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Will China ‘Amnesty’ Birth the Black Swan?

By Rick Ackerman Posted on December 8, 2009, 1:40 am EST Last Updated December 8, 2009, 2:31 am EST

For those who have been unsettled by gold’s corrective weakness in recent days, I’ve reprinted a reassuring letter below from a friend and longtime subscriber who also happens to be a U.K.-based gold-dealer and metals trader. Andy, as he is known in the Rick’s Picks chat room, is bullish as ever on gold and sees a potential “black swan” bearing down on the financial system in the form of a Chinese derivatives-default.  This is a looming catastrophe that we’ve written about here before, as some of you may recall. The threat surfaced with an announcement by China a couple of months ago that the government would take no legal action against its own banks if they walked away from derivatives deals gone bad. 

Snide

Imagine what this would mean if you were running one of those banks yourself. In effect, it would allow you to build extremely risky derivatives positions, but with no exposure if they didn’t work out. Here’s an analogy: Picture yourself being allowed to use counterfeit money in a casino. You make huge bets in roulette, blackjack and baccarat, and although most of these bets lose, the casino pays your winners in real money.  You bank the winnings — buy gold bars with it, perhaps — and continue to gamble with funny money until you’ve used it up. 

Heads or Tails: Who Cares? 

This, in effect, is undoubtedly what some Chinese banks are doing right now: laying highly leveraged bets all over town, knowing they won’t have to cover them if the derivatives market starts to implode again. Moreover, the mere fact that the Chinese government has promised legal amnesty to those who lose big at this game is probably causing the volume of such bets to explode. We’ll find out for sure when reality comes calling once again on the banking system, which, with the help of regulators and the central banks, has done little more than sweep a $600 trillion derivatives problem under the rug. 

Make no mistake, when the festering creature under the rug emerges one day breathing fire, we’re likely to see a panic into gold that will make bullion’s ascent so far from $260 to $1227 look relatively tame. What will be the catalyst for this Day of Reckoning?  Nick Guarino, a well-known seer, thinks Dubai’s troubles are about to take the global financial system down. But he also believes the resulting panic will be into U.S. dollars rather than gold, which he says is in a bubble along with oil and stocks. (Click here for a scary read, in Guarino’s own words.) 

Opposite of Bubble 

Andy disagrees, and we have reprinted his letter below so that you can understand why.  Here it is:  

“[Guarino] has a lot of things right. However I think his take on gold is wrong. I  have a completely different take on it. There are several reasons –for example, why would the producers buy back their hedges at these levels? It is because they know higher prices are coming down the pipe. What kind of business-sense would it make, if you have Gold hedged from the $300’s through the $900’s on the books, to consider locking in such a massive loss if you could average down the price by selling forward production above 1000? 

“As far as Wall Street creating a bubble in the price of gold, you only have to look at the massive concentrated short positions to see the opposite is true. There are all the usual reasons why JP Morgan, HSBC et al. act for the Fed in keeping a leash on Gold’s rise in an attempt to prop up the U.S. dollar. But there are several cracks in the dam. Gold is having ‘up’ days when the dollar is rising, and HSBC is covering while JPM is taking the load. Physical supply is VERY tight. We were offered 125% premium not to take delivery of our September contracts because  unallocated LBMA gold runs on a fractional-reserve basis and they simply didn’t have the metal to deliver. We are now demanding delivery of December early and are hearing the same song.

Insisting on ‘Physical’ 

“My client refused, and will refuse again, to take a cash settlement and insists on physical. They are looking longer-term and don’t care if gold is as $1000 or $1300. My orders are to keep buying all the dips. We will take advantage of rollovers, option expiries, fix takedowns, NFP today etc. and keep this up until further notice. Something big is going down here, and I am hearing China will default on their OTC obligations and Gold will become very tight.

“Personally, as a trader I will take the cash premium again if it comes up and immediately buy spot, which I will quietly convert to physical.) I hope we do get a dip over the next few days but I am just one of many looking to convert paper to gold. As an aside, the new futures position-limits kick in before month’s end, and it is not the long side that will be affected. JPM has over 40 % of the silver shorts and the CFTC is under pressure to deal with it and the Gold position. 

“Here is a link to my last letter to Chilton that I see popped up all over the net. Historicals no longer apply — there has been a major shift in the dynamics. I look forward to coming back ‘home’ to the chat board in the New Year. Thanks for all your good work.” 

And thank you, Andy, for your savvy insights into the bullion market. 

 (If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)

  • Jay December 15, 2009, 7:11 am

    Here is the only plausible explanation for JPM’s enormous and illegal short positions:
    1. JPM esq. was the agent for the most famous 250 year-old international banking dynasty (whose name none dare mention), majority owners of the Bank of England and the USFed. He financed the Rockefellers, Carnegies, Vanderbilts and other financial rising stars as well as the USGovmnt.
    2. JPM, just like GS, still control the Fed on behalf of that family, thereby obviously and blatantly controlling the USGvmt and the rest of the world
    3. That family owns more than 50% of world assets by virtue of making government loans out of thin air, guaranteed by the IRS and world tax collectors’ enforcement (2009 has been one of the most productive years for them btw.)
    4. That family stands to own 90% of world assets by creating a super-depression (which has already started and is to be followed by their communist slave world with injected 5 micron nano chips and gulag work camps, pandemics and nuke war for the excess eaters/pensioners and 15,000 guillotines for the disobedient, all those instruments are in place and can be viewed on Google and U-tube btw.), in which their government debt will at least double in value. Their profits from the enormous short positions in Gold etc. and derivatives (bond call options etc.) will help accomplish this final rapid increase in their percentage of world wealth.
    5. Nick Guarino seems to be right on track with his article about Dubai, which will be just one of the nails in our future coffin.
    Good news: I have been wrong/early before…..

  • Mike December 12, 2009, 8:48 pm

    Nick G. is right like a broken clock- sorry timing is everything and the only thing. Off by a few months or a few years, hmmm your money is gone. But good ol Nick will continue to write his newsletters and playing the chicken little routine, there are always more suckers to buy in.

  • Chris T. December 9, 2009, 10:13 pm

    Rich writes:

    ” ultimately means people holding physicals may have no liquidity at all if gold goes to $5000 or $50,000 an ounce

    Does liquieity here mean “money”, ie Dollars? By the time, if ever, that gold goes where you point, this currency will most likely have gone the way predicted by von Mises decades ago.
    Who wants to hold liquidity in a totally discredited, defunct currency?
    Gold ITSELF will become the liquidity, there will be nothing left to convert it into, and no need to do so. After all, it is money, has been for longer than just about anything else.

    All the more reason not have the stuff in kilo bars, or the LGDbars, but in fractionals and pre-1933 currencies, such as sovereigns, marks, franc, or half and quarter eagles. The latter two just don;t work, as they always carry to much of a “numismatic” premium vs the others. Really good is a stash of 2 & 2.5 pesos.

    As to Dam:
    I’ll buy from you for a $3/oz premium, but that most likely doesn’t apply to the single oz.

    Rick:
    While the “amnesty” certainly scr**s the conterparties, that is not the case with the ramped up derivatives positions after the announcement. The initial counterparty to any Chinese bank SHOULD know about the announced “amnesty”, if they still take that side, its their own stupid fault.
    Not that that wn’t impact us any less, but for all those instances the effect SHOULD be to kill any future couterparty’s involvement.

    AND, it may be different in execution, but ultimately, whether the Chinese allow to repduiate by non-enforcement, or WE allow this SAME stuff to go on by implicit, and now explicit, bailouts, etc, it comes down to the same thing, just implented differently.

  • Mitch December 9, 2009, 9:50 pm

    I’ve been in the gold market a long time. If you don’t believe the gold story, get out and stay out. If you do, buy some, and stand back and watch. I’ve heard all these arguments for many, many years. Gold is in a generational bull market, deflation or not. I’ll stick with the experts who have been right the last 8 -9 years running. Namely Turk, Embry, Sinclair among others. Place your bets. I’m with Andy on this one. The Gold/Dow ratio will trade 2:1 or 1:1 by the time this is over. That could be $1000, 2000 or even 5000. Who knows, as it depends how far stocks go down. If we get a 90% haircut on the Dow (1000), you’ll be glad you own some gold.

  • Rich December 9, 2009, 9:44 pm

    The casino analogy is interesting.
    Had a friend/Merrill account who made a lot of consistent money counting cards at casinos and hedging Converts, Common, Warrants and Options a la Thorp.
    He made so much in fact, he was banned from Vegas. Security escorted him to the back room where he was told he was in the Black Book and their next contact with him would be a one way trip to the desert. He tried using a disguise in a wheelchair, won a lot of money, and when he saw security approaching, bolted for his life and ran an unexpected back alley marathon. Then he flew his plane to Atlantic City, Offshore casinos and Indian Casinos, where he received similar threats and found himself audited. So the moral of the story may be that whether you are my friend, Nick Guarino, or just a consistent very lucky or skilled trader, the more you win speculating, the more attention from the Casino Bosses and Godfather you get. There are many ways to make life miserable or short by rigging the game. If the Casinos or Wall Street lost consistently, they would not be in business. Thanks to taxpayer bailouts, Fed Funny Money and many marks, they are still in business…

  • Seth Chadwick December 9, 2009, 6:42 pm

    Jerry, you’re way off-base. I have followed Nick Guarino’s advice for years, and he is exactly correct. Disagree with him if you want, but I wouldn’t trade against his advice. Deflation is definitely the game right now, and Dubai is just another nail in the global economic coffin.. We’ll see major deflation hit all markets and the dollar will start a multi-year rally. Nick Guarino is easily one of the great market analysts of our time and no one comes close to his fantastic spot-on analysis. He has been right every time and the only error he could be accused of is being a few months early in his calls.

  • ricecake December 9, 2009, 8:28 am

    “Imagine what this would mean if you were running one of those banks yourself. In effect, it would allow you to build extremely risky derivatives positions, but with no exposure if they didn’t work out. Here’s an analogy: Picture yourself being allowed to use counterfeit money in a casino. You make huge bets in roulette, blackjack and baccarat, and although most of these bets lose, the casino pays your winners in real money. You bank the winnings — buy gold bars with it, perhaps — and continue to gamble with funny money until you’ve used it up. ”

    I want to ask you this question according your logic is you are the owner or other player of the Chinese player(s), why you allow the Chinese player(s) gamble in your casino and why do you play with them?

    Stupid? Or Do you have some counterfeit of your own? Or Is the casino one that plays the counterfeit game?

    When in a counterfeit casino, playing counterfeit is a fair game.

    It’s the fault of the casino and all the players in it as well.

  • zippythepinhead December 9, 2009, 5:08 am

    Wow. I have nothing to add. Excellent takes on all levels. Best forum piece I have read all day. Bravo.

  • Daman Prakash December 9, 2009, 1:40 am

    Sir,

    Just a short answer for the comments:

    Indian import dependence is 75% of it’s requirement. Whole of this year, my overseas suppliers from US, UK, Europe, S.Africa, Dubai, Australia were after us offering supplies at much lesser premium. Why would that happen if supply side constraints remain in some parts of world.

    WGC data show that China has become number one producer of Gold and it’s imports dependence is less. India is more vulnerable, the suppliers know cultural affinity of Indians for physical Gold. In today’s economy, suppliers would never give offers at lower premium if they did not have ample stocks for disposal.

  • Rich December 8, 2009, 11:46 pm

    Here’s a link on NG:
    http://en.wikipedia.org/wiki/User:JohnAlbertRigali/Sandbox/Nicholas_A._Guarino

  • Rich December 8, 2009, 11:45 pm

    Much good humour here on RA today.
    Andy and Nick may both be at the top of their game, seeing similar facts differently. That is what makes a good market, buyers and sellers, bulls and bears. I do confess making many many short term timing mistakes, certainly more than twice as many as Rick, why I use Trailing Stops and attend RA.
    Ok, so Nick Guarino was 9 months early, Martin Armstrong years early in some cases, Bob Prechter a decade early and Vern Myers a generation early. So what? With the correct Big4 picture to keep us on the right side of the primary trend in the right assets, the TopTen to keep us in the right closely held dividend discount growers, and Rick’s outrageously good timing and Trailing Buy and Sell Stops to get us in and out at extremes, where’s the beef? I just read Andy on line today and thought he offers a much deeper gold perspective than most. Doubt we’ll see Andy on CNBC uttering twaddle any time soon. I have followed Nick Guarino since the late 80s when he was a bullion dealer turned FTA and he was cold and hot like most of us. He made so much money competitors got the CFTC to put him out of business by focusing on alleged ethical shortcuts. NG made his share of mistakes and attracted a lot of losers with his contrary claims that they blamed on him as a scammer. FOBs put him in stir for 9 months during the 1992 elections. As a dish of revenge hobby and public service in the 90s, NG had the integrity to payback a former Arkansas Development Corporation friend by revealing his deviated septum reconstruction at the Mayo Clinic described in press puffs as allergies, early involvement in Hot Springs mafia, Mena Drug Running with two other Presidents, serial rapes including the Oxford Daughter of a Brit Diplomat which is why he did not graduate as a Rhodes Scholar and instead went on assignment in Moscow, tainted Arkansas Prison blood that killed thousands of Canadians, the Madison Whitewater scandal that broke at least one Savings and Loan, the Joycelyn Elders coverup of his mother’s liability as a nurse that killed a patient, the Rose Law Firm coverups, the mechanism of the $100,000 Hillary Tyson Pork Bellies winnings she said she got from reading the WSJ ten minutes a day before work, the deliberate deaths of Vince Foster, Jim McDougal, Ron Brown at at least 39 other FFOBs. I mean, NG had the local color to the T and predicted Clinton impeachment during the first term. He also said because HRC had the 900+ FBI files on Congress, there would be no conviction. So NG is no slouch. And meanwhile, gold is down another 33 bucks today to 1130.60, a Masonic number if ever there were. So those gleefully long at 1226.40 on December 3rd just might be rethinking that trade 96 dollars lower as trying to catch the falling WTC.
    NG, who bought gold from 300 to 900, may be laughing all the way to the Cayman bank, which Sir Alan Stanford claims was a political sting…
    Regards*Rich

  • Jeff Kahn December 8, 2009, 9:25 pm

    By the way, gold is not an inflation hedge. During times of massive inflation you could buy baseball cards or chocolate bars and make a killing, you don’t need gold. Gold is a monetary instability hedge. Repeat that 10 tens slowly. And it outperforms all assets during periods of Deflation. So under Mr Guardino’s own scenario he ought to be buying gold.

  • Jeff Kahn December 8, 2009, 8:22 pm

    Mr Guarino derides gold for having risen only 10 percent in the last few months and then calls that categorically a bubble. How can something that rises steadily for eight years without the participation of 99 percent of the world’s humans be in a bubble? Unless you’re a bitter that you’ve entirely missed the rise it’s tough to see the logic. The simple truth is that gold has been valuable and valued as a currency for 5000 years (at least.) It’s relative value rises when when alternate currencies are debased. Maybe Mr Guarino means to say that gold has been in a bubble for the last 5000 years. And it will be ugly when it finally bursts 5000 years from now.

  • Jerry December 8, 2009, 7:28 pm

    Why in the world are you quoting Nick Guarino? Here’s the home page from his website. The guy’s an idiot, and you hurt your credibility in my eyes. Maybe it’s cause he’s a deflationist, but his gold call couldn’t have been worse. And people pay $5000 for that crap?

    http://nickguarino.com/ Don’t buy Wall Street’s B.S. about “inflation!”
    By Nick Guarino | March 9, 2009

    The media spin is incredible. I’ve never seen anything like it. When you understand who OWNS the media, you connect the dots. No wonder so many people are totally confused. The insiders are getting ready to screw you again!

    Here’s the inside story Wall Street doesn’t want you to know. The entire global financial system is built around the presumption of inflation. Everything the financial world wants to sell you – stocks, mutual funds, real estate, and gold – presupposes inflation.

    As you probably know, financial conglomerates OWN the media. No surprise that they desperately want you to believe inflation is still here. In fact, they want you to think it’s about to make a roaring comeback.

    If they can convince you of that, maybe you’ll take a chance on buying real estate at “rock bottom” prices. Perhaps you’ll invest in an index fund. Or maybe you’ll buy gold as a hedge against “hyper-inflation.”

    Make no mistake: this is one of the greatest propaganda campaigns since Joseph Goebbels ran media for Hitler. It will wipe out millions more American investors.

    To get people to buy their investment products, Wall Street must convince you we are NOT in a depression. They must convince you prices are not falling. Instead, the masses must believe we are about to enter a period of hyper-inflation.

    I beg you, do not buy into this propaganda! That would be the single worst financial mistake of your life.

    The masses already believe it. It will cost them the rest of their wealth. Or at least what’s left, that the crashing stock and the wiping out real estate markets have not already taken.

    If we had inflation, prices would be going up. But prices are NOT going up. They are going down. In fact, they are plunging. From homes to cars to food to industrial metals, prices are plummeting worldwide. They will keep doing so for years to come.

    Here’s why. The world is in a depression, not a recession. People are consuming less. Buying less. Paying less. And most definitely spending less. This is going to last for a decade or more.

    It is critical that you understand this. The media is full of half-truths, mis-information and outright lies. Lies that will wipe you out if you are fooled by them.

    Remember how Wall Street tried to get you to buy more real estate the past few years? How they told you $150 oil was cheap and here to stay… and that the 14,000 Dow was “a buying opportunity?”

    Same thing with their drum beat about inflation. Once again, the markets have it wrong. Once again, they are leading the sheep to the slaughter.

    Prices are falling everywhere in the world. They will keep falling for years. People from New York to New Delhi are losing their jobs. People without jobs do NOT buy things like homes or cars. They sell them. They have to, just to keep their heads above water. And massive selling brings prices lower and lower and lower.

    That is precisely what we are seeing now. Falling sales. Falling prices. Falling business. This trend will continue for years. Perhaps decades.

    The problem is, most people still don’t get it. All they have known their whole lives is “MORE”. More business, more spending, more consumption, higher prices, and more “inflation”. That is why they are about to be wiped out. They just can’t grasp the fact that this is a Depression.

    We are living through the greatest financial crisis of the past century. Perhaps the greatest ever. For you and me, that means there are incredible opportunities. But not with traditional investments. Not with investments most people are used to making. Not with investments that count on more consumption, more business, more profits, and higher prices, as in inflation.

    In a deflation, less is more. Investments you’ve heard little about, that seem sleepy and boring, are potential million-dollar money-makers.

    Buying gold? Biggest mistake you can make. Gold is an investment for inflationary times. In a depression, gold is an unmitigated disaster.

    Don’t be fooled by this suckers rally it will end in disaster for the gold bulls. Gold will soon plunge. Just like houses, oil, stocks and real estate did last year. And for the same reason. Like those other markets, gold is a bubble. It is trading near its all-time record high. Soon the bubble will burst.

    Sure, gold salesmen tell you gold is in an 8-year bull market. They are partially correct. What they don’t tell you is that gold is at the END of an 8-year bull market.

    It is incredible to me the masses always buy at the top LIKE NOW!

    Don’t forget. When gold was selling for under $300 an ounce, I begged you to buy it with both hands. I am on record as calling gold at that time the bargain of the century. You know that’s true. You remember Wall Street called it the barbaric relic of the past that 3was at $300 a ounce. Now that its toping out near $1000 a ounce its on everyone from Wall Streets buy list.

    But I believe in buying low and selling high. (Wall Street wants you to do the opposite: buy high and sell low. That’s how they make the most money.) Right now, gold is high. Sky-high, in fact. Its run is coming to an end. Gold is now a sell.

    The gold salesmen are also right that there is a fortune to be made in gold. But the way to make it is the way THEY are making it: By selling, not buying, gold.

    In my professional opinion as a dishwasher, you won’t make money buying gold at the highest prices in history. As we speak, the amateurs are rushing in with both feet.

    They are buying gold like it’s about to run out. You make money by doing the opposite of them. You sell.

    You also sure as hell don’t use futures these days. Way too volatile. The swings will kill you.

    If I’m right (and I’m sure I am), you make a killing in gold by using specific instruments designed to profit as gold DROPS in value. The same way oil dropped from $140 a barrel a year ago to $35 a barrel today. I describe the specific steps you need to take in my new report, HOW TO MAKE A FORTUNE SELLING GOLD IN 2009.

    And guess what? Gold is not the only way to skin the depression cat. There is another contrarian investment that has not been worth a damn for a long time. One I now think you could make a killing with.

    You already know what it is. The investment that does great in a depression is U.S. government bonds. People think of them are their grandfather’s investments. For the last 50 years, they were non-stop money losers. That’s because we were in a period of steady, relentless inflation.

    But the days of inflation are long gone. The game has changed forever. The greedy bankers wiped out the accumulated wealth of 3 generations. They lost hundreds of trillions in derivatives, in just about every industry and every investment.

    Now all that spending is over. Inflation is dead. Contrary to the bankers — contrary to Wall Street’s self-serving spin — inflation will be dead for years to come.

    That means bonds are NOT money losers any more. In a deflation, the right bonds make huge amounts of money. I tell you about this in another new report, TRADING THE LONG BOND.

    Wall Street prays you never touch bonds. That’s because hedge funds — which are really fronts for the dead-broke banks on government life support — hold MASSIVE short positions in bonds. Over the past year, they’ve been losing their shirts. Their losses are in the hundreds of billions.

    As a result, the billion-dollar hedge funds are doing what anyone who controls the media would do in such a situation. They are desperately spinning lies. The lie they are spinning this time is a fatal one for average investors:

    They want you to believe that central banks are about to print massive amounts of money, creating inflation.

    If that were true, it would make bonds lousy investments. People would DUMP their bonds. Bond prices would fall. The hedge funds, who have bet their lives on that, would recoup their massive losses.

    Just this past weekend, the G7 met. That is the world’s 7 largest, most powerful economies. Central bankers from all these countries announced they will do the same as the U.S.: lower long-term interest rates through Quantum easing. Incredibly, no one believes them! As I’ll show you in this email, that could be worth a fortune to you.

    Wall Street and its bought-off politicians want you to believe a recovery is just around the corner. Inflation will be breaking out all over, they say… and… surprise, surprise!… they just happen to have the investments you should buy right now (stocks, gold, homes, mutual funds). And people believe this b.s.??

    The entire world is going through the same crisis as America. Housing prices are collapsing worldwide, from Australia to Ireland. Banks everywhere are going out of business. Unemployment is soaring.

    For the past year, central bankers the world over have lowered short-term rates. They’ve tried to kick-start their economies. But it hasn’t worked.

    The global credit markets are still frozen solid. No one is lending money. The global economy keeps getting worse, not better.

    U.S. short-term rates are zero. Japanese rates are zero. England’s rates are damn near zero. And European rates are set to go to zero. Yet all these economies sink deeper into a depression by the day.

    So central banks have only one choice left. For the first time ever, central banks in all the key industrial economies are lowering LONG-TERM rates. They do this by buying long-term government bonds.

    Hedge funds hate it: it could quickly wipe them out. Wall Street won’t whisper a word to you about it. But soon you will see a massive, worldwide, coordinated program of quantum easing: that is, central banks will buy up hundreds of billions’ worth of government securities. Bankers at the G7 meeting just told us this.

    Quantum easing, while rare, is not unprecedented. Japan did it in the 1990’s. They were trying to fight their own severe depression. Remember the Asian banking crisis?

    Japan ran up massive debt, as they lowered both short-term and long-tern interest rates to damn near zero. In fact, their debt was 3 times their annual GDP.

    But even with all that debt creation, Japan saw no inflation. No massive printing of money. Just the opposite. They saw massive DEFLATION.

    Japan’s deflation lasted a decade. Japanese real estate prices fell and stayed down. Short-term interest rates plunged to below zero. Long-term rates went down to a fraction of a percent.

    What does this mean for the U.S.? U.S. debt is currently only 60% of GDP. In the next few years it may hit 90%. That is less than one-third as much as Japan’s. And Japan still had no inflation! Neither will we.

    If the world’s central banks, true to their word, lower long-term interest rates — the only way to stimulate economies in a massive depression like we are in – the right bonds could double very quickly. Maybe even triple. I tell you all about it in my report, TRADING THE LONG BOND.

    What you are reading right now has the potential to make you very rich. I mean every word of that. Remember, almost everyone alive today has spent their entire lives in inflation. They just don’t get deflation.

    One investor in a million understands what I am revealing to you right now. The masses are panicked by a crashing stock market… by banks and mutual funds that keep wiping out… and by real estate that is worth less by the day. They are convinced the “recession” can’t last. They believe because of massive stimulus programs inflation is just around the corner. Wrong, Wrong, Wrong!

    They are hoping against hope that these markets will make a miraculous turn-around…that after a brief bear market, stocks and their precious real estate will make a comeback…and the inflationary expansion will continue.

    They really believe all they have to do is hang in there long enough. Then their real estate values will come back. The stock market will rally. Their retirement and mutual funds will return the money they are losing.

    They believe the consumer will go shopping again en masse. Just like in the good old days. Wrong, Wrong, Wrong, Wrong!

    Here’s what you must understand. Once a century or so, the inflationary cycle comes to an end. It is replaced by a Depression, a period of massive DEFLATION.

    Depressions squeeze the excesses out of the system. Sometimes in the past, these economic depressions were called “Dark Ages”. I am sorry to have to be the one to tell you. We have just entered a depression, that in the future will be called a dark age.

    That does not mean all is lost. During the dark ages, mankind made its greatest strides in the arts and sciences. New wealth was created. New power bases established.

    Unfortunately, it is true that most people get wiped out in times like these. The good news is, a precious few acquire great wealth. Here’s what makes the difference between getting rich or going broke: do you know what is REALLY going on? And more important, do you know what to do?

    For us, the answer to both questions is “YES”. We know what is happening. Better yet, we know what to do about it. We know how to take advantage of the great depression we are in. Everyone you know is still in denial.

    These deflationary spirals last DECADES. If you get caught up in one, your traditional investments — like real estate, gold and stocks — will lose money for generations. Do you want to go through 30 to 40 years of hell, before you recoup your losses?

    If you follow the advice of Wall Street and the media (which it owns), you’ll do the exact WRONG things. The nasty truth is that the top bankers actually DO understand what is going on. They simply don’t care. If selling small investors worthless investments — that will wipe them out — helps their banks survive, so be it. That’s their attitude.

    If they can hide their derivatives losses, cash in their bonuses and stock options -– but bankrupt America in the process — they accept that as “collateral damage.”

    Similar deal with gold salesmen. I promise you, they are not looking out for your best interests. Neither are real estate or mortgage brokers.

    Ask yourself this question. If gold and real estate and stocks are such great investments, why are so many people begging you to BUY them?

    Why are so many people going broke in them?

    The vast majority of Americans are in a state of panic. They have no idea what to do. So they listen to people who, intentionally or not, put them in the exact wrong investments. They are going to lose the rest of what little money they have left.

    Meanwhile, the smart money is stashing money, in their mattresses and in government securities. They know things get cheaper by the day. The more they wait, the lower prices go. With each month, their money is worth more.

    For you, this can be the world’s biggest bonanza — if you have cash or government securities. Over the coming years, the bonanza will get bigger and bigger. In the not-too-distant future, pennies will buy what dollars buy today!

    Fully 70% of America’s economy is built around the “shop-till-he-drops” consumer. My friend, that consumer has just had a heart attack. He’s now in intensive care, hooked up to life support. His days racing around to Porsche dealerships are over. The swimming pools, 4 wheelers, second homes, vacations on the islands and 100 dollar dinners are gone.

    The spending orgy you’ve seen for the last 30 years — all on credit — is history. It will never be repeated.

    Understand that, and you could become fabulously wealthy. I show you how in my two new reports – HOW TO MAKE A FORTUNE SELLING GOLD IN 2009 and TRADING THE LONG BOND. Get fooled by the b.s. about hyper-inflation, and you will end up in abject poverty. Just like most everyone did in the last depression. They weren’t ready either.

    They woke up every day believing the government would bail them out. They waited, watched, and lost everything. Most never recovered their former wealth or lifestyle.

    In 2004, a tsunami struck Southeast Asia. The vast majority of people living there did nothing. They couldn’t believe their own eyes. (You can see videos of them on YouTube.) That’s because the waves, at first, didn’t look that big. By the time most people realized the gravity of the danger, it was too late. They were swept out to sea.

    A tiny handful of people, though, quickly realized something was seriously wrong. They didn’t hesitate. They took action at once. They climbed trees. Raced up stairwells to the roofs of buildings. Even climbed on top of cars.

    250,000 people did not understand what was happening. They perished. A handful of people, who saw what was about to happen, survived.

    Well, a tsunami is heading straight for us. Right this second. It’s a tsunami of DEFLATION/DEPRESSION. It will wipe out the vast majority of people.

    Most people, while worried, are doing nothing. They’re hoping the water will subside. It won’t. The tiny handful who act quickly — who take the simple steps I describe — could end up inheriting almost unimaginable wealth.

    Don’t end up with the wiped out masses. Click on the link below and read my special report on how selling gold and buying bonds are the lifeboat you need when the deflation tsunami hits.

    To find out more about surviving deflation, click here.

    –Nick

    &&&&&&

    Jerry: I don’t always feature opinions that I completely agree with, as you will already know if you frequent the Rick’s Picks web site. Nick Guarino is hardly the “idiot” you take him for, though, and his bold prediction concerning Dubai seems spot-on to me. So what if he’s not bullish on gold? Quite a few savvy investors share that opinion (including Rich Cash, who thoughts are on view elsewhere in this forum). RA

  • Rich December 8, 2009, 6:56 pm

    Brilliant posts today all.
    With much respect for gold dealer Andy, if you are not bullish on your business, who is?
    Still think the Gold Black Swan may take a dive.
    Here’s why:
    Anyone who appreciates $605 T derivatives, $105 T debts and currencies to $6 B physical gold understands the relative size of these markets ultimately means people holding physicals may have no liquidity at all if gold goes to $5000 or $50,000 an ounce, particularly if Eagles, exchanges and ETFs default with 125% premiums. BTW, reports suggested September delivery with coin-melt gold and 25% cash premiums, hence the tungsten alerts which, like any market disruption, are not bullish. Re ABX short gold from $300 to $900, nobody’s perfect, which may apply on the way down too. Wiki says India normally purchases 800 tonnes of gold a year, so 200 tonnes made sensitized headlines, but actually led to price discounts according to Dam. Today Gold is continuing to discount from a 1224 almost fivefold runup. As we saw in 1980, Gold did not pause long on the way down.
    Patient inscrutable China, as the world’s leading gold producer, may be in no rush to destroy its dollar reserves any more than necessary, unless they are planning an economic Pearl Harbor of their own on the USA and themselves. They are already feeling the pinch of lost exports versus their own neoKeynesian credit funny money, as the SHI declining since August shows. If China does default on OTC derivatives, they lose ALL their markets, starting with USA, Japan and Germany and India, no doubt what Geithner, Hillary & Summers told them.
    Still think this has all the makings of a Deflationary Black Swan.
    Recall the fires in the Providence and Moscow night clubs. All the people could not get through the tiny door at the same time and many were trampled or burned to death…

  • FranSix December 8, 2009, 6:29 pm

    Another risk benefit to bullion prices would be negative interest rates. It’s just a matter of who blinks first. Keepe a close eye on leasing rates in the precious metals sector as the differences between the Gold and Silver lease rates are becoming apparent, meaning that perhaps longstanding forecasts of a collapse of the Gold derivatives market may ensue.

  • Rick Ackerman December 8, 2009, 4:29 pm

    I am posting the following for Andy Maguire — a response to Dam Prakash’s post below:

    Hi Rick,
    Just a quick response to Dams comments.

    India is down on imports vs. 2008 but China is up by significantly more and add the comments made last week out of China that they ought to consider increasing their Gold reserves from 1054 Tons to 6,000 within 3-5 years and 10,000 in 8-10 years.The dynamics are changing rapidly. India have always been savvy buyers and waited for the regular/seasonal selloffs to add. I recall Dam had made similar comments about discounts on physical when I was in the chat room in July,when gold was in the 900’s and expecting Gold to retrace significantly. I was positive on the POG and buying heavily at the time.Since then India’s central bank bought 200 tons from the IMF at around the 1050 level and other CB’s have become net buyers at new established higher levels.

    The comment about paper leverage is misleading and not just to be made on the long side, the massive short concentrated position is also leveraged and acts to suppress the POG and POS.

    OTC LBMA unallocated gold is run on a fractional reserve basis and I have provided clear evidence to Bart Chilton of the CFTC.

    The point is underscored by the premiums we were given at the end of September when there was a last minute move to take delivery 1 day before September’s delivery deadline. As I stated,there was simply not enough physical gold to back up the unexpected draw as the contracts were leveraged and expected to roll.They had to be delivered within 5 days or be in default hence the premiums given.

    The information I provided in my commentary is correct and I leave it up to those who read it to make their own minds up.The Clients I am acting for are putting their money where their mouths are and I am still filling orders for the end of this month.They cant get rid of their $’s fast enough.

    We capitalized on the NFP take down as did a lot of strong hands as evidenced by OI rising by 10,664 contracts on a $48.8 down day.Hmm hardly long liquidation eh? Treasury auctions this week will add a drag to rises and we are buyers in size on the pullback. Bring it on!

    I appreciate Dams information re the Indian market and bearing in mind he is not a trader at his firm but an accountant I would have expected he would understand how leverage works on both sides of the ledger and how that creates a distortion of the real market.The shorts are very vulnerable to real money taking this leveraged gold out of the hands of the short sellers.Add the very real possible default by China on the OTC short hedges and you can throw your technical’s to the wind.

    I don’t have time to get into a peeing match with him as I have in the past so I will simply leave this as enough said. Let others decide. It is what it is.

    Regards

    Andy

  • ben December 8, 2009, 4:11 pm

    What exactly is meant by being offered a 125% premium to not take physical delivery? If gold were say $1000 per ounce at the time…what was offered? If you say $1250, I’d have to say this claim has no credibility whatsoever.

  • Paul December 8, 2009, 1:50 pm

    With all due respect to Dam, I saw months ago his posts stating that Indians were no longer buying Gold as it had hit $900 and was considered ‘expensive’. I know Dam handles admin and finance activities at a bullion company so I respect the fact he works within the industry.

    I cannot speak to discounts being available within India but here we are a few months later with Andy’s predicted move up underway and Gold just shy of $1,200.

    Whether Gold goes to $1,500 or $900 from here I cannot say but I do think people need to consider that this is NOT business as normal. India might indeed have been the world’s largest buyer of Gold but with Central Banks clamoring to increase their reserves a lack of demand from India isn’t going to make much difference. All it will mean is that if and when they start buying again, as they surely will, they may risk paying higher prices.

    I would be more interested to hear Dam’s thoughts on the very specific issues raised by Andy with are more global and less India-centric in their perspective.

    With people unable to get access to physical in the US at short notice and in quantity I would think Dam would have a lucrative business on his hands, supplying the rest of the world with the plentiful supplies that are ready to ship.

    Paul

  • Toptick December 8, 2009, 4:51 am

    Andy is ‘Spot’ on!!

  • Daman Prakash December 8, 2009, 3:25 am

    With due respect to author’s experience and viewpoint, let me describe our experience as a physical trader from India-

    Plenty of physical metal is available ready to be shipped on asking. Premiums we pay for one month consignment stock at our vault in India have come down from USD 2 to 3.5 per Oz paid in November 2008 to as low as USD 0.30 to 0.70 per Tr oz now .

    Despite above, in the current year, Indian volumes in tonnage terms are at lowest in the decade. Even if we add 200 tons bought by our central bank, total tonnage imported by India in 2009 is lesser than 2008, with 20 more days to go this year nothing dramatic is likely to happen.

    Indian annual consumption is estimated at 850 tons on an average. India imports 650 tons, local mining and production is just 10 tons, local scrap supplies the rest. We don’t have any exploitable Gold deposits of our own and have to
    depend on Imports. This year trade imports are down to 389 tons so far.

    The world trade knows Indian Import dependence and if physical metal was short as claimed, why would premiums be less for us ?

    Indian derivative trade is nascent and Indians historically love to buy and wear Gold in physical form.

    Last year when Gold was priced in the range of 680-750, there was huge rush for physical metal, we had to wait for weeks and we paid as high premium as USD 3.50 per oz.

    Silver is worse this year from Indian physical trade point of view. Higher prices have resulted in discounts being offered on spot prices most of the time this year. Yet volumes did not pick up. In 2008, I paid 11 cents per Oz premium for imports when price of silver was USD 8.50/9,5. This year we got discounts as high as 13 cents per tr oz. This month our suppliers charge us mere 2 cents per Oz CIF door delivery for air shipment to our vault.

    Just narrating our experiences in physical market this year with utmost sense of responsibility so that readers can have both sides of experience. Indians have years of wisdom in physical market.

    Price rise in PM sector has more to do with economy. Fundamental of physical demand and supply rarely reflect upon prices. At best they affect premiums charged by physical owners. It is equally true that all owners of derivative long don’t have enough of money to buy Gold in physical form as they need to pay 20 times more money. That means as a physical owner you can buy just one ounce of Gold and as a derivative long at exchange you can buy 20 ounces. Traders who ride the market and economy conditions would love to have 20 ounces of paper Gold in their kitty.


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