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02/01/2023 3:15 AM     Current Market Price:     Gold:  $1,924.32/ozt   Silver:  $23.47/ozt   Platinum:  $1,024.28/ozt   Palladium:  $1,688.43/ozt  

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

Tuesday, May 10, 2011

Silver's drop doesn’t mean bull market over

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.
Posted by Mike Gupton at 5:48 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

Monday, April 18, 2011

Can You Pass The 2011 Gold Quiz?

"Regardless of your score, I'm sure you'll agree with the ramifications each point makes for the gold market." ? CPM Group recently released its 2011 Gold Yearbook, an invaluable resource for us gold analysts. As mostly a reference book, even a gold enthusiast might find it dry reading—but I loved it and, as I studied it on a plane, I kept finding data that made me perk up. To have a little fun with it, I thought I'd summarize what I read in the form of a quiz. See how many you can get correct. Regardless of your score, I'm sure you'll agree with the ramifications each point makes for the gold market. I'll start off easy. . . 1. The main driver behind rising gold prices over the past decade: Increased jewelry demand in India; greater industrial uses of the metal; and investment demand. Worldwide investment demand for gold totaled 44 million ounces (Moz.) in 2010. Because of the growing demand by investors, prices have been forced upward. Five exchanges began trading gold contracts for the first time in 2010 and three more introduced mini contracts, collectively the largest number launched since the early '80s. There are now 24 gold vending machines in seven countries, with three more countries adding machines this year. Households in developing countries are now moving away from gold jewelry and buying coins and bars for their savings. I could go on, but suffice it to say that investment demand will continue to be very strong. 2. True or false: Recovery from gold scrap was lower in 2010 than 2009? Scrap rose three consecutive years in a row—until last year. Gold supply from scrap fell 2.1%, to 42.2 Moz. This is significant because gold prices were higher, which would normally increase the amount of scrap coming to market. One of the primary reasons scrap dropped is because investors are holding on to their metal, reportedly because they believe prices are headed higher. Isn't that one reason you're holding on to your bullion? 3. There are many reasons investors have been buying gold over the past 10 years, but what's the #1 reason? Safe-haven asset; gold coins and bars have become more intricate, widespread and beautiful; and supply and demand imbalance. Global fears increasingly led investors to purchase large volumes of gold in 2010 for safe-haven purposes, despite record price levels. High levels of investment buying are expected to continue in 2011 because virtually none of the economic, political and monetary concerns have been resolved. If you got all three answers correct, you're an investor who understands the basic reasons for owning gold and that those reasons are still in play. Now let's step it up a little. . . 4. Gold represented what percent of global financial assets at the end of 2010? 3.1%; 0.7%; 1.6%; and 2.4%. The estimated value of investor gold holdings stood at $1.5 trillion at the end of last year, about 0.7% of global financial assets. While up nine years in a row and triple what it represented in 2001, gold is still a miniscule portion of the world's private wealth. It represented 2.8% of global assets in 1980, four times what it does today. 5. How many central banks increased their gold holdings in 2010? 9; 12; 15; and 19. Russia, Thailand, Belarus, Bangladesh, Venezuela, Tajikistan, Ukraine, Jordan, Philippines, South Africa, Sri Lanka, Germany, Kazakhstan, Mexico, Greece, Pakistan, Belgium, Czech Republic and Malta = 19. Central banks, as a group, are expected to continue to be net buyers of gold for the foreseeable future. It's interesting that most purchases were from developing countries, unsurprising when you consider they've accumulated over $5 trillion in foreign exchange reserves just since 2002. 6. Compared to 2009, U.S. Mint gold coin sales in 2010 were: Down 12%; Up 8% Up 5%; and Up 3%. The U.S. Mint sold 1.43 Moz. last year, down 12% from the 1.62 Moz. sold in 2009. You might think this is negative until you realize that global coin sales rose 21% last year, reaching 6.3 Moz. Makes you wonder what other countries know that many North Americans don't. Supply problems continue to plague the U.S. Mint, evidenced by the fact that Buffalo sales were suspended for half the year. What happens when the greater population begins to clamor to buy gold? Bottleneck—meet desperation: 7. CPM estimates that the fiscal and monetary imbalances, especially in developed countries, could take how long to resolve? 1 year; Decades; 5 years; or 2 years? Rigid social contracts are so deeply ingrained, especially in the developed world, that it will take decades to resolve the monetary imbalances. This sobering fact means gold will likely be in a bull market for many years to come. There are very few options to deal with the overwhelming debt burden in most of these countries: Raise taxes, cut spending, increase growth or print money. Guess which one is most likely? Inflation from currency dilution is baked in the cake and will spur further gold demand and light a fire under the price. If you got these four questions correct, I think it means you're an astute investor who doesn't worry about day-to-day price fluctuations and instead focuses on owning enough ounces to protect your assets from the huge and intractable fiscal problems that still have to be faced. Now, here are some questions for those of you who love gold stocks: 8. What was the industry-average cash cost to produce 1 ounce of gold last year? $509; $498; $544; or $474? Cash costs have tripled since 2002 and rang in at $544 last year. They will certainly be higher again this year. In spite of higher costs for the producers, margins actually rose due to higher gold prices. Margins in 2010 averaged $680 and were only $114 as recently as 2002. We've got some of the most profitable companies in BIG GOLD, along with a number of producers that have big growth coming online over the next one and two years. Buy these stocks before that growth happens; if you shell out the bargain basement price of $79 now, I think your portfolio will be very happy when it comes time to renew. 9. The average grade of gold mined on a worldwide basis last year was how much? 5.11 grams/ton; 3.54 g/t; 2.96 g/t; or 1.83 g/t? The second lowest level on record—1.83 g/t—occurred in 2010. While not entirely negative because higher gold prices allow producers to go after lower-grade deposits, this leads to higher costs for both discovery and production. It is, undoubtedly, true, though, that one of the main reasons grades are lower is because the easy fruit has been picked in many regions around the world. This is bullish for those explorers that can find and develop higher-grade deposits and is where much of our speculative dollars should be focused. Our mining exploration advisory International Speculator tells you which companies are the best of the best, outperforming the S&P by 8.4 times last year. So, if you're not reading the International Speculator yet, you're missing out on some spectacular profits. 10. The most popular region for exploration spending is where? Latin America; Canada; Nevada; or China? Roughly 25% of all global exploration money is devoted to Latin America. The biggest beneficiaries are Peru, Mexico, Brazil, Chile and Argentina. If you're investing in gold and silver explorers, make sure you have exposure to this region, as odds are high there will be a number of major discoveries made here.
Posted by Mike Gupton at 6:57 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

Tuesday, April 12, 2011

Bond investors shrugged off budget showdown

There is one surprising group of people who are not terribly worried about the budget brinksmanship in Washington: the investors who lend the U.S. government billions of dollars.

Last week’s showdown (and near-shutdown) over funding the government through September was a high-stakes drama in Washington. The upcoming battle over raising the government’s debt ceiling is poised to feature more of the same, complete with dire warnings about the federal government defaulting on its debt.

But the market for Treasury bonds lately has been exceedingly calm. While the money managers who invest in those bonds say they monitored last week’s drama over a potential shutdown, it wasn’t the major driver of ups and downs in the market. Rather, prices moved based on the usual economic reports and new evidence about what the Federal Reserve will do next.

“The brinksmanship that we’ve seen so far hasn’t really affected yields as much as I thought it would,” said Brian Brennan, who manages three bond funds for T. Rowe Price.

“What the markets were discounting last week was an expectation that eventually we would see a deal from Congress and the president,” said Krishna Memani, who heads fixed-income investing at OppenheimerFunds and manages several bond funds. “That was the core expectation, and it was proved right.”

The U.S. government was able to borrow money for a decade at 3.58 percent Monday, up from 3.42 percent a week earlier but below February levels. An index of volatility in the Treasury bond market has in recent days been at its lowest levels since last fall.

Even as bond investors shrug off the brinksmanship in the short run, the nation’s most prominent bond investor has turned strongly negative on the outlook for U.S. government debt.

Pimco, the largest bond investor, disclosed over the weekend that its $236 billion Total Return Fund now holds negative 3 percent of its assets in Treasurys, meaning it would actually make money if Treasury bonds decline in value. The manager of the fund, William H. Gross, has written that the political environment is sufficiently toxic — and the nation’s longer-term fiscal problems sufficiently in­trac­table — that U.S. government debt is a bad deal.

“Unless entitlements are substantially reformed, the U.S. will likely default on its debt,” Gross said in an April report. “Not in conventional ways, but via inflation, currency devaluation and low-to-negative real interest rates.”

Prices in the bond markets — the low levels of return that investors are willing to accept — suggest that investors broadly are not buying Gross’s thesis for now. They are betting that, one way or another, the government will reach an agreement on reducing the long-term budget deficit before the nation’s fiscal problems become insurmountable.

In the shorter run, Congress will need to raise the nation’s debt limit by next month or it would make it hard — and eventually impossible — for the federal government to pay its bills. The Obama administration and its allies have described the need for congressional action in near apocalyptic terms.

“Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover,” Treasury Secretary Timothy F. Geithner said in a letter to Congress last week.

Bond investors generally are confident that, when all the political posturing is over, a deal will be done on the debt ceiling and their investments will be safe. But they acknowledge some wariness.

“I think it would be pretty dire if it came to the point where we have extended weeks of alternate methods to fund the deficit,” Brennan said. “If politicians do that, they have to realize it’s not going to be good for the economy and will make everybody look bad.”

Posted by Mike Gupton at 9:56 AM 0 Comments

Thursday, April 07, 2011

The ECB Raised Interest Rates.

Thursday, April 7, 2011. 9:25 a.m.

As was widely expected, the European Central Bank raised its benchmark interest rate for the 17-nation euro zone this morning, from its historic low of 1% to 1.25%, in an effort to bring rising inflation in Europe under control.

It follows the central banks of Asia and South America, which have been raising their rates aggressively for a number of months. For example, India has raised its rates 8 times in the last 12 months. Brazil has been raising its key interest rate repeatedly over the last year, its most recent hike being to 11%. China has also been hiking its rates for more than a year, and is expected to do so again within days.

In the United Kingdom, which is not a member of the euro zone, inflation spiked up to 4.4% in February, more than double the Bank of England’s announced ‘comfort zone’ and target rate of 2.0%.

It does have the U.S. Fed increasingly isolated with its stance that it does not see a threat of inflation, and will keep its easy money policy in place and its record low 0% to 0.25% Fed Funds rate.

Can the Fed be so right, and the rest of the world so wrong?

Gold, the historical hedge against inflation, seems to also think the Fed is wrong, with its rise to another new record high.
Portugal Gives In and Seeks Bailout.

When the debt crisis began more than a year ago, Greece was the first to look like it potentially faced the threat of default. Its government denied it could happen and insisted it did not need the European Central Bank or the IMF to come up with a plan to bail it out.

Wrong. It eventually had to cave in and accept a bailout.

By then concerns were of a possible contagion. The next to look vulnerable was Ireland. But its government insisted it was not facing that large a problem, and would not need a bailout.

Wrong. It gave up and was bailed out in December.

The next to draw concerns as its debt ratings were repeatedly downgraded, was Portugal. And of course its government said it did not need or want a bailout.

Wrong. Yesterday, its government gave up on trying to make it on its own, and requested a bailout.

Now concerns of contagion have moved on to the much larger economy of Spain. Among the concerns are that Spain may be too large to bail out.

But not to worry. Spain’s government insists it will not need a bailout.
Retailers Same-Store Sales Reports Are Mixed So Far.

Same-store sales reports for March, being released through the morning, are mixed so far. But up or down, they mostly managed to beat Wall Street’s lowered estimates.

So far, BJ’s Wholesale Club reported its sales were up 5.3%, better than analysts forecasts of 2.8%. Much of it was due to the higher price of gasoline. Excluding gasoline sales its same-store sales were up only 1.3%, but that also beat analysts forecasts of 0.5%.

Target reported its sales fell 5.5% in March, but that was also better than forecasts that they would fall 6.4%. Dillard’s sales fell 1%. Macy’s sales were up 0.9%, better than forecasts that they would fall 2%. Limited Brands sales rose 14%, easily beating forecasts of a gain of 1.5%. Stage Stores reported sales fell 5.3%, but analysts estimates were for a decline of 6.5%. Costco’s March sales were up 13%, well ahead of Wall Street’s estimates of 7.4%.

Sak’s reported March sales were up 11%, easily beating Wall Street’s estimates of a gain of 0.8%. Gap Stores reported its sales fell 10%, slightly worse than estimates of a decline of 7%.

Note that these comparisons are not to December quarter sales, but to the March quarter of last year.
Yesterday in the U.S. Market.

The market gave up early gains but still closed up fractionally for the day.

The Dow closed up 32 points or 0.3%. The S&P 500 closed up 0.2%. The NYSE Composite closed up 0.2%. The Nasdaq closed up 0.3%. The Nasdaq 100 closed up 0.2%. The Russell 2000 closed up 0.1%. The DJ Utilities Avg. closed up 0.8%. The DJ Transportation Avg. closed unchanged.

Oil closed down $.15 a barrel at $108.68.

Gold closed up $2 an ounce at $1,459 an ounce, a new record high.

The U.S. dollar index closed down 0.6%.

The Treasury bond etf TLT closed down a big 1.5%%.

Subscribers to Street Smart Report: There is an in-depth ‘Markets Signals and Recommendations’ report, and a new in-depth ‘Gold, Bonds, Dollar, Inflation’ report, and a hotline, in the subscriber area of the SSR website from yesterday and last evening. And later today there will be an update on global markets, and where we stand now in the ‘lost decade’ secular bear.
Yesterday in European Markets.

European markets also gave back some of their early gains but closed up. The London FTSE closed up 0.6%. The German DAX closed up 0.6%. France’s CAC closed up 0.2%.
Asian Markets Were Flat On Low Volume Last Night.

Traders in Asia were quoted as saying, on Australia: “The market feels like it has gone too far too fast. Its had only one down day since March 17, so it’s hard to go long here.” On Asian markets in general, “Many indexes hovered around yesterday’s closing prices and trading volume was light, signaling caution after recent advances.”

Upgrades and downgrades: HSBC bank upgraded the Indian market to neutral from underweight, but lowered its year-end target for the Sensex index from 21,000 to 20,000. (It closed last night at 19,591).

JP Morgan upgraded the Sensex to ‘overweight’ from ‘neutral’.

But providing something for every persuasion, the Asian Development Bank lowered its estimate of India’s GDP growth for the year down to 8.2% from last year’s 8.6%, noting that the Reserve Bank of India has raised interest rates 8 times in the last 12 months and adopted tighter fiscal policies that “will be less accommodating for the economy than in the past.”

The DJ-Pacific Index closed up 0.3%.

Among individual markets:

Australia closed down 0.1%. China closed up 0.2%. Hong Kong closed down 0.1%. India closed down 0.1%. Indonesia closed up 0.1%. Japan closed up 0.1%. Malaysia closed up 0.5%. New Zealand closed unchanged. South Korea closed down 0.2%. Singapore closed up 0.1%. Taiwan closed up 0.5%. Thailand closed up 1.2%.

Markets This Morning.

European markets are fractionally positive this morning. The London FTSE is up 0.1%. Germany’s DAX is up 0.2%. France’s CAC is up 0.4%.

Oil is unchanged at $108.83.

Gold is up $1 an ounce at $1,460.
This morning in the U.S. Market:

This week is a very light week for potential market-moving economic reports, almost none. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.

On Tuesday it was that the ISM non-Mfg Index declined fractionally in February.

This morning it was that new unemployment claims declined by 10,000 last week.

All eyes today will be on retailers’ same store sales being reported individually through the morning. As noted at the top of the post, they are a mixed picture so far, but whether up or down mostly beating Wall Street’s estimates.

Debates will be over the ECB’s rate hike, whether it was too soon, or timely and has the U.S. Fed behind the curve on inflation.

And of course debates on what a shut-down of the government would mean if a budget compromise is not reached.

I expect there will be a compromise and no shutdown. As I said months ago when the budget debates began, both sides would take it to the very limit to get as much political value out of the controversies for their side, and then compromise at the last minute because failure to do so would be a blight on both parties. A compromise allows the government to function and for both to then continue on with their criticisms of each other.
Our Pre-Open Indicators:

Our pre-open indicators are flat, pointing to the Dow being down 5 points or so in the early going, meaningless as to direction.
Posted by Mike Gupton at 11:13 AM 0 Comments

Wednesday, March 16, 2011

Checking in on Relative Gold

Source: Jordan Roy-Byrne, The Daily Gold 03/15/2011

Relative gold is also known as the real price of gold. It's essentially a comparison of gold against various asset classes. Why is this important? There are two reasons. First, the real price of gold tends to lead leverage performance (e.g., the HUI:Gold ratio). Second, the real price of gold often provides hints of the future direction of the nominal price of gold.

Keep in mind that gold is the type of asset class that performs best when it's strongly outperforming the other asset classes. This seems like an obvious statement but it is an important one. If stocks and/or bonds are performing very well, money (usually mainstream) flows into those asset classes?not gold. If conventional asset classes perform well, there is little reason for the masses to go into gold.

In the chart below we show gold against various asset classes. gold has made a new high in nominal terms but hasn't held it. One reason could be the weak performance of gold against stocks, currencies and commodities. In recent months, money has flowed into those markets and not gold. Gold made marginal highs against both bonds, but with risk aversion increasing and a possible US Dollar rally, how long will that last?

gold charts

Gold's real performance is mixed, which suggests a sustained breakout in nominal terms is unlikely at present. Gold has started to outperform stocks and commodities and we expect that to continue. However, there is a clear divergence with gold priced in other currencies, which suggests that recent U.S. dollar weakness has buoyed gold. While struggling, the USD has yet to break support. Sentimentrader's public opinion is only 31% bulls for the U.S. dollar.

When many markets are in flux, as is the current situation, intermarket analysis becomes all the more important. Comparing markets against each other helps us decipher the leaders, the winners and the laggards. The current picture for gold is mixed but could become clearer if/when the greenback confirms its bottom. We would welcome that, as it would clear out the last of the weak hands and position gold ready to move higher.

These are difficult times. When trends are shifting or changing, we need to analyze various markets and asset classes to get a better handle on what is going on. This analysis allowed us to foresee the lack of a true breakout in gold and gold shares while the gold permabulls continued to cheerlead onward.

Posted by Mike Gupton at 7:04 PM 0 Comments

Thursday, March 10, 2011

Gold Retraces All Losses After Official Says "China Should Take Every Chance To Buy Gold, Especially When Gold Prices Fall"

It was only logical that hours after Jim Cramer "Whitney Tilsoned" gold, China would come out and say it needs to buy more of the precious metal. After hitting an overnight low of $1,423/oz for some unknown reason, perhaps the latest overdue shakeout of the weakest holders, gold has since retraced half the distance to its all time highs, following a report from Reuters that "China should use some of its $2.85 trillion foreign exchange reserves to buy more gold, a government adviser was quoted as saying by local media reports on Wednesday. Li Yining, a senior economist at Peking University and member of the Chinese People's Political Consultative Committee, an advisory body to the national parliament, said that China should use the precious metal to hedge against risks of foreign currency devaluations. "China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall," Li was quoted by the official Xinhua news agency as saying." And so the immaculate record of all those calling for the "inevitable" correction in gold continues with a roughly 0% success rate.

GoldCore has more:

Renewed fears over eurozone debt have seen the euro fall against most currencies and precious metals today. The yield on Greek 10-year bonds is approaching an alarming 13% after jumping to a new record high of 12.89% today (see bond charts below). The Portuguese 10-year rose to a new record high of 7.7% ahead of today’s auction where they borrowed 1 billion euros in order to avoid a “bailout”.


The risk of contagion in the eurozone has clearly not gone away and this is another primary factor supporting gold above the $1,400/oz and the €1,000/oz level. The charts contradict those who simplistically call gold a bubble with gold having seen a period of correction and consolidation since November last year and looking like it is ready to break out and challenge new highs above $1,500/oz and EUR1,100/oz in the coming weeks.


Gold in Japanese yen has continued its gradual rise and has reached multi-year nominal highs at 119,000 yen per ounce. Gold in yen remains a long way from the nominal high of 160,000 yen per ounce seen in February 1980. This is likely a leading indicator that Japan’s deflation may be morphing into stagflation and the yen’s safe haven status is likely to be as questioned as the dollar’s in the months ahead.


While oil prices came off somewhat they remain near recent highs and uncertainty in Libya and in Saudi Arabia (where there are concerns about the coming ‘Day of Rage’ on Friday) will likely see oil remain robust with sell offs being shallow and short.


The likelihood that the People’s Bank of China is increasing and will continue to increase its gold reserves and the percentage of foreign exchange reserves held in gold, was seen in comments by Li Yining, an influential Chinese economic adviser, yesterday.

He said that China should use some of its close to $3 trillion foreign exchange reserves to buy more gold, and should use the precious metal to hedge against risks of foreign currency devaluations. Reuters reported the story this morning (Reuters Africa) and Bloomberg had a very brief news story yesterday.

"China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall," Li was quoted by the official Xinhua news agency as saying.

China does not disclose its gold reserves figures (neither on a monthly, quarterly or annual basis) but is likely quietly accumulating and will announce in the coming years that its reserves have risen from 1,054 tonnes, which is very low when compared to the Federal Reserve’s, to over 8,100 tonnes.

Gold’s recent and continuing robustness indicates that the ‘Beijing put’ is supporting the market on all sell offs and will likely continue to do so for the foreseeable future.

The Chinese are too shrewd to ‘telegraph’ their intentions to accumulate much larger gold reserves and will announce the ‘news’ when they are ready.


(Reuters) -- China adviser says Beijing should buy more gold
China should use some of its $2.85 trillion foreign exchange reserves to buy more gold XAU=, a government adviser was quoted as saying by local media reports on Wednesday.

Li Yining, a senior economist at Peking University and member of the Chinese People's Political Consultative Committee, an advisory body to the national parliament, said that China should use the precious metal to hedge against risks of foreign currency devaluations.

"China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall," Li was quoted by the official Xinhua news agency as saying.

His view that Beijing should diversify its foreign exchange reserves, the world's largest, into commodities is nothing new. Many other academics have publicly called on Beijing to do so.

But Li's views may carry more weight than most. Many of his former students are now high-ranking officials, including Chinese Vice Premier Li Keqiang, who is seen as Premier Wen Jiabao's likely successor in 2013.

However, Yi Gang, head of the State Administration of Foreign Exchange, which is responsible for managing most of the country's foreign currency holdings, said recently that it was not possible for China to make big purchases in the spot gold market.

"If China gets into these markets and pushes up prices to extremely high levels, the Chinese people will bear the cost at the end of the day as China is often the key buyer in these markets," Yi said.

He added that Chinese firms and households had purchased more than 300 tonnes of gold last year, and that it would have been hard for the government to buy any more with foreign reserve funds.

"The gold price shot up last year, and surging gold prices have forced Chinese people to pay more as there is strong demand for gold for those getting married and other events," he said. [ID:nTOE71P00H]

According to the central bank, China's state gold reserves have been held at 33.89 million ounces since April 2009.

Gold prices have risen about 10 percent in the last six weeks, as clashes in Libya and turbulence across the Arab world have encouraged investors to seek a safe haven, while oil has gained about 17 percent in the same period, increasing gold's inflation hedge appeal.

(Bloomberg) -- Li Yining Says China Should Raise Gold Reserves, Radio Reports
China should boost gold reserves “appropriately,” to secure the safety of the country’s foreign exchange reserves, Li Yining, an economist, was quoted as saying by China National Radio today.

(Bloomberg) -- Shanghai Gold Exchange to Extend Trading Time for Night Session
The Shanghai Gold Exchange plans to extend trading hours for the night session from late April, the bourse said in a statement posted on its website today.

The closing time for the night session will be 3:30 a.m., the statement said.

(Bloomberg) -- Merrill Lynch Says Brent May Break Through $140 in Three Months
North Sea Brent crude may trade at more than $140 a barrel in the next three months amid rising global demand and halts to production in Libya, Bank of America Merrill Lynch said.

“To reflect a tighter market, we upgrade our average second quarter 2011 Brent crude oil forecast to $122 a barrel from $86 a barrel,” the bank said in a note today. “On average for 2011, we now project Brent crude oil prices at $108 a barrel.” For West Texas Intermediate, the bank forecasts an average of $101 a barrel for this year, up from $87.

(Bloomberg) -- London Accounted for Two-Thirds of Global Gold Trading Last Year
More gold trading takes place in London than any other city, according to the latest commodities report by the financial industry-sponsored TheCityUK.

The U.K. capital captured 67 percent of the record $25.1 trillion in global gold trading last year, compared with 74 percent in 2009, according to TheCityUK. New York had 22 percent of the gold market, up from 16 percent in 2009, followed by Mumbai with 6 percent and Tokyo at 5 percent.

London kept its position as the center of the precious metals market that it established with the daily gold fixing in 1919. HSBC Holdings Plc, based in London, holds the gold on behalf of the SPDR Gold Trust, the biggest exchange-traded fund for the metal.

“London doesn’t have any competition when it comes to over-the-counter trading in gold,” said Marko Maslakovic, senior manager of economic research at TheCityUK in London. “OTC trading has been losing to exchange trading over the past five or six years because we’re getting more and more products traded on exchanges such as ETFs. It’s becoming easier to access the market through exchanges.”

London had 40 percent share of the $3.2 trillion silver market last year, down from 52 percent in 2009, according to the report. New York’s share climbed to 31 percent from 19 percent followed by Mumbai at 27 percent, down from 29 percent in 2009, according to Maslakovic.

The actual gold traded last year in London was 13.8 billion ounces of the global total of 20.48 billion ounces, according to TheCityUK. The silver total in London was 64.6 billion ounces, of a global 157.5 billion ounces, it said.

(Bloomberg) -- Gold Rises to 118,620 Yen an Ounce, Most Since Feb. 15, 1983
Gold for immediate delivery rose 0.4 percent to 118,620 yen an ounce, the highest price since Feb. 15, 1983.


Posted by Mike Gupton at 4:57 PM 0 Comments