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Gold prices will top $3,000 per ounce in five years

drdamigos@eurocapital.org.uk (Dr Damigo) — Wed, 24 Jul 2013 07:17:00 +0000

What diverging monetary policies signal

Commentary: Gold prices will top $3,000 per ounce in five years

By Andy Xie

The monetary policies of major economies are diverging for the first time since 2008. The euro zone, Britain and Japan are sustaining quantitative easing, while the United States, China and other major emerging economies are on a tightening path.

The divergence is creating trends in some markets, volatility and confusion in others.

The U.S. dollar DXY +0.09% is on a strong trend, as the expectation of the Fed’s tightening is driving deleveraging of dollar-financed carry trades. On the other side of the strong dollar are a weak pound GBPUSD +0.09% , euro EURUSD -0.07% and yen USDJPY +0.36% .

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The decline of commodity currencies is the clearest trend. The Australian dollar AUDUSD -0.41% , Canadian dollar USDCAD +0.13% and the currencies of several commodity-export-dependent emerging economies have declined sharply. The trend is likely to continue throughout the year.

Stocks will remain volatile on conflicting news regarding liquidity and growth. Fueled by asset inflation, the United States’ growth rate is picking up, and dollar liquidity is receding in anticipation of higher interest rates ahead.

The growth outlook for Europe and Japan remains fragile. Their quantitative easing is likely to remain intact through 2013. Most big companies are global in their sales and earnings. Hence, their stocks will fluctuate with mixed news on growth and liquidity.

Gold is likely to perform well in the second half of 2013. While the rising U.S. dollar keeps downward pressure on the price of gold, rising global uncertainties support its role as a safe haven. ... the price of gold will increasingly track China’s monetary policy rather than that of the United States.

A limited crisis in emerging markets is still possible. As hot money is leaving them, they are facing difficulties in adjusting to the tighter liquidity environment. The recent political disturbances in Brazil, Egypt and Turkey amplify the uncertainties.

Gold is likely to perform well in the second half of 2013. While the rising U.S. dollar keeps downward pressure on the price of gold, rising global uncertainties support its role as a safe haven. Further, gold pricing is shifting to the East from the West.

The Shanghai market is likely to overshadow London or New York within five years. Hence, the price of gold will increasingly track China’s monetary policy rather than that of the United States.

The dollar’s long shadow

A rising dollar is the most important trend in financial markets. Its importance is in the role of dollar liquidity in carry trades since 2008. Since 2008, the Fed has communicated its intentions clearly to the financial market. It decreased the risk to using the dollar to fund speculation.

Based on the surge in the forex reserves of emerging economies, it appears that trillions of dollars of hot money have flowed into emerging economies. A strong dollar is triggering a reversal. The full consequences are yet to be felt.

The U.S. economy is recovering. Without fiscal consolidation, it could be growing at 4% to 5% now. I believe asset inflation is driving the U.S. economy. Its current net household wealth has surged 45% to $70 trillion from the low of $48 trillion in 2009, and significantly above the pre-crisis peak of $63 trillion.

The Fed’s tightening is primarily to prevent a full-blown asset bubble. Its burst could bring another financial crisis.

As the global tide of hot money recedes, the chances are that the United States’ asset markets will be resilient. Much of the hot money will just vanish due to deleveraging. Some money will be reallocated to the U.S. market from others. Hence, the United States’ asset prices are better supported than others.

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In the medium term, the U.S. dollar’s outlook hinges on the continuing rise of the U.S. stock market. It is a self-fulfilling expectation.

If most investors believe in the U.S. economy, the money will flow into the country’s stock market. Its rise creates enough wealth effect to sustain the economy. The strong economy justifies the optimism. The money keeps coming.

In the longer term, if the fundamentals improve sufficiently, the bubble element in the economy could be digested through flattening out asset prices while letting the economy grow. Energy and agriculture are bright spots for the U.S. economy.

They aren’t sufficient to carry the economy. The key to the U.S. dollar’s future, in my view, is in improving the quality of the U.S. labor force. Without major progress there, the dollar will collapse again.

Changing places

The United States’ virtuous cycle depends on lack of competition for money. The main alternative is China. Since China joined the World Trade Organization, global money flow has favored it. This was a major factor triggering the weak dollar between 2002 and 2012. After 2008, the flow to China at the expense of the United States accelerated.

When international money flows to an economy and is used to enhance its competitiveness, the optimism is validated, and the money inflow will receive its appropriate reward by sharing in the growth.

However, the money could be used to finance an asset bubble. It creates paper gains for the capital inflow in the short term. The optimism is validated too, which encourages more inflow. But, this is an unsustainable dynamic. When the bubble peaks, everyone realizes that the optimism is misplaced. Capital flight follows, and with it the bubble bursts.

China’s economy was mismanaged after 2008. Instead of learning from the bubble disaster of the United States and embarking on structural reforms to improve competitiveness, China merely used fiscal and monetary stimulus to amplify an existing bubble, creating a feeding frenzy of getting rich overnight. As the U.S. economy improves and attracts more money, China’s bubble bursts.

The competition between China and the United States for money is a key global dynamic. The yo-yo dynamic between the two will dominate the global economy for decades. It amplifies the up-and-down cycle in either.

To reverse the situation, China must embark on structural reforms to improve competitiveness. It has a major advantage over the United States. With per capita income of $6,000, its growth potential is far greater. If the reforms can convince the market that China’s potential can be realized, the money will return.

The competition between China and the United States for money is a key global dynamic. The yo-yo dynamic between the two will dominate the global economy for decades. It amplifies the up-and-down cycle in either.

As the composition of growth is quite different between the two, other economies will float up or down depending on their relationships with either.

Commodity currencies

The yo-yo dynamic now is in favor of the United States. Hence, the economies that have benefited from China’s boom are suffering. Commodity exporters are the most exposed. Their currencies are adjusting to reflect the new reality.

The Australian dollar has declined nearly one-fifth from its peak. There is much more to come. The most vulnerable commodities to China’s down cycle are industrial minerals.

Since China joined the World Trade Organization, the price of iron ore rose nearly ten times. Australia has benefited enormously from the trend. It suffers most on the way down too. The Australian dollar’s adjustment is not half done, in my view.

I thought that oil would be resilient compared to industrial minerals because it cannot be recycled. It has performed even better than I expected.

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China’s electricity production has slowed two-thirds. The price of oil should have halved. But Brent crude remains above $100 per barrel, down less than 20% from the last year’s peak. Its strength is probably due to Saudi Arabia managing supply and the turmoil in the Middle East.

The uniqueness of the energy story suggests that the currencies of energy exporters like Canada and Russia perform better than that of mineral exporters like Australia and Brazil.

Emerging economies as a whole are facing difficulties. They suffer declining export prices and hot money leaving. To stop a vicious spiral of currency depreciation and inflation, they have to tighten monetary policy in an economic downturn.

If they try to protect growth by easing monetary policy, the vicious spiral could lead to another emerging market crisis like in 1998.

Gold moves East

There is a negative correlation between the U.S. dollar and gold in recent history. In light of the strong dollar, huge amounts of short positions have been built up in gold and gold stocks. I suspect that the correlation won’t work in the second half, and such short trades will turn out badly.

At the beginning of the year, I expected that a strong U.S. dollar would pressure the price of gold in the first half. But it would perform better in the second half as the U.S. stock market slows, diverging less money away from gold.

A new factor strengthens the case for gold. The physical demand has been extraordinarily strong in response to the slide in the price of gold. This could be a turning point in gold history. The pricing of gold may move permanently to the East from the West.

China and India account for roughly two-thirds of global demand for gold. Other emerging economies account for most of the rest. But, the price of gold is fixed in London or New York and driven by U.S. monetary policy. This is obviously wrong. But inertia is a powerful force. Financial markets continue with what has worked in the past.

Reuters

A girl tries a gold necklace inside a jewellery showroom in Mumbai

The tension between where gold is priced and where demand is located is manifesting itself in two ways: first, gold shops in Asia have no physical gold to meet demand; and second, the price of gold set in Shanghai is consistently higher than in London or New York.

Physical gold is likely to flow from the West to the East due to the pricing gap. It is only a matter of time before the warehouses of London and New York are emptied.

When the stock is all shifted to the East, the price fixed in Shanghai will become the real price. The gold exchanges in the West will wither.

China lost gold to the West from the mid-19th century onwards. Domestic uncertainties drove waves of immigration financed by gold. The trend has reversed over the past decade. And the trend is likely to accelerate in the coming decades.

India has the most gold in the world. The Fed has the most gold reserves among all central banks. China is likely to surpass both in the coming decade.

Gold is a substitute for money. Gold production is about 3,500 tons per year and is worth $154 billion or 951 billion yuan ($154.9 billion) USDCNY +0.03% . China’s M2 is likely to rise by 14 trillion yuan or 16 times the gold supply.

Within five years, China’s M2 could rise by 2 trillion yuan per month, while the supply of gold will remain the same. Gold should trade with China’s money supply, not with that of the United States.

In addition to China, India will remain the second largest source of demand. Even if its economy grows at 5% per year, proportionally, its gold demand will increase by 28% in five years.

As the Bank of Japan targets 2% inflation, the Japanese have become a force in gold demand too. Looking beyond the shadow of the strong U.S. dollar, gold has a very bright future. I believe that the price of gold will top $3,000 per ounce in five years.

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Precious metals Report

drdamigos@eurocapital.org.uk (Dr Damigo) — Fri, 26 Apr 2013 11:48:00 +0000

Physical gold vs paper gold: waiting for the dam to break

by Alasdair Macleod - Finance And Economics.org


	Introduction In this article I will argue that the recent slide in the gold price has generated substantial demand for bullion that will likely bring forward a financial and systemic disaster for both central and bullion banks that has been brewing for a long time. To understand why, we must examine their role and motivations in precious metals markets and assess current ownership of physical gold, while putting investor emotion into its proper context. In the West (by which in this article I broadly mean North America and Europe) the financial community treats gold as an investment. However, of the global pool of gold, which GoldMoney estimates to be about 160,000 tonnes, the amount actually held by western investors in portfolios is a very small fraction of this amount. Furthermore investor behaviour, which in itself accounts for just part of the West’s bullion demand, is sharply at odds with the hoarders’ objectives, which is behind underlying tensions in bullion markets. To compound the problem, analysts, whose focus incorporates portfolio investment theories and assumptions, have very little understanding of the economic case for precious metals, being schooled in modern neo-classical economic theories. These economic theories, coupled with modern investment analysis when applied to bullion pricing, have failed to understand the growing human desire for protection from monetary instability. The result has for a considerable time been the suppression of bullion prices in capital markets below their natural level of balance set by supply and demand. Furthermore, the value put on precious metals by hoarders in the West has been less than the value to hoarders in other countries, particularly the growing numbers of savers in Asia. These tensions, if they persist, are bound to contribute to the eventual destruction of paper currencies. The ownership of gold The amount of gold bullion that backs investor-driven markets is not statistically recorded, but we can illustrate its significance relative to total stocks by referring back to the time of the oil crisis of the mid-1970s. In 1974 the global stock of gold was estimated to be half that of today, at about 80,000 tonnes. Monetary gold was about 37,000 tonnes, leaving 43,000 tonnes in the form of non-monetary bullion, coins and jewellery. Let us arbitrarily assume, on the basis of global wealth distribution, that two thirds of this was held by the minority population in the West, amounting to about 30,000 tonnes. This figure probably grew somewhat before the early 1980s, spurred by the bull market and growing fear of inflation, which saw investors buy mainly coins and mining shares. Demand for gold bars was driven by the rapid accumulation of dollars in the oil-exporting nations, as well as some hoarding by wealthy investors from all over the world through Switzerland and London. The sharp rise in global interest rates in the Volcker era, the subsequent decline of the inflation threat and the resulting bear market for gold inevitably led to a reduction of bullion holdings by wealthy investors in the West. Swiss and other private banks, employing a new generation of fund managers and investment advisors trained in modern portfolio theories, started selling their customers’ bullion positions in the 1980s, leaving very little by 2000. In the latter stages of the bear market, jewellery sales in the West became a replacement source of bullion supply, but this was insufficient to compensate for massive portfolio liquidation. So by the year 2000, Western ownership of non-monetary gold suffered the severe attrition of a twenty-year bear market and the reduction of inflation expectations. Portfolios, which routinely had 10-15% exposure to gold 40 years ago even today have virtually no exposure at all. Given that jewellery consumption in Europe and North America was only 400-750 tonnes per annum over the period, by the year 2000 overall gold ownership in the West must have declined significantly from the 1974 guesstimate of 30,000 tonnes. While the total gold stock in 2000 stood at 128,000 tonnes, the virtual elimination of portfolio holdings will have left Western holders with little more than perhaps an accumulation of jewellery, coins and not much else: bar ownership would have been at a very low ebb. Since 2000, demand from countries such as India and more recently China is known to have increased sharply, supporting the thesis that gold has continued to accumulate at an accelerating pace in non-Western hands. Western bullion markets have therefore been on the edge of a physical stock crisis for some time. Much of the West’s physical gold ownership since 2000 has been satisfied by recycling scrap originating in the West, suggesting that total gold ownership in the West today barely rose before the banking crisis despite a tripling of prices. Meanwhile the disparity between demand for gold in the West compared with the rest of the world has continued, while the West’s investment management community has been actively discouraging investment. The result has been that nearly all new mine production and Western central bank supply has been absorbed by non-Western hoarders and their central banks. While post-banking crisis there has presumably been a pick-up in Western hoarding, as evidenced by ETF and coin sales and some institutional involvement, it is dwarfed by demand from other countries. So it is reasonable to conclude that of the total stock of non-monetary gold, very little of it is left in Western hands. And so long as the pressure for migration out of the West’s ownership continues, there will come a point where there is so little gold left that futures and forwards markets cease to operate effectively. That point might have actually arrived, signalled by attempts to smash the price this month. This admittedly broad-brush assessment has important implications for the price stability essential to bullion banks operating in paper markets as well as for central banks attempting to maintain confidence in their paper currencies. Precious metals in capital markets In the West itself, the attitudes of the investment community are fundamentally different from even those of the majority of Western hoarders, who are looking for protection from systemic and currency risks as opposed to investment returns. Western investors are generally oblivious to the implications, the most fundamental of which is that falling prices actually stimulate physical demand. Before the recent dramatic slide in prices the investment community undervalued precious metals compared with Western hoarders, let alone those in Asia, encouraging physical bullion to migrate from financial markets both to firmer hands in the West as well as the bulk of it to non-West ownership. There is now irrefutable evidence that these flows have accelerated significantly on lower prices in recent weeks, as rational price theory would lead one to expect. Pricing bullion is therefore not as simple as the investment community generally believes. It is being put about, mostly on grounds of technical analysis, that the bull markets in gold and silver have ended, and precious metals have entered a new downtrend. The evidence cited is that medium and longer-term moving averages have been violated and are now falling; furthermore important support levels have been breached. These developments, which arise out of the futures and forward markets, have rattled Western investors who thought they were in for an easy ride. However, a close examination of futures trading shows the bearish case even on investment grounds is flawed, as the following two charts of official statistics provided by weakly Commitment of Traders data clearly show. The Money Managers category is the clearest reflection in the official data of investor portfolio positions, representing sizeable mutual and hedge funds. In both cases, the number of long contracts is at historically low levels, and shorts, arguably the better reflection of money-manager sentiment, remain close to high extremes. On this basis, investor sentiment is clearly very bearish already, with the investment management community already committed to falling prices. Put very simplistically there are now more buyers than sellers. Money Managers are in stark opposition to the Commercials, who seek to transfer entrepreneurial risk to Money Managers and other investor and speculator categories. The official statistics break Commercials down into two categories: Producer/Merchant/Processor/User, and Swap Dealers. Both categories include the activities of bullion banks, which in practice supply liquidity to the market. Because investors and speculators tend to run bull positions, bullion banks acting as market-makers will in aggregate always be short. A successful bullion bank trader will seek to make trading profits large enough to compensate for any losses on his net short position that arise from rising prices. A bullion bank trader must avoid carrying large short positions if in his judgement prices are likely to rise. He will be more relaxed about maintaining a bear position in falling markets. Crucially, he must keep these opinions private, and the release of market statistics are designed to accommodate these dealers’ need for secrecy. Bullion banks’ position details are disclosed at the beginning of every month in the Bank Participation Reports, again official statistics. They are broken down into two categories, based on the individual bank’s self-description on the CFTC’s Form 40, into US and Non-US Banks. Their positions are shown in the next two charts (note the time scale is monthly). In both gold and silver, the bullion banks have managed to reduce their exposure from extreme net short over the last four months. The reduction of their market exposure suggests that they have been deliberately transferring this risk to other parties, and is consistent with an anticipation that bullion prices will rise. It is the other side of the high level of bearishness reflected in the Money Manager category shown in the first two charts. The bullion banks control the market; the Money Managers are merely tools of their trade. There has been little reduction in open interest in gold and it has remained strong in silver, because risk has been transferred rather than extinguished. Daily official statistics on open interest are provided by the exchange and summarised in the next two charts (note that data is daily). From these charts it can be seen that recent declines in the gold price are failing to reduce open interest further, and in silver open interest remains stubbornly high. Therefore, attempts by bullion banks to reduce their net short exposure by marking prices down are showing signs of failure. We can therefore conclude that investor sentiment is at bearish extremes and the bullion banks have reduced their net short exposure to levels where it risks rising again. Therefore the downside for precious metals prices appears to be severely limited, contrary to sentiments expressed by technical analysts and in the media. This market position is against a background of a growing shortage of physical bullion, which is our next topic. Physical markets Casual observers of precious metal prices are generally unaware that the headline writers focus on activity in the futures markets and generally ignore developments in physical bullion. This is consistent with the fact that market data is available in the former, while dealing in the latter is secretive. However, as with icebergs, it is not what you see above the water that matters so much as that which is out of sight below. It is not often understood in investment circles that gold and silver are commodities for which the laws of supply and demand are not overridden by investor psychology. Therefore, if the price falls, demand increases. Indeed, the increase in demand has far outweighed selling by nervous investors; even before the price-drop, demand for both silver and gold significantly exceeded supply. Evidence ranges from readily available statistics on record demand for newly-minted gold and silver coins and the net accumulation of gold by non-Western central banks, to trade-based information such as imports and exports of non-monetary gold as well as reports from trade associations reporting demand in diverse countries such as India, China, the UK, US, Japan and even Australia. All this evidence points in the same direction: that physical demand is increasing on every price drop. There is therefore a growing pricing conflict between futures and forward markets, which do not generally involve settlement but the rolling-over of speculative positions, and of the underlying physical metal. Furthermore, analysts make the mistake of looking at gold purely in terms of mining and scrap supply, when nearly all gold ever mined is theoretically available to the market, in the right conditions and at the right price. The other side of this larger coin is that if the price of gold is suppressed by activity in paper markets to below what it would otherwise be, the stimulus for physical demand, being based on a 160,000 tonne market, is likely to be considerably greater on a given price drop than analysts who are myopic beyond 2,750 tonnes of annual mine production might expect. The numbers that are available confirm this to have been the case, particularly over the last few weeks, with reports from all over the world of an unprecedented surge in demand. This is at the root of a developing crisis of which few commentators are as yet aware. Demand for physical has accelerated the transfer of bullion from capital markets to hoarders everywhere and from the West’s capital markets to other countries, which has been the trend since the oil crisis in the mid-Seventies. This is what’s behind an acute shortage of physical gold in capital markets, explaining perhaps why bullion banks feel the need to reduce their short positions. While we can detail their exposure in futures markets, meaningful statistics are not available in over-the-counter forward markets, particularly for London, which dominates this form of trading. Forwards are considerably more flexible than futures as a trading medium, generating trading profits, commissions, fees and collateralised banking business. The ability to run unallocated client accounts, whereby a client’s gold is taken onto a bank’s balance sheet, is in stable market conditions an extremely profitable activity, made more profitable by high operational gearing. The result is that paper forward positions are many multiples of the physical bullion available. The extent of this relationship between physical bullion and paper is not recorded, but judging by the daily turnover in London there is an enormous synthetic short physical position. For this reason a sharply rising price would be catastrophic and any drain on bullion supplies rapidly escalates the risk. Overseeing this market is the Bank of England co-operating with other Western central banks and the Bank for International Settlements, whose combined interest obviously favours price stability. They have been quick to supply the market if needed, confirmed by freely-admitted leasing operations in the past, and by secretive supply into the market, which has been detected by independent supply and demand analysis over the last 15 years. Furthermore, as currency-issuing banks, central banks are unlikely to take kindly to market signals that suggest gold is a better store of value than their own paper money. We can only speculate about day-to-day interventions by Western central banks in gold markets. In this regard it seems that the slide in prices on the 12th and 15th April was triggered by a very large seller of paper gold; if this market story and the amount mentioned are correct, it can only be central bank intervention, acting to deliberately drive prices lower. Given the market position, with Money Managers in the futures markets already short and highly vulnerable to a bear squeeze, the story seems credible. The objective would be to persuade holders of physical ETFs and allocated gold accounts to sell and supply the market, on the assumption that they would behave as investors convinced the bull market is over. Conclusions For the last 40 years gold bullion ownership has been migrating from West to elsewhere, mostly the Middle East and Asia, where it is more valued. The buyers are not investors, but hoarders less complacent about the future for paper currencies than the West’s banking and investment community. There was a shortage of physical metal in the major centres before the recent price fall, which has only become more acute, fully absorbing ETF and other liquidation, which is small in comparison to the demand created by lower prices. If the fall was engineered with the collusion of central banks it has backfired spectacularly. The time when central banks will be unable to continue to manage bullion markets by intervention has probably been brought closer. They will face having to rescue the bullion banks from the crisis of rising gold and silver prices by other means, if only to maintain confidence in paper currencies. Any gold held by struggling eurozone nations, theoretically available to supply markets as a stop-gap, will not last long and may have been already sold. This will likely develop into another financial crisis at the worst possible moment, when central banks are already being forced to flood markets with paper currency to keep interest rates down, banks solvent, and to finance governments’ day-to-day spending. Its importance is that it threatens more than any other of the various crises to destabilise confidence in government-backed currencies, bringing an early end to all attempts to manage the others systemic problems. History might judge April 2013 as the month when through precipitate action in bullion markets Western central banks and the banking community finally began to lose control over all financial markets.

Thanks to Alasdair Macleod from www.goldmoney.com

Data and Statistics for these countries : India | Switzerland | All

Gold and Silver Prices for these countries : India | Switzerland | All

Alasdair Macleod

FinanceAndEconomics.org is the website of Alasdair Macleod, who has a background as a stockbroker, banker and economist. Alasdair is available for seminars, speeches and interviews. Please check on Services to get further detalils.

SOURCE: WWW.24HGOLD.COM

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Have-We-Seen-the-Lows-for-this-Year?

drdamigos@eurocapital.org.uk (Dr Damigo) — Thu, 25 Apr 2013 16:06:00 +0000

http://www.kitco.com/news/video/show/For-Petes-Sake/290/2013-04-22/For-Petes-Sake-Have-We-Seen-the-Lows-for-this-Year

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INDIAN PHYSICAL GOLD PREMIUMS ARE SOARING

drdamigos@eurocapital.org.uk (Dr Damigo) — Thu, 25 Apr 2013 15:59:00 +0000

http://www.kitco.com/news/video/show/Technically-Speaking

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Silver Could Reclaim $30/Oz in 2013

drdamigos@eurocapital.org.uk (Dr Damigo) — Thu, 25 Apr 2013 15:52:00 +0000

http://www.kitco.com/news/video/show/on-the-spot/292/2013-04-25/Silver-Could-Reclaim-$30Oz-Title-in-2013

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My Belief in Gold Has Not Wavered

drdamigos@eurocapital.org.uk (Dr Damigo) — Thu, 25 Apr 2013 10:33:00 +0000

Portfolio Manager Greg Orrell: 'My Belief in Gold Has Not Wavered'

by The Gold Report


	*The Gold Report:* How has your bullish view on the gold sector evolved as a series of crises has jolted both the international stock market and the price of gold? Greg Orrell: First off, my belief in gold as a monetary asset has not wavered. Japan basically admitted that it is bankrupt with its intention to aggressively debase its currency. Normally such actions would invoke, and may still, a race to the bottom as each country engages in economic warfare to deal with its debt issues. At this juncture the fear of global deflation among the G7 crowd remains its worst nightmare, especially as additional stimulus by the Federal Reserve is showing diminishing returns. With high debt levels in both the private and public sectors around the world, stimulating economic growth is proving elusive. These alarming events are setting the stage for the next leg up in the dollar gold price, in my opinion. The fiscal and monetary crisis is ongoing and underscores the necessity of owning gold assets. Though agonizing, the past 18 months have been nothing more than a consolidation for gold from the September 2011 highs of $1,900/ounce ($1,900/oz). The recent decline in gold prices below $1,500/oz is not the end of the bull market in gold, despite the barrage of negative commentary by those wanting to dance on gold's grave. The destruction of currencies is in full bloom, but it is not a straight line. The problem for many gold investors is that they can see the endgame. Gold prices rise in a straight line at the end of a monetary system, but we are not there yet. It takes some patience to hold the course while the establishment fights tooth and nail to keep the dollar system from failing. TGR: The years 2009 and 2010 were better for gold stocks. Can you talk about how things changed after that and how investors can best respond to the precipitous drop in market value? GO: A number of factors go into the poor performance of the gold shares over the past couple of years besides the gold price. We have seen investor rotation out of defensive posturing and then the gold miners ended up being their own worst enemy. Gold share investors became concerned, and rightfully so, with rising operating and capital costs, poor capital allocation and growing resource nationalization. This in turn made bullion exchange-traded fund (ETF) products more attractive and prompted a trend of shorting the miners versus long gold positions. Let's look at the world's largest producer, Barrick Gold Corp. (ABX:TSX; ABX:NYSE). It incurred cost overruns at the Pascua-Lama project in Latin America. And it overpaid for a copper asset in Africa after spinning off its African gold assets a couple of years earlier. Each of these instances led to contraction of cash flow and net asset value multiples for the whole sector, and set a theme for the industry. At this point, the pendulum has swung too far, with the shares basically discounting everything that could go wrong and more. Therefore, if an investor is not in the gold sector, now is an opportune time to take advantage of the significant decline in share values as there are signs of positive change taking place within the sector. TGR: Can you provide any insight as to why longer-term investors, and also new gold investors, should buy into the current gold market? GO: The rationale for owning gold assets remains simple: global deterioration of sovereign credit and a growing need to debase currencies in order to meet future obligations, whether it's here in the U.S., Europe or Japan. The policy of socializing risk with monetary and fiscal policy has destroyed the balance sheets of the Western world. We are in a phase of experimental central banking, which I believe is going to end badly due to the dislocations of capital it has caused through prolonged periods of negative rates. In the event economic growth were to take hold, an unleashing of built up reserves in the system would set off inflation with a corresponding rise in rates. Just imagine the effect of a change in the direction of interest rates and the collateral damage that will create in the bond markets and the interest rate derivative markets after all of these years of managing a zero interest rate policy. The cost of funding the U.S. deficit will rise exponentially. More quantitative easing begets more quantitative easing. Investors need to have some type of asset to balance their portfolios. Policymakers who got us into this mess are unlikely to navigate us out of it. History tells us that only gold is a good place to be.

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Gold’'s downward momentum >> What Caused it?

drdamigos@eurocapital.org.uk (Dr Damigo) — Thu, 25 Apr 2013 10:27:00 +0000

·Announcement that the Chilean government would uphold an appeal and suspend environmental approval of Barrick Gold’s multi-billion dollar Pascua-Lama project.
·A Goldman Sachs research report that set a lower target price for gold and recommended shorting the market.
·European Central Bank head honcho Draghi who reported that the EU would force Cyprus to liquidate its gold holdings of 14 tonnes (only about 436,000 ounces) as a condition for bank bail-outs. This led to fear that other bad-debt nations in Europe (the PIIGS) would be forced to do the same.
·Massive selling of paper gold, reportedly 470 tonnes (14.6 million ounces) executed thru Merrill Lynch, upon New York Comex openings on Friday and Monday.
·Margin calls and automated sales repeatedly generated when the price dropped below stop-loss sell markers.

This particular correction was a paper gold phenomenon and was not driven by any selling of physical gold. Panic in the futures and options markets with resulting margin calls and automated stop-loss selling combined with ETF redemptions are what initiated and exacerbated the meltdown. In fact, gold’s price drop has stimulated physical demand so much that bullion shortages are occurring and are accompanied by with the usual spike in price premiums.

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Short Covering Squeeze In Precious Metals

drdamigos@eurocapital.org.uk (Dr Damigo) — Wed, 24 Apr 2013 23:08:00 +0000

Short Covering Squeeze In Precious Metals and Miners?

by Jeb Handwerger - Gold Stock Trades


	A week ago I wrote about a potential rebound after capitulation and panic selling in precious metals and the miners. It now appears Goldman Sachs (GS) is covering its short on gold as it rebounds above $1400. Meanwhile, many banks have helped confuse and misdirect the investment community out of gold (GLD) and silver (SLV). This was a classic shakeout and bear trap which may start a major short covering rally. Be ready to see increased short covering combined with record physical demand. These are the two elements to spark a price spike and breakout higher in both gold and silver. These markets are ready to start moving higher after basing for 2 years and having a major short attack by the big banks too big to fail and the media. Right when gold and silver were about to gain some momentum after bouncing off key support for most of 2012, simultaneously Goldman Sachs came out with a bearish prognostication on precious metals, old Fed minutes are brought up and Cyprus says they will sell gold. This resulted in a shakeout below $1535 and a massive bear trap for momentum traders who may have been stopped out. The markets will do whatever it must to confuse, misdirect and obfuscate the long term trend investor. In my opinion, gold and silver are still below 1980 inflation adjusted highs and miners (GDX) are trading at record low valuations. Precious metals bubble talk is gibberish. One should not even discuss irrational exuberance when the miners are in the midst of a hysterical fear which has dropped junior mining valuations (GDXJ) to all-time lows. Until we witness new price paradigms when the consensus understands the wealth in the earth approach we should not even discuss bubbles. The real bubble is in U.S. debt which has risen more than 17 times 1980 highs, but still many refuse to recognize the real bubble and the possible ramifications of the bond bubble bursting. Bonds have been in a thirty year uptrend and are being manipulated ridiculously higher as investors seek liquidity and yield. Incidentally, these shakeouts can lead to breakouts as a major rotation occurs near the bottom and long term value investors acquire at a discount. Notice the increase in physical demand and thin inventories for gold and silver worldwide. Market makers or shorts in precious metals and mining stocks are squashing every breakout and in fact using technical analysis as a contrary signal to shakeout momentum traders over the past two years. I have learned that these players use the charts to go against the market. When technical signals fail repeatedly in precious metals and fundamentals are ignored by the market many investors leave the arena and fold. This may be a ploy from policy makers to foster an environment with cheap commodity and precious metal prices to make it appear inflation is subdued. This would support more easy money policies to pay down soaring debts and try to boost a struggling economy. A few weeks ago, it was discovered that the Fed sent out the minutes early to a small group of recipients which may have included Citigroup, JP Morgan, Goldman Sachs and Barclay's. Investors began to panic that the Fed would exit Quantitative Easing. Then I observe major banks coming out with bearish analysis saying troubled Central Banks would sell gold. Could there have been trading based on this information? Does this occur more often giving some Washington insiders an unfair advantage in the marketplace? I know many of our elected officials in Washington investigating these banks are shareholders or former employees. Its the old case of the fox running the hen house and questions the credibility of our elected officials and representatives. Too big to fail seems like modern day cronyism reminiscent of the Tammany Hall days. Investors are realizing that the major U.S. banks may be losing their credibility and their hold on fiat currency. They are hitting new highs based on government support through record low interest rates, cutting costs and creative accounting. We are not seeing increase of earnings or revenues from organic growth. Unemployment remains high and inflation may be greater than many yet realize. Look at the move in natural gas over the past year of over 120% and lumber. Inflation is still present. Eventually, more investors will look into alternatives currency hedges in gold and silver bullion, where we have witnessed demand rising exponentially after this pullback. When I see these Wall St. firms bearish on the yellow metal, I know the goal is to make short term profits on their record short positions before they cover. I believe the gold bull market will recover from this short attack and continue with a breakout into new highs past $1900 sooner rather than later. This may be an accelerated move sooner rather than later after many of the weak hands have been shaken out. When gold and silver breakout, watch the small junior miners priced at Armageddon 2008 prices soar. Some of these discounted junior mining stocks could see exceptional gains from these low decade low levels. Not only is Goldman negative on gold and silver prices but they advised clients to go short, only to cover a few days later. This is a risky tactic in a market with a powerful longterm 12 year uptrend and goes against all textbook rules. What is their reason? The mess in Cyprus didn't trigger a run into precious metals and that gold is not seen as a safe haven. Also they were concerned that the Fed will exit QE and that troubled Central Banks will sell gold. To me this is short sighted analysis with the goal to stimulate panic and uncertainty on the precious metals. The fact remains that not one of these Central Banks sold any gold and $85 billion worth of QE is being funneled into the banks and housing sector every month. I believe this bear attack may indicate that Goldman and other banks may continue to cover their shorts as the weak hands sell their precious metal positions at a potential bottom. Gold and silver may be staying down because hedge funds have a record short on them. Goldman Sachs may be allowing these funds to cover before an eventual short squeeze which could help catapult gold and silver into new highs. Central Banks may also be using this negativity in the precious metals market to load up before a possible breakout move. Bloomberg reports, "Gold Prices Tumble Most in Five Months as Cyprus to Sell Bullion". Investors may be momentarily questioning gold and silver as a shelter from turbulent financial weather in the short term. Now the sectors supported by Quantitative Easing are soaring while precious metals are hitting major support levels. The manipulated dollar (UUP), large caps equities (SPY) and bonds (TLT) appear to look strong, while the commodities look weak. This may be part of the tools of Cental Bank policies. To paraphrase Freddie Mercury, "Is this real life or is this just fantasy? An escape from reality?" Mark my words eventually the investment community will see the intrinsic value in precious metals in a world of declining fiat currencies and soaring sovereign debts. We may be hitting multi-year lows in precious metals and the miners. The U.S. dollar and large cap equities may be seen as the safe place temporarily by the masses, but they are in fact possibly the riskiest assets at the moment. The equity markets are very overbought, hitting a 15 year high. Bargains present themselves in the precious metals arena, which has been a store of value for 5000 years unlike Bitcoins, ETF's, Dollars or Bonds. It is hard to teach an old dog, new tricks. The majority of investors remain ignorant about potential inflationary hurricanes which could hit sooner rather than later. They would rather stick their hand in the sand and believe good times are here again. Will I be selling my gold, silver or the miners or be going short because Goldman says so? No. Gold is not just a safe haven from financial turmoil. Precious metals are an alternative to fiat currencies which are losing purchasing power. Negative real rates exist all over the world and right here where I live in the United States. Remember cash has no intrinsic value and can be printed to infinity. There is only so much gold and silver in the ground and in the earth. Precious metals have real values and is the obverse of printing unlimited paper money and soaring debts. Do not be surprised to see silver and gold being increasingly used as a means of exchange. Despite the manipulated financial markets and distorted media designed to confuse simple investors, 13 states are about to recognize gold and silver coins as legal tender. Why are the states making this move? Historically, a country or empire that used the printing press to pay down soaring debts eventually resulted in hyper-inflation and the destruction of the fiat currency. The U.S. is undergoing quantitative easing and debts are continuing to soar. Interest payments on that debt are currently low due to the manipulated bond market, but that could change if investors stop buying U.S. debt. The lawmakers from these states believe that gold and silver will over the long term keep its value. Texas is one state that has been proactive with its sound money approach. The Texas Retirement System owns gold and miners including one of our GST recommendations as a hedge against a dollar collapse. I believe this trend of viewing gold and silver as real money will continue. Investors in an environment of negative real rates will continue to seek out instruments which retains their value. Whatever you do, don't let the spinmeisters panic you out of your gold. Look at these pullbacks as opportunities. Buy silver (AGQ) and gold (UGL) when it is oversold and when the pundits are negative. Don't panic about Cyprus who may be forced to sell their gold to fund the bailout. Many other countries such as China, Russia and India would be glad to buy it. There was a time in the late 90's and mid 70′s when Central Banks sold gold and the price dropped significantly. This turned out to be a buying opportunity. Nothing goes straight up or straight down, sometimes price moves sideways or backwards. Patience and fortitude is critical during these down and flat markets. Be careful of Goldman Sachs' forecast who tend to raise targets during tops and are negative when it may be bottoming time. They expected a major breakdown in gold at a time when the S&P500 and Nikkei (EWJ) soars to record highs due to currency manipulations. Now they are covering their shorts as gold holds $1400. Investors supposedly are selling their gold due to Fed Minutes being released that states some officials want to end quantitative easing by the end of 2013. This is old news and is based on statements which did not take into account the recent poor jobs data. The S&P500 has doubled, yet the economy is still weak according to Bernanke. Bernanke is the one whose opinion matters most and he will continue to devalue to boost the economy through record low interest rates and quantitative easing. Similarly, Japanese Prime Minister Abe has pledged to reverse deflation and the European Central Bank continues to boost liquidity. All these moves will eventually cause a breakout in precious metals and the mining equities which have almost pulled back to 2008 levels, despite gold and silver being close to double 2008 values. Disclosure: Author does not own shares in stocks mentioned.

Jeb Handwerger
Gold Stock Trades Editor Jeb Handwerger is a highly sought-after stock analyst syndicated internationally and known throughout the financial industry for his accurate and timely analysis of the equities markets, particularly the precious metals sector. Subscribe to his FREE Newsletter right now at: http://goldstocktrades.com.

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Potential Emerging Threats to Financial Stability

drdamigos@eurocapital.org.uk (Dr Damigo) — Wed, 24 Apr 2013 22:53:00 +0000

Threats to financial stability, like threats to national security, are always present,

even if they are not always easy to discern in advance. The euro area poses an

obvious risk to U.S. financial stability. To date, euro area authorities have been

able to prevent a major dislocation by providing large quantities of liquidity to

their banking systems, and by providing official sector funding on a case-by-

case basis, conditional on fiscal and structural reforms, for nations that have

lost market access. The nations under stress have taken painful steps to reduce

structural fiscal deficits, and have undertaken some economic liberalization

in an effort to boost growth and competitiveness. Euro area leaders have also

taken actions towards recapitalizing troubled banks. However, the uncertainty

surrounding euro area developments remains high.

Many argue that the euro area needs a more system-wide solution that deepens

financial and fiscal integration and completes economic and monetary union.

Such a solution might include a roadmap to strengthen the institutional

foundations of the euro, with appropriate governance and incentives, as well as a

credible crisis-fighting bridge to that future set of arrangements.

Moreover, the challenges surrounding Greece have focused market attention

on the sustainability of countries’ euro membership and the costs of a potential

euro breakup. The establishment of the single currency was a remarkable step

towards greater European unity, and dissolution of the euro would come at

great cost. Specifically, market participants highlight credit risk, legal risk, and

redenomination risk—the risk that obligations due in euros will be repaid in an

alternative, less valuable, currency.

The direct net exposures of large U.S. banks to the most stressed euro area

sovereigns are very small relative to capital. However, a systemic crisis in Europe,

in which contagion and spillover effects spread widely among euro area countries

and markets, represents a significant risk for U.S. institutions. In addition, asset

price declines due to shocks originating in the euro area would likely have an

adverse impact on the balance sheets of U.S. institutions, as would a generalized

deterioration in market sentiment due to increased European volatility.

While Europe is the principal financial stability risk facing the U.S. financial

system today, it is not the only source of potential threat. The U.S. recovery has

not yet transitioned from moderate to self-sustainable growth. The “fiscal cliff”

around year end—including expiration of the tax cuts originally enacted in

2001 and 2003, the expiration of payroll tax cuts and extended unemployment

benefits, and the Budget Control Act-mandated sequester—represents a threat to

the recovery and financial stability if not addressed.

Structural and cyclical weaknesses persist in the housing sector, including the

large number of households with low or negative equity in their homes. As a

result, the housing market could face increased pressures should there be a

slowdown in economic growth. Meanwhile, cybersecurity remains a constant area

of concern and potential vulnerability.

Risks could also arise from uncertainty about the vigor of global growth outside

Europe, including in the emerging markets. Authorities in China and a number

of other EMEs face the challenge of supporting demand and employment at a

time of weakness in the industrialized world while attempting to avoid fuelling

domestic real estate bubbles. China’s substantial contribution to global growth

and its purchases of advanced economy debt mean that a hard landing there

would have important implications for the U.S. economy.

It is essential to enhance the resilience of the financial system against both the

threats that we can identify today and ones we cannot. Vulnerabilities in the

financial system can be grouped into three broad classes or types: inherent

vulnerabilities (features of our financial system that will always make financial

markets and institutions fragile), potential control weaknesses (failures in

operations, risk management, and governance), and behavioral vulnerabilities

(incentives to take too much risk).

One area that merits ongoing scrutiny is the potential interaction between reliance

on short-term wholesale funding (an inherent vulnerability) and incentives to

“reach for yield” (a behavioral vulnerability) in a low interest rate environment,

for instance, by taking on excessive duration or credit risk or by shortening the

tenor of funding. Some nonbank financial companies already rely heavily on

short-term market financing, which could represent a source of instability if

borrowers were to have difficulty rolling over liabilities in a time of stress. For

example, while short-term funding markets were not disrupted by the recent

downgrades of internationally active financial institutions, these events are causing

market participants to reevaluate both concentration and duration of exposures

in these markets. While the use of short-term liabilities to fund long-term assets

is central to financial intermediation, the risks associated with this practice must

be carefully managed and subjected to appropriate oversight. Events over the

past year have also highlighted the importance of potential control weaknesses

particularly for concentrated exposures or complex trading strategies.

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GOLD... still a “Safe-Haven?

drdamigos@eurocapital.org.uk (Dr Damigo) — Tue, 23 Apr 2013 10:56:00 +0000

What is a “Safe-Haven”?
It should be defined as a long-term investment that holds its value internationally, in extreme financial times. Is gold one of these? After all, it has fallen from $1,921 at its peak to $1,344 at its trough. This is a 30% fall over the last year plus. At one time George Soros described gold as the “Ultimate Safe-Haven”, before saying it was a “disappointing Safe-Haven”. Alan Greenspan described gold as being “money in extremis.”

The SPDR gold ETF
In the “Bear Raid” we have seen over the last fortnight when gold was smashed down $200 after declining $100 before that, the physical gold sales came almost exclusively from the SPDR gold ETF before being accompanied by a massive 400 tonne gold short on COMEX. In addition, two large U.S. banks, Goldman Sachs and Merrill Lynch appeared to act ‘in concert’ to ensure the raid was successful.
Until this year the holding of the gold ETFs did not move except slightly as its shareholders were long-term investors not traders in the gold price for profit. They hold gold for wealth protection in the long-term.
By long-term we mean just that. In India for instance gold is passed down from mother to daughter through the generations. There, gold is used as collateral for loans and usually not sold. Some sell when the price is what they consider too high, but sold with the intention of buying back on a price retreat.
Serious gold investors take their savings and financial successes and put them in gold to weather the storms we have seen over the last century. Europe in particular has done this and survived two World Wars and two currency collapses, so far in the last century, provided they held their gold in Switzerland.
These long-term gold holders agree with Alan Greenspan that gold is held for extreme days.
But into the SPDR gold ETF came traders who wanted to hold gold until the price rose, so they could make a ‘profit’. Hedge funds and names like George Soros were among these. The very nature of their investment attitude was different from those we have just discussed. When they bought gold it was in the expectation of a currency crisis in the dollar. If they had bought it as a “Safe-Haven” they would not have sold. It was bought as a short to medium term hedge against a dollar collapse. This did not come.

The Dollar Collapse Did NOT Come
Because the dollar has not collapsed has in no way discredited gold as a “Safe Haven”. It remains one.
We must point out that if a dollar collapse had come, gold would have acted as a “Safe-Haven” and retained its international value and risen in the dollar. Because it did not come, gold did not fail as a “Safe-Haven” because it was not tested as one. What has happened is a successful “Bear Raid” which gave such investors the profit they wanted.
You may well reply, “but the fall in the gold price of late defeated it as a Safe-Haven.” Not so! Take a look at the seventies performance of the gold price and right through to the year 2000.

Gold through the Last 45 Years
Between 1968 and 1980, gold rose from $35 an ounce in 1968 to $195 an ounce on December 27, 1974, only to fall back violently to $103.50 an ounce on August 25, 1976.
This represented a 43.4% drop in price during this period. Twenty months of price declines were too much for most gold investors, and many exited vowing never to return. Then it reversed and continued to climb right up to $850 over the next three years. Then the U.S. in conjunction with developed world central banks mounted an attack on the gold price through an acceleration of the production of gold, by financing mining operations with leased bullion and threatening the market with gold sales. Then the venerable Mr. George Brown established the “Brown Bottom” in the gold price at $275, just before its 10-year rise through to $1,921. Now take the long view from the date it was $35 at the end of the sixties. Even now at $1,400 it has risen 40 times in 42 years. I would call that a “Safe-Haven”!
Two features are worthy of note when considering whether gold will fail to hold its price, long-term:
·Firstly, even if they wanted to accelerate gold production, it can’t happen again because the easily-mined gold resources are used up.
·Secondly, inflation in the mining industry has pushed the price at which it is profitable to mine gold on average on a third of world gold mines to over $1,100 (allowing for a small profit only). So if prices were to fall lower than the bottom of $1,344 a substantial proportion of the world’s gold mines would become unprofitable and would be closed. This would reduce supply considerably. Figures of a drop of 900 tonnes to 1,900 tonnes are possible.
Forty percent of the world’s gold supply comes from what is termed “scrap sales.” This represents around 1,600 tonnes annually. The bulk of this scrap supply ceases when the gold price falls substantially, leaving the market mainly supplied by newly mined gold.
Hence the ‘natural’ fall in supply to the market would force the gold price back up to well over $1,400 and with central bank demand alone taking the gold price, much, much higher.

Central Banks to Control the Gold Markets
Central banks are now buyers of gold, not sellers. Last year they bought 545 tonnes of gold. We believe that not only Kazakhstan will retain its entire local production for reserves, but suspect that China is doing the same. This removes around 450 tonnes of gold from the newly-mined gold number of currently 2,800 tonnes (when the price was higher) to 2,350 tonnes. This figure is before the cut backs due to lower prices.
What must concern the central banks, which all consider gold as an important reserve asset, is the fact that institutional investors can play around with the gold price like this. It is in their interests to ensure that controls are placed on the buying and selling of gold so that private markets don’t play havoc with the gold price this way.
We see this concern as being another reason why Roosevelt had U.S. citizen’s gold confiscated in 1933, making gold dealing at all levels illegal and U.S. gold in the sole domain of the Fed.
We believe the confiscation of gold can and probably will happen again when instability hits global foreign exchanges as the Yuan makes its presence felt at the expense of the U.S. dollar. Even now, owning gold is deemed a privilege, not a right, by the U.S. government. As such, an important reserve asset now and more so in the future, gold will become a nationally strategic asset and should be removed from the reach of those who undermine its credibility by ramping its price up and down.
Please note the thinking behind central bank buying. The Chairman of the Kazakhstan when he said, “The three traditional centers of the world economy, the US, Japan, and Europe, are three huge pools of uncertainty, and that the need for diversification is stronger than ever. The central bank locked up domestic supplies of bullion in 2012 and plans to buy all gold mined in the country this year, or as much as 30 tonnes,” Mr. Marchenko said. “As currencies lose value, money must be invested somewhere.”
With the Chinese Yuan waiting in the wings of the global currency scene gold is destined to become a “pivotal part” of the global monetary system (see www.gold.org report from the OMFIF). In that role it becomes too important to be the victim of profit-seekers as we have just seen. In that environment, we would expect to see at least one central bank swoop down on the ‘bear raiders’ and buy all the physical gold they are selling. It would be better if the ‘raiders’ are prevented from raiding then.

Global Gold Market Sellers
As we have mentioned already, the recent sell-off of gold from $1,650 to $1,344 was the result of a well co-ordinated, “bear-raid” by at least two leading U.S. banks and their hedge fund clients driving the gold price down. They were the only sellers in the global markets. By moving quickly and relentlessly against the gold price, they achieved their gold through massive short positions on COMEX (which does not need physical gold to be used) and sufficient physical gold to overwhelm the physical gold market (an 11 tonne a day market) over just a few days. Sales from the SPDR gold ETF supported their attack. These increased as the gold price fell. Then as their price objectives were achieved and signs of buying from other facets of the gold market stirred to life, the selling by the ‘raiders’ stopped. Selling still persists from the SPDR gold ETF, but we believe will soon stop.
Buyers
The much slower reacting physical market sprang to life at the sight of the gold price below $1,400. In the developed world and the emerging world, the demand for physical coin and bar leapt as though they were given discounts consistent with Christmas sales.
We have no doubt that the invisible but ever-present central bank gold buyers swooped in too, but this can only be confirmed when their purchases are disclosed at the end of the month.
Thus the attempt to label gold as a ‘disappointing Safe Haven’ seems only to be given credibility in the U.S. We see that as being so, only momentarily. The rest of the world, as it has for the last 5,000 years continues to believe it is a ‘Safe Haven’ as shown by their actions in buying gold in all parts of the globe after the ‘raid’.
Conclusion
So let’s not confuse safe haven with profitable. The safe haven is always there when all else fails. The ‘extreme times’ that test such have not yet arrived. But history shows they will. Until then, wealth is protected by it in the long-term. The day that gold is tested as a safe haven will be when the monetary system buckles and currency values decay to the point where currencies will be valued by gold and not gold by currencies.

Source: 24hgold.com

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What Unintended Consequences Are Increasing World Demand for Gold?

drdamigos@eurocapital.org.uk (Dr Damigo) — Fri, 19 Apr 2013 12:32:00 +0000

by Chris Martenson


	With the financial experts claiming, some gleefully, that gold has "lost its safe haven status" in the aftermath of its biggest tumble in 30 years, many commentators thought (hoped?) that the dramatic price drop would steer people away from gold ownership. To my eyes, the past week has all the earmarks of a high-gloss propaganda campaign complete with well-placed anti-gold stories in the media and the careful use of language aimed at sowing doubt about gold's ability to be a store of wealth. But for those who consider gold a store of value, the recent gold slam is a gift: an invitation to purchase more sound money with fewer units of paper currency. In other words, a sweet deal. Gold and silver on sale and the world is taking advantage. As predicted last Friday, I wrote, "[k]nowing the lower prices will only exacerbate this West-to-East flow [of gold], I therefore thought that the bullion banks and central banks would not have dared push that dynamic any further." Well, by all accounts, the flow of gold from West to East is now accelerating. Gold Rout Heralds 'Hot' Indian Wedding Jewelry Season Apr 16, 2013 Bullion tumbled 9.1 percent yesterday, the biggest loss since 1983, and that may make the precious metal more affordable to Indians, said Mehul Choksi, chief executive officer of Gitanjali, the nation's biggest retailer of jewelry and diamonds by sales. The plunge has already revived interest among retail buyers, said Rajesh Mehta, chairman of Rajesh Exports Ltd. "The season is very hot for buying" with weddings and other auspicious dates coming up, Choksi said. "The decline will be positive for jewelry as there will be a pick-up in demand because affordability will increase. Volumes will increase." "We rushed to buy as soon as we saw prices fall so much and decided to buy jewelry early for our daughter's wedding in January," said Blossom D'souza, while browsing through a selection of bangles in a jewelry store in Mumbai's Chira Bazaar area. "Now we can buy more gold within our budget." Doh! Unintended consequences are piling up already, as people in India gleefully accumulate more gold at lower prices. And this, regarding Australia: The Perth Mint reports that retail customers are increasing purchases at a record rate even as gold slumps to a 21 month low. As the experts were proclaiming the "Death of Gold", the Perth Mint website recorded the highest activity of the year and one of the best days of the past year. Bargain prices on gold and silver have greatly increased the demand for physical gold and silver by the public. Demand for gold coins have [sic] skyrocketed with sales of Australian gold bullion coins increasing by 48% in the first quarter over the comparable prior year period. (Source) A couple of mainstream media reports linked the gold slam to increased selling by Japanese investors, those ideas turned out to be either speculative, premature, or both: As global price slumps, "Abenomics" risks drive Japan gold bugs Apr 16, 2013 (Reuters) - When he woke up to news of a collapse in gold prices, Yujiro Yamashita, 63, made his way to Tokyo's posh Ginza district to buy the precious metal for the first time in 20 years. Yamashita and other contrarian, individual Japanese investors understand that gold is a volatile investment, but say that buying the precious metal is better than the alternatives. A week ago, as the yen-denominated price neared a new peak, jewelry stores and gold merchants across Japan saw long lines of mostly older Japanese looking to cash in on unwanted jewelry and other items that they had held for years. But on Tuesday, buyers outnumbered sellers by a wide margin. At Ginza Tanaka, the headquarters shop of Tanaka Holdings, gold buyers waited for as long as three hours for a chance to complete a transaction. Nearby at Ginza SGC, a gold merchant, buyers had taken about 6 kg (13 lbs) of gold home by early afternoon on Tuesday. In one case, a 60-year-old man, who asked not to be identified, walked out of the store with 500 grams of gold for about 2.2 million yen ($22,500). Meanwhile, the Chinese and Thai, too, are rushing to buy gold as a consequence of the new, lower gold prices, with high sales volumes and shortages being widely reported. So this is a fairly large story that can be summarized in basic Econ 101 terms: Supply, demand, and prices are all interrelated. Drop prices and demand increases, which then lowers supply. In the U.S., all of the dealers I talk to are reporting huge demand and brisk buying. Silver in any form is quite hard to come by unless you want to pay premiums of 20%+ per ounce above spot price. Delivery times are 5 to 6 weeks out now - that's an unusual situation. If this recent slam was designed to scare people away from gold, it did not have that desired outcome; in fact, just the opposite. To Make Matters Worse There were numerous oddities in the timing of the gold and silver slam of the past week, and among them were two notable developments in the supply chain. Recall that the gold and silver carnage began on a Friday morning (4/12/13). The Wednesday prior to that fateful Friday morning, one wall of the Bingham Canyon mine began to shift more rapidly. So they took personnel safety precautions, moved construction equipment out of the way, and prepared for a major ground slide event. At 9:30 PM on Wednesday, that wall gave way, sloughing tens of millions of cubic meters of earth into the operating pit: Bingham Canyon produces some 400,000 ounces of gold and nearly 3 million ounces of silver on a yearly basis as byproducts of copper mining. It will be several years before the mine is back up to full operating capacity. Normally, the news of a major mine being taken off line is a bullish sign for the associated commodity, but not in this case. On that same Wednesday gold and silver both went down in price. So the market completely discounted the news. Coincidentally, also on Wednesday (4/10/13), the Chilean supreme court suspended Barrick Gold's Pascua Lama mine over a variety of environmental and social concerns, and that project got relegated to years of litigation. This is a huge mine project with probable reserves of over 18 million ounces of gold and 700 million ounces of silver. It is now completely halted and will remain so as lawyers battle things out in a process that most think will be several years long. So current and future production of gold and silver took hits last week right before the big price drops. Perhaps this is just a very strange set of related events, but the incongruity and timing cause me to lean towards what Robert Di Niro said in the spy thriller Ronin: There is no such thing as coincidence. At any rate, whatever the case may be coincidence or not, future supply of gold and silver will be lower than we thought as recently as Tuesday of last week. Something Is Burning There has been a lot of speculation about why gold was hit so hard. The theories range from it being "just one of those things" (i.e., normal market behavior) to an orchestrated attack to drive down the price of bullion. I happen to fall into that latter camp and summarized my thinking in why gold is being attacked in yesterday's report, This Gold Slam is a Massive Wealth Transfer from Our Pockets to the Banks. An important question to ask in the face of such attacks is Qui bono? Who benefits from dropping the price so dramatically and breaking faith in the precious metals as a safe haven? The Internet is swirling these days with rumors of a near inventory failure at the LBMA (London Bullion Market Association), a 'too big to fail bank' of a large sovereign country in Europe that's teetering, that needed protection against its derivative exposure. One of these could be true - perhaps all of them might be ; I honestly don't know yet. We have imperfect vision into markets these days, and these are each developments that the central powers would be doing their utmost to shield from our view. But there's certainly a lot of smoke in the air surrounding the precious metals, and as the adage goes, where there's smoke, there's fire. In Part II: Why There May Be a Lot Less Gold Than We Realize, we explore a particularly interesting possible reason for the suppression of the precious metals. A recent report issued by Sprott Asset Management calculates that the U.S. has silently exported a massive amount of its gold reserves over the past two decades. If accurate, it puts the long-term manipulation of the gold and silver markets into context. And it gives a reason for why breaking faith in the precious metals at this time would be an important objective. Click here to read Part II of this report (free executive summary; enrollment required for full access).

Fort Knox Looted of 7,000 Tons of Gold in 1973-1974 says 1981 Article! - Charleston Voice (6)

Ambush at the COMEX Corral - Darryl Robert Schoon - Survive the Crisis (8)

Gold and Silver : Post-Crash Analysis - Fabrice Drouin Ristori - GoldBroker.com (8)

Gold's "Bear Market": 4 Things Investors Should Know - Adrian Ash - Bullion Vault

The Paper Market In Gold Is Not A Real Market - The Greatest Short Squeeze In History - Egon von Greyerz - Matterhorn AM

Is Bernanke?s Worst Nightmare Just Around the Corner? - Graham Summers - Gains Pains & Capital (4)

Gold and Currency Outlook - Axel Merk - Merk Funds

Chris Martenson

Buy his book

Dr. Chris Martenson is an independent economist and author of a popular website, ChrisMartenson.com. His Crash Course video series explores the intertwining significance of the “three E’s”—the economy, energy, and environment and offers articulate, dynamic insight into the workings of our monetary system. Chris earned a PhD in neurotoxicology from Duke University, and an MBA from Cornell University. A fellow of the Post Carbon Institute, Chris’s work has appeared on PBS and been cited by the Washington Post. He is a contributor to SeekingAlpha.com. Chris is an accomplished presenter who has offered the Crash Course seminar all over the United States. The online course has been translated into several languages, and been viewed over 1.5 million times. His website offers both daily free content as well as a newsletter service for enrolled members. His goal is to help as many people understand that we are in the midst of a profound economic shift and that equally profound risks and opportunities lie in our future. For those that can see them coming, tremendous advantages exist.

Chris Martenson Archive

Website

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Why Silver is Following its 1970s Pattern?

drdamigos@eurocapital.org.uk (Dr Damigo) — Fri, 19 Apr 2013 12:28:00 +0000

by Jordan Roy Byrne - Trendsman


	The cyclical bear market in Silver is serving its purpose. Its correcting and digesting the 6-fold advance that took place in less than two and a half years. A similar correction took place in the mid 1970s that led to the parabolic move to $50. Amazingly, if you line up Silver's performance from its 1971 low to 1980 high with Silver's performance since its 2008 bottom, you'll notice strong parallels. (Note that the blue prices are rescaled). The initial bull run was stronger, lasted a few more months and that could be why the current correction is slightly deeper. Nevertheless, look at how similar the two are! Its important to note that huge moves require long periods of digestion and correction. Commodities typically encounter near vertical moves that are sprung from deeply oversold conditions or multi-year consolidations. The two initial advances on the chart are quite similar and that is a reason why the ensuing corrections are similar. Moving along, Silver is at an interesting juncture as it continues to hang above multi-year support at $26 amid persistent extreme bearish sentiment. This chart from Tiho Brkan shows that gross speculative short positions are at their highest levels in decades. The short positions are potential fuel for a sharp rebound. Furthermore, last week public opinion (an amalgamation of a handful of surveys courtesy of sentimentrader.com) reached the lowest level since at least 2004. Following its run in the early 1970s, it took Silver three and a half years to begin its next run and five years to make its next high. It has been about two years since Silver's last peak. Huge advances require quarters and years of digestion. This is how markets work. It's not manipulation or a fake market as some say. The good news is the short-term outlook is favorable. Precious metals markets have yet to put in a bottom but each new day brings us closer. While Silver won't touch $50 anytime soon (or even $40), a rebound to $35 would be quite substantial in percentage terms. Most Silver stocks would rise well over 50%. The long-term trend and fundamentals remain intact for both Silver and Gold. Day traders and reporters will tell you there is no sovereign debt bubble or threat of inflation but, as Kyle Bass recently pointed out that can change very quickly. Remember the financial crisis? Look at the charts of financial stocks. They were fine for many years and then fell off a cliff within a year. There were people who, in the middle of 2008 thought we weren't even going to have a recession! Most never learn. I suspect the major catalyst will occur when governments lose control of their own bond markets. They have to continue to print money for years and it will be a major catalyst for Gold & Silver when bond markets go the other way. This could be the catalyst for Silver eventually breaking $50 and reaching triple digits. Currently, quality gold and silver miners (mostly not in GDX or GDX) are trading well off their highs and at their lowest valuations in quite a while. Good Luck!

Jordan Roy Byrne

"Trendsman" is the proprietor of Trendsman Research, which provides financial and investment related research to private and public entities. Trendsman Research provides: a subscription based newsletter to individuals, personalized research to individuals and institutions and occasional reports available to the public. Trendsman is an affiliate member of the Market Technicians Association (MTA) and has successfully completed the CMT Program (awaiting certification) which certifies professionals in the field of technical analysis.

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The case for staying in gold

drdamigos@eurocapital.org.uk (Dr Damigo) — Tue, 26 Mar 2013 14:10:00 +0000

Falling prices shouldn’t change the metal’s role in your portfolio, say pros

By Ian Salisbury

Over the past decade investors have poured billions into exchange-traded funds that track the price of gold. Now with gold prices falling, many are yanking some of that money back out — a move investing pros say misses the whole point of owning the shiny metal in the first place.

AFP/Getty Images

Gold’s recent slump — down 4% so far this year — has turned many former gold bulls into bears. In the first two weeks of March, investors pulled $1.6 billion from gold ETFs, according to data compiled by BlackRock, the largest ETF provider. That follows outflows of more than $5.6 billion from the funds in February, the largest monthly outflow ever.

Many of these investors are simply seeking better returns: The decade-long gold rally may have stalled (or be over), but stocks are on a tear. So far this year, the Dow Jones Industrial Average has returned 11% and is hovering near an all-time high. “Some people chase momentum,” says Russ Koesterich, BlackRock’s global chief investment strategist.

But some advisers say that strategy could backfire. For starters, they point out that gold could bounce back if there’s a sudden jump in inflation, a flare-up of the European debt crisis (perhaps tied to the Cyprus crisis) or a stock-market correction at home. But more importantly, they say owning gold isn’t about buying low and selling high, but about owning an insurance policy for the long term: Investors that aren’t willing to swallow losses in good times won’t be in a position to reap the offsetting profits gold can deliver during a crisis, says Herb Morgan, chief executive of Efficient Market Advisors, an investment firm that specializes in ETFs. “Nine times out of 10 you should lose money” on gold, he says. “It’s like any other form of insurance.”

In recent years, however, gold investors have been able to have their cake and eat it, too, in large part because the financial crisis sent investors scrambling to safe havens. The SPDR Gold Shares—the oldest and largest U.S. gold ETF, with $63 billion in assets—posted gains in each of its first eight years on the market, including 2008, when it returned 3% while stocks lost more than a third of their value. An investor who bought $10,000 worth of SPDR Gold Shares in late 2004, when it first appeared, would have a stake worth nearly $34,800 today. In contrast, an investment in the S&P 500 would have grown to just $15,200.

How to invest in gold now

The price of gold has nearly doubled in five years. Although gold is currently under some pressure, there is still room for savvy investments. BullionVault CEO Paul Tustain discusses on Markets Hub. Photo: Getty Images

It wasn’t necessarily supposed to be this way. Investing in gold was once the province of speculators and conspiracy theorists, but gold ETFs came with a seductive sales pitch that broadened the customer base. Fund marketers pointed to academic studies showing that a small amount of commodities like gold can smooth returns of a stock-and-bond portfolio over time. “It’s the ultimate diversifier,” says Jason Toussaint, managing director at the World Gold Council, the gold industry trade group behind SPDR Gold Shares.

And this year’s gold slump shouldn’t alter that thesis, say advisers. After all, an investor who owned a small amount of gold alongside a larger portfolio of stocks would still see overall returns smoothed, just as advertised. But it remains to be seen whether investors will stick around when gold provides a drag, rather than a boost, to performance. “It’s easier to buy into the story when you see an asset go up every year,” says BlackRock’s Koesterich.

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IMF >> Russia raises gold holdings for 4th month

drdamigos@eurocapital.org.uk (Dr Damigo) — Tue, 26 Mar 2013 14:05:00 +0000

Russia added 6.998 tonnes of gold to its reserve reinforcing its ranking of holding the world's eighth largest official gold reserve.

The Russian Federation raised its gold reserve for a fourth straight month in February and Turkey added to its holdings for a third month, data from the International Monetary Fund showed on Tuesday.

Russia added 6.998 tonnes of gold to its reserve, which stood at 976.952 tonnes by the end of February, reinforcing its ranking of holding the world's eighth largest official gold reserve.

"The continuous increase in gold holdings of central banks, especially those in developing countries, has been giving some support to gold, which is under pressure from the improving economic outlook," said Li Ning, an analyst at Shanghai CIFCO Futures.

Gold, which has had a stellar bull run over the last 12 years, has shed more than 4 percent so far this year as indications that a global economic recovery is setting in has dented its safe-haven appeal.

Besides Russia and Turkey, Kazakhstan, Azerbaijan, Belarus, Kyrgyz Republic, Mongolia and Ukraine also bought gold for their official reserves in February.

Turkey added 5.574 tonnes to increase its gold reserve to 375.731 tonnes, much smaller than a 45.6 tonne addition in December and a 10.3 tonne increase in January, IMF data showed.

Kazakhstan boosted its gold holdings by 4.914 tonnes to 121.670 tonnes in February.

Indonesia increased gold holdings by a total of 2.799 tonnes in December and January to 75.894 tonnes.

France and Greece each added 0.031 tonnes to their gold reserves, while Czech Republic trimmed 0.218 tonnes and Canada 0.124 tonnes from their holdings respectively, the data showed.

The United States had 8,133.5 tonnes of gold in its reserves, the biggest in the world, followed by Germany's 3,391.3 tonnes, according to the IMF.

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4 VIDEOS - GOLD IN FORT KNOX

drdamigos@eurocapital.org.uk (Dr Damigo) — Sun, 27 Jan 2013 21:04:00 +0000

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GOLD PRODUCTION - A Modern Day Gold Mine

drdamigos@eurocapital.org.uk (Dr Damigo) — Fri, 25 Jan 2013 21:40:00 +0000

Professional gold mining in the 21st century is a large scale, modern industry, using advanced, clean and safe technologies. This is the story of how one of the world’s most important metals is produced.
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Germany set to repatriate gold

drdamigos@eurocapital.org.uk (Dr Damigo) — Tue, 15 Jan 2013 23:41:00 +0000

Germany looks to repatriate gold; less trust in Fed?

By Barbara Kollmeyer, MarketWatch

It seems the Bundesbank could finally be ready to bow to some longstanding public pressure and bring its foreign gold reserves home.

Germany’s Handeslblatt newspaper claimed Monday night that the Bundesbank has developed a new strategy that involves fewer gold bars flung afar. The original reason for holding its gold at the New York Federal Reserve and other central banks — in places for decade as a measure of security — no longer holds, the newspaper said.

The central bank’s press office said a news conference is planned for Wednesday morning, and the topic will be gold reserves.

German economy contracts

The German economy contracted by a larger-than-expected 0.5% in the fourth quarter of 2012. With exports slowing and the euro rising, any recovery for Germany or the rest of the euro zone in 2013 will be gradual.

The relationship between a central bank and its gold are closely watched by gold investors, since central banks hold so much of the world’s bullion supply. The Bundesbank’s expected move, and the possibility of more details, renewed questions over the size of the central bank’s holdings and what it plans to do with it -- particularly as Europe wrestles with a prolonged economic crisis.

“People have gotten a sense of how bad things could become and gold is the ultimate means of payment. The euro won’t last forever, [and] gold, for various reasons, is the anchor,” said Thorsten Polleit, Frankfurt-based chief economist at Degussa, a precious-metals firm.

What’s more, the report sparked a flurry of speculation that Germany had grown more uneasy with its U.S. counterpart, whose government is meanwhile facing a fierce fight over raising the debt ceiling.

At a time when trust in official institutions is waning, “perhaps your reserve assets are safer at home — after all, the U.S. reaches a debt ceiling in about six weeks’ time and failure to see it extended would put the U.S. and the dollar in default,” said Ross Norman, chief executive of precious-metals news and information provider Sharps Pixley, agreed the Bundesbank can’t be blamed. Read Der Spiegel on Germans fretting about their foreign gold reserves.

Lifting the veil

The public has been long demanding an audit of the German gold reserves and repatriation of those reserves, Degussa’s Polleit said. Some fuel was thrown on that fire in the last year by the financial crisis.

But the Bundesbank traditionally keeps a veil of secrecy around gold. It hasn’t had its worldwide reserves audited down to the last bar for decades, if ever, Polleit noted. So it may be a bit of a mystery just what is in the vaults of the New York Federal Reserve, which holds a 45% chunk of Germany’s gold reserves. The Bank of England and the Bank of France hold 13% and 11% each. The Bundesbank itself holds 31% of those reserves. See more on the Deutsche Bundesbank's gold holdings as per Dec. 31

Deutsche Bundesbank Enlarge Image

By country, Germany has the largest gold holdings behind the U.S.

“In recent years it’s been quite popular to swap gold stocks for holding government bonds. ... There’s no exact data but some fear gold could have been lent out. It might still be there in physical terms but its kind of hard to decide who is the actual owner,” said Polleit. He said the Bundesbank has said some bars might have been checked, but not the total stock. Read what the Bundesbank had to say about auditing last October.

Still, Polleit isn’t expecting some “aha” moment from the Bundesbank to have any effect on physical prices. He expects gold will hit $2,070 an ounce this year on the view that governments are printing ever great amounts of money.

On Tuesday, gold futures traded above $1,680 an ounce on the Comex division of the New York Mercantile Exchange, poised to finish at a nearly two-week high. See: Gold, platinum near par.

Rationalizing the move

The central bank’s moves also raised the notion that trust was deteriorating among the world’s big central banks, even between close allies.

While it’s “one thing for a ‘crazy, lunatic’ dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most,” wrote financial blog ZeroHedge. Read article on ZeroHedge

In 2011, Venezuela’s combative president Hugo Chavez ordered the repatriation of 85% of the country’s gold reserves, mostly from European central banks, a move Chavez said would protect his nation’s bullion in times of economic turbulence. Read more on Chavez's gold repatriation.

PIMCO founder Bill Gross wondered, over Twitter Tuesday, whether a possible move to repatriate gold by the Bundesbank might be a sign “central banks don’t trust each.” See Tell Blog on Gross' Tweet about gold.

The notion that the Federal Reserve can’t be trusted to protect a nation’s wealth is a familiar one in the gold market, where some buyers have sought an asset protected from what they view as dangerous monetary policy that will eventually impale the U.S. dollar .

The Bundesbank bringing its gold home isn’t a negative for the market -- just the contrary, said Carsten Fritsch, senior commodity analyst at Commerzbank AG.

“If at all, than it shows that confidence in gold is rising,” he said. “Gold is the currency of last resort. It is therefore better to have it at home.”

Barbara Kollmeyer is an editor for MarketWatch in Madrid. Follow her on Twitter @bkollmeyer.

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SILVER 2013 - 20 Reasons To Consider Silver For The Long Term

drdamigos@eurocapital.org.uk (Dr Damigo) — Thu, 10 Jan 2013 08:25:00 +0000

by Mark Thomas

I believe that silver could go to $60 per ounce from today's price of just $30 by the end of 2014. That would be double from today's current prices in just a little over two years. I also believe silver will be the best single investment of this decade. The following article is focused on why I think you should seriously consider having a significant percentage of your investment portfolio in silver.
Many gold investors deride silver as the "poor man's gold" because of its low relative price to gold. They also don't like the fact that because it is used primarily as an industrial metal it can be negatively affected by a cyclical downturn in the economy. This is opposite of gold which is viewed almost entirely as a precious metal. Many years ago, the silver market was so oversupplied because there were huge artificial inventories of silver. This was because the US took currency (coins) out of circulation due to its physical silver content. Because of this artificial situation, huge surpluses hung over the market until these excess inventories were depleted. This led to silver prices crashing as low as $2 and then traded around $5 for years. Because silver had so decoupled from the price of gold during this period, it began to be thought of as just another industrial metal and not a precious metal.
There are still skeptics who think of silver as just another industrial metal. However after a 600% rise in price from $5 to $30 since 2003, it has begun again to be viewed as a precious metal. I think that silver has only completed about fifty percent of that process. As this transformation continues there will be additional significant moves higher in price. That will attract more investors to silver again until it once again retains its true status as a precious metal.

The amount of silver consumed annually and bought for investment exceeds currently exceeds total annual mining output and has for years. That gap has been filled by sellers willing to sell from existing inventories and as prices rise. As time passes this will naturally push prices significantly higher until this fundamental imbalance reaches a true equilibrium price where supply is closer to demand.
Both industrial and investment demand for silver is growing in excess of the annual increase in mining production growth. The available inventory is low and will get even tighter over time. These two factors will lead to a continued tighter supply-demand situation going forward.
The lower price of silver at $32 appeals more broadly to small investors relative to more expensive gold at $1705, especially if gold prices continue to rise.
Most silver is not found in mining sites in any significant concentrated form. It is usually chemically bound to other metals; much of it is actually the byproduct of mining for lead, copper, etc. In the last few decades this made it less attractive from a profitability standpoint to invest in a pure silver mine. Now prices have finally recovered enough to make new projects feasible again. So there is new investment in the sector but it is a lengthy multi-year process to bring on significant new production.
The last time silver was found in huge concentrations or veins that dramatically affected the amount available and therefore significantly lowered prices was in the Comstock Lode in Nevada in the late 1800s. The Comstock Lode produced tons of ore that was very pure with concentrations of 25-50% silver. Silver mines today have much lower concentrations, usually always less than two ounces per ton of refined ore.
Silver is the most conductive metal on earth. Gold is also conductive but is prohibitively expensive due to its much higher price for most industrial uses compared to silver.
Silver is an industrial metal with over 10,000 commercial applications. Because it is one of the best electrical and thermal conductors, that makes it ideal for electrical uses such as switches, multi-layer ceramic capacitors, conductive adhesives, and contacts. It is used in some brazing and soldering as well. Silver is also used in solar cells, heated automobile wind shields, DVDs and some mirrors.
Silver is an essential element in the electronic gadgets that are a growing part of our digital age. It is in every cell phone, smart phone, tablet, computer keyboard, solar cells and every radio frequency if ID device (RFID). This makes it an essential element going forward as the world becomes more addicted to gadgets. The growth and rising living standards of people in the emerging economies will drive long-term growth of new customers that will demand more and more electronic gadgets.
Silver's industrial demand should increase 60% to 666 million ounces per year by 2016 from 487 million ounces in 2010. Current annual mine production is only around 700 million ounces per year growing a few percent annually.
Of a total of fifty billion ounces of silver that have been mined in history, only two ounces (estimate) or 5% remain in above ground inventories available to be bought and sold. This is due to silver being used up in industrial applications in very small quantities, which makes it unprofitable to recycle at today's prices. A lot of silver is used in minute quantities in industrial products which are used up and discarded without being recycled.
This is unlike gold where five billion ounces have been mined and two and half billion ounces (estimate) are still available in all inventory. Since gold is hardly ever discarded because of its very high price, used mainly in jewelry or for investment purposes, the total inventory is so much larger than silver.
The supply demand equilibrium in silver is extremely tight. There is now less than one year of inventory of silver, compared to over eleven years of inventory in the 1970s.
Exchange Traded Funds (mainly SLV, SGOL, PSLV and CEF) have opened precious metals investing in silver to millions of investors around the globe. When an investor makes net new purchases, the ETF purchases physical silver and removes it from the available market, which increases the scarcity of available supply. This is the first time many investors worldwide are not required to actually buy physical silver bullion and coins and store it themselves. Now they have an investment vehicle that offers liquidity and ease of trading to get exposure to precious metals.
Silver also has many medicinal applications. Roman soldiers long ago noticed that if water is kept in silver cups, it wouldn't become stagnant. Today silver in "colloidal" form is used as a broad spectrum antibiotic. It can be used in bandages to treat burn victim's wounds and also in colloidal form, actually swallowed to target microorganisms in one's gut. It is also used in water purification systems.
The US Dollar has lost 31% of its purchasing power just since 2000. The dollar has lost a staggering 82% of its value since the US was taken off the gold standard in 1971. Since the Federal Reserve was created in 1913, the US dollar has lost 95.6% of its purchasing power. When you compare the historical appreciation and more importantly, the retention of real purchasing power of precious metals versus the dollar in those same time frames, those facts alone should convince you that significant exposure in precious metals is necessary to protect your wealth. The primary and overarching reason you should have a significant percentage of your investment assets in precious metals is simple: to protect the real purchasing power of your accumulated wealth. In this age of governments abusing their privilege of excessively printing currency, on a magnitude and scale not seen for decades, only gold and silver can protect and actually grow your wealth.
Gold and silver are such unique elements with so many uncommon properties. Therefore the chance of a gold or silver substitute being developed is almost impossible. It hasn't happened in thousands of years and it probably never will. That is what makes them exclusive; they can't be printed, manufactured or copied. They can only be mined, purchased from a willing seller of the world's existing inventory and from recycling.
Unlike an account at a bank, a dollar bill or a bond, these are all both an asset and liability to counterparty. This includes every other financial instrument and derivative man has created in history. Precious metals are the only asset class with no counterparty risk if you have physical or very secure possession. They will always retain some value and can't go to zero like any other investment.
The total amount of silver available to trade in the physical silver market is only about $70 billion versus the total gold market which now exceeds $4.3 trillion. As you can see from these numbers, the total market size of the silver market is only 1.6% of the size of the entire gold market. This lack of liquidity and use of extreme leverage in its respective futures market produces wild volatility in price fluctuations of silver.
The total gold market is sixty one times the size of the silver market, yet as interest in silver increases this sets up a situation where prices could soar higher.
Since World War II, the US government has sold over five billion ounces of silver and currently has no reported stores. Now that vast stockpiles are gone, the supply demand equation has changed dramatically.

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2013 - Silver to outperform

drdamigos@eurocapital.org.uk (Dr Damigo) — Wed, 09 Jan 2013 20:43:00 +0000

Rebound in global economy to boost silver price rise

Dilip Kumar Jha

Silver is set to outperform other metals in 2013 amid expectations of a rebound in industrial activities globally. For decades, investors have perceived gold as the best investment avenue. But, 2012 changed the perception due to the metal’s price behavior.
With leaders projecting a rebound in global economy with 3.4% growth this year versus 3.1% last year, investors have now started focusing on silver as an alternative asset class.
The change is evident in returns that the metal offered in 2012. Against a net return of 13.04% in gold, investors obtained 13.46% profit in the year under review. However, returns in silver would surpass all comparable metals in this category with a staggering 34.8% in 2013 following the optimism in global economic growth.
“For decades, investors have perceived gold as the best investment available to them. However, movement in the bullion market in 2012 and 2011 has led many investors to change their focus from the yellow metal to white metal. Consequently, the silver has the potential to outperform with 34.8% returns versus around 13% of other metals in 2013,” said Sugandha Sachdeva, Head (metals, energy and currency), Religare Retail Research.
Around 67% of the global silver production finds applications in industries especially for mobile, photography and electrical sectors. Jewellery and investment, however, contributes to around 28%.
Both, gold and silver, meanwhile, are set to hit the record high in 2013. Gold could hit a record high in 2013 due to soft monetary policy and less tail risk related to a breakup of the Eurozone. Economists are looking for a rebound in global economic growth to 3.4% next year from 3.1% in 2012. Moving ahead, one major headwind related to weaker Indian demand, should abate next year as buyers in the country get accustomed to higher prices from increased duties on gold imports and weak rupee. Further, an expected economic upturn in China should mean more demand from this nation, while global central banks are likely to remain net buyers.
Technically, gold may hit the benchmark Rs 35000 per 10 gms which would open up a way for flawless journey for yellow metal towards Rs 38000 per 10 gms. The strong level of $1920 an oz may offer strong resistance for gold at COMEX and prices may temporarily exceed $2,000 an oz in 2013. Similarly, silver is set to hit Rs 65,000 a kg to get a very strong resistance on the immediate higher side. Once prices close and sustain above the same, significant upside could be expected till Rs 70,000-72,000 kg or even more in the coming month proportionately in global market to around $35.5 an oz.

Shining metal
Commodity (Rs/kg)	2012#			2013#
	Open	Close	Returns (%)	Forecast	Returns (%)
Gold (Rs/10gm)	27300	30859	13.04	34500	11.8
Silver	51000	57864	13.46	78000	34.8
Aluminium	107.1	113.1	5.6	134	8.51
Copper	405.95	443.75	9.31	490	10.61
Nickel	992.5	947.1	(-)4.5	1100	16.14
Lead	107.75	127.35	18.2	150	17.79
Zinc	98.3	113.1	15.05	130	14.94

The US based trade group the Silver Institute estimates silver usage in industrial applications to gain nearly 7% to 484 million oz in 2013 and an additional 6% to a record 511.6 million oz in 2014 as forecast by the global consultancy GFMS.
Meanwhile, BNP Paribas has forecast gold and silver to average $1865 an oz and $39.05 an oz followed by Commerzbank at $1950 an oz and $40 an oz respectively.
Prithviraj Kothari, Director, RiddiSiddhi Bullion Ltd, a Mumbai-based bullion dealer, said, “During the middle of 2012 many investors lost faith in gold believing the yellow metal in a bubble stage and was no longer a safe haven asset. Investors shifted their attention to other assets classes.
But, gold started gaining importance once again. Consequently, gold will perform better this year than 2012.”There are positive sentiments in the market as far as economic growth is concerned. GDP growth will also be high. A better economy will bring a rise in demand worldwide. In this case demand for silver will also rise, given its wide use in various industrial applications. Kothari forecast, silver to hit Rs 80,000 a kg level this year.
In contrast, a majority of large base metals are suffering oversupply and hence, prices are likely to remain under pressure.

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2013 - What will gold do this year?

drdamigos@eurocapital.org.uk (Dr Damigo) — Wed, 09 Jan 2013 19:00:00 +0000

Jeff Clark, Casey Research

Why it is a must-own asset despite its 500+% advance since 2001

As we turn the calendar over, there are probably two dominant questions on the minds of most precious-metals investors: Will gold and silver have a better year than the last two? And will gold stocks finally break out of their funk?

2012 was an interesting year for our favourite metal. On one hand, gold was up only single-digit percentages for the second consecutive year: 8.3%, after rising just 9.1% in 2011. It was also outperformed by the S&P 500 Index, though this was the first time since 2004 and only the third since 1999. On the other hand, the price has now risen 12 consecutive years, overshadowing most other bull markets in modern history.

Gold stocks as a group were down for the second consecutive year. GDX (Gold Miners ETF) fell 9.8%, after dropping 16.3% in 2011. GDXJ (Junior Gold Miners ETF) lost 19.9% last year, after sinking 38% in 2011.

Here's a snapshot of our industry for 2012, along with how it compares to other asset classes.

Perhaps a more constructive way to view things is from a longer-term perspective. How have these same sectors performed since the 2008 financial crisis?

Over the past four years, gold and silver have provided the best returns among major asset classes. Gold producers, meanwhile, have collectively underperformed the metal, while the juniors as a whole have lost money.

Some claim that gold is in a bubble, because it has advanced so much. "It's already gone up a lot," they say. The reality is, however, that this bull market is small compared to most others in modern history.

Over the past 40+ years, our bull market would be among the smallest of the major bull markets listed, in terms of percent gains. It's about a quarter of what the 1970s bull market returned. A good number of them also lasted longer than ours. Based strictly on percentages, I'd bet that ours isn't over.

Further, history shows that bull markets tend to end in a climactic blow-off top. For example, gold rose 120% in 1979. Our best year was 32% in 2007. Hardly meteoric, and contrary to how the typical bull market culminates.

And this is all without getting into all the fundamental reasons to continue buying gold, which we've gone into frequently in these Dispatches.

So what does the gold price do in 2013?

I think that's the wrong question. Since gold is the best and longest-lasting way to store wealth ever adopted in history, and not technically an investment, the more accurate query is: will gold continue to protect my purchasing power?

Worded that way, we begin to see gold its proper light: real money. If we're holding gold as money, the question then becomes: how much is our purchasing power in dollars or other alternatives to gold likely to decrease this year? And in future years?

If there's one thing we're certain of, it's that the current path of debt accumulation, deficit spending, and money printing will continue to devalue dollars and other un-backed currencies – and probably at an accelerating speed in the not-too-distant future. That makes gold a must-own asset despite its 500+% advance since 2001.

I've read some analysts claim that these things are already factored into the gold price. That's debatable, but even if they're right, what's not priced in are the delayed and indirect consequences from all those actions...

What fallout have we experienced from our growing pile of national debt? The world economy is still functioning and some say improving.
What spillover has occurred from our government spending more than it takes in? My retired parents still get their Social Security checks every month.
Is there any negative backlash from printing all this money? Most would point to rising stock-market and real-estate prices, both positive things.

The problem is that over-indebtedness, overspending, and printing currency is not all candy, lollipops, and romantic horseback rides on the beach. It's not free of consequences. We have yet to experience the full ramifications of how these actions are undermining our currency. And that won't be a fun or pain-free process.

In this month's issue of BIG GOLD, due out tomorrow, we interview 19 noted economists, gold analysts, best-selling authors, fund managers, and senior Casey Research staff – and not one of them believes the fallout from the reckless monetary policies of governments around the world has peaked. Most believe the worst is yet to come, with varying degrees of after effects. And they all recommend continuing to buy gold.

As a free preview, I'll mention that most of the experts I surveyed believe that the coming fallout will take an inflationary form. All are concerned. Even those who think deflation is more likely urge investors to hold gold as one of the best ways to protect themselves for what lies ahead.

They also point out that while gold stocks have been disappointing, they represent an incredible bargain at present, and that while they could get cheaper, the potential upside far outweighs the downside at this point. I'm also happy to point out that while GDX dropped 9.8% last year, the BIG GOLD portfolio was up 7.8% – and that's without averaging down, which many subscribers took advantage of. I'm convinced that our portfolio holds the best gold producers, and most of our experts name their BIG GOLD favorites.

In the hot-off-the-presses International Speculator, Casey Research Senior Metals Investment Strategist Louis James names a stock currently on the deep-discount rack that he's convinced won't stay there for long. The first two sentences from his introduction were very clear and direct, and spurred me to log on to my brokerage account and take action.

So, what will gold do this year and beyond? Whatever crazy and unpredictable twists and turns history takes in the future, gold will still be gold, and the best way yet devised to safeguard wealth.

The ultimate question then is: what standard of living would you like to maintain?

Most people would say: "As high as I can!" That's why we continue to buy gold. And based on our research, lessons from history, and some of the most successful investors in the sector, we have a long way to go in this gold bull market.

ABOUT THE AUTHOR

Jeff Clark, Casey Research

Editor: Casey's Gold & Resource Report and Explorers' League

Having worked on his family’s gold claims in California and Arizona, as well as a mine in a place to remain nameless, these days Jeff Clark focuses on following some of the most successful miners in the world in the Explorers’ League. Reporting on the Explorers’ League honorees (or short, “XL-ers”) is not a job for Jeff but rather a source of pride and enjoyment. Every month, he reports the inside stories of what makes the XL-ers so successful.

Jeff’s research and writing skills are also utilized in his role as editor and one of the primary writers of Casey's Gold & Resource Report. Whether it is researching new companies to recommend, analyzing the big trend in gold, or looking for other safe and profitable ways to capitalize on the bull market, Jeff is devoted to making Casey's Gold & Resource Report the best precious metals newsletter for the prudent investor. He coordinates the efforts among the research and writing team, ensuring that whatever is happening in the gold and silver market doesn’t escape coverage.

Visit >> www.amp-gold.com

Silver Shorts Run for Cover

drdamigos@eurocapital.org.uk (Dr Damigo) — Wed, 02 Jan 2013 14:50:00 +0000

Silver Shorts Crisis In 2013?

Patrick MontesDeOca

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AG, AGQ, PSLV, SLV, GLD, GDX, PHYS over the next 72 hours. (More...)

"Gold is hard, apolitical, and global money, supported by an unparalleled history and tradition. That is the asset I want to own when our assorted finance PhDs in the central banks, the bureaucrats in the Treasuries and Ministries of Finance, and our sociopathic welfare politicians have maneuvered the system to the edge of the abyss. Which is now."

By Detlev Schlichter.
In this report, we are going to take a very close look at COT report for the silver market as of December 10, 2012. The Commitments of Traders (COT) reports provide a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.
Silver
While there is a large stock of gold that can theoretically become available at higher prices, the same cannot be said for silver. We shall look at the position of the U.S. banks first. The first silver chart shows that even though silver is trading well below its 2011 highs, U.S. banks' net shorts are substantially higher than might be expected. The long figure is down to only 625 contracts, while the shorts are 40,198, so these less-than-four-banks that reported have a net short exposure of nearly 200,000,000 ounces, or twice the estimated annual supply of silver available to investors after industrial demand is allowed for.
Courtesy of Finance And Economics

The next chart is of Non-U.S. banks' net shorts, which tells a very different story. From October 2011, these banks increased their short positions, with a sudden jump between August and October, before sharply reducing their net positions to 44,707 contracts this month. It appears that some of the shorts have ended up on the U.S. banks' books, pushing their shorts to uncomfortable levels as shown in the first chart.
Courtesy of Finance And Economics

The final chart shows the non-U.S. banks' net shorts. Unlike their exposure to gold, these banks are in the same deep trouble as the U.S. banks, having made the mistake of turning a broadly level book as recently as the August BPR into a record net short position on the August-October price rise. This is a vicious bear squeeze, which added to the U.S. banks' position, amounts to a total short of 290,000,000 ounces. This figure compares with net shorts of only 120,000,000 ounces when the price was successfully taken down from its all-time highs early last year.
Courtesy of Finance And Economics

Conclusion
The silver does not exist to cover these short positions, and it will take very little further buying to set off a crisis in this important market. In the case of gold, there have always been central banks with physical bullion available to ease market shortages, but so far as we are aware, the strategic silver stockpiles of previous decades are exhausted. There is therefore no price at which these shorts can be closed.
Bank positions in both silver and gold seem to have been adversely affected by "events unknown" from the August BPR onwards. All attempts by the banking community to regain control of these important markets appear to have failed.
Since the date of the latest BPR (December 4), there have been three serious attempts to reduce these short positions and each time the same $32.60 level has held firm, until the market came down to the $30's recently. This suggests that a buyer or buyers larger than the banks are prepared to take them on by buying the dips just under $30. This price action supports anecdotal evidence that physical bullion in important markets such as London is in short supply. These levels also completes a Golden Ratio Fibonacci Retracement.
One of the most useful methods for trading the silver markets is through the identification of reoccurring price patterns, and using the Fibonacci ruler is the simplest way of identifying one of our most powerful reoccurring price patterns, known as the Fibonacci Retracement.
One such retracement level that we as technical analysts watch for, more than any other level, is the 61.8% level. This level was accomplished on December 20, 2012 at $29.67.
On this evidence, and assuming the trend continues, there will shortly come a time where NYMEX will be forced to declare force majeure in this market, which they can do under their rule book. The consequences of this extreme action could well be destabilizing not only for the price and demand for silver but also disruptive for gold.
Therefore, we must add the breakdown of precious metals markets to the list of systemic dangers we face in the New Year.

Additional disclosure: Additional disclosure: *Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.

Visit >> www.amp-gold.com

Silver Outlook 2013

drdamigos@eurocapital.org.uk (Dr Damigo) — Wed, 02 Jan 2013 14:41:00 +0000

Silver Outlook 2013: Industrial Demand the Wild Card in an Investment-driven Market

For nearly a decade, rising investment demand for silver — from coins to futures to exchange-traded funds — has been the primary driver behind a bull run that has taken silver prices from a meager average of $4.85/oz to highs not seen in 30 years.
Since the 2008 crash, investors have counted on continued central bank quantitative easing measures to devalue global currencies and push gold and silver prices higher. Now, many analysts are once again looking to massive liquidity expansion and the resulting currency devaluation to drive safe-haven investment in precious metals.
Silver guru David Morgan said he expects investment demand growth to continue in 2013 for two reasons:

Ongoing economic uncertainty will push big-money investors and financial institutions toward hard assets like precious metals, driving up the cost of gold.
In the face of rising gold prices, retail investors will be drawn to silver’s relative affordability.

Morgan is confident that silver will hit $50 an ounce in 2013.
Industrial demand a factor for silver in 2013
The silver market’s historical proclivity for wide upswings and even wider downward spirals has earned it the moniker “the Devil’s metal.” At the start of 2012, silver investors were warned to expect more of the same. Silver is a much smaller market compared to gold; that and its dual nature as both a precious and industrial metal are responsible for most of the white metal’s volatile and unpredictable price performance.
Silver’s stellar performance in the first quarter of 2012 gave hope to many a silver bug that the precious metal was on track to reach its record high of $50 an ounce for a second year in a row.
But industrial demand fell by about 6 percent for the year and the decline took some support out of spot prices. Silver barely broke the $35-an-ounce range during a short seasonal rally in the fall. In the last quarter of 2012, silver has lived up to its reputation, with 100-day historical volatility nearly twice as high as that of gold, as Silver Investing News reported Friday. That has left silver fighting to stay above $30 an ounce.
In 2013, silver’s industrial demand side, which accounts for well over half of all silver demand, may continue to be the wild card in price performance for the white metal. Given that global economic uncertainty is expected to carry over from last year, Barclays (LSE:BARC) has said that in 2013 silver will most likely retain its position as the “most volatile” amongst metals in terms of “price action.”
If the financial crisis in Europe worsens and Washington fails to prevent the US from falling off the proverbial fiscal cliff, economic growth could slow, meaning that industrial demand for silver will suffer. Such a reality could have a far greater impact on spot prices given that the market is already oversupplied.
However, analysts are banking on improved economic growth in China and continued strength in emerging economies to support the global economic recovery going forward. Bank of America (NYSE:BAC) analysts have forecast an average of 3.2 percent in global economic growth in 2013.
The new year brings the possibility of modest growth in silver industrial demand if the global economic recovery continues. A recent Thomson Reuters GFMS report shows that industrial demand for silver will gain 6.7 percent in 2013 and 6 percent in 2014; a much-needed turnaround from last year’s losses and a boon to silver prices if the other side of the coin, investment demand, proves strong in 2013.
2013 average silver price forecasts
Analyst outlooks for the average silver price in 2012 — ranging from $30/oz to $52/oz — revealed just how tricky it can be to predict the metal’s performance, and 2013 is no different. Below are a selection of forecasts for silver’s average price performance in the new year.
CPM Group $28.70/oz
Barclays $32.50/oz
Societe Generale (EPA:GLE) $34/oz
Morgan Stanley (NYSE:MS) $35/oz
UBS (NYSE:UBS) $36.80/oz
BNP Paribas (EPA:BNP) $39.05/oz
Commerzbank (ETR:CBK) $40/oz
TD Securities $40.52/oz
Deutsche Bank (NYSE:DB) $44/oz

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

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Gold Could Hit New All-Time Highs In 2013

drdamigos@eurocapital.org.uk (Dr Damigo) — Wed, 02 Jan 2013 13:29:00 +0000

By Gregor Horvat

Gold prices remains in uptrend after break through red resistance line connected from all-time highs. This break looks very similar to the one that occurred in 2009 when gold was trading around $900 per ounce. In fact, from an Elliott Wave perspective recent sideways price action from August 2011 high was slow, choppy and overlapping, so we believe it represents wave IV that put wave V in play for 2013.

For more details on gold technical outlook please review our video below, recorded on December 21st .

gold

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Gold & Silver in 2013

drdamigos@eurocapital.org.uk (Dr Damigo) — Wed, 02 Jan 2013 13:26:00 +0000

Gold in 2013: climb, consolidate or collapse?

Author: Lawrence Williams|

LONDON (Mineweb) -

Fundamentals seem to favour stronger gold and silver prices, for now.

Yes – its annual stick your neck out time for precious metals commentators as we try and foretell what will happen in the markets over the coming year – and precious metals price forecasting is an invidious business.
Once you go on record with a prediction it’s there for all to see – and, if you’re unlucky, to refer back to should your crystal ball prove to be wildly incorrect.
So, firstly, what is this writer’s track record in predicting the gold price? Well, in 2012 not great, although far less inaccurate than most.
My prediction for the year-end gold price was $1875 - well above the final London close for the year of $1664, indeed a little more than $200 (or 12%) out.
Perhaps not too bad, when one considers that in January, $2,000 was a fairly common year-end target and even the more conservative analysts were mostly predicting better things for the gold price.
For 2011, I was also rather over-optimistic with a year-end price prediction of $1760 against a final London close of $1574, despite gold soaring to well above this predicted level earlier in the year. Timing is everything in the gold price prediction game. This was 10.6% above the final figure – and even so, far closer than many were predicting.
Now if we go back to 2010, I managed to come within $34 of the year-end price of $1410 – this time on the conservative side and only 2.4% out.

So, what about 2013?

The global economic price drivers which have brought the yellow metal to where it is today are virtually all still in place.
Indeed, some parts of the global economy are remain pretty dire and there’s likely to plenty of bad news still ahead which should drive the gold price higher.
However, in recent months we have seen some strange market activity which defies normal trading logic. Activity which suggests the gold market (and the silver one too) are open to manipulative abuse through huge amounts of paper metal being dumped instantaneously in what looks to be a concerted effort to keep the price from rising – or indeed to force it lower.
It may just be that some institutions with enormous pockets are using high frequency trading to drive the price down, taking weak holders out of the market to then buy back at lower prices and make vast profits when gold does eventually move to a higher level. Others attribute more sinister motives to these sales - see Sinclair incandescent - biggest manipulative play in gold ever as an example of one such interpretation of what has been seen as the most recent take-down in the gold price.
While I personally discount the likelihood of a major gold price crash during the current year, there are obviously powerful forces at play which seem to cause the metal price to defy logic.
Virtually all the fundamental indicators suggest that the gold price should increase, and increase strongly in 2013.
On the demand side, Gold and silver coin sales and ETF investment remains at an extremely high level despite the recent gold market shenanigans. Central Banks are continuing to buy gold at significant levels, while Asian markets continue to see a high rate of gold purchases and there is very strong anecdotal suggestion that China, in particular, is substantially increasing its own gold reserves without accounting for the rise yet in its ‘official’ figure.
And this doesn’t even take into account continuing economic turmoil globally with the fear that, at some stage, all the money being pumped into the system by Central Banks will lead to rapidly rising inflation – which tends to be positive for gold, at least in people’s minds.
On the supply side, mined output of gold is at best flat, and will probably be lower this year than last when the final figures are tallied, and insufficient new resources to move the trend in an upwards direction are being found, while scrap supplies appear to be running at lower levels than they have been of late.
Thus, with demand from Asia (including gold purchasing powerhouses India and China) and from Central Banks combined expected to exceed around 2,000 tonnes in 2013 – close to 75% of global mine supply, the supply/demand balance will likely remain tight.
From a chart point of view, the recent consolidation pattern has basically mirrored that of 2008 and 2006 (and perhaps to a lesser extent 2010). True, the latest consolidation appears to be longer lived, and more extreme, than previous ones, but that is largely a function of the higher price now prevailing. In each previous case the gold price has seen a 1-2 year uptick from the time the consolidation ended – will 2013 see the same again?
Returning to the possibility of a sustained gold price plunge, any serious reduction in the price will drive marginal mines out of business (and there are an increasing number of these as grades continue to fall and costs rise) and delay, or kill altogether, many new mining projects which need current price levels, or higher, to come to fruition.
Thus if the price should fall further the likelihood is that the resultant supply deficit would see a rapid return to higher prices before long.

So where does that leave the gold price in 2013?

Logically, on fundamentals, it should probably move subtantially higher with the long awaited $2,000 in prospect. However the interventions in the market may well continue and no big upwards spurt is likely until the ‘illogical’ dumping of high volumes of paper gold either ceases, or is negated by some exterior piece of news which more than counteracts the market manipulation.
This could be a break-up of the Eurozone – which seems increasingly unlikely given Mario Draghi’s stance on this – war in the Middle East, or perhaps even more seriously over the disputed uninhabited islands bringing China and Japan into conflict, something which could escalate dramatically, likely involving the U.S.
Or perhaps China may announce that it has indeed been building its gold reserves and that these now total 2,000 tonnes or some other such figure, the news of which could put a sharp poker under the gold price.
But, perhaps more likely, none of the above will actually happen in 2013. The manipulators on COMEX could allow the price to rise, not dramatically, as it seems they are in control for the time being.
However, even a modest 10% rise in price will see gold breach what could be a major psychological level of $1800 and if this should happen we could see a rapid rise back to the $1900 level – possibly even a new high developing – but again this could provoke major market intervention bringing the price back sharply as happened in 2011 when the price rise seen then was perhaps more rapid that the markets would accept.
Thus the writer’s personal prediction is for gold to end 2013 at around $1830 – in effect a 10% rise - in keeping with gold’s overall upwards performance year on year. Not as big an advance as seen in some prior years, but higher than the 4% rise for 2012.

What about silver?

For the moment, silver price advances are tied fairly closely to gold, tending to rise faster on the upside and fall further on the downside.
The silver market is also more prone to manipulation by entities with big pockets than gold given its much smaller size, which adds another negative factor into the equation.
However, any silver price prediction has to take the gold price into account, and also the gold:silver ratio, which currently sits at 55. A rising gold price does suggest a falling gold:silver ratio given silver’s gtreater volatility. On this basis the prediction is for a year-end gold:silver ratio of 52 and a silver price of $35.
Looking longer term though, at some stage some strong gold-boosting event or other will likely occur and the COMEX manipulation may well cease until a little stability returns - This could well see gold rise to around $2500 and silver to over $50 within the next two to three years – and continue their overall upwards path thereafter.
When I started writing for, and then managing, Mineweb, onlya little over 6 years ago in September 2006, the gold price was around $600 and predictions of $1,000 gold seemed out of sight and far fetched and were treated by many analysts with scorn. Silver was at $12 having seen a 30% increase already that year. Investing in gold and silver at that time would thus have seen great gains.
Again, if one looks at the chart above the rate of price increase, as shown by the steepness of the graph, has accelerated as the global economy has been seen to deteriorate. Within the next two to three years $2,000, $2,500 or even higher looks as though it could yet be on the cards. Thus once the current consolidation is behind us the likelihood would appear to be that the higher rate of increase will return – perhaps not this coming year, but almost certainly through the remainder of the decade. The gold bull run likely looks to have a way to go yet.

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Gold & Silver >> 2013 MARKET FORCES AT WORK

drdamigos@eurocapital.org.uk (Dr Damigo) — Tue, 01 Jan 2013 12:10:00 +0000

Gold And Silver Very Under-Rated Opposing Forces Into 2013

By: Michael_Noonan

It is impossible not to read some source, informed or otherwise, touting the “fact” that the price of gold and silver will be [insert whatever amount you wish, here], “in the coming months”, or safer, “in the next year or two,” etc. Yet, the market does not echo those almost universally held sentiments.
Why not?
Because that is exactly what they are, sentiments. When it comes to sentiments or opinions, regardless of how close to source or how well reasoned, the market does not care. One of the better “resolutions” one can make going into 2013 and beyond it to follow the market’s lead, stop trying to lead it, waiting for it to catch up to your trading acumen.

But what about the shortages in silver production v demand? What about the overly re-re-hypothecated gold leases from central banks that cannot possibly cover actual demands for gold? What about the possibility that all of Germany’s [and other countries?] gold is gone and so much of it is being transferred to the East? What about [insert whatever issue you wish discussed, here]?
Yes, well what about it! That information is and has been known for quite some time, so it is already “priced into the market.” It does not matter how well-informed your source[s] is. It does not matter how accurate the figures are for available supply v demand. The market is all knowing, and it is ahead of you, and it is responding to forces about which you are not aware, hidden deals, as an example.
It does not matter how much gold there is, or isn’t. It does not matter where the gold is, or isn’t, the market is telling you what you all you need to know.
Everything finds its way into the market, and if you would just ignore all else and follow the ultimate known fact, that being the current price of anything, then you have the answer right in front of you. The problem is, too many cannot reconcile the current price of gold and silver relative to their expectations. [From the buy side.]
John Keats would have made an excellent technical analyst, for he excelled at drawing out the paradoxical nature of things, leaving us with a few of his most famous lines that apply to the above:
‘Beauty is Truth, Truth Beauty’ — that is all Ye know of earth, and all ye need to know. From ‘Ode On A Grecian Urn’
This is how we see charts. Everything you need to know is contained within them because they are based on truth. What truth? The ultimate decisions to buy or sell made by the collective forces of the marketplace. Anything else that does not get translated directly in the market is simply an opinion, of no factual value because the market only recognizes actual transactions.
That is the truth and the beauty of the markets. They provide you factual commitments, unadorned by uncommitted interpretive opinions. That is all ye need to know on earth. Learn to listen to what the market is saying, and not what others are saying about the market.
This is not to say that markets cannot be manipulated and factors grossly distorted, for even if they are, those manipulation and distortions are what is reflected in current princes, like it or not.
Most who speculate in the markets, to the extent they rely upon charts, look at daily or intra day time frames. Smart money, what we call the “controlling forces” of a market, use higher time frames, for they are not concerned with day-to-day activity. Their positions and influence necessitate that they move over a more extended period of time, and one can get a greater sense of their intent from the higher time frames.
When we talk about collective forces of the marketplace, it includes the most well-informed insiders, central bankers, the largest dealers, with availability to information and research outsiders may never know or learn about, until after the fact, all the way down to investors, fundamentalists, speculators, even the ephemeral day-traders. What they all have in common is that they are the market, once they make a decision to execute a buy/sell that influences and determines the price at any given point in time. Those executed decisions, regardless of how well or ill-informed, become market facts that comprise fluctuations, and they show up as the high, low, and close on a chart for any chosen time frame.
Despite the relentless calls for gold and silver “taking off,” which they have not, of late, the elephants in the room, governments, central bankers and major brokers, plus exchanges, have been vastly under-rated in their ability to keep the prices of gold and silver suppressed as much as they have. They are not about to throw in the towel and give up their Wizard of Oz controls. Ultimately, they are doomed to fail, but when does “ultimately” kick in, and to what degree of damage before it does, remains unknown?
One thing you should know about the opposition, in whatever form it is in, ultimately: It will not stop. It will not quit. It will destroy everything that gets into its way in order to suit its needs.
The charts have been saying as much. The annual and quarterly charts had to be scanned because most services do not provide any beyond the monthly time frame. The comments on the charts may be hard to read, so we will put them in italics to make it easier.
If gold and silver are going to go to such high price levels, why are charts saying the opposite? This end of year’s gold closing, actually Monday, is about mid-range the bar, a draw between the forces of supply and demand, but the range was the smallest in several years. Neither buyers nor sellers were able to extend the range further in either direction.
Chart comments:
This year’s close is higher, but the entire range is within last year’s. The bar is one of the smallest annual ranges in five years, and the close is just under the half-bar area. The conclusion would be neutral to just a touch negative. The quarterly chart may reveal more.

The arrow in the chart points to the smallest range in Qtr 2, 2012. It was an attempt to go lower that failed. The fact, and keep in mind the focus is on the indisputable facts contained in the charts, that price did not go lower speaks to strong support at that level.
Another observable fact is how the last 5 quarterly bars have been overlapping. Anytime you see bars overlapping, it show a struggle between buyers and sellers trying to exert control. The poor end of the year close for gold says buyers have not been keeping an upper hand, and sellers are maintaining relentless pressure.
Chart comments:
Comments under the trading range cover expectations going into 2013. The one positive Qtr was 2nd, 2012, when price tried to go lower but held, and the close was mid-range the bar, a win for buyers with price higher ever since.
Last 5 Qtrs are within range of 3rd Qtr 2011, and the last 4 Qtrs within 4th Q 2011.
Low-end close for 2012 says sellers in control. Expect more price range activity going into 2013+.
Pie-in-the-sky prices are not in the picture, for now. A retest of 1520+ area possible.

Back to our normal chart. If we view the rally in August as a breakout from a right triangle pattern, it is taking now 3 months to correct a 2 month rally, and the bars correcting are smaller, telling us there is no downward ease of movement. This suggests sellers are meeting more resistance, but still prevailing.
2013 will be an interesting years, and its start could be signaling more of what we have seen for the past 15 months. While accumulation of the physical metal is strongly recommended, trading in the paper futures will have to be much more select, buying breaks, not breakouts.

There is no question that silver remains relatively weaker to gold, as the charts clearly show. Some think silver may outperform gold, moving forward, and it has, on occasion. That is an opinion that may or may not hold true. Buying and personally holding the physical is strongly recommended, as was stated for gold. For now, silver has a very large supply factor hanging over future progress, based upon the closes of 2011 and 2012.
Chart comments:
2011 silver close was bottom-end on very high volume. This single bar shouts out sellers were totally in control, and everything above the close is where buyers have to overcome seller’s efforts, and that is a pretty large area to regain.
In 2012, the range attempt to go higher was small, and another low end close shows how buyers are failing to overcome sellers, a problem for longs.

The more detailed Qtrly chart has one positive aspect: 26.20+ area held like a rock. We could see yet another test and possible new low. That is not a prediction but a point of view not to be dismissed for the year ahead. As with gold, the overlapping of bars shows the struggle between the forces of sellers and buyers, the edge with sellers.
Chart comments:
The Qtrly chart is more of a mixed message. There is obviously strong support at the 26 area, and bullish spacing remains a positive. [Bullish spacing is where the current swing low is above the last swing high, indicating buyers not willing to wait to see of the last swing high will be retested. It reflects a sense of urgency to buy.] The close at the end of this year says price should make a lower low, at least nominally, [Compared to last Qtr low only]. There are times when a low end close can lead to a reversal. Not sure that is the case, here. [Just another possibility of which to be aware.]
The fact that silver cannot get and stay above 35 says how much work there is to overcome sellers. 2013 should be more of the same, at least for the first half.

As with gold, an unusually large bar most often foretells of a protracted trading range to follow. Not only did that hold true for silver, the trading range was all under a 50% retracement area, telling us how rally attempts have been weak, and also a signal from the market that $50, $100, $250 silver is not on the immediate horizon.
It does not take a crystal ball, nor a Seer to look ahead into 2013 and know, almost beyond a doubt that silver has its work cut out for the next several months, and one should be very careful when trading futures, while still buying the physical with impunity.
We did not need to know of any “story” behind either precious metal. The charts are all-knowing, and they present everything known about the price, sans any opinion[s]. Just deal with the facts and plan accordingly. Trust the markets. They never lie.

By Michael Noonan
http://edgetraderplus.com
Michael Noonan, mn@edgetraderplus.com, is a Chicago-based trader with over 30 years in the business. His sole approach to analysis is derived from developing market pattern behavior, found in the form of Price, Volume, and Time, and it is generated from the best source possible, the market itself.

© 2012 Copyright Michael Noonan - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Noonan Archive

© 2005-2012 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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Jeb Handwerger

Potential Emerging Threats to Financial Stability

GOLD... still a “Safe-Haven?

What Unintended Consequences Are Increasing World Demand for Gold?

To Make Matters Worse

Something Is Burning

Chris Martenson

Why Silver is Following its 1970s Pattern?

Jordan Roy Byrne

The case for staying in gold

Falling prices shouldn’t change the metal’s role in your portfolio, say pros

How to invest in gold now

IMF >> Russia raises gold holdings for 4th month

4 VIDEOS - GOLD IN FORT KNOX

GOLD PRODUCTION - A Modern Day Gold Mine

Germany set to repatriate gold

Germany looks to repatriate gold; less trust in Fed?

German economy contracts

Lifting the veil

Rationalizing the move

SILVER 2013 - 20 Reasons To Consider Silver For The Long Term

2013 - Silver to outperform

2013 - What will gold do this year?

Why it is a must-own asset despite its 500+% advance since 2001

Silver Shorts Run for Cover

Silver Shorts Crisis In 2013?

Silver Outlook 2013

Gold Could Hit New All-Time Highs In 2013

Gold & Silver in 2013

Gold in 2013: climb, consolidate or collapse?

Author: Lawrence Williams|

LONDON (Mineweb) -

Fundamentals seem to favour stronger gold and silver prices, for now.

Gold & Silver >> 2013 MARKET FORCES AT WORK

Gold And Silver Very Under-Rated Opposing Forces Into 2013