Billionaire Eric Sprott: Gold to rise 500%

From KWN:

“There’s been some discussion on the web of various dealers having difficulty fulfilling orders.  I’ve confirmed through my channels that there has been a very big increase in demand in the last six to eight weeks.”

“We can see that by looking at the US Mint statistics.  For example, in this month, which is not complete yet, gold sales have more than tripled from the same time last year.  Silver sales are up 120% so far.  You can kind of sense that the demand for both gold and silver is back to very significant levels.

That’s not just in North America by the way....

 

“We read articles of how the Indian demand has picked up here recently.  They think they are going to have a big 4th quarter demand for gold.

Are we Going Off the Fiscal Cliff?

To the right of this post is a new section to vote on a question. So what do you think? Are we going off the fiscal cliff??

The Velocity of Money

This four and one half minute video from Lauren Lyster on Capital Account sums up money velocity for the non-economist.

And to get a good look at the money velocity from the St. Louis Federal Reserve:

From the video and the chart above you can see that even as the money supply has massively expanded through Fed quantitative easing, that the velocity has dropped below 1, meaning there is no multiplier. One new dollar is producing less than one dollar of economic activity. Part of this is explained by the large banks holdings of cash the banks keep on deposit with the Fed as "excess reserves" rather than being lent to businesses and consumers. In addition, large corporations have been sitting on hoards of cash as they watch the US government battle over Cap-N-Trade, Obamacare and tax policy, all things that effect business decisions and have created uncertainty.

You may also recall from a previous post a similar concept of the money multiplier from new debt spending and why the $831 Billion stimulus failed. That multiplier was also less than one. Charles Biderman estimated it to be about .2 (point two). So for every dollar spent there was 20 cents of new economic activity.

From the perspective of the Fed, these lower multipliers are considered evidence of deflation and "justify"the massive printing of new dollars irregardless of their effect in other areas. The low multiplier also explains the relatively subdued levels of inflation (though real inflation is higher that what the CPI suggests).

Exchanges Accepting Gold as Collatoral

During the 2008 crisis when stocks, bonds and derivatives were selling off, gold was sharply sold off too. Many pundits pointed to this sell off as proof that gold wasn't the safety asset gold bugs had claimed. Now we know that gold was being sold off because it was the asset with the least losses and was being sold by traders and bankers to meet margin calls on their plummeting stocks, bonds (especially mortgage backed) and derivatives. Today, exchanges are now beginning to allow institutional clients to use physical gold to meet margin calls. To me this means three things:

1. Gold is being recognized as a top tier asset.
2. The exchanges recognize that when the inevitable happens, bonds (Europe PIIGS) will fall to their true intrinsic value (zero). At that time gold will fill a very important need: one of the few assets not perfectly correlated in a disaster.
3. Exchanges recognize the Bank of International Settlements (BIS) will likely make gold a Tier 1 asset, which means it could be recognized at 100% face value rather than 50% value today as a Tier III asset.

For more background and to "connect the dots" you may want to reread: China Prefers Gold to US Treasuries,  Will Gold Finally Become Tier 1 Capital, and How Tier 1 Capital Affect Gold.

Below is from Phoenix Capital Research via Zerohedge:

China's gold reserves should reach 6,000 tons in the next 3-5 years

I pointed out recently that China is moving away from US Treasuries and acquiring tons of gold (literally). Now China has shown their hand. From Zerohedge:

"...the China Youth Daily quoted State Council advisor Ji as saying that a team of experts from Beijing and Shanghai have set up a "task force" last year to consider growing China's gold reserves. "We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him."

and...


From Bloomberg:

• China needs to add to its gold reserves to ensure national economic and financial safety, promote yuan globalization and as a hedge against foreign- reserve risks, Gao Wei, an official from the Department of International Economic Affairs of Ministry of Foreign Affairs, writes in a commentary in the China Securities Journal today.
• While gold prices are currently near record highs, China can build its reserves by buying low and selling high amid the short-term volatility, Gao writes in newspaper
• China’s gold reserve is “too small”, Gao says.

Yuan globalization, backed by gold. China sees two things happening:

1. The US is self-destructing economically but is getting away with "murder" because the USD is the global reserve currency (for the moment) and is still backed, as far as we know, by the world's largest gold hoard.
2. China is preparing to fill the vacuum left by the US when the dollar collapses or fades to obscurity by backing their own currency either implicitly or explicitly with gold.

China has essentially guaranteed the price of gold will be supported for years to come even as the US Federal Reserve has guaranteed the dollar will decline. Once you know these two things, it doesn't take a genius to figure out where your wealth should be if you want to preserve and grow it.

CFTC's Bart Chilton: Yes, PM's are Manipulated

Its frustrating that the investigation continues but at some point it will end and hopefully we get some real action taken. Even if not, just getting the position limits in place would massively degrade a bank's ability to manipulate prices.

And btw, when he refers to a trader he cannot name, you can bet its either JP Morgan or HSBC.

Data Points

From KWN:

“On Friday in the United States, the Department of Agriculture released its report showing the number of people receiving food stamps in August.  The total is 47.1 million people, which is a new record high, Eric, but here is what I believe to be a staggering comparison.  The number of people receiving food stamps increased in just that one month by over 420,000, while only 96,000 new jobs were created in August.”

“So 4.3-times more people started receiving food stamps in August than got jobs.  Even the miracle 175,000 monthly increase in jobs that was reported just before the election pales in comparison to the number of new people receiving food stamps in August.

What this shows me, Eric, is that despite all of the hype coming from the politicians and central planners, the US economy continues to deteriorate rapidly

Yep, four times as many people were added to food stamps than jobs created. 

China Prefers Gold to U.S. Treasuries

I pointed out in an October post that China had imported a massive 512 tons of gold YEAR TO DATE.

Prior to that I posted a remarkable quote from Romney at that now infamous fundraiser where he made the "47%" comment. As a reminder:

From Motherjones:

Romney: Yeah, it's interesting…the former head of Goldman Sachs, John Whitehead, was also the former head of the New York Federal Reserve. And I met with him, and he said as soon as the Fed stops buying all the debt that we're issuing—which they've been doing, the Fed's buying like three-quarters of the debt that America issues. He said, once that's over, he said we're going to have a failed Treasury auction, interest rates are going to have to go up. We're living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who's loaning us the trillion? The Chinese aren't loaning us anymore. The Russians aren't loaning it to us anymore. So who's giving us the trillion? And the answer is we're just making it up

Connecting the dots? China is not buying significant US Treasuries anymore and are taking delivery of physical gold. Here's the update on demand for foreign owned Treasuries:

Best Investment Under Obama the Last Four Years: Gold & Silver

This is a fantastic interview and must watch. Hear James Turk's take on where the Dow/ Gold ratio is going and his estimate at where they will meet.

The first 13 minutes are a MUST WATCH.

In another week I hope to return to regular posting and provide a some analysis for investing in the next four years under a second Obama term.

Is This What A Job Recovery Looks Like?

US Planned Layoffs Jump to a 5-Month High:

The number of planned layoffs by U.S. firms jumped 41.1 percent in October to the highest level in five months, although the number includes more than 10,000 jobs in U.S.-owned auto plants in Europe, a report said on Thursday.

 Employers announced 47,724 planned job cuts last month, up from September's 33,816, according to the report from consultants Challenger, Gray & Christmas. It was the highest level since May. U.S. automotive companies said they will let go of 11,615 workers, though that includes 10,900 Ford Motor [F  11.015    -0.145  (-1.3%)   ] layoffs that will affect workers in Belgium and the U.K. (Read More: Ford to Shut European Plants, Cut Jobs as Losses Mount)

The planned layoffs were modestly higher than the 42,759 announced in October last year. The total for the year so far stands at 433,725, down from 521,823 for the same period in 2011.

Read more