Look Who’s Talking Gold

Addison Wiggin – May 17, 2011

  • A world turned upside down: Zimbabwe talks gold standard, Obama administration jealously guards Fort Knox
  • Oil drops below $97… Alan Knuckman with a compelling chart that points to another move up
  • Smart as an ox? How growing numbers of U.S. farmers fight rising fuel prices
  • What if America went the way of Iceland? Vancouver agitator Barry Ritholtz speculates…
  • Readers call us "idiot," inquire about pre-1965 silver coins, take the pulse of Asia's metals market and rise to Ron Paul's defense

Being in Laos this week, we know we woke up this morning on the other side of the world from where we usually do.

Confronting the news, it feels as if the world itself has been turned upside down… and maybe shaken back and forth for good measure.

"There is a need for us to begin thinking seriously and urgently about introducing a gold-backed Zimbabwe currency," says Gideon Gono, the head of Zimbabwe's central bank.

This from the guy who only two years ago was printing currency notes with 14 zeroes on them… and even those could buy only four loaves of bread.

"Gono said the inflationary effects of United States' deficit financing of its budget were likely to impact other countries," according to a report on the New Zimbabwe website, "leading to resistance of the greenback as a base currency."

To help cut the U.S. deficit, a senior fellow at the Heritage Foundation suggests selling off the gold in Fort Knox. "It's just sort of sitting there," says Ron Utt. "Given the high price it is at now, and the tremendous debt problem we now have, by all means, sell at the peak."

We feel compelled to insert Dave Barry's customary disclaimer: "I am not making this up."

An anonymous Obama administration official told The Washington Post by way of reply, "Selling off the gold is just one level of crazy away from selling Mount Rushmore."

Besides, at current prices, the gold amounts to only $392 billion, assuming $1,500 an ounce. With $3.82 trillion in total federal spending this year, the gold would tide over Uncle Sam for about… 37 days.

Heh, and that's assuming the gold is even there. As our friend Ron Paul reminds us, it hasn't been audited since the Eisenhower administration.

Actually, gold is on sale again — the spot price $1,481 this morning. Silver has taken a bit less of a hit, now $33.63.

The catalyst, we're told, is the filing of George Soros' 13-F with the SEC. We got hints of this two weeks ago, but now it's official: Soros Fund Management sold 99% of its holdings of the GLD ETF during the first quarter, 4.67 million shares in all.

Whatever. We think it's more significant that John Paulson is holding onto his much-larger position — 31.5 million shares. It reinforces our notion it's not too late to get rich with gold. We show you nine ways to make it happen in this presentation.

Another down day for stocks: The Dow is back below 12,500. The S&P and the Nasdaq have both fallen below their 50-day moving averages, which could drive some technical selling.

Among other things, traders are chewing on two new signs that whatever passed for a "recovery" is stalling out…

  • Housing starts fell 11% in April, to an annualized 523,000, according to the Commerce Department. Worse, building permits — the best sign of future activity — fell 4%
  • Industrial production was flat from March to April, according to the Federal Reserve. True, some of that can be written off to the effects of the earthquake in Japan — automakers unable to get parts, for instance. The problem is that the February and March figures were both revised lower. Factory output showed its first drop in 9 months.

Both of these reports missed the Street's expectations big-time.

Oil is sliding again. At last check, a barrel of West Texas Intermediate goes for $96.80. That's a 15% drop from the intraday high near $114 on April 28.

But for Resource Trader Alert editor Alan Knuckman, it's no big deal compared to the scope of the increase that came before. "This oil move during a big dollar decline has occurred many times since the $33 extreme lows were posted in 2009. An unwinding of long position to the 10%-plus degree has occurred multiple times over the past 2½ years."

More important, "every sell-off has seen subsequent new contract highs with a revival of the strong upward trend.

"Interestingly, crude has returned to the beginning point of the last rally," Alan says. "The key breakout points remain intact as support levels in what remains a bullish environment."

Alan just laid on a currency trade this morning, as a proxy for oil's next upward move. It's well positioned to add to the 515% total gains he's racked up so far in 2011… on top of the 708% in 2010. Curious? Check out Resource Trader Alert here.

In a development that will surely go unnoticed in Washington, the Fitch rating agency has upgraded the outlook on Icelandic government bonds from negative to stable.

"It's been 2½ years since our credit crisis," writes our friend Barry Ritholtz, "and we now have enough distance to see the results of various policy choices different nations have made.

"The Irish made a horrific decision to completely transfer the losses from their reckless bankers to the taxpayer. Similarly, the U.S. assumed much of the responsibility for irresponsible bankers and their reckless leveraged bets. Our economy has muddled along with subpar growth, weak job creation and a nagging suspicion that another crisis is likely sometime in the future.

"Rather than bail out the banks — Iceland could not have done so even if they wanted to — they guaranteed deposits (the way our FDIC does) and let the normal capitalistic process of failure run its course.

"They are now much, much better for it than the countries like the U.S. and Ireland, who did not."

Barry will once again take the stage in Vancouver this July. He's become a favorite at the Agora Financial Investment Symposium — like Doug Casey and Rick Rule, who will also make a return appearance.

Last year's top-rated speaker, the Brazilian oil mastermind Marcio Mello, will also be back to stir things up. We'll also be joined by new speakers, like Canadian hedge fund legend Eric Sprott and his leading researcher John Embry… and Consumer Electronics Association chief Gary Shapiro, author of The Comeback.

All will take part in a lively — and timely — discussion over our fight-or-flight debate: Do you put your hard-earned capital to work in the United States and stand up for the American entrepreneurial spirit… or is it time to move it overseas to a more-hospitable climate?

Symposium director Bruce Robertson says only 74 slots remain for this year's event… and those probably won't last much longer.

It had to happen, sooner or later: Soaring energy prices have brought us to this:

Powered only by biofuels

U.S. farmers are flocking to the Michigan property of Dick Roosenberg, learning how to use oxen, instead of tractors.

Roosenberg spent much of his lifetime working for the Peace Corps, the U.N. and charities, teaching people in developing countries how to grow food as cheaply as possible. Now with diesel fuel prices soaring, he finds himself teaching his skill set to as many as 20 Americans each weekend.

A pair of plow-ready oxen costs $3,000 — about the same as a used tractor. Younger cattle are just a tenth of that. Their fuel is grass, they generate their own fertilizer and they have a useful life of 14 years.

Roosenberg freely acknowledges this won't work on a large scale. But it's ideal for "small farms, with high-value garden crops." Just a word to the wise if you're thinking about following the advice of Marc Faber and Jim Rogers and taking up farming.

Actually, now that we recall, we're pretty sure their advice was to marry a farmer. Heh…

"You seem to be making fun of Geithner's warning of breaching the debt ceiling," a reader writes. "You idiot! You should be watching this with great interest."

Heh. Here we stop merely for the amusement of regular readers.

Then we pause again, because the first pause was so much fun.

"If the debt situation is not resolved," our newcomer continues, "which opposing forces in Congress make a possibility, what the hell will investors buy if the most-stable sure thing fails? If the U.S. government fails to pay an interest payment, or, worse yet, fails to refinance a T-bill?

"My guess is you will see gold skyrocket UP. Bill Bonner has advised gold for so long and right in front of our eyes we can see the reason for gold to skyrocket up develop. It's historic.

"To make it even more historic, add to that debt 'haircuts' out of Europe. And now the stupid IMF president is in a USA jail? You should republish those graphs."

The 5: Indeed, glad you could join us.

"I always thought that pre-1965 silver U.S. coinage was 90% silver," writes a reader who saw our photo of the Oregon gas station selling gas for two silver dimes.

"So if a dime is supposed to be 1/10 of an ounce of silver — 90% X 0.10 = 0.09 of an ounce — and two dimes would equal 0.18 ounces of silver — not 0.149 — as stated by the professor! Where am I (or is he) going wrong?

"Love The 5."

The 5: Thing is, the silver dime was less than 1/10th of an ounce. Under the Coinage Act of 1792, a silver dollar consisted of 371.25 grains of silver — which works out to 0.77344 troy ounces.

"In Malaysia," writes a reader who saw our items about the precious metals market in China and India, with a pulse on the physical gold market, "one bank that sells bullion to retail customers tells me that one needs to call in ahead for the bank to hold or reserve the coins for you, and on that day you will come in and pay.

"Maple Leafs are in short supply (an order of 10 takes awhile to assemble) and forget the Sing Lion (1-oz. Singapore coin) — they are gone, as are the Pamps. The fellow on the other end of the phone noted that they cannot keep up with demand."

"To the reader who doesn't feel Ron Paul cares about people," writes a reader slipping shod, "I suggest he do a little more due diligence.

"He's speaking about a man who has tirelessly fought for the natural rights and prosperity of all Americans for over 30 years, never voted for a tax increase, fought against the immoral taxation that is inflation caused by the Fed, delivered babies free of charge as a doctor in poor communities, served his country in the Air Force when called upon and refused to participate in the lucrative taxpayer-funded congressional pension scam.

"I'll leave a good quote from Dr. Paul: 'I don't care about the next election. I care about the next generation.'"

"Three cheers for Ron Paul taking another run for president," adds another. "Make that four cheers. Oh wait — he might not want to let the Fed get away with printing another $10 trillion.

"This could give us the only long shot we have to salvage the country's currency. The Bozo that wrote in complaining about Dr. Paul and his attitude for people might want to experience the U.S. as the latest third-world nation, but I would much rather have someone tell the central banks to shove it."

The 5: "If blame is to be placed for the mess we're in," Dr. Paul explicates in his new book, Liberty Defined, "don't just pick on George Bush and Barack Obama. Blame Lord Keynes and all his followers who rejected the Austrian theory of the business cycle. It is bad theory that is the root of the problem, the belief that central banks can turn stones into bread.

"Simply put: If we want to cure the bust, don't create the boom. Economic growth must be based on real factors, not phony stimulus provided by the central banks."

There are many nuggets in Liberty Defined you will find provocative. Order your copy from Laissez Faire Books and get a 20% discount.

We spent the last week in China observing the unintended consequences of that phony boom. And, in fact, met a Chinese academic who laments the outcome should a Chinese desire for "prosperity" trump the traditional values of thrift, saving and investment that once defined the Western economic order.

Details, we suspect, are forthcoming.

Cheers,

Addison Wiggin
The 5 Min. Forecast

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