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International Forecaster April, 2006 (#5) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster



-- Posted Sunday, 30 April 2006 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 31 page issue, please see subscription information below.

 

                THE INTERNATIONAL FORECASTER

APRIL 2006 (#5) Vol. 10 No. 4-5

P. O. Box 510518, Punta Gorda, FL 33951-0518

An international financial, economic, political and social commentary.

Published and Edited by: Bob Chapman

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International_forecaster@yahoo.com

 

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Let’s make the reasons for the trade deficit simple. It is free trade, globalization, offshoring, outsourcing, lack of tariffs and lack of adequate investment.

 

The IMF says some select emerging economies, those toeing the new world order line, may be included in IMF decision making by having their voting shares increased at the IMF’s September meeting. What the IMF is really after is multilateral surveillance of the links between countries’ economic policies and reaffirm their monetary, fiscal and exchange rate frameworks. In other words, the IMF feels it is time to bring all trade, monetary and fiscal relations and operations under the control of the IMF’s New World Order. Then the IMF would have the authority to bring nations together to thrash out any economic misalignments based on IMF analyses. The IMF cannot even run its own store and it’s alive with corruption. Why would the IMF monitor exchange rates? We are supposed to have free and open market driven exchange rates.

 

The Group of 24 finance ministers for developing countries from Asia, Africa and Latin America said it was imperative that a concrete proposal for changes be worked out by September, which should include a new formula to calculate quotas based on purchasing power parity of a country and not its GDP, as currently is the case. The IMF is to be the currency watchdog. If that happens, a One World currency won’t be far behind.

 

We are facing the most gigantic financial fraud in history – fraud on an unprecedented scale. The flipside of that is that we are being presented with the greatest financial gift in investment history. That is an iron clad guarantee that gold and silver have to go considerably higher in price. At this point all of your liquid assets should be in gold and silver related assets. If they are not you are missing the opportunity of a lifetime.

 

The yen carry-trade party is over. It has begun to wind down and in the fall, once Japanese interest rates are 2 1/4% to 2 1/2%, it will be history. The saga of zero interest rates didn’t bring Japan out of depression. The exercise was used to liquefy world markets. The BofJ created 250 trillion yen that ended up in markets all over the world. As the money supply increased the Japanese economy went nowhere. The use of domestic credit fell 4%. The game was to liquefy foreign banks that borrowed huge amounts of yen at very low or zero interest rates. That liquidity ended up all over the world.

 

We will never know how much money was created because swaps were done off-balance-sheet.

 

We are sure the Fed and other central banks engineered both ends of this caper. That is creating the source of the liquidity and the end of the game. We see not only 2% to 2 1/2% interest rates, but a withdrawal of 24 trillion yen from the banks. The use of these reserves and the losses the higher interest rates engender means investments in other countries will be under pressure with significant negative implications for asset markets worldwide. The plug has been pulled. The swaps won’t be renewed and that means investors will be forced to sell the equity and fixed income assets that these swaps financed. In addition, they’ll have to buy yen to repay their yen loans, which means the yen will appreciate strongly.

 

We want to bring to your attention the price has yet to be paid in terms of economic growth, nor in the volatility of growth for the excesses created by Sir Alan Greenspan. Each day that passes leads to a higher inflation rate and to increased vulnerability within the financial system.

 

Low interest rates and continued massive credit expansion has affected the entire world. In the US private sector, the debt to GDP ratio has gone from 164% in 1987 to 251% in 2005. Households have increased their debt to disposable income ratio from 79% to 122%.

 

It has been accompanied by savings returns of 1% to 4%, which caused savers to spend savings or move savings elsewhere, usually into speculation.

 

It now takes two incomes to offset the loss in purchasing power experienced since 1972. Debt service, real inflation and loss of wage increases has caused a doubling of effort to maintaining buying power. Over the last ten years injections of new credit have been indispensable in maintaining living standards. Mortgage refinancing and home equity loans have provided abundant cheap credit over the past five years.

 

Corporations have really benefited from ultra-low borrowing costs. That has increased profits and dividends as well as stock buybacks that have benefited management’s profits from stock options.

 

The result is that we are at the exhaustion of personal debt capacity, the erosion of the savings incentive and the resulting fragility of consumer finances. The housing market, this year, will mimic the fading path of the British market of the past year, and the major engine of credit expansion will be shut down by stagnant to lower real estate values. This absence of easy money will effect employment as higher interest rates cut into corporate profits. That means lower bond, stock and house prices. The real estate market has lost its momentum and the stock market has begun to do the same. Everything financial is now in a risk management mode. One mistake by the Fed and it is over. We can promise you that mistake will be made.

 

The central bank of Qatar is exchanging dollars for euros and could raise the percentage of its foreign exchange reserves held in euros to 40%. The beat goes on. There is no question the dollar is headed lower; we believe 60% lower.

 

Gasoline is already close to $3.00 a gallon as oil prices play with $75.00 a barrel, and refiners hide inventory on barges along the US coastline. We just received word that barges were lying off Philadelphia as well.

 

GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS

 

The average shopper in the UAE bought 30 grams of gold annually compared to the global average of less than 1 gram. South Asians constitute 70% of gold buyers, followed by East Asia with 22%. Arab and European consumers make up 4% each, 72% of purchasers were women and 63% were married couples. Special occasions were cited by 46% as the main reason for the gold purchase, while 23% bought jewelry to go on vacation. The Dubai Shopping Festival attracted 13% more spending.

 

High incomes do not necessarily make people consumers of gold as only 13% of these earning $6,808 or more per month were found to be jewelry buyers.

 

On Tuesday, gold and silver gained back 75% of Monday’s losses. Gold was up to $631.10, up $11.30 on the day and silver advanced $0.74 to $12.54. All kinds of rumors abound – that George Soros supplied Barclay’s with the silver it needed to start its ETF, which we hear is at hand. The good housing news caused the bonds to drop 1-point and the yield on the US 10-year Treasuries rose to 5.08%. The dollar got hit again closing at 87.10. George Bush has set his jackals loose to catch those terrible gasoline gougers. Needless to say, nothing will happen – just smoke and mirrors.

 

The expert prognosticators are finally entering our league. They are four years late; but that is fine, we are happy to have them. Swiss Asia Capital says gold will be at $1,600 in three years, due to the current account deficit as the US debases its currency and bonds.

 

Tuesday saw the Tocom long position in gold increase 1,902 contracts. Bit by bit the shorts are covering. They reduced their net short by 14,043 contracts from 4/21 to 4/24, leaving a total of 178,365 contracts. This is the third largest reduction on record.

 

Global platinum production should rise 8% in 2006. Palladium production will rise 9%. 2005’s platinum output growth of 3% was the lowest since 1998. The increases should in part affect prices in both metals.

 

            In the week ending 4/21/06, there was a decrease of 42 million euros in gold and gold receivables, which reflected selling by a Eurosystem central bank, under the Central Bank Gold Agreement. The net position of the Eurosystem in foreign currency remained the same. Holdings increased by 0.2 billion euros to 95.1 billion. Bank notes in circulation decreased by 5.7 billion euros to 565.9 billion. Liabilities rose by 14 billion euros to 60.8 billion euros. Net lending to credit institutions rose 9.6 billion euros to 418.1 billion euros. The current account position of credit institutions within the Eurosystem increased by 2.1 billion euros to 161.7 billion euros.

 

            Wednesday saw gold again rise $8.30 to $639.40 and silver rose as well, up $0.26 to $12.80. Toward the end of the day both J. P. Morgan Chase and Goldman Sachs were large buyers. That should give the market directiion on Thursday and Friday. The increase in contracts was 2457 which is miniscule, still leaving room for 100,000 to 150,000 longs before an overbought condition develops. The market again moved up because of trapped shorts.

 

            Major banks in Europe are selling structured products to smaller private banks and to wealthy individuals. These are commodity and gold and silver products and the people writing the derivatives don’t understand these markets and their volatility. They never saw a short squeeze nor do they understand it. Many of the writers are naked as well and one run in gold and silver and they will be wiped out like LTCM was in 1998, and they wrote the book.

 

            In addition, the gold suppression cartel – the central banks and other elitists – are carrying gold they leased as gold as an asset, whereas the gold has been in reality sold. Either the banks take delivery in US dollars, which are falling, or they get nothing. This an accident waiting to happen, a bomb. Wait until citizens find out most of or all their gold is gone. Many will hang. We know these banks are already in trouble and it’s only a matter of time before failure reaches them. We are told the overall figure of derivatives is $237 trillion, we believe it to be much higher.

 

            On the plus side for Wednesday, both Tocom and India were net gold buyers. Goldman moved into second place on the Tocom as the second largest short, only Sumitomo is larger.

 

            On Wednesday, silver had another good day, yet open interest fell 3660 contracts. More short covering as 82 net shorts were added. This may have been prompted by Tocom’s new extraordinary margin requirements to try to save the shorts.

 

            As all this transpires is it any wonder that people are getting out of fiat money and into tangible assets ASAP. Could it be that all commodities are becoming monetary assets? Perhaps the gold and silver suppression drove people to base metals as assets because they were not being suppressed.

 

            Another interesting aspect of the silver play is that major users have very little inventory. They couldn’t believe that higher prices could ever happen again. It won’t be long before what is left of Comex inventory is gone. That means investors and the ETF’s a reflection of investor demand will own the physical silver. It could be that the elitists will then create a ruse to confiscate what silver is available to them. That is why you shouldn’t use the gold or silver ETFs. Use 90% silver bags and take delivery and use gold and silver shares. With gold and silver coins it is imperative you take delivery.

 

            The value of gold is not about jewelry for ladies in India, the Middle East, China and major wealthy cities. It is about the world’s only real money. The central banks that were so anxious to sell from 1987 until now are having second thoughts. That is why European central banks have only sold about 2/3’s of what they can sell under the Washington Agreement. Gold is rising simply because there is too much money and credit floating around the world and they are expanding not contracting. This is the only way the elitists can keep the world economy afloat – by depreciating your money and that is why gold is a better alternative than paper.

 

            As we have said often before in order to just play catch up with inflation, gold would have to sell at $1,700 an ounce. Yes, you have lost 50% of your buying power over the past 25 years. Then comes the play to offset everything else to $3,500. These are the projections we made six years ago and we’ll stick with them. That doesn’t mean gold can’t go to $5,000 or $6,000 in a blow-off market, it can. Gold is cheap and it’s a steal until we see $1,700 an ounce. Then we’ll have to figure where it is going from there. This is the lock, the opportunity of a lifetime for investors. Do not wait for pullbacks. You are not traders and you are not that smart. You buy and hold only making changes when necessary - always being long gold and silver. You are in a bull market. The trend is your friend. You just buy and hold.

Banks are building up large positions in gold in anticipation of record sales of gold coins to retail buyers for the Hindu festival of Akshaya Tritiya. Corporation Bank has imported 10,000 specially-minted centenary coins of 8-grams. Overseas Bank is selling 5-gram “Mudra” bars at 298 branches. Of 101 tons of gold sold last year, banks accounted for 3%.

 

            The SEC, as we predicted, has approved Barclays Silver ETF called: Shares Silver Trust. It will track the price of silver bullion that will be stored in vaults in allocated accounts and trade like listed shares on an exchange. We do not care for this type of investment, nor the gold ETF for several reasons. We prefer delivery of gold and silver coins and at this stage of the bull market gold and silver exploration shares. These investments have built in leverage to take the greatest advantage of the bull market.


-- Posted Sunday, 30 April 2006 | Digg This Article



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