Inflation Is Coming, What to Do Now

Guest post by Jeff Clark, Senior Precious Metals Analyst

We’ve all heard of the inflationary horrors so many countries have lived through in the past. Third-world countries, developing nations, and advanced economies alike—no country in history has escaped the debilitating fallout of unrepentant currency abuse. And we expect the same fallout to impact the US, the EU, Japan, China—all of today’s countries that have turned to the printing press as a solution to their economic woes.

Now, it seems obvious to us that the way to protect one’s self against high inflation is to hold one’s wealth in gold… But did citizens in countries that have experienced high or hyperinflation turn to gold in response? Gold enthusiasts may assume so, but what does the data actually show?

Well, Casey Metals Team researcher Alena Mikhan dug up the data. Here’s a country-by-country analysis… Continue reading “Inflation Is Coming, What to Do Now”

Russia’s Non-invasion of Crimea

Sevastopol CrimeaAccording to main-stream media hysteria, Putin has invaded Crimea, and WWIII is about to break out.  The truth is, however, that Russia is well within the bounds of a treaty that was signed in 1997 and ratified by Russia and Ukraine in 1999.

Historically, Russia has had a naval presence in Crimea since 1783, when the port city of Sevastopol was founded by Russian Prince Grigory Potemkin. Crimea was part of Russia until it was given to Ukraine in 1954 by Nikita Khruschev. In 1997, Russia and Ukraine signed a Partition Treaty that determined the fate of the military bases and vessels in Crimea.

The original treaty stipulated that the Russian Black Sea Fleet can stay in Crimea until 2017, and has since been extended by another 25 years to 2042. According to the treaty, Russian naval units are allowed to implement security measures at their permanent posts, as well as during re-deployments, in cooperation with Ukrainian forces. Among other things, the treaty allows Russia to have the following in Crimean territory:

  • 25,000 troops.
  • 24 artillery systems with a caliber smaller than 100 mm.
  • 132 armored vehicles.
  • 22 military planes.

Currently, in compliance with the treaty, Russia has five naval units stationed in the port city of Sevastopol:

  • The 30th Surface Ship Division, which is comprised of the Black Sea Fleet’s flagship, Moskva, as well as Kerch, Ochakov, Smetlivy, Ladny, and Pytlivy vessels, and the 197th Landing Ship Brigade, which consists of seven large amphibious vessels.
  • The 41st Missile Boat Brigade, which includes the 166th Fast Attack Craft Division, consisting of Bora and Samum hovercrafts as well as the small missile ships, Mirazh and Shtil, and 295th Missile Boat Division.
  • The 247th Separate Submarine Division, which consists of two diesel submarines:B-871 Alrosa and B-380 Svyatoy Knyaz Georgy.
  • The 68th Harbor Defense Ship Brigade which includes 4 vessels from the 400th Antisubmarine Ship Battalion and the 418 Mine Hunting Ship Division.
  • The 422nd Separate Hydrographic Ship Division, which includes the Cheleken, Stvor, Donuzlav, GS-402 survey vessels and hydrographic boats.

Russia also has two airbases in Crimea in Kacha and Gvardeysky.

The Lego Movie: Fascism vs Freedom

The Lego Movie
“Today will not be known as Taco Tuesday, but Freedom Friday!” It was actually WyldStyle that said this.

I saw The Lego Movie with the kids last week, and in a nutshell, it is fun for the whole family, pro-freedom and anti-fascist. I’ll try not to give away any spoilers, and I’m not going to dissect the plot, but I will describe some of the symbolism in the movie Continue reading “The Lego Movie: Fascism vs Freedom”

Lowest Deliverable COMEX Gold Inventory Ever

Now Is the Time to Buy Gold

Courtesy of Bud Conrad, Chief Economist

Gold has been in a downturn for more than two years now, resulting in the lowest investor sentiment in many years. Hardcore gold bugs find no explanation in the big-picture financial numbers of government deficits and money creation, which should be supportive to gold. I have an explanation for why gold has been down—and why that is about to reverse itself. I’m convinced that now is the best time to invest in gold again.

Gold Is the Alternative to Non-Convertible Paper Money

If you’ve been a Casey reader for any length of time, you know why gold is a good long-term investment: central banks are expanding paper money to accommodate the deficits of profligate governments—but they can’t print gold. Since the beginning of the credit crisis, the world’s central banks have “invented” $10 trillion worth of new currencies. They are buying up government debt to drive interest rates down, to keep countries afloat. The best they can do is buy time, however, because creating even more debt does not solve a credit crisis.

Asia Is Accumulating Gold for Good Reason

Since 2010, China has been buying gold and not buying US Treasuries. China’s plan seems to be to acquire a total of 6,000 tonnes of gold to put its holdings on a par with developed countries and to elevate the international appeal of the renminbi.

In 2013, China imported over 1,000 tonnes of gold through Hong Kong alone, and it’s likely that as much gold came through other sources. For example, last year the UK shipped 1,400 tonnes of gold to Swiss refiners to recast London bars into forms appropriate for the Asian market.

China mines around 430 tonnes of gold per year, so the combination could be 2,430 tonnes of gold snatched up by China in 2013, or 85% of world output.

India was expected to import 900 tonnes of gold in 2013, but it may have fallen short because the Indian government has been taxing and restricting imports in a foolish attempt to support its weakening currency. Smugglers are having a field day with the hundred-dollar-per-ounce premiums.

Other central banks around the world are estimated to have bought at least 300 tonnes last year, and investors are buying bullion, coins, and jewelry in record numbers. Where is all that gold coming from?

COMEX and GLD ETF Inventories Are Down from the Demand

The COMEX futures market warehouses dropped 4 million ounces (over 100 tonnes) in 2013. The COMEX uses two classes of inventories: the narrower is called “registered” and is available for delivery on the exchange. There are other inventories that are not available for trading but are called “eligible.” I don’t think it’s as easy to get holders of eligible gold to allow for its conversion to registered to meet delivery as the name implies. Yes, that might occur, but only with a big jump in the price.

The chart below shows the record-low supply of registered COMEX gold.

Meanwhile, SPDR Gold Shares (GLD), the largest gold ETF, lost over 800 tonnes of gold to redemptions. At the same time, central banks have provided gold through leasing programs (but figures are not made public).

Why Has Gold Fallen $700 Since 2011?

In our distorted world of debt-ridden governments and demand from Asia, gold should continue rising. What’s going on?

The gold price quoted all day long comes from the futures exchanges. These exchanges provide leverage, so modest amounts can be used to make big profits. Big players can move markets—and the biggest player by far is JPMorgan (JPM).

For the first 11 months of 2013, JPM and its customers delivered 60% of all gold to the COMEX futures market exchange; that, surely, is a dominant position that could affect the market. By supplying so much gold, they are able to keep the price lower than it would otherwise be.

A key question is why a big bank would take positions that could drive gold lower. Answer: Banks gain by borrowing at zero rates. But the Federal Reserve can only continue its large quantitative easing programs that bring rates to zero if gold is not soaring, which would indicate weakness in the dollar and the need to tighten monetary policy. Voilà—we have a motive. Also, suppressing the price of gold supports the dollar as a reserve currency.

The chart below shows the month-by-month number of contracts that were either provided to the exchange or taken from the exchange by JPM. For a single firm, the numbers are large, but the effect across all gold markets is greater because so many gold transactions follow the price set in the paper futures market.

What jumps out from the chart above is the fact that while JPM had been selling gold into the futures market for most of the year, it made a major shift in December, absorbing 96% of all gold delivered.

That is a radical shift and, I believe, an indicator that JPM’s policy has shifted. In my opinion, their deliveries of gold were suppressing the price during 2013, but now their policy has shifted in a way that will support gold going forward.

This leaves a vital question unanswered: Why?

Has the motivation to suppress the price of gold gone away? Not likely, and we may never know the full truth of what is happening, but I suspect the main reason for the shift is that they have done their damage. The $740 drop from top to bottom, a 39% decline, has shaken confidence in gold as a financial “safe haven” among many investors, especially those new to precious metals.

At the same time, continuing to lean on gold at this point could become very costly. JPM delivered $3 billion (about 2 million ounces of gold) into the market up to December in 2013, and may not have ready sources of gold to keep that up. It is dangerous to put on big short positions unless you have gold or some future gold deliveries as a hedge.

By now, everyone knows of the shortages in the gold market; JPM has to be as aware of that as the rest of us. It just isn’t safe for them to continue to lean on the market. Being aware, it looks like they are taking the bet that gold will rebound, so they could do well on the other side of the trade.

Another confirmation of the shift by big banks comes from data provided by the US Commodity Futures Trading Commission (CFTC) that shows the net positions of the four biggest US banks in the futures market. There has been a dramatic change from being short the market to now being long.

Crisis Brewing in the Gold Market

Germany claims to hold 3,390.6 tonnes of gold, about half of which is held by foreign central banks. Over a year ago, they announced a plan to repatriate 674 tonnes of gold from France and the United States. The US said it would comply, but told the German government that it would have to wait seven years for all the gold to be delivered. The news out last week was that after a year, Germany had only obtained 37 tonnes of its gold—and only five of them were from the US. That is a trivial amount (only 160,000 ounces).

So why can’t Germany get its gold? Explanations of having to melt down existing gold and recast it just don’t make sense. The most logical conclusion, and the one I’ve come to, is that the United States simply doesn’t have the gold it says it has—neither Germany’s nor its own.

Of course, the US government isn’t going to admit that there’s a problem, but I say there is.
More evidence: JPMorgan’s COMEX warehouse contained 3.0 million ounces of gold in 2012, but that had dropped to 0.5 million ounces by mid-2013. Its registered inventories are a razor-thin 87,000 ounces. These kinds of swings are indicative of shortages and instability.

Further, JPMorgan sold its gold vault in New York City—located next to the Federal Reserve’s vault—to the Chinese. The banking giant also just announced the sale of its commodities trading business (although it may not have sold the precious metals part of that business). Perhaps they were concerned about new regulations of banks with deposit insurance from the government.

In another relevant development, Deutsche Bank recently surprised the gold community by quitting its position on the committee that sets the London a.m. and p.m. fixings. This came a few weeks after a German regulatory body called BaFin started investigating how these prices were set. BaFin also gave an indication that the process appeared worse than the LIBOR fixing scandal, which resulted in billions in fines.

Putting Inventories and Traders Together

The futures market looks fragile to me. The basic problem is that there are many more transactions that could put a claim on gold than there is gold registered for delivery in the COMEX warehouses.

The chart below gives a dramatic picture by simply dividing the open interest of all futures contracts by the registered inventories. The black line at the bottom shows the big jump in the ratio as the registered inventories declined. There are 107 times more open-interest positions than there is registered gold.

The futures markets operate on the expectation that only a few big traders will demand delivery. JPMorgan has shown that it is in a position to demand almost all (96%) of the gold for delivery. They are big enough that they could cause a collapse of the market, if they were to force delivery of more than is available. They know better than to do so, though, and I would guess that they will just manage to try to gain back what gold they have been delivering over the last several years. That should support the price of gold.

Gold Will Rise, and It’s on Sale Now

Now is the time to stake your claim in gold. In the long term, we know that paper money will become worthless; in the short term, the biggest seller has just shifted its actions to becoming a buyer. That makes this a good time to accumulate gold and gold mining stocks before a major shift upward in price.

Speaking of gold mining stocks: My Casey Report co-editor Doug Casey, as well as other famous gold speculators, are also convinced that a turnaround in the gold market may be upon us. If you haven’t yet, do yourself a favor and watch “Upturn Millionaires,” Casey’s online video event with eight well-known resource speculators and investment experts that premieres Wednesday at 2:00 p.m. EST. It’s free, so you just have to sign up to register.

Precious Metal Manipulation Worse Than Libor Scandal, Says German Regulator

Elke Koenig BafinAccording to Germany’s top financial regulator, Elke Koenig, possible precious metal manipulation and manipulation of currency rates is worse than the Libor-rigging scandal, which has already led to fines of about $6 billion.

Koenig, the president of Bafin, said in a speech in Frankfurt today that the allegations about the currency and precious metals markets are “particularly serious, because such reference values are based–unlike Libor and Euribor–typically on transactions in liquid markets and not on estimates of the banks.”

Koenig is the first global finance regulator to comment publicly on the investigations as probes into the London interbank offered rate, or Libor, expand into other benchmarks. The European Union’s antitrust chief, Joaquin Almunia, said yesterday that its preliminary probe into possible foreign-exchange manipulation covers similar practices as in the regulator’s probe into Libor-rigging.

Yesterday, Bonn-based Bafin said it is investigating currency trading, joining regulators in the U.K., U.S. and Switzerland, who are examining whether traders at the world’s largest banks colluded to manipulate the WM/Reuters rates, used by money managers to determine the value of holdings in different currencies.

It seems like Germany is getting tired of waiting for its gold from the US, or possibly Merkel wants to ruffle some feathers over the NSA scandals. Who knows?  But this confirms what all of us stackers already knew.

If you like your guns, you can keep your guns

If you like your guns, you can keep your guns

New York City has sent out gun confiscation notices ordering gun owners to “immediately surrender” rifles and shotguns capable of holding more than five rounds of ammunition. According to the unconstitutional, immoral NYC Administrative Code 10-306 (b), it is illegal to possess a rifle or shotgun with the capacity to hold more than five rounds in the city.

The notice sent to an New York City resident, dated Nov. 18, offers the gun owner the following options:

1. Immediately surrender your Rifle and/or Shotgun to your local police precinct, and notify this office of the invoice number. The firearm may be sold or permanently removed from the City of New York thereafter.

2. Permanently remove your Rifle and/or Shotgun from New York City…

[…]

3. You may call to discuss the matter if you believe your firearm is in compliance, or you may request the option to bring your firearm to a licensed gunsmith for a permanent modification and certification proving that it is permanently modified and in compliance.

Is anyone surprised by this? How long do you think they’ll wait before door-to-door gun confiscation is a reality?

Correction Andrew Napolitano,18 of 20 Plots to Kill Americans Created by Feds

Judge Andrew Napolitano has stated that 17 of 20 terrorist plots against Americans were created by the Feds (US government agents), but in fact, 18 false flags were instigated by the government.

“Can the federal government take credit for saving us from a plot of its own creation?

Has the federal government kept us safe or does it just want us to think it has kept us safe?

17 out of the 20 plots to kill Americans in the past 10 years have been interrupted by the Feds because they were created by the Feds. The other three attempted attacks were stopped by diligent Americans.”

– Judge Andrew Napolitano

Judge Andrew Napolitano is right as usual; however, he needs to adjust his numbers a little. The underwear bomber was indeed thwarted by diligent civilians, but it was instigated by federal agents. You can read Kurt Haskell’s underwear bomber testimony at his own blog. Kurt Haskell, a lawyer, describes how a plain-clothes official forced the underwear bomber on the plane without a passport, against the wishes of airport personnel.

https://www.youtube.com/watch?v=tHtTAZIk8uc

So actually, 18 of 20 potential acts of terrorism were instigated by US federal agents. Why would they do this? One can only guess:

  • To justify their budget.
  • To justify their existence.
  • To keep the population afraid because a fearful population is more willing to give up their rights.

“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”

H. L. Mencken

Gold “Bubble” vs Justin Bieber

Justin Bieber Bubble

Gold is not in a bubble, but Justin Bieber is, and fortunately Bieber’s bubble has already popped.

Remember the .com bubble (aka IT bubble) and the real-estate bubble?  What did these bubbles have in common (besides the fact that they were pumped with bad monetary policy)? Virtually everyone wanted a piece of the action, and if you couldn’t get in, you were talking about it. And if you weren’t talking about it, or you weren’t interested, it was in the news everywhere, every day.  It was omnipresent.  You couldn’t escape hearing about it from the main-stream media and their teams of experts and talking heads.

Logically, the amount of interest in any given subject (in this case, asset bubbles) is reflected in search engine traffic. There are many tools on the Internet that display this type of information.  For example, during an ordinary day, there are probably hundreds of thousands of people doing searches on Michael Jackson. When he died, Michael Jackson was in headlines around the world, and you can see a huge spike in internet search interest on that day.

The animation below uses several common gold and silver internet search terms to demonstrate how very little people are interested in gold and silver compared to Justin Bieber.

Gold Bubble vs Justin Bieber
This animation compares search interest between silver bullion, gold bullion, gold coins and Justin Bieber.

The good news is that Justin Bieber is in decline, but more importantly you can see that neither gold nor silver are in a bubble. In fact, search engine interest in gold and silver is a flat line compared to Justin Bieber. Relatively speaking, no one is talking about gold. There is no gold bubble.

Considering the world’s lack of interest in things that really matter–like how the banking system works, something that actually affects our daily lives–and the average person’s obsession with pop culture, you might expect similar results when comparing real estate with Justin Bieber. The following chart might surprise you however.  Here you can see that interest in real estate actually surpassed the pop icon:

Real Estate vs Justin Bieber
Real Estate vs Justin Bieber

So until everyone on the street is talking about gold, until it’s in all the MSM headlines, and until interest gold is on par with the latest pop star, there is no gold bubble.

I Don’t Remember Anybody Suggesting Apple Should Force People To Buy iPhones

It seems Obama’s speech writers are confused, or they think we’re too stupid to recognize the difference between free choice and coercion. Then again, maybe it was just a product placement ad when Obama said the following:

Consider that just a couple of weeks ago, Apple rolled out a new mobile operating system, and within days, they found a glitch, so they fixed it. I don’t remember anybody suggesting Apple should stop selling iPhones or iPads or threatening to shut down the company if they didn’t. That’s not how we do things in America. We don’t actively root for failure. We get to work, we make things happen, we make them better, we keep going.

Well Mr President, have you considered that Apple doesn’t force people to buy iPhones?  There is no fine for not buying an iPhone, and if you’re not satisfied, you can return it for a full refund. Can you do the same with Obamacare, or any other government dis-service for that matter?  No, of course not.  With the government, there is no recourse, but we’ll all pay for your shoddy products and services whether we like it or not.

Gainesville Coins Removed from Price-Comparison Tables

The prices that Gainesville Coins has been serving to my web crawler differ from the prices they serve to a normal web browser. As a result, Gainesville Coins appeared to have the lowest prices in the price-comparison tables, though in reality, they did not have the lowest prices. This behavior compromises the integrity of this site.  Therefore, Gainesville Coins will no longer appear in the price-comparison tables.

It came to my attention when I received the following comment on the ABOUT page:

Your quotes for Gainesville Coins is always the lowest AND it is always wrong!

Please explain.

When I looked into the issue, I found that the commenter was correct, so I immediately removed Gainesville Coins from the price-comparison tables until I could figure out what was going on.

My initial suspicion was that Gainesville Coins had changed their site’s layout in way that confused my web crawler, but this was not the case. In fact, the prices that my web crawler found were nowhere to be found anywhere on Gainesville Coins’ pages. After many hours of investigation, I finally realized that Gainesville Coins appeared to be engaging in a practice known as cloaking. Cloaking means that the content they present to a web crawler is different from the content they present to a web browser.

Gainesville Coins Test Results
Actual prices are served to the control server, while false prices are simultaneously served to my web crawler.

Whenever my crawler asks a precious-metal web site for a page, it identifies itself as comparegoldandsilverprices.com. This is standard procedure, so PM dealers can identify my server by its name and IP address. Not all web crawlers identify themselves as I do.  In fact, many identify themselves as Google or another search engine, to fly under the radar, and it doesn’t take mad hacking skills to do this. Most likely, Gainesville Coins used my identifying information to trigger their own scripts, which would give false prices to my crawler. In other words, whenever my crawler asked for a page, the Gainesville Coins server would know that it was my server making the request and return a page with false prices.

To confirm the suspicious behavior, I created a simple script that fetches a page from Gainesville Coins without performing any other operations. The script simply requests a page from Gainesville Coins, like any ordinary browser would, then displays (echoes) the page on the screen.  The only difference is that styles from external CSS files are not loaded, and that’s why the pages are styled differently in the screen shot. I ran the script on two different servers:

  • my normal server (comparegoldandsilverprices.com).
  • a control server unknown to Gainesville Coins.

Then I used a web browser to simultaneously open three tabs (from left to right in the screen shot above): one tab with an original product page from Gainesville Coins, one tab for the control server and one tab for my server. When comparing the fetched pages to the original page from Gainesville Coins, I could clearly see that the prices on the page from the control server matched perfectly with the original page from Gainesville Coins.  However, the prices on the page that my server fetched did not match. Instead of the actual prices, false prices were displayed, all of them discounted 3%. In other words, when an unknown client made a request, Gainesville Coins would display the actual prices, but when my server made a request, false prices were displayed.

Test Results Bank Wire Price Credit Card Price
Gainesville’s page viewed directly in a browser 25.56 26.31
The page Gainesville served to my anonymous control server 25.56 26.31
The page Gainesville served to comparegoldandsilverprices.com 24.79 25.05

I cannot recommend PM dealers that engage in cloaking. I will no longer feature Gainesville Coins in the price-comparison tables. You can still read and write reviews for Gainesville Coins.