- Gold has been in consolidation since the early December high of $1226/ounce. The bull picture is still intact. I have given up on trying to analyse it technically because the gold cartel is messing price signals up in the short-term. Technical analysis in the short-term simply does not seem to be effective. The gold cartel knows the technical picture all too well and takes out stop-loss positions easily. As they take the other side of the trade, they are well aware of all the major long/short positions.
- However, they cannot manipulate the trend in the mid to long-term. The fact of the matter is: physical gold is in short supply and it is increasingly difficult for them to deliver physical gold when asked to. I would encourage everyone to take physical delivery and ignore the paper LBMA and COMEX paper gold market. Greg McCoach gives his views on where the gold market is heading to The Gold Report:
Successful bullion dealer Greg McCoach brings more than 20 years of business experience and a vast network of mining contacts to the mining investment newsletter he launched in 2001, The Mining Speculator. In this exclusive interview with The Gold Report, Greg discusses his strategies to prepare for what he says will be a real buying opportunity.
The Gold Report: In your January newsletter you project that “the Fed will continue to create liquidity and the dollar will continue to fall. As the dollar falls, the bond market will sink. This will send interest rates higher, and rising interest rates in turn will put additional pressures on the economy.” You are monitoring three measures as the indicator of beginning of big changes economically and politically. These are (1) a collapse in the bond market, (2) a crash in the stock market, (3) an explosion in the price of gold.
We’ve had a stock market crash, gold has increased 400% in the last 10 years—which could be considered an explosion—and the bond market has pulled back. Are we in or about to begin the period of “big changes” you write about and what are the big changes?
Greg McCoach: The price of gold right now is nowhere near its high in this particular cycle. In other words, gold is still dirt cheap compared to where it will be by the end of this year, next year, and in the years to come. The Fed is caught between a rock and a hard place and will do what governments always do when they put themselves in these positions. They will try to inflate their way out of the mess they created. The problem thus far is that their inflationary tactics are not working the way they would like as deflationary pressures continue to exert their influence on markets. So expect even bigger and further massive injections of money into the system as the Fed tries to maneuver their way out. History clearly shows that governments caught in such a scenario will soon reach the inflection point where the fiat currency implodes and the credibility of the issuing government collapses. This is not just the case with the United States, but Japan, England, and Euro land as well.
Thus far investors have been playing the game of musical chairs with these fiat currencies as they jump from one to the other, depending on the circumstances of the day. In the end, the only currency that will be left standing will be gold, and when the rush comes to take a position in the yellow metal, it will be a move for the record books. The reason for this is simple. When oceans of fiat money suddenly try to take a part in this tiny market called gold, the move will be astounding. If you took all the physical gold that exists in the world above ground (not what is still in the ground) and melted all that gold into a giant cube, the cube would measure 20 yards by 20 yards by 20 yards. That’s it. That is why they call it precious. When the big move into gold occurs, there simply will be no room to receive it, thus driving the price into the stratosphere.
The big changes I talk about refer to the consequences that decades of abuse of our system of credit will have on the everyday lives of citizens not only in the United States but around the world. Aside from the obvious financial implications just mentioned, I believe will we see turmoil in the form of civil unrest, revolution, and wars. This is why I believe it is so important to think about preparing for such events. I hope for the best, but prepare for the worst.
TGR: You predict the TSX Venture Index will be 4,000 by the end of this year because investors will flood to a sector that won’t lose money. To what extent are you predicting another market crash and will it test the March 2009 lows? Will we see DOW/Gold parity? Will this all occur in 2010 and if so, what do we have to look forward to in 2011?
GM: I believe we will see another stock market meltdown as we saw in the latter part of 2008 and early 2009. This will take the DOW, in my opinion, lower than the March 2009 low. These events will occur primarily because of the problems related to commercial real estate derivatives, which will cause yet another horrendous ripple effect throughout the financial world. The loss of confidence in the markets at that point will be staggering as the world financial system goes through further rounds of bailouts and smoke and mirror cover-ups. The resulting loss of confidence on the part of investors will drive them to the safe-haven investments such as precious metals and their related mining stocks. This titanic shift in asset allocation on the part of investors, when it happens, will drive the TSX Venture Index to well over 4000, in my opinion. As to when this will occur, it is hard to say, but I believe we could see this happen before the end of 2010, and for sure by 2011.
The DOW/Gold ratio will drop precipitously as these events unfold. Right now the DOW/Gold ratio is roughly 10 to 1, but I would not be surprised to see this ratio around 5 to 1 by end of this year, early next year. Eventually as the world financial system completely implodes under the enormous and unsustainable debt loads, derivative losses, and fiat currency debacles, the DOW/Gold ratio will once again hit a 1-to-1 ratio. The gold price at that point could easily be $5,000 or more.
TGR: Greg, in our last interview with you, you mentioned real estate derivatives would blow up this year. To what extent do you think this will affect the resource sector in 2010?
GM: I think this could be one of the biggest catalysts for driving investors into the precious metals sector this year. The sub-prime mortgage derivative problem we experienced in the first meltdown pales in comparison to the commercial real estate derivatives that now lurk on the horizon. The general public is absolutely clueless about these instruments and their potential nightmare fallout.
TGR: Will the projected commercial collapse in real estate help gold only and not other metals/resources?
GM: Prices of all the precious metals would benefit in such a collapse.
TGR: Are we seeing the metals prices/stocks disconnect from the rest of the market?
GM: No, this has not yet occurred as I expect it will. I have been telling my subscribers to watch for the moment when this disconnect from the general market activity begins. In other words, as the move toward safe haven investments greatly increases, the precious metals prices along with their associated mining stocks will be the best performers while other markets tank.
TGR: Back in September you predicted gold hitting $1,500 before year end. In your opinion, why hasn’t that happened yet? Do you think we’re on our way to that goal in short order?
GM: The pattern for gold the past nine years has been this: gold runs to a new high every year and then retraces upwards to 14% before moving on to the next new high. The last new high of $1,226 per ounce for gold was reached on December 3, 2009. Since then we have retraced as much as 14%, briefly hitting the $1,055 level before rebounding to $1,155. We now reside right around the $1,100 level, but will once again be on the move towards another new high before the end of the year. This will occur because of the problems I have already mentioned and the unsustainable debt structure of the U.S. government. I maintain my outlook of a $1,500 gold price before the end of this year.
TGR: You’re maintaining that the price of gold is going to ultimately hit $6,500 an ounce with silver at $400 an ounce. How are we getting there and in what time frame?
GM: Yes, I believe we will see gold hitting a minimum of $6,500 an ounce as the U.S. dollar collapses. I also believe that the silver/gold ratio will go back to its 15-to-1 (15 ounces of silver to buy 1 ounce of gold) benchmark. As this happens silver will be roughly $400 an ounce. ($6,500 /15 = $433.00).
The time frame as to when this will occur is much more difficult to predict since you are trying to predict the collapse of the U.S. dollar. In my opinion, the collapse of the U.S dollar is as certain as death and taxes. It is not a matter of “if,” but when. The dark clouds that surround the issues of the U.S. dollar are growing by the day and getting much darker by the moment. If I had to make a guess, I can’t imagine we will get past the year 2012 without significant fallout. So I guess I’m saying I predict the ultimate collapse of the U.S. dollar within the next two and half years.
TGR: For individuals just starting investing in metals, do you recommend focusing on gold or is silver a better opportunity now given the gold/silver ratio?
GM: In general, most investors will want to start with purchases of gold, but should not ignore the potential in silver. From the lessons of history, whenever we have a secular bull market in the precious metals, silver usually outperforms gold, dollar for dollar invested. While gold typically runs first and gets most of the attention at the earlier stages of the bull market, it is silver that typically sling shots past gold towards the latter stages.
Personally, I own both silver and gold. The problem I see with silver is that it is not as portable as gold. You can hold $50,000 worth of gold with your two hands cupped in front of you. You could put that gold into your coat pockets and walk down the street without anybody knowing what you are carrying. $50,000 dollars worth of silver, on the other hand, would take a handtruck to move.
Overall, I believe investors should hold both gold and silver in a well-diversified precious metals portfolio. They should hold gold as the ultimate store of wealth that protects their hard work and savings. They should also hold some silver for the potential use to buy day-to-day items such as bread, prescriptions drugs, etc., for when the government declares a “bank holiday” as the crisis in the banking sector exacerbates. During a bank holiday, checks and credit cards will no longer be accepted as payment for goods and services. This is another reason why I recommend keeping some cash on hand at all times. I am not recommending stuffing the mattresses; I am just saying it is probably smart to keep a few thousand dollars in 1s, 5s, 10s and 20s around the house. Silver Eagles would also be very useful in such an event as they are considered legal tender in the United States and could be used to purchase groceries.
- Greece will be bailed out one way or another. But it will not stop there. Now, the spotlight is on Portugal. They will need a bailout and then another country and …. another… Finally those bailed out in the first round will need more bailouts! This will result in a sovereign debt crisis and cause a monetary crisis, economic and financial crisis. All these bailouts mean: the debt to GDP ratio will exceed 100% for whole of EU far faster than projected! MSN reports:
The eurozone was shaken on Wednesday by fears the Greek finance crisis could be spreading after Portugal was hit by a credit downgrade and Spain faced mounting criticism of its budget plans. EU leaders meanwhile struggled for consensus on what to do about Greece’s debt debacle ahead of a critical European Union summit starting Thursday, with officials foreseeing an unprecedented intervention by the IMF in the euro area.
The Fitch ratings agency lowered Portugal’s long-term debt rating by one notch and gave it a negative outlook, warning that a severe strain on public finances had reduced the eurozone country’s creditworthiness. “Today’s downgrade of Portuguese government debt by the rating agency Fitch is another reminder that the eurozone’s fiscal problems are not limited to Greece,” said Jennifer McKeown from Capital Economics research group in London.
Germany’s Deutsche Bank warned of a “euro sovereign debt crisis.” Spain, Europe’s fifth-biggest economy, also added to mounting concern after the leader of the conservative Popular Party, Mariano Rajoy, questioned the credibility of government plans to reduce the country’s huge deficit.
European officials have repeatedly assured in recent weeks that there is no risk of “contagion” from the Greek crisis, but financial markets on Wednesday appeared to tell a different story after the shock of Portugal’s downgrade.
The value of the euro plummeted to below 1.34 dollars for the first time in more than 10 months even as European states edged toward a possible financial rescue package to prevent Greece from defaulting.
What appeared to be emerging was a joint solution, combining the engagement of both the European Union and the International Monetary Fund in a bid to assure financial markets that Greece can access funds if it needs them.
“The involvement of the IMF is a negative on the European solidarity front… because it challenges the idea that the euro area can sort its problems out on its own,” analysts at British bank RBS said in a statement. But they added that the expected approval of the rescue package “will be positive for Greece and the periphery in general.”
Deutsche Bank said in its World Outlook report on Wednesday that weak growth in the eurozone could make debt troubles worse. “The problems may differ across peripheral economies, but in general, weaker than expected growth could frustrate consolidation efforts,” the report said.
Apart from Greece and Portugal, the three countries seen by analysts as most at risk of hitting debt trouble are Ireland, Italy and Spain. In the background are deeper worries about the financial health of some bigger European economies like Britain, France and Germany.
Spanish Prime Minister Jose Luis Rodriguez Zapatero vowed on Wednesday to enforce “maximum austerity” after the opposition voiced scepticism that his government can cut the public deficit down to eurozone limits by 2013. “The government is firmly committed to reducing the public deficit and following maximum austerity during this stage,” Zapatero told parliament. He said his Socialist government will announce in the first two weeks of April a belt-tightening programme for state-owned companies.
The flipside of the eurozone’s troubles has been a boost to exporters because of a fall in the euro, a factor in the sharp rise in private sector business activity reported by research group Markit on Wednesday. Howard Archer, chief European economist at US-based analysis group IHS Global Insight, said that the healthier business data “significantly boosts hopes that the eurozone recovery is regaining momentum.”