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Gold and Energy Advisor's Real Wealth

Real Wealth #303  09/19/2011



European Banking Crisis Worsens Despite Daily Claims of Solutions: Federal Reserve May Have to Completely back the ECB

Dear Subscribers,

I'm just back from a major rare coin and precious metals convention held in Philadelphia and want to share with you some of my observations.

First and foremost there is a legitimate shortage of what I call investment quality U.S. and Ancient Gold and Silver coins. In fact there were absolutely no quality Ancient gold, silver or even bronze coins at this show PERIOD. Tables of junk, coins that

I spent two days at the show and bought absolutely nothing. There were $20 Saints in both Choice Mint State 65 and Gem Uncirculated MS66 condition but not a single coin I would buy for myself and therefore no coins I would place with a subscriber/client.

Looking through dealer inventories was painful. Literally every coin I considered had one two many or a few too many ticks, marks and abrasions. In the case of the PCGS and NGC MS65 and MS66 $20 Gold Coins I recommend for this bull market it looks like I bought all the above average coins that were on the market at the Chicago show at the end of August.

The frustrating thing about all of this is the price difference between a high end quality MS65 and MS66 versus the low end quality I pass on can be only $300 to $400 dollars or just about 12%. Yet the difference in quality can be very substantial.

I now have just a small number less than a dozen of the kind of quality $20 Saints I am willing to sell to subscribers /clients.

With no major rare coin or precious metals shows between now and January I suggest calling me or one of my gold specialists to nail down a few of the last quality $20 Saints I have available at 1-866-697-4653.

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Below you'll find a new article written by my old friend Peter Degraaf that I think is real;ly worth reading. Take special notice of the growth in the money supply and keep in mind what's going on in Europe. It's looking like the European Union is in a position where it may have to come up with a whopping 400 miillion Euros to back stop the growing European Banking crisis. If history repeats itself that 400 million could easily swell to 750 million Euros.

If you read the story lines in Europe involving the European Central Bank, Germany, France and our Federal Reserve you'll come to realize that the Sovereign debt and Euro bank crisis is gaining steam with another two banks bailout for over 500 million Euros and UBS discovering they lost $2 billion via a rogue trader.

Throw in a slowing European and U.S. economy and its becoming clear that for all the talk of belt tightening and fiscal discipline the likelihood of massive monetary expansion is increasing. The argument is "we need to prevent another recession or worse" and "we need job growth".

In short in this kind of economic environment when the printing presses are trying to outrun a deepening economic slowdown, liquidity and reserve crisis how can gold not go up sharply in the months and years ahead.  


Are you ready for the annual Christmas Rally in Gold and Silver?

During 18 of the last 22 years, gold has rallied between US Labor Day and Christmas. Will the pattern this year follow the historical pattern? We will analyze the fundamentals, look at some charts and try to draw a conclusion. The charts in this report are courtesy Stockcharts.com unless indicated.

First a quote by President Andrew Jackson: “Gentlemen, I have had men watching you for a long time, and I am convinced that you have used the funds of the bank to speculate in bread-stuffs of the country. When you won, you divided the profits among yourselves, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out and by the Eternal God, I will rout you out.” (Spoken to a delegation of bankers requesting the extension of the 1832 Bank Renewal Act).

Several news items during the past ten days were very bullish for gold. The first was an announcement by the Swiss National Bank that they were planning to buy Euros with Swiss Francs. This action effectively removes the Swiss Franc as a convenient alternative to gold, and it moves the SNB into the camp of the money printers.

The second item concerns an announcement by five major central banks (FED, ECB, SNB, BOJ and BOE), to provide dollar liquidity for a number of European banks that suffer from exposure to Greek banks. This dollar liquidity operation will last until the end of the year and will enable dollar funding for European banks, which were struggling. It shows that the Federal Reserve, the ECB and also British, Swiss and Japanese banks have the will and the ability to cooperate at sensitive times, whenever they feel the system needs a "nudge‟.

Another factor that is very bullish for gold is the current „negative real interest rate‟ environment. Regardless of whether we believe the „official‟ CPI numbers, or the more realistic numbers provided by Shadowstats.com, anyone with money in the bank, or holding short-term Treasury notes, is losing money to price inflation. 10-year Treasuries are paying a miserly two percent. With inflation at 4.8%, these "so-called investments‟ are losing 2.8% of their value over 12 months According to J. M. Keynes, and many other economists, whenever "real interest rates‟ turn negative, gold will rise. Keynes called this “Gibson‟s Paradox”, and stated that there are no exceptions.

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Finally, the most bullish facilitator of rising gold and silver prices is the supply of money (see chart below).
This chart courtesy Mises.org shows the True Money Supply continues to rise exponentially. A rising money supply is bullish for gold and silver, as it increases the amount of money available for the purchase of precious metals. As long as the Central Banks keep the banking system supplied with money, the banking system will survive. This principle is far more important to the Central Banks than the integrity of the currency. Historically, „monetary inflation‟ always causes „price inflation‟. The U.S. consumer-price index (CPI) increased 0.4% in August. That‟s an annual inflation rate of 4.8%!

The TMS chart also shows that, according to the people as Mises.org, the recession is ongoing (grey area). During recessions, there is less money coming in to government, while expenses such as unemployment benefits, food stamps, welfare payments etc. increase. This in turn causes deficits to rise, and deficits provide energy for gold prices to rise.

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Featured is the daily gold chart. Price is carving out a bullish pennant. The supporting indicators are at levels where they have found support many times in the past. The fact that the 50DMA is in positive alignment to the 200DMA (green oval), while both are rising, is bullish. A breakout at the blue arrow will mark the beginning of the next rally.

According to the weekly Kitco survey of gold analysts, a minority 32.1% of the analysts are bullish for this week, 53.6% are bearish and 14.3% neutral. From a contrarian point of view that is bullish for gold!

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This chart courtesy Cotpricecharts.com shows commercial traders reduced their „net short‟ position to 215,000 from 228,000 last week. The „up-to-date number‟ will likely be even lower since the gold price dropped for two days since data for the report was compiled. At 215,000 the commercial traders are at the lowest level since July 8th.

On that date gold traded at $1544 and over the next few months price rose up to $1924.

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Featured is the GDX gold producers ETF. Price broke out from beneath the 64 resistance level last week (blue arrow), and since then a test of the breakout is the result as the bears press their case. Price appears ready to try again and a close above the green arrow will confirm the breakout and thereby turn the trend bullish. The SIs are positive. The fact that GDX outperformed GLD on Friday is bullish.

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Featured is the weekly silver chart. Price is carving out a bullish pennant. The supporting indicators (green lines) are positive with a lot of room on the upside. A breakout at the blue arrow sets up a target at the green arrow. The 50WMA is in positive alignment to the 200WMA (green oval) while both are rising.

The following item courtesy Silverdoctors.com: JP Morgan Allegedly Telegraphed Silver Price Smashes Using Massive FAKE TRADES on Saxo Bank Platform

The class-action lawsuit against JP Morgan alleging silver price manipulation has exposed several shocking revelations regarding JP Morgan's alleged price suppression of silver- including the PURPOSE of major smash-downs occurring in the hours leading up to options expiration. The suit alleges that JPM orchestrated monthly options-expiry smash downs with the express intent of blowing up the "delta" risk of holders of short, far-out-of-the money options, suddenly forcing them to cover their positions, thus handing JPM silver futures positions at prices far below market prices only minutes prior. The suit also alleges that JPM made over 25 massive FAKE TRADES using Saxo Bank during sparse Globex evening hours prior to major silver raids for the express purpose of TELEGRAPHING AN IMPENDING SILVER SMASH TO THEIR BUDDIES!

Summary: Gold and silver are less expensive today than they were in 1980 due to the fact that there is far more paper and digital money in existence today than was the case in 1980. According to the inflation calculator provided at USinflationcalculator.com (using data supplied by the US government), the price of gold would need to rise to $2336, to match the inflation adjusted price of $850 (the 1980 peak). In the case of silver the price would need to rise to $137 to match the inflation adjusted price of $50 (the 1980 peak).

The most bullish fundamental for gold and silver is the fact that there are now 2.5 billion people who were not around in 1980. Most of these people live in China and India. By coincidence these people live in a country where the economy is growing and furthermore they love silver and gold!

Conclusion: Based on the observations presented in this report the expectation is that the annual Christmas rally in gold and silver is „right on course‟.

Happy trading!

Peter Degraaf is an online stock trader with over 50 years of investment experience. He publishes a daily report and a weekend report for his many subscribers. For a sample copy send him an E-mail at itiswell@cogeco.net or visit his website at www.pdegraaf.com.


DISCLAIMER: Please do your own due diligence. Investing involves taking risks.
Peter Degraaf is NOT responsible for your investment decisions.

Please see risk disclosure link below.