BullionBuzz eNewsletter August 22, 2012

"Ten years from now gold will still be an asset while who knows whether the dollar will
still be around."

-- Richard Russell

CHART OF THE WEEK

To download chart

http://bmgbullion.com/lib.pl?rm=show_document&record_id=1174

“Silver demand/production faces an annual shortfall of some 8,678 tonnes in 2011. On a silver ounces basis this translates into a deficit of 115 million ounces.” 

-- David Chapman

VIDEO OF THE WEEK

“An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense ... that gold and economic freedom are inseparable. “

-- Alan Greenspan

To preorder your copy of Nick Barisheff's upcoming book, "$10,000 Gold: Why Gold's Inevitable Rise Is the Investor's Safe Haven" please visit:

http://www.amazon.com/10-000-Gold-Inevitable-Investors/dp/1118443500/ref=sr_1_1?ie=UTF8&qid=1343323234&sr=8-1&keywords=barisheff

GOLD

The Gold Price for the Next 16 Years

Dr. David Evans

Gold is monetary, and is valuable because it is money. It is not a commodity like wheat, because it does not get used up. Nor is gold an investment that produces goods and services; it is just a medium of exchange, like cash. Gold becomes a good investment only when the other currencies are failing, inflating and debasing. This is one of those times.

Evans examines the best case for the central banks and official sector, where they stay in control of the system and successfully guide it through a period of financial repression. He estimate how long that needs to be, and why. Of course, he writes, much could go wrong along the way.

He discusses manufacturing money (“…base money is created by the central bank, and bank money is created by the commercial banks. Historically, any money system where money can be created from nothing is unstable because it eventually gets much debased—and they tend to last on average about 50 years. Each part of our current system is unstable in its own right, and the current system is just 41 years old. What could possibly go wrong?”); America’s debt crisis; what’s next; why politicians will choose inflation; a forecast to 2028; and gold.

Gold enforces honesty, because you have to earn it before you can spend it. No one can conjure it up for little effort, and even mining it can take as much effort as it’s worth. In particular, banks and government cannot print it.

The monetary elite and governments don’t like gold; they prefer their dishonest money. They enjoy the first use of the new money, spending it before it pushes up prices. Governments can print to cover their debts if necessary. For centuries the greatest game in banking has been to buy assets in a sector, approve more lending for purchases in that sector, then sell their assets when the prices subsequently rise, then cut off lending into the sector and watch the prices fall.

Some say gold is in a bubble. Not so. Gold goes up forever against paper currencies, at an average rate equal to the difference in their rates of debasement. A gold price of $1 million per ounce is only a matter of time—but will it take 50 years or 500 years?

By historical standards, the gold price is low. The total amount of debt in the world in 2011 was around $210 trillion, and the world’s GDP was $60 trillion. Yet the value of all the gold ever mined is just $9 trillion. If gold ever re-enters the official financial system, it will have to move up in value quite considerably.

The last gold price rise was 1968—1980, when it rose from $35 to $800 per ounce. Interest rates around 20%, which made paper currencies attractive and stopped their debasement, stopped its rise then. Today nobody can afford to pay 20% interest rates, especially governments, so gold is going to keep trending up for quite a while

http://www.321gold.com/editorials/evans/evans081612.html

PLATINUM

Platinum Mine Violence Impact—Could It Spread to Gold Mines Too?

Lawrence Williams

Last week’s massacre at Lonmin’s Marikana platinum mine in South Africa has huge implications for the country’s struggling platinum mining sector. Could it spread to the gold mines too?

The heart of the problem appears to have been the Association of Mineworkers and Construction Union (AMCU), which has been targeting the platinum mines to extend its membership at the expense of the established mining unions, the NUM and Solidarity. As part of the turf war, the AMCU appears to have targeted the mine rock drill operators (RDOs), a key part of the workforce, who are reported to be demanding more than double their current wages.

Without the RDOs there can be no production. Platinum mines are notoriously difficult to mechanize and thus employ large numbers of RDOs. There can be tribal influences at play here also, with RDOs often drawn from specific tribal groups that can be played upon by agitators.

The platinum mining sector is struggling nowadays. As the mines get deeper and hotter, costs rise dramatically and most operations are marginal at current platinum prices. Accident rates have risen and there has been an increasing degree of unrest amongst the workforce, stimulated by the inter-union rivalries.

What is particularly worrying for platinum miners and investors alike is whether these union turf wars and the associated violence will spread to other mines in the area. There is a growing suspicion that dissident factions in the ruling African National Congress have an underlying political agenda, and are behind some of the union activities.

What does this all mean for the platinum miners and platinum prices? South Africa produces some 70% of the global platinum supply. Prices are weak because platinum has been in surplus, but any major disruptions in the big mining operations could rapidly turn that into a deficit, and lead to shutdowns in some of the more marginal operations.

The issues leading to the platinum mining violence are potentially mirrored in South Africa's gold mines, and there is a real concern about the potential spread of mine unrest. South Africa is one of the world's largest gold producers, and any disruption would have a negative impact on global mine supply.

http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=157236&sn=Detail&pid=72068

INVESTMENT

Investor Bulletin: Exchange-Traded Funds

SEC

This bulletin, issued to educate investors about exchange-traded funds, discusses those ETFs that are registered as open-end investment companies or unit investment trusts.  Some extracts:

“ETFs are not mutual funds.”

“Unlike with mutual fund shares, retail investors can only purchase and sell ETF shares in market transactions. That is, unlike mutual funds, ETFs do not sell individual shares directly to, or redeem their individual shares directly from, retail investors. Instead, ETF sponsors enter into contractual relationships with one or more financial institutions known as ‘Authorized Participants.’ Authorized Participants typically are large broker-dealers. Only Authorized Participants are permitted to purchase and redeem shares directly from the ETF, and they can do so only in large aggregations or blocks… commonly called ‘Creation Units.’

“To purchase shares from an ETF, an Authorized Participant assembles and deposits a designated basket of securities and cash with the fund in exchange for which it receives ETF shares. Once the Authorized Participant receives the ETF shares, the Authorized Participant is free to sell the ETF shares in the secondary market to individual investors, institutions, or market makers in the ETF.”

“An ETF’s market price typically will be more or less than the fund’s NAV per share. This is because the ETF’s market price fluctuates during the trading day…”

“For a variety of reasons, an ETF’s market price may trade at a premium or a discount to its underlying value.”

“Authorized Participants can arbitrage this difference (and make a profit) because they can trade directly with the ETF at NAV as well as on the market.”

“Before investing in an ETF, you should read both its summary prospectus and its full prospectus, which provide detailed information on the ETF’s investment objective, principal investment strategies, risks, costs, and historical performance (if any).”

“Be sure to do your research before purchasing an ETF.”

“Do not investment in something that you do not understand. If you cannot explain the investment opportunity in a few words and in an understandable way, you may need to reconsider the potential investment.

http://www.sec.gov/investor/alerts/etfs.pdf

CURRENCY

The Fiat World

Jeff Berwick

Today, the power of the state has corrupted society absolutely, and not just at the upper echelons. It’s everywhere. Not only that, but most people today don't even realize that almost everything has been stolen from underneath them and they are left holding worthless items instead.

The Olympics were held in the UK this month and the number of items we can point out about the country that provided the inspiration for the book 1984 are lengthy. Look no further than the British pound sterling. No one seems to see the irony of calling a piece of paper with no backing a "pound" of sterling.

The original pound was made up of 240 silver pennies that equaled one pound. The pennies were made with the purest silver available and were as much as 99.9% silver. Debasement came during the 1500s. The pound was redefined as a "troy pound," which contained just 12 ounces of silver.

At today's silver price, the value of one pound sterling (assuming 92.5% silver) is £262. Instead, the modern paper "pound" is only worth its £1 face value and there is no silver or gold backing it. It is literally worth only 1/284 or so of the original pound, less than the original silver penny.

The same goes for many other things, including Olympic medals. The last time the gold medal was made out of gold was in 1912, a year before the financial coup of the US and the institution of the Federal Reserve.

In 2012, the gold medals are 1.34% gold; the rest is silver and copper. The resulting medallion is worth about $500. The silver medal is a $260 make-up of metals. The bronze medal is worth about $3, worth less than most trinkets.

Of course, in the fiat world we live in, winning a gold medal also comes with a fiat currency prize. For winning gold, US athletes are awarded $25,000. Not only do they have to pay $8,750 in a "prize tax" to the IRS, but also a "medal tax" of $236 on a "gold" medal worth only $500!

Of course, the fact that all the gold is gone from backing currencies (and even from Olympic medals), and that people think gold-colored plastic credit cards are something with which to impress others, are signs that we are nearing the end of the monetary system as we know it

http://www.gold-eagle.com/editorials_12/berwick081612.html

Five Reasons Why the Government is Destroying the Dollar

Daniel Amerman

The US government has five interrelated motivations for destroying the value of the dollar: Creating money out of thin air on a massive basis is all that stands between the current state of hidden depression and overt depression with unemployment levels in excess of those seen in the US Great Depression of the 1930s; it is the most effective way to meet not just current crushing debt levels, but to deal with the rapidly approaching massive generational crisis of paying for Boomer retirement promises; it creates a lucratively profitable $500 billion a year hidden tax for the benefit of the US government which is not understood by voters or debated in elections; it is the weapon of choice being used to wage currency war and reboot US economic growth; and it is an essential component of political survival and enhanced power for incumbent politicians.

Amerman addresses how individual short term, medium and long term pressures all come together to leave the government with no choice but to create a substantial rate of inflation that will steadily destroy the value of the dollar.

If you have savings, if you rely on a pension or if you are a retiree or Boomer with retirement accounts, any one of these five fundamental motivations is by itself a grave peril to your future standard of living. However, it is only when we put all five together and see how the motivations reinforce each other, that we can understand what the government has been and intends to continue doing, and then begin the search for personal solutions.

Amerman discusses the political interests of self-serving politicians; how to hide a depression; a desperate attempt to escape depression by waging a currency war; dodging national bankruptcy; and creating a massive hidden tax.

http://www.gold-eagle.com/editorials_12/amerman081512.html

ECONOMY

The Bernanke Cliff

Michael Pento

The so-called “Fiscal Cliff” slated for year-end is really nothing more than a speed bump compared to the real fiscal cliff the US is racing towards, the one that Europe has already dived over. That cliff is based on the collapse of the debt and dollar markets resulting from the lost faith of international investors, a loss that is being facilitated by the Fed.

The Fed has been inviting inflation since 2008 by systematically seeking to destroy the dollar. By printing trillions of dollars and threatening to print even more, Bernanke has not only decimated the currency but also ruined the purchasing power of the middle class. Worst of all, Bernanke has enabled the government’s fiscal irresponsibility. He has duped US leaders into believing they can borrow an unlimited amount of money at nearly zero cost indefinitely.

America’s publicly trade debt has just soared past $11 trillion, up 117% since December 2007. Since the Fed manipulated interest rates lower throughout that increase of debt, the government believes there is no rush to change its borrowing and spending addiction. However, there is a limit to how much a country can borrow with impunity. Just ask the Greeks, Spanish, Portuguese, Irish and Italians.

Boston Fed President Eric Rosengren has said that the Fed will not only cease paying interest on excess reserves, but will also commit to an open-ended form of counterfeiting. He believes QE III should be results-orientated, that he Fed should continue to print money until the unemployment rate and nominal GDP hit their yet-to-be-named specified targets.

The only problem is that boosting nominal GDP requires boosting inflation; and rising inflation serves to raise the unemployment rate, not bring it down. That tactic is failing miserably in Europe, and has utterly failed in the US.

With central banks now acting in unison to garner complete control of interest rates, the only mechanism available that will eventually force them to stop piling on more debt is the repudiation of fiat currencies that back those bonds on the part of the free market

http://www.321gold.com/editorials/pento/pento081612.html