is really happening to truly appreciate the still, slow moving and delicate economic pickle the world has been stuck with. For starters, these major cities are always booming. When is the traffic not flowing, when are the restaurants not chalk full, and when are the brownstones not expensive? Instead, for a better picture of economic life, feel free to visit St. Louis, Winnipeg, or Marseilles and we're sure you'll have no problems at all securing that dinner reservation.

Peeling away the top layer of fabulous news resulting from the stock market, we cannot help but see that the deep structural issues associated with the 2008-09 crisis remain. The mountains of bad debt have simply shifted away from specific investors, to governments and their tax payers.

From a global perspective, this transfer of bad debt from specific investors to tax payers is THE most important issue to understand. In simpler terms, and unknown to many, the bad debt has been spread around the world for everyone to share. Yes, socialism has arrived and few in our capitalistic world have noticed.

Now, if we said "Okay the bad debt has been spread around, let's everyone take losses and then we'll be on our way," then that would have been a good thing. On with the show.

However, major governments and central banks have decided that no one will take losses, and everything will be okay over time. To prevent (actually "delay" is a better term) these losses, the following occurred:

1 – 0% interest paid on savings
2 – bailouts to big banks
3 – money printing
4 – currency manipulations
5 – long-term interest rate manipulations

Of course, these extreme policy responses have resulted in:

1 - extreme sluggish growth
2 - extreme unemployment
3 - and perhaps the most terrifying of all extremely unhappy masses

And when we say masses, we mean the average person not working on Wall, Bay or Threadneedle Streets. This is where change will occur.

And, it is the unhappy masses that will shape the world in 2014 and beyond. Although this is very clear to some people, the world is on the verge of experiencing even more draconian responses from our world leaders.

First up is the 10% wealth tax which will occur in the Eurozone countries. In our last global market outlook, we provided the details behind this IMF issued and endorsed recommendation. The thinking is that if everyone contributed 10% of their wealth to the governments then that would be enough to restore debt levels to pre-2008 levels. The key words are "tax on your wealth" not a tax on your income - two completely different animals. Europe actually believes their citizens will be quite fine with having 10% lopped off of their bank and investment accounts – we disagree.

Next, the Eurozone is likely to see negative interest rates. Apparently paying little old ladies 0% on their savings wasn't evil enough. Now, to further improve morale amongst the savers, the ECB is increasingly becoming comfortable with banks charging people for having their savings on deposit. Europe actually believes that if there is a penalty for keeping money on deposit, people and companies will instead spend their lifelong savings which will help with the recovery.

Instead, we see the opposite happening: People and companies will simply withdraw or hoard their money instead.

Why is there such a positive outlook by European governments for Europe? Simply put, the Eurozone governments believe they will not experience any reputational damage from taxing the rich and stealing from the poor.

Now, at various times many emerging market countries experienced catastrophic money problems as well. In the end, just as every rational human being would do - foreign money fled along with local private money. The result was a complete collapse of the local currency, moon high interest rates as well as zero access to international capital markets.

Yet in Europe, the espresso-sipping and champagne-gurgling powers-that-be, actually believe the continent will have no reputation damage whatsoever. Foreign money will stay put, locals will stay put. All the wealth will stay put.

We completely disagree, and unless all 18 Eurozone countries agree to form one government, create one tax code and consolidate all debt the world will be facing the largest debt default in the history of mankind.

* * *

Read the full letter below (pdf)

The Gold Price Validated it's $1,250 Support Closing Up at $1,262.20

Posted: 29 Jan 2014 04:25 PM PST

Gold Price Close Today : 1262.20
Change : 11.40 or 0.91%

Silver Price Close Today : 19.535
Change : 0.050 or 0.26%

Gold Silver Ratio Today : 64.612
Change : 0.419 or 0.65%

Silver Gold Ratio Today : 0.01548
Change : -0.000101 or -0.65%

Platinum Price Close Today : 1406.40
Change : -1.30 or -0.09%

Palladium Price Close Today : 710.25
Change : -5.35 or -0.75%

S&P 500 : 1,774.20
Change : -18.30 or -1.02%

Dow In GOLD$ : $257.76
Change : $ (5.49) or -2.08%

Dow in GOLD oz : 12.469
Change : -0.265 or -2.08%

Dow in SILVER oz : 805.67
Change : -11.81 or -1.44%

Dow Industrial : 15,738.79
Change : -189.77 or -1.19%

US Dollar Index : 80.660
Change : 0.078 or 0.10%

The GOLD PRICE was pushed up today. Comex closed up $11.40 (0.9%) at $1,262.20. Silver lagged badly, rising only 5 cents to 1953.3c.

Yesterday the gold price fell back to support at $1,250.80, and today rebounded like a trampoline champ. That validated $1,250 support. In the aftermarket gold has pushed through the $1,267.50 December high, but not enough to call it a breakout.

The GOLD PRICE is pounding at the door of that downtrend line from April, but pounding isn't breaking down. Strength shown so far whispers it will break through tomorrow, but if not, it can fall back as far as $1,210 without changing the outlook. All indicators I watch are pointing up, and I expect to see higher gold soon.

The SILVER PRICE since early December has formed a rising flat topped triangle with the base or top at about 2050c, and a slowly rising hypotenuse beginning at 1889c through 1910c through 1931c and now today at a 1945c low. This line was broken only once, by the plunge on 31 December 20 1872, but that was an intraday low and silver never closed below that hypotenuse.

Silver stands below its 20 and 50 DMAs (1984 and 1992). It has dithered two months trading sideways. Two days ago the MACD flashed a Sell.

This picture must clear, or threaten gold's performance. Related markets can disagree for a day or two, but past three it begins to look like a family argument where somebody's fixin' to take out a knife and go to cuttin'.

To confirm a rally, the gold price must close above $1,267.50 and silver must hop aboard and climb over 2050c. It's very rare that gold will stage a rally all on its own. Possible, but infrequent.

One thing about us nacheral born fools from Tennessee, I ain't crafty enough to lie when I'm caught out wrong and make out like I was saying the other thing all along. I'll just out and admit it, I was wrong. The scummy criminals at the Fed did taper after all. In the FOMC's statement today -- Bernanke's swan song -- the Fed said it would reduce its securities purchase by $10 bn total, knocking $5 bn of its present $40 bn monthly US Treasury bond buying and $5 bn from its $35 bn Mortgage Backed Securities purchases.

But the Fed also promised it would hold interest rates near zero until unemployment dipped below 6.5%, or 'till hell freezes over with Gatorade, whichever comes first (I snuck in that last part on my own. They didn't really say that). Here are the really gut-bustin' hilarious gems from the FOMC statement:

** the economy is improving.

** "The committee recognizes that inflation persistently below its 2% objective could pose risks to economic performance." (This is loony from the standpoint of protecting the dollar's purchasing power, which is why y'all don't understand it, because the Fed doesn't give 2 hoots and a holler about the dollar's purchasing power. That ain't their job. Their job is to keep all y'all BELIEVING they aim to protect the dollar. And it's genrlly working.)

** "The Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens." Translation: we are going to continue to create new money at the same rate as far as we can see into the future.

And how did the stock market take the news that the Fed is jerking the punch bowl? Not calmly. Dow plunged another 189.77 points (1.19%) to 15,738.79. Scorecard: Dow has lost 676.53 (4.1%) in the last seven trading days. S&P500 today peeled off 18.3 (1.02%) to perch on 1,774.20.

Clearly the Fed is playing "chicken" with the stock market.

Where doth that leave us? The Dow has crashed back below the upper channel line that it threw over (rose above) in November, and reached its last low (15,703.79 in December) matched with a September peak at $1,5709.58. If the Dow punctures this support, next obvious stopping point is the 200 DMA now at 15,454.71. No indicator gives a sign of an upturn yet. S&P500 looks no better.

Meanwhile the Dow in Gold is cascading over the rocks. Closed today down 2.5% at 12.42 oz (G$256.74 gold dollars). All moving averages are in downward alignment, and the next to be struck is the 200 at 11.76 (G$243.10).

Thanks to silver's recent lethargy, the Dow in Silver has not dropped as dramatically. Today it lost 2.18% to end at 798.92 oz, and stands below its 20 and 50 DMA (814.41 oz), and it's outside its upward trading channel. Gravity is calling.

Since the Fed pulled the plug on its stock support today, I reckon investor's appetite for risk has been trimmed. That showed up in rising bond prices/falling ten year T-note yield. It dropped 2.59% to 2.675%.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 2014, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold or 18 ounces of silver. or 18 ounces of silver. US $ and US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down.

WARNING AND DISCLAIMER. Be advised and warned:

Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps.

NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced.

NOR do I recommend buying gold and silver on margin or with debt.

What DO I recommend? Physical gold and silver coins and bars in your own hands.

One final warning: NEVER insert a 747 Jumbo Jet up your nose.

The Gold Price Validated it's $1,250 Support Closing Up at $1,262.20

Posted: 29 Jan 2014 04:25 PM PST

The Gold Price Reset Will Stun The World In 2014

Posted: 29 Jan 2014 03:41 PM PST

Today the man who has been one of the most accurate in the world at calling movement in the gold price predicted that the price of gold will be reset in 2014, and that it is going to stun the world. William Kaye, who 25 years ago worked for Goldman Sachs in mergers and acquisitions, also spoke with KWN about how the mainstream media is now using propaganda ahead of the coming reset.

This posting includes an audio/video/photo media file: Download Now

In The News Today

Posted: 29 Jan 2014 03:00 PM PST

Quiz: What popular cyclical analyst penned the following in 2009 on gold? "Technical support for gold will be at the $800 level for 2010. Holding this will keep the bullish momentum in place. We should see a temporary high in 2010 – 2011 with a retest of support perhaps into 2012 and 2013 with a... Read more »

The post In The News Today appeared first on Jim Sinclair's Mineset.

Gold Stands Strong After US Fed Taper II

Posted: 29 Jan 2014 02:58 PM PST

The US Fed released its January statement earlier today. The decisions appear to be almost identical to the ones taken in December. Stocks and the dollar suffered on the news release, gold and US Treasuries closed (slightly) higher on the day. Mind that both stocks and gold are at critical junctures, as we show on the charts below.

From Futures Mag:

The FOMC voted unanimously, and we don't recall off hand the last time that happened, to reduce purchases by $10 billion to $65 billion per month and promises to maintain the same pace of reduction assuming progress is being made to its dual labor-inflation mandate. In December Eric Rosengren voted against, claiming that the rate of unemployment was too high and that to taper at the time would prove counter-productive.

As usual, Zerohedge was extremely fast to release the highlights of the FOMC meeting:

US FED tapers bond buying to $65 billion monthly pace from $75 billion
US FED says labor market “mixed,” “showed further improvement”
US FED reiterates low rates until jobless rate well past 6.5%
US FED repeats risks to outlook have become “more nearly balanced”
US FED says unemployment has declined “but remains elevated”

There are a couple of important things to note.

First, the reaction of the markets on today’s tapering decision is different than the previous one a month ago. Back then, stocks catapulted higher. Today, they closed significantly lower on the day, a sign of weakness. It appears that tapering is not that fruitful for the stock market, contrary to what the market thought a month ago.

The key point is that nobody knows what will happen with Taper III, IV and V. Will the effects manifest themselves in a linear fashion (additional but similar weakness on each Taper)? Or will it evolve in an logarithmic way? Nobody has the answer to this question, as we are in uncharted territory, no matter if policy makers want you to believe that they are in full control. The truth of the matter is that they are not. The recent emerging markets crisis, being the result of the developed world’s central bank policies, is evidence that the markets can take over control from central planners.

From a chart point of view, the S&P 500 is trading at an important support level (horizontal blue line on the chart), a bit lower than its 50 day moving average. This is a critical juncture. Should this support level give up, then the area between 1705 and 1720 becomes a major price point (breaking through that area would signal the start of a bear market).

SP500 29 January 2014 price

Second, gold is holding up very well in this environment. The price of gold closed slightly higher today, although there was significant volatility in both directions during the day. After the previous FOMC meeting in December, gold closed neutral.

From a chart perspective, gold is right above a major resistance line and it is holding well for the time being. It broke resistance a week ago and it should go higher from this price point (ideally with increasing volume) in order to confirm a break out.

gold price 29 January 2014 price

Gold’s current relative strength is not only confirmed by weakness in US equities, but also by a weakening US dollar and the gold mining complex. The gold miners recently broke through important resistance (see blue line on the following chart) and are holding up quite well. For us, the most surprising evolution of today was that gold miners went significantly higher after the FOMC news, although they were neutral before, amid a weakening stock market.

HUI gold miners index 29 January 2014 price

For now, these are all encouraging signals for the precious metals complex. If both the metal(s) and the miners can hold above resistance and move higher in the days and weeks ahead, it would confirm a break out and a trend reversal. Readers know which price levels to monitor.

Fleckenstein – Year Of “Fantasy” Is Over, Expect Turmoil Now

Posted: 29 Jan 2014 02:48 PM PST

Dear CIGAs, On the heels of the Fed's decision to taper another $10 billion, today Bill Fleckenstein told King World News that the year of "fantasy" is over, and investors around the world should brace for more turmoil. He also discussed how major markets would be impacted, including stocks, bonds, and gold. Below is what... Read more »

The post Fleckenstein – Year Of “Fantasy” Is Over, Expect Turmoil Now appeared first on Jim Sinclair's Mineset.

Marc Faber: 5 Investment Insights Related To Gold, Stocks, Property

Posted: 29 Jan 2014 02:40 PM PST

Faber is bearish on the stock market:

There is a colossal bubble in assets. When central banks print money, all assets go up. When they pull back, we could see deflation in asset prices but a pickup in consumer prices and the cost of living.

In Reminiscences of a Stock Operator [a fictionalized account of the trader Jesse Livermore that has become a Wall Street classic], Livermore said, “It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight.” Here’s another thought from John Hussmann of the Hussmann Funds: “The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There’s no calling the top, and most of the signals that have been most historically useful for that purpose have been blaring red since late 2011.”

I am negative about U.S. stocks, and the Russell 2000 in particular. Regarding Abby’s energy recommendation, this is one of the few sectors with insider buying. In other sectors, statistics show that company insiders are selling their shares like crazy, and companies are buying like crazy.

Looking at 10-year annualized returns for U.S. stocks, the Value Line arithmetic index has risen 11% a year. The Standard & Poor’s 600 and the Nasdaq 100 have each risen 9.4% a year. In other words, the market hasn’t done badly. Sentiment figures are extremely bullish, and valuations are on the high side.

Faber his view on how to play the coming financial crisis:

What I recommend to clients and what I do with my own portfolio aren’t always the same. That said, my first recommendation is to short the Russell 2000. You can use the iShares Russell 2000 exchange-traded fund [IWM]. Small stocks have outperformed large stocks significantly in the past few years.

Next, I would buy 10-year Treasury notes, because I don’t believe in this magnificent U.S. economic recovery. The U.S. is going to turn down, and bond yields are going to fall. Abby just gave me a good idea. She is long the iShares MSCI Mexico Capped ETF, so I will go short.

Faber is invested in cash, gold and started buying Treasury bonds:

I have a lot of cash, and I bought Treasury bonds.

I have no faith in paper money, period. Next, insider buying is also high in gold shares. Gold has massively underperformed relative to the S&P 500 and the Russell 2000. Maybe the price will go down some from here, but individual investors ought to own some gold. About 20% of my net worth is in gold. I don’t even value it in my portfolio. What goes down, I don’t value.

Faber recommends gold miners and is positive on Asian property:

I recommend the Market Vectors Junior Gold Miners ETF [GDXJ], although I don’t own it. I own physical gold because the old system will implode. Those who own paper assets are doomed.

You have to own some assets. Hutchison Port Holdings Trust yields about 7%. It owns several ports in Hong Kong and China, which isn’t a good business right now. When the economy slows, the dividend might be cut to 5% or so. Many Singapore real-estate investment trusts have corrected meaningfully, and now yield 5% to 6%. They aren’t terrific investments because property prices could fall. But if you have a negative view of the world, and you think trade will contract, property prices will fall, and the yield on the 10-year Treasury will drop, a REIT like Hutchison is a relatively attractive investment.

The outlook for property in Asia isn’t bad because a lot of Europeans realize they will need to leave Europe for tax reasons. They can live in Singapore and be taxed at a much lower rate. Even if China grows by only 3% or 4%, it is better than Europe. People are moving up the economic ladder in Asia and into the middle class.

Faber his view on emerging markets like India and Turkey:

I am on the board of the oldest India fund [the India Capital fund]. The macroeconomic outlook for India isn’t good, but an election is coming, and the market always rallies into elections. The leading candidate is pro-business. He is speaking before huge crowds.

In dollar terms, the Indian market is still down about 40% from the peak, because the currency has weakened. In the 1970s, stock market indexes performed poorly and stock-picking came to the fore. Asia could be like that now. It is a huge region, and you have to invest by company. Some Indian companies will do well, and others poorly. Some people made 40% on their investments in China last year, but the benchmark index did poorly.

I like Vietnam. The economy has had its troubles, and the market has seen a big decline. I want you to visualize Vietnam. [Stands up, walks to a nearby wall, and begins to draw a map of Vietnam with his hands.] Here’s Saigon, or Ho Chi Minh City, the border with China, and the Mekong River. And here in the middle, on the coast, is Da Nang.

I recommend shorting the Turkish lira. I had an experience in Turkey that led me to believe that some families are above the law. When I see that in an emerging economy, it makes me careful about investing.

(Source: Barron’s via Zerohedge)

Gold Daily and Silver Weekly Charts - Bounce on FOMC Day - 2014 Comex Options Calendar

Posted: 29 Jan 2014 01:35 PM PST

Gold Daily and Silver Weekly Charts - Bounce on FOMC Day - 2014 Comex Options Calendar

Posted: 29 Jan 2014 01:35 PM PST

Fleckenstein - Year Of “Fantasy” Is Over, Expect Turmoil Now

Posted: 29 Jan 2014 12:55 PM PST

On the heels of the Fed's decision to taper another $10 billion, today Bill Fleckenstein told King World News that the year of "fantasy" is over, and investors around the world should brace for more turmoil. He also discussed how major markets would be impacted, including stocks, bonds, and gold. Below is what Bill Fleckenstein, who is President of Fleckenstein Capital, had to say in this timely and powerful interview.

This posting includes an audio/video/photo media file: Download Now

Ben Bernanke We Hardly Knew Ye

Posted: 29 Jan 2014 12:33 PM PST

Just three short days until Ben Bernanke’s out and Janet Yellen’s in.

Here at The Daily Reckoning, the changing of the chair at the Eccles Building is a spectacle we take seriously. About as seriously as tonight’s State of the Union address, in fact.

So with a sentimental twinge, we tune out the daily grind and use the occasion as a springboard for the good professor’s roast. Despite years of endless mockery, odd looks, raised eyebrows and low blows, we admit we’ve formed a soft spot for “Helicopter” Ben. Deep in a small crevice of our heart of hearts. He was such an easy target… we will be sad to see him go.

When we first met “the Bernank,” his beard was dark and his resolve never stronger. Ben was just a Fed governor at the time. A student of the 1930s, he knew what made the world tick… or at least thought he did.

With his Essays on the Great Depression (Princeton University Press, 2000) in tow, he preached the gospel of ever-so-slight-but-consistent price increases; 2% would be swell (though more would certainly be forgivable).

“I would like to say to Milton and Anna,” he famously toasted the late Milton Friedman and Anna Schwartz, “regarding the Great Depression: You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

That was in 2002. Twelve years later, what the Fed will and won’t do again remains unseen.

At writing, the scary narrative has moved precisely nowhere. The Fed is still holding $2.4 trillion in excess reserves. Banks, if so inclined, could extend up to 10 times that credit — $24 trillion. Alas, be it because of new capital requirements, skittish lenders or other regulations, they aren’t.

Meanwhile, the Fed pledges to twist, turn, push, pull and poke interest rates to their lower bound. But it’s there, at the lower bound, that the Fed’s powers of repression are meeting their upper bound. It can nudge and coerce interest rates, but not control them.

We could go on… but we produce the following spread of the Bernanke years (much thanks to Paul Sparwasser on our production team) instead. (Simply click the chart to the right to enlarge in full detail.) We’ll leave you to form your own opinions…

Bernanke’s legacy, however, will be written long after he’s gone — if only because the data above will be revised many times over. For what it’s worth, our educated guess is he’ll go down among Fed chairmen as a serial bubble blower… one of the most long-winded ones, too.

Interestingly, William McChesney Martin bequeathed no crisis to Arthur Burns in ’70.

Too, Arthur Burns handed G. William Miller no crisis in ’78 (though inflation).

In turn, G. William Miller, that devil-may-care, gave Paul Volcker the double-digit inflation in ’79.

Paul Volcker handed off to Alan Greenspan right as the stock market would crash in ’87.

Alan Greenspan turned tail and passed the housing barm to Ben Bernanke in ’06.

And come Friday, Ben Bernanke leaves Janet Yellen “the mother of all financial bubbles” (and a handful of smaller air pockets, to boot).

How, in anno 2014, could the Federal Reserve be anything but the center of the universe? Like Atlas, if he hailed from Brooklyn, Janet will hold the weight of the world economy on her shoulders. There’s a good chance her knees will buckle under it too. But with no solid idea of what’s to come, we simply point out the hard-to-ignore…

The Fed has bubble solution on its hands, yet is still in vogue…

The dollar is doomed, yet still king…

Gold is badly battered, yet for the same reasons it ascended…

Inflation is subdued, yet only the headline kind…

The unemployment rate’s lower, yet no one really believes it…

And there’s no financial crisis… well, yet.

Plenty a chairman-past left a curious case in their wake. But never one so curious.

More to come…

Regards,

Peter Coyne
for The Daily Reckoning

P.S. If you find yourself tearing up at the thought of “Helicopter” Ben stepping down… not to worry. Janet Yellen will likely give us plenty to reckon with in the years ahead. We hope you’ll join us for every mind-boggling thing she’ll inevitably do to help right the U.S.S. Economy. Sign up for the free Daily Reckoning email edition to make sure you get the full scoop – including specific chances to discover real profit opportunities no matter what Ms. Yellen decides to do. Don’t wait. Sign up for FREE, right here.

A Fatal Disease: The Inevitable Result of Inflation

Posted: 29 Jan 2014 10:59 AM PST

"One difficulty about prescribing for inflation is that we don't entirely know how serious the disease is…..The argument made by those who demand very low rates [of inflation] has simply been inconclusive." (Paul McCracken, former Chairman of the Council of Economic Advisors.)

Let's scrutinize the above statement…

The history of civilization is, in reality, the history of a series of societies, or nations, as you might call them. The people in each nation have come under the control of the leaders of a state or government by force or by vote. In either case, the leaders of the country (with the cooperation of the bankers) have always and in every case found it necessary to increase their funds beyond the amount they could collect through taxation. This is almost always done through some form of currency debasement.

…the theft is translated into rising prices, and the rising prices do the dirty work.

Whether the state borrowed from banks and monetized the debt, clipped coins, or simply ran printing presses to print new issues of notes, the results have always been the same: rising prices. As the state monetized debt and consumed the products and services purchased with those I.O.U.'s, the community as a whole was deprived of that production.

The fact that the community felt it was receiving tangible wealth back in the form of "money" only served to confuse it. In the end, the confusion that resulted from this illusory wealth caused a fatal cycle of events that ultimately ended in the collapse of each of those states.

If you, as an individual, borrow money from someone and never repay that person, you have stolen from him. You are a thief. He is worse off; he has lost some of his wealth. When a state monetizes debt either by printing bank notes directly or by borrowing such notes from a bank without intention of repaying, it is just as much a thief of the society. The difference is that the victim becomes twice removed from his enemy. He can't tell by whom he has been victimized.

The real loss falls on the population as a whole, and in such a camouflaged pattern that the results defy surface analysis. In other words, the theft is translated into rising prices, and the rising prices do the dirty work. When the victim feels the threat and tries to protect himself, he usually flails out at the symptom rather than the cause. The theft occurs when a person borrows money and does not repay it. The symptom is the rising price. As the individuals in society attempt to react to the symptom (rising prices), the trouble begins.

When the Congress votes to increase the national debt, as they have done periodically for years, how do you feel? Do you realize that what they're doing is borrowing money directly from you with no intention of ever paying it back (Borrowing it from you, if you're a producer. Of course, if you're on welfare or unemployed, you have nothing to lend them.)

Would you consider loaning someone money knowing that they had a long history of debt repudiation, and know that you may not agree with what they will do with the money once they've borrowed it? Of course, you wouldn't. But you're doing it anyway.

The most staggering revelation to come from a study of the economic history of past societies is that the sequence of economic events in the United States during the past fifty years has occurred repeatedly in dozens of other societies stretching as far back as early Macedonia:

Government needs more money than it is able to collect through taxation, so it issues paper money (or clips coins).
When the government spends this new money, business picks up.
As the increased supply of money percolates down through the society, prices begin to rise and business begins to slump.
To counteract the slump, the government issues more money.
Business picks up again, prices begin to rise, business slumps again.
People begin to distrust paper currency and begin to hoard gold and silver coins.
Government points finger of blame at gold hoarders and passes laws to stop hoarding (often confiscating gold, sometimes silver.)
More inflation: prices begin to rise more steeply, people demand action and government passes price and wage control laws.
Shortages appear, rationing begins, black markets take over in place of regular markets.
Speculation begins to replace prudent investing as capital markets fluctuate up and down in concert with the business cycles.
Hard work falls into disrepute; people get rich (or poor) speculating; the thrifty lose all to inflation more and more people go on relief as production falls and inflation forces prices out of the reach of the elderly and marginal producers.
As more people go on relief, government must tax the remaining producers more heavily until they decide to stop producing, and the situation beings to compound itself.
Stock markets oscillate wildly up and down, and finally drop; marginal businesses fail; prices fall to natural levels; currency is devalued to real levels; debts are repudiated; the country begins again.

The above scenario has been repeated in almost every society where the state has debased the currency. Everyone who is concerned about preserving his wealth should read Fiat Money Inflation In France by Andrew Dickson White. It is a classic chronicle of the effect that fiat money had on the economy of France subsequent to the French Revolution. The parallels between France in 1789 and the U.S. in the 20th century are both obvious and frightening.

One has to wonder if President Roosevelt had ever studied the histories of countries that tried outlawing gold and inflating the money supply to solve their temporary economic problems. When he said, "it's all right; after all, we're borrowing from ourselves," had he heard of Macedonia, or the French economy of 1789? And what of President Nixon? When he instituted price controls, where were the scientists who said, "Let's observe the past before we act." If the saying is true that history repeats itself, could it be because no one consults history before they act? For Dr. McCracken to say that we don't really know of the seriousness of the disease called inflation is totally absurd. The disease is fatal.

Regards,

John A. Pugsley
for The Daily Reckoning
December, 1974

Ed. Note: No matter how much money the Fed prints or how high the deficit gets, inflationary policy has done absolutely nothing to add any real wealth to the U.S. economy. And this policy doesn’t look like it will end any time soon. That’s why it’s best to stay informed, ahead of the curve and ready for whatever comes next. That’s why we write The Daily Reckoning email edition – to help readers stay one step ahead of the Fed, the politicians and the markets. Every single day, readers are treated to no less than 3 specific chances to discover real, actionable profit opportunities, along with the world’s best financial commentary. And it’s FREE. So don’t wait another minute. Sign up for The Daily Reckoning email edition, for FREE, and start getting the full story.

Few Realise How Undervalued Silver Is At Current Prices

Posted: 29 Jan 2014 10:39 AM PST

Though silver unfortunately was the worst performing precious metal in 2013, I am convinced that this year will be an entirely different matter.

Few people realise how undervalued this metal is at the current prices and many analysts believe that 2014 could bring increased silver market strength, as well as higher prices.

As in the case of gold, silver prices came under massive selling pressure by traders using futures contracts and options on Comex. This artificial supply that will never be delivered was orchestrated by the major bullion banks in an attempt to suppress the price of silver. This selling of paper contracts does not reveal the true fundamentals of the silver market which remain extremely bullish.

After much speculation about when — and by how much — the US Federal Reserve would reduce its bond-buying program, the central bank announced plans at the end of December to lower it by $10 billion, to $75 billion a month, in January.

This will lead to a weakening of the US dollar relative to most of its peers which is positive for silver. Also, if the latest economic figures are correct and there are signs of an improving US economy the increased strength in the nation's economy means that industrial demand for the white metal could pick up, raising silver prices in the process.

The current price for silver is extremely low and during the third quarter of 2013, silver mining costs averaged $21.39 per ounce. If these low prices persist, mines will eventually close reducing the amount of silver on the market. In turn, that lack of supply should push prices up.

Perhaps of more significance is the level of demand. China and India, are importing increasing amounts of silver. Demand for physical silver into India increased dramatically throughout 2013, leaving market participants wondering if the country would import more than the record 5,048 metric tons of silver it brought in back in 2008.

Recently, Bloomberg reported that Turkey imported 41.6 metric tons (MT) of silver in December, the largest amount since at least 1999. That brought the total amount silver imported by the country in 2013 up to 227.8 MT, a 60% increase from 2012 and much higher than the 42.1 MT Turkey imported in 2011.

Meanwhile, while there has been a drain of gold from the Western ETFs and Funds, this is in sharp contrast to silver, which has had about 992 net tons added. And, the demand for silver bullion coins especially the US Eagle has set new records.

While on a percentage basis silver has had a worse price performance last year compared to gold, there has not been any panic selling at all. On the contrary, there has been a substantial increase in demand.

It is clear that the silver and gold market is being manipulated by some big players. But, all manipulations end, eventually. Ultimately, the price of silver is headed much higher, and so, take advantage of the current low levels.

www.lakeshoretrading.co.za

China's Impact on Gold Prices in 2014

Posted: 29 Jan 2014 10:31 AM PST

Gold prices, as yet, remain unmoved by the Chinese New Year of the Horse...

WHAT should gold investors and traders expect from the Chinese New Year, marked with near-month long celebrations from tomorrow? asks Adrian Ash at Bullionvault, now in Chinese.

First, expect yet more press coverage of housewives and single young men buying gold hand over fist to mark the start of the Year of the Horse.

Expect also to learn that China is (drum-roll please) the world's No.1 gold miner and No.1 consumer, but not why (the long collapse of South African output, and the 2013 collapse of Indian imports thanks to the government's attack on the trade deficit).

The lunar New Year marks an auspicious time to buy gold, you'll be told. It also marks a retail frenzy, pictures from Shanghai and Shenzen shopping malls will show.

But will that push gold and silver higher?

Nope. The New Year move in world prices would have already come if it mattered, before the celebrations, not when shoppers hurry home with their treasure. Sure, wholesale demand from Chinese stockists did indeed seem to coincide with January 2014's rising bid for gold. But in terms of China's impact on world gold prices, the inflows themselves would have come earlier, giving importers time to arrange and land new shipments. Which they did. Only prices fell.

There was a "rapid rise in local inventory in August-November 2013 by local traders," as consultancy Metals Focus notes, "in order to avoid running out of stocks before the Chinese New Year." November and December then both saw gold imports through Hong Kong, the major point of entry, fall below 100 tonnes per month (net of re-exports). Lower Chinese import demand did coincide with a nasty retreat in the world gold price, back towards the three-year lows set in mid-2013. But whatever relationship China's import demand had on world gold prices, its impact was again far from simple. Because premiums for gold delivered from the Shanghai Gold Exchange, over and above world prices, again spiked as gold hit $1180 per ounce, rising to $20 after hitting $30 per ounce at the same mid-summer low.

Might that Chinese premium reflect the impact which China would have on gold prices if only the world followed Shanghai as its benchmark rather than London? If so, then the world's No.1 mining nation and physical buyer would still have done little to stem 2013's slump in gold prices. The end-June premium would scarcely have kept prices above $1200 per ounce at the low. And yet China's importers bought gold hand over fist to feed its wholesalers who met unprecedented household demand.

What gives? The simplest explanation, we suggest, is that final end-consumer gold buying doesn't move world prices. Not from people who buy gold because it is gold. They tend to want more when prices fall, and vice versa. The people who count are instead those who buy gold because it isn't anything else.

Witness the loss of India, former world No.1, in mid-2013. Driven by religious, cultural and social forces running back to pre-Roman times, Indian households were on track for a record year as prices slumped last spring. Because prices were slumping.

That huge call on physical gold then got cut off from the world market by the government's anti-import rules (aimed at reducing India's massive trade deficit). Yet the back-half of 2013 then saw sideways price action overall. Gold ended December back where it was at the end of June, which was when India's import restrictions (effectively a ban) really got started.

Now, just as the loss of India failed to pull prices lower (and even with India locked out of new imports ahead of Diwali, its own peak demand season), so China's New Year surge won't reverse much of last year's slump. Not yet.

Money managers in the developed West continue to drive, moving prices by pouring in cash (or sucking it out) that would otherwise go into other, financial assets. Remember how last year's crash was all done by midsummer? Seventy per cent of the 550 tonnes of gold leaving the giant New York-listed SDPR Gold Trust in 2013 was gone by end-June. Speculators in US gold futures and options had by then slashed their net bullish position by four-fifths, cutting it to what proved the low for 2013, equal to barely 100 tonnes.

What might give China's demand to buy gold more impact on prices this year? Analysts are split either way. One calls it "make or break" for gold in 2014. But they are all watching what the world's new No.1 is doing very closely.

And with Western money managers cutting their interest in gold to levels last seen at the bottom of the previous 20-year bear market, the sheer weight of China's wealth might start to count soon. After all, per head of the population, the world's second-largest economy creates GDP more than four times the size of India's, the former gold No.1.

What's more, China's fast-growing middle-class is set to enjoy a new, broader range of financial services products to choose from. Late 2013's third plenum of the current politburo made "market-based reform" a top priority.

Some gold analysts think wider financial choices mean Chinese investors and households will buy less gold. That's a guess. But it would most certainly mean people stop buying gold for its own sake, and can start buying (or selling it) because of what they expect will happen to other, financial asset classes.

Already, the growth in China's gold demand since deregulation began in 2002 has been extraordinary:

China's GDP has grown four-fold over the last decade; private gold demand by value has risen 15 times;
On top of being the world's No.1 gold mining nation, China almost doubled its net imports in 2013 to more than 1,000 tonnes;
That's five times the weight the country consumed as a whole in 2002, and pretty much matched the outflow of metal from Western gold funds and private accounts.

Why did 2013 gold prices sink then, pulling silver down too?

Because China's private households remain, in the main, a gold consumer, not investor. So they are price takers, not price setters, as leading analyst (and now Hong Kong-based) Philip Klapwijk put it in this presentation in December.

Speculation (whether from Western journalists or analysts) that China's surging 2013 demand included gold buying by Beijing's central bank still leads to the same conclusion. The People's Bank would a price taker, and happy to be so when prices drop 30% in a year. If only it were a buyer. Which on its own balance-sheet, and in its public statements (repeating a long-stated desire not to drive prices higher...hurting would-be household buyers...by unleashing Western speculative dollars into the market), it made plain it wasn't in 2013. The PBoC added no gold to its reported reserves for the fourth year running.

Still, looking back to the last adjustment in 2009, that's not to say another state agency didn't buy gold in 2013, and now holds that metal ready for the PBoC to take into reserves sometime in future.

Equally uncertain, but a Beijing-based rumor instead, is that the politburo has opened up China's gold-import quotas to foreign banks for the first time. Letting HSBC and ANZ Bank import gold won't necessarily support or grow the level of gold demand this year. But it plainly shows the Communist regime is serious about liberalizing China's gold market, and about ensuring future supplies.

Now why would the bureaucrats in charge of the world's second-largest economy want to do that?

Back to this weekend, and Chinese New Year will likely mark the peak season for household gold buying. The Year of the Horse starts Friday 31 January 2014, but the lunar cycle can push Xīnnián back to late February. And by value, China's private end-consumer demand over the first 3 months of the Western calendar year has set new quarterly records 11 times in the last 12 years.

At current prices, a new record for the first quarter of 2014 would see Chinese households and investors buy more than 385 tonnes of gold. And yet here we are, with gold recovering a mere 7% from its second trip to $1180...a level first seen on the way up in December 2009.

Yes, public statements from People's Bank officials have put the gold market at the heart of China's broader financial reforms. So both at the household and state level, China's affinity with physical gold looks set to keep growing. And yes, Beijing also continues to open up its domestic gold market, inviting foreign banks to join the Shanghai Gold Exchange and now (perhaps) inviting a couple to start shipping bullion into the Middle Kingdom as well.

That would cut both ways, bringing more influence to the global market from the world's No.1 gold miner and end-consumer economy. But there's no rush. The PBoC remains wary of encouraging Western speculators to boost prices on word that it's buying for China's reserves. Instead, Beijing continues to allow and encourage private households – whose demand doesn't as yet touch the world wholesale price – to accumulate growing quantities at record values.

If you feel that's smart long-term thinking, then it might also be smart to think about holding a little of your long-term money in the same stuff. Certainly here at Bullionvault, Chinese speakers the world over offer a market we'd be pleased to assist.

China's Impact on Gold Prices in 2014

Posted: 29 Jan 2014 10:31 AM PST

Gold prices, as yet, remain unmoved by the Chinese New Year of the Horse...

WHAT should gold investors and traders expect from the Chinese New Year, marked with near-month long celebrations from tomorrow? asks Adrian Ash at Bullionvault, now in Chinese.

First, expect yet more press coverage of housewives and single young men buying gold hand over fist to mark the start of the Year of the Horse.

The lunar New Year marks an auspicious time to buy gold, you'll be told. It also marks a retail frenzy, pictures from Shanghai and Shenzen shopping malls will show.

But will that push gold and silver higher?

Already, the growth in China's gold demand since deregulation began in 2002 has been extraordinary:

China's GDP has grown four-fold over the last decade; private gold demand by value has risen 15 times;
On top of being the world's No.1 gold mining nation, China almost doubled its net imports in 2013 to more than 1,000 tonnes;
That's five times the weight the country consumed as a whole in 2002, and pretty much matched the outflow of metal from Western gold funds and private accounts.

Why did 2013 gold prices sink then, pulling silver down too?

Now why would the bureaucrats in charge of the world's second-largest economy want to do that?

China's Impact on Gold Prices in 2014

Posted: 29 Jan 2014 10:31 AM PST

Gold prices, as yet, remain unmoved by the Chinese New Year of the Horse...

WHAT should gold investors and traders expect from the Chinese New Year, marked with near-month long celebrations from tomorrow? asks Adrian Ash at Bullionvault, now in Chinese.

First, expect yet more press coverage of housewives and single young men buying gold hand over fist to mark the start of the Year of the Horse.

The lunar New Year marks an auspicious time to buy gold, you'll be told. It also marks a retail frenzy, pictures from Shanghai and Shenzen shopping malls will show.

But will that push gold and silver higher?

Already, the growth in China's gold demand since deregulation began in 2002 has been extraordinary:

China's GDP has grown four-fold over the last decade; private gold demand by value has risen 15 times;
On top of being the world's No.1 gold mining nation, China almost doubled its net imports in 2013 to more than 1,000 tonnes;
That's five times the weight the country consumed as a whole in 2002, and pretty much matched the outflow of metal from Western gold funds and private accounts.

Why did 2013 gold prices sink then, pulling silver down too?

Now why would the bureaucrats in charge of the world's second-largest economy want to do that?

A Growing List of Lies in the Debt Ceiling Debate

Posted: 29 Jan 2014 08:58 AM PST

On Feb. 7 the United States will once again reach its statutory debt limit, meaning it cannot legally borrow any more money. Since the obvious option of cutting spending to match the amount of revenue that the government collects is off the table for some inexplicable reason, Congress will have to pass a new, higher debt ceiling to replace current law. In the two weeks until the deadline we should be prepared for all sorts of lies, threats, and forecasts of doom if the debt ceiling is not increased.

The most common lie will be that if Congress does not rapidly pass an increase in the debt ceiling, the U.S. risks a default on its debt, leading to a worldwide financial crisis and a future in which borrowing money becomes an expensive and difficult proposition for years to come. For example, from the Treasury Department's own website:

"Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations — an unprecedented event in American history. That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans — putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession."

This is not true and will not be true no matter how long we go without the debt ceiling being raised.

First, the Constitution does not allow the U.S. to default. Second, the net debt payments are under $50 billion per month, while total government revenue is expected to average nearly $250 billion per month this year. There is enough money to pay the interest on the national debt. What will actually happen if the debt ceiling is not raised is the Treasury will use accounting gimmicks, which it can do for several months; after that, government would have to cut spending.

The Treasury has a pack of accounting tricks that will keep government operating for at least another several months. Essentially, the government uses money that is supposed to be reserved for other purposes, violating all normal standards for good financial controls. The government diverts the money it is supposed to put into the federal government and postal service employee pension accounts and also additional funds that government employees contribute monthly to government-sponsored savings plans.

The only reason we need to raise the debt limit is so we can continue to run a deficit going forward. The past is irrelevant.

These funds allow the government to run a deficit for a while without officially borrowing money. Then after the debt ceiling has been raised, the Treasury borrows lots of money and pays back the government employees, including the interest they should have earned while their money was "borrowed."

The government most recently hit the debt ceiling in May 2013 and managed to make it until mid-October without running out of money, thanks to these accounting tricks and borrowing, which the Treasury calls extraordinary measures. This time the government may not be able to stretch things out as long because income tax refunds will increase the need for cash. Of course, the government can always delay tax refunds in order to avoid defaulting on the national debt. States have delayed tax refunds numerous times in the past to ease cash crunches, so the federal government could follow their lead.

Another threat is that financial markets will meltdown if the debt ceiling is not raised, especially if we actually reach the point of having to suspend payments on the national debt. The truth behind this lie is that U.S. Treasury debt instruments (bills, notes, and bonds) do serve an integral role in world financial markets. Banks, asset managers, and even corporations around the world often use Treasury instruments as collateral in loans or financial transactions because they are so safe and easily marketed.

While it is true that U.S. government debt serves as an important lubricant to financial transactions around the world, it is not true that the markets would cease to function if the government became temporarily unable to pay interest or even redeem the principal. For example, California issued i.o.u.'s back in 2009 when it did not have the money to pay its bills. Banks and other businesses accepted the i.o.u.'s like cash, thanks to California's promise to make them good later with interest.

If the U.S. government issued a statement that it would pay all obligations with interest as soon as the debt ceiling was raised, banks and other holders of U.S. debt would likely wait patiently and the government debt would continue to serve as collateral just as in normal conditions. If California can get people to trust them, the U.S. government can certainly accomplish the same trick.

A final lie told by the administration about the debt ceiling is that (again from Treasury):

"The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past."

The government has paid for all past spending, albeit some of it with borrowed money. As explained above, the interest on the national debt represents only about 15% of federal government spending, so 85% of spending is what we are spending now, not past obligations. Raising the debt ceiling lets Congress continue to spend more than it collects in revenue.

It is that simple. The only reason we need to raise the debt limit is so we can continue to run a deficit going forward. The past is irrelevant.

Politicians like spending money. Republicans and Democrats differ in what they want to spend money on more than on their desire to spend it. Given that most of the money being spent these days is for what Democrats want (since they have the Presidency and the Senate), Republicans should stand firm in negotiating for some spending cuts or other legislative items in exchange for the debt ceiling increase.

The Keystone Pipeline might be a good place to start. Something as simple as using the chained CPI for increases in entitlements like Social Security would be another good request, especially given that President Obama supports that one (Senate Democrats do not, but with the House and the President, that one is 2-1 in favor of the change).

Whatever the Republicans do or do not negotiate before they agree to raise the debt ceiling (as they surely will), the important thing is to ignore all the threats, lies, and warnings of impending doom. Everything will be okay in the interim until the debt ceiling is raised. The sky will not fall. Life will go on. The government shutdown in October showed that the country functions just fine without parts of the government. We can survive without an increase in the debt ceiling, too. So relax and focus on your pool for the Oscars or the Super Bowl. The country and economy will be fine.

Jeffrey Dorfman
for The Daily Reckoning

Ed. Note: Think about it this way… Whenever some religious fanatic starts spouting off predictions about the end of the world, what’s your first reaction? We’d venture to guess that, at the very least, it’s one of measured skepticism. Why then would it be any different when a political fanatic makes wild predictions about financial Armageddon? Of course, it’s not any different. And regardless of what the “powers that be” decide, there will be winners and losers on both sides of the aisle. We’d like you to be one of the winners. Sign up for the FREE Laissez Faire Today email edition, and learn how to stay one step ahead of the crowd.

This article originally appeared here on Forbes

This article was also prominently featured at Laissez Faire Today

Gold prices edge lower as stock markets recover

Posted: 29 Jan 2014 08:12 AM PST

Gold eased on Wednesday as a stock market rally curbed interest in the metal as an alternative investment.

SA gold miner Pan African forecasts significant earnings increase

Posted: 29 Jan 2014 08:12 AM PST

Pan African Resources has announced that it anticipates its half year earnings per share, in South African Rand terms, to increase by between 27% and 34% than in the equivalent period a year earlier.

Anglo Asian misses 2013 Azerbaijan gold output target

Posted: 29 Jan 2014 08:12 AM PST

London-listed Anglo Asian Mining missed its gold output target for 2013 due to bad weather and processing problems.

Gold flows and their huge potential market impact

Posted: 29 Jan 2014 08:12 AM PST

The continuing flow of gold from West to East alone could see serious shortages of physical metal develop in the West and this, together with other potentially positive factors could have a huge impact on the market.

Me Again (after more than three months)

Posted: 29 Jan 2014 08:04 AM PST

After a lengthy absence due to family matters, I’m back with another interview with good friend Cory Fleck over at the Korelin Economics Report. Yesterday, we talked about such timely topics as today’s Fed meeting, the relationship between precious metals and broad equity markets, China’s tremendous appetite for gold, and Germany’s difficulty in getting their gold [...]

This posting includes an audio/video/photo media file: Download Now

Market Monitor – January 29th

Posted: 29 Jan 2014 07:44 AM PST

Top Market Stories For January 29th, 2014: Another Ten Tonnes of Gold Bullion Came Out of Comex Eligible Inventory at JPM Yesterday - Jesse's Café What Blows Up First? Part 3: Subprime Countries - John Rubino GOLD, Bottom or Bounce - 321 Gold China's HK gold trade hits new annual record, but where's it all coming from? – [...]

Gold Stocks Are About to Create a Whole New Class of Millionairesâ€

Posted: 29 Jan 2014 07:28 AM PST

Bear markets always end. Has this one? Evidence is mounting that the bottom for gold may be in. While there's still risk, there's a new air of bullishness in the industry, something we haven't seen in over two years. An ever-growing number of industry insiders and investment analysts believe the downturn has come to a close. If that's true, it has immediate and critical implications for investors.

Gold and Silver Price Ready To Rumble Higher?

Posted: 29 Jan 2014 07:22 AM PST

We have been writing about the bottoming process of the Gold Bear Cycle (Elliott Wave Theory) since December 4th 2013, and our most recent article on December 26th reiterated that the best time to accumulate the Gold/Silver stocks was in the December and January window. Specifically this is what we wrote:

Economic Collapse 2014 -- Yuan becoming a reserve Currency Instead of The US Dollar

Posted: 29 Jan 2014 06:34 AM PST

Lloyds banking group is laying off approximately 1300 employees. Durable goods declined and computer and electronics have plunged to 1993 levels. Sales of homes are declining and now we see home prices starting to fall. Nigeria is now selling off dollars to purchase the Yuan to beef up its...

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Gold Dealers Cut Shanghai Premium as Chinese New Year Begins But Price Jumps Ahead of US Fed "Taper" Vote

Posted: 29 Jan 2014 06:19 AM PST

GOLD DEALERS in London's professional market quoted prices above $1269 per ounce lunchtime Wednesday, up 1.4% from last night's low as European stock markets slipped – and the Euro currency fell hard – ahead of today's US Fed taper decision.

"It is likely that the expected reduction in QE of $10 billion has already been factored in," says one Asian gold dealer's desk in a note.

But either way, "combined with the upcoming Chinese holidays, there will be little [fundamentally] in the pipeline to help gold and silver higher short term."

With the Chinese New Year holidays starting tomorrow, gold dealer premiums above London's international benchmark fell to $5.50 at Wednesday's close in Shanghai, down from 6-month highs of $20 per ounce at the start of January.

Dealing volumes also fell once again, dropping to the smallest level so far this year.

"Shipments to the Far East have remained relatively quiet in early 2014," says the latest Precious Metals Weekly from London-based consultancy Metals Focus.

"To a large extent, this should be attributed to a rapid rise in local inventory in August-November 2013...in order to avoid running out of stocks before the Chinese New Year."

Following "strong offtake" by manufacturers, however, end-retail consumer demand is also now "robust" says the report, citing local media and major jewelry-brand dealers.

Over in Turkey, the world's fourth largest private gold consumer – and the No.1 buyer of gold coins – the central bank today hiked its key interest rate from 7.75% to 12.00% in a bid to buoy the Lira from record lows on the currency market.

A growing smuggling and corruption scandal around gold dealer Safir Altin Ticaret's CEO Riza Sarraf – an Iranian emigre who claims nearly half Turkey's surging gold exports were done by his company in 2012 – has now cost the jobs of 3 cabinet ministers, reports Bloomberg, threatening the Erdogan government and adding to pressure on the Lira and Istanbul's stock market.

Platinum prices meantime rose 1.0% as news broke that South African police today fired rubber bullets at AMCU union strikers outside Anglo American Platinum's Khuseleka project in the north-west of the country.

Amplats – one of the world's 3 largest platinum miners, meeting today with AMCU leaders to resolve strikes which have hit 40% of world production – meantime said its Q4 output rose 25% in 2013, reaching 16.1 tonnes despite the loss of 1.4 tonnes of output to industrial action.

Platinum's premium above gold prices slipped Wednesday morning to $150 per ounce in London trade, down from the 3-year records hit mid-month at $220.

Prices of wholesale silver bullion bars had earlier lagged the rise in gold quotes, but jumped at the start of US Comex dealing to stand 2.2% higher from London's open and recover the week's starting level of $19.92 per ounce.

Shadowy Problems With the Global Banking System

Posted: 29 Jan 2014 06:00 AM PST

The market is still floundering from last week's selloff. The Dow, for instance, is down over 500 points since last Tuesday.

Commentators blame a weak Chinese manufacturing survey, but I think it has more to do with the imminent test of China's shadow banking sector…

As a reminder, Chinese shadow banking refers to loans outside the official state-controlled banking sector. When bank loan growths slowed a few years ago, shaky borrowers were desperate to find new sources of funding. Most were borrowing in a Ponzi fashion; the use of borrowed funds didn't provide the cash to repay loans, so new loans are needed to repay old loans. Shaky borrowers found high-interest, short-term funding from "trust" companies. Trust companies match savers looking to earn high interest rates with desperate borrowers.

Trust loans, like payday loans in the U.S., have short maturities. Trust lending has become so big it has the potential to impair the banking system.

On several occasions over the past year, Chinese banks have demanded higher interest rates to lend to each other. When one bank fears another bank might have exposure to dodgy trust companies, it requires a higher interest rate to compensate for risk. The Shanghai Interbank Offered Rate (SHIBOR) — the rate banks charge each other for loans of various maturities — has spiked again in 2014, despite huge central bank liquidity injections.

This situation parallels Citigroup's implosion in the 2008 crisis, when its exposure to structured investment vehicles (SIVs) left other lenders with the impression that they shouldn't loan overnight money to Citi. The Fed had to step in and lend to Citi against its shaky collateral, because other banks wouldn't loan at rates it could afford.

The global monetary system is fragile and volatile. It's undergoing a harsh test.

Ultimately, the Chinese central bank will step in and flood the system with liquidity, alleviating the cash crunch. But in the near term, as part of its "reforms," the government wants to purge speculation from the system.

By next Friday, we'll find out how far the Chinese government will allow stress in the shadow banking sector to spread. The state-controlled press reported on China Credit Trust's warning to investors: They may not be repaid when a 3 billion-renminbi trust product (with a yield approaching 11%) matures on Jan. 31.

Trusts and wealth management products (WMPs) are parts of the shadow banking sector. Banks and brokers sell WMPs to clients looking for high interest rates, with or without credit guarantees. They're like U.S. money market funds (only riskier). Funds from WMPs are invested in a range of instruments including corporate bonds, trust loans and securitized loans.

CLSA strategist Chris Wood expands on the imminent test of WMPs in his Greed & fear letter:

"If there was ever a time to try to clean up what many, including Greed & fear, would view as the escalating risk of a Ponzi scheme in the trust and wealth management product industry, this would surely be it. The [China Credit Trust] WMP in question stems from a loan to an unlisted coal company. It is also the case that this WMP appears to be owned by about 700 relatively wealthy investors with an average holding worth over [4 million renminbi]. The Industrial and Commercial Bank of China, which acted as distribution agent for the WMP, has also made it clear via public statements that it does not consider itself primarily liable for the product…

"The risk facing the authorities is that a default in which holders are not bailed out in full might precipitate panic outflows across the trust and related WMP asset class, triggering a liquidity crisis, a liquidity crisis which would also ricochet into Hong Kong given the growing evidence of a carry trade funded out of Hong Kong in renminbi-denominated mainland products, a carry trade which has attracted more interest as the renminbi has continued to appreciate and as average yields on WMPs have risen." [Emphasis added]

Wood includes the following chart:

The chart shows a rise in Hong Kong claims on mainland Chinese banks to a record HK$1.9 trillion. It's a telltale sign of hot money flows into China, which ultimately leak into the shadow bank sector.

Hong Kong is overflowing with liquidity, having tied its monetary policy to that of the Federal Reserve. So banks are able to borrow cheaply in Hong Kong dollars and lend to Chinese banks at higher interest rates. The Chinese banks turn around and funnel liquidity to the shadow banks (although the Chinese banks, including the aforementioned ICBC, don't issue blanket guarantees for WMPs).

Let's trace our way back to the source of this corrosive behavior: zero interest rates and money printing. Without these two factors, none of these bubbles would have been inflated. The Chinese misallocation into infrastructure and buildings could have been only a fraction of its current size. Now that bubbles are starting to deflate in China, investors will discover that easy money is both necessary and permanent to prevent reversals of hot money flows and credit crunches.

Outside the stress in Chinese credit, emerging-market currencies crashed last week. Declines in currencies like the Turkish lira, South African rand and Argentine peso spark the unwinding of Japanese yen-funded carry trades, which in turn strengthens the yen and depresses overnight futures in the S&P 500.

The global monetary system is fragile and volatile. It's undergoing a harsh test. The carry trades wrought by central bank policy may continue unwinding. Central banks will soon feel market pressure to remain permanently easy. And the need to hold some gold as insurance against this system will re-enter many investors' minds.

Best regards,

Dan Amoss, CFA
for The Daily Reckoning

Ed. Note: So there you have it. The cracks in the global banking system begin and end with Fed monetary policy. But what does that mean for you? Well, it means you should be prepared for anything, even in the unlikely event of a catastrophic collapse in the global monetary system. Sign up for the FREE Daily Resource Hunter to find out specific ways you can diversify and gain exposure to the best, most secure investment opportunities you can have, regardless of what happens. Click here now to get started for free.

Why Gold Looks Good to Me in 2014

Posted: 29 Jan 2014 03:50 AM PST

Sasha Cekerevac writes: Just the other day, I was talking to a friend of mine who seemed extremely cheerful. I asked why, and he said that his investments have performed well over the past few months and he saw no reasons to worry. This is a common problem with investor sentiment; people tend to become complacent and only look to the recent past as an indication of what tomorrow will bring.

The â€œVanishingâ€ First-Time Home Buyer; What It Means for the U.S. Housing Market

Posted: 29 Jan 2014 03:47 AM PST

John Paul Whitefoot writes: Ah, the U.S. housing market, the so-called silver lining in the U.S. recovery—but not for long, as it may be rusting. The U.S. housing numbers are in, and they aren’t spectacular. In the U.S. housing market, December existing-home sales rose one percent month-over-month at an annualized pace of 4.87 million units. Analysts were expecting December existing-home numbers to come in at 4.93 million. The one-percent increase also has to be taken with a grain of salt, as it was helped, in part, by a downward revision in November existing-home U.S. housing market sales to 4.82 million units. (Source: “December Existing-Home Sales Rise, 2013 Strongest in Seven Years,” National Association of Realtors web site, January 23, 2014.)

Don’t Fight the Fed

Posted: 29 Jan 2014 12:19 AM PST

Don't tug on Superman's cape. Don't spit into the wind. And most definitely, don't fight the Fed. That's what they say on Wall Street. When the central bank is printing, get your money in stocks. When the PhDs at the Eccles Building take away the punchbowl, turn out the lights and sell your stocks—the party's over. Don't believe it? Google "Don't fight the Fed," and you'll get 468 million results.

Before the late Martin Zweig was a legendary investor who never fought the tape, he was teaching finance at Baruch College and Iona College, and his byword was, "Don't fight the Fed."

Philippe Gijsels, the head of research at BNP Paribas Fortis Global Market in Brussels, told CNBC in 2011, "The famous saying 'do not fight the Fed' has worked for the last 20-odd years."

We are now entering year six of the post-Lehman Brothers era, and the Fed's occupation of the market looks to be permanent. The new normal doesn't seem so normal as Ben Bernanke has desperately tried to pry everyone's money out from under their mattresses and into stocks.

However, this is a market that Jim Grant describes as a "hall of mirrors." The Fed's looking glass makes some things tall, some things small. Objective value is nowhere to be found; instead, certain rates are scripted by a central bank that can only set a price for short-term interest rates with really little clue as to what the outcomes of that monetary command and control will be.

Now Janet Yellen takes over as Atlas, with world markets resting uncomfortably on her shoulders. Further shrugging may send nervous investors for the exits, not only in the US, but around the world. The least bit of monetary slowing, rather than a wide-open throttle, is now viewed by the world's monetary elite as the stuff of black swans. "This [tapering] is a new risk on the horizon and really needs to be watched," Christine Lagarde, the managing director of the IMF, said at Davos over the weekend.

Aren't you glad you're living through, investing in, and your retirement depending upon navigating this terribly interesting, manipulated market?

Actually, you should be. As crazy as it sounds, this kind of market turmoil makes millionaires… and your time may well have come. More and more contrarian investors who know how to prosper from chaos—and have done so before—are convinced that we are now looking at one of the greatest opportunities in recent years to make a fortune.

If you want to find out more, watch this short, to-the-point video of self-made billionaire Frank Giustra and sign up today for Upturn Millionaires, a free Casey video event to premiere on Wednesday, February 5, at 2:00 PM Eastern.

Watch investment legends Doug Casey, Ross Beaty, Frank Giustra, Rick Rule, Porter Stansberry, John Mauldin, and our own Louis James and Marin Katusa as they discuss how to best play the turning tides in the precious metals market.

Don't miss this once-in-a-generation opportunity to get in on the bottom of a bull market. Click here to register now.

In today's article, Jeffrey Peshut gives us some idea of when to look for the next financial crack-up. While Jeffrey is a devotee of the Austrian school of economics, he's not some fuzzy-headed academic, trapped in the ivory tower. He works in the real world, putting food on his table as an institutional real estate investment manager. When he doesn't get it right, it costs him money. He's put "Don't fight the Fed" to the historical test.

See what he's discovered.

Sincerely,

Doug French, Contributing Editor

Does the Fed Really Create the Boom-Bust Cycle?

By Jeffrey J. Peshut

Janet Yellen takes over as Fed chair at the end of January, stepping into Ben Bernanke's big shoes. Bernanke was Time's Person of the Year in 2009, and The Atlantic magazine dubbed him "The Hero."

However, those who understand Austrian business cycle theory believe the Fed causes more problems than it solves. Sure, maybe Bernanke's policies averted an economic meltdown in 2008. But Austrians believe that's akin to commending an arsonist for putting out a fire he set in the first place… while at the same time creating favorable conditions for the next blaze.

Austrian Business-Cycle Theory: The Basics

According to Austrian business cycle theory, if interest rates are allowed to reflect underlying market conditions and coordinate production over time, the resulting economic growth will be sustainable. There will be no boom-bust cycle.

However, if a central bank like the Federal Reserve forces interest rates down, those manipulated rates send false signals to businesses. Lower rates tell businesses that consumers are saving more today to increase consumption in the future—and so now is the time to take advantage of those low rates by investing in longer-term production projects that produce future products.

But when ultra-low rates are a result of phony credit rather than actual increased savings, businesses investing in long-term projects are acting on false signals. Since the resultant boom is not based on reality, the bust is inevitable.

That's the story. What's the data say?

Empirical Data

Figure 1 illustrates that the five US credit crises and four recessions since 1975 all share a common theme. Each was preceded by a period of loose monetary policy followed by tight monetary policy, as represented by the fed funds rate—a boom followed by a bust.

Figure 1: Fed Funds Rate, 1975-2013

The fed funds rate and the money supply move inversely: low rates accommodate easy money, and vice versa. There are many ways to measure the money supply, but for my analysis, I'll use Murray Rothbard's "True Money Supply" (TMS), which quantifies only the amount of money in the economy that is available for immediate use in exchange.

Overlaying the TMS growth with US crises and recessions since 1975 shows a close relationship. The Fed first sows the seeds of crisis by aggressively expanding the money supply. When the economy gets too hot, the Fed hits the brakes, and the slowing of money supply growth causes a crisis or bust. The Fed responds by opening up the money spigots once more, and the cycle begins anew. You can clearly see it in action.

Figure 2: True Money Supply (YOY%), 1975-2013

We can also see that each crisis or recession occurred shortly after the rate of growth of the TMS approached or broke below zero.

The Next Crisis

Until the most recent credit crisis and recession, the Fed was able to loosen monetary policy by simply lowering the fed funds rate. In the fall of 2008, however, the Fed ran out of room to manipulate in that manner, as the funds rate approached 0%. To continue to force down interest rates and increase the growth of the money supply, the Fed provided loans to key players and purchased Treasury securities, GSE debt, and mortgage-backed securities. This package of policy tools is commonly referred to as "quantitative easing," or QE for short.

Figure 3: Fed Funds Rate and Federal Reserve Balance Sheet, 2007-2013

More recently, the Fed's Operation Twist and QE3 were designed to force down long-term interest rates through the simultaneous sale of $45 billion of shorter-term Treasury securities and purchase of $45 billion of longer-term Treasury securities per month, as well as the purchase of $40 billion of agency mortgage-backed securities per month.

On December 18, 2013, the Federal Open Market Committee announced that it would reduce its aggregate bond purchases from $85 million per month to $75 million per month beginning in January of 2014. That's notable because although the TMS has been increasing during Operation Twist and QE3, its growth rate has been slowing, which is what really matters. The Fed's reduction of bond purchases will likely decelerate growth of the TMS even further, setting the stage for the next credit crisis.

When might that crisis hit? I extrapolated the TMS's current growth rate forward a few years. If the current trend holds, TMS growth should approach zero in early 2015, setting the stage for a crisis near the end of 2015 or the beginning of 2016:

Figure 4: True Money Supply (YOY%), 1975-2013 Actual, and 2014-2015 Forecast

While that trajectory could easily change, it's our baseline scenario. Watch what the Fed's doing to the money supply for early warning of the next crisis.

Thank you to J. Michael Pollaro, author of The Contrarian Take, for the data used to construct the charts in this article.

Jeff Peshut is a strategic institutional real estate investment manager in Denver, Colorado and is the creator of RealForecasts.com, a website that provides market forecasts and investment strategies to real estate investors. He holds a B.S. in finance and a J.D. degree, both from the University of Illinois.

Gold Crybabies Are Born to Lose, Says Lawrence Roulston

Posted: 29 Jan 2014 12:00 AM PST

Geologist, engineer, Midas-fingered investor and financial newsletter publisher Lawrence Roulston has little patience for investors without the nerves to hold onto a good thing during tough times. Gold has been the main embodiment of value for thousands of years, Roulston points out, so why should tomorrow be different? In this interview with The Gold Report, Roulston has some tips on how to double down on gold investments and wipe away the tears.

Gold Crybabies Are Born to Lose, Says Lawrence Roulston

Posted: 29 Jan 2014 12:00 AM PST

Gold Crybabies Are Born to Lose, Says Lawrence Roulston

Posted: 29 Jan 2014 12:00 AM PST

Economic Collapse 2014 -- Doug Casey : Bond Bubble ready to Burst

Posted: 28 Jan 2014 11:59 PM PST

Doug Casey: Bond Bubble Blowing Up, Gold-Silver More Important to Own than 1971 or 2001 & More Doug Casey of CaseyResearch.com warns, "Were going into what I call 'The Greater Depression.' It's going to be much more serious than what happened in the 1930's. . . . A depression is a period...

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Turkey Moves, Focus Shifts to Fed

Posted: 28 Jan 2014 04:00 PM PST

The US dollar is little changed against the major currencies, while the emerging market currencies are more mixed, ahead of the FOMC statement later today. Global equities are higher. Core bond markets are lower, while Spain and Italian bonds continue to outperform.