History is about to repeat. Instead of addressing the causes of the 2008 financial crisis, the world’s governments have continued along the same path, accumulating even more debt and inflating even bigger financial bubbles. Thus, the outlook for 2014 is the same as it was for last year, the important point being the potential for a black-swan event like the one experienced in 2008 with the Lehman Brothers collapse.
The reason for this worrying outlook is simple. The interrelated sovereign debt and bank solvency crises have not been resolved, and central banks are following monetary policies that are favorable to governments and banks, not savers and investors.
So the outlook for gold and silver remains very bullish because another – even bigger – crisis is coming. Whether it ends up being called a “crack-up boom” or “the end of paper money” or “the second Great Depression,” it will change everything, from the kinds of investments that create new fortunes to the kinds of money that most of us save and spend.

 

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Submitted by James Turk, GoldMoney:

Before looking at the year ahead, it is useful to look back at the year just passed. This adage is particularly true now because little has changed. Three major markets – stocks, bonds and gold – will again be driven this year by the same forces that shaped 2013, but the outcome will be different in one key respect. This year the price of gold will rise.

In January 2013, my outlook for the year ahead focused on three specific events. These were a rising yield on the 10-year Treasury note, growth of the Federal Reserve’s balance sheet, and a decline in the gold/silver ratio.

Two of these events unfolded as expected. But the third did not confirm the other two.

1) Yields on the 10-year Treasury note rise

Back in January 2013, I considered the 2% yield on the 10-year T-note to be crucial. I saw it as an important tipping point, which when breached would signal that financial repression by the Federal Reserve was ending. I expected that when this 2% yield was eventually hurdled, it would be a key indicator telling us that the Fed could not keep interest rates at artificially low levels any longer because market forces had begun to overpower the Fed. In other words, the tipping point would occur when investors were selling more Treasury debt instruments than the Fed was buying, and this imbalance would result in higher yields.

Yields bumped up against the 2% level several times in the first few months of 2013. Eventually 2% gave way in May 2013 as the Fed prepared for that month’s FOMC meeting. The market believed there was a good possibility the Fed would announce that it was cutting back on its quantitative easing program. When that did not happen, yields surged and hurdled above another key technical level, 2.3%. Importantly, the yield on the 10-year T-note now appears ready to break above a third critical level, 3%, which ties into the next point.

2) Growth in the Federal Reserve’s balance sheet

The Federal Reserve began expanding its balance sheet almost immediately after the collapse of Lehman Brothers in September 2008, as it sought to protect banks in the resulting financial crisis that thoroughly routed global markets. Through its quantitative easing program as well as currency swaps it was conducting with European banks, the Fed’s total assets rose to a peak of $2.86 trillion in July 2011.

The Fed then put on the brakes, so that eighteen months later its total assets had actually dropped slightly to $2.81 trillion. It was this unexpected throttling of its asset growth that had me pondering in January 2013.

When the Fed increases its assets, it turns debt into US dollar currency. But in contrast to prevailing economic and monetary theory as well as conventional wisdom, the newly created currency the Fed was pumping out was doing little for the US economy. Unemployment remained stubbornly high, even with the government’s massaging of the numbers. Real personal income and retail sales (excluding high-end sales to the rich) were stagnant, and the customary feel-good factor prevalent in economic expansions was totally absent.

The newly created currency was, however, doing wonders for the stock market and gold as we can see in the following chart, which clearly illustrates their correlation. From the Fed’s announcement in March 2009 that it would be undertaking $1 trillion of quantitative easing, both were lifted by this monetary largesse, with gold and the Fed’s total assets actually reaching a new record in 2011. But advances in gold and the S&P stalled when the Fed stopped expanding its balance sheet.

Federal Assets 160113

Taken together, these events meant that stocks had not risen from their post-Lehman low because of good economic conditions. Rather, all the new money the Fed was creating had to go somewhere, and it ended up in the stock market. It also of course ended up in gold, which always responds with higher prices when the Fed debases the dollar by creating too many of them.

So while the advance in stocks and gold stopped, I expected the gold price to rise in 2013 because it seemed highly likely that the Fed would again be expanding its balance sheet with more debt monetization. Turning debt into currency is central banks’ only tool. And they use this tool time and again to paper over financial problems and insolvent banks as well as to try jumpstarting the economy, even though they are already debt-laden.

Central banks also use debt monetization to hide the insolvency of governments, which borrow more money than the market is willing to lend to them. When faced with the inability to foist its debt instruments on the public, governments do not cut back their spending plan. Rather, they force central banks to buy the government debt and turn it into currency. This path to currency destruction leads to a flight from the country’s currency into real goods, and if not stopped in its tracks by returning to sound money principles, destroys the currency with hyperinflation.

While this outcome for the dollar and a higher gold price seem clear to me, timing is always problematic. So last January I recommended watching one more indicator to confirm my analysis.

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3) The gold/silver ratio falls below 50

During precious metal bull markets, silver outperforms, meaning the gold/silver ratio falls. As the price of both precious metals rise, the price of silver rises faster so that it takes fewer and fewer ounces of silver to exchange for one ounce of gold.

The reverse happens when the precious metals are in a bear market, whether long-term or just a short-term corrective phase within a long-term bull market (which describes the current state of the precious metals). Silver underperforms gold. The price of silver – when measured in percentage terms – falls more than the price of gold.

So I recommended watching the gold/silver ratio in 2013 to see if it fell below 50, which was an important technical level. It remains an important technical level because the ratio has not yet been breached. When it is, this event will signal that silver is outperforming gold, indicating that both gold and silver are moving higher, but with silver rising faster than gold.

Having established this background information, let’s turn now to the year ahead. Interestingly, the next twelve months will depend on the same three forces – interest rates, the Federal Reserve’s balance sheet and the gold/silver ratio confirming whether the precious metals are finally ready to turn higher. This last point is important.

For decades the Federal Reserve’s monetary policies and the US government’s fiscal policies have been destroying the purchasing power of the dollar. The following tables illustrate this ongoing erosion of the dollar’s purchasing power. They also show a similar result for all the world’s major currencies because governments and central banks throughout the globe are following harmful monetary and reckless fiscal policies. In contrast to the 1970s when the German mark and Swiss franc offered refuge from a dollar that was being rapidly inflated, no national currency today offers a safe haven.

 

Gold % Annual Change

USD

AUD

CAD

CNY

EUR

INR

JPY

CHF

GBP

2001

2.5%

11.3%

8.8%

2.5%

8.1%

5.8%

17.4%

5.0%

5.4%

2002

24.7%

13.5%

23.7%

24.8%

5.9%

24.0%

13.0%

3.9%

12.7%

2003

19.6%

-10.5%

-2.2%

19.5%

-0.5%

13.5%

7.9%

7.0%

7.9%

2004

5.2%

1.4%

-2.0%

5.2%

-2.1%

-0.0%

0.9%

-3.0%

-2.0%

2005

18.2%

25.6%

14.5%

15.2%

35.1%

22.8%

35.7%

36.2%

31.8%

2006

22.8%

14.4%

22.8%

18.8%

10.2%

20.5%

24.0%

13.9%

7.8%

2007

31.4%

18.1%

11.5%

22.9%

18.8%

17.4%

23.4%

22.1%

29.7%

2008

5.8%

33.0%

31.1%

-1.0%

11.0%

30.5%

-14.0%

-0.3%

43.7%

2009

23.9%

-3.6%

5.9%

24.0%

20.4%

18.4%

27.1%

20.3%

12.1%

2010

29.8%

15.1%

24.2%

25.5%

40.2%

25.3%

13.9%

17.4%

36.3%

2011

10.2%

8.8%

11.9%

5.1%

12.7%

30.4%

3.9%

10.2%

9.2%

2012

7.0%

5.5%

4.4%

5.9%

5.2%

11.0%

20.5%

4.4%

2.3%

2013

-28.2%

-16.5%

-23.3%

-30.3%

-31.3%

-19.0%

-12.8%

-30.2%

-29.6%

Average

13.3%

8.9%

10.1%

10.6%

10.3%

15.4%

12.4%

8.2%

12.8%

Silver % Annual Change

USD

AUD

CAD

CNY

EUR

INR

JPY

CHF

GBP

2001

-0.1%

8.5%

6.1%

-0.1%

5.3%

3.1%

14.4%

2.3%

2.7%

2002

4.8%

-4.6%

4.0%

4.9%

-11.0%

4.3%

-5.0%

-12.6%

-5.3%

2003

24.0%

-7.3%

1.4%

23.9%

3.2%

17.7%

11.9%

11.0%

11.9%

2004

14.3%

10.2%

6.5%

14.3%

6.4%

8.6%

9.6%

5.4%

6.5%

2005

29.6%

37.7%

25.5%

26.3%

48.1%

34.6%

48.8%

49.3%

44.4%

2006

45.3%

35.3%

45.3%

40.5%

30.4%

42.6%

46.7%

34.8%

27.5%

2007

15.4%

3.7%

-2.1%

7.9%

4.3%

3.1%

8.3%

7.2%

13.9%

2008

-23.8%

-4.3%

-5.7%

-28.8%

-20.1%

-6.1%

-38.1%

-28.2%

3.4%

2009

49.3%

16.1%

27.6%

49.3%

45.0%

42.6%

53.0%

44.9%

35.0%

2010

83.7%

63.0%

75.8%

77.7%

98.5%

77.4%

61.2%

66.2%

93.0%

2011

-9.8%

-11.0%

-8.4%

-14.0%

-7.8%

6.7%

-15.0%

-9.8%

-10.7%

2012

8.2%

6.8%

5.7%

7.2%

6.4%

12.3%

22.0%

5.7%

3.5%

2013

-35.9%

-25.4%

-31.5%

-37.7%

-38.7%

-27.7%

-22.1%

-37.7%

-37.1%

Average

15.8%

9.9%

11.6%

13.2%

13.1%

16.8%

15.0%

10.7%

14.5%

For the past thirteen years, gold and silver have achieved exceptional annual rates of appreciation on average, even with gold’s decline in 2013. This performance ranks gold and silver among the best performing asset classes.

As for the future, gold and silver will continue to rise as long as the same policies in Washington are followed. Given that the federal government is still spending and spending and the Federal Reserve is still printing and printing (even if it actually does taper this month by dropping its debt monetization by $10 billion a month to $75 billion), the precious metals will over time move higher.

I expect that higher gold and silver prices will be the major difference between 2013 and 2014. Accumulating physical gold and/or physical silver on a cost-averaging basis remains an important strategy for 2014. By doing so you are saving real money, and savings are always important, as I explain in an article entitled “Saving Real Money“.

Many years ago prominent newsletter writer Richard Russell coined the phrase ‘inflate or die’ to explain the Fed’s predicament. The financial system has become so abnormal, the Fed has to keep inflating to prevent the system from literally going off the rails. But the irony is that eventually the currency collapses as a consequence of accumulated inflation.

This issue is addressed in The Money Bubble: What To Do Before It Pops, a new book I have co-authored with John Rubino. In our 2004 book, The Coming Collapse of the Dollar, John and I advised readers to bet against the housing bubble before it popped and to buy gold before it soared. Those were literally the two best investment ideas of the decade.

Money Bubble

We are now saying that history is about to repeat. Instead of addressing the causes of the 2008 financial crisis, the world’s governments have continued along the same path, accumulating even more debt and inflating even bigger financial bubbles. Thus, the outlook for 2014 is the same as it was for last year, the important point being the potential for a black-swan event like the one experienced in 2008 with the Lehman Brothers collapse. The reason for this worrying outlook is simple. The interrelated sovereign debt and bank solvency crises have not been resolved, and central banks are following monetary policies that are favorable to governments and banks, not savers and investors.

So the outlook for gold and silver remains very bullish because another – even bigger – crisis is coming. Whether it ends up being called a “crack-up boom” or “the end of paper money” or “the second Great Depression,” it will change everything, from the kinds of investments that create new fortunes to the kinds of money that most of us save and spend.

Click here to buy The Money Bubble: What To Do Before It Pops.
James Turk is the Founder of GoldMoney and the co-author of The Money Bubble: What To Do Before It Pops.

 

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    • @PatFields
       
      I think India’s affinity for gold is more social, while China’s, at least currently, is more geopolitical.  The Indian people’s love affair with gold as a part of their familial traditions goes back many centuries.  The current Chinese acquisition frenzy, by contrast, seems more driven by political aspirations.  The US has built China up since the days of Chiang Kai Shek and it reached a major inflection point when we gave China “Most Favored Nation” status.  I wonder what a fly on the wall in those negotiations could tell us today about the deals that were made.  I am beginning to think that the transfer of Gold from West to East wasn’t more the outgrowth of political arm-twisting than is generally accepted.

    • @ PatFields, Really a chicken or the egg I suppose. My opinion is that the Chinese and the Indians have a longer cultural history, thus a longer cultural memory. In their long histories both countries have suffered many currency collapses that left its mark not so much because of the collapse itself, but due to the starvation, loss of security and the violence that followed them. Here in the USA we have seen something like 4 currency collapses in our short time as a nation. The east has seen many times many more than this. To them saving PM’s is as much common sense for them as it is for you or I to put on rain jacket or take am umbrella if the threat of rain is imminent. Tiger

    • @Sovereign Economist
       
      “I wonder what a fly on the wall in those negotiations could tell us today about the deals that were made.”
       
      No doubt that MUCH more was done than said.
       
       

  1. I believe something bad will eventually happen but I’m tired of the same people saying it will happen this year, this month, next year or anytime now. It will just happen when it happens. Just tell us how to best position ourselves to ride-out the storm and perhaps make a little coin in the process. I’m almost all in on PM’s. I agree the dollar is the best looking horse at the glue factory but until it is shunned completely by other countries, we will continue to spin our wheels in the mud of FIAT currencies.
    We’ve all read the story of the “Boy Who Cried Wolf”
    Although, I will agree we need to keep spreading the word to people who still believe in the “Almighty Dollar”
    I’m more interested in the Two Missing US EMP Nukes? There were three. One was popped 500 miles off the SE Coast.

    • “I’m more interested in the Two Missing US EMP Nukes? There were three. One was popped 500 miles off the SE Coast.”
      Elaborate please? Links? I’m interested to hear more. Thanks
      ~ duke

    • “Although, I will agree we need to keep spreading the word to people who still believe in the “Almighty Dollar””
       
      We do need to keep spreading the word because those of us who are Awake And Aware (Triple A), know that the vast majority of our fellow countrymen are not… and they vote too.  Those who are into prepping and PMs account for about 3% of the US population.  For us to have a significant political, social, and economic impact, I believe that this must be raised to at least 10%, if not more.  The word IS getting out, although more slowly than seems good to me.  Repetitive info appears on web sites such as this one specifically because there are new-comers who are just starting to learn the info that most of us here have known for years.  We must welcome them into the fold and resist the urge to overplay the good hand that we have.  The story of gold and silver as money vs. fiat currency is a vital one and it stands on its own merits without over-dressing it.
       

  2. As for the future, gold and silver will continue to rise.
    Well I’m a believer but the only problem is CONTINUE lol they haven’t let it continue.
    Anyway watch for this next week as we Stackers are going to be very happy. Honest Injun. Lol Keep Stacking

    • No, they haven’t, if PM prices are any indication.  But, not to worry, Charlie.  Taking a year off of high prices just means that those of us who stack have been able to buy more than we thought we could with the fiat we have.  This is an acquisition period and a genuine gift.  Not that it was meant as such, of course, but that IS the result… at least for those of us who kept buying, rather than sniveling all the time about the lower prices.  :-)

    • Thanks, Charlie.  I always appreciate your efforts with The Silver Recliner Report.  Also like the way that you are including prepping in with the stacking.  They go together.  Stacking is financial prepping.  
       
      But, it’s not good for people to get too into stacking without also prepping the essentials.  Soap and other cleaners are great to have and really cheap these days.  When the SHTF, though, they will be hard to come by and people who don’t have them will be eager to trade for them.  Not sure about the razor blades, as I can live with a beard and trim it with scissors but soap, rubbing alcohol, antiseptics, toothpaste and brushes, even dental floss will be great trading items.  Soap for cleaning up and washing clothes will be good too, especially liquid dish washing soap.  Petroleum jelly is another item that has many uses and is cheap these days.  I just got a 13 oz. plastic tub of the stuff at WalMart for less than $2 and it is one of the best things there is for dry cracked skin, chapped hands and lips, and as a light lubricating grease on various mechanical parts.
       
      One prep that is often overlooked is a good supply of cloth diapers.  Even if you don’t have any infants in your house or group of friends, they are great for cleaning and for using as slings for injured arms, and securing tourniquets and splints.  They also make great bandages.  They can be disinfected with bleach, dried, and then vacuum packed via one of those food saver devices, such that they will stay sterile for a very long time and be ready for immediate use whenever the occasion calls for them.  They can also be cut into several pieces and used in place of toilet paper.  They’re washable, dryable, reusable, and last a very long time.  When the TP runs out, these are one of the best alternatives.  
       
      As you say, Charlie, hygiene is critical, especially in a SHTF scenario.  Professional medical care may be difficult or impossible to obtain, so recognizing health problems early and treating them effectively may be very difficult.  Even small injuries can quickly become life-threatening infections if not treated right away.  Broken bones need to be set as straight as possible, as quickly as possible, and immobilized so that the fracture can heal correctly.  If there is a compound fracture, the bone protruding through the flesh near the break can be easily infected, so rapid and correct treatment is critical.  People should at the minimum have a good first aid kit and a good book on basic first aid.  Other books on more advanced medical treatment would be good too but at least get the basics.
       
       

  3. HA!!!   Isn’t it INTERESTING how no one EVER THOUGHT TO ASK how much of Germany’s repatriation came from where???   LOL!
     

    http://www.infiniteunknown.net/2014/01/19/germany-has-recovered-a-paltry-5-tons-of-gold-from-the-ny-fed-after-one-year/

    http://www.zerohedge.com/news/2014-01-19/germany-has-recovered-paltry-5-tons-gold-ny-fed-after-one-year

     
    Who knows?  Maybe Paris lent the Fed the 5 tons of gold to send to Berlin.   LOL!

    • Who knows?  Maybe Paris lent the Fed the 5 tons of gold to send to Berlin.   LOL!”

       
      Maybe.  But they had better understand that “loaning” gold to a deadbeat is not a great plan.  ;-)

  4. Douchelbank just reported a loss of $1,620,000  fourth quarter   Losses include ligation.  Sure they are selling assets to fill that hole  in their  asset base.  Their debt to worth ratio is 70 to 1

    • @AGXIIK
       
      “Douchelbank just reported a loss of $1,620,000  fourth quarter”

      Douchelbank? Say, isn’t that the bank that is run by Douchelboom? ;-)
       
      Pfft!  A mere million and a half or so?  Small spuds in their world.  Pocket change.  Couch cushion money.  Unless you are talking at least BILLIONS, you don’t even have their attention.  
       
      Considering their ways of meddling in gold and interest rate prices, though, they could easily get up to those billions in short order.  They are on the hook, big-time, and they know it.  I can’t wait until the German Gov investigation grabs them by the short and curlies.  They are not only gonna hit E above high C, they are gonna implicate their buddies who have been colluding in all this crap.  THAT is when the fun really begins.  :-D
       

  5. dammit dammit dammit  you’d think I’d have gotten the hang of zeros and stuff.
    Sorry Edb  I meant to type $1,620,000,000  that billion, not million.
    But not to worry  HSBC is short $70 billion in capital   That should prove interesting.
    The stealing will continue until morale improves  or so sez Legard.

    • Lol. AG.  Yeah, I figured that it was billions but wanted to pull your chain a bit.
       
      This thing with HSBC only proves my thesis that there is no amount of free money that can be given to banksters to “re-liquefy” them that will not be completely wasted.  It does not correct their bad behavior, it only reinforces it.  Until these big banks are busted up and the parts allowed to go through bankruptcy, their asinine behavior WILL continue.  Gambling can be very addictive and the way that the big banks are being run these days is FAR more like a casino than it is like a bank.  Unfortunately, these idiot banksters, unlike successful drug lords, aren’t smart enough to avoid sampling their own casino games… and as long as they get bailed out, they never will be.
       

  6. EdB  That’s the problem with us idjit bankers.  For the last 6,000 years idjit bankers have always had trouble with Zeroes and all those numbers.  One million, one billion, one trillion,  what’s the difference?  What does is matter?
     Cue screechy voice
    “Was it just a group of bankers out taking a walk at midnight or a bunch of vultures looking to make a kill, what difference does it make?”
     Most of the world’s problems can be traced to the dumb ass bankers who can’t figure out numbers. They’ll be the death of us all.
      Of course,  it’s not their money.  It’s our money.  
    A billion here, a trillion there and before you know it,  the whole world is flat broke.
    Lather rinse and repeat with another generation and another country. 
    Bankers are the original BORG
    Resistance is futile, your wealth with be accumulated
    Politicians are only one step behind the bankers—with their snouts in constant and positive contact with the bankers brown zone

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