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10/27/2023 9:30 AM     Current Market Spot Prices:     Gold:  $1,984.26/ozt   Silver:  $22.89/ozt   Platinum:  $926.20/ozt   Palladium:  $1,168.05/ozt  

Monday, July 15, 2013

Dwindling Gold Inventories and the Rising Sentiments in Gold The U.S. Comex gold futures surged 2.73 percent in the past two days to $1,279.90 on Thursday while the dollar index suffered a loss of 2.17 percent. The CRB Commodities index, the S&P 500 index, and the Euro Stoxx 50 index have rebounded 1.01 percent, 1.37 percent and 0.64 percent respectively on Wednesday and Thursday.

The U.S. 10-year government bond yield rallied about 6bp in the same period.

Bounce After Bernanke
The U.S. Fed's speech, rather than the FOMC minutes, has moved the markets. Bernanke spoke after the market close on Wednesday, saying that the U.S. economy desires a highly accommodative monetary policy for the foreseeable future. The Fed wants to tell the markets that tapering the QE programme does not equate to tightening the monetary policy, or raising the interest rates.

The FOMC minutes reviewed that many Fed governors would like to see more signs of improvement in jobs before agreeing to tapering. Both risky assets and gold reacted positively to the dovish comments by the Fed. The most recent weekly jobless claims in the U.S. unexpectedly rose by 16,000 to 360,000. Equities also got a boost after the Bank of Japan has said that Japan is recovering moderately, and has upgraded its growth forecast for seven consecutive months.

Paper Investments versus Physical Demand
The CFTC reported that net short positions by speculators reached a record high of 129,616 contracts as of 2 July. On July 11, Bloomberg calculated that gold-backed ETP holdings fell to 1,986.47 tons, the lowest level in three years. At the same time, physical demand has been improving.

The Comex gold inventories have been depleting fast because the physical buyers in Asia have been taking delivery of gold. The total Comex and Nymex gold inventories have declined from 11 million troy ounces in February 2013 to about 7.1 million troy ounces in July, with the big drop in April and July this year.

According to Standard Chartered, the one-month borrowing cost for gold rose to 0.3038 percent on 10 July, back to the level of December 2008. If the market realizes that the Fed is still very accommodative, and the demand for jewellery, bars and coins continues to rise, then the gold shorts will likely be squeezed hard.

What to Watch
We will monitor China's Q2 GDP, June industrial production and fixed asset investments in addition to the June U.S. retail sales on 15 July, the U.S. June CPI and industrial production on 16 July as well as Fed Bernanke's speech and the U.S. weekly jobless claims on 17 July.
Posted by Mike Gupton at 9:59 AM 0 Comments

Thursday, June 27, 2013

Can Central Bank and Physical Demand Turn Around the Weak Gold Sentiment? After plunging 6.89 percent last week, the gold futures have dropped 1.31 percent in the past two days to finish at $1,275.10 on Tuesday. The prices fell to as low as $1,242.60 during Wednesday Asian morning. The Dollar Index continued to strengthen, rising 0.32 percent this week to 82.581 after surging 2 percent last week.

The S&P 500 index and the Euro Stoxx 50 index retreated 0.28 percent and 0.24 percent respectively in the past two days. Both indices traded up over 1 percent on Tuesday.

Stronger U.S. Data and Calmer Tone from China
The world equity and bond markets have turned upside down after the Fed's tapering talk last week. The MSCI Developed Market Index has dropped 4.75 percent while the U.S. 10-year Treasuries have plunged 3.50 percent since 18 June.

Gold was harder hit at 6.72 percent. In China, tight central bank's policy to control credit growth has led to the recent liquidity crunch among the Chinese banks, with the seven-day repo rate spiking to a two-year high of 11.2 percent on 20 June. On Tuesday, the Central Bank of China stated that it will stabilize the market rates and ease the tight liquidity. In the U.S., the May consumer confidence index surged to 81.4 compared to an expected 74.3.

The April S&P/Case-Shiller housing index rose 12.1 percent year-over-year while the May existing home sales reached an annualized ate of 5.18 million, a three-and-a-half year high. A better-than-expected U.S. growth and easier liquidity conditions in China led to the rebounding of global equities prices on Tuesday and Wednesday.

Subdue Physical Demand Response So Far
The Indian and Chinese consumers have not rushed to buy gold this time. The Indian government has restricted banks to lend gold-backed loans in order to curb gold imports. The end of the wedding season in India has also weakened demand.

The cash crunch among the Chinese banks, the slowing economy as well as the market volatility have dampened the gold demand in Hong Kong and China, causing people to wait-and-see. Premiums in gold bars in Hong Kong are around $2.50 an ounce compared to $6 in May. According to the CFTC, the hedge funds have cut their net positions by 2 percent across 18 commodities, and have reduced their net long positions in gold by 29 percent as of 18 June.

Barclays commented that the recent price plunge below $1,300 will likely lead to more selling by investors who accumulated below this level. The Chinese demand in the near-term and other central bank's actions will be the key to the turnaround of the already very weak sentiment in gold prices.
Posted by Mike Gupton at 10:34 AM 0 Comments

Friday, June 07, 2013

Gold Buyers Cheer as the Dollar Falls The U.S. Comex gold futures rebounded 1.33 percent in the past two days to $1,415.80 on Thursday while the Dollar Index plunged 1.49 percent to finish at 81.537 on Thursday. The Japanese Yen rallied about 3 percent against the U.S. Dollar just in the past two days. The stock markets remain volatile with the S&P 500 index dropping 0.5 percent and the Euro Stoxx 50 index falling 3.37 percent this week.

The VIX, or the fear index, has risen from 12.5 percent in mid-May to a recent high of 17.5 percent on 5 June.

ECB Actions and the U.S. Dollar
On Thursday, the ECB decided to leave the interest rates unchanged at 0.5 percent and would not take any immediate actions such as negative deposit rates or cash lending to institutions to further boost the economy. The U.S. stock investors were initially disappointed that no further stimulus measures are taken despite big promises from the ECB governor and an expected 0.6 percent contraction in the Euro Area this year.

The Outright Monetary Transactions program is yet to start. In the U.S., the May ADP employment increased 135,000 versus an expected 165,000. The Dollar weakened further against the Euro. For Friday's employment report, Bloomberg shows an expected change in non-farm payrolls of 163,000 and a projected unemployment rate of 7.5 percent.

Gold Fund Flows
As stock prices wobble and the U.S. Dollar falls, the number of gold traders who are expecting a jump in the gold price next week rises to the highest since mid-March according to Bloomberg. Nevertheless, the investors in paper gold continue to sell. Year-to-date, investors have sold 495 metric tons of gold-backed ETPs. EurekaHedge reported that 20 gold hedge funds have closed doors so far this year.

However in China, the gold price premiums to international prices jumped from an average of $7 in the year ending mid-April to an average of $31 after April when the gold prices plunged.

What to Watch
Apart from watching the U.S. nonfarm payrolls report on Friday, we will also monitor China's May industrial production and inflation data on 9 June, Japan's BOJ Target Rate on 11 June, The April E-17 industrial production on 12 June, the May U.S. retail sales on 13 June and the May U.S. industrial production on 14 June.
Posted by Mike Gupton at 8:22 AM 0 Comments

Thursday, May 09, 2013

Gold is Struggling against Rising Interest in Rising Equities After rising for two consecutive weeks, the U.S. Comex gold futures fell 1 percent week-to-Tuesday to $1,448.80 although prices touched $1,458 on Wednesday Asian morning. The story of the week is still rising equities, with the S&P 500 index climbing 0.71 percent after rising 2.03 percent last week and the Euro Stoxx 50 index rising 0.2 percent after surging 2.99 percent last week.

So far in May, the S&P 500 index, the Euro Stoxx 50 index and the MSCI World index have jumped 1.78 percent, 2.10 percent and 1.08 percent respectively. The gold futures have slipped 1.58 percent this month while the Dollar Index has risen 0.62 percent.

Better Data from the U.S., Europe and China
Last Friday, the U.S. reported a higher-than-expected rise in nonfarm payrolls of 165,000 in April. The unemployment rate also inched down 0.1 percent to 7.5 percent in April. In Europe, the ECB governor stands ready to cut interest rates again, paying close attention to all the economic data in the next few weeks. The ECB predicts the EU-17 economies will shrink 0.4 percent in 2013.

However, Germany's March factory orders surprisingly jumped 2.2 percent against a predicted drop of 0.5 percent, indicating a recovery is taking place. China reported a larger than expected jump in exports of 14.7 percent in April although several economists already pointed out that some capital flows may have been disguised as trade flows leading to the inflated exports numbers.

Nevertheless, imports rose 16.8% year-on-year, reflecting a pretty robust domestic demand picture. In fact, Hong Kong has just reported that China's gold imports from Hong Kong reached a record high of 223.52 metric tons in March before the large sell-off in gold in April. The China Gold Association stated that China is currently short of gold jewellery inventory after gold purchases surged in April.

Fund Holdings
Bloomberg reported that for the week ending 30 April, speculators in gold increased their net-long positions in options and futures by 19 percent while they decreased their net-short positions by 9.2 percent. However, the net-short positions are still more than three times the average since the data started in 2006. The gold-backed ETP holdings dropped further on Monday to 2,254.68 metric tons, after a record fall in April and a peak in December 2012.

Given the reduction of tail-risk in Europe, the rising labour market in the U.S. and the low inflation rate, investors prefer equities to gold in the near-term. Nevertheless, as the World Gold Council pointed out, gold still has a place in investors' portfolios as a hedge against the consequences of the on-going global quantitative easing.
Posted by Mike Gupton at 1:18 PM 0 Comments

Friday, May 03, 2013

Gold Prices Buffered by Retail Buyers Despite Traders' Bearishness The U.S. Comex gold futures fell 1.76 percent on Wednesday and rebounded 1.48 percent on Thursday to end at $1,467.60, a decline of 12.4 percent year-to-date. The Dollar Index surged 0.91 percent on Thursday to 82.224 after falling 1.23 percent in the beginning of the week. The Euro/Dollar dropped 0.87 percent on Thursday after the ECB cut rates. The S&P 500 index ended up unchanged in the past two days while the Euro Stoxx 50 index rose 0.25 percent.

Chinese Housewives Taking On Wall Street Short-Sellers?
According to a local Hong Kong newspaper, the largest fall in gold prices in 30 years prompted the Mainland Chinese tourists to buy about 60 tonnes of gold in Hong Kong during the three-day Labour Day holiday. After this surge of buying, physical demand will inevitably slow down although it is clear that gold is highly regarded as precious gifts for the younger generations and a store of value in Asia, providing support to gold prices and prompting the short-sellers to cover.

On the other hand, the CFTC reported that speculators have reduced their net-long gold positions by 25 percent in the latest reporting week while they maintained the second-largest short positions in gold since the beginning of the data in 2006.

Central Bank Actions - Different Gold Reactions
The U.S. Fed recently maintained the pace of bond purchases at $85 billion per month. However, the Fed would be ready to increase or decrease the pace of bond purchases depending on the economic data, changing the market expectation that the Fed can only reduce its pace of bond purchases going forward. The slowdown in the March payroll data, a weaker inflation, the tightening of fiscal policy as well as a lower U.S. ISM manufacturing data have prompted the policy maker to remain flexible in its monetary policy.

The gold futures nevertheless fell 1.76 percent on Wednesday as the market still expects the U.S. to grow faster in the next four quarters, leading investors to buy more equities than gold. The gold-backed ETP holdings fell again by 0.9 percent this week as of Wednesday and dropped 369.3 tons this year. On Thursday, gold demand and prices increased after the ECB cut the refinancing rate by 25bp and raised the possibilities of a negative deposit rate for the banks and further stimulus down the road.

What to Watch
The market will zero in on this Friday's April non-farm payroll data and the unemployment rate in the U.S. Next week, we will watch for the Chinese April trade numbers and Germany's March industrial production data on 7 May, the Bank of England's monetary policy announcement and the Chinese April inflation number on 9 May as well as the Fed's speech on 10 May.
Posted by Mike Gupton at 10:48 AM 0 Comments

Friday, April 19, 2013

Shifting the Attention from Gold to Equities The U.S. Comex gold futures rose on Thursday by 0.71 percent to $1,392.50. Week-to-Thursday, the gold futures are down 7.25 percent while year-to-date, the prices are down 16.91 percent. Gold has returned 17 percent per year in the previous ten years. However, the gold futures entered into a bear market on 12 April as the big sell-off began. The S&P 500 index fell 2.09 percent in the past two days while the Euro Stoxx 50 index also dropped 2.06 percent. The Dollar Index rose 0.30 percent this week with the Euro/Dollar dropping 0.47 percent and the Yen rising 0.20 percent against the Dollar. The CRB Commodity index suffered a loss of 1.50 percent this week.

Stocks Declined as Gold Rebounded
Market's concerns have shifted to equities after the gold's downturn. Bloomberg highlighted that the U.S. stocks peaked in April in the past three years and declined for the next two to six months. The sentiment towards stocks and commodities has been weak as economic data from the U.S. and China were weaker than expected while some earnings results were disappointing. The U.S. leading indicators index, a gauge for the economy in the next three to six months, dropped 0.1 percent in March compared to an expected increase of 0.1 percent. The expansion at both the Philadelphia and the New York regions cooled in April with inventories plunging.

Debates on Gold
After the gold price plunge, the Chinese, Indian and Thai retail buyers rushed to buy gold. The April U.S. Mint sales more than doubled from March to April while the Australia's Perth Mint saw its sales doubled in one week. Central banks are watching closely the price level to re-enter even though some bank analysts are calling for gold prices to go towards $1,000. The gold-backed ETP holdings declined by 2.41 percent this week to 2,348 metric tons and dropped 10.8 percent this year. A stronger dollar remains a danger for gold.

What to Watch
The important events and data to watch next week will include the April "Flash" manufacturing PMI from China, the E17 and the U.S. on 23 April, the April Germany IFO business climate index and the March U.S. durable goods orders on 24 April, and the Bank of Japan policy rate meeting on 26 April.
Posted by Mike Gupton at 8:28 AM 0 Comments

Wednesday, July 06, 2011

Gold futures close at a two-week high. Gold tallies two-session win of nearly $47; silver also rallies

KMG Gold
SAN FRANCISCO (MarketWatch) — Gold futures closed at their highest level in two weeks Wednesday, with global-debt troubles helping it tally a two-session win of nearly $47 an ounce.

Gold for August delivery GC1Q -0.06% closed up $16.50, or 1.1%, at $1,529.20 an ounce on the Comex division of the New York Mercantile Exchange. The contract, which earlier touched a high of $1,534.50, marked its highest close since June 22.

Prices jumped more than $30 an ounce in regular trading on Tuesday, buoyed by safe-haven buying as Europe’s debt issues reemerged as a concern for investors.

“The persistent debt problems in both Europe and the U.S. are a big part of gold’s gains this week,” said Peter Grant, senior metals analyst at USAGold-Centennial Precious Metals Inc.

“It’s quickly becoming a question of credibility,” he said. “As the troika flails about trying to mitigate the Greek crisis without creating a default, they erode market confidence. That waning confidence in the troika has resulted in contagion to Portugal in the wake of yesterday’s downgrade.”

On Monday, the Standard & Poor’s credit-rating firm signaled that a plan to roll over Greek-government debt would constitute a “selective default.” Then on Tuesday, Moody’s Investors Services downgraded Portugal’s credit rating by four notches to speculative grade.

Also contributing to gains in gold is the local-government-debt story in China, said Grant: “Investors are worried that if China turns inward to address their own debt woes, it may be at the expense of Europe and America.”

The People’s Bank of China lifted lending and deposit rates 0.25 percentage point on Wednesday, marking the third such adjustment this year. Read about the China rate hike.

Seasonal surge

The focus, however, remains on debt problems in Europe and the U.S.

“Gold’s current strength signals that something’s very seriously amiss on both sides of the Atlantic,” said Adrian Ash, head of research at, an online service for gold-bullion trading and ownership.

He points out that gold bulls typically take a holiday in July through September, thanks primarily to the seasonal lull in Indian demand but also thanks to the broader “sell in May” drop-off in all financial trading.

“But if Greece, Portugal and the U.S. debt-ceiling ruckus don’t allow that typical pullback to come through, gold prices could run straight onto their very typical autumnal surge,” said Ash. “India’s festive demand will then return, running straight onto China’s heavy New Year gold buying in January/February.”
Debt and jobs data

For now, U.S. and euro-zone debt looks likely to dominate traders’ views in the coming days, but players will also be paying close attention to key U.S. jobs data this week, and to Thursday’s rate meetings by the European Central Bank and Bank of England, said James Moore, analyst at, in a note to clients Wednesday.

Weekly filings for unemployment benefits are due out from the Labor Department on Thursday, followed by figures on U.S. joblessness and growth in nonfarm payrolls for June on Friday.

Gold prices gained more ground shortly after the Institute for Supply Management said Wednesday that its U.S. services-sector index for June fell to 53.3% from 54.6% in May. Economists surveyed by MarketWatch had expected a dip to 54%; a reading over 50% indicates that more firms in the survey are expanding than contracting.

In other metals action on Wednesday, September silver /quotes/zigman/704345 SI1U +0.09% rallied 51 cents to close at $35.92 an ounce, while September copper  HG1U +0.07% declined 0.5 cent to $4.33 per pound.

September palladium PA1U -0.49% finished at $769.15 an ounce, down $4.05, while October platinum PL1V -0.06% declined $2.20 to end at $1,731.20 an ounce.
KMG Gold

Posted by Mike Gupton at 7:06 PM 0 Comments

Friday, May 27, 2011

Gold Strengthens in Real Terms

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.

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.
KMG Gold

Posted by Mike Gupton at 6:39 PM 0 Comments

Tuesday, May 17, 2011

Commodities running on empty?

by Goldmoney
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.

Posted by Mike Gupton at 5:17 PM 0 Comments

Wednesday, May 11, 2011

Gold, Silver Futures Slump in New York as Dollar Strengthens Against Euro

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.
Posted by Mike Gupton at 5:13 PM 0 Comments

Tuesday, May 10, 2011

Digging for value in gold, silver, commodities

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.

Weathering storms
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.”
Posted by Mike Gupton at 5:53 PM 0 Comments

Friday, April 29, 2011

Parabolic Blowoff in Silver-does this mean silver is in a bubble?

April 29, 2011
KMG Gold Recycling

"Above all—don't even think of shorting silver; buy on dips."

The virtues of gold (GLD) and silver (SLV) are being addressed far and wide. My readers know the steady drumbeat of praise that is reaching a crescendo for the white metal scares the hell out of me. The driving forces behind silver's price come from investors, industrial demands and a global shortage. The world simply is using more silver than the mines produce and new silver discoveries are becoming difficult to find. These factors are becoming truisms for public consumption. A parabolic rise has formed in silver as gold advances on to our measured target of $1600. Please note that at these times of extreme optimism volatile pullbacks become more prevalent. Parabolic rises must be approached with caution. Silver has rallied moving exponentially while gold is still moving linear.

Silver, Investing, Jeb Handwerger
KMG Gold Recycling

Th is metric of $1,600 gold is important to us as it may signal a profit taking opportunity for precious metals. Silver is in a roaring uptrend and has now exceeded my late January target of $40. Gold Stock Trades believes that high quality silver mining shares (SIL) will catch up to silver bullion even as the silver bullion price may stall or consolidate. There will be unavoidable pullbacks in silver's secular uptrend and it would not be wise initiating long positions at these extremely overbought levels. Silver has a very high probability of shaking out investors, as pullbacks follow overbought conditions.

We have seen investors scrambling to own silver and gold. What a difference a few weeks make. In July of 2010, we saw two major buying opportunities for precious metals investors to position themselves at discount prices. Now gold and silver prices are selling at a premium. Silver is reaching extremely risky levels, yet miners are still poised to breakout. Remember that I am recommending partial profits if your winnings enable you to play with the house's money and you are still holding silver from our August Buy Signal. Other readers who have not been able to build a position can wait for the inevitable pullback as additional buying opportunities. From my experience it is prudent to wait for technical corrections before getting aggressive with any commodity. We firmly believe that any corrections on the way up will represent more reasonable entry points on this uptrend. Always remember that parabolic rises can encounter severe downturns particularly in silver, which tends to be volatile. Let's wait for long-term support and a shakeout to reinitiate our short-term positions.
KMG Gold Recycling

One of the reasons for such volatile action in the white metal is the large short position in silver taken by major financial institutions, such as JP Morgan and HSBC, which are both the subject of a new lawsuit that charges them with price manipulation of the silver market. I believe these short sellers have been wrong all the way up and Monday's record volume may have been capitulation by the silver shorts. I believe the accumulation of gold and silver is a form of savings in sound money, but I am not adding to positions when the precious metals market is reaching these extremely overbought levels.

There are six banks that now control the London based precious metals storage market. Interpretation. . .there is not enough silver to cover the trades being made which counts in part to silver's record rise of 144% over the past 12 months and up 22% this past month alone. There is one additional consideration, global hedge funds own one-half of 1% (.005) of their overall portfolios in precious metals. Should these funds increase their holdings to 1% (.01) this would result in a large increase in demand.

KMG Gold Recycling
I feel a pullback may be in order as scrap recycling increases. I don't expect it to last very long. Above all do not even think of shorting silver. I reiterate buy on dips as the price of silver is capable of doubling in the next 24 months. I do not expect the silver to gold ratio to drop below 30:1 in the short term.

Is this a secular long-term top in gold and silver? I do not believe so. We are witnessing a powerful up move in gold and especially silver, where a healthy correction would be normal. There is a flight to quality away from fiat currency namely U.S. dollars. If the dollar (UUP) continues to lose value, your holdings of precious metals and mining stocks (GDX) will prove to be a prudent decision.

KMG Gold Recycling
It must be noted that Evo Morales from Bolivia threw a shock into major silver miners especially Pan American Silver (PAAS) and Coeur D'Alene Mines (CDE) by saying he would use force majeure to take over the mining industry. This caused an immediate drop in the prices of these stocks. On Friday, he backed off by saying he did not mean it. Nevertheless, the markets don't trust socialists such as Hugo Chavez of Venezuela and Morales of Bolivia. Witness the sad story of Crystallex (KRY), which has spent ten years and was shovel ready to begin mining on Las Cristinas when Hugo decided to hand the permits over to his Russian friends at Rusoro Mining (RML.V), a Canadian Based Russian Company. Such geopolitical uncertainty can only limit supply in an already tight market. Silver is such a small market that it doesn't take much to start a stampede. If you sell your silver you are stuck with paper money. I would rather look to high quality and overlooked natural resource stocks in geopolitically friendly jurisdictions with great relative strength to the sector.
KMG Gold Recycling
Posted by Mike Gupton at 7:59 PM 0 Comments

Tuesday, April 19, 2011

$5000 Gold and $300 Silver Are Credible Numbers

Q: What do CNBC, George Soros, Warren Buffet and every other mainstream investment commentator on the price of gold have in common for the last ten years?
A: They are all wrong. All the time, every year, ten out of ten years in a row.

If you continue to pay attention to such disinformation, you will lose money. Definitely. No question. Guaranteed. Each and every year, their vapid comments on the future gold price prove to be complete bollocks, yet year after year, and day after day, millions of readers watchers and listeners tune in for another dose of horribly incorrect information.

These days, the number of perpetually inaccurate predictions forecasting an end to the gold boom are thoroughly drowned out by the now multitudinous voices screaming from the rooftops for gold to go much higher. About 90 percent of that is the herd mentality at work. Early predictions for $1,000 gold, which seemed extreme and outlandish just two years ago, turned out to be very conservative. So its easy now to lay claim to being “the one who predicted the gold bull market”. Bandwagon riders aside, there are compelling reasons to support a much higher gold price, and more importantly, a narrowing of the ratio between the gold price and the silver price. One year ago, the silver to gold ratio was 63 ounces of silver for every ounce of gold. Today that ratio is 35:1. Its fallen by nearly half in one year.

In terms of pure performance, whereas gold has delivered a solid gain of 26.51% in the course of the last year, silver has outshone gold spectacularly, turning in a gain of 123.55%, making it the commodity trade of the year by far. The effect of that performance is to dramatically alter the perception of investors in terms of its desirability as a precious metal. Its long been a psychological barrier to silver’s progress, in my opinion, that a precious metal could be had so cheap.

But as the prices of both monetary metals grows, and their price differentials narrow, investors want an idea of where the future is heading in terms of these prices. Can they continue to grow so dramatically in price, or is there a point at which their price appreciation curve will level out and become more incremental? Or, is there a point at this the upward price curves will plunge steeply downward? And at what point, if every, will the price curves of silver and gold converge? What exactly is the appropriate ratio of gold versus silver? Do we buy bullion, coins, ETF’s, Gold Funds, Senior Miners or Junior Explorers? Which is safest? Which is riskiest? First lets consider the ratio question. If the ratio suggested in the title were to become reality, that would mean a ratio of only ten ounces of silver to buy one ounce of gold.

If the ratio curve were to continue climbing in favour silver at the present rate, it would approach 10:1 within another year. But if the ratio were to reflect numbers pegged to certain fundamental realities, then perhaps we could deduce a more rational price differential with better certainty. According to John Stephenson’s Little Book of Commodity Investing, there is 16 times more silver in the earth’s crust than gold. So on that basis alone, the correct price ratio is arguably 16:1. Silver bulls like to point out that silver is unique among monetary metals because of its wide ranging industrial applications, as well as in photography and jewelry.

As the silver price continues to consolidate its price differential with gold, it is likely that process modification and substitution will occur wherever possible in the manufacturing supply chain to replace silver, which will dampen industrial demand. Thanks to silver’s unique chemical attributes, however, that effect will be muted. 2009 statistics from the Silver Institute show that global supply of silver was more or less equal to the global demand for silver from all classes including manufacturing and bullion minting. Government stocks of silver are estimated to have fallen by 13.7 million ounces over the course of 2009, to reach their lowest levels in more than a decade. Russia again accounted for the bulk of government sales, with China and India essentially absent from the market in 2009.

Regarding China, Gold Fields Mineral Services states that after years of heavy sales, its silver stocks have been reduced significantly. If the silver ratio is heading to 16:1, that implies a near term price range of $90 – $100 per ounce. If gold goes to $5,000 an ounce, and the silver/gold price ratio remains 16:1, there’s silver at $312.50 per ounce. And what, pray tell, is coming down the pike to support a gold price of $5,000? First and foremost, the United States dollar.

The whole global financial system is trapped in a situation whereby we have no choice but to permit the United States to continue counterfeiting money. There is no single political force or voice or even prospect with the knowledge and the power to put a stop to the insanity into which we continue to spiral on a daily basis. That means, despite the unanimous chorus from the financial media mainstream, which anesthetizes the human race in an effort to thwart violent protest by design, the fabrication of electronic dollars will continue apace. For years. In terms of strict nominal value, that implies a proportional increase in the prices of, well, everything. Inflation is the direct outcome of monetary expansion in the absence of economic growth. Therefore, gold and silver will be direct beneficiaries of such policy.

At the same time, sovereign and large capital pool (LCP) investors in U.S. debt are seeking to exit their holdings of U.S. dollars, The world’s largest bond fund, PIMCO, and its acerbic chief Bill Gross, are now shorting the U.S. dollar. China has stated repeatedly that it will reduce its holdings of U.S. debt. This is sending a signal to the rest of the sovereign wealth and LCPs that the U.S. dollar should be abandoned. That means, when the convulsions that seize the global financial system, such as that of 2008, manifest themselves, investors will flee less and less to the U.S. dollar, and more and more to other currencies – especially gold and silver. So not only does the price of gold appreciate in strictly nominal terms, but demand for it is growing even as it grows exponentially in price.

That’s why, given this illogical yet nevertheless existing stupidity, the more expensive gold and silver get, the greater will be their demand as a replacement for U.S. dollar denominated safe haven asset classes. The third major factor that is going to drive gold to $5,000 and silver through $300 is related to the first two. Governments, always reactive and never proactive, will eventually start to ratify gold and silver as official currency alternatives as a result of public pressure. The decision by the people of Utah to do just that was big news recently, even though technically and legally, it always was legal tender in that state. It is this final legitimizing step by regional governments that will open the eyes of the otherwise hypnotized American public.

For now, the move is painted as fringe by the idiotic mainstream, who are unwitting pawns for the financial services industry – U.S. Federal Reserve – U.S. Treasury trio of economic under-miners. But contrary to global public perception, this has been a recurring theme in the United States economy, pretty much from day 1. The Daily Astorian, a newspaper of the day in Astoria, Oregon, on May 9th, 1876 published a story the following of which is an excerpt: The people of this country are tolerably familiar with depreciated money.

The great mass of them have had nothing else for the last fourteen years. We are accustomed to depreciated Greenbacks, National Bank Notes, Nickels and Silver, and there are those living who can recall the time when Gold was worth less than Silver. The biggest perpetrators of what we, the people, must soon designate as criminals, else suffer the continuing consequences of no jobs and no future, are the United States Federal Reserve, the United States Treasury, The Commodities and Futures Trading Commission, and the Securities Exchange Commission. “Oh but wait,” say some. “The United States Federal Reserve is not a government body….its private.” And? The Federal Reserve is nothing more and nothing less than the off-balance sheet entity of the U.S. Treasury that permits the illegal fabrication of dollars out of thin air without prosecution.

Of course this off-balance sheet entity is not an official government body. It was designed that way, exactly as Enron set up LJM L.P., to hide losses and perform sundry distasteful and illegal acts in an effort to support its parent entity. When an entity is formed specifically to operate outside of the publicly elected offices of government, but is given dominion over the most important property of the voting public – its money – and when that entity acts in direct opposition to the interests of the public to whom it owes a fiduciary duty, then its status as government or private really becomes irrelevant. All that matters in terms of its identity is its treasonous and fraudulent activity.

The management of Enron went to jail for their larcenous culture of hiding from shareholders the true extent of their losses, and the illegal nature of their everyday operations. With a bit of luck and perseverance, the same fate will yet befall Bernanke, Paulson, Summers, Rubin, Geithner, Gensler, Shapiro and the rest of the Ivy league thieves. In the meantime, the best defense against their intentional destruction of the United States currency is selling dollars to buy gold for capital preservation and silver for low-risk capital appreciation.

The day will come when, instead of teaching that these leaders were nobly trying to ease the pain of financial forces beyond their control, today’s politicians will instead be accurately portrayed as naïve, negligent, and just plain stupid populists whose ignorance of real economic matters was exactly the ingredient necessary to permit the psychopathic and misanthropic banking community to form the financial policies of their governments. Unfortunately, the only ones likely to be alive by the time that happens are now in diapers.
Posted by Mike Gupton at 7:23 PM 0 Comments

Tuesday, April 19, 2011

Gold Tops $1500 Per Ounce

Does gold look any different at $1,500 (U.S.) an ounce? Futures topped that level – briefly – on Tuesday, following any number of global concerns that have sent investors flocking to gold recently. Unrest in the Middle East: check. Concerns about inflation: check. European financial crisis: check. Rising concerns about the U.S. deficit: check. KMG Gold Recycling

All of these factors have been simmering for some time, which is why the actual gain in the price of gold – it rose a much as $8 an ounce, before settling back – is a relatively modest move. Indeed, focusing too much on gold’s steady march to record highs can distort the actual gains for investors.

Over the past five years, to the end of March, gold has made some impressive moves, of course, rising 145 per cent versus a rise of just 14 per cent for the S&P 500. But in recent months, the pace has slowed to a crawl and gold’s returns don’t shine so brightly next to various other assets.

In 2011, gold has risen 5.3 per cent, out-muscling the S&P 500 by a mere 0.7 percentage points. And in Canadian-dollar terms, gold has risen just 1.4 per cent this year, which is half the return of Canada’s S&P/TSX composite index.

Meanwhile, gold isn’t looking so great next to a broader basket of currencies either. The Reuters/Jefferies CRB index of 19 commodities – which includes commodities like lean hogs and wheat, which don’t exactly quicken the pulse – has pulled ahead of gold this year, with a gain of 8.6 per cent.

However, there is something to be said for the power of headlines (look above) and round numbers, and gold at $1,500 an ounce certainly has a nice ring to it that will no doubt be seized upon by gold bulls.
KMG Gold Recycling

Posted by Mike Gupton at 6:18 PM 0 Comments

Friday, April 15, 2011

Is the Gold Price Really Rising?

"Governments want gold to rise—not fall—against their currencies."
KMG Gold Recycling

If we look at the gold price in the euro, we see it holding between €1,010 and 1,020 for the last couple of weeks. In the Swiss franc it is doing much the same. However, in the dollar, it has been rising, hitting new highs at $1,475. Today it jumped to €1,026 and through $1,480. If we follow the suggestion of Robert Zoellik the head of the World Bank, that gold should be a 'value reference' for the gold price, then we cannot look at the gold price in an individual currency, we must look at the currency's value against gold. The reason for this is made clear once you look at the gold price chart in each individual currency. It actually should turn out to be a reverse chart of the currency. Thus gold stands as a 'value anchor' measuring the value of the currency more than that currency measures the value of gold. So, many investors actually do believe that their currency (such as the dollar) is measuring the gold price, but it isn't.

What Does the Gold Price Measure?

A price of anything should measure the demand and supply figures of the item expressed in a static currency price. But there is no such thing. All currencies move against other currencies and against gold. The role of a global reserve currency was supposed to be a currency that was stable and was not printable, expandable or manageable. But the 'powers that be' decided that it should be inflated to match growth, so that money supply expanded at the same rate as the economy, ensuring that the currency's value did not interfere with its use as something used to exchange for goods.

To clarify, if the amount of a currency was fixed, then it should rise in value the more an economy expanded and the need for money rose. This produced a conflict of interest at the root of the money system. This meant it was manageable by people who would not hold true to the concept gold has had through the ages of being firstly a measure of value and secondly as a means of exchange. This has and will result in currencies being less reliable than gold and controlled for the benefit of local economies. Worse still, a global reserve currency, although used by nations all over the world, was subject to its own local economy, central bank and politicians. Yes, this does work, provided the country of the reserve currency is globally dominant, growing and with a balanced balance of payments. In the case of the U.S. dollar this is no longer happening.

While gold makes for an excellent reserve currency (at the correct price) it was rejected as such, because it could not be printed, it was felt it could not serve as money because to restricted growth of the money supply. That's why the gold standard was abandoned. That's why gold was revalued (actually it was the dollar that was devalued) in 1933. While there is now little effort to protect a currency's value it is not in the interests of government to allow their currency to be seen as sinking in value. The concept of currencies devaluing against gold was felt as potentially damaging to that currency so a campaign to relegate gold to solely an important reserve asset in the monetary system took place in the last 15 years of the last century. It worked right up to the end of the last century. From the turn of the century gold has made a comeback, as money, outside the monetary system and has shown this in rising prices and changes in 'official' attitudes toward gold. But has the gold price really risen? It was held down by the world's central banks, but it is now reflecting the loss of value (not fully so yet) of currencies over time. Under the present global system of money, governments want to have gold 'rise' in terms of their currencies, not their currencies 'fall' against gold.

What Is the Gold Price Telling Us?

Bankers, central bankers and governments see currencies as having far superior usefulness than gold due to the control it allows over the monetary system. This cannot be overemphasized. If currencies were anchored to gold, all such controls would become entirely visible. This would not be in the interests of either confidence in money or in bankers/politicians. If central banks felt that it would be as easily harnessed as currencies they would have used gold as a backing for currencies long ago.

But their actions do not exclude gold from being money. You can't remove it from the monetary system as we have seen so vividly in the last decade, whether bankers or politicians like it or not. In Asia it is real money and always will be. In the developed world, confidence in the monetary system is waning. Once China has matured to the point that its money becomes a global reserve asset, then the dollar will wane quickly. This will be reflected both in its buying power and exchange rate.

Then it will be unavoidably visible in the gold price that this has happened. The gold price will eventually show its true value by highlighting the value of currencies in exchange rates and gold prices in each currency. The silence from Mr. Zoellik since he put forward his idea on gold has been deafening. But he is right. Gold will no longer be sidelined. Money cannot have one of its two key functions discarded. As a 'means of exchange' any manner of games can be played. As a 'measure of value' a currency will eventually return and assess a currency internationally. In the case of the U.S. dollar that day is coming and the consequences of currency management will be felt and seen. The gold price will reflect this.

Asian gold investors feel this instinctively, which is why it is one of their leading investments for savings. In the West we can say that there is every interest and benefit to bankers and politicians in ensuring that that day is postponed. Meanwhile, the gold price is telling us the stages of decay the currency system is at.

KMG Gold Recycling
Posted by Mike Gupton at 6:20 PM 0 Comments

Friday, April 01, 2011

All That Glitters Is Silver

Source: Brian Sylvester of The Gold Report 03/30/2011

With industrial demand almost exclusively driving the price of silver for years, investing in the white metal used to be simpler. Now investment demand is competing with practical demand to push silver prices ever higher. Investor interest in silver from large U.S. funds could result in as many as 60 new silver plays entering the market this year. These are heady days for silver with a lot of upside in the cards—if played right. Find out how in this Gold Report exclusive.

Andrew Thomson, president and CEO of Soltoro Ltd. (TSX.V:SOL), a Toronto-based silver explorer with projects in Mexico, regularly receives calls from U.S. investors looking to buy a chunk of his silver play. One such investor with a net worth approaching $150 million recently asked Thomson if he could buy a block of 500,000 Soltoro shares. Thomson told him yes but that he would have to get them on the open market.

Times are good for silver juniors.

Thomson estimates there could be another 60 silver companies trading on North American bourses by the end of 2011 and says that's due to cash-rich U.S. funds seeking northern exposure.

"U.S. players are starting to look at value propositions. They just want to be in silver, and they don't want the physical metal; they want equity because they want to be able to trade it," Thomson says. "It's similar to what happened a few years ago when Chinese, Korean and Vietnamese investors came [to Canada] looking for hard assets. In this case, it's the U.S. funds that are starting to look at our natural resources. It's kind of ironic that it takes a strong Canadian dollar for them to start investing in our economy."

But not all big U.S. funds are making the pilgrimage north or, if they are, the journey is often short-lived. On March 15, Barron's blogger Murray Coleman reported that U.S. hedge fund managers were buying silver. A week later, however, he told readers "hedge funds in the past week were unloading positions in gold, silver, copper, platinum and palladium."

"There's a lot of confusion out there. There are funds that are dumping silver and there are funds that are buying silver. The funds tend to react to the news, and then become the news themselves when they dump large positions. If you watch those big funds' positions, all you're going to really see is a bobbing cork. I think net their positions are accumulative," says James West, editor of the Midas Letter.

David Keating, managing director of equity capital research with Mackie Research Capital, a sizeable Bay Street player in junior mining financings, says the 60 companies figure is likely on the high side but that Thomson's number is in the ballpark.

"Sixty sounds like a big number but it doesn't strike me as outrageous," says Keating. "There's certainly lots of demand in the market for silver stories."

Keating notes he's getting more calls about silver and is currently looking to finance as many as five silver plays. "You've got U.S. funds and international funds looking at getting direct toeholds in some of these plays and they are prepared to put up the $5, $10 or even $15 million to get the exploration going. We've definitely seen that in the silver names and in the gold names," he explains.

Keating explains that when you get sustained upward price movement in the underlying commodities, a lot of assets that wouldn't have earned a second look at lower prices suddenly become attractive at higher prices. He adds, "Companies these days are able to raise capital, so exploration budgets are going up and you're getting more and more exploration and development. And some of the assets that aren't getting attention can be spun off into cleaner, pure plays."

West, until recently, owned a stake in a precious metals mine in Peru and is connected to junior mining plays all over the world, especially those in Latin and South America. He often gets calls from the "who's who" of Toronto merchant banks and brokerages seeking exploration-worthy assets for capital pool companies (CPCs) or corporate shells.

Brokerages source assets from people like West and—after filing a prospectus and raising seed capital—CPCs buy the assets via a "qualifying transaction," which is needed to get a listing on the TSX Venture Exchange. It's often a well-rehearsed dance between brokers and companies.

"If you look at any of the CEOs on the TSX Venture Exchange who have a track record of value creation in public companies, generally, you'll find them aligned with one or two brokers with whom they do all their business. Usually these groups make money together and they tend to move forward under that arrangement until something goes sideways on a deal, somebody retires, somebody gets sued by their wife. . .whatever," West explains.

When it comes to silver exploration plays, West says, it's a seller's market. "The (property) vendors are demanding a higher price and are willing to sit with their asset on the sidelines, confident that the price is only going to go up. And with every uptick in the silver price, people are willing to pay higher prices for these silver assets," he says.

Leading the Charge

In early March, newly listed silver junior Argentum Silver Corporation (TSX.V:ASL) optioned Soltoro's Coyote and Victoria silver-gold properties in a past-producing silver district near Jalisco, Mexico. Argentum paid CAD$255,000 in cash and 5 million shares. Soltoro kept a 3% net smelter royalty on any future production from either Coyote or Victoria.

"Effectively, there is an area play starting in Jalisco that's been going on for about two years that includes Endeavour Silver Corp. (NYSE:EXK; TSX:EDR), Timmins Gold Corp. (TSX.V:TMM), Silver Predator Corp. (CNSX:SPD), Southern Silver Exploration Corp. (TSX.V.SSV; Fkft:SEG), Soltoro and Argentum Silver," Thomson says. "It's not only for silver, but silver is leading the charge."

Indeed. Two years ago, on March 24, 2009, silver closed at $13.44/oz. And two years later, the white metal finished the day at $37.42/oz. on the NYMEX—a gain of 178%.

West believes we will see $40/oz. silver by the end Q211 and that the white metal could hit $50/oz. by year-end based on not only the typical industrial and investment demand drivers, but also what he refers to as "smart money" entering the space.

By “smart money” West means the cash behind the big players like Toronto-based Sprott Asset Management. Eric Sprott, the firm’s bearish leader and chief investment officer, is staking his reputation on precious metals and is telling anyone willing to listen that gold will move well above $2,000/oz. and that during this current bull market for precious metals that the silver-to-gold ratio – or the number of silver ounces it takes to buy an ounce of gold – will return to its historical norm of less than 20 to 1. Sprott has openly said silver could go to $100/oz. in the foreseeable future.

Others aren't quite so bullish.

Riding the Ratio

“I’m not in (Sprott’s) camp but there is a squeeze going on. . .There’s a lot of new ETFs and funds getting into the silver space that are drying up (silver) production in terms of the delivery of actual physical silver and that’s what’s driving the price up. It’s a bit of a manipulation from the perspective that it’s the investors who are stepping into (the silver space) and squeezing the supply for the end users. I think that’s very real and that’s why the (silver-to-gold) ratio is changing,” Thomson says.

The last time the silver:gold ratio closed the gap that much was in 1980 when brothers William and Nelson Hunt attempted to corner the silver market. The ratio peaked at 17:1 before the silver price collapsed on the ill-fated Silver Thursday, which occurred in late March, 31 years ago.

In 2003, when the current bull market in precious metals really started rolling, the silver:gold ratio was roughly 83:1. With silver now approaching $40/oz., the gap has closed to about 38:1 and is steadily narrowing.

"When you've got guys like Eric Sprott and Frank Holmes [CEO and CIO of U.S. Global Investors]—guys that are really recognized as 'thought leaders' in the space—predicting much higher silver prices, that in itself becomes a fundamental driver for the price," West says.

Liquid Silver

Sprott put his money where his mouth was and further boosted silver demand by launching the Sprott Physical Silver Trust (NYSE.A:PSLV) in November 2010 at $10 per unit. It closed at $17.38 on March 24 with a market cap of $869 million. The trust trades at a premium to net asset value (NAV) and its silver bullion is tucked away safely in a Canadian vault, a task that took longer than expected. In November, the trust had contracted to purchase 22,298,525 ounces (22.3 Moz.) of silver bullion but by the end of 2010 had taken possession of roughly 21 Moz. The remaining 1.4 Moz. or so did not arrive until well into 2011. The delivery delay clearly demonstrated the tightness in the physical silver market.

"Frankly, we are concerned about the illiquidity in the physical silver market. We believe the delays involved in the delivery of physical silver to the trust highlight the disconnect that exists between the paper and physical markets for silver," Sprott said in a January press release.

Sprott's main competition, the iShares Silver Trust (ETF) (NYSE:SLV), has been trading in unprecedented volumes. On March 24, 27 million shares changed hands for a close at $36.12. The $13.2 billion trust is up 121% year-over-year (YOY) from its March 24 close of $16.29.

The Sprott Physical Silver Trust is just one prong in Sprott's multipronged approach to precious metals investing. Sources close to the situation say he's buying equity in just about every silver play coming to market and can't write the checks fast enough. They estimate Sprott's total bet on silver, including the trust, approaches $1 billion.

David Morgan, editor of the Morgan Report, a silver-focused newsletter, provided Sprott with some names to help him source his silver bullion. Morgan was in the market when silver's last bull market ended in 1980. He knows what it's like when the music stops, and he recommends caution.

"The problem with the gold-silver cycle is that it's such an emotional market because the people who are in it—the gold and silver bugs—have an attachment to [gold and silver] being money. All markets that have a bull market go from undervalued, to fair valued to overvalued; and nothing gets to the extreme overvaluation level, at least in the last bull market, that gold and silver do. What happens at the top of the market—and we're far from that now, mind you—is that anything with silver in the name of it will go sky high regardless of its merit," says Morgan.

Thomson agrees but says good assets are good assets in bull and bear markets.

"I think it's like anything. The museum-quality assets are going to rise to the top, and the stuff that's smoke and mirrors will always be smoke and mirrors. And, at some point when the market falls apart, the quality will persist and the crap will fall by the wayside," Thomson says.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

1) Brian Sylvester of The Gold Report wrote this article. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the article are sponsors of The Gold Report: Timmins Gold Corp.
Posted by Mike Gupton at 5:37 PM 0 Comments

Monday, March 28, 2011

What's Really Driving the Gold Price?

Source: Julian Phillips, Gold Forecaster 03/28/2011

Gold attracts tremendous emotion from people and it has always done so. It manages to bring out the extremes in investors, reporters, governments. It's either hated or loved. Copper isn't, nickel isn't and coal isn't. You can call it a commodity, a barbarous relic, money or a wealth preserver. Whatever title you use, someone will react. As a metal, it has certain qualities that other metals don't have, but that's not what produces these reactions. It's not even its price rise over the last decade that causes the noise. In fact, it's not about gold at all. Governments have in turn loved it, hated it and now are beginning to love it again. It's what it's purported to represent that causes all the fuss. Just look at the reasons put forward by some as to why it's rising in price and you get the picture.

Rejection of Capitalism, Paper Currencies or the Unreliability of Man

Gold Defeats the Technical Picture
Gold has defied many sound technical analysts forecasts of late and it continues to do so rising to record levels in the dollar. It still has to rise to €1070 to beat the euro highs and if it does with the dollar falling heavily a rise to that price with the dollar at around $1.42 against the euro, you will see a dollar price of $1,519. It doesn't seem far away does it? Why should it be rising so strongly?

Communist Capitalism
We heard one commentator ask if this was the rejection of capitalism. Nothing so restricted, we say. It goes far deeper than that. A look at China shows a communist for of capitalism [if there is such a thing] and they are doing very well with it, yet they are buying gold, buying silver, buying gold, buying silver. . .We are looking at the entire structure on which global economies are built on to see why. Could it be a rejection of the entire monetary systems of the world? That's part of it. Is it something deeper than that, going down to the behavior of man from the individual to all-powerful government? We think so. A fact that most are realizing now is, that man is incapable of leaving the underlying principles that should dominate money without interference. What goes wrong? National interests kick in. Selfish influences discolor money's value. Power that comes from controlling money becomes irresistible and distortions are inevitable, as we are seeing.

Trade Deficits Exact Tributes
For instance, a perpetual trade deficit becomes a way of exacting 'tribute' from trade partners who accept newly printed money in payment. All other nations have to earn that money through trade surpluses or face a cheapening of their own money. By pricing international trade in the dollar, the business gained in U.S. banks from foreign global trade is vast. All the benefits of being the world's superpower accrue to the nation dominating the world's global reserve currency. That is until international trust is lost in that nation and another superpower rises to share and eventually take on that crown of power. In the past that position has been the subject of wars, but in today's world the battleground is economic and financial.

Means of Exchange as Governments Melt
Man will always need and use a means of exchange even if it descends to barter, but history has shown that the only money that has proved enduring is one free from individual national influence in this world. Gold and silver have carried that mantle and always will. The experiment with manmade money could only last as long as man's determination to provide a money that moved from simply a means of exchange to a measure of value. Man's inherent nature ensures that. We are now at the point where manmade money is losing its value and most men can see this and don't like it. They feel betrayed at the most basic of levels and by their own governments.

Remarkably, in the first 100 days of 2011, we have seen the effectiveness of government melting. We are not just referring to those in the Middle East, but to the collapse or emasculation of governments in the developed world. The U.S. and the UK have governments that are now only capable of functioning well when issues agreed by both sides come to the fore. Citizens are appalled when they see their leaders unable to agree on critical matters, such as reining in excessive spending and debt growth.

As to the sight of money creation through quantitative easing for the benefit of boosting economic growth, one is made tense in the knowledge that this is a process that undermines confidence in and the value of money, in savings, investments and trade. If such devaluations were fully realized, then the flight to gold and silver and out of manmade money would rise to a stampede.

The Function of Money
In the past, money was an item whose principal role was to measure value. Its secondary role was to function as a means of exchange. By using a desirable commodity to act as money it was made to be attractive to all men wherever they were on this planet. By using an item of limited availability, the ability of man to expand it beyond its accepted value was curtailed. By using an internationally recognized and accepted item of high value men, wherever they were, would use it. The moment one nation could dominate money and its international acceptability, the only way if could be used effectively was if that nation dominated all nations. Rome was a case in point. The UK morphing into the U.S. rule ensured that first the pound sterling and then the dollar ruled global money.

In moving from gold to manmade money, dependence on the behavior of government became total. The only link to the ongoing credibility was to the oil price, which created an ongoing international demand for the dollar. Break that and the entire credibility of the dollar rests on trust in the U.S. monetary system, so far, hardly an inspiring performance.

The last 40 years has been an incredible experiment with manmade money made possible only by lulling mankind into acceptance through economic growth. Take that growth away and its path to rejection will be a short one. Since 2007, we have started down that road.

Understanding the Fall of Manmade Money and the Rise of Gold and Silver

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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.

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