Peter Schiff on Fast Money

Peter nails it:

U.S. Mint suspends all 1 oz Gold sales

Shortages occur when prices are artificially suppressed.  This means that new supply can only be enticed by higher prices.  Think “pressure cooker”.  The longer prices are held down, the bigger the eventual price explosion.

U.S. Mint now suspends all one ounce gold coin sales due to shortage of physical gold!
Once again the U.S. mint has had to suspend sales of all its one-ounce gold coins, and some fractional ones too, as its supplies of physical gold cannot meet the demand.
Author: Lawrence Williams
Posted:  Monday , 07 Dec 2009

LONDON – “The United States Mint has depleted its inventory of 2009 American Buffalo One Ounce Gold Bullion Coins. … No additional inventory will be made available. As additional information becomes available regarding 2010-dated American Buffalo One Once Gold Bullion Coins, you will be notified.”   So said a memorandum issued Friday to authorized purchasers of U.S. Mint gold coins and reported by Jim Sinclair..

Mineweb reported only two weeks ago, on November 25th, the suspension of sales of American Gold Eagle coins by the Mint – U.S. Mint suspends American Eagle 1-ounce gold coin sales – again, which, at the time, reckoned such sales would be resumed early this month – but in the event, not only is the suspension of the Gold Eagle coin sales continuing, but also now the American Buffalo one ounce gold coin sales have also been suspended, with no new sales now planned until sometime in 2010 – although the current sharp fall in the gold price may provide the Mint with a bit of respite from its supply/demand woes.

But supply problems also persist with smaller gold coins, particularly given the enormous demand for fractional sized gold coins following the suspension of the one ounce Gold Eagles. Thus the Mint was forced to issue a second memo on Friday saying “the American Eagle Gold Tenth-Ounce Coin inventory was depleted” and that “inventory for the half-ounce and quarter-ounce coins remains very limited.” Following the sale of these remaining gold coins on Friday, the Mint anticipated that it would again offer all fractional sizes by mid-December, but in an allocation process.

On a more positive note for the Mint, the resumption of American Silver Eagle bullion sales will resume today. These silver coins were suspended along with the one ounce gold coins a week ago – also due to depletion.

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Misinformation in the Media

The following was posted at jsmineset.com today and it illustrates how lazy, ignorant, or controlled that the mainstream media really is:

Dear Jim,

In your commentary earlier today you made the observations, “The economy is not improving, but is in reality bouncing along the lows. The only improvement is in Management of Perspective Economics [“MOPE”].”

Let’s see if we can find an example of that in today’s headlines.  Ah, no need to look further than the Associated Press.

In various sections of the article below, we are told:

(1) There is money “left over” from the Troubled Asset Relief Program (“TARP”).

(2) This is a “windfall.”

(3) It “reflects faster repayments by big banks and less spending on some of the rescue programs as the financial sector recovered from its freefall more quickly than expected.

(4) As a result, “the administration now estimates that the TARP will cost about $200 billion less than the $341 billion the White House estimated in August.”

(5) “Many of the nation’s largest Wall Street institutions have roared back to health with the government’s helping hand…”

(6) The unused TARP “windfall” is now available to be used to create jobs.

(7) If not, the “windfall” can be used to reduce this fiscal year’s deficit, currently estimated by the administration to be $1.5 trillion, to an estimated $1.3 trillion.

A captive press dutifully acts as a channel for MOPE by reporting the administration’s statements without questioning their logic or attempting to provide relevant context. Otherwise, the AP article might have brought considerations such as the following to the readers’ attention:

a. In the context of a government that is running deficits, the failure to spend money previously allocated does not create a “windfall” (extra money available for expenditure). That would only be true if the government were on budget or running a surplus.

b. TARP funds do not become a budget item until they are spent or repaid. Any “unexpected” funds repaid prior to October 1, 2009, reduced last year’s budget deficit (to a mere $1.42 trillion). If the administration has concluded that less TARP funds will be expended or more will be repaid, that is already included in its current fiscal year budget deficit forecast.  It will not “reduce” it.

c. Wall Street financial institutions are not healthier than they were at the beginning of the year.  All of the so-called improvement in their balance sheets results from their unconscionable write-up of worth-less assets made possible by the FASB’s suspension of mark-to-market accounting requirements.

d. TARP never became the instrument of choice to prop up Wall Street institutions because Congress foiled Treasury Secretary Paulson’s original plan, which was to use the TARP money to purchase toxic assets from banks at the banks’ “mark-to-fantasy” valuations. Once Congress required oversight of the fairness of TARP purchases this became impossible. Instead, the Federal Reserve stepped in to bring about this goal by permitting banks to put up RMBS, CMBS, CDOs and other toxic securities as collateral and lending up to the banks’ full “mark-to-fantasy” valuations against them.

e. If the Wall Street banks were really healthy and ready to be removed from life support, they would be taking these toxic securities back on their balance sheets and paying back the Fed loans. This is undoubtedly why the Fed will do anything to keep secret the kinds of toxic waste it accepted as collateral and how much it has loaned against the toxic waste. For example, we have no idea whether the Fed has required banks to substitute better quality toxic waste (an oxymoron, I know) when existing collateral is downgraded. The inviting conclusion is no; otherwise, the Fed’s balance sheet should have kept decreasing as the quality of the underlying assets kept deteriorating.

f. The most likely reason the Wall Street banks paid back TARP is because of the laws passed after the fact regulating compensation of executives at banks that have TARP loans. The only reason these banks had the ability to pay back these loans is that the FASB capitulated to political pressure and suspended mark-to-market accounting for the worth-less securities on the banks’ balance sheets.

g. Assuming the reality of politics makes it impossible to not spend funds that have previously been allocated, the most reasonable use of the remaining TARP funds would be to replenish the FDIC. The administration makes no comment on the frightening string of bank failures this year, and neither the author of this article nor any other reporter asks how this affects the administration’s deficit projections. We know the administration never predicted the FDIC would go broke this year, or that it would already be burning through the “emergency” funds it is trying to raise by requiring banks to pre-pay three years’ worth of premiums. The appropriate question to ask is, how does the fact that the Treasury will soon be footing the bill for the FDIC’s inestimable future liabilities affect the administration’s estimate of coming budget deficits? A captive press makes sure not to ask.

h. Using the $200 billion in unspent TARP money to create jobs is new, additional fiscal stimulus, plain and simple. However, what makes people think that $200 billion will do anything substantial when the prior $787 billion stimulus package at best slowed the pace of catastrophic job losses?

One could go on, but the point is economic conditions continue to deteriorate and Washington’s response is to find ever more imaginative ways to distort the truth to make conditions sound better than they are. No doubt the authors of this MOPE are true believers who are convinced this strategy will help to improve conditions. However, the most sophisticated investors understand this kind of information is nonsense and will not alter their actions because of it.

That leaves the least sophisticated investors – the people who are depending on their elective representatives to guide them through these difficult times – to make terrible mistakes should they believe the message their elected officials are sending them. These are the ones who will sell hard assets and buy paper, thinking the coast is clear.

Respectfully yours,
CIGA Richard B.

Obama eyes repaid gov’t bank loans for jobs help
Obama eyes bailout funds to create jobs, help businesses get loans; speech on Tuesday
Tom Raum, Associated Press
Monday, December 7, 2009

WASHINGTON (AP) — Under heavy pressure to get Americans back to work, President Barack Obama on Monday suggested using a suddenly available pot of money left over from the government’s bank bailout to help create more jobs.

Obama, who will address the subject in a speech on Tuesday, has been struggling to trim the nation’s painfully high unemployment rate, now at 10 percent, just below a quarter-century high.

He said there may be “selective approaches” for tapping into the money that was to go for propping up seriously ailing financial institutions. The administration and its allies on Capitol Hill would have to get around a provision of the 2008 bailout legislation that requires money that is paid back by banks or left over to be used exclusively for reducing the federal deficit.

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Gold pulls back from overbought condition

Gold has taken a breather today closing at $1,168.80 and silver at $18.45.  Gold will likely drift and consolidate in the $1,100 – $1,150 range for a few weeks (barring a major economic or geopolitical event).  These pull backs are opportunities to “buy the dips” during this gold bull market.  The same goes for silver where it is showing strong support at $18.00 and again at $17.50.

Deflation, Inflation, and Your Pocketbook

The following is an excellent article by Daniel R. Amerman that explains how inflation is used to deceive:

Surviving the Cure for Asset Deflation

Overview

The US and other governments around the world have a major problem:  powerful asset deflation has taken hold, and governments lack the power to directly cure asset deflation.  However, when it comes to symbolic or fiat currencies, governments do have full power to stop monetary or price deflation at will, so long as they are sufficiently determined.  This dual relationship opens up a loophole for the US government:  it can’t really cure asset deflation, but it can fool almost the entire population into believing that asset prices have recovered.

Understanding this loophole may be the single most important financial survival task for investors over the next five to ten years.  In this article we will explore the limits of government power, show how deception can be used to cover up those limits, and introduce some of the opportunities that open up to investors when they see through the deception.

(This article is Part 3 of Puncturing Deflation Myths.  While Parts 1 & 2 are referenced herein, it can be read independently.)

Assets & The Limits Of Government Power

First, let’s consider the value of assets.  Assets can be tangible, such as real property or precious metals, or they can be financial, such as stocks and bonds.  Whatever the asset, individual investors will only buy them at prices that make sense to them.  If because of government intervention, the price for an asset is at a different level than what the individual deems desirable, then the individual will elect not to purchase that asset at that price.

So, much as it would like to, the government doesn’t directly control the value of assets in a free market.  It doesn’t control what people will pay for them, nor how many hours somebody will work to acquire an asset, or what other assets they will trade-off for that particular asset.  That said, governments can influence the value of assets, and often strive to do so.

One way of influencing asset prices is to control the supply of credit.  The more credit that is put out there, the easier it is to buy large quantities of an asset with relatively little money down.  This facilitates bubble creation, which leads to assets rising very rapidly in price.  For example, the ease of buying stocks on margin in the 1920s is believed to be a major reason for the stock market collapse of 1929.  When asset prices collapse and don’t bounce back – that is asset deflation, and stock prices during the 1930s in the US (and around the world) are a classic example of persistent asset deflation.

This is also the lesson of what happened in Japan in the 1970s.  The graph below is of a financial asset, the Nikkei 225 stock index, and it is a prime example of the persistence of asset deflation, even in the face of two decades of massive attempted government interventions.

As covered in my article, “False Lessons From Japan:  Part 2 Of Puncturing Deflation Myths”, what happened in Japan during the 90s and 2000s is widely misunderstood.  It wasn’t monetary or price deflation that vexed the government; Japan actually experienced price inflation over those two decades (as measured by the CPI).  The problem in Japan was asset deflation, and the government was near powerless to cure this problem.

As hard as it has tried over a 20 year period, and as much as it has “quantitatively eased”, the Japanese government simply has not been able to get stock or real estate asset prices back up to where they were before. The reason is that individuals have to cooperate if asset deflation is to be cured in real terms.  Specifically, individuals have to cooperate by risking their savings, perhaps even all of their savings.  If individuals have been burned too badly by the collapse of a bubble, it may take a generation or even two to get people in a state of mind where the government can lead them down that path again with a loose credit policy.

The Current Catastrophic Danger From Asset Deflation

Many people would say that the true lesson of the early 2000s in the United States is the demonstration of what an extraordinarily loose credit policy can do in terms of asset prices.   Low cost and easily obtainable mortgages led to a real estate bubble, even as easy and loose corporate bond markets led to a booming private equity market, with leveraged buyouts being an important factor in maintaining an overvalued stock market.

The problem is that Wall Street, the government, and much of America has effectively bet everything they have on these asset bubbles not only staying inflated, but continuing to expand.  Pensions long ago became “the tail that wags the dog”, for state governments, local governments and most major corporations.  Almost every state and local government in the US that has full time employees has entered into promises for future benefits, which it anticipates being unable to cover from ongoing tax revenues.  Some of these promises are unfunded, others are fully “funded” (meaning they have adequate current portfolios given the investment return assumptions), but the mechanism all comes down to the same thing.  Via the mechanism of the markets, vast sums of money and resources will flow from the outside economy into the local economies for all the states and cities, and will pay for the  legally binding promises that would otherwise be unaffordable from current revenues.  In other words – the asset bubbles have to not only be maintained, but must continue to inflate, or else the pension obligations bankrupt every level of state and local government.

Governments aren’t the only ones relying on asset bubbles, so are most of the major corporations.  Oh, the defined benefit plans are disappearing fast in terms of the ability of workers today to participate, but there are still tens of millions of workers covered, and many trillions of dollars of pension and health care benefits that will have to be paid.  Future benefits that would destroy corporate profitability, and drive many corporations into bankruptcy.

Banks and other financial corporations are in even worse shape.  Trillions upon trillions of dollars have been lent out for securitized loans – that are either backed by property, or in the case of the private equity market, by an ever inflating asset price for corporations.   If the value of the collateral implodes, then so does the value of the loans, and the thin capital reserves are gone in a flash.  (Realistically of course, the capital reserves are already long gone, but this will radically increase the pressure.)

The danger with deep and extended asset deflation is that everything breaks.  The real estate market collapses.  Most pension funds in America go bankrupt.  Many major corporations and most financial institutions in America go bankrupt.

The Government’s Loophole – Deceiving The People

Consider an asset.  It could be a house, or it could be a portfolio of stocks.  The price today is $100,000.  The price in three years is $200,000.

How would you describe the move from $100,000 to $200,000?  The mainstream media and the average person would say the house or stocks doubled in price.  In the context of the current inflation / deflation debate, many economics commentators would call it inflation.   Unfortunately, these perspectives set people up to be the natural victims of government deceptions.  To understand why, let’s consider two values for the purchasing power of a dollar in three years.

First, we’ll assume the dollar loses 10% of its value to price inflation or monetary inflation.  This means there are 200,000 individual dollars, each of which are really worth 90 cents, which means that the real value of our assets – that is, what our asset will buy for us in today’s dollars – just climbed to $180,000.  We have asset inflation in real terms simultaneously with monetary inflation.  And the most important result is that our pre-tax net worth just went up by 80%.

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Chart of the day – gold/bond ratio

The following chart comes from Dan Norcini at jsmineset.com.  It illustrates the fact that gold has been the “go to” safe haven of late and that those holding dollars/bonds are losing versus those holding gold:

Did I mention gold is up again today?

Gold just crossed $1,223 and Silver is at $19.40…

Here is what could be causing it:

1.  Insiders know something big is about to happen

2. The flight from the dollar is accelerating to the point of an impending currency crisis

3. Momentum players have jumped into the game to ride the wave and squeeze the shorts

I think it’s #3 but I wouldn’t discount the first two.

Something smells in the gold market

James Sinclair makes an extremely important point that warrants serious consideration.  Take physical delivery of your bullion and verify its authenticity.  All of the following points to a possible upward explosion in the price of gold.  As  I type this gold is at $1,210.70 and silver is at $19.31 in after hours markets.  From jsminest.com:

Why Is HSBC Backing Out Of The Gold Business?
Posted: Dec 02 2009     By: Jim Sinclair

Dear Friends,

I still am plagued by the question, WHY?

You make more money from investor accounts than you ever will from large commercials in the same amount of space.

Storage is space times charges which equals revenue. After that it is all computerized billing and confirmation.

With gold climbing steadily higher while showing signs that presage a ballistic move upwards, I have to conclude that there is a problem in the gold market itself stirring below sight that the community has little or no idea about.

We have reviewed all the present and potential economic problems and know them better here than anywhere else.

I told you a long time ago that there are times when the hair stands up on the back of my neck. This is how gamblers in the final analysis know when to hold or fold them. This is what Bert Seligman and Jesse Livermore had that no one since then has had.

The story that small clients are not wanted would not require multiple Brinks trucks. Small coin and bullion deliveries are made by US mail.

What does HSBC know that is the basis for wanting to get rid of good business? It has been reported that HSBC storage internationally has been backing out of the gold business for awhile.

Why?

I smell delivery problems not just from HSBC, but maybe widespread.

I wonder if there might be a problem with authenticity. I wonder if exchanges have ever questioned the authenticity of their warehouse stock.

We live in a soulless, depraved world. Every possible scam has taken place.

Depending on whether the subject is gold or silver, reports indicate scammers are mixing a different ratio of lead/tungsten to match the density of gold or silver and putting it in the inside of the hollowed-out bar. The only way to detect it is by drilling or by gamma ray scanning.

We know coins have been adulterated for years. That is why we do not buy other than from well established coin dealers.

Regards,
Jim

Gold tops $1,200

Via APMEX.com:

Gold continues to make new record highs, having just broken through the $1,200.00 per ounce barrier. This news comes on the heels of last week’s announcement that the U.S. Mint has suspended sales of 2009 Gold American Eagle and Silver American Eagle coins due to unprecedented public demand.

Many analysts have already predicted the surge past $1,200.00 and still others are predicting that gold could go as high as $1,500.00 per ounce very soon.

A number of factors, including news about the Dubai World debt restructuring and a weakened U.S. Dollar, are driving this surge in the gold spot price.

Bull & Bear Markets and their relationship to Stocks and Gold

Food for thought…

Gold run a reason to be wary of the stock market
Commentary: 10 years ago, everyone had lost interest in yellow metal

By Brett Arends, WSJ.com

BOSTON (MarketWatch) — The booming gold price is making me very nervous. About Wall Street.

Why? Because gold’s rocketing boom — it’s risen from around $260 an ounce about a decade ago to just under $1,200 now — is a vivid daily example of what a real bull market looks like.

History says that such massive bull markets — like equities from 1982 to 1999, or commodities in the ’70s or real estate from the mid-’90s to 2005 — usually start only after a big bear market ends.

Sounds like common sense, yes? Maybe even a banality.

But here’s the problem: Those holding a lot of stocks right now are taking a gamble that the big bear market on Wall Street, which began in 2000, ended earlier this year. They’re betting that the Dow Jones Industrial Average (INDEX:INDU) , now 10,309, won’t tumble again toward, or even below, the intraday low of 6,440 seen on March 9.

Are they right?

No one yet knows for certain. Looking back to early March, there certainly was a lot of panic and capitulation, which you usually see at a market bottom. People talked of a new “Great Depression.” One thing I noted at the time was that investors were shying away even from rock-solid defensive stocks with big, well-protected dividend yields. People weren’t just scared; they were petrified.

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