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Turk:  “Today was a fairly quiet day for the precious metals, Eric, but we should not be lulled into complacency here.  Over the next few weeks, it seems likely that volatility will increase in a number of different markets.  Even though gold and silver will likely be impacted, we should be especially watching the US Dollar Index and T-bond yields. 

The dollar and T-bond yields had big declines last week after the Fed's no-tapering announcement, and are likely to be significantly impacted by two big news events rapidly approaching....

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“The first one is the looming US government shutdown which seems likely to occur on October 1st or shortly thereafter because of the inability of Congress and the President to agree on any budget. 

For 5 years the government has been operating under so-called “continuing resolutions,” which have enabled it to keep the lights on without any approved budget.  But the nation’s politicians now seem more divided than ever, and some lines in the sand are now appearing.  Because the rhetoric is heating up, the gloves are about to come off and turn this issue into a mean fist fight.  So we should be expecting a political fracas, and those always roil markets.

The other huge event towering over the markets, Eric, is the US government’s debt limit.  If it is not raised again, the US government will be unable to borrow any more money, which means huge spending cuts.  These two events are interrelated.  Operating under continuing resolutions is sort of like going from paycheck to paycheck, or for the US government, from one increase in the debt ceiling to the next one. 

The government has voted on the debt limit roughly 106 different times since 1940, which is staggering to me because this inability to control its debt is clear evidence that the US government’s finances are out of control.  Because it has the Federal Reserve available, the government just keeps increasing the debt, and the Fed makes sure the debt gets bought, even if the Fed has to buy the debt itself.  It turns the government’s debt into currency, which is what Quantitative Easing is all about.  So QE transforms US government debt into currency, which debases the dollar. 

The Fed has purchased about 50% of the new US government debt issued over the past couple of years, so I am not surprised by the Fed's no-tapering decision.  If the Fed didn't buy the US government’s debt, who would?  Maybe some central banks, but investors now understand that US government debt instruments are not the ‘risk-free’ paper they used to be.  The lessons were learned back in August 2011.

You will recall the debt ceiling came up for an increase at that time.  The markets were roiled by the delays to act and the political posturing that was going on until an agreement was finally reached, but not without a huge cost.  The US government lost its triple-A rating back then.  Sadly, little if anything has been done over the past two years to put the US government's financial house in order.

The reaction to the events back then was a record high gold price.  And one has to be anticipating higher gold and silver prices this time around as well.  That's what their price charts are also telling us.  The last time we spoke, Eric, I had a gold price chart showing the head-and-shoulders base that is still being built.  The base will be confirmed by gold closing above $1415 (see chart below).


The outlook for silver is also bullish.  This chart shows a huge multi-year accumulation pattern called a cup-and-handle.  The handle is now being formed.  The top portion of both sides of the cup are at $50 on silver.  A break above that level will begin a massive move higher in the price of silver, and that’s when silver’s bull market will really get underway (see chart below). 

I think this long-term chart puts the potential for silver into its proper perspective.  I also like these long-term charts because they will help us avoid being distracted by any upcoming volatility as the US government tries to sort out its financial problems.  Both gold and silver will be headed into the stratosphere as soon as this cup and handle formation experiences an upside breakout.”

© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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Eric King

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