Gold Commentary

John Embry, who is the Chief Investment Strategist of Sprott Asset Management reported the following in the Investor's Digest of Canada; vol 42 No.1:

1. US jobs report for December was manipulated; given false hope that the US economy was improving.  This false reporting halted the rise in gold in December 2009.
2. US debt problem is much larger than the sovereign debt of Greece. So why was there a rally in the US Dollar? 
3. Urban Myth : the idea that the US dollar and by extension, US financial assets continue to represent a safe haven
4. Appalled to see Ben Bernanke selected as Time Magazine's Person of the Year for 2009.

Read the full report here : Investor's Digest of Canada

The US Dollar - Where is It Heading?

What has US Congressman Ron Paul have to say about the US Dollar?
What has famed economist Marc Faber have to say about the US Dollar?

They both agree about the fate of the currency...... so be warned....!!!




"Everybody knows that the US Dollar will crash but nobody knows when it will start...... this is frightening since the banks usually knows these stuff...."

FED Chairman Ben Bernanke's Re-Appointment

So what does Jim Rogers think about Ben Bernanke - the Time Magazine's Person of the Year?

Economic Black Hole: 20 Reasons Why The U.S. Economy Is Dying And Is Simply Not Going To Recover

Even though the U.S. financial system nearly experienced a total meltdown in late 2008, the truth is that most Americans simply have no idea what is happening to the U.S. economy.  Most people seem to think that the nasty little recession that we have just been through is almost over and that we will be experiencing another time of economic growth and prosperity very shortly.  But this time around that is not the case.  The reality is that we are being sucked into an economic black hole from which the U.S. economy will never fully recover.

The problem is debt.  Collectively, the U.S. government, the state governments, corporate America and American consumers have accumulated the biggest mountain of debt in the history of the world.  Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here.

And it is going to be painful.

The following are 20 reasons why the U.S. economy is dying and is simply not going to recover....

#1) Do you remember that massive wave of subprime mortgages that defaulted in 2007 and 2008 and caused the biggest financial crisis since the Great Depression?  Well, the "second wave" of mortgage defaults in on the way and there is simply no way that we are going to be able to avoid it.  A huge mountain of mortgages is going to reset starting in 2010, and once those mortgage payments go up there are once again going to be millons of people who simply cannot pay their mortgages.  The chart below reveals just how bad the second wave of adjustable rate mortgages is likely to be over the next several years....

#2) The Federal Housing Administration has announced plans to increase the amount of up-front cash paid by new borrowers and to require higher down payments from those with the poorest credit.  The Federal Housing Administration currently backs about 30 percent of all new home loans and about 20 percent of all new home refinancing loans.  Tighter standards are going to mean that less people will qualify for loans.  Less qualifiers means that there will be less buyers for homes.  Less buyers means that home prices are going to drop even more.

#3) It is getting really hard to find a job in the United States.  A total of 6,130,000 U.S. workers had been unemployed for 27 weeks or more in December 2009.  That was the most ever since the U.S. government started keeping track of this statistic in 1948.  In fact, it is more than double the 2,612,000 U.S. workers who were unemployed for a similar length of time in December 2008.  The reality is that once Americans lose their jobs they are increasingly finding it difficult to find new ones.  Just check out the chart below....

#4) In December, there were also 929,000 "discouraged" workers who are not counted as part of the labor force because they have "given up" looking for work.  That is the most since the U.S. government first started keeping track of discouraged workers in 1949.  Many Americans have simply given up and are now chronically unemployed.

#5) Some areas of the U.S. are already virtually in a state of depression.  The mayor of Detroit estimates that the real unemployment rate in his city is now somewhere around 50 percent.

#6) For decades, our leaders in Washington pushed us towards "a global economy" and told us it would be so good for us.  But there is a flip side.  Now workers in the U.S. must compete with workers all over the world, and our greedy corporations are free to pursue the cheapest labor available anywhere on the globe.  Millions of jobs have already been shipped out of the United States, and Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be offshorable within two decades.  The days when blue collar workers could live the American Dream are gone and they are not going to come back. 

#7) During the 2001 recession, the U.S. economy lost 2% of its jobs and it took four years to get them back. This time around the U.S. economy has lost more than 5% of its jobs and there is no sign that the bleeding of jobs is going to stop any time soon.

#8) All of this unemployment is putting severe stress on state unemployment funds.  At this point, 25 state unemployment insurance funds have gone broke and the Department of Labor estimates that 15 more state unemployment funds will likely go broke within two years and will need massive loans from the federal government just to keep going.

#9) 37 million Americans now receive food stamps, and the program is expanding at a pace of about 20,000 people a day.  The United States of America is very quickly becoming a socialist welfare state.

#10) The number of Americans who are going broke is staggering.  1.41 million Americans filed for personal bankruptcy in 2009 - a 32 percent increase over 2008.

#11) For decades, the fact that the U.S. dollar was the reserve currency of the world gave the U.S. financial system an unusual degree of stability.  But all of that is changing.  Foreign countries are increasingly turning away from the dollar to other currencies.  For example, Russia’s central bank announced on Wednesday that it had started buying Canadian dollars in a bid to diversify its foreign exchange reserves.

#12) The recent economic downturn has left some localities totally bankrupt.  For instance, Jefferson County, Alabama is on the brink of what would be the largest government bankruptcy in the history of the United States - surpassing the 1994 filing by Southern California's Orange County.

#13) The U.S. is facing a pension crisis of unprecedented magnitude.  Virtually all pension funds in the United States, both private and public, are massively underfunded.  With millions of Baby Boomers getting ready to retire, there is simply no way on earth that all of these obligations can be met.  Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the collective unfunded pension liability for all 50 U.S. states for Forbes magazine.  So what was the total?  3.2 trillion dollars.

#14) Social Security and Medicare expenses are wildly out of control.  Once again, with millions of Baby Boomers now at retirement age there is simply going to be no way to pay all of these retirees what they are owed.

#15) So will the U.S. government come to the rescue?  The U.S. has allowed the total federal debt to balloon by 50% since 2006 to $12.3 trillion.  The chart below is a bit outdated, but it does show the reckless expansion of U.S. government debt over the past several decades.  To get an idea of where we are now, just add at least 3 trillion dollars on to the top of the chart....

#16) So has the U.S. government learned anything from these mistakes?  No.  In fact, Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $2 trillion to pay its bills, a record increase that would allow the U.S. national debt to reach approximately $14.3 trillion.

#17) It is going to become even harder for the U.S. government to pay the bills now that tax receipts are falling through the floor.  U.S. corporate income tax receipts were down 55% in the year that ended on September 30th, 2009.

#18) So where will the U.S. government get the money?  From the Federal Reserve of course.  The Federal Reserve bought approximately 80 percent of all U.S. Treasury securities issued in 2009.  In other words, the U.S. government is now being financed by a massive Ponzi scheme.

#19) The reckless expansion of the money supply by the U.S. government and the Federal Reserve is going to end up destroying the U.S. dollar and the value of the remaining collective net worth of all Americans.  The more dollars there are, the less each individual dollar is worth.  In essence, inflation is like a hidden tax on each dollar that you own.  When they flood the economy with money, the value of the money you have in your bank accounts goes down.  The chart below shows the growth of the U.S. money supply.  Pay particular attention to the very end of the chart which shows what has been happening lately.  What do you think this is going to do to the value of the U.S. dollar?....

#20) When a nation practices evil, there is no way that it is going to be blessed in the long run.  The truth is that we have become a nation that is dripping with corruption and wickedness from the top to the bottom.  Unless this fundamentally changes, not even the most perfect economic policies in the world are going to do us any good.  In the end, you always reap what you sow.  The day of reckoning for the U.S. economy is here and it is not going to be pleasant.

SILVER - The Undervalued Commodity

Silver prices still have a long way to rise before reaching their top. From industrial applications to its relative value, it’s easy to make the case that silver remains one of the most undervalued commodities.

Industrial Silver Fundamentals
Industrial uses for silver are abundant. Ranging from electrical uses to photographic development, silver may be one of the most useful metals known to man.
However, silver prices have yet to reflect the growing applications and uses for the precious metal, despite so many fundamentals suggesting silver prices should rise. Silver’s low price is mostly due to a poor economy, which has seen consumer spending go into a drought. With consumers buying less big ticket items, such as washing machines, computers, and other consumer-grade electronics, which all contain silver, the amount demanded from the industrial sector is under its average.
Luckily, economies do not stay in recessions or depressions forever, and consumer spending, as well as industrial silver demand, should skyrocket with any rebound. Silver’s price should follow closely behind.

Relative Cost
2008 was a record year for virtually every commodity across the board. Oil soared as high as $147, gold pushed towards $850 per ounce, and agricultural commodities rode the rally as well.
However, silver remained behind the pack, moving only as high as $15 per ounce, which is roughly one-third of its all time high set in the 1980s. In fact, silver was the only commodity that had not beaten its previous highs in the last three years.
When compared to energy commodities, gold and even stocks, silver remains heavily undervalued, despite a belief among economists and financial analysts that it represents one of the best investments in 2010 and beyond.

Silver and Gold Relationship
Gold and silver typically trade within a range of 20-70 ounces of silver to the price of gold. Today, the ratio is roughly 62.2 ounces of silver to one ounce of gold, which is the highest it has been in years. This ratio is often used by traders as an oscillator to decide when it is best to move from gold to silver or from silver to gold. When the ratio nears 70, investors buy silver and sell gold. When it nears 20, investors are selling silver to buy gold. This ratio, which has long been important to commodity traders and long-term investors alike, suggests silver is ready for a rally.

Rounding it All Up
Even after rising nearly 350% from its 2000’s low, silver is still heavily undervalued when compared to a slew of other commodities, setting the stage for a continued explosion in price regardless of the changes in other commodity prices. Moving forward, silver has not only the fundamentals driving growth in consumption, but also investment, as more and more investors realize the untapped potential that resides in a healthy stock of silver.

There is little time to wait, as silver’s explosion could be just around the corner. Should silver prices make a modest move from 1/62 of the price of gold to 1/40, investors will be rewarded with a healthy 50% in returns. The time to invest is now, long before Wall Street realizes what a true bargain silver is.

The Fear Index

By James Turk

The Fear Index remains within its decade-long bullish uptrend, so we therefore know as a consequence that gold also remains within an uptrend.  But the Fear Index is also giving us another important message.  It is that gold remains undervalued.

Gold’s valuation is indispensable information given its exceptional appreciation this decade.  In other words, even though gold has risen nine years in a row against the US dollar, it remains relatively cheap.  This conclusion is illustrated with the following chart.

The dashed horizontal line on this chart marks 2.63%, which is the average value of the Fear Index since August 1971.  That is the date when President Nixon – with total disregard to the US dollar’s 180-year history – turned the dollar into irredeemable fiat currency, in effect declaring by presidential edict that the monetary requirements of the Constitution were null and void.

The Fear Index is presently 2.05%.  Note that it is lower today than August 1976 when the Fear Index was 2.28% and gold was $104.  Therefore, gold at $1106 – its December 31, 2009 price – is even more undervalued than it was at $100 back in 1976.  How is that possible?  How can gold be more than 10-times more ‘expensive’ today and still be better value?

Simple.  A 2010-dollar is not the same as a 1976-dollar.  The dollar’s name has not changed, but the dollar has been terribly debased over the past 34 years.  It has lost much of its moneyness – its innate value as money – in two insidious ways.

It has lost purchasing power because of inflation.

Secondly, it also has 0.23% less gold-backing today than it did at the low point of the Fear Index in 1976.  Even though dollars can no longer be redeemed for gold, dollars are still partially backed by gold.  The Fear Index measures to what extent gold backs the dollar, assuming of course that the 261.5 million ounces in the US Gold Reserve really exist and have not been loaned out, encumbered or put in play as part of the gold price suppression scheme led by the US government.

What is clear from the above chart is that one cannot use the dollar price of gold to determine whether or not gold is good value.  The purchasing power of the dollar and the extent of its gold-backing are ever-changing.  So the dollar is not a good measuring stick.  It is not a numéraire.

The important conclusion from the above chart is that gold remains relatively cheap.  We should therefore continue to accumulate it.
-------------------------------------------
For reference, the formula to compute the Fear Index and the value for the Fear Index as of December 31, 2009 are as follows:

Russia’s Central Bank Boosts Gold Holdings

Jan. 21 (Bloomberg) -- Russia’s central bank addded 800,000 troy ounces of gold to its reserves last month, increasing its holdings of the metal in dollar terms to $22.4 billion as of Jan. 1, Bank Rossii said on its Web site.

The bank’s gold reserves climbed to 20.5 million ounces from 19.7 million the previous month.

Source : Bloomberg News

Central Banks around the world are buying up gold.  What about you?

You Can Buy Gold Here

MORE MONEY PRINTING - To fund An Unsustainable Economy

By ANDREW TAYLOR, Associated Press Writer – Wed Jan 20

WASHINGTON – Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $1.9 trillion to pay its bills, a record increase that would permit the national debt to reach $14.3 trillion.



The unpopular legislation is needed to allow the federal government to issue bonds to fund programs and prevent a first-time default on obligations. It promises to be a challenging debate for Democrats, who, as the party in power, hold the responsibility for passing the legislation.

It's hardly the debate Democrats want or need in the wake of Sen.-elect Scott Brown's victory in Massachusetts. Arguing over the debt limit provides a forum for Republicans to blame Democrats for rising deficits and spiraling debt, even though responsibility for the government's financial straits can be shared by both political parties.

The measure came to the floor under rules requiring 60 votes to pass. That's an unprecedented step that could mean that every Democrat, no matter how politically endangered, may have to vote for it next week before Brown takes office and Democrats lose their 60-vote majority. Democratic leaders are also worried that Sen. Evan Bayh, D-Ind., who opposed the debt limit increase approved last month, will vote against the measure.


The record increase in the so-called debt limit is required because the budget deficit has spiraled out of control in the wake of a recession that cut tax revenues, the Wall Street bailout, and increased spending by the Democratic-controlled Congress. Last year's deficit hit a phenomenal $1.4 trillion, and the current year's deficit promises to be as high or higher.
Congress has never failed to increase the borrowing limit.

"We have gone to the restaurant. We have eaten the meal. Now the only question is whether we will pay the check," said Finance Committee Chairman Max Baucus, D-Mont. "We simply must do so."
A White House policy statement said the increase "is critically important to make sure that financing of federal government operations can continue without interruption and that the creditworthiness of the United States is not called into question."

China Buying Less U.S. Debt

Jan. 20 (Bloomberg) -- China, which cut Treasury holdings by the most in five months in November, may scale back purchases of U.S. debt on concern the dollar will decline, said Liu Yuhui, an economist at the Chinese Academy of Social Sciences.

The Asian nation’s investors, the biggest foreign holders of U.S. government debt, trimmed holdings by $9.3 billion in November to $789.6 billion, a Treasury Department report showed yesterday. The decline came even as Chinese foreign-exchange reserves swelled $61 billion in the month.

“China may reduce purchases of U.S. Treasuries because there has been no sign the dollar’s long-term trend of weakness will change,” said Liu, director of the Center for Chinese Economic Evaluation in Beijing at CASS, a government-backed research body.

Gold Holdings of Countries

We have been reading news of Central Banks buying up gold as they move away from the traditional safe haven; the US Dollar.  This is a reversal of Central Bank policies in the 1980's where they sold away their gold, resulting in gold prices plummeting to about US$250 per troy ounce.

Look at the table below and look at the Gold Holdings as a percentage of the Nation's reserves.  Look at the numbers for amongst the largest Creditor Nations of the word today; China, Taiwan and Singapore.

Given that the US government's policy of printing more dollars to fund unsustainable projects, more Central Banks are turning to gold, buying them up as and when they become available.  Nobody wants to be left holding US Treasury Bills.

The buying of gold by Central Banks has started as they seek to increase their percentage of gold in their portfolio.  As demand increases... the price of gold will rise too...

WORLD OFFICIAL GOLD HOLDING (December 2009)

Rank	Country/Organization	Gold (tonnes)	Gold's share of national forex reserves (%)
1	United States	8,133.5	68.7%
2	Germany	3,407.6	64.6%
3	International Monetary Fund	3,005.3	-
4	Italy	2,451.8	63.4%
5	France	2,435.4	64.2%
6	China	1,054.0	1.5%
7	Switzerland	1,040.1	28.8%
8	Japan	765.2	2.4%
9	Netherlands	612.5	51.7%
10	Russia	607.7	4.7%
11	India	557.7	6.4%
12	European Central Bank	501.4	19.6%
13	Taiwan	423.6	4.1%
14	Portugal	382.5	83.8%
15	Venezuela	356.4	35.7%
16	United Kingdom	310.3	15.2%
17	Lebanon	286.8	26.5%
18	Spain	281.6	34.6%
19	Austria	280.0	52.7%
20	Belgium	227.5	31.8%
21	Algeria	173.6	3.8%
22	Philippines	154.7	12.1%
23	Libya	143.8	4.6%
24	Saudi Arabia	143.0	10.2%
25	Singapore	127.4	2.3%
26	Sweden	125.7	8.6%
27	South Africa	124.8	10.5%
28	Bank for International Settlements	120.0	-
29	Turkey	116.1	5.2%
30	Greece	112.4	71.5%
31	Romania	103.7	7.4%
32	Poland	102.9	4.4%
33	Thailand	84.0	2.1%
34	Australia	79.9	6.0%
35	Kuwait	79.0	11.4%
36	Egypt	75.6	7.4%
37	Kazakhstan	74.5	12.0%
38	Indonesia	73.1	3.9%
39	Denmark	66.5	2.8%
40	Pakistan	65.4	15.8%
41	Argentina	54.7	3.7%
42	Finland	49.1	15.1%
43	Bulgaria	39.9	7.1%
44	West African Economic and Monetary Union	36.5	9.9%
45	Malaysia	36.4	1.3%
46	Peru	34.7	3.6%
47	Brazil	33.6	0.5%
48	Slovakia	31.8	60.3%
49	Bolivia	28.3	11.0%
50	Belarus

Source : http://en.wikipedia.org/wiki/Gold_reserve