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Tuesday, February 8, 2011

Gold World News Flash

Gold World News Flash

Janet Tavakoki: “JPMorgan Chase and a couple of financial market exchanges have effectively declared that gold is an alternative currency. In other words, gold is money.”

Posted: 07 Feb 2011 07:13 PM PST

Gold Game Changer: J.P. Morgan Accepts Bullion as Money MK: All you dollar bulls should be on notice. Gold is money. This means that the primary thesis of a few observers, that everything will deflate against Gold – as a currency – is now going mainstream. Share this:


Crude Profit Taking Picks up Pace, Gold Struggles Near $1350

Posted: 07 Feb 2011 05:00 PM PST

courtesy of DailyFX.com February 07, 2011 08:51 PM Crude oil traders finally began locking in profits, as a light economic calendar saps recent momentum. Meanwhile, gold is at a critical technical level. Commodities – Energy Crude Profit Taking Picks up Pace Crude Oil (WTI) - $89.12 // $0.09 // 0.10% Commentary: Crude oil sold off on Monday as traders gained confidence that the unrest in Egypt would not have a major impact on crude oil production or transportation. WTI lost $1.55, or 1.74%, to settle at $87.48, while Brent shed $0.58, or 0.58%, to settle at $99.25. Brent is now down about $4 since last week’s peak over $103. As we wrote yesterday, crude oil looks ripe for profit taking given the enormous gains we have seen recently and the lack of economic data this week. But even so, fundamentals remain supportive given the robust global economic outlook and supply-side risks that seem to pop up intermittently. Thus, we would be looking at corrections as buyi...


Gold Seeker Closing Report: Gold Ends Near Unchanged While Silver Gains Almost 1%

Posted: 07 Feb 2011 04:00 PM PST

Gold climbed $5.30 to $1352.90 by about 9AM EST before it fell back to $1344.95 at 10AM and then rebounded back to $1352.25 just after 11AM, but it then fell back off a bit in the last couple of hours of trade and ended with a loss of 0.015%. Silver climbed to $29.34 and fell to $29.073 in early New York trade before it rose to a new session high $29.465 by late morning and then also fell back off a bit, but it still ended with a gain of 0.9%.


Global Pension Assets Hit Record High in 2010

Posted: 07 Feb 2011 02:55 PM PST


Via Pension Pulse.

Julia Kollewe and Philip Inman of the Guardian report,Value of global pension funds hits record high at &ound;16tn, study shows:

Pension funds battered by the financial crisis performed strongly last year after stock markets recovered in the wake of the Greek debt crisis.

 

Pension fund deficits, which have plagued final salary occupational schemes around the world, narrowed as assets in the 13 largest pension markets hit a record high of $26.5 trillion (&ound;16.4tn).

 

The figure for pension fund assets dwarfs the $3.5tn amassed by sovereign wealth funds and the $2.5tn of foreign debt owned by the Chinese government.

 

The steep rise in assets should give pension savers some comfort that commitments to a guaranteed retirement income will be honoured, but experts pointed out that the global asset/liability ratio is still well down from its 1998 level.

 

Roger Urwin, global head of investment content at Towers Watson, said it is now quite common for a pension fund to be 25% underfunded whereas in the 1990s they were 100% funded.

 

"By and large pension funds still have a long way to go to make sure assets match their liabilities," he said.

 

He noted that there were EU efforts under way to press pension funds to have more solvency protection similar to insurance companies. The Netherlands, where pension assets make up 134% of GDP, is usually held up as an example.

 

UK and US companies have switched employees out of final salary schemes into cheaper arrangements based on stock market returns. The Netherlands has begun to make the switch in the belief that deficits are unlikely to be eradicated while life expectancy continues to increase.

 

The Towers Watson survey found that pension fund assets increased by 12% in 2010 as stock markets recovered. This compares with 17% growth in 2009 and a 21% drop in 2008 at the height of the financial crisis, which took assets back to 2006 levels. Global pension fund assets have grown 66% since 2000 when they were valued at $16tn. The UK, the third-largest pension market after the US and Japan, has grown to $2.3tn from $1.3tn in 2000. Pension assets now amount to 76% of GDP, an improvement on the 2008 figure of 61%, but still below the pre-crisis level of 78% in 2007.

 

The UK now has as much invested in pension funds as the value of its GDP. It also has the highest allocation to equities in the world, of 55%, although this is down from 74% in 2000. Just over a third is invested in bonds, 3% in cash and 7% in other assets such as property. Urwin said this was down to culture: "UK pension funds have had a historical orientation to equities for some time. It was almost the first pension fund industry to invest to a large degree in equities."

 

UK funds have been slow to invest in alternative assets such as property, partly because they are often run by boards of trustees who lack the resources. "Equities are easier to manage than the alternatives."

 

The US, Australia and Canada also invest more in equities than the rest of the markets. Japan, the Netherlands and Switzerland are more risk averse, with higher than average exposure to bonds.

 

At the end of 2010, the average global asset allocation of the seven largest markets was 47% equities, 33% bonds, 1% cash and 19% other assets.

In the UK, 90% of pension assets are held by private sector companies. The picture is similar in Australia where 86% of assets are in the private sector. By contrast, 70% of assets in Japan and 62% of Canadian assets are held by the public sector.

 

The report also shows that Brazil had the highest growth in pension fund assets, of 15%, over the last decade, followed by South Africa at 13%, Hong Kong at 11% and Australia at 10%. The countries with the lowest growth were Japan with 0.2%, Canada and France, both at 1%, and Switzerland at 2%.

 

Last year, pension assets rose in almost all 13 markets in dollar terms with the exception of crisis-struck Ireland and France, partly driven by a weaker euro. Australia, Japan, South Africa, Switzerland, Canada and Brazil benefited from their currencies' appreciation against the dollar in 2010. Only the pound and the euro weakened against the dollar, by 2.9% and 7.5% respectively.

Towers Watson provided more information on their website, Global pension fund assets hit record high in 2010:

Global institutional pension fund assets in the 13 major markets increased by 12% during 2010 to reach a new high of US$ 26 trillion according to Towers Watson’s Global Pension Assets Study released today. The growth is the continuation of a trend which started in 2009 when assets grew 17%, but in sharp contrast to a 21% fall during 2008 which took assets back to 2006 levels. Global pension fund assets have grown 66% since 2000, when they were valued at US$16 trillion.

 

The study also reveals that pension fund balance sheets1 globally continued to strengthen during 2010, although the global asset/liability ratio is still well down from its 1998 level. According to the study, pension assets now amount to 76% of the global GDP (71% in 2009), substantially higher than the equivalent figure of 61% in 2008.

 

Carl Hess, global head of investment at Towers Watson, said: “The global financial crisis is still with us and the ongoing aftershocks are a continual reminder that the nascent economic recovery is still very tenuous. While nervousness about the volatility of markets and extreme events is just below the surface, there is broad acceptance that this is the new normal and that investors will need investment strategies that are more flexible and adaptable than they have been in the past. So while the recovery of the markets is to be welcomed, it should not distract from the major issues confronting the industry and the weaknesses in the system which governments and companies must face up to.”

 

Other highlights from the report include:

 

Global asset data for the P13

  • On average global pension assets (measured in local currency) grew by over 9% in 2010, taking the ten-year average growth rate to almost 6%.
  • The US, Japan and the UK remain the largest pension markets in the world, accounting for 58%, 13% and 9% respectively of total pension fund assets globally.
  • All markets saw growth in pension assets in 2010 (measured in local currency), and all markets in the study have positive ten-year compound annual growth rate (CAGR) figures.
  • In terms of ten-year CAGR figures (in local currency terms), Brazil has the highest growth of 15% followed by South Africa (13%), Hong Kong (11%) and Australia (10%). The lowest are Japan (0.2%), Canada (1%), France (1%) and Switzerland (2%).
  • The Netherlands now has the largest proportion of pension assets to GDP (134%), followed by Switzerland (126%), US (104%), Australia (103%) and the UK (101%). In the past ten years Canada, Ireland and France have seen the greatest fall in the ratio of pension assets to GDP of -19%, -3% and -1% respectively.

Asset Allocation for the P7

  • Bond allocations for the P7 markets have decreased by 7% in aggregate during the past 15 years (40% to 33%), while allocations to equities have fallen by 2% (to 47%) during the same period.
  • Other assets, especially real estate and to a lesser extent hedge funds, private equity and commodities, have grown from 5% to 19% since 1995.
  • Equity allocations in the UK have fallen from 74% in 2000 to 55% in 2010; similarly in the US allocations have fallen from 64% to 49% during the same period.
  • Australia, Canada and the US have increased their proportion of alternative assets the most from nearly 8% in 2000 to more than 20% in 2010. Conversely, during the past decade, allocations to alternatives have remained relatively constant in Switzerland (29%), the UK (7%) and Japan (4%).

Roger Urwin, global head of investment content at Towers Watson, said: “Notwithstanding the recovery in markets, asset allocation remains challenging as companies and trustees balance such priorities as long-term de-risking, short-term market opportunities, rebalancing or maintaining a strategic asset allocation mix. These are complex decisions made more difficult in the context of highly changeable market conditions. Additional context for these decisions are the number of solutions on offer, which include extra contributions from sponsors, contingent funding arrangements, investment strategy reviews, hedging strategies and pension insurance buy-ins, not to mention changes to benefits structures including fund closures.”

 

Defined Benefit (DB) vs. Defined Contribution (DC) for the P7

  • During the ten-year period from 2000 to 2010, the CAGR of DC assets was 7.5% against a rate of 2.9% for DB assets.
  • DC assets now comprise 44% of global pension assets compared with 41% in 2005 and 35% in 2000.
  • Australia has the highest proportion of DC to DB pension assets: 81% / 19%.
  • The markets that show a larger proportion of DC assets than DB assets are the US, Australia and Switzerland while Japan and Canada are close to 100% DB. The Netherlands, historically only DB, is now showing signs of a shift towards DC, while Canada is the only market in the study where DC assets have fallen in the last ten years relative to DB.

Roger Urwin said: “Post-crisis, societal pressures and changes give us an opportunity to accelerate the many positive developments around DC pensions; key among these are the effective design and management of default strategies in line with member needs and risk tolerances. Just as we have seen in the DB world, improving clarity around responsibility will lead to more effective governance of DC schemes and a real opportunity to improve the investment outcomes for millions of individuals. Importantly, fiduciaries need the flexibility to decide for themselves how best to implement improvements. But governments must also support greater clarity around the roles and responsibilities of all stakeholders, including members, which in turn will help address a perennial DC stumbling block: clear and relevant communication.”

 

Notes to editors

  • The P13 refers to the 13 largest pension markets included in the study which are Australia, Canada, Brazil, France, Germany, Hong Kong, Ireland, Japan, Netherlands, South Africa, Switzerland, the UK and the US. The P13 accounts for more than 85% of global pension assets.
  • The P7 refers to the 7 largest pension markets (over 95% of total assets in the study) and excludes Brazil, Germany, France, Ireland, Hong Kong and South Africa.
  • All figures are rounded and 2010 figures are estimates.
  • All dates refer to the calendar end of that year.

The Global Pension Assets Study 2011 is available at: http://www.towerswatson.com/research/3761

1 measured by asset values over liability values using sovereign bond yields to discount liabilities.

This study is very interesting because it clearly demonstrates that global pensions are a force to be reckoned with. Trillions of dollars are being invested in global equities, bonds, real estate, infrastructure, commodities, hedge funds and other assets. Those who scoff at pensions just show how ignorant they truly are.

But the study also shows how vulnerable global pensions remain. As Roger Urwin stated: "By and large pension funds still have a long way to go to make sure assets match their liabilities". pensions aren't just about assets; they're about matching assets to liabilities. To look at one side of the equation without looking at the other is to distort the underlying state of global pensions.

Finally, I noted that Australia, Canada and the US have increased their proportion of alternative assets the most from nearly 8% in 2000 to more than 20% in 2010. The cynic in me tells me it's all about beating benchmarks, compensation and chasing after hot alternatives. It remains to be seen if countries allocating a greater proportion of their pension assets to alternatives will outperform on a risk-adjusted basis over the next ten years.

This afternoon a colleague of mine reminded me that "JGBs outperformed the S&P 500 since 1998". I told him: "Wouldn't it be something if US Treasuries outperform all other asset classes in the next ten years?". You just never know.

I WONDER WHY CHINA HAS BOUGHT 200 TONNES OF GOLD IN LAST THREE MONTHS

Posted: 07 Feb 2011 01:25 PM PST

The Chinese seem to be buying into the inflationary scenario. Good video from NIA. http://dailypaul.com/156131/friday-video-day-5000-gold-500-silver-just-released-nia // if (flashTarget) { pe.stop(); // This embed code expects swfobject.js to have already been included. A copy of the version we currently use (not the most up-to-date) is // available here: http://casttv.com/javascripts/swfobject.js var so = new SWFObject("http://www.youtube.com/v/Qi8fV8n_UBM&autoplay=0&hl=en&fs=1&rel=0&ap=%2526fmt%3D18", "foo", 620, [...]


The Gold Price Must Clear $1,353, Then Move Above $1,362, Longer it Lingers Here the Weaker it Becomes

Posted: 07 Feb 2011 11:43 AM PST

Gold Price Close Today : 1,347.60
Gold Price Close 28-Jan : 1,340.70
Change : 6.90 or 0.5%

Silver Price Close Today : 2934.8
Silver Price Close 28-Jan : 2793.4
Change : 141.40 or 5.1%

Gold Silver Ratio Today : 45.92
Gold Silver Ratio 28-Jan : 48.00
Change : -2.08 or -4.3%

Silver Gold Ratio : 0.02178
Silver Gold Ratio 28-Jan : 0.02084
Change : 0.00094 or 4.5%

Dow in Gold Dollars : $ 186.56
Dow in Gold Dollars 28-Jan : $ 182.31
Change : $ 4.25 or 2.3%

Dow in Gold Ounces : 9.025
Dow in Gold Ounces 28-Jan : 8.819
Change : 0.21 or 2.3%

Dow in Silver Ounces : 414.39
Dow in Silver Ounces 28-Jan : 423.27
Change : -8.88 or -2.1%

Dow Industrial : 12,161.55
Dow Industrial 28-Jan : 11,823.70
Change : 337.85 or 2.9%

S&P 500 : 1,319.04
S&P 500 28-Jan : 1,276.34
Change : 42.70 or 3.3%

US Dollar Index : 78.034
US Dollar Index 28-Jan : 78.135
Change : -0.10 or -0.1%

Platinum Price Close Today : 1,839.80
Platinum Price Close 28-Jan : 1,792.40
Change : 47.40 or 2.6%

Palladium Price Close Today : 817.65
Palladium Price Close 28-Jan : 812.50
Change : 5.15 or 0.6%

The GOLD PRICE and the SILVER PRICE, I mind not confessing, have me baffled. What keeps me from throwing in my bearish towel is gold's toe-kicking and heel scuffing refusal to climb above that last $1,353 intraday low. This smells all the more suspicious when silver has climbed 5.1% while gold has climbed only 1/2%.

Why am I fighting this rise when gold's MACD and RSI have turned up? More, gold has broken through the downtrend line from the 3 January high. Last two days gold has sparred with the 20 day moving average ($1,352.15), but not penetrated it. Mayhap gold's fecklessness in crossing that line has merely been wrestling to get through the 20 DMA.

Thursday, Friday, and today gold traded range-bound by 1355 and 1345. Ranges are zones where opposing selling and buying pressure match evenly. When one side or the other flinches, the breakout comes.

Gold weekly chart still points down, but that moves slower than daily.

What can I say? Gold must clear $1,353, must close above that and more, must clear $1,355, then move smartly above $1,362. Longer it lingers here, weaker it becomes. Downside gold must not pierce $1,343.

Contradictions bother me. What's behind them? Friday gold fell $4.00 while silver rose 33.1c. Hmmm. Today silver added another 28.4c while gold lost 70c. Why are they gainsaying each other?

The GOLD/SILVER RATIO has fallen quickly nearly to its 3 January low. Comex today closed 45.92, just above 3 January's 45.75. If the ratio breaks 45.75, it implies BUT DOES NOT NECESSARILY GUARANTEE that silver and gold will reach new highs. If a new ratio low appears, then it throws my expectations for reaction price lows out another month, or, I might have to scrub that and think it all through again. Historical data says that it is not unknown for the ratio to trifle along as much as a month, making two lows near each other, before turning and shooting up.

Platinum and Palladium are knocking at their last highs, which as yet tells us nothing.

The SILVER PRICE jumped up on Thursday from a 2790-ish low to 2900c in a single bound. Friday it tested that 2900c support, then bolted fro 2925c. Since then it has gently risen to a ceiling at 2940. Comex today gained 28.4c to close at 2934.8c.

The silver/gold contradiction is not yet, as some allege, rooted in a silver backwardation.

"Backwardation" occurs when any futures market shows higher prices for the spot or closest month than the normal contango. Normal contango reflects the carrying cost of interest, insurance, and storage, so the months further out in time cost more. From February, you ought to have to pay more for silver if you want to buy it for September delivery, because of that carrying cost.

So whenever a market backwardates it shows a shortage of deliverable metal, perhaps a short squeeze where those who have shorted silver can't find the metal to deliver against their obligations, and so pay more and more to get their hands on it.

Only problem with the backwardation/shortage of silver theory is that today the market was not backwardated. Rather, it showed normal positive contango. One ought also recall that interest is the largest component of contango, and right now interest rates, thanks to Big-Hearted Ben Bernanke, are unnaturally low, which keeps contango low.

On Friday something appeared more like a zero-contango, with the March 2011 contract at 2905.9. and the Cash market at 2907.5c Might be a harbinger, but it's a tee-tiny one.

If I am wrong, gold will break through $1,362 in the next day or two and silver will keep on rising while the ratio sinks below or matches 45.75. I can only watch.

My trip to Maryland was very restful, and I enjoyed meeting some of you subscribers. Thanks for your encouragement and courtesy.

I don't know which is more bewildered, the markets or me. One of two things is happening with SILVER and GOLD. Either they are about to break out for another big rally, or they are about to fail and complete their correction of the 3 January 2011 high. Stocks? Well, you tell me. Nobody every went broke overestimating the gullibility of American Investors. Dollar hangs on, but barely. What hints and clues do the markets give?

US DOLLAR INDEX bottomed (intraday) last Wednesday at 76.88, and has clumb ever since. Today it stands above 78 at 78.034. It fell only 2.3 basis points today, 0.03%.

What signs point up for the dollar? MACD has turned up, and RSI is rising. 76.71 was the next to the last low, so there's lateral support for a bottom here. Over last 4 days dollar has painted a muscular upmove but slowed down today. High nearly touched the 20 day moving average (78.44 vs. 78.35). If the dollar crosses that line, it would flash the first warning confirmation of an uptrend. I expect the dollar to rise again tomorrow, but watch that 77.85 low from today. Dollar must not dip down there and surely must not close below 78. Euro also appears to have topped and today touched its 20 DMA from above, first warning of a downmove.

STOCKS don't move me with greed, fear, desire, or joy. I know I am watching a sucker trap, and want nothing to do with it. They can go higher, although they are already heavily overbought. Do yourself a kindness and stay away from stocks.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com
Phone: (888) 218-9226 or (931) 766-6066

© 2010, The Moneychanger. May not be republished in any form, including electronically, without our express permission.

To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down. Whenever I write "Stay out of stocks" readers inevitably ask, "Do you mean precious metals mining stocks, too?" No, I don't.

Is Deflation Really a Risk Today?

Posted: 07 Feb 2011 11:28 AM PST


Due to the overwhelming number of emails I received in response to my earlier article detailing the behemoth that is the derivative market.

 

The primary question I’m receiving is: does deflation pose a REAL risk today?

 

My response is absolutely. Remember, the entire financial system is broken in the US. Until we take our medicine and deal with the hundreds of trillions of bad debts sitting on the banks’ balance sheets, there is ALWAYS the risk of another 2008-type event.

 

The Federal Reserve has attempted to paper over these issues by offering Wall Street an endless stream of Dollars. But this hasn’t addressed the underlying issues in any way. The banks are still insolvent and the derivatives market is still the primary concern for anyone who works in finance whether they know it or not.

 

So yes, deflation is and always will be a potential threat that can erupt at any time. However, should deflation even take hold of the markets again, the Fed and other central banks’ responses will GUARANTEE that it is short-lived and that inflation, then hyper-inflation takes over in a short period of time.

 

Remember, Bernanke has NEVER admitted that he was wrong about anything. The guy literally believes he’s an economic genius who can save the world (thanks Time magazine for buffering his ego). He is 100% positive that his policies are the right policies. So if deflation reared its head again, he would do the same things he’s already done (print money, engage in more QE, etc) only on an even larger, more aggressive scale.

 

This will destroy the US Dollar and insure that we experienced either severe inflation similar to that of the ‘70s or hyper-inflation similar to Weimar. Bernanke’s nearly pushed into the former already and deflation hasn’t been seen in the financial markets in over two years.

 

So you better believe he’d go all out if deflation poked its head up again. Imagine if a grizzly bear got up and tried to attack you after you already brought it down with repeated gunfire. What would you do? You’d blow its head off and then walk up to the body and shoot it until you ran out of bullets to make sure the thing didn’t get up again.

 

Bernanke would do the same thing to deflation. He’d throw so much money at it that he’d not only kill it dead, but he’d also kill the US Dollar and send us straight into Zimbabwe-land without even a moment’s pause.

 

So yes, deflation is a threat. And it will always be. But we might very well not see it again thanks to Bernanke’s actions. And if it does show up again, its presence would be very short-lived.

 

Prepare accordingly,

 

Graham Summers

 

PS. If you’re getting worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.

 

I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).

 

Again, this is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.

 

PPS. We ALSO publish a FREE Special Report on Inflation detailing three investments that have all already SOARED as a result of the Fed’s monetary policy.

 

You can access this Report at the link above.

 

 

 

 

 

 

 

 

Buying Silver While It’s Still Relatively Cheap

Posted: 07 Feb 2011 11:11 AM PST

James Cook of InvestmentRarities.com reminds us, in his "Market Update" newsletter, that the silver inventory held above ground totals 1.4 billion ounces, and that annual industrial use of silver is 900 million ounces, so that a year and half's worth of silver exists, "although a third of it is destined for industrial consumption," which has been increasing its use of silver by 18% in 2010. And it surely will be used in industrial consumption, because as Mr. Cook says, "it's hard to fathom all the bullish aspects credited to silver. You have a rare metal used in so many important industrial applications as to be termed miraculous," so much so that "the billions of ounces mined over 2,000 years are gone forever." In fact, I am considering raising money to launch a Discovery Channel special, which will be a revealing new documentary that blows the lid off the explosive situation in silver, beginning with how things would have been worse a long time ago if the Neanderthals had invented ...


China's gold tsunami

Posted: 07 Feb 2011 10:58 AM PST

by Karen Maley
8 Feb 2011 (BusinessSpeculator.au) — Global inflation concerns are adding to gold's luster, with a recent report predicting that Chinese demand for gold as an inflation hedge is resulting in unprecedented physical demand for the precious metal, which will likely push prices higher this year.

At the same time, there are signs that gold is expanding its role as an alternative currency. Overnight, the US investment bank, JP Morgan Chase & Co said it would accept physical gold as collateral against securities lending and repurchase obligations.

… The latest newsletter from Sprott Asset Management, entitled 'Gold Tsunami', focuses on gold's attractiveness as an inflation hedge for Chinese and Indian investors. It argues that while western investors are content to hold paper assets, such as stocks, bonds, annuities and insurance, along with their real estate investments, the attitude of Chinese and Indian investors is very different.

"Halfway across the world, investors in China and India have never trusted paper investments as a store of value – and they're converting their hard earned paper money into gold and silver bullion. Not that this is anything new. It isn't. But the scale and speed with which they are accumulating precious metals IS new, and it's driving the fundamentals that we believe will lead to higher prices in 2011."

… According to the Sprott letter, "There is a clear trend developing for Chinese investment in gold as a monetary asset"…

At the same time, it's also becoming easier for the Chinese to invest in gold. The Sprott newsletter points out that Chinese citizens have only been able to purchase gold freely since the early 2000s, when the long-term monopoly of the Chinese central bank was abolished.

… While precious metals prices have corrected on the paper exchanges, the inflation resurgence in Asia is quietly driving new, unforeseen levels of physical demand for the metals.

"While the world continues to float on a sea of paper, this massive wave of physical demand silently threatens to crash into the physical gold and silver market, potentially wiping out tangible supply."

[source]

Trading the Gold to Silver Ratio

Posted: 07 Feb 2011 10:50 AM PST

Kurtis Hemmerling submits:

Silver bulls will often point to the gold to silver ratio as a potential upside for Ag. Here are two arguments made:

  1. The historical monetary relationship between gold and silver currency in the 1800’s was around 15:1.
  2. Using the data found at Webelements.com as a rough guide, the ratio is 25:1 but I have come across some sites have the estimates closer to 16.

With gold prices hovering around $1,350 – does this imply an upside silver price of $52 - $90 per ounce?
Historical Gold Silver Ratio

Silver Prices Become Law

If the abolishment of bi-metalism continues, it would be difficult for me to justify and immediate return to the 15:1 ratio. However, it seems that some House bills are being submitted that call for a return to the ‘gold standard’ in response to recent quantitative easing inflation and perceived mismanagement of the dollar by the Federal Reserve. There are many variations of this game, but if it became necessary for banks and the government to at least increase the proportion of gold in their vaults to back to the currency, this would create demand.

  • If gold went above $2,500 and the ratio was 47:1, the price of silver per ounce would be $53. Some gold bugs forecast $5,000 and upwards. Just type it into

Complete Story »


MONDAY Market Excerpts

Posted: 07 Feb 2011 10:02 AM PST

Gold chops sideways in narrow range-bound trading

The COMEX April gold futures contract closed down $0.80 Monday at $1348.20, trading between $1344.10 and $1354.50

February 7, p.m. excerpts:
(from Dow Jones)
Gold futures held steady as the economic recovery lessened gold's appeal as a refuge but increased its allure as an inflation hedge. The combination of ultra-low interest rates and Federal Reserve purchases of Treasurys to stimulate the economy is causing some to believe the Fed won't be able to sponge up extra liquidity in time to avoid problematic consumer and producer price increases over the longer term. Those inflation concerns have been heightened as Treasury-bond yields have jumped to their highest levels since May…more
(from Reuters)
Bullion notched its first weekly gain in 2011 last week after Federal Reserve Chairman Ben Bernanke indicated monetary policy would stay accommodative in the near term and a disappointing U.S. January employment report. "Fed tightening expectations have been hurting gold, but we still feel the odds of a rate hike this year, or even the first half of 2012, are pretty low," said Peter Buchanan, senior economist at CIBC World Markets. U.S. gold futures for April delivery settled down 80 cents on the COMEX…more
(from Marketwatch)
The dollar index most recently traded at 78.027 from 78.023 late Friday. The index spent most of the day in the black, applying pressure on commodities. In other metals news, a division of J. P. Morgan Chase & Co. announced Monday that it will start accepting physical gold as collateral in securities transactions. "This comes as more clients look to use gold as a hedge against inflation and to post as collateral," J. P. Morgan Worldwide Securities Services said in a news release…more
(from TheStreet)
Chinese New YearGold has big support from China, which most likely won't wane this week as the nation celebrates its new year. The national news agency reported Sunday that China's gold output in 2010 was 340.88 tons and the country still had to import 209 tons in the first nine months of the year to meet demand (total 2010 import figures aren't available yet). There have been several reports circulating that China will buy more gold, but the country trends to amass it in secret for fear of moving the price…more

see full news, 24-hr newswire…

Silver Shorts On the Run

Posted: 07 Feb 2011 09:38 AM PST

Who's exiting the "short" side of the US Silver Bullion futures market...?

read more

Buying Silver While It’s Still Relatively Cheap

Posted: 07 Feb 2011 09:28 AM PST

James Cook of InvestmentRarities.com reminds us, in his "Market Update" newsletter, that the silver inventory held above ground totals 1.4 billion ounces, and that annual industrial use of silver is 900 million ounces, so that a year and half's worth of silver exists, "although a third of it is destined for industrial consumption," which has been increasing its use of silver by 18% in 2010.

And it surely will be used in industrial consumption, because as Mr. Cook says, "it's hard to fathom all the bullish aspects credited to silver. You have a rare metal used in so many important industrial applications as to be termed miraculous," so much so that "the billions of ounces mined over 2,000 years are gone forever."

In fact, I am considering raising money to launch a Discovery Channel special, which will be a revealing new documentary that blows the lid off the explosive situation in silver, beginning with how things would have been worse a long time ago if the Neanderthals had invented electrical generation and a distribution network, both silver-consuming, 100,000 years ago.

And ditto those Renaissance hotshots who everybody thinks are so hot, but couldn't even come up with a good cell-phone, or how Thomas Edison can invent a light bulb and the phonograph, but not take the logical next step of inventing the CD and CD player, which would have produced much better sound quality than those stupid, scratchy, tinny wax cylinders of his.

Now, as interesting as all this is, it is not enough to enthrall us because we have such short attention spans, but as soon as we say, "Bah! Show me how to make money on it!" and reach for the remote control with which to change channels, our ears prick up in sudden rapt attention when he says, "The disappearance of this hoard should have sent the price to much higher levels. It didn't."

This seemed so odd that Theodore Butler went to "track down the reason" and, as I understand it, discovered the gigantic short futures position in silver, and all of that slimy, illegal rigging of the silver futures markets, and by extension, all the rigged markets, and all of it made possible only because the foul Federal Reserve created the excess money to finance it all! Hahahaha!

Of course, rigged markets are nothing new, and again our interest wanes, and soon we are beginning to think of pizza, and our stomachs gurgle, "BurrRRRrrRRrrRRp!"

This was unfortunate, because while we were distracted, we almost missed the whole point, which is making a lot of money without working. And on that subject, the aforementioned Theodore Butler writes that JP Morgan, apparently the biggest naked short-seller of silver futures and thus the biggest price suppressor, looks like it has decided to get out of the business of depressing the price of silver by creating and selling so much "paper silver" futures out of thin air, and has unexpectedly "covered roughly 4,000 contracts in the past month and 8,000 contracts in the last two months, the equivalent of 40 million ounces" of silver.

Familiar with the explosive results of suppressed prices that stop being suppressed, I am beside myself in Greedy Mogambo Glee (GMG) in anticipation of silver shooting to the moon, and I am humming the tune "We're in the money! We're in the money! We got a lot of what it takes to get along!"

Mr. Butler, who is much more professional than I, calmly and cautiously opines that "This holds profoundly bullish implications for the future of silver prices," which may have something to do with the fact that covering a naked short position when the price of silver is rising means taking a loss, and, "In the history of the silver manipulation going back to 1983, never has the big concentrated silver short ever covered shorts on rising silver prices."

I am always impressed with the use of the word "never," probably because of that time when I was young and full of hormones, when I asked Debra Sue, the hottest girl in the tenth grade and who knew it, too, to go out with me, but she pretended not to hear me, but who told her friend Jessica, who told her friend Mary, who told her boyfriend Bob, who was my friend, who told me that Debra Sue said she would never – never! – go out with me because she thinks I am "icky."

Sure enough, she never did go out with me! Or even acknowledge my existence, for that matter, except to once say to me, in the hallway outside of the chemistry lab, "Get out of my way, creep!"

That girls think I was creepy is not interesting, not surprising to anybody, but probably the most interesting fact about silver is that it is "used in tiny amounts in its multitude of applications. This makes much of its usage insensitive to price."

If you are not sure what being "insensitive to price" means, imagine that you are the CEO of a company manufacturing Mogambo Hair-Growing Machines (MHGM) under license from Mogambo Interstellar Enterprises (MIE).

In the course of production, you use one ten-thousandth of a cent of silver per unit, meaning that you use 10 cents worth of silver a day to make a full day's run of 100,000 units, most of which are defective because my design is bad and I insist that you use the cheapest and shoddiest of materials and labor so as to keep profit margins high enough to make the most money on the front-end before people find out what a worthless rip-off my stupid hair-growing machine really is, and people stop buying the damned things because word gets around that they don't work.

In my defense, the business plan looked good on paper, but my lack of ethics as the price of greed is neither here nor there, and the point is that you are "insensitive to price" if the price of silver doubles to 20 cents a day. "Ho-hum," you would say, unconcerned about such a trifle.

And you don't care if the price triples to 30 cents a day, either, as would be evidenced by another bored "ho-hum" were you even told of this trifling news.

Ditto if the price quadruples to 40 cents a day, or quintuples to 50 cents a day.

And you don't even care if the price of silver goes up by a thousand-fold to cost you $100 per day, even though there will plenty of people who will care if the price of silver is $29,000 an ounce!

And now with China, a third of the world's population is going to want electrical and electronic things that all must have silver in them, insensitive to price as those things are, the upper end on the price of silver is so hard to imagine that I don't even try, and I just buy it now while the price is still ludicrously low.

Whee! This investing stuff is easy!

The Mogambo Guru
for The Daily Reckoning

Buying Silver While It's Still Relatively Cheap originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

Three Critical Drivers for the “Rational Gold Investor”

Posted: 07 Feb 2011 09:20 AM PST

If you may recall, we've written about this "rational gold investor" before… Shayne McGuire manages roughly $330 million in a gold portfolio for the $100 billion Teacher Retirement System of Texas fund. In addition to having a gold-dedicated portfolio larger than most exclusive to the yellow metal, he's written the book on making gold a "serious" investment. It's titled, Hard Money: Taking Gold to a Higher Investment Level, and in it he highlights three critical reasons for why everyone should own gold.

Here are the three essential drivers, as described by Scott Burns in The Statesman:

  • "Gold has never been more underowned as an asset. Historically, gold was money. It accounted for a substantial part of global assets. It was a universally recognized store of value and medium of exchange. Today, it is an asset only as a commodity. The value of all the gold in the world, he points out, is about 0.6 percent of all financial assets. This is down from 2.5 percent as recently as 1980…
  • "With gold accounting for so little of global assets, McGuire says, only a small shift in asset preferences — from currencies to gold or bonds to gold — would cause a major price increase in gold. Unlike most gold bugs, he is not talking about financial Armageddon. He's simply talking about decisions by institutions, pensions and sovereign wealth funds to sell some bonds and put the cash in gold…
  • "The supply of gold is difficult to increase. When people want to own stocks, there is never a problem with supply. Wall Street will create it. Similarly, governments around the world are producing a worrisome supply of debt — more debt, many worry, than will ever be repaid. But the supply of gold can't be ramped up quickly, whatever the demand. Worldwide gold production has been declining for years…"

    Back in November, the Wall Street Journal pointed to McGuire's eye-popping predictions of gold heading to about $10,000 an ounce. Burns, on the other hand, says the McGuire vision of gold's future probably looks more like $6,240 an ounce. Either value is a fair bit loftier than where gold stands now, which means, at least by his math, that it remains in a rise to be a part of. You can read much more detail in Scott Burns' commentary for The Statesman on meeting the "rare bird" that is the rational gold investor.

    Best,

    Rocky Vega,
    The Daily Reckoning

    Three Critical Drivers for the "Rational Gold Investor" originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

    Ratigan And Fleckenstein Explain The Fed's Role In Recent Food Price Ignited Revolutions

    Posted: 07 Feb 2011 09:19 AM PST


    For over a year now, Zero Hedge has been predicting that in its foolhardy attempt of "inflation or bust", the Fed's actions would sooner or later lead to mass rioting and possible revolutions as a result of surging and out of control food prices (which are just the peak of the alternative investment pyramid - yes, stunningly free money can go into other things besides stocks). There have been those who have claimed that deflation is still a far greater force, despite that the all important shadow banking system made a positive inflection point in ending deleveraging in Q3 (and on March 10 we will know whether the Q3 strength persisted into Q4) as was discussed previously, and today's first time in over two years increase in revolving credit merely confirms this view. Alas, to all who believe that deflation or deleveraging is a greater threat: you have our sympathies, as fundamentally your are correct, and were the business cycle have the benefit of playing out in normal course, all the world's banks would become insolvent and yes, deflation would be rampaging. The problem is that these same people do not realize that to Bernanke (whom we have referred Genocide Ben for precisely this reason) there is no other alternative, and inflation must be achieved no matter how terrible the social cost, or the damage to the monetary system. Regardless, the actions in North Africa are just the start. Commodities will run up far higher, and discontent will sooner or later reach to Asia, and possibly to countries which have nuclear arsenals at their disposal. What happens then is anyone guess. Yet for anyone who is still confused about the ultimate Fed agenda, Dylan Ratigan and Bill Fleckenstein sat down late last week to make it so clear that virtually anyone and everyone can understand what the Bernanke endgame is.

    Visit msnbc.com for breaking news, world news, and news about the economy

    Randgold Resources Ltd. CEO Discusses Q4 2010 Results - Earnings Call Transcript

    Posted: 07 Feb 2011 09:17 AM PST

    Randgold Resources Ltd. (GOLD)

    Q4 2010 Earnings Call

    February 7, 2011 11:00 a.m. ET

    Executives

    Philippe Lietard – Chairman

    Mark Bristow – Chief Executive Officer

    Graham Shuttleworth – Chief Financial Officer

    Analysts

    Grant Sporre - Deutsche Bank

    Charles Kernot - Evolution

    David Robinson - DSP

    Cailey Barker - Numis Securities

    Donaco Cain - Lehman Capital

    Presentation

    Mark Bristow

    A very good afternoon to everyone in London as well. Graham Shuttleworth, our CFO is hosting the London party. I've got a large audience here in Cape Town. Everyone has migrated almost from London to Cape Town in the last couple of days. So again a warm welcome. Also a very special welcome to some of our colleagues from the governments of our host countries. Again, welcome to South Africa and Cape Town and most importantly, our 2010 results.

    To kick off the proceedings we have also got our Chairman of the Board here today. He is going to be at the conference through the next three days. It's part of his responsibilities to make himself available to shareholders and the like from time to time. And so should anyone want to engage with him or bring to his attention anything in particular, he's available and you can make arrangements through our both at the conference. And without further ado I'll ask Philippe to introduce the proceedings.

    Philippe Lietard

    Thank you Mark and welcome again to all of you. (Et bienvenue tout particulier a vous ministres admins). At the


    Complete Story »


    Should You Still Ask TED About Gold?

    Posted: 07 Feb 2011 09:13 AM PST

    Hard Assets Investor submits:

    By Brad Zigler

    Used to be that whenever you wanted to know what the market really thought about gold, all you had to do was consult TED. TED is an archaic acronym for the "Treasury bill-eurodollar" spread—the price/yield differential between then-extant Treasury bill and eurodollar futures.

    (Eurodollars are greenbacks on deposit in foreign—mostly London—banks; futures on bills and eurodollars used to trade on the Chicago Mercantile Exchange, but have been long-delisted).

    Though bill and eurodollar futures are gone, the TED spread is still followed. It's now commonly tracked as the yield differential between cash market bills/notes and Libor—the London interbank offered rate—for dollar deposits.

    There's a strong relationship between TED spread and gold lease rates and, consequently, the shape of the gold futures curve.

    Lease rates reflect the interest paid to borrow ("lease") physical gold for a specific period of time. Put another way, it's the opportunity cost for holding gold and not lending it out.

    Typically, gold lease rates move inversely with the level of COMEX gold inventories—specifically, registered stocks. Registered inventories are those that are immediately deliverable against COMEX contracts. Presently, registered inventories comprise 24 percent of total warehouse stocks.

    Generally speaking, an increase in COMEX registered inventories decreases the lease rate, while a spike in the TED spread sparks a hike in gold borrowing costs.

    Think of it this way: The lease rate represents the price investors pay to hold physical gold as opposed to owning gold futures. Since investors can gain exposure to gold price movements


    Complete Story »


    Real-Time Gold Bubble Data

    Posted: 07 Feb 2011 09:08 AM PST

    I would like to share some hard data pertaining to one of the most critical characteristics associated with an investment bubble. Even though the usual cheerleaders for paper assets and the "debt is wealth" mindset would most likely ... Read More...



    Time Lapse Interactive Video Of Global Debt: 1870 - 2010

    Posted: 07 Feb 2011 08:57 AM PST


    Ever wanted to run a Sid Meyer Civilization end of game recap scenario on the world and see which country, region or continent had built up the most debt the fastest? Or, far simpler, just to watch a time lapse video of total debt/GDP by country or by region? The IMF now allows you to do both. The international monetary organization has released a Data Mapper tool which not only shows a snapshot map chart of instantaneous sovereign leverage at any given moment, but also shows just how global debt levels have changed through the ages. Of particular note is total debt/GDP at advanced countries in the post-WW1, Great Depression and WW2 period. And while back then the result was either hyperinflation (Weimar) or various stages of removal of the gold standard (until all currencies became freely floating under Nixon), we now no longer have the option of a relative devaluation, and the only chance left for a world levered to its gills is either absolute revaluation of a brick of gold, accelerating, rampant inflation or outright default. Have fun playing with the drilldown function.


    Silver to Soar in 2011, says Investment Guru

    Posted: 07 Feb 2011 08:57 AM PST

    By Marc Davis, BNW News Silver promises to become the next big buzzword among investors in 2011 and beyond, according to one of the investment industry's most prescient and successful experts on precious metals. Eric Sprott is the founder of the Toronto-based investment firm, Sprott Asset Management LP. His renowned hedge fund, Sprott Hedge Fund LP, is heavily weighted in precious metals and has generated an estimated 23% annualized return over the past decade. Other similarly oriented funds under his stewardship have also been stellar performers in recent years. He's now so bullish on silver that he launched the $575 million Sprott Physical Silver Trust in November of last year as he believes that: "Silver will be the investment of the decade." "I think that silver could easily get to $50 this year," he tells BNWnews.ca. This all bodes especially well for publicly traded companies that are already mining silver, he says. Likewise for ones that are developing p...


    Doug Groh: What's Old Is New Again in Gold

    Posted: 07 Feb 2011 08:55 AM PST

    Source: Brian Sylvester of The Gold Report 02/07/2011 Do old investment strategies apply to the new gold market? Doug Groh, a fund manager and senior research analyst with Tocqueville Asset Management in New York City, has been analyzing basic materials and gold equities for more than 25 years. In this exclusive interview with The Gold Report, Dough explains how to view gold's history when making investments in its future. The Gold Report: Gold dipped from about $140 per ounce in the bull market of January 1976 to below $105/oz. in September of that year. Ultimately, it proved only a pullback on the way to gold's peak of $850/oz. in 1980. Are we seeing a similar pattern now, or is this correction simply much ado about nothing? Doug Groh: It's hard to say if this is a similar pattern. The market conditions are different than they were 35 years ago. However, cycles can be somewhat repetitive. I think the more important questions are: What does this correction mean and ...


    Gold Reverses Ahead of Measured Level

    Posted: 07 Feb 2011 08:51 AM PST

    courtesy of DailyFX.com February 07, 2011 07:45 AM 240 Minute Bars Prepared by Jamie Saettele Gold has held a multiyear support line. However, the decline from 1425.40 is in 5 waves, indicating that the larger trend is most likely down. Price reversed just ahead of the 100% extension of the initial rally off of 1308.70. Equality among waves a and c in corrections are common. Expectations are for a resumption of weakness (silver has also nearly reached its 61.8% retracement)....


    Copper’s Warning Signal

    Posted: 07 Feb 2011 08:49 AM PST

    by Addison Wiggin - February 7, 2011

    • Dr. Copper sees a healthy economic patient… or is it developing a fever?
    • Chris Mayer on the factors that could knock the wind out of emerging markets’ sails
    • S&P breaks decisively through 1,300… Where from here
    • Treasuries take a hit… Sarnoff on why this could be just the start
    • Virginia lawmaker urges preparations for an “alternative currency”
    • Ah, yes, it’s Monday… readers take us to task for encouraging polluters and taking the Lord’s name in vain… darn it…

    The week begins with another record high for copper and the suggestion, from an unlikely source, that the Federal Reserve may be sowing the seeds of its own demise.


    First, our friend “Dr. Copper,” as it’s sometimes known. The red metal is used in so many things -- electrical wiring, plumbing, computers, air conditioning, refrigeration, defibrillation, horseless carriages, etc. -- traders use its demand, and consequently its price, to “diagnose” the global economy.

    At $4.59 a pound, the good doctor would seem to be saying the global economy is fit as a fiddle. Or… indicating the onset of fever. From its panic low around $1.25, the copper price has nearly quadrupled in just two years.


    “Emerging market demand has been the big driver behind industrial metals,” our managing editor Chris Mayer discusses the more likely scenario in a recent MarketWatch article. Hence, “these metals would also seem the most susceptible to any slowdown.”

    And what are the chances of that? Pretty significant. “The industrial metals as a group are unattractive simply because I believe that emerging market demand will slow,” Chris says. “There is too much hitting these countries too fast.”

    Like oil. It’s back to $100 a barrel, using the yardstick of Brent Crude that’s becoming the new world standard.

    And food. “All around the world, emerging markets have a big problem with rising food prices,” Chris wrote his Capital & Crisis readers last month. And that problem’s set to get worse, judging by this development.


    The U.S. Grains Council forecasts China’s imports of corn are set to explode sevenfold in just a year -- from 1.3 million metric tons in 2010-11 to 9 million in 2011-12.

    Nine million tons would double the previous record of 4.3 million tons set 15 years ago after a disastrous crop. If true, the high numbers will be driven by three factors:

    • China was hit with drought last year

    • But the country’s growing middle class demands more meat… and most cattle and hogs are fed corn.

    • Worse, China has depleted its stockpiles. “We learned the government normally keeps stocks at 30%” of annual demand, says Terry Vinduska, U.S. Grains Council chairman, “but they are currently a little over 5%.”

    “In China, people spend 50% of every incremental dollar on food,” Chris continues. “In India, it’s more like 70%. So the rising price of food is felt more keenly in these markets” than we feel it in the West.

    Prices are rising faster in both of those markets. “In India, food prices are up 18% and at their highest level in a year. China has the same problem. Prices rose 5% in November alone.

    “All around the world, emerging markets have a big problem with rising food prices. Indonesia’s president is trying to get people to grow their own chili peppers. And the South Korean government recently released emergency stores of cabbage, pork, mackerel, radish and other staples.

    “The emerging markets boom is not going to go far when it faces a food crisis. And if China and India and the rest slow down, it’s going to have a huge impact on all those stocks and commodities most sensitive to emerging market growth.”

    We’ll be watching both food prices and copper to see if and when this fever turns to chill.


    Stocks are starting the week solidly in the green, the Dow breaking through 12,100. The S&P sits at 1,316 and is “on its way to 1,400,” according to Jonas Elmerraji, a leading researcher with our small-cap team.

    “If stocks sustain a break above 1,300,” Jonas suggested in this space last week, “expect rally mode; if the S&P falls below 1,275, brace for selling.”

    Here’s his update: “Despite some flirtations around support at 1,275 on Friday, the S&P 500 pushed definitively above 1,300 on Wednesday, clearing the last overhead barrier between the major index and its next important resistance level at 1,400.”

    There are reasons to be skeptical; insider selling still overwhelms insider buying, and money is still fleeing domestic stock mutual funds. But “don’t fight the trend,” says Jonas.

    The philosophy has worked out nicely for readers of our newest premium service. So far in 2011, the average play is up 9.5%… with a holding time of just 31 days. If you’d like to gain nearly 10% in a month as a matter of routine (and break all of Wall Street’s “rules” in the process)… give this presentation a look.


    Just as AOL’s acquisition of Time Warner signaled the top of the Internet bubble, AOL’s newest deal may signal the top of the social media boomlet. In its biggest acquisition since Time Warner spun it off in 2009, AOL is buying Huffington Post for $315 million.

    Arianna Huffington gets a new sandbox to play in, since she’ll now oversee AOL sites like Engadget and TechCruch, in addition to HuffPo. Other AOL sites like Politics Daily and DailyFinance will probably get folded into HuffPo.

    We wonder -- and we realize this is something of an apples-and-oranges question, but we still can’t help it: If HuffPo currently has 270 million users, and it’s valued at $315 million… how does Facebook, with roughly double the number of users, get valued at $50 billion?


    For U.S. Treasuries, the new week begins with the same trend we saw all last week -- rising yields. The 10-year note is up to 3.66% -- levels last seen in early May of last year.

    “Technically, a 4.5% yield is now in sight,” Steve Sarnoff wrote his Options Hotline readers over the weekend. “In a speech on economic outlook and macroeconomic policy, Fed Chairman Bernanke made it clear that he and his crew will keep sailing their QE2. The rest of the world should be happy to sell Ben all the bonds he wants to buy.

    “Money moving out of bonds may find a home in stocks, but there is likely to come a point where rising rates attract funds back.

    “It was my opinion, back in the fall of 2010, and it remains my opinion, that we have likely seen the end of the decades-long bull market in bonds and this market is likely to make a big move in its new direction (prices falling and interest rates rising).”

    Already since October, the rate on the 10-year has jumped from 2.4% to 3.6% -- a 50% increase.



    The trend has delivered substantial gains for Options Hotline readers. One Treasury play is up 133% after five months… and another is up 56% in just two months. Steve has new recommendations most every Sunday. If you’d like to be on board for the next one, look here.


    It is one thing for the International Monetary Fund (IMF) to discuss plans for an alternative to the U.S. dollar. But the Old Dominion?

    Virginia can adopt an “alternative sound currency that the commonwealth’s government and citizens may employ without delay in the event of the destruction of the Federal Reserve System’s currency,” according to a bill in the Virginia legislature that would order up a study of the issue.

    “The fact that the Federal Reserve has resorted to the printing presses,” says Delegate Robert Marshall, “these are the ingredients, the precursors to hyperinflation. We can’t predict when it will happen, but we should be prepared for it if we’re serious about being in public office.”

    For the moment, the idea languishes in subcommittee.


    Other than copper, there’s not much else going on with metals today. They’re starting the week more or less where they ended last week -- gold at $1,349 and silver at $29.23.


     High copper prices have indeed made copper thieves bolder; that much we know. But those thieves have nothing on this…



    Thieves are poaching lead from the roofs of old buildings in England… especially churches, where lead roofing is commonplace among Church of England parishes.

    About 8,000 churches have filed insurance claims over the last three years. It appears the thieves are using Google Earth to spot their targets from the sky.

    “This is a crime that has to be taken seriously, says Tony Baldry, the Church of England’s estate commissioner. “Night after night, lead is being stolen from church roofs.”

    One church has had its roof ripped off 14 times. Um, you think they might want to try to replace the stolen portions with a different material?


    “Kindly get your ‘minimalist government’ head out of your ass,” a friendly reader opens up today’s mailbag. ”OSHA saves lives, rather than allow industry to add a few pennies to their bottom line through the collateral damage of the death or disability of workers.

    “Sometimes it is off-track, so this needs to be fixed. Sometimes Congress -- which gives us the best government money can buy -- eviscerates the fines through industry lobbyists. So this needs to be remedied if at all possible. But once your own children work in a Massey coal mine or on the next BP drilling station, perhaps we may suddenly hear another tune.

    “Surely, you people are smarter than your glib comments suggest.”

    The 5: We wouldn’t be so sure.


    “Regarding your disdain for EPA trying to force corrective behavior by business entities,” another agrees, ”you’d be chirping a different tune if you were getting your drinking water from a well where some industry was pissing in your groundwater.

    “I’m all for business being able to do what they want as long as they don’t shovel their cost of production on those who aren’t buying their product. If you can’t make stuff without being able to incorporate the total cost of the item to the end consumer, go find something else to make, or better yet, innovate.”

    The 5: For the record, while we may share it, it wasn’t originally our disdain.


    “We depend on regulatory agencies in the U.S. to keep industries from polluting air, water and ground and OSHA to enforce workplace safety. Industry will not do it themselves.”

    The 5:     This debate calls to mind the archeologists in the Black Swan case.

    Background: Our friends at Odyssey Marine have been trying to introduce a commercial model into the shipwreck salvage business. Among other roadblocks they face is the belief among entrenched and vested interests within the academic archeology community -- and in government in the U.S., Great Britain and Spain -- that a private “for profit” company can’t possibly practice good archeology.

    What, we want to ask, makes removing the profit motive and handing over the responsibility of preservation of artifacts or the maintenance of clean water and air to bureaucratic institutions a good idea? Are people who work for nonprofits and governments somehow more pure and honest than business and industry leaders?


    “If you can stand one more note on the EPA/regulation/who’s going to protect us from big bad BP debate, how about an observation for the reader who’s having problems fathoming stupidity.

    “The BP disaster, on which Byron King kept us up-to-date with preternatural accuracy, was arguably the worst man-made environmental disaster ever. It was also probably one of the most amazing engineering feats ever.

    “The entire alphabet soup of federal meddlers did nothing to prevent the disaster, and once it occurred, they did nothing to fix it, except to helpfully promise to keep their boots on the necks of the only people with the capacity to solve it. They were forced by the extreme urgency of the situation to do the only thing they could possibly do to help -- stay out of the smart people’s way.

    “Credible reports say the problem of plugging a pipe spewing millions of gallons of unwanted goo was evidently solved by… a plumber! He knew one of the academic eggheads involved, who sneaked the plumber’s proposal up through the chain of command. With the government no longer ‘protecting’ us, idea to engineering to fabrication to completion took about a month.

    “Hold that thought.

    “Almost simultaneously, my local paper (The State Journal-Register, Springfield, Ill., July 24, 2010) ran an article called ‘Flush With Resources.’ In Lake County, one of the Chicago collar counties, a forest preserve had just received permission to use rainwater collected in a cistern to flush some toilets. After four years. It took that long to work through all of the various bureaucracies. The actual work took a couple of weeks. Oh, and they’re required to treat the rainwater and dye it. So people can flush it down a urinal.

    “Recap: With government standing down, it took a plumber one month to solve the greatest man-made environmental screw-up of all time. With government at full capacity, it takes four years for a plumber to hook up a few toilets with technology that was ancient when Jesus was born.

    “Fathom that.”


    “I really love reading the Forecast, but please don’t use “Christ” in a commentary as you did in replying to that incoherent correspondent -- I know, I know, there are some whack jobs out there, and it is hard NOT to swear, but c’mon, guys, you are much better writers than that.”


    “Mr. Wiggin, I didn’t know that you were so religious! To emphasize your point in yesterday’s last comments, you called upon Christ and then the Almighty to help make your secular point.

    “I would be surprised if Christ or the Almighty lent any weight to your point. I just hope that he will help you use other words to make your points and treat those names with respect. Both those holy names are sacred for some of us.”

    The 5: You’re probably right. But I will point out only the first use of His name in vain was our own. We’ll do our best to be more respectful.

    Cheers,
    Addison Wiggin
    The 5 Min. Forecast

    P.S.: Ensco Intl., a respected builder and operator of offshore oil rigs, reported today they’ll buy out a competitor, Pride Intl., in a cash-and-stock deal valued at $7 billion.

    “I’m biased against such big acquisitions in general,” says Chris Mayer. “They rarely ever work out well for the acquirer’s shareholders who, most of the time, would’ve been better off without the deal.

    “Ensco is not the same company we bought,” Chris concluded. And, as such, told readers of Capital & Crisis to sell this morning… for 130% gains in two years.

    We bring this up for another reason. This is Chris’ third sell of 2011. The other two were for gains of 42% and 55%. And that’s added on to his 2010 track record -- nine new recommendations that gained an average 39%.

    Gains like that will offer ample protection against what Chris calls “the biggest scam in American history.” Details on how the scam works… and how you can protect yourself… in this presentation.


    Gold Daily and Silver Weekly Charts

    Posted: 07 Feb 2011 08:32 AM PST


    This posting includes an audio/video/photo media file: Download Now

    It's Time to Buy

    Posted: 07 Feb 2011 08:19 AM PST

    The value of gold may be plummeting but many gold stocks are clocking double-digit gains, according to Lawrence Roulston, the editor of the Resource Opportunities newsletter and an expert on mining investments. "It's definitely a buying opportunity. The fundamentals are strong, and we're seeing weaknesses in the prices on a short-term basis here," he says. In this exclusive interview with The Gold Report, Roulston explains why he loves the prospect generator model and why now is the perfect time to snub bullion and cozy up to mining equities.


    Hourly Action In Gold From Trader Dan

    Posted: 07 Feb 2011 08:10 AM PST

    View the original post at jsmineset.com... February 07, 2011 10:56 AM Dear CIGAs, Click chart to enlarge today's hourly action in Gold in PDF format with commentary from Trader Dan Norcini ...


    Copper, Food Prices and Strength of the Global Economy

    Posted: 07 Feb 2011 07:51 AM PST

    The week begins with another record high for copper and the suggestion, from an unlikely source, that the Federal Reserve may be sowing the seeds of its own demise.

    First, our friend "Dr. Copper," as it's sometimes known. The red metal is used in so many things – electrical wiring, plumbing, computers, air conditioning, refrigeration, defibrillation, horseless carriages, etc. – traders use its demand, and consequently its price, to "diagnose" the global economy.

    At $4.59 a pound, the good doctor would seem to be saying the global economy is fit as a fiddle. Or…indicating the onset of fever. From its panic low around $1.25, the copper price has nearly quadrupled in just two years.

    "Emerging market demand has been the big driver behind industrial metals," Chris Mayer, editor of Capital & Crisis, discusses the more likely scenario in a recent MarketWatch article. Hence, "these metals would also seem the most susceptible to any slowdown."

    And what are the chances of that? Pretty significant. "The industrial metals as a group are unattractive simply because I believe that emerging market demand will slow," Chris says. "There is too much hitting these countries too fast."

    Like oil. It's back to $100 a barrel, using the yardstick of Brent Crude that's becoming the new world standard.

    And food. "All around the world, emerging markets have a big problem with rising food prices," Chris wrote his Capital & Crisis readers last month. And that problem's set to get worse, judging by this development.

    The US Grains Council forecasts China's imports of corn are set to explode sevenfold in just a year – from 1.3 million metric tons in 2010-11 to 9 million in 2011-12.

    Nine million tons would double the previous record of 4.3 million tons set 15 years ago after a disastrous crop. If true, the high numbers will be driven by three factors:

    • China was hit with drought last year
    • But the country's growing middle class demands more meat…and most cattle and hogs are fed corn.
    • Worse, China has depleted its stockpiles. "We learned the government normally keeps stocks at 30%" of annual demand, says Terry Vinduska, US Grains Council chairman, "but they are currently a little over 5%."

    "In China, people spend 50% of every incremental dollar on food," Chris continues. "In India, it's more like 70%. So the rising price of food is felt more keenly in these markets" than we feel it in the West.

    Prices are rising faster in both of those markets. "In India, food prices are up 18% and at their highest level in a year. China has the same problem. Prices rose 5% in November alone.

    "All around the world, emerging markets have a big problem with rising food prices. Indonesia's president is trying to get people to grow their own chili peppers. And the South Korean government recently released emergency stores of cabbage, pork, mackerel, radish and other staples.

    "The emerging markets boom is not going to go far when it faces a food crisis. And if China and India and the rest slow down, it's going to have a huge impact on all those stocks and commodities most sensitive to emerging market growth."

    We'll be watching both food prices and copper to see if and when this fever turns to chill.

    Addison Wiggin
    for The Daily Reckoning

    Copper, Food Prices and Strength of the Global Economy originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

    Why it is still important to have gold in your portfolio

    Posted: 07 Feb 2011 07:36 AM PST

    by David Levenstein
    Monday, 07 Feb 2011 (Mineweb) — As we live in very uncertain times at the moment it is prudent to adjust to the prevailing circumstances in order to make the appropriate investment choices. …. The traditional investment instruments have always been equities, bonds and properties. And, since these are the investments most commonly touted and discussed by the main stream media, alternative investment classes are often overlooked.

    … But, no matter your personal investment choice and no matter what your stock broker tells you, every single investment portfolio should hold a percent of gold and silver. And, when it comes to gold, it is important to understand the dynamics of this precious metal.

    … It has everything to do with evaluating current economic and geopolitical trends as these are two main issues that will likely impact on the gold price in the next few years.

    inflation

    … When we look deeper and see that governments, especially the USA, have been debasing their currencies by their expansionary monetary policies we should understand the ramifications of this. What this has done and will continue to do is to make the US dollar weak. In the last ten years the US dollar has already lost more than 30% of its value when compared with other currencies. But, ultimately, since the US dollar is the reserve currency of the world this devaluation will drive the prices of commodities higher. Now, not only do governments have to find a way to stimulate their economies, they also have to find a way to deal with the burgeoning debt as well as high unemployment. But, in addition, as commodities become more expensive, the rate of inflation is going to increase. And, when these higher prices affect the price of staple foods of many poorer nations, we can expect to see unrest amongst the population. So, now in addition, to huge national debt, currency wars, slow GDP growth, high levels of unemployment, increasing inflation we are also going to see more geopolitical turmoil.

    … Peter Munk, chairman of the world's largest gold producer Barrick Gold, couldn't have said any better when he spoke in an interview at Davos recently. He said, "If you are a utopian, if you believe the problems of currency, the problems of terrorism, the problems of unrest around the world will all be resolved by the end of the year, then gold would have a difficult path. If you believe like I do that we bought ourselves a temporary peace from the panic of last year and the year before, [and] that the fundamentality of the problems are long term still issues, then your attitude will be a bit more positive toward gold."

    [source]

    Gold Tsunami

    Posted: 07 Feb 2011 07:08 AM PST

    Ignoring real estate, most people invest their hard earned money in paper things. Stocks, bonds, annuities, insurance - it’s all paper, and it sits nicely in our bank accounts and shows up on our computer screens. Halfway across the world, investors in China and India have never trusted paper investments as a store of value - and they’re converting their hard earned paper money into gold and silver bullion. Not that this is anything new. It isn’t. But the scale and speed with which they are accumulating precious metals IS new, and it’s driving the fundamentals that we believe will lead to higher prices in 2011. Demand for the metals is literally exploding in Asia, and it’s creating shortages of physical bullion around the world. The statistics are extraordinary. China, the world’...


    For week ending 04 February 2011

    Posted: 07 Feb 2011 06:44 AM PST

    Technically Precious with Merv Gold bottomed and looks to be moving higher BUT the volume is just not there to be encouraging. The next week or so will tell us if it is going towards higher levels or if the downside will continue. Time constraints and no chit chat this week, just the facts. GOLD LONG TERM Well, the P&F advice to wait for the $1320 support to be broken, with a move to $1305, before going P&F bearish is working, so far. The final support is still holding so we'll keep our fingers crossed hoping that now we can go into higher ground. With the turmoil in the Middle East I would have expected a more exuberant gold move but it does what it has to do to confuse most traders. My normal indicators are still giving us a positive reading. Gold bounced off its long term moving average line and remains above the line. The moving average line itself is still in a positive trend. The long term momentum remains in its positive zone although it has...


    Monday Market Movement - Where Else?

    Posted: 07 Feb 2011 06:36 AM PST


    Monday Market Movement - Where Else?

    Courtesy of Phil of Phil's Stock World

    I read the news today, oh boy...

    I need to remember not to do that when I'm trying to get bullish.  Fortunately, we already grabbed a new set of "5 Trades that Make 500% in a Rising Market" to follow up on our original set, now just about 2 months old, that have already hit their cumulative 5,000% target gains in this totally ridiculous, always rising market. 

    We may complain about HOW the game is rigged but if practically every single roll of the dice comes up seven or eleven - you can't blame us for betting on the trend.  As the United States of Zimbabwe barrels forward on Ben Bernanke's hyper-inflationary crazy train - we will go along for the ride - just don't be surprised if we jump out before the rest of the riders hit the final terminal, with terminal being the operative word.

    Take silver (please) as an example.  There are now $102 Billion tied up in metals ETFs and the silver ones now hold 4 full years of US production.   This is not including stockpiles that have been added to Central Banks and private investors (JPM is rumored to be one) and it makes us wonder - what is the exit strategy.  How do you sell 4 years worth of production in a single year, or in two years?  Do you try to undersell the miner's production costs (for silver, that would be about $5) to get them to shut down production while you unload or do you form some kind of cartel that controls the flow of silver for the next 20 years?

    Gold is just as bad with speculators now holding more gold than all but 4 of the World's Central Banks.   2,028 metric tons of gold, worth $88Bn are now held by ETFs.  They accounted for 21% of all global demand last year and, despite hedge funds (the "smart money"?) cutting their positions by 42% since October, the net long float of futures contracts is STILL 151,000, almost 3 times the 18-year average.  That, my friends, is a lot of bull! 

    Investing into commodities, like high-flying stocks, is easy.  The trick is getting out.  That's why we've been using short-term bearish bets to cover long-term bullish positions - you never know when this ride will come to and end and there's no guarantee that we'll be able to get out with our bullish trades intact.  Still, the bullish trades we continue to take in our aggressive portfolios are still inflation-based as that does seem to be the story that is not going away...

    We were into gold since March of 2009, when we set a $875 entry target in our public article - "Spinning Straw Trades Into Gold."  Gold hit our $875 entry point ($859.90 was the low) and we rode that baby to the moon - or at least to $1,200 in October, when we decided we were on the boarder of greed and led the charge of the hedge funds out of the metal.  I have since been looking for a pullback to $1,150 for a re-entry but, at this point, I'll settle for $1,200 - but we might not even get that the way our Central Bankers have been talking ("Mo Free Money!").

    That's why you've gotta love those "Secret Santa's Inflation Hedges" which, as noted in the weekend post, is also way outperforming our expectations although, of course, not on the level of our more-leveraged "Breakout Defense" plays.  The unusual "up every day" aspect of this market is KILLING our short-term bearish plays. 

    We like to see SOME corrections - just to let us know how firm the bottoms are but no such luck in SUPER Market, which is up, up and away almost every day - but especially on Mondays.  Does that mean it's time to give up and go 100% bullish?  No, that would be dumb.  As I said over the weekend, this is the same pattern we went through last December - first leading off with some aggressive bullish plays, like our Breakout Defense Trades and then layering in more upside, inflationary trades like the Secret Santa set - in addition, of course to our usual, sensibly-hedged, long-term positions we like to base on the actual fundamentals of the companies we invest in (I know - what is that?). 

    So if we are out of gold along with 42% of our hedge fund buddies then who is buying?  If we are (and I hope we are!) the "smart money,"  who is the "dumb money" that has taken gold 10% higher than our exit?  One candidate I see is Hosni Mubarak and other nervous World "leaders" who are shifting their assets to something more "transportable" while the peasants mass outside their gates, holding signs like "bread or heads." 

    Mubarak alone is (shown sitting on his favorite gold chair) good for an estimated $50Bn - just 10% of his assets moving to gold would represent 10% of all ETF hoarding last year.  How many Mubaraks are stocking up, not only on gold but silver, oil, copper, wheat, even NetFlix - whatever it is that oppressive regime leaders feel is going to help them safely set up a new life as a man-about-town leisure-class investor in another country?

    If we are going to try to get more bullish - we need to know who our co-investors are so we can contemplate where they are likely to begin stampede for the exits but, as I noted last week - the dumbest money on the planet has the deepest pockets of them all - our beloved Uncle Ben and his multi-trillion dollar printing machine.  That machine can keep spitting out bills forever as it has a hose on the back end that sucks the money right back out of our bank accounts through currency devaluation and inflation.  

    As Bloomberg states: "The Federal Reserve’s Treasury purchases already have succeeded in driving investors to junk bonds and stocks. Now, policy makers are focusing on benchmark government securities, helping contain rising yields that set rates on everything from corporate debt to mortgages. More than 40 percent of the government bonds the Fed bought in January for its so-called quantitative easing were auctioned in the previous 90 days, up from 20 percent in December and 15 percent in November, according to Bank of America Merrill Lynch. " 

    Oops, sorry - trying to stay bullish!  

    - Phil

    Top chart by Gordon T. Long  

    Try out Phil's Stock World with a 20% discount here. 

    LGMR: Silver-Price Backwardation Points to "Heavy Physical Buying"

    Posted: 07 Feb 2011 06:05 AM PST

    London Gold Market Report from Adrian Ash BullionVault Mon 7 Feb., 08:20 EST Gold "Goes Quiet" as US Futures' Position Hits 18-Month Low; Silver-Price Backwardation Points to "Heavy Physical Buying" WHOLESALE PRICES to buy gold and physical silver bullion were unchanged on Monday morning in London, holding steady with commodity prices as global stock markets rose. With the US Treasury slated to sell $72 billion in new debt this week, major-economy government bond prices slipped, pushing 10-year UK gilt yields up to a 9-month high ahead of Thursday's Bank of England decision on interest rates. The Bank of England last changed its key "Bank Rate" in March 2009, cutting the cost of loans to commercial banks to a record low of 0.5%. Since then, prices to buy gold have risen by more than one-quarter against the Pound Sterling, rising 17% in real, inflation-adjusted terms. Cash held in UK bank-deposit accounts has meantime lost 6.5% of its real purchasing power. "Gold is go...


    Greasing the Wheels of Oil Production

    Posted: 07 Feb 2011 06:00 AM PST

    There's a common theme to my efforts on behalf of my Outstanding Investments subscribers. Yes, I like companies that control real resources like oil, natural gas, copper, gold, silver, etc. I look for the basic resource value. But beyond these basics, I look for companies that control resources and have the technology to extract them and add value.

    A company like Venoco (NYSE:VQ) is just one intriguing example. Venoco is applying rock-fracturing technology to California's Monterey Shale. If the company accomplishes what it aims to do – increase oil recovery from shale – there's the strong potential for Venoco to transform its shale acreage into a recoverable billion-barrel oil resource.

    Or look at Talisman (NYSE:TLM). Here's a company that's not just leading the charge to fracture shale formations for the shale gas, but also working with South African refiner Sasol to turn "stranded," low-value natural gas into high-value liquid fuel. In other words, Talisman is working to add value at the upstream stage and capture that value for its bottom line – and, of course, for the shareholders.

    Over and over in Outstanding Investments, I have highlighted resource technology companies like Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI).

    These global oil field service giants provide the essential technological foundations of modern-day energy extraction. If any of these three companies simply vanished overnight, the world energy system would start to break down by the following morning. Without their technology – and their corporate ability to integrate systems of systems – the world would quickly revert to an energy state of the 1850s or so.

    I should add that you can't just pigeonhole these guys. It's way too glib to say that Schlumberger is a great wireline company, Halliburton is a great well cementing company and Baker Hughes is a great drill bit company.

    Yes, each statement is true, as far as it goes. But each company also offers a full line of energy-development technology, with the process thinking and systems management to make it happen.

    Beyond just the extraction phase, you need to think in terms of upgrading the products into something else – product transformation. For example, I've held Weyerhaeuser (NYSE:WY) in the Outstanding Investments portfolio for a couple of years. No, it's NOT that I'm playing on the possibility of a housing recovery, although that would doubtless be good for a "tree growing company" like Weyerhaeuser.

    It's more that I like Weyerhaeuser because it controls large swaths of biomass – that is, "trees" and all the other stuff that comes from growing and harvesting trees. I mean lumber, of course, plus bark, chips, sawdust and everything else that comes out of those vast swaths of forestland up in Washington, Oregon, etc.

    So Weyerhaeuser controls biomass – but now what? Weyerhaeuser is partnered with no less than oil giant Chevron to develop – "leapfrog" is more like it – new technology to turn this biomass into something that a refinery can process. This is far beyond the primitive idea of using corn for ethanol. Really, burn your food and deplete the agricultural soil just for motor fuel? (That's why I call it "deathanol").

    So Weyerhaeuser has the biomass – the fundamental raw material. Chevron has the refining and marketing power. Now all they need is the correct technology to turn wood chips, etc., into a feedstock for refining fuel. It's going to happen in a big way, and likely within five years or so.

    So when you're looking around for hi-tech investments, don't forget to look around for the world's cutting-edge energy service companies.

    Regards,

    Byron King
    for The Daily Reckoning

    Greasing the Wheels of Oil Production originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

    Eric Sprott On A "Gold Tsunami"

    Posted: 07 Feb 2011 05:59 AM PST


    Gold Tsunami

    By:  Eric Sprott & David Franklin of Sprott Asset Management

    Ignoring real estate, most people invest their hard earned money in paper things. Stocks, bonds, annuities, insurance - it’s all paper, and it sits nicely in our bank accounts and shows up on our computer screens. Halfway across the world, investors in China and India have never trusted paper investments as a store of value - and they’re converting their hard earned paper money into gold and silver bullion. Not that this is anything new. It isn’t. But the scale and speed with which they are accumulating precious metals IS new, and it’s driving the fundamentals that we believe will lead to higher prices in 2011.

    Demand for the metals is literally exploding in Asia, and it’s creating shortages of physical bullion around the world. The statistics are extraordinary. China, the world’s largest gold producer, now requires so much of the precious metal (in addition to what it already mines) that it imported over 209 metric tons (6.7 million oz) of gold during the first ten months of 2010. This represents a fivefold increase from the estimated 45 metric tons it imported in all of 2009.1

    According to the World Gold Council, Chinese retail demand for gold increased by 70% from October 2009 to September 2010, representing a total of 153.2 tonnes of gold imports. Yet, over the same period, the demand for gold jewelry rose by only 8%.2 There is a clear trend developing for Chinese investment in gold as a monetary asset, and China is buying so much gold for investment purposes that it now threatens to supercede India as the world’s largest gold consumer. Chinese demand in 2010 is expected to reach approximately 600 tonnes, just behind India’s 800 tonnes.3 To put that in perspective, 2010 world mine production is forecasted to be 2,652 tonnes, which means China and India could collectively lock-up over half of global annual production.

    Even more surprising is the increase in Chinese demand for silver. Recent statistics show that silver imports have increased fourfold from 2009 to 2010. In 2005, the Chinese exported just over 100 million oz. of silver.4 In 2010, they imported just over 120 million oz. This represents a swing of 200 million+ oz. in a market that supplied a total of 889 million oz. in 2009 - a truly tectonic shift in demand!5

    We are seeing widespread evidence of major shortages of physical gold and silver bullion across the globe. The Perth Mint recently stated that: "Demand for our coins and medallions is strong, but the biggest demand is coming from banks and traders looking for kilo bars."6 Three weeks ahead of Chinese New Year, Asian dealers were reporting premiums in mainland Chinese gold exchanges of $23 per ounce.7 Even Jim Cramer has acknowledged the current shortage in minted US gold coins, stating on his CNBC television show in December that: "As someone who tried to buy U.S. coins in December, there was a real scarcity. My dealer reportedly just couldn’t get any coins - tried to sell me Australian bullion. Said there was a shortage. Very telling."8

    While Chinese New Year celebrations typically drive gold demand in the month of January, there are stronger forces at work here. The Chinese are fighting the resurgence of inflation. To protect their wealth, the populace is turning to gold and silver as a store of value. Precious metals ownership is a relatively new phenomenon in China, where Chinese citizens have only been able to purchase gold freely within the last ten years. Ownership restrictions were lifted in 2001 when the Chinese central bank abolished its long-term government monopoly over gold. The Shanghai Gold Exchange was then created in October 2002 to replace the People’s Bank of China’s gold purchase and allocation system, thus ushering in a new era of gold investment in China.9 Investor interest in precious metals has increased dramatically since then, and new investment products are making gold more convenient to purchase and easier to own.

    One such program recently caught our eye and speaks to the new era of gold investment within China. On April 1, 2010, the World Gold Council and Industrial and Commercial Bank of China (ICBC) issued a press release announcing a strategic partnership.10 Though seemingly innocuous, this press release introduced a completely new investment product for Chinese investors: The ICBC Gold Accumulation Plan ("ICBC GAP"). ICBC GAP allows investors in mainland China to accumulate gold through a daily dollar averaging program. The minimum investment required is either 200 RMB per month or 1 gram of gold per day (equivalent to approximately US$42).11 Customers may renew the contracts at maturity, convert them into cash or exchange them for physical gold. The accounts are perfect for investors who want to accumulate gold over the long-term. While gold accumulation plans exist in Japan, Switzerland and other countries, this is a first for mainland China. Kudos to the World Gold Council for their efforts in setting up and promoting the program.

    The most significant fact related to the ICBC GAP program is how fast it has captured the investing public in China. One million accounts have already been opened since the program launched on April 1st, resulting in the purchase of over 10 tonnes of gold thus far. According to press releases, the ICBC GAP plan was taken up by a mere 20% of total depositors at ICBC, and was only launched in select Chinese cities during the test phase. The ICBC bank just happens to be the largest consumer bank on earth with approximately 212 million separate accounts. If we apply some realistic assumptions and arithmetic, it’s easy to imagine how large this program could potentially become.

    Suppose, for example, the ICBC GAP plan were expanded to cover all ICBC depositors, and also expanded to the next four largest Chinese banks. Let’s further assume that the gold purchases within the plan enjoyed the same rate of growth as the test phase mentioned above. If we add all these numbers together, it results in gold purchases of an extra 300 tonnes of gold per year, or over 10% of the estimated 2010 global gold production.

    The implications of this burgeoning Chinese demand for the gold market are immense. If these predictions prove accurate, the ICBC GAP plan could become the single largest buyer of physical gold on the planet. Considering that the program has only been launched in one Chinese bank thus far, imagine if it were extended to other institutions or other large gold consuming countries such as India, Russia or Turkey?

    Speaking from Japan, the head of the World Gold Council recently commented on the early success of the ICBC GAP plan in China: "Here in Japan, it has taken over 10 years for the gold-savings account industry as a whole to reach 700,000 accounts. It is impressive that only one Chinese bank can exceed that level so easily, within one year, without PR or active marketing in-branch." The World Gold Council does their own arithmetic on how much gold the Chinese can consume: "In 2009, per capita gold consumption in China was 0.33 grams, up from 0.17 grams in 2002." Based on this data total Chinese gold consumption could range from 1,000 tonnes per year or more.12 This implies that the Chinese could consume almost half of the gold produced globally on an annual basis.

    The ICBC Gold Accumulation Plan and other alternate methods of investing in gold have the potential to overwhelm current supply in the gold market. If a similar program were launched for silver accumulation, in the same dollar terms at current prices, it would consume over half of the silver produced each year! In Asia, only physical gold and silver will do… and unlike the supply of treasury bills, bonds or paper currencies, the supply of physical gold and silver is undoubtedly finite.

    We believe Asian demand for physical gold and silver is akin to a tsunami. While precious metals prices have corrected on the paper exchanges, the inflation resurgence in Asia is quietly driving new, unforeseen levels of physical demand for the metals. While the world continues to float on a sea of paper, this massive wave of physical demand silently threatens to crash into the physical gold and silver market, potentially wiping out tangible supply.

     

     

    1 Hook, Leslie. (December 2, 2010) China’s gold imports surge fivefold. Financial Times. Retrieved on January 31, 2011 from:
    http://www.gold.org/download/rs_archive/WOR5797_Gold_Invest_Report_China_Web.pdf
    2 D’Altorio (December 30, 2010) China’s Gold Rush. Investment U. Retrieved on January 31, 2011 from:
    http://www.investmentu.com/2010/December/chinas-gold-rush.html
    3 Pearson, Madelene. (January 12, 2011) Gold Imports by India Likely Reached Record, WGC Says. Bloomberg Businessweek. Retrieved on January 31, 2011 from:
    http://www.businessweek.com/news/2011-01-12/gold-imports-by-india-likely-reached-record-wgc-says.html
    4 (December 2, 2010) Gold Imports by China Soar Almost Fivefold as Inflation Spurs Investment. Bloomberg. Retrieved on January 31, 2011 from:
    http://www.bloomberg.com/news/2010-12-02/china-gold-imports-jump-almost-fivefold-as-inflation-outlook-spurs-demand.html
    5 The Silver Institute. Demand and Supply in 2009. Retrieved on January 31, 2011 from:
    http://www.silverinstitute.org/supply_demand.php
    6 Campbell, James (January 12, 2011) Unrelenting demand for gold below $1400 - Perth Mint. Retrieved on January 30, 2011 from: 
    http://www.mineweb.com/mineweb/view/mineweb/en/page103855?oid=118307&sn=Detail&id=102055
    7 Ash, Adrian (January 12, 2011) Shanghai Gold Premium Hits $23/Oz, China Opens 1 Million Gold-Savings Accounts. London Gold Market Report. Retrieved on January 31, 2011 from: http://www.resourceintelligence.net/shanghai-gold-premium-hits-23oz-china-opens-1-million-gold-savings-accounts/14715
    8 CNBC: Buy this pause in gold’s bull run, "Mad Money" host Jim Cramer advises. Retrieved on January 31, 2011 from:
    http://www.blanchardonline.com/investing-news-blog/econ.php?article=1697&title=CNBC%3A_Buy_this_pause_in_gold%27s_bull_run%2C_%22Mad_Money%22_host_Jim_Cramer_advises
    9 China Gold Report: Gold in the Year of the Tiger. The World Gold Council (March 29, 2010). Retrieved on January 31, 2011 from: http://www.gold.org/download/rs_archive/WOR5797_Gold_Invest_Report_China_Web.pdf
    10 World Gold Council (April 1, 2010) World Gold Council and ICBC Enter into Strategic Partnership to Promote China’s Gold Market. Retrieved on January 31, 2011 from: http://www.gold.org/download/pr_archive/pdf/ICBC_MOU_010410_pr.pdf
    11 World Gold Council. (December 16, 2010) World Gold Council and ICBC launch first gold accumulation plan in China. Retrieved on January 31, 2011 from: http://www.gold.org/download/pr_archive/pdf/2010-12-16_ICBC_GAP_release.pdf
    12 Ash, Adrian (January 31, 2011) Gold Shorts Beware China’s Million-Strong Gold Savers. Forbes. Retrieved on January 2011 from: http://blogs.forbes.com/greatspeculations/2011/01/13/gold-shorts-beware-chinas-million-strong-gold-savers/

     

    Silver Backwardation – What To Make Of It

    Posted: 07 Feb 2011 05:59 AM PST

    upside down house

    Reading time: 8 – 12 minutes

    In the monetary metals there has been sustained gold backwardation and silver backwardation. This esoteric subject distills into two main elements: (1) interest rates and (2) risk management. The backwardation implies abnormalities in the interest rate structure and/or heavy demand for physical bullion driven by either averseness to counter-party risk or exchange rate risk that could result in the currency event of hyperinflation or the paranoid gold and silver bugs have recently mutated into much larger organisms.

    READER QUESTION – WHERE ARE YOU?

    I have not written for a few weeks and received a rather funny email from a reader: "Did you call this about 15 months ago? POT  NYSE You sly Mofo. Where are you? Did someone threaten you like Lindsay Williams was?"

    I figure the response may be helpful to all. Yes, about 18 months ago on Business News Network in Canada I did make a buy call on Potash Co. (POT). It has since rocketed higher. I have been bouncing around in the clouds flying around tiny islands, including Saint Kitts and Dominica, with Bill Rounds, my co-author of How To Vanish.

    I was only threatened by one person, an attractive female Customers and Border Patrol agent in Puerto Rico. Because ATC diverted us around a military exercise we were late arriving and I did not call. Then on the way back through Puerto Rico I failed to call again and while searching our plane she actually got out a Geiger counter, seriously! What is it with women always wanting you to call them back? So, next time I am headed through Puerto Rico and since my smile did not work to appease her if anyone knows where I can get a cell phone like Gordon Gekko so that I can call CBP next time I would be extremely grateful.

    SILVER BACKWARDATION AND INTEREST RATES

    The monetary metals have an interest rate which is the percentage difference between the future price and spot price. Currently the market treats only gold as a primarily monetary commodity. Silver, platinum and palladium are treated as quasi-monetary commodities. Gold is produced primarily to be hoarded while most silver, platinum and palladium demand is for a wide variety of industrial uses like a Gordon Gekko cell phone.

    In early 2009 I wrote about the silver backwardation. James Turk, Chairman of GoldMoney, made several insightful observations about silver's backwardation in his 4 December 2010 article about the Scramble For Physical Metal.

    These supply and demand differences is a primary reason why I am extremely bullish on platinum and recommended accumulating it in July 2009 around $1,118 per ounce. My opinion is that during The Great Credit Contraction the monetary demand for silver, platinum and palladium will increase for all the same reasons why gold functions as money. It will no longer be fiat currency, such as FRN$, Euros, Yen, British Pounds, etc. versus only gold but instead versus gold and every other commodity.

    This paradigm shift from a debt-based consumption cycle to an equity based savings cycle will be a sea change like an upside down house to many. The real interest rates of the commodities are a function of their storage and attrition costs. Thus, silver, platinum and palladium will have tremendous advantages over alternative commodities like rice, corn, oil, etc.

    The New York Sun reported Alan Greenspan's 15 September 2010 remarks to the Council on Foreign Relations:

    If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it. … Fiat money has no place to go but gold.

    Like Mr. Greenspan I favor using gold as one's numeraire but my prognostication is a little broader. Not only does fiat currency have gold to move into but also silver, platinum and palladium unless he knows something about future worldwide monetary policy that has not been publicly released.

    With quantitative easing and the zero interest rate environment the fiat currency interest rate structure is extremely distorted. This increases demand for silver in the immediate term because the cost of fiat currency is so low while demand is waning and storage fees are perceived to be less expensive than the estimated counter-party risk cost. It takes a bailed out zombie to know a bailed out zombie!

    The net effect are negative real interest rates. So long as negative real interest rates are persistent the gold bull market, with silver and platinum having an R-squared correlation coefficient of about 98%, will remain intact. But as Adrain Douglas has astutely observed if there is increased monetary demand for silver then this correlation can be disrupted or change completely.

    INCREASED SILVER MONETARY DEMAND

    So an important issue becomes has there been a material increase in silver's worldwide monetary demand?

    The United States Mint recorded January 2011 sales of American Silver Eagles to be 6.42 million which easily surpassed the previous monthly record of 4.26 million in November 2010. This increase in demand was in spite of the price of silver increasing by about $2 per ounce in November while it declined about $3 per ounce in January. Increased demand for silver in India was about 70 million ounces in 2010 while China went from exporting about 40 million ounces in 2009 to importing 40 million ounces in 2010. Then there is John Embry's revelation that it took about two months to stock the Sprott silver trust. Additionally, there appears to be shortages developing for 100 ounce silver bars.

    Because of the increased demand for silver as a monetary instrument by Americans in the form of legal tender coins and 100 ounce bars, the incredible increase in demand from India and China of about 150 million ounce difference between 2009 and 2010, about 25-30% of worldwide production, and the creation of the Sprott silver trust (PHYS) therefore it appears that there is a material and consistent increase in the worldwide demand for silver as a monetary instrument. Because of the deficiencies of the GLD ETF and similar unusual activity with the SLV ETF it is interesting to note that significant redemptions are being made which implies the ETFs are being tapped as a source of physical bullion to meet immediate delivery demands.

    The aboveground stockpiles of silver are tiny compared to gold. On the other hand, central banks around the world have created $20-50 trillion of new currency digits over the past few years. To remain liquid and risk-free in terms of either (1) counter-party or (2) hyperinflation, the value represented by these imaginary units sometimes printed on colored coupons have primarily nowhere to go in regards to monetary commodities but gold, silver, platinum and palladium.

    CONCLUSION

    Monetary demand for silver is primarily from savers who consume less than they produce and want a liquid and safe store of value while they are engaged in other activities, like flying around in the clouds. The current interest rate structure is likely causing headaches for the arbitrageurs dealing in large amounts who are attempting to squeeze profits off a penny or two per ounce because of the tremendous amount of risk they expose themselves to as savers demand delivery physical metal.

    With the worldwide bailout of the financial system, the Irish central bank printing billions of Euros, the Federal Reserve engaged in quantitative easing and general competitive currency devaluations worldwide it appears the current fiat currency and fractional reserve banking system has been duck taped together and is not at significant risk of imminent failure; largely because there is no significant alternative.

    With demand from the American and European public, India, China and the Sprott silver trust therefore it appears that the gold and silver bugs have mutated into much larger organisms and are preparing for currency upheaval and perhaps even a new worldwide currency system. There is a high probability that gold, silver, platinum and palladium will continue to increase in price relative to fiat currencies.

    After all, fiat currencies are merely a confidence game and it is hard to have confidence in a figment of the imagination that is being rapidly increased in amount. Thus, a prudent saver should continue accumulating the monetary metals on a regular and consistent basis from reputable firms like Apmex or GoldMoney as gold, silver, platinum and palladium have become performing insurance against fiat currency failure.

    Copyright © 2008. This article was published on http://www.RunToGold.com by Trace Mayer, J.D. on February 7, 2011. This feed is for personal and non-commercial use only. Applicable legal information and disclosures are available. The use of this feed on other websites may breach copyright. If this content is not in your news reader then it may make the page you are viewing an infringement of the copyright. Please inform us at legal@runtogold.com so we can determine what action, if any, to take. If you are interested in how to buy gold or silver then you may consider GoldMoney.(Digital Fingerprint: 1122aabbLittleBrotherIsWatching3344ccdd)
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    RELATED POSTS:

    1. Silver Slips Out Of Backwardation
    2. Silver Trending Towards Backwardation Again
    3. Five Weeks Of Silver Backwardation
    4. Inflation With Gary North Or Deflation With Mish
    5. Platinum And Silver Valuation And Volatility



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    Einstein Was Right - Honey Bee Collapse Threatens Global Food Security

    Posted: 07 Feb 2011 05:52 AM PST

    The bee crisis has been treated as a niche concern until now, but as the UN's index of food prices hits an all time-high, it is becoming urgent to know whether the plight of the honey bee risks further exhausting our food security. 

    Almost a third of global farm output depends on animal pollination, largely by honey bees.
    These foods provide 35pc of our calories, most of our minerals, vitamins, and anti-oxidants, and the foundations of gastronomy. Yet the bees are dying – or being killed – at a disturbing pace.
    The story of "colony collapse disorder" (CCD) is already well-known to readers of The Daily Telegraph.
    Some keep hives at home and have experienced this mystery plague, and doubtless have strong views on whether it is caused by parasites, or a virus, or use of pesticides that play havoc with the nervous system of young bees, or a synergy of destructive forces coming together.
    The bee crisis has been treated as a niche concern until now, but as the UN's index of food prices hits an all time-high in real terms (not just nominal) and grain shortages trigger revolutions in the Middle East, it is becoming urgent to know whether the plight of the honey bee risks further exhausting our already thin margin of food global security.
    More Here..

    Jim's Mailbox

    Posted: 07 Feb 2011 05:51 AM PST

    Gentlemen,

    Looking at the long term long bond interest rate chart, I wanted to bring to your attention some salient features. This may be the beginning of the end of the long bond bull market in interest rates. This chart is presenting some nice time/price moves along its length/height. Of particular interest is the possibility of the ending arc to be brought into play at some time in the future with arc A equalling arc B. Arc B has a value of "pi," so, there's likely a high resistance around that arc.

    TYX is coming back into balance with the summer 2008 highs. We shall have our answer this week if price can close above the upper trendline. It's nicely anchored into the pattern as annotated. A monthly close above it will seal the deal leading to a target above the measured move time / price target of 50.5, likely arc B.

    It will be interesting to watch the FED response at this point in time, as they are aware of the ramifications if they loose control of the long end of the yield curve.

    Best regards to all,
    CIGA Tim

    clip_image002

    Dear CIGAs,

    You will be interested in seeing this agenda.

    Regards,
    CIGA Pedro

    Is the IMF encouraging central banks to buy Gold?

    9:00 a.m.–10:30 a.m. Session I—Gold and Inflation Hedging

    This session discusses the role of gold and inflation-indexed securities vs. short- duration assets to protect against inflation in a diversified portfolio.

    • What are the benefits of holding gold in a diversified portfolio? To which extent can gold offset the risk of holding longer maturity bonds?

    Click here to read the full PDF…

    China says 2010 gold production hit record high

    Posted: 07 Feb 2011 05:40 AM PST

    February 7, 2011 (Associated Press) — Chinese state news service says the country's gold production hit a new record last year… China is the world's top gold producer after overtaking South Africa in 2007.

    The state-run Xinhua News Agency on Sunday cited the China Gold Association as saying last year's output was 340.88 tons, an increase of more than 26 tons from the year before.

    … China, like many countries, views gold as a source of protection against financial risk.

    [source]

    Commodities Update: Copper Above $10,000 a Ton as Supply Concerns Continue

    Posted: 07 Feb 2011 05:34 AM PST

    Proactive Investor submits:

    Commodity markets started the week on a positive note Monday, with easing tensions in Egypt helping sentiment more broadly, although concerns are still sufficient enough to keep oil bulls in charge of the energy complex.

    Brent crude has pushed back above the key $100/bbl mark today, having dipped below it on Friday on mixed U.S. employment data. Although, broadly speaking, the tension in Egypt was easing over the weekend, the potential impact on the oil market is too much to ignore for market players, with a high-ranking Kuwaiti official saying over the weekend that oil could hit $110/bbl if the problems continue. This comes on the back of wider speculation that oil could top $200/bbl if Egypt decides to shut down the Suez Canal.

    Precious metals have managed to squeeze higher for the most part this morning, although gold is underperforming its higher beta counterparts as money flows away from safe haven assets today. The technical picture shows the 21-day moving average continuing to keep overhead resistance on the spot price of the yellow metal today around $1,351/oz, although with 10-day momentum and the daily stochastics both pushing into positive territory, a break above this point is a definite possibility, opening up further bids back towards the October peak around $1,387/oz.

    Base metals have been seeing broader gains today as wider risk appetite increases, while news on Friday that U.S. unemployment fell from 9.4% to 9% continues to help prices. Copper is most notably among the


    Complete Story »


    ‘Suicide Bombers’ in the Gold Market?

    Posted: 07 Feb 2011 05:22 AM PST

    I was listening to another fine interview on the King World News site, this one with Ben Davies of Hinde Capital, when I was immediately intrigued by some of Davies' remarks.

    He stated that he considered the entire, recent trading-episode in the gold market "suspicious", for two reasons. First of all, he was susprised that any (competent) trader would have leveraged himself into such a dangerous position in the first place. Secondly, and connected with his first observation, he expressed equal surprise that the so-called "regulator" (i.e. the CME Group) would have allowed such a flawed and vulnerable trading position to have been created, in the first place.

    What Davies (and others) have apparently not considered is that this "leveraged", "dangerous" trade was created to fail – in spectacular fashion. Essentially it appears that the Wall Street banksters (and the corrupt institutions who serve them) have imported the terrorist concept of "the suicide bomber" to precious metals markets.

    For those not familiar with the episode Davies refers to, a previously unknown "metals trader" named Daniel Shak used $10 million to leverage his way into an $850 million "spread trade" (i.e. 85:1 leverage) in the U.S. gold futures market - equal in size to more than 10% of this entire market.

    With the banksters printing-up "money" by the trillions, $10 million is nothing more than "pocket change", and even eating the entire $850 million loss represents just slightly more than 0.1% of Bernanke's most recent money-printing. Does anyone here think that Wall Street would be happy to throw away a mere $850 million – when default in the precious metals market threatens JP Morgan (and others) with out-and-out bankruptcy?

    The logic here is elementary. When you have a committed hyperinflationist like Ben Bernanke ready to create another $600 billion (out of thin air) with merely a mouse-click – any and every time Wall Street requests a new shipment of Bernanke-bills – then throwing away (deliberately) a few billion dollars on a "bad trade" is (literally) no different than losing a game of "Monopoly".

    The "game" ends, another batch of Bernanke-bills is printed up – and another "suicide bomber" enters the precious metals market. While readers may be horrified at yet another example of Wall Street's incessant "economic terrorism", precious metals investors need have no fear of yet another desperation tactic by this crime syndicate.

    As I regularly remind readers, none of the games the bankers play in markets (and "terrorism" is currently their favorite game) can do anything more than briefly stall the rise in precious metals. The bottom-line will always remain that once the last of the banksters' (real) bullion has been given away…by themselves…at rock-bottom prices, then their manipulation games are finally over.

    Yes, the banksters have leveraged their actual bullion by (at least) 100:1. Yes, these reckless criminals will continue to increase that insane leverage – to 1000:1, or even 1,000,000:1. The only important number in this ratio is the "1" on the right. It is totally irrelevant (on a long-term basis) how far the banksters are able to ratchet-up their leverage – on their road to self-destruction.

    Once the "1" on the right becomes a "0", the game is over. A "hundred times" zero is still zero. A "billion times" zero is still zero. When their "physical" bullion is gone, their entire empire of manipulated bullion markets, and bogus "bullion products" will simply evaporate into thin air – just like the rest of the banksters' fiat-paper empire.


    J.P. Morgan to accept gold as repo collateral

    Posted: 07 Feb 2011 05:19 AM PST

    By Greg Morcroft
    February 07, 2011 (FOX/MarketWatch) — J.P. Morgan Chase & Co. said on Monday that its J.P. Morgan Collateral Management business will be the first tri-party collateral manager to accept physical gold as collateral to satisfy securities lending and repo obligations with counterparties.

    "The ability to finance and leverage the broadest range of asset classes is important to our clients. Many clients are holding gold on their balance sheets as an inflation hedge and are looking to make these assets work for them as collateral," John Rivett, Collateral Management Executive at the company said in a press release."

    "By combining our collateral management and vaulting capabilities, we provide clients with greater flexibility in how they mobilize collateral," he added.

    [source]

    ALSO . . .

    JPMorgan takes gold collateral, inflation in focus
    by Amanda Cooper
    Feb 7 (Reuters) — J.P. Morgan Chase said on Monday it would accept physical gold as collateral with its counterparties as a growing number of clients look to use bullion as a hedge against inflation.

    … JPMorgan, which owns vaulting facilities for storing precious metals around the world, said the initiative would allow its clients to mobilise collateral across borders and trading activities, "regardless of the underlying obligation, to extract maximum value and manage risk," it said.

    [source]

    see also . . . J.P. Morgan's Press Release

    RS View: This could be a very good thing insofar as it helps spotlight gold's utility as bedrock wealth. But of course, the deciding factor is in the details, of which there are none. For the best possible outcome, one should hope that the mechanism for collateralization accommodates gold under earmark rather than requiring a dump into unallocated status. It's early and still open to interpretation, yet the specific mention of the vaulting capabilities is a positive sign because earmarked/allocated gold requires physical safekeeping, whereas unallocated accounts quickly lose touch with physicality and reside predominantly as dematerialized gold-denominated credits on a ledger.

    Morgan will take gold pledged against any crappy paper

    Posted: 07 Feb 2011 05:15 AM PST

    Good luck getting it back.

    * * *

    JPMorgan Will Take Gold as Collateral with Inflation in Focus

    By Amanda Cooper
    Reuters
    Monday, February 7, 2010

    http://www.reuters.com/article/2011/02/07/us-jpmorgan-gold-idUSTRE7162SG...

    LONDON -- J.P. Morgan Chase said on Monday it would accept physical gold as collateral with its counterparties as a growing number of clients look to use bullion as a hedge against inflation.

    The bank, which is one of the custodians of physical metals for some of the world's largest precious-metal backed exchange-traded funds, said it would take gold as collateral to satisfy securities lending and repurchase obligations with counterparties.

    "Many clients are holding gold on their balance sheets as an inflation hedge and are looking to make these assets work for them as collateral," said John Rivett, collateral management executive for J.P. Morgan Worldwide Securities Services.

    "By combining our collateral management and vaulting capabilities, we provide clients with greater flexibility in how they mobilize collateral." The spot gold price, which has fallen by some 4 percent so far this year to around $1,350 an ounce, rose by 30 percent last year, in large part thanks to investors seeking protection against rising inflation pressures in both developed and emerging economies.

    JPMorgan, which owns vaulting facilities for storing precious metals around the world, said the initiative would allow its clients to mobilize collateral across borders and trading activities, "regardless of the underlying obligation, to extract maximum value and manage risk," it said.


    ADVERTISEMENT

    Prophecy Resource Spins Off Platinum/Palladium Venture:
    World-Class PGM Deposit in Yukon

    Company Press Release, January 18, 2011

    VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy.

    PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding.

    Following the transaction:

    -- Prophecy will own approximately 90 percent of PCNC.

    -- PCNC will consolidate its share capital on a 10 old for one new basis.

    -- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp.

    -- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings.

    Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000.

    For the complete announcement, please visit:

    http://prophecyresource.com/news_2011_jan18.php


    Join GATA here:

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    Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit, Extending the Mineralization of the Southwest Vein on the Property

    Company Press Release, October 27, 2010

    VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

    -- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

    -- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

    -- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

    Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

    "The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

    For the company's full press release, please visit:

    http://sonaresources.com/_resources/news/SONA_NR19_2010.pdf

    As regions around globe ignite, good time to get as much Silver as you can. The GIABO is on!

    Posted: 07 Feb 2011 05:07 AM PST

    The Simple Reason The Mideast Is Aflame with Uprising After Uprising After Uprising Share this:


    Newmont Buys Fronteer Gold, Miners In Nevada Gaining Investment Interest

    Posted: 07 Feb 2011 05:05 AM PST

    Even though January 2011 brought a lot of profit-taking to mining stocks and precious metals, the leadership of Newmont (NEM) has used this pullback in prices to purchase one of my long-term favorite recommendations, Fronteer Gold (FRG).

    I believed Fronteer was a great candidate for a takeout. Newmont has gone straight ahead, believing in Fronteer's three major projects in Nevada and buying Fronteer out for a 37% premium. Newmont believes that the gold price is moving much higher, and it is using its large cash position to find growth. It is much cheaper to buy a quality asset rather than go out and find it yourself. Now Newmont has really made a huge transition to have high grades assets.

    Some of the other Nevada companies to monitor in light of this buyout are other miners with significant Nevada gold resources such as U.S. Gold (UXG), Allied Nevada (ANV), Timberline Resources (TLR) and Midway Gold (MDW). From Fronteer's position, the valuation was very reasonable and this deal was valued similarly to Andean deal with Goldcorp (GG) and Redback's (RBAK) deal with Kinross (KGC).

    Newmont and Fronteer were partners on the Sandman project and needed to make a production decision later this year on that project. They have worked closely before and Newmont was well aware of the high-quality portfolio and the incredible growth of Long Canyon, both in grade and size. Newmont is convinced that this mine could be a monster, similar to some of the great mines in the Carlin Trend. Even though Newmont has huge operations in Nevada, it didn't have similar high-grade open-pit assets like Fronteer has at Long Canyon and Northumberland, and what Barrick (ABX) has at Goldstrike and Cortez.

    This move allows Newmont to have the top high-grade, low-cash cost mines in Nevada, which may begin receiving a premium as emerging-market risk rises. Newmont has close to 50 years of production in the state and is the right company to get these mines into production. This definitely puts some pressure on the other majors to look for high-grade growth in Nevada.

    A high-grade, low-cash cost mine near infrastructure and in a mining-friendly jurisdiction is rare and a no-brainer for majors, yet over the past few weeks Fronteer presented to investors a rare opportunity. There is an old saying that opportunities are not always labeled. I disagree; opportunities are sometimes labeled as shakeouts.

    Fronteer has provided four opportunities to buy at long-term support over the past year. Early October, August, May and February of 2010 had similar technical conditions. I believed the end of January was a great long-term entry and just a healthy shakeout. Fronteer is leading the sector and may be teaching mining investors what the majors are looking for.

    The bounce has occurred in Fronteer and may be just beginning across the sector. This time should be used to build major positions in first-class mining stocks as it's a rare bargain opportunity in a secular bull trend. What we saw in January is a classic run on the retail investor and trader to force capitulation. These times should be regarded as major buying opportunities. These short runs occur often in the commodity markets, where the speculative traders are forced to capitulate.

    I will sit tight and look to add to oversold positions at these levels as a reversal in many mining stocks is imminent. Those who have been taking profits both in bullion and in mining stocks as they reached targets in November as the trade was overbought should be reinitiating positions. It is important to note that institutions sell into rising markets and euphoria and buy into declining markets and fear. We must try to do the same.

    There are certain characteristics that great mining stocks have, and Fronteer fit that bill with some of the highest grade and fastest growing assets in Nevada. The old majors such as Barrick, Goldcorp, and Newmont are looking for growth with limited risk. I am very concerned of emerging-market credit and currency risk as evidenced by events in the Middle East, and believe it may spread to North Africa and continue throughout the Middle East. North American miners should be gaining interest as geopolitical risks increase internationally, especially in Nevada and Alaska, which have some current exciting discoveries and major mines being developed.

    Newmont's recent $2.3 billion dollar purchase of Fronteer's three major projects in Nevada — Long Canyon, Northumberland, and Sandman — has positioned Newmont to be in an incredible growth position in Nevada. The consolidations are beginning, and these are the three things I learned from Fronteer:

    1. High Grade/Low Cash Costs
    2. Mining Friendly Jurisdiction/North America
    3. Blue Sky Potential

    With the devalued dollar, I believe there will be less and less mining-friendly jurisdictions as inflation is felt hardest in developing and emerging countries. U.S. gold assets may be given a premium in this environment.

    To find out what my next takeout target is click here.

    Growth or Hot Money: What’s Really Affecting Food Prices

    Posted: 07 Feb 2011 04:53 AM PST

    The Dow rose another 29 points on Friday. Gold lost $4.

    Which is to say, nothing much happened one way or the other. Unemployment data came out, moving the unemployment rate down to 9%. But there were suspicious adjustments in the numbers. From the reports we read, nobody really knew if the numbers were good or bad.

    The more interesting news continues to come from America's central planners. At least, they are entertaining…in roughly the same way that TV shows such as 1000 Ways to Die or Jackass are entertaining.

    Maybe it's just human nature. But it's fun to watch people do stupid things – sometimes, even when they're fatal.

    And now comes Ben Bernanke, chairman of the US Federal Reserve, former chairman of the Princeton Economics Department, with a claim so dumb that we don't what to think. What's the matter with Princeton? What's the matter with economics? What's the matter with the Fed? What's the matter with Ben Bernanke?

    The Telegraph has the report:

    Ben Bernanke…has dismissed the idea that the central bank's policies are to blame for the rise in global food prices to a record high…

    Now, let's see. The Fed adds $2 trillion to the world's supply of "hot money." Maybe that has no effect? What do you think? The Telegraph continues:

    Mr. Bernanke said that the rapid growth of developing economies was behind the increase in food prices, rather than the Fed's decision to embark on a second, $600bn (£371bn) round of printing money. "Clearly what's happening is not a dollar effect, it's a growth effect," Mr. Bernanke said in a rare question and answer session with journalists at the National Press Club in Washington on Thursday.

    The United Nations Food and Agriculture Organization (UN FAO) has warned that high prices, already above levels in 2008 which sparked riots, were likely to rise further.

    The FAO measures food prices from an index made up of a basket of key commodities such as wheat, milk, oil and sugar, and is widely watched by economists and politicians around the world as the first indicator of whether prices will end up higher on shop shelves.

    The index hit averaged 230.7 points in January, up from 223.1 points in December and 206 in November. The index highlights how food prices, which throughout most of the last two decades have been stable, have taken off in alarming fashion in the past three years. In 2000, the index stood at 90 and did not break through 100 until 2004.

    Well, how do you like that? It's growth that it driving food prices to records. Not money printing.

    But wait…hold on…is the emerging world growing faster now than it was two or three years ago? Nope. Hmmm… Is the growth a big surprise? Did something happen to make investors and traders suddenly realize that…well…hey…the world is growing!

    Nope.

    Then, how come prices are shooting up now? Why didn't they shoot up 4 years ago? Or 2 years ago? Or last year? What has changed?

    Well… How about the $1.5 trillion of brand spanking new money that the Fed put into the world's money supply in 2009-2010? And how about the $600 billion more it's pumping in now?

    That's new, isn't it? So, here's a wild and crazy idea. Maybe…just maybe…the fundamentals of supply and demand really do work. Maybe…just maybe…if you increase the world's hot money supply (hot money does not come from an increase in real wealth or consumer demand…but from central banks' low interest rates and money printing)…well, maybe prices on global, auction-priced goods – such as food – go up.

    Just look at what is happening to other global, auction-priced goods. Oil, for example, soared above $100 over the weekend. And look at gold. Put oil and food in terms of gold and what do you find? That they haven't gone up at all! What does that tell you? That the "growth" hypothesis is nonsense.

    In other words, yes…the developing world is growing. It has been growing at a high rate for the last 20 years. Nothing new there.

    What's new is that central banks are printing money at a record pace. They are creating more bubbles.

    Isn't this going to end badly? Why would governments play such a dangerous game? Aren't they putting their own credibility, currencies and solvency in jeopardy?

    Yes, of course they are…

    But there is something you have to understand. Governments always look out for the elite groups that control them. They're not necessarily concerned with the betterment of humankind…or even the best interests of their own people.

    Here's an example, from The New York Times:

    Public deficits and debt relative to gross domestic product have ballooned in the last three years for one simple reason – the big banks at the heart of our financial system blew themselves up. On this point, the conclusions of the Financial Crisis Inquiry Commission, which appeared last week, are very clear and utterly compelling.

    No one forced the banks to take on so much risk. Top bankers lobbied long and hard for the rules that allowed them to behave recklessly. And these same people effectively captured the hearts, minds and, some would say, pocketbooks of the regulators – in the sense that a well-regarded regulator can and often does go work for a bank afterward.

    Meanwhile, Barry Ritholtz says the feds are using Fannie and Freddie as another way to shovel taxpayer money to Wall Street. As you know, the Fed already plays Sugar Daddy to the bankers. If the bankers have some trash mortgage-backed security that they lost money on, the Fed buys it from them at an inflated price. Of course, just having the Fed in the market buying MBSs inflates the markets.

    But it turns out, the Fed isn't the only one. The US Treasury also gave Fannie and Freddie a blank check to save the housing industry. But they let the housing industry go bust. Instead, they took the money and saved the housing industry's creditors. The big banks, in other words. Wall Street. The richest of the rich.

    Why should taxpayer money be used to bail out the rich?

    Well, they're not just rich. They're powerful. They're the people the government was set up to protect. Give the feds a break; they're just doing their jobs.

    The private sector innovates. Government procrastinates…hesitates…and vegetates.

    That's just the way it works. That's what government has always been for. The government of ancient Egypt protected the pharaohs. The government of the Ottoman Empire protected the Ottomans. The government of Genghis Khan looked out for Genghis.

    And who does the US government look out for? Naturally, it looks out for the elite groups that control it. Who's that? The big banks, of course.

    Bill Bonner
    for The Daily Reckoning

    Growth or Hot Money: What's Really Affecting Food Prices originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

    Near Term Market Outlook

    Posted: 07 Feb 2011 04:48 AM PST

    [Following are excerpts from the current issue of the Iacono Research Weekend Update. Minor edits have removed commentary specific to investments held in the model portfolio.]

    More highs for U.S. stock markets last week, the Dow Jones Industrial Average reaching the psychologically important 12,000 level and the S&P500 Index eclipsing the 1,300 mark for the first time since mid-2008, appear to be setting the stage for even higher asset prices in the period ahead and, the further we get into 2011, the more it feels like 2008.

    The United Nations reported that global food prices reached new all-time highs, a factor that has contributed to civil unrest in emerging market economies where food makes up a much bigger portion of consumers' shopping baskets, and record highs last week for both copper and cotton all harken back to three years ago when oil prices were surging past $100 a barrel for the first time ever.

    It was during the first few days of January 2008 that crude oil first reached the century mark and, from there, it proceeded to rise to almost $150 a barrel before tumbling back down in advance of the worst financial crisis since the Great Depression.

    As shown below, crude oil has been noticeably absent from the recent rally. In fact, if you go back exactly three years (see Volume III, Issue 5), you'll see that WTI crude oil was selling for about the same price then as it is today – $89 a barrel – and investment products that track it, such as the iPath S&P GSCI Crude Oil TR Index ETN (NYSE:OIL) in the graphic below, have produced big losses for investors due to the effects of contango.

    Of course, history never repeats itself – more often than not it rhymes as Mark Twain once famously said – and as each week in the new year goes by, 2011 seems to be rhyming with 2008 more and more.

    Instead of oil prices, this time, food prices are causing inflation to soar everywhere but in the U.S.

    Instead of a housing and credit bubble in the early stages of imploding, it is sovereign debt troubles in Europe and massive debt loads at all levels of government in the U.S. that are warning of danger.

    Instead of central bankers failing to see how years of easy money and lax regulatory controls have fueled a global credit bubble, central bankers now fail to see how "papering over" the current set of troubles is setting the stage for even more financial market distress in the future.

    This was perhaps best exemplified last week when Fed Chief Ben Bernanke rejected the premise that Federal Reserve policies had contributed to surging food prices around the world in a manner all too reminiscent of when he rejected the premise that the U.S. could be in the middle of a massive housing bubble back in 2005 (see this item at the blog last week for more on this).

    So, where does that leave investors?

    If I were more bold, I'd be doing what Jim Cramer recommended last week when he screamed "Buy! Buy! Buy!" after concluding  that the gold price had likely finished its correction, but, I've not been comfortable with the "rally in everything" since it began back in early-2009, built as it is on more Fed easy money policies and U.S. government largess that, up until the last election, seemingly had no limits. Whether the new Congress follows through on some of its campaign promises remains to be seen and debate over raising the $14 trillion debt ceiling is one of the many possible catalysts that could cut the current rally short.

    The U.S. housing and labor markets are both still a mess, high income individuals driving the recent surge in consumer spending with the shrinking middle class continuing to struggle, and one can only wonder if, someday, government spending cutbacks in the U.S. could result in anything resembling the civil unrest currently seen elsewhere in the world.

    So far, it appears that 2011 is going to be a year of much broader commodity price gains rather than another stellar year just for precious metals. Then again, if corrections in gold and silver have now run their course, they could soon make up for lost time, last week's performance by silver reminding investors how quickly the metal's price can make up ground.

    Mom and Pop investors have apparently returned to stocks in a big way, January likely to see the biggest inflows into stock mutual funds since the 2008 crash, and more and more investors seem to have forgotten about financial crises and about history rhyming.

    Full Disclosure: No position in OIL at time of writing.

    ###

    To learn more about investing in natural resources using commonly traded ETFs,
    stocks, and mutual funds, see this description at Iacono Research.    IMAGE
    To begin a subscription, click here.

    Bearish on Gold, For the Wrong Reasons

    Posted: 07 Feb 2011 04:20 AM PST

    In a recent article, The Case Against Gold David Berman interviews a Canadian fund manager who is bearish for all of the wrong reasons. As do the vast majority of analysts and writers, he totally misunderstands how the gold price is formed.

    Gold bars run short in Emirates as price retreats

    Posted: 07 Feb 2011 04:14 AM PST

    by Armina Ligaya
    bars02/08/2011 United Arab Emirates (TheNational) — The dip in the price of gold spurred sales of the precious metal in the UAE last month, leading to shortages of small bars, retailers say. The gold spot price slipped from $1,412.63 a troy ounce at the end of December to $1,314.82 on January 28.

    That whetted the appetites of gold buyers, and sales of jewellery and bars in the UAE grew by as much as 25 per cent last month compared with January last year, said Tushar Patni, the owner of Ajanta Jewellers in Abu Dhabi.

    "We saw about 20 per cent to 25 per cent increase in sales [last month], compared to the same time last year, just because of the prices," said Mr Patni…

    He said the surge in demand had depleted his reserve stocks of small gold bars weighing 10 grams and 100 grams, and Abu Dhabi retailers had short-term difficulties replenishing their stock.

    "The worst week was last week," Mr Patni said. "Practically, there was not anything available with any of the suppliers."

    [source]

    The REAL Reason Ben Bernanke Leaves a Paperweight on the “Print” Button When His Finger Gets Tired

    Posted: 07 Feb 2011 04:11 AM PST

    Inflationary Tuesday: The REAL Reason  Ben Bernanke Leaves a Paperweight on the "Print" Button When His Finger Gets Tired

    We've been over the numerous BS excuses that US Dollar destroyer extraordinaire Ben Bernanke has made for QE enough times that today I'd rather simply focus on the REAL reason he continues to funnel TRILLIONS of Dollars into the Wall Street Banks.

    I've written this analysis before. But given the enormity of what it entails, it's worth repeating. The following paragraphs are the REAL reason Bernanke does what he does no matter what any other media outlet, book, investment expert, or guru tell you.

    Bernanke is printing money and funneling it into the Wall Street banks for one reason and one reason only. That reason is: DERIVATIVES.

    According to the Office of the Comptroller of the Currency's Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.

    Five banks account for 95% of this. Can you guess which five?

    gpc 11-10-3 top five derivative exposure

    Looks a lot like a list of the banks that Ben Bernanke has focused on bailing out/ backstopping/ funneling cash since the Financial Crisis began doesn't it? When you consider the insane level of risk exposure here, you can see why the TRILLIONS he's funneled into these institutions has failed to bring them even to pre-Lehman bankruptcy levels.

    gpc 2-8-1

    Ben Bernanke is a stooge and a fraud, but he is at least partially honest in his explanations of why he wants to keep printing money. The reason is to try to keep interest rates low. Granted he's failing miserably at this, but at least he understands the goal.

    Of course, Bernanke tells the public and Congress that the reason we need low interest rates is to support housing prices. He doesn't mention that $188 TRILLION of the $223 TRILLION in notional value of derivatives sitting on the Big Banks' balance sheets is related to interest rates.

    Yes, $188 TRILLION. That's thirteen times the US's entire GDP and nearly four times WORLD GDP.

    Now, of course, not ALL of this money is "at risk," since the same derivatives can be traded/ spread out dozens of ways by different banks as a means of dispersing risk.

    However, given the amount of money at stake, if even 4% of this money is "at risk" and 10% of that 4% goes wrong, you've wiped out ALL of the equity at the top five banks.

    Put another way, Bank of America, JP Morgan, Goldman, and Citibank would CEASE to exist.

    If you think that I'm making this up or that Bernanke doesn't know about this, consider that his predecessor, Alan Greenspan, knew as early as 1999 that the derivative market, if forced into the open and through a public clearing house would "implode" the market. This is DOCUMENTED. And you better believe Greenspan told Bernanke this.

    In this light all of Bernanke's monetary policies and efforts are focused on doing one thing and one thing only: trying to shore up the overleveraged, derivative-riddled balance sheets of the Too Big to Fails or Too Bloated to Exist as I like to call them.

    The fact that the bank executives taking this money and using it to pay themselves and their employees record bonuses only confirms that these folks have NO interest in taking care of shareholders or their businesses. They're just going to take the money and run for as long as this scheme works.

    I don't know when this will come unraveled. But it WILL. At some point the $600+ TRILLION behemoth that is the derivatives market will implode again. When it does, no amount of money printing will save the Too Bloated To Exist banks' balance sheets.

    At that point, it's game over for Wall Street and the Fed.

    Best Regards,

    Graham Summers

    PS. If you're getting worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what's to come.

    I call it The Financial Crisis "Round Two" Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this "insurance" paid out triple digit gains in the Autumn of 2008).

    Again, this is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.

    PPS. We ALSO publish a FREE Special Report on Inflation detailing three investments that have all already SOARED as a result of the Fed's monetary policy.

    You can access this Report at the link above.

    China in the Year of the Rabbit

    Posted: 07 Feb 2011 04:00 AM PST

    Happy New Year 4708!

    According to the Chinese calendar it's the Year of the Rabbit. The leading Asian brokerage firm CLSA reports the Rabbit will "wrest the reins from the decidedly unpleasant and erratic Tiger that's been tossing and turning the markets over the past 12 months." We all could appreciate a respite from extreme volatility.

    Chinese New Year is the longest and most important of the traditional Chinese holidays. It is celebrated around the world wherever there are significant Chinese populations. Customs vary widely but traditionally include an outpouring of gift giving, decorating, feasting, forgiveness and wishing for peace and happiness for everyone.

    This is the fourth stage in the seasonally strong period for gold, which began back in August with Ramadan.

    In the run-up to Chinese New Year, China's gold imports are estimated to have more than doubled from a year ago, putting the country on track to overtake India as the world's largest consumer of the precious metal. The growth in demand is being attributed, in part, to Chinese families giving each other gifts of gold instead of traditional red envelopes filled with cash.

    Chinese markets are looking for a rebound in the Year of the Rabbit. In 2010, China's A-shares market was the only Asian market with negative performance, as fears of inflation and an overheating economy cooled markets.

    So far in 2011, China has outperformed the MSCI Emerging Markets Index. The Shanghai Composite Index has decreased only 0.28 percent versus the 1.54 percent drop for the MSCI Emerging Markets Index. By comparison, both Brazil (down 6.07 percent) and India (down 13.87 percent) have experienced declines this year, while Russia has jumped almost 9 percent.

    Inflation continues to be the biggest threat to the Chinese economy and could be a headwind for the first half of the year. However, we expect the market to improve as the year progresses.

    The Chinese government's response to the threat of inflation is key. If inflation numbers moderate, then the government won't be forced to hike interest rates or unleash additional tightening measures, which would be viewed positively by capital markets.

    China's economy is expected to grow about 9.5 percent in 2011, according to CLSA. Roughly 5.5 percent of that will come from investment and the rest from consumption.

    One of China's biggest strengths is that liquidity remains robust and that liquidity is likely to find its way into equity markets.

    There is also opportunity through the restructuring of China's economy with the government's official policy of encouraging consumption. We believe government policies are precursors to change, so having the correct policies in place is the first ingredient of a consumption-based economy. Mix in rising incomes, only a dash of household debt, healthy consumer sentiment, and China has a recipe for robust consumption. CLSA estimates that consumption will account for 42 percent of GDP growth in 2011.

    One sector with a strong upside is the information technology sector. First-rate technology is very important if China wants to move up in the manufacturing hierarchy. Low-cost manufacturing has brought China to where it is today, but advanced manufacturing capabilities are required in order for China to rise to the next level. Additionally, the government will not burden industries it is trying to promote with punitive policies, such as heavy taxes or undue regulatory constraints.

    After a disappointing Year of the Tiger for equity markets, the Year of the Rabbit could usher in a change of government policy in the near future that could power markets higher. Or, as CLSA puts it, "hopportunities abound" in the Year of the Rabbit.

    Regards,

    Frank Holmes,
    for The Daily Reckoning

    P.S. John Derrick, director of research, contributed to this commentary. Also, for more updates on global investing from me and the U.S. Global Investors team, visit my investment blog, Frank Talk.

    China in the Year of the Rabbit originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.
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