Silver Strikek: Making Sense Out Of Non-Sense

 

The world we live in today is full of surprises. You pick up the     newspaper and get yesterdays news. It is not even today's news.  Everything that is to be done is done before you even read it.

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9/1/2010
Summertime blues make way for a golden autumn

This past summer, on the whole, was a sideways event (as seasonally typical) for gold, whereas things were churning into considerably glummer affairs for stocks and housing. As the approaching U.S. Labor Day holiday flags the end of summer, here's how things currently stand...

You'll buy gold and like it
By Jeff Clark, SeekingAlpha; August 26, 2010

I get this question a lot: "Should I buy gold now, or wait for a pullback?"

It's a valid question. For nearly two years, gold hasn't had a serious decline. There have been pullbacks, of course, but nothing assumption-challenging. In fact, since October 2008, gold's largest price drop is 10.6% (based on London PM fix prices), and yet the average of all declines since 2001 is 13% (of those greater than 5%). The biggest pullback we've seen this summer is 8.2%. Technically the summer's not over, but I'll admit I'm surprised we haven't had a better buying opportunity.

So, is now the time to buy? It depends on your honest answer to another question: "Do you own enough gold?" By "enough" I mean an amount that lends meaningful protection on your assets. By "meaningful" I mean that no matter what happens next -- another financial blow-up, accelerating inflation, crushing deflation, war, a plummeting dollar, more reckless government spending -- you won't worry about your investments.

Whether you should buy now is almost irrelevant if you don't already own a meaningful amount of gold. If you earn $50,000 a year, how is one gold Eagle coin going to protect you if the dollar plummets and sends inflation soaring? If your investable assets total $100,000, is your nest egg sufficiently protected owning two gold Maple Leafs? This is all akin to buying a $50,000 insurance policy for a $500,000 home.

Today we face the prospect of prolonged economic stagnation, and most governments are administering grossly abusive monetary policy as a remedy. While some of the consequences are already being felt, the full ramifications have not hit your wallet yet. But they will....

USAGOLD Comment: Because, in the long run, says our next article...

Gold will shine no matter what the economy does
By Don Miller, MoneyMorning; August 31, 2010

In the long run, the likeliest possible outcome of the planet's economic troubles is inflation, given the recent actions of spendthrift governments like that of the United States. And gold offers investors a tangible asset that has inherent value, compared to a fiat currency that's only as good as the word of the government that issued it.

Even though investors have made the SPDR GLD ETF into the world's largest holder of bullion, Peter Krauth, a well-known commodities expert who is also the editor of the Global Resource Alert thinks there's no substitute for physical gold. "There's nothing like holding a gold coin or gold bar in your hands. This is the oldest and most direct form of gold ownership," Krauth, recently said in an interview for Money Morning.

And Peter D. Schiff, President and chief global strategist at Euro Pacific Capital Inc., seconds that notion. "I continue to recommend that investors hold 5% to 10% of their wealth in physical precious metals," he wrote in a recent Money Morning article. "Aside from the likelihood that gold and silver will rise in price, precious metals offer timeless benefits, such as financial privacy, elimination of counter-party risk (if you store them yourself), as well as protection from government confiscation, onerous securities regulation, and punitive tax rates."

Summer's almost over -- get ready
By Brett Arends, MarketWatch; August 24, 2010

Labor Day's around the corner. Summer recess is almost over. ... After this, it's game time. September. The fall. The fourth quarter. The economy. Gulp.

What can you do? Should you be long, or short? All-in, or on the sidelines? How can you protect yourself, but not miss out? The omens aren't looking good. For some insight I spoke to one of the smarter guys around. Charles de Vaulx, the star money manager at International Value Advisers. He's been knocking the cover off the ball since launching his latest fund in the midst of the crash two years ago.

... De Vaulx doesn't think we'll see a double-dip recession. But he thinks we're going to have slow, grim growth for five or seven years. ... Okay, you've heard the doom and gloom. So where should you put your money?

-- Cash, plenty of it.

-- Gold. Yep. "It should do well either way," says De Vaulx -- meaning deflation or inflation. The only condition where gold gets killed, he says, is "disinflation," in other words when inflation falls. That's what happened in the '80s and '90s. Not a worry here.

USAGOLD Comment: If, however, it's a worry you're looking for, then look no further than the stock market, or the housing market. For a bit more on that dismal matter...

Stock market closes out its worst August since 2001
By Stephen Bernard and Bernard Condon, AP; August 31, 2010

The S&P 500, the measure used most by stock market professionals, finished August with a loss of 4.7 percent. It was the S&P 500's worst showing for the month since August 2001, when it lost 6.4 percent as the dot-com bubble collapsed. Year-to-date, the S&P 500 is down 5.9 percent. ... Other market indicators also had dismal performances in August, having surged ahead in July on a series of strong earnings reports. The Dow lost 4.3 percent in August, while the Nasdaq lost 6.2 percent.

Joseph Battipaglia, market strategist at Stifel Nicolaus & Co., said the drop in August matters less than what caused it: signs that economic growth is slowing, or worse. "The evidence suggests we're going into a recession," he said.

Existing home sales dive 27.2 percent to 15-year low
By Reuters; August 24, 2010

Sales of previously owned U.S. homes took a record drop in July to their lowest pace in 15 years, suggesting further loss of momentum in the economic recovery. ... Existing home sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units, the lowest since May 1995. June's sales pace was revised down to a 5.26 million-unit pace from a previously reported 5.37 million.

"This is a worrisome report and while it reflects the volatility caused by the end of the (government home-buyer) tax credits, it also indicates a deterioration in the underlying trend for housing demand," said Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch in New York. "For the overall economy, the dangerous link to housing is home prices and this report signifies that home prices should fall considerably faster, which could tip the economy back into a recession."

Have faith in gold and not in government rhetoric
By David Levenstein, Mineweb; August 23, 2010

A little over a week ago, U.S. Treasury Secretary Timothy Geithner wrote an article for the New York Times entitled Welcome To The Recovery in which he touted the great strides that the U.S. economy was making. ... "The economic rescue package that President Obama put in place was essential to turning the economy around. The combined effect of government actions taken over the past two years -- the stimulus package, the stress tests and recapitalization of the banks, the restructuring of the American car industry and the many steps taken by the Federal Reserve -- were extremely effective in stopping the freefall and restarting the economy," Geithner stated in his article.

... However, no matter the rhetoric the facts speak for themselves and ... statistic after statistic shows that the economic fundamentals continue to get progressively worse in the United States. A new analysis of the U.S. economy shows that since 2007, the private sector has lost 10.5 million jobs while the public sector has added 720,000 jobs. ... The U.S. debt has grown rapidly with the economic downturn and government spending for the Wall Street bailout, the wars in Afghanistan and Iraq and the economic stimulus. The total U.S. debt includes obligations to the Social Security retirement program and other government trust funds. The amount of debt held by investors, which include China and other countries as well as individuals and pension funds, will rise to an estimated $14 trillion this year and to an estimated $19.6 trillion by 2015.

... At the moment given the fact that gold represents less than 1% of all global financial assets, as more people wake up and diversify into the yellow metal, prices will head much higher. In the long run, gold has always maintained its value unlike the value of fiat currencies that historically end in total failure.

USAGOLD Comment: Failure??? More on that from The Wall Street Journal...

Getting ready for a dollar collapse?
By Alen Mattich, Wall Street Journal; August 23, 2010

Could the Federal Reserve's decision to restart its quantitative easing program trigger a dollar collapse?

That's what John Hussman, a fund manager, argues in his latest weekly note to investors. And the case he makes is strong... as long as one ignores the fact that other central banks don't want and are unlikely to accept a big dollar devaluation.

... China's dollar peg is likely to prove a drag on a massive dollar devaluation. At the same time, countries like the U.K. are likely to respond to any sudden appreciation of their own currencies with their own programs of quantitative easing. As might the European Central Bank. Or there could be more direct currency intervention-the sort the Japanese and the Swiss have tended to resort to.

The upshot is likely to be not just a U.S.-driven inflationary push, but a global one, where all countries aim to devalue their way to economic health at the same time.

The result will benefit borrowers at the expense of savers worldwide. But, then again, maybe given the state of global imbalances -- too much debt in the U.S. and other Anglo-Saxon economies; too many assets held by Chinese, Japanese and oil-producing countries -- maybe a massive bout of global inflation is the only way forward.

USAGOLD Comment: As member of the minority saver class, the safest way to avoid falling victim to the majority-driven devaluation of national currencies is to convert your flimsy papery savings into something tangible -- and not just any ol' tangible thing but rather something that has timeless, universal liquidity that's good as gold. As reported by Geoff Candy at Mineweb, Jason Toussaint, MD for investments at the World Gold Council, says, "What we're seeing now is more of a move in understanding of gold's role as a strategic asset class for the long term. And let's not forget, against the backdrop of 2008, when most global equity markets return negative 50% or more -- having an investor lose half of their wealth and then buy gold, is kind of too late. So, investors say we're either really good at predicting future crises which are occurring more frequently, or should we have some gold in our portfolio up to a certain percentage, which they deem appropriate for the long run -- in case there are future shocks that there will be this kind of portfolio baseline asset that will protect at least a portion of our wealth."

It's Official: China is unloading its Treasury bonds
By OilPrice.com; August 26, 2010

It looks like the smart money these days is found in China. While American investors have been scrambling over each other to buy more Treasury bonds at historically low yields, China has begun quietly unloading some of its own enormous holdings. In June, the Middle Kingdom sold $21.2 billion of paper, reducing its net long to $839.7 billion. This is little more than 10% of the total $8.18 trillion in federal debt that Uncle Sam has outstanding.

... Officials at the People's Bank of China say that it is all part of a broader diversification effort away from the greenback. PIMCO's Bill Gross has apparently been taking Mandarin lessons on the sly because he has also been paring back his own massive holdings in longer dated Treasuries...

USAGOLD Comment: It is worth reemphasizing that diversification need not be a foreign concept. As reported by Alix Steel at TheStreet.com, "Intrinsically, the dollar is worth nothing. It's a dream painted on a piece of paper," says Rick Rule founder of Global Resource Investments. Rule predicts higher gold prices in the future because the U.S. dollar will eventually depreciate in value. "There's no particular reason why you, despite the fact that you live in the U.S., need to be a prisoner of the dollar..."

Pros love gold
By Simon Avery, Globe and Mail; August 24, 2010

Respected hedge funds appear to have acquired a substantial appetite for gold. Filings show that big funds have increased their buying of bullion in recent months. Among them, Eton Park Capital Management ... George Soros ... John Paulson....

"I can't remember in 20 years so many respected investors focused on a single strategy," Bradley Alford of Alpha Capital Management, told Mr. Dutram. "Some of these people are icons of the industry with at least 15-year track records. It's a losing proposition to bet against guys like that. They aren't billionaires because they make bad bets."

USAGOLD Comment: Meaning, they ARE billionaires (and able to stay that way) because they tend to make WISE decisions...

Gold rallying to $1,500 as Soros' "ultimate asset bubble" inflates
By Bloomberg; August 31, 2010

Gold may rise as high as $1,500 next year, 21% more than the $1,235 traded at 9am in London yesterday, according to the median in a Bloomberg survey of 29 analysts, traders and investors. Dan Brebner, an analyst at Deutsche Bank in London who is the most accurate forecaster so far this year, says the metal may reach $1,550. ... The most widely held option on gold futures traded in New York is for $1,500 an ounce by December, or 18% more than the record $1,266.50 reached June 21.

Bullion gained 13% since January, beating an 8.4% return on Treasuries, an 8% decline in the MSCI World Index of shares and the 10% slump in the S&P GSCI Total Return Index of 24 raw materials.

... One of the biggest buyers has been Soros Fund Management, which oversees about $25bn. George Soros, who made $1bn breaking the Bank of England's defense of the pound in 1992, described gold as "the ultimate asset bubble" at the World Economic Forum's January meeting in Davos, Switzerland. Buying at the start of a bubble is "rational," he said.

USAGOLD Comment: For more perspective on the bubble notion, consider these opening remarks...

Gold's billionaire evangelist
By Jason Kelly, Bloomberg BusinessWeek; August 26, 2010

"I'm not a goldbug, but there are times when I feel like an evangelist for it," says Thomas Kaplan, an Oxford-educated historian and chairman of Manhattan-based Tigris Financial Group. "To my amazement, it's a hard sell. The conventional wisdom is that gold is for primitives. That derision shows me that, contrary to the notion we're in a bubble, we haven't yet begun the real bull market."

... His conviction about gold puts him in the company of such celebrated figures as George Soros and John Paulson, both of whom have been betting heavily on the yellow metal ... At the moment, the wager looks inspired: The price of gold has risen for nine straight years, hitting an all-time high of $1,256.30 an ounce on June 21. While the price has fallen about 2 percent since then, Kaplan says the big rally is still to come. It's not riots in the streets he envisions, but a more fundamental case of demand outstripping supply as gold becomes a currency in its own right.

... Meanwhile, as gold prices swing wildly and talk of a double-dip recession ripples across the markets, Kaplan retains his karmic calm. "People view gold as emotional, but when they demythologize it, when they look at it for what it is and the opportunity it represents, they're going to say, 'We really should own some of that.' The question will then change to 'Where do we get the gold?' "

USAGOLD Comment: 'Where?' indeed. A good start would be to make a toll free phone call to the helpful staff at USAGOLD-Centennial Precious Metals...

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As always, feel free to share this NewsGroup newsletter with your friends, and stay in touch with your broker at USAGOLD for prices, availability, and reliable delivery of gold coins and bullion right to your door!

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USAGOLD-Centennial Precious Metals, Inc.
Gold coins & bullion since 1973

www.usagold.com

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GoldSilver http://goldsilver.com/home/ref/970

What is the Federal Reserve System

GOLDSILVER

Q: What is the Federal Reserve System?

A: The Federal Reserve System is not Federal; it has no reserves; and it is not a system, but rather, a criminal syndicate.

It is the product of criminal syndicalist activity of an international consortium of dynastic families comprising what the author terms "The World Order" (see "THE WORLD ORDER" and "THE CURSE OF CANAAN", both by Eustace Mullins).

The Federal Reserve system is a central bank operating in the United States. Although the student will find no such definition of a central bank in the textbooks of any university, the author has defined a central bank as follows: It is the dominant financial power of the country which harbors it.

It is entirely private-owned, although it seeks to give the appearance of a governmental institution.

It has the right to print and issue money, the traditional prerogative of monarchs. It is set up to provide financing for wars. It functions as a money monopoly having total power over all the money and credit of the people.

Q: When Congress passed the Federal Reserve Act on December 23, 1913, did the Congressmen know that they were creating a central bank?

A: The members of the 63rd Congress had no knowledge of a central bank or of its monopolistic operations. Many of those who voted for the bill were duped; others were bribed; others were intimidated.

The preface to the Federal Reserve Act reads "An Act to provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial papers, to establish a more effective supervision of banking in the United States, and for other purposes."

The unspecified "other purposes" were to give international conspirators a monopoly of all the money and credit of the people of the United States; to finance World War I through this new central bank, to place American workers at the mercy of the Federal Reserve system’s collection agency, the Internal Revenue Service, and to allow the monopolists to seize the assets of their competitors and put them out of business.

Q: Is the Federal Reserve system a government agency?

A: Even the present chairman of the House Banking Committee claims that the Federal Reserve is a government agency, and that it is not privately owned.

The fact is that the government has never owned a single share of Federal Reserve Bank stock. This charade stems from the fact that the President of the United States appoints the Governors of the Federal Reserve Board, who are then confirmed by the Senate.

The secret author of the Act, banker Paul Warburg, a representative of the Rothschild bank, coined the name "Federal" from thin air for the Act, which he wrote to achieve two of his pet aspirations, an "elastic currency", read (rubber check), and to facilitate trading in acceptances, international trade credits.

Warburg was founder and president of the International Acceptance Corporation, and made billions in profits by trading in this commercial paper. Sec. 7 of the Federal Reserve Act provides "Federal reserve banks, including the capital and surplus therein, and income derived therefrom, shall be exempt from Federal, state and local taxation, except taxes on real estate." Government buildings do not pay real estate tax.

Q: Are our dollar bills, which carry the label "Federal Reserve notes" government money?

A: Federal Reserve notes are actually promissory notes, promises to pay, rather than what we traditionally consider money.

They are interest bearing notes issued against interest bearing government bonds, paper issued with nothing but paper backing, which is known as fiat money, because it has only the fiat of the issuer to guarantee these notes.

The Federal Reserve Act authorizes the issuance of these notes "for the purposes of making advances to Federal reserve banks... The said notes shall be obligations of the United States.

They shall be redeemed in gold on demand at the Treasury Department of the United States in the District of Columbia."

Tourists visiting the Bureau of Printing and Engraving on the Mall in Washington, D.C. view the printing of Federal Reserve notes at this governmental agency on contract from the Federal Reserve System for the nominal sum of .00260 each in units of 1,000, at the same price regardless of the denomination.

These notes, printed for a private bank, then become liabilities and obligations of the United States government and are added to our present $4 trillion debt. The government had no debt when the Federal Reserve Act was passed in 1913.

 Q: Who owns the stock of the Federal Reserve Banks?

A: The dynastic families of the ruling World Order, internationalists who are loyal to no race, religion, or nation. They are families such as the Rothschilds, the Warburgs, the Schiffs, the Rockefellers, the Harrimans, the Morgans and others known as the elite, or "the big rich".

 Q: Can I buy this stock?

A: No. The Federal Reserve Act stipulates that the stock of the Federal Reserve Banks cannot be bought or sold on any stock exchange. It is passed on by inheritance as the fortune of the "big rich". Almost half of the owners of Federal Reserve Bank stock are not Americans.

 Q: Is the Internal Revenue Service a governmental agency?

A: Although listed as part of the Treasury Department, the IRS is actually a private collection agency for the Federal Reserve System.

It originated as the Black Hand in mediaeval Italy, collectors of debt by force and extortion for the ruling Italian mob families.

All personal income taxes collected by the IRS are required by law to be deposited in the nearest Federal Reserve Bank, under Sec. 15 of the Federal Reserve Act, "The moneys held in the general fund of the Treasury may be ....deposited in Federal reserve banks, which banks, when required by the Secretary of the Treasury, shall act as fiscal agents of the United States."

 Q: Does the Federal Reserve Board control the daily price and quantity of money?

A: The Federal Reserve Board of Governors, meeting in private as the Federal Open Market Committee with presidents of the Federal Reserve Banks, controls all economic activity throughout the United States by issuing orders to buy government bonds on the open market, creating money out of nothing and causing inflationary pressure, or, conversely, by selling government bonds on the open market and extinguishing debt, creating deflationary pressure and causing the stock market to drop.

 Q: Can Congress abolish the Federal Reserve System?

A: The last provision of the Federal Reserve Act of 1913, Sec. 30, states, "The right to amend, alter or repeal this Act is expressly reserved." This language means that Congress can at any time move to abolish the Federal Reserve System, or buy back the stock and make it part of the Treasury Department, or to altar the System as it sees fit. It has never done so.

 Congressman McFadden
on the Federal Reserve Corporation
Remarks in Congress, 1934
AN ASTOUNDING EXPOSURE
http://home.hiwaay.net/~becraft/mcfadden.html

 

GOLDSILVER

 A Phone Call To The Fed
http://www.apfn.org/apfn/money2.htm  

It's Time to Circle the Wagons
http://www.apfn.org/apfn/money.htm

FEDERAL RESERVE ~ THE ENEMY OF AMERICA
http://www.apfn.org/apfn/reserve2.htm

LIBERTY: YOUR RIGHT TO MAKE A LIVING
http://www.apfn.org/apfn/living.htm

The Federal Zone:
Cracking the Code of Internal Revenue
http://www.apfn.org/apfn/fedzone.htm

God, Gold, the Fed and Capitulation
http://www.apfn.org/apfn/gold.htm

The Bankruptcy of the United States
http://www.apfn.net/Doc-100_bankruptcy.htm

The Fed, The Fed, The Fed
http://www.gold-eagle.com/editorials_01/sennholz040301.html

The Declaration of Independence
http://www.apfn.org/apfn/declaration.htm

The Federal Reserve - What Is It? Who Is It?
http://www.the-oil-patch.com/archive/federal-reserve.html

The Coming Battle (The Book)
http://www.apfn.org/apfn/comingbattle.htm  

The United Nations plans to CONFISCATE your profit and ---.
http://www.apfn.org/apfn/united_nations.htm
The 545 People Responsible For All of America's Woes
http://www.apfn.org/apfn/woes.htm

Where Gold Is Going

Ian McAvity:

Author, Deliberations on World

Markets

Gold likely to head toward $3,000 an ounce over the next two years but, be careful what you wish for

Interviewer: Geoff Candy
Wednesday, June 16, 2010
www.mineweb.com

GEOFF CANDY: Welcome to this weeks edition of Mineweb.com's Gold Weekly podcast and joining me on the line this week to help us navigate through what's been a very interesting time for gold. With me is Ian McAvity, one of the founders of Central Fund of Canada and the author of the acclaimed newsletter Deliberations on World Markets. Ian there's been a great deal of noise in the gold market at the moment. There's a lot of talk about inflation, of bubbles, there are concerns about currencies, and in particular the euro. What are the drivers that you look at in relation to the gold price?

IAN MCAVITY: Currency turbulence and currency credibility and the monetary aspects of gold are primary drivers. I look at the current period as being very comparable to a couple of periods in the past. I would say notably 1971 when the Americans closed the gold window and took America and basically destroyed the Bretton Woods agreement and also very much inclined to look back to 1978 when there was concerted action by the European Central Banks along with the US to arrest a decline in the US Dollar.

GEOFF CANDY: If we look at those examples from history, where does that place us now because there has been talk about the fact that this gold price is now heading toward bubble territory.

IAN MCAVITY: I love it when people talk about a bubble in current climate. To me this trend of the past decade really dates from the brown bottom of 2000 and in essence it's been a remarkably orderly uptrend with prolonged corrections and strong advances that is markedly different from the huge bubble run that we had in the 1970s. If you were to replicate the run of the 1970s in the current environment you'd be talking of something in excess of $5,000 on the gold price and I'm not prepared to go quite that far at this stage. But when I hear talk of a bubble, I look at the gold price today being about 50% above the peak that it made in 1980 while the Standard & Poor's is trading at 10 times its 1980 level and US credit market debt is 12 times the level of 1980.

GEOFF CANDY: So then where would you say we are in this uptrend.

IAN MCAVITY: If we were looking at a rerun of the 1970s and 1980s I would say we're somewhere around 1978 when gold was just breaking through the $300, $350, $400 area on its way to what became the blow off top. It's possible that that lies ahead of us in the next two or three years that knowing that the central bankers are out there - battling yesterday's headlines everyday. I couldn't put any timing on it.

GEOFF CANDY: What in terms of that and in terms of the central banks and the battling of the headlines, so to speak - what are you looking at now as possible hiccups or possible actions that could inhibit this rise in the gold price?

IAN MCAVITY: The most critical factor for the gold price is that for as long as so-called risk free capital has a negative real return, i.e. the yield on treasury bills - everyone's favourite choice for so-called risk free capital - as long as the yield on treasury bills is 40 to 50 basis points, then the perceived inflation rate is 200 to 300 basis points - basically holding paper is negative. And that is one of the strongest underlying features of the gold market and we basically have the central bankers and their quantitative easing load saying that they're going to try and keep interest rates as close to zero as possible, until they successfully borrow their way out of debt. The concept of borrowing your way out of debt is I guess, the new math that I haven't quite grasped yet.

GEOFF CANDY: In terms of the treasury bill, is there any scenario in which investors eventually do decide that they don't actually want any more of them?

IAN MCAVITY: That's probably the biggest single question mark that overhangs. Americans are delighted to talk about the probable demise of the euro without really thinking through the chaos that the actual demise of the euro might create. I think that the euro might survive - it's going through its first really major test at this point but the larger issue is the question of the credibility of the US Dollar when you've got just such massive debt burdens lying ahead of them and proposals for deficits that rise as far as the eye can see into the future. And it's the old line of 'follow the money' - basically it's Brazil, India, Russia and China that are the largest external holders of dollars, and for how long are they going to tolerate these American policies. It was comparable action by the French and the Swiss in 1971 that basically forced the US off of the gold standards and you have to wonder at what point the Chinese particularly, are going to say 'enough is enough'.

GEOFF CANDY: Two of those countries that you mentioned now, India and China - both have very strong relationships to gold.

IAN MCAVITY: Well they've got very long cultural relationships to it in the context to gold and in its most historic sense gold is running - basically it's the only historic asset that has no counter party liability and there is ongoing accumulation of gold, particularly by Russia which methodically they're adding to their gold reserves. The Indians rather famously bought that 200-ton chunk from the IMF and the Chinese recently bad-mouthing gold, which tells me that they're probably in the market as buyers below the market.

GEOFF CANDY: Is it a case at one level of 'be careful what you wish for' with a lot of pundits talking about $5,000 gold, or the gold price going up to significantly higher levels than this - would that indicate a significant change or decline in circumstances with regard to currencies like the dollar and the euro?

IAN MCAVITY: Absolutely - I speak to an awful lot of Americans and North Americans and also some European - what I call retail gold investor audiences - and I regularly say be very careful what you wish for because if gold does go to $2,500 or $3,000 or higher, you are not going to like the circumstances that create it. And I'm really quite fearful that everything I see being done to try and arrest the systemic threats to the financial system inevitably leads to the ultimate degradation of the paper currencies. So philosophically I'm a gold bug but it's a little bit like buying life insurance to make a short-term capital gain - it's the transaction costs you want to think about.

GEOFF CANDY: In terms of the euro itself, and we've been seeing a lot of small denominations of physical gold - gold bars, gold coins being bought in Europe, predominantly I would assume by retail investors concerned about the state of the euro - what is your take on that market? You said earlier that you do think the euro will survive - in what form though...

IAN MCAVITY: Eventually in what form is going to be the question because to me, the Eurocrats in Brussels made a huge mistake several years ago - by basically trying to expand too broadly and too rapidly. I gave a speech in Dublin in 1992 when they first announced the contest to name the new currency, and at that time my suggestion was that there was only one name that really applies. It should be called the Frankenstein, because it was going to be run by the French and the Germans no matter who has the ECB. And the problem they've got now is the Mediterranean countries can never compete with the French, the Germans, the Dutch and many of the other northern European economies and yet they've got themselves into a box where there's no mechanism to essentially inflate their own way out of their own debt problems. There is going to have to be some sort of debt restructuring for the Mediterranean debt levels. And I would add Italy to that equation - people don't focus on Italy all that much - the Italian bookkeeping miracles that were performed to include them in the euro always, I thought, were of Enron standards. There's going to have to be a restructuring of all of the debt - not just of the Mediterranean countries but also in a sense all the G-7 countries are essentially bankrupt. We've bankrupted the next generation.

GEOFF CANDY: You paint a relatively gloomy picture and an understandably gloomy picture. What would you say would be the best-case scenario here on in, both for the gold price and for world markets?

IAN MCAVITY: Unfortunately the best thing for the gold price would be for it not to go higher and unfortunately I think we're basically bent on a path that is almost an irrevocable path at this point because we're living beyond our means in the so-called G-7 countries and there's going to have to be a substantial reduction in the standard of living. You cannot live beyond your means to the extent that we have been in the US, the UK, all of Europe and Japan - and the ballgame is ultimately going to be determined by those that hold the external portions of those debts and that comes back to the Chinese, the Indians, the Russians and the Brazilians.

GEOFF CANDY: And how do you see those economies placed, because there's been a lot of talk about slowing growth in China for example be it that it's slowing to 8% or 9% still...

IAN MCAVITY: Exactly - the Chinese are going to have some very turbulent times because if you take the American consumer off the global stage, then all of the so-called BRIC countries are going to see severe slowdowns. The difference is to think of it in the context of a cycle within a secular trend. The Chinese are basically going through an industrial revolution in a generation and over the course of a secular trend you're going to have several vicious cycles in both directions and the Chinese I would say quite laudably at the moment are trying to slow things down because they've got some bubbles in real estate and a few other areas and they're trying to cool things off and basically if the American consumer retrenches later this year when the housing foreclosures pick up, I think that the Chinese economy is going to slow down probably more than they want. But on the other side of the valley that we're headed into, they're going to resume growth. They're going to resume growth to new highs while in North America and in Europe we're going to be resuming growth to lower highs as we methodically lower our standards of living over a period of time.

GEOFF CANDY: Just to close off with then, if you look over the next 18 to 24 months, where do you see the gold price going, in all of this context?

IAN MCAVITY: I'm afraid we're going to be north of the $2,500 to $3,000 level. The magnitude of the crisis that takes it higher, I just can't quantify because I have very little confidence of what I would call the outcome of quantitative easing as is being pursued by both the US and Europe. So we've got in a sense, the second half of the bear market that started three years ago - we're only just starting the second half of that now and you might say that the first half of it was arrested by the central bankers bailing things out. The problem that we've got now is the central bankers are wielding a bailing can that has no holes in it. It's the bailers that have now run out of credibility so I'm very skeptical on the outlook for virtually all of the financial markets for the next two of three years.

Thanks for reading,

Chuck Madere

650-366-5307

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