Gold’s Coming Rise

Last year on September 6, 2011, gold reached a high of $1920; but when bullion banks intervened by pushing gold lease rates deep into negative territory in early September, they made sure enough leased gold would reach the markets to drive the price of gold lower.

By late September, gold had fallen back to $1600; and when gold began to again rise, gold lease rates were pushed even lower forcing gold this time below $1600. The bullion banks' one-two punch took the momentum out of gold’s 27 % summer rally and by year’s end gold would still be at $1600.

In 2012, between March and August, gold traded between $1550 and $1650 until late August. This tight trading range persisted even as global economic conditions deteriorated; and, gold, a barometer of economic distress, should have risen higher. It didn’t.

WATCHING THE BASIS

I read Sandeep Jaitly’s Gold Basis monthly newsletter with interest and, as gold’s trading range remained intact for much of the year, Jaitly’s advice remained remarkably consistent; his study of the basis indicating gold and silver were moving into increasing backwardation and accumulation of both metals was recommended.

On July 25, 2012 with spot gold at $1602, Jaitly advised:

…The message from 4th July’s missive is reiterated. August gold has now moved into actionable backwardation (positive co-basis) – which is progressing higher. September silver is also in an acute backwardation that is progressing higher as well. Both of the metals will be volatile going forward and advantage should be taken on any dips. [bold, mine] Both of the metals are being taken off the market – or equivalently – people’s intention to sell either metal in size is diminishing rapidly. This is what the bases are saying.

What is memorable, however, is Jaitly’s mid- August advice which still recommended buying gold and silver; but, this time, Jaitly wrote the opportunity to buy on dips had passed. Jaitly’s observation was remarkably prescient. The next week gold rose $50 to $1670—and there had been no intervening dip to take advantage of a lower price.

Whether the latest rise of gold is the beginning of gold’s long awaited ascent is unknown. What is known is that gold has broken out of a protracted trading range, that supplies of physical gold and silver are increasingly tight, that the willingness to sell is diminishing and macro-economic factors, e.g. more Fed bond-buying, rising food and fuel costs and falling global demand, will all contribute to gold’s explosive rise when it does happen.

Note: Sandeep Jaitly’s Gold Basis Service is available by subscription here.

GOLD’S EXPLOSIVE RISE WILL EASILY EXCEED GOLD’S INFLATION ADJUSTED 1980 HIGH

In inflation-adjusted dollars, today’s equivalent of 1980’s then record price of gold, $850, is $2,466. But when gold does make its explosive ascent, it will take out $2466 like frenzied shoppers overrunning Walmart security guards during Thanksgiving’s Black Thursday shopping event.

When the price of gold explodes upwards, this time there won’t be a ‘Paul Volker’ at the helm of the Fed to raise interest rates to draconian levels to bring inflation expectations back into line.

This time the panic to exchange dollars for gold will be so great Fed interest-rate hikes will be ignored and dismissed with the same disdain that today’s officials view individual rights and constitutional limits.

YOU AIN’T SEEN NUTHIN’ YET

In writing Time of the Vulture: How to Survive the Crisis and Prosper in the Process (1st ed. 2007), I predicted the price of gold, then $600, would double and triple. Today, I am unsure how high gold will now go, especially when valued in inflationary and/or hyperinflationary US dollars.

In 2007, I predicted that the coming collapse would be even more catastrophic than the Great Depression. That in addition to a deflationary collapse in demand, there would be a concurrent global currency crisis that would end with paper currencies being worth far less than today’s perceived value.

That process has begun. Today’s unraveling of the euro is but the first step in the global monetary rendering. The collapse of the bankers’ paper currencies is in motion and although the collapse started with the euro, it will end with the dollar; and when the dollar collapses, the bankers’ global house of credit and debt will collapse as well.

Economists expected an economic rebound in the 2nd half of 2012. That unfounded expectation reflects just how wrong economists continue to be about the continuing economic crisis. We are witness to the collapse of a 300 year-old economic paradigm and because most economists cannot imagine it happening will in no way prevent it from occurring.

It’s going to get better; but, first, it’s going to get worse.

Buckminster Fuller predicted humanity would encounter a crisis of unprecedented proportions designed to transform humanity into an interdependent, harmonious, cooperative whole.
One can only wonder at how great that crisis will have to be. We do not have long to wait. The crisis has already begun.