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Gold - Silver - Platinum Retail - Institutional - Wholesale - Distribution Contact: Brandon Green - 888-861-0775 bgreen@sprottmoney.com Established by legendary gold and silver expert Eric Sprott in February 2008, Sprott Money Ltd. is a leading precious metals dealer selling gold coins, silver... More
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  • Exponential Explosions In Debt, The S&P, Crude Oil, Silver And Consumer Prices

    Posted with permission of Gary Christenson aka The Deviant Investor - Sprott Money

    In 1913 the US national debt was less than $3 Billion, gold was real money, and a cup of coffee cost a nickel.

    By 2015 the US national debt had increased to over $18,000,000,000,000 ($18 Trillion), the gold standard was called a "barbarous relic," most currencies had devolved into fiat paper and digital symbols backed by insolvent governments, and a Grande soy cinnamon latte, double pump, triple shot, extra hot, with sprinkles cost about five bucks.

    Debt, money, coffee and prices have changed in 100 years.

    What has NOT changed is the inevitable collapse of exponentially growing systems. A few extreme examples of exponential increases are:

    1. $0.01 (one penny) deposited at the 1st National Bank of Pontius Pilate at 6% interest in the year 15 would be worth approximately $4 Trillion Trillion Trillion Trillion dollars 2000 years later. (Yes, I double checked the numbers, and I used a web based compound interest calculator to triple check. Yes, the number has 48 zeros. Compound interest is the 8th wonder of the world.)
    2. Promise 1 grain of wheat on the 1st square of a chess board. Promise 2 grains of wheat on the 2nd Then 4 grains on the 3rd square and 8 grains on the 4th square and keep doubling. That promise will consume all the wheat grown in the world long before it gets to the 64th square. (Do you see the similarity between political promises and grains of wheat on chess squares?)
    3. The US national debt has increased at 9% per year since 1913 and slightly more rapidly since 2008. Assuming the 9% rate continues, the current $18 Trillion in national debt will grow to over $300 Trillion by the year 2065 and to about $6,000 Trillion by the year 2115.
    I DOUBT IT!

    Exponentially increasing systems cannot last forever. Our problem is that the global financial system is based on exponentially increasing debt, energy usage, population, and exploitation of natural resources. This appears to work nicely, especially for the financial and political elite, in the early years of the exponential increases. However, we are approaching the inevitable end of the exponential increases - perhaps not in a few months - but our systems probably will not last another decade. In the meantime, the plan seems to be "Party On!"

    Examine the 30 year chart of the S&P 500 Index (NYSEARCA:SPY) (monthly) on a log scale.

    1. Exponential increases are clearly visible.
    2. Peaks have occurred about every seven years.
    3. Rallies and crashes have become more extreme. Look out below!

    (click to enlarge)

    Examine the 30 year chart for crude oil (NYSEARCA:USO) on a log scale.

    1. Exponential increases are clearly visible.
    2. Lows have occurred every five to six years.
    3. Prices appear ready to rally - maybe not this month or even this year - but I don't believe prices will stay this low for long when viewed from a 30 year perspective.

    (click to enlarge)

    Examine the 30 year chart for silver (PSLV, SLV) on a log scale.

    1. Exponential increases are clear and very erratic.
    2. Important lows have been roughly six years apart.
    3. Prices look like they have fallen well below the exponential trend, are currently at a cyclic bottom, and have begun a rally. In my opinion, new highs are on the horizon.

    (click to enlarge)

    CONCLUSIONS:
    • Exponentially increasing systems do NOT last forever and become increasingly unstable.
    • The current global financial system depends upon "printing" massive quantities of unbacked fiat currency and exponentially increasing debt.
    • The exponentially increasing trends for debt, sovereign bonds, currencies, the S&P 500 Index, consumer prices, gold, crude oil, and silver are still in effect. But for how long? What happens at their critical phase transition points?
    • The S&P looks like it could roll over at any time.
    • Gold and silver appear ready to rally for several more years. Crude oil appears to be finding a bottom and will eventually rally.
    • Unstable systems often react violently when they near a critical phase transition or crash point. When the global financial system reaches a phase transition or crash point, would you rather own fiat paper, such as sovereign bonds paying practically nothing and fiat currencies backed by the debt of insolvent entities, or silver and gold?
    Repeat: Silver and gold have been a store of value for over 5,000 years. Unbacked paper fiat currencies have always failed. Do you trust politicians and central bankers more than you trust silver and gold? If not, I encourage you to take door # 2 - the one plated with silver on the top and gold on the bottom.

    Gold is still undervalued, based on my long-term empirical model, by about 16%. Silver is also undervalued. Unless the President and the US congress slash expenses, actually reduce the national debt, negotiate world peace, and make many other unlikely policy changes, expect silver and gold to rally in a strong up-cycle for several, perhaps many, years.

    Posted with permission of Gary Christenson aka The Deviant Investor - Sprott Money

    Feb 10 12:40 PM | Link | Comment!
  • Pricing Gold In The Real World

    As we see the price of gold (NYSEARCA:GLD) and silver dragged lower once again in our Hostage Markets; a reality-check is badly needed - since we certainly get no reality from the Corporate media. However, while the mainstream media provides no "reality", it does provide consistency.

    As any knowledgeable reader already knows; gold (and silver) is both a commodity and a "monetary metal" (i.e. real money). With respect to the perverse reporting of the Corporate media; the pattern has been unequivocal. Whenever it has some bearish fiction to distribute about the monetary fundamentals of gold; it treats gold as a monetary metal. And whenever it has some bearish fiction to distribute about the commodity fundamentals of the gold market; it treats gold as a commodity.

    This relentless "heads I win/tails you lose" reporting is more than just biased and annoying. It is nonsensical. This point was made in a previous commentary, approximately a year and a half earlier. It revolved around a quote taken from the heart of precious metals propaganda: Basher Central - aka "Kitco News".

    "$1,300 is not a sustainable gold price."

    What makes this mainstream quote of particular significance is that at the time it was made, gold was trading at $1389.60 (as noted in the article itself). With most gold miners claiming "all in" production costs of between $1100 and $1250/oz; what motivated the assertion that $1,300/oz was (is) an unsustainable price in the gold market?

    It's because contrary to the claims of the miners themselves; the "all in" cost of production they quote in their news releases/financial reports is not really the total cost of producing an ounce of gold. In the case of the senior gold miners (who produce the majority of the world's newly-mined gold); these bloated behemoths do little actual exploration for gold themselves.

    gold-nugget

    Rather; they rely upon the junior "exploration" mining companies to find most of the world's significant deposits, and once these junior explorers find a large deposit (generally 5+ million ounces) these larger miners swoop in to buy these deposits, and often the junior miner, itself.

    These significant "acquisition costs" are not factored into the supposed "all in" costs of production. But that is only part of the reason why the price of gold has to be significantly higher than these "all in" production costs, in order for the gold mining industry (and thus the gold market itself) to be sustainable.

    In many industries; they can be sustained (indefinitely) by break-even prices for the good they produce. Shareholders may not be happy, but the companies do manage to stay in business. Not in the mining industry.

    Because the mining industry produces a non-renewable resource; mining companies must produce a profit (and a significant profit) in order to have surplus funds to invest in finding new ore to replace what has already been mined. Without such significant profits; over the long term it's immaterial if gold is priced at a break-even level - because there will be no ore remaining for these miners to process.

    unsustainable

    Here it's important to pull out our dictionary, in order to introduce the drones of the Corporate media to a word with which they have no familiarity.

    Un-sus-tain-able - (adjective) not able to be maintained at the current rate/level

    When the Kitco talking-head previously acknowledged that $1,300/oz "is not a sustainable gold price"; what specifically did he mean was unsustainable? The gold market, itself. This brings us to the heart of the logical disconnect which separates the mainstream media from the real world.

    Whenever any good/commodity is priced at an unsustainable level; there is only one Truth in that market: the price must rise. Otherwise (sooner or later) there will be no market. Through such under-pricing; demand will relentlessly exceed supply, and inventories will go to zero. That is the only "fundamental" of any relevance to such a market.

    But with the price of gold below $1,200/oz (and falling); what drivel do we see from the mainstream mediatoday?

    Gold Trades Near Four-Year Low as Dollar Strengthens

    …"The prospect of firmer [interest] rates, coupled with our expectation for a stronger dollar, present significant headwinds for gold and are likely to skew risks to the downside," Barclay's Plc analysts including New York-based Suki Cooper said in a report today.

    Put aside the fact that Western interest rates will never rise, because raising interest rates (and thus interest payments on debt) would quickly bankrupt our insolvent governments. Put aside that nothing can make the U.S. dollar "stronger", since it is already worthless, based upon three different metrics.

    It's not a question of whether the previously cited pseudo-analysis is good or bad (or simply ludicrous) - it isirrelevant. It makes no sense to yammer on and on about what (supposedly) the price of gold "should" or "shouldn't" do, when we already know (by definition of the word "unsustainable") what the price of gold must do: rise.

    There are two facets to this total disconnect with reality from the Corporate media. First, as with all markets; we never see anything in mainstream reporting except for short-term (supposed) "fundamentals". Not only are long-term fundamentals never discussed, they are never even acknowledged. It is only in such a fantasy-world - which has no long term - where we can (and do) see the drones exclusively yammering about where the price should supposedly go (today) rather than where the market itself must go (over the long term).

    This brings us to the second, more fundamental aspect to this disconnect. In this fantasy-world (previously identified to readers as the Wonderland Matrix) where there is no "long term"; these pseudo-experts arenot "analyzing" the gold market. Rather, all they are analyzing is the price of (paper) gold.

    More generally; we do not (NYSE:EVER) get actual market analysis in the drivel of the mainstream media in any sector. All we ever get is price analysis. Despite the fact that price is not a "fundamental" in any market; in the Wonderland Matrix, price is (supposedly) the only fundamental.

    Over the short term, and even for a few years; the Corporate media can plausibly present its short-term, price tunnel-vision as "analysis" of whatever market it is pretending to cover. However, as a tautology; over the long term, such reporting must acknowledge those long-term fundamentals, or it is not "reporting" at all - merely propaganda.

    It is for this reason that it is now entirely pointless to even acknowledge mainstream commentary about the precious metals sector. There is no point in observing that such reporting is always flawed, always biased, and usually completely incorrect, because it is all simply/completely irrelevant.

    To those living in the real world; it is of absolutely no importance/relevance what these clueless drones think about the price of paper gold. We want to know what is happening in the gold market (and silver market), but these media drones don't even understand what a (OTC:REAL) "market" is - let alone how to analyze one.

    The price of gold has been (once again) permanently dragged below the minimum price necessary for the gold market to be sustainable, as it was throughout the 1990's and the early part of this century. The price of silver has never risen to a sustainable price, except for a tiny interval in 2010 - 11, far too brief a period to even begin to restore health/sanity to that sector.

    The price of gold and silver must rise. The price of gold and silver will never be allowed to rise, as long as the same crime syndicate (the One Bank) retains its absolute choke-hold on all markets. Thus the gold and silver markets must implode, and given the massive (long term) supply-deficits in both markets, this must happen soon.

    That one paragraph is a rebuttal to every piece of gold/silver reporting distributed by the mainstream media (past, present, and future), thus saving readers the need of even looking at any more of that nonsense. You're welcome.

    Nov 06 2:06 PM | Link | Comment!
  • What Greenspan's Latest Talk Means For Gold - Sprott's Thoughts

    By Henry Bonner

    I traveled last week to the New Orleans Investment Conference, previously known as the 'Gold Show.' Jim Blanchard, a man known for promoting the right to own gold during the Nixon era, started the conference in 1974.

    Early on, the conference was a gathering place for investors in precious metals. Speakers such as Rick Rule broke out into the investment scene through conferences like this one.

    I'll report later on the many speakers who attended the conference - and try to boil down some of the salient points from the highly valuable conference (attendees took nearly a week away from their regular lives to attend).

    For now, I'll confine myself to the headline speaker of the show - former Fed Chairman Alan Greenspan - and what his comments could mean for gold (NYSEARCA:PHYS) investors.

    Greenspan ran the Fed from 1987 to 2006. He ran it right through the great technology bubble in the late 90's and up to the housing bubble. He is widely accused of voluntarily inflating these asset bubbles through excessive money printing and 'easy money.'

    He's also viewed as a big-government sell-out because he began his career as an adherent to the economic philosophy of Ayn Rand, with minimal government interference, and, relevant to his role as director of the Fed, sound money.

    So what happened to the young ideologue that Greenspan had been? Did power corrupt him? Did he fold under pressure to run the printing presses, debasing the currency and propping up the government?

    And why come to this conference? Why submit to being trotted out and publicly accused of his crimes for all to see?

    At least that's what we imagined would happen during his main panel alongside Marc Faber, and Porter Stansberry (of Stansberry & Associates).

    Well, it wasn't quite the public flogging we'd expected. As Rick Rule joked later on, 'the man's been through congressional hearings; I think he can handle us.'

    We did, though, learn a few important things about the Fed.

    First off, Greenspan claims he has always remained true to Austrian economics and the principle of sound money. He fell into his role as Fed Chairman purely by accident, he claimed, and what he did there, he did it because he had to.

    He explained that the capital needs of the Federal government were so massive that the only way to prevent disaster for the rest of the economy was to keep feeding the beast with cheap money. If the Fed hadn't created and circulated new money, the Treasury's insatiable demand for capital would certainly have 'crowded out' the rest of the economy, wrecking the entire private credit system.

    Political realities, he explained, in the form of entitlement spending and off-balance sheet obligations of the US government, trump the need for sound money every time. It wasn't his fault - that's just how the system works. It's set up to redistribute income from savers, who lose income because of low interest rates, to spenders.

    In other words, Greenspan was a man who was forced by circumstance to go against his beliefs. Coming to the show, I had expected to disagree with Greenspan, but what I found was that the Fed Chairman was saying exactly what we have believed all along. Sound, stable currency is incompatible with the welfare state. Greenspan may have slipped away from the path, but he's a great spokesperson for our message.

    The Fed is unlike any other business in the world. It's the only one that we know of that literally creates 'something from nothing.'

    The Fed wills new currency into existence, which it can then 'sell' by charging interest. Every dollar comes into existence as a debt due to the Fed; the more dollars are out there, the more money the Fed makes. The interest it receives is 'pure profit.' So it's no surprise that as the government's demand for capital has increased, the Fed has 'accommodated' that demand. Even if the Fed has to lend the government the money to pay its interest, that new money costs nothing to create, and it adds to the bottom line.

    We did get one striking admission out of Greenspan. The Fed is not independent of the government, he said, calling suggestions to the contrary 'naïve.'

    Greenspan didn't speak much to role of the Fed. He didn't talk about inflation targets, or comment on how the Fed could help grow the economy, as he would have if it had been a New York Times interview I'm sure.

    Hidden in his answers, however, was a big prediction for how the Fed will likely act in the future.

    It's not about juicing the economy or keeping the currency stable, although those are certainly justifications that are used.

    The truth is, the Fed is merely adjusting supply to meet demand. That's what he meant when he said that the Fed had to increase the supply of debt to avoid the private sector being 'crowded out' of the market.

    Its mission isn't to keep the currency stable, it's to help fund the spending of the US government, and to defend the banking system.

    This suggests that as long the US government resort to high levels of debt, the Fed isn't likely to decrease the supply of money.

    Greenspan might have an inkling of something he's not telling.

    Here's what the former Fed Chairman had to say about the direction of gold and interest rates:

    "Gold - measurably higher. Interest rates - measurably higher."

    The Fed isn't just dangerous because it serves the banking system; it also has another fatal flaw - hubris.

    In late 2013, Greenspan wrote in Foreign Affairs that he hadn't seen the financial crisis coming because the economy hadn't conformed to the Fed's models:

    The conventional method of predicting macroeconomic developments -- econometric modeling, the roots of which lie in the work of John Maynard Keynes -- had failed when it was needed most, much to the chagrin of economists. In the run-up to the crisis, the Federal Reserve Board's sophisticated forecasting system did not foresee the major risks to the global economy. Nor did the model developed by the International Monetary Fund, which concluded as late as the spring of 2007 that "global economic risks [had] declined" since September 2006 and that "the overall U.S. economy is holding up well . . . [and] the signs elsewhere are very encouraging."

    The problem with this kind of thinking - that a mathematical model should be capable of predicting human behaviors in the markets - is exactly what went wrong with Long-Term Capital Management (LTCM) in the 1990's. LTCM was a hedge fund management firm which deduced that there was only an infinitesimal chance of a serious crash in the stock market. It also claimed that the odds of correction were knowable, and could be hedged against. A few years later, in 1998, the market experienced an unforeseen crash, and LTCM went bankrupt.

    Now the Fed has a new set of number crunchers, and a new, activist, leader. The Fed's going full throttle, pushing ahead with low interest rates and easy money. It also has a brand new set of mathematical models. Are they now more humble about their ability to predict the future? Are they looking for the market to tell them what's working, or are they favoring the theory?

    In the years since the stimulus has been launched, spending has been muted while housing, stocks, and bonds have increased in value. Average incomes are stagnant or lower. Nearly all economic gains have been accrued to 'rich people' in the form of asset inflation.

    Yet in a recent interview with Time magazine,1 Yellen's view - that stimulus doesn't just help rich people, but that it lifts the whole economy remained unchanged:

    You know, a lot of people say this (asset buying) is just helping rich people. But it's not true. Our policy is aimed at holding down long-term interest rates, which supports the recovery by encouraging spending.

    In other words, the way the Fed models the economy has been wrong before; it will likely be wrong again.

    1 www.reuters.com/article/2014/01/09/us-us...

    Nov 04 4:35 PM | Link | Comment!
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