The Gold Report: Jon, many people classify you as a gold bear. What do you think of that characterization?

Jon Nadler: It’s a function of the camps that have been delineated so firmly in this market over the last two to three years. There seems to be very little give or tolerance on either side for the other’s opinion. We have staunch bulls and firm bears and, thus, the in-betweens you’ll never meet.

Actually, I tend to believe I come into the market picture from a different angle. My good friend, Michael Checkan, over at Asset Strategies International in Maryland, has always quoted my motto as being: “If you buy gold for the right reasons, there really isn’t such a thing as the wrong time or wrong price.” Gold is really a dual asset—it is a commodity, but it is also money. It does certain things for a portfolio that are very positive. Mainly, it reduces overall volatility, slightly enhances returns and, if the barn burns, it’s your lifesaver. It’s an insurance policy that an investor can cash in on when needed.

However, I caution—and this is where some people, I think, experience a disconnect—you don’t ever want to cash in on your life insurance policy. If you have the misfortune to do so, it implies that the rest of your portfolio is a smoldering pile of rubble.

I do know some investors who prefer to have 90% of their assets in gold. Obviously, that’s skewed to the extreme and it invites nothing but volatility and potential heartache. The average investor with a portfolio of assets deemed safe, sound and sanely diversified should earmark an approximate 10% allocation to gold. If that were the case, then why would investors hope for that 10% slice of pie to be running off to the moon knowing full well the other 90% of their wealth is imploding? That’s the typical disconnect that investors make.

If I say that gold is overpriced, in terms of fundamentals relative to yardsticks like fair value, production costs or any number of other gauges, then we (the ultra-bulls and me) have a discord and we get into arguments about where gold might or ought to go. All sorts of predictions come into question. This is a typical situation, one wherein average investors want to be told what to do. They tend to follow the guru of the moment without regard to what their predictions really entail. That’s really a problem because a $3,000, $5,000 or $6,000 gold price implies certain terrible things might be going on, and that’s not necessarily a situation investors want.

TGR: Isn’t there a happy medium?

JN: I think there certainly is. The best way to approach the idea of gold ownership is to ignore price and price performance (unless, of course, you’re a trading-minded investor and you have discretionary funds you can afford to gamble). However, if the name of the game for one is performance, then I can certainly name three or four other metals that have far outperformed gold in both the short and medium terms. That’s what I think should be taken off the table. It’s the price-performance obsession at any cost and some sort of rigid, formulaic approach that says: “Oh, gold must rise to its inflation-adjusted levels because, you know, all assets eventually do so.” I’ve seen no economics or market textbook that asserts such a statement represents a valid equation to follow. Just because oil did it (briefly, I might add) doesn’t mean that gold will necessarily do it, as well. If you ask people who bought their gold at the 1980′s peak of $850, they obviously are $1,000 short of having broken even on the principal investment. That’s not a secret. So, they really have to root for gold to rise to at least $2,300 per ounce.

How many people actually listened to my pleas in the early part of this decade when I said that gold was below production cost, there would be a ‘reversion to the mean’ and that gold could perform better than it had up to that point? How many folks ran out and bought gold at $250, $300 or even at $400? Not a whole lot of them. Retail investors tend to be habitually late, impressionable trend followers. They want to go with a proven winner. It creates manias when investors are enamored with something that’s consistently making headlines; but that, in and of itself, usually does not guarantee continuing performance. Just think dot-coms and Florida condos, for example.

TGR: Where do you see investment and demand in all of this? In 2008, $117 trillion was in financial assets, about $40 trillion was in managed assets like hedge funds and mutual funds and managed commodities accounted for $300 billion—a minuscule percentage. If investors put even a modest 5% of their portfolios into gold, it would bring that figure up to $1.2 trillion. We’re nowhere near inflation-adjusted, all-time highs for gold. There seems to be some space there where those two items meet.

JN: Yes, but there are also a lot of arguments out there that we would quickly run out of gold if every Chinese and Indian person bought an ounce of gold. We cannot convenience every asset manager, pension fund and individual investor to give a favorable nod to gold—not even at the 3%–5% level in a portfolio; that’s become clear over 35 years of market history.

Why, after roughly 35 years of legalized ownership and trading opportunities in the U.S., 5% of the investing public even considers gold remains somewhat of a mystery to gold advocates. It bears out the argument that you’re not going to get a whole lot more than that minority segment of the population interested in this asset for various reasons—not the least of which is that the U.S. hasn’t undergone the experience of other traditional gold-friendly countries. Those countries have had huge dislocations, wars, regimes failing, currencies demising and so on.

The investment cycle in the U.S. seems to be driven by real-interest-rate environments and the market flavor of the day. Unfortunately, this is where I see a lot of problems in the gold market. Hedge fund/exchange traded fund (ETF) demand that came about in the wake of the Fed’s incessant rate-cut campaign has really been the true and almost sole driving force in this gold market cycle. Just today, I received an update from Goldman Sachs that forecasts a peak in gold at $1,750 by the end of 2012. That’s when it sees the reversal of the ultra-cheap U.S. dollar environment and the end of real negative interest rates. Goldman characterizes gold as “a compelling trade but not a long-term investment.”

That has to bother a pension fund trying to decide where to put its money. I spoke to a pension fund in New York just three weeks ago. Its representative said the fund had a 9% allocation in gold. I said, “Well, that’s terrific.” The fellow responded, “Yes, but we sure as heck hope that gold doesn’t ‘perform’ because just think of the other 91% of our portfolio at that juncture.”

TGR: Right.

JN: Investors have this idea that gold is a perfect inflation hedge—far from it! It has, at best, a 10% positive correlation to inflation over the long term, which means it does not tend to preserve capital in the long run in a 4%- to 5%- type of inflation scenario. Gold does very well as an inflation hedge if you live in Zimbabwe, of course, or if you expect the Weimar Republic’s levels of hyperinflation to come to U.S. shores.

Looking back to 1980 bears something else out, as well. The correlation for gold as a dollar hedge, as an “anti-dollar play,” if you will, is -0.27. That means investors are likely to lose money at least two-thirds of the time if they buy gold just as an anti-dollar bet.

So, what is it that gold does for a portfolio? Many institutional investors, the World Gold Council and academic studies say that a minimum 6% allocation in gold will tend to slightly enhance returns without adding unwelcome levels of volatility and that it will also slightly decrease the overall level of risk without sacrificing returns. For your investment soup, gold is a sort of MSG (monosodium glutamate)—a perfect ingredient. Still, it’s not being treated in that fashion by everyone. There are strictly performance-oriented hedge funds out there that want to squeeze the last buck out of a ‘hot’ trade. For those funds, gold’s diversification attributes and long-term insurance benefits are absolutely meaningless. They will push the sell button when their particular price target is reached. Individual investors tend to be far more loyal to gold and see it as a long-haul asset.

TGR: I think very few people argue that gold is for everyone.

JN: It certainly isn’t the case anymore. I say this because we’ve seen what happened in the summer where certain gold-selling companies were being dragged in front of Congressional investigators. We hear stories about the elderly lady who’s income oriented, has very little lifesavings and is being urged to put the majority of what she has into gold because, you know, “the end is near.”

TGR: What about the monetary base in the U.S., which has grown from $1 billion in September 2008 to $2 trillion now? That certainly seems like it would be in favor of gold in the long term.

JN: Certain metrics, M2 and MZM, are contracting and falling to the floor, so it is apparent there is no ‘naked’ round-the-clock type of money printing going on. What has been printed has been successfully sold off as debt. How will the Fed’s exit strategy be achieved? It will be achieved in the same fashion as the previous 11 contractions were dealt with after World War II. Liquidity was injected into the U.S. economy up to a point, and then extraction followed. The effects of inflation at a much higher-than-desirable level were sanitized. On we go with another cycle.

TGR: You did an interview with Hard Assets Investor in May when gold was about $1,250 where you said you believed gold was retreating. Now gold has surpassed $1,400. Were you speaking to a longer timeframe?

JN: In May, we did have a retreat to about $1,150. It should have gone below $1,150, but it didn’t because the bids hedge funds kept piling on remained in the driver’s seat of the market. I ask anyone to show me the lines around the corner at the coin shop where people are panicking and lining up 1980s-style because they see manifest inflation. Gold is “not in a bull market” is what I remarked not long ago. For that, I received a lot of “incoming” (criticism). However, look at the metrics that make for a true gold bull market. First and foremost, the supply/demand basis of the market is absolutely out of kilter. That’s been corroborated by all of the statistical houses—GFMS, CPM Group, VM Group, etc.—that track gold’s tonnage flows in the market. They’ve concluded—not just me—that the market has become a complete “junkie” to this [mostly fund-driven] “investment” niche.

TGR: The tonnage flows included the huge influx of scrap gold into the market. There are indications that scrap is going to be reduced drastically.

JN: Scrap supplies rose 27% last year to a historic high. They were 68% higher than scrap supplies in 2007. I don’t see it abating until prices come down and/or stabilize at a lower level, say somewhere around $900–$1,100.

TGR: Is there an indication that gold is going back to its traditional status as a backer of currency versus its more modern use as jewelry?

JN: I wish that were the case. At some point, gold was 60% of global reserves. The central banks’ selling campaigns of previous decades have marginalized it to about 10% of global reserves. Even if we get back to 20%, gold is not making a return as a de facto alternative currency or the sole basis for some new supra-currency.

TGR: Why is that?

JN: We can’t have current global GDP growth levels with the relatively infinitesimal amounts of gold that are available. We would simply have to cease growing and go back to the 17th century, economically speaking. I don’t think we’re near the day where gold makes that type of comeback on the international monetary scene.

TGR: You mentioned earlier that you could list some other metals that have vastly outperformed gold. Could you give us a brief overview of each?

JN: Well, for example, these days, investors are quite excited about silver because it has outperformed gold in the last few weeks. I, on the other hand, have been looking very closely at platinum, palladium and rhodium, all of which show very decent fundamentals, unlike the situation we find in gold and silver at this juncture.

Performance? Well, in 2009, gold returned about 25%. Silver returned about 53% last year. Platinum and palladium, on the other hand, returned 212% and 230%, respectively.

Silver has recently performed very well, but the risk profile for that metal remains at the very top of the heap of a bunch of portfolio assets—gold, platinum, the S&P 500, the trade-weighted dollar, etc. It carries fully double the risk entailed in investing in gold.

Demand for platinum, palladium and rhodium has been growing thanks to the industrialization and growth of Brazil, Russia, India and China (BRIC). The one standout feature has been that everybody wants to have wheels in China and India. Of course, you cannot build ‘wheels’ these days without making the tailpipes emit cleaner content. The minute you commit to that mandated environmental standard for auto emissions, you have to employ these metals. All three of them are absolutely vital in producing a car that meets today’s stringent emissions rules.

The noble metals market is also awaiting the return of robust sales in the Western European and North American car markets, which have been in a sort of nuclear winter for the last two years. We have had to use cash-for-clunkers gimmicks in order to keep the sales from going away completely. The carmakers might be turning the corner next year, however; that’s when we would expect even better performance to come from the noble metals group.

TGR: Bloomberg Markets magazine recently featured a story about how BRIC has become BIIC. Russia was taken out of the mix and Indonesia added because corruption in Russia inhibits investment there.

JN: Russia is a double-edged situation because some palladium market followers have almost declared that state stockpile sales are finished. Other people have disputed that whole scenario. It’s hard to get accurate information out of the country. One thing I would look for is continued demand for vehicles in Russia—everybody wants a car. As long as Russia doesn’t implode economically, I think its car demand will be ok.

I expect China to really ratchet up interest rates to try to cool inflation and growth, as well as avoid a real estate implosion. However, any tempering of the ‘hotness’ in China could mean lower sales of everything. So, we have to continue to count on the traditional automobile markets in Europe and America. I think they’re making a comeback, and I think we’re looking at a much better situation going into next year. The U.S. is a lot more accepting of diesel-powered vehicles, which are one of the major consumers of platinum group metals.

TGR: On a personal level, what percentage of your portfolio contains gold?

JN: Not that long ago, I was on a panel with certain notables in the gold business and the MC asked all of us point-blank: “Gentlemen, what do you have in gold? You’re telling your followers to own lots of gold.” I think all of those present, besides me, admitted to gold ownership levels of far less than 10%. Most were clustered around 5%, at best. I think the audience found it quite surprising, as some folks are practically advocating putting your lifesavings into gold and running for the hills. Their own exposure to the physical side of the precious metal was pitifully small. Maybe they dabble in junior mining shares and consider that exposure to gold. Maybe they play gold futures or options, I don’t know. They didn’t explain. However, I am sure we would all like our gold gurus to put their money where their mouth is. I’ve never shied away from saying that gold was my entire asset basket when I fled communism back when I was 18 years old, which is certainly corroborated in the introductory chapter of The Golden Rule: Safe Strategies of Sage Investors, a book published last summer by Jim Gibbons. I wrote the intro chapter for Jim’s book, which describes my story and how gold really did save my life many years ago.

TGR: How did it save your life?

JN: Gold was the only asset that I could effectively flee with, in a physical sense. It was my nest egg that I started a new life with in North America. We sewed it into our clothing when we left. It was given to me by my grandfather, who was a gold miner. So, I’ve never really been without gold.

TGR: And now you hold about 10% of your portfolio in physical gold?

JN: Correct. I did reduce it previously from 15% as the metal rose beyond $1,100. I don’t plan to dispose of more than that because I don’t need to. I’m hoping not to make stupid decisions in other assets, which would precipitate a need to sell gold to mitigate such losses. If it comes to any other forms of exposure to the sector, I’m very conservative. I don’t play or trade metals for fun and profit. When it comes to mining shares, for example, if I were to own any, I would stick strictly to the two or three majors everyone knows. Why? I always want to go with proven entities and those that I can research easily. I don’t have a profile where I like to put my assets at risk.

My gold holdings are not stashed in a coffee can, either–not these days. I’m very comfortable having my gold stored by reputable, specialized custodians and having it spread out in a variety of worldwide locations. This is not because I’m expecting any North American crisis or imminent government confiscation but simply because I like the idea of asset diversification, as well as geographic diversification. That’s why I also hold a number of foreign currencies in my modest little basket. Some currencies that I think are well managed are the Swiss franc, Australian dollar, New Zealand dollar, Swedish crown and Norwegian crown. Of course, none of that means I have any nightmares about being mainly in Canadian and U.S. dollars as the base.

TGR: What’s some parting advice for investors?

JN: Gold is essential as an insurance policy on an investor’s financial life. If investors have none, they should start accumulating it 1% at a time until they build up to my preferred threshold of 10%. But investors should not be without gold because, at the end of the day, this is the sole liability-free asset that can be owned outright. As Karl Malden used to say: “Don’t leave home without it.” I would update that motto to say: “Don’t be home without it, but keep hoping for the best. Ignore the gold price, but focus on your percentage of ownership thereof.”

TGR: We’ll hope for the best. Thanks so much for your time, Jon.

Jon Nadler’s 33-year career has focused exclusively on the precious metals market and its related investment products. After graduating from UCLA Business School’s management program, Nadler established and managed several precious metals operations at major U.S.-based financial institutions, such as Deak-Perera, Republic National Bank and Bank of America. He currently is a metals market analyst for Kitco Metals Inc. He has long-standing ties in the global precious metals community and has consulted on marketing and product-development issues for government mints, precious metals retailers and trade and membership organizations, such as the World Gold Council.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

Here are quotes from the article (with my comments in parentheses after):

“Gold in New York fell to the lowest price in more than a week” (a few paragraphs later the horrifying fall is revealed: “Gold futures for April delivery fell $1.70, or 0.2 percent, to close at $1,122.30“).

“Gold is “unlikely” to be China’s primary investment to diversify its reserve holdings because of price risks, said Yi Gang, head of the State Administration of Foreign Exchange.” (Great – this means China is back in the market looking to buy Gold at current prices!).

“It’s all about the dollar,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “With the dollar continuing to strengthen, gold doesn’t have a chance.” (Of course, the Dollar is topping and Mr. Kaplan is as big a Gold bear as Nadler over at kitco.com – whenever a bearish Gold quote is needed, Mr. Kaplan is available).

I haven’t perfected this indicator yet, as there often seems to be a brief lag time before the ideal buy point, so we’ll see. It is also hard to use a permabear as a contrarian signal. For example, Nadler over at kitco.com is bearish every day, so he can’t be used as a timing signal. There may be too much noise to use the Bloomberg indicator as a buy signal, but the point is an important one – don’t believe a word Bloomberg has to say when it comes to Gold!

GOLD DESAFIO: GLOBAL STRUGGLE

by Jim Willie CB November 24, 2009

home: Golden Jackass website

subscribe: Hat Trick Letter

Jim Willie CB, editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage 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 market has become, despite little recognition by the financial press, the battlefield for global control of the financial world. To the winner go the spoils and access to the helm. To the winner goes control of global banking, dominance in commerce, and the advantage in some degree of printing money on a credit card that all nations must finance indirectly. Nevermind the military aspect. In the Untied States, the custodial control of the USDollar as global reserve currency enabled it to spawn numerous syndicates with criminal impunity, since under the USGovt aegis (if not management). The gold market is the site of the most ominous dangerous life changing battle in recent history. My work has frequently mentioned a Paradigm Shift in progress. The shift is of power, influence, dominance, control, privilege, and direction. It also permits the writing of history itself. Since the end of World War II, the Untied States and Great Britain created an empire based primarily upon economic and financial prowess, but certainly reinforced by military strength. With the fall of Wall Street, the ruin of US banks, the insolvency of American households, and the quagmire of US foreign wars, the shift has accelerated. The parallel debacles and ruin into insolvent for Great Britain has ushered in an Anglo removal from the power circuit. The transition will not be smooth. See the endless wars, the attacks on tax havens, and the viruses.

Notice the slow fade of the Japanese, a nation having served as US Lackeys for more than a few decades. They must next join forces with the Chinese, and perhaps bow but not too much since they bring tremendous technological prowess to the table. Thousand year old enmity must yield to cooperative alliance and ventures. Regional unity will become of paramount importance in the next chapter of economic development. The Tokyo mavens are suffering from the shock of the Yen Carry Trade unwinding process. Weeks ago, my articles pointed out how the rise in the Japanese Yen would keep the pressure firmly on their economy, clearly still export driven. The USDollar crisis has its own core troubles. But they are amplified by a stronger yen currency, which is undergoing a handoff to the Dollar Carry Trade. The Yen currency continues to push higher, causing the Japanese Govt to assemble and hammer out emergency policy. Never in history has a carry trade fed off and exploited a decline in the global reserve currency. These are historic times.

GOLD AS CRUX FOR BATTLE

The shift in power is most evident in the rapid rise in accumulated gold by the Chinese Govt. In my view this is the actual crux of the global desafio. In the Spanish language, desafio means a great struggle and battle, much akin to jihad in the Arabic language, but without the warlike military connotation or tendency toward glorified suicide. My first exposure was the Discovery Channel. A show focused upon the Alaskan Desafio as some brave group weathered the wintry storms, traveled with sled dogs, and struggled to eat and sleep. This gold desafio is for global control. Those who control the gold control the global banking with all its trappings. The corrupted COMEX and London Bullion Market Assn are the clear battlegrounds for the gold battle. In an open manner, no longer hidden from view, the COMEX is settling gold long futures contracts with Street Tracks GLD shares. Investors in GLD shares should be horrified at shareholder contamination. Clearly, the COMEX does not have much of any gold bullion, yet it operates formally as an exchange to sell gold, and to create a market for gold price discovery. Some call this new redemption developed appropriately a silent COMEX default, and correctly so. It is the early chapter of a COMEX default, presaged last May.

The two-sided fraud deserves mention once more. In time, the Street Tracks GLD (run by State Street, with JPMorgan as custodian) will be exposed as totally corrupt. They are using GLD shares openly now to cover COMEX short futures contracts. They are likely providing GLD bullion to London to satisfy futures contract delivery demands. Evidence painted a picture after London gold delivery stresses occurred at the same time as vast deletions from the GLD bar list, which suddenly reappeared days later. That is burning the candle at both ends of the GLD itself. Eventually my expectation is for GLD shares to sell at a 40% discount to gold price as the lack of gold inventory is revealed. Then later, after lawsuits, the GLD might easily sell at 80% discount. Finally the climax could be prosecution for fraud and all investors will be given 20 cents per dollar versus gold. Who knows? Maybe it will be 30% and 60% and 40 cents per dollar. The trouble for hapless unsuspecting investors is they did not read the prospectus, which permits such misuse of GLD shares. They just might be lazy and qualified sheeple. The Wall Street crowd did effective planning. One must give a tip of the hat to their brain trust. The GLD is a tool to drain gold demand from the public and to supply it to the syndicate. It is one of the most brilliant open ploys in financial history.

THE ANTICIPATED DUBAI CRUSH

On October 8th, the Jackass gave you a “TOLD YA SO” on the announced previewed end of the Petro-Dollar. The Saudis, with Chinese and Russians on their left and right arms, heralded the end of the sale of crude oil in US$ terms, with French and Japanese in tow. The Germans secretly were in charge of counseling toward the forged deal, but preferred the shadows. The new crude oil transaction settlement system will take time, but surely not to require eight years until 2018 as announced. That stated target date was intended to deflect and distract from US retaliation. The mere announcement should be regarded as a schematic diagram for architects and investors alike to follow. New systems must be constructed. Investors ahead of the curve will be the primary beneficiaries. The changes that result from the announcement itself will assure the completion date to be just 2 or 3 years, not 8 years.

In just two short months, it is time to say “TOLD YA SO” again, this time on the story that came out of the United Arab Emirates. Or should they be also called the Untied Arab Emirates, after their squabbles between city states? The Dubai World debt default and restructure has caused shock waves the world over. IT WAS FORECASTED IN AUGUST BY THE HAT TRICK LETTER. The vast construction bust has caused anticipated ripples. The threat to London banks is acute. Time will tell whether its ripples will cause sufficient damage to London and New York bankers to topple them and to force lost control in other banking functions like gold management, as my forecast indicated. It seems that worsened big London bank solvency from underwritten Dubai losses, rather than Arab USTreasury Bond dumping, will be the principal cause of any imminent breakdown, if it occurs. See the article entitled “US Bank Enemies at the Gates” from late August (CLICK HERE).

For the record, here is what was written over three months ago by the Jackass pen. “The regional construction boom in the Arab world has an epicenter in Dubai. Unfortunately, it has gone bust, and loudly so. If not for the prompt aid by Abu Dhabi bankers, a vast liquidation of Dubai would have embarrassed them in front of the world. Instead, a new threat comes. The Abu Dhabi rescue next must contend with an indigestion problem, as USTreasurys and likely other US$-based bonds are flooding their banking system. They might own a considerable batch of US bank stocks, soon to be dumped. Ambition led to a whiff of hubris, as fantastic architectural design led to large scope, seen in the skyscrapers and bridges. Not shown are the spectacular communities designed as trees with branches and leaf petals, many empty, busted, and without investment income. But they overdid it, and now must deal with corporate failures and liquidation challenges. The Persian Gulf bank failures represent the clear and present threat. The outsized projects have yielded to outsized rescues and next outsized indigestion to handle the funds in ways so as to avoid a string of national bank failures. Vast liquidations come, word comes from contacts.

A bank panic in the Persian Gulf could ensue very soon, a back door threat. It would clearly have origins in the United Arab Emirates, spread to the entire Persian Gulf like to Saudi Arabia, Kuwait, and elsewhere. From this global toehold, the bank panic could then spread to London, New York, and points in Europe. The UAE bankers must manage their situation. They are loaded to the gills with USTreasurys, the main currency used in the liquidations and rescues local to the UAE. They also have pet stock accounts in big US banks. As further liquidations occur, avoidance of bank failures seems a remote prospect. Watch the enemies at the gates, outside looking in, in urgent need of dumping USTreasury Bonds and other US$-denominated securities.“

Much can be told about hidden developments, like family squabbles between the UAE emirate rulers, bitterness over shame brought to the region, anger from unheeded counsel, sudden departures of people in key posts, and a desire to punish (even exploit) the decline in fortunes. The biggest question in my book is how much Abu Dhabi bankers wish to permit London bankers to absorb losses, before Abu Dhabi cleans up and grabs liquidated properties in Dubai at deeply distressed prices? Negotiations are underway, heated, and of vital importance in London between all the bankers involved. What can London offer Abu Dhabi? That is the question. The Arab world takes a dim view of debt to begin with. They abhor home and property mortgages generally, and thus never invest in mortgage bonds. To prove the point, hundreds of Dubai Prisoners languish in their hotels and apartments. They are British, American, and European engineers, financial cogs, analysts, and other workers whose employers from the parent Western firms defaulted on very large loans. These people will remain prisoners, and will likely become pawns in the game during negotiations. Conditions grew so desperate that hundreds of cars lie abandoned at airports, from workers who fled the region before trapped in homes.

Expert analysts warn of continued shock waves, as almost nothing has been resolved, very little asset or corporate liquidation has occurred, fallout has not yet been permitted, bank losses have not been declared, and resolution prices have not been posted. The internal battle between UAE city states, one rich in oil and a banking center, the other recovering from a construction bust amidst great hubris and displayed magnificent follies, will play itself out in the coming several months or years. The internal families are locked in a power struggle. In Dubai, 30% of their economy is derived from real estate, construction, and other property development. They have some truly braindead concepts and ideas at work, like indoor snow skiing, like cooled beaches with underground pipes, and golf courses that require much output from the desalinization plants to water the green landscape against sandy backgrounds. These are like plebeian versions of marble palaces in the desert. To be sure, a great awakening comes as a load of debt is dumped on the big bankers, just when they might have thought the worst was over.

One friend calls the Dubai construction array the greatest property folly in a century. Maybe so! Next come shock waves to London banks. The follies must be liquidated, with great losses dumped upon balance sheets. The banks must take much more lumps and losses. The original $10 billion in debt loss is more like $80 billion. Details on the story appear in the upcoming December Hat Trick Letter reports, which are streaming in on a daily basis. European banks have some exposure too, but not as much as London. The Abu Dhabi rulers must complete bargains with London bankers, who have conspired to suppress the gold price for two decades. The UAE leaders hold a huge amount of gold, and have demanded its return from London custodial accounts. Resentment seethes beneath the surface, the basis for Arab vengeance. The fallout will be wreckage of Royal Bank of Scotland, and maybe HSBC too.

In the process, watch power shift to Abu Dhabi as concessions are made by London under extreme pressures. Parts of Dubai are ghost towns, almost totally unoccupied vast projects. The biggest question in my book is whether RBS can go bust and be liquidated while still operating under the British Govt aegis? Lloyds will take large blows as well. The shock waves have not yet fully reverberated. They will continue for months. The Dubai property prices have not yet bottomed, and might settle at 20 cents per dollar on original basis. The legion of Western wonks in the financial sector stupidly expected Abu Dhabi to rescue all Dubai loans, without benefit of much knowledge of resentment, family conflicts, banker ambitions, and ramifications that extend to the new Gulf Dinar currency that shifted planning rooms (Saudi to Russian). My August article implied the Dubai bust would result since Abu Dhabi would not step in and bail out their UAE brethren. The inner conflicts and agendas were well known all along here.

The next shoe for the condemned Caucasian crowd is mortgage losses from Eastern Europe. For several years, the Swiss provided the funds as a result of their 1.5% steady official rate. At the time, it was 3% below the rest of the continent. The combination of home loan default, and sharply lower Eastern Europe currency basis has resulted in near total losses to Swiss banks on such mortgage portfolios. Also, watch Greece, which could be the next Dubai crush zone. It is a construction bust center also, like Spain. The socialist roots in Southern Europe have enabled a denial of property price declines from Spain to Italy to Greece. Instead of vast arrays of homes being sold at distressed lower prices, they sit in inventory at elevated absurd high prices. The bust impact comes soon, as these assets cannot be carried much longer on the books.

GO GOLD GO GOLD

This is just the beginning. We are still in the proverbial second inning of this gold explosion. Gold continues to rise because the system is breaking, because almost zero remedy has been completed, because pressures are brought to bear using the same broken tools to fix the problems, because mountains of new money are wasted and paid to failed bankers, because the crisis is ongoing, because the economies are not responding to stimulus, because home foreclosures and job losses continue unabated. Much more government rescue and stimulus comes, MUCH MORE. The Chinese are firmly in control of the gold price. They inch up the gold price systematically in order to release more supply from both the cash desperate and the investment knuckleheads. A big story has hit the press, that HSBC is backing out of the gold storage business. My gut tells me that HSBC might be clearing major bank vault space to hold Chinese deliveries from metals exchanges. The gold price does not merely rise from a weakening USDollar and major currencies. Nations intentionally try to undercut themselves in order to preserve their export economies. The gold price also rises from the gradual removal of shackles that have falsely suppressed the price, as supply has dwindled, replaced by paper gold, and probably tungsten gold too. In the last couple weeks, extraordinary scrutiny has come to the gold delivery system. The process reveals an unspeakable global shortage of gold bullion. The gold price is attempting to adjust to a proper higher price free from interference, based upon supply matching demand. The gold price will rise further from continued debasement of the major currencies. Even now, with the COMEX and LBMA in London, the gold market cannot clear at the current price. There is an extreme shortage of gold bullion in physical supply, due to years of price intervention and replacement by paper gold. Apart from weak or destroyed currencies, the gold price must be higher from basic intervention relief.

Some argue that gold must rise to match the supply of newly created money, bound in the fiat currencies with pretty designs and colored ink, even watermarks. Gold should rise in parallel with money creation, but not in lockstep. A currency can always be fixed according to a cover clause that dictates 1% of money can be redeemed in gold. Later, a move to 1.5% in the gold cover clause would fortify one currency in much the same way that official national interest rates lift currencies upon changed policy. Personally my wish is for the gold price to continue its powerful bull run without the Euro currency breakout toward 160. That would expose all the currencies together as horribly weak if not invalid. If the Euro rushes toward 160, the gold market in Europe must then adapt to an interruption in the bull roaming on the continent. Stand back! The explosive upward thrust in the gold price is still a threat, much like Mount St Helens. The Powerz have begun to lose control of the gold market.

No search for safe haven in the USDollar took place after the Dubai world shock. Rather it was a retreat from the British Pound and Euro currencies, which bore the risk of loans underwritten. In one short week, the effect has dissipated, as the USDollar is weaker than BEFORE the Dubai incident broke to make news. All currencies are weak relative to the stable powerful reliable gold. The USDollar is showing a steady relentless weakness, unable to snap into any recovery. It is my view that ruining the federal finances is what Obama was hired to do by the syndicate. The high risk of USMilitary coup in the future remains acute in order to avert a USTreasury default, or perhaps coincident with a default. Obama‘s specific job is to run up deficits and ruin the dollar, which paves the way for the coup. The Cap & Trade game is just another fraud revealed, with credit given to the intrepid internet websites that gave up the ghost. The upcoming coup has a definite purpose, to remove foreign creditors from any receivership tribunal. The Untied States can become a sequestered state, free from foreign interference. Yet isolation would be the fate won.

ENTER THE CLOWNS

Don’t bother to pardon the misspelled names, done to disguise the identities of clowns within our midst. The Jackass is fully capable of errors, usually admitted quickly. My biggest arena for errors has been long-term USTreasury Bond yields, due to interventions, interference, and monetizations. Other errors have been made, hoped to be minor in nature. An extraordinary amount of information must be digested, absorbed, and integrated into any editorial analytic work that covers a complex and treacherous financial world. Errors come since we are human. But what follows is not ordinary, and speaks to an arena tilted toward deception delivered with motive. My work has an objective to analyze correctly, to highlight connected factors, to explain complexities, to forewarn with lead time, and to make forecasts. The string of solid forecasts is my carrying card. Other foibles are carried. My body is adorned by moles, one just like my mother’s. More than a few wild long hairs grow from my eyebrows, making some wonder if General Elmo Zumwalt was a distant uncle. My eyes are uneven, one lower, but no glasses are needed to correct vision. My head is balding, but hats keep it warm. My right foot is pigeon toed, that results in a hook in the soccer kick. The left kick is more adept. But my work is factual, helped along by wonderful reliable sources and numerous newshound friends. Minor errors are committed along the way. One should care not about a minor typo within articles offered in the public domain, despite my usual final proofread pass. What follows is a list of elements inside the gold community, often doing a notable disservice.

Why are the US financial airwaves polluted by Denis Gartmann and his consistently incorrect and shallow preachings? His fund is down, not down hard, as he maintains his negative opinion of the gold asset story. He hedged a gold position with an offsetting currency position, resulting in a total waste of investment funds. Gold just happens to be the biggest story and one of the best performing assets in the last half decade. One might conclude such strong performance is worthy of disdain, disrespect, and disrepute. NOT! A contact of mine is considering a new Anti-Gartmann Fund, with a double leverage component that takes the opposite position of the Gartmann fool. Given his steadily shallow analysis and lack of comprehension of the gold market, one might conclude that Gartmann has a secondary income source from Wall Street firms. He might indeed be paid to denigrate the Gold Bull market, despite the tarnish to his reputation. An aside on Gartmann, who used to speak as the Cambridge House gold conferences alongside the Jackass. He appeared in 2005, much to my surprise, since he is so incredibly lacking in insight. From the podium, in front of over 1000 people, he delivered probably the stupidest speech ever to penetrate my ears. Gartmann actually claimed, one year before the housing bust struck, that the USEconomy was still grossly under-leveraged. He actually made numerous points about how the assets within the Untied States still had countless additional collateral from which to draw credit. He actually spoke of numerous new avenues to extend credit, and how the extra funds to surge within the channels of the American system would result in much greater economic growth. He concluded that the best days of the USEconomy were well ahead of us. He praised the merits of risk. Then came the bust. One must wonder if the 1000 people remember the idiotic preachings and drivel from the man that day in Vancouver. The Jackass sure does, one of only a handful who emitted laughter during the Gartmann ideological face plant in the snow. What is his latest correct forecast??

The same conference featured Doug Kasey, who went galactic in a mindless harangue. He spoke of the eventual cap on commodity prices from mining asteroids in the solar system. You see, they are rich in iron and other base metals. He ignored the cost of mining in the deep solar recesses, and how the high cost would impose a cost cap, but one perhaps 50 to 100 times the current commodity prices. After all, in order to exploit the vast asteroid metal supply, one must escape the earth’s orbit, at a heavy cost, an overlooked factor. The conference management might have done well to give Doug a face to face check before he stepped up to the podium. Man oh man!! That was a memorable conference with two icons displaying their unwaxed cross-eyed viewpoints for all to see. One must give Kasey credit for many speeches that challenge the honesty and integrity of the USGovt and USMilitary enterprises.

Next take Pablo Van Eaton. The man sounds good, looks great, has a great speaker voice, and is a nice fellow. But he carries a distinction above all others. Van Eaton provides the most eloquent and well constructed arguments for consistently wrong forecasts, and has done so for several years. He had one good call a few years ago on mining stocks hitting a peak, but that call has been eclipsed by a long list in a row that seems not to end. It is like he was a champion on his school forensic team, burdened by arguing the merits of a plainly wrong position, but excelled. When gold was meandering in the low to middle 900 level for months earlier this year, he forecasted a move in the gold price down below 800, as the deflation threat would take its toll. However fallible, he is still invited to appear as a panelist on the dinner hour shows for the Canadian Business Channel. The major investment houses must love his steady disdain shown for the gold market. His subscribers are welcome to switch over to the Hat Trick Letter, where correct forecasts are not only important but are regularly given. Pablo attracts crowds at the conferences. Bless them one and all who hang on his every word, as they must have very short memories. What is his latest correct forecast??

A vivid memory is etched in the Jackass mind from the Calgary conference in 2004, offered also by the Cambridge House. Van Eaton shared generously a taxicab with the Jackass to the airport. The conference had ended. During the taxi ride, Van Eaton expounded on why the USDollar would suffer a serious decline from May to the end of the 2004 year, since Asian sovereign funds would diversify away from the USDollar. In direct rebuttal, the Jackass explained in simple terms that the US Federal Reserve had begun to raise the official interest rate, and would continue for several more meetings. The Jackass rebuttal argument was that we live in a bond driven world, and as long as the official US interest rate was rising, the USDollar would continue to rise in a surprisingly counter-trend rally from basic bond speculation. The point was made quietly, tactfully, professionally, since Pablo was paying for the taxi. Furthermore, my extended argument was that the Asians would hold off on a major dumping of US$-based assets, and instead sell after a year or two had passed. Score one more correct call for the Jackass, and one more wrong forecast for Van Eaton, who shared the same fallacious argument before 1000 people at the same Calgary conference. IN THE NEXT FEW MONTHS, THE USDOLLAR ENJOYED A POWERFUL UPWARD RALLY IN PURE COUNTER-TREND FASHION. It ended when the USFed halted the rate hikes, as forewarned. One must wonder where Pablo takes his cues, or who pays his clandestine paychecks. One must not become too enamored of that charming foreign accent, which delivers a flow a words like a melody. The Jackass does not care if a hillbilly accent is worn when the mental acumen comes through in brilliance. Take TBoone Pickens. His homey folksy Texan accent is charming, and sounds nowhere near as intelligent and alluring as Van Eaton. But Pickens is as consistently correct on forecasts as Van Eaton is wrong.

Another lame entry is Richard Burnedstein, the respected economist from Merrill Lynch. This week he said gold has no driving fundamentals that justify its rising price. Clearly Burnedstein loves the paper game, and surely maintains a high derived price on all things paper. His paycheck is also high, derived from a major paper merchant firm. One must excuse Richard since he at least comes forth with the Merrill Lynch name attached to his own, including all appearances. So his preachings are a much more genuine acknowledged compromise of mental processes. He is paid to represent his firm, whereas Gartmann could easily be receiving large funds from the back door, where his allegiance lies and influence of partners is more hidden. Never forget that Wall Street earns almost zero investment banker fees from gold or the mining firms. It is like dogs selling cat food; they don’t do it! What mining firms do solicit in funds for stock issuance is largely conducted in Toronto and Vancouver. So the gold fundamentals are lacking in the man’s compromised view. What is his latest correct forecast??

One must suppose that skyrocketing gold investment demand and rush to diversify out of a collapsing dollar do not qualify as fundamental. And the absence of metals exchange gold inventory also does not qualify as fundamental. And the Chinese pledge to lift their gold reserves 10-fold to 10 thousand metric tonnes in eight to ten years, that is not fundamental either. And the G-20 pledges to formally move toward an IMF basket of currencies, known as the Special Drawing Rights, and away from the USDollar, that is not fundamental either. And the Saudi announcement of a phase-out of sales for crude oil in US$ terms over the next few years, neither is that a fundamental. And the grossly insolvent banks in the Untied States, England, and Europe, which are simultaneously struggling, unable to extend loans, desperately suckling from government teats, that is not fundamental either. Burnedstein plainly fails to recognize that the entire world is grasping for something tangible within the global monetary system overrun by toxic paper, and that anchor reached for is gold.

The last two figures that complete the clown show are more closely tied to websites and their associated businesses. Bobo Moriarity is the owner and editor of a formerly prominent website. He shows a surplus of his own articles on his website, usually to extol the merits of some stock he owns. Many thrive and do very well. Not many other analyst articles appear. In Spanish, a bobo is an idiot, a dunce, by the way. Big Bobo, who is reportedly wonderful on field trips to visit mine properties, has called the $1190 gold high of last week a top. He did not use the word bubble, but he expects a notable correction and a long period to achieve new highs. The gold price has gone north instead, laying waste to his forecast, which was correct, but only for approximately one day. Maybe when the gold price reaches $1250 per ounce, he will retract his forecast. He has shown a disproportional disrespectful critical insulting tone to the lowly Jackass from an error committed. It is admitted. The pre-1964 dimes were silver coated but with copper core (not zinc), and besides, in earlier years the dimes were only 93% silver anyway (not 100%). Points taken! Beat me with a stick, but not a golden rod! The switch from majority silver to negligible silver in US coinage escapes Moriarity to this day. His criticism includes great departures from the reality of my correct forecasts and command of the English language, even sentence construction. He is way out of bounds! He finds no merit in the entire tungsten story, and urges proof put on the table. Proof comes but not soon, since murder is often an obstacle to arriving at such press conferences. Maybe when the gold price reaches $1300 or $1500 per ounce, he will understand the Global Paradigm Shift and why gold has risen in a powerful manner in the last two months. Maybe he is not aware that the Chinese are major buyers, and even control the price rise step by step. Surely he does. The most basic Head & Shoulders Reversal Pattern dictates a price target of 1300. The Christmas season is traditionally strong, another factor ignored by Bobo. So he thumbs his nose at seasonal strength and aint a chartist either. To the good Captain, let the gold battle cry be “1-2-3 GOLD” !!

Then we have Jon Needler, who must be the son of the website owners where he displays his anti-gold propaganda. To point out Needler’s erroneous forecasts and perspectives would require a full article at least 15 pages in length. He seems the most likely to receive a secondary clandestine remuneration for his diligent work in denigrating the gold market. He comprehends precious little about gold or silver. His arguments are so full of holes that a high school economics student could easily challenge him. His forecasts are consistently not just wrong, but wrong in powerful directional thrusts. Yet his work continues to be posted, despite little or no value. Precisely zero rebuttal will be given, since his work is so extraordinarily devoid of substance or quality. In fact, Needler serves as a salesman for paper gold certificate who openly admits his preference for gold coins. What is his latest correct forecast??

Then consider Henry Orlandwini. His work is actually quite good. The one Hat Trick Letter subscriber is still hoping for return of the $28k absconded by him. Occasionally, like today, he said something that struck the Jackass as lacking deeper insight. He said, “I think currencies are devaluing more than gold is rising, and that is why I contend that overbought is a relative term. Gold is rising, but not as fast as the world currencies are falling.” The initial reaction here was “wow, really dumb statement.” This is a much bigger phenomenon than just currencies falling. We are in the midst of a systemic breakdown and major financial upheaval. We have a broken monetary system, a threatened global reserve currency, discredited central banks, insolvent major banking systems, and an important Paradigm Shift away from the USDollar as power shifts also to the East. Orlandwini is watching too much the branches, leaves, and ferns within the forest, and seems to be missing the bigger picture. When he attempts to forecast the gold price today and the US$ DX index today, identifying resistance and support levels, he might be missing the biggest story of the last few decades. It is the collapse of the US$-based global monetary system and the urgent effort to replace it and to salvage wealth accumulated. Furthermore, and more precisely, the gold price is pushed by not only a weakening USDollar and weakening major global currencies. They are simultaneously being destroyed, debauched, and debased, not just weakened. The additional force that Orlandwini overlooks is that the gold price is attempting to free itself from the Wall Street and London City shackles. The gold price (silver too) is attempting to find its correct price, even besides the continued weakening of currencies.

Lastly, consider US Federal Reserve Chairman Ben Bernanke. He was clearly chosen by the syndicate to continue the Banker Welfare programs, to run the USDollar printing press until it seizes up, and to preach about how deflation will not happen here. He has not uttered one correct forecast in his entire tenure. He missed every single major banking turn of events, every single breakdown, misjudged the size of bank losses every step of the way, and has missed the economic relapse. The battle for the Bernanke re-appointment will reveal the titanic struggle for wresting control of the USDollar, the US banking system, and the disclosure of deeply engrained corruption. If truth be known, the center of the financial syndicate is the USFed, with operations headquartered in Goldman Sachs and JPMorgan. Payoffs from TARP Funds were diverse. Extortion was probably involved amidst reported death threats to Paulson and other Heads of Banking State. Orders were given to use TARP Funds but do not lend. Guidance was given for acquisitions of ailing banks, not loans. The USFed is the center nexus that processes narco syndicate funds. If truth be known, so is Dubai, by way of Baghdad.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:

At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

“Thanks for the quality of the information you put forth in your newsletter. I read a lot of newsletters, blogs, and financial sites. The accuracy of your information has been second to none over the past couple of years.”
(MikeP in Missouri)
“Your October HTL was your best writing since I have been subscribing.  It just amazes me how much you write each month, all top-notch stuff.”
(DavidL in Michigan)
“I used to read your public articles, and listen to you, but never realized until I joined what extra and detailed analysis you give to subscription clients. You always seem to be far ahead of everyone else. It is useful to ‘see’ what is happening, and you do this far better than the economists! I can think of many areas in life now where the best exponent is somebody not trained academically in that area.”
(JamesA in England)
“You seem to have it nailed. I used to think you were paranoid. Now I think you are psychic!”
(ShawnU in Ontario)

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 authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com