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« The Federal Reserve was never envisioned to be the lender of last resort! | Main | Gold and the US Dollar »
Sunday
Nov092008

A New Era by Rob De Graff

A new era Just recently, the vice-president elect Joe Biden said some remarkable words about the threat that lies behead. Mr. Biden said;

“Mark my words. It will not be six months before the world tests Barack Obama like they did John Kennedy.

The world is looking
.” Was Biden right or what? Within 24 hours after the election of the new President-elect Barack Obama, Russia elected to stir things up.

Russian President Medvedev said: “Kremlin would station missiles in the tiny Russian enclave of Kaliningrad, which borders Poland, in response to U.S. plans for an anti-missile system in Eastern Europe.”

The Russian newspaper Vedomosti predicts that Putin could retake his position as Russia’s President somewhere in 2009. Setting Medvedev aside. That is just like getting back to the cold war again, this time without the uranium and colonial offensives. Only this time, the world has changed. Now we have the credit crisis, peak-oil crisis, global warming crisis…and Putin is using oil and commodities as strategic weaponry.

With all the (global) change on our planet and especially with oil at $65 a barrel and heading lower, (pushing Russia, Venezuela, Iran and others slowly into crisis-mode), the oil-autocracies of the world are becoming somewhat irritated. Most of these countries need a price of $ 70 – 90 dollars a barrel-oil to cover their domestic social budgets. Saudi Arabia could have some more slack to a more reasonable $50 dollars per barrel-oil. Don’t forget that Iran and the Saudi’s already reached their peak-oil discussions some time ago. With the latter having the largest reserves and thus the most swing capacity available. Oil prices will rise eventually (either OPEC manipulated or by demand), but will gold follow suit?

Probably not. We have seen the oil/gold ratio of 15.1 fall apart. Today it stands near 7.5. If we believe some of the experts out there, gold could be touching $500 this Christmas. In another article I sensed that the indicators are turning worse. First by global recession following the drop in overall demand. Second by aiming at possible monetary deflation situation in about 6 - 9 months from now. Keep your eyes at the overnight interest rate as an (rough) indicator. It will drop to zero within a year if the economy evolves into depression. Another indication would be rising unemployment numbers.

According to the new ‘doctor Doom’ also known as Dr. Nouriel Roubini, there is a new phenomenon occurring known as ‘stag deflation’. Roubini’s four forces of stag deflation are:

1. a slack in goods markets,
2. a “recoupling” of the rest of the world with the U.S. recession,
3. a slack in labor markets, and
4. a sharp fall in commodity prices.

These factors would, “reduce inflationary forces and lead to deflationary forces in the global economy,” he writes in an article in Forbes.

I found another economic expert known as John Williams from shadowstats.com who has a more elaborate explanation about the US government’s manipulation in CPI and the M3 numbers (see www.shadowstats.com). Below I attached an interesting video from CNN Money (February 2008). Williams points out how the M3 money supply keeps expanding instigated by the FED, accompanied with the asset deflation and (real) inflation that hits the markets with approx. 6 – 12 months of delay caused by the system. By the end of 2009 he expects the global downturn to evolve into monetary deflation in the form of a depression. http://money.cnn.com/video/#/video/news/2008/02/28/news.hunter.shadowstats.Feb28.cnnmoney

Several scenarios of the current situation could come out into a continuous downfall for the global economy in the coming months. When FED-created (bailout) money hits the ground in the real economy, inflation explodes instantly. But it’s possible that inflation will not make it into the real economy as monetary deflation sets in. How that transition works out is unknown. Basically it could boost gold shortly or possibly not at all. As you know, the markets are volatile and behave mainly on investor emotions.

My overall advice to you still is: remain out of commodities and miner stocks. Take a small portion of gold bullion into your portfolio for the long run. No more than maximum of 10 percent of your total investment money as some form of protection in this new era. History in the making.

Try to stay liquid,

Rob de Graaf

This article was very kindly sent to us by the author however the opinions expressed are his and not those of the team here. We do post articles by other people from time to time in an attempt to add some balance to the debate. We hope that you enjoyed reading it.

Got a comment – then let us have it!
If you are new to investment in the precious metals sector then you may wish to subscribe of our FREE newsletters regarding gold stocks, silver stocks and uranium stocks, please click on the links.


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Reader Comments (46)

The price of oil will soon go higher.

According to most independent scientific studies, global oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time demand will increase 9%.

No one can reverse this trend, nor can we conserve our way out of this catastrophe. Because the demand for oil is so high, it will always exceed production levels; thus oil depletion will continue steadily until all recoverable oil is extracted.

Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment.

We are facing the collapse of the highways that depend on diesel trucks for maintenance of bridges, cleaning culverts to avoid road washouts, snow plowing, roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, transformers, steel for pylons, and high tension cables, all from far away. With the highways out, there will be no food coming in from "outside," and without the power grid virtually nothing works, including home heating, pumping of gasoline and diesel, airports, communications, and automated systems.

This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: http://www.peakoilassociates.com/POAnalysis.html

I used to live in NH-USA, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207. http://survivingpeakoil.blogspot.com/

November 9, 2008 | Unregistered CommenterClifford J. Wirth, Ph.D.

Clifford, Ph.D.

With regard to the US, I must admit that the situation in regard to high oil prices is much severe than in Europe. But I do not agree totally with the 'doom talk' you presented us. There will always be the need for society to develop new ideas and solutions. In this particular case; a need for alternative energy technology.

The offer you put out to the goldrush community, is not sustaining. If everyone comes to 'your' sustainable area, there will be another housing boom, a environmental crisis, health risks, gold pilings with additional criminal activities, etc. etc. In other words; Not sustainable.

It would be better for the US government to do the following, that almost every mind agrees with; Invest heavily in Hydrogen (BMW leads in this car-technology with the Hydrogen 7 bi-fuel and recently mono-fuel 7-series ready for production), fuel cell technology, electric battery power for automotive purposes. This also involves 18 wheelers and mining equipment eventually.
For basic energy supply needs there will be advanced knowledge of Photo-voltaic (PV) solar panels, desert based windfarms, CSP grids, nuclear power (within limits) and possibly tide-water power generation.

I already noted BMW, but Germany in particular is really the leader in sustaining technologies worldwide, together with Japan. They are going to be the economies that benefit from advancements in this New Energy Era. And I would suggest, that to help the US back on its feet, the European and Asians should be willing to (partially) outsource the alternative technologies manufacturing work to the United States. That gives an stimulus for revival.
First, let Obama enter office...quickly.

regards

November 10, 2008 | Unregistered Commenterde Graaf

Hi

Great stuff fellows but in regards to staying away from miners, I'm not sure. I feel we have an opportunity to cherry pick the cream here. Not so much the producers but the exploration stocks. Exploreres cashed up with defined resources are trading less than there bank balances. The minute this market turns they will 50% up day. So to take an entry position, experience a possible 30% set back in a miner that will survive I believe is the move AKA 2001.

I'm cashed for december after the contract is finished with and tax selling is should be peaking, then I'm in. The cream should be at there lowest here

November 10, 2008 | Unregistered CommenterKevin Merry

I just can't believe that gold will sink that low. There is no currency in the world right now that is a safehaven for money. The $US has artifically jumped recently because investors fled all stocks and had no where else to put their money - once investors start moving their money back into stocks the $US will become an almost worthless currency given how much money it will be printing off to cover debts of assets it no longer has.

I think the housing market adjustment still has a way to go. Prices on houses in many cities are still beyond the average double income earning couple let alone most single people. And companies are going to be downsizing well into next year so even people who are not subprime contenders are going to find it harder and harder to meet mortgage repayments and house prices have a long way to come down before being affordable to newcomers to the market. Couple that with banks tightening lending - 25% deposits anyone?? Who can save $100k in a year - and you have few buyers on the market. So Obama will undoubtedly keep right on printing money....

And lets not forget, the Asian countries are still growing. I hardly deem China's growth shrinking from over 11% to 9% to be a disaster.... They have 900 million people they are trying to bring into the middle class bracket and over 300 million people already middle class and above. There is going to be a demand for commodities regardless of what goes on in the western world with their own internal 'market.' And both India and China have an historical love of gold....

I suspect at the end of the day, the rest of the world will recover quicker than the US - they just have to deal with the toxic US debt they have taken on board. Then whatever arises, will include the US - but countries will be a lot more cautious dealing with the US in the future and move more to making sure they never have this sort of exposure again to the US. And once the world realises it can function independent of the US, things will settle down albeit, probably at a reduced rate - growth forever is not sustainable!

November 10, 2008 | Unregistered CommenterGillies

Kevin,

I agree with you the temptation of grinding the créme de la créme. But first I'm gonna give you my view on general commodities after recent developments.

1. China deployed a stimulus package of $580 billion. Its will be a boost to the commodity sector in Australia. China plans to build roads, railways and social structures as part of that plan. This sounds promising for commodities, but its my believe that this will be short lived. Because manufacturing demand from the US will not improve a bit from that stimulus package, neither does it helps the commodity sector globally. It only makes China's growth figures promising again, as they see the storm growing bigger in 2009. After this news, Fortescue Metals Group informed the press of cutting production minimum of 10 percent as outlook worsened.

2. Overnight interest rates declining faster than before.
Following the FED and European Central Bank (ECB) cutting the short term rate 50 basis points (again) the Central Bank of England is lowering its rate instantly by 150 basis points. Thats 1.5 percent and sheer crisis mode. The ECB let shine trough that further rate declines are probable.

3. Gold mines in Zimbabwe are closing their mines after the Zimbabwe Central banks are reluctant to pay for deliveries. The sector is obliged to sell to the Zimbabwe central bank but the government is not able to meet payments with inflation at 270 million percent and rising day by day. Today Zimbabwe only produces a mere 265 kilo of gold per month. In 1999 it produced 2.2 tons a month, corresponding to about 1 percent of total world supply back then. No boost for gold from these closures, thats for sure.

Kevin, due to rising costs and lower demand and a continues downfall of the global ecenomies, its eminent that explorers are halted, juniors in need for capital and the medium to mature miners in survival mode.
Miners have to consolidate and cut costs to keep their mines open. I recently analysed HRG company due to its low pricing of 7-15 cents. But its no good. There in need for capital and the larger miners ain't buying with this sector outlook. Unless you have major cash at hand, most of them don't.

Lets wait what developments will happen next. It might just get lower somewhat more in my opinion when hedgefunds have another round of closures.

November 10, 2008 | Unregistered Commenterde Graaf

de graaf you mr turk? well never mind here goes...this site and you say to wait till later to buy these stocks ----BACK TO BUFFETT---- ON 10 - 18 -08 buffett said to buy WHOLE MARKET IS AT OR NEAR A LOW ! that was 10 - 18 -08 since then aem 52 week low was 10-24-08 $20.87 now its 34.83...again...to remind you...on 10-18-08 buffett said to buy...10-24-08 -after buffett said to buy--10-24-08 auy was 52 week low 3.31 now its 4.93 ! buffett said to buy 10-18-08 remember? gold-randgold- hit 52 week low 10-24-08 22.28 now its 32.37 ! buffett said to buy 10-18-08 ....kgc kinross hit 52 week low 10-24-08 6.85 now its 13.60 ! 10-28-08 SOON AFTER BUFFETT SAID TO BUY paas 52 week low 9.10 now its 13.10 ! 10-18-08 haha buffett said to buy..lol...soon after on 10-24-08 ssri hit 52 week lowof 5.35 ..now its 10.30 ! hahaha 10-18-08 buffett said to buy hhahahaha shortly afterwards 10-27-08 slw hit 52 week low of 2.56 now its 3.70 ! mr james turk was wrong saying dines was to early recommending time to buy -in most cases HE WAS ONLY A WEEK OFF OF THE MARKET LOW ! man oh man i think ill just sit here and deny all this and ill make lots of money hahahahahahahhaha

November 10, 2008 | Unregistered Commenterwill

A NEW ERA BY MR GAAF ! HA LOL

November 10, 2008 | Unregistered Commenterwill

yes mr de graff you are full of gaaf ! SINCE WHEN DID THIS GUY GET HIS OWN comment BOARD ON THIS SITE??

November 10, 2008 | Unregistered Commenterwill

not dines i meant buffett !

November 10, 2008 | Unregistered Commenterwill

who is this rob de graff and since when has he started being a writer for gold prices.biz?........... seems like wil has a point here ..outpointed rob de graff many times over hah

November 10, 2008 | Unregistered Commenterjohnny

buffett said to buy 10-18-08 in my democrat and chronicle newspaper in the business section and i also saw it said by buffett in the wall st journal close or on that date....soooo...on 10-18-08 buffett said to buy SINCE THEN...SHORTLY AFTERWARDS ...ON 10-24-08 SSRI had 52 week low of 5.35 now its 10.30 ! also on 10-24-08 aem had 52 week low of 20.87 now its 34.49 ! lol on 10-24-08 auy had 52 week low of 3.31 now its 4.93 ! 10-24-08 gold { randgold }had 52 week low of 22.28 now its 32.37 ...10-27-08 shortly after buffett said to buy -9 days after buffett said to buy because market as a whole is near its bottom-10-27-08- slw had its 52 week low of 2.56 now its 3.70 lol ...10-24-08 kgc had 52 week low of 6.85 now its 13.60 ! NOW WHO YOU GONNA BELIEVE DE GRAFF OR BUFFETT? THERES A REASON WHY THEY CALL HIM THE ORACLE ! HUH MR.JAMES TURK ?

November 10, 2008 | Unregistered Commenterwil

these stocks are moving ! LOOK AT THE PRICES OF THESE STOCKS COVERED ON THIS SITE SINCE BUFFETT CALLED THE MARKET LOW 10-18-08... MANY OF THEM HAVE GONE UP SUBSTANTIALLY SINCE THEN !

November 10, 2008 | Unregistered Commenterwil

my friend in 6 or 9 months after the banks lend money out we will have inflation not deflation and gold will 1000 not 500.

November 10, 2008 | Unregistered CommenterAnon

Hello Bob,

I was just reading the article you posted by Mr. De Graff. I believe he is giving you some bad information on John
Williams. I subscribe to Mr. Williams work and, unless he has changed his tune over the weekend, he is predicting
an Inflationary depression, NOT a deflationary one as Mr. De Graff expressed. I think when Mr. Williams talks about
a depression people often assume that means deflation.

November 10, 2008 | Unregistered CommenterAnon

Will, We do invite various people from time to time to give their views whether or not they agree with us, that way we hope to add some semblance of balance to the debate.

November 10, 2008 | Unregistered CommenterGold Prices

Indeed I have to correct what Mr. Williams did not say. Mr Williams did not take the word depression in his mouth. That was my own addition as opinion maker. I will correct that instantly in correspondence with Bob.

As to reply to Mr. Will;
There is no need to think that I disrespect Mr. Buffet. To the contrary, I highly respect his work and visions as a value investor.
My contribution and comments are my own opinion and based on months of intensive reading and personal analysis of the current economic situation. I happen to have another vision about the sheer size of the crisis. The time to enter is in my view somewhat early. I think there will be even lower entry points for commodities.

brgds.

November 10, 2008 | Unregistered Commenterde Graaf

given the GREAT percentage rise of the stocks covered on this site since mr buffett called the near bottom of the market,i show you that your assumption of too early is off ..somewhat early you say? sounds like what james turk said on kitco...ARE you mr turk de graaf?

November 10, 2008 | Unregistered Commenterwil

What I meant to say was: He did not take the words; deflationary depression, in his mouth. Indeed he said; Inflationary depression.

Hope this clears the issue.

November 10, 2008 | Unregistered Commenterde Graaf

MONTHS COMPARED TO YEARS OF STUDY AND ANALYSIS ....PERHAPS WE SHOULD INVITE BUFFETT TO THIS BOARD SO MR DE GRAAF COULD TEACH HIM A THING OR TWO.......LOL

November 10, 2008 | Unregistered Commenterwil

Don't forget to invite Mr. James Turk.

I would love to debate with Mr. Buffet on this one. We could all learn more with him around.

November 10, 2008 | Unregistered Commenterde Graaf

HA humble reply by someone that has been outsmarted by the oracle and shown with PROOF SHOWN ABOVE that no, it was not too early to get in these stocks when buffett called near the bottom of the market ! lol good day mr de graaf

November 10, 2008 | Unregistered Commenterwil

I am amazed to see Fortescue (FSUMF) and HL near $1 and TC at $3. de Graaf, you were correct and Fortescue is well below the record low it as trading at just days ago. Unless we return to the stone age we will need base metals. These are just 3 examples with very low costs in politically stable locations. If demand and price go down that is just more support for the low cost and low debt producer.

November 12, 2008 | Unregistered CommenterBC

Lowest point of Fortesque Metals Group in 18 months. Could be a nice buying opportunity...

November 12, 2008 | Unregistered Commenterde Graaf

My thought also. Bought back in late in the day (US).

I am also looking at (HL, TC, HBMFF, ZINC, CHK, DVN & YARIY).

November 12, 2008 | Unregistered CommenterBC

BC, hope you caught the 25% rise in HL today!

November 13, 2008 | Unregistered CommenterGold Prices

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