This from yesterday’s Australian Financial Review (AFR):
“Weary traders are looking to governments and regulators… to avert a banking crisis in Europe and a possible recession in the United States…
“The International Monetary Fund and the European Central Bank, along with European politicians, are under increasing pressure to resolve fears of huge undeclared bank losses and prevent a freeze in money markets that could plunge the region back into recession.
“US Federal Reserve chairman Ben Bernanke faces demands that he unveil new plans to support the sagging US economy… while President Barack Obama is under pressure to come up with a big job creation plan…”
And in a sign things can only get worse in Europe, France 24 reported last week:
“France’s President Nicolas Sarkozy and German Chancellor Angela Merkel sent a joint letter Wednesday to EU president Herman Van Rompuy inviting him to chair a body of Eurozone leaders.
“The pair said they hope to strengthen coordinated financial planning within the 17-nation single currency bloc in the face of the current sovereign debt crisis and want the former Belgian prime minister on board.”
If these aren’t the biggest examples of coordinated State intervention in financial markets in living history, we don’t know what is.
It’s even more coordinated and disastrous than what they did in 2008.
We can see lots of scurrying. And bags of self-importance. But what we also see is the groundwork for more disaster.
This morning, U.S. 10-year Treasury yields are 2.1% – above last week’s 60-year low of 1.96%.
And amazingly, gold is at $1,833 per ounce… that’s the Aussie dollar gold price by the way. In U.S. dollar terms it’s trading at $1,905. The surge to $2,000 is underway.
To put that in perspective, Aussie dollar gold is up 38.7% since February:
So much for the lame claim that Aussie dollar gold has done nothing. It has trebled since 2004… while during the same time the benchmark S&P/ASX 200 is up about 30%.
Even so, whenever we see a chart that has gone parabolic, we take a deep breath.
It doesn’t matter if the chart is plotting the price of shares, housing, meat pies or gold… when the price trades in a tight $100 or so range for 11 months and then jumps nearly $400 in 30 days, you sit up and take note.
That’s what’s happened with gold.
Normally you’d expect us to shout “bubble”… and to scoff at the mainstream clowns who wouldn’t know an asset bubble if it slapped them on the proverbial.
But as you know, we’re big fans of gold at Money Morning. And we think it still has a long way to go.
But do you know what? We are on gold bubble watch.
For instance, this morning we were on the lookout for signs of a gold bubble when we noticed this article at the Age: “Snack bars to gold bars: vending machines dispense bullion”.
The mainstream taking gold seriously is one of our warning signs. Although, reading the article, we can hardly say it’s a serious endorsement for readers to buy gold. So we won’t rush to offload our gold stash just yet.
But, we will say this: the recent rapid price rise sure as heck looks like a bubble. You know the saying: if it looks like a bubble and floats like a bubble, odds are it’s gonna burst like a bubble.
But while we’ve got our gold bubble radar switched to high, you’ve also got to remember why gold has taken off. Remember, contrary to the mainstream view, gold isn’t going up just because it’s going up. It’s not a baseless momentum trade.
Gold is going up for a whole bunch of reasons. Most of which are down to the quote we gave you at the top of this letter – State and central bank intervention.
Our other early warning signals (despite central bank intervention) are still flashing trouble. The Swiss franc, after slumping due to the threat of Swiss National Bank intervention, has started to move higher again.
And let’s not forget the biggest interferer of them all: U.S. Federal Reserve chairman, Dr. Ben S. Bernanke. This week he’s due to speak at the Federal Reserve Bank of Kansas City shindig at Jackson Hole, Wyoming.
According to Bloomberg News:
“Barclays Plc said 10-year yields indicate traders have priced in $500 billion to $600 billion of Treasury purchases by the Fed. Citigroup Inc. said current rates can only be justified by more central bank bond buying or assuming the economy will shrink by 2 percent.”
And our bet is, the chance of more money-printing has been priced into gold as well.
So here’s some free advice for you: never underestimate the impact of pre-emptive market action.
There are fundamental reasons for the high gold price. The continued devaluation of paper money, political unrest, and the imminent failure of the global banking system.
But that only explains part of the rise. At least some of the rise from $1,500 to $1,836 is due to traders expecting more U.S. Federal Reserve money-printing.
Now you have to ask: what will happen if Dr. Bernanke doesn’t announce Money-Printing 3?
We could say it’ll still be a win for the gold price because non-action by the Fed will just bring forward the collapse of the banking system – that’s a good thing by the way.
But that won’t happen overnight. Odds are lack of a money-printing announcement this weekend could see the gold price lose $100 or more in a few short days.
That’ll be bad news for leveraged gold buyers. The sort who do all their gold investing through the futures market or using CFDs.
But for the gold – or silver – investor who buys an ounce of the real stuff here or there… a $100 or $200 drop will mean next to nothing to them. Except the opportunity to buy another ounce here or there at a discount.
So, all that said, is it too late to buy gold or silver?
We’ll simply say it’s never too late to buy gold or silver as long as political and central banking goons think they can steer an economy in their desired direction.
On the other hand, if you’ve never bought gold or silver before, the last thing you’ll want is to buy just before the gold price takes a short-term dip. So our advice is: if you’re unsure, just buy part of what you had intended to buy.
Then, in a few weeks, buy a bit more. And a few weeks after that, buy some more…
Then each week or month keep buying more. Treat it as a savings protection plan. A way to guard against criminal central bankers who try to destroy your wealth… while at the same time boosting their own.
We can’t guarantee you’ll make a packet from buying gold in the next few months. But that’s not the point of it.
We’ve always seen gold as an insurance policy. So far it’s working perfectly.
And based on what we can see, gold and silver will continue to provide investors with insurance against central bankers and politicians for as they carry on doing more harm than good.
Cheers.
Kris
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Don’t worry PF, your day will come and gold will plunge. The media and naysayers will rejoice and get their “told you so” moment. The ironic thing is that many gold worshippers will not been surprised. But nothing will be fundamentally any different. A good shake out of bandwagon riders is par for course, except in state-sponsored investment schemes such as pension funds and the property market sham (which is ultimately related to gold’s ascent in the first place). Gold is an ethical investment vehicle compared to the rottenness of the world you occupy.
You don’t seem to understand, I really don’t care what gold does. There is certainly nothing ethical at all about gold, it has been covered in blood for all of our written history, your kidding yourself.
Your comments about gold worshippers not being surprised is so Catholic and so mainstream. I thought you had the ability to view things acutely from different angles.
You say my world is rotten, really how would you know? Pal you are the one who didn’t have the ethics or the fortitude to stand up to the ones who used to inhabit this space and continuously spruik absolute BS about other peoples based on archaic predjudices. I guess it was just easier to criticise me than take on the ‘cool kids’ on the block, even if you did believe they were wrong. When you cure your “shrinking testicle ailment” then you can drink with the men, until then perform some critical self analysis and tell me exactly what you see that gives you the right to stand in critical judgement of the ethics of others.
PF@12,
Really? You don’t care about the gold price? You’ve commented quite a bit here about gold. Or is that another Peter Fraser?
Sorry I don’t follow your line about Catholicism and attitudes to gold. Feel free to explain. And yes, it was wrong of me to refer to your world as “rotten,” but could you could probably excuse me to refer to markets perpetually driven by debt as “murky.”
Fair enough, my response was over the top as well and for that I apologise.
I accept that much of the banking/lending sphere of business was indeed murky, and in some cases much worse, but that doesn’t mean all players stooped to that level. There is no “pure” industry and no “pure” people, but many are not tainted with an unethical past, and frankly no one here really knows anyone elses, so any comment is pure speculation.
The old meaning of the word “Catholic” was not a reference to God or the church. That different use of the word probably confused you, but now you know.
You won’t find any post of mine telling others to NOT buy gold, only to be realistic in their expectations, something we have discussed and I thought agreed upon recently. I don’t recall posting any anti-gold sentiments of late, but perhaps I’m wrong. Please point them out if I have.
I recall JB on this site some months ago saying “silver will go to $200 per ounce – you can’t lose” – well it didn’t go to $200 per ounce, and he probably did lose if he had to sell. That is the sort of over enthusiasm that I rail against, so having a few digs at blindly enthusiastic supporters of any asset class seems perfectly ethical in my opinion.
For an intelligent investor who holds a percentage in precious metals, it’s a very sound tactic, but throwing everything into it without being involed in an outright war is just horse racing. In a war scenario, it is different, probably prudent to do so.
For all our differences, I don’t put you in the blindly enthuisiastic category.
PF@14,
If you followed gold with any depth, you would understand that expectations for gold to fall substantially are common. Compare that to the property market with its flotilla of pundits, fixers, parasites, and scoundrels claiming all kinds of garbage. It’s pretty damn obvious that the broken monetary system is a key driver in the gold price. Those with a vested interest in the status quo either understand that or “sense” it. It’s so ironic that they are quick to point out the irrationality of the gold price yet make daily proclamations and appeasements to the public that “everything’s under control and normal service will resume soon.”
I notice that you have attacked the rationality of gold by showing its apparent non-performace in AUD. I’m sorry but if that isn’t a reflection of media babble or institutional propaganda, I don’t know what it is.
I expect that you don’t.
Indeed we agree then.
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