goldheaven.com

Five per cent…? Ten per cent…? Try nearer 20% says this four decades’ veteran…

The GOLD REPORT recently caught up with John Embry, chief investment strategist at Sprott Asset Management, to get his thoughts on gold and Gold Mining stocks.

An industry expert in precious metals, John Embry has worked as portfolio management specialist for  more than 45 years; he’s simultaneously researched the gold sector for 30-plus of those years. He joined Sprott in 2003, after 15 years as Vice-President Equities at RBC Global Investment.

Here he tells the Gold Report about his outlook for strong Gold Price gains in 2010…

The Gold Report: John, in Investors Digest of Canada you recently said you’re expecting gold to gain another 30% this year…

John Embry: I would say at least 30%. I said that I thought it would be the best year to date. We’ve had nine years consecutive higher year-end prices and the best year in that span for a year’s return was 31%. I think this will be the year that we exceed it in this, the 10th year of the bull market.

TGR: Why is this year going to be the best year?

John Embry: I think we’re getting very close to the point when a greater proportion of the public realizes the degree of difficulty that sovereign debt is in. And at that point, when you can’t depend on your government paper as a safe haven, I think that fact puts gold in a much better light in more people’s eyes.

TGR: You might say the first leg down were the individuals who couldn’t pay their mortgages and that caused part of the ‘08 collapse. And now it looks like it’s the government…

John Embry: It’s very simple, actually. Private demand, as you know, was so weak that governments had to step in to maintain order in the economy and in so doing, they spent an enormous amount of money, at the same time that revenue streams fell because of the weakness in the private sector. Governments spent dramatically more money and the results are a budget deficit I never thought I’d see in my life. I’m shocked at the numbers in many places.

TGR: When you talk about gold, you’re talking about Gold Bullion. But how do you see the gold stocks? Do you think we’re going to have a pullback? Ian Gordon of Longwave Analytics and Richard Russell (Dow Theory) predict the Dow will go to 1000.

John Embry: I don’t agree with them. As much as I love Richard Russell – he’s probably been as big an influence in my career as anyone – I don’t think that deflation is necessarily the outcome when you have a pure fiat currency system. I think the far greater risk is hyperinflation because I believe that these guys that are in control today have seen the depressionary ’30s, and they will move heaven and earth to prevent that outcome. And when you’ve got the capacity to create unlimited money, I believe you can do it. So I hear Gordon and Russell and I respect them, but I’m in the camp that thinks we’ll get hyperinflation first. We’ll eventually have to clean out the debt, but I think we go hyper before that.

TGR: So hyperinflation. Would that include stocks as well?

John Embry: I think stocks will do fine. They may have a violent correction first because a lot of people don’t know what the heck we’re talking about here. And when they see inflation mounting and economic conditions being less than ideal, they’ll sell their stocks. But the fact is that if you go back and look at any hyperinflationary environment anywhere, stocks did infinitely better than paper instruments. So precious metals first, stocks second.

TGR: When you’re talking about stocks, you’re not talking just about Gold Mining stocks…?

John Embry: No, I’m talking about good businesses. I’m not talking necessarily about banks and other stuff that’s more dubious, based all on paper, but businesses like breweries, for example. People are always going to drink beer and a good brewing company will do exceptionally well in the debased currency of whatever country it’s in.

TGR: So you think that we might have a sell-off and in that sell-off all equities, including gold stocks, would go down.

John Embry: Gold stocks, maybe. I believe the next time everything goes down, gold isn’t going down. And if that were to be the case, I think gold stocks might surprise. They’ve been awful. Given what the Gold Price has done, gold stocks, by and large, have been awful.

Well, the well-promoted ones and the odd good one have done okay, but across the whole list, it’s been pretty hard slog over the last three or four years, particularly 16 to 17 months ago when it we hit bottom. I thought they were going to zero.

So many of them are trading at less than they were back in November 2003, which was the real peak of the excitement in gold stocks, if you can imagine. Six and half years ago. The Gold Price has done nothing but go up in that time.

TGR: In this next cycle are you seeing better returns for producers or the juniors that have pounds in the ground?

John Embry: Oh, I think the juniors. The whole thing is a matter of confidence. They’ve got so much volatility in the Gold Price. You get a good thrust up and you got a violent correction and I think they’ve got so many people discouraged and going the wrong way on these gold stocks that right now the degree of confidence is very low. If I’m right and the Gold Price stages a dramatic breakout in the next 12 months – and I’m talking hundreds and hundreds of Dollars on the upside – then I think the confidence will return and people will seek an outlet in gold stocks because so many of them have been beaten up. More importantly, the overall market cap of all the gold stocks is really small in the context of all the money around.

TGR: What’s the seasonality of this year?

John Embry: I think that probably we may continue to wallow around here for maybe the better part of another month. Maybe not quite that long. But, historically, mid-March to mid-May has been a really good period. When I look at the fundamentals and everything that’s going on, I see no reason why it shouldn’t be a very good period this time. And there’s one other development. I don’t know whether it will come to fruition, but on March 25th the CFTC is going to be investigating position limits in gold and silver on the Comex futures market. And if they ever put any teeth into those things and kept these bullion banks from what they’re doing on the short side with their large positions, I think that could have a salutary impact on gold and silver prices.

They’re finally going to have to address this because there’s been so many complaints about the bizarre price action on the Comex in both gold and silver.

TGR: The International Monetary Fund is going to be selling some gold, and India stepped up earlier. What are your thoughts on that?

John Embry: The whole thing irritates me. The IMF has announced the sale of this gold 500 times and every time with the express purpose of knocking the price of gold down. It was interesting the last time when the Indians actually relieved them of over 200 tons because that was what basically vaulted the market from about $1,045, which the Indians paid, up to $1,225 in the space of less than a month. That has been followed by the third significant correction in the last three or four years.

I think we’ve seen the vast proportion of the correction and I think what may be one of the factors that could get this thing going again is when somebody does relieve the IMF of the gold, the 191 tonnes still to be sold.

There’s speculation that India might be prepared to go to the plate again because the Chinese have been reluctant to step up. Number one, I don’t think they want to be seen publicly doing it. They’d probably rather do it more clandestinely because they’ve got so much money to convert into hard assets. And, secondly, as somebody pointed out, the Chinese at least have a domestic supply of gold. They can buy all their domestic output to augment their reserves, where the Indians really don’t have that.

So I think the Indians conceivably have a bigger vested interest here in taking that IMF gold. And there’s also sort of the suggestion that the Chinese wouldn’t want to be seen to be paying more than the Indians did. So they’re reluctant to step up with the Gold Price some $50 higher currently than the Indians paid.

If gold really was a free market, if they were really prepared to sell it to anybody, I think I could name any number of institutions, organizations, individuals that would be more than glad to relieve them of it. It’s not much money. It’s $6 billion. They throw it around as if it’s a big deal. Heck, given the budget deficits in some of these countries, $6 billion is literally a piss in the ocean.

TGR: What did you think when George Soros came out and said that gold was a bubble?

John Embry: I wrote about that and I got it right. I was very pleased about that because some people got all upset. The people that were negative on gold thought this was great, brilliant George Soros doesn’t like gold. But if you read between the lines, if you read really what he said, he said gold is the ultimate bubble, but he didn’t say gold is currently the ultimate bubble. I believe that it will be the ultimate bubble. I think the Gold Price is going to go crazy and at that point I’d be worried. And then it came out after the fact that Soros had been a major buyer of gold for his funds in the fourth quarter. So who knows what he was doing? The fact is, depending how you interpreted his remark, he was speaking at Davos, which is a very mainstream event, and he said something that can be interpreted any number of ways.

TGR: And, again, I think the financial talking heads used it as the negative.

John Embry: Absolutely. The mainstream guys were all over it. The guys who have never like gold have been wrong all the way up and said, oh, my god, George Soros doesn’t like gold. But I think George Soros’ remarks were misinterpreted and if you saw what he was doing, not what he was saying, he was Buying Gold…

TGR: Any last comments?

John Embry: The only comment I’d make is I really think things are sufficiently serious here in a financial or monetary debasement sense that everybody – and I have never been a table pounder – but I think every single person with a serious portfolio has got to have a reasonably significant exposure to precious metals. This isn’t something that’s just insurance for those who’ve got cold feet. This is something I think is a mainstream thing that people must have.

TGR: When you say a significant portion, what percentages are you thinking?

John Embry: I used to say 5% to 10% when it was just an insurance thing and the market was pretty sanguine. I say at least 20% now. I see the other assets as being less attractive. I wouldn’t buy a bond if you gifted me with the money to do it.

TGR: John, once again, I appreciate it.

Looking to Buy Gold today? Make it simple, secure and cost-effective by using BullionVault…

Source:Gold: How Much is Enough?

What first ailed the Dollar has now sent the Gold Price in Euros soaring…

THE PIECE we wrote on gold de-coupling from the Euro/Dollar exchange rate proved correct, notes Julian Phillips at the Gold Forecaster.

The action of the last week has shown that as gold rose strongly in the Euro in the Pound and is moving up in the Dollar alongside most currencies.

More than that, market commentators are now mentioning this too. But this action involves far more than these two main currencies.

To make the point, we ask you, "Which is better, a glass cracked in the higher part of the glass or cracked in the lower part of the glass.

Now replace the glasses with the Dollar and the Euro. Both are now under question.

Above is a picture of a $50 Bill as you see it today. Below is a picture of a $50 bill from yesteryear then called a "Gold Certificate".

It was exchangeable for $50 worth of Gold Bullion when gold was fixed at $20 an ounce. Note the same President’s picture there.

What would he think…?

The modern note is not exchangeable for any gold let alone 2.5 ounces. And therein lies the problem of valuing any Dollar bill. Its backing is your confidence in the government and the monetary authorities issuing it, as a reliable measure of value.

The United States is not alone, of course. The Euro is now going through a similar loss of confidence. But put in your mind’s eye a situation where the currency has the backing of gold and the government overseeing the currency. The dual support gives it far more value. Whereas today, you have a currency without the backing of gold and with the backing of a government trying to control the state of the economy by printing vast quantities of money in the belief that when the time is right they will withdraw it and re-establish monetary stability.

History alone gives us due cause to be prudent, doesn’t it…?

On my recent trip to London I was given a $100 trillion bill from Zimbabwe. It will not even buy one sheet of toilet paper. The currency is no more. And if currencies are to retain more than a captive set of users, they have to retain the inherent disciplines that gold brings. History has shown that both politicians and bankers cannot resist the power that comes with money, and they eventually distort it. The distance between currency management that reinforces the value of that money (not just stable prices) no matter what pain is involved and profligacy is a long one. Once travelled it is extremely difficult to go back as confidence has gone.

Take a look at both the Euro and the Dollar over the last few months and you can see how far along that road we have travelled. Greece is threatening to go to the IMF and Germany still has not announced it is willing to bail out the country. Now look from Greece westward through Italy and Spain and those countries that rely on tourist spending on second homes and holidays. They’re all in the same boat. Once Greece is helped, others will come too. It’s more than just Greece for sure. If the IMF bails them out the Euro will weaken.

The real issue is of course the Dollar and the Pound Sterling. As we say in our global currency slot below, we are waiting for the morning to arrive when we wake up and find one Pound for commercial transactions and one Pound for capital transactions (last time called the Dollar Premium; I started my stock exchange career as a dealer in the capital currency in 1971). As for the US Dollar, keep your eyes on those 10-year Treasury bonds to see how the Dollar is faring internationally.

If China has stopped buying T-bonds and is selling, then the yield will rise and the Dollar will fall. Or did the People’s Bank merely threaten to do so?

Sadly, Gold Prices are now a thermometer to the state of global currencies and the decay of confidence. As the Dollar weakens we are seeing gold rise. As the Euro weakens the Gold Price rises and when the Pound falls gold rises. The price of gold in local currencies is being more widely quoted now, not just a US Dollar price.

The problem is systemic. All currencies operate the same way and their health springs from the US Dollar and the Euro. Only resource producing or China oriented currencies look healthy at the moment. But even there we have to realize that national power lies with people irrevocably committed to putting their national interests ahead of global interests. A global reformation is called for!

But in this scene, global national authorities, without the dominance of one single nation, have neither the will nor the competence to rectify problems.

Extrapolate this situation and you see an increase in the level of currency crises in both severity and consequence. Suddenly the musings of the IMF head, M. Strauss Kahn on a completely new global currency becomes pertinent. Unless this road is followed and quickly, the situation will darken considerably.

This is why the Gold Price is moving now. As politics will have it, unless push comes to shove and the situation becomes dire, little will be done. Smart money, institutional money is quietly moving a portion into gold as a measure of prudence.

How far will the Gold Price run in the next move up? This section is for subscribers only…

Make a solid Gold Investment today, starting with a free gram of gold at BullionVault…

Source:Why is the Gold Price Rising?

Now broken again, the long-lived Euro-Dollar link with the Gold Price was never essential to start with…

IT’S ALWAYS hard to be weaned off what you thought was a reliable formula for second-guessing the Gold Price, writes Julian Phillips of the Gold Forecaster.

Getting the inside track used to start with the oil:gold relationship. Many traders tried to use it as a measure of the future direction of the Gold Price. But now the second, and longer lived relationship has broken down – and the Euro-Dollar exchange rate may no longer dictate the direction of Gold Prices. Continuing to follow this line will shortly prove very expensive for traders in Comex Gold Futures and elsewhere.

As you can see from the chart of Euro Gold Prices since 2001, and particularly from 2005 – when it became apparent that European central banks were faltering in their determination to sell gold from their vaults – the Euro price of gold began to rise. But this was nowhere near enough to halt the link of the Gold Price to the Euro. Even today short-term moves come about by a move on this rate. This will only slowly diminish as the crises facing both the Eurozone and the US Dollar increase in severity. We are seeing an acceleration of that now, with Greece’s problems persisting and Spain waiting to enter center stage.

Why did the relationship between the Dollar, the Euro and the Gold Price come about?

The Euro was formed in 1999, because the exclusive use of the Dollar in all global transactions became unsatisfactory. Under its wing the currency should have united, at least financially, most of Europe. After all it should have reflected the economy of Europe overall, whereas the US Dollar reflects the economy of the US (even though it is used in most global transactions) and is irrelevant to that of Europe. So another global trading bloc introduced its currency independent of the Dollar (bear in mind that the Dollar was not replaced in Europe, local currencies were), one large enough to set up an alternative measure of value.

Since then, the Euro’s value against the Dollar has moved from 1:1 to 1:1.5 at its worst. This is over 10 years, and it reflects the profligacy of the US currency, highlighting that the US has been paying bills (measured by the extent of its Trade Deficit) with currency and not goods. (Only a balanced trade account would do that.) This pattern becomes abnormal when it goes on and on…and no effort is made to correct matters, as is the case in the United States.

So it seems fair that a bloc like the Eurozone – with a healthy balance of payments – should offer a good measure of the Dollar. Since then little has been done to rectify matters, hence the steady ongoing decline of the Dollar against the Euro.

But now the Euro is losing its reliability as a constant measure of value, due to worries about particular parts of the currency zone. When the Eurozone was conceived, no room was made for a loss of sovereignty. The Union was united for trade and finance alone.

Yes, there is a European Parliament, but national government and national interests will always be preferred to Eurozone interests. The problems facing Greece (and in the future Spain, France, et al) will mature to bring down the Euro in time, we believe.

After all it was benefits to each nation that brought them all together. Becoming like the States, under one government, was not considered.

With a rich, productive, efficient North and a poor tourist-oriented South in the Eurozone, it was only a matter of time before the pressures were felt under one currency. In the past, strong currencies revalued and discouraged the flow of capital from poor to rich nations. As the capital left these nations and their internal inefficiencies rose to the surface, poor nations began to over-borrow – despite the fact that nothing would change in the future.

Thus a crisis was in the making. It’s now here, and there is a perceptible unwillingness to support each other in all seasons, but only in fair weather. Trouble is, the pressure will grow under one currency, not diminish.

There never was a good case for the link of the Euro to the Gold Price. But it has taken internal national problems within the zone to knock confidence in the currency, making this disparity visible. Looking ahead, it would seem that the Eurozone’s problems will not go away until there is a mechanism for leveling the playing fields between rich North and poor South. Don’t think for one moment that the rich will give handouts to their poor brothers in the South to achieve this on an on-going basis. The Southern nations are breaking Eurozone entry rules and must pay the penalty!

How can the Euro bear up under these "fixed currency" problems? In short, it can’t. As for the Gold Price, it must walk its own road, no matter whether the Euro or the Dollar is rising.

A trip back to basics is needed here. What common ground does gold have with the either the Dollar or the Euro? Gold has no politics, it has no nationality, but it does have a respected value when times are dire. Paper currencies lose value in these times. Ask yourself, why did President Roosevelt deem it necessary to confiscate gold in 1933…and then devalue the Dollar against it in 1935 (apart from engineering the acquisition of foreign held gold)? Because as former Fed chairman Alan Greenspan put it in his early days, "Gold is money in extremis."

In wartime all nations and governments respect gold, and it measures value too, even when it is not a means of exchange. The skill is in determining when extreme times are with us. Bear in mind the war did not start until 1940 in the US, but the gold confiscation measures were taken after the Depression and America’s banking crisis had been going for four years.

Today’s pattern may well not be too far short of that – and in place of a rising Germany, economically, you now have a rising China. Look back to the end of last century (1999) and then at now. Haven’t times changed?

At the moment, as the Dollar rally falters and the Euro weakens, a strange stability is given to the Dollar-Euro exchange rate as they glide down together. The behavior of the Gold Price is beginning to testify to that. But as slow as a tidal change is to the sea, with the waves keeping up their constant coming and going, so the institutions and traders in the gold market will move away from the Dollar-Euro link.

Looking to Buy Gold today? Make it simple, secure and cost-effective by using BullionVault…

Source:Gold's Euro-Dollar Split

In answer to the "gold bubble" question, simply make like Gordon Gekko…

A FEW MONTHS AGO I bet our research editor here at Hard Assets Investor a steak dinner that the Gold Price would top $1250 an ounce before sinking back below $1000, writes Lara Crigger at Hard Assets Investor.

For a while there, things weren’t looking too good for me or my appetite, as the US-Dollar Gold Price plunged off its December highs like a diver in free fall. The metal scraped as low as $1052 early in Feb., but as gold closed the month above $1117 on Friday, I’m happy to say that I might just get my dead cow after all.

Of course, renewed strength in the Gold Price means a revival of the Big Question from last fall: Is gold in a bubble? This time, however, it seems the answer on everyone’s lips is: "Who cares?"

"I absolutely believe [gold's] heading into a bubble, but that’s why you buy it," Charles Morris, manager of HSBC Global Asset Management’s $2.5 billion Absolute Return Fund, told Bloomberg earlier this week. And after predicting that gold could hit as high as $5000 an ounce in the next five years, he added, with shades of Gordon Gekko, "A bubble is good."

Perhaps that’s why we’ve seen such incredible upswing in Gold Investment demand year over year, particularly in exchange-traded trust funds. According to the World Gold Council, Gold ETF demand in 2009 hit 594.7 tonnes – 85% higher than 2008 levels.

Granted, most of that was driven by outsized buying in the first quarter of ‘09, as investors – smarting from the 2008 financial crisis, and with world equities sinking to 12-year lows – fled perilous markets into supposed safe haven assets like gold.

Still, ETF buying has remained brisk, with demand in Q4 2009 hitting 31.6 tonnes. Most of that demand has gravitated toward the SPDR Gold Trust listed in New York, the world’s biggest bullion-backed ETF and the second-largest ETF overall. Investors big and small piled into GLD last year, which saw $13.8 billion in new net investment dollars in 2009. The fund now sits at over $35.4 billion in assets under management.

Even noted gold skeptics now want a piece of the action. Famed hedge fund manager George Soros – who not too long ago dubbed Gold the "Ultimate Bubble" – had only just increased his GLD holdings before those comments made the headlines. In the fourth quarter of last year alone, Soros Fund Management bumped its holdings in GLD by 152%.

According to Bloomberg data, as of Dec. 31, 2009, the Hungarian’s firm was the fourth-largest holder of GLD with more than 6 million shares. Still, that’s nothing compared with John Paulson’s ETF bet: Paulson & Co. holds 31.5 million shares of GLD…equivalent to nearly 96 tonnes’ worth…which, at today’s Gold Price, is worth just under $3.45 billion.

What’s interesting is that the other two US bullion-backed gold ETFs – the iShares COMEX Gold Trust (NYSE Arca: IAU) and the ETF Securities Physical Swiss Gold Shares (NYSE Arca: SGOL) – haven’t seen nearly the same boost in demand as GLD.
IAU and SGOL are substantially smaller than GLD, with only 25.2 million and 3.2 million outstanding shares apiece, respectively (in comparison, GLD has about 363 million outstanding shares). IAU holds about $2.76 billion in assets under management, while SGOL holds $334 million, according to the National Stock Exchange.

One might think that with increased general interest in Gold ETFs, both funds might see a pickup in investor demand. But in fact, we’re seeing the opposite: Since the beginning of 2010, SGOL has started cannibalizing IAU’s shares…like Ross Perot siphoning votes from George H.W. Bush…as these numbers from Bloomberg show – figures quoted in thousands (’000).

The rock that is GLD remains, however. So where does gold go next?

If the Gold Price truly were in a bubble, then the sky would be the limit for where gold goes next. A recent Bloomberg survey reported 15 of 22 analysts forecasting that the yellow metal would make further gains this year, with Goldman Sachs predicting $1380 an ounce in the next 12 months. HSBC concurred, predicting a peak of $1300 in 2010.

Continued buying by central banks may lend support to prices as well. Last year, the world’s central banks became net gold buyers for the first time in two decades – and according to CPM Group, at least, the trend could continue. Currently, central banks hold approximately 18% of the total gold ever produced. Add that to continued uneasiness over the world economy – and, of course, fears over inflation – and we could see gold go much higher in the days ahead.

Still, despite its great run recently, gold has a long way to rise before I get my free steak dinner. And I haven’t forgotten what Brian Nick of Barclays Wealth said when we had him on our site a few weeks ago:

"Look at virtually any other market where you’d see signs that people were worried about inflation, and they don’t exist anywhere – except the gold market."

For the very best Gold Prices – live online – plus secure storage of your physical property in Zurich, Switzerland for one-third the cost of an exchange-traded gold fund, click through and register with BullionVault now…

Source:Gold Price: The Big Question

I Suspect Gold and Silver Prices Will Proceed to Rise From Here Gold Price Back in the early 1980s a company calling itself "Krugerrand Corporation" used to run full page ads in the Wall St. Journal offering to sell Krugerrands at … and more »

Source:I Suspect Gold and Silver Prices Will Proceed to Rise From Here – Gold Price