Gold World News Flash

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• Sean Corrigan On The Inflationary Diabolus Ex Machina, And Bernanke As The Modern Incarnation Of Shiva, the Shatterer of Worlds
• Sean Corrigan On The Inflationary Diabolus Ex Machina, And Bernanke As The Modern Incarnation Of Krishna, the Shatterer of Worlds
• On Sale Projections
• Commodities' drop curbs risk appetite
• Frostbite Falls Daily Rant- 5/7/2011
• Costata's Silver Open Forum
• The Value of Losing Money?
• Alasdair Macleod: Silver corrects
• Hathaway - Gold & Silver to Explode Again After Consolidation
• At What Price Should We Begin Buying Silver Again?
• Gambling with the House’s Money
• Crash Or Correction? SocGen Answers
• At King World News, Haynes and Norcini see signs of silver buying
• “We have seen a 10 standard deviation move in silver on multiple periodicities that we track, the likes of which we haven’t yet experienced in this bull market.”
• Silver-mad small investors fueled an epic rise and fall
• Here?s Proof! Gold & Silver Less Risky than Investing in Dow 30
• If there's no silver shortage, why are forward rates negative again?
• Goldman Lowers 2011 GDP Forecast
• Speculation Does Not Explain High Oil and Gasoline Prices? Please!!
• Investment of the Week: The US Dollar!
• Marc Faber Again Calls for a Drop in the Dow
• Watching Silver
• What's Next for the SP 500, Gold, and Oil
• Richard Wyckoff Composite Man Wins Again With the Silver ETF
• China Buying Silver Overnight
• Ben Davies: “We are Buying Physical Silver”
• Expect more correction in gold and silver: Jim Rogers
• What's Next for the Stock Market, Gold, Silver and Crude Oil
• Gold and Silver Prices Will Explode Again: John Hathaway
• New York Times, the Lying Mouthpiece for the Fed

Sean Corrigan On The Inflationary Diabolus Ex Machina, And Bernanke As The Modern Incarnation Of Shiva, the Shatterer of Worlds Posted: 07 May 2011 04:20 PM PDT From Sean Corrigan of Diapason Securities Under Two Flags  However firmly we hold to the view that the hypertrophic, state-coddled, fractionally-based financial markets in which we must operate are not exactly the embodiment of dispassionate rationalism in their workings, it is nonetheless true that, over time, commodity prices can be shown to trace out a path not wholly divorced from that followed by the real-world processes which utilise them—especially industrial production and the internationally-dispersed network of outputs best reflected by global trade flows. In making a claim for the influence of what might be broadly termed 'fundamentals', this is not to assert the patently indefensible proposition that commodities — much like stocks, bonds, houses, classic cars, vintage wines, or antique furniture—are not also subject to alternating waves of avarice and abhorrence—the 'temperamentals', if you will—which may occasionally swamp the underlying pull of such mundanities as supply, demand, and inventory. In fact, given our global system of unanchored (and frequently unhinged) money and credit, even this ostensible distinction between price movements supposedly soundly based on metal in the warehouse, or barrels at the refinery and those caused by the wilder, speculative herding founded on chart patterns, lever¬aged groupthink or blind computer algorithms is much less definitive than it appears. If hot money and overabundant finance can sometimes be shown not to be pouring directly into purchases of cotton or copper or crude oil as mere gaming counters in the global casino, these evil twins will, nonetheless, be feverishly driving economic activity into channels of commodity-consuming activity which, both in their form and scale would not otherwise be taking place. This logically implies that the commodity 'fundamentals' - as well as the equity, the currency, and the bond 'fundamentals' - still rest, albeit at one remove on this occasion, upon the very same malign effects of monetary laxity, budgetary overstretch, and misdirected enthusiasm as before. That said, we cannot stand on the sidelines in a huff of purism. Since we must always be aware that the field of battle is not the pristine sandbox of the officer training school, but rather a dead ground-riven labyrinth of swamps, ravines, and gullies, this implies that if we are to contend at all, we must trade, invest, and practice our entrepreneurship amid the far from perfect conditions we have been given, sticking to our principles but being pragmatic enough to tailor them to the circumstances which confront us. So, let us not here debate the merits or the long-term sustainability of what we might here term the 'Globalised Asia' model, let us just accept that it is, for better or for ill, the dominant feature of our world. Whether their leaders' coy mercantilism or the cynical machinery of exploitation which funnels their vast pools of captive savings into the blind service of the great, native industrial combines will ultimately squander the admirable energy and technical prowess of these most assiduous of peoples, only time will tell but, until the wax melts on the wings of these oriental Icaruses, theirs has irrefutably become the main voice in the fundamental pricing of commodities. Indeed—to the extent that we trust an aggregate of aggregates to paint an accurate picture of the world— not only are growth rates of industrial output and 2- way trade volumes rising faster in Asia than in the Euro-American West, but, having fallen less far in the Bust and having recovered better in the meanwhile, their absolute magnitude also appears to be greater. Thus, if we can argue that commodities tend to follow global developments in these two key metrics, we must also take cognisance of the fact that, at the margin, these latter are being dominated by events taking place on the eastern edge of the Pacific, not the Western, In fact, for those more traditional asset managers who have come to favour emerging market equities over the more traditional kind (a switch which has paid an annual 13.5% total return premium over the last decade), this is hardly the most stunning of news since the ratio between the two groups of stocks has been a facsimile of the output and trade ratios between the two regions over this same period, though whether this is an  accurate guide to the creation of genuine shareholder value or simply an artefact of market perceptions is a question upon which it is not our purpose here to comment. Furthermore, this has brought about a pronounced shift in the relative pricing of raw inputs and finished manufactures, reversing the previous two decade decline of the former vis-`-vis the latter into a steep, sustained rise in the ratio between them. If we consider that much capital investment and technological know-how has been transferred to the Asian export hubs in the past ten years, there to be mixed with cheaper labour, arguably underpriced currencies (especially after the mid-90s devaluation in China and the Asian Contagion which shortly succeeded it), and a range of overt and covert financial and fiscal—as well as material—subsidies and couple this with the fact that such centres have been the nuclei upon which a much more wide-ranging local development of industry and infrastructure has crystallised, then the re¬ordering becomes fairly self-explanatory. A glut of cheap, finished goods on Western markets (still their biggest exhaustive consumers if no longer, alas, the Lords Paramount of their creation) has therefore had as its counterpoint a greater degree of scarcity of the commodities which both go into their fabrication and upon which the incomes generated along the way have been later spent. While this situation persists, it implies that commodities should continue to enjoy robust demand and advantageous pricing power, amid a struggle to maintain an adequate supply—fully incentivised though this may be—and with a level of inventory cover which becomes rapidly depleted when the engine is firing upon most (if not all) of its cylinders. In the case of industrial metals, the trends in demand are clear and if stock:use ratios are still markedly cyclical (as well as subject to the vicissitudes of the individual metal), the general pattern toward lower and lower cover is also fairly apparent. As the example of steel also shows—not only the world's second most traded commodity after oil, but also one of the least subject to signal pollution from financial markets—the effect on price is also evident. In energy, matters are even less equivocal. Here, Asian usage is fast approaching 40% of the world total and its share is growing at such a pace that, if nothing inter¬rupts the trend between now and then, the region will account for a majority of global uptake as early as 2020. Put another way, over the ten years to 2009, BP estimates that world energy use increased by roughly a quarter. Asia-Pacific accounted for four-fifths of that increment, with China alone responsible for three-quarters of the region's contribution. For all those in the West about to ruin both their finances and the view from their windows by littering the landscape with banks of appallingly inefficient windmills and uneconomical solar farms, in pursuit of the hysterical Gaian cult of carbophobia, it should be a chastening realisation that almost half the total rise in demand was satisfied by burning coal-85% of that addition emanating from China—a surge which took the fuel's share to a 40-year high of 29% of total use, largely at the expense of oil. Given the inevitable, post-Fukushima backlash against nuclear energy (a revulsion, again, felt most keenly among those countries fortunate enough to have largely forgotten what it is like to be without a reliable supply of electricity), the call on hydrocarbons can only be the greater and, should China become serious about cleaning up its own environment (a desire richer nations progressively have the luxury to accommodate), it would seem that natural gas— conventionally-sourced, coal-bed, shale, or liquefied— might be called upon to advance its contribution from the vicinity of 23%, at which point it has been stuck for over a decade past. Of course, what is true for energy is also these days partly true for agriculture, not just because Asian populations are both growing and moving up the protein chain away from a bland, but relatively efficient diet heavily dependent on staple crops, but because the combined effect of governmental mandates to burn what could otherwise serve as food and fodder in fuel thirsty vehicles have reached the point where nigh on 40% of the US corn crop is misused in this manner, an amount fully 2 1/2 times the country's exports (which themselves make up around 55% of the global total) and approximately equal to all shipments from the two next biggest sellers, Argentina and Brazil, combined. With yields per acre for wheat, barley, and oats showing signs of stagnation this past 10-15 years, across several key growing regions, and with rice yields in China growing at far less than half their previous trend rate, the easy pickings from the Green Revolution may already have been harvested, meaning that, barring a sea change in attitudes to both GMO technology and bio fuel boondoggles, the so-called 'war for acres' looks set to remain intense. As a consequence, here, too, does pressure on stock:use ratios seem bound to persist, reducing the cushion we all need to protect us from the capricious buffeting of meteorology and man-made malfeasance, a feature which not only tends to keep prices elevated, but also makes them far more subject to sudden spikes and the optionality of sharp backwardations. What we have already argued for emerging market stock markets and their co-movement with commodities has also become increasingly relevant to developed world stock markets, too, as surges of growth optimism—or, more crudely, waves of 'Risk On' activity push commodity prices higher in concert with equities. This has been true in spades ever since the collapse of AIG/LEH when r-squared between the two has amounted to no less than 0.93. At the same time—continuing a pattern which has held ever since the twin Russian/LTCM panic of autumn 1998 first sold the great asset market put/moral hazard call to the world's largest financial players and their swarms of leveraged pilot fish—bond yields (for example, those on 10-year US 1-Notes) have tended to follow equity markets (e.g., the S&P500) up and down, as can be seen in the diagram opposite. Now, it may not seem that significant, but what we have here is a veritable revolution for, over a much broader sweep of modern financial history, bond yields have tended to move contrary to equities (and, hence, bond prices in concert with them) while commodities— 'real' assets, if you will—have tended to move in opposition to this financial Tweedledum and Tweedledee. Intuitively, what this implies is that investors have long been happy to assume that 'growth' —for so long as inflationary pressures are not intruding too insistently—means greater wealth, a more abundant capital stock, hence lower nominal discount rates and so lower capitalization rates and, ergo, higher financial asset prices. But, as Hayek once said, if labour competes with capital in the productive structure, then commodities compete with both (though, strictly, what he meant by this was end-consumer goods). Let commodity prices rise too sharply in this era, therefore, and the whole virtuous circle would be unwound, whether because of a voluntary repricing of future earnings streams to take account of their shrinking real value or because of actual or anticipated tightening of liquidity, either as the result of a likely drain of metallic or foreign exchange reserves, or thanks to central bank action taken to fore¬stall these and/or cool the economy down. However, after the so-called 'Great Moderation' of the 1990s and early 2000's when many pundits, gurus, and soi-disant futurologists were happy to declare not just the 'end of history' but the 'death of inflation', this paradigm was slowly abandoned. The exquisite technical prowess of our pecuniary masters at the central banks had seemingly allowed them to fine-tune the vast, unknowably complex, organic interaction of the free market, while—in a kind of perversely back-to-front re-interpretation of the phenomena we have already discussed—the outsourcing of so much effort to the emerging markets meant that commodity prices had largely lost their bogey-man status since their rise was merely the obverse of the subdued trend in the far more closely-scrutinised price of manufactured goods being delivered in all their 560 million TEU-a-year profusion to the ports and railheads of grateful, Occidental installment buyers. Thus, commodities were increasingly not seen as harbingers of inflation (strictly, as we shall discuss, the tangible vectors of what is only ever a strictly monetary pestilence), since inflation had been utterly vanquished, but as co-participants with equities in the growth of this Brave New Era of effortless prosperity founded on ever-increasing debt levels among the chronically underproductive. As for the ostensibly 'risk-free' bonds, well, who really needed them when there were so many gains to be made moving out the credit spectrum into not just the blues and purples, but the far ultra-violet and even beyond? Such instruments were no longer part of a proper in-vestment portfolio—they were merely a convenient parking space whenever the market hit a speed bump—for, in a world where central bankers were deliberately turning themselves into easily-predictable, 25 bps-a-time up and 250bps-a-time down facilitators of 'the search for yield', only 'men without chests' could hew to the merits of a relatively certain, (if secularly-depressed) stream of income on boring, old AAA governments when there was so much more fun to be had using incalculably arcane (and often decidedly deceitful) derivative structures to fund incontinent welfare dispensers, greater-fool housing bubbles, value-destroying LBO merchants, and asset-stripping private-equity vultures. If only things were truly that simple for, as people are only now dimly beginning to rediscover, the Credit Cycle IS the Business Cycle and the Business Cycle is nothing if not an Inflation Cycle. Here be Dragons If easy money starts by stimulating growth, it also starts the insidious process of distorting prices in such a manner as to mislead both entrepreneurs and those who invest in them, bringing about a capital misallocation which is no less widespread for all that each specific cycle tends to see the worst excesses concentrated in its own, individual sector. As we never cease to underline, it is NOW that we lose our money and squander our wealth, by making mistakes here, during the Boom: we merely recognise these errors— and, ideally, realise them and rectify them— during the travails of the Bust. By attempting to subvert this cleansing process through the inflation of a new bubble of false asset pricing on the ruins of the old—a development the Fed has explicitly been trying to engineer—is not to break the cycle, but to intensify it, as each intervention becomes more radical, less well thought-out, more plagued with unwonted side-effects, and more rapidly self-defeating than the last; the whole bringing about an increasingly costly and accelerating hysteresis of 'Stop-Go' capital destruction. Thus, if the Ghost of 1933 got us into this mess— i.e., the mainstream's fervent adherence to a largely mythical narrative of the Great Depression, centred on Roosevelt as Messiah— the Spectre of 1937— an alarmist rendering of the dire consequences of a 'premature' interruption of gross market interference—has guaranteed that the Fed will only make matters worse. But where can an inflation arise when we have unsold homes, partly-idled assembly lines, and large numbers of men and women still without work? Are we not confronted with an 'output gap'? And does the persistence of such underemployed resources not testify to the fact that monetary policy is ultimately ineffective — that we face a 'liquidity trap' — and that its implementation has been too timid, rather than too intemperate? No, no, and thrice no! For the lack of a bidder for such capital assets and human resources (at least, the lack of a bidder willing to pay the price acceptable to their owners, or to pay one sufficient to discharge the obligations incurred during their acquisition or production) is the starkest possible testimony to the mass miscalculation induced by easy money during the Boom. If we all borrowed money to construct a profusion of neo-gothic follies, borrowed more in the course of buying and selling such monuments of inutility back and forth to one another, and borrowed yet more to be able to spend some of the resultant illusory and thoroughly notional gains on the trappings of an affluent lifestyle, it is little wonder that—once the madness passes— these edifices sell for little more than the cost of materials salvageable from their otherwise useless bulk. To argue now that, should we flood the land with newly-printed money, this will restore these monumental vanities to their previous price, before it has first driven up all the prices of things people actually still want to buy, is to practice self-delusion on the grandest scale. Somewhat more subtle, but equally decisive, is the fact that the happenstance of stonemasons and scaffolders being out of work in the Bust (and angle-grinders and construction cranes being found everywhere in profusion) does nothing to alleviate the scarcity of dairy herdsman or car mechanics, each of whom may find a much greater monetary demand for their highly-specific efforts as a result of the policy of inflation, even as the skills and equipment of their less fortunate neighbours go largely unwanted. Egalitarian socialists and aggregate-loving macroeconomists may both deny this, but the capital stock is not homogeneous—and so is not costlessly interchangeable. Neither are innate human abilities, nor their overlaid training and experience, a matter of indifference to people's hopes of securing work. Inflation may therefore swirl straight past such glaring, post-Boom 'output gaps' as attract so much intervention, while furiously funnelling into a spate where entrepreneurs have not adequately prepared to meet such a cash-engorged upwelling of expressed demand. Finally, the idea that to destroy the allocative ability of markets for capital means by suppressing interest rates, subsidising asset prices, and condoning false accounting is in some way a panacea (because it will delude people into making the very same misapprehension of their means as was the initial cause of their woes, while allowing the marooned owners of overindebted property to offset their very real legacy of losses with new, fictional gains) is also to risk burning down the entire house lest the embers in the grate of an unoccupied room flicker and go out, untended. Burning Down the House So where has the inflation come from? From the usual place, of course— central and commercial bank creation of demand deposits though one difference since the Crash has been the degree to which this has been accomplished not as a counterpart to lending to a booming private sector, but by financing (monetizing) the vast Keynesian deficits which are piling a Pelion of corporate welfare upon the Ossa of the Provider State, in terms of debt levels. To be clear, central banks do not always lead the expansion, but they (and the other regulatory authorities) must always accede to it, if only by refusing to set binding reserve and capital requirements upon the commercial banks who are then responsible. Conversely—and this is a point which seems to have escaped most of the 'pushing on a string crowd'—they can easily compensate for any lack of vigour by those same commercial banks during the Bust by creating base money through the act of drawing cheques upon themselves in order to purchase whatever assets they please. This is particularly simple when those 'assets' are issued in abundance by a Treasury doling out monies in a measure wildly beyond the sum of its tax receipts. Where the common herd has gone badly wrong (again) is in forgetting the truth that Leland Yeager long ago encapsulated, viz., money does not have to be borrowed into existence, since it can be spent into existence right up to the point where the malign effects of all that unbacked spending lead people to distrust it sufficiently to refuse to accept it as a medium of exchange, a final repudiation which sounds the death knell for what has by now become a hyperinflation. In fact, a glance at what the central banks and their favoured coterie of TBTF clients have been up to these past 2 1/2 years shows that - yes, Mr. Chairman - the blame rests squarely with them and with them alone.

Sean Corrigan On The Inflationary Diabolus Ex Machina, And Bernanke As The Modern Incarnation Of Krishna, the Shatterer of Worlds Posted: 07 May 2011 04:20 PM PDT From Sean Corrigan of Diapason Securities Under Two Flags  However firmly we hold to the view that the hypertrophic, state-coddled, fractionally-based financial markets in which we must operate are not exactly the embodiment of dispassionate rationalism in their workings, it is nonetheless true that, over time, commodity prices can be shown to trace out a path not wholly divorced from that followed by the real-world processes which utilise them—especially industrial production and the internationally-dispersed network of outputs best reflected by global trade flows. In making a claim for the influence of what might be broadly termed 'fundamentals', this is not to assert the patently indefensible proposition that commodities — much like stocks, bonds, houses, classic cars, vintage wines, or antique furniture—are not also subject to alternating waves of avarice and abhorrence—the 'temperamentals', if you will—which may occasionally swamp the underlying pull of such mundanities as supply, demand, and inventory. In fact, given our global system of unanchored (and frequently unhinged) money and credit, even this ostensible distinction between price movements supposedly soundly based on metal in the warehouse, or barrels at the refinery and those caused by the wilder, speculative herding founded on chart patterns, lever¬aged groupthink or blind computer algorithms is much less definitive than it appears. If hot money and overabundant finance can sometimes be shown not to be pouring directly into purchases of cotton or copper or crude oil as mere gaming counters in the global casino, these evil twins will, nonetheless, be feverishly driving economic activity into channels of commodity-consuming activity which, both in their form and scale would not otherwise be taking place. This logically implies that the commodity 'fundamentals' - as well as the equity, the currency, and the bond 'fundamentals' - still rest, albeit at one remove on this occasion, upon the very same malign effects of monetary laxity, budgetary overstretch, and misdirected enthusiasm as before. That said, we cannot stand on the sidelines in a huff of purism. Since we must always be aware that the field of battle is not the pristine sandbox of the officer training school, but rather a dead ground-riven labyrinth of swamps, ravines, and gullies, this implies that if we are to contend at all, we must trade, invest, and practice our entrepreneurship amid the far from perfect conditions we have been given, sticking to our principles but being pragmatic enough to tailor them to the circumstances which confront us. So, let us not here debate the merits or the long-term sustainability of what we might here term the 'Globalised Asia' model, let us just accept that it is, for better or for ill, the dominant feature of our world. Whether their leaders' coy mercantilism or the cynical machinery of exploitation which funnels their vast pools of captive savings into the blind service of the great, native industrial combines will ultimately squander the admirable energy and technical prowess of these most assiduous of peoples, only time will tell but, until the wax melts on the wings of these oriental Icaruses, theirs has irrefutably become the main voice in the fundamental pricing of commodities. Indeed—to the extent that we trust an aggregate of aggregates to paint an accurate picture of the world— not only are growth rates of industrial output and 2- way trade volumes rising faster in Asia than in the Euro-American West, but, having fallen less far in the Bust and having recovered better in the meanwhile, their absolute magnitude also appears to be greater. Thus, if we can argue that commodities tend to follow global developments in these two key metrics, we must also take cognisance of the fact that, at the margin, these latter are being dominated by events taking place on the eastern edge of the Pacific, not the Western, In fact, for those more traditional asset managers who have come to favour emerging market equities over the more traditional kind (a switch which has paid an annual 13.5% total return premium over the last decade), this is hardly the most stunning of news since the ratio between the two groups of stocks has been a facsimile of the output and trade ratios between the two regions over this same period, though whether this is an  accurate guide to the creation of genuine shareholder value or simply an artefact of market perceptions is a question upon which it is not our purpose here to comment. Furthermore, this has brought about a pronounced shift in the relative pricing of raw inputs and finished manufactures, reversing the previous two decade decline of the former vis-`-vis the latter into a steep, sustained rise in the ratio between them. If we consider that much capital investment and technological know-how has been transferred to the Asian export hubs in the past ten years, there to be mixed with cheaper labour, arguably underpriced currencies (especially after the mid-90s devaluation in China and the Asian Contagion which shortly succeeded it), and a range of overt and covert financial and fiscal—as well as material—subsidies and couple this with the fact that such centres have been the nuclei upon which a much more wide-ranging local development of industry and infrastructure has crystallised, then the re¬ordering becomes fairly self-explanatory. A glut of cheap, finished goods on Western markets (still their biggest exhaustive consumers if no longer, alas, the Lords Paramount of their creation) has therefore had as its counterpoint a greater degree of scarcity of the commodities which both go into their fabrication and upon which the incomes generated along the way have been later spent. While this situation persists, it implies that commodities should continue to enjoy robust demand and advantageous pricing power, amid a struggle to maintain an adequate supply—fully incentivised though this may be—and with a level of inventory cover which becomes rapidly depleted when the engine is firing upon most (if not all) of its cylinders. In the case of industrial metals, the trends in demand are clear and if stock:use ratios are still markedly cyclical (as well as subject to the vicissitudes of the individual metal), the general pattern toward lower and lower cover is also fairly apparent. As the example of steel also shows—not only the world's second most traded commodity after oil, but also one of the least subject to signal pollution from financial markets—the effect on price is also evident. In energy, matters are even less equivocal. Here, Asian usage is fast approaching 40% of the world total and its share is growing at such a pace that, if nothing inter¬rupts the trend between now and then, the region will account for a majority of global uptake as early as 2020. Put another way, over the ten years to 2009, BP estimates that world energy use increased by roughly a quarter. Asia-Pacific accounted for four-fifths of that increment, with China alone responsible for three-quarters of the region's contribution. For all those in the West about to ruin both their finances and the view from their windows by littering the landscape with banks of appallingly inefficient windmills and uneconomical solar farms, in pursuit of the hysterical Gaian cult of carbophobia, it should be a chastening realisation that almost half the total rise in demand was satisfied by burning coal-85% of that addition emanating from China—a surge which took the fuel's share to a 40-year high of 29% of total use, largely at the expense of oil. Given the inevitable, post-Fukushima backlash against nuclear energy (a revulsion, again, felt most keenly among those countries fortunate enough to have largely forgotten what it is like to be without a reliable supply of electricity), the call on hydrocarbons can only be the greater and, should China become serious about cleaning up its own environment (a desire richer nations progressively have the luxury to accommodate), it would seem that natural gas— conventionally-sourced, coal-bed, shale, or liquefied— might be called upon to advance its contribution from the vicinity of 23%, at which point it has been stuck for over a decade past. Of course, what is true for energy is also these days partly true for agriculture, not just because Asian populations are both growing and moving up the protein chain away from a bland, but relatively efficient diet heavily dependent on staple crops, but because the combined effect of governmental mandates to burn what could otherwise serve as food and fodder in fuel thirsty vehicles have reached the point where nigh on 40% of the US corn crop is misused in this manner, an amount fully 2 1/2 times the country's exports (which themselves make up around 55% of the global total) and approximately equal to all shipments from the two next biggest sellers, Argentina and Brazil, combined. With yields per acre for wheat, barley, and oats showing signs of stagnation this past 10-15 years, across several key growing regions, and with rice yields in China growing at far less than half their previous trend rate, the easy pickings from the Green Revolution may already have been harvested, meaning that, barring a sea change in attitudes to both GMO technology and bio fuel boondoggles, the so-called 'war for acres' looks set to remain intense. As a consequence, here, too, does pressure on stock:use ratios seem bound to persist, reducing the cushion we all need to protect us from the capricious buffeting of meteorology and man-made malfeasance, a feature which not only tends to keep prices elevated, but also makes them far more subject to sudden spikes and the optionality of sharp backwardations. What we have already argued for emerging market stock markets and their co-movement with commodities has also become increasingly relevant to developed world stock markets, too, as surges of growth optimism—or, more crudely, waves of 'Risk On' activity push commodity prices higher in concert with equities. This has been true in spades ever since the collapse of AIG/LEH when r-squared between the two has amounted to no less than 0.93. At the same time—continuing a pattern which has held ever since the twin Russian/LTCM panic of autumn 1998 first sold the great asset market put/moral hazard call to the world's largest financial players and their swarms of leveraged pilot fish—bond yields (for example, those on 10-year US 1-Notes) have tended to follow equity markets (e.g., the S&P500) up and down, as can be seen in the diagram opposite. Now, it may not seem that significant, but what we have here is a veritable revolution for, over a much broader sweep of modern financial history, bond yields have tended to move contrary to equities (and, hence, bond prices in concert with them) while commodities— 'real' assets, if you will—have tended to move in opposition to this financial Tweedledum and Tweedledee. Intuitively, what this implies is that investors have long been happy to assume that 'growth' —for so long as inflationary pressures are not intruding too insistently—means greater wealth, a more abundant capital stock, hence lower nominal discount rates and so lower capitalization rates and, ergo, higher financial asset prices. But, as Hayek once said, if labour competes with capital in the productive structure, then commodities compete with both (though, strictly, what he meant by this was end-consumer goods). Let commodity prices rise too sharply in this era, therefore, and the whole virtuous circle would be unwound, whether because of a voluntary repricing of future earnings streams to take account of their shrinking real value or because of actual or anticipated tightening of liquidity, either as the result of a likely drain of metallic or foreign exchange reserves, or thanks to central bank action taken to fore¬stall these and/or cool the economy down. However, after the so-called 'Great Moderation' of the 1990s and early 2000's when many pundits, gurus, and soi-disant futurologists were happy to declare not just the 'end of history' but the 'death of inflation', this paradigm was slowly abandoned. The exquisite technical prowess of our pecuniary masters at the central banks had seemingly allowed them to fine-tune the vast, unknowably complex, organic interaction of the free market, while—in a kind of perversely back-to-front re-interpretation of the phenomena we have already discussed—the outsourcing of so much effort to the emerging markets meant that commodity prices had largely lost their bogey-man status since their rise was merely the obverse of the subdued trend in the far more closely-scrutinised price of manufactured goods being delivered in all their 560 million TEU-a-year profusion to the ports and railheads of grateful, Occidental installment buyers. Thus, commodities were increasingly not seen as harbingers of inflation (strictly, as we shall discuss, the tangible vectors of what is only ever a strictly monetary pestilence), since inflation had been utterly vanquished, but as co-participants with equities in the growth of this Brave New Era of effortless prosperity founded on ever-increasing debt levels among the chronically underproductive. As for the ostensibly 'risk-free' bonds, well, who really needed them when there were so many gains to be made moving out the credit spectrum into not just the blues and purples, but the far ultra-violet and even beyond? Such instruments were no longer part of a proper in-vestment portfolio—they were merely a convenient parking space whenever the market hit a speed bump—for, in a world where central bankers were deliberately turning themselves into easily-predictable, 25 bps-a-time up and 250bps-a-time down facilitators of 'the search for yield', only 'men without chests' could hew to the merits of a relatively certain, (if secularly-depressed) stream of income on boring, old AAA governments when there was so much more fun to be had using incalculably arcane (and often decidedly deceitful) derivative structures to fund incontinent welfare dispensers, greater-fool housing bubbles, value-destroying LBO merchants, and asset-stripping private-equity vultures. If only things were truly that simple for, as people are only now dimly beginning to rediscover, the Credit Cycle IS the Business Cycle and the Business Cycle is nothing if not an Inflation Cycle. Here be Dragons If easy money starts by stimulating growth, it also starts the insidious process of distorting prices in such a manner as to mislead both entrepreneurs and those who invest in them, bringing about a capital misallocation which is no less widespread for all that each specific cycle tends to see the worst excesses concentrated in its own, individual sector. As we never cease to underline, it is NOW that we lose our money and squander our wealth, by making mistakes here, during the Boom: we merely recognise these errors— and, ideally, realise them and rectify them— during the travails of the Bust. By attempting to subvert this cleansing process through the inflation of a new bubble of false asset pricing on the ruins of the old—a development the Fed has explicitly been trying to engineer—is not to break the cycle, but to intensify it, as each intervention becomes more radical, less well thought-out, more plagued with unwonted side-effects, and more rapidly self-defeating than the last; the whole bringing about an increasingly costly and accelerating hysteresis of 'Stop-Go' capital destruction. Thus, if the Ghost of 1933 got us into this mess— i.e., the mainstream's fervent adherence to a largely mythical narrative of the Great Depression, centred on Roosevelt as Messiah— the Spectre of 1937— an alarmist rendering of the dire consequences of a 'premature' interruption of gross market interference—has guaranteed that the Fed will only make matters worse. But where can an inflation arise when we have unsold homes, partly-idled assembly lines, and large numbers of men and women still without work? Are we not confronted with an 'output gap'? And does the persistence of such underemployed resources not testify to the fact that monetary policy is ultimately ineffective — that we face a 'liquidity trap' — and that its implementation has been too timid, rather than too intemperate? No, no, and thrice no! For the lack of a bidder for such capital assets and human resources (at least, the lack of a bidder willing to pay the price acceptable to their owners, or to pay one sufficient to discharge the obligations incurred during their acquisition or production) is the starkest possible testimony to the mass miscalculation induced by easy money during the Boom. If we all borrowed money to construct a profusion of neo-gothic follies, borrowed more in the course of buying and selling such monuments of inutility back and forth to one another, and borrowed yet more to be able to spend some of the resultant illusory and thoroughly notional gains on the trappings of an affluent lifestyle, it is little wonder that—once the madness passes— these edifices sell for little more than the cost of materials salvageable from their otherwise useless bulk. To argue now that, should we flood the land with newly-printed money, this will restore these monumental vanities to their previous price, before it has first driven up all the prices of things people actually still want to buy, is to practice self-delusion on the grandest scale. Somewhat more subtle, but equally decisive, is the fact that the happenstance of stonemasons and scaffolders being out of work in the Bust (and angle-grinders and construction cranes being found everywhere in profusion) does nothing to alleviate the scarcity of dairy herdsman or car mechanics, each of whom may find a much greater monetary demand for their highly-specific efforts as a result of the policy of inflation, even as the skills and equipment of their less fortunate neighbours go largely unwanted. Egalitarian socialists and aggregate-loving macroeconomists may both deny this, but the capital stock is not homogeneous—and so is not costlessly interchangeable. Neither are innate human abilities, nor their overlaid training and experience, a matter of indifference to people's hopes of securing work. Inflation may therefore swirl straight past such glaring, post-Boom 'output gaps' as attract so much intervention, while furiously funnelling into a spate where entrepreneurs have not adequately prepared to meet such a cash-engorged upwelling of expressed demand. Finally, the idea that to destroy the allocative ability of markets for capital means by suppressing interest rates, subsidising asset prices, and condoning false accounting is in some way a panacea (because it will delude people into making the very same misapprehension of their means as was the initial cause of their woes, while allowing the marooned owners of overindebted property to offset their very real legacy of losses with new, fictional gains) is also to risk burning down the entire house lest the embers in the grate of an unoccupied room flicker and go out, untended. Burning Down the House So where has the inflation come from? From the usual place, of course— central and commercial bank creation of demand deposits though one difference since the Crash has been the degree to which this has been accomplished not as a counterpart to lending to a booming private sector, but by financing (monetizing) the vast Keynesian deficits which are piling a Pelion of corporate welfare upon the Ossa of the Provider State, in terms of debt levels. To be clear, central banks do not always lead the expansion, but they (and the other regulatory authorities) must always accede to it, if only by refusing to set binding reserve and capital requirements upon the commercial banks who are then responsible. Conversely—and this is a point which seems to have escaped most of the 'pushing on a string crowd'—they can easily compensate for any lack of vigour by those same commercial banks during the Bust by creating base money through the act of drawing cheques upon themselves in order to purchase whatever assets they please. This is particularly simple when those 'assets' are issued in abundance by a Treasury doling out monies in a measure wildly beyond the sum of its tax receipts. Where the common herd has gone badly wrong (again) is in forgetting the truth that Leland Yeager long ago encapsulated, viz., money does not have to be borrowed into existence, since it can be spent into existence right up to the point where the malign effects of all that unbacked spending lead people to distrust it sufficiently to refuse to accept it as a medium of exchange, a final repudiation which sounds the death knell for what has by now become a hyperinflation. In fact, a glance at what the central banks and their favoured coterie of TBTF clients have been up to these past 2 1/2 years shows that - yes, Mr. Chairman - the blame rests squarely with them and with them alone.

On Sale Projections Posted: 07 May 2011 02:40 PM PDT As we all know, gold, silver, XAU and many commodities took a big hit this week. Though not unexpected and repeatedly warned about, the severity is overdone. The XAU Daily TDI trend is negative, however, the price is a considerable distance from the trendlines. A no brainer for those involved in a daily trading. The XAU weekly TDI trend is somewhat questionable but still positive. XAU monthly is positive. The XAU Market Health Indicator is attempting to form a base pattern. Let's look at the big picture. Within the context and setting of a continuing bull market in gold and silver, nothing has changed. The fundamentals driving this market are still in place. The only difference is an "on sale" price reduction. Now what could be better than that. Conclusion My assessment is real clear. We most likely experienced a significant bottom in gold and silver and quite possibly in the XAU and the HUI. This requires, however, confirmation and validation along with reduced volume on any retr...

Commodities' drop curbs risk appetite Posted: 07 May 2011 02:00 PM PDT By Caroline Valetkevitch NEW YORK | Sat May 7, 2011 9:15am EDT NEW YORK (Reuters) – Stock investors head into next week with added worries about the sustainability of the recent rally and a desire to reduce risk, as shown by the stampede out of commodities on Thursday. NEW YORK (Reuters) – Stock investors head into next week with added worries about the sustainability of the recent rally and a desire to reduce risk, as shown by the stampede out of commodities on Thursday. Stocks also will begin to lose the support they've enjoyed from stronger-than-expected earnings since the first-quarter reporting period is almost at an end. The drop in commodities this week spilled over into commodity-related stocks, which were among the top performers in the last two quarters. The Standard & Poor's energy index .GSPE ended the week down 7 percent, its biggest weekly drop in a year, and the iShares Silver Trust (SLV.P) suffered its worst week of outflows ever after heavy losses in the precious metal. While the commodities rout may be done for now, it has left many investors worried about the ramifications. "It's hard to pinpoint the time when the bubble bursts and hard to go against the current, but when it bursts it's precipitous usually," said Natalie Trunow, senior vice president and chief investment officer of equities at Calvert Asset Management Company in Bethesda, Maryland, which manages about $14.8 billion in assets and is underweight energy. With first-quarter earnings and also the Federal Reserve's QE2 purchasing program coming to an end, the stock market could be vulnerable to some weakness in the short term, she said. "I wouldn't be surprised if we had a somewhat softer summer or somewhat softer next couple of months," said Trunow, who said she is still positive on the U.S. market longer-term. The S&P 500 .SPX suffered its worst week since March, even with Friday's surprisingly strong jobs report that allowed the index to end a four-day losing streak. It is now just above critical support at 1,330. A close below that level could "turn the intermediate-term picture bearish," according to a note from Larry McMillan, president of McMillan Analysis Corp. SENTIMENT STILL UPBEAT Despite this week's skittishness, sentiment for the market is positive longer term, and technical indicators do not suggest the market is overbought. "Our view is still unchanged; we still like the market," said Jeff Rubin, market strategist at Birinyi Associates in Westport, Connecticut. Much of the fundamental picture remains bullish for stocks, said Hank Smith, chief investment officer at Haverford Trust Co. in Philadelphia. "The economy and valuations remain attractive," he said. "We remain bullish, but with any bull market, it's healthy to have pullbacks." Friday's Labor Department report, which showed U.S. employment increase more than expected in April and U.S. companies created jobs at the fastest pace in five years, gave evidence of the underlying strength in the economy, analysts said. But labor has been among the weakest areas, and next week's jobless benefits claims and retail sales data will be watched for further clues on the jobs picture and health of consumer spending. In earnings news, a number of retailers are expected to report next week, including Macy's (M.N), Nordstrom (JWN.N) and Kohl's (KSS.N). Earnings estimates have risen since the start of the reporting period. Profits for S&P 500 companies are now expected to have climbed 18 percent in the first quarter from the year before, up from an estimated 13 percent rise at the start of April, according to Thomson Reuters data. Of the 438 S&P 500 companies that have reported so far, 69 percent have beaten analyst earnings expectations. That's roughly in line with the high rate of beats seen in recent quarters. Adding to nervousness, a small group of European finance ministers were meeting to discuss the euro zone debt crisis, and Greece denied a media report speculating the country was considering leaving the euro zone. The speculation caused stocks to trim some of their gains on Friday. Friday marked the one-year anniversary of Wall Street's "flash crash" when prices suddenly plunged and nearly $1 trillion was wiped off U.S. stocks' value in a matter of minutes before the market bounced back. The crash shook many investors' confidence, but the market regained steam and has rallied since about the start of September. The S&P 500 is up about 28 percent since then. (Additional reporting by Doris Frankel, Editing by Kenneth Barry)

Frostbite Falls Daily Rant- 5/7/2011 Posted: 07 May 2011 01:24 PM PDT Repudiate the Debt Daily Rant Archive  3/2/11, 3/3/11, 3/5/11, 3/7/11, 3/8/2011, 3/10/11, 3/12/11, 3/15/11, 3/17/11, 3/18/11,3/19/11, 3/20/2011, 3/24/11, 3/25/11, 3/27/11, 3/30/11, 4/9/11, 4/11/11, 4/14/11, 4/25/11, 4/27/11, 4/29/11, 5/3/11   Top  Links    Reverse Engineering  Automatic Earth  Zero Hedge  Economic Undertow  Of Two Minds    Rant Lite Today's rant first examines the crash in the Silver [...]

Costata's Silver Open Forum Posted: 07 May 2011 01:00 PM PDT Listen up all you brave silver warriors. Uncle Costata has a story to tell you. In our first-ever guest post written exclusively for this blog, Costata lays it all out in stunning detail. And he invites you all to hit him back with your very best shot. Enjoy! -FOFOAHas the silver market been cornered.... AGAIN?by CostataThis open forum has one main purpose. To place a narrative before you, a

The Value of Losing Money? Posted: 07 May 2011 12:40 PM PDT Via Pension Pulse. On Saturday morning, I caught a glimpse of CNN's Dr. Sanjay Gupta interviewing Dr. Joseph Maroon, a neurosurgeon at the University of Pittsburgh Medical Center and a team physician for the Pittsburgh Steelers. Dr. Maroon is a member of the NFL's concussion policy committee, which has recently been criticized by the House Judiciary Committee for inadequate research and ethics related to player concussions. But I'm not covering any NFL controversy here. What caught my attention is that Dr. Maroon hit a brick wall years ago when he experienced the three D's: death of his father, divorce, and a deep depression. He got on the treadmill one day and started running. He felt so good that he said it was the first night he slept well. And from then on, he was convinced that exercise was the key to maintaining his mental and physical health. He's now a 70-year-old ironman competitor (unfortunately, controversy still hounds him). What does this have to do with the value of losing money? Hold on, I'm getting there. I also remember an interview with George Soros (think it was with Charlie Rose) where he was discussing when he graduated from London School of Economics. He was sitting in some corner in London watching people go by and thinking that he's broke and in debt but "there's only one way to go, up". Some of life's most valuable lessons are taught to us when we hit a brick wall. You don't see it when you're in your personal hell, but typically that's when people find out what they're made of. I remember when I lost my job back in 2006, then separated from my wife in 2007, and my health was deteriorating fast. I hit a major brick wall. Had it not been for the support of my family and close friends, I would have still been stuck in a rut. I also remember what Tom Naylor, a professor of economics at McGill and close friend of mine, told me back then: "You lost you job, lost your wife, losing your health, the good news is you hit rock bottom". Then he gave me some wise advice. "Take out a piece of white paper and start writing down all the worst possible things that come to your mind. Write everything down, you'll become severely handicapped, you'll never get another job because the pension pricks are blacklisting you and sending you nasty legal letters, the mob is looking for you, no woman will ever want you and you'll never get laid again in your life. Write down every terrible thing that comes to your mind." So I did it. Then I asked him what am I suppose to do with this sheet containing all these terrible thoughts of mine? He told me to put it away and look at it after a year has gone by. I asked him "how's that suppose to help me?" He replied: "Because when you look at it after a year, you'll laugh at how silly your thoughts were." And then he told me something else which I'll never forget: "You don't see it now, but with this blog, you have tremendous leverage and the pension pricks are scared of you. Use this leverage to your advantage and write your own ticket in life."And that's exactly what I've been doing ever since. I've toned it down, remaining as professional as possible, but I continue to blog on pensions and financial markets. Now let me get to my topic, the value of losing money. During a recent lunch with my former boss at PSP, Pierre Malo, we talked about what we value most in life. In our previous lunch, Pierre and I discussed process over performance. In a nutshell, we believe that too much attention is being paid to performance and not enough to process. The way investment managers achieve their performance is a lot more important than overall performance and yet very few institutional investors pay close attention to process until it's too late. Pierre also talked about luck in investment management. I used to go into his office every morning and ask him "where is the US dollar going today? What about the euro or CAD?". He would take out a coin from his pocket and say "you tell me". He doesn't believe in short-term market predictions. He told me over lunch, "Anyone can be lucky, even for along period. And the worst thing that can happen to anyone is start making a lot of money off the bat". I then shared a personal investing story with him. After I got fired from BCA Research (alas, I've been fired a few times but always managed to land on my feet!), I started day trading stocks, focusing on tech stocks (1999). I was also buying out-of-the-money call options on these tech stocks and making good money. I then joined the National Bank Financial as an economist but continued trading options. I wanted to get rich quick and retire early. I then learned firsthand the value of losing money. I bought cheap out-of-the-money call options on Nortel's stock the day they were reporting earnings after the close. I laid down $10,000 of my money, which was a substantial amount of my portfolio back then, and waited for the earnings release, confidently predicting that Nortel was going to kill the estimates and the stock would fly higher. I was expecting windfall gains on those call options. But that earnings release was a disaster and from there on, the rest is history. Nortel took me, and hundred of thousands of other small and large investors to the cleaners. I never forgot the pain of losing that money, essentially gambling it away. I had no clue whatsoever what I was doing. It took me years after that debacle to learn how to trade properly and I'm still learning every single day. I now avoid options preferring to buy and hold a concentrated portfolio of stocks. I prefer focus on a few eggs than a diversified portfolio of eggs (read my comment on the big secret). In my follow-up comment, I will discuss how I invest my money, using publicly available information on what elite hedge funds are doing and other information. We are all in the information arbitrage business, and it's how we use this information that will enable us to limit our losses and allow us to make money in these crazy markets dominated by macro events, high frequency trading and large hedge funds. The point of this comment was to let you know that there is value in losing money. Even the best hedge funds lose money but the top funds will adjust and learn from their mistakes. That's exactly what each and everyone of us should be doing. Finally, please note I corrected my donation button at the top right hand side of my blog, right under the pig, so it should be easier to donate via your bank or credit card. I appreciate all donations and plan on earning my money one donation at a time.

Alasdair Macleod: Silver corrects Posted: 07 May 2011 12:18 PM PDT 8:12p ET Saturday, May 7, 2011 Dear Friend of GATA and Gold (and Silver): Writing tonight at GoldMoney, economist and former banker Alasdair Macleod, who will be among the speakers at GATA's Gold Rush 2011 conference in London in August (http://www.gatagoldrush.com), reflects on silver's sharp decline last week. Macleod contends that the whacking silver took was market manipulation by the usual bullion banks but physical shortages and the weakness of government currencies have made investing in silver an opportunity again. Macleod's commentary is headlined "Silver Corrects" and you can find it at GoldMoney here: http://www.goldmoney.com/gold-research/silver-corrects.html CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. 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: World Resource Investment Conference Sunday-Monday, June 5-6, 2011 Vancouver Convention Centre East Vancouver, British Columbia, Canada http://cambridgehouse.com/conference-details/world-resource-investment-c... Gold Rush 2011 GATA's London Conference Thursday-Saturday, August 4-6, 2011 Savoy Hotel, London, England http://www.gatagoldrush.com Support GATA by purchasing gold and silver commemorative coins: https://www.amsterdamgold.eu/gata/index.asp?BiD=12 Or by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16 ADVERTISEMENT 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

Hathaway - Gold & Silver to Explode Again After Consolidation Posted: 07 May 2011 11:38 AM PDT With fierce action in the gold and silver markets, today King World News interviewed John Hathaway of the Tocqueville Gold Fund. When asked about the smash in the metals Hathaway stated, "I think people go crazy over these price changes and I understand that. I understand how it affects the psyche and all that, but the idea is you have physical (metal), it's an asset. Whatever it's valued at one day to another in paper money is irrelevant, you don't price your house every day." When asked about silver specifically Hathaway had this to say, "My instinct is that this was too quick for this to be final. It's like a haymaker (in silver) and it knocked everyone for a loop. Could it go to $30, could it go to $28? Yeah I suppose so, it could, but it wouldn't bother me. The long-term fundamentals for silver are no different at $35 than they were at $45 and what they were at $15. It's a hard idea to get across, but I think people get too wrapped up in current price action." When asked about gold Hathaway remarked, "Well gold has hardly corrected. I thought silver by comparison was very spikey and for it to go to $60, it couldn't have done it from $45 without doing this first. This is just a correction for gold that may not be over, it may take more doubters. It's a shakeout, we had this huge run and a lot of investors and traders probably got in too late if they were short-term in their thinking, but that is not the big picture. More Here.. Banking in darkness – FDIC system insures over $7 trillion in deposits with a dwindling insurance fund. Americans are offered close to zero percent interest rates to stuff their money into this banking vortex. Read More HERE..

At What Price Should We Begin Buying Silver Again? Posted: 07 May 2011 11:22 AM PDT It's clear that silver has had some large and scary sell-offs over the years but the "silver" lining to that fact is the realization that its current volatility is perfectly normal. As such, t[B]he appropriate question to ask isn't "How far does silver fall?" but "When do I get to start buying again?"*[Let me explain.] [/B]Words: 593 So*says*Jeff Clark*([url]www.caseyresearch.com[/url])*in*an article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted*and edited [...] below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.)*Clark*goes on to say: My "corrections" chart below shows all major pullbacks in silver since our bull market began in 2001. The data measure any clearly visible drop in price greater than 10%, regardless of time length… * * The average of all corrections is 19%. Applied to our high of $48.70 on April 28, silver would...

Gambling with the House’s Money Posted: 07 May 2011 09:36 AM PDT I have to admit, I was always a bit of math geek. When I learned how the Federal Reserve System operated, I knew I had found a genuine money-printing machine. Prior to that, when I stumbled on to poker, I thought I found a money-printing machine. Since I have now spent so much time in both worlds, I think it is amazing how both games have a few winners, a lot of losers, and a house that makes money no matter what the hell the players do. "If you want to make money in a casino, own one." – Steve Wynn, American casino resort/real-estate developer Poker is a remarkably simple game to grasp, from a mathematical perspective. You do not have to out smart the casino, but rather you only have to out smart the idiot in the seat beside you. It is all about Expected Value: EV = (winning-% * amount_I_can_win) – (losing-% * amount_I_can_lose) Depending on what card you hope will be pulled out of the deck next, you count the number of potentially winning cards, and figure out the odds of one of those cards dropping. You are trying to calculate your % chance of winning the hand. Say you have a flush draw, in hearts. How many "outs" do you have? You hold 2 of them. There are 2 more on the table. There are only 13 hearts in the deck, with 47 unknown cards, so there are 9 "outs" left to draw, from those 47, with 2 cards to come. W% = 1 – ((47-"outs")/47) * ((46-"outs")/46) W% = 1 – ((47-9)/47) * ((46-9)/46) W% = 1 – (38/47) * (37/46) W% = 1 – (0.808510638 * 0.804347826) W% = 1 – 0.650323774 W% = 0.349676226 W% = 34.9% With a 34.9% chance of winning, your Expected Value is: EV = (34.9% * Size of the pot) – (65.1% * The amount I have to call) If there is $80 in the pot, and you have to call $15, you can figure out whether or not to make that play. EV = (34.9% * $80) – (65.1% * $15) EV = $27.97 – $9.75 EV = +$18.22 If you make a call like this, you may win this hand, you may lose this hand, but you can EXPECT to win an AVERAGE of $18.22 on plays like this, by calling, over a very long time-line, so it is correct to call. Had we calculated a negative number, it would be correct to fold. So, when you sit down to play poker against someone like me, I may not take your money tonight, and I may not take your money tomorrow night, but if you are dumb enough to keep sitting down at the table, I will take your money. Either that, or you are also very good at math and bullshit. If that is the case, I will simply leave the game, and find someone dumber who wants to play. If you can not figure out who the dumbest player at the table is, it is you. It is not a question of if you are going to pay me. You are going to pay me. It is only a question of when. In reality, the game is not even fair, because after the first week or so, you are playing with your own currency, and I am also playing with your currency as well. Now and again, you might get lucky and temporarily win a small portion of your own currency back. Go ahead and dance. I have been at the table for quite a while now, and I know how this game ends. You pay me. Does this mean I never lose money? No. Quite the opposite, the above graph clearly shows a losing streak that lasted several hundred games, and cost me well over 20% of my bankroll (of other people's currency). I only bring this up, because at the end of SGTbull's recent interview with Jeff Neilson of BullionBullsCanada.com, he made the following remark: "And Remember, when you're feeling the pain, on these huge down days, you're not alone, we're all feeling it. My hope is that we can all hang on so when this thing turns, we can all start to feel euphoria again, together." I can not speak for all silver investors, but in poker, if you find yourself easily swinging between euphoria and despair with every daily outcome, you will quickly lose sight of the game you are trying to play. The game is not about winning every hand, or winning every day, or week. The game is about doing the math, controlling emotion, making the correct play, and thus knowing that you will profit in the long run for having always made the correct long-term decisions. I realized something about myself at that point. Years of gambling has left me with a wonderfully tragic brain condition that prevents me from processing short-term losses the same way that other people seem to. I have been on losing streaks that lasted so long I started to question the mathematical realities of the universe. In this past week, during the silver price crush, I lost more of my net worth value than I have ever lost in my entire life, and yet I find myself actually excited about the drop in silver prices. Smart guys like Mike Maloney told us from the very start that they were going to do this sort of thing. I have people calling me, and texting me, and saying things like, "holy crap! We're getting destroyed!" "Do you think it will drop further? " "Should we sell some, and try to buy it back later? " "Should I buy more now, or wait until next weekend?" How the heck do I know? Look, I do not ever get told what cards are lined up in the deck next. Is silver going up this week? I do not know. Is silver going down this week? I do not know. Will one or the other happen the week after? I do not know. Will we still be able to buy physical in six months? I do not know. Will we go into a further steep deflation before we go into the eventual hyperinflation? I do not know. Stop asking me stupid questions. Do you not see that we are playing in a Gulag Casino? I have one answer for you, and it has not changed in a long time: I still do not know what cards are going to be dealt. However, I have been sitting at the table for a very long time now, and I know how this game ends: I did the math, and so sooner or later, I will get paid. Maybe it's sooner. Maybe it's later. I do not really care. If I was not going to get paid, I would have never played the game. Don't sell your silver. The smart money is still sitting at the table. Best Regards, Stefan B. We are all in this mess together. ~SGTreport.com

Crash Or Correction? SocGen Answers Posted: 07 May 2011 09:00 AM PDT Following last week's crude drubbing brought about by correlations gone wild, following the 5 sequential margin hike-inspired collapse in silver, many are wondering if the silver correction is over, or if the crash is just starting. Here is Soc Gen joining in a very schizophrenic Goldman (a month ago: sell; yesterday: buy) telling clients the coast may be clear now that all the weakest hands have been purged (following SLV 88% share turnover on Thursday any latent mania elements have been exorcised). From SocGen: Oil prices experienced a huge sell-off this week, plunging by $12 /b on Thursday (11% over the week). Other energy prices followed but the extent of the move was much less limited (between –0.6% and -3.5% over the week). This can be explained by a number of reasons – most of all it seems market participants were finally convinced by the economic newsflow that downside risk have become dominant and it was time to take profit. The question now is obviously if - after the usual technical rebound - this will continue next week and translate into a crash, energy markets in Europe following oil with a lag. Or if prices will stabilize close to present levels, in what should then be considered as the correction of excesses. Our view is that the correction, a violent one, could be over as overall fundamentals remain sound. Hence some prices will stabilize (coal and power), at least temporarily. Further drop for gas is however expected, coming from the continuing seasonal adjustment for which gas is late as compared to the other components of the power complex. Carbon should suffer from this gas movement, with limited downside risk. Full note: Energy prices collapsed this week. Brent month ahead contract dropped by a staggering 11%, moving from $125.89 /b to 112 /b, of which almost $12 /b in a single session (Thursday), a rare fact. Following this dynamics but with a much lower amplitude, gas prices (NBP month ahead) lost &ound;p2 /th and closed on Friday at &ound;p55.8 /th (-3.5%). For coal, power and carbon prices, the pattern was slightly different. They started the week with an increase. German baseload Cal12 and CIF ARA Cal12 reached €59.82 /MWh and $133.25 /t respectively on Monday and Tuesday, continuing on previous week’s momentum. Then they followed the oil prices and strongly retraced from Wednesday to Friday. On the whole, German baseload Cal12 and CIF ARA Cal12 lost €0.9 /MWh and $3.75 /t, closing today at €58.2 /MWh and $129 /t. For carbon, the early week increase was strong with Dec11 EUA closing on a  new high €17.42 /t on Monday, at a level not seen since November 2008. The contract fell only by 0.6% over the week and finished today at €17.04 /t. So the energy markets brutally turned eventually. This comes after two quiet weeks marked by long breaks and holidays across Europe, delaying decisions – which might partly explain the brutality. Last week had finished on a rather bullish note, encouraging our view for this week that prices would still hold to high levels, and even increase for some of them (coal in particular). Fundamentals indeed had turned more supportive for prices, but sentiment made it all in the last four days. What happened? The market had become nervous over the recent weeks on concerns that the emerging countries would see their growth reduced in H211 due to the difficult fight against inflation, which is leading some of them to tighten their monetary policy. China has been in a tightening cycle for months – without much success on inflation readings so far. When India surprised this week by raising interest rates by 50 bps instead of the expected 25 bps, the concerns heightened. As the most liquid commodities (oil, precious metals) have largely become a macroeconomic play, and an EM play in particular, these concerns had lead investors to consider commodities as increasingly risky assets, whose potential for appreciation had turned quite limited in the short run. The good Q1 corporate results in the US and in Europe, very often beating analysts’ expectations, had temporarily appeased these fears  as they sent equity indices up to levels unseen since mid-2008 (for the US stocks at least). The enthusiasm over, operators have  started to take into consideration the bad news again. And realized the dark cloud has been getting darker and bigger over the recent weeks. Western economies remain fragile. In Europe the lingering risk of the sovereign debt crisis is in the news again, through the Portugal bailout and the talks of Greek debt restructuring. In the US, the debt rating downgrade is still in the memories and the end of QE2 in  June leaves the market wonder if this means the end of ever more cheap liquidity around, hence the end of the golden period for risky assets. The rising topic of oil demand destruction due to high prices, the bad unemployment figures yesterday in the US (jobless claims increased to an 8-month high while they were widely expected to drop) and the bad German factory order figures exacerbated the worries on the state of the developed economies. At the same time the threat of inflation is also getting more precise in the US and Europe, which eventually is no good for growth either, as it will lead to rate hikes. For oil, the bearish inventory report mid-week (see our US Petroleum Report dated 4 May) showing unusual stock builds even as the Driving Season is coming near, combined to news OPEC was considering raising formal output limits when it meets in June, pushed in the same direction. Much has been made about the impact of Bin Laden’s death. While it might reduce terrorist risk, it is not completely clear why this would lead to lower risk of oil cuts in the Middle East – for this, the less commented demise of one of the Libyan leader’s son over  the same week-end could actually bear more impact. The big “Abbottabad news” was for us used more as a pretext to the first profit-taking, which was actually short-lived on Monday. But the date will for sure be remembered as the turning point for the oil market, even if the real fall in oil actually trailed losses in precious metals later in the week. The bearish reaction was compounded by the ECB’s press conference yesterday, during which Mr. Trichet dampened the expectations for a rate hike in June. This sent the Euro rapidly down, EUR/USD retracing from 1.48 (up to now seen as a pause before 1.50) to 1.45, which is also bearish commodities. It is to be noted however that the astounding drop in oil prices fails to be reflected into other energy commodities, which fell only by 2% to 5% so far. This for us stems from two main reasons: barring oil, energy commodities are little invested by non-commercial players, whose behavior is evidently fuelling the movement for oil; and the stronger fundamentals for thermal coal or power in  Europe also helped limit the downside compared to oil. Seen in retrospect – as usual – we can see the energy prices had to go down! What was doubtful before becomes so clear afterwards… Hence, the real interesting question for next week is: will prices stabilize and rebound, or continue falling? Was this a  correction, or is this the beginning of a crash, the explosion of a “bubble” that will take off the classic 30% off the (oil) prices? In each case, which levels will the prices reach? Our view as a team was that a correction was to be expected but that Brent prices should for now remain in the $110 /b - $125 /b range. See for instance our Commodity Strategy - Brent 1x2 Put Spread at zero cost to benefit from tactical correction dated 4  May, where the following paragraph appears: “In conclusion, there seem several reasons to expect a correction lower in Brent prices over coming weeks. The key question is then how deep and long lasting such a correction is likely to be? We believe that any correction is unlikely to drop below $110 and any drop below $115 is likely to be short-lived.” We also think that solid fundamentals do not warrant a full-fledged crash (the -30% guy who would take oil back down to $85 /b), and that energy prices had not reached a “bubble-like” level. Hence the room for downside exists but is not massive. Economic fundamental first, are not that bad. H211 will  be weaker, which is what the market is rapidly pricing now. However according to SG Economic team central scenario the theme of double-dip is behind us and the economies are recovering for good. More precisely, on the energy commodities we follow two views are possible. Either the more inert, less investor-driven coal, gas,  carbon and power markets will more heavily come down next week, after a 2-day lag. Or they are close to finishing their correction, even if it can seem limited. In this case they would stabilize next week. Actually our view is that they have probably finished the part in their consolidation that corresponds to the unavoidable sympathy with oil prices. But that they have not finished their seasonal adjustment, at various levels. Hence some of them will stabilize next week (maybe temporarily as there is still some time for the season to play before summer), while other will continue coming down due to a higher gap with what seasonal conditions would justify. For coal, prices are undergoing the spring adjustment we have been expecting, but could be supported in the short run by continuing Chinese buying. Low inventories and Chinese domestic prices come closer to international ones are the main reasons behind this resurgence. For gas on the contrary, the market (wrongly we argued in our 19 April European Gas Special: five reasons for NBP gas price to go down this summer) thought lots of LNG would be diverted from UK to Japan to make up lost nuclear supplies but on Thursday the UK was in fact receiving more LNG than could fit in the pipelines at MilfordHaven, home of SouthHook and Dragon LNG. Dragon and South Hook were together flowing over 70 mcm /day into the national transmission system, about the maximum combined flowrate that has been seen in recent months. The high LNG supplies should continue to compensate for any other problems that could arise in Norway. Please refer to our equity Statoil note explaining that Statoil production in Q1 11 has been lower than Q1 10 and that Q2 and Q3 11e should also be below 2010 levels. We remain bearish for next week, especially in light of the rising temperatures. For carbon, our view is that the drift of gas prices lower will weigh downward, and that prices could suffer a bit. However there is little in the present price dynamics that could herald a significant departure from the €17 /t – its new average. For power, we think that coal prices are still price-makers in the German system, so that power prices will be relatively supported. However we think that NewC will be more resilient than CIF ARA (see our Thermal Coal trading idea dated 5 May Long NewC /Short CIF ARA) so we see risks more biased to the downside. Overall, we expect coal (CIF ARA Cal12) and German baseload Cal12 to remain above $128 /t and €57.7 /MWh. On the contrary, gas (NBP month ahead) should continue its consolidation to &ound;p54 /th. Finally, carbon should to be traded in a range €16.7 /t - €17.2 /t. Given this configuration and without strong downward move of the EUR/USD, German dark spread should remain stable while German spark spread will continue increasing (see our European Gas and Power Strategy dated 3 May Long German Spark Spread). We anticipate slight steepening of the CIF ARA forward curve with Next Quarter – Next Year spread decreasing to $-4 /t. For the NBP forward curve, the seasonal adjustment will weigh on the shortterm maturity contract and timespread will accentuate their drop.

At King World News, Haynes and Norcini see signs of silver buying Posted: 07 May 2011 08:38 AM PDT 4:35p ET Saturday, May 7, 2011 Dear Friend of GATA and Gold (and Silver): The weekly precious metals market review at King World News finds Bill Haynes of CMI Gold & Silver and futures trader Dan Norcini reporting signs of renewed buying in silver after its huge fall: http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/5/7_KWN_We... King World News also has interviews with resource stockbroker Rick Rule: http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/5/7_Ri... And market analyst James Dines: http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/5/7_Ja... CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. ADVERTISEMENT 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 Join GATA here: World Resource Investment Conference Sunday-Monday, June 5-6, 2011 Vancouver Convention Centre East Vancouver, British Columbia, Canada http://cambridgehouse.com/conference-details/world-resource-investment-c... Gold Rush 2011 GATA's London Conference Thursday-Saturday, August 4-6, 2011 Savoy Hotel, London, England http://www.gatagoldrush.com Support GATA by purchasing gold and silver commemorative coins: https://www.amsterdamgold.eu/gata/index.asp?BiD=12 Or by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16 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

“We have seen a 10 standard deviation move in silver on multiple periodicities that we track, the likes of which we haven’t yet experienced in this bull market.” Posted: 07 May 2011 07:50 AM PDT Ben Davies – We Are Now Buyers of Physical Silver This is the start of a great opportunity to accumulate silver. All of the key fundamental issues in the world have not gone away nor those specific to silver such … Continue reading →

Silver-mad small investors fueled an epic rise and fall Posted: 07 May 2011 06:31 AM PDT By Gregory Zuckerman and Carolyn Cui The Wall Street Journal Saturday, May 7, 2011 http://online.wsj.com/article/SB1000142405274870385930457630738017227127... When silver prices hit a three-decade high last week, David Zornetsky decided to do some buying. Searching for a job, the 31-year old in Beacon, N.Y., hoped to use gains from silver to finance a move to New York City and to pay down student loans. "I had been hearing that silver could go up to $150 an ounce this year," says Mr. Zornetsky. Instead, silver has suffered its worst one-week drubbing since 1980, when an infamous alleged attempt by Texas's Hunt brothers to corner the silver market came undone. This week's brutal tumble sent silver-futures prices down to $35.28 an ounce from nearly $50 in just five trading days, and has left Wall Street pros and individual investors dazed, some dealing with sudden losses. "I don't understand," says Mr. Zornetsky, whose silver investment fell about 25%. "Silver is supposed to do very well this year." ... Dispatch continues below ... ADVERTISEMENT 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 Behind silver's historic collapse is a market that came loose of its moorings, fueled by speculative traders, many of them small investors who may have jumped in at just the wrong moment. "If gold is a Monte Carlo casino, silver is a slot machine in Las Vegas," says Andy Smith, a senior metals strategist at Bache Commodities. Even the most sophisticated investors are divided about precious metals. For many of Wall Street's most-respected names, such as hedge-fund manager John Paulson, silver and gold represent protection from central banks that continue to spray money into the world's financial system, threatening to push inflation higher. But others, like George Soros, view those fears as overstated, arguing that the Federal Reserve is unlikely to let inflation get out of hand. Mr. Soros's funds have sold silver and gold positions in recent weeks. All kinds of commodities have run up this year, but few markets surged liked silver. That's because silver is different than most others, making it more susceptible to quick peaks, as well as plunges. For one thing, silver is smaller than many other markets, which means it scares off some larger investors who might otherwise step in to temper big moves. Gold has nearly four times the amount of tradeable futures contracts as silver. The value of new gold supply last year was $217 billion, with 17% of the total supply held by the world's central banks and multinational financial institutions. By comparison, the new supply of silver amounted to $49 billion in 2010, according to GFMS Ltd., a London-based metals consultancy. And less than 5% of silver is held by central banks and institutions, analysts estimate. A big chunk of the world's silver is instead held by individuals in the form of coins, medals and bars, though it's hard to get accurate estimates of this figure. Such investors are attracted to the relatively low price of silver, but they can also be prone to panic. Long-time fans of precious metals often are mavericks who can be suspicious of mainstream securities firms, wary of financial catastrophe and reluctant to keep their money in the bank. They often rely on the advice of newsletter writers, obscure websites and coin-shop proprietors or their own research. Once considered a haven for those with bleak economic outlooks or dystopian views of society, gold and silver began to rise early in the last decade, as investors searched for ways to protect against the falling dollar. Silver tumbled to $9 an ounce during the financial crisis of 2008, as investors dumped all kinds of holdings, but buying resumed in early 2009. The bull market accelerated last August, when the Federal Reserve and other central banks announced aggressive measures to buy bonds and pump money into the global financial system, steps that raised concerns about the value of the dollar and other leading currencies. Silver buying moved into high gear over the past eight months, suggesting that prices had begun to reflect a speculative frenzy, rather than currency or inflationary fears. Silver climbed 165% between late August and last week, well above the 26% rise in gold. In recent months, trading volume of silver-futures contracts, which allow investors to purchase or sell a certain amount of silver, soared. So far this year, those contracts' daily volume has more than doubled compared with the same period last year, another sign of the rabid interest in silver. Day traders, or individuals who quickly buy and sell stocks, began to focus on silver, much as they did with Internet stocks in the late 1990s. A majority of the 350 individual traders hosted by T3 Trading Group in New York began buying and selling silver, rather than stocks. "It's been 1999 all over again," says Evan Lazarus, a 35-year old trader who manages T3 Trading. In April, Mr. Lazarus shifted his own trading to leveraged exchange-traded funds, or those that rise or fall in price twice or three times the move of silver. "Silver is the new stock market." Many individuals piled into such funds. Over a three-week period last month, assets at a half-dozen silver ETFs soared about $4 billion, or more than 20%. Newsletter writers helped fuel the market's surge. "It is obvious to anyone with any ability to think, that precious metals are a must investment!" said longtime silver backer David Morgan, whose newsletter has 1,000 subscribers and thousands more who read email alerts. The note came after Standard & Poor's warned of a possible downgrade of the U.S.'s credit rating. "Where else can anyone invest for capital preservation outside of precious metals?" By last week, the price of 32 ounces of silver equaled one ounce of gold. In contrast, over the past three decades, it took an average of 63 ounces of silver to buy an ounce of gold. The last time silver was as pricey relative to gold was in 1983. When Chairman Ben Bernanke reaffirmed the Fed's low-interest rate policies on April 27, silver soared close to $50 an ounce, a 31-year nominal high. That week, a team of risk-management specialists at the CME Group, which operates the Comex, the biggest silver trading exchange, picked up on a sudden spike in volatility, according to Kim Taylor, a CME executive. The team decided to hike margin requirements, forcing traders to come up with more cash or other collateral to ensure there was sufficient capital in their accounts to cover losses if the volatility continued. On Tuesday and Thursday of this week, CME raised requirements again. Those moves increased trading costs by about 80% and a number of investors cashed out. "What all members need to think about now is protecting your gains," Mr. Morgan urged his newsletter readers. "REDUCE YOUR RISK." Lou Forte found himself both a winner and loser in silver's wild ride. On Monday morning, when the dollar briefly strengthened on news of Osama Bin Laden's death and silver showed immediate weakness, Mr. Forte, a 35-year-old day trader from Westchester County, N.Y., bought a silver ETF. It soon rallied. He sold at a profit. Next, he correctly bet prices would fall. On a roll, he tried to call the bottom again, buying early on Thursday. But this time silver kept plunging and he suffered losses. "I traded through the Internet bubble and traded through a lot of crazy days, and this has been one of the most gut-wrenching times in my 13 years of doing this," said Mr. Forte. "The volatility is enough to make you vomit." Silver ETFs, favored by many individuals, have suffered among the most pain, and there are signs investors are getting out. More than 36 million ounces of silver has been dumped into the market between April 26 through this past Thursday, more silver than all the American Eagle silver coins that investors bought from the U.S. Mint last year. After this week's bloodbath, "some of these people probably would never touch silver again," says Mr. Smith of Bache Commodities. Though silver is a playground of smaller investors, it has also attracted growing interest by hedge funds and other pros. They've formed two sides of an intellectual debate, pitting those who fear severe economic disruption against those who think the Federal Reserve can steer the economy to calmer territory. Mr. Soros's fund, now run by Keith Anderson, spent the last two years accumulating silver and gold holdings in the expectation that deflation, or a sustained fall in prices, would boost interest on precious metals by skittish investors. Their holdings in that case would soar. But Mr. Soros's firm recently exited its gold and silver positions, according to people close to the matter, because the firm is convinced the Fed's aggressive actions have eliminated the possibility of deflation. They have faith the Fed will succeed in keeping a lid on inflation by signaling its intention to raise interest rates, perhaps over the next six months. Others dumping precious metals lately doubt the Fed will take much more aggressive action to help the economy, at least for now. That could potentially reduce appetite for a range of investments, including silver. John Burbank, who runs hedge fund Passport Capital in San Francisco, became a fan of precious metals in 2002. Earlier this year, however, he sold his entire $150 million stash of gold, convinced the Fed won't extend its so-called quantitative easing measures beyond June. "Silver prices have been parabolic, but the time to buy again will be months away," he says. Bulls on precious metals, like John Paulson, who has focused his buying on gold, say the Fed won't be able to rein in inflation once it begins in earnest. Silver is more attractive than gold, some of these investors say, partly because its inflation-adjusted all-time high is about $140 an ounce, about four times where it trades today. Gold, which traded Friday at $1491.20 an ounce, is actually closer to its adjusted all-time high. Silver remains up 14% in 2011, one of the best investments, despite the recent plunge. Indeed, some hedge funds, such as Kyle Bass's Hayman Capital, bought silver early Friday, sensing the white metal had reached bargain levels and was due for a bounce, says a person close to the trader. Some smaller investors are holding on, too. Donna Badach, a 55-year-old retiree, started buying silver in 2003 at an average cost of $25 an ounce. She now has a cache of silver coins and bullion, which she says are stored in a "private depositary" and account for 60% of her net worth. She buys silver "for insurance purpose," because "it's so shaky to see what's going on all over the world." "I don't believe the correction will last long. Silver will hit $100 before the end of this year," says Ms. Badach, who had worked in the mortgage-banking industry in Hillsboro, Fla. "I have never felt so sure in my life about something." * * * Join GATA here: World Resource Investment Conference Sunday-Monday, June 5-6, 2011 Vancouver Convention Centre East Vancouver, British Columbia, Canada http://cambridgehouse.com/conference-details/world-resource-investment-c... Gold Rush 2011 GATA's London Conference Thursday-Saturday, August 4-6, 2011 Savoy Hotel, London, England http://www.gatagoldrush.com/ Support GATA by purchasing gold and silver commemorative coins: https://www.amsterdamgold.eu/gata/index.asp?BiD=12 Or by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16 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

Here?s Proof! Gold & Silver Less Risky than Investing in Dow 30 Posted: 07 May 2011 05:20 AM PDT While gold is slightly more volatile than the*Dow 30, on average,*all of the individual components are more volatile than gold and only half are less volatile than silver and platinum. [So much for] the prevailing myth…that they are risky investments due to their volatility. [Let's take a closer look at the specifics.] Words: 250 So*reports*[url]www.bmgbullion.com[/url]*in*an article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted*and edited [...] below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.)*The article*goes on to convey the following: * *No one would argue that the Bank of America is more risky than precious metals yet it*has the second lowest return and the highest volatility. Only Caterpillar surpasses gold and platinum in performance but at much higher volatility than any of the precious metals. Conclusion ...

If there's no silver shortage, why are forward rates negative again? Posted: 07 May 2011 04:49 AM PDT By Atlantic Capital Management West Palm Beach, Florida Monday, May 2, 2011 http://www.minyanville.com/businessmarkets/articles/gold-price-price-of-... Silver finished a very volatile week with significant developments on seemingly every front. There were two margin hikes for the futures market within 48 hours of each other. The Central Fund of Canada (CEF) saw its premium to spot prices (both gold and silver;CEF owns about 50% of its assets in each) disappear completely. As of April 29, 2011, CEF is trading at 2.4% discount to its net asset value in US dollars; a 2.7% discount in Canadian dollars. Sprott Physical Silver Trust (PSLV) also saw its premium to spot fall to about 16% from above 20%. To some, these moves suggest that silver's bubble is getting too frothy to continue, as in the Sunday, May 1 plunge. For others, these moves show continued desperation on the part of the COMEX and bullion dealers to shake out weak long contract holders. ... Dispatch continues below ... ADVERTISEMENT 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 While these data points are important in and of themselves, it's the forward market that is more conclusive. Until those calling for a top in silver prices can explain why silver forward rates (SIFO) are once again negative, their argument will be far from convincing. Essentially, negative SIFO rates mean that some investor (or investors) who's short actual metal is paying physical holders a premium to obtain the metal. In the opaque world of precious metals, forward rates are the foundation for "leasing." Silver shorts that participate in leasing are actually lending cash to the owners of the physical metal. The silver owners then hand over that metal to the cash owners (the shorts) as collateral for the loan. When the forward market shows negative rates, it means that the cash owners are, instead of earning an interest rate on their loan, paying someone else to borrow it. This is like going to your local bank and having them pay you interest to borrow the bank's money. The only reason this would occur is if cash owners are being forced to repay or return physical metal that they do not have and are having a lot of difficulty finding the actual metal through other means. This situation is more common in the repo (repurchase agreements) markets where the same money principles apply. In treasury repos, a specific bond can go "on special" when it has been shorted too far above its actual physical availability. There are even times when special rates go negative -- when the shortage is particularly acute and closing out short positions is extremely difficult. This is an exact parallel to what we are seeing in the silver market. In January and February 2011, leasing rates jumped as the SIFO curve fell all the way into the negative. These moves were in anticipation of a difficult delivery month of March, where approximately 1,800 contracts actually stood for physical delivery. Although it only represented about 9 million ounces, on an exchange that advertised over 100 million ounces in its vaults and 50 million ready for actual delivery, it took the entire month to service all the contracts. It even went all the way down to the last weekend before all the contracts settled. Not coincidentally, silver prices, including the iShares Silver Trust (SLV), shot higher. I speculated at that time that the leasing activity in January and February obtained just enough actual metal to deliver through March, but not much more than that. I thought that the large shorts were hoping to discourage enough long investors by getting through March without any kind of COMEX default. That theoretical hope was extinguished as we approached the first notice date for the May delivery month. The open interest "problem" reappeared with an increased vigor above even March. The COMEX data shows almost 2,200 contracts standing for delivery, about 20% more than March. The negative SIFO rates confirm that silver dealers underestimated the need and resolve on the long side. From April 6 to April 26, one-month SIFO fell from a high of 40 basis points all the way to minus 4.5 basis points. From April 13 to April 26, one-year SIFO dropped from 19.3 basis points to minus 11.7 basis points. SIFO rates are still negative as of April 28, but have moved back closer to zero. These machinations in the forward rates have led to a messy futures curve. Normally, since it is derived from forward rates, the curve will have a nice, smooth shape regardless of whether the market is in contango or backwardation. This is due to the term structure of money interest rates. Remember, forward rates really represent a collateralized loan. When the futures curve shape is nothing like a normal curve, it can only mean that money rates are no longer the primary consideration in setting various term levels. Something else has to be driving the curve or it would result in a money-driven shape. The current futures curve is in contango until December 2011, with a light backwardation from then until May 2012, then almost $1 of backwardation out to December 2015. This hybrid curve, in my opinion, is the most powerful evidence that there is a shortage in physical silver. This is not a curve driven by money rates. How can silver be in a bubble? The only answer would have to be some kind of short-squeeze story. If there is squeeze on, then prices would rise into a parabolic blow off. Once the squeeze is executed, the squeezer exits its position and the price collapses (see the Hunt brothers in 1980 and Warren Buffet/Phibro in 1998). There have been numerous rumors making the rounds in the past few weeks of a Russian billionaire playing such a part. This is a possibility, of course, now that it's becoming clear to a much wider audience that the COMEX is now on its fourth consecutive delivery month of ratcheting degrees of trouble. But this squeeze rumor does not account for all of the actions in precious metals over the past couple of years. How does the squeeze rumor explain the lack of available coins at major mints? It does nothing to explicate why silver dealers continue to have trouble maintaining a supply for retail investors. In my opinion, if there is a major individual running a silver play, it is entirely derivative of the original trend in place. In other words, the squeezer is taking advantage of a different and even more powerful kind of squeeze that has been running for far longer. That underlying trend is nothing more than Gresham's Law. In the days of hard currency, when both gold and silver (a bi-metallic standard) "backed" paper money, one metal was almost always given more favorable terms than the other. Typically, the national government, under political pressure from one metal constituency or another, was responsible for the imbalance. Gresham's Law simply accounted for the actions that inevitably followed the bi-metallic interference, and is one of the few economic "laws" that has a basis in empirical reality. To put it simply, whenever one metal was favored (overvalued) versus the other (undervalued), the overvalued metal would circulate while the undervalued metal would get hoarded. As an example, if the national price of silver was fixed too high in relation to gold, the silver coinage or silver-backed paper would get circulated by the public and businesses while gold coinage or paper would be hoarded. In unofficial "markets" or transactions, the price of the undervalued metal would rise in relation to the overvalued until some kind of parity resulted. Of course, this would create all kinds of economic and market difficulties and distortions. If we think of this dynamic in terms of monetary actions from 2009 to 2011, we can fill in the terms for Gresham's Law rather easily. Playing the role of the overvalued, government-entangled currency is fiat dollars. The relative "price" of those dollars has been fixed at a high level by continued and active suppression of interest rates. The alternate means of exchange are precious metals. Since Gresham's Law states that the overvalued currency is circulated, is it any wonder that the relative value of the dollar is falling so dramatically? Conversely, Gresham's Law expects the undervalued substitutes, gold and silver, to be hoarded, which the forward, futures and spot markets all suggest is happening. The recent run in gold, including SPDR's Gold Trust (GLD) shares, also backs this proposition. The massive amount of dollar holdings outside the US and its reserve status necessarily means that Gresham's Law would occur there first. The fall in exchange value of the dollar is the circulation part, while central banks, including persistent rumors of China and India, buy or hoard as much precious metals as they can. At the same time the concerted effort to remove the dollar's reserve status, which precious metal hoarding is an active part, is simply preparation for the eventual withdrawal of artificial constraints on the dollar's price and the likely painful adjustment that will come with it. If this is indeed what is occurring, then hoarding of gold and silver will mean that physical availability will continue to be a problem for the foreseeable future. The only way to remedy Gresham's Law is to remove the artificial price fixing. The minutes from the last Federal Open Market Committee meeting show that as an extremely remote possibility. Unfortunately for those on the short side of silver, every piece of relevant data points to a physical shortage. Worse yet, the longer-term demand for silver is directly related to Fed-controlled interest rates fixing the price of soft, fiat currency too high. Until these imbalances are removed, the shortage will grow. Ancillary movements in the physical funds, CEF or PSLV, nor margin increases will change this. Movements like last night's may shake up the long side speculators, but in the end the real capacity for silver and gold prices to rise is equal to the determination of central banks to control the interest rate structure. * * * Join GATA here: World Resource Investment Conference Sunday-Monday, June 5-6, 2011 Vancouver Convention Centre East Vancouver, British Columbia, Canada http://cambridgehouse.com/conference-details/world-resource-investment-c... Gold Rush 2011 GATA's London Conference Thursday-Saturday, August 4-6, 2011 Savoy Hotel, London, England http://www.gatagoldrush.com/ Support GATA by purchasing gold and silver commemorative coins: https://www.amsterdamgold.eu/gata/index.asp?BiD=12 Or by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16 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

Goldman Lowers 2011 GDP Forecast Posted: 07 May 2011 04:31 AM PDT Once again Goldman confirms that shooting for the moon, when it comes to an artificial, self-sustainable "virtuous growth" cycle in a centally planned economy is an exercise in futility. As long expected, the gradual roll down in growth forecasts begins, and all of Wall Street's lemmings will rush next week to undercut each other, all the while blaming cold weather, hot weather, and any weather for not being able to see this. Fore one previous example (and there are dozens) of Zero Hedge indicating Goldman's overoptimistic forecast read here. From Goldman: "Spring Cleaning for Our Forecasts" Forecast change summary: 1. We now forecast that real GDP will increase by 3.5% in Q2 2011 and 3¼% in the second half of this year. The rise in oil prices —although now partly reversing—is likely to prove a meaningful drag on consumer spending and business investment. Besides this sizable shock [what shocks: , however, we continue to see a broad-based normalization in the economy. Bank lending, the labor market, and business confidence have all improved. We therefore expect GDP growth to remain abovetrend, and to accelerate in late 2012 as the effects of the rise in oil prices begin to fade. 2. A gradual drop in the jobless rate, to 8.5% by year-end 2011 and 8¼% by year-end 2012. The persistence of above-potential  growth over the next two years should help reduce the rate of unemployment visibly during this period. However, we expect the pace of improvement to slow sharply as the rapid drop in labor force participation gives way to a modest increase. 3. A moderate rise in core inflation. We raised our inflation forecasts, and now expect the core PCE price index to accelerate  modestly to 1.3% from 0.9% now. Despite significant excess capacity, stable inflation expectations should draw underlying inflation closer to the Fed’s target. In addition, rising rent inflation—caused in part by a decline in homeownership and surge in demand for apartments—may put upward pressure on the major price indexes. In our forecast, year-to-year headline inflation as measured by the all-items CPI rises to 4% by the third quarter of 2011 before ebbing to just 1½ % at year-end 2012. 4. No Fed rate hikes before 2013. We have a high degree of confidence in this view for 2011, but see it as a much closer call for  2012. However, with the jobless rate far above the Federal Open Market Committee’s “mandate-consistent” 5%-6% central tendency range and core inflation well below the comparable “2% or a bit less” standard, we think most FOMC members will think it premature to start raising interest rates. 5. Yields on 10-year Treasury notes reach 3¾% by year-end 2011 and 4¼% by year-end 2012. As the jitters about global growth in the wake of the Middle East turmoil and the Japanese earthquake subside, we believe that many participants in the financial markets will turn their attention back to higher inflation and the potential for Fed rate hikes. This is especially likely if the dollar also depreciates, as we expect it will, or if bank loans start to grow. While we do not  forecast that rate hikes will begin until 2013, we believe that many investors may expect them sooner. Increases in Treasury yields will likely be tilted toward the short end of the curve, where changes in market expectations of monetary policy matter more. Next up: more growth cuts, and Hatzius casually floating the idea of another quantitiv easing episode "if further broad-based deterioration is observed." Full note: 1. Sustainable above-trend growth. After several years with a below-consensus view on US growth, we adopted a significantly more constructive outlook in late 2010. The reasons for this shift were progress in private sector deleveraging, better signs in the labor and credit markets, a pickup in underlying private demand growth, and another helping of monetary and fiscal policy stimulus. 2. Low core inflation. Our view has long been that inflation depends more on the levels of output and employment relative to  potential than on their growth rates. With GDP 5%-6% below its potential level and unemployment 3-4 percentage points above its sustainable rate, we predicted that core inflation would stay well below the Fed’s target in 2011 and 2012. 3. A near-zero funds rate. Our version of the so-called Taylor rule showed that the “warranted” federal funds rate—based on inflation  and unemployment relative to the Fed’s dual mandate—was likely to stay at or below zero until after 2012. Our forecasts  have reflected this, with no rate hikes predicted until 2013. GDP Growth—Still Above Trend, But the Trend Itself Looks a Bit Lower These basic themes remain unchanged. However, we are marking our specific forecasts to the recent information flow. On the  growth side, our prediction that real GDP would grow at a sequential pace of 3½%-4% through 2011-2012 now looks too aggressive, and we are reducing it to the 3%-3½% range as shown in Exhibit 1. However, we still think that the 1.8% GDP growth rate reported for the first quarter understates the “true” pace of activity in the first quarter and will be followed by significantly stronger figures in the remainder of 2011. Our forecasts for annual-average GDP growth go to 2.7% from 2.9% in 2011 and to 3.2% from 3.8% in 2012. There are three reasons for our downgrade: 1. Less momentum. The most obvious reason to downgrade our forecast is that the broad momentum of the economic activity indicators—which somewhat ironically was quite strong in the first quarter despite the disappointing 1.8% GDP growth figure—has shown some signs of flagging recently. As shown in Exhibit 2, our Current Activity Indicator (CAI) is on track for growth of only 2.3% (annualized) in April following Friday’s employment report, down from an average of 3.7% in the first quarter. This slowdown mainly reflects the weaker Philly Fed and nonmanufacturing ISM surveys, higher jobless claims, and slower household employment growth;  in contrast, both nonfarm payrolls and the manufacturing ISM still look firm. Moreover, the chart also shows a 22-business day (i.e. one-month) moving average of our US-MAP scoring system of economic indicators versus the consensus forecast; this illustrates  that the recent data have not only been weaker in absolute terms but also relative to economists’ expectations. 2. Energy prices. Although energy prices plunged this week, our analysis shows that the surge seen over the last few months is still likely to weigh on growth. Exhibit 3 plots the estimated effect of a transitory 20% shock to retail gasoline prices, which is roughly the “surprise” relative to the path discounted in our forecast five months ago.1 Assuming that the shock dies out over the next quarter—in line with the predictions of our commodity strategists—the impact is to lower real GDP growth by about ¾ percentage point for three quarters. Subsequently, growth rises above the “baseline” as real income rebounds in the wake of lower oil prices. This could be a reason for growth to reaccelerate in 2012, although it is important to keep in mind that this “shock” and its reversal need to be evaluated relative to a rising path for the underlying oil price trend in our commodity strategists’ forecast. 3. Fiscal tightening. We have long expected fiscal policy to subtract from growth in 2011-2012, but the recent developments suggest that this tightening might be a little more aggressive than we thought earlier. This is not because of the $38 billion cut in budget authority agreed by the two parties to avert a shutdown of the federal government in early April; after all, the Congressional Budget  Office (CBO) scored this agreement as an actual spending cut in the 2011 fiscal year of only $300 million. Moreover, our current assumption is that the temporary payroll tax cut passed in December 2010—which is currently scheduled to expire at the end of  2011—is extended for another year as the presidential election approaches. However, we expect the emergency unemployment  benefit legislation to expire on schedule in late 2011 and see additional restraint in 2012 from federal discretionary spending cuts, expiring provisions from the stimulus package, and some degree of restraint in the state and local sector. Slower growth is likely to keep the unemployment rate somewhat higher than we previously thought. The historical relationship between real GDP growth and changes in the unemployment—dubbed “Okun’s law” by economists after President Nixon’s chief economic adviser—suggests that the unemployment rate falls by about half the gap between GDP growth and its long-term trend  over a year’s time. In our updated forecast, growth through the end of 2012 averages 3.3%, or ½-¾ percentage point above our estimate of US potential growth. Taken literally, this would imply a drop in the unemployment rate from the 9.0% reported for April 2011 to 8¼%-8½% at the end of 2012. We choose the lower end of this range because we are concerned that the weakness in  labor force participation over the past couple of years might indicate that potential growth is a little weaker than we had thought. Core Inflation—Higher Because of Rents, But Still Well Below the Fed’s Target Despite the slightly higher unemployment rate and the lower level of GDP in our new forecast, we are also making an upward adjustment to our core inflation forecast. As shown in Exhibit 5, we now expect the core PCE price index—the Fed’s favorite  measure of inflation—to accelerate to 1.3% year-on-year in late 2011 and 2012, from 1.0% in our previous forecast. The main reason is that rent and owners’ equivalent rent (OER) inflation is likely to pick up somewhat further. The private research group PPR is reporting rents that point to higher rent and OER inflation over the next year, as shown in Exhibit 6. This is important because rent and OER together account for a whopping 40% of the core CPI and a still-large 17% of the core PCE index. That said, it is hard to take at least the acceleration in OER—whose weight is much larger than that of rent—seriously as a sign of higher US inflation. In our view, it is basically a statistical artifact that is  closely related to the drop in homeownership discussed on these pages last week.2 This drop is increasing the excess supply of homes in the owneroccupied sector and therefore putting  downward pressure on home prices; meanwhile, the drop is  reducing the excess supply in the renter-occupied sector and therefore  putting upward pressure on rents. Because the CPI imputes the cost of owner occupation from rents, this shift perversely results in upward pressure on measured homeowner costs even though it puts downward pressure on actual house prices and mortgage payments. More fundamentally, output and employment remain far below the US economy’s potential, inflation expectations remain well-anchored, and both wages and unit labor costs are consistent with inflation well below the Fed’s target in 2011 and 2012. We  can show this using our estimated top-down inflation model illustrated in Exhibit 7.3 It explains core CPI inflation by the unemployment gap—the difference between the unemployment rate and the estimated natural rate—as well as long-term inflation expectations. If we measure inflation expectations by the “forward” inflation rate expected by consumers over the next 5- 10 years, our model  implies a pickup in core CPI inflation to 1.4%, right in line with our forecast. However, the message from our top-down model is that the risks to this forecast are if anything on the downside; if we use the 10-year inflation expected by economists, the projection drops to 0.5%. We think it is sensible to “lean” to the higher side of the range projected in our top-down model mainly because of the upward pressure on rents and OER. But fundamentally we still see a very low inflation environment. Fed Policy—Still on Hold Through 2011-2012 The net effect of these forecast changes on our forecast for Fed policy is approximately zero. In other words, we still think that the first hike in the federal funds rate will occur in early 2013, although the uncertainty is substantial. The starting point for the Fed policy outlook is our estimated forward-looking Taylor rule model. The latest version is shown in Exhibit 8.4 It uses data over the period from 1988 to 2008 to estimate the funds rate as a function of the Fed’s forecasts for inflation and unemployment relative to its targets for both variables. The model then projects the funds rate forward, under the assumption that the Fed’s forecasts ultimately converge to our own; that is the solid line in the chart. Finally, we adjust the solid line using our estimates of the impact of unconventional monetary policy on financial conditions; that is the dotted line in the chart. Relative to the prior version Exhibit 7, there are three offsetting changes: 1. Slightly higher unemployment. The ¼-point upward revision to the unemployment rate at the end  of 2012 lowers the “warranted” federal funds rate by about 30 basis points (bp). 2. Slightly higher inflation. The 0.3-point upward revision to core PCE inflation raises the warranted funds rate by about 40bp. 3. Reduced commitment. We were struck by Chairman Bernanke’s answer to the question in the April 27 press conference about the meaning of the “extended period” language. Our interpretation had been that this meant no rate hikes for six months or longer. However, the chairman only indicated that it meant no hikes for “a couple of meetings,” and qualified even that statement by a  “probably.” This is relevant for our Taylor rule because we have found that this type of commitment language has historically kept long-term interest rates lower and financial conditions easier, and we have therefore treated it as a substitute for cuts in the federal  funds rate along lines that are similar to large-scale asset purchases. However, our latest version of Exhibit 7 assumes that the current commitment language is worth only about 20bp, down from 40bp previously. Similarly, we are making no changes to our long-term interest rate forecasts. We still expect 10-year note yields to drift up gradually to 3¾% at the end of 2011 and 4¼% at the end of 2012; the reason is that the unemployment rate declines, core inflation drifts  up, and the date of the first Fed rate hike comes closer. These figures are moderately above the forwards following the recent rally. However, they still imply that long-term interest rates will remain in the low range that has prevailed for the past several years.

Speculation Does Not Explain High Oil and Gasoline Prices? Please!! Posted: 07 May 2011 04:24 AM PDT By EconMatters WTI (West Texas Intermediate) Crude Oil futures traded at its lowest in almost two months in New York on Thursday, May 5 in its biggest selloff in two years, plunging 8.6% on the day to below the $100 mark (Fig. 1).  Brent crude on ICE also dropped as much as $12.17, or 10%, which was the largest in percentage terms not seen since the Lehman Brothers financial crisis, and the largest ever in absolute terms, according to FT. The epic waterfall was partly due to the combination of a strengthening dollar after European Central Bank President Jean-Claude Trichet said he wouldn’t raise interest rates, and a surging U.S. first time jobless claim that sent oil, silver and other commodities plunging. Big Speculators Moving Out  There has been a long debate about how much of a role speculators play in the oil market.  However, this latest big price move in one day strongly suggests something more than fundamentals is at work. That is, some big players (i.e. speculators) decided to move out of commodities, either to take profits, or for risk off trades, as crude and gasoline market fundamentals have not changed much since the start of the year to warrant such a run-up of prices in recent months (Fig. 1). Link Between Oil Storage & Speculation?? Some, like Ezra Klein at The Washington Post, and Jerry Taylor and Peter Van Doren, senior fellows at the Cato Institute, have suggested that speculators are not the ones causing high oil and gasoline prices. For example, in this article, Klein partly quoted Michael Greenstone, an energy economist at MIT, and concluded that: “Speculators make money by pulling oil off the market, putting it in inventory, and selling it later…So if you’re seeing speculation, you should be seeing a massive run-up in inventory. And we are seeing a bit of an inventory bump, particularly in recent weeks. But not enough of one.” Taylor and Van Doren also drew a similar conclusion in an article at Forbes stating that since there’s not a massive increase in oil storage to cause a physical supply shortage, so do ‘put away the torches and pitchforks’ as speculators are not to blame for the rise in oil and gasoline price. Reality Check - Shorts & Paper Barrels I guess all four gentlemen live right next door to the U.S. Fed in the ivory tower and just as detached from reality. First of all, taking a long position, as in Greenstone's 'store then sell' scenario, is not the only way to 'speculate' in the oil market.  Another way is by placing short bets, or a combination of long and short positions.  Short bets could cause huge price spikes and volatilities if those speculators have to cover their positions due to an unexpected and sudden rise of the underlying commodity price. With the current price momentum, more short speculators will be piling in to put even more downward pressure on crude oil in the coming days, particularly after QE2 ends in June, and no more stimulous on the horizon.    As for the notion that the only link between speculative activities and oil market is with oil storge, here is a quick lesson on the modern art of speculation. From Bloomberg: “Less than 1 percent, or 3,248 crude futures contracts, was delivered in 2010, compared with the average open interest of 1.34 million contracts during the same period, according to Nymex and data compiled by Bloomberg. There is no physical delivery against Brent oil futures contracts traded on the London-based ICE Futures Europe Exchange. “ While there are some long speculators (typically big players) doing the good old contango trade--'store now and sell later'--as described by Greenstone, there's a whole brave new world via oil ETFs such as USO and BNO to party in speculation. These commodity ETFs are futures-based that takes no physical deliveries, but may accumulate huge long positions due to investment fund inflow, thus influencing market prices, particularly during their monthly contracts rollovers.  Everybody's A Speculator!  So this is the New World [Paper] Order of Crude Speculation….no physical ‘putting in inventory’ necessary.  Furthermore, there is this tip bit from FT.com dated May 5: “CME Group, operator of the Nymex exchange, touted open interest records not only for crude oil but the dull world of natural gas, where a flood of new supply has kept prices listless. This, along with a plunge in silver this week, suggests a wall of investor money flowing indiscriminately into and out of commodities.” In essence, Crude, along with almost all other commodity markets, has become such a huge paper palace that almost every participant is a speculator, long or short--where you can buy, sell, speculate, and could ‘own barrels’ without them being actually ‘stored’. And through that process, speculators bid up prices, take profits, on any kind of market event—be it real, hyped, or 'rumored'--but no one has to really put anything  in inventories. Rising Crude Inventories The Greenstone/Klein and Taylor/Van Doren conclusion also implies that crude oil and gasoline markets are reflecting true market supply/demand fundamentals as there’s no suggestion of speculative activities. Well, on the supply side, that “bit of an inventory bump’ pushed inventory level at Cushing, Oklahoma, which is the delivery point of NYMEX WTI futures contracts, to around 41.9 million barrels the week ending April 08 (Fig. 2). That was the highest ever since the EIA started tracking Cushing inventory in 2004. Crude oil storage at Cushing remained close to the record high sitting at 40.5 million the week ending April 29. Crude stockpiles are also rising in other U.S. regions as well. The latest crude inventory report from the government showed stockpiles rose 3.42 million barrels to 366.5 million the week ending April 29, the highest level since October. Sliding Gasoline Demand On the demand side, gasoline demand in the U.S. has been on a steady decline since last August, and dropped another 2.2% in the week ended April 29 to 8.94 million barrels a day, according to the U.S. EIA data. On a four-week average, gasoline consumption was 1.9% lower than a year earlier. RBOB Chasing Brent RBOB gasoline futures on Nymex, on the other hand, had gained 35% this year through May 4, far outpacing WTI as speculators bid up petroleum product futures mimicking movement in the Brent marker (Fig. 3), which flipped into a premium to WTI. That premium reached a record of $18.50 in February, 2011. Brent is traded on ICE—a speculator haven as it is essentially unregulated, relatively opaque, and less liquid (although this is in dispute between ICE and CME) market.  More Pain From RBOB To Gas Pump According to AAA, as of May 6, the national average gasoline price is less than 2 cents shy from $4 a gallon, while 14 states are already paying $4 or more a gallon at the pump.  Since it typically takes about two to three months for the RBOB gasoline futures pricing to hit the gas pump and consumers, further pump price increase and demand destruction seems inevitable (Fig. 4). QE2 Added Speculation To sum up, the recent irrational run-up of oil and gasoline prices could be attributed to the following major factors, and all of them, with the exception Fed’s QE2, which is the culprit of adding jet fuel to the speculation fire, could be traced back to speculators: U.S. Fed’s QE2 liquidity flooding the market and inflating asset prices A weak dollar (largely brought on by QE2) as commodities are mostly priced in dollar. Dollar has dropped 11% this year, partly exacerbated by traders doing the trade of short the dollar and long commodities.  Funds flow - Institution and hedge fund managers pour money into commodity for better investment returns, and as a dollar and inflation hedge, further reinforcing rising commodity prices Geopolitical unrest in the Middle East and North Africa (MENA) region has been used as justification by speculators to add ‘risk premium’ to oil and gasoline prices. . Speculation vs. Excessive Speculation These are pretty much the same forces, and most likely the same speculators, driving oil up to $147 a barrel less than three years ago in 2008.  A certain degree of speculation is actually essential and healthy for a normal capital market, however, excessive liquidity and speculation leading to an abnormal market like we have right now would only kill demand, and hurt the global economy.  Saudi Arabia recently estimated that about $25 a barrel of speculation premium has been added to the current oil price.  Separately, a study co-written by a CFTC commissioner, Bart Chilton noted that about 64 cents a gallon can be attributed to over-speculation, reported The Seattle Times. So while quantifying the ‘speculation premium' may not be an exact science, it is entirely premature to dismiss the significance of speculation in the current price of oil and gasoline using physical oil storage as the main thesis.  EconMatters, May 6, 2011 | Facebook Page | Post Alert | Kindle

Investment of the Week: The US Dollar! Posted: 07 May 2011 04:14 AM PDT USA! USA! USA! USA! USA! USA! USA! USA! USA! This little piece of paper is proving harder to kill than Rasputin…

Marc Faber Again Calls for a Drop in the Dow Posted: 07 May 2011 03:49 AM PDT Marc Faber told American news outlet Newsmax he expects stocks to tumble in May. Following his call for a 10% decline in stocks—first, on Oct. 26, then, reiterated on Jan. 25, the Dow has refused to succumb to countless clues of an ailing U.S. economy failing to respond to herculean monetary stimulus from the Bernanke Fed. The rally in the DJIA, following the post-crash March 9, 2009, low of 6,440.08, has since taken the 30-stocks average to 12,928.45—or, a double—set on May 5. Faber, the publisher and editor of Gloom Doom Boom Report, told Newsmax that the long-awaited 10% correction in the Dow is upon us. Today, Faber said he's troubled by several symptoms of fatigue appearing in the "internals" of the broader market, including a decline in the number of stocks reaching new 52-week highs, according to Wall Street Pit. Another warning sign comes from metals prices, which have dramatically plunged in recent days, among them copper, also referred to as Dr. Copper for its highly correlated price pattern to equities. While the Dow reached new intermediate highs earlier in the week, the price of copper failed to confirm the rally in stocks, lagging the Dow noticeably prior to Monday's kick off to a commodities complex sharp reversal lower during the remainder of the week, further buttressing Faber's case for an imminent continuation of the decline in stocks. Confirming evidence of a reversal of global risk-on trades can be traced to both sharp declines in the U.S. Treasury 10-year note yield as well as a meaningful one-day 100+ pip rise in the USDX. However, Faber's recent call for a correction in stocks doesn't make him a devout bear on the major indexes in the long run. With his overall underpinning thesis that a weak dollar encourages risk-capital flight into equities and commodities, Faber sees the Fed's zero interest rate policy (ZIRP) lifting equities in nominal terms as long as real interest rates after inflation remain below zero. In a Bloomberg interview on April 27, 2009, at a time of heightened fear in global equities markets, Faber cautioned, "Don't underestimate the power of printing money," arguing that a Fed in want of higher asset prices can achieve its objective through the proverbial printing press. "The more things will go bad, the worse things become, the more the money printer at the Fed, Mr. Bernanke, will print," added Faber. "He will print endlessly. Even if things go bad economically, you could have no revenues at companies and no earnings and stocks will go up because of money printing." Click Here for the original source. http://www.beaconequity.com/marc-faber-again-calls-for-a-drop-in-dow-2011-05-06/

Watching Silver Posted: 07 May 2011 02:17 AM PDT Silver: We got the big setback that we expected in the previous charts of April 21 and it started from the obvious level of $50. We can safely say that wave 4 down has started and it will likely take a couple of months before it is done. Read More...

What's Next for the SP 500, Gold, and Oil Posted: 07 May 2011 02:14 AM PDT The price action in precious metals and oil this past week has been breathtaking. The last time we have seen this much volatility in commodity prices was amidst the financial crisis in 2008 and the early part of 2009. Read More...

Richard Wyckoff Composite Man Wins Again With the Silver ETF Posted: 07 May 2011 02:10 AM PDT Did silver make you rich in 2011? I have read many comments on the web of folks who sold early or late, thus claiming the market timing of silver an impossibility, and some are throwing in the towel on technical analysis and ... Read More...

China Buying Silver Overnight Posted: 07 May 2011 01:52 AM PDT From GoldCore China Buying Silver Overnight, Prudent Money Holding and Accumulating Bullion on Dip Gold and silver are tentatively higher after their 2% and 8% falls yesterday. In silver, speculators on the COMEX continue to liquidate en masse after margin was increased a massive 84% and various stop loss levels are hit, leading to further falls in the futures market. Cross Currency Rates Absolutely nothing has changed regarding the fundamentals driving the gold and silver markets and this will likely be another correction in gold and another sharp correction in silver. Gold and silver’s rise is likely to continue until we return to a world of healthy economic growth, low inflation and positive real interest rates. Gold in US Dollars – Bloomberg Adjusted for Inflation 1971 to 2011 (Monthly) It is important to put the falls in gold and particularly silver in context and as ever focus on the long term. The long term inflation-adjusted charts put the gold correction and silver crash (above and below) in perspective and show both as being buying opportunities again. Although buyers should consider dollar cost averaging into position in order to mitigate any further price weakness. With macroeconomic, monetary and geopolitical risks remaining high – including the threat of terrorism and war – safe haven demand from investors, pension funds and central banks is likely to continue. The usual gold and silver bubble callers are out in force once again and it is interesting how there appears to be more coverage of gold and particularly silver now than there was with prices rising in 2010 and early 2011. Silver in US Dollars – Bloomberg Adjusted for Inflation 1971 to 2011 (Monthly) Indeed, mere rumours that Soros may have sold some of his gold and silver holdings led to massive media coverage. The fact that John Paulson and a number of other increasingly respected hedge fund managers still own massive gold positions and are not selling did not receive as much coverage as the rumours of Soros selling some of his gold. John Paulson told investors at a breakfast on Tuesday that he expects gold to hit $2,500/oz to $4,000/oz in the next three to five years. Also, the massive gold accumulation by Mexico, Russia and Thailand was barely reported in the non-specialist financial press, nor was reported the news regarding Portugal being urged to sell its gold by senior German lawmakers. Silver’s sell off has been vicious but value buyers continue to accumulate silver bullion. Jim Rogers, who arguably has a better track record than Soros in recent years, remains bullish on gold and silver and told CNBC, “if it goes down I hope I’m smart enough to buy more silver." Other widely followed and respected investors with expertise on gold and silver such as Peter Grandich and Jim Sinclair are also relaxed about the falls and remain bullish on gold and silver due to the continuing strong fundamentals. Also, there are reports this morning from the Wall Street Journal and Mitsui that there was decent buying of silver from China at these price levels overnight. Gold Gold is trading at $1,483.82/oz, €1,021.42/oz and &ound;903.61/oz. Silver Silver is trading at $34.18/oz, €23.53/oz and &ound;20.67/oz. Platinum Group Metals Platinum is trading at $1778/oz, palladium at $708/oz and rhodium at $2,250/oz. News (Wall Street Journal) Silver Is Down, but China Is Still Buying Silver is sinking even further this morning, as investors follow George Soros and John Burbank in dumping the precious metal. Silver on Tuesday suffered its worst one-day drubbing in three decades. In a troubling sign for silver bulls, silver futures are down to about $40.45 per troy ounce, down more than 12% over the first two days of this week. Gold is unchanged, highlighting the difficulties silver is having. For months, professional and individual investors piled into silver to protect against weakening value for the greenback, and to guard against a pickup in inflation. Precious metals often serve as an alternative to paper currencies. The U.S. dollar has fallen 9% so far this year compared with a basket of major currencies, through Tuesday, boosting the silver trade. Many smaller investors favor silver investments over gold, partly because silver is more affordable, earning it the sobriquet “the poor man’s gold.” Silver fans have this possible arrow in their quiver: Signs that the Chinese are stilling buying, according to traders. “If the Chinese weren’t significant buyers I’d be shorting right now,” said a hedge-fund manager with a major position in gold and silver. And precious-metal believers still have John Paulson to lean on – he told investors at a breakfast on Tuesday that he expects gold to hit $2,500 to $4,000 in the next three to five years. Gold now trades at more than $1,530 an ounce. Paul Touradji of hedge fund Touradji Capital Management LP also is holding on to his sizable gold and silver positions, according to someone close to the matter. (Bloomberg) — Silver Investors Dump Bets After Exchange Boosts Margins 84% (1) The biggest slump for silver since 1983 may not be over as the Comex exchange in New York makes it 84 percent more expensive for speculators to trade the metal, triggering an exit by investors. The minimum amount of cash that must be deposited when borrowing from brokers to open new positions will rise to $21,600 per contract after May 9, CME Group Ltd., Comex’s owner, said yesterday. That’s up from $11,745 two weeks ago. Open interest in futures has tumbled about 15 percent since the exchange began raising margin requirements on April 25. Prices may drop an additional 14 percent to $34 an ounce by the end of next week from yesterday’s closing price, according to the average forecast in a Bloomberg News survey of six analysts. Silver has more than doubled in the past year as record-low U.S. borrowing costs and a slumping dollar prompted investors to buy precious metals as alternative assets. “You’re talking about a very volatile market, a very significant run-up in a very short period of time,” said Michael Cuggino, who helps manage $12 billion at Permanent Portfolio in San Francisco. “It went too high too fast, and exacerbating it on the downside is the increased margin requirements.” As of April 29, the metal had soared 57 percent in 2011, the most among the 19 commodities tracked by the Thomson Reuters/Jefferies CRB Index. In the past four sessions, silver plunged 25 percent, the most since February 1983. The slump trimmed this year’s advance to 17 percent, trailing gains by gasoline, coffee and gasoil. ‘Frothy Market’ “If you have to put up that much more margin, many people simply say ‘no, I won’t do it,’ so they liquidate,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia- based Gartman Letter. “It got a bit frothy, and frothy markets need to correct.” CME raised margins after “unprecedented high levels of volatility,” Harriet Hunnable, the managing director of metals products, said in a telephone interview from the company’s headquarters in Chicago. Silver’s 10-day historical volatility jumped to 81.19 today, the highest since March 2009. The exchange has announced five margin increases in the past two weeks. “When markets become highly volatile, and we can see the market anticipates further volatility, then it is highly likely that we will change the amount we require,” Hunnable said. “The exchange increases margins to manage the risk people face.” Margins Increase Before the increases, margins were about 5 percent of the value of a futures contract, which is for 5,000 ounces. After the plunge in prices, the cost after May 9 would be about 12 percent of a contract, using today’s settlement. Silver “went up much too fast, and if it continues to go up, that’s disaster,” said Jim Rogers, the chairman of Singapore-based Rogers Holdings, who predicted the start of the global commodities rally in 1999. “I’m very happy it’s coming down nicely. I hope it comes down some more so I can buy some more. Markets are always correcting.” The metal may reach $45 in the third quarter, said Ralph Preston, a principal at Heritage West Financial Inc., a San Diego company that specializes in futures trading. “At this point, I see some serious long liquidation and profit taking, but not an end to the historic 2011 rally.” Rally Outlook The rally won’t stop “until the Federal Reserve begins to aggressively hike interest rates, the Middle East simmers down, and the U.S. Commodity Futures Trading Commission concludes its multiyear investigation into supposed market manipulation,” Preston said. Silver futures for July delivery fell $3.148, or 8 percent, to close at $36.24 on the Comex. Prices touched $49.845 on April 25, the highest since the Hunt Brothers cornered the market in 1980. Futures rallied as investor demand rose, pushing holdings by exchange-traded funds backed by the metal up 24 percent in the past 12 months. Shares outstanding of the iShares Silver Trust ETF, the biggest such fund, tumbled 4.7 percent on May 3, the largest slide since January 2008. Traders who follow options markets may not be surprised by this week’s declines. The ratio of puts per call for the iShares Silver Trust rose higher than 0.9 in April, the highest since December 2008. Record High Silver reached a record $50.35 in January 1980 as the government investigated the Hunt Brothers’ attempt to corner the market. The brothers were forced to sell off their holdings, and the price collapsed to $10.90 in four months. Prices may drop as low as $31 by the end of the week before rebounding, said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. On April 28, McGhee forecast $62 by the end of the year. “Silver is a freight train,” McGhee said. “The market doesn’t change, doesn’t give up. It’s relentless, and you’re just going to get rolled over.” (Bloomberg) — Silver Set for Worst Weekly Drop Since 1975 Amid Commodity Rout Silver futures fell, heading for the steepest weekly decline since at least 1975, as an increase in margin requirements and slump in commodities from copper to oil prompted investors to sell precious metals. Gold is set for the biggest drop since February 2009. The Standard & Poor’s GSCI index of 24 commodities sank 6.5 percent yesterday on concern that slower global growth may crimp demand. Silver dropped 30 percent from a 30-year high of $49.845 set April 25 and exchange-traded product holdings of the metal yesterday slid the most in three years after Comex owner CME Group Ltd. announced an 84 percent increase in margin requirements. “Given the liquidation of ETP holdings yesterday and the increase in margin requirements, further pressure could be in store in the coming sessions,” James Moore, an analyst at TheBullionDesk.com in London, said in a report to clients. Silver for July delivery fell as much as $1.97, or 5.4 percent, to $34.27 an ounce and traded at $34.87 at 9:41 a.m. London time on the Comex in New York. It’s down 28 percent this week. A bear market is defined by some investors as a decline of 20 percent or more. Silver for immediate delivery was 0.6 percent lower at $34.89 in London. The minimum amount of cash that must be deposited when borrowing from brokers to trade silver futures will rise to $21,600 a contract after May 9, CME Group said on May 4. That was up from $11,745 two weeks ago. Silver spot prices climbed to a record $49.79 on April 25. “The higher cash-margin requirements simply cannot be met by all participants, and when a trader can’t make margin, the underlying security is often liquidated,” Lachlan Shaw, a commodity analyst at Commonwealth Bank of Australia, wrote in a note. “Further silver price falls are possible.” Asset Holdings Tumble Silver assets held in exchange-traded products tumbled 3.6 percent to 14,546.99 metric tons yesterday, the biggest decline since Jan. 2, 2008, while gold holdings fell 0.7 percent to 2,057.08 tons, the biggest drop in three months, according to data compiled by Bloomberg. Gold for June delivery was little changed at $1,481.50 an ounce on the Comex. The metal, which reached a record $1,577.40 on May 2, is down 4.8 percent this week. Immediate-delivery bullion was 0.5 percent higher at $1,481.50 an ounce in London. Bullion gained for six consecutive weeks as it advanced to a record on demand for a hedge against rising inflation and an alternative to a weakening dollar. The dollar headed for the first weekly gain since March after slumping to the lowest level since July 2008 against six major currencies. Gold may slow losses after Mexico, Russia and Thailand added the metal to their reserves in February and March, Marc Ground, an analyst at Standard Bank Plc, said yesterday. Commodities Sell-Off Eight of 18 traders, investors and analysts surveyed by Bloomberg, or 44 percent, said that gold will fall next week. Seven predicted higher prices and three were neutral. “Should there be another sell-off in commodities, gold may be impacted,” said Ong Yi Ling, a Singapore-based analyst at Phillip Futures Pte Ltd. “However, its losses may be limited by its safe-haven properties.” Palladium for immediate delivery was up 0.9 percent at $719.50 an ounce. Platinum gained 1.2 percent to $1,786.20 an ounce. (Financial Times) — Silver falls for fifth day Silver prices plunged for the fifth consecutive day on Friday as the grey precious metal suffered its biggest correction since the billionaire Hunt brothers cornered the market in 1980. The reversal of fortunes for silver – which until this week’s 25 per cent drop had been up 56 per cent since January – has led a wider sell-off in commodities markets, which were heading towards one of their worst one-day falls on record. “The silver market has become even more unhinged as the week nears an end, with no sign yet that the nervous selling momentum is near petering out,” said Edel Tully, precious metals strategist at UBS. “This has paved the way for a wider commodity slump,” she added. On the spot market in London, silver fell by a further 1 per cent to $34.35 a troy ounce, unable to hold gains seen earlier in the session. The fresh losses came after falls of as much as 9 per cent on Thursday to a six-week low of $35.82 a troy ounce. The volatility in silver has been exacerbated by a series of increases in margin – or the amount of cash that investors must set aside to trade each contract – by CME Group, which runs the silver futures exchange in New York. CME has raised its margin requirements five times in the past 15 days. Investors must now set aside $14,000 per silver futures contract, worth about $180,000 at current prices. The rate will rise to $16,000 on Monday. The increase in trading costs has forced some investors to sell their futures positions if they are unable to raise sufficient cash. The changes in margin rates are a function of the increases in volatility and price rises. Investors have also been rushing to sell silver held through exchange-traded funds. Holdings of silver through ETFs fell by 520 tonnes on Wednesday, the second largest daily drop on record, according to Suki Cooper, precious metals analyst at Barclays Capital in New York. Investors had withdrawn 1,105 tonnes of silver from ETFs in seven days, Ms Cooper added, a decline of about 10 per cent. The drop in silver comes after a spectacular rally in which the metal soared 175 per cent between August last year and last week, when it rose to within touching distance of the all-time nominal high of $50 an ounce, amid widespread enthusiasm among investors. Sales of silver coins surged to record levels as retail investors, particularly in North America, bought the metal as an expression of dissatisfaction with the perceived profligacy of the Federal Reserve and the US government and the faltering US dollar. The tumble in silver has led the price of other precious metals lower. However, gold has managed to remain relatively unscathed compared with its poorer cousin. Since hitting an all-time peak on Monday, the yellow metal is down 5.9 per cent at $1,483 an ounce. Platinum and palladium, the other two main precious metals, have fallen 5.2 and 10.4 per cent respectively in the past four days. GFMS, a leading precious metals consultancy, said in its annual survey of the two metals that palladium could rally to a fresh 10-year high of $975 a troy ounce, while platinum would hit a peak of $1,925 a troy ounce this year. However, Philip Klapwijk, the consultancy’s executive chairman, warned that before the metals hit new highs, a “summer slump” across the precious metals was “quite likely”. (Irish Independent) — Gold prices slide after mega-rich Soros offloads his large holding Gold prices retreated yesterday after mega-rich currency speculator George Soros sold the precious metal. The multi-billionaire hedge fund manager sold his large holding in gold as the price spiked to $1,550 an ounce. Mr Soros's liquidation could well mark the peak for gold since other hedge funds and traders who followed him into the gold trade could decide to sell, market traders said. The Hungarian-American financier is understood to have first started to accumulate gold in 2008 when it was in the $850-$900 an ounce range. This means he made a return of at least 60pc to 70pc over almost three years. Soros Fund Management, a $28bn (€18.8bn) firm run by Keith Anderson, bought gold to protect against deflation. It now believes there is less risk of a sustained drop in consumer prices because the Federal Reserve is still pumping money into the financial system, it was reported in the US. A spokesman for the company declined to comment. Gold for June delivery fell $28.90, or almost 2pc, to $1,511.50 an ounce. It also emerged yesterday that Mexico massively ramped up its gold reserves in the first quarter of this year. It bought more than $4bn of bullion as emerging economies move away from the ailing US dollar, which has dipped to two-and-a-half-year lows. The third-biggest one-off purchase of gold by any country over the past decade took Mexico's reserves to 100.15 tonnes — or 3.22 million ounces — by the end of March from just 6.84 tonnes at the end of January, according to the International Monetary Fund and Mexico's central bank. Gold has gained 11pc this year, driven by concern over eurozone debt and the unrest in the Arab world, as well as by the US dollar's 7.6pc decline against a basket of currencies. Sergio Martin, chief economist for HSBC in Mexico, said the government probably saw gold as a highly liquid asset that would reduce exposure to the falling greenback. "They're probably thinking that getting out of dollars and into gold makes sense because we know the dollar has some trend to depreciate in the near future at least," said Mr Martin. "I don't think they're going to lose money with this." Silver prices were down $3.48 to $39.10, almost wiping out April's gains and off 21pc from recent highs. A volatile US dollar and news of an official €78bn bailout of Portugal were not enough to buoy gold and silver. Both metals were trying to find support levels in early trading but momentum selling dragged them lower. (Editor's note: The headline of this article and the article itself is misleading. Soros did not “offload(s) his large holding” rather there were unsubstantiated and unconfirmed rumours from unidentified sources that Soros’ fund had been selling some of their gold and silver ETF holdings. A more accurate account of the Soros gold rumour (including the actual Wall Street Journal article and Bloomberg follow up can be read here. It is unfortunate that the precious metal markets are so rarely covered in the non specialist financial press and when they are they are often covered in a simplistic and unbalanced manner. (Irish Independent) — China needs to think bigger than gold when it opens $3 trillion treasure chest You know the feeling, you have $3 trillion (€2.02tn) in foreign currency burning a hole in your pocket and you are itching to spend. But on what? A mountain of gold, a sea of oil or a pile of paper? So far China has chosen paper, especially in the form of US treasury bills. But comments this week by China's central bank chief that the country's foreign exchange reserves exceed reasonable requirements, and local media reports that Beijing was considering setting up investment funds in energy and precious metals, again raise the question about what the country can do with its money. The size of the issue is staggering — in the first three months of the year China's reserves grew by $197bn to $3.05 trillion. At first glance, investing in gold, which is at record highs, or oil, which has rallied for each of the past eight months, makes sense. Gold has thousands of years of history as a store of value, but no nation has ever looked at oil as a way to diversify foreign exchange holdings, only as a strategic resource in case of war or disaster. There is a very good reason for that — unlike gold which can sit in a vault indefinitely, oil degrades once it has been pumped out of the ground and a tank of

Ben Davies: “We are Buying Physical Silver” Posted: 07 May 2011 01:36 AM PDT "As a firm we have covered all of our hedges on silver and we have started to accumulate physical silver.  Let me add that this is the swiftest 30+% decline in this bull market.  If you are a cash buyer of physical silver then you should now be accumulating silver.  There is always a danger in catching a falling knife, but you have to remember that silver has intrinsic value." "Nonetheless we are keeping an eye on the US dollar which could continue having a bounce post Trichet's comments.  There's clearly an unwind of commodity positions in general with crude down almost 10%.  The market in silver is extremely oversold and it would not surprise me to see a bounce overnight in Asian trading. We have seen a 10 standard deviation move in silver on multiple periodicities that we track, the likes of which we haven't yet experienced in this bull market.  I want to reiterate that Hinde fundamentally believes that the silver market had reached a point of criticality at this last peak whereby the market was vulnerable to a swift and violent correction irrespective of any external trigger and that is what occurred. In our opinion, such moves as we just experienced in the paper silver market have been exacerbated by system traders exiting the market.  This last decline today was more a function of liquidation due to margin calls as a function of the whole commodity sector selling off. This is the start of a great opportunity to accumulate silver.  All of the key fundamental issues in the world have not gone away nor those specific to silver such as the fact that it is under-owned and short of supply in the medium-term.  All of those conditions are still in place for silver.  KWN readers should remember that on corrections beyond 20% in a secular bull market you are supposed to be buying." When asked about gold Davies stated, "The gold market has been dragged down with the precipitous fall in silver, but we believe gold will hold above $1,450.  We believe between now and August we will find a floor and the next up leg in gold will begin.  That next leg higher in gold should take us over $2,000." Source: KWN

Expect more correction in gold and silver: Jim Rogers Posted: 07 May 2011 01:27 AM PDT In an interview with ET Now, Jim Rogers , Chairman, Rogers Holding , gives his views on the recent decline in commodity prices, and says corrections like this are normal, it is the way the markets work. Excerpts: ET Now: With the decline that silver has seen over the last one week of almost 30%, would these be right levels to possibly start buying some more right now? Jim Rogers: I have no idea. I am not good at market timing. I am not doing anything. I am not buying. I am not selling. I am just watching. Some of these things such as silver have touched astonishing amount. So they need a correction. Very welcome in the market as far as I am concerned. If you do not have corrections, you are setting yourself for serious problems later on. ET Now: But this fall that we have seen this week, 30% in silver, gold down 5%, crude down 15, it has been across the board. Many base metals are at multi-month lows. Do you see this to be the starting point of more downward pressure? Where do you see the next 3 months for these commodities and how volatile they can be? Jim Rogers: Again, I have absolutely no idea. 5% correction in gold is meaningless. These things correct 10-15-20-30% every year. Nothing unusual about that. That is the way the markets work. I do not see anything unusual. I expect there would be more correction during the course of the bull market. I hope that the bull market goes up, consolidates, goes up, consolidates, goes up and consolidates for years to come. That is my expectation for all commodities. ET Now: You would define this fall as a correction and not a signal that perhaps in the interim the up move is over? Jim Rogers: Not in my view. It is interesting that you should probably short all commodities, but I do not seek that at all. Maybe something is happening, maybe the US is going to put on some kind of speculation with something, maybe that is what is causing this commodity pullback. Again, I have no idea. If the US puts on serious restrictions to control, that will affect the market for a while, but obviously, it makes a long run situation even better. Because then you control prices, you restrict supply and you increase demand, the demand-supply situation gets worst and worst and worst. Throughout history, they have tried to control prices, and they have always failed in the end. The politicians are not smart enough to know that. ET Now: One comment on the correction that we have seen in crude oil as well and the fact that internationally, people have been talking about how oil reserves could actually decline going forward and the kind of implications that this could have for crude oil? Jim Rogers: Energy Agency (IAEA) is going around pleading with people to listen that the known reserves of oil are on serious decline. And with reserves declining, prices have to go up eventually. Sure you have correction and ups and downs along the way, but unless something happens pretty quickly, known reserves of oil around the world are in steady decline. ET Now: So at every level, you would be looking at buying crude? Jim Rogers: No, I am not doing anything. I am just looking, I am just watching. I am not very good at market timing. It depends on what happens in the world. If the world is coming to an end, I will probably wait for prices to go a lot lower. If the world is not coming to an end, I would probably buy some more along the way. I am just watching to see how the world evolves at the moment. Source: EconomicTimes

What's Next for the Stock Market, Gold, Silver and Crude Oil Posted: 07 May 2011 01:06 AM PDT The price action in precious metals and oil this past week has been breathtaking. The last time we have seen this much volatility in commodity prices was amidst the financial crisis in 2008 and the early part of 2009. Does this mean we are at the brink and risk assets are going to decline precipitously? Obviously that question cannot be answered with any certainty, but the underlying price action in the S&P 500 has been relatively strong compared to gold, silver, and oil.

Gold and Silver Prices Will Explode Again: John Hathaway Posted: 07 May 2011 01:01 AM PDT ¤ Yesterday in Gold and Silver The gold price jumped about fifteen dollars to around $1,490 spot in early Far East trading. The price then spent the rest of the Friday trading day wandering around without much conviction within ten bucks of that price...and closed the day up about twenty three dollars from Thursday's close. Nothing much to see here folks, although the volume was pretty heavy. Silver traded within a dollar of $35 up until shortly before noon in London. Then the price dropped down to its low of the day and this move down...$33.05 spot...which conveniently happened to occur right at the Comex open in New York at 8:20 a.m. Eastern time. From that low, silver caught a bid...and it's high price of the day [$36.61 spot] occurred shortly after 11:00 a.m...before giving up about some of those gains as Friday trading wound down for the weekend. I'll stick my neck out and guess that the $33.05 price print was silver's low for this move...and that the ...

New York Times, the Lying Mouthpiece for the Fed Posted: 07 May 2011 12:33 AM PDT On August 15, 1971, a Sunday, President Nixon unilaterally suspended the last traces of the gold standard. He "closed the gold window" on his own authority. From that time on, no government or central bank has been able to exchange dollars for Treasury gold at a fixed price. Nixon broke the Bretton Woods agreement of 1944. He broke the nation's word. He cheated. That was his way. Ever since that day, American monetary policy has been Nixonomics.

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