This is not mere conjecture or prediction. It’s fact. Utah has already passed a bill allowing Gold and Silver to be used as legal tender. Similarly, Virginia has passed legislation (though the Governor has yet to sign the bill) that would permit the state to mint its own Gold and Silver coins.
You can see this on the international stage as well. China’s Gold demand rose 500% last year. And world central banks became net buyers of Gold for the first time in 2010 as well.
These are of course baby steps. China and all central banks’ reserves are only minimally invested in Gold at this time. However, these changes DO mark the beginning of necessary structural changes to the global monetary system that will eventually culminate in a Gold standard of some kind being adopted again.
It’s not difficult to see why. We’ve been on this insane “paper only” since the early ‘70s. While everyone wants to claim we’ve seen a massive boost in GDP and stocks since that time, the reality is that when you account for inflation, it’s clear that most GDP and stock strength has been a result of inflation, NOT real organic growth.
Indeed, Bill King, Chief Market Strategist M. Ramsey King Securities recently published the following chart comparing REAL GDP (light blue), GDP when you account for inflation (dark blue), and the Dow Jones’ performance (black) over the last 30 years.
What follows is a clear picture that since the mid-70s MOST of the perceived stock gains have come from inflation. You should also note that MOST of the GDP growth we’ve seen since the early ‘70s has been the result of inflation as well (REAL GDP, the light blue line, is MILES below the “claimed” GDP, dark blue line).
What does all of this mean? That the inflationary system in place for the last 30+ years is crumbling, that paper money is going to become more and more worthless, and that we’re going to return to some kind of Gold standard in the coming years.
Source: Sacramento Bee, Carlos Alcalá 03/15/2011
The discovery in Nevada County of a nearly seven-pound gold nugget last year has been called a one-in-a-billion find.
Now, on the eve of the so-called Washington Nugget's auction in Sacramento, its finder has told the story.
On top of uncommon luck, it's a tale of geological knowledge, high technology and elbow grease.
The Nevada County resident had his undeveloped property—not far from the old mining town of Washington—assayed by a professional for possible gold deposits.
"Just to see what gold would be down to the first 10 feet," the finder said, requesting to remain anonymous.
There was some fine gold, and a hint that there might be more in the bedrock beneath the old mining tailings.
A friend brought in a piece of equipment known as ground-penetrating radar.
"We found an anomaly—a crevice or crack that indicated that would be a good target," he said.
And this one was within 10 feet down—the outside limit for their backhoe.
"We started to use the gold detector and we got a very strong signal," he said.
All the time, they were working through groundwater that seeped in as they dug.
The nugget they found would be worth more than $100,000 at current gold prices.
Unannounced, the finder took it to Fred Holabird, an experienced mining engineer in Nevada.
"His eyes popped out of his head," the finder said. "He screamed for everybody to take a look."
"The Washington Nugget may be the sole remaining authenticated large gold nugget of 100-troy-ounce caliber from the California gold region," Holabird wrote in an essay on the piece.
If it doesn't sell at auction, it may be finders keepers.
Relative gold is also known as the real price of gold. It's essentially a comparison of gold against various asset classes. Why is this important? There are two reasons. First, the real price of gold tends to lead leverage performance (e.g., the HUI:Gold ratio). Second, the real price of gold often provides hints of the future direction of the nominal price of gold.
Keep in mind that gold is the type of asset class that performs best when it's strongly outperforming the other asset classes. This seems like an obvious statement but it is an important one. If stocks and/or bonds are performing very well, money (usually mainstream) flows into those asset classes?not gold. If conventional asset classes perform well, there is little reason for the masses to go into gold.
In the chart below we show gold against various asset classes. gold has made a new high in nominal terms but hasn't held it. One reason could be the weak performance of gold against stocks, currencies and commodities. In recent months, money has flowed into those markets and not gold. Gold made marginal highs against both bonds, but with risk aversion increasing and a possible US Dollar rally, how long will that last?
Gold's real performance is mixed, which suggests a sustained breakout in nominal terms is unlikely at present. Gold has started to outperform stocks and commodities and we expect that to continue. However, there is a clear divergence with gold priced in other currencies, which suggests that recent U.S. dollar weakness has buoyed gold. While struggling, the USD has yet to break support. Sentimentrader's public opinion is only 31% bulls for the U.S. dollar.
When many markets are in flux, as is the current situation, intermarket analysis becomes all the more important. Comparing markets against each other helps us decipher the leaders, the winners and the laggards. The current picture for gold is mixed but could become clearer if/when the greenback confirms its bottom. We would welcome that, as it would clear out the last of the weak hands and position gold ready to move higher.
These are difficult times. When trends are shifting or changing, we need to analyze various markets and asset classes to get a better handle on what is going on. This analysis allowed us to foresee the lack of a true breakout in gold and gold shares while the gold permabulls continued to cheerlead onward.
Three days ago we noted that in just the first week of January, the US Mint had sold 2,221,000 ounces of silver "a number which if run-rated would be an absolutely all time monthly record," A quick glance at the tally today, shows that something very scary is going on. In the subsequent three days, the number has surged by 50% and has hit 3,407,000 ounces of silver! In just the first 12 days of the month we have already surpassed the total monthly sales of 9 separate months of 2010.
And some additional observations on what is becoming a physical buying frenzy from CoinNews.net:
An increase in 2010 Silver Proof Eagles and record-approaching 2011 Silver Bullion Eagles are the most interesting aspects in the latest US Mint sales report.
The Proof Eagle coins have seen two weekly adjustments since they sold out in late December. The latest brings them up 3,644 to 860,000, which would seem like a natural stopping point. Collectors will have to wait until the July time frame for the 2011 Silver Proof Eagles to make their appearance, according to the US Mint.
2011 bullion eagles launched on January 3, 2011. Silver Eagles already have last year’s January record in their sight. The coins have raced to 3,407,000 in less than two weeks after their latest weekly pick-up of 1,322,000. Until January 2009, the silver coins had never topped the 3 million mark during the first month of a year. Those record sales totaling 3,592,500 may get clobbered in mere days. The all-time monthly high of 4,260,000 which was just set in November could be the next victim. As a side note, the 3,407,000 sold this month includes 469,500 of the 2010-dated issues. The US Mint had buyers order one 2010 Silver Eagle for every five of the 2011?s.
Bullion one-ounce 2011 Gold Eagles are running, but not sprinting like their silver counterparts. US Mint sales has their tally at 42,500 for a weekly increase of 29,000. As a comparison, buyers ordered 85,000 in January 2009. Inventory of the 2010-dated coins also remains. There were 53,000 at the start of the year. US Mint Authorized Purchasers must order one old for every four of the new ones.
Mike Krieger presents the following disturbing observation on this trend: "In the first 12 days of January 3.4 million silver eagles have been sold. I have never seen anything like this. The amount of physical being taken off the market on this paper sell off is EXTRAORDINARY. We must be VERY close to the end." Whoever has adopted JPM's legacy paper silver short position is in for some very troubling days ahead.
KMG Gold Recycling saw a glut in the silver market in Decmber 2010. "We couldn't sell our silver to the secondary refineries in Canada." Said KMG president Michael Gupton, "We had to shop it around. That doesn't seem like a shortage of silver to me, that sounds like media manipulation in order to drive the price of silver up".
"We are seeing people buying physical and certificate silver at the same rate as people are selling and recycling physical silver, and the volumes are huge".
Submitted by Tyler Durden on 01/18/2011 15:22 -0500
Our friends at GoldCore have summarized recent shortages in the silver market and provide some observations on what this could mean for future silver prices. Curiously, the lack of inventory has happened even as the spot price of silver has consistently declined over the past week (if nominally the decline has been very modest). Just as curiously after the US Mint reported a massive surge in buying, the number of January sales has been fixed flat at 3,407,000, where it was a week ago, and indicates that either buying interest has ceased overnight (unlikely), that the mint is not updating its numbers (likely), or, worse, that the Mint has now stopped selling any form of silver for reasons unknown. Although at the end of the day the only question worth asking is whether JPM feels lucky (again): as we posted last week, the firm has received "grandfathering" protection from position limits, arguably the biggest reason for the recent drop in the precious metal price.
Silver Bar Shortages to Lead to Price “Tipping Point”?
Gold is mixed while silver is higher in all currencies today, especially in the weaker US dollar. European sovereign bond yields are higher and the UK 10-year has risen to 3.66% and is close to breaking out after inflation figures surprised the majority of analysts who remain complacent about inflation.
Gold is currently trading at $1,370.75/oz, €1,022.11/oz and £856.57/oz.
Equities in Asia were higher as are those in Europe so far today. US equity index futures are mixed with Apple leading to weakness in the Nasdaq; the S&P 500 is flat.
Silver is currently trading $28.81/oz, €21.48/oz and £18.01/oz.
Reports of shortages of silver bullion continue to grow. While there are no widespread shortages in this area and dealers with extensive supplier networks (mints and large refiners) are not experiencing difficulties sourcing bullion inventory, it would be wise to keep an eye on this.
Silver in USD – 35 Years – (Weekly). Click for full size
Reuters reported shortages of 1 kilo gold bars in Asia last week. Sprott Asset Management reported that it was experiencing difficulty sourcing 1,000 oz silver bars. Sprott said they were concerned about the “illiquidity in the physical silver market" and said delays in being able to source physical silver highlights the “disconnect that exists between the paper and physical markets for silver."
Zero Hedge reported that Bullion Vault, the digital gold provider, had run out physical silver inventories in Germany (and possibly elsewhere) and was advising clients to buy silver from other sources.
Zero Hedge also reported yesterday that some smaller bullion dealers in the UK were having difficulty sourcing all silver bars and had delayed delivery of silver bars (including 1 kilo silver bars) until February.
This comes at a time when the US Mint has reported huge demand in the first two weeks of January for their very popular US Silver Eagle 1 oz bullion coins.
Click for full size
At about $33, €25 or £20 a coin, collectors and those seeking financial insurance have been buying silver in very significant quantities. The 2011 minted coins were first issued on January 3 and in just the first two weeks, 3.5 million coins were sold, according to numismatic web site Coin News.
In January 2009, the silver coins first topped the 3 million sales mark, with record sales totaling 3.59 million for the entire month.
If sales continue at these levels, that record should be surpassed this week. The all time monthly record of 4.26 million silver coins, which was set last November, is clearly in sight.
A recent report by analyst Adrian Douglas of GATA warns of forthcoming shortages of gold and silver bullion coins and bars, and that a “tipping point” will soon be reached that could lead to a COMEX default and a short squeeze which leads to much higher prices. Douglas himself has shown in Le Metropole Café how Comex silver inventories are shrinking and are not far from ten year lows.
The “bear raids” by the large concentrated shorts being investigated by the CFTC, are only leading to increased physical off-take. Indeed, the selling raids may be leading some participants on the COMEX (including large hedge funds) to take delivery or sell futures and buy bullion in allocated accounts.
None of the factors, in and of themselves, suggest that widespread shortages of silver (or gold) bullion are imminent in the immediate future. However, much circumstantial evidence suggests, especially the bona fide reports of difficulty in sourcing large silver bars, that the supply and demand balance in the silver market is very tight.
The more than 80% increase in the silver price seen in 2010 is not leading to an increased supply of silver but rather to a continuing and possibly increasing demand.
This is not surprising as silver is a byproduct of base metals and therefore its price increase will not have led to any material increase in silver mine production. This fact is known by most buyers of silver coins and bars and many of them continue to hold and add to their silver holdings in anticipation of much higher prices.
Silver at $50 per ounce and the 1980 adjusted for inflation price of $130 per ounce are conservative estimates for some silver enthusiasts. They have been proved right in recent years and the extremely delicate supply and demand equation in silver could see them proved right again in the coming months.
Since 2003, GoldCore have written research articles pointing out that the very small size of the silver bullion market would likely see its inflation adjusted high of $130/oz reached in the long term.
Interestingly, were gold to reach its adjusted for inflation 1980 price of $2,300 per ounce, and silver revert to its long term gold/silver ratio of 15:1 (geologically there are 15 parts of silver to every one part of gold in the Earth’s crust) then silver would reach over $150 per ounce.
While this seems über bullish to those who know little about the silver market, some silver enthusiasts - and there are many - believe that in time, silver will be valued at the same price as gold as huge quantities of silver have been used up in industrial applications since the Industrial Revolution of the 19th Century and throughout the 20th Century and into this millenium.
In these unprecedented financial and economic times, it is important to have a long term perspective.
KMG Gold Recycling saw a glut in the silver market in Decmber 2010. "We couldn't sell our silver to the secondary refineries." Said KMG president Michael Gupton, "We had to shop it around. That doesn't seem like a shortage of silver to me, that sounds like media manipulation".
It was only logical that hours after Jim Cramer "Whitney Tilsoned" gold, China would come out and say it needs to buy more of the precious metal. After hitting an overnight low of $1,423/oz for some unknown reason, perhaps the latest overdue shakeout of the weakest holders, gold has since retraced half the distance to its all time highs, following a report from Reuters that "China should use some of its $2.85 trillion foreign exchange reserves to buy more gold, a government adviser was quoted as saying by local media reports on Wednesday. Li Yining, a senior economist at Peking University and member of the Chinese People's Political Consultative Committee, an advisory body to the national parliament, said that China should use the precious metal to hedge against risks of foreign currency devaluations. "China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall," Li was quoted by the official Xinhua news agency as saying." And so the immaculate record of all those calling for the "inevitable" correction in gold continues with a roughly 0% success rate.
GoldCore has more:
Renewed fears over eurozone debt have seen the euro fall against most currencies and precious metals today. The yield on Greek 10-year bonds is approaching an alarming 13% after jumping to a new record high of 12.89% today (see bond charts below). The Portuguese 10-year rose to a new record high of 7.7% ahead of today’s auction where they borrowed 1 billion euros in order to avoid a “bailout”.
The risk of contagion in the eurozone has clearly not gone away and this is another primary factor supporting gold above the $1,400/oz and the €1,000/oz level. The charts contradict those who simplistically call gold a bubble with gold having seen a period of correction and consolidation since November last year and looking like it is ready to break out and challenge new highs above $1,500/oz and EUR1,100/oz in the coming weeks.
Gold in Japanese yen has continued its gradual rise and has reached multi-year nominal highs at 119,000 yen per ounce. Gold in yen remains a long way from the nominal high of 160,000 yen per ounce seen in February 1980. This is likely a leading indicator that Japan’s deflation may be morphing into stagflation and the yen’s safe haven status is likely to be as questioned as the dollar’s in the months ahead.
While oil prices came off somewhat they remain near recent highs and uncertainty in Libya and in Saudi Arabia (where there are concerns about the coming ‘Day of Rage’ on Friday) will likely see oil remain robust with sell offs being shallow and short.
The likelihood that the People’s Bank of China is increasing and will continue to increase its gold reserves and the percentage of foreign exchange reserves held in gold, was seen in comments by Li Yining, an influential Chinese economic adviser, yesterday.
He said that China should use some of its close to $3 trillion foreign exchange reserves to buy more gold, and should use the precious metal to hedge against risks of foreign currency devaluations. Reuters reported the story this morning (Reuters Africa) and Bloomberg had a very brief news story yesterday.
"China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall," Li was quoted by the official Xinhua news agency as saying.
China does not disclose its gold reserves figures (neither on a monthly, quarterly or annual basis) but is likely quietly accumulating and will announce in the coming years that its reserves have risen from 1,054 tonnes, which is very low when compared to the Federal Reserve’s, to over 8,100 tonnes.
Gold’s recent and continuing robustness indicates that the ‘Beijing put’ is supporting the market on all sell offs and will likely continue to do so for the foreseeable future.
The Chinese are too shrewd to ‘telegraph’ their intentions to accumulate much larger gold reserves and will announce the ‘news’ when they are ready.
(Reuters) -- China adviser says Beijing should buy more gold
China should use some of its $2.85 trillion foreign exchange reserves to buy more gold XAU=, a government adviser was quoted as saying by local media reports on Wednesday.
Li Yining, a senior economist at Peking University and member of the Chinese People's Political Consultative Committee, an advisory body to the national parliament, said that China should use the precious metal to hedge against risks of foreign currency devaluations.
"China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall," Li was quoted by the official Xinhua news agency as saying.
His view that Beijing should diversify its foreign exchange reserves, the world's largest, into commodities is nothing new. Many other academics have publicly called on Beijing to do so.
But Li's views may carry more weight than most. Many of his former students are now high-ranking officials, including Chinese Vice Premier Li Keqiang, who is seen as Premier Wen Jiabao's likely successor in 2013.
However, Yi Gang, head of the State Administration of Foreign Exchange, which is responsible for managing most of the country's foreign currency holdings, said recently that it was not possible for China to make big purchases in the spot gold market.
"If China gets into these markets and pushes up prices to extremely high levels, the Chinese people will bear the cost at the end of the day as China is often the key buyer in these markets," Yi said.
He added that Chinese firms and households had purchased more than 300 tonnes of gold last year, and that it would have been hard for the government to buy any more with foreign reserve funds.
"The gold price shot up last year, and surging gold prices have forced Chinese people to pay more as there is strong demand for gold for those getting married and other events," he said. [ID:nTOE71P00H]
According to the central bank, China's state gold reserves have been held at 33.89 million ounces since April 2009.
Gold prices have risen about 10 percent in the last six weeks, as clashes in Libya and turbulence across the Arab world have encouraged investors to seek a safe haven, while oil has gained about 17 percent in the same period, increasing gold's inflation hedge appeal.
(Bloomberg) -- Li Yining Says China Should Raise Gold Reserves, Radio Reports
China should boost gold reserves “appropriately,” to secure the safety of the country’s foreign exchange reserves, Li Yining, an economist, was quoted as saying by China National Radio today.
(Bloomberg) -- Shanghai Gold Exchange to Extend Trading Time for Night Session
The Shanghai Gold Exchange plans to extend trading hours for the night session from late April, the bourse said in a statement posted on its website today.
The closing time for the night session will be 3:30 a.m., the statement said.
(Bloomberg) -- Merrill Lynch Says Brent May Break Through $140 in Three Months
North Sea Brent crude may trade at more than $140 a barrel in the next three months amid rising global demand and halts to production in Libya, Bank of America Merrill Lynch said.
“To reflect a tighter market, we upgrade our average second quarter 2011 Brent crude oil forecast to $122 a barrel from $86 a barrel,” the bank said in a note today. “On average for 2011, we now project Brent crude oil prices at $108 a barrel.” For West Texas Intermediate, the bank forecasts an average of $101 a barrel for this year, up from $87.
(Bloomberg) -- London Accounted for Two-Thirds of Global Gold Trading Last Year
More gold trading takes place in London than any other city, according to the latest commodities report by the financial industry-sponsored TheCityUK.
The U.K. capital captured 67 percent of the record $25.1 trillion in global gold trading last year, compared with 74 percent in 2009, according to TheCityUK. New York had 22 percent of the gold market, up from 16 percent in 2009, followed by Mumbai with 6 percent and Tokyo at 5 percent.
London kept its position as the center of the precious metals market that it established with the daily gold fixing in 1919. HSBC Holdings Plc, based in London, holds the gold on behalf of the SPDR Gold Trust, the biggest exchange-traded fund for the metal.
“London doesn’t have any competition when it comes to over-the-counter trading in gold,” said Marko Maslakovic, senior manager of economic research at TheCityUK in London. “OTC trading has been losing to exchange trading over the past five or six years because we’re getting more and more products traded on exchanges such as ETFs. It’s becoming easier to access the market through exchanges.”
London had 40 percent share of the $3.2 trillion silver market last year, down from 52 percent in 2009, according to the report. New York’s share climbed to 31 percent from 19 percent followed by Mumbai at 27 percent, down from 29 percent in 2009, according to Maslakovic.
The actual gold traded last year in London was 13.8 billion ounces of the global total of 20.48 billion ounces, according to TheCityUK. The silver total in London was 64.6 billion ounces, of a global 157.5 billion ounces, it said.
(Bloomberg) -- Gold Rises to 118,620 Yen an Ounce, Most Since Feb. 15, 1983
Gold for immediate delivery rose 0.4 percent to 118,620 yen an ounce, the highest price since Feb. 15, 1983.
The dramatic change in the ratio of copper to gold, which moved at the highest rate of change since June of 2010. Today, the rate of change is even higher at 4.3%. And with copper starting to seriously take on water, a curious observation emerges: is the gold-copper ratio, which on an inverted basis was virtually a tick for tick correlation conjugate for the S&P, now simply a harbinger of where the stock market is headed.
All else equal, once the Chinese exuberance dynamics which appear to have stalled out in copper, move to equities (which as Finisair demonstrated yesterday is only a matter of time) we believe, as the attached chart shows, that the fair value of the stock market is about 120 points lower. Since this is a relative comparison, those who do not wish to trade a single series, can put on a pair trade of short the Gold/Copper ratio (predicting it will decline from the current 3.4 - it is shown inverted on the chart below) and short the S&P in expectation of a compression.
And for those who wish to have nothing to do with the Fed's third mandate in the form of the stock market (which is all), another even more convoluted way to play the current multi-asset mispricing, is to go long the Gold-Copper ratio (expect gold to stay flat while copper declines), while shorting the Gold Miner/Copper Miner ETFs (GDX, COPX).
Lastly, those who just want to play with gold, an interesting observation is that Gold has marginally outperformed Gold Miner stocks. An appropriate and simple compression trade here would be short gold and long gold miners for a few basis points compression.