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Turk:  “There are so many economic distortions throughout the world today, Eric, no wonder so many people are totally confused about what to do with their money.  The central planners are hard at work pursuing policies that are destructive to markets.  They do not understand or are completely oblivious to the fact that their constant interventions are perverting economy activity....

Continue reading the James Turk interview below...


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“A freely traded market provides important signals that help investors decide where to put their money, which is the backbone of capitalism because it enables capital to be placed where it can be used most efficiently.  But these important signals get distorted by government intervention, which in turn distorts risk/return analyses investors make when deciding where to allocate their capital.

So to prevent these distortions, markets need to operate free of government intervention.  But that is not happening.  The result is the central planners are destroying markets left and right.  Here’s the latest example:  The yield on Spanish government 5-Year debt has fallen to a lower rate than that paid by the US.  It is the first time this happened since the height of the credit and real estate bubble in 2007.

Admittedly both countries are heavily indebted, and both Spain and the US have less people employed today than they did in 2007.  So the economic mess that is killing the middle class in both countries is similar to some extent.  But is the risk on 5-Year Spanish paper really less than US risk?  And even more importantly, is a miserly 1.7% yield really sufficient compensation for the risks of holding either government's 5-Year paper?  It isn’t, but governments are forcing the market to accept ridiculously low yields through central bank intervention.

Then there is China, which is struggling to keep up some semblance that its banks are solvent.  How long can the central planners keep that real estate and credit bubble from bursting?  Even gold and silver are not immune to these government interventions, and the resulting distortions are particularly clear when we look beyond the price of the precious metals.  The gold flows from West to East over the past couple of years are one such measure showing that something unusual is happening.

Central banks in the West are emptying their vaults in an attempt to maintain the illusion that the national currencies they manage are immune to monetary debasement.  The central banks are trying to perpetuate a system in which governments believe they can borrow and print money endlessly to fulfill the impossible promises of politicians.

Then we have the ongoing backwardation in gold as another clear sign of government intervention.  Last year the shorts in London were stunned that the demand for physical metal rose with the decline in the gold price, which actually caused the backwardation to appear.

So here are the key numbers that we need to look at, Eric:  The low price in gold was reached at the end of June.  Since the backwardtion began on July 8th, there have been 192 trading days, and gold has been backwardated a remarkable 55% of the time.  This compares to the low in the gold price in 1999 and 2008, when gold was backwardated only 2 and 3 days respectively.  This comparison shows how unbelievably distorted the gold price has become.  Silver has also been backwardated along with gold.

In the past, central planners staged a managed retreat and higher prices over time lessened the demand for physical metal.  This retreat caused the backwardations in 1999 and 2008 to disappear with higher metal prices.  But so far the 8% rise in the gold price this year has stimulated physical demand.  The key point here, Eric, is this has left the bullion banks and those short of physical metal stunned by what has transpired.

Yet central planners continue to fight reality.  By keeping the gold price artificially low, the backwardation refuses to go away.  Only a much higher gold price can eliminate the backwardation.  A higher price will entice holders of physical gold to sell and hold a national currency instead, thereby increasing the available supply of physical metal.

It seems clear that much of the world’s financial system is spinning out of control at the same time economic activity is declining.  This combination is a toxic brew for the banks and deadly to national currencies because central banks continue to print too much.  So what we are seeing is momentum building in a flight from currency.

We have spoken before about how the super-rich are exiting currency into safe forms of tangible wealth, like collectibles and real estate in perceived safe-havens like London and Singapore.  But there is also money flowing into physical precious metals.  The demand from China seems insatiable, and maybe that is where the flight from currency is at its most advanced stage.

It is not just the Chinese super-rich who are leaving national currencies, but the Chinese middle class as well.  When we consider that there are over 500 million people in that country’s middle class and that the majority understand gold’s unique attributes that make it a safe-haven money, the potential gold demand is mind boggling - as is the potential for higher gold and silver prices.”

James Turk: Founder & Chairman of GoldMoney

and the author of “The Money Bubble”

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© 2014 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.

IMPORTANT - KWN has many more interviews being released today.

The audio interviews with Egon von Greyerz, Dr. Marc Faber, Rick Rule, Ben Davies, Rob Arnott, Dr. Paul Craig Roberts, Andrew Maguire, Art Cashin, Gerald Celente, Eric Sprott, Bill Fleckenstein and John Mauldin are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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