Robert Kiyosaki Blog

Financial Education Portal inspired by Robert Kiyosaki


12 Reasons Why Gold Price Will Rebound and Make New Highs in 2014

Investor sentiment towards precious metals is at the lowest level in over a decade. Many analysts believe the bull market is over and are calling for sub-$ 1,000 gold in 2014. Even diehard gold bugs are losing faith, as the correction has been longer and more severe than most had anticipated. So, is it time to throw in the towel? Is the bull market in precious metals really over? In order to answer this question, I thought it would be constructive to re-visit the fundamental drivers of the gold price and determine if anything changed over the past two years to weaken the bullish case. My conclusion is that nearly all of the fundamental factors that have been driving the gold price higher in the past decade have only strengthened in the past two years. Now that the correction has most likely run its course, I expect gold to rebound into the close of the year and bounce sharply higher in 2014. Here are the 12 reasons why… #1 – Rapidly Growing Debt Just one day after President Barack Obama signed into law a bipartisan deal to end the government shutdown and avoid default, the US debt surged a record $ 328 billion, the first day the government was able to borrow money. The U.S. national debt has increased by more than a trillion dollars in the past 12 months. This pushed the total debt above $ 17 trillion for the first time in history. As the debt increases and GDP growth slows, the debt-to-GDP ratio will continue to rise at an accelerating pace. This is simple math and it dictates an ongoing slide in the purchasing power of the dollar and rise in the purchasing power of real assets and particularly monetary metals such as gold and silver. The following charts show the steepening rise in total public debt and the debt-to-GDP ratio of the United States. Many economists view a debt-to-GDP ratio of 100% as the point of no return. It is a slippery slope that is certain to push higher at an accelerated rate in the coming years. Note that alternate calculations of the total debt including unfunded liabilities and off-balance sheet items, puts the number somewhere closer to $ 100 trillion or more than 5 times the official figure. This equates to a debt-to-GDP ratio of over 500%, not the 100% charted below. Takeaway: The total level of debt and the debt-to-GDP ratio have both increased substantially in the past two years. This is bullish for gold, as precious metals have a positive correlation to total debt levels. #2 – Inept Government and Partisan Bickering...

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Gold, Silver and the Debt Ceiling

Commodities / Gold and Silver 2013 To paraphrase William Shakespeare, “the debt ceiling drama is a tale told by idiots, full of sound and political fury, signifying nothing.” We now have a reprieve for three months – the 11th hour deal, complete with payoffs and the usual corruption, will keep the world safe for more ineptitude, deficit spending, administrative hypocrisy and the guarantee of a sequel. All is well! Celebration! Champagne! Cut to a prime-time commercial promoting big government and Obamacare… And back in the real world where people work and support their families, life goes on, few noticed the lack of government “services,” and in three months we will be blessed with another episode of our “Congressional Reality Show.” Gold, Silver, and National Debt Examine the following graph. It is a graph of smoothed* annual gold and silver prices and the official U.S. national debt since 1971 when the dollar lost all gold backing and was “temporarily” allowed to float against all other unbacked debt based currencies. All values start at 1.0 in 1971. The legend does not show which line represents gold, silver, or the national debt. Why? Because it hardly matters! Government spends too much money to perform a few essential services and to buy votes, wars, and welfare, and thereby increases its debt almost every year, while gold and silver prices, on average, match the increases in accumulated national debt. Our 435 representatives, 100 senators, and the administration listened to their corporate backers and chose to increase the debt ceiling, continue spending as usual, not “rock the boat,” and carry on with the serious business of politics and payoffs for another three months. It is safe to say that, on average, gold and silver will continue rising, along with the national debt, as they all have for the past 42 years. Further, like the national debt, both gold and silver (and probably most consumer prices) will increase substantially from here, until some traumatic “reset” occurs. What sort of reset? A “black swan” event that is unpredictable, by definition. Middle East war escalation. Derivative melt-down. A dollar collapse when foreigners say “enough” to the dollar debasement policies pursued by the Fed and the US government. A collapse of the Euro or Yen for any number of reasons. A banker admits that most of the official gold supposedly held in New York, London, and Fort Knox is gone and has been sold to China, India, and Russia. You name the false flag operation. My guess: Gold and silver prices will rise gradually for a while, and then quite rapidly after one of the above “financial icebergs” smashes...

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China and gold

Xinhua, China’s official press agency on Sunday ran an op-ed article which kicked off as follows: “As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.” China does have a broad strategy to prepare for this event. She is encouraging the creation of an international market in her own currency through the twin centres of Hong Kong and London, side-lining New York, and she is actively promoting through the Shanghai Cooperation Organisation (SCO) non-dollar trade settlement across the whole of Asia. She has also been covertly building her gold reserves while overtly encouraging her citizens to accumulate gold as well. There can be little doubt from these actions that China is preparing herself for the demise of the dollar, at least as the world’s reserve currency. Central to insuring herself and her citizens against this outcome is gold. China has invested heavily in domestic mine production and is now the largest producer at an estimated 440 tonnes annually, and she is also looking to buy up gold mines elsewhere. Little or none of the domestically mined gold is seen in the market, so it is a reasonable assumption the Government is quietly accumulating all her own production without it becoming publicly available. Recorded demand for gold from China’s private sector has escalated to the point where their demand now accounts for significantly more than the rest of the world’s mine production. The Shanghai Gold Exchange is the mainland monopoly for physical delivery, and Hong Kong acts as a separate interacting hub. Between them in the first eight months of 2013 they have delivered 1,730 tonnes into private hands, or an annualised rate of 2,600 tonnes. The world ex-China mines an estimated 2,260 tonnes, leaving a supply deficit for not only the rest of gold-hungry South-east Asia and India, but the rest of the world as well. It is this fact that gives meat to the suspicion that Western central bank monetary gold is being supplied keep the price down, because ETF sales and diminishing supplies of non-Asian scrap have been wholly insufficient to satisfy this surge in demand. So why is the Chinese Government so keen on gold? The answer most likely involves geo-politics. And here it is worth noting that through the SCO, China and Russia with the support of most of the countries in between them are building an economic bloc with a common...

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An Easy Way to Solve the Biggest Problem Facing Investors Today

“All income-generating assets are below their average yield… and most are near all-time lows.” That’s what master researcher James O’Shaughnessy told the Big Picture Conference earlier this month. He went on to say that he believes the biggest problem facing investors today is income. You see, James’ research shows that now is the toughest time in 140 years for investors trying to generate income. But he also revealed a simple solution you can easily put to work today… Jeff showed people what to do with their money during crisis conditions and how to profit in 2014. He also put together a special offer where you can get one of his research services for free.   James has made a career of looking back at history to find insights into what’s happening today. In his fantastic book, What Works on Wall Street, he ran the numbers on nearly every investment idea you could dream up. (I keep a copy on my desk at all times.) And he’s built a successful money-management business that invests around $ 5 billion using strategies based on his research. Today, James’ research shows that most income investments, especially bonds, aren’t paying the kinds of yields investors need to survive. Bonds have been in a multi-decade bull market. As prices go up, yields come down. Thirty-year U.S. Treasurys only pay 3.65% as I write. And James believes they’ll be a losing proposition over time… “Long-term bonds have done very well for a very long time,” he says. “No one remembers that long bonds lost 68% after inflation from 1941-1981… but it can happen again.” You read that right… After inflation, “safe” long-term bonds lost 68% of their value from 1941-1981. Today, with high prices and low yields, we could be in store for another multi-decade bear market. James believes the best thing you can do to generate income is to avoid bonds and buy international stocks that pay dividends. Even during the greatest period in history for long-term bonds (1981-2011)… you’d have beaten them by simply owning global dividend-payers. Right now, he believes global dividend-payers are the easiest and safest way to generate income. And I’ve found an easy way to make the investment. This fund holds 100 of the best global dividend-payers. And it only holds companies that have consistently paid big dividends. Based on history, this is a winning strategy. The index IDV tracks has crushed the stock and bond markets since its creation in 1998. Over the last 15 years, this basket of global dividend-payers more than doubled the return on 30-year Treasurys. And it more than tripled the return of U.S. stocks. Importantly, this fund...

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Simon Black – Is this the best safe haven for you and your family?

[Editor’s note: Darren Kaiser, author of Sovereign Man’s Chile Property Investment Black Paper, is filling in for Simon today from Santiago, Chile.] Chile has been a pretty nice place to be over the last few years, not just to live but also as an investment destination. Anyone involved in startup businesses or real estate just about anywhere in the country over the last 3, 5, 10, even 20 years, has done quite well. But as the country becomes an increasingly popular with expats, it’s worth asking the question– is Chile’s growth and success sustainable? Or even more importantly, what happens to Chile in the event of a global economic turndown? Or a big drop in copper prices? Remember, Chile’s economy is largely resource dependent and copper is its primary export. So if there were a great economic unraveling in China (as well as in other parts of the world), it’s true that copper exports would decrease. And this would adversely affect Chile. But, unlike most other countries around the world, Chile has actually been preparing for a global economic turndown. Many years ago, the Chilean government started the Copper Stabilization Fund (now the Economic and Social Stabilization Fund) which sets aside a portion of government revenue every year when there’s a surplus and holds it as a reserve in case of a future slowdown. What a concept—saving for a rainy day. Today this fund is currently valued at $ 21.7 billion USD, about 8% of the country’s GDP. And in the case of future calamity, this cash reserve will go a long way to keep things afloat in Chile while other countries might be experiencing desperate conditions. It’s also important to point out that a large-scale global crisis would spur investors and professionals to seek international safe havens. This is where Chile shines. If major calamity strikes, Chinese, Americans, Europeans, etc. would be more motivated than ever to move their capital to a stable place where— foreigners are given the same property rights as locals property rights and the rule of law are actually well respected; and there is a surplus of fresh food and water All of this can be found here in Chile. And even with the global economy limping along as it has been, this is already starting to happen. Just a couple of weeks ago, Chile’s government announced the largest amount of Chinese investment capital ever in the country, roughly $ 1.2 billion. That’s a prodigious sum of money here, and a big indication of things to come. Every place has its issues, and Chile is far from perfect. But it definitely has a brighter...

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2014 – Helicopter Money is Coming! Jim Rickards, Currency War Update

PARTIAL TRANSCRIPT: Greetings and thank you for joining us at I’m here at the Casey Summit with Jim Rickards. He’s the author of Currency Wars. He has a new book coming out as well. What is it called? James Rickards: It’s called The Death of Money: The Coming Collapse of the International Monetary System. It’ll be out in April; April 8th is the publication date. I finished writing it about a month ago and we’re in editing. It’s a funny thing, Dan. We live in a world of what I call instant digital gratification, whether it’s YouTube or Twitter, everybody wants to put everything out there immediately, but a book is still an old-fashioned process. It takes a year to write it and edit it and bind it, so it’ll be out in April and I’ll be talking more about it between now and then. It should be very interesting because I’m sure some of your analysis will have either been proven right or proven wrong in the book, am I right? James Rickards: Well, that’s right, I mean it is forward-looking, so I say a lot of things in the book that I will be looking over in the years ahead, but sure. It’s something coming out in six months, it’ll be a good test to see how things play out. We’ll see if they play out as expected. That’s exactly right. I’ve always wondered in the dollar crisis scenario if right on the cusp of the market just melting down and going crazy that Obama and whatever Fed chairman of that time, say, next to him and they’re instituting a gold standard. Do you think it’s possible that they, right before a major crisis is about to happen, they come in and switch the currency? James Rickards: I don’t think so. I think there are several scenarios: one is that we get to a gold standard by design. In other words, people look at the system and they say that it really is not sustainable, it really is based on confidence, but we’re in the process of eroding confidence. There is no exit from quantitative easing. We should say there’s no good exit. You can back away from it, but then you’ll implode the economy in a deflationary crash. Or you can keep going and eventually cause a loss of confidence in the dollar and then have a hyper-inflationary crash, so you got a crash either way. One looks like the Great Depression, one looks like the late ’70s but worse. Those are the only two paths, but there’s no other path. There’s...

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That US debt ceiling and the Fed

Most likely, QE will have to be switched from financing the government to buying Treasuries already owned by the private sector. Any attempt to reduce the monthly addition of raw money will simply result in bond yields and then interest rates rising. And indeed, already this week we have seen yields on short-term T-bills rise in anticipation of a possible default. The market is naturally beginning to discount the possibility that the Fed may not be able to control the situation. The T-bill issue is very serious, because they are the most liquid collateral for the $ 70 trillion shadow banking system. And without the liquidity they provide securities and derivative markets, we can say that Round Two of the banking crisis could make Lehman look like a picnic in the park. This is the sort of event deflationists have long been expecting. According to their analysis there comes a point where debt liquidation is triggered and there is a dash for cash as assets collapse. But they reckon without allowing for the fact that deposits can only be encashed at the margin; otherwise they are merely transferred, and only destroyed when banks go under. This is the risk the Fed anticipates, and we can be certain it will move heaven and earth to avoid bank insolvencies. Furthermore the deflationists do not have a satisfactory argument for the effect on currency exchange rates. Iceland went through a similar deflationary event to that risked in the US today when its banking system collapsed and the currency halved overnight. Today a dollar collapse on the back of a banking crisis would also disrupt all other fiat currencies, forcing central banks to coordinate intervention to conceal the currency effect. This leaves gold as the only true reflector of loss of confidence in the dollar and therefore all other fiat currencies. Those worrying about deflation ignore the fact that it is the fiat currency that takes it on the chin while gold rises – every time without exception. This was even the experience of the 1930s, when Roosevelt suspended convertibility, increased the price of gold by 40% to $ 35 per ounce, and the banking crisis was contained. Of course there is likely to be some short-term uncertainty; but against the Fiat Money Quantity (FMQ) gold is down 30% compared with the price pre-Lehman crisis. This is shown in the chart below.   With gold at an extreme low in valuation terms, current events, whichever way they go, seem unlikely to drive it much lower. A wise man perhaps should copy the Asians, who know a thing or two about paper currencies, and...

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Dollar Sinks, Treasurys Rise

Updated Oct. 17, 2013 9:36 a.m. ET The dollar sank, U.S. Treasury prices rallied and gold shot higher after lawmakers reached a last-minute deal to avoid a U.S. debt default, as investors anticipated that lingering uncertainty in Washington would push back the Federal Reserve’s plans to wind down stimulus efforts. The 11th-hour deal struck late Wednesday in Congress will reopen the government through Jan. 15 and extend the debt ceiling through Feb. 7, allaying fears of an imminent U.S. default. But investor relief turned to concern about the 16-day fight’s toll on the world’s largest economy. Many analysts have pushed back their expectations for a reduction in Fed bond buying—once viewed as certain to begin in September—until the first quarter of 2014. In addition, investors remain wary that U.S. lawmakers will go through a similar political standoff in early 2014, further muddying the growth outlook. Confidence in continued Fed stimulus for the near term drove down the dollar and pushed up Treasury prices. The greenback hit an eight-month low against the euro, recently trading 0.8% lower at $ 1.3646. Against the Japanese yen, the dollar slid 0.9% to buy ¥97.91. The benchmark 10-year Treasury note was 12/32 higher, yielding 2.625%, according to Tradeweb. Very short-term Treasury debt, or T-bills, rallied as the risk of a near-term default was averted. The benchmark one-month T-bill yielded 0.02%, close to levels seen before the fiscal crisis heated up. The T-bill due Oct. 24 yielded 0.03%, from a multiyear peak of 0.722% Wednesday. Gold for December delivery, the most active contract, was recently up $ 34.80, or 2.7%, at $ 1,317.20 a troy ounce on the Comex division of the New York Mercantile Exchange. “It’s very hard to see how the Fed can taper in the face of a government that might shut down every three months,” said David Scott, a portfolio manager at Stone Harbor Investment Partners, which manages $ 63.1 billion of assets. The Federal Open Market Committee holds its next policy meeting later this month on Oct. 29-30. In early U.S. trade, the Dow Jones Industrial Average dropped 0.6% to 15275. On Wednesday, the Dow rallied 1.4% after Senate leaders reached a deal to raise the debt ceiling and reopen the government. The House voted Thursday evening to pass the bill, which will reopen the government through Jan. 15 and extend the debt ceiling through Feb. 7. The S&P 500 index shed 0.2% to 1718, and the Nasdaq Composite Index lost 0.2% to 3832. The Stoxx Europe 600 was down 0.3%, Germany’s DAX 30 index fell 0.8% and London’s FTSE 100 index dropped 0.3%. —Tomi Kilgore, Min Zeng, Tatyana Shumsky...

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Valuing gold

The original article shows just how unsound currency has become since the banking crisis, with FMQ appearing to be hyper-inflating from that time. This article explores the implications for the price of gold. Firstly lets look at Chart 1, the chart of FMQ.   It differs slightly from the chart in my original article, in that I have recalculated the exponential growth curve at 5.859%, which was the average annual growth rate for FMQ between 1960 and 2008 before the banking crisis. This throws up a larger gap of $ 4.5 trillion between that long-term trend and FMQ today. Therefore, FMQ is now 62% over trend. This is a massive and potentially currency-destructive development going unrecognised. But since July 2008, the month before Lehman Brothers collapsed, gold has risen from $ 918 to about $ 1270 today, which is a 38% increase. Does this illustrate that gold is broadly discounting monetary developments? The answer is no, because the question ignores the accumulating quantity of above-ground gold and more importantly the expansion of FMQ. And while both have increased over the last five years, FMQ has expanded much more rapidly than the stock of gold. The net effect is illustrated in Chart 2, where gold at $ 918 has been indexed to a base of 100 as at July 2008.   This chart shows that at Friday’s nominal price at $ 1270, gold adjusted for increased gold stocks and FMQ has actually fallen to 68, 32% down from its pre-Lehman crisis level. Of course, any value we place on gold is entirely subjective; but in coming to that view we naturally assume that the quantities involved do not change. The more sensible thing to do in forming a judgement is to take changing quantities into account, particularly when the expansion of the currency is unprecedented and appears to be out of control. Before Lehman collapsed, there was a general lack of awareness of the risk that the whole financial system was in danger. In this context, a gold price of less than $ 918 was perhaps justifiable. After the event, while the Fed struggled to stabilise the banking system, the gold price initially fell to $ 656, or to 71 on our index, reflecting fears of a deflationary collapse. As the Fed showed signs of succeeding with monetary expansion, gold began to rise and in January 2009 regained the pre-Lehman crisis level in nominal terms for the first time. It wasn’t until September 2010 that gold recovered to pre-Lehman levels in real terms deflated by both FMQ and the increased stock of gold. The conclusion is simple: gold should logically...

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