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$GOLD/$SILVER shorts get the heck outta the way!!!
Yesterday's stupid reversal intraday looks damn stupid today as $GOLD jumps by $22...
Lost in the Debt Ceiling Debate
(Why increase debt, when it can all be retired, instantly!)
Silver Stock Report
by Jason Hommel, July 28th, 2011 (via e-mail)
"--The borrower is the servant to the lender." Proverbs 22:7
There is no need for the government to borrow more money to be able to make payments on old debt.
The US Treasury does not need to borrow from the Federal Reserve. The US government does not need to "serve" the Federal Reserve.
The US Treasury can be authorized by Congress to print US Treasury notes (money) directly, like they used to do, and stop issuing Federal Reserve Notes.
In fact, all of the US debt can be retired entirely, all of it could be paid back immediately, merely by issuing new US Treasury notes (money, bills, dollars).
Oh, this was just suggested today, as I was writing this:
3 ways Obama could bypass Congress
By Jack M. Balkin, Special to CNN
July 28, 2011 10:48 a.m. EDT:
http://www.cnn.com/2011/OPINION/07/28/balkin.obama.options/index.html?hpt=hp_c1
" A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds."
Or, as I note, 14 of them!
The sun would not stand still, buildings would not collapse into their footprints, life would go on, inflation would continue, default would be averted, and the $14 trillion or so of total US government debt could be gone. GONE!
And the debt should be gone.
A government is instantly subverted and overthrown the instant it goes into debt. Why?
Because a government in debt serves the lender, rather than serving the people.
A government in debt has a conflict of interest!
Anyone loaning money to the government should actually be guilty of treason, for having successfully overthrown and subverted the national interest of serving the people, first.
I sincerely believe that a debt cap is not what the nation needs, although I believe it would be better than raising the debt ceiling as they always do.
The nation needs a spending cap, and much more, it needs dramatic spending reductions.
Every bit of money that the US spends is not only wasted, but actually harms the economy in multiple ways far more insidiously than most writers recognize and can articulate.
This morning a democrat in the house on C-Span was saying that the government needs to "invest" in schools, health care, infrastructure, and jobs, rather than "cut, cap, and balance".
All of that would be a mistake.
Government money spent on schools is worse than if the government spent nothing at all. Government teachers have an inherent conflict of interest; they will rarely teach against the concept of government, like the Bible does, because they get their pay from the government. Government schools are propaganda for more government. That's bad. Government schools are a monopoly of government schools, which mean there are little to no real incentives to teach students any better. So, the kids get less knowledge, or inaccurate knowledge, if any at all. Both are bad.
The solution would be a government that prosecuted any other governmental entity, Federal, State, County, or City, that spent any money at all on education, banning it in the nature of violating the "establishment of religion (of government)" clause of the first amendment! The solution is free market based educational solutions; teachers that earn their money directly from the parents who will naturally choose the best for their children.
The democrat said Government should "invest" money in health care? Even worse than nothing at all! The problem today is the government granted monopoly on health care supporting the druggers and cutters, while making illegal herbal solutions, or making illegal natural whole foods like unpasteurized unhomogenized whole milk or health claims for walnuts. The solution is ending all funding for the FDA, and opening up the "modern medical monopoly" to real free market competition from people who offer real healing solutions.
The democrat said government should "invest" in jobs created by government spending on more schools or hospitals? Even worse than nothing spent at all. All such jobs would be temporary, another artificial boom, and lead to misallocations of wealth, taken from people who actually created wealth from real jobs, and given to over bloated projects that only make the nation worse off. The solution is to let those people who produce the jobs, keep the money, so they can expand their businesses, which is the only way that real jobs are ever actually created!
The claims that the nation needs to raise the debt ceiling, or else "the roof will fall in" and other such calamities is totally false. The debt is a joke. The debt is nothing, and can be paid off tomorrow with fresh money freshly printed. After all, it's not like we are on a gold standard here. (Hint, buy gold, or better yet, silver!)
The real problem is the out of control government spending. Anything that can reduce government spending will be a boon to the real economy.
Tea Party republicans need to hold strong, and vote against any debt increase.
Gold ready to bust a move through $1600...
Bernanke is Wrong, Gold is Money
(distributed by e-mail today from NIA in response to this link below & video)
http://blogs.forbes.com/afontevecchia/2011/07/13/bernanke-fights-ron-paul-in-congress-golds-not-money/
Gold hit a high earlier at $1595... Silver closing on $40 again.
Gold:
SPOT MARKET IS OPEN
closes in 4 hrs. 58 mins.
Jul 14, 2011 12:17 NY Time
Bid/Ask 1587.00 - 1588.00
Low/High 1578.40 - 1595.60
Kitco slanted reporting: CFTC Data: Fund Managers Slash Net Length In Precious Metals
(what??? I just reported this from the longside and these guys quote the banksters??? for info??? Do not be fooled: For every short dropped by the banksters, there is a long dropped from the other side as this is a zero sum game. Be well read and you will see through the nonsense...)
04 July 2011, 04:41 p.m.
By Allen Sykora
Of Kitco News
http://www.kitco.com/
http://www.kitco.com/reports/KitcoNews20110704AS_CFTC.html
(Kitco News) - Money managers have slashed their net long, or bullish, positioning in U.S. gold futures and options to the lowest level in more than four months and in silver to the lowest level in more than a year, according to the most recent data from the Commodity Futures Trading Commission.
The agency’s weekly commitments of traders report shows that much of the selling in the week to June 28 came in the form of long liquidation, or selling to exit long positions, rather than outright selling on bearish views.
All of the precious metals fell during the week covered by the most recent CFTC data, released on Friday. Comex August gold settled at $1,500.20 an ounce on June 28, down $46.20 from the June 21 close. September silver fell $2.741 for the week to $33.652. October platinum lost $57.10 to $1,693.50, while September palladium slid $32.10 to $735.15.
However, the net long rose for copper, the one base for which the CFTC compiles weekly data. September copper was virtually flat for the week, gaining 0.10 cent to $4.1080 a pound.
For Comex gold, the drop-off in speculative net-long positioning was the greatest in almost a year and the current level is the lowest since February, Commerzbank reported.
Managed-money accounts slashed their net long by 20% to 181,356 lots for futures and options combined, the lowest level since Feb. 15, and well down from 226,501 in the previous week to June 21. This occurred as these accounts trimmed their total longs—or exited bullish positions--by 43,342 lots. There was a far smaller increase of 1,802 short, or bearish, positions.
Under the CFTC’s older “legacy” reporting format, the large non-commercial accounts—generally referred to as the funds—cut their net long position to 194,557 lots, the lowest since Feb. 8 and down from 238,788 a week ago.
“Since the price of gold has continued to fall after the last statistical cut-off date (of June 28), even more positions have probably meanwhile been closed down,” Commerzbank said. From June 28 to Friday’s close ahead of the long U.S. Fourth of July weekend, August gold lost another $21.90 per ounce.
Standard Bank calculated that the total net speculative position for gold now stands at 625.5 metric tons, well below last year’s average of 777.6.
“Although the sharp fall in net speculative length underscores the susceptibility of gold to speculative sell-offs, we still feel that,
from a fundamental perspective, there is potential for further upside over the medium term,” Standard said. “We would, however, caution that over the short term, given that speculative short positions are currently at 123.1 tons, well above last year’s average (90.7 tons), sentiment is less supportive--which could see the gold market more volatile than usual.”
Meanwhile, for silver, fund managers scaled back their net long positions by an even higher percentage. In the disaggregated report, money managers pared their silver net long by 26% to 15,089 lots for futures and options combined, compared to 20,296 the prior week, and the lowest level since February 2010. This was due to a mixture of long liquidation (total longs fell by 3,256) and fresh selling (total shorts rose by 1,951).
In the legacy report, the non-commercials cut their net long to 21,564 lots from 25,735, again due to a mix of liquidation and fresh shorts. This net long position is now the lowest since July 2009.
“However, pressure on silver from this front should ease in the future,” Commerzbank said.
For commodities markets generally, when net-long positioning hits longtime lows, analysts view this as an indication that long liquidation has about run its course. Conversely, when net-long positioning hits historic highs, this often is viewed as a sign that the most potential buying already may have occurred.
In the case of platinum, money managers cut their net long by 16% to 14,402 lots from 17,122 the previous week. This now stands as the lowest level since last August, with the decline mostly due to liquidation, as the number of total longs fell by 2,413. In the legacy report, funds scaled back their net long to 16,988, the lowest level since September, compared to the previous week’s 20,127 lots, also mainly due to liquidation.
Funds also cut their bullish positions in palladium although not as sharply as in the other precious metals. In the disaggregated report, money managers cut their net long by 10% to 10,087 (the lowest since May 24) from 11,163 the previous week. In the legacy report, they pared their net long to 11,272 from 12,648.
Copper Net-Long Position Bucks The Trend And Rises
While funds were scaling back bullish positions in all of the precious metals, they added to them in copper, the CFTC data show. In the disaggregated report, money managers upped their copper net long by 19% to 8,893 lots for futures and options combined, compared to 7,481 the previous week. This was due to a combination of fresh buying (number of total longs rose by 647) and short covering (total shorts fell by 765).
Meanwhile, in the legacy report, the funds upped their net long to 10,003 lots from 9,778 the previous week.
“The price rise after the cut-off date for these statistics suggests that these investors are meanwhile betting even more on price gains,” Commerzbank said. From the June 28 cut-off date for the most recent CFTC report into Friday’s close, September copper gained another 19.45 cents a pound.
By Allen Sykora of Kitco News; asykora@kitco.com
Stunning Plunge in COMEX Commercial Gold Net Short Futures
Lowest relative commercial net short position to total open interest since 2008 panic for silver futures.
Friday, July 01, 2011
Accelerated pace of commercial short covering.
HOUSTON – We here at Got Gold Report are keenly interested in over-sized changes in the positioning of the largest, best funded and presumably the best informed traders of gold and silver futures on the planet – the traders classed as “commercial.” Witness a truly historic one-week plunge in the commercial net short positioning for gold futures traded in New York on the COMEX division of the CME.
COMEX traders classed by the CFTC as “commercial” net short positioning since 2007. Source CFTC for commitments of traders (COT), Cash Market for gold. If any of the images are too small click on them for a larger version.
A short position benefits if prices for the commodity fall and vice versa.
Commitments of traders data (COT) released today at 15:30 New York time by the Commodity Futures Trading Commission (CFTC) revealed a stunning plunge in the number of net short bets traders classed by the CFTC as “commercial” held as of the end of trading on Tuesday, June 28.
As gold fell $44.97 or 2.9% Tuesday to Tuesday from the highest ever gold price on a COT reporting Tuesday of $1,545.98 to $1,501.01, the veteran hedgers and short sellers covered or offset a whopping 42,492 contracts or 16.9% of the large commercial net short position (LCNS) – from 251,247 to 208,755 contracts net short.
Gold down 2.9% - commercials get the heck out of nearly 17% of their short exposure - a very hot pace of short reduction.
That is the largest nominal one-week reduction in commercial net short positioning in New York gold futures since August 12, 2008, during the depths of the Great 2008 Panic. With gold then off a huge $60.50 or 6.9% in a single reporting week to $813.85, the commercial traders then reduced their net short bets by 43,104 contracts or 21.7%. (See the graph above for that period.)
The relative commercial net short positioning (the commercial net short position as a percentage of the total open interest or the LCNS:TO) dropped by a very large 6.7 percentage points from 48.8% to 42.1%. That is the largest one-week drop in the LCNS:TO since August 21, 2007, with gold then trading at $657.78 and staging for a major bull move higher that wouldn’t peak until the following April above $1,000 for the first time ever.
(Edit at 19:00 CT to add the LCNS:TO graph by request.)
COMEX traders classed by the CFTC as “commercial” relative net short positioning or LCNS:TO since 2007. Source CFTC for commitments of traders (COT), Cash Market for gold.
Silver
As silver fell a large $2.41 or 6.6% Tuesday to Tuesday, from $36.32 to $33.91, the commercials covered or offset a very large 6,398 contracts or 18% of their net short positioning from 35,564 to 29,166 COMEX contracts net short. This, as the open interest for silver futures dropped 5,908 lots to just 114,330 contracts open, the lowest level of open interest for silver futures since March of 2010.
COMEX traders classed by the CFTC as “commercial” net short positioning for silver since 2007. Source CFTC for commitments of traders (COT), Cash Market for silver.
Witness now the lowest nominal commercial net short positioning for COMEX silver futures since April 28, 2009 with silver then trading at $12.48 and staging for a rally up to above $16 a month later.
The relative commercial net short positioning (LCNS:TO) for silver plunged from an already quite low 29.6% to a very low 25.5% - a drop of 4.1 percentage points in a single week. That is the lowest relative commercial net short positioning for silver futures since October 28, 2008, during the Great 2008 Panic as well, back with silver then trading at $9.19 and the LCNS:TO then at a very low 24.5%.
(Edit at 19:00 CT to add the LCNS:TO graph by request.)
COMEX traders classed by the CFTC as “commercial” relative net short positioning for silver since 2007. Source CFTC for commitments of traders (COT), Cash Market for silver.
For whatever reasons, the largest hedgers and short sellers of gold and silver futures have used the recent declines in the price of gold and silver to get a great deal “smaller” in their net short bets – and in a New York hurry as evidenced in the very important graphs shown.
Most anything can happen over the very short term, but historically very large, abrupt changes in commercial net short positioning have been like klaxons sounding for experienced traders to “get to battle stations.” These are indeed just the kind of very large changes of which we speak.
For silver specifically, the very low level of commercial net short positioning suggests that the Big Sellers of silver futures are not at all confident in lower silver prices just ahead. Notice that as the LCNS:TO reached the lowest levels on the graph above it almost always coincided with lows in the price of silver or very near them.
We certainly cannot say that the Big Sellers of silver futures are positioning as though THEY think that silver is set to plunge further - to the contrary. The Big Sellers are net buyers here - at a pretty fast clip, not net sellers.
John Embry discusses gold and silver with James Turk
Market Nuggets: Gartman Continues To Favor Gold But In Non-U.S. Dollar Terms
13 June 2011, 08:47 a.m.
By Kitco News
http://www.kitco.com/
http://www.kitco.com/reports/KitcoNewsMarketNuggets20110613.html
(Kitco News) -- Newsletter writer Dennis Gartman remains bullish on gold in non-dollar terms but is less enthusiastic on gold in dollar terms. As he wrote Monday’s issue of The Gartman Letter, he suggested gold looked “vulnerable” in dollar terms, “while in non-U.S. dollar terms, the trends are still clearly upward.” In fact, on Friday, he added to long positions in gold in non-dollar terms, swapping out some of his gold-in-dollar positions. He notes gold fell Friday, but only in dollar terms. Since early April, he says, each significant low for gold in euro terms has been progressively higher, and so too have the highs, “defining in classic terms what a bull market should be, and in this instance is.”
By Allen Sykora of Kitco News; asykora@kitco.com
For the week: -0.67%
Utah Legalizes Gold, Silver Coins As Currency
http://www.huffingtonpost.com/2011/05/22/utah-gold-standard-silver_n_865333.html
SALT LAKE CITY — Utah legislators want to see the dollar regain its former glory, back to the days when one could literally bank on it being "as good as gold."
To make that point, they've turned it around, and made gold as good as cash. Utah became the first state in the country this month to legalize gold and silver coins as currency. The law also will exempt the sale of the coins from state capital gains taxes.
Craig Franco hopes to cash in on it with his Utah Gold and Silver Depository, and he thinks others will soon follow.
The idea is simple: Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings.
He plans to open for business June 1, likely the first of its kind in the country.
"Because we're dealing with something so forward thinking, I expect a wait-and-see attitude," Franco said. "Once the depository is executed and transactions can occur, then I think people will move into the marketplace."
The idea was spawned by Republican state Rep. Brad Galvez, who sponsored the bill largely to serve as a protest against Federal Reserve monetary policy. Galvez says Americans are losing faith in the dollar. If you're mad about government debt, ditch the cash. Spend your gold and silver, he says.
His idea isn't to return to the gold standard, when the dollar was backed by gold instead of government goodwill. Instead, he just wanted to create options for consumers.
"We're too far down the road to go back to the gold standard," Galvez said. "This will move us toward an alternative currency."
Earlier this month, Minnesota took a step closer to joining Utah in making gold and silver legal tender. A Republican lawmaker there introduced a bill that sets up a special committee to explore the option. North Carolina, Idaho and at least nine other states also have similar bills drafted.
At the moment, Franco's idea would generally be the only practical use of the law in Utah, given the legislation doesn't require merchants to accept the coins, either at face value – $50 for a 1-ounce gold coin – or market value, currently almost $1,500 per ounce. And no one expects people will be walking around town with pockets full of gold and silver.
Matt Zeman, market strategist for Kingsview Financial in Chicago, expects more people will start investing in gold as America's growing debt and bankruptcies in other countries continue to decrease the value of government-backed money.
"You've seen gold replacing these currencies as safety instruments," Zeman said. "If I don't feel good about the dollar or other currencies, I'm putting my money in precious metals."
Some supporters, including the law's sponsor, seek to push Congress toward removing the tax burdens that discourage use of the coins, such as a federal capital gains tax.
"Making gold and silver coins legal tender sends a strong signal to Congress and the Federal Reserve that their monetary policy is failing," said Ralph Danker, project director for economics at the Washington, D.C.-based American Principles in Action, which helped shape Utah's law. "The dollar should be backed by gold and silver, so we have hard money."
The U.S. and many other countries largely abandoned gold-backed money during World War I because they needed to print more cash to pay for the war. Later, during the Great Depression, President Franklin D. Roosevelt took steps that essentially prohibited gold and silver as legal currency to prevent hoarding.
In 1971, President Nixon formally abandoned the gold standard.
Fifteen years later, the U.S. Mint began producing the gold and silver American Eagle coins, primarily aimed at investment portfolios and allowing people to trade them at market value but with capital gains taxes on profits.
Utah is now allowing the coins to be used as legal tender while levying no taxes.
Opponents of the law warn such a policy shift nationwide could increase the prospect of inflation and could destabilize international markets by removing the government's flexibility to quickly adjust currency prices.
"We'd be going backward in financial development," said Carlos Sanchez, director of Commodities Management for The CPM Group in New York. "What backs currency is confidence in a government's ability to pay debt, its government system and its economy."
Larry Hilton, a Utah attorney who helped draft the law, disagrees and says the gold standard would restore faith in American money at a time when spiraling debt is weakening confidence.
"We view this as a dollar-friendly measure," Hilton said. "It will strengthen the dollar by refocusing policy matters in Washington on what led to the phrase, `the dollar is as good as gold.'"
May 12, Gold, Silver Advance as Europe Debt Crisis, Inflation Woes Spur Buying
http://www.bloomberg.com/news/2011-05-12/gold-silver-advance-as-europe-debt-crisis-inflation-woes-spur-buying.html
long silver shorting gold hedging on any downward pressure till smoke clears and than picking the move. Nice Chart
Qe2 in the spotlight and we have FOMC meeting next week GDP lower ??,no go on interest rates hey who wants to own even more of worthless paper that will never get paid back? China has been buying gold since January that we know and only God knows when they started diversification and what year ,maybe since 1000 .
PM's blasting ahead tonight on that last headline!!!
China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings
Submitted by Tyler Durden on 04/24/2011 11:05 -0400
http://www.zerohedge.com/article/china-proposes-cut-two-thirds-its-3-trillion-usd-holdings
All those who were hoping global stock markets would surge tomorrow based on a ridiculous rumor that China would revalue the CNY by 10% will have to wait. Instead, China has decided to serve the world another surprise. Following last week's announcement by PBoC Governor Zhou (Where's Waldo) Xiaochuan that the country's excessive stockpile of USD reserves has to be urgently diversified, today we get a sense of just how big the upcoming Chinese defection from the "buy US debt" Nash equilibrium will be. Not surprisingly, China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trilion or so. And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that "end of QE" again?
From Xinhua:
China's foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.
Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.
And, as if the public sector making it all too clear what is about to happen was not enough, here is the private one as well:
China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.
The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high.
Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.
Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.
However, these strategies can only treat the symptoms but not the root cause, he said, noting that the key is to reform the mechanism of how the reserves are generated and managed.
The last sentence says it all. While China is certainly tired of recycling US Dollars, it still has no viable alternative, especially as long as its own currency is relegated to the C-grade of not even SDR-backing currencies. But that will all change very soon. Once the push for broad Chinese currency acceptance is in play, the CNY and the USD will be unpegged, promptly followed by China dumping the bulk of its USD exposure, and also sending the world a message that US debt is no longer a viable investment opportunity. In fact, we are confident that the reval is a likely a key preceding step to any strategic decision vis-a-vis US FX exposure (read bond purchasing/selling intentions). As such, all those Americans pushing China to revalue, may want to consider that such an action could well guarantee hyperinflation, once the Fed is stuck as being the only buyer of US debt.
Vietnam places further restrictions on gold lending
Last updated: 4/22/2011 13:45
http://www.thanhniennews.com/2010/Pages/20110422135743.aspx
The State Bank of Vietnam has asked commercial banks to cease lending gold in May and stop accepting gold deposits two years from now.
Vietnam has already forbidden banks from lending gold for the production and trade of gold bars since October last year. But starting May 1 banks are not allowed to offer gold loans to jewelry makers either.
The new rule is an attempt to eliminate the role of gold as a means of payment in Vietnam, the central bank said. It noted that the government will, however, continue to recognize the right of citizens to have gold holdings.
Banks in Vietnam are offering interest rates of 0.5-1 percent a year on gold deposits. A banker said the rates would fall when banks are banned from lending gold.
The central bank is expected to issue a decree soon that further tightens control over the gold market in Vietnam.
Source: Thanh Nien, Agencies
Gold Rises Above $1,500 to Record on Weaker Dollar, Inflation
By Pham-Duy Nguyen - Apr 20, 2011 2:53 PM ET
http://www.bloomberg.com/news/2011-04-20/gold-may-gain-to-record-above-1-500-as-global-debt-concerns-weaken-dollar.html
Gold futures rose to a record for the ninth time this month as a weakening dollar boosted investment demand for the precious metal as an alternative asset. Silver topped $45 an ounce for the first time since 1980.
Gold reached $1,506.50 an ounce in New York as the dollar slipped as much as 1 percent against a basket of six major currencies to trade at a 16-month low. Gold has risen 32 percent in the past year as the dollar fell 8.2 percent. Earlier this week, Standard & Poor’s revised its long-term outlook for U.S. debt to negative from stable.
“For the dollar, the S&P statement was like getting kicked when you’re already down,” said Matt Zeman, a senior market strategist at Kingsview Financial in Chicago. “The dollar is losing its status as the king of the hill, and gold is looking to take its place.”
Gold futures for June delivery rose $3.80, or 0.3 percent, to settle at $1,498.90 at 1:37 p.m. on the Comex in New York. The most-active contract has posted records for four straight days.
Gold for immediate delivery in London rose as much as 0.6 percent, to a record $1,506.03 an ounce.
The Treasury Department has projected that the government will reach the $14.3 trillion debt-ceiling limit no later than May 16 and run out of options for avoiding default by early July.
“As the numbers show, the debt cannot be repaid without dollar debasement, so people are warming up to the idea of hoarding gold,” Zeman said.
Commodity Inflation
Gold also gained on demand for an inflation hedge. The Thomson Reuters/Jefferies CRB Index of 19 commodities rose as much as 1.7 percent. A U.S. gauge of traders’ inflation expectations approached the highest level since 2008.
“The dollar has lost ground to its major counterparts,” James Moore, an analyst at TheBullionDesk.com in London, said in a report to clients. “The mix of inflation, currency debasement, euro-zone debt and Middle East and North African unrest continues to fuel investment demand.”
The difference between yields on U.S. 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for inflation, today widened to as much as 2.66 percentage points. The spread reached 2.67 percentage points on April 11, the most in three years.
Silver Surges
Silver futures for May delivery rose 54.8 cents, or 1.2 percent, to $44.461 on the Comex, after touching $45.40, the highest since January 1980. That year, the price reached a record $50.35.
An ounce of gold bought as little as 33.59 ounces of silver in London today, the smallest ratio since August 1983, data compiled by Bloomberg show.
“The metals are being led by silver,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. “You’ve got a parabolic market forming. The general opinion is that silver is undervalued, and that feeds the rally.”
Palladium futures for June delivery rose $27.80, or 3.8 percent, to $758.90 an ounce on the New York Mercantile Exchange. Platinum futures for July delivery rose $31.50, or 1.8 percent, to $1,802.80 an ounce.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.
Gold closes through $1500/Silver closes through $45... WOWZERZ!!!
50 Factors Launching Gold - (Read I implore you)
By Jim Willie CB
Apr 19 2011 2:52PM
http://www.GoldenJackass.com
http://www.kitco.com/ind/willie/apr192011.html
Edification is not the word that comes to mind when observing an interview with Larry Fink of Blackstone this morning on network financial news. It was inspirational if not humorous, and somewhat pathetic. Of course the interviewer treated him like royalty, when just a syndicate captain, a Made Man. As a cog within the US financial hierarchy, he was asked why Gold is approaching record price levels near $1500 per ounce. He gave his best 10-second answer, showing no depth of comprehension but an excellent grip of propaganda laced with simplistic distortion. He said, "GOLD IS RISING FROM ALL THE GLOBAL INSTABILITY, AND NOT FROM INFLATION AT ALL." Sounds good, but it lacks much reflection of the world of reality burdened by complexity and interconnectivity that the enlightened perceive. At least he did not babble about Gold being in an asset bubble. It cannot, since Gold is money. It is curious that all the analysts, bankers, fund managers, corporate chieftains who did not advise on Gold investment over the last ten years are precisely whom the financial network news appeals to for guidance in the current monster Gold bull run. They knew nothing before, and they know nothing now. The major US news networks carry the Obama water while the USCongressional members carry the USBanker robes and show respect with genuflection before the priests. But guys like Fink are their harlot squires. Poor Ben Bernanke, despite his high priest position, does not gather a fraction of respect that Alan Greenspan did even though Alan presided over the collapse. The wild card possibly later this year or 2012 will be a national movement to force mandatory wage gains, and thus avert a national economic collapse. The squeeze is on in a powerful manner to both businesses and households.
ANOTHER STRONG GOLD BREAKOUT
As long as Quantitative Easing programs are in place and actively pursued, Gold & Silver prices will soar. The programs are urged by exploding budget deficits and absent USTBond demand. That translates to a ruined USDollar currency. Gold & Silver respond to the debasement and ruin. Efforts will become ridiculously stretched to save the USDollar, but will fail. QE will go global and secretive, assuring tremendous additional gains in the Gold & Silver price. No effort to liquidate the big USbanks will occur, thus assuring the process will continue until systemic breakdown then failure. The more extraordinary the measures to save the embattled insolvent fraudulent USDollar, the more the Gold & Silver price will soar. It is that simple. Gold & Silver will soar as long as central banks continue to put monetary inflation machinery to work. They are attempting to provide artificial but coordinated USTreasury Bond demand. In the process their efforts will continue to push the cost structure up further. In my view, since the Japan natural disaster hit with financial fallout, the Global QE is very much in effect, but not recognized as a global phenomenon. It pushes up Gold in uniform fashion worldwide.
50 FACTORS POWERING THE GOLD BULL
1- USFed is stuck at 0% for over two years and printing $1.7 trillion in Quantitative Easing, otherwise called monetary hyper inflation. They are not finished destroying both money and capital.
2- USFed tripled its balance sheet, with over half of it bonds of exaggerated value, while it gobbled up toxic mortgage bonds as buyer of last resort. The mortgage bonds have turned worthless. The USFed waits for a housing revival to bail itself out, but it will not arrive.
3- Debt monetization has gone haywire, as over 70% of USTBond sales from the USFed printing press. The QE was urgently needed, since legitimate buyers vanished. Even the primary dealers have been reimbursed in open market operations within a few weeks.
4- PIMCO has shed its entire USTreasury Bond holdings, seeing no value. They joined many foreign creditors in an unannounced buyer boycott in disgusted reaction to QE which is essentially a compulsory unilateral debt writedown.
5- Growing USGovt deficits have run over $1.5 trillion annually, with absent cuts, obscene entitlements, endless war. The prevailing short-term 0% interest rates are out of synch with exploding debt supply and rising price inflation.
6- Unfunded USGovt liabilities total nearly $100 trillion for medicare, social security, pensions, and more. The obligations are never included in the official debt. It represents insult to injury within insolvency.
7- Standard & Poors warned that USGovt could lose AAA rating in lousy credit outlook, one chance in three within the next two years. Ironically, the announcement came on the day when the USGovt exceeded its debt limit. The network news missed it.
8- State & Municipal debt have collapsed, as 41 states have huge shortfalls, and four large states are broken. They might receive a federal bailout. It could be called QE3, maybe QE4.
9- Coordinated USTBond purchases from Japanese sales have relieved the USFed, as other major central banks act as global monetarist agents. The sales by Japan are vast and growing. Witness the last phase in unwind of Yen Carry Trade, where 0% borrowed Japanese money funded the USTreasury Bonds and US Stocks.
10- Quantitative Easing, a catch word for extreme monetary inflation and debt monetization, has become engrained into global central bank policy, soon hidden. It is so controversial and deadly to the global financial structures that it will go hidden, and attempt to avoid the furious anger in feedback by global leaders. This is the most important and powerful of all 50 factors in my view.
11- The FedFunds Rate is stuck near 0%, yet the actual CPI is near 10%, for a real rate of interest of minus 9%. Historically a negative real rate of interest has been the primary fuel for a Gold bull. This time the fuel has been applied for a longer period of time, and a bigger negative real rate than ever.
12- The USGovt claims to have 8000 tons of Gold in reserve, but it is all in Deep Storage, as in unmined ore bodies. The collateral for the USDollar and USTreasury debt is vacant. It is in raw form like in the Rocky Mountain range or Sierra Nevada range.
13- Fast rising food prices, fast rising gasoline prices, and fast rising metals, coffee, sugar, and cotton serve as testament to broad price inflation. So far it has shown up on the cost structure. Either the business sector will vanish from a cost squeeze or pass on higher costs as end product and service price increases.
14- The entire world seeks to protect wealth from the ravages of inflation & the American sponsored QE by buying Gold & Silver. The rest of the world can spot price inflation more effectively than the US population. The United States is subjected to the world's broadest and most pervasive propaganda in the industrialized world.
15- The European sovereign debt breakdown with high bond yields in PIIGS nations points out the broken debt foundation to the monetary system. The solutions like with Greece in May 2010 were a sham, nothing but a bandaid and cup of elixir. Spain is next to experience major shocks that destabilize all of Europe again, this time much bigger than Greece. The Portuguese Govt debt rises toward 10% on the 10-year yield, while the Greek Govt debt has risen to reach 20% on the 2-year yield.
16- Germany is pushing for Southern Europe bank climax in their Euro Central Bank rate hike. Europe will be pushed to crisis this year, orchestrated by the impatient and angry Germans. They have no more appetitive for $300 to $400 billion in annual welfare to the broken nations in Southern Europe.
17- Isolation of the USFed and Bank of England and Bank of Japan has come. The small rate hike by the European Central Bank separated them finally. The Anglos with their Japanese lackeys are the only central banks not raising rates. With isolation comes all the earmarks on the path to the Third World.
18- The shortage of gold is acute, as 51 million gold bars have been sold forward versus the 11 million held by the COMEX in inventory. Be sure that hundreds of millions of nonexistent fractionalized gold ounces are polluting the system. Word is getting out that the COMEX is empty of precious metals.
19- Such extreme Silver shortage has befallen the COMEX that the corrupted metals exchange routinely offers cash settlement in silver with a 25% bonus if a non-disclosure agreement is signed. The practice cannot be kept under wraps, as some hedge funds push for fat returns in under two months holding positions with delivery demanded.
20- China has begun grand initiatives to replace its precious metal stockpiles. They are pursuing the Yuan currency to become a global reserve currency. As they build collateral for the Yuan, they are also elevating Silver as reserves asset.
21- A global shortage of Gold & Silver has been realized in national mint production. From the United States to Canada to Australia to Germany, shortages exist. Many interruptions will continue amidst the shortages, which feed the publicity.
22- The Teddy Roosevelt stockpile of 6 billion Silver ounces was depleted in 2003. He saw the strategic importance of Silver for industrial and military applications. The USEconomy and USMilitary will turn into importers on the global market.
23- The betrayal of China by USGovt in Gold & Silver leases is a story coming out slowly. The deal was cut in 1999, associated with Most Favored Nation granted to China. But the Wall Street firms broke the deal, betrayed the Chinese, and angered them into highly motivated action. No longer are the Chinese big steady USTBond buyers, part of the deal also.
24- Every single US financial market has been undermined and corrupted from grotesque intervention, constant props, and fraudulent activity. The degradation has occurred under the watchful eyes of compromised regulators. Fraud like the Flash Crash and NYSE front running by Goldman Sachs is protected by the FBI henchmen.
25- The USEconomy operates on a global credit card, enabling it to live beyond its means. The USGovt exploits the compulsory foreign extension of credit in USTBonds, by virtue of the USDollar acting as global reserve currency. Foreign nations are compelled to participate but that is changing.
26- The USMilitary conducts endless war adventures for syndicate profits. They use the USTreasury Bond as a credit card. The wars cost of $1 billion per day is considered so sacred, that it is off the table in USGovt budget call negotiations, debates, and agreements.
27- Narcotics funds have proliferated under the USMilitary aegis. The vertically integrated narcotics industry is the primary plank of nation building in Afghanistan. The funds keep the big US banks alive from vast money laundering.
28- No big US bank liquidations have occurred, despite their deep insolvency. Any restructure toward recovery would have the liquidations are the first step. The USEconomy is stuck in a deteriorating swamp since the Too Big To Fail mantra prevents the urgent but missing step.
29- The unprosecuted multi-$trillion bond fraud over the last decade has harmed the US image, prestige, and leadership. The main perpetrators are the Wall Street bankers and their lieutenants appointed at Fannie Mae and elsewhere. They bankers most culpable remain in charge at the USDept Treasury and other key supporting posts like the FDIC, SEC, and CFTC.
30- The ugly daughters Fannie Mae and AIG are forever entombed in the USGovt. They operate as black hole expenses whose fraud must be contained. The costs involved are in the $trillions, all hidden from view like the fraud. Fannie Mae remains the main clearinghouse for several $trillion fraud programs still in operation.
31- The US banking system cannot serve as an effective credit engine dispenser, an important function within any modern economy. It is deeply insolvent, and growing more insolvent as the property market sinks lower in valuation. The banks lack reserves, and hide their condition by means of the FASB permission to use fraudulent accounting.
32- The big US banks are beneficiary of continuous secret slush fund support from the USGovt and USFed. Their sources and replenishments have been gradually revealed. The TARP Fund event will go down in modern history as the greatest theft the world has ever seen, easily eclipsing the biggest mortgage bond fraud in history.
33- The insolvent big US banks continue to sit at the USGovt teat. The vast umbilical cord of banker welfare has not gone away. Goldman Sachs still is in control of the funding machinery.
34- The shadow banking system based upon credit derivatives keeps interest rates near 0%. The usury cost of money is artificially low near nothing. As money costs nothing, capital is actively and rapidly destroyed.
35- A vast crime syndicate has taken control of the USGovt. A vast crime syndicate has taken control of the USMilitary. A vast crime syndicate has taken control of the USCongress. A vast crime syndicate has taken control of the US press networks.
36- A chronic decline of the US housing sector keeps the USEconomy in a grand decline with constant deterioration. With one million bank owned homes in inventory, a huge unsold overhang of supply prevents any recovery of housing prices. Home equity continues to drain, and bank balance sheets continue to erode.
37- Over 11 million US homes stand in negative equity. The sum equals to 23.1% of households. They will not participate much in the USEconomy, except when given handouts. They have become downtrodden.
38- The USEconomy will not benefit from a export surge. The US industrial base has no critical mass after 30 years of dispatch to the Pacific Rim & China. The industry must contend with rising costs in offset to the falling USDollar, which is cited as providing the mythical benefit. Then can export in droves if they do so at a loss.
39- A global revolt against the USDollar is in its third years. The global players work to avoid the US$ usage in trade settlement. Several bilateral swap facilities flourish, mostly with China. If China supplies products, then the Yuan currency will be elevated to global reserve currency.
40- Global anger and resentment over three decades has spilled over. The World Bank and IMF have been routinely used by the US bankers to safeguard the USDollar and Anglo banker hegemony. Neither financial agency commands the respect of yesteryear.
41- A middle phase has begun in a powerful Global Paradigm Shift. The transfer moves power East where the wealth engines of industry lie, far from the fraudulent banking centers. The next decade will feature the Chinese as bankers, since their war chest contains over $3 trillion.
42- The crumbling global monetary system was built on toxic sovereign debt. Legal tender has been nothing more than denominated debt posing as legitimate by legal decree. That is what word FIAT means. The system is gradually breaking in an irreversible manner.
43- The global central bank franchise system has been discredited. It is a failure, which is not recognized by the bank leaders still in charge. The stepwise process of ruin continues with a new sector falling every few months. Next might be municipal bonds.
44- Witness the final phase of a systemic cycle, as the monetary system has run its course. It is saturated with debt from faulty design. The deception cited in the mainstream media focuses upon the credit cycle which will renew. It will not. It will break of its own weight and lost confidence.
45- The recognition has grown substantially that suppression of the Gold price has been the anchor holding fiat system together. The Chinese realize that Gold, when removed, leads to the collapse of the US financial system. They realize it more than the US public. But the syndicate in control of the USGovt understands the concept very well, as they designed the system.
46- The institution of a high level global barter system might soon take root. Gold will sit at its central core, providing stability. No deadbeat nations will participate. That includes the United States and several European nations. The barter system will be as effective as elegant.
47- The movements spread like wildfire in several US states to reinstitute gold as money. In a few states, led by Utah and Virginia, progress has been made for Gold to satisfy debts, public & private. Consider the movement to be in parallel to the Tenth Amendment movements.
48- Anglo bankers have lost control in global banking politics. The phased out G-7 Meeting is evidence. China has wrested control of G-20 Meeting, and has dictated much of its agenda in the last few meetings. The US has been reduced to a diminutive Bernanke and Geithner being ignored in the corner.
49- New loud stirrings by Saudi Arabia seek a new security protector. If security is no longer provided by the USMilitary, then the entire defacto Petro-Dollar standard is put at risk. Remove the crude oil sales in USDollars exclusively, and the US sinks into the Third World with a USDollar currency that cannot stand on its own wretched wrecked fundamentals.
50- The IMF solution to use SDR basket as global reserve is a final desperate ploy. By fashioning a basket of major currencies in a basket, they attempt to enforce a price fixing regime. It is a hidden FOREX currency exchange rate price fixing gambit that will invite a Gold price advance in uniform manner across the currencies bound together. This ploy is being planned in order to prevent the USDollar from dying a horrible death at the expense of the other major currencies. By that is meant at the expense of the other major economies which would otherwise have to operate at very high exchange rates.
THE BIGGEST UPCOMING NEW FACTORS
Introduction of a New Nordic Euro currency is near its introduction. The implementation with a Gold component will send Southern European banks into the abyss, marred by default. The new currency has the support from Russia and China, even the Persian Gulf. In my view, it is a USDollar killer. The first nations to institute a new monetary system for banks and commerce will be the survivors. The rest will slide into the darkness of the Third World.
Gold & Silver seem to be the only assets rising in price, an extension of a terrific 2010 decade. The exceptions are farmland and the US Stock market. However, stock valuations are propped by constant and admitted USGovt support. Their efforts are mere attempts to keep pace with the USDollar decline, as stocks merely maintain a constant purchase power.
A hidden overarching hand seeks the global Gold Standard as the bonafide solution. Darwin is at work, but Adam Smith turns a new chapter. The crumbling monetary solution demands a solution. Further investment in the current system assures a devastating decline into the abyss of insolvency and ruin.
A Golden Tipping Point: University of Texas Takes Delivery Of $1 Billion In Physical Gold
Submitted by Tyler Durden on 04/16/2011 19:59 -0400
http://www.zerohedge.com/article/golden-tipping-point-university-texas-takes-delivery-1-billion-physical-gold
Tipping points are funny: for years, decades, even centuries, the conditions for an event to occur may be ripe yet nothing happens. Then, in an instant, a shift occurs, whether its is due a change in conventional wisdom, due to an exogenous event or due to something completely inexplicable. That event, colloquially called a black swan in recent years, changes the prevalent perception of reality in a moment. This past week, we were seeing the effect of a tipping point in process, with gold prices rising to new all time highs day after day, and the price of silver literally moving in a parabolic fashion. What was missing was the cause. We now know what it is: per Bloomberg: "The University of Texas Investment Management Co., the second-largest U.S. academic endowment, took delivery of almost $1 billion in gold bullion and is storing the bars in a New York vault, according to the fund’s board." And so, the game theory of a nearly 100 year old system of monetary exchange has seen its first defector, but most certainly not last. With an entity as large as the University of Texas calling the bluff of the Comex, the Chairman, and fiat in general in roughly that order, virtually every other asset manager is now sure to follow, considering there is not nearly enough physical gold to satisfy all paper gold in existence by a factor of about 100x. The proverbial Nash equilibrium has just been broken.
From Bloomberg:
The fund, whose $19.9 billion in assets ranked it behind Harvard University’s endowment as of August, according to the National Association of College and University Business Officers, added about $500 million in gold investments to an existing stake last year, said Bruce Zimmerman, the endowment’s chief executive officer. The holdings are worth about $987 million, based on yesterday’s closing price of $1,486 an ounce for Comex futures.
Years from now, when historians attempt to define who may have started it all, one name may emerge...
The decision to turn the fund’s investment into gold bars was influenced by Kyle Bass, a Dallas hedge fund manager and member of the endowment’s board, Zimmerman said at its annual meeting on April 14. Bass made $500 million on the U.S. subprime-mortgage collapse.
“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said yesterday in a telephone interview. “I look at gold as just another currency that they can’t print any more of.”
In summary - the fiat tide is now going out. And among those who will first be observed swimming naked are the very same people whose fate has been so very intrinsically linked to the perpetuation of a flawed regime (and who coined this very saying). In the meantime, hold on to your hats: should a scramble for delivery ensue, the recent parabolic move in various precious metals will seem like a dress rehearsal for what is about to transpire.
The only open question is who was the broker with enough gold to deliver to the UofT. We hope to find out soon enough. We also hope that the UofT is smart enough, and that Kyle Bass advised it, that if they are getting "delivery" in a Comex vault in New York, the gold has likely already been leased out at least several times to various entities demanding paper allocations...
+0.81% is the scorecard for the week...
What's Moving Silver's Price to $40?
By Alix Steel
TheStreet.com
via Yahoo Finance
Friday, April 8, 2011
http://finance.yahoo.com/news/Whats-Moving-Silvers-Price-to-tsmf-9553051...
NEW YORK -- Silver prices hit $40 an ounce. This was the bullish signal many traders were waiting for and price targets now range from $45 to $50 for 2011. Voracious investment demand and turmoil in the Middle East-North Africa region have been pivotal to silver's pop, but don't tell the whole story.
Silver prices have a reputation of being manipulated, volatile and less liquid. Silver hit a record high of $50 an ounce in 1980 after the famous (or infamous) Hunt brothers bought the metal aggressively for seven years -- at one time owning more than 200 million ounces of silver.
The silver bubble burst soon thereafter shedding 50% of its value almost immediately, and over the last 30 years the metal has traded as low as $4 and as high as $36.74 an ounce.
Along with gold, silver prices are at the mercy of investment demand, safe-haven buying, inflation fears, momentum trading and price manipulation. Silver prices are also cheaper than gold offering cash strapped buyers a cheaper safe haven alternative. But the one thing that silver prices have going for them that gold doesn't are oodles of industrial demand.
Indeed, silver can be found in a plethora of products, from iPads to cars to solar panels, making it the perfect metal for those wanting a hedge against currency debasement as well as exposure to a global economic recovery.
David Morgan, founder of Silver-Investor.com, says he could see silver prices as high as $45 in 2011 "and if things get really crazy we could go beyond that."
Silver is also at the mercy of stocks. When equities plummet, investors are often forced to sell silver for cash, but any significant dip can trigger a wave of buying as investors purchase silver at "cheaper" prices, resulting in a strong tug of war. Because fewer people own silver than gold, the market is smaller, which results in violent price action.
Here are five fundamental factors that will contribute to silver's strong price moves in 2011 and why many analysts think silver's bubble is far from bursting.
... 5. Price Manipulation
Price manipulation is the most controversial theory that has circulated among gold and silver bugs for 20 years. Some argue that precious metal prices have been illegally suppressed over the last two decades by central banks, governments and trading houses. The Gold Anti-Trust Action Committee, or GATA, is the biggest complainant and mainly points to the "hugely disproportionate short positions," according to Chris Powell, secretary and treasurer of the organization.
The manipulation headline has been gaining traction of late after trader Brian Beatty filed lawsuits at the end of October against JPMorgan and HSBC for conspiring to "suppress and manipulate" silver prices on the Comex.
The allegations are particularly noteworthy because HSBC and JPMorgan are custodians of the physically backed exchange-traded funds like the ETFS Physical Silver and iShares Silver Trust, which means the big banks, in charge of storing the metal investors are buying, are being accused of manipulating the prices.
The drama continues. A Chicago law firm, Cafferty Faucher, filed a lawsuit at the end of December against HSBC and JPMorgan accusing the two of using their positions as silver holders to purposefully suppress the silver price so they could profit from their short positions.
The Commodity Futures Trading Commission is now investigating the possibility of criminal activity in manipulating the silver futures market, particularly at JPMorgan.
JPMorgan had been trying to combat these allegations by reducing its huge silver short position. However, in the latest bank participation report, short contracts on the Comex have risen by 6,762 in 2011 as banks bet against silver's crazy rally. Subsequent unwinding, forced or otherwise, could trigger more rallies.
The opposition, however, is just as passionate. "There's no vested interest on anybody's parts to suppress prices here," says Jon Nadler, senior analyst at Kitco.com. "The allegations remain at that level, simply allegations."
Nadler argues that despite the rumored manipulation, prices have still climbed. "If this is suppression, I think it's completely ineffectual, and let me have more of it," Nadler says.
Philip Klapwijk executive chairman of GFMS Research Group, says there is "nothing to these allegations." He thinks they will continue to be chatter for silver prices in 2011 but that they will just be a lot noise. "If there was a massive short position, the degree to which those shorts are under water is now quite extraordinary."
... 4. Gold and Silver Ratio
Many investors use the gold/silver ratio to determine where silver prices will head. The ratio refers to how many ounces of silver it takes to buy one ounce of gold. If the ratio is high it means that silver prices have slipped. If the ratio falls, silver prices are outperforming gold.
The ratio has come down from over 60 to 36.75. According to 2010 closing prices, the ratio was 46, meaning it took only 46 ounces of silver to buy one ounce of gold. At the beginning of 2010, the ratio was 65.
In 1980, a previous high for both metals when gold was $850 an ounce and silver was $50, the ratio was as low as 17. Some bullish experts say that if gold and silver were to reach that ratio again, silver should be north of $80.
"If you moved to even 30:1, you would have a considerable swing in the value of the silver properties relative to gold," says Rob McEwen, CEO of U.S Gold, who, with two silver and gold deposits in Nevada and a silver deposit in Mexico, has a vested interest in higher metal prices.
Klapwijk says that the current ratio makes silver expensive in comparison to gold. This ratio is "not sustainable level in the long run" and will move up over time to up to 50. That doesn't necessarily mean that silver prices have to sell off, it just means that silver might not outperform gold but instead will lag the yellow metal.
Randall Warren, chief investment officer at Warren Financial Service, also thinks this ratio could correct. He argues that the 100 year average is about 50. If that ratio were to resume at today's prices, silver should trade around $30.
Warren is much more bullish on the ratio over the long-term. He thinks the ratio could hit 30 by the end of 2011, which would imply "longer-term higher silver prices by the end of 2011."
David Morgan argues that the ratio could fall as low as 16:1, which would put silver at $90, but says once that happens silver's bubble could be ready to pop.
"Most of us think it will do similar to what it did in 1980. When silver really accelerates during the final phase of the market, which we're not in by the way, we're actually in the second phase" and the ratio falls to 16:1. "That could suggest strongly that that's it for the metals for a while." Morgan says this could happen anytime between 2012-2015.
... 3. Currency Debasement
The most popular reason to own silver is as a hedge against inflation.
The theory is as paper currency loses value, silver will retain its purchasing power, making it a safe place to preserve one's wealth.
While many investors talk about silver's inverse relationship to the U.S. dollar, BullionVault's head of research Adrian Ash prefers to categorize it more broadly as "anti-currency."
The same applies to gold. "They are stateless, they don't have the burdens of debt, which any multinational currency has. They are a long-term story," Ash said, in describing their attributes.
Echoing Ash, Philip Klapwijk says that all three major internationally-traded currencies: the euro, yen and dollar, have generated some degree of "suspicion" from investors amid sluggish economic performance, "very" unattractive short-term interest rates and growing, massive sovereign debt obligations.
Chuck Butler, president of EverBank World Markets, expects the U.S. dollar to show another round of weakness in 2011, providing continued support for silver. Some analysts like Oliver Pursche, portfolio manager of the GMG Defensive Beta Fund, are even calling for the possibility of QE3 and QE4.
Even 'dormant' inflation is picking up in the U.S., with core consumer prices up 1.1%, versus a year ago, 2.1% if you count food and energy, which every other country does.
Despite the European Central Bank's recent rate hike, real rates are still a negative 1.35% in the eurozone, which means the euro is still worth less in the bank and hard assets are worth more. Silver prices have shrugged off rate hikes from the EU and emerging market economies. as well.
Ash was unfazed by rate hikes arguing that central banks would have "to raise interest rates by a long way before it really makes a difference for cash savers."
... 2. Industrial Demand
The industrial demand behind silver prices grew 20.7% in 2010 and is expected to be strong in 2011 but not remarkable.
Industrial demand staged such a big comeback as the global landscape recovered and was the first catalyst for higher gold prices, according to GFMS' recent Silver Survey.
"This year, this type of news will not be quite as unequivocally good," GFMS' Klapwijk said. "We've had such a significant rebound in industrial demand for silver that gains will be somewhat harder to come by this year compared to 2010."
Meanwhile, BullionVault's Ash has heard complaints about high silver prices from industry representatives, because the pass-through of these high prices are hurting their customers.
Ash wonders whether the industry will begin looking for silver substitutes, especially in newer uses such as solar panels and chips -- if prices become unfavorable.
"Has silver gotten over the fact that it's an industrial metal primarily?," asked Ash.
EverBank's Butler sums up his expectations of industrial demand for silver this year as "steady -- nothing phenomenal, but nothing that's weak."
The one thing silver does have going for it is a slew of new products never before imagined that use the metal, like iPads. "We've seen in the last year the growth in that type of use increase about 18%," says Phillips Baker, CEO of Hecla Mining, one of the largest silver producers in the world.
Baker, in fact, credits steady industrial demand with keeping silver prices afloat as investment demand ebbs and flows.
Japan's devastating earthquake and its repercussions could also provide a floor for silver prices as there will be high demand for the metal as the country is forced to rebuild itself.
... 1. Investment Demand
Silver investment popped 40% to 279.3 million troy ounces in 2010 led by a 24% increase in ETF holdings and coin and metal demand, which popped 28%. This trend looks set to continue in 2011.
Traditionally, silver investing was reserved for the fringe precious metal buyer, who thought global wealth would be eradicated and that silver and gold would be the only currencies left standing.
However, as the financial crisis rocked global markets at the end of 2008, a trend started to develop of regular investors allocating a certain amount of their portfolios into precious metals, although mostly gold, silver was included.
The biggest physically backed silver exchange-traded fund in the U.S., SLV, held 6,524.93 tons the Friday before Lehman Brothers declared bankruptcy and how holds 11,192 tons, or 360 million ounces.
The SLV added 1,428.60 tons just in 2010 alone while its smaller competitor the SIVR grew its holdings 81% to 16,627,688.2 ounces.
The advent of physically backed silver ETFs over the past five years has given investors an easy way of speculating on silver. One share of the SLV is equal to one ounce of silver.
If investors start piling into the ETFs, the funds must add more silver, taking more silver out of the open market and triggering higher prices. But the reverse is also true.
There have been reports of shortages of silver backed up by backwardation on the Comex, where the spot month trades higher then future months. The shortage is said to be a combination by strong demand as well as production shortfalls.
Short contracts on the Comex increased 24% in 2011 and if silver prices keep rallying, the shorts might be forced to cover their positions, which could be a catalyst for higher prices.
Klapwijk thinks $50 is a realistic price target for 2011.
But the fun might stop there. "One would expect to see fairly significant profit-taking at $50 an ounce," says Klapwijk, "because I do think that is a target for ... early investments in the metal. That could lead to a lot of volatility."
But the thing with silver is that most retail investors still don't own it, most news outlets don't even write about it, which is one of the fundamental reasons silver bulls think the price will skyrocket.
"We're going to go into a period like the high tech market where there is a mania," says Rob McEwen, CEO of U.S. Gold, who thinks the market is about half of the way there.
There have been other signs that investment demand is on the prowl, which was critical to silver's killer rally in 2010.
According to Patricia Cauley, director of metal products at the CME, open interest in contracts for silver grew 9.2% in 2010 versus 8.6% for gold. Open interest contracts illustrate the new buyers in the market.
Average daily trading volume was 76,000 contracts for silver in the fourth quarter of 2010 , which doubled from the third quarter and is up 82% from the same period a year earlier. Cauley says this points to a "renewed interest in silver.... As we see the price of gold keep going up. The poor man's gold has come back."
The silver trade might hit some more snags over the long-term.
First of all, investors are paying almost three times as much for an ounce of silver than they did in the beginning of 2009, so the "easy" money has already been made. The monster rally might scare off those who haven't bought the metal yet.
Silver prices are also very volatile. Because the market is thinner, a big buyer or hoarder can really affect prices. Silver's industrial component can also leave it vulnerable to signs of an economic slowdown especially in emerging market countries.
There is also a lot of pressure on investor demand to support high silver prices. The above ground supply of silver is increasing annually, mine production grew 2.5% in 2010.
Although industrial demand and new products are sopping up some supply, "heavier lifting is called for this year from the investor community just to keep the game alive," says Klapwijk. He estimates that several billion dollars of investment inflows are needed.
Billions of dollars of new investment inflows at recent record prices isn't impossible just daunting and puts a heavy burden on investors and traders to keep silver prices afloat.
thanks for sharing that.
Gold & Silver Insiders-When To Sell? Real Estate-When To Buy? Mike Maloney
Gold Settles at Record High Above $1,452
Published: Tuesday, 5 Apr 2011 | 2:15 PM ET
By: Reuters
http://www.cnbc.com/id/42423727
Gold prices rose to settle at a record high above $1,452 ounce Tuesday, as new peaks in crude oil and grains fueled inflation fears and a downgrade of Portugal's credit rating fed safe-haven demand.
Bullion prices broke out after a struggle to sustain new highs in the last month, and silver soared to a 31-year peak after Federal Reserve Chairman Ben Bernanke suggested he was committed to complete a $600 billion stimulus program as scheduled in June.
"What it shows is that big money continues to believe gold will go higher...because Bernanke wants to grow at any cost," said Axel Merk, portfolio manager of the $600 million Merk Mutual Funds.
"The other reason for gold to go up is that there was a downgrade in Portugal, so people realize there are still some issues."
Spot gold [XAU= 1456.05 5.45 (+0.38%) ] was last bid around $1,454 an ounce.
U.S. gold futures [GCJ1 1451.80 19.60 (+1.37%) ] for June delivery settled up $19.50 to end at $1,452.50 an ounce.
Silver [XAG= 39.24 0.01 (+0.03%) ] gained 1.2 percent to last trade at about $38.88 an ounce, after hitting a session high of $38.99, the highest since the Hunt Brothers cornered the market in the early 1980s, when prices briefly hit a record of just below $50 an ounce.
Silver has outperformed gold in recent months, rising 22 percent in the first quarter compared with gold's 0.7 percent.
The gold:silver ratio, which shows how many silver ounces are needed to buy an ounce of gold, fell to a 28-year low at 37.3.
On Monday, Bernanke said an increase in U.S. inflation has been driven primarily by rising commodity prices globally, and was unlikely to persist. His comments contrasted with those of other U.S. central bank officials, some of whom called for tighter monetary policy.
Rising oil and grain prices boosted gold's inflation hedge appeal. Brent crude rose to a 2-1/2-year highs on geopolitical risks to supply from the Middle East, while corn futures hit a record high as worries over tight supplies persisted.
Platinum was last near $1,788.20 an ounce, while palladium was last quoted around $783.40.
Copyright 2011 Thomson Reuters.
FOCUS: Speculators Add To Bullish Gold Positions – CFTC Data
04 April 2011, 12:39 p.m.
By Debbie Carlson
Of Kitco News
http://www.kitco.com/
http://www.kitco.com/reports/KitcoNews20110404DeC_focus.html
(Kitco News) - Speculative traders returned to the U.S. gold futures and options market, even as prices slipped slightly, according to U.S. government data.
The Commodity Futures Trading Commission’s weekly commitment of traders report for the week ended March 29 showed funds returned to the yellow metal in both futures and options, as seen in both the disaggregated and legacy reports.
The result was mixed for other metals, though. Speculators slightly lowered their bullish exposure to silver and palladium, but increased their bullish positions in platinum and copper.
The return to the gold market came as June gold prices on the Comex division of the New York Mercantile Exchange fell modestly during the timeframe covered by the CFTC data. June gold settled at $1,417.50 an ounce on March 29, down $11.60 for the week, while May Comex silver rose 71.8 cents to $36.987 an ounce. Nymex July platinum rose a mere 70 cents an ounce to $1,744.10, and Nymex June palladium gained $15.10 an ounce to settle at $752.95. Comex May copper rose 3.35 cents a pound to $4.3465.
In the disaggregated report, the managed-money accounts in gold hiked their net-long position by adding 8,812 gross long contracts and cutting 1,297 gross shorts, bringing the net-long to 199,312 contracts. Producers added gross longs and shorts, adding to their net-short position, while swap dealers lowered their exposure on both sides to gold, cutting their net-long position.
The legacy report saw non-commercials increase longs by 4,071 contracts and shorts by 624 contracts, lifting the net-long position to 213,983 contracts. Commercial accounts significantly cut both gross longs and shorts, but cut more longs than short contracts.
Barclays Capital said in a research note the rise of the funds’ net-long gold position came as a result of new long positions and short covering, pushing the net-long to a one-month high. Further, they note, gold exchange-traded fund holdings have stabilized just above 2,070 metric tons.
Managed-money accounts in silver cut longs slightly and added modestly to shorts, bringing the net-long to 33,540 contracts. The producer sector cut longs and added to shorts, increasing their net-short position, while swap dealers did the opposite: adding to longs and cutting shorts, lowering their net-short.
In the legacy report, non-commercials again cut a few longs and added a few shorts, lowering the net-long position to 40,917 contracts. Commercials added to both sides, but added more gross longs, lowering their net-short position.
On the other hand, positions in silver fell moderately. The price of silver has not been affected, though, and has risen this morning to $38.5 a troy ounce, its highest level in over 31 years. Should financial investors further increase their bets on rising prices, silver should find additional support on this front. The psychologically important mark of $40 a troy ounce appears to be edging to a reachable distance.
Speculators in platinum cut from both sides, but cut more shorts, thus raising their net-long position to 18,273 contracts. Funds in the legacy report added lightly to longs and cut shorts, increasing the net-long to 19,424 contracts.
Managed-money accounts in palladium cut both long and short positions, but cut more longs, lowering their net-long position to 9,507 contracts. Similar action was seen in the legacy report, with the non-commercials lowering the net-long to 10,514 contracts.
The drop in fund length in palladium has slid to its lowest level since July 2009, Barclays said.
Funds in both the disaggregated and legacy report for copper added to longs and cut shorts, which raised their net-long position. In the disaggregated report, the copper net-long is 25,574 contracts. In the legacy report, it is 27,044 contracts.
Commerzbank said copper investors “are clearly increasing their bets on rising prices, though; net long positions rose in the week to March 29 by a good 32% … the highest level in four weeks. “
For further information, please see the CFTC’s website: http://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm
By Debbie Carlson of Kitco News dcarlson@kitco.com
Is Gold on the Verge of a Major Breakout?
By Jordan Roy-Byrne, CMT
April 01 2011
http://wallstcheatsheet.com/trading-markets/is-gold-on-the-verge-of-a-major-breakout.html
In recent weeks Gold (NYSE:GLD) has made new highs but they have been marginal. That is not what we call a sustained breakout or impulsive advance. In an impulsive advance the market continues higher in an unimpeded fashion. We are skeptical that Gold (NYSE:GLD) will make a big breakout here and now but its a bull market and its always wise to hold at least a core position. The best traders will trade themselves out of maximum profits.
This being said, we do think one has to be on guard for a shift in Gold (NYSE:GLD). Take a look at the chart and let me explain.
As you can see in the chart, Gold (NYSE:GLD) was in a steady uptrend for the first five or six years. It was contained within lines 1 and 2. The market began to accelerate from the very end of 2005 into 2008. The retracement in 2008 bottomed essentially at line 2. The fact that the market held above it meant that the market remained in a new acceleration mode, which started at the end of 2005. Following the 2008 bottom, the market slowly but gradually accelerated its way past line 3.
Note the change in the market’s character. At the first phase of the acceleration (2005-2008) the market saw sharp impulsive advances and long consolidations. This time around the market is showing more strength. Although the impulsive advances are smaller and shorter, the ensuing corrections are comparatively shorter and smaller (relative to 2005-2008). In other words, the market is gaining strength because the corrective periods are shorter. The final resistance is channel 4, which parallel to 1,2 and 3, connects the 2008 high and highs of late 2010. Channel 4 at present is ~$1,460 and increases to about $1,600 at year end.
A strong move past channel 4 means the market has little in its way until $2,100 and $2,300. There is a strong Fibonacci target at $1,500 which intersects with channel 4 in early summer. That could mark a top.
Finally, consider that we are 11 years into this bull market and the global allocation to Gold and gold shares is only 1%. At somepoint this thing is going to ramp up its acceleration. While we don’t think its now, we think its sometime this year. For more analysis, professional guidance and analysis of Gold and Silver companies, consider a free 14-day trial to our service.
Jordan Roy-Byrne, CMT
Gold's Hyperbolic Trajectory
James Turk
http://www.kitco.com/ind/Turk/turk_mar282011.html
March 28, 2011 – I am not a mathematician, but those knowledgeable about math have explained to me the difference between a parabola and a hyperbola. I’ll cut through the math to get to the key point. A hyperbolic rise in price is much faster than a parabolic one.
This distinction is important because the gold price in recent years has been rising at a hyperbolic rate, which is illustrated in the following chart.
The above chart has been prepared on a log scale so that, for example, the distance between $250 and $500 is equal to the distance between $750 and $1500. A chart prepared with an arithmetic scale does not accurately portray percent changes, while a log scale chart illustrates percentage changes perfectly, which is important. After all, if an asset you own doubles in price, it is this percentage gain that shows the relative increase in your wealth. In other words, if your asset doubles in price from $2 to $4, it is the same percentage gain as a double from $10 to $20, though obviously the absolute amounts may be different depending on the quantity of each asset you own.
From 2000 to about 2006, the gold price was confined within a linear uptrend channel, marked by the green parallel lines on the above chart. Thereafter, gold’s pattern changed to what looks like a parabola, but is actually a hyperbola because the above chart is prepared on a log scale.
This observation means that the gold price is rising at an accelerating rate, so there is in my view only one logical conclusion that can be made from this chart. Given that gold remains the world’s numéraire by which things are measured because it is money, the other so-called ‘money’ being measured in the above chart – namely, the US dollar – is losing purchasing power at an accelerating rate. In other words, we are rapidly approaching the hyperinflation of the US dollar. In fact, the above chart illustrates that it has already begun. The dollar’s hyperinflation will worsen if gold keeps climbing within the hyperbola on the above chart.
As if that were not scary enough, look at the following charts illustrating the rise in the price of gold against the British pound, euro and even the supposedly safe currency alternative, the Swiss franc. Gold is rising at a hyperbolic rate against all of them, suggesting that as the dollar moves along this present path to hyperinflation, these other currencies will hyperinflate along with it, which is logical given that (1) these currencies are backed by the world’s reserve currency, i.e., the dollar, and (2) the central banks managing these currencies are ‘printing’ just like the Federal Reserve.
Given that the above charts show only weekly prices, and do so over many years, we cannot conclude that the final hyperinflationary blow-off will begin tomorrow, this week or next month. But we can conclude from the hyperbolic rise in the gold price that these currencies are on the path toward hyperinflation.
The never-ending debt issuance by the US government that is accommodated by the Federal Reserve’s policy of ongoing “quantitative easing” means that the dollar is being destroyed. Its purchasing power is being eroded because the Fed is turning too much of this debt into dollar currency, which is causing people to accumulate gold as a safe-haven alternative.
Significantly, the above charts show that the US dollar’s plight is not unique. Other national currencies are also being destroyed as their purchasing power erodes because of harmful central bank actions, and as one would naturally expect, the gold price is responding by rising against all of them. And gold’s hyperbolic trajectory suggests that the hyperinflation of the dollar and these other currencies is imminent
The above charts paint a very bullish picture for the gold price. It appears that the price is about to lift off from the base it has been forming over the past several months, which has consolidated the huge gains made by gold since the collapse of Lehman Brothers in September 2008. In other words, get ready for a moon-shot in the gold price and hyperinflation.
by James Turk,
March 28th, 2011
Reviewing the week: +0.79%...
My friends, for the week: +1%!!!
Silver Supply Shortage?
By Jason Hamlin, on January 28th, 2011
http://www.goldstockbull.com/articles/silver-supply-shortage-2/
There are some bizarre things going on in the silver market at the moment, reminiscent of the supply shortages and high premiums witnessed in 2008. For starters, silver is currently in both short-term and long-term backwardation, suggesting there is higher demand for silver NOW than in the future. This is backed up by the U.S. mint reporting all-time record sales for silver eagles during the month of January, with three days still left to go. Sales are on pace to breach 5 million coins sold, shattering the November 2010 record of 4.6 million. It is worth noting that all of the 2010 American eagle gold proof coins also sold out, but the focus of this article will be on the increasing signs of a shortage in silver.
Just yesterday, King World News interviewed one of the top gold and silver dealers in the United States about tightness in the silver market. Bill Haynes is President and owner of CMI Gold & Silver and when asked about a shortage in silver he stated:
“All of the major suppliers of 100 ounce silver bars are either weeks or months out, some will not even take orders. I had some conversations with a number of people who buy from them, had to dig through the information and some of them revealed that they thought the refineries were having trouble and the manufacturers were having trouble getting the physical product which falls right into the silver shortage.
It does surprise me because we did not see the buying that we saw in 2008, 2009 when our safes were absolutely emptied of 100 ounce silver bars, and that’s the type of buying I thought we would have to see in order for there to be a shortage of 100 ounce silver bars.
I was able to get 100 ounce silver bars (recently) and then all of the sudden these guys I call them and say ok, we are talking 100 ounce silver bars, they’ll say well, it’s a month out on any order you place today. And then I have people telling me they will not take any orders on 100 ounce silver bars until May.
There’s a couple of things that are going to happen that is going to shut a lot of people out of this market. All of the 100 ounce bars are going to be gone in a matter of days, not weeks, days. Then people are going to have to put up their money and they are going to have to wait weeks or months before they get their bars. They are also going to have to pay higher premiums for that product because the marketplace will put a higher premium on the bars on a price drop that depletes all of the vaults around the country.”
Zerohedge also reported that the UK was the latest region affected by growing silver shortages after a British bullion dealer notified clients that the company had no remaining silver bars in stock and BullionVault posted a page on their site saying they were not accepting orders for silver in London.
In addition, Eric Sprott had to wait over two months to finally take delivery of the 22 million ounces needed for his new silver fund. He was recently quoted as saying:
“Frankly, we are concerned about the illiquidity in the physical silver market,” said Eric Sprott, Chief Investment Officer of Sprott Asset Management. “We believe the delays involved in the delivery of physical silver to the Trust highlight the disconnect that exists between the paper and physical markets for silver.”
Another example of the growing disconnect between the paper spot price and free market pricing is the fact that silver coins such as Silver Eagles or Canadian Maple Leafs are selling for $4 – $6 over spot on Ebay. This is a fairly liquid worldwide market for exchange and the premiums have been increasing in the past few months to as high as 20%!
Even one of the largest online dealers of silver bullion is now offering to BUY BACK silver coins such as American Eagles for $1.75 or more over spot price. That is right, while the official spot price was $26.75 this morning, APMEX was offering to buy Silver Eagle coins for $28.50.
Reasonable estimates suggest that if only 15% of those long silver futures decide to take delivery of physical silver, the COMEX will not have enough silver to deliver and a serious short squeeze will result in the silver price shooting dramatically higher. There has been a growing movement led my Max Keiser, Jim Sinclair and various newsletter writers encouraging investors to shun paper forms of ownership, buy only physical and stand for delivery on paper contracts. If this catches on, reaching the 15% threshold could happen rather quickly.
What is extraordinary about this apparent supply shortage is that it is occurring in the face of a declining spot price for silver. Economics 101 would teach that record demand and widespread shortages would create a spike in prices, but this is not occurring in the silver market and further highlights the growing disconnect between the phony paper market and true physical market.
To be fair, many are claiming that the buzz about a silver shortage is overblown, that Bullionvault is now selling silver again and that dealers may be exaggerating the case in order to create fear and drive sales. One dealer that I spoke to yesterday, Hannes at Tulving, told me that he has not seen any shortage in silver and has over 400,000 ounces in various forms, ready to be shipped. Perhaps the shortage story is getting overly dramatized or perhaps it has not hit all dealers yet. Time will sort this out, but either way, there are various fundamental conditions that are out of equilibrium and suggesting some underlying cause for concern.
Fundamentals Out of Balance
The fundamentals remain severely out of whack. Consider that since 1980 the above ground available gold is estimated to have increased by 600%, yet the price has still nearly doubled. During the same time period, the above ground available silver has declined by an estimated 90%, yet silver is still nearly 50% below its high from 1980. Even if we assumed that above ground supplies were stable for both metals, silver would have some serious catching up to do. But considering that the above ground silver supply has DECREASED significantly while the above ground gold supply has INCREASED significantly since 1980, supply and demand fundamentals would dictate that silver would be the metal making new highs and the gold/silver ratio would be reverting back toward the 15:1 ratio. With gold currently around $1,350, we should be seeing silver around $90 or higher.
The other thing to remember is that the fundamental divergence is only getting worse as gold is hoarded, while a significant percentage of the silver mined is used up in industrial applications such as batteries, converters, cell phones, computers, satellites, circuit boards, high tech weaponry, clean tech, water purification, etc. Demand continues to outpace supply each year and with stimulus-fueled economic growth continuing, the fundamentals are sure to drive silver prices much higher, despite the paper shorting schemes of the banksters.
So, to what extent there is a shortage in the silver market remains to be seen, but I would venture to guess that with a 80% gain in 2010, investor interest must be increasing in a relatively tight market. It will only take a small percentage of the money invested in stocks to switch over to physical silver to create the shortages that many are claiming. Either by a growing number of small investors waking up to silver’s potential or just a few ultra-wealthy individuals deciding to take a stake, the potential for a massive short squeeze is very real.
CBO Projects U.S. Budget Deficit to Reach $1.5 trillion in 2011 – Highest EVER!
Adding to the fundamental conditions driving precious metals higher, the Congressional Budget Office is now forecasting that, with the current spending trajectory and the new tax compromise, total debt will reach $23 trillion by 2020. That is equal to 160% of today’s GDP and 1.6 times the peak from World War II. This number does not count unfunded liabilities such as Social Security and Medicare, or the debt the government assumed from Freddie Mac and Fannie Mae, which puts the total debt over $100 Trillion by many estimates. With S&P downgrading Japan’s debt and others warning that the U.S. could be next, there is certainly trouble brewing in the financial system. Some believe the United States is already past the point of no return and that it will be impossible to ever repay the mounting debt. It is all destined to end badly, either in default or hyperinflation.
The fundamental conditions for the dollar are deteriorating while the fundamental conditions for silver are improving. In yet another sign of the disconnect between the paper silver price and the fundamentals, silver has been declining at the same time that the dollar has been sliding. Such abnormalities can not persist and are sure to rebalance sooner rather than later.
Conclusion
Even after the 80% gain in 2010, silver remains one of the best investment opportunities available today. Supply shortage or not, investors would be wise to ignore the mainstream media claiming a top and instead use this dip as a buying opportunity. I expect silver to reach towards $45 during 2011 and surpass $100 within the next few years. The train is truly about to leave the station. Are you on board?
Well, they jumped, fel back, jumped again and are now holding up near the recent highs... interesting indeed while the price has fallen back to 1325 or so... in the end, I see MUCH higher from here.
Turk - Swiss Bank Client Battles Over 2 Months For His Silver
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/12/8_Turk_-_Swiss_Bank_Client_Battles_Over_2_Months_For_His_Silver.html
Since King World News broke the news with Jim Rickards that a Swiss bank client was refused his $40 million of gold and had to threaten the bank to get it, the story has been going viral. KWN interviewed James Turk out of London today to get his comments on the situation. Turk responded by citing another example, “I found that Jim Rickards comments about the individual who had difficulty getting $40 million of gold out of the Swiss bank where he had it stored very interesting. I could tell you several stories of similar experiences.”
Turk continues:
“Let me just cite one example that is ongoing. This individual has been storing with a Swiss bank twenty bars (1,000 ounce bars) of silver which has a market value today of just over $550,000. So, it’s not only large transactions that are affected, but small ones too.
When I last emailed this individual a couple of weeks ago, he was still trying to get his silver from this Swiss bank. This has been going on for over two months, and again we are only talking about 20,000 ounces of silver. This may seem unimaginable to some people, but I had told this individual in September when he contacted me that I had seen this problem repeatedly with other people.
He was quite confident that he wouldn’t have a problem getting his silver because he had been paying storage fees on it since buying it in the late 1990’s. The Swiss bank is insisting that he take cash, but he is demanding his silver which is supposed to be sitting in the bank’s vault be delivered to him. As I said before Eric, I know of other examples like this one.
Circling back around to the Jim Rickards interview, he ended with some very good advice, with which I wholeheartedly agree. Make sure your gold and silver are stored outside of the banking system.”
With regards to gold and silver specifically Turk stated, “It is important for people to keep their eye on the big picture and not be distracted by short-term volatility in the price of gold and silver. The long-term trend for both precious metals is still pointing higher.”
What in the world is going on with some of these banks that are supposed to be storing their customers gold and silver? Have they leased it out to another entity? Have they sold their customers precious metals and left an IOU in the vault while continuing to charge custodial fees? King World News may have only scratched the surface of what could turn out to be a fraud inside of some of these banks.
Eric King
http://www.KingWorldNews.com
Gold in Three Currencies
http://www.kitco.com/ind/TimWood/dec082010.html
By Timothy Wood
Dec 8 2010 11:49AM
http://www.minefund.com
ST. LOUIS (MineFund.com) -- Investors in precious metals are entering a very interesting phase in the current bull market, which must be considered continuous over the last decade despite the rude but brief interruption of the global credit crisis.
Significant milestones:
Gold
1 - Crowdsourcing has been powerful for 2010 - the collective brain of the LBMA analysts has achieved a forecasting accuracy score of 96% for the year-to-date.
- Tom Kendall of Credit Suisse has an astonishing accuracy score of 99.3%, but he’s being chased hard by Ross Norman of Fast Markets (98%).
2 - The monthly average gold-silver ratio has dived to its lowest level since February 2007, averaging 48:1 so far this month.
- The previous lowest level of 47:1 from December 2006 looks in danger. The next stop after that is 44: 1 recorded in February 1998. Thereafter, it’s uncharted territory until 1985.
3 - Monthly average gold prices have taken out the prior bubble low. In May 1980, gold prices - adjusted for inflation - had tumbled to $1,361/oz. That was off the all-time high of $1861/oz averaged in January 1980, and before recovering to average $1,738/oz for September 1980. The latter is the next significant technical level for real gold prices.
- The real gold price averaged $1,356/oz over November 2010, and is currently averaging 1398/oz for December.
4 - Gold priced in a basket of commodity currencies is within 2% of taking out the all-time inflation adjusted high. The MineFund World Gold Price Index (January 2010 = 100) all-time high is 129 from January 1980 compared with the current value of 127 for December. Put another way, those currencies could exceed what has always been regarded as the most spectacular bull market in gold. That is despite them gaining significantly against the dollar in recent months.
- It is not as positive for the leading global currencies though. Gold priced in a basket consisting of the US dollar, euro, yen, Swiss franc, Canadian dollar, Australian dollar, and Hong Kong dollar is still 60% shy of its all-time high from January 1980. However, the decline of the euro has accelerated again and we expect the gap to tighten quickly.
5 - Gold priced in euros has put together 11 consecutive days above €1,000/oz. That’s the best performance since June of this year when the Greek crisis was most intense. There is every reason to believe the euro will continue to weaken in the absence of evidence that the contagion has been contained.
- Euro gold has offered the best return for gold bugs rising 41% for the year-to-date, a 10 point advantage over dollar gold.
6 - Gold priced in Sterling has breached £900/oz on consecutive days for the first time, and looks very capable of piercing £1,000/oz.
- Sterling gold is second to euro gold with a 35% return year-to-date.
7 - Yen gold has returned the least, though it still outshines most other assets, with a 16% y-t-d return. Australian dollar gold is the runner up with a 19% gain for 2010.
8 - Equities are softening again relative to gold.
- The S&P500 is trading close to the March 2009 low (in the current cycle) of 0.87x.
- The Dow is likewise struggling at 8.11x the gold price, which compares very favorably with the March 2009 low of 8.13x.
Silver
1 - The LBMA analyst peer group has achieved an average forecasting accuracy score of 90%.
- The best silver forecaster is Fred Panizzutti of MKS Finance, followed closely by Mike Ludwig of BNP Paribas.
2 - Monthly average silver prices are within range of topping a major inflation-adjusted technical level at $30/oz. The last time silver prices - in January 2010 dollars - averaged $30/oz for an entire month was February 1983.
- The next significant level is $52/oz which was averaged in September and October 1980.
3 - Silver priced in a basket of leading currencies looks ready to make the same challenge to the February 1983 levels, but it is grossly short of where it traded in September 1980. The MineFund World Silver Price Index traded at 320 compared with 172 for December to date.
4 - Silver priced in commodity currencies is doing far better, and could take out the October 1980 high having already surpassed the 1983 levels. The MineFund Commodity Silver Price Index hit 189 in October 1980 compared with 171 for December so far.
5 - Euro silver has nearly doubled so far this year, strongly outperforming every other currency. Sterling silver has returned 82% so far.
6 - Once again, the yen has been the least attractive currency in which to own silver, but it has still risen 59% for the year. Notably, you could have bought yen silver as late as August and achieved the same return.
Palladium
1 - Palladium prices have blindsided most of the LBMA analysts who were very cautious for 2010. Even so, they have so far managed to achieve a forecasting accuracy of 78% for palladium prices.
2 - Palladium is right back in its previous bubble range, and is close to taking out the previous high from June 2001 when the monthly average was $747/oz.
- The metal has now risen 4.5 fold since it bottomed out at $164/oz over December 2008, and remains the best performing metal since the global credit crisis abated.
3 - The all-time inflation adjusted high is a monthly average of $1,289/oz recording over January 2001.
Platinum
1 - Platinum has been a relatively poor performer and remains below its April 2010 highs. It has averaged $1,694/oz so far this December compared with a real average of $1,706/oz in April.
2 - It is within reasonable striking range of its all-time inflation-adjusted high of $2,077/oz set in March 2008.
3 - The platinum:palladium ratio continues to dive and is at levels unseen for a decade.
Timothy Wood
http://www.minefund.com
NIA Addresses Bernanke's '60 Minutes' Interview
Federal Reserve Chairman Ben Bernanke was a guest on '60 Minutes' this evening and the National Inflation Association felt it was important to address Bernanke's comments.
Bernanke claims to be concerned primarily about two things: unemployment and deflation. Bernanke says between the economic peak and the end of last year, 8.5 million jobs in America were lost with only 1 million jobs being regained since then. He says it could take 4 to 5 years for the U.S. to get back to a "more normal unemployment rate of 5% or 6%".
The truth is, real unemployment in the U.S. today once you account for everybody who has given up looking for work as well as everybody who is underemployed, is already about 22%. NIA believes it is more likely that in 4 to 5 years from now, U.S. unemployment will rise to Great Depression levels. Bernanke's policy of printing money and creating inflation will not create jobs because the money the Fed creates is going to fund non-productive and wasteful U.S. government spending. The only jobs being created are artificial government jobs.
U.S. government spending is up 108% from 10 years ago. We have a U.S. government spending bubble that will eventually go bust by the U.S. dollar becoming worthless and the U.S. government no longer being able to meet its obligations. Bernanke says we should only be concerned about the long-term deficit because in "10, 15, or 20 years from now the entire budget will be spent on Medicare, Medicaid, Social Security, and interest payments on the debt" and "there will be no money left for the military or other services the government provides".
The truth is, the U.S. currently has a budget deficit from just Medicare, Medicaid, and Social Security alone and even if the U.S. got rid of all government spending besides Medicare, Medicaid, and Social Security, it wouldn't be enough to balance the budget (including changes in our unfunded liabilities). Countries usually see hyperinflation of their currencies once interest payments on their national debt reach about 50% of tax receipts, and the U.S. is at risk of seeing interest payments on its debt reach 50% of tax receipts in the middle of this decade. In other words, the U.S. should be concerned about surviving these next 5 years, before it worries about surviving the next 10, 15, or 20 years.
According to Bernanke, inflation is "very very low" and this is a major concern to him because we are very close to falling prices or deflation, which he says would lead to falling wages. Bernanke believes that with his $600 billion in "quantitative easing", the risk of deflation is now "pretty low" but if he didn't act, deflation would be a more serious concern.
The truth is, gold is the best gauge of inflation, not the government's phony CPI numbers. Gold is above $1,400 per ounce and near a new all time high. If deflation was as serious of a risk as Bernanke says, we would be seeing falling gold prices. Bernanke's quantitative easing has now made deflation absolutely impossible and Americans need to be concerned about the risk of massive inflation and perhaps hyperinflation. If we saw deflation, it would actually be a good thing because the savings and incomes of middle-class Americans would be worth more and prices for food and energy will become cheaper.
Bernanke says that those who look at the $600 billion in quantitative easing as being inflationary are "not looking at the risks of not acting". He says the Fed has "very carefully analyzed inflation every which way" and that fears of inflation are "way overstated". Bernanke claims it is a "myth" that the Fed is "printing money" because the "money in circulation is not changing in any significant way".
The truth is, the Fed's M2 money supply has risen by $44.9 billion to $8.8092 trillion over the past month. If you annualize this increase, we are talking about a 6.1% increase in the M2 money supply. All Americans who shop for food, gas, or clothes, realize that the U.S. currently has around 6% price inflation and the CPI's 1.17% rate way understates inflation. The U.S. Bureau of Labor Statistics uses geometric weighting and hedonics to understate inflation. The government's CPI simply cannot be relied upon.
Bernanke admitted in his 60 Minutes interview that he did not see the panic of 2008 coming. His excuse was that the Fed didn't have oversight of AIG or Lehman Brothers, and if the Fed had more powers they would have seen the crisis coming.
The truth is, there are many Austrian economists, including those who co-founded and are associated with NIA, who did see the panic of 2008 coming. Every Austrian economist who predicted the panic of 2008, now believes that massive inflation is in our future. It doesn't make sense for Americans to trust Bernanke about inflation when he was wrong about the housing bubble and just about everything else.
Bernanke went on to say that the reason the U.S. has the largest income disparity gap out of any country in the world is because of "educational differences". Bernanke claims that unemployment for Americans with college degrees is only 5%, compared to 10% unemployment for Americans with just a high school education.
The truth is, the reason for our income disparity gap is inflation. When the Fed prints money, it steals from the incomes and savings of the poor and middle-class and transfers this wealth to those on Wall Street who have access to the Fed's cheap and easy money. It has nothing to do with education. In fact, because of Bernanke making it so easy for college students to get student loans, the U.S. has a college tuition inflation crisis.
College tuitions now cost 60% of the median U.S. income, triple the rate of 20% which held strong from 1950 to 1980. Americans today who have college degrees are now worst off, because they are deeply into debt. The only reason their rate of unemployment is lower than those without college degrees is because those with college degrees are more determined to find jobs. If you ask any college graduate who has a job if their college degree helped them become employed, NIA believes the overwhelming majority of college graduates will tell you no.
Bernanke says that he is "trying to achieve balance" and "will not allow inflation to rise above 2%". He says the Fed can "raise interest rates in 15 minutes if we have to" and the Fed will have "no problem raising rates, tightening monetary policy, and reducing inflation when the time is appropriate".
NIA believes the time is appropriate to raise interest rates now. The real rate of inflation is already a lot higher than 2% and if Bernanke waits for the U.S. to be in an all out currency crisis, it will be impossible to contain inflation. The U.S. will have a major inflationary problem with rising precious metals, food, energy, and clothing prices, until the Federal Reserve raises interest rates to a level that is higher than the real rate of price inflation. If the Fed waits for real price inflation in the U.S. to be in the double-digits, it means we will need to see double-digit interest rates, which will send our interest payments on the national debt to over $1 trillion per year.
Bernanke says that all the Fed's quantitative easing is doing is, "lowering interest rates", but in fact, yields on the 10-year bond are now 2.97%, a new four-month high. NIA believes it is likely that bond yields will continue to rise dramatically in the months ahead, with 10-year bond yields likely to rise above 4% in the first half of 2011. The Fed's goal of keeping interest rates low is obviously failing. The bond bubble is getting ready to burst, which will collapse the U.S. government debt bubble with it.
Americans simply cannot trust Bernanke, who has continuously lied to the American public and been wrong about everything. All Americans need to realize that the real economic crisis is still ahead and it will come as a result of Bernanke's dangerous and destructive actions. Americans need to be preparing now for hyperinflation if they want to survive, because the U.S. government will soon no longer be able to provide for them.
It is important to spread the word about NIA to as many people as possible, as quickly as possible, if you want America to survive hyperinflation. Please tell everybody you know to become members of NIA for free immediately at: http://inflation.us
‘Shock and Awe’ in Precious Metals
Written by Jeff Nielson
Wednesday, 01 December 2010 11:24
http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=16384:shock-and-awe-in-precious-metals&catid=49:silver-commentary&Itemid=130
Earlier this month, precious metals investors witnessed arguably the most concerted take-down of the precious metals sector since the Crash of ’08. First, investors were lathered-up into a mania, after World Bank head Robert Zoellick planted a piece in the Financial Times where he feigned interest in having a gold standard re-instituted.
Then the ambush took place.
This time, China was clearly participating as the ‘tag-team’ partner of the U.S. government. It began by raising reserve requirements for its banks – a move always seen as restraining the growth of an economy (and reducing commodities demand). Then the Chinese government leaked word that it was “planning interest rate increases” (even more bearish for commodities), all within the span of a couple of days.
What launched the “ambush”, however, was the utterly unprecedented move by the CME Group (owner of the Comex exchange) to radically increase margin requirements for silver halfway through a trading session. Clearly, the intent was to get precious metals investors as over-extended as possible – and then to “drop the hammer” on them at literally the best (i.e. most-damaging) moment.
This was immediately followed by yet another increase in bank reserves by China’s government, mere days after the previous reserve-increase was announced. With the U.S. having already taken radical action to curb commodities markets, it is simply not plausible that the Chinese government suddenly decided that further tightening was necessary. Instead, this was a move purely intended to generate more downside momentum in commodities by China, the world’s largest consumer of those commodities (including precious metals). And when those moves still did not generate the downward momentum desired by these market-manipulators, the CME Group announced yet another reduction of “margin” – this time for both gold and silver.
In previous years, a premeditated, orchestrated take-down of precious metals of this magnitude would derail the market for many weeks, if not months. However, that era is over.
Following the inevitable plunge of these commodities markets (as margin players were driven out), gold and silver quickly bottomed and firmed. This epitomizes the entirely different attitude of precious metals buyers. Whereas before such ambushes would create fear among investors that a “top” had occurred in the market, today all that goes through the minds of investors when precious metals go lower is “gold and silver are on sale!”
Buyers gleefully soaked-up every ounce of cheap bullion which the bullion banks chose to bestow upon them (as an early Christmas present). And now, with the month over, and “delivery” due in the Comex, those buyers are saying “give us our gold and silver.” While the numbers bounce around day-to-day, at present these buyers are wanting to take delivery on a large portion of total, available gold inventories and nearly ¾ of all available silver in Comex inventories.
Though it was the bankster cabal which launched this ‘shock’ on the precious metals market (and precious metals investors), the only ‘awe’ that was experienced was that of the banksters, themselves, as buyers are now holding out their hands and demanding that the bullion banks deliver most of their dwindling supplies of real bullion. Much like pointing a bazooka at someone – and not noticing that you were holding it backwards – this ambush has now blown up in the faces of these bankers.
If these manipulative buffoons had the slightest understanding of these markets, the spectacular failure of their attempt to (once again) “cap” precious metals would have come as no surprise. As I write regularly, anything under-priced (like precious metals) will be over-consumed. Push the price even lower, and inventories will disappear that much quicker.
The example I have used previously is chocolate bars. Price chocolate bars at 10 cents each (which was their price before 40 years of banker-produced inflation destroyed the value of our currency) and store shelves will be quickly stripped bare. Yet in the convoluted fantasy-world of the bullion banks, if they saw store shelves being cleaned-out with chocolate bars at 10 cents apiece, their “strategy” would be to attempt to kill demand by pricing them at 5 cents.
In previous years, the banksters could avoid being punished for their total ignorance of commodity fundamentals. Armed with countless tons of bullion which Western central banks had foolishly leased to them, when the cabal drove down precious metals prices and buyers stepped in to load-up, they would simply drive prices even lower (by dumping yet more bullion onto the market) – until even the most ardent bulls capitulated.
Those days are gone, because the bullion is gone. Today, when bullion prices are driven down, and buyers step in to buy, it is the bullion banks who are now forced to capitulate. Much like a thug who points a revolver at someone – after the sixth shot is fired – the banksters now frighten no one in the precious metals market.
In the case of silver, the only “gun” now pointing at anyone is the gun which the bullion bankers are holding against their own temple (with a “silver bullet” in the chamber). As regular readers know, most of the total global stockpiles of silver (accumulated over roughly 5,000 years) are now gone. Used-up (in tiny amounts) in an infinite number of consumer and industrial goods, that silver can now never be economically recovered – unless/until the price rises to many multiples of the current price. Put another way, with gold now priced at roughly 50 times the price of silver, at some point before silver reaches $1400/oz, it will finally become valuable enough that industrial users will take measures to recover this silver, much like virtually 100% of all gold is recovered/recycled.
At the present time, the only message being sent (by the bankers) to silver’s multitude of industrial users is “silver is cheap”. With the bankers ensuring that silver is grossly under-priced, industrial demand is predictably soaring – up 18% year-over-year.
Readers must realize that these industrial users can obviously never be “frightened off” by cheap silver, but instead will simply increase their buying (as they have done). Having gotten industrial users ‘addicted’ to cheap silver, it is now up to the bullion banks to produce enough real bullion to satisfy the rabid appetite for industrial silver – or face the consequences: their own economic annihilation.
“Short” 100’s of millions of ounces of silver, JP Morgan is already facing $billions in losses on that part of their holdings, alone. However, after squandering their bullion inventories, the banksters turned to the derivatives market to use paper leverage to continue to manipulate prices.
Thanks to the CPM Group’s Jeffrey Christian, we have a rough idea of precisely how leveraged is that short position: about 100:1. So when JP Morgan starts with $billions in losses, and leverages that 100:1, the bottom-line is bankruptcy. And the harder these knuckle-draggers push-down on the market (thinking they are limiting their losses), the sooner the last bar of silver is gone – and with it, JP Morgan.
With available silver now nearly gone, we are very close to (if not already at) the point in time where industrial users make a frantic effort to buy and hoard every ounce of silver that they can lay their hands on, and soaring prices will only make them buy faster. Understand that the pretext of raising margin requirements in the silver market was to restore “order” to that market. Instead, because this move was motivated by corruption and malice rather than market fundamentals, raising margin requirements (and creating a “sale” for silver) is creating much more disorder – and rapidly setting the stage for an actual default (a fail to “deliver”) in the silver market.
It is because of this total reversal in attitudes (and the depletion of bullion inventories) that I continue to urge investors to “think like the big buyers”. They want to see bullion prices fall, because they know inventories are depleted, and any pull-backs will be shorter and shorter.
When bullion prices fall, gold and silver are “on sale”. Period. And as we are always reminded when any retailer advertises a sale, buy now – because quantities are limited.
Commodities: Hoarding Versus Shorting
Written by Jeff Nielson
Wednesday, 01 September 2010 12:19
Given the decades of rampant manipulation of the precious metals markets on the “short” side of trading, it is more than ironic that as the U.S. CFTC (“Commodity Futures Trading Commission”) ponders restrictions on commodities markets, it has expressed the most public concern about “speculators” on the “long” side of investing.
This comes with HSBC sitting with the largest concentrated-position in the gold market in history (“short”), while JP Morgan sits with the largest concentrated-position in the history of the silver market (also “short”). Furthermore, these concentrations (in proportionate terms) are far larger than anything seen in the history of all commodities markets.
Nonetheless, we continue to hear endless rhetoric about “speculators” disrupting markets (especially the crude oil market) – through “competing” with the buyers who actually consume these commodities through their own operations. Such “disruptive speculation” is often referred to (disparagingly) as “hoarding”.
Before I get into a direct analysis of this economic phenomenon, it would be helpful to review some basic economic fundamentals, and then first apply those fundamentals to the “short” side of commodities trading. Regular readers will be familiar with one of my economic mantras on commodities markets: anything which is under-priced will be over-consumed.
In fact, this isn’t really “economics”, but merely an expression of common sense. If chocolate bars were suddenly re-priced at a dime apiece, store shelves would be cleaned-out in days. Manufacturers’ inventories would then quickly be drained. This would soon be followed by acute shortages in the global cocoa market, and very possibly the sugar market as well.
At some point, not too far down the road, such warped pricing (totally against economic fundamentals) would create utter havoc in these markets – as acute shortages occurred – leading (inevitably) to a massive price-shock, not only to the chocolate bar market, but also with the cocoa market, and likely the sugar market, too. These price-shocks, in turn, would cause serious disruptions in other markets which rely upon these commodities.
In short, excessively low prices are at least as damaging and disruptive to markets as excessively high prices – and arguably much more so, since they lead to two massive distortions to markets: first over-consumption (which depletes inventories and stockpiles), followed by a massive price-shock (the only way to curb demand to a sustainable level).
If we replace the words “chocolate bar” (in our example) with the word “silver”, we see what utter havoc has been created in this market, through JP Morgan being allowed to accumulate and hold the largest, concentrated (short) position in the history of commodities market.
Noted silver authority Ted Butler has estimated that 90% of global stockpiles of silver have been used-up, thanks to decades of this market-manipulation by JP Morgan – along with smaller, but equally nefarious allies in this market. With decades of manipulation behind us, and global inventories and stockpiles already decimated, we have gone through the period of “over-consumption” and are rapidly approaching the massive price-shock – which became inevitable the day that JP Morgan (and fellow banksters) embarked upon this permanent-manipulation scheme. It is the years of ceaseless manipulation, combined with JP Morgan misrepresenting their activities in this market which makes this more than merely "illegitimate", but also illegal.
Not surprisingly, growing numbers of investors are gravitating toward this market. They are investing in a commodity which has become genuinely “scarce”, due to the nefarious (and illegal) manipulation of this market by JP Morgan and allies. How is the brain-dead media reacting to these market events?
Far from condemning the indefensible conduct of the bankers (on the short side), it is silver investors who are depicted as “speculators” – which as I explained earlier, is a “four-letter word” in the eyes of the U.S. regulator. And rather than describing the activity of these “speculators” as the very sensible decision to stock-up on a commodity in short supply, the media depicts this activity as “hoarding” – yet another term with negative connotations.
To display how this attitude is not simply “warped”, but totally mistaken, let’s back-up a bit. JP Morgan attempts to “justify” its illegal manipulation of the silver market as part of the legitimate activity of “hedging”. Simple arithmetic proves JP Morgan is lying. By definition, hedging is an activity to help restore balance to a market – through offsetting long positions in that market.
More importantly, the mechanism through which hedging restores balance is price. At this point, analysis becomes simple: if the hedging is legitimate it will produce a price which leads to balance between supply and demand in this market. The simple fact that the (supposed) “hedging” (i.e. shorting) by JP Morgan led to a 90% drop in global stockpiles, and a corresponding 90% plunge in global inventories (in just 15 years) is – by itself – conclusive proof that JP Morgan’s short-position could not possibly represent legitimate hedging.
JP Morgan created the severe imbalance in this market, through overly depressing the price with its manipulative shorting. This has led (directly) to destruction of stockpiles, which also leads (directly) to the massive price-shock toward which we are heading. Let’s compare this activity to the (long) “speculation” which the CFTC has mistakenly identified as a more serious problem.
Let’s assume that the level of long-investment (i.e. “speculation”) leads to tightening supplies for a particular commodity. Let’s go even further, and raise the level of “speculation” to the point where there is a serious “spike” in the price of that commodity. What happens then?
The spike in price causes demand to plummet. This causes the price to fall (rapidly) irrespective of the conduct of “speculators”. After bouncing-around a bit (as the pendulum swings back and forth), the price returns to an equilibrium level – and there has been only one disruption to this market.
Conversely, with the excessive shorting of JP Morgan (et al), first this leads to over-consumption. In the case of a metal like silver, with countless useful chemical/metallurgical properties, this means numerous businesses incorporate silver into their business/production model (at a price which cannot possibly be sustained over the long-term). Thus, when the inevitable collapse in supply occurs (and a default, or severe supply disruption in this market), far too many businesses have not only become dependent on silver, but dependent upon cheap silver.
This means that the original supply-crunch will have an horrendous impact on these businesses. However, that impact is nothing compared to the harm of the massive price-shock – made inevitable by excessive consumption. Because under-pricing led/leads to massive over-consumption, demand would have been (artificially) pushed to grossly excessive levels – maximizing the total damage from the price-shock.
Conversely, in a market which only has long-speculation, there is no artificial demand created first. What this means is that a price-shock created by “over-speculation” must (as a matter of simple arithmetic/logic) cause less problems than an imbalance caused by excessive-shorting.
Let’s reinforce the distinction that “hoarding” is the noble activity, while “shorting” is the evil which must be controlled. This can be easily illustrated by looking at the “supply” of various species of animals, in the animal kingdom. Here, the concept of hoarding does not even exist. Rather, we encounter a word with a much different connotation: “conservation”.
When a particular species of animal becomes “endangered” due to “over-consumption”, the people who protect the supply of such species are widely viewed as heroes. We can easily export this analysis to the world of commodities, by simply reviewing the evolution of the silver market.
First, JP Morgan engages in grossly-excessive (and illegal) shorting of the silver market. This causes the price to drop to a totally artificial level (which is what causes over-consumption). Thus, what the market needs is higher prices – to push demand back down to sustainable levels. Enter the silver investors.
The moment that these investors start buying-up significant amounts of silver, this causes the price to rise (and curbs demand) sooner than without the intervention of these investors. What this means is that the price-shock occurs sooner than without this investing and (as a result) there is more silver remaining in global stockpiles than without the virtuous influence of these investors. This analysis is by no means unique to the silver sector, but can be applied to any/all commodity markets.
This analysis should also serve to provide readers with proper perspective regarding the individuals (and groups, such as GATA) who have laboured for years to expose the illegal manipulation of the gold and silver markets. The clueless media have depicted these people as a collection of “Don Quixotes”, who are supposedly wrong about both the existence of manipulation in these markets and the urgent need to stamp-out such manipulation ASAP.
Any valid analysis of these markets instantly vindicates these people (and their efforts), while it is the “shorts” (and their defenders in the media and regulatory bodies) whose conduct cannot withstand the slightest analytical scrutiny.
In short, we could easily devise an “I.Q. test” for all would-be “regulators” of the CFTC. We can test them on their understanding of (and the distinction between) hoarding and shorting. Given the rhetoric emanating from this severely-tarnished institution, most if not all of the CFTC’s current “leadership” would flunk such a simple exam – with a similar lack of comprehension to be expected should we test media “experts” on commodities.
Readers must “shun the herd” when it comes to commodities analysis – as there are few signs of intelligent-life here. While silver investors are unlikely to be awarded “medals” for their virtuous conduct, at least we can go to sleep at night knowing that we won’t “burn in Hell” like the silver-shorts of JP Morgan.
World Bank chief surprises with gold standard idea
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Topics:Commodities International. On Monday November 8, 2010, 6:30 am EST
http://finance.yahoo.com/news/World-Bank-chief-surprises-rb-708547618.html?x=0&sec=topStories&pos=2&asset=&ccode=
LONDON (Reuters) - Leading economies should consider adopting a modified global gold standard to guide currency rates, World Bank president Robert Zoellick said on Monday in a surprise proposal before a potentially acrimonious G20 summit.
Writing in the Financial Times, Zoellick called for a "Bretton Woods II" system of floating currencies as a successor to the Bretton Woods fixed-exchange rate regime that broke down in the early 1970s.
The former U.S. trade representative, who served in several Republican administrations, said such a move "is likely to need to involve the dollar, the euro, the yen, the pound and (a yuan) that moves toward internationalization and then an open capital account.
"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," he added.
Analysts were cautious. "Going forward that would be something that we could look toward, but it's not going to happen within a short period of time," said Ong Yi Ling, analyst at Phillip Futures in Singapore, adding that gold prices barely reacted to the comments.
Gold briefly hit a record high of $1,398.35 an ounce in early trade on Monday on concerns of a continued weakening dollar trend after the U.S. Federal Reserve last week acted to resume buying Treasuries.
SUMMIT ACRIMONY?
That policy has fed acrimony among leading economies in the Group of 20 in the run-up to their summit in Seoul on Wednesday and Thursday.
China and Germany, major exporting nations, have both decried the Fed's quantitative easing -- effectively printing money -- which is weakening the dollar.
Investors are pumping dollars into emerging markets in search of higher yields, and the potentially destabilizing impact of this, along with big current account deficits and surpluses as well as China's reluctance to let the yuan appreciate faster, are set to dominate the G20 debate.
France, which takes over the G20 chair after this week's summit, says it plans to work on a new international monetary system to bring greater currency stability.
Beijing's central bank chief has suggested an alternative monetary system based on using the International Monetary Fund's Special Drawing Rights, a notional unit of value based on a basket of major currencies, instead of the dollar as the sole global reserve currency.
Zoellick was a senior official in the U.S. Treasury at the time of the 1985 Plaza and 1987 Louvre Accords on rebalancing currencies among major industrialized nations. He noted that that phase of currency coordination helped launch the Uruguay Round of world trade liberalization negotiations.
While his opinion article in the Financial Times did not represent either U.S. or World Bank policy, it may reflect a greater openness in Washington than in the last two decades to some form of international currency cooperation.
"The dollar is losing its relevance especially with the emergence of Asia economies, so a more neutral benchmark may be required. Gold, amid all the recent uncertainty, is proving its worth," said ANZ's senior commodity analyst Mark Pervan.
Gold retreated to around $1,390 an ounce by 1000 GMT as speculators booked profits.
Zoellick said a new monetary system would take time to develop and should be part of a package approach including possible changes in IMF rules to review capital as well as current account policies, and linking IMF monetary assessments to World Trade Organisation obligations.
The dollar rose sharply on Monday as unwinding of dollar short positions that began with solid U.S. jobs data snowballed, pushing down the euro to its lowest level since the Fed embarked on fresh easing last week. (USD/) (Reporting by Lewa Pardomuan, Nick Trevethan and Paul Taylor; Editing by Ruth Pitchford)
Stocks Surge, And Everyone Is Terrified As Hell: Here's What You Need To Know
Joe Weisenthal | Nov. 4, 2010, 4:00 PM
http://www.businessinsider.com/closing-bell-november-4-2010-11
A mini taste of Zimbabwe today? It kind of felt like it:
But first, the scoreboard:
Dow: +222
NASDAQ: +35
S&P 500: +23
And now, the top stories:
Well, obviously "today" started yesterday at 2:15 PM ET when the Fed announced its quantitative easing initiative. What's funny is that it didn't actually move the markets all that much (after some initial chaotic trading).
But stocks surged higher in Japan last night, and that set the tone for a monster global "risk-on" rally around the world. China had a monster night as well.
Of course, "risk-on" is codeword for "dump the dollar and buy everything else in sight" so there were huge rallies in Treasuries, precious metals (new highs in gold and silver!) industrial commodities, agricultural commodities, and of course stocks.
Notably weak: PIIGS debt. Spreads are blowing out wildly in Ireland and Greece, though the effect on the euro really is almost non-existent. After all, the euro isn't the dollar, so it is something to be held. Also, there were riots and bombs around Athens all day, but again, nobody cared.
In the US, the big macro data of the morning was the weekly jobs report which jumped and was worse than expectations.
Did we mention that gold surged? Yes, we did, but it's worth mentioning again. It's above $1390.
As for stocks, well, they surged all day, ending right near their highs. And look, Bernanke literally said last night that higher stock prices were part of his goal, so if you're betting against stocks, you're betting against the guy with the biggest long-only fund in the world.
The bottom line: Everyone is terrified by the severity of the everything-but-the-dollar lately. Hopefully Ben Bernanke knows what he's doing.
Thank you for posting that-very informative.
Are You Taking A 'No Brainer' or 'Head in the Sand' Approach to Investing in Gold and Silver?
By Arnold Bock
Oct 27 2010 12:27PM
http://www.munknee.com
http://www.kitco.com/ind/Bock/oct272010.html
It is genuinely amazing that so many economists and investment professionals continue to promote “business as usual” investment advice. Their clients will surely pay a steep price for this “head in the sand” approach to investing. Here’s why.
Current Investment Realities
a) Stocks - Risky
In spite of the fact that equities are more or less fully priced, there are those who continue to recommend stocks without caution to their inherent risk. We know the FED’s propensity to create money out of thin air continues unabated and that money has to find a home somewhere. Is a traditional portfolio of stocks the place to be in this new environment?
b) Bonds – A Fool’s Game
Safe haven investing in government and investment grade corporate bonds is a fool’s game. Why? Aren’t bonds designed to reduce risk and preserve one’s equity? With interest rates at multigenerational lows, any change in interest rates can only go in one direction...higher. Rising interest rates will take a terrible toll on bond prices. More insulting yet is that bonds and fixed interest rate investments of all kinds earn infinitesimal returns these days.
c) Residential Real Estate – Still Overpriced
Now that residential real estate in the U.S. has experienced more than a 30 percent reduction from its highs, maybe the time is ripe to buy again? Not on your life! Real estate everywhere remains at heights well above intrinsic values. Even the International Monetary Fund suggested recently that housing is overpriced almost everywhere in the world and will therefore remain anaemic as an investment for years ahead.
Currency Calamities Coming
If the realities above aren’t sufficiently stress inducing, consider what happens to the purchasing power of our currency as it competes with others to see which can devalue quicker? Why would governments and their central banks want to diminish the purchasing power of their own currency?
1)Competition for exports requires lower prices. Trashing the value of one’s currency also helps with a positive balance of trade in that a cheaper currency makes imports more expensive.
Lower currency values allow governments to pay off debts and meet future obligations to their citizens for pensions and health care with cheaper currency.
2)Price inflation which follows, unfortunately, also lowers the standard of living for most citizens. Apologists might suggest this collateral damage is a necessary price to be paid to achieve the greater good.
3)Skilfully executed, a devalued currency also allows the government to avoid having to default on its mountains of accumulated debt.
4)If explained and communicated with cynical precision, the voting public might even be induced to accept reduced living standards without reverting to Greek or French style rioting to express its antagonism for having been raped by its own government.
Why the Aversion to Reality?
How accurate are these economic and financial bad news facts? Massive accumulated debt and unfunded future liabilities and obligations accrued by financial institutions such as insurance companies, pension funds and large banks, can’t be paid. Of course many governments and their agencies are approaching insolvency too.
While most countries have not yet defaulted, an honest analysis of the value of their assets, income streams, obligations and realistic assessment of the broader global economy, leaves little doubt as to what will transpire ahead. When governments fail, who is available to bail out the financial sector? More importantly, who bails out governments?
Kicking the can down the road by talking up “recovery” in the economy doesn’t change reality. At best, it merely buys more time for the tooth fairy to work her magic or that default occurs on someone else’s watch. Politicians and governments are masters at this game.
So why are so many smart and informed persons in academia, the financial sector and government not acknowledging these realities?
Self interest might be a good place to start. If one is employed in the financial industry or government, employment tenure is paramount. Aside from a generous salary, a handsome defined benefit, inflation adjusted pension is guaranteed at the end of one’s loyal service.
For academics, their credentials frequently infer credibility thus yielding lucrative consulting contracts. Clients frequently aren’t interested in objective assessments, but rather a saleable, positive and safe report for the benefit of the Directors or the investment community. As with employees, it is simply more comfortable to ‘go along and get along.’ Parroting the party line and prevailing wisdom is safer...and more profitable.
People possess a distinct propensity to avoid unpleasant ideas, realities and prospects. Denial is a coping mechanism common to us all regardless of our intelligence, education, knowledge or income. Therefore deliberately remaining ignorant or accepting conventional wisdom from persons pursuing their separate agendas is foolish, but easy.
Does this suggest persons in positions of authority, responsibility and power deliberately lie? Of course they do! As an absolute minimum they speak in half truths, omit highly relevant information or say nothing. Is this so difficult to believe given that so much of their personal and organization’s self interest is at stake?
Confidence is crucial. Causing investors and voters to remain confident is essential in order to avoid failure. Many financial institutions, governments and pension funds are effectively insolvent, but they have not declared bankruptcy in spite of this reality, simply because enough confidence continues to prevail with the assistance of a little creative accounting.
Self interest, as perceived and interpreted by each of us, is a dominant motivation. Listening to or reading the comments of the Federal Reserve Chairman and Treasury Secretary is at best to receive half truths. Quite simply, their jobs are to create and maintain the confidence of the public.
Where is the Public Concern?
We the ‘sheepeople’ like to travel in packs. We associate with persons of similar social class, age, and values, if for no other reason than it makes life more comfortable. Our associates, colleagues and friends validate our beliefs, because they believe what we believe. Yes, the tendency is to want to be part of a majority... a herd which follows opinion leaders like docile sheep. There is satisfaction and comfort in knowing we are correct, even safe, among folks of similar beliefs. That is largely why information and opinion expressed in the mainstream media is accepted without thought or reflection, much less challenge.
Where Should We Invest Our Money These Days?
Commodities, including energy, agriculture, precious and base metals and other tangibles should be our safe haven investment refuge. They are real, relatively underpriced, and are undeniably necessary. Moreover, most are scarce in a fast growing world of 6.5 Billion consumers, many of whom are also moving into the middle class in emerging markets and developing nations. Middle class incomes dramatically increase demand as well.
Economic policy direction is increasingly clear. U.S. Fed Chairman Bernanke continues to issue strong signals that massive money creation, conjured out of thin air, better known by the sophisticated term ‘Quantitative Easing’, will continue with a vengeance. It is the favourite wrench in his toolkit. A devalued dollar and price inflation follows.
Conclusion
The central thesis of this piece is that there is demonstrated reluctance by so many financial professionals, investment advisors and individual investors to understand and accept the current direction of our financial and economic system. Consequently, investors all too frequently insist on making investment decisions contrary to their own self interest.
As governments compete to devalue their currencies and financial institutions and governments both try to evade the inevitable consequences, it seems only reasonable we would want to adopt measures designed to mitigate the negative financial impacts on ourselves. On a more positive note, these realties also provide many opportunities to prosper.
The fact that so many investment professionals can’t bring themselves to get with the program, doesn’t mean we individual investors have to wait. Waiting could be financially fatal!
Get your “head out of the sand” and face up to the realities that are impacting our economy and the need to put some gold, silver and/or other investment tangibles in your portfolio. It’s a “no brainer” decision if ever there was one!
Arnold Bock with Lorimer Wilson
www.FinancialArticleSummariesToday.com
****
Arnold Bock is a frequent contributor to http://www.FinancialArticleSummariesToday.com, “A site/sight for sore eyes and inquisitive minds”, and www.munKNEE.com, “It’s all about MONEY” of which Lorimer Wilson is editor. Sign up for the FREE weekly "Top 100 Stock Market, Asset Ratio & Economic Indicators in Review."
Warning: Retirement Disaster Ahead
by Brett Arends
Wednesday, October 27, 2010
http://finance.yahoo.com/focus-retirement/article/111138/retirement-disaster-ahead?mod=fidelity-readytoretire&cat=fidelity_2010_getting_ready_to_retire
Don't let the rally in the stock and bond markets fool you. Many Americans are still hurtling toward a retirement disaster. Few realize it. Even many of those running the big pension funds don't know.
That's the conclusion of John West and Rob Arnott at Research Affiliates, an investment management firm, in Newport Beach, Calif. In their latest report, "Hope Is Not A Strategy," they have some numbers to back it up.
"I worry a lot about people reaching their golden years and discovering, 'Oh, I should've saved more,' and 'Oh, I don't qualify for Social Security anymore because it's means tested,'" says Mr. Arnott, a widely respected market strategist. "We're headed for a retirement train wreck," he adds, "and it's going to get really ugly over the next 15 years."
Alarmist? Perhaps. But follow the math.
The returns you will get from your stock funds can only come from four things, they note: dividends, earnings growth, inflation and changes in valuation.
Right now the dividend yield on U.S. stocks is about 2.2%, they note. Historically, earnings have only grown by a surprisingly low 1% a year in real, inflation-adjusted terms. Mr. Arnott tells me the average since 1900 is only about 1.2%, and in the last half century just 0.6%. Will we get more in the future? With the U.S. population aging and heavily in debt? It's hard to imagine.
Throw in a 2% inflation forecast -- more on this later -- and Research Affiliates forecasts a long-term return of 5.2%.
What about changes in valuation? Some generations are lucky. They invest in the stock market when it's depressed and shares are cheap in relation to earnings. This was the case in the 1930s and the 1970s. Then they retire and cash out when the market is booming and shares are expensive in relation to earnings -- such as in the 1960s and 1990s.
People today are not so lucky. The stock market's latest rally has lifted shares already to pretty high levels in relation to average cyclically-adjusted earnings. This so-called "Shiller PE" (named after Yale professor Robert Shiller, who popularized the notion) has been an excellent indicator of market value. Right now it's at about 22 -- well above its historic average of 16. The only time the market has boomed from these levels, was in the late 1990s bubble -- an atypical moment unlikely to be repeated any time soon.
Now look at bonds. Thanks to the recent boom, the picture for investors here looks even worse. And there is less room for ambiguity, because bond coupons and the repayment of principal are fixed.
Based on the yields of prices across all investment grade bonds, Mr. West and Mr. Arnott calculate likely long-term bond returns from here of about 2.5%.
So an investor with 60% of his portfolio in stocks and 40% in bonds, a standard, if conservative, allocation, can expect a weighted average return from here of only about 4.1%.
To put this in context, they notice that the typical big pension fund is still expecting to earn about 7% to 8% a year.
When you strip out 2% inflation, that means pension fund managers are expecting 5-6% percent a year in real, inflation-adjusted terms.
But by Mr. West and Mr. Arnott's numbers, investors can only expect about 2.1%.
Gulp.
Here's what this means for you.
Someone who saves $10,000 a year for 30 years and invests the money at 5.5% a year will end up with $760,000.
Someone who only manages to earn 2.5% on their investments: Just $420,000.
If you're running a pension fund, this kind of shortfall leads to a funding gap that must be made up by the plan sponsor. For a private investor trying to build their own savings, it leads to a dismal retirement.
Is there any hope?
I asked Mr. Arnott about two possible sources of higher returns.
The first: Stock buybacks. Will they help? Many companies are trying to return more money to investors, on top of dividends, by buying back stock. In theory, at least, this ought to boost returns, because it reduces the number of shares, and therefore increases the value of those that remain. But Mr. Arnott cautions against relying on it. We don't know how big these buybacks will be, and we don't know if they're sustainable, he says. Furthermore, the gains are usually offset by the issue of new stock and options to management. "Most buybacks are done to facilitate the exercise of management stock options," he says.
The second possible source of better returns: Emerging markets.
Investors have been throwing money into emerging market funds recently like a Hail Mary pass -- a last, desperate bid to snatch a decent retirement from the jaws of defeat.
But they may be substituting hope for reason. By Mr. Arnott's math, even the most heroic calculations cannot plausibly predict that earnings growth in emerging markets will be more than a couple of percentage points faster than in developed countries. And there are plenty of people who argue it won't be markedly higher, over time, at all. Why? Where economies grow more quickly, new capital flows in. Current investors find their returns diluted by new enterprises and new stockholders.
Meanwhile, look at the valuations. Stock markets in emerging economies have skyrocketed in the past two years. Hot markets like Brazil and India have nearly recovered their 2007 manic peaks. As a result, your dividend income is even worse than in the U.S. The yield on the Indian stock market is down to about 1%, according to FactSet. Brazil has dipped below 2% and China, 1.6%.
Bottom line? Neither pension funds nor private investors seem to have fully absorbed the grim lessons of the past decade. Returns are going to be much lower. People need to save more, much more, for their retirement. If the market rally this year has given them false hope, it will have turned out to be a curse more than a blessing.
Write to Brett Arends at brett.arends@wsj.com
G20 to Tim Geithner: 'You're Joking ... Right?'
Posted Oct 22, 2010 10:56am EDT by Aaron Task
http://finance.yahoo.com/tech-ticker/g20-to-tim-geithner-youre-joking-right-yftt_535534.html
The stock market was relatively calm Friday morning but market players are on edge ahead of this weekend's G20 summit in Seoul.
With the world's economic powers seemingly in a race to have a weaker currency than their trading partners, the threat of a currency war hangs over the conference.
Ahead of the confab, Treasury Secretary Tim Geithner sent a letter requesting the G20 "commit refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of undervalued currency."
China's currency manipulation was the primary target of Geithner's request, as was his proposal that G20 nations adopt specific targets to reduce trade gaps between specific countries.
The problem is U.S. policy appears designed to weaken the dollar without regard for our trade deficit, so Geithner seems, at best, disingenuous and, at worst, hypocritical.
Furthermore, S&P 500 companies are benefiting from a weak dollar, as Henry and I discuss in the accompanying clip. The dollar's weakness makes it easier for U.S. multinationals to sell their goods abroad, a primary reason the stock market is hovering near its highest levels since Lehman Brother's bankruptcy in September 2008.
For better or worse, the big threat to the bulls today is the communiqué coming out of the G20 meeting might help shore up the dollar, a big reason gold has fallen from its recent peak this week.
The World According to Gold
http://www.midasletter.com/index.php/world-according-to-gold/
By James West
Midas Letter.com
October 20, 2010
$1500 by year end. That’s what the price of gold is going to be. If you buy an ounce of bullion today, you’ll sell it after the Christmas holidays for a profit of 8+%. The gloves are off in the ring of major global currencies, all the pretence is gone, and it’s a horribly blatant competition to devalue currencies that’s now underway. The disconnect between the actual purchasing power of the increasingly worthless dollar, pound, euro, yen and yuan and their near future purchasing power is the latency inherent in a globalized economy in terms of time. Price inflation is coming: it is the absolute outcome of monetary inflation in the absence of real stimulus (supply shortage and demand increase based on actual economic consumption growth – not rampant counterfeiting)
What we have is artificial stimulus (monetary inflation). This creates the short-term appearance of robust economic health because it enables the banks and their associated derivative businesses to report massive profits, which induce buying of their widest of widely held shares, which gives you Dow 11,000+. The 100,000 Americans tossed out of work and home each month can’t eat Dow 11,000. For them, the number is a slap in the face. It’s the proof in the pudding that their leaders have abandoned them in favour of optics. The optical band-aid ultimately diminishes further the condition of the already compromised system by drowning it in the substance upon which it now chokes. Wealth preservation can only be accomplished with precious metals in such an environment.
It is a favorite statement bandied about by government economists that never before in the history of humanity have so many people enjoyed such a high standard of living. What they fail to mention and choose not to notice is the millions upon millions for whom the quality of life has dramatically fallen. On Main Street, and yes even on Wall street, thousands of people are losing their jobs and their homes. Meanwhile the high standard of living referenced by economists means a piece of meet with the previously drab and ubiquitous beans and rice, and a cell phone to boot. Wow! Now that’s a high living standard!
If you’re wondering who isn’t seeing their quality of life deteriorating, and who are, in fact, thriving despite the wider economic woes, look no further than the business of mining and exploration. I’m on a site tour in deepest darkest (well actually, wind-iest) Patagonia, where the company hosting the analyst tour has been busily shuttling our group of about 50 all over the Desdeado Massif, as the geological structure underlying Santa Cruz province is called, to view drill core, diamond drill rigs at work, vein outcrops, and lots of barren landscape. The company is encountering very high grade drill holes with grades like 56 grams per tonne gold with over a kilogram per tonne of silver, and the development of a mine is imminent.
This morning we watched gold tumble $38 on our blackberries and we chuckled at the prospect of the media and other uninformed personages declaring an end to the gold bull market. On this bus, nobody is out of work or out of a home. Rather, the talk is of upcoming rugby championships and flats in Buenos Aires, great restaurants and who’s got the best and worst business class. These are investors in gold and silver, who have been quietly prospering for the last ten years, having embraced the idea that deficit spending by governments would bring about a general devaluation in currencies, which is clearly underway.
The youngest member of our group posed a seemingly innocent enough question. “Why is gold so important….I mean, why gold, and not something else?”
There are those who argue that gold, apart from some excellent physical and chemical characteristics that make it unique, is completely undeserving of its status as the most stable instrument of value exchange in the recorded history of humanity. Still others declare it completely worthless. The fact of the matter is that gold has been the instrument of trade for 5,000 years among humans. Paper currency was originally a note from your banker advising the note reader that the bearer was in possession of the stated quantity of gold, and therefore the note was representative of that value in goods, which the bearer could then trade for said goods.
That doesn’t really explain why gold. Rather, it just underscores the ‘how’ of it. They why is attributable, in my mind, to nothing more than the fact that we value shiny things that are hard to come by. Gold fits the bill perfectly!
There was a lively discussion about when the bull market in gold would end. I find the idea of gold in a “bull market” misleading, as if its something consumable like oil or coffee or pork bellies. Gold is the standard against which the value of all things are measured. The apparent increase in the price of gold as expressed in currencies is as much a reflection of currency’s vanishing purchasing power as it is in the increased preference for wealth preservers to hold gold over currency in recognition of currency’s debilitation.
Because gold is not consumed, and its rate of disappearance is minute and results only from micro quantities lost to ablative processes and during recycling, it can’t be considered a commodity according to the definition of that word. Commodities, like steel, copper, grain, potash, sugar, rubber, etc are the raw materials which are consumed in the process of manufacturing or just living. Cars consume gasoline. People consume coffee and sugar. The Chinese appear to consume copper, but nobody consumes gold. It is hoarded. Exactly why is a philosophical question. Why is no longer important in the case of gold…only that it is what it is. Any attempt to further clarify gold’s raison d’etre will only complicate that essentially simple fact. Gold is money. It was the first money, and will be the last money. Everything else is an imitation. End of story.
So when you see gold swoon down into the $1100’s, as is likely, don’t panic. And don’t make the mistake of thinking that the “bull market” in gold is over. It’s not. Gold will resume its patient rise in price as expressed in currencies as long as currencies continue to be indiscreetly mass manufactured.
Gold could theoretically return to a state where the integrity of currency once again is preferred over gold as a mechanism for trade and wealth preservation, but that would mean that we would have collectively, as a species, stopped competing to devalue our currencies and consume all the commodities in sight, and instead somehow managed to cooperate to manage our money, our resources, and our exhaust. I don’t really see any chance of that happening any time soon. I think a return to tribal albeit high-tech warfare will be the ultimate outcome of our current situation. I think there is going to be a general and incremental deterioration over all of living conditions for the majority, while an increasingly tinier ratio of lucky and smart people live the high life.
If you want to count yourself a member of the latter group, you’d better start educating yourself on how to profit through gold and silver exploration, mining and investing. If you don’t, you’ll have nobody but yourself to blame.
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