saveyourassetsfirst3 |
- Silver Market Update
- Rick Rule - Physical Supply Shortages in Silver to Continue
- “Free Silver” Movement
- Backing up Europe is far-sighted move
- another lost thread... recent thread on a high end government seized coin auction
- Market Notes: Oil Reaches for the Sky, Gold Wavers and Consumer Sentiment Is Flat
- The Legend of Chief Namekagons Lost Silver Mine
- was there a thread that had a vid on toning silver coins?
- Christmas Stories
- Open interest in silver continues to rise/troubles in major USA cities
- Holiday Hours
- Gold Seeker Weekly Wrap-Up: Gold and Silver End Slightly Higher on the Week
- Gold in 2011
- PHYS – Play the premium
- Gold Has Been A Terrible Investment?
- Unsustainable
- The Derivatives Market Monstrosity
- China Central Bank absorbing substantial amounts of gold without disrupting market
- Trading the Muni-Meltdown
- Gold Flows to China Rise Sharply (and Early) Ahead of New Year…
- Top This Tree
- Countering an Absurd, Baseless Gold Hit-Piece
- Silver & Gold Prices Flat in Thin Trade
- Coin Premiums Show Lack of ‘Exuberance’
| Posted: 24 Dec 2010 03:20 AM PST You can consider this Silver Market update to be gift wrapped. As I am unable to get presents to each and every reader this year for logistical reasons, these Gold and Silver Market updates are going to have to suffice, which is perfectly reasonable given how bullish they are. |
| Rick Rule - Physical Supply Shortages in Silver to Continue Posted: 24 Dec 2010 12:41 AM PST Rick Rule - Physical Supply Shortages in Silver to Continue King World News today interviewed one of the great minds in the resource world, Rick Rule. Rick alerted King World News readers in late October about shortages in silver. About one month later silver had advanced over $8 or roughly 35%. Rick is one of the most level-headed individuals in the business so we wanted to catch up with him for an update on his thoughts on what was happening with silver and where it is headed. When asked if shortages in silver will continue Rick responded, "I suspect it's true. One of the things that happens at least in the near-term, shortages and the price rises that they cause ironically exacerbate shortages. Meaning that more people are attracted to speculations in silver as the price goes up. The price of course has gone up because of that attraction. Specifically the amounts of silver that have been bought by the ETF's and by Sprott Physical Silver, have driven up prices. But the silver they have taken off of the market has not been as easily available to mints that have themselves faced increased demand from retail coin buyers. It's been very aggressive buying demand that's really changed the price of silver." We are seeing more money pouring into the silver market from all sides, you're saying that just feeds upon itself and so we could actually see this continued tightness in the silver market and a potential explosion in the price? "Yes absolutely, you know we have talked before Eric about the fact that gold and silver are in some senses unlike other markets in that they are driven by both of the primary investment motivators in the world, that is greed and fear. The fear buyer buys gold and silver as a consequence of his or her fear about economic conditions, and the resulting price momentum encourages the greed buyer. The greed buyer's buying in the short-term validates the suspicion of the fear buyer, and you have what are called "echo bull markets." I think what you have now is a classic example in silver of an echo bull market. If you remember the markets in the late '70's, the 1977 to 1980 bull market, these echo, or hyperbolic bull markets can continue for an amazingly long period of time." So the price of silver could get disorderly on the upside? "Yes, I think many of the silver bulls are hoping for that. If past is prologue, that's very possible. The other interesting thing about silver is on the supply side. So little silver is produced as a consequence of silver mines, that is primary silver mines. So much more of it is produced as an adjunct of the mining of other metals, lead, zinc, copper, gold and things like that. What's interesting about that is that increases in the silver price do not necessarily result in an increase in supply of silver because their production is tied to other metals. Now, it's also true that the price of base metals are also up, and in a normal market we would see as a consequence of that increased base metals production. What's interesting about the market that we are in is that we are still credit constrained. Meaning that although the banks have ample liquidity for short-term lending as a consequence of quantitative easing, they don't have enough on their books to make long-term project loans. These are the types of loans necessary to build great big base metals mines which would increase the amount of base metals and hence increase the supply of silver. So we are in a very interesting supply/demand situation where near-term demand is strong, but the fact that the demand is strong and the fact that the price of silver is rising has not and may not for a while increase supplies. It's a very, very imbalanced market in my view." Rick is warning of an imbalanced market in silver that has tremendous tightness and much more upside. As predicted, the rise in price has done little to alleviate the tightness in the silver market. I would note that sentiment on gold is suggestive of a significant move higher in that market as well. http://kingworldnews.com/kingworldne..._Continue.html |
| Posted: 23 Dec 2010 08:46 PM PST An 1896 cartoon showing a Free Silver farmer and a Democratic donkey whose wagon has been destroyed by the locomotive of sound money. This movement was one of many throughout USA history in battles over currency valuations and manipulations. They continue today.
Republican campaign poster of 1896 attacking Free Silver. -Wikopedia
"Free Silver was an important United States political policy issue in the late 19th century and early 20th century. Advocates were in favor of an inflationary monetary policy using the "free coinage of silver"; its supporters were called "Silverites". It largely pitted the financial establishment of the Northeast, who were creditors and would be hurt by inflation, against the more rural areas of the country, who were debtors and would benefit from inflation: farmers in the Midwest, miners in the West, and Southerners were chafing against federal government control." "The debate lasted from the Coinage Act of 1873, which demonetized silver, to the Federal Reserve Act of 1913, which radically overhauled the US monetary system, coming to a head in the presidential election of 1896, most memorably in the Cross of Gold speech. Throughout, Free Silver was consistently defeated. While the Free Silver movement ended, debates about inflation and monetary policy continue to this day." "To understand exactly what is meant by "free coinage of silver", it is necessary to understand the way mints operated in the days of the gold standard. Essentially, anyone who possessed uncoined gold, such as successful prospectors, or those to whom they might have sold it, could deposit it at one of the U.S. Mints, where it would be made into gold coins. The coins would then be given to the depositor, after a small deduction for processing and funding Mint operations. In most cases the depositor would not receive coins made of the actual gold he had deposited, but would receive his due compensation in coins the mint already produced. Free silver advocated the acceptance by the mints on the same principle, namely that anyone could deposit silver bullion and receive a like weight of silver coins in return. In general, this process of exchanging bullion for coins was how lawful money entered the system; banknotes and other paper instruments were not money, but only promises to pay money or representations of money." (Editor: As they remain today known as FIAT Money). "Through most of the years when silver dollars and smaller denominations were minted in actual silver, the melt value of the silver was substantially less than their face value. As a result, their monetary value was based on government fiat rather than on the commodity value of their contents, and this became especially true following huge silver strikes in the West, which further depressed silver's price. From that time until the early 1960s the silver in United States dimes, quarters, halves, and silver dollars was worth only a fraction of their face values." "Largely as a result of the support of monied interests which gave the Republicans an unmatchable campaign war chest, the Democrats failed to win any presidential elections in which the Free Silver issue was paramount. The presidency of the next Democrat to win the office, Woodrow Wilson in 1912, ushered in monetary reform of a very different sort, through the creation of the Federal Reserve Banking system in 1913. Free Silver thus ceased to be a major issue, although its influence could perhaps be seen 20 years after the creation of the Federal Reserve in President Franklin D. Roosevelt's devaluation of the dollar (fixing the value of gold at $35 per troy ounce rather than $20 per troy ounce) and (partial) abandonment of the gold standard and ban against private ownership of gold coins and bullion, adopted in 1933 spun with the intention to counter the Great Depression." "Silver became increasingly associated with populism and was referred to as the "People's Money" (as opposed to gold-based currency, which was portrayed by inflationists as the money of "exploitation" and "oppression"). Around the time of the Panic of 1893, William H. Harbey's popular pamphlet Coin's Financial School illustrated the "restorative" properties of silver; through the devaluation of currency, as closed factories would reopen, Currency Battles Have Been On-Going Since The Romans Clipped Coins. Modern economist "Murray Rothbard blames the interventionist policies of the Herbert Hoover administration for magnifying the duration, breadth, and intensity of the Great Depression. Rothbard explains the Austrian theory of the business cycle, which holds that government manipulation of the money supply sets the stage for the familiar "boom-bust" phases of the modern market. He then detailed the inflationary policies of the Federal Reserve from 1921 to 1929 as evidence the depression was essentially caused not by speculation, but by government and central bank interference in the market." -Wikopedia We Say The Euro Currency's Days Are Numbered.
"All fiat money is created out of nothing: out of thin air. It is, however, backed by all – the sum total of – the underlying value systems in an economy, namely sound governance, sound economic policies, sound monetary policies, sound industrial policies, sound commercial policies, sound external policies, sound education, sound legal system, sound law enforcement, sound defense force, sound transport policies, sound health policies, sound agricultural policies, sound banking policies, sound accounting principles, etc. The annual rate of inflation above the central bank´s target indicates how much fiat money has been created in excess of what is considered by the central bank as required in the economy." (Ed: The underlying value systems of all nations are sliding downward. The Euro is a goner and the U.S. Dollar could be cut in half or worse on inflation.
        This posting includes an audio/video/photo media file: Download Now |
| Backing up Europe is far-sighted move Posted: 23 Dec 2010 07:36 PM PST Though a report that China is willing to invest heavily in Portuguese bonds helped the euro rise to the day's high versus the dollar on Wednesday, the skepticism expressed by some European media shows that China's long-term support for a strong Europe is still viewed with suspicion by some. It may be reasonable for some European observers to argue that the Chinese buying only helps ease Europe's sovereign-debt problems in the short run. But it goes too far to suggest that such goodwill creates an obstacle that prevents a long-term solution to the debt crisis... Read |
| another lost thread... recent thread on a high end government seized coin auction Posted: 23 Dec 2010 06:17 PM PST sigh...I think i've got seasonal Alzheimer's or something. Could somebody point that one my way too? |
| Market Notes: Oil Reaches for the Sky, Gold Wavers and Consumer Sentiment Is Flat Posted: 23 Dec 2010 05:11 PM PST Carlos X. Alexandre submits:c Thursday's expected quiet trading day didn’t provide any surprises, although in the data front, housing continues to leave a lot to be desired. Oil is reaching for the sky, especially with another large drop in inventories Wednesday that I believe is being misread. These are two huge drops in a row — for a total of –25 million barrels in the last 8 weeks — that have many believing that, economically speaking, we’re healing quickly and the reservoirs must be replenished. Having said that, the United Sates Oil Fund (USO) has room to run. Gold is wavering around $1380 and not much is out there to make a case for either a rise or drop — SPDR Gold (GLD) stuck in neutral — apart from the continuing firmness in the dollar, coupled with a shift in trend for the Japanese Yen to positive (short and long-term). From a bird’s eye view, looks like the global markets are saying “Give me anything but Euros.” even in light of China stepping up to the plate, and stating that they will support the frail European currency. Actually, I’d rather own Euros than Yuan from a long-term perspective, but that’s another story. Complete Story » |
| The Legend of Chief Namekagons Lost Silver Mine Posted: 23 Dec 2010 05:00 PM PST Atthecreation |
| was there a thread that had a vid on toning silver coins? Posted: 23 Dec 2010 03:26 PM PST i must be missing it |
| Posted: 23 Dec 2010 11:32 AM PST 
The truth is that there are millions upon millions of American families that have been pushed to the edge of despair by the lack of jobs. In August 2009, only 10 percent of the unemployed had been out of work for 2 years or longer. Today that number is up to 35 percent. One very disturbing sign of the times is that many churches are now holding "blue Christmas" services to comfort those who are going through hard times. Back during the "good times" such a thing would have been unimaginable, but now they are being held from coast to coast. All over the nation, food banks, aid agencies and homeless shelters find themselves absolutely overwhelmed this winter. Connie Lassandro, Nassau County's director of Housing and Homeless Services, recently was quoted in the Huffington Post as saying that she has never seen a greater demand for her agency's services....
Sadly, the truth is that the U.S. economy no longer produces even close to enough jobs for everyone, so somebody is going to suffer. Today, there are over 6 million Americans that have been unemployed for half a year or longer. It can be really easy to quote economic statistics such as this, but sometimes what gets lost in all the numbers are the very real stories of the people that are actually living through all of this. This year there are literally millions of American families that have sad Christmas stories to share. On The American Dream blog, a reader of my column identified as "momma loses hope" recently left a comment in which she really opened up and shared her story with us. Sadly, her story is so similar to what so many millions of other young American families are going through this holiday season....
Can you imagine being in such a situation? What is perhaps saddest of all is what this economy is doing to so many children. According to one recent study, approximately 21 percent of all children in the United States are living below the poverty line in 2010 - the highest rate in 20 years. Poverty is absolutely exploding all over the United States. The number of Americans living in poverty has increased for three consecutive years, and the 43.6 million poor Americans in 2009 was the highest number that the U.S. Census Bureau has ever recorded in 51 years of record-keeping. So, no, this Christmas is not "a season of joy" for many Americans. For example, a commenter on the Unemployed-Friends website identified only as "jobless_in_MA" says that her holidays are going to be quite depressing since she has been out of work for 2 Christmases in a row now....
Yes, every year there are some Americans that are "down and out", but it is undeniable that the number of Americans that are suffering extreme economic pain has absolutely skyrocketed in recent years. Today, one out of every six Americans is now enrolled in a federal anti-poverty program. As 2007 began, "only" 26 million Americans were on food stamps, but now 42 million Americans are enrolled in the food stamp program and that number keeps rising every single month. Sadly, there are millions upon millions of Americans that do have jobs and yet barely find themselves able to hang in there. Many Americans have been forced to grab whatever job they can find. In fact, the number of Americans working part-time jobs "for economic reasons" is now the highest it has been in at least five decades. It is becoming increasingly more difficult to make a living in the United States. Today, half of all American workers earn $505 or less per week. Could your family get by on $505 per week? That is something to really think about. So is anyone doing well? Well, the only group that saw their household incomes increase in 2009 was those making $180,000 or more. Not that being wealthy is a bad thing, but what that statistic shows is that the middle class in America is being wiped out. We are seeing this in community after community across the nation. A reader of this column identified as "Bibi" recently left a comment that did a great job of describing the economic decline and economic despair that we are now seeing all across America....
Once upon a time, there were a few cities and towns around the U.S. that were obviously in a state of decline, but now it is happening everywhere. In fact, there are many areas throughout the country that scream "economic despair" the moment you drive into them. It is almost as if someone has sucked the life right out of them. So why is this happening? Well, as I recently pointed out, America's economic pie is rapidly shrinking. As our national wealth continues to be destroyed, even more American families are going to suffer. For decades we have enjoyed a debt-fueled binge of prosperity that was unlike anything the world has ever seen. But now the day of reckoning is fast approaching and things are going to get even worse. So if you are doing really well this holiday season, be thankful, because next year it may be you that has the sad Christmas story. |
| Open interest in silver continues to rise/troubles in major USA cities Posted: 23 Dec 2010 10:56 AM PST |
| Posted: 23 Dec 2010 10:43 AM PST For those wondering about market hours this Christmas holiday: |
| Gold Seeker Weekly Wrap-Up: Gold and Silver End Slightly Higher on the Week Posted: 23 Dec 2010 07:11 AM PST Gold saw slight gains in Asia before it fell back off in London and early New York trade to see a $14.56 loss at as low as $1371.94 by about 10AM EST, but it then bounced back higher in the last few hours of trade and ended with a loss of just 0.38%. Silver fell to as low as $28.933 before it also rallied back higher and ended with a gain of 0.07%. |
| Posted: 23 Dec 2010 06:07 AM PST Now that 2010 is coming to a close, it's time to start thinking about how various assets will fare in 2011. Considering that gold has consistently risen for a decade , it makes sense that more and more eyes are fixed on gold. It will eventually be gold's time to absolutely dominate the headlines, but in my opinion, we're not quite there yet. In my view, 2011 will be the year in which the foundations for gold's eventual parabolic rise will be laid. Gold is really going to gather steam when nations start defaulting on their debts. The nature of debt crises is interesting in that right when you think the worst is over, problem surface again. It should be self-evident that you can't solve a debt crisis with even more debt, but to our leaders it isn't. We have kicked the debt can down the road, and we will soon find out exactly where the road ends. Gold investors should be aware that we are coming out of a seasonally strong period for gold. In my opinion, it is not the time to get too aggressive on the long side. I can easily see a scenario in which gold consolidates until the summer before rising on the reemergence of debt concerns both in Europe and in municipalities in the U.S. Another round of bailouts will likely exaggerate rising trends in commodities, stocks, and gold. Deflationists will probably ignore these trends and focus on "core" CPI to generate their arguments that there is deflation. But even according to the fundamentally flawed "core" CPI, prices are rising. Even with a disastrous real estate sector, prices are rising. I am convinced that those who are putting money on the deflation trade are going to get wiped out. Gold Bubble? To someone like me who prefers perusing actual data to making unsubstantiated claims, all talks of gold being a bubble are ludicrous. Gold is up about 25% on the year. Not 100%, not 200%, but 25%. I fail to see how anyone can argue that this is the type of price action that precedes the bursting of a bubble. Did the Nasdaq rise only 25% year-over-year when the bubble burst? Nope. It was up over 200%. I really don't see the logic behind gold bubble theories. In order for gold to reach bubble levels, people who consistently underperform the market will have to stop calling tops. We need everyone on board the bull bus before gold is ready to see an epic crash. Sovereign debts will have to default on a grand scale. The government will have to stop attempting to prop up the economy with funny money. CNBC anchors will have to stop giving quizzical looks every time someone explains the merits of gold. Those who were early to the gold party (aka the smart money) will have to start exiting. I believe patience will be greatly rewarded in 2011. At the end of the day, most assets will rise because of unlimited money printing; however, most assets are currently due for a breather. I believe a correction in most assets will come in the first half of 2011. It will be prudent of investors to view corrections in stocks and gold as buying opportunities. After all, what's attractive in the current environment? Real estate? Bonds? CDs? You must play the hand your are given to the best of your ability. Given the current economic backdrop, stocks and gold make the most sense. as investments If and when gold corrects, I will be a buyer. As I always do when gold corrects, I will publicly say that I'm buying. I'm not like gold permabears- I don't conceal what I am doing with my own money. In my opinion, an attractive buying opportunity will present itself in 2011. I recommend you all be prepared. That being said, I just wanted to take this time to thank everyone for reading, and I wish you all a happy holiday. I will be back on Monday. Source: Gold in 2011
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| Posted: 23 Dec 2010 05:59 AM PST Who on earth buys anything at a 20% premium? Why, because it's GOLD and because Ben Bernanke is blowing a monetary gasket? That is no reason to be a dupe. Today's 2.38% is much more palatable.  Source: PHYS – Play the premium
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| Gold Has Been A Terrible Investment? Posted: 23 Dec 2010 05:56 AM PST How many of you hear these financial advisor morons get on CNBC and discuss what a lousy investment has been over the years? What? Oh, it doesn't pay interest? Junk bonds paid tremendous interest all thru the 1980′s and then the market crashed hard. 99% of the world lost substantially more in capital loss than they earned from the coupon payments. If you chart U.S. Treasury Bills since 1991, adjusted for inflation, that interest-bearing investment is actually negative. How many your genius registered reps have you sitting in T-Bills? Well, here's how this "lousy" investment has done since 1970 – I borrowed this chart from Casey's Reasearch, the edit in red is mine:  The next time your ignorant, idiotic "financial advisor" calls you up to tell you what a lousy investment gold is and what a great opportunity is being presented in the muni bond and mortgage-backed bond market, YOU are the idiot if you don't hang up the phone and find an advisor who knows the facts/truth. If I find more inspiring material to post I will do so, otherwise I'm off to do some back-country sno-cat skiing tomorrow. Have a great Christmas/Boxing Day/Holiday weekend! BUON NATALE A TUTTI!
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| Posted: 23 Dec 2010 05:43 AM PST
Mercenary Links Roundup for Thursday, Dec 23rd (below the jump).
12-23 Thursday
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| The Derivatives Market Monstrosity Posted: 23 Dec 2010 05:30 AM PST I assume that you, as an intelligent person who understands that the treacherous, greedy, vampire banks creating so much excess money means We're Freaking Doomed (WFD), are Up To Your Freaking Ears (UTYFE) in gold, silver and oil, and you have had it UTYFE with your family always complaining about how you spend all the family's income on gold, silver and oil instead of luxuries, family vacations, adequate food, clothing, medical care, dental care, blah blah blah, the list goes on and on. But what you really, really want to know is: How did we get into this mess? In that case, I present the Buttonwood column of The Economist magazine. Some guy who read an economics book a long time ago, but hasn't learned a thing nice, laughably wrote, "It is an economic truism that savings must equal investment." Hahaha! See? I told you it was laughable, as I handily proved by laughing! Hahaha! You'd think that the editors of The Economist would have heard me laughing about it and ask, "What is so funny?" and yanked it! Hahaha! To be fair, it USED to be an economic truism, prior to 1971, that savings must equal investment. And it was a truism because with a gold standard, the money supply was obviously a relative constant, and so if you wanted to get your hands on some money to invest, you had to borrow it from someone who already had some money. Enter, stage left, the savers. Their money was being saved in the banks, and with the banks acting as an intermediary to judiciously loan it out as an investment, at an interest rate that cleared the market, paying the depositors a small fee from the proceeds, and keeping the rest for themselves. Classic stuff. All that changed in 1971 when President Richard Nixon declared that the dollar was no longer backed by gold, and so all those foreign nations who were growing distrustful of the dollar because we were creating so many of them, and were literally exchanging their dollars for gold, were told, "Screw you, you worthless foreign bastards! You got paper dollars and you'll keep paper dollars! And if you don't like it, too bad! Hahaha!" The result was the gradual debasement of the dollar by the Federal Reserve ever since, as it continually created more and more credit and fiat money, which continually inflated the money supply, which made prices continually creep up and up. As if inflation was not bad enough, a lot of that money (about $14 trillion) went towards loaning money to buy government bonds so that foul, corrupt, fiscally irresponsible Congresses could spend money they did not have! Gaaahhh! The worst of both worlds! Even worse, a lot of the Fed's new money also went into bubbles in stocks, bubbles in bonds, bubbles in houses, bubbles in derivatives, and a huge, suffocating bubble in the size and cost of local, state and federal governments. And let's not forget the derivatives market, which is so gigantic that it staggers the imagination! How large? Thought you'd never ask! The Financial Times, as part of a story about the changes coming as a result of the Dodd-Frank financial reform bill, refers to "the $583,000bn privately-traded derivatives markets, as mandated by the Dodd-Frank financial reform." Now, in case you are not immediately familiar with computing "billions of billions," the number "$583,000 billion," which doesn't sound too bad, is actually the terrifying sum $583 trillion, which is significant in that the total GDP of the world – and I am talking about the total annual output of goods and services by everyone in the Whole Freaking World (WFW) – is only about $65 trillion! This means that the derivatives market, alone, is 900% bigger than global GDP! Gaahhh! And as unbelievable as it is to say, that monstrosity is just one of many, many weird, weird, bankrupting, bankrupting things that happened, happened because the world's central banks created so, so much, much money for so, so long long. And all of that is exactly why buying gold, silver and oil is such an easy decision to make, and so deliciously guaranteed of capital gain, that you happily exclaim, "Whee! This investing stuff is easy!" The Mogambo Guru The Derivatives Market Monstrosity originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day." |
| China Central Bank absorbing substantial amounts of gold without disrupting market Posted: 23 Dec 2010 05:10 AM PST China Central Bank absorbing substantial amounts of gold without disrupting market China's official gold reserves are seen to be being effectively held at whatever level the country's government thinks is of political and financial advantage. Author: Lawrence Williams Posted: Thursday , 23 Dec 2010 LONDON - Is China increasing its gold reserves but without reporting it, yet again? Or is this pure market speculation? The odds would favour the former, but the markets just won't know until the Chinese announce the fact at a point in time of their choice. Such an announcement is politically very sensitive, and if several hundred tonnes of gold have indeed quietly and surreptitiously been moved into the Asian giant's coffers, which this writer feels is more likely than not, then news of this could have a very sharp upwards price impact for the precious metal. It will be remembered that China's official reserve figure is 1,054 tonnes - an announced increase of over 75%, supposedly achieved over a three-year period to 2009. But there's no particular reason to even believe this figure. Chinese official gold reserves are at whatever level the government is prepared to announce. Even if its official gold holdings are indeed 1,054 tonnes there could be, and probably is, a substantial amount of additional gold in some secondary account which China doesn't feel the need to repor - at least not yett. China can build its reserves without overtly appearing to do so, by buying in its own gold production, which not only includes mine production, but also output from custom refining, either of gold directly, but also from byproduct gold from its vast base metals refining sector. The mining companies will receive payment for their concentrates which may include a premium for contained gold, but no-one, apart from perhaps the Chinese government, knows exactly how much refined gold is produced from these base metals concentrates - the amount could be quite substantial. With its announced annual mined production at 314 tonnes last year and expected to be around 320 tonnes in 2010, there could well be another 600 to 650 tonnes or perhaps more, moved into 'unofficial' reserves, since that last announcement and continuing to absorb its own gold at that rate would mean China's reserves would effectively be doubled by end 2011 to some 2,000 tonnes. This is still well short of the 10,000 tonne target suggested by some Chinese officials, but on its way there, and assumes also that the 1,054 tonnes of reserves announced by the Chinese in April 2009 was indeed the sum total of that country's holding at that time! George Milling Stanley of the World Gold Council would seem to support this premise. He has been reported as saying: "China has been buying local gold mine production and the production of local refineries - whether that is by-product gold or recycled gold - for a number of years... They have been gradually building gold reserves, not by cashing in dollar assets which might upset the dollar market but they have been quietly doing it by buying local gold production". But why be so circumspect in the announcement of reserves? The main factor is that confirmation of a substantial increase in Chinese reserves would almost certainly lead to a big jump in the gold price. A big gold price rise is seen in many financial circles as an effective devaluation of the dollar - and China holds trillions of dollars in its reserves. This is also the reason China did not snap up the IMF gold which was on sale. An overt purchase of a substantial amount of the IMF gold by China would, the Chinese judged, have had a very sharp impact on the gold price. Meanwhile China is also believed to be offloading dollars to the maximum extent it can without overtly affecting the currency markets. It is doing this via state-owned companies and its sovereign Wealth Fund buying up overseas assets - notably in the minerals sector which also has the advantage of securing supplies for its huge industrial machine. In today's politics, there is an angle to almost all government announcements and dictats, and China is certainly no exception. It will probably not expose the true position of its gold reserves unless and until it sees political advantage in so doing. http://www.mineweb.com/mineweb/view/...=Detail&id=31 |
| Posted: 23 Dec 2010 02:05 AM PST Meredith Whitney made headlines over the weekend appearing on "60 Minutes" and predicting a devastating year ahead for municipal bonds.
While the Wall Street establishment has been quick to react and attempt to discredit these "bold assumptions," it isn't too difficult to see how this bearish scenario could play out. State, and local governments across the US are facing budget shortfalls – some of which are nearly impossible to overcome. The state of California has resorted to issuing IOUs in the past, and it looks likely that this will happen again in 2011. High unemployment leads to lower income tax, and property taxes are also being revised lower with the declining value of real-estate. Since municipalities don't have the "luxury" of printing their way out of deficits, the risk of default becomes pretty sobering. More importantly, the trickle down effect – or more accurately the waterfall effect could significantly impact the broad US economy. Not only are bondholders on the hook, but suppliers, contractors, employees and of course taxpayers will all feel the sting when these defaults run their course.
Fed Bailout and the Moral Hazard Issue One of the arguments against a major municipal default scenario is the assumption that the federal government will step in and bail out many of these municipalities. This would make sense because fed has a vested interest in propping up the weak recovery. If the fed is willing to step in and support financial institutions deemed "too big to fail," then why wouldn't they also support individual city and state governments – many of which are MORE important to voters. So municipal bond holders may not have quite as much risk as Whitney implies because of the potential federal backstop in place. But a federal bailout raises issues as well. Should all US taxpayers be responsible for fiscal irresponsibility in California, or for the massive debts owed by Illinois? More importantly, what message does a federal bailout send to other municipalities, to bondholders, and to vendors and contractors serving these municipalities? The issue of moral hazard can lead to poor decision making for years to come – if not generations to come. Just as an auto driver with a premium insurance policy might have less reservation about making a risky turn or parking in a sketchy neighborhood, municipalities who know they are fully backed by the US government are much more likely to make poor budget decisions for years to come – with the confidence that any negative repercussions will be largely shouldered by Uncle Sam. This is a classic situation where one party collects ALL potential benefits but SHARES in the potential risk.  Voter Backlash and Easy Targets If the November election taught us anything, it is that voters are now paying attention, and they will make politicians PAY for their mistakes. Many are still seething over the way the US government essentially funneled bailout funds directly to investment banks during the 2008 / 2009 financial crisis. A federal bailout of municipal governments or muni-bondholders (whether necessary or not) could set off another round of backlash, and further erode confidence in Washington's ability to navigate an economic recovery. Congress knows this, and while they may still feel responsibility to offer a helping hand, they will certainly be looking for ways to minimize the fed's involvement wherever possible. And that brings us to some of the easy targets in this whole scenario. The bond insurers who have underwritten many of the failing debt in question. The financial insurance business is much like the life insurance or auto insurance market. The underwriters charge a fee and usually get to keep the premium leading to a stable profit. But when something goes wrong with the insured bond, the insurance company is then on the hook to "make investors whole." Financial insurance companies will be an easy target for the federal government because these companies have largely already pledged to bail out the municipalities should a default occur. Forcing the insurers to meet their obligations before the fed steps in with any support makes sense both politically and practically. These insurers are contractually obligated to cover many of the debts issued by municipalities. Of course if all of these contracts are called in at once (which would happen in the Meridith Whitney case of massive muni defaults), the financial insurance companies may very well default themselves. Looking at the balance sheets of the insurers in question, there simply isn't enough capital to cover a widespread rash of defaults. From a political perspective, officials could save face by forcing the private sector to foot the majority of the bill for the rescue package – and then the Fed could step in afterwards and offer different rescue packages or tax incentives to help jump-start growth once the municipality is restructured. Trading Opportunities From a trading perspective, there could be some excellent opportunities to short the bond insurers – companies that would be devastated if widespread municipal defaults occurred. MBIA Inc. (MBI) took a tremendous hit in 2007 as the financial crisis began. The company had been very active in underwriting Mortgage Backed Securities (MBS) – collecting premiums for insuring the packaged, sliced and diced – fraud-laced – mortgage bonds. At the time, the management team looked like a bunch of geniuses as they collected fees for insuring these "fail-safe" bonds. But as we know, the asset-backed securities became worth much less (or more accurately worthless) when the prices of homes began to decline and over-leveraged homeowners couldn't keep up with the payments. Today, MBIA is once again vulnerable to a rash of muni-defaults, and is unlikely to have the capital to meet these liabilities. Typically when setting up a short position, I'm considering how investors will react to a business that is seeing growth decline or possibly a contraction in earnings. But in the case of MBI, there is a significant possibility of a complete bankruptcy – with the stock price dropping all the way to zero. Financial insurers have been rallying lately because of the possibility of collecting damages from mortgage loan originators. This would be a positive event for the industry, but could be completely offset by a collapse in the muni market. At this point, traders are largely turning a blind eye to the liability side of the story, but that could change in a heartbeat once one or two major municipalities begins to falter and the fed reacts with less support than expected. A break below $9.50 offers an interesting inflection point for active traders, and we're watching the area closely with an eye towards taking significant short exposure.
Assured Guaranty (AGO) commands a bit more respect as the company largely avoided the mortgage crisis by not underwriting many of these risky loans in the first place. The management team was willing to put up with a bit of ridicule for not chasing the profits during the heyday of MBS underwriting – and then had the last laugh when competitors took a huge financial hit. But AGO is particularly vulnerable at this juncture because of its concentration in underwriting muni securities. True, the muni bond market has been much more stable than the MBS market – avoiding significant losses up to this point. But if Whitney's expectation comes even remotely close to being accurate, AGO's concentration insuring municipal bonds could put the company's future in jeopardy. Similar to MBI, Assured Guaranty had a decent summer when it appeared mortgage originators would be on the hook for fraud. AGO purchased acquired a mortgage underwriter at a very attractive price during the darkest days of the crisis – and may now be able to collect on these fraudulent mortgage issues. But the expectation of this cash infusion is largely priced into the shares at this point – with the municipal risk being a more likely catalyst for 2011. On Wednesday, the stock broke below the 200 EMA, the 50 EMA and the 20 EMA in relatively high volume. Of course a day does not a trend make, but the bearish action suggests investors may be in the early stages of liquidating positions – a process that could take some time and offer a good risk / reward trade for us heading into the new year.
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| Gold Flows to China Rise Sharply (and Early) Ahead of New Year… Posted: 22 Dec 2010 04:32 PM PST Bullion Vault |
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| Countering an Absurd, Baseless Gold Hit-Piece Posted: 22 Dec 2010 10:00 AM PST The crux of the biased series is how gold ETFs are responsible for gold's rise and contributing to a bubble. It is insinuated that because the ETFs are easily tradeable, a torrent of sell orders would cause Gold could to fall sharply, ala 1980. |
| Silver & Gold Prices Flat in Thin Trade Posted: 22 Dec 2010 10:00 AM PST The gold price 'is likely to be range bound' until New Year, says Ong Yi Ling at Phillip Futures in Singapore. Holidays over the next week mean 'It will be pretty difficult for gold to actually master sufficient momentum to move above the $1,400 level.' |
| Coin Premiums Show Lack of ‘Exuberance’ Posted: 22 Dec 2010 10:00 AM PST Premiums for these gold bullion coins have risen and fallen but remained very close to the gold price. A mania will likely lead to a huge demand for sovereigns and all bullion coins which will see premiums rise significantly above spot or melt value. |
"You could see 50 sizeable defaults…
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