August 23, 2012

By Kevin Michael Grace

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Gold was up (at press time) $55.40 (+3.4%) for the week to $1,672.10, and silver was up $2.33 (+8.3%) to $30.56. GoldCore attributed gold’s rise to “minutes from the US Federal Reserve meeting convinc[ing]d market participants that QE3 is imminent.”

QE3 is a “done deal,” Bill Gross of Pimco told CNBC August 23. “What the Fed minutes told us is additional easing might be warranted ‘fairly soon’ unless the incoming data pointed to a sustainable strengthening of the economy… I think we need to see months of 3% or better gross domestic product growth before the Fed backs off that particular provision.” And that doesn’t seem likely. How much quantitative easing can we expect? Gross predicts “a relative[ly] open-ended program in terms of size, in terms of time and in terms of what the asset classes is they buy.”

Ambrose Evans-Pritchard reports August 23 that Paul Ashworth of Capital Economics also used the phrase “done deal,” explaining that “little is likely to change between now and the next Fed meeting.” Evans-Pritchard notes, “The shift in Fed policy caught markets by surprise and comes after the European Central Bank’s chief Mario Draghi opened the door to potentially ‘unlimited’ purchases of Italian and Spanish bonds to prevent a Euro breakup. The most radical moves appear likely from China where the managed ‘soft-landing’ risks spinning out of control, with exports contracting on a month-to-month basis over the summer.”

Old Faithful: AKA Ben Bernanke.

Mike Shedlock cites August 21 the “increasing isolation of [Bundesbank President Jens] Weidmann, up to the point of open ridicule by the president and vice-president of the ECB,” confirming that “The ECB printing press door is open.” He asks, “How much [will] gold and silver rise in response?”

So, even before we’ve heard from China, we have “open-ended” quantitative easing from America, and “unlimited” quantitative easing from Europe. Forget about money being dropped from helicopters, we’re talking about geysers of money—likely the greatest-ever dilution in the value of paper currency. Which, given past performance, should result in gold and silver rising rather a lot.

And given the failure of all QE efforts since 2008 to arrest what bids fair to become an economic death spiral, we could be witnessing the final furious attempt of the global elite to prevent a long-delayed reckoning.

At the Le Metropole Cafe, Bill Murphy of GATA writes, “Gold has blown through $1,650 key resistance at $1,661 at the moment and silver has broken through its key $30 resistance. This is mega, as you have heard me pound the table on of late.” He goes on to enthuse about “the fortunes which will be made by the coming gold/silver share explosion, which will rival and surpass the Internet craze.”

The most extravagant expression of golden exuberance comes from Egon von Greyerz, managing partner of Matterhorn Asset Management. He tells King World News August 23, “This is going to be one of the fastest moves that we’ve seen in this bull market. We are now talking about gold moving, without any major correction, to the next major target of $4,500 to $5,000. That might seem incredible, but it’s reality. This is a technical target.”

Greyerz says that silver “is going to move a lot faster than gold. The same technical target for silver is $150. That would move the gold/silver ratio down to 30/1. This is the type of move that is hard for investors to comprehend, but this will happen because we have had an energy building up in these markets for almost a year. The release of this energy is going to unleash a massive move. This is not surprising because the destruction of paper money is continuing. Because the money printing is going to accelerate so much in the future, paper currencies are going to reach their intrinsic value, which is zero. We are well under way to that becoming a reality.”

Greyerz concludes, “As this move progresses we will see gold advance well over $100 a day. We will also see silver moving several dollars a day. So this will be relentless. I would just add that many of the junior mining shares are likely to have absolutely massive moves to the upside because they are so cheap and so oversold.”

It would be easy enough to write off this excitement as typical goldbuggery, but the next few months will, if nothing else, certainly test the hypothesis advanced consistently in this space. If the global economic system is fundamentally flawed, and if the US dollar will become so debased that it can no longer function as the safe haven, then capital must flow elsewhere. And if not precious metals, then where?

Stock Tips and Joke of the Week

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