Gold World News Flash |
- Staggering Stats About Silver Supply
- Merv's Weekly Gold and Silver Commentary - July 09, 2010
- Fear Index rises to 16-year high
- John Lee: Blame Volatility on Summer Doldrums, Not Deflation
- Deflation becomes the dominant economic trend
- Jim?s Mailbox
- Hourly Action In Gold From Trader Dan
- In The News Today
- How The U.S. Economy Will Go the Way of Japan — At Best!
- Got Gold Report - COT Flash July 10
- Gold 07-12
- The Truth About Consumer Credit
- Nullification - the Freedom Meme... What's Behind Gold's Recent Moves?
- Banks are not lending again
- Can the Stock Market Continue Rising? Gold, Too?
- LGMR: Gold Slips But "Weak-Handed Speculators" Already Out
- Hi Yo SilverQuest
- Crude Oil Steady After China Demand Hits Records, Gold Lacking Catalysts
- Copper: China Is Not the Only Game in Town
- BIS gold swap signifies a threat to Europe, not to gold
- No Gold Bubble: Silver Could Hit $714 Per Oz
- More Clueless Mainstream Commentary on Gold
- Paper Gold Expiry Blues
- Hedge Fund Washouts Not Bearish for Gold
- Will Gold ever be a Means of Exchange? Will Gold be a measure of Value?
- Who Will Buy 8 Trillion Dollars In New Debt Coming Up?
- Scientific Proof That High Frequency Trading Induces Adverse Changes In Market Microstructure And Dynamics, And Puts Market Fairness Under Question
- Gold Seeker Closing Report: Gold and Silver Fall Almost 1%
- Gold Analysis and Strategy 11th of July 2010
- The BIS B.S.
- US Marshals Anniversary Commemorative Coin Act Reintroduced
- Mike Kosares: BIS gold swap signifies a threat to Europe, not to gold
- Murray Pollitt: Investors and fund managers are too distant from their money
- James Turk: Fear Index at 16-year high amid dollar debasement
- IAU Is Now Cheaper Than GLD: Does That Make It a Better ETF?
- Pensions Dive Into Alternatives
- The Bear Market and Depression: How Close to the Bottom?
- Is it Portugal that’s pawning its gold at the Bank for International Settlements (BIS)?
- Is it Portugal that's pawning its gold at the Bank for International Settlements (BIS)?
- Silver is not in a bull market
- The Final Frontier…For Your Portfolio
- Will Gold ever be a Means of Exchange? Will Gold be a measure of Value?
- A Classy Wedding in an Ancient Part of France
- Yes, Keep on Buying Gold and Silver on Every Price Retreat
- BP Oil Spill Costs Estimated To Cut Tax Bill By $10 Billion
- MONDAY Market Excerpts
- The Midas Touch
- A Deepening Divide at the Fed?
- Monday ETF Wrap-Up: EWZ Sinks, XLK Rises
- Seasonal impact means recent pull backs in gold could be short lived
| Staggering Stats About Silver Supply Posted: 12 Jul 2010 07:06 PM PDT I got a June 2010 brochure from silverinsidersreport.com that contained an interesting fact about SLV, the Exchange Traded Fund (ETF) for silver, which is that Peter Keusgen, the writer, says that SLV is "the main alternate source of storage" of silver and "which accounts for around 50% of world silver inventory"! Wow! Well, interestingly, he doesn't get into that whole controversy about whether there is actually any silver in SLV, but he writes that SLV has "been raided heavily over the past seven weeks," and indeed since February 26, "17.9 million ounces – or 2,2557,000 ounces – have been withdrawn from the ETF by authorized participants." Naturally, being the typical clueless guy who can't remember facts, figures or children's birthdays ("There's three of them, for crying out loud! How can I possibly keep up with that many dates or names?"), I don't really know how to evaluate this information, but it becomes a little clearer when he goes on "to put it another way, 3% of the wor...
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| Merv's Weekly Gold and Silver Commentary - July 09, 2010 Posted: 12 Jul 2010 07:06 PM PDT Technically Precious with Merv For week ending 09 July 2010 After a sharp drop leading into the long weekend last week gold seemed to have just taken a breather and moved sideways this week. I guess we’ll just have to wait and see what the next week brings. TIME PERIODS As you may have noticed while reading these commentaries they are separated into three time periods called long term, intermediate term and short term. Why bother, you might ask. Unless you are a very short term or day trader you would want to know the direction of the existing gold trend, but there is no one trend. The market is always moving in different directions depending upon your investment or speculative time horizon. It could be in a very short term down trend but still within an intermediate term upwards trend all within a long term bear trend. Before you invest or speculate you should know two things as far as the trend of your investment or speculation is co...
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| Fear Index rises to 16-year high Posted: 12 Jul 2010 07:06 PM PDT FGMR - Free Gold Money Report July 11, 2010 – The Fear Index has risen to a 16-year high. As of June 30th, the Fear Index is 2.35%, based on M3 data made available by Shadow Government Statistics : Home Page. Here is the formula and calculation for June 30th: The following chart illustrates the Fear Index at the end of each month since December 1967. It also highlights important low points in the Fear Index and the gold price at those points in time. There are two important conclusions to be made from the above chart. 1) The Fear Index remains in an uptrend. Given the ongoing uncertainty about bank solvency and sovereign debts that cannot be repaid, there is no reason to assume that the Fear Index is about to reverse course any time soon. It is therefore reasonable to expect that the Fear Index will keep climbing higher. Given the formula above, this result can be achieved in two ways. M3 has to decline and/or the gold price must rise. I expect it...
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| John Lee: Blame Volatility on Summer Doldrums, Not Deflation Posted: 12 Jul 2010 07:06 PM PDT Source: Brian Sylvester of The Gold Report 07/12/2010 In 2004, Analyst John Lee founded Mau Capital Management, a hedge fund based in Vancouver that invests mostly in junior mining companies. In this exclusive interview with The Gold Report, Lee deflates the deflation argument, discusses why he favors near-term gold and silver producers over early stage explorers and reveals some of his fund's top holdings. The Gold Report: Everyone is concerned with the volatility in the markets. What's going on out there? John Lee: Well, there's the proverbial "sell in May and walk away" going on, even though commodity prices have stayed fairly buoyant. In the junior market, there's a lot of paper that came out and began trading from the financings conducted in November and December. I think we're experiencing a little bit of a weak season where equity markets are vulnerable. TGR: I was reading some of your presentations and one thing that you talk about is paper currencies bein...
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| Deflation becomes the dominant economic trend Posted: 12 Jul 2010 07:06 PM PDT One of the abiding fears since the government stimulus effort began in earnest last year has been the fear that runaway inflation will once again rear its ugly head. Legions of market commentators have predicted the return of inflation in spite of the deflationary environment we find ourselves in. Can we reasonably expect a return of inflation in the foreseeable future? The Kress Cycles say “No!” and tell us to expect just the opposite, namely a deflationary trend. This has certainly been the dominant economic trend since the credit crisis of 2008 and, in some areas, even before then. Government has for years been dead set on fighting deflation with re-inflationary countermeasures. The combined efforts of government spending and central bank pump priming have by and large met with success in combating the immediate effects of deflation. After the unprecedented rollercoaster ride of the past two years, however, it’s beginning to ...
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| Posted: 12 Jul 2010 07:06 PM PDT View the original post at jsmineset.com... July 12, 2010 10:01 AM Jim Sinclair's Commentary None of these people have their own assets on the line so why worry in today's world of political expediency? Of course the most significant risk is not a topic for public and financial TV testimony. Dear Jim, I am surprised Ben has any hair left at all. I guess if they don’t talk about this it does not exist. He thinks state and local government finances represent the most important domestic risk factor in the US economy, yet they received only two brief mentions in 19 pages of minutes from the Fed’s April policy-setting meeting. Federal Reserve’s worry list gets longer Last updated 07:56 12/07/2010 The US Federal Reserve’s list of worries may be getting longer. A fading recovery, persistently high unemployment, Europe’s debt troubles and commercial real estate losses have garnered most of the attention. But some Fed officials have begun talking...
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| Hourly Action In Gold From Trader Dan Posted: 12 Jul 2010 07:06 PM PDT View the original post at jsmineset.com... July 12, 2010 10:04 AM Dear CIGAs, Click chart to enlarge today's hourly action in Gold in PDF format with commentary from Trader Dan Norcini ...
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| Posted: 12 Jul 2010 07:06 PM PDT View the original post at jsmineset.com... July 12, 2010 11:17 AM Thought For The Day Negative and completely fallacious articles are carried in major international publications while the gold banks continue to cover their short positions according to filed reports. What is wrong with that picture? Bullish Money Flows in Gold – Follow Up Eric De Groot Bullish Money Flows in Gold on 7/10/10 illustrated how connected players were using a MOPE-induced decline in gold to cover their short positions What are these charts? These charts represent multivariate and multitime statistical analysis of leverage money flows within various trading groups. In other words, the analysis "looks" for statistically significant changes in the money flows to illustrate how a market is being setup for a move that contradicts the headline MOPE. It’s all about control. MOPE, a tool of control and indication of the lack of intellectual respect its recipients, is never your friend...
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| How The U.S. Economy Will Go the Way of Japan — At Best! Posted: 12 Jul 2010 07:06 PM PDT The 5 min. Forecast July 12, 2010 10:20 AM by Addison Wiggin & Ian Mathias [LIST] [*] The next wave of the credit crisis: Euro bank debt [*] Bill Bonner & Dan Amoss offer their latest long-term U.S. forecasts [*] A ratio worth watching… how the Dow is valued when priced in gold [*] Frank Holmes on investing in the rising yuan… which countries stand to benefit the most [/LIST] When it’s all said and done, America “would be lucky to experience a fate similar to post-bubble Japan,” Dan Amoss leads off our week of 5 Min. Forecasts. You may recall, “we are turning Japanese, we really think so” was a major theme in Financial Reckoning Day, first published back in 2002 To wrap our heads around Mr. Amoss’ amplification of that dire prediction, we’ll have to take a trip around the globe… starting in Europe: Credit crisis, Euro-style! Eurozone banks will have to pay up or refinance $1.65 trillion in debt ...
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| Got Gold Report - COT Flash July 10 Posted: 12 Jul 2010 07:06 PM PDT Bottom line: COT report shows largest one-week reduction in large commercial net short positioning for gold since August 12, 2008 (23 months). Fifth largest gold LCNS reduction in our records since 2003. Gold -3.9% and the gold LCNS -14.1%. Silver -3.6% and the silver LCNS -10.5%. More bullish than bearish. Details just below. *** ATLANTA – We came fairly close to reentering the gold trade with our short-term ammo this past week. We actually had several limit orders cued up not all that far from the trading on Wednesday. The idea at the time was simple. We were looking for the “second wave down” which so often occurs in aggressive gold market sell downs. Our initial “feeler” orders would have kicked in had gold been driven down another $25 or so. That was with gold probing the $1,180s. Unfortunately (or fortunately for those already long), we counted a bit too much on past gold sell-down history this time only to se...
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| Posted: 12 Jul 2010 07:06 PM PDT courtesy of DailyFX.com July 12, 2010 06:48 AM Gold has topped. Please see the latest special report for details. Near term, gold is making its way lower and most likely in an impulsive fashion. From a trading standpoint, the next opportunity will come from the short side on completion of wave iv of 3 (possibly complete now). Additional strength would target 1215 (former 4th wave extreme). The level intersects Elliott channel resistance next Wednesday. Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum. He is the author of Sentiment in the Forex Market. Follow his intraday market commentary and trades at DailyFX Forex Stream. Send requests to receive his reports via email to [EMAIL="jsaettele@dailyfx.com"]jsaettele@dailyfx.com[/EMAIL]....
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| The Truth About Consumer Credit Posted: 12 Jul 2010 07:06 PM PDT The Federal Reserve reported consumer credit Thursday afternoon. The amount of consumer debt fell for the 15th time in the last 16 months. The dingbats on CNBC used their dire voices to conclude that the American consumer has taken austerity seriously, is truly cutting back on credit card spending. The MSM spouts the usual drivel about how the consumer is getting tired of being so tight fisted and will begin to spend again. Why is it that supposedly the best financial minds on TV and Wall Street are so stupid they can’t even look at a basic chart, use a calculator and realize that the consumers have not cut one dime of spending? Are they lying on purpose or are they so clueless a 3rd grader could do better analysis? Below is a chart showing the dramatic decrease in the change of consumer debt. Now let’s get real. Consumer debt outstanding peaked in 2008 at $2.56 trillion. One and a half years later it has PLUNGED to $2.42 trillion. Yeah the consumer sure has...
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| Nullification - the Freedom Meme... What's Behind Gold's Recent Moves? Posted: 12 Jul 2010 07:06 PM PDT Nullification - the Freedom Meme Monday, July 12, 2010 – by Staff Report Thomas Woods Jr. Nullification Should Be Taken Seriously, Not Caricatured ... The weeks surrounding Independence Day are always a good time to assess the American experiment in liberty. For all of our successes, there remains a lot of discontent across the political spectrum. The federal government is fighting the states over the issue of medical marijuana, for example, and we're also preparing to add to the Supreme Court a justice who apparently thinks that "Congress shall make no law... abridging the freedom of speech" with respect to speech means that "Congress shall weigh the costs and benefits of making a law" before passing a law "abridging the freedom of speech." What option do the people and the states have if they disagree and wish to hold fast to the "Congress shall make no law" principle? Or what if they think the Federal government is overstepping its constitutional ...
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| Posted: 12 Jul 2010 07:06 PM PDT FGMR - Free Gold Money Report July 10, 2010 – I need to correct an article I wrote last month stating that banks are lending again. Total bank loans have indeed grown as I reported, but not because banks made new loans. Instead, the increase was a result of pure accounting. On April 1, 2010, the accounting rules for banks changed. Credit previously extended in the form of derivatives booked off bank balance sheets now has to be accounted for on a bank’s balance sheet. Thus, in accordance with rule FAS 166/67, banks brought about $300 billion of assets and liabilities onto their balance sheets in April. This was credit already extended. So contrary to the conclusion in my previous article, bankers are still sitting on their hands. They are not making new loans, when taking into consideration the bookkeeping change explained above. Bankers are still trying to repair their over-leveraged balance sheets, as we can see in the following chart. Note t...
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| Can the Stock Market Continue Rising? Gold, Too? Posted: 12 Jul 2010 07:06 PM PDT The stock market, we know, moves from one emotional extreme to the other. Fear to greed, back to fear then greed, and so on. And a good stock trader should always be asking him/herself, are we at an extreme now and if so, which one? This chart is my attempt to communicate that we are at an extreme in sentiment. And it turns out that the extreme at this time is FEAR, not greed. The upper portion of this chart is the weekly SPX for the past four years. The lower portion of the chart is data from Investor's Intelligence and graphically measures their weekly readings of bearish investment advisors. You will notice that each peak in the percentage of bearish investment advisors marks an important low in the stock market. And, we observe that from bottom to top, each cycle of emotion is not able to stretch more than about 20% in a given period of time. It would seem that human fear can be pushed just so far and then it seeks relief – no matter t...
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| LGMR: Gold Slips But "Weak-Handed Speculators" Already Out Posted: 12 Jul 2010 07:05 PM PDT London Gold Market Report from Adrian Ash BullionVault 08:35 ET, Mon 12 July Gold Slips But "Weak-Handed Speculators" Already Out, "Smart Money" Slashes Short Position to 19-Month Low THE SPOT PRICE of wholesale gold bullion slipped in Asian and early London trade on Monday, holding above $1200 an ounce – and holding 1.4% above last Wednesday's 7-week low – as world stock markets extended their four-session rise. The Dollar slipped on the currency market, but US Treasury bonds ticked higher, nudging 10-year yields down to 3.04%. Silver prices also fell, dropping below $18 an ounce, as base metals traded in London lost more than 1% and US crude oil futures edged below $76 per barrel. "Gold registered another down week, but only by a slim margin," says the latest technical analysis from bullion bank Scotia Mocatta of Friday's finish at $1212. "With a doji on the weekly candlestick, the market may have now finished testing the downside in gold," says S...
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| Posted: 12 Jul 2010 07:05 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! July 12, 2010 03:26 AM At the risk of offending other worthy friends in the business, I believe the Hard Rock Analysts are the best newsletter writers in the junior resource business. I consider David and Eric friends as well and urge anyone who’s serious about junior resource stocks to be a subscriber to their work. In their latest issue, they’ve issued a strong commentary on Silver Quest Resources (here’s my past comments) and ended their feature by saying “…This combination is making SQI a compelling story. We think its time to start accumulation before drill results from Silver Quest's own drill program start to roll in. [url]http://www.grandich.com/[/url] grandich.com...
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| Crude Oil Steady After China Demand Hits Records, Gold Lacking Catalysts Posted: 12 Jul 2010 07:05 PM PDT courtesy of DailyFX.com July 11, 2010 09:30 PM There would need to be another dramatic leg lower in broad financial markets in order to bring crude oil under $70.00. Currently, the commodity is benefitting from positive news flow with regard to demand growth around the world. Gold, on the other hand, has a clear lack of catalysts at the moment. Commodities - Energy Crude Oil Steady After China Demand Hits Records Crude Oil (WTI) $76.13 +$0.04 +0.05% Commentary: Crude oil is up a few pennies after rallying 4% last week. News that China’s crude oil imports rose to a record high in June, while bullish, is having little impact thus far. Preliminary data released yesterday by China’s General Administration of Customs indicates that June imports rose to 22.14 million metric tons, higher than the previous record of 20.98 million tons in April. Additionally, the latest data on U.S. demand has been pointing toward a 5% year-over-year increase. Oil is l...
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| Copper: China Is Not the Only Game in Town Posted: 12 Jul 2010 06:44 PM PDT Dian L. Chu submits: Despite an improved risk sentiment, copper price is still sitting at 20% below its April peak, mostly due to the following concerns:
The pessimism has prompted some analysts forecasting further downward pressure, or even a catastrophe of the red metal. Complete Story »
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| BIS gold swap signifies a threat to Europe, not to gold Posted: 12 Jul 2010 06:12 PM PDT Is it just a coincidence that Portugal has (or had) 382 tonnes of gold in reserve and that the amount of gold the Bank for International Settlements recently inventoried via a swap arrangement was 380 tonnes?
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| No Gold Bubble: Silver Could Hit $714 Per Oz Posted: 12 Jul 2010 06:12 PM PDT The current price of gold and the price of silver – the silver:gold ratio – continues to hover around the 67:1 range which is way out of whack with the historical relationship between the two precious metals. It begs the question: "Is now the perfect time to buy silver instead of the much more expensive gold metal?" It is critical to step away from all the noise and clutter that passes for knowledge and take the time to gain perspective on where the price of gold and silver are in terms of the 'big picture', i.e., where they are in respect to their historical relationship with each other over the long, medium and short term and, based on those relationships, how they might perform in the future. Bull Market Stages The key to a secular gold/silver bull is the collective gold/silver transactions of investors worldwide buying and selling gold/silver that ultimately sets the price and determines their fortunes. The collective demand trends of gold/silver investors effectively divide precious metals bulls into 3 distinct demand-driven stages, namely: 1. Stage One which occurs when a devaluation of the dominant currency in which gold is priced, i.e. the USD, leads to a moderate increase in the price of gold. Stage One for gold began on February 15th, 2001 when it reached a 22-year secular low of just $255.10. 2. Stage Two which occurs when the decoupling of gold from local-currency devaluation begins to outpace the dollar's losses and gold starts rising significantly in virtually all currencies worldwide. Stage Two began on June 5th, 2005 when gold (at $417.67US) first surpassed 350 Euros for the first time. 3. Stage Three which occurs when the general public around the world starts investing in gold and this deluge of capital into gold causes it to escalate dramatically (i.e. to go parabolic) in price. We are approaching Stage Three and it will become clearly evident when the price for gold begins its daily record ascents to dramatically higher prices. Gold We are now in the very early stages of Stage Three with gold having gone up 24% in 2009 and up 13.3% in the first 6 months of 2010. As such there are no shortage of prognosticators who see gold going parabolic reminiscent of 1979 when gold rose 289.3% in the course of just over a year (from a $216.55 closing price on Jan. 1, 1979 to a closing price of $843 per ounce barely a year later on Jan. 21, 1980) and 128% higher in a late-1979 parabolic blow-off of just under 11 weeks! A 289% increase in the price of gold from $1250 would put gold at $4,866. That being the case what appear on the surface to be rather outlandish projections of what the bull market in gold will top out at don't seem quite so far-fetched. 
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| More Clueless Mainstream Commentary on Gold Posted: 12 Jul 2010 06:08 PM PDT Once again we see another bearish piece on Gold in the WSJ. Rather than attack the author personally, we want to illustrate how the article is another example of the lack of any quality gold commentary both in general and in mainstream publications.
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| Posted: 12 Jul 2010 06:07 PM PDT With all that's going on in the world these days, ranging from the continued politicization of the oil spill (catastrophe) in the Gulf of Mexico to the possibility of war in the Persian Gulf, it should be no wonder gold is rising and hitting new highs. And that's exactly what gold was doing up until yesterday, hitting new highs, and is set to continue in this regard moving forward after a correction. The big question is just how significant is this correction to be the first wave of what is likely Primary Degree Wave C (minimally) needing to be corrected at some point.
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| Hedge Fund Washouts Not Bearish for Gold Posted: 12 Jul 2010 05:40 PM PDT
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| Will Gold ever be a Means of Exchange? Will Gold be a measure of Value? Posted: 12 Jul 2010 05:37 PM PDT
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| Who Will Buy 8 Trillion Dollars In New Debt Coming Up? Posted: 12 Jul 2010 04:47 PM PDT I've been taking a look at what happened to the demand for U.S. Treasury bills and bonds as a result of the financial crisis. Here's a summary of some of the data that I found interesting. The Federal Reserve publishes flow of funds accounts that include estimates of who has been holding the debt issued by the U.S. Treasury at different points in time. Here's a pie chart showing the breakdown as of the end of 2007. At that time, almost half of the U.S. Treasury debt was owed to people or institutions outside the United States. The Federal Reserve and state and local governments held another quarter. Pension funds (combined private and federal, state and local government), mutual funds, and money market funds held another 15%. U.S. households played a very minor role in lending to the U.S. government, with holdings of only about 5% of the total debt.
In the two years since then, U.S. Treasury debt has increased more than 50%. The chart below summarizes who bought all that new debt. Foreigners bought more than half of the net new debt issuance. But the Federal Reserve and state and local governments have barely increased their holdings of Treasury debt at all, meaning that other sectors significantly increased their share. In particular, money market and mutual funds increased their holdings of Treasury debt by 85% over the last two years. Banks increased their holdings by 146%, and households by 143%. 
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| Posted: 12 Jul 2010 04:46 PM PDT
Up until recently, any debate between proponents and opponents of High Frequency Trading would typically be represented by heated debates of high conviction on either side, with discussions rapidly deteriorating into ad hominem attacks and the producer screaming 'cut to commercial' to prevent fistfights. Luckily, all this is about to change. In a research paper by Reginald Smith of the Bouchet Franklin Institute in Rochester titled "Is high-frequency trading inducing changes in market microstructure and dynamics?" the author finds that he "can clearly demonstrate that HFT is having an increasingly large impact on the microstructure of equity trading dynamics. Traded value, and by extension trading volume, fluctuations are starting to show self-similarity at increasingly shorter timescales. Values which were once only present on the orders of several hours or days are now commonplace in the timescale of seconds or minutes. It is important that the trading algorithms of HFT traders, as well as those who seek to understand, improve, or regulate HFT realize that the overall structure of trading is influenced in a measurable manner by HFT and that Gaussian noise models of short term trading volume fluctuations likely are increasingly inapplicable." In other words, the author finds ample evidence that during the past decade (on the NASDAQ) and especially since the 2005 revision of Reg NMS (on the NYSE), stock trading increasingly demonstrates "self similar" fractal patterns, resulting in volatility surges, recursive feedback loops, and a market structure which is increasingly becoming a product of the actual trading mechanism. In the process, as demonstrated by a Hurst Exponent gravitating increasingly further away from 0.5 (i.e., Brown Noise territory), the Markov Process nature of stock trading is put under question, and thus the whole premise of an efficient market has to be reevaluated. Simply said: HFT has been shown to affect the fairness of trading. The paper is, needless to say, a must read for everyone who has an even passing interest in stock trading and market regulation (alas, yes, that would mean the SEC, and Congress). And while one of the key qualities of the paper is presenting the history and implications of High Frequency Trading, and its rise to market dominance primarily as a result of the revision of Reg NMS, allowing stock trading to become a free for all for every algo, and ECN/ATM imaginable, the key findings are what makes it unique. In analyzing stochastic processes and fractal phenomena, and concluding that the Hurst Exponent of transactions that involve less than 1,500 shares per trade (and especially less than 250 - a distinct subdomain relegated to HFT strategies) is no longer 0.5, the author validates the skepticism of all those who for over a year (such as Zero Hedge) have claimed that the direct and increasing involvement of HFT is an de-evolutionary process that is leading to increasing market fragmentation, self-sameness, destabilization, and volatility, offset merely by allegedly improved liquidity, which incidentally disappears on a moment's notice when the negative side-effects of HFT overwhelm the positive, such as was the case on May 6. Furthermore, the authors find that the type of fractal recursive feedback loops inspired by increasing HFT participation lead to spikes in correlation: "Correlations previously only seen across hours or days in trading time series are increasingly showing up in the timescales of seconds or minutes." And due to the implied fractal nature of trading (think standing waves, fern leaves, sandy beaches, and all other goodies unleashed upon the world courtesy of Benoit Mandelbrot), it appears investors now have to consider such quixotic issues as Lorenzian Attractors when it comes to simple trading. What is most troubling, is that micro similarities, as postulated by non-linear theory, tend to rapidly evolve into massively scaled topological disturbances, and thus a few simple resonant trades can rapidly avalanche into a major market destabilizing event.... such as that seen on May 6. While the math of the article is a little daunting, and the author appears to derive a peculiar satisfaction from throwing the Riemann Zeta function in the general mathematical stew (incidentally, with the prevalent IQ of Zero Hedge readers being sufficiently high to allow at least a valiant effort at proving the Riemann Hypothesis, we hope some of our more industrious readers take it upon themselves to venture and pocket the generous proceeds from the Millennium Prize, for which we will be content to receive a mere pittance as a donation for proffering this forum), the observations and conclusions are water tight:
When it comes to the interplay of optimal order execution and statistical arbitrage, it can easily be seen why large block splitting into child orders could conceive a self-similar trading pattern that reverberates across the market, in an increasingly micro-correlated and fractal marketplace. In the course of events on May 6, it is perfectly feasible that as many mutual funds commenced dumping large blocks of stock, assorted algorithms had to work overtime to split these orders into millions of small trade blocks. And with statistical arbitrage models programmed to game and front-run large order blocks by diving the intentions of repeated micro orders, it becomes all too clear how a rapid selling event can rapidly culminate into a bid-less environment where both the stat arb and order execution HFT algorithms are all on the same side of the boat. Consider the market action from the past several days as indicative of micro volume accumulation by HFTs, which is only offset by mega volume dumping - once all the HFTs are forced to unwind and go to cash, the actual principal liquidity providers who in their desperation become liquidity takers, suddenly find themselves with no recourse but to hit any bid. Which is why the NYSE explanation of Liquidity Replenishment Points is nothing but complete BS - the market meltdown had nothing to do with selective order routing to non-NYSE venues, and everything to do with a fractal implosion, in which, as Nassim Taleb would explain, the Hurst Exponent briefly went from 0.5 to infinity minus 1, and the entire market became correlated with itself. Of course if the paper is correct, and the empirical evidence presented in it is sufficient to eliminate doubt, it means that in the coming years we will have an exponentially growing number of days in which May 6-type event will recur over and over. The paper's conclusion:
As for evidence, we refer readers to the paper itself, but in a nutshell, the authors find that over the years, on both the NYSE (after Reg NMS revision in 2005) and on the Nasdaq (from before, as the Nasdaq was the original spawn of HFT strategies), as the prevalent share bucket moved from greater than 1,000 shares per trade, to 250 or less, direct evidence of increasing HFT dominance, especially coupled with previous Tabb group evidence that over 70% of all trading is conducted by HFT, the Hurst Exponent of all trading increasingly moved away from 0.5, and has hit as high as 0.7 in some case: a stunning result which puts the entire stochastic nature of stock markets in question! (see charts below). Charting the average size per trade since 2002:
And charting the Hurst Exponent as calculated by the authors in a variety of Nasdaq and NYSE stocks:
We are confident that this paper will serve as the guiding light to much more comparable research, due to the unique approach the author takes in analyzing stock behavior. In moving away from a traditional and simplistic Gaussian frame, Smith isolates the very nature of the problem, which like any other non-linear system, and thus prone to Black Swanness, has to be sought in the plane of fractal geometry. Luckily, the author provides the one elusive observation which many market participants (at least those whose livelihoods are not tied into the perpetuation of the destructive HFT processes) had long sensed was on the tips of their tongues, yet the only comprehensible elucidation was the trite and overworn "the market is broken." At least now we know that this is a fact. Unfortunately, as the paper requires slightly more than first grade comprehension and math skills, it will never be read by anyone at the SEC, or those in Congress, who are pretending to be conducting Financial Regulation Reform, when the items described in this paper are precisely the things that any reform should be addressing. And while we again urge everyone to read the full paper, below we present the section of the paper that does a terrific job in explaining the arrival of HFT, its development over the ages, and its parasitic role in market structure. Appendix: A brief history of the events leading up to high frequency trading In 1792, as a new nation worked out its new constitution and laws, another less heralded revolution began when several men met under a Buttonwood tree, and later coffee houses, on Wall St. in New York City to buy and sell equity positions in fledgling companies. An exclusive members club from the beginning, the New York Stock Exchange (NYSE) rapidly grew to become one of the most powerful exchanges in the world. Ironically, even the non-member curbside traders outside the coffee houses gradually evolved into over-the-counter (OTC) traders and later, the NASDAQ. A very detailed and colorful history of this evolution is given in Markham and Harty (2008); Harris (2003). Broadly, the role of the exchange is to act as a market maker for company stocks where buyers with excess capital would like to purchase shares and sellers with excess stock would like to liquidate their position. Several roles developed in the NYSE to encourage smooth operation and liquidity. There came to be several types of market makers for buyers and sellers known as brokers, dealers, and specialists. The usual transaction involves the execution of a limit order versus other offers. A limit order, as contrasted to a market order which buys or sells a stock at the prevailing market rate, instructs the purchase of a stock up to a limit ceiling or the sale of a stock down to a limit floor. Brokers act on behalf of a third-party, typically an institutional investor, to buy or sell stock according to the pricing of the limit order. Dealers, also known as market-makers, buy and sell stock using their own capital, purchasing at the bid price and selling at the ask price, pocketing the bid-ask spread as profit. This helps ensure market liquidity. A specialist acts as either a broker or dealer but only for a specific list of stocks that he or she is responsible for. As a broker, the specialist executes trades from a display book of outstanding orders and as a dealer a specialist can trade on his or her own account to stabilize stock prices. The great rupture in the business-as-usual came with the Great Depression and the unfolding revelations of corrupt stock dealings, fraud, and other such malfeasance. The Securities and Exchange Commission (SEC) was created by Congress in 1934 by the Securities Exchange Act. Since then, it has acted as the regulator of the stock exchanges and the companies that list on them. Over time, the SEC and Wall Street have evolved together, influencing each other in the process. By the 1960s, the volume of traded shares was overwhelming the traditional paper systems that brokers, dealers, and specialists on the floor used. A“paperwork crisis” developed that seriously hampered operations of the NYSE and led to the first electronic order routing system, DOT by 1976. In addition, inefficiencies in the handling of OTC orders, also known as “pink sheets”, led to a 1963 SEC recommendation of changes to the industry which led the National Association of Securities Dealers (NASD) to form the NASDAQ in 1968. Orders were displayed electronically while the deals were made through the telephone through“market makers” instead of dealers or specialists. In 1975, under the prompting of Congress, the SEC passed the Regulation of the National Market System, more commonly known as Reg NMS, which was used to mandate the interconnectedness of various markets for stocks to prevent a tiered marketplace where small, medium, and large investors would have a specific market and smaller investors would be disadvantaged. One of the outcomes of Reg NMS was the accelerated use of technology to connect markets and display quotes. This would enable stocks to be traded on different, albeit connected, exchanges from the NYSE such as the soon to emerge electronic communication networks (ECNs), known to the SEC as alternative trading systems (ATS). In the 1980s, the NYSE upgraded their order system again to SuperDot. The increasing speed and availability computers helped enable trading of entire portfolios of stocks simultaneously in what became known as program trading. One of the first instances of algorithmic trading, program trading was not high-frequency per se but used to trade large orders of multiple stocks at once. Program trading was profitable but is now often cited as one of the largest factors behind the 1987 Black Monday crash. Even the human systems broke down, however, as many NASDAQ market makers did not answer the phones during the crash. The true acceleration of progress and the advent of what is now known as high frequency trading occurred during the 1990s. The telecommunications technology boom as well as the dotcom frenzy led to many extensive changes. A new group of exchanges became prominent. These were the ECN/ATS exchanges. Using new computer technology, they provided an alternate market platform where buyers and sellers could have their orders matched automatically to the best price without middlemen such as dealers or brokers. They also allowed complete anonymity for buyers and sellers. One issue though was even though they were connected to the exchanges via Reg NMS requirements, there was little mandated transparency. In other words, deals settled on the ECN/ATS were not revealed to the exchange. On the flip side, the exchange brokers were not obligated to transact with an order displayed from an ECN, even if it was better for their customer. This began to change, partially because of revelations of multiple violations of fiduciary duty by specialists in the NYSE. One example, similar to the soon to be invented ‘flash trading’, was where they would “interposition” themselves between their clients and the best offer in order to either buy low from the client and sell higher to the NBBO (National Best Bid and Offer; the best price) price or vice versa. In 1997, the SEC passed the Limit Order Display rule to improve transparency that required market makers to include offers at better prices than those the market maker is offering to investors. This allows investors to know the NBBO and circumvent corruption. However, this rule also had the effect of requiring the exchanges to display electronic orders from the ECN/ATS systems that were better priced. The SEC followed up in 1998 with Regulation ATS. Reg ATS allowed ECN/ATS systems to register as either brokers or exchanges. It also protected investors by mandating reporting requirements and transparency of aggregate trading activity for ECN/ATS systems once they reach a certain size. These changes opened up huge new opportunities for ECN/ATS systems by allowing them to display and execute quotes directly with the big exchanges. Though they were required to report these transactions to the exchange, they gained much more. In particular, with their advanced technology and low-latency communication systems, they became a portal through which next generation algorithmic trading and high frequency trading algorithms could have access to wider markets. Changes still continued to accelerate. In 2000, were two other groundbreaking changes. First was the decimalization of the price quotes on US stocks. This reduced the bid-ask spreads and made it much easier for computer algorithms to trade stocks and conduct arbitrage. The NYSE also repealed Rule 390 which had prohibited the trading of stocks listed prior to April 26, 1979 outside of the exchange. High frequency trading began to grow rapidly but did not truly take off until 2005. In June 2005, the SEC revised Reg NMS with several key mandates. Some were relatively minor such as the Sub-Penny rule which prevented stock quotations at a resolution less than one cent. However, the biggest change was Rule 611, also known as the Order Protection Rule. Whereas with the Limit Order Display rule, exchanges were merely required to display better quotes, Reg NMS Rule 611 mandated, with some exceptions, that trades are always automatically executed at the best quote possible. Price is
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| Gold Seeker Closing Report: Gold and Silver Fall Almost 1% Posted: 12 Jul 2010 04:00 PM PDT Gold fell to as low as $1195.95 by late morning in New York before it bounced back higher in the last couple of hours of trade, but it still ended with a loss of 0.93%. Silver dropped to as low as $17.756 before it also climbed back higher, but it still ended with a loss of 0.83%.
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| Gold Analysis and Strategy 11th of July 2010 Posted: 12 Jul 2010 03:34 PM PDT During the last two weeks Gold corrected nearly US$80 or 6,3%. The lows came in around US$1.185 last Wednesday. Gold found short term support exactly at the trendline. Read More...
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| Posted: 12 Jul 2010 03:24 PM PDT By Jeff Nielson, Bullion Bulls Canada When I first heard the story from the Bank of International Settlements about the supposed laundering of 380 tons of gold, I reacted in the same manner I do to all "news" of such stature (such as "alien autopsies") – I totally ignored it. However, upon observing that the media propaganda-machine intends to continue to "pump" this wild rumor, and treat it as serious "news", I can see that I must address this nonsense.
The first point to make here is that the Bank for International Settlements operates outside of, and above the laws of every nation on Earth. Not only has it avoided anything remotely resembling an "audit" during its entire history, but it operates as its own "sovereign nation", meaning that no one is allowed to even set foot on its premises without the prior consent of one of two, bank officials.
This is an institution which was created for the sole purpose of facilitating illegal arms shipments to Hitler before (and during) the Second World War. With the Cold War ending, the "profits" available from acting as the world's principal "black market" for illegal arms sales has cooled-off. Thus, in recent decades, these "bankers" have branched into "laundering" the countless, annual $billions of "drug money" from the various, global drug cartels.
Because this institution operates under a veil of total secrecy and "immunity" (thanks to the Swiss government), no unintentional "rumors" could ever emanate from this institution. Indeed, being above the laws of all other nations, it could immediately execute anyone spreading an unauthorized rumor – and there wouldn't even be the pretense of an investigation. Given how easy it could make whistle-blowers "disappear", this obviously means that this rumor was started by the BIS, itself.
Two questions immediately arise. First, why would anyone attach any credence to any rumor started by a group of people who (even among bankers) represent the lowest forms of life on our planet? Second, what is the motive of the BIS in spreading such a rumor?
Readers already know how I answered the first question. I totally ignored this nonsense, just as I would an unsubstantiated rumor from the Mafia or Al Qaeda – especially given that no one has actually seen a single ounce of this alleged "gold". The second question is a much more interesting topic.
The immediate answer to that question is clear: the BIS started the rumor to try to create the impression in the minds of market-sheep that someone, somewhere still had some gold which they were willing to dump onto the market. Let's put this into perspective with numbers.
During the years in which the price of gold tripled, from $250/oz to nearly $750/oz, Western central banks were dumping 500 tons of gold onto the market every year – with virtually no official buying taking place among central banks. Contrast that scenario to today. While "officially" Western central banks are still allowed to dump 400 tons of gold per year onto the market, during the first nine months of this fiscal "year", those banks had only sold 1.8 tons, and almost all of that was needed for the minting of coins. Meanwhile, the IMF has only 150 tons remaining of the 400 tons of gold it sold – which was supposed to "frighten the market". On top of this, central banks are now buyers of gold, rather than sellers.
Obviously, this current scenario of no official "sellers" of gold (and none on the horizon), while official buyers line-up along-side legions of other gold-hungry investors is not very supportive of the activities of the anti-gold cartel. This becomes especially worrisome now that we know (thanks to Jeffrey Christian) that these banksters have leveraged their massive short positions by somewhere around a factor of 100:1.
So, the banksters were desperate to start a rumor that some gold was about to enter the market. Of interest, none other than Jeffrey Christian has already told us that the banksters routinely spread fake-rumors of gold sales back in "the good old days". Thus, once again I must ask: why would any rational adult attach the slightest credence to this intentionally-spread rumor? More articles from Bullion Bulls Canada….
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| US Marshals Anniversary Commemorative Coin Act Reintroduced Posted: 12 Jul 2010 03:08 PM PDT
The U.S. Marshals Service was the first law enforcement agency in America. President George Washington appointed the first 13 U.S. Marshals on Sept. 24, 1789, which was two days after he signed the Judiciary Act of 1789 into law. Since then, US Marshals have served the Nation in varying capacities with distinction and honor. The United States Marshals Service 225th Anniversary Commemorative Coin Act, H.R. 5680, was again brought forward by Rep. John Boozman of Arkansas, who introduced nearly identical legislation on June 10, 2009 that was numbered H.R. 2799. (…) © CoinNews.net for Coin News, 2010. |
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| Mike Kosares: BIS gold swap signifies a threat to Europe, not to gold Posted: 12 Jul 2010 03:08 PM PDT By Michael J. Kosares http://www.usagold.com/cpmforum/?p=178151 Is it just a coincidence that Portugal has (or had) 382 tonnes of gold in reserve and that the amount of gold the Bank for International Settlements recently inventoried via a swap arrangement was 380 tonnes? Let's put 2+2+2+2+2 together here. (Nothing in the gold market is ever simply 2+2.) I don't know how many of you watch the "Pawn Stars" on the History Channel, but if you don't, let me introduce you to the key question asked of anyone who brings something into the store: Do you want to "pawn it" or "sell it"? A swap agreement is nothing more than a sophisticated version of a pawn ticket. The owner of the property leaves his valuable with the pawnbroker. In turn the pawnbroker offers cash against the item's perceived value. If, in time, the owner fails to reclaim the property, ownership transfers to the pawnbroker. In the case of the BIS and our subject pawner, the gold is left with the pawnbroker, who issues cash — in this case, probably in the form of euros. At the moment there's no way of knowing if Portugal is the party pawning the family jewels at the BIS, but I rather doubt that, as some have suggested, the BIS suddenly went from zero tonnes of gold on its balance sheet to (remarkably) 380 tonnes by piece-mealing hundreds of little gold deals with commercial banks around Europe because of the financial crisis. That's a smokescreen. At the same time, Portugal has been identified as one of the European nations in deep financial trouble (a PIIG, if you will). Some analysts believe that Portugal may be the next domino to topple in the European theater. That's 2+2. The real question with respect to the pawn is not as the mainstream press has posited it, a threat to the gold market. It has more to do with what this swap portends for Europe. It did not come from nowhere. It is not some inexplicable event that simply happened. Something else is going on, the full portent of which we do not yet fully understand. No one throws gold around like an old suit of clothes, and we need to keep that in mind. As far as the gold market is concerned, even if the pawn shop (the BIS) is forced to liquidate the gold at some point down the road, it has to be done under the auspices of the Washington Agreement. The BIS has pledged to abide by that agreement even if it isn't a direct signatory. Because it is so charged (which includes a nod toward gold market transparency), I will take the BIS at its word when it says that it is holding the gold under a swap arrangement for future redemption — another clue that it hasn't come from far and wide but probably from one source. That's 2+2+2. Under current circumstances any central bank selling, swapping, or even leasing its gold is not doing it because the bank likes the idea. After all, the bank thus puts at risk the one asset that rises above the tangle of counterparty and systemic risk. If a central bank is pawning its gold, it is because the pawner is runnning out of choices or even has been forced to put its gold on the dock. Don't forget: Portugal (if it is indeed the pawner here) stands in no different a position than Greece did when it hit the wall several months ago. Portugal cannot print money, so its options are limited. Leaving aside the questionable assertion that money raised through the swap could not go directly to the federal government or to buttress the bond market, it unquestionably could go to bail out a major commercial bank and forestall a rolling counterparty meltdown. That's 2+2+2+2. By all this the gold market could once again be signaling much wider economic problems than what appears on the surface, just as the ministrations of British Chancellor Gordon Brown with respect to gold hinted at problems deep within the British banking system in 1999, as well as an imminent increase in gold's price. This writer formulated the Gordon Brown Gold Market Rally Indicator, which predicted a series of gold market run-ups. In the same way, this situation at the BIS, when all the facts are in, eventually might accrue to gold's benefit. Deductive logic leads one to draw certain conclusions, if only by the circumstantial evidence. It is no surprise to me that the swap appeared as small print on the BIS' balance sheet. I would not have expected this situation to make headlines. That's 2+2+2+2+2. —– Michael J. Kosares is proprietor of Centennial Precious Metals in Denver and host of its Internet forum at http://www.usagold.com/cpmforum/. Join GATA here: New Orleans Investment Conference * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| Murray Pollitt: Investors and fund managers are too distant from their money Posted: 12 Jul 2010 03:08 PM PDT 9:47p ET Monday, June 12, 2010 Dear Friend of GATA and Gold: In his latest market commentary for the Toronto brokerage house that bears his name, Murray Pollitt reflects on the modern investment system and concludes that investors and investment fund managers are simply too distant from where they put their money, cumulatively risking a cataclysmic event. "All the vuvuzelas in South Africa," Pollitt writes, "cannot send a louder message regarding the future course of markets than the gold market is sending." That's the title of Pollitt's commentary — "Vuvuzela" — and thanks to Pollitt's indulgence you can find it at GATA's Internet site here: http://www.gata.org/files/PollittMarketLetter-06-29-2010.pdf CHRIS POWELL, Secretary/Treasurer Join GATA here: New Orleans Investment Conference * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| James Turk: Fear Index at 16-year high amid dollar debasement Posted: 12 Jul 2010 03:08 PM PDT 9:42p ET Monday, July 12, 2010 Dear Friend of GATA and Gold: GoldMoney founder, Freemarket Gold & Money Report editor, and GATA consultant James Turk reports that his "fear index" is at a 16-year high as a result of debasement of the U.S. dollar. Turk's commentary is headlined "Fear Index Rises to 16-Year High" and you can find it at the FGMR Internet site here: http://www.fgmr.com/fear-index-rises-to-sixteen-year-high.html CHRIS POWELL, Secretary/Treasurer Join GATA here: New Orleans Investment Conference * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| IAU Is Now Cheaper Than GLD: Does That Make It a Better ETF? Posted: 12 Jul 2010 03:08 PM PDT Michael Johnston submits: One of the most interesting developments in the ETF market over the last several years has been the extent to which investors have embraced these securities as opportunities to add commodity exposure to traditional stock-and-bond portfolios. Within the commodity space, no single fund has enjoyed a more impressive rise than the SPDR Gold Trust (GLD), which took in more than $7 billion in the first two quarters of 2010 and finished June with total assets of about $52 billion. That makes GLD the second largest U.S.-listed ETF by total assets, and it isn’t far-fetched to imagine that it will soon take over the number one spot. GLD isn’t the only physically-backed gold ETF on the market, but it is by far the biggest; ETF Securities’ SGOL has about $600 million in assets, while the iShares COMEX Gold Trust (IAU) finished June at about $3.4 billion. Those are impressive totals, but look downright tiny next to GLD’s staggering numbers.
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| Pensions Dive Into Alternatives Posted: 12 Jul 2010 02:51 PM PDT
ai5000 reports, Pensions Dive Into Alternatives:
You can download the Global Alternatives Survey 2010 by clicking here. Not surprisingly, the top 10 managers are mostly in real estate and infrastructure. Pauline Skypala of the FT reports, Pensions enthusiastic but inflows are variable:
The majority of investors have overpaid for the "skill" alternatives managers claim to be delivering. I am also very nervous about billions flowing into commodities. So why are pensions diving back into alternatives and more importantly, is it the right thing to do? From one perspective, this is the right thing to do, especially if you think the US economic recovery will proceed, even if it's at a muted pace. Illiquid asset classes like Real Estate and Private Equity tend to outperform once the economic recovery is well underway. There is a lot of money on the sidelines waiting to be deployed, but don't be fooled, the same structural issues impeding these asset classes remain. For one, banks aren't willing to finance mega buyout funds. Also, as one senior pension officer told me today: "I believe in the governance model of private equity but it will take years for the industry to work through its problems." Maybe, but watching pensions flooding alternatives with billions, I think we're back to the good old days where everyone is looking to these investments to get them out of their pension jam. But alternatives are a double-edged sword. If everyone is piling into them again, you can bet those pension dollars that returns will be diluted. In effect, alternatives are drowning in a sea of liquidity, so don't expect much from them over the next decade.
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| The Bear Market and Depression: How Close to the Bottom? Posted: 12 Jul 2010 02:48 PM PDT While many people spend time yearning for the financial markets to turn back up, a rare few have looked back in time to compare historical markets with the current situation -- and then delivered a clear-eyed view of the future ... Read More...
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| Is it Portugal that’s pawning its gold at the Bank for International Settlements (BIS)? Posted: 12 Jul 2010 01:48 PM PDT Opinion Is it just a coincidence that Portugal has [had] 382 tonnes of gold in reserve and that the amount of gold the BIS inventoried via a swap arrangement was 380 tonnes? Let's put 2+2+2+2+2 together here. (Nothing in the gold market is ever simply 2+2.) I don't know how many of you watch the Pawn Stars on the history channel, but if you don't, let me introduce you to the key question asked anyone who brings something into the store. Do you want to "pawn it" or "sell it?" A swap agreement is nothing more than a sophisticated version of a pawn ticket. The owner of the property leaves his valuable with the pawn broker. He,in turn, offers cash against it's perceived value. If, in time, the owner fails to reclaim the property, ownership reverts to the broker. In the case of the BIS and our subject pawner, the gold is left with the pawnbroker who issues cash, in this case, probably in the form of euros. There's no way of knowing for certain if Portugal is the party pawning the family jewels at the BIS, but I rather doubt that the BIS suddenly went from zero tonnes of gold on its balance sheet to (remarkably) 380 tonnes by piece-mealing hundreds of little gold deals with commercial banks around Europe because of the financial crisis, as some have suggested. That's a smokescreen. At the same time, Portugal has been identified as one of the European nation states in deep financial trouble (a PIIG, if you will). Some analysts believe that it may be the next domino to topple in the European theater. That's 2+2. The real question with respect to the pawn is not as the mainstream press has posited it, a threat to the gold market. It has more to do with what this swap portends for Europe. It did not come from nowhere. It is not some inexplicable event that simply happened. Something else is going on the full portent of which we do not fully understand at this juncture. No one throws gold around like an old suit of clothes, and we need to keep that in mind. As far as the gold market is concerned, even if the pawn shop (the BIS) is forced to liquidate the gold at some point down the road, it has to be done under the auspices of the Washington Agreement. The BIS has pledged to abide by that agreement even if it isn't a direct signatory. Because it is so charged (which includes a nod toward gold market transparency), I will take the BIS at its word when it says that it is holding the gold under a swap arrangement for future redemption — another clue that it hasn't come from far and wide but probably from one source. That's 2+2+2. Any central bank selling, swapping, or even leasing its gold, under the current circumstances is not doing it because they like the idea. After all, by doing so, it puts at risk the one asset that rises above the tangle of counterparty and systemic risk. If it is being done, it is because the pawner is runnning out of choices, or even forced to put its gold on the dock. Don't forget, Portugal (if it is indeed the pawner) stands in no different a position than Greece did when it hit the wall several months ago. It cannot print money, therefore, its options are limited. Leaving aside the questionable assertion that money raised through the swap could not go directly to the federal government or to buttress the bond market, it could unquestionably go to bail out a major commercial bank and forestall a rolling counter-party meltdown. That's 2+2+2+2. By all this, the gold market could once again be signaling much wider economic problems than what appears on the surface, just as the ministrations of Gordon Brown with respect to gold hinted at problems deep within the British banking system in 1999, as well as an imminent increase in the price of gold. As you will recall, it was this writer who formulated the Gordon Brown Gold Market Rally Indicator which predicted a series of gold market run-ups. In the same way, this situation at the BIS might eventually, when all the facts are in, might accrue to gold's benefit. Deductive logic leads one to draw certain conclusions, if even by the circumstantial evidence only. It is no surprise to me that the swap appeared as small print on the BIS' balance sheet. I would not have expected this situation to make headlines. That's 2+2+2+2+2. Semper aurum, Michael J. Kosares
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| Is it Portugal that's pawning its gold at the Bank for International Settlements (BIS)? Posted: 12 Jul 2010 01:48 PM PDT Opinion Is it just a coincidence that Portugal has [had] 382 tonnes of gold in reserve and that the amount of gold the BIS inventoried via a swap arrangement was 380 tonnes? Let's put 2+2+2+2+2 together here. (Nothing in the gold market is ever simply 2+2.) I don't know how many of you watch the Pawn Stars on the history channel, but if you don't, let me introduce you to the key question asked anyone who brings something into the store. Do you want to "pawn it" or "sell it?" A swap agreement is nothing more than a sophisticated version of a pawn ticket. The owner of the property leaves his valuable with the pawn broker. He,in turn, offers cash against it's perceived value. If, in time, the owner fails to reclaim the property, ownership reverts to the broker. In the case of the BIS and our subject pawner, the gold is left with the pawnbroker who issues cash, in this case, probably in the form of euros. There's no way of knowing for certain if Portugal is the party pawning the family jewels at the BIS, but I rather doubt that the BIS suddenly went from zero tonnes of gold on its balance sheet to (remarkably) 380 tonnes by piece-mealing hundreds of little gold deals with commercial banks around Europe because of the financial crisis, as some have suggested. That's a smokescreen. At the same time, Portugal has been identified as one of the European nation states in deep financial trouble (a PIIG, if you will). Some analysts believe that it may be the next domino to topple in the European theater. That's 2+2. The real question with respect to the pawn is not as the mainstream press has posited it, a threat to the gold market. It has more to do with what this swap portends for Europe. It did not come from nowhere. It is not some inexplicable event that simply happened. Something else is going on the full portent of which we do not fully understand at this juncture. No one throws gold around like an old suit of clothes, and we need to keep that in mind. As far as the gold market is concerned, even if the pawn shop (the BIS) is forced to liquidate the gold at some point down the road, it has to be done under the auspices of the Washington Agreement. The BIS has pledged to abide by that agreement even if it isn't a direct signatory. Because it is so charged (which includes a nod toward gold market transparency), I will take the BIS at its word when it says that it is holding the gold under a swap arrangement for future redemption — another clue that it hasn't come from far and wide but probably from one source. That's 2+2+2. Any central bank selling, swapping, or even leasing its gold, under the current circumstances is not doing it because they like the idea. After all, by doing so, it puts at risk the one asset that rises above the tangle of counterparty and systemic risk. If it is being done, it is because the pawner is runnning out of choices, or even forced to put its gold on the dock. Don't forget, Portugal (if it is indeed the pawner) stands in no different a position than Greece did when it hit the wall several months ago. It cannot print money, therefore, its options are limited. Leaving aside the questionable assertion that money raised through the swap could not go directly to the federal government or to buttress the bond market, it could unquestionably go to bail out a major commercial bank and forestall a rolling counter-party meltdown. That's 2+2+2+2. By all this, the gold market could once again be signaling much wider economic problems than what appears on the surface, just as the ministrations of Gordon Brown with respect to gold hinted at problems deep within the British banking system in 1999, as well as an imminent increase in the price of gold. As you will recall, it was this writer who formulated the Gordon Brown Gold Market Rally Indicator which predicted a series of gold market run-ups. In the same way, this situation at the BIS might eventually, when all the facts are in, might accrue to gold's benefit. Deductive logic leads one to draw certain conclusions, if even by the circumstantial evidence only. It is no surprise to me that the swap appeared as small print on the BIS' balance sheet. I would not have expected this situation to make headlines. That's 2+2+2+2+2. Semper aurum, Michael J. Kosares
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| Silver is not in a bull market Posted: 12 Jul 2010 01:47 PM PDT Recently I went to the movies and seen Karate Kid (remake). Chan was awesome. But my cost with coke and popcorn was $20. Silver can't even cover my theater costs. In the 1980's, I seen Indiana Jones (Raiders of the Lost Ark) for $2.00 and everything was paid for.
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| The Final Frontier…For Your Portfolio Posted: 12 Jul 2010 01:13 PM PDT Forget about science fiction...cheaper private space access may actually be just around the corner. Earlier this month, PayPal founder Elon Musk's space exploration company, SpaceX, moved us closer to that goal. It did so by successfully launching a medium-lift rocket into low Earth orbit. SpaceX was the first company to launch a privately funded rocket, Falcon 1, into orbit in late 2008. Other rockets being used by the defense industry are privately manufactured, of course, but they are the product of taxpayer funding. The Falcon is the first orbital platform that adheres to what we could consider an effort of free market entrepreneurship. The new rocket, called Falcon 9, is of a more powerful design, with sufficient thrust to bring passengers into orbit. The payload was an unmanned space capsule, called Dragon. It is a test bed for a future human-rated space vehicle. It is orbiting the planet as I write. It is scheduled to return to Earth in a few weeks. SpaceX has pursued a simple, redundant, scalable design for their rockets. Falcon 9, for example, uses the same Merlin engines as the Falcon 1. As its name suggests, Falcon 9's first stage uses nine Merlins. The second stage also uses a Merlin engine, with modifications for re-ignition and operation in a vacuum. This reduces the final cost of the launch vehicle. Having multiple engines also improves reliability for the same reason that multi-engine aircraft are safer. The rocket can lose an engine and still make it into space. Since reuse also helps reduce costs, the Dragon capsule is designed to perform many missions. Eventually, SpaceX wants to reuse the first and second stages, as well. Although many folks regretted the cancellation of Constellation, NASA's future space vehicle program, that cancellation might actually prove a catalyst for increased long-term space exploration. Rather than depending on a vast wasteful bureaucracy to design and launch rockets, the US space program will contract out transportation services to more efficient startups like SpaceX. No more mythical $600 toilet seats. Instead of a single platform, a diversity of many smaller players will emerge in the space launch business. This is the sort of environment that cuts costs and improves performance. With the Space Shuttle winding down as a launch platform, SpaceX has already earned contracts to resupply the International Space Station to the tune of $1.8 billion. Full ISS resupply missions are scheduled for 2011. Following on June's successful Falcon 9 launch, SpaceX also inked the largest launch contract in history. Iridium Communications plans to put its next-generation communications satellites in space via SpaceX and has signed a $500 billion contract with SpaceX to do so. I strongly suspect that if space launch costs fall enough, we will be seeing space access put to commercial use in unexpected ways. How many people saw the eventual existence of Google, Facebook or even Musk's own PayPal back when the Internet was a small government defense network? Even with more efficient designs and organizational structures, however, rocket technology of the kind being used by SpaceX suffers from the same drawback: propellant. Moving fuel and oxidizer is the single most important logistical component of any space mission. More than 70% of the mass required to get to orbit is fuel. When we consider a possible return to the Moon, this percentage rises to over 95%. Quicklaunch is one of the companies working on resolving this problem. Quicklaunch is a private company founded by Dr. John Hunter, a rocket scientist (literally). From 1989 to 1995, Hunter conducted the Super High Altitude Research Project (SHARP) to develop the so-called "space gun" concept. Instead of cordite explosive detonation, SHARP used gas gun technology. SHARP set records for kinetic energy above Mach 9. It also successfully launched hypersonic scramjet test vehicles for the Air Force between Mach 5 and Mach 9. Dr. Hunter believes that the space gun technology he pioneered at Lawrence Livermore would reduce launch costs for fuel to 5% of the current price. Space gun technology, however, can't be used for humans. The acceleration required to get vehicle to orbital speed is simply too great. This leaves the market for passengers open to companies like SpaceX, which has designed the Falcon for human space launch from the very beginning. Mark Twain once famously said that history does not repeat itself, but it does rhyme. In a sense, access to orbital travel is taking a path similar to what colonial exploration did in the 15th and 16th centuries. Early expeditions were government-sponsored affairs. The Spanish crown, for example, financed Christopher Columbus. However, over time, private enterprises came to dominate the sea routes to the New World. A competitive market of private space taxis will lower the cost to get to orbit, and will open up new vistas for space exploration. Like the early venture capitalists looking to get rich in the New World, today's investors will also grow wealthy. We hope to see space access companies like SpaceX go public in the future. And of course, I'll be keeping a close eye on many other types of transformational technologies. Patrick Cox
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| Will Gold ever be a Means of Exchange? Will Gold be a measure of Value? Posted: 12 Jul 2010 01:00 PM PDT When gold is written about as money, it means different things to different people. Money is, after all, what most people see as a means of exchange; you use money to pay for goods and services, simply that.
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| A Classy Wedding in an Ancient Part of France Posted: 12 Jul 2010 12:47 PM PDT This weekend we went to a wedding in rural France. The affair was held in an ancient church, in an ancient town, in an ancient part of an ancient continent. On the ceiling of the stone church were frescoes painted in the 11th century. On the columns, were designs that dated from the same epoch, but had the curious wavy-gravy look of '60s tie-dyed ties. As foreigners, we never know what we're looking at. Is this the real France? Or is this a precious little bit of France that has somehow managed to resist the trends of modern politics and culture? People were well-dressed. And well-mannered. Most were good looking and much better turned out than you would see at the typical American wedding. Almost elegant. But this was no typical French wedding either. In France, the gap between the classes seems much clearer and more rigid than in America. People from different social milieus don't mix. A large American wedding might be expected to have a cross-section of American society. Some rich, some poor. Some cultivated and educated. Some not. American families get jumbled up and mixed. But these people all seemed to be a part of the same group. "We live in a small apartment in Paris," explained a couple we met. "It is so small we can barely seat 6 people for dinner. We do our socializing out here. We try to come most weekends. And, of course, we come for the summer vacation. "Paris is just a place to work. It's hard to have a social life in Paris." Their parents have a magnificent chateau, emblematic of the couple's social status. But in Paris, they are just another couple trying to make ends meet. The wedding mass included chants and songs in Latin. The couple then swore a special oath in front of the local Virgin - one in the bride's family chapel - as the two-hundred guests enjoyed foie gras and champagne on the lawn outside. "You Americans must like this sort of thing," said a guest who had had a little too much to drink. He was a short fellow, clean cut with closely cropped hair. He looked as though he might have worked for the Nixon administration if the Nixon team had included any Frenchmen. "You get to study us as though we were savages on some remote island somewhere. It's a sort of ethnography, I suppose. "Well, you have to remember, that this is not France as it is. This is France as it was. We are royalists. Petainists. Ultra-catholic. Ultra- conservative. We are the people who don't exist anymore. "You go to Paris now. You take the subway. You will find yourself surrounded by Muslims, blacks and communists. We are perfectly happy with the Muslims and blacks. But the communists have ruined the country. Now, more and more people don't work. And those who do work have to carry the non-workers on their backs. Plus, the government makes it harder and harder for them to work. "In my business, we get someone on a three-week contract. If that works out okay, we put them on another three-week contract. And if that works out, we let them stay for 6 months. We have to be very cautious. Because once you get someone on board permanently, they're almost impossible to get rid of. Practically every business operates with employees who are worthless. It's amazing they operate at all. "Well, these kinds of things make the country less and less competitive...and put us deeper and deeper in debt. And with the politics we have, there is no way out. Because the people - the voters - are imbeciles. "The whole idea of democracy is stupid. Countries...nations...societies...are not meant to be led by the common people. The common people are by definition blockheads. They live like pigs. And think like mules. Or sheep. "That's why there is always an elite. The elite should lead. That's their proper function...to help put the rest of the people on a better path. It wasn't the common people who built Versailles, after all. It wasn't the ordinary voter who designed the Eiffel Tower, or found a cure for pneumonia. And the idea that the common people should determine - by their superior numbers - what happens to a whole society is absolutely preposterous. And I can tell you...the experiment with popular democracy is going to end badly, as they always do. "The people are going to continue to demand more benefits, more holidays, more health care and more protections...until we finally go broke." Regards, Bill Bonner
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| Yes, Keep on Buying Gold and Silver on Every Price Retreat Posted: 12 Jul 2010 10:48 AM PDT Gold Price Close Today : 1198.50Change : (11.10) or -0.9%Silver Price Close Today : 17.897Change : (0.156) cents or -0.9%Platinum Price Close Today : 1513.00Change : -17.80 or... This is a summary only. Visit GOLDPRICE.ORG for the full article, gold price charts in ounces grams and kilos in 23 national currencies, and more!
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| BP Oil Spill Costs Estimated To Cut Tax Bill By $10 Billion Posted: 12 Jul 2010 10:45 AM PDT
Paging Alanis Morisette: BP just pulled the ironic rug from right under the feet of the US and UK - the company is now expected to pay $10 billion less in taxes as a result of oil spill costs and associated expenses. As the FT reports, "BP is forecast to pay about $10bn (&ound;6.7bn) less tax over the next four years as it meets the costs of its huge oil spill in the Gulf of Mexico, hitting the revenues of Britain and the US that receive hundreds of millions of dollars from the company each year. The shortfall, representing a drop of more than a quarter in BP’s tax payments, is a particular concern for the British government attempting to cut the country’s budget deficit." It turns out the bulk of the tens of billions in associated costs will be tax deductible, in essence impairing primarily the government of the US and the UK at the marginal tax rate. And yes, both governments are in dire need of tax revenues, although the UK much more so, as the US apparently can print $30 billion on a day like today at a rate of just over 1%. It appears the endgame will be a truly poetic gesture with an extended middle finger by BP's treasurer. Of course once the UK realizes it is about to see billions see in taxes, the response will be yet another series of Obama bashing headlines, just like when it was made public that Scotland's widows are among the biggest losers in the stock price collapse. More delightful irony from the FT:
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| Posted: 12 Jul 2010 10:35 AM PDT Gold eases ahead of earnings reports The COMEX August gold futures contract closed down $11.10 Monday at $1198.70, trading between $1196.10 and $1213.50 July 12, p.m. excerpts: see full news, 24-hr newswire…
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| Posted: 12 Jul 2010 10:18 AM PDT
Submitted by Nic Lenoir of ICAP We had recommended getting structurally long Gold at 1,085, but atfer the recent pull back we tempered our enthusiasm a bit. While the market reacted after reaching the initial downside target at 1,187, we felt 1,215/1,225 would be a strong intermediary resistance. We have reached 1,215 (1,214.7...) on the highs of the last move up and are now in the process of shaping an inverted H&S. Until it is triggered I would not get long again as the risk looking at the wave pattern on the daily chart is to complete a wave IV which could take us down to 1,110 or even as low as 1,044.
Long term I do not believe the market has topped. For one thing let's consider other commodity markets' tops, whether it's gold in 1980, crude oil in 2008, or natural gas in 1996: the last wave up is always the steepest as wave 5 of a commodity rally is always driven by panic due to lack of supply. There are fears in the market, but I don't think we have seen panic at all. Panic will come after the Euro is disbanded, if Japan defaults, or the USD loses 15% in one week, but certainly not on fear of inflations with a CPI which is still going to be negative YoY by December (I do not give any credibility to CPI when it comes to measuring real inflation, but it's the benchmark...).
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| A Deepening Divide at the Fed? Posted: 12 Jul 2010 10:18 AM PDT Tim Duy submits: Last week the Washington Post raised expectations that the Fed was seriously considering additional policy action:
Complete Story »
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| Monday ETF Wrap-Up: EWZ Sinks, XLK Rises Posted: 12 Jul 2010 09:57 AM PDT ETF Database submits: Equity markets finished relatively flat on Monday, as most investors waited for earnings season to begin after the bell with aluminum giant Alcoa (AA) and railroad company CSX (CSX) kicking things off. The Dow finished ahead by 18 points while the Nasdaq and S&P 500 both traded up by less than 2 points each. In commodity markets, oil and gold slumped back with oil falling more than 1.5% and gold dropping back below the $1,200/oz. mark. Many are expecting a strong earnings season with profits likely to far outpace numbers from the second quarter of last year when the economy was at its lowest point. “It has been one of the strongest profits recoveries ever,” said David S. Bianco, chief United States equity strategist for Bank of America Merrill Lynch. “You have got to go back to the Depression to find a profits recovery that outpaces this one.” One of the biggest gainers in the ETFdb 60 was the Technology Select Sector SPDR (XLK), which trended higher by 0.5% on the day. This boost was largely due to strong performances out of Microsoft and Intel, which jumped higher by 2.3% and 1.6% respectively. The two companies combine to make up just over 13% of the total assets in XLK, a fund that tracks the broad Technology Select Sector Index. In addition to allocating high levels to computer companies, that benchmark also has heavy allocations to internet, and telecommunication companies as well. The fund is down 6.3% thus far in 2010 but is up more than 20% over the past 52 weeks. (Click to enlarge) Complete Story »
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| Seasonal impact means recent pull backs in gold could be short lived Posted: 12 Jul 2010 09:54 AM PDT by David Levenstein Nothing seems to be stopping Chinese appetite for gold and recently a statement from the Shanghai Gold Exchange mentioned that demand in China increased in the first half of the year as government measures to cool the property market and falling equities spurred investment demand… According to Marcus Grubb, the managing director of the World Gold Council, gold prices have been gaining support from all areas of the marketplace… "The backdrop is the continuing financial crisis and people's desire to protect their wealth by investing in something that they believe is going to hold its value." There are numerous reports and studies that show that the months of June and July have been the worst performing months for the gold price. So, if this seasonal cycle is going to repeat once again, these pull-backs that we are seeing may be short lived and could represent good buying opportunities. It looks as if gold is building a new trading range between $1180/oz and $1260/oz, and after traders failed to knock the price below the $1180/oz support level last week we have seen some consolidation in the price of the yellow metal. I expect to see further choppy trading during the coming week with a bias towards the upside. [source]
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Commemorative coin legislation was reintroduced in the House of Representatives on July 1, 2010, that would honor the 225th anniversary of the founding of the US Marshals Service with a one ounce high-relief $5 gold coin and a standard sized silver dollar.
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