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Gold NewsleTTer AlerT #722
November 21, 2013
Taper Talk
Torpedoes Gold
In typical fashion these days, yesterday’s release of Fed
minutes was interpreted to be bearish for gold, and that
was all the excuse needed to sell the metal down.
Gold tried to recover today, but the near
term view remains bearish for now.
S
tillbaskingintheafterglowofanother
successfulNewOrleansInvestment
Conference,Ifoundithardtogettoo
workedupoveryesterday’ssmack-downin
gold.
Fortherecord,goldfell$32.40(2.54%)to
$1,242.80bidyesterday,whilesilverlost
$0.49(2.41%)to$19.85,platinumshed
$23.00(1.63%)to$1,391andpalladiumfell
$8.00(1.11%)to$711.
Today,goldhasactuallyreboundedabit,
althoughyouwouldn’tknowitfromtheheadlines.ServicessuchasCNBCreporttheaftermarketpricesforgoldfollowingthecloseof
thefuturesmarketintheirliveupdates,but
markthenextday’sgainsandlossesaccordingtothepreviousfuturesmarketclose.
Insituationslikeyesterday’s,whenthe
goldmarketsellsoffaftertheCOMEXclose,
thiseffectivelymeansthatCNBCandthelike
canreportadowndayforgoldtwodaysina
row.
ButserviceslikeKitco.com,whichmark
pricesaccordingtothecloseoftheafterCOMEXGlobexmarket,provideamore-ac-
curaterecordingofthemetal’spricefluctuations.
That’salongwayofsayingthat,despite
themediareportingthatgoldwasoffabout
$15today,it’sactuallytradingflat-to-slightlyupontheday.AccordingtoKitco,goldatlast
checkwasup$0.20(0.02%)to$1,243.00bid.
Silverhadgained$0.14(0.71%)to$19.99,
platinumwasunchangedat$1,396andpalladiumhadadded$1.00(0.14%)to$712.
Thegoldstockswere,disconcertingly,
downontheday.TheGoldBugsIndexlost
3.63points(1.69%)to211.20,whiletheXAU
hadgivenup0.96ofapoint(1.09%)to87.12.
Yesterday’sfallingoldwasprettysubstantialbut,again,Ifoundithardtobebotheredtoomuch.Theadrenalinesurgefromlast
week’sNewOrleansConferenceandtheflood
ofinvestmentintelligenceitprovidedhasyet
tofullywearoff.
Ofcourse,anotherreasonformyambivalenceinregardtothesell-offisthesimplefact
thatitwascompletelyunsurprising.Western
speculatorsarepouncingonanyexcusetosell
goldrightnow,andtheFedminuteswerean
Gold Newsletter Alert • Page 1 of 5
excuseserveduponasilverplatter.
Themarketfocusedonthementioninthe
minutesthat“ifeconomicconditionswarranted,thecommitteecoulddecidetoslowthe
paceofpurchasesatoneofitsnextfewmeetings.”
Thus,thefocuswillbesquarelyonthe
NovembernonfarmspayrollreportdueonFriday,December6.Iplantobeoutoftheoffice
onthatday,andIrecommendthatallgold
bugsdothesame.
That’sbecauseIthinkthenear-term
prospectsforgoldarebearish.
MyannualappearanceattheNewOrleans
Conferenceforcesme,likeallofourspeakers,
tocomeoutwithclear,unhedgedviewsonthe
market.AndwhileI’vetendedtobeabitnegativeongoldrecently,myConferencespeech
forcedmetogetcompletelyoffthefence.
SoIwarnedouraudiencethatthenear-
termpresentedlittlehopeforbullishnews.
Onlysurprisinglybademploymentdata,oran
IsraeliattackonIraniannuclearfacilities,
seemedlikelytodrivegoldhigherbeforethe
endoftheyear.Thelatterisalongshot(and
nothinganinvestorshouldbeoninanycase),
whiletheformerisappearingincreasinglyunlikely.
It’sbeenalittleoveraweeksincemy
speechattheNewOrleansConference,andso
farmyviewshavebeenborneout.
Let’shopethelong-termviewIpresented
inmyspeechprovessimilarlyaccurate,becausethatperspectiveremainsexceedingly
bullishforgold.
Thereasonsformybullishnesshavetodo,
asI’vesaidrepeatedly,withmoneyandgold.
Andtoomuchofboth.
Simplyput,theU.S.andotherWesternnationshavebuiltupdebtloadssomassivethat
theycannotbeaddressedthroughspending
Gold Newsletter Alert • Page 2 of 5
cuts,taxhikesoreconomicgrowth,orany
combinationthereof.
Thesituationdemandssomesignificant
levelofcurrencydepreciationtocheapenthe
valueofthedebtloadincurrentdollars.
I’mincludingafewofthechartsfrommy
NewOrleansConferencespeechtoillustrate
whatI’mtalkingabout.(Note:Thesecharts
werepreparedbymyfriendRonGriessat
TheChartStore.com,andoutstandingservice
thatIhighlyrecommend.)
Asyoucanseefromthefirstaccompanyingchart,thetotalpublicdebtoutstandingis
nowwellover$17trillion,andtheupwardtrajectoryremainsquitesteep.Thischartdemonstratesoneofthereasonswhywecan’t
addressthedebtthroughnormalspendingcuts
ortaxhikes:becausethedebtkeepsgrowing.
Infact,itiscompounding,duetointerest
costs.Andthatgrowthratewillaccelerate
if/whenratesrise.
Ofcourse,theU.S.isnotaloneinthis
predicament.ThevastmajorityofWestern
economiesareinthesameleakyboat.Butit
wouldbeamistaketothinkthattheU.S.isthe
best-lookingleperinthecolony.
Infact,asmysecondchartdemonstrates,
America’sgrossfederaldebtasapercentage
ofGDPremainswellabove100%,whichused
tobeared-alertlevelforemergingmarket
economies.
Bythismeasure,theU.S.findsitselfin
bettershapethanJapan,Greece,Italy,PortugalandIrelandamongthelargerdeveloped
nations.Butthat’sit.We’reactuallyworseoff
thantheU.K.,Spain,orevenFrance,which
wasjustdowngradedbyS&P.
Soweareinanunusualsituation,withthe
greatestdebtloadsinceWorldWarII...andno
NazisorJapaneseempiretoblame.
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TheFed’squantitativeeasingeffortshave
beentheprimarymethodofdebasingthedollarsofar,witheverynewdollarcreateddirectlyloweringthevalueoftheones
precedingit.
Butwhyhasn’tthemonetaryinflationof
QEledtopriceinflationintheU.S.economy?
Theprimaryreasonisillustratedinmyfinal
chartofU.S.excessbankreserves.
Yousee,mostofthemoneythattheFed
hasbeencreatingtobuyTreasurysandmortgagesecuritiesisendingupnotintheeconomy,butinexcessreservesofthebanking
system.
Inmyspeechatlastyear’sNewOrleans
Conference,Ireportedonhowstunningly
largethisnumberhadgrown,at$1.4trillionin
size.
Iwassurprisedtorevisitthisnumberand
learnthat,today,it’snearly$2.3trillion.
Theseexcessreservesareheldondeposit
attheFed,whichpaysbanksaboutahalf-percentinterestonthem.That’seasymoneyfor
thebanks.Andthesefundsdon’tcountas
“money”untilandiftheyareactuallyinjected
intotheeconomy.
ButoncetheFedbeginstoexititslow-interestratepolicy,theresultingspreadswill
allowandenticebankstomakeloans...blowingthedamonthisoverhangingmoneysupply.
Sorisinginterestratesand/oreconomic
growthisverylikelytosparkmuchhigherinflation.
Therearemorelonger-termfactorsinvolved,suchasthetrickboxtheFedhas
founditselfwithin--whereitcannotallowinterestratestorisewithoutexplodingdebt
costsandtheFederaldeficit...andwhereendingQEcouldcraterthestockmarket.
Gold Newsletter Alert • Page 4 of 5
Inshort,itseemsthatanyandeverypath
forwardleadstohighergoldprices.
oftheconversationsIhadwithexhibiting
companiesandfellowanalysts.
Sowe’lltrytoignorethetapertalkandresultingvolatilityingoldoverthenextmonth
orso,andremainfocusedonthelong-term
view.Becausethatviewremainsverybullish
forgold,silverandresourcestocks.
Aswedo,we’llbedeliveringthisvaluable
marketintelligencetoyou,throughourupcomingdoubleissueofGoldNewsletterand
othermeans.
Overthenextfewweeks,we’llbebusy
compilingtheinformationpresentedbyour
stellarrosterofexpertsattheNewOrleans
Conference,andI’llbefollowinguponmany
Sostaytuned.Thenearfuturemaynotbe
toorewardingforus,butthepayoffwillonly
bethatmuchricherasaresult.
— brien lundin
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