I’ve pointed out in the past that gold is a long-term investment. Over a century, you’ll have about as much at the end as you started with, on average. But in the short run, you could see some pretty strong volatility — like the $400 dollar swings we’ve seen for gold in the last half year.

Let’s talk about what’s happening to gold and silver prices, what the future likely holds, and specifically what to do about volatile prices.

What’s Making Gold and Silver Fall?

There are two main factors causing gold and silver to fall, both connected with fears of a global economic slowdown or a global economic recession.

Why would gold and silver fall during a time of fears of global recession or slowdowns? Because in the short-run, cash is king. That’s why gold even fell during part of 2008  – the markets were crashing, and the only thing people knew was that the dollar was going up in value, so people flooded to the dollar.

People don’t flood to gold during short-term scares — the reason is that during a “scare” stuff generally becomes very, very cheap — and you want to be in a position to buy it. This is very different than a hyperinflationary event where the currencies die — in that event, the money people will be rushing to will be God’s currency — gold and silver.

Europe and Asia: Teetering on the Edge?

Greece is openly discussing leaving the European Union and creating it’s own currency. The UK just officially went into a new recession Spain is completely batter and barely is keeping its head above water. France just elected an openly socialist leader.

Europe is going through economic hell right now.

In Asia, we see economic slowing as well. China’s growth has been feverish for decades, averaging well over 10% GDP growth per year as they free up their economy and see huge economic booms in their main cities. Unfortunately, there was a bubble and lots of inflation, so the government began to attempt to “slow” the economy down.

They’ve done a good job at slowing it down, and now there are fears it’ll be slowing down too much — to the point of a recession. There’s also a lot of fear, as reported by the Financial Times, that China has just been plain fabricating data to make us feel better about their economy. That’s just scary.

What Should Investors Do?

What investors should do depends a lot on what they think is going to happen next. Here are some thoughts for different types of investors:

Gold and Silver. Every dip is when I buy. I’m buying both gold and silver through SilverSaver.com. Just like last month. And the month before that. If you don’t have an account with them yet, this is the time to set one up right now. I’m proudly affiliated with them because it’s where I buy my gold and silver and it’s automatic and simple. Regular people can amass a pile of silver over a couple of years without spending a huge amount of money up front or putting it off. Learn more here.

Passive Investing. This is what I do with my main portfolio. I describe it here. I’m just putting more money into my portfolio every month, no matter what. It’s the world’s most boring, most profitable strategy. And it works.

Dividend Investing. I like dividend stocks. Ford’s stock price is down, for example — and I’m looking for more opportunities to buy. Ford, Coke, Wal-Mart, Philip Morris International — plenty of great dividend stocks that are on sale and will continue to be on sale.

What not to do right now: risky bets. All bets are crapshoots right now. During times of recessions and volatility, it’s always about the fundamentals — moreso than even during times of prosperity. People who stick with the fundamentals — dividend stocks, debt freedom, gold and silver — we’re the ones who have made an absolute killing over the last 15 years while everyone else has been obliterated repeatedly.

It’s not sexy. It’s kind of boring. And it’s really, really profitable.

What’s Happening to Gold and Silver Prices? is a post from Live Gold Prices.

Related posts:

1. Gold is Down, Silver is Down, Stocks are Down… What’s Happening?
2. Markets panicking, gold skyrocketing, silver exploding
3. Gold vs. Silver: What Are the Differences?
4. The Stock Market Drop Proves Everything We’ve Discussed
5. The Recovery is a Lie

1. Steady Value

Gold is one of the few things that have a history of maintaining its value, unlike coins and paper currency. If you want to ensure that you are always wealthy or if you want to pass on your wealth so someone else, then you should do so by owning gold.

2. Devalue of U.S. Dollar

Whenever the U.S. dollar’s value falls and becomes less than other currencies, people begin to doubt the security of paper currency. Instead they begin to start purchasing gold, causing gold raise in value. For example, during the fall of the U.S. dollar between 1998 and 2008, the value of gold nearly tripled.

3. Inflation

If you want to avoid the problems that come with inflation, then you should invest in gold. Whenever inflation occurs, gold tends to increase in value.

4. Deflation

During a time of deflation like in a recession or depression, chances are, the government will be going into overdrive “fixing” the problem. Gold might drop in the short run, but it’ll pop when the government policies go into play.

5. Increased Demand

As the world’s population increases and as investors begin to purchase more gold, the demand for gold increases, which also causes the price of gold to increase.

6. Diverse Profile

If you’re an investor, you definitely want a diverse profile that includes gold. When things are going bad for other assets, you will still have gold to depend on.

7. Less Supply

Despite the increased demand, there is still a small supply of gold. Due to the less supply, the price of gold is high.

8. US Stock and Bond Markets

Stocks and bonds provide an income and are wonderful — until they go belly up. Gold doesn’t go belly up. That’s long-term security.

9. National Debt

The national debt is just going to get worse as a percentage of GDP. Especially with Obama in the White House. He seems hell-bent on destroying the US economy over the long haul. His policies have nothing to do with “fixing” the economy — he just spends inefficiently and pushes us further into unsustainable debt. Someday we’ll need to pay that debt — and taxes won’t be able to cover it all. We’ll have to print our way out.

10. More Options

Unlike when it comes to investing in paper money, you have lots of options when it comes to investing in gold. You can invest in gold coins, gold stocks, or gold bullion.

10 Reasons to Always Own Some Gold is a post from Live Gold Prices.

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1. A List of Ways to Invest in Gold
2. Frequently Asked Questions About Gold
3. What Gold Mining Companies Don’t Want You to Know
4. FDIC-Backed Precious Metals CD
5. Should You Try to Get Rich Quick With Gold?

Earlier today (May 4th), the government reported that employment increased about 100k, not enough to make up for 1% population growth. They were expecting about 50% more jobs created, so the news hit a sour note. Right now there are more unemployed people than there were last month, but the unemployment rate is down because of people retiring and people giving up looking for a job.

So the unemployment rate is going down… but a smaller percentage of the market is working than ever before while our national debt is still happily exploding. Why is the unemployment rate going down? Because they only count people actually actively looking for a job, and not people who take an early retirement, stop working altogether, get a part-time job that doesn’t even pay all of the bills, or go on Social Security.

In other words, the unemployment rate is a joke — and that’s why it’s dipped slightly this month. I’ve written about this before in The Recovery is a Lie.

What the Fed Will Do

For the short-run, interest rates will likely stay flat for a while, as I’ve reported in the past. The real question is when interest rates will increase, because that will likely either trigger a major economic slowdown and possibly a crash for gold at least for the short-run.

Right now, the US economy is essentially stuck in a kind of double bind. If interest rates stay low, loans are being created, inflation is being created, and the loans are unnatural and likely to cause malinvestment. But if interest rates are increased, it’ll likely kick off an economic slowdown.

Gold hasn’t yet reached its 2011 highs in over half of a year, and there’s a good chance that gold will slide unless some sort of discussion about QE3 begins to pick up a lot of steam.

If QE3 does pick up steam, and the Fed hints at another round, this could begin to kick off a whole new round of gold price records. If, however, the bubble begins to pick up steam before hand, and “unemployment goes down” according to government data, the institutional investors and people who believe the media will likely begin buying stocks and selling gold again, meaning prices for gold could get pushed back into the dirt.

Is a Recession Imminent?

I’m honestly not sure. Jim Rogers, a strong free-market believer, has explained that he think the Fed is going to do everything it can to create bubble after bubble in 2012. If the government fails, we’re likely to see a brand-new recession.

This is scary, because the government has essentially run out of bullets. Our debt is absolutely exploding and it’s not bloody working. It doesn’t work.

I ranted about this a few days ago, and it’s still true. The money-printing has mostly failed. We likely only have a few more bubbles, at most, before the bond markets begin to rebel, forcing our government to either just default on the debt via inflation, or default some other way.

Either way, the long-term outlook on gold is good. I’m buying more literally every month, mostly through SilverSaver. I have no intention of changing my strategy, regardless of what happens to gold prices. I’m in this for the long haul. Soon, I’ll be writing about the national debt and why that makes the long-term outlook for hard assets wonderful.

What Today’s Unemployment News Means is a post from Live Gold Prices.

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2. Silver Tanks, Gold Drops: What This Means
3. The Recovery is a Lie
4. More Evidence the Government is Lying About the Economy
5. Keynes is Dead:
   Long Live the Austrian School.

The government has been absolutely and unavoidably failing over the last four years. It’s been almost half of a decade since the financial crisis became obvious to everyone on mainstreet, and our government has failed to fix it — even though they claimed they would.

Instead of fixing the fundamental flaws that triggered the crisis, they’ve focused on raising debt and printing money, with a healthy dose of encouraging people to randomly hate the rich. It hasn’t worked.

Right now, Obama is trying to pitch everything as though he’s somehow successfully known exactly what it would take, that the unemployment is slowly decreasing (it’s not) according to plan.

But it’s not remotely true — he was cocky when he first got into the White House. He had never done anything connected with a business in his life, and as a small business owner, let me tell you that means he shouldn’t have had access to the White House garage, much less the Oval Office.

In 2009, brand-new president Barack Obama arrogantly explained:

“If I don’t have this done in three years, then there’s going to be a one-term proposition.”

Hopefully, future generations will remember those words as the famous slogan of a one-term proposition.

What This Means for Us

This tone and these claims mean that they were convinced their economic theories were correct. They were convinced that they could manipulate the money supply, print the cash and give it to their smarter-than-normal-people friends, and fix the economy.

They believed, incredibly enough, that the problem with Bush was that he supported too much of a free market. They believed that they could plan the economy in a way that could do what trillions of people couldn’t do individually. The arrogance was astounding.

Here are unavoidable facts:

• No Growth. The GDP essentially stopped growing in March, after accounting for inflation. If accounting for real inflation, you can see the problem — our real economy is drastically shrinking, and is beating eaten alive by the parasitic government economy.

• No Jobs. Fewer people are working now than a year ago. They’ve cooked the data to make this hard to see. But it’s in there — just go to the BLS.gov website and look at their labor market participation rate. It’s incredible.

• No Options. We’re running out of options. The Fed has interest rates at 0%, and loans are still incredibly difficult to acquire. Money is everywhere, but not being spent, because printing money via the Fed doesn’t spur on real spending. It’s a broken system — it’s a liquidity trap.

Bernanke has even run out of ways to “inflate” the economy in the “right” way. His money is sitting in vaults or pouring into commodities — little of it is moving through the economy, but a lot of it is pulling money away from the middle class toward the politically connected.

If it wasn’t for food stamps, people would literally be starving in the streets by now, and violent riots would have already taken hold of the United States. In good time, I suppose.

The charts that show an increase in jobs are lies — especially when we remember that a debt-based, government job doesn’t count economically anymore than reinstating the draft would be considered an economic miracle. It just messes with reported employment — not actual employment.

What Must We Do?

After almost half of a decade of Keynesian promises of economic prosperity we see:

a) There’s almost no GDP growth.
b) Fewer people are working than last year.
c) “Early” retirements are occurring.
d) Food stamps are exploding.
e) Debt is skyrocketing.
f) Debt-to-GDP is almost beyond reform.

The policies of Bush and Obama have failed us. They have not worked. They have focused on printing money and issuing bonds. They have focused not on universal tax cuts, but on deficits being created by dumping money on their friends.

They have failed, they have failed, they have failed. This is not purely an intellectual topic for people who enjoy debate and discussion. This is about millions of people.

Keynes is dead, and so are his theories. If we are to have prosperity, it will not be with the government, but in spite of it. It will not be with paper currency, or the broken-window fallacy. If we’re to have a recovery that is sustainable, it must be based on sound economics, sound money, and stable, extremely low taxation.

Bring back gold, end the Fed, cut taxes, cut regulations, and let the people get back to living their lives without politicians and thieves robbing them blind.

Here’s to the Austrian school.

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Keynes is Dead:
Long Live the Austrian School. is a post from Live Gold Prices.

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Activity was characterized by bargain purchases and covering short positions. Precious metals were also supported by firmed prices for crude oil and a declining index for the U.S. dollar.

The World Gold Council estimates that central banks increased their golden holdings by 439.7 tons during 2011. This is the most in nearly five decades and the same level of purchasing may occur this year. Data from the International Monetary Fund (IMF) revealed that in March, central banks in Turkey, Russia, and Mexico enhanced their reserves with approximately 44.8 metric tons of the precious metal, an increase worth $2.39 billion. Mexico purchased 16.8 tons, Russia bought 16.5 tons, and Turkey added 11.5 tons. The IMF also reported recent reserve increases by central banks in Belarus, Tajikistan, Ukraine, and Kazakstan.

The Commodity Futures Trading Commission (CFTC) revealed a 2.5 percent increase in net long positions by fund managers during the week ending April 17. According to data from the CFTC, wagers on price increases rose to 112,275 options and futures, after experiencing a three-year low during the previous week. The net long position is now 56 percent below the August 2011 peak, allowing room for new long positions, reported UBS AG analyst Edel Tully. However, not all is positive, as the UK recently tumbled into a double-dip recession, its first since the 1970s. According to IMF predictions, the euro region is expected to contract in the foreseeable future.

The U.S. has had its own economic worries. So far, the country has been through two rounds of quantitative easing, which ended in June 2011. The Federal Reserve purchased a total of $2.3 trillion in debt, leading gold prices to increase approximately 70 percent. On Wednesday, Federal Reserve Chairman Ben S. Bernanke stated that if needed, he is ready to take additional measures to stimulate the economy. GoldCore Ltd. brokerage Executive Director Mark O’Byrne commented that the very loose monetary policies during recent years show no indication of ending in the near future. His firm is advising clients to purchase the golden metal on the dip.

Over the near-term, bears have a slight advantage from a technical perspective because prices of the metal are still within a downtrend that has lasted for two months. If prices close at a weekly high today, bulls will have renewed upside technical movement over the near-term. Bloomberg recently surveyed 28 analysts and found that 14 of them believe that prices will rise next week, while nine remained neutral. This is the highest proportion taking those stances in two weeks.

So far this year, gold has increased 5.7 percent on the New York Comex. Currently, prices are 7.7 percent below their 2012 peak. Options traders are taking a bullish outlook. The most widely held contract on Comex gold futures features the right to purchase the metal at $2,200 by July. This is 33 percent higher than current prices. According to Bourse data, owners of the seven most popular options have the right to purchase at prices between $1,800 and $2,300.

Bloomberg data reveals that owned exchange-traded products backed by bullion currently represent 2,389.6 tons of the metal. This is only 0.9 percent shy of the March 13 record figure. In a report issued April 24, Goldman Sachs Group Inc. revealed its near-term neutral outlook for raw materials and the belief that in 12 months, gold will be trading at $1,940.

Check this out if you want to add to your holdings as well.

Central Banks Buy Gold; Push Gold Prices Higher is a post from Live Gold Prices.

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There’s a major shift under way, one the US mainstream media has left largely untouched even though it will send the United States into an economic maelstrom and dramatically reduce the country’s importance in the world: the demise of the US dollar as the world’s reserve currency.

For decades the US dollar has been absolutely dominant in international trade, especially in the oil markets. This role has created immense demand for US dollars, and that international demand constitutes a huge part of the dollar’s valuation. Not only did the global-currency role add massive value to the dollar, it also created an almost endless pool of demand for US Treasuries as countries around the world sought to maintain stores of petrodollars. The availability of all this credit, denominated in a dollar supported by nothing less than the entirety of global trade, enabled the American federal government to borrow without limit and spend with abandon.

The dominance of the dollar gave the United States incredible power and influence around the world… but the times they are a-changing. As the world’s emerging economies gain ever more prominence, the US is losing hold of its position as the world’s superpower. Many on the long list of nations that dislike America are pondering ways to reduce American influence in their affairs. Ditching the dollar is a very good start.

In fact, they are doing more than pondering. Over the past few years China and other emerging powers such as Russia have been quietly making agreements to move away from the US dollar in international trade. Several major oil-producing nations have begun selling oil in currencies other than the dollar, and both the United Nations and the International Monetary Fund (IMF) have issued reports arguing for the need to create a new global reserve currency independent of the dollar.

The supremacy of the dollar is not nearly as solid as most Americans believe it to be. More generally, the United States is not the global superpower it once was. These trends are very much connected, as demonstrated by the world’s response to US sanctions against Iran.

US allies, including much of Europe and parts of Asia, fell into line quickly, reducing imports of Iranian oil. But a good number of Iran’s clients do not feel the need to toe America’s party line, and Iran certainly doesn’t feel any need to take orders from the US. Some countries have objected to America’s sanctions on Iran vocally, adamantly refusing to be ordered around. Others are being more discreet, choosing instead to simply trade with Iran through avenues that get around the sanctions.

It’s ironic. The United States fashioned its Iranian sanctions assuming that oil trades occur in US dollars. That assumption – an echo of the more general assumption that the US dollar will continue to dominate international trade – has given countries unfriendly to the US a great reason to continue their moves away from the dollar: if they don’t trade in dollars, America’s dollar-centric policies carry no weight! It’s a classic backfire: sanctions intended in part to illustrate the US’s continued world supremacy are in fact encouraging countries disillusioned with that very notion to continue their moves away from the US currency, a slow but steady trend that will eat away at its economic power until there is little left.

Let’s delve into both situations – the demise of the dollar’s dominance and the Iranian sanction shortcuts – in more detail.

Signs the Dollar Is Going the Way of the Dodo

The biggest oil-trading partners in the world, China and Saudi Arabia, are still using the petrodollar in their transactions. How long this will persist is a very important question. China imported 1.4 million barrels of oil a day from Saudi Arabia in February, a 39% increase from a year earlier, and the two countries have teamed up to build a massive oil refinery in Saudi Arabia. As the nations continue to pursue increased bilateral trade, at some point they will decide that involving US dollars in every transaction is unnecessary and expensive, and they will ditch the dollar.

When that happens, the tide will have truly turned against the dollar, as it was an agreement between President Nixon and King Faisal of Saudi Arabia in 1973 that originally created the petrodollar system. Nixon asked Faisal to accept only US dollars as payment for oil and to invest any excess profits in US Treasury bonds, notes, and bills. In exchange, Nixon pledged to protect Saudi oilfields from the Soviet Union and other potential aggressors, such as Iran and Iraq.

That agreement created the foundation for an incredibly strong US dollar. All of the world’s oil money started to flow through the US Federal Reserve, creating ever-growing demand for both US dollars and US debt. Every oil-importing nation in the world started converting its surplus funds into US dollars to be able to buy oil. Oil-exporting countries started spending their cash on Treasury securities. And slowly but surely the petrodollar system spread beyond oil to encompass almost every facet of global trade.

The value of the US dollar is based on this role as the conduit for global trade. If that role vanishes, much of the value in the dollar will evaporate. Massive inflation, high interest rates, and substantial increases in the cost of food, clothing, and gasoline will make the 2008 recession look like nothing more than a bump in the road. This will be a crater. The government will be unable to finance its debts. The house of cards, built on the assumption that the world would rely on US dollars forever, will come tumbling down.

It is a scary proposition, but don’t bury your head in the sand because countries around the world are already starting to ditch the dollar.

Russia and China are leading the charge. More than a year ago, the two nations made good on talks to move away from the dollar and have been using rubles and renminbi to trade with each other since. A few months ago the second-largest economy on earth – China – and the third-largest economy on the planet – Japan – followed suit, striking a deal to promote the use of their own currencies when trading with each other. The deal will allow firms to convert Chinese and Japanese currencies into each other directly, instead of using US dollars as the intermediary as has been the requirement for years. China is now discussing a similar plan with South Korea.

Similarly, a new agreement among the BRICS nations (Brazil, Russia, India, China, and South Africa) promotes the use of their national currencies when trading, instead of using the US dollar. China is also pursuing bilateral trades with Malaysia using the renminbi and ringgit. And Russia and Iran have agreed to use rubles as a means of currency in their trades.

Then there’s the entire continent of Africa. In 2009 China became Africa’s largest trading partner, eclipsing the United States, and now China is working to expand the use of Chinese currency in Africa instead of US dollars. Standard Bank, Africa’s largest financial institution, predicts that $100 billion worth of trade between China and Africa will be settled in renminbi by 2015. That’s more than the total bilateral trade between China and Africa in 2010.

The idea of moving away from the dollar is also finding support from major international agencies. The United Nations Conference on Trade and Development has stated that “the current system of currencies and capital rules that binds the world economy is not working properly and was largely responsible for the financial and economic crises.” The statement continued, saying “the dollar should be replaced with a global currency.” The International Monetary Fund agrees, recently arguing that the dollar should cede its role as global reserve currency to an international currency, which is in effect a basket of national currencies.

There is also a host of countries that have started using their own currencies to complete oil trades, a move that strikes right at the heart of US-dollar dominance. China and the United Arab Emirates have agreed to ditch the dollar and use their own currencies in oil transactions. The Chinese National Bank says this agreement is worth roughly $5.5 billion annually. India is buying oil from Iran with gold and rupees. China and Iran are working on a barter system to exchange Iranian oil for Chinese imported products.

Speaking of Bartering for Oil… How about Those Iranian Sanctions?

The United States and the European Union based their Iran sanctions on the financial system behind Iran’s oil trade. The country uses its central bank to run its oil business – the bank settles trades through the Belgium company Swift (Society for Worldwide Interbank Financial Telecommunication) and the trades are always in US dollars. Once they take full effect in July, US and EU sanctions against Iran will make transactions with the Iranian central bank illegal. When that occurs, this official avenue of trade will shut down. In fact, Iran was shut out of Swift a few weeks ago, so that road is already blockaded.

But the arrogance in the sanctions is the assumption that Iran can only use this one, dollar-based avenue. In reality, the Islamic Republic is considerably more agile than that; removing its ability to trade in the official manner is only encouraging the country to find imaginative new methods to sell its oil.

Since the sanctions were announced, Tehran’s official oil sales have certainly declined. Iran actually preemptively halted oil shipments to Germany, Spain, Greece, Britain, and France, which together had bought some 18% of Iran’s oil. But covert sales have curbed or perhaps even reversed the reduction in shipments. It is impossible to know the details, as buyers and sellers involved in skirting the sanctions are being very discreet, but the transactions are undoubtedly happening.

As mentioned above, Iran is selling oil to India for gold and rupees. China and Iran are working on a barter system to exchange Iranian oil for Chinese imported products. China and South Korea are also quietly buying Iranian oil with their own currencies.

The evidence? Millions of barrels of Iranian oil that were in storage in Iranian tankers a few weeks ago now seem to have disappeared. Officially, no one knows where the oil went. Was it rerouted? Has production been shut in? Is the oil being stored elsewhere?

Oil is fungible, which means one barrel of crude is interchangeable with another. Once it leaves its home country, it can be nearly impossible to know where a barrel of oil originated, if its handlers so desire. And it’s not just barrels that are hard to track – even though oil is carried on ships so large they are dubbed “supertankers” it is surprisingly difficult to keep tabs on every tanker full of Iranian oil.

And the Iranians are using every trick in the book to move their oil undetected. In the last week it became apparent that Tehran has ordered the captains of its oil tankers to switch off the black-box transponders used in the shipping industry to monitor vessel movements and oil transactions. As such, most of Iran’s 39-strong fleet of tankers is “off radar.” According to Reuters, only seven of Iran’s Very Large Crude Carriers (VLCCs) are still operating their onboard transponders, while only two of the country’s nine smaller Suezmax tankers are trackable.

Under international law ships are required to have a satellite tracking device on board when travelling at sea, but a ship’s master has the discretion to turn the device off on safety grounds, if he has permission from the ship’s home state. Some tankers turned off their trackers to avoid detection last year during the Libyan civil war in order to trade with the Gaddafi government.

And Iran is about to gain even greater flexibility in disguising the locations of oil sales, as the National Iranian Tanker Company (NITC) is about to take delivery of the first of 12 new supertankers on order from China. The new tankers will add much-needed capacity to NITC’s fleet at a time when the number of maritime firms willing to transport Iranian crude has dwindled significantly, forcing Iran’s remaining buyers to rely on NITC tankers. Thankfully for NITC, the 12 new VLCCs – each capable of transporting two million barrels of crude – will significantly expand the company’s current fleet of 39 ships.

Sanctions or no sanctions, Iran is moving its oil. But even having your own, off-radar ships to transport oil bought in renminbi or rupees or won doesn’t mean all these tricks and maneuvers don’t have a cost.

Freight costs for each voyage add up to nearly $5 million, a sizeable hit for Tehran. Iran is often also shelling out millions of dollars in insurance for each oil shipment, because the majority of international shipments are insured through a European insurance consortium that is backing away from Iranian vessels because the EU sanctions will make such transactions illegal.

And since business is business, buyers are also demanding much better credit terms from the National Iranian Oil Company (NIOC) than normal. Traders are reporting agreements giving the buyer as much as six months to pay for each two-million-barrel cargo, a grace period that would cost Tehran as much as $10 million per shipment.

For Tehran to cover freight costs, insurance, and the cost of generous credit terms wipes out as much as 10 percent of the value of each supertanker load. Beyond that, customers are also negotiating better prices. For example, the flow of Iranian oil to China did slow in the first quarter of the year, but not because China endorsed the sanctions. Rather, Chinese refiner Sinopec reduced purchases to negotiate better prices with the National Iranian Oil Company. The country’s imports from Iran are expected to climb back to the 560,000 barrel-per-day level in April.

That trade, along with non-dollar-denominated deals with India, Turkey, Syria, and a long list of other friendly nations, will keep Iran’s finances afloat for a long time. The sanctions may be preventing Tehran from banking full value for each tanker of oil, but there is still a lot of Iranian oil money flowing.

The mainstream media is avoiding all discussion of the demise of the US dollar as the world’s reserve currency. Even fewer people are talking about how sanctions based on Iran’s supposed need to use the US dollar to sell its oil leave loopholes wide enough for VLCCs to sail right through.

Without acknowledging the elephant in the room, articles about Iranian tankers turning off their transponders or India using gold to buy Iranian oil invariably sound like plot developments in a spy thriller. Much more useful would be to convey the real message: The world doesn’t need to revolve around US dollars anymore and the longer the US tries to pretend that the dollar is still and will remain dominant, the more often its international actions will backfire.

[The end of dollar dominance is a very ominous sign for the US economy… especially since the federal government seems to be ignoring this enormous elephant. Ignore it at your peril – or get advice from over 30 financial experts that will help you thrive during the tumultuous times ahead.]

The Death of the Dollar is a post from Live Gold Prices.

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2. Iran Now Trading Oil for GOLD
3. The Federal Reserve: We Want to Crush the Dollar
4. What Kim Jong Il’s Death Means for Precious Metals
5. Tensions In Iran To Lead Gold Prices Higher

After a reasonably long period of sustained and occasionally dramatic escalations, commodity markets in general, and precious metals markets in particular, have declined.

This is normal and healthy behavior, even if it is uncomfortable for some market participants. Readers with a long memory will remember the 1970s gold bull market, where the gold price advanced from $35 to $850 per ounce – though in 1975, in the middle of that epic bull market, the gold price declined by 50%.

While a 50% decline is a near-religious event for many market participants, particularly those on margin, it is instructive to note that at the bottom of the retrenchment the gold price was up threefold from its $35 low, and that gold went on to increase eightfold in price after the bull market resumed. It is thus important to recognize that cyclical retrenchments are a normal and healthy feature of a secular gold bull market.

Readers should consider whether the reasons for the gold market are intact. Has gold’s decline made it more likely that sovereign debts can be serviced or that unfunded obligations can be met? Does it mean that insolvent banks are now healthy? Does it mean that creating trillions of unbacked dollars and euros and renminbi will have no consequences? Of course not. We are simply uncomfortable with volatility.

Gold’s Current Weakness

Let’s examine some factors that may have contributed to gold’s current weakness and think about the probabilities of those factors contributing to further weakening in the gold price.

For the past ten or twelve years, the gold price has been in a steady state of advance. In the near term, some participants probably took some profits, and high prices also probably contributed to demand destruction in industrial fabrication and jewelry demand. A softening of the gold price is likely to reverse the effects of price-induced conservation and substitution, even while investment demand, measured by gold funds and the ETF industry, continues to be strong.

Equity and debt markets appear to be stabilizing as a consequence of quantitative easing in Europe, the US, and China, and the apparent easing of concerns in Greece. This flood of liquidity has forced interest rates down as well as bond and deposit yields, pushing savers into longer durations and riskier instruments – including equities – and lowering servicing costs for debtors, which in turn has lowered perceptions of default risk. The markets appear more confident, and hence gold’s attractiveness as insurance is fading. Some of us believe that the root word of confidence is “con,” just as I believe the correct phrase for quantitative easing is “counterfeiting.” It would appear that in excess of $4 trillion of new currency units have been introduced into the system, with no concurrent increase in underlying wealth in the form of goods or services. This does not make me find gold less attractive relative to fiat currencies or sovereign debt. How about you?

Physical demand in India and Vietnam has been constrained by excise and import taxes on gold in the case of India, and increased regulation in Vietnam. The constraints on physical demand in India has had an important impact on overall gold demand, and has become a hot political issue in India. Gold merchants were on strike concerning the excise tax, further constraining demand. It is worthy to note that South Asian societies have a deep-seated, cultural attraction to gold, and that the fairly recent removal of the taxes they just reinstated was a consequence of widespread smuggling and informal trading in gold. I suspect that central government interference in the Indian gold market will be ineffective and ultimately inconsequential.

Small, commodity-oriented institutions such as hedge funds have experienced strong outflows of equity capital and constrained access to debt financing, which has caused them to engage in forced liquidation of precious metals holdings. This is true, and in my opinion will continue. I believe, however, that if black swan style events destabilize other markets, the gold ETF industry and gold trusts like Sprott Physical Gold will easily absorb the remaining institutional bullion hoards. Further, Sprott has firsthand knowledge of the strong interest among sovereign wealth funds in increasing their bullion holdings.

Gold Equities

Since late 2010, gold equities have underperformed the commodity, and this underperformance has continued, and perhaps increased, as the gold price has declined. These twin trends are uncomfortable to participants in the gold equities markets. Let’s examine some of the factors that may have contributed to the underperformance of gold equities relative to gold, and the probable consequence of current market conditions.

It is important to remember that for much of the last decade gold equities outpaced gains in the metals. In fact, the escalations in gold equities pricing became so acute that Canadian analysts were describing companies selling at premiums to their net asset value as “undervalued,” because their premium to net asset value (i.e., what they are worth) was less than the industry standard. Always remember, markets work! This prior overvaluation was an important cause of the sector’s subsequent undervaluation. The expectations built into gold equities valuations, even relative to gold, were simply unsustainable. In particular, the valuations accorded the junior gold sector were best described as “a bubble in search of a pin.” The pin was found. History has shown that markets cure periods of overvaluation; and I suspect that they will also solve this period of undervaluation, relative to bullion, as well.

The emergence of bullion-linked equity instruments like the Sprott Physical Gold Trust and the various Gold ETFs allowed securities investors a new, low-cost, convenient way to participate in the gold markets. These developments at once spurred demand for bullion to back these equity-like instruments and constrained demand for gold equities as investors switched from traditional gold equities to bullion-like equities. I believe this phenomenon was particularly evident as a consequence of the relative overvaluation of gold equities described in the preceding paragraph. Given that the relative attractiveness of bullion-like equities to traditional gold equities was greatest when the gold equities were overpriced relative to bullion, I suspect this attractiveness will lessen now that gold equities are more attractive relative to bullion.

Gold equities were punished, both absolutely and relative to bullion, by their relative corporate underperformance. Many analysts, myself prominently among them, were dismayed at the gold mining industry’s abysmal corporate performance during the last decade. The industry’s operating cash generation in the face of a gold price escalation from $260 per ounce to over $1,200 per ounce was inexplicably poor. The companies’ continued equity issuances in the face of these increases in the gold price meant that existing holders were continually diluted, even as their earnings expectations were always disappointed. Investor fatigue – in fact, investor disgust – was the natural and healthy response to this performance.

Now, even though equities prices continue to decline, corporate performance is increasing, and increasing dramatically. A cursory look at producers’ income statements tells a dramatic story: earnings and cash generation, on a per share basis, are rising in dramatic fashion. Capital expenditures are increasingly funded with internally generated cash rather than equity issuances or debt. In fact, even in the face of the gold equities decline, many gold producers are generating cash so fast that even after funding hefty capital budgets, they are able to return cash to shareholders in the form of stock buybacks and increased dividends.

The Juniors

The junior gold industry magnified these problems; and the market’s response has been proportionately dramatic. It is critical for gold stock speculators to remember that the junior market, in aggregate, is always overvalued. If we were to merge every gold junior in the world into one entity (let’s call it Junior Goldco), that company would lose (profits and corporate acquisitions less industry expenditures) somewhere between two billion and eight billion dollars per year. What should we pay for this enterprise – what is the correct price-loss ratio? Should the industry be priced at five times losses? Ten times losses? Higher?

The performance of individual junior issuers often attracts unwitting capital to the entire sector, and that phenomenon never ends well. Many gold bugs decry government-sponsored inflation, the profligate issuance of unbacked fiat specie (quantitative easing), but ignore the fact that the private sector (in this case the TSX Venture Exchange) is better than the government at everything, including counterfeiting. Many speculators hoped that the junior markets would respond the way they did in the late 1970s where a genuine shortage of equity led to amazing share price escalations, but they ignore the fact that the regulatory and industry infrastructure now exists to print away any amount of speculative demand for the sector. Beginning in 2009, the junior industry drowned investor demand in newly issued equities at unsustainable prices. Speculators bought this paper without apparent regard to price or quality.

How do we address this problem? It is already being addressed by price. The price declines in the TSX Venture have been spectacular, and investors who’ve lost 50% on their portfolios are unlikely to welcome the opportunity buy newly-issued loss opportunities. Just as the unwary speculators previously bought issues without regard to quality or price, they are now selling them without regard to quality or price. Remember that it is the incredible performance of a small number of individual issues that attracts capital to the whole sector, and we see several very promising juniors marked down like so many of the Vancouver frauds. When irrationally exuberant expectations give way to irrationally negative expectations, opportunity is born, and a correction is at hand.

Market Volatility and Institutional Disintermediation

The violent declines we observed in 2008 and the market volatility we experienced last year unnerved investors and speculators. These declines and volatile markets and a contraction in short term credits all contributed to unprecedented investor redemptions at hedge funds and mutual funds. The volatility we experienced has made individual investors cautious, constraining their participation in gold equities markets, and inclining them to “sit on the sidelines.” Institutional redemptions (disintermediation) have caused them to be strong net sellers. With constrained buying and forced selling, is it any wonder we experienced declining markets?

It is my belief that this year we will experience much more of the volatility that shook markets last year. In fact, I believe the volatility index will be above thirty for extended periods of time. This volatility will change the dynamics of the markets in important ways, I believe for the better, but more on that later.

Institutional disintermediation will continue, albeit at slower rates, given the smaller amounts of remaining assets. Mutual fund assets across all asset classes (except ETFs) have been static for some years, and other institutional pools outside Sovereign Wealth Funds and pension funds are showing similar declines. These changes in the nature of market participants and shifting market conditions will change the underlying market.

Now the Good News: Discovery And Consolidation

The markets are a lot less expensive than they were, and this can only be good news for buyers. Markets work, as we have said. Expensive markets collapse of their own weight, cheap markets rise as greed overwhelms fear. But I believe even better news is at hand for the intelligent and discerning investor and speculator. All gold equities have gone down, “the good, the bad, and the ugly.” But there is no requirement that readers confine their purchases to the bad and the ugly!

One consequence of the long bull market we had in gold equities, in their overvaluations and in their continued equity issuances, is that literally billions of dollars have gone into exploration. While exploration is a risky business, and while most of the money was doubtlessly wasted, a substantial amount was well spent. For this reason I believe we are on the cusp of a very nice “discovery cycle.”

As experienced junior gold speculators know, nothing adds to share value like discovery. Speculators will fondly remember hundredfold profits from discoveries like Diamond Fields and Arequipa. We are now truly in a discovery cycle, one fueled by sustained capital investments in unprecedented amounts. Better yet, we have been able to explore frontier terrain that was off limits due to politics or social turmoil. This will add spectacular real value, and this prospectivity is discounted in the current market.

These discoveries will lead to corporate merger activities. The large intermediate and major mining companies need to acquire new economic projects in order to continue to exist. Every day they produce, their business gets smaller. The twenty-year “bear market” in gold equities that ended in 2002 constrained these companies’ ability to explore, so now they must acquire. As a consequence of the improved corporate cash-generating capabilities, they can afford to both acquire other companies as well as develop the projects they acquire. They can afford to acquire each other, too, eliminating wasteful duplicate general and administrative expenditures and enhancing shareholders’ returns.

Discoveries and takeovers add liquidity and hope to a market lacking both.

What To Do

First, recognize that markets work, but only in the longer term. If you can’t handle that, find another avocation. The cure for low prices is low prices; the cure for high prices is high prices. In order to sell high, you must buy low. What is the appropriate response to a strong market? Sell! What is the appropriate response to a weak market? Buy! Be a contrarian or be a victim.

Second, understand that the junior gold sector is a trap; it is valueless. Individual issues can make you fabulously wealthy, but the sector will inevitably bankrupt you if you buy the sector. Stock picking is the key.

Next, don’t buy yesterday’s market. The institutional sector has challenges, like disintermediation, to overcome. The institutional momentum stocks that led the last rally, particularly the very large, low-grade, capital-intensive stories that appealed to the “leveraged to gold” crowd, will not work as well as the higher-grade deposits where return on capital employed will lead to a takeover. Where our ultimate buyer used to be a momentum- and liquidity-driven institution, our new exit will be a larger mining company.

Understand that more of our profits will come from a smaller number of successful speculations. Discoveries and takeovers will lead to outsized gains while the remainder of the sector stagnates, at best. Differentiate qualitatively, prune your portfolio mercilessly, and act as a contrarian.

Last, if you have the courage and the means, this could be an epic year for private placements. Issuers were reluctant to raise capital last year as a consequence of declining equity prices, but they continued to spend. They have, as an industry, pursued an illogical circular exercise: spending money to generate news… to increase share prices… to raise money. This year many will have to raise equity irrespective of market conditions, and the small institutions and mutual funds that funded them so generously in the past will probably be unable to do so in the future. Back only the best teams and good projects. And go for a warrant!

While we may not enjoy the rewards for contrarian acquisitions this year, I am certain we will be well rewarded over time.

[Attendees at the upcoming Casey Research Recovery Reality Check Summit will doubtless hear more from Rick on this subject as well as several others. If you weren't fortunate enough to grab a seat for this sold-out event, don't despair: you can hear every minute of his – and 30 other financial luminaries' – presentations. And if you act fast, you can get them at a seriously discounted price.]

Why You Should Be Excited About This Gold Market is a post from Live Gold Prices.

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Over the last decade, Rogers has been almost a prophet, explaining we were moving into a super-cycle for commodities, predicting that China’s economic growth would easily surpass the US economy’s growth, and explaining that all of Obama’s “stimulus” and Bernanke’s “easing” wouldn’t fix the economy.

He was right, which is one reason our economy is still so broken, and even any glimmer of a recovery is still essentially a lie.

The Most Important Quote to Understand

Over the last several months, Rogers has repeated the following several times:

“If the world economy gets better, the shortages of nearly all commodities are developing and I am going to make money in the commodities. If the world economy does not get better, they are going to print a lot more money. The place to be is in real assets.”

Commodities don’t just include gold, but also include silver, copper, coal, oil, soybeans, wheat, sugar, and other “real” assets. Right now, I’m looking for investments in other commodities like copper, as I explained here. Chinese economic demand is waning, and copper supplies in China are overstocked by a lot right now… that means that prices for copper and copper stocks will be dropping considerably or stay flat for some time — and that means there will be new buying opportunities for copper mining stocks.

The Future of Gold Prices Specifically

The impact to gold prices over the next few months is still largely dependent on which way the economy goes. Gold has been basically sideways with some volatility since I predicted the strong correction in August of 2011. A lot of people were making huge bets with leverage, but I explained that prices were do for a rough time — and within a couple of weeks, prices dropped roughly $300 per ounce and haven’t yet fully recovered.

Over the long, long haul, Chinese and Indian demand for copper are more than strong — they’ll be a driving force for gold for quite a bit of time. This doesn’t mean gold is a shoo in — the price could still drop in the short run. But over the long run, my bet is that gold beats inflation and will help make speculators money.

What About China?

A lot of people are rightfully worried about China. Basically, they have had a huge real estate bubble like the US has had. Only the difference is that the bubble is more basic and doesn’t have nearly the risk the US market had, because the Credit-Default Swaps in China are only a couple of years old, and they’ve essentially not grown much at all.

Remember, it wasn’t just bad loans that sank the US. It was bad loans mixed with huge bets called “Credit Default Swaps”. In China, the loans aren’t as big of a deal, and the CDSs don’t exist. This means there will be some rough times ahead, but not in the style of the US in 2008/2009. That’s just not in the cards.

So instead of preparing for China suddenly going sideways for another decade, it’s safe to bet on Chinese economic growth over the next ten years, and look for buying opportunities during the drop over the next few months. Copper stocks, coal stocks, gold bullion — they all work.

Remember Jim Roger’s quote above… if the economy weakens, both China and the US will likely start printing money again to try to create an inflationary recovery. That means commodities will go up. If the economy doesn’t weaken, but instead strengthens, then demand for “raw goods” like commodities and metals will go up, meaning we still make money. That’s a good sign.

PS: As of the time of me writing this, silver prices just hit $30.00. If you’re bullish on silver for the next year or two, this is a fantastic buying opportunity.

Click here to buy silver from where I’m affiliated and where I get all of my silver and gold now. If you’re going to do it, do it now in case silver is pushed back up.

The Most Important Investment Quote of 2012 is a post from Live Gold Prices.

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Some experts say that Mr. Draghi has concerns regarding eurozone stagflation. Traders, hedge funds, and speculators took this and the possibility that additional U.S. quantitative easing will not come as signs to sell their positions and put their money in the U.S. dollar and treasuries. In the recent past, the golden metal has fallen with riskier assets during the initial phases of a selloff and at intermediate highs in the stock market. More recently, the metal has declined less than commodity and equity markets, recovered more quickly, and risen following a short correction and consolidation.

The selloff has been sharp but the more recent pattern is expected to continue. With many investors selling bullion, a bottom may have been hit. Though western market and China gold demand have declined, market fundamentals are unchanged, which should support prices. Some analysts expect demand to increase in upcoming months due to debt crises in Spain, Italy, and possibly the U.S., UK, and Japan. They recommend that investors take a buy and hold approach, accumulating more metal on the price declines.

Well-known investor Jim Rogers is following this advice, stating that he will purchase more golden metal while prices are weak. The Rogers Holding chairman said he is still bullish on gold for the long-term. From a short-term perspective, he is not as optimistic, which led him to comment that when the price declines further, as he expects it will, he will purchase more of the metal. So far, many of his predications have been accurate, including the 1999 bull market for gold, a worldwide commodities rally, and financial market developments during recent years.

Mr. Rogers recently stated that he would buy at $1,600 per ounce and further increase his holdings when the price drops to $1,500 per ounce. He said that the price will climb much higher in the next ten years but did not elaborate. In November 2011, he said the price would “easily” increase to $2,000 per ounce and would reach $2,400 per ounce during its bull run, “which has years to run.”

The yearly gain for the golden metal is currently 3.4 percent. On Thursday, the Federal Reserve indicated that much-expected monetary stimulus might not become reality. The price of gold dropped by two percent following the Federal Reserve news. The dollar rose by up to 0.6 percent against a six-currency basket, causing a decline in demand for precious metals as alternative investments.

Remember, this is what we’ve been talking about — at some point in the next 12-24 months, there’s a good chance the Fed will move from easy money to higher interest rates — which means gold will get kicked in the teeth. That’ll be good for those of us looking for more opportunities to buy gold for the long haul.

Many are taking advantage of falling prices, with the former Deputy Finance Minister of Russia planning to create the country’s first ETF backed by physical gold. According to RBC Daily, Andrei Vavilov plans to make bullion deposits in London or Zurich banks and trade their derivatives. The ETF would be traded on the Moscow Micex-RTS exchange and the Irish stock exchange.

Vietnam recently approved a monopoly on production and trade of bullion, effective May 25. A statement on the Vietnamese government website announced that Prime Minister Nguyen Tan Dung gave the regulation his approval. Only domestic businesses will be permitted to create and sell jewelry. During the next six to 12 months, these establishments must re-register with the Vietnamese central bank.

Click here to see where to buy gold online.

Billionaire Jim Rogers is Buying Gold Like Mad is a post from Live Gold Prices.

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Speaking at the annual conference of the National Association for Business and Economics, Mr. Bernanke stated that though there are several indicators of an improving employment market, current conditions are “far from normal.” The Fed chairman specifically mentioned that jobs are far below levels seen before the economic crisis and long-term unemployment is still high. He noted that if the unemployment rate drops, private and commercial demand will increase.

Many gold dealers in India continue to strike in protest of the recent import duties increase. As a result, India gold demand continues to be low. Increased demand is expected during April due to the Akshaya Tritiya festival, the second largest gold-buying festival, occurring late in that month. However, annual imports of the metal are expected to be almost one-third lower than last year, according to a Reuters poll. Brokerages, jewelers, and importers responding to the survey provided a median estimate of 665 tons of golden imports.

In other global news, media reports indicate that European leaders are preparing to expand the “firewall” for regional financial bailouts. According to the German newspaper Der Spiegel, German Finance Minister Wolfgang Schaeuble and Chancellor Angela Merkel are now in favor of combining unused European Financial Stability Facility funds with the forthcoming European Stability Mechanism. This would increase total eurozone bailout money to approximately €740 billion, taking into account funds earmarked for Portugal, Ireland, and Greece.

These changes stem from the February G20 meeting, where European leaders were advised to play a larger role in resolving the eurozone crisis before the International Monetary Fund would make a larger contribution. The European Stability Mechanism, valued at €500 billion, will go into effect this July. Finance ministers from the eurozone will meet in Copenhagen this Friday. European Union Commissioner for Economic and Monetary Affairs Olli Rehn commented that, “The key thing now is to conclude the comprehensive crisis response [according to GoldSeek].”

Financial worries are already spreading into other areas of Europe. Over the weekend, Mario Monti, prime minister of Italy, indicated that Spain may be the next country in trouble. In early March, Spanish prime minister Mariano Rajoy established a 5.8 percent deficit target for his country. This is higher than the 4.4 percent EU target, though Spain did later agree to make additional budget cuts. At the beginning of March, ten-year Spanish government bond yields were 4.99 percent. Last week, they rose to over 5.5 percent, closer to the 6.7 percent euro era levels reached during November 2011.

According to Huw van Steenis with Morgan Stanley, it is currently “decision time” for the investment banks according to GoldSeek. His firm and Oliver Wyman consultants predict a $1 trillion decline in the balance sheets of financial institutions, created by the sale of assets and closure of operational divisions. Mr. van Steenis noted that the market does not realize the lengths to which banks will go.

On the New York Comex last week, the net long position of speculative gold options and futures traders declined to its lowest since early January, reported the Commodity Futures Trading Commission. The drop to 15.4 percent equates to 78.1 tons of bullion. This is an indicator that gold has again fallen out of favor with many speculators said Marc Ground, an analyst with Standard Bank.

Gold Prices Jump When Bernanke Hints at Stimulus is a post from Live Gold Prices.

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