Wednesday, December 16, 2009

Musical Chairs Means a Gold Explosion

The chaotic currents in the Gold market right now are palpable and exciting to me as someone who has been following Gold [relatively] patiently over the past several years. People like Nouriel Roubini and the shills at are irrelevant and should never be taken seriously when they speak of Gold. Their paperbug noise is entertaining distraction - good for an Orwellian chuckle, but nothing more.

I am talking about what big players are actually doing and what is actually happening in the Gold market. I am not talking about the spoken and written zealous fiat propaganda of the ignorant (i.e. low level staff journalists at corporate media outlets and paper system apologists/academics/zealots like Roubini and Krugman) and/or nefarious (central bankstaz and various high-level government officials). There is a groundswell building under Gold and I think it has volcanic-type potential. If another rush to safety occurs, I think we will see Gold act as the currency of last resort this time around instead of the U.S. Dollar.

The list of bullish factors for the Gold price are starting to pile up quickly. In no particular order, here is an incomplete list of fundamentally bullish developments over the past year in the Gold market:

* Arab states of the Gulf region have agreed to launch a regional currency modeled on the Euro. Quote from this relevant article: “The US dollar has failed. We need to delink.” This is ironically occurring at the same time that potential sovereign defaults from economically weaker countries like Greece threaten the viability of the Euro.

* Eric Sprott is launching a new Gold ETF (PHYS) to compete with the GLD ETF. GLD is a sketchy ETF tracking the price of Gold that was created to provide increased ammo for the paper Gold shorts (i.e. the big Wall Street firms like JP Morgan). If you are currently invested in the GLD ETF for the long haul (as opposed to short-term trading), I urge you to switch to Sprott's fund or another more reliable Gold-tracking paper instrument (and then, only after you have secured some physical Gold).

* David Einhorn, a hedge fund manager, sold his GLD shares and switched to buying physical Gold for his fund.

* Central banks are now net buyers of physical Gold.

* China is now openly promoting, encouraging and allowing its citizens to buy physical silver and Gold.

* Delays in taking physical delivery from the COMEX futures markets are now reportedly routine and stories continue to trickle in regarding offers for [generous] cash settlements instead of physical Gold delivery when delivery requests are made.

* U.S. Mint Gold coin manufacturing is more and more frequently being suspended due to "inability" to keep up with demand.

* Stodgy institutional money like the Northwestern Mutual Life Insurance Company is starting to diversify into Gold for the first time in decades.

Putting it all together, one could take this to mean that Gold is overdone and a top is near. I see it the opposite way. Being contrarian works at the extremes, not in the middle. Herding behavior has begun, is now strong, and the trend will be stronger and last longer than most think is possible or rational.

But there is an important theme underlying these bullish trends that differs from the first stage (i.e. the "stealth" phase, which is now behind us) of this ongoing secular Gold bull market. That trend is the demand for actual physical Gold (and silver), which creates a problem for the vested interests trying to steer the herd into paper Gold (aka fool's Gold) like the GLD ETF and the futures markets.

A game of musical chairs has begun. There aren't enough seats at the physical Gold table to accommodate the growing herd at anywhere near current price levels. An "event" of some type is certainly on the horizon, though I do not know when or how it will begin. How many paper claims on Gold exist relative to actual metal? How much has the fractional paper Gold system, which is designed to suppress the Gold price and make paper promissory notes seem just as valuable, extended itself?

Will it be the GLD ETF? Will it be the futures market? Will it simply be the drip, drip, drip of millions of individual global ants (i.e. retail investors) asking to buy a few more 1 ounce Gold coins for security? Will a second coming of the Hunt Brothers cause a panic (Paulson are you listening - switch to ACTUAL PHYSICAL GOLD, bro!)? Will it be yet another sovereign debt default? A national banking holiday in one or more major countries? The tension in the physical Gold markets is palpable right now for those paying attention.

The collapse of paper promises on a large scale is not a pretty event and it does not inspire confidence. Think of how fast things have changed for previously "stable" global entities like Iceland, Bear Stearns and Lehman Brothers. Our global monetary system is in trouble and the central bankstaz of the world know it. The self-preservation-minded oligarchs of the banking world know where to find safety in troubled times and it isn't in the anchorless currency debt notes they counterfeit on a daily basis. The hedgies and more aggressive institutional investors smell the blood in the water and have started moving in to profit from the carnage. I think things are about to get exciting in the Gold market.

When paper debt notes collapse, disintegrate, get marked to a non-existent market, and/or otherwise get rapidly devalued, those holding the paper will gladly exchange it for anything of tangible value. What happens when a critical mass of global participants starts to realize their paper claims on wealth, retirement and the good life are merely illusions?

In the 1930s secular credit contraction, the international monetary system broke down fairly rapidly. The Pound Sterling was the world's reserve currency at the time. Via an announcement that came without warning in 1931, the Gold standard that backed the Pound was suspended. Other countries rapidly followed suspension of their Gold standards over the next 2 years and global trade temporarily collapsed. The subsequent Gold rush that developed essentially shut down the U.S. banking system. If (When?) the music finally stops this time around, it's likely going to take multiples of the current $1125 price to get a one ounce seat at the physical Gold table. provides you with the information to make the right decisions on your AU 5 Day investments

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