"A Longer-Term Perspective On Gold" And More, From Nomura
Submitted by Tyler Durden on 01/19/2012 18:30 -0500
While lately not much, if anything, has changed in our and the broader secular outlook on gold, which has been and continues to remain the only currency equivalent that isolates devaluation risk, and excludes counterparty risk while being an implicit bet on the stupidity of those in charge (the fact that various tenured "Ph.D. economists" hate what it represents for their tenure prospects of course only makes the bullish case far stronger). True, in the past month it has surged from $1520 to $1660 but only Ph.D. economists (indeed, that 200 DMA proved to be a complete non-event) could not have foreseen that year end liquidations in a desperate drive to shore up liquidity (as explained here) by institutions, always end, and the reversion to the above thesis sooner or later reappears. So while it won't say much new, below we present Nomura's just released Gold Sector Initiation, which is a must read for new entrants to the field of physical and paper representations of gold, as well as a timely reminder for everyone else that in the past 3 years nothing has changed with the fundamental thesis, and in fact recent actions have merely reinforced it (and if we indeed have a €1 or €10 trillion LTRO, then watch all resistance levels in the metal get blown off).
From Nomura:
A longer-term perspective on gold
Ineffective global governmental and central bank responses to the financial crisis of 2008 and the related sovereign debt crisis are causing investors to rethink some of the fundamental tenets of fiat currency systems. Associated with this, gold’s historical position of importance has the potential to re-emerge, with many important consequences for gold demand.
Gold has occupied a significant, yet constantly evolving place in the history of financial markets. Gold coins were first minted in ancient times, beginning gold’s tradition as the ultimate store of value. The use of gold coins as a mainstream currency persisted until the 16th century when significant discoveries of silver in Latin America saw a dual system develop; with gold and silver competing for use in international and domestic trade. By the early 18th century gold had re-emerged as the de facto monetary standard when Britain set a gold/silver ratio that eventually relegated silver from significant use. By the end of the 19th century most industrial countries adhered to a gold standard.
World War I and its associated pressures on government expenditures saw the gold standard end when major European countries halted the convertibility of their currencies into gold. The gold standard was generally restored in the post-war years; however, this return was short-lived, as leading economies once again suspended convertibility in order to devalue their currencies in response to the Great Depression. The US remained on a gold standard, although the 1934 Gold Reserve Act nationalised private gold holdings and devalued the gold dollar.
The end of World War II saw the implementation of what came to be known as the Bretton Woods system, a two-tiered gold-exchange system where the US dollar was backed by gold and all other currencies were pegged to the dollar. This lasted until 1971 when a combination of short-term pressures alongside the rise of German and Japanese economic power caused US president Richard Nixon to end the gold standard.
It has only been since 1971 that the world has shifted to a sustained, full-faith, fiat currency system. Between 1980 and 2000 the gold price fell as economic prosperity and contained inflation expectations led private investors, institutional investors and central banks away from gold. The 2000s saw gold demand rebound as lower interest rates and strong growth from Asian economies started a bull market that is ongoing today.
Nomura’s Quantitative Research report, Why gold is cheap in Asia, dated 16 August 2011, on why Asian nominal income growth and not US CPI has been the driver of the gold bull market. It provides a crucial perspective shift in understanding that gold has become a global commodity with global demand drivers and has been heavily influenced by Asian economic growth.
Gold has moved in and out of vogue many times over the past 100 years. Figure 6 provides perspective to the drop in gold prices that occurred at the end of 2011. A price correction was arguably overdue, especially in the context of the cyclicality of certain demand segments and the above-trend price increases in mid-2011. That said, our analysis suggests that the forces that have pushed gold up by 480% in the past 10 years are still in force and could well be exacerbated over the medium term.
Gold price appreciation has increased exponentially since the market stabilisation following the initial impact of the 2008 financial crisis. Concerns around the stability of fiat monetary systems in conjunction with exceedingly high sovereign debt levels are leading investors to review alternative stores of value, increasing gold investment demand.
Gold certainly has a long and well-established pedigree when placed in the context of its historical role in financial markets. We expect this re-emergence of gold as an asset class to persist over the medium term even as the world emerges from the sovereign debt crisis and continued shifts in the global economic landscape will see further shifts in reserve currency systems.
This is likely to have important implications for the gold producers. Figure 8 shows global P/E multiples for gold equities remain remarkably constrained despite the shift in gold prices seen over the past 10 years.
The practical constraints of re-implementing a gold standard system after the financial innovations of the past 40 years make a return to a Bretton Woods type system unrealistic, especially when we consider the gold standard’s lack of flexibility in implementing Keynesian or monetarist economic policies. However, it is important in the light of the current fragility of the world’s financial system and the ongoing paradigm shift with regard to the value of fiat currencies, to analyse gold from a broader historical perspective. This time might not be different.
In addition to the paradigm shift questioning faith in fiat currencies and longer-term shifts in world reserve currency systems; from a fundamental perspective, various longer-term trends are supportive of the gold price including:
The exogenous risks are likely to favour gold prices, as well, in the context of a limited response from near-term new mine supply. There are a number of factors that could cause gold to trade above our estimates in the short term. These include:
Overall, our analysis suggests that the gold price remains well supported over the medium term, albeit with potentially high volatility from the demand perspective causing wide potential swings.
For Nomura's forecasts on future gold prices, supply and demand trends, and what this means for gold equities, read the full 105 page report below.
Submitted by Tyler Durden on 01/19/2012 18:30 -0500
While lately not much, if anything, has changed in our and the broader secular outlook on gold, which has been and continues to remain the only currency equivalent that isolates devaluation risk, and excludes counterparty risk while being an implicit bet on the stupidity of those in charge (the fact that various tenured "Ph.D. economists" hate what it represents for their tenure prospects of course only makes the bullish case far stronger). True, in the past month it has surged from $1520 to $1660 but only Ph.D. economists (indeed, that 200 DMA proved to be a complete non-event) could not have foreseen that year end liquidations in a desperate drive to shore up liquidity (as explained here) by institutions, always end, and the reversion to the above thesis sooner or later reappears. So while it won't say much new, below we present Nomura's just released Gold Sector Initiation, which is a must read for new entrants to the field of physical and paper representations of gold, as well as a timely reminder for everyone else that in the past 3 years nothing has changed with the fundamental thesis, and in fact recent actions have merely reinforced it (and if we indeed have a €1 or €10 trillion LTRO, then watch all resistance levels in the metal get blown off).
From Nomura:
A longer-term perspective on gold
Ineffective global governmental and central bank responses to the financial crisis of 2008 and the related sovereign debt crisis are causing investors to rethink some of the fundamental tenets of fiat currency systems. Associated with this, gold’s historical position of importance has the potential to re-emerge, with many important consequences for gold demand.
Gold has occupied a significant, yet constantly evolving place in the history of financial markets. Gold coins were first minted in ancient times, beginning gold’s tradition as the ultimate store of value. The use of gold coins as a mainstream currency persisted until the 16th century when significant discoveries of silver in Latin America saw a dual system develop; with gold and silver competing for use in international and domestic trade. By the early 18th century gold had re-emerged as the de facto monetary standard when Britain set a gold/silver ratio that eventually relegated silver from significant use. By the end of the 19th century most industrial countries adhered to a gold standard.
World War I and its associated pressures on government expenditures saw the gold standard end when major European countries halted the convertibility of their currencies into gold. The gold standard was generally restored in the post-war years; however, this return was short-lived, as leading economies once again suspended convertibility in order to devalue their currencies in response to the Great Depression. The US remained on a gold standard, although the 1934 Gold Reserve Act nationalised private gold holdings and devalued the gold dollar.
The end of World War II saw the implementation of what came to be known as the Bretton Woods system, a two-tiered gold-exchange system where the US dollar was backed by gold and all other currencies were pegged to the dollar. This lasted until 1971 when a combination of short-term pressures alongside the rise of German and Japanese economic power caused US president Richard Nixon to end the gold standard.
It has only been since 1971 that the world has shifted to a sustained, full-faith, fiat currency system. Between 1980 and 2000 the gold price fell as economic prosperity and contained inflation expectations led private investors, institutional investors and central banks away from gold. The 2000s saw gold demand rebound as lower interest rates and strong growth from Asian economies started a bull market that is ongoing today.
Nomura’s Quantitative Research report, Why gold is cheap in Asia, dated 16 August 2011, on why Asian nominal income growth and not US CPI has been the driver of the gold bull market. It provides a crucial perspective shift in understanding that gold has become a global commodity with global demand drivers and has been heavily influenced by Asian economic growth.
Gold has moved in and out of vogue many times over the past 100 years. Figure 6 provides perspective to the drop in gold prices that occurred at the end of 2011. A price correction was arguably overdue, especially in the context of the cyclicality of certain demand segments and the above-trend price increases in mid-2011. That said, our analysis suggests that the forces that have pushed gold up by 480% in the past 10 years are still in force and could well be exacerbated over the medium term.
Gold price appreciation has increased exponentially since the market stabilisation following the initial impact of the 2008 financial crisis. Concerns around the stability of fiat monetary systems in conjunction with exceedingly high sovereign debt levels are leading investors to review alternative stores of value, increasing gold investment demand.
Gold certainly has a long and well-established pedigree when placed in the context of its historical role in financial markets. We expect this re-emergence of gold as an asset class to persist over the medium term even as the world emerges from the sovereign debt crisis and continued shifts in the global economic landscape will see further shifts in reserve currency systems.
This is likely to have important implications for the gold producers. Figure 8 shows global P/E multiples for gold equities remain remarkably constrained despite the shift in gold prices seen over the past 10 years.
The practical constraints of re-implementing a gold standard system after the financial innovations of the past 40 years make a return to a Bretton Woods type system unrealistic, especially when we consider the gold standard’s lack of flexibility in implementing Keynesian or monetarist economic policies. However, it is important in the light of the current fragility of the world’s financial system and the ongoing paradigm shift with regard to the value of fiat currencies, to analyse gold from a broader historical perspective. This time might not be different.
In addition to the paradigm shift questioning faith in fiat currencies and longer-term shifts in world reserve currency systems; from a fundamental perspective, various longer-term trends are supportive of the gold price including:
- secular demand growth from Asia,
- a lack of flexibility in medium-term mine supply growth potential; and
- a shift in emerging market central bank attitudes toward gold as part of reserves
The exogenous risks are likely to favour gold prices, as well, in the context of a limited response from near-term new mine supply. There are a number of factors that could cause gold to trade above our estimates in the short term. These include:
- the perceived threat from elevated inflation expectations from potential further quantitative easing,
- the potential for a lack of alternatives to the eurozone crisis, other than monetisation of debt and
- an increase in investor activity in an era with expected near-zero real interest rates.
Overall, our analysis suggests that the gold price remains well supported over the medium term, albeit with potentially high volatility from the demand perspective causing wide potential swings.
For Nomura's forecasts on future gold prices, supply and demand trends, and what this means for gold equities, read the full 105 page report below.
Michael Krieger Summarizes "The Building Tension"
Submitted by Tyler Durden on 01/19/2012 14:16 -0500
From Michael Krieger of KAM LP
As long as the systems of control, crafted carefully over centuries by the entrenched elites, were able to sustain themselves within the illusions that they had embedded within the language, the mechanisms of control were possible. Stated another way for clarity; as long as the entrenched elite had control of the illusion, the illusion of control works for them. However, the opposite is also true, and this is where we find ourselves now; that is to say, at a point in time where the entrenched elite are using the control systems so badly that they are stepping outside of the inherent limitations imposed by the use of language as their primary control mechanism. Again, stated another way for clarity....when the 'prime proponents of democracy planet-wide (e.g. usa senators)' vote to 'legalize their war on their constituent populace' they are stepping outside of the inherent common consensus understanding of 'USA democracy' at such a level as to disrupt the illusion that allows them to control. Make any sense at all? The 'herd' is smelling the 'slaughter house', both metaphorically and actually. The stench of blood work travels on the air.
- Clif High
Building Tension
Everything seems extremely slow and boring right now. After so much happened in bursts during various periods last year, we are currently in a gestation period. We are in a period of building tension. In retrospect, it seems that this period began in September/October of last year, thus it has now been building energy for almost five months. This period of building tension happened after the last major release of energy in this Fourth Turning and that was in August/September, with the debt ceiling debt debacle, markets crashing, gold soaring and the emergence on the scene for the first time of a “progressive/urban rebellion” against bankster puppet Barack Obama from within his own set of perceived supporters. Namely, the OWS movement.
Yes, everything seems extremely slow and boring right now. This is an illusion. As I said at the time, the emergence of OWS was a huge deal. Obama and his minions immediately attempted to co-opt the movement and create class warfare and that failed miserably. Once that failed, King Bloomberg and other feudal mayors from all across the country went out and cleared them out in a coordinated fashion. Let me ask you a question? If this movement had publicly supported Obama and his dishonest agenda do you really think they would have been cleared out so aggressively? I for one do not. TPTB initially saw the movement as a way to divide and conquer the nation along the traditional geographic and “cultural” lines. Once this failed, and they recognized that it actually had much in common with the angst of the tea party movement (demands for an end to crony capitalism, no bail outs or socialism for the super rich connected elites while at the same time free market capitalism and austerity for the poor) they shut it down faster than you can say 99%.
There is a reason I put “cultural” in quotations in the above paragraph. The reason is that the most powerful players in this nation that seek to control the sheep class (pretty much everyone that remains asleep, both rich and poor) through the old tried and true method of divide and conquer. While Obama talked about bringing together red states and blue states during his speech at the Democratic national convention in 2004, as is standard operating procedure for this pathological liar he actually views everything from a divide and conquer standpoint. So the story we are told is that there are “red” states and “blue” states and that we aren’t supposed to like each other and that on most of the important issues the various populations are diametrically opposed to each other. They make it seem this way by never actually really debating the issues that really matter to our freedoms and economic prosperity. They instead pick out divisive and highly emotional “social” issues, that while I understand are important to many, believe me are being used very deliberately to keep you heated and engaged in furious debate over these less consequential matters while they avoid talking about the stuff that really matters like the Federal Reserve and the counterfeit monetary system they run to bail out the richest and most connected, as well as the dissolution of your civil rights and the rule of law. So indeed this “cultural” divide is patently false but it has held sway for so long because humans are inherently tribal creatures. The good news is that Americans are now for the first time in perhaps a generation figuring out that we are indeed ONE culture and that culture is being systematically and intentionally dismantled right before our very eyes. That culture revolves around the Constitution of the United States of America and its all important Bill of Rights, without which this country would never have become what it was. TPTB are aware of the fact that we are rediscovering the common thread that binds us and they are flipping out. OWS was the final straw.
So OWS came on the scene at roughly the same time the markets were crashing and gold was soaring. These guys had seen enough. While markets have been manipulated forever, what I have noticed over the last several years is that it gets exponentially worse at certain moments. Something causes a freak out moment and they redouble their efforts to keep the populace asleep based on heavier doses of propaganda and market manipulations. That is how we turned from massive tension release into this five month period of tension build we are now in. It is winter and although OWS has been evicted, rebellion is certainly not dead, it is simply regrouping and to figure out the next best way to attack the corrupt house of cards. Similarly, investors that are cognizant of what the Central Banks of the world are doing to destroy currency did not simply decide to buy IBM and JPM after realizing the futures markets have been killed following than ransacking of MF. No, they too are regrouping and figuring out other ways to own physical assets as far away from the grubby hands of the casino operators as possible.
Tension Release
The reason I don’t write about markets so much anymore is because I don’t believe there are markets any longer. Sure there are flashing prices on the screens for various assets and those can be addicting to look at on a daily basis, but I think these “markets” are now merely a mechanism for government propaganda and a method to ultimately fleece more money from the uniformed masses that play in it by the casino operators and their puppets in government. It’s basically a hologram. I have alluded to this in recent interviews, but I myself feel extremely uncomfortable being involved at this point in a way I have never felt before. For now, I am still willing to play the game with some of my own capital but I fear I may regret this decision and that the smart thing would be to pull out completely and go entirely into hard assets as well as real estate abroad. This game is not safe.
By definition, the longer the period of tension building the more explosive the release will be when it ultimately happens. This period has already been going on for almost five months with only minor releases so I think we are already staring down the barrel of something horrific. Should they actually succeed and delaying the release until after the election I expect the release scenario to be downright cataclysmic. Should they succeed to delay it that far I hope I am wise enough to pull the remainder of my assets out of this casino beforehand and get entirely physical.
Never Another Recession
The final thought I want to leave you with is perhaps the most important one. While watching the criminals that run the nation manipulate, scheme and systematically dismantle our inherent rights as human beings is bewildering and frustrating, I believe their actions are representative of nothing more than rats scurrying around. The much more important thing is that humanity is waking up and beginning to rise to the occasion. These moves by them are last ditch attempts to preserve their system of control and their positions in society. Unfortunately for them, we are in the midst of a mega cycle of structural change and everything they are fighting to save will end regardless of what they do.
Here’s a personal story. I was having drinks with three other people recently here in Boulder. Every single person at the table thought the official 9/11 story was a total bunch of bull (building 7 anyone?). I didn't even bring it up. It was remarkable. That never would have happened three years ago. So my point is, every day that passes results in more people waking up to who the criminals are. This has now backed them into a corner where they feel like they need to always avoid another downturn at all costs. Historically, they always have used the downturns to manipulate public opinion and consolidate control further but we have turned their playbook around on them. We are now waiting for the downturn to pounce on them because we know who they are and what they are up to. They are totally cornered.
To conclude, I recently taped another interview with Max Kesier on RT and it can be seen here. I come in halfway, but the whole show is really hilarious and worth a watch. Please take a look.
http://www.youtube.com/watch?v=vVECwKRmhx8&feature=player_embedded
Oh and here is a little cartoon to lighten up your day!
Peace and wisdom,
Mike
Submitted by Tyler Durden on 01/19/2012 14:16 -0500
From Michael Krieger of KAM LP
As long as the systems of control, crafted carefully over centuries by the entrenched elites, were able to sustain themselves within the illusions that they had embedded within the language, the mechanisms of control were possible. Stated another way for clarity; as long as the entrenched elite had control of the illusion, the illusion of control works for them. However, the opposite is also true, and this is where we find ourselves now; that is to say, at a point in time where the entrenched elite are using the control systems so badly that they are stepping outside of the inherent limitations imposed by the use of language as their primary control mechanism. Again, stated another way for clarity....when the 'prime proponents of democracy planet-wide (e.g. usa senators)' vote to 'legalize their war on their constituent populace' they are stepping outside of the inherent common consensus understanding of 'USA democracy' at such a level as to disrupt the illusion that allows them to control. Make any sense at all? The 'herd' is smelling the 'slaughter house', both metaphorically and actually. The stench of blood work travels on the air.
- Clif High
Building Tension
Everything seems extremely slow and boring right now. After so much happened in bursts during various periods last year, we are currently in a gestation period. We are in a period of building tension. In retrospect, it seems that this period began in September/October of last year, thus it has now been building energy for almost five months. This period of building tension happened after the last major release of energy in this Fourth Turning and that was in August/September, with the debt ceiling debt debacle, markets crashing, gold soaring and the emergence on the scene for the first time of a “progressive/urban rebellion” against bankster puppet Barack Obama from within his own set of perceived supporters. Namely, the OWS movement.
Yes, everything seems extremely slow and boring right now. This is an illusion. As I said at the time, the emergence of OWS was a huge deal. Obama and his minions immediately attempted to co-opt the movement and create class warfare and that failed miserably. Once that failed, King Bloomberg and other feudal mayors from all across the country went out and cleared them out in a coordinated fashion. Let me ask you a question? If this movement had publicly supported Obama and his dishonest agenda do you really think they would have been cleared out so aggressively? I for one do not. TPTB initially saw the movement as a way to divide and conquer the nation along the traditional geographic and “cultural” lines. Once this failed, and they recognized that it actually had much in common with the angst of the tea party movement (demands for an end to crony capitalism, no bail outs or socialism for the super rich connected elites while at the same time free market capitalism and austerity for the poor) they shut it down faster than you can say 99%.
There is a reason I put “cultural” in quotations in the above paragraph. The reason is that the most powerful players in this nation that seek to control the sheep class (pretty much everyone that remains asleep, both rich and poor) through the old tried and true method of divide and conquer. While Obama talked about bringing together red states and blue states during his speech at the Democratic national convention in 2004, as is standard operating procedure for this pathological liar he actually views everything from a divide and conquer standpoint. So the story we are told is that there are “red” states and “blue” states and that we aren’t supposed to like each other and that on most of the important issues the various populations are diametrically opposed to each other. They make it seem this way by never actually really debating the issues that really matter to our freedoms and economic prosperity. They instead pick out divisive and highly emotional “social” issues, that while I understand are important to many, believe me are being used very deliberately to keep you heated and engaged in furious debate over these less consequential matters while they avoid talking about the stuff that really matters like the Federal Reserve and the counterfeit monetary system they run to bail out the richest and most connected, as well as the dissolution of your civil rights and the rule of law. So indeed this “cultural” divide is patently false but it has held sway for so long because humans are inherently tribal creatures. The good news is that Americans are now for the first time in perhaps a generation figuring out that we are indeed ONE culture and that culture is being systematically and intentionally dismantled right before our very eyes. That culture revolves around the Constitution of the United States of America and its all important Bill of Rights, without which this country would never have become what it was. TPTB are aware of the fact that we are rediscovering the common thread that binds us and they are flipping out. OWS was the final straw.
So OWS came on the scene at roughly the same time the markets were crashing and gold was soaring. These guys had seen enough. While markets have been manipulated forever, what I have noticed over the last several years is that it gets exponentially worse at certain moments. Something causes a freak out moment and they redouble their efforts to keep the populace asleep based on heavier doses of propaganda and market manipulations. That is how we turned from massive tension release into this five month period of tension build we are now in. It is winter and although OWS has been evicted, rebellion is certainly not dead, it is simply regrouping and to figure out the next best way to attack the corrupt house of cards. Similarly, investors that are cognizant of what the Central Banks of the world are doing to destroy currency did not simply decide to buy IBM and JPM after realizing the futures markets have been killed following than ransacking of MF. No, they too are regrouping and figuring out other ways to own physical assets as far away from the grubby hands of the casino operators as possible.
Tension Release
The reason I don’t write about markets so much anymore is because I don’t believe there are markets any longer. Sure there are flashing prices on the screens for various assets and those can be addicting to look at on a daily basis, but I think these “markets” are now merely a mechanism for government propaganda and a method to ultimately fleece more money from the uniformed masses that play in it by the casino operators and their puppets in government. It’s basically a hologram. I have alluded to this in recent interviews, but I myself feel extremely uncomfortable being involved at this point in a way I have never felt before. For now, I am still willing to play the game with some of my own capital but I fear I may regret this decision and that the smart thing would be to pull out completely and go entirely into hard assets as well as real estate abroad. This game is not safe.
By definition, the longer the period of tension building the more explosive the release will be when it ultimately happens. This period has already been going on for almost five months with only minor releases so I think we are already staring down the barrel of something horrific. Should they actually succeed and delaying the release until after the election I expect the release scenario to be downright cataclysmic. Should they succeed to delay it that far I hope I am wise enough to pull the remainder of my assets out of this casino beforehand and get entirely physical.
Never Another Recession
The final thought I want to leave you with is perhaps the most important one. While watching the criminals that run the nation manipulate, scheme and systematically dismantle our inherent rights as human beings is bewildering and frustrating, I believe their actions are representative of nothing more than rats scurrying around. The much more important thing is that humanity is waking up and beginning to rise to the occasion. These moves by them are last ditch attempts to preserve their system of control and their positions in society. Unfortunately for them, we are in the midst of a mega cycle of structural change and everything they are fighting to save will end regardless of what they do.
Here’s a personal story. I was having drinks with three other people recently here in Boulder. Every single person at the table thought the official 9/11 story was a total bunch of bull (building 7 anyone?). I didn't even bring it up. It was remarkable. That never would have happened three years ago. So my point is, every day that passes results in more people waking up to who the criminals are. This has now backed them into a corner where they feel like they need to always avoid another downturn at all costs. Historically, they always have used the downturns to manipulate public opinion and consolidate control further but we have turned their playbook around on them. We are now waiting for the downturn to pounce on them because we know who they are and what they are up to. They are totally cornered.
To conclude, I recently taped another interview with Max Kesier on RT and it can be seen here. I come in halfway, but the whole show is really hilarious and worth a watch. Please take a look.
http://www.youtube.com/watch?v=vVECwKRmhx8&feature=player_embedded
Oh and here is a little cartoon to lighten up your day!
Peace and wisdom,
Mike