Tuesday, May 31, 2011
: Gold legal currency in Utah, with other states considering the move
NEW YORK (MarketWatch) — Gold futures on Monday rose to a three-week high as ongoing concern about Greek sovereign debt heightened the safe-haven appeal of the metal.
Gold for August delivery GCQ11 -0.05% , the most-active contract, rose $2.50, or 0.2%, to $1,539.8 an ounce in electronic trade on the Comex division of the New York Mercantile Exchange.
Silver also moved higher, with the July contract SIN11 +0.38% rising 23 cents, or 0.6%, to $38.09.
In Athens, Greece’s government on Monday readied to unveil billions of euros worth of new spending cuts and tax hikes, to be unveiled in coming days, as public demonstrations against the new measures continued.
Late Sunday, the Financial Times reported European leaders are trying to negotiate a new bailout for Greece that would bring wider outside intervention in the country’s financials.
Last week, gold prices gained 1.8%, with buying supported by concerns about euro-zone debt levels and a weaker dollar, which can encourage investment in dollar-priced commodities such as metals.
U.S. floor trading was closed Monday for the Memorial Day holiday.
The dollar index DXY -0.22% , which measures the greenback against a basket of six other major currencies, stood at 74.954 versus 74.911 late Friday.
And, in a move viewed largely as symbolic, Utah recently passed a first-of-its-kind law intended to encourage the use of gold and silver coins as cash.
The legislation, which legalizes gold and silver coins as currency, also eliminates state capital gains taxes on the sale of gold and silver, although federal capital gains taxes would still apply.
Tuesday, May 31, 2011
Commentary: Gold bugs cite lack of faith in paper money
NEW YORK (MarketWatch) — Another fabulous Friday for gold has the bugs bugalooing.
With two distinct surges, early and late in the New York morning, gold as represented by the CME June contract closed at a high for the week, up $13.50 on the day at $1,536.30, and up $27.40 (1.8%) since last Friday.
This was in fact gold’s fourth-highest close ever — only three days around the last weekend of April this year were higher.
Gold in euro- and British-pound terms actually reached record highs during the week, very gratifying for The Gartman Letter, which holds most of its substantial model portfolio’s gold position hedged into various currencies, including these.
Technically oriented observers were impressed. Trader Dan’s Market Views (see website ) remarked of the gold chart: “First of all, from a trend-following perspective, it is trading above all the major moving averages once again. … Secondly, the 10-day moving average, which had been moving down until last Friday, has now turned up and is trending higher. It is also getting ready to make a bullish upside crossover of the 20-day moving average.”
The author, Dan Nrocini, offered the conclusion: “Based on what I can see here, gold looks as if it wants to make a try at $1,550.”
The anonymous Technical Commentary, carried by Bullion dealer ScotiaMocatta, was even more positive (and more arcane): “Gold is closing the week at $1,536. This is the second consecutive up week off $1,536. It is interesting to note that both these up sessions have closed at their highs. Gold’s move above 61.8% Fibo level at $1,533 … puts the $1,577 all-time record high back in sight. Looking of the price action off the 2011 low of $1,308 … we could see another leg up toward $1,600.”
(“Fibo” of course refers to the Fibonacci quasi-numerological approach to chart analysis).
Gold stocks also did well, with the ARCA Gold Bugs Index HUI +0.39% gaining 3.9% on the week. Even before Friday’s gain (of 1.53%), gold shares had caught the attention of the Aden Report.
In its Wednesday evening Update, it commented: “Gold shares appear to be leading the way up for the other metals. … But most impressive is our in-house Advance/Decline Line, which is based on the action of 26 gold shares. … It tends to lead the shares … [and] the fact that it’s now hitting new highs for the year is significant. … Keep your metals positions, and if you want to add to them, then buy some Gammon Gold Inc. GRS +1.35% or Silver Wheaton Corp. SLW +0.05% .”
“Trader Dan” makes an important point about gold’s strength: “This is occurring late in May, a time frame during which gold tends to show seasonal weakness. The festival seasons from Asia and India are over. However, gold is not deriving the bulk of its strength from that source, but rather from currency-related matters.”
“By currency-related matters I mean investor concerns over the stability of paper currencies,” he said.
This sense of financial crisis is widespread. On Friday, The Gartman Letter uncharacteristically engaged in a blistering denunciation of the Fed for letting the “adjusted monetary base” surge: “In only five months, the base has risen 30%. ... Where are the adults, we ask?”
Friday, May 27, 2011
KMG Gold. While there are many reasons that gold and silver are going to keep moving higher as the fiat currencies trend lower, at our recent Casey Research Summit in Boca Raton, faculty member Mike Maloney pointed out a fact that, while obvious in hindsight, I had never heard mentioned previously.
Namely, that during the last major precious metals bull market in the 1970s, only about 10% of the world could own gold—due to either legal restrictions or a lack of liquid capital.
Today, few countries prohibit gold ownership, and a far higher percentage of the world's population has transitioned out of poverty.
China provides the most germane example, having legalized gold and silver ownership for private citizens in 2004, and through the explosive growth in national GDP that has caused Chinese gold purchases to skyrocket.
Confirming the point, the following is an excerpt from a recent article from The Wall Street Journal:
Chinese investors are snapping up gold bars and coins, buying more than ever before in the first quarter of 2011 and overtaking Indian buyers as the world's biggest purchasers of the metal.
A growing middle-class in China is raising the appetite for gold there.
China's investment demand for gold more than doubled to 90.9 metric tons in the first three months of the year, outpacing India's modest rise to 85.6 tons, the World Gold Council said in its quarterly report on Thursday. China now accounts for 25% of gold investment demand, compared with India's 23%.
The report underscores the rising appetite for gold among the growing middle-class in China. Fears of the country's soaring inflation, as well as a search for new investments, is luring investors to gold, and marketing of the precious metal has also increased in recent months.
"I think people will be surprised by the strength in the Chinese demand, but we think this is a trend that is set to continue," said Eily Ong, an investment research manager at the gold council.
Notoriously active savers, stashing away on the order of 50% of their income, the Chinese are increasingly opting for gold over the renminbi to stash their wealth.
For those wondering just how big a development this is, consider that in 2007, just before investing in gold became "the thing to do," gold demand in India was 61% of the world's total while China's gold demand was only 9%.
In other words, India is no longer the only elephant in the gold vault. And they are not alone—investors around the world are now able, and willing, to buy gold as a way of protecting their wealth from the inevitable decline of the fading fiat currencies.
I still don't think we are out of the woods on a commodities correction, but there are so many black swans floating overhead that literally anything can happen, at any time; thus buying in tranches on pullbacks over the next four to six months still makes a lot of sense.
But in the longer term, gold has almost nowhere to go but up.
Friday, May 27, 2011
KMG Gold. My favorite form of technical analysis is intermarket analysis, which is the comparison of various markets and sectors. All markets relate in one way or another. The current market cycle is being dominated by macro-related events. Because all markets have had a stronger link than in the past, it makes intermarket analysis very important. By analyzing markets in the context of one another, we can decipher or confirm the cycles within the current secular trends.
Most markets and sectors are digesting recent gains after a very strong run in the past six months. Recently we've pointed out that Bonds have caught a bid. More importantly, gold is strengthening in real terms for the first time since the start of QE2. Gold outperforms ahead of inflation and underperforms the commodities sector during an inflationary phase.
Below, we chart gold against other markets.
Note that gold priced in foreign currencies reached a new all-time closing high today. Keep an eye on gold against the S&P 500. It is not far from reaching a two year high. Meanwhile gold is strengthening against Oil and Copper.
Why should we care?
Since early 2009, gold actually has underperformed equities and commodities. When the economy rebounds, commodities will outperform gold. When the economy is stagnant and there is the threat of inflation or deflation, gold will outperform. Also, as we've written numerous times, the real price of gold is a leading indicator for the gold shares. The real price of gold was stagnant over the past nine months and that is why the gold shares haven't performed as well as anticipated.
With equities nearing multi-year resistance and the economy at risk of rolling over, gold is currently quietly reasserting its strength against all other classes (except Bonds). This is the type of activity that precedes big moves in the metal and in the shares. This is setting the stage for the move out of conventional assets like equities and Bonds and into gold.
Wednesday, May 25, 2011
KMG Gold. "We need to adopt a new mindset, a gold mindset."
Numerous commentaries in the media, both on television and in print, would have us believe that gold is a bad investment. Headlines warning investors to avoid the yellow metal are commonplace. Examples such as Five reasons not to own gold”, "Gold is in a bubble", "Gold as an investment—think again," "Gold is a bad hedge," "Gold is a pointless rock," and "Why gold is a bad investment" can be found with a simple Google search on gold and investment.
Each of the above points are addressed and debunked in the BMG Special Report, 'Six Biggest Myths About Gold' which readers of this article are strongly encouraged to read and which can be downloaded for free at www.goldmyths.com.
These articles miss the point, because they treat gold as an investment. To fully understand gold's role in an investment portfolio, we need to adopt a new mindset, a gold mindset.
Simply put, gold is not a bad investment, and gold is not a good investment. Gold is not an investment at all—gold is money.
While many people believe gold is an archaic relic that has no role in today's sophisticated, computerized, paper-based monetary system, three facts contradict this popular misconception:
- Gold, silver and platinum are traded on the currency desks of the major banks and brokerage houses, not the commodity desks. Traders understand gold is money to be traded against paper currencies.
- The world's central banks hold about 30,000 tons of gold in reserves. While there has been a lot of media attention given to central bank sales in the past, gold holdings have only declined by about 2,000 tons since 1980. Central banks have become net buyers since 2009 and have been adding gold to their currency reserves. Central bankers understand gold is money.
- The turnover rate between members of the London Bullion Market Association is over US$20 billion per day, with volume estimated at five to seven times that amount. Clearly, this has nothing to do with jewelry sales and everything to do with the exchange of money.
The definition of "investment" is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income or appreciation of the value of the investment. Through this transfer of capital, in the expectation of a profit, an investor gives up their capital and puts it at risk. The investor receives a return in dividends or interest as compensation because their capital is at risk; they may get back less than they invested, or they may get back nothing at all.
However, physical gold bullion or physical paper currencies locked in a vault are not invested; they are simply being stored. Since neither is invested, they don't earn interest or dividends, but they don't have any counterparty risk. The major difference between gold and currencies kept in a vault, however, is that gold's purchasing power increases while paper currencies lose purchasing power year after year.
Both gold and currencies can be taken out of the vault with ease, and the proceeds invested by giving them to someone else in return for dividends or interest. An interesting perspective can be gained by calculating whether the proposed investment is likely to return more gold ounces than were originally invested. For example, the 44 ounces of gold required to purchase the Dow in 2000 has now dwindled to fewer than nine ounces. Might as well have left the gold in the vault. Since gold maintains and even increases in purchasing power, there is no need to put it at risk in order to earn a minimal amount of interest or dividends.
Figure 1 illustrates how gold has not only preserved but also increased its purchasing power from 1971, when the gold standard was abandoned, to 2011.
Figure 2 illustrates how all of the major currencies have declined over the last decade when measured by gold ounces.
It is crucial to recognize that physical gold bullion, held directly or on an allocated and insured basis in a vault, is not an investment because it is not someone else's promise of performance or someone else's liability, and as a result has no counterparty risk. All other forms of gold ownership are, in fact, investments. Paper gold certificates, unallocated bullion accounts, ETFs, shares in gold mining companies and futures contracts all have counterparty risk, and are either someone else's promise of performance or liability. They may have their place in a portfolio, but they are all investments. We hold physical gold in a vault, we hold physical currencies in a bank, but we invest in financial assets.
Wednesday, May 25, 2011
KMG Gold: "Silver will continue to consolidate with erratic moves in both directions."
Two of our favorite silver producers led the charge today, Endeavour Silver Corporation (EXK) up 9.25% and First Majestic Silver Corporation (AG) up 7.49% as silver prices bounced $1.53/oz in today's trading session.
Silver prices have gained 4.37% in today’s trading session and look to have found some support at the $34.00/oz level, which could form the platform for a re-test of the $40.00/oz level.
Taking a quick look at the technical indicators we can see that there is an imminent crossover on the MACD which is usually a positive sign for silver along with the STO and RSI, both of which are heading north at the moment.
The difficulty is determining just where will silver prices go from here. In the short term, we are of the opinion that silver will continue to consolidate with some erratic moves in both directions. The months of June, July and August have been slow moving historically and we could be in for more of the same. However, it's not a given as many parts of the world are experiencing turmoil at the moment, either politically, economically, or environmentally. The next black swan event could make an appearance as early as tomorrow and change the financial landscape almost immediately, just as the rapid increases in margin requirements knocked the stuffing out of silver prices. One such event could be a similar assault on gold prices which would no doubt have a knock on effect on silver. However, the demand for silver, both by the industrial users and the investment community is strong and growing as suspicion grows regarding the credibility of the fiat currencies.
Also remember that those politicians and officials who control the printing presses have different objectives from that of the retail investor. The top priority for them is to get re-elected and they will continue to ‘buy’ votes with various giveaways to protect their lifestyles. Its short term-ism at its very worst and we are stuck with it. The printing presses will continue to roll as this is all they know how to do. Currencies will leap over each other in the race to the bottom and the people will become, albeit slowly, more aware that their paper money is buying very little indeed. The dawn of this realization has begun and is gathering pace.
To avoid being totally wiped out in the coming carnage try to move some of your wealth, even if you consider yourself to be a poor person, into some form of trade-able hard asset. In that respect silver deserves some consideration. As we have said many times the first step is to acquire physical silver coins and bars and keep them where you can get your hands on them and out with the banking system. When the chips are down the banks will do what the governments tell them to do, regardless of our perceived rights.
The second way to get involved is by investing in a small number of quality silver producing stocks. Now, some of our readers have informed us that they are unable to purchase the stocks that we have recommended due to the inability of their stockbroker to trade on a particular exchange, say the NYSE. To this sort of situation we can only ask if they are providing a service to you or if you are providing a service to them? There are a number of web based trading platforms available to you that free you from such shackles, so wake up and take charge of your own future.
Finally, if you have a stomach that can stand violent oscillations then the use of leverage, through a well thought out options trade could boost your account. However, be warned options can also knock a whole in your account just as quickly, so seek some professional advice before putting your hard earned cash on the table.
In conclusion, we are of the opinion that despite the day to day white noise that is ever present, silver prices will finish the year at much higher price levels than they are now. So take some time and read as widely as you possibly can, formulate your very own protection plan and start to build a position at your own speed, before prices become a little daunting.
Wednesday, May 25, 2011
Both metals settle at multiweek highs
SAN FRANCISCO (MarketWatch) — Gold futures traded higher on Wednesday, shaking off early weakness as the dollar came off its highs, and silver futures rallied more than 4%.
Gold for June delivery GCM11 -0.08% added $3.40, or 0.2%, to $1,526.70 an ounce on the Comex division of the New York Mercantile Exchange. That was gold’s best settlement since May 3.
August gold GCQ11 -0.09% , the contract with the most open interest but less volume, added $3.50 to settle at $1,527.80 an ounce.
Gold benefitted from ongoing concerns about Greece’s debt and its implications for the euro zone.
“Gold continues to have a safety bid,” said Frank Lesh, a broker and futures analyst with FuturePath Trading in Chicago.
Silver futures rallied 4.2%, with the July contract SIN11 +0.54% settling at $37.64 an ounce, the highest for the metal since May 10.
Silver was more of a speculator market, Lesh said. It was getting a push from smaller investors priced out of gold above $1,500 an ounce, particularly after its recent selloff, he added.
“Silver continues to function as the poor man’s gold,” Lesh said.
Investors on Wednesday grappled with news U.S. durable-good orders were sharply lower in April, rekindling worries of an economic slowdown and providing another leg of support for gold.
“We think that gold will remain well supported in the short term amid small-scale safe haven buying, and still in the absence of a substantial pick-up in physical demand,” analysts at VTB Capital in London said in a note to clients.
Gold rose $7.90 on Tuesday on worries surrounding Europe’s sovereign-debt situation. Read story on Tuesday's gold moves.
Meanwhile, the Bombay Bullion Association said it expects India’s gold imports to reach a record level of 1,000 metric tons this year if the monsoon season is good, analysts at Commerzbank wrote in a note to clients.
“Strong monsoon rainfall increases the income of the rural population, who are major buyers of gold jewelry in the world’s largest gold consumer country,” they said. Gold imports are likely to be 40-50 tons in May, but that’s 30% lower than the previous month, the analysts added.
The dollar index DXY +0.07% , which measures the greenback against a basket of six currencies, traded at 75.930 from 75.915 in late North American trading on Tuesday, as the euro pared losses against the U.S. currency. Read more on currencies
July copper HGN11 -0.06% rose 9 cents, or 2.3%, to $4.11 a pound, ending in the black for the second day.
Platinum and palladium also settled higher, with July platinum PLN11 +0.29% rising $17.30, or 1%, to $1,779.80 an ounce.
Palladium for June delivery PAM11 +0.18% rose $12.10, or 1.7%, to $747.35 an ounce.
Tuesday, May 24, 2011
Copper loses 3.2% on worries about slowing global economy
SAN FRANCISCO (MarketWatch) — Gold futures gained Monday as concerns about the euro zone tempered earlier losses on the back of a stronger dollar.
Gold for June delivery GCM11 +0.63% added $6.50, or 0.4%, to $1,515.40 an ounce on the Comex division of the New York Mercantile Exchange. That was gold’s highest settlement since May 10, and the second in a row above $1,500 an ounce.
Silver for July delivery SIN11 +4.80% , which had wavered between small gains and losses, finished 18 cents lower, down 0.5%, at $34.90 an ounce. That was silver’s lowest settlement since Tuesday.
Fears of a European sovereign-debt debacle “were overriding strength in the dollar,” said James Cordier, a portfolio manager at Optionsellers.com in Florida. “Investors are going to safe havens.”
Traders also fretted about more signs global growth is cooling, pulling down metals more closely related to industrial activities, such as copper.
“The global economy bull run of 2009-10, it really appears to be slowing down,” Cordier said.
Gold last week gained 1%, and silver added 3%, recovering some of the steep losses earlier in the month.
The dollar index DXY -0.27% , which tracks the U.S. unit against a basket of six rival currencies, traded at 76.125, up from 75.444 in North American trading late Friday.
The U.S. dollar strengthened against the euro as European sovereign-debt concerns resurfaced. Read more about currencies.
There was plenty of reason to worry about the euro zone, and the euro EURUSD +0.4414% at one point traded at its lowest against the dollar since March. The single currency recently traded at $1.4055, from $1.4194 in North American trading late Friday.
Debt-ratings company Standard & Poor’s lowered Italy’s credit-rating outlook from stable to negative on Friday.
European Central Bank Governing Council member Christian Noyer, meanwhile, said the Greece situation is worse than those of Ireland and Portugal.
Spain’s ruling Socialist Party suffered significant losses in the local weekend elections, renewing fears that new regional governments could unearth more debt problems in an economy that is bigger than those of Greece, Ireland and Portugal combined.
As the euro weakened and the dollar strengthened, weakening macro data from around the globe also pressured other commodities and U.S. stocks, which traded lower.
The latest data from China added to mounting evidence that the global recovery could be beginning to slow.
HSBC’s preliminary purchasing managers’ index cooled to 51.1 from 51.8 in April. Data released Monday is compiled from a smaller base than the regular PMI and is designed to give investors a glimpse of what the broader survey will show next week.
Copper, heavily imported by China and used in construction, led losses for the broader complex on Monday.
The July contract HGN11 +0.74% fell 13 cents, or 3.2%, to $3.99 a pound.
That was the lowest settlement for a most-active copper contract in a week.
Platinum for July delivery PLN11 +0.70% dropped $13.50, or 0.8%, to $1,755.90 an ounce.
June palladium PAM11 +1.08% declined $3.70, or 0.5%, to $731.80 an ounce.
While the greenback strengthened, analysts at the National Australia Bank cited recent U.S. dollar weakness as having supported the run-up in gold prices over the few past months.
The analysts forecast gold will fall back to $1,460 in June, and $1,450 by September.
“After remaining around $1,450 per ounce in quarterly average terms until the end of the September quarter ... we expect gold prices to gradually ease as investor jitters abate,” the analysts said in a research report.
NAB said escalation of conflicts in the Middle East and North Africa or sovereign-debt concerns would drive gold prices higher.
The analysts said gold holdings among exchange-traded funds have eased since 2010, and have been broadly flat since early February.
“A downside risk to our price forecasts is that a decline in investor appetite results in a substantial increase in gold supply entering the market from highly liquid exchange-traded funds’ holdings,” the analysts said.
Tuesday, May 24, 2011
Commentary: Some of yellow metal’s investors see stampede ahead
NEW YORK (MarketWatch) — Gold’s gyrations on Friday were dramatic, probably exhausting to both sides — and possibly important. Some gold bugs think a new attempt on the highs of last month may have started.
Gold was firm in Europe, but plunged on serious selling during the New York morning — then dramatically reversed on heavy volume to close up $16.50 at $1,508.40 in the CME June contract. This meant gold was up over 1% on the week. More importantly, gold appears to have broken the downtrend which had been in place all month.
Gold stocks, as measured by the Arca Gold Bugs HUI +2.44% , also seem to have reversed their May downtrend — particularly important to the many observers who think gold shares lead the metal’s movement. The HUI was up 2.75% on the week.
This action must have been a relief to the respected, institutionally oriented Gartman Letter, which overcame its earlier worries and very early on Friday morning added two “units” of gold to its model portfolio (one of which was hedged into yen). This makes the portfolio 7/11ths gold.
During the morning, Gartman must have been wondering if its actions (and those of its hedge-fund clients) were being targeted by hostile forces — a suspicion sometimes heard in the past. As it is, Gartman appears to have judged gold momentum well.
Gold’s recovery on Friday closely followed the announcement that the Fitch ratings service had cut its ranking on sovereign Greek debt. This sparked fears that a wave of anxiety about euro-zone defaults might sweep the market. (Standard & Poor’s subsequently made matters worse by warning of a possible downgrade for Italy.)
One of the correspondents on the LeMetropleCafe webzine pointed out that the rally in gold, as Europe was closing and on a Friday, nevertheless involved heavy estimated volumes, and asked: Did Fitch bring in Western Elephants?
That is, have the powerful speculative forces which have previously run gold up on euro fears appeared again?
All of this will certainly exercise Australia’s attentive and sophisticated gold observer, The Privateer. It has contended for some time that bouts of negative publicity by the ratings agencies are orchestrated to distract the markets from America’s problems.
As it acidly observed over the weekend: “… it is clearly the ‘policy’ that the U.S. and its debt problems will NOT be the focus of the global public in general and the U.S. paper markets in particular. … The U.S. was last faced with the necessity to raise their Treasury’s debt limit in late 2009 - early 2010. That was when the European sovereign-debt crisis first hit the headlines — duly conjured up by the U.S. ratings agencies. …”
“Now, we are in the same situation again, the only difference being that the U.S. Treasury is now officially $2.2 TRILLION deeper in debt than it was at the end of 2009, less than a year and a half ago.”
“The problem is that the European sovereign-debt crisis is becoming increasingly ‘old’ news. Something BIG had to be done to resuscitate it. It was.”
The Privateer continues to be bullish on gold.
Friday, May 20, 2011
Gold coin premiums shoot up...
WHILE precious metals are currently in correction mode, the long-term concerns with supply won't disappear anytime soon, reckons Jeff Clark, editor of Casey Research's Big Gold newsletter.
In attempt to get a handle on the Bullion market, I spoke to Andy Schectman of Miles Franklin, who has contacts that run deep in the industry. What he sees everyday – especially the shortages in gold and silver coins – might just compel you to count how many ounces you own…
Jeff Clark: Andy, tell us about your industry contacts and how you get the information you're privy to.
Andy Schectman: We source our product from three of the largest six primary US mint distributors. Having 20 years of experience with these sources, as well as the dealers in the secondary market, we're as tied into the industry as anyone.
Jeff: You made some interesting comments to me about supply and premiums. Tell us what you're hearing and seeing in the Bullion market right now.
Andy Schectman: I feel as though I'm the boy who cries wolf or that I've been beating the same drum for too long. But in reality, it has been my feeling since late 2007 that ultimately this market will be defined less by the price going parabolic – which I think ultimately will happen – and more by a lack of supply. You see occasional reports that state it's just a lack of refined silver or lack of silver in investable form. But as far as I'm concerned, there is a major supply deficit issue, and it's getting worse.
Take the US Mint, for example. Right now, as we talk, you can barely get silver Eagles. We're seeing delivery delays of three to four weeks, and premium hikes of a Dollar or more in the last three weeks. Most of the suppliers in the country are reluctant to take large orders on silver Eagles because they don't know (a) when they'll get them, and (b) what the premiums will be when they arrive.
I was talking to the head of Prudential Bache and asked him about silver Eagles. He said, "You know, as soon as the allocations come in, they're sold out. We can't keep them in." This is coming from one of the largest distributors of US Mint products in the country.
And this is all occurring in an environment that has only minimal participation by the masses. Few people in this country have ever even held a Gold Coin or a silver coin. So, if it's this difficult to get Bullion now, what's it going to be like when it becomes evident to the masses they need to buy? This is what keeps me up at night.
Jeff: Some analysts say it's a bottleneck issue, that the mints have enough stock but just need more time or more workers to fabricate the metal into the bars and coins customers want.
Andy Schectman: No, I don't believe that. What business do you know that if they had that much profit potential wouldn't increase production and hire more workers to meet demand? To me, the "inefficient model" argument is an excuse.
Look at what the US Mint alone has done: they haven't made the platinum Eagle since 2008. They make maybe one-tenth as many gold Buffalos as they do gold Eagles. They've made hardly any fractional-ounce gold Eagles. Heck, they can't even keep up with the demand for the products they do offer. Does that sound like a bottleneck to you? Or is it because there is far more demand than there is available supply? It's pretty clear to me it's the latter.
Jeff: What are you seeing in the secondary market; are investors selling Bullion?
Andy Schectman: There is no secondary market. Absolutely none. Nobody is selling back anything, at least not to us. Think about that: if this was a traditional investment and your portfolio went up 100% in the last year, like silver has, you'd think some investors would take some profits and ride the rest out – but nobody's selling anything.
This is why I think the lack of supply is the single biggest issue in this market. And in time, I think it will become much more obvious.
There are only five major mints – US, Canada, South Africa, Austria and Australia. Yes, there is a Chinese Mint and a couple Swiss Mints and some private refiners, but they amount to very little in the overall scheme of things. We're in a situation where the mints are limiting the selection and raising the premiums, and this is occurring at a time when most people own no Bullion. As it becomes more apparent that people want Bullion instead of paper Dollars, I think you'll see premiums go parabolic and supply get even tighter.
Jeff: Are you getting a lot of new buyers to the Bullion market?
Andy Schectman: More than ever. One of the interesting things we're seeing is a lot of younger people dipping a toe in the water, buying little bits of silver here and there. We're also seeing bigger orders, as well as more frequent phone calls from financial advisers asking us if we can help their clients. So yes, the base is broadening.
Jeff: That's very interesting. So are you seeing more demand for gold or Silver Bullion right now?
Andy Schectman: 90% of the new business is in silver. And I think that's indicative of the state of the economy. People are trying to get into precious metals, but they think gold is too high. I think they're Buying Silver because they realize the fundamentals for owning gold also apply to silver. They think the profit potential is better in silver, too. This has actually made the supply for gold better than it is for silver right now, and a lot of that has to do with price.
Jeff: Why are premiums fluctuating so frequently?
Andy Schectman: Premiums are almost impossible to gauge right now. Because the availability of product is getting smaller and smaller and the demand is getting stronger and stronger, premiums are changing literally overnight. And it doesn't take many large investors around the country to force premiums higher.
The net of this is that it's really hard for us to be able to say what the premium for a specific product will be two weeks out.
Jeff: You mentioned increased interest from fund managers. Tell us the kind of comments you're hearing and why they're buying Bullion.
Andy Schectman: I think it's coming from their clients. It's my impression that people are taking it upon themselves to study a little bit more, to be more accountable for their assets, and I think they're telling their financial advisors to Buy Gold. And in some cases it's because they don't want a paper derivative.
It's no secret that financial advisors don't like gold and silver. Once money goes to a Bullion dealer, it's not coming back to a stock portfolio anytime soon, so they discredit it. But now it's my impression they're being asked by their clients to buy it. So it's not necessarily because the financial advisor wants gold as much as it is the client requesting it.
Here's a good example. There's a firm here in Minneapolis that represents the Pillsbury fortune, and they asked me to talk to their partners about precious metals a few months ago. At the end of the conversation they said, "Okay, we're going to place an order for one of our clients." Upon hearing it was for one client, I thought it would be in the range of $50,000 to $100,000. Well, the order was for $5 million.
There are two astonishing things about this. First, that's twice as big as the largest order I've ever had. It was one order, for one client, who's brand new to the market. How many more potential buyers are out there like that?
Second, they made it abundantly clear to me that it was out of pressure from one of their clients that they sought me out. So clients are increasingly demanding Bullion, regardless of what their financial advisers say.
Jeff: Hearing about all this new buying might make some think we're near a top in the market. Could that be the case?
Andy Schectman: No, no. I think Richard Russell says it best: "Bull markets die of exhaustion and overparticipation." Well, we're nowhere near that point when so few people in this country own gold and silver. Heck, I'm a Bullion dealer, and most of my peers don't own any gold and silver! Yes, you're seeing more commercials, but there are just as many commercials to Buy Gold as there are to sell it. I think that's an indication this market is not exhausted.
Remember that in the year 2000 everyone and his brother had some NASDAQ shares. That's an example of an exhausted or overparticipated market. We're nowhere near that.
Jeff: Where are the best premiums for silver?
Andy Schectman: The very best buy in silver right now is junk silver. And by the way, I think the term "junk" is unfair. It isn't junk anymore. It used to be junk in the ‘90s when silver was 3 or 4 bucks an ounce and it was sold basically at melt value and carried no premium. So I'd call it "90% dimes and quarters." Anyway, junk silver has the lowest premium right now and, in my opinion, offers the best upside potential.
Next would be 10- and 100-ounce Silver Bars. And then one-ounce silver coins – but the Eagles are very expensive at the moment, if you can get them. The Austrian Philharmonic has the best value in a one-ounce silver coin right now, and they're available. But again, premiums for all silver coins are escalating.
Jeff: What about gold?
Andy Schectman: Gold is not as bad. In fact, I would say that gold availability is decent right now for one-ounce coins and bars. There isn't much available in fractionals. And Buffalos are still kind of hard to get. Other than that, the one-ounce coins with decent availability are Canadian Maple Leafs, Australian Kangaroos, and Krugerrands. And they all have decent premiums.
Jeff: So the take-away message is what?
Andy Schectman: First, I think you said it best with your recommendation to "accumulate." Not only will it smooth out the volatility in price and premiums you pay, it will also give you a bird in the hand. If I'm right about this market, and I really believe I am, it will be defined by lack of availability of refined product. To combat that, just accumulate month in and month out, and be thankful when you're able to get what you want.
Second, it's about the number of ounces you own. You want to get as many ounces as you can without being penny wise and pound foolish. Stick with the most recognized products – don't buy 1,000-ounce bars, for example, because they're illiquid. You want to maximize your liquidity, and you do that by buying the most common forms of Bullion – one-ounce coins, bars, and rounds; 10- and 100-ounce products; and junk silver.
Last, keep in mind that premium and commission are two different animals. Commission is what the dealers make on top of the premium. Premium is what the industry bears. So if the US Mint is selling silver Eagles for $3 over spot to the distributors, that's before they're marked up to the public. So even though the "premium" is high, you're actually going to get most of that back when you sell.
So, Buy Gold and silver while it's available, even if you don't buy it from me, because if I'm right, getting it at all could soon be your biggest challenge.
Jeff: Thanks for your insights, Andy.
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Friday, May 20, 2011
Mainland China's private demand to Buy Gold just keeps trending higher...
"IN THE competition for growing Chinese disposable incomes, gold is very quickly losing market share," said a London-based analyst in 2004...
China is now 10 years into opening up its gold market – half as long as India. But since nabbing the No.2 spot in terms of private demand in 2005, it's only grown hungrier for gold bullion, despite becoming the world's No.1 mining-producer nation, too.
How much hungrier? Courtesy of the data-fest buried in today's new Gold Demand Trends from our friends at the World Gold Council...
- Just like in 6 of the previous 7 years, Chinese New Year 2011 marked a new quarterly record for private gold demand in mainland China;
- In each of the last 3 years, the third if not third-and-then-fourth quarters went onto set new all-time highs again;
- On the new stats, the Chinese New Year saw private mainland demand to Buy Gold equal 0.71% of GDP in the first quarter. That still lags India's huge 2.65% allocation for 2010 as a whole, but compares with 0.47% in Q1 2010;
- In grams per capita, both Indian and mainland Chinese Q1 demand were equal to fully one-half of 2009 demand;
- As our chart shows, an increasing volume of China's increasing savings is being devoted to gold. Yes, the Q1 figure over-states it, because the Chinese New Year marks very heavy demand. But it's plain that substitution for other, more "sophisticated" savings mechanisms hasn't just failed to grow; it's gone into reverse.
That's the first rush from BullionVault's reading anyway. Whether you're long, short or indifferent, it's worth reading the WGC's new report for yourself. Because anyone looking to defend their purchasing power long-term cannot ignore the way emerging Asia is storing an ever bigger chunk of its fast-growing savings.
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Thursday, May 19, 2011
Federal Reserve minutes show members mixed on rate hikes
SAN FRANCISCO (MarketWatch) — U.S. stocks rose Wednesday in a partial bounce-back from their recent slide, as results from personal-computer maker Dell Inc. helped boost sentiment and offset a disappointing forecast from retailer Staples Inc.
The major indexes added to their advance after the afternoon release of minutes from the Federal Reserve’s April meeting, which showed the central bank’s members divided on whether to hike interest rates this year. Read more on Fed minutes.
“The Federal Reserve discussed numerous ‘exit strategies’ at its latest FOMC meeting, but it stressed that these discussions did not entail immediate actions,” said Gregory Daco, U.S. senior economist at IHS Global Insight, in written comments.
The Dow Jones Industrial Average DJIA +0.40% quit three days of losses to end up 80.6 points, or 0.7%, at 12,560.18. Out of 30 components, 23 gained, with percentage advancers led by Caterpillar Inc. CAT +1.00%
Chevron Corp. CVX +1.40% and Exxon Mobil Corp. XOM +0.78% were also among the top blue-chip gainers, as crude-oil futures topped $100 a barrel and after a Democratic proposal to strip $2 billion in annual tax subsidies to the two oil giants and three others failed in the U.S. Senate. Read more on energy stocks.
The Standard & Poor’s 500 Index SPX +0.23% added 11.7 points, or 0.9%, to 1,340.68, with natural-resource and energy leading the gains among its 10 industry groups. Utilities was the only sector lower.
Stocks climb after Fed minutesStocks snapped a three-day losing streak as the Federal Reserve's minutes showed central-bank officials are in no hurry to tighten monetary policy even as they held detailed exit-strategy talks. Laura Mandaro has details.
The cyclical sectors, including energy and materials, were at the frontlines of the advance from the bear market low in March 2009 but have started to lag more defensive sectors, such as telecoms and consumer staples.
Uncertainty about how the market will respond once the Federal Reserve winds down its quantitative-easing program in June, and some disappointing economic data and corporate reports, have caused some investors to shift their portfolio towards sectors seen as less volatile. But there are still pockets of optimism about the recovery, making day-to-day trading choppy.
“Some days investors on balance believe that there’s a serious slowdown that lies ahead. Some days they don’t have that conclusion. It’s on again, off again,” said Hugh Johnson, chief investment officer at Hugh Johnson Advisors.
“There’s a great deal of uncertainty whether this will be curtains for the bull market and recovery or this will just be midcycle slowdown. Today, it’s probably just a midcycle slowdown,” he said.
On Wednesday, the bulls took heart from earnings reports from Dell DELL -1.34% , which late Tuesday reported stronger-than-forecast profit and raised its outlook for the year. Dell shares closed up 5.4%.
Also, Deere & Co. DE +0.87% said its fiscal second-quarter profit rose 65% as rising crop prices supported demand for its equipment. But shares slid 0.5% on concerns profit growth was decelerating. Read more on Deere.
“Encouraging news from Dell Inc. yesterday and Deere & Co. DE +0.87% this morning should give equity investors a momentary lift,” said Fred Dickson, chief investment strategist at Davidson Cos. Read about Dell’s results.
Discount-retailer Target Corp. TGT -0.71% also reported a larger-than-expected rise in quarterly profit. Read about Target’s results.
Hewlett-Packard Co. HPQ -0.34% led the Dow’s decliners, with shares off 1.1% a day after the company reported that weak PC sales curbed second-quarter profit. Read about H-P’s results.
Staples Inc. SPLS -0.78% shares tumbled 15% after the office-supplies chain reported profits that missed expectations, as demand in Canada and Europe weakened. Read more on Staples.
Dan Greenhaus, chief economic strategist at Miller Tabak, chalked up the market’s more defensive posturing this month as more to do with concerns about growth and earnings and less to do with any Fed-related worries.
“It is our belief that the most bullish forecasters predicting optimistic equity returns over 2011 and 2012 are — once again — going to have to revise their projections,” said Greenhaus, who added that the market’s defensive stance is illustrated by the four best-performing industry groups in May as of Monday’s close: health care, utilities, staples and telecom.
The Nasdaq Composite Index COMP +0.19% ended up 31.79 points, or 1.1%, to 2,815.
For every stock falling, about four gained on the New York Stock Exchange, where 884 million shares traded hands, or 94% of the last month‘s volume.
On the New York Mercantile Exchange, commodities rose for the first day in three, with oil futures CLM11 -0.21% closing up 3.3% at $100.10 a barrel and gold futures GCM11 -0.46% finishing at $1,495.80 an ounce, up $15.80.
A late rally Tuesday helped curb steep losses in the Dow, which fell as much as 170 points during the session but closed down 68.79 points, or 0.6%, to 12,479.58.
Tuesday, May 17, 2011
Aren´t silver investors funny?? - they were raving bullish when the price was close to $50, now that it's down about $15 and near to $35 they are despondent. In the words of that famed alien with pointed ears, this is "highly illogical". Here on earthbound www.clivemaund.com we have a simpler term for it: "plain nuts". While picking an exact top or bottom is never easy, you can always rely on the collective behaviour of idiots as a guide. So the fact that they are now wary is good news for silver.
On its 6-month chart we can see how silver went parabolic to become fantastically overbought by the end of last month, as shown by the oscillators at the top and bottom of the chart and by the huge gap that opened up with its 200-day moving average. During the week before it crashed down there were clear candlestick warnings of imminent failure, with a marked Reversal Day appearing that took the form of a long-legged doji which came close to being a strongly bearish "gravestone doji", and the danger was highlighted on the site in the article US DOLLAR sentiment at RECORD NEGATIVE EXTREME – implications for SILVER on 28th April. Now that it has crashed down close to very strong support and the uneducated public have become alarmed and turned bearish, we are seeing the opposite type of candlesticks appearing - long tailed bullish candlesticks, including a "bull hammer" on Thursday. This is saying to us that a significant tradable rally is imminent, even though there is likely to be another downwave later that takes silver to a lower low probably in the $28 area to complete the reactive phase.
The leveraged silver ETFs magnified the manic depressive lunacy of silver speculators of course, with the ProShares Ultra Silver shown below, which appeared on the site as part of an article about silver bull ETFs and Call options in same, taking a more than 50% haircut in under 2 weeks. It has arrived back in a zone of strong support in a state of massive compression - meaning that it has reacted back fast and deep into the preceding major uptrend, a situation that normally results in a big relief rally.
It is worth taking a look at the silver COT chart here in relation to the 6-month silver chart. Although the COT chart was highly deceptive ahead of the collapse as it looked bullish, it is still useful as it shows that we have the lowest Commercial short and Large Spec long positions by a substantial margin for the period of this chart, and in fact going back further - at least a year. This means that at least as far as the COTs are concerned, there is room for a big rally in silver going forward. Actually the COTs are even more bullish than this chart would suggest, as it is up to date as of last Tuesday, and it is thus reasonable to suppose that the Commercial short and Large Spec long positions have dropped back even more on the sharp drop in silver that occurred on Wednesday and Thursday of last week.
As we are professionals in the field of market analysis, but not in the field of psychiatry, we of course only have layman's terms to describe the crazed state of mind of the average silver speculator, such as barmy, bonkers, dippy, doo-lally, gaga, garrity, kooky, loco, moonstruck, off their rockers, round the twist, a few slates short of a roof, lost their marbles, mad as a March hare, not firing on all plugs, nutty as a fruitcake, out of his tree, round the bend, stark raving mad, unhinged etc and you may be able to think of some more. They would make great subject matter for a PhD thesis, but we don't really want the men in white coats turning up and dragging them off, despite the title of this article - we need these people to keep buying high and selling low so that we can do the exact opposite.
Tuesday, May 17, 2011
Published : May 17th, 2011
A growing number of market participants think that the commodities bull market is running out of steam. These estimates are based partially on the recent developments in futures and options markets, where many hedge funds have recently been liquidating their long positions. But Chuck Jeannes, CEO of the world’s fifth-largest gold producer, Goldcorp, argued at the weekend that the upward trend in the precious metals sector still has a long way to go.
Data from the Commodity Futures Trading Commission (CFTC) show that major investors trimmed their net-long commodities positions in the week ending May 10, with hedge funds and speculators among the largest sellers. According to Reuters, professional money management funds dumped about 222,000 long contracts in 22 US Futures markets within only five trading days. Net long positions declined by 13% compared with the previous week. Many investors were caught on the hop by sudden and unexpected margin hikes on futures contracts, something that hit the silver sector especially hard.
The number of outstanding Comex long contracts in the gold sector has declined by almost 20,000 in comparison with the previous reporting period. This corresponds to a setback of 10%, or a nominal decline amounting to $3 billion. The situation is even worse in the silver sector, where investors cut their net-long positions by about 25%, which led to a nominal decline of $1.1billion. The total number of positions held by global funds decreased to $116.8 billion. However, the total number of outstanding long contracts is still at very high levels, and precious metals did manage to stage a partial recovery last week.
Famous investor Jim Rogers for one remains unconcerned by the correction, and stated in an interview last week that commodities will continue to appreciate over the coming years. In his view volatility will remain high, but the fundamentals underpinning this bull market remain intact. Continuing dovish policies by the world’s central banks – and in particular, the US Federal Reserve – are a particularly important fundamental factor. As the renowned fund manager Eric Sprott pointed out at a conference in Las Vegas last week, the markets have once again chosen gold as the world’s reserve currency.
Goldcorp’s Chuck Jeannes argues that the supply and demand dynamic remains bullish as far as precious metals are concerned. He notes that while mining production in the gold sector has steadily declined over the last ten years, demand for the metal has dramatically risen. In contrast to the recent announcement from Goldman Sachs, which called on gold producers to start hedging against potential price set backs, Jeannes said that Goldcorp was not planning on following Goldman´s advice.
Friday, May 13, 2011
KMG Gold Recycling
: All testimonials posted by KMG Gold are from our customers. Real people with real opinions.
This email conversation came in today from a customer that sent us her broken gold jewellery in a SecureShip™ Envelope.
CW: "I accept your offer to purchase and look forward to my cheque in the amount of Cdn$523.92. Thank you for your prompt response. I am very impressed with this very quick and easy process and will be sure to recommend your services to my family and friends. Sincerely Cindy"
KMG: "Thank you for your kind words. Your cheque is signed and in the mail. May we post your comments on our web pages as a testimonial? All of the testimonials we post on kmggold.com are from real customers and we like to share the good praise! Regards, Mike"
CW: "Once again, I thank you for your prompt response. I am so impressed and it's not too often you come across such professional and prompt service. I am a single mom and currently unemployed after over 25 years of secured employment. I don't think I have to tell you how much this cheque will mean to me. All I had to do was just round up my old and broken jewelry. Yes, please post my comments on your web pages." - Cindy W.
It's comments like this that make it all worthwhile. All the hard work all of us at KMG Gold, Robyn, Caitlyn, Tom, Micheal, Andrew and myself do, trying to be the only HONEST gold buyer in North America is instrantly rewarded by comments like this...
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Thursday, May 12, 2011
Avery Goodman, Seeking Alpha: As we warned our readers on May 1, 2011, when silver had clawed its way back to about $48 per ounce: “We expect another massive price attack in the next few days.”
We came to this conclusion based upon a number of factors, including the impending opening of the Hong Kong Merchantile Exchange, which will be controlled by many of the same international players who control NYMEX. Like clockwork, a vicious attack, perhaps the most ferocious one ever mounted in the history of precious metals, began on Monday, May 2, 2011. We knew it was coming, but to be honest, we didn’t expect the level of ferocity. Following our own suggestions, when silver had tanked by about 18%, we entered into a small speculative long position, using the SIVR silver trust. The price punched right through the minor support level we had chosen, and continued down.
Had we realized the depth of the silver short seller despair, we would have played the game a bit differently. We would have waited longer, bought a lot more later on, and created a much longer term position. As it is, we have lost nearly nothing, and will do it anyway. Nevertheless, as irrational as this kind of thinking is, and as much as we warn people against it, human beings are human beings and we are not happy about putting on a little bet, no matter how small, that fails to catch the bottom of a dip.
The level of despair among short sellers, which is motivating this attack, is growing. Anything could happen at this point. They could give up entirely, or the attack could become more ferocious. We don't know. What we do know is that the short sellers' predicament has just grown worse. They will eventually become even more desperate than they are now as weeks and months pass by. We will explain why shortly.
New and ever larger performance bond deposit requirements are being announced by the NYMEX so-called "clearing house risk committee" (performance bond committee) almost every other day. On top of these substantial increases, the individual clearing members are often making even bigger demands and hiking up performance bond requirements even higher.
We cannot help but wonder if some of these clearing members are themselves short silver, or if they are deathly afraid that other clearing members will default, leaving them footing the bill? Or are they trying to help attack their own customers? To the extent that a clearing member is raising performance bonds above the level of the exchange, customers should say goodbye and never do business with them again.
According the official spokesperson for CME Group, which owns NYMEX, the performance bond increases are designed to address "increased risk". If this were so, however, such changes would apply only to short sellers and new long buyers who purchased up in the higher price ranges. Most of the older long buyers were sitting on huge profits from the upward movement of silver, when the new bond requirements were imposed in the $49 range. They posed no greater risk at all than they did back when they made their purchases at $18, $20, $25 per ounce, etc.
But the exchange and its dealers don't play the game that way. Instead, they apply these changes to everyone, even people who may have bought when silver was down near $18 per ounce, even though these older position holders pose no greater risk of defaulting than before. The exchange committee members are quite expert at all this, and are well aware that the net effect of what they were doing would be to throw people involuntarily out of positions. The effect is carefully calculated and thought out, and is part of the overall process used to artificially control silver prices.
Coupled with the sudden increased performance in bonds, there has been an all-out media effort to convince people that a “bubble is bursting” even though, as we will shortly explain, anyone who is worth his salt as an analyst knows it isn't true. There has NEVER been any bubble in silver in 2011, and therefore, it cannot possibly "burst”. There has simply been an unwinding of a grossly underpriced asset that has been subject to a multi-year price suppression effort.
Be that as it may, this downturn provides, for the first time in a long time, more than mere gambling opportunities. Highly leveraged and undercapitalized speculators have been kicked out of their positions, and they had pushed the price of silver up very fast. It would have gone to the same levels, anyway, and beyond, but the process would have been slower and steadier if the market had been limited to cash buyers and well-capitalized investors.
We have been carefully observing the methods used in this attack and have reached some conclusions. The attack is not sophisticated. It is NOT rocket science. The method is so simple that it is astounding that so few people see it for what it is. Regulators could put an end to it any time they want to. They simply don’t want to. That means, of course, that they are essentially complicit. There are genuine folks over at CFTC, like Commissioner Bart Chilton, but they are operating at an agency which is structurally corrupted, with a revolving door swapping employees to and from the regulator and those who are supposed to be regulated.
The current price attack involves an overwhelming creation of transient short positions that last less than one day. This is expensive to do in terms of upfront cash. But it isn't quite as expensive as it may seem at first glance. Each day, except on Friday, May 6th, more than 10,000 short positions appeared to be transiently created, closed and recreated during the trading day. This must have required posting at least $180 million in performance bonds. However, to give credit to the ingenuity of the manipulators, most cash is recouped by the end of the trading day. With access to Federal Reserve loan windows, putting up an infinite amount of upfront fiat cash in the morning of a trading day is no deterrent.
From what we can see, this is what they are doing, in a highly coordinated fashion:
1) Either using control over the exchange committee system to induce sudden hikes in performance bond requirements, or opportunistically using such hikes. The hikes soften up the market by causing an initial destabilization of accounts of overleveraged long position holders. Some of the big clearing members of NYMEX have enhanced this effect by raising their own requirements higher than the exchange committee, and thereby softening up their own customers more substantially;
2) Using analysts to make extensive commentary to the mass media to the effect that the “silver bubble has burst” in the hope of inducing fear in the marketplace, further softening it up, in preparation for step 3.
3) Using trading “bots” to transiently create thousands and, sometimes, tens of thousands of intra-day short positions, designed to soak up opportunistic buying by better capitalized long side oriented investors. The flooding of the market with this paper supply of imaginary “silver” prevents futures based prices from rising and triggers stop-loss orders among leveraged customers.
4) Closing most intra-day positions into the mass of involuntary liquidations. Sometimes, “artillery” is left on the battlefield by the close of the day. This happens when transient short positions cannot be fully unloaded. In other words, the bots are competing with heavy buying from well-capitalized buyers who now want to pay the "bargain" prices created by the bots, and taking over those positions before the bots have the opportunity to buy them back. This shows up as a net increase in the “open interest” in silver, even as the price is falling. That aberrant result is impossible if a bubble were really “bursting”, because we would have run out of such buyers by now;
5) Rinsing and repeating the same process the next day, and on various days after that, allowing for a few “up” days centered around points of natural technical support, in order to preserve plausible deniability.
Again, CME officials claim that the sudden margin changes are motivated by “high volatility”, and that their actions are not a cause for the recent crash of silver prices. That is disingenuous at best. The changes are not “motivated” by high volatility -- they are the initial cause of the volatility. They knowingly destabilized the accounts of highly leveraged buyers. Those buyers were highly leveraged because the exchange previously encouraged high leverage by marking down performance bond requirements. Sudden upward adjustment of performance bonds creates an opening for trading “bots” to move in, and helps make the manipulation less costly.
If performance bonds were never set in the first place, at ridiculous ultra-low levels, then suddenly raised, then suddenly lowered, over and over again - which is exactly what the exchange has done for years - prices would be stable. Substantial performance bonds, kept the same at ALL times, would mean no "pie-in-the-sky" undercapitalized long buyers drawn into the market. The ability of the manipulators to flush them out, collect their performance bonds, and periodically crash commodity prices would end.
In that scenario, silver and gold would transform back to their 10,000 year old role as the most stable stores of value that exist, and conservative investors would convert their fiat cash, stocks and bonds into precious metals. That is a nightmare scenario for western central bankers, because it is a severe threat to the long term profits of the commercial casino-banks they service, whose tight control over the world economy facilitates the sale of derivatives and control over the contingencies that trigger such derivatives. This tight control cannot exist in an honest money gold/silver base monetary system, and is based primarily upon control of paper and electronic money printing presses
But, in spite of the incredible power of the central banks standing behind them, short sellers are losing this war. Their surface “success” is an illusion. Instead of escaping from liability, their liability is growing. In spite of the propaganda machine, the attack by clearing members against their own customers, and the trading bots, buying interest has remained incredibly high. This is exemplified by the fact that not all of the tens of thousands of transient intra-day short contracts have been closed by the end of the trading day. That is NOT a sign of a bursting bubble but, rather, of just the opposite.
In a normal market, the cost of a relatively fixed supply of goods will always result in rising prices when the number of purchase contracts rise. This is because demand has increased while supply has stayed roughly the same. But, not in our corrupted futures markets. On Tuesday, May 3, 2011, CME Group records show that the silver bars underlying 23 contracts were delivered. That should have reduced “open interest” contracts by 23. Instead, there was a net INCREASE that day of “same-month” positions by 10 contracts. In other words, short sellers will now need to deliver 165,000 additional ounces of silver this month.
On Friday, May 6, 2011, the short sellers must have been proud of themselves. They were able to deliver 243 contracts, or 1.2 million ounces of silver, which is a huge amount. But, the open interest for May delivery only declined by 13 contracts, which means that the artificially cheap prices attracted 230 new long contract buyers who paid cash. The new contracts will need to be delivered this month. As hard as it must have been to find the silver for May 6th delivery, they are now forced to find another 1.15 million ounces somewhere.
The so-called “spot” price is now largely irrelevant, but short sellers have still not acknowledged that fact to themselves. Intense physical silver demand continues. This is amply illustrated by continued backwardation. Dealers at COMEX and the LBMA may create fake prices at will, but the cash market is their achilles' heel. Short sellers have put paper silver on a fire sale at the futures exchanges. Yet they have not improved their position by doing so. They have, instead, insured a worse problem. Cash buyers put the fear of God in the hearts of silver manipulators. Cash buyers can put them into bankruptcy, destroy their power over the market, and discredit the futures markets, LBMA and the central bankers by inducing multiple defaults.
New “urban” myths about mysterious eastern billionaires buying up silver have spread quickly. On April 28, 2011, silver was selling for a high of $49 per ounce. The open interest had fallen to as low as 129,711 as short sellers slowly capitulated, and serious cash buyers took the bait. Allowing higher and higher fiat prices was effective in allowing open short positions to be closed, which is what short sellers must do before it is too late. On one day, for example, in early Asian trading, prices rose temporarily by over 10%. Asian short sellers were breaking ranks and buying back positions at any price. Then the bull-headed spirit of their European and American comrades awoke, and the current attack on silver prices began.
The market is NOT becoming dispirited or shell-shocked, as would have once been the case under similar conditions. Instead, we are seeing heavy buying by well capitalized long buyers who have probably read Andrew McGuire’s emails. They now know the score. They know that this is simply a manipulation event. As of May 5, 2011, the open interest had already risen to 134,804. The evil “Empire” is facing 5,093 new long positions. Two hundred sixty six of those are “same-month” positions, bought with a 100% cash, and need to be delivered this month.
Tens of thousands of other positions have changed hands. The trading “bots” managed to close most of their intra-day shorts into margin calls and stop loss orders, but have not accomplished much in terms of the level of open interest. Tens of thousands of existing contracts plus 5,093 additional hard long positions were unintentionally created by the trading bots, and all of these are now transferred from undercapitalized longs who would never have taken delivery, into much stronger hands.
The percentage of contracts, going forward, that will be forced into delivery as the months pass, will rise as a result of the transfer from weak to strong hands, and the silver short sellers’ problem is now bigger. New buyers have streamed in and bought at lower prices. That is the natural response of any bull market to a major manipulation event like this one. Silver is in a secular bull market. That has not changed as a result of a manipulation event. In fact, nothing has changed, except the unfavorable position of the silver short side manipulators, who are facing a much worse picture now than they did before they started this manipulation.
They have collected performance bond “candy” from undercapitalized investment “babies”. But, they need much more. Short sellers need to create the type of dispirited shell-shocked market they managed to create in late 2008. The effort, back then, made use of the demise of Lehman Brothers to offload hundreds of billions of dollars worth of short positions in all the precious metals in the OTC derivatives market. So far, however, this manipulation event isn't working very well. The only way to bring the number of positions down is to allow the price to rise substantially.
If they abandon the effort now, as Friday's action implies they might, it will be impossible for them to shift their short term price reduction into a longer term situation of altered market perceptions, which is their end goal. The Federal Reserve can give them as much cash as they need to mount as many paper-based attacks as they want, but it can’t give them physical silver. Short sellers will need to “put up” or “shut up”. They need to pay the price for their misconduct over many years.
Short sellers have proven to be so bull-headed that one has to doubt whether they will do the smart thing. The next move might be to flood physical markets with newly “cashed out” baskets of silver bars from the SLV silver trust stockpile. That might dampen pressure from increasing demand, and might even meet the immediate need for physical delivery in the OTC cash markets. Over the long run, however, assuming that the price remains discounted, the bars will quickly disappear and as they raid the stockpile, others will buy SLV shares and also raid the stockpile. SLV may end up stripped of its silver.
Does SLV really have the full amount of silver claimed? It does have a solid-seeming inspection report that says it does. If it doesn't, we may be finding out soon enough. If those who have been dismissed as paranoid people end up being right, and there is not enough silver in the stockpile to cover claims, jail cells will be waiting. The CME Group clearing house risk committee can raise performance bonds to 100% of the amount that long buyers paid for their positions in silver. They can even raise it higher than that, but only at the risk of jail cells, and/or triple damages that cannot be discharged in bankruptcy for its individual members. Meanwhile, manipulators can continue to flood the market with bidding-bots and intra-day transient short positions. They can theoretically absorb all the buying pressure if they are stubborn enough.
They can continue to raid the SLV stockpile to make deliveries, and spin those withdrawals to the media as the "public getting out of silver". But this is not 1980. No one remotely similar to Nelson Bunker Hunt is relying on bank financing to corner the silver market using leveraged positioning. Price pressure is from the cash physical market, not derivatives. COMEX is relatively irrelevant. Nothing the manipulators can do in derivatives markets will relieve the physical market pressure.
Short sellers have replaced weak hands with strong ones who are much more likely to take delivery. This manipulation episode will dramatically unwind, just as it dramatically began, when silver short sellers capitulate, as they must. Prices will shoot far beyond the recent high levels. “Bottom picking”, therefore, may be nice but it isn't absolutely necessary. The prospective price appreciation over the next few months or years should overwhelm any differences in price right now. It won’t matter whether you bought at $50, $40, $35, $20 etc. In a few months, the price will likely be back up, and, in a few years, the price will be many multiples of all those numbers.
Technical support levels still have meaning because manipulators want it to be so. Cash fueled trading “bots”, filled to the brim with Federal Reserve funny money, can be programmed to open as many transient intra-day short positions as needed to punch right through any support levels. But manipulators must preserve an illusion of natural market movement. We can expect loose adherence to chart patterns, allowing bounces where appropriate, and then, punch-throughs.
The only way a psychologically depressed market could now be achieved is by crash prices beneath the long-term trend line, which is around $22.50 per ounce. This would require hundreds of millions of additional trading bot dollars to do. They might try it, at some point, but more likely, they will give up for the moment and return to a slow capitulation. Even if they do push prices down below $22.50, we doubt it would work for very long. Such a battering would cause heavy technical damage, but as noted, this market is not being driven by technical trends.
If they don't achieve the sub-$22.50 level, even most technical analysts relied upon by the big non-manipulation-involved hedge funds and other big players will assume that the silver bull market is still running and that this is merely a deep correction. They will buy back in and run the price back up. In other words, if the manipulators do not achieve a sustainable self-perpetuating shell-shocked market, as was achieved in late 2008, the manipulators will not be able to close short positions without great losses.
It may be possible to use technical analysis to make intra-day, or multi-day gambles on bounces. We would not feel comfortable, however, with recommending that this be done with substantial capital, because the manipulators could suddenly attack again at any time. If they decide to punch through the strong technical support level at $33-34, they will do so with everything they've got. They will need to take down the price very quickly because they need to get it done before so much of the month has passed that they will be impaired in their ability to gather silver to make delivery in the OTC market.
You must think long term now before entering this silver market, because you may well get stuck with a silver position for a longer term than you may expect. But if the manipulators do press the price down below the $22.50 level, you should buy with every dollar you have available, because even though things will look bleak by then, with every media outlet heralding the "bursting of the silver bubble", a few months later, the price will be back to way above $50 again. Prefacing the big fall will probably be a huge technical rally in the U.S. dollar, and a big fall in the stock market. These events may not happen until the end of QE-2 in late June.
On the other hand, if you don't buy now, and, instead rely on the forlorn hope that manipulators will push hard enough to take prices into $20-22 level, you may well lose the excellent opportunities that now exist. There is no way to know, in a manipulated market, whether the manipulators will decide to punch through a particular support level. As we have stated in previous articles, the better way to deal with this is to pick a reasonable price level acceptable to your pocketbook, put in a buy order, and wait. If your buy order is successful, and the price turns up immediately, great. If not, be secure in knowing that you have a long term view, and a position in an asset destined for much more appreciation than we've ever seen before, over the next few years.
In short, it is time to stop thinking about short term gambling, because no metric you use is safe against the depredations of a manipulation that regulators refuse to stop. Buy with the long term in mind and wait for the market to punish the manipulators, which it will. Take physical delivery if you buy at the futures markets. Remember, the primary value of precious metals is NOT in making “big money” from gambling in the banker-controlled gambling casinos. We have always strongly suggested that only very small gambles like those you would make in Las Vegas should be made on a speculative basis. But buying on big dips, like this one, is not a speculative undertaking. It is long-term investing. The long term power of silver, like gold and platinum, is to preserve the buying power you’ve worked for all your life.
The powers-that-be want the U.S. dollar and all other paper fiat currencies to lose value every year. In fact, 2% inflation is their openly stated goal. If you consider compounding, that is an inflation rate that destroys the value of money very rapidly. But the true inflation rate in America is already closer to 6%, not anywhere near the low official numbers that the government likes to report to the media. With a huge increase in the amount of circulating funny-money liquidity around the world, including but not limited to the U.S. dollar, inflation is likely to rise much more sharply from here forward all over the world, not just in the U.S.A. The willingness to tackle this inflation, on the part of policy-makers, is very limited because serious efforts involve a lot of pain to powerful constituencies.
Investing in precious metals means converting U.S. dollars, pounds, euros, etc., into hard "money" that can be manipulated in price, but which cannot be debased. Manipulation has its limits, and since it appears to have been happening in the gold and silver markets for decades, in one form or another, the unwinding that is now beginning will just get more intense with time. No matter what technical support levels they target and take out, the short sellers are not going to extricate themselves without paying big bucks. Knowledge of how the price suppression scheme operates is in the public domain, and it is highly unlikely that manipulators will succeed in shell-shocking markets with their shenanigans, nor suppressing prices, for any significant period of time.
The next step to control prices for several more months will be borrowing enough money from the Fed's loan windows to keep their trading bots active whenever some type of opportunity presents itself, and to become even more aggressive using control of exchange mechanisms to continue sudden increases in performance bonds. Because SLV shareholders tend to be unaware of the fact that they are dealing in a manipulated market, they continue to buy and sell the trust at whatever the spot price may be manipulated to. Thus, short sellers can use opportunistic futures markets attacks to raid SLV silver stockpiles "on the cheap".
This should allow them to obtain enough silver to meet physical delivery demands, and even to periodically flood physical markets. Meanwhile, the reduction in the stockpiles will be spun into a claim that the "bubble is bursting" as "big players" "sell" SLV shares. In fact, they are not selling at all but, rather, cashing shares for silver to meet delivery demands. We doubt, for this reason, that the speculations about impending COMEX defaults have any basis in fact.
Silver investors should understand that the ride is going to be a roller coaster, as it always has been. Going forward, the intensity of that thrill ride is likely to increase proportionally to the desperation of short sellers. The biggest threat to silver prices will be the supposed end of QE-2. Short sellers are likely to view it as another opportunity to attack. But July is also a big delivery month in silver, and the delivery demand will be considerably higher than now, as a result of this price attack and the replacement of weak hands with strong ones.
If the manipulators had strong faith that the cessation of QE will save them, they wouldn't have launched the ongoing attack we are now suffering through. The most likely outcome of the end of quantitative easing (if it really happens) is another opportunistic, but short term manipulation of the silver market, and a crash of stock and bond markets. And, when that happens, people will turn around, load up on precious metals, and force the price back up. The trading bots will need to be turned off for a while after that, lest they bankrupt their operators
Wednesday, May 11, 2011
Bloomberg: May 11, 2011. Gold fell in New York, halting a three-session rally, as a stronger dollar eroded the appeal of the precious metal as an alternative asset. Silver also declined.
The dollar rose against the euro on speculation that European leaders may not grant Greece additional aid, forcing the nation to restructure its debt. Gold touched a record $1,577.40 an ounce on May 2 before dropping 4.2 percent last week as the greenback climbed.
“The correction in the dollar will have more room on the upside, and that’s going to pressure precious metals,” said Matt Zeman, a strategist at Kingsview Financial in Chicago. “Too many people were short the dollar and long gold. There will be additional unwinding of that trade.”
Gold futures for June delivery fell $15.50, or 1 percent, to settle at $1,501.40 at 1:49 p.m. on the Comex in New York. The metal has gained 23 percent in the past year.
The euro has dropped 2.5 percent in a measure of 10 developed-nation currencies since May 4, the day before European Central Bank President Jean-Claude Trichet signaled the bank may wait until after June to raise borrowing costs again, according to Bloomberg Correlation-Weighted Currency Indexes. The bank raised the main interest rate 25 basis points to 1.25 percent in April.
“The falling euro is going to drag gold down with it,” said Zeman of Kingsview.
Gold Trust Holdings
Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged yesterday at 1,201.95 metric tons, after declining 2 percent last week. The last gain in holdings was April 15.
“We would’ve expected that they’d have risen a bit in the last day or two, given the sharp bounce” in gold prices, said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. “That suggests to us that the worst of the liquidation is not yet over.”
Gartman has recommended holding gold in other currencies to hedge against the relative strength of the dollar.
Silver, which has wider industrial applications than gold, also fell on speculation that China will raise interest rates to stem inflation. The Asian nation’s consumer prices rose 5.3 percent in April, the statistics bureau said today in Beijing. The country’s target inflation rate is 4 percent for this year.
“There’s chatter about China raising rates to curb growth, and that’s made copper and silver vulnerable,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.
Silver futures for July delivery fell $2.971, or 7.7 percent, to $35.515 an ounce on the Comex. The metal gained 9.1 percent in the previous two days after shedding 27 percent last week.
Palladium futures for June delivery declined $17.25, or 2.4 percent, to $715.40 an ounce on the New York Mercantile Exchange. Platinum futures for July delivery dropped $23.10, or 1.3 percent, to $1,777.80 an ounce on the Nymex.
Wednesday, May 11, 2011
Concerns about Greece’s debt load drag euro
SAN FRANCISCO (MarketWatch) — Silver futures on Wednesday led yet another commodities selloff , down 8% as traders judged a default for Greece unavoidable, a sentiment that weighed down the euro and sent the dollar higher.
Gold for June delivery GCM11 -1.08% declined $15.50, or 1%, to settle at $1,501.40 an ounce on the Comex division of the New York Mercantile Exchange.
July silver SIN11 -8.84% retreated $2.97, or 7.7%, to settle at $35.52 an ounce.
Greece’s debt restructuring seems “inevitable,” said Bill O’Neill, a principal at Logic Advisors in New Jersey. “That’s a real threat to the banking system.”
In a restructuring, investors holding Greek debt will likely be offered less than face value for the bonds they hold. The stark possibility was enough to drag down the euro and prop the dollar up against most major currencies.
A stronger dollar is negative for commodities as it makes them more expensive to holders of other currencies.
For gold, and to a lesser extent for silver, dollar movements add another layer of complexity as dollar weakness and its twin fear of currency devaluation often spark precious metals buying.
Gold held up better than silver because it got some flight-to-quality support, said Adam Klopfenstein, a senior market strategist at Lind Waldock in Chicago.
“At the first sign of weakness, people dump” silver, he added.
In the first two days of this week, metals and other commodities had recouped some of last week’s steep losses. It all came undone as the dollar rose steadily throughout the day.
The dollar index DXY +0.96% , which measures the greenback’s performance against a basket of six rival currencies, lately traded at 75.308, compared with 74.700 in North American trade late Tuesday.
It had struggled for direction in early trading, as the British pound soared on word of a potential future rate hike in England. Read more about currencies.
Earlier, investors digested inflation data from China. The country’s consumer-price index climbed 5.3% in April from a year earlier, while analysts expected a 5.2% rise. Read more about latest data from China.
Inflation concerns tend to spark investor demand for precious metals, as gold is often bought as protection from price increases and currency devaluation.
However, the boost from China’s data was short-lived.
In other metals trading, copper for July delivery HGN11 -0.22% dropped 13 cents, or 3.2%, to $3.91 a pound.
Platinum and palladium were also not immune, with July platinum PLN11 -1.18% down $23.10, or 1.3%, to $1,777.80 an ounce. June palladium PAM11 -2.13% declined $17.25, or 2.4%, to $715.40 an ounce.
The commodities downdraft also caught up with oil, which recently retreated 5.7%. Oil also added to its losses after a government inventories report showed a higher-than-expected increase for oil supplies.
Wednesday, May 11, 2011
LAS VEGAS, N.V. (MarketWatch) -- They are in denial no longer.
The “they” are the gold timers I monitor. The last time I wrote about them, just one week ago, I wrote that they were in denial, having for the most part stubbornly held on to their bullishness despite a breathtaking drop that caused an ounce of bullion to lose nearly one hundred dollars.
That they have finally rushed for the exits increases the likelihood that some sort of trading bottom has been formed in the gold market.
How enduring that bottom turns out to be, however, is still in doubt, since it will be determined in no small measure by how those erstwhile bulls react in coming days.
Consider the average recommended gold market exposure among a subset of the gold market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). Just a week ago this average stood t 73.7%, one of the highest readings for this index in several years.
Today, in contrast, it stands at just 7.0%.
This sixty-seven percentage-point reduction in a week’s time is impressive, and most definitely enough to get the attention of contrarian analysts.
The rally occasioned by this big drop appears to be already underway, with bullion rising $23 over the first two days of this week. Here are the sentiment signs to be on the lookout for in coming days for clues whether this rally has good odds of propelling gold above its previous all-time high — set less than two weeks ago.
On the one hand, it would be a good sign if the gold timers were to only reluctantly jump back on the bullish bandwagon. That would suggest that the recent rout in the gold market had built up a strong wall of worry that the rally could climb.
On the other hand, it would be a bad sign if that wall of worry disintegrates as quickly as it was built. That would suggest that the gold timers haven’t really thrown in the towel on bullion’s bull market — and would increase the odds that a more serious correction is needed to create the sentiment foundation for a more sustainable rally.
It’s too early to know for sure.
But an encouraging straw in the wind is that the HGNSI has declined slightly over the last two days, despite gold’s increase.
Tuesday, May 10, 2011
SAN FRANCISCO (MarketWatch) — Gold and silver have lost some luster with investors; the price of oil and other natural resources is lower, and speculation in many agriculture sectors has dried up. So why are three veteran money managers who can put money anywhere still holding on to commodities?
Because they believe that emerging markets will live up to their promise. They’re convinced that the growth of the world’s nascent economies will create a bold new consumer class, whose desire for more and better will feed demand for raw materials, industrial and precious metals, and — perhaps most critically — food and water.
“The world is growing and using more commodities,” said Marshall Berol, co-manager with Malcolm Gissen of Encompass Fund ENCPX +0.62% , which has been heavily invested in various resource stocks for several years.
“China, the Far East, the Middle East, India, Latin America, South America, Brazil, Argentina, Chile — these economies are growing,” Berol noted. “There are setbacks from time to time, but they’re growing, and as they grow, more people are employed, at better jobs; they have money and they want what we’re accustomed to in this country — houses and cars and cell phones and refrigerators.”
Berol is also a confirmed gold bug. “It’s going higher,” he predicted for gold. “It’s not at a top yet.”
Values and trades
Berol addressed his comments to MarketWatch’s Investing Insights live event held in San Francisco last month. The theme of the event was “Global Investing in a Post-Crisis World.” In addition to Berol, attendees heard views about precious metals and commodities from Michael Cuggino, manager of Permanent Portfolio PRPFX +0.58% , a mutual fund focused on capital preservation, and Cody Willard, principal of CL Willard Capital, who writes the Revolution Investing newsletter and an online blog called The Cody Word for MarketWatch.
Willard, the panel’s lone trader, differed with Berol and Cuggino on the bullish prospects for gold, silver and precious metals, but he shared their optimism about commodities.
“There’s a good trade — a good opportunity — where you can short gold and silver, and buy against that a basket of oil, cotton, corn, soybeans, anything you actually have to consume,” Willard said. “Because it’s the poor people who are driving commodities, and I don’t think they’re going to buy gold when they’ve having to figure out how to feed the kids.”
The event was held several weeks before both precious metals and commodities suffered a sharp blow. The wave of selling in early May could have been the result of speculators exiting with their profits after a mammoth rally. Or, more ominously, the downturn could reflect traders’ fundamental concerns that global economic health is weakening, which would curb demand for materials brought out of the ground, scarce or not.
Yet big swings are to be expected with these investments. The panelists were well aware in April that prices for precious metals and commodities might have come too far, too fast. Indeed, over the following weeks investors in these alternative assets grappled with indications that U.S. economic growth is weaker than expected, and that soaring food and gasoline prices would quash demand — fears that ultimately did torpedo some of the momentum, especially for silver.
Berol and Cuggino acknowledged the potential for a correction in these markets at the April meeting, but noted that day-to-day or even quarter-to-quarter gyrations don’t concern them much. Instead, a long-term focus steers their portfolios through a sector’s booms and busts.
“We’re not looking to get in and out,” Berol said. “We’re looking for what is going to be worth more down the road.”
“I don’t get wrapped up in quarters,” Cuggino added. “You don’t have to worry about what the stock market is going to do every day, what’s the Fed’s going to do, what’s going to happen in the world.”
Cuggino’s mutual fund is unusual in that its constructed with an eye toward downside protection. Most of its assets are spread across gold, silver, natural resources stocks, Swiss francs and U.S. Treasurys.
“The way we go about the basic flaw in human nature of not being able to predict the future is by putting together a broad array of different asset classes in one portfolio that work at cross purposes,” Cuggino said.
The fund’s holdings individually might be highly risky, but together they work as a team to cover the bases and reduce overall portfolio volatility.
Gold, in particular, is Cuggino’s insurance policy against what he views as the ill-effects of the Federal Reserve’s policy of low interest rates and easy money — a stance, he said, that is stoking inflation, debasing the value of the U.S. dollar and putting a high floor under gold.
GLD 147.96, +0.06, +0.04%
SLV 37.69, +0.17, +0.45%
“Where [the price of gold and commodities] goes from here, I think, given that scenario where interest rates continue to be very low to negative after inflation, potentially that’s traditionally a very bullish sign,” Cuggino said.
“You have demand picking up not only with emerging markets and more disposable income, but you have demand picking up on the investment side — whether that’s mutual funds, hedge funds, institutional investors, sovereign wealth funds or governments potentially,” he said.
“Last time I checked,” Cuggino added, “there wasn’t a huge increase in supply coming out of the ground. And with less confidence in paper money around the world, gold will take on a lot more importance as a store of value.”
Tuesday, May 10, 2011
PORT WASHINGTON, N.Y. (MarketWatch) — The massive decline in silver prices last week does not necessarily mean that the bull market in silver is over.
True, the recent run-up in prices was quite astounding. In just six months, silver prices doubled, almost hitting its all-time high set back in 1980.
Silver also outpaced other commodities — even gold. For years, it took about 63 ounces of silver to buy an ounce of gold. By last week, however, that ratio had been cut in half, to 32.
Bear in mind that, while there were two main reasons why silver shot up in 1980, there were several others this time.
Thirty-one years ago, the Hunt brothers tried to corner the market, which was rising anyway because of rampant inflation.
This time, there was no such squeeze, but rather, concerns over inflation, a rise in prices of other commodities (most notably oil), a fall in the dollar and widespread unrest in the Middle East and North Africa.
Good reasons for the rise notwithstanding, any item whose price soars the way silver did has to encounter headwinds sooner or later. Silver was no exception; its prices tumbled so fast that it lost a quarter of its value in a single week.
What precipitated such a plunge? The same thing that has caused other regularly traded items’ prices to reverse course in the past: a hike in margin requirements.
As prices for commodities rise, it is not unusual for their exchanges to increase margin requirements — the amount of money traders have to put down as collateral.
The higher the price goes, the greater the margin, as officials try to dampen the rise. By the same token, when prices fall, the exchanges usually reduce such requirements.
In the case of silver, margin requirements were hiked not once but a total of five times before they stopped the rise in prices and turned it into a decline.
Since silver’s jump both reflected, and was accompanied by, prices rises in many other commodities, when silver fell, so did prices of most other items.
This widespread plunge in commodities prices led many traders to conclude that inflation was not a threat. They reasoned that the economy was growing too slowly for this to happen; they also believed that the Federal Reserve would not let inflation flare up.
Others interpreted this decline to mean that there was lots of speculation in the prices of silver and other commodities — especially oil. This provided another rationale for expecting prices to fall.
But as the great philosopher, Yogi Berra, used to say: “It ain’t over till it’s over.” In other words, the threat of inflation has by no means been vanquished, and geopolitical concerns remain.
On the inflation front, the Federal Reserve has pumped gobs of liquidity into the financial system, leading to a jump in the monetary base and the money supply. Consequently, the five-year Treasury-TIPS spread has shot up to its highest level in at least four years, reflecting growing concerns over inflation.
As Monday’s action shows, it is far from a foregone conclusion that silver prices can only go lower. They led a rebound in the precious-metals sector as traders once again focused on the reasons why they drove prices higher in the first place: inflation fears and political unrest.
Monday, May 09, 2011
Canadian Markets. May 9, 2011, 5:33 p.m. EDT
SAN FRANCISCO (MarketWatch) — The Canadian market rose with all sectors closing up Monday, boosted by a recovery in commodity prices following last week’s selloff.
The S&P/TSX Composite Index CA:$ISPTX +0.82% gained 111 points, or 0.8%, to close at 13,677.
The lightly weighted S&P/TSX Capped Health Care led the gains, rising 2.1% with shares of Valeant Pharmaceuticals International Inc. CA:VRX +2.82% and SXC Health Solutions Corp. CA:SXC +2.38% leading the charge.
The driver behind the rally, however, was the more heavily weighted indexes of commodities- and energy-based stocks. The S&P/TSX Capped Materials Index CA:TTMT +1.54% rose 1.5%, the S&P/TSX Capped Diversified Metals and Mining Index CA:TTMN +1.44% increased by 1.4% and the S&P/TSX Capped Energy Index /quotes/comstock/11t!i:itten CA:TTEN +0.93% closed up 0.9%.
Gold for June delivery GCM11 +1.43% advanced 0.8% to $1,503.20 an ounce, and silver for July delivery SIN11 +6.92% rallied 5.2% to $37.12 an ounce on the New York Mercantile Exchange. Copper for July delivery HGN11 +2.04% rose 4 cents to close at $4.02 a pound.
Shares of First Quantum Minerals Ltd. CA:FM +3.06% added 3.1%, and shares of Barrick Gold Corp. CA:ABX +1.19% , Potash Corp. of Saskatchewan CA:POT +1.51% , Goldcorp Inc. CA:G +2.15% and Ivanhoe Mines Ltd. CA:IVN +5.74% all showed gains.
Crude oil for June delivery CLM11 +5.59% settled up $5.37, or 5.5%, to $102.55 a barrel on the Nymex.
The S&P/TSX Capped Consumer Discretionary Index CA:TTCD +0.66% rose 0.7%, with shares of Forzani Group CA:FGL +49.06% jumping 49% after the company got a C$26.50-a-share buyout offer from Canadian Tire Corp. CA:CTC.A +2.73% .
Shares of Gildan Activewear Inc. CA:GIL +1.97% rose 2%, and Tim Hortons Inc. CA:THI +1.11% added 1.1%.
The S&P/TSX Consumer Staples Index also tacked on 0.7%, with shares of Viterra Inc. CA:VT +3.79% rising 3.8% and Jean Coutu Group Inc. CA:PJC.A +1.29% gaining 1.3%
In currency trading, the Canadian dollar rose against its U.S. counterpart USDCAD -0.2589% , with the greenback buying 96.17 Canadian cents, compared with 96.36 cents late Friday.
Monday, May 09, 2011
JUPITER, Fla. (MarketWatch) — How quickly the glorious springtime of silver turns into a winter of discontent. The selloff in silver saw the metal recently drop 20% from its highs, and we probably aren’t done yet.
But how low will silver SIN11 +6.92% go?
Here are some forces that I’m watching:
•The Chicago Mercantile Exchange raised margin requirements on silver futures four times in two weeks. While margin requirements must go up when prices go up, four times in two weeks sure is grist for those who say the big banks are short silver and will do anything to derail silver’s bull run.
•Disappointment over silver’s failure to breach the psychologically important $50 level last week is also a factor. The hot money is moving on to other things for now. This leads to a correction, a normal and necessary part of any bull market.
•And then there’s simple profit taking — many people bought silver at much lower levels and so they’re locking in gains. Certainly big funds run by George Soros and others are doing just that. And you know what, I told my subscribers to do that, too, because there’s nothing wrong with taking profits. Silver, gold hit by report of Soros selling.
Those short-term bearish forces, though, overlay these longer-term, bullish forces:
•Industrial demand for silver is enormous. Nearly 75% of the world’s silver supply is used to make everything from chemical reagents to jewelry to solar panels to plasma TVs. And with the global economy expected to grow by 4.5% this year, according to the International Monetary Fund’s latest figures, that industrial demand for silver is only going to increase.
•The decline in the U.S. dollar is threatening to turn into a collapse. The buck recently touched its lowest level against the euro since December 2009, and the U.S. Dollar Index DXY -0.23% was recently off 7.5% just in 2011. For a currency, that’s a huge move! Since silver — as well as gold and other commodities — are priced in dollars, they generally move opposite to the greenback. It’s what I call the “seesaw of pain” — somebody’s always getting hurt.
•Mine supply of silver is tight. While silver fabrication demand grew by 12.8% last year, silver mine production rose by only 2.5%, and mine supply accounts for 70% of all silver supply, according to GFMS. It’s hard for miners to crank up silver production because two-third of silver produced by mines is as a byproduct to other metals. Mine supply IS expected to rise this year, but it will be hard-pressed to keep up with the expected rise in demand.
The fundamental fact is that, despite the recent correction, both gold and silver are in big bull markets. Until that changes, pullbacks and corrections are buying opportunities.
The big bullish story in silver is just one aspect of the demand shift we’re seeing to China and other emerging markets. China used to be a major seller of silver supply into the global market; now it’s an importer. And it’s importing more and more commodities of all types. China has a huge and growing middle class who want all the things that big, fat Americans want — more food, cars, clothes and jewelry, TVs and other electronics.
Click to Play Alternatives to gold and silverAs gold and silver tank, assets besides commodities can hedge against inflation, according to David Goerz of HighMark Capital Management, who recommends high-quality dividend-paying stocks as well as small caps.
And it’s not just China. According to Goldman Sachs, 70 million people worldwide are joining the world’s middle class each year. In 20 years the middle class will add another 2 billion people, most of them from emerging markets. Many of these nations have a cultural affinity for gold and silver.
So yes, we are seeing some air whoosh out of silver’s bubble. But I don’t think we’ve seen the real mania in silver yet. That doesn’t mean the metal can’t go lower. If the U.S. dollar rallies, that will likely trigger another leg down in silver. If the global economy slumps — and there’s the potential for that due to stubbornly high oil prices — that could knock silver lower as well.
If you want to short silver in the face of strong demand — like the 1.3 billion Chinese who seem ready to buy silver on the dips, or the billion people in India ready to do the same thing — good luck to you. I think you’ll need it.
As for me, I’m waiting for this silver correction to run its course, then I’ll buy again. A 50% retracement of gold’s recent bull run looks like a likely target, and a good place to re-enter the iShares Silver Trust SLV +7.25% , Silver Wheaton SLW +0.33% and other silver bellwethers.
Good luck and good trades.
Monday, May 09, 2011
May 9, 2011, 2:58 p.m. EDT
SAN FRANCISCO (MarketWatch) — Silver futures closed more than 5% higher Monday, leading a recovery in the precious-metals sector, and gold topped $1,500 an ounce, rebounding from last week’s decline as some weakness in the U.S. dollar and concerns over European debt woes lured investors back to metals.
Silver futures for July delivery rose $1.83, or 5.2%, to settle at $37.12 an ounce on the Comex division of the New York Mercantile Exchange after tapping a high of $37.98 overnight.
The contract skidded $2.63, or 1%, on Friday to complete its worst week in more than three decades. The metal was still down 24% so far in May. Read about Friday’s action in metals.
June gold futures GCM11 +1.43% , meanwhile, rose $11.60, or 0.8%, to settle at $1,503.20 an ounce, extending Friday’s $10.20, or 0.7%, increase. Prices are still more than 3% lower in May.
“The gold success today is a nice reflection — a mirror image almost — of the dollar index failure today along the 75 fault line,” said Richard Hastings, a macro strategist at Global Hunter Securities.
The U.S. dollar index DXY -0.25% , which measures the greenback against a basket of six currencies, fell to 74.690 from 74.790 late Friday after Standard & Poor’s lowered its credit rating on Greece, reviving worries that peripheral euro-zone debt woes will force European officials to change the terms of bailouts. Read about Monday’s currencies action.
The dollar index did break the 75 level but “is not holding strong, so the technical weakness around this level is helping silver and gold,” said Hastings.
Paul Mladjenovic, author of “Precious Metals Investing for Dummies,” said gold looks “very strong” and any pullback will be minor, as the market expects some dollar strength and some euro weakness.
He said he doesn’t expect gold to go much lower than $1,450 in the short term but does expect a strong run toward $1,600 during the September-to-October period.
Good and bad
The precious-metals complex may have seen some support Monday from political unrest over the weekend in Syria, Egypt and Bahrain, according to Ben Potter, markets strategist at IG Markets in Melbourne.
Several protesters were reportedly killed in Syria over the weekend in clashes with government forces, while the Los Angeles Times reported 12 deaths in Egypt in the wake of violent riots between Muslims and Christians.
Meanwhile, a decline in the euro in the wake of a Standard & Poor’s Ratings Services downgrade on Greece may also be helping to buoy investment prospects for the precious metals. Read about Greece’s credit rating downgrade.
But analysts at TheBullionDesk.com warned early Monday in a note to clients that “volatility is likely to remain high in the coming sessions, with traders and investors cautious of another bout of long selling, particularly in silver.”
“While the corrections are likely to entice fresh demand from physical and investment sources buyers, may hold-off until some price stability emerges with the metals still vulnerable to downside pressure,” they said. Read about investors pulling money from commodity-sector funds.
Overall, there is some price risk for the precious metals from a possible rebound in the dollar when the U.S. Federal Reserve’s second round of quantitative easing is diminished, said Hastings.
“This should result in a brief rebound in the dollar and perhaps some pressure on some materials prices, but it will very likely be temporary,” he said in emailed comments.
“There is also the risk that higher demand for dollars due to diminished Fed buying could result in faster cycling of dollars into non-dollar assets ... so the longer-term outlook for gold remains favorable with a much longer pathway for silver to make it back above $43 and then back to $47,” he said.
Other analysts remained upbeat on silver’s outlook, as well.
“Despite the sell-off the big picture trend is higher,” said Mark Leibovit, chief market strategist at VRTrader.com.”Too many people are being convinced that the recent rally was a bubble. I would bet these same people didn’t buy silver and gold when I did in 2001.
Mladjenovic said that “seasoned investors and speculators understand that last week’s 34% correction in silver had nothing to do with any major changes in silver’s overall fundamentals or long-term outlook.” Read about smart money leaving silver.
“They understood that silver was temporarily overbought, and the tipping point was the unprecedented margin increases by the exchange,” he said.
For now, precious metals should be bought on dips, according to Jeb Handwerger, editor of GoldStockTrades.com. “This market is warning us not to chase prices higher, but to wait for selloffs in precious metals, which will occur during this secular bull market.”
In other metals trading Monday, July platinum futures PLN11 +0.60% climbed $8.70 to close at $1,795.10 an ounce, and June palladium PAM11 +1.77% added $12.70 to end at $729 an ounce. July copper HGN11 +2.04% rose 4 cents to close at $4.02 a pound.
Friday, May 06, 2011
NEW YORK, May 4 (Reuters) - Goldman Sachs Group Inc (GS.N) has just a few more months to put its stamp on the Volcker rule, and it is not wasting any time.
The rule, designed to limit banks from speculating with their own money, will cost Goldman at least $3.7 billion in annual revenue, by one estimate. And billions more could be at stake if regulations now being drawn up are extra-tough.
The Volcker rule was one of the main topics on the agenda when Chief Executive Lloyd Blankfein met recently with U.S. Securities and Exchange Commission Chairman Mary Schapiro.
Wall Street chiefs do not often lobby top regulators directly, but this issue is unusually important to Goldman.
"They're totally freaked out about Volcker," said a Goldman lobbyist who declined to speak on the record for fear of losing the contract. "People are working on that a lot, with agency staff, with lawmakers, you name it."
Indeed, lobbying disclosures show Goldman representatives have been working both sides of the political aisle and meeting with top officials in the White House and regulatory agencies.
One big area of concern for Goldman is that regulators who are interpreting the Volcker rule will severely limit the amount of time a bank can hold a security or derivative. Positions held long term can be backstairs bets on markets.
The Volcker rule is not the only element of financial reform that Goldman is resisting. Important issues on its lobbying docket also include derivatives reform, capital requirements and bonus restrictions.
Other bank heads, including Morgan Stanley's (MS.N) James Gorman, have met Schapiro about the Volcker rule. But the provision is most important for Goldman, whose business is far more weighted towards trading, three lobbying sources said.
For a graphic showing Goldman's spending on lobbying click
For a graphic showing spending on lobbying by Wall Street
banks see r.reuters.com/ruk39r
ALL STAR TEAM
Goldman has hired an all-star team of lobbyists and former government officials, leveraging powerful connections to get its message across to regulatory and political leaders.
"Before the crisis, Goldman was basically non-existent in Washington," said a former Congressional staffer who now works as a policy analyst at a Wall Street bank. "Post-crisis, Goldman is everywhere."
Under last year's Dodd-Frank law, regulators have until July to come up with specific rules for implementing the Volcker provision, meaning banks have limited time to try to shape the regulations.
Adding to the complexity of lobbying efforts is the number of parties involved.
The SEC and four other regulators are in the process of writing separate versions of the Volcker rule, which must then be reconciled and shaped into a single set of regulations.
"Volcker is the subject of a very quiet, closed-door battle right now, not just between us and Wall Street, but among the agencies as well," said Bart Naylor, who has lobbied regulators for consumer-rights coalition Americans for Financial Reform.
Goldman Sachs spokesman Stephen Cohen declined to comment.
The impending changes have already spurred Goldman to dismantle much of its "proprietary trading" operations, which trade for the bank's own account.
These operations were some of the bank's most profitable, and their closure will erase about $3.7 billion in revenue and $1.5 billion in profit annually, according to an estimate by JPMorgan Cazenove analyst Kian Abouhossein.
By Abouhossein's reckoning, the bank gets another $17 billion of revenue from "market making," or linking up buyers and sellers across global markets. That revenue could also be squeezed, depending how stringent the regulations are.
Those figures represent about 65 percent of Goldman's annual revenue, according to Abouhossein's estimates.
Lawmakers say the Volcker rule will ensure that big banks are not gambling in markets, and that taxpayers will not be left on the hook when their bets backfire.
Implementing the Volcker rule will be tricky, though. When a bank buys a security from a client, it is difficult for a regulator to determine whether the bank is serving the client or betting on the market itself.
Limiting holding periods could be a simple way to ensure that banks are not making secret bets under the guise of helping clients.
Goldman argues that holding on to securities for a long period of time can be a crucial part of trading on behalf of customers because assets trade infrequently in some markets.
A substantial amount of the securities that Goldman trades seems to fall into the longer-term category. In a February presentation, Goldman said it held about a third of the securities and listed derivatives on its trading books for three months or more, and 8 percent for more than a year.
The bank did not disclose how long it holds unlisted derivatives positions, where it also has significant exposure.
Goldman is also advocating that regulators exclude currency contracts from the Volcker rule, in addition to Treasury bills and interest-rate swaps, which were excluded in the law.
"They definitely don't want their entire book to be micro-managed by the SEC," said a regulatory consultant who once worked at Goldman and is familiar with its lobbying efforts. "They want as much -- I wouldn't say self-policing -- but as much flexibility as possible."
In the years following the crisis, Washington has been reshaping the financial industry in an effort to prevent another collapse. Goldman has in turn been trying to shape the legislative and regulatory process.
The intensity of its efforts is evident in at least one concrete way: the amount of money it is spending on lobbying.
That figure totaled $1.32 million in the first quarter of 2011. That's 15 percent higher than the same period a year ago, putting the bank on course to break its annual record for lobbying expenditure of $4.61 million, set in 2010.
"They're a big and powerful company with a lot riding on financial reform," said Dave Levinthal, editor of OpenSecrets.org, which tracks lobbying and campaign spending.
"When monumental legislation like Wall Street reform gets passed, it's not only about the legislation when it's coursing through Congress, but how it's being implemented."
For Wall Street, where a bank can earn billions of dollars a year, a $5 million lobbying budget may seem paltry.
But in Washington it's a lot of money. And relative to revenue, Goldman's spending is exponentially higher than that of its competitors.
The bank has hired an all-star stable of Washington lobbying heavyweights.
Michael Paese, former deputy staff director for the U.S. House Financial Services Committee, heads its internal lobbying group. His team includes former staffers from the U.S. Senate Banking Committee, the White House and regulatory agencies.
Outside of its own payroll, Goldman also has several high-profile legislative veterans working on its behalf in Washington, hailing from both sides of the political aisle. Among them are former Republican lawmaker Trent Lott, former Democratic lawmaker John Breaux and former Democratic House Majority Leader Dick Gephardt.
It is common for large companies to seek influence in government, but old hands in Washington say Goldman stands out both in its wide network of high-level contacts and its ability to leverage those relationships to its advantage.
"The individuals at Goldman have been incredibly powerful over time," says Hillary Sale, a law professor at Washington University in St. Louis who specializes in Wall Street regulation. "When you're a consumer, it gives you the creeps thinking about that kind of influence over regulation. But from the bank's side, it's a perfectly smart strategy."
Friday, May 06, 2011
(Reuters) - Silver rose 2 percent on Friday, snapping a five-day losing streak that cut prices by almost a third, while gold rose after encouraging U.S. jobs data triggered a broad bounce in beaten-down commodities.
KMG Gold Recycling
Silver, hit by a succession of margin hikes that nearly doubled costs, had suffered the biggest sell-off since prices collapsed in 1980. Dealers, however, said the 30 percent slide from last week's record high was overdone.
Precious metals rallied early with other markets after data showed private-sector hiring hit a five-year high in April. But metals pared gains when the dollar surged against the euro after a German media report suggested Greece had raised the possibility of leaving the euro zone. Greece denied the report.
"There is no reason why silver should have taken such a big hit. It's all margin-related," said COMEX floor option trader Dominic Cognata.
"At some point, it becomes a buying opportunity for people who missed out on the last silver rally to get back in right now."
Investors also bought bullish silver options as the prices of options fell heavily over the last week, Cognata said.
Spot silver initially traded as low as $33.22, its weakest since February 25, pressured by follow-through selling after it plunged 12 percent on Thursday. It was up 1.8 percent at $35.30 by 4:10 p.m. EDT. U.S. futures trading was active, with volume nearly three times its 250-day average.
KMG Gold Recycling
COMEX OPEN INTEREST UP
Open interest in U.S. COMEX silver futures rose 3 percent on Thursday even as prices fell sharply, a sign the market remains vulnerable to further selling, traders said.
"We find it disconcerting for it means that the liquidation that is needed to clear the market's collective head has not actually taken place," said Dennis Gartman, publisher of the Gartman Letter.
The price of the U.S. June silver contract fell as much as 13 percent on Thursday, leading a broad decline in the commodities sector. On Friday, June was down over 2 percent.
"There was liquidation, but then there were new people getting in and going with the momentum trade" to short-sell silver, said COMEX options floor trader Jonathan Jossen.
Silver is heading for its worst week since the Hunt Brothers collapse in 1980, after shedding 26 percent this week as higher futures margin requirements prompted speculators to unwind bullish positions.
Silver has slumped around 35 percent since touching a record high of $49.51 an ounce on April 28. A major factor behind the sell-off was higher margins for silver traded on the Chicago Mercantile Exchange Group (CME.O), which raises trading costs.
A record $1 billion outflow from the iShares Silver Trust (SLV.P) in the week ended Wednesday helped feed silver's torrid price decline, just as the fund's earlier inflows aided the prior rally.
"The ease of access from exchange-traded products can be the tail that wags the dog," said Roger Nusbaum, chief investment officer at Your Source Financial. ETF trading and share redemptions "can be a disruptive force in the short term, but it is the sort of thing that will flame out," he said.
The commodities sector was broadly higher after the positive U.S. jobs report which suggested the economic recovery would regain speed this quarter after stumbling in the first three months of the year. That view suffered setbacks earlier this week as other reports pointed to a slowing labor market.
GOLD UP ON PHYSICAL BUYING
Gold also bounced on Friday as jewelers, physical buyers and bargain hunters, especially in Asia, took advantage of lower prices.
Spot gold gained 1.4 percent to $1,491.80 an ounce, still sharply below a record high of $1,575.79 posted on May 2. COMEX June gold futures settled up $10.20 at $1,491.60, moving in a range from $1,471.10 to $1,498.50.
For the week, gold lost 5 percent, the worst weekly performance since late February 2009. Sentiment among precious metals investors also took a hit after high-profile investor George Soros, who was bullish on gold and a top investor in gold funds, has been selling gold and silver in the past month or so, traders said.
Indians, the world's biggest buyers of bullion, took gold's latest tumble as another incentive to buy on Akshaya Tritiya, one of the major gold-buying festivals, and as India's wedding season gathered pace.
Platinum group metals also rose in tandem with gold and silver. Spot platinum gained 1.3 percent to $1,782 an ounce and palladium was up 0.6 percent at $711.22.
KMG Gold Recycling
Friday, May 06, 2011
KMG Gold Recycling
- Silver futures fell, capping the biggest weekly plunge since at least 1975, on mounting sales by investors following increases in Comex margin requirements. Gold rebounded, halting a three-day slide.
Silver tumbled 27 percent this week after CME Group Ltd., the Comex owner, boosted the cash amount needed for a speculative position by 84 percent in two weeks. Yesterday, holdings of the metal in exchange-traded products dropped the most in three years. Gold had the largest weekly drop in a year.
“At the close of business on Monday, silver’s got another bump in margins,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Gold doesn’t have the technical breakdown that silver’s had. All gold has to do is hold its value when everything else crumbles around it.”
Silver futures for July delivery fell 95.3 cents, or 2.6 percent, to settle at $35.287 an ounce at 2:11 p.m. on the Comex in New York. On April 25, the price reached $49.845, a 31-year high.
The minimum amount of cash that must be deposited when borrowing from brokers to trade will rise to $21,600 a contract after May 9, CME Group said on May 4. That’s an increase from $11,745 two weeks ago.
“The higher cash-margin requirements simply cannot be met by all participants, and when a trader can’t make margin, the underlying security is often liquidated,” Lachlan Shaw, a commodity analyst at Commonwealth Bank of Australia (CBA), said in a report. “Further silver-price falls are possible.”
ETP Holdings Tumble
Silver assets held in ETPs tumbled 3.6 percent to 14,546.99 metric tons yesterday, the biggest decline since Jan. 2, 2008, while gold holdings fell 0.7 percent to 2,057.08 tons, the biggest drop in three months, according to data compiled by Bloomberg.
The liquidation in precious metals has been “egregiously violent,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. “Speculative fervor needed to have a bit of cold water splashed in its face.”
Gold futures for June delivery rose $10.20, or 0.7 percent, to $1,491.60 an ounce. Yesterday, the price touched $1,462.50, the lowest since April 14. This week, the metal dropped 4.2 percent, the most since May 2010.
“Gold below $1,500 is a line in the sand,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “There’s a scramble for gold because a lot of people don’t want to miss the move up.”
The metal reached a record $1,577.40 on May 2.
Barclays Capital recommended buying gold after the 4.9 percent drop in the previous three days.
Palladium futures for June delivery rose $5.50, or 0.8 percent, to $716.30 an ounce on the New York Mercantile Exchange. This week, the metal dropped 9.6 percent, the most since July.
Platinum futures for July delivery gained $8.20, or 0.5 percent, to $1,786.40 an ounce. This week, the price dropped 4.2 percent, the most since November.
KMG Gold Recycling
Friday, May 06, 2011
Source: Julian Phillips, Gold Forecaster (5/6/11)
KMG Gold Recycling
"The cautious hunger for gold remains persistent and arrives on the dips."
We have seen new surprising and strong demand from global central banks in the last week. This demand occurred over the last two months and had to compete with other strong demand from all sides of the gold market. As we move into the quiet season for gold and have experienced a short sharp correction so far how will central banks react? This week we received news that South America has now joined Asia, Russia, the Middle East and the Far East in buying gold for the national gold and foreign exchange reserves. Will the correction we are now seeing in the gold price affect central bank policies of buying gold?
Bolivia reported an increase of 7 tons of gold, taking its gold holdings to 35.3 tons, last week. While Bolivia has not made any public comment on this increase, it is very likely that the central bank has simply decided to restore its gold holdings relative to its growing foreign currency reserves, similar to other recent emerging market central bank purchases.
This is an encouraging development for the gold price, because other central banks may follow suit. This will set a trend that will see price-insensitive demand grow from 'official' quarters.
Mexico's buying of gold in February and March amounted to 93.3 tons of gold, is one of the most rapid programs of accumulation on record. With reserves now just over 100 tons in total, the market is holding its breath to see if it is an ongoing buyer.
Mexico's vigorous purchase of gold over the last two months surprised the market by its speed and size. For any central bank to buy 93 tons in this market is a clear statement that faith in the U.S. dollar is falling fast. We do expect other emerging South American nations to follow suit over time, alongside many of the world's emerging economies.
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How Central Banks Buy Gold
Buying programs by central banks usually follows a particular pattern. Central banks buy to hold, not to trade or profit from. They are a monetary asset held for the most extreme of national economic crises. This affects the way they buy for their reserves. The most preferred manner is to buy their own local production, as this is done away from the markets that really do make the gold price. The only impact on the global gold market is to lower supply through the absence of that country's production.
The price paid to local miners is related to the market price at the time of the purchase, irrespective of the volume. The price paid by the central banks is not considered important but the volume acquired is. Central banks will deal in a way that takes only the gold available on the market at any time. This is done by 'buying the dips' or simply by notifying their bullion bank dealers that they are buyers of a minimum amount when it becomes available. When prices run ahead as supplies diminish, central banks will not chase prices, simply take what's offered to them. This prevents the gold price from rising.
Will Central Bank Buying End?
What is clear throughout the world is that central banks remain determined to keep their gold and foreign exchange reserves balanced with gold an integral part of those reserves. The cessation of European central banks sales nearly two years ago confirmed this, as do the ongoing purchases by Russia and China. Even in the Middle East oil producing nations are ensuring that they have gold in their reserves. This is a practice that is unlikely to end in the future. The days when the market feared central banks unloading all the gold they had are far gone. It is clear that gold will remain a key part of the global monetary scene as instability and uncertainty become entrenched over the next few years.
We are watching global central bank behavior to see if the extremely worrying dollar health will accelerate gold purchases. The South American central bank's action has confirmed that this is the case. We do expect more news on this front.
This Week's Gold Selloff
This makes the sudden selloffs we saw this week and the subsequent recovery so interesting. We won't be informed of whether it was central banks, which picked up the gold coming onto the market, but we do expect them to be one of the buyers.
With newly mined gold production of around 5 tons a day reaching the physical markets a sudden additional amount of 5 or 10 tons will hammer the price. Frantic calls to buying central banks would be made but perhaps the buy orders had to wait until London was open before it could be bought. Meanwhile, in New York, the price would fall heavily. The news that such volumes could be bought anonymously through London would reach the ears of all global buying central banks. You can be sure that they would be linked to the London Fix by phone at the next Fix.
The net result would be what we saw this last week, a large fall and a quick recovery. For some months now we have been forecasting that corrections will become short and sharp. What usually took weeks or months now takes days. This is because gold is not a commodity or a barbarous relic but a monetary metal.
KMG Gold Recycling
Gold-Positive Global Economy
With the developed world's economic news points down to an anemic performance there is every incentive to avoid a drop in the value of developed world currencies by buying gold, as we have just seen in the last 18 months. Remember too that gold, since the turn of the century, has been rising in boom times and bust. Only in the latter half of 2007 did we see the gold price fall as investors in the developed world deleveraged their positions as the downturn made leveraged positions far more vulnerable. Investors had to find liquidity to fill the holes all falling markets created. Hence, their desire for liquidity became overwhelming. Such over-leveraged positions are a thing of the past, but those that are still there disappear fast on such days as we saw this week.
The awareness of the vulnerability of investors positions has made them react more quickly, adding to market volatility. But such volatility is short-term, as the cautious hunger for gold remains persistent and arrives 'on the dips.' Underlying, the precious metal markets is the insatiable demand from the Asian emerging markets, which, while it comes in jerks, is never-ending.
Again, like central bank demand, Asian demand is interested in acquiring volume. Their price concerns are restricted to knowing they have not overpaid, but have bought at prices that will hold. They will only sell if they believe the price has risen to far too fast and may fall soon. Once the price has fallen they re-enter at lower levels, consistent with their objectives of holding gold long-term as financial security. They see gold just the same as the developed world sees cash.
KMG Gold Recycling
Thursday, May 05, 2011
The gold price moved lower Thursday morning, declining $10.00 to $1,509 per ounce. KMG Gold Recycling live gold prices
The gold price moved lower overnight, falling below $1,500 to a low of $1,496.25 amid broad-based liquidation in stock and commodity markets. Silver remains immersed in a violent correction, dropping another 3.1% to $38.10 per ounce after touching a low of $37.36 earlier this morning. Silver prices have crashed 21% this week while the gold price has lost 3.5%.
The share prices of gold and silver mining companies moved lower, led by declines in Barrick Gold (ABX) and Goldcorp (GG), which sank 2% and 1%, respectively. Barrick, the worlds’ largest gold producer has dropped 7.5% over the past eight trading days on the back of soft gold prices and a takeover bid for copper company, Equinox Minerals that has been ill-received by the market.
Gold prices showed a muted reaction to news early Thursday that applications for jobless benefits rose 43,000 to 474,000 last week, considerably worse than the 400,000 to 420,000 consensus among economists. The bleak outlook on the employment front should keep Bernanke and the Fed in the dovish camp on monetary policy, lending support for the gold price.
KMG Gold Recycling live gold prices
Wednesday saw the gold price continue to retreat, as the yellow metal fell to as low as $1,505 before paring its losses and closing near $1,515 per ounce. Silver tumbled alongside the gold price, briefly dropping below $39 before finishing down by $2.44, or 5.9%, at $39.19 per ounce.
The sell-off in the gold price on Wednesday was fueled by a Wall Street Journal report that several large investors – including George Soros and John Burbank – liquidated a considerable portion of their gold and silver holdings. The story noted that Soros Fund Management purchased gold and silver over the past two years to protect against the Federal Reserve’s response to the risks of deflation. However, Soros now believes that deflationary risks have dissipated significantly, making the rationale for holding positions tied to the gold price less attractive.
Burbank, founder of hedge fund Passport Capital, reduced the size of his gold positions in order to lock in profits, according to an individual close to the firm. However, the source noted that Burbank remains bullish on the gold price over the longer-term, but feels that the price of gold is due for a meaningful correction at this time.
Late Wednesday afternoon, a report surfaced that legendary investor and billionaire Carlos Slim, the world’s wealthiest individual, has been actively selling silver futures contracts 2-3 years out. Silver prices moved lower yet again this morning on the heels of the news and on liquidation of speculative net long positions on the COMEX.
Returning to gold, in contrast to the views of George Soros, another prominent investor reiterated his bullish forecast on the yellow metal. John Paulson – who with $36 billion under management at Paulson & Co. runs the world’s third-largest hedge fund – told investors this week that the price of gold could reach $4,000 per ounce.
Paulson’s bullish prediction on the gold price echoed positive comments he recently made to France’s Les Echos. There, the hedge fund magnate stated that “In these times of uncertainty for paper based currency, I feel more secure in holding gold; [it] offers good protection against the paper currencies devaluation and even the possibility of generating a return on fixed investment.”
Paulson went on to discuss the Federal Reserve’s quantitative easing programs, contending that “It is undeniable that this monetary expansion is equivalent to running the printing press.” He later stated that “gold has always been a safe haven against inflation and a safe haven in times of political instability.”
As a result, Paulson forecasted that inflation will reach double digits in the next three to five years, and investors will continue to seek out investments tied to the gold price in order to protect against these inflationary risks.
KMG Gold Recycling live gold prices
Thursday, May 05, 2011
TORONTO — The Canadian dollar closed down just over a full US cent Thursday as oil prices plunged amid demand worries and volatility arising from tumbling silver prices.
KMG Gold Recycling gold bullion sales
The currency lost 1.05 of a cent to 103.28 cents US, adding up to a drop of almost two and a half cents this week as prices have also fallen sharply for gold and copper.
"We’ve seen extended moves in a lot of commodity markets and so today is a day of retracement and profit-taking," observed Scotia Capital chief currency strategist Camilla Sutton, adding that a big part of the story was also a stronger American currency.
"The catalyst which started it is a combination of higher margins in silver prices and . . . some Asian central banks hiking rates, which raises worries that Asian growth could be slowing and should Asian growth slow, then it weighs on the outlooks for commodities."
The June crude contract on the New York Mercantile Exchange dropped $9.44 to US$99.80 a barrel, down from a 2½-year high above US$114 late last week and its lowest level since mid-March.
Metal prices also retreated with the June gold contract on the Nymex down $33.90 at US$1,481.40 an ounce. The June copper contract fell 14 cents to US$4 a pound and the July silver contract in New York fell $3.15 to US$36.24 an ounce.
Silver continued to plunge after the main U.S. metals exchange announced further hikes to margin requirements, or the money needed to be put up to trade the precious metal.
KMG Gold Recycling gold and silver bullion sales in Canadian dollars
The latest hike amounts to an 84 per cent increase in margin requirements in two weeks by CME Group Ltd., spread over four separate changes.
Silver prices are down more than 20 per cent this week and analysts say volatility in the sector has spread to other areas since investors have been forced to sell other securities to meet higher margin calls. Silver had surged from under US$31 an ounce late last year to almost US$50 at the end of last week.
Analysts also pointed to signs that U.S economic growth is faltering for the slide in commodities, including a disappointing read on employment growth and much lower than expected expansion in the service sector.
And on Thursday, the U.S. Labour Department reported that claims for unemployment insurance surged to 474,000 last week from 431,000. The U.S. government is scheduled to announce April non-farm payroll numbers Friday.
Meanwhile, the European Central Bank left its key interest rate unchanged at 1.25 per cent after raising rates a quarter-point last month from the record low of one per cent. The bank also signalled that it won’t raise interest rates as fast as the markets had been expecting.
The Bank of England announced it was keeping its key interest rate at a record low of 0.5 per cent amid sluggish economic growth and a surprise drop in the inflation rate.
KMG Gold Recycling silver bullion sales
Thursday, May 05, 2011
A year ago, the Dow Jones Industrial Average crashed almost 1,000 points in a matter of minutes for reasons still unknown, shaking investor confidence and renewing concerns about the fragility of our economy and financial markets.
Since then, the Dow has made back that drop and then some, climbing 17 percent since that May 6 ‘Flash Crash.’
But despite this recovery, a broad range of strategists, investors and analysts fear a 10 percent-plus sell-off may be ahead. It just may take more than 15 minutes to unfold.
They cite increased leverage—investors using more borrowed money to buy stocks—indicating hot money is still at the controls a year later and has already caused a 3-day ‘Flash Crash’ in the silver market.
A peak in the economic recovery and the end of the Federal Reserve’s $600 billion bond-buying program in June are also among the reasons cited.
“We expect a pullback of roughly 10 percent in the S&P 500 this summer after the Federal Reserve stops growing its holdings of long-dated securities,” said Doug Cliggot, chief U.S. equity strategist at Credit Suisse, who called the tech bubble pop a decade ago while at JPMorgan Chase.
“Our profit margin indicators—the rate of change in private sector compensation and the rate of change in the costs of intermediate goods—are flashing bright yellow this spring.”
After a drop Wednesday, the Dow [.DJIA 12671.89 -51.69 (-0.41%) ] is off a little more than 1 percent from its bull market high reached earlier in the week. Silver futures [SICV1 35.665 -3.718 (-9.44%) ], on the other hand, are down 18 percent from their Friday close.
Even though this hasn’t held true in recent years, the stock market is entering a rather weak period seasonally.
Since 1950, the Dow has provided zero return, on average, from May through October, according to Alan Newman, author of the Crosscurrents newsletter. Newman also has another reasons why the market is particularly ripe for a selloff this May: the amount of borrowing used to buy stocks.
“Margin debt was up another $7.4 billion in March and now there are only nine months in which the level of leverage has ever been higher,” wrote Newman in his latest newsletter.
“Borrowed money was the basis for the housing bubble, borrowed money is the basis for the newest stock bubble.”
Stocks [.SPX 1344.23 -3.09 (-0.23%) ] fell Wednesday after a measure of the service economy came in weaker than expected. That number followed disappointing employment data from private payroll services firm ADP. The official government jobs report for April is out this Friday.
In a note to clients making the rounds on trading floors this morning, Goldman Sachs hinted that the peak in the U.S. business cycle may be nearing, meaning its time for investors to reallocate to more defensive sectors and single stocks with big international sales.
They cited the slowing rate of growth in the manufacturing economy by the Institute for Supply Management.
“The ISM has posted four straight months above 60 and its highest level since 1983,” wrote David Kostin, Goldman’s portfolio strategist. “However, the rate of acceleration has slowed to neutral relative to last year.”
“Once the ISM peak has been reached and the rate of expansion is moving back towards neutral, historical performance supports more defensive positioning,” added Kostin.
To be sure, the bulls argue that the stock market is forecasting brighter times ahead, continuing its rise through turmoil in the Middle East, a nuclear crisis in Japan and political infighting over future fiscal plans.
“This market and economy is very resilient,” said Brian Kelly of Brian Kelly Capital. “Imagine how strong it would be if Japan and the Middle East did not occur.”
Still others believe a pullback of significant magnitude is inevitable, given that most of the market forces that are believed to have caused the May 5th crash have yet to be adequately addressed.
“Once again, the silver market shows the effects of what happens in a market when the momentum shift happens,” said David Greenberg of Greenberg Capital. “The electronic market just makes the move that much faster.”
Tuesday, May 03, 2011
The signals that indicate a correction...
KMG Gold Recycling
SO, US SPECIAL FORCES killed Osama bin Laden on Sunday. They may have also thrust a stake through the heart of the silver market, writes Eric Fry at The Daily Reckoning.
We will leave it to Wolf Blitzer and other world news commentators to articulate the geopolitical significance of bin Laden's rendezvous with 40 virgins. Our beat is financial...and in our little corner of the news world, the death of bin Laden seems like a perfect excuse for a long-overdue Dollar rally...and silver selloff.
The silver market has been hot...red hot...probably too hot. The Dollar, for its part, has been stone cold – sinking lower and lower with almost every trading day. Both assets are fully deserving of their respective price trends. The silver market, in other words, deserves to be soaring against the US Dollar. And over the next few years, I would not be surprised to see the silver price top $100...or even $200.
But over the next few weeks, the precious metals are likely to become a bit less precious for a while. Your editor does not raise this caution to suggest that silver be sold. Rather, he raises it to suggest that silver be bought...at lower prices.
To begin this brief analysis of the frothy silver market, please consider one essential fact: the following remarks are no better than guesses. Educated guesses, yes. But guesses all the same. To continue this analysis, please consider a few fascinating data points:
1) Silver has soared more than 50% so far this year, and 150% during the last 12 months.
2) The price chart of silver has developed a parabolic trajectory, typical of toppy markets.
3) Speculative trading activity is dominating many parts of the silver market. For example, recent trading volume in SLV, the $13 billion ETF that represents holdings in silver bullion, has been exceeding the trading volume in SPY, the massive $89 billion ETF that represents the S&P 500 Index. Prior to the recent silver frenzy, SLV would produce only about one quarter the daily trading volume of SPY. But now it is SLV's trading volume that routinely tops SPY's!
4) Various gauges of investor sentiment are flashing extreme bullish readings for silver. The Elliot Wave's Daily Sentiment Index shows that 95% of investors are bullish on silver. Likewise, the Market Vane's Bullish Consensus shows 93% of commodities traders are bullish on silver. When such an overwhelming majority of market participants hold such an overwhelmingly bullish opinion about a given asset, that asset tends to disappoint its fans...at least for a while.
Taken together, these various signs, indicators and portents say loud and clear that a major correction in the silver market is very likely, very soon. On the other hand, Ben Bernanke's reckless monetary policy – spearheaded by money-printing escapades that are so moronic only a PhD in economics could possibly devise them – say loud and clear that silver (and gold) are much better long-term bets than the US Dollar.
So why bother worrying about short-term risks in the silver market?
Good question. Maybe you shouldn't...unless you have an interest in converting these short-term risks into a long-term buying opportunity. The silver rally still "has legs," even if those legs might wobble occasionally.
Looking to Buy Silver
Monday, May 02, 2011
Source: David Banister, Market Trend Forecast (5/2/11)
"After consolidation, buy silver stocks on any pullback with haste."
KMG Gold Recycling
Last August, I told my subscribers to prepare for a monster rally in silver, which at the time of my forecast was $18.73 per ounce. I drew up a chart and predicted a huge rally to $29 an ounce, and we ended up at $31 or so just a few months later. This was entirely a crowd behavioral move that I foresaw in advance, based on patterns that R.N. Elliott developed in the 1920's and 1930's. My theory was besides the crowd pattern (a 20-month odd Triangle consolidation), that investor's would begin to view silver as "Poor man's gold" and buy it. Literally, the idea is as simple as investors will simply think that "gold is too expensive, but silver is cheap". That is the explosion power that is behind this move from $19 to $50 an ounce since late August 2010.
KMG Gold Recycling
KMG Gold Recycling
Below is the original chart I sent to my subscribers outlining this triangle pattern and the likely move.
KMG Gold Recycling
After silver ran hard and fast, it left a lot of talking heads on CNBC and everywhere else scratching their heads and wondering what just happened. If you learn and understand the basics of Elliott Wave Theory, you can begin to foresee what is about to happen and stop scratching your head all the time. Watching the analysts on CNBC is like watching the Monday morning quarterbacks following an NFL Sunday. After that massive silver run from $18 to $31, it was time for a correction and I called for $25 to $26.50 as likely in a normal pessimistic crowd wave 2 pattern down. Once that completed, I sent my subscribers the chart below outlining another Bull wave to $39–$45 per ounce.
KMG Gold Recycling
Silver then eventually ran to $45 per ounce in April of 2011 and had a brief spike to near $50 to test the all time highs just in the past week or so. The action has been wild since then, because after a wave pattern from $18 to $31, then back to $26, then up to $47… the crowd will begin to turn mildly pessimistic in a current "wave 4 " correction pattern. This is when you will begin to hear excuses for silver dropping, including believe it or not blamed on the death of Osama Bin Laden. In truth, whatever happens near term to explain the current correction in silver is simply Monday morning quarterbacking. Using the current day's headlines to explain the action that I already know is coming. Other excuses are the change in margin requirements on silver contracts and the squaring of positions at end of month.
I expect silver to correct to the 40 to $42.75 areas based on my Fibonacci work and Elliott Wave views, and after this 4th wave consolidation we will see a surge to as high as $60/oz. Any pullbacks in silver should be bought here and same with the silver stocks post haste. Below is my latest chart forecast on silver.
Monday, May 02, 2011
May 2, 2011
KMG Gold Recycling
"Gold really doesn't have utility."
The billionaire investor Warren Buffett has said he'd always bet on a good business to deliver better returns than gold over time, even as the precious metal sets fresh records.
"Gold really doesn't have utility," the 80-year old told shareholders at Berkshire Hathaway's annual general meeting. "I'd bet on a good producing business to outperform something that doesn't do anything."
Gold prices reached new highs 15 times in April as a weaker dollar and fears of inflation encouraged some investors to seek the metal as a store of value.
The financial crisis has helped propel gold higher as initial worries of deflation gave way to current concerns that very low interest rates in much of the developed world is helping to stoke inflation. Gold is already up 10pc this year after climbing for each of the last ten.
It isn't a rally that Buffett, whose investment skill has turned him into the world's third-richest man, will be joining in. Asked about gold at the annual meeting in Omaha, Nebraska, Buffett said, "If you take all of the gold in the world and put it into a cube, it would be about 67 feet on a side and you could get a ladder and get up on top of it. You can fondle it, you can polish it, you can stare at it. But it isn't going to do anything."
Gold's current rally has also found new momentum, as the world's central bankers become net buyers for the first time in two decades last year. According to the World Gold Council, central banks bought 87 metric tons of gold last year as many developing countries sought some diversification away from the dollar.
KMG Gold Recycling