Sprott's Embry on King World News: the fun is just beginning!

Sprott Asset Management's chief investment strategist, John Embry, covers many topics related to gold and silver in a 14-minute interview today with Eric King of King World News, which you can listen to at the King World News Internet site here:

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/10/29_John_Embry.html

Or try this abbreviated link:

http://bit.ly/bQKZSR

John Embry: U.S. dollar's collapse inevitable

Sprott Asset Management's chief investment strategist, John Embry, writes for Investor's Digest of Canada that collapse of the U.S. dollar is almost inevitable and gold is about to reassert itself as money in a shocking way. 

The headline on Embry's commentary is "U.S. Dollar's Collapse Inevitable" and you can find it at the Sprott Asset Management site HERE

John Embry: Why gold will keep going up for years

Remarks by John Embry Chief Investment Strategist, 

Sprott Asset Management, 

Toronto Vancouver Resource Investment Conference

Hyatt Regency Hotel

Vancouver, British Columbia, Canada

Monday, January 18, 2010

Good afternoon. 

It is once again a great pleasure for me to address a knowledgeable gathering at Joe Martin's always excellent Cambridge Conference.

When I was here last year gold was around $850 and there was the usual angst among mainstream commentators fearing a drop to $600 per ounce or worse. Today the price is roughly $300 higher and the same individuals continue to try to frighten the public with prophesies of vertiginous falls in the gold price. Despite this ongoing aggravation, I am even more bullish on the prospects for gold than I was a year ago.

However, despite my consistent enthusiasm for the yellow metal once termed a "barbarous relic" by Lord Keynes, I still have the strong feeling that the vast majority of investors outside this room still haven't got a clue about gold and they are certainly not aware that gold is experiencing a historic bull market with much, much further to go. What we have seen to date is merely a prelude, and the appreciation we are going to see in future years is going to greatly exceed what we have seen to date. This opinion is based on a number of factors I will expand on, but the predominant theme is that gold is re-establishing itself as money.

It has been money for thousands of years, a reality that was succinctly summed up by J.P. Morgan in 1912 when he said, "Gold is money and nothing else." But we go through periods when that reality is obscured, and the decades of the 80s and 90s represent living proof of that. Gold retreated to commodity status in that era, when disinflation was in vogue and the real returns on financial assets were truly remarkable in historic terms.

Gold fell from a peak of $850 per ounce in January 1980 to a low of $252 in July 1999 in an extended bear market. To be fair to gold, it got a significant push to the downside in the latter part of that period from the central banks that were dumping enormous quantities of gold by leasing it through their bullion bank cronies. I would contend that the gold price overshot its economic value by perhaps $150 on the downside. Contributing to this fiasco was the ludicrous auction of half the British gold reserves within 10 percent of the bottom. Today this egregious error is referred to as "the Brown bottom" in recognition of the idiocy of the current British prime minister, who was then finance minister.

However, this is all water under the bridge and I don't particularly want to dwell on it other than to say that we are now in the phase of the gold market where we are about to benefit mightily from the central bankers' awesome stupidity at that time.

It is important, though, that everyone realize exactly what happened. The Western central banks supplied massive quantities of gold to the market for at least the past 15 years. Initially this facilitated excessive producer hedging. Then it helped to fund a huge carry trade that greatly enriched their bullion bank cronies. Now it occurs in large part to protect existing huge short positions held by those same banks.

You might be inclined to ask why the central banks would do such a thing. The official explanation for the transparent portion of their activities (i.e., direct sales) was to diversify their reserves. Essentially, why hold gold when you can own an interest-bearing piece of paper in its stead?

But that explanation is purely fatuous and a total smokescreen. The whole process, with the clandestine leasing and swapping of huge quantities of gold, was orchestrated by the United States. It was designed to reduce critical scrutiny of the central banks' increasingly reckless monetary policy, to allow interest rates to remain at unrealistically low levels and to maintain the U.S. dollar's supremacy. That this undertaking would inevitably spawn serial financial bubbles, the very same bubbles that brought the world financial system to its knees, was conveniently ignored.

This was all foreshadowed by some remarkable comments by then-Federal Reserve Chairman Alan Greenspan at a Federal Open Market Committee meeting in the early 1990s, remarks that came to light only recently when a transcript of that meeting was scrutinized. Greenspan referred to gold as a "thermometer" and speculated that if the Treasury Department sold a little gold in the market and the price broke as a result, not only would the thermometer no longer be a measuring tool but the lower gold price could affect underlying psychology. Greenspan was unfortunately right in his perverse judgement and shortly thereafter the systematic dumping of gold by the Western central banks moved into high gear.

It really makes you love free markets, doesn’t it?

But what a sorry mess they have created. While in the '90s, their gambit played out spectacularly with gold collapsing and financial assets flourishing, it sowed the seeds for what has happened subsequently: a robust bull market in gold since 2001 and increasing chaos in the stock, debt, and real estate markets worldwide. To this day the central bankers have remained undaunted and have increasingly intervened in all markets, but despite their annoying periodic raids, their influence is waning dramatically in the gold market.

I would suggest that today central banks are discovering to their increasing discomfort what history has always demonstrated -- and that is that manipulation of the free-market process ultimately fails. No amount of government interference and price manipulation can change the reality of the free market over the long term.

In the whole sordid process of the gold suppression scheme for the past 15 years, what has been particularly intriguing to me is that an earlier generation of central bankers unsuccessfully tried to same ploy with gold in the 1960s. Using the considerably more transparent London Gold Pool, they succeeded in holding gold at the then-official price of $35 per ounce for a number of years before being overwhelmed by the reality of the situation. In the following decade of the 1970s, gold rose a mere 2,300 percent.

Armed with the knowledge of that fiasco, one would have surmised that our current central bank geniuses might have considered that their new attempts at price control, albeit considerably more secretive, could meet a similar fate. Alas, the hubris of central bankers is well known, and this just represents another graphic example of their arrogance and awesome incompetence.

However, what remains to play out is the denouement of their current folly. Markets that have been artificially capped tend to catapult upward when the suppression inevitably fails. In my opinion the last experience in the '60s and '70s was a mere bagatelle in comparison to what is unfolding today. It has always been accepted that "the greater and longer the manipulation, the greater the eventual price rise is going to be."

In the latest episode, there has been dramatically more central bank gold expended. Credible estimates suggest that more than 15,000 tonnes, or roughly half of the central banks' supposed reserves, have already hit the market and are long gone, dangling from the wrists and necks of Indian women, filling vaults in the Middle East and Russia, and, in ever-greater quantity, migrating to China.

In the era of the London Gold Pool, only around 3,000 tonnes were sold to maintain the $35 price. This time the exercise has been dramatically larger and has occurred over a much longer time frame against the backdrop of a considerably more fragile financial structure, particularly in the West. So all of you are free to use your imagination to estimate how high gold is going to go this time.

It is critical to understand what the central banks have done because, in the absence of that knowledge, one cannot appreciate the whole gold story and will find it extremely difficult to recognise the investment opportunity being presented.

However, that is only one critical factor, and, as I said at the outset of my remarks, it is gold's return as money that is going to be really instrumental in driving gold to prices that would seem fanciful to most at the present time. In reality, it isn't gold that is changing, because it has been a constant store of value for 6,000 years. It is the value of fiat paper money in which gold is priced that is on the slippery slope to oblivion.

I could talk extensively about what is happening to the value of paper money, but to shorten things up, there is only one expression that you have to know: "quantitative easing." What a joke that is!

The authorities would have you believe it is some sort of magic elixir and a panacea, but all it represents is the monetization of various forms of debt by unfettered printing of money by central banks. Because the inflationary impact has yet to occur, the linear thinkers would assure you that it isn't going to be a problem. However, because of ongoing deleveraging and falling velocity of money in the short term, it is only being delayed.

As sure as death and taxes, continuing excessive money creation by the central banks will lead to accelerating inflation. When it begins to manifest itself, the velocity of money will pick up rapidly as people around the world rush to get rid of their increasingly worthless paper currency. In that event, we will rapidly progress from relatively benign inflation to truly frightening levels in a fairly short time.

At this point, I would like to repeat a quotation I used in a recent Investor's Digest article. It comes from Ludwig Von Mises, the brilliant originator of the Austrian school of economics, which is the only formal economics that makes much sense to me. Long before I was born, which was a long time ago, Von Mises observed:

"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner, as the result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency system."

That comment is pretty germane to what is unfolding today. Following what was arguably the most abusive credit cycle in history, Fed Chairman Ben Bernanke and his central banking confreres have clearly chosen the latter option, and accordingly, in my opinion, all forms of fiat paper money are headed for a train wreck. Ironically, Bernanke tipped his hand seven years ago in the infamous speech he gave before becoming Fed chairman. He claimed that he could combat deflation by the use of a printing press or, if need be, by dropping money from helicopters to sustain demand. To me his theories were ludicrous at that point and remain so today. Yes, he may avert deflation for a considerable time but at the very probable cost of hyperinflation and the social chaos that inevitably results.

Today the only question in my mind is whether investment demand for gold is going to go berserk as the result of a U.S. dollar collapse or because all the fiat currencies go down the drain together. The U.S. dollar is in its death throes, but will other countries print massive quantities of their own currencies to buy the dollar in an attempt to depress their currencies and keep their economies relatively competitive? To date, I would say that despite the considerable weakness in the dollar, there is abundant evidence that many other countries are printing aggressively to prevent their currencies from rising too much against the dollar.

In any case, I believe we are fated to see a continuing policy of ridiculous monetary ease around the globe, despite rhetoric to the contrary. This will occur because the idea of a double-dip recession or depression, as the case may be, is anathema to the powers that be. Very simply, withdrawing any significant amount of stimulus, be it monetary or fiscal, in the foreseeable future would virtually guarantee another deflationary event, and this time it may be impossible to stop.

Clearly, the United States is the lynchpin of the whole debacle, but most other countries are up their necks in the mess as well.

To begin, let us consider the United States' fiscal quandary, with a federal government deficit currently running above 10 percent of gross domestic product and representing roughly 40 percent of government expenditures. These numbers are horrific for a country that is providing the world's reserve currency. A recent study looked at the 28 examples of hyperinflation in various countries since 1980 and included Argentina, Zimbabwe, and many other banana republics. It noted that one common trait was that when the national government deficit exceeded 40 percent of expenditures, the point of no return had been reached. The U.S. is there as we speak and the $389 billion deficit in the first quarter of the 2010 fiscal year was far from reassuring.

While the preceding information is historical and thus factual, there is the matter of the Obama administration having recently admitted that its budget deficits would total $9 trillion (a number that I believe to be wildly optimistic) over the next 10 years. The question that obviously has to be asked is: What person, institution, or government, for that matter, in its right mind would lend money to the United States for the pathetically low interest rates currently on offer?

In reality, who would really be comfortable lending the United States money at any interest rate in the current circumstances, considering that higher rates would just ensure even higher deficits?

So it seems reasonable to assume that more of the deficits will have to be monetized, the dollar will inexorably decline as a result, and the question of confidence will become paramount. If confidence in the dollar is lost, chaos will ensue and those trapped in dollar-based fixed-income assets will see their wealth destroyed, the same fate that befell those who believed in the system in the Weimar inflation in Germany after World War I.

But the United States is far from the only country that is in serious difficulty. Things are as bad, and in certain cases worse, in many other countries. For example, Great Britain is a basket case, which incidentally looks real good on that hypocritical jerk Gordon Brown, who has led his country to ruin. Britain's central bank has been forced to intensify its quantitative easing program several times to keep the economy barely afloat and its financial system semi-intact.

Japan, with its rapidly aging population, has seen its accumulated public debt reach 200 percent of GDP with no end of that trend in sight.

Europe is no bed of roses either. Despite the soothing words of the head of the European Central Bank, Jean Trichet, and some very vocal comments about current monetary excess from Germany's Angela Merkel, they appear to have little choice but to keep the money flowing to save Club Med, Ireland, and a whole swath of eastern Europe from oblivion.

China, that paragon of all things economic and financial, had to resort to mandating a humongous increase in bank lending in the first half of last year to keep its economy moving. The ultimate outcome of this endeavor remains to be seen, although it certainly had a salutary impact on Chinese share prices and world commodity quotes. Unfortunately, the resulting massive over-capacity throughout the entire Chinese economy may become an issue.

That brings us to the favorite country of everyone in this room, Canada. I suspect that the Canadian authorities will be forced to deal with reality soon. Despite the hedge funds' love affair with the Canadian dollar, the economic and financial fundamentals in this country don't support the current level of the loonie. We are attached at the hip economically to the United States and as our dollar rises, our manufacturing industries or what's left of them are being destroyed. Budget deficits are exploding at all levels of government.

One year ago the feds didn't have one, but now the deficit is annualizing somewhere north of $60 billion. Ontario is homing in on $25 billion and even hydrocarbon power Alberta has ruefully admitted that its deficit forecast has risen to $6.9 billion, as very low natural gas prices, among other things, take their toll.

Bank of Canada head Mark Carney and Finance Minister Jim Flaherty know these problems all too well, although much of the public seems blithely unaware, and I am eagerly awaiting Carney and Flaherty's response. Rumors of aggressive quantitative easing are growing, adding yet another nation to the expanding list practicing this dark art.

Why is all of this significant?

Very simply, it ensures that the demand side of the gold-silver equation is baked in the cake. Investment demand is exploding on a worldwide basis as those with wealth to protect are beginning to comprehend the true extent of the monetary debasement under way. This is only going to intensify as inflation begins to rear its ugly head as the result of the money-printing orgy.

As I mentioned earlier, the velocity of money is going to accelerate as people figure out what is occurring. Why would anyone want to hold a rapidly depreciating monetary asset when it yields next to nothing? At that juncture we will see if the powers that be have the courage to remove significant amounts of stimulus. Since I believe that our debt-logged economies will remain relatively weak and our financial structure exceedingly fragile, I don’t believe they will.

So I find it laughable when people concern themselves with reduced jewellery demand as a factor in the pricing of gold in the current circumstances. Any decline is being dramatically exceeded by rising investment demand, and this phenomenon is only going to intensify. Besides, all great bull markets in precious metals are driven by investment demand as gold reasserts itself in its true role as money. They most certainly don't occur as the result of gold's attraction a bauble or as an adornment.

However, as bullish as I am on the demand side of the equation, an equally compelling case can be made on the supply side, which consists of three primary elements -- mine supply, scrap recovery, and central bank dispositions. The least important is scrap recovery, but it was briefly a negative in early 2009, when a lot of people around the world couldn't wait to get rid of their jewelry and realize a little cash for the gold contained in it. However, that sharply abated in the second half of the year and the focus is now back where it should be, on mine supply and central bank dispositions.

One of the key factors that is going to contribute to the ongoing bull market is mine supply, or more accurately stated, lack thereof. Mine supply has been in a steady decline since early in the new century despite the constant rosy predictions of greater supply from the alleged industry expert GFMS Ltd. I have long been of the mind that the decline will continue for some time irrespective of what the gold price does. I base my opinion on numerous factors, including a dearth of quality projects ready for mining, continuing geopolitical and environmental issues, less high-grading as the gold price rises, ongoing capital constraints, and a chronic shortage of skilled miners and mine builders.

Thus I was fascinated when Aaron Regent, the new head of the world's largest gold company, Barrick Gold, was quoted at RBC's annual gold conference in London lamenting the state of the gold mining business. He went so far as to suggest that global gold production was in terminal decline despite record prices and Herculean efforts by mining companies to discover new orebodies in remote areas. He alluded to "peak gold," implying that production has reached levels that can't be exceeded, an expression that is commonplace in the oil industry, where the subject has been under discussion for some time.

Following this pessimistic assessment, a more horrifying prediction was revealed in the South African Journal of Science. Chris Hartnady, the research and technical director of a Cape Town based consultancy, stated that South Africa's famous and extremely prolific Witwatersrand gold fields are around 95 percent exhausted and predicted that production rates should fall permanently below 100 tonnes per year within the next 10 years.

This is truly shocking in that gold production from the Witwatersrand, the largest gold field ever discovered, peaked at around 1,000 tonnes per annum in 1970 and, though falling steadily since, still contributes around 230 tonnes per year or roughly 10 percent of world production.

In view of these two evaluations by knowledgeable industry players, my negative view on production has been reinforced. Gold mine production is in the neighborhood of 2,350 tonnes per year, and I continue to believe that odds strongly favor it continuing to fall rather than show any meaningful increase for the next several years.

That brings me back to the central banks, and I apologize if I am belaboring the point, but I believe their role in the whole saga is neither widely appreciated nor well understood. Because of the remarkable obfuscation in the area, most observers do not realize how much central bank gold has entered the market in the past 15 years to fill the huge and growing gap between true demand and mine and scrap supply.

This is the direct result of misleading accounting by the central banks -- accounting, incidentally, that has been endorsed by the International Monetary Fund, the very same IMF that has been threatening the gold market with potential massive sales for a number of years. The central banks have been permitted to use a one-line entry on their balance sheets, which does not differentiate between gold in the vault and gold receivables.

There is copious evidence, if you look for it, that supports the contention that gold receivables have grown dramatically as the result of central banks surreptitiously mobilizing their gold through leasing and swaps. This gold has been dumped in the market and has been essential in filling the natural demand- supply gap, which has probably exceeded 1,000 tonnes per year in most of the years since the mid- to late 1990s. That it also served to significantly depress the price wasn't an accident.

The significance of the 1,000-tonne-per-annum number is two-fold. First, it represents in the neighborhood of 25 percent of the physical gold supply during the period, showing how truly deficient real sustainable supply is. Second, it virtually guarantees that Western central banks are getting dangerously short of reserves to continue this activity. Just as importantly a number of Eastern central banks -- including China and Russia, to name but two -- have acknowledged their intentions and are accumulating and will continue to accumulate gold as one avenue to diversify their reserves away from the U.S. dollar.

But India may have stolen a march on all of them when it announced recently that it had purchased 200 tonnes of the well-advertised and long-awaited IMF sale. This was the event that really kicked off the latest leg in the gold bull market, and unquestionably the Indian move drew widespread attention to a historic shift in the attitudes of central banks toward gold. It coincided with a complete cessation of selling by the European central banks, which under the terms of the recently renewed European Central Bank Gold Agreement could sell up to 400 tonnes per year.

Thus just as the Western central banks are being forced to wind down their incessant selling and leasing, the Asians have stepped up as buyers. This is a truly dramatic development and is going to have extremely positive ramifications for the gold price.

In view of the foregoing powerful positive fundamentals for the gold price, I find it almost nauseating that various pundits are referring to gold as overpriced and in a bubble phase. Nothing could be further from the truth, and, in reality, gold continues in its stealth bull market, which has now seen nine consecutive higher year-end closes. Despite this, as I mentioned earlier, it has attracted very little attention from the investing public in general.

The dedicated goldphile has participated throughout, and a number of sophisticated financial players have come on board recently, the latest being the legendary trader Paul Tudor Jones. But the average investor remains uninterested. It is instructive to remember that at the end of the last bull market in 1980, people were lined up around the block outside the Bank of Nova Scotia in downtown Toronto to purchase physical gold. Today the only lines that have formed are outside emporiums set up so the unsuspecting public can unload their gold jewelry for cash. To have a bubble of any significance, there has to be wide public belief, and it certainly isn't on display in the gold market.

More importantly, if gold were overpriced, the gold producers would be experiencing an earnings bonanza. A close examination of the recent earnings statements of most major gold companies reveals that they are earning very little and are certainly not achieving the return on capital necessary to justify their involvement in a very risky and difficult business.

I find sentiment in the sector to be remarkably subdued in the face of compelling fundamentals. Many attractive junior gold stocks are not even keeping up with the rise in the gold price. If history were any guide, these stocks would be rising at three to four times the rate of the gain in the gold price, but investor skepticism is holding them back.

From a media perspective, if we were approaching the end of a bull market, the newspaper articles and television clips would be universally bullish touting the obvious merits of the yellow metal. There is indeed more coverage recently because of the relentless price rise, but it tends to be skeptical with the bearish commentators continuing to get the most exposure despite having been continuously wrong.

There is no better example of this than an individual who my compliance department would prefer that I not identify. However, I’ll give you a broad hint -- he writes virtually daily for a noted Canadian gold Internet site. Dubbed the Tokyo Rose of gold commentators, he is always quoted in articles with a negative slant despite having been consistently wrong since the inception of gold's bull market. In my opinion, as long as he gets any press at all, we are a long way from the end of this bull market in gold.

Finally, it is widely acknowledged that if the peak gold price in the last great bull market ($850 in January 1980) were to be adjusted to reflect the U.S. inflation rate in the intervening period, it would be equivalent to $2,300 today. That the current gold price is approximately half of that should put to rest any suggestion that this is a bubble.

That's not to say there aren't several bubbles forming in other financial markets (most notably in government debt instruments) as a result of a new bout of central bank madness, but gold is not on the list. In fact, I believe that we are many years and several thousands of dollars in price away from the end of this powerful bull market.

In conclusion, I now firmly believe that the chances of gold ever trading below $1,000 per ounce are remote. The only caveat I would offer is that if the world suffered a catastrophic deflationary collapse, an outcome long predicted by the noted Elliot Wave theorist Robert Prechter, gold could briefly be swept under but would then re-emerge with even greater relative strength as the only true safe haven. However, in a world of pure fiat currency, I think that a near-term deflationary outcome is highly unlikely. In fact, I strongly suspect that gold is going to stage a parabolic rise from current levels in the not-too-distant future, a development that will come as a shock to the many detractors of the world's only real money.

Gold is the only real money because it isn't someone else's liability.

This remains one of the best supply-demand imbalance stories I have encountered in my long career and it will only be enhanced by the existence of massive short positions that will be impossible to cover amid myriad paper claims on gold that dwarf the physical supply, which, by the way, is a subject for another day.

Thanks very much for listening. It has been an honor to speak to you.

* * *

John Embry: Gold will recover stronger and faster than ever

In his latest essay for Investor's Digest of Canada, Sprott Asset Management's chief investment strategist, John Embry, predicts that the gold price will recover stronger and faster than ever -- but not before he strikes a few more blows against the gold price suppression scheme and the central bankers behind it. Embry's essay, headlined "Gold Will Recover Stronger and Faster Than Ever," can be found at the Sprott Internet site HERE

John Embry: Don't let gold's volatility bother you

In new commentary for Investor's Digest of Canada, Sprott Asset Management's chief investment strategist, John Embry, takes note of GATA's full-page advertisement in The Wall Street Journal and urges precious metals investors to ride out the market's short-term hairpin reversals. Embry's commentary is headlined "Sit Tight -- Don't Let Gold's Volatility Bother You" and you can find it at the Sprott site HERE

John Embry: Comparison shows gold underpriced by at least $400

Sprott Asset Management's chief investment strategist, John Embry, writes in Investor's Digest of Canada that traditional price relationships for gold would put its price at least $400 higher except for the central bank campaign to suppress it. But Embry adds that that campaign is losing and will be overcome. You can find his commentary, "Comparison Shows Gold Underpriced by US$400," at the Sprott site HERE...

John Embry: Gold gleams as central bank influence wanes

In a new essay in Investor's Digest of Canada, Sprott Asset Management's chief investment strategist, John Embry, notes the growing recognition of central bank manipulation of the gold market and argues that gold production can't be sustained without a higher price. Embry's essay is titled "Gold Gleams as Influence of Central Banks Wanes" and you can find it at the Sprott Internet site HERE

John Embry: Lending crisis sets U.S. dollar on fatal course

In his latest essay for Investor's Digest of Canada, Sprott Asset Management's chief investment strategist, John Embry, muses on the idiocy of some gold-market commentary amid the increasingly desperate central bank interventions in the market. Embry's essay is headlined "Lending Crisis Sets U.S. Dollar on Fatal Course" and you can find it at the Sprott site HERE

John Embry: Gold's foes fighting losing battle

Sprott Asset Management's chief investment strategist, John Embry, writes in the new issue of Investor's Digest of Canada that "the anti-gold cartel is winning the odd skirmish but is losing the war" -- that war being to prevent the collapse of the U.S. dollar.
Embry pays special tribute to the research done by Ted Butler in the silver market.
You can find Embry's commentary, "Gold's Foes Are Fighting Losing Battle" at the Sprott Internet site HERE

John Embry: Time for gold 'to go ballistic' approaches

Sprott Asset Management's chief investment strategy, John Embry, writes in the March 30 edition of Investor's Digest of Canada that we're nearing the exhaustion of central bank gold reserves in the face of rising demand, which is when the price of gold will "go ballistic"...

You can read this article in Adobe Acrobat (pdf) format HERE

John Embry: Manipulation couldn't be more blatant now

Sprott Asset Management's chief investment strategist, John Embry, writes in today's edition of Investor's Digest of Canada that manipulation of the gold market has "become so blatant that it is revealing distinct signs of desperation, a necessary precursor to its eventual cessation." Analysts "who do not acknowledge central-bank manipulation of the gold price," Embry writes, "have been embarrassed into silence on the subject."

You can find Embry's commentary, "True State of the Economy Not Grasped by the Public," at the Sprott Internet site here.

John Embry: Great performance of gold, silver is practically a secret

Returns on Gold and Silver Surpass Most Others Again

In his latest commentary for Investor's Digest of Canada, Sprott Asset Management's chief investment strategist, John Embry, notes that gold and silver again delivered superior returns in 2006 but ordinary investors would never know it from the establishment news media. Embry predicts that these returns are only going to get better as the U.S. dollar disintegrates. You can find Embry's commentary at the Sprott Internet site here:

"Returns on Gold and Silver Surpass Most Others Again"

Gold Rush 21

Have a peek at GATA's Gold Rush 21 conference DVD. It was held in Dawson City, Yukon Territory, Canada, in August 2005:


The DVD contains the proceedings of Gold Rush 21, including addresses by:

• GATA Chairman Bill Murphy.
• Sprott Asset Management Chief Investment Strategist John Embry.
• Gold banker and scholar Ferdinand Lips (delivered by his business partner, J.P. Schumacher).
• Gold price-fixing lawsuit litigator Reginald H. Howe.
• James Turk, editor of the Freemarket Gold & Money Report and founder of GoldMoney.com.
• Former assistant HUD secretary Catherine Austin Fitts.
• Gold market analyst John Brimelow.
• Samex Mining Corp. CEO Jeff Dahl.
• Monetary historian Antal E. Fekete.
• Chris Powell, GATA Secretary/Treasurer
• Gold market analyst Alf Field.
• Former Harmony Gold Chairman Adam Fleming, now chairman of Wits Gold.
• Robert K. Landis of GoldenSextant.com.
• University of British Columbia geologist J.K. Mortensen

The DVD can be purchased with a credit card at GATA's main Internet site, www.GATA.org, and at www.GoldRush21.com.

John Embry talks about Gold and mining stocks

John Embry, chief investment strategist and mining stocks "guru" at Sprott Asset Management Inc. talks on Precious Metals and junior mining stocks to Jim O'Connell on "Market Call" programme on Canada's ROB-TV, and you can watch the show at the ROB-TV archive here:




Click the play arrow once again after the intro
Duration: 58 m 12 s

John Embry: Who's selling? Gold scene rife with intrigue

In his latest commentary for Investor's Digest of Canada, Sprott Asset Management's chief investment strategist, John Embry, describes this fall's blatantly price-manipulating selling of gold and silver on the commodities exchanges.

But he adds that this selling apparently has not come from the usual central bank sources in Europe.

You can find Embry's commentary (in glorious pdf) "Who's Selling? Gold Scene Rife with Intrigue" at the Investor's Digest site... HERE.

John Embry's speech at Silver Summit

Speech to The Silver Summit 2006
By John Embry
Chief Investment Strategist, Sprott Asset Management
Friday, September 22, 2006, Coeur d’Alene Inn

GOOD MORNING:
It is a distinct pleasure to address you this morning on one of my favorite subjects, and I would like to thank the organizers of the Silver Summit for giving me this opportunity. For a metal often unfairly derided as the poor man’s gold, I cannot tell you how impressed I am by the richness of intellectual independence exhibited by so many of you here today. It is a breath of fresh air within financial markets that seem increasingly dominated by a lemming-like refusal to deviate from conventional wisdom.
As many of you may know, I am rabidly bullish on the prospects for precious metals and have been for a number of years. The good news is that we have barely scratched the surface of this bull market and the better news is that I believe we are currently on the cusp of the next sharp up leg. When people ask me where we are in the bull market, my response is that we are currently digesting the first stage, where we true believers made a lot of serious money while the public remained blithely unaware. I believe that the second leg of the bull market is about to unfold, in which the public will both recognize and drive precious metals towards all-time real highs.

I speak of gold and silver almost interchangeably in that I think they are currently both subject to many of the same influences, of both the economic and trading variety. I do, however, believe that silver will ultimately have materially greater upside potential, due to severely depleted inventories, new uses for the metal, and what can only be described as an enormous short position. The reasons for my optimism seem self-evident. However, much of the investing public has failed to appreciate the opportunity to date and their discovery of these reasons will fuel the second leg of the bull market.

The primary factor underpinning what will turn out to be spectacular upside in gold and silver will be the impending erosion of faith in paper money. The noted French philosopher Voltaire got it right some 200 years ago when he observed that, “Paper money eventually returns to its intrinsic value - zero.” There are two tightly linked explanations for this conclusion. Literally speaking, paper money is inherently worth very little, relying on the continued faith of citizens to accept fiat currency as an acceptable method of payment and a reasonable store of value. No
less than Alan Greenspan once warned against this faith continuing without interruption. Testifying before the U.S. Congress in 1999, the former Fed chairman expressed his belief that,
…gold still represents the ultimate form of payment in the world. It is interesting that Germany in 1944 could buy materials during the war only with gold, not with fiat, money paper. And gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold..
Greenspan confined his comments to gold, but I believe the same stabilizing qualities typified by gold are also exhibited by silver.

From the first observation that fiat currency is inherently worthless, we can also understand its more consequential failings. Because governments can create paper currency at essentially no cost, and given the political imperatives that drive deficit spending, the structure of today’s monetary system provides little obstacle to the ongoing debasement of currency.
This truth can be obscured for long periods of time, as the spectacular results in paper assets during the 1980s and 1990s certainly attest. However, my sense is that the decades-old bull market in financial assets is largely behind us.
We now find ourselves on the slippery slope of a runaway credit expansion needed to sustain the debt build-up that went before. It is not a stretch to say that at this point, there is no turning back. Either credit creation continues to accelerate, or the U.S. economy in particular risks a dangerous lapse into deflation. An outrageous asset party could quickly morph into a vicious debt hangover.
Given the debt pyramid that has already been constructed, it will take greater and greater additional credit to generate a dollar of real GDP growth with each passing year. This could portend hyperinflation somewhere down the road, but I suspect that policymakers will judge this preferable to a deflationary collapse that could rival the 1930s. Indeed, Fed Chairman Ben Bernanke is an expert on “The Great Depression” and I doubt very much that Helicopter Ben wants to preside over its sequel. So despite admirable efforts to portray himself as an inflation hawk, Bernanke’s academic work on the Depression firmly entrenches him in the dove camp.

But if Bernanke comprehends the dynamics of deflation, it is less obvious that he and financial markets are similarly cognizant of the risks posed by derivatives. Warren Buffett had the misfortune of having to unwind some relatively minor derivative positions in an insurance company acquisition by Berkshire Hathaway, and later described these financial instruments as “Weapons of Mass Financial Destruction.”Some people argue that the proliferation of derivatives is akin to the tail wagging the dog. I would go further, and say that the tail may be swinging the dog around the room and bouncing it off all four walls. The notional amount of derivatives in the system today is preposterous, and raises the scary possibility that we have learned nothing since the Long Term Capital Management fiasco of 1998. With the notional value of derivatives now measured in hundreds of trillions, the mind boggles. What financial calamity a significant counterparty failure could reveal is yet to be seen.

At this point, suffice it to say that reported statistics on derivatives bear no resemblance to the world economy. Buried in a recent U.S. Office of the Comptroller of the Currency report was the fascinating revelation that J.P. Morgan Chase’s derivatives book grew from a notional value of just over $48 ¼ trillion in the 4th quarter of 2005 to $53.75 trillion in the first quarter of 2006. To put this in perspective, the growth of $5.5 trillion is equivalent to approximately 44% of annual U.S. GDP. In addition, Morgan Chase’s outstanding book is over four times the country’s annual GDP. And although the largest player in derivatives markets, J.P.Morgan Chase is far from the only one.

This begs an obvious question: What is the purpose of these derivatives? For the longest time, my impression has been that the outsized use of derivatives relates not only to legitimate hedging activity, but also aids efforts to manage various markets. Whatever their purpose, the danger inherent in huge derivatives books seems clear. Past Fed Chairman Alan Greenspan was a leading apologist for derivatives, and would point out that only a very small portion of their notional value is ever at risk. Nevertheless, if even 1% of the Morgan Chase derivatives book is at risk, that would be extraordinarily significant when compared to its underlying equity. Thus, I tend to be very skeptical if a government official attempts to rationalize the explosion in derivatives. They may be the smoking gun that all is not well with the financial system.

The realization that both the financial system and its reserve currencies are shaky will lead to an inevitable loss of faith and confidence in paper money. This will drive people out of paper assets into tangibles. Despite the recent appreciation in the price of commodities, we have seen nothing yet. Their rise over the past few years has occurred because of favourable supply-demand imbalances. During this time, the faith in paper money has remained intact, as evidenced by the ongoing strength in the bond market. Patience, as always, is required, but a loss of faith in paper currency will be the biggest driver for gold and silver prices.
However, it is only one of several positive factors. Surging demand and stagnant supply have already driven many commodities up, and I certainly don’t see this dynamic changing any time soon. The great news for silver is that above ground stocks, which for years weighed on the market, now appear to be seriously depleted. I’m not sure that the market fully recognized the impact of the above ground inventories, particularly those controlled by the Chinese. Their depletion represents a watershed bullish inflexion point. At the same time, important new uses for silver, particularly in the medical field, should easily sustain demand.

There are others more qualified to speak on this particular subject, but allow me to say that I don’t see fabrication demand for silver to be any sort of negative in the foreseeable future.
However, investment demand for silver will be another important new positive for the metal. I don’t think one can overestimate the impact of the silver ETF over time as a powerful new force for demand. There are those who worry that the silver residing in the ETF may be used to influence the market at key moments, but I see that possibility as a minor negative when compared to the access the vehicle provides to the public to invest in silver. My partner Eric Sprott and I have been huge investors in physical silver, but it isn’t the easiest thing to deal in or store. Thus, a lot of investors, both institutional and individual, who would otherwise not bother, now have a vehicle that makes it incredibly easy to get involved.

As the second leg of the precious metals bull market gets underway, I think the silver ETF will really ramp up demand. In effect, investors can now own the metal with the same ease with which they would purchase a stock. On the mine supply side of the equation, higher prices are expected to lead to greatly increased supply. If only it were so easy and simple. What goes largely un-remarked is how difficult it is becoming to get a mine into production. The cost of everything that goes into mining, both the variable and fixed expenses, has exploded. In addition, the availability of competent personnel-miners, engineers,and geologists-is becoming a larger and larger issue. One close friend of mine, who runs a mining company in Canada, used the word “frightening” to describe the situation. He anticipates a dramatic increase in compensation for mining personnel across the board.

Another factor to consider is that in so many instances, silver is a by-product of base metal production. As you are all acutely aware, base metal prices have done spectacularly well. Yet they are much more dependent on the health of the international economy than precious metals, which will increasingly be seen as currencies rather than commodities. While I remain bullish on commodities in general over the long term, I strongly suspect that we could see a severe economic dislocation in the not-too distant future. This could damage the demand and price prospects for base metals. On the plus side, lower base metal prices should constrain production, which in turn would limit fresh supply of silver by-product.

Turning to geopolitics as a positive contributor to precious metals demand, I think the situation in the Middle East is arguably as tenuous as it has been anytime during my lifetime. Considering how long I’ve been around, that says a lot. With Iran seemingly progressing to eventual possession of nuclear weapons, the prospects for mayhem in that region are far higher than any rational human being would consider manageable. The implications for the oil price remain dramatic, despite the current quiescent period, and my partners at Sprott Asset Management think that oil is headed for triple digits. If oil production cannot rise materially from current levels, then growing demand in India and China alone should render this an easy call.

This has very positive implications for precious metals, which are already seriously under-priced compared to oil. If the average ratio of the price of oil to gold that has prevailed since 1971 were in effect today, gold would be close to $1000 and silver would probably be at least $20.
Perhaps even more important than oil, the U.S. dollar reserves that are piling up in central banks throughout the Middle East, Asia and Russia are going to be diversified into other assets, and I know gold and precious metals will receive more than passing consideration. Gold flows to where the wealth is being created. Not surprisingly then, bullion is leaving North America and Europe and heading for Asia. As Russia and China gain in economic strength, these trends will intensify. Gold and, by extension, silver, will increase dramatically in price in all paper currencies, but most particularly in the doomed U.S. dollar.

I’ve talked about the prospects for silver as an investment, but at this point I’d like to switch gears somewhat. In my opening today, I made reference to the lemming-like unwillingness of the mainstream financial world to deviate from conventional wisdom. As it pertains to silver, this herd mentality has manifested itself in two important, interrelated respects. First, mainstream investment professionals and press outlets cannot bring themselves to regard silver as money.
Historically, this seems absurd. The Silver Institute notes that in 700 B.C. Mesopotamian merchants used the metal as a form of exchange. Not to be outdone, both the ancient Greeks and Romans employed currencies with substantial quantities of silver. More recently, the English sterling exhibited the stabilizing quality that silver contributes to the monetary system. Fast-forward to today, and Hugo Salinas Price is endorsing a silver-backed currency for Mexico.

Far from being a relic, silver seems poised to reassert itself.

In short, it is near impossible to ignore the longevity of silver’s role as money. By contrast, the ancient empires would regard today’s stockpiling of U.S. dollars as potentially useful for hoarding ink, but an exercise in wealth-preserving futility. This recognition is increasingly important in an age of depreciating paper currencies, confined to ongoing debasement by the twin burdens of accumulated debt and future government obligations. No less than Ben Bernanke has boasted that the U.S. government can create an unlimited supply of dollars via the supposed magic of the printing press. We should all give thanks that silver’s value cannot be eradicated by the same means. If anything, the allure of precious metals will soar as investors come to realize the decline of fiat money.

It is exactly due to silver’s historic role as money, and in particular the metal’s relationship to gold, that governments and their allies have an interest in suppressing its price. This silver market manipulation, understood as part of a larger pattern of increasing market intervention by central banks, is the second major fact ignored by mainstream commentators. It is also the subject that will shape the remainder of my talk today.

I am concerned not simply that the price of silver is being tampered with, but that silver’s natural allies mostly combat this activity with stone-cold silence. In the face of obvious price-fixing, the response is a neglect that is tantamount to aiding and abetting the manipulators. My abiding hope is that this silence will abate, that the silver community can summon the courage to stand up for themselves and their product, all the while permitting silver to reclaim its rightful role as money.

As some of you are no doubt aware, my colleague Andrew Hepburn and I have written two studies on market manipulation for Sprott Asset Management.
Let me first discuss our 2004 report, “Not Free, Not Fair: The Long-Term Manipulation of the Gold Price”. We carefully documented every major piece of evidence indicating that the gold market was unfairly influenced by the manipulative trading activities of central banks and well-connected bullion banks. Understanding that the subject was controversial, we provided a litany of footnotes to support our claims. It was our explicit wish that the investment community would engage our material, by either challenging our report on its merits, or accepting its conclusions and publicly voicing disapproval at the management of gold’s price. Neither occurred. Privately, we received very positive feedback from those inclined to the manipulation viewpoint. We have informed reasons to believe that some of the most well-known gold industry executives reside in this camp.

Discretion demands that we not publicize our private indications in this regard, but fortunately the public record is sufficiently bountiful to show that the industry does not consider the allegations to be baseless. In May 1999, John Willson, then chief executive of Placer Dome was quoted by the Financial Times as follows:

“I find it difficult to believe, given what (Alan) Greenspan said in the middle of last year, concerning the central banks intention to maintain a low gold price, that there is not some concerted action going on between central banks to hold inflation down through holding down the price of gold.”

Willson was not alone. Also in 1999, in response to persistent rumours that Gold Fields had recently sold forward large quantities of gold, the company issued a press release denying such actions. The statement quoted company chairman Chris Thompson asserting that,

"These rumours appear to be emanating from New York-based bullion dealers.
The seeming explanation for these unfounded and persistent rumours is a desire by the short end of the market, or the dealers, to talk the gold price down. We do not wish to be associated with these efforts.”

Approximately a month after this press release, the Sunday Times of London quoted Thompson to the effect that “there was a large amount of circumstantial evidence that investment banks were involved in a plot” to depress gold prices.
Later that year, Anglogold spoke of the industry’s role in achieving the September 1999 Washington Agreement, which limited European central bank gold sales and leasing. In an interview with the U.K. Independent newspaper, an Anglogold spokesman was quoted as acknowledging that, “[F]or a long time we, as producers, saw people manipulating our market and had no part in the game.”
The spokesman’s suggestion was that this realization underpinned industry efforts to secure the central bank accord. Even charitably assuming this is true, the silence of the gold industry after the Agreement cannot be overlooked. Gold may be rising, but gold’s suppression has intensified. The gathering courage displayed by the gold industry in 1999 has disappeared. In its place, the silence of 2006 reigns supreme.
It’s one thing for people who believe a market is rigged to remain silent for fear of recrimination. What was so startling about our report on gold manipulation was the widespread refusal of detractors to publicly challenge our central thesis.

Not one mining company publicly said we were wrong. Not one investment bank said we were wrong. And no central bank said so either. Statements by central bankers that have surfaced since we published our report likely explain official reticence on the subject. First, in a speech delivered in 2005, William White, Head of the Monetary and Economic Department of the Bank for International Settlements, admitted that a major objective of central bank cooperation was “…the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful.”

When, you might ask, might joint efforts to influence gold prices be useful to central banks? To answer this, one only need venture into the published memoirs of Paul Volcker, former chairman of the Federal Reserve. Discussing a multilateral agreement in the 1970s to adjust the exchange rates of the yen, European currencies, and the dollar, Volcker remarked that,
Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake. Through March, the price of gold rose rapidly, and that knocked the psychological props out from under the dollar.

As John Brimelow, a very perceptive gold analyst, has delicately articulated, “One can infer that the mistake of allowing gold an unrestrained voice at times of policy shifts was subsequently guarded against.”
Volcker’s statement has important contemporary implications. On May 14 of this year, the Guardian newspaper reported the following:
The International Monetary Fund is in behind-the-scenes talks with the U.S., China and other major powers to arrange a series of top-level meetings about tackling imbalances in the global economy, as the dollar sell-off reverberates through financial markets.

Almost to the day, the price of gold peaked at $720 an ounce. A good source of mine was told that around this time, the U.S. government ordered the gold price taken down, evidently fearful of the implications of bullion’s rise for financial markets.
Evidence pointing to surreptitious market interventions by governments is not confined to the gold market. In the course of conducting research for the second Sprott report, this one on stock market manipulation, my associate Andrew Hepburn uncovered a highly revealing statement by former Clinton advisor George Stephanopoulos on ABC’s Good Morning America. Speaking as a correspondent in the aftermath of September 11, Stephanopoulos described the government’s efforts to prevent a free-fall when trading resumed. After listing a few conventional means of preventing a panic, he stated:
And perhaps most important, there’s been – the Fed in 1989 created what is called a plunge protection team, which is the Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges, and there – they have been meeting informally so far, and they have kind of an informal agreement among major banks to come in and start to buy stock if there appears to be a problem. They have, in the past, acted more formally.
I don’t know if you remember, but in 1998, there was a crisis called the long-term capital crisis. It was a major currency trader, and there was a global currency crisis. And they, at the guidance of the Fed, all of the banks got together when that started to collapse and propped up the currency markets. And they have plans in place to consider that if the stock markets start to fall.

Stephanopoulos is not the only well-connected individual to have revealed this essentially unspoken interventionism. In the lead-up to the Iraq war, the Japanese Secretary of the Cabinet told a news conference that, “There was an agreement between Japan and the U.S. to take action cooperatively in foreign exchange, stocks and other markets if the markets face a crisis.”

I trust I have established that despite free market rhetoric, today’s major markets are susceptible to government intrusion. With this in mind, the recent price action in precious metals has been particularly suspicious. On the day after Labour Day, gold surged $14.00, silver rose sharply then mysteriously slumped, and the un-hedged Gold Index (the HUI) staged a powerful breakout. I closely watch the positioning on the Japanese futures market, the Tocom, which is considerably more transparent than its American counterpart, the Comex. Despite this robust unfolding strength in precious metals, there had been an ongoing aggressive buildup of short positions in gold by the usual suspects on Tocom, the large Japanese banks and one large American investment bank. At the same time, Comex floor sources reported that on the day gold rose $14.00, a large seller blocked the advance of the gold price at $648 on the December futures contract by selling indiscriminately until the buying was finally exhausted. The next day, gold was driven down, forcing the speculative buyers to unload their positions. For five consecutive days, gold was pounded. The thinner silver market was correspondingly annihilated on Comex, falling over $2.00 per oz. in a three-day period and continuing to fall in the aftermath, with the percentage loss reaching nearly 20%.
This decline, in a very short period of time, in a market with a physical shortage, is bizarre. But it is not without precedent. Often when Comex opens, both gold and silver are smashed in unison, with the downdrafts looking identical.

In addition, the two metals are routinely crushed in quiet periods on the Access Market. The violent attempts to sell gold and silver through key support levels is not indicative of profit-maximizing longs unloading positions, but instead demonstrates orchestrated movements.
Why this is disturbing to me, other than the fact that it does not appear to be legitimate price action, is the fact that three or four traders hold over 80% of the Comex silver short position. Ted Butler, a gentleman who knows as much or more about the silver market than anyone that I have ever encountered, believes this represents manipulation and I agree with him. The size of the paper short position in silver in relation to the size of the physical market, whether relative to available inventories or annual production, is outrageous, particularly when this short position is concentrated in so few hands. If the longs called for delivery, where is the silver going to come from? If the short positions were smaller, wouldn’t it be axiomatic that the silver price would be much higher?
It is tempting to believe that the manipulation of precious metals markets is aimed at garnering illicit profits for certain traders. But I think this misses the larger point. Gold is widely seen as a barometer of economic health, and silver is tightly connected to its more expensive cousin. Thus, as gold analyst Reg Howe has observed, “Any efforts to affect interest rates through the manipulation of gold prices cannot safely ignore silver.” In this regard, my sense is that the recent clobbering of silver is a case of the metal being an innocent bystander in a greater conflict. To the extent that the silver price runs free, it may also free the gold price from the shackles of government influence. Think of silver as the well-meaning witness whose observations must be silenced.

But despite the repeated mugging of silver, those responsible for ensuring its safety have abrogated their duty to protect the metal. The Commodities Futures Trading Commission continues to allow manipulation to occur, despite the howls of ordinary investors. Yet the CFTC is not the only possible defender of a free silver market. In particular, the captains of the silver industry, those mining companies engaged in its production, refuse to publicly confront these lingering allegations of market manipulation. This is not acceptable. As someone who oversees a large precious metals fund, I cannot tell you how frustrating it is to witness this obvious manipulation. I feel like the newscaster played by Peter Finch, in that classic movie from years ago, NETWORK, who would rant on air: “I’m mad as hell and I’m not going to take it anymore”.

It is further distressing to watch the mining companies suffer in silence, adamantly refusing to call the emperor on his lack of clothes (or, his large short position) and demand appropriate remedies. If you take but one message from my talk, let it be this: It is time that the era of silent collaboration in the precious metals markets ends. If you are not vocally and publicly against the silver manipulation, your reticence is facilitating its continuation.

There is a tendency in financial markets to ignore questions of right and wrong. Many companies and investors seem to believe that so long as they are positioned correctly, what happens behind the scenes is but an irrelevance. If we see the economy as a mere vacuum, this view might hold currency. But markets are about more than trading paper. They involve outcomes that affect the daily lives of ordinary citizens. In silver, I am talking about the best interests of shareholders, of miners, and of the communities engaged in the metal’s production. All these stakeholders have needlessly suffered due to the manipulation of the silver price. And all stand to benefit should investors and the industry muster the determination to end the meddling. Today I ask you to do just that.

Analysts predict soaring silver prices

Coeur d'Alene, Idaho (Platts)--25Sep2006

Whether or not the price of silver, along with gold, is being
manipulated to the downside by bullion banks and big
Wall Street traders was the subject of some disagreement at
the 4th annual Silver Summit in Idaho last week.
However, analysts told Platts they were unanimous on one
point: the silver price is headed seriously upward, fueled both
by fundamentals and near-historic levels of investor and
speculator interests.

"I am rabidly bullish on silver, and as we digest the first stage
of this bull market, we are poised to reach new real-time price
highs," said Sprott Asset Management's John Embry, adding that
he expected silver to be more volatile than gold but, in the end,
to outperform the yellow metal.

Embry continued: "As we slide down the slippery slope of credit
expansion, we will see further erosion of faith in fiat money.
The Federal Reserve will be faced with a monetary policy either of
deflation or hyperinflation as debt piles up. Hyperinflation will be
the more likely policy, and far from being a relic, silver will
re-assert itself as money."

Embry referred to a Sprott-issued report in 2004
entitled "Not Free, Not Fair" in which he suggested that
in leasing gold banks and other major traders had conspired
to suppress the gold price. At the Silver Summit he declared
there was similar "obvious price fixing" in the silver markets.
"The silence of the silver-mining companies in the wake of
these manipulations must end," he said.

CPM Group's Managing Director Jeffrey M. Christian said
he could find no evidence of silver price manipulation, but said
market forces would drive the white metal's prices much higher
than current levels in the near term, should investor or speculator
interest top 150 million oz.

"The silver market is shifting from 16 years of persistent net
sales from inventories to net purchases for addition to inventories,"
said Christian. "Investors are buying silver. The iShares silver ETF is
only a sideline, a consequence, of the surge of investor interest in silver."

According to Christian, the Indian government sold 35-mil oz
of silver in 2005, but sales could decline to 32.5-mil oz in 2006.
"Silver was legally re-exported from India in March and April 2006
after stocks of unsold new imports built up there," said Christian.
"The silver went mostly to dealer holdings in London, where the
metal will be available for delivery into the silver ETF."

Christian likened current market conditions to those of 1979,
when silver shot up to nearly $50/oz and the silver-gold ratio
dipped below 10:1. "This represents investors buying more silver,"
he said. Total silver bullion inventories, meanwhile, have fallen from
more than 2-billion oz in 1986 to nearly zero now, he noted.

--David Bond, newsdesk@platts.com

Money...

Όσοι από εσάς διαβάσατε το αρχικό ποστ που αναφέρεται στο άρθρο του Alan Greenspan (Χρυσός και Οικονομική Ελευθερία) θα έχετε σχηματίσει μια ιδέα του τι είναι Χρήμα.
Είναι αυτονόητο ότι χωρίς την (ευρεία) έννοια του χρήματος δεν θα υπήρχε και η έννοια της οικονομίας!
Στο σημείο αυτό λοιπόν ας κάνουμε μια λεπτομερέστερη θεώρηση στα θεμελιακά στοιχεία του χρήματος.
Για να λειτουργήσει σαν Χρήμα ένα οποιοδήποτε εμπόρευμα ή αγαθό πρέπει να έχει τρείς βασικές ιδιότητες/χαρακτηριστικά, ήτοι:

1. Να αποτελεί ανταλλακτικό/συναλλακτικό μέσο, ήτοι να:

• έχει ρευστότητα και ευκολία συναλλαγής (fungibility) και μικρή διαφορά μεταξύ τιμής αγοράς και πώλησης (spread).
  
• είναι εύκολο στη μεταφορά (λ.χ. τα πολύτιμα μέταλλα προτιμώνται από το χαλκό ή το σίδηρο λόγω -συν τοις άλλοις- της υψηλής σχέσης αξίας/βάρους)

2. Να αποτελεί λογιστική μονάδα, ήτοι να:

• είναι επιδεκτικό διαίρεσης και υποδιαίρεσης χωρίς απώλεια αξίας
  
• είναι η κάθε μονάδα απόλυτα ισοδύναμη και ανταλλάξιμη με οποιαδήποτε άλλη

3. Να αποτελεί μέσον διατήρησης και διαφύλαξης αξίας, ήτοι να:

• έχει μεγάλη διάρκεια ζωής χωρίς απώλεια αξίας
  
• έχει σταθερή εσωτερική αξία (intrinsic value) διαχρονικά
  
• μην επιδέχεται πλαστοποίηση/παραχάραξη και η γνησιότητά του να είναι άμεσα αναγωρίσιμη

Για τους παραπάνω λόγους έχουν επανειλημμένα υιοθετηθεί σαν χρήμα, εδώ και πολλές χιλιετίες, στις περισσότερες κοινωνίες ο χρυσός και ο άργυρος. Από τα μέσα του 20^ου αιώνα όμως, έχει παραμερισθεί ο ιστορικός ρόλος των πολυτίμων μετάλλων σαν χρήμα σε όφελος του "fiat money" που σημαίνει (χαρτο)νόμισμα χωρίς ανάλογο απόθεμα χρυσού ή αργύρου.

Με το τρόπο αυτό οι μεταπολεμικές κυβερνήσεις άσκησαν την γνωστή ελλειματική νομισματική πολιτική. Αλλά ο πανίσχυρος νόμος της αγοράς που όταν έχουμε πληθώρα ενός προϊόντος/αγαθού τότε η τιμή του στην αγορά πέφτει ισχύει το ίδιο και με το χρήμα. Αυτός είναι ο αληθινός (νομισματικός) πληθωρισμός - και όχι η αύξηση της τιμής των αγαθών (που είναι το αποτέλεσμα).

Ο ίδιος ο σημερινός "κυριος FED", o Benjamin Bernanke όταν ρωτήθηκε πριν λίγα χρόνια με ποιά μέσα θα αντιμετωπίσουν την ύφεση στην αμερικανική οικονομία, απάντησε ότι η FED έχει στη διάθεσή της ένα πανίσχυρο εργαλείο που λέγεται "πρέσσα" και μπορεί σε σύντομο χρόνο να τυπώσει και να πλημμυρίσει την οικονομία με εκατομμύρια δολλάρια (όχι ότι δεν το κάνει ήδη εδώ και καιρό!) τα οποία μπορούν να τα ρίχνουν με ελικόπτερα εάν χρειαστεί! (αυτό θα πεί πραγματικά έρπουσα φαλκείδευση του εισοδήματος των μισθωτών και συνταξιούχων!)

Και τώρα άς δούμε ένα πίνακα με συγκριτικά χρηματικα μεγέθη που βοηθά να βάλουμε σε προοπτική μερικά νούμερα.

1,000,000,000,000: 1 τρισεκατομμύριο
1,000,000,000: 1 δισεκατομμύριο
1,000,000: 1 εκατομμύριο
$400,000,000,000,000: υπολογιζόμενη συνολικό ύψος παραγώγων παγκοσμίως (20 x U.S. GDP)
$118,000,000,000,000: παγκόσμια αγορά κεφαλαίου (Stocks, Bonds, κλπ) Φεβρ. 2005 McKinsey Global Inst.
$75,000,000,000,000: κρατικές υποχρεώσεις των ΗΠΑ (συντάξεις, υγεία κλπ)
$49,000,000,000,000: παγκόσμια αγορά ομολόγων, β'εξαμ. 2004 PWL Capital Inc.
$46,000,000,000,000: παγκόσμιο σύνολο χαρτονομίσματος 2004 ( M2 & GDP των E.Ε, ΗΠΑ, Ιαπωνία & Κίνα
$45,153,000,000,000: περιουσιακά των νοικοκυριών ΗΠΑ, 2004. (περιλαμβάνει ακίνητα και επενδύσεις)
$37,000,000,000,000: παγκόσμια κεφαλαιοποίηση αγορών 2001 (ΟΗΕ)
$21,700,000,000,000: παγκόσμια κεφαλαιοποίηση NYSE , Δεκ '05 (NYSE)
$21,000,000,000,000: αγορά ομολόγων ΗΠΑ, Σεπτ '03: (IAPF , treas.gov)
$12,605,000,000,000: ΑΕΠ ΗΠΑ, 2005 (3Q) http://www.bea.doc.gov/bea/dn/home/gdp.htm
$10,261,000,000,000: M3 (τράπεζες ΗΠΑ) Ιαν.'06 http://tinyurl.com/vra0
$8,249,000,000,000: χρέος ΗΠΑ, 2-23-2006 (Bureau of Public Debt)
$4,000,000,000,000: παγκόσμια κεφαλαιοποίηση μετοχών Τόκιο, Δεκ '05
$3,600,000,000,000: παγκόσμια κεφαλαιοποίηση Nasdaq, Δεκ. '05 http://nyse.com
$3,000,000,000,000: παγκόσμια κεφαλαιοποίηση μετοχών Λονδίνου, Δεκ.'05 http://nyse.com
$2,622,000,000,000: αξία συνολικού χρυσού που έχει έως σήμερα παραχθεί παγκόσμια (150.000 τόν. (4.6 δισ oz.) @ $570/oz. http://tinyurl.com/vrcc
$2,500,000,000,000: παγκόσμια κεφαλαιοποίηση μετοχών Euronext, Δεκ '05
$2,400,000,000,000: προϋπολογισμός ΗΠΑ 2005
$1,200,000,000,000: παγκόσμια κεφαλαιοποίηση μετοχών Deutsche Boerse, Δεκ '05
$754,000,000,000: σύνολο κυκλοφορούντος νομίσματος ΗΠΑ, Μαρτ.2005 (FMS)
$753,000,000,000: έλειμμα τρεχουσών συναλλαγών ΗΠΑ 2005, (Bureau of Economic Analysis)
$596,000,000,000: αύξηση χρέους γιά το οικον. έτος '03-'04 (Bureau of Public Debt)
$400,000,000,000: αξία συνολικού αργύρου που έχει έως σήμερα παραχθεί παγκόσμια 40 δισ. oz. @ $10/oz. http://snipurl.com/93j1
$376,000,000,000: κεφαλαιοποίηση Exxon Mobil (μεγαλύτερη αμερικανική εταιρ.) (8-05) (Yahoo)
$286,000,000,000: χρέος της General Motors -μεγαλύτερη αυτοκινητοβχανία ΗΠΑ. (Yahoo)
$149,000,000,000: αξία χρυσού ΗΠΑ: 261 εκατ. oz., @ $570/oz. (FMS)
$110,000,000,000: παγκόσμια κεφαλαιοποίση όλων των χρυσορυχείων (Σεπτ. 2005, Denver Gold Conference)
$26,000,000,000: κεφαλαιοποίηση της Newmont, Ιούλ '05 (μεγαλύτερος παραγωγός χρυσού παγκοσμίως)
$8,226,000,000: συνολική κεφαλαιοποίηση πρωτογενών παραγωγών αργύρου
$7,000,000,000: ετήσιος τζίρος στα καζίνο του Las Vegas.
$3,500,000,000: 350 εκατ.oz. αργύρου σε "ταυτοποιήσιμες" ράβδους, (GFMS @ $10/oz.)
$1,300,000,000: 130 εκατ. oz. αργύρου άντλησε η Barclays Silver ETF
$720,000,000: 72 εκατ. oz. αργύρου σε απόθεμα στη NYMEX (1-05-05) @ $10/oz.
$266,000,000: 40 εκατ.oz. αργύρου για επένδυση το 2004 @$6.66/oz.
$75,000,000: όριο 7.5 εκατ. oz. αργύρου @ $10/oz. (δηλ. όριο 1500 συμβόλαια/επενδυτή) στο NYMEX
$7,500,000: όριο 0.75 εκατ. oz. of silver @ $10/oz. (πάνω από 150 συμβόλαια δεν τηρείται ανωνυμία) στο NYMEX
$5,000: όριο ανάληψης τραπέζης χωρίς προηγούμενη προειδοποίηση
$300: όριο ανάληψης σε ΑΤΜ
$10: αξία της κατά κεφαλή κατοχής αργύρου στις ΗΠΑ.

Με τέτοια συγκριτικά μεγέθη, δεν χρειάζεται να είναι κανείς Einstein για να καταλάβει μέχρι πού θα εκτοξευθούν (όπως είπε και ο John Embry της 'Sprott Asset Management': "..it's not just going through the roof, it's going to the moon!") οι τιμές αργύρου και χρυσού όταν η πλημμυρίδα των δολλαρίων και ευρώ αναζητήσει "καταφύγιο" από τον αληθινό πληθωρισμό...