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Are you secure? If not, you need to be!  It’s a dangerous world out there! An unprotected computer is like leaving your keys in the ignition and walking away! Today’s articles include the latest reviews of Security Suites for your computer and latest Gold news.  Gold yesterday tested the lower end of support at the $885 oz to $895 oz levels. Today Gold has come roaring back up $16 oz to $908.50. I think we are about to retest the $930 level and if we break that then $950. If we clear those hurdles then the next stop will be $1000 + oz. I am buying on any dips and you should be too! – Good Investing! – jschulmansr

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

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The Best Security Suites for 2009 – PC Magazine

by Neil J. Rubenking of PC Magazine

Which suite will be best for keeping you safe and not slowing you down this year? We’ve tested them all, and the answer might surprise you!

The list of available 2009-model security suites is now essentially complete. A running theme in this year’s suites is the promise that these new versions will do more for your security while tying up fewer system resources. It’s about time: Users have had it with suites that offer security but bog down the computer. Several vendors have introduced new “in the cloud” technologies to keep up with the accelerating growth of new malware. And many have redesigned their user interfaces to be more attractive and look lighter and faster. Some are new, innovative, and speedy. Others haven’t kept pace. Which are which? I put them all through grueling tests to find out.

Performance Testing

Starting with the 2009 crop of suites, I added an entire day of performance testing per suite to my already lengthy set of evaluations. I wrote and gathered a collection of batch files, scripts, and freeware components to measure how long a number of common activities take on the computer. I ran the scripts many times on a system with no suite installed and then on that same system with each suite installed. Averaging the results let me see just how much each suite affected system performance.

I get a lot of complaints about how long PCs take to boot up in the morning, and many users blame their security suites for lengthening the process. The first part of my test script, therefore, calculates the time it takes from the start of the boot process (as reported internally by Windows) to the time when the system is completely ready to use. “Ready” is a fluid concept—I defined it as meaning that 10 seconds have passed with CPU usage under 5 percent. I ran this test 50 to 100 times and averaged the results; the test system with no suite installed takes almost exactly 60 seconds to boot. Norton Internet Security 2009 and Kaspersky Internet Security 2009 added only about 15 seconds to the boot time. That’s not bad!

Some of the other suites added significantly to boot time. F-Secure Internet Security 2009 and McAfee Total Protection 2009 nearly doubled it, and BitDefender Total Security 2009 more than doubled it. The timings for Webroot Internet Security Essentials (WISE) averaged even higher—almost 2.5 times the baseline. However, the data set included a number of unexplained instances when booting up took 5 or even 10 minutes. Eliminating those quirky outliers brought the average boot time for WISE (the smallest suite) a bit below that of McAfee (the largest suite)—still not impressive.

Real-time malware scanners can kick in on any kind of file access and can slow ordinary file operations, especially if they redundantly scan the same file more than once during the operation. I set up a series of file move and copy actions using a variety of file types and timed how long it took with and without a security suite. Kaspersky added just 2 percent to the time required for this test, and Trend Micro Internet Security Pro added 6 percent. Norton and Panda Global Protection 2009 came in between those two. On the slow side, the system running ZoneAlarm Internet Security Suite 2009 took half again as long to perform the test.

Another of my new tests zips and unzips large groups of files, and my testing showed that this activity takes more of a performance hit from most security suites than moving and copying do. Panda had the lightest touch here, adding just 8 percent to the baseline time. Norton, Kaspersky, Trend Pro, and Webroot all added in the neighborhood of 25 percent to the time. Under ZoneAlarm the zip test took twice as long, and under BitDefender it took 2.5 times as long. That’s dreadful!

Your suite has to keep careful track of software installations so it can prevent malware from installing. I measured the time required for repeated automatic installation and uninstallation of several large Windows Installer packages. Most of the suites added from 20 to 30 percent to this test’s time. Panda excelled again, adding just 6 percent. ZoneAlarm and WISE caused the most drag, adding 63 percent and 71 percent, respectively.

Acting on some reports of problems with media files, I included a test that times some elaborate media file format conversions. None of the suites slowed this test significantly. Their effects ranged from a negligible 1 percent increase by WISE, Panda, and Norton to a still minor 8 percent hit from ZoneAlarm.

Modern suites look at your browsing activity in a number of different ways. They block drive-by downloads, check for fraud, and perhaps block inappropriate content for your kids. To see whether this analysis slows down the browsing experience, I used an ActiveX control that measures when a page has completely loaded, along with a script that launches dozens of URLs with lots of content.

Norton had the least impact on surfing speed, adding 13 percent to the time required for this test. WISE doesn’t do any page analysis beyond checking a blacklist, but it still added 25 percent. Kaspersky and Panda, which did well on most of my other performance tests, slowed browsing by 64 percent and 92 percent, respectively. But McAfee had the worst impact, more than doubling the time required for the surfing test. Given the amount of time the average person spends surfing the Web, this is a bad test to fail.

Check our security suite performance test chart to get full details on each product’s individual scores. Note, though, that in addition to these tests, I considered various other factors. Does the product make a good impression with a speedy and undemanding install process? Is the scan for malware especially fast or slow? Does the spam filter appreciably slow down the process of downloading mail? Are there special features that demonstrably work to minimize performance impact? All these factors go into the final score. In next year’s round of testing I hope to add even more performance tests. In the meanwhile, I’m very interested in getting your feedback on this year’s tests. —next: Security in the Cloud >

Featured in this Roundup:

BitDefender Internet Security 2009

$69.95 direct; 3-pack, $79.95
BitDefender has added a ton of new features—online backup and remote configuration, for example. It includes all the expected security elements, with decent performance from most of them. It’s a reasonable choice if you’re excited by those extra features.

F-Secure Internet Security 2009

$75.90 direct; 3-pack, $79.90
F-Secure Internet Security 2009 is easy to use, without complicated settings and extras. But installing it was a nightmare, and it took too long deleting inactive malware. The firewall is old-fashioned, and the antispam and parental-control apps are ineffective. The suite hasn’t kept up with the times.

Kaspersky Internet Security 2009

3-pack, $79.95 direct
Kaspersky Internet Security’s new user interface hides messy security details but leaves them accessible to power users. The new application-filtering feature renders the suite smart enough to make its own decisions without hassling the user. As long as you don’t plan to rely on it for spam filtering or parental control, Kasperksy’s suite is a good choice.

McAfee Total Protection 2009

3-pack, $79.99 direct
McAfee’s latest suite has improved malware detection, and its spam filter is also much better. But its overabundance of features hasn’t changed at all; its UI is sluggish; and it saps system performance.

Norton Internet Security 2009

3-pack, $69.99 direct
This is definitely the slimmest, most unobtrusive Norton ever. Its protection is top-notch where it counts, though antispam and parental controls are still weak. As the best all-around security suite to date (I’ll be installing it myself), it’s our new Editors’ Choice.

Panda Global Protection 2009

$69.95 direct; 3-pack, $89.95
Except for the new main screen, Panda’s 2009 suite doesn’t look much different. Its collective intelligence promises better protection, but its action is spotty: Spam filtering got much better; spyware protection got worse. And it’s expensive! Wait for next year’s version if you’re thinking of switching to Panda.

Trend Micro Internet Security Pro 2009

3-pack, $69.95 direct
Trend Micro Internet Security Pro v2 is a big improvement over last year’s edition. It’s an effective anti-malware tool, and it’s loaded with Pro features that are truly useful. If you’ve sworn a lifelong grudge against Norton (our Editors’ Choice suite), give Trend Pro a try.

Webroot Internet Security Essentials

3-pack, $59.95 direct
WISE omits features that other suites include yet still slows down system performance. Its malware protection is excellent, and it delivers 2GB of online backup, but its firewall component doesn’t do the job. Spend $10 more and get Norton or Trend Pro!

ZoneAlarm Internet Security Suite 2009

$49.95 direct; 3-pack, $69.95
ZoneAlarm is strong on defense. It has a tough firewall and keeps malware totally out of a clean system, but it’s less effective in cleaning up entrenched malware, and some of its features are antiquated. ZoneAlarm is still a fine choice, but I had hoped for a makeover that would be more than skin deep.

CA Internet Security Suite Plus 2009

5-pack, $79.99 direct
There’s little to love in this Frankenstein’s monster of a suite. Patched together from many separate mediocre tools, it put the biggest drag on system performance of any suite tested. Save ten bucks and get Norton’s suite (or Trend Micro’s) instead.

Comodo Internet Security 3.5

Free
For free security Comodo’s firewall is still a sound choice, but the antivirus and antispyware parts of this suite just don’t do the job. If you need free security, get the firewall alone and add avast! or AVG for free virus/spyware protection.

Security In The Cloud

The number of different malware threats and variants released every day is increasing exponentially, and with it the size of the signature files needed by security software to detect these threats. Security vendors have handled this problem in part by using heuristic techniques that allow one signature to match multiple threats. This year several vendors have introduced new technology that moves the signature database at least partially off your local computer and into the cloud. All of these technologies require an Internet connection to function, of course.

Panda calls its new cloud security technology collective intelligence. The suite retains a local malware database of the most common threats and threats that can propagate without an Internet connection. For files not identified by the local list, Panda Global Protection 2009 sends a tiny checksum to the online database to see if it matches the checksum for a known bad program. It’s a good idea and may work eventually, but I didn’t see evidence of improved malware detection when testing Panda.

The Artemis technology in McAfee Total Protection 2009 aims to eliminate the gap between detection of a new threat and protection against that threat. When the local McAfee installation detects slightly suspicious behavior in a file that’s not in its local database of threats, it shoots a checksum off to the Artemis database of known good and known bad files. It’s similar to Panda’s system, but, unlike Panda, McAfee showed a marked improvement in its malware detection.

Symantec’s Norton Insight takes a rather different approach. It leverages data collected from over 25 million Norton users to create a database of known programs and uses proprietary statistical analysis to assign a trust level to each. Skipping known trusted programs markedly speeds up scanning. Symantec researchers believe that statistical methods may in time completely replace familiar signature-based malware detection. It’s certainly effective in combination with regular signature-based detection: Norton scored better than any other suite or standalone antispyware utility on the current round of tests. —

next: Makeovers, Shallow and Deep >

Security suite vendors have finally caught on to the fact that most of their users aren’t security geeks. Users want the product to work; they want it to show that it’s working; but they don’t want any interruptions or confusing queries. Judging from what the vendors have done this year, they also want it to look nice. Many of the suites discussed here have significantly changed their main windows since last year. Click on our security suites interface slideshow to see how the suites have changed.

F-Secure and McAfee bucked the makeover trend. Other than a minor change in color palette, F-Secure looks exactly the same, and only the sharpest eye could detect any difference in McAfee’s 2009 edition. The biggest change for Trend Pro is a new My Home Network tab on the main screen; other changes are relatively minor.

Kaspersky moved things around and smoothed out the overall visual effect, but it’s not too different. BitDefender—the quick-change artist of the group—has undergone some big changes. The 2008 edition swapped 2007’s blocky, utilitarian look and red and silver color scheme for a super-simplified big-button view reminiscent of Microsoft’s OneCare, and the 2009 edition of BitDefender is another complete makeover.

ZoneAlarm has changed the most of all. For years, it has used an awkward dual-tab system, which left some users confused about where to find features, and a hodgepodge of bright-colored icons. ZoneAlarm 2009’s interface is much more coherent, both in function and appearance. Norton has made some big changes, too, getting rid of the confusing separate “Norton Protection” tab. Check the slideshow for before and after pictures.

So, do these radical changes in appearance represent big improvements in functionality? In most cases, no. The biggest exception is Norton: In addition to merely cosmetic changes, it has also streamlined its protection and added visuals for performance-related features such as Norton Insight and the handling of security tasks in idle time.

In the past I’ve given each security suite separate ratings for Firewall, Antivirus, Antispyware, Antispam, and Privacy/Parental Control. With this round of suite reviews I’ve added a Performance category and separated Privacy and Parental Control. Of course, some components are more important than others. I give much more weight to the firewall, antivirus, and antispyware components, as well as to the new Performance index. The attached chart pulls together the individual component ratings for the 2009 suites, so you can focus on choosing one that’s strong in the areas you need most.

Norton Internet Security 2009 excelled in the most important areas—firewall, antivirus, and antispyware—and it did so with little affect on performance. Its antispam and parental-control elements are dismal, but many users don’t need those. Norton remains our Editors’ Choice for 2009. Those who’ve sworn off Norton’s suite for life (there are some who can’t get beyond its past performance problems) should consider Trend Micro Internet Security Pro 2009. Its scores are impressive, if not quite as high as Norton’s, and it does well in all areas, including those where Norton falls down. Click the links below for full reviews.

Suites Keep Coming

The number of players in many industries keeps shrinking as small vendors fail or get eaten by bigger ones, especially in the current financial climate. Not so with the makers of consumer-side security suites! Some vendors take a single-focus product, such as an antivirus or a software firewall, and parlay it up into a suite. Others modify their Enterprise-level products hoping to generate a separate revenue stream on the consumer side. These new suites haven’t necessarily settled into the “fall model year” schedule adopted by their existing competitors. In fact several have popped up since my roundup of 2009 suites. The current top suites don’t have to worry about the competition yet-all three of these newcomers need work-but the category as a whole is clearly healthy.

TrustPort is well-known for its Enterprise and gateway products but hasn’t been a force in the consumer market. Recently the company quietly released a consumer version of its TrustPort PC Security 2009. The product has some features not usually found in consumer products-one, an antivirus/antispyware solution runs multiple detection engines, another provides a feature for managing Public Key Infrastructure encryption. But the PKI features really need Enterprise-level support, the virus/spyware protection isn’t top-notch, and the firewall manages to be both obtrusive and ineffective. Not only that, the suite seriously slows system boot time and Web browsing. Consumers want a suite that does the job quietly and without generating problems-this isn’t it.

Comodo added virus and spyware protection to its existing Comodo Firewall Pro-thus was born Comodo Internet Security 3.5, a minimalist suite that doesn’t include antispam, privacy protection or parental control components. It does have the virtue of being free, though. But while the firewall module is admirable, the added virus/spyware protection just doesn’t do the job. The product scored dismally in my malware-removal test, did a poor job of keeping malware out of a clean system, and popped up multiple alerts for many perfectly valid programs. And it had more impact on system performance than I expected for such a lightweight suite. If you need free security, use the Comodo firewall and get your virus and spyware protection elsewhere.

CA (formerly Computer Associates) isn’t new to the security-suite market, but its latest version is significantly changed. Unfortunately, the changes in CA Internet Security Suite Plus 2009 went in the wrong direction. The software is weak in almost every area. Its completely separate virus and spyware scanners scored poorly both at malware removal and at keeping rogue software out of a clean system-only Comodo scored lower. The firewall resists malware attacks but bothers the user with many queries; with its Safeguard features enabled it seriously interferes with many valid programs. This pieced-together collection of security elements offers so-so protection while putting more of a drag on system performance than any other suite I’ve tested

Click here to compare the security suites featured in this roundup

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My Note: Well there you have it. This year at least I don’t have to run out and buy new Security Software, I use Trend Micro which is ranked second. -jschulmansr

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Gold and Oil Top Peter Grandich’s Shopping List – Seeking Alpha

Source: The Gold Report

Peter Grandich, creator and producer of The Grandich Letter for a quarter century, allied himself with AGORACOM in October, bringing his well-known and oft-quoted commentaries to a far wider audience than his subscriber base and financial media such as The Wall Street Journal, MarketWatch, CNN, GlobeInvestor, Financial Post and BNN. Breaking away briefly from his recent blogging, the veteran Wall Street watcher and investment advisor tells The Gold Report readers what he likes looking forward—gold (up to $1,000) and oil (between $35 and $40). Also high on his list: uranium (for the nuclear renaissance), junior miners (a select few), and Canadian banks (pretty much all of them). 

The Gold Report: Judging from opinions you’ve expressed in recent newsletters and blogs, you clearly believe we will be testing the November lows during the first quarter this year. What is some of the logic behind why you think that will happen?

Peter Grandich: My belief has been that if and when the U.S. stock market bottoms, along with the economy, it will be an L-shaped bottom, not the V that so many on Wall Street keep talking about. The problems that brought us here persist. In fact, they’ve gotten worse over time, which gives me even more reason to believe that we’re going to bottom eventually but not go far off that bottom once we do. The logical viewpoint for us to take at this point is to look for a market to make at least a double bottom, if you don’t believe it’s a V bottom. Obviously, if it’s a V, you only have one time you’re at that low.

The November lows are, I suspect—as I’ve said recently—are not a question of “if” but “when.” A strong bounce is likely to come off that because the remaining bulls who aren’t totally bloodied would look and hope for that to be an opportunity to get more long if they’re not already 100% long.

The view we’ll have to take after that is watch the bounce, see what type of volume and breadth it has. The problem with rallies we’ve had all through this decline is that neither their volume nor breadth has been half as strong as in the declines; that is always an earmark that the bear market is continuing and that rally is a countertrend. So that’s another thing to look for when and if we catch those lows.

TGR: You mentioned that maybe we should be looking for a double bottom. If we go back and re-test the November lows, is that our double bottom? Or would you expect to go through the November low?

PG: I still suspect we’re going to go through it, but we have to be able to change our views as the markets change. The only way bouncing off that bottom and then turning up past 9000 on the Dow—that would be the only technical factor that would suggest to me that the bear market was over. My feeling is that even if we do hold that November low, we are going to have a very long trading range on the Dow of somewhere between 7500 and the 9000 that we rallied to twice the last year but have failed to go through.

Rather than trying to catch a falling sword and usually getting their hands sliced by it, quite frankly I think what’s best for investors would be to be certain or fairly certain that a bottom is put in and miss the first 10% or 20% to the upside. I think if and when we do break out above those numbers, we’ll also be hearing things on the economic side getting better.

Now, that’s not my bet right now, but I think you always have to have a plan to possibly change your view and be set for it if certain things happen. My most likely scenario continues to be that this economy will be very weak throughout 2009, and not just the first half that the bulls keep talking about. And we don’t have any real hope of a sustained equity bull market at least until 2010 at the earliest.

TGR: Your writing is bullish on oil, though.

PG: Yes. We suggest that people contain any oil purchases between $35 and $40—not above $40 at this point. Oil longer term is far more likely to be higher than that level than equities looking out the same timeframe. If people are still willing to look out three to five years versus three to five days, I think oil is a better risk-reward at this point than the U.S. equity market.

TGR: Are you talking about buying oil as a commodity or purchasing oil equities?

PG: Both. What I do like especially about Exchange Traded Funds now is the ability to have a bunch of oil stocks within them. No-load funds are still a good way to go with equities for those who are very long-term oriented. But ETFs are a better vehicle for investors because you can buy and sell as many times as you want during the day, not just get the end-of-the-day price when you sell your mutual fund. Both are useful. But either way, I think you need to track the actual commodity as well as oil stocks.

TGR: Your blogging suggests that you think precious metals sector also will do well, even in 2009?

PG: Yes, I continue to believe that; in fact, I believe the best investment right now is gold. Not because I think the world’s coming to an end; quite frankly it won’t matter if you have gold if there’s truly an end-of-the-world scenario. And I am not a gold bug; I’ve been bearish on it at times.

Nevertheless, thanks to the credit crisis, which is taking place in all four corners of the world, I do believe people around the globe are realizing that paper money may not be the best safe-haven investment. And although gold did not go up in 2008, it did serve its purpose by being an insurance hedge. Whether they’re professionals or just individual investors, no one I know would mind having been even for 2008 versus the heavy losses they took. So, gold did its job; those who put money in gold didn’t see the losses that everybody else suffered.

But I believe now that we’re going to see capital gains opportunities in gold for 2009 and into the foreseeable future. The market has all the fundamentals that one would want right now. There’s a declining supply, which will decline even further because those who normally look for gold, the junior resource stocks, have been so hammered that we’re not going to see a lot of new exploration for some time.

The few companies that will be going into production will be a premium. The excess supply that used to come into the market, particularly from central banks, has dried up. We’re also seeing tremendous physical demand; in fact, throughout 2008, it was very difficult for people to acquire physical gold. Coins and bars that used to be readily available were in such demand that there became a shortage. In fact, if you wanted to purchase physical bullion, you were paying 10% or more above the spot price.

People say that should have caused a dramatic rise in the gold price. The paper market is still driven by the COMEX, where the futures trade. Unfortunately, some people claim, that market has been manipulated. I can simply say that the paper market has not mirrored the physical market. I believe the physical demand eventually will overrun what is not happening in the paper market. Once that occurs and once we’re above a $1,000 and stay there for more than a week or a month, I think we’re going to see a lot more money pour into gold. I don’t know about $2,000 an ounce for gold, but once that money starts to pour in I still think $1,200 gold and $1,400 gold— even $1,500—is a very variable, useful and likely target.

TGR: For 2009?

PG: More likely in 2010. The only way I see it happening in 2009 is if we really see worse economic conditions and financial Armageddon. Right now thanks to this historical presidential election in the U.S., there is a mild—if misplaced—hopefulness that somehow the new administration can magically do something in a week or a month or a couple of months that the group before couldn’t do in several months, if not years. Once this hopefulness wears off and people realize they face the same difficulties in fixing a horrendous problem, we could see even more pressure in the credit market and in the equity market. If that’s the case, money has to go somewhere.

What’s been most interesting, a couple of weeks back, the Treasury market—where most people ran to in the last downturn—actually started selling off, especially on the longer end. I think part of that money is going to find the gold market.

TGR: Are you looking at gold as a precious metals purchase as in physical gold or ETFs? Or in this case do you see plays to be made in equity shares?

PG: There are equity plays to be made. I think first you want to have some physical bullion. One of the things I learned as a hard lesson—and as many other people did in 2008—sometimes mining shares, particularly the juniors, don’t track gold. During a large-scale liquidity crisis, people sell everything they own, including juniors. Even so, I think we’ve seen the industry destroyed as much as it possibly can be. The companies that have managed to stay around, particularly those that are going into production soon or are already in production, will have a big bounce back. Unfortunately, many of the pure exploration companies that haven’t come close to identifying a mine may not survive—but those failures actually enhance the prospects of the survivors. Money will flow into them long before it flows into the small exploration companies.

TGR: Do you have any favorites as you’re looking at these near-producing or producing companies?

PG: Sure. In fact, we’ve just been engaged by Hawthorne Gold Corp. [TSX.V:HGC] to help with corporate development services. I have to point out that I have a prejudice there simply because I’ve been aware of the management team for years. When I was a fund manager and a hedge fund manager, I purchased and did very well with the companies they were involved with. I am speaking of El Dorado Gold Corporation (EGO) and Bema Gold. Both principals at Hawthorne Gold were founders of those previous companies and helped develop mines. Hawthorne Gold has made a series of acquisitions and is going into production, apparently in 2009. As I said earlier, those are the types of companies that I think are going to be attractive first and are likely to see a big rebound, even though they have suffered in seeing their share price decline.

And Hawthorne has the management team, has the finances, and is mining in an area of the world where they don’t have to worry about political problems. British Columbia, most of Canada, and even the U.S. are probably the safest places to explore and mine right now. And, of course, that’s where they’re concentrated on. So they seem to have all the ducks in order and have the ability to prosper at the expense of some others who are not in the position that they are.

TGR: A big focus now for people who are investing now in equities are the balance sheets, specifically cash in the bank and how long a company can survive without going to the capital markets. Can you speak a bit about that regarding these companies?

PG: There’s no question that financing has all dried up in every sector, and the junior market is no different. The good news is that El Dorado has been able to raise enough capital to see themselves through production. Once production starts, obviously cash flow becomes important. I believe we’ll see a lessening of that tightness in those companies that are looking particularly for gold or precious metals as their main focus because of the expectation that the gold price is going to rise and attract people’s eyes while everything else is seemingly not moving in the world.

So, I think if we look into the second half of 2009 and 2010 when companies like Hawthorne may need to come back to the market, I think the market will be more conducive to raising money than it has been or is now.

TGR: How was El Dorado able to raise money to go through production?

PG: Both Mike Beley and Richard Barclay were senior managers and directors at El Dorado in its early days. (Both Beley and Barclay are Hawthorne Directors; Beley is also Chairman, while Barclay is also President and CEO.) They helped raise a lot of money and bring mines into production. They also were able to do the same thing with Bema, which Kinross Gold Corporation (KGC) eventually bought for something like $3 billion.

When financiers look at companies, they’ve learned that the real important thing in juniors is management. Metals mining has a few different ways to go at it and all, but it’s not very exotic. So the likelihood of seeing their monies do well is really going to fall on the management team’s shoulders. It stands out when you have a management team that has demonstrated at least once—and these gentlemen have done it twice—the ability to develop a company and bring it into production. And let’s not forget that for every little junior that looks for metals and goes into production, 95 or so don’t go the whole nine yards. That stands out. That is always what impressed me about these gentlemen, why I used to be involved, and put money in El Dorado and Bema, and why I would want to associate with their company now. They are clearly standouts as managers in an industry where failure is the norm.

TGR: What do you think about Bravo Venture Group [TSX.V:BVG]?

PG: There is another company that’s made just outstanding discoveries and demonstrated an understanding of the deposits. They continue to put out great drill results—excellent results of deposits that are developing very nicely. And also, it’s a company with the ability to demonstrate that they have enough support out there despite terrible financing conditions. They’ve been able to complete a financing recently that is going to move them forward. And they’re in a very good area of the world; as I said earlier, Canada and America are the safest places to look right now. So Bravo Ventures, too, I believe is one of the companies that will move forward to production. I suspect that they may not want to run the production, though, so there may be a sale or some type of a joint venture.

TGR: How about Bravo’s management team?

PG: Really what got me interested is somebody I worked with in the past and offered me an opportunity to do so again. As I said, I make my bets on management, and even some great management teams still don’t go all nine yards. But just like the quarterback is the most important position on a football team, management is in juniors. I go a long way back with Robert Swenarchuk, who’s head of Bravo’s Corporate Development and a member of Board of Directors. He is the one who made me interested in this and showed me why this deposit could develop. He was right. I’m a people better, and especially in the junior markets, and there again is another reason—because I have such faith in somebody who has an active role in the company.

TGR: You also follow ATW Gold Corp. [TSX.V:ATW].

PG: Just like you find out who your real friends are during tough times, you learn which people really know what they’re doing during tough times. It was easy when everything was flying; even the pigs were flying. ATW was able to secure a very advanced-stage mine that its previous owners had to liquidate because they had financial problems, and then brought in a very top-line management team that had experience in that area. On top of that, several months ago they switched their currency from Australian dollars to Canadian dollars. So they used the currency situation to make a gain of almost $1.5 million and at the same time avoid having to go the market and advance their project.

Here, too, is management. I’ve known Graham Harris, one of ATW’s Directors, for almost 20 years. He’s always been a straight shooter, particularly when he was in the financial arena, and finding a straight shooter in the financial arena is like finding a needle in a haystack. So I’ve always had confidence in his honesty. He was very excited about this project. He brought me in about a year ago; it just keeps being advanced. We should be in production there in short order. If you notice, I’m trying to concentrate on companies that are either close to going into production or are in production now.

And there again, in my opinion, they are going to be a survivor of the juniors’ dismay and then be there when the market eventually rebounds and comes into a bull market again. They will be among the leaders in the juniors segment.

TGR: Do you have any other companies under that umbrella?

PG: My favorite, favorite company—and it is my largest personal holding so I speak from a biased standpoint—is Northern Dynasty Minerals Ltd. (NAK). It has the largest undeveloped copper-gold deposit in the world. It’s in Alaska. The numbers are crazy—94 million ounces of gold, 72 billion pounds of copper. It is currently in a venture with Anglo Gold (AU) where Anglo can purchase 50% of the project by spending up to $1.4 billion. They’ve already spent a couple hundred million in further developing the project and advancing it to a pre-feasibility study.

It also has a 19.9% ownership by Rio Tinto (RTP). It had a 10% ownership by Mitsubishi, but Mitsubishi has been buying shares continuously in the open market lately. I suspect they’re heading to 19.9% ownership too.

If and when the market returns to people interested in precious metals or even base metals, there’s no question that at least one of those companies will want to own at least half, if not the whole deposit. Northern Dynasty’s stock came down a lot because all stocks came down. It is ridiculously priced at few dollars a share, but I believe when this eventually is done it will sell for multiples of where it is now.

TGR: Why wouldn’t Anglo buy it now while the price is depressed?

PG: Like everybody else, they don’t think time is against them. They realize this is a bear market. They also realize that they’re going to need current management’s support. Current management has about 20% of the stock; and as I said, their opposition—which are competitors—Rio has almost 20%. So unless they made a very favorably valued price, they’re not going to be able to buy it at current prices or anything close to that.

Hunter Dickinson, which manages this Northern Dynasty, is one of the biggest players in the junior- to-mid-size producers and exploration companies. They know they have to work with all these potential bidders; so they have not really played one against another—but sooner or later it will be one against another. So no one is rushing to drive the price up, but if Mitsubishi is able to acquire 20%, and Rio and management have 20% each, if and when a bidding war starts, there’s only about a 40% float out there. That will be when we really prosper as a shareholder. You need to sit back and accumulate a stock like this now and go on that expectation of what I said turns out be true.

TGR: So, how close is Northern Dynasty to production?

PG: It’s approaching pre-feasibility. We won’t see production for a few more years at least, but it’s so large. It’s 25% of the copper needs for the United States, and it’s on the top of every major producer’s list. We could still see someone else come out from left field that currently doesn’t have a position, but the ones I’ve mentioned certainly have the lead in potentially acquiring the additional stake. The problem for all three of them is that they know they can’t make a low-ball bid, but when they do make a bid for it, they want a bid that’s not going to cause a battle. Since nothing is moving now, they’re just waiting until someone else makes the first move. That’s the difficult part, but you have to speculate that eventually someone will. And when they do you’re going to get a multiple return on what you’re paying for it now.

TGR: In a worldwide recession, given the price of copper, wouldn’t the copper component discount the gold?

PG: The beauty of having so many million ounces of gold is that you can sell the copper for whatever you get, and you get the gold for almost nothing. It’s such a huge deposit; it’s been described that they still will not find the whole deposit by the time our grandchildren are adults. That’s how huge it is. We’re all living on the expectation that someday things will get better than they are now. If and when they do, the demand for the metal will come back again.

There’s an interesting thing about the base metals and even copper. Despite a tremendous slowdown in the world, copper has managed to still be about twice the price it was at the lows of the last big recessions in the ’80s and ’90s. One of the reasons I think that has happened is that most of the major, highly valued deposits had been discovered and drilled off. So one of the reasons copper is not dropping so much is because the operational costs to develop copper is higher than it was several years ago. We’re probably within 10% or 15% of that absolute bottom. It doesn’t mean you start buying now, because it may be a while before it can raise its head. But we’re closer to the end of the decline in copper than we are in the U.S. stock market.

And I must make the point that even if and when I become bullish on equities again, someone is going to have to be over-weighted in foreign stocks. One of the first things I’m looking to do once I believe markets have bottomed is to buy Canadian banks.

TGR: What is it you like about the Canadian banks?

PG: Of all the banking systems around the world, the Canadian banks (outside of Toronto Dominion (TD)) is the only group of banks that didn’t get heavily involved in all the CDS markets and all these derivatives. So the Canadian banking system is one of the places I think will be fairly safe to enter once the equity market has bottomed. They’re on my shopping list right now to eventually look at, but I think they will continue to decline somewhat until the markets themselves bottom.

TGR: One of your blogs suggests that uranium has bottomed out and we’re going to see it up in triple digits in 24 to 36 months. What about this year?

PG: I don’t know so much about the price in 2009. Uranium has seen its worst days in my view. I do believe we’ve seen the bottom and I believe it can tick up. The real factor will be how much the new U.S. administration is truly going to look at alternative energy. It’s one thing to say it during a campaign, but how much will Obama turn to alternative energy? When oil was hitting $140 and $150 and Congress was hauling in the principals of oil companies at $150, they can’t haul them in any more at $40. So I don’t know if they’re going to do what so many other administrations have done—and that is to kick the can down the road and let somebody else worry about energy concerns.

That said, it seems to be a serious concern of the current administration, and I think people will realize when all is said and done that the most efficient and effective and perhaps fastest way to increase abilities of getting energy outside of fossil fuels is nuclear energy. And it’s certainly happening around the world. Therefore, I think the uranium price will work its way higher, and I also think it’s only a question of when we’re going to see more nuclear plants built in the United States. Not so long ago, people thought we’d never see that.

A Bronx native, Peter Grandich hit Wall Street 25 years ago after starting an investors’ club while working as a warehouse manager and launching his now-famous publication, The Grandich Letter, which grew to become a leading newsletter analyzing the metals and mining sectors within global stock and bond markets. After only three years on Wall Street, Peter was Vice President of Investment Strategy for Philips, Appel and Walden, a top New York Stock Exchange member firm. He was dubbed “the Wall Street Whiz Kid” after he forecast the 1987 stock market crash weeks before it happened. He then predicted that the market would reach a new all-time high within two years. It did. He said that 2000 would see the end of great mega bull market of the ’80s and ’90s. It was. As long ago as 2001, he thought U.S. banks had gone “overboard in making loans that required near-perfect economic conditions in order to avoid substantial bankruptcies” and expressed concern that some of them “seem to have hidden their problems from the average investor.” In October 2007, he warned investors to “man your battle stations” and prepare for the “unprecedented economic tsunami” that would hit America beginning in 2008. Jay Taylor (Gold, Energy & Technology Stocks newsletter publisher) considers Peter “most remarkable for a successful Wall Street pro…unashamedly independent and outspoken about his views, which frequently are anything but politically correct.”

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

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

Can You Sense It? The Calm Before The Storm

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Can you sense it? There seems to be an eerie calm in all of the markets. Could this be the calm before the coming financial storm round 2? Since Gold is considered a safe haven investment in times of financial uncertainty, it would seem to tell us something is about to break wide open. As I enter this post Gold is up $5 oz to $912.50. We saw some retracement yesterday but support levels at $900 oz held. It appears that prices are taking a breather. This comes after an approximate $95 dollar an oz rise in just the past 14 days! As I mentioned in my post from a few days ago It’s Official Gold is in a new Bull Market. 

Quick sample of some recent headlines:

The Associated Press writes, “Gold Prices Soar as Investors Flee Wall Street.”

The Bullion Vault claims, “Gold Prices Poised to Move Higher.”

Forbes observes, “Gold Prices Resume Long-Term Uptrend

So What’s next? Read on…-Good Investing! -jschulmansr 

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

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Gold Prices Could Hit $1500, fears Merrill Lynch CIO- Business 24/7

By: Shashank Shekhar of Business 24/7

 

Gold prices may hit $1,500 (Dh5,509) an ounce in the next 12 to 15 months, Gary Dugan, the Chief Investment Officer (CIO) of Merrill Lynch, said yesterday.

Dugan termed his apprehensions of gold striking such a high as a “fear” that may come true. He reasoned that such a price would mean the other commodities and streams of investments have been shunned by investors.

With confidence in currencies shaken to the core, the yellow metal is increasingly assuming the role of “the most trusted currency”, Dugan said. “We have never seen such a rush to buy gold. It’s bringing in security and it’s still affordable.”

Merrill Lynch commodity price forecast authored by Dugan showed that gold prices can rise from the currently prevailing $913/oz to $1,100/oz in the first quarter of 2009 and to $1,150/oz in the second quarter. “While demand for gold has been rising production has been declining. South Africa, which accounts for the major share of global gold production, is facing political issues and has energy problems,” Dugan said.

With reports of declining returns from other investment options, “cash” – keeping money safe in banks and investing in government bonds – is the option in front of investors, Dugan said.

“Fear” and eventual decline of the greenback are the two factors that will drive gold prices, he said. While commodity markets could also bounce back in the first half of the year, a rebound is likely to be short-lived in the absence of strong US consumer demand.

Precious metals, led by gold, could enjoy a more sustained rally with gold benefiting from a weakening of the dollar in the second half of the year, Dugan said.

Dugan said the greenback, which has been strengthening for the past few months, will decline in value by the middle of this year. “That’s when people will begin to realise that President Obama’s policies are not having the desired impact,” he said.

Investors could also look to private equity, which produced strong returns during the downturns in 1991 and 2001, on an opportunistic basis. Some hedge fund strategies may be worth following but hedge funds should be treated with caution, Dugan said.

Returns from private equity should remain in single digits in 2009 and a return of beyond 10 per cent should be treated as “fair value”, he said. “Investors should remain cautious. They need to be prepared to take profits. We think any such rally would run out of steam by the second half of the year.”

Low risk assets could offer private investors the best prospects of attractive returns in 2009 as the world’s leading industrialised nations face recession, Dugan said. With governments around the world striving to tackle the economic crisis, private investors could find value in a cautious approach towards asset allocation. Options include high-grade corporate bonds and high-quality, high-yielding equities in defensive industries.

“Investors will look to long-term US government bonds as an important barometer of the progress of global recovery,” said Dugan. “Sharply rising bond yields will show that the governments have overspent.”

While earnings downgrades are likely to dominate the first quarter of 2009, a rally in global equity markets could be on the cards for the first half of the year with consumer and cyclical stocks among the potential beneficiaries, Dugan said.

Broad equities indices could also offer trading opportunities to private investors. “Equities could outperform as an asset class in 2009 unless there is a serious deflation risk. Our view is that deflation will be avoided,” he added.

Selective investment in high-grade corporate bonds could also provide attractive returns, Dugan said.

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

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Is a New Cyclical Bull Market on It’s Way? – Seeking Alpha

By: Simit Patel of Informed Trades.com

 Puru Saxena of Money Matters recently wrote an article entitled ‘Birth of a New Cyclical Bull?‘ in which he offers arguments for why we may see 2009 be a bullish year for equities. His basic points:

 Inflationary actions by the Fed and a declining TED Spread have proven effective in fighting falling asset prices and reducing risk

• Treasury bonds need to have higher yields or money will go into equities
• Equities have “overshot” to the downside, thus resulting in excessively low valuations

I agree with Saxena’s basic premise that the Fed’s actions will be successful in creating inflation in the aggregate; it is only a matter of which asset class will reap the benefits of that inflation, and who will pay for it. The chart below compares various asset classes against one another for the month of January.

click to enlarge

A key question we may wish to begin asking and examining is just how much inflation the Fed has really created for us, something that will become more apparent as lending resumes and money that is “on the sidelines” returns to the game. I’m of the viewpoint that the global economy is currently improperly structured, and needs a complete restructuring, one that will likely require abandonment of the US dollar as world reserve currency, a corresponding decline in US consumption, and a significant restructuring of the FIRE (finance, insurance, real estate) economy in the United States.

From that perspective, an equities rally will be unsustainable, unless there is currency debasement to the extent that all markets rise nominally. If that is the case, though, the inflation will result in significant dollar devaluation.

Trading Implications: The fall in Treasuries was the story for January, and will be of importance so long as it continues. If money comes out of Treasuries and into equities and commodities, it increases the likelihood of seeing consumer price inflation. As I’ve stated before, though, I expect commodities to outperform equities once money comes out of Treasuries and dollar devaluation resumes. And as all currencies around the world are having trouble, gold will rise as fiat currencies continue to struggle.

Disclosure: Long gold.

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

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U.S. Debt Default, Dollar Collapse Altogether Likely – Seeking Alpha

By: James West of Midas Letter

The prospect of the United States defaulting on its debt is not just likely. It’s inevitable, and imminent.

 

The regulatory black holes into which sanity and reason disappear on a daily basis are soon to collapse under the mass of their sheer size. The circle jerk going on among G7 governments has to end – the steady advance of gold, even in the face of a managed price, exposes the real value of the U.S. dollar, as opposed to its apparent value expressed in the dollar index.

Is 2009 the year that the United States formally defaults? And with that, will the dollar collapse be rolled back ten for one or more?

There are a lot of reasons to support that theory. To Wall Street economists, such an event is heresy and therefore unthinkable. Yet Wall Street is the very La-la-land that bred the idea of a perpetually indebted nation in the first place.

Number one among the indicators favoring this scenario is what is happening in the U.S. Treasuries auction market.

Last Thursday, an $30 billion auction in five-year notes failed to stir the interest of traditional primary dealers. The auction itself was saved by an anonymous “indirect” bid.

Buyers are discouraged by the prospect of what is expected to amount to $2 trillion total issuance for the full year of 2009. The further out the maturities on notes, the more bearish the sentiment towards them. The only way to entice buyers is through the increase in yields.

But with yields at 1.82 per cent, five-year notes were met with a demand for 1.98 times the amount offered – the lowest bid-to-cover ratio since September. A sell-off in treasuries began in earnest upon the conclusion of that auction.

The U.S. Federal Reserve suggested last week that it was going to step up its treasury-buying activity, and the mainstream media interprets this as a form of market support. What it actually is evidence of growing anxiety and desperation on the part of the Fed as the realization dawns that demand for treasuries is progressively evaporating.

The increased demand for gold as an investment witnessed throughout the last two weeks that has pushed gold to a 4 month high is further evidence that investors across the board are gravitating more towards gold and away from U.S. debt.

So what is the catalyzing event that will precipitate outright capitulation?

I think the spin-controlled version of events will make the collapse of the derivatives market the red herring that facilitates the aw-shucks-we-have-no-choice shoe-gazing moment possible, and that’s exactly the parachute the government needs to retain a veneer of credibility – at least in its own delusional mirror.

The announcement that the CFTC was about to become the target of a regulatory overhaul supports this theory. Consistent with his unfortunate proclivity to hiring foxes to guard chickens, Barack Obama’s choice for CFTC commissioner Gary Gensler was the undersecretary of the U.S. Treasury when the Commodity Futures Modernization Act of 2000 was passed, and is one of its architects. This was the piece of legislation that was put forth to appease the opposition to “dark market” trading in certain OTC derivatives first noisily derided by CFTC commissioner Brooksley Born in 1998.

Ignoring Born’s admonishments with this act, it exempted credit default swaps (CDO’s) from regulation, resulting in the somewhere between 58 and 300 trillion dollars in value presently under threat if the positions were to be unwound. Because of their unregulated status, counterparties in the largest transactions can simply “roll forward” contracts, instead of the losing party in the transaction covering their loss with a transfer of money. It is this massive “nominal” value that could be the Achilles heel of what’s left of the U.S. banking system, and by extension, the U.S. dollar.

I don’t arrive at this conclusion because I like making catastrophic outlandish predictions. Its merely the result of following certain logical paths to their most likely outcome based on what has happened in the past.

In discussions on this topic with editors of top tier financial publications, such speculation is dismissed out of hand, and the argument to refute the likelihood of such outcomes is never brought forward.

Gold exchange traded funds (ETFs) are now the largest holders of physical gold, and as a proxy for investors who don’t want to be encumbered with taking delivery of the physical, provide a simple way to participate in the gold market.

United States citizens should bear in mind, however, that should the banking system be brought down completely by the collapse of the futures market, proxies for gold such as ETF’s and bullion funds could theoretically be targeted by a government desperate for possession of value. The risk from security in holding physical bullion is matched by the risk of confiscation by government in these volatile times. Don’t forget, the government confiscated and outlawed private ownership of gold in 1933 in support of an ill-conceived gold standard, which to some extent, was that era’s spin to halt the flight of gold (and real value) from U.S. soil.

Don’t think for a minute such drastic events are outside the realm of possibility. If somebody had told you in 1998 that a bunch of angry crazy pseudo-Muslims were going to fly jetliners into the World Trade Center, what would you have said?

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My note: Very Scarey, 10-1 Trade In on Dollars? Gold Confiscated? This is one of the reasons why I use Bullion Vault, check them out for the details…jschulmansr

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

Good Investing! – Jschulmansr

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

Gold Taking a Breather but Fundamentals are Stronger!

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Currently Gold is down $14-$15 dollars per oz. around the $914 level. As I wrote in my last post if we hold this level then $950 will be our next target. If it fails here then we may have a test back to $885 – $890. Either way I’m taking the opportunity to buy on dips since long term inflation is certainly due to happen and Gold is where you want to be when that happens.  Personally, I think $900 to $925 is the new base and we have avery real possibility of $1000+ Gold price before the summer truly begins.- Good Investing – Jschulmansr

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

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Update on the Gold Trade – Seeking Alpha

By: Trader Mark of My Mutual Fund

Last Friday we said gold might finally have it’s real breakout here [Jan 23: Could be the Real Breakout in Gold] I wrote:

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

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

This was what the chart looked like at the time:

Now?

Without benefit of the orange line – you can see condition #1 has been fulfilled – we “backfilled”, tested the area we broke out of and people were eager to buy. On that, an aggressive trader would be buying. A reader mentioned this outcome last week.

For someone more conservative in orientation, you want to see #2 “a price point over October 2008’s highs” – then we end our half year of lower highs. We are withing spitting distance here with GLD at $91.40 and the October intraday high at $92.

It’s hard to get behind gold fully because there is no “earnings” behind it; it’s all about sentiment. But the theory is that as all the world’s troubled countries race to devalue their currencies (print, print,print) to “save the system,” a hard asset should retain its value. Silver is likewise breakout out, although silver has a lot of industrial uses as well.

I hate to chase a move, but from a technical set up, a lot of institutional money could be set to finally jump in here….

Now the question of what instrument to use – keep it simple or go with a miner? etc.

Disclosure: No position

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My Note- Great call by Trader Makr but I have to ask, why no position Trader Mark? – jschulmansr

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

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Fed Monetizes Debt Leading Investors to Embrac Gold – Seeking Alpha

By: Boris Sobolev of Resource StockGuide.com

In January gold rose significantly against all major world currencies. In most currencies except in the US dollar and the Japanese yen, gold actually made an all-time-high.

January Performance

GOLD / USD 5.3%

GOLD / EUR 16.7%

GOLD / AUD 16.5%

GOLD / JPY 4.4%

GOLD / GBP 5.8%

GOLD / CHF 16.3%

10-Yr Yield 13.0%

click to enlarge

At the same time, most capital markets have been falling.

January performance

DOW -11.5%

S&P -11.4%

NASDAQ -9.0%

FTSE -6.4%

DAX -9.8%

Nikkei -9.8%

Shanghai -9.3%

The governments around the world are trying to take initiative while private capital is sitting on the sidelines, preferring the safety of government bonds and precious metals.

Investors typically do not trust the governments to implement any effective economic solutions. Moreover, this lack of faith in central planning continues to grow since the US government has no other plan of action than to save the old, compromised and untrustworthy financial system.

What the Federal Reserve together with the Department of Treasury has shown is that they will inject a vast amount of newly created money into a hugely ineffective financial system.

While in the fall of last year, in fear of devastating deflation, analysts were competing in downward projections for the price of gold, now the competition is to estimate the amount of losses incurred by the financial institutions around the world. The maximum assessment is now at $4 trillion, with Nouriel Roubini coming in close second at $3.6 trillion.

But the main problem is not so much in the amount of credit losses or the amount needed for recapitalization efforts but in that the new government is committed to continue to transfer huge capital into the hands of the same group of people who were largely responsible for the world financial crash in the first place. Wall Street, though transformed, will remain in control.

The lack of trust in the ability of insolvent financial institutions to run the modern financial system is moving investors into gold.

An even more important gold catalyst was the Federal Reserve. In comparing the two latest Fed statements, two things stand out. Here is the evolution in wording:

December Statement: “In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.”

January Statement: “In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.”

December Statement: “The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.”

January Statement: “The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets.”

First, the FOMC sees a threat of deflation and second it is prepared to counter this threat by purchasing longer-term treasuries.

Purchases of long term bonds is the most inflationary move that a central bank can undertake because it represents direct monetization of the government debt and hence an unconcealed debasement of national currency. (This is happening at the same time as the new Secretary of Treasury is chastising China – the main US creditor – for currency manipulation.)

Why did the Fed make such a determined statement, with one member even voting to begin long term treasury purchases immediately? First and foremost, the real estate market is not showing any signs of life. House prices are falling, time required to sell new homes is rising and most importantly, after a steep fall in December, average mortgage rates began to rise again, reaching 5.34% as of last Friday.

Since mortgage rates are closely tied to the 10-year treasury yield, the Fed stands ready to buy government debt and help make housing more affordable via low mortgage rates. The hope is that such action would help put an end to a decline in asset prices and stop the deflationary spiral.

In fact, the latest Fed balance sheet showed that long term treasury purchases have already started, with around $1 billion in notes (5-10-year maturity) purchased for the week ended January 21^st. This is a modest amount, but it is a statement that the Fed is ready to do more than just talk. Traders have indeed sensed this development and Treasury Inflation-Protected Securities (TIPS) (TIP) are also beginning to reflect greater inflation expectations.

Gold investors are also sniffing out the coming price reflation as they piled into the SPDR Gold Shares (GLD) at an increasing rate.

For the month of January, GLD gold holdings rose 8.2% or close to a record setting 63 tonnes. At this rate, GLD will soon surpass Switzerland in its gold holdings, thus becoming the world’s sixth largest gold owner after the US, Germany, the IMF, France and Italy.

If the Fed continues to purchase long term treasuries, it is clear that there is only one way for gold and gold stocks and it is up.

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

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Gold as Part of a Portfolio – Seeking Alpha

By: San Olesky of Olesky Capital Management

Many investors have been thinking about gold recently. Some have considered it because it has been a relatively strong performer with the iShares COMEX Gold Trust (IAU) closing up 5.4% in 2008. It’s up 2% year-to-date as of Wednesday’s close. The iShares S&P 500 Index ETF (IVV) was down 36.94% in 2008 and is down 6.17% year-to-date as of Wednesday’s close. Other investors or traders have bought or considered gold as a classic safe haven.

My inclination is to refute the efficacy of buying or holding gold for security either in the form of an ETF or, more so, in the case of gold bullion bars or gold coins. However, as the financial crisis became more severe last year, a couple of clients approached me about adding gold to their portfolios. Rather than diplomatically rejecting the proposal, I told them that I would investigate the historic effects of holding gold in a portfolio. Long story short, I found that adding a small, reasonable allocation to gold reduced portfolio volatility substantially and increased return slightly.

A simple diversified portfolio consisting of 1/3 S&P 500, 1/3 Real Estate Investment Trusts (REITs), and 1/3 10 year U.S. Treasuries would have produced a compound annual growth rate (CAGR) of 8.47% with 11.15% volatility (standard deviation – SD) from 1993 to 2008. For comparison, the S&P 500 produced a 6.67% CAGR with a 20.16% SD. Although few investors would implement this 1/3 – 1/3 – 1/3 allocation, diversification is proving its strengths here. All of these statistics incorporate rebalancing annually.

Let’s take the same 1/3 – 1/3 – 1/3 portfolio and alter it to include a relatively small allocation to gold. That allocation will be 30% S&P 500, 30% REITs, 30% Treasuries, and 10% gold. Over the same timeframe the portfolio with gold produced an 8.49% CAGR with a 9.86% SD. The portfolio with gold produced a slightly better CAGR with volatility that was 11.6% lower than the 1/3 – 1/3 – 1/3 portfolio. The diversified portfolio with gold produced a CAGR that was 27.3% higher than the S&P 500 and 51.1% less volatile than the S&P 500. The S&P 500 had 4 losing years with the worst being a loss of 37% last year. The 1/3 – 1/3 – 1/3 portfolio had 3 losing years with the worst being a loss of 18.15% last year. The portfolio with gold had only 2 losing years with the worst being 15.74% last year.

In constructing sound and productive portfolios we would like to include assets that have high returns, low volatility, and low correlation to the other assets in the portfolio. Looking at gold’s average annual returns, relative volatility, and relevant correlations, one should expect that gold would be a constructive addition to many portfolio allocations. In fact, gold even has a relatively low correlation with commodities in general (S&P Goldman Sachs Commodity Index). However, we should learn from the past but not expect it to repeat itself exactly. There is much to be learned from historic returns, volatilities, and correlations of asset classes. With all due respect to history and math, we must use reason when constructing portfolios. I view gold as a very narrow and idiosyncratic asset. So, I do not feel that it is wise to strategically allocate as much as 10% to the asset although the historic, mathematically optimal amount would be higher in the context of some portfolios.

What did I do? Based on my tests and observations, I bought a little gold last year for some of my clients. I have incorporated a small allocation to gold into their continuing strategic allocations.

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My Note: This is great news even the Non Gold Bugs are become cautiously bullish!-jschulmansr

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Finally and extremely interesting article you want to read! Be sure to click on the chart links too…- jschulmansr

Economy Watch: What if Stocks Were Priced in Gold?- Seeking Alpha

By: Paco Ahlgren of Ahlgren Multiverse

“Everything has its limit — iron ore cannot be educated into gold.”

— Mark Twain

Several charts have been floating around the Internet for some time, showing the historical Dow Jones Industrial Average, priced in terms of gold. The simplest explanation entails thinking of the Dow divided by one ounce of gold; if the Dow is at 5000, and gold is at 500, then Dow-to-gold is 10. But it’s important to remember as you’re considering this ratio that the Dow is calculated in terms of dollars. So essentially, when we determine the Dow-to-gold ratio, it’s not just a simple ratio of gold to shares in the Dow, but rather it is a three-part ratio — Dow, expressed in dollars, to an ounce of gold.

Wouldn’t it just be easier to express gold in terms of dollars, or the Dow in terms of dollars? Well, those are certainly useful ratios — and we use them all the time — but what we’re really going after when we look at a historical Dow-to-gold chart is how well the Dow has performed, relative to the dollar, and relative to gold. What have inflationary pressures done to the Dow, in terms of gold and the dollar, over the past century? How have the three components moved in the various historical boom-bust scenarios? The results are interesting.

Let’s shift gears for a moment. Just off the top of your head, what would you expect stocks to do in periods of inflation? The dollar loses value rapidly, right? And that means prices of goods and services move higher, presumably with wages. So wouldn’t it stand to reason, intuitively, if corporations were making more money as prices increased, profits would increase too? And if profits increase, shouldn’t share prices go higher in response?

It turns out that inflationary price increases are bad for the stock market, and no period in history establishes this more concretely than the late 1970s and the early 1980s. Interest rates and prices soared, along with the price of gold, but stocks were flat. I want you to think about what I’m saying here: prices in general were going up, and yet the stock market was not. What this means is while stocks, in nominal terms, looked to be relatively stagnant, in real terms they were getting crushed. This is why the Dow-to-gold ratio is so significant as an indicator of relative value.

There is an elegant, simple truism that comprises every single transaction between buyers and sellers, and yet most people don’t even think about it: whenever you buy something, you are selling something else. When you buy corn, you are selling dollars. When you buy a Ford, you are selling dollars. If you are in Mexico and you buy a chicken, you are selling pesos. Of course, if you came from the U.S., you first sold dollars, bought pesos, and then sold pesos to buy the chicken. I know most of you already understand this concept, but I’m trying to emphasize that even when currency is used, every transaction is merely a trade; that is to say, the transaction is nothing more than negotiation that results in the exchange of two things — whether goods, services, or currency.

With that in mind, consider this: when prices rise because of inflation (printing of money), it isn’t so much that goods and services are getting more valuable — rather it’s much more accurate to say the currency is simply getting less valuable relative to everything else. If the dollar collapses, for instance, and the cost of a loaf of bread goes from $1 to $20 at the same time a share of Microsoft (MSFT) goes from $20 to $30, then Microsoft is severely under-performing — in inflation-adjusted dollars. A loaf of bread will cost you 20 times what it used to — not because it is more valuable, but because the dollar is less valuable. Meanwhile Microsoft is worth only 50% more. Relative to the dollar, shares of Microsoft are actually losing money — in a big way.

If you look at a chart of inflation from 1978 to 1982, you’ll notice a huge spike. If you look at a chart of the Dow Jones Industrial average during the same period, you’ll see that stocks traded sideways in a fairly well-defined range over the same period. But that doesn’t tell the whole story; if you adjust for the meteoric rise in prices during that five-year period, the stock market actually performed much worse than the nominal dollar fluctuations presented in the historical chart. In other words, the price of just about everything was going up dramatically, but stocks were not. So if you adjust prices back to “normal” levels, and adjust stocks accordingly, the picture for equities would have been horrible.

Now for the pièce de résistance…

Here is a series of charts of historical nominal gold prices (not adjusted for inflation), in several different currencies — the first of which is U.S. dollars. Take a look at the spike in the price of gold from 1977 to 1981. Now, if we go back to our original chart above, showing the Dow Jones Industrial Average, in direct relation to an ounce of gold (Dow-to-gold), you can see that the ratio went roughly 1:1 in 1980 — at the peak of the inflationary price surges. To clarify, the Dow was at about 750, as was gold.

But didn’t we say that, relative to rising prices, the Dow actually underperformed dramatically? So if you bought gold in the mid-1970s, not only was your investment skyrocketing, but the stock market — which was flat in nominal dollars — was actually doing very poorly relative to rising prices. Bear in mind that both the Dow and gold were priced in terms of nominal dollars at the time; they essentially “cancel out” — that is to say, relative to rising prices, gold also failed to perform as well as the nominal dollar-price. Still, it did offer an excellent hedge against rising prices, and even outperformed during the period.

What does all this mean? Well, for starters the average Dow-to-gold ratio over the last century has been about 9.5, and we are currently at about 8.5. So you’re probably thinking we’re oversold and due for a correction. In other words, the Dow-to-gold ratio is probably going higher, right? Well that was my first conclusion too, but actually on closer examination it turns out that’s probably not right at all.

For much of the last century the dollar was tied to gold, and while the relationship was never perfect — and the U.S. government betrayed the union many times, in many different ways — there was at least some relationship, which helped pull the ratio down. Eventually, excessive inflationary printing caught up with the government in the 1960s, and it became clear it wouldn’t be able to honor redemptions against the dollar at the price it had fixed. Nixon essentially defaulted on the U.S. promise to redeem dollars for gold by taking the U.S. off the standard in the 1970s — and this, more than anything else, allowed inflationary pressure to drive general prices into the stratosphere. This was the moment the Dow-to-gold ratio approached 1:1. To fight rising prices, Paul Volcker, the Fed Chairman at the time, pushed the Fed’s target interest rate past 20% and barely saved the U.S. economy from collapse.

For most of the next 20 years, gold fell and stock prices rose. Meanwhile, the U.S. government capitalized on the lie it had created and printed more and more money. Who really cared? Everyone was making money in the stock market, and prices remained relatively stable. In fact, every time prices failed to act “correctly,” the Fed simply changed the rate at which it would lend to banks. But the illusion of the monetary policy game couldn’t last forever; people used easy money printed by the government to buy assets they couldn’t afford throughout the economy — especially houses. Finally the pressure was just too much, and everything started unraveling in 2007. But the gold market seemed to understand the game couldn’t last, and around 2000 it started a slow, steady rise.

Relative to everything, the number of dollars in the system in early 2009 is almost incomprehensible. Once de-leveraging reaches its nadir — and it’s coming soon — those dollars are going to hit the economy and drive prices much higher.

What have we learned about stocks in such periods of rising prices? Not only do they fail to perform, but adjusted for inflationary price pressures, they actually under perform. General prices and unemployment will continue to rise. The consumer will continue to be unable to consume. Corporate earnings and dividends will continue to collapse as a result. Stocks are going lower — probably much lower.

And what about the price of gold? It will almost certainly continue to increase — not only because people will flock to its long historical stability and consistency, but also because there are simply so many more dollars (and yen, and rubles, and euros) in the world. Remember, the U.S. isn’t the only country printing innumerable sheets of currency. And in that context, remember also that inflationary price increases have almost nothing to do with increased demand, but rather they are the result of currency devaluation and destruction — through printing.

I just want to share two more charts with you. The first should give you a little perspective — it is a historical chart of gold, in both nominal and real dollars. Notice the real price of gold in 1980 (in 2007 dollars) was $2272 per ounce. If I’m correct about inflation and the fate of the dollar — and I’m confident I am — then we are nowhere near the historical high in gold. But I don’t think we’re merely going to re-test that high — I think we’re going to blow through it as the dollar loses value.

In the 1930s, as corporate earnings and dividends disintegrated, the Dow lost nearly 90% of its value from peak to trough. The U.S. was a creditor nation with a huge manufacturing base. The dollar was tied closely to gold. Since its peak in October 2007, the Dow has lost less than 50% of its value. The U.S. is a debtor nation with a relatively small manufacturing base. I can’t say it enough: we borrow profusely, we manufacture very little, and we consume gluttonously. Nonetheless, the consumer has now lost almost all his purchasing power, and corporate earnings and dividends are going to suffer massively as a result.

In 2007, the Dow peaked at about 14,150. To give you some perspective, an 85% drop in the Dow from peak to trough would put it at about 2100.

I know it’s easy to imagine the Fed has magical powers. I’ve fantasized about such things myself at times of extreme weakness — that maybe the Fed will “somehow” figure out a way to fight and defeat the unprecedented evil specter of inflation it is foisting on its unsuspecting children. Sometimes I do believe that our Lord and Savior Barack Obama will wave his charmed “unicorn horn of change” and all will be well again. Likewise, at times I feel like I could let Uncle Ben Bernanke take me just about anywhere in his helicopter of prosperity. My faith in the reverend John Maynard Keynes runs deep, as I hope, and hope, and hope. I find myself gleefully clicking my heels together and repeating, “the dollar is almighty, and the Stars and Stripes will prevail.” And when I am in this wonderful place, I have confidence that someday soon, we’ll all be buying houses with no money down, and with no jobs. Our driveways and backyards will once again overflow with boats, motorcycles, and sports cars.

Then I think about the 1930s. And suddenly I am wide-awake.

Let me ask you a simple question, and I want you to actually think about it. Do you really think we can’t get to the 1930s again? Do you really think that we’re going to return to the exuberant excess of the past few decades? If so, let me disabuse you of the notion: the United States was in much better shape, economically, going into the Great Depression than it is now. Prosperity is not coming back to the U.S. as we know it. We are in a lot of trouble.

Is a Dow-to-gold ratio of 1:1 so incomprehensible? Again, it has happened before — several times. But I’ll even take it a step further: what about a Dow-to-gold ratio of .5? Or less? I promise you, if the Fed fails to soak up all the dollars it’s putting in the system, that’s exactly where we’re going. And what, you may ask, does the Fed use to “soak up dollars?”

I’ll be glad to tell you that too. When the Fed needs to take dollars out of the system, it sells Treasuries (which means it buys dollars). The problem is, the U.S. debt-load is astronomical. Who, exactly, is going to buy that debt from the Fed? And at what interest rate? Remember, if the Fed is desperately trying to take dollars out of the system, there can be only one reason: it is scared of rising prices caused by inflation. But if the Fed floods the market with Treasuries, it will achieve exactly the opposite effect it’s looking for — it will cause rates to rise, probably dramatically. Do you really think the Chinese and the Japanese are going to buy Treasuries at a 2% yield if the Fed is panicking and trying to buy dollars to stop an inflationary price explosion? If so, you’re delusional. Chinese and Japanese people are smart. They’re not going to fund an inflationary dollar at 2%. Ever.

In the past it might have worked. Of course, in the past, the U.S. money supply was much smaller, and our ability to borrow was much stronger. But those days are gone.

As if I haven’t terrified you enough, the last thing I’m going to leave you with is really scary. It is a link to an excellent article by Mark J. Lundeen, whose insight into this economic catastrophe has been stupefying since long before all of this even started. Embedded in the article is a chart that shows historical dollars-in-circulation, relative to U.S. gold.

With that, I think I’ll let you do the rest of the math. Sleep well.

Disclosures: Paco is long gold.

Copyright 2009, Paco Ahlgren. All Rights Reserved.

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If you have done the math…

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

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That’ it for now – Good Investing – Jschulmansr

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

It’s Official- The New Gold Rally Has Begun!

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As it write this Gold is up $22.50 oz to $929.00! It absolutely smashed thru the $920 resistance! If we hold here $950 -$975 is the next level.  Barrick Gold CEO Munk says China to be a big buyer of gold as confidence is lost in the U.S. Dollar. The treasuries bubble is starting to burst and money is pouring into gold!- Good Investing! – jschulmansr

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Source: MineWeb.Com

 WORLD ECONOMIC FORUM

Munk forecasts currency, economy fears will send gold to new record highs

Whether it’s the currency effect or a reaction to a feeling of uncertainty, Barrick Gold Chairman Peter Munk says gold is more likely to go up than down.

Author: Barbara Lewis
Posted:  Friday , 30 Jan 2009

DAVOS, Switzerland (Reuters) – 

Gold is likely to hit new record highs, spurred by serious concern about the U.S. currency and doubt about the state of the world economy, the chairman of Barrick Gold Corp. said on Thursday.

There was even a possibility, although not a probability, central banks, including China’s, might start to switch from dollar holdings to gold, which could cause the metal’s price to treble or more.

From a gold producers’ perspective, one negative is that the cost of bringing on production has remained high, even as other raw materials, including base metals and energy, have slumped.

“Gold is at record levels in every currency except dollars. Even within dollar terms it is within a few percentage points of an all-time high at a time when all the other major commodities are falling,” Peter Munk told Reuters at the World Economic Forum meeting in Davos.

“Whether it’s the currency effect or a reaction to a feeling of uncertainty, gold in my opinion is more likely to go up than down,” the chairman and founder of the world’s largest gold mining company said.

Spot gold was at $902.80/904.80 at 1817 GMT. It hit a record high of $1,030.80 an ounce in March last year.

Munk stressed he was merely weighing the odds.

“It would be stupid to assume commodities prices can only go one way,” he said, adding physical demand for gold jewellery was not high during the economic downturn.

Gold has been one of the best-performing assets of late, rising in value by nearly 17 percent since late October.

Investors have bought heavily into physical bullion in the form of coins and bars and physically-backed assets such as exchange-traded funds as a safe store of value at a time of increased volatility in other asset prices.

Munk said downward pressure on the dollar, partly because of massive U.S. spending to stimulate the economy, would increase gold’s attractions as an investment further.

Gold usually moves in the opposite direction to the dollar, as it is often bought as a hedge against weakness in the U.S. currency.

“My personal feeling is that with the rescue packages calling for trillions, not billions… the value of the (U.S.) currency has to go down,” said Munk.

DUMB TO HEDGE

His company did not hedge its output for now — meaning it does not use derivatives to insure against a fall in price — and relied instead on the price climbing. In the past its successful hedging allowed it to make the acquisitions that helped to make it the world’s biggest gold miner.

“It would be dumb to hedge,” Munk said of the current climate.

His bullishness was underscored by the possibility central banks, including that of major dollar asset-holder China, might start buying gold.

“If they decide to diversify, we assume into gold, then we start to talk about a trebling or quadrupling of the gold price. It could be followed by Russia or Kuwait.

“I don’t think it’s likely, but it’s more likely. I would not have said it two years ago …I’m not a gold bug …but it’s more likely than it was two years ago.”

A strong price climate has meant ongoing investment in bringing on new gold, Munk said.

“In every other mining area, people are cancelling mines.”

But declines in other commodities have yet to have a major impact on cost.

“Marginally yes, but substantially no. For some reason cash costs are tending to continue to increase,” he said, when asked whether investment costs were falling.

“Energy costs have gone down. It does help, but labour costs are consistently increasing.”

The one way to reduce production costs is to invest in efficient new mines, Munk said, citing two major new projects in Nevada and the Dominican Republic and a smaller one in Tanzania.

(Reporting by Barbara Lewis, additional reporting by Jan Harvey in London; editing by Anthony Barker)

© Thomson Reuters 2009 All rights reserved

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Hedge Fund to Measure Returns in Gold Rather Than Currency – Seeking Alpha

By: Todd Sullivan of Value Plays

This is a pretty stunning move. What is even more alarming is the reasoning given.
From the FT:

A hedge fund has begun offering investors the chance to have their investment denominated in gold, as worries grow over governments debasing their currencies by printing money.

Osmium Capital Management, a $178m hedge fund manager based in Bermuda, is launching a new share class allowing investors to hold shares measured as troy ounces of the fund, rather than U.S. dollars, sterling or euros.

The move follows a surge in investor demand for small gold (GLD) bars and coins held by individuals and gold-backed exchange-traded funds that are holding a record amount of bullion.

Chris Kuchanny, Osmium chief executive and a former London ABN Amro trader, said he was putting almost all his personal wealth into the new share class: “Investors have voiced concerns that they’re overly exposed to the major fiat [paper] currencies in an environment where the fundamentals of those currencies are clearly deteriorating with governments assuming more debt and having lower revenue and more expenditure.

This shows a stunning lack of confidence in currencies. It also says that the fund is anticipating inflation to rear its ugly head in a scary way. When it does, the value of the currencies will plummet and gold will rise.

What is to watch now is whether or not other funds begin to follow. If this becomes a movement rather than an individual act, the crash in currencies could be expedited in a nasty way. Stay tuned…

Disclosure: No position in gold… yet.

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My Disclosure: Long Gold , Gold Etf’s, Gold Miners/Producers, Long Silver, Silver Miners/Producers, Platinum and Paladium Miners/Producers- jschulmansr

More to follow later today…

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

Are You Ready For This? – It’s Back and Ready To Rally!

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Are You Ready For This! You are asking yourself “am I ready for what?””What’s ready to Rally?” Gold my friend is the answer! As I write Gold is consolidating right around the $900 level. If you had listened to me you would be sitting on profits of $50- $100 oz. already! Well don’t worry Gold still has plenty of room to move as you will see in today’s post. – Good Investing! – jschulmansr

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Gold Price Could Double – World Gold Council

Source: World Gold Council

The value of gold could soar due to increased demand following the global financial crisis, it has been suggested.

According to Citigroup, the price of gold could double by the summer, the Daily Mail reports.

“We continue to remain unequivocally bullish on the medium to long-term view on gold and still believe that we can ultimately see levels in excess of $2,000 (?1,398),” the firm told the paper.

Such levels would mean the price of gold would more than double its current value.

The paper notes that since September, the value of the precious metal has already risen by $122.

Citigroup added that price rises will either come via inflation following liquidity injections by governments around the world, or by continuing investment from those who view gold as a safe haven.

In related news, a recent poll conducted by Bloomberg showed that 28 of 31 traders, investors and analysts questioned said now is a good time to purchase gold.
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$850B Stimulus Plan Signals Gold Take-Off – Seking Alpha

By: Peter Cooper of Arabian Money.net

Last night the US passed its much anticipated $850 billion Obama stimulus package, representing another huge monetary expansion. Countries all around the world have been at it, and the volume of money in circulation is increasing at a record level.

Meantime, gold prices have been perky and past $900 earlier this week. Now gold has fallen back a little. The gold chart has completed an almost perfect inverse head-and-shoulders pattern which should mark the reversal of the falling trend that started at $1,050 an ounce last March.

Gold technicals

Aside from the technicals of the gold chart, let us also get back to fundamentals: the supply of gold and silver is pretty much fixed. Money supply is undergoing huge and unprecedented expansion.

At present, governments are printing money like fury and little is happening to their economies because banks, companies and individuals are hoarding cash. But eventually pulling on this string will work, and money will flood into the economy in an uncontrollable way.

It is at this point that gold prices will go ballistic. That should not be more than nine months to a year away based on past precedent.

However, before that golden age occurs there will be increasing speculation about the future of the gold (and silver) price. More and more investors will read articles like this one and be impressed by the argument – which is far sounder than trying to come up with a new bull market for equities, bonds or real estate.

Bond crash

Sometime soon the bond markets of the world are also going to weaken much further, and that will give precious metals another reason to rise in value as an alternative safe haven class.

For investors in precious metals then it is just a matter of holding on and taking advantage of price dips to stock up with bullion and shares, although it is surely arguable that the best buying opportunities are behind us now as the price trend is about to head back up.

Trying to time the market exactly or using borrowed money is not a clever approach in volatile markets, but a diversified precious metals portfolio is going to be a winner over the next two years.

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

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Gold $2200: What’s in a number? – Seeking Alpha

By: Adrian Ash of Bullion Vault

Gold must hit $2,200 an ounce to match its real peak of Jan. 1980. Or so everyone thinks…

WHAT’S IN A NUMBER…? Ignoring the day-to-day noise, more than a handful of gold dealers and analysts reckon gold will hit $2,200 an ounce before this bull market is done.

Why? Because that’s the peak of 1980 revisited and re-priced in today’s US dollars.

Which sounds simple enough. Too simple by half.

First, betwixt spreadsheet and napkin, there’s often a slip. Several targets you’ll find out here on the net put the old 1980 top nearer $2,000 in today’s money. Another Gold Coin dealer puts the figure way up at $2,400 an ounce.

Maybe they got the jump on this month’s Consumer Price data. Maybe $200 to $400 an ounce just won’t matter when the next big gold top arrives. But maybe, we guess here at BullionVault, an extra 20% gain (or 20% of missed profits) will always feel crucial when you’re looking to buy, sell or hold. Perhaps that’s the problem.

Either way, having crunched (and re-crunched) the numbers just now, even we can’t help but knock out a target…

To match its inflation-adjusted peak of $850 an ounce – as recorded by the London PM Gold Fix of 21st Jan. 1980 – the price of gold should now stand nearer $2,615.

Second, therefore, the lag between current Gold Prices and that old nominal high scarcely looks a good reason to start piling into gold today. “Ask the investor who rushed out to Buy Gold precisely 29 years ago, at $845 an ounce, about gold as an inflation hedge,” as Jon Nadler – senior analyst at Kitco Inc. of Montreal, the Canadian dealers and smelters – said on the 29th anniversary of gold’s infamous peak last week.

“They could sell it for about $845 today…[but] they would need to sell it for something near $2,200 just to break even, when adjusted for inflation.”

This lag, of course, can be turned any-which-way you like. For several big-name Gold Investment gurus, including Jim Rogers and Marc Faber, it mean gold has got plenty of room left to soar, compared at least with the last time investors began swapping paper for metal in a bid to defend their savings and wealth.

But for the much bigger anti-gold-buggery camp – that consensual mob of mainstream analysts, op-ed columnists, news-wire hacks and financial advisors – gold’s inflation-adjusted “big top” just as easily stands as a great reason not to Buy Gold. Ever.

“An investor in gold [buying at the end of 1980] experienced a reduction in purchasing power of 2.4% per annum,” notes Larry Swedroe, a financial services director at BAM Services in Missouri, writing at IndexUniverse.com and recommending Treasury inflation-protected TIPs instead.

“[That was] a cumulative loss of purchasing power of about 55%…Even worse, that does not consider the costs of investing in gold…[and] while gold has provided a slightly positive real return over the very long term, the price movement is far too volatile for gold to act as an effective hedge against inflation.”

Volatility in Gold can’t be denied. Indeed, it’s the only thing we ever promise to users of BullionVault. (They can judge our security, cost-efficiency and convenience for themselves.) Traditionally twice as volatile as the US stock market, the price of gold has become five times as wild since the financial crisis kicked off. But price volatility has also leapt everywhere else, not least in the S&P 500 index – now 8 times wilder from the start of 2008. The Euro/Dollar exchange rate is more than four times as volatile as it was back in Aug. ’07, when the banking meltdown began. Even Treasury bonds have gone crazy, making daily moves in their yield more vicious still than even the Gold Price or forex!

So putting sleepless nights to one side (you may need to ask your pharmacist), the key point at issue remains “long term” inflation.

This chart shows the value of Gold Bullion – measured in terms of purchasing power, as dictated by the official US consumer price index – since the data series begins, back in 1913. (Hat-tip to Fred at the St.Louis Fed; the current CPI calculations and headline rate might bear little resemblance to personal experience of retail inflation, but for long-run data where else can we go?)

Starting at 100, our little index of gold’s real long-term value has then averaged 97.8 over the following 96 years…pretty much right where it began. As you can see, however, that long-term stability includes wild swings and spikes. And whether gold is tied to official government currency (as it was pre-1971) or allowed to float freely on the world’s bullion market, volatility looks the only sure thing.

The starting-point, 1913, just happens to be when the Federal Reserve was first founded. It was given the easy-as-pie challenge of furnishing the United States with an “elastic currency”.

Okay, so it ain’t quite made of rubber just yet. But the Dollar’s own value in gold – by which it used to be backed, pre-1971 – just keeps brickling and bouncing around like it’s being used to play squash.

What the chart above offers, however, is a picture of gold’s real long-run value outside of Dollar-price fluctuations.

“With the right confluence of economic and geopolitical developments we should see gold break through $1,500 and then $2,000 and then possibly still higher round numbers in the next few years,” said Jeffrey Nichols, M.D. of American Precious Metals Advisors, at the 3rd Annual China Gold & Precious Metals Summit in Shanghai last month – “particularly if we get the type of buying frenzy or mania that often occurs late in the price cycles of financial and commodity markets.”

“This is hardly an audacious forecast when looked at relative to the upward march in consumer prices over the past 28 years. After all, the previous high of $875 an ounce in January 1980, when adjusted for inflation since then, is today equivalent to more than $2,200.”

Audacious or not, as Nichols points out, the thing to watch for would be a “buying frenzy” – a true “mania” amongst people now Ready to Buy Gold that sent not only its price but also its purchasing power shooting very much higher.

Because for gold to reach $2,200 an ounce in today’s money (if not $2,615…) would mean something truly remarkable in terms of its real long-run value.

• Inflation-adjusted, that peak gold price of 21 Jan. 1980 saw the metal worth more than 5 times its purchasing power of 1913;
• In March 2008, just as Bear Stearns collapsed and gold touched a new all-time peak of $1,032 in the spot market, the metal stood at its best level – in terms of US consumer purchasing power – since December 1982;
• Touching $2,200 an ounce (without sharply higher inflation undermining that peak), gold would be worth almost 6 times as much as it was before the Federal Reserve was established in real terms of domestic US purchasing power.

“I own some gold,” said Jim Rogers, for instance, in an interview recently, “and if gold goes down I’ll buy some more…and if gold goes up I’ll buy some more.

“Gold during the course of the bull market, which has several more years to go, will go much higher.”

But “much higher” in nominal Dollar terms is not the same as “much higher” in terms of real purchasing power, however. More to the point, that previous peak of $850 an ounce – as recorded at the London PM Gold Fix on 21 Jan. 1980 – lasted hardly two hours.

Defending yourself with gold is one thing, in short. Assuming gold is the perfect inflation hedge is quite another. And taking peak profits in gold – as with any investable asset – is surely impossible for everyone but the single seller to mark that very top price.

That doesn’t diminish gold’s real long-term value to private investors however, as we’ll see in Part II – to follow.

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

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Is Gold Really Pausing? – MarketWatch

By: Peter Brimelow of MarketWatch.com

 Will Mark Hulbert’s recent column, pointing out that the Hulbert Gold Newsletter Sentiment Index (HGNSI) was over-extended, signal an important top? Or just a ripple? See Hulbert’s Jan. 27 column.

Either way, there will be a group of angry readers. Of the 220 comments about the column, as I write, the furious bulls outnumber the fanatical bears about 3 to 1.

But both sides are pretty riled up. This is only money, people!

Early Monday in New York, gold cleared $915. But Wednesday evening, it was down $30-plus from its high. And the US$ 5×3 point and figure chart kindly supplied by Australia’s The Privateer service has turned down. See chart.

There is a possibility that the action around the weekend was a false breakout.

If it turns out to be a bull trap, GoldMoney’s James Turk will turn out to have been wise in his latest Freemarket Gold & Money Report. Turk accepts the radical thesis that the price of gold is manipulated by an alliance of private and public sector actors.

He writes: “Gold must still contend with the gold cartel and its ongoing efforts to cap the gold price. It may try to ‘circle the wagons’ above $900, which would seem a logical point for them to make another stand now that $850 has been exceeded. If the gold cartel is successful in stopping gold for any length of time, new longs may get discouraged by the lack of progress and take profits. That selling, along with new shorts by the gold cartel, could begin a cycle of selling that gains momentum and drives gold back to its last level of support, which is $850.” See GoldMoney Web site.

Will gold stumble? In favor of the bears, oddly enough, is the section of Bill Murphy’s radical goldbug LeMetropoleCafe Web site that follows India. The Indians are definitely out of the world gold market, it appears. On downswings, their support is usually crucial. See LeMetropoleCafe Web site.

But the radical gold bugs think strange things are happening. Murphy’s site noted Tuesday that the extraordinary premiums being paid in the West for gold items did not go away on this month’s rise. And the Comex gyrations, closely examined, continue to suggest the presence of large, determined buyers.

For perspective on Mark Hulbert’s HGNSI, look at MarketVane’s Bullish Consensus for gold. This surveys futures traders. It peaked at 74% on Monday, and came in tonight at 72%.

Sometimes gold peaks do occur with this reading in the 70s. That happened at the turn of the year, and again last September.

But the normal behavior, especially before a big sell-off, is for the upper 80s at least to be reached. Last February/March, as gold attempted $1,000, the Bullish Consensus spent no less than four weeks in the 90s. See MarketVane Web site.

So the radical gold bugs conclude that gold may pause. But it’s not seen a major blow-off yet.

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

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Gold headed south for the short term?- MarketWatch

By: Mark Hulbert of MarketWatch.com

ANNANDALE, Va. (MarketWatch) — Gold certainly deserved a rest Wednesday.

After all, it had mounted an impressive rally over the previous two weeks, gaining some $100 per ounce. So we can definitely excuse gold bullion  for forfeiting $9 in Wednesday trading.

The more crucial question, however, is whether the decline was merely the pause that refreshes, or the beginning of a more serious drop.

Unfortunately for those hoping gold’s recent rally to continue, the conclusion of contrarian analysis is that the metal’s short-term trend is more likely to be down.

Consider the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold-market exposure among a subset of short-term gold-timing newsletters tracked by the Hulbert Financial Digest. As of Tuesday night, the HGNSI stood at 60.9%.

This is identical to where the HGNSI stood at the end of December, when I last devoted a column to gold sentiment. ( Read my Dec. 29 column.)

Over the two weeks following that column, of course, bullion dropped by around $70 an ounce.

Contrarian concern about gold’s short-term trend isn’t just based on this one data point, however. I have more than 25 years of daily data for the HGNSI, and rigorous econometric tests show that the inverse correlation between HGNSI levels and the gold market’s subsequent short-term direction is statistically significant at the 95% confidence level.

This is why the HGNSI’s current level is so ominous.

To put it in context, consider that this sentiment gauge’s average reading over the last five years has been 32.6%, only slightly more than half where it stands now. Over the last five years, furthermore, the HGNSI has been higher than where it is now just 13% of the time.

This does not mean gold can’t go higher from here. But it does suggest that the odds are against it doing so.

Lest I incur undeserved gold-bug wrath by writing that, let me hasten to add that this bearish conclusion applies to just the next several weeks. Sentiment affects the short-term trend of the market, not the long term.

So my conclusion is entirely consistent with gold being in a major, long-term bull market.

But even if it is, the implication of my contrarian analysis is that gold is not ready, at this very moment, to commence on that march upward.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

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My Note- While feeling that Gold price make take a breather here consolidate and maybe even drop a little, both Mark Hulbert and Peter Brimlow agree; Gold is in a long term Bull Market! Any dips in price should be taken as an opportunity to buy more gold!…

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

That’s all for now, hit the subscribe button to keep up with all the latest Gold, Market News and more…Enjoy! – jschulmansr

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

Is this the Move? Gold is Breaking Out!

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

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

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

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

By: Trader Mark of Fund My Mutual Fund

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

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

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

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

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

Or just play it simple and go double long gold

 

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Happy Days For Gold? —Seeking Alpha

By: Jeff Pierce of Zen Trader

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

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

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

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

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

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

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

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Now- Some Commentary by Dennis Gartman

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

Source: The Gold Report

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

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

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

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

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

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

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

DG: Oh, it always is.

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

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

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

DG: Absolutely.

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

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

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

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

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

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

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

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

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

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

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

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

TGR: But it will also push inflation higher.

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

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

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

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

TGR: That’s really diversifying your monetary assets.

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

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

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

TGR: But not physical gold?

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

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

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

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

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

TGR: How about mining stocks?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TGR: Just a wee bit.

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

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

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

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

DG: Oh, absolutely.

TGR: What will drive that?

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

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

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

TGR: And you think that he will?

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

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

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

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

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

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

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

DG: Banks, banks.

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

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

TGR: Are you talking about the big boys?

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

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

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

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

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

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

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

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

DG: You want to own food and grains again.

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

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

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

DG: Yes and yes.

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

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

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

DG: That’s true; that’s correct.

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

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

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

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

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

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

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

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

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

TGR: Somewhere around the World War II era.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TGR: That’s the paradox.

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

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

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

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

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

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

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

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

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

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Market Leaders Hesitate on Stimulus Plan— Seeking Alpha

By: Chris Ciovacco of Ciovacco Capital Management

Proposed Economic Stimulus Plan May Not Stimulate Much

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

Tug of War Between Liquidity and Economic Weakness

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

U.S. Stocks: Downtrend Remains In Place

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

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

Gold & Gold Stocks Still Face Hurdles

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

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

Run In Treasuries Is Long In The Tooth

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

TBT offers a way to possibly profit from the negative forces aligning against U.S. Treasury bonds.

Strength In Bonds Shows Little Fear of Price Inflation

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

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

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

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

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

U.S. Dollar Remains Firm

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

Disclosure: Ciovacco Capital Management (CCM) and their clients hold positions in SH, GLD, and PHK. CCM may take long positions in GDX, TBT, LQD, AGG, BMT, and AWF.

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

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

Scary, they’re actually Going to Pass This?

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Curious?… to find out what I am talking about? Read On… Congress shouldn’t be allowed to do this! Not only am going to include the TIME magazine article, I am including the actual link to the bill itself, the press release version. The coming runaway Inflation Train and what to do to protect yourself! Read Below…Good Investing! – jschulmansr

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First Here are the links…

The American Recovery and Reinvestment Bill of 2009

The American Recovery and Reinvestment Bill of 2009 Press Summary

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A Guide to Reading the America Recover and Reinvestment Bill- TIME MAGAZINE

Source: Time Magazine

Brendan McDermid / Reuters

“Madness is to think of too many things in succession too fast, or of one thing too exclusively” — Voltaire

The American Recovery and Reinvestment Bill of 2009 should be required reading for every citizen from billionaires to the average person. It was issued by The Committee On Appropriations and is the road map for the $825 billion that the Congress and Administration intend to put into the U.S. economy to jumpstart the economy out of the recession.

The most important part of the document may be the description of how the country was dragged into the worst economic period in its history. ( See pictures of the Top 10 scared traders.)

At the beginning of the bill, the authors write: “Since 2001, as worker productivity went up, 96% of the income growth in this country went to the wealthiest 10% of society. While they were benefiting from record high worker productivity, the remaining 90% of Americans were struggling to sustain their standard of living. They sustained it by borrowing … and borrowing … and borrowing, and when they couldn’t borrow anymore, the bottom fell out.”

If that analysis is true, then two other things must be accurate. The first is that the cause of the recession was Americans becoming overextended in their use of credit. The other one, which is a consequence of the first, is that if the government can facilitate future consumer borrowing, the economy will be righted again in short order. That would mean that more complex methods of solving the problems of the recession, such as spending money on infrastructure, would be unnecessary. It would be simpler to take $825 billion and make it available for home equity loans, enlarge credit card lines, and auto loans.

But, the authors of the bill are not willing to follow their own logic, so they have crafted another plan. The first assumption of what the program will do, and among the most important of its goals, is only mentioned in passing. “This package is the first crucial step in a concerted effort to create and save 3 to 4 million jobs.” This is a little twist on what is being said in public.

The general assumption about job creation under the program is that it will add 3 to 4 million jobs. But in the introduction to the bill the assumptions about job loss are laid out quite clearly: “Credit is frozen, consumer purchasing power is in decline, in the last four months the country has lost 2 million jobs and we are expected to lose another 3 to 5 million in the next year.”

The mathematics of the two sets of employment analysis taken together would show then that no new jobs would be created. The three million or so jobs which will be lost in 2009 will simply be replaced by three million new ones. The jobs lost late in 2008 will not be replaced in this program, leaving a two million job deficit Joblessness will stay at about 7.2%

Other than those details, the money will be well spent.

The states need help, and the federal government means to provide it: A sum of $79 billion in state fiscal relief will be provided to prevent cutbacks to key services

After the plans to help the states, cut taxes, and provide new infrastructure for the nation, the programs get a little off track.

The bill means to spend $44 million to repair the U.S. Department of Agriculture’s headquarters. About $400 million will go to repairing national monuments in Washington, which are somehow considered essential to national infrastructure.

Additionally, Congress plans to pay out $200 million to provide financial incentives for teachers and principals to do their jobs better. Another $100 million will be used to establish a set of grants to provide $100 to local governments and nonprofit organizations to remove lead-based paint hazards in low-income housing.

Perhaps the best investment in the bill is for $80 million to ensure that worker protection laws are enforced as recovery infrastructure investments are carried out. In other words, there will be a police system set up to make sure that no one with a new job working on national infrastructure with money provided by the government will have his or her rights violated.

The bill calls for over one hundred programs which Congress plans to enact. These include addressing problems as diverse as community block grants, upgrading the forestry service, bridge removal, and NASA research funding. The remarkable thing about the legislation is that almost every program is ill-defined and subject to broad interpretation and a wide variation as to how it might be enacted.

In a sentence, The American Recovery and Reinvestment Bill of 2009 will have to build a bureaucracy larger than any ever created by the US government in order to manage its many parts.

The first sentence of the bill reads “The economy is in a crisis not seen since the Great Depression.” If it requires all of these plans to get America back on the road to recovery, the process will take a decade.

— Douglas A. McIntyre

See pictures of the global financial crisis.

For constant business updates, go to 24/7wallst.com.

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*** My Cure for the coming runaway inflation train? Read below…

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Gold Will Shine Again in 2009 – Seeking Alpha  Part 1

By: Sean Hyman of mywealth.com

I think this one may be a shocker to many…that gold is going to be much higher at the end of 2009 than it is right now. I think it will take out its highs just above $1,000 an ounce and will head for at least $1,250 an ounce. (Gold is presently trading around $853 an ounce.)

When I was a stock broker, I hated gold. To me it was the dumbest investment on the planet. Of course I worked as a broker when gold was in a multi-year bear market.

But the more that volatile booms and busts have caused the need for more government intervention, the more of a believer I’ve become in gold.

Let’s look at several of the dynamics that have helped to form my view for gold in 2009.

South Africa is home to some of the biggest gold mines in the world. In 2008, their gold output shrank as exploding input costs caused them to close some of their most expensive mines. (Produce less of the metal and the speed of the supply shrinks which helps to support the price.)

This has been one dynamic that has helped to support prices in 2008 and that has kept gold in an 8 year bull market. Even in 2005 and 2008 when the dollar rallied, gold still held its ground. This shows a lot of strength for the metal since the dollar and gold largely trade somewhat opposite of each other (being that gold is denominated in dollars and when the dollar is rising, it tends to calm the fears for the currency which typically dulls the demand for the precious metal).

In fact, had it not been for tons of hedge fund failures and liquidations, I think gold would actually be much higher than it is right now.

Helicopter Ben & Obama will do their part to help gold out!

With the credit crisis in full swing, the Fed has responded by turning on the printing presses at full speed. This enormous increase in the money supply (which is temporarily clogged up in the banks) will eventually be unleashed on the economy. Once this happens, you will quickly see deflation erased and we may actually move into a period of hyper-inflation.

Why would I go so far as to think that? Heck, the Obama administration may print as much as a few trillion dollars to help out the banks according to former central banker Volcker.

We’ve also got another stimulus package coming within weeks according to the Obama administration.

Another reason why I feel that a huge bout of inflation will return is because of interest rates. If you’ll remember, Congress got pretty harsh with Alan Greenspan for taking rates down to 1%. They even went so far as to accuse him of causing the recent bubbles in the economy, which he denies.

Well, if the “1% cheap money” inflated things into the stratosphere, what do you think will happen with Ben Bernanke’s interest rate range of 0% to 0.25%? Could you say it would have any less of an effect? No, it will have an even greater “bubble effect” in time as the cheap money actually is released out into the economy.

Tomorrow, I’ll continue with “Part 2” of this “gold story”… So stay tuned!

Gold Will Shine Again in 2009 Part 2

by Sean Hyman

Get ready for the “economic pipes” to be unclogged and for a tidal wave of inflation to head our way!

I assure you that Obama’s economic advisors will be the “drain-o” that gets the pipes unclogged. When this happens, the Fed knows that it will have to “mop up” this excessive liquidity in the financial system.

However, here’s what I predict will happen: The Fed, while it wants to be a forecaster of the economy really just ends up becoming a “responder” after the fact to what’s going on in the economy. Therefore, between the time that the Fed starts to see the inflationary signs in the economy and starts the process of draining the excess liquidity from the economy, it will be too late. The hyper inflationary effects will already be in play. They will be “late to the ball game” yet again.

When all of this starts to happen (and possibly a bit beforehand), savvy gold investors will sense it coming and will buy up gold ahead of time…positioning themselves like a surfer that gets out ahead of the coming wave that will propel him forward.

The Fed will do its best at that point to drain the money supply and hike rates, but there are delays from when they start to act and when it actually starts to effect the economy. This “lag time” will cause a huge return of inflation in a big way that will propel gold ever higher and will eventually dilute the dollar as well.

You see, when there’s more of something in existence, it begins to hold less value. So as the money supply is quickly increasing, the dollar will eventually feel the effects of it. Remember, there’s that delayed “lagging” period which is why it hasn’t already been felt even now.

However, as sure as the sun is coming up tomorrow…it’s coming. So get prepared ahead of time. For, the key to successful investing is to buy just ahead of the massive move. This requires an investor to “think ahead”. You can’t just see what’s happening at present and prosper like you should in your investing. It requires one to be “forward looking” and thus “forward thinking”.

When all of this unfolds, investors will buy gold (which is essentially exchanging their dollars for gold) as they seek safety, liquidity and an “insurance policy” against runaway inflation.

Gold production will continue to shrink and Central Banks will hold onto their gold in 2009!

So with the economy deeply damaged, unemployment claims hitting almost 600k as of this writing, there’s not going to be a huge incentive for investors to sell gold. That’s why gold has only come off of its top by 17.9% and stocks have been 40+% off of their highs on average. You can see its underlying strength just in that fact alone.

Also, remember that gold supplies will continue to tighten in 2009 just as they did in 2008. Why? Africa’s production of gold sank 14% which was the lowest levels since 1899. That’s serious! But it’s not just a South Africa story. U.S. gold production fell 2% last year. While China (which has now become the world’s biggest producer of gold) had their production rise 3% last year, the “net” result collectively among all countries is a net slowdown in gold production.

Central bank selling in gold was down a full 42% last year. And you’d be an idiot of a central banker to sell a bunch of gold in 2009 with the U.S. and global economy still hobbling along. Therefore, you can count on these guys not adding to the selling.

Therefore, get ready to buy gold, sell dollars and buy foreign currencies like the euro and especially the Aussie dollar which is greatly helped by rising gold and other commodity prices.

Most of the increase in gold and selling of dollars may come more in the 2^nd half of the year than the 1^st half due to the delayed effect of Fed policy and as the Obama administration starts to get its feet wet in tackling the economic woes.

But be aware and watch for the change just in case it happens even a bit sooner than I think.

Gold consolidates its multi-year gains as it catches its breath and prepares to run “ever higher” in 2009!

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2009 Gold Outlook

2009 Gold Outlook

How To Invest in Gold in 2009

By Luke Burgess
Monday, January 5th, 2009

The investment markets are yielding to the fact that the global economy will remain weak for the better part of 2009.

As a result, investors will continue to seek safe havens.

Under normal conditions, these safe haven investments would include land and real estate. These assets have intrinsic value; or in other words, their value will never fall to zero. But with falling prices, investing in real estate is out of the question for most people right now. And there’s little doubt that investors will look elsewhere for safety against financial crisis.

The best safe haven asset in the world right now is still gold because it is never considered to be a liability.

And we believe that safe haven investment demand will drive gold prices during 2009. With this in mind, we would like to present a broad overview of Gold World‘s 2009 gold outlook. But before we get into that, let’s review what happened to gold prices in 2008.

Gold Was One of the Best Investments of 2008

In March 2008, gold prices hit a record high of $1,033 an ounce as the gold bull market entered its seventh year of life. This was followed by a normal 18% correction, which drove gold prices back down to $850 an ounce.

Gold prices subsequently rebounded and were once again closing in on the $1,000 level in mid-July. At the same time, however, the fundamental and psychological effects of the slowing housing and credit markets were just beginning to devalue significantly the investment markets across the board.

As a result, many long gold positions had to be sold in order to cover losses from investments in other markets. Over the next several months, this forced selling pressure pushed gold prices down.

Gold prices were also held down during the second half of 2008 as the U.S. dollar enjoyed a +20% rally. Foreign governments, institutions, and banks began buying the U.S. dollar, which despite a legion of problems continues to be the world’s most important reserve currency, as a hedge against domestic economic turmoil.

These factors contributed to a significant drop in the price of gold, which officially bottomed out for the year at an intraday low of $683 an ounce in October 2008.

Gold prices have subsequently bounced off of the $700 level as major selling has dried up, and fresh buying has come into the market.

Despite three 20% corrections and serious deflation in the market, gold exited 2008 with a positive 5.4% gain for the year. Although subtle, this gain outperformed every major equity index and commodity in the world. Here are just a few examples…

Index/Commodity	Percent Change During 2008
Dow Jones	-34%
NASDAQ	-41%
S&P 500	-39%
TSX	-35%
TSX Venture	-74%
Oil	-55%
Silver	-23%
Copper	-54%
Gold	+5%

This made gold one of the best investments of 2008.

And the 2009 gold outlook looks just as strong.

Despite a bit of downside in the immediate future, we expect gold to have a stellar year.

Global economic turmoil and deflation will undoubtedly continue to influence gold prices in the near-term. A short-term pullback in gold prices from current levels to $800—maybe even a bit lower—before a recovery is not out of the question. However, we expect gold prices to break new records during 2009.

For our current perspective, we expect gold prices to reach as high as $1,300 during 2009, which would be a profit of over 50% from current levels.

Gold prices in 2009 will be supported more heavily by supply/demand fundamentals than in the previous years of this gold bull market.

As we’ve previously discussed, during the third quarter of 2008, world gold demand outstripped supply by 10.5 million ounces. This deficit was worth $8.5 billion and was the largest supply/demand deficit since the gold bull market of the 1970s.

Official 4Q 2008 world gold supply/demand figures will be calculated and reported later this month. Gold World will report them to you when the data is released.

In the meantime, though, all estimates suggest that there will be another very large deficit in world gold supplies from the fourth-quarter, with investment demand continuing to drive the market.

We expect that a continuing surge in investment demand could push gold prices as high as $1,300 at one point during 2009.

There will likely be a bit more volatility in the gold market in 2009 as more and more speculators come into the market. It is likely that the gold market will experience three or four price peaks (selling points) during 2009.

How to Invest in Gold for 2009

As we expect a near-term drop in gold prices as a result of continuing deflation, we are advising our readers to hold off on any physical gold buying for the immediate future. As previously mentioned, gold prices could dip back down to $800 before recovering again.

Nevertheless, we expect 2009 to be another great year for gold investors.

Good Investing,

Luke Burgess and the Gold World Research Team
www.GoldWorld.com

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Tomorrow we’ll check on what’s the latest on the Obama eligibility issue.

Be Blessed and Remember: Dare Something Today Too!

Are You Invested In Gold Miners?

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Good Morning, As I am writing this post Gold is up another $17 to $876/ oz. It would appear barring sudden dollar strength, we have succesfully broken the upper resistance level of $860 to $870; if we hold here $900+ will be the next level. Are You Invested In Gold Miners? If so, today’s post is a must read. – Good Investing!- Remember to Dare Something Worthy Today Too! – jschulmansr

ETF vs. Mutual Fund: Two Ways to Invest in Gold Miners – Seeking Alpha

By: Don Dion of Fidelity Independent Advisor

Whether saddled to mutual funds like Fidelity Select Gold (FSAGX) or ETFs like Van Eck’s Gold Miners Index (GDX), gold investors have experienced a wild ride over the last year. While the recent volatility in gold prices is certainly enough to give investors pause, a good argument exists for the presence of a gold ETF or mutual fund in a well-diversified portfolio. Both FSAGX and GDX help investors mitigate the pitfalls of falling currencies and economic slowdowns. Since gold is a physical asset, it tends to maintain its value over time, giving wary investors an added measure of security as time-tested institutions vanish in the face of economic crisis.

FSAGX and GDX both invest assets in companies that are primarily engaged in the exploration, mining, processing and dealing of gold. As of FSAGX’s semiannual report in November 2008, the fund held seven out of ten of the same top ten holdings. While GDX tracks the NYSE Arca Gold Miners Index, comprising 32 small, medium and large companies incorporated in any gold index, FSAGX is managed by Joe Wickwire and is composed of 69 holdings. The similarities between the two funds are striking, but some investors prefer having a human, rather than an index, at the helm. The larger number of holdings in FSAGX also means a smaller concentration of assets in top holdings, reducing the exposure that investors have to any one portfolio component.

The top component for both FSAGX and GDX is Barrick Gold Corp. (ABX), constituting 13.77% of GDX’s portfolio as of January 13 and 9.5% of FSAGX’s portfolio as of late November 2008. The Toronto-based exploration company holds interests in a variety of gold resources in South America, Africa and Australia. At the end of 2007, ABX had 124.6 million ounces of proven and probable gold reserves, 1.03 billion ounces of contained silver within gold reserves, and 6.2 billion pounds of copper.

Goldcorp (GG), the second-largest holding for both GDX and FSAGX, saw shares battered with a series of downgrades and target price reductions in early January, after releasing lower guidance for 2009. Some analysts, however, have dismissed the tarnish to Goldcorp’s shares as an overstatement of the reality of an industry-wide slowdown. In GG’s latest report, the adjusted forecast calls for 50% growth in production through 2013—only 5% lower than analysts’ estimates. In 2008, GG produced a hefty 2.3 million ounces of gold, achieving low margins on a scale larger than those of other competitors such as Yamana Gold (AUY) and Agnico-Eagle Mines (AEM).

While the most obvious difference in deciding between an ETF and mutual fund is the fees associated with the two different investments, investors should consider several factors when choosing FSAGX or GDX. Even though the expense ratios of both funds are well below the category average—FSAGX is 0.86% while the ratio for GDX is 0.59%—many investors have gravitated to the ETF fund in recent years for the additional edge.

Investors who own FSAGX will have to hold shares of the fund for longer than 30 days in order to avoid a 0.75% redemption fee—a nerve-racking setback for nervous investors who prefer the option of getting in and out of investments quickly. As opposed to the once-a-day pricing method of mutual funds, ETFs like GDX trade continuously throughout the trading day, but this flexibility also brings an increased measure of volatility. ETFs tend to be more affected by changing news events than mutual funds are, causing surges and dips in price avoided by comparatively steadier mutual funds.

The differences between GDX and FSAGX are more apparent when comparing fund performance in recent months. GDX dropped more than 63% from July 14, 2008, to October 28, 2008, but it has since recovered 35%. FSAGX, however, fell only 60% from July 14 to October 28 and has recovered 36% in the period since. While their price movement is relatively similar, investors fearing intraday volatility may feel more comfortable with FSAGX than GDX, especially given its longer track record.

While putting assets into gold could prove to be a profitable move for many investors, it is important for prospective GDX and FSAGX buyers to keep the role of this commodity in perspective. With the ultimate success of gold investments weighing heavily on continuing inflation concerns, placing a bet on gold—or any narrow sector—could whipsaw investors as the inflation battle takes shape under the new administration. For those investors seeking the added security that gold could add to their portfolios in 2009, both GDX and FSAGX, with their solid track records and investor interest, are good places to start.

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My Note: Mutual Funds (and there are many in addition to the above), are a good way to get a nice spread (basket) of different Gold Miners. In addition, I personally like to have holdings in Individual Companies too! I have 2 different Mutual Funds, in addition to holdings in many of the above mentioned companies. I also like a lot of the mid tier and junior Gold Miners too. I generally try to invest in companies that have production (or about to produce), with a lot of cash on hand (due to financing difficulties for comapnies). The whole sector has been beaten down in prices and if you look carefully, you can find many companies right now that are selling at or for less than actual book value. Personally, I am loading up! As always, do your due diligence and read all the prospectuses; and/or consult your investment advisor.

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Kinross Raises More Capital; Gold Miners Look Strong – Seeking Alpha

By: Marc Courtenay of Check The Markets.com

Kinross Gold (NYSE:KGC), one of the world’s best performing gold stocks, announced a public equity offering of 20.9 million common shares at $17.25 per share, with gross proceeds of about $360.5 million, to enhance the company’s capital position following the funding of recent acquisitions.

In 2008, the gold and silver miner bought Aurelian Resources for around $809 million. Since that time, the shares of stock have had average daily volume of over 11 million shares on the NYSE and traded in a 52-week range of $6.85-$27.40.

The Canada-based company has also granted the group of underwriters, led by UBS Securities Canada Inc., an overallotment option to purchase up to an additional 3.135 million common shares at the offering price. This option is available for 30 days after the offering closes. If this option is excercised in full, it will bump up the total proceeds to about $414.6 million.

The offering is scheduled to close on or around February 5, 2009. The company has 665 million shares outstanding.

Kinross ranks as number one global gold pick among a number of analysts and investors. Production for the group is anticipated to grow around 30% this year to around 2.45 million ounces.

The new money now being raised is targeted for general corporate purposes after recent acquisitions depleted around $180 million of Kinross’s existing cash. Just two months ago, Kinross shelled out $250 million on a 6 million ounce gold deposit in Chile.

The last quarter’s earnings growth was up an impressive 64% year-over-year, the balance sheet looks better than average with a total debt-to-equity ratio of just .017 and total cash of over $720 million.

The Kinross acquisition may have upped the tone for other gold miners. Harmony Gold (NYSE:HMY), the world’s fifth biggest gold miner by ounces produced, on December 22 announced the raising of R979 million before costs, by placing 10.5 million shares at an average price of R93.20 each between November 25 and December 19 2008.

The fresh capital is earmarked mainly to further pay down Harmony’s debt, which is targeted, on a net basis, to be around zero by mid-2009.

Among other capital raisings, during November, Agnico-Eagle Mines (NYSE:AEM), a leading Tier II gold digger, raised $252 million in a seemingly effortless offering.

Overall, when it comes to healthy, proactive and well-managed gold mining companies, the offerings are “in response to strong investor demand.”

Although right now I have both a long and a short position with KGC, I won’t be buying any more until the price per share corrects at least 20% below present levels. But I’m impressed with both the fundamentals of Kinross and the way the investment community views them so favorably.

KGC, along with Goldcorp (NYSE:GG), Barrick Gold (NYSE:ABX), Yamana Gold (NYSE:AUY) and IAM Gold (NYSE:IAG) are shares I want to be accumulating for the year ahead.

The market volatility should help us to buy at lower prices, but the whiff of future inflation and the popularity of gold as a monetary alternative may keep share prices from falling as low as I would like. Patience though, is usually rewarded.

Disclosure: Author holds both a long and short position in KGC

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Next – Do we have a potential Takeover or Meger Forming? – Read this next article… 

Flush Kinross Likely Looking for a Deal with Yamana-Credit Suisse- Seeking Alpha

Source: Financial Post Trading Desk

If Kinross Gold Corp. (KGC) had $705-million in cash at the end of the third quarter, why did it decide to raise another $360-million in a bought deal offering of 20.9 million common shares at $17.25 each?

The company said it will use the money to bolster its capital position and for general corporate purposes, but investors are surely wondering if any acquisitions are in the making.

An over-allotment option of 3.14 million shares would bring total proceeds from the offering to $415-million. Credit Suisse analyst Anita Soni also noted that Kinross is expected to have another $541-million in operating cash flow in 2009 (based on $700 per ounce gold), while it has $700-million in obligations this year (including capex of $460M).

“Kinross is well funded with its current cash and cash flow position and does not require additional funds for its current pipeline of growth,” she told clients, adding that the company is strengthening its coffers to capitalize on acquisition opportunities to shore up its growth profile.

Ms. Soni said “tack on” acquisitions like the Lobo Marte gold project deal with Teck Cominco Ltd. (TCK) for about $250-million, plus a royalty, in November, are possible. However, she also said a larger transaction in the senior or mid-tier space could surface, with Yamana Gold Inc. (AUY) and Teck’s Pogo mine as likely candidates.

Ms. Soni said:

Yamana has a good project pipeline but it does not have the near-term capital to fund that growth. An acquisition of Yamana would deliver a project pipeline and growth from 2009-2011 even using our conservative forecasts for Yamana. It is also likely that Kinross would be able to realize additional ounces beyond what we forecast for Yamana given Kinross’s ability to fund growth.

Yamana’s current multiple based on metal and share prices is around 1.2x, while Kinross is at 1.5x.

The analyst added that Agnico-Eagle Mines Ltd. (AEM) is too expensive, while Goldcorp Inc. (GG) and Barrick Gold Corp. (ABX) are too big in terms of market capitalization.

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That’s it for today, Gold now up $19 at $878/oz! – Good Investing- jschulmansr

Dare Something Worthy Today!

Are We Getting Ripped Off? Latest Bailout and Gold News

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Are We Getting Ripped Off? Read Today’s Post dealing with the Bailout, Gold Price Manipulation and more. I’m back, we have a new President, what does this mean for your investments… Read On and Good Investing! – jschulmansr

Preventing The Greates Heist In History- Seeking Alpha

By: Whitney Tilson of Value Investing

There’s currently an idea to fix the financial system that’s getting quite a bit of traction: an RTC-type program whereby the government would buy $1 trillion of troubled assets from struggling U.S. banks, with the goal of restoring them to health so they can begin lending again, leading to an economic recovery.

 

The problem with this idea (let’s call it “New RTC”) is that either the government will pay market prices for the toxic assets – in which case, it will simply accelerate the collapse of our financial system – or pay above-market prices, in which case taxpayers will likely suffer big losses.

 

 

De-Leveraging Is Not Deflation-Seeking Alpha

By: Paco Ahigren of Ahigren Multiverse

“Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages.”

— Ludwig von Mises

It’s true that just about every asset class is coming down in price right now. This, however, is not deflation — as I have said so many times recently, much to many readers’ unqualified chagrin. To the contrary, these declines are the products of de-leveraging — not deflation — and the distinction is nearly incalculably important, although the subtlety seems to elude even the most astute these days.

If the previous premise is true (which it is), any removal of money from the economy would eventually result in an increase in the value of our currency, relative to everything else. And that, in turn, would eventually translate into lower prices in dollars. But that’s clearly not what is happening. No, the Fed is printing money, sending the amount in the economy higher than ever seen in U.S. history. That’s not deflationary. That’s inflationary.

Just so you’ll know, here’s the definition of inflation I’m using. And before you pooh-pooh it with too much eagerness, remember that one of its authors, F.A. Hayek, won the Nobel Prize in economics in 1974.

Look, the thing we should be worried about is relative value, not “inflation,” per se. It’s not about the growth of M0, or M1, or M2 (or even M3, if you keep up with shadowstats.com), so much as it is about what the money supply is doing relative to everything else that is happening. I know assets are falling in price — believe me, I get no shortage of reminders every single day. But the amount of money in the system — not just M0 — is increasing at a tremendous rate. I won’t argue that the relative value of things like real estate and equities are going to continue to drop — maybe even dramatically, and for a long time — in terms of demand (or lack thereof). No, what I’m most concerned about is that demand will stay extremely low, and yet prices will rise anyway because of the increase in the amount of money in the system.

But it’s not just money; it’s also Treasuries. The Fed has specifically stated that its objective is to stimulate “inflation” (by its definition). It wants prices to rise, and it’s going to do everything it can to find success. But the amount of money in the system is unprecedented. When the Treasury bubble starts to collapse, yields are going to explode. Yes, the Fed will probably print more money to buy down the long-end of the curve, but how long will that work? Some people say years, but how? Do you really think the Chinese and the Japanese are going to keep funding that sort of behavior? Or even more importantly, do you think they’re just going to sit on their current holdings? Probably not, and if they start dumping Treasuries, yields are going much higher.

It’s not a matter of if this is going to happen. Yields can’t stay where they are for any sustained amount of time, and once they start rising, so will prices. But will demand for, say, houses have increased? No. Cars? No. Boats? Televisions? No. Why? The American consumer is tapped out.

Credit card companies are tightening limits prodigiously. Teaser rates are all but gone. Home equity has dried up. The consumer has driven two-thirds of our economy for at least the last few decades, and now the consumer is dead. There’s another aspect to this that I won’t go too deep into: the American consumer protects his or her credit score for one reason — to obtain future credit. But the consumer also knows that loans have dried up — not just today, but for the very distant future as well. You know these consumers have to be thinking about defaulting; if they can’t get loans anyway, why would they not default on thousands of dollars in unsecured credit card debt? I plan on writing more about this in future articles, but suffice it to say, I think credit card companies are going to give us the next blow to our collective stomach, and it’s going to hurt.

So here we have a situation in which demand is gone, and yet prices and rates are rising — because of inflation (printing money) and the Treasury collapse. And that’s the point: it’s not going to come from just one source. It’s not just going to be inflation (printing money). It’s not just going to be the collapse in Treasuries. It’s not just going to be the nearly unfathomable costs of the stimulus packages that are coming online in the next two years. It’s going to be the confluence of all of it. And if I’m right about the continued deterioration in credit markets, things will be even worse.

You think it’s not different this time? Add it all up, in real dollars — the staggering amount of debt, the parabolic rise of currency in the system, the annihilation of real-estate investment, and the demise of the consumer. $8.5 trillion committed to bailouts and stimulus packages. Oh, yes it is different this time. It’s very different.

Credit cards didn’t even exist in 1930, and the dollar was backed by gold. Credit cards barely existed in 1973. Nixon had just taken us off the gold standard, and look what happened? Volcker was immensely lucky to have stopped hyperinflation, and look at the extreme measures he had to employ to do it.

Of course, every time I bring all of this up — which is a lot lately — somebody starts talking about the velocity of money. And pretty soon after that, somebody starts talking about the multiplier effect.

Yes, the U.S. employs a fractional reserve system, and while that system certainly lends to rising prices and yields, the amplifier effect is not inflation. Like the printing of money, the fractional reserve system is only one ingredient in the poison that lends to the ultimate catastrophe inspired by central banks: rising prices and increased costs of borrowing.

And then there’s velocity…

While I am eternally grateful to my critics for forcing me to defend the theories I hold dear, I sometimes fatigue of the incessant snapping at my heels by people who want me to know that the velocity of money has slowed down. I know the velocity of money has slowed. It doesn’t matter. It’s not going to stay this low for long, and when it starts speeding up, it’s not going to be a “good thing.” Treasuries are going to break, rates and prices are going to rise, and all that money pressing against the dam is going to find a crack. Why? It has to. People will flee from dollars that are losing value. They will extract all the dollars sloshing around the system, and they will buy commodities and durables in order to preserve the value of their wealth.

Remember, just because the dollar is losing value does not mean that the concomitant subsequent rise in certain asset classes necessarily means that demand for all assets has increased dramatically — as it did during previous eras of easy money. Demand for assets economy-wide can continue to wane even as people spend dollars as fast as they can get them in the midst of rising prices. And this is a very important distinction: prices can rise because of demand, but prices can also rise because of excessive increases in the amount of money in the system. If prices are rising without a simultaneous increase in demand, well, I can’t think of a more dangerous economic environment to be in.

You don’t believe it can happen? You think there’s a huge demand for houses, cars, and boats in Zimbabwe? Prices there are rising exponentially, but there is very little demand for assets — other than staples, of course. What do you think their velocity of money is?

The other day I wrote that Treasuries and the dollar are not “safer” than gold, and for my efforts I was heckled by several readers. Ultimately, however, flight-to-quality will seek the true risk-free rate of return, and this is yet another factor that will contribute to the imminent ferocity of the move that’s coming. Once Treasuries unwind, people and institutions will scramble to find a place to put the money they had once placed in the “safety” of U.S. government debt. And unless you know of a medium whose historical consistency and safety surpasses gold’s, that will be the place investors find haven.

Just for future reference: when I say the dollar’s going to fail (which it is), and you’re hovering over your keyboard, poised like some bird-of-prey, ready to strike me with all the ire of God-upon-Sodom, will you try to remember that I acknowledge velocity is, at least for the time-being, near zero. Will you also try to remember that I don’t believe the massive increase in currency alone will not be responsible for imminent rising rates and prices? In fact, I think Treasuries are going to play a greater role in the beginning.

Also, I agree with many of you that my timing may be a bit premature, and I exited my TBT after the last run-up. Unfortunately, today the stock market and Treasuries are getting crushed as gold rallies. I wouldn’t want to declare myself “right” based just on the behavior of these markets in recent days. That would be stupid. And yet I sit here and watch TBT move higher, wondering if getting out was even more stupid.

To add to my trepidation, some sort of manager in the South Korean finance ministry came out over the weekend and announced that the time has come to sell U.S. Treasuries. How do you think that made my stomach feel? Of course, Bernanke keeps promising to do battle with the long end of the curve, so maybe he’ll make good on his threat and I can find a point to get back in comfortably.

Of course, if I miss the move because I listened to some of you cynics. Well, at least I still own gold.

Disclosures: Paco is no longer short U.S. Treasuries (although he hopes to be again soon). He is long physical gold, and the Proshares Ultra long gold ETF (ticker: UGL).

Copyright 2009, Paco Ahlgren. All Rights Reserved.

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On Gold Price and Market Manipulation 

Questions Begging Answers- GoldSeek.Com

By: Rob Kirby of Kirby Analytics

To say that markets have been behaving “strangely” recently is an understatement.  In recent weeks and months we’ve been witness to historic lows in sovereign interest rates in-the-face-of record amounts of debt being issued by governments?  We’ve seen the price of gold behave counter intuitively by “not rising” in-the-face-of unprecedented systemic global economic malaise?  Last, but not least, we’ve witnessed a “complete flip-flop” in the traditional pricing of Brent Crude Oil [IPE-London] versus West Texas Intermediate [NYMEX-N.Y.]?  

 

So we have the price of gold, the price of crude oil and interest rates – three items vital to the integrity of the U.S. Dollar – ALL trading in total disregard for their underlying fundamentals?

 

The following is a thought provoking analysis with commentary:

 

The Situation In Gold

 

First and foremost it is imperative that everyone realize and understand that Gold “is” Money.  We know that gold is money because every Central Bank in the world carries gold on their balance sheets as ‘an official reserve asset’.

 

With that in mind, folks would do well to read one of James Turk’s latest articles titled, The Fed’s blueprint for market intervention .  In this article, Turk offers commentary on a recently unearthed 1961 document from the archives of the late, long-time former Chairman of the Federal Reserve, William McChesney Martin Jr. which details in the Fed’s own pen; their plans to intervene surreptitiously in the currency and gold markets to support the dollar and to conceal, obscure, and falsify U.S. government records so that the intervention would not be discovered.  In Turk’s words,

 

“In short, [the newly unearthed document] lays out what the Treasury and Federal Reserve needed to do in order to begin intervening in the foreign exchange markets, but there is even more. This document plainly shows what happens when government operates behind closed doors. It also makes clear the motivations of the operators of dollar policy long described by the Gold Anti-Trust Action Committee and its supporters — namely, that the government would pursue intervention rather than a policy of free markets unfettered by government activity. The run to redeem dollars for gold had put the government at a crossroads, forcing it to make a decision about the future course of dollar policy. This paper describes what the government would need to do by choosing the interventionist alternative.

This document provides primary, original source supporting evidence that GATA has been right all along.” 

 

In Feb. 2007 here’s what the Royal Bank of Canada’s Chairman, Tony Fell had to say, confirming unequivocally that gold is money,

 

 

“At Royal Bank of Canada, we trade gold bullion off our foreign exchange desks rather than our commodity desks,” says Anthony S. Fell, chairman of RBC Capital Markets, “because that’s what it is – a global currency, the only one that is freely tradable and unencumbered by vast quantities of sovereign debt and prior obligations.

“It is also the one investment and long-term store of value that cannot be adversely impacted by corrupt corporate management or incompetent politicians,” he adds – “each of which is in ample supply on a global basis.”

 

In short, says Fell, “don’t measure the Dollar against the Euro, or the Euro against the Yen, but measure all paper currencies against gold, because that’s the ultimate test.”

 

 

 

 

 

Fell’s admission coupled with the recently unearthed account of the Fed’s game plan shows that gold “is” and always has been feared as competition for the U.S. Dollar and a game plan has long been in place to thwart it.  This explains why economic data has been falsified and the price of gold has been surrepticiously managed and interfered with by the United States Treasury and the Federal Reserve.

 

The mounting evidence is this regard is so compelling that from this point forward any ‘economist’ attempting to explain our current situation without prefacing their explanation with an EXPLICIT ACKNOWLEDGEMENT that our capital markets are not free and are in fact RIGGED by officialdom – their analysis is not worth the time to read it.  In this regard, perhaps never have more prescient words been uttered than GATA’s Chris Powell in Washington in April, 2008 – when he opined, There are no markets anymore, just interventions.

 

The recent decoupling in price of gold as measured by the spread between the futures price and the cost to obtain physical ounces is a stark reminder that smart money is beginning to repudiate fiat money by seeking tangible ownership of goods perceived to posses value instead of derivative ‘promises’ to deliver the same.

 

The Oil Picture

 

Back in June, 2007, Market Watch reported,

 

Normally, Brent crude costs $1-$2 less than WTI crude, according to James Williams, an economist at WTRG Economics. At its peak, the price spread between the two topped $5, according to his data.

 

The article went on to explain,

 

WTI usually trades at a premium to Brent “because of the slightly higher quality, and the extra journey” oil tankers have to take to get the oil to the U.S., according to Amanda Lee, a strategist at Deutsche Bank. So “WTI minus dated Brent should be roughly equal to the freight rate,” she said. Indeed, “crude-oil prices usually depend on two things: quality and location,” said Williams. “The greater the distance from the major exporters, the greater the price.”

 

But here’s what’s happened recently in the global crude oil market:

 

 

 

 

 

 

Brent Crude trading at a 7 Dollar premium to West Texas Intermediate is like the SUN rising in the west and setting in the east – and no-one asking any questions why?

 

Thanks to the unearthing of the Fed’s Playbook Document, referenced above, along with cumulative knowledge of the existence of the President’s Working Group On Financial Markets [aka the Plunge Protection Team]; we know that interference in strategic markets with national security implications is now practiced commonly by the Government and the Fed working together.  No other explanation for this distortion is plausible other than NYMEX regulators like the Commodities Futures Trading Corp. [CFTC – Plunge Protection Team members] are more brazen and actively complicit in market rigging of strategic commodities than their London counterparts. This manipulation is all being done in desperation; to preserve U.S. Dollar hegemony by perpetuating the illusion that inflation is being held at bay.  Ample anecdotal evidence exists in a host of articles – particularly relating to derelict CFTC oversight of COMEX gold and silver futures – archived at kirbyanalytics.com to support this position.

 

Spiking VLCC Rates Reflect “The Movement to Tangibles”

 

The “unusual” premium for Brent Crude is even more perplexing given that crude oil shipping rates [unlike their dry goods shipping counterparts, as depicted by the Baltic Dry Index] for VLCCs [very large crude carriers] have, as recently as Dec. 2008, been enjoying robust and improving charter rates,

 

 

Last week the spot rate for Suezmax tankers was in the low $40k per day range. Yesterday, I check the rates and they have popped to over $90k this week! VLCC (very large crude carriers, i.e. supertankers) rates have not jumped as much but appear to be following the trend. So what is the deal here? Oil prices are falling and so is the apparent global demand for oil. Are not oil tankers just sitting around idle like the dry bulk carriers?

The answer is somewhat counter intuitive. The spike in spot tanker rates is actually the result of the low oil prices. Many tankers are being leased on the spot market as storage tanks. Oil producers, for whatever reason, do not want to significantly slow their oil production, but at the same time do not want to sell it for $45 a barrel. So they are leasing tankers to store oil in the hope or belief that oil prices will recover shortly. Two names in news articles that I have read doing this are Royal Dutch Shell and Iran. The majority of the planet’s oil production is owned by national oil companies that have policy and employment as well as financial reasons to keep the oil flowing. So at least in the short term, the current low oil prices are a boon for tanker owners.

 

Oil tanker companies, like their dry cargo brethren, can sign their ships to either long term, multi-year leases or charter them on the spot market where they are leased for a single voyage at the current spot rate.

 

 

 

 

 

The fact that “smart money” is now paying elevated prices to lease very large crude carriers [to store physical crude for later sale] is further evidence that faith in fiat money is waning simply because – you can do the same “trade” on paper – utilizing futures – without the bother and nuisance of leasing ships and handling the physical.  Ask yourself why smart money has recently become engaged in buying ‘relatively illiquid’ physical crude oil, in a world allegedly awash in the stuff, for resale at a later date – instead of playing futures, accepting promises and holding cash?

 

Smart money is in the process of losing confidence in cash.

 

Interest Rates

 

It is vital that everyone understand that the function of interest rates in a system of usury is to solemnly act as the efficient arbiter of capital – rising to restrict money / credit growth when the economy overheats and falling to create the opposite when the economy cools.

 

Interest rates no longer serve this function.

 

As deceitfully disastrous as the surreptitious interventions in the crude oil and gold markets has been – they pale in comparison to the travesty which has been perpetrated through the premeditated hobbling of usury. 

 

         

 

The roots of this most wicked experiment are traceable to the appointment of Alan Greenspan as Chairman of the Federal Reserve and then to academia – Harvard – where Robert Barsky and Lawrence Summers co-authored an academic research paper in the 1980s titled, Gibson’s Paradox and the Gold Standard.  The “elevator speech” of what the paper examined was the co-relation between bond prices, inflation and the price of gold and, by extension, theorized that interest rates could be driven down [or kept low] – without sacrificing the currency – in the face of and despite profligate monetary policy so long as gold prices declined or did not rise.

 

  

 

After a stint as Chief Economist at the World Bank, Mr. Summers brought this “theory” to Washington mid-way through the first Clinton Administration [late1993] as Under Secretary of Treasury to Robert Rubin where he began laying the groundwork – with co-conspirators Greenspan, Rubin and Clinton – for the implementation of his “theoretical research”:

 

 

 

Gold price suppression began in earnest concurrently with changes in how the Office of the Comptroller of the Currency [OCC] begins records the mushrooming growth of derivatives [mostly interest rate swaps which – absent end user demand – only create artificial demand for government bonds]:

 

 

 

The Federal Reserve acting in cahoots with the U.S. Treasury utilizing the futures pits in N.Y. [COMEX] and the obscenity that has become J.P. Morgan’s Derivatives Book – the Fed / Treasury combo seized control of both the gold price and interest rates.  The mechanics of how interest rate swaps were utilized to suppress interest rates is chronicled and explained in detail at Kirbyanalytics.com in a paper titled, The Elephant in the Room.

 

Subscribers are reading about the logical implications, and what comes next, as a result of the market manipulations outlined above as well as actionable suggestions to help insulate your investment portfolio from the inevitable fallout.

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Gata’s Tenth Anniversary: Gold Manipulation Evidence Mounts-Gold Seek.Com

By: Bill Murphy of LeMetropole Cafe 

“Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof.” … John Kenneth Galbraith

“An error does not become truth by reason of multiplied propagation, nor does truth become error because nobody sees it.” … Mahatma Gandhi

 

 

 

GO 

 

 

GATA!

 

 

 

 

This week marks GATA’s tenth anniversary of our efforts to expose the manipulation of the gold market. In another few weeks we will mark the tenth anniversary of my appearance on CNBC (interviewed by Ron Insana) … the first and last GATA appearance on the US TV media to date … for once they heard what GATA had to say, we have been blackballed ever since. It also marks a shameful period for the US financial market press, which is now clamoring for answers as to how we ever got in the financial market/banking mess we are presently facing. For that answer they ought to first look at themselves and their dismal way of kowtowing to the rich and powerful, and banning those who are willing to challenge the Orwellian grip on what Americans are allowed to hear and know.

America is facing quite a dichotomy at the moment. We are on the Inaugural Eve of our first black President, with all the hopes and dreams he is envisioning for our country. At the same time we are enduring the most horrific financial crisis since the Great Depression.

President-elect Obama, a superb orator, is calling for Americans to pull together to effect the CHANGE he called for in his campaign, and for all of us to contribute individually to make that change happen. He has wisely warned of the tough times ahead while going all-out to ready policies ASAP which he believes are the correct way to remedy the growing economic problems of the day.

He has also assembled an economic team of advisors which are acclaimed and generally very highly regarded … including Robert Rubin, Lawrence Summers, Timothy Geithner and Paul Volker. Unfortunately for the GATA camp, they are the ALL-PROS of the gold price suppression scheme. It is almost like our worst nightmare. On paper it represents anything but change as far as US gold policy is concerned, and has the potential to make our investment lives miserable for years to come. After all…

*Robert Rubin coined the phrase “US Strong Dollar Policy,” and flaunted the phrase. Rigging the price of gold was that policy’s lynchpin. What else was there? Steve Forbes was on Fox News Saturday talking about how important he believes it is for America to MAKE the dollar strong again. He talked sheepishly about gold in vague terms and referred to Rubin.

Robert Rubin hatched the gold price suppression scheme while running Goldman Sachs’ operations in London. This was many years ago, when interest rates were very high (say from 6 to 12% in the US). Rubin had Goldman Sachs borrowed gold from the central banks at about a 1% interest rate. Then he sold the gold into the physical market, using the proceeds to fund their basic operations. This was like FREE money, as long as the price of gold did not rise to any sustained degree for any length of time.

He continued his innovative money ploy as CEO of Goldman Sachs in New York and then put his Strong Dollar Policy ploy on steroids as Treasury Secretary under President Clinton.*Lawrence Summers followed Rubin as Clinton’s Treasury Secretary, and who could be more qualified to continue Rubin’s gold price suppression scheme than him? After all, while at Harvard he co-authored a paper, “Gibson’s Paradox and The Gold Standard.” The bottom line of Summers’ analysis is that “gold prices in a free market should move inversely to real interest rates.” Control gold and it will help to control interest rates.

Obama has designated Mr. Summers to be the Director of the U.S. National Economic Council.

*Which brings us to Timothy Geithner, who is President-elect Obama’s nominee to be U. S. Treasury Secretary. Geithner was named president and chief executive officer of the Federal Reserve Bank of New York on November 17, 2003. In that capacity, he serves as the Vice Chairman and a permanent member of the Federal Open Market Committee, the group responsible for formulating the nation’s monetary policy.

Mr. Geithner joined the Department of Treasury in 1988 and worked in three administrations for five Secretaries of the Treasury in a variety of positions. He served as Under Secretary of the Treasury for International Affairs from 1999 to 2001 under Secretaries Robert Rubin and Lawrence Summers.

Geithner is also happens to be a member of the Bank for International Settlements and since 2005 has been Chairman of the Committee on Payment and Settlement Systems. You might want to see what The CPSS undertakes “at their own discretion” as listed here:

http://www.bis.org/cpss/index.htmLike outgoing Treasury Secretary Hank Paulson, Tim Geithner is a graduate of Dartmouth College. Talk about knowledge of the gold price suppression scheme!

*And then there is the venerable Paul Volcker, who so effectively brought down runaway inflation in the US, starting in 1980. His one regret:

“Joint intervention in gold sales to prevent a steep rise in the price of gold (in the 1970s), however, was not undertaken. That was a mistake.” … Former Federal Reserve Chairman Paul Volcker (writing in his memoirs).

All-Pros? All-World is more like it when it comes to devotees of suppressing the price of gold. Outside of Volcker, the other three are those most responsible for making it happen in the first place.

So what’s the point? To get us all depressed over what lies ahead? NO, just the opposite.

On December 18^th, on GATA’s behalf, I met with Bart Chilton, a CFTC commissioner who showed interest in hearing what we had to say. There were three others from the CFTC in attendance, including Elizabeth L. Ritter, Deputy General Counsel of that organization.

From my MIDAS commentary later in that afternoon…

Bart listened intently and took notes, as did one of the others, and asked numerous questions. Basically, I laid out our GATA presentation as I explained in the Sunday Midas. I am not going to get into all the details of what they said, as we will see what takes place in the months to come … except to say that I chuckled when saying to them if they really wanted to comprehend what the real gold price suppression scheme is all about, all they have to do is go to their new proposed Chairman … at the right time. No one knows what is going on better than he does.

(Insert- Gary Gensler was nominated that day to be the new chairman of the CFTC. Gensler was Undersecretary of the Treasury (1999-2001) and Assistant Secretary of the Treasury (1997-1999).

Gensler spent 18 years at Goldman Sachs, one of the ringleaders of The Gold Cartel, making partner when he was 30, becoming head of the company’s fixed income and currency operations in Tokyo by the mid-90’s.

As the Treasury Department’s undersecretary for domestic finance in the last two years of the Clinton administration, Gensler found himself in the position of overseeing policies in the areas of U.S. financial markets, debt management, financial services, and community development. Gensler advocated the passage of the Commodity Futures Modernization Act of 2000, which exempted credit default swaps and other derivatives from regulation.

Could The Gold Cartel have recruited a better ALL-PRO/ALL-WORLD man for their team? It is also important to keep in mind that chairman of the CFTC is one of the four members of the President’s Working Group on Financial Markets. Now why does a bureaucrat need to participate with the President and US Treasury Secretary on the markets? I thought the CFTC was supposed to regulate them, not be a part of policy.)

I did not hold back and said the main culprit of The Gold Cartel was our own government (their own boss), who has been in league with bullion banks like JP Morgan Chase, and others, to suit their own hidden agenda….

I was very impressed with Bart Chilton (very sharp guy) and he mentioned that my trip to D.C. would not be in vain.

***

What I stressed most at the meeting was that the gold price suppression scheme would not survive another four years, over the length of Obama’s elected term … and presented lengthy documentation to prove my point … meaning The Gold Cartel would run out of enough available central bank gold to meet a growing annual supply/demand deficit over the next four years. The bottom line was that Obama could stop the gold price manipulation scheme now and allow the price of gold to trade freely, thereby letting the Bush Administration be the fall guy; or he could let his economic team persuade him to carry on the status quo, in which case the price of gold will blow sky high in the years ahead, and he would have to take the blame for the resulting ramifications … especially when the gold scandal becomes a huge public ordeal.

What better way for Obama himself to understand the true gold situation than to ask his top economic advisors what the real deal is. If GATA is correct, and we have been on target for years, the U.S. has a BIG problem when it comes to its gold reserves (how much of it has been encumbered and is therefore GONE?) That is an essay unto itself, with many variables to be discussed, and for another time. All Obama has to do is get the five above-mentioned gentlemen in a room and get right to the nitty-gritty. They can start with the extensive package I handed to Bart Chilton, who is a member of the Obama transition team, and someone who once worked for Tom Daschle, formerly the Democratic leader in the Senate for ten years, and is now Obama’s Secretary of Health and Human Services nominee.

What Bart Chilton does with what I gave to him is his business, but since he told me my visit would not be in vain, I assume GATA’s extensive presentation did not go into the dumpster.

Meanwhile, in GATA’s tenth anniversary year, we are making our own call for CHANGE, and are pressing on. Obama has stated over and over again he wants THE PEOPLE to be represented and asked us to give him input. Who has more pertinent input go get to him than our camp? Therefore, we are asking everyone interested in a free gold market to make a renewed effort to further disseminate our decade’s worth of evidence of gold market manipulation into the public domain by contacting the financial market media and to others in the Obama transition team (if you have any contacts).

I know how frustrating it has been to get the jaded financial market media to listen to, and then acknowledge, what we have to say, but that was yesterday and perhaps times have changed due to the growing financial market crisis, and yearning to understand how we got here. After all President-elect Obama is urging for “government accountability” and “transparency.”

This call to arms has been instigated by the dramatic and sudden discovery of an important document buried in the Federal Reserve’s archives by writer and researcher Elaine Supkis. This document is posted on her blog at:

http://emsnews2.wordpress.com/2009/01/15/1961-top-
secret-fed-reserve-gold-exchange-report/

The document, which is marked “Confidential,” is from the papers of William McChesney Martin, Jr., and this collection is held by the Missouri Historical Society. A scanned image of the original document is posted by the Federal Reserve Bank of St. Louis at the following link:

http://fraser.stlouisfed.org/docs/histor ical/martin/23_06_19610405.pdf

Most importantly, GATA consultant James Turk has brilliantly dissected this document in an essay titled, “The Federal Reserve’s Blueprint for Market Intervention,” which has been served at The Matisse Table and at www.GATA.org…

http://www.gata.org/node/7095The title of this confidential report is:

Confidential – – (F.R.)

U.S. Foreign Exchange Operations: Needs and Methods

 

 

 

 

James Turk notes:

In short, it lays out what the Treasury and Federal Reserve needed to do in order to begin intervening in the foreign exchange markets, but there is even more. This document plainly shows what happens when government operates behind closed doors. It also makes clear the motivations of the operators of dollar policy long described by the Gold Anti-Trust Action Committee and its supporters — namely, that the government would pursue intervention rather than a policy of free markets unfettered by government activity. The run to redeem dollars for gold had put the government at a crossroads, forcing it to make a decision about the future course of dollar policy. This paper describes what the government would need to do by choosing the interventionist alternative.

This document provides primary, original source supporting evidence that GATA has been right all along.

I have long hoped that a “confidential” document like this one would eventually emerge. There are no doubt countless more like it, as evidenced by the Federal Reserve’s and the Treasury’s refusal to provide all the documents requested by GATA under its recent Freedom of Information Act request. Maybe those documents will eventually see the light of day too.

***

James makes a key point regarding one of the assertions of this report…

“The basic purpose of such operations would be to maintain confidence in the dollar.”

 

 

 

 

James T notes…

“This statement confirms one of the basic planks of much of the work by me and others that has been published by GATA over the years. The efforts to cap the gold price have one aim. It is to make the dollar look worthy of being the world’s reserve currency when in fact it is not.”

***

This significant report was written some 48 years ago, yet could have been written at any time in the past 10 years during which GATA has discovered blatant manipulation of the prices of gold and silver … as well as noted ludicrous counterintuitive dollar market action, which has been most noticeable in recent days, as our hysterical financial crisis in the US intensifies.

James Turk’s title says it all: it is a blueprint for the gold price and financial market manipulation so prevalent now. Ironically, there is a common misconception out there that the US is in the financial market mess it is in today because of too much deregulation. To some extent that is very true, as the likes of Secretary Paulson and Gary Gensler urged Congress to allow the US investment banks to increase the allowable debt/credit on their books from 12:1 to 40:1.

Yet, just as big a problem was the secretive interference in the US financial markets which allowed credit and risk issues to go completely out of control in America … meaning too much secretive market manipulation … and in a hidden way, too much regulation. Had the gold market not been artificially suppressed and allowed to trade freely, the price would have soared these past years, interest rates would have risen dramatically, and there would have not been the reckless investment bank shenanigans that have put our financial system in such peril. Simplistically, it is generally acknowledged that if gold had been allowed to keep up with inflation for the past 28 years, the price would be over $2,000+ per ounce. The GATA camp knows why it is not there RIGHT NOW!

Had the Plunge Protection Team (Working Group on Financial Markets) not stepped up their constant Hail Mary play activity after 9/11 to drive the DOW mysteriously higher in the last hour of trading on the New York Stock Exchange, the market probably would have broken down much earlier than it did and given the investing public more of a clue that something was wrong, instead of the misleading Stepford Wives drill that “Everything is fine.”

What is profoundly disturbing about the discovery of this confidential document is it fits in with much grander conspiracy theories than where GATA is coming from. Since this document, based on what has happened, really is a blueprint for market manipulation since 1961, it feeds into the worst fears of those who are constantly on the case about the Bilderbergers, Council on Foreign Relations, Trilateral Commission, and so on. This document to William McChesney Martin, Jr. is EXACTLY what I have been seeing and reporting over the past decade … not that much different than those who pointed out the Madoff Ponzi scheme during the same period of time. To learn that this market deception and manipulation was conceived when I was a freshman in high school is almost beyond comprehension, especially since the Wall Street crowd hasn’t permitted a serious discussion about it ALL THIS TIME! Nor has our government allowed a true independent audit of US gold reserves since the Eisenhower Administration in 1955.

It also feeds right into the scary notion revealed in a famed President Clinton comment that goes something like … “I didn’t realize I wouldn’t be in control here when I became President.” … meaning there were far more powerful background forces pulling the strings and on how he must operate.

GATA doesn’t want to go there, but based on this new discovery, it certainly opens up further comments for fair game, even for some of GATA’s Board of Directors. Adrian Douglas (an oil industry consultant who is presently off to Angola) sent the following email to James Turk:

James,
Congratulations. This was an excellent analysis. What a stunning document! Real dynamite.

It got me thinking as to whether the heist they have pulled is bigger than we think. The BIS as we know, and as mentioned in this memo, is the organization that allows for cooperation behind the scenes of the Central banks. We know they went private to prevent any need for public disclosure seeding the opportunity for Reg Howe’s lawsuit. We have plenty of evidence that Central Bank gold holdings have been depleted. We keep saying that the gold is “gone”. But what do we mean by “the gold is gone”? Gold is not like crude oil, expensive wine, even silver… it does not get consumed. It has not “gone”; it has changed ownership. The Central Banks leased out gold to the bullion banks. Now who did the the bullion banks sell the gold to? We know that the bullion banks can’t get the gold back. If the central banks ask for the gold back the bullion banks can declare bankruptcy or settle in cash. How convenient! The Central bank gold has gone into someone else’s hands that are unknown and the loss will eventually be written off. We know that Central Banks are owned or controlled by some of the richest families and/or entities in the world. Is it possible that these “bankers” can benefit from a fiat Ponzi scheme while it can be maintained AND still end up with the gold in which case they can benefit from a return to a gold standard and when the gold standard eventually gets abused and abandoned in the future they will play the whole fiat game over again? It would certainly require cooperation between central banks to pull off such a heist.

It would be great to have the whole world sitting in a room and ask those who own more than 10 million ozs of gold to raise their hands!

The crime may be more than manipulating the price of gold to “defend the US dollar” and concealing the evidence from the public. The Cartel may well have aided and abetted embezzlement of the citizens’ gold of the Western world. And who ever has it, they bought it perfectly legally from the bullion banks with fiat currency.

This seems to make sense because Central bankers and the “elitists” (Rockefellers, Rothchilds, Morgans, Mellons, Carnegies, Vanderbilts etc etc) are not stupid. They must know gold is real money. They can study monetary history too. The fiat money game in this context is a decoy for the theft of sovereign gold.

It is not without precedent, the great inflationist, John Law, was arrested escaping with a coach loaded with gold and silver!

Is this a bridge too far in conspiracy theory?
Cheers
Adrian

Which provoked this reply from another GATA Board member, Catherine Austin Fitts (Assistant Secretary of Housing/Federal Housing Commissioner at the United States Department of Housing and Urban Development in the first Bush Administration)…

Adrian:
My hypothesis since 2001 is that the NWO is shifting assets out of sovereign governments and shifting liabilities back in. The goal is to reengineer global governance into the hands of private banks and corporations in a manner that dramatically centralizes control. This is why the creation of a genetically controlled seed and food supply, etc.

To achieve such centralization requires the centralization of the gold and silver stores. Whoever has the gold has the most powerful financial asset. So if you want a new centralized currency, you need a monopoly on gold and silver. I think part of the end game is to shift back to something involving some kind of gold standard.

 

If you use fiat currency to acquire ownership and control of all the real assets on the planet, then you need a gold standard to make sure you keep them.

 

 

So, it would not surprise me to see G8 and GATA start to move into alignment, strange as it may sound.
Catherine

 

Neither opinions are official GATA viewpoints, but they are intriguing, eye-opening and worth pondering.

When I met with Bart Chilton I said GATA’s high command is just a bunch of proud Americans who have stumbled across a profoundly disturbing situation. I showed the four CFTC individuals in attendance GATA’s full-page color ad in the Wall Street Journal on January 31, 2008. It was titled, “Anybody Seen Our Gold?” …

http://www.gata.org/node/wallstreetjournalSome of you are very familiar with this copy in the ad…

“The objective of this manipulation is to conceal the mismanagement of the US dollar so that it might retain its function as the world’s reserve currency. But to suppress the price of gold is to disable the barometer of the international financial system so that all markets may be more easily manipulated. This manipulation has been a primary cause of the catastrophic excesses in the markets that now threaten the whole world.”

… and then…

“Surreptitious market manipulation by government is leading the world to disaster.”

The DOW was a little below 13,000 at the time. I mean how right could we have been? Yet the US financial market press completely ignored this very visible ad. There was not even a query of what we were talking about and why we would spend $264,400 to make such a warning.

So now we are fast forwarding virtually a year later and the US financial markets and economy ARE in chaos. If soon to be President Obama really wants CHANGE and TRUTH, we will give him critical input on one way he can effect what he says he is looking to do.

To increase the likelihood that what GATA has discovered actually reaches him, GATA is asking all who read this, and agree with GATA, to make some small effort to get this commentary to the financial market media in the world, especially the US financial market press.

That means contacting writers and media outlets such as the Wall Street Journal, Washington Post, Washington Times, New York Times, Forbes, Fortune, CNBC, CNN, Reuters, Bloomberg, the AP, Fox News, Newsweek, Time, etc. In addition, sending this Tenth Anniversary GATA commentary to widely-followed internet bloggers would also be helpful; perhaps stirring up so many out there who are searching for the reasons behind what has happened financially and economically in the US and why.

In such troubling times, Obama’s coming Presidency has given optimism and hope to many. For that to occur there must be true change, the desires for which have swept him into office. President-elect had some army. And GATA has its army.

Please take a little time and make just a small effort to help Obama help himself, even if our issue is the last one he is thinking about at the moment. Funnily enough, it ought to be one of the first, as it is one of the most prominent ones which got us into the financial market/economic nightmare we are in today. After all, it is many of the same bullion banks/investment houses our government is bailing out that were so instrumental in the gold price suppression scheme. Our mission is to let him know, via all sources possible, what the heck has happened and continues to go on.

Bill Murphy
Chairman
Gold Anti-Trust Action Committee

Copyright (c) 1999 – 2009

Le Metropole Cafe, Inc

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John Doody: A Winning Situation For Gold Stocks- Seeking Alpha

Source: The Gold Report

By: John Doody of The Gold Stock Analyst

Heralded as “the best of today’s best,” John Doody, author and publisher of the highly regarded Gold Stock Analyst newsletter, brings a unique perspective to gold stock analysis. In this exclusive interview with The Gold Report, Doody ponders the efficacy of the Keynesian approach, makes a case for gold equities and explains how the GSA Top 10 Stocks portfolio has outperformed every other gold investment vehicle since 1994.

The Gold Report: John, you’ve stated in your newsletter, Gold Stock Analyst: “It’s clear the U.S. is going down a Keynesian approach to get out of this recession/depression.” I am curious on your viewpoint. Will the Keynesian approach actually work, or will they need to eventually move over to the Chicago School of Free Markets?

John Doody: A free market approach of letting the crisis resolve itself would work, but would cause too much damage; we’d probably lose our auto industry, and it would take too much time. As Keynes said: “In the long run we’re all dead,” so the government is trying to get a faster resolution. The Treasury is pursuing his fiscal policy idea of deficit spending. They’re borrowing the money to bail out the banks. When Obama’s plan is implemented, which could be another $700 billion in stimulus, it will be funded with more borrowings.

Bernanke and the Fed are pursuing a loose monetary policy with a now 0% interest rate. There’s actually no way we can not end up with inflation. This is much bigger than ‘The New Deal’ under Roosevelt. And I think that the market disarray over the last several months has confused investors; but when the markets settle down, it’s clear to me that it will be up for gold and gold stocks.

TGR: Is there any economic scenario that you wouldn’t see gold going up in?

JD: Basically, we’re pumping money into the system, but it’s just sitting there. It’s not being put to work, so there are those who think that we are going to enter a deflationary era. But I can’t see that. Some don’t like Bernanke, but I think there’s probably nobody better prepared to be in his role.

Bernanke is a student of the Great Depression and knows the mistakes the Fed made then, such as forcing banks to upgrade the quality of loans on their balance sheets. His approach is to buy the banks’ low quality loans, enabling them to make new loans. They haven’t done much of the latter yet, which is probably a fault of the Fed not requiring the funds received for the junk to be redeployed, but they ultimately will lend more as that’s how banks make money.

He knows in the early 1930s we went into a deflationary period of falling prices. For three or four years prices were down about 10% annually. He fully understands the risks of that, one of which is the increased burden of existing debt payments on falling incomes. The debt burden is lighter in an inflationary environment and that’s his target. Long term, he knows he can cure inflation; Volker showed us how with high interest rates in the 1980s. But there’s no sure way to cure deflation, and so Bernanke’s doing everything possible to avoid a falling price level. And I think that, because this is a service-driven economy, companies won’t lower prices to sell more goods—they will just lay off more workers, as we’re seeing now. I don’t think we’ll get the price deflation of the ’30s, and I’m sure Bernanke is going to do everything to prevent it.

TGR: But aren’t we already in a deflationary period?

JD: Well, we may be to an extent; you can get a better buy on a car. But, to put it in the simplest terms, has your yard guy lowered his price, or your pool guy, or even your webmaster?

TGR: Yes, but people opt to do things themselves versus paying other people to do it.

JD: Maybe, but if they do, it won’t show up in prices—it will show up in the unemployment statistics. So if the yard guy, pool guy or webmaster don’t lower prices and their clients become do-it-yourselfers, the effect will show up in unemployment, not inflation data.

TGR: So if every major country in the world is increasing their monetary supply, we would expect inflation. Will there be any currency that comes out of this to be considered the new base currency, sort of like the U.S. dollar is now?

JD: Well, that’s the $64,000 question. We don’t really know and, because there’s no totally obvious currency, that is why the dollar is doing well of late. But the dollar is in a long-term downtrend, in part because interest rates in Europe remain higher than here. Higher interest rates, as you know, act like a magnet in attracting investment money, which first has to be converted to the higher interest currency and that bids up its value versus the dollar.

The Euro represents an economy about the size of the U.S., so there may be some safety there. You could argue for the Swiss Franc maybe, but you know the Swiss banks (Credit Suisse, for example) have had some problems, so we’re not quite sure how that’s going.

So, to me, the only clear money that’s going to survive all this and go up, because everything else is going to go down, is gold.

TGR: What’s your view of holding physical gold versus gold equities?

JD: I only hold gold equities. They’re more readily tradable; when gold goes up, the equities tend to go up by a factor of two or three times. Of course, that works to the reverse, as we know. As gold went down, the equities went down more. But because you hold them in a government-guaranteed SIPC account, it provides ease of trading—you don’t have the worries of physical gold. . .insurance, storage or whatever. You may want to hold a few coins, but that would be about it in my opinion.

TGR: On your website, your approach to investing in gold equities is to choose a portfolio of 10 companies that have the opportunity to double in an 18- to 24-month period with the current gold price.

JD: Yes. We don’t really look forward more than 18 or 24 months; but within that timeframe, say a year from now, we could reassess and raise our targets so that, in the following 18 to 24 months, the stocks, while having gone up, could go up more still. There are lots of opportunities to stay in the same stocks as long as they continue to perform well. We’re not a trading newsletter, and as you probably know, the way we define an undervalued stock is based on two metrics.

One is market cap per ounce. The market capitalization of a company is the number of shares times its price. You divide that by its ounces of production and its ounces of proven and probable reserves, and you see how the company’s data compares to the industry’s weighted averages.

Second, we look at operating cash flow multiples. Take the difference between the gold price and the cash cost to produce an ounce, multiply that by the company’s production per year, and you get operating cash flow. Divide that into its market capitalization and you get its operating cash flow multiple. We look at that this much the same as one looks at earnings per share multiples in other industries.

For reference, we last calculated the industry averages on December 29, 2008 for the 50+ gold miners we follow, which is everyone of significance. At that time, the average market cap for an ounce of production was $3,634, an ounce of proven and probable reserves was $194, and the average operating cash flow multiple on forecast 2009 production, assuming $900/oz gold, was 7.4X.

We focus companies that are below the averages and try to figure out why. An ounce of gold is an ounce of gold, it doesn’t matter who mined it. If you’re going to buy an ounce of gold from a coin dealer, you want to get the cheapest price. Well, if you’re going to buy an ounce of gold in the stock market, you should want to get those at the cheapest price, too. It’s oversimplified, as there are other factors to be considered, but this is a primary screening tool to determine which stocks merit further study. The method works, as the GSA Top 10 Stocks portfolio has outperformed every other gold investment vehicle since we began in 1994.

TGR: Are all the companies in your coverage producers or have 43-101’s??

JD: Yes, all are producing or near-producing. They may be in the money-raising stage to build a mine, but they’ve got an independently determined reserve. And that part of the market has done better than the explorers because it has more data to underpin the stocks’ prices.

TGR: And you focus in on having 10 just because, as you point out in your materials, it allows you to maximum upside at minimum risk (i.e., if one of the 10 goes down 50%, you will only lose 5% of your money). Is your portfolio always at 10 or does it ever expand more than that?

JD: No, earlier in 2008 we were 40% cash, so it was six stocks. For a couple of months later in 2008 it was 11 stocks. But 90% of the time it’s at 10.

TGR: What prompted you to be 40% in cash?

JD: That was when Bear Stearns was rescued in March and gold went to $1000; we were just uncomfortable with that whole scenario. And actually we put the 40% in the gold ETF; so it wasn’t true cash.

TGR: Okay. And as you’re looking at these undervalued companies, are you finding that there are certain qualifications? Are they typically in a certain area, certain size?

JD: While we follow Barrick Gold Corporation (NYSE:ABX) and Newmont Mining Corp. (NYSE:NEM) and they’ve both been Top 10 in the past, neither is now. We’re currently looking further down the food chain. There’s one with over two million ounces growing to four million a year. Another has a million growing to two million. So, some are still pretty good sized. And then there are others further down that are either developing mines or are very cheap on a market cap per ounce basis.

Earlier, one of the Top 10 was selling at its “cash in the bank” price. We’ve had a nice little rally since October and this stock has doubled, but it’s still cheap. It has 9 million ounces of reserves at three mine sites in European Community nations, and it’s not Gabriel in Romania. It has no major troubles with permitting its mines and it was selling at its cash/share. Then the chairman of the board bought 5 million more shares. It was already top 10, but I pointed this out to subscribers as great buy signal. It’s doubled since and will double again, in our opinion.

TGR: Can you share with us some of the ones that are in your top 10?

JD: Well, the astute investor would probably recognize Goldcorp (NYSE:GG) as the one at two million ounces growing to four million ounces. Their tremendous new mine in Mexico, Penasquito, which I have been to and written about, is going to average half a million ounces of gold and 30 million ounces of silver a year. It’s going to be the biggest producing silver mine in the world, momentarily anyway, and will produce huge quantities of lead and zinc. At current prices, it’s going to be a billion-dollar-a-year revenues mine, which is enormous. And because of by-products, and even at current prices, the 500,000 ounces of gold per year will be produced at a negative cash cost per ounce.

TGR: Wow. Because of the credits?

JD: Because of the by-product credits. Another one would be Yamana Gold Inc. (NYSE:AUY), which is growing from a million ounces to two million ounces. Both Yamana and Goldcorp are in politically safe areas—no Bolivia, no Ecuador, no Romania—none of the places where you have to take political risk. I think we’ve learned enough from the Crystallex International Corp. (KRY) and Gold Reserve Inc. (NYSE:GRZ) situation in Venezuela, where they’re both on portions of the same huge deposit that is probably 25 million ounces or more. It looks to me that the government is going to take it away from them. So, I would just as soon not be involved in that kind of political risk scenario. There’s enough risk in gold just from the mining aspects of it that you don’t have to take chances on the politics too, as in some nations that’s impossible to assess.

TGR: Yes, another one that is really doing quite well is Royal Gold Inc. (Nasdaq:RGLD). Can you speak about that company?

JD: Yes. Royal Gold has been GSA Top 10 for 18 months now. We put it on in part because of the Penasquito deposit that I mentioned earlier. Royal has a 2% royalty on that, and 2% of a billion dollars is $20 million a year. Royal is unique in that they haven’t prostituted themselves by selling shares on a continuous basis. They only have 34 million shares outstanding and they will have royalty income this year of about $100 million. Penasquito is just coming on line, so its $20 million per year won’t be fully seen until late 2010.

Plus Royal pays a dividend. I think it could pay $1.00/share ($0.32 now). Dividend-paying gold stocks typically trade at a 1% yield. A $1.00/share dividend would make Royal a potential $100 stock. That’s my crystal ball down-the-road target.

Royal is a great play on gold price because they don’t have the aggravation of mining. They have a portfolio of mine royalties, plus a small corporate office. Royal employs 16 people, has $150 million in the bank and over $100 million a year income, which is about $3.00 per share pre-tax. Their biggest cost is taxes.

TGR: I see also that Franco Nevada Corp. (FNV.TO) has had quite a rise, though they have been kind of tumultuous between November and December.

JD: Franco is also a stock we like. About half of its royalties are from oil, so that’s why it’s suffered. The original Franco Nevada, as you know, was merged into Newmont for five years, and then they came public again in December ’07. I think it’s a good way to play gold and oil, and I think everybody agrees that oil is not going to stay in the $40 range for long.

TGR: John, can you give us a few more?

JD: A couple of smaller ones we like are Northgate Minerals Corp. (AMEX:NXG) and Golden Star Resources Ltd. [TSX:GSC]. Northgate is a misunderstood producer. Everybody thinks it’s going out of business when the Kemess Mine closes after 2011, but it’s actually not. It has 200,000 ounces a year from two mines in Australia and has a potential new mine in Ontario where they’ve just announced a 43-101 with over three million ounces. That’s potentially another 200,000 ounces a year, so we think they’ll remain at 400,000 ounces a year from Canada and Australia, both of which are countries we like. Cheap on our market cap per ounce of production and reserves metrics, it’s trading at an operating cash flow multiple under 2.0X.

Golden Star has several nearby mines in Ghana with production targeted at about 500,000 ounces in 2009. They’ve been ramping up to this rate for the past year and cash costs have run much higher than plan. If costs can be controlled and production goals met, it’s a takeover candidate for someone already in the country, such as Newmont or Gold Fields Ltd. (NYSE:GFI).

One thing I think readers should bear in mind is that gold mining will be one of the few industries doing well in 2009. Their key cost is oil, which is about 25% of the cost of running a mine. Oil’s price, as we know, is down about 75% in the $147/barrel high last July. At the average $400 cash cost per ounce mine, that’s a cut of about $75/oz off their costs. That result alone is going to give them an uptick in future earnings versus what they showed for third quarter 2008.

Something else people may not recognize is that currencies are also falling; many are down 20% to 40% versus the U.S. dollar. All the commodity nation currencies—the Canadian dollar, the Australian dollar, the South African Rand, the Brazilian Real, the Mexican Peso—they’re all down 20% to 40%. When your mining costs in those countries are translated back into U.S. dollars, they’ll be 20% to 40% lower.

So, the miners are going to have falling cash costs and even if the gold price remains exactly where it is now profits are going to soar. This will be unique in 2009. I can’t think of any other industry in which people are going to be able to point to and say, “These guys are making a lot more money.” I think the increasing profits will get the gold mining industry recognition that it isn’t getting now. Of course I’m a bull on gold because of the macroeconomic picture. When you put falling costs of production together with a rising gold price, you’ve got a winning combination for the stocks in 2009.

TGR: I was wondering if you could give us something on Silver Wheaton Corp. (NYSE:SLW).

JD: Well, Silver Wheaton is another royalty company; it’s not a producer. It gets its profit royalties by paying a cash sum up front and $4/ounce on an ongoing basis. It captures the difference between the silver price and $4 an ounce; if silver is $10 and it pays $4, it makes a $6 an ounce profit; at $20 silver, its profit would be $16. Aside from no pure silver miner actually producing ounces as low as $4.00, there’s a lot of leverage to silver price. I am not a silver bull, but because I’m a gold bull I think silver will follow gold higher.

Silver Wheaton is one of those companies that doesn’t have the issues of actually doing the mining. It has a portfolio of mines that it gets production from, and it owns 25% of the production from Goldcorp’s Penasquito mine that it buys at $4 an ounce, and will average about 8 million ounces a year. It’s just starting up now, but it will really get going in 2010. Silver Wheaton’s share of the total mineralization at Penasquito is 1 billion ounces. There’s 4 billion total ounces of silver there and it bought 25%. So, for a long time—the mine life of Penasquito is over 30 years—it’s going to be a big producing mine for Silver Wheaton.

TGR: Isn’t there a twin sister to Silver Wheaton in the gold area?

JD: Well, there’s Gold Wheaton Gold Corp. [TSX.V:GLW]. It’s based on the premise that some companies have a gold by-product. With their primary production in some other kind of metal, some might like to lay off the gold for a $400 an ounce on-going payment and an up-front purchase amount. Yes, some of the same guys are involved. I’m not convinced it’s going to do as well because it’s already got a lot of shares outstanding, and I just don’t like the capital structure as much. I wouldn’t bet against these guys but I’m not a believer.

TGR: And you said you’re not a silver bull. Why is that?

JD: We do cover about 15 silver miners, but reason number one for not being a bull is that it’s a by-product. Few mines are built to get just silver; 70% to 80% of silver comes as a by-product to copper, zinc, gold or some other metal. If you’re producing copper, you’re more interested in the copper price than you are in the silver price and you tend to just dump the silver onto the market.

And second, it’s not a monetary commodity. It is poor man’s gold—but it doesn’t have the universal monetary acceptance that gold does. It has a growing list of industrial uses, but it’s not growing at any rate that’s going to offset the falling use in photography. So, the overall demand for silver is not growing at any great rate. It’s not going to go from 800 million ounces a year to 1.6 billion ounces a year; it may get there in 20 years or 30 years, but that’s not our investment time horizon.

I think silver just follows gold along; but, in fact, it hasn’t been following gold along because right now silver is trading at a discount to gold. The ratio of gold to silver price, which normally runs around 50–55, is now around 80, so silver might have a little bit of a pop-up if the discount closes. But there are a lot of new silver mines coming on line and maybe that’s why the discount exists. Penasquito is one and Silver Standard Resources Inc. (Nasdaq:SSRI) has a big one starting in 2009. Coeur d’Alene Mines Corp. (NYSE:CDE) has now one ramping up and Apex Silver Mines Ltd. (AMEX:SIL) San Cristobal is now on line at 20+ million ounces per year as a zinc by-product. There’s potentially more silver coming to market than the world really needs. We do recommend Silver Wheaton, but that’s our single play.

TGR: Can you give us any comments on Minefinders Corporation (AMEX:MFN)?

JD: Well, you know, it’s in the uncertainty phase as to whether or not the new Delores mine in Mexico is going to work. Now built, it’s just starting up. We like the stock as we think it’s going to work. The question is: will it? Two mines in the area—Mulatos, owned by Alamos Gold Inc. [TSX:AGI], and Ocampo owned by Gammon Gold Inc. (GRS) did not start up smoothly. The market is betting against Delores starting smoothly, but this is the last of the three mines to come on line, and the first two mines—Alamos’ and Gammon’s—did get fixed and are now running okay. So, I think Minefinders has probably learned from the experience of the others, and the mine should start up all right. But, you know, the proof will be in the pudding. If you take its market cap per ounce on the forecast 185,000 ounces of production in 2009, or its almost 5 million ounces of reserves, and compare it to the industry averages we calculate, it’s potentially a double or triple from here.

TGR: So, the start-up issues of the other two mines, were they politically related?

JD: No, it was metal related. Processing facilities aren’t like televisions; you don’t just turn them on. It’s more like buying a new fancy computer system that needs to be twiddled and tweaked and loaded with the right programs. And you know, all geology is different, so things seldom start up properly; and, given the long teething problems at the other two mines, that’s sort of been a curse. If Minefinders can beat it and start up on plan, it’s an easy winner in 2009.

TGR: So, John do you have a prediction on where you think gold will go in ‘09?

JD: People talk about $2,000 or $5,000—it’s all pie in the sky, you know. Gold might get there; but the bigger question is: what’s the timeframe? Will I be around when gold is $5,000? I doubt it. Will it get there? Probably.

But we look for undervalued situations no matter what the gold price. And in the ‘90s—you know we’ve been writing Gold Stock Analyst since 1994—in the mid-90s gold did nothing for three years, it traded between $350 and $400. With our methods of selecting undervalued stocks, we had a couple of years of the Top 10 portfolio up 60% and 70% but gold was flat. Until mid-2008 the GSA Top 10 was up almost 800% in the current gold bull market. When gold does go up, the stocks go up more; but, in general, even if gold does nothing, we can still find good buys. Royal Gold is an example of finding winners in a tough market. Made a Top 10 stock at $23 in mid-2007, it gained 60% in 2008 and has doubled over the past 18 months.

We don’t follow the explorers, in part because there is no data to analyze beyond drill hole results, which are a long way from showing a mine can be built and operated at a profit. For us, the pure explorers are too much like lottery tickets. The producers do exploration and you can get your discovery upside from them. Bema Gold (acquired by Kinross Gold in February 2007) was a Top 10 stock with 100,000 ounces per year of production when it found Cerro Casale and it did very nicely on the back of that find. So, with the smaller producers you can get plenty of exploration upside. You don’t need to focus on the greenfield explorers because it’s just too hard to tell who’s going to win and who’s going to lose.

 

John Doody brings a unique perspective to gold stock analysis. With a BA in Economics from Columbia and an MBA in Finance from Boston University, where he also did his Ph.D.-Economics course work, Doody has no formal “rock” studies beyond “Introductory Geology” at Columbia University’s School of Mines.

An Economics Professor for almost two decades, Doody became interested in gold due to an innate distrust of politicians. In order to serve those that elected them, politicians always try to get nine slices out of an eight slice pizza. How do they do this? They debase the currency via inflationary economic policies.

Success with his method of finding undervalued gold mining stocks led Doody to leave teaching and start the Gold Stock Analyst newsletter late in 1994. The newsletter covers only producers or near-producers that have an independent feasibility study validating their their reserves are economical to produce.

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***All Posts are  not  to be considered Investment Advice, the articles/posts are presented for Informational Purposes. Consult Your Own Investment Advisors and Carefully Research and Read the Prospectus’s before making any Investment.*** jschulmannsr

As Always Bringing You The Must Have Information for Today’s Gold Markets and Hard Assets Investing- Dare Something Worthy Today Too!  Brought To You By:- jschulmansr

 

 

 There is another option, however, which involves debt holders taking a share of the losses. If steps are not taken to ensure that this happens, the greatest heist in history will have occurred: at least $1 trillion will be transferred from taxpayers to debt holders of failed financial institutions. This must not be allowed to happen.

 Mark-to-Market vs. Real Losses

To understand the government’s dilemma, one must realize that the great majority of the not-yet-recognized losses in our financial system are not short-term, mark-to-market losses that will someday be reversed, but permanent losses. This is a huge misunderstanding that many people, especially those in Washington, seem to be suffering from.

 To understand why the losses are real, consider this simple example: imagine a bank that lent someone $750,000 via an Option ARM mortgage to buy a McMansion in California at the peak of the bubble less than two years ago. Virtually all homeowners with this type of loan will default, thanks to declining home prices, the structure of the loan, and the fact that 70-80% of Option ARMs were liar’s loans. If we assume the house is only worth $400,000 today, then there’s been an actual loss of $350,000. That money will never be recovered. If one considers the millions of toxic loans made during the bubble – subprime, Alt-A, Option ARM and second mortgages, home equity lines of credit, commercial real estate, leveraged loans, credit cards, etc. – it easily adds up to at least $1 trillion in additional, unrecognized very real losses.

 Imagine that New RTC buys this loan for $400,000. In this case, it might not lose money, but then the bank (or the structured finance pool) holding the loan has to immediately realize the loss of $350,000 – and it is certain that the U.S. (and world) financial system has not even come close to marking these assets to what they’re really worth, which explains why they won’t lend, even when given new money. Thus, if New RTC buys these assets at fair value, then the financial institutions suffer the losses – but this would bankrupt many of them. Yet if New RTC pays the inflated prices they’re marked at today, then it (and taxpayers) will suffer huge losses.

Who Should Bear the Losses?

To save our financial system, somebody’s going to have bear these losses – the only question is, who? Some fraction of this will certainly have to be taxpayer money, but all of it needn’t be if the government would stop bailing out all of the debt holders.

 Government policy has been all over the map. Among the large financial institutions that have run into trouble (in chronological order, Bear Stearns, IndyMac, Fannie & Freddie, Lehman, AIG, WaMu, Citigroup and Bank of America), in some cases the equity was somewhat protected, while in others was wiped out, and likewise with the debt. Most likely due to the chaos that ensued after Lehman filed for bankruptcy, the current policy, as reflected in the most recent cases of Citi and BofA, is to at least partially protect the shareholders and, incredibly, 100% protect all debt holders, even junior/unsecured/subordinated debt holders.

 The result is at least a $1 trillion transfer of wealth from taxpayers to debt holders. This makes no sense from a financial, fairness or moral hazard perspective. While there’s an argument that the government should protect senior debt holders to preserve confidence in the system (even though they knowingly took risk – after all, they could have bought Treasuries), the junior debt holders got paid even higher interest in exchange for knowingly taking even more risk by being subordinate in the capital structure (of course, equity and preferred equity holders are the most junior). These investors made bad decisions, buying junior positions in highly leveraged companies that made bad decisions, so why should they be protected?

 Moreover, the reckless behavior of debt investors was a major contributor to the bubble. It was low-cost debt with virtually no strings attached that allowed borrowers, especially the world’s major financial institutions, to become massively overleveraged, fueling the greatest asset bubble in history. This was not an equity bubble – unlike the internet bubble, for example, stock market valuations never got crazy – it was a debt bubble, so it would be particularly perverse and ironic if government bailouts allowed equity holders to take a beating, yet fully protected debt holders.

 Case Study: Bank of America

Let’s look at Bank of America (BAC), which effectively went bankrupt last week (disclosure: we are short the stock). The cost to taxpayers of avoiding this outcome wasn’t the headline $20 billion, but far more – the government is going to take a bath on the $120 billion that it guaranteed – and it’s likely that this is just the beginning of the losses.

 Consider this: as of the end of 2008, BofA had $1.82 trillion in assets ($1.72 trillion excluding goodwill and intangibles), supported by a mere $86.6 billion in tangible equity – 5.0% of tangible assets or 20:1 leverage – and $48.9 billion of tangible common equity – 2.8% of tangible assets or 35:1 leverage (common equity excludes the TARP injection of capital in the form of preferred stock, which has characteristics of both debt and equity). (All data from BofA’s earnings release on 1/16/09; note that these figures include Countrywide, but not Merrill Lynch)

 At such leverage levels, it only takes tiny losses to plunge a company into insolvency. It’s impossible to know with precision what BofA’s ultimate losses will be, but among the company’s loans are many in areas of great stress including $342.8 billion of commercial loans ($6.5 billion of which is nonperforming, up from $2.2 billion a year earlier), $253.5 billion of residential mortgages ($7.0 billion of which is nonperforming, up from $2.0 billion a year earlier), $152.5 billion of home equity loans (HELOCs; about $33 billion of which were Countrywide’s), and $18.2 billion of Option ARMs (on top of the $253.5 billion of residential mortgages; all of which were from Countrywide, which reported that as of June 30, 2008, 72% were negatively amortizing and 83% had been underwritten with low or no doc).

 BofA is acknowledging a significant increase in losses, but its reserving has actually become more aggressive over the past year. From the end of 2007 to the end of 2008, nonperforming assets more than tripled from $5.9 billion to $18.2 billion, yet the allowance for credit losses didn’t even double, from $12.1 billion to $23.5 billion. As a result, the allowance for loan and lease losses as a percentage of total nonperforming loans and leases declined from 207% to 141%.

 So BofA had big problems on its own and then made two very ill-advised acquisitions, the result of which effectively wiped out the company, causing the government to come in and bail it out, at a huge cost to taxpayers. So what price is being paid? NONE! The architect of this debacle, Ken Lewis, is still in place, as is the board that approved everything he did. Ditto with Citi. These banks are just getting do-overs, with the management, boards and debt holders not being touched – the only losers are the common shareholders (to some extent) and taxpayers (to a huge extent).

 Since big losses from Merrill Lynch triggered last week’s bailout of BofA, why are all of its debt holders ($5.3 billion of junior subordinated notes, $31.2 billion of short-term debt and $206.6 billion of long-term debt) being protected 100%, while taxpayers are taking a bath eating Merrill’s losses from its reckless, greedy behavior?! This is madness.

A Better Solution

So what’s a better solution? I’m not arguing that BofA (or Citi or WaMu or Fannie or Freddie or AIG or Bear) should have been allowed to go bankrupt – we all saw the chaos that ensued when Lehman went bankrupt. Rather, if a company blows up (and can’t find a buyer), the following things should happen:

1) The government seizes it and puts it into conservatorship (as Fannie, Freddie, IndyMac and AIG effectively were, to one degree or another);

2) Equity is wiped out (again, as with Fannie, Freddie, IndyMac and AIG);

3) However, unlike Fannie, Freddie, IndyMac and AIG (and certainly Citi and BofA), everything in the capital structure except maybe the senior debt is at risk and absorbs losses as they are realized; the government would only provide a backstop above a certain level. This is what happened in the RTC bailout;

4) Over time, in conservatorship, while the businesses continue to operate (no mass layoffs, distressed sales, etc.), the government disposes of the companies in a variety of ways (just as the RTC did via runoff, selling the entire company or piece-by-piece, etc.), depending on the circumstances (as it’s doing with AIG and IndyMac, for example – these are good examples, except that the debt holders were protected).

Counter-Arguments

One counter-argument to my proposal is that we don’t want the government to nationalize banks. I don’t like it either, but the alternative – inject hundreds of billions of dollars of taxpayer money and not take control – is even less palatable. There should certainly be urgency in disposing of the companies, but also the recognition that it could take years, as with the RTC.

 Another counter-argument is Lehman: nobody wants a repeat of the chaos that ensued when the company went under and debt holders were wiped out. But the mistake here wasn’t the failure to protect the debt, but rather allowing the company to go bankrupt, which not only impacted Lehman’s equity and debt holders, but also stiffed Lehman’s countless clients and counterparties. It’s the latter that caused the true chaos. Lehman should have been seized and put into conservatorship, so that all of Lehman’s clients and counterparties could have relied on Lehman (as was done with AIG) – but debt holders would have taken losses as they were realized (which is not being done with AIG).

A final argument for protecting the debt is the fear of contagion effects: for example, other financial institutions who own the debt might become insolvent (this was probably why Fannie and Freddie subdebt was saved). Also, debt markets might freeze up such that even currently healthy banks might not be able to access debt and collapse.

 Regarding the former, the debt is owned by a wide range of institutions all over the world: sovereign wealth funds, pension funds, endowments, insurance companies and, to be sure, other banks. Some of them would no doubt be hurt if they take losses on the debt they hold in troubled financial institutions – but that’s no reason to protect all of them 100% with taxpayer money.

 As for the latter concern that debt markets might freeze up, causing even healthy banks to collapse, it’s important to understand that right now there is no junior debt available to any financial institution with even a hint of weakness – there’s very high cost equity and government-guaranteed debt. Neither of these will be affected if legacy debt holders are forced to bear some of the cost of the failure of certain institutions.

 Conclusion

The new Obama administration needs to understand that the greatest heist in history is underway – at least $1 trillion is being transferred from taxpayers to debt holders of failed financial institutions – and take steps to stop it before taxpayers suffer further unnecessary losses.

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Has World War III Started?

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

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

By: Tim Iacono of Iacono Research

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

Click to play in a new window

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

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

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

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

 

 

 

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

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How the Federal Government will Lose in 2009 – Seeking Alpha

By: Rob Viglione of The Freedom Factory

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

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

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

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Remember Dare Something Worthy Today Too!

 

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

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

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

• Short the US dollar
• Short US Treasuries

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

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

Disclosure: Long UDN, short TLT, long GLD.

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Five New Forces to Drive Gold Higher – Seeking Alpha

By: James West of The Midas Letter

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

These new forces are as follows:

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

Gold Performance: 2001-2008 (click to enlarge)

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

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The U.S. Dollar and Deficit-Gold Relationships

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My Note- Gold came roaring back today and being beaten down yesterday, currently Gold is up $15 at $856+ and holding above the $850 level. Today’s articles explore the relationship of the U.S. Dollar, the Deficit and National Debt; and their relationship to Gold prices. If you are not alarmed by the current deficit you should be! Now with Obama predicting a yearly deficit of over 1 Trillion dollars what does this mean for the Economy, the Dollar and the price of Gold? Read On and Find Out… Good Investing – jschulmansr

Things We Don’t Talk About (But Should); National Debt and the $2 Trillion Deficits- Seeking Alpha

By: Jonathan O’Shaughnessy of Emerginvest Blog & Emerginvest 

It has been around for decades, and has been ignored by many for just as long. However, the US national debt stands to finally be thrown into the forefront of political discussion as the record for a single-year deficit looks to be beaten – by threefold.

According to the government-run TreasuryDirect.gov, US national debt is the largest it has been in history at $10.6 trillion, or $10,638,425,746,293.80. This is at a time when the US is facing the worst economic crisis since the Great Depression, which requires record-shattering government spending to stabilize the faltering economy. In addition, global demand for US national debt is waning as countries world-wide are implementing their own financial stimulus packages. Yet economists are virtually unanimously advocating for radical government spending to stabilize the economy, which leaves future generations of Americans holding extremely large amounts of national debt.

The problem for the average American is twofold: national debt doesn’t seemingly affect their daily lives and $10.6 trillion is a hard number to conceptualize. After a certain point, the human brain stops comprehending the magnitude of a given number, and simply categorizes it as “extremely large.” Subsequently, there is little public outrage or discussion when the US has run up a few hundred billion dollar deficit in years past. It doesn’t seem to affect their lives, no government projects are cut, and adding $0.2T onto $10.6T seems relatively insignificant.

However, when viewed in another light, the enormity of the national debt is astonishing. According to the 2007 United States budget, and TreasuryDirect.gov, the interest alone on national debt is approximately $460 billion. It accounts for the second-highest expenditure on the US budget and if the US could forgo paying that interest on national debt for one year, the United States government could:

1) Pay for the entire education budget of the United States six times over

2) Reduce federal taxes by 33% for all Americans, or

3) Write a check to every man, woman, and child in the United States for $1,500.

Yet, that $460 billion in annual interest looks to grow substantially with looming deficits in the years to come.

A New York Times article entitled “Obama Warns of Prospect for Trillion-Dollar Deficits,” stated: “President-elect Barack Obama on Tuesday braced Americans for the unparalleled prospect of ‘trillion-dollar deficits for years to come.’” President-elect Obama did not give details about the size of the deficit, but projections place the proposed deficit at close to $1.2 trillion for 2009, shattering the record from President Bush last year at $455B.

That is not counting the proposed $800B 2-year stimulus package which could easily raise the deficit into the $1.7 trillion range – bringing the national debt to roughly $12.3 trillion by the end of 2009. Assuming deficits run at approximately $1 trillion per year for the next two years, which may or may not be conservative, the US could see its national debt as high as $15 trillion in three years.

Subsequently, Obama added emphasis on tighter government regulation, quoted in the NYTimes article as saying: “’ We’re not going to be able to expect the American people to support this critical effort unless we take extraordinary steps to ensure that the investments are made wisely and managed well.’” In correlation, he created a new position, chief performance officer, in charge of eradicating government inefficiencies.

This comes at a time however, when global demand for US debt is falling sharply. A prime example is China, one of the largest creditors to the US, which has heavily curtailed its purchases of US debt in light of the recent financial crisis. Another NYTimes article entitled: “China Losing Taste for Debt from U.S.,” states that: “China’s foreign reserves will increase by $177 billion this year — a large number, but down sharply from an estimated $415 billion last year.” The Chinese government is dealing with their own economic woes – a stock market which has shed two thirds of its value in the last year – and is attempting to implement their own economic stimulus package. Furthermore, the sharp outflow of foreign direct investment in China has further complicated the issue. The situation is similar across the world, as the Emerginvest heat map shows the damage from the past quarter (click to enlarge):

The lack of global demand for US national debt could put severe pressure on US interest rates in the years to come if demand continues to shrink drastically. However, there is a political buffer, as the article stated that: “China’s leadership is likely to avoid any complete halt to purchases of Treasuries for fear of appearing to be torpedoing American chances for an economic recovery at a vulnerable time, said Paul Tang, the chief economist at the Bank of East Asia. ‘This is a political decision,’ he said. ‘This is not purely an investment decision.’”

Yet even in the face of significant strain on government debt and sagging global demand, economists are virtually unanimous in calling for exorbitant amounts of government spending to stabilize the economy. Yet another NYTimes article entitled: “A Crisis Trumps Constraint,” states that: “To a degree that would have been unimaginable two years ago, economists and politicians from across the political spectrum have put aside calls for fiscal restraint and decided that Congress should spend whatever it takes to rescue the economy,” in addition to: “’It pains me to say that because I am a fiscal conservative who dislikes budget deficits and increases in government spending,’ Mr. Feldstein told the lawmakers. But he said, ‘Reviving the economy requires major fiscal stimulus from tax cuts and increased government spending.’”

Therefore, it looks as if the U.S. is inexorably tied to unparalleled government spending in the short term, nearly guaranteeing a national debt of over $14 trillion within a few years. The Obama administration has hinted at overhauling Medicare and Social Security as ways of dampening the gargantuan deficits, but the method, and certainly the net effect of such an undertaking remains ambiguous until the budget is revealed. It seems as if, in the interest of short term self-preservation, future generations of Americans will be inevitably saddled with incomparable amounts of national debt which will heavily shape future American fiscal policy for decades.

Disclosure: Emerginvest is an international finance portal, providing analysis and data on 120+ world markets to help individuals find investments from around the world. Emerginvest provides impartial information about world stock markets, and does not have any holdings in foreign equities.

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Government Panic Could Herald Dollar Panic – Seeking Alpha

Source: John Browne of Euro Pacific Capital

One of the few things more troubling for an economy than government intervention is government intervention driven by panic. Time and again, history has shown that when governments rush to engineer solutions to pressing problems, unintended difficulties arise.

In the current crisis, there is growing evidence that Washington is in a state of increasing panic. Despite its massive cash injections, market manipulations and ‘rescue’ plans, the recession is clearly deepening and spreading. With little to show thus far, politicians don’t know if they should redouble past efforts, break ground on new initiatives, or both. However all agree, unfortunately, that the consequences of doing too little far outweigh the consequences of doing too much.

Although there are many parallels between the current crisis and the Crash of 1929, one key difference is the global profile of the U.S. dollar. In 1929, the dollar was on the rise, and would soon eclipse the British Pound Sterling as the world’s ‘reserve’ currency. Furthermore, the American economy was fundamentally so strong that in 1934 America was the only major nation able to maintain a currency tied to gold.

Ever since, the U.S. dollar’s privileged ‘reserve’ status has been a principal factor in America’s continued prosperity. The dollar’s unassailable position has enabled successive American governments to disguise the vast depletion of America’s wealth and to successfully increase U.S. Treasury debt to where the published debt now accounts for some 100 percent of GDP. The total of U.S. government debt, including IOU’s and unfunded programs, now stands at a staggering $50 trillion, or five times GDP! If the dollar were just another currency, this never would have been possible.

In today’s crisis however, the dollar is likely making its last star turn as the leading man in the global financial drama. Other stronger, less burdened currencies are waiting in the wings for the old gent to take his final bows.

The dollar’s demise is being catalyzed by the neglect of the Federal government. Instead of enacting policies that would restructure the U.S. economy, and restore productive, non-inflationary wealth creation, Congress is simply financing the old crumbling edifice.

Faced with the growing realization that America is not doing the work necessary to right its economic ship, it will not be long before America’s primary creditors begin to seriously question the nation’s ability to service, let alone repay, its debts.

There is now the prospect (inconceivable until recently), that America could lose its prestigious ‘triple-A’ credit rating. In today’s risk adverse market, this could cost the Treasury one percent in interest on long bonds. Each additional percentage point of interest would cost America some $10 billion a year on each trillion dollars of new debt, or some $300 billion over the life of a 30-year bond.

Many of the foreign governments who hold huge amounts of U.S. dollar Treasury debt, such as China and Japan, have announced plans to spend money on their own ailing economies. Should these foreign central banks divert to domestic initiatives some of the funds used to buy U.S. Treasuries, serious upward pressure on U.S. interest rates will result. Should they actually sell parts or all of their holdings they will likely put serious downward pressure on the U.S. dollar. Last week, a Chinese official claimed the U.S. dollar should be phased out as the world’s ‘reserve’ currency.

In the short term, as dollar ‘carry-trades’ continue to be unwound and questions of political will and falling interest rates haunt the Euro and some other currencies, the U.S. dollar may be the recipient of some upward appreciation. But with the American government appearing increasingly to be in panic mode, a run on the U.S. dollar could develop rapidly into cascading devaluation. Even if no such panic run materializes the long-term outlook for the U.S. dollar is one of high risk and low return. This beckons major upward pressure on precious metals.

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What is Going On With Gold? – Seeking Alpha

Source: The Pragmatic Capitalist

Gold (ETF:GLD) is one of the most fascinating and talked about assets on the planet. There are more conspiracy theories and story lines behind gold than just about anything on earth. Heck, the followers of the asset even have their own club: the goldbugs. You can’t go a day without seeing a commercial about gold. If you google “buy gold” you get almost as many results as if you search “buy real estate” (15.4MM vs 16MM).

But gold has been acting funny lately. The conspiracy theories have been running even crazier than usual (from government conspiracy to backwardation) and the goldbugs are angry. As the world economy deteriorates and the U.S. prints money like it’s going out of style, gold has not appreciated. If you had told me in December of 2007 that the global stock market would fall 40% in 2008 I would have told you to buy gold and nothing else because of its safehaven characteristics. But a funny thing happened on the way to the demise of the global economy: Gold fell.

After rallying into the second quarter of 2008, gold went on a gut wrenching 6 month decline of over 30% – all in the midst of one of the greatest financial collapses ever. It was, if nothing else, quite a paradox. Even crazier, the US dollar stabilized and then rallied into the end of 2008. Why did this happen? How could gold fall in such an environment?

Gold remains an anti-dollar investment. It’s as simple as that. When you buy gold you’re essentially buying a hard asset currency with the hope that one day it will become the world’s choice of currency again. If the dollar (UUP) weakens or one day fails the likelihood of a gold based currency increases. In essence, buying gold is a way of betting against the greenback and U.S. economic dominance. You can argue the extent of my argument, but you can’t really argue with the inverse correlation in the two assets:

Click to enlarge

The correlation is clear. If you’re betting on a rise in gold you’re betting on a falling dollar. I’ve been banking on a higher dollar for over 6 months for one reason: it’s the best currency in a bad lot. Jim Cramer should change his area of expertise to currencies, because while there isn’t always a bull market in stocks and commodities, there is always a bull market somewhere in the currency market. Trades are paired in Forex and unfortunately, it’s hard at this time to make an argument in favor of other currencies over the greenback. And as long as the greenback remains strong it’s unlikely that gold will make any sustainable run.

So why is the dollar the best of the worst? It’s quite simple in my mind. Two major currencies on the planet now effectively bear zero interest: the dollar and the Yen. Of the two, the U.S. is the far superior economy. In essence, neither country can really devalue their currency all that much more unless they decide to print money to the point of insanity and although I believe the U.S. is printing wildly I am not incredibly alarmed as of yet simply because the destructive deflationary forces at work are so much greater than the inflationary response by the Fed. Inflation is certain to rear its ugly head in the coming years, but I suspect it will be relatively mild as the economic rebound is slow and the overall monetary destruction of this deflationary phase proves to be incredible.

So, getting back to the greenback – the U.S. was first to enter a recession and it now looks like the world is catching pneumonia from our cold. Unfortunately Europe and Asia still have relatively high interest rates (read: room for currency devaluation) and simply don’t carry the same status as the U.S. – we are the reserve currency and the only true AAA nation. Yes, you can certainly make the argument that the U.S. is no longer a AAA rated country, but if we’re AA then what does that make Japan (the world’s second largest economy) or Germany? Much worse, in my opinion.

So what we’re seeing is essentially a flight to quality in a time of financial distress? Yes, that’s right, the U.S. dollar is a higher quality asset right now than just about any currency on the planet. And if you’re a U.S. citizen you should be thanking your lucky stars it’s THE reserve currency because this crisis would likely be even worse if that wasn’t the case.

So, before you go placing bets on gold it might be better to research the greenback first.

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Not Time To Exit Commodity Positions – Seeking Alpha

By: J.D. Steinhilber of Agile Investing

Diversified commodities have suffered approximately the same one-year decline as stocks, but the descent has been more violent since broad commodity indexes peaked in the middle of 2008, whereas most stock indexes peaked in October 2007. Just as it is not the time to abandon stock market commitments, this is certainly not the time to exit commodity positions in the context of a diversified multi-asset portfolio.

Cyclical commodities are not a valuable hedge to a stock portfolio in a deflationary bust and a liquidity crisis such as we have seen, but those conditions are not likely to persist over any investment horizon measured in years rather than months. Massive government reflation and stimulus efforts will support hard assets in 2009. Infrastructure spending is bullish for commodity prices, and tighter credit conditions, along with lower prices, puts pressure on the supply of commodities as suppliers curtail production.

Gold finished the year on a very strong note and managed to produce another year of positive returns in 2008. Gold has the most attractive three and five year annualized returns of all the asset classes we track. Gold will continue to be whip-sawed by the volatility in the currency markets.

We hold Gold (GLD) in our portfolios as an insurance policy against financial crisis and paper currency devaluation. The opportunity cost of holding gold, which produces no dividend or interest income, is now very low given that the Federal Reserve has cut the official U.S. overnight lending rate to zero to 0.25%, and has stated that “weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

[click to enlarge]

 

 

 

 

 

 

 

 

 

 

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How Will Obama’s “Trillion Dollar Deficits” Affect the Markets? – Seeking Alpha

By: Simit Patel of Informed Trades.com

The New York Times has an article this week reporting on US President-elect Barack Obama’s warning that there will be ‘trillion-dollar deficits for years to come.” What does that mean for the markets?

The first line of recourse will be the issuance of Treasury bonds; in other words, the US government will look to borrow money, offering to pay it back with interest. The key question, though, is to what extent buyers of Treasuries will be easily found. As we have discussed previously, the very low yield on bonds coupled with the fact that the economic pains are being felt all around the world suggest one of two possibilities: bond rates will have to go up or the Federal Reserve will have to “monetize the debt” — meaning it will simply have to print more money.

I have stated and continue to believe that the result of increased deficit spending, due largely to government bailouts, in this environment will be debt monetization (even if there is a rate hike, that will only increase the future debt, and thus will only delay and exacerbate debt monetization). I believe this will prove to be inflationary, that it will devalue the US dollar, and that this is the real way the bailouts will be paid for; not via a direct tax, but rather a tax through inflation. Economist Mike Shedlock, however, offers a counter viewpoint:

The Fed at some point will resort to out and out monetization, and that will have the inflationists screaming at the top of their lungs. However, banks will still be reluctant to lend, and consumers and businesses will be reluctant to borrow. In addition, I expect the velocity of money printed to be close to zero and for the savings rate to rise. In aggregate, these are not hyperinflationary things. Heck, they are not even inflationary things.

Admittedly, I am one of those inflationists who will be screaming at the top of my lungs.

There are two reasons I believe debt monetization will be inflationary:

1. I disagree with the notion that banks won’t lend and consumers won’t borrow. As I recently noted, we are seeing a declining TED spread as well as an increase in many money supply metrics (M1, M2, MZM). And even in this environment, we have seen companies like Verizon be able to secure a massive $17 billion loan.
2. Even if lending is reduced due to the economic climate, debt monetization increases the likelihood that foreigners will not only stop buying Treasuries, but that they will sell the ones they have, and will dump US dollar holdings out of a concern of dollar devaluation by the part of the Federal Reserve. This suggests there will be a “run on the currency,” similar to what was seen in Argentina. See our previous article on the similiarities between the US economic crisis and the Argentinian crisis of 2001 for more on this subject.

How to Trade This Scenario

Timing is the key issue for trading this; we are currently seeing a rally in the market, though I expect that at some point in the second half of 2009 we will see the concerns about the Treasury market begin to manifest. As a trend-following trader I look for momentum that corresponds to my fundamental viewpoint, with the exception of precious metals, which I treat as buy and hold type investments.

With that in mind, here are the conclusions I am making based on the trillion dollar deficit scenario:

1. US dollar will fall in value. For stock market traders, UDN is an ETF to watch.
2. Dollar hedges like gold and silver will rise. GLD and SLV are corresponding ETFs.
3. Both monetization of debt as well as a hike in interest rates will send bond prices falling, as a rate hike devalues all bonds previously issued at a lower rate while monetization of debt introduces inflation concerns and the possiblity of the bond being paid back with a currency that is worth less.
4. A rate hike, which I think is increasingly unlikely given the Fed’s behavior though still possible, will be bearish for US stocks. DOG and SH are inverse ETFs worth considering in such a scenario.

Disclosure: Long gold and silver; currently short US dollar against Australian dollar.

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My Note: Whether as “Portfolio Insurance”, or as a Speculative Investment, I think now is the time to buy and Invest in  Gold and Precious Metals in any form. I am calling for $1000 to $1250 Gold later this year and even higher if the Middle East Situation disintergrates and gets worse. Other factors are mentioned in detail above, don’t kick yourself later, buy Precious Metals and Miners at these ridiculously low levels NOW!

My- Disclosure: I am long Physical Precious Metals, Etf’s, and Mining/Producer Stocks. I.e. my money is where my mouth is! Remember to do your own Due Diligence and read all Prospectus’s before making any investment. -jschulmansr

Gold-History Repeating Itself?

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Today’s action: Gold opened down by a few dollars and now has reversed itself and is cusrrently up $7-10 oz. Based off of chart formations it would appear that  Gold is breaking out to the upside and getting ready to challenge the $900 level, If it can break that then we are set up for a test of the $950-$975 level. If it fails here, a pullback to the $800 level (support base) will probably occur. Today’s articles include one about a new 2yr gold price cycle that appears to be forming. Next some questions answered about the markets for 2009. Finally a special report from Gold World about Gold Backed Banking. Enjoy and good investing! – jschulmansr

Gold’s 2-year cycle – MineWeb

A Mineweb reader has noticed a recent two-year cycle for gold price behaviour which, if it continues will likely give some guidance to price movements this year and next.

By: Joseph Cafariello

EDMONTON, CANADA –

There seems to be a two-year cycle in the gold price which has been repeating itself since about 2004.  The even years follow one pattern, while the odd years follow another pattern.  The even years tend to reach exaggerated extremes to the upside and to the downside on a percentage basis, while the odd years tend to be a little calmer with less volatility.

For example, 2008 went very much like 2006, with exaggerated highs reached in the spring of each year, and a late start to the traditional autumn-winter-spring upswing, which began around October/November of 06 and 08.  On the odd-number side, 2007 went much like 2005, with moderate highs reached in May of each year, and an early start to the traditional autumn-winter-spring upswing, which began around August/September of 05 and 07.

If this is indeed a reliable cycle, we can expect 2009 to be much like 2005 and 2007 all throughout the year.  The first half of 2009 should see gold follow the same pattern as the first halves of 2005 and 2007.  In the springs of 05 and 07, gold kept hitting its head against the previous year’s high all throughout the spring.  More than once during the spring of 2007, gold topped out at about $690, coming to within about 5% of the 2006 high of $735.  Similarly, the spring of 09 should see gold hitting its head against 2008’s high of $1,035, coming to within 5% of it, or up to about $985.  That will be the high for the first half of 2009 at around the beginning of May, though this will not be the high for 2009 as a whole.

Given the odd-number year pattern, we might also expect the back half of 2009 to be much like the back halves of 2005 and 2007.  In both 2005 and 2007, the summertime pull-backs were modest, and the autumn-winter-spring upswings started early, at around August/September of 05 and 07.  The latter half of 2009, then, should see a modest summer-time pull-back of about 5% to 7% of its spring 09 high, taking gold down from $985 in May 09 to about $925 by August 09.  However, the low for 2009 will still be the upcoming January low of $800, which is now only about a week or two away.  The lows of January 2005 and January 2007 were also “the” or “close to the” annual lows for those years.  So the low of 2009 will be at around $800 in January.

The high for 2009 will come in December.  The traditional autumn-winter-spring upswing in 2009-10 will be much as it was in 2005-06 and 2007-08, with an early start.  The year-end run for 09 will begin around August or the beginning of September, jumping from about $925 in Aug/Sep 09 and rising steadily until the end of December 09.  The annual highs for 2005 and 2007 were hit in or near December of each year, and each high was about 20% higher than the average of their first halves.  Thus, the annual high of 2009 will be hit in or near December, and will be 20% higher than the average of its first half, putting the 2009 high at about $1,150 in December.

The traditional autumn-winter-spring upswing, however, will certainly not end in 2009, but will spill over into the spring of 2010 much as it did in the springs of 2006 and 2008.  The high in the spring of 2008 was about 40% higher than high in the spring of 2006.  Hence, the high in the spring of 2010 will be about 40% higher than 2008’s high of $1,035, putting gold at about $1,450 in the spring of 2010.  Then, the summertime pull back of 2010 will be just as stark as were the summertime pullbacks of 2006 and 2008.

And so the two-year cycle will continue, where even-number years follow a pattern of extremes, while the odd-number years are calmer, but with a nice upward kick at the end.  This two-year cycle with even-number years on the extreme side and odd-number years on the moderate side will continue until the commodity boom is over (say around the year 2030, when the populations of China and India finally achieve a 75% middle-class), and until the US dollar recovers at around the same year (2030), when the rest of the world will be looking to the US as a nice place to shop given its then-to-be dirt-cheap dollar.

The above comment was contributed by Mineweb reader Joseph Cafariello who describes himself as “A raving gold bug and proud of it”

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2009 Market Q&A: Four Questions Answered – Seeking Alpha

Source: Eric Roseman of The Sovereign Society

By Eric Roseman

Over the last several weeks I’ve received numerous questions from Sovereign Society subscribers, including individuals who frequent our daily blog.

As we start 2009, I thought this would be an ideal forum to collect some of these important questions and attempt to give you my best conclusions. I can’t reprint all of these inquiries; but I’ve compiled several excellent questions from our members.

Overall, I don’t like forecasting. I generally believe it’s a total waste of time and most consensus estimates ahead of 2008 ended in the basement with the majority of analysts dead wrong about the economy, the market and just about everything else.

I have to admit that I never expected the markets to crash, the banking system to go bust or the dollar to skyrocket in the midst of the worst financial crisis in 75 years. To be fair, I think most pros failed to make accurate predictions.

Question: I’m a retired investor living on income. Prior to the big rally in Treasury bonds, I held most of my savings in short-term Treasury’s and bank term deposits. But with short-term rates under 1% and government bonds yielding a pittance, I’m nervous. What should I do to supplement my income?

Comment: This is perhaps the most challenging environment for retirees in more than a generation. With money-market funds yielding almost nothing, Treasury bonds yielding around 2% and bank CDs paying under 1%, retirees must supplement their income.

My advice is to take a small portion of your savings, say 20%, and scatter that sum across a dozen or more investment grade corporate bonds. I emphasize “investment grade” and not junk debt. Investment grade debt includes anything rated BBB or better in my book and, to make it easier, I would stick to issues rated A- or higher.

The Dow Jones Corporate Bond Index now yields 6.90% – down from its post-crash high yield of 8.87% in early October. Still, investors can tap into non-financial bonds like IBM, Johnson & Johnson (JNJ), Wal-Mart (WMT) and Kraft Foods (KFT) – all paying 5.5% or more. Or, look at corporate bonds issued by America’s largest banks, including JPMorgan Chase (JPM), Goldman Sachs (GS), Wells Fargo (WFC) and US Bancorp (USB). These banks won’t default.

A good strategy to keep things simple is to buy a laddered portfolio of corporate bonds ranging from two years all the way to seven years. This should at least give your nest egg a boost and if you feel comfortable with this formula, then increase your position to say 35% of your portfolio. But remember, don’t go whole-hog; at some point over the next 12 months, perhaps later, Treasury bond prices will get smashed and long-term rates will head higher as the government expands credit to the moon. Keep your powder dry.

Question: Do you think we’ll avoid another Great Depression? Despite all the money thrown at the markets since late 2007 we’re still in the midst of a severe credit contraction and the global economy has literally fallen off a cliff since October.

Comment: I think we’ll avoid another Great Depression but only because government will nationalize or partially nationalize key industries. Without government intervention, the free market would have resulted in massive failures and a total collapse of the banking system and the broader global economy. There’s no doubt in my mind that the government made a big mistake not rescuing Lehman Brothers last September. Once you’re bailing out major banks, then do it right. But in all honesty, we don’t know what transpires behind the Fed’s walls or the Treasury’s. There’s some crazy buddy system in progress with special interests influencing government policy. The government doesn’t give a damn about you or me. What they care about is protecting their interests. That’s why we must protect our assets and, in the end, I believe gold will triumph above all paper money, especially against the dollar.

I don’t advocate government intervention; but these are not normal times and the consequences might have resulted in the death of capitalism and perhaps the emergence of a new social order, similar to what occurred in post-Weimar Germany in the 1920s. Harsh economic times usually result in a new socio-economic regime. If the Fed and Treasury fail to rescue the credit system, then we might face similar consequences. The world as we know it will come to an end.

It’s hard to know exactly what goes on behind the Federal Reserve’s closed doors and at the Treasury’s. Thus far, government efforts have been bold since the October crash, including major central banks worldwide. Major credit indicators have indeed improved since November but the housing market – the crux of the crisis – is still in a freefall. Housing must stabilize before this severe recession ends.

In my eyes, it seems that bailouts and backstops are not addressing the real problem; most TARP money is ending up in bank coffers again and, in most cases, these institutions aren’t lending. The core of this credit crisis lies with the consumer and with housing. If you’re going to fork out several trillion dollars to fix or remedy this crisis then give the money to the consumer – not the banks. The consumer is in a severe bear market with personal assets plummeting over the last 18 months, including real estate, stocks, most bonds and now, possibly his or her job might be next on the chopping block.

Give consumer households $50,000 or more and allow them to clean-up their busted balance sheets, keep their homes (service mortgages) and pay off installment debt. You might not agree with me and, in all fairness, it’s against the tenets of the Sovereign Individual; but what good will all this money do if it’s basically squandered by government and ending up in the pockets of reckless bankers again? I have serious doubts about how the government is dealing with this crisis and I don’t think Obama’s spending package will help much at all despite perhaps growing the economy for a few quarters.

Question: What about the banks? With governments now standing behind their biggest financial institutions, is the worst over?

Comment: The global banking system, for all intents and purposes, is effectively bust or bankrupt. This is especially the case in the United States, Europe and, to a lesser extent, in Japan. More than a dozen emerging market banks are totally bust, including Iceland, the Baltics, Hungary, Romania, Bolivia, Ukraine, Ecuador, Argentina, etc. Not a pretty picture.

I think we’re more than 75% through the worst at this juncture. Governments now stand behind the largest banks in each country and, in some cases, even guarantee entire deposits until 2010 (e.g. European Union). I wouldn’t worry about the largest banks failing at this point. The worst is now behind us.

Question: I know you’re a big gold bug, but isn’t the euro a strong currency and do you think it’s a better hedge against the dollar than gold? Is it too late to purchase gold coins and, if not, where would you suggest I buy coins?

Comment: I have absolutely zero faith in the U.S. dollar and other currencies, including the euro or yen. In the end, all currencies will decline vis-à-vis gold and, in fact, since 2005 the world’s currencies have been losing their relative value to gold bullion. Despite big moves by the yen and euro over the last several years, they pale against gold.

Increasingly, the average man in the street will realize that paper money is not protecting his purchasing power and will revolt against fiat money. At The Sovereign Society, we’ve driven home this message since our first year of publication in 1997. Gold is the only asset in this world that isn’t someone else’s liability; with U.S. interest rates effectively at 0%, paper money now competes with gold, which also pays 0% interest. In a zero percent world, which asset would you rather own? I think the answer is obvious.

The government’s enormous spending plans to rescue the financial system and bailout almost every ailing industry assures dollar destruction because the Fed is now on course to print money like never before to quash deflation. We all better hope and prey that the Fed can drain excess bank liquidity very quickly when this credit crisis ends. If not, we’ll have some serious inflation – much worse than what we saw prior to July 2008.

I think every investor should hold at least 10% of his assets in physical gold. This means coins, wafers or bars. Getting gold coins today is difficult because the U.S. Mint has stopped selling Eagles since last summer while other dealers are complaining about tight supplies amid booming investor demand. I suggest KITCO or First Federal Coin Corporation.

Also, I would not hold or store all of my physical gold at my home domicile. I strongly suggest parking some of your gold in Switzerland, too. Remember, you must report assets outside of the United States and Canada.

I’m convinced we’ll see some sort of government confiscation of gold again just like we did in the 1930s. Back then, FDR did allow Americans to hold a maximum of 100 ounces. I’m not so sure the next confiscation will be so generous.

I hope you found this helpful.

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2009 Gold Outlook – Gold World

How To Invest in Gold in 2009

By Luke Burgess

The investment markets are yielding to the fact that the global economy will remain weak for the better part of 2009.

As a result, investors will continue to seek safe havens.

Under normal conditions, these safe haven investments would include land and real estate. These assets have intrinsic value; or in other words, their value will never fall to zero. But with falling prices, investing in real estate is out of the question for most people right now. And there’s little doubt that investors will look elsewhere for safety against financial crisis.

The best safe haven asset in the world right now is still gold because it is never considered to be a liability.

And we believe that safe haven investment demand will drive gold prices during 2009. With this in mind, we would like to present a broad overview of Gold World‘s 2009 gold outlook. But before we get into that, let’s review what happened to gold prices in 2008.

Gold Was One of the Best Investments of 2008

In March 2008, gold prices hit a record high of $1,033 an ounce as the gold bull market entered its seventh year of life. This was followed by a normal 18% correction, which drove gold prices back down to $850 an ounce.

Gold prices subsequently rebounded and were once again closing in on the $1,000 level in mid-July. At the same time, however, the fundamental and psychological effects of the slowing housing and credit markets were just beginning to devalue significantly the investment markets across the board.

As a result, many long gold positions had to be sold in order to cover losses from investments in other markets. Over the next several months, this forced selling pressure pushed gold prices down.

Gold prices were also held down during the second half of 2008 as the U.S. dollar enjoyed a +20% rally. Foreign governments, institutions, and banks began buying the U.S. dollar, which despite a legion of problems continues to be the world’s most important reserve currency, as a hedge against domestic economic turmoil.

These factors contributed to a significant drop in the price of gold, which officially bottomed out for the year at an intraday low of $683 an ounce in October 2008.

Gold prices have subsequently bounced off of the $700 level as major selling has dried up, and fresh buying has come into the market.

Despite three 20% corrections and serious deflation in the market, gold exited 2008 with a positive 5.4% gain for the year. Although subtle, this gain outperformed every major equity index and commodity in the world. Here are just a few examples…

Index/Commodity	Percent Change During 2008
Dow Jones	-34%
NASDAQ	-41%
S&P 500	-39%
TSX	-35%
TSX Venture	-74%
Oil	-55%
Silver	-23%
Copper	-54%
Gold	+5%

This made gold one of the best investments of 2008.

And the 2009 gold outlook looks just as strong.

Gold’s 2009 Outlook

Despite a bit of downside in the immediate future, we expect gold to have a stellar year.

Global economic turmoil and deflation will undoubtedly continue to influence gold prices in the near-term. A short-term pullback in gold prices from current levels to $800—maybe even a bit lower—is not out of the question. However, we expect gold prices to break new records during 2009.

For our current perspective, we expect gold prices to reach as high as $1,300 during 2009, which would be a profit of over 50% from current levels.

Gold prices in 2009 will be supported more heavily by supply/demand fundamentals than in the previous years of this gold bull market.

As we’ve previously discussed, during the third quarter of 2008, world gold demand outstripped supply by 10.5 million ounces. This deficit was worth $8.5 billion and was the largest supply/demand deficit since the gold bull market of the 1970s.

Official 4Q 2008 world gold supply/demand figures will be calculated and reported later this month. Gold World will report them to you when the data is released.

In the meantime, though, all estimates suggest that there will be another very large deficit in world gold supplies from the fourth-quarter, with investment demand continuing to drive the market.

We expect that a continuing surge in investment demand could push gold prices as high as $1,300 at one point during 2009.

There will likely be a bit more volatility in the gold market in 2009 as more and more speculators come into the market. It is likely that the gold market will experience three or four price peaks (selling points) during 2009.

How to Invest in Gold for 2009

As we expect a near-term drop in gold prices as a result of continuing deflation, we are advising our readers to hold off on any physical gold buying for the immediate future. As previously mentioned, gold prices could dip back down to $800 before recovering again.

Nevertheless, we expect 2009 to be another great year for gold investors.

Good Investing,

Luke Burgess and the Gold World Research Team
www.GoldWorld.com

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Gold World Special Report – Gold Backed Banking

Special Report – Here’s How To Get Your Own Copy – Simply Subscribe

January, 2009

Gold Backed Banking

It’s a wonder Americans aren’t rioting in the streets.

Not including the $700 billion blank check issued to the banks and signed by the US taxpayer, the sum of liabilities assumed by the US government from the finance industry in the past 6 months alone exceeds 50% of the GDP.

Despite this unprecedented government intervention, the solvency of other every commercial and investment bank is still at stake!

Recognize this all-but-forgotten quote?

“The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.”
— Thomas Jefferson, Founding Father, Third President of the United States, and the principal author of the US Declaration of Independence

How bout a drink from the cup of truth…

The Bush administration’s $700 billion bailout plan may keep some banks afloat for the time being. But fundamental problems are still deeply rooted within the financial markets that threaten to bring down the whole system.

The hard truth is that there is no 100% safe place to keep your money.

Physical cash and gold are the safest places to hold your wealth right now. Anyone who tells you otherwise has either a motive or no clue.

Those with the means to do so should be holding at least some physical cash and gold.

Of course, people will debate why you should hold these assets…

Gold is the ultimate in hedging against financial turmoil. But as it stands today, it’s quite rare to find someone willing to trade a product or service for gold. In other words, it’s difficult to spend gold like money, which has been a criticism of owning physical gold for decades.

Today’s digital age allows consumers to move electronic fiat money around at speeds exponentially faster than ever before. This morning I paid my cable bill with my check card. The entire transaction was completed within 5 minutes. Had I paid by mailing a check, it could have taken up 1-2 days to reach the cable company and 3-5 days to clear my account.

So what if there was a way gold could be used as easily as electronic money?

The World’s Only “100% Backed-by-Gold Bank”

You might have a hard time believing this, but you can actually put yourself on a personal gold standard with a new kind of currency, and it’s rapidly growing among gold bugs.

Understand first, this new currency is not legal tender issued by any government. That means there’s no debt, inflation, geopolitical turmoil, or any other considerations normally associated with government-issued currency.

The currency comes in electronic form, but can be used like any other currency in the world today to pay for goods and services, and even settle debt. But there’s one major difference that sets this currency apart from every other in the world:

It’s 100% backed by gold.

In fact, in most cases you can instantly exchange this currency for physical gold at any time… a feature taken away from the US dollar decades ago.

This currency has a new system fully established, making it as easy to use as the current banking industry’s electronic money. Right now, in fact, there are already over 3,000 outfits—and climbing—in which you can pay online using this currency.

How the “Gold Bank” Works

Customers transfer funds from traditional bank accounts into these unique gold-backed bank accounts, and earn interest on their funds prior to placing an order.

Meanwhile, for customers already holding gold and silver in secured (and insured) vaults, their metals are insured and held in specialized bullion vaults. Their metals assets go through an annual audit, and are fully reported to customers.

Once customers’ funds are in the database, customers’ orders are made through its secure online system. Database servers record all transactions and store currency and metal balances.

The Advantages of Using this Currency?

Being backed by gold, the purchasing power of this currency fluctuates in relation to the price of gold.

This means that as the price of gold increases, the purchasing power of the account increases. On the flip side, however, if the price of gold falls, so does the value of the account. Nonetheless, the risk of significant price fluctuation in gold is small compared to the risk of value fluctuations among fiat currencies, especially the US dollar.

And despite a short-term correction, the price of gold has increased significantly over the past five years. So this factor has worked out to the advantage of anyone holding this currency over that period. And with +$2,000 gold on the horizon, holders of this currency should do quite well in the future.

Now you should know that I’m in no way affiliated with this service, nor do I receive any compensation from it. That said…

I Recently Put the Final Touches on my New Research Report…

This report shares all the details about the new gold-backed electronic currency, and it’s yours free after you take a risk-free trial of the Mining Speculator service.

It’s your chance to get in on the biggest and best buying opportunity in junior gold and silver stocks… ever.

That’s right. The junior gold market is about to blast off, after a brutal beat-down sparked by the financial crisis. Truth is, it’s pushed many gold and silver stocks to new lows…

… Which is why you don’t want to wait a minute longer to position yourself in the Mining Speculator’s mining and precious metals portfolio. Our team of analysts scour the earth for opportunities in gold, as protection against the financial uncertainties engulfing the U.S. and world markets.

It’s the ultimate opportunity in a period of great crisis.

You see, as our government continues to lose control of its ability to manage and prop up markets, gold and silver will undoubtedly make meteoric moves that will stun the populace.

And just in case you still harbor doubts about gold, consider this… reported last week in the Financial Times…

“… Investors in gold are demanding ‘unprecedented’ amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen.”

And since gold bullion is getting harder and harder to come by, more investors are looking for the next best alternative, and that’s…

Precious Metals Mining Stocks

Bottom line: Junior mining stocks will begin to make major moves to the upside, rewarding those who got in early and held on… and those who get in now at what are, frankly, bargain share prices.

You see, nothing can keep gold from doubling up and hitting $2,000 an ounce… causing shares in our mining exploration companies to skyrocket.

I’m talking about junior mining stocks with the potential to double, triple—even quadruple!

Of course, many people have trouble accepting gold as an investment—even now that they’ve witnessed a financial upheaval that’s shaken our country by the shoulders.

But I also know that those who have heard me out-and followed through with my research and recommendations-have made extraordinary, life-altering returns.

Which is why I maintain…

There’s never been a better time-a more crucial time-to protect your portfolio with gold and precious metals.

And for a brief time, we’re making it easy to do just that… for as little as $25.

To get immediate inside access to the junior mining companies poised for major run-ups – the ones I’ve visited firsthand and carefully selected after exhaustive research and quality controls – simply take a trial of my Mining Speculator advisory.

When you sign up for Mining Speculator, I will immediately send you the free report on the new gold-backed currency mentioned in this editorial.

So, for only $25 you’ll begin to receive my Mining Speculator junior stock advisory… one that held an average 212% gain over five years… plus you’ll get our new special report on “The World’s Only 100% Backed-by-Gold Bank.”

All you have to do is click here to get started.

Good investing,

Greg McCoach, Investment Director, Mining Speculator
Luke Burgess, Editor, Gold World

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My Note: I do not receive any renumeration or commissions for recommending either the Gold backed banking or the Mining Speculator. As Always be sure to do your own due diligence and read the prospectus before making any investments or deposits into financial institutions.-jschulmansr

A Lesson In Geo-Political Energy + Gold News

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My Note- Today I present an interesting article about the Geo-Political ramifications of the Battle for the Caspian Seas, plus some of the latest Gold News. Gold today is making a much needed correction in prices, if Gold can hold here and/or we have any increase in tensions of the Middle East; I think the next leg will take prices into the $900-$950 range.- jschulmansr

Geopolitical Energy Centered on the Caspian Sea – Seeking Alpha

By: Michael Fitzsimmons of Musings From the Fitzman

I’ve just finished reading a fascinating book authored by Lutz Kleveman entitled The New Great Game. The book is about Kleveman’s visits to all countries surrounding the Caspian Sea and to the countries involved in actual and proposed oil and gas pipeline routes required to bring Caspian Sea energy assets to the world market. He interviews an amazing cast of intriguing characters along the way.

The investigative journalist delves deeply into the geopolitical implications of world powers struggling to control Caspian Sea energy reserves – some of the largest remaining oil and gas fields in the world. It is fitting the game of chess was invented by the Persians. It is worth purchasing The New Great Game just to gaze at the maps on the inside and backside covers…each central Asian country being ruled by a government or dictator who one minute moves diagonally like a bishop, only years later to morph into a rook and move horizontally and vertically like a knight, and every once in awhile going hay-wire and imitating the unorthodox movement of a knight. Who will win the great game? What will OPEC’s response be to non-OPEC oil production in the Caspian Sea region? How will China and Russia respond to American military might in the region? Only time will tell.

The map below shows the countries surrounding the Caspian Sea which are Russia, Kazakhstan, Turkmenistan, Iran, and Azerbaijan.

Most people are fairly familiar with the oil history of Baku, Azerbaijan dating back to Russian oil discovery and production in the early 1870s. Kleveman relates an interesting story of Swede Robert Nobel who was the older brother of factory owners Ludwig and Alfred Nobel who had become very wealthy producing arms and dynamite. Robert had been sent to Baku with 25,000 rubles to purchase Russian walnut to make rifle butts. Instead, he caught Baku oil fever and bought a small refinery. After only a few years, the Nobel Brothers Petroleum Producing Company vaulted over Rockefeller’s Standard Oil as the largest oil producer in the world. Later, the Nobel’s invented the first oil tanker in a story well told in Daniel Yergin’s The Prize, for which, ironically, Yergin won the Nobel Prize for non-fiction literature in 1992. And yes, the prize is named after the same Nobel family as those men seeking walnut wood for rifle butts in Azerbaijan.

Fast forward to today: Baku Azeri oil is being shipped to the Mediterranean Sea and world markets via the so-called BTC (Baku-Tbilisi-Ceyhan) pipeline. The picture below shows the pipeline’s route from Baku, Azerbaijan through Tbilisi Georgia, and finally to the Mediterranean Turkish port of Ceyhan.

This pipeline was hailed as the “Contract of the Century” by Azeri officials very much interested in getting their oil to market independent of Iranian and Russian involvement. Of course, the US was more than mildly interested in this solution as well. The pipeline is owned by a consortium of energy companies, among them:

• British Petroleum (BP): 30.1%
• State Oil Company of Azerbaijan (SOCAR): 25%
• Chevron (CVX): 8.9%
• StatOil (STO): 8.71%
• ConocoPhillips (COP): 2.5%

BP is the BTC pipeline operator.

The big question in today’s energy riddle is how to route the large energy assets of the Caspian Sea to the world market and thereby offer America an alternative to OPEC supplies. Take the giant Tengiz oil field, discovered of the coast of Kazakhstan, as an example. Estimated at up to 24 billion barrels of oil Tengiz is the sixth largest oil field in the world. It is one of the largest oil discoveries in recent history. The Tengizchevroil (TCO) joint venture has developed the field since the early 1990’s. The partners are:

• Chevron: 50%
• ExxonMobil (XOM): 25%
• KazMunayGas (Kazakhstan): 20%
• LukArco (Russia): 5%

Chevron has predicted that Tengiz could potentially produce up to 700,000 barrels of oil per day by 2010. The field also contains large reserves of natural gas. On the downside, the oil is very high in sulfur content, once reason western technology was so desperately required. Currently the oil from the Tengiz field is piped from Kazakhstan through Russia to the Russian Black Sea port of Novorossiysk via the CPC (Caspian Pipeline Consortium). The BTC pipeline is a competing option, preferred by the US to bypass Russia, but is expensive: the oil must first be tanked across the Caspian Sea from Tengiz to Baku, and then offloaded into the BTC pipeline infrastructure. French energy giant Total is interested in developing a common sense alternative pipeline through Iran which everyone knows is obviously the most economically viable solution, withstanding the geopolitical climate in Iran. Of course the US does not favor this route at all.

The US’s long favored route for Caspian Sea energy was first suggested and studied by Unocal (now part of Chevron). This countries involved in this route are highlighted in color in the picture below.

This so-called Central Asian pipeline was to begin with a natural gas pipeline from huge Turkmenistan gas fields through western Afghanistan to the Pakistani deep water port of Gwadar on the Gulf of Oman (Indian Ocean). The natural gas pipeline was to be followed by an oil pipeline along the same route, serving not only the energy starved countries of Pakistan and India, but the world energy markets as well. The US believes this route, bypassing Russia and Iran, as well as the congested Straits of Hormuz, is in the strategic interest of the US as a secure non-OPEC source of oil.

But the key word in the last sentence was “secure”. Unilateral policy decisions by the US in Iraq and elsewhere have instigated a tide of central Asian anti-American resentment. The Taliban, once supported and funded by the US, are now in control of the pipeline’s route. The pipeline project has been delayed until “control” and “security” has been established. Anti-American opposition in Pakistan is also a problem, regardless of that countries dire need for the energy and potential income the pipeline could deliver.

The US’s oil centric foreign policy agenda is apparently to irritate the two major powers in the Caspian Sea region: Russia and Iran. With the USSR’s disintegration in 1991, all the former Soviet states in the region were being eyed for their energy reserves. At the same time, Russia still considers these former states as within their “sphere of influence”.

Instead of joining with the Russians in mutually beneficial energy projects, technology transfers, and contracts, the US instead decided to take the opposite approach: it first propped up a government in Georgia irritating the Russians. Then the US supported NATO membership for former USSR countries Ukraine and Georgia. The US also proposed missile defense systems on Russia’s western borders, further infuriating the Russians. Russia finally had enough and acted in Georgia as George Bush was attending the Olympics in China. Russian actions put exclamation points on the obvious – it can take out the BTC pipeline any time it wants, and is resentful of American military meddling in its backyard.

The prior secret agreements between Putin and Bush to fight the mutual “terrorists” foes appear to be in the distant past. Recent activities involving Russian natural gas transports through Ukraine underscore the vulnerability of Europe’s energy supplies. Europe currently imports some 40% of its natural gas from Russia, and this amount is bound to increase in the future. This further complicates the puzzle by placing US actions at odds with supposed allies in Europe.

With respect to Iran, the US has military forces in Iraq, Afghanistan, Uzbekistan, Kyrgyzstan and elsewhere in the region – completely surrounding Iran. The US has further tried to isolate Iran (to the dismay of the Europeans who vitally need Iranian energy) by imposing economic sanctions on the country. Iran was one of three countries with distinguished membership in George Bush’s “Axis of Evil”. These US actions have left the Iranians no choice but to develop nuclear weapons in order to protect themselves against the same kind of American aggression they have witnessed elsewhere in the region.

Meantime, flawed US/Israeli policy, combined with Israel’s recent activities in the Gaza strip and the powerful Jewish lobbying efforts in the US for military action in Iran, seem to increase the odds for more conflict in the region.

Have US foreign policy moves in Central Asia been successful? Yes and no.

One bright spot is Iraq. Iraq was always the priority in “the war on terror”, not because the terrorists were there (they are now…) but because Iraq holds the world’s second largest oil reserves after Saudi Arabia. Many of Iraq’s oil fields also have the important advantages of being sweet crude (high quality), are shallow, and are under pressure, making Iraqi production costs very low – in the neighborhood of $10/barrel. For those who actually believe the US government’s marketing job of WMDs, “freedom”, etc. as a pretext for invading Iraq, please note the recent announced that Iraq’s oil resources are now “open for business” and up for bidding. Western oil companies such as BP, ExxonMobil, Chevron, and Royal Dutch Shell (RDS.A) stand to benefit handsomely in Iraq while at the same time boosting the country’s oil production by some 2-3 million barrels over the new few year. So, Iraq can be considered a US success story assuming security is maintained and the oil can reach the market. A big if, but time will tell.

The BTC can also be considered a success. It has operated fairly reliably, and has shown to be a fairly secure source of Caspian Sea oil. This was a huge project, and many people in the oil business doubted its success and completion. But it’s up and running today and survived Russia’s recent invasion of Georgia. That said, the BTC’s continued success is extremely dependent on maintaining security in the area.

Now it’s time to head to Afghanistan and take care of business over there. Boy-oh-boy is that going to be one tough nut to crack. The Afghan/Pakistani issue is so deep I can’t even begin to cover it in enough detail to do the subject justice. Those who believe the US motives in Afghanistan are simply “terrorism” or “freedom” should take note that the US fully supported and funded the Taliban when it was decided they were the best option with respect to getting the Central Asian pipeline built. Unocal sponsored the Taliban on trips to Houston to stay at 5-star hotels and visits to NASA. It was only later when the Taliban wouldn’t “play ball” that the US stopped their support and labeled the Taliban terrorists. Even the US installed Afghani President Hamid Karzai worked as an advisor and consultant to Unocal during the initial Central Asian pipeline feasibility studies.

So, US policies have had some successes in the region as far as oil is concerned. From a humanitarian aspect, well, I’ll leave that up to the reader to figure out on his or her own. From an economic standpoint, one would have to make a detailed analysis of military spending versus the economic benefits in order to come to any conclusions. Perhaps I will write an article on this some day, but for now, I’ll sidestep that question as well.

For the US, I am not such an idealist to think for one minute the symbiotic “Pentagon-Petroleum” relationship will change anytime soon. Further, as a realist, I also understand how important the game being played in Central Asia is. I am aware of the actions the US and other world powers are taking in Central Asia in order to acquire the energy reserves they need to power their economies. My eyes are wide open.

What I continue to struggle with is why the US directs so many resources and dollars toward these overseas strategies while at the same time almost completely ignoring what steps could be taken to reduce our foreign oil requirements by adopting some fairly simple and obvious policy changes. It, quite simply baffles me. Even a cock-sure trader hedges his bets now and again. The most amateur investor knows some diversification is prudent. So, why does the US continue oil centric policies which are certain to lead to more conflict, more debt, more trade deficits, and a weaker economy and currency?

Most readers are very familiar with my proposed energy policy, but I will add the link yet again in the hopes that someday, someone out there with a bit of power and influence will read it and make it happen.

So what does all this have to do with investing you ask? In a word: everything. Where can US investors put their money these days? Financials? Consumer cyclicals? Auto makers? I think not. Despite current low oil prices, the recent strength in the US dollar, and the subject matter of this article, I continue to believe the best opportunity for US investors is to participate in energy companies and to buy gold. Now, I know that some of you who read my articles earlier in the year and went out and bought my recommended stocks got a hurt, and hurt bad, right along with me and everyone else. I’m truly sorry, and feel bad if my advice caused you any pain (at least realize I felt the pain as well!). That said, let’s look at the 2008 returns for some of my picks:

• British Petroleum (BP): -36.1%
• Chevron (CVX): -20.7%
• ConocoPhillips (COP): -41.3%
• ExxonMobil (XOM): -14.8%
• Schlumberger (SLB): -57%

Not awfully bad, considering these returns (from this weekend’s WSJ) do not include the nice dividends some of these companies’ payout and the S&P500 was down 38.5% in 2008, its worst year since 1931. At the same time gold held up rather well, gaining 7% in the course of the year.

The bad news was some of my theme picks didn’t do well at all. Energy services, which at one point in 2008 were my “number one investment pick”, simply got hammered. Likewise, my advice to get into strategic metals via Vanguard Precious Metals (VGPMX) was a disaster as the stocks in this fund were sold off big time during the great leverage unwinding.

Making matters worse was the huge distribution VGPMX made at the end of the year which just infuriated me. I actually called Vanguard and asked them how a fund which lost over 60% for the year could possibly justify making a year end taxable distribution that equaled roughly 12% of the fund’s entire NAV?! I mean, if you sold enough to make such huge gains, why the hell is the fund down 60%? If you didn’t sell, and watched the stocks go down, why not sell the losers so that the losers and gainers cancel each other out so that no taxable distribution takes place? I was told I simply “didn’t understand”. They were right, I don’t! Seems to me even a moron could manage a fund better than that. The loss in the fund’s NAV I can understand. The huge year end distribution is simply inexcusable.

What I learned during the year is this: if a person wants to invest in precious metals, buy gold, take personal delivery of it, and bury it in the backyard and forget about it. Sure, people flock to the US dollar in times of crisis, but did anyone see the action in US treasuries last Thursday and Friday, as well as the headline in Barron’s this weekend? The financial mismanagement by the US government, Treasury, and Federal Reserve combined with the lack of a strategic long-term comprehensive energy policy must lead to a long-term weakening of the US currency. So, buy oil, buy gold. When inflation comes back, it will come back very quickly and these hard assets will once again take off like a rocket. I mean, how can the economy not re-inflate with the Federal Reserve printing US dollars as fast as the presses will print them?

My picks for 2009 are as follows: XOM, BP, CVX, COP, SLB and gold bullion, in particular American Eagles and Canadian Maple Leafs.

Goodbye 2008! Indeed, very soon we will be saying goodbye to George W. Bush as well. Let’s all hope that 2009 will be better than 2008. It won’t take much! Let’s also hope that the new administration hedges its foreign policies bets with a bet on the American people and what we can do at home by enacting a strategic long-term comprehensive energy policy. In the meantime, buy Kleveman’s book The New Great Game, enjoy, and learn. The last paragraph of the book sums up my feelings perfectly.

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Get The Book: The New Great Game – by: Lutz Kleveman

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Gold Due for a Pullback; Silver Approaching Resistance- Seeking Alpha

By: Jeff Pierce of Zen Trader

I like gold here as an investment going forward- I just liked it a whole lot better a few weeks ago. I think we at the top of this wedge formation and due for a pullback and the RSI could come back to the previous high around 50. That would be very constructive and bullish allowing this metal to bust through 900 on its next run. While I don’t have a specific price target for where I think it will correct to, the 20-day moving average seems like a reasonable guess.

Obviously if tensions heat up in the Middle East this could fuel another rise in gold and all bets are off. However I’ve learned in the past not to underestimate gold’s ability to correct quickly so I took my profits on Friday and will enter on a pullback. I wanted to be flat going into next week as anything can happen when all the fund managers get back from vacation.

Silver has been up 6 straight days and is fast approaching resistance. I would rather it pause here and gather some strength to possibly break through the 11.75 area instead of shooting straight up using up all it’s firepower. Use any further strength to unload positions and wait for a pullback to add or establish new positions.

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Profiting From Bernanke’s Super-Fed and Obama’s Newer Deal – Seeking Alpha

By: Naufal Sanaullah of The Gotham Fund and Dorm Room Derivatives

The historic wealth destruction of 2008 was obviously deflationary. Defaults strip away wealth. Institutions respond by selling assets to raise capital. Widespread deleveraging leads to supply expansion in assets and contraction in money and credit (i.e. deflation).

Nevertheless, the response has been unprecedented in its own merit. Government debt held by the public was $5.51 trillion when September began; by the end of 2008, it had risen to $6.37 trillion. The more than $1 trillion expansion in Treasury borrowing surely partially serves to offset the $438 billion budget deficit. But what about the additional half a trillion dollars?

On September 17, the Treasury announced the creation of the the “Supplementary Financing Account” in the Federal Reserve. This is a capital reserve in Fed financed by the Treasury selling new debt and it greatly expands the Federal Reserve’s balance sheet, albeit stealthily. The excess capital is trapped in this Fed account and does not reach currency in circulation. As of January 2, $259 billion is in this Treasury-financed cash pool and counting the Treasury’s “General Account” with the Fed, there is a total of $365 billion sitting at the Fed. The capital itself is money borrowed by the public, so its immediate net effect is deflationary.

On top of that, the Fed in an unprecedented gesture has started incentivizing excess bank reserve deposits by issuing interest on these holdings. Rather than being lent out, liquidity provided to banks by the Fed is thus trapped as it earns interest deposited at the Fed. The Fed is essentially issuing debt, and banks are engaging in what amounts to be a dollar-based Fed vs. interbank carry trade. Banks borrow money from the Fed, deposit them back into the Fed (use borrowed dollars to purchase Fed debt), and profit from the differential between the fed funds and overnight rates (profit off of the difference between the interest rates offered by Federal Reserve and other banks).

Less than $40 billion a year ago, the excess reserve deposits held by the Federal Reserve has ballooned to $860 billion. The banks can also deposit printed money into a Fed category called “Deposits with Federal Reserve Banks, other than reserve balances,” which is what the Supplementary Financing and General Accounts also fall under.

The “Other” subsection of these deposit accounts, which can be construed to represent bank deposits, has increased from $281 million in September to $15 billion today. Both the reserve and non-reserve deposits comprise another huge pool of excess liquidity on the Fed’s balance sheet that doesn’t immediately affect circulated currency.

Another Fed-induced cash trap has been in the form of increased reverse repurchase agreements, which are up to $88 billion. Reverse repurchase agreements are the offering of collateral in exchange for a cash loan. The Fed has utilized reverse repurchase agreements in its liquification of banks. It buys off toxic defaulting assets in exchange for cash and immediately reclaims the cash by selling the banks T-bills. The Fed printed money to pay for these T-bills, so there is excess liquidity that is trapped in time-sensitive debt. But why would the Fed be taking liquidity away from the system?

The Fed’s balance sheet suggests it has been cranking the printing presses like mad. Fed liabilities have expanded to $2.26 trillion, up over 140% since September. However, currency in circulation is up only 7% in that same time period. Where is this “trapped” $1.37 trillion? The answer is the Fed has confined it into temporary cash pools, whether in the Supplementary Financing Account or excess reserve deposits or in time-sensitive T-bills. The Federal Reserve seems to be sequestering all of this cash to buy time for the Treasury to finish its funding activities. What is scary is this wave of future bailout funding is probably not even close to what will be needed for Obama’s infrastructure and stimulus spending, which will be comparable only to FDR’s and will be liquidity injected directly into the economy.

But who is going to keep funding this expansion Treasury debt issuance? The American public is broke and cannot offer its capital in return for terrible yields. Foreign nations don’t have the means or will to continue financing our debt. Commodity prices have collapsed, cutting deeply into foreigners’ export revenues. Oil is down from highs around $150/barrel this past summer to around $40/barrel now.

According to the CIA World Factbook, China has a $6 billion budget surplus. However, it announced a $585 billion economic stimulus package in early November to be invested by the end of 2010. The Chinese government agreed to provide only $170 billion of the the funds, in an effort to prevent an unreconcilable deficit. How will China raise the other $415 billion for continuous use until the end of 2010? Surely, local governments and private banks and businesses can’t finance such a large package in the midst of a historic recession.

The only reserve China can tap into to finance its stimulus package is its $1.9 trillion foreign exchange reserves, $585 billion of which is in US Treasury securities. Also, according to the Guangzhou Daily, in mid November, the People’s Bank of China began an effort to increase its gold reserves from 600 tons to 4500 tons to diversify risk held by its huge dollar debt reserves. Financing its stimulus package and gold purchases would require selling Treasury securities, but becoming a net seller of US debt could have disastrous economic, political, and even militaristic consequences for China, so it will be interesting to see how events unfold. What seems for certain, however, is that China can no longer purchase more American debt to finance the US Treasury (and consequently the Fed).

This is a problem echoed by the rest of the big creditor nations. After China, the biggest holders of American debt securities are Japan, the UK, Caribbean banking centers, and OPEC nations. Japan is facing enormous headwinds as its quality-focused exports are suffering massive demand destruction as its consumers abroad lose wealth at epic proportions in the economic crisis. Japan was a net seller of US Treasuries in 2008 and with the current wealth destruction, it is highly unlikely it will switch to a net buyer of American debt. The British demand for American debt represented Middle Eastern oil-financed investment, but with oil prices collapsing, it will be next to impossible for this proxy demand from the UK to rise and finance additional debt.

The demand for US debt by Caribbean banking centers is because of their tax laws and because of the dollar’s status as the international reserve currency. As the credit crunch leads to liquidity destruction in Caribbean banks and the dollar slowly loses its reserve status, these tax haven banking centers will no longer be able to buy additional US debt. OPEC nations’ US debt demand, similar to the UK’s, is tied to Middle Eastern oil revenues financing American consumption (of their oil exports). As oil prices tank, as will OPEC nations’ economies and they too will have no wealth to buy up more American debt.

Bernie Madoff is well-recognized as the biggest Ponzi scheme in history, at $50 billion. I beg to differ with that claim. The United States has financed debt with debt since the late 80s, when its external debt/GDP broke the 0 mark. Since then, it has risen to over 100% of its GDP (which in itself is quite artificially inflated because of manipulated hedonics-adjusted inflation figures), and now stands at $13 trillion. That is what’s called a debt bubble. Bernie who?

But the debt bubble appears ready to collapse. The literal pyramid scheme is finally running out of investors, and many Treasury ETFs (like SHY, TLT, IEF, and IEI) are showing classic parabolic topping patterns and the next few weeks should confirm or deny my suspicions. Interest rates are at an obvious floor at zero, so there is nowhere to go but up. That means bond prices have nowhere to go but down, and the way bubbles burst, the falling prices will cascade into more selling until the debt bubble deflates and all the spending is financed by quantitative easing. The minute the Treasury finishes its current funding activity, the debt bubble will begin its collapse. Judging by gold backwardation (discussed later) and the bearish charts on the bubbly debt ETFs, I think the debt monetization and dollar devaluation will begin within the next six weeks.

With an insolvent public and no foreign demand for Treasuries, the Federal Reserve will monetize debt to finance its continued bailouts and economic stimulus. This is purely created capital pumped right into the system. This is not anything new for the Fed– for the past two decades, it has kept interest rates artificially low and created massive artificial wealth in the form of malinvestment and debt-financing. In the past, the Fed has been able to funnel the inflationary effects of its expansionary monetary policy into equity values with its low rates, which discourage saving, causing bubble after bubble, in the form of techs, real estate, and commodities. The excess liquidity (the artificial capital lent and spent because of low interest rates and debt financing) was soaked up by the stock market, which gave the appearance of economic growth and production. With inflation being funneled into equity and real estate over the last two decades, illusionary wealth was created and the public remained oblivious to the inflationary risk and the much lower real returns than nominal.

Now that the “artificial wealth bubble” being inflated for the past two decades is finally collapsing, one of two scenarios can occur: capital destruction or purchasing power destruction. Capital destruction occurs when the monetary supply decreases as individuals and institutions sell assets to pay off debts and defaults and savings starts growing at the expense of consumption. This is deflation and the public immediately sees and feels its effect, as checking accounts, equity funds, and wages start declining. Deflation serves no benefit to the Federal Reserve, as declining prices spur positive-feedback panic selling and bank runs, and debt repayments in nominal terms under deflation cause real losses.

Purchasing power destruction is much more desirable by the Fed. Its effects are “hidden” to a certain extent, as the public doesn’t see any nominal losses and only feels wealth destruction in unmanageable price inflation. It breeds perceptions of illusionary strength rather than deflation’s exaggerated weakness. The typical taxpayer will panic when his or her mutual fund goes down 20% but will probably not react to an expansion of monetary supply unless it reaches 1970s price inflationary levels. In addition, the government can pay back its public debt with devalued nominal dollars, which transfers wealth from the taxpayers to the government to pay its debt. Inflation is essentially a regressive consumption tax, which the government wants and the Fed attempts to “hide”. Not only is the Treasury’s debt burden reduced, but the government’s tax revenues inherently increase.

The Fed, in an effort to minimize inflationary perception, has for the last two decades supported naked COMEX gold shorts to keep gold prices artificially low. The Fed, as well as European central banks, unconditionally supported these naked shorts to deflate prices and stave off inflationary perception, as gold prices stay artificially low. This caused gold shorts to be “guaranteed” eventual profit, by Western central banks offering huge artificial supply whenever necessary, causing long positions in gold to be wiped out by margin calls and losses.

Now that the economy is contracting, the Fed won’t be able to funnel the excess liquidity into equities or other similar assets. It also can’t allow the excess liquidity of today, which is different in both its size (already $1.37 trillion) and nature (it is printed “counterfeit” money and not malinvested leveraged and debt-financed capital), to be directly injected into the economy. That would prove to be immediately very inflationary, as more than three times the money is chasing the same amount of goods, technically leading to 300% price inflation. These figures are strictly based on monetization of the Fed’s current liabilities, not including any future deficit spending (which is sure to dramatically increase, especially with Barack Obama’s policies), the American external debt, or unfunded social programs that need payment as Baby Boomers retire.

In order to funnel the excess liquidity into a less harmful asset, the Fed appears to be abandoning its support for gold naked shorts, causing shorts to suffer their own margin calls and cause rapid price expansion in gold. On December 2, for the first time in history, gold reached backwardation. Gold is not an asset that is consumed but rather it is stored, so it is traditionally in what is called a contango market. Contango means the price for future delivery is higher than the spot price (which is for immediate settlement). This is sensible because gold has a carrying cost, in the form of storage, insurance, and financing, which is reflected in the time premium for its futures. Backwardation is the opposite of contango, representing a situation in which the spot price is higher than the price for future delivery.

On December 2, COMEX spot prices for gold were 1.99% higher than December gold futures, which are for December 31 delivery. This is highly unusual and it provides strong evidence to the theory that the Fed is abandoning its support for gold shorts. Backwardation represents a perceived lack of supply (in this case, the artificial supply the Fed would always issue at strategic times no longer existed), causing investors to pay a premium for guaranteed delivery. On May 21, when crude oil futures reached contango, I started waiting patiently for the charts to offer a short sell trigger because the contango represented a supply glut relative to perception and current pricing. Oil was priced at $133/barrel at that time and six weeks later, on July 11, oil topped at $147, and six days later crude broke its 50DMA on volume and triggered a large bearish position against commodities that resulted in some of my most profitable trades last year.

I consider gold’s backwardation as a similar leading indicator to the opposite effect—a dramatic increase in prices. Crude began its most recent backwardation in August 2007 at around $75/barrel and increased dramatically over the next nine months to $133/barrel at contango levels. Backwardation, especially in the case of gold prices, reflects a lack of supply at current prices and is very bullish.

But why would the Fed abandon its support for naked COMEX shorts? What makes gold such a desirable asset to attempt to direct excess liquidity into? The unique nature of gold and precious metals provides its desirability in this Fed operation. Gold has little utility outside of store of value, unlike most commodities (like oil, which is consumed as quickly as it’s extracted and refined), so its supply/demand schedule has unusual traits. Most commodities and assets go down in price as the public loses capital, because the public has less to consume with and that is reflected in demand destruction that leads to price deflation. Gold is not directly consumed and its industrial use and consumer demand (jewelry) is at a lower ratio to its financial/investment demand than almost any other asset in the world.

As a result, gold is relatively “recession-proof,” as evidenced by its relative strength in 2008. Gold prices rose 1.7% last year, which is quite spectacular considering equity values went down 39.3%, real estate values went down 21.8%, and commodity prices went down 45.0% in the same period (as determined by the S&P 500, Case-Shiller Composite, and S&P Goldman Sachs Commodity Indices, respectively). Because gold is not easily influenced by consumer spending, highly inflationary gold prices don’t do any direct damage to the public and are a good way to funnel excess liquidity without economic destruction.

Federal Reserve Chairman Ben Bernanke is a staunch proponent of dollar devaluation against gold and is very supportive of President Franklin D. Roosevelt’s decision to do so in 1934. In the past, manipulating gold prices to artificially low levels was beneficial because it prevented capital flight into a non-productive asset like gold and kept production, investment, and consumption high (even if it were malinvestment and unfunded consumption).

Bernanke’s continued active support of gold price suppression would lead to widespread deflation that would collapse equity values and cause pervasive insolvencies and bankruptcies. Insolvency in insurers removes all emergency “backups” to irresponsible lending and spending, which would surely ruin the economy. Bernanke’s plan seems to be to devalue the dollar against gold with huge monetary expansion, causing equity values to rise and economic stabilization. I’ve heard estimates of 7500 and 8000 in the Dow Jones Industrial Average as being minimum support levels that would cause insurers and banks to realize massive losses, causing widespread insolvencies in them and other weak sectors like commercial real estate that would irreversibly collapse the economy.

This gold price expansion, set off by the massive short squeeze, will continue until gold prices reflect gold supply and Federal Reserve liabilities in circulation. The “intrinsic” value of gold today (called the Shadow Gold Price), calculated dividing total Fed liabilities by official gold holdings, is about $9600/oz, compared to around $865/oz today. This gold price calculation essentially assumes dollar-gold convertibility, as is mandated by the US Constitution and was utilized at various periods of American history. The near-term price expansion in gold, mainly led by abandonment of gold shorts and the first traces of inflationary risk, should show $2000/oz by the end of this year. As the leveraged deals from the pre-crash credit craze mature, with the majority of them maturing in 2011-2014, there will be more monetary expansion for debt repayment, which will structurally weaken the US Dollar (which is inherently bullish for gold) and will also provide new excess liquidity to be funneled into precious metals. This leads me to believe gold will be worth $10,000/oz by 2012.

The US Dollar’s strength as the equity and commodity markets collapsed was due to deleveraging and an effect of the Fed’s temporary sequestration of dollars, taking dollars out of supply. That is over. Oil seems to be putting in a bottom on strong volume, no one is left to buy any more negative real yield securities the Treasury is issuing, and gold has started looking very bullish.

But a good speculator always considers all situations. Even if deflation is to occur, which I see as next to impossible, gold prices should still rise to $1500/oz levels next year, because it has shown relative strength as one of the most viable assets left to invest in. In addition, the short squeeze occurring in gold will provide substantial technical price expansion, even in the absence of dollar devaluation. Because of this, I suggest gold as an investment cornerstone for the foreseeable future.

I see the market breaking down from these levels to about the November lows, starting on Monday. Commercial real estate stocks like Simon Property Group (SPG), Vornado Realty Trust (VNO), and Boston Property Group (BXP) should lead the down move, as well as insurers like Allstate (ALL), Prudential (PRU), and Hartford (HIG), banks like Goldman Sachs (GS) and Morgan Stanley (MS), and retailers like Sears Holdings (SHLD). I recommend short positions (including leveraged bearish ETFs like SRS and FAZ) and buying puts against these stocks for the very near term. If the market indeed breaks down but shows bouncing/strength around 7500-8000 in the Dow Jones, that would confirm to me that the Fed is able and willing to inflate its way out of this crisis and I will sell my bearish positions and buy into bullish gold positions.

Because in inflation the dollar is devalued, I am a proponent of owning bullion and avoiding gold ETFs, but I do believe gold and gold miner stocks will provide great returns over the next few years. Royal Gold (RGLD), Iamgold (IAG), Jaguar Mining (JAG), Anglogold Ashanti (AU), Newmont Mining (NEM), Randgold (GOLD), Goldcorp (GG), and Barricks (ABX) are among my favorite gold equities at this early stage in the process. Their charts are all quite bullish and look to see much more upside. I believe gold will pullback for a few weeks as the market continues lower and deleveraging occurs, but like I said, I don’t believe the Fed will allow the markets to breach its November lows. If indeed deflation wins out and the Fed can’t prevent equity value collapse, I will just hold on to my aforementioned bearish positions and trade in particularly those securities for the foreseeable future, and I suggest you to do the same.

Literally the only thing that I find suspicious in all of this is the fact that I see so many inflationists out there and I even see commercials on TV about precious metals. I usually like to stay contrarian to the public, which I consider irrational and wholly incompetent. But this enormous debt and monetary expansion is a structural problem that common sense may provide better insight for than the most complex of models and theories.

I leave you with this, a quote from Fed Chairman Ben Bernanke about President Franklin D. Roosevelt’s 1934 Gold Reserve Act, which was the greatest theft of wealth I’ve aware of in American history:

“The finding that leaving the gold standard was the key to recovery from the Great Depression was certainly confirmed by the U.S. experience. One of the first actions of President Roosevelt was to eliminate the constraint on U.S. monetary policy created by the gold standard, first by allowing the dollar to float and then by resetting its value at a significantly lower level … With the gold standard constraint removed and the banking system stabilized, the money supply and the price level began to rise. Between Roosevelt’s coming to power in 1933 and the recession of 1937-38, the economy grew strongly.”

My predictions: gold at $2000/oz by the end of the year and $10,000/oz by 2012 and silver at $30/oz by the end of the year and $130/oz by 2012.

Disclosure: Long SRS, SRS calls, TBT, TBT calls, gold bullion.

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Please Feel Free To Comment on any of these articles! – jschulmansr

Dare Something Worthy Today Too!

A Golden Opportunity For 2009

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2008 What a Year! So what does 2009 have in store? In today’s post we explore a “Golden Opportunity” Imagine re couping your 2008 losses and more! Everything is lining up in place for our “Golden Opportunity”, read on and find out how you can benefit in 2009- jschulmansr

Portfolio Advice for 2009: Stick to Gold, Stay Away From Stocks- Seeking Alpha

Source: Sovereign Society- Eric Roseman

Records were broken in 2008 – money-losing records from an investor’s perspective.

U.S. stocks will record their worst calendar year since 1931. As measured by the S&P 500 Index, the broader market tanked 40% this year while the Dow Jones Industrials fell 36%.

U.S. stocks are already “dead money” since 1996. They’ve shown no net gain at all – including dividends. The ongoing market environment is eerily similar to another period of dismal returns – from 1966 to 1982. During those 16 years, the Dow and S&P 500 Index posted zero profits. Adjusted for soaring inflation, the markets actually recorded a loss.

Global equities as measured by the MSCI World Index posted its worst year since inception in 1969. International equities fared even worse with European and Japanese stocks down more than 45% and the MSCI Emerging Markets Index clobbered – down 53% in 2008.

World Markets Got Trashed in 2008

For stocks, the ongoing bear market has resulted in record mutual fund outflows as investors continue to dump their holdings and run for cover into money market funds.

Unfortunately, money market funds are now paying barely any yield at all since the Fed slashed interest rates to effectively 0% on December 16.

Only Treasury bonds, European and Japanese government bonds yielded a profit for investors in a wickedly harsh year for investors. As a currency investor, naturally you already know that the Japanese yen was also a winner against the dollar and euro as the “carry-trade” came to a crushing halt.

So Much for “Diversification”

With the exception of super-safe and low yielding U.S. Treasury bonds, yen and gold, the entire gamut of assets from stocks to non-Treasury bonds all plummeted in 2008.

Commodities, certain currencies, fine art and hedge funds all succumbed to brutal price declines. Overall, 2008 was the first losing year for U.S. and global stocks since 2002 and the worst period to be invested in financial and hard assets in more than 75 years.

Stop-losses rang out like pinball machines in 2008. Diversification across sectors, industries, countries and currencies proved futile. Almost everything was pummeled. By October 10, a panic gripped world markets as the threat of systemic collapse threatened the viability of the banking system.

Chaos to the Rescue

In late 2007, I introduced the TSI Chaos Portfolio to my Sovereign Society readers. It’s a U.S.-based portfolio of six equally-weighted investments, including short-term Treasury bonds, gold, Japanese yen and reverse-index funds that bet against the S&P 500 Index. Recently I added a seventh safe-haven – short-term German government bonds.

This cost-effective strategy dominated my recommendations in 2008 rising more than 17%, including dividends.

For growth investors, hedging your market exposure is vital in a secular bear market. I continue to like the TSI Chaos Portfolio in 2009 even though the stock market has probably suffered the bulk of its declines at this point.

Volatility will remain rampant in an uncertain economic environment marked by growing consumer credit woes, massive government bond issuance to support gargantuan fiscal spending plans and weak corporate earnings. Investors must hold downside market protection.

Short Most Commodities, But Stock Up on Gold/Silver

Starting in October 2007, I recommended my Commodity Trend Alert (CTA) subscribers begin to bet against oil and gas stocks as a way to hedge against the energy sector. At the time, oil prices were racing to US$100 a barrel and the oil stocks were in the midst of a multi-year bull market. We all know how that story fared in 2008.

Since peaking in July, the benchmark CRB Index has crashed more than 50% as the entire commodities complex continues to aggressively deflate in a rapidly slowing global economy.

To protect our natural resource exposure in CTA, I immediately issued a series of reverse-index purchases betting against commodities. We were most successful betting against industrial metals or base metals, as copper and other metals collapsed. That position, still open, has gained a cumulative 80% since August 2008.

And since September, CTA has been riding a broad commodity index to the basement as part of our reverse index strategy – up more than 60%. We also maintain hedges against gold, oil, gas and long-term Treasury bonds.

Gold has also been a strong performer compared to most other assets in 2008. Significantly, gold is the only asset that is completely outside the credit system and the only asset that has no liability.

In 2008, spot gold prices gained a modest 1% – not much in absolute terms but certainly impressive compared to other plunging assets. Silver, more of an industrial metal and therefore more vulnerable to broad economic trends, declined 18%.

Looking ahead to 2009, growth investors will only reluctantly return to stocks. Losses have been massive for investors since late 2007 as mutual fund redemptions hit records.

Stocks might indeed offer better values compared to mid-2007 after plummeting more than 40% from their highs. But domestic consumption in the United States, Japan and Europe is depressed and likely to remain under threat as unemployment rises and savings rates begin to rise again.

The correlation between a higher savings rate and corporate earnings is negative. It’s difficult to be bullish on earnings when the world’s largest economy will remain mired in a period of sluggish growth, debt retrenchment and rising job losses. The same is true for Japan and Germany – the second and third largest economies, respectively.

This is not the time to be aggressively buying stocks. Odds are prices will get cheaper again following any bear market rally. That’s certainly been the case every time stocks have rallied off their lows since October 2007.

Instead, make sure your portfolio includes gold, portfolio hedging strategies and income from high quality investment-grade corporate bonds in 2009.

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Predictions For 2009: Who Will Be the Winners and Losers? – Seeking Alpha

Source: Tony Daitorio of Oxbury Publishing

Visit: Investing Answers

Visit: Bourbon and Bayonets

The year 2008 is coming to a close. Good riddance! 2008 will be remembered as the year that the chickens came home to roost for America’s brand of “elitist capitalism” and will long be remembered as the year where the greed of so few penalized so many.

In 2008, the vast majority of pension plans and retirement accounts incurred losses of one quarter to one half of their value because of the greed of Wall Street. To me what is most sad is that Wall Street’s greed not only devastated the savings of a generation of Americans but has also shackled future generations of Americans with the bondage of enormous amounts of debt.

Echoes of History

Human greed and financial bubbles are, of course, nothing new. History has many examples of manias and bubbles such as the South Sea Bubble. To me, most striking is the parallel between today’s hedge funds and the investment trusts of the 1920s.

Investment trusts used leverage as do hedge funds. Investment trusts were able to get away with revealing little about their portfolios because the equity bubble of the 1920s conferred an aura of omniscience on their managers. Sound familiar? Their managers, by the way, were also very highly compensated.

Reputations inflated in the bubble of the 1920s promptly evaporated in the 1929 crash and the 1930s bear market. The 1930s bear market also exposed numerous outright swindles by Wall Street. Some of the swindles were all too reminiscent of Bernie Mad(e)off and his Ponzi scheme. I believe that, as in the 1930s, many lofty Wall Street reputations will be washed away.

Recently, the Financial Times had an interesting article about 19th century Victorian England and its literature. Financial crises were part of everyday life at that time, which greatly affected their literature. The article spoke of authors such as Charles Dickens, Anthony Trollope, Elizabeth Gaskell, and William Makepeace Thackeray.

A character in Charles Dickens’ Little Dorrit – Mr. Merdle – whose schemes initially offered his investors huge returns before wiping them out definitely reminds me of Bernie Merdle, I mean Madoff. The literature of those times definitely echoes in our times.

A Penny for My Thoughts?

Obviously, at the end of last year no one predicted the dire straits that we would face in 2008. This just reinforces in my mind one thought. Why does anyone still watch CNBC and listen to what any of those shills has to say? The only person on CNBC that has some brains is my paisano – Rick Santelli. The rest of the people on CNBC are absolutely worthless.

Since at the start of a new year everyone seems to like to make predictions, I thought I would throw my two cents out there for readers to ponder. Please contact Oxbury Publishing for your comments on my predictions or feel free to make your own predictions about the upcoming new year.

The Biggest Loser(s)

Picking the biggest losers for 2009 is relatively easy. You simply find the assets that have the most fat. I believe that in 2009 we will actually have two biggest losers. Which asset classes?

As I said – where the fat is. The fat is where the Wall Street money managers have run to hide and cower in fear for their jobs. That is, of course, the US Treasury Market! As I stated in my previous article – the HMS Treasuries – the “pirates” of Wall Street have loaded all of their ill-gotten booty onto the ship called the HMS Treasuries. I firmly believe that this ship will follow its predecessor, the HMS Titanic, into history and sink below the waves. Remember – both ships were considered to be ultra-safe and “unsinkable”.

A close second ‘biggest loser’ will be the US dollar. The US dollar has been strong in 2008 because of the perverse reaction of Wall Street money managers. An analogy I used in previous articles was that a nuclear blast went off right in the middle of Wall Street.

Even a rudimentary knowledge of science would dictate that you get as far away as possible from the blast. Yet, Wall Street money managers ran full speed toward the nuclear blast – nobody said that Wall Street money managers were smart. Most of them sold all of their assets overseas and moved the assets into dollars.

I believe that this move will prove to be “radioactive” in 2009, as overseas investors seem to be waking up to the fact that the US will need many trillions of dollars to bail out the US economy. Overseas investors may not sell the US dollar outright, but they will not be anxious to add to their positions.

Predictions

My first prediction is that in 2009, ‘bombs’ will continue to go off up and down Wall Street. I predict that the Bernie Madoff $50 billion Ponzi scheme will be just the first of many such major swindles that will be revealed on Wall Street.

I predict that the government will be forced to inject many more trillions of dollars into the black hole laughingly called bank balance sheets, inflating our government’s deficit to levels undreamed of only a few years ago.

However, I also predict that the amount of money sunk into banks will be miniscule in comparison to the amount of money that will be created out of thin air by the Federal Reserve in 2009. This money creation will puncture the balloon of the deflationists.

In astronomy, when talking about the distance between stars, astronomers don’t measure the distance in trillions of miles. Astronomers use light-years as a convenient measure of distance. So instead of trillions of dollars, perhaps some similar measuring stick will be adopted as a measure of how fast the Federal Reserve will be create funny money.

I can hear it now – “yes, in the last light-second the Fed just created $10 trillion of funny money”. Instead of the Big Bang Theory, perhaps there will be the Fed’s Big Buck Theory. This theory will describe how out of deflationary nothingness, the Federal Reserve created a rapidly expanding inflationary economic universe.

Winners?

Will there be any winners in 2009? I guess I have to predict some winners, huh? Which asset classes?

I am looking at the asset classes most beaten down by the forced liquidations of hedge funds and other Wall Street fools.

One such asset class is corporate bonds. Corporate bonds are priced right now by the Wall Street numbskulls for conditions to become worse than the 1930s and a 25% default rate. I predict that corporate bonds will have a very good year.

Another asset that has been sold off by the Wall Street numbskulls who have bought fully into the deflation myth are TIPS or Treasury Inflation Protected Securities. When the Fed’s Big Buck Theory becomes apparent, I predict that TIPS will be a huge winner.

I also predict that most commodities will stage a decent comeback. I believe that gold will have a decent year and re-visit the $1000 per ounce level. I also believe that oil will rebound to a more fundamentally sound price of between $71 and $87 per barrel.

I also predict that the best of bad equity markets will be in the countries that actually have cash and/or assets and do not have to borrow enormous amounts of money. Sovereign debt will become two words that are not spoken in mixed company. I don’t believe it’s a wise economic policy for a nation to rely on the kindness of strangers. Examples of the “better-off” countries would be China and Brazil.

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Will the New GCC Single Currency Include Gold? – Seeking Alpha

Source: Peter Cooper of Arabian Money.Net

Gulf Cooperation Council leaders yesterday concluded their 29th annual summit meeting in Muscat, Oman with a final approval for the creation of a single currency for the six-nation economic bloc, still targeted for 2010.

Saudi Arabia is the largest economy in the GCC and boasts substantial gold reserves. But whether gold will be included in the currency basket has not yet been decided.

Golden opportunity

GCC assistant secretary-general Mohammad Al Mazroui told Gulf News: ‘We first have to decide on the location of the Central Bank, then the Central Bank and Monetary Council will have to decide on the gold reserves for the Central Bank’.

The creation of the GCC single currency – likely to be known as the Khaleeji which means Gulf in Arabic – is a major gold event for two reasons.

First, the breaking of their dollar pegs by the Gulf Arab nations is clearly dollar negative. Secondly, any inclusion of gold either as a part of the monetary basket, or in the reserves of the new GCC Central Bank will create additional demand for the precious metal.

2009 deadline

The project is gathering pace, and no lesser a figure than Saudi Arabia’s King Abdullah has directed that GCC economic integration committees speed up their work and complete the whole exercise by September 2009.

It is only a couple of months since a group of Saudi businessmen allegedly bought $3.5 billion worth of gold, believed to be the largest ever single transaction for the precious metal. Perhaps in 2009 it will be gold rather than local currencies which become of interest to speculators about monetary reform in the GCC.

Gulf countries are keen to break away from the link with the US dollar because it ties them to inappropriate monetary policies that exaggerate the boom-to-bust cycle in their economies.

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Don’t Miss The Coming Gold Bull- Seeking Alpha

By: Naufai Sanaullah of Dorm Room Derivatives

With the massive monetary expansion experienced in recent months and the promise for unprecedented levels of money and credit supply increase in coming months, the United States Federal Reserve looks on paper to be sending America straight into hyperinflation. Germany’s post-World War I Weimar Republic, post-World War II Hungary, 2001 Argentina, and present day Zimbabwe are all analogous examples of massive debt monetization, which all led to hyperinflationary disaster. Never before has the entire world’s economy been linked to one nation’s, however, as is the case today with the United States.

In a case of economic mutually assured destruction, foreign creditor nations and their central banks can’t afford to spark a run on the US Dollar, because it would kill their own export-based economies, as well as devalue their debt repayments and foreign exchange reserves. But the United States has been financing consumption through debt for decades and has resorted to monetary expansion to finance its debt and deficit spending, which is only going to increase with Barack Obama’s infrastructure and social programs. The Troubled Assets Relief Program (TARP) itself amounts to $700B, all of which will essentially be “printed.” Foreign demand for US debt is all but gone, as creditor nations are now attempting to unwind their USD positions. Huge creditor nations like China and Iran were net sellers of US Treasuries in recent months, attesting to the weakening of the American debt bubble. So where’s all this excess liquidity go?

The answer is gold, and it is the only way to prevent the hyperinflationary scenarios referenced above from materializing in the United States.

The Fed has been on a money printing binge of unprecedented proportions, but has been able to thus far “trap” the excess liquidity from reaching the consumer level, which is what causes price inflation. It started a massive foreign currency sale this summer through the Exchange Stabilization Fund (ESF) that led to a supply increase of Euros and suppression of dollar usage. It has been liquifying troubled banks by issuing them T-bills financed through monetization in exchange for toxic assets by utilizing reverse repurchase agreements. And it has used the recent deleveraging and commodity collapse (partially caused by credit defaults in many of the overleveraged institutions that were supporting the commodity bull) to supply the temporary demand for US Dollars and feeding its own foreign exchange reserves.

But the excess liquidity thus far is trapped in time-sensitive and manipulated instruments now, and without a demand for American debt, it has to go somewhere. As T-bills expire and the stock market descends further, actual currency is going to be released out of sequestration into the economy. The Fed cannot allow the market to breach below its November lows, unless it wants widespread insolvency in insurers and banks, which are legally required to halt operations in the event of insolvency. I’ve heard estimates of 7500 and 8000 in the Dow as being minimum support levels that, if broken for an extended time, would lead to economic collapse in America as financials would all go under. To prevent this and to finance Obama’s deficit spending, actual dollars will have to be injected into the system and they will be.

Weakness in the dollar causes strength in gold, which is something the Fed (through America’s banks) has been suppressing for years. COMEX shorts dominate this suppression of gold prices, but this act will be discontinued to prevent economic collapse. Allowing gold’s price to rise to current fair levels (and then rise further to represent gold’s rising fundamentals) will soak up much of the excess liquidity, preventing hyperinflationary price increases in consumer goods. Gold reached backwardation this month, signifying the big gold market manipulators are abandoning their short positions.

Ben Bernanke is a proponent of dollar devaluation against gold and is a staunch advocate of Frank D. Roosevelt’s decision to do so in 1934 during the Great Depression. Dollar devaluation is one of the government’s most prized tools, as it allows debts to be paid back in devalued nominal terms, transferring risk and purchasing power destruction to American taxpayers, who have no clue what is going on. Inflation is a tax on the people and with a fiat currency, a power-limitless Fed can (and has) tax the hell out of the American people.

The dollar, and fiat currency as a whole, faces collapse now, however, as the artificial wealth created and used in the past few decades is now showing its nature as being just that– artificial. The global monetary system will have to return to some sort of precious metal backing, directly or indirectly, and surging gold prices is essential for this to occur.

Rising gold prices represents the excess liquidity being soaked up and also causes nominal equity values to rise without dramatic rises in consumer goods. Gold has little utility outside of store of value, which is why its price hasn’t collapsed at nearly the same rate other commodities, like oil and natural gas, have. As crude and steel suffered demand destruction from consumers losing wealth quickly, gold was barely touched at all and in fact probably would have shown even more strength hadn’t it been for the aforementioned manipulations of the Fed and the global deleveraging of financial institutions.

Creditor nations like China and Iran are buying as much gold as is possible without dramatically disturbing prices, and Iran has said it wants to convert the majority of its foreign exchange reserves into bullion. Gold-buying sentiment is getting stronger as the massive seigniorage of the Fed, and with gold shorts being abandoned by the Fed, the huge demand is finally going to surface into price expansion.

Technically, gold appears poised to break out of its countertrend down move in its primary bull, leading to much higher prices soon. It broke out of its 50DMA on strong volume recently and is approaching a 200DMA breakout. With backwardation occuring this month, all indicators point to gold surging in the coming months.

Gold and gold miner stocks are also looking quite bullish. I recommend Royal Gold (RGLD), which recently broke out of a great long-term base, as well as El Dorado Gold (EGO), Goldcorp (GG), Iamgold Corp (IAG), Barrick Gold (ABX), Randgold Resources (GOLD), Jaguar Mining (JAG), Anglogold Ashanti (AU), Agnico-Eagle Mines (AEM), and Newpont Mining (NEM) for the coming year. Also, look into buying the Ultrashort 30-year Treasury Bond ETF (TBT) as the US debt bubble collapses and debt monetization starts to show up in the Fed’s balance sheets. I do suggest buying lots of bullion, however, as stock market returns are in nominal dollar-denominated terms.

The American total credit market debt to GDP ratio is at unprecedented highs, well above 350%, and this with ridiculously manipulated inflation numbers artificially deflated through hedonics. The government deficit could top $2 trillion next year. And the Fed is going to print money to pay for it all. The only way to prevent hyperinflation is to return to some sold of hard asset-backed monetary system and to allow gold’s price to rise dramatically.

My prediction: gold breaks $2000/oz in 2009 and $10,000/oz by 2012.

Disclosure: Long gold bullion; no positions in stocks.

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Gold Bugs Have Fed to Thank for Recent Rally

Source: Monday Morning

By Don Miller

The currency markets reaction to the Federal Reserve’s recent interest rate cuts has ignited a rally in gold, as investors weigh the benefits of owning the yellow metal versus U.S. Treasuries and the dollar.

As a result, gold has started to shine again as a stable source of value at a time when the dollar and other commodities – like oil and copper – have fallen hard. The spot price of gold has climbed above $870 an ounce on the New York Mercantile Exchange, up about 20% from its October lows.

Gold has been on roller coaster ride in 2008, moving from its all time high of $1035 in March, to as low as $681 an ounce. Some of that decline occurred during the recent stock market plunge. Many investors were forced to liquidate profitable gold positions in order to raise money to cover their paper losses.

Its decline was then accelerated by the recent onslaught of financial bailouts, as many investors held a preference for liquidity and safety in the form of cash holdings guaranteed by the U.S. government.  That was reflected in the skyrocketing prices of government bonds and investments in government-backed banks, which also lowered yields.
But with the Fed’s recent decision to cut its target interest rate to a range of 0% to 0.25%, the dollar has suffered a significant decline. Suddenly, foreign investors who were scooping up dollars have cut back on their flight to safety, knocking the dollar index (NYBOT: DX) down 10% in the last month.  The index reflects the dollar’s value against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc.

The Fed’s interest rate cut may also have given gold a comparative boost in the eyes of investors. Gold, which never pays interest, suddenly doesn’t look so bad when compared to T-bills, which also are paying zero interest lately.

Volatility has risen this year compared to previous years, and the last few months have been the most volatile of all – an indication of investor ambivalence. But any uncertainty about the increasing price of gold may have been waylaid by the Fed’s recent rate cut and its dampening effect on the dollar and Treasuries.

Consequently, don’t expect this rally to be short-lived. As we pointed out in our 2009 Outlook Report on Gold, the fundamentals in the market hold the promise of more gains ahead.

It appears unlikely central bankers around the world will stop stimulating economies, printing money and doing whatever it takes until growth and confidence are restored – even if the cost is rampant inflation.

Consider these wild card inflation indicators that Money Morning Contributing Editor Martin Hutchinson believes will carry gold prices to $1,500 an ounce by the end of 2009:

• Over $7 trillion of freshly minted U.S. dollars are now in circulation with the aim of saving the global financial system.
• The incoming Obama administration has promised another $1 trillion or so stimulus package is on the way.
• It’s likely the Fed’s interest rate cuts will soon be followed by central banks around the world.

These economic stimuli are designed to do one thing – get the consumer spending again. 

The bailout of the banks was the first step, but the banks are still keeping a tight rein on credit. Now the government is trying to get easily available, cheap money back into the hands of the consumer by running the printing presses around the clock.

“The government is pumping money in so many banks, and that money has to come out somewhere,” said Hutchinson.

Some of that money will “come out” into the economy in the form of higher stock prices. That will make consumers wealthier, and could give them more confidence in the economy. More confidence means more spending. As that happens, prices for goods should begin ticking upward, giving another booster shot to gold prices.

For instance some of that money is already going into gold bars and coins. In fact, the U.S. Mint was forced to suspend sales of the popular American Eagle and Buffalo gold coins for extended periods twice in the last year. The mint was unable to secure enough gold blanks from suppliers to match demand.  

“I’ve never seen a case where demand was so high and supply was so short,” Chicago coin dealer Harlan Berk told the Associated Press. 

With massive amounts of capital floating around, the time it takes to re-inflate the global economy will be far shorter than most analysts expect. Governments fear deflation more than anything.  It appears they will only fight inflation when they are assured they have won the first battle, which is growth at any cost.

When inflation kicks in, the dollar’s buying power will suffer long-term.  In fact, we expect a decline in all the world’s paper money, over time.  Historically, investors in gold have prospered during periods of weakening fiat currencies.

That leaves gold as a bright light in the investment world, making it an odds-on favorite to open a new leg of a long-term uptrend
. 
News and Related Story Links:

• Fortis Metals:
  Fortis Metals Monthly – December 2008

• Associated Press:
  Woes on Wall Street coincide with gold coin rush

• Money Morning:
  Five Ways to Play Gold’s Rebound to $1,500 an Ounce

Warning! Info The Central Banks and the IMF Does Not Want You To Know

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Warning! Today’s post includes information the Central Banks and The IMF DO NOT Want you to Know! New Peter Schiff on Gold and more… If everyone would start taking delivery on their Gold and Silver Contracts we could create the “rumored” Short Squeeze since there s not enough physical Gold and Silver available to cover all of the Open Short Contracts; and at the same time sustain new buying. The same thing would also apply to taking delivery of Stock Certs in the Precious Metals Mining Companies. Such actions would create massive buying and become a self fulfillingprophecy unto itself. Enjoy! – jschulmansr

President of Euro Pacific Capital On Gold and the Dollar – Peter Schiff–Seeking Alpha

Source: Hard Assests Investor

Mike Norman, HardAssetsInvestor.com (Norman): Well, he’s back. Mr. Doom and Gloom is here … Peter Schiff, president of Euro Pacific Capital and author of the new book just out, “Bull Moves in Bear Markets.” Peter Schiff, president of Euro Pacific Capital (Schiff): “The Little Book …” Norman: “The Little Book …”; it’s in The Little Book Series. Well look … the last time you were here, things were kind of going your way, but it looks like things have turned upside down.

All kidding aside, I know your big thing over the last seven or eight years has been gold. We’re very supportive of gold on this show; we think that probably people should have some gold as part of their overall portfolio mix. But let’s just look at what happened. Several weeks ago, the U.S. stock market had its worst week in history … even going back to the 1930s … worst week in history. I saw a breakdown of various assets – all assets really – stocks, bonds, gold, commodities, oil. Gold was at the bottom of the list. The top-performing asset, and something that you hate, was the U.S dollar. So how do you explain that? If we are going through the worst economic and financial crisis in history – precisely what gold is supposed to protect against – why would it perform so bad? Schiff: Well, I think it will perform very well; you got to give it a little bit more time. Norman: More time or more decimation? Schiff: No, what’s happening right now, Mike, is just de-leveraging, and so gold is going down for the same reason a lot of stocks are going down, a lot of commodities are going down. There’s a lot of leverage in this system, there’s a lot of margin calls, a lot of liquidation; a lot of people are having to sell whatever they own to pay off their debts. Norman: But look at where the money is going … the money is going into U.S. sovereigns, Treasuries … it’s going into the U.S. dollar. Schiff: For now. Norman: Why for now? Schiff: Right now there’s some perception of safety there, but it’s the opposite of the leveraging. If you’re selling your assets, you’re accumulating dollars; but ultimately right now, it’s like there’s been this gigantic nuclear explosion in the United States, and everybody is running toward the blast. Pretty soon they’re going to figure out they’re going in the wrong direction. Norman: You always talk about gold as a currency, and we have seen currencies appreciate – the yen, for example, the dollar tremendously, for example, but gold has not held up. Schiff: Well, if you actually look at gold versus other currencies, in the last couple of weeks gold has made new record highs in terms of the South African rand, the Canadian and Australian dollars … so gold was not doing as poorly as many of the currencies, and I think this is all short term. I think you’re going to see a lot of money moving into gold, and if you look at how much gold has gone down from the peak, the peak was about a thousand … it’s off about 25%. Stocks are off 40%. Gold is still up during this year against the Dow.

Norman: Let’s see the performance from this point forward; we’ll look back at this again and we’ll revisit this issue.

Let’s talk about something else, something that you have also … and I just mentioned it … the U.S. dollar. You were very, very negative. In the last month, we have seen unprecedented actions by the U.S. Fed in terms of expansion of the monetary basis; in other words, printing money … what you call printing money … and despite that, the dollar has remained incredibly strong.

How do you explain that according to your logic?

Schiff: Everything the government is doing is inherently negative for the dollar, and all of this…

Norman: It’s not playing out that way.

Schiff: It will; you’ve got to give it time.

I remember when I was on television talking about the subprime and people were telling me it’s no big deal, and I said, just wait a while; give it time.

Look, everything that we’re doing – all the bailouts, all the stimulus packages – this is all being financed by inflation. It’s inherently terrible for the dollar.

Norman: But you just said yourself that everything is deflating.

Schiff: But right now, Mike, you’re getting this de-leveraging, and this is benefitting the dollar, so despite the horrific fundamentals for the dollar, it’s going up anyway.

But ultimately, when this phony rally runs out of steam, the dollar is going to collapse, and that’s when we’re going to have a much greater crisis because now you’re going to have a collapsing dollar, which is going to push long-term interest rates up, commodity prices up.

Norman: I still don’t understand why the dollar is going to collapse. So you’re saying that the Fed is just going to allow … or leave this enormous amount of liquidity in there, that at some point down the road, if we recover, they’re not going Scto take it out?

Schiff: Look, they have no control over it. The Fed is trying to artificially reflate our phony economy, right?

We had this economy that was based on Americans borrowing money and then spending it on products. We have this huge debt finance bubble which is collapsing, and it’s being supported by foreigners.

But when this artificial demand for Treasuries goes away, the Fed is going to try to print a lot of money and the dollar is going to get killed.

Norman: All right; I’m going to ask you to hold on. Folks, check back because we’re going to do the second part of my interview with Peter Schiff, so check back to this site. This is Mike Norman; bye for now.

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The Manipulation of Gold and Silver Prices – Seeking Alpha

By Peter De Graaf of Pdegraff.com

Here is an article you may want to forward to your favorite mining CEO.

This article deals with the blatant manipulation that has been occurring in the gold and silver markets, and offers a solution. While this scandal has been going on for many years, at last more and more people are becoming aware that it is going on.

One of the first people to document the ongoing attempts to suppress the gold price was Frank Veneroso. Next was Bill Murphy of GATA.org. GATA continues to press the issue. Gata has discovered that the IMF instructed its member banks to treat gold that had been leased to bullion banks and sold into the market as if it were still in the vault! Imagine if an entrepreneur was running his business in this underhanded manner – how long would the government allow that?

A few years ago John Embry, while he was Portfolio Manager at RBC Global Investment Fund – a multi-billion dollar resource fund at the Royal Bank – prepared a memo for the bank’s clients that detailed the manipulation in the gold market.

Ted Butler has written extensively on the manipulation in the silver market.

This is something I have observed first hand since I became interested in silver in the mid-1960’s. It seemed that every time silver reached a peak, an invisible hand came out of nowhere and knocked the price back down to the starting point again. I wrote an article about this titled: ‘Once upon a time, in Never-Never Land.’

Every time a geo-political event, or a serious economic happening, such as the collapse of Bear-Stearns, causes gold to rise, (as it would be expected to do since it has always been a ‘safe haven investment’), the price immediately gets trounced, and investors and producers accept this new price as ‘THE price,’ since the new event has now been discounted.

Whenever common sense tells you something is happening that should cause a rise in the price of gold and silver, you can count on intervention to cap the price. As a result, millions of investors and mining companies have lost billions of dollars that they would have earned if these markets had been allowed to run their normal course.

The manipulation is obvious in the following charts:

click to enlarge

This chart shows steady buying interest that took price from the low at 955.00 on July 14th to 985.00 the next day. The buying took place in Asia, then Europe, and carried over for about an hour in New York, when suddenly, in the space of minutes, an unseen entity dumped gold in the form of futures contracts (green line), without any attempt to obtain the best price possible. In about 5 minutes the gold price was down by 15.00, and the rise was over, as price drifted sideways for the rest of the day.

It was discovered later that several large banks, suspected to be HSBC (HBC) and JPMorgan Chase (JPM) and possibly one other bank, had switched from being ‘net long’ 5,381 gold contracts at the beginning of July 2008, to being ‘net short’ 87,609 gold contracts by the end of July. That is a 94,000 contract ‘turnaround’ and smacks of blatant interference in the market place, since these banks do not produce gold, nor are they likely to be hedging against that much gold in the vaults, since they do not own physical gold. Such a dramatic switch without any change in fundamentals is beyond reason.

Featured is the daily gold chart from October 13th. The blue line shows steady demand followed by consolidation early on Oct 14th, as recorded via the red line. Then a mysterious seller showed up shortly after the COMEX began trading in New York, and in the space of minutes the price was knocked down by 30.00. This is totally illogical, since the seller has no interest in obtaining the best price. His only interest is to destroy the price.

“In 1980 we neglected to control the price of gold. That was a mistake.” Paul Volcker.

“Central banks are ready to lease gold, should the price rise.” Alan Greenspan during Congressional testimony July 24/1998).

Featured is the price action right after the COMEX began trading in New York on October 16th. Within a few minutes the price was knocked down by 35.00 (green line), after the price had established a solid trading range between 830.00 and 850.00 during the previous two days (red and blue lines). This illogical dumping of gold contracts caused margin related selling to bring the price down another 15.00 before bargain hunters were able to level the price around the 800.00 mark.

These are just some of the examples of ‘irrational behavior’ on the part of several large traders on the COMEX, whose actions are not being controlled by the people who oversee the COMEX. While this article deals primarily with gold, the same manipulation exists in the silver markets. To repeat an earlier comment, ‘millions of investors (including miners), have lost billions of dollars because of the manipulation.’ The US government is able to interfere in the markets by way of the Exchange Stabilization Fund which is run by the Federal Reserve and the Treasury Department. The size of the manipulation referred to in this article could not take place without the encouragement that is very likely provided by people who are highly placed in government.

CAUSE AND EFFECT

The effect of this manipulation in the gold and silver markets is an artificial low price. In view of the fact that bullish events are not being allowed to permit prices to rise, nevertheless these events will eventually have a positive effect on the price. The cause is real, but the effect is delayed. The steam in the kettle continues to boil, despite the lid being clamped down. The artificial low price stops the development of mining projects that would have been profitable at the higher price. The artificial low price also cuts into profit margins at every producing mine, making it more difficult to obtain funding for exploration to increase resources. Every mine in the world is at all times a ‘depleting asset’ and needs exploration to postpone the day when the last ounce is mined.

THE MANIPULATORS ONLY HAVE TWO WEAPONS

The ammunition used by the manipulators is provided by two sources: Central banks (including the IMF), and the COMEX. While there is nothing anyone can do about the gold selling that originates with the central banks, there are ways to choke off the amount of precious metal that flows into the COMEX warehouses.
Those of us who are tired of the manipulators picking our pockets need to become active.
In 1978 – 1979 it was a rising silver price that caused gold to rise – silver was the leader. It makes sense therefore to concentrate on silver, especially since the central banks do not have hoards of silver.

A SOLUTION!

Mining companies that supply silver to the COMEX need to find a way to turn their silver into small bars (1 oz to 100 oz), and 1 oz rounds and sell these to the public. Already some mines are doing this by selling from their website, and they are obtaining a hefty premium over the spot price. If your production is limited, join forces with a mine that is already merchandising silver products, or form a sales organization with other small mines. Hire some cracker-jack salespeople; there is a big market out there! Starve the COMEX if you want to see silver sell to realistic prices. Adjusted for inflation, the silver price of 48.00 that we saw in February of 1980, is trading at 4.00 today. (In 1980’s dollars, silver is now selling for 4.00 an ounce!)

Next, (and still communicating to mining CEO’s), instead of keeping money in the bank, or in various kinds of short-term notes, store up silver, and show us that you believe in the product you are producing. Instead of cash on hand, buy futures contracts, and keep rolling them over.

Coin dealers and wholesalers need to buy 5,000 oz bars from the COMEX, take delivery, and contact a refiner who will turn the silver into retail products. If your operation is not large enough for a 5,000 oz purchase then buy silver from people like Jason Hommel, who was smart enough to start doing this on a large scale.

Investors who can afford to spend $55,000.00 should consider buying a silver contract from the COMEX and taking delivery. James Sinclair at JSMineset.com will show you how to go about that.

Finally, anyone who holds any kind of a certificate that promises to deliver silver, needs to make sure that the bank or institution that stores the silver, is willing to provide bar numbers. Otherwise when the day comes to collect, you may find that the silver does not exist. On my website you will find an article that I wrote about a fund that stores gold and silver at a bank in Western Canada. They invite auditors twice a year to audit the inventory.

Cartoon courtesy Gary Varvel, Indy Star.

The Madoff scheme is but one example of the lack of oversight on the part of people who have been placed in the position of protecting the public. In the US Congress, two of the people responsible for the mess that was created by Freddie Mac (FRE) and Fannie Mae (FNM): Congressman Barney Franks and Senator Chris Dodd, are now part of the group that is trying to ‘fix’ the problem. The foxes are in the henhouse! It was Franks and Dodd, who for years received money from Fannie and Freddie, while they stood in the way of people who wanted to tighten the lending standard at these two mortgage lending institutions. Whatever happened to responsibility? Where is the outrage?

Featured is the weekly gold chart. Price is ready to breakout on the upside. The supporting indicators are positive (green dashed arrows). The 7 – 8 week cycles have been short (twice at 6 weeks). We are due for a longer cycle. A close above the blue arrow will indicate that week #4 is the start of a run up to the green arrow. Once 925.00 is reached, then 975 is next. Since Labor day, the Federal Reserve’s assets (including huge amounts of toxic assets), have increased from 905.7 billion to 2.3 trillion dollars. This, along with the increase in the monetary base is going to add to price inflation and will cause a lot of investment money to enter the gold market. The gold rally that started in November has only just begun.

Featured is the weekly silver chart. Price has been rising since late October. The supporting indicators are positive (green dashed arrows). A close above the blue arrow sets up a target at the green arrow.

Thanks to Eric Hommelberg for the idea to use ‘historic spot charts’ to make my case. I applied the 11th commandment: “Thou shalt use every good idea thou comest upon.”

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Noteworthy Pundit: Marc Faber’s 2009 Predictions

Source: Tim Iacono of Iacono Research

Despite the stumbling introduction by Joe Kernen and some bizarre in-studio camera work on what appears to be a very old picture of Dr. Doom, this is a pretty good interview.

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All That Glitters! – Gold is Looking Good!

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My Note: The Charts are looking great for Gold and Silver. Included in today’s post, the latest from Peter Schiff on Gold, An overview of the Charts for Gold and Silver. Finally, a very interesting article on Comex and a short squeeze, what could happen? My Disclosure Long Precious Metals and Stocks and more… Get aboard the Gold Train now… Last Call! – jschulmansr

Peter Schiff: Outlook for The Gold Market

By: Peter Schiff of Euro Pacific Capital

The Wall Street Transcript recently interviewed Peter Schiff, President and Chief Global Strategist of Euro Pacific Capital, Inc., on his outlook for the gold market. Key excerpts follow:

TWST: These are somewhat trying times. What has this meant so far for the gold market and where do we go from here?

Mr. Schiff: Gold has actually held up very well compared to other asset classes. If you look at the price of gold relative to its peak, it’s only off about 25%, whereas if you look at stock markets around the world, most are off 50% or more, certainly if you price them in US dollars. If you look at how gold has held up relative to industrial metals, relative to energy, relative to agriculture, gold has done extremely well. I think the fact that it has gone down in dollars has caused a lot of people to assume that gold is not performing in this correction whereas, in fact, it has. Also if you look at gold in terms of other currencies, recently you’ve seen all-time record highs in the price of gold in South African rand, in Australian dollars, in Canadian dollars. So gold has actually had a very strong, stealth move when viewed from the prism of something other than the US dollar.

TWST: Why does everybody key in on the US dollar side of the equation?

Mr. Schiff: Because gold was priced in dollars, it’s traded in dollars and so we all look at it as the dollar price, and the fact that gold has not made a new high in dollars during this economic crisis has led some to believe that maybe it’s lost its luster, it’s not a safe haven. But this rise of the dollar is very suspicious to me, I don’t think it’s justified. But it’s been the unlikely beneficiary of all the problems. You’ve got the problem centered in the US economy; the epicenter of the financial crisis is in America. The reason that the world is in trouble is mainly because of bad loans made to Americans and it’s our economy that I think is a complete facade, a house of cards that has now collapsed, so this dollar rally actually makes no sense.

And especially in light of the monetary policies that we pursued over the course of the last six months, the bailouts, the stimulus, all of the things that are likely to happen with Barack Obama saying that the sky is the limit on budget deficits, we’re going to print money until we run out of trees. Everything that we are doing is so negative for the dollar, yet the dollar has managed to rally. So I think temporarily the fundamentals are on hold, but I think once the dollar really resumes its decline, you’re going to see gold really shine again not only in terms of the dollar. It will continue to do well against other currencies, but it will do particularly well against the dollar.

TWST: Isn’t gold normally the “safe haven” that investors seek?

Mr. Schiff: I think it’s a safe haven. A lot of people are seeking safety right now in the US dollar, but that makes no sense to me. That’s like jumping out of the frying pan into the fire. I think the dollar is a fundamentally flawed currency that is doomed to collapse, and temporarily it’s benefiting from the fact that it’s seen as the alternative to everything else. People are worried about all asset classes, nobody wants to own anything and somehow by default, the dollar is the opposite of owning other things. People are keeping score in terms of dollars and I’d certainly think that some of the most impaired financial institutions are in the United States. I think some of the losses are very heavy here and that has made a lot of American institutions — investment banks, hedge funds, mutual funds —liquidate assets all around the world, many assets in other countries; those institutions require the liquidation of those currencies to repatriate the dollars necessary to meet their margin calls, to fund their redemptions, and so that might also be temporarily propping up the dollar.

TWST: Has the supply/demand situation in gold changed at this point because of the problems with the hedge funds?

Mr. Schiff: Yes, I think that the credit crunch has certainly put the screws on a lot of gold exploration. A lot of the junior miners are basically on the verge of going bankrupt right now. I’m sure a lot of projects are on hold; a lot of exploration is simply not going to get funded. This is simply improving the supply and demand imbalances that have favored gold for some time and other commodities too. Certainly in industrial metals, in the energy complex, a lot of exploration, a lot of development projects have been cancelled or are never going to see the light of day for many, many years because of the credit crunch and because of the fear of falling prices, which I think is unwarranted. But even when prices start to recover, I think there will be a lot of suspicion of the rally. So people are going to be reluctant to commit capital to a market they have no confidence in.

So I think the supply and demand imbalances for commodities are going to continue, and that commodities themselves are still one of the best asset classes around the world to own. As for the commodity producers, it all depends on their balance sheets. Some of them are going to be spectacular buys. Looking at the gold complex, I think one positive development I’ve seen has been the strength of the South African miners, which seem to have bottomed first. They started to decline before the overall sector; when many of the Canadian miners were making new highs, the South African stocks were falling. But it seems like the South Africans have bottomed here. They’ve made significant rallies, some of them have even doubled from their lows and they seem to be stronger. So they topped out first; maybe the fact that they have bottomed first is a positive sign. Maybe they are going to lead on the way up just like they led on the way down.

TWST: How about on the political side of the equation? What’s going to be the position of central banks now relative to gold?

Mr. Schiff: The Bank of Canada just slashed rates down to 1.5%. Central banks all around the world are reducing interest rates. It’s the most inflationary monetary policy globally that we have ever experienced and ever will experience in our lifetime. That’s a very favorable market for gold. When central banks are just putting the pedal to the metal on the printing presses and driving interest rates down to nothing, how can you not own gold? Gold is money, the supply of gold is going to grow very slowly over time, and the supply of all fiat currencies is going to grow rapidly. You’re looking at maybe 10%, 20% per year or more annual increases in money supply in every country in the world, and then they pay you next to nothing for holding it. If you want to take currency that is rapidly being debased and you want to deposit it someplace, you are barely getting interest, so why not own gold instead? Even though gold doesn’t pay interest, at least it’s not being debased.

TWST: What about the central banks selling gold? Are they going to back off now due to the financial crisis?

Mr. Schiff: At some point, the central bank selling is going to turn into buying. Who are these guys kidding? They need to have real reserves behind their currencies. They can’t simply hold the US dollars and say our currency has real value because it’s backed by the dollar. When the dollar is backed by nothing and being rapidly debased and paying no interest — our rates are down to 1% and likely to head lower. What’s the justification for foreign central banks holding dollar deposits rather than gold, when the dollar yields next to nothing? It doesn’t make any sense. So I think central banks are going to become buyers and the central banks that own the most gold are going to have the most influence, the strongest currencies, etc. I think people are going to see that and right now, if you look at the percentage of gold owned by central banks, it’s at the lowest it’s ever been.

TWST: Silver and platinum have come down much more than gold. Is that because of supply/demand or just because of what’s going on in the market?

Mr. Schiff: I think there are more industrial uses for those metals and so more of this whole idea that the global economy is going to collapse and no one is going to buy anything is hurting those metals relative to gold. I think gold is more of a pure monetary metal. Sure there’s some jewelry demand for gold, but it’s not used as much in industry, and I think it’s more of a monetary metal, a safe haven metal and so, because of that function, it is holding on to its value. I think there are a number of individuals around the world who understand the difference between gold and fiat money, and I think a lot of people are worried and want to protect their wealth. There is a minority of investors who see through the smokescreen and are not buying US Treasuries, they are buying gold. At some point, the people who are doing that are going to be the ones who are going to be vindicated as gold prices ultimately make new highs, and I still think that we could hit $2,000 an ounce next year in the price of gold.

ps- Peter Schiff has been very accurate recently!-jschulmansr

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Great Looking Precious Metals Charts

By: Jeff Pierce of Zen Trader

I’ve had mixed results trading gold stocks in the past but those stocks have some of the best looking charts in the market pointing to higher prices very soon. I’m not going to speculate on why they’re rising when you consider how much money has been printed by the US and the inflation/deflation debate, but the fact is, they are rising and have the right price/volume action you want to see for near term price appreciation.

While I am near term cautious on the overall markets, I do have a buy signal on the gold/silver stocks as they have the capability to rise even when the general markets are falling.

While SLV didn’t rebound like the individual stocks in the silver sector did on Friday, it does look poised to move higher after a retest of the higher trendline of the triangle formation below.

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Gold and Precious Metals Likely to Improve in 2009

By: Boris Sobolev of Resource Stock Guide

 

In this short update we focus on the long term technical picture for gold and precious metals stocks since the fundamentals have not changed and remain bullish. The technical picture, however, is getting very interesting.

Gold price action in the past half a year can best be characterized (especially after the recent rally) as consolidation. Such a consolidation is reasonable after a huge spike last year into early 2008, where gold exploded from $650 to over $1000 per ounce.

The long term monthly chart is encouraging. There is the clearly evident higher lows pattern, the RSI has bottomed and the MACD histogram is starting to curve higher.

Most importantly the 20-month Exponential Moving Average (EMA) is turning up, reversing a first-time-in-eight-years bearish turn downward. It is very important to see gold close above the 20-month EMA two months in a row; this would give further evidence of a bullish reversal.

The bull market in gold will resume in full force after gold penetrates its downtrend line which is currently at around $930.

Another bullish factor for gold is the renewed investment demand by the StreetTRACKS Gold Shares (GLD). Gold holdings have now reached an all-time-high of 775 tonnes.

On the monthly charts of a Gold Bugs Index ($HUI), highly significant buy signals have been generated. There have been successively higher lows for three months in a row, the RSI has bottomed and started moving higher, the stochastic indicator reversed from a very low level (a rare signal) and the MACD histogram is starting to curve.

These long term reversals in indicators are highly reliable and rarely fail. There is a good probability that 2009 will turn out to be a complete opposite of the brutal 2008 for the precious metal stocks.

As stated several times before, we are starting to accumulate precious metals stocks having low exposure to base metals, with high gold and silver grade deposits, healthy balance sheets and prospects for internal growth.

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Will Comex Default on Gold and Silver?

By: Avery Goodman

Avery B. Goodman is a licensed attorney concentrating in securities law related cases. He holds a B.A. in history from Emory University, and a Juris Doctorate from the University of California at Los Angeles Law School. He is a member of the roster of neutral arbitrators of the National Futures Association (NFA) and the Financial Industry Regulatory Authority (FINRA).

 

 

With investment advisors like the former NASDAQ Chairman Bernard Madoff being prosecuted for fraud, it is natural for people to begin to seek stores of wealth that are not subject to counterparty risk. The precious metals have been relatively safe stores of wealth for the past 10,000 years. Many people are going back to basics, turning back to the precious metals, as places to put their money, in these uncertain times.

Gold and silver were once the most stable of all goods. Extreme volatility, however, is now a part of their nature. It comes from being made a part of the commodities casino, known as the American futures market, where speculators are allowed to use margin to control 14 times as much metal as they actually have money to buy. When the price drops a little, the “stop loss” orders of these leveraged players are triggered, and that amplifies the price move such that the price collapses on the futures market. Similarly, when gold fever begins, the prices can shoot into the sky, as the leveraged longs begin buying again. That is why the price for futures based gold and silver is still very low compared to March, 2008, even though the real world investment demand for both metals is higher than it was, back then (higher than ever before in history, actually), mining supply for gold is down by 5%, and the mine based supply of silver has utterly collapsed.

It should be noted that precious metal volatility is a short and sometimes medium term phenomenon. Since 1913, when the Federal Reserve was created, the dollar has depreciated by 97% against gold. The dollar has depreciated by about 90% against silver in that same 95 year time period. Gold has also appreciated tremendously in price as compared to 8 years ago, 2.5 times against the Euro and 3 times against the dollar. Rational people, therefore, cannot deny that, using a multi-year or, even more, a century long point of view, gold and silver are the best stores of wealth. When looking at long term family legacies, therefore, a large position in gold and silver should be a part of every estate plan. That is especially true now, given that demand currently substantially exceeds supply, the imbalance has every likelihood of becoming more severe in the near future, and the “futures” exchange prices are now very low compared to the real market.

In the last decade, central banks selling and leasing made up the long time shortfall between supply and demand. But, given the financial crisis, and the fear that the U.S. dollar will eventually collapse, central banks no longer want to hold all their exchange reserves in U.S. dollar cash, U.S. dollar denominated bonds and other investments. They are also unwilling to hold everything in other paper currencies, like the Euro. Some governments, including those in Europe and the USA, still have large gold hoards. But, China wants to buy 3,600 tons of additional gold for its reserves. The only way that this demand can be fulfilling without exploding the price is through a “privately negotiated” off-market sale of IMF gold. European banks don’t want to continue selling what gold hoards they still have left, after 20 to 30 years of participation of selling and leasing gold.

In the case of silver, almost all government stockpiles are now gone. The only ones left are in Russia and China, and China restricted the export of silver last year. The U.S.A., for example, has already expended every last ounce of its strategic silver reserves years ago. The U.K. and all other western nations exhausted their supplies even before the U.S.A. Newly mined supplies have never been sufficient, and demand continues to increase. The imbalance between supply and demand is becoming especially severe, and, in the case of silver, is going to increasingly be a difficult industrial use issue in the next few years.

Because of the severe shortages, retail dealers are charging hefty premiums for both gold and silver. This is dissuading many people from buying, but it shouldn’t, because there are ways to buy the metals without paying any premium at all. Gold and silver are selling cheaply, without premiums, on the American futures markets. Most futures contracts allow buyers to demand delivery of the metal, so the futures market is an excellent way to obtain comparatively cheap precious metals. This has already been noticed by astute investors. In the past, most traders used futures markets solely for purposes of speculation. Normally, delivery demands average less than 1% each month. Now, however, because of the premiums available in the real market, buying a futures contract and demanding physical delivery upon maturity has become a cheap method of obtaining substantial quantities of physical gold and silver. With respect to the December contract, for example, exchange records show that more than 5% of people holding open standard sized (100 ounce) gold futures contracts, and about 10% holding open silver futures contracts (5,000 ounce) demanded delivery. The delivery demands are happening even more often among deliverable mini-contracts (33.2 ounce gold/1,000 ounce silver) purchased on the NYSE-Liffe exchange.

Some speculate that clearing members of the exchanges, who have sold gold and silver short on the futures market, will eventually be bankrupted by these delivery demands. According to these skeptics, the gold and silver consists mostly of fake claims to vaulted supplies that do not exist. They say that futures contracts are nothing more than “fake paper gold” and most refuse to buy on the futures markets, opting, instead, to pay huge premiums at retail gold and silver dealers. The skeptics may be right about the failure to keep adequate supplies of vaulted metal, but it doesn’t really matter. If you buy gold and silver on the futures exchanges, you will get your metal, whether or not the short sellers are trying to defraud you, and I’ll now explain why.

The Commodities Futures Trading Commission is charged with the responsibility to monitor and regulate American futures markets. In spite of this, the futures markets have morphed from a legitimate place to hedge the risk of commodities, into a worldwide casino, which has a gaming commission that claims all of games of chance are really “investing”. This is nonsense. The exchanges are mostly used as gambling halls, with banks as casino operators, and speculators serving in the role of casino guests. All types of bets, from taking odds on interest rates to taking odds on the volatility of the stock markets (with no underlying security except the VIX!) are allowed, and are available to anyone who enjoys games of chance. If the CFTC ever bothered to enforce its own enabling act, and associated regulations, most of these games of chance would be quickly closed. For example, CFTC regulations require 90% of all deliverable commodity contracts (including gold and silver) to be covered by stockpiles of the real commodity, and/or real forward contracts from real producers (like miners). In practice, however, CFTC has never done a spot audit of even one vault. We really have no idea whether or not short sellers really have the gold or silver that they claim to have. We can assume that they probably don’t, given that the number of futures contracts issued has often exceeded the entire known supply of silver, for example, in the entire world.

Indeed, in spite of rampant speculation as to their identity, in truth, we don’t even know who the short sellers are. Other countries, like Japan, have full disclosure of identities and positioning, in open and transparent futures markets, but this is not true of the much larger futures markets based in America. American futures markets are mostly opaque, because the CFTC keeps the information secret. Lack of transparency always is a recipe for fraud and corruption. The likelihood of widespread violations, occurring at exchanges regulated by CFTC, is very high. Logical people, therefore, can make some reasonable assumptions. It is quite likely that the sellers on COMEX do not have 90% of their silver contracts, for example, backed by stockpiles of the metal.

Yet, adherence to Federal regulation is an implicit provision in the terms and conditions of every futures contract. If COMEX and/or NYSE-Liffe short sellers are entering into naked short contracts, they are violating market rules, falsely presenting their contracts to the public, and doing all this with a premeditated intent to defraud buyers. Knowingly making false assertions and promises is fraud in the inducement. Violation of the market rules is also “fraud upon the market”, and a federal and state felony level crime that can result in a long jail sentence. The vast majority of short positions in gold and silver appear to be held by only 2 – 3 American banks, so, it would be extraordinarily easy to pinpoint the perpetrators. Potentially, they could be prosecuted for market manipulation, common law fraud, state and federal RICO actions, as well as other counts.

In other words, a large scale default on COMEX or NYSE-Liffe would not only trigger the paying of money damages, but would also involve criminal liability. Even if a few individuals within the federal government are complicit, as has been alleged, and the U.S. Justice Department refused to prosecute, there are enough politically ambitious state prosecutors to take up the baton. Futures market short sellers would pay a heavy price if there were ever a big default. Because of this, they will spend whatever money is needed to make sure it never happens.

If a clearing member of an exchange fails to deliver, the futures exchanges are legally liable on the debt. If a clearing member goes bankrupt, performance becomes the obligation of the exchange. If a short position holder cannot or does not deliver, the exchange must either deliver, or pay in an amount equal to the difference between the contract price, and the amount of money needed to buy the physical commodity in the open market. Generally speaking, contract holders are allowed to purchase silver or gold on the spot market in a reasonably prompt manner, and all costs of doing so must be reimbursed.

Contrary to the claims of some sincere but misguided metal aficionados, while gold and silver may be occasionally in so called “backwardation”, both are readily available at the right price. That price, of course, may be considerably higher than the reported prices on futures markets. Precious metal will continue to be available so long as the price is “right”. If short sellers on COMEX are really as naked as some claim, the only result of technical “default” at the COMEX will be a huge “short squeeze”, sending precious metals prices to the roof. During this squeeze, movement of the U.S. dollar, up or down, will be irrelevant. If delivery demands exceed supplies in futures market warehouses, metal will be purchased on the spot market. Short sellers or the exchange will be forced to make good on whatever price is paid.

Here’s how it would work. Let’s say you buy a futures contract for February delivery of 100 ounces of gold at $800 per ounce in December. In February, spot gold is selling for $1,000 per ounce, and you deposit the full cash cost of your futures contract into your account, instructing your broker to issue a demand for delivery. The counterparty can’t deliver because the COMEX warehouse runs out of “registered” metal. There is a huge short squeeze as short sellers run around the world physical market, trying to buy gold. The short seller misses the last day to deliver. Because everyone starts hearing about the missed deliveries, by the next day after the last possible delivery date, spot gold in London starts selling for $1,359 per ounce. Your commodities broker must take the money you deposited and buy the commodity on the spot market for $1,359. The broker will be reimbursed by the short seller and/or the exchange in the amount of $55,900, plus any expenses you incurred in buying physical gold on the spot market. In the end, you get your gold or silver at the price you paid for the futures contract, regardless of the default.

A number of well intentioned, but misinformed, precious metal commentators have claimed that exchanges will escape from this obligation by a declaring a co-called “force majeure” event. Force majeure is a legal doctrine which says that compliance with a contract is excused if an “act of God” makes it impossible to comply. Formal force majeure provisions exist in many NYMEX contracts, including gas and oil contracts, for example. After recent hurricanes in Louisiana, a NYMEX committee declared force majeure, and an extension of time for delivery of natural gas pursuant to the contracts. Unlike gas, however, which is produced from the ground, or must be moved long distances under sometimes difficult conditions, gold and silver are commodities that normally reside in vaults, and are easily transported. It should be noted that, as of this date, no formal written force majeure provision exists in the specifications of COMEX gold and silver contracts. Admittedly, force majeure is a legal doctrine that is implied in every contract, and need not be written down. However, higher gold prices and/or failure to comply with the 90% cover rule are not acts of God and will not excuse contract performance.

Let’s say, as some claim, that short sellers have enmeshed themselves in a web of fake contracts, wherein third parties are contracted to deliver metal to them, even though both the short sellers and the third parties know that these contracts are fake, and there really is no metal to deliver. This web of lies assumedly is designed to protect against claims that they are selling “naked” shorts. The existence of such contracts doesn’t matter to the concept of force majeure. The obligation to deliver cannot be changed by a mere failure of “third” parties to deliver. Failure of contracts owed to short sellers are not acts of God. Failure of third parties to honor their contracts does not excuse performance of the short seller’s obligation to deliver to the final contract holder. It certainly does not alter the obligation of the exchange to guarantee delivery.

Some are still skeptical. What if the entire COMEX and NYSE-Liffe exchanges fail? I doubt that will happen. First, let me say that I do not agree with bailouts. Companies, whether in the financial district or in Detroit, should fend for themselves. No one should be allowed to become parasites who feed on the taxpayers, as the big banks and automakers have now become. If companies make mistakes, behaving in an inefficient and/or outright stupid manner, they and their executives should pay the price. The process of creative destruction is essential to prosperity in a capitalist system. Bad actors and inefficient operators should be swept away to make room for innovation and steadier hands. But, my views are not shared by the U.S. government or most other governments around the world. A large number of the clearing members of both COMEX and NYSE-Liffe have already been bailed out by their respective governments. Huge institutions like JP Morgan (JPM), Citigroup (C), Morgan Stanley (MS), Merrill Lynch (MER), Goldman Sachs (GS), Bank of America (BAC), UBS and Credit Suisse (CS) are considered “too big to fail.”

Can you imagine the exchanges not being too big to fail, when their individual members are? What chance do you think there is of the Federal Reserve allowing the entire COMEX or NYSE-Liffe exchange going bankrupt? In my opinion, the chance is close to zero. A massive failure to deliver is highly unlikely, but, if it did happen, and if the exchanges were unable to comply with their legally binding guarantee, the government will step in and provide gold from Fort Knox and enough money to buy silver in the open market, no matter what the price. The end result will merely be a huge price increase, and an end to the assumed legitimacy of futures market prices, not a default.

Summing things up, if you want to buy gold and silver, but don’t want to pay high premiums, buy them on futures exchanges. First, open a futures account with a commodities broker. Make sure it is a real commodities broker and not an imitation. Stock brokers, like Interactive Brokers, ThinkorSwim, MBTrading, and a number of others claim to be “futures brokers.” In truth, they are not. They can only offer you speculation, and not hedging services. They will not deliver, and will forcibly sell you out of your positions, even at great loss to you, if it comes too close to the delivery date. So, instead, make certain that you open your account with a real commodities broker, like RJOFutures.com, PFGBest, lind-waldock.com, MF Global, e-futures.com or any other broker willing to arrange deliveries. You can speculate just as easily, using a commodities broker, as you can using a stock broker that dabbles in futures. But, if you want delivery, you must have a real commodities broker. Steer clear of stock brokers unless you want to buy stocks.

Middle class families, looking for safety in precious metals, but who don’t have enough money to buy 100 ounce contracts, can buy deliverable mini-gold and mini-silver contracts on the NYSE-Liffe futures exchange. The mini-contracts require delivery of as little as 33.2 ounces of gold and 1,000 ounces of silver. If you want delivery, however, make sure you do not buy COMEX based miNY gold and/or miNY silver contracts. These COMEX mini-contracts are cash settled. The standard contracts, however, on both the COMEX and the NYSE-Liffe (consisting of 100 ounces of gold and 5,000 ounces of silver) are all deliverable.

The highly leveraged nature of gold and silver futures contracts create high levels of volatility. That should be kept in mind when you decide to put a large portion of your investment assets into precious metal. Big price rises and deep dips are commonplace. Most of these market movements occur without much regard for the forces of supply and demand in the real world market. If you need the money tomorrow, steer clear. But, if you want to preserve your family legacy with something that will take you safely through depressions and hyperinflations, over years and decades, gold and silver are good choices.

If you demand delivery and just put your bars in a safe place, you don’t need to worry about the volatility. The price is sure to rise in the longer term because of the fundamentals. Remember, as you watch the dizzying roller coaster of so-called “official spot” prices, that you are buying for the long term and/or for emergency use. Day to day price fluctuations should be ignored.

By way of disclosure, I hold interests in GLD, IAU and SLV as well as
physical gold.

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Final Note: The more buyers who take delivery on their Gold or Silver contracts, the greater the chance of a “short squeeze”- jschulmansr

Market Alert! Gold and Silver and More…

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My Note: Gold is testing it’s new base of $825 to $840 level, if Gold Hold here then our next target will be $900-$940. After it clears that and yes I am bold enough  to make that prediction, then watch out! I have heard predictions of $1000, $1200, $1600, even $2000 and above. On a seasonal basis Gold usually makes it’s low in Nov. and then has a great rally through the 1st and even 2nd quarters of the following year. My prediction is that we should see Gold somewhere in the $1250 range on this next leg of the rally. Next, the Gold to Silver Ratio is 80-1, historically it has been averaging 50-1. If the ration tightens only to 60-1, then at $1250 gold we should see $25 silver. Platinum, not to be forgotten will resume it’s normal premium to Gold level (see article below) and I think with $1250 Gold we will see $2200 to $2500 Platinum. Bottom line if you haven’t gotten in (invested), NOW would be an excellent time! Now for the latest news… Enjoy! – jschulmansr

Gold and Silver Forcaster Market Alert!

By: Julian D. Phillips of Gold/ Silver Forcaster.com- Global Alert!

Gold has now entered the next and major leg of the long-term gold bull market after correcting down from $1,035.   We believe it is now targeting $1,000, initially.   This will be achieved with pullbacks and periods of consolidation.

 

We believe, too, that gold shares will benefit to a greater extent than gold itself, in the next moves up.  In particular, we feel that soundly based gold “Junior” mining companies will benefit strongly.

 

Please refer to our latest issues for our preferred shares.

 

The move has been triggered by the clear signal from the Fed that the deflationary spiral gripping the global economy is far more serious than realized until now.   The initial impact has already been seen in the precipitous fall of the U.S.$ to over $1.41 so far.   As repeated attempts to re-invigorate the flow of liquidity have failed, the U.S. Federal Reserve had to do more, much more. 

 

q       The Fed’s interest rate cuts and ‘Quantative Easing” will soon be followed by central banks across the world.  

q       The swamping of the global economy with liquidity will stem deflation, but will also badly damage confidence in the world’s monetary system and give rise to explosive inflation.  

q       The time it takes to reflate the global economy will be far shorter than most commentators expect.  

q       The strains that the world will now feel, particularly in the different world economies, will become in many instances, unbearable, so we expect to see restrictive local action in those economies to manage the huge capital flows that will be experienced.  

 

All of these prospects are very positive for gold.

 

We last issued a similar Alert early in September in 2007.   History shows how correct we were!     

 

This alert is to prompt you to act now before the market really takes off.

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Gold Stock On The Move

By: Brad Zigler of Hard Assets Investor / Brad’s Desktop

Real-time Inflation Indicator (per annum): 10.5%

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Why The Bull Market is Far From Over

Source: Gold Forecaster.com

Some talk of the end of the credit crunch. Some say that the gold bull market has suffered severe damage, which will affect its long-term prospects. If we were to accept these statements then it would appear that the gold ‘bull’ market is over. But are these statements acceptable and do they reflect the true picture underlying the gold [and silver] markets?
To get the proper perspective let’s stand back and look at the ‘BIG’ picture.
Is the Worst Over?
Credit Crunch	Not according to the I.M.F. An assessment by the International Monetary Fund says potential losses as a result of the credit crisis could exceed US$1 trillion. The assessment includes warnings that further losses and write-downs on prime mortgages, commercial real estate, leveraged loans, and consumer finance were likely. The IMF’s Global Financial Stability report put credit market losses at USD945bn, as of mid-March, with more losses expected for months to come.
	The report also stressed the fact that the credit crisis was impacting the full spectrum of the financial market in one way or another, with losses distributed between banks, insurance companies, pension funds, hedge funds, and other investors. We note that credit card finance alonside car finance has been included in assets acceptable to the Fed as collateral, which tells us it is not over by a long shot.
U.S. Trade Deficit	February recorded a Trade deficit of $62.3 billion against a January deficit of $59.0. This still looks like a $720 billion deficit to us and with oil prices now at over $120 a barrel and Chinese imports still cheaper than local products and flooding in, the prospects are for a worse annual Trade deficit than ever before. And there is no real sign that this deficit is dropping.
Oil Prices	With OPEC talking of a potential oil price of $200 a barrel something has to be done to stop more than a decline in the $; a stop must be put to the massive global scramble for resources by a combination of the developed world and the emerging world, because prices will continue to rise until they are so high that some will have to do without. This problem is about the massive rises in demand with far greater ones to come.
	So are there solutions in the pipeline? It seems that the only solutions available to the authorities are existing market controls and proposed market controls on all types of markets, but not on a globally coordinated front. Unless there is global coordination such control will be completely inadequate.
Control of the Markets
Little has been published on the proposed actions by the Treasury department, the Fed and the G-7. But they are actions that will attempt to place important markets under the control of monetary authorities of the G-7. They do not, however, include the interests of the emerging nations on important fronts.
The plan of Treasury Secretary Paulson to overhaul the financial system included a crucial proposal: it would officially transform the Federal Reserve into a “market stability regulator.” The U.S. Treasury has indicated that the Fed could use proposed new regulatory powers to stop, “credit and asset market excesses from reaching the point where they threaten economic stability.” David Nason, assistant secretary for financial institutions, said the Fed could even use its proposed “macro-prudential” authority to order banks, hedge funds and other entities to curtail strategies that put financial stability at risk.
Treasury wants to merge the Securities and Exchange Commission, the US markets watchdog, with the Commodity Futures Trading Commission that is charged with overseeing the activities of the nation’s futures market. A conceptual model for an “optimal” regulatory framework focused was being put forward to achieve three objectives: market stability, safety and soundness with government backing, and business conduct.
A working group was being established between Britain and the United States to sketch out the best way to tackle financial market turmoil. The British government said that it wants to work closer with the US and our other major international partners in dealing with the global financial turbulence. This is a global issue that requires a global response, it said. While it appears the intentions are noble, they are without a doubt ways and means to control markets as the Fed deems fit, inside the USA and the UK.
“The G-7 group of nations agreed to “calm markets showing irrational moves”. But this message did not have enough emphasis or was it ignored as a threat? To reinforce the statement, Jean-Claude Juncker, Luxembourg’s premier and the chair of Europe’s finance ministers, announced on April 23 “financial markets and other actors [had not] correctly and entirely understood the message of the [recent] G7 meeting.” In other words, markets were put on notice that the world authorities may [will and are?] take action to halt the collapse of the US$ and undercut commodity speculation by hedge funds.”
“French Finance Minister Christine Lagarde likened the recent G-7 stance to the 1985 Plaza Accord when the industrialized nations agreed to “coordinated intervention” to drive down the US$.
“Could this be a joint effort by the States and Europe to try to impose a tight trading range on the €: $ movements in the future? We think it is as the €: $ exchange rate moves of the last few weeks have shown [trading between $1.54 and $1.59 against the €]. Much as Central Banks don’t want to ‘intervene’ in foreign exchange markets, it seems that they will do so. Threats will be ignored until turned into action.
“Now we have food crises; governments in the emerging world are proposing other market controls. The issue of food inflation has led some governments to contemplate provocative strategies to lower food prices. India is reported to be considering a ban on trading in food futures, a move designed to stifle what the Indian government regard the speculative influence of hedge funds and financial market traders in the recent surge in commodities prices. As food shortages build up food protectionism is starting in some nations, curtailing exports of food needed internally. This type of control has to become more widespread as food prices hurt nation after nation going forward. With food as well as resource prices running up dramatically action to restrain them will have to be taken on a national basis, which we do not see being followed through on an international front.
“It seems inevitable that more and more controls will have to be imposed on more and more markets. It is inevitable that global movements of capital will have to be retrained at national levels. The world just cannot afford to have the huge wealth funds and trade surpluses running through constrained exchange rates, spreading inflation through higher prices, until local capital and trade markets demand drastic exchange controls. Attempts at intervening in foreign exchange markets to contain exchange rates will attract the switching of huge surpluses into currencies other than the US$. US-based funds can be controlled for sure, but can Asian and Middle Eastern ones? History well testifies that it takes the full impact of a crisis to give good political cause to trigger draconian measures, such as Capital and Exchange Controls.
The Impact on Gold and Silver Prices
While monetary authorities may not be happy to see a resurgence of global demand for gold and silver, those who are able to, will see these mounting controls as a threat to the true measurement of value, which currencies have provided since the last world war. As the dangers become more apparent, the $: € exchange rate will not serve as a determinant of the gold and silver prices, but the falling macro-confidence, fear of more instability, doubts about the value of global currencies, both ‘hard’ and ‘soft’ and uncertainty on a broad global front, will prompt a broadening of the type of global investors attracted to these metals to reflect these fears over time, to ensure that the gold and silver prices reflect global values and counter those measured against controlled values [managed currencies] in other markets.
Certainly, the ‘bull’ market in gold and silver is far from over. The market is metamorphosizing into a new phase promising far higher prices than we even contemplate now.
What prices will gold and silver have then?
“The actual prices of gold and silver will become simply academic.”

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Gold Marks Two Important Milestones!

By: Martin Zielinski of 8 Stock Portfolio.com

In the past week, gold quietly marked two important milestones.

First, as of Monday the price of gold is now showing a gain for the year. The closing price of gold on December 31, 2007 was $833.75. The price of gold today is $854.60. That makes gold up 2.5% for the year to date. If gold can hang onto this gain into the end of the year, this will also mark the eighth year in a row that gold has had a positive return. For the year and for this decade, gold has humbled its naysayers and rewarded its investors.

Second, on Tuesday the price of gold exceeded the price of platinum. The two metals now trade within a few dollars of each other with gold at $854.60 and platinum at $858. This is a big change from earlier in the year when platinum was trading over $2,200 per ounce, more than double the price of gold. If I’m not mistaken, the price of platinum has been higher than the price of gold for this entire decade. Not since the 1990s has gold been more expensive than platinum. Considering that platinum is thirty times scarcer than gold, this makes a strong statement about the demand for gold.

Disclosure: Author is long physical gold and platinum

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A New Place For Investors To Find Silver

By: David Morgan of Silver Investor.com

received a phone call from Tarek Saab, a former finalist on Donald Trump’s television show, The Apprentice. At first I was a bit suspicious because, believe it or not, there are a few flakes floating around the gold and silver arena, and having someone claim to be associated with The Donald did send up warning flags. I must state, however, that perhaps to an outsider, all gold and silver bugs probably seem nuts!

Tarek’s call was followed by an e-mail and this gentleman sounded as bullish on the precious metals as anyone I have met. In fact he began something that many of my friends and associates have talked about for years. He began a peer-to-peer network where buyers and sellers can find true price discovery and deal in physical silver and gold.

His company, GoldandSilverNow.com, is helping solve a “shortage” problem in the precious metals market by linking buyers and seller directly. In a previous article, I mentioned that one of my colleagues in Belgium has put together a method of tracking eBay (EBAY) prices; see Precious Metals Price Discovery.

The current situation is a huge spread between the paper derivative price on COMEX and the actual price paid for silver and gold by retail investors. This was discussed in my article “Silver Arbitrage.” People can take advantage of a price differential between two or more markets, striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.

There is without a doubt a price differential between retail silver product, such as 100-troy-ounce silver bars, and the spot price for silver on the Futures Exchange. In fact, this presents a very good arbitrage opportunity for those willing to take the risk. This is accomplished by selling lots of 1000 troy ounces in 100-ounce-bar increments and locking in the 1000-oz. COMEX bars for delivery. This process is achievable and, as with all arbitrage situations, will find some market participants willing to take advantage of this opportunity.

But GoldandSilvernow.com is not an auction house. The company, described by Saab as a “virtual bullion dealer,” has a simple transaction process: A seller registers and sends a picture of his inventory. The buyer, who must purchase a minimum of 500 ounces silver and 10 ounces gold, wires funds directly to the company, which acts as escrow. When the funds clear, the seller ships his bullion via registered mail, according to strict packing instructions.

Now it must be impressed that this seems to be a rather simple idea, and in fact it is, but to my knowledge it is just beginning to be implemented. Saab’s is not the only one, however; we are seeing more and more Web sites pop up that are selling precious metals.

There is another Web site that has begun business recently that is known as seekbullion.com and has some of the expertise from goldseek.com and silverseek.com. The founder of goldseek.com came to one of my first appearances at the Wealth Protection Conference in Phoenix, Arizona, and we have been friends ever since.

According to their Web site, “SeekBullion.com™ is an online precious metals/bullion auction Web site that deals with trusted pre-screened authorized dealers (sellers). SeekBullion.com™ is a division of GoldSeek.com and SilverSeek.com, Gold Seek LLC, founded in 1995. SeekBullion.com™ aims to create a new marketplace for bullion products at competitive rates, whereas other auction Web sites will charge several percent on auctioned products which increases the cost to both parties. SeekBullion.com™ aims to greatly reduce the cost of bullion auctions with the trust and integrity of Gold Seek LLC, the premier global leader in precious metals information and financial truth.”

A third Internet site that deals in silver is FlettExchange.com. According to its Press Release:

Flett Exchange LLC is introducing a new silver market. 100 oz and 1,000 oz silver bars are now listed on Flett Exchange, LLC, to buy and sell. For hundreds of years silver has been recognized as a superior form of monetary currency and is internationally accepted. It has retained its intrinsic value by backing paper currencies and has many versatile industrial uses. Our 100 oz and 1,000 oz silver bar markets will allow participants to convert cash into silver and silver into cash.

100 oz and 1,000 oz silver bars are proficient way for investors to gain access to a growing silver market. These premium bars are easily shipped, conveniently stored, uniformly stacked and are dependable forms of financial liquidity. Our silver bar markets are live, anonymous, two-way market determined by Flett Exchange, LLC, users. Customer price-negotiation eliminates the premium buyers pay and the discount sellers incur, when transacting with major bullion houses and other auction platforms.

These are just three of the recent websites that have seen an opportunity and capitalized upon it. To be clear I have not personally dealt with any of them, so I am not necessarily endorsing any of them but do find it interesting that market participants and proving the free market still exists. In closing, this will be the last weekly article in the public domain as we are working overtime on the January issue which is by far the largest issue of the year. Those interested in viewing our work in full can click here.

Some readers outside of the U.S. have asked us where can I buy without huge premiums and one place that works with industrial size bars can be found by clicking here.

So, in closing out another year, I wish everyone Peace in the New Year

My Note: If you go to these websites please due your due diligence and check them out before investing or buying- A word to the wise!- jschulmansr

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In light of what I just mentioned above, here are some tips-jschulmansr

Ponzi Red Flags!

By: Andy Abraham My Investors Place

It is front page news that Bernie Madoff created one of the largest Ponzi schemes ever….How could sharp investors get sucked in… it is really unbelievable…The question is what can you do to protect yourself…Here are some of my quick thoughts…as well open the floor to all to add their thoughts..

1.Avoid managers who are unknown, or unregulated, or come without good referrals, or haven’t been in the industry long.

2.Look out for an investment manager who wants complete control of your money and does not fully detail what EXACTLY he does… it has to be simple enough that anyone could understand.

3.Check Finra (I added the link-jschulmansr)

4. Understand the EXACT strategy

5. Don’t rely on black box ideas

6. If the returns are too good to be true…( it goes without saying)

7.Have a broker dealer have custody and get copies of your statements directly from the broker.

8.Ask for recent audits…and make sure the accounting firm is a reliable entity…

Some of these basic ideas would have kept you from investing with Madoff… but with consistent 10% returns for years… it almost becomes a self fullfilling prophecy…and as other investors plow money into the idea… the safer you might feel… but look at this list…and I would like to hear your opinions as well…

Andy

 

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Have a Great Weekend! –jschulmansr

DARE SOMETHING WORTHY TODAY TOO!

 

Noticed something? Take a look at the inflation number in the subhead. The indicator’s gone into double digits as the result of the Fed’s recent move to cheapen the dollar. Gold, not surprisingly, responded with a gap-higher opening Wednesday and a fill-in trading session Thursday.

February COMEX gold has set itself up for a test of the $880 level, a price visited but not held on Tuesday. A close above $880 would be convincing evidence of bullish resolve to work toward the October reaction highs above $900. On the other hand, a close below $803 would indicate that a short-term top is in.

 

COMEX Gold (Feb. ’08)

 

 

It’s that “other hand” stuff that’s so worrisome to gold aficionados.

There’s been a lot more enthusiasm for gold stocks recently. Over the past trading week, mining issues proxied by the Market Vectors Gold Miners ETF (NYSE Arca: GDX) have gained 6.5%, while bullion has risen just 4%. The performance edge, in fact, has been held by gold equities for more than a month as bullion formed a base and started working higher. That can be visualized by comparing the relative performance of the SPDR Gold Shares Trust (NYSE Arca: GLD) to the Market Vectors portfolio. The bullion trust’s price multiple has fallen from 4.1 to 2.8 since late November.

 

Bullion (GLD)/Gold Equities (GDX) Ratio

 

 

Of the Market Vectors ETF’s three dozen components, Royal Gold Inc. (Nasdaq: RGLD) has been the strongest. And for good reason. Denver-based Royal Gold acquires and manages royalty interests in a variety of production, development and exploration stage projects worldwide. Strong fundamentals such as industry-beating cash flow-to-sales and current ratios, together with a steady dividend stream, have attracted interest in the stock. So much so that Royal Gold shares have appreciated nearly 38% for the year, with 20% less volatility than the Market Vectors portfolio.

 

Royal Gold Inc. (RGLD)

 

 

So, the big question remains:. If Royal Gold has been noticed by investors, is its stock now fully valued?

If you’re a “glass half empty” investor, you’d have reason to be concerned. After all, a 38% return in a market like 2008’s is a gift. The “glass half full” folks, though, are looking at a short-term price objective of $51, another 18% in upside potential.

You can either raise your half-empty glass to bid farewell to 2008 or toast the new year with your half-full glass.

Enjoy your holidays.

New Breaking News on Gold! + New AOL Poll Says Obama Needs To Prove Eligibility!

Tags

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My Note: New AOL poll shows a majority of Americans would like to see  Obama prove “eligibility” to be US President. My question still is and has been why doesn’t Obama just show the Birth Certificate instead of spending gobs of money on 3! defense attorney firms to prevent him from having to. What is he hiding? Or is he just letting his pride get into the way? All of us have to show our Birth Certificates for eligibility purpose i.e. get a drivers license and etc. As president elect he should be taking the lead in obeying identification/eligibility rules and regulations, not fighting them! Just show us the Birth Certificate!

Next, more great news on the Gold Market with the Fed confirming now is the time to BUY gold! Plus I have included some very good articles on everything from more junior miners to new alerts on Buying Gold-

Enjoy! – jschulmansr 

Fed Says Buy Gold the Start of a Bullish Pattern!

By: David Nichols of Fractal Gold Report

On Tuesday we received direct confirmation from the Fed that the U.S. dollar will continue to be sacrificed to resuscitate ailing credit and asset markets. “Helicopter Ben” is finally living up to his advance billing, as dollars are set to rain down on the economy.

Gold markets got a huge burst of upside energy immediately following this surprisingly forthright Fed statement, and the long-anticipated move up to $875 is well underway. This is of course great news for our long positions, and it looks now like $875 will only be a temporary waypoint on the way back up to the all-time highs.

On a related note, the trading program for the Fractal Gold Report has captured the majority of the move up off the bottom, with our initial long position coming way back at $710. While many hedge funds and money managers have had a disastrous year, the program has not only come through this tough period unscathed, but is well into positive territory, and that includes all fees and commissions. (Past results are not necessarily indicative of future results. There is risk of loss in all trading.) Subscribers to the Fractal Gold Report are eligible for participation in the trading program if they meet the brokerage firm requirements.

As the New Year approaches, this is the perfect time to assess which methods have been successful during this historic market shake-out. As they say, it’s easy to be a genius in a bull market. But the real “value-added” is most apparent during the turbulent periods.

My road-map for gold in 2008 called for a top around $1,010 in late March, followed by a lengthy and difficult corrective period which was likely to carry gold all the way back down to $730, which I subsequently adjusted to $675 as the correction was underway.

The actual high was $1,033 in late March. Then after a difficult six month corrective period, gold bottomed out at $681 in late October.

But the most important thing to notice on this monthly chart is how the correction has already accomplished its main job, which was to bring the monthly fractal dimension back over 55. This means that gold is again in position to rocket to the upside. A monthly trend in gold can carry prices up $400 or even $500. These are huge moves. There is still plenty of room to extend higher, even in the short-term.

The 150-minute fractal dimension has dropped quickly with this very strong breakout move, but it’s only down to 41, so there should be more than enough energy left to take gold up to $875 on Wednesday.

At this point my plan is to take profits at $875 if the 150-minute fractal dimension is again down in the low 30s or high 20s as gold is stretching up to this target. As we just saw at $810, there is little risk of missing out on further upside in such a scenario, and it can greatly reduce risk, as we can side-step that period of time when gold is highly unlikely to make further upside progress, and is much more likely to correct back down.

But after this expected short-term correction off the $875 energy level, we will be looking to get right back in for the next phase of this very exciting bullish pattern.

As always, I will provide daily updates on gold in the Fractal Gold Report, and subscribers with the annual plan also receive the Fractal Silver Report.

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Gold and Silver Forcaster Market Alert!

By: Julian Phillips

Gold has now entered the next and major leg of the long-term gold bull market after correcting down from $1,035.   We believe it is now targeting $1,000, initially.   This will be achieved with pullbacks and periods of consolidation.

 

We believe, too, that gold shares will benefit to a greater extent than gold itself, in the next moves up.  In particular, we feel that soundly based gold “Junior” mining companies will benefit strongly.

 

Please refer to our latest issues for our preferred shares.

 

The move has been triggered by the clear signal from the Fed that the deflationary spiral gripping the global economy is far more serious than realized until now.   The initial impact has already been seen in the precipitous fall of the U.S.$ to over $1.41 so far.   As repeated attempts to re-invigorate the flow of liquidity have failed, the U.S. Federal Reserve had to do more, much more. 

 

q       The Fed’s interest rate cuts and ‘Quantative Easing” will soon be followed by central banks across the world.   

q       The swamping of the global economy with liquidity will stem deflation, but will also badly damage confidence in the world’s monetary system and give rise to explosive inflation.   

q       The time it takes to reflate the global economy will be far shorter than most commentators expect.   

q       The strains that the world will now feel, particularly in the different world economies, will become in many instances, unbearable, so we expect to see restrictive local action in those economies to manage the huge capital flows that will be experienced.   

 

All of these prospects are very positive for gold.

 

We last issued a similar Alert early in September in 2007.   History shows how correct we were!      

 

This alert is to prompt you to act now before the market really takes off.

 

As you know, we at Gold & Silver Forecaster are dedicated to following these developments so that Investors can maximize their understanding and profits from the gold and silver [and platinum] markets.  As a result we expect to see the gold market shine far brighter than we have seen to date.

 

If you have not followed the newsletter, we recommend that you subscribe quickly to it so as to see which shares we believe will benefit investors the most and to keep your fingers ‘on the pulse’ of the gold price.   Our coverage of the global economy is focused on the factors driving the gold price including oil, the $, and other relevant markets.   

 

 
  

We will always keep the global perspective, making our letter “must-have” reading in these markets.

 

Kind regards,

 

Gold & Silver Forecaster

www.goldforecaster.com

www.silverforecaster.com

— Posted Wednesday, 17 December 2008

Previous Articles by Julian D. W. Phillips, Gold/Silver Forecaster – Global Watch

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Risky Opportunity Awaits in Junior Gold Sector

By: James West of the Midas Letter

The biggest error an investor might make in the burgeoning third phase of the gold bull market is thinking the boat has been missed after new price territory is reached. Limiting your gains by trading in and out of the physical is insanity. Physical gold should only be considered if you plan to hold on to it for years, not months. Transportation, storage and security issues will chew up short term gains.

Moving into the market we are, where the US Dollar is going to crash in value, and gold is going to head in the opposite direction, it’s time to allocate investments intelligently among various asset classes that will benefit from the gold bull.

Producing mining companies are a great way to capture the upside gold will impart, and provides a very limited exposure to risk – especially if you’re considering one of the major producers such as Barrick, (NYSE: ABX) Newmont (NYSE: NEM) or Goldcorp (NYSE: GG), who tend to develop assets with strong economics in relatively stable countries.

South African senior producers have a special set of challenges ahead of them that make investment there riskier than in their North American counterparts. Electrical infrastructure is in major need of upgrade, and the depths to which these mines now extend negatively impact production costs going forward.

As you proceed down the list of producers, risk is intensified. This is because mid-tier producers typically gain access only to projects too small, too risky or too expensive for the big players. With increased risk comes the potential for a greater reward – especially with companies who have not yet defined the limits of deposits under development, or where the political situation is uncertain.

The biggest leverage right now, especially considering the drubbing they’ve experienced this year, are among the junior explorers. The juniors also occupy the highest risk segment, but no pain, no gain…or at least, little gain.

The current market is not differentiating efficiently the companies with potentially world class deposits and management from the “wanna be’s” who are probably never “gonna-be’s.” And in that lack of efficiency lies tremendous opportunity for risk-tolerant and patient investors.

You’ve probably heard a lot of talking heads on business stations suggesting that the economic stimulus initiatives are going to have a positive impact on stocks, and how the worst is over, and blah blah blah blah…the same guys were saying the worst is over back in August of last year. All data suggests that we are heading for a prolonged DEPRESSION, and just as in every long bear cycle, there will be little bullish corrections that will snag the naïve predictably.

The pressure on gold will be accordingly intensified. The premium will be on physical and senior production, which is why right now is the time be accumulating gold juniors. Historically, they are the last to benefit from strengthening gold fundamentals, and in this new environment of mistrust and paranoia, it will be no different.

Again, the primary consideration here must be advanced exploration/near-term production, plenty of cash on hand, and aggressive but sensible management. In the last year, I’ve visited several gold deposits, all of which have exceptional potential, and will continue to do so in the months ahead.

When I say exceptional potential, I mean companies that have the potential to earn investors ten times the money, just because they have not yet published a Canadian National Instrument #43-101 report, which is quickly becoming the accepted standard worldwide for mineral resource reporting.

The key is in looking closely at the exploration results and ignoring the headlines. There is a tendency emerging to call everything over 2 grams per tonne gold “high grade”, which is just plain misleading. And high grades can be less relevant where huge tonnage potential exists near infrastructure or existing milling operations, especially if they start at or near surface and have low strip ratios.

The key to evaluating results from a lay person’s perspective is continuity. Long intercepts of low grade mineralization that start near surface are better than short intercepts of higher grades at depth. If mineralization doesn’t start anywhere in the exploration zone above 200 metres in depth, there’s a lot of overburden to go through to reach the good stuff.

Similarly, and what NovaGold (NYSE: NG) is discovering, you can have a monstrous low-grade high tonnage deposit, and discover that the cost of building access and infrastructure can discourage investors and derail the path to production.

In NovaGold’s case though, as long as it is able to navigate through this troubled period where raising cash is tough, the economics improve as gold increases in value and construction materials and energy costs decline. Financing for these projects will become available as these economic factors solidify.

2009 will be a devastating year for many investors. Those with no experience or with little tolerance for risk will miss out on what will become the most profitable phase of the long term bull market for gold that began in 2002. Investors who buy a diverse basket of the very best juniors are going to make out very well, both in the short term and the longer.

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Now For Obama…

Obama citizenship issue has merit, AOL poll says

Nation Seeks Answers to questions about the president-elect’s eligibility…

Baro also sent investigators to the newspaper offices to examine files, but the Advertiser could not confirm who actually placed the ad.

According to Baro’s affidavit, Beatrice Arakaki affirmed she was a neighbor of the address listed. She has lived at her current residence of 6075 Kalanianaole Highway from before 1961 to the present.

Moreover, Arakaki said she believed that when Obama lived with the Dunhams, his grandparents, the family address was in Waikiki, not on Kalanianaole Highway.

Baro was able to determine the previous owners of the residence at 6085 Kalanianaole Highway – the alleged address of Obama’s parents when he was born – were Orland S. and Thelma S. (Young) Lefforge, both of whom are deceased.

Baro’s affidavit also documents that the Certification of Live Birth that Obama posted on his campaign website is not the original “long form” birth certificate issued in 1961 by the obstetrician or physician giving birth and the hospital where the baby was born.

Baro’s investigators learned that a “Certificate of Hawaiian Birth Program” established in 1911 during the territorial era and terminated in 1972 during the statehood era allowed Hawaiian residents to apply for a “Late Birth Certificate,” called a “Certificate of Hawaiian Birth,” which appears identical to the “birth certificate” Obama posted on his campaign website.

“This raised the question in my mind as to whether the ‘Certification of Live Birth,’ which is the only document that has been produced and as previously stated solely handled by the representatives of factcheck.org outside Obama’s campaign, is a certification of a live birth or a late birth,” Baro stated in his affidavit.

“I am left with the conclusion that a simple request from Senator Barack Obama to produce the ‘long form’ (redacted if necessary) would end any speculation or question as to his birthplace,” Baro’s affidavit continued. “His continued denial to do so is suspect, in my professional opinion.”

Baro also pointed out that factcheck.org is funded by the Annenberg Foundation, which “is at the center of the ongoing Obama-Bill Ayers controversy – hardly an unbiased source for information in my view.”

 

 

By Chelsea Schilling
© 2008 WorldNetDaily

America Online is conducting a new poll asking readers whether they believe there is any merit to the controversy surrounding Barack Obama’s citizenship – and most respondents say “yes.”

There are more than 88,000 national votes in the unscientific survery. A full 52 percent of nationwide respondents believe people should be concerned about Obama’s citizenship, 42 percent say the controversy has no merit and 6 percent of voters remain undecided.

In all, 43 states agree that there could be merit to the Obama citizenship controversy.

Where’s the proof Barack Obama was born in the U.S. or that he fulfills the “natural-born American” clause in the Constitution? If you still want to see it, join more than 190,000 others and sign up now!

Among voters who said Obama’s citizenship shouldn’t be an issue, represented by 7 yellow states, an average only 50 percent of those states’ respondents sided with Obama.

However, Washington, D.C., voters overwhelmingly sided with Obama – with 74 percent voting to drop the issue.

On a similar note, WND poll asked readers, “Are you satisfied Obama is constitutionally eligible to assume the presidency?” A full 97 percent of 6,000 voters said “no.”

The top three answers were:

• No, if I can’t get a driver’s license without an original birth certificate, how can Obama become president without one?

• No, and Americans should continue to dog him about it through his term

• No, there’s a reason why he’s unwilling to disclose his original birth certificate

  

AOL readers posted comments under its poll results, including the following:

• No, I don’t think it has any merit. A birth certificate was posted on his web site showing his birth in Hawaii and a story to go with it. Those who are keeping it alive are just sore losers.

• This could be put to rest with a $10 copy from the government, and yet Obama has spent somewhere between $500,000 and $800,000 to block this. Why does he waste taxpayers money on this foolishness.

• The birth certificate thing is just more racism under a smoke screen. You birthers can keep this going as long as you want with no results, just as the “Impeach Bush” folks never got anywhere for the past 8 years.

• Why spend thousands of dollars to block lawsuits that are requesting him to do what John McCain willfully and freely did?

• It’s sad that every pathetic, Republican racist out there is clinging to the hope that President Obama is not a red-blooded, red, white and blue right down to his soxs American citizen! President Obama is a God given gift to America. He has a big job ahead of him … cleaning up Bush’s mess!

• Now isn’t that interesting that the slime states of the left which are in the most trouble with their budgets are the ones who think this thug is real.

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Investigator Casts Doubt on Obama’s Birth Residence

By Jerome R. Corsi
© 2008 WorldNetDaily

 A private investigator has released to WND an affidavit that casts doubt on whether Barack Obama’s family lived at the address listed in the published notice of his birth in 1961.Jorge Baro was hired by WND to investigate issues related to Obama’s birth amid allegations the Democrat does not meet the Constitution’s requirement that a president be a “natural born citizen.”

Baro’s affidavit documents an interview his staff conducted with Beatrice Arakaki, who has lived at 6075 Kalanianaole Highway in Honolulu since before Obama was born.

The affadivit is at the center of a federal lawsuit filed prior to the November election in Hattiesburg, Miss., before U.S. District Judge Keith Starrett. The suit is one of several yet to be adjudicated that calls for proof of Obama being a “natural born citizen” as required by the Constitution.

Baro is the in-house senior investigator for Elite Legal Services, LLC, in Royal Palm Beach, Fla.

 

 

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OBAMA WATCH CENTRAL

Investigator casts doubt on Obama’s birth residence

Neighbor believes family didn’t live at address in newspaper announcement

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Posted: December 16, 2008
10:09 pm Eastern 

By Jerome R. Corsi
© 2008 WorldNetDaily

 

Barack Obama and his mother, Anne Dunham

A private investigator has released to WND an affidavit that casts doubt on whether Barack Obama’s family lived at the address listed in the published notice of his birth in 1961.

Jorge Baro was hired by WND to investigate issues related to Obama’s birth amid allegations the Democrat does not meet the Constitution’s requirement that a president be a “natural born citizen.”

Baro’s affidavit documents an interview his staff conducted with Beatrice Arakaki, who has lived at 6075 Kalanianaole Highway in Honolulu since before Obama was born.

The affadivit is at the center of a federal lawsuit filed prior to the November election in Hattiesburg, Miss., before U.S. District Judge Keith Starrett. The suit is one of several yet to be adjudicated that calls for proof of Obama being a “natural born citizen” as required by the Constitution.

Baro is the in-house senior investigator for Elite Legal Services, LLC, in Royal Palm Beach, Fla.

In Hawaii, WND was able to locate at the Honolulu public library microfilm of a notice placed in the Sunday Advertiser Aug. 13, 1961. The announcement in the “Births, Marriages, Death” section read: “Mr. and Mrs. Barack H. Obama, 6085 Kalanianaole Hwy., son, Aug. 4.”

Arakaki told Baro’s investigators she had no recollection of Obama being born or of the family living next door having a black child born to a white mother.

Baro sent a team of investigators to Honolulu to explore records regarding current residents of Kalanianaole Highway and to track down residents back to 1961.

Baro’s investigators were unable to locate any current or past resident of Kalanianaole Highway who could recall Obama or his family living at the address listed in the Sunday Advertiser announcement.

Gold is Starting to Move Up!

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