March 22, 2012
By Kevin Michael Grace
Gold was down (at press time) $13.80 (-0.8%) for the week to $1,644.90, and silver was down $0.92 (-2.8%) to $31.58. According to GoldCore, “The superficially rosy US economic outlook has dimmed gold’s safe haven appeal for speculators and some investors…. Weak speculative hands have been washed out of the gold market, and many smaller retail investors have also sold bullion recently due to the widespread concern that gold is overvalued and a bubble.”
Bloomberg reports, “Gold may rally as US economic growth in the first half disappoints, prompting further stimulus, Societe Generale SA said March 19.” The Ben Bernanke remains coy on the matter, telling students at George Washington University, “We need to be attentive to where the economy is and not move too quickly to reverse the policies that are helping the recovery.”
Is the “recovery” real? How strong will it be, and how long will it last? The answers to these questions will determine the price of gold, Tim Iacono argues at Seeking Alpha. “Anyone of the belief that the US economy has embarked on an enduring recovery, that inflation will be kept low and that we are on our way back to the levels of real growth seen six or seven years ago would be a fool to own gold. Similarly, anyone thinking that the central bank and government will soon feel compelled to ratchet up their various financial repression programs would be a fool not to own the metal.”
Citing a paper by Carmen Reinhart, Iacono defines “financial repression” as “governments and central banks around the world [continuing] to take steps to ease the burden of liquidating and/or servicing the massive amount of debt accumulated over the years…by, in essence, taxing the public by means other than raising taxes.” Specifically, “Using low or negative real interest rates (that effectively taxes savers) and by printing money to buy government securities (that acts like a tax through higher inflation).”
Iacono believes QE3 will begin in April or June: “It will take another month or two for the weight of less positive, and then negative, economic news to turn the tide of public opinion, though a continuation of rising gasoline prices could help speed that process along considerably.”
According to IMF managing director Christine Lagarde, “The rising price of oil is a new threat that could derail the recovery.” Both Lagarde and President Obama are mystified by oil’s upward trajectory, but they shouldn’t be. It is the result of the very policy they mandate to preserve the “recovery”: quantitative easing.
Macroeconomically speaking, price rises are not caused by “greed.” The truth is that they are caused by a shortage of goods or an excess of money. The Ben Bernanke knows this; three decades ago he saw how his predecessor Paul Volcker used monetary policy to slay the inflation dragon. Ron Paul repeated this truth to the Fed Chairman earlier this month, not that it will make any difference.
“Nobody believes the 2% CPI inflation number,” Paul asserted, pointing out that “by using the same methodology of just a few years back to calculate the CPI it is running somewhere nearer 9%.” He said, “The people on fixed income are really hurting; the middle class is really hurting” because of this hidden inflation. “Somebody is stealing wealth, and it’s very upsetting.”
Very upsetting to Dr Paul but not to the great and the good. As Nassim Nicholas Taleb told the Spectator, “Quantitative easing is a transfer of wealth from the poor to the rich. It floods banks with money, which they use to pay themselves bonuses. The banks have money and assets, so they can borrow easily. The poor guy, who is unemployed and can’t borrow, is not going to benefit from it…The state is subsidizing the rich. It is the top 1% who benefit from quantitative easing, not the 99%.”
Just as it is the 1% that benefit from more “free trade” pacts and ever-expanding immigration. Our ruling class, as James Delingpole notes, has seemingly declared war on the middle class. All in the name of “modernization.” Norman Tebbit writes, “I am told that ‘You can’t turn the clock back.’ It is a way of closing down the discussion.” But of course the modernizers are turning back the clock: “to the violence and illiteracy of the 18th century.”
Bernanke, Lagarde and that ilk pose as firemen, quenching with torrents of money the flames that threaten the fabled recovery. That this activity serves to make them richer is a happy accident. That these fires are the result of the soiled rags of debt ignited by a cross-wired economy is something they refuse to consider. That these torrents serve to drown the middle class is of no consequence to them. Not yet, anyway.
We would be wise to meditate upon the counsel of Aristotle:
It is manifest that the best political community is formed by citizens of the middle class and that those states are likely to be well-administered in which the middle class is large and stronger if possible than both the other classes, or at any rate than either singly… Great then is the good fortune of a state in which the citizens have a moderate and sufficient property; for where some possess much, and the others nothing, there may arise an extreme democracy, or a pure oligarchy; or a tyranny may grow out of either extreme—either out of the most rampant democracy or out of an oligarchy.
And now to cases. Reuters reports March 21 that Citigroup has raised its price target for Pretium TSX:PVG from $17 to $22 (currently $13.32) and March 22 that CIBC has cut Nevsun’s TSX:NSU target from $5.50 to $4.75 (currently $3.22).
At the Financial Post, Peter Koven reports that TD Securities analyst Steven Green is sour on Jaguar Mining TSX:JAG. “The Toronto-listed gold miner reported a fourth-quarter loss of US10¢ a share and staggering cash operating costs of US$1,114 per ounce.” According to Green, “A legitimate [takeover] bid [for Jaguar] is becoming less likely, with the company burning through cash and operational struggles expected to continue with the weak 2012 guidance.”
At Seeking Alpha, Hawkinvest says of Golden Star TSX:GSC, “This stock…looks cheap when considering that the price-to-earnings ratio is just around six times earnings. Golden Star has a solid balance sheet, which combined with a currently low stock valuation, could make this company an attractive takeover target.”
And at the Gold Report, Michael Fowler of Loewen, Ondaatje, McCutcheon thinks “investors should be more focused on junior producers and, to some extent, explorers. That is where you will get the most gain.” In this regard, he is sweet on Northern Freegold TSXV:NFR, Fortune Minerals TSX:FT, Clifton Star TSXV:CFO and Moneta Porcupine TSXV:ME.
Finally, a revolutionary new medical doctrine has been promulgated in Alberta. Opposition Leader Dr Raj Sherman, speaking in support of a bill which would ban smoking in cars containing minors (it passed unanimously), declared, “This is the real solution to fixing health care: let’s not get sick in the first place.” Why didn’t anyone think of this before? With an election in the wings, economically conscious Albertans are duty bound to vote for the Alberta Liberals, as its Bill 1, The Elimination of Death Act, would preclude the need for a Ministry of Health, thus solving the province’s budgetary crisis at a stroke.