Gold World News. COMEX Crash To Send Gold To $3,000

Time for Gold?

COMEX Crash To Send Gold To $3,000

Source Sovereignlife /www.Numismaster.com

As horrible as the financial news for currencies and paper assets has
been since mid-2007, it looks like the worst is yet to come - perhaps
as early as next month.

Over the weekend the Managing Director of the International Monetary
Fund (IMF), Dominique Strauss-Kahn, told a gathering of Southeast
Asian central bankers that the world's advanced economies are already
in a depression and that the financial crisis may deepen unless the
banking system is fixed.

On Feb 4, Paul Wolfowitz, the former president of the World Bank,
said the IMF and similar institutions are incapable of coping with the
global financial crisis because they do not have enough resources.

The market appears to have turned on U.S. Treasury debt. Analyst
Adrian Douglas issued a report on Sunday titled "Bond Market Collapse
Unfolding." He used his proprietary Market Force Analysis on the
price of the 10-year U.S. Treasury Note. Last September and October,
as the value of Treasury debt was falling, it looked almost certain
that the U.S. Treasury entered the market to purchase its own debt!
This had the effect of boosting the price of Treasury bonds.

However, the futures market for 10-year Treasury debt shows that there
have been far more sellers than buyers for more than the past six
months, a strong sign that bond prices are destined to decline in the
near term. For the past eight weeks, Treasury bond prices have indeed
been generally declining (i.e. interest rates have been rising). The
U.S. government is almost certain to intervene again, as the Treasury
debt is the most important in the world, and whose collapse could
wreak havoc across the global financial system.

The problem is that the U.S. government is going to have to float
massive additional amounts of new Treasury debt in order to
immediately finance the second $350 billion of the bank bailouts and
the nearly trillion dollars for the new so-called "economic stimulus"
program. If almost everyone else is selling and the U.S. Treasury is
the primary buyer of its own outstanding bonds, who is going to buy
the newly issued debt?

Non-precious metals prices may have also passed their bottom. The
price of copper recently jumped as much as 10 percent in a single day,
for example.

Treasury Secretary Timothy Geithner is so busy with the crisis over
President Obama's "economic stimulus" program that he announced Monday
he would have to delay dealing with the U.S. banking crisis.

In an interview on www.commodityonline.com released Monday, Marc
Gugeri, the Fund Manager and Advisor to both Gold 2000 Ltd and the
Julius Baer Gold Equity Fund, was asked about the price of gold. He
stated, "The majority of investors purchase Paper-(Gold)-Futures at
the COMEX. The sellers or counterparties of those Gold-Futures are
just a few dominant players. Some of them have an in-official close
link to the U.S. government. So far most of the investors didn't
exercise the gold futures and have accepted cash instead of physical
settlement. This is about to change. I believe that the COMEX will
default and the entire paper gold market will 'crash' and gold could
rise very quickly to 2,000 [or] 3,000 U.S. dollars. When this
happens it will be too late to exercise or to try purchasing physical
gold."

It normally is rare to find such doom-and-gloom commentary appearing
in general financial circles. It is even more uncommon for
commentators to reveal that some of the dominant players in the gold
market have a close link to the U.S. government or that the price of
gold could soon double or triple. Lately, mainstream financial
analysts have been much more willing to talk about gold, to recommend
owning gold for having better appreciation prospects than other
assets, and to specifically recommend purchasing physical gold rather
than shares in gold exchange traded funds or gold "certificates."

The tide has been turning toward gold for the past eight years, partly
because it has been one of the top performing of all asset classes.
Still, the proportion of Americans who own gold is minuscule -
estimates I have seen range from only 3-9 percent of all U.S.
investors. There is much more room for future appreciation despite
how far prices have already climbed this decade.

The money supply of all of the world's major currencies is now
increasing by 10-30 percent annually. With the gold supply increasing
by less than 2 percent annually, it is a virtual certainty that all
currencies will fall in value against gold.

In the past several weeks, several investment advisors have become
more positive about gold because of the relative strength in the price
of silver! In the past, silver has led the way for higher precious
metals prices, which is just what has been happening so far this year.
Late last year, the gold/silver ratio was over 80. Now it is under 70
and falling. I like the prospects for both silver and gold (though I
continue to expect silver's price to outperform gold).

Perhaps most telling of all, the February 2009 COMEX gold contract
fell into backwardation against the March 2009 contract on Feb. 6 and
again on Feb. 9. Last Friday, the February contract price closed at
$913.90, while the March contract ended at $913.80. On Monday, the
February contract finished at $892.40, while March closed at $892.30.
The last time that the COMEX gold contract went into backwardation,
where the spot month traded at a higher price than future months, was
in 1980. Being only 10 cents higher and only being higher then just
the following month may not seem significant, but the fact that this
has not occurred since 1980, as the price of gold exploded, could be
the clearest sign that gold is due for a major rise soon. (For full
disclosure, I note that the less active New York Stock Exchange LIFFE
contract for 100 oz of gold closed Feb. 9 at $892.20 for the February
contract and $892.30 for the March contract.)

In sum, a variety of factors are coming together very soon that I
think will clobber paper asset values even more than they have
suffered in the past 20 months. As these troubles mount, as the
Managing Director of the IMF and the former president of the World
Bank forecast, the prospects for gold look ever better.

Note: at the huge Long Beach Coin show in California last week, a lot
of rare coin buyers were taking a wait and see attitude - except for
circulated and lower quality mint state US Double Eagles. Between the
start and the end of the show for instance, the wholesale price of the
Mint State-62 $20 Liberty jumped almost 6%, even as the gold spot
price fell slightly! Supplies of these and other lower-premium U.S.
gold coins were the lowest I have seen in more than 20 years attending
this show!