Inflation & Gold-Silver Breakout

Inflation & Gold-Silver Breakout
by Jim Willie CB
May 22, 2008
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Jim Willie CB, editor of the “HAT TRICK LETTER”
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of several smallcap companies positioned to rise during the ongoing panicky attempt
to sustain an unsustainable system burdened by numerous imbalances aggravated by
global village forces. An historically unprecedented mess has been created by
compromised central bankers and inept economic advisors, whose interference has
irreversibly altered and damaged the world financial system, urgently pushed after the
removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar,
Treasury bonds, and inter-market dynamics with the US Economy and US Federal
Reserve monetary policy.
The gold and silver prices have broken out on the upside, not to register new highs but
rather to emerge from a clear bullish wedge pattern in their daily charts. The stage is
set for assaults on the 1000 gold high and the 21 silver high. Furthermore, and more
boldly stated, the stage was set last January for tremendous moves in gold toward
2000 and silver toward 50 in the next 18 to 24 months, give or take. The crude oil
price surged past 100. Next the gold price will surge through 1000, as in SURGE. The
key commercial commodity is crude oil. The key financial commodity is gold (silver
also). Unprecedented monetary inflation invites unprecedented reaction in the crude
oil and precious metal prices, where justice still is enforced. This key cause and effect
is sorely missed by slick Wall Street conmen and carnival barkers. They invest
privately in secrecy, while they promote publicly with deception, fraud, and influence of
public media networks. They invest in the energy futures markets, while talking about
speculation as the blame factor. They have yet to read and absorb the Peak Oil
phenomenon on billboards. Oil supply reliability and disruption is a key story behind
crude oil prices right now, not speculation. Permit me a rant that rambles from one
important topic to another, but does conclude with the gold & silver prices, charts, with
breakouts evident, and targets claimed.
Before the US Congress, the masterful Rick Masters testified that in the last three
years, China was responsible for higher crude oil demand by 920 million barrels per
day, more than the private speculative demand rise of 848 million bbl/day. In their
unlimited shallowness, the US Congress is considering a new law to limit energy
speculation. The new legislation would likely result in monumental shortages, since
energy suppliers will be unable to properly and judiciously hedge their contracts
spaced over a few months. In avoiding the risk, they would simply not supply. Major
disruptions for the USEconomy are coming soon, from corruption, from
stupidity, from legislation, from failed banks due to bond fraud, from designed
addiction to oil in lieu of nuclear or alternatives, from consequences of three
decades of monetary inflation, from honed horrendous heretic economic
counsel, from abandoned factories, and from magnificent control of the network
media sufficient to render an entire nation helplessly and hopelessly ignorant.
The queer version of capitalism known and practiced within the Untied States is
beginning to show signs of failure. Remedy involves either a depression from debt
collapse on one route, or greater episodes of inflation and job loss, the other route to
depression. The real risk of economic depression finally is being spoken about by
intelligent people. The safety net for individuals is built with gold, silver, oil, gas, and
other tangible things. Do not invest in Exchange Traded Funds. Why invest in
something controlled by financial entities, most of which are corrupt with a track record
of market control via fraudulent means? Take possession and avoid the lazy route of
permitting a financial firm based in the US or UK to control your assets. ETFunds are
part of their plan to control markets and to suppress key prices like gold.
Price inflation is raging at almost 12% annually inside the Untied States. Monetary
inflation is raging between 12% and 18% in the US and European Union. Rely on such
sound statistics from the Shadow Govt Statistics folks. Higher food and energy prices
are infiltrating the entire USEconomy, with higher costs being passed along
everywhere. The only turkeys not noticing are USGovt statistical creative writers who
clearly struggle to maintain their shell game and charade. Jobs are being destroyed on
a mass scale. The financial propaganda has turned so absurd and bold that even
former USFed Chairman Paul Volcker has commented on their split from reality, in his
strong hint of a return to STAGFLATION. The criticism of the April Jobs Report was
right out in the open, with goofy Birth-Death Model upward adjustments even to the
construction and financial services ledger item. Wall Street traders, analysts, even
financial network anchors had a hard time not laughing at that jobs report, pointing out
with a straight face that they at least like the headline on the story. The actual USbased price inflation, when all is tallied, is several percent above the official corrupted
gimmicked CPI. The facade of this myth is slowly being smashed in a public manner.
This is precisely what will drive the public like a stampede into gold & silver
investments. They have been conned to accept pitifully low interest yield on their bank
certificates of deposit. A pullout of funds from bank deposits comes next, maybe not
this year, but such an event lies in the future. The public will eventually embrace gold
& silver.
If wages do not keep pace with rising cost structures, businesses fold and consumers
hold back. US banks are not yet prepared to lend money again to people and
businesses with bad credit, bad balance sheets, and flimsy income. A return to
halcyon moronic heretical days like in 2003 to 2006 among lenders is just not going to
happen this time around. US banks have taken advantage of generous US Federal
Reserve offers to trade their USTreasury Bonds for private and heavily damaged
mortgage bonds at grossly inflated prices. Meanwhile, Wall Street has resorted to
admitting that perhaps the worst in bank and bond distress might still be ahead
of us. The lied again. Meanwhile, Wall Street has switched stories to deceive, moving
to the crude oil price surge. They are blaming speculators, but the charge does not
stick. Today Nigeria announced that in the next three years they expect production
declines from depletion to be in the range of 30% less for supply. So add Nigeria to
Mexico, Russia, the North Sea, Indonesia, Kuwait, and Saudi Arabia on depletion of
their major oil fields. Yet Wall Street continues to talk about a mean reversion and
removal of speculators. Such reversion arguments depend heavily upon the
landscape not changing. Nothing has remained the same!
Nothing like reality acts like cold water to introduce reality. In my May Hat Trick
Letter report, six key events occurred in the banking and financial realm,
described for their negative content, all dismissive of the claim of recovery and
return to sound status for banks, housing, or mortgage bonds. UBS announced a
huge mortgage bond loss and will raise cash for capital. Citigroup announced a huge
mortgage bond loss, will dump $400 billion of supposedly non-core assets, and will
raise cash for capital. They emitted the distinct stench of a Chapter 13 restructuring
bankruptcy. Of course, that is not how the story is told. Fannie Mae announced a huge
mortgage portfolio loss and will raise cash for capital. This august semi-pristine
cesspool will serve as the foundation for the new mortgage relief platform??? AIG
announced a huge loss from credit default swap insurance related to mortgage bonds,
along with distress in the insurance business. Bank of America announced that their
raised estimate of 2.5% on loan portfolio defaults is low, that more losses are to come.
Lastly, MBIA announced a huge loss from covered mortgage bond insurance and the
need to raise more cash for capital. They relinquished in shameful fashion their
Standard & Poor AAA debt rating. If Moodys or Fitch downgrade the MBIA bond
rating, then woe to the US banks that hold insured bonds, like a few hundred billion$
worth. To claim the US bank debacle is over is laughable. To claim future losses will
easily eclipse past losses is obvious to anyone using his or her brain. Sadly, that
excludes over 90% of Wall Street, and probably the majority of the US public.
Wall Street does a poor job of recognizing that price is determined by an attempt to
reach equilibrium between Supply Versus Demand. Anytime, anyplace, by anyone, an
argument can be made for lower price by looking at only one side. Supply problems
are cropping up all over the globe, not just in crude oil production. In the Andes region
of South America, cutbacks have been suffered in delivered copper supply. Other
more challenging supply problems are revealing themselves. Electricity shortages
seem also to be spreading beyond South Africa. A hidden threat lurks in contractual
supply of a more dire nature. China might soon refuse all payments in US$ or refuse
to set up new commercial contracts in US$, in outright dismemberment of the US$
basis for international contract settlements. Some believe China might slowly make a
transition into a different commercial system altogether.
The one key item that neither Wall Street nor USGovt agents of corrupt information
and data seem to overcome is gasoline and diesel. The extra cost to the USEconomy
in higher energy prices just since February is roughly $300 billion. Match that to the
mickey mouse $130 billion in handouts to households by the kindergarten players in
the White House and Congress from the stimulus package. THESE GUYS DON’T
GET IT!!! The USEconomy and US banking system are both on track for widespread
seizure, then collapse. Cost explosion does not represent broad systemic price
inflation. If the US Federal Reserve and other major central banks react to
sharply higher cost inflation with official interest rate hikes, the last cost
element will enter the explosion picture, namely borrowing costs. The task of the
USFed is to continue to monetize the insolvency and bankruptcy of the major pillars of
the United States system, not even to consider any remedy. Collapse is the risk now,
and those words are no longer alarmist or poppycock. A major seizure is on the
horizon, as prices have interfered with viability of commerce, especially internationally.
Households face much higher costs just to arrive to work sites. Employers face much
higher costs just to maintain profitability. Suppliers face much higher costs just to keep
production lines flowing. Schools, hospitals, and other public facilities face higher
costs in order to maintain function. The first failures and seizures will likely occur in
California, where the greatest home loan abuses took place, where the biggest
nastiest and most painful home price declines have taken place, where the biggest
state government budget cuts have been ordered.
The Chinese face more disruption from short-term price changes under contract than
any other nation. They are voicing their anger and disgust at the US for instability of
the dollar, for hidden repudiation of debt via inflation, and for corrupt leadership in
monetary management. They are also hoarding ocean shipping containers, most of
which they built. In the next few months, expect weekly explosions and surprises
within the United States heading toward climax. The latest has been the gradual
collapse of the US airline industry, yet another insolvency. My reaction was actually a
chuckle at the story that owners of Sport Utility Vehicles in the US have been
increasingly refused trade-ins on their vehicles for new sales. Dealers have seen
declines of 30% in one year on the pigmobiles and their values. They lose value while
on the lot, as dealers hope for sale. The pig car owners will take a bath!
In August 2003, on the veranda sipping lemonade with the venerable respected Kurt
Richebacher at his spacious apartment in Cannes France, we talked about his
forecast of a collapse to the USEconomy before 2005. My response was not to underestimate the ability of Americans to pump up another bubble and keep the national
economy levitated for a while longer. My argument was to point to the US housing
market, its $20 trillion size at the time, and how a few $trillion could keep things afloat
for a long while. We agreed on the ultimate destination for both the USEconomy and
US bank system though, a combination of a dustbin, charred ruins, and a pile for
vultures to feed upon carrion. He was an interesting man, with great insight in
economic dislocations, but he could not properly assess some innovations like
mortgage bonds, carry trades, and extreme speculation that had been endemic to US
financial engineering foundations but now are epidemic in their destruction. He would
now point to the four insolvent pillars to the USEconomy: federal budget, current
account (trade) deficit, bank capital, and homeowner equity. These four insolvent
pillars point to imminent desperation in policy, all directed toward mammoth
unprecedented monetary inflation. Gold & silver prices will respond. Crude oil
already has begun to do so. Sadly, he is not able to see the grotesque pathogenesis
on display for the collapse of the USEconomy and US banking system that he
forecasted. It would be nice to hear his interpretation of the kill job of Bear Stearns, the
illegal funding access by JPMorgan, the next kill job of a Wall Street bank by its own
murderous crows, the flight into crude oil, the crackup boom in gasoline prices, supply
chain disruptions, the next gold surge past 1000, the various new USFed lending
facilities, the distortions of US and LIBOR interest rates, the contrast of negative M1
growth versus fast rising M3 money supply, and the elevation of the competing
currency wars with central banks working together and at each other’s throats at the
same time.
In the last couple months, a profound change has been seen in the USTreasury Bond
market. Long-term yields have been rising, but so have short-term yields. The financial
network spin, originating from Wall Street, has been that the USEconomy has begun
to recover, and US banks have also recovered from threats to insolvency. Of course,
both claims are incorrect. What happened is that the USFed gave away its more
valuable USTBonds to troubled Wall Street and other money center banks, took their
damaged private mortgage bonds, and did so at seriously inflated prices. AAA-rated
mortgage bonds were typically unloaded to the now vulnerable USFed at 70 and 80
and 90 cents per dollar par value, when their actual value is half that, maybe nothing
at all within a year. The USFed was forced to balance its bond portfolio by selling
USTreasurys in the open credit market, thus lifting USTreasury yields in a broad
manner. They are desperately trying not to use blatant monetization methods to
rebalance their portfolio. In doing so, they are actually draining the private sector
banking sector of liquidity. To say that the big money center banks, central bank,
Treasury Dept, and USGovt Administration are subsidizing the nucleus of the US
financial elite is a gross understatement. In the next phase, occurring over the next
few months, the USFed and their partners in collusion will be monetizing the
insolvency if not bankruptcy in a bigger way, but accomplishing the deed without
balancing the bond portfolio of the USFed itself. The bankster syndicate will resort to
much more direct and blatant monetary inflation. This is a key reason why the crude
oil price has been gushing upward. Next is a vault upward in the gold & silver prices.
GOLD & SILVER BREAK OUT OF PAUSE PATTERNS
The gold price was first to break out of the bullish wedge pattern, last week. Silver
followed within a couple days. Now the breakouts seem more clear. Gold has vaulted
north of the bull wedge upside barrier, and vaulted past the 50-day moving average (in
red). Some consolidation should occur here at the congestion level at 925 before a
move up toward 950 soon. Then comes 975 and swift establishment of new highs.
One must ask the question “Has anything been fixed on the federal budget, the
trade gap, insolvent banks, or increasingly underwater homeowners, and most
importantly the falling home prices?” The answer is a resounding loud NO.
Progress has been seen with banks, whose core assets have gone from minus $100
billion to minus $90 billion. This has been claimed as recovery? No, all responses with
official policy will involve monetary inflation, the extension of credit, the printing of
money, handouts of money, hidden replenishment of major connected banks, and the
debasement of the USDollar. What comes down the road is the creation of the New
Resolution Trust Corp for the full platform of mortgage relief, rescue, and bailouts.
That will serve as the biggest risk to the USDollar of all. In fact, the USFed is waiting
for this second horse in the New RTC to join the paired team of Clydesdales for
the powerful fire truck. When the USGovt is fully involved, not just with a flimsy $600
check to each taxpayer, the US$ money supply will expand in a monumental fashion,
and gold will set its sights on 1500 and then 2000. These targets will be pursued at the
same time we see ruin of federal budget, totally, to the point that only the printing
press can close the budget deficit gap. Foreigners will just say NO, as they have
begun to do. They are shedding non-Treasury US$-based bonds in vast numbers.
They are not showing up with bids at Treasury auctions. The tide has turned. THE
GLOBAL ENERGY WAR THAT STARTED IN 2003 IN IRAQ HAS NOW EXPANDED
INTO A GLOBAL WAR OF CAPITAL.
The silver price break out of the bullish wedge pattern two days after gold. Now the
matching breakouts seem more clear. Silver has vaulted north of the bull wedge
upside barrier, and vaulted past the 50-day moving average (in red). Some
consolidation should occur here at the congestion level at 18.20 before a move up
toward 20 soon. Then comes 21.5 and swift establishment of new highs. My May Hat
Trick Letter points out some anecdotal evidence of coin shortages. Heck, even the US
Mint has quietly cut back severely on making silver eagles. Their officers have told a
subscriber that they are on orders not to publicize the reason, a silver metal shortage.
Try to order delivery of a silver contract at the COMEX, just try. You will hear of
demands for an economic need, which translates into default. Desperate measures
are being initiated, shuttling silver bullion from bank to bank across Europe and
London. They must avert a public default. The publicity would lift the silver price
radically, like with platinum.
LONG-TERM VIEW OF GOLD & SILVER
Nothing is fixed in the four damaged pillars of the entire US financial and economic
system. All solutions involve a radical rise in monetary inflation. The USDollar is being
defended. Soon, in desperation, it will be sacrificed if not trashed. The policy makers
must prevent a broad spread of seizures, dislocations, and failures. This is not
baseless doomsday claims, but rather reality. We are witnessing the climax to a failed
fiat USDollar currency experiment, abandonment of the bulk of the US manufacturing
base, longstanding sacred privilege to the US Military budget (no longer defense),
reckless reliance upon a housing bubble to serve as foundation to the USEconomic
(consumption & loan finance), and the wicked backlash of Mother Nature as it swings
its lethal pendulum back in the other direction, called correction. Debt and bankruptcy
will not be permitted to go unabated without reaction. That reaction will be heavy
liquidity influx, in every area of attempted pillar restoration. That constitutes monetary
inflation, which invites a gold & silver response.
Late in 2007, the gold price was not satisfied with a jump to 850. After catching its
breath for a month, it vaulted past 1000 in an easy stroke. The fundamentals,
technicals (chart), and psychologicals are all aligned together. They foretell of a
paradigm shift in finance, centered upon an upcoming near fatal situation with the
USEconomy. The USDollar will also be under siege after the full blown rescues,
bailouts and stimulus packages. A new era has dawned. Gold will rise to 2000 in the
next two to three years. The swing momentum move that started at 1000 corrected
down to 850. It will next pursue 150 points above the old breakout, toward 1200 on
follow through. A bullish stochastix crossover in the weekly chart overrides any
claim of an overbought condition visible in the daily chart. The gold price is next
to start from a relatively low 850-900 range as its base in the assault of price to new
highs. The difference between daily and weekly charts is quite clear, as they tell a
different story, each positive.
A similarly bullish chart forecast is seen with silver. True to form, the signals seem to
occur a little after gold, which fights the big financial battles, wages war with central
banks, and deals with strong headwinds of resistance. Silver is also vulnerable to the
common stroke of paper weights in the form of futures contracts in blatant
suppression. Late in 2007, the silver price was not satisfied with a jump to 16.50. After
catching its breath for a month, it vaulted past 20 in an easy stroke. The fundamentals,
technicals (chart), and psychologicals all are aligned together. They foretell of a
paradigm shift in finance, centered upon an upcoming near fatal situation with the
USEconomy. The USDollar will also be under siege after the full blown rescues,
bailouts and stimulus packages. A new era has dawned. Silver will rise to 50 in the
next two to three years. The swing momentum move that started at 21 corrected down
to 16.50. It will next pursue 4.5 points above the old breakout, past 25 and higher.
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Jim Willie CB is a statistical analyst in marketing research and retail forecasting.
He holds a PhD in Statistics. His career has stretched over 25 years. He aspires
to thrive in the financial editor world, unencumbered by the limitations of
economic credentials. Visit his free website to find articles from topflight
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