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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.
OT - Successful live rescue from Chilean mine:
http://www.ustream.tv/
Chile choreographs dramatic finish to rescue saga
http://news.yahoo.com/s/ap/20101013/ap_on_re_la_am_ca/lt_chile_mine_collapse
By MICHAEL WARREN, Associated Press Writer Michael Warren, Associated Press Writer – 28 mins ago
SAN JOSE MINE, Chile – Chilean officials prepared to lower two rescuers almost a half-mile into a collapsed mine Tuesday, the precursor to fresh air and freedom for 33 men trapped for 69 days. No one in history has been trapped underground so long and survived.
"We made a promise to never surrender, and we kept it," President Sebastian Pinera said as he waited to greet the miners, whose endurance and unity captivated the world as Chile meticulously prepared their rescue...
One of God's great miracles...
Tonight, gold hit $1300 spot!
http://www.kitco.com/
Why We Watch The Price Of Gold In All Currencies
By Michael Kilbach
Sep 17 2010 9:24AM
http://www.investmentscore.com
A common flaw that we see the average investor make is to follow their investments measured in foreign currencies and at the same time forget to calculate their local exchange rate on those investments. This is a HUGE mistake as the fluctuation of an investor’s home currency has a massive impact on their returns.
Some investors know that the price of gold has been performing well in the past few years but let’s look at the charts to see how well gold has done for investors around the world.
The above chart tells us the following:
1 - Since roughly 2001 the price of gold appears to be rising relative to most currencies and therefore the value or purchasing power of most currencies has been shrinking.
2 - Depending on where an investor is living, the price of gold has appreciated differently against the various currencies.
In our opinion it can be very helpful to look at the price of an investment like gold in multiple currencies regardless of where the citizen lives. Please review the following charts with this in mind and we will explain this statement more clearly below:
In the above charts one will notice:
1 - Again the price of gold has been rising in all currencies. This clearly illustrates that the bull market in Gold is very strong as currencies around the world are losing value relative to Gold.
2 - Depending on the currency the value of gold is measured in, new highs, breakouts, big drops or big advances will vary.
So how can looking at the price of gold in foreign currencies help all investors including US base investors?
It is our opinion that looking at gold in other currencies can sometimes give us a glimpse into the future of what may happen to the price of gold in our own currency. For example, if gold is breaking out in most currencies around the world at different times, but one country has yet to see gold break out in that nations currency, then that nation’s citizen’s may still have an opportunity to buy at lower prices. For example, Japanese (Yen) investors have been seeing the price of gold explode to new highs in other nations and this may give a Japanese investor insight for what may happen to their investments in gold in the future.
Additionally, seeing gold advance in multiple currencies gives the market’s advance more validity. If gold were only advancing in US dollars, one could argue that the advance is more of a reflection of the US dollar losing value instead of gold gaining real value. In fact, we would argue that any appreciation in US Stocks would be a reflection of the US dollar losing value instead of stocks gaining in value. This would be an example of looking at markets through various “measuring sticks”, such as other currencies, to get a better perspective on actual change in value. There will be ups and downs along the way but we believe that Silver, Gold and other commodities are well entrenched in a long term bull market that started in early 2000.
At investmentscore.com we look at investments relative to various markets in order to gain a unique perspective to their “Value” instead of their “Price”. We believe it is a common mistake for investors to be misguided by “price movement” instead of by true value. At the end of the day understanding “Value” is where wealth can be created and stored as “Price” can be greatly distorted by the constant fluctuations of currencies. To learn more about our strategies and to sign up for our free newsletter please visit us at www.investmentscore.com.
Michael Kilbach
September 16, 2010
Gold Gains to Record on Wealth Demand; Silver Near 30-Year High
http://www.bloomberg.com/news/2010-09-17/gold-may-drop-as-advance-to-second-record-this-week-prompts-investor-sales.html
GOLD ENTERING A VIRTUOUS CIRCLE
September 3rd, 2010 by Egon von Greyerz
http://goldswitzerland.com/index.php/gold-entering-a-virtuous-circle-egonvongreyerz/
GOLD ENTERING A VIRTUOUS CIRCLE
Fundamental and technical factors for gold are now in total harmony and gold is entering a virtuous circle that will drive the price up at its fastest pace since this bull market started in 1999.
•It is a fact that gold in US dollars (and many other currencies) has gone up almost 400% in eleven years or 16% per annum annualised.
•It is a fact that the US dollar has declined 80% in value against gold since 1999.
•It is a fact that the dollar and most other currencies have gone down 98-99% against gold since 1913 when the Federal Reserve Bank of New York was created.
•It is also a fact that the Dow Jones (and many world stock markets) has declined over 80% against gold since 1999.
•It is a fact that gold has made a new all time monthly closing high in dollars in August 2010.
Gold trend
We expect gold to start a substantial rise now which will continue for 5-10 months before any major correction. Gold’s technical picture is extremely strong with a continuous rising pattern of higher highs and higher lows with the steepness of the curve increasing. From much higher levels we are likely to see a correction that could last up to a year before the next rise which will last several years before we see a significant peak. Once gold has topped we do not expect the same kind of decline as after the 1980 peak since gold is likely to become part of a future reserve currency. At that point gold will be a solid but unexciting investment with very little upside potential. But that is likely to be a few years away.
In spite of a 5 times increase in the value of gold or an 80% decline against many currencies and stockmarkets in the last 11 years, most investors own no gold and still do not understand the importance and value of gold. In a world of constant money printing and credit creation leading to devaluing currencies and devaluing assets, gold reflects stability and is virtually the only store of value that cannot be destroyed by governments.
The average asset manager, fund manager, pension fund or private individual owns no physical gold and at best has a very small exposure to some precious metals stocks. And in spite of this gold has gone up over 400% in 11 years. How is that possible? For the simple reason with the relatively modest demand that we have seen in the last few years, there is not enough physical gold even at these levels. The increase in demand that we have seen has most probably been satisfied by central banks leasing or lending their gold to the bullion banks. Central banks supposedly own 30,000 tons of gold but unofficial estimates of their real holdings are at 15,000 tons or less.
So what are the factors that are likely to lead to a major rise in the gold price?
We have for several years outlined in our Newsletters the problems in the world that inevitably will lead to massive money printing and a hyperinflationary depression (see for example “Alea Iacta Est” and “There Will Be No Double Dip…” on the Matterhorn Asset Management website).
There are three insurmountable problems:
•Real unemployment at 22% in the US will continue to go up
•The budget deficit will increase dramatically due to the problems in the economy and in a few years time the interest on the Federal Debt is likely to be higher than tax revenues.
•None of the problems in the banking industry have been solved but merely swept under the carpet by phoney valuations of toxic debt with the blessing of governments. The circa $20 trillion that were pumped into the world economy to save the financial system in 2008-9 have had a very short term beneficial effect but solved none of the problems.
The effect of this massive $20 trillion infusion has been ephemeral since we are entering the autumn of 2010 with virtually every single economic indicator and statistic in the US deteriorating rapidly. With interest rates already at zero there is no ammunition left but one. And it is this specific last bullet that will be used to infinity in the next few years and starting very soon, namely UNLIMITED MONEY PRINTING. Every single area of the US economy will need support or printed money, whether it is the federal government, the states, the municipalities, banks, pension funds, insurance companies, the unemployed, corporations, health care, housing market, commercial real estate, individuals, etc, etc, etc. The list is endless and many other countries will follow.
Before we talk about gold in hyperinflationary terms, let’s look at where gold is likely to reach in today’s money.
Three realistic Gold targets: $6,000 – $7,000 – $10,000:
•In the 1971 to 1980 gold cycle, gold went from $35 per ounce to $850 or up over 24 times. If we were to see the same increase in this cycle, gold would rise to over $6,000.
•The gold peak at $850 in 1980 corresponds to over $7,000 today adjusted for real inflation based on the inflation rate as calculated by John William’s Government Shadow Statistics (shadowstats.com)
•Gold and gold mining shares were an average of around 25% of world financial asset between 1921 and 1981. Today, gold and mining shares are only 0.9% of world financial assets. If gold and mining shares were to go to 25% of financial assets, gold would go to over $31,000. But even if we assume that world financial asset would go down by 2/3rds from here that would put gold at over $10,000.
The three historical comparisons above (and see chart below) would put gold anywhere from $6,000 to $10,000 and this is without inflation, or more likely hyperinflation. In a hyperinflationary environment, the price gold will go to is really irrelevant since it depends on how much money is printed. In the Weimar Republic for example gold went to DM 100 trillion. What is more important is that gold is likely to go up at least 5 times from today without inflation and with hyperinflation gold will protect investors against the total destruction of paper money and many other assets.
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Wealth Protection
Gold must only be held in its physical form and the holder of gold must have direct access to the gold. We consider ETFs, gold in a bank (whether allocated or unallocated), fractal ownership of physical gold, futures or any other form of paper gold as very risky and a totally unsatisfactory method for owning gold. Physical gold should preferably be stored outside your country of residence and outside the banking system. The holder must have direct access to the vaults where the gold is stored.
Silver
Silver has been lagging gold since its peak at over $21 in 2008. For the last few months the gold/silver ratio has been consolidating between 58 and 71. The ratio is currently around 64 and is likely to start a move down to new lows below the 2006 low at just 44. So this is very good news for silver which is likely to outpace gold substantially in the next few years. Silver is probably the most undervalued precious metal today and has great potential.
But there are many caveats for silver:
•It is an extremely volatile metal and is definitively not for the fainthearted.
•We only recommend physical silver owned directly by the investor.
•Physical silver currently weighs 64 times more than gold for the same amount invested and is circa 120 times bulkier (due to its lower density).
•Therefore silver is not as practical as gold as a means of payment.
•Also, silver is subject to Vat (value added tax) in all European countries. Thus silver cannot be moved freely across borders.
•Physical silver for investment purposes can be bought/sold and stored tax-free in Switzerland but if the investor takes possession, Vat must be paid.
•Due to the above factors investors should carefully consider the split between physical gold and silver.
Stockmarkets
At the beginning of July this year we sent out a message to investors that, based on our proprietary indicators, we expected stockmarkets to finish the correction up at the end of July and resume the major downtrend in August. We also said that gold would start its major rise in August. And this is exactly what has happened so far.
We now expect major falls in all stockmarkets worldwide over a sustained period. We would not be surprised to see the Dow down to the 1,000 area (in today’s terms) before this bear market in over. But it will not be a straight line and there will be extreme volatility. When hyperinflation sets in, stockmarkets will have a major but temporary surge.
The only stocks that investors should hold are precious metals stocks and possibly some resource and food stocks. But it must be remembered that stocks do not represent the same degree of wealth preservation as physical precious metals held directly by the investor.
Currencies
Currencies should in the next few years be looked upon as a necessary evil and not as a store of value. All currencies will continue to decline against gold, just as they have in the last 11 years and in the last 100 years. Due to money printing by most governments, we will have a fierce game of competitive devaluations by virtually all central banks. We have seen the Euro and the pound weaken substantially and the next currency the speculators will jump on is the US dollar. The dollar is grossly overvalued, partly due to the weak Euro, and is likely to weaken significantly due to the problems in the US economy.
Currencies only reflect relative value and not absolute value since they can be and are printed until they reach their intrinsic value of zero. It is a fallacy to measure the value of a currency relative to another currency since they are all losing value. Currencies should only be measured against real money which is gold. This is the only method that reveals governments’ deceitful actions in destroying the value of paper money. Therefore it is a mug’s game to speculate or invest in currencies since they will all decline in an extremely volatile and unpredictable market.
So are there currencies which are likely to perform better on a relative basis for funds that have to be held in paper money? We believe that Norwegian kroner, Swiss Franc, Canadian Dollar, Singapore Dollar, Australian Dollar and Renminbi will perform relatively better than many other currencies.
Government Bond Markets
The bond market is the biggest bubble in financial markets worldwide, in our opinion. Investors around the world are worried about the state of financial markets and therefore believe that government bonds represent a safe haven. These investors will receive the most enormous shock on two accounts. Firstly, no government will be able to repay the debts outstanding. So there will either be government defaults, moratoria, or money printing that totally destroys the value of the bonds. Secondly, interest rates are likely to go up significantly to at least 10-15%, totally destroying the value of the bonds.
Conclusion
We are now entering a period when most major asset classes and in particular stocks, bonds and currencies are starting a major decline. Since most financial assets in the world are invested in these three categories plus real estate which will also decline, we are likely to experience major shocks and crises in the financial system and the world economy. Wealth protection is now more important than probably at any other time in history. Physical gold and possibly other precious metals directly controlled by the investor will be a vital part of a wealth preservation portfolio.
Gold May Advance With Industrial Metals; Silver Is Near a 2 1/2-Year High
http://www.bloomberg.com/news/2010-09-06/gold-may-climb-as-dollar-near-two-week-low-spurs-alternative-asset-demand.html
By Nicholas Larkin and Sungwoo Park - Sep 6, 2010 11:46 AM ET
Five of the six main industrial metals on the London Metal Exchange rose, led by zinc, after a report last week showed U.S. employers added more jobs than estimated. The dollar dropped to a two-week low against the euro before rebounding. Gold, which usually moves inversely to the greenback, is trading 1.2 percent below a record.
Stronger prices for other metals are “spilling over into gold,” Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said today by phone. “A weaker dollar is usually a supportive factor for gold. It’s expected to be a quieter day for gold” because of a U.S. holiday, he said.
Immediate-delivery bullion added $2.80, or 0.2 percent, to $1,249.55 an ounce at 4:32 p.m. in London. Prices gained 0.7 percent last week. Gold for December delivery was little changed at $1,251.20 in electronic trading on the Comex in New York. Comex floor trading is closed today for the Labor Day holiday.
The metal was little changed at $1,249 an ounce in the afternoon “fixing” in London, used by some mining companies to sell output, from $1,249.50 at today’s morning fixing. Spot prices climbed the past five weeks, the longest winning streak since September last year.
Bullion has advanced 14 percent this year, reaching a record $1,265.30 an ounce on June 21. The price is set for a 10th annual gain as investors seek to protect their wealth against financial turmoil in Europe and the prospect of slowing economic growth.
‘Sentiment Remains Bullish’
U.S. private payrolls climbed 67,000 in August after a revised 107,000 increase in July, Labor Department figures showed Sept. 3. The median forecast of economists in a Bloomberg News survey was for 40,000 more positions. Gold’s losses were limited on Sept. 3 after a U.S. report showed service industries expanded in August at the weakest pace in seven months.
“Gold will continue trying to break the record,” said Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul. “Once it breaks it, bullion will shoot up. Sentiment remains bullish.”
An index measuring sentiment in the 16-nation euro region slid to 7.6 in September from 8.5 in August, according to a report from the Sentix research institute. Economists in a Bloomberg survey had forecast an increase to 9.0.
Assets in the SPDR Gold Trust, the biggest exchange-traded product backed by bullion, were little changed at 1,294.44 metric tons on Sept. 3, figures on the company’s website showed. Holdings touched a record 1,320.44 tons in June.
Jewelry Demand
“An anticipated pickup in gold demand for jewelry use in September and expectations for inflation may support” prices, Lee Suk Jin, a commodities analyst at Seoul-based Tong Yang Securities Inc., wrote in a report today. Households in India, the biggest gold user, typically increase jewelry purchases in the year’s final months to mark festivals and weddings.
Silver for immediate delivery in London was little changed at $19.9063 an ounce. The metal reached $19.9225 on Sept. 3, the highest price since March 2008. Platinum gained as much as 0.7 percent to $1,566.75 an ounce, the highest price since Aug. 9, and was last at $1,560.80. Palladium was little changed at $529.50 an ounce after rising as much as 0.7 percent to $533.25, the highest level since May 14.
Silver, platinum and palladium “reflect both an urge to own insurance and an urge to hedge in favor of further global economic growth,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter.
To contact the reporters on this story: Sungwoo Park in Seoul at spark47@bloomberg.net ; Nicholas Larkin in London at nlarkin1@bloomberg.net .
Gold Breaking Out Verse Euro, Relative Strength Chart Shows Trend Change
http://www.kitco.com/ind/Handwerger/aug122010.html
By Jeb Handwerger
Aug 12 2010 11:29AM
http://www.goldstocktrades.com
The trade deficit widened unexpectedly this month after the dollar reached extremely oversold levels, which was quite surprising to Wall Street. Usually, a weaker dollar should lead to an increase of exports of U.S. goods; however, the exact opposite occurred. This further signifies the global economic slow down despite record government stimulus, a devalued dollar and artificially induced low interest rates. The market and the employment situation are no better off now than they were previously.
Despite Washington’s attempts to prevent a depression through spending, investors are beginning to lose hope in what the Fed and Congress are doing to prevent a collapse of the markets into new lows. Yesterday, as predicted, the House created a $26 billion job bill that will supposedly prevent government layoffs and expand the job market for government workers.Washington is trying to alleviate high unemployment by creating more government jobs. That is not real job creation. Incidentally, the previous employment numbers were mildly inflated due to the recent influx of temporary Census workers and did not accurately reflect the true numbers of unemployed Americans.
Investors believe that sustainable job creation is through small business growth. The markets, as well as the American people are looking for leaders who will cut government spending and institute tax cuts for small business owners. Entrepreneurs who are trying to innovate and meet consumers’ demands in a struggling economy should be supported with meaningful tax breaks. This spurs authentic growth and innovation. I expect the market and the American People to vote in candidates who are committed to these principles. The people are losing their faith in the current leadership, as evidenced by President Obama’s approval ratings dropping to their lowest point in his entire tenure.
The Fed has committed to buying long term treasuries, which would artificially keep interest rates low. They are desperate to get capital flowing again, but it comes at a cost. Eventually, markets move back to their former equilibrium and long term trends. If you push down a spring as far as it goes, it eventually snaps back harder than before and reverberates. We may not see it for a while, but eventually long term treasuries will crash. Right now investors are flocking to treasuries for security and safety. However, just as the market is losing faith in the Fed’s handle on the economic situation, bond holders will ultimately lose faith in government bonds. We may see a drop in treasury prices along with continued high interest rates over the next several years and possibly even decades as our children and grandchildren face the burden of credit downgrades.
My fear of a devalued currency and lack of confidence in Obama’s handling of the economic situation are the reasons I am bullish on specific mining exploration stocks that are converting their strong cash positions into high grade copper, silver and gold resources. I have been following this sector for over nine years. I gather that during the next five to ten years, precious metals will see a lot of growth as investors seek hard money and hard assets.
Today’s major collapse in the equity market was significant. Last week, I mentioned that the dollar was extremely oversold and that the Euro and U.S. equities were about to correct considerably. Today we are seeing the beginning of a new downwards trend in global equities and a flight to safety. Investors are worried that efforts from Washington will do nothing to prevent a slowing economy and a huge trade deficit.
Yesterday’s weakness in gold was only relative to the dollar and U.S. treasuries. Compared with the Euro, there are technical signs of a major move upward in the price of gold. We could see a resumption of the market patterns that we saw in April and May when gold and the dollar rallied together as investors were seeking shelter from government defaults and sovereign debt crises. The relative strength trend of gold versus the Euro is an important indicator of the true price action of gold. Right now, it is showing signs of a bullish move higher after finding long-term support.
Although Gold was down slightly to the dollar it gapped up today versus the Euro after reaching an important 38.2% Fibbonaci Retracement and Long Term Trend Support. MACD supports that Momentum has shifted. RSI Crossed 50 today also a bullish sign.
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Disclosure: Long Gold and Silver Mining Stocks
Jeb Handwerger
Meet Someone who is 90% Invested in Gold and Silver!
http://www.kitco.com/ind/degraaf/aug022010.html
Summary:
On Friday July 29th I sent a morning update to my subscribers that indicated I was almost totally invested. 90% in gold and silver, the rest in natural gas. That is what happens when you believe in the reports you produce for your subscribers.
Peter Degraaf
Sector news: Gold Futures Rise as Biggest Monthly Drop in 2010 Spurs Investment Demand
http://www.bloomberg.com/news/2010-07-30/gold-futures-rise-as-biggest-monthly-drop-in-2010-spurs-investment-demand.html
Gold rose for a third day on speculation that the biggest monthly drop since December will encourage investors to stock up on the precious metal as a haven.
The 5 percent price drop in July is the first monthly decline since March, and gold has fallen 6.5 percent from its June 21 record of $1,266.50 an ounce. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, have declined 1.5 percent this week, heading for the biggest weekly drop since April 2009.
“Gold is beginning to catch some traction,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “The correction may have run its course and for longer-term holders, this may be a buying opportunity.”
Gold futures for December delivery rose $12.70, or 1.1 percent, to settle at $1,183.90 as of 1:47 p.m. on the Comex in New York, the biggest gain since July 13. The most-active contract ended the week down 0.3 percent.
The euro headed for the first monthly gain against the dollar since November. Gold also reached records last month in euros, British pounds and Swiss francs as investors sought a haven during Europe’s sovereign-debt crisis.
“We view the latest decline in the gold price as temporary,” analysts at Deutsche Bank AG said today in a report. “This weakness has been driven more by liquidation in net length among the investor community than a structural change in fundamentals.”
Concern for Deflation
Gold may be one of the best assets to own in a deflationary environment, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.
Federal Reserve Bank of St. Louis President James Bullard said yesterday that the U.S. economy may be headed into a deflationary period similar to the one that gripped Japan.
“It’s looking like deflation is more of a risk now than inflation,” Kaplan said. “In a deflationary period, gold will go down the least.”
The Fed has kept the benchmark interest rate between zero and 0.25 percent since December 2008 to spur growth, which fueled speculation that the economy will face rampant inflation as it emerges from the recession.
“Gold won’t fall out of bed under any scenario in the future,” Klopfenstein of Lind-Waldock said. “There are a lot of macro headwinds. Low rates will spark inflation down the line, once we get past deflation.”
Silver futures for September delivery rose 38.6 cents, or 2.2 percent, to settle at $18.003 an ounce on the Comex. The metal is down 0.5 percent this week and 3.8 percent in July.
Platinum futures for October delivery gained $13.40, or 0.9 percent, to settle at $1,576.80 an ounce on the New York Mercantile Exchange. The price gained 2.2 percent this week and 2.6 percent in July.
Palladium futures for September delivery advanced $8.80, or 1.8 percent, to settle at $500 an ounce on the Nymex. The metal gained 7.1 percent this week and 13 percent this month.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net
Our Man Chuck Turns Bullish as All Get-Out
By Rick Ackerman
Jul 12 2010 8:55AM
http://www.rickackerman.com
http://www.kitco.com/ind/akerman/jul122010.html
Turns out we weren't the only ones who must have been doubting every uptick of last week's phony, witless rally. How could one not distrust a stock market that has been surging higher solely because of short-covering and the manipulation of index futures each and every night during the wee hours on razor-thin volume? Now, however, we learn that bullish sentiment is at an extreme low of 21%, according to the latest numbers from AAII. What this implies is that there are simply too many bears for stocks to collapse at this moment, notwithstanding the fact that the economy's inexorable slide into Depression appears to have resumed in earnest.
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The last time there were so few bulls was in March 2009, when this Mother of All Bear Rallies commenced. Although we strongly doubt that the current dearth of bulls portends the start of a major new up-cycle, we’re willing to go with the flow for perhaps another two or three weeks before we start resisting the tape once again with some speculative put-buying. Technically speaking, according to the Hidden Pivot Method, the Dow Industrials, currently trading near 10200, would need to hit 10921 this month to earn even the slightest benefit of the doubt. At any rate, we expect the market to be in feel-good mode as the new week begins, assuming the mildly encouraging news that has been emanating from the Gulf of Mexico continues to flow. Under the circumstances, bears will be especially vulnerable at the opening bell to yet another short-covering panic attack.
Very Bullish on Gold
Immediately below, as counterpoint to our own, fervent bearishness, we offer the unmitigated optimism of our friend Chuck Cohen, a NYC-based consultant who designs gold investment strategies for clients both big and small. Chuck sent us the following note recently beneath the subject header “A major, major bottom…” Although, to put it mildly, we do not share his rosy view, we are presenting it nonetheless because our own perspective had grown so very negative in recent weeks. Please note that his outlook for gold and gold shares is, like ours, quite bullish.
Chuck writes as follows:
“Hello out there. I think that this week will mark a major change in the financial markets. I know it is really difficult to explain why the perception in the market can be very bullish at the end of April, and with a 12% drop, turn palpably bearish. The negativity is so bearish that the NY Times finally caught onto it and did their first-ever in-depth interview with Bob Prechter [last] weekend. It immediately became the overwhelmingly most e-mailed article. Now, why would this take place? My thought is that what Prechter was saying resonated with Ma and Pa Main Street, who see and feel nothing but pain in our country and in their lives.
Markets Don’t Care
“But as you know, the markets don't care about the past or the media's analysis. They look at the future, and in so doing remain the single best financial predictor ever devised. And right now some of the technical stuff that I look at is the worst that has been seen in many years. To me, that means we have likely seen the worst of the markets and most probably are ready to announce that the next move in the markets will not be the feared "Death Cross" [of 50- and 200-day moving averages], but a renewed climb most likely caused by the immense liquidity that is sitting on the sidelines in banks, IPO, buyout companies and hedge funds.
“The key point to the gold community is that this will now fuel the long, long awaited spectacular rally in gold, and, more importantly to many, the gold shares. Don't worry that the shares have acted crappy for years. They will respond, and in a fantastic way.
“I still believe that the listed shares will be the first movers in this next phase. They have completed inverted head-and-shoulders formation that extend over the decade. Because we are so conditioned to disappointment, many will sell prematurely into the breakout that is coming.”
Rick Ackerman
P&F is now saying bearish price of 1100... hmmmm.
17 reasons to own gold
Sprott Asset Management in Toronto has put together an attractive two-page brochure with text written by Chief Investment Strategist John Embry outlining 17 reasons to own gold. It's in PDF form at the Sprott Internet site here:
http://www.sprott.com/docs/Reports/reasons_to_own_gold.pdf
"Production... has been temporarily suspended because of unprecedented demand for American Eagle Gold Bullion Coins... "
http://catalog.usmint.gov/webapp/wcs/stores/servlet/CategoryDisplay?catalogId=10001&storeId=10001&categoryId=10118&langId=-1&parent_category_rn=10191&top_category=10191
"Production... has been temporarily suspended because of unprecedented demand for American Eagle Silver Bullion Coins..."
http://catalog.usmint.gov/webapp/wcs/stores/servlet/CategoryDisplay?catalogId=10001&storeId=10001&categoryId=10120&langId=-1&parent_category_rn=10191&top_category=10191
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Iraq: Gunmen rob gold shops in Baghdad, kill 15
By SAAD ABDUL-KADIR (AP) – 53 minutes ago
http://www.google.com/hostednews/ap/article/ALeqM5hwK_CSpBxsNuVUEaDuOwmSSCiqGwD9FTQHB00
BAGHDAD — Masked gunmen attacked gold shops in Baghdad Tuesday, killing 15 people before they fled with a large quantity of gold, police and hospital officials said.
The gunmen came to the southwestern neighborhood of Baiyaa in five cars shortly before noon, their faces covered with traditional Arab headscarves. They set off a roadside bomb near the shops, killing four bystanders and wounding three, city police officials said.
Then they opened fire on 12 shops, killing nine gold shop owners or their workers and two bystanders. They threw percussion grenades into the shop as a distraction, then fled, police said.
A hospital official confirmed the number of casualties. All the officials spoke on condition of anonymity because they were not authorized to talk to the media.
As Iraq's sectarian violence has ebbed, a new threat from violent crime has cropped up. Tuesday's attack was one of the deadliest in the upswing.
Many of those involved in the crime wave are believed to be battle-experienced former insurgents unable to find legitimate work. They often bring the same brutality to their crimes that they showed in the fighting that nearly pushed the country to the brink of Sunni-Shiite civil war in 2006 and 2007.
The result has been a wave of thefts and armed robberies, hitting homes, cars, jewelry stores, currency exchanges, pawn shops and banks.
There are few statistics tracking the number and kinds of crimes, in part because the government remains focused on the bombings and other insurgent attacks that continue to plague Baghdad and Iraq's north.
But in the minds of the public, crime has become at least as consuming as the violence directly related to the war. And like the lack of electricity and other services, crime is now a top complaint of Iraqis.
Some members of Iraq's security forces are also involved, perhaps a sign that militants are still infiltrating the security services.
In one of the most sensational crimes in recent years, several members of Iraq's presidential guards — which protect senior officials — broke into the state-run Rafidain Bank on July 28 and stole about 5.6 billion Iraqi dinars, or $4.8 million. They tied up eight guards at the bank in Baghdad's central Karradah area and shot each one execution-style.
Last year, Iraq created a military task force to battle gangland-style crime after gunmen with silencer-fitted weapons killed at least seven people during a daylight heist of jewelry stores.
Copyright © 2010 The Associated Press. All rights reserved.
Those who have will be the victims of those who have not... coming soon to US soil I'm afraid.
Capital Ideas: Gold Futures and Leverage Concepts
By Mack Frankfurter and Nell Sloane
May 11 2010 9:08AM
http://www.kitco.com/ind/Frankfurter/apr112010.html
Sponsored by Capital Trading Group, LP
http://www.capitaltradinggroup.com/promo/gcc.cfm
As noted by a Swiss Institute research paper, “the gold market of today is much different than the gold market of ten years ago.” One example is securitization of commodities, a fairly recent innovation with the ETFS Physical Gold[1] being the first gold security traded in March 2003 on the Australian Securities Exchange (ASX). Soon thereafter, additional exchange traded gold securities were launched, including the first US-based gold ETF, SPDR Gold Trust formerly streetTRACKS Gold Shares (symbol: GLD).
Given gold ETFs popularity it is not surprising that individual investors have generally forgotten about the potential benefits of using gold futures. This article sets out to educate investors on such advantages. To begin with, while London continues to be one of the most liquid and influential markets by virtue of its twice-daily fixings in determining the spot gold price, the COMEX gold futures contract,[2] which began trading along-side the US physical market on December 31, 1974, has come to dominate the market in terms of volume.
There are many differences between gold futures and gold ETFs that make an “apple-to-apple” comparison difficult. ETFs are similar in many ways to traditional mutual funds, except that shares in an ETF can be traded throughout the day—but so can futures contracts. Rather, the intrinsic difference has to do with how investors view and trade these instruments. Futures are risk management tools, whereas securities are tied to the “rising tide raises all ships” concept of capital formation. Academics have also noted that commodities are not capital assets, but instead consumable/transformable assets. Gold as a commodity is considered even more unique given its legacy as a “store of value”. But this is just theoretical discussion.
The main practical distinction between gold ETFs and gold futures has to do with the concept of leverage. Specifically, SPDR GLD represents approximately 1/10th the price of one ounce of gold (and thus one share represents approximately 1/10th of one ounce), whereas the COMEX futures contract (symbol: GC) is priced in ounces but each contract represents a 100 ounces. For example, the NAV per share of GLD was initially priced on November 18, 2004 at $44.20 or $442/ounce. Alternatively, GC at $442/ounce is equal to $44,200. So in order to have the same exposure as one futures contract, an investor at initial offering would have had to purchase 1000 shares of GLD and invest $44,200. When the GLD ETF was launched, a futures trader on the other hand would have been required to put up just $2,500 for one contract at that price/face value.
Before going further with our discussion, it is appropriate to remind readers that leverage may work against you as well as for you. In fact, what makes futures trading difficult for so many novices is its high degree of leverage—any market movement can have a disproportional and amplified effect on your deposited funds.
It is also important to remember that the definition of margin for securities is a very different concept than that in the futures markets. Most investors think in terms of “Reg T” requirements in which one may borrow up to 50% of the purchase price of securities. Since this is effectively a loan, the broker charges interest for the money it lends its customers to purchase securities on margin. For more detailed information on securities margin, FINRA provides an educational forum to help investors better understand these markets.
Margin requirements for futures, on the other hand, are akin to a “good faith deposit” which can be as low as 2-3% of the contract’s nominal face value. For example, let’s assume that the initial margin requirement for gold is currently $5,750 and that the June gold contract settled end-of-month in April at 1180.70/ounce. Since one gold futures contract is equal to 100 ounces, the “nominal face value” of the contract is worth $118,070. The initial margin-to-face value then is approximately 4.9%. It should be noted that while minimum margin requirements are set by the exchange on which the contract is traded, individual brokerage firms may require higher margin amounts from their customers than the exchange-set minimums.
This relationship between margin requirement and the nominal face value of a futures contract constitutes leverage. Leverage allows traders the potential to produce high returns as well as large losses. In practice, however, experienced traders will typically allocate more funds than the minimum amount needed to trade in order to provide themselves with a buffer in case a trade goes against them.
The discussion so far serves as background to the concept of notional funding and investing in managed futures. Managed futures is a niche sector of alternative investments, and refers to professionally managed assets in the commodity and financial futures markets. Management is facilitated by either commodity trading advisors (CTAs) or commodity pool operators (CPOs) who are regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).
When professional futures traders design a trading program, they usually establish a baseline account level which determines the type and number of contracts that will be traded given the baseline “unit size”. The average aggregate margin requirement for the trading program is then divided into the account level in order to determine the average margin-to-equity ratio. The next paragraph describes how this works.
Let’s imagine that a CTA has developed a trading program which trades one gold contract and collars the position with one call option and one put option. While gold’s face value as of this writing is $118,000, the minimum investment or account size is $50,000. At the same time, the CTA’s typical position requires an initial margin of only $2,500. This results in a margin-to-equity ratio of just 5%. Allowing for drawdowns[3] due to potential trading losses, an aggressive customer could in practice invest just $25,000 to fund the account. This amount is gauged by the CTA as sufficient to trade the program, even if drawdowns should occur.
This difference between the actual cash deposited in the trading account and the account size is called notional funding. And while the CTA will continue calculating the program’s rate of return based on the $50,000 trading level, the investor’s actual return is a function of the $25,000 funding level.[4] Likewise, a 1% return on $50,000 is equivalent to a 20% return based on the $2,500 margin required for the position.
Again, it is important to note the possibility that an investor could sustain a loss of some or all of the funds deposited. In such a case, the investor not the CTA will receive the margin call from his/her broker. As a standard industry practice professional futures traders maintain a close watch on their margin utilization. Likewise, futures brokers typically retain the right to close out open positions if an investor is unable to meet margin calls. Also be advised that margins are subject to change, especially in times of volatility.
Now on to our monthly market/trading recap: Gold plunged in the latter half of March forcing us to get defensive a few days prior to option expiration. The 1095 strike we established on the May contract was intended to manage downside risk, but the subsequent rally, which likely started as short covering, quickly ascended to the top of the current range. At that juncture rolling up the strike price mid-cycle became a question of risk management. We decided play it prudent and not roll the contract immediately, whereas in hindsight we could have done so earlier. Regardless, we still booked another positive monthly return, although admittedly we were outpaced by the gold ETF for the first time since November last year.
Our mid-month article is going to review research from that Swiss Finance Institute paper mentioned above. The paper analyzes the central bank gold leasing market, the gold forward offered rate (GOFO) and derived lease rates. As we cycle into the month of June, we will further examine the COMEX gold futures contract including details on contract specifications, settlement and delivery.
Footnotes:
[1] Issued by ETFS Metal Securities Australia Ltd., a wholly owned subsidiary of ETF Securities Ltd.
[2] The Commodity Exchange (COMEX) was established in 1933 through the merger of four smaller exchanges. On August 3, 1994, the New York Mercantile Exchange (NYMEX) and COMEX merged under NYMEX Holdings, Inc. On August 22, 2008, CME Group Inc. completed an acquisition of NYMEX Holdings, Inc. The COMEX is now part of the CME Group.
[3] “Drawdowns” is a term frequently used in the managed futures industry to describe the negative rate of return measured from a CTA’s peak performance. Effectively, it is a measurement of risk for CTAs.
[4] Unlike securities, since margin for futures trading is a “good faith deposit,” an investor can invest his money in a fungible instrument such as T-bills, which then collateralize the futures account. For more information on how this works, contact your futures broker.
For more information contact: Capital Trading Group.
Click for Free report on our GOLD program: http://www.capitaltradinggroup.com/promo/gcc.cfm
Mack Frankfurter, Cervino Capital Management LLC
and Nell Sloane, co-author
Gold Prices Break $1,200. Now What?
By Alix Steel 05/07/10 - 01:50 PM EDT
http://www.thestreet.com/story/10750013/1/gold-prices-break-1200-now-what.html
NEW YORK (TheStreet ) -- Gold prices Friday were rising after skyrocketing past the $1,200 level as Greece riots, trading errors, euro instability and safe-haven buying supported the gold price.
Gold for June delivery was up $13.90 to $1,211.20 an ounce at the Comex division of the New York Mercantile Exchange. Gold prices Friday have traded as high as $1,214.90 and as low as $1,193. The U.S. dollar index was slipping 0.25% to $84.68 while the euro was rallying off its one-year lows adding 0.35% to $1.27 against the dollar. The spot gold price was up 20 cents, according to Kitco's gold index, as investors took profits and sold the physical metal for cash.
Gold prices finally broke through $1,200 an ounce on Thursday as the Greece riots, which were televised, spooked investors. European Union nations were voting on their portions of the 110 billion euro bailout for the country, with most people focusing on Germany, which is responsible for almost $29 billion. Thus far the German Upper House has approved the financial aid package. Worries still remain, however, that the Greece turmoil could infect other debt-laden EU countries like Spain and Portugal.
The European Central Bank kept interest rates unchanged at 1%, but did not take further steps to help Greece. Many analysts were hoping the ECB would buy Greece bonds in order to loan the country additional money. Although the euro is staging a mini-rally Friday, most analysts expect the currency to come under prolonged pressure as the debt situation worsens. Gold and the U.S. dollar will benefit from a weak euro as investors buy the typically safer forms of money. Gold prices were selling off slightly on Friday as investors took profits after prices popped 1.8% Thursday.
Markets stayed on edge after Thursday's steep selloff. The U.S. unemployment number rose to 9.9% in April despite adding over 200,000 jobs in the same month. With economic conditions still uncertain gold prices could move higher as investors seek the safety of gold as a form of money that retains its purchasing power. The battle between bargain-hunters and profit-takers though is expected to take center stage and contribute to gold's volatility. Currently, investors are favoring gold headed into the weekend.
"Holding pattern emerged after jobs report and some stability in the markets," says George Gero, vice president of global futures at RBC Capital Markets in his morning metals commentary. "Gold is holding upper level trading range of $1,150 support and $1,225 resistance." Although gold has emerged as one of the biggest safe-haven assets, Gero says that "in past major selling, all assets were sold down to raise cash."
Gold mining stocks, a more risky but more profitable way to invest in gold, were mixed. Barrick Gold(ABX) was down 1.21% to $43.15 while Newmont Mining(NEM) was lower by 1.17% at $54.04. Other large gold miners Kinross Gold(KGC) and Goldcorp(GG) were trading higher at $17.43 and $43.08, respectively.
Shares of Iamgold(IAG) were up 0.23% at $17.82 after the company said it earned 16 cents a share in the first quarter and expects to produce 940,000 to 1 million ounces of gold in 2010. Randgold Resources(GOLD) was slipping 0.27% to $84.02 after Thomas Weisel Partners downgraded the stock to market weight from overweight.
AngloGold Ashanti(AU) was up 1.27% to $41.46 after beating expectations and reporting earnings of 17 cents a shares in the first quarter. AngloGold said it will produce between 4.5 million and 4.7 million ounces of gold in 2010.
Shares of the gold ETF, SPDR Gold Shares(GLD) were down 0.13% to $118.33. The popular ETF added almost 20 tons on Thursday as investors piled into the precious metal. One share of the GLD is equivalent to owning one tenth of an ounce of gold.
Question for the board -
Do you/we think the test of support GLD at 114 / $1,167.00 GOLD is the start of the run up???
Anyone?
Wait and see does not qualify as an answer IMO
(The chances of further retrace looks greater than 50/50 to me, at this point. )
Kiwi.
Re-post from Goldbugs board:
The Chart Pattern Trader >>> 5/2 Commentary: By Maurice N. Walker
Excellent extensive commentary and detailed charts updated.
* May 2, 2010
http://thechartpatterntrader.com/
.
Be careful out there... I have learned to wait for key signals plus confirmation... we are at 1183 spot near the HOD... all the best.
Testing most recent high of $1181.50 - lets hope its the real deal
15min and 1hr ADX looks over extended and MACD has divergence, but we are leaving the station anyhow
Kiwi (again...) (HEY WHERE IS EVERYONE?)
I'm long right now via my FX account on the MT4 platform, and not I'm sure when we will actually break out of this descending triangle pattern on the 15min.
I show support at 1174.30 and feel we may test at least that first, but don't want to miss the break out either. so I'm kinda ready to bail if I have to.
Kiwi
I have been wondering the same thing... apparently when when commentators say this market is thinly traded, they were exactly right!!!
Does any one trade Gold futures - We need more people posting on this board. Where is every one, I though we were about to have a breakout in gold. It this imminent or is it just me thinking this???
Kiwi
What Gold Bubble?
http://seekingalpha.com/article/200349-what-gold-bubble
Gold is getting a lot of attention these days. It’s all over the media, the backlog to purchase gold coins from the U.S. Mint is years long, and one gold exchange company even ponied up for a Super Bowl ad.
Many point to this and shout “Bubble!” Gold has risen too far too fast, they say, and soon the euphoria will give way to despair. We’ve been hearing this since February of last year, when gold was trading around $900. That’s more than 25 percent below where it is today.
Why didn’t the gold “bubble” burst? It could be because there isn’t a gold bubble.
The chart below compares the price performance of gold bullion during the 1970s bull market (green line) to the current price trend (red). As you can see, the price line since the start of 1999, when gold was trading just under $300, has been far less volatile than during the earlier period.
......................................
Gold remains as a safe haven during times of economic uncertainty – in the 1970s, double-digit inflation rapidly eroded wealth, and these days there is a lingering fear of higher inflation as the federal government piles more debt onto its already groaning balance sheets.
But a key difference is that gold has gained stature as a legitimate asset class for investors. During the 1970s runup, investment demand peaked around 27 million ounces, about half of what it is today. Contributing to this demand are new investment vehicles, including gold-oriented mutual funds and bullion-backed ETFs, both of which have made it easier for investors to allocate a portion of their portfolios to the yellow metal.
We also have greater affluence in the developing world, where people have traditionally turned to gold to store their wealth. Central banks in these countries, most notably China and India, have built up their gold holdings as a way to diversify their foreign reserves away from the dollar and other paper currencies.
The 1990s dot-com era was a bubble, and likewise the 2000s housing market. But gold? We don’t think so.
Investments in natural resources, emerging markets and infrastructure are subject to distinct risks as described in the funds’ prospectus. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Disclosure: Long positions in gold and gold mining companies
At the moment i am entered into a FX Challenge with the MT4 platform (demo)that will alow me to trade Gold/Silver and indicates and FX markets via a CFD
The challenge is currently only FX pairs but when i go live i will trade metals
It is very good for technical analysis skills and I am up about %150 on my 50K start bal since the beginning of the month.
If you want to follow my progress you can see that i am actually on the leader board - Allis: Steve P
Forex Trading Challenge - Leaderboard
http://www.axisodl.com.au/Forex-Trading-Challenge.aspx?promocode=FTCEasterMailout
Kiwi
Bullish price objective - $1310 - revised a few days ago on the Point & Figure chart...
Steve, how is this going for you?
I heard he was a near victim in a hit & run.
Metal$ are in the pits
Trader blows whistle on gold & silver price manipulation
By MICHAEL GRAY
Last Updated: 4:33 AM, April 11, 2010
EXCLUSIVE
There is no silver lining to the activities of JPMorgan Chase and HSBC in the precious-metals market here and in London, says a 40-year veteran of the metal pits.
The banks, which do the Federal Reserve's bidding in the metals markets, have long been the government's lead actors in keeping down the prices of gold and silver, according to a former Goldman Sachs trader working at the London Bullion Market Association.
Maguire was scheduled to testify last week before the Commodities Futures Trade Commission, which is looking into the activities of large banks in the metals market, but was knocked off the list at the last moment. So, he went public.
APBrokers and traders transact gold futures on the Comex floor of The New York Mercantile Exchange, Thursday, April 6, 2006. Gold prices topped $600 an ounce in Comex trading Thursday. (AP Photo/John Marshall Mantel)
AP
Brokers and traders transact gold futures on the Comex floor of The New York Mercantile Exchange, Thursday, April 6, 2006. Gold prices topped $600 an ounce in Comex trading Thursday. (AP Photo/John Marshall Mantel)
Maguire -- in an exclusive interview with The Post -- explained JPMorgan's role in the metals pits in both London and here, and how they can generate a profit either way the market moves.
"JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and/or the US taxpayer," Maguire said.
In the gold pits, Maguire sees HSBC betting against the precious metal's price without having any skin in the game in the form of a naked short.
"HSBC conducts an ongoing manipulative concentrated naked short position in gold. Silver is much easier to manipulate due to its much smaller [market] size," Maguire added.
"No one at JPMorgan is familiar with Andrew Maguire," said Brian Marchiony, a company spokesman. HSBC declined to comment.
Also during the CFTC hearing, Jeff Christian, founder of the commodities firm CPM Group, said that the LBMA, the physical delivery market for gold and silver in the UK, has been using leverage, which is another way to depress the price of gold and silver.
Christian said that the LBMA -- the same market Maguire trades in -- has leverage of about 100-1 on the gold bars settled on the exchange. In layman's terms, that means if 100 clients requested their bullion bars be delivered, the exchange could only give one client the precious metal.
The remaining requests would have to be settled for cash equivalent. "That is tantamount to a default on the trade," says Bill Murphy, chairman of the Gold Antitrust Action committee.
Maguire goes further and calls it a fraud: "If you sell something you do not own, then that is fraud."
Back in 2007, Morgan Stanley agreed to settle a $4.4-million lawsuit brought by precious-metal clients, who alleged that Morgan offered to buy gold and silver and store it for the investors, but never purchased any metal and still charged them storage fees.
Morgan Stanley denied the charges at the time, but "settled the case to avoid the cost and distractions of continued litigation," the firm said.
Despite gold's rise each of the last 10 years, Murphy believes the price of gold today would be closer to $2,300 an ounce if the price just moved with inflation.
Maguire believes the price should be even higher given the fear trade that would have sent prices spiking during the financial crisis in 2008-09.
Both precious metals have seen a recent spike since Maguire's e-mails became public. Gold has gained 6.5 percent to close at $1,161.55, while silver has spiked 10 percent to $18.38.
APBrokers and traders transact gold futures on the Comex floor of The New York Mercantile Exchange, Thursday, April 6, 2006. Gold prices topped $600 an ounce in Comex trading Thursday. (AP Photo/John Marshall Mantel)
AP
Brokers and traders transact gold futures on the Comex floor of The New York Mercantile Exchange, Thursday, April 6, 2006. Gold prices topped $600 an ounce in Comex trading Thursday. (AP Photo/John Marshall Mantel)
According to the e-mails Maguire sent to CFTC regulators, he was spot-on in his expectations of how the precious metals would trade on release of the January jobs report.
This message is to "confirm that the silver manipulation was a great success and played out exactly to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview," Maguire wrote to a staff investigator after the trading day.
CFTC commissioner Bart Chilton said, "I'm appreciative of the information Mr. Maguire provided and I'm glad it was introduced into the investigation."
High, low silver
The prices of gold and silver have been allegedly suppressed by JPMorgan Chase and HSBC, according to a London whistleblower.
Andrew Maguire, who laid out the banks’ plan in e-mails to the CFTC prior to trading on the Comex on Feb. 5.
1.) From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Cc: BChilton [CFTC]
Sent: Wednesday, February 03, 2010 3:18 PM
Subject: Re: Silver today
Thought it may be helpful to your investigation if I gave you the heads up for a manipulative event signaled for Friday, 5th Feb. Scenario 1. The news is bad (employment is worse). This will have a bullish effect on gold and silver as the US dollar weakens and the precious metals draw bids, spiking them higher. This will be sold into within a very short time (1-5 mins) with thousands of new short contracts being added.
Scenario 2. The news is good (employment is better than expected). This will result in a massive short position being instigated almost immediately with no move up. This will not initially be liquidation of long positions but will result in stops being triggered, again targeting key support levels. Kind regards,
2.) From: Andrew Maguire
To: Ramirez, Eliud [CFTC]
Cc: BChilton [CFTC]; GGensler [CFTC]
Sent: Friday, February 05, 2010 3:37 PM
Subject: Fw: Silver today A final e-mail to confirm that the silver manipulation was a great success and played out EXACTLY to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview? Kind regards,
3.) Andrew T. Maguire
From: Ramirez, Eliud
To: Andrew Maguire
Sent: Tuesday, February 09, 2010 1:29 PM
Subject: RE: Silver today Good afternoon, Mr. Maguire, I have received and reviewed your email communications. Thank you so very much for your observations.
I am going to start trading Ag & Au via a fx dealer using 100:1 leverage. Ill let you know how I get on ok!
Welcome Huntewr7 to the Gold Futures Index board - good to see you here! The reason there is probably not to many posts here is because a lot of 'news' is posted at the goldbugs board among others. the other reason is most people have no idea whats going on in the world regarding the value of the dollar and inflation looming just around the corner.
"These are serious times and the dollar will inflate and make us all broke if we do not take protective steps." !!!
Do you get the free subscription from The National Inflation Association the http://inflation.us/about.html
Also Bix Weir - Road to Roota: http://www.roadtoroota.com/public/main.cfm (some of his stuff i haven't quite managed to get my haed around, ie the Gold Manipulation Quiz question 19 http://www.roadtoroota.com/public/196.cfm
Kiwi
I was the no. 8 Boardmark. Sure would be nice to see more activity here.
$1300 is the newest bullish price objective set by the P&F chart.
WOW!!!
The five worst ways to buy gold
June 17, 2009
http://timesbusiness.typepad.com//money_weblog/2009/06/the-five-worst-ways-to-buy-gold.html
The tripling of the gold price since 2004 has predictably led to something of a stampede for the metal among private investors.
But in their hurry to gain a slice of the precious metal, they do not always take the most sensible route, says Adrian Ash, of BullionVault, the gold bullion exchange.
Below he outlines five of the worst ways to buy gold:
1. Buying gold coins in auctions on eBay
Mr Ash says the prices can outstrip the true value of gold - the ‘spot’ gold price - by 25 per cent even for the plainest coins. Rarer coins are sometimes bid up to an even higher premium. Mr Ash says you should check out the seller ratings, the full item description and the shipping fees.
2. Chasing after ‘rare’ gold coins
The US authorities have given warning that investors should beware of dealers charging exorbitant fees for coins that turn out to be anything but rare. In 2004 a British telesales company was shut down for selling gold coins at 700 per cent of true market value.
3. Newly minted ‘collectible’ coins
As with supposedly ‘rare’ coins, so-called ‘collectible’ coins can cost a lot more than the value of the gold they contain. Mr Ash says the Royal Mint charges mark-ups of 40 per cent plus. The new ‘Countdown to London 2012’ series, priced at £1,295, costs almost twice the value of the coin’s gold content.
4. Rank over-pricing
Many reputable-looking companies can charge way over the odds for gold, says Mr Ash. “Mail-shots, websites and radio advertisements are now selling gold to UK investors at 15 to 40 per cent above the true ‘spot’ market value. One newly-launched company is selling one ounce bars for more than £800 (spot value £600) and kilo bars for £25,000 plus (spot value £19,400).”
5. Unallocated gold storage accounts
When a bank sells you gold but holds it in safe-keeping, the account is often unallocated. This means you do not actually own any gold. Instead the bank owes you a certain amount of the metal. This makes you a creditor of the bank.
Under 1K is a great buy... I do not believe that will happen but the market will tell us...
Is gold price set for crash below $1,000?
By David Lew
After the historic boom, is gold price climbing down to $1,000 per ounce, to confirm to the controversial prediction that noted economist Nouriel Roubini made some weeks back? It looks so as gold is going bearish, in the weight of economic nervousness coming from the two important countries that matter—United States and China.
Now, as gold sank to a three-week low on Friday across the global markets and commodity bourses, some bullion analysts warned that gold price could plunge below $1,000 per ounce if the talks on property bubbles from China and financial risk taking concerns in the US are going to intensify.
“Gold is on a bearish mood these days after the precious metal’s spectacular ascent to the record high of $1,227 per ounce in November last year. Gold price may not boom above $1,227 this year, if commodities get into a slump in 2010. A crash in gold price below $1,000 per ounce can not be ruled out,” said Mark Robinson, a bullion analyst based in Dubai.
According to Robinson, the main problem with gold is that “its price has been over-hyped by some bullion analysts and forecasters.” “It is funny to see so many gold predictions going around in the search engines on the Internet. Gold price is being predicted from $1,000 per ounce up to a whopping $5,000 and even $10,000 by analysts and investors ranging from Jim Rogers, Marc Faber and Nouriel Roubini to research assistants in small broking firms,” Robinson told Commodity Online.
While Robinson agrees that gold is the most valuable asset among commodities and the yellow metal is arguable the best investment asset class in the world, he points out: “But there is so much hype going on in the bullion market on gold price. The hype lacks basic fundamentals like gold mine supply, demand and possible emergence of other commodities like platinum, palladium and silver as equality challenging investments like gold.”
But, all said and done, what are the real reasons that are prompting investors and bullion traders to press the panic button on gold price?
There are three immediate reasons why gold price is plunging.
First, there is so much of paper gold traded in the world, without adequate physical supply to compensate for. According to Jim Sinclair, noted bullion investor and a great champion of physical gold, the emergence of paper gold is creating artificial demand and supply problems in the bullion markets and commodity exchanges.
“Because of paper gold, market games can be played. What cannot be done is for paper gold to produce bullion. The bullies can attack the paper gold market in unison, but they cannot create supply in real bullion with the ease of highly leveraged paper. The pros depend on the under-financed public to stampede under the pressure of fear of loss,” says Jim Sinclair.
Secondly, gold has been under pricing pressure this week as US President Barack Obama's plans to limit financial risk taking raised concerns about diminishing capital flows from banks, which have provided liquidity for gold and commodities investors.
Analysts said while falling prices could offer some good bargains, investors will likely wait to see how long the global stock market plunge continue and how much in speculative long positions is cleared by current selling before returning to buying gold and other precious metals in full force.
At current levels, spot gold has fallen about 3 per cent on the week, the largest weekly drop in six weeks.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, halted, with its holdings remaining unchanged at 1,111.922 tones as of January 21 from the previous business day.
Thirdly, gold price is falling prey to what is happening in China. Every investor worth the name has been proclaiming his fascinating investment love for China all these months, arguing that the dragon country is the best bet when it comes to investing in commodities, stocks and real estate.
But the news that is emanating out of China is that the country may be caught in a bubble with property prices as some analysts have warned that real estate investments have ballooned without any proper fundamentals and demand. Even ardent China investor and admirer Jim Rogers has now warned that China is showing symptoms of a property bubble, thanks to unwieldy growth of the country’s properties market. A property collapse in China hits commodities like copper, silver, steel etc hard, pulling down investments into commodities sector, thereby hitting gold price at its heart.
As gold price continues its downward plunge, the US dollar has been rising. Now the US dollar is at a five-month high against the Euro and concerns that the China growth story may get stuck, limiting the need for inflation-hedging assets like gold.
Let us wait and watch where gold market is going to head next week. Will gold price continue to plunge next week? Will the yellow metal pick up the pieces and once against ride on the booming road to price prosperity?
David Lew is a precious metals commentator with Commodity Online. You can contact him at info@commodityonline.com
http://www.commodityonline.com/news/Is-gold-price-set-for-crash-below-$1000-25030-3-1.html
http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=94815&sn=Detail
Mineweb Annual Gold Price Competition
Once again Mineweb will be running a gold price prediction competition among its readers to see who can beat the experts with their assessment of what will happen to the gold price over the next 12 months.
Author: Lawrence Williams
Posted: Tuesday , 22 Dec 2009
LONDON -
Amateur or professional forecasters are again welcome to participate in this year's Mineweb gold price competition. This competition, now in its third year, has demonstrated that Mineweb readers prove frequently to do far better in their gold price picks than mainstream analysts do in similar competitions run by organisations like the London Bullion Market Association. While the results of the 2009 competition won't be available until early in the New Year, as we need to wait for the year end data and calculate the averages, overall readers look to have done fairly well again barring any huge gold price changes between now and December 31st - although the average of readers gold price predictions is probably going to be a little higher, than the reality.
The concept of the competition is pretty straightforward. Readers are asked to predict the gold price high, low, average and year-end prices for the year ahead. The figures will all be based on London Bullion Market Association fixings with the year-end price that of the LBMA's final 2009 fixing on December 31st. Readers may send in entries under their own names, or under a pseudonym and should submit as follows: High price, Low Price, Year-end Price and Average Price - and then this year, to keep interest alive mid-year we are asking also for a prediction for the LBMA closing price on June 30. We also need a contact email address, but while all other data will be published on the competition closing date on Mineweb, the email address will be withheld.
We already have a couple of entries in, despite not publicising the competition yet and give nthe growth in traffic the site has seen over the year, the 2010 competition is gearing up to be a record breaking one. The competition closing date will be January 22nd - and should there be any significant change in the gold price which might affect an early entrant's forecast they are welcome to let us have updates right up until the closing date.
As a reminder, the average of Mineweb reader projections for 2009 were as follows: High $1345, Low $764, Year end: $1172, Average $992.
So if you are interested in setting your forecasting abilities against those of your peers - and against the experts, do take part. Send your entries on an email to editor@mineweb.com in the following format:
Name or Pseudonym:
High Price:
Low Price:
Year End Price:
Average Price:
June 30 Price:
Contact email address:
Good luck - and let's see if we can beat the experts again.
if we find sopport here it does look good to buy here if it falls more the 1070 level is next buying opp, I don't think it'll go that far.
A correction is taking place - down more than 100 dollars... time to buy more.
Gold's real virtue is negative. It is not used for much industrially but there is limited supply and real physical constraint on producing more. Unlike, say dollars, you can't simply flip a switch and make more.
Dylan Grice, strategist at Societe Generale in London (who, by the way, I'd happily sit next to on a train) points out that the value of the gold held by the Fed only equals 15% of the U.S. monetary base and that the price would have to rise to $6,300 per ounce to make the currency fully backed by gold reserves.
http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=93501&sn=Detail
Why do fiat currencies always fail?
Put simply, governments are fundamentally incapable of maintaining the value of their currencies. Every leader, whether king, president or prime minister, serves at the pleasure of two powerful constituencies: Taxpayers irate about what they currently pay and violently opposed to paying more, and recipients of government help who demand vastly greater levels of spending on everything from defense, to roads, to old age pensions. Alienate either group, and the result can be an abrupt career change.
So our hypothetical leader finds himself with two choices, the most obvious of which is to level with his constituents and explain that there’s no such thing as a free lunch. Taxes are the price of civilization, but government largess can consume only so much of a healthy economy’s output, so no one person or group can have all they want. This looks simple on paper, but in the real world it opens the door to challenge from rivals who have no qualms about promising whatever is necessary to gain power.
Not liking this prospect at all, our leader then turns to his remaining option: Borrow to finance some new spending without raising taxes. Then create enough new currency to cover the resulting deficit. The anti-tax and pro-spending folks each get what they want, and no one notices, for a while at least, the slight decline in the value of each individual piece of currency caused by the rising supply. Human nature being what it is, every government eventually chooses this second course. And the result, almost without exception, is a gradual loss of confidence in the value of each national currency, which we now know as inflation.
But a little inflation, like a little heroin, is seldom the end of the story. Over time, the gap between tax revenue and the demands placed on government tends to grow, and spending, borrowing and currency creation begin to expand at increasing rates. Inflation accelerates, and the populace comes to see the process of “debasement” for what it is: the destruction of their savings. They abandon the currency en mass, spending it or converting it to more stable forms of money as fast as possible. The currency’s value plunges (another way of saying prices soar), wiping out the accumulated savings of a whole generation. Such is the eventual fate of every fiat currency. “The Coming Collapse of the Dollar” tells the stories of five of the more spectacular currency crises, but like I said, they all go this way eventually.
What Is a Dollar Collapse?:
A dollar collapse is when the value of the dollar falls so fast that all those who hold dollars panic, and sell them at any cost. This would include foreign governments who hold U.S. Treasuries, traders in exchange rate futures who trade the dollar versus other currencies, and even individual investors, who will demand assets denominated in anything other than dollars. The collapse of the dollar means that everyone is trying to sell their dollar-denominated assets, and no one wants to buy them, driving the value of the dollar down to near zero.
What Would Cause the Dollar to Collapse?:
Over the last six years, the dollar has declined 40% relative to the euro and 30% relative to the yen. That means that Europeans who hold U.S. stock market funds have lost 40% of the value just because of the dollar decline. However, since the decline has been over a six year period, and since the global economy has been growing over this period, European investors have only gradually been moving out of the dollar and into the euro-denominated investments. (Source: St. Louis Fed)
The Japanese government, which owns $586 billion in U.S. Treasuries, lost $150 billion in relative value in the last six years. Japan bought dollars to keep the value of the yen low to make Japanese cars relatively cheaper in the U.S. market, helping Japan's economy to escape a 10-year deflationary cycle. Japan has been slowing selling Treasury bonds as its economy improves. Unfortunately, the recent dollar decline will weaken its economy by making its exports more expensive. (Source: U.S. Treasury, Major Foreign Holders of Treasury Securities)
China owns $492 billion in U.S. Treasuries, a 12% increase over last year. That's because China has pegged its currency, the yuan, to the dollar, so they need to buy dollars and hold as reserves to keep that exchange rate where they want it. As a result, the dollar's relative value has only declined 15% in the last six years against the yuan.
Altogether, foreign countries own $2.4 trillion in U.S. Treasuries. If China, Japan or other major holders begin selling a lot of Treasuries on the secondary market, it could start a panic amongst all sellers, causing a dollar collapse.
Why would they do this? Only if they really felt their holdings were declining in value too fast AND they had another market to sell their products to. Right now the economies of Japan and China are dependent on U.S. consumers. They know that if they sell their dollars, their products cost more in the U.S., and their economies will suffer. Right now, it is still in their best interest to hold onto their dollar reserves.
China and Japan are both trying to sell to other Asian countries, who are gradually becoming wealthier. However, the U.S. is still the best market in the world. (See Demand in the U.S. Economy)
If the Dollar Collapses, What Will Happen?:
Demand for Treasuries will fall, which will cause interest rates to rise. Imports will become relatively expensive, which will spur inflation. Money previously invested in dollars will go to gold, real estate and other commodities, further spurring inflation. High interest rates will make homes even more expensive.
However, U.S. exports will be dirt cheap, helping the economy. Unfortunately, the high interest rates will prevent businesses from adding capacity. That could lead to unemployment, a recession and stagflation.
How Can I Protect Myself from a Dollar Collapse?:
The best way to protect yourself from a dollar collapse is to protect yourself from a gradual dollar decline. That is to have a well-diversified portfolio that includes foreign mutual funds, gold and other commodities. The equity in your home counts as part of this diversification. In addition, a dollar collapse would mean global economic turmoil of unknown proportions. The best defense against that is to have plenty of liquid assets that can be switched if necessary. Be ready to move to another country if needed. Make sure your job skills are transferable. Be mobile. This requires a dramatic change to your lifestyle.
Is a Dollar Collapse Imminent?:
Fortunately, it is highly unlikely that the dollar will collapse. That is because no one who has the power to make that happen - China, Japan and other foreign dollar-holders - wants it to happen. It is not in their best interest. Why bankrupt your best customer? Instead, the dollar will probably decline gradually, as these countries gradually find other customers. (See Not With a Bang But a Whimper)
What worries me is how much more can our dollar take befor a complette coplapse.!
Despite a dollar rebound gold surges to new record above $1,160
Analysts attributed the rise to safe-haven buying on the back of growing concerns about inflation in the US
Author: Lewa Pardomuan
Posted: Monday , 23 Nov 2009
SINGAPORE (Reuters) -
Gold defied a rebound in the dollar on Monday and powered to a record on safe-haven buying, driven by growing worries about inflation and a drop in U.S. stocks that stirred doubt about the economic outlook.
Bullion, which has gained around 32% so far in 2009, struck a succession of lifetime highs in November as sentiment urned extremely bullish after India acquired 200 tonnes of the precious metal from the International Monetary Fund.
Gold XAU= was quoted at $1,161.25 an ounce by 0202 GMT, up $13.05 an ounce from New York's notional close on Friday. It hit another record at $1,161.80 in a thin trade also driven by technical buying after bullion surpassed previous record.
"We're in unchartered territory. It's going to move fairly freely. Momentum becomes quite a big driver of prices. You could see the hint of safe haven buying returning," said Mark Pervan, ANZ's senior commodities analyst.
"There is increasing expectation that the market could deleverage risk towards the end of the year. There's a view that we could see some selling in equity markets, that lowering a risk would also benefit gold prices."
U.S. gold futures for December delivery GCZ9 added $14.4 an ounce to $1,161.20 on the COMEX division of the New York Mercantile Exchange, having struck a record at $1,162.50.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD: Quote, Profile, Research), said its holdings stood at 1,117.493 tonnes as of Nov 20, unchanged from the previous business day. [GOL/SPDR] Trading was thin in Asia, with Japanese speculators away for a holiday.
The dollar inched higher on Monday, extending a short-covering bounce as investors pared risk trades in a holiday-thinned week, while oil CLc1 rose toward $78 a barrel on heightened tensions between Iran and Western nations. [USD/] [O/R] In theory, a firmer dollar makes dollar-priced gold more expensive for holders of other currencies, but on the other hand, strong oil prices raise the metal's safe-haven appeal against inflation.
"You've got more high-profile hedge funds visibly investing in gold. That's yet another factor encouraging moves into gold by the wider investor community," said David Barclay, commodity strategist at Standard Chartered in Hong Kong.
Option traders are betting that gold will hit $1,200 an ounce or higher by early next year, and strong options interest could in turn lift underlying prices further into the uncharted territory.
U.S. stocks fell for a third straight day on Friday as investors took weaker-than-expected results from computer maker Dell (DELL.O: Quote, Profile, Research) and homebuilder D.R. Horton (DHI.N: Quote, Profile, Research) as a further sign the recovery would be anemic. [.N]
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