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					  V O T E D              T H E         W O R L D ’ S                B E S T          I N V E S T M E N T                     A D V I S O RY




October 22, 2010                                                       Vol. 42, No. 19




                   No bubble as gold, silver rise
                       on U.S. dollar woes
By John Embry                                     commodities, dealt with       and I would like to believe that        and currently failing fiat-currency
                                                  the bubble issue recently     even the venerable Financial            system. A truly free gold market



F
         ollowing the                             by recounting an interest-    Times may not be able to resist it.     would render a devastating in-
         summer dol-                              ing anecdote. While ad-            A recent front page headline       dictment of their monetary follies,
         drums, gold and                          dressing a group of high-     stated that, “Monetary easing fears     and I firmly believe that the pri-
         silver resumed                           end money managers, he        lift gold to record high,” and in       mary reason that western central
their relentless upward                           inquired as to how many       what might be a first, there wasn’t     banks hold any gold today is for
march in September with                           of them held gold or silver   a single negative opinion in the        purposes of manipulation.
gold quickly surging to an       John Embry       in their accounts and, re-    body of the article. Earlier, the           There are reams of document-
all-time high while silver                        markably, 75 per cent         weekend section, actually recog-        ed evidence to support allegations
traded at its highest level since the  replied that they had never owned        nized the work of the Gold Anti-        that they have manipulated the
Hunt days in the late ’70s.            either precious metal.                   Trust Action Committee (GATA),          market for years. In addition, there
    This was a noteworthy                                                       which for years has dealt with the      is ample proof that, for the entire
achievement as it occurred in the               Jimmy Rogers                    issue of official interference in the   period the U.S. dollar has been the
face of stiff resistance from the                                               gold market, and the only discor-       reserve currency, successive U.S.
anti-gold cartel, demonstrated by          As far as I’m concerned, that        dant note in the article came from      administrations have gone to great
an explosion in open interest on       put to rest any idea that we are         Martin Murenbeeld of Dundee             lengths to influence the gold price
the Comex as the usual suspects        even remotely close to a bubble in       Wealth Management who em-               in a negative fashion. The very fact
shorted aggressively in an at-         gold or silver. When gold is trad-       phatically refuted GATA’s position.     that the U.S. has not had a public
tempt to mitigate the relentless       ing at several multiples of the cur-          “It’s bunk,” she said. “It’s a     audit of its alleged gold reserves
buying that was occurring. This, I     rent price at some point in the fu-      massive conceit on the part of the      since the ’50s and still aggressively
suspect, will result in either an-     ture, you can be assured that ev-        gold people to think that gold is so    stonewalls any suggestion that it
other correction, which should be      ery single person at a similar gath-     important the Federal Reserve           submit to one speaks volumes on
short and shallow, or more prob-       ering would be long and then dis-        and the president of the United         the subject.
ably, the long awaited commer-         cussion of a bubble might be le-         States are out there manipulating           Perhaps that most damning
cial signal failure in which the       gitimate. In my considered opin-         the gold price.”                        evidence is the fact that Lawrence
shorts are overrun and forced to       ion, we are many years and thou-                                                 Summers, a former U.S. Treasury
cover in a rising market.              sands of dollars in price away                                                   secretary and President Obama’s
    With the economic outlook          from that debate.                         When gold is trading at                economic guru (fortunately only
deteriorating, more quantitative           I find it somewhat encourag-          several multiples of the               until the end of the year because
easing on the horizon globally,        ing that the Financial Times has                                                 he has tendered his resignation),
currency unrest mounting ev-           been speaking much less dis-
                                                                                current price . . . , you can           co-authored a paper with Robert
erywhere and physical supplies         paragingly about gold recently. As       be assured that every sin-              Barsky during his days as a Har-
of gold and silver dwindling, the      a long-time conduit for establish-         gle person at a similar               vard professor in the mid-’80s en-
powers-that-be have their work         ment thought, the paper had con-          gathering would be long                titled, Gibson’s Paradox and the
cut out for them if they hope to       sistently denigrated gold and its         and then discussion of a               Gold Standard.
keep the prices of gold and silver     change in tone might be instruc-         bubble might be legitimate                   That paper documented a dis-
in check.                              tive. It just may be reflecting Vic-                                             tinct empirical relationship be-
    The suggestion that gold is in a   tor Hugo’s famous quote that,                                                    tween real interest rates and the
bubble phase is the latest tactic of       “An invasion of armies can be            This is a stunning statement        gold price, which under normal
the anti-gold crowd, whose pre-        resisted, but not an idea whose          from a long-time well respected         circumstances should move in-
dictions, incidentally, for the price  time has come.”                          follower of the gold scene. It is       versely to each other. Thus, if real
of gold and silver have now been           The understanding that gold is       now widely acknowledged that            interest rates were low and falling,
consistently wrong for 10 years.       a necessary asset in today’s finan-      western central banks intensely         the gold price would rise.
    Jimmy Rogers, who is one of        cial maelstrom is an idea whose          dislike gold because it is the mor-         But by suppressing gold and
the world’s leading authorities on     time has most assuredly come             tal enemy of their badly flawed         thus de-activating this relation-
ship, it created the conditions that   1987 to 2006.                            purchasing power in future.              ture liabilities, he suggests that true
allowed interest rates to stay low-        This gentleman, who I view as            To conclude, there was a fasci-      U.S. debt is closer to $200 trillion.
er longer, a situation that has es-    another one of the primary archi-        nating article in the tabloid, the           In reality, it isn’t the absolute
sentially been in effect since the     tects of the serial debt bubbles         New York Post, in mid-September.         debt number that is important.
Clinton era when Summers was           which have effectively destroyed         Ironically, this sensationalist          Rather it is combination of three
in the administration.                 the financial world that we once         newspaper provides some of the           things that makes the outlook
    This has been one of the key       knew, had the unmitigated gall to        most honest financial reporting in       desperate:
contributing factors to the serial     tell the Council of Foreign Rela-        the whole U.S. media spectrum.               • the sheer magnitude of the
bubbles created in the past 15         tions recently that, “Fiat money         The article, “$60 Trillion in Debt:      imbedded debt, however calculated;
years, and Summers has been            has no place to go but gold” and         Does Anyone Know What the U.S.               • the federal, state and munic-
back at it recently in his new re-     further that,“If all currencies are      Owes?” looked at various esti-           ipal governments’ intractable
cycled role as economic czar. I        moving up or down together, the          mates of how deeply the country          budget deficits, which will inex-
find it very disappointing that an     question is, relative to what? Gold      really is in debt. The Congression-      orably add to that debt each and
analyst the quality of Martin          is the canary in the coal mine. It       al Budget Office provides the most       every year;
Murenbeeld isn’t prepared to ac-       signals problems with respect to         conventional number, $13.4 tril-             • the growing realization that
knowledge these realities.             currency markets. Central banks          lion, based on debt issued by the        no combination of tax hikes,
    There have been several inter-     should pay attention to it.”             U.S. Treasury, but this conve-           spending cuts or reasonable eco-
esting developments in the gold            This represents unbelievable         niently neglects to acknowledge          nomic growth assumptions can
sector recently, and a small inci-     hypocrisy. This is a man who ac-         Fannie Mae and Freddy Mac debt,          ever provide a viable solution to
dent which resonated with me           tually paid very close attention to      which has become a de facto obli-        the first two issues.
was the announcement that the          the gold market when he was the          gation of the U.S. government fol-           Quantitative easing to infinity
IMF had sold 10 tonnes of its          head of the Federal Reserve. In          lowing its takeover of both com-         (i.e., unlimited money printing)
rapidly shrinking stock to, of all     fact, in 1993, he mused at a Feder-      panies. That debt alone is in the        appears to be the U.S.’s only prac-
countries, Bangladesh. How pa-         al Open Market Committee gath-           neighborhood of $5 trillion.             tical solution aside from outright
thetic is that! The formerly mighty    ering about selling some central             However, a more accurate ac-         debt default. In either instance,
but now crumbling Western soci-        bank gold to change market psy-          counting would include the off-          the U.S. dollar is in huge trouble
ety is parting with arguably its       chology and then told Congress in        budget obligations for required          and gold and silver are at the front
most valuable monetary asset           1998 that, “Central banks stood          future spending on Medicare,             of the line as the beneficiaries of
and one of the East’s have-nots is     ready to lease gold in increasing        Medicaid and Social Security and         the dollar’s travails.
purchasing it.                         quantities should the price rise.”       the present value of these is esti-
    Of perhaps greater import, the         The only positive that I can         mated to be at least $50 trillion.       John Embry is chief investment
man once known as the “the             draw from Greenspan’s amazing                However, the man who took            strategist at Sprott Asset Manage-
Maestro,” former Fed chairman          flip-flop is that he is most assuredly   the cake in this debate in the article   ment. Views expressed are those
Alan Greenspan, has once again         right this time. Fiat money doesn’t      was Laurence Kotlikoff, a Boston         solely of the author and should
opined on the subject of gold, and     have any place to go other than          University professor, who stated         not be considered an indication
his current view can only be de-       gold or silver, and those investors      unequivocally that the U.S. is           of trading intent of any invest-
scribed as revisionist in view of      that recognize this immutable fact       bankrupt. Using a methodology            ment funds managed by Sprott
his actions as Fed chairman from       will be the ones who retain their        that puts even greater weight on fu-     Asset Management Inc.

© Copyright 2010 by MPL Communications Inc., Reproduced by permission of Investor's Digest of Canada, 133 Richmond St. W., Toronto, ON M5H 3M8

				
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