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International Forecaster May, 2006 (#1) - Gold, Silver, Economy + More

By: Bob Chapman, The International Forecaster

-- Posted Sunday, 7 May 2006 | Digg This ArticleDigg It!

The following are some snippets from the most recent issue of the International Forecaster.  For the full 32 page issue, please see subscription information below.



MAY 2006 (#1) Vol. 10 No. 5-1

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

An international financial, economic, political and social commentary.

Published and Edited by: Bob Chapman

E-mail Address





Make check payable to Robert Chapman (NOT International Forecaster), and mail to P.O. Box 510518, Punta Gorda, FL 33951-0518. Please include name, address, telephone number and e-mail address. We accept Visa and MasterCard charges.  Provide us with your card number and expiration date.  We will charge your card US$129.95 for a one-year subscription. Note:  We publish twice a month by surface mail or 3-4 times a month by E-mail.

Foreigners please use foreign U.S. dollar denominated checks or Money Orders.




Unfortunately it is beyond us to speak in platitudes. We have many facilities, but that is not one of them.


Albeit there are those that do: We call it gobblygook, but it’s the language of diplomats, politicians, corporate titans and Wall Street. This time it’s the power councils of the G-7. Last month they told us they were going to rebalance an unbalanced world. There was no mention that they created the imbalance in the first place. They operate in an extension of greed and that is how these problems develop. This monstrosity is now to be refined and resurrected – which is going to be a long and arduous journey. This is not some benighted guest, but a scramble to see if our financials can be salvaged if it has to be.


They, G-7 saviors, work in mysterious ways, speaking a ritualistic language that only the anointed can decipher. The neurotics deliberately allow for multiple interpretations, which is a cover and meant to confuse and to provide an avenue of escape if their plans go asunder.


This financial state of affairs is not unusual – it has been occurring over and over for centuries. Global imbalances have now been officially recognized as a major concern by the self appointed stewards of globalization. The alarm is loud and clear. Something has to be done and done quickly.


The elitists have devised a multifaceted program. It is to be a shared responsibility, that is there will be no assessment of blame. This rebalancing of world finances requires a realignment of global saving and investment flows; this identifies disparities between current account surpluses and deficits as the major source of global instability. The approach is to be designed to maximize sustained economic growth. This is a very tall order considering the absolute disarray of the international financial scene. We believe there is no way that can be accomplished without continued massive injections of money and credit with the resultant depreciation of currencies and a continued move into gold and silver as the only safe havens from the coming storm. Growth and perpetual power have become their only reason to be.


We do not believe they can be successful in this approach. Debt is already massive and tax cuts have served their purpose. Self-financing budget deficits only leave us with more unpayable debt as do tax cuts. We saw the product of the 1980s. The system could withstand the misuse then, but it cannot now. The structure is too badly damaged. Income inequalities are widening, not closing. Via free trade and globalization incomes are falling, or at least purchasing power is falling, in what once was called the Western Industrialized Word. This has not been offset with surging productivity, which has been a myth. Two to 2 1/2%-growth is all we can muster annually. Fervor and good intentions often don’t get the job done. Elitists are fooling themselves if they think they can save the financial system without major dislocation.


The foremost problem is easy to solve - the US current account deficit. You devalue the dollar 60% and the price of goods entering the US go up 40%. People will buy less. That deficit will be solved. US exports would drop 40% to 60% in price, but what goods? We have only 14% of our industrial capacity left. It would take years to rebuild industry in America and massive amounts of investment capital from transnational conglomerates, which will not be forthcoming unless wages in the US, Canada and Europe drop 75%. Thus, a 60% cheaper dollar is not going to be of that much benefit unless we erect tariff barriers. We are not going to get sufficient exports anyway, so why not offset the slave labor advantage of the third world and make people pay to sell into our markets as they have always done. That would cut back on imports and encourage manufacturing formation again. That slave labor has always been out there since the inception of our country and this is the way we have always handled it. As a result, the obscene profits of transnational conglomerates will plunge.


There is no conceivable way America and Americans can pay off their debt. Thus, there will have to be an adjustment - that is rather than bankruptcy. We’d make a deal with our debtors to accept 40 cents on the dollar. If this is to be shared responsibility then everyone can share in the pain. This solution should be acceptable because the alternative is economic collapse, which is in no one’s interest. We are all culpable – we have all participated. We would have limited economic growth, but the system could function. During this period of a number of years the world financial system could be purged. The excesses would be self-adjusting.


Unfortunately that is not what is going to happen. In their greed and pomposity the elitists plan to have it both way: growth and recovery. That will not and cannot happen. Frankly their program of recovering started in 1991. Rather than purge the system they then decided not too. 1995 began cheap money and credit – an artificially booming stock market. That was followed by even cheaper money and credit and a housing boom. The managing of markets cannot continue; they are too vast to effectively control. As far as we are concerned the best card has already been played. The tightening externally has begun. The carry trades are over and all that cheap money will be gone by the end of the year. That doesn’t mean that central banks are going to turn off the money spigot just yet. The planners are taking one step at a time, the easy steps first.




            We are now starting to see an awakening among professionals that not only is the dollar being debased, but all currencies are experiencing the same phenomenon versus gold and silver and base metals as well. There is now no question gold will see $700 this year and perhaps by the end of October $1,000. Next year we’ll see $1,700, which will reflect the inflationary losses in currencies, particularly the dollar, since 1980. Fiscal profligacy is the name of the game. Grab as much as you can before the system collapses. Professionals know the debt pyramid will collapse. It’s only a matter of when.


            For many years there has been little gold or silver exploration and production is in shortfall to usage. That shortage is 1,500 to 1,800 tons a year and it’s getting worse. The central banks are either out of gold or really don’t want to sell anymore. Our estimate is that they have at best 5,000 tons left. No one except a handful of real professionals really understands the unbelievable magnitude of the situation. Then in addition there are massive short positions that simply cannot be covered in gold and silver without prices of over $850 and $30 an ounce.


            We are already seeing a gravitational pull from the big producers toward and into the exploration stocks. It is far harder for a major to double in price from $30 to $60 than it is far an exploration play to run from $1.00 to $2.00. This is where the action will be from here on out. In addition, in purchasing Canadian exploration plays we just saw our subscribers’ make over 10% as the Canadian dollar moved from $.80 to $.90 US. It broke $.90 on Tuesday headed toward $1.20. We expect many of our recommendations to go from $1.00 to $10.00 or more and those profits will help you survive the coming depression.


            As we predicted Monday was another bang-up day. Gold was up $6.00 to $657.60 and silver moved up $0.40 to $13.91. Gold was strong in Asia and Europe, up some $9.00. It was bashed by the shorts – the gold suppression cartel, but turned right around and headed upward again. Aiding gold was oil up $1.82 at $73.72 and the dollar falling .11 to 85.77. The euro eased a little to $1.26. The CRB roared again, up 5.32 to 355.21 close to its highs. Copper obliged as well, up $0.1 to $3.46. Eventually gold and silver will bankrupt JP Morgan Chase and Goldman Sachs. We have seen every bull and bear market in metals since 1960 and this is the biggest and the best – a lollapalooza.


            Just imagine what will happen when 10,000 to 25,000 tons of gold has to be returned to the central banks that lent it. They either buy gold or return dollars for what gold is currently worth. How many central banks will demand gold? We don’t know, so we’ll be conservative and say 25% and we’ll middle the lease figure at 17,500. That means 4,375 tons has to be bought in the market for delivery. Those are low-ball numbers. The buy-in figure could be double or triple 4,375 tons.


            Then there are the derivatives that were used to short the market or in use as puts. Most of them are naked so these option writers will have to start covering their shorts by buying gold. This should really push up gold and silver prices as well. We estimate that the gold Comex and derivative short is probably seven times annual supply for the market. That could be 10,500 tons of gold short. Those chartists, wavists, and cyclists who have their shareholders out of gold and silver at $520 and $9 have not only lost a phenomenal opportunity for their subscribers, but they have many, many of them short – losing a fortune. 85% of letter writers are out or short. That is historically unprecedented and just plain stupid. These are not experts – these are charlatans.


            Friday’s open interest was down 1,025 contracts to 355,700 as gold moved $18 higher. We can still tolerate an additional 150,000 long contracts without being overbought.


            The numbers for silver are even better. Open contracts fell 5,205 on Friday to 116,352. That’s on a $1.00 per ounce gain. This is a disaster waiting to happen. If the funds come in, the shorts will all go bankrupt.


            Some derivatives writers are not going to write any more gold options in the OTC market. Either the volatility has gotten to them or they see what we do, massive shorts.


            On the Tocom the largest shorts again increased their short positions by 6,104 contracts to 175,671 contracts. They also increased their silver shorts by 165 to 7,170 contracts. These guys have to either be suicidal or their losses are being covered by the US taxpayers.


            This past weekend the Japanese government raided the offices of several foreign banks for allegedly having broken banking laws. It could be that the newest Tocom member, Goldman Sachs, could be the target. They are in a few short weeks the largest exchange gold short and have no bullion to cover their shorts. We’ll see what develops. Incidentally, Goldman led a consortium that just bought China’s largest meat processing company for $250 million. Again, on the gold end, Goldman delivered 71 contracts and took delivery of only 1 contract, hardly justifying their huge buying and selling.


            Belatedly we should mention that in addition to the shorts and derivatives we still have massive short hedges by major gold producers. Barrick is now offside close to $6 billion. They’ll have to cover or deliver sooner or later, and that will force gold higher to the upside.


            For those of you who follow the oil/gold ratio it broke out to 9.42 and is set to fly out of an inverted head and shoulders. This is another plus for gold. Now gold will rise faster than oil and that will take pressure off off-mining operating costs. This is very, very bullish. This will help earnings for producers.


            One of the things most investors do not do today is fundamental analysis. Most look at charts or take recommendations. You know copper was up 8% on Thursday. We wonder if it ever occurred to investors were that gain made in gold it would be $50 for the day. Whether you realize it or not, those kind of volatile days are coming for gold and silver and they are just around the corner.



Make check payable to Robert Chapman (NOT International Forecaster), and mail to P.O. Box 510518, Punta Gorda, FL 33951-0518. Please include name, address, telephone number and e-mail address. We accept Visa and MasterCard charges.  Provide us with your card number and expiration date.  We will charge your card US$129.95 for a one-year subscription. Note:  We publish twice a month by surface mail or 3-4 times a month by E-mail.

Foreigners please use foreign U.S. dollar denominated checks or Money Orders.

-- Posted Sunday, 7 May 2006 | Digg This Article

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