Fundamental Spark for Silver and for Gold?

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Today’s actions by the Fed, in concert with 5 other Central Banks, plus the move by China to lower bank reserve requirements 50 basis points, the first time they have done so in three years, has provided today’s fireworks across the commodity and equity marks. It is RISK ON time once again for the hedgies.

I mentioned in my analysis of the COT report yesterday, that the metals needed some sort of fundamental spark to break them out of their respective trading ranges. Perhaps we have that, at least for today, in the form of easing of liquidity concerns. That is unclear to me at this point since this really does not do anything to address the structural issues leading up to the sovereign debt issues. It is simply keeping a liquidity crisis from becoming a full-blown insolvency crisis.

This might explain why after the initial blast higher in the markets on the euphoria around the Central Bank actions, that the markets have not been able to continue adding to their early session gains. Traders are maybe having second thoughts about all this. I know I sure am. While it will temporarily help ease lending concerns, it still does not address the sinking value of all that sovereign debt on the books of the big European banks, nor of that on the books of some US banks. It seems to me we are going to have to see a very clear, unambiguous signal that Germany is going to go along with a large role for the ECB and maybe even a Eurobond market before traders will get more aggressive to the upside.

Regardless, silver has been able to capture its first line of technical chart resistance centered near the $32.50 level. This is its first visit back to this level in a week’s time. That has served to reinforce the support level that formed just below the $31 level. For this market to now get anything going to the upside, it is going to have to first convincingly clear $33.50 and then exceed $35. Only then will it have a shot at anything more than a return to the top of its recent trading range.

Charts to follow later….

Beware the Party Mood

November 28, 2011 Holiday cheer: Retail and eurozone jubilation… The 5 deigns to interrupt with a few facts that don’t fit in
$601 trillion time bomb grows to $708 trillion in only six months
Money-grubbing local governments’ latest scheme: Decades-old parking tickets come back to haunt drivers trying to renew their licenses
Byron King on why gold supply simply can’t keep up with demand
Readers lament the onset of the police state… castigating your editor for the sins of decades ago… a unique source of yield in a world of near-zero interest rates… and more!
The S&P’s up 30 points in the first three minutes of trading. The Dow has recovered to 11,500.

“Strong Black Friday sales add fuel to investor sentiment,” reports MarketWatch, “as does perceived progress on EU crisis.”

Indeed, Thanksgiving weekend retail sales are 16% higher than a year ago, according to the National Retail Federation this morning.

Real disposable incomes, on the other hand, are flat from a year ago, according to the Commerce Department’s income and outlays report last week.

And the number of Americans earning a paycheck is up only 1.2% from a year ago, according to the most-recent Labor Department figures.

As for the latest European fix, “France and Germany,” the BBC tells us, “intend to propose a fiscal union ahead of a summit on Dec. 9, which would set binding limits on eurozone government borrowing.”

Funny, we already thought there were binding limits. Yep, right there in the Maastricht Treaty — deficits no higher than 3% of GDP. Too bad the treaty’s honored only in the breach; most eurozone governments have blown the 3% limit for years… including Germany.

The jubilation in the markets today is more likely the result of a tryptophan hangover than a sustainable rally…

The total amount of derivatives worldwide exploded by 18% in a six-month span, according to the Bank for International Settlements (BIS).

Outstanding derivatives — futures, options, swaps, including the infamous credit default swaps U.S. banks wrote on European government debt — totaled $708 trillion in the first half of 2011 — a staggering 11.2 times global GDP.

The figure is up $107 trillion from the second-half 2010 total of $601 trillion, and now exceeds the previous record set in — gulp — the first half of 2008:

How much of this sits on the books of U.S. banks, we can’t say with certainty. But the most-recent report from the Office of the Comptroller of the Currency indicates the total is $333 trillion. Of that, $249 trillion sits on the books of institutions backed by the FDIC.

That last number is sure to increase after Bank of America’s move last month to transfer an unspecified amount of derivatives from Merrill Lynch to BofA’s commercial banking arm.

Oil prices are within sight of $100 again. A barrel of West Texas Intermediate is up more than 2.5% this morning, at $99.33.

But Abe Cofnas is expecting even more this week. “Oil moves in relationship to expected global growth, supply uncertainty, as well as news out of the
Middle East,” he says. “Now, with prices hitting the key psychological level of $100 a barrel, it is becoming the center of a lot of attention.”

As Abe wrote that, January crude futures were at $100.40. He’s counting on a small move up to $101.25… delivering a 170% gain by this Friday in the one-of-a-kind market he follows.

“Binary options” are about a lot more than currencies. To learn more about Abe’s strategy, look here.

A growing number of cities are hunting people down for decades-old parking tickets. And they aren’t messing around. In Massachusetts, resident Patricia deWeever recently got a notice warning her license would be suspended if she didn’t settle tickets she got 25 years earlier. In New Jersey.

Turns out New Jersey and Massachusetts have a reciprocity agreement, cross-referencing their records. Cities including New Orleans and Toledo are also chasing down years-old, or even decades-old, parking tickets.

Typically, “the fines add up to a couple of hundred dollars,” writes AOL Auto columnist David Kiley, “and most draw the conclusion that they will pay it, rather than endure the hassle of hiring a lawyer or pursuing a Byzantine process of challenging it.”

Statute of limitations, you ask? For felonies, yes. Parking tickets, frequently, no.

“In deWeever’s case,” Kiley writes, “she will end up paying New Jersey $129 to settle the tickets, plus, a nebulous $100 license reinstatement fee, so she can legally drive in New Jersey to go visit her mother. On top of that, Massachusetts is also charging her $100 to reinstate her license in that state.”

Get used to it, as states and cities become evermore desperate for revenue. It’s the only way they can hope to get by as the mother of all financial bubbles starts to burst. You can’t fight it, so you might as well take protective measures.

Gold buyers, perhaps sensing early signs of money printing in Europe, have bid up the Midas metal nearly 2% today. At last check, the spot price is $1,712. Silver has reclaimed $32.

“The gold price is rising due to the fundamentals of supply and demand,” says our Byron King, with an eye on the longer-term picture. “More and more people across the world are buying.”

“I still recall one scene in a gold souk that I visited in Istanbul last year. Men with fat wads of cash — dollars, euros, Turkish lira, etc. — were just peeling off bills and buying gold, literally with both hands. It was kind of surreal, if not medieval.”

“All this gold buying and demand growth is happening while global mine output — aka ‘supply’ — is shrinking. Indeed, overall mine output may face a precipitous decline in the not-too-distant future. In other words, don’t argue with this chart, either:”

“It’s a busy chart, to be sure — gold mine output by region, from 1850-2010. Basically, the take-away is how precipitously South African mine output (noted in dark green at the bottom of the chart) has fallen over the past 20 years.”

“For the near-, medium and long terms, gold has strength as a store of wealth. It’s not just me saying it, either.”

“The forecast from the British bank Barclays is for a gold price at $1,875 per ounce by the end of this year. Germany’s Commerzbank is advising clients to expect gold at $1,800 per ounce, or more, by the end of the year. Another German bank powerhouse, Deutsche Bank, views gold as a ‘safe haven’ asset through 2012. In fact, Deutsche Bank calls gold its strongest ‘conviction trade.’”

[Ed. Note: If you share that conviction, there’s still time to add to your own metals stash via our one-of-a-kind offer…

Specifically, we’re offering one Gold Buffalo, 10 Silver Eagles and a unique “booksafe” storage solution… and we’re practically giving them away. But only through midnight this Wednesday. Time’s a-wastin’.]

We’re not altogether sure what to make of this gold spectacle…

This is the scene in Caracas last Friday, as armored vehicles brought in a shipment of gold bars — the first of Venezuela’s overseas gold holdings that President Hugo Chavez has ordered home.

Those overseas holdings total 160 metric tons, worth roughly $11 billion. This first shipment, if the central bank president is to be believed, is about 4.4 tons.

“Experts had cautioned,” says a Reuters dispatch, “that the operation… would be risky, slow and expensive.”

But Chavez announced the repatriation in August to “help protect Venezuela’s foreign reserves from economic turmoil in the United States and Europe,” again, according to Reuters.

“Keep in mind,” a reader writes, picking up a thread from last week and opening a grab bag of responses we got over the holiday weekend, “the police state has been funded by Homeland Security dollars.”
“I live in Houston. Even at Houston’s transit organization, they have a 10-person anti-terrorism team, SWAT Team, bomb-sniffing dogs, etc., all funded by Homeland Security.”

“Homeland Security dollars have brought out every wannabe tough-guy police chief in the country as they buy up truckloads of ‘goodies’ from the ‘law enforcement only’ vendors. Pull the plug on Homeland Security ‘grants,’ and these police departments will have to put their toys back in the bag.”

“I am one of those a**h**** your reader complained about. For my Thanksgiving flight out of Baltimore, I was subjected to an embarrassing pat down by one of the oh-so-polite TSA officers.”

“I felt violated and humiliated and let the officer know I felt it was wrong. One other passenger whispered to the agents ‘Thank you for keeping us safe.’ He would probably thank them for walking him into the gas chamber, too.”

“My offense was wearing a two-part sweater that showed up as an ‘anomaly’ on their new machine. As a 70-year-old grandmother, I don’t feel like a threat to security and don’t think it is right to be treated as one. It made me less than thankful on Thanksgiving Day.”

“This may well prove prophetic,” writes a reader in reaction to the words of Thomas Paine, cited last week in Jeffrey Tucker’s review of The Idea of America. “I wonder if this was inspired by the passages in Psalms and Proverbs indicating evil men will become worse and worse, and truly righteous men will need protection from the tyrants that rise into positions of power.”

“While I retired over a year ago from my job as an expedite courier making regular deliveries into the U.S. from Canada, when I read about the police-state tactics now commonplace, I was glad that I no longer have to do that.”

“Nothing against the American people, but the government has become everything the framers of the Constitution warned and attempted to legislate against. The biggest end run was successfully accomplished by the International Bankers when they got the Federal Reserve Act passed by Congress in 1913 that, effectively, legalizes counterfeiting in place of REAL MONEY, and established a monopoly in doing so.”

The 5: Our investment director, Eric Fry, connected a few more of those dots in an interview last week with RT’s Lauren Lyster…

“Whoa, is it Halloween or Thanksgiving?” writes a reader.
“What a scary 5 on Thanksgiving Eve: corrupt insider trading, the stealing of a man’s livelihood that he has spent his life working for (the big catch), the growing Nazism of the TSA, giving power to the incompetent who couldn’t find a job otherwise and the broadcasting of the next financial disaster to come.”

“I used to be bullish, but in these pages, I have learned to begin to see the various future positioning of the contrary view — finding ways to build positions to bet on the black, shorting the various markets. It seems anything the government wants to promote anymore is a sure bet to the contrarian side.”

“Thank you for your service and ability to think and report.”

“Reading about the Covered Bond Act of 2011 on Thanksgiving Day,” adds one more reader, “I was filled with thanksgiving that there are sources of information available that do more than parrot the misinformation, disinformation, spin, obfuscation and downright lies from government and corporate sources, whose goal is to distract our attention while plundering yet another part of the wealth of the citizens.”
“Thanks. And keep up the good work.”

Cheers,

Addison Wiggin
The 5 Min. Forecast
P.S. Even as the broad market swooned last week, Options Hotline readers were sitting pretty. The Dow shed more than 500 points between Monday and Friday… but Steve Sarnoff’s recommended put options on a major energy producer were up 86% after only three weeks.

Options Hotline is available right now at a significant discount. Grab it here.

As of this morning, a 10-year Treasury note yields 1.96%. A 3-year CD pays a paltry 1.95%.

Clearly the old “rules” for retirement investing no longer apply. Which makes this Overtime briefing from our income specialist Jim Nelson more important than ever…

Navigating Your Way Through a Choppy, Zero-Percent Interest Rate World
Three Secrets to Generating Thousands in Monthly Income

If you’re counting on interest from your savings to fund your golden years, you’d better think twice about those retirement “dreams” you had…
As you know all too well, it’s near impossible to find a savings account that will pay you even 1% annually.
That means all the things you had planned will squeeze your wallet harder than you may have expected. Dreams of cruising the world… golfing on exotic courses… even just treating the kids or grandkids to a day of fun… all become harder to achieve.
The same thing goes for counting on stocks and government bonds…
If you dumped $10,000 into the S&P 500, you’d be “rewarded” with an average income of just over $200 per year. Worse yet, you’d be putting your money at risk in one of the most turbulent markets we’ve ever encountered.
And inflation is running much higher than the yield on government bonds. No matter how you calculate it.
But there are few little-known income moves that you can make to double, triple, even quadruple the income you’re currently receiving.
One of those moves is designed to return more than $1,000 a year in income… from just a $10,000 investment — roughly five times the average stock yield.
This move doesn’t require any quick in and out trading, either. You can make this move today… and then simply forget about it for months. The income is scheduled to come in like clockwork.
And best of all, this move has nothing to do with touching the risky stock market… options market… or currency markets.
This move not only crushes the income most stocks produce, but it can actually provide more safety, too.
If you’re skeptical, I can understand. Greater income… with more safety… sounds like another “Wall Street scam,” I know.
But it couldn’t be further from what Wall Street’s lead you to believe…
For example, one of the reasons you probably haven’t heard about this unique move is that there’s no “easy money” in it for brokers.
The other reason you’ve probably never heard about this secret is that this move does require a little more work than, say… just buying or selling a stock. Since it isn’t in a brokers best interest to teach you things, he probably ignores this move.
But I’ve found that all good things in life require at least a little bit of extra work. Building a business… becoming good at a sport… even starting a new relationship, all require some time and knowledge. Investing your hard earned money is no different.
My point in telling you this today is simple…
Despite all the things crumbling around you… despite the “pay nothing” savings accounts… despite the rumor-driven volatile stock market… and despite your income not keeping up with rising prices…
I believe there are still a few relatively hidden, safe income-boosting moves you can make to help secure the retirement you’ve dreamed of living.
That’s why, over the next few days, I’ll use these 5 Min. Forecast overtime briefings to introduce you a whole new way to think about your retirement dreams.
We’ll kick off tomorrow with the first of these secrets — something I call “Income SAFE IOUs.” I believe you can use this little-known move to generate always-known, contractually obligated income in the range of 8-10% per year.
So if you’re at all worried about rising prices…
If you’re frustrated by the government’s zero-interest policies…
Or if you’re concerned about outliving your savings in any way…
Then you won’t want to miss tomorrow’s 5 Min. Forecast overtime briefing.
Sincerely,
James Nelson

Thank you for reading The 5 Min. Forecast! We greatly value your questions and comments. Please send all feedback to 5minforecast@agorafinancial.com

Ignore the Noise… Opportunity Here

November 21, 2011 Short-term noise: Supercommittee encountering kryptonite, and other not-surprising factors knocking down stocks on a Monday
A long-term moneymaker: Far from the noise of Geron’s stem cell failure, Patrick Cox finds “the most successful medical blockbuster in history”
Gold takes a beating along with nearly everything else: John Embry on a buying opportunity
“Truly an awful currency”… Chris Mayer returns from the road with some useless paper souvenirs and one fabulous investment idea
Readers weigh in: Our favorite caudillo, bank failures and the relative merits of U.S. and Canadian border guards
“Stocks Move Sharply Lower,” read the headlines this morning on countless financial websites. The reasons cited include…
The “supercommittee” that’s supposed to solve Uncle Sam’s chronic indebtedness for all time is due to announce after today’s close that gosh darn it, they really tried, but they can’t reach agreement. As if no one saw this coming. Or that even if they succeeded, they would trim the annual deficit by a not-so-whopping 9%
Europe. No, there’s nothing really new, but when the market drops these days, it’s always a handy excuse
China’s vice premier made some intemperate remarks — intemperate for someone in a lofty position like his anyway. “Right now,” declared Wang Qishan, “the global economic situation is extremely serious and in a time of uncertainty the only thing we can be certain of is that the world economic recession caused by the international crisis will last a long time.”
Or maybe, as we indicated on Friday, the case of MF Global is making people wonder if their funds are safe anywhere other than the First National Bank of Serta.

Whatever…

Time to take stock of opportunities yet explored on The 5’s desk.

“Scientists Think Embryonic Stem Cell Research,” says a headline at ABC News. It’s an especially weak attempt to “advance the story” a few days ago about Geron Corp. dropping the world’s first clinical trial using human embryonic stem cells.

“The company’s technology for acquiring therapeutic stem cells is flawed and obsolete,” says Patrick Cox, who wasn’t surprised at all. “It’s somewhat amazing to me that it’s taken this long for the company to admit it bet wrong, but it finally has.

“Financial and nonfinancial media, however, have inevitably treated the company as if it is the only really important stem cell company.”

Thus does ABC declare: “Many experts say the announcement signals a symbolic end to the era of embryonic stem cell research that many researchers worked so hard to launch.” Which is true… but the article leaves the reader with the impression that embryonic stem cells are the only kind worth researching.

“Geron’s failures on the stem cell front were, actually,” says Patrick, “evidence that BioTime Inc. is the real leader in regenerative medicine.”

BioTime has pioneered its own pure stem cell production technology. “Known as ACTCellerate,” Patrick goes on, “it involves the mapping of stem cell development shepherding cells through the phases of development to produce large, pure quantities of identical purified stem cells.” BioTime CEO Dr. Michael West presented the genetic evidence that he can do this during our Vancouver conference last July.

More recently, BioTime linked up with Cornell University to produce commercial-scale quantities of “endothelial precursor stem cells.” Essentially, they convert a few drops of your blood to stem cells, and then into endothelial precursors — a proto-cell of the kind that lines the inside of your arteries and veins.

In time, they build you a like-new heart.

“The patients’ own cells are first converted to become induced pluripotent stem cells,” Patrick explains, “identical in function to embryonic cells. They are then potentiated to become endothelial precursors, suitable for rejuvenating the heart and vascular and immune systems.”

“This technology will, I believe, be the most-successful medical blockbuster in history. As heart disease kills most of us, it will significantly extend healthy life spans. Moreover, it will happen much sooner than almost anybody believes.”

“If you believe, as I do, that Dr. Michael West and BioTime are the true innovators, then we will probably have a valuable opportunity to buy BioTime at artificially depressed levels.”

[Ed. Note: And that’s after BioTime shares have appreciated 501% from
Patrick’s initial recommendation.

Don’t feel bad if you missed out. Patrick is equally, if not more, enthusiastic about another company he’s been following in his premium advisory, Breakthrough Technology Alert. Access here.]

So what of Geron’s future? “The company still has important assets,” says Patrick — including a sizeable portfolio of stem-cell intellectual property. It will continue to generate revenue for the company even as it turns its attention to its cancer treatment.”

“This sort of action isn’t unusual for small biotech companies,” adds Patrick’s associate Ray Blanco. “With scarce resources, putting programs with longer time horizons on hold in favor of lower-hanging fruit that can pay off in the nearer term makes economic sense. It helps prevent the dilution of the shares, and preserves capital for advancing programs that can produce revenues sooner. It is a shareholder-friendly move.”

What’s more, Geron’s cancer treatment holds out great promise:
“Many cancer drugs,” says Ray, “will not treat cancers located in the brain or central nervous system. The blood-brain barrier, which protects the brain from foreign substances, filters out many chemotherapy drugs and renders them ineffective.”

Not so with Geron’s drug: It “takes the popular commercial chemotherapy compound paclitaxel and links it to a proprietary peptide molecule,” Ray explains.

“Since many peptides — which are small protein molecules — are allowed to pass through the blood-brain barrier by the body, paclitaxel gets to hitch a ride into the brain, where it can then do its work on cancer tumors.”
Early clinical trials are promising. Ray advises readers of his entry-level newsletter Technology Profits Confidential that Geron’s still a keeper.

Better yet, both of the stocks mentioned above are on sale today because traders are unloading both the bad and the good. The Dow is down 300 as we write.

The S&P has given up not only 1,200, but 1,190. All the gains of the last six weeks — poof.

Gold has sunk below $1,700 for the first time in nearly four weeks. As of this writing, the spot price is $1,694. Silver has surrendered $31.

“We have a big option expiry coming up on Tuesday, and this is just business as usual,” says Sprott Asset Management’s John Embry of gold’s price action.

Mr. Embry subscribes to the theory that powerful forces manipulate the price of gold — which in this case is working to your advantage. “I think it’s spectacularly bullish that sentiment is so incredibly weak in the metals. I can’t believe that people are basically being influenced to this degree by price action and they are just ignoring the fundamentals.

“That is exactly what the people who are creating the price action want… Gold and silver prices are going to multiples of the current prices in the not-too-distant future. And if you don’t own this stuff, you’re going to get killed.”

With gold on the way down, Treasuries are the last refuge of the safety trade. The yield on a 10-year note is back below 2%, the yield on a 30-year bond back below 3%.

Even the dollar doesn’t look that perky today. At 78.2, it’s up only fractionally from Friday.

“The Vietnamese dong is truly an awful currency,” says Chris Mayer, now back from his investment-scouting trip to Southeast Asia. “The Vietnamese inflation rate is officially 20%.”

“This is why the Vietnamese buy more gold per capita than anyone else in the world. They even pay 9-11% premiums over the world gold price to get it. They want to get out of the dong, the value of which rots like Mekong catfish left in the sun.”

Looks impressive, but not even worth $1

“It takes about 21,000 dong to get one dollar. In 2008, it was about 16,000. So it’s falling off a cliff against a currency that is not exactly a pillar of strength. This makes it tough for foreign investors in Vietnam. You need to overcome this depreciation before you make any real money!”

“In Cambodia, the coin of the realm is the riel. ‘It’s not a serious currency,’ my contact told me. It takes about 4,000 riels to buy a dollar. But it seems people use riel only for transactions less than a dollar. Otherwise, they use U.S. dollars.”

“The Thai baht is the most stable of all these Asian currencies. On my way home, I went through Bangkok again. I forgot to change all my dong before I left Vietnam. So I went to the money-changers in Bangkok to convert my dong to dollars. The Thai money-changers would have nothing to do with the dong. It made me think well of the Thais.”

Thus did Chris bring back some dong as souvenirs. He also met up with an investor he called “the Warren Buffett of Thailand.” It’s this individual who turned him on to the idea so lucrative he wouldn’t even tell us back in Baltimore what it is. But now he’s written it up and the information can be yours right away with a membership in Mayer’s Special Situations.

“In your comment concerning a ‘dictator’ in Thursday’s issue, I presume you are referring to President Chavez.”

“I am utterly appalled by this. Too bad we don’t have a Mr. Chavez to run for president. Then things would really turn around. FYI, President Chavez is/was always elected by the people, and furthermore respects to the last ‘we the people.’ (Have we all forgotten the meaning of this very important phrase?)”

The 5: Aha! Thanks for the good belly laugh.

“You folks used to mention on a regular basis how many banks were closed in a given week and the accumulated number for the year. We have not seen anything for a while. Have the bank failures stopped?”

The 5: No, but they’ve slowed down appreciably. The number peaked last year at 157. So far, this year the number is 90, including two last Friday. At that pace, the final tally for the year should be around 100. Curiously, 23 of those come from one state — Georgia.

“I’m inclined to call B.S.,” writes a reader of the American who says Canadian Customs threatened him with jail if he ever tried to visit again. “I’m an American who has been crossing into Canada a few times a year for the last 20 years.”

“If it did actually happen, I’m guessing that either this guy was himself such a jackass that he provoked that response, or at worst he encountered a jerk who may have been on the verge of snapping, which as we know can happen just about anywhere.”

“Seems to me that lots of people that are involved in any kind of security field either have big chips on their shoulders or are bored $#!+less and come across with poor attitudes, but my experience at the Canadian border has been no different than anywhere else. Canada is a great country, our ally and neighbor, and I won’t hesitate to keep visiting.”

“The customs officer that treated and spoke to the American as described should be fired and then kicked in the ass, hard, on his way out the door,” writes a Canadian reader who finds the story believable.

“We all have bad days, but there is a limit. I have had a bad experience with a U.S border guard. I’m sure he wanted to be a cop, but couldn’t get in. However, the majority of guards are great, and have even made me laugh. I will always travel to the States, and I hope our friends in the USAcome visit us always.”

“As a Canadian, I’ve been dealing with customs agents and immigration officers on both sides for many years.”

“In the hundreds, and possibly over a thousand times, I have dealt with immigration and customs officials, they have been very professional and ask all the questions they need to satisfy their respective laws. However, very early in the morning, or even late at night, one of them will act as if there is a chip on the shoulder and you are invited to knock it off, only to start a verbal war that you will always lose.”

“Bear with them, keep your remarks professional and you will get through the process with little fuss and perhaps a second thought about the dull, somewhat simplistic routine that such an agent has to follow just to satisfy the regulations. They do not have time for ‘small talk,’ and by the nature of their job cannot appear to be friendly or inclined to make you, the tourist, feel special.”

“Mr. Benko does not know what he speaks about,” writes a reader who rejects Ralph’s 90-second manifesto. “In fact, the Elite Ruling Criminal Class will take a complete and incendiary effort to remove them from their position of Swindle, Embezzle, Murder and Mayhem, in my opinion.”

“We have been in a Cold Civil War in this country, aided and abetted by the above-mentioned Elite, for a very long while, at least since the ’60s, and it is going to enter a hot period before it has its conclusion.”

“The Federal Criminal Cabal in Washington is rapidly installing a police state in this nation, and some are not going to accept it without a vibrant fight.”
“If We the People want to impact the Elite Ruling Criminal Class and reassert OUR Constitution, then one very simple way is to buy gold and silver and make the Elite Ruling Criminal Class eat their worthless paper.”

The 5: He didn’t say they’ll go down without a fight.

“So what’s up?” writes a reader who saw Friday’s “can’t-trust-the-system” issue. “I have an account with optionsXpress, and I trade options. Are you saying along with Ann Barnhardt that we need to get out now?”

The 5: No. Only that it pays to do your due diligence.

Gerald Celente, who lost a bundle with MF Global, didn’t even realize he was doing business with MF Global. His account was with Lind-Waldock, which was acquired somewhere along the line by MF Global and continued to answer the phone, “Lind-Waldock.”

“Go long New World Order and go short personal freedom,” writes a reader who saw Barry Ritholtz’s remark about going short banks and long mattresses.

“Whatever you believe, the facts show the NWO is alive and metastasizing. Do a baker and his pals eat better than his clients? Do those who print fiat currency and their pals enjoy a similar advantage? Of course.”

“Hey, they control the money, what’s next…food, military, governments, corporations, education, oh crap. Either way, the reality of the progress of macroeconomic global domination tyrants will continue, and it’s not likely to collapse until the Second Coming.”

“Or, just keep pointing out the mouse holes for us.”

The 5: Yes, we’re much more comfortable seeking out pockets of refuge.

Cheers,
Dave Gonigam
The 5 Min. Forecast

P.S. “It’s important that there’s a private initiative to do something,” said Addison during the lunch hour on Baltimore’s NPR affiliate. He was talking about Starbucks’ “Jobs for USA” program.
If you’ve been in a Starbucks this month, you know what it’s all about: Collecting donations of $5 or more to put in a kitty for lending to small businesses. Contribute, and you get a wristband:
“I’m skeptical that more credit is the route to creating more jobs,” says Addison echoing a theme from the introduction to The Essential Investor, which we unveiled over the weekend, “but this gets the thing going in the right direction. If we can have a private conversation separate from the political football kicked around in Washington and up to Wall Street, that’s a good thing.”
Addison says he riffed on the topic at the Mt. Vernon Club — a local hangout for the wives of Baltimore’s muckety-mucks — Thursday night too. He hasn’t said anything about being on a community outreach program lately… but neither has he been editing The 5 much lately, either. Between these engagements and the above-mentioned Essential Investor launch, he’s been busy.
If you’d like to listen to the local radio discussion, Addison was playing nice with Moody’s Mark Zandi. The discussion will be archived later today at this link. The discussion begins about 40 minutes into the 12:00 hour.

Thank you for reading The 5 Min. Forecast! We greatly value your questions and comments. Please send all feedback to 5minforecast@agorafinancial.com

Keynote Speech At Sydney Gold Symposium: November 2011

My Dear Friends,

You know I have great respect for Alf Fields both as a master of his methods (there are very few) but also for having a mercantile sense which cannot be taught. You know of his accuracy during the two major bull markets for gold.

I fully agree with Alf on the potential of the next move. I feel confident the accordion chop that Kenny points out did complete itself on the day of the longest predicted period of consolidation.

I see gold headed into the $2000, but only as another steep on its way to Alf’s number.

Respectfully,
Jim Sinclair

The Skinny:

“Once this correction has been completed, Intermediate Wave III of Major THREE will be underway. This should be the largest and strongest wave in the entire gold bull market. The target for this wave should be around $4,500 with only two 13% corrections on the way.”

KEYNOTE SPEECH AT SYDNEY GOLD SYMPOSIUM 14-15 NOVEMBER 2011
BY ALF FIELD

THE MOSES PRINCIPLE

The Moses Principle is an irreverent theory based on the question of why Moses spent 40 years traversing the Sinai desert before leading the Israelites to the “promised land”.

God was powerful enough to send numerous plagues to devastate the Egyptian economy until Pharaoh allowed the Israelites to leave Egypt. Later God caused the Red Sea to part so that the Israelites crossed on a dry sea bed. When the pursuing Egyptian army and their chariots were in the sea bed, the waters crashed back and drowned them.

If God was powerful enough to do all of these things, why not allow the Israelites to go straight to the “promised land”? Why did Moses spend 40 years traversing the barren desert before leading the Israelites to the “promised land”? Here is the irreverent theory. Every Israelite over middle age when they left Egypt probably died during the ensuing 40 years. The younger people were born in the desert or spent their adult lives in the desert. After 40 years the life experience of the survivors consisted of living in the desert. When they finally got to the “promised land” it appeared to be “flowing with milk and honey” when compared to their prior desert existence.

A total generational change had taken place so that the survivors had no knowledge of anything other than the desert. There was nobody who could remember what Egypt was like. The Moses Principle recognizes the fact that over any 40 year period, a generational change takes place.

What has this got to do with gold? Recently we passed the 40th anniversary of 15 August 1971, the date when the last link between currencies and gold was ended by President Nixon. This launched an era of floating “I owe you nothing” currencies. Money was what any government deemed it to be, generally something that the government could create in unlimited quantities. That system, plus the fractional reserve banking system, launched an era of ever increasing debt and credit. It was an era where debt was desirable and money lost its purchasing power.

Everyone in this room has spent their adult lives living under this system. Most have had no exposure to monetary history or what money really is. The new “Moses” generation will have to re-learn the lessons of monetary history before the world can enter a new era of sound money and stable economic growth.

The impact of this generational change will be discussed later.

The 15 August 1971 was an important date for me personally. I had grown up in South Africa and in early 1970 started a funds management company with a good friend of mine. The first 18 months was a struggle as we were buffeted by a vicious bear market. By August 1971 our clients were largely in cash awaiting the end of the bear market or an inspirational idea.

That inspirational idea came on 15 August 1971 when I heard that President Nixon had decreed that the USA would no longer exchange US dollars held by foreign governments for gold at $35 per ounce. Gold had limited downside but appeared to have good potential for substantial gain. Gold shares were deeply depressed after 37 years of a fixed $35 gold price, another “Moses Principle” period. We bought gold shares aggressively. This proved to be an astute move and our funds management business was launched on a successful path.

Having locked ourselves into a big position in gold shares, we needed to have some idea of how the gold price might perform and how high it might rise. We ran into the conundrum that has confounded fundamental analysts since 1971. How do you value something that has no utility value, no earnings or net asset value, does not spoil or corrode and is not used up?

Other commodities such as copper, soya beans and corn etc., are priced using a combination of demand, supply and stocks. If demand exceeds supply, stocks diminish, shortages develop, prices rise and new production comes on stream. Eventually supply exceeds demand, stocks build up, prices decline and marginal producers go out of business. The cycle then repeats itself. Other commodities are produced for consumption while gold is accumulated.

Consequently large stocks of gold exist in official hands as central bank reserves. There are also large stocks of gold in private ownership, in vaults around the world, in homes, buried in gardens, in coins and gold jewelry. New mine production of gold is tiny compared to available stocks. In 1971 official holdings of gold were about 37,000t. Cumulative world gold production throughout history up to 1971 was estimated to be about 90,000t, so investors/hoarders must have owned at least as much as the official holdings.
In 1971 world gold production was a mere 1,450t, or less than 2% of the
estimated amount of gold held in the world at that time.

The fundamental conclusion was that the owners of the large stocks of gold would determine the future of the gold price. If they became net sellers, the gold price would decline. If they became net buyers, the gold price would rise.
There were reasons to believe that they would be net buyers. The world had been launched into an untried experiment where all countries were subject to Government fiat currencies and, in addition, there was a latent group of buyers in the wings. Americans had been prevented by law from holding gold since 1933. With the collapse of the gold exchange standard on 15 August 1971, there was no reason for this prohibition to continue. On 31 December 1974 (another Moses generation period from 1933) the largest and wealthiest nation on Earth allowed its citizens to buy and own gold.

The obvious conclusion was that it was necessary to resort to technical analysis to find a way to predict movements in the gold price. I experimented with a variety of technical systems and then got lucky. I discovered that the Elliott Wave Theory (EW) gave superb results in predicting the gold price. I couldn’t get the same great results using EW in other commodities or markets. EW is a complicated system with many difficult rules, but I will try and explain it in simple terms.

The technique is to concentrate on the corrections. In terms of EW, the sequence in a bull market is as follows. The market rises, has a 4% correction, rises, has a 4% correction and rises again. At this point the next correction jumps from 4% to a larger degree of magnitude, say 8%. The market then repeats the sequence. A rise, a 4% correction, a rise, 4% correction, a rise and another 8% correction. When the market is eventually due a third 8% correction, the magnitude of that correction jumps from 8% to 16%. This sequence is repeated until two 16% corrections have occurred when the size of the next big correction jumps to 32%.

The beauty of EW is that the corrections in gold are remarkably regular and consistent. Early in 2002 I picked up the 4%, 4%, 8% rhythm in the gold market which convinced me that a new bull market had started in gold. Another feature of EW is that once one is confident that these percentages have been established and one has some idea of the approximate size of the up moves, simple arithmetic allows one to calculate a forecast of the future price trend.
Using this method I calculated that the gold price should rise from the $300 ruling in 2002 to at least $750 without having anything worse than two 16% corrections on the way. That was valuable information at that time.

Furthermore, from the $750 target a big 32% correction could be expected to about $500. Then the bull market would resume, rising to perhaps $2,500 before another 32% correction occurred. The final up-move would take the gold price to much higher levels, possibly $6,000. Once again, a valuable insight when gold was $300 in 2002.

The gold price actually got to a shade over $1000 in March 2008, a four-fold increase instead of the expected three-fold rise to $750. That was the point at which the 32% correction was due. Over the next seven months the gold price in the spot market declined from $1003 to $680, an exact 32% correction. Using PM gold fixings, the numbers were slightly different. The high was $1011.0 and the low $712.5, making the correction slightly less than 30%, but quite adequate.

The above chart depicts the monthly spot gold prices since the start of the gold bull market in April 2001 when gold was $255. The 32% correction in terms of spot gold is clearly shown. The high at $1003 and the low at $680 established the extremities of the first two major waves of the bull market, shown in the chart as Major ONE and Major TWO. The gold bull market is in the process of working its way upward through Major THREE, often the longest and strongest wave in the bull market. There have been a number of interesting and unusual developments in Major THREE which will be discussed later.

I would like digress at this point to share with you the reasons why I started writing articles on Gold, EW and monetary history. The reason I am standing here today is the direct result of writing those two series of articles published on internet web sites. I am a self-funded retired person managing my own investments. Unlike most people posting articles on the web, I was not trying to sell subscriptions to a newsletter or get people to buy something. Nor was I writing to big note myself. So if I was not after fame, glory or riches, what was my motivation? The following two stories will explain where I was coming from.

These stories are intensely personal. Even close friends and relatives have not heard these stories. They are not meant to infer any self-aggrandizement nor are they an attempt to alter anyone’s personal views. The two stories are linked and relate eventually to gold. Together they are the reason why I wrote the articles posted on the web.

The first story starts with an awful event where my son Richard was attacked by a lion. He and his fiancée Rebecca were managing a game lodge in northern Botswana. He took a couple of guests out on an early morning game drive.
They followed the tracks of a lioness and three cubs down a dry river bed but lost the trail. When Richard got out of the vehicle to find lion tracks, the lioness launched herself at him from nearby shrubs. The lioness landed with her paws on his shoulders, dislocating one shoulder and driving him to his knees. She then whacked his head with her paws, virtually scalping him and nearly ripping his ear off. She then bit him on the back of the neck. Any person or animal subject to such an attack would almost certainly be dead.

Richard survived this vicious attack as a result of a series of miracles. The first miracle was that the bite on the back of his head had missed the vital arteries, missed the spinal column and had not penetrated the skull. If the lioness’ bite had been fractionally deeper, higher, lower or sideways, that would have been the end for Richard.

(In the speech, I skip to the story of the beggar’s sign. You can do likewise.)

The second miracle was that the couple in the vehicle reacted instantly. The wife yelled at the husband to get into the driver’s seat and drive at the lion, blowing the horn and making a noise. This caused the lioness to back off. Richard was still conscious and managed to get himself into the vehicle. He was able to work the radio to warn Rebecca of what had happened.

The third miracle was that a couple of weeks prior to this event the local team of paramedics had visited the safari lodge to give the staff a lesson on what to do in the event of a lion attack. Rebecca remembered everything that they had said. She reacted with astonishing calm. She assessed the wounds, called the paramedics by radio, got what she needed from the First Aid cabinet and then stayed with Richard staunching the blood flows until the paramedics arrived.

The fourth miracle was that after being flown to hospital in Gaberones, the capital of Botswana, Richard was allocated a doctor who fully understood how to treat lion injuries. He knew that he could not stitch Richard’s head for several days due to the threat of infection. Lions do not use Colgate’s tooth paste! Richard was given a full anesthetic on four consecutive days while the doctor cut away the portions that were infected.

Richard required very large amounts of blood. The paramedics had warned Rebecca that she should ensure that Richard was only given blood which was certified HIV negative. There was blood available but none of it came with the necessary certificate. How the vital blood was obtained was another miracle, but that story is too long to discuss now.

When the stitches were removed from Richard’s skull, he was still left with a gaping wound at the back of his head. A skin graft from his thigh to the back of his head was required. A visiting plastic surgeon was able to do the necessary graft, but Richard had to later fly to Johannesburg for the surgeon to check that the graft had “taken” and to have the stitches removed.

(Story of the Beggar’s Sign begins here.)

When we visited the surgeon he pronounced that the graft had “taken” and that Richard was absolutely OK. All he needed was rest and recuperation to be as good as new. Any parent who has lost a child will understand the anguish and pain that we endured going through this episode. Now our son, brother, and fiancée, whom we thought we were going to lose, had been saved and returned to us.

At last we could relax. Nothing could go wrong now. You can imagine the joy and jubilation in the car as we drove away from the surgeon’s rooms. Then I saw a beggar at a traffic light. He was carrying a cardboard sign which read:

“No Money. No Food. Please Help Me. God Bless”.

Impulsively I decided that I wanted to buy his sign and hang it on my wall as a memento of this happy day. I had 200 Rand in my wallet, probably more than he made in a month of begging. I called him over, showed him the money and said that I wanted to buy his sign for R200. He simply said “No!” The lights turned green and people were honking behind me, so I gave the R200 to the beggar and drove on, leaving the beggar with his sign.

After dropping Richard and Rebecca with friends I passed the same intersection on the way to my lodgings. The beggar was still there and I was now more determined than ever to buy his sign. I called him over to the car. “I gave you R200 an hour ago, do you remember?” He said that he remembered, clutching his sign protectively to his chest.

“I want to buy your sign for a special reason. Just tell me how much you want for the sign and I will go to the nearest ATM and get the money.”

He shook his head and again said “No”, clutching his sign possessively to his chest. “It will only take you five minutes to make another one” I said, but that elicited another vehement “No” from him. The lights had changed and once again people were honking at me. “If you will not sell me your sign, at least tell me why you won’t sell it.” He replied “God gave me this sign!” I drove off with the words “God gave me this sign” reverberating through my brain.

I am an accountant and investment analyst by training. I am used to digging out facts, checking them and drawing conclusions from them. I am skilled at calculating odds and probabilities. The odds of Richard surviving such a terrible lion attack were off the charts. The odds of finding the only beggar in the world who would not sell his sign for any price were also astronomical.

I had always felt that I was in control of my life. I make the decisions and do things my way. Richard’s recovery from the lion attack was a situation over which I had no control and when I did try and take control of something and buy the beggar’s sign, I had been rudely rebuffed. The only logical conclusion was that God was giving me a sign that He was in control, not me. It was the most humbling moment of my life. Faith is a gift, but it seems that some people have to be bashed over the head in order to accept that gift.

This unusual story needed to be told in order to fully understand the second strange story that does deal with gold. The link came through the Priest in the London parish where we lived for a few years. He had been asked to request prayers for Richard’s recovery and as a result we got to know him quite well. He is a cricket fanatic. When I heard that he planned to visit Australia to watch the cricket series between Australia and England in late 2002 and early 2003, I invited him to stay with us at our house on the northern beaches for a couple of days after the Sydney cricket test in January 2003.

In due course I picked him up from the city. It is about an hour’s drive to our house, so we had plenty of time to chat. He wanted to know if I had done anything special over the past year. I responded that I had made a dramatic change in our family investments during the year, putting some 40% of our capital into gold, silver and mining shares. He was clearly interested and wanted to know why I had done this. I said that I could see a number of problems developing, especially in America, that would eventually result in a major financial crisis which would threaten to bring down the entire world money and banking system. The authorities would create vast new sums of money in an attempt to prevent this melt-down from happening, resulting ultimately in the destruction of paper currencies. This would require the establishment of a new monetary system and I expected gold to be a major part of the new monetary system.

He then asked a strange question: “How high do you think that the gold price can go?” I tried to dodge the question as I did not want to explain Elliott Waves to him, so I just said that gold would probably rise to extraordinary heights. I explained that the extent of the gold price rise depended on the quantity of new money created to ward off the anticipated crisis. He persisted, wanting to know what “extraordinary heights” meant. He obviously wanted a fixed number.

To mollify him I said that in the 1970’s bull market gold had increased 25-fold from $35 to over $850. If the new gold bull market was of the same order, then starting from a base of $255, the current bull market could reach somewhere over $6,000 per ounce. He then wanted to know what the current gold price was. When I said it was about $300, he seemed satisfied.

The next morning the two of us went for a jog on the beach. He asked if I believed in prophecy. I said that I had not really thought about it. Given that there were prophets in the Old Testament who seemed to have the word of God and in the New Testament there were people who had the gift of prophecy, well yes, I guess that I probably had to believe in prophecy.

He then told me this remarkable story. In his London Parish there was a lady who did have the gift of prophecy. She had received several prophecies that had related to him which proved to be accurate. As a result he was convinced that she had the true gift of prophecy. There was an occasion when this lady received an unusual prophecy, quite different to anything she had previously experienced. She thought that if the Parish Priest telephoned her, she would know that she had to tell him about it. Indeed he did telephone, so she told him that she had received this very strange prophecy. She had been instructed to write it down and mail it to him. He was to keep it unopened until she called to let him know that it was time to open the envelope.

A few days before he was scheduled to fly to Australia she telephoned him to say that it was time to open the envelope. The prophecy consisted of just one line which read: “The price of gold will rise to extraordinary heights!”
These were the exact words that I had used the previous day in our conversation in the car. He concluded that this prophecy was meant for me!
I was quite shocked, gob-smacked actually. I would normally have shrugged it off as an interesting story and forgotten about it. After the lion episode and my experience with the beggar, I was more inclined to take it seriously. What did it mean? There was nothing new in it for me, other than being a confirmation from a very strange source that my views were correct.

I felt that there must be a deeper reason for receiving such a strange message. I concluded, somewhat reluctantly, that if I had been given the talent and knowledge to see such a dramatic financial crisis coming down the track, then surely I had a responsibility to warn people about it?

The crisis that was coming had the potential to be the biggest event in the lives of the current generation. It was likely to become the most important factor governing investment decisions when the crisis arrived. So I started trying to alert people to the serious financial and monetary crisis that I could see coming and warn them to buy precious metals as protection.

Talking to friends and fund managers about my views, I ran head first into the Moses Principle. The new generation had not received an education on monetary history, nor what qualities money should have. I was met with glazed eyes and body language that showed no interest in what I was saying. I was talking in many instances to the “new rich” generation. They were the bankers, investment managers, stockbrokers, hedge fund managers and others who were massaging the vast sums of money and credit that had been created since 1971. They were taking their percentage of the funds that flowed through their businesses and were doing very nicely. They didn’t want to listen to a grey-haired old fogey spruiking a coming crisis that was going to wreck the gravy train that they were living off. Clearly this method was a failure.

The solution was to publish articles on internet web sites to get my message across. I had to proceed slowly and cautiously, only giving information that people could accept at that time. It was April 2005 before I felt confident that I could write an article titled “The Seven D’s of the Developing Disaster” about the problems that I could see developing, all starting with the letter D, debt, deficits (budget and trade), the US dollar itself, demographics (baby boomer unfunded entitlements), derivatives, dwellings, deflation (including deleveraging) and destruction, being the long running wars in Iraq and Afghanistan. This article is located at:

The Seven D’s of The Developing Disaster

When the financial crisis eventually arrived in 2007, it was sparked by derivatives (credit default obligations CDO’s) and events in the real estate market (dwellings). The arrival of the crisis allowed me to write more aggressively. By late 2008 there was a much greater awareness of the problems and I felt that I could leave it to others to deal with the ongoing consequences.

In August 2003, in parallel with the money/economic articles, I started forecasting the gold price using the Elliott Wave system. Here too I had to proceed slowly. I felt that I could not reveal my longer term forecast for the gold price because it was so bullish that I would be branded as a nut case. When I wrote my final Elliott Wave article in November 2008 I did reveal the full picture, showing that there was a possibility that gold could reach the extraordinary heights of $10,000. At that time gold was in the $750 area. That article can be found at:

Elliot Wave Gold Update 23

IMPACT OF THE MOSES PRINCIPLE.

It is now time to return to the Moses Principle and its impact on the gold price. Perhaps the most important point is that the modern Moses generation has had very little exposure to monetary history. They do not understand what has caused the current financial crisis. If one does not know what caused the current crisis, one cannot know how to go about fixing it. Central Bankers and Finance Ministers are also part of the Moses generational change. By the late 1990’s the new incumbents had experienced a 20 year bear market in gold and were influenced by Keynesian economics.

They didn’t understand why gold was held in their country’s foreign exchange reserves and resorted to the wholesale selling of this unnecessary “barbarous relic”. Famously Gordon Brown sold two-thirds of Britain’s gold stock near the bear market lows in 2001/2002. Australia sold a similar proportion of its gold. The European Central banks were selling gold but had a joint agreement to restrict their combined sales to 400t per annum. Even conservative Switzerland sold some of its gold reserves.

Originally it seemed that Central bankers were selling gold to protect the integrity and longevity of their paper currencies. Perhaps, with the generational change, they did not know any better. Perhaps it was just the “thing to do” at the time. Despite this central bank selling, the gold price went up! Buying by investors/hoarders had exceeded official selling and a new gold bull market was born. Central bank selling of gold gradually declined. Recently central banks under the leadership of Russia and Asian nations became net buyers of gold. The GFC has created a much greater awareness in official circles of the role that gold plays as a store of value asset in national reserves.

The distortions that have grown out of the 40 year period since 1971 have reached proportions that demand change. The problem is that the current generation does not understand that the root cause of the GFC is unsound money created at will by governments, combined with a banking system that has enabled the creation of an unsustainable mountain of debt. The modern generation is groping with the problem and gradually working towards understanding that the underlying cause of the crisis is monetary.

The modern generation will have to face some brutal truths as the world deals with the ongoing global financial crisis. The following are the brutal truths that apply to the USA and the world:

THE BRUTAL TRUTHS
The slate needs to be wiped clean and a new sound monetary system introduced.
That will require the elimination of all debt, deficits, unfunded social entitlements, the US Dollar as Reserve currency, and the big one, the $600 trillion of derivatives.
To eliminate these problems by default and deflation will cause a banking collapse and untold economic pain, leading to riots and political change.
Politicians are appointed for relatively short terms and opt for the easy solutions.
While politicians continue to have the ability to create new money at will, they will do so in order to prevent a melt down on their watch.
Consequently the odds point to governments wiping the slate clean by generating enough new money to eventually destroy their currencies.
The new international monetary system is likely to involve precious metals. It will have to be money that people trust and that governments cannot create at will.
This has happened many times before, dating back nearly 900 years to the first paper money introduced in China. History is full of attempts to use paper or fiat money, all of which ended in the destruction of that money. The last century saw virtually every South American country “wipe the slate clean” and begin again with a new money. Some did it several times. The Romans faced a similar financial crisis and resorted to reducing the silver content of the Denarius, eventually by about 95%, before people refused to accept the Roman coins.

There are two things that are different about the current episode. This is the first time in history that fiat or government issued currency has been in use in every country around the world at the same time. Secondly, we have an electronic money system which is very efficient. It enables new money to be created at a faster rate than ever before.

Every experiment with government issued fiat money has ended with the destruction of that money There is no reason to believe that it will be different this time. The world’s 40 year experiment with floating “I owe you nothing” fiat currencies is coming to an end.

I have come out of retirement for this one off, once only, speech to warn that the good ship “Life As We Know It” is sinking.

You have the choice of getting into a life boat now or going down with the ship. The life boats consist of precious metals and other assets that will survive the coming currency destruction.

It is likely that gold will be the new unit of measurement or standard of value against which the performance of other assets will be judged. The challenge will be to find assets that perform better than gold.

The forecast contained in the “Brutal Facts” segment is not a pleasant one. It is unfortunately the most likely outcome. All that we can do is to “be prepared”. It is vital for one’s personal financial survival to take action now.

In conclusion, I would like to mention that my son Richard is married to Rebecca and they have a 4 and a half year old daughter with another baby on the way. They live in Sydney and Richard works for a local company organizing tailor made safaris to Africa for small groups. If you have any interest in doing such a trip, you can contact him at:

rfield@epicprivatejourneys.com
Alf Field ajfield@attglobal.net
7 November 2011.

ADDENDUM: Update of the Elliott Wave Gold Analysis

I promised that I would reveal some interesting things about the EW moves in gold since the $681 low in October 2008. That low was the start of the Major THREE wave. In Major ONE I mentioned that the corrections were 4%, 8%, 16% and then 32%.

We know that Major THREE will likely be longer and stronger than the prior Major ONE up wave. It is logical to expect that the corrections in major THREE will be a larger percentage than those experienced in Major ONE. This is how the first Intermediate wave of Major THREE developed in terms of London PM Fixings:

Intermediate Wave I in London PM Fixings
Oct 08 to Feb 09 $712.5 to $989.0 + $276.5 +38.8%
Feb 09 to Apl 09 $989.0 to $870.5 -$118.5 -12.0%
Apl 09 to Dec 09 $870.5 to $1212.5 +$342.0 +39.3%
Dec 09 to Feb 10 $1212.5 to $1058.0 -$154.5 -12.7%
Feb 10 to Jun 2011 $1058.0 to $1549.0 +$491.0 +46.4%
These are typical of the beautifully consistent sizes of EW waves in gold. There are two up waves of about 39% and two corrections of about 12%. Several things can be determined from these numbers. In February 2010 it was possible to pencil in a target for wave 5 of $1470, being a 39% rise from the wave 4 low of $1058. The 12% corrections are larger than the 8% for the equivalent waves in Major ONE, which was expected. One can deduce that the correction to follow wave 5 will be one degree larger than 12%, possibly double this figure. The target for wave 5 of $1470 was exceeded mainly because this became an extended wave. It reached a high of $1549 for a gain of 46.4%. The chart below depicts these waves in London PM fixings:

Extended waves are simply waves that subdivide into an additional 5 waves. It happens mainly to 5th waves and generally makes life difficult for EW analysts. Difficult yes, but not impossible.. The analysis of the first extension, the extension of wave 5, is set out below:

Wave 5 of Intermediate Wave I based on London PM fixings.
(1) 1058 to 1261 +$203 +19.2%
(2) 1261 to 1157 -$104 8.2%
(3) 1157 to 1421 +$264 +22.8%
(4) 1421 to 1319 -$102 7.2%
(5) 1319 to 1549 +$230 +17.5%
Wave 5 1058 to 1549 +$491 +46.4%

NOTE: From the $1319 start of wave (5) above, the target price was $1319 + 19.2%, the same gain as wave (1), giving a target of $1572. The high price for gold in wave (5) in the spot market was $1576 on a day (2 May 2011) when the UK had a public holiday and there was no London PM fix available. Thus the gain for wave (5) was stunted in terms of PM fixes. This is not satisfactory and it became necessary to revert to analysing the waves in spot gold prices to getaccurate readings. This was also required in order to pick up the minor waves in the final two extensions which were explosive in nature.

To illustrate how to analyse gold using EW through this difficult period, it is best to work through the time line as it actually happened. As noted above, the expectation was that following the completion of the extended wave 5, a correction one degree larger than 12% would occur from the peak of wave (5) at $1576.

Gold had a minor correction to $1478 in the spot market and then started a sharp upward move. When gold went to a new high above $1576 the probability of the big 24% (give or take 3%) correction occurring at that time receded. The stronger probability was that a new 5th wave extension was underway. This was the first of the explosive series of extensions in gold. It became an historic sequence of four 5th wave extensions in declining orders of magnitude.

At the end of each extended wave, the spectre of the bigger correction (21% to 27%) came into focus. With each new high, the bigger correction was delayed and a new extended wave was born. At $1814, after three 5th wave extensions, the probability that $1814 was THE high was about 80%. Another extension at an even smaller degree was accorded only a 15% probability. The remaining 5% covered the possibility that the wave count was wrong and that a completely different outcome was evolving.

From $1814 gold had a minor correction to $1723, then blasted through $1814 to new all time high prices. The odds of a fourth 5th wave extension at the smallest degree changed from a meagre 15% to a 90% certainty. The wave count at this smallest degree helped to determine in real time that at a price over $1910 gold was in serious danger of an important top, with the bigger correction certain to follow.

Both charts updated to 7 October 2011 and illustrate the wave counts described.
We can now consider the possible magnitude of the current correction from the $1913 top. The correction will be one degree larger than the prior corrections, 12% in PM fixes and 14% in spot gold, an average of 13%. That compares with 8% in Major ONE. Both 8 and 13 are Fibonacci numbers, so it may be that the next correction could be 21%, the next Fibonacci number.

In Major ONE, the corrections tended to double when they moved up a degree in magnitude, so one must consider 26%, double 13%, as a possibility. A 21% correction from the peak of $1913 gives a target of $1511. A 26% correction would target $1416. There is one further possible target and that is $1478, the point at which the explosive extensions commenced. The price of an item will often retrace the full amount of the explosive extension. There was a recent example in silver of such a full retracement of the explosive extension, see the chart below:

This analysis was prepared on 27 September 2011, the day after spot silver reached a low price of $26.59. The start of the extension was at $26.50 on 28 January 2011. A mere 3 months later, at the end of April, silver topped at $49.50, a very obvious explosive advance. Silver then traced out an A-B-C correction where the A and C waves were declines of similar size at $17 each, a typical EW relationship. At that low point of $26.59 on 26 Sept 2011 the silver price had exactly retraced the full gain achieved in the explosive extension. The conclusion was that there was at least an 80% probability that the silver correction had bottomed at $26.59.

If gold retraces the exact gain achieved during the explosive advance from $1478 to $1913, which occurred in just seven weeks, it will represent a decline of 22.8%. That is nicely within the above anticipated range of 21% to 26% for the current decline in gold. There is a possibility that the spike drop to $1531 on 26 September marked the low point of the correction in gold. The midpoint of the correction from $1576 to $1478 is $1527, close to $1531. If $1531 was the low, it was a decline of 20%. This is slightly below expectations, but it still qualifies as one degree larger than 13%. At the date of writing (7 Nov 2011), gold has recovered to $1767, which is a 61.8% retracement of the loss from $1913 to $1531 (-$382), a typical size for this type of recovery. That leaves open the possibility (40% probability?) that gold will have another dip to test the target areas mentioned. The higher the price goes above $1767, the greater the probability that the low was in at $1531.

Once this correction has been completed, Intermediate Wave III of Major THREE will be underway. This should be the largest and strongest wave in the entire gold bull market. The target for this wave should be around $4,500 with only two 13% corrections on the way.

The word seems to be spreading.

A protester on Wall Street. Be careful what you wish for.

John Kaiser: Gold as a Positive Economic Indicator

The Gold Report: Gold prices reached historic highs during the last quarter. However, in a recent Kaiser Bottom-Fish newsletter, you showed the Toronto Stock Exchange Venture (TSX.V) listings since February have had dramatically more down than up days. Is this a correction or a long-term trend?

John Kaiser: What we have seen is a negative response by ordinary investors to a deteriorating economic outlook for the United States and the world, which we might call a correction of expectations. But what worries me about a long-term trend is the growing prevalence of volatility-based profit harvesting, high-frequency and algorithmic trading paired with the elimination of the downtick rule for short selling, which allows traders to push markets down or up at will and in the process destroy perceptions of value in the market. This has been particularly intense in the junior resource sector, which the TSX.V is dominated by, because these companies, generally, do not have revenues and cash flow, the usual measures by which value is assigned.

It is very difficult to develop a visualization of what a venture project is all about, what it could become and turn that into a market valuation that enables the company to finance its projects at minimal dilution to existing shareholders. It is much easier to pound the order book, fill it with sells and completely undermine the perception of the people who have been investing for value. The bottom line is that we have seen a withdrawal of value-style investors from this market, both at the retail and sophisticated levels. As an example of how significant this has been, during February, the Venture Exchange averaged $310 million (M) worth of trading per day. By October, the average value traded had plunged to $94M per day.

TGR: Are you saying that the difference is not because of the fundamentals of the stocks and the companies behind them that are on the TSX.V, but because the rules have changed and people are playing around the volatility?

JK: It is a combination of the two. We had a surprise recovery in the resource sector in 2009 and 2010, facilitated by U.S. quantitative easing and China’s stimulus program that injected $600 billion into infrastructure development. Coupled with strategic Chinese stockpiling, that helped pull up raw material prices from the end-of-2008 lows. But the Fukushima nuclear disaster with its supply chain interruptions and the emergence of the Tea Party as a major force in the debt ceiling debate conspired to make the world very concerned that the creeping recovery is going to tip back into the garbage can. That has stalled the post-crash recovery in raw material prices, leading investors to price in the possibility of the global economy descending into a 1930s-style depression. Contrary to the beliefs of many goldbugs, a depression would also be negative for gold and silver prices.

TGR: In addition to some of these short-term trends, you have talked about the possibility that the United States is moving away from its power position. Europe and America are descending while China and India are ascending. Do most people see this? And is this impacting the stock market?

JK: The “declinist view” says that the U.S. economy and its military power are in a long-term downtrend. In at least economic terms, this is supported by gross domestic product (GDP) statistics. In 2000, the U.S. GDP was 32% of global GDP while China’s was about 5%. Since then, American GDP has sunk to about 22% while China’s sits at just under 10%. At the same time, we have seen America’s share of total military expenditures rise from about 40% to 43%, where it seems to be going sideways. The U.S. is carrying an unsustainable burden of the cost of keeping the global peace. With America’s share of global GDP in long-term decline, the ability to fund almost single-handedly a global military force is not sustainable.

TGR: Based on that, what is your prediction for the final quarter of 2011?

JK: What I have described is a long-term trend that is underway. Right now, we are in the throes of sorting out what is going on with the Eurozone. Europe is in danger of imploding upon itself. It needs to stabilize its financial situation. At the same time, we need to see some signs that the American economy is rebounding. Employment statistics are going to be important. After losing nearly 6 million manufacturing jobs between 2001 and the end of 2009, some 303,000 manufacturing jobs have been created since 2010. This trend stalled earlier this year because of the Japanese supply chain disruption and concern that the political quagmire will result in consumer demand destruction. We need manufacturing capacity to come back to the U.S. in order to support the growing service job economy. The uncertainty about the growth of real jobs could result in a very volatile market during the last couple months of this year.

Wall Street sees down as easier than up, so the tendency is to lean on the market and pressure it down. A big tax loss selling window is going to emerge soon. We may even see a bottom-fishing window open up. My concern is that shareholders who understand why they own quality stocks will be reluctant to sell at the bottom after enduring what amounted to a nearly yearlong slow motion crash. On the other hand, low quality stocks will probably be sold ruthlessly. That means poor liquidity in the better stocks, but very high liquidity at very cheap prices in the stocks that do not have staying power. We may, in fact, see an icicle-type formation where prices dip down because there has been lots of selling into the bids without significant replacement by new bids. Too many investors remember how unwise it was to catch half-price bargains in the fall of 2008 that turned out be falling knives and anvils. When people finally go looking for quality stocks at depressed prices this December, they will find little available. As they start to reach for stocks, prices will spike upward and kick off Q112 with a strong uptrend.

TGR: In an environment like this, what is the best way for an investor to protect wealth or maybe even profit?

JK: My area of specialty is the resource sector, both the mining companies and the resource exploration and development companies. If you accept my belief that the strength in gold and silver prices reflect anxiety about the relative decline of the United States as both an economic and military power, which I see manifested in the fact that the value of all the aboveground gold and silver has risen to 12% and 3% of global GDP, respectively, from the 4% and 0.5% levels that prevailed a decade ago when America was indisputably triumphant, we will see prices head modestly higher from current levels over the next five years.

That is very significant for the gold and resource producers and juniors because they are pricing a bubble-type perception, namely that gold is going to go back to $1,000/ounce (oz) and that silver is going to go back below $15/oz, prices that could make many of these companies unprofitable. That is the reason we are seeing very low cash-flow multiples similar to what we often see in industrial mineral-type companies. So the big bet here is that we will witness an inflection when people start to accept that the current gold and silver prices are the new reality, which will result in an upward repricing of anywhere from 100–300% for gold and silver companies.

One strategy is to look at the solid, cash flow-positive silver and gold producers right now, and take a position in them. A secondary strategy would be to look at the gold and silver ounce-in-the-ground development companies, which are trading at valuations considerably lower than what you get by plugging current metal prices into the discounted cash-flow valuation model.

TGR: What would be some examples of companies that fit either the cash-flow positive or the development company trading at a lower-valuation model?

JK: Fortuna Silver Mines Inc. (FVI:TSX; FSM:NYSE; FVI:Lima Exchange) has a mix of silver and base metal production. It would benefit considerably if people expect the current cash flow to be sustainable over the next few years.

TGR: It looks like it is trading at $6.58 right now. It has been as high as $7.22.

JK: Right now, Fortuna is being priced at roughly a very conservative six-times multiple of 2012 cash flow based on forecast production and the current $34/oz silver price. The reason it is so low is that people do not think the cash flow is sustainable. That can be either because they think a mine will encounter a problem and cease production or because they expect the commodity price to go down substantially.

So far, Fortuna has not disappointed us with production from Caylloma, but we do need to see production ramp up for San Jose to proceed next year as expected. But a lowish 5–7 multiple for next year’s forecast production at current silver prices seems to be the norm for primary silver producers. To help my readers better understand the situation, I have created a couple of graphics based on our production and cash-flow forecast for Fortuna. The annual production and price target chart shows the impact San Jose coming on stream will have on silver production over the next four years. In 2012, San Jose will add 1.7–1.9 million ounces (Moz) from Caylloma, growing overall silver production to 5 Moz annually by 2015. The chart shows the stock price that would result at a 10 times cash-flow multiple at different average silver prices for 2012.

As you can see, the current $6.58 stock price is not far from the $7.01 price target that corresponds with a $20/oz silver price and a 10 times cash-flow multiple. But if we apply the current $34.64/oz silver price, the stock price jumps to $11.20 at a 10 times multiple. At $50/oz silver, the price target jumps to $15.59. You can also see what happens at more optimistic silver prices such as $75 and $100. A five times cash-flow multiple is too conservative for a precious metals producer such as Fortuna whose silver production at $20/oz silver is 60% of revenue.

Once there is acceptance that silver prices are not going back to the bad old days, you could see a 15:1-type multiple emerge. It is hard to predict what sort of cash-flow multiple the market will eventually settle on during these volatile times, but the second Fortuna chart helps me see the price target for Fortuna during 2012 at various average silver prices and cash-flow multiples.

For example, suppose you think, like I do, that silver could average $50/oz in 2012 and silver producers attract a 15 times multiple. Slide that vertical silver bar reflecting the current silver price over to $50/oz, and move up to the green line corresponding with a 15 multiple and you get a price target just short of $25/share for Fortuna. It should be obvious that the market is biased toward a pessimistic scenario where silver crashes back to $20/oz. Keep in mind that this cash-flow-based valuation metric assumes that higher silver prices are not due to substantial cost inflation or U.S. dollar exchange rate declines, which would gobble up any gains in silver revenues caused by price increases.

The primary silver producers are companies that did all the heavy lifting in the past few years, putting their silver deposits into production. They are now getting an enormous amount of cash flow, but are not being priced as if this cash flow will be sustainable over the life of the mine. So, the big bet is whether current silver prices are sustainable over the next five years. I am arguing that they are sustainable and we will see a valuation paradigm shift where these low cash-flow multiples of 5:1 will jump up to a 10:1 or 15:1 ratio. What will follow is an aggressive development of more silver production absent the concern that capital expenditures will end up being lost because silver prices collapse.

TGR: Could a shift to 10:1 pricing boost all silver producers?

JK: If the silver price proves to be sustainable, we could see the stocks all undergo significant gains as they adjust to this new paradigm, as is evident in the Upside Potential chart for the 15 primary silver producers we track. The one apparent exception is Aurcana Corporation (AUN:TSX.V), which looks weak because in 2012 its Shafter mine will add only 900,000 silver ounces to the existing 1 Moz production from La Negra. But Shafter is forecast to hit 3 Moz in 2013, bringing total production to 4.8 Moz in 2015. So Aurcana might be the laggard to watch for those speculators who prefer to react to the inflection rather than anticipate it.

TGR: On the gold side, you pointed out in a recent article that the inflation-adjusted equivalent of the post-1980s bubble of $400/oz would be $1,032/oz and that $1,800/oz gold represents a 74% real gain. What are you predicting is going to be the new normal for gold?

JK: Much of the discussion about gold treats it as an inflation hedge. We can argue that the big move during the 1980s was a slingshot effect that allowed gold to catch up for decades of inflation while its dollar price was artificially fixed. Goldbugs today will argue that the “real price gain” I am observing is just an anticipation of the inflation that will come once the world’s debt problems are monetized. If they are correct, then it explains why there is such muted interest in gold equities despite record gold prices. Whatever profits are present today will vanish tomorrow when costs undergo an inflation big bang. But I think there is a different reason for this “real price gain” to be present, and it is not bad for gold equities, at least not in the medium-term future.

Rather than relate the value of the existing gold stock to measures such as the money supply, I look at gold’s value as a function of global GDP. Given that GDP represents the total value of exchanged goods and services whose turnover one can assume created wealth while gold just sits there growing incrementally while accomplishing very little, you might wonder what the connection would be between wealth creation and the value of the gold stock. This chart graphs the annual value of the aboveground gold stock based on the average annual gold price as a percentage of nominal global GDP expressed in U.S. dollars at the average currency exchange rates prevailing each year.

That description is a mouthful, but I find the graph fascinating because it shows a massive spike to an $850/oz gold peak of 26% in 1980 when it looked very much like America was losing it on the global stage, plunging to a low of 4% in 2001 when it looked like the world was America’s oyster. Since then, we see a gradual increase to a peak of 15% in 2011, but still well short of the 1980 peak of 26%. We see a similar pattern with the aboveground silver stock.

Note that during the past 30 years miners added 2.2 billion ounces (Boz) gold to the 3.2 Boz that existed in 1980, and 17 Boz silver to the 30 Boz that existed then. This graph includes the value of that additional gold and silver.

The possible meaning of this trend begins to take shape when we look at another chart that plots the American and Chinese GDP as a percentage of global GDP, along with plots of each nation’s military expenditures as percentages of global military expenditures. America’s GDP percentage has declined from 32% in 2000 to its current level of 22%, while China’s has grown from 4% to nearly 10%. At the same time we see America’s military spending stuck at about 43% of global spending, while China’s share has nearly doubled to just over 7%, a trend that closely tracks the growth of its GDP. Given political efforts to contain government spending, and the fact that military spending is the single biggest item in the spending budget, an obvious question is what exactly does this overwhelmingly high percentage of global military spending accomplish, and do American taxpayers proportionately benefit? Regardless of the answer, what happens if these inversely related American and Chinese GDP percentage trends continue along their trajectories?

In my view, the expansion of the value of the aboveground gold and silver as percentages of global GDP reflect growing international uneasiness about the next two decades during which America and China respectively become relatively weaker and stronger on the global stage. The real price increases we have seen in gold and silver reflect this growing structural uncertainty rather than fear about hyper-inflation and fiat currency collapse. And short of a catastrophic global economic collapse that causes China to implode worse than the United States, I do not see anything on the horizon to make this anxiety diminish.

So let’s assume that, rather than an escalation of anxiety such as we saw in 1980, we are stuck with persistent medium-level anxiety that, for argument’s sake, stabilizes at a level where the value of the gold stock is 10% of GDP and in the case of silver 3%. These are levels less than half the peak percentages of 26% and 14% achieved for gold at $850/oz and silver at $50/oz in 1980. If we accept the global economic growth projected by the International Monetary Fund and gold production increases over the next five years along the lines projected by CMP or GFMS, then at a 10% “anxiety” percentage of GDP I can see the gold price trading in a range of $1,400–1,700/oz during the next five years. In the case of silver at 3% of GDP I see a range of $45–60 which is even better than the current $34 price.

I am confident that these new levels are the new reality, which means that this 50–70% real gain that we see in the price of gold represents a lot of potential profit to be harvested by putting into production deposits that three years ago would not have been economic. This is good news for producers and ounce-in-the-ground projects that have a significant profit margin to be captured if they are put into production and can sell their gold at prices of $1,500–2,000/oz over the next five years.

TGR: So if we assume $1,500–2,000/oz gold prices, what are some of the juniors that could profit in the next year or so?

JK: One that has been an ongoing recommendation is Spanish Mountain Gold Ltd. (SPA:TSX.V), which was formerly Skygold Ventures. It trades at about $0.80 right now. At a gold price of about $1,750/oz, it has a potential value of just under $2/share when I run the parameters published in the junior’s 2010 preliminary economic assessment through a discounted cash-flow model at a 10% discount rate. At a gold price of $1,100/oz, Spanish Mountain is worthless. So this is an example of a large-tonnage, low-grade deposit, which at the prices from a few years ago is basically dead in the water.

But at the $1,750 level, it’s potentially a $1.50–2 stock. If gold ends up at $2,500/oz, I could see Spanish Mountain being worth $4, but only if such a gold price rise is not accompanied by capital and operating cost escalation. I certainly do not rule out a spike toward $3,000/oz over the next few years—$3,300/oz right now would be the equivalent to $850/oz in 1980 if we take gold’s value as 26% of GDP as the bubble limit. Although unsustainable, such a move would create a tidal wave of interest in the sector. It would trigger a gold price valuation paradigm switch for gold equities similar to what I am predicting for silver. People would start taking the current prices seriously and plug them into their cash-flow models instead of using $1,100/oz 3-year trailing averages for gold projects.

Instead of suspiciously viewing today’s gold prices as a trend that will end terribly, people need to look back at a long-term gold chart from the early 1970s when the price went from $35/oz to $850/oz. Yes, that was a hyperbolic chart and it still stalled out. But gold stalled out at $400/oz and stabilized there. And that was a huge, 500% real increase. So we had 30 years of gold production where all this fruit that had previously been very high in the trees was suddenly turned into low-hanging fruit that the mining industry systematically harvested and added 2 Boz to the 3.2 Boz that existed in 1980. What we are witnessing now is on a somewhat smaller scale, but if you use this measure of the gold value as a percentage of global GDP, then the current percentage of about 12% is still halfway from a bubble limit where it starts becoming too much of a self-fulfilling phenomenon that has to burn out and crash back.

TGR: So what about a hybrid company? You have written about Geologix Explorations Inc. (GIX:TSX). It is trading at $0.28 now. Is that factoring in higher metals prices? Where could that go?

JK: Geologix is copper and gold. An important message I am trying to send to my audience is that gold is not inversely related to economic strength anymore. It is not a hedge against the world economy collapsing, which normally means what is good for copper is bad for gold, a reason miners who understand the meaning of “hedge” like copper-gold mines. The real price strength of both copper and gold is now twinned.

Because Geologix is still perceived as more of a potential copper producer than a gold producer, when copper prices retreated earlier this year, the stock followed. While we can argue into the wee hours whether or not my analysis of the factors driving the gold price is correct, few will dispute that strength in copper is a function of expectations that the global economy will continue to undergo growth rather than go back into a major recession.

If you are inclined to believe that the global economy is more resilient than most people think, but still lean toward the notion that what is good for people in general is bad for the gold price, then a copper-gold project such as Geologix’s Tepal project in Mexico merits attention. I have run discounted cash-flow models of Tepal based on the preliminary economic assessment parameters presented by Geologix in April 2011 in which I assume a pessimistic scenario of $2/pound (lb) copper and the optimistic scenario of the current $3.50 price. At the current $1,750/oz gold price, the model shows a price target of only $0.67 using a 10% discount rate, but at $3.50/lb copper the target jumps to $2.03. At $1,400/oz gold and $2/lb copper, Tepal is dead, an outcome the market already seems to be pricing into the stock at $0.29. But if copper stays at $3.50/lb and gold soars to $2,500/oz, the Geologix price target blossoms to $3.50. Geologix is thus a good example of a leveraged play on my theory that gold’s strength is linked to a growing economy rather than a faltering one.
TGR: Any other good examples of how the rerating of gold prices into stock prices could impact companies you are following?

JK: One of my newer picks is a company called Probe Mines Ltd. (PRB:TSX.V). A year and a half ago, it was pretty much just limping along on the basis of a small claim it had in the McFauld’s Lake area of Ontario where it covered a fraction of a chromium deposit. But since then it has made a brand-new gold discovery in the Borden Lake area of Ontario, and it just published an Inferred resource of over 4 Moz at a fairly low grade of about 0.7 grams/ton. At current prices, this represents about $40/ton. It is one of these large, disseminated gold systems that will be amenable to open-pit mining, a similar concept to Spanish Mountain. Probe has not yet done the economic scoping studies needed to identify operating and capital costs, the key to evaluating the impact of the current gold price on undeveloped gold deposits. Here is an opportunity to benefit from comparing similar deposits such as, say, Brett Resources Inc. (BBR:TSX.V) and its Hammond Reef deposit that Osisko Mining Corp. (OSK:TSX) bought for about $500M while gold had a lower price than today. Probe’s total valuation is only about $187M based on 80M shares fully diluted. With expansion drilling underway there is potential to get a stock price boost from the discovery of additional ounces, not just growing confidence in the current gold price and optimism about mining costs at Borden Lake.

TGR: How high do you think it can go?

JK: In the short term, I would expect $3–4 if it delivers its preliminary economic assessment by the end of Q112 and the numbers are similar to Brett’s Hammond Reef, if not better, but if the exploration drilling establishes similar mineralization along the fold of this belt where no real work has ever been done in the past, it could end up boosting this resource to a 5–10 Moz system. At that level, it starts becoming interesting to a major. Then we could see this stock flirt with a $5–10 range. Plus, it was financed earlier this year to the tune of $25M, and again a week ago for $15M, so there is no need to worry about financing dilution risk in the near term. And the Black Creek chromium asset could be a target for Cliffs Natural Resources Inc. (CLF:NYSE), which is developing its Big Daddy chromite project in Ontario. That could give this company another injection of capital without having to undergo equity dilution.

TGR: You mentioned that you now see gold as positive toward economic development, not inverse to economic health. Do you think that higher gold prices are driven by goldbugs or by investors who are looking to profit?

JK: It is my view that goldbugs are a minority. I believe the buying is by investors who are simply hedging some of the wealth, higher net worth people who are putting a portion, maybe 5%, of their wealth into gold. They have the most to lose if the world becomes unstable, and currencies fall apart relative to each other. They don’t need that 5% of their wealth that they are stashing in gold. A similar thing is happening with silver, except it is driven by people in emerging nations where they cannot really afford a 1 oz gold coin and they don’t trust their governments, so they are using silver to store accumulated wealth. Therefore, a lot of silver, which primarily was fabricated into industrial applications, is now being pulled out of those applications by the high price and being redistributed as a very dispersed asset class. It is not going to come back into the system quickly, just as I don’t think the gold overhang is going to come back because investors decide to grab a profit and run. Frankly, I think gold and silver ownership will be quite boring in profit or loss terms during the next year, which is very good for gold and silver equities.

TGR: Thank you, John, for your insights.

John Kaiser, a mining analyst with over 25 years of experience, is editor of Kaiser Research Online. He specializes in high-risk speculative Canadian securities and the resource sector is the primary focus for an investment approach he developed that combines his “bottom-fishing strategy” with his “rational speculation model.” Kaiser began work in January 1983 as a research assistant with Continental Carlisle Douglas, a Vancouver brokerage firm that specialized in Vancouver Stock Exchange listed securities. In 1989 he moved to Pacific International Securities Inc., where he was research director until April 1994 when he moved to the United States with his family. He launched the Kaiser Bottom-Fishing Report (now Kaiser Research Online) as an independent publication in October 1994 and developed it into an online commentary and information portal. He has written extensively about the junior resource sector, is frequently quoted by the media, and is a regular speaker at investment conferences. Since 2008 he has developed a focus on security of supply issues and how they relate to critical metals such as rare earths.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

DISCLOSURE:
1) JT Long of The Gold Report conducted this interview. She personally and/or her family owns shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Geologix Explorations Inc., Fortuna Silver Mines Inc.
3) John Kaiser: I personally and/or my family own shares of the following companies mentioned in this interview: Geologix Explorations Inc, Spanish Mountain Gold Ltd. I personally and/or my family am paid by the following companies mentioned in this interview: None.

( Companies Mentioned: AUN:TSX.V, FSM:NYSE; FVI:TSX; FVI:BLV, GIX:TSX, PRB:TSX.V, SPA:TSX.V, )

Three-Peaks and a Domed House Pattern Suggest Gold Will Plunge to $1,300/ozt!

The price of*gold is still in the “Plunge” phase of the “Three-Peaks and a Domed House” pattern [and is projected to drop to the lowest price of the enitire pattern which is $1,300 per troy ounce. Yes, $1,300! Words: 868

So says Dr. Nu Yu (http://fx5186.wordpress.com) which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Who in the world is currently reading this article along with you? Click here
Dr. Yu goes on to say, in part:

“Three Peaks and the Domed House” Pattern for Gold is saying…

My version of George Lindsay’s basic model uses a macro or “phase-counting” approach which is different from Lindsay’s classical micro approach (which uses “number-counting” from 1 to 28) in that it divides the “Three Peaks and the Domed House” pattern into five major phases as follows:

Three Peaks
Basement
First Floor
Roof
Plunge

The “Plunge” phase typically comprises two powerful down-waves. The first down-wave from point 25 to point 26 has finished. Now gold could be still near point 27 right before the second powerful, also most severe, down-wave from point 27 toward point 28. The price target is projected at 1300 which is the lowest price of the entire pattern.

As the chart above depicts:

the “Three Peaks” Phase*- points 2 through 9 -*in gold developed*during the months of*November*and December 2010
the “Basement” phase (bear trap) points 10 through 14 -*formed in late January of this year when gold had a separating decline to reach a low at $1310 per ozt. in early February
the “First Floor” phase points 15 through 20 of the Domed House*was built during May and June
the “Roof” phase (bull trap) points 21 through 25 -*began in early July and concluded in August
The “Plunge” phase has been underway since early September and gold could now go as low as $1,290/ozt. to $1,300/ozt. before moving higher again.

*http://fx5186.wordpress.com/author/fx5186/

Other Articles By Nu Yu:

1. Watch Closely! S&P 500 May Be Forming a “Three-Peaks and a Domed House” Pattern

The S&P 500 index is in the progress of potentially forming a “Three-Peaks and a Domed House” pattern as shown in the chart below. [Take a look and see what the implications could well mean.] Words: 823

2. These Indicators Suggest Stock Markets Have More Upside – and Gold Some Uncertainty

A look at a variety of technical analyses all clearly indicate that the S&P 500?s run is by no means over. Here are some charts and an analysis of what they mean for the markets, the U.S. dollar and gold. Words: 1234

3. Pattern of Charts Suggest Gold and Equities Going Higher into 2011

My technical analyses of the future direction of the U.S. dollar, the price of gold and the American and Chinese stock markets suggest that the near term should be somewhat choppy but with a favorable upward bias for gold and the markets. Let me illustrate my findings with the following charts and explanations. Words: 965

4. Direction of Gold, USD and U.S./Chinese Stock Markets – w/e Nov.26

All is not necessarily as it seems according to market analyses on the anticipated direction of the U.S. Dollar Index, gold and the U.S. and Chinese stock markets.* The direction of one sector is up when all the talk is of its demise, another sector is muddling along when all the talk is about its dramatic future prospects and the other sectors have their share of surprises too. Let’s take a look at what the charts tell us. Words: 934

5. Signs of Strength in U. S. Dollar at Expense of Gold and U.S. Stock Market

Technical analyses suggest that the U.S. dollar index could well see resurgence in the short term with both gold and the various U.S. stock markets undergoing +5% corrections while the Chinese stock market rebounding from last week’s set-back on its way to record levels. Words: 732

6. Gold Performance to Continue to Lag That of Stock Market

Gold and silver have had a sharp move downward in response to China’s first interest rate hike last week while the stock market inched up.* It raises the question of whether gold is decoupling from the stock market. Words: 897

7. So Much For Gold! Chinese Stock Market to Outperform!

There has been a great deal of excitement about the recent performances of gold and silver with most analysts extremely optimistic regarding its potential. That being said technical analysis shows that it is in for some choppy seas ahead compared to the surging seas of the Chinese stock market. Perhaps today the refrain “Got Gold?” should be replaced with the words “Buy Chinese Stocks!” Words: 1004

8. Stock Markets Have Major UPSIDE Potential

The U.S. stock market finished the month of September with its best performance in 71 years, i.e. since September 1939. The Dow Jones Wilshire 5000 index, as a benchmark of the total equity market, has gone up 10% since September 1 and all my analyses indicate that the market could see continued strength until at least sometime after the November elections. Words: 614

Situation is Ultra-bullish for Gold & Silver Bullion and Stocks! What are You Waiting For?

The technical situation is ultra-bullish for both gold and gold stocks. Sentiment indicators…continue to show [that] the dollar is poised for a serious decline and*the MACD on the gold chart is giving one of the most powerful buy signals in the history of the bull market. The GDX should reach $75 a share by year-end and gold*should push to new highs in the $2000 area by January of 2012 [while silver] could possibly be the best investment opportunity available to investors for many years to come!*[Let me explain and back up my comments with an array of charts.] Words: 781

So says Morris Hubbartt (www.SuperForceSignals.com) in his most recent Weekly Market Update* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Hubbartt*goes on to say, in part:

The U.S. Dollar

Sentiment indicators…continue to show [that] the dollar is poised for a serious decline. My technical work continues to project a 65-66 longer term target. This dollar forecast, if it even plays out partially, is enormously bullish for hard assets. See US Dollar Chart Sentiment

Gold Bullion

The correction in gold has been healthy and necessary. A significant rebalancing market sentiment has occurred, putting the gold market in a powerful stance. The MACD on this chart [See Gold Super Highway Chart]*is giving one of the most powerful buy signals in the history of the bull market.

Leverage has been greatly reduced because the speculators have been “stop lossed” out of the market, in size. Gold held strongly without the support of these leveraged speculators, and this is the exact situation that sets the stage for a major advance.

When the traders with the most money (the commercials) step up the size of their investments, that has historically been the time to employ capital, rather leverage your position for a quick trading gain. The gains that occur when the market is positioned as it is now can be absolutely enormous.

Gold Miners Bullish Percentage Index

I’m using a number of charts this week to demonstrate the oversold and undervalued nature of the entire precious metals sector. The $BPGDM is the “gold miners bullish percentage index”. It is an index designed to show the bullish or bearish posture of gold stocks.

With this chart [See $BPGDM Against Gold Chart]*I’m using the RSI indicator to demonstrate a historical key bull market oversold reading coupled with an indicator, to show key turning points.

Substantially oversold gold stocks are indicated in the top portion of the chart. In the middle of the chart is the gold price, and I’ve highlighted what has been impeccable timing of the commercial traders.

The bottom line is that the technical situation is ultra-bullish for both gold and gold stocks.

GDX ETF

Patience is required to win the prize in this volatile sector. The target for the GDX chart [See GDX Breakout Chart]*in short term is $64. I’m projecting $75 a share for GDX by year-end, and $95 based on the h&s pattern. My longer term target (about 18-24 months) is $133.

GDX vs. Gold

This chart [See GDX Against Gold Bullion Chart] is quite dramatic. It is visual picture showing how undervalued gold stocks are in comparison to gold. The first target for GDX is the $64 area. From there to get GDX to the targets mentioned above, it will require gold to push to new highs in the $2000 area, which I am projecting will occur by January of 2012.

GDXJ ETF

What volatility takes away, a disciplined buy/sell program will assist in getting back for you. The gold junior stocks are a sector in which it really does pay to buy weakness and sell strength to survive the volatility. Note the blue horizontal target area lines on the chart [See GDXJ Targets Chart].*Achieving both of those should put some zip back into your portfolio, and I’m very sure it’s going to happen!

Silver

Silver remains one of my favorite assets. I expect silver to trade with gold in the shorter term, followed by a “command performance”, similar to what we saw in the spring of this year. Technical patterns, sentiment, and smart money buyers indicate that silver could possibly be the best investment opportunity available to investors for many years to
come!

*http://www.321gold.com/editorials/sf…rtt102811.html

Related Articles:

1. Is Gold On Its Way to $3,000, $5,000, $10,000 or Even Higher? These Analysts Think So

143 analysts maintain that gold will eventually reach a parabolic peak price of at least $3,000/ozt. before the bubble bursts. Of those 143 a total of 103 see gold achieving a price of at least $5,000/ozt. and 20 predict that gold will reach a parabolic peak price of $10,000 per troy ounce or more. Take a look here at who is projecting what, by when and why. Words: 745

2. History Says Silver Could Become the Next 10-Bagger Investment! Here’s Why

If you concur with the 159 analysts (see below) that maintain that physical gold is going to go parabolic in price in the next few years to $3,000, $5,000 or even $10,000 or more then you should seriously consider buying physical silver. Why? Because the historical gold:silver ratio is so way out of wack that silver should appreciate much more than gold as it goes parabolic in the years to come. Indeed, silver could easily reach $100 $200 per troy ounce, maybe even $300 and conceivably in excess of $400 depending on how high gold goes. The aforementioned may be hard to believe but an analysis below of the historical price relationship between silver and gold suggests that such will most likely occur if gold does, indeed, go parabolic. Take a look. Words: 1423

3. Gold to Bounce Back to $2,250 – $3,000; Silver to $52 – $62; HUI to mid-900s by Year End

A tsunami doesn’t start with a bang, but with a whimper.* The first sign is a little hump in the water way out in the distance that is barely notable.* Anyone who catches a glimpse of it simply continues to expect the day to be the same as the last many days – calm and beautiful waters along the shore.* This is the point where we are, today in the Precious Metals sector. Many have seen the little roll of water out in the distance as Gold edged up in the first move of a more parabolic slope, yet most investors are mired in the same expectations of yesterday – a return for Gold to correct down into a lower base. Our analysis based on the fractal relationship to 1979* shows, however, that the mid 900s are a realistic target for the HUI by the end of the year or early in 2012; that $52 to $56 should be achievable for silver, with $58 to $62 as real possibilities; and that Gold should go the $2250 level followed by $2500 with the potential for $3,000, or a bit higher, now on the radar screen. Let me explain why that is the case. Words: 2130

4. Aden Sisters: Buy Gold NOW as it Corrects on its Way to $2,000

When you just consider the downgrade of U.S. debt, the jobs problem, the housing situation, the European bank concerns and their debt crisis, the negative outlook for the global economy, not to mention that the Fed will likely seek new measures to help the economy, we just don’t see gold coming down any time soon, other than having a normal downward correction [as currently is the case. Let us show you why.] Words: 1102

5. Is it Time to Load Up on Gold Stocks?

By almost any measure, gold stocks are undervalued but should we load up? Gold mining companies are earning record margins. Stock prices, however, have not responded in similar fashion but when the broader investing community begins to take notice, investors will snap up these highly profitable stocks and push prices higher. The “catch up” in gold stocks could be tremendous but the question, of course, is timing. We don’t know when gold stocks will begin to catch up and the data don’t suggest they must rise right now or that they’ve hit bottom so should we load up just now? Words: 590

6. Is It Time to Nibble at Gold Miner Stocks?

The behavior of the stocks of the various gold miners in recent times warrants special attention. Let’s take a look at the GDX:GLD ratio, the Gold Miners Bullish Index* and the volatility of the currencies and stock market indices of the emerging markets where most of these mines are located and determine what they suggest as to what we could well expect in the performance of such stocks in the months ahead. Words: 585

7. Peter Schiff on Gold: Don’t Look a Gift Horse in the Mouth!

Following the crowd has never been the reason to buy gold. After all, that same logic would have recommended buying a house in Phoenix five years ago. Since the fundamentals still point to gold’s long-term viability… why [are] investors responding by selling gold and buying dollars and euros? I was always told not to look a gift horse in the mouth… [so] take advantage of the dip. Words: 880

8. Investors: Focus NOW on Gold & Silver Miners – Here’s Why

Millions of investors have stormed into US Treasuries. Some have even settled for negative yields on Inflation Protected Securities (TIPS). They are making a terrible mistake, [however,] because right now a handful of gold mining stocks offer much more upside and immediate yield than T-bonds. [Let me explain.] Words: 1119

9. Gold Stocks: Get Ready, Get Set, GO!

Both gold and silver continue to trade well below their inflation-adjusted highs in nominal terms, and the market is now beginning to acknowledge the profit potential that precious metals equities offer at today’s bullion prices. We believe the equities will offer more upside than the bullion over time.* Many of the smaller names are well priced and have momentum behind them. The prospects for gold stocks look extremely bright [for very good reasons. Let us explain.] Words: 2250

10. Eric Sprott: Financial Train Wreck Coming Soon! Got Gold? Better Yet, Got Silver?

We have a financial system that’s on the edge of a cliff here. People have to be in precious metals if they want to protect themselves. Everyone who’s an investor has money. They have it invested in some paper instrument and when they realise they have a problem with their money in a bank or owning some government note the demand for gold could just be overwhelming! It could be parabolic all of a sudden. Currently, only o.75% of the world’s financial assets are in gold so just imagine what a 5% to 10% interest in gold would mean for its price. On top of that, I believe that silver will get back into a 16:1 ratio to gold in three to five years for sure so that means that silver is going to have a great upside potential. Got gold? Better yet, got silver? Words: 5169