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Deluge of Financial Calamities Looming by Mid-March
By Patrick A. Heller, Market Update
February 10, 2009


As horrible as the financial news for currencies and paper assets has been since mid-2007, it looks like the worst is yet to come - perhaps as early as next month.

Over the weekend the Managing Director of the International Monetary Fund (IMF), Dominique Strauss-Kahn, told a gathering of Southeast Asian central bankers that the world's advanced economies are already in a depression and that the financial crisis may deepen unless the banking system is fixed.

On Febr. 4, Paul Wolfowitz, the former president of the World Bank, said the IMF and similar institutions are incapable of coping with the global financial crisis because they do not have enough resources.

The market appears to have turned on U.S. Treasury debt. Analyst Adrian Douglas issued a report on Sunday titled "Bond Market Collapse Unfolding." He used his proprietary Market Force Analysis on the price of the 10-year U.S. Treasury Note. Last September and October, as the value of Treasury debt was falling, it looked almost certain that the U.S. Treasury entered the market to purchase its own debt! This had the effect of boosting the price of Treasury bonds.

However, the futures market for 10-year Treasury debt shows that there have been far more sellers than buyers for more than the past six months, a strong sign that bond prices are destined to decline in the near term. For the past eight weeks, Treasury bond prices have indeed been generally declining (i.e. interest rates have been rising). The U.S. government is almost certain to intervene again, as the Treasury debt is the most important in the world, and whose collapse could wreak havoc across the global financial system.

The problem is that the U.S. government is going to have to float massive additional amounts of new Treasury debt in order to immediately finance the second $350 billion of the bank bailouts and the nearly trillion dollars for the new so-called "economic stimulus" program. If almost everyone else is selling and the U.S. Treasury is the primary buyer of its own outstanding bonds, who is going to buy the newly issued debt?

Non-precious metals prices may have also passed their bottom. The price of copper recently jumped as much as 10 percent in a single day, for example.

Treasury Secretary Timothy Geithner is so busy with the crisis over President Obama's "economic stimulus" program that he announced Monday he would have to delay dealing with the U.S. banking crisis.

In an interview on www.commodityonline.com released Monday, Marc Gugeri, the Fund Manager and Advisor to both Gold 2000 Ltd and the Julius Baer Gold Equity Fund, was asked about the price of gold. He stated, "The majority of investors purchase Paper-(Gold)-Futures at the COMEX. The sellers or counterparties of those Gold-Futures are just a few dominant players. Some of them have an in-official close link to the U.S. government. So far most of the investors didn't exercise the gold futures and have accepted cash instead of physical settlement. This is about to change. I believe that the COMEX will default and the entire paper gold market will 'crash' and gold could rise very quickly to 2,000 [or] 3,000 U.S. dollars. When this happens it will be too late to exercise or to try purchasing physical gold."

It normally is rare to find such doom-and-gloom commentary appearing in general financial circles. It is even more uncommon for commentators to reveal that some of the dominant players in the gold market have a close link to the U.S. government or that the price of gold could soon double or triple. Lately, mainstream financial analysts have been much more willing to talk about gold, to recommend owning gold for having better appreciation prospects than other assets, and to specifically recommend purchasing physical gold rather than shares in gold exchange traded funds or gold "certificates."

The tide has been turning toward gold for the past eight years, partly because it has been one of the top performing of all asset classes. Still, the proportion of Americans who own gold is minuscule - estimates I have seen range from only 3-9 percent of all U.S. investors. There is much more room for future appreciation despite how far prices have already climbed this decade.

The money supply of all of the world's major currencies is now increasing by 10-30 percent annually. With the gold supply increasing by less than 2 percent annually, it is a virtual certainty that all currencies will fall in value against gold.

In the past several weeks, several investment advisors have become more positive about gold because of the relative strength in the price of silver! In the past, silver has led the way for higher precious metals prices, which is just what has been happening so far this year. Late last year, the gold/silver ratio was over 80. Now it is under 70 and falling. I like the prospects for both silver and gold (though I continue to expect silver's price to outperform gold).

Perhaps most telling of all, the February 2009 COMEX gold contract fell into backwardation against the March 2009 contract on Feb. 6 and again on Feb. 9. Last Friday, the February contract price closed at $913.90, while the March contract ended at $913.80. On Monday, the February contract finished at $892.40, while March closed at $892.30. The last time that the COMEX gold contract went into backwardation, where the spot month traded at a higher price than future months, was in 1980. Being only 10 cents higher and only being higher then just the following month may not seem significant, but the fact that this has not occurred since 1980, as the price of gold exploded, could be the clearest sign that gold is due for a major rise soon. (For full disclosure, I note that the less active New York Stock Exchange LIFFE contract for 100 oz of gold closed Feb. 9 at $892.20 for the February contract and $892.30 for the March contract.)

In sum, a variety of factors are coming together very soon that I think will clobber paper asset values even more than they have suffered in the past 20 months. As these troubles mount, as the Managing Director of the IMF and the former president of the World Bank forecast, the prospects for gold look ever better.

Note: at the huge Long Beach Coin show in California last week, a lot of rare coin buyers were taking a wait and see attitude - except for circulated and lower quality mint state US Double Eagles. Between the start and the end of the show for instance, the wholesale price of the Mint State-62 $20 Liberty jumped almost 6%, even as the gold spot price fell slightly! Supplies of these and other lower-premium U.S. gold coins were the lowest I have seen in more than 20 years attending this show!





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Comments
On February 11, 2009 Anthony Campbell said
for those interested in the bottom line of the gold market, check out the new mining regulations they are trying to pass. looks like the ownership of physical gold is headed back down the same road again. Why else would they want a paper trail on the "black sand" in my pan?
On February 12, 2009 Jerry T. Daniele said
In 1933 Roosevelt and  Morgenthal manipulated the price of gold to the lowest value possible and then Roosevelt issued executive order 6012 calling all gold  coins, gold bullion, and gold certificates (currency). After paying the unsuspecting patriotic Americans paper dollars for gold dollars Roosevelt manipulated the price of gold up deflating the value of the dollar! The loyal people were royally conned both ways putting it nicely.

Where did all of that gold end up after the 1933 heist Fort Knox?  Most believe it did end up in Fort Knox. The gold may have physically been deposited in the vault of Fort Knox, but a huge chunk of it belonged to the Federal Reserve and the New York Banksters.  This was the "Greatest Gold Heist In History," up until now.  

Gold ownership is POWER and every bit of legislation in the last 40 years has been aimed at reducing the rights and power of the citizenry.  The Federal government cannot stand the idea of the people having power so Gold will be called again in a second attempt to commit an even greater Gold Heist than in 1933!  Some will argue no and point to the George Soros types who own large amounts of the yellow metal that will not go along with the gold heist.  Those who believe Obama won't call the gold because the big kids will revolt are mistaking.  The Soros types will be rewarded for their blind obedience or they pay the consequences if they refuse.  

Bottom line Gold is gone.  Think about it!  The next gold roundup will be the monetary basis for the new currency after the fiat dollar scam collapses.  The banksters will con the people into believing their new currency will be backed by gold, but the people will not be able to have access to the gold!  The stolen gold will only be traded among the banksters!  Remember the Golden Rule: "The man who has the gold rules."

Just think if the banksters inflate the value of gold, to lets say $5000 per Troy ounce after the national debt is dissolved by the imminent  national monetary fiasco a mere 50,000,000 ounces o
On February 12, 2009 Jerry T. Daniele said
The above article had a great ending, but I went over the limit!  I wish the webmaster could retrieve it and post it!  Basically it said: DON'T TURN IN YOUR GOLD!

All of you are familiar with the saying, "The peasants always win."  When was the last time the peasants have won?  Are the peasants winning now?  Welcome to the "Change!"  ....my people have asked for bread and they were given a stone...."

On February 12, 2009 johnk said
This is good stuff about fairly complex things from someone who knows a thing or two and not a moron media hack mouthpiece. Just to comment, "backwardation" itself says a lot. Longer term contracts, priced lower than near term contracts is a bit scary in this market especially, however brief and/or low in intensity. I heard one trader say "a higher price for longer term contracts", (or classic contango) - is largely due to the cost of carrying those commodities for future delivery!! But in this case paper or e-delivery? Howzat scan?! Shock and awe? When Bart Simpson says "eat my shorts" think COMEX. When your Bank sells you gold, think "physical". When thinking about the gold market, think "good delivery".     
On February 12, 2009 johnk said
Re: Jerry T. Daniele's remarks:

Since I am still here, with respect to Jerry T. Daniele, I would remind that only about 20% of the gold that could have been turned over in accordance with U.S. government edict, ever was. A lot got burried in back yards by gramma and grampas. Smart folks!
On February 12, 2009 Marcus said
And gold is pretious because.....
... ANOTHER SCAM !!!!!!!!
You can't eat gold, you can't use it for pretty much anything efficiently except trinkets.
Wake up people. Gold value is the same thing as fiat money value.
It only has value if people agree it has any kind of value.
And if people are smart and don't agree... the gold is worth nothing!
Don't invest in Gold. Invest in in a brain, for you and those around you. Stop being conned, for AGES!!!
On February 12, 2009 Miker12 said
Going along with Marcus: learn what is valuable to the community around you. Fix a car, plant a garden, repair a house, tend to animals, fix humans (nursing, paramedic), how to drill for water, be able to retrieve materials from a CD or internet downloads for sale to others, and if you want to purchase items (other than gold/silver) how about the smelter to melt the items down that people will give to you for the work you do.
On February 12, 2009 TimberWolf said
I cannot agree with Marcus since before the time of Jesus forward both gold and silver have been used as money and only in the last 70 years have people become widely ignorant of that fact especially in the US and UK.

Fiat money fails every 37 years on average while gold and silver never fail and as for eating gold or silver the same can be asked about antiques, art, cars or stocks..can you eat those?

The prudent man right now would have two years of food, household goods and other necessities already on hand and a few guns and quite a bit of ammo plus some alternative heat, water, medicines,
and the ability to store some fuel and he would have some cash on hand.

The prudent man would also have precious metals, diamonds or other liquid or barter assets.

The prudent man would know how to garden, hunt and fish as well to add to his food stocks.

But sadly I see few prudent men among the sanctimonious loud mouths that inhabit many of these forums. Rather I see fools.
On February 12, 2009 Silver Bullet said
All of the above comments are right to one degree or another but I think the really important thing is that ALL of you are a thousand times more aware of what's going on in the world right now than the average (braindead) person. Congratulations !!
Nobody knows for sure what the future holds but I think to say the least it's going to be a challenge for all of us. Good luck and keep thinking- we're all going to need all the help we can get.
On February 12, 2009 acudoc said
If readers of this article have time or desire, kindly critique this proposal. The debt-based fractional reserve banking system is in its death throes. I personally don't think a return to a gold-backed currency managed by 100% reserve banking system is sufficient to rectify the imbalanced indebtedness created in the last 100 years, nor would the financial class allow such. They must be offered something in return for a peaceful transition rather than blood in the streets, which I fear is coming.

By Constitutional Amendment, on Jan. 1, 2012---

1) Federal Reserve Notes (FRN), Treasury Securities, Checkable Deposit Accounts, and existing Cash Stocks are redeemed in new American Freedom Notes or new Checkable Deposit Accounts denominated in American Freedom Notes.

2) Fractional-reserve banking, the legal empowerment by the Federal Reserve Act of 1913 to create money by the Federal Reserve System Banks without offering consideration in exchange for signed promissory notes, is repealed.

3) All institutions or parties holding debt denominated in FRN in any form to the Federal Reserve System of Banks, including uncollateralized credit card debt, or owing debt denominated in FRN to corporate or government bond-holders, are absolved from such debt and immediately assume 100% ownership of any collateralized assets.

4) All institutions or parties holding promissory notes which encumber tangible assets (factories, farms, land, businesses, homes, machinery, inventory, etc.), or holding corporate or government bonds are compensated for the nullification of these interest-bearing notes by the creation of a quantity of American Freedom Notes equal in value to the unpaid principal, as of January 1, 2012, or nominal bond value, as of January 1, 2009.

5) All institutions of the Federal Reserve Banking System owed uncollateralized credit card debt are compensated for the nullification of these interest-bearing credit card accounts by the creation of a quantity of American Freedom Notes equal in value to the unpaid
On February 12, 2009 MoneyTeach said
Actually, gold and Silver are the only real wealth in this world. Which is why the Central Banks control most of it.

http://moneywisdom-gold.blogspot.com/
On February 12, 2009 End Time said
Read Revelation (The Revelation of Christ)...we are about in the fifth chapter.  You will not buy or sales w/o the mark of the beast. Gold, silver, paper will all be worthless.

Gold will not be the solution. Grow a garden with food to eat. Stock up your shelves.  Keep it all quiet.  Read your KJV bible that has not been corrupted to introduce the false return of Christ.  Believers in Jesus Christ will be out of here and you will
have to bow to the AntiChrist or die if
you are an unbeliever.  Time is short so don't be deceived by all this trying to save your money.  The banksters have already taken it all. Tell me today, where is your money. If they lock it up tomorrow, guess what?
They got it. God Bless you fellow patriots.
On February 12, 2009 Tom Lowe said
PRC 1980 Year Of The Monkey stamp is consistently selling on eBay for ~$500, up from about ~$200 in 2000.  My magic little friends made from paper and corn dextrine are good as gold in a corrupt, rotten economy like this.
On February 12, 2009 Scott Brown said
The facts are simple enough for a sixth grader: A Ponzi scheme is one in which your investment covers withdrawals from early investors. Fractional reserve lending is a Ponzi scheme. The US Social Security program, a Ponzi scheme. Chain letters, Ponzi scheme. These are also known as "pyramid schemes," illegal because people get burned by them, it's universally known they defy logic. The financial universe isn't infinite. Were it infinite, such schemes might make sense. The "coin of the realm" is the US Dollar, and the privately operated Fed legally prints as many of these as it wants. A scheme. FRNs are IOUs, i.e., debt. Most of the money in "circulation" is created by banks in the form of "legal" debt. It may be legal, but obviously it is not moral nor ethical. Nor is it logical.

We appear to have gone along with the idea that the definition of money is debt, whereas we were taught in school that money is a "medium of exchange." Simply, it's neither. It's "ANY physical medium of value to other party."

Money, in all its many forms, whether seashells or shiny metal or fish, is "a representation of human endeavor."

That's what it really is.  Corn liquor for cow meat? Bread for bullets? A song for one's supper? Water for wool? Grain for gold, vice versa? All money. All, a representation of human endeavor (if we all had diamonds lying around in our back yards, we'd pave our driveways with them; if they all came from Africa, we'd use asphalt).

Gold and silver have value because people want it, it takes human effort to find, collect, protect and transport it. Same with seashells. Never mind whether you can eat them. You can't eat bullets, but they can prevent someone from eating you.

Time to alter that paradigm, girls and boys. A sixth grader could figure this out. He/she's not locked in yet, to the falsified mindset definition of money. The bogus intricacies.

However, once quantified in the form of grain, gold, silver, beef, wool, meltable malleable dust, jewelry, protective devices or services, land,
On February 12, 2009 realityman said
Hey Anthony Campbell,  could you provide a link to the new mining regulations you mentioned.  Thank you.

Well said Jerry.
On February 12, 2009 NathanBrazil said
Acudoc - "freedom" in the tagline of anything makes me want to puke. I will decide, thank you, if these new notes you propose have anything to do with Freedom. I rather think they won't.

On-point, you propose to turn all debt and currency into these notes? Anyone who has a Trillion $ in a CDO gets a Trillion new notes? This is functionally equivalent to the U.S. Treasury taking back it's Constitutional mandate to manage the money, and simply monetizing all debt with Treasury Dollars (read more fiat currency), albeit interest-free this time since the Federal Reserve is not involved.

"All institutions or parties holding debt denominated in FRN in any form..."
So before we enact this, I'll write you a check for 10 Billion Dollars, and you do the same for me. The fact that we are not good for it is irrelevant under your plan, indeed it's the entire point! Sweet deal, where do I sign up? This would legitimize and pay for every bad deal on the planet. Since there is only a finite amount of REAL STUFF (=wealth) on earth, the share that goes to a relatively rare, but responsible person who is debt-free, is diluted hugely.

I don't think you have thought this through, despite the nice 5 bullet points.
On February 13, 2009 Chuck Gilliam said
Scott Brown, I happen to agree with you 100%.  I have always said NOTHING IS OF ANY VALUE UNLESS someone is willing to exchange something of value for it, or it is always something that is needed by yourself, and therefore YOU have set the value.

I am a coin collector, and have been since 1978, and during this time frame I have learned that no coin is worth anymore than what someone is willing to pay you for it.  

That same scenario applies to anything and everything!  Value is mutually established.  

Anything can be used as 'money'.  Chuck
On February 13, 2009 Chuck Gilliam said
J. Daniele,  You make a lot of sense, but I beg to differ with you as for Obama 'ordering' ANYTHING during his Presidency, it will be only by the dictates of the George Soros'.  

The Banksters have robbed and literally raped the people of this country with their idea of a 'debt/money' system.  You can believe they are the ones who controlled the media, influenced the voting public, that got Obama elected in the first place and they WILL be the ones setting the policy, NOT Obama.  Chuck
On February 14, 2009 Jay said
Wait just a second now. If the price of gold doubles or even triples, now it is worth say $2000 or even $3000 instead of $1000.  Tell me again now, is it worth 3000 worthless dollars instead of 1000 worthless dollars? If the price of gold is measured in currency and currency is worthless, then how exactly do we measure the value of gold?
On February 14, 2009 David said
Forget converting gold into "money".  Gold represents trade for other things.  For example, during the Weimer meltdown in the 1920's, gold was a medium of exchange that was valuable no matter what the conversion rate.  At the beginning, an ounce of gold represented about 250 loaves of bread.  At the end, when an ounce of gold was "worth" about 10 trillion marks (literally) it still bought 250 loaves of bread at the hyperinflated price of bread.  Stop thinking about the "value" of currency, think instead about what you can trade an ounce of gold for.  That's the beauty of gold.  It's also the advantage of gold over any other medium of exchange.  True, one can exchange a fish for a loaf of bread, or a couple of apples for a bar of soap, but how do you store value for more than a few days?  You need something that won't go bad or rot or disintegrate.  That's why gold and silver have always been inportant for long-term storage of value.
On February 14, 2009 Gail1v8 said
David said it all. An ounce of gold 50o years ago bought a suit an an ounce of gold will buy a suit in 2 years. Can anyone else say that about any "currancy" today? Also, to Scott Brown.. Sea shells turn into sand..gold is a refined element..it does NOT go away.
Buy lots of gold, groceries and bullets. Be safe all,,not sorry. I hope some of you will have my back as I will have yours. We will not make it alone, we need each other. God bless all and the America that was.
On February 15, 2009 jtjr said
If you can, move out of the cities or find a second home away from the cities. Once all hell breaks loose, that's what it's going to be.  Think Rodney King times whatever.
On February 16, 2009 liam mateer said
FOR THE BEST BOOK ON SILVER AND GOLD INVESTING AND THE HISTORY OF PAPER CURRENCY VS REAL MONEY, BUY MIKE MALONEYS RICH DADS GUIDE TO INVESTING IN SILVER AND GOLD. ITS THE BEST BOOK I HAVE READ ON THE SUBJECT, AND IF YOU DON'T DUMP YOUR CURRENCY(TRASH) FOR GOLD AND SILVER TO WAIT FOR THE COMING BOOM IN PRICES AFTER YOU HAVE READ THIS BOOK. YOU DESERVE WHAT YOU GET, VAPORIZED FINANCIALLY AND TURNED INTO A BEGGAR(EVEN IF YOU HAVE MILLIONS IN THE BANK NOW)
On February 16, 2009 Literal Truth said
To End Time:

If you understood the TRUE meaning of the Bible you would understand that to "Buy" or "Sell" requires the involvement of (fiat) "money".

Using gold or silver is called "bartering" not "buying".

Therefore, those who put their faith in "man's wealth" (paper money) are deceived and require "the mark" to access their "cashless" accounts. Those who use "metals" are "bartering" (not "buying") and would require NO mark to survive.

Just taking things literally.
On February 18, 2009 D Holmes said
Here is one site for the gold mining regulations.  Mineral Prospecting Rules as adopted by the Washington Fish and Wildlife Commission, November 7-8, 2008.   http://wdfw.wa.gov/hab/goldfish/2008_adopted_prospecting_rules.pdf
On March 20, 2009 rob said
So...  where are the calamities...  we are well past mid-March.
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I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I?ll love to read your next post too.
regards

<a href="http://www.nirmanbroking.com/Commodity/CommodityHome.aspx" title="commodity market">commodity market<
/a>


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On October 27, 2013 Soumya Sarkar said
WHY GOLD PRICES ARE FALLING
Posted on July 7, 2013 by Soumyasarkar
In last few years, gold prices are considered t be the best bet and gold had a steady upside.  But after touching the new high at Rs. 32456, gold started falling sharply. Most of investors are worried as they entered into gold at around Rs. 30000 level.
Now we have to understand that why gold was rising so steeply. Gold is considered to be a safe investment. Gold started climbing after the US crisis on 2008. After the lehmann brother episode, investors turned into gold as a safe investment.
Investors are always looking for return methods. Once US turned into recession, investors got out of equities and real estate. At that time the safe investment for them was gold. Yellow metal which is considered to be an precious metal since ancient time rallied due to the recession.
Now we like to understand why gold is falling so steeply. There are few reasons for this. One of the main reasons, global inflation is falling, reducing gold?s value as a hedge against rising prices. Gold bugs who were betting on an outburst of inflation are scrambling to reverse their bets and exit their gold positions at any price.
According to the JPMorgan index, global inflation peaked at 4 percent in 2011 and has fallen steadily since. Global prices in February were up only about 2.5 percent from a year earlier, the bank?s index says.
The global inflation decline is partly a matter of supply bottlenecks easing, which isconsidered a good thing, and demand growth slowing, which is not so good.
Now the most investors asked me why India is facing the problem over gold prices. The reasons are very simple. India is now at par with other global economies and cant isolate further on this regard. So the reason remains same for india as well.
Additionally, India increased import duty on gold by a third to 8 percent as the government seeks to halt a surge in demand after gold imports hit 162 tonnes in May ? twice the monthly average of 2011 when they reached a record.
But the positive side is gold demand will rise in near future again. It is mainly because the rising of middle class people across globe. So the spending power for them is set to rise which again transfer into demand for gold.
So, if you?re looking for a long-term investment that could grow in value and add diversification to your portfolio, but will not produce income, now may be the time to consider adding gold to your portfolio. But if you?re hoping for quick returns, or need a steady income stream to support your lifestyle, it may be better to focus on other assets like equities and bonds.
This article is written by Soumya Sarkar.
Soumya Sarkar is a financial advisor and co-founder of Confidyne Pvt Ltd. He has many years
of experience in finance domain nationally and internationally. He had worked with different banks. He can be contacted at
soumya@wealthredefine.in
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