Gold and Silver • Turk – Summer Doldrums Over, Gold & Silver To Explode
Turk – Summer Doldrums Over, Gold & Silver To Explode
With volatility in global markets, today King World News interviewed James Turk out of Europe. Turk told KWN, “The financial, monetary and economic conditions are so bad … that everything will spin out of control.” He also warned, “There is a new factor at work that is about to light a fire under the precious metals that few people recognize – food inflation.” He went on to say, “We can expect a rally from here that will take our breath away.”
Here is what Turk had to say about what is happening: “The sentiment indicators for gold and silver have been exceptionally low for weeks now, Eric, which is understandable given their lackluster performance during this period, as well as the downright discouraging performance of the mining shares.”
“But this is no time for complacency. The financial, monetary and economic conditions are so bad, that the situation could spin out of control at any second. Because these problems are not being solved, the point is that everything will spin out of control.
When that happens – as you and I have mentioned many times to the KWN audience around the globe – the best way to protect yourself and your family is with tangible assets
“In other words, anything real. That could include farmland, timberland, your house, an oil well or any other tangible asset. And the most liquid of these are gold and silver, which of course is why they have been used as money for thousands of years.
The latest important news is that Moody’s just downgraded Italy’s debt again. This downtrend in the quality of its debt is ominous, and one has to wonder why anyone would own any Italian debt. Italian government debt is now 8 notches from the highest credit rating and just 2 notches above junk. And total Italian government debt is now approaching EUR 2 trillion.
Think about that for a moment, Eric. This debt mountain is only 2 notches above junk. Consider all the banks, central banks, pension plans and other institutional investors that own this debt. What are they going to do if the Italian economy – like most of Europe – continues heading lower, making repayment of the debt difficult if not impossible? What are they going to do if this debt is eventually downgraded again to junk?
The European banks own a lot of Italian government debt. The ECB also owns a lot too, either outright or as collateral, which the ECB unbelievably accepts this paper at 100% face value.
So here is what is going on in Europe. An Italian bank loses deposits because of the silent bank runs that are underway. Also, no other banks are willing to lend to it because of the uncertain quality of its loan book. The Italian bank then uses the Italian bonds it owns, as collateral, to borrow, from the ECB, the euros it needs to replace the deposits it lost.
So instead of the euro being backed by quality borrowers, more and more backing is coming from paper from over-leveraged governments like Italy, whose paper Moody’s is telling us is declining in value and near junk. Because of the accounting involved, this insidious process is hidden from anyone who doesn’t understand bank balance sheets.
But there is a simple analogy, it is nothing more than clipping coins, just like kings and Roman emperors used to do. This modern clipping is harder to detect because a euro looks the same and the clipping comes from the accounting sleight of hand, but it is clipping nonetheless. The content – the quality – of the euro is eroding.
The key point, Eric, is that all fiat currency is being clipped to some extent, so it is dangerous to be in any kind of paper. The big risk here is not owning any physical metal.”
Turk also noted: “Moving to the US, over the past few weeks, three cities in California have filed for bankruptcy. The only difference between them and Italy is that they do not have a central bank bending over backwards to keep them afloat.”
Turk also had this to say regarding gold and silver: “The bears and central planners have had every opportunity to break support under $1600 and under $27, even if just to gun for stops under these levels. But the precious metals have held firm. It is an impressive performance, but I am more impressed by the rally in gold and silver that started last week.
There is a new factor at work that is about to light a fire under the precious metals that few people recognize – food inflation. It was one of the key drivers in the summer of 2010 which launched the huge rally that eventually took silver near $50 and gold to a new record over $1900. Food inflation was also a factor in the big run-up of the precious metals in 2007, and early 2008, when food riots broke out around the globe because of high prices.
The worsening drought in the midwest means that food inflation will again become one of the drivers sending gold, silver and the mining shares much higher from here. The summer doldrums are over. Gold and silver are ready to get exciting once again. We can expect a rally from here that will take our breath away.”
Statistics: Posted by DIGGER DAN — Tue Jul 17, 2012 5:51 am
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