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The relentless selling we have seen over the past month in precious
metals was kicked off by the manipulative interventions occurring right
around the time of the Fannie Mae and Freddie Mac implosions in
mid-July. Unprecedented short
selling by two major banks in the futures market along with waves of naked
short selling of resource stocks pushed indices and stocks through technical
support on charts. Yamana Gold, which is one of the most successful gold
companies saw short interest rise 72% in the first two weeks of August
(without counting all the naked shorts). There is no reason to short this
stock; it has been a star performer.
Many investors have given up and portfolio managers that haven’t
given up are now forced to sell due to redemptions.
These investors believe that the market is telling them a message and
don’t realize it is not a market message but a heavily controlled
manipulation to make them believe so and to dupe them out of their
positions. The official
explanation of this action is that we are experiencing deflation and all
things real will crash. A
deflation scare is mainly useful to the financial authorities
for one main purpose; to justify the next round of government-sponsored
inflation. The dollar has been
rising against other increasingly worthless fiat currencies with the
explanation that Europe is weakening. As bad as it might be getting there,
there is no way we are doing any better in the US unless we are referring to our
ability to generate more bogus statistics. If we were experiencing a true
deflation with the level of debt out there, the fear of accepting any paper
currency would cause gold to rise
even faster. Yet foreign exchange
reserves have grown to $7 trillion in the past seven years and money market
assets are over $3.5 trillion in the US alone so there is plenty of
cash around. Everything we feared could happen in this economy has more or
less occurred, or more correctly, has started to occur yet we have not been
sheltered by the traditional safe haven status of gold and silver. This is no accident. It is a planned
policy known as “the strong dollar policy” that runs against all
the natural forces in the real world, dooming it to failure.
The fiat money system can not possibly survive if money is not
continuously created since it is brought into creation as debt and additional
money to pay interest must always be created. With interest payments at such a high
proportion of the overall money in creation, any slowing at this point will
lead to implosion and any expansion in excess of productivity will also lead
to implosion. This is why the
talk of any tightening is a bluff and any drop in rates threatens inciting a
dollar crash. Very few can see
this logic but the truth is getting ever more difficult to hide and soon the
masses will see things much more clearly.
We are witnessing the complete breakdown of the world, but
particularly the US,
financial system. Evidence mounts
on a daily basis but investors do not see or understand the relevance of
events. One of the most
significant events yet is the recent all out attack on gold and silver. Although the mainstream belief is that
“the commodity bubble” is over, most of those that have been
buying gold and silver to protect from Governments that are now in the early
stages of hyper-inflating have not been fooled. Purchasing gold and silver and other
items of enduring value is the only way to step outside the system of
constant Government devaluation of money and illogical manipulation of
everything else. They are buying
physical gold and silver because
they do not trust any currencies and do not like what they see out of the
various Central Bank “operations”. They realize every time they buy
physical gold and silver and take it into possession they are reducing the
stockpiles that are being used to control their prices in the fractional
reserve type operations of the bullion banks. The rapid $7+ decline in silver was
accomplished 100% in the paper markets, largely by two banks selling 27,000
paper contracts representing 138 million ounces of silver in just over a
month. That is almost 1/4 of
annual world production shorted by two banks no less. Their shorts as of August 5th
accounted for 61% of the total commercial net short position. These operations are meant to
demoralize you and hopefully get you to sell your physical metal and turn to
their ridiculous safe haven candidate, bonds yielding less than 4% in a 15%
inflation environment. They were
expecting to incite panic selling in silver, however, the result of their
actions were just the opposite.
Worldwide investors scrambled to take advantage of the price crash,
wiping out most bullion dealers despite paying as high as well over $4 above
the spot price of silver. In
fact, this is the first time in 30 years since gold began trading that declining futures prices led to a spike in physical
demand. The world’s largest
single refinery in South
Africa said it was cleaned out by one
5000-coin order for Gold Krugerrands. Even the questionable silver ETF was
seeing massive buying on the 40% sell off! Not only were they unsuccessful in
prompting selling, (except by the leveraged paper longs on the COMEX), they
also did tremendous damage to the functioning of the futures market that will
derail the ongoing manipulation.
Dealers that bought to hedge off price risk from selling physical
silver to customers have been crushed, losing untold sums since paper prices
have still not recovered even close to physical prices. This could destroy the futures market
which severely restricts the ability to manipulate prices lower since many
futures market participants (suckers) will no longer trust such a sham of a
market. The longer these below
market prices persist, the sooner greater shortages will develop which are
already substantial. This recent
manipulation has been so severe the interveners may have gone too far. We shall see but if buyers and sellers
circumvent the exchanges the manipulation will get much more difficult and we
are already seeing that. The
reason we have spent so much time on this is because
this is the sign that the physical market is taking over from the paper
markets. This is what needed to
happen in light of the ongoing manipulation for true market prices for gold
and silver to be reached and now we are one giant step closer. Unfortunately, Americans are the most
exposed to the misinformation campaigns regarding gold and are the most
disadvantaged as a result.
Foreigners know not to believe the rhetoric and are steadily
accumulating gold and silver at giveaway prices. Going forward this is all that will
really matter.
The crashing of precious metals stocks has shaken investors and they
are selling the stocks despite the fact that the stocks are selling as low as
1.5-3 times earnings or cash flow (unheard of multiple for a gold stock)
despite many stocks growing production and earnings in excess of 30%. There are also many stocks that have
more cash than their entire market cap with no debt. They never get much cheaper than
that. I have spoken with some
investors that are throwing in the towel and selling and was alarmed to hear
they are planning on moving to the “safety?” of bonds or large
cap stocks. These are companies
such as GM and Citicorp which are already on life support from the Government. These zombie companies would be long
gone if not for the funneling of the
citizens’ money into their pockets. During the weekend when no one would
notice, GM just received a $50 BILLION! loan from
the US Treasury for the development of electric cars and gas vehicles. This is to a company with a total
market capitalization of only $5 billion. As for bonds, a 4% yield in an
instrument that provides zero protection against 20% worldwide increases in
M3 money supply is about as unsafe as you can get. Cash is no better as the even lower
yields will do nothing to offset the 20% loss in purchasing power that we
expect over the next year or the potential for total loss due to bankruptcy. People understand that their dollars
don’t stretch as far now that they are paying $4 for gas, higher prices
for food, and most everything you need to live but they have somehow not been
able to make the connection of how that affects different asset classes they
have to choose from to invest their money.
This is probably the fourth big scare and pullback since this gold and
commodity market got under way; and the most severe considering how
overwhelmingly positive both the fundamental backdrop is and the progress the
companies in the industry have made.
There is a saying that a gold bull will do what it has to, to throw
off as many riders as it can and we are seeing it demonstrated before our
very eyes. It was the same in the
1970’s despite gold rising 26 times and many stocks rising from pennies
to over $500 per share! It is sad
to see investors give up on the very few areas of the stock market with such
strong fundamentals that can allow them to do well despite the onerous future
we face. Gold, silver and uranium
are certainly three areas that will stand the test of time. All the natural forces in the universe
are pushing these sectors forward yet the substantial power of the
manipulators have delayed their progress. The suppression of the market price of
a badly wanted commodity only catapults the price that much higher when a
serious delay to development is introduced. There are already shortages,
particularly for silver. Gold
production is likely to be down sharply this year if you just observe the
larger producers that can not expand operations due to the suppressed
price. Goldfields, one of the
largest producers, just announced its costs have risen to well over $800 per
ounce! Compare that to Yamana’s negative $140 per ounce due largely to its
copper credits. It is very
difficult to find physical silver right now and gold is very limited. Gold production was down 5% last year
from its peak in 2003 despite steadily rising demand. Production will likely decline even more
this year. The four largest gold
producers are expected to produce 18% less gold this year than in 2006. These are not the signs of a
bubble. Any further declines in
the price of these and other commodities will result in even bigger
shortages. The rapidly growing
smaller producers that are helping to offset these declines in the larger
producers are being seriously handicapped by the continuous price capping of
gold and silver which delays and cuts off badly needed capital to deliver
what the world is demanding. The
US Government has stopped selling gold coins also, so how does the price
plummet when there is demand yet no supply? There is overwhelming evidence that
the recent declines in gold and silver are a fraud. Gold expert James Turk noticed that in
the Treasury’s monthly report that gold held by US Mint facilities has
not seen any change in its working stock of gold since April 2006. No wonder the Mint had to stop
producing bullion coins. They are
having trouble procuring gold and silver to make new coins and if they really
had an inventory in working stock that is not already loaned out they would
not have to stop producing highly demanded bullion coins.
Our country’s financial situation is very fragile. When Paul
O’ Neill was US Treasury Secretary a study was done that showed the current
value of obligations exceeded $53 trillion for a US economy that totaled GDP of only $13 trillion. Fed Governor Richard Fisher of the
Dallas Fed recently upped that estimate to $99 trillion for a $14 trillion
economy in just a few years time.
That includes $34 trillion for Medicare A, $34 trillion for Medicare
B, $17 trillion for Medicare D and $13 trillion for unfunded social
security. That amounts to a
current bill of $330,000 per American.
This just continues to get worse and is totally ignored. How can this be? We have been hurdling out of control
and we still have to borrow $2 billion a day from foreigners to maintain our
current lifestyle and it is very uncertain that the money will continue to be
lent to us. The obvious thing
would be to bring this consumption into balance yet that is not even
considered. We are extremely
vulnerable to the actions of foreign countries and a bad surprise could come
at any moment. The
nationalization of Fannie and Freddie is just a tremendous blow to the US
dollar yet the dollar rises with every dollar negative news item. Our country is on such a hopeless
treadmill that it is very likely the current crop of leaders will see war as
the only solution, if only a diversion.
There are currently three US
carrier groups within striking distance of Iran right now with another two
more on the way. You probably
won’t read about this in your evening paper because
a market response from gold would set off alarms and there is already enough
trouble trying to keep financial giants from imploding. The FDIC has upped the number of banks
on its watch list from 90 to 117 and it has been reported that their funds
may already be as low as $29 billion from the original $53 billion when IndyMac went belly up (which wasn’t even on the
watch list). We are very likely
to see a military altercation in the very near term because
to risk waiting would risk that the system totally implodes on its own
beforehand.
The attack on gold and silver and precious metal stocks is becoming more
obvious to greater numbers of investors.
It was to be expected to be especially brutal as the financial system
comes closer to faltering so maybe that is where we are. We see in the physical markets
investors ignoring the paper futures markets and paying almost 10% over the
spot price for gold and 30% over for silver to get physical possession and
that is the correct response. We
have always said it is the physical markets that will break the suppression and
allow gold and silver to move to true market prices which we would guess are
closer to $3000 an ounce for gold and $50 an ounce for silver at
present. The stocks are certainly
selling at giveaway prices but they will have trouble breaking free of the suppression
until the physical markets break free.
We have heard that many gold stocks in Canada are being shorted without
borrows by brokerage firms with almost no limits. This is how they are dislodging stocks
from even the most strong-handed precious metals investors. Don’t be surprised when firms
such as Goldman Sachs, JP Morgan, and Citigroup show up as the biggest
holders of these stocks when they bottom, just as Goldman was the biggest
holder of crude futures not long after manipulating composition of some key
commodity indices in the oil markets and then riding crude as the biggest
holder while the price rose to over $140 a barrel. Investors, including the most hardcore
gold bulls, are extremely confused.
Again, do not be surprised that Hank Paulson,
ex-head of Goldman Sachs, has been able to rig trading to initiate this bogus
commodity sell off with the help of all his cronies sitting in Central Bank
positions around the world, his access to the positions of hedge funds and
the leverage they have employed through Goldman Sachs, as well as unlimited
access to trillions of dollars through derivatives contracts in conjunction
with the Fed. This is what our
financial system and leaders have evolved into, yet gold and silver and a few
other strategic commodities will remain the best way to defend yourself from the reckless and ruinous policies they have
employed. When Barrick Gold was able to claim immunity from its lawsuit
launched by Blanchard Coins
several years ago because it was
acting as an agent of the Government or Federal Reserve involving its
manipulation and suppression of the gold price you could understand that gold
will take longer than previously expected to reach its true market
value. By investing in gold we do
not wish to take on Hank Paulson
and his bazooka with unlimited ammo, we merely wish to protect our assets in
a highly negative interest rate environment which screams for investment in
precious metals. Thomas Jefferson
and other patriots that founded this nation would be rolling over in their
graves if they saw how vehemently the Government is trying to take that right
away from us.
The bailout of Fannie and Freddie will do little but prolong the pain
of all the bad loans and debt expended and at our expense. You can be sure that not only will we
now pick up the tab instead of the criminals and high paid executives that
got us into this mess, they will also siphon off more graft to line their
pockets the longer these ongoing bailouts continue. Then when the system and country
implodes you will see how many of these leaders pick up their billions and
live out their lives in luxury in some foreign getaway for the ultra rich
just as the past Presidents of Mexico traditionally do.
When all the subterfuge comes down we are likely to see the most
incredible bull market in these stocks that the world has ever seen. Our banks are losing money even faster
than it can be handed to them. It
should not be long before the total meltdown we are witnessing becomes
apparent to the masses. In times
like these nothing beats physical gold and silver in your own possession but
an investment in the companies with proven metal in the ground is a close
second. Cash should only be kept
to the barest minimum to pay near term bills because
cash is vulnerable to not only loss of purchasing power but outright default of the bank it is in. If Americans do not wake up to these
recent unprecedented manipulations and hold firm to these safe haven assets,
they may not realize what is happening until they can no longer afford to buy
food because prices have risen so
much. Gold is an asset that
people want to own for risks they really can’t analyze and that risk
has definitely gone up. Look no
further than the rapid increases in derivatives and worldwide money
supplies. Gold eventually exposes
the irredeemable promises made by Governments. During the Great Depression years of
the 1930’s Homestake Mining was the biggest
gaining stock of the decade after a brutal decline in the 1929 crash. Sit tight and watch history repeat.
While most of this commentary discusses precious metals rather than
energy, the commentary is relevant to energy as well. As mentioned above there was
tremendous manipulation in the price of oil that had the involvement of
several banks and investment banks that were instrumental in running the
price of oil up to close to $150 per barrel. Now as the price falls under its own
weight the spin is being made that it is due to a forecasted depression. This is not to say we believe that oil
will not run up to that level again.
In light of the absorption of Fannie and Freddie’s obligations
by the US
it is almost a sure bet that the price of everything tangible will rise as we
will soon be left with little choice but to monetize debt repayment
away. Our choice to move toward
uranium in energy investments was heavily influenced by the illogical moves
in crude as developments unfolded.
It became increasingly clear that oil was moving under a power
“of its own”. Uranium
on the other hand could be clearly studied and the probable winners were not
as hard to decipher with a diligent research effort. We believe we have identified those
that will be huge winners in an energy segment that must be fully utilized to
offset the draw downs of our traditional energy supplies due to unprecedented
world growth, particularly in Asia. Investors should complain loud and
hard to the ongoing manipulations.
Not only are the culprits being rewarded, they are also delaying
desperately needed solutions that will become ever more evident moving
forward. The lack of capital
flowing to these sectors under high demand guarantees that they will rise
that much higher and that much longer since investing in the development of a
mine or an energy source is a long term proposition that takes many years and
does not have the chance to become a bubble until years and years of capital
investment is made to the point of excess. We are a very long way from that point
in time.
Richard
J. Greene
Managing Partner,
Portfolio Manager
Thunder Capital Management
Information contained herein is obtained from
sources believed to be reliable, but its accuracy cannot be guaranteed. It is
not intended to constitute individual investment advice and is not designed to
meet your personal financial situation. The opinions expressed herein are
those of the author and are
subject to change without notice. The information herein may become outdated
and there is no obligation to update any such information. The author, 24hGold, entities in which they have an
interest, family and associates may from time to time have positions in the
securities or commodities discussed. No part of this publication can be
reproduced without the written consent of the author.
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