Gold World News Flash

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• Gold & Silver cartel Price Suppression Has Set the Foundation for an Explosive Move
• Buying Gold as the Concrete Sets
• Has Golds D-Wave Bottomed?
• Eurobomb Ticking Down
• Rick Rule - $100 Floor in Oil Now, Gold Strong, Juniors to Soar
• Derivatives: Their Origin, Evolvement and Eventual Corruption (Got Gold!)
• Gold stocks continue being plagued by the hedge fund ratio trade
• Gold Seeker Closing Report: Gold and Silver Gain About 1%
• Nomura's Koo Plays The Pre-Blame Game For The Pessimism Ahead
• Rick Rule: $100 Floor in Oil Now, Gold Strong, Juniors to Soar
• Standard Chartered Does Not See A "Quick Move To Further Loosening" In China, Despite Property Correction
• Taking a Licking. Still Ticking.
• Crazy Numbers Coming Out Of Europe On Next LTRO
• Fight Night
• The Gold Price Closed Up $24.80 to Close at $1,655.20
• China, Hub of the Global Gold Market?
• Morgan Stanley Quantifies The Probability Of A Global "Muddle Through": 37%
• Harvey Organ's Daily Gold & Silver Report
• SilverSeek.com’s 2012 Virtual Silver Investment Conference
• FOFOA: The Gold Must Flow
• Gold Trendline Resistance Near 1680
• Global Investor's CEO Frank Holms: What the Next Decade Holds for Commodities
• At last Financial Times notices that central banks do shady things with gold
• Von Greyerz - Silver Shortages & Gold to Accelerate Higher
• IMAGINE: A Gold Market Without The Western Banking Gold Cartel
• Gold up on China Stimulus Hope
• Gold predicted to peak at $2,000 as precious metal ends bull run
• Sprott Physical Silver Trust PSLV Brings Out Its Follow On Offering
• Guest Post: Returning to Simplicity (Whether We Want to or Not)
• Premature Obituaries

Gold & Silver cartel Price Suppression Has Set the Foundation for an Explosive Move Posted: 17 Jan 2012 06:00 PM PST Smart Knowledge U

Buying Gold as the Concrete Sets Posted: 17 Jan 2012 05:36 PM PST Bullion Vault

Has Golds D-Wave Bottomed? Posted: 17 Jan 2012 05:34 PM PST Gold Scents

Eurobomb Ticking Down Posted: 17 Jan 2012 05:29 PM PST The Gold Speculator

Rick Rule - $100 Floor in Oil Now, Gold Strong, Juniors to Soar Posted: 17 Jan 2012 04:30 PM PST With gold, silver and oil on the move, today King World News interviewed Rick Rule, Founder of Global Resource Investments and one of the most street smart pros in the resource sector. KWN reached out to Rick, who is currently in New Zealand, to find out what investors should expect from gold, silver, oil and the resource shares going forward. Here is what Rule had to say: "One of the major developments in the oil sector is the recently announced and official Saudi Arabian position that they were able to produce another 2 million barrels a day in case Iranian crude is shut out of the market. They also stated they could identify another 500,000 to 700,000 a day, which they would be able to produce in 9 months." This posting includes an audio/video/photo media file: Download Now

Derivatives: Their Origin, Evolvement and Eventual Corruption (Got Gold!) Posted: 17 Jan 2012 04:06 PM PST The term "derivative" has become a dirty, if not evil word. So much of what ails our global financial system has been laid-at-the-feet of this misunderstood, mischaracterized term – derivatives. The purpose of this paper is to outline the origin, growth and ultimately the corruption of the derivatives market – and explain how something originally designed to provide economic utility has morphed into a tool of abusive, manipulative economic tyranny. Words: 3355* So says Rob Kirby ([url]www.kirbyanalytics.com[/url]) in edited excerpts from his original article*. *[URL]http://www.24hgold.com/english/news-gold-silver-the-u-s-dollar-centric-derivatives-complex-progenitor-of-parasitic-ponzi-price-fixing.aspx?article=3771942832G10020&redirect=false&contributor=Rob+Kirby&k=1[/URL] [INDENT]Why spend time surfing the internet looking for informative and well-written articles on the health of the economies of the U.S., Canada and Europe; the development and implications of the world's fina...

Gold stocks continue being plagued by the hedge fund ratio trade Posted: 17 Jan 2012 04:06 PM PST [url]http://www.traderdannorcini.blogspot.com/[/url] [url]http://www.fortwealth.com/[/url] The HUI continues to lose value against the price of gold bullion as evidenced by a continued deterioration in the ratio of the price of the HUI to the price of an ounce of gold. We are reminded continually of two things that have led to this abysmal performance of the gold shares which are rapidly losing speculative interest in favor of the ETF. The first is the risk of investing in companies that are subject to surprises which happened to Hecla and recently to Kinross. Hedge funds and other large investment groups or players seeing this say to themselves, "Why risk this sort of thing when we can get LEVERAGED EXPOSURE" to the gold price by buying the gold ETF on margin". There is no such risk inherent in the ETF. No one worries about nationalization of the ETF or environmental lawsuits or some bureaucratic agency shutting it down to clean up debris in a mine. Secondly -this then leads...

Gold Seeker Closing Report: Gold and Silver Gain About 1% Posted: 17 Jan 2012 04:00 PM PST Gold climbed up to $1667.60 in Asia before it fell back to $1649.90 in late New York trade, but it still ended with a gain of 0.79% from last Friday's close. Silver rose to as high as $30.575 before it fell back to $29.893, but it still ended with a gain of 1.25%.

Nomura's Koo Plays The Pre-Blame Game For The Pessimism Ahead Posted: 17 Jan 2012 03:30 PM PST While his diagnosis of the balance sheet recessionary outbreak that is sweeping global economies (including China now he fears) is a useful framework for understanding ZIRP's (and monetary stimulus broadly) general inability to create a sustainable recovery, his one-size-fits-all government-borrow-and-spend to infinity (fiscal deficits during balance sheet recessions are good deficits) solution is perhaps becoming (just as he said it would) politically impossible to implement. In his latest missive, the Nomura economist does not hold back with the blame-bazooka for the mess we are in and face in 2012. Initially criticizing US and now European bankers and politicians for not recognizing the balance sheet recession, Koo takes to task the ECB and European governments (for implementing LTRO which simply papers over the cracks without solving the underlying problem of the real economy suggesting bank capital injections should be implemented immediately), then unloads on the EBA's 9% Tier 1 capital by June 2012 decision, and ends with a significant dressing-down of the ratings agencies (and their 'ignorance of economic realities'). While believing that Greece is the lone profligate nation in Europe, he concludes that Germany should spend-it-or-send-it (to the EFSF) as capital flight flows end up at Berlin's gates. Given he had the holidays to unwind, we sense a growing level of frustration in the thoughtful economist's calm demeanor as he realizes his prescription is being ignored (for better or worse) and what this means for a global economy (facing deflationary deleveraging and debt minimization).   Nomura, Richard Koo: Pessimism ushers in 2012; outcome will depend on policy response January 17, 2012 The year 2011, which began amid general optimism, was quickly transformed into a year of trial and tribulation by a number of natural and man-made disasters. There is no shortage of problems facing the global economy in 2012. Whether this initial economic pessimism turns to optimism will depend to a large extent on the national policy response.   Conditions in the eurozone took a sudden turn for the worse in 2011 H2, and the situation there has yet to improve in spite of ten summits in the last 12 months.   In addition, the banking crisis sparked by the eurozone's problems has sharply curbed the risk tolerance of European financial institutions, which have traditionally been active in emerging markets. The resulting outflow of capital from these regions is starting to adversely affect economies outside the eurozone.   Apart from the problems in Europe, economic activity is decelerating in China and India, where policymakers are working to rein in inflation. Some areas of China are facing a deflation—not yet a collapse—of the real estate bubble leading to balance sheet recession-like conditions.   Economic conditions in Japan and the US are relatively stable by comparison. But the governments of both countries are moving towards fiscal consolidation at a time when the private sector is trying to clean up its own balance sheet. If the private and public sectors attempt to deleverage simultaneously at a time of zero interest rates, the risk is that the economy will fall into a deflationary spiral. ECB's 3-yr fund supply operation has been effective… This report will focus on developments in the eurozone. Under the ECB's Long Term Repo Operation (LTRO), announced by incoming president Mario Draghi last December, the Bank agreed to supply an unlimited quantity of three-year funds at an interest rate of 1%. The program reassured eurozone market participants by substantially reducing the risk of sudden financial institution failures due to liquidity problems.   The latest government bond auctions for Italy and Spain also suggest the ECB has succeeded for now in preventing the worst-case scenario of a continued rise in bond yields for both countries. This success also indicates that at least some of the funds supplied by the ECB have flowed into the government debt markets of Europe's periphery. That, in turn, has reassured market participants, just as the Bank envisioned. But does not offer fundamental solution to the problem That noted, I think the LTRO is largely a means of buying time and does little to address the underlying issues.   Although the recent government bond auctions went relatively smoothly, interest rates in these countries remain fairly high, and a catalyst could send them higher yet.   More important, most of the funds supplied by the ECB remain with the Bank in the form of deposits and have not flowed into the real economy.   Mr. Draghi has argued that banks with deposits at the ECB are not necessarily the same institutions that borrowed under the LTRO. Still, the heavy buildup of funds within the ECB is a sign that Europe's banks do not trust each other and that the broader financial system remains beset with doubts and fears. LTRO may rescue financial system but cannot save real economy Many European banks must also roll over substantial amounts of debentures between now and spring. These institutions have stockpiled funds borrowed from the ECB to protect against the eventuality of being unable to roll over their debt.   Italian banks' heavy use of the LTRO is attributable at least partly to the fact that they have the largest amount of debt that must be refinanced over the next several months.   But the decision of private banks to use funds obtained from the ECB as "back-up" for refinancing their own debt means those funds are doing nothing to help overcome the recession in the real economy.   While the current situation is clearly preferable to one in which the Bank had stood by and done nothing, it appears the LTRO program will do little to spur a recovery in eurozone economies. LTRO should be viewed in similar light as Fed's QE1 In that sense, the LTRO can be viewed in a similar light as the Fed's QE1. The Fed supplied large amounts of liquidity under QE1 in the wake of the Lehman Brothers collapse. The primary purpose of those funds, however, was to prevent financial institutions from failing due to an inability to access market funding.   The banks effectively used funds borrowed from the Fed to meet payment obligations. The money was not used to fund new loans.   Consequently, neither bank lending nor the money supply grew despite all the liquidity injected under QE1, and inflation and growth in the real economy remained lackluster.   The ECB's LTRO is also designed to prevent a liquidity shortage in the banking system. It would be a mistake to assume that funds lent under the program will have a positive impact on the economy or inflation by boosting lending or the money supply. Biggest bottleneck: EBA's tough new capital rules The next question is, What is preventing the funds supplied by the ECB from flowing into the real economy and improving economic conditions? Although there are a number of answers, the biggest obstacle from a policy perspective is the European Banking Authority's tough new capital rules.   The EBA has demanded that European banks raise core Tier 1 capital to 9% of risk-weighted assets by June 2012. None of the policies unveiled in response to the crisis has been so counterproductive.   A tightening of bank capital requirements would not create major problems in an ordinary world without a financial crisis. If only a handful of banks are in trouble, asking those institutions to raise more capital would not lead to major macro-level problems because other financial institutions would be willing to supply capital to those banks or increase lending in their place. But with a financial crisis already in progress and the sector undergoing a systemic crisis, in which a majority of banks face the same problem, demanding higher capital ratios will trigger a destructive credit crunch, as I have argued previously.   This is because sources of additional capital during a systemic crisis are extremely limited, and for many institutions raising capital, if possible at all, can be very costly. Expensive capital, in turn, will only weaken these banks' financial strength.   As a practical matter, the only way banks can satisfy the new capital requirements if raising capital is difficult is by reducing the denominator in the capital ratio: total assets. If all banks try to do that at the same time, the result will be a destructive credit crunch. Adoption of BIS rules sparked severe Japanese credit crunch in 1997 Although Japan's bubble burst in 1990, it was not until October 1997 that the economy experienced a serious credit contraction.   The decision by the Ministry of Finance's Banking Bureau to unveil the details of new BIS-based capital rules on 1 October that year—a time when most Japanese banks were struggling under the weight of bad debts—triggered a destructive credit crunch.   Discussions about the new BIS standards had been ongoing for a number of years, but it was the announcement of the specifics on new rules in October 1997, when the bubble's collapse had left Japanese banks in an extremely weakened state, that prompted a major credit contraction.   At that time, bank branch managers were ordered by their head offices to cut lending by 10% each half-year. The Japanese economy duly entered its worst-ever postwar recession, contracting for five consecutive quarters according to data at the time.   The post-October 1997 situation in Japan bears a striking resemblance to today's Europe, where much tougher capital requirements for banks struggling in the wake of a burst housing bubble have triggered a credit crunch. Japan was quick to respond to credit contraction However, the Japanese government was quick to respond to the credit crunch. Just two months later, in December 1997, the government began discussing a capital injection, and by the following February an act providing for a ¥13trn facility to recapitalize the banking system had been passed into law. This was just four months after the credit contraction began.   The first round of injections, carried out in March 1998, amounted to only ¥1.8trn because the process represented uncharted territory for both the government and the program's recipients. Still, it helped prevent conditions from worsening. A second round of capital injections in March 1999 totaling ¥7.5trn succeeded in ending the credit crunch once and for all.   In Europe, the credit contraction became a pressing issue after discussions commenced last summer on the so-called 9% rule. Yet there have been few calls for a revision of this rule or for an early government injection of capital into the banking system. Japan had no choice but to adopt BIS rules Similarly, few in Japan in 1997 argued in favor of modifications to the BIS capital rules. This was attributable to a belief that, at a time when banks around the world were moving to adopt the 8% rule (4% Tier 1 + 4% Tier 2 capital), allowing Japanese banks to continue operating with less capital would cast doubt on their creditworthiness, making it even more difficult for them to access market funding.   Japanese banks faced heavy scrutiny from overseas investors at the time and were forced to pay a "Japan premium" to borrow money. Some banks were completely shut out of the funding markets for a time and were forced to borrow money from nonfinancial companies within their keiretsu to meet their payment obligations.   Under such conditions, ignoring the BIS rules was simply not an option for Japan. The government managed to keep the credit crunch from getting worse in spite of the new rules by injecting public money into the banking system. New eurozone capital rules will lead directly to credit contraction The new international capital requirements proposed by the BIS, known as Basel III, call on banks to raise their core capital ratios to 7% by 2019. The EBA, meanwhile, has demanded another 2% on top of that while insisting that banks comply by June 2012, offering no logical basis for its position. Nor has the ongoing credit crunch in the eurozone prompted any discussion of a government recapitalization of the banking system.   Even a 7% target would have been hard for banks to meet, which is why they were given until 2019 to comply. The EBA's demand that banks raise core capital ratios to 9% by June 2012 in the midst of a systemic crisis seems spectacularly ill-advised. I think it a miracle if Europe does not experience a full-blown credit contraction. EU's response has aggravated crisis  This 9% rule effectively prescribes the size of European banks' balance sheets. This means banks will not be able to increase lending no matter how much liquidity the ECB supplies, effectively rendering any monetary accommodation by the ECB powerless to stimulate the economy.   The EBA's 9% rule may help in preventing the next crisis, but it will do nothing to resolve the current one—in fact, it will make it much worse.   Indeed, much of the EU's policy response to the ongoing crisis appears to be directed at preventing the next crisis and has actually aggravated the current situation. Prime examples in this regard are the EBA's 9% rule and the German government's insistence on fiscal austerity and the adoption of balanced budget amendments. EBA's 9% rule should be scrapped The question then is, What should be done? The quickest, easiest answer is to scrap the EBA's 9% rule and return to the internationally approved Basel III, under which banks are required to raise their core capital ratios to 7% by 2019. I think this change alone would go a long way towards restoring the effectiveness of monetary policy and easing the credit crunch precipitated by the 9% rule.   European banks forced to shrink their balance sheets to comply with the 9% rule are cutting back on lending and selling assets around the world—including the emerging economies—and that has weighed heavily on the global economy.   Because the victims of the 9% rule are not limited to the eurozone, the governments of Japan, the US, and the emerging nations should pressure the EBA to withdraw it. If banks cannot meet lower capital targets, public funds should be injected If lenders have difficulty meeting even the lower 7% capital requirement, the authorities should inject fresh capital into the banking system. Government capital infusions during a credit crunch caused by a shortage of capital have a leveraged effect, and the economic impact is correspondingly large.   If banks' inability to meet a 7% capital requirement is at the heart of the credit contraction, a capital injection would support lending equal to 1/0.07 = 14.3 times the value of the government's investment. In my view this represents a very effective use of taxpayer money.   A resumption of bank lending due to the capital injection would also boost the money supply, thereby amplifying the impact of monetary accommodation by the ECB.   The injection of government funds into a large number of banks would also ease the sense of mutual mistrust that exists among lenders. Japan's initial ¥1.8trn injection of capital was insufficient and failed to prevent Long-Term Credit Bank of Japan and Nippon Credit Bank from going under. But it seems the ¥7.5trn infusion conducted in March 1999 did much to alleviate mutual mistrust among lenders.   In summary, I think lowering the core capital requirement from the EBA's 9% to the BIS's 7% and, if necessary, injecting government funds into the banks would go a long way towards resolving the financial crisis in the eurozone. Credit downgrades stand in way of capital injections While the EBA rule could be changed at the stroke of a pen if the authorities wanted, capital injections would require fiscal measures and would lead, however briefly, to larger fiscal deficits.   But, in my view, S&P's reckless downgrades of eurozone sovereigns have complicated any attempts to provide fiscal stimulus.   For more than a decade I have been warning that those rating agencies which do not understand balance sheet recessions could downgrade countries in the midst of such recessions based solely on economic weakness and the size of their budget deficits and jeopardize these countries' ability to carry out the fiscal stimulus needed during this kind of recession. The recent actions by Standard & Poor's are a case in point.   On 13 January the agency announced it was downgrading nine eurozone countries and was lowering the ratings of four of those—Italy, Spain, Cyprus, and Portugal—by two notches. France and Austria lost their AAA ratings and are now rated AA+. S&P downgrade reminiscent of CDO episode This major ratings action recalls the agency's decision three years ago to suddenly and drastically lower its ratings on a large number of AAA rated collateralized debt obligations (CDOs) containing subprime loans. It also underlines the perfunctory nature of the ratings themselves.   Making matters worse is the fact that, apart from fiscally profligate Greece, the widening fiscal deficits in most eurozone countries are attributable to the balance sheet recessions touched off by the bubble's collapse. A government reluctance to apply fiscal stimulus under such conditions will only exacerbate matters. Eventually the resulting economic weakness can actually cause the fiscal deficit to increase despite determined government efforts to reduce it (witness Japan in 1997 and 2001).   The statement accompanying the Standard & Poor's decision, however, indicated that no consideration had been given to such risks. It merely repeated the disturbingly orthodox view that fiscal consolidation would result in lower budget deficits, which in turn should help the economy. Do we treat patient's pneumonia or put him on diet? This is akin to a doctor telling a patient suffering from pneumonia to go on a diet and get more exercise. While exercise is important, it assumes a healthy patient. If the patient is sick, he must build up his strength until he is physically capable of exercising again.   No matter how overweight a patient with pneumonia might be, the doctor's first task is to give him the treatment he needs to fight the disease. After all, the pneumonia patient can die if treatment is delayed for too long.   Balance sheet recessions, which occur when businesses and households rush to pay down debt in spite of zero interest rates, are a kind of pneumonia. The only way to treat them is for the government to become the borrower and spender of last resort with fiscal stimulus aimed at propping up aggregate demand.   Fiscal deficits during balance sheet recessions are good deficits   All fiscal deficits are good deficits during this type of recession. Once public and private investors realize this, I suspect their decisions will no longer be influenced by the views of those rating agencies that do not understand balance sheet recessions.   Japanese in

Rick Rule: $100 Floor in Oil Now, Gold Strong, Juniors to Soar Posted: 17 Jan 2012 03:10 PM PST from King World News: With gold, silver and oil on the move, today King World News interviewed Rick Rule, Founder of Global Resource Investments and one of the most street smart pros in the resource sector. KWN reached out to Rick, who is currently in New Zealand, to find out what investors should expect from gold, silver, oil and the resource shares going forward. Here is what Rule had to say: "One of the major developments in the oil sector is the recently announced and official Saudi Arabian position that they were able to produce another 2 million barrels a day in case Iranian crude is shut out of the market. They also stated they could identify another 500,000 to 700,000 a day, which they would be able to produce in 9 months." Rick Rule continues: Read More @ KingWorldNews.com

Standard Chartered Does Not See A "Quick Move To Further Loosening" In China, Despite Property Correction Posted: 17 Jan 2012 03:01 PM PST There were two reasons for today's big initial market move: one was the realization that the next LTRO could be massive to quite massive (further confirmed by a report that the ECB is now seeking a "Plan B"), the second one was that, somehow, even though China's economy came in quite better than expected, and much better than whispered, the market made up its mind that the PBoC is now well on its way to significant easing even though inflation actually came in hotter than expected, and virtually every sector of the economy, except for housing, is still reeling from Bernanke's inflationary exports. While we already discussed the first matter extensively earlier, we now present some thoughts from Standard Chartered, one of the most China-focused banks, to debunk the second, which in a note to clients earlier summarized "what the economy is really doing and where it is going" as follows: "If anything, today's data is another reason not to expect a quick move to further loosening. The economy is slowing, but not dramatically – so far." This was subsequently validated by an editorial in the China Securities Journal which said there was no reason to cut interest rates in Q1, thereby once again confirming that the market, which in its global Bernanke put pursuit of interpreting every piece of news as good news, and as evidence of imminent Central Bank intervention, has once again gotten ahead of itself. And as the Fed will be the first to admit, this type of "monetary frontrunning" ironically make the very intervention far less likely, due to a weaker political basis to justify market intervention, while risking another surge in inflation for which it is the politicians, not the "independent" central banks, who are held accountable. So how does Standard Chartered rate the Chinese economy overall? As it stands, everything, except for housing, which just recorded a drop in 52 out of 70 cities in December, is doing quite well. From the report: Officially, China's GDP grew by 8.9% y/y in Q4, better than the market consensus of 8.7%. According to our estimated q/q seasonally adjusted annualised rate (SAAR), growth accelerated to 9.3% in Q4 from 8.5% in Q3, as we show in Chart 1. We cannot square this with the official q/q growth numbers: 2.0% in Q4, down from 2.3% in Q2 and Q3.   Beneath this strong figure, an investment-led slowdown is in play. Fixed asset investment (FAI) fell sharply in Q4. In nominal terms, y/y FAI growth dropped to 20.4% in Q4 (from 29.5% in Q3), and in real terms it slid to 12.3% from 20.6% prior (see Chart 3). This is where the slowdown is concentrated as both  infrastructure and the property sector suffer a continuing credit crunch.   Industrial production (IP), however, remains robust, growing 12.8% y/y in December (against 12.4% in November). The National Bureau of Statistics (NBS) even claims that IP grew by some 1% m/m in each month of Q4, even while the PMI index for manufacturing flatlined around 50. It is possible that the unweighted PMI is not capturing growth at larger firms.   Consumption growth remained robust. Retail sales growth accelerated to 18.1% y/y in December in nominal terms (from 17.3% in November), and to 13.8% y/y in real terms (12.8% prior). The urban household survey found disposable incomes up 9.1% y/y in real terms in Q4, compared to 7.1% y/y in Q1. Household spending also accelerated to 7.6% y/y in Q4, from 6.2% in Q3 and 5.5% in Q2 (see Chart 2). If accurate, these numbers indicate that the negative effects of inflation are fading and that China's consumers are continuing to spend. One multinational client we spoke to recently, who sells clothes across China, also saw no signs of a slowdown. But other domestic retailers, both high- and low-end, reported an obvious slowdown in sales in Q4-2011, which they feared would continue into Q1-2012.   Upward wage pressure looks set to continue in 2012, though not to the same extent as in 2011. We expect manufacturing wages to rise another 10% on average this year; this, along with our forecast of 2% CPI inflation for 2012, will mean households should continue to benefit from real income growth. Here are the specific "growth proxies" which Standard Chartered tracks: Freight traffic: Pretty solid   The advantage of looking at freight traffic is that there is little reason to fake the data. The disadvantage is that, unlike GDP, it is not a value-added measure. The air freight market has collapsed, but it is a volatile business. Other freight sectors suggest much more stable growth through November 2011, as Chart 4 shows. Carriage of goods on roads is particularly important, and it grew a robust 20% y/y in October-November 2011.   Energy production: Softening a bit   Electricity growth is soft, as Chart 5 shows, suggesting that IP growth will also weaken in the coming months.   Air travel: Below average but steady   Domestic air travel, measured in person trips, is running at around 10% y/y and has even strengthened a bit in recent months. Chart 6 shows the varying fates of the Chinese, Asian and global economies in the last few years. International arrivals to China cratered during the global financial crisis and dipped sharply in early 2011. Regional arrivals, from Hong Kong for instance, also weakened more than local travel during the crisis and have been fairly steady in recent months. Local air travel did not decline as sharply as international or regional travel in 2008-09, and has glided to a below-average but steady path.   Cement and steel: Weakening, in line with FAI   Proxies for infrastructure and property are weaker, reflecting the slowdown in FAI growth. As Chart 7 shows, crude steel production growth hit 0% y/y in November, though it seems to have bounced back a little in December. Cement production growth is weakening too, and is running below the 12% average rate of the last decade. That said, not everything is good: as has been long telegraphed, China real estate is crashing. But for now, it is still a slow motion collapse. And with inflation still hot in most non-residential sectors, China risks being exposed to the same monetary "intervention" that happened in the US in the past 18 months, which did nothing for housing, yet managed to get food prices in the US and around the world to quite revolutionary levels. Naturally, China differs from the US in two key aspects: food inflation there is real, without hedonic adjustments, and comprises over 30% of the CPI basket, unlike just 7% in the US; and there is no social safety net, and thus the opportunity cost for people to get violently angry is far less than in the US where everyone is an involuntary member of the pension/retirement/401(k) and thus stock market ponzi. On the property sector: The correction has begun. Residential housing investment hit a 30-month low of 10.8% y/y in December (19.6% y/y in Q4), compared to 35.7% in the first three quarters of 2011. Floor space under construction fell 25% y/y in December (Chart 8 shows the 3-month moving average, which softens the decline); this suggests that investment in this sector has much further to contract.   Sales volumes declined substantially in Q4. Residential floor space sold fell 8.4% y/y in December (following average growth of 12.9% in Q3-2011). Completed residential floor space is still growing, up 9.3% y/y in December. This is resulting in rising apartment inventories. Expectations of price rises in Tier 1-3 cities appear to be reversing, and developers have been cutting prices since October in an attempt to shift inventory.   Prices will likely continue to fall. In Q2-2012, we expect the central government to begin signalling a policy shift to stabilise the sector. At the March National People's Congress meetings, local officials will be lobbying aggressively for relief. Once prices have come down, we expect Beijing to start gradually easing some of the property market restrictions imposed in the past year in order to encourage first-time buyers into the market. This sector, though, remains the biggest risk to China's economy. What does all this mean from the PBOC's perspective. If anything, today's data is another reason not to expect a quick move to further loosening (see On the Ground, 11 January 2011, 'China – China is loosening, but there is really no rush'). The economy is slowing, but not dramatically – so far.   The failure of the expected required reserve ratio (RRR) cut to materialise before the Lunar New Year is a disappointment (there are four more working days to go before the markets close). The People's Bank of China (PBoC) instead engaged in an open reverse repo transaction with banks today in order to provide liquidity before the holiday – and there are reports of at least two other liquidity-providing actions between the central bank and large local banks. Liquidity is tight, but the PBoC has been actively managing liquidity, and we do not expect it to get tighter. Deposits should come back into the banks after the holiday, which will boost interbank liquidity, so we might have to wait a while for the next RRR cut. And if not now, then when? Those hoping for an imminent response from the PBOC will be disappointed. We look for more 'interesting times' ahead – and 6% q/q SAAR GDP growth. Under these circumstances, more monetary loosening will come, but only slowly. We still look for Q1 to be the bottom of growth momentum – but these numbers, though strong, raise the possibility that the coming slowdown will push into Q2 as well. So is it time for a timeout on the race to the inflationary bottom, at least from the Chinese perspective?

Taking a Licking. Still Ticking. Posted: 17 Jan 2012 02:36 PM PST from TFMetalsReport.com: Another series of ruthless attacks have left the precious metals battered and bruised but they are still standing and looking like they want to continue moving higher. First of all, a quick update to our Open Interest situation. Do you recall the trading action of Friday? Gold was down about $17 and silver fell about 60 cents. In a "normal" market, you would expect the gold open interest to have been stable to slightly down. Why? Because a $17 down day would prompt some longs to sell and close positions but, at the same time, fresh shorts would likely initiate new positions. The two would almost cancel each other out. Late today, we found out that the total gold OI increased by almost 7000 contracts on Friday. I'll state that again so as to ensure you didn't miss it: Gold OI increased by almost 7000 contracts on Friday! Friday was a ridiculous and clear attempt by The Cartel to contain price. You can see their work on this chart that I posted this morning: Read More @ TFMetalsReport.com

Crazy Numbers Coming Out Of Europe On Next LTRO Posted: 17 Jan 2012 02:30 PM PST Some truest crazy numbers are coming out of Credit Swisse on what the next LTRO (long term refinancing operations). The last LTRO was around $500 billion injected into European banks. A few days ago the number of $ 1 trillion was thrown around, now Credit Swisse is throwing around a top level number of $10 trillion, which seems unreel. Credit Swisse notes that they are expecting a massive firewall to be put in place sometime during Febuary in order to prepare for the end game for Greece. The end date is now assumed to be March 20th at which point at which point they have $18 billion due. It's interesting that Kyle Bass has expected some significant event happening and things going badly around March/April 2012, seems that is very likely to happen. The question is will Greece be orderly or a disorderly collapse. See zerohedge article here

Fight Night Posted: 17 Jan 2012 02:23 PM PST by Andrew Hoffman, MilesFranklin.com: Monday afternoon, and I can start early as the MLK holiday has ended all U.S. market activities at midday. Gold and silver were up modestly, as were most commodities, with silver closing right on the KEY ROUND NUMBER of $30.00/ounce, pending return of the Cartel for full-out operations tomorrow morning at 3:00 AM EST. Although it is hard to make significant conclusions on such a thinly traded day, I still see more of the same when it comes to PTB market control. Remember, Friday night saw Standard & Poor's downgrade nine European nations, including the stripping of France and Austria's AAA ratings and a two-notch knock of Italy's rating to BBB+, barely above JUNK. During today's trading day, S&P stepped up the heat by stripping the AAA rating from the EFSF, or European Financial Stability Facility, before it was even approved by EU member nations, and espoused its expectation of an imminent Greek DEFAULT. Read More @ MilesFranklin.com

The Gold Price Closed Up $24.80 to Close at $1,655.20 Posted: 17 Jan 2012 02:22 PM PST Gold Price Close Today : 1,655.20 Change : 24.80 or 1.5% Silver Price Close Today : 3010.00 Change : 61.00 cents or 2.0% Platinum Price Close Today : 1,526.70 Change : 39.90 or 2.6% Palladium Price Close Today : 654.95 Change : 20.45 or 3.1% Gold Silver Ratio Today : 54.99 Change : -0.30 or 0.99% Dow Industrial : 12,422.06 Change : -48.96 or -0.4% US Dollar Index : 81.45 Change : 0.67 or 0.8% Franklin Sanders has not published any commentary today, if he posts commentary later in the day it will be posted here. Argentum et aurum comparenda sunt -- -- Gold and silver must be bought. - Franklin Sanders, The Moneychanger The-MoneyChanger.com © 2012, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down. WARNING AND DISCLAIMER. Be advised and warned: Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures. NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps. NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced. NOR do I recommend buying gold and silver on margin or with debt. What DO I recommend? Physical gold and silver coins and bars in your own hands. One final warning: NEVER insert a 747 Jumbo Jet up your nose.

China, Hub of the Global Gold Market? Posted: 17 Jan 2012 01:00 PM PST The growth of China's presence in the global gold market has been phenomenal in the last dozen years. Prior to this century, HSBC sent a delegation from their London gold department to see the Chinese financial authorities and were rebuffed as 'trying to sell gold to China'. Since then, the Chinese financial authorities switched on and set off with a purpose.

Morgan Stanley Quantifies The Probability Of A Global "Muddle Through": 37% Posted: 17 Jan 2012 12:31 PM PST When it comes to attempts at predicting the future, it often appears that the most desirable outcome by everyone involved (particularly those from the status quo, which means financial institutions and media) is that of the "muddle through" which is some mythical condition in which nothing really happens, the global economy neither grows, nor implodes, and it broadly one of little excitement and volatility. While we fail to see how one can call the unprecedented market vol of the past 6 months anything even remotely resembling a muddle through, the recent quiet in the stock market, punctuated by a relentless low volume melt up has once again set market participants' minds at ease that in the absence of 30> VIX days, things may be back to "Goldilocks" days and the muddle through is once again within reach. So while the default fallback was assumed by most to be virtually assured, nobody had actually tried to map out the various outcome possibilities for the global economy. Until today, when Morgan Stanley's most recent addition, former Fed member Vince Reinhart, better known for proposing the Fed's selling of Treasury Puts to the market as a means of keeping rates at bay, together with Adam Parker, have put together a 3x3 matrix charting out the intersections between the US and European economic outcomes. Here is how Parker and Reinhart see the possibility of a global goldilocks outcome, and specifically those who position themselves with expectations of this being the default outcome: "A "muddle through" positioning is potentially dangerous: Our main message is that the muddle-through scenario might be the most plausible alternative, but its joint occurrence in the US and Europe is less likely than the result of a coin toss. Uncertainty is bad for multiples." Specifically - it is 37% (with roughly 3 significant digits of precision). That said, as was reported here early in the year, Morgan Stanley is one of the very few banks which expects an actual market decline in 2012, so bear that in mind as you read the following matrix-based analysis. Because at the end of the day everyone has an agenda. First a summary of why Morgan Stanley is no longer its usual, cheery self: Two core theses: Our main US economic thesis is that an economy performs poorly after a severe financial crisis. After the most recent fall, wealth creation in  the US this cycle is lagging behind that seen in other financial crises. Our main US equity strategy thesis is "multiple contraction", as low and volatile growth and the extreme interest rate environment will likely weigh on the price-to-earnings ratio for several years.   Uncertainty abounds: While it's possible our core principles will apply for the next several years, policy decisions will immediately shape the shorter-term perceptions of the economy and equity market. The uncertainty has manifested itself in 33 daily moves in the S&P500 greater than 2% since August 1st, 2011  (Exhibit 2), versus only two such daily moves in the first 8 months of 2011. The challenge is that the unanswered policy questions are too numerous to address  ead-on in a coherent manner. To show one way to think about risk, we take two issues—political decisions in the United States and Europe over the  medium term—and flesh out the range of possibilities based on just these two moving parts. While nothing new to regular readers, the global risks that Morgan Stanley sees are rather intuitive: The most striking aspect of financial markets over the past few months has been the lack of conviction among participants. Nobody can be sure about the outlook. An investor might have been right about the economic data and savvy about near-term sentiment and still been run over by headlines from Brussels orFrankfurt or Washington. It has been helpful to our own thinking about financial markets to draw a map of risks associated with one-off political events. Unfortunately, the list of unanswered questions is long.   When will US politicians come to grips with adverse fiscal trends?   How will European officials cope with their ongoing banking and sovereign crises?   What will be the pace of European bank deleveraging?   Will Chinese authorities successfully navigate through the global economic storm?   We think these questions are too numerous to address head-on in a coherent manner. In order to show one way to think about risk, we take the first two issues—political decisions in the United States and Europe over the medium term—and flesh out the range of possibilities based on just these two moving parts. Our base case economic forecast slices through the middle of those possibilities and posits a great muddle, where important decisions may be delayed. In this scenario, 2012 may be a year to be cautiously pessimistic. Of course, we could be wrong, as there is a wide range of possible outcomes in 2012 and a high degree of uncertainty around timing. On the one hand, leaders could act decisively; on the other, they could fumble enough to make future decision-making increasingly difficult.   First, we take a stab at filling out a three-by-three contingency table of bull-bear-base cases for Europe and the US, assigning our judgment of probabilities associated with each scenario in the medium term.   Second, we sketch out the likely consequences for the US and European economies in each of these outcomes over the medium-term in 2012.   Third, we assess the implications for US equity markets by making judgment calls on S&P500 earnings and likely trading ranges. For those wondering why politics is increasingly the dominant theme when analyzing financial outcomes, Morgan Stanley explains by presenting the various cases for the US and Europe, most of which are reliant on political choicses as input variables. First, for America: For the United States, if there is no coherent fiscal plan in the spring of 2013 in either the second term of a re-elected Obama administration or the first term of a new president, then fiscal policy will likely drift for four more years. In such circumstances, we think there is considerable risk that US debt will be downgraded again. In fact, in recent days increasing chatter about US government debt has surfaced, though not enough to spook markets as it did last summer.   Nonetheless, market price action might well propagate failure or success in dealing with that challenge in 2012. This raises the three distinct possibilities listed below, with our subjective assessment of the probabilities given in parentheses.   US Base Case: The muddle in the middle (50%). Our base case is an unsatisfying muddle-through in both the US and Europe over the coming months. Politicians will avert a near-term train wreck but not put the train on track toward a long-run destination. Because the US dollar, at least for now, serves as the reserve currency, financial markets may shrug off this fiscal failure episodically, than cyclically react harshly to perceptions of derailment. Our market  interpretation is that there will be a lot of volatility again in 2012. Since August 1st, 2011, the S&P500 has had 33 single-day moves of more than a 2%, born of "macro uncertainty". We think this trend likely persists (Exhibit 2) given the host of macro questions.   US Bear Case: Off the rails (35%). The election contest may sink to a sufficiently low level of discourse that markets conclude that no serious work on fiscal policy will be undertaken until at least 2013. In that case, market participants will become increasingly restive in the summer and fall, creating an environment of risk aversion that is not conducive to sustained economic expansion.   US Bull Case: Off the charts (15%). Fiscal policy in the United States is delivered inefficiently and at great cost. The election contest presents two coherent,  opposing remedies that offer clarity and efficiency. The American people decide in November, and newly elected officials have a mandate to implement the preferred program in spring 2013. This would be supportive of economic growth and financial markets in 2012 as the public comes to understand that such an  outcome is in train and as corporations, inspired by clarity, deploy their huge excess cash reserves in a productive direction, fueling jobs and exports. Next, Europe: As for Europe, seventeen nations have bound themselves in a seemingly unworkable currency union. Authorities can make up for labor immobility and price rigidity only by making it a closer fiscal union. That requires strict budget rules, pan-European issuance of government securities, and an accommodative central bank.   Europe Base Case: The muddle in the middle (60%). We do not think that authorities get to where they need to go in 2012, but our base case is that they are mostly successful in signaling in 2012 that they are on the right path in a series of unsatisfactory summit meetings. This muddle-through scenario implies a roller-coaster ride for sentiment in 2012 as European officials alternatively build and dash hopes for a definitive resolution of the banking and sovereign crises.  The seven elections scheduled this year will only add to the unease.   Europe Bear Case: Off the rails (25%). Part of the reason that sovereign crises are so volatile is that regime change is always possible. In the current case, voters in the wealthy European countries might get impatient with the transfer of resources to poorer countries, leading to a break-up of the currency union and debt default by a few troubled sovereigns. Voters in the poorer countries might get impatient with the conditionality required to receive those transfers, leading to debt default and a break-up of the currency union. While this may not happen in 2012, fears of a break-up are likely to grow and roil markets. In that regard, the perceived success of debt auctions will importantly influence sentiment.   Europe Bull Case: Off the charts (15%). Elected officials may be pushed by financial markets or their own voters to be quicker and more specific in disclosing  their plans for fiscal union. Presenting a comprehensive and workable package that includes a commitment from the ECB to support markets would lift confidence worldwide. These 6 standalone scenarios are not all encompasing: No doubt, other scenarios come to mind, and there is a large element of arbitrariness in assigning probabilities to each outcome. These probabilities can also change from day to day. The right and lower tabs in the table below give our assessment of the unconditional probabilities of these major outcomes in the United States (right tabs) and Europe (the bottom tabs). It is even more speculative to assign probabilities for their joint occurrence. The inner elements of the table give joint probabilities, where the design principle is to give equal probabilities across cases unless there is a compelling counter-argument. Still, the warning remains, and is repeated: The main message from our analysis (Exhibit 3) is that the muddle-through scenario might be the most plausible alternative, but its joint occurrence in the US and Europe is less likely than the result of a coin toss. We think such uncertainty will continue to beget lower multiples. So how does all this look in chart form? First, by outcome probability: "We Assign a 50% Chance of a Muddle-Through Scenario in the US and a 60% Chance in Europe – but the Intersection Is Likely Less than 50-50" We wholly acknowledge that bad news in one economy will have a negative impact on the other, so these cells are inter-dependent by definition. Further, corporate profitability is sharply impacted by big moves in the relationship between the dollar and euro, so the bear scenarios for Europe could incrementally hurt US profitability, something we will be eyeing in the near term given the dollar's strength Then, by scenario summary: "Our Economic Assumptions for the US and Europe Under Nine Scenarios"   While it is always difficult to tell what is priced in at any moment, we forecast the S&P500 under each of the 9 scenarios in Exhibit 5. In our 2012 Outlook piece from Jan 2, 2012, "The 2012 Playbook", we set our (US) Bear, Base and Bull case targets of $944, $1237 and $1450, respectively. The probability-weighted price targets for each row of Exhibit 5 (corresponding to a scenario for the US) match these unconditional price targets. Within each row, however, better or worse conditions in Europe result in conditional price targets that are above or below, respectively, their unconditional values. Thus, the Bear US/Bear Europe target in Exhibit 5 of $798 (upper left cell) is below our unconditional US Bear case target of $944, while the Bear US/Bull Europe target of $1175 (upper right cell) is above our unconditional US Bear case target.   We note that the market is only 11% below our Bull US/Base Europe price target of $1425 (bottom middle cell of Exhibit 5), as investors currently are embedding a muddle through scenario for the US economy, improving US profits, modest multiple expansion, and a "quarantined" Europe for the foreseeable future. As far as the S&P500 goes, we see the risk-reward as skewed to the negative and have a year-end 2012 price target of $1167. Finally, this is MS' best guess of where the S&P would go in any given scenario: We Assign Price Targets for the S&P500 Under Each of the 9 Scenarios – The Market Is Only 11% Below Our Bull US/Base Europe Scenario Price Target of 1425 Ominously, following early revisions of Q4 GDP growth by other banks, Morgan Stanley has joined the bandwagon and is already putting the possibility of a sub-muddle through outcome in the US as increasingly probably if there is follow through into Q1: Lastly, to add to the uncertainty, the US economy is once again tracking below where it started at the beginning of the fourth quarter, as weaker than expected exports have lowered our Q4 estimate for the US GDP to 2.7% (Exhibit 6). Similar negative tracking has occurred every quarter in 2011. Yet after all this, perhaps we should have started with Morgan Stanley's conclusion: that no matter what it is most likely the market itself that will define what GDP is at the end of the day, confirming what everyone, even the Fed knows, that in our bizarro world, it is the market that defines the economy, not the other way around. We point out that even if we knew which economic scenario would unfold, GDP has often been PREDICTED by the S&P500, such that the coincident correlation between the quarterly GDP and the S&P500 has averaged zero over the past several decades (Exhibit 7).

Harvey Organ's Daily Gold & Silver Report Posted: 17 Jan 2012 12:27 PM PST Greek Default Imminent probably March 20,2012/LTRO next auction 1 trillion euros

SilverSeek.com’s 2012 Virtual Silver Investment Conference Posted: 17 Jan 2012 12:00 PM PST SilverSeek.com's 2012 Virtual Silver Investment Conference, an online, one-day event showcasing silver industry experts and top tier silver companies will begin at 10am Eastern on Tuesday, January 31st. Get updated on the latest silver market news and connect with expert opinions on silver. Visit and interact with top performing publicly traded silver production and exploration companies at their virtual booths in a rich virtual environment, from the comfort of your home or office.

FOFOA: The Gold Must Flow Posted: 17 Jan 2012 11:38 AM PST Let's ignore hyperinflation for now and talk in constant dollars. Gold now has the purchasing power of $55,000 in 2012 constant dollars.

Gold Trendline Resistance Near 1680 Posted: 17 Jan 2012 11:31 AM PST courtesy of DailyFX.com January 17, 2012 02:12 PM Daily Bars Prepared by Jamie Saettele, CMT I wrote yesterday that “gold dropped below 1630 on Friday, albeit in a spike. Violation of a level in a spike is difficult to trust so the bear trap potential remains.” The metal traded to a new high today and focus is now on trendline resistance at about 1680 on Wednesday. 163190 now serves as the pivot. Bottom Line – short against 1685, target new lows...

Global Investor's CEO Frank Holms: What the Next Decade Holds for Commodities Posted: 17 Jan 2012 11:16 AM PST With an impressive 20 percent annualized return, silver is king of the commodity space over the past decade with gold (19 percent annualized)

At last Financial Times notices that central banks do shady things with gold Posted: 17 Jan 2012 11:02 AM PST Central Banks Increase Gold Lending By Jack Farchy Financial Times, London Tuesday, January 17, 2012 http://www.ft.com/intl/cms/s/0/c2b92910-40fe-11e1-b521-00144feab49a.html Central banks increased the amount of gold they lent for the first time in a decade in 2011, as they used their bullion reserves to help commercial banks raise US dollars. Although central banks hold one sixth of all the gold ever mined in their reserves, their activities in the bullion market are opaque, with not a single institution revealing its day-to-day operations. In addition to holding gold for their reserves, some central banks also trade the metal, lending it on the open market in order to obtain a yield. Thomson Reuters GFMS, the precious metal consultancy that publishes benchmark statistics on the gold market, on Tuesday said that the quantity of gold lent by central banks had risen last year for the first time since 2000. ... Dispatch continues below ... ADVERTISEMENT Be Part of a Chance to Discover Multi-Million-Ounce Gold and Silver Deposits in Canada Northaven Resources Corp. (TSX-V:NTV) is advancing five gold and silver projects in highly prospective and politically stable British Columbia, Canada. Check out the exploration program on our Allco gold/silver project : -- A large (13,000 hectare) property, covering more than 15 square kilometers of a regional mineralized trend just 3km from a recently announced 1.2-million-ounce gold and 15-million-ounce silver deposit. -- The property hosts historic high-grade silver workings and many mineral showings as well as former mines at the property's northern and southern boundaries. -- A deep-penetrating airborne geophysics survey has just been completed on the entire property and neighboring deposits and its results are eagerly awaited. To learn more about the Allco property or Northaven's other gold and silver projects, please visit: http://www.northavenresources.com Or call Northaven CEO Allen Leschert at 604-696-3600. The estimate by GFMS confirms a trend that bankers and gold traders have been privately discussing for the past six months. The increase in lending came as eurozone commercial banks, suffering a shortage of dollar liquidity, rushed to borrow gold from central banks and later swap it on the market in exchange for dollars. "There is growing evidence that short-term loans from some central banks to commercial banks could well have increased considerably [in 2011], with the latter then using gold to swap for US dollars," GFMS said. As the squeeze in the dollar funding markets intensified, short-term interest rates for lending gold fell to record lows in late 2011. The rate for lending gold for one month fell to -0.57 per cent in early December, implying that a bank would have to pay to swap it for dollars. The rush among eurozone commercial banks to lend gold was one of the clearest signs of the "dash for cash" late last year that weighed on the bullion price. Goldman Sachs said in a report that "the downward pressure from European bank funding issues has left gold prices at a steep discount to the levels suggested" by US real interest rates. The metal tumbled 20 per cent from a peak above $1,900 a troy ounce in September to a low of $1,522 in December. On Tuesday, gold was trading at a five-week peak of $1,663. The increase in gold lending by central banks has brought an end to a decade-long decline in the amount of bullion out on loan, as falls in hedging by gold miners reduced demand to borrow the metal. GFMS did not put a number on the increase last year, saying only that lending had risen "by a small amount." It estimates that the outstanding volume of swapped or leased gold stood at 700 tonnes at the end of 2010, down from a peak of about 5,000 tonnes in 2000. Philip Klapwijk, head of metals analytics at the consultancy, was sceptical that the lending activity had affected the gold price. "This is a purely financial swap of gold for US dollars; it shouldn't have an impact on price," he said. Nonetheless, GFMS maintained a cautious outlook for gold prices in the near term, predicting that the metal would average $1,640 in the first half of 2012. "A huge amount of gold needs to be taken out of the market day in, day out by investors," Mr Klapwijk said. "I'd be astounded if we see a reversal of sentiment but it may be that investment simply underperforms our expectations and prices sag." All the same, GFMS predicted that gold prices would once again gather steam later this year, touching a peak "just over the $2,000 mark" in late 2012 or early 2013. * * * Join GATA here: Vancouver Resource Investment Conference Sunday-Monday, January 22-23, 2012 Vancouver Convention Centre West Vancouver, British Columbia, Canada http://cambridgehouse.com/conference-details/vancouver-resource-investme... California Investment Conference Saturday-Sunday, February 11-12, 2012 Hyatt Grand Champions Resort Indian Wells, California, USA http://cambridgehouse.com/conference-details/california-investment-confe... Support GATA by purchasing a silver commemorative coin: 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 Golden Phoenix Receives Inferred Gold Resource Estimate For Santa Rosa Mine in Panama: 669,000 Oz. Gold, 2.1 Million Oz. Silver Company Press Release January 3, 2012 Golden Phoenix Minerals Inc. (OTC: GPXM) reports that on behalf of Golden Phoenix Panama S.A., the joint venture entity that owns and operates the Santa Rosa gold mine in Panama, it has received from SRK Consulting (U.S.) an initial resource estimate for Mina Santa Rosa. The Santa Rosa project is a volcanic-hosted epithermal gold-silver deposit previously operated as an open pit-heap leach operation. Production ceased in 1999 in part because of low gold prices. SRK Consulting reports an in-situ inferred resource at the former Santa Rosa and ADLM pits totaling 23.1 million metric tonnes at 0.90 grams/tonne gold, for a contained 669,000 ounces of gold at a 0.30 g/t gold cutoff. The resource also contains an average grade of 2.87 g/t silver for a contained 2.1 million ounces of silver. John Bolanos, Golden Phoenix's vice president of exploration, remarks: "In addition to SRK's inferred resource estimate of 669,000 contained ounces of gold, the Santa Rosa project has an additional unspecified volume of mineralized material on former heap leach pads throughout the property. We expect to begin assessing this additional material in the near future." For the company's full statement, including a table detailing the resources at Santa Rose, please visit: http://goldenphoenix.us/press-release/golden-phoenix-receives-initial-ni...

Von Greyerz - Silver Shortages & Gold to Accelerate Higher Posted: 17 Jan 2012 10:58 AM PST This just confirms we are very near a massive package of QE here because if they don't do it there won't be any banking system left here in Europe.

IMAGINE: A Gold Market Without The Western Banking Gold Cartel Posted: 17 Jan 2012 10:44 AM PST It should be pretty obvious to ANYBODY that watches, attempts to trade, or is even remotely aware of the Precious Metals markets that these markets are blatantly suppressed by a western banking cartel.  How many times during the bull market in Gold and Silver that began in 2001 have we witnessed a powerful rise in these Precious Metals overnight in Asia, only to see these over night gains evaporate during the day in London and New York?  Countless times! Why just today in fact, this phenomenon was in full display for the whole world to witness: Last night [Jan 16] at 7:30PM est the Asian markets opened in Hong Kong for Precious Metals trading.  The opening Gold price in Hong Kong was $1645.45 [the red line on the right side of the chart].  Within 30 minutes of the Hong Kong open, Gold prices exploded higher.  Gold prices rose overnight throughout the Asian trading hours, rising to a high of $1667.60 by 2:30AM est [the green line on the left side of the chart], a full $25 above the close of electronic trading in New York Monday evening at 5:15PM est. This would prove to be the High of the Day [Jan 17] as the western markets opened for Precious Metals trading at 3AM est in London, and the daily suppression of the prices of Gold and Silver begins... Gold is stopped dead in its tracks at the London Market open.  Gold is capped solidly at $1662 with the London AM Gold Fix at 5:30 AM est.  Gold trades sideways until The Kingpins of the Western Banking Gold Cartel show up for work at 8:20 AM est. [the green line on the chart] As the Precious Metals markets open for trading in New York at the CRIMEX, the first of the day's THREE waterfall declines is set in motion.  How many times have we seen this before?  [A better question might be, how many times have we NOT seen this at the CRIMEX open?] This first waterfall decline beats down the price of Gold for the London PM Gold Fix at 10:30AM est to settle at $1659.15, down $8 from the overnight high set in Asia. Following the close of the financial markets in London at 11:30AM est, the second waterfall decline in the price of Gold occurs at 12PM est at the CRIMEX.  [YES, this does occur almost every day!] By the close of CRIMEX trading, the price of Gold has fallen to $1654.79.  A full $13 below the overnight High of the Day in Asia. Our third waterfall decline of the day [par for the course on the daily CRIMEX] commences at 2PM est following the close of Precious Metals trading during the NY GLOBEX "electronic trading" session.  [CRIMEX Lite].  [Yes, this too happens most days at the CRIMEX...we've all seen it countless times.]  This decline in Gold takes the price down to our  Low of the Day [Jan 17] at $1649.80. I have just walked you through the virtual evaporation of a $25 rise in the price of Gold during Asian trading care of the Western Banking Gold Cartel.  What was a $25 increase in the price of Gold at 2:30AM est was reduced to a $7 gain during Precious Metals trading in London and New York between 3:00AM and 3PM est.  Seems criminal doesn't it?  And this isn't just a one day event folks.  This brand of "free market" trading has been going on for the entirety of the Precious Metals Bull Market that began in 2001. "Ranting Andy" Hoffman, in countless missives over the past four years has documented just this sort of western banking suppression and manipulation of the Gold price.  I suggest you consult his work linked below to understand just how pervasive The Western Banking Gold Cartel is in it's efforts to suppress and manipulate the prices of the Precious Metals Gold and Silver: 5/29/11 Cartel Secrets Revealed, Pt. I 6/01/11 Cartel Secrets Revealed, Pt. II 6/08/11 2010 COMEX Gold Manipulation Pictorial 6/06/11 2011 COMEX Gold Manipulation Pictorial #1 11/28/11 2011 COMEX Gold Manipulation Pictorial #2 There are few as thorough at documenting the The Gold Price Suppression Playbook of The Western Banking Gold Cartel than "Ranting Andy" Hoffman.  After pouring through Andy's documentation, it is difficult to believe that the price of Gold has been in an 11-year bull market when considering the efforts of the Gold Cartel to stop the price of Gold [and Silver] from rising. Yet Gold HAS BEEN in an 11-year bull market, having risen now over  650% since 2001.  A rather remarkable feat considering the stonewalling by The Western Banking Cartel.  Now imagine the potential for gains in the 11-year Gold bull market if there was no Western Banking Gold Cartel and their LBMA and CRIMEX playgrounds: Overnight Long/Intraday Short Gold Fund More Than Doubles In Just Over A Year: Generates 43% Annualized Return From ZeroHedge, and SK Options trading Back in August 2010, we presented an idea proposed by our friends at SK Options trading for a very simple trading strategy: being long gold in the overnight session, and shorting it during the day. At the time of writing, such a strategy would have returned $2.16 billion from a $100 million initial investment in 10 years, a 37.46% annualized return. Today, we provide a much needed follow up to this quite stunning divergence. As SK notes: "we have revisited the article and written an update. Not only does the discrepancy still exist but it has been actually increasing. That fund would now be worth $5.26B, way up from $2.16B when we last wrote about it - in other words an increase of 143% in just over a year. When we wrote about this in August 2010, the annualized return of the Long Overnight/Short Intraday gold index was 37.46% since the start of 2001. However if we measure from now the annualized return since 2001 is 43.24%, with the annualized return of the Long Overnight/Short Intraday gold index standing at roughly 64.4% since 2009." So for those who wish to layer on an additional alpha buffer on top of what is already the best performing asset of the past decade, the SK Options way just may be the strategy. As for the reasons for this gross arbitrage - who cares. Is it manipulation? is it the early Asian buying offset by London pool selling? It is largely irrelvant - the point is that this is "the divergence that keeps on giving" - kinda like a Stolper trade, or an inverse Tilson ETF, and until it doesn't, or until something dramatically changes in the precious metal market, it is likely that this trading pattern will continue for a long time. From SK Options trading Revisiting Our Proposal For An Overnight Gold Fund In August 2010 we wrote an article entitled "Proposing An Overnight Gold Fund" in which we explored the potential for launching a fund that held long positions in gold overnight and was short gold during the day. We pointed out that "a hedge fund starting in 2001 with $100m, with the strategy of being long gold from the PM to AM fix, and short gold from the AM to PM fix...would be worth $2.16billion today, before any fees and expenses." We have been monitoring this trading strategy since then and therefore would like to take this opportunity to update readers on its astonishing progress. Firstly we will introduce the thinking that led us to investigate this trading strategy. There is much debate within the precious metals industry regarding the alleged suppression, or at least manipulation to an extent, by either central banks or the proprietary trading divisions of large banks, or a combination of the two. In April 2010 the US Commodity Futures Trading Commission CFTC fined Hedge Fund Moore Capital for manipulation of the New York platinum and palladium futures market, as the firm was found to be "banging the close", which involves entering orders in a manner designed to inflate the closing price, which other various derivatives contracts could be based on. So that is irrefutable evidence that the precious metals futures market is, at least to some extent, being manipulated. However a large concentration of this debate is based not on platinum and palladium, but on gold and silver, and particularly gold. There are other theories that could explain this discrepancy that do not involve manipulation. For example one could take the view that Eastern market participants are perhaps more bullish on gold than their Western trading counterparts. Therefore gold is perhaps more likely to rise during Asian trading and fall when the west takes over. Numerous hypothesises have been put forward as to the motive behind alleged suppression of the gold, ranging from a central bank conspiracy to keep gold prices low, to large trading banks simply exploiting their market dominance for easy profits, or even a combination of the two with the central banks and large bullion trading operations working together in some kind for cartel to keep gold prices low. This article does not intend to discuss the merits of these theories, however plausible or implausible various parties believe them to be. Instead we will focus on finding out if a discrepancy exists and if it does, can one take advantage of it and use it for profitable trading strategies. We would like to recommend an excellent article by Adrian Douglas, editor of Market Force Analysis and a GATA board member entitled "Gold Market is not "Fixed", it's Rigged" which goes into great detail on the statistics behind the difference between how gold trades between the AM and PM fix, and how it trades from the PM to AM fix. The very fact that there appears to be a significance difference sets our alarm bells ringing. Whether gold trades in New York, London, Tokyo or Timbuktu, gold is still gold and so one would expect that it would trade in a similar fashion across these timeframes over a long period of time. If we take the change in the gold price from the London AM to PM fix (intraday gold) compare it to the change in the gold price from the PM to AM fix (overnight gold), we can see the startling difference between the two periods of trading. We will demonstrate this by showing what would have happened if one had theoretically invested in the intraday gold market from 2001 to present. Starting in 2001 with an indexed based at 100, the chart below shows what would have happened to that investment of 100 if it had been used to purchase gold at the AM fix and sell gold at the PM fix, replicating the daily percentage performance of gold in the intraday market. As the chart above shows, the performance is dismal. For example a hypothetical gold investment fund starting with $100m in 2001, and using it to buy gold at the AM fix and sell it at the PM fix would now be left with just $31 million, almost a 70% loss in just under ten years. Over the same time period gold prices have risen over 590%. From this we can infer that in fact it was possible to make money shorting gold everyday for the last decade or so. If a hedge fund or even an individual trader were to have sold gold at the AM fix and covered that short position at the PM fix, for each day of this terrific bull market run in gold, that fund would have almost tripled their starting capital. This appears to be a remarkable result, as one would presume that shorting gold everyday during a period where the yellow metal has risen 590% would have devastated any portfolio, not caused a 178.7% increase. Those who do not believe in theories of gold price suppression, often cite the fact that gold prices are at an all time high as a major piece of evidence to discredit any suggestions of price suppression. After all how can the price be being suppressed if prices are sky rocketing? Well the answer to that question is that if the gold traders at the large banks accused of such manipulation are just trading during the intraday market between the AM to PM fix, they may not be too concerned about how gold trades overnight (provided they are not holding positions overnight of course). What matters is how gold trades during this intraday period, and if more often than not gold is falling during this time, and more often than not the banks are short gold during this period, then they are making money regardless of the overnight price action. It would appear that subtle manipulation is more likely that blatant price suppression. So the question on the mind of many gold bulls might be; how do I remove this downward manipulation during the intraday period? Even if I do not believe in manipulation, suppression or any other conspiracy theories, how do I eliminate this statistical fact that gold is underperforming during the intraday period? The answer is to buy gold at the PM fix and sell it the following day at the AM fix, or more simply put, just be long gold overnight. The graph above shows how rewarding this strategy would have been, with a return of 1797% in eleven years, a return 3.2 times greater than the 590% that would have been made simply buying gold in 2001 holding until now. With many investors and traders looking for the best way to lever their gold returns, from pouring over drill results to identify the best gold stocks to experimenting with leveraged gold ETFs and ETNs, a more simple solution could be simply to only have long exposure to gold overnight. For the more cavalier traders, going long gold overnight and then short gold for the intraday period, makes for an even more profitable strategy. Consider a hedge fund starting in 2001 with $100m, with the strategy of being long gold from the PM to AM fix, and short gold from the AM to PM fix. That hedge fund would be worth $5.26billion today, before any fees and expenses. This should be enough to catch any investor's attention. Even without shorting gold during the intraday period, limiting exposure to gold to just the overnight period enhances returns enough to justify using this as a basis for a trading strategy. As stated at the beginning of this article, our focus is not what or who is causing this discrepancy nor any potential motives for such a discrepancy, but what action to take in order to profit from it. What has surprised us most in our ongoing investigation into this area is that not only is the discrepancy persisting, but it is arguably increasing. When we first wrote about this in August 2010, the annualized return of the Long Overnight/Short Intraday gold index was 37.46% since the start of 2001. However if we measure from now the annualized return since 2001 is 43.24%. the chart below demonstrates this point, with the annualized return of the Long Overnight/Short Intraday gold index standing at roughly 64.4% since 2009. Another point of interest is when this outperformance is concentrated. The performance around the September 2011 correction is particularly remarkable. Whilst gold prices plummeted, the Long Overnight/Short Intraday gold index increased dramatically, having already been increasing whilst gold rallied over the previous couple of months. From this we can infer that the majority of gold's declines in the recent major correction occurred during the intraday trading session, not the overnight trading session. However in practice we must keep in mind that reversing one's position each day is not free. One would have to cross the bid/ask spread. Taking a $0.10 spread into account the short intraday and long overnight index would have increased from 100 to 1827.34 since 2001. This increase of 1727.4% outperforms the 593% increase in gold prices over the same period by almost 3 times. If a $0.20 spread is used on a short intraday and long overnight index, there is an increase of 530.4%, which slightly underperforms a buy and hold strategy. Therefore one would need to be able to reverse one's position at the AM and PM fix for $0.10 spread for the strategy to work in practice. Nonetheless we still think that this is an important discrepancy that should be taken into account when trading gold. Even if one does not explicitly execute this exact trading strategy, one can still benefit from the trading patterns it is based on. For example if one was nervous about a correction in gold prices but did not want to be short gold, it would perhaps be preferable to close any long position prior to the intraday trading period and reopen them after the PM fix. In addition to incorporating these patterns into our trading strategy at SK Options Trading, we are also looking into the feasibility of launching some form of investment fund to take advantage of the opportunities discussed in this article. As part of this feasibility study we are looking to gauge investor interest and so would welcome any comments, suggestions or ideas that people may wish to contribute, simply email info@skoptionstrading.com. ______________________________ IMAGINE: THE GOLD MARKET WITHOUT THE WESTERN BANKING GOLD CARTEL The Western Banking Gold Cartel not withstanding, the price of Gold has moved higher for 11 straight years.  That most of the "gains", so far, have mostly come from gains made during Asian trading in the Precious Metals is now obvious to all but the ignorant.  Now, imagine if you will, the potential for gains in the price of Gold [and Silver] once the Western Banking Gold Cartel and its paper CRIMEX game is overwhelmed by the demand for physical bullion by global investors. Gold & Silver Banker-Cartel Prolonged Price Suppression Has Set the Foundation for an Explosive Move Higher in 2012 From ZeroHedge, and smartknowledgeu At the end of last year, there was a lot of chatter on the Internet, due to the end-of-the year slam down effected on gold and silver futures by the global banking cartel, that silver prices were going go collapse to $20 an ounce and gold prices were going to collapse well below $1000 an ounce by the first quarter of 2012. We felt that these discussions and the consequent, induced panic selling out of gold/silver mining stocks and physical gold/silver at the end of 2011 was highly unwarranted and

Gold up on China Stimulus Hope Posted: 17 Jan 2012 10:31 AM PST Gold rose on Tuesday, in tandem with the euro, on technical buying & lackluster economic data lifted investor hopes for monetary stimulus in China.

Gold predicted to peak at $2,000 as precious metal ends bull run Posted: 17 Jan 2012 10:21 AM PST Gold is set to power to a new record above $2,000 (£1,300) in the next year or so, but the fresh peak will come as it nears the end of a decade-long bull run, experts say. This posting includes an audio/video/photo media file: Download Now

Sprott Physical Silver Trust PSLV Brings Out Its Follow On Offering Posted: 17 Jan 2012 10:18 AM PST This posting includes an audio/video/photo media file: Download Now

Guest Post: Returning to Simplicity (Whether We Want to or Not) Posted: 17 Jan 2012 09:47 AM PST Submitted by ChrisMartenson.com contributor Gregor Macdonald Returning to Simplicity (Whether We Want to or Not) Eventually the point is reached when all the energy and resources available to a society are required just to maintain its existing level of complexity.  - Joseph Tainter The modern world depends on economic growth to function properly. And throughout the living memory of every human on earth today, technology has continually developed to extract more and more raw material from the environment to power that growth. This has produced a faithful belief among the public that has helped to blur the lines between human innovation and limited natural resources. Technology does not create resources, though it does embody our ability to access resources. When the two are operating smoothly in tandem, society mistakes one for the other. This has created a new and very modern problem -- a misplaced trust in technology to consistently fulfill our economic needs. What happens once key resources become so dilute that technology, by itself, can no longer meet our growth needs?  We may be about to find out. Recent History The twin disasters, Deepwater Horizon in the Gulf of Mexico and Fukushima in Japan, took place only nine months apart in 2010-2011, but together they have provided the world's economy with a lesson in 21st Century un-priced risk. Our various energy systems, vastly arrayed across regions and hemispheres, have now reached a late phase of complexity. And societies, particularly in the West, have enjoyed technological progress for such a long, uninterrupted period of time that the delicate nature of this modern infrastructure has evolved to escape notice. The BP disaster arose within the oil and gas sphere more than a century after the start of widespread oil extraction. The collective knowledge of the industry was, in one sense, a support to the operation that allowed the recovery of oil several miles below ocean and earth, using ultra deepwater drilling techniques. But a century of global oil production was also a constraint, as Deepwater Horizon illustrated the outer reaches to which a mature industry had been driven to obtain its next tranche of resources. The capital BP has set aside for cleanup stands at $40 billion. Additionally, government resources, from equipment to personnel, that were diverted to the Gulf and Gulf Coast that summer (see photo above) were reminiscent of a small military operation. Deepwater Horizon also showed that modern energy extraction now occurs with the greatest-ever separation between human operators and their resource target(s). This physical distance is so great that, in the case of very deep offshore oil drilling, it's no longer possible to reliably stop a blowout. Why? Because no equipment exists to easily take men and material to such depth to conduct repairs. Indeed, it was at least as much due to luck as skill that BP was able to halt the well flow several miles down. And the almost comical trial-and-error efforts (junk shots) proved what many have long asserted: In the past decade, the cost of the marginal barrel of oil has crossed a threshold to a completely new era. It now becomes possible to ask the question, Is it worth it? Is it even economic to obtain this new tranche of oil? The Fukushima disaster, triggered by the an offshore earthquake, ripped the lid off Japan's power grid and illustrated how the country has historically balanced its lack of domestic fossil fuel supply against its enormous manufacturing base. On a small level, the actual sequence of events at the Fukushima nuclear power plant revealed an amazing vulnerability. For it was not the passing of the tsunami that performed critical damage to the installation's structure; rather, it was the auxiliary power that was knocked out, depriving the plant of its cooling functions. Hence the meltdown, and the subsequent issues with recriticality (resumption of fission). Meanwhile, on a larger level, the world came to understand how dependent Japan had become on nuclear power, which provides 30% of the country's electricity needs. Japan is also one of the largest importers of LNG (liquefied natural gas) and still has to import 80% of its overall energy mix, which includes oil and a very great quantity of coal. (Indeed, Japan is the fourth largest world consumer of coal, behind only China, the US, and India). Unsurprisingly, the country had to significantly boost imports of LNG and coal in the wake of the disaster. What has been the cultural response to the Deepwater Horizon and Fukushima disasters? In the US, the oil spill in the Gulf, which exacted a great economic toll, echoes the aftermath of other post oil-spill environments: The moratorium on offshore drilling was quickly lifted, but in its place lies a new set of regulations and restrictions. Most of these have a single aim -- that similar blowouts in deepwater be preventable or fixable. The evidence seems to suggest that deepwater drilling in the Gulf has peaked. The rig count has recovered but is still down below the highs, with many of the largest and most expensive operators having left for other parts of the world. Meanwhile, the global response to the Japanese catastrophe rippled through several economies, especially those, such as Germany, that rely heavily on nuclear power. German chancellor Angela Merkel announced that her country had to accelerate its transition to renewables, becoming less reliant on nuclear. Other countries have increased their inspection procedures, and for the first time in many years, it seemed possible that many aging plants in the US would not see their licenses renewed. In Japan, there have been protests. And given the long lifespan of the nuclear event, which will ripple outwards for decades upon the affected portions of the northeast Japanese coast, it is not surprising:  TOKYO (AP) -- Chanting "Sayonara nuclear power" and waving banners, tens of thousands of people marched in central Tokyo on Monday to call on Japan's government to abandon atomic energy in the wake of the Fukushima nuclear accident. (Source) Western Faith in Progress Education in the West has, as a core feature of its curriculum, a narrative of progress. This is especially true of US history offerings and of any discipline that addresses the post-Industrial Revolution (roughly the two centuries after 1800). The examples of technological progress most available to Western cultures, as we moved from the Age of Wood to the Age of Coal and finally the Oil Age, are highly confirming of the view that humanity always finds a way. And in particular, it finds a way to grow, and even thrive. It is particularly worth noting the symbiotic relationship between the machines that were developed to extract resources (like the steam engine that pumped water from coal mines) and the life cycle of those machines as utilizers of those resources. Coal mining triggered development of machines that would run on coal, just as oil would eventually power the latest machines that would be used to extract oil. It is this awesome ratchet effect that's so persuasive to Western culture, and it is the story it repeatedly tells itself. One can hardly fault the highly educated person, with an advanced position in business, communications, technology, or academia, for generally believing that innovation (and the power of prices) will obtain all of the resources we require. I believe this bias is what Daniel Kahneman would call an availability heuristic. The risk to this bias is that at some point in human development innovation and technology may very well carry forward and confirm society's faith, but at the same time start to offer increasingly diminishing returns to progress. In my opinion, that is the lesson of Deepwater Horizon and Fukushima. And I expect it also to be the lesson of the Alberta Tar Sands. There is a lens through which we can view events like Deepwater Horizon and Fukushima. Charles Perrow, in his important work on Normal Accident Theory (NAT) examines these accidents by type and plots them according to their complexity. See, for example, where nuclear power is located on the following grid: (Source: Accidents, Normal  -- opens to PDF). What has begun to take place in global energy extraction is that the current tranche of resources obtained by more complex methods -- deepwater drilling, underground fracturing, in-situ mining, and other strip mining -- have begun to move towards the quadrant of Perrow's chart that is occupied by nuclear power and chemical plants. Here, systems are both technically advanced and tightly coupled, which is to say that failures anywhere in their operations can spread easily and cause systemic failure. Additionally, the boundaries of those failures can also be rather broad. That nuclear contamination spreads over large geographical areas has been known for some time. But Deepwater Horizon warned that contemporary oil extraction has also crossed the threshold into very wide boundaries. Despite the current euphoria over North American shale natural gas and the continuing confidence that production can be lifted in the Alberta Tar Sands, there are already indications that groundwater supply is going to become a much, much bigger issue as we try to increase access to these resources. As Joseph Tainter explains (see the quote in the header to this essay), resources in civilization are eventually marshaled not for further growth but simply to maintain current systems, usually in their most advanced iteration. This is the terminal phase of expansion that the large, OECD regions (Japan, Europe, US) have likely reached. This is a vexing and frustrating limit that just about everyone, no matter their political orientation or economic view, will struggle to digest. For example, in an analysis of Fukushima's impact on future energy policy, I thought this reaction from the team at the BTI Institute, was somewhat correct but perhaps a bit hasty: Yet lost in the hyperbolic claims of nuclear opponents, the defensive reactions of the nuclear industry, and the carefully calibrated repositioning of politicians and policymakers is the reality that Fukushima is unlikely to much change the basic political economy of nuclear power. Wealthy, developed economies, with relatively flat energy growth and mature energy infrastructure haven't built a lot of nuclear in decades and were unlikely to build much more anytime soon, even before the Fukushima accident. The nuclear renaissance, such as it is, has been occurring in the developing world, where fast growing, modernizing economies need as much new energy generation as possible and where China and India alone have constructed dozens of new plants, with many more on the drawing board. (Source) While it's true that the long-forecasted nuclear renaissance in the West never took place, with little prospect now that it ever will, it's not exactly true that the developing world is choosing nuclear power in any meaningful way. Coal remains the dominant energy source in the developing world, for obvious reasons: it's portable, it stores well, it remains cheap, and (most of all) it is not complex. Given that the externalities of coal use are rather brutal, it also the case that human beings place steep discount rates on the future. Society is much more fearful of accidents which take place suddenly and with little warning, than of the long term negative effects of a different set of policies on their health. It may not be logical, but that is our preference. Tilting Away from Complexity An emerging theme out of Silicon Valley over the past few years has been the epiphany that venture capital experienced regarding the extraordinary difficulty of greentech. "No mas" has been the conclusion. Why build expensive prototype energy boxes or invest in large vats of algae, when little apps can populate quickly across Internet devices, with no heavy lifting or messy cleanup? The difference between the two worlds has been summed up like this: In Atoms vs. Bits, it's undeniable that "atoms are simply too difficult." Yes, and this, too, is the lesson of Deepwater Horizon and Fukushima. If investment in complex resource extraction has either tail risk that could overwhelm returns, or externalities that overwhelm the well being of society, why do it? Recently I spotted an insightful remark that addresses the issue, from Alan Nogee on Twitter. In Part II: Why We Must Embrace Simplicity Now, we explore how diminishing returns have now triggered in our various complex systems. Eventually it will become clear that the cost to repair damages from their destructiveness is simply too great. Technology is practically telling us (begging us?) to place less faith in its ability to solve all problems. It's obvious that our elected leadership has no concept of a growth limit that could render the economy's obligations insoluble. The Fed transcripts are yet one more piece of evidence that unless we get a better handle on the enormous, complex systems we are already operating, we will continue to suffer more frequent and painful "unexpected" economic accidents. Given our track record in this regard, the alternate route would be to step back from these complex systems and regain our footing in simplicity. Or else maintain the status quo approach until market forces pressure us to. Click here to access Part II of this report (free executive summary, enrollment required for full access).

Premature Obituaries Posted: 17 Jan 2012 09:19 AM PST It is open season for wild monetary prognostications. More premature obituaries on the dollar have been posted on the Internet. For example, see Jim Willie's The US Dollar Paper Tiger (Gold-Eagle, January 11) with epitaphs like ... Read More...

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