By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
There are some scary stories and financial statistics that are warning about developing weakness in paper assets and pointing to major strength in gold and silver markets in the near future.
For instance, Bloomberg recently reported the latest recommendations of professional Wall Street strategists. The data was compiled by SentimentTrader as of the end of June. The average allocation of a total portfolio that they recommended for stocks fell from 51% in the previous report to just 41% this time! Not only does that represent a 20% shift, which is the largest ever, the 41% allocation is the lowest ever in the 15 year history of this survey!
The allocation to bonds did not rise quite so dramatically, but it did reach 39.8% of the portfolio, which is again a 15-year high in this survey. Analyst Chuck Cohen noted that when the bond allocation reached its former record high in March 2009, the value of long-term bonds fell sharply in the following two months and the yield on 30-year Treasury bonds rose by 30%!
The Hulbert Newsletter Gold Index (HGNI) has been negative for an unusually long time. What that means is that such a high percentage “experts” in the 500 investment newsletters being tracked who are negative about the future prospects for gold that there just about isn’t anyone else who can now turn negative. When the HGNI is at such a low level, that is a strong signal for near term major price increases for gold. With market commentators overwhelmingly already saying that the price of gold and silver have peaked and they have nowhere to go but down, who is left to jump onto this position and make it actually happen?
Bill Fleckenstein, in a late May column he wrote for MSN Money stated that with such strong negative sentiment that gold and silver are primed for “explosive” price increases.
On July 7, Gold Anti-Trust Action Committee chairman Bill Murphy revealed that Commodity Futures Trading Commission (CFTC) commissioner Bart Chilton has told him that within one to two months there will be significant developments in the CFTC’s four year investigation into the manipulation of the silver market. Chilton has previously stated multiple times that he is convinced that there has been extensive illegal manipulation but that he did not want to discuss details further at those times and be perceived as pre-empting the CFTC’s responsibility.
Murphy also stated that he has just received information that, in January 2011, JPMorgan Chase was compelled to stop manipulating silver prices, for reasons he does not yet know. Further, they did not resume manipulation directly until June 2011. The price of silver went almost straight up in the first four months of 2011. It collapsed at the beginning of May, at least a month before JPMorgan Chase allegedly resumed the suppression of silver prices. Murphy speculates that JPMorgan Chase found another venue through which to disguise its silver market manipulation at the beginning of May.
Murphy also surmised that the sudden JPMorgan Chase disclosure of the $2 billion loss, which has now grown to about $9 billion, is partly a cover-up for the losses sustained by the bank when it took over the huge silver short position of Bear Stearns after that entity failed and was absorbed by JPMorgan Chase.
Murphy stated, “I hope to be able to explain more of this in the near future, but that is what I can put in the public domain at the moment.”
British-based Barclays Bank has agreed to pay a total of $450 million in fines for manipulating the LIBOR interest rate market (London Inter-Bank Offering Rate). The chairman of the bank has resigned, stating rather blatantly that if the British government continues to prosecute him that he will release evidence that the bank’s actions in this matter were taken at the direction of the British government.
The mess of manipulating interest rates in the London market has now prompted investigations of JPMorgan Chase and Citigroup for the same activity. It is not much of a stretch to think that once the public understands the relationship where major banks manipulate some markets on behalf of governments that there could be an outcry wanting to know about every kind of manipulation.
Thomas Pascoe, a reporter for London’s Telegraph, came out with a story July 5 titled “Revealed: Why Gordon Brown Sold Britain’s Gold at a Knock-Down Price.” About 2/3 of the article is material that I reported to my readers eleven years ago. However, he added new information as to the possible explanation (but not conclusive proof) of why Britain sold its gold at that time and in such a manner so as to guarantee that it sold for the lowest possible price. Several major British banks had borrowed gold because of the low interest rates (typically less than 1% in kind per year) and sold the gold to use the proceeds could be invested in higher return assets. US Treasury debt at the time was paying about 5%, for instance. However, since the borrowed gold had to be repaid in gold, a rising gold price could inflict losses on the banks to such an extent that they might fail. So, the truth may be that the United Kingdom selling more than 50% of its gold reserves was really a bailout for that nation’s big banks
When information about market manipulations are finally being reported to the public after being kept secret for as long as 13 years, the domino effect of further revelations could have a huge negative effect on paper assets and lead to soaring gold and silver prices. Don’t say you weren’t warned.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed athttp://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.