Why Gold Won’t Give Up

by Addison Wiggin – December 14, 2010

  • “I get knocked down and get up again… nothing’s going to keep me down” … Gold goes pop!

  • The Midas metal’s next catalyst, coming as early as this afternoon

  • J.P. Morgan adjusts its “controversial” silver position as prices sit just below $30

  • WikiLeaks is really just a CIA conspiracy… oh, didn’t you know?

  • Readers question the value (or lack thereof) of a college education… and collecting government goodies as compensation for the great “shakedown”… (and suggest you write your congressman… Ha!)

Gold pushed above $1,400 overnight, sending holiday cheer around the world… for some. For others, ‘twas the nightmare before Christmas.

But as the sun began to warm the East Coast of the U.S., sort of, “rosy” economic data rolled in and put the Midas metal back in its place. At least the place monetary policy wonks would like to see it in.

Still, for all the beatings gold has taken lately — getting whacked for $20, $30, even $40 in a day — it just keeps bouncing back. At $1,394 this morning, the molten lump is still higher than it was a month ago… or two months ago.

It’s 22% higher than it was a year ago.

Near-record prices have done nothing to deter gold demand in the Middle East. Retail investors in the United Arab Emirates snapped up 1.6 metric tons of gold bars and coins in the third quarter, according to the World Gold Council.

That’s a 23% increase from a year earlier.

“Buying gold coins and bars as investment has turned out to be every family’s first priority in the Middle East,” says Kiran Desai, a Dubai-based bullion dealer. “Sales are shooting up across the UAE as people are buying these precious metals products, despite the high prices of the yellow metal.”

Further, many of gold’s ups and downs lately can be traced to China. “China is the focal point of the commodities play these days,” analyst David Wilson tells Commodity Online. “Gold and silver prices and other commodities are going bullish or bearish thanks to events that are taking place in China.”

So when China upped its banks’ reserve requirements last week, that knocked gold down a peg. But when China passed on a chance to raise interest rates over the weekend, gold rallied on the open yesterday morning.

With Chinese inflation at a 28-month high, the broad trend is still up. “We believe markets might be reacting too bearishly to the threat of Chinese monetary tightening,” says a research report from Standard Bank, because the tightening cycle “may already be at or near its peak.”

Gold’s next near-term catalyst may come this afternoon — when the Federal Reserve issues a statement at the end of its latest meeting. We don’t have to go too far out on a limb to say our monetary mandarins still see a weak recovery that merits full speed ahead on its purchases of $875 billion in U.S. Treasuries through next June.

“This new round of money printing is not going to help the economy,” says our friend James Turk of GoldMoney, “which has been hollowed out by years of debt-financed consumption along with too little savings and production.”

“This money printing is serving only one purpose. This central bank trickery is providing the federal government with all the dollars it wants to spend.”

Yet for all the Fed’s efforts to goose the economy, and thus tax revenue, there’s still a yawning chasm between Uncle Sam’s income and outflow. James took the deficit numbers we brought you yesterday, extended them back 10 years and came up with this:

“The rise in commodity prices and bond yields means that the dollar is picking up speed as it heads toward the fiat currency graveyard,” James concludes. That can only be bullish for gold.

[Ed Note: “Yes you can still get rich with gold,” our own Byron King asserts. Even at these whipsawing prices. O, let us count the ways! Right here: 9 Ways You Can Still Get Rich With Gold.]

Silver is holding firm as we write at $29.57, as the metals markets buzz over news that J.P. Morgan Chase has “quietly reduced a large position in the U.S. silver futures market,” to quote the Financial Times.

Our investment director Eric Fry wrote an expose on this Thursday in The Daily Reckoning: In short, the scuttlebutt is that JPM tries to suppress the silver price by holding a massive short position equal to four times the world’s annual mine supply.

“The decision by JPMorgan,” says the FT, “was an attempt to deflect public criticism of the bank’s dealings in silver, a person familiar with the matter said.” But with no firm numbers backing up the story, the situation remains murky, to say the least.

This much we do know: The CFTC is investigating claims that JPM manipulates the silver market. And investors are keen to get their hands on real metal, and not paper substitutes.

Thus, sales of U.S. Silver Eagles so far in December are on a pace to equal last month’s record. With sales of 4.26 million, November 2010 was the month that finally broke the record set in December 1986 — the first full month the U.S. Mint sold Silver Eagles.

Through the first 10 days of December, sales are on the same torrid pace — 1.42 million.

Meanwhile, the collector world is buzzing about the first proof-grade Silver Eagles the Mint has made available since 2008.The Mint is working within a very small window — just 42 days — to get the 2010 issues out the door.

Our friends at First Federal have secured a small batch just for you. Check it out here. As always, we may be compensated if you buy; it’s our business relationship with First Federal that makes it possible to bring you offers like these.

Stocks are generally up again today, the Dow up more than 60 points as we write, as traders digest these data points:

  • Wholesale prices jumped 0.8% during November, according to the Labor Department. That’s the fifth straight monthly rise. The increases were concentrated in energy (up 2.1% for the month) and food (up 1%).So as far as the Federal Reserve is concerned, we still don’t have any inflation

  • Retail sales rose 0.8% from October to November, according to the Census Bureau. The internals of the report are, to say the least, interesting: Gasoline sales fell, even though prices rose. And restaurant sales were down, despite the bump they should have gotten from all those holiday shoppers out and about.

Hmmm… Says something interesting about where people are cutting back. But the headline number beat the Street’s expectation, hence the celebration. Even a lousy third-quarter report from Black Friday bellwether Best Buy can’t dampen the enthusiasm. Party on, Garth.

We see a judge in London has set bail at $315,000 for WikiLeaks founder Julian Assange — which surely will set the conspiracy crowd buzzing.

“WikiLeaks is a big and dangerous U.S. intelligence con job,” writes F. William Engdahl at the Center for Research on Globalization, “which will likely be used to police the Internet.”

The theory’s been going around much of this year, and it goes like this: WikiLeaks is really a counterintelligence operation by the CIA (and maybe Mossad).After all, many of the cables leaked so far attempt to justify war with Iran, and even retroactively justify the war in Iraq.

Furthermore, the thinking goes, the resulting controversy has been manufactured to create a convenient excuse for new laws to shut down dissent online… and maybe even round up people who’ve spoken up on behalf of WikiLeaks.

Heh… We’ll know they’re serious if you hop onto our home page one day and see this:

“WikiLeaks, TSA… FDA…” writes the inimitable Dave Gonigam by IM this morning, commenting on some of our more overt themes of late. “It’s all happening very fast now.”

“Thank you for pointing out what is increasingly becoming the ‘the world is flat’ belief of our century,” writes a reader taking us in another direction. “For too long, our young people have been subjected to this philosophy that higher education will cure all ills, only to find out that at the end of the day they still have to go to work.

“Basic economics teaches us that when the market gets saturated with any product, then said product loses its value over time. Think televisions and desktop computers. In addition, there are many trades that compensate better than degreed occupations.

“Of course, you actually have to earn your money then.

“Too bad young people today, as well as their parents, were subjected to our obvious substandard public education system. Without it, they could figure this out on their own.”

“I wonder,” chimes in another, “if professor Vedder correlated the area of study versus job level. My bet is the data reflect the silly stuff higher education now calls a discipline as much as the plight of business. After all, why would I hire an anthropologist or an ethnic study-ist (I can’t even conjure up the noun to describe that ‘skill’) when I need results?

“The key is ‘new grads are saddled with an average $24,000 in debt.’ Just like with the housing market, unqualified students spent other’s money to get something they didn’t deserve. Oh well, I’m sure they will work it off somewhere in government.

“Just what we need…more lemmings.”

“To the $600,000 income earner” whose common law wife collects food stamps, “I say cheers! Don’t listen to all this poppycock from the righteous.

“You’ve figured out you’re not going to get a nickle of the thousands you’ve put into Social Security, so why not stick a fork in it now?”

“The issue for many people with high incomes,” agrees another, “is simply that they feel — in many cases, rightly — that they are being screwed by tax policies set by the booboisie majority: people who think they have a right to the fruits of other people’s labor.

“I suspect that in the vast majority of cases, the assistance these people are getting back is but a small fraction of the gap between what they the government shakes them down for at the point of a gun and the value of what the government does for them.

“Now the follow-up question is how does that guy make his $600,000? The real underlying scam is widely held notion that government is something other than a huge transfer of wealth from everyone else, rich and poor, to the politically well-connected.

“People need to wake up and realize that the combination of governments and incumbent corporations are together nothing more than a parasite on actual wealth creation.”

The 5: Not quite sure what an ‘incumbent corporation’ is… but sure.

If you’re referring to the unholy alliance between “too big to fail” corporations, even moribund industries as a whole, and the elected officials who prey on them for votes, we like the cut of your jib.

“It’s not just the people who are out to rip the system off,” writes another reader with a slightly different tack. “It’s the people in the system, too.

“My wife is uninsurable. We’ve asked for aid and filed for disability for her. Interestingly (tragically), we were advised by social services agents to divorce so she would qualify. They said we didn’t have to live apart, just file for divorce.

“A doctor told us the same thing. A social worker advised she get pregnant as well, because then she’d be a shoo- in.

“Since divorce wasn’t an option, and neither is pregnancy, we simply kept applying and she eventually got the disability, which is all we really needed.Of course, the system is designed to keep one in the poor house. If I make just enough (not much), then they cut insurance and our medical expenses are unaffordable.

“It’s a miserable trap that is, for some of us, impossible to see a way out of. We’ll keep trying, though.”

“Day after day, I read the feedback from your readers. Bitch, bitch, bitch — but generally on the mark. How about a generic solution: It’s called email. One to your congressperson, one to each of your senators, one to the White House.

“It simply needs to say, ‘I’ve had enough of this crap. Either move to stop [the insane and totally unnecessary indignities in the airports, for example] right now or you are serving your last term.’

“Target your state officials when appropriate. Ride others, hard, to do the same. Then remember and actually vote your threat. Simple, certainly, but apparently beyond the grasp of the sheeple.”

The 5: Yes, of course! Let’s all write strongly worded e-mails. That’ll solve everything.

Frankly, we’d all do better to drop out, turn on and tune in. At least, we’d have a lot more fun that way.


Addison Wiggin

The 5 Min. Forecast

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