Use access key #2 to skip to page content.

XMFSinchiruna (27.12)

$1,500 Gold is Just the Beginning

Recs

62

April 21, 2011 – Comments (37) | RELATED TICKERS: AUQ , CLGRF , AXU

Veteran CAPS members may recall my oft-repeated expression of long-term price targets for gold and silver dating back to my earlier posts on the site:

Gold to $1,650 on its way to $2,000. Silver to $50 on its way to $100.

When I began writing full-time for the Fool in early 2008, the March correction sent the gold/silver price ratio skyrocketing, and over the next couple of moneht it becamwe clear that deep damage had been done to the cycle that could take a year or two to heal. Because of that, and because sentiment against gold ran so high that I felt a target like $100 silver could turn some potential pm investors away by appearing laughably unrealistic at the time, I opted to utilize the $50 target for my published articles. It should be clear from the above expression, that I expected silver to reach $50 by the time we hit $1,650 for gold, which implied a ratio that silver has already achieved at 33:1.

Fast forward to today, where silver has restored my initial expectations in dramatic fashion. The time has come to make my $100 price target for silver more public once again. Aside from those many explicit statements, many of you will be able to see how many of my prior statements have implied silver targets well above $50; like my $100 price target for SLW (which should come before $75 silver).

Of course, both my $2,000 target for gold and my $100 target for silver are interim targets themselves, and do not represent expectations of terminal extents of the bull market run by any means. They are simply meant as a conservative guidepost for investors in the sector to factor into their allocation strategies.

$1,500 Gold is Just the Beginning

http://www.fool.com/investing/general/2011/04/20/1500-gold-is-just-the-beginning.aspx

As for silver, Fools will note that silver's breathtaking ascent already has my $50 price target firmly within its crosshairs. In fact, my call for silver to triple in price from $15, where the metal could be purchased on September 2, 2009 when this article appeared, has already been vindicated. Had I thought I could state the target seriously at the time, without suffering even greater dismissive ridicule at the hands of silver skeptics, perhaps I would also have referenced my $100 price target for silver more publicly ... which I have shared with members of the CAPS community through my blog and my stock pitches. The time has come to share my $100 silver price target with you all.

Generational trends do not reverse course overnight
Particularly during the final quarter of the 20th century, the world was confidently engaged in a process of eschewing the time-tested wisdom of incorporating a modicum of precious metal exposure into a model portfolio. Gold and silver became the laughing stocks of the financial world, and the U.S. dollar was widely perceived as the unassailable global reserve currency that would seal gold's fate as a "barbarous relic."

My oh my, how the tides have turned. Today, it is the U.S. dollar that is suffering a worldwide crisis of confidence. Leading bond fund PIMCO won't touch U.S. debt with a ten-foot pole, and S&P finally moved an inch toward reality this week when it placed the United States' credit rating on alert for a possible downgrade. Safe-haven seekers and central banks the world over are finally initiating a move into gold and silver to protect against further deterioration of the purchasing power and the credit worthiness of the major fiat currencies, but for the first several years of this bull market such adaptations to the prevailing allocation models could scarcely be observed.

Eric Sprott:

We don't mean to bash the silver analyst community, and there are several whom we highly respect, but it is important for silver investors to appreciate that these price forecasts are being plugged into financial models that dictate equity valuations. These models are used by traders, bankers, analysts, and portfolio managers to derive valuations for silver stocks and create asset allocations for portfolios. To anyone questioning current silver equity valuations, we would ask: what price assumptions are you using? Of course we as allocators of capital are thankful for this phenomenon, as it allows us to buy our favourite silver stocks on the cheap, knowing full well that the herd will be following behind in due course as those backward-looking forecasts get ratcheted higher.

 

37 Comments – Post Your Own

#1) On April 21, 2011 at 7:41 AM, XMFSinchiruna (27.12) wrote:

The latest from Matt Taibbi is a must-read for each and every Fool.

Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and discovering a host of outrages and lunacies in the "other" budget. It is as though someone sat down and made a list of every individual on earth who actually did noteach to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. "Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous." need emergency financial assistance from the United States government, and then handed them the keys to the public treasure. The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans

.....

And then there are the bailout deals that make no sense at all. Republicans go mad over spending on health care and school for Mexican illegals. So why aren't they flipping out over the $9.6 billion in loans the Fed made to the Central Bank of Mexico? How do we explain the $2.2 billion in loans that went to the Korea Development Bank, the biggest state bank of South Korea, whose sole purpose is to promote development in South Korea? And at a time when America is borrowing from the Middle East at interest rates of three percent, why did the Fed extend $35 billion in loans to the Arab Banking Corporation of Bahrain at interest rates as low as one quarter of one point?

Even more disturbing, the major stakeholder in the Bahrain bank is none other than the Central Bank of Libya, which owns 59 percent of the operation. In fact, the Bahrain bank just received a special exemption from the U.S. Treasury to prevent its assets from being frozen in accord with economic sanctions. That's right: Muammar Qaddafi received more than 70 loans from the Federal Reserve, along with the Real Housewives of Wall Street.

 

Report this comment
#2) On April 21, 2011 at 8:42 AM, BillyTG (29.28) wrote:

Thanks as always for the PM posts!

Sprott nails it with this line: 

"We don't mean to bash the silver analyst community, and there are several whom we highly respect, but it is important for silver investors to appreciate that these price forecasts are being plugged into financial models that dictate equity valuations."

One of the primary issue that naysayers have with PM has to do with their valuation models. They try to value silver like it's Nike Shoe Company or some other stock! Silver and gold are not conventional equities! 

Report this comment
#3) On April 21, 2011 at 9:12 AM, catoismymotor (< 20) wrote:

I'm waiting for Munchies101 to come to this blog and drop a hot and steamy cut and pasted comment.

Report this comment
#4) On April 21, 2011 at 9:17 AM, reinman60 (< 20) wrote:

Chris,

Great article.

  I think $2000 for gold is a very conservative target, and we could easily reach it sometime this year, on our way ultimately to ????  I think that, given the deteriorating macroeconeconomic developments of the past several years,and with large institutions just barely dipping a toe in the water, that the ultimate price will shock even the most bullish of the bulls.

FT Alphaville brought this post by Jesse at the Cafe Americain to my attention.  Something big is going on at the COMEX, and it looks like the short squeeze is intensifying.  Those who have physical silver are getting more and more reluctant to part with it even at these prices.  Could this be the the beginning of the end of the COMEX leading to a collapse of the whole house of cards?

http://jessescrossroadscafe.blogspot.com/2011/04/silver-eligible-versus-registered-and.html

Report this comment
#5) On April 21, 2011 at 9:23 AM, catoismymotor (< 20) wrote:

Very informative. Thanks for posting.

Report this comment
#6) On April 21, 2011 at 9:23 AM, catoismymotor (< 20) wrote:

Very informative. Thanks for posting.

Report this comment
#7) On April 21, 2011 at 9:40 AM, workfor (< 20) wrote:

It's easy spend other people's money, especially when it can be printed to infinity. Martin Armstrong quotes Margaret Thatcher as saying "socialism ends when you run out of other people's money." This drunken spending party will end some day in a currency crises of epic proportions, and that day is approaching fast!

Fools like to poke and make fun of the "gold bugs", especially anytime the metals take a breather or a temporary correction. But gold and silver remain the canarys in the mine as they have for the past 10 years, shouting back to those fools that all is not well with their God almighty dollar, and the system as a whole. Its not too late to save yourselves if your are willing to listen.

Like the canarys, Sinch has proven to be a voice of reason and guidance in these turbulent times. We should give thanks, and continue to lend him our foolish ears.

Report this comment
#8) On April 21, 2011 at 10:07 AM, kdakota630 (29.76) wrote:

Not sure what to add, other than to commend you on another great blog.

I'm in full agreement, although feeling that there will be a significant retracement in PMs in the near future, as well as a larger one in the overall market.  The overall market one I've been predicting since around July though, so I don't think I have much credibility there.  LOL.

Also, Copper Fox briefly hit a new record high this morning.

Report this comment
#9) On April 21, 2011 at 10:47 AM, reinman60 (< 20) wrote:

If anybody owns Primero Mining (P.TO, MNOCF) or is considering adding it to the portfolio,  I just came across a presentation by CEO Joe Conway given last week at the European Gold Forum.

He deals with several issues that are of importance to the oulook for the company: the renegotiated silver streaming agreement with SLW, steps being taken to mitigate adverse tax consequences stemming from the sreaming agreement, capital spending plans, and finally, moving towards a US listing for the stock.  An excellent presentation all around, and filled with information.

http://www.gowebcasting.com/events/denver-gold-group/2011/04/15/primero-mining-corp/play/stream/2049

Report this comment
#10) On April 21, 2011 at 10:52 AM, kdakota630 (29.76) wrote:

reinman60

Thanks for the info.  I don't own Primero but have been considering it for some time.

Report this comment
#11) On April 21, 2011 at 10:55 AM, kadosas (< 20) wrote:

Even though the silverprice may be rallying like crazy, the silverminers don´t seem to move, is there someone that can explain that?. To me it looks like a bad sign and I´m expecting a correction soon. Any thoughts? 

Report this comment
#12) On April 21, 2011 at 11:03 AM, XMFSinchiruna (27.12) wrote:

kadosas

I wish I could explain it. To say the behavior is odd would be a colossal understatement.

The battle is playing out in the COMEX pits, and the winners will dictate the direction for the equities. The longs certainly appear to be in control, but their foes are powerful and well financed. The longer we sustain $1,500 / $45 in the near-term, the more assured we are of a powerful rally in the shares. The converse also applies if the shorts somehow steal the uppr hand at these levels.

Report this comment
#13) On April 21, 2011 at 11:28 AM, Gonzhouse (24.16) wrote:

"like my $100 price target for SLW (which should come before $75 silver)." 

I put some faith (and money) on this at publication date and several other times since then by buying deep in-the-money Call options (e.g., $10 Calls when SLW share price is $20) and simultaneously selling Puts at the same exercise price, all at 12-18 months out for expiration.  If you are willing and able to take/understand the Risk the trade allows you to control 2X the shares at no/negative premium for the same investment amount.  It has been ridiculously profitable.  If you believe the quoted statement above, it is just as valid a trade today as it was when SLW was $20.

I'm not advocating readers (particularly novice investors) take unreasonable gambles;  this trade is not for everyone.  But if you've had experience in the options arena, believe that silver is headed up, and appreciate Sinch's track record for rather prescient calls (talk about an understatement!), I'd encourage you to consider it.

Report this comment
#14) On April 21, 2011 at 11:30 AM, XMFSinchiruna (27.12) wrote:

Holy cannoli!!

Did you guys see this??

http://www.newstrikecapital.com/investors/2011/apr-20.htm

Newstrike Intersects 230.95 Meters of 7.51 G/T AU at the Ana Paula Project

 

Report this comment
#15) On April 21, 2011 at 11:31 AM, XMFSinchiruna (27.12) wrote:

That is an uncommonly thick intersection for a grade that beautiful.

Report this comment
#16) On April 21, 2011 at 11:36 AM, kdakota630 (29.76) wrote:

TMFSinchiruna

It looks like the market did.  It's up 33%.

Report this comment
#17) On April 21, 2011 at 11:42 AM, XMFSinchiruna (27.12) wrote:

TMFSinchiruna

I still own shares, but now I'm wishing I hadn't cut my stake in half back below $0.50 when I needed to raise some cash. 

Report this comment
#18) On April 21, 2011 at 11:44 AM, kdakota630 (29.76) wrote:

TMFSinchiruna

Schizophrenia?

Report this comment
#19) On April 21, 2011 at 11:45 AM, XMFSinchiruna (27.12) wrote:

:P let's call it "blurry eyes from staring at screen" disorder.

Report this comment
#20) On April 21, 2011 at 11:54 AM, kdakota630 (29.76) wrote:

TMFSinchiruna

I find myself frequently referencing your top 10 list for 2011, but with all these new finds and updates, I'm willing to bet that there are plenty of Fools who would love it (if you had the time) to redo your list, perhaps a quarterly top 25, similar to pop music charts.

Report this comment
#21) On April 21, 2011 at 12:17 PM, reinman60 (< 20) wrote:

More thoughtful, informed speculation from Jesse over at his cafe.

The chart he prepared is very interesting.  He concludes "the jig is up"

 http://jessescrossroadscafe.blogspot.com/2011/04/what-i-think-fluctuations-and-trends-in.html

 

Report this comment
#22) On April 21, 2011 at 12:34 PM, XMFSinchiruna (27.12) wrote:

Thanks for posting that reinman60. That chart is certainly dramatic.

Here is Jim Sinclair's Thought For The Evening:

The 1979 style setup for a ballistic move in gold is setting up right now!

Jim Sinclair’s Commentary

If QE, aka the “non-economic purchase of US Treasury bonds” ends, who will buy the bonds required to finance the deficit? Apparently not China.

PBOC governor says foreign reserves excessive
Updated: 2011-04-19 14:13

China’s huge stockpile of foreign exchange reserves, the world’s largest, have become excessive and the government must diversify investments using the reserves, Zhou Xiaochuan, governor of the People’s Bank of China, said in comments published on Tuesday.

The country’s foreign exchange reserves swelled by nearly $200 billion in the first quarter of this year to more than $3 trillion, indicating hefty capital inflows, and the government has so far focused on investing mainly in US dollar assets, including US Treasures.

“Foreign exchange reserves have exceeded our country’s rational demand, and too much accumulation has caused excessive liquidity in our markets, adding to the pressure of the central bank’s sterilization,” Zhou was quoted by the official Shanghai Securities News as saying.

“The State Council has required a cut in excessive accumulation and good management of the funds accumulated, including diversification of investments,” Zhou was quoted as telling a forum at Tsinghua University in Beijing.

 

 

Report this comment
#23) On April 21, 2011 at 12:52 PM, XMFSinchiruna (27.12) wrote:

http://news.goldseek.com/GoldSeek/1303311900.php

The Hera Research Newsletter (HRN) is pleased to present an in-depth interview with Jim Sinclair, Chairman and CEO of Tanzanian Royalty Exploration and founder of Jim Sinclair’s MineSet, which hosts his gold commentary as a free service to the gold investment community.

Jim Sinclair is primarily a precious metals specialist and a commodities and foreign currency trader.  He founded the Sinclair Group of Companies in 1977, which offered full brokerage services in stocks, bonds, and other investment vehicles.  The companies, which operated branches in New York, Kansas City, Toronto, Chicago, London and Geneva, were sold in 1983.

From 1981 to 1984, Mr. Sinclair served as a Precious Metals Advisor to Hunt Oil and the Hunt family for the liquidation of their silver position as a prerequisite for the $1 billion loan arranged by the Chairman of the Federal Reserve, Paul Volcker.

He was also a General Partner and Member of the Executive Committee of two New York Stock Exchange firms and President of Sinclair Global Clearing Corporation (a commodity clearing firm) and Global Arbitrage (a derivative dealer in metals and currencies).

In April 2002, shareholders of Tanzanian Royalty Exploration (formerly Tan Range Exploration) approved the acquisition of a Sinclair managed private company, Tanzania American International, and its exploration assets in Tanzania. Subsequently, Mr. Sinclair became Chairman of Tanzanian Royalty and now leads its efforts to become a gold royalty and development company.

He has authored three books and numerous magazine articles dealing with a variety of investment subjects, including precious metals, trading strategies and geopolitical events and their relationship to world economics and the markets.  He is a frequent and popular commentator on financial and market related issues in various news publications and has been profiled in the New York Times.

In January 2003 Mr. Sinclair launched, Jim Sinclair’s MineSet, which now hosts his gold commentary and is intended as a free service to the gold community.

Hera Research Newsletter (HRN): Thank you for speaking with us today.  You are one of very few people who have tried to warn investors about OTC derivatives.  Why are OTC derivatives a problem in your opinion?

Jim Sinclair: Over the counter (OTC) derivatives are the reason we are going through what we are going through now.  An OTC derivative is a kind of wager on what something will do.  Up until 2009, most of these wagers had very little, if any, money behind them and, if the direction you bet on didn’t come to fruition, the amount of leverage resulted in extraordinary losses.  There was a major rollover in derivatives tied to real estate in 2008, as well as in other types, such as those tied to sub-prime auto loans.

HRN: Did OTC derivatives destabilize the financial system in 2008?

Jim Sinclair: Absolutely

HRN: Don’t financial institutions use risk cancellation models to hedge risks using OTC derivatives?

Jim Sinclair: Before the failure of Lehman Brothers, OTC derivatives losses would have almost netted out to zero.  You can consider derivatives like a string in a circle with various knots representing all the derivatives transactions.  When Lehman went broke, the string broke.  When Lehman couldn’t meet its obligations on derivatives, they could no longer be netted out to zero.  That’s why the banks went down, and that’s why you had the government bailouts and quantitative easing (QE).

HRN: OTC derivatives are the real reason for the bank bailouts?

Jim Sinclair: That is a fact which can in no way be argued away.

HRN: Hasn’t the problem been cleaned up by the Dodd–Frank Wall Street Reform and Consumer Protection Act?

Jim Sinclair: The pile of OTC derivatives is over $1 quadrillion.  After 2008, the International Monetary Fund (IMF) adopted a new method of valuing them called value to maturity.  Value to maturity assumes all of them will function, which is a cartoon.  The derivatives pile hasn’t contracted.  Basically, it has expanded, but value to maturity reduced the notional value from over $1 quadrillion to under $700 trillion.  The amount outstanding is the same as it was in the first place.

The flavor of the present moment is credit default swaps against the solvency, or lack thereof, of sovereign nations.  New derivatives have some margin behind them, but they only work if they are not called upon.  If a nation’s debt was in fact to default, it would happen very quickly without a great deal of run up before.  Most people would expect a rescue to be coming.  Let’s say a rescue didn’t come, those credit default swaps would simply not be able to function and down again would come the banking system.

HRN: Are you saying that the financial system is less stable today than it was in 2008?

Jim Sinclair: It appears more stable but that’s only an appearance.  The entire equity rally took place almost to the day from when the Financial Accounting Standards Board (FASB) relaxed the mark to market rule.  It allowed financial institutions to make up whatever value they wanted for their worthless pieces of paper.  If they used the real values, the banks would have come down.

HRN: Wasn’t the FASB change a temporary measure to halt the decline in mortgage-backed securities?

Jim Sinclair: It wasn’t just mortgage-backed securities.  It was all the paper on bank balance sheets.  The balance sheets of banks appear to be in good shape but they’re not.  In fact, they will need a lot more funds.

HRN: Then the financial system is still vulnerable?

Jim Sinclair: They’ve kicked the can down the road.  The purpose of QE, in other words the printing of money, is to maintain some degree of integrity in the financial system.  Bear in mind that the grease for the wheels of equity markets is liquidity, meaning that if you create a lot of money, it goes into the hands of banking institutions and international investment houses.  So, the equity out of thin air market has been sustained by QE.

HRN: What can the government do to prevent another crisis?

Jim Sinclair: You can assume that what’s been done already will be done again.  There are no other tools in a practical sense.  The idea that there won’t be a continuation of QE is nonsense.

HRN: Can the government bail out the banks again?

Jim Sinclair: The central banks will buy the government debt.  That’s called quantitative easing.

HRN: Doesn’t QE undermine the dollar?

Jim Sinclair: The dollar is an exercise in psychology.  It’s a piece of paper with a promise to pay but there’s nothing in which it can be paid.  It’s legal settlement for debt but there’s nothing that it’s convertible into.  To maintain confidence, it’s necessary to maintain the stature of a currency.  In an arithmetic sense, if you go into a market to sell a supply of apples, and if you’re the only seller, you can get a nice price.  If more sellers, meaning more apples, come into the market, there goes the price of apples.  QE creates more dollars, which increases the supply.

HRN: If the dollar is loosing value because of QE, what about the Euro

Jim Sinclair: If you look at the dollar or the Euro or the Yen, or even the Swiss franc, it’s a race to the bottom amongst all currencies.  All countries everywhere are creating more paper every day.  It’s a relative valuation, rather than a valuation based on an objective reference.  What happens in the European Union immediately affects the dollar.

HRN: You mean the sovereign debt crisis?

Jim Sinclair: There’s too much focus on the Euro countries.  There’s no difference between the economic union of Europe and the union of the states in the United States.  The states of Europe have been revealed to be insolvent.  How about the states of the United States?  Out of New York, Illinois, California, etc., how many are solvent?  The focus of the media has been on the Euro.  The U.S. should stand in front of a mirror.  The states of the economic union of America are in no better shape.

HRN: The news media is ignoring the U.S. sovereign debt crisis?

Jim Sinclair: In George Orwell’s Nineteen Eighty-Four, there were loud speakers constantly teaching the people what Big Brother wanted.  The loudspeakers today are financial television.  How much attention has financial TV put on the insolvency of U.S. states?  It’s been mentioned, but not like the solvency problems of Portugal, Greece, Spain and Ireland, which have gotten hours, days, weeks and months of constant coverage.  The solvency of New York, Illinois and California has been brought up but fleetingly at best.

HRN: So, the solvency problems of U.S. states are like an elephant in the room that no one is talking about?

Jim Sinclair: How can you say that the Euro is a disaster based on the financial condition of the states of the economic union of Europe, when the states of the economic union of the United States are in equally bad shape and in some cases worse?  There’s no difference.  If you want to analyze the Euro based on the weakness of its member states, how can the dollar be strong when the states of the United States are as weak or weaker?

HRN: So, the Euro could rise against the U.S. dollar, despite the European sovereign debt crisis?

Jim Sinclair: Sure it can.  The question is, can the dollar go lower?  The Euro could go to $1.50 or higher.

HRN: But the U.S. dollar is the world reserve currency.  Doesn’t that guarantee its value?

Jim Sinclair: Only by default.  It remains so because central banks own dollars.  If central banks could exchange them for gold or other currencies without a major dislocation, they would.

HRN: Then, as a practical matter, central banks can’t get out of the dollar?

Jim Sinclair: The only one that’s gotten out of it is China.  They’ve made deals all around the world for metals, materials, energy and manufacturing.  If you add it all up, China is no more stuck in the dollar than the man in the moon.

HRN: Doesn’t the U.S. maintain a strong dollar policy?

Jim Sinclair: The strong dollar policy has only been a moderate, long-term downtrend that continues lower.

HRN: Don’t central banks manage currency exchange rates to prevent disruptive changes, like the recent Japanese Yen intervention?

Jim Sinclair: In the Japanese yen intervention, the central banks intervened but how long can they intervene?  They have to create money to intervene, which comes back to QE.

HRN: Do you mean the overall affect of currency interventions is to create new money?

Jim Sinclair: Anything that happens around the world, for instance, the Bank of Japan’s response to the horrible disaster in Japan, was to go straight to QE.  Money is being created everywhere without any discipline but the problems of financial institutions remain because they have make-believe balance sheets with improper values for their OTC derivatives.

HRN: Doesn’t the suspension of the FASB mark to market rule buy time for banks to repair their balance sheets?

Jim Sinclair: There are five million homes for sale in the United States if you include the off-market shadow inventory, which is a real inventory.  There’s no repair coming in the real estate market, therefore, there’s no repair coming in the OTC derivatives based on that.  That means there’s no repair coming in the underlying paper that the banks now value at much higher levels than they could possibly sell them for, if they could sell them at all.

HRN: Will bank balance sheets eventually get better?

Jim Sinclair: As long as confidence remains in place, which depends on the equity market and that comes back to QE.

HRN: Are you saying that the U.S. stock market rally is driven by QE?

Jim Sinclair: There’s an inability to stop QE without the whole house of cards coming down on itself.  There’s no other choice.  It’s the only tool left.  The Federal Reserve can’t take a hawkish position on monetary policy and interest rates without this whole thing rolling over.  They can talk about it constantly and might have more back door QE than front door QE.

HRN: If QE doesn’t stop soon, what will happen?

Jim Sinclair: The end game is a virtual reserve currency linked to gold.  It will be based on an average of major currencies, which will slow down the movement in the index.  The International Monetary Fund (IMF) is moving in that direction with Special Drawing Rights (SDRs).  The dollar will be just another currency.  The dollar’s not going to zero.  It could loose a significant part of its buying power, which it already has and could again.

HRN: How would a virtual currency work?

Jim Sinclair: There would have to be a broad measure of the money supply, such as M3 used to be for the U.S. dollar, but on an international basis.  The price of gold would be related to that measure.  Central banks would have to value their gold according to their contribution to or extraction of international liquidity, so the price of gold would rise or fall on its own.

HRN: Wouldn’t that be a gold standard?

Jim Sinclair: There’ll never be a return to a gold standard in my opinion.  The end of all hyperinflations has been a commodity currency.  That’s exactly what happened in Germany, for example.  Gold has the capacity to give confidence to people if there’s some relationship between the currency and gold.  The virtual currency will be linked to gold but not convertible into gold.

HRN: So, a gold component will restore confidence?

Jim Sinclair: The answer is a commodity currency.  That’s what happened every time there was this type of situation in monetary history.  The rentenmark, which ended the German hyperinflation in 1923, was supposedly backed by all the real estate in Germany, but the government didn’t own that real estate.  The point is that it wasn’t true.  There was no great commodity backing for the rentenmark, but it was enough.  It was a period when people were searching for anything to restore confidence in the currency.

HRN: Do you expect high inflation in U.S. dollar terms?

Jim Sinclair: The deed is done.  Inflation is a pregnancy.  The conception has already taken place.  There’s a delayed effect but if you do the crime, you do the time.  The Federal Reserve could stop QE tomorrow and it wouldn’t stop what’s going to happen because of what they’ve already done.

HRN: Won’t inflation reduce the real value of debt and help to repair bank balance sheets?

Jim Sinclair: Inflation is the way debt will be taken care of.  The value of the currency will be so reduced as to reduce the debt load.  It will also change the political scene.  Whoever has power going into this will not have power coming out of it.

HRN: In other words, inflation is politically destabilizing?

Jim Sinclair: People really haven’t seen the big picture.  Currency induced cost push inflation is already here.  Look at what’s going on right now in the Middle East.  We are moving from order to lack of order.

HRN: Would you say that inflation in food prices is indirectly driving oil prices higher?

Jim Sinclair: Oil goes right through from fertilizers to farm equipment to transportation and to food prices.  The price of food is going to go even higher than we are seeing this year.  The price of oil is headed decidedly higher.  Peak Oil was a concept of the future.  Now it’s a concept of now.  A car getting 25 miles per gallon will probably be too expensive for the average person to drive.

HRN: How will high oil prices affect the prices of other things?

Jim Sinclair: There will be dislocation in the means of delivery of products.  There may be shortages of goods, not because there are no available goods but because the means of distribution breaks down.  It’s not that there won’t be corn or wheat, but the fuel needed to deliver it will be too expensive and people who work in transportation will demand higher pay so they can live.  That’s where hyperinflation comes in.

HRN: And money to maintain the distribution of goods will be printed out of thin air?

Jim Sinclair: Every nation that has ever done this has turned into a banana republic.  People can live in banana republics but there will be few wealthy people.  There will be a few super wealthy people and an enormous amount of poverty.  You can see it across the border in Nogales, Mexico, where people continue to live in extreme poverty.

HRN: America is becoming like Mexico?

Jim Sinclair: The standard of living is going much lower.  People have to realize that the damage is already done.  It’s not a question of whether the U.S. can be pushed over the edge.  We are over the edge.  We are watching the consequences play out now.

HRN: What can people do to protect their wealth from inflation?

Jim Sinclair: People have to try to maintain their buying power.  Each person can become their own central bank and, to the best of their abilities, focus on the assets that benefit from the disorder that’s taking place and that will continue to take place.

HRN: Do you mean buying precious metals or commodities?

Jim Sinclair: I’ve spoken to people who, over the last ten years, have had this perspective.  They have done very well.  Even doing it now could protect your wealth.

HRN: What about gold?  Do you see gold as a currency that can’t be debased?

Jim Sinclair: What is real money?  Gold is a currency that has no liability attached to it.  It’s a measure of value and a store of wealth that’s universally acceptable.

HRN: So, gold is an alternative to dollars or Euros?

Jim Sinclair: Physical gold is the answer.  An individual who holds gold will have more time and ability to function.

HRN: How much higher do you think the price of gold could go?

Jim Sinclair: What’s the exchange rate of a currency with no liability attached to it?  Gold is going much higher.  We could see shocking gold prices, maybe Alf Fields’ target of $10,000 per ounce or Martin Armstrong’s target of $12,000 per ounce.  I think that my price target of $1,650 per ounce gold is going to be so low it will be considered silly.

...................................

Nicknamed “Mr. Gold” for his incredible timing of the gold market in the 1970’s, when he called the top of the market in 1980 to the day, Jim Sinclair, is a legendary precious metals, commodities and currency trader.  Mr. Sinclair was influenced by his father, Bert Seligman, who was the business partner of Jesse Livermore, “The Great Bear of Wall Street” famous for short selling in the stock market crashes of 1907 and 1929.  Currently Chairman, President and CEO of Tanzanian Royalty Exploration Corporation, part of Mr. Sinclair’s strategy to protect his interests from the effects of currency debasement, is to acquire as much gold in the ground as possible without rushing to production because, he believes, the price of gold will go much higher.  Mr. Sinclair’s famous 2001 gold price target of $1,650 per ounce in 2011—a prediction ten years into the future—fell within 22% of the gold price in January 2011 after a phenomenal 511% increase over a ten year period, from an average price of $265.49 in January 2001 to an average price of $1,356.40 in January 2011 (London p.m. Fix)—one of the most astonishing calls in the history of precious metals trading.  As a commentator on precious metals, commodities and currencies, investors ignore Jim Sinclair at their peril.

Report this comment
#24) On April 21, 2011 at 1:10 PM, reinman60 (< 20) wrote:

Chris,

We've only seen the beginnings of China's diversification away from the dollar.  China aims to take its place among the great economic powers of the world, and is positioning the Renminbi as one of the reserve currencies of the future.  For them to accomplish that , they know that they need to boost their gold reserves from some 1100 tons to a signigicant multiple of that.  Compared to the western economic powers, their gold/GDP ratio is much too small. 

The government is not only capturing the entire output of the domestic gold mining sector, but are reported to be big buyers whenever they get the opportunity to do so on price declines.

In addition, they are actively encouraging their people to keep part of their savings in gold and silver.  People have heeded the goverments call, and have been buying at an astounding rate.  That's why I found this article so interesting.

http://imarketnews.com/node/29757

China's next five year plan calls for a rebalancing of their economy away from a reliance on exports, and towards more domestic consumption.  An increse in the pace of Yuan revaluation will be crucial to furthering their goals, giving the consumer sector increased purchasing power.  This increase will extend to the PMs, lowering their price in yuan and incresing their affordability.

As if there aren't enough bullish factors propelling the price of gold and silver higher, this is just one more.

Report this comment
#25) On April 21, 2011 at 1:18 PM, Munchies101 (99.45) wrote:

Love you too Cato :) Copy and pasting that joke must have sparked some brilliance, because BillyTG just used one his comments from that same blog and copy and pasted it into a new blog discussion. So at least some good came out of my idiocity...

Report this comment
#26) On April 21, 2011 at 2:47 PM, Valyooo (99.47) wrote:

Great blog...I just hope when silver hits $100 you dont say that your secret real price target was $150

Report this comment
#27) On April 21, 2011 at 3:24 PM, XMFSinchiruna (27.12) wrote:

Valyooo

I reserve that right. ;)

In all seriousness, targets will be reassessed objectively as they are approached, though I will likely advocate systematic reduction of exposure and disciplined booking of gains as the bull market progresses through successive stages.

I think $150 silver is an entirely real possibility, but a careful analysis of the silver market and the macroeconomic landscape would be required near $100 before consideration of a further target increase. 

Don't hold me to it, but since you were inquiring about exit strategies, by the time we hit $100 silver, I hope to have amassed a cash position at least equivalent to my starting portfolio balance at the onset of this bull market to safeguard my initial investment capital. I will likely have reduced my pm allocation within my overall equities allocation substantially from present levels by then, and certainly will have reduced my relative position in silver relative to gold toward a less silver-heavy mix as the ratio closes-in below 30:1. For now, as I indicated elsewhere, I will be looking to gradually increase my cash allocation from 10% to 20% between now and $50 silver. I can only imagine there are a lot of yahoos out there who will ascribe undue significance to the $50 level for obvious reasons.

I will be in no hurry whatsoever to redeploy the majority of my capital as I reduce my pm exposure over time. I will have secured a lifetime worth of gains in the course of a decade, and I will be very keen to protect those gains.

Report this comment
#28) On April 21, 2011 at 3:30 PM, Valyooo (99.47) wrote:

Makes sense...I was just messin with you anyway...I am not really big on "price targets"

When supply meets demand is probably about where I will sell

Report this comment
#29) On April 21, 2011 at 4:15 PM, jesusfreakinco (29.02) wrote:

Sprott calls for single digit GSR

 http://www.zerohedge.com/article/eric-sprott-expect-gold-silver-ratio-hit-single-digits

At $1500 gold, that means $170 or so silver...  :-)

JFC 

Report this comment
#30) On April 21, 2011 at 5:17 PM, JaysRage (88.57) wrote:

This is just an incredible blog in a long series of incredible blogs.   Thanks for all the contributions.  

Report this comment
#31) On April 21, 2011 at 5:23 PM, rfaramir (29.33) wrote:

"Jim Sinclair: There will be dislocation in the means of delivery of products."

The opening of "Atlas Shrugged: Part One" utilized this to modernize the novel's 1957 setting to 2016. It postulated extremely high gas prices, making rail the only viable long-distance method of transportation of goods. A dislocation indeed.

Oh, and price targets should be made in a currency that the government cannot debase continually; like, say, silver! ;-) Then you don't have to keep making updates. "The value of an ounce of silver 20 years from now will be... one ounce of silver!"

Report this comment
#32) On April 21, 2011 at 5:26 PM, mhy729 (30.47) wrote:

reinman60

Thanks for the Primero vid/link...a US listing would be most welcome indeed.

Report this comment
#33) On April 23, 2011 at 2:21 PM, reinman60 (< 20) wrote:

Another interesting link:

Max Keiser interview with Brad Cooke, CEO of Endeavour Silver.  If you've never been to Max's site, its a video blog that deals with precious metals, mainly silver.  Max is a little crazy (actually, he isn't at all, but the personna he's created for his website is: a sort of Walter Winchell for the 21st centuray who's consumed way too many Starbucks triple espressos). 

He plays it staight here though and does a good interview with Cooke.  He doesn't talk about Endeavour per se, but about the structure of the silver market, and the economic and geopolitical factors influencing it.  

A quote from the interview, "Clearly we're in a bull market for silver... we're 8, 9 years into that cycle... actually the average cycle for silver is on the order of 15 to 20 years, so there are probably some years left to go in this cycle."

 

 http://maxkeiser.com/2011/04/23/ote106-on-the-edge-with-brad-cooke/

Report this comment
#34) On April 23, 2011 at 4:15 PM, reflector (< 20) wrote:

sinch, i am puzzled by your statement that you intend to rebuild your initial cash position, as an exit strategy, which i've heard you say before:

"Don't hold me to it, but since you were inquiring about exit strategies, by the time we hit $100 silver, I hope to have amassed a cash position at least equivalent to my starting portfolio balance at the onset of this bull market to safeguard my initial investment capital."

when you say cash, i'm assuing you mean greenbacks, US funny-money?

what good is holding on to cash in a strong infnationary environment, which, and i agree with jim sinclair, is inevitable, as the seeds are already planted?

what is the value of such a cash position? just to diversify assets?

 

Report this comment
#35) On April 24, 2011 at 9:35 AM, XMFSinchiruna (27.12) wrote:

reflector

Let me flip the table. What alternative exit strategy would you propose? The key to exiting a secular bull market like this with hard-won gains intact is to book gains in a disciplined fashion throughout the latter stages, and by accelerating that activity once the lowest-risk portion of the run has transpired.

You may be overlooking the idea of just how painless it will be for me, near $100 silver, to raise a cash position equal to my initial capital. Because my portfolio will have multipled several times over, that will still represent a modest and reasonable cash allocation even in a highly inflationary environment. The opportunity cost for that cash allocation not being deployed in pms, even after accounting for deterioration of purchasing power, will be overwhelmed by the value of a 100% guarantee against nominal loss paired with a powerful retained inflationary hedge in my remaining pm exposure at the time.

It's important to approach the cash question from a practical rather than an ideological perspective. Again, after the gains I will have enjoyed, further degradation of my USD purchasing power will remain powerfully hedged by my remaining pm exposure at the time. That is not to say I will hold that cash as cash in perpetuity ... it simply means I will be booking gains in USD from my pm investments. Whether, how, and to what degree I may deploy said cash into select non-pm equities or other assets remains to be assessed at the time according to my view of the markets at the time.

It's about ensuring that gains remain gains, thereby de-risking retained exposure, and also positioning for the most fortuitous transition possible into non-pm assets as pm exposures are reduced over time.

Report this comment
#36) On April 25, 2011 at 1:39 PM, reflector (< 20) wrote:

sinch,

as far as my own personal exit strategy, it is not well-formed yet, but i would describe it as keeping my eyes open and seeing how things play out.

i don't have any crystal ball, though some coming events seem to be inevitable.

maybe it will be to buy farmland eventually with the gains from mining stocks, or maybe it will be to get back into the broader stock market once the financial environment stabilizes & normalizes (if it does any time soon).

it just seemed a little odd to hear you talk about getting back into cash as an exit strategy. sure if your initial investment is $50k and by the time all is said and done you are at $500k in pm stocks, you take $50k and put it back into cash, but what will $50k really be worth by then, after the collapse of the dollar? 

i get what you are saying, though.

 

Report this comment
#37) On April 25, 2011 at 3:26 PM, XMFSinchiruna (27.12) wrote:

reflector

Thanks for sharing your thoughts. I appreciate the irony myself, and as you suggested, to the extent that viable non-pm alternatives to cash abound as I reduce my exposures eventually, I may retain that cash exposure only for a brief period.

Report this comment

Featured Broker Partners


Advertisement