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Flirting With Disaster!

28 Thursday May 2009

Posted by jschulmansr in 10 year Treasuries, 20 yr Treasuries, ANV, Austrian school, AUY, Bailout News, banking crisis, banking crisis banks bear market bull central deflation depression economic trends economy financial futures gold inflation crash Markets precious metals price protection recession safety silver plati, banks, bear market, Bollinger Bands Saudi Arabia, bonds, Brian Tang, bull market, CDE, CEF, central banks, China, cobalt, Comex, commodities, Copper, crash, Currencies, currency, Currency and Currencies, deflation, Dennis Gartman, depression, DGP, dollar denominated, dollar denominated investments, Doug Casey, Dow Industrials, economic, Economic Recovery, economic trends, economy, EGO, Fed Fund Rate, Federal Deficit, federal reserve, Finance, financial, follow the money, follow the news, Forex, FRG, Fundamental Analysis, futures, futures markets, G-20, gata, GDX, GG, GLD, gold, Gold Bullion, Gold Investments, gold miners, Gold Price Manipulation, GTU, hard assets, HL, How To Invest, How To Make Money, hyper-inflation, IAU, IMF, India, inflation, Investing, investments, Iran, Jeffrey Nichols, Jim Rogers, Jim Sinclair, John Embry, Jschulmansr, Junior Gold Miners, Keith Fitz-Gerald, Latest News, majors, Make Money Investing, Marc Faber, market crash, Markets, Michael Zielinski, mid-tier, mining companies, mining stocks, monetization, Moving Averages, NAK, NASDQ, natural gas, NGC, Nuclear Energy, Nuclear Weapons, NXG, oil, PAL, palladium, Peter Grandich, Peter Schiff, physical gold, platinum, platinum miners, precious, precious metals, price, price manipulation, prices, producers, production, protection, rare earth metals, recession, risk, run on banks, S&P 500, safety, Sean Rakhimov, silver, silver miners, SLW, small caps, sovereign, spot, spot price, stagflation, Stimulus, stock market, Stocks, SWC, Technical Analysis, The Fed, Tier 1, Tier 2, Tier 3, TIPS, U.S., U.S. Dollar, uranium, Uranium Miners, volatility, warrants, XAU

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ANV, Austrian school, AUY, Bailout News, banking crisis, banks, bear market, Bollinger Bands Saudi Arabia, bonds, Brian Tang, bull market, CDE, CEF, central banks, China, cobalt, Comex, commodities, Copper, crash, Currencies, currency, Currency and Currencies, deflation, Dennis Gartman, depression, DGP, dollar denominated, dollar denominated investments, Doug Casey, economic, economic trends, economy, EGO, Federal Deficit, financial, Forex, FRG, futures, futures markets, gata, GDX, GG, GLD, gold, Gold Bullion, Gold Investments, gold miners, Gold Price Manipulation, GTU, hard assets, HL, hyper-inflation, IAU, India, inflation, investments, Jeffrey Nichols, Jim Rogers, John Embry, Keith Fitz-Gerald, majors, Marc Faber, market crash, Markets, Michael Zielinski, mid-tier, mining companies, monetization, Moving Averages, NAK, NGC, NXG, PAL, palladium, Peter Grandich, Peter Schiff, physical gold, platinum, platinum miners, precious metals, price, price manipulation, prices, producers, production, protection, recession, risk, run on banks, safety, Sean Rakhimov, silver, silver miners, SLW, small caps, sovereign, spot, spot price, stagflation, SWC, Technical Analysis, TIPS, U.S., U.S. Dollar, volatility, warrants, XAU

     Key Test Today! Stocks are Flirting with disaster, 8268 (DJIA) is the neckline of a head and shoulders. If (DJIA) closes beneath that, then we are definitely starting the next leg back down. Nothing to hold the freefall except some support at 8000 (DJIA) and then secondary confirmation of a new down move if breaks the next support at (DJIA) 7840, 7800, and then 7550. Take your profits now before you ride the DJIA right back down again.

     Gold and Silver however are poised to take off! If Gold successfully closes above $980 then next stop – new ALL time highs. As I mentioned yesterday hre is what I see for Gold. I predict that Gold will break $978- $980 and push up to approximately $1075 to $1090 on the first leg. We will see a normal retracement down to $950- $975 and then blast off to $1150 -$1250. I personally think with the hyper-inflation shoe about to drop, coupled with the remaining half of the derivative crunch. We can easily see $2250 to $2500 Gold by the end of the year. Keep accumulating Gold and Precious metals especially the junior and mid-tier producers. There are still companies out there selling at or below book value.

     In case you missed it yesterday here is the stock tip that I was offered along with an advisory service costing $297 year. This is the stock in their “special report”. just came across a sweet little play in the cobalt industry, supplies are dwindling fast and there will be a shortage just at the time this company comes on line with production. This company will have the only high grade cobalt production in the United States and will be able to supply approximately 12-14% of Cobalt needs for the USA. If you check out what Cobalt is used for you will understand why this stock has the potential to be a Grand Slam. Production is anticipated to be approximately 1525 tons per year with a 10yr life based on current reserves. I just received an offer to buy this tip along with an advisory service for $297 yr. I’ll give it to you for free. That’s just the kind of guy I am, LOL! The name of the company is Formation Capital Corp. Trading symbol (FCACF). I just picked up a bunch @ .35 cents/share, but as always do your due diligence, read the prospectus and company reports. If nothing else put (FCACF) on your watch list / radar. – Good Investing! -jschulmansr

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Subject: Two trending markets revisited and analyzed for you 

Here is a video analysis of the S&P and Gold markets. The technical analysis was right on at the time, but those markets have changed quite a bit in the last few days. The S&P had a huge rally and Gold is climbing at a  steady rate, so what’s the new analysis? Glad you asked!

Below are two free videos, one on Gold and one on the S&P, that gives us an in depth technical look into these markets. Again the videos are free and very informative. Just Click on the Links Below…

          S&P Video Analysis:                                                    Gold Projections:

Also- Here’s your chance to analyze that stock you have been thinking about adding to your portfolio. Just enter the ticker of any company, name of a commodity, or forex pair and get your complimentary technical analysis. It cost you nothing and no payment info will ever be requested.

Click Here To Enter Your Symbol/s

===================================================

Claim a gram of FREE GOLD today, plus a special 18-page PDF report;

Exposed! Five Myths of the Gold Market and find out: 

  • ·        Who’s been driving this record bull-run in gold?
  • ·        What Happens When Inflation Kicks In?
  • ·        Why most investors are WRONG about gold…
  • ·        When and How to buy gold — at low cost with no hassle!

Get this in-depth report now, plus a gram of free gold, at BullionVault  

====================================================

 Now For some reports…

Jim Sinclair: 9 Immediate Predictions For Gold – Seeking Alpha

By: Peter Cooper of Arabian Money.net

Jim Sinclair is the doyen of gold experts. It is interesting to see a very clear timeframe for the gold price posted on his website yesterday:

  1. Gold reacts as currency support for the dollar enters mid June to a slow decline (that is the official definition of a strong dollar policy, really).
  2. End of 2nd week going into the beginning of the 3rd week of June Gold launches towards and this time through the neckline of the reverse head and shoulders formation.
  3. Gold rises to $1224 where it hesitates.
  4. The OTC derivative market takes on the dollar as short sellers into dollar support.
  5. This OTC derivative currency short position builds.
  6. t is the US dollar where Armstrong will get his WATERFALL.
  7. The main selling takes place when Israel makes a major miscalculation.
  8. Hyperinflation is always and will continue to be a currency event.
  9. Hyperinflation will be a product of the upcoming massive OTC derivative short dollar raid.

“Should I be correct in the gold price action going into late June, it will fit Armstrong’s criterion for a move to $5,000”, adds Mr. Sinclair whose predictions are not always right, and who got similarly carried away last summer.

But there is the old mantra in forecasting that if you repeat something often enough then it will be bound to happen in the end.

And to be fair to Mr. Sinclair, the gold positive scenario stacking up right now does look unstoppable.

===================================================

My Note: Sounds pretty darn close to my own predictions- Amazing! 

-jschulmansr

===================================================

Gold Battle Lines Drawn at $1000 – Again —Seeking Alpha

By: James West of Midas Letter

Here we go again. The forces of legitimate money versus the incumbent purveyors of the candy floss economy squared off at the $1,000 an ounce line over which yet another battle will be fought. Arrayed against either side are formidable new elements and tried and true old ones. As usual, the first volley has been catapulted over the walls of the hucksters by the defenders of the essential timeless truth of gold’s naturally stored value against the counterfeit paper currencies.

The liabilities of the enemy have increased, and the short positions in the COMEX market are sufficiently stacked that the big bank defenders simply cannot allow gold to win decisively. G7 governments are allied against gold to a man, while emerging economic behemoths China and Russia stand in opposition.

In particular, China’s revelations that it has been in a continuous accumulation mode for the last several years and is now the fifth largest sovereign reserve of gold has created an impetus in the gold camp that has been seen lacking in the past. Institutional and sovereign investment entities now perceive a floor in the gold price based on this information, and one must beg the question as to why China would make such a revelation when it threatens to undermine the value of its $2 trillion in U.S. debt holdings.

China has also been careful to avoid buying gold on the international market, for fear, it says, of creating a stampede into the precious metals that would immediately increase the cost of its stated intention to continue accumulating gold towards the backing of the yuan (renmibi) as a global reserve currency.

Yet that is precisely what has happened. Ostensibly, the justification for tipping their hand exists in the fact that they’ve resigned themselves to the fact that selling poison toys and pet foods to Americans in exchange for a currency that loses value like light into a black hole is an acceptable if imperfect transaction. With $50 billion a year in interest payments from the U.S., they can hedge the risk buy using it to buy gold.

With the perceived floor arguably at $850, downside risk is limited in gold far more so than in U.S. treasuries, which, if mainstream media is to be taken as remotely credible, is the current favorite of safe haven investors.

‘Safe Haven’ is about to get painted with same fragrant brush as ‘AAA-rated’ investments.

Goldbugs are salivating at the prospect of vindication, but seasoned veterans of the war know that the governments and central banks arrayed against gold are not fair fighters. Since the largest players in the futures market occupy both sides of the contract, and never take delivery of the physical gold, they can orchestrate a perpetual negative sentiment towards gold by driving the future price downward by simply amping up the short positions, thus making gold appear poised for a sell-off. This has been standard operating procedure for the last decade, and it is interesting to note that ever-bigger short positions are having less influence over shorter durations before the bulls shrug off the flimsy performance and take gold higher.

Critics and observers of this U.S. Dollar image management program point to the fact that such activity, while shoring up demand for U.S. Dollar debt in the short term, effectively undermines the entire global economy, and is among the fundamental causes of financial crises such as the housing collapse and the whole current global financial fiasco.

Proponents of this manipulation, who are increasingly legion in number, correctly predict an inevitable bursting of the damn catalyzed by investment demand overwhelming the short positions, forcing them to buy and cover to limit losses, which will, in itself, stimulate the gold price even further.

With the limited oversight and feeble reporting standards of the CFTC, the ploy is facilitated by complicit (or ignorant) regulators who ensure data is obfuscated and disclosure limited. It has been this collective effort on the part of the Dollar Defenders that continuously defeats gold’s advances, repeatedly castrating the bulls and sending them whimpering to lick their wounds and regroup.

But China is now leading the charge, and the bet is that they’re willing to forgo the lost value of their USD holdings to decisively undermine the global reserve currency once and for all and replace it with the Yuan, a move that would effectively mark the beginning in the shift of the global balance of power from west to east.

The United States, overextended militarily across the Middle East and Asia, with new fronts threatening to open in Iran and Pakistan, is perilously close to an international nervous breakdown. China’s opportunity is to ride to the rescue bearing smiles and steamed pork buns while dividing up what is left of the American industrial asset pool.

Our leadership of the last decade (or more accurately, absence thereof), eager to lubricate the workings of multinational financial interests, have inadvertently played into the patient hands of their biggest creditor by prostituting the national currency shamelessly to the point where every nation in the world can see what used up piece of spent jet trash the old USD has become.

While mainstream media dismisses the idea of the Yuan replacing the dollar as the international monetary standard, those of us who have tuned out at the perception management program on CNN recognize the event as halfway accomplished.

The truly explosive moment for gold will occur when the Chinese, at their discretion, decide to spring the trap, and abandon USD completely in favor of gold, suddenly spiking the price of gold straight north in tandem with the complete collapse of the U.S. dollar.

Don’t pay any attention to the second rate hacks trying to claim credit for predicting the fall…it’s been predicted repeatedly throughout history from Nostradamus to Roubini. Any student of economic history with 20/20 vision could see this coming, and here it is. “I told you so” is a waste of time. Who’s offering a solution?

Whether or not this particular battle at the Great Wall of $1,000 an ounce is the mother of all battles remains to be seen. Desperate times call for desperate measures, and while G7 governments collude to retain power, the unforeseeable is the greatest threat to gold.

That being said, veteran observers are optimistic, to say the least.

According to Bill Murphy, intrepid soldier of gold wars and standard bearer for the Gold Anti-trust Action Committee,

 

The Gold Cartel is giving it all they have no, as evidenced by the sharply rising gold open interest on the Comex … up some 23,000 contracts on Wednesday and Thursday. They are doing all they can to counter new spec buying.

My hunch is the next time we see $1,000, and that could be very soon, gold ought to take off from there, giving us more upside dynamic daily moves. The reasons to own physical gold are off the charts … HUGE investment demand, shrinking visible central bank supply (unrelated to the cabal), shrinking mine supply, shrinking dollar, concerns over sovereign wealth debt, a horrible US economy, and a US printing press that is going flat out and will have to for some time to come.

In my opinion, all gold has to do is to stay over $1,000 for a few days, and then all kinds of bells and whistles go off.

 

Bill is not the only one who thinks the breakthrough is at hand. Bob Moriarty of 321gold.com, himself a historically prescient oracle of market crashes agrees and warns that the stock market will be the first casualty of the new financial reality.

 

If you take a look at the dollar and the long bond, it looks as if they jumped off a cliff. This isn’t gold going up, it’s the dollar and bonds going down. When the market wakes up the stock market is going to take a giant dump. No more fake rally.

 

Investors by now should be well equipped to read the writing on the wall. Whether gold breaks through $1,000 and holds there, charts new territory at much higher levels, or is beaten back down through the offices of JP Morgan (JPM), HSBC (HBC) and Goldman Sachs (GS), is irrelevant.

Gold producer stocks are up, on average, over 22% this year in the Midas Model Portfolios, while intermediate producers and close-to-production juniors have piled on gains ranging from 20 to 200%, all since January this year.

You won’t hear anybody pointing that fact out on television, and you won’t hear that from your broker, in most cases. But the lesson is clear. Gold bullion is the place to be for wealth preservation, and gold producers and explorers is where risk capital is going to see utterly stupendous gains this year.

If you buy the hype of Wall Street and Washington and wade into the general equities markets, you have nobody to blame but yourself for the heavy losses you will surely sustain.

===================================================

Claim a gram of FREE GOLD today, plus a special 18-page PDF report;

Exposed! Five Myths of the Gold Market and find out:

  • ·        Who’s been driving this record bull-run in gold?
  • ·        What Happens When Inflation Kicks In?
  • ·        Why most investors are WRONG about gold…
  • ·        When and How to buy gold — at low cost with no hassle!

Get this in-depth report now, plus a gram of free gold, at BullionVault

====================================================

 Gold vs Silver: There Is No Debate — Seeking Alpha

By: Market Sniper of We Just Trade

It is mildly amusing that when the precious metals markets are in confirmed uptrends, the perennial debate of whether it is best to own gold or silver always comes to the fore.

Both gold and silver, historically, have been money (merely utility in exchange). Gold in nature is approximately 15 times as scarce as silver. All the gold mined since the dawn of man, if molded into a cube, is said to fit inside a baseball diamond. Silver would nearly fill the stadium. China, now the world’s largest gold producer, had a silver standard as gold was more plentiful in China than silver, a bias that the west took full advantage of up through the 1870s. Silver imports by the Spanish Empire from their New World holdings were so large that it collapsed the European silver market. England, then on a bi-metalic standard, quickly switched to a pure gold standard. The Spanish Empire never recovered from the experience.

In the United States, the debate raged incessantly as to how the ratio would be “fixed” after the discovery of the Comstock Lode with western mining interests’ best known champion, Senator William Jennings Bryan, being the foremost proponent of a lower ratio. Seems it is an old debate. The good news is, you can own both. If/when the world returns to honest, stable money, you will need both: gold for the larger acquisitions and silver to make change.

While we await such an event, ratio trade the two metals to increase your holdings of precious metals.The ratio fluctuates wildly over time. In the 1970s and 1980s I used 28:1 and 40:1 as points that I would switch. At 40:1, I would be in silver. When the ratio dropped down to 28:1, I would exchange silver holdings for gold. Each time I switched, my stack of precious metals would increase in size even after dealing with the spread.

Find a precious metals dealer who will work with you on that. You maybe able to locate one that will only charge the spread on one of the metals and not both when you switch. Since then, the ratio has moved up. At one point it was even at 100:1. I now use 45:1 and 70:1 as switch points. See your tax accountant as to the benefits of such a program. Think 1031 Tax Deferred Exchange.

For those who do not want to break the rear axle of your automobile moving your silver when it comes time to switch, think about using ETFs that only reflect the price of the two metals. There are a variety of ways to accomplish this, from being in just one or the other to being long one and short the other. IF your objective is to accumulate the actual physical metals, do not use ETFs as a substitute for physical ownership. Rather, take profits from your switching trades and purchase the actual metals themselves. Gold vs. silver? No debate. Accumulate both.

Disclosure: long physical silver and gold

===================================================

A new site that is in pre-launch state that will become a virtual world – chat, shop, play, videos, etc. Anyways they are giving free shares (that should become actual company shares) to anyone who signs up and more shares if you refer people.

 ==================================================

Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor/s, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investing decisions and/or investments.

Good Investing!–  jschulmansr

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I’m Back- Time to Play!

27 Wednesday May 2009

Posted by jschulmansr in 10 year Treasuries, 20 yr Treasuries, agricultural commodities, alternate energy, ANV, Austrian school, AUY, Bailout News, banking crisis, banks, bear market, Bear Trap, Bollinger Bands Saudi Arabia, bonds, Brian Tang, bull market, CDE, CEF, central banks, China, cobalt, Comex, commodities, Contrarian, Copper, crash, Currencies, currency, Currency and Currencies, deflation, Dennis Gartman, depression, DGP, dollar denominated, dollar denominated investments, Doug Casey, Dow Industrials, economic, Economic Recovery, economic trends, economy, EGO, Fed Fund Rate, Federal Deficit, federal reserve, Finance, financial, follow the money, follow the news, Forex, FRG, Fundamental Analysis, futures, futures markets, gata, GDX, GG, GLD, gold, Gold Bullion, Gold Investments, gold miners, Gold Price Manipulation, GTU, hard assets, HL, How To Invest, How To Make Money, hyper-inflation, IAU, IMF, India, inflation, Investing, investments, Jeffrey Nichols, Jim Rogers, Jim Sinclair, John Embry, Julian D.W. Phillips, Junior Gold Miners, Keith Fitz-Gerald, majors, Make Money Investing, Marc Faber, market crash, Markets, Michael Zielinski, mid-tier, mining companies, mining stocks, monetization, Moving Averages, NAK, NGC, NXG, oil, PAL, palladium, Peter Brimelow, Peter Grandich, Peter Schiff, physical gold, platinum, platinum miners, precious metals, price, price manipulation, prices, producers, production, protection, rare earth metals, recession, risk, run on banks, safety, Sean Rakhimov, silver, silver miners, SLW, small caps, sovereign, spot, spot price, stagflation, Stimulus, stock market, Stocks, SWC, Technical Analysis, Ted Bultler, The Fed, Tier 1, Tier 2, Tier 3, TIPS, Today, U.S., U.S. Dollar, uranium, Uranium Miners, volatility, warrants, XAU

≈ Comments Off on I’m Back- Time to Play!

Tags

ANV, Austrian school, AUY, Bailout News, banking crisis, banks, bear market, Bollinger Bands Saudi Arabia, bonds, Brian Tang, bull market, CDE, CEF, central banks, China, cobalt, Comex, commodities, Copper, crash, Currencies, currency, Currency and Currencies, deflation, Dennis Gartman, depression, DGP, dollar denominated, dollar denominated investments, Doug Casey, economic, economic trends, economy, EGO, Federal Deficit, financial, Forex, FRG, futures, futures markets, gata, GDX, GG, GLD, gold, Gold Bullion, Gold Investments, gold miners, Gold Price Manipulation, GTU, hard assets, HL, hyper-inflation, IAU, India, inflation, investments, Jeffrey Nichols, Jim Rogers, John Embry, Keith Fitz-Gerald, majors, Marc Faber, market crash, Markets, Michael Zielinski, mid-tier, mining companies, monetization, Moving Averages, NAK, NGC, NXG, PAL, palladium, Peter Grandich, Peter Schiff, physical gold, platinum, platinum miners, precious metals, price, price manipulation, prices, producers, production, protection, recession, risk, run on banks, safety, Sean Rakhimov, silver, silver miners, SLW, small caps, sovereign, spot, spot price, stagflation, SWC, Technical Analysis, TIPS, U.S., U.S. Dollar, volatility, warrants, XAU

I’m back but before we get into the markets, I want to give everyone Thanks for your prayers for my Dad. We though we were about to lose him. So, I arranged for everyone to come out and see him, even his Grandkids. The visits perked him up tremendously. I continued to stay with him along with my wife. We took him out to his favorite restaurants and other places. So for the 3 weeks we were there he gained 16lbs, his color came back, and his body even started to produce Red Blood Cells. Even though he still needs occasional transfusions, was a major step in the right direction.He has regained his will to fight instead of giving up and slowly dying. So a very heartfelt Thank You to all who were praying! Each of you is very appreciated and I know God will Bless You manifestly in return…

Now for the markets… Wow! these last three weeks have been very interesting! When was the last time you have seen Stocks, Gold, and Oil rally at the same time? I will use the Dow (DJI) for my post today and provide links to some excellent analysis on the S&P 500 and Crude later in the post. Once again 8500 is the key marker for the Dow, failure to close strongly and move higher will mean we have a head and shoulders top here. A breakout above 8640 will confirm continued uptrend. Conversely a break below 8265 will mean the beginning of a strong correction to the 8000 level first and then 7850. If screams below that then down to 7500 with a test of the low around 6547. Personally I predict we will test the lows of 6550 first before we will ever see the DJI at 9000 or even 10,000. Sorry you bulls out there that is what I see in the charts.

For my favorite complex of Gold, Silver and Precious metals, a breakout over $978 signals a new strong push over $1000, or at least another test. Personally, I like the action of Gold here, building a nice base at $950. I predict that Gold will break $978 and push up to approximately $1075 to $1090 on the first leg. We will see a normal retracement down to $950- $975 and then blast off to $1150 -$1250. I personally think with the inflation shoe about to drop, coupled with the remaining half of the derivative crunch. We can easily see $2250 to $2500 Gold by the end of the year. Keep accumulating Gold and Precious metals especially the junior and mid-tier producers. There are still companies out there selling at or below book value.

I just came across a sweet little play in the cobalt industry, supplies are dwindling fast and there will be a shortage just at the time this company comes on line with production. This company will have the only high grade cobalt production in the United States and will be able to supply approximately 12-14% of Cobalt needs for the USA. If you check out what Cobalt is used for you will understand why this stock ahs the potential to be a Grand Slam. Production is anticipated to be approximately 1525 tons per year with a 10yr life based on current reserves. I just received an offer to buy this tip along with an advisory service for $297 yr. I’ll give it to you for free. That’s just the kind of guy I am, LOL! The name of the company is Formation Capital Corp. Trading symbol (FCACF). I just picked up a bunch @ .35 cents/share, but as always do your due diligence, read the prospectus and company reports. If nothing else put (FCACF) on your watch list / radar.

Follow Me on Twitter and be notified whenever I make a new post!

==================================================

Subject: Two trending markets revisited and analyzed for you 

Last week I watched a video analysis of the S&P and Crude Oil markets. The technical analysis was right on at the time, but those markets have changed quite a bit in the last few days. The S&P had a huge rally and Crude seemed to steady out, so what’s the new analysis? Glad you asked!

Below are two free videos, one on Crude Oil and one on the S&P, that gives us an indepth technical look into these markets. Again the videos are free and very informatitive. Just Click on the Links Below…

          S&P Video Analysis:                                                    Crude Oil Projections:

Here’s your chance to analyze that stock you have been thinking about adding to your portfolio. Just enter the ticker of any company, name of a commodity, or forex pair and get your complimentary technical analysis. It cost you nothing and and no payment info will ever be requested.

Click Here To Enter Your Symbol/s

===================================================

Claim a gram of FREE GOLD today, plus a special 18-page PDF report;

Exposed! Five Myths of the Gold Market and find out: 

  • ·        Who’s been driving this record bull-run in gold?
  • ·        What Happens When Inflation Kicks In?
  • ·        Why most investors are WRONG about gold…
  • ·        When and How to buy gold — at low cost with no hassle!

Get this in-depth report now, plus a gram of free gold, at BullionVault  

====================================================

Now for some current news…

Peter Schiff on $1000 Gold and Senate Bid – Gold Stock Bull

Source: Gold Stock Bull and Fox News

Peter Schiff was on Fox Business today and made the following points:

* Gold to break $1,000 soon and push much higher this time
* 50% or more of Peter Schiff’s liquid assets are in gold/gold stocks
* Most people should have 10-20%, more if you are young and aggressive
* Many gold stocks could go up 50 or 100 times from current levels
* At some point, the rest of world will stop lending the United States money
* America is in for a rude awakening, when we have to return to producing and saving again
* It is impossible for the U.S. government to pay back its debt. Default is only option.
* Peter Schiff might run for Senate in Connecticut

===================================================

A new site that is in pre-launch state that will become a virtual world – chat, shop, play, videos, etc. Anyways they are giving free shares (that should become actual company shares) to anyone who signs up and more shares if you refer people.

===================================================

What Is Even More Enticing than Gold? SILVER! — Seeking Alpha

By: Andrew Mickey of Q1 Publishing

The dollar is out. The U.S. dollar index has fallen 5% in the last week.

Treasury bonds are quickly falling out of favor. The yield on 10-year Treasury bonds has climbed from 2.5% to almost 3.5% since March signaling inflation fears and an unwillingness to fund ballooning government borrowing.

Gold is hot. Gold prices are back on the rise and gold stocks have done even better.

Is this a sign of things to come?

Well, if you take a look at the mainstream headlines, you’d think so.

An editorial headline on Bloomberg proclaims, “Dollar is dirt, Treasuries are toast, and AAA is gone.”

Even CBS News is warning, “Inflation could be coming to a U.S. dollar near you.”

To me, it seems just like a typical overreaction in the short-term.

Yes, the long-run trend for the dollar is down as the Fed keeps printing more and more of them and monetizing government debt. And yes, the prospects for gold get brighter and brighter with each passing week.

But there’s no reason to lose your head here. It’s going to take a few years for all this to play out. And the window of opportunity is still wide open to buy precious metals, real assets, and assets not denominated in the dollar (like ADRs).

That’s why, despite the strong interest in gold at the moment, I encourage you to continue to look for value in the sector. Right now, there seems to be some exceptional value in an asset which is so undervalued, it could outpace gold by 400% or more.

I’m talking about Silver.

When Gold Climbs, Silver Soars

In the past few weeks gold has been getting a lot of attention. With all the big money finally taking a liking to gold, the attention is justified. Remember, a turn in the big money’s attitude towards gold must happen before gold can break through the $1,000 mark and stay there.

The excitement surrounding gold’s surge has only pushed silver further onto the back burner. (You don’t hear about any major hedge funds loading up on silver do you?) And that’s the point. Gold is hot and silver is – in a relative sense – not.

So if you want to find an investment which isn’t so hot but still has a lot of potential in an inflationary environment, you’d want to look at silver. When you do, it won’t take long to realize silver – at current levels – could easily trounce gold in the months and years ahead.

That’s right. Silver has a much brighter future than gold. All you have to do is look at the silver / gold ratio to see how potentially lucrative the situation has become.

Ratios Don’t Lie

We’ve looked at a few ratios in the past. The reason is because ratio analysis can help identify value even in volatile markets. For instance, we looked at how the gold / oil ratio was signaling oil was a buy back in January. Oil prices are up almost 50% since then.

We looked at gold / gold stocks ratio back in December. We saw that gold stocks were significantly undervalued relative to gold. Since early December, gold is up a respectable 22% while gold stocks – as a group – have rebounded 70%.

That’s the value of ratio analysis. They can quickly show you how undervalued some assets are relative to others. And if you’re able to find them at extreme points, you can get into a trade or investment with less risk and greater upside.

Right now, the gold / silver ratio (the measure of how many ounces of silver can be bought for an ounce of gold) is at an extreme and working its way back to historical norms.

The chart below shows the gold / silver ratio is slowly working its way back to a much more normal level:

Gold-Silver

As you can see, the gold / silver ratio hung around 50 for most of 2008. Then the credit crunch threw everything out of whack and now it’s slowly working its way back to normal. But this chart doesn’t show the real upside in silver. That comes from the long-run average.

Over the long term, the gold / silver ratio has averaged about 30. That means one ounce of gold would buy about 30 ounces of silver. Today, with silver at $14.60 an ounce and gold at $953, the gold / silver ratio is 65. In other words, an ounce of gold would buy 65 ounces of silver. That’s more than twice the long-run average.

Silver prices would have to double just to be in line with the long run average.

Silver Slingshot

But here’s the kicker, when gold races, the gold to silver ratio gets flipped around. During the last precious metals bull market in the late 70s and early 80s the gold / silver ratio hit lows of 15.

That means if gold goes nowhere (granted, chances are pretty slim of that), silver could easily shoot up to $50 an ounce. That’s a 400% move for silver without gold moving up a single dollar.

Here’s the thing though, gold isn’t staying where it is. Over the next few years, gold is going much higher. And silver is going to go even higher. Silver will slingshot past gold.

Think about it. With a gold / silver ratio of 15…

At that ratio, silver would be at $66 when gold hits $1,000.

$1,500 gold = $100 silver.

$2,000 gold = $132 silver.

So if you expect gold to do well, you’ve got to expect silver to do even better.

According to the historical relationship between gold and silver, if gold does well, silver will do exponentially better. In past gold bull markets, silver prices zoomed past gold in relative terms. There’s no reason to expect this time to be any different.

In Search of Value

In the end, precious metals have been one of the few sectors which have maintained an uptrend through all this. As the long run prospects for the U.S. dollar continue to worsen, I expect the uptrend to continue. However, I expect this to take a longer time to play out than most.

Just take a look at what happened earlier this week. The Financial Times reported China is continuing to buy U.S. Treasuries. Granted, they’re switching to short-term durations, but they haven’t even come close to invoking their “nuclear” option yet and probably won’t for a long while.

We’re in the midst of a slow and steady decline of the dollar. The Fed is printing dollars to fund the growing government deficits and there haven’t been any significant inflationary consequences…yet.

That will change and it’s not too late to get prepared. Now is the time to buy precious metals and precious metals miners for your portfolio. Right now, with the gold / silver ratio indicating silver as undervalued and gold a hot topic, silver is a bit more enticing.

===================================================

Claim a gram of FREE GOLD today, plus a special 18-page PDF report;

Exposed! Five Myths of the Gold Market and find out: 

  • ·        Who’s been driving this record bull-run in gold?
  • ·        What Happens When Inflation Kicks In?
  • ·        Why most investors are WRONG about gold…
  • ·        When and How to buy gold — at low cost with no hassle!

Get this in-depth report now, plus a gram of free gold, at BullionVault  

====================================================

                                        – Trend Analysis Revealed –

Substantial moves like the ones that we have recently witnessed present opportunities to succeed or fail in the markets. Traders who stayed on the correct side of the trend were rewarded substantially.

Serious questions effecting your portfolio still remain:

– Have we seen the Indexes bottom or top?
– Is a reversal in the near future?
– Is it too late to go short?

Stay on the correct side of the market. Let our Trade Triangle technology work for you. It’s free, It’s informative, It’s on the money.

Free Instant Analysis delivered to your email inbox. Analyze ANY Stock, Futures, or Forex symbol.

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Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor/s, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investing decisions and/or investments. –  jschulmansr

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And the Winner Is…

13 Friday Mar 2009

Posted by jschulmansr in 10 year Treasuries, agricultural commodities, alternate energy, Bailout News, banking crisis, banks, Barack, Barack Hussein Obama, Barack Obama, bear market, bull market, capitalism, CDE, CEF, central banks, China, Comex, Contrarian, Copper, Currencies, currency, Currency and Currencies, deflation, depression, DGP, dollar denominated, dollar denominated investments, economic, Economic Recovery, economic trends, economy, Fed Fund Rate, Federal Deficit, Finance, financial, follow the news, Forex, Fundamental Analysis, futures, futures markets, gata, GDX, GLD, gold, Gold Bullion, Gold Investments, gold miners, GTU, hard assets, How To Invest, How To Make Money, hyper-inflation, IAU, IMF, India, inflation, Investing, investments, John Embry, Jschulmansr, Latest News, majors, Make Money Investing, market crash, Markets, mid-tier, mining companies, mining stocks, NAK, oil, palladium, physical gold, platinum, platinum miners, precious metals, price, prices, producers, production, rare earth metals, recession, risk, safety, Saudi Arabia, silver, silver miners, Silver Price Manipulation, spot, spot price, stagflation, Stimulus, Stocks, TARP, Technical Analysis, The Fed, Tier 1, Tier 2, Tier 3, TIPS, Today, U.S. Dollar, uranium, Uranium Miners, XAU

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Wow! again what a week in all of the markets. Gold is continuing to slowly build into a major rally, look for $1050 to go down this time! We have seen the retracement in the stocks (normal retracement) in a very bear marketas I also mentioned earlier. I still have my 720 Sp 500 puts and look for a nice pop before next weeks expiration. Continue to accumulate more mining stocks and I hope you got in to DGP when I did and let you know via twitter on Monday. The winner if you haven’t guessed is Gold! We have a new player entering into the melee. Crude Oil has finally flashed it’s first buy signal in 18 months. Look for strong resistance at the $50 mark. If it clears then we’re back to $80 minimum, probably $100 in the first leg. I would play this one slowly as there still is a huge pool sitting out there in tankers to be used up first before we can get into a serious rally in Crude Oil and distillates. One thing to mention is our President Obama, at least he waited until the close of markets before speaking yesterday, it almost seems he is determined to drive the stock markets down. If the Dow doesn’t hold here then the 5000 range for the Dow is not out of the question in fact a very real possibility; a full 70% retracement would actually take us down to the 4500 level. Protect yourself and Buy Gold any form and BUY it NOW! Good Investing! jschulmansr

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Claim a gram of FREE GOLD today, plus a special 18-page PDF report; Exposed! Five Myths of the Gold Market and find out:

·        Who’s been driving this record bull-run in gold?

·        What Happens When Inflation Kicks In?

·        Why most investors are WRONG about gold

·        When and How to buy gold — at low cost with no hassle

Get this in-depth report now, plus a gram of free gold, at BullionVault here…

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A new site that is in pre-launch state that will become a virtual world – chat, shop, play, videos, etc. Anyways they are giving free shares (that should become actual company shares) to anyone who signs up and more shares if you refer people. me2everyone.com

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Can the U.S. survive $80 crude oil?- INO.COM
 

Source: INO.com

For the first time since September of 2007, the crude oil (NYME_CL) market has flashed a positive signal that it is headed higher. This is the first buy signal that we have seen in over 18 months in the energy markets. 

 

The big question is, if crude oil is headed higher, how much of a price increase can the US economy afford and withstand?

Here is a raw commodity that is used by everyone and the US has no control over. This key commodity to commerce just happens to be in areas that are normally hostile to the US. If we see a hiccup in the supply chain that changes this market dynamic, even for a short time period, we could see oil move back to the $80/barrel range in a heart beat.

So how will this affect the US equity markets? If crude oil heads back to the $75-$80 range, I expect that the major indices will head south. I call it the 551 syndrome. 5000 on the Dow, 500 on the S&P 500, and finally 1000 on the NASDAQ.

In this short video I will share with you the potential target zones we could see in the next 6 to 12 months in crude oil.

So with the trend in crude oil in a positive trajectory and the trend in the US equity markets in a negative trajectory, I think the two will feed off themselves. Look for traders and hedge funds to move aggressively in both these areas with abandon.

Lastly with no reinstatement of the up-tick rule, expect stocks to once again get pummeled to oblivion.

Enjoy the video and all the best in trading,

Adam Hewison
President, INO.com
Co-founder, MarketClub

 =============================================================

Sell the Swiss Franc, Buy Gold- Seeking Alpha 

Source: FP Trading Desk

“Forceful relaxation” – it brings to mind a trader at a Mexican beach resort, not Swiss monetary policy, but that is exactly what the Swiss National Bank (SNB) announced in its Monetary Policy Assessment Wednesday, joining a growing chorus of central banks engaging in quantitative easing. Sell the franc and buy gold.

The SNB cut its target range for three-month Libor by 25 basis points to a range of 0–0.75% and announced plans to purchase domestic bonds from the private sector and sell francs in the open market. The resulting biggest ever one-day drop in the franc versus the euro and dollar is likely to be followed by franc depreciation over the next year.

Swiss lending to foreigners brings new meaning to Lord Polonius’s advice to Laertes to “neither a borrower nor a lender be.” The Swiss risk losing more than the friendship of the Hungarians who borrowed extensively in Swiss Franc between 2006 and 2008. They also risk losing their money as Eastern Europe struggles under a mountain of debt. All told, Swiss banks claims on foreigners rose from five times Swiss GDP in 2000 to roughly eight times GDP in mid-2007, according to the Bank for International Settlements (BIS).

The majority of these claims are denominated in US dollars, and that factor will continue to put pressure on the franc versus the dollar over the next year. Swiss banks’ net US dollar books approached $300 billion by mid-2007, according to the BIS.

Now that the SNB is actively trying to push the franc down to raise inflation expectations in Switzerland, watch out. This policy raises the prospects for franc depreciation and increases the case for owning gold versus all reserve currencies.

=====================================================================

Related: This is one of a multitude of reasons to Buy Gold-see next article below – jschulmansr

Swiss Action sparks talk of ‘Currency War’ – Financial Times

Source: Financial Times

By Peter Garnham in London

Published: March 12 2009 20:14 | Last updated: March 12 2009 20:14

The Swiss National Bank moved to weaken the Swiss franc on Thursday, the first time a big central bank has intervened in the foreign exchange markets since Japan sought to weaken the yen in 2004.

The bank’s move, which sparked fears that other countries could follow suit, comes as the value of the Swiss franc has soared as investors seek a haven from the recent market turmoil. In October, after the collapse of Lehman Brothers, it rose to a record high of about SFr1.43 against the euro, a level it has come close to again in recent weeks.

 

But it fell to its lowest level this year on Thursday after the SNB said the currency’s strength represented an “inappropriate tightening of monetary conditions” as it battled against a slowdown in the Swiss economy.

“In view of this development, the SNB has decided to purchase foreign currency on the foreign exchange market to prevent any further appreciation of the Swiss franc against the euro,” the central bank said.

The Swiss franc dropped 2.6 per cent to SFr1.5192 against the euro and dropped 3.2 per cent to $1.1894 against the dollar.

Analysts said the move was likely to increase talk that countries were set to engage in a bout of competitive devaluation.

“Let the currency wars begin,” said Chris Turner at ING Financial Markets.

Countries around the world faced with the constraint of zero interest rate levels might feel it was acceptable to intervene to weaken their currencies in order to ease monetary conditions, he said, adding that other export-dependent economies such as Japan would “probably be at the head of the queue”.

Michael Woolfolk at Bank of New York Mellon agreed.

“Market intervention by a major central bank such as the SNB opens up the door for other central banks, namely the Bank of Japan, to follow suit,” he said. “The yen is widely perceived in Japan to be overvalued.”

The SNB also cut its interest rates by 25 basis points, taking its three-month Libor target range down to zero to 0.75 per cent, and announced plans to adopt a quantitative easing approach to monetary policy.

Analysts said the move towards quantitative easing was sparked by a drastic revision to the central bank’s forecast for growth, which is now expected to fall between 2.5 and 3 per cent in 2009, much worse than its previous forecast of a drop of between 0.5 and 1 per cent.

The SNB said economic conditions had deteriorated sharply since its last policy meeting in December and that there was a risk of deflation over the next three years.

“Decisive action is thus called for, to forcefully relax monetary conditions,” the central bank said.

Additional reporting by Haig Simonian in Zurich

Copyright The Financial Times Limited 2009

====================================================

John Embry: Gold and Silver Are the Ultimate Insurance Policy- Seeking Alpha

By: Andrew Mickey of Q1 Publishing

John Embry: Exclusive Interview with Canada’s Foremost Gold Investor

Is gold the next “hot” investment? Or will it never break through the $1,000 threshold?

Some of the world’s leading investors are currently placing their bets.

For instance, hedge fund manager David Einhorn recently bet big on gold. Einhorn manages $6 billion at Greenlight Capital and has averaged a 20% annualized return by booking only one losing year since 1996 (last year). His fund recently bought more than $200 million of SPDR Gold Trust ETF (NYSE:GLD) and more than $75 million worth of Market Vectors Gold Miner ETF (NYSE:GDX).

On top of that, the big money managers have already pumped billions of dollars directly into gold mining companies to fund takeovers and new mines and expansion.

It’s looking like a lot of smart and big money is betting on gold. And as the financial markets, economy, and future outlook worsen, gold is holding up as a last bastion of hope for many investors.

How can you get in on it? Is it just gold? What about silver? Where are the real values to be had? What about other hard assets – water, agriculture, etc.?

It’s best to start getting prepared now.

Most recently, Q1 Publishing’s own Andrew Mickey, editor of the Prosperity Dispatch, had a private one-on-one conversation with John Embry, one of the leading gold investors in the world.

Embry has been following the gold sector for 35 years (that’s since the early 1970’s) and is one of the leading authorities on gold. Embry is currently the Chief Investment Strategist for Sprott Asset Management – a legendary name to long-time gold investors.

Prior to joining Sprott, Embry oversaw more than $5 billion in assets including the Royal Precious Metal Fund as VP, Equities and Portfolio Manager for RBC, a top-tier Canadian bank. Under his watch, the Royal Precious Metals Fund returned 153% in 2002 and was ranked #1 across all funds in Canada (remember 2002 was a horrible year for stocks as tech stocks continued to fall).

Andrew Mickey: Precious metals have been getting a lot of attention lately. But it seems like there has been a divergence between gold and silver. We’ve been watching the gold to silver ratio (the number of ounces of silver which can be bought for an ounce of gold) get wider and wider. Gold to platinum too. Do you see the divergence tied to the industrial aspect of metals like platinum and silver, gold is the supreme precious metal, or is there something else going on behind the scenes?

John Embry: No – it’s a very strong manipulative aspect at work. If you go to the COMEX and look at the trading patterns and the short positions and such, clearly the prices are being messed around with.

Silver is a smaller market and can be messed around with more easily. I think silver probably has a bit more upside potential because the price is so far behind where it should be.

Andrew Mickey: So do you see silver as one of the bright spots?

John Embry: Oh yeah, it’s an extreme bright spot. I could easily see it three times where it is now in the not-that-distant future.

Andrew Mickey: As far as gold supply, there is one period in the world gold supply where gold production kind of crested around 2007 or 2008. Are we facing a “Peak Gold” kind of situation?

John Embry: Yeah, we have most assuredly crested in terms of mine supply without question.

Andrew Mickey: So, when you look at five, ten years out…let’s say in a world where gold is $2000 or $3000 or higher, how much more gold can realistically be produced in a year?

John Embry: Zero, I think. In fact, I think you probably need a lot more lead time – maybe five to ten years.

Just look at what happened in the ‘70s. The gold price went from $35 to $800 and, believe it or not, gold production was at a lower level worldwide after that 10-year period.

Now, the big question is what will happen this time? Number one, a lot of the existing mines are being depleted quite rapidly. Number two, when the gold price goes up a lot, mines generally tend to sort of drop the grade they mine because they can make a lot of money with lower grade and they can keep the good stuff for the bad times.

So by definition, they will be mining in the same number of tons but they will be taking the gold grade out of it, so collectively they will be mining less gold. They will make more money because the price is up but they will be mining less.

The other problem is that so many of the new interesting deposits that may or may not be developed in the future are located in these God-awful third world countries. They are having a real battle now with the governments, getting permitting, deciding who makes the money out of the mine, environmental issues etc. The gold deposits are all over the place and the governments are going to delay projects.

Say you find an ore body today. It would probably take a minimum of five years before the gold hits the market with all the attendant problems there are getting it into production. So all that’s already baked in the cake. The gold price could be doing anything it wanted for the next four or five years…gold production isn’t going to increase much – if any – at all.

Andrew Mickey: Amazing, gold production declining in the last great bull market for gold. So what does this mean for gold stocks, from your perspective? Where should we focus our investments across the whole range – from explorers all the way up to the majors?

John Embry: Right now, I think the majors are reasonably priced compared to the overall list. People have sort of focused on liquidity so they have gone after the majors and they bid them up aggressively and left a lot of the more illiquid situations behind.

That will all change. As gold becomes more popular and the price rises, at that point, money will filter down the food chain from the larger companies and they will go looking for the good quality smaller ones.

I particularly like some of the smaller producers now for a lot of reasons.

For one, they are going to make a ton of money in the current environment, particularly if they are producing outside the United States. Like some of the ones that are producing in Canada. The gold price yesterday was I believe $1,230 Canadian.

Another reason is because all of the costs of gold mining are dropping right now. Energy costs, steel prices, and all the things that went up so much and really hurt gold miners’ profitability. They are all going the other way now and at the same time the price of gold is going up. So I think that people are going to be pleasantly surprised going forward by the profitability of some of these mines, which have struggled up until recently.

So I am pretty bullish on small producers and anybody who has got a legitimate ore body that can be exploited sometime within the foreseeable future. I think they are going to be viewed positively too.

But the key thing to focus on is when their production will begin. If they don’t have to worry about getting through the environmental hurdles and getting the finance and et cetera, et cetera, they are going to make a lot of money.

Andrew Mickey: What do you see as the potential risks of politics and environmental concerns preventing anyone from starting production?

John Embry: They are not necessarily preventing a company from going into production, but they are certainly delaying it.

My favorite example is that probably the best ore body that’s been discovered in the last 10 years is Aurelian’s in Ecuador; which was subsequently acquired by Kinross (KGC). But the fact is, as long as the current government in Ecuador stays in power…I just don’t see the thing entering production.

So that’s what I am talking about. It’s such a fabulous mine if it were in a good geopolitical environment. It would be being built as we speak, but there is no progress towards building it at this point.

Andrew Mickey: The gold ETF (like the GLD) has been the number one recommended way to invest in gold in the U.S.

It’s a hot subject of debate by those who are new to gold and those which have been following it for while. The new people to gold always recommend the GLD. What are your thoughts?

John Embry: Well, they are just plain wrong in my opinion.

I think gold and silver are the ultimate insurance policy. When things got really bad in the system you want to make sure the vehicle you own has the gold and silver that it allegedly is supposed to have.

Now, I may buy gold and have it in my own possession. I know I have it. And then there are other gold and silver vehicles like Central Fund of Canada (NYSE:CEF) or Central Gold-Trust (NYSE:GTU), to cite a couple, where the gold is allocated. It’s in a vault and there are regular audits to prove everything that’s behind the vehicle is in fact there. So you are getting what you pay for.

Now, in the case of the ETF I am not totally sure. I mean if you read their prospectuses closely enough you’ll see there is some wiggle room. What they are trying to do is just track the gold price so you don’t necessarily need the physical gold. They could be using paper derivative types of products to back the stock.

What really made me kind of uncomfortable recently, was there was this dramatic ramp up in the amount of money going into the GLD ETF in particular. I looked around and I am going like, where is gold coming from?

As you know, the gold market is acknowledged by virtually everybody to be tight. I know mine supply is falling, I know that – I didn’t see any appreciable change in any of the inventory levels or any of the recognized exchanges like COMEX etc., and there was no particular acceleration in the Central Bank dispositions. So my question is, if suddenly all this new buying appeared because of the ETF having to sort of stock up, where did the gold come from?

I am not sure it bought any gold. I think they might have gone to COMEX and just bought a paper contract.

I don’t know. I just think there are better vehicles than ETFs.

Andrew Mickey: Switching gears a little bit here, let’s talk about the big picture. Everyone wants to know what’s going on.

It’s a crazy time. What’s your take? What going on in the general markets and where are we headed?

John Embry: I think we are probably headed for the worst economic debacle since the Depression – if not worse than that.

And the response for that by governments around the world is going to be, I think, a blizzard of paper money creation. They will run massive deficits, trying to prop up these economies.

So I think the major development is going to be ongoing issues of currency debasement. The value of paper money against real tangible assets is going to fall considerably. Right now, we are going through this deflationary scare. It won’t last. It will change into a hyperinflationary environment in the not too distant future.

Andrew Mickey: A kind of stagflationary situation like we saw in the 1970’s?

John Embry: No, worse than that. I think the inflation would be more intense. The decline in economic activity will probably be worse.

Andrew Mickey: What are the kinds of conditions that bring us to that state? Is it avoidable?

John Embry: Basically, we have already put the conditions in place. We ran economies with constantly too much leverage and debt.

Eventually, you reach a certain point where you can’t really add any more debt because the capacity for the system to handle it has been exhausted. Once it reverses, it’s very hard to change. They are going to try to change it by simply debasing the money.

Andrew Mickey: You seem to focus on the debasement of currencies as a government “solution” – for lack of a better term – to the problem. What are some of the best ways to protect ourselves from this situation? Which are you employing?

John Embry: Our strategy is pretty simple. What we really like is the monetary precious metals gold and silver. We don’t like anything in the financial sphere at this time. The companies that we like are the more solid companies providing basic services and what have you. We like the ones which don’t have overly leveraged balance sheets.

Andrew Mickey: What about other real asset classes. There are other sectors I know you follow outside of precious metals like agriculture. That’s the one thing that I’ve been completely excited about for years, but had to turn and run from over the summer. What’s your take on it now? Is it time to wade back in?

John Embry: Well, I am with you on agriculture. It’s a necessity that we must eat.

I guess one of the positive aspects of global growth is that the third world became a bit more affluent. Improvement in their diets put more demand into the world for basic food stuffs. Now that’s slowed down a bit.

I think the real arbiter in the short run might be the climate. I see a lot of industry people bringing this up, changing sunspots. These changes in the sunspots suggest that we may be facing drought conditions in a lot of the world all at the same time.

If that’s the case, I think you are going to see massive food shortages which would underrate a considerable price appreciation in the food because there will be a real fight for it.

Andrew Mickey: So, I don’t want to get too technical with this subject, I assume that you’re referring to increasing activity in sunspots?

John Embry: Yes, there is increasing activity in sunspots; which apparently, sort of cools the world out. It’s really interesting because there has always been, as you know, there is debate about global warming.

I do believe that all this carbon release is creating global warming, but at the same time, we have this mass of long cycles in nature which sort of move from the ice age then back to a period where it gets too hot. In that cycle, we are headed towards cooling again and the sunspot is just one aspect of it.

Andrew Mickey: Can the sunspots cause some of the farming areas to change?

John Embry: Yes, they do. They have a role – for whatever reason – they have a major impact on increasing odds of getting hit by a drought. We have a lot of droughts going on in the world currently. There are droughts in Australia, South America, Northern China and Africa. But Africa has always had a drought.

There is a lot of food supply interruption. If a drought were to strike North America then that would really create a problem. I have seen some work suggesting that we are due for a drought based on certain cycle work.

Andrew Mickey: Okay, this is more or less an agricultural cycle that you are referring to I imagine. How long is this kind of agriculture cycle? Is it like an 80-year almost Dust Bowl scenario type?

John Embry: Well, yes…I hesitate to go there because…it’s like Murphy’s Law, “everything goes wrong at the same time.” And with the financial world right now in a mess the last thing we need is a sort of replay of the ‘30s in the agricultural space.

The pessimists among us think that there is a good probability that drought conditions could strike North America, and that would be the last thing I want to see.

Andrew Mickey: What about farmland then? It’s an asset class which has had extremely consistent returns over the past 50 to 60 years. But, we’ve been waiting for a time like this.

John Embry: Farmland prices have fallen off a cliff. I just saw a guy in Minneapolis; again, he was saying that farmland is on offer everywhere right now.

This is a great thing. I am now in favor of buying farmland at the right price and that price is probably – as we are cleaning this whole mess up – the right price is going to be reached.

Andrew Mickey: The same is true for all kinds of natural resources. Oil, natural gas, copper, iron ore, uranium, etc. They’re all over the world and the government s which control them are in position to really inhibit or assist private companies who want to exploit them.

Recent US policy changes favor certain alternative energies. The one that really concerns me is uranium. In your opinion, when we look at uranium, should we look at it as declining uranium supply from current mines and or how new power plants can come on line if they can’t get it? Which is the real problem? Or is it both?

John Embry: Excellent question. I do think there is a problem. The Cigar Lake up in Northern Saskatchewan has gone through all sorts of problems. Another major problem area is with the Olympic Dam mine in Australia. It has been having problems too.

So again, there’s an issue with existing production.

In that light, I think that’s going to make new discoveries. Quality discoveries in uranium which are really worthwhile and the problem, again, is how long it’s going to take to exploit them. There just aren’t too many good deposits. We had that huge run in uranium a couple of years ago, but a lot of the deposits were really junky.

The great advantage in uranium is that the true cost of producing the power, is in building the reactor. So, there’s a lot of flexibility there. They don’t care about what they have to pay for uranium just as long as they can get it.

So I think that’s one of the aspects I like about uranium. The price is sort of inelastic in that sense. Just because the price goes up doesn’t mean it’s going to start to reduce demand.

Andrew Mickey: With respect to potash, nitrogen and phosphate, where do you see opportunities there? Most people are familiar with potash, the high capital costs to build a mine and the like. Are there any opportunities in nitrogen and phosphate because it’s too easy, how do you guys kind of look at those

John Embry: Well, we actually – we meaning our Sprott Resource Corp – have been looking around for interesting opportunities in phosphate and what have you. We believe that as this whole agricultural thing unfolds that it will be a good business.

But right now, farmers are having trouble getting money like everybody else is. So really, there is a bit of a low in the fertilizer business. Looking for longer term opportunities, the short term is going to be a little problematic.

Andrew Mickey: Are there any other things that you think individual investors should keep in mind as this is the first time in a long time that any of us had to go through a downturn like this?

John Embry: Well, it’s downright ugly out there. I was born in United States and I am a huge admirer of the U.S. I think what’s happened is tragic. Consequently, people are looking to protect themselves and I really do think that precious metals in particular and solid commodity opportunities are going to be one way that’s going to pay off in the end.

Andrew Mickey: What’s your take on all the stimulus packages and infrastructure building and everything that’s going on there?

We have been really bearish on infrastructure companies. How can the government support these businesses which are mostly private?

John Embry: I think that you are right. Typically, the market overacts to these things and obviously the infrastructure spending is partly implied; because, it’s been neglected to such a great extent in North America.

We have the same problem in Canada. Our roads are falling apart. Really, they could spend a ton of money in the sector. Problem is, they don’t have the money. They are going to have to create it out of thin air.

Andrew Mickey: One last thing. Are you currently looking at or investing in water? If so, would you be looking into water rights or a pipe manufacturer for example?

John Embry: We haven’t done as much as we should have. I think water is going to be a major issue going forward.

As for ways to invest in water, I’m more interested in water rights. The good thing about Canada is, there is lots of water up here. The problem is going to be down in the U.S., particularly in Southwest and other areas. I just look at that and I shake my head.

Andrew Mickey: Well, thanks very much for spending some time with us. Is there anything else that you would like to add?

John Embry: Just that I think that it’s important that your readers know all this. The world is a lot different than it was 10 years ago.

Andrew Mickey: And probably it will be a lot different in another 10 years.

John Embry: Well, it would be a lot different looking back from five years from now too, you bet, but I think we will be stood in good stead, certainly being in precious metals and end products, I think those are the two that I like the best.

Andrew Mickey: Well, thanks for your time, I appreciate it.

John Embry: My pleasure. Anytime.

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Have a Great Weekend!-jschulmansr

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Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor/s, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investing decisions and/or investments. –  jschulmansr

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Wake Up Call!

16 Monday Feb 2009

Posted by jschulmansr in 10 year Treasuries, 20 yr Treasuries, Bailout News, banks, Barack Obama, bear market, bull market, capitalism, central banks, China, Comex, commodities, Copper, Currencies, currency, Currency and Currencies, depression, dollar denominated, dollar denominated investments, economic, Economic Recovery, economic trends, economy, Federal Deficit, federal reserve, Finance, financial, Forex, Fundamental Analysis, futures markets, GDX, GLD, gold, Gold Bullion, Gold Investments, gold miners, hard assets, How To Invest, How To Make Money, hyper-inflation, inflation, Investing, investments, Japan, Jschulmansr, Junior Gold Miners, Latest News, majors, Make Money Investing, market crash, Markets, mid-tier, mining companies, mining stocks, monetization, palladium, Peter Brimelow, physical gold, platinum, platinum miners, precious metals, price, prices, producers, production, rare earth metals, recession, resistance, risk, run on banks, safety, Saudi Arabia, silver, silver miners, small caps, spot, spot price, stagflation, Stimulus, Stocks, The Fed, TIPS, Today, U.S. Dollar, uranium

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Austrian school, Bailout News, banking crisis, banks, bear market, Bollinger Bands Saudi Arabia, Brian Tang, bull market, central banks, China, Comex, commodities, Copper, Currencies, currency, deflation, Dennis Gartman, depression, dollar denominated, dollar denominated investments, Doug Casey, economic, economic trends, economy, Federal Deficit, financial, Forex, futures, futures markets, gata, GDX, GLD, gold, gold miners, hard assets, hyper-inflation, India, inflation, investments, Jeffrey Nichols, Jim Rogers, Keith Fitz-Gerald, majors, Marc Faber, market crash, Markets, Michael Zielinski, mid-tier, mining companies, monetization, Moving Averages, palladium, Peter Grandich, Peter Schiff, physical gold, platinum, platinum miners, precious metals, price, price manipulation, prices, producers, production, protection, recession, risk, run on banks, safety, Sean Rakhimov, silver, silver miners, small caps, sovereign, spot, spot price, stagflation, Technical Analysis, TIPS, U.S., U.S. Dollar, volatility, warrants, XAU

The U.S. Markets are closed today yet something very interesting is starting to happen. Can you sense it? The shift from deflation to inflation. The “smart money” big investors are sensing it and starting to jump into Gold in a big way! Gold Prices are holding steady overseas above the $935 support level. Todays articles show the why and how of this move by big money into Gold, read on… and Good Investing! – jschulmansr

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 Something still stirring in precious-metals pond – Market Watch

By: Peter Brimelow of Market Watch

With some wild swings, gold gained about 3% on the week, closing Friday at $941. The Phx Gold Silver Index (XAU:

Technicians were impressed. Long-term chartist Martin Pring is deflationary-minded at present. Two weeks ago, he remarked that if certain trend lines were broken, “I would be dragged kicking and screaming into the bullish camp”. But now he simply says in his recent weekly Intermarket Review: “Not much to add to my recent bullish comments. Both the metals and shares recently broke out of giant patterns … With our Global Gold Index at a new all-time high – enjoy the ride!”
Pring also flags a powerful conceptual reason for the gold move. Discussing a chart of the inflation proofed Treasuries, and using the iShares:Lehm TIPS TIPT as a proxy, Pring says: “Here we see the inflation protected bonds, or TIPs. Who needs these in a deflation? But look, the price just broke to the upside … and volume is expanding! When we look at the longer term we see it’s still in a primary bear market … However this week’s breakout suggests a turn is likely.”
In other words, the bond market is getting seriously concerned about inflation. See Website
The Privateer, being Australian, is even more direct in its weekly remarks: “Why is gold going up? It is certainly not in spite of the global mania for bailout programs now sweeping the world. It is because of these programs. The more ‘liquid’ the global financial powers that be make their money — by creating it in ever larger swathes — the more they run the risk that the world starts to look elsewhere for a viable and trustworthy way to exchange goods and services.”
The Privateer’s invaluable $US 5X3 point and figure chart has now broken above its last downtrend, although its proprietor would like more progress: “This week the chart got up to and just above the second of the two downtrends. The ‘poke’ above the line which came with Gold’s close above $U.S. 945 on Feb. 12 is not yet decisive, a close above $U.S. 960 would be.” See Website
Silver, which I reported last week was exciting the gold bugs by showing unusual leadership characteristics, persisted — rising 3.5% on the week, including on Friday despite gold’s fall, and pushing the Gold/Silver ratio to 68.9 from last week’s 69.5.
But the star of the week was the reported bullion holdings of Spdr Gold Trust. (GLD:
GLD is regarded with deep suspicion by the radical gold bugs who think the metal’s price is manipulated. But at the least it has to been seen as a measure of the Western Hemisphere investment appetite for gold.
In contrast, Le Metropole Cafe monitors Indian gold imports and reports that, unusual in the past few years, the world’s largest gold consumer is standing aside for now. See Website
Interestingly, two sentiment indicators did not react much this past week. Mark Hulbert’s HGNSI on Friday stood unchanged at 60.90%. MarketVane’s Bullish Consensus actually lost a point on Friday to 78%, gaining only 3 points on the week. See Website
In serious gold moves, MarketVane excursions into the 90s are reportedly common.
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Here is where I buy my Bullion, get one free gram of Gold just for opening an account! Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Major Investors Piling into Gold – Seeking Alpha
By: James West of Midas Letter

Endeavour Financial Corp (TSX:EDV) closed a $100 million equity offering last week, and several other “bought deal” financings point to a strengthening trend: major investors are piling into gold.

The Offering was underwritten by a syndicate co-led by GMP Securities L.P. and Canaccord Capital Corporation (the “Underwriters”). Endeavour will use the funds to support its investment activity in the mining sector with an emphasis in the short term on precious metals.

The first quarter of 2009 has seen well over $1 billion flow into near term and existing mining companies, which is a reflection of the strong gold price amid safe haven demand. With estimates of U.S. government spending reaching as high as $2 trillion, large value investors are increasingly deterred by U.S. Treasury related securities in favour of precious metals.

  • Newmont Mining (NYSE:NEM), one of the world’s largest gold mining companies, raised US$1.7 billion in a combined common share/convertible debt deal which it will use primarily to fund the acquisition of the remaining 33.33% interest in the Boddington project in Western Australia that it does not already own and the additional capital expenditures that will result from its increased ownership in the Boddington project, as well as for general corporate purposes. Citigroup Global Markets and J.P. Morgan Securities led the placement.
  • Freeport McMoran Copper and Gold (NYSE:FCX) raised US$740 million through the issuance of 26.8 million common shares at $28 per share;
  • Kinross Gold Corporation (KGC) announced a “bought deal” financing for US$360 through the issuance of 24,035,000 million common shares US$17.25 per common share. The underwriters were led by UBS Securities Canada Inc.;
  • Osisko Mining Corporation (OSKFF.PK) entered into another “bought deal” led by Thomas Weisel Partners and BMO Capital Markets. The offering of 77 million units at $CA4.55 a share will gross CA$350.4 million. Osisko is developing the 6.28 million ounce Canadian Malartic Project Quebec.

Smaller deals are becoming more common for junior emerging gold companies as well. Among the recent actions:

  • Centamin Egypt (CELTF.PK) raised $CA69 million through the issuance of 106.2 million shares at CA$0.65 per share for development and construction of the Sukari Project in Egypt. This financing was led by Thomas Weisel Partners and Cormark Securities.
  • Romarco Minerals Inc. (TSX.V:R) announced a bought deal Friday worth $20 million for the development of the Haile Gold Mine in South Carolina. Romarco issued 54 million units at $0.38 each. The financing was led by a syndicate of underwriters led by Macquarie Capital Markets Canada Ltd. and including Paradigm Capital Inc. and GMP Securities L.P.
  • International Tower Hill Mines (THM) sold 2 million common shares at $2.50 per share for gross proceeds of CA$5 million, which will be directed towards further development of its projects in Alaska and Nevada. The placement was a “bought deal” led by a syndicate of underwriters led by Canaccord Capital Corporation and including Genuity Capital Markets and GMP Securities L.P.
  • Exeter Resource Corporation (AMEX:XRA) raised CA$25.2 million at $2.40 a share for development of its assets in Argentina and Chile.

And it isn’t just gold that is attracting big financing. On February 10th, Uranium One (SXRZF.PK) announced a $270 million investment by a Japanese Consortium comprised of Tokyo Electric Power Company, Incorporated (TKECF.PK), Toshiba Corporation (TOSBF.PK), and The Japan Bank for International Cooperation.

Concurrently with the execution of the subscription agreement, Uranium One has also entered into a long-term off-take agreement and a strategic relationship agreement with the Japanese consortium, both of which will become effective upon closing of the private placement.

The off-take agreement provides the consortium with an option to purchase, on industry-standard terms, up to 20% of Uranium One’s available production from assets in respect of which Uranium One has the marketing rights.

Junior Uranium company First Uranium Corp. (FURAF.PK) was also the beneficiary of a bought deal financing led by Macquarie Capital Markets this week, which saw First Uranium place 20.5 million units of its shares at $3.00 per unit for gross proceeds of $61.5 million. First Uranium will direct the funds towards the development of the Ezulwini Mine in South Africa.

Endeavour Financial is followed by many analysts and newsletter writers for its robust project pipeline.

Brien Lundin, who publishes the Gold Newsletter, says one of the main reasons he follows Endeavour Financials is because of management – especially Mr. Frank Giustra. He says this team now senses a market bottom, as they are raising capital to go after assets that now cost a fraction of what they did last year, or even six months ago. He intimates strongly that his subscribers should do the same, using Endeavour as their proxy. A mix of entrepreneurial expertise and value investing, he outlines what the smart money is doing now.

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Here is where I buy my Bullion, get one free gram of Gold just for opening an account! Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Gold: Now Demonstrating Trust in Obama – Seeking Alpha

By: Boris Sobolev of Resource Stock Guide

Gold is Starting to Believe the Obama Administration

Despite making loud headlines about stimulating the economy, the US government has been unable to raise the level of optimism among the general public, while the stock market seemed to drop into a deep state of apathy.  

 

Last week we received the long-awaited economic stimulus packet as well as the so-called plan for the rescue of the US financial system. We have already voiced our skepticism regarding the structure of the stimulus and its potential effect on the economy in a prior article.

 

As far as the size of the $787 billion package, it is clear that it is too small and too spread out into 2010 and beyond to be called a stimulus. $787 billion is just 5.6% of the GDP and when spread over two years will account for just 2.8% at a time when many industrial economies around the world are contracting by 5-10% per year. It can only be called a life support package, not a stimulus.

Japan, which got into a deflationary spiral as a result of a real estate bust, spent much more than 100% of its GDP since 1991 just to see its economy stagnate. Construction related investment alone ate up $6.3 trillion of public funds over the 17 years since 1991. Infrastructure spending accounted for $350 billion to $400 billion per year for the first half of the 1990s for an economy half the size of the United States.

The results of the Japanese fiscal stimulus were unimpressive, although it could be argued that without this stimulus, it could have been much worse.

With the United States facing similar post bubble dynamics as Japan did twenty years ago, how can we expect greater effectiveness of the Obama stimulus plan when it is insufficient and much of is clearly misdirected?

In reality, this economic stimulus package has to be viewed as only the first one of many yet to come. By having the US dollar as a world reserve currency, the US government can be much more effective than its Japanese counterpart in printing its own currency.

We will soon be quantifying the size of the government stimulus plans in trillions rather than in billions. Within the next 3 to 4 years, government spending can easily reach $10 trillion, doubling the size of the US government debt.

One of the main problems with this crisis is that the majority of the debt bubble is related to residential real estate, which does not produce cash flow, but only seems to eat it up. As home prices decline and unemployment rises, debt serviceability is worsening dramatically.

In order to avoid social unrest and to maintain popularity, the Democratic majority will face two realistic options which could begin to address the economic disaster:

  1. Forgive portions of mortgage debt which cannot be serviced. But who will pay for the losses – clearly not the weak banks. Uncle Sam would pick up the tab by printing more currency.
  2. Print new dollars to increase the nominal income of the indebted population through tax cuts, job creation, jobless benefits and various social spending.

There is no other politically possible way out of this mess other than to run the printing press. The way of the free market via bankruptcies is not popular so there is no sense to even discuss it.

Within hours President Obama will sign the stimulus into law, but we are sure that this is just the beginning of the government spending campaign.

As far as the US banks, the new US Treasury Secretary seems to be mimicking his predecessor, Hank Paulson. The essence of the announced “plan” is as follows: “We are absolutely sure that we will save our banking system, but are yet unsure of how we will do so. We will find out very soon, however. Stay tuned”.

While not knowing what to do with the banking system, the government is trying to temporarily act as one. The only specific point in Geithner’s announcement is the plan to increase the Term Asset-Backed Securities Loan Facility (TALF) facility from $200 billion to $1 trillion. This joint initiative with the Federal Reserve expands the resources of the previously announced, but not yet implemented TALF.

In essence, TALF will support the purchase of loans by providing the financing to private investors. In theory, this should help unfreeze and lower interest rates for auto, small business, credit card and other consumer and business credit. Treasury will use $100 billion to leverage $1 trillion of lending from the Federal Reserve. The TALF, which will potentially have greater effect than the stimulus plan, passed in a blink of an eye without any debate.

The markets around the world have deteriorated in deep state of indifference to the first round of actions of the new US government. Only gold is starting to demonstrate its trust in the Democratic majority. Since the inauguration, investors poured $6 billion into gold purchases through GLD alone. This is an increase of 210 tonnes in gold holdings or 24% in less than a month.

click to enlarge

Huge investment demand around the world has put an end to a steep gold correction of the second half of 2008. Most intermediate and long term technical indicators for gold have turned decisively bullish. A test of new highs by gold is very probable this spring.

In sum, gold investors are starting to believe that the Obama Administration sees one way out of economic problems which will for sure resurrect inflation.

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My Note: Did you catch that? They’re believing alright, not that Obama will get the situation fixed, just that he will cause inflation; yes even hyper-inflation , maybe even stagflation! Jump into Gold now before it’s too late… -jschulmansr

 

Here is where I buy my Bullion, get one free gram of Gold just for opening an account! Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Moody’s, S&P Dole Out Global Downgrades – Time to Go Gold? – Seeking Alpha

By: Mark O’Byrne of Gold and Silver Investments

 Gold rose again on Thursday, briefly rising above $950/oz and was up 0.6% on the day. Determined selling on the open in Asia saw gold fall and profit taking has seen gold fall in Asia and in early trading in London. This is to be expected as gold had risen by more than 15% in less than a month.

 

 

US, UK Credit Ratings Look Set to Be Downgraded

The credit rating agency Moody’s has said that the UK and US credit ratings were being “tested”. In a novel and somewhat bizarre departure, Moody’s has split various “AAA” sovereign countries into three categories based on their strength in weathering the economic storm, denoting Ireland and Spain as the weakest, with the UK and US somewhere in the middle and Germany, France, Canada and the Scandinavian nations at the top.

This will in time be seen as gimmickry. Standard and Poor’s have already downgraded Spain to AA+ and did not create sub grades within the credit rating system.

Some have criticized Moody’s for being “unfair” to Ireland, Spain, the UK and US and have argued that these agencies previously gave almost everybody good ratings, and underestimated risks, but were now going to the other extreme.

This is errant nonsense and the unfortunate fact is that Moody’s, the other credit rating agencies and the vested interests in the financial services industry continue to underestimate risks, as they have done for months and years.

Given the massive deterioration in the public finances and economies of these nations, by right they should be downgraded and unfortunately in the coming months they will inevitably be downgraded.

But Moody’s and all the rating agencies realize that this would compound an already disastrous financial and economic crisis. Many pension funds internationally have mandates or investment guidelines to only invest in “AAA” rated government bonds and if these countries bonds were downgraded, they would be forced to sell those bonds en masse. This would likely see a crash in the already very overvalued government bond markets and see long term interest rates rise quickly and sharply.

The creditors of the US in Russia and China have rightly criticized the ratings agencies for their highly irresponsible practices in recent years and are increasingly nervous about their US denominated assets.

Ratings agency Standard and Poor’s in January downgraded Spain’s sovereign debt rating to “AA+” from “AAA” in January, citing insufficient means to deal with weak growth and a ballooning budget deficit. As they did the sovereign rating of New Zealand. The fiscal position in the UK and US is arguably much worse than in these two countries (Martin Wolf of the Financial Times recently said that major US banks, with their humongous Wall Street liabilities, are insolvent) and thus it seems inevitable that the UK and US will be downgraded in the coming months.

If the US is downgraded, then in effect the reserve currency of the world is being downgraded and this has huge implications for the international monetary system. Not surprisingly there have been op-ed pieces in the Financial Times and the Wall Street Journal calling for a return to some form of gold standard.

The governments of the world are nationalizing and socializing the meltdown in the shadow banking system and the international system with potentially disastrous consequences for us all.

Conditions are set to get markedly worse before they get better and the experience of Argentina and other previously wealthy South American countries may be instructive. The IMF is called in and there are structural adjustments, social services are affected or discontinued, banks nationalized, savings inaccessible, food and energy insecurity rise.

This is a potential reality for large western economies, especially if governments keep trying to inflate their way out of the current crisis. This is leading to massive currency debasement and will potentially lead to very significant stagflation and maybe even what could be called hyper stagflation.

Now more than ever, it is essential that individual savers and investors, companies, pension funds and sovereign wealth funds have an allocation to and directly own actual physical gold bullion. Paper exchange traded funds with all the attendant counter party, custodian, sub custodian, auditing and indemnification risk are speculative trading vehicles and not physical gold.

In these unprecedented economic times, it is irresponsible and extremely high risk not to have an allocation to gold bullion in an investment portfolio.

Disclosure: no positions

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My Note: No Positions??? Mr. O’Byrne I think you need to follow your own advice above! Here is where I buy my Bullion, get one free gram of Gold just for opening an account! Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Is Gold the only salvation from this Financial Armageddon? – MineWeb

Source: MineWeb

Indications are that the global financial situation could yet get far worse before it starts getting better – particularly in Europe – and gold may again prove to be the only real way of protecting wealth in a continuing global financial meltdown.

Author: Lawrence Williams
Posted:  Monday , 16 Feb 2009
LONDON – 
 

 

“It ain’t over ’til its over” is one of the best known quotations from baseball catcher and coach Yogi Berra and as the global financial crisis unwinds it is very apposite yet again.  We ain’t anywhere near the end yet and possibly the worst is yet to come as far as European banks in particular are concerned.  Markets have breathed sighs of relief as various banks have been bailed out and stimulation packages are being approved if not already implemented. 

 

But, one gets the feeling that any relief is premature.  The debt situation in a huge number of debtor nations – virtually the whole of Eastern Europe falls into this category – is dire and has not really yet fallen into the sights of the investment world – but bankers must be quaking in their shoes as surely they are aware of the potential financial Armageddon that still lies ahead. 

And this time it is the already shaky Western European banking sector that is most at risk.  US Banks, accused of starting this all, maybe far less vulnerable to the times ahead.  True the US financial sector may have got us into this mess, but European bankers followed suit and, in the event, may be shown to have behaved far more recklessly than their American counterparts.  It would seem that some of the potential shortfalls being faced would be beyond the financial ability of Central Banks, Governments and transnational agencies like the IMF to sort out.  The system is like a house of cards.  One major failure could bring the whole house tumbling down. 

This is the kind of situation that leads to global nightmares – wars even.  Radical extremists get elected to positions of power – as with the rise of National Socialism in Germany after the crash of the Weimar Republic with its hyperinflation.  We could be in for a very sticky time ahead as the real implications, and depth, of the financial meltdown catch up with us. 

The problems ahead may not be beyond the wit of man to devise a solution which can ‘save the world’, but that is unlikely to come from UK Prime Minister Gordon Brown who appears to have laid claim to this cachet in a freudian moment of rhetorical madness.  Don’t forget this is the same Gordon Brown who decimated the UK’s gold reserves by selling half of them off (395 tonnes) at gold’s low points from 1999-2002 – amounting to some $12bn at today’s prices – a sum the UK treasury would give its eye teeth for in the current financial crisis, although this is small beer relative to the sums squandered by the UK banks.  But it is an indicator of Gordon Brown’s acumen, or lack of it, in dealing with global financial trends. 

Indeed Gordon Brown’s thinking is probably echoed by many others in the European and perhaps the US financial hierarchy which doesn’t bode well for any rescue package that will actually work to stem the flow of toxic debt which has built up all around the world and may almost certainly amount in total to a greater sum than all the world’s financial reserves combined,  But then that is the nature of banking.  It only takes a run on almost any bank to bring the whole institution crashing down, and to allow any country to fail – and there are signs that the European Central Bankers may let some Eastern European states go under, thus triggering a domino effect of defaults worldwide, to bring the world banking system to its knees – or worse.  There are even fears that past high flyers like the Irish Republic could be forced to default on its debts, and undoubtedly the situation for, say, the Baltic states is far worse still. 

What solution is there out there.  Printing money on an unprecedented scale will expose the world to huge inflationary pressures for years to come, but this may be the only way forward using more conventional solutions.  Perhaps a huge revaluation in the price of gold could help bolster some treasuries and bring some confidence back into the system.  And, as with any bank run it is confidence which is needed to stem the tide, not necessarily actual money! 

But where does all this leave the investor?  Not in a happy position.  The logic of further financial collapses and bank failures would be to knock the markets down and down, which in turn takes wealth out of the system and decimates pensions upon which an increasingly aging society is dependent. 

Buy gold may be an answer to protect oneself, but as we saw last year, gold too can be vulnerable as in times  of reduced liquidity funds and individuals have to sell any liquid assets to cover their positions.  But then gold is probably not as vulnerable as other assets – again as we have seen over the past year.  Those who were invested in gold at the beginning of 2008, for example, and did not sell during the year, at least maintained the value of their holdings while virtually all other investment options crashed, although this was not true of most gold stocks. 

Now we are seeing professional and institutional investors moving into gold in a big way just to try and protect their, and their clients’  wealth.  As we have pointed out here frequently, gold ETFs are seeing an unprecedented inflow of funds, although there are those out there who would say it is better to hold physical gold than any form of paper gold because of a growing distrust of financial institutions and paper solutions. 

And perhaps rather gold than other precious metals – notably silver.  Silver would be sure to be dragged up on gold’s coattails, but perhaps not as much  this time – even though history tells us that silver’s volatility leads it to perform better than gold in percentage terms on the upside and worse on the downside.  We are in a different situation with silver not really a monetary metal any longer.  Industrial demand pressures on silver may well mitigate any price rises here. 

Gold’s performance, though, is perhaps also dependent on investment demand outstripping a fall off in the jewellery market and an increase in liquidation of such holdings into the scrap sector.  If the big Asian economies like India and China, where mark-ups on gold jewellery are minuscule compared with the West, falter significantly then reduced demand and increased supply from this sector will need to be soaked up by the investment sector.  At the moment this seems to be capable of doing this hence the recent gold price strength, but unless sentiment changes in India in particular, where buyers seem to be waiting for lower prices, the fall in gold purchases there may limit global gold price growth.  If liquidity becomes a problem in the North American markets again, this could also dent upward movement. 

But overall, physical gold, gold ETFs and selected gold stocks would seem to be the best wealth protectors out there.  As commentators have pointed out, prices may remain relatively volatile, but currently the overall price trend tends to be upwards movement, followed by stabilisation, before the next upwards resistance levels are tested.  Gold does look to be steadily climbing back towards the psychological $1,000 an ounce level but it has had trouble sustaining increases beyond this level in the past.  Perhaps it will be third time lucky for the gold bulls.

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My Note: Prudence dictates at least 10% of your portfolio should be in Gold. Personally, I have that and also a lot of my discretionary funds invested in precious metals Stocks, ETF’s, Bullion…jschulmansr

Here is where I buy my Bullion, get one free gram of Gold just for opening an account! Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investments. –  jschulmansr

 

 

 

GLD

GLD, , ) GLD . These rocketed a startling 13.7% to 985 tonnes, setting records each day.

XAU

Delayed quote dataHUI, , ) added 1.36% to 311.16. The stock market, in case you missed it, lost ground.

Commentary: Gold’s gains for week catch bugs’ interest

By Peter Brimelow, MarketWatch
NEW YORK (MarketWatch) — Something was indeed stirring in the precious metals pond, as I reported a week ago. Key investment letters say it still is. See Feb. 8 column

 

Here is where I buy my Bullion, get one free gram of Gold just for opening an account! Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

 

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Shock and Awe! – Doug Casey

12 Thursday Feb 2009

Posted by jschulmansr in 10 year Treasuries, 20 yr Treasuries, Bailout News, banking crisis, banks, Barack Obama, bear market, Bollinger Bands Saudi Arabia, Brian Tang, bull market, capitalism, central banks, China, Comex, commodities, Contrarian, Copper, Credit Default, Currencies, currency, Currency and Currencies, Dennis Gartman, depression, DGP, dollar denominated, dollar denominated investments, Doug Casey, economic, Economic Recovery, economic trends, economy, Fed Fund Rate, Federal Deficit, federal reserve, Finance, financial, Forex, Fundamental Analysis, futures, futures markets, gata, GDX, GLD, gold, Gold Bullion, Gold Investments, gold miners, hard assets, how to change, How To Invest, How To Make Money, hyper-inflation, IMF, India, inflation, Investing, investments, Jeffrey Nichols, Jim Rogers, Jschulmansr, Keith Fitz-Gerald, Latest News, Long Bonds, majors, Make Money Investing, Marc Faber, market crash, Markets, Michael Zielinski, mid-tier, mining companies, mining stocks, monetization, Moving Averages, palladium, Peter Grandich, Peter Schiff, physical gold, platinum, platinum miners, precious, precious metals, price, price manipulation, prices, producers, production, protection, rare earth metals, recession, resistance, risk, run on banks, safety, Sean Rakhimov, SEO, Short Bonds, silver, silver miners, small caps, sovereign, spot, spot price, stagflation, Stimulus, Stocks, TARP, Technical Analysis, The Fed, TIPS, U.S., U.S. Dollar, uranium, volatility, warrants, XAU

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Late Breaking: I came across this from the Contrarian Master Himself- Mr. Doug Casey. Here is his take for 2009 a must read for investors- especially Gold Bugs! Enjoy and Good Investing! – jschulmansr

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Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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2009: Another Year of Shock and Awe – Seeking Alpha

By: Jeff Clark of Casey Research

 

In their annual forecast edition, the editors of BIG GOLD asked Casey Research Chairman and contrarian investor Doug Casey to provide his predictions and thoughts on issues everyone’s thinking about these days. Read what he has to say on the economy, deficits, inflation, and gold…

 

 

The $1.1 Trillion Budget Deficit


My reaction is that the people in the government are totally out of control. A poker player would say the government is “on tilt,” placing wild, desperate bets in the hope of getting rescued by good luck.

 

 

The things they’re doing are not only unproductive, they’re the exact opposite of what should be done. The country got into this mess by living beyond its means for more than a generation. That’s the message from the debt that’s burdening so many individuals; debt is proof that you’re living above your means. The solution is for people to significantly reduce their standard of living for a while and start building capital. That’s what saving is about, producing more than you consume. The government creating funny money – money out of nothing – doesn’t fix anything. All it does is prolong the problem and make it worse by destroying the currency.

Over several generations, huge distortions and misallocations of capital have been cranked into the economy, inviting levels of consumption that are unsustainable. In fact, Americans refer to themselves as consumers. That’s degrading and ridiculous. You should be first and foremost a producer, and a consumer only as a consequence.

In any event, the government is going to destroy the currency, which will be a mega-disaster. And they’re making the depression worse by holding interest rates at artificially low levels, which discourages savings – the exact opposite of what’s needed. They’re trying to prop up a bankrupt system. And, at this point, it’s not just economically bankrupt, but morally and intellectually bankrupt. What they should be doing is recognize that they’re bankrupt and then start rebuilding. But they’re not, so it’s going to be a disaster.

The U.S. Economy in 2009

My patented answer, when asked what it will be like, is that this is going to be so bad, it will be worse than even I think it’s going to be. I think all the surprises are going to be on the downside; don’t expect friendly aliens to land on the roof of the White House and present the government with a magic solution. We’re still very early in this thing. It’s not going to just blow away like other post-war recessions. One reason that it’s going to get worse is that the biggest shoe has yet to drop… interest rates are now at all-time lows, and the bond market is much, much bigger than the stock market. What’s inevitable is much higher interest rates. And when they go up, that will be the final nail in the coffins of the stock and real estate markets, and it will wipe out a huge amount of capital in the bond market. And higher interest rates will bring on more bankruptcies.

The bankruptcies will be painful, but a good thing, incidentally. We can’t hope to see the bottom until interest rates go high enough to encourage people to save. The way you become wealthy is by producing more than you consume, not consuming more than you produce.

Deflation vs. Inflation

First of all, deflation is a good thing. Its bad reputation is just one of the serious misunderstandings that most people have. In deflation, your money becomes worth more every year. It’s a good thing because it encourages people to save, it encourages thrift. I’m all for deflation. The current episode of necessary and beneficial deflation will, however, be cut short because Bernanke, as he’s so eloquently pointed out, has a printing press and will use it to create as many dollars as needed.

So at this point I would start preparing for inflation, and I wouldn’t worry too much about deflation. The only question is the timing.

It’s too early to buy real estate right now, although a fixed-rate mortgage could go a long way toward offsetting bad timing. It would let you make your money on the depreciation of the mortgage, as opposed to the appreciation of the asset. Still, I wouldn’t touch housing with a 10-foot pole – there’s been immense overbuilding, immense inventory. And people forget: a house isn’t an investment, it’s a consumer good. It’s like a toothbrush, suit of clothes, or a car; it just lasts a little bit longer. An investment – say, a factory – can create new wealth. Houses are strictly expense items. Forget about buying the things for the unpaid mortgage; before this is over, you’ll buy them for back taxes. But then you’ll have to figure out how to pay the utilities and maintenance. The housing bear market has a long way to run.

The U.S. Dollar and the Day of Reckoning

It’s very hard to predict the timing on these things. The financial markets and the economy itself are going up and down like an elevator with a lunatic at the controls. My feeling is that the fate of the dollar is sealed. People forget that there are 6 or 8 trillion dollars – who knows how many – outside of the United States, and they’re hot potatoes. Foreigners are going to recognize that the dollar is an unbacked smiley-face token of a bankrupt government. My advice is to get out of dollars. In fact, take advantage of the ultra-low interest rates; borrow as many dollars as you can long-term and at a fixed rate and put the money into something tangible, because the dollar is going to reach its intrinsic value.

The Recession

This isn’t a recession, it’s a depression. A depression is a period when most people’s standard of living falls significantly. It can also be defined as a time when distortions and misallocations of capital are liquidated, as well as a time when the business cycle climaxes. We don’t have time here, unfortunately, to explore all that in detail. But this is the real thing. And it’s going to drag on much longer than most people think. It will be called the Greater Depression, and it’s likely the most serious thing to happen to the country since its founding. And not just from an economic point of view, but political, sociological, and military.

For a number of reasons, wars usually occur in tough economic times. Governments always like to find foreigners to blame for their problems, and that includes other countries blaming the U.S. In the end, I wouldn’t be surprised to see violence, tax revolt, or even parts of the country trying to secede. I don’t think I can adequately emphasize how serious this thing is likely to get. Nothing is certain, but it seems to me the odds are very, very high for an absolutely world-class disaster.

Gold’s Performance in 2008

The big surprise to me is how low gold is right now. It’s well known that even if we use the government’s statistics, gold would have to reach $2,500 an ounce to match its 1980 high. I don’t necessarily buy the theories that the government and some bullion banks are suppressing the price of gold. Of course, with everything else going on, the last thing the powers-that-be want is a stampede into gold. That would be the equivalent of shooting a gun in a crowded theater; it could set off a real panic. But at the same time, I don’t see how they can effectively suppress the price. Either way, the good news is that gold is about the cheapest thing out there. Remember, it’s the only financial asset that’s not simultaneously someone else’s liability. So I would take advantage of today’s price and buy more gold. I know I’m doing just that.

Gold Volatility

Gold will remain volatile but trend upward. I don’t pay attention to daily fluctuations, which can be caused by any number of trivial things. Gold is going to the moon in the next couple of years.

Gold Stocks

Last year, it seemed to me that we were still climbing the Wall of Worry and that the next stage would be the Mania. But what I failed to read was the public’s indirect involvement through the $2 trillion in hedge funds. On top of that, while the prices of gold stocks weren’t that high, the number of shares out and the number of companies were increasing dramatically. Finally, the costs of mining and exploration rose immensely, which limited their profitability.

The good news is that relative to the price of gold, gold stocks are at their cheapest level in history. I still have my gold stocks and the fact is, I’m buying more. I’m not selling, because I think we’re starting another bull market. And this one is going to be much steeper and much quicker than the last one. I’m not a perma-bull on any asset class, but in this case I’m forced to go into the gold stocks. They’re the cheapest asset class out there, and the one with the highest potential.
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Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

 

 

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Enjoy and Good Investing – jschulmansr

 

Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investments. –  jschulmansr

 

 

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Gold’s Big Test – Will it Pass?

12 Thursday Feb 2009

Posted by jschulmansr in 10 year Treasuries, 20 yr Treasuries, Bailout News, banking crisis, banks, Barack Obama, bull market, capitalism, central banks, China, Comex, commodities, Credit Default, Currencies, currency, Currency and Currencies, DGP, dollar denominated, dollar denominated investments, economic, Economic Recovery, economic trends, economy, futures markets, GDX, GLD, gold, Gold Bullion, Gold Investments, gold miners, hard assets, How To Invest, How To Make Money, hyper-inflation, IMF, inflation, Investing, investments, Jschulmansr, Junior Gold Miners, Latest News, Make Money Investing, market crash, Markets, mining companies, mining stocks, palladium, physical gold, platinum, platinum miners, precious metals, price, prices, producers, production, rare earth metals, recession, silver, silver miners, small caps, spot, spot price, stagflation, Stimulus, Stocks, TARP, The Fed, Today, U.S. Dollar, uranium

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Sorry for the late post today, as I am writing gold closed today at $949.20 up another $4.70 oz. We are now at Gold’s big test, if it can successfully clear and close over $950 -$960 oz. then ther is nothing stopping it to go for a new test of the all time highs. Today’s action was a feint like a boxer about to deliver the knockout punch! However a word of caution if Gold fails after 2-3 attempts at clearing the $950 level then a retracement back to the $875-$890 level will occur. It will consolidate and then come back up to retest the $950 level. Personally however, in my opinion I think this is it the 2nd successful close over $940, I think we are getting ready to see Gold go back and test all time highs. If you hurry you can still get aboard! – Good Investing! – jschulmansr

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Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Stocks Are Doomed, Only Cash or Precious Metals May Survive – Seeking Alpha

By: Doctor O of Sell The Rally

 

President Obama, his administration, and the Democratically controlled Congress are working as quickly as possible to spend as much money as possible on their constituent base, to consolidate their stranglehold on power. There is still no bank rescue plan, nothing in the “stimulus” bill to create or even slow job losses, and seemingly no understanding about the enormous amount of bad debt that is rapidly losing value and destroying the financial system from the inside out.

 

 

 

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Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

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Will Gold Hit $1,000 – Seeking Alpha

 

Gold prices broke out Wednesday and traded above $940/ounce. This is a new 6-month high! In my article last week, on 2/4/09, I said:

 

 

 

Catch the New Bull! – Buy Gold Online – Get 1 gram free! – Just open an Account, Buy Safely, quickly, and at low prices, guaranteed! – Bullion Vault.com

 

 

In the three months ending January 31, SLV led its benchmark index by nearly 25%, trumping PowerShares’ DB Silver offering, DBS, by a narrow 1.25%. If analyst predictions play out, the demand for silver could continue to grow in upcoming weeks, even as a dismal holiday season for jewelry persists well into the new year. In a recent report, UBS upped forecasts for both silver and gold, citing expectations of speculation and investor interest, as uncertainty still reigns in U.S. markets.

Supporting the hypothesis that the flight to precious metals still results from investor uncertainty is UBS strategist John Reade, who noted that “purchases of physical gold have jumped over the past six months as investors’ fears about the current financial crisis and the possible outcomes from government efforts to support banks and economies have intensified.” UBS also estimates that investor interest in precious metals such as gold will double in 2009, compared with 2007. If this prediction plays out, gold could reach an average of $1,000 before interest wanes.

Shares of SLV track the spot prices of silver and are backed by physical silver reserves. On February 3, New York–based SLV announced that the bullion holdings for the fund rose 77 tons, approximately 1%. This increase puts the fund at a record 7,530.2 tons of bullion, up 11% since January 2. While other factors come into play during the intraday trading of SLV shares, increasing stocks of bullion underscore the growing interest that SLV is seeing in 2009.

Futures, currency and commodity prices are extremely volatile and unpredictable, so understanding the reasons behind silver’s recent spike is an important step in avoiding the swell and vacuum of SLV’s swings. As currency concerns continue to plague investors worldwide, an increasing number of people have turned to silver as a “why-not” alternative to investing in unpredictable notes. India, whose citizens seize silver as a tangible alternative to currency, imports an average of 3,000 tons of silver per year. The Economic Times recently reported that banks may not be able to import regular amounts of silver in the future, a factor that could drive silver prices there drastically higher in black market arenas.

So what makes SLV stand apart from the ever-expanding sea of commodity ETF choices? Its track record, size, and liquidity are all comforting factors for investors looking to jump into the silver fray. With 245 million shares outstanding and an average of 6 million shares traded per day over the last three months, SLV simply dwarfs peers such as DBS. Launched in January 2007, DBS has a three-month average daily trading volume of nearly 200,000—a factor that makes SLV a more liquid choice in white-knuckle times.

Investors should also be wary because while SLV tracks the spot price of silver, other important factors come into play during the intraday trading of the ETF. In addition to reflecting the price of physical silver, SLV also takes into account counterparty risk and the ever-changing emotions of investors in the open marketplace. While the silver is likely “there,” the ratings on even the most venerable of banks—like SLV keeper Barclays—could come into question in perilous economic conditions. Success in the fund is also contingent on the increasing price of silver. Placing funds in SLV is not the same as under the mattress—management fees and “iShares Silver Trust expenses” are exacted by the issuer on a regular basis, slowly eroding the value of one’s investment over time, if the price of silver does not continue to rise.

The longer the economic stimulus plan is stripped and scrubbed across the floor of the Senate, the more investors could continue to pile into a tangible investment like SLV until the storm passes. When the outcome becomes clearer, one-tune investments like SLV may become a more proportionate segment of portfolios and lose steam as the attention that has prompted their rise refocuses on other sectors.

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Will Gold Reach $5000 an Ounce? – Seeking Alpha

By: Mark O’Byrne of Gold and Silver Investments

 

 

Gold surged a further 3.3% yesterday to $942.45 (as did silver) as worries about the US and global financial system and economy continue to grow and governments print money on an unprecedented scale to combat the economic crisis. Asian and European stock markets are again under pressure this morning.

The strong close above $930/oz yesterday should see us once again challenge the record highs of $1,003/oz seen last March (March 17th) when Bear Stearns collapsed.

We have since had a long period (nearly 12 months) of correction and consolidation and thus a solid foundation has been built from which the next leg of the bull market will likely be launched. Our forecast at the beginning of the year for gold to rise as high as $1,250/oz looks increasingly conservative.

Gold Surges to New Records in Euros and Sterling as Crisis Deepens

Gold continues to surge to record highs in other major currencies (the London AM Fix this morning was at $944.00 USD, £666.33 GBP and €737.04 EUR. Worries about the health of the financial system and economy in the UK and EU are leading to weakness in the euro and sterling that has seen them fall in value versus gold. Gold has surged to €737/oz and over £666.33/oz (see charts below).

Gold to Reach $5000/oz According to Respected Goldcorp Founder

The respected founder of Goldcorp (GG), Rob McEwen told Bloomberg how he sees gold rising to as high as $5,000/oz in the next four years. Goldcorp is the second largest gold mining company in the world by market capitalization.

As governments increase the money supply to combat recession, bullion will more than double to $2,000 an ounce by the end of next year. “Politicians around the world are listening to cries from their electorates and they’re giving money to all callers,” McEwen said yesterday.

McEwen has more than $100 million in gold investments and said he also has a “big, big” holding in bullion. McEwen said he started buying bullion in August 2007, at the beginning of the subprime mortgage crisis. “I realized we had reached an inflection point regarding money,” McEwen said. “It was all about protecting money, and gold served that purpose.”

The recent trend of fiat currencies falling vis a vis gold looks set to continue for the foreseeable future. McEwen’s bold prediction looks outlandish now (as did predictions of gold at over $1,000/oz in 2001) but given the confluence of extremely strong fundamentals, gold will likely rise to levels in the coming years that seem unfathomable today.

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My Note:- I think a more realistic view would be Gold at $2500 to $3000 in next 2-3 years. However if everything goes to H*** in a Handbasket then yes $5000 and more! – Good Investing! – jschulmansr

Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investments. –  jschulmansr

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Silver The Other Precious Metal – Seeking Alpha

By Don Dion of Fidelity Independent Advisor

 

In a global economic crisis for which the media has seemingly exhausted its cache of negative adjectives to describe the meltdown, one is hard-pressed to find an example of success in the quagmire that has become the marketplace. When scanning the ranks of the ETF Sector Momentum Table, however, one fund’s sweeping forward progress makes it a glinting example among its peers. iShares’ Silver Trust (SLV) vaulted from the No. 60 position in the rankings on December 2, 2008, to the No. 14 spot on February 3, 2009. If precious metals continue to outpace agricultural commodities, and the “flight to safety” extends into a probable “odyssey toward conservative investing,” SLV will be an interesting fund to track in upcoming months.

 

“We’ll wait for GLD to confirm that $88 will hold. Above $90, we should see more buyers coming in. March in-the-money calls are reasonably priced. AEM is another good vehicle to play gold. Although it is very volatile, it is a momentum stock and can run up fast!”

GLD successfully tested $88 and closed above $90 on Tuesday. On Wednesday, it jumped on high volume, more than twice the average volume!! GLD closed at $92.29, up +2.31%. AEM also did well, gaining +6.58%, or $3.48, finally breaking above $55.

click to enlarge

GLD

GLD added $2.08 to close at $92.29. It jumped on very high volume Wednesday. It closed just below the resistance at $92.5. This is only a soft resistance. The nearest hard resistance is between $95-$97.5.

Compared to the stock market, which had been treading water in a tight range since November last year, GLD had done much better. We can see a big divergence in this comparson chart:

The SPX has basically traded flat. On the other hand, GLD has risen nearly +30%, from $72 to $92!

GLD’s chart is still very strong. Its daily MAs are curving higher and still holding a bullish formation. The MACD is also turning up. I think GLD can easily revisit $100 within the next few months, which means gold can retest $1,000, and likely go above. Again, March “within-the-money” calls are reasonably priced. If GLD goes to $100 within the next few weeks, these options will probably double.

Good day and HappyTrading! ™.

Disclosure: no positions

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My Note: Yes! Gold will hit $1000 in fact will go and test the $1050 level. I n the case above the writer Mr Wang did an excellent forcast but notice no positions! I hope he follows his own advice and jumps on either (GLD) or if you want more bang for the buck (DGP). My disclosure I am Long (DGP), and (GLD). Also Long Bullion, Large, mid-tier and junior mining shares in the whole Precious metals spectrum including Rare Earths and Strategic Metals. Also Don’t forget silver as the next article points out. Finally do not forget Platinum and Palladium their time is coming too, mark my words! – jschulmansr

 

Home foreclosures are accelerating. We await a tidal wave of personal and corporate bankruptcies and the implosion of the commercial real estate market that will trigger more massive losses in the banking system.

In short, I have no confidence in the U.S. Government to “solve” the current depression. In fact, they will no doubt make it worse by socializing the economy and spending money obscenely. No wonder the only thing that’s working is precious metals.

I cannot consider investing in any stock until this virulently anti-business administration is either voted out of office or starts to see things more rationally.

The Last Depression, Coming to a Town Near You

Keep Away from U.S. Stocks as They Cascade Down

Gold Threatening to Break Out To New Highs Against the U.S. Dollar

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Is this the Move? Gold is Breaking Out!

26 Monday Jan 2009

Posted by jschulmansr in agricultural commodities, banking crisis, banks, bear market, bible, Bollinger Bands, bull market, capitalism, central banks, China, Comex, commodities, Copper, Currencies, currency, Currency and Currencies, deflation, Dennis Gartman, depression, dollar denominated, dollar denominated investments, economic, Economic Recovery, economic trends, economy, Federal Deficit, Finance, financial, Forex, Fundamental Analysis, futures, futures markets, gold, gold miners, hard assets, How To Invest, How To Make Money, id theft, India, inflation, Investing, investments, Latest News, Make Money Investing, market crash, Markets, mining companies, mining stocks, natural gas, oil, palladium, physical gold, platinum, platinum miners, precious, precious metals, price, price manipulation, prices, producers, production, silver, silver miners, small caps, spot, spot price, stagflation, Stimilus, Stimulus, Stocks, TARP, Technical Analysis, timber, Today, U.S. Dollar, Uncategorized, uranium, volatility

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agricultural commodities, alternate energy, Austrian school, Bailout News, banking crisis, banks, bear market, Bollinger Bands, bull market, capitalism, central banks, China, Comex, commodities, communism, Copper, Currencies, currency, deflation, Dennis Gartman, depression, diamonds, dollar denominated, dollar denominated investments, economic, economic trends, economy, Federal Deficit, financial, Forex, futures, futures markets, gold, gold miners, hard assets, heating oil, India, inflation, investments, Keith Fitz-Gerald, Marc Faber, market crash, Markets, mining companies, Moving Averages, natural gas, oil, palladium, Peter Schiff, physical gold, platinum, platinum miners, precious metals, price, price manipulation, prices, producers, production, protection, rare earth metals, recession, risk, run on banks, safety, Saudi Arabia, Sean Rakhimov, silver, silver miners, socialism, sovereign, spot, spot price, stagflation, Technical Analysis, timber, U.S. Dollar, volatility, warrants, Water

As I write Gold currently is up another $9.30 oz today! Even more importantly it is well above the psychologically important price level of $900 oz. A new high will confirm the breakout and BANG! we’re off to the races. Todays past has some good articles detailing why could could be breaking out here. Enjoy and Good Investing!- jschulmansr

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Here is a safe way for even a small investor to get in on the Gold Rush! You can buy quantities as little as 1 gram to 1000’s of oz. I personally use Bullion Vault for my physical metal purchases.

Catch the New Bull! – Buy Gold Online – Safely, quickly, and at low prices, guaranteed! Bullion Vault.com

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Could There Be a Real Breakout In Gold?— Seeking Alpha

By: Trader Mark of Fund My Mutual Fund

After a series of head fakes much of the past half year, the most watched move in the market might finally be “real” this time. With all the world’s printing presses going on overdrive, and currencies being mocked – gold “should” have been rocketing. Many theories persist on why it hasn’t, but really it does not matter. The price action is all that matters and this type of movement will get the technicians very interested.

Things to like
1) a series of higher lows
2) the trendline of lower highs has been penetrated

Things to see for confirmation
1) any pullback is bought
2) price prints over October 2008’s highs, signaling the end of “lower highs”

When last we looked about 6 weeks ago [Dec 11: Dollar v Gold – Can we Trust this Change?] , it was just another headfake – this formation on the chart does look more promising.

These are 2 names; one in gold and one in silver we’ve had our eyes on.

Or just play it simple and go double long gold

 

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Happy Days For Gold? —Seeking Alpha

By: Jeff Pierce of Zen Trader

Gold was in the spotlight on Friday in a big way, nearly moving $39. Is this a hat tip to the big move that many goldbugs have been anticipating? Is all the money printing that the Federal Reserve finally catching up with the US Dollar? Should you have bought gold on Friday because it’s a straight line up from here? Let me preface my answers by saying that I’m a short term trader that will sometimes allow a trade to turn into a longer term trade but that doesn’t happen very often. I’m currently flat precious metals but will be looking for a good risk/reward, but for anybody reading this know that this analysis is from a momentum based perspective.

So the answers to the previous questions I believe are yes, yes, and no.

gld

I’m a big fan of gold for a number of reasons (fundamental, technical, historical) but I know from experience that it trades much different from a momentum point of view. It tends to sell off once it goes outside it’s upper bollinger band as seen by the arrows above. Just when it looks like gold is going to bust out and move to blue skies it seems to run out of buyers and reverses. As you can see GLD and many individual gold miners moved outside this indicator on Friday and I expect a small pullback before it begins a new wave up.

Judging by the negative divergence on the RSI you can easily see that momentum is waning. As the stock has been making higher highs, the RSI has not been confirming the move. We could possibly move up to the 92 level before profit taking hits, but I just don’t see a good entry at this point if you’re not already invested in these stocks. It would be more prudent to wait for a slight low volume pullback before entering. The only problem with this way of thinking is there could possibly be many with this outlook and that could actually propel gold to higher levels, but I’m willing to risk that because if it does move up even more, then that will confirm the strength and I’ll buy even more on the eventual dip.

If you are long from lower levels I would consider taking some profits off the table now to prevent yourself from giving up any of your gains.

“I made all my money selling to soon.” ~ JP Morgan

slv

I like silver’s chart a tad better from a technical aspect as the base that it’s been building since last September seems a little more stable. The RSI trendline has been steadily moving higher as the price has been trending higher which is very bullish. I think we’re a tad overbought here and will be looking to get long stocks such as PAAS, SLW, and SSRI when we pullback or move sideways for a week or two.

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Now- Some Commentary by Dennis Gartman

Dennis Gartman on Gold, Oil, Government and the Economy- Seeking Alpha

Source: The Gold Report

With a real roller-coaster year behind us, how would you characterize your macro overview of major economic trends for 2009?

Dennis Gartman: It’s abundantly clear that we have been in recession; we’re in a recession; and we’re likely to remain in a recession through the greatest portion of 2009. The monetary authorities around the world have done all the things they’re supposed to do, which is during a period of economic weakness throw liquidity in the system as abundantly, as swiftly, as manifestly as possible and expect the liquidity eventually to wend its way through the economy and strengthen economic circumstances. That may be sometime late in 2009. In the meantime, we’ll see continued bad economic data and continued increases in unemployment. It’s going to seem like things are really, really, really bad.

But let’s remember that things are always their worst at the bottom. By definition, recessions begin at the peak of economic activity when all economic data looks its best. So while things will start to look very bad through the rest of 2009, I bet that by late this year and early 2010 we will start to see economic strength coming at us because of the liquidity injections going on everywhere.

TGR: What will be the first signs that we’ve reached the bottom in terms of the recession and are starting to turn around?

DG: The signs of a turnaround will be that everybody believes that there are no signs of a turnaround. We’ll see Newsweek writing a series of cover stories talking about the end of Western civilization. The Financial Times of London headlines will read, “The Recession Seems Endless” and “Depression Is Upon Us.” Every day’s Wall Street Journal articles will be just manifestly bleak in nature. That’s what the signs will be.

And then all of a sudden, things shall begin to turn around. But the signs are always their worst at the bottom. That’s how things function.

TGR: So the popular press is in essence on a delay mode.

DG: Oh, it always is.

TGR: By three months, by six months, by a year?

DG: It’s probably a little less slow to react than it used to be, but let’s say three months.

TGR: So you like the fact that the monetary authorities have put liquidity into the system?

DG: Absolutely.

TGR: And it sounds as if you think it just takes time to work through the system.

DG: Always has; always will. That’s how these things go about. You have recessions because you had an economic advance where, in Greenspan’s terms, “irrational exuberance took over.” You have to dash that irrational exuberance and make it into irrational depression. Irrational, manifestly bleak, black philosophies have to make their way to the public. That’s just how these things happen; it’s happened time and time again.

The recession that I recall the most clearly is that of ’72-’74. We have to remember that unemployment was high up in double digits. We saw plenty of articles in the press about the new depression. If you go back and read articles from July through September of 1974, you will be convinced that we will never have an economic rebound in our lives again. Well, clearly, that’s just not the case.

TGR: What about the bearish people who say we’ve never seen worldwide conditions like this and that we’re in the “new era”?

DG: We probably haven’t seen the world going into recession at one time such as we are now. But I think that’s simply indicative of the fact that today’s communications are so much better. People in the United States or Canada or Europe really never would have known much about a recession in India 20 years ago, because the news media would not have covered it. Nothing told you about economic circumstances abroad. Now, with the Internet, information comes at you absolutely one-on-one.

All correlations have gone to one in this present environment. When stocks go down in the United States, they go down in India. When they go down in India, they go down in Vietnam. When they go down in Vietnam, they go down in Australia. That wasn’t the case 20 years ago; you didn’t have the small world united through communications that we have now. And now the correlations of emerging markets and large markets have all come together.

TGR: If that’s true, and worldwide financial markets are all tied together, could any given country “emerge” as a growth country while the rest remain in recession?

DG: Oh, it’s possible, but I don’t think we’ll call them “emerging markets” anymore. You’ll just find that one country pursued better economic policies, probably by cutting taxes or increasing government spending or doing away with some onerous legal circumstance that might have previously inhibited economic activity. The Chinese are doing any number of good things at this point, and that country may just have been more enlightened and it may come out of the recession faster than the others do. But now they won’t do it on their own, and anybody who does do it will be watched and understood much more swiftly than in the past. For example, did you ever know what was going on in Iceland 10 years ago? Of course not; but now you do.

TGR: Right. The only emerging markets we heard about were China and India. No one ever discussed South America.

DG: And now they’ve emerged. But now we understand. We hear news from Venezuela every day. Now we hear news from Sri Lanka every day if we want it; we can get it very easily. We couldn’t do that 10 years ago; 20 years ago clearly we couldn’t. That’s been the big change. Information travels so much more rapidly. That’s why all the correlations have gone to one. We are now one large economic machine that maybe one of the component parts does a little bit better, but it won’t shock anybody, and there won’t be anything “emerging.”

TGR: Back to the bear people. You referenced the ’72-’74 economy, but this time, many are pointing to the debt situation that the U.S. and probably a bunch of the world economies are in and the fact that we’re committing to billions—and in the U.S., trillions—of dollars more. Won’t that influx of new money have some kind of significant bear impact going forward?

DG: No, it will have a bullish impact. Unless all the rules of economics have been rescinded, money pushed into a system will push economic activity higher.

TGR: But it will also push inflation higher.

DG: Oh, that’s very likely to happen. The question is whether it will be inflation of 1%, 2%, 5%, or will it be a Zimbabwean-like inflation? The latter isn’t going to happen, and 1% isn’t likely going to happen. But 2% to 5% inflation? Yes, that’s likely to happen several years down the line.

TGR: Gold bugs are saying, “Buy gold now.” What would be your advice under these circumstances?

DG: I happen to be modestly bullish on the gold market, but not because of inflationary concerns. It’s more that I think gold has quietly moved up the ladder of reservable assets, a reservable asset being one that central banks are willing to keep on their balance sheets, all things being equal. Dollars are still the world’s dominant reservable asset. The Euro is next and gold is probably the third.

The Fed has thrown off a lot of other assets and taken on securities, debt instruments, mortgages and the like, but I think they’re doing exactly the right thing. Some central banks with a lot of U.S. government securities on the balance sheet may decide that going forward, they may buy more gold rather than more U.S. government securities if they’re running an imbalance of trade surplus. For instance, if I’m the Bank of China and I hold a minuscule sum of gold, maybe I should own a slightly larger minuscule sum.

TGR: That’s really diversifying your monetary assets.

DG: I think that’s all that will drive the gold prices quietly higher. I am not a gold bug; I don’t think the world’s coming to an end. I think the history of man is to progress. And yes, we have relatively large amounts of debt, but you can go back to the recession of 1974; you can go back to 1980-81; you can go back to the recession of 1907, and you will see the same arguments—that the world is too debt-laden. And the same arguments, the same language, the same verbiage was always written in exactly the same circumstances. Guess what? We moved on. This time might be different, but I’ll bet that it won’t be.

TGR: What would your recommendation for investors to do in gold? If they want to do any type of holding assets in monetary value, should they be looking at holding physical gold or buying ETFs or buying into the equity?

DG: For the past several years, I’ve told people that if they’re going to make the implied bet on gold, bet on gold. The gold bugs tell you that you have to own bullion. I say, no, you should really own the GLD, the ETF. It trades tick-for-tick with gold. If some truly untoward chaotic circumstance ran through the world’s banking system I guess maybe GLD and bullion would diverge at some point, but we’d have other problems long before that would occur. So if you’re going to make the implied bet on gold, bet on gold. Do the GLD.

TGR: But not physical gold?

DG: I do own some physical gold. But do I own a lot of it? No. And quite honestly, I hope I lose money on the physical gold I have. It’s an insurance policy. Nothing more than that.

TGR:: Are you looking at physical gold as the insurance policy or any investment in gold as an insurance policy?

DG: There’s the old saying, “Those aren’t eatin’ sardines; them is trading sardines.” Some gold I consider to be tradable, and that’s ETF-type stuff, and I have a small amount in the lockbox in the form of gold coins. That’s my insurance policy.

TGR: That would be what the typical investment broker might advise, 5% to 10% in gold.

DG: That’s it. Exactly, that’s it. Don’t get overwhelmed by it.

TGR: How about mining stocks?

DG: If you’re going to bet on gold, there’s nothing worse than being bullish on gold and owning some mine—especially in some junior fly-by-night—and walking in one morning and finding out that the mine you thought you had got flooded or all of your workers were unionized and walked off or management was somewhat derelict. You may have been right on the direction of gold, but your stock went down. So I’ve told people to stay away from the juniors; that’s a terrible bet on gold. If you’re going to bet on gold, bet on gold.

Maybe you’ll want to start punting on Barrick Gold Corporation (NYSE: ABX) or Newmont Mining Corp. (NYSE: NEM) or the real large names, rather than the juniors. There’s just too much risk in the juniors. Yes, everybody says, “I bought this junior at a nickel and now it’s at 15 cents.” Well, jolly for you, but you probably bought 15 others at a nickel, and they’re all bankrupt. If you’re going to bet on gold, bet on gold.

TGR: So you’re saying with that advice that if you want to bet on gold equity, bet on blue-chip gold equity stocks that have just been hammered down through the market.

DG: That’s correct, Agnico-Eagle Mines (TSX: AEM), ASA Ltd. (NYSE: ASA), the Newmonts, the Barricks, that sort of thing.

TGR: If we take that logic and look across the broad array of sectors, would you also recommend looking at other blue chips that have just been battered? Or do you think that some sectors will recover faster than others? Such as the financial sector, the energy sector, the housing sector, the precious metals sector?

DG: I’m really quite bullish on infrastructure—the movers and the makers of the things that if you drop them on your foot, it will hurt. I think I want to own steel and copper and railroads and tractors because I think we’re going to be building roads and bridges. That’s probably one of the things that probably will bring us out of the economic morass. Along those lines, I wouldn’t mind owning a little bit of gold at the same time.

TGR: Unlike gold that you can buy and own, if you look at steel and copper, are there specific companies and equities that are appealing to you?

DG: Again, as in gold, if I am going to buy gold equities, I’m going to buy the biggest names. If I’m going to buy steel, I’m going to buy the biggest names. U.S. Steel comes to mind. That’s the easiest; that’s the best; that’s where liquidity lives. It has been bashed down from the highs made last July; it’s down—what?—75% from its high. Recently it stopped going down and is in fact starting to go up now on bad news. So if you’re going to buy steel, buy the most obvious ones—U.S. Steel or buy Newcorp.

TGR: You talked about the energy market being weak in one of your recent newsletters. Do you see this weakness continuing or do you see a turnaround happening in ’09?

DG: The one thing that we can rest assured in the rest of the world is that OPEC chiefs cheat on each other—they always have and they always will. So when OPEC says that it’s cut production, that’s a lovely thing. No, they haven’t, and they don’t. Because the problem OPEC has is they’ve all raised their standards of living and the expectations of their people, and they all have cash flow requirements. You have to sell three times as much $50 crude oils as you sold $150 crude oil to meet the demands of your populace that you have increased. So the lovely thing from a North American perspective is that Chavez finds himself in a very uncomfortable position and needs to produce a lot more crude oil to keep his public happy. It’s rather comical, isn’t it, that Chavez was giving crude oil away to the Kennedy family to be distributed to people in the Northeastern United States until two weeks ago when he had to stop. He had to stop because he needs the crude oil on his own to sell, not to give away, to meet cash flow demands.

Iran is in exactly the same position. Isn’t it lovely to see that Putin, who was really feeling his military oats six months ago with $150 oil, has to pick fights with Ukraine and smaller countries now with crude at $45 a barrel? Where is crude going to go? I wouldn’t be surprised if we make new lows.

TGR: Will there be new lows for ’09? Are you buying into this whole peak oil argument that production eventually will be unable to meet demand?

DG: Do I believe that we’re going to run out of crude oil in the next 100 years? Not on your life. Sometime in the next 10,000 years we probably will run out of crude oil. In that instance, I am a peak oil believer. It’s not going to happen soon though. I remember they told me when I was in undergraduate school back in the late ’60s that we would be out of crude oil by 1984.

TGR: Do you mean out of oil? Or at a point where demand exceeds production?

DG: We would be out! Gone, done! There would be no more. Isn’t it interesting? We’ve pumped crude oil for 28 more years. This is an interesting statistic: We have either seven or eight times more proven reserves now than we had in 1969. And I think we have used a bit of crude oil between now and 1969.

TGR: Just a wee bit.

DG: A wee bit, and yet we have seven or eight times more proven reserves. Every year we have more proven reserves. So, yes, I’m a peak oil believer. Sometime in the next 10,000 years we will run out of crude.

TGR: With Obama now in office and talking about getting off our reliance on foreign oil, what’s your view of the future on all the alternative energies that are being so pushed by many people in the U.S. government?

DG: I think it’s wonderful job-creation programs, none of which will prove to be of much merit at all. All of the Birkenstock-wearing greens will feel very good about having their rooftops covered by solar panels, but is that going to resolve any energy problems we have? No. No. Nuclear power will do that. Maybe using the oceans will do that, but wind power, probably not. Solar power, probably not. It makes everybody feel good, but are we going to power our cars in the next 40 years with solar power? I doubt it. Do I expect some sort of material technological breakthrough in the next 100 years that will change what we use as energy? Oh, absolutely. Do I have any idea what it will be? Of course not.

TGR: If the price of oil if it remains low, is there a role for nuclear in the next 50 years?

DG: Oh, absolutely.

TGR: What will drive that?

DG: It’s absurd that we don’t use nuclear energy. Even the French derive 80% of their electricity from nuclear energy, cleanly, efficiently, without any problems whatsoever. Why we don’t do the same in the United States other than the left and the eco-radicals keeping us from doing it is really quite beyond me.

TGR: So, given that we still have eco-radicals and a big push toward alternative energies, do you see anything happening in the U.S. in nuclear in the near future?

DG: Yes, actually. It’s interesting. There are a lot of new nuclear facilities on the drawing boards, and they’re probably going to be approved. If there’s going to be one surprise by the Obama Administration, it will be that you don’t get nuclear energy advances under a right-wing government; you always get them under a left-wing government. Obama will be smart enough to understand that that’s the only way—that’s the best and cleanest methodology to use. And the left won’t argue with a fellow leftist pushing for nuclear energy. Only Nixon could go to China; only Obama can push nuclear energy.

TGR: And you think that he will?

DG: Oh, yeah, he’s smart enough to understand that.

TGR: Going back to your investment strategy, which big blue chip players in oil and nuclear would you point out as good investments?

DG: In oil, I’d want to take a look at companies such as ConocoPhillips (NYSE: COP), which dropped 70% from its highs. How can you go wrong with the Conocos and the Marathons and the large oil companies whose price-to-earnings multiples are down to at single digits and their dividend streams are 5%, 6%, and 7%? Why would you not want to own those? That’s the best investment.

And at the same time, the volatility indices on the stock market are so high that, gee, you can buy Conoco, get the dividend, and sell out of the money calls at very high premiums and ramp your dividend yield up. It’s like a gift; it’s like manna.

TGR: Well, what about in terms of the nuclear sector and uranium?

DG: I really don’t understand uranium. I don’t know where to go, and I don’t how to buy it yet. So I’ll just say there’s a future for it, but I don’t know what to do with it.

TGR: What other sectors should be looking at for 2009?

DG: Banks, banks.

TGR: They’re making a comeback. Do you think there will be more consolidations?

DG: There will be more consolidations; there has to be. But look at the yield curve—what a year to be a bank! The overnight Fed funds rate, the rate banks are going to pay depositors for their demand deposits or checking accounts is zero. And you’re going to be able to lend that out to hungry borrowers at 7%, 8%, 9%, 10% and 12%. The next three years will be the greatest three years banks have ever seen. Banks will just make money hand over bloody fist in the next three years.

TGR: Are you talking about the big boys?

DG: No, I’m talking about the regionals. The big boys have problems in toxic assets. I am not even sure there is a Peoples Bank & Trust in Rocky Mount, North Carolina, but a bank like that—or the First National Bank of Keokuk, Iowa or the First National, or the Peoples Bank & Trust of Park City, Utah—those are the banks that are going to make lots of money.

TGR: Do you see an explosion in regional banks? Will move of them come into the marketplace?

DG: I think we’ve probably got all we need. It’s just that they’re very cheap.

TGR: What will the role of the international banks be?

DG: Mopping up the disasters that they’ve created for themselves for the past decade, trying to survive, being envious of the decent regional banks that are going to be earning enormous yields on this positively sloped yield curve and wishing they were they.

TGR: Do you see a role long term for international banks?

DG: Oh, sure, of course. How could there not be? It’s a smaller world; it’s an international world; it’s a global world. International banks will be back in full force a decade from now. They’ve got some wound-licking to do, and they’ll do it.

TGR: In addition to regional banks as being a great play to look at for ’09, ’10, any other interesting plays to bring up?

DG: You want to own food and grains again.

TGR: Are you talking about grains or food producers like Nabisco?

DG: No, I think you want to own grains. If you’re going to make a speculation, I think you want to own on the grain markets again.

TGR: Grain for human consumption or grain for livestock consumption?

DG: Yes and yes.

TGR: Are you looking at buying that on the commodities market?

DG: You can actually buy that on ETFs now. The wonderful world of ETFs is just extraordinary. You can actually buy a grain ETF now. DBA (DB Agriculture Fund) is one; JJG (iPath Grains) is another. Those are basically long positions in the grain market. Wonderful things to use.

TGR: You like ETFs; but the naysayers will say that ETFs could be encumbered and there’s actually no guarantee that they hold any assets.

DG: That’s true; that’s correct.

TGR: But you’re comfortable that people should go into an ETF for grains?

DG: I didn’t say that. What I said is if you wish to trade in grain, there are ETFs that will do that. Do I know for sure that they will all perform perfectly and that if the world were to come to a chaotic banking circumstance that there wouldn’t be problems? I don’t know that. Does that bother me? No. It doesn’t bother me even slightly.

Should you worry about [not trading] an ETF just because there might be some problem under an untoward economic environment? No, it’s illogical. And shame on those people who say those sorts of things or who tell you not to use them because they ETF may not function properly if there is some total breakdown in the banking system. Well, if that happens, we have other problems.

TGR: And what’s your projection for the overall investment market? We’ve been hearing speculation that it will rise through April, bottom out even deeper than it is today, and then a slow climb in 2010.

DG: Gee, I have no idea. I just think that stock prices will be higher six months from now than they are now, much higher 12 months than they will be six months from now, and higher still in 24 months than they will be 12 months from now. But where will they be in April? Golly, I don’t know. I think the worst is far behind us and better circumstances lie ahead. And that’s the first time in a loooonnnng while that I’ve said that.

TGR: Yeah, now if the media will just catch up with you, we can enjoy watching it again.

DG: It won’t. Watch the news; it will just get bleaker and bleaker as the year goes on. And watch the unemployment rate; it’s going to be a lot higher.

TGR: Other than Barack Obama saying we’re going to start building infrastructure, do you anticipate any dramatic changes in the U.S.? Right now we’re a services country, and we need to move back to being a manufacturing country.

DG: We’ll never move back to being a manufacturing country. Won’t happen. Here’s an interesting bit of data. Do you know what year that we had the absolute high number—not just as a percentage of population—but the absolute high number of manufacturing jobs was in the United States?

TGR: Somewhere around the World War II era.

DG: Very good, 1943. We have lost manufacturing jobs since 1943. I think that’s a fairly well-established trend.

TGR: Is there a future for the services sector, though? That’s the key.

DG: It will be larger. And so what? It’s like saying we need more farmers. No. We need fewer farmers. We have one-hundredth as many farmers as we had at the turn of the 20th century. We now 500 times more grain? Seems to me every time we lose a small farmer, we get better. So, we need fewer farmers. And we need fewer manufacturing jobs.

TGR: But doesn’t that put the onus on the United States as the economic world leader? Considering the fact that, as you mentioned, information now is instantly available everywhere, just in terms of worldwide confidence; it seems like every time we hiccup, the planet hears it?

DG: There is probably some truth to that fact. But it is probably not us that will lead; it’s probably Australia or New Zealand or the Baltic States or some smaller country that actually changes policies and frees up markets and cuts taxes, and all of a sudden their economy starts to turn around. Then people elsewhere will say, “Oh, look! That’s the right thing to do. Let’s us go do that.”

TGR: Really? Economic recovery worldwide will not come from the United States?

DG: Well, if we don’t recover, the rest of the world won’t, but we won’t be the first. What I am saying is that some smaller country will do the right things faster than we do.

TGR: Isn’t what Australia does irrelevant to what the U.S. needs to do?

DG: No, it’s dramatically relevant. If Australia starts to do things properly—if Australia were to suddenly come out and slash taxes and go to a flat tax and cut paperwork by 50% and it’s economy starts to turn higher, wouldn’t that be a good incentive for us to do the same thing?

TGR: But that implies that every country should use the same economic strategy; that we’re all basically at the same state in our economic development. That what will work for Zimbabwe or China will work for the U.S.

DG: I think anywhere in the world that you have smaller government, lesser taxes—every time you do that, that economy, no matter where it is, does better. It does better. And anywhere you put higher taxes and more government, that economy usually does worse. It does; it just does.

TGR: You’re looking at it from a macro point of view.

DG: I’m looking at it just from an economic point of view, whether macro or micro. Look at Ireland, for example. Why was Ireland for many years the “Celtic Tiger” of Europe? Their tax regime was lower than the rest of Continental Europe. The Germans and the French, who are statists, who are collectivists, instead of emulating the Irish, kept trying to drag Ireland down to their level. Now, that was stupid, wasn’t it? That didn’t work.

My favorite example is New Zealand back in the 1980s. Every year from the 1970s through the 1980s, New Zealand ran a budget deficit and a trade deficit. Every year the IMF said, “You must raise your taxes and cut the value of your currency to try to balance your budget and run a trade surplus.” So New Zealand would do that, and every year the deficit got worse and their trade imbalance grew larger. They did this for five or six years and it got worse every time they did it—every time they followed the IMF tactic of raising taxes and cutting the value of the currency.

Finally New Zealand Treasury Secretary Graham Scott (Secretary from 1986–93) told the IMF, “Don’t ever come back here. Everything you’ve told us to do has proven to be utterly worthless. We’re going the other way. We’re slashing taxes.” From I think a 75% marginal tax rate, over the course of five years, they cut it to like 18%. And every year they took in more money—more money—every time they cut taxes they took in more money. And when they strengthened their currency, their exports picked up; as their currency got stronger, they exported more stuff. Isn’t it fascinating?

TGR: That’s the paradox.

DG: It got to be so interesting—it wasn’t Gordon Campbell—I’m trying to remember; I just went blank for his name. But he passed the baton on to a woman by the name of Ruth Richardson, who was a little more leftwing than her predecessor—the tax rate was down to a flat 18%. They asked her if she was going to cut it again, and she said, “You know, I don’t think I can cut it any more; I can’t spend the revenue I am taking in now.” It’s a classic line. So, what does she do? They actually started raising the tax rates again, and what happened? Tax revenues fell.

But New Zealand had taught a lot of people that cutting taxes and strengthening your currency is the best thing you can do. And as they were cutting taxes, they kept cutting prohibitions and regulations; they kept chopping them back. They were the real precursors of the Free Market Movement that developed in the early ’90s and the early ’00s.

TGR: Let’s hope the United States learns from that. Obama announced his tax cuts; we’ll see what comes of that.

DG: He said entitlements are even on the table. Can you imagine a Republican ever making that statement? They would boo him. But here’s a leftist who puts it on the table. He can say that.

Irreverent, outspoken, entertaining, sardonic and—in his own words, a “glib S-O-B,” Dennis Gartman has been producing The Gartman Letter for more than 20 years. His daily commentary on global capital markets as well as short- and long-term perspectives on political, economic and technical circumstances goes to leading banks, brokerage firms, hedge funds, mutual funds, energy companies and grain traders around the world.

A 1972 graduate of the University of Akron (Ohio), he undertook graduate studies at North Carolina State University in Raleigh (where he remains involved as a member of the Investment Committee.

Before devoting himself full-time to The Gartman Letter, Dennis analyzed cotton supply and demand in the U.S. textile industry as an economist for Cotton, Inc.; traded foreign exchange and money market instruments at North Carolina National Bank, went to Chicago to serve as A.G. Becker & Company’s Chief Financial Futures Analyst and then become an independent member of the Chicago Board of Trade, dealing in treasury bonds and notes and GNMA futures contracts; and moved to Virginia to run Virginia National Bank’s futures brokerage operation.

In addition to publishing The Gartman Letter, Dennis delivers speeches to audiences around the world (including central banks, finance ministries, and trade groups), teaches classes on derivatives for the Federal Reserve Bank’s School for Bank Examiners, and makes frequent guest appearances on CNBC, ROB-TV and Bloomberg television.

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Finally for the Technical Analysis Junkies (like me!) here is an awesome article!

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Market Leaders Hesitate on Stimulus Plan— Seeking Alpha

By: Chris Ciovacco of Ciovacco Capital Management

Proposed Economic Stimulus Plan May Not Stimulate Much

The new administration is proposing an $825 billion “stimulus” plan. Most of the package is geared toward helping existing or expanded programs such as unemployment assistance, law enforcement, food stamps, etc. Much of this spending will “save” existing jobs or keep existing programs already in place. This may help prevent things from getting worse, but it will offer little in the way of providing new stimulation for the economy. Another large portion of the stimulus plan is in the form of tax cuts. While depreciation incentives may spur some new business spending, credits to individuals may offer little incentive to spend given the state of their balance sheets and concerns about employment. After all the hype about infrastructure spending, only about 25% of the package is geared toward this area.

Tug of War Between Liquidity and Economic Weakness

The chart below was created on the website of the Federal Reserve Bank of St. Louis. It shows the eye-popping expansion of the money supply as financial institutions have swapped securities and other “assets” for cash via borrowing from the Federal Reserve. Borrowing prior to this crisis is barely visible on the graph. Recent borrowing is an extreme example of the term “spike” on a graph. Despite the never before seen tapping of the Fed, financial assets show little evidence of reflation taking place.

Borrowing From FEDU.S. Stocks: Downtrend Remains In Place

If you compare the long S&P 500 ETF (SPY) to the short S&P 500 ETF (SH), it is clear the short side of the market is in better shape. There is little in the way of fundamentals, except hope of government bailouts, to expect any change to these trends.

S&P 500 ETF - SPY - LongRecent weakness in the S&P 500 Index leaves open the possibility that we will revisit the November 2008 lows around 740 (intraday). If those lows do not hold, a move back toward 600 becomes quite possible. On Friday (1/23/09) the S&P 500 closed at 832. A drop back to 740 is a loss of 11%. A move back to 600 would be a drop of 28%. These figures along with the current downtrend highlight the importance of principal protection and hedging strategies. SH, the short S&P 500 ETF, can be used to protect long positions or to play the short side of the market.

2009 Investing Deflation Inflation Outlook StrategyGold & Gold Stocks Still Face Hurdles

Friday’s big moves in gold (GLD) and gold mining stocks (GDX) have some calling a new uptrend. While recent moves have been impressive some hurdles remain.

Gold At Important LevelsGold stocks (GDX) look a little stronger than gold, but any entry in the market should be modest in size. If $38.88 can be exceeded, our confidence would increase and possibly our exposure.

2009 Investing Deflation Inflation Outlook StrategyRun In Treasuries Is Long In The Tooth

Investments with the highest probability of success are those with positive fundamentals and positive technicals. Conversely, the least attractive investments have poor fundamentals and poor technicals. With the U.S. government issuing new bonds at an alarming rate, a continued deterioration in the technicals could signal the end of the Treasury bubble.

2009 Investing Deflation Inflation Outlook StrategyTBT offers a way to possibly profit from the negative forces aligning against U.S. Treasury bonds.

2009 Investing Deflation Inflation Outlook StrategyStrength In Bonds Shows Little Fear of Price Inflation

The government’s policies are attempting to stem the tide of falling asset prices. They hope to reinflate economic activity along with asset prices. The charts here show:

  •  
    • A weak stock market (see SPY above), and
    • An improvement in many fixed income investments (below: LQD, AGG, BMT, PHK, and AWF).

Weak stocks and stronger bonds tell us the government’s reflation efforts are thus far not working. If concerns about deflation remain more prevalent than concerns about inflation, fixed income assets may offer us an apportunity. With money markets, CDs, and Treasuries paying next to nothing, we may be able to find improved yields in the following:

  •  
    • LQD – Investment Grade Corporate Bonds
    • AGG – Investment Grade Bonds – Diversified
    • BMT – Insured Municipal Bonds
    • PHK – High Yield Bonds
    • AWF – Emerging Market Government Bonds

With the economy in a weakened and fragile state, we need to tread carefully in these markets. Some key levels which may improve the odds of success are shown in the charts below. Erring on the side of not taking positions is still prudent. The markets remain in a “prove it to me” mode where we would like to see the markets move through key levels before putting capital at risk.

2009 Investing Deflation Inflation Outlook Strategy 2009 Investing Deflation Inflation Outlook Strategy 2009 Investing Deflation Inflation Outlook Strategy 2009 Investing Deflation Inflation Outlook Strategy 2009 Investing Deflation Inflation Outlook StrategyU.S. Dollar Remains Firm

From a technical perspective, the dollar continues to look strong. Its strength supports the continuation of concerns about deflation, rather than inflation.

2009 Investing Deflation Inflation Outlook StrategyDisclosure: Ciovacco Capital Management (CCM) and their clients hold positions in SH, GLD, and PHK. CCM may take long positions in GDX, TBT, LQD, AGG, BMT, and AWF.

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Catch the New Bull! – Buy Gold Online – Safely, quickly, and at low prices, guaranteed! Bullion Vault.com

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Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments, it is presented for informational purposes only. As a good investor, consult you Investment Advisor,  Do Your Due Diligence, Read All Prospectus/s and related information before you make any investments. – jschulmansr

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Has World War III Started?

09 Friday Jan 2009

Posted by jschulmansr in agricultural commodities, alternate energy, Austrian school, banking crisis, banks, Barack Obama, bear market, Bollinger Bands, bull market, capitalism, central banks, China, Comex, commodities, communism, Copper, Currencies, currency, Currency and Currencies, deflation, depression, diamonds, dollar denominated, dollar denominated investments, economic, economic trends, economy, Finance, financial, Forex, Fundamental Analysis, futures, futures markets, gold, gold miners, hard assets, heating oil, How To Invest, How To Make Money, India, inflation, Investing, investments, Keith Fitz-Gerald, Latest News, Make Money Investing, Marc Faber, market crash, Markets, mining companies, mining stocks, Moving Averages, natural gas, Nuclear Weapons, oil, palladium, Peter Schiff, physical gold, platinum, platinum miners, precious metals, price, price manipulation, prices, producers, production, protection, rare earth metals, recession, risk, run on banks, safety, Saudi Arabia, Sean Rakhimov, Siliver, silver, silver miners, small caps, socialism, sovereign, spot, spot price, stagflation, Stocks, Technical Analysis, timber, Today, U.S. Dollar, uranium, volatility, warrants, Water

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agricultural commodities, alternate energy, Austrian school, banking crisis, banks, bear market, Bollinger Bands, bull market, capitalism, central banks, China, Comex, commodities, communism, Copper, Currencies, currency, deflation, depression, diamonds, dollar denominated, dollar denominated investments, economic, economic trends, economy, financial, Forex, futures, futures markets, gold, gold miners, hard assets, heating oil, India, inflation, investments, Keith Fitz-Gerald, Marc Faber, market crash, Markets, mining companies, Moving Averages, natural gas, oil, palladium, Peter Schiff, physical gold, platinum, platinum miners, precious metals, price, price manipulation, prices, producers, production, protection, rare earth metals, recession, risk, run on banks, safety, Saudi Arabia, Sean Rakhimov, silver, silver miners, socialism, sovereign, spot, spot price, stagflation, Technical Analysis, timber, U.S. Dollar, volatility, warrants, Water

Has World War III already started? According to Marc Faber it has! Check out his interview. Next do you think the government can lose? According to this pundit not only will it lose it is going to lose big! Finally, for years now China has been coming to the rescue by buying Treasuries and US Debt, what will happen when they and other countries stop? Continuation of series from yesterday’s post. Just In! Peter Schiff Interviwed on Russian TV- Get Prepared!  adjust your portfolios and if you own Precious Metals hang on for the ride of your life!- Good Investing!- jschulmansr

Marc Faber on the Economy, Gold, WWIII – Seeking alpha

By: Tim Iacono of Iacono Research

Another good interview with Dr. Marc Faber, this one over at Bloomberg where he’s been a regular for many years (recent appearances at the likes of CNBC are somewhat unusual as he tends to go against conventional wisdom, something that abounds at CNBC).
IMAGE

Click to play in a new window

There’s lots of good stuff in this one – the outlook for the global economy, oil, gold, base metals, natural resource stocks, World War III having already started…

On the subject of alternatives to the government solutions for the current problems, he was asked how he expected the populace to stand for the government doing nothing?

That’s the problem of society. If people can not accept the downside to capitalism, then they should become socialists and then they have a planned economy. They should go to eastern Europe twenty years ago and to Russia and China for the last 70 years.

How do you tell that to somebody in Detroit who’s losing his home today?

 

 

 

Why is he losing his home? Because of government intervention. The government – the Federal Reserve – kept interest rates artificially low and created the biggest housing bubble, not just in the U.S. but worldwide. That is what I’d explain to the worker in Detroit.

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How the Federal Government will Lose in 2009 – Seeking Alpha

By: Rob Viglione of The Freedom Factory

Through a combination of incompetence and greed, the federal government has placed itself in a position of checkmate. There is no way to finance its budget deficits without devaluing the dollar or causing interest rates to rise. With $10.6 trillion in debt, $8.5 trillion in new money created or given away in 2008, and multiple years of trillion dollar deficits planned by Obama, government has no way to fund its extravagances without either printing a lot more money or borrowing unprecedented sums.

This means that either Treasury bonds will crash, or the dollar will suffer significant devaluation relative to foreign exchange or precious metals, especially gold.

TV Does Great Interview With Peter Schiff (Russian TV, That Is)

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Remember Dare Something Worthy Today Too!

 

Market forces are telling the world to shed unproductive assets and shrink capacity, yet central banks and governments around the world, in particular the U.S., are refusing to listen. Rather than allow markets to snap back to sustainable equilibrium from previously artificial highs, the federal government clings to the notion that forcibly shuffling resources, propping up asset prices, and diluting the money supply will magically save the day.

There are consequences to everything. The consequences of shuffling resources (taxing productive ventures and doling out those resources to failing ones, i.e. bailouts) are stunted growth for good businesses and propagation of bad ones. Artificially propping up asset prices means that those who are generally less competent remain the custodians of society’s capital, and diluting the money supply inflates aways everyone’s wealth over time, particularly harming the poor and middle class.

For decades the federal government has gotten away with this reshuffle and inflate game, but the pawns are drowning, the rooks helpless, and the knights ready to turn on the King. Perhaps this is overly dramatic. Clearly, I doubt the capability of the Federal Reserve, Congress, and Obama to “fix” the economy; rather, I strongly believe they are destroying it by forcing us all to drink this Keynesian Kool-Aid. However, whether or not the economy recovers amidst this historic central government action, there are two phenomena we can exploit to our advantage:

  • Short the US dollar
  • Short US Treasuries

In “When will the great Treasury unwinding begin?” I show how government debt has been bid to unsustainable levels and will likely fall. The one concern I see stated all too often is that the Federal Reserve will keep buying Treasuries to artificially depress interest rates. This will, it is claimed, keep bond prices inflated. The one undeniable counter to this is that government must somehow fund its $1.2 trillion estimated 2009 deficit. It cannot do this by issuing and then buying the same bonds. It can only raise revenue by selling bonds to other parties, or by diluting the money supply by cranking up the printing presses. There are no other options. There you have it – we have the government in checkmate!

The likely outcome is that they will try to do both. That is why I am heavily shorting both 30-Year Treasury bonds and the dollar. Both assets will likely lose as the government becomes increasingly desperate and the world’s biggest buyers realize there are better alternatives available. Make your bets now before it becomes treasonous to bet against Big Brother!

Disclosure: Long UDN, short TLT, long GLD.

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Five New Forces to Drive Gold Higher – Seeking Alpha

By: James West of The Midas Letter

Gold naysayers habitually point to the relatively weak performance of gold relative to the broader market over the last 5 years. Given the market today, that argument is increasingly wrong, and the naysayers are soon to either admit their mistake, or pretend that they were never naysayers at all. That’s because during the last 3 months, five major new forces have emerged to compound the previous strong drivers of the gold price up to now.

These new forces are as follows:

  1. China has stopped buying U.S. debt.
    An interesting piece in the New York Times today signals that China, up until now the biggest buyer of U.S. Treasuries and bonds issued by Fannie and Freddie, is moving towards an end to that policy. China holds over US$1 trillion of such paper, and as interest rates collapse, there is less and less incentive for them to buy American.China has made several adjustments to programs that used to give banks and other financial institutions within the country incentive to buy U.S. assets, which means essentially that these same customers for assets will now be looking for Chinese products.The effect this will have on gold is two-fold. In the first place, reduced demand for U.S. debt will hamper Obama’s plans to keep printing money, because the one limiting factor that still seems to be respected in terms of how much paper can be printed, is the idea that there must be a counterparty to every issuance of T-Bills to warrant continued printing. Theoretically, less demand for T-Bills will force a rise in interest rates to attract investors. But that does not appear forthcoming, which will make the U.S. dollar weak relative to other currencies – especially gold.The second effect is that by eliminating incentives for Chinese banks to acquire U.S. denominated assets, investors there will divert more funds to holding gold as a hedge against their current U.S. dollar holdings, which will be diminishing in value.
  2. Future discoveries of gold deposits will diminish dramatically.
    The biggest source of gold ounce inventory for major gold producers is the discoveries made by the several thousand juniors who scour the earth in search of favorable geology. With the collapse in base metals prices, many of these juniors are under increasing pressure to consolidate and downsize, and many more will disappear altogether.That means less money going into gold exploration, and that means the number of new discoveries that can be acquired by majors is going to go down sharply in the coming years. In theory, as gold continues to outperform all other asset classes, there will be a rush back into junior gold exploration, but that won’t happen until gold is taken much higher and investment demand for it soars.
  3. Existing by-product gold production will fall sharply
    In copper, zinc and other base metals mines around the world, gold occurs in metallic deposits as a by-product of some other dominant mineral. In the United States, 15 percent of gold production is derived from mining copper, lead and zinc ores.With the collapse in prices for these metals, the by-product production of gold is most often insufficient to justify the continued operation of the mine profitably, and it is likely that a significant amount of this by-product gold production will cease along with the shutdown of these operations. The result will be less gold production from existing operations, contributing to the now even faster growing gap between supply and demand.
  4. Gold is becoming mainstream
    One of the biggest contributors to gold’s unpopularity as a main street investment is that it has been mercilessly derided and ridiculed by mainstream investment media and institutions. There is very little opportunity for an investment advisor to insinuate himself into a gold purchase transaction, since most anybody who wants to hold the metal can visit their local bullion exchange or mint and buy as much as they’d like. Because the massive investment institutions that dominate the investment advisory business can’t make a fee out of advising you to buy gold, they try to convince you to purchase other asset classes which their firm has either originated or is a participant in a syndication of investment banks selling such products.Thanks to the widespread coverage of the questionable integrity of these complex securities, and since many main street investors have been burned by their investment advisors (they feel), there is increasing main street advice being doled out to buy gold. One need only search Google news on any given day to discover that headlines critical of gold are now replaced with headlines singing its praises.
  5. Gold is the best performing asset class of the decade
    Now that the global financial meltdown has got up a head of steam, investors are hard pressed to find any investment that has performed well over the last ten years as consistently as gold. The chart below outlines this performance and appears here courtesy of James Turk’s GoldMoney.com.
Gold Performance: 2001-2008 (click to enlarge)
Gold Performance 2001 - 2008

As you can see, any investment still returning an average of 10 – 17 percent is a winner, compared to everything else you can generate a chart for. As this intelligence permeates the none-too-quick popular investment imagination, and, combined with the other 4 factors, gold is going to be where the world’s next crop of millionaires is minted.

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Gold is Starting to Move Up!

17 Wednesday Dec 2008

Posted by jschulmansr in capitalism, commodities, Copper, Currency and Currencies, Finance, Fundamental Analysis, gold, hard assets, Investing, investments, Jschulmansr, Latest News, Markets, mining stocks, precious metals, silver, Stocks, Technical Analysis, U.S. Dollar, uranium

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agricultural commodities, alternate energy, Austrian school, banking crisis, banks, bear market, Bollinger Bands, bull market, capitalism, central banks, China, Comex, commodities, communism, Copper, Currencies, currency, deflation, depression, diamonds, dollar denominated, dollar denominated investments, economic, economic trends, economy, financial, Forex, futures, futures markets, gold, gold miners, hard assets, heating oil, India, inflation, investments, Keith Fitz-Gerald, market crash, Markets, mining companies, Moving Averages, natural gas, oil, palladium, Peter Schiff, physical gold, platinum, platinum miners, precious metals, price, price manipulation, prices, producers, production, protection, rare earth metals, recession, risk, run on banks, safety, Saudi Arabia, Sean Rakhimov, silver, silver miners, socialism, sovereign, spot, spot price, stagflation, Technical Analysis, timber, U.S. Dollar, volatility, warrants, Water

 

As I make this post Gold is up another $20/oz this morning. As mentioned in yesterdays post this does not bode well for the “short sellers” in the Gold market especially if traders start taking physical delivery off Comex. Is this the beginning of the Short Squeeze? Only time will tell, but I find it very interesting that Gold is continuing to rise as we approach the end of the Dec. contracts. In addition with the Fed’s latest round of intrest rate cuts which show its’ resolve to keep deflation from occuring and to free up the credit markets, Of course long term this will spell inflation even hyper-inflation, which in turn makes Gold in any form the obvious investment choice. Personally I am looking to increase my positions in many of the mid-tier and juniors in the gold mining sector, These companies even with the recent move in Gold are still trading at extremely low levels, and many are trading below book value!  Here are some excellent articles for you today, ENJOY and Buy Precious Metals! Your  children and grandchildren will thank you! – jschulmansr

Jeffrey Christian: Foreseeing Bright Days for Metals – Seeking Alpha

By:  Jeffrey Christian of The Gold Report

A foremost authority on the precious metals markets and a leading expert on commodities markets, CPM Group founder and Managing Director Jeffrey Christian brings some holiday cheer to The Gold Report readers. In this exclusive interview, he debunks doomsayers who await the dollar’s demise, anticipates what may well be a more powerful recovery from recession than most pundits do and foresees bright days for gold, silver, PGMs and specialty metals.

The Gold Report: Perhaps you could begin by giving us your macro overview of the world economy and the outlook as you see it.

Jeffrey Christian: If you go back to 2006 or 2007, our view had been that we would see a relatively short and shallow recession in the first half of 2009. Beginning in late 2007, we said maybe the recession would start earlier, maybe in the fourth quarter of 2008. And then we said maybe the third quarter of 2008. Now we find from the National Bureau of Economic Research that the recession officially started in December of 2007.

We still see it ending around the middle of 2009. But it’s obviously going to be much longer and much deeper than we had expected a year or two ago. Economic problems are much worse. What we really have is a financial crisis, a freezing up of credit availability, which has led to a domino effect of reducing demand for products. We started with a bank panic and a freeze-up in the credit market that has now spilled over into final demand for goods and services across the real economy. It’s proving extremely difficult to treat. I happen to think that the U.S. government policies pursued in September, October and November have not necessarily been the best policies to resolve these issues. We’re looking to see what the new government does after January; a different approach may be more palliative to the economy.

But the bottom line for the overall economy is things are bad, they probably will get a little bit worse, and we’re probably looking at a pretty weak first half of 2009. Our view is that by the second half of 2009, maybe early 2010, you’ll see an economic recovery come along. That economic recovery may be a lot more powerful on the upside than a lot of people expect. One of the things that we’ve seen and have written extensively about over the last few years—and it’s become even more prominent with the government largesse—is an enormous amount of money sitting in cash and cash equivalents waiting for a signal that it’s safe to invest again. All of this money is standing by, ready to invest in precious metals, invest in commodities, invest in real estate, equities and corporate debt. So we think that in the second half of 2009, or whenever the recession ends, you could see a rather rapid recovery in overall economic activity globally.

So that’s our economic overview. I will say this. Everybody in the world is looking at the amount of money the governments have pumped into the market, saying it spells death and destruction for the U.S. dollar and inevitably will lead to hyperinflation. I’m not convinced that’s true and I think that’s a very important point. When you look at all of the monetary liquefaction that’s occurred, it’s definitely going to lead to a lower dollar and higher inflation than we’ve seen over the last 25 years. Still, we may well avoid a total collapse of the dollar and hyperinflation if the monetary authorities of the world effectively are able to sterilize the inflationary implications of this once the recovery starts. We won’t know that for a year or so.

TGR: What do you mean by “sterilize the inflationary implications”?

JC: It means suck the inflationary money creation out of the economy. I’ve spent a lot of time looking at what happened in the period of 1979 to 1983; the really critical point here is in the middle of 1982 we were two years into a double dip recession. At the time it was the deepest recession in the post-war experience. In the middle of 1982, Brazil, Argentina and Mexico were about to default on their government bonds. Paul Volcker called the central bankers of the world together and said, “We have to monetize ourselves out of this recession because it’s about to become something much deeper and harder to solve.”

The governments of the world opened the sluices and flooded the world with money. By December of 1982, the world was out of a recession, auto sales had rebound sharply, Geoffrey Moore’s leading index of inflation indicators, which was basically money supply, had gone off the chart. Gold had risen from $290 in July of 1982 to $500 by the end of the year because everybody was convinced that this was going to be inflationary and that the dollar was going to collapse. By the end of ’82, early ’83, it was clear that we were out of the recession.

Fortunately for Volcker, Reagan (Ronald) and an associate named Regan (Donald Regan, Reagan’s Treasury Secretary) had taken a $40 billion Carter (Jimmy) deficit and turned it into a $200 billion Reagan deficit and needed to finance it. So Volcker said, “That’s easy; Let’s sell $300 billion worth of T-bonds and suck $300 billion out of the economy.” And they did it. So they started selling a tremendous amount of bonds to monetize the debt that the government was racking up and thus sterilized the inflationary implications of their earlier monetary creation.

Then oil prices fell 15% in the first quarter of 1983, from $34 to $29 per barrel, gold prices fell $100, inflation went from about 7% to 3% and is only now getting back up there. We entered a 25-year period of the lowest inflation in a long, long time right when everybody was convinced that all of that money creation would lead to hyperinflation. The government has followed that model every time we’ve gone into a financial crisis since 1982. This time around everything is much bigger and the question is, “Can they do it again on an even grander scale?”

TGR: We didn’t have the fundamental problems back then that we have today. We didn’t have all these derivatives. So many things are so different, and we’ve seen nothing of this magnitude.

JC: Actually, the two biggest and most important differences are that we had extremely high U.S. interest rates then, and a very strong and persistently rising dollar. The dollar was rising then, as it is now, but it has been weak from 2003 until the middle of this year. You’re right—we didn’t have the derivatives and all of this enormous financial liquidity that we have now. And as I said, we’re playing a much higher-stakes game this time around and we’re doing it in a situation with low interest rates and a fundamentally weak dollar. People talk about how strong the dollar has been in the last few months, but it’s still very low compared to what it had been.

Funny, I just got an email from someone who attended a conference I spoke at in Zurich about a year ago. He said this is amazing, that a year ago everybody laughed at me because I said the dollar would be strengthening—but I didn’t say what kind of environment it would be strengthening in.

TGR: Isn’t another difference between the current situation and the one 30 years ago the fact that back in ’79 it was basically the U.S. and the Banana Republics that were having problems? It wasn’t Germany, France, Switzerland—it wasn’t everybody, was it?

JC: No. It was everybody. The U.S. was in a deep recession, Europe was in a deep recession. That’s when they coined the term “Eurosclerosis.” I was at J. Aron at the time and we were doing a lot of gold loans with Eastern European governments, because they needed the money. We found ourselves in workout situations with sovereign debt in Eastern Europe in 1981; whereas Latin America didn’t erupt until 1982. But it was pretty much universal. The U.S. was a bigger part of the world economy back then, too.

TGR: So a decoupling, when you look at the BRIC countries, will help carry us through or avoid an international recession this time around?

JC: I don’t think so. I think we’re in an international recession. The IMF seems to think so. When everybody started talking about how the economies of the world could decouple from the U.S., I said it’s just one of those pater nosters that makes no sense and doesn’t stand up to statistical scrutiny. You’re seeing that. You’re seeing India, China, and all of the other emerging countries really suffering from a decline in demand for their products, much of which are exported into the United States and Europe, and it’s having catastrophic consequences. Granted, there is a movement away from being dependent on the American consumer on a worldwide basis, but it’s a very slow movement and hasn’t progressed far enough to insulate the rest of the world from the problems in the U.S.

TGR: You were talking about Volcker, who issued something like $300 billion of debt—Treasuries— in the ’80s and sold them to cover it and continued to do more of that. At some point, don’t we have to pay that back? Isn’t there a Piper to be paid?

JC: In theory, yes. But there’s a problem with the doomsayers. Look at Jim Grant, who publishes the Interest Rate Observer. I think it was in 1980 that he said, “Oh, my God, look at this $37 billion debt that Carter’s ramping up. This is unsustainable; the Treasury market is going to collapse.” At some point, he probably will be right and the Treasury market will collapse. But in the meantime, we’ve had 28 years that make a $37 billion deficit pale. We wish we could have a $37 billion deficit.

In the meantime, several things mitigate against any imminent collapse. One is the fact that the world economy basically always has been and always will be a giant confidence game, in the sense that there has to be a certain level of confidence to keep things going. The other thing is that for the dollar to collapse, some other currency has to rise very sharply. The problem that the world’s in right now is that for the dollar to fall sharply, investors have to have greater confidence in some other currency. This is really great for gold. It makes you really bullish for gold. Another currency has to rise if the dollar’s going to fall. Ask people “Which one do you have more confidence in?” There’s silence in the room and then people buy gold. No one has any confidence in any of the other currencies or the governments behind them—the Euro, the Yen, the Swiss Franc or anything else.

In a speech a few weeks ago, I said, “The dollar is like your mother. You’ll sit around and complain about her and how she’s so mean and nasty and you’ve got to get away from her. But as soon as you cut your knee, you go running back to her crying.” That’s what’s happening right now in the world economy, in the financial markets. Everybody has been saying for five years that the dollar is toast and the dollar is no good and the U.S. debt is unsustainable. But as soon as you get into a banking panic, everybody converts their money into dollars and Treasuries and CDs held by banks that are guaranteed by the FDIC. Why? Because even though we’ve lost a tremendous amount of faith in the U.S. Treasury, we still have more faith in the U.S. Treasury than we do in, say, the European Central Bank or the Bank of Japan or the Bank of England.

TGR: So if the dollar devalues and some other currency has to rise, it bodes really well for gold. But considering the trillions of dollars of debt out there, is there enough gold for it to be a viable alternative currency? Or will the price for every ounce of gold become something cataclysmic like $3,000 or $4,000?

JC: Yes. If you tried to monetize the debt in gold, or if you tried to go back to a rigid gold standard, you would either have to have $3,000 or $4,000 or $5,000 or $6,000 gold, or you would have to severely contract the world economy back to where we were in, say, the 17th century. But I don’t think that’s what you’re looking at. Rather, you’re looking at some portion of the world’s assets moving into gold as an alternative to currencies. In that situation, you “only” see $1,000 or $2,000 gold.

TGR: Some of us might like $5,000 or $6,000 gold, but maybe not everything else that would be going on with gold prices at that level.

JC: Right. You definitely wouldn’t like everything else going on. It’s interesting. It depends on how a gold standard would be created. The last time we had a “serious” discussion of a gold standard in the United States was during 1980 election campaign. The Republicans actually had a platform plank written by Arthur Laffer to return to a gold standard. What Laffer said was that for the U.S. Treasury notes in circulation, you would have to have 40% of the value of the Treasury notes in gold held by the U.S. Treasury, or a 40% cover. It sounded really stringent, but then you realized that since the 1960s almost all of the bills printed actually had been Federal Reserve notes—not Treasury notes. When asked about that, Laffer said that’s right. What you need from a gold standard is the public’s sense of confidence in it. If you tell them Treasury notes are backed by gold, they’ll be more confident in the value of the dollar. They won’t bother looking at the fact that we’re printing Federal Reserve notes ’til the cows come home. It was a very disingenuous and cynical approach to the American voters.

TGR: So we may see some rush to gold, which may lift it up to $1,000 or $2,000. What about other precious metals like silver? Will that tail along with gold?

JC: I’m actually now in a situation where I like silver, platinum, palladium and the other platinum group metals as well as gold. I like silver for a couple of reasons. One is it’s a financial asset like gold, it is benefiting from the move of investors into silver and gold, and it will continue to benefit from that. But you’ll also see several other things. First off, there is not a lot of metal in the silver market, half a billion ounces in bullion and maybe a half a billion ounces in bullion coins. In gold you have a billion-plus ounces that investors own and another 980 million ounces that central banks own. There aren’t those large enormous stockpiles of silver if you’re looking at it on a dollar value basis. In addition, silver is an industrial metal with some very interesting new uses coming up. It’s losing some of its traditional uses such as photography; but in other uses, such as batteries and electronics, it’s actually growing very sharply and could grow more sharply over the next few years. So I think silver’s got a lot of good things going for it. It’s an alternative financial asset like gold. It’s a smaller, less liquid, more volatile market than gold. And it has the industrial base that gold doesn’t have. So I like silver for those three reasons.

TGR: What brought silver down so much? It got up to $21; now we’re at $9 and change.

JC: The massive amount of leveraged investment in these things has brought all of these metals down. Everybody keeps talking about de-leveraging, but if you ask them to explain it, they can’t. But let me try to explain what I mean when I say leveraged investment. You had hundreds of billions of dollars of institutional money invested in gold and silver forwards, gold and silver over-the-counter options, and gold and silver indexed notes—all written by banks and all with major leverage factors. Some were 10:1; some of them were actually 30:1 or 40:1. As the financial crisis occurred, institutional investors had their credit lines pulled back. Consequently, they had to reduce the amount of investments that they’d borrowed money to make. So a hedge fund that has $10 billion under management and a leverage factor of 20 might have $200 billion of leveraged trades. Then suddenly you don’t have the money to support $200 billion worth of leveraged trades. You have to liquidate most of them because you really only have $10 billion—which is going down in value fast. So there’s been this massive sale of leveraged products. It’s like running for the exit in a theater when somebody yells fire. It’s a very small door, a very illiquid market, and all of a sudden there’s no provision of credit. Everybody’s trying to get rid of their leveraged exposure all at once and these prices have just plunged down. That’s really what it’s been.

TGR: But silver has lost nearly half, while gold is down less.

JC: Silver prices are always more volatile than gold prices. That’s just a fact of life. It has to do with the fact that the silver market is about one-twelfth the size in dollar terms. The other thing is that gold is money and silver is like money. Silver has this schizophrenic personality. It is an industrial commodity, but it’s also a financial asset and you do see more people investing in gold than in silver worldwide right now. As the prices plunged, you have seen an unprecedented volume of physical gold and silver being purchased by investors around the world. So you have this dichotomy, where the price is being hammered down by de-leveraging in the paper market, while people—in some cases the same people—are taking what’s left of their chips and putting them into physical gold. One of the things I think you will see going forward over the next many years is a lot of institutional investors, including sovereign wealth funds and government funds, wanting exposure to gold and silver but not on a leveraged basis where they’re really owning IOUs issued by major banks. They are wanting the physical material.

TGR: Does that hold true for retail investors too? So rather than buying ETFs or Central Fund of Canada (AMEX:CEF), should they be buying actual physical?

JC: It really depends on the investor and their perspective. The high net worth individuals we deal with own some physical gold and silver and maybe platinum group metals that they actually store in their own vaults. They own other material that’s being held for them in depositories in various parts of the world. They also own some ETFs, some options, some mining companies and some exploration companies. So it’s really a diversified portfolio.

Except for these high net worth individuals, we don’t deal with retail investors directly as customers at CPM Group. We talk to them, though, and we do deal with people who supply the retail market. A lot of people are moving into the physical material. Demand in the ETFs also has been strong over the last few months and some of that demand comes from people who can’t get their orders filled for one-ounce coins or 100-ounce silver bars. They’re buying ETF shares instead because they’re the next best thing.

TGR: Does that carry implied leverage?

JC: The ETFs do not. The ETFs are ounce-for-ounce and it’s held in an allocated account. If I’m an investor and want to own a 100-ounce bar, I can’t find one in silver. Northwest Territorial Mint will sell me one if I want to wait 16 weeks for delivery. Silver Recycling Company [TSX.V:TSR] is also selling them and they have it for relatively prompt delivery, but that’s a very new development just in the last few weeks, in response to this market. If I’m an investor and I want to buy 100 ounces of silver and can’t find Maple Leafs or Eagles and I can’t find a 100-ounce silver bar, I can buy a share of an ETF and have it stored for me on an allocated basis through the ETF mechanism.

TGR: Suppose the economy actually does start to turn around, as you’re projecting maybe in the second half of 2009, and you have all this money on the sidelines, which you indicated might flow back into the marketplace rapidly. Does that mean gold will rise through the recovery and then go back down?

JC: Because gold is money and an alternative asset, gold and silver probably will rise in the first half of 2009 in response to the economic distress that we expect at that time. And then as the economy recovers—let’s be hopeful and say it starts in the second half of 2009—you actually might see gold and silver come off some. Platinum group metals, which we’ve only mentioned in passing, are the other way around. They’re really industrial metals, heavily tied to auto sales and so probably will remain weak until auto sales recover. But when that happens, expect platinum group metal prices to rise sharply.

TGR: You mentioned Silver Recycling starting to sell physical silver. What else can you tell us about this company?

JC: For purposes of full disclosure, I personally own some stock in Silver Recycling and they are a CPM Group client. We are financial advisers to them. I can talk about who they are and what their ideas are, what their plans are. I like the company a lot because they’re basically a consolidation play to create a publicly traded company in refining silver from scrap. They’ve identified three initial targets of small privately owned silver recyclers in the United States and are working with them. They have agreements with all three to acquire them and bundle them together, consolidate them and benefit from the economies of scale. And then there are other companies they can target later. It’s a very interesting operation. If you compare them to a silver mining company, they have the capacity to produce silver from scrap without any of the capital costs, country risks and operational risks that are common with a mine. So lower costs, less capital, fewer risks, still producing silver.

TGR: What sort of volume are we talking about?

JC: The first company they have an agreement with has 5 million ounces of production a year. The others have somewhat less. I don’t know the numbers off the top of my head, but I believe that the three companies combined would be producing something in excess of 10 million ounces a year.

TGR: Using that as rough estimate, what publicly traded silver producers come up with 10 million ounces a year?

JC: I think Coeur d’Alene Mines Corp.(NYSE:CDE) is slightly less than that this year, but maybe more than that next year. Apex Silver Mines (AMEX:SIL) and Pan American Silver Mines (Nasdaq: PAAS) probably produce more than that. Silver Standard Resources (Nasdaq: SSRI), which is moving toward opening its Pirquitas mine, will produce more than that when they’re up. There are probably a few other companies—Hecla Mining Company (NYSE:HL), maybe—that I’m going to anger people for forgetting. And then there are some larger diversified mining companies that produce much more than that. Penoles [MX:PE&OLES] is a good example. A lot of people think of Peñoles as a silver mining company and it does produce an enormous amount of silver, but it also produces lead, zinc, copper and gold. Also KGHM and BHP, but they’re not silver companies per say, either.

TGR: What other companies, either in silver or gold, would you recommend our readers take a look at?

JC: Well, we’re really commodities analysts. I’m proud to say I am not an equity analyst. I don’t sit there and tell people which equities to buy on any given day. I won’t tell anybody what to do with their equity investments, but I’ll tell you what I do with mine. I have a diversified portfolio.

Let’s look at the gold market. I have physical gold. I sometimes have futures and options in gold. In the equity side, I have AngloGold Ashanti Ltd (NYSE:AU) shares. I have Goldcorp (NYSE:GG) right now. I don’t have Barrick Gold Corp (NYSE:ABX) right now. I have in the past. I like Barrick a lot. And I have some smaller exploration and development companies in my portfolio. I tend to look for really well managed large companies that are cash flow generators, like Goldcorp, and I also look for exploration and development companies that have the capacity to bring production on stream within a couple of years, they have attractive mines, and management that I find good. So that’s it in gold.

TGR: What are some of these other companies?

JC: It’s not an exploration company along the lines of that, but one name I’ll throw out is Tanzanian Royalty (AMEX:TRE), Jim Sinclair’s company. It’s been hammered down along with everything else lately, but I still like it a lot.

TGR: And switching to silver?

JC: I like Silver Standard. I like Silver Standard’s management a lot. I think this Pirquitas mine that’s coming on stream will be a company maker. I also like Apex Silver Mines; I’ve been involved with Apex since before it actually was officially organized as a company. I think that’s good. Pan American is a very interesting growth story. Coeur d’Alene has been hammered in this market, but it has some very interesting properties, so it could do well. And Hecla is probably a tremendous turnaround story. Management over the last several years has done a remarkably good job in rebuilding Hecla Mining.

TGR: Gosh, they’ve been beaten up, too.

JC: Yeah, everybody’s beaten up. I spend a lot of time these days talking to clients about the difference between value and price. Six months ago we were talking about the fact that the price was over the value of a lot of mining assets and now we’re talking about the fact that the prices are woefully under the value of a lot of these companies. A company like Great Panther Resources [TSX.V:GPR] is a pretty interesting story. Fortuna Silver Mines [TSX.V:FVI] I like a lot. Endeavour Silver Corp (AMEX:EXK) is a good company, an emerging company. I’m afraid to leave out people. I own some Silvercorp Metals [TSX:SVM], a very interesting company with lead and silver mines in China. What I do is I look at companies from a management perspective and a property perspective. First thing is I’ve got to be comfortable with management.

TGR: What about platinum group metals?

JC: I thought platinum was overvalued years ago and it just kept rising and rising, but now it’s clearly undervalued. The cost of producing platinum or palladium at most mines in the world is higher than the current prices. About 50% of platinum in the world goes into auto catalysts, 60% of palladium and 80% of rhodium. With the auto industry and the auto market on their back in North America and Europe, these markets have spiraled down. A lot of investors who poured into the platinum markets partly based on the auto story are now pouring out. I think platinum group metals prices will rise sharply once the auto industry turns around.

And, the auto industry will turn around. Not necessarily because of the situation in the United States, but if you look at the BRICs, for example, you have a tremendous growth in auto sales and it’s fallen. In China it’s gone from 15% per year down to about 8% per year, but that’s a cyclical thing. It will turn itself around and people will start buying more. An interesting thing about platinum is that you don’t have the share market similar to what you have in gold and silver. In North America you have North American Palladium Mines (AMEX:PAL) and you have Stillwater Mining Company (NYSE:SWC). Both are having problems right now.

TGR: With costs exceeding current prices, the issue on the production side is clear, but what’s the problem on the exploration side?

JC: They can’t get financing. And insofar as some of these companies are exploring in South Africa, problems related to electricity and electricity allocations predate the bank panic. South Africa basically has not really invested in electricity-generating capacity for a decade. Those power shortages and outages are going to take many years to solve. They’re saying they’ll pay attention to existing mining companies, existing corporations, existing consumers of electricity. When you’re building a mine, you have to go to Eskom, the state electrical utility. Unless you’re already in the construction phase and have your electricity allocation, they’re just going to say they don’t know when they will be able to supply you electricity. That’s going to delay exploration and development. On top of that, the financial freeze will delay a lot of new capacity coming on stream. That will make the platinum group metals that much tighter.

TGR: As we come out of this recession, many people say certain sectors will emerge faster than others. You talked about how gold’s going to have a nice run up while we’re in recession. What commodities should we expect to come out of the recession first?

JC: I think gold and silver come out first. We’re looking at some specialty metals like ferroalloys—vanadium and molybdenum—because those markets are much tighter. The prices have been beaten up, as have the prices of larger metals like aluminum and copper. But if you look at molybdenum, for example, a lot of its uses are in transmission pipelines for gas and oil, offshore platforms for gas and oil production, and drilling pipe and production pipe for oil and gas. Even with lower oil and gas prices, these areas are going to be very strong over the next five, 10, 20 years. So we think you’ll see a relatively fast turnaround for a lot of these specialty metals, things that are harder to come by, but generally speaking are indispensable in critical economic applications. I think steel will also do very well because I expect the new government in the United States to undertake a major new program to rebuild all of these bridges that are about to fall down. I think you’ll see steel do very well from that perspective.

A graduate of the Missouri School of Journalism (University of Missouri, BJ, 1977), Jeffrey M. Christian chose his course of study because he was interested in chronicling developments in places such as Africa, Asia, Latin America and Central and Eastern Europe (well before they emerged as significant world economies). In 1980, Jeff left his job as an editor at Metals Week, an industry publication—having decided that metals markets he wrote about appealed to him more than journalism did. A year before Goldman Sachs acquired it, J. Aron and Company brought him on board and he soon managed the Commodities Research Group’s precious metals and statistical work there. In 1986, he engineered a leveraged buyout of this group—of which he was then VP—to create CPM Group, which he has led to become a world-class research, consulting, investment banking and asset management company that focuses on the fundamental analysis of global commodities markets. Jeff continues to write extensively.

 

Since the late 1970s, he has authored many pieces on precious metals markets, commodities and world financial and economic conditions. In 1980, he wrote World Guide to Battery-Powered Road Transportation: Comparative Technical and Performance Specifications. Now out of print, it remains a great index of many of the earliest electric cars. In 1981 he wrote one of the first market reports on the platinum metals group. Fast-forward to the 21st century, he and his staff of analysts write six major reports per year for publication and 12 monthly reports plus several more weekly reports and special reports. He published Commodities Rising in 2006. Jeff has pioneered application of economic analysis and econometric studies to gold, silver, copper, and platinum group metals markets, as well as efforts to improve and extend the quality of precious metals and commodities market statistics and research overall. As passionate about his work today as he was 22 years ago, he loves the fact that it gives him a tremendous network of contacts at high levels and a tremendous amount of discretion as to the work CPM Group undertakes. CPM counts among its clients many of the world’s largest mining companies, industrial users of precious metals, central banks, government agencies and financial institutions.

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The Safest Ways To Invest in Gold and Silver

By: Jason Hamlin of Gold Stock Bull

I am often asked what is the best or safest way to get exposure to precious metals. To be sure, there is a dizzying array of options from owning and storing the physical metal yourself to buying junior mining stocks. But the current crisis of confidence, brought on by the collapse of institutions that nobody thought could fail and the most recent $50 billion Ponzi scheme, has investors looking at safety and wealth preservation more than ever.

Buying physical gold and silver gives the owner definite possession, but comes with high premiums and the necessity to store and protect the metal. This can be done via a bank safe deposit box, but adds to the cost of owning the metal and doesn’t provide total peace of mind for many investors that have lost trust in the banking system. Others might prefer to store the gold on their property, hiding it in the floorboards or purchasing a safe. But this potentially puts you and your family members in harm’s way and again does not offer 100% security.

For investors that prefer not to hold the physical gold, yet place a high value on the safety of their investment vehicle not to default, I recommend the Central Trust of Canada (CEF) or its all-gold counterpart, the Central Gold Trust (GTU). Unlike the popular ETFs such as GLD and SLV, these funds do not lease out your gold and they always maintain 90% or more of assets in unencumbered, segregated and insured, passive long-term holdings of gold and silver bullion. Trace Mayer of Runtogold.com, recently published an article detailing the risk of investing in GLD and SLV. James Turk and others have also covered the unanswered questions about these ETFs in earlier articles.

Setting itself apart from the competition, the stated investment policy of the Board of Directors requires Central Fund to maintain a minimum of 90% of its net assets in gold and silver bullion of which at least 85% must be in physical form. On July 31, 2008, 97.6% of Central Fund’s net assets were invested in gold and silver bullion. Of this bullion, 99.3% was in physical form and 0.7% was in certificate form.

Central Fund’s bullion is stored on an allocated and fully segregated basis in the underground vaults of the Canadian Imperial Bank of Commerce (CM), one of the major Canadian banks, which insures its safekeeping. Bullion holdings and bank vault security are inspected twice annually by directors and/or officers of Central Fund. On every occasion, inspections are required to be performed in the presence of both Central Fund’s external auditors and bank personnel. Central Fund’s chief executive comments:

Our bullion is stored in separate cages, with the name of the owner printed on the cage, and on top of each pallet of bullion it states Central Fund or Central Gold-Trust. This disables the bank from using the asset from any of their purposes. We also pay Lloyds of London for coverage of any possible loss.

Adding to investor peace of mind, CEF has been around since 1961, is based outside of the U.S. (Calgary, Canada) and is run by a board that is respected in the precious metals community, not a bunch of corrupt Wall Street cronies. Demonstrating transparency that is much needed in today’s investment climate, Central Fund makes regular trips to visit the assets and takes their auditors with them. And you get the sense that you are dealing with honest gold investors and not slick marketing or public relations specialists by taking a quick perusal of the CEF website. While they aren’t going to win any design awards, the website is packed with all of the investor information necessary for due diligence.

On the downside, CEF does come with a hefty premium (currently at 16% to NAV). But this premium is less than the premium you are likely to pay on physical bullion, so it is a non-issue for me. And while it is a greater premium than GLD or SLV, I am willing to pay it since I have about as much faith in those ETFs as I do in the Comex.

Tax implications are another deciding factor. Ian McAvity, founding director and advisor to CEF, said there are definite tax advantages to CEF as opposed to an open-ended ETF. Long term gains in the gold ETFs (and presumably Barclays’ silver ETF) would be taxed as collectibles at 28%, according to the Gold ETF prospectus. As a passive foreign investment company with shares not convertible into bullion, CEF is believed to qualify as a passive foreign investment company [PFIC] to enable the 15% capital gains tax treatment, which can be an important factor for investors with long-term ambitions and taxable accounts, said McAvity.

Lastly, we should consider the performance of the various investment options. Year-to-date CEF underperformed by 3 points versus GLD, but this is largely due to the silver exposure. A more fair comparison would be to use Central Gold Trust. GTU significantly outperformed GLD (14 point gap), which should ease any concerns investors have about a higher premium. CEF and GTU offer not only more peace of mind, but better returns compared to the “trust us, the gold/silver is there” approach from iShares or SPDR. It is also interesting to note that the Gold Miners ETF (GDX) is the worst performer year-to-date. This could change as precious metals prices take off in 2009, but I am inclined to park at least half of my gold/silver investments in a safer place than stocks or funds that can’t prove that they actually have physical gold to back my investment dollars. Year-to-date returns are as follows:

click to enlarge

ETF Chart_1.png

While GTU has outperformed CEF during 2008, I expect silver to outperform gold during the next upleg and thus I own and favor CEF for 2009. Regardless, both of these funds represent sound investment choices during a time when there are fewer and fewer safe places to park your assets. Peace and prosperity to all.

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Mickey Fulp, “Mercenary Geologist”: Look for the Right Share

Structure, People, and Projects

 

Sourcee:  The Gold Report

 

 “Mercenary Geologist” Michael S. (Mickey) Fulp’s 29 years of field experience as an economic geologist evaluating exploration and mining projects throughout the Americas and China make him uniquely qualified to give The Gold Report an intriguing overview of what’s happening now in gold, precious metals and rare earths, and uranium. Mickey, always on the lookout for companies with the right share structure, people, and projects, is a proponent of the “Boot Leather and Drilling” style of exploration. He gives us a quick tour of his take (and favorite stocks) in the sector.

The Gold Report: On your website, it says you look for stocks that can double share price in 12 months or less. Is that still true in this bear environment?

Mickey Fulp: Most definitely. It’s not so easy to pick those doubles now, but I certainly think that should always be the goal in speculative resource stocks. I’ll pick stocks that I think will double in 12 months or less and stick to the way I’ve always traded; that is, when those stocks double, I sell half of my position plus enough to cover my brokerage fee; then I’m playing with the house money with a zero cost basis and half my original position. Then I take that money and do it again on another stock.

TGR: I know that you wear several hats, and I want to start with your global economy hat. What are you seeing in terms of precious metals, and how they’ll be reacting in the bear environment? Can you give me an overview of what you see happening in gold?

MF: I’m looking here on my KCAST (Kitco) gold, and it’s $753 an ounce as we speak. I think $750 is a viable price for legitimate gold producers. It’s unknown how gold will react in a deflationary environment. We’ve never really experienced a deflationary environment in modern times when the price of gold was floating because, when the Great Depression started, gold was $20.67 an ounce. Roosevelt raised that to $35 an ounce in 1933, made it illegal to own privately, and the price of gold was fixed throughout the Depression and until Nixon’s debacle in 1971.

Arguably, we are in a deflationary environment right now. I personally think we’re in a depression. At some point, with the Fed creating money willy-nilly and the U.S. government bailing out all the failed financial institutions, we’re going to look at a hyper- inflationary environment; and we all know that bodes well for the price of gold.

TGR: We’ve talked about the bailout here in the U.S., but there are also forms of bailouts happening in Europe and China. If every government is inflating its currency …

MF: That’s very true.

TGR: Worldwide, doesn’t that kind of equalize?

MF: Well, you can make that argument, but it’s hard to know which currency is going to come out on top on this. Probably none because they are all fiat with no hard asset basis. Certainly, fiat currencies in nearly every country are in a world of hurt right now. We just saw the Chinese devalue its currency—what was it—6% this week? Yes, it does even out, and the price of gold will rise with hyper inflation.

TGR: Let’s switch over to silver and other precious metals. Are you focusing just on gold or do you think there’s also a play for silver, palladium, platinum?

MF: I don’t have a strong opinion on platinum and palladium because they are so driven, no pun intended, by the auto catalyst market and with the downturn in automakers worldwide, that does not bode well for those two metals. On the other hand, they certainly have value as precious metals. Silver is also a bit of both. It’s both an industrial metal and has some value as a store of wealth. One thing I’ve looked at lately (and I’ve actually been a buyer of physical silver for the last couple of months or so), is the gold-silver ratio. Whenever it gets high, as it is right now, I consider that a buying opportunity in silver.

There’s been a lot of press about silver not being available, but silver is available in large bars. You can buy a 1,000 ounce bar through COMEX and take delivery on a January contract now—for somewhere around 25 cents over the spot price, if you pick the right broker. When I see the gold-to-silver ratio go above 80, I consider that a buying opportunity for physical silver.

TGR: We always hear that silver has more swings than gold and it will lag gold when gold starts to go up.

MF: It does have wider swings and that gives it some more volatility on both the upside and the downside. I look at that as a way to make money. Because of its volatility, it could lag gold on the way up; if it does, then the ratio gets out of whack. Historically, the ratio was 16:1. When gold and silver were both floated on the open market that ratio grew. Over the past 10-15 years it has been somewhere between about 40 and 70. As we speak right now, it’s 80.

So you can play sort of an arbitrage; the increased volatility of silver compared to gold gives you some leverage, much the same as playing junior resource stocks gives leverage on both the upside and the downside vs. the price of gold. Junior resource stocks will go up and down with much more volatility than the price of gold, so that’s how we end up with the proverbial five or ten baggers. In this environment, those five and ten baggers can be negative five and ten baggers. But at some point, resource stock valuations get so low that good companies—especially those with current gold production or near-term production, positive cash flow, and in particular, takeover targets—are ridiculously undervalued.

TGR: In your newsletter, Mercenary Musings, do you talk about buying physical gold and silver or do you focus on equity investments?

MF: I focus on many things, including stocks, educating investors, markets and macroeconomics, commodities, libertarian ideals, my field adventures, etc. I’m not a certified financial analyst. I’m a geologist with nearly 30 years experience. I basically tell people what I have done, or am doing, in the market. For instance, when I find a stock I like, I may say I’m accumulating this right now; I like this about that, etc. So my newsletter is quite varied.

TGR: We were talking earlier about palladium and platinum and I noticed that one of the companies you have in your technical analysis is Avalon Ventures Ltd. (AVL: TSX-V). I believe that’s a rare metals company.

MF: Yes, it is.

TGR: Would you talk a little bit about your viewpoint of rare earth elements, kind of global economics, and the importance it will play or the downside it will face given the recession that we’re all going through?

MF: That’s a very good question. Rare earth elements are increasingly used for high-tech applications, specifically super magnets and batteries. They are in short supply because in the late ’80s and early ’90s, the Chinese developed a very robust deposit in Northern China and, basically, they cut out all the established world producers by drastically lowering prices. They now supply over 90% of the world’s rare earth elements. These metals are critical for hybrid cars and large commercial air conditioning systems; they’re also used extensively in high-definition LCD TVs and electronics technology. For example, cerium provides the red color for your little LCD headlamp. So there’s a bunch of varied high-tech uses for these metals. Certainly demand for those things is dependent on a viable world economy.

Avalon’s in an interesting position, as it has a unique deposit in the Northwest Territories about hundred kilometers East-Southeast of Yellowknife. The Thor Lake deposit is concentrated in the heavy rare earth elements. Rare earth elements are kind of a mixed bag of 16 elements (15 plus yttrium), and they always occur together. Avalon’s deposit is unique in the fact that, in this series of 15 elements on the periodic chart from atomic number 57 to 71, the heavy rare earth elements are much more rare than the light rare earths.

As a result, they are in greatly increased demand and they trade at very high values, hundreds of dollars per kilogram in some instances. So I’m bullish on the long-term prospects for Avalon. It’s really been beaten up lately with a year high of $1.97, a year low of about 35 cents; currently it’s at 40 cents. It made a rally a couple of months ago and has gone south since then. The key to Avalon is they have a deposit that is potentially economic outside the Chinese supply monopoly. They are being courted as we speak by Japanese auto makers because the Japanese cannot depend on the Chinese for a supply of rare earth elements. The Chinese have put on export quotas and taxes because, as much as possible, they want to keep all their production in China and develop processing facilities there. They consume about 60% of the world’s rare earths.

TGR: You said earlier the key to the deposit of Avalon is to make it viable outside the Chinese monopoly. It sounds to me that, given the two facts you stated immediately afterward, it’s going to be clear imminently.

MF: It’s going to be clear soon because Avalon is working on a resource estimate as we speak that will include drilling through last winter. They drilled this summer with great success, and they will come back with a second resource estimate and a process metallurgical report, probably by the end of the first quarter of next year, and then move on to a pre-feasibility study. So, assuming we have a viable world economy—and, arguably, that’s questionable right now—I would look at Avalon as in play, if you will, or looking to secure an off-take agreement for its production with a Japanese company sometime in 2009.

TGR: When will it start producing?

MF: I think they’re still about four years away from actually constructing a mine and getting it into production. The climate up there is northern boreal forest and water or ice, so for the construction phase, it’ll be a seasonal operation.

TGR: Are there other potential prime geological territories that might produce these rare earth metals?

MF: The area that comes to mind, of course, is Mountain Pass, which is in southeast California. It dominated world production until it was cut out by the Chinese. It’s just sitting there, held by Unocal with something like 20 million tons of nearly 8% to 9% in dominantly light rare earths, so this is a bit of a different market than what Avalon would be courting because Thor Lake is a heavy rare earth element deposit. There’s also a deposit in Australia, Lynas Mining’s Mt. Weld, concentrated in neodymium and it could dominate the supply of neodymium.

TGR: Is that in production?

MF: No, but it is in development and pending completion of concentrating and materials plant facilities. The rare earth elements themselves are not particularly rare, but the deposits that concentrate them in minable quantities are extremely rare worldwide.

TGR: I also see, when looking at your Mercenary Musings online, that you had a recent Musing regarding Animas Resources (TSX.V:ANI). What caused you to write about that specific company?

MF: Well, as with most of the things I cover, I put my Mercenary money where my mouth is. I was an IPO investor of Animas Resources. I still hold the warrants. It’s a story I have followed since inception. I have a bit of a mantra about a good company; it’s got to have the right share structure, people, and projects. And, in my view, Animas has all three of those.

It’s a Carlin-type system in Northern Mexico, having produced 650,000 ounces of gold in the 1990s, and then shut down in 2000, because of a depressed gold price of $300 an ounce. It shut down with an historic resource, not 43-101 qualified and I need to make that clear, of 718,000 ounces. It has the geologic characteristics of Carlin-type systems in northeast Nevada and, in my Musing, I list 10 of those.

It’s never been drilled deep, and it’s never been drilled systematically under gravel cover adjacent to the 12 small deposits that were mined in 22 separate pits. So it’s historically been a district—and Animas controls the entire district—that has produced from small deposits. Management at Animas includes a “who’s who” of senior-level geologists who have worked for major mining companies. One of its consultants is Odin Christensen. Odie was Chief Geologist for Newmont Mining Corp. (NYSE:NEM) in the Carlin Trend when it first was drilled deep. And huge, deep high grade gold deposits were found, which really made the Carlin Trend. I see the same geological characteristics at Santa Gertrudis. The management is good; low number of shares outstanding—less than 27 million shares; very tightly held. It hit an all-time low at 29 cents today; it’s very encouraging that the entire management and controlling group of this company has never sold shares or exercised options. They obviously like the project and intend to play it out.

It’s strictly an exploration play. I don’t like very many exploration plays right now; but, with working capital at $4.5 million, they can go at least to early 2010 and give Santa Gertrudis their best shot. If they find big, deep, high-grade Carlin-style deposits, they will be in play as a takeover candidate. If they don’t, they have other options. There are lots of small miners in Mexico, small junior companies mining less than 100,000 ounces a year in that region. Animas has six different projects in the district and it could JV some of them out to people that want to mine on a smaller scale.

TGR: We covered gold, precious metals and rare earths, and uranium. It’s been quite a tour around the world here very quickly.

MF: I have one other gold company that I like—PDX Resources Inc (TSX:PLG), formerly called Pelangio Exploration.

TGR: What’s caused you to focus on this one?

MF: I followed the story for quite some time, did my detailed due diligence, and became a shareholder. PDX owns 19 million shares of Detour Gold (TSX:DGC); the Detour Lake gold property in Northern Ontario. Detour Gold, at a $700 gold engineered pit, has 10.75 million ounces of gold resource. That’s measured and indicated resource. That’s always important—measured and indicated. It has some additional inferred, but I don’t pay much attention to inferred resources.

If you do the math, Detour Gold is now being valued at over $15 per ounce of contained gold. PDX Resources owns 42.4% of Detour Gold shares and their valuation now is $10.50 an ounce. Detour Gold is in the final throes of a feasibility study. It was scheduled to be out by the end of this year; I do not know if they’re presently on schedule for that, but they become a takeover candidate with a positive feasibility. You have leverage there for PDX shares vs. Detour Gold shares, at a 30% discount per ounce of gold in the ground.

TGR: But you’re saying Detour is the potential takeout candidate?

MF: Yes, it is.

TGR: Isn’t this what you mentioned earlier, where the only potential company that would take them out because of their share structure is PDX?

MF: No, PDX Resources originally spun out 50% of the deposit to a new entity, Detour Gold, a Hunter-Dickinson company and now exists only as a shareholder of Detour Gold. It is the minority shareholder, and is comprised of expert explorationists. So recently in September, it spun out all its other properties into a new exploration company, which is Pelangio Exploration; thus PDX holds its Detour Gold shares solely for investment purposes. With 10.75 million ounces, this is a huge deposit; it was a past producer of Placer Dome. It failed because of a low gold price in the previous downturn in the gold business. I think you’re probably looking at a bidding war for Detour Gold.

Goldcorp (TSX:G) (NYSE:GG) is the obvious candidate and we saw what Goldcorp did with its acquisition of Gold Eagle in the Red Lake District. Kinross Gold Corp (K.To) (NYSE:KGC) is a possible suitor. With this size of deposit, you’ve got to throw in the big boys—Barrick Gold Corp (NYSE:ABX), Newmont, Anglo, Gold Fields Ltd. (NYSE:GFI)—and some of the mid-tier gold companies looking to become major producers. It’ll get taken out at the Detour Gold share price, which is now trading at $15 per ounce of gold in the ground, while PDX is currently trading at $10.50. That’s 30% discount, so you have leverage to the upside with PDX Resources. Make sense?

TGR: That’s a great and very interesting play. Mickey, thank you for your time.

Michael S. “Mickey” Fulp, who launched MercenaryGeologist.com in late April 2008, brings more than 29 years of experience to his role as an exploration geologist. Specializing in geological mapping and property evaluation, Mickey has worked as a consulting economic geologist and analyst for junior explorers, major mining companies, private companies and investors. Check out his website for free access to the Mercenary Musings newsletter, as well as technical reports. Future offerings will include a premium paid subscription service that provides early and special access to subscribers. You may contact him at mailto:Mickey@MercenaryGeologist.com.

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Now Gold is currently up over $35/oz. What are you waiting for? Time to get on board- Good Trading! – jschulmansr

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Kinross Gold Leads Gold Sector Rebound – Seeking Alpha

10 Wednesday Dec 2008

Posted by jschulmansr in Bollinger Bands, commodities, Copper, Currency and Currencies, diamonds, Finance, Fundamental Analysis, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, oil, precious metals, silver, small caps, Stocks, Technical Analysis, Today, U.S. Dollar, uranium

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Kinross Gold Leads Gold Sector Rebound – Seeking Alpha

By: Sam Kirtley of Gold-prices.biz

Sam Kirtley has been involved in investment in the financial markets for a number of years and has experience in stock investment and analysis as well as options trading. He is now a writer and analyst for various websites including uranium-stocks.net, gold-prices.biz, and silver-prices.net.

Gold stocks have been bouncing back recently, but few can challenge the extraordinary recovery of Kinross Gold (KGC), which has more than doubled since its low below $7. This is a sign that KGC is indeed one of the best gold mining companies in the world, since it has bounced back the furthest and the fastest.

(click to enlarge)

Technically some good signs from KGC are that the Relative Strength Index is moving higher having bounced up off the oversold zone at 30. Similarly, the MACD is trending northwards and is now in positive territory, but can still rise a lot further before giving an oversold signal.

If one is to have favourite shares, Kinross Gold Corp would certainly be one of ours, as it has been a holding of ours for years now, although we have traded the ups and downs when the opportunities presented themselves.

Having originally acquired Kinross at $10.08, after a large rally Kinross then went through a bit of a pull back so we signalled to our readers to “Add To Holdings” at discounted levels of around $11.66. We also gave another ‘Kinross Gold BUY’ signal when we purchased more of this stock on the 20th August 2007 for $11.48. On 31st January, 2008, we reduced our exposure to this stock when we sold about 50% of our holding for an average price of $21.96 locking in a profit of about 93.60%. On the 24th July, 2008, we doubled our holding with a purchase at $18.28 giving us a new average purchase price of $14.50.

As well as trading the stock, we have also dabbled in options contracts with Kinross, buying call options in KGC on the 16th June, 2008, paying $2.68 per contract and selling them on the 28th June 2008 for $5.30 per contract generating a 100% profit in two weeks. We then re-purchased them after they dropped for $2.50, and we are still holding them, although at a significant paper loss.

The reason we like Kinross Gold Corp so much is that it fits our criteria almost perfectly. When we look for a gold stock to buy, we are looking for solid fundamentals, a stable geopolitical situation and most importantly, leverage to the gold price itself.

As far as the fundamentals go, Kinross is a mid to large cap gold producer with a market cap of $9.47 billion. Some may consider this too large a company to offer decent leverage to the gold price, but as shown by the recent performance of the stock price, Kinross is definitely providing that leverage.

As well as leverage to rising gold prices, Kinross is also growing well as a company in its own right. Having made a gross profit of $390.40M in 2006 and then $501.80M in 2007 and with the Sep 08 quarterly profits at $269.80M, Kinross appears to be on track for another good year of record profits. There is also something in the financials that is particularly helpful in the present credit environment. In the last report from KGC, out of the $1284.80M in current assets, Kinross has a massive $322.90M in cash. This means it is well positioned to face any liquidity issues and will not be forced to try and raise money in the current difficult credit conditions.

Therefore, we continue to like Kinross and maintain our stock and option position in the company. Kinross Gold Corp is not only well positioned to benefit from rising gold price, but it is also a great company in its own right, with good growth potential. A full list of the stocks we cover can be found in our free online portfolio at http://www.gold-prices.biz.biz.

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Goldcorp Expected to Get 40% Gold and Silver Reserve Boost at Penasquito

Source: Financial Post Trading Desk

By: Jonathan Ratner

 Goldcorp provided an update for the Penasquito project in Mexico on Monday, a day ahead of its tour for analysts and shareholders.

The miner said its capital cost estimate is less than 10% higher than the original estimate of US$1.494-billion and construction continues to progress well.

When engineering work is complete, Goldcorp expects an approximate increase of 30% in gold reserves and a 15% to 20% increase in silver, lead and zinc reserves for year-end reporting.

There is also the potential for initial resources to be declared for bulk mineable and high-grade underground zones, as well as the Noche Buena property nearby, noted Canaccord Adams analyst Steven Butler. He assumes reserve additions will be roughly 40% for gold and silver and around 16% for lead and zinc.

Concentrate shipments are scheduled to being in the fourth quarter of 2009 and commercial production is expected for the following quarter. Meanwhile, shipments of large trial lots are anticipated in 2009 now that concentrate samples have been provided to select smelters, Mr. Butler said in a research note.

The analyst also noted that Goldcorp’s optimization efforts are underway. They include the possibility of recovering precious metals from low-grade lead ore that was previously considered uneconomic, the potential for underground bulk mining beneath currently defined open pits, and the possibility of cheaper power from a dedicated facility through a partnership with an independent provider.

Canaccord rates Goldcorp a “buy” with a price target of US$32 per share.

Jonathan Ratner 

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The Fed Still Manipulates Gold and The Markets

By: Jake Towne of Yet Another Champion of the Constitution

In a dynamic duo of articles published last weekend, I predicted the fall of the Dollar via a Gold-based perspective, and a US Treasury-based perspective. I want to round off and perhaps even reinforce my theory with a few more opinions and thoughts, which of course may be faulty as the major decisions are still at the mercy and discretion of the Fed, whom I have learned to never underestimate. To be a real “expert” in economics today requires one to be an “expert” in predicting government interventions, so it is all guesswork unless one is an insider. I am highly interested if there are any crucial facts I am missing by the way, please leave any counterarguments below.

I own some gold and if gold goes down I’ll buy some more and if gold goes up I’ll buy some more. Gold during the course of the bull market, which has several more years to go, will go much higher. – Jim Rogers, famed commodities trader, last week

I have written previously how the Fed creates and destroys money, but the example I used of open market operations (OMOs) has changed dramatically in 2008. The Fed is, on a daily basis, still altering its Treasury holdings, but more importantly propping up other assets by buying them, such as mortgage-based securities, Citigroup (C), AIG, etc. The Fed balance sheets have plunged from its historical levels of ~95% Treasury securities to less than 32% Treasuries, which hampers OMOs since the assets purchased will likely find no willing buyer on the market.

It may seem like the Fed is creating lots of money (and they are) but remember that $7.76 trillion, $8.5 trillion, WHATEVER the new number will be by the end of this week, pales in comparison to the amount of financial derivatives in existence, which per the BIS at last count (and just over-the-counter!) was $684 trillion. I am not sure if I ever wrote this phrase in this column before, but I’ve always viewed the financial crisis as a “Triple-D” crisis. Dollar. Debt. Derivatives.

There is another method of money destruction that I have not overlooked and want to mention. In an economic “disintegration” or a monster of a recession, money can also be destroyed by corporate, government and private bankruptcies.

In the debt-based world we live in, I think money destruction could be seen in shocking scales far exceeding the imaginations of the Keynesian-economics-based minds of the Fed and other central bankers. For instance, comparatively there has been much less noise in the commercial mortgage markets. However, if a lot of businesses fail, which has been known to happen in any recession, how do you suppose those mortgages will be repaid to the banks? In such a scenario, central bankers have just two options: create replacement money to re-inflate supply, or revalue the currency to an asset (very likely gold, after all central bankers do not hold at least some gold for their collective health, the yellow stuff is nice life insurance for fiat currency, ain’t it?).

In this eye-popping December 4 essay by James Conrad, he reasons the central bankers will revalue to some sort of a gold standard to escape oblivion, and the price of gold will go from $750 per ounce to $7500-9000. [Remember the “price” is not REALLY going up, after all 1 ounce of gold is the same from day to day. What it really means is that all fiat currencies are going to be massively devalued as the worthless scraps of paper and electrons they really are!]

There is a legal requirement that, in every futures contract that promises to deliver a physical commodity, the short seller must be 90% covered by either a stockpile of the commodity or appropriate forward contracts with primary producers… Things, however, are changing fast. As previously stated, the first major mini-panic among COMEX gold short sellers happened last Friday. As of Wednesday morning, about 11,500 delivery demands for 100 ounce ingots were made at COMEX, which represents about 5% of the previous open interest. Another 2,000 contracts are still open, and a large percentage of those will probably demand delivery. These demands compare to the usual ½ to 1% of all contracts.

Time for Captain Calculator! On December 5, the open interest was 264,796 contracts (at 100 troy ounces per bar). This equates to 823 tonnes, a very significant amount equal to about 10% of the total gold reserves claimed by the United States, the world’s largest holder. There are 26.5 million ounces in contracts and only 2.9 million ounces in COMEX warehouses to cover deliveries as Dr. Fekete notes here. Over 40% of the warehouse totals will be delivered before January 1.

Where is the gold to cover the rest of the contracts? In the ground? In central bank vaults? At the GLD London vault? I do not know the answer, but I agree with Fekete’s comment on gold’s recent backwardation and Conrad, the traders requesting delivery are skeptical there is enough.

Conrad then proceeds to outline a very convincing (to me) proof that ends with:

It is only a matter of time before gold is allowed to rise to its natural level. Assuming that about half of the current increase in Fed credit is eventually neutralized, the monetized value of gold should be allowed to rise to between $7,500 and $9,000 per ounce as the world goes back to some type of gold standard. In the nearer term, gold will rise to about $2,000 per ounce, as the Fed abandons a hopeless campaign to support COMEX short sellers, in favor of saving the other, more productive, functions of the various banks and insurers.

Revaluation of gold, and a return to the gold standard, is the only way that hyperinflation can be avoided while large numbers of paper currency units are released into the economy. This is because most of the rise in prices can be filtered into gold. As the asset value of gold rises, it will soak up excess dollars, euros, pounds, etc., while the appearance of an increased number of currency units will stimulate investor psychology, and lending and economic output will increase, all over the world. Ben Bernanke and the other members of the FOMC Committee must know this, because it is basic economics.

 

Hyperinflation is nasty stuff. I first wrote about it in my July article “Calling All Wheelbarrows: Hyperinflation in America? (Part 2/2)” and a fellow Nolan Chart columnist, Republicae, with far more experience than I wrote “The Hyper-Inflationary Trigger.”

Jim Sinclair, precious metals expert, comments here:

I recently completed the same mathematics that helped me so much in 1980 to determine the price that would be required to balance the international balance sheet of the US.

Balancing the international balance sheet is gold’s mission in times of crisis.

I recently did the math again and was sadly shocked to see what the price of gold would have to be to balance the international balance sheet of the USA today. That price for gold is more than twice Alf’s projected maximum gold price.

 

Alf Field’s maximum projection is $6,000 per troy ounce. Wow, guess Captain Calculator can take a vacation! On that note I would like to end with a reminder to the republican, Republican, and the third person who is reading this:

“We renew our allegiance to the principle of the gold standard and declare our confidence in the wisdom of the legislation of the Fifty-sixth Congress, by which the parity of all our money and the stability of our currency upon a gold basis has been secured.”

– Republican National Platform, 1900

“We believe it to be the duty of the Republican Party to uphold the gold standard and the integrity and value of our national currency.”

– Republican National Platform, 1904

“The Republican Party established and will continue to uphold the gold standard and will oppose any measure, which will undermine the government’s credit or impair the integrity of our national currency. Relief by currency inflation is unsound and dishonest in results.”

– Republican National Platform, 1932 [Above are sourced from H.L. Mencken, A New Dictionary of Quotations on Historical Principles from Ancient and Modern Sources (1985, p. 471)

“We must make military medicine the gold standard for advances in prosthetics and the treatment of trauma and eye injuries.”

– the only mention of gold in the Republican National Platform, 2008. Try searching for ‘gold’ or ‘dollar’ here.

Well, the Gold Standard ended in the US in 1914 when the first unbacked and “unsound” Federal Reserve Notes were printed. Ok, I hate the Fed, but fellow columnist Gene DeNardo phrased it best in his intriguing article “MV=PT A Classic Equation and Monetary Policy“:

When the economy grows in a healthy way, we all share in the profit as our currency becomes stronger and is able to purchase more.

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Inflation on Sale as Deflation Dominates Markets

By:  Eric Roseman of  The Sovereign Society

The time to start building fresh positions in oil, gold, silver and TIPs has arrived. Even distressed real estate should be accumulated if credit can be secured.

Over the next 6-12 months the United States, Europeans, Japanese and Chinese will eventually arrest deflation. And long before that materializes, hard assets will begin a major reversal following months of crippling losses.

Since peaking in July, the entire gamut of inflation assets has collapsed amid a growing threat of deflation or an environment of accelerated price declines. The last deflation in the United States occurred in the 1930s, purging household balance sheets, corporations, states, municipalities and even the government following two New Deals.

Thus far, U.S. CPI or the consumer price index has not turned negative year-over-year. Yet as oil prices continue to lose altitude and other commodities have been crushed, input costs and price pressures continue to decline dramatically since October. The only major component of CPI that continues to post modest year-over-year gains is wages. And with unemployment now rising aggressively this quarter it’s highly likely wage demands will also come to a screeching halt.

Plunging Bond Yields Discount Danger

In the span of just six months, foreign currencies (except the yen), commodities, stocks, non-Treasury debt, real estate and art have all declined sharply in value in the worst panic-related sell-off in decades. More than $10 trillion dollars’ worth of asset value has been lost worldwide in 2008.

What’s working since July? U.S. Treasury bonds and the U.S. dollar as investors scramble for safety and liquidity.

On December 5, 30-day and 60-day T-bills yielded just 0.01% – the lowest since the 1930s while the benchmark 10-year T-bond traded below 2.55% – its lowest yield since Eisenhower was president in 1955. Even 30-year bonds have surged as the yield recently dropped below 3% for the first time in more than four decades.

The market is now pricing a severe recession and – possibly – another Great Depression. Despite a series of formidable regular market interventions by central banks since August 2007, the credit crisis is still alive and kicking. The authorities have not won the battle …at least not yet.

Heightened inter-bank lending rates, soaring credit default swaps for sovereign government debt and plunging Treasury yields all confirm that the primary trend is still deflation.

To be sure, credit markets worldwide have improved markedly since the dark days of early October. Investment-grade corporate debt is rallying, commercial-paper is flowing again and companies are starting to issue debt once more – but only the highest and most liquid of companies. For the most part, banks are still hoarding cash and borrowers can’t obtain credit.

The real economy is now feeling the bite as consumption falls off a cliff, foreclosures soar and the unemployment rate surges higher. These primary trends are deflationary as broad consumption is severely curtailed, with consumers preparing for the worst economy since 1981 and rebuilding devastated household balance sheets.

But at some point over the next 12 months, the market might transition from outright deflation or negative consumer prices to some sort of disinflation or at least an environment of stable prices. That’s when inflation assets should start rallying again.

Inflate or Die: The Name of the Game in 2009

The battle now being waged by global central banks, including the Federal Reserve is an outright attack on deflation. Through the massive expansion of credit, the Fed and her overseas colleagues are on course to print money like there’s no tomorrow to finance bulging fiscal spending plans, bailouts, tax cuts and anything else that helps to alleviate economic stress.

Earlier in November, the Fed announced it would target “quantitative easing” and “monetization,” unorthodox monetary policy tools rarely or never used in the post-WW II era.

Without getting too technical, the term “quantitative easing” means the Fed will act as the buyer of last resort to monetize Treasury debt and other government agency paper in an attempt to bring interest rates down. Quantitative easing aims to flood the financial system with liquidity and absorb excess cash through monetization or purchasing of government securities.

Through monetary policy, the Fed controls short-term lending rates but cannot influence long-term rates that are largely set by the markets; the Fed now hopes it can influence long-term rates through quantitative easing. And since its announcement two weeks ago, long-term fixed mortgage rates have declined sharply.

These and other open market operations directed by the Fed and Treasury will eventually arrest the broad-based deflation engulfing asset prices. It will take time. Inflation is the desired goal and is the preferred evil to deflation, a monetary phenomenon that threatens to destroy or seriously compromise the financial system. Policy-makers have studied the Great Depression, including Fed Chairman Bernanke, and the consequences of failed central bank and government intervention in times of severe economic duress are unthinkable.

Ravenous Monetary Expansion

According to Federal Reserve Board data, the Fed is now embarking on a spectacular expansion of credit unseen in the history of modern financial markets.

Lichtensteins Banner

The total amount of Federal Reserve bank credit has increased from $800 billion dollars to $2.2 trillion dollars (or from 6% to 15% of gross domestic product) as the central bank expands its various liquidity facilities in an attempt to preserve normal functioning of the financial system.

The Fed’s ongoing operations to arrest falling prices are targeted namely at housing – the epicenter of this financial crisis. It is highly unlikely that the United States economy will bottom until housing prices find a floor. Quantitative easing hopes to stabilize this market.

Buy Gold Now

Relative to other assets in 2008, gold prices have declined far less. The ongoing liquidity squeeze has forced investors to dump assets, including gold to raise dollars. I suspect this short-term phenomenon will end in 2009 once the ongoing panic subsides and credit markets become largely functional again.

Gold should be accumulated now ahead of market stabilization. As the financial system gradually comes back to life over the next several months or sooner, the dollar should commence another period of weakness; there will be little incentive to hold dollars with short-term rates at or close to zero percent. The Fed will be in no hurry to raise lending rates.

Still, the Japanese experience in the 1990s warns investors of the travails of long-term deflation.

The Japanese, unlike the United States, only started to seriously attack falling prices in the economy in 1998 through massive fiscal spending. In contrast, the U.S. is already throwing everything at the crisis after just 17 months.

I expect the United States to print its way out of misery and, over time, and conquer deflation. But the cost will be humungous and at the expense of the dollar, U.S. financial hegemony and calls for a new monetary system anchored by gold.

It’s literally “inflate or die” for global central banks. Inflation will win.

My Note: If you haven’t START BUYING PRECIOUS METALS NOW! Especially GOLD -I AM!    jschulmansr

 

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Gold (H)edges Gold Stocks + New CBOE Gold and Silver Options

09 Tuesday Dec 2008

Posted by jschulmansr in capitalism, commodities, Copper, Currency and Currencies, deflation, Finance, Fundamental Analysis, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, oil, precious metals, silver, small caps, Stocks, Technical Analysis, U.S. Dollar, Uncategorized, uranium

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Gold (H)edges Gold Stocks – Features and Interviews – Hard Assets Investor

By: Brad Zigler of Hard Assets Investor

This is an excellent teaching article- jschulmansr

I suppose I shouldn’t have been surprised by the number of visitors to the San Francisco Hard Assets Conference who wanted to talk about wrestling the risk of their gold stock investments. After all, 2008 has turned out brutal for gold miners. Witness the AMEX Gold Miners Index off by 46% for the year.

Some of the conferees have been puzzling over their hedging options. And there are plenty of them: options, futures and exchange-traded notes, to name a few. This array leaves many wondering which hedge is optimal.

If you’re pondering that question yourself, you first have to ask yourself just what risk you want to hedge. In a so-called “perfect” hedge, price risk is completely checked, effectively locking in the present value of an asset until the hedge is lifted.

Is that what you really want, though?

A less-than-perfect hedge neutralizes only a portion of the risk subsumed within an investment. Gold stocks, for example, provide exposure to both the gold and equity markets. Hedging a gold stock with an instrument that derives its value solely from gold may dampen the volatility impact of the metal market upon your portfolio, but leaves you with equity risk. This may be perfectly acceptable if you feel stocks in general – and your issues in particular – are likely to appreciate. Hedge out the gold exposure and you’re more likely to see the value that the company’s management adds. If any.

We touched on this subject in recent Desktop columns (see “Gold Hedging: Up Close And Personal” and “More On Hedging Gold Stocks“).

More than one Desktop reader asked why the articles proposed a hedge strategy employing inverse gold exchange-traded notes – namely, the PowerShares DB Gold Double Short ETN (NYSE Arca: DZZ) – instead of stock-based derivatives such as options on the Market Vectors Gold Miners ETF (NYSE Arca: GDX).

Well, we’ve mentioned one of the advantages of a gold-based hedge already, but the question deserves a more detailed answer. Let’s suppose, for illustrative purposes, you hold 1,000 shares of a gold mining issue now trading at $50 and are concerned about future downside volatility. [Note: The prices shown in the illustrations below are derived from actual market values.]

AMEX Gold Miners Index And ETF

The AMEX Gold Miners Index is a modified market-capitalization-weighted benchmark comprised of 33 publicly traded gold and silver mining companies.

While price movements in the index are generally correlated with the fluctuations of its components and other mining issues, the relationship isn’t perfect. Close, but not perfect. The Gold Miners Index represents the market risk, or beta, specific to gold equities. Any hedge that employs an index-based derivative will need to be beta-adjusted to compensate for any differences in the securities’ volatilities.

You have to consider the proper index-based derivative to be used in the hedge. The GDX exchange-traded fund could be shorted, but that would require the use of margin, something that some investors might abhor.

If you’re not put off by margin, you’ll first need to size your hedge. And for that, you’ll need a beta coefficient for your stock. A quick-and-dirty beta can be approximated by taking the quotient of the securities’ volatilities or standard deviations (you can get a stock’s standard deviation through Web sites such as Morningstar and SmartMoney, or you can derive a beta more formally through a spreadsheet program such as Excel).

Gold Stock Volatility ÷ ETF Volatility = 94.8% ÷ 81.8% = 1.16

The ratio tells you how to calculate the dollar size of your hedge. If your stock is trading at $50, your $50,000 position would require $58,000 worth of GDX shares sold short. If GDX is $23 a copy, that means you‘ll need to short 2,522 shares.

Once hedged, you’ll still carry residual risk. The volatility correlation could shift over the life of the trade, leaving you over- or underhedged. So you’ll need to monitor the position for possible adds or subtractions. Hedging is not a “get it and forget it” proposition.

You’ll also need fresh capital to place and maintain the hedge. There’s the initial cash requirement of $29,000 (50% of $58,000) and possibly more if you hold your hedge through significant rises in GDX’s price.

GDX Options

You can avoid margin altogether by using certain GDX options instead of a short sale. Purchasing puts on GDX, for example, gives you open-ended hedge protection against declines in gold equities like a GDX short sale but with a clearly defined and limited risk. There’s no margin required, but you’ll have to pay a cash premium to buy the insurance protection. And, like an insurance contract, the coverage is time-limited.

Let’s say you can purchase a one-month option that permits you to sell 100 GDX shares, at $22 a copy, for a premium of $245. Keep in mind that the put conveys a right, not an obligation. You’re not required to sell GDX shares. At any time before expiration, you can instead sell your put to realize its current value, or you can allow the option to expire if it’s not worth selling.

Just how does the put protect you? Let’s imagine that, just before expiration, GDX shares have fallen to $10. Your put guarantees you the right to sell GDX shares at a price that’s now $12 better than the current market. That’s what your option should be worth: $12 a share, or $1,200. If you sell it now, you’d realize a $955 gain that can be used to offset any concomitant losses on your gold stock.

To figure out how many puts are necessary to fully hedge your stock position, you’ll need to extend the ratio math used previously.

Option prices only move in lockstep with their underlying stocks when they’re “in the money” like the put illustrated above. The expected change in an option premium is expressed in the delta coefficient. If the delta of the $22 put, when GDX is $23, is .40, the option premium is expected to appreciate by 40 cents for every $1 GDX loses.

The arithmetic used to construct the full hedge is:

[Stock Value ÷ (Delta x 100 Shares)] x Beta = [$50,000 ÷ (.40 x 100)] x 1.16 = 1,450 puts

Here’s where the efficacy of the GDX options hedge really breaks down. GDX’s high price volatility has inflated the cost of hedge protection to impractical levels. The hedge would cost $245 x 1,450, or $355,250; much more than the potential loss that would be incurred if you remained unprotected. Clearly, the cost of hedging gold equity market risk, like the cost of insurance after a catastrophe, has been puffed up to protect the insurer.

Of course, you can elect to hedge only a portion of your stock position, but the high premium necessitates a large “deductible” on your market risk.

Wrapping Up

You’ll note that some gold mining issues have options themselves. Using these as hedges in the current market presents another set of problems.

Given that the volatilities for individual issues are higher than that of GDX, the stock contracts are even more expensive than index options. Using stock options, too, would hedge away management alpha. Individual options, as well, are inefficient if you hold multiple mining issues in portfolio.

Now, consider the contrasting benefits attached to using the DZZ double inverse gold notes in your hedge: 1) no overpriced insurance cover, 2) you get to keep your stock’s equity and management risk; you’re only hedging out gold’s volatility, 3) a single purchase can hedge any number of mining issues in portfolio, and 4) your insurance doesn’t expire.

Seems to me that DZZ has the edge.

===============================================

Today’s Grab Bag- Brad Ziegler Hard Assets Investor

Cheaper Oil and Silver + Gold Options 

Real-time Inflation Indicator (per annum): 7.9%

A couple of quick items for your consideration this morning.

Merry New Year from the EIA

The U.S. Energy Information Administration (EIA) has issued its monthly short-term forecasts for oil prices. In the words of this little corner of sunshine in the Department of Energy:

 “The current global economic slowdown is now projected to be more severe and longer than in last month’s Outlook, leading to further reductions of global energy demand and additional declines in crude oil and other energy prices.”

The EIA has set an average price forecast for West Texas Intermediate (WTI) crude oil at $100 per barrel. That’s the average for all of 2008. Keep in mind that, year-to-date, WTI has traded at an average barrel price of about $104. Now, we’ve only got 15 trading days left in 2008. To bring the current average price down $4 in that time, the sell-off pace has to quicken some.

In essence, the EIA – if you put any faith in its forecasts – is telling you to short oil. And this while the quarterly NYMEX oil contango has ballooned to a record $7.21 a barrel (need background on contango? See “Oil Demand Perking Or Peaking?”).

 NYMEX Crude Oil Quarterly Contango 

NYMEX Crude Oil Quarterly Contango

Back in November, the EIA eyed a $112 average price for 2008. Do I need to tell you that they missed the mark on that one?

Looking ahead, the EIA thinks WTI crude will average $51 a barrel in 2009.

Never let it be said that your stingy government didn’t give you something for the holidays.

And now, ladies and gentlemen, SLV options

Frustrated that you haven’t been able to play your favorite option trades in the silver market? Be vexed no longer. The Chicago Board Options Exchange (CBOE) has come to your rescue. Yesterday, CBOE launched option trading on two metals grantor trusts, the iShares COMEX Gold Trust (NYSE Arca: IAU) and the iShares Silver Trust (NYSE Arca: SLV). Both trusts hold physical metals.

This is both a first and a “two-fer” for the options bourse. Back in June, CBOE inaugurated trading in the SPDR Gold Shares Trust (NYSE Arca: GLD); options on a silver grantor trust haven’t been traded on an organized exchange before.

The American-style options will trade on the January expiration cycle, initially with contracts maturing in December, January, April and July.

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Time to Revise Our Gold Expectations – Seeking Alpha

08 Monday Dec 2008

Posted by jschulmansr in Bollinger Bands, capitalism, commodities, Copper, Currency and Currencies, deflation, Finance, Fundamental Analysis, gold, hard assets, Investing, investments, Latest News, Markets, mining stocks, precious metals, silver, small caps, Stocks, Technical Analysis, Today, U.S. Dollar, uranium

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Time to Revise Our Gold Expectations – Seeking Alpha

Source: FP Trading Desk

The price of gold is showing signs of stability after gold stocks got crushed in the commodity sell-off early this fall. However, we are clearly not in the $1000-plus gold price environment many had anticipated under these dire economic conditions, nor have traditional multiples returned, says Credit Suisse analyst Anita Soni.

Apart from a brief period earlier this year, when gold hit an all-time high above $1030 an ounce, the yellow metal has not performed true to course. The first quarter advance proved to be a bubble with large-scale institutional speculators driving the price sharply higher… and then sharply lower over the next seven months, according to Jeffrey Nichols, managing director at American Precious Metals Advisors.

Mr. Nichols told the China Gold & Precious Metals Summit in Shanghai on Thursday:

In spite of the lack of direction and day-to-day price volatility in the gold market this year, at least we can say that no other asset class has held its value quite so well.

“Clearly the standard 1 to 2 times price-to-net asset value [NAV] paradigm no longer applies, particularly for the more junior stocks,” Ms. Soni said in a research note, adding that exposure to base metal by-products is no longer a guarantee of lower cash costs. For senior producers, P/NAV multiples are around 0.5 times, while they range for 0.66x for mid-tier names and as much as 1x for small market cap companies.

Until longer-term valuation fundamentals matter again, Ms. Soni believes she has determined an appropriate near-term basis for valuing gold equities. It uses spot commodity prices plus 10% to determine net asset values: $850 per ounce for gold, $10.50 for silver, $1.80 per pound of copper and $0.58 for zinc.

This produces returns between 30% and 60%, which she considers a reasonable near-term basis for valuation until gold moves upward again. Ms. Soni has also produced target prices and net asset values for the long term, with an extra 10% for gold again, or $930, a level she said is “imminently achievable.”

As a result of these changes, Credit Suisse has upgraded its rating on Kinross Gold Corp. (KGC) to “outperform,” while Yamana Gold Inc. (AUY) and Northgate Minerals Corp. (NXG) have been downgraded to “neutral.” Target price reductions for the miners it covers range from 18% to 80%.

“The issues in the mid-tier space are those of operational risk and to a lesser extent, the spectre of potential funding shortfall,” Ms. Soni said. Yamana’s recent production and cost revisions have not been well-received, sending its share price multiple from near-senior levels to the discounted mid-tier level.

She cited several other near-term issues that could weigh on the stock. Its production ramp-up will likely be slower than expected and the market may show a lack of patience with this.

Yamana’s capital program funding could get very tight if current market conditions and commodity prices persist, which may make it very hard for the company to resist issuing equity given the success Agnico-Eagle Mines Ltd. (AEM) and Red Back Mining Inc. (RBIFF.PK) have had with their recent financings.

Cut-backs to preserve capital will hurt its value in terms of adding exploration and growth opportunities, and Yamana currently has significant exposure to copper.

And while Ms. Soni suggested that Yamana is perhaps the best candidate for a takeover given its low valuation and a few very good assets, particularly El Penon in Chile, she says this is not enough to recommend it as an “outperform.”

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Simple Moving Averages Make Trends Stand Out

17 Monday Nov 2008

Posted by jschulmansr in Bollinger Bands, commodities, Copper, Currency and Currencies, deflation, Finance, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, Moving Averages, oil, precious metals, silver, Technical Analysis, Today, U.S. Dollar, Uncategorized, uranium, Water

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Simple Moving Averages Make Trends Stand Out

By: John Devcic of BK TRADER FX    The 5 Things That Move The Currency Market

Moving averages are one of the most popular and often-used technical indicators. The moving average is easy to calculate and, once plotted on a chart, is a powerful visual trend-spotting tool. You will often hear about three types of moving average: simple, exponential and linear. The best place to start is by understanding the most basic: the simple moving average (SMA). Let’s take a look at this indicator and how it can help traders follow trends toward greater profits.

Trendlines
There can be no complete understanding of moving averages without an understanding of trends. A trend is simply a price that is continuing to move in a certain direction. There are only three real trends that a security can follow:

  • An uptrend, or bullish trend, means that the price is moving higher. 
  • A downtrend, or bearish trend, means the price is moving lower.  
  • A sideways trend, where the price is moving sideways.

The important thing to remember about trends is that prices rarely move in a straight line. Therefore, moving-average lines are used to help a trader more easily identify the direction of the trend. (For more advanced reading on this topic, see The Basics Of Bollinger Bands and Moving Average Envelopes: Refining A Popular Trading Tool.)

Moving Average Construction
The textbook definition of a moving average is an average price for a security using a specified time period. Let’s take the very popular 50-day moving average as an example. A 50-day moving average is calculated by taking the closing prices for the last 50 days of any security and adding them together. The result from the addition calculation is then divided by the number of periods, in this case 50. In order to continue to calculate the moving average on a daily basis, replace the oldest number with the most recent closing price and do the same math.

No matter how long or short of a moving average you are looking to plot, the basic calculations remain the same. The change will be in the number of closing prices you use. So, for example, a 200-day moving average is the closing price for 200 days summed together and then divided by 200. You will see all kinds of moving averages, from two-day moving averages to 250-day moving averages.

It is important to remember that you must have a certain number of closing prices to calculate the moving average. If a security is brand new or only a month old, you will not be able to do a 50-day moving average because you will not have a sufficient number of data points.

Also, it is important to note that we’ve chosen to use closing prices in the calculations, but moving averages can be calculated using monthly prices, weekly prices, opening prices or even intraday prices. (For more, see our Moving Averages tutorial.)

Figure 1: A simple moving average in Google Inc.
Source: StockCharts.com

Figure 1 is an example of a simple moving average on a stock chart of Google Inc. (Nasdaq:GOOG). The blue line represents a 50-day moving average. In the example above, you can see that the trend has been moving lower since late 2007. The price of Google shares fell below the 50-day moving average in January of 2008 and continued downward.

When the price crosses below a moving average, it can be used as a simple trading signal. A move below the moving average (as shown above) suggests that the bears are in control of the price action and that the asset will likely move lower. Conversely, a cross above a moving average suggests that the bulls are in control and that the price may be getting ready to make a move higher. (Read more in Track Stock Prices With Trendlines.)

Other Ways to Use Moving Averages           
Moving averages are used by many traders to not only identify a current trend but also as an entry and exit strategy. One of the simplest strategies relies on the crossing of two or more moving averages. The basic signal is given when the short-term average crosses above or below the longer term moving average. Two or more moving averages allow you to see a longer term trend compared to a shorter term moving average; it is also an easy method for determining whether the trend is gaining strength or if it is about to reverse. (For more on this method, read A Primer On The MACD.)

Figure 2: A long-term and shorter term moving average in Google Inc.
Source: StockCharts.com

Figure 2 uses two moving averages, one long-term (50-day, shown by the blue line) and the other shorter term (15-day, shown by the red line). This is the same Google chart shown in Figure 1, but with the addition of the two moving averages to illustrate the difference between the two lengths.

You’ll notice that the 50-day moving average is slower to adjust to price changes, because it uses more data points in its calculation. On the other hand, the 15-day moving average is quick to respond to price changes, because each value has a greater weighting in the calculation due to the relatively short time horizon. In this case, by using a cross strategy, you would watch for the 15-day average to cross below the 50-day moving average as an entry for a short position.

Figure 3: A three-month
Source: StockCharts.com

The above is a three-month chart of United States Oil (AMEX:USO) with two simple moving averages. The red line is the shorter, 15-day moving average, while the blue line represents the longer, 50-day moving average. Most traders will use the cross of the short-term moving average above the longer-term moving average to initiate a long position and identify the start of a bullish trend. (Learn more about applying this strategy in Trading The MACD Divergence.)

Support and Resistance
Support and resistance, or ceilings and floors, refer to the same thing in technical analysis.

  • Support is established when a price is trending downward. There is a point at which the selling pressure subsides and buyers are willing to step in. In other words, a floor is established.  
  • Resistance happens when a price is trending upward. There comes a point when the buying strength diminishes and the sellers step in. This would establish a ceiling. (For more explanation, read Support & Resistance Basics.)

In either case, a moving average may be able to signal an early support or resistance level. For example, if a security is drifting lower in an established uptrend, then it wouldn’t be surprising to see the stock find support at a long-term 200-day moving average. On the other hand, if the price is trending lower, many traders will watch for the stock to bounce off the resistance of major moving averages (50-day, 100-day, 200-day SMAs). (For more on using support and resistance to identify trends, read Trend-Spotting With The Accumulation/Distribution Line.)

Conclusion
Moving averages are powerful tools. A simple moving average is easy to calculate, which allows it to be employed fairly quickly and easily. A moving average’s greatest strength is its ability to help a trader identify a current trend or spot a possible trend reversal. Moving averages can also identify a level of support or resistance for the security, or act as a simple entry or exit signal. How you choose to use moving averages is entirely up to you.

For further reading on moving averages, check out Simple Moving Averages And Volume Rate-Of-Change and Basics Of Weighted Moving Averages.

by John Devcic, (Contact Author | Biography)

John Devcic is a freelance writer, market historian and private speculator. After investing in a mutual fund right out of high school and losing his initial investment of $350, Devcic began to believe he could do better with his money then the so-called experts could. Over the years a healthy and sometimes unhealthy obsession with how the markets work and how they worked in the past has made Devcic a true market historian. He reminds himself at all times that the market – while ever-changing – always seems to repeat itself.

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Governments Reflate and Gold Will Rise!

14 Friday Nov 2008

Posted by jschulmansr in capitalism, commodities, Copper, deflation, Finance, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, oil, Politics, precious metals, silver, Today, U.S. Dollar, Uncategorized, uranium

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Governments Reflate and Gold Will Rise!

Source: GoldForecaster.com   and The Gold Report 11/14/2008

 
A long and deep recession, possibly a depression is being forecast across a broad front. But the real picture is different. Governments and central banks are not only committed to doing all in their power to resurrect growth and give their different economies ‘traction’ but have begun the vigorous implementation of reflation. They will do “whatever it takes” to get growth and confidence re-established globally. In essence, the crisis appeared quickly and devastatingly out of greedy lending by banks loaning to uncreditworthy individuals on a broad front. It has to be rectified just as quickly because banks control the lifeblood of liquidity in the economy and they will place their financial health well before that of the broad economy and their customers. They have been saved by central banks to date, but it is resumption of growth and confidence, not healthy banks, that must be achieved first. In the major economic blocs of the world actions are underway, to differing degrees, to force the banks to lend or be bypassed, so that the damage they can inflict on growth, through congealed debt and their instruments, is neutralized. The banks have made it opaquely clear, that they will not lend in such a way as to rectify the underlying crises of a dropping housing market and its ‘ripple’ effects on consumer spending. Governments do see banks as an obstacle to the resuscitation of growth and confidence, so their powerful influence over the state of the economy has to be reduced considerably before this can be done. And it has to be done before any semblance of recovery can be achieved again. The longer the process takes the more difficult and lengthy the solution will be.

Just take a look at the world’s three main economic bloc’s efforts at stimulating growth again:-

  • China said it would spend an estimated $586 billion over the next two years, roughly 7% of its gross domestic product each year, to construct new railways, subways and airports and to rebuild communities devastated by the May 2008 earthquake in the southwest. Their reasoning is as follows, “Over the past two months, the global financial crisis has been intensifying daily,” the State Council said. “In expanding investment, we must be fast and heavy-handed.” But in China, much of the capital for infrastructure improvements comes not from central and local governments, but from state banks and state-owned companies that are told to expand more rapidly. China maintains far more control over investment trends than the U.S. does, so they can unleash investments to counter a sharp downturn. The Chinese government said the stimulus would cover 10 areas, including low-income housing, electricity, water, rural infrastructure and projects aimed at environmental protection and technological innovation, all of which could incite consumer spending and bolster the economy. The State Council said the new spending would begin immediately, with $18 billion scheduled for the last quarter of this year. In addition, China has already announced a drastic increase of the minimum purchasing price for wheat from next year, by as much as 15.3%. There is also going to be a substantial increase of the purchasing prices for rice, said the National Development and Reform Commission. In the meantime, they also announced plans to stabilize prices for fertilizers and other agricultural means of production, to ensure that the grain price increase will not be eaten away by input making the price increases real income gains for farmers. This will shore up domestic demand and head off any social unrest in the rapidly growing economy. The government there sees its task to harness all sides of the economy to produce growth while they pull their 1.4 billion people out of poverty. Their recent history confirms their ability to succeed!
  • In Europe, with a more Socialist environment than the U.S.A., [meaning greater central government control over the economy], we believe that after bailing out so many European banks, a very heavy pressure will be put on banks to vigorously lend down to street level again. President Sarkozy’s threat to seize banks that don’t lend gives meat to this forecast. In Britain, nationalization lies ahead of suffering banks and the end of senior executive careers, if they don’t lend freely. Despite the lack of the same effective management [ignoring politics and commerce and other capitalist principles] of the economy in Europe as in China, governments will act in the same way as the Chinese are, eventually, to make growth and confidence happen again. They are committed to this, at last. So 2009 will be the year of reflation in the face of deflation.
  • In the U.S.A., such synthesis of national institutions in fighting deflation is unlikely as the cooperation of banking, commerce, etc to focus on the underlying economic crisis would barge into so many valued principles fought for, over time. However, we have no doubt that the intransigence of such principles in the face of a decaying economy will produce overwhelming pressures on the system to revitalize the consumer and restore his spending. The government has now seen the banks follow the “profit and prudence” principles after their bailouts and their holding back on lending to safeguard themselves, first. Secretary Paulson has now faced off with them and redirected efforts to make government provided financial relief go direct to the consumer. But he is only at the beginning of this process, which must be across the entire spectrum of consumers, not simply a portion of clients of the largest mortgage providers, Fannie Mae and Freddie Mac. Indeed, the slow nature of this solution as it wends its way through political and financial obstacles, could produce a near revolutionary climate, until sufficient action is taken to re-finance the economy from consumer upwards. After all, day-by-day, solid U.S. citizens are being impoverished by the financial sector problems, not their own. As slow as the pace of support becomes, the more degenerative impact it will have on uncertainty and confidence. We have no doubt that 2009 will be remembered as the year of reflation in the face of deflation. Already, house-owning households are likely to receive direct financial aid, if their mortgages are more than 38% of income. If this is applied to all U.S. households in this position we fully expect to see hope lead to confidence, then spending, then growth. These and the suggested support of the consumer on car finance and credit cards will re-kindle spending and the economy. Such moves must convince the U.S. consumer and stop him thinking like a victim. [In the Depression of the early thirties the U.S. used, as part of its battery of tactics, paying people to dig holes and fill them in again, just to get money flowing from ground level up]. This can be implemented in the next few months and impact on the broad economy by the end of the first half of 2009, if applied properly, as government implies it wants to. If it is, then the first 100 days of President Obama will indeed be a honeymoon.

 

The Importance of Growth

Mr. Ben Bernanke and the governments of the U.S., the Eurozone and China have recognized in no uncertain way that confidence must be regained before growth gains traction and becomes self-sustaining. It appears that they have got the message now and will do whatever it takes to ensure the credit crisis is replaced by confidence in credit. That the banks should suffer for their indiscreet past behavior is just, for a lender should carry the same risk as a borrower.

Inflation and Gold and Silver Prices

  • Reflation is vigorously being implemented across the globe, but inevitably it will come with inflation. It is impossible to say just how much money needs to be printed to counter deflation, but for sure it will be more than needed and will keep flowing until the financial sun is shining again. 2009 will probably not see inflation rise to dangerous levels, because of its absorption by deflation. But as the money fills deflationary holes, it will spread far and wide and eat into the value of debt, so bringing relief to troubled debtors in addition to direct governmental support. This will be found to be politically acceptable and will delay, if not remove, the pernicious impact of bad debt that we are seeing now. Growth and confidence are considerably more important problems than inflation. Banks have been given debt relief already and so will the consumer, because that is the only solution to the credit crunch. It will be accompanied by the cheapening of money, leading to far higher gold and silver prices than we are even contemplating now. As this is slowly realized by an ever-widening audience across the globe, gold will re-enter the mainstream of investments as an anchor to monetary values if only at individual levels. Thereafter institutions and perhaps central banks, will appreciate it fully?
  • Governments have to act very fast to stop the confidence-eating impact of deflation from becoming a way of life, just as borrowing was, over the last thirty years. Consequently expect global stimulation to be put in place before the end of the first quarter of 2009. In that time we fully expect forced selling of all assets to slow to a trickle. Thereafter a positive tone will benefit gold and silver in the long-term, as well as short-term.

 

Let’s be clear though, there is no historic precedent to what we are about to see.

We expect gold to thrive in an atmosphere of hope, against a threatening backdrop, with the gold price realistically discounting the diminishing buying power of paper currencies.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

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

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Are We There Yet? Finding that Elusive Bottom – The Gold Report

14 Friday Nov 2008

Posted by jschulmansr in capitalism, commodities, Copper, deflation, Finance, gold, hard assets, inflation, Investing, investments, Latest News, Markets, precious metals, silver, Today, U.S. Dollar, Uncategorized, uranium

≈ Comments Off on Are We There Yet? Finding that Elusive Bottom – The Gold Report

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Are We There Yet? Finding that Elusive Bottom

Source: The Gold Report  11/14/2008

 

David Skarica, author of the Addicted to Profits newsletter, gives The Gold Report an exclusive preview of coming market attractions including double-digit inflation, a super pop in gold stocks, and the demise of an empire. A financial advisor who earned his reputation as a contrarian before he turned 30 by predicting the dot.com bust, Skarica was the youngest person ever to pass the Canadian Securities Course. He incorporates technical analysis, historical precedent, demographics and investor behavior into his forecasts and names some likely beneficiaries of the next market move.

The Gold Report: Have we finally hit the bottom? Are things turning around?

David Skarica: I’ve studied the panics that have occurred over the past 100 years and discovered that there’s a similar trading pattern when you reach the true bottom. A panic like we saw this September through October is typically followed by a reaction rally similar to what we have now. That rally will take the market 20% to 30% off its lows and last for about a month and then you’ll get a retest. Maybe not an all-out retest, but a repeat of that rally over the next month or two. For example, in ’87 and ’74, after a big 30% or 35% decline, you got a rally into November, then this decline into October and then the market held, the lows took off and launched a bull market for a couple of years.

Once this rally plays out, the key thing to watch is a pullback into December that could very well be “the low.” You’ll know it’s the low because you’ll see non-confirmations. You won’t get as many new lows in the market; the fear gauges like the VIX (Chicago Board Options Exchange Volatility Index) won’t hit such extremes. A lot of the industries that led us down, such as the banks or the airlines, will hold well above their lows. That will be the bottom. In a worst-case scenario like 1929 or 2001, when you had big sell offs, there were rallies for four to six months before the market rolled over and hit new lows. If the market continues rallying into January or February, that would be a very negative signal. I want to see that retest. One positive thing is that we already saw one retest in late October and now we’re seeing this secondary rallying. In 2001, there was no retest. The market sold off real bad for three or four days after 9/11 and then kept rallying.

Gold stocks are at an all-time low in terms of P/Es, and their price relative to the price of gold. The dollar rallied during all the de-leveraging but at some point, the dollar is going to roll over. If you look at the currencies that got killed— the Canadian dollar and the Australian dollar—fundamentally, those countries are still stronger. They’re not running huge deficits. Canada’s deficit will only be a couple of percentage GDP, unlike the U.S. with a deficit of nearly 10% of the GDP. The Canadian banks are fine; none of them need a bailout.

TGR: European banks and Japanese banks are bailing out their banking systems too. Why would U.S. currencies do worse against other currencies?

DS: I don’t think the dollar will totally tank in the short term because Europe —not just the Euro but also all the other European countries thrown in with Euro—have something like 70% of the dollar index. These countries have problems as well. Milton Friedman said he never thought the Euro would survive its first severe recession because you’d never get consensus among the different countries. How are you ever going to get the British, Italians, Germans, and French to agree on anything? The dollar rallied because people thought that the U.S. at least had a policy. I don’t see the dollar collapsing in the short term. Unless we’re going into a total worldwide depression—I don’t think that’s going to happen. I really believe the rest of the world will distrust the U.S. financial system.

Wall Street packaged all this fraudulent stuff and then sold it to everyone. These guys were dumb and greedy for buying it but they were defrauded. So Asian banks won’t be buying anymore Fannie and Freddie bonds; they’re going to say the heck with it and invest in China, India and other emerging nations. Capital flow will shift away from the U.S. After the crash of 1929 the world’s financial center shifted from the U.K. to the U.S. This crash will shift the financial centers from Wall Street to Singapore, Dubai, Mumbai, and Bombay. Japanese banks are pretty solid right now and so are a lot of Asian banks. They’re involved in lawsuits because they own some of these toxic assets, but, again, you’re not seeing mass bailouts over there and Australian banks are strong, too.

There will be growth going forward in emerging economies. Meanwhile, in the U.S. the baby boomers are retiring. In technical analysis we talk about overhead supply and that’s when the stock goes way up and comes way down. The problem that stocks are going to have is the people who bought at much higher levels are going to sell into any rally to cut their losses. Baby boomers are retiring, so they’re selling into any rally. In the 1970s and 1980s they were in their 30s and 40s, so they bought stocks. Over the next ten years they will be sellers.

TGR: What about the echo boomers? They’re getting out of college now. The biggest group is starting college.

DS: They’re getting out of college, but won’t reach their peak earning years until they are in their 40s and 50s.

TGR: Yes.

DS: Echo boomers probably won’t invest significant amounts of money for 10 or 15 years. This is interesting because I do a lot of cycle research and 10 to 20 year cycles are common. In the market, cycles run for 17 or 18 years. For example, we had a bull market from 1949 to 1966, but a bear market from 1966 to 1982 and then another bull market from 1982 to 2000. Now we’re in the midst of a long-term bear market. When that next generation really starts to invest heavily coincides with the time that the baby boomers will have sold out.

As I said, I think we might bottom here; we might have a one or two-year bull market like we had from 1975 to 1976 after the bad bear market in 1973 to 1974. But I think we’re still in what’s called a secular bear market, which lasts for 15 to 20 years. One of the underlying causes is the printing of all this money. I think interest rates are going way up. The next bubble to burst will be the U.S. bond market. You will see high rates in the coming years because right now the U.S. money supply is 38%. That is unbelievable. Even in Y2K, it went to only about 15%.

TGR: The big debate is are we going into a deflationary or inflationary cycle?

DS: I think hyper-inflationary—not like Weimar Republic but like the 1970s. We’ve already started that cycle. Look at the SGS (Shadow Stats – http://www.shadowstats.com), which calculates inflation the way they did in the 70s and 80s. They changed that formula in about 1990 allegedly because the old method overstated inflation. I think the current method understates inflation. When oil was $150, everyone agreed that inflation was higher than the reported 5% or 6%. Using the old method, we were at 10% to 12% this summer when resources were at their highest. So even if you split the difference between the old and the new way of calculating inflation, we were in the range of 8% to 10% this summer.

Anytime they print this much money anywhere, it always led to inflation. One of Bernanke’s big things is to avoid cutting the money supply like the Federal Reserve did from 1929 to 1932. He is doing the opposite. All that liquidity he’s introducing will result in inflation. Typically you don’t go from a period of inflation to deflation. The CPI in the 1920s was going down. They had deflation then and went to ultra deflation in the early 1930s. So usually you go from high inflation to the higher inflation. We’re on a pure fiat currency right now. There’s no gold standard; there’s nothing. Pure fiat currencies usually end in inflation, not deflation.

Take Japan in 1990s and the U.S. in the 1920s—both were creditor nations. People saved. The governments were net creditors going into those downturns, so they could afford to take on debt. Roosevelt only ran one or two deficits before World War II. Obviously, during the war he ran up big deficits. So when you’re a debtor nation, you can’t afford deflation because the amount that you owe goes up in value, right? You’ve got to inflate that away. Some would argue that the whole system is based on credit. No matter how much money the U.S. government prints, no one’s going to lend, and no one will take out loans. That will cause prices to go down. Deflation is a decrease in money supply and in the price of goods. Over the next year or two, go to the store. Is the price of your beer going to go down? Gas prices are lower now than they were in the summer, but they’re a hell of a lot higher than they were six years ago. During a deflationary cycle, you’re going to start seeing deflation on the grocery shelf. The price of your cereal is going to go down; everything’s going to go down in price but that’s not happening. Right now we have asset deflation. I don’t think we’re going to have deflation in the entire economy.

TGR: What’s going to beat the higher interest rates?

DS: Higher interest rates will be (governed by?) supply and demand. Look at the yield of the ten-year bond. The low of that yield got to about 3.2% from 2002 to 2003. The low during this ultimate panic, the worst crash we’ve seen since 1987, has only happened six or seven times in the last 100 years. In 2008, the bond yield only got down to about 3.8%. So we didn’t see this huge influx of money into the bond market. If you were really moving into deflation, the bond market would tell you. The bond market would be going down to a 1 to 2% yield and telling you, okay, everything’s going to come down. But, instead, the bond rates are around 4% right now. To get back to supply and demand, they’ve got to issue $550 billion worth of bonds this quarter to pay for the bailout and they’ll probably have big deficits over the next year or two because it’s going to be a pretty bad recession. Issuing more bonds will probably mean the buyers of those bonds are going to ask for a higher return.

TGR: How high do you think interest rates will go?

DS: That’s really difficult. There’s no reason you can’t get back to at least 7 to 9% on the ten-year bond, which is where we were in the late 1990s. It’s not exactly a heady level, but we could reach low double digits. Here’s the thing no one’s talking about. If you read about the decline and the fall of the Roman Empire or the U.K., the U.S. has made all the same mistakes they made. They tried to police the world with an overly aggressive foreign policy and they spent all your money on war. They went to a pure fiat currency. The U.S. is a super power in decline. It could take a generation, but I think it will happen. In 1913 the U.K. ruled the world. Thirty-five years later after two world wars, the U.S. had to bail them out. These things can change quite quickly. Ultimately people will demand higher returns on that debt, so I see interest rates reaching 10% or higher and I’m being conservative. At the secular top you might get back to where you were in the late 1970s.

TGR: Where would you expect the inflation rate to go once hyperinflation kicks in?

DS: It will be 10 to 15%. Gas was up 10% today; oil’s up 10%. I’m an inflationary guy. Watch someone like Jim Rogers. He’ll talk about how it’s not just a demand thing with China and India or the U.S. dollar going down. His point is that there’s no oil supply coming on the market and alternatives like solar and wind will take a long time to replace fossil fuels. So, I expect double-digit inflation. Now they may only report it as 7% or 8%, but it’ll probably be 15% to 16%, maybe even 18% or 19% higher than that. Look at the way they calculated inflation in 1980. Using that formula, inflation actually got up to 10% to 12% this summer. Now it’s probably down to about half of that because of the drop in commodity prices.

But here’s an interesting note. Commodity prices started falling apart in September during de-leveraging when people were dumping everything. The PPI, the producer price index, in September still went up. Even with huge commodity price declines, you still had an increase in the PPI. I think that’s due to the fiat currency effect. It’s very difficult to get inflation. Remember, even from 1980 to 1982 when they upped rates to 20% to kill inflation, inflation slowed down from 20% to 4% or 5%, but we never went into deflation. People just get mixed up because they think that when stocks go down or real estate goes down that’s deflation. In fact, that’s asset deflation. Deflation is actually a decrease in money supply and decrease in the price of goods. Look at your electricity bill. You won’t see it going down that much.

TGR: As you said, oil was up 10% today.

DS: Oil is $70 now. Oil never hit $70 until a few years ago. People act like, oh, it’s gone down from $140 to $70. But remember, oil was only $25 to $30 when the Iraq war began in 2003. People act like this is deflationary, but oil is just pulling back. To Jim Rogers ‘This is the fourth decline of 40% or greater in the price of oil since the bull market began in 1998.’ I think we’re in a big commodity secular bull market that started in 2001. Commodities are very volatile. They can fall 50% and still be in a bull market. In 1975 to 1976 gold went from $200 to $110 after it went from $35 to $200. Everyone thought the gold market was over and then in the next four years it jumped to $800. Gold can go to $600 and still be in a bull market. People just don’t get that because they don’t think long term.

TGR: So if you’re saying the commodity bull market started in 2001 and that these cycles take 15 to 18 years, we are about half way through this then.

DS: Yes.

TGR: Commodities are volatile, but will the last two-thirds of this bull market grow exponentially faster? Or will it grow fast then drop off?

DS: The two biggest moves are always the one at the beginning and the one at the end. For example, the HUI, the Gold Index, went from $35 to $200 within a couple of years after reaching bottom. That’s a great 6:1 gain. So usually you have a huge launch off the bottom. The Dow went from 800 to 1,500 in its first year or two of the bull market. The first move up will be big and then in the middle you’ll go up more gradually. At the end you’ll have the bubble blow-off. And you’ll see another double or triple gain.

The only comparison I can use is the CRB Index, which is more of a commodity. It went from $100 to around $170 or $200 in the mid-1970s and then had a final blow-off to $350 to $360 in 1980. So the CRB Index went up 250% in the 1970s. It started this bull market at $180 and went to $470. But, again, if you go up 250% from $180, you’re talking about the CRB being about $600 to $650, which would be more than a doubling of its current level. This commodities bull market is going to be bigger because of what’s going to happen when it turns into a bubble. It’s like the growth of the Internet – all of that got priced into the tech stocks from 1999 and 2000. Even though the Internet’s a lot bigger and faster now than it was ten years ago, and there’s more commerce being conducted over it, the stock prices all peaked in 2000. Five to ten years from now, you’ll see these commodities pricing in global economic growth to perfection. So people won’t get it after that if they invest in commodities in 2018. In 2025 commodities will be down 40 to 70% from their highs, but the global economy still growing.

Three things drive commodities: money supply, the U.S. dollar, and supply-demand. In the 1970s the economy was a shambles, but commodity prices went nuts because you had terrible economic policies. The government was printing tons of money, and the U.S. dollar was declining. There was no investment during the 1980s and1990s in big new commodity funds and now a lot of them have been shut down because of this pull back. Commodity prices will rebound by 2010. That will introduce a five to ten year period of high prices where people will aggressively look for stuff and bring supply to the market.

TGR: Where will gold be in the next 12 to 18 months?

DS: That’s a tough call. Right now it’s really interesting because the U.S. dollar has been trading opposite to the market since September. We’ve seen the rally in the dollar; we saw the decline in other currencies because of the flight to the dollar. When we talk about the redemption of hedge funds, most of the people who own those funds are actually outside of the U.S. When you speculate all over the world, you’ve got to buy U.S. dollars just to pay people back their redemption, right? That was part of what was going on. If we get this retest to the market in December after the short term decline in the dollar, you might see another rally out which can hit gold maybe back to around this low $700 area. But if I’m right and the market rallies next year, and this fourth quarter is really the bottom, gold will reach $1,000, even $1,100. The opportunity right now is not in gold; it’s in the gold stocks. Even with this rally that we’ve seen in the gold stocks – for example, the XAU to gold ratio, which is the percentage of the XAU’s trading of the price of gold—it’s usually 22%, which means, for example, gold – let’s make it easy – is $1,000, the XAU is $220—even with today’s rally, the XAU is about $90 and gold is about $750, right?

TGR: Right.

DS: When you do the math that’s about 12%— almost half of the historical ratio. So if gold were to go to $1,000, the gold stocks can more than double. There’s a time to buy gold instead of stocks and there’s a time to buy stocks. I’d be looking at the smaller, lower-cost producers like Agnico-Eagle Mines Ltd. (TSX:AEM). That company will return to its regular valuation. Gold could go to $600 and if the XAU went back to that 22%, it’d be trading at like $130. So the XAU could go up 40% if gold went down over $100 to get back to its normal valuation. That’s not the gold stock saying that gold’s going to go down, they’re feeling it or whatever. That was just like the hedge funds were all in the gold stock. The gold stock market is a smaller market than the equity market. They all had to sell everything and that was it.

TGR: What about buying seniors who have just been battered versus juniors that have a potentially higher upside?

DS: For the average investor, I’d be looking at seniors because they are so cheap. When I say juniors, I’m talking about junior producers with lower levels of production because they have cash flow. And, again, it’s the whole leveraging thing. Hedge funds own them, too, and they’re even more liquid than seniors. So instead of the seniors, which all went down, say, 60 to 70%, the juniors, in many instances, went down 70 to 80% or even 90%.

Look at a stock like El Dorado Gold Corp. (TSX:ELD) (AMEX:EGO) (ELD.TO), a junior producer in the late 1990s when all the gold stocks went down 70 or 80%. Eldorado was a 40 to 50 cent penny stock and, because it was a junior producer, it had more leverage when gold went up and ultimately it got as high as $8 or $9. A lot of these little penny stock gold and silver producers with cash flow, could become the next Eldorado. They could bring a lot of 10 or 20:1 deals over the next three to five years.

Another thing that’s going to be really positive for gold and resources going forward, has to do with the behavior of 15 to 20 year bear markets. Usually the big busts come in the first half of that secular trend. If you look at 1929 to 1948, the two worst parts of that bear market were 1929 to 1932, with a 90% decline in the Dow, and 1937 to 1938, with a 50% decline. After that most of the climbs were muted, like 30% down and 25% up. The same thing happened in the 1970s. The 1970 bear market was 36% off and the 1974 bear market was 48% off. From 1975 to 1976 to 1982 at the bottom, the climbs are more gradual. So we had a bad bear market when the tech stocks blew up, which was over 40%. This bear market is over 40%, assuming we hit the bottom a few weeks ago. What you’re going to see now— as volatile as it’s been, it sounds crazy to say this – but, say, we get a one or two year bull market after this bear, you’re going to see volatility dry up. By the way, that’s how you start bull markets. When you start, when the sellers are all out, you usually get everybody giving up, not in a panic, but when the market hasn’t done everything for years. During those times when the market is doing nothing, that’s where resources and gold usually do well.

TGR: So, David, do you have some stock ideas for our readers?

DS: I like Agnico-Eagle Mines Ltd. (TSX:AEM) and Royal Gold Inc. (RGLD), which is a royalty company. The two juniors I really like are Fortuna Silver Mines Inc. (FVI) and Silverstone Resources Corp. (TSX.V:SST). They are both smaller silver producers. Actually, Fortuna was up quite nicely today from about 55 to 70 cents but it had been over $2. Fortuna also fell from $4 to 50 cents. It’s back up to around 60 or 70 cents right now. Right now you’re still getting in at a good level. On a totally different sector, if you’re looking at the major market, you can get stuff that’s really beat up. If we get this retest in December, I’d be looking at – and a lot of people will think I’m nuts saying given the state of the economy —some of the casinos. MGM fell over 90% from its high and I usually find that unless the company is going bankrupt, you’re really safe buying something that’s down 90% from its high. For example, this summer I wrote an article in Investor’s Digest of Canada telling people to buy the airlines because the airline index in the States had gone from an all time high of $200 down to $14, which is 90+%. Now the airlines are one of the only sectors that have gone up since July. A lot of the airlines went up 50 to 100% since then. Even with the higher oil prices, airlines are very cheap, for example, WestJet (WJA.TO).

TGR: What’s that one?

DS: It’s a Canadian discount airline. I put WestJet in my newsletter at about $9.50. Now it’s $10.50. The nice thing about it is a lot of airlines are forward selling oil prices to $80. But a lot of them expired this quarter, so now they’re going to be able to go to $60, $70, and $80 oil and it won’t kill them. I also like some of the emerging markets. I like the India Fund (IFN) and the South Korean Fund (EWY) or the Templeton Russia Fund (TRF). They are more leveraged. They usually fall 80% in U.S. dollar terms in a decline and they’ll go up hundreds of percent in a bull market. But I would wait for that retest before going into the emerging markets. I’m kind of all over the place in terms of the types of sectors I like because of the valuation of some of these things. I look for the really beat up sectors—obviously all the precious metal stuff—because they are very, very cheap.

TGR: Dave, Are there any exploration companies that are catching your eye?

DS: Yes, there are a few. The problem with exploration at the moment is cash flow or lack thereof. These companies have no revenues; money is difficult to come by at the moment. They have burn rates. That is why if you are going to buy a smaller junior, you have to look at the producers first. Therefore, I think you have to look at companies who have cash on hand. One such company is Rimfire Minerals Corp. (TSX.V:RFM). In the past they were criticized for being too conservative, much of their budget has their joint venture partners (which include majors) so they will not burn through their cash. They have about C$0.25 (per share) in cash on hand, and the stock trades at C$0.15 (per share) so you are getting the company at a 40% discount to cash. Basically, you are buying at .60 on the dollar to cash and getting all the properties thrown in for free. Also at their burn rate it will probably take them three years to go through their cash position and by then the credit markets will be back.

There are also companies I have on my list that have heaps of cash, large resources and are going into production next year, like ATW Gold Corp. (TSX.V:ATW) and Avion Resources Corp. (TSX.V:AVR). Again, I do not mind if a company is going into production, as it should get cash flow sooner rather than later. Avion is trading at cash.

I also like Full Metal Minerals Corp. (TSX.V:FMM) . The company has had strong results as of late; they are raising money to put their Lucky Shot mine into production. This will be a high grade mine, low cost. It will only have a few years of production, but again that will give them cash flow to survive. The financing they are doing is small and I think they will get it down, even in these markets.

In the case of Rimfire and Full Metal these were C$2.00 per share companies not too long ago, it will take them a bit to base, but it could still happen.

Finally, for a shot in the dark I like Cityview Corporation (CTVWF) (ASX:CVI). This is a very interesting little deal that has collapsed. They were doing a gigantic financing for offshore oil production in Angola, which fell through when the credit markets collapsed. They are now doubling the float of the company to raise capital to put a diamond mine into production in Angola, they are also looking at an oil refinery. This offering should allow them to survive and they will get production from the diamond mine. They will have a huge float (over 900 million shares), but they have the former Angolan Mines Minister as chairman and are positioned to be a leading company in Angola, Right now the stock has a market cap of about 8 million of the new offering. It is something that could turn around huge when this is finished or tank if they can’t get the funds. It is worth a small roll of the dice at $0.01.

Dave’s first book “Stock Market Panic! How to Prosper in the Coming Bear Market” published in January 1999 provided thought provoking arguments on why this great bull market will end in the most vicious bear market of all history. He is also the author of “The Contrarian Who Saved the World,” which explains how markets work. Dave has also been a contributing editor to Canadian MoneySaver and Investors Digest of Canada

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Lower Prices Now- Massive Inflation Later? – Seeking Alpha

13 Thursday Nov 2008

Posted by jschulmansr in commodities, Copper, deflation, Finance, gold, hard assets, inflation, Investing, investments, Latest News, Markets, mining stocks, precious metals, silver, Uncategorized, uranium

≈ Comments Off on Lower Prices Now- Massive Inflation Later? – Seeking Alpha

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Lower Prices Now- Massive Inflation Later? – Seeking Alpha

By Richard Shaw of QVM Group

The global economy is declining. As a result, prices of important kinds of “stuff” is falling. Governments are pouring money onto the markets to solve a problem that may have been caused by easy money originally.

If you party too much and awake the next day with a hangover, taking a shot of alcohol may take the immediate pain away.  However, it only delays and probably increases the pain when you finally decide to stop drinking, or become so sick you can’t drink any more. Taking that morning after drink is referred to as taking a “hair of the dog that bit you”.

Some people are concerned that the US and perhaps some other countries, particularly the UK, may be in the economic functional equivalent of taking a hair of the dog that bit them.

So What?

If that perspective makes sense, then what would be the consequence?

The original easy money caused an asset bubble. The absence of easy money caused a deflation in asset prices (commodities, real estate, stocks and most bonds) — pretty much everything but short-term sovereign debt.

Once the money being poured on begins to move, asset prices will begin to rise again. Then the question is whether all the extra money will make a new asset bubble, leaving governments without remaining tools to deal with a subsequent crisis? Either way inflation, not deflation will be the situation.

Investment coping strategies during inflation are different than during deflation. Investors need a plan to deal with the eventual change in circumstance. If hyperinflation were to occur, which some fear, all bets are off.  If the more likely “normal” or high inflation (not hyperinflation) occurs, shifts in asset class weights are appropriate.

Asset Class Rotation Based on Conditions

 

Note: We have stated before that we deviated from our core asset allocation, non-market timing approach this summer for assets we control by going substantially to cash before the current unpleasantness. We think standing aside as a train wreck is coming straight at you is not the same as market timing, which we do not practice — it’s self-preservation.  We think rebalancing a diversified set of asset classes works better than market timing under normal circumstances. This discussion is about re-weighting a fully invested and diversified portfolio, not about going entirely to one class or the other.

 

 

Monitoring Prices for Deflation or Inflation

If you are concerned about turning points between deflation and inflation, the CPI is not a good place to look.  It’s well known to be limited in scope and may also be managed to some degree by the government, which not only is a player (with indexed entitlement programs and inflation indexed bonds), but is also the scorekeeper and the final court of appeals.

The place to look for price level changes is directly at the prices of key items themselves.  They’ll let you know whether we are in deflation or inflation.

The rate of change of prices (shape of the curve) as well as absolute price levels will inform you.

We would suggest following this basket:

  • oil (USO)
  • copper (JJC)
  • gold (GLD)
  • soybeans (JJG for grains)
  • EUR/USD fx (FXE)
  • USD/JPY fx (FXY)
  • 2-Year Treasuries (SHY for 1-3 yr T’s)
  • 10-Year Treasuries (IEF for 7-10 year T’s)
  • 30-Year Treasuries (TLT for 20+ year T’s)

The charts below are for five-year, monthly, perpetual near-month futures contracts, but stock investors can get a similar view by observing the ETF or ETN listed after each category (not all perfect matches, but reasonably useful if you don’t have spot or futures prices available).

Current Situation

There is no inflation, except in the price of Treasuries, particularly short dated Treasuries, as investors flee risk and prize liquidity.  The price premium on Treasuries will melt when investors once again move to riskier assets for yield and gain.

We are in a deflationary period.  No signs of inflation in these charts.

 

click images to enlarge

Gold

Oil

Copper

Soybeans

Euro
(Dollars per Euro)

Yen
(Yen per Dollar)

2-Year Treasuries
(up means lower interest rate)

10-Year Treasuries

30-Year Treasuries

This article has 2 comments:

  • freeAgent
  • 15 Comments

Nov 13 08:50 AM

I think it all boils down to MV=PY. V dropped off a cliff. M is blowing up. If/when V rises, we’re going to be in for quite a bit of inflation.
JSCHULMANSR- Look for Gold to trade between $650 – $850 until the deflation period ends (barring any middle east flare-ups). Once inflation sets in 1st stage of next leg of the market will take us to $1500 – $2000oz. I do think however, this time the miners will be first out of the gate in the next leg up. In my opinion now is the time to load up. My disclosure I am long many gold, silver, platinum, palladium mining companys. As a side note I also think Uranium Miners are also good for the long term view and yes, I am long many of those too. This is my humble opinion, as always do your own research and consult with your own qualified investment and financial consultants.

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