Archive for November, 2009
Where Gold Prices Will Be Before Year End
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By Peter Costa
It seems like everyone is jumping on the gold train these days as more currencies continue to debase themselves. The biggest purchaser has been the central banks but more importantly the Reserve Bank of India. Less than a month ago RBI picked up 200 metric tons of gold from the IMF increasing their reserves by 50% and sending gold prices surging. Predictions for the price of gold have been anywhere from $2300.00 an ounce to $8000.00 an ounce in the next 5 years. Only time will tell where the price is going to go in 5 years but I have a good idea where it will be in the short term.
For almost 2 decades now central banks have only been interested in selling gold. Worldwide they are starting to purchase again unable to tolerate the continued debasement of their dollar reserves. Last week Russia announced that it will be shifting reserve ratios in favor of commodities such as gold. Far more distressing than the flight of central banks from the paper dollar are recent reports that certain governments, including Germany, Hong Kong, and members of OPEC, are now removing their gold holdings from the Federal Reserve and the Bank of England. If this continues it could increase the risk of a gold run on the world’s two key central banks.
All signs points to gold continuing its upward trend but what can we expect before the year end? Through my thorough research on the subject I have come to the conclusion that gold could easily hit $1200.00 to $1300.00 an ounce by the end of the year. With the central bank’s increasing interest in gold and the continuing threat of inflation, gold prices are only going to sky rocket into the New Year. The central bank’s new found interest in purchasing the yellow metal is going to guarantee the rising price of gold in the short term. Inflation and continuing debasement of currencies is going to fuel rising gold prices in the long term. When RBI purchased 200 metric tons of gold earlier this month it shot the price of gold up over 7% an ounce. Rumors have started to surface that RBI is negotiating to purchase the remaining 201 metric tons of gold from the IMF. If this sale takes place before the end of the year we will easily see the price of gold hit $1300.00 an ounce. “Not only are central banks buying tremendous amounts of gold but some of the largest hedge fund managers in the nation are hoarding the yellow metal” commented Ronald Fricke president of Regal Assets last week.
For centuries gold has been the asset that has provided lasting preservation for wealth. As we come into the New Year inflation will start to rear its ugly head and could end up throwing this economy into an aberration. The time to protect your wealth against the inevitable is now and taking immediate action could end up being the best decision you ever made.
The Truth Behind The Dollar And The Value of Gold
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By Peter Costa
The price of gold is unparalleled from any other time in the nation’s history and is only expected to continue this upward trend. As much as the gold bears are expecting a price correction with gold I feel the yellow metal is only going to become more and more valuable. A copious amount of investors are treating gold like it is a mutual fund or stock not realizing it is an asset more than anything and is used as a storehouse of value. Globally we are in an anomalous time that surpasses any investment wave or price correction. We are in a time where all of the currencies globally are suffering and if not attended to could collapse. It would take a true historian to understand the present circumstances we are in because history truly repeats itself. I am far from a historian but based on my considerable research of past economic events I have come up with a serious case pertaining to where things are heading.
If we were to look back over 5000 years and see all of the monetary systems and how they operated we would see a similar trend take place. For centuries there have been 2 basic forms of monetary systems. Systems that were backed and had limitations on the production of the money supply and systems that were not backed which were essentially useless pieces of paper or fiat currency endorsed by the ruling class. Many are unaware but one of the numerous reasons the American Revolution took place was to break away from a fiat system. In the 1700’s Britain was on a completely fiat currency and many in that period including the founding fathers of the United States were trying to use gold and silver as a monetary exchange. It is not by chance that the first monetary system put into place within the United States was a bimetallism system. All currency in circulation within the U.S. up to 1933 was backed by gold and silver and at anytime you could trade your $10 bill for a $10 gold piece. With the help of FDR and Richard Nixon the U.S. was officially off of this standard on April.15, 1971. Since turning over to a completely fiat currency the U.S. dollar has lost more than 85% of its buying power and has no signs of recovery. Unfortunately most of the established countries globally are operating on a similar fiat system. Many countries are starting to wake up to the reality of things and are now making an attempt to protect themselves against the inevitable.
Recently India made the largest purchase of gold in over 30 years acquiring 200 metric tonnes of gold in a two week period. Not long after a fairly unknown country by the name of Mauritius purchased 2 metric tonnes of gold adding to the global demand. Last month Russia purchased over 15 tonnes of gold increasing their already plentiful reserves and since 2006 have purchased over 180 metric tonnes of gold. For the last six months Sri Lanka has been increasing their gold reserves and the estimated amount they have acquired is 5 tonnes. The largest advocates of gold these days is none other than China who have publicly announced that since 2003 they have secretly been buying gold and have increased their reserves over 600 tonnes since. In addition last year alone China produced 288 metric tonnes of gold which is equivalent to 12.2% of the global output making them the world’s largest producer of gold. The amount of gold buying that is taking place with countries globally is nothing but a sign that once again we are moving away from fiat currency. When asked during a Reuters interview to comment on India’s recent purchase, Xia Bin, the chief of China’s Financial Department of the Development and Research Centre stated, “India’s okay with it, why shouldn’t we be? What’s the use for so many dollars, whose purchasing power is weakening anyway? With so many foreign reserves in hand, I think China should buy gold, without doubt.” Ronald Fricke president of Regal Assets in response to the central bank’s recent interest in gold stated last week “As the United States dollar continues to plummet more and more countries are heading into gold”.
Central banks globally are purchasing gold at astounding amounts and are racing to back up their monetary systems. This amount of buying is guaranteeing the rise in the price of gold and if purchasing continues it could make gold one of the most difficult assets on the planet to acquire. Gold has out valued any currency ever created by man and as the global economy starts to shift back to gold it could very well become one of scarcest metals.
The IMF Is Driving Up Gold Prices
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It does not take a renowned economist or hedge fund manager to see the value of gold these days. For the last 3 months gold has consistently been breaking record highs leaving everyone in awe. As scores of individuals speak about this being a bubble in gold, I tend to differ in opinion.
There are countless events driving up the price of gold but there is one in particular that we should observe with a watchful eye. The selling of the IMF gold reserves has contributed greatly to the recent surge in the price of gold and is only the beginning for the yellow metal. 
On September 18, 2009, the Executive Board of the IMF approved the sale of 403.3 metric tons of gold (12.97 million ounces) which amounts to one-eighth of the Fund’s total holdings. China for the longest time was the likely candidate for the sale and stated that they were willing to buy up the whole amount in one swoop. In a twist that blindsided the global economy, India negotiated to buy half of the amount and over a 2 week period ended up purchasing 200 metric tons. Since this purchase has been announced the price of gold has jumped up nearly 7% in value. Rumors have been swirling around that India purchased the gold at a premium and the amount they paid is still undisclosed. The reason for the recent purchase from India was to diversify its reserves away from the US dollar which has weakened in recent months. “The US dollar in the last five month has lost 6.5% of its value and is only going to become worse” stated Ronald Fricke president of Regal Assets last week in response to the recent IMF purchase. China has already been extremely vocal about the weakening dollar and now with India steering away from the greenback a domino effect could follow. There seems to be solidarity among the central banks that it is better to cut back on currency holdings and diversify into assets like gold. As the US dollar continues to plummet the global currencies will be dragged down with it. Fiat currency has never worked as a monetary exchange and is doomed to fail. As more currencies start to lose their value the fight for gold will only escalade.
If gold has already seen a 7% increase in price with the purchase of 200 metric tons, I sit in anticipation to see what the price of gold will do when the remaining 203 metric tons is sold. Accordingly who is this new purchaser going to be? Is it going to be China or possibly Russia? The surge in gold prices is only going to continue as everyone starts to catch on to the reality of the failing greenback and it could very quickly become one of the hardest metals to get a hold of. Read More→
What Happened To The Banks We Bailed Out?
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By Peter Costa
Gold continues to break record highs while the economy shows no sign of recovery. Inflation is around the corner and will be unprecedented from anytime in the nation’s history. Will it be at the levels of the Wymore Republic or former Soviet Union? I sure hope not but I am not staying in the dollar to find out. There has been a lot of speculation about hyper inflation and some very congenial arguments have been made. I am on the hyper inflation train and these days I am feeling it is going to happen sooner than later. How have I come to this conclusion? The banking crisis unfolding in 2009 is all the proof I need and is rapidly becoming a never ending black hole sucking away any hope we have for dollar recovery.
This year alone over 115 banks have declared bankruptcy and there are still over 400 banks on the troubled list which amounts to over 5% of the nation’s banks. We have already seen the 6th and 10th largest bank failures in the United States history take place this year with a combined loss of $33 billion in assets. Last Friday marked the largest one-day government seizure since the financial crisis began closing the door of 9 banks nationwide. Rumors have been swirling around for some time that Citigroup is next and that they are likely to file for Chapter 11 if the Abu Dhabi Investment Authority pulls its $7.5 billion investment. Bank of America posted a $2.2 billion loss from July through September making it the second quarterly loss in the past year. Things are extremely unsettled in the banking world and we could see it escalade into the New Year.
The most alarming data from this unfolding crisis is the current state and solvency of FDIC. In the beginning of 2009 FDIC was down to $52 billion in their insurance fund for failing banks. With over 115 bank failures this year it has nearly dried up the fund leaving less than $10 billion. With less than $10 billion, FDIC is now promising to insure over $6.3 trillion in assets. We all know that the government would never let them fail and that FDIC has the ability to borrow up to $500 billion. The problem is what that will do to the overall buying power of our dollar. The grand total of all government and FED programs aimed at absorbing or supporting bad loans has now reached $23.7 trillion. With 400 banks on the troubled list we could see this number escalade very quickly guaranteeing rapid inflation. “The banking crisis is just the tip of the ice berg and as more countries jump ship from the dollar things are going to start compounding” says Ronald Fricke president of Regal Assets in response to Friday’s bank seizures.
The banking crisis is becoming worse and more countries are jumping ship from the failing dollar. Banks have been operating on a faulty system for decades and the breaking point is near. It is safe to say that the digits in our bank accounts are nothing but digital numbers and there are not enough greenbacks in circulation to back up the number. If you have any dollars that you do not need for a couple years you owe to yourself to start preserving them now and place them in gold . Last year the dollar lost 15% of its total buying power this year the number could very well double. If we continue on this path in less than 5 years the dollar could become worthless.
