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Saturday, April 30, 2011

Doug Casey: Precious Metals vs. the USD

Source: Karen Roche of The Gold Report (4/29/11)
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Doug Casey One sure upshot of the quantitative easing money flooding the stock market will be further distortions, chaos and unpredictability that make the value-investing proposition difficult, if not impossible, according to Casey Research Chairman Doug Casey. On the eve of a sold-out Casey Research Summit in Boca Raton, Florida, Doug returns to The Gold Report. In this exclusive interview, he warns, "Like it or not, you're going to be forced to be a speculator."

The Gold Report: When the average investor turns on the news, even on financial channels, they hear that the U.S. economy is in the best shape it's been in for three or four years. While the experts say the recovery is slower than anticipated, they expect its slow recovery will equate to a long, slow growth cycle similar to that after World War II. You have a contrary view.

Doug Casey: The only things that are doing well are the stock and bond markets. But the markets and the economy are totally different things—except, over a very long period of time, there's no necessary correlation between the economy doing well and the market doing well. My view is that the market is as high as it is right now—with the Dow over 12,000—solely and entirely because the Federal Reserve has created trillions of dollars, as other central banks around the world have created trillions of their currency units. Those currency units have to go somewhere, and a lot of them have gone into the stock market.

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As a general rule, I don't believe in conspiracy theories and I don't believe anything's big enough to manipulate the market successfully over a long period. At the same time, the government recognizes that most people conflate the Dow with the economy, so it is directing money toward the market to keep it up. Of course, the government wants to keep it up for other reasons—not just because it thinks the economy rests on the psychology of the people, which is complete nonsense. Psychology is just about the most ephemeral thing on which you could possibly base an economy. It can blow away like a pile of feathers in a hurricane.

TGR: So, you're saying we're confusing the market's performance with the economy's performance?

DC: Yes. The fact is that the economy, itself, is doing very badly. The numbers are phonied up. I spend a lot of time in Argentina. Anybody with any sense knows you can't believe the numbers coming out of the Argentinean Government Statistical Bureau, nor can you (any longer) believe the numbers that come out of Washington D.C. The inflation numbers consider only the things the government wants to look at and are artificially low. It's the same with the unemployment numbers. None of these things is believable.

TGR: Isn't the unemployment figure a lagging indicator of a rebounding economy?

DC: If you look at the way unemployment was computed until the early 1980s—something that John Williams from ShadowStats does—the numbers would indicate about 20% unemployment today. Besides, even while the population keeps rising, the number of people reported as actually working is level or even lower. Most indicators of the economic establishment, in my view, don't really make any sense. GDP, for instance, includes government spending—much of which amounts to paying some people to dig ditches during the day and other people to fill in for them at night. So-called "defense" spending is almost totally wasted capital. The practice of economics today is pathetic and laughable.

TGR: So, the economy is not rebounding?

DC: No. My take on this is that we entered what I call the "Greater Depression" in 2007. And now, because the government has printed up trillions of dollars in the last couple of years, we're in the eye of the hurricane. We've only gone through the leading edge of the storm. People think this will just be another cyclical recovery like all the others since WW II. But it's not. It's going to wind up with the currency being destroyed. It's going to be a disaster. . .a worldwide catastrophe.

TGR: You indicated that the government is using these mass infusions of made-up money to prop up the stock market due to the psychological factor—that people will think the economy's doing well because the market is doing well. However, we hear that a lot of that money has been caught up in the banks. Would you comment on that?

DC: As I said, that money has to go somewhere. The banks have been borrowing from the Fed at something like 0.5% and investing it in government securities at 2%, 3% or 4%, depending on the maturity. So, much of that money has been a direct gift to the banks; and they're basically making an arbitrage spread of 2%–4%. So, yes, that's happening with some of the money. Still, it doesn't all just sit in these Treasury securities. A great deal of it, inevitably, goes into the stock market.

TGR: You also said that psychology isn't the only reason the government wants to see the stock market go higher.

DC: Right. Pension funds have a great deal of their assets in stocks. Certainly, many funds run by government entities, such as the state and city employee pension funds, are approaching bankruptcy despite the fact that the Fed has driven interest rates to historic lows, artificially pumping up both stocks and bonds. And, I might add, keeping property prices higher than they would be otherwise. When interest rates rise eventually—and they will go up a lot—it'll be something to behold in the markets.

TGR: You mentioned John Williams who's in your speaker lineup for the Casey Research Summit, The Next Few Years. Another of your speakers is Stansberry Associates Founder Porter Stansberry, who's been making two points about the devaluation of the U.S. dollar. One point he makes in his The End of America video concerns the quantitative easing (QE) you mentioned—those trillions of dollars. But Porter also anticipates the U.S. government announcing a devaluation of the currency similar to what England did in 1970. Do you see that type of scenario occurring, as well?

DC: When the U.S. government last officially devalued the dollar in August 1971, it had been fixed to $35 per ounce to gold. In other words, before that, any foreign government could take the dollars it owned and trade them in at the Treasury for gold. Nixon devalued the dollar by raising it to $38/oz., and then to $42/oz. It was completely academic, anyway, because he wouldn't redeem gold from the Treasury at any price.

But because the dollar isn't fixed against anything now, the government can't officially devalue it. It's a floating market. The government's going to devalue the dollar by printing more of the damn things and letting them lose value gradually—actually the loss will no longer be gradual, but quite fast from here on out. But it's not going to do so formally by re-fixing the dollar against some other currency or against gold. I'm not sure Porter's phrasing it in the best way, but he's quite correct in his conclusion and his prescriptions as to how to profit from it. At this point, the dollar is nothing more than a floating abstraction, an IOU nothing on the part of a manifestly bankrupt government.

TGR: Another abstraction is the fact that the Treasury says the money it is printing has a multiplier effect when it gets into the U.S. economy, so it can pull those dollars back when the time comes. Is that a viable alternative to offset the devaluation caused by printing more money?

DC: You have to look first at the immediate and direct effects of what the government's doing, and then at the delayed and indirect effects. And sure, just as it's injecting all this money into the economy—mainly by the Fed buying U.S. government bonds—theoretically, it can take it out of the economy by doing the opposite. But I just don't see that happening.

TGR: Why not?

DC: One of the reasons is that the U.S. government, itself, is running annual trillion-dollar deficits as far as the eye can see. I think those deficits will go higher—not lower. So, where's that money going to come from? Where will it get trillions of dollars to fund the U.S. government every year?

China isn't going to buy this paper and Japan will be selling its U.S. government paper because, if nothing else, it'll need to buy things to redo the northeast part of the country. Nobody else is going to buy that trillion-dollar deficit either, so it'll have to be the Federal Reserve. In fact, the Fed will have to buy much more and, therefore, create more money. That's what happens.

TGR: This currency crisis isn't unique to the U.S. You just brought up Japan. And aren't all the European countries doing the same thing?

DC: The U.S., unfortunately, is not unique. This is going to be a worldwide catastrophe. It's been a disaster for every country that's done this in the past—Zimbabwe, Germany, Hungary, Yugoslavia and countries in South America—but those were within only those particular countries. In most of those cases, people never trusted their governments; so, they had significant assets outside the country in a form other than the local currency. The problem now is that the U.S. dollar is the world's currency and all of these central banks own USDs as the backing for their own currencies. All these other countries will wind up finding that they don't have any assets after all. That's going to happen all over the world.

TGR: With countries around the globe facing the same issue, should anyone hold currencies?

DC: No. Sure, you need local currency to go to the store and buy a loaf of bread. But for liquid assets you're trying to save, it's insane to own currencies at this point because they're all going to reach their intrinsic value. I've been recommending for many years that people buy gold and own gold for their savings—serious capital they want to put aside in liquid form. With gold now over $1,500/oz. and silver at $48, people who followed that advice have made a lot of money. That's the good news. The bad news is that very few people have done so. Newbies to the game are paying $1,500/oz. for gold. It's going higher, but it's no longer the bargain that it was. The important thing to remember, though, is that gold is the only financial asset that's not simultaneously someone else's liability. That's why it's always been used as money and why it's likely to be reinstituted as money.

TGR: From your viewpoint, how does a person with any wealth preserve it during this tumultuous period other than by investing in gold?

DC: Frankly, I don't know. I own beef and dairy cattle, which are a good place to be; but that's a business, and it's not practical for most people. I think it boils down to gold.

TGR: But what investments should they be looking at these days?

DC: There really aren't investments anymore. With trillions of newly created currency units floating around the world, things will become very chaotic and unpredictable shortly. It's very hard to invest using any kind of Graham-and-Dodd methodology when things are that chaotic. Whether you like it or not, you're going to be forced to be a speculator in the years to come. A speculator is somebody who tries to capitalize on politically caused distortions in the marketplace. There wouldn't be many speculators, or many of those distortions in the marketplace, if we lived in a free-market society. But we don't.

TGR: So, speculation will supplant value investing?

DC: Well, investing is best defined as allocating capital in a way that it reliably produces more capital. The government is going to make that quite hard in the years to come with much higher taxes, much higher inflation and draconian regulations. You will actually be forced to speculate. That's a pity, from the point of view of the economy as a whole. But I kind of like it, in a way. Few people know how to be speculators, so I should be able to make a huge amount of money in the next few years. Unfortunately, it'll be at a time when most people are losing their shirts. But I don't make the rules. I just play the game.

TGR: As you look over the next year or two with your speculator hat on, what sectors do you expect to experience the most distortion and, therefore, offer the most opportunity for the speculator?

DC: One sure bet is the collapse of the U.S. dollar. Always bet against the USD and you'll be on the winning side of the trade. A very direct way to make that bet is by shorting long-term U.S. government bonds because, eventually, interest rates will go to the moon, which means bond prices will collapse.

You can also look at the precious metals because, at some point, when people panic into them, their price curves will go parabolic. Mining stocks are likely to draw a lot of money, so they could go wild as they have many times over the last 40 years.

TGR: Your summit has presentations scheduled on silver, gold, currencies, Asia, real estate, agriculture and even more. What do you expect to be the major takeaway this time?

DC: What we're facing now is something of absolutely historic importance—the biggest thing that's gone on in the world since the industrial revolution. Many things will be completely overturned in the years to come. What's happening now in the Arab world, with all of these corrupt kleptocracies being challenged and overthrown, is just the beginning. We haven't seen the end of this in any of these countries—Tunisia, Egypt, Syria, Algeria. Of course, Saudi Arabia will be the big one. Everything's going to be overturned. And all these stooges that the U.S. government has been supporting for years could very well lose their heads. It's going to be the most tumultuous decade for hundreds of years, bigger than what happened in the 1930s and 1940s.

TGR: Any last things you'd like to tell our readers?

DC: Yeah. Hold on to your hats. You're in for a wild ride.
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Posted by Mike Gupton at 7:15 PM 0 Comments

Friday, April 29, 2011

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

April 29, 2011
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"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
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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.
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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.

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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.

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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.
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Posted by Mike Gupton at 7:59 PM 0 Comments

Friday, April 29, 2011

Caution Light on For Silver and Gold Prices

Thursday, April 28, 2011
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Gold Price Close Today : 1530.80
Change : 14.20 or 0.9%

Silver Price Close Today : 47.520
Change : 1.562 or 3.4%

Gold Silver Ratio Today : 32.21
Change : -0.786 or -2.4%

Silver Gold Ratio Today : 0.03104
Change : 0.000739 or 2.4%

Platinum Price Close Today : 1841.20
Change : 18.20 or 1.0%

Palladium Price Close Today : 776.50
Change : 11.50 or 1.5%

S&P 500 : 1,375.13
Change : 1.47 or 0.1%

Dow In GOLD$ : $171.84
Change : $ (1.12) or -0.6%

Dow in GOLD oz : 8.313
Change : -0.054 or -0.6%

Dow in SILVER oz : 267.79
Change : -8.35 or -3.0%

Dow Industrial : 12,725.40
Change : 34.44 or 0.3%

US Dollar Index : 73.12
Change : -0.404 or -0.5%

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Sorry I sent no commentary yesterday, but I was finishing my monthly Moneychanger newsletter for paid subscribers, who can log in to www.the-moneychanger.com and pick up the April issue.

Listening to Ben Bernanke today quoted from his press conference yesterday, I was amazed how incompetent he sounded, stuttering like someone telling an uncertain lie. If he's the best the central bankers have, their gunwales are deeper under water than I even I suspected.

He announced yesterday that his imagination has been surgically removed. At least, that is MY turn on his idiotically continuing the Keynesian nostrums that have so long and with such historical uniformity failed. Poor boy doesn't have imagination enough to think of anything else. What a punishment, to be subjected to a goof like that!

The US DOLLAR, taking its cue from Bernanke's announcement yesterday that he would surely keep interest rates low and thereby assuring he would keep on inflating, sank like a lump in a churn. Y'all remember that more than any other factor, interest rates determine currency exchange rates. Euro managers raise euro interest rates, Bernancubus suppresses dollar interest rates, and surprise, surprise, the scrofulous buck sinks against the scabrous euro. It's the Clash of the Midgets, seeing who can slither down the drain first.

Whooo. That felt good. Now, back to the buck.

Today the US dollar index sank another 40.4 basis points (0.52%) on top of the 53 basis points it threw away yesterday. Trading now at 73.115 on its way to 40 [sic]. Get this: Bernard O'Bama and the Bernanculus are gutting your dollars to please their masters and keep the parasitism dribbling along a while longer. If that don't make you howling mad, you have no mad gland.

Euro rose like your mama's house guest sitting on a whoopee cushion (I bet you got one memorable whipping for that!). New high for the move at 1.4817 Yen rose 0.8% to Y81.54/$ (122.64c/Y100).

Let me put this stock thing in perspective for y'all. Stocks are now maybe 20% above December 2010, yet against gold they have actually dropped. Against silver they have dropped a lot, down to 90% of their June 2003 peak value. Y'all see now? I don't want your stocks, because they are like those smoke bombs they sell for July 4th -- all smoke and noise, no bang. In fact, stocks remain the government-approved, OSHA-safe imitation cherry bomb in Tennessee Bob's Wholesale Fireworks Investment Store. And will remain.

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Today the Dow rose 34.44 to 12,725.40, hand in hand with the S&P500 which didn't exactly rise, but, well, barely lifted itself up on the ball of its foot 1.47 points to 1,357.13. Oddly -- he always says that when he sniffs blood somewhere -- all the other indices fell. That's confusion, and confusion doesn’t make for strong markets.

I know some of y'all are going to get madder than a wet wasp, but I have to flip the switch on the caution light on SILVER and GOLD PRICES. After the Bernancubus glued the accelerator pedal to the floor yesterday, silver and gold prices took off wildly. But bear in mind that it is not unusual for the SILVER PRICE to top one day, then the GOLD PRICE to top a few days later. Key is that the Gold/Silver ratio, after a new low 25 April at 31.996, shot up to 33.36 the next day. In all silver and gold's recent upside downs, that hasn't happened. But maybe I am only nervously anticipating when I ought to be contentedly enjoying. Still, a live dog is better than a dead lion.

Today the gold price made a new intraday high at $1,538.30 and a new closing high (all-time since the beginning of the cosmos) at $1,530.80, up $14.20 on Comex. Low came at $1,524.10. In the aftermarket gold's playing footsie with $1,536.

Only target I have to work off is that upside down head and shoulders gold broke out of. That points to $1,525 - $1,557. The gold price would have to close below $1,505 to invalidate this rally.

Ohhh, I HATE parabolas, and silver's chart clearly shows one. They are rally killers, and on this drive the silver price will need every sinew and ounce of strength to burst through that historic brick wall at 5000c per ounce. If it does, it will run straight skyward.

Yet -- O, absolve me, Silver Bugs! -- I had rather capture my silver profits now by swapping silver for gold and miss part of that move, than see the reaction take them all away. Swapping for gold, I will at least get to swap back for MORE silver when the ratio rises. Not swapping, I will only get to cherish the warm, fuzzy memory of reading all those Internet gurus who convinced me the silver price will reach $100 by next Friday.
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The SILVER PRICE has a threatening double top, reached Monday and today, at 4982c and 4950c. The silver price must clear 5000c immediately and not fall below 4725c, or succumb to the Kryptonite of fifty bucks. This situation is as full of tension as your cheeks when you suck on to a firehose. Here it shall not remain, but must advance or fall back.

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Posted by Mike Gupton at 7:44 PM 0 Comments

Thursday, April 28, 2011

Best Way to Buy Silver

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Thursday April 28, 2011:

One way to buy silver for investment and to conserve assets is actually by buying silver rounds. With the value of silver on the rise, this is a very wise thing to look at.

Mint coins are probably the most expensive way to buy silver. There is a premium or mark up over the spot price of silver and it can take some time to make up this additional cost. In terms of a return on investment it is not very fruitful.

Bars are better, especially the larger bars, where the premium is substantially less. If you are interested in silver purely as an investment, then certificates or exchange traded funds are another way to go. The cost of purchase and redeeming the silver is less and are a better proposition in terms of investment as you do not have to take delivery, store and on sell the silver yourself. It is all done through paperwork essentially.

However the drawback here is the tax considerations as these are considered an investment and virtually all investments incurs a capital gains tax and possibly other taxes as well as they are considered investment rather than collecting silver as a hobby.

But if you like the idea of coins and bars and enjoy it more as a hobby than as a serious investment then there are many delightful coins to collect and, over time, you are still likely to improve your asset holding in silver as the value continues to increase. KMG Gold Recycling

If you are collecting coins then some of the best are the American Silver Eagle for example where the coin is pure silver. The American Silver Eagle is established as legal tender of course but the face value does not match the silver content. The Territorial Mint in the US also produces silver rounds with a low premium as well.

If you are buying silver bars at an auction, such as eBay.com for example, then it is a good idea to stay the smaller one and 10 ounce bars. The 100 ounce bars can easily be counterfeit by drilling holes in the side, filling the bar with lead and covering up with silver again and these are almost undetectable without cutting the bar in half.. With the smaller bars this is not a worth while activity so holding a dozen or so 10 ounce bars is preferable to holding one 100 ounce bar

Buying silver bars from a mint is a different thing of course. You get a certificate and the bar is sealed in its own protective plastic capsule and this should be unbroken when you get it and should remain so throughout the bars life.

Pure silver products 999 percent fine are produced by Mints around the world with 1 ounce coins and bars ranging from 1 to 1000 troy ounces. All the coins should be hallmarked with the purity and weight of the coin.

To buy silver can be a great hobby as well as a excellent long term investment. Silver was it its hey day during the 80s and dropped heavily over the subsequent year but now is making a big come back as there is a general shortage of silver world wide and the use of it increasing. Silver is now on a rising trend, so having some information about the best way to buy silver is a good idea indeed. KMG Gold Recycling
Posted by Mike Gupton at 6:00 PM 0 Comments

Thursday, April 28, 2011

Gold Price Closed at 1516 Silver Price Closed at 45.96

Wednesday, April 27, 2011

Gold Price Close Today : 1,516.70
Change : 13.70 or 0.9%

Silver Price Close Today : 45.96
Change : .91 or 2.0%

Platinum Price Close Today : 1,825.20
Change : 12.80 or 0.7%

Palladium Price Close Today : 757.80
Change : 2.40 or 0.3%

Gold Silver Ratio Today : 33.00
Change : -0.36 or 0.99%

Dow Industrial : 12,595.37
Change : 115.49 or 0.9%

US Dollar Index : 73.30
Change : 73.30 or 100.0%
Tags gold price 
Posted by Mike Gupton at 5:42 PM 0 Comments

Wednesday, April 27, 2011

Gold and Silver Coins are Money

KMG Gold Recycling
Gold Price Close Today : 1503.00
Change : (5.60) or -0.4%

Silver Price Close Today : 45.050
Change : (2.099) or -4.5%

Gold Silver Ratio Today : 33.36
Change : 1.366 or 4.3%

Silver Gold Ratio Today : 0.02997
Change : -0.001280 or -4.1%

Platinum Price Close Today : 1804.50
Change : -20.10 or -1.1%

Palladium Price Close Today : 751.90
Change : -7.90 or -1.0%

S&P 500 : 1,347.24
Change : 11.99 or 0.9%

Dow In GOLD$ : $173.23
Change : $ 2.24 or 1.3%

Dow in GOLD oz : 8.380
Change : 0.109 or 1.3%

Dow in SILVER oz : 279.59
Change : 14.90 or 5.6%

Dow Industrial : 12,595.37
Change : 115.49 or 0.9%

US Dollar Index : 73.77
Change : -0.231 or -0.3%

It pays always to keep your eyes on the horizon, so that the confusing details around you assemble themselves into a larger picture.

From a friend in Iowa I received an email reporting that a friend had gone to buy a US$7,300 piece of farm equipment. When it came time to pay, his friend asked the dealer, "Do you want paper, silver, or gold?"

The dealer brightened and said, "Silver, and I'll give you a discount if you pay in silver."

Behold, the new economy! Here behold the goal and means to free ourselves of the Federal Reserve's fiat money tyranny and economic slavery: we stop using their phony private money and return to [quite legal and constitutional] gold and silver money. We remove ourselves from the economic storms caused by their rotten currency and crooked banking and we rebuild our local economies on a sound silver and gold basis.

Just try it. Next time you pay, ask the person whether they want paper, gold, or silver. See what happens. Worst they can say is NO.

Also, the ever-sagacious Catherine Austin Fitts and I teamed up to create www.silverandgoldaremoney.com. There you can punch in any US dollar amount and in real time convert that to a payment in US 90% silver coin, US gold or silver American Eagles, or a host of non-US gold and silver coins and bullion.

Next time you hand somebody green paper dollars or a credit card, just remember: you are forging your own chains.

And forget the US government threats and persiflage: you have a constitutional and common law right to contract for any payment you please. More than that, all gold and silver coins ever minted by the US government remain "legal tender." Using gold and silver coin is not "bartering", it's MONEY.

You forge your own chains.

MARKETS TODAY:

We trod not the office steps yesterday, but observed for Easter Monday. Considering yesterday's fireworks, that probably was a great idea.

I know y'all only want to know about silver and gold, but be patient: it all works together.

THE US DOLLAR INDEX has sunk 32.3 basis points since last Thursday, from 74.096 to 73.773. Today alone it lost 21.3 more bp, 0.27%.

Yet look not smugly on. Today the dollar formed a falling wedge, which promises that tomorrow, if it breaks not below 73.744, 'twill rise tomorrow.

And that would surprise. Breaking down past the last low, 73.74, and the December low, 74.23, targets the dollar for 72 or lower. The scabrous euro took advantage of the buck's swoon to rise to another new high for the move (ho-hum) at 1.4643, up 0.77%. Even the yen has gapped up and headed higher. Today it's trading at Y81.55/$ (122.62c/Y100).

Only sign this situation might turn around is that falling wedge on the dollar's daily chart.

Baldly stated, I don't believe the stock market, or more precisely, I DISbelieve the stock market. No economic reason exists for its rise, except the Fed and other central banks pumping out zillions of new money which all runs straight into financial markets. Add to that the Nice Government Men on the Plunge Protection Team steadily meddling in the market, following the Spirit of Potemkin to keep up a cardboard front screening the real and rotten economy.

Today the Dow rose to a new high for the move, 12,595.37, up 115.49. The S&P500 rose 11.99 to 1,347.24.

Hey, here's an idea! Instead of investing your money in stocks, why not take a couple hundred thousand bucks out into your back yard, bury it, and see if a money tree comes up?

There are very few overnight certainties in markets, but it appears that yesterday silver turned down, and gold will probably break as well.

The SILVER PRICE sank 10.5% from its 4985 high Monday to a 4464.7c low. One expects to see that sort of move on a trend reversing day.

I hasten to add that this is no certainty, as every forecast dwells in a foggy nimbus. But a quick calculation shows that if this is the break, then the target might be 3360.

Y'all must bear in mind that the more overhyped and overblown a market becomes, the more severe the following reaction. Every hedge fund in the world has hopped on to silver, and they have almost as much loyalty as a 1915 Irish draftee in the British army. They will dump silver by the truckloads as soon as they sniff a break.

The naïve think this is terrible, that the bull market has ended, that it proves silver is in a bubble. Nothing could be further from the truth. It is a normal process in every market, and clears away the grotesque over-optimism to make way for another advance.

Biggest argument AGAINST a correction in precious metals remains GOLD. It sank a paltry $5.60 today to close Comex at $1,503.00, but that offered no damage. The SILVER PRICE on the other hand fell 209.9c to 4505c, down 4.5% in one day. The gold/silver ratio fell 4.26%, too.

Once the gold price crosses that $1,500 wall protecting investor morale, it will tumble, too. Target there might be $1,445.

On the upside, the silver price needs to close over 5000c and gold above $1,525 to suggest that this rally hath yet legs.

On this day in 1983 the Dow Jones Industrial Average broke 1,200 for the first time. I recount that incident to impress upon y'all's minds how far markets can outrun our imagination. The ultimate Dow High was 11,722, about ten times that 1983 figure.

In Florida and Georgia today is Confederate Memorial Day. It was yesterday in Mississippi.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought. KMG Gold Recycling

Posted by Mike Gupton at 7:49 PM 0 Comments

Wednesday, April 27, 2011

Have Silver Prices Gone Parabolic - The Kinder Term for Bubble?

KMG Gold Recycling 11/04/27:  ". . .1980 was 5 times faster."

This essay will attempt to address the question of whether or not silver prices are in a bubble, or possibly may be turning into a bubble; and if so, what trading strategies may be suited to the situation. This article will hopefully provide another string to the readers bow in attempting to identify bubbles and being able to protect one's portfolio and even potentially profit from them. For the record, we feel it is prudent to state our view upfront, we do not think silver is in a bubble at this point in time. However we think that it is likely that it will become a bubble in the future, but we cannot say when or at what price.

Asset price bubbles have occurred since the beginning of financial markets and will continue to do so as long as there remains a marketplace for assets to be traded. A key property of a bubble is that is it near impossible to identify with certainty before it pops, but once it does pop the bubble is apparently obvious to everyone. In our opinion, only those who risk capital and profit betting against a bubble can claim to have correctly identified one.

KMG Gold Recycling, Silver Investing Chart 1

A casual glance at the chart could leave an impression that history is going to repeat itself and silver prices are about to crash. However in order to not only successfully identify bubbles but also profit from them, one will need to know the tipping point. This is the point at which the bubble is unsustainable and begins to breakdown.

There are many factors which contribute to the emergence of bubbles and one would need to look at a myriad of factors to determine when a bubble may pop. We will focus on just one in this article, momentum. In finance, momentum is the empirically observed tendency for rising asset prices to continue to rise. We are attempting to gauge when silver may run out of momentum and when this bull market will turn into a bubble and ultimately pop.

Whilst some may consider it crude to study momentum as opposed to fundamentals such as supply and demand, we feel that it is vitally important from both a psychological and technical standpoint. Psychologically if investors are used to silver prices increasing 30% per year and then silver prices only increase at a rate of say 15% for one year, psychologically this return looks poor on a relative basis, even though it is still positive and normally would leave many investors satisfied. Therefore there is a greater incentive to sell silver since it is not performing as well as it was in the past. Technically once a bubble is fully underway prices begin to rise in a parabolic or exponential fashion. If the price ceases to rise in an exponential fashion, selling will commence, even if the price is still rising, since investors will have extrapolated the exponential rise and so anything short of parabolic will not meet their expectations.

The most recent example of this was in the housing bubble. Prices didn't actually have to fall at all to trigger a crash, all they had to do was plateau or rise sluggishly and this would spark selling by people who had bet on prices continuing to rise. Without continually rising prices real estate investors could not refinance and borrow more against their properties to buy additional properties or other assets, so the buying stopped and the selling began. This was when the bubble popped; this was the tipping point before the actual crash that many investors strive to identify.

So how does this relate to silver? Although we believe that silver does indeed have strong fundamentals, we do think it is likely that the metal will become drastically overvalued in the future as a result of speculative buying by the masses. In an attempt to measure the momentum behind silver and when this momentum will run out, we have analyzed the rate of silver prices increases over the last 50 years or so, since 1968.

The chart below shows the rolling 100-day percentage change in the silver price. This is not a perfect measure of momentum, but it's a start.

KMG Gold Recycling, Silver Investing Chart

As you can see, during the blowoff in 1980, silver prices were increasing at a rate of roughly 400% per 100 trading days. This compares with a current rate of increase of approximately 73% per 100 trading days. So if you think silver's current rally is going at a nose bleed pace, in the 1980 blowoff silver prices were increasing 5.47 times faster than they are at the moment.

So far it appears that the rate of increase in silver prices at present is still below the relative rate of increase in 1980, therefore implying there is further upside. However this analysis doesn't take into account that the Bunker-Hunt brothers were attempting to corner the market for physical silver in the late '70s, a buying force which is not present today. Therefore one should err on the side of caution when using this barometer for trading purposes as it may not reach 1980 levels. But at present the barometer isn't even close, so we do not think silver is in bubble at the moment. KMG Gold Recycling

The chart below best shows how silver is far from in a bubble yet. We have smoothed the 100 day percentage change and overlaid the nominal silver price.

KMG Gold Recycling, Silver chart 3

As shown by the blue line still being relatively low in contrast with 1980, there is still a great deal of upside potential for not only the silver price itself, but the rate at which silver prices are increasing. When both the blue and red lines are parabolic, then a bubble argument can be made.

As always the most important part of any discussion of the financial markets is how one should deploy capital. Whilst a silver bubble is not yet upon us, we are going to suggest some trading strategies that could offer attractive risk-reward dynamics should a bubble scenario unfold.

Many people would be inclined to take a short position if they believed silver was drastically overvalued and in a bubble. However in our opinion this is not a particularly attractive trade. Whilst of course the investor will make money if silver prices fall, the investor is also open to unlimited liability on the upside and should silver prices continue to rise substantial losses could be incurred. Taking an outright short position via futures or short selling silver stocks implies that one believes that one's timing is spot on. In reality nobody can ever have perfect timing so it makes sense to allow for some error in your judgement when placing the trade.

This is important when placing any trade but particularly crucial where bubbles are concerned since the market is moving in extreme ways. In the 1980 blowoff, silver was increasing at a rate of over 100% per 30 days, anyone who was short would've got wiped out just for being 30 days too early.

However by utilizing options the trader can take a position that will benefit from an imploding silver bubble but offers much better risk-reward dynamics than being outright short. There are two basic trades that we think would be attractive under such a scenario.

The first is allocating small amounts of capital to near term 'out of the money' puts. By purchasing puts that are say three months or less from expiration and at least 25% out of the money the investor is effectively buying insurance against a crash in silver prices. If silver prices plummet then the value of the puts will explode, but if prices keep soaring the downside is strictly limited to the premium paid for the put. If this trade is placed prematurely, it can be placed again in another few months, and again and again so long as the trader holds the view that silver prices are going to crash. If the view is correct then the eventual payoff will more than cover the cost of being too early in buying the initial puts.

The second trade is a longer term trade that involves selling at the money call vertical spreads which are more than a year from expiration. This expresses the view that prices are not sustainable in the longer term and therefore by the time the call options expire they will likely be worthless due the fall in silver prices. Additionally, if prices were spiking higher it is likely that call options would be being bought heavily by speculators, thereby inflating their premiums. By selling these call spreads one would benefit from a fall in silver prices and a reduction in call buying/increase in call selling by speculators over a longer term time period, without taking on unlimited risk.

We do not think either of these trades are attractive at present, we are merely pointing out that they may be in the future if a bubble scenario does unfold. For now we think it is a case of not pulling on Superman's cape so to speak and letting silver run. If silver's rise is going to be even half as fast as that of 1980 then it could still rise twice as fast as it is at present before blowing off.
KMG Gold Recycling
Posted by Mike Gupton at 6:06 PM 0 Comments

Tuesday, April 26, 2011

Gold & Silver Investment Merely "Routine Speculation" at Record-High Prices as US & Irish Debt Quality Openly Challenged

The Gold Price recovered an overnight dip below $1500 per ounce in London on Tuesday, trading less than 1% shy of yesterday's new all-time high at $1518 as European stock markets rose together with major government bonds and energy prices. Live gold, silver, platinum, and palladium prices available at KMG Gold Recycling

After Monday's "explosive" Asian trade and near-$4 price range per ounce, "Silver showed further weakness" according to one Hong Kong dealer, "stretching [his] expectation about how volatile it could be."

At today's London Fix – set at $45.48 per ounce – the price of Silver Investment bullion had only been higher on four days in history, three of them amid the Hunt Brothers' Corner of Jan. 1980, and the other being Thursday last week.

"Despite silver setting new nominal record highs in the past week, the Comex net long position [in silver futures contracts] is far from record levels," says the latest Precious Metals Weekly for ABN Amro from the VM Group in London, "implying that [London-centered] physical trade is driving the price."

Friday and Monday's Bank Holidays in the US and UK meant "markets had a chance to go wild on thin volumes," says one London dealer, but after surging to new record highs gold settled last night at $1510 per ounce – the first drop in 8 trading days, as Russell Browne at Scotia Mocatta notes.

Silver Prices saw a "long legged Doji" chart pattern, Browne adds, "warning of a possible reversal" by touching new highs intra-day but falling back to end the session unchanged.

"There is some good, old-fashioned...[and] routine speculation...in the few commodities that can be stored, like gold," writes Jeremy Grantham, co-founder and chief investment strategist of the $107 billion GMO asset manager, in his latest letter to clients.

"[But] I believe this is a small part of the total pressure on [raw material] prices, and the same goes for low interest rates. [Instead] we have gone through a profound paradigm shift in almost all commodities, caused by a permanent shift in the underlying fundamentals" as limited supply meets vastly increased demand from Asia's fast-emerging economies.

"Statistically," says Grantham, "most commodities are now so far away from their former downward trend that it makes it very probable that the old trend [of steadily falling input prices] has changed.

"[This is ] perhaps the most important economic event since the Industrial Revolution."

Monday saw shares in Barrick – the world's largest listed Gold Mining stock – lose 5% after it successfully bid 14 times last year's earnings at take-over target Equinox, a copper miner.

Asian investors also sold Chinese loser Minmetals, however, driving it 12% lower in Hong Kong, after it said "the price offered by Barrick is above our most optimistic assessment of value... [and] would, in our view, be value destructive for [our] shareholders."

Over in Venezuela, meantime, 20 armed robbers broke into, seized control of, but failed to steal any gold from the El Callao facilities of Russian Gold Mining firm Rusoro.

"They did get into the storage area but they were unable to open the armored security safes" before fleeing the scene, Rusoro's local security chief told Globovision TV.

In the credit markets, a new report from Deutsche Bank ranks the US government as the world's fourth riskiest sovereign borrower, behind Greece, Ireland and Portugal, and just ahead of Italy.

Here in London on Tuesday, UBS's City office asked the decisions committee of the International Swaps & Derivatives Association to say whether the Irish government's new Credit Institutions Act signals a "restructuring credit event" for Anglo Irish Bank.

The Act orders AIB to buy back certain "subordinated liabilities" from bondholders, potentially triggering bets against the bank's debt known as credit default swaps.

Yields offered to new buyers of Irish, Greek and Portuguese debt all rose to new post-Euro records on Tuesday morning, as prices continued to fall.

Live gold, silver, platinum, and palladium prices available at KMG Gold Recycling
Posted by Mike Gupton at 5:14 PM 0 Comments

Tuesday, April 26, 2011

Gold prices fall in New York; first decline in over a week

The price of gold fell Tuesday in New York, the first day of declines after eight sessions in a row of gains and ending a run of six sessions that ended with record high closing prices. London Fix prices available at KMG Gold Recycling

June gold dropped $5.60 to $1,503.50 per troy ounce on Comex after going as low as $1,492 per troy ounce right after the Conference Board reported that US consumer confidence was up this month with a reading of 65.4 in April after being at 63.8 in March.

The declines came on corporate earnings reports in the US that were largely positive, the better consumer confidence levels, and on some profit taking after the recent gains.

In addition, investors waited to see what the US Federal Reserve’s Open Market Committee will do about US interest rates at the end of its two-day meeting, which will end Wednesday, and if Fed Chairman Ben Bernanke will use a rare press conference to announce the end of the Fed’s program to buy Treasury bonds in June.

May silver dropped $2.10 to $45.05 per troy ounce after closing at $47.15 per troy ounce on Monday on record trade volumes, while July platinum was down $22.70 to $1,805.40 per troy ounce and June palladium was $5.10 lower to $755.70 per troy ounce.

On the other hand, copper added 2 cents to $4.32 per pound in New York trade on data showing that China imported 21.5 percent more copper in March than it had in February.
Posted by Mike Gupton at 5:10 PM 0 Comments

Monday, April 25, 2011

American Eagle Gold Coins: A Marketing Perspective For Alloyed (Scrap) Gold Coins

Over the years, the gold Eagle from the US mint have become the USA’s most popular bullion coin, and our biggest gold coin seller by far. Each 1-ounce gold Eagle contains a full 31.1 grams of pure gold, with an additional alloy of silver and copper, bringing the total weight up to about 33.9 grams. KMG Gold Recycling buys and sells American Eagle gold coins.

However, gold coins below 99.5% pure gold are subject to GST, HST and PST in Canada, and as such these coins are not as valuable as Royal Canadian Mint 9999, or 99.99% pure gold, gold Maple Leaf coins. 9999 gold coins and bars are not subject to GST, HST or PST in Canada.

Canadians do not favour alloyed gold coins such as Sovereigns, Krugerrands and American Eagles because they have to pay tax on their bullion investments. But according to the following from an American dealer, Americans love the Eagle gold coin.

Gold Eagles from the U.S. Mint are the most popular gold bullion coin in this country, and now make up over 80% of the U.S. physical gold bullion market. This bullion product has been a tremendous success for the U.S. Mint.

For both large and small purchases, gold Eagles are our biggest seller in gold bullion. And, although in the long run it may not matter which form of gold bullion you decide to purchase, there are good reasons for buying Eagles:

They are low-cost bullion products that are easy to buy and sell at reasonable price spreads.

They are easy to store, because they're issued in space-saving Treasury tubes, instead of the more cumbersome individual packaging that comes with all sizes of Kangaroos, Dragons, Pandas, and the fractional-size Canadian Maples.

They are made of tough 22karat gold (91.7% pure), a much more scuff-resistant material than the pure (99.9% or better) forms of bullion.

Some of the various sizes of gold Eagles may have a value to collectors in the future based on their scarcity. A strong after-market has already developed as collectors look to complete their sets going back to 1986 - particularly scarce are some of the low-mintage half- and quarter-ounce gold Eagles from the early 1990's.

Eagles are struck bearing a modified version of a design by Augustus St. Gaudens which graced the old $20 U.S. gold coins issued from 1907 to 1933.

The one ounce size Eagle is very close in size to the older $20 coin, but was arbitrarily assigned a nominal face value of $50. Logically, the tenth-ounce version has a $5 face value, and the half-ounce a $25 value.

But, following the lead of the Royal Canadian Mint in dismissing with any common sense in assigning legal tender valuations to gold bullion coins, the Mint slapped a $10 face value to the quarter-ounce Eagle. Of course, any school-child could have pointed out 1/4 of $50 is $12.50, but the committee that decided to call it $10 obviously lacked even one bright child among them.

We recommend gold Eagles as our first choice for gold bullion purchases in the U.S. Gold Eagles are also the largest component of our U.S. Treasury gold portfolio. The coins featured here, and in our U.S. Treasury gold portfolio, are all Mint-fresh current year dated gold bullion Eagles.

For larger purchases, gold Eagles come from the Mint in original sealed high-impact plastic boxes weighing approximately 40 pounds. Each box contains 500 pure ounces of gold in one size, with the coins packed tight in sealed Treasury tubes.

The one-ounce Eagle box contains 25 tubes of 20 coins each.

The half-ounce Eagle box contains 25 tubes of 40 coins each.

The quarter-ounce Eagle box contains 50 tubes, with 40 coins in each.

The tenth-ounce gold Eagle box has 100 tubes, with 50 coins in each tube.

The one-ounce gold Eagle has a $50 nominal face value, is 91.67% fine gold, and weighs 1.0909 troy ounces. The most popular size bullion coin, it is issued 20 coins per Treasury tube. Its diameter is 32.7 mm, thickness 2.87 mm.

The half-ounce gold Eagle has a $25 nominal face value, is 91.67% fine gold, and weighs .5455 troy ounce. The least popular size bullion coin, and often the lowest mintage, it is issued 40 coins per Treasury tube. Diameter is 27mm, thickness 2.15mm.

The quarter-ounce gold Eagle has a $10 nominal face value, is 91.67% fine gold, and weighs .2727 troy ounce. About the size of a nickel, it is popular in jewelry. It is issued 40 coins per Treasury tube. Its diameter is 22mm, its thickness 1.78 mm.

The tenth-ounce gold Eagle is a $5 face value coin, 91.67% fine gold (22 karat), and weighs .1091 troy ounce. Smaller than a dime, it is a popular small gift item. It is issued 50 coins to a Treasury tube. Diameter 16.5 mm, thickness 1.26mm.

KMG Gold Recycling buys American Eagle gold coins.

Posted by Mike Gupton at 6:47 PM 0 Comments

Monday, April 25, 2011

More Facts On Various Thermocouple Types

Thermocouples are temperature sensors suitable for use with any make of instrument designed or programmed for use with the same type of thermocouple. KMG Gold Recycling recycles all types of platinum and rhodium style thermocouple wire.

Thermocouples are based on the principle that when two dissimilar metals are joined a predictable voltage will be generated that relates to the difference in temperature between the measuring junction and the reference junction (connection to the measuring device). The selection of the optimum thermocouple type (metals used in their construction) is based on application temperature, atmosphere, required length of service, accuracy and cost.

When a replacement thermocouple is required, it is of the utmost importance that the type of thermocouple type used in the replacement matches that of the measuring instrument. Different thermocouple types have very different voltage output curves. It is also required that thermocouple or thermocouple extension wire, of the proper type, be used all the way from the sensing element to the measuring element. Large errors can develop if this practice is not followed.

A variety of thermocouples today cover a range of temperature from -250 C to +3000 C. The different types of thermocouple are given letter designations: B, E, J, K, R, S, T and N

Types R,S and B are noble metal thermocouples that are used to measure high temperature. Within their temperature range, they can operate for a longer period of time under an oxidizing environment.

Type S and type R thermocouples are made up of platinum (Pt) and rhodium (Rh) mixed in different ratios. A specific Pt/Rh ratio is used because it leads to more stable and reproducible measurements. Types S and R have an upper temperature limit of +1200 C in oxidizing atmospheres, assuming a wire diameter of 0.5mm.

Type S and type R thermocouples are made up of platinum (Pt) and rhodium (Rh) mixed in different ratios. A specific Pt/Rh ratio is used because it leads to more stable and reproducible measurements. Types S and R have an upper temperature limit of +1200 C in oxidizing atmospheres, assuming a wire diameter of 0.5mm.

Type B thermocouples have a different Pt/Rh ratio than Type S and R. It has an upper temperature limit of +1750 C in oxidizing atmospheres. Due to an increased amount of rhodium content, type B thermocouples are no quite so stable as either the Type R or Type S.

Types E, J, K, T, and N are base-metal thermocouples that are used for sensing lower temperatures. They cannot be used for sensing high temperatures because of their relatively low melting point and slower failure due to oxidation.

Type B thermocouples have a different Pt/Rh ratio than Type S and R. It has an upper temperature limit of +1750 C in oxidizing atmospheres. Due to an increased amount of rhodium content, type B thermocouples are no quite so stable as either the Type R or Type S. we will look into some differences between different base-metal thermocouples.

Type E (Ni-Cr/Cu-Ni) thermocouples have an operating temperature range from -250 C to +800 C. Their use is less widespread than other base-metal thermocouples due to its low operating temperature. However, measurements made by a Type E have a smaller margin of error. 1000 hours of operation in air of a Type E thermocouple at +760 C, having 3mm wires, shold not lead to a change in EMF equivalent to more than +1 C.

Type J (Fe/Cu-Ni) thermocouples are widely used in industry due to their high thermopower and low cost. This type of thermocouple has an operating temperature range from 0 C to +760 C.

KMG Gold Recycling

Posted by Mike Gupton at 6:22 PM 0 Comments

Saturday, April 23, 2011

Effects of Gold Mining on the Environment

Gold mining is a dangerous and environmentally dubious practice for several reasons. Mining is destructive to the natural environment around mines, creates waste rock disposal problems, and uses harsh chemicals which can be significant sources of waste and harm to workers and nature. The industry is now changing to promote sustainability and environmental best practices, and consumer groups now exist to inform the public about the decision to buy "clean" gold. KMG Gold Recycling recycles gold, silver, platinum and palladium reducing the environmental impacts of virgin metal mining.

Types

There are several types of mining operations, all of which create environmental problems. Open pit mines create huge problems for the surrounding local landscape--dynamite and large machines are used to blast away entire mountains to unearth gold-rich ore. Tunnel type mines are also common, although the disposal of waste rock and the dangers associated with underground mining represent real environmental hazards.

Waste Rock Removal

Waste rocks present a real problem both to open pit mines and to tunnel mines, although open pit mines generate somewhere between eight and 10 times as much waste rock as tunnel mines. Typically waste rock is piled high around the mining area, as it is too costly to move far. Gold is typically contained in sulfur rich rock, which when brought to the service may contribute to acid rain. These acids leech through rock piles and liberate other hard metals, such as cadmium, lead, arsenic and mercury. This leach out, known as acid mine drainage, finds its way into the water table, creating ecosystem problems.

Heap Leaching and Cyanide Processing

Once ore rich deposits have been removed from the earth, the gold needs to be separated from the rock. The rubble is crushed into small chunks, which are piled into heaps and sprayed with cyanide. The gold and cyanide solution is collected from a membrane under the leach pile, which is then pumped to a facility where the two are chemically separated. This process consumes large amounts of cyanide, and rarely does not contaminate the surrounding environment.

Cyanide Waste

Once the cyanide and the gold are separated chemically in plants, the cyanide-containing waste must be disposed of in the proper manner. Since it takes about 18 tons of ore to create a single wedding ring, the amount of waste is considerable. These tailings contain small amounts of gold, as well as chemicals used in the extraction process as well as other metals, such as arsenic and mercury. In developing countries, these tailings are dumped.

Tailing Disposal in Developed Nations

Tailings can be disposed of using aggregate and cement, and then being dumped back down unused mine tunnels to block them, a system known as high-density waste fill. This is a relatively expensive method when compared to pond storage, the practice of depositing tailings into natural geographic depressions. However, it is environmentally advantageous because the tunnels ensure containment of the waste and also become more secure structurally, strengthening the mine.

By recycling, KMG Gold customers may have helped reduce over 400,000 tons of acidic waste rock from being generated since we started in 2007.

Posted by Mike Gupton at 5:34 PM 0 Comments

Thursday, April 21, 2011

Nasdaq to pursue NYSE bid to the "endgame"

(Reuters) - Nasdaq OMX Group (NDAQ.O) will pursue its bid for crosstown rival NYSE Euronext (NYX.N) to the "endgame" and is willing to battle for up to another year, its chief executive said.

Robert Greifeld added on Wednesday that he and partner IntercontinentalExchange (ICE.N) could put a "fully reflective" offer on the table if the Big Board parent reveals its detailed financial records to them.

Nasdaq this month joined ICE to bid $11.1 billion (6.7 billion pounds) for the New York Stock Exchange parent company, which earlier this year agreed to be acquired by Germany's Deutsche Boerse AG (DB1Gn.DE) for $9.8 billion.

Though NYSE's board rejected the higher offer from Nasdaq and ICE, the pair sweetened their bid on Tuesday with a promise to pay NYSE Euronext $350 million if regulators blocked a merger -- a pledge meant to ease the board's antitrust worries and draw them to the negotiating table.

"We are keenly aware that we were uninvited," Greifeld told analysts and media on a conference call that was scheduled to discuss Nasdaq's record first-quarter profit.

"But that has the ability to change as we put things on the table that obviously are attractive to shareholders (and that) will also be attractive to the NYSE board."

NYSE Euronext directors are set to meet on Thursday to discuss the sweetened offer from Nasdaq and ICE, though the company is unlikely to be swayed, a source familiar with its thinking said on Wednesday.

Greifeld, known as an aggressive cost-cutter, said he will continue to try to convince NYSE shareholders of the benefits of his unsolicited bid, saying they are primarily concerned that antitrust regulators will block any deal.

Nasdaq has given "reams of data" about the plan to the U.S. Justice Department, he said, adding that he has had two face-to-face meetings with department officials and expects to have a "two-way dialogue" with them in about six weeks.

The DOJ would have to sign off on any deal to merge the top two U.S. stock exchanges, which would create a virtual monopoly in listing public companies. The NYSE board said on April 10 the Nasdaq/ICE plan had "unacceptable execution risk."

Deutsche Boerse's plan to combine with NYSE Euronext, creating the world's largest exchange operator, faces its own antitrust hurdles because the combined companies would dominate exchange-traded futures in Europe.

ANOTHER OFFER?

Greifeld, a fierce rival of NYSE CEO Duncan Niederauer, said he and ICE CEO Jeffrey Sprecher "will consider all options available to us" as they go after the NYSE, adding he sees a "scenario that takes us out into April 2012."

He said he is taking a friendly approach, hinting it would be in NYSE's best interest to give Nasdaq and ICE access to its books.

"Clearly, diligence is an opportunity for NYSE shareholders to allow us to put on the table an offer that's fully reflective of the knowledge available to us," he said.

Earlier this week, Niederauer said competitors were trying to disrupt, distract and discredit NYSE Euronext, which runs markets in New York, London, Paris and elsewhere in Europe.

Nasdaq shares were down 0.4 percent at $27.30 in midday trade. NYSE Euronext shares were up 1.1 percent at $39.12.

RECORD CORE EPS

The Nasdaq Stock Market parent showed few signs it was distracted from its bread-and-butter operations during the first quarter, as robust derivatives trading boosted earnings.

Excluding one-time items, the company's per-share profit was a record 61 cents, matching analysts' average estimate as compiled by Thomson Reuters I/B/E/S.

"The takeover battle didn't appear to impact them whatsoever," said Richard Repetto, analyst at Sandler O'Neil. "Almost all revenue lines increased, and they continue to see pretty big jumps in their data centres."

Revenue rose 15 percent to $415 million, beating Wall Street expectations. Costs rose 12 percent, offset by a 26 percent rise in trading-based revenue at the U.S.-based, trans-Atlantic company.

While Nasdaq OMX's market share in U.S. stock trading was an all-time low 19 percent in the quarter, it logged a 31 percent rise in derivatives trading, helped by the market reaction to unrest in North Africa and Japan's earthquake and tsunami.

When Greifeld unveiled the NYSE takeover plan on April 1, he said record earnings in the first quarter helped make the move possible. It was the second straight record in terms of earnings per share, helped by recent stock repurchases.

Nasdaq posted net earnings of $104 million, or 57 cents per share, for the quarter, up 70 percent from $61 million, or 28 cents a share, a year earlier.

Its debt stood at $2.3 billion at the end of the quarter.

Some analysts and shareholders worry the company would end up four-times leveraged -- threatening its investment-grade rating -- if it bought NYSE Euronext's stock, options and technology operations. ICE would take the derivatives operations.


Posted by Mike Gupton at 5:16 PM 0 Comments

Thursday, April 21, 2011

Pro-Or's PGM plant might rattle shares

Recycling strategy not necessarily a platinum pick as the junior prepares to announce a $2 million private placement to fund an expansion of its Quebec plant.

MONTREAL - For reasons that remain unclear, shares of Resources Minieres Pro-Or Inc. (TSX: V.POI, Stock Forum) took off like a rocket last week, rising to a 52-week high of 54 cents.

The jump from 15.5 cents on April 11 was so dramatic that it caught the attention of stock market surveillance staff, prompting Pro-Or to issue a statement saying that management is unaware of any material change in the company’s operations that would account for the recent market activity.

After slipping back to 29 cents on Thursday, the company has a market cap of 13 million, based on 44 million shares outstanding. The stock trades in a 52-week range of 54 cents and 11 cents.

Pro-Or’s asset include to be a patented Platinum Group Metal (PGM) recovery process that was initially developed at the University of Quebec and allows for the extraction of platinum, palladium and rhodium from recycled catalytic converters, the company said.

Catalytic converters are used in the auto sector to reduce emissions from internal combustion engines.

In an interview, Pro-Or President Pierre Gevry said the stock’s recent rise may have been due to a number of factors, including the decision to hire a new engineer to oversee the reorganization of the PGM recovery plant. It is located in Saint-Augustin-de-Desmaures, an industrial park located near Quebec City.

“That was my answer to the stock exchange,’’ said Gevry in a telephone interview with Stockhouse.

He said investors may also be mindful of the fact that he is a founder of Exploration Orbite V.S.P.A. (TSX: V.ORT.A, Stock Forum), which has the mining rights to an aluminous clay deposit in Quebec’s Gaspe region. However he says he no longer has any involvement with Orbite.

Gevry is also President of Les Mines J.A.G. (TSX: V.JML, Stock Forum), which is engaged in exploration for gold and industrial metals as well as petroleum.

Aside from the pilot plant, Pro-Or’s other key asset is a Quebec mining property, which contains a NI 43-101 compliant chromite resource and is being explored under an option deal with Everett Resources Ltd. (TSX: V.EAR, Stock Forum), a junior company that was trading at 5.5 cents on Thursday.

Chromite ore can be used to make ferrochromium, which in turn is used to make stainless steel and other alloys.

Everett can earn a 50% stake in the 3,062-hectare Menarik property by spending $5 million on exploration over three years, including one million by August 19, 2011. It must also issue 4.5 million shares to Pro-Or over two years. The property is about 45 kilometres to the southeast of Radisson.

August 2010 Placement A Winner

Pro-Or’s recent rise has been great for people who participated in an August 2010 financing that raised $750,000 from the sale of five million class A shares at 15 cents a share and five million warrants in a private placement deal. The warrants entitle the holder to purchase class A shares at 25 cents each for one year after the financing close.

According to the company’s financial statements, Pro-Or had $143,036 in cash at the close of the three months ended September 30, 2010 when it posted a loss of $301,592. It also reported a loss of $108,672 in the same period last year.

As of September 30, 2010 regulatory filings show that there were 15.7 million warrants outstanding at an average exercise price of 44 cents a share. That includes six million that are exercisable for between 25 cents and 35 cents and expire in June and August this year.

Meanwhile, Pro-Or shareholders are facing more dilution as the company prepares to announce a $2 million financing deal that will involve the placement of 20-cent shares and attached warrants, Gevry said. “We figure that we need the money to go ahead with the plant,” Gevry said.

The fact that the company is proceeding with the private placement will be announced within the next 10 days, he said.

Prior to the stock price rally, Pro-Or was experiencing problems with its metals recovery process in the pilot plant, which is designed to produce about 50 tonnes of concentrates annually. Gevry said each tonne of concentrate should contain about $100,000 worth of metal. Pro-Or spent $130,000 buying catalytic converters last year from local suppliers, regulatory filings show.

An initial 700-kilogram shipment of platinum group metals (Rhodium, Platinum and Palladium) in concentrates was shipped to the refiner a few weeks ago, the company said in a news release on December 10. It produced 9.868 ounces of platinum, 9.465 ounces of palladium and 1.894 ounces of rhodium

Still, the resulting revenue of US$24,457.45 was lower than anticipated due to reactor and ventilator problems ,which have now been remedied, according to the company.

Gevry said he is planning to use proceeds of the private placement financing to expand the capacity of the pilot plant to about 3,000 tonnes of concentrates per year. Existing shareholders, it seems, will have to take some pain (in the form of stock market dilution) in the hope that a PGM plant proves to viable.

Shareholders must also hope that recent glitches really have been resolved.
Posted by Mike Gupton at 5:14 PM 0 Comments

Thursday, April 21, 2011

Gold Breaks $1500 But All Eyes Are On Silver These Days

The higher prices for gold ($1500USD/ozt) have not really shown a dramatic increase in people selling their gold to KMG Gold Recycling surprisingly.

People should be selling now but perhaps they are waiting for even higher prices before selling. Selling your gold now could pay your taxes, pay off your bills, or pay for a summer holiday.

But, customers recycling their silver on the other hand has exploded. The highest silver price since the '80s has shown a decided increase in both selling and buying silver.

KMG Gold Recycling cannot keep any silver bullion in inventory. I have a list of 20 names on my white board of people looking to buy silver bullion. But what bullion I do get in stock is sold as soon as I buy it. It's sold so fast that I never get to my list of names on my white board.
From one or two ounces to people looking for several monster boxes of silver Maple Leaf coins. A monster box is the slang term for a Royal Canadian Mint bulk box containing 500 one troy ounce silver Maple Leaf coins.

People are recycling or refining their silver scrap and taking silver bullion as payment. New customers are coming in or calling everyday looking to buy silver bullion.

It's interesting because silver prices are so high. Remember the adage - buy low, sell high. But the current craze on silver may have clouded peoples eyes trying to get in on the silver boom in that they think the price will keep going up and up and surpass 1980 and beyond. My crystal ball is broken, but all indicators from the customers point of view is that silver might top $100USD/ozt.

But from a consumer confidence counter indicator, being overly bullish on silver right now can mean that it's time for investors to become bearish on silver.
But then again if you factor in the US dollar and the state of the US economy and the S&P downgrade on it, and the increased demand for silver in industry, it is entirely possible that silver will top $100 and keep going.

People who are looking to ride the wave on silver right now and want to hedge their investment and save money, provided they are looking at short to intermediate terms, they should invest in KMG Gold Silver Certificates or "digital" silver where the purchase price can be as low as 2.5% below market price for a 6 month term certificate. There are no storage or insurance fees, and when its time to sell there are no fees. The silver or gold is sold at market price instantly. No time delay trying to find someone to buy their physical metal. It's a phone call away from liquidation.

Silver and gold certificates, or electronically traded gold and silver, are certificates of ownership of  "pool" metal held in reserve at a primary refinery. Gold and silver certificates offer modern investors an easy way to invest in gold. Gold and silver certificates are simply certificates of ownership of gold or silver, and they are preferred by some investors because they don't require taking physical delivery of the gold. One of the advantages of gold and silver certificates is that the investor doesn't have to worry about storing and insuring the gold. Another gold and silver certificate advantage is that gold and silver certificates are very liquid, and offer an excellent way to diversify one's assets with gold and silver.

Silver certificates are by far the best investment choice for investors looking at short to intermediate term silver or gold investing.

Gold also has all the same potential as silver does at this time, with short term investments in gold certificates or physical gold for the long term, but our customer demand has been slower, much slower, than with silver... Gold might hit $2000USD/ozt for all the same reasons as silver might hit $100.

Or it might correct itself.

But in my opinion, both gold and silver will not correct as drastically as it has in the past. I would be surprised in gold corrected $100 and very surprised if silver corrected $10

Platinum and palladium are interestingly calm during this gold and silver rush...

Please visit KMG Gold Recycling for more information on gold and silver bullion and gold and silver certificates.

Posted by Mike Gupton at 5:10 PM 0 Comments

Wednesday, April 20, 2011

Goldman Attempts To Answer The $2.9 Trillion Question: "What Happens When The Fed Stops Buying?"

Goldman's just released look at what the end of QE2 would mean should certainly be taken with a grain of salt: after all lately (and in general), the firm's sellside recommendations traditionally are a gateway for its own prop traders to take the other side of what its clients are doing (observe recent performance in WTI). That said, probably the most insightful piece of data is that we now know what the upcoming Greece bankruptcy will be called in polite circles: wait for it - a "liability management exercise."  KMG Gold Recycling

As for the overall impact on rates, Goldman is not surprisingly bearish on rates, and sees the bulk of the upcoming weakness as focused on the 5 Year point. Franceso Garzarelli summarizes his view as follows: "together with our forecast of above-trend growth in coming quarters and the idea that the compression of bond premium will decay as the Fed’s balance sheet (organically or voluntarily) shrinks, we think that short positions in 5-yr Treasuries remain attractive." In other words, Goldman is expecting some flattening in the short end.

Does that mean a steepening is inevitable. As for the broader perspective on the curve, Goldman says: "assuming the Fed’s bond holdings passively run off as securities mature, the bond premium should gradually rise. And our macro forecasts are consistent with higher real rates in coming quarters." In other words, another extremely non-committal report from a firm that is rapidly losing its Master of the Universe status. Key highlights below.
  • Concerns that a combination of higher energy prices and fiscal tightening will dent growth have supported global bonds. These concerns are overstated, in our view. Meanwhile, core inflation has turned (admittedly from low levels), and more European central banks are likely to follow in the ECB’s footsteps and tighten policy over the coming months.
  • Our estimates indicate that ‘QE2’ could have shaved as much as 40-50bp off intermediate US bond yields. The effect of purchases is most visible in the 5-yr sector of the Treasury curve, which continues to look ‘rich’ relative to 2s and 10s.
  • When the flow of purchases ends in June, there should be little immediate effect on bond yields—provided expectations are that the Fed will not sell securities back into the market any time soon.
  • However, even assuming the Fed’s bond holdings passively run off as securities mature, the bond premium should gradually rise. And our macro forecasts are consistent with higher real rates in coming quarters.
  • In Euroland, Portugal formally requested conditional financial support and talk of a liability management exercise on Greek sovereign debt has intensified. Although the latter could lead to bouts of risk aversion, we continue to expect further spread compression between the larger ‘non-core’ issuers (i.e., Spain, Italy and Belgium) and Germany/France.

And the full report:

What Happens After the Fed Stops Buying?

The Fed’s QE2 program could be keeping intermediate maturity US Treasury yields around 40-50bp lower than would otherwise be the case. The effects of the central bank’s purchase are most visible in the 5-yr sector of the yield curve, which still looks ‘rich’ relative to adjacent maturities. When the flow of purchases ends in June, and on the assumption that the stock of bonds held by the Fed does not change, there should be little immediate effect on bond yields. Nonetheless, the ‘term premium’ should gradually rise as the Fed’s bond holdings passively run off as securities mature. Moreover, expectations of the Fed selling securities back into the market—which is not our baseline case but could admittedly pick up as the economy continues to recover—could amplify the increase in yields we expect based on our macro forecasts.

Fed’s Bond Purchases Soon Drawing to an End

Through its asset purchase program (‘QE2’), the Fed has delivered a stimulus to the economy by-passing the nominal zero policy rate constraint and influencing directly longer-dated discount factors. In the December issue of our Fixed Income Monthly, we estimated the Fed had broadly succeeded in bringing intermediate and long Treasury yields close to a level consistent with negative policy rates as implied by a ‘Taylor Rule’.

As the purchase program draws to an end in June, we are frequently asked whether there will be an adverse impact on the bond market. We tackle this issue with an ad hoc regression analysis, cross-checking our findings through the suite of valuation tools we regularly employ in the formulation of bond strategy.

Our main conclusion is that the announcement of the total size of Treasury purchases, rather than their implementation, could have lowered intermediate maturity Treasury yields by as much as 40-50bp. As long as the Fed does not announce its intention to sell bonds back into the market any time soon (which continues to be our baseline case), this effect is likely to fade only gradually, assuming no intervening change in the macro landscape.

Our central forecasts, however, are consistent with a progressive increase in real bond yields over coming quarters. And, as the recovery takes hold, it is conceivable that market participants’ expectation of asset sales could increase, thus amplifying the sell-off in yields. With this in mind, we continue to recommend short positions in the 5-yr area of the Treasury curve, which looks to have been the most influenced by the Fed’s interventions.

The ‘Announcement Effect’

Assuming financial markets are liquid and forward-looking, bond prices should be affected by the announced total amount of purchases the central bank intends to conduct, rather than the subsequent flow of purchases. Chairman Bernanke has been among the proponents of this approach, which researchers often refer to as the ‘portfolio balance channel’ or the ‘stock view’.

If this theory is correct, when the flow of purchases is discontinued there should be little effect on yields provided expectations are that the Fed will not sell securities back into the market any time soon.



Empirical evidence appears to support the notion that the ‘stock’ effect dominates the ‘flow’. For example, 10-year US Treasury yields fell sharply following the surprise announcement of the ‘QE1’ program on November 25, 2008 and March 18, 2009. However, there is little evidence that yields increased following the termination of those purchases at the end of October 2009 (when the Fed stopped buying Treasuries) and March 2010 (the end of the mortgage-backed security purchase program).

The chart at the bottom of the previous page compares actual 10-yr US Treasury yields with the ‘fair value’ implied by our Bond Sudoku model. The latter describes US bond yields as a function of 1-yr-ahead consensus expectations on short rates, real GDP growth and CPI inflation, both domestically and in the other major advanced economies. The effects of the asset purchase program (or shifts in the net supply of government bonds) are captured by the model only indirectly, i.e., to the extent that these influence expectations on the future course of the relevant macro factors.

As can be seen, ‘QE1’ led to a fairly rapid move in bond yields right on the announcement date. In the case of ‘QE2’, the effect largely preceded the FOMC meeting in which the decision was taken. This can be attributed to the fact that, in a number of speeches through the Summer, Fed officials had hinted at a resumption of bond purchases to stimulate the economy.

By the time the Fed announced the intention to further expand its balance sheet on November 3, 2010, 10-yr government bonds were already trading around 1 standard deviation (or roughly 40bp) below their macro equilibrium. Our GS Curve model—which links the term structure of constant maturity Treasury yields to consensus macro expectations at different horizons—indicates that around the same period bond yields in the 5-to-7-yr maturity range (the main target area of purchases) stood at very depressed levels relative to their historical relation with the 2-yr and 10-yr sectors (see chart below).

Once again, most of the effect precedes the actual decision to conduct asset purchases, but expectations of such an outcome had been building ahead of the FOMC meeting. A parallel can be drawn to the Fed’s decision to cut policy rates to 1% on June 25, 2003. Intermediate maturity bonds rallied strongly in the 3 months before the policy meeting, only to sell off aggressively after the event.

Fed Holdings Keep Bond Premium Lower

In order to test the empirical validity of the ‘stock view’ more formally, in previous research Jari Stehn ran a regression between the nominal 10-year US Treasury yield against four factors: the stock of announced purchases, the actual weekly flow of these purchases, a number of economic variables (including payrolls, the ISM survey and the University of Michigan/Reuters 5-10 year inflation expectations) and measures of the Fed’s other unconventional monetary policies (such as its guidance that it would keep interest rates “exceptionally low for an extended period”). The results, summarised in the first column of the table above, indicate that the effect of the announced stock of purchases is negative and statistically highly significant.

One issue with this simple specification is that the coefficient on the flow of purchases takes the ‘wrong’ sign, suggesting that the flow of purchases raised bond yields. This counterintuitive finding has a simple explanation: just about as the Fed started to purchase assets last November, bond yields rose sharply because growth expectations improved and, partly as a result of this, market participants revised down their expectations of further easing. But because the statistical exercise controls for the contemporaneous rather than the expected macroeconomic landscape, the increase in yields is attributed to the flow of QE2 purchases.

To address this shortcoming, rather than focusing just on the 10-year yield, we explore how the Fed’s purchase program has affected the yield curve across maturities. This allows a differentiation between the impact of economic factors (which affect the entire term structure) and the Fed purchases (which could differ by maturity bucket). Making use of the relative movement of yields at different maturities provides more information and should therefore provide better identification.


The Box above outlines the approach we have taken and the main results are summarised in the second column of the table on the previous page. Once again we find a significantly negative and economically meaningful effect from the stock of purchases on the 2-10-year part of the yield curve, while the coefficient associated with flows is now insignificant. Specifically, the estimates suggest that yields in the 2-10-year maturity range have been reduced by around half a basis point for each US$1bn of announced purchases. This suggests that the Fed’s Treasury holdings could be currently holding down 10-year yields to the tune of 40-50bp. This numerical result is clearly subject to the usual caveats applicable to the outcome of statistical analysis, but is reassuringly not far from what other studies have found. In addition, similar regression analysis on 10-year yields for the UK also found a significant and meaningful effect from the stock of purchases but not from the flow of purchases (for more details, see “A Modest Impact on Markets from the End of QE2” Global Economics Weekly 11/14).

To Sell, Or Not to Sell?

The empirical analysis reviewed so far allows us to draw the following conclusions for bond strategy:

  • The starting point for 10-yr US Treasury yields is not far from a notion of ‘fair value’ consistent with the historical relationship to the current set of consensus expectations on macroeconomic factors. Going by this result, longer-dated US nominal bond yields are not abnormally low relative to where the average investor expects the economy to be heading. Rather, they do not incorporate the additional premium that is typically in place when the monetary policy stimulus is at full throttle.
  • Expectations on what the Fed will do with its bond portfolio—hold on to securities until maturity or sell them beforehand—matters more than the distribution of flows. So, whether purchases are tapered off or ended on schedule should have little effect on bond yields. Put differently, no ‘cliff effect’ should be expected at the end of June.
  • Our central view continues to be that the Fed will not announce asset sales for a long time to come. That said, even assuming the Fed’s bond holdings passively run off as securities mature, the term premium compression we have identified through our empirical work should gradually decay. Moreover, as the economy continues to expand along our baseline forecasts, it is plausible to think that investors’ expectations could shift towards assigning a larger probability to asset sales. This would amplify the underlying tendency for bond yields to rise.
  • According to our GS-Curve calculations, the 5-yr sector of the Treasury curve has not completely realigned itself to its historical relationship with shorter- and longer-maturity bonds, conditional on consensus views on how the US economy will perform over different time horizons. In light of this observation, together with our forecast of above-trend growth in coming quarters and the idea that the compression of bond premium will decay as the Fed’s balance sheet (organically or voluntarily) shrinks, we think that short positions in 5-yr Treasuries remain attractive.

KMG Gold Recycling

Posted by Mike Gupton at 8:00 PM 0 Comments

Wednesday, April 20, 2011

The One Press Release That The S&P Will Never Issue

It took less than 48 hours for the market to completely shrug off S&P's warning about America's credit rating, even as the dollar: that prima facie indicator of US stability and viability, has just hit a fresh 16 month low. And while nothing anyone says has much of a chance to impact the market, which continues to move with a negative 1 correlation to the now default carry funding currency, the following is the press release that S&P should issue if it wants to truly bring attention to the US debt crisis.

NEW YORK (Standard & Poor's) April 22, 2011--Standard & Poor's Ratings Services said today that it initiated ratings on the debt issues of the Federal Reserve System (commonly referred to as U.S. dollars) with a AAA/Negative Outlook.

We derive our opinion from the observation that the Federal Reserve’s assets consist of roughly $2.5 trillion of government debt with a deteriorating outlook against $52 billion in capital, thus yielding a leverage ratio of 48x.

In addition to its highly leveraged exposure to a deteriorating credit (the United States of America), the Federal Reserve’s stated strategy is to sell these securities back into the market (as a means of tightening policy). In the event of future downgrades of the U.S., these securities are likely to generate losses in multiples of existing capital.

The Federal Reserve intends to handle said losses via a ‘negative liability’ account, which makes them the liability of the United States of America. This creates a very clear event horizon, or point of no return: downgrades of U.S. government debt generate substantial losses on Federal Reserve’s balance sheet, which then make the U.S. government’s debt larger than it was before the downgrade, thus creating a vortex of deteriorating credit.

If we were to lower the ratings on the U.S., we would also lower the ratings on the debt of the Federal Reserve, as well as our issuer credit ratings on all other individual GRE entities.
Posted by Mike Gupton at 6:29 PM 0 Comments

Wednesday, April 20, 2011

Border Delays Cost Canada up to $30-billion a Year

It is difficult to overstate the importance of Canada-U.S. trade flows: roughly one-quarter of what Canada produces is exported to the United States, and the volume of imports from the U.S. is only slightly smaller. KMG Gold Recycling imports and exports gold, silver, platinum and palladium into Canada.

The increased border security in the wake of the Sept. 11 attacks may be only a minor irritant in the context of a single border crossing, but a small cost multiplied by a large number of crossings can still end up being a very big number. Even a small perturbation in trade flows of this magnitude can have a significant effect on the Canadian economy.

A recent study by Trien Nguyen of the University of Waterloo and Randy Wigle of Wilfrid Laurier University and published in the March 2011 issue of Canadian Public Policy provides some estimates for the economic costs of border crossing delays. These costs can be startlingly large, especially in the auto sector. Parts and subassemblies of cars produced in North America crisscross the border several times during production, so custom rules and border delays can add an extra $800 to the cost of production. In contrast, cars imported from overseas only have to pass through customs once.

Previous studies treated border delays as a form of tax that increases the cost of sending goods across the border. This price wedge creates a ‘deadweight loss’ – sometimes referred to as Harberger’s triangle. In addition to the deadweight loss, the Nguyen-Wigle study also takes into account the costs associated with resources made idle (such as the time truck drivers are obliged to spend waiting at the border) or devoted to extra expenditures on warehousing and inventories.

Put together, the costs of border delays are considerable: on the order of 1 per cent to 2 per cent of total GDP, or between $15-billion and $30-billion a year. (Unsurprisingly, these costs are concentrated in Ontario.) Costs of this magnitude are large enough to offset -- perhaps even more than offset -- the economic gains produced by the North American free-trade agreement (NAFTA).
Posted by Mike Gupton at 2:22 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

Tuesday, April 19, 2011

S&P threatens to cut U.S. credit rating on deficit

(Reuters) - Standard & Poor's threatened Monday to downgrade the United States' prized AAA credit rating unless the Obama administration and Congress find a way to slash the yawning federal budget deficit within two years. Kmg Gold Recycling

S&P, which assigns ratings to guide investors on the risks involved in buying debt instruments, slapped a negative outlook on the country's top-notch credit rating and said there's at least a one-in-three chance that it could eventually cut it.

A downgrade, which would leave Germany and France with a higher rating, would erode the status of the United States as the world's most powerful economy and the dollar's role as the dominant global currency.

If investors start demanding higher returns for holding riskier U.S. debt, the rise in bond yields would crank up borrowing costs for consumers and businesses. That would threaten to hurt the economy as it recovers from the worst recession since World War II.

"This new warning highlights the need for the U.S. to take better control of its fiscal destiny if it is to avoid higher borrowing costs and maintain its central role at the core of the global economy," said Mohamed El-Erian, chief executive at PIMCO, which oversees $1.2 trillion in assets and has a short position on U.S. government debt.

Major U.S. stock indexes fell than 1 percent on the day. Longer-dated government bond prices initially fell but recovered to post solid gains as falling stocks took over as the main driver for price action in the Treasury market. Bond prices frequently trade inversely to stocks.

The dollar also rose as more immediate fiscal problems in Greece hurt the euro and supported some U.S. assets.

The cost of insuring Treasury debt against default at one point Monday neared a 2011 high, though it was well below lofty levels hit two years ago when fears of a double-dip U.S. recession raged.

BUDGET BATTLE

The threat of a downgrade raises the stakes in the struggle between President Obama's Democratic administration and his Republican opponents in the House to get control over a nearly $1.4 trillion budget deficit and $14.27 trillion debt burden.

The White House last week announced plans to trim $4 trillion from the deficit over the next 12 years, mostly through spending cuts and tax hikes on the rich. Congressional Republicans want deeper spending cuts and no tax increases.

The deficit problem has become crushing since the financial crisis of 2008. Now for every dollar the federal government spends, it takes in less than 60 cents in revenue.

A budget deficit running at nearly 10 percent of output and expected to grow will likely further swell a public debt load that's already more than 60 percent of the country's gross domestic product.

"Because the U.S. has, relative to its AAA peers, what we consider to be very large budget deficits and rising government indebtedness, and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable," S&P said.

Even so, Austan Goolsbee, the top economist at the White House, downplayed S&P's move, telling CNBC Monday it was a "political judgment" that "we don't agree with."

DoubleLine Chief Executive Jeffrey Gundlach said Monday that the S&P warning "should serve as an effective cattle prod in pushing the politicians toward a program of spending cuts and tax increases."

"NOT THE END OF THE WORLD"

Some on Wall Street also downplayed the immediate impact.

"If a corporate entity had the same kind of unsustainable leverage problems, it would have been downgraded long ago," said Robert Bishop, chief investment officer of fixed income at SCM Advisors in San Francisco.

"But from the standpoint of the sovereign, being on outlook negative is not the end of world," he added. "Japan, for example, is a double-A credit."

S&P downgraded Japan's rating earlier this year for the first time since 2002, saying Tokyo had no plan to deal with its mounting debt burden.

But unlike the United States, almost all Japanese debt is held by domestic investors. That means the country need not depend on foreigners for financing.

Axel Merk, president of Merk Hard Currency Fund in Palo Alto, California, said Monday's warning was "a wake-up call that we need to do something in the U.S." S&P is "absolutely correct that this is something serious that needs to be addressed."

Moody's, S&P's main rival in the ratings business, also maintains a Aaa credit rating - its highest - on the United States.

For PIMCO, the world's largest bond fund, the picture had become bleak enough to prompt it to announce in February it had sold all U.S. Treasuries in its $236 billion Total Return Fund.

Bill Gross, PIMCO's chief investment officer, said he expected interest rates to climb, the dollar to fall and the United States to eventually lose its AAA credit rating.

The ratings agency said neither the White House nor Republican plan does enough to fix the shortfall, and the tension between the parties has cast doubt on whether they will be able to work together on a long-term solution.

"Looking at the gulf between the parties, it has never been wider than now," David Beers, S&P's global head of sovereign ratings, said Monday. "It takes a lot of political will to bridge this gulf."

A U.S. congressional report last week blamed ratings companies such as S&P and Moody's Corp for triggering the financial crisis when they cut the inflated ratings they had applied to complex mortgage-backed securities.

George Feldenkreis, CEO of Perry Ellis International, said that casts doubt on S&P's outlook.

The ratings agency "does not have the intellect or systems to judge the ability of the U.S. economy or political system to resolve its issues of taxation and needed budget cuts," he said.

Moody's put some issues of U.S. Treasury debt on watch for a downgrade in 1996 when the White House and Congress failed to extend the government's debt ceiling.

The two sides are heading for a similar showdown over the $14.3 trillion legal borrowing limit, which will have to be extended within weeks.

SOURING ON THE DOLLAR

The U.S. debt burden has grown exponentially after a housing bubble burst in 2007 and set off a world financial crisis that toppled several Wall Street banks, drove up the jobless rate and thrust the global economy into recession.

Governments around the world were forced to increase public spending to prevent their economies from lurching into an even worse depression.

The tactics helped spark a recovery but left the United States and other advanced economies, which were hit hardest by the crisis, with staggeringly large debt burdens.

Though it rose Monday, the dollar is down about 5 percent against major currencies in 2011. S&P's move, coupled with record low U.S. interest rates, will do little to make it more attractive, said Kathy Lien, director of research at GFT.

"Even though I don't think an actual downgrade would occur, in this very sensitive or vulnerable time for the U.S. dollar, it's enough to spook investors from holding or buying dollars," she said. Kmg Gold Recycling

Posted by Mike Gupton at 9:07 AM 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

Saturday, April 16, 2011

Will Silver Surge Following The Nationalization Of Bolivia's Silver Mines By Embattled President Evo Morales?

Two weeks ago the precious metals space was closely following the fate of Sumitomo's San Cristobal mine, where a long strike had paralyzed work at the world's third largest producer of silver and sixth-largest producer of zinc.

While the strike was eventually resolved with concession to the domestic workers, a far more troubling report from Bolivian daily La-Razon states that Bolivia's president Evo Morales is now planning on expropriating zinc, silver and tin mines sold off by previous governments.

Bloomberg reports that "Morales will announce a decree May 1 to “dismantle the privatization model,” said Nicolas Fernandez, a spokesman for state mining company Corp. Minera de Bolivia, known as Comibol. "The government is recovering all the privatized companies,” Fernandez said today in a telephone interview from La Paz. “When the decision is taken, Comibol will be ready to manage these mines.”" Among the contracts to be affected are those with Glencore International AG, Pan American Silver Corp., and most importantly, Coeur d’Alene Mines Corp., which is operator of the San Bartolome mine: the world's largest pure silver mine.

Notably San Bartolome and Sumitomo's San Cristobal "account for about 83% of the nearly 1.1M tons of fine silver Bolivia produced in 2009, according to Mining Ministry data" according to The Gold Report. If indeed this news is proven true, and we will know for sure in 16 days, looks for the price of silver to spike considering about 1.33 million kilograms of silver was produced in Bolivia 2009, according to the U.S. Geological Survey: an amount which will likely fall off a cliff following the utter chaos that is unexpected nationalization.

Bloomberg's report on this important development confirms that the potentially affected producers seem to be in a state of denial about this absurdly irrational development:

“Our property title is not subject to expropriation by the government,” Coeur spokesman Tony Ebersole said in e-mailed comments to questions.

Glencore spokesman Simon Buerk declined to comment and Pan American spokeswoman Kettina Cordero didn’t return telephone calls and e-mails seeking comment.

Bolivia produced 430,879 metric tons of zinc, 84,537 tons of lead, 19,581 tons of tin and 1.33 million kilograms of silver in 2009, according to the U.S. Geological Survey.

Nationalizing private industries is nothing new for the embattled Morales:

The government of then President Hugo Banzer sold off mining assets such as the Vinto tin smelter in 1999 in a drive to shed money-losing state companies and attract private investment. Morales seized the smelter from Glencore in 2007.

Morales took over gas fields and refineries on May 1, 2006 in a bid to increase state control over Bolivia’s natural resources. Private investment in the industry plunged 69 percent to $271 million in 2009 from $865 million a decade earlier, according to state energy company YPF Bolivianos.

With the political situation in Bolivia deteriorating (read the following update from La Razon on the strikes and blockade gripping La Paz) it is increasingly probably that the country's president will take irrational steps in order to safeguard his image, and supposedly to fill his coffers.
Posted by Mike Gupton at 5:25 PM 0 Comments

Saturday, April 16, 2011

Platinum and Palladium Fixings Price Explained

The Fixing price represents the matching of orders from customers throughout the world. The Fixings make it possible for any interested party, be they supplier, consumer, dealer or investor, to trade at the price at which every current interest is satisfied.

KMG Gold Recycling posts the LPPM fixings and uses the fix prices for buying and selling platinum and palladium..

The system of Fixings is recognised as providing a valuable reference point, which is of particular benefit in volatile market conditions.

All deals are based on the published Fixing price. The Fixing price is immediately transmitted by the international news agencies and is a respected reference price used by industrialists and producers worldwide.

Above all, the Fixing procedure is simple, easy to understand and ensures the broadest possible participation in the market.

The Fixings commence at 9.45 am and 2.00 pm London time and take place on every day on which members are open for dealing in London. They are conducted by telephone. Dealing is in respect only of brands acceptable as good delivery under the London/Zurich Good Delivery list for platinum and palladium as in effect from time to time.

The Fixing members elect a chairman, who presides over the Fixing. At the commencement of each Fixing the chairman announces an opening price which is relayed to the members’ dealing rooms. This is in turn relayed to the customers of members and, on the basis of orders received, members declare as a buyer or seller. Provided both buying and selling interests are declared, members are then asked to state the amount in which they wish to trade. If the amounts of buying and selling do not balance, the same procedure is followed again at higher or lower prices until a balance is achieved. The Fixing price should be the price at which all buying and selling orders declared by members at the Fixing can be matched and it is the responsibility of the Chairman of the Fixing to determine when this occurs.

A feature of the Fixings is that customers may be kept advised of price changes throughout and may alter their instructions at any time until the price is fixed. If all orders cannot be balanced at any price the Fixing price shall be determined by the Chairman of the Fixing, at his discretion, having due regard to prevailing bids and offers. Exceptionally a pro-rata settlement may be necessary. Buying and selling orders are expressed in U.S. dollars per troy ounce.

Fixing members’ customers who sell at the Fixing receive the Fixing price without deduction of commission. The commission payable by Fixing members’ customers who purchase at the Fixing is by negotiation.

Unless otherwise agreed by the parties, settlement shall be made two business days after the date of the contract and for settlement purposes Saturdays, Sundays and Public Holidays in London, Zurich and/or New York are to be considered non- working days. Unless otherwise agreed delivery shall be made at the vaults of the member, in London or Zurich.
Posted by Mike Gupton at 3:09 PM 0 Comments

Friday, April 15, 2011

Precious Metals Update


"Gold pierced the $1440/oz. resistance level, which now becomes support for prices."


$USD

The United States Dollar

Since early January 2011 the USD has lost 7.4% of its value and needs to manage any further decline or stabilize at this point in order re-assure holders of this currency, that all is not lost. As we see it there will be short rallies on the way down, but the '74? level will soon be breached and then it's down the '72? level. The technical indicators are firmly in the oversold zone, so a short rally is possible at this juncture; however, as the chart shows, we have had a number of rallies already this year that have amounted to nothing.

If '72? fails, we are in for a very rough time as individual investors, states and countries, implement damage limitation strategies in order to protect what's left of their wealth.

One of the stimulants for the dollar could be the European debt crisis, which is a long way from being out of the woods with Portugal lining up for help and Spain peering through curtains hoping that there will be something left for them. As the euro comes under pressure investors have to go somewhere and the dollar is regarded as the best of a bad bunch. The gold and silver markets are way too small to accommodate their needs; however, if and when they do transfer a small portion of their wealth into the precious metals sector for safekeeping, new price levels will become the stuff of dreams for the metals bulls.

It remains a puzzle to us as to why anyone would want to hold a paper contract that promises to exchange it for you with another paper contract. Maybe it's the fear of the unknown or the fear of change that makes some of us behave like frightened rabbits when confronted by a car's headlights. The inability to assess a situation, recognize that there is a bull market in full flow and then take a position is astonishing to us but as my dad use to say, "You cannot talk sense to a twit"—enough said.

$GOLD

Gold Prices

The $1440/oz. resistance level has been pierced and now becomes support for gold prices. As gold consolidates, the technical indicators become less overbought setting up the next rally. Gold is a class act and has its eye on the next hurdle, which is $1500/oz. and that, in our humble opinion, will fall shortly.

$SILVER

Silver Prices

A 30% increase in silver prices so far this year has rewarded the silver bugs and hammered the shorts. Both the 50dma and the 200dma are moving up in support, however, we would like to see the gap between the 200dma get a little closer to silver prices. A period of consolidation at or around the $40.00/oz. would help, however, the demand for silver as an investment is growing along with the many industrial and medical uses for silver, pushing prices ever higher. As this demand continues to rise, silver prices will be forced to higher levels, in turn the shorts will have to cover sooner or later, so don’t be surprised if we have a record week with a stunning move to the high side in the very near future. Silver has been our favorite investment vehicle for some time now and our intention is to stay with it.

Our strategy remains the same in that physical gold and silver in your very own possession is the first step to take especially if you are new to this market. Secondly, investing in a short list of quality producers has generated handsome rewards, particularly in recent times when their value has been recognized. Finally a few well thought out options trades can add some spice with a boost to your returns on the back of the current volatility in these markets. Do remember to go gently with your investment choices and ensure that you are able to fight another day, no matter how good an 'opportunity’ appeals to you. Otherwise keep building your position as this is the best game in town and today’s metals bugs will be handsomely rewarded in the future.
Posted by Mike Gupton at 6:25 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

Financial professionals are cautiously optimistic about the economy

By John Walcott on April 12, 2011 | Comments (1)

A new survey of 841 financial professionals by SmartBrief and the international polling and market research firm Ipsos has found that most (67%) think that stock prices will rise in the next 12 months and the country’s economic output will increase (65%), and 59% said they expect unemployment to decrease slightly in the next 12 months.

The new SmartBrief/Ipsos Leadership Index found, however, that even such modest optimism among financial professionals is tempered by expectations of rising health care costs (88%); higher fuel prices (85%); rising prices for durable goods such as appliances, automobiles and consumer electronics (72%); and slightly higher interest rates (59%).

Overall, 44% of the respondents said they “think that things in this country heading in the right direction,” compared to 31% of Americans at large, and 56% said they are “going in the wrong direction.”

“Financial professionals are cautiously optimistic about economic prospects in the near term; indeed, they think that the overall scenario will improve, and they’re making business decisions on that basis, such as increased investment and hiring,” said Ipsos Managing Director Cliff Young. “That being said, there are still concerns in the short to medium term about the increased costs of inputs such as fuel and durable goods.”

In addition, 43% of the 841 respondents said they expect home prices to continue declining, while only 21% said they expect them to rebound, and 34% said they expect no change. By a margin of 70%-30%, they were opposed to allowing states to declare bankruptcy, and while 77% said they expect the nuclear disaster in Japan to drive greater investment and funding into renewable energy, they were evenly divided on whether it will funnel more money into development of fossil fuels.
Tags economy  finance 
Posted by Mike Gupton at 9:58 AM 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

Friday, April 08, 2011

Will Silver Become Money Again like Gold?

"In the private and institutional domain, silver already is a wealth protector."

We have always referred to silver as the 'long shadow' of gold because its price moves with gold's. When the gold price rises, silver rises more. When the gold price falls, silver falls further but they move in sync. Why?

Silver saw a huge drop in demand as the photographic industry moved to digital. But then, new uses for silver in the medical field and in electronics developed and look as though they will eventually dwarf the peak photographic demand. But by moving as though riveted to the gold price, the silver price is not reflecting the movements one associates with a simple industrial commodity.

The Move Away from Money

"Official" silver selling by Russia, India and China appears to have (or is about to) come to a halt after many decades of selling the metal stockpiled as coinage that had ceased to be used as such. In this it has a common denominator with gold, in that central bankers are no longer selling these assets. But silver is not in demand by central banks, whereas their demand for gold is heavy and persistent. Will silver be treated as an important reserve asset again?

Since the full use of precious metals as coinage fell away in the first half of the last century, the disparity between the face value of money and its silver value parted ways dramatically. Governments and their central banks wanted an insignificant, inherent value for the coins, so that the face value, determined through government actions on the monetary front, would be the only value they had. Practical considerations require that there is a coinage element to money. Governments have used this 'fiat' system of money because of the advantage of being able to control the monetary system alone. It was accompanied by the breaking away from the real international values that precious metals will always have. Nowhere has the split between 'measure of value' and 'means of exchange' been more significant than in coinage. The central banks also gained full control the money supply, without fear of a judgment via a soaring gold price.

When gold and silver were money (in 1933, for instance) governments believed that an expansion of the money supply was sorely needed for the world to climb out of the depression. At that time, the only way to accomplish that was to increase the value of gold (silver followed) allowing for more dollars to be issued. To clarify, the dollar was devalued in terms of gold not the other way around. Gold was a cumbersome item at that time, because of the vast amounts of gold not held by the central bank. Hence the confiscation! Once the U.S. central bank had acquired sufficient volumes of gold and then devalued the dollar, the banking system was awash with dollars. Mr. Ben Bernanke has used a similar tactic to expand the U.S. (and global) money supply to fend off deflation. Because gold and silver cannot be released and captured at will, central banks found that their use as a 'means of exchange' was just too cumbersome.

Of course, the change to paper notes and to alloy coins destroyed the ability of money to be a measure of value. The value of money is now solely dependent on the citizens' trust in their government and central bankers.

We are not referring to inflationary aspects or to exchange rates here, but the extent of trust and faith in that money. Yes, exchange rates hopefully (provided there is no manipulation of exchange rates—which there is) will reflect falling values.

Real inflation (lower buying power of money not a number measured by government tools) will always be allowed by governments, despite central bank commitments to price stability.

The key to a healthy economy is that the man at ground level be able to sustain his way of life with the income he receives. If oil prices and food prices rise, he needs more income to sustain his way of life.

Real inflation or deflation not only relate to growth but the change in the money supply Any attempts to disguise inflation or money supply changes will work only temporarily until the economic realities of the economy shine through (such as now with low housing prices, high unemployment and seeming 'stagflation'). The governments of the world like to imply 'price stability' through the management of money supply but tools such as quantitative easing distort that in the attempt to use money supply to invigorate the economy. Simply put, they use inflating money supply to defeat deflation.

The disadvantage of gold and silver coinage is that their worth will always rise above their face value. If governments increase the money supply beyond growth, they would thus be giving citizens a protection against the debauching of money. This undermines central bank control of the economy and financial systems.

So not surprisingly, we see no sign of silver being treated as money by central banks anywhere. But at a retail level, silver is being bought increasingly as a 'measure of value', protecting the individual's wealth as paper currencies are unable to do at the moment.

The History and Present of Silver as Money

In the past, silver has been used as coinage. Until the middle of the last century, most countries used silver in coins. Well before the U.S.A. and the I.M.F. cut the link between money and gold, silver was replaced with alloys in coinage. Take a look at the small change in your pocket and you will see a silver lookalikes. The human view of money is still that coins should look valuable, even if we are fooled by the alloy lookalikes. And that's the point. Will we as gullible humans believe that the money in our pocket has value?

We have to qualify the answer to that question by saying subject to economic conditions, yes. When you have nothing, bartering with anything for something is the simplest of monetary systems. When you are in the mainstream economically and economic growth is good, we are inclined to accept mainstream money in any form governments want us to. It makes trading easy. Take a look back at the years from 1985 until 2007 and you see a developed world growing steadily, happily and confidently. Money was trusted in any form it took because the system benefitted everybody. It's only when the person you are dealing with refuses to accept it as money that it then fails. Far from being global, like gold and silver have been throughout history, national money is valuable only locally, where it is legislated as the only acceptable means of exchange.

Imagine if I turned up at a shop and handed over a few hundred dongs (from Vietnam) or a few trillion Zimbabwean dollars, (Aah, that's no longer money even in Zimbabwe), what would your shopkeeper say? It is this parochial nature of fiat money that will be its eventual downfall. Once the Yuan is a global reserve currency from a growing country with a massive presence, we will be able to choose between the Yuan and the U.S. dollar. Then what?

Take a silver eagle and offer it to a Chinese person—he will accept it readily. Even while the South African rand is only useable in South Africa, the South African gold 1 ounce Krugerrand is exchangeable anywhere (at a price of $1,420 not its face value of 14.70 U.S. cents (1/10,000 times face value).

Silver, throughout history has been accepted as money anywhere in the world. While central banks and governments refuse to allow its use as money inside their economies, they have not taken away from its value as a currency. Silver remains a form of unrecognized money even in the hands of people who have not used is as money for many generations.

Even today, when the fiat money systems are decaying, a trickle of people is protecting their wealth by selling their paper money for solid silver and gold. We are at the start of a trend that is inexorable. Even central banks have started buying gold and have ceased selling it. The trickle will become a flow. But silver is not yet in the same category as gold, as money (yet) in 'official circles'. It will have to follow the path blazed by gold, but not until gold is seen to be visibly used in the global money systems, will silver stage a comeback. Even then, it will always be a junior partner to gold. After all, its price is so low and the quantities available for this role so small, that it is too far away from being as practical a measure of value as gold is now. But imagine if it was priced at $200 an ounce, then its credibility as money would be legitimate. If one could have a ration of one ounce of gold to 50 ounces of silver, then investors would be comfortable treating silver as money.

But in the private and institutional domain, silver is already a protector of wealth. This should be the focal point of its use. The investing world, regarding both silver and gold as a protector of wealth, can no longer be ignored. It is a fact through its performance all over the world. So, can governments harness this present reality? Will they? We are of the opinion that they won't until they have to!
Posted by Mike Gupton at 6:05 PM 0 Comments

Thursday, April 07, 2011

The ECB Raised Interest Rates.

StreetSmartPost.com

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

Tuesday, April 05, 2011

Are Silver Prices at 31-Year Highs Justified?

Silver prices rallied to their highest in 31 years on Monday and are fast closing in on $40 an ounce, lifted by interest in the metal as a cheaper proxy for gold and expectations that industrial demand is set to improve.

Live New York silver spot price chart.

But analysts remain wary of silver's extreme volatility, which has led to some heart-stopping reversals in recent years.

When commodities sold off heavily in mid-March, it dropped nearly 5 percent in a single day, versus gold's 2 percent fall.

Silver prices [XAU= 1455.49 4.89 (+0.34%) ] have had an impressive run higher since the financial crisis gripped markets back in late 2008, rallying from below $9 an ounce in October that year to a 31-year peak of $38.40 on Monday.

Two Hats

Investors have flocked to the physical metal in recent years.

Like gold [GCCV1 1457.10 4.60 (+0.32%) ], silver proved extremely popular with buyers seeking a safe place to store wealth as insecurity swept the equity and foreign exchange markets.

Holdings of the largest silver-backed exchange-traded fund have risen by 65 percent since October 2008, while demand for silver coins in the United States soared to record levels in the first quarter of 2011.

In addition, silver has benefited from expectations industrial usage will rise.

The metal is widely used in electronics manufacturing.

Metals consultancy GFMS forecast last week industrial demand will climb by more than a third by 2015.

"Without a doubt silver has been having a role both as an industrial and a safe-haven metal, and that is why it's benefited," said Simon Weeks, head of precious metals at the Bank of Nova Scotia. "I don't think it's the single-digit commodity it was for many years. I don't think, given the overall industrial usage for silver and the overall supply picture, we are going to back to those kinds of numbers any time soon."

While some areas of industrial demand, such as photography, are in long-term decline, others are expected to pick up.

GFMS identifies its growing usage by carmakers and the solar energy sectors as key in years to come.

Silver is also used in small quantities in a range of consumer goods including water purification systems, plasters, and socks, demand for which is expected to pick up as the economic picture brightens.

Heart-Stopper

Silver's outperformance of bellwether precious metal gold is partly due to the much smaller size of the market.

A lack of liquidity tends to mean any price moves are exaggerated, leading to overperformance in a rising market but underperformance when prices fall.

"There is a huge amount of speculative drive behind silver, and that is off the back of gold," said Societe Generale analyst David Wilson. "It has such a head of steam it seems difficult to say it won't (keep going), but there doesn't seem to be that much of a reason for it to be as strong as it is."

A lot will depend on the broader investment environment for precious metals, chiefly reflected in gold prices.

Gold and silver are currently 85 percent positively correlated on a 30-day rolling basis.

While accommodative monetary policy, a fragile dollar and elevated risk aversion have benefited precious metals in recent years, any reversal in this environment could hurt gold prices and have a potentially devastating effect on silver.

A recent Reuters survey of analysts' gold price forecasts showed fewer than one in ten believed gold would end the second quarter more than 5 percent above current levels.

Given such relatively modest expectations, silver could be vulnerable.

Given the amount of silver held by ETFs, which is technically still available to the market, and comfortable mine output, the market is unlikely to be short of metal even though demand may rise.

Investment demand for silver has done well out of the financial crisis, but with the economic recovery and a consequent recovery of industrial consumption still in its early stages, this may reverse quickly if that buying tails off.

"When investor interest wanes in silver, there is every possibility of sharp falls in price amid liquidation and plentiful metal stocks," said RBS in a report.

"Equally, though, we must warn that because of its volatility, silver is too dangerous to short," it added. "The message is, do not chase silver at these levels."

Silver bullion and silver certificate sales in US dollars at KMG Gold Recycling, or Canadian dollars

Posted by Mike Gupton at 5:37 PM 0 Comments

Sunday, April 03, 2011

Strong Loonie Makes Gold and Silver Very Attractive

Buying gold & silver right now for Canadians, is in essence, buying US dollars. The loonie buys more gold per Canadian dollar right now than ever before. If your crystal ball tells you the loonie will drop in the future, you might consider investing in gold and silver now. Consider your investment goals. Long term or short term. KMG Gold Recycling
Posted by Mike Gupton at 5:15 PM 0 Comments

Sunday, April 03, 2011

How Far Are We From A Gold Standard

According to The Concise Encyclopedia of Economics, the notion of a gold standard can be defined as: A commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold...

National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price. A country under the gold standard would set a price for gold and would buy and sell gold at that price. This effectively sets a value for the currency.

The "gold standard" executions might either be done fully or partially. For example, the Swiss franc was based on a partial 40% legal gold-reserve requirement between 1936 and 2000. On the separate subject of monetary supply, there are many terms to define and measure the money supply. While there are conflicting opinions as to their usefulness, many of us come across terms such as M1, M2, M3 etc. Despite running into the risk of oversimplifying and being wrong, one can simplistically explain these terms as follows.

The most restrictive, M1, only measures the most liquid forms of money; it is limited to currency actually in the hands of the public. This includes checking accounts travelers checks, and other deposits against which checks can be written. M2 includes all of M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds. Equally importantly, M3 includes all of M2 (which includes M1) plus large-denomination ($100,000 or more) time deposits, balances in institutional money funds, repurchase liabilities issued by depository institutions, and eurodollars held by U.S. residents at foreign branches of U.S. banks and at all banks in the United Kingdom and Canada.

It can be clearly seen that M3 is the broader measure than M1. For some reason (which I do not fully understand), US monetary authorities have been giving less importance to the tracking of M3 in recent years. However, in my opinion, M3 is a broad and comprehensive measure that gives a holistic sense of the overall money supply. Having said this, it is important to note that the M3 measure is not easily available for every economy; often times, it is estimated by private rather than public institutions.

In the context of a gold standard and money supply, it might be interesting to assess the current situation. Obviously, taking the ratio of money supply to available gold reserves can give us a feeling of how far we are from a theoretical gold standard.To be fair, at this juncture it is important to note that the world is now a much different place than it was thirty years ago. A couple of important things happened in the last thirty years: Since the beginning of the 2000s, many countries, such as the UK and Switzerland, have sold some of their gold holdings, quoting "the intrinsic laziness of gold". For this reason, UK gold reserves are currently much lower than the European reserves.

With the financial revolution and innovation in the Thatcher and Reagan years, money supply has substantially multiplied. Having covered enough of the historical developments and concepts, we can now make some observations on the current situation: As can be seen from the below table, the US currently holds around 261 million ounces of gold. The country's money supply (M3) to gold reserves ratio is around 28. This is significantly more than the 1980 ratio of around 8. A similar ratio is observed for eurozone countries. The ratio in their case is around 27. Switzerland seems to be the country with the most favourable money supply to gold reserves ratio. Its ratio approximately stands at 17.

This perhaps explains the present acceptance of the Swiss franc as a safe and reliable currency. With regards to the Asian countries: Despite their huge dollar reserves, China and Japan lag behind their Western counterparts in gold reserve holdings. As the holder of some 2.8 trillion dollars of reserve, China could well diversify its reserves into gold, strengthening the backing of its money supply with gold.

In sum, the current situation clearly shows that having a strict gold standard is no longer feasible. Given the huge increase in the money supply over recent decades, globally available gold would not be sufficient enough to have a full gold standard execution. Instead, a partial gold standard execution - coupled with strict fiscal and monetary policies - could re-establish the credibility of fiat currencies which were negatively impacted by the 2008 financial meltdown.
Posted by Mike Gupton at 9:04 AM 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.

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DISCLOSURE:
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