The most puzzling part of the investment business is seeing how the vast and largely economically illiterate masses interpret any given piece of news. Take the recent gold selloff: Many large players were motivated to sell by news that Cyprus will have to liquidate its gold stockpiles to pay off acute debt obligations. But just a moment’s reflection shows this reaction to be knee-jerk.

The real story behind Cyprus’ deal has much more profound ramifications — and they are positive for gold.

The Right Lens

The reaction to Cyprus’ forced gold sale re-affirms my belief that most Western investors remain in a state of extreme anxiety. This leaves no room for the kind of nuanced analysis that leads to wise long-term investment decisions.

The important point is not that Cyprus has to sell €400 million worth of its gold reserves, but rather the circumstances of the sale and the potential buyers that will emerge.

Gold Demanded, Not Divested

After all, this isn’t a strategic investment decision by the Central Bank of Cyprus to divest itself of the yellow metal. In fact, local officials have gone on record saying any gold liquidation is a last resort. Cyprus wants to keep its gold — as has every nation in the West since the fiat money system started breaking down in the mid-2000s.

The only reason a gold sale is being proposed is that Cyprus finds itself at the height of its sovereign debt collapse. It has a long line of creditors but scant capital to pay them back. Gold is among the island nation’s only liquid assets available to be repossessed. This is, in fact, a ringing endorsement of the enduring value of gold when a banking system disintegrates.

Won’t Hit the Market

Still, some may be concerned about the price effects of gold sales by sovereigns. After all, Cyprus is just the tip of the iceberg. Lower down, the iceberg contains many European nations that are well-stocked with gold but that have debts orders of magnitude more hefty than Cyprus, e.g. Italy, France, Portugal and Spain.

Again, when viewed correctly, this reality is at worst neutral for gold investors.

When a sovereign is forced to sell its gold, the reason is to pay other sovereign creditors. With regard to the spot price and global marketplace for the metal, that sale is “off the books.” It merely cancels some IOUs, and the gold is shifted between central banks. It is not that this transaction has no market effects, but at the end of the day, the impact on gold’s trading price is minimal.

Redemption

While Cyprus’ payments to its European creditors is unlikely to change the fundamental landscape for gold, it represents a coming trend that will reshape everything we take for granted.

A legacy of its former wealth, the developed world is gold-rich and capital-poor. Emerging markets are in the opposite position. As I have long explained, we are undergoing a prolonged foreclosure by the emerging markets (centered on China) on the developed world (centered on the U.S.). Greece, Cyprus, Ireland, Iceland… these are the marginal cases that are the first movements in what will be a global realignment of the remaining Western capital to the East.

China and its cohorts have a pile of IOUs, and the Western nations have a pile of gold. As push comes to shove and the ongoing Eastern shift into hard assets translates into spiking interest rates and runaway asset prices in the West, the Western governments’ reserves will quickly become illiquid; in other words, they’ll be about as desirable as Greek government bonds are today. If history is any indicator, Eastern governments may continue to offer lifelines — but they will demand collateral that can’t be devalued. As Western governments inevitably continue their profligacy, the loans will be called and the gold stockpiles will board ships across the Pacific.

Renaissance

This entire process of breakdown and redemption will serve as a first-hand lesson in the enduring value of the yellow metal. And, at its conclusion, the nations with the capital will also be the ones with large gold stockpiles.

This bodes well for the price of gold. As bullion moves from weak hands to strong, the odds of Cypriot gold seeing the light of day again in our lifetimes are slim. Wealthy creditor nations have the resources to protect their gold. Bankrupt debtor nations do not.

It also bodes well for the re-monetization of the precious metals. Larger gold reserves will give Eastern nations the confidence they need to finally abandon the U.S. dollar-based reserve system and put their currencies on a sounder footing.

Cyprus, Greece, et al. might be foreign countries, but their problems are exactly the same as those facing the U.S. The key difference is that the U.S. is in a unique position to prolong and exacerbate its debt situation until it faces the largest sovereign debt collapse in human history. With the U.S. dollar at the center of the global money system, I expect that this will shake confidence in fiat currencies for generations to come.

The Long View

Fair-weather investors in gold jump at the first sign of turbulence because they do not have a clear concept of the monetary transformation that is taking place. They see other gold investors as greater fools who they must beat to the safety of U.S. dollars when the music stops. Fortunately for those who know better, these momentary panics allow us to buy their gold at steep discounts.

So the fools sell on news of Cyprus, while the rest of us see it as the kickoff of a historic Great Redemption of gold from West to East.

About the Author

Peter Schiff is CEO of Euro Pacific Precious Metal and an internationally recognized economist specializing in the foreign equity, currency and gold markets. Schiff made his name as president and chief global strategist of Euro Pacific Capital. He frequently delivers lectures at major economic and investment conferences, and is quoted often in the print media. His broadcast credits include regular guest appearances on CNBC, Fox Business, CNN, MSNBC, and Fox News Channel, as well as hosting his own weekly radio show, Wall Street Unspun. He is also the author of the bestselling books: “Crash Proof,” “The Little Book of Bull Moves in Bear Markets,” and the recently released: “Crash Proof 2.0: How to Profit from the Economic Collapse.” Peter Schiff

The Daily Bell presents an exclusive interview with Dr. Lawrence Parks, a student of free-market economist Murray Rothbard, who has studied monetary issues for more than 30 years. He is the author of What Does Mr. Greenspan Really Think?, a book on the workings of the US monetary system. He has authored and produced more than 200 videos on topics dealing with the US monetary system.

Dr. Parks address questions on fiat currency (which he calls ‘political money’) and the fraud of our monetary system. An excerpt:

“According to the Wall Street Journal, the average allocation to United States bonds for pension plans with assets of $5 billion or more is 23.4%. So why did Modern Portfolio Theory allocate to a guaranteed loser, and ignore an allocation to the biggest winner for the past 12 years, which was gold?

The answer is that the entire Wall Street money management industry, if one could call it that, is geared toward generating fees. If the clients get a good result, that’s a happy accident.

If funds are allocated to gold, except for a possible one-time fee for acquiring the gold, the fee stream stops!

I think you can see why this kind of presentation could easily result in allocations to gold in defined benefit pension plans.

These plans currently have something on the order of $10 trillion in assets. So even a small percentage allocated to gold would not only be a signal to the rest of the world that this is a prudent thing to do; it would also greatly increase the fortunes of the gold sector, while providing added security for pensioners.

With significant gold in their pension plans, Labor would have, as they say, skin in the game. There would be, in my view, a strong self-interest in supporting HR 77, the Free Competition in Currency Act.”

Click to Read Full Article (it is quite detailed & extensive)

……read entire newsletter with 9 more articles HERE

Future investing is better than buying physical gold and silver, or so says my client Mr.Mittal in Pune. Mr.Mittal is a long term investor. But he has a question whether one needs to be on the buy side or sell side. For the long term I have been recommending physical investment.

Case for futures investing

In long term futures investment most of us make losses due to inability to meet margin call requirements on time. Secondly the second month futures are always higher than current months futures and there is always a roll over cost if one is long. The price of gold August futures is always higher than gold June futures. If one is long in gold then at the last day of rollover period there is a cost involved. Suppose you were long in gold June futures at $1590 and on 31^st May (the last day of rollover), there is cost of over $2.

(A) Bullish markets: In case of bullish markets one can easily pay the rollover premiums and still make a profit

(B) Bearish markets: In case of bearish markets the big question is how long can one keep on paying roll over premium on long positions.

Long positions in futures markets

I am not taking short positions in the above as most of us have a tendency to buy first and sell next. In futures investing if you are long and have to rollover the positions, one should always relook the long term direction. If there is slight hint of a bearish trend then one should always book the loss instead of paying roll over premiums. Just remember how many of you have incurred roll over cost on silver futures when prices were at $37.00. You paid higher roll over premiums and yet booked losses.

Short positions in futures markets

Short position in futures markets is all about the ability to meet margin call requirements. How many were caught short when crude oil prices rose from $60 to $147. Most of us booked losses as we did not have margin money. If we had the margin money and kept on rolling over the short futures till date we would have made millions. If you were short in silver futures at $30.00 and kept on rolling over short positions till now, you would have made millions.

Futures trading my view

If you have the ability to meet margin calls then being on the short side is a far better option than being on the long side. However patience will be tested even if one has all the margin calls. In my experience one falters at the leg of an adverse position in futures market despite having all the money to meet margin money.

Case for physical investing

Physical investing is all about buying first and selling later. One needs to take a view of the intended period of investment and invest if the direction is bullish in that period. Margin call pressures are not there unlike future investment but still we need to be prudent while investing in futures market and not get carried away by emotions.

Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information.Nothing in this article is, or should be construed as, investment advice.

Contrarian investor, business developer and MoneyTalks contributor Chad Wasilenkoff on investing in gold and gold stocks.

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The Wall Street Journal had an especially colorful metaphor to describe what has happened to the price of gold that fateful week when gold tumbled 13% in the two sessions through April 15, the biggest drop in 33 years. “Slick with the viscera of crushed gold bugs, the world’s trading floors look even more treacherous than usual.”

Do we feel like crushed bugs? Not at all.

Do we think that the bull market in gold is over? Not yet.

Do we know that markets can be cruel? Hell, yes.

Needless to say the gold bears have been feeling lately like they have landed in a huge vat of honey. They are smug, to say the least. But we see this as an opportunity to get back into gold at a lower price and in the meantime, we made money shorting some of the downside (and on the pullback). We are not alone. Jim Rogers, who foresaw the start of a commodity secular bull market in 1999, said this may be the correction that gold needs. “If it goes down enough, I will start buying it,” he told reporters.

Marc Faber, publisher of the Gloom, Boom & Doom report, could hardly contain his glee at the opportunity offered by the steep drop. “I love the fact that gold is breaking down because it will give a good entry point. The fundamentals for gold are intact.”

He pointed out that while gold may be down 21% from its September 2011 high, Apple is 39% lower than last year’s high. The S&P is almost 1% higher than its peak in October 2007, but over the same period gold is up 100%.

Pundits have given a garden variety of reasons for the decline. We have already covered some of them in our last essay. But there’s more — Goldman Sachs in an April 10 report reduced its gold futures forecast and made a self-fulfilling prophecy to short gold, hurting gold sentiment and likely triggering stop-loss orders. (They must be laughing all the way to the bank. Wait, they are the bank.) Cyprus said it might unload 10 tons of reserves to help fund its bank bailout — the biggest sovereign sale for several years. It stoked fears that similar gold sales may be forced on other troubled Eurozone countries. Italy has the fourth largest gold holdings in the world of 2,452 tons.

Gold prices have been slowly gaining back some of the lost ground as traders and investors step in to buy bargains. Since making the call that started the downward spiral Goldman Sachs has covered its gold short this week.

There has been strong demand for physical gold, especially from Asia, which continues to underpin the gold market.  Asia is witnessing one of the strongest waves of physical gold buying in 30 years. Retail sales of gold tripled across China April 15 to April 16, the China Gold Association said. The feverish buying has left many of Hong Kong’s banks, jewelers and even its gold exchange without enough gold to meet demand.

Is it time to be back in the market? Let’s take a look at gold charts to find out (charts courtesy ofhttp://stockcharts.com).

Click to enlarge.

On the above long-term gold chart, we see a pullback, which will be more visible when we zoom closer in our next chart. A local bottom may have been reached, though it seems that further declines are likely.

At this point, this major long-term cycle is still several weeks away, and with the precision of this cycle in the past, we expect that the final bottom will be seen much closer to it than what we’ve seen recently.

Please note that gold could decline to as low as $1,100 and still be in a long-term uptrend. In fact, technically, it could decline all the way to the 61.8% Fibonacci retracement level close to $900 and still remain in a bull market.

Let us now zoom in a bit and see how the situation looks like from the medium-term perspective.

Click to enlarge.

In the chart, we saw a correction last week as gold’s price rallied first to the 38.2% Fibonacci retracement level and after a brief pause, moved to the second one (50%) — on Friday it closed slightly below it. Prices are currently consolidating around this level and the correction could actually be over. We have a situation where a moderate pullback was already seen — the bound is no longer likely because it was already seen. The RSI indicator reflects that — the market was extremely oversold on a short-term basis, but it’s no longer the case.

We see that volume levels were low on Wednesday when prices rallied, the same happened on Thursday and volume peaked on Friday where the price actually declined, which is not a good sign and suggests that further declines are likely.

Now, we’ll have a look at Dow:Gold ratio to see whether it indicates any important moves for gold.

Click to enlarge.

Here, we see that the ratio moved close to the declining resistance line but didn’t really reach it. There is still some room for the ratio to move higher. If gold declines to its previous low or slightly lower, this declining resistance line will be reached, so basically further weakness could be seen here. The important point here is the Dow to gold ratio chart does not imply a move higher for gold prices just yet.

Summing up, generally this week’s gold charts indicate that the yellow metal’s decline is not over yet. To the contrary, it could take a few more weeks before the rally really starts. There are also some indications that the correction (within the decline) is already over or close to being over.

Thank you for reading. Have a great and profitable week!

About the Author

Przemyslaw Radomski

Przemyslaw Radomski, CFA, is the founder, owner and the main editor of SunshineProfits.com.