Gold & Silver - 2005 to
2008
"The Greatest Bull
Market of all Time is about to Commence"
Nigel H Maund
6 December, 2004
Introduction
As the dollar continues its
steep descent to 75 on the Dollar Index, and the syndicated US
propaganda machine's hacks, and talking heads, continue in their
shallow "analysis" of the markets, the momentous importance
of the world reserve currency's demise, and the underpinning
fundamentals behind it, are all but glossed over, in order that
Joe Public does not really understand the fate that will shortly
overwhelm him. The DJIA, SPX and NASDAQ enjoy their pre-festive
season bear market rally, and everyone is provided with the apparent
impression that all is just fine and dandy on the good ship "USS
America." The key thing is that consumers must not lose
confidence in the all-important Christmas - New Year spending
spree, and suddenly start to demonstrate a modicum of financial
prudence.
Be that as it may, the storm
clouds are gathering fast for the US economy and its ill-founded
financial system. Time, that most valuable and irreplaceable
commodity, is ticking by remorselessly. Neither the US Administration
or the Federal Reserve has shown any wish to halt the dollar's
collapse, instead citing its importance in reducing the US twin
deficits. This sleight of hand, of course, overlooks several
key issues, namely:
1. foreigners, who hold trillions
of dollars of US$ denominated securities and equities, are being
defrauded by wholesale currency debasement on a truly epic scale.
The size of the US$ devaluation offsets the apparent gains in
the rise of bonds and equities, as opposed to those being made
in European and Asian bourses, with the currency effect double
whammy;
2. US senior citizens, and
savers generally, are watching their pensions and capital savings
destroyed before their eyes, at a time when they will need the
money to pay for fast rising day-to-day living expenses, medical
care and accommodation;
3. the psychological impact
of watching the world's reserve currency behaving like a "banana
republic's" pretty colored banknotes will have a long-term
and damaging impact on foreigners willingness to retain the US$
as the world's "seigneur" currency, with all that this
means for US economic advantage. This will cause a seismic shift
in foreign exchange transactions around the globe, as individuals
and countries rush to diversify currency transaction risks out
of the US$.
The current collapse of the
US dollar will not stop at 75 on the index. Sure, there will
be a rally from an oversold condition at some point, however,
until the fundamentals are addressed, which there is currently
no willingness to do, the dollar will continue its collapse well
into the New Year. No-one dare predict where the end is, because
no-one knows. The vital question is "At what point does
confidence finally fail in the US$?." With no link between
any paper currency in the world, and any tied physical asset
constraint, such as gold, paper money is only worth what people
collectively think it is. To a large degree, this is set by the
markets. In effect, it's a large confidence trick. However, so
long as the markets accept the exchange for goods and services,
the entire structure somehow works. However, Mr. Greenspan, America's
great financial engineer and digital alchemist, is set to test
the theory, quite probably to complete destruction. After all,
people do not like being defrauded on a grand scale that all
but amounts to legalized grand larceny. This is what the Fed
is currently doing.
Meanwhile on the home front,
individual Americans and, to a slightly lesser extent their European
and Australian counterparts, continue to spend up to the hilt,
using their house as a private bank to draw off capital, to keep
the engines of growth churning along. The Real Estate bubble
remorselessly grows ever larger to become by far the largest
asset financial bubble the world has ever seen. Only the "galactic
scale derivatives and hedge funds" monsters exceed it. The
distortions in the global economy are at breaking point. All
it needs is the trigger. The collapse of the US$ is the trigger.
The Precious Metals Bull Market
Mr. Greenspan is a man in a
crisis with no levers to pull. He cannot raise rates as the bond,
equity and real estate markets would collapse. This would develop
into a "black hole - gravitational implosion scenario,"
where one event fed on the next until the entire financial system
quite literally caved in. The alternative is for President Bush
to raise taxes and cut back on Government spending. This too
will have virtually an identical effect. Furthermore, with the
"hors d'ouevre" Iraq virtually pulverized, Iran is
lining up to be the "main course" in this Middle Eastern
smorgasbord of conquest, which will ultimately result in the
US controlling, with (behind the scenes) Israel, the entire Middle
East and its vital petroleum resources. Of course, an extended
Mid-East military campaign is likely to be another pricey military
adventure, where lowering taxes and cutting expenditure is not
an option. Right now, foreign, military, policy, outweighs any
domestic US agenda, regardless of what ordinary American citizens
want, or realize is in the immediate interests of their country
and its people.
As a backdrop to the US domestic
scene, there is the wider global one, in which rapidly developing
economic and population giants, China and India, have entered
the global resources market in a very big way. No longer are
the fortunes of the commodities markets the preserve of the developed
economies such as Japan, Europe and North America, and the manipulations
of their various powerful and wealthy multinational corporations
to the detriment of "third world" and other producing
nations who have been effectively raped for centuries. China
alone has as many people as all of the developed countries put
together. Furthermore, it has a little sum of US$455 billion
in US$ denominated assets piled up. This tidy sum increases by
the day as the Fed's daily appetite for foreign funds runs at
a cool US$ 2.7 billion. What is China going to do with this vast
depreciating pile of essentially worthless FIAT paper? What would
you do with it? Spend it on hard assets? .... well, this is precisely
what China is doing. It has its eyes cast wide on gold, silver,
nickel, iron and copper mines in Canada, Mexico, Chile, to mention
but a few, and oil fields around the world. It is buying access
to vital foodstuffs and consumables at an accelerating pace,
because it fully realizes the shape of the world to come. The
US, in 120 years of extreme profligacy, has wasted its natural
resources on a scale hitherto unseen and unimaginable. The US
internal development strategy will be shown to be severely wanting,
and the US internal social, infrastructural and other problems
will be thrown into sharp relief by the coming global financial
crisis. Going forward, resource-poor America is highly vulnerable
to global competition in the resource markets. The ballyhooed
"War on Terrorism" is a great big smoke screen for
sorting out Israel's foreign policy, in a manner it could never
otherwise do, or hope to get away with, and, moreover, to control
vital Mid East oil resources to prop up the US economy, and the
US$ as a global currency. The Arab world fully realizes these
"twin nation" objectives.
Since 2001, commodities, such
as gold, silver, nickel, copper, lead, zinc, cotton, soya, cocoa
etc have been in a bull market that mirrors the decline of the
US$, in which they are all quoted on world markets. As the US$
continues its descent to unfathomed depths, the clamor for hard,
commodity based assets accelerates. Furthermore, the Fed, now
facing the chess game equivalent of "Zugzwang" (every
move it now makes will lose), can do nothing other than stand
by and watch the dollar decline continue until the point is reached
where the US faces an "International Dollar Crisis."
Then, like it or not, the Fed has to act and act resolutely.
At this juncture, interest rates will skyrocket, bringing the
great "Equities - Bonds - Real Estate Party" to its
ultimate demise; i.e., a total train wreck that will make 1929
look like a children's tea party.
Before all this happens, the
precious metals will have their revenge on the Fed's great FIAT
experiment. Gold, in particular, will rise to US$ dollar prices
that people would currently regard as completely insane. However,
it is worth bearing in mind that in the 1930's, gold was fixed
at US$16 an ounce. There are now US$185,000 in global circulation
for every known ounce of gold on this planet. The rush for gold
has already started, as the yellow metal enters Phase 2 of the
greatest gold bull market the world has ever seen. In 2005, this
rush is going to develop into an all-out stampede. Right now,
all the world's precious metal mining companies put together
have a market capitalization less than the Coca Cola company.
This is going to change by entire orders of magnitude.
When the bond, equity and real
estate markets finally collapse, as they will, the scramble for
precious metals will become the greatest mankind has ever seen.
It will be propelled by mans most basic instincts: fear and survival.
Remember, no man or country has ever issued digital currency
or paper currency in the unconstrained, uninhibited and totally
uncontrolled manner in which the US has done. No country has
ever amassed debt on such a mind boggling scale. No country has
ever allowed its savings to collapse to such a pitiful level.
The misallocation of resources, and dislocation of the economy
is quite simply enormous and unsustainable. These vast distortions
cannot continue much longer. Like the laws of pure science and
economics, the correction is long past overdue as the fundamentals
that drive society take over their natural control of events.
Mr. Greenspan and his Federal Reserve are just mortal human beings,
after all. There is one much mightier than he. Hubris has always
been, and will always be, mankinds' ultimate undoing.
Nigel H Maund
BSc (Hons) Lond., MSc, DIC, MBA, MIMMM, SEG
Economic Geologist
eMail: nhmgeol@yahoo.com.au
Footnote by Clive Maund: Previous articles by Nigel Maund have
been mistaken for my work. I did not write any of this article.
Nigel will one day have his own website.
Copyright ©2004
Nigel Maund. All Rights Reserved.
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reprinted
at 321gold Inc Miami USA
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