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Thursday, October 3, 2013

Gold World News Flash

Gold World News Flash


Poor & Middle Class Sacrificed for the BANKS: David Morgan

Posted: 03 Oct 2013 12:30 AM PDT

US Mint Gold and Silver Bullion Coin Sales Decline in September

Posted: 03 Oct 2013 12:10 AM PDT

Demand for American Eagle gold and silver bullion coins remained sluggish in September according to the latest figures from the U.S. Mint. Sales of the American Eagle gold bullion coin totaled 13,000 ounces in September, off a considerable 77% from the previous year but up 13% from last month.  Sales of the gold bullion coin [...]

Failed US Government Intervention Causing Panic Into Gold

Posted: 03 Oct 2013 12:00 AM PDT

from KingWorldNews:

The US government shutdown has caused the US dollar to weaken even further. In the last 17 days the US dollar is down 2.3%, and has now broken the critical psychological level of 80.

People would have expected for gold to be trading higher in this environment, but with the Chinese away on holiday this has left the door open for some serious manipulation in the gold market. This interference in the gold market is taking place at a time when we already have a government shutdown in the US, but the really serious discussions about the debt ceiling are still to come.

John Ing continues @ KingWorldNews.com

GATA secretary interviewed on CNBC Asia about gold market manipulation

Posted: 02 Oct 2013 11:00 PM PDT

2p HKT Thursday, October 3, 2013

Dear Friend of GATA and Gold:

Your secretary/treasurer was interviewed about gold market manipulation for about five minutes this morning on CNBC Asia's "The Call" program with Bernie Lo. Video is posted at the CNBC Internet site here:

http://video.cnbc.com/gallery/?play=1&video=3000204388

Your secretary is expected to be interviewed Friday morning Hong Kong time on Radio/Television Hong Kong's "Money for Nothing" program:

http://programme.rthk.hk/channel/radio/index.php?c=radio3

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.



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Join GATA here:

Louis Boulanger Now Seminar
Visitors Center, Holy Trinity Parnell
Auckland, New Zeland
Sunday, October 13, 2013

http://www.gata.org/files/GATAInNewZealand.pdf

Gold Investment Symposium 2013
Luna Park Conference Center, Sydney, Australia
Wednesday-Thursday, October 16-17, 2013

http://gold.symposium.net.au/

The Silver Summit
Davenport Hotel, Spokane, Washington
Thursday-Friday, October 24-25, 2013

http://www.cambridgehouse.com/event/silver-summit-2013

Mines and Money Australia
Melbourne Conference and Exhibition Centre
Tuesday, October 29-Friday, November 1, 2013

http://www.minesandmoney.com/

New Orleans Investment Conference
Sunday-Wednesday, November 10-13, 2013
Hilton New Orleans Riverside Hotel
New Orleans, Louisiana

https://jeffersoncompanies.com/landing/speakers?IDPromotion=613011610080...

* * *

Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:

http://www.goldrush21.com/order.html

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

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



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Louise Yamada - 2 Fantastic Gold, Silver & Mining Charts

Posted: 02 Oct 2013 09:01 PM PDT

With continued volatility in key global markets, today King World News is pleased to share a piece of legendary technical analyst Louise Yamada's "Technical Perspectives" report. Yamada is without question one of the greatest technical analysts Wall Street has ever seen. This information is not available to the public and we are grateful to Louise for sharing her incredible work with KWN readers globally.

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

Legends of Gold and Silver: Precious Metals Now “Cheapest in History”

Posted: 02 Oct 2013 09:00 PM PDT

by Jimmy Mengel , SilverBearCafe.com:

Last week, a handful of my favorite precious metals legends sat down for a round table discussion about the future of gold, silver, platinum, palladium, and the economy as a whole…

They had some very keen insights for metals investors. During the hour-long conversation, Marc Faber, Eric Sprott, Rick Rule, and John Embry discussed where all of these sectors are heading — and why they are still bullish.

They even revealed their personal asset allocations for their portfolios and a few of the companies they see really taking off with the next metals bull market.

Read More @ SilverBearCafe.com

The Morgan Report For October, 2013

Posted: 02 Oct 2013 08:20 PM PDT

Currency Strength and Central Bank's Activity - Got Gold?

Posted: 02 Oct 2013 08:14 PM PDT

The crucial story for gold investors is not the pure inflation rate of the dollar, but something much deeper. When you focus on gold, you should sharpen the focus of your lens on the dollar system. As history confirms, gold can both ... Read More...

Ackman Books Herbalife Losses, Forced To Cover 40% Of Short To Avoid Being "Forced To Cover" Short

Posted: 02 Oct 2013 07:53 PM PDT

It just keeps getting worse and worse for Bill Ackman.

A few weeks after the epic humiliation, not to mention even more epic losses, he suffered on his now defunct JCP long position (despite ample warnings by the likes of Zero Hedge who said long ago JCP is merely a melting icecube and fast-track Chapter 11/7 candidate) all those who predicted (such as Zero Hedge back in January) that an epic HLF short squeeze would result in the aftermath of Ackman's Herbalife short announcement leading to Ackman's ultimate capitulation, have been proven correct. Moments ago, in a letter to investors, Bill Ackman just announced that he has covered over 40% of his Herbalife short position, with his forced buy-in explaining the endless move higher in Herbalife stock in recent weeks. The explanation of being forced out of nearly half of his position is amusing: "we minimize the risk of so-called short squeezes or other technical attempts by market manipulators to force us to cover our position." So Ackman is forced out by his Prime Brokers so as not to be forced out by market manipulators? That's an interesting explanation for what is a far simple situation: booking your paper losses.

But instead of doing the right thing and slowly but surely bailing on the entire losing trade, and admitting defeat (as he did in JCP, as he will ultimately do here as well, but only after even more booked losses - he still has a massive 60% of his original short in the name) he has decided to double down and go the levered, option rout. Only this time with time-decay, by buying puts. So while before Ackman may "not have been wrong, just very early", as of this moment the time of his trade is really going to start hurting him as every passing day that the trade doesn't work out results in a drop in the put value, and also in total margin value available to Pershing Square.

Finally, while we provide our annotated thoughts to the Ackman letter below, we have two key questions: First: having "only" 60% of your original short remaining does not in any way make the ongoing squeeze and future margin calls any less likely; it only means those who are eager to crush the residual short shares will double down: because in addition to Ackman there are millions of other shorted shares who will take the cue and scramble to cover next). Secondly: one wonders who is on the other side of the "Put" trade. Would his name potentially begin with "I" and end in "cahn",  a billionaire machine that can't be bargained with. He can't be
reasoned with. He doesn't feel pity, or remorse, or fear. And he
absolutely will not stop, ever, until Pershing Square (barely up 0.5% in 2013 through September) is destroyed?

Full justification of Bill Ackman's most recent bizarro trade from his letter (pdf)

During the quarter, Herbalife stock price rose from approximately $45 to $70 per share, and from approximately $60 to $70 per share during the month of September alone. The principal driver of the stock price appears to be the belief by bulls that government regulators will do nothing, and that the Company will continue to generate strong earnings and cash flows which will be returned to shareholders in the form of share repurchases, which could force shorts, including Pershing Square, to cover.

ZH - so far it seems to be having that effect as 8.8 mm shares have covered shorts

The stock price appreciation this past month appears to have been driven by commentary from Tim Ramey, a perennially bullish Herbalife analyst from D.A. Davison, who stated a few weeks ago that in September 2013 PriceWaterhouseCoopers (PwC) would complete its re-audit of the Company's last three years of financial statements, and Herbalife, shortly thereafter, would launch a $2 billion investment grade bond issue at an interest rate of 4%, the proceeds to be used to fund a share repurchase at $75 per share. According to Ramey, the buyback would serve to refute the bear case on Herbalife as shorts, including Pershing Square, are forced to cover.

ZH - see above

 

The high degree of specificity of Ramey's bullish call has led investors to believe that he is speaking on behalf of the Company. While September has come and gone without PwC's completion of Herbalife's re-audited financials, bullish investors apparently continue to expect the re-audit to be completed shortly, and a large buyback to be forthcoming.

We are skeptical of Ramey's pronouncements for several reasons. While we do not know the timing of PwC's re-audit of Herbalife's financial statements, we have identified a substantial number of serious issues with Herbalife's accounting, disclosure, and tax policies that we have brought to the attention of PwC and the SEC in a series of three letters that we delivered to them in recent weeks, the first of which we shared with you earlier this month. At a minimum, we would not be surprised if the re-audited financials provide further disclosures about the Company which will raise additional questions about its business practices and its previously reported results.

ZH - nothing new here - same 'ponzi' thesis as before. In fact the same "most remarkable piece of investment analysis" proclaimed by Whitney Tilson in December 2012, when we first suggested - long before Icahn or any other famous activist and short-hunting investor appeared - that an epic short squeeze was imminent. The stock then was $25. It is now 200% higher. As Tilson further added: "For the many young people on this email list who are looking for a job in this industry, study this carefully – if you can do analysis even a tiny fraction this comprehensive, there will always be a job for you..." Unclear where though: perhaps in JC Penney?

 

With respect to the supposed $2 billion investment grade bond issue at an interest rate of 4%, we believe it is extremely unlikely that Herbalife will be able to garner an investment grade rating and raise $2 billion, let alone at an interest rate of 4%. As of March 2011, when Moody's withdrew its ratings on Herbalife, the Company was rated Ba1, a junk rating. When the ratings were withdrawn, Herbalife had only $178 million of debt, approximately 0.5 times the then 12 month trailing operating profits, and there was little public scrutiny of the Company's business practices. If Herbalife were able to issue $2 billion of additional debt today, the Company would have $3 billion of total debt, or 4.3 times 12-month trailing operating profits. With more than 16 times as much debt, substantially greater scrutiny of the Company's business practices, and a regulatory cloud over the Company, we believe that it would now garner a substantially lower junk rating than that of early 2011.

ZH - even if the rating were lowered, in this environment of infinite ZIRP and record credit bubbles, even the junkiest C- crap is well bid, oversubscribed and breaks above par at issuance. See recent bond offerings by Rwanda, Zambia and Kenya.

 

Furthermore, we question whether a bank would be willing to take on the potential underwriter liability associated with a debt issue for Herbalife. If the Company were later deemed to be a pyramid scheme, an underwriter could find itself liable for the face amount of the entire debt issue, as recoveries to creditors of a pyramid scheme are likely to be de minimis. To earn a 150 basis point fee and risk losing 70 times that amount in a lawsuit is a risk-reward proposition that we believe no financial institution would find attractive.

ZH - Not true courtesy of boiler plate indemnification - remember the existential "risk" facing the underwriters of MF Global's big bond issue just prior to filing and how massive their punishment was? Yeah, didn't think so.

 

All of the above notwithstanding, if Herbalife could achieve a $2 billion financing, we believe the interest rate would be much higher, and the buyback could only be completed at a price that would be minimally accretive to the Company, factoring in the after-tax cost of debt and the buyback price required to acquire nearly 30% of the outstanding float. When one considers the high degree of leverage that would result from the buyback, we would expect the Company's earnings multiple to compress accordingly. As a result, we believe that such a leveraged recapitalization would generate minimal, if any, shareholder value.

ZH - this is one of the most ridiculous statement ever made: the last 3 years have seen management and shareholders handily rewarded for leveraged recaps or buybacks - even if, or rather, especially credit risk rises. In fact, the primary source of "growth" in earnings have been leveraged buybacks.

Based on an analysis of comparable situations with our prime brokers, we believe that such a buyback would not require us to cover our position. Furthermore, if a large amount of debt were issued, an Herbalife CDS market would likely develop, presenting us with an even more attractive method to bet against the then highly leveraged Company. We could then choose to add to or replace all or a portion of our existing short position with an even larger notional short position in the debt through the purchase of CDS. We would welcome such an opportunity, although for the reasons described above, we do not believe that the Company will be able to borrow funds to complete such a transaction.

ZH - so after your prime brokers stepped you out of your unlevered short and you think that post-issuance and buyback (when you're already massively underwater) they will 'allow' you to increase you collateral exposure and run a leveraged short credit position on the same credit, even though the thesis catalyst is now well-known by all, and the only impact has been a near doubling in the stock since your entry? Who does Perishing Square bank with: JT Marlin.

 

Since our presentation on Herbalife at the end of last year, we have not learned any facts that are inconsistent with our belief that the Company is a pyramid scheme that engages in unlawful and deceptive marketing practices. In fact, there have been a number of materially positive developments that increase the likelihood of regulatory intervention and the Company's closure.

ZH - and the stock price has reacted... how exactly?

 

Numerous state, federal, and international regulators have launched investigations or inquiries into the Company's business practices and products that we believe are ongoing. Many federal, state and local elected officials, consumer protection and community organizations and other advocates have publicly called for the FTC and state regulators to investigate the Company. A number of whistleblowers have contacted us, several in the last few weeks alone, and provided us with information that is confirmatory of our thesis that Herbalife is a pyramid scheme while raising additional concerns that we had not previously identified. Bottom line, we continue to have enormous conviction in our investment thesis.

ZH - see above, but when was the 52 week high in the stock? Hint: today.

 

While we have endured mark-to-market losses on this investment as Herbalife bulls have promoted the stock and downplayed the probability of government intervention, we believe it is only a matter of time before the Company is shut down and prosecuted by regulators.

ZH - so just early... never wrong.

 

In order to mitigate the risk of further mark-to-market losses on Herbalife, in recent weeks we have restructured the position by reducing our short equity position by more than 40% and replacing it with long-term derivatives, principally over-the-counter put options. The restructuring of the position preserves our opportunity for profit – if the Company fails within a reasonable time frame we will make a similar amount of profit as if we had maintained the entire initial short position – while mitigating the risk of further substantial mark-to-market losses – because our exposure on the put options is limited to the total premium paid. In restructuring the position, we have also reduced the amount of capital consumed by the investment from 16% to 12% of our funds.

ZH - in other words, your prime brokers tapped you on the shoulder. The share price has doubled during the period of your covering 40% of your short - how about the other 60%? Is your prime broker increasing haircuts on that? Adding puts won't help - now your capital is bleeding away every day as theta eats into it - limited risk (but still 100% of the capital in the puts), with guaranteed bleed. Will the proceeds from the puts also go to charity? Or will the LPs finally ask who is footing the losses? Also, we eagerly await the confirmation of this note: surely the reported Short Interest will tumble any second...

 

We were able to restructure the position cost effectively due to several factors. Over the last 60 or so days, the cost to borrow Herbalife shares has declined substantially while the stock price has risen. Shortly after we filed a formal complaint with the SEC regarding what we believe to be unlawfully manipulative conduct by other market participants, the cost to borrow Herbalife shares dropped substantially to the lowest rate since prior to our presentation last December. In an unrelated recent enforcement action, the SEC confirmed that attempting to engineer a short squeeze by removing stock from the available lending base is a form of market manipulation.

ZH - from several sources, HLF remains hard-to-borrow and costs are high. It ranks 4 (out of 5) on Markit's scale of diffulty to source and on-loan volumes - as seen here - are soaring

Because of the rise of the stock price, the low cost of borrow, and the fact that we are betting on the failure of the Company, we have been able to purchase long-dated, privately negotiated out-of-the-money put options on terms that offer us an attractive opportunity for profit versus their cost. Furthermore, by substantially reducing the size of our short position as a percentage of the share float, we minimize the risk of so-called short squeezes or other technical attempts by market manipulators to force us to cover our position. In that a substantial component of the bull case on Herbalife is predicated on forcing us to cover, we think the restructuring of our investment negates this important pillar of the bull case.

ZH - you still have 60% of your position, there is still 38% of the float short and now you are levered short too... the pressure to cover just increased on any new stock price move higher

 

The biggest risk of the restructured position is that time begins to be a factor with respect to a portion of our investment. We believe, however, that the long-term nature of the options we own will provide sufficient time for us to be rewarded on this portion of our position. In that the options are privately negotiated, over-the-counter contracts, we have the ability to extend their terms, if we deem it prudent and attractive to do so in the future.

At yesterday's closing price of $72.84, we believe the potential reward from being short Herbalife is extremely attractive relative to the risk of loss. Using the average analysts' price target of $77 per share – which assumes that the Company is operating entirely legally – investors have less than 6% upside compared with 100% downside if the Company is determined to be a pyramid scheme by regulators.

In my career, I have not seen a less attractive risk-reward ratio than a long investment in Herbalife common stock at current levels.

ZH - with trades like this, which has now become an ideological obsession and moved beyond and semblance of rational investing (any normal person would have pulled the plug on the nearly half a billion dollar losing trade long ago) and is rapidly morphing into a replica of Pershing Square IV, said career may not be too long. Especially since it is now that the upside/downside analysis in a long trade like JCP that actually does make sense. Remember JCP?

* * *

Finally, one wonders: would Carl Icahn happen to be on the other side of the puts? If so, the right entity to inquire about buying CDS on wouldn't be Herbalife, but Pershing Square.

Air Force Grounds Squadrons Of Fighter Jets, Drones Due To Shut Down

Posted: 02 Oct 2013 06:28 PM PDT

Hopefully Great Britain doesn't get the idea of finally reclaiming its rebellious colonies lost over two hundred years ago, because the US certainly is making it easy. As part of the numerous non-essential services shut down in the current government funding crisis, Foreign Policy reports that the Air Force's Air Combat Command (ACC) - home to the service's fighter jets, B-1 bombers and most of its drones and spyplanes -- has grounded squadrons that are not set to deploy abroad after January.

"If you're on to the hook to deploy before January, we're saying go ahead and train," ACC spokesman Lt. Col. Tadd Sholtis told FP. However, if a unit is waiting until after that, its aircraft will remain on the ground. A striking example of this can be found at Mountain Home Air Force Base in Idaho. None of the 366th Fighter Wing's squadrons of F-15E Strike Eagles are slated to deploy before January. This means the only fighters based at Mountain Home flying this fall are the F-15SGs of the Singaporean air force that are permanently stationed there. Interestingly, German and Canadian air force jets are also flying out of the Idaho base on training deployments of their own.

While the Canadians are relatively safe, one may want to keep an eye on those Germans. Because somehow it makes sense that a tiny fraction of the NSA's homeland espionage "introverts" may be furloughed, but a whopping 75% of the ACC civilians are now forced to sit at home, twiddling their thumbs. There is a silver lining though: drone command crews have also been grounded which means America's spreading of US moral superiority and liberating of various natural resource assets around the world by remote control, may be paused.

In addition to squadrons set to deploy, ACC squadrons that train F-22 Raptor, MC-12 Liberty and the command's various drone crews will remain airborne. Of ACC's 10,000 civilians, 7,500 are at home. Given the fact that the command is still providing fighters, bombers and spyplanes around the globe, it may have to find a way to bring some of these people back to work if the shutdown continues for too long.

 

"There continues to be a high demand for combat airpower during the shutdown, and unfortunately we have fewer people supporting only moderately reduced operations," said Sholtis. "Should the current shutdown persist, we may need to bring additional personnel back to work in order to continue to support operational requirements."

Mountain Home AFB is not the only one to be impacted. As BND reports, Scott Air Force Base in Illinois is also feeling the brunt:

More than 3,400 civilian workers were sent home Tuesday on unpaid furlough from the air base as a result of the partial government shutdown that took effect at 12:01 a.m. Tuesday.

 

About 1,800 civilian workers, whose work is deemed mission critical, showed up for work, but won't be paid the money they are owed until the shutdown ends.

 

...

 

A reduction in training hours caused by the government shutdown led the 126th Air National Guard Refueling Wing on Tuesday to ground its eight KC-135 Air Stratotankers for the time being, according to Col. Pete Nazamis, the wing commander.

 

Since Congress has not passed a 2014 fiscal year budget, "right now we don't have any flying hours, so we can't even do training sorties because there's no budget, there's no appropriation," Nezamis said. "We can't fly just normal training missions every day because we don't have an appropriation for training for this fiscal year. ... All training has been terminated until further notice."

 

Also as a result of the goverment shutdown, the wing gave unpaid furloughs to about 200 civilian employees Tuesday morning. As with other units at the base, exemptions were made for nearly 108 fulltime fulltime national guard members deemed critical to the wing mission, Nezamis said.

 

However, the KC-135s may be deployed to fly critical missions to support national security, "then we could be asked to fly in support of contingency operations or critical missions, things like that," he said.

Well, if anyone ever needed a window of opportunity to attack the US, be it the US "allies" in the failed attempt to overthrow the Syrian government or the domestic, tea-party types, or if the media needed a credible narrative in which to frame just such an event, now is the perfect time.

Tuesday's gold plunge was 'classic manipulation,' Ing tells King World News

Posted: 02 Oct 2013 05:07 PM PDT

8a HKT Thursday, October 3, 2013

Dear Friend of GATA and Gold:

Tuesday's plunge in the gold price was "classic manipulation" to support the U.S. dollar as it fell through a key level in the U.S. dollar index, market analyst John Ing of Maison Placements in Toronto tells King World News:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/10/2_Fa...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.



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Join GATA here:

Louis Boulanger Now Seminar
Visitors Center, Holy Trinity Parnell
Auckland, New Zeland
Sunday, October 13, 2013

http://www.gata.org/files/GATAInNewZealand.pdf

Gold Investment Symposium 2013
Luna Park Conference Center, Sydney, Australia
Wednesday-Thursday, October 16-17, 2013

http://gold.symposium.net.au/

The Silver Summit
Davenport Hotel, Spokane, Washington
Thursday-Friday, October 24-25, 2013

http://www.cambridgehouse.com/event/silver-summit-2013

Mines and Money Australia
Melbourne Conference and Exhibition Centre
Tuesday, October 29-Friday, November 1, 2013

http://www.minesandmoney.com/

New Orleans Investment Conference
Sunday-Wednesday, November 10-13, 2013
Hilton New Orleans Riverside Hotel
New Orleans, Louisiana

https://jeffersoncompanies.com/landing/speakers?IDPromotion=613011610080...

* * *

Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:

http://www.goldrush21.com/order.html

Or by purchasing a colorful GATA T-shirt:

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Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

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:

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To contribute to GATA, please visit:

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Both Silver and Gold Prices Gained Today with the Gold Price Closing at $1,320.60

Posted: 02 Oct 2013 04:58 PM PDT

Gold Price Close Today : 1320.60
Change : 34.60 or 2.69%

Silver Price Close Today : 21.846
Change : 0.722 or 3.42%

Gold Silver Ratio Today : 60.450
Change : -0.428 or -0.70%

Silver Gold Ratio Today : 0.01654
Change : 0.000116 or 0.71%

Platinum Price Close Today : 1389.80
Change : 8.10 or 0.59%

Palladium Price Close Today : 720.20
Change : 2.30 or 0.32%

S&P 500 : 1,693.87
Change : -1.13 or -0.07%

Dow In GOLD$ : $236.88
Change : $ (7.31) or -3.00%

Dow in GOLD oz : 11.459
Change : -0.354 or -3.00%

Dow in SILVER oz : 692.72
Change : -26.45 or -3.68%

Dow Industrial : 15,133.14
Change : -58.56 or -0.39%

US Dollar Index : 79.903
Change : -0.277 or -0.35%

Today silver and GOLD PRICES reversed yesterday's downward reversal. I would chortle and gloat and grin, but y'all would see the crow feathers between my teeth left there from having to eat so much crow so often before. Just leave it as "my suspicions of strength in silver and gold yesterday were confirmed today."

HOWEVER, both metals need to improve today's gains immediately. No jacking around, coughing and dilly-dallying, get moving.

The GOLD PRICE re-took $34.60 and jumped through 2 resistance levels to close at $1,320.60. Silver bounced 72.2 cents and closed at 2184.6c.

These closes take both silver and gold prices barely back above their short term uptrend lines. The SILVER PRICE touched its 50 DMA but closed below it, gold is still reaching for its 20 DMA ($1,338.63), which flashed the bad juju of crossing below the 50 DMA two days ago. A lot of weight is pushing against silver and gold, but there are whispers of better things to come soon, not the least of those today's strong reversals. Y'all recall that you saw similar action (sharp reversal) at the June lows. Also, gold posted the first half of a key reversal today -- break into new low territory for the move with a higher close on the day -- but must confirm that tomorrow with a higher close. Now THAT would be a strong sign.

Y'all be patient. Two of the world's most powerful forces, the Federal Reserve and the yankee government, are on gold and silver's side, and are bound to keep on driving 'em higher.

Beware numismatic coin dealers. There are indeed honest numismatic coin dealers (I know some) and collecting coins is a wonderful pastime. However, numismatic coins are generally very poor investments as gold and silver, because they UNDERperform simple bullion items. Beware especially large firms, firms that advertise heavily, firms that use boiler room salesmen, firms that advertise their religion, and salesmen who push numismatics as protection against gold confiscation (will never happen, this is not 1934) or tell you numismatics are "not reportable." These people mark up coins 45% or more over wholesale so they can pay the salesman a 25% commission. When you buy, you are behind the eight ball because gold has to rise at least 35% for you to break even. With bullion items you pay a 3-1/2% to 1.5% commission, and your entire transaction cost is covered when silver or gold rise only 10%. I have seen too many innocent people robbed by these numismatic firms, so you'd better watch out for yourselves.

Now to today's markets.

US dollar index finally broke 80 today, and ended down 27.7 basis points (0.36%) at 79.903, near the day's low. News reports had a picture of ECB head criminal Mario Draghi smirking like a jailhouse rat with numbers under his chin. ECB equivalent of the FOMC voted to keep the refinancing rate unchanged, and Draghi commented that he would use all sorts of measure to "battle weak growth and high unemployment." This boils down virtually to guaranteeing that the ECB will inflate more and further depreciate the euro, but illogical as it is, the euro rose 0.43% to $1.3585. It gets worse: deeper you dig, the more corpses you find buried in Euroland. Hard as it is to fathom, their banks are even rottener than US banks. Yen rose 0.72% to 102.74 cents/Y100.

Y'all remember this about markets: sudden reversals, especially sudden reversals back to back, mean something. Your job is to figure out what.

Dow in Gold and Dow in Silver reversed sharply upward yesterday, then today reversed just as sharply down. Message? 'Tain't strong enough to make good on the threat.

Stocks weren't as dramatic in nominal terms as they were in metal terms, but they couldn't make good on yesterday's rise, either. Dow gave back 58.56 (0.39%) to 15,133.14, while the S&P500 scraped off 1.13 (0.7%) to 1693.87. They aim to drop further.

On 2 October 1980 my third son (of 5) and fourth child (of 7) was born, Wright -- all thanks and praise to God.

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

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 2013, 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 or 18 ounces of silver. or 18 ounces of silver. US $ and 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.

Both Silver and Gold Prices Gained Today with the Gold Price Closing at $1,320.60

Posted: 02 Oct 2013 04:58 PM PDT

Gold Price Close Today : 1320.60
Change : 34.60 or 2.69%

Silver Price Close Today : 21.846
Change : 0.722 or 3.42%

Gold Silver Ratio Today : 60.450
Change : -0.428 or -0.70%

Silver Gold Ratio Today : 0.01654
Change : 0.000116 or 0.71%

Platinum Price Close Today : 1389.80
Change : 8.10 or 0.59%

Palladium Price Close Today : 720.20
Change : 2.30 or 0.32%

S&P 500 : 1,693.87
Change : -1.13 or -0.07%

Dow In GOLD$ : $236.88
Change : $ (7.31) or -3.00%

Dow in GOLD oz : 11.459
Change : -0.354 or -3.00%

Dow in SILVER oz : 692.72
Change : -26.45 or -3.68%

Dow Industrial : 15,133.14
Change : -58.56 or -0.39%

US Dollar Index : 79.903
Change : -0.277 or -0.35%

Today silver and GOLD PRICES reversed yesterday's downward reversal. I would chortle and gloat and grin, but y'all would see the crow feathers between my teeth left there from having to eat so much crow so often before. Just leave it as "my suspicions of strength in silver and gold yesterday were confirmed today."

HOWEVER, both metals need to improve today's gains immediately. No jacking around, coughing and dilly-dallying, get moving.

The GOLD PRICE re-took $34.60 and jumped through 2 resistance levels to close at $1,320.60. Silver bounced 72.2 cents and closed at 2184.6c.

These closes take both silver and gold prices barely back above their short term uptrend lines. The SILVER PRICE touched its 50 DMA but closed below it, gold is still reaching for its 20 DMA ($1,338.63), which flashed the bad juju of crossing below the 50 DMA two days ago. A lot of weight is pushing against silver and gold, but there are whispers of better things to come soon, not the least of those today's strong reversals. Y'all recall that you saw similar action (sharp reversal) at the June lows. Also, gold posted the first half of a key reversal today -- break into new low territory for the move with a higher close on the day -- but must confirm that tomorrow with a higher close. Now THAT would be a strong sign.

Y'all be patient. Two of the world's most powerful forces, the Federal Reserve and the yankee government, are on gold and silver's side, and are bound to keep on driving 'em higher.

Beware numismatic coin dealers. There are indeed honest numismatic coin dealers (I know some) and collecting coins is a wonderful pastime. However, numismatic coins are generally very poor investments as gold and silver, because they UNDERperform simple bullion items. Beware especially large firms, firms that advertise heavily, firms that use boiler room salesmen, firms that advertise their religion, and salesmen who push numismatics as protection against gold confiscation (will never happen, this is not 1934) or tell you numismatics are "not reportable." These people mark up coins 45% or more over wholesale so they can pay the salesman a 25% commission. When you buy, you are behind the eight ball because gold has to rise at least 35% for you to break even. With bullion items you pay a 3-1/2% to 1.5% commission, and your entire transaction cost is covered when silver or gold rise only 10%. I have seen too many innocent people robbed by these numismatic firms, so you'd better watch out for yourselves.

Now to today's markets.

US dollar index finally broke 80 today, and ended down 27.7 basis points (0.36%) at 79.903, near the day's low. News reports had a picture of ECB head criminal Mario Draghi smirking like a jailhouse rat with numbers under his chin. ECB equivalent of the FOMC voted to keep the refinancing rate unchanged, and Draghi commented that he would use all sorts of measure to "battle weak growth and high unemployment." This boils down virtually to guaranteeing that the ECB will inflate more and further depreciate the euro, but illogical as it is, the euro rose 0.43% to $1.3585. It gets worse: deeper you dig, the more corpses you find buried in Euroland. Hard as it is to fathom, their banks are even rottener than US banks. Yen rose 0.72% to 102.74 cents/Y100.

Y'all remember this about markets: sudden reversals, especially sudden reversals back to back, mean something. Your job is to figure out what.

Dow in Gold and Dow in Silver reversed sharply upward yesterday, then today reversed just as sharply down. Message? 'Tain't strong enough to make good on the threat.

Stocks weren't as dramatic in nominal terms as they were in metal terms, but they couldn't make good on yesterday's rise, either. Dow gave back 58.56 (0.39%) to 15,133.14, while the S&P500 scraped off 1.13 (0.7%) to 1693.87. They aim to drop further.

On 2 October 1980 my third son (of 5) and fourth child (of 7) was born, Wright -- all thanks and praise to God.

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

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 2013, 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 or 18 ounces of silver. or 18 ounces of silver. US $ and 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.

GOLD Elliott Wave Technical Analysis

Posted: 02 Oct 2013 04:52 PM PDT

Yesterday's update expected more downwards movement with small fourth wave corrections along the way. This was not what happened as price moved higher in a deep second wave correction. Read More...

Why Don Coxe Expects Gold to Soar on Good Economic News

Posted: 02 Oct 2013 04:15 PM PDT

Why Don Coxe Expects Gold to Soar on Good Economic News By The Gold Report The standard wisdom on gold is that it does well in times of economic bad news such as in the 1970s, a period of stagflation and recessions, when the yellow metal rose from $35/oz to peak at $850/oz in 1980. […]

In The News Today

Posted: 02 Oct 2013 04:04 PM PDT

Jim Sinclair’s Commentary You sold your gold because you no longer need any insurances against those economic and political events you have no control over? Jim Sinclair’s Commentary This could be the triple whammy if you consider Bernanke no tape as Whammy #1 Treasury taking final steps to avoid default By MJ LEE | 10/1/13... Read more »

The post In The News Today appeared first on Jim Sinclair's Mineset.

Gold Rises Most in Two Weeks on Stalemate, Taper Bets

Posted: 02 Oct 2013 03:01 PM PDT


02-Oct (Bloomberg) — Gold had the biggest gain in almost two weeks on speculation that the Federal Reserve will delay reducing fiscal stimulus amid the first U.S. government shutdown in 17 years, stoking demand for the metal as a store of value.

A budget impasse triggered furloughs for 800,000 federal workers as parks and other services were shuttered for a second day, subtracting at least $300 million a day in economic output, according to IHS Inc. (IHS) Companies added fewer workers than forecast in September, the ADP Research Institute said today. On Sept. 18, the Fed unexpectedly refrained from reducing its $85 billion of monthly bond purchases.

"The shutdown will lead to some delays in government spending, which will lead to a postponement in tapering as the Fed wants to see more signs of growth," Scott Carter, the chief executive officer of Los Angeles-based Lear Capital, said in a telephone interview. "Today's ADP numbers showed that the employment scenario still remains weak."

[source]

U.A.E Precious Metals Hub Seen Growing as Location Feeds Demand

Posted: 02 Oct 2013 02:30 PM PDT

02-Oct (Bloomberg) — The United Arab Emirates will grow as a precious-metals trading hub as more overseas companies turn to the country because of its location near consuming nations, according to the Dubai Multi Commodities Centre.

Dubai accounts for about 25 percent of global physical gold trade, Gautam Sashittal, chief operating officer of government-owned DMCC, said in a Sept. 30 interview at the London Bullion Market Association's annual conference in Rome. Gold trade in the country totaled $45 billion in the first half of this year, compared with $70 billion in all of 2012, he said.

[source]

How China is taking over the world, one gold bar at a time

Posted: 02 Oct 2013 02:26 PM PDT

01-Oct (24hGold) — The year 2013 in the gold investment market will be remembered as the year of China, so we've produced a stunning infographic detailing China's great golden rise to power.

In just a few months the world's largest country will overtake India as the biggest consumer of gold and its gold market continues to break records.

A country that already mines over 400 tonnes of gold a year, China still demands more physical gold no matter the price. Between January and July this year the Shanghai Gold Exchange delivered more than 1,333 tonnes to gold investors.

In the last 100 years China's gold mine productivity has climbed from just 4 tons of gold in 1949 to an expected 440 tons this year, none of which is exported. Hong Kong imports have been over 600 tonnes this year alone, but still more gold is demanded.

Whilst it may appear that China has exploded onto the gold scene this is by no means the case. China's ancient monetary history is well documented. They are the world's oldest scientists when it comes to different forms of money, having being the first to experiment with paper money and different metallic standards. Therefore during an international financial crisis one would imagine that the country with the longest and most diverse monetary history would be the place to turn to for direction.

[source]

Gold to Gain From Long Shutdown?

Posted: 02 Oct 2013 01:33 PM PDT

A longer term shutdown could boost gold prices, ETF Securities U.S.'s Mike McGlone tells TheStreet's Joe Deaux.

[[ This is a content summary only. Visit http://goldbasics.blogspot.com or http://www.newsbooze.com or http://www.figanews.com for full links, other content, and more! ]]

Gold Daily and Silver Weekly Charts - Pop Goes the Weasel

Posted: 02 Oct 2013 01:21 PM PDT

Gold Daily and Silver Weekly Charts - Pop Goes the Weasel

Posted: 02 Oct 2013 01:21 PM PDT

CFTC’s Inability to Determine Manipulation in Silver Market Confirms Regulatory Ineffect

Posted: 02 Oct 2013 01:19 PM PDT

Midas Letter

Failed US Government Intervention Causing Panic Into Gold

Posted: 02 Oct 2013 12:54 PM PDT

In the aftermath of yesterday's failed intervention by the US government, today Canadian legend John Ing warned King World News that the US dollar is now set to seriously plunge. Ing, who has been in the business for 43 years, also spoke about how this will be the catalyst that will send gold to new all-time highs.

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

Gold Mining Reserves Set to Shrink

Posted: 02 Oct 2013 12:29 PM PDT

Mining reserves in the ground are set to shrink thanks to lower gold prices...
 
GOLD MINING RESERVES owned in the ground are naturally assumed to be a fixed number of ounces, says Jeff Clark at Casey Research.
 
After all, gold doesn't decay, and neither does it grow legs and move someplace else.
 
But assumptions are dangerous. In fact, industry-wide, gold mining reserves are likely to fall fairly significantly in the near future.
 
When the gold price falls, it doesn't just have a short-term impact on producers through slashed earnings and forced write-downs. It can affect the number of economically mineable ounces a company carries on its books, or even what it can mine in the future.
 
Gold mining reserves are determined by a combination of factors: mostly cut-off grades, metals price assumptions, and projected production costs. For example, based on a gold price of $1500 per ounce, a project may have economic ore at a cutoff grade of 1 gram per tonne (g/t). But with gold selling in the low $1300s, that same deposit may now require a higher cutoff grade, say 1.5 g/t, because the revenue earned from mining ore at the previous cutoff would be lower than the cost to extract it – a strategy that, as we all know, doesn't make a great business plan.
 
Higher cutoff grades reduce the number of economic ounces available for mining, especially if the gold price doesn't recover for a period of time.
 
Here's the average gold price over the past four quarters (through September 27):
As you can see, that's a fairly significant drop, and it has undoubtedly forced many company executives to revisit the price assumptions that were used to determine reserves. That means many reserves requiring a gold price of $1350 per ounce or higher are likely to come off the books.
 
This is the reason high-grade projects have better odds of survival than low-grade ones. Sure, all projects make less money when gold falls, but the higher-grade ones tend to have higher margins and see fewer slowdowns or shutdowns. In many cases, they still make great profits.
 
However, there's another phenomenon at work that will conspire to lower Gold Mining reserves: high grading. Many projects have both low-grade and high-grade zones. When prices fall, a company can mine the richer ore and still make money. It may sound shortsighted, but it can be the right thing to do to stay profitable and be able to survive and advance in a temporarily weak price environment.
 
But it does impact reserves, and maybe more than you realize...
 
When metals prices are low and companies focus on high-grade ore, the low-grade material is temporarily bypassed. It's still physically there, but not only is it not economic at lower metals prices, it may never get mined at all.
 
That's because some low-grade ore only "works" when it's mixed with high-grade ore. Even when gold moves back up to the price that the low-grade ore needed to be economic when mixed with the higher-grade ore, it doesn't matter, because the high-grade ore is gone. So it's not just gone legally, as per regulatory definitions of mining reserves, it may be economically gone for good.
 
Miners could return to some of these zones in a very high gold price environment (something north of $2000), but that's a concern for another day. The point for now is that many of today's low-grade zones can no longer be counted as reserves.
 
Most companies update their reserves at year-end and report revisions in the first quarter. If gold doesn't stage a strong rebound soon, the industry will see a significant reduction in mineable reserves.
 
This will have repercussions on the precious metals sector, and on us as investors. As you might suspect, some of it is negative, but it also points to an investment opportunity that we believe will make us a lot of money.
 
What lower reserves mean to us investors is a corresponding decrease in the value of the company. A company with less product to sell won't be priced as high as it was previously. The exception here will be the producers that can maintain strong cash flow; those that do will be the ones that hold up the best.
 
Watch out for companies that take a big write-down in reserves. Many producers will be forced to report lower reserves in early 2014 if gold prices stay where they are. But the Big Red Flags will be those with unusually large drops, because they may not have the reserves to keep production at the same level. These will mainly be the companies with low-margin projects, or those with low-grade material that will remain uneconomic because of high grading. If production falls, the stock will woo fewer investors.
 
Lower reserves = lower supply = higher gold prices. Worldwide gold production is basically flat. If we see a substantial decrease in the number of ounces coming to market as a result of the fallout from reserve write-downs and demand stays at least where it is, prices will be forced up. This is already happening, but if it picks up steam, we could see a fire lit under gold prices.
 
The better junior exploration companies could be big winners. Many producers, out of necessity, have reduced or even cut exploration budgets. Yet if they're going to survive, sooner or later they'll have to find more ounces. Every day a miner operates, his business gets smaller – but if he hasn't been exploring, the ounces won't be there when he needs them.
 
Enter the junior exploration company with a big, high-grade deposit. These companies will become juicy takeover targets, especially if their projects have strong economics at lower gold prices. Once management teams realize they're running low on ore, there will be a mad scramble for this type of asset.
 
Even when gold prices return to prior highs, it will take years for large companies that have cut exploration expenses to bring back all the laid-off geologists, identify and drill new deposits, and develop those that are economic.
 
There will only be one solution, and it will be a pressing one: buy an asset.
 
That's why right now is the best time I believe to buy those juniors that have robust projects with strong economics. To see what Casey chief metals strategist Louis James thinks fits just that description, see the current issue of the Casey International Speculator...

Gold Mining Reserves Set to Shrink

Posted: 02 Oct 2013 12:29 PM PDT

Mining reserves in the ground are set to shrink thanks to lower gold prices...
 
GOLD MINING RESERVES owned in the ground are naturally assumed to be a fixed number of ounces, says Jeff Clark at Casey Research.
 
After all, gold doesn't decay, and neither does it grow legs and move someplace else.
 
But assumptions are dangerous. In fact, industry-wide, gold mining reserves are likely to fall fairly significantly in the near future.
 
When the gold price falls, it doesn't just have a short-term impact on producers through slashed earnings and forced write-downs. It can affect the number of economically mineable ounces a company carries on its books, or even what it can mine in the future.
 
Gold mining reserves are determined by a combination of factors: mostly cut-off grades, metals price assumptions, and projected production costs. For example, based on a gold price of $1500 per ounce, a project may have economic ore at a cutoff grade of 1 gram per tonne (g/t). But with gold selling in the low $1300s, that same deposit may now require a higher cutoff grade, say 1.5 g/t, because the revenue earned from mining ore at the previous cutoff would be lower than the cost to extract it – a strategy that, as we all know, doesn't make a great business plan.
 
Higher cutoff grades reduce the number of economic ounces available for mining, especially if the gold price doesn't recover for a period of time.
 
Here's the average gold price over the past four quarters (through September 27):
As you can see, that's a fairly significant drop, and it has undoubtedly forced many company executives to revisit the price assumptions that were used to determine reserves. That means many reserves requiring a gold price of $1350 per ounce or higher are likely to come off the books.
 
This is the reason high-grade projects have better odds of survival than low-grade ones. Sure, all projects make less money when gold falls, but the higher-grade ones tend to have higher margins and see fewer slowdowns or shutdowns. In many cases, they still make great profits.
 
However, there's another phenomenon at work that will conspire to lower Gold Mining reserves: high grading. Many projects have both low-grade and high-grade zones. When prices fall, a company can mine the richer ore and still make money. It may sound shortsighted, but it can be the right thing to do to stay profitable and be able to survive and advance in a temporarily weak price environment.
 
But it does impact reserves, and maybe more than you realize...
 
When metals prices are low and companies focus on high-grade ore, the low-grade material is temporarily bypassed. It's still physically there, but not only is it not economic at lower metals prices, it may never get mined at all.
 
That's because some low-grade ore only "works" when it's mixed with high-grade ore. Even when gold moves back up to the price that the low-grade ore needed to be economic when mixed with the higher-grade ore, it doesn't matter, because the high-grade ore is gone. So it's not just gone legally, as per regulatory definitions of mining reserves, it may be economically gone for good.
 
Miners could return to some of these zones in a very high gold price environment (something north of $2000), but that's a concern for another day. The point for now is that many of today's low-grade zones can no longer be counted as reserves.
 
Most companies update their reserves at year-end and report revisions in the first quarter. If gold doesn't stage a strong rebound soon, the industry will see a significant reduction in mineable reserves.
 
This will have repercussions on the precious metals sector, and on us as investors. As you might suspect, some of it is negative, but it also points to an investment opportunity that we believe will make us a lot of money.
 
What lower reserves mean to us investors is a corresponding decrease in the value of the company. A company with less product to sell won't be priced as high as it was previously. The exception here will be the producers that can maintain strong cash flow; those that do will be the ones that hold up the best.
 
Watch out for companies that take a big write-down in reserves. Many producers will be forced to report lower reserves in early 2014 if gold prices stay where they are. But the Big Red Flags will be those with unusually large drops, because they may not have the reserves to keep production at the same level. These will mainly be the companies with low-margin projects, or those with low-grade material that will remain uneconomic because of high grading. If production falls, the stock will woo fewer investors.
 
Lower reserves = lower supply = higher gold prices. Worldwide gold production is basically flat. If we see a substantial decrease in the number of ounces coming to market as a result of the fallout from reserve write-downs and demand stays at least where it is, prices will be forced up. This is already happening, but if it picks up steam, we could see a fire lit under gold prices.
 
The better junior exploration companies could be big winners. Many producers, out of necessity, have reduced or even cut exploration budgets. Yet if they're going to survive, sooner or later they'll have to find more ounces. Every day a miner operates, his business gets smaller – but if he hasn't been exploring, the ounces won't be there when he needs them.
 
Enter the junior exploration company with a big, high-grade deposit. These companies will become juicy takeover targets, especially if their projects have strong economics at lower gold prices. Once management teams realize they're running low on ore, there will be a mad scramble for this type of asset.
 
Even when gold prices return to prior highs, it will take years for large companies that have cut exploration expenses to bring back all the laid-off geologists, identify and drill new deposits, and develop those that are economic.
 
There will only be one solution, and it will be a pressing one: buy an asset.
 
That's why right now is the best time I believe to buy those juniors that have robust projects with strong economics. To see what Casey chief metals strategist Louis James thinks fits just that description, see the current issue of the Casey International Speculator...

Gold in US Shutdown: The 1996 Lesson

Posted: 02 Oct 2013 12:21 PM PDT

How did the gold price move last time the US government went into shutdown...? 
 
The GOLD PRICE tumbled to two-month lows Monday, breaking below the $1300 mark, says Sumit Roy at Hard Assets Investor.
 
The breakdown surprised some traders who thought the yellow metal would benefit from the ongoing political dysfunction in Washington, aka the shutdown. 
 
In our view, gold is falling because no one believes that the government shutdown will last beyond a few days, perhaps a few weeks at the most. No one wants to be caught holding the bag once a resolution is inevitably reached.
 
By the same token, although the debt ceiling deadline of Oct. 17 is fast approaching, no one truly believes that the United States will default on its obligations. The stakes are just too high, and that despite their differences, Democrats and Republicans will reach a deal to avert crisis.
 
Of course, Washington could surprise everyone and the shutdown could last longer than expected, or the US could default – if only briefly. These are low-probability events, but they could happen. In those cases, gold may rally – or it might not, as risk aversion sweeps across financial markets, pummeling all asset classes.
 
 
If history is any guide, then we should look at the 1996 shutdown for clues to gold.
 
Gold prices would climb as the government shutdown went on, but then quickly give up those gains when normal operations resume. During the last shutdown of the federal government, between Dec. 16, 1995 and Jan. 6, 1996, gold rallied as much as 7.5% from $386 on Dec. 15 to a high of $416 on Jan. 2. 
 
However, as can be seen from the chart, gold proceeded to fall sharply once the shutdown ended.
 
Of course, in the case of a debt default, there is no precedent. We can only speculate that the resulting panic in financial markets will be a negative for gold in the near term, though longer term, such an event would bolster the case for owning the yellow metal.

Gold in US Shutdown: The 1996 Lesson

Posted: 02 Oct 2013 12:21 PM PDT

How did the gold price move last time the US government went into shutdown...? 
 
The GOLD PRICE tumbled to two-month lows Monday, breaking below the $1300 mark, says Sumit Roy at Hard Assets Investor.
 
The breakdown surprised some traders who thought the yellow metal would benefit from the ongoing political dysfunction in Washington, aka the shutdown. 
 
In our view, gold is falling because no one believes that the government shutdown will last beyond a few days, perhaps a few weeks at the most. No one wants to be caught holding the bag once a resolution is inevitably reached.
 
By the same token, although the debt ceiling deadline of Oct. 17 is fast approaching, no one truly believes that the United States will default on its obligations. The stakes are just too high, and that despite their differences, Democrats and Republicans will reach a deal to avert crisis.
 
Of course, Washington could surprise everyone and the shutdown could last longer than expected, or the US could default – if only briefly. These are low-probability events, but they could happen. In those cases, gold may rally – or it might not, as risk aversion sweeps across financial markets, pummeling all asset classes.
 
 
If history is any guide, then we should look at the 1996 shutdown for clues to gold.
 
Gold prices would climb as the government shutdown went on, but then quickly give up those gains when normal operations resume. During the last shutdown of the federal government, between Dec. 16, 1995 and Jan. 6, 1996, gold rallied as much as 7.5% from $386 on Dec. 15 to a high of $416 on Jan. 2. 
 
However, as can be seen from the chart, gold proceeded to fall sharply once the shutdown ended.
 
Of course, in the case of a debt default, there is no precedent. We can only speculate that the resulting panic in financial markets will be a negative for gold in the near term, though longer term, such an event would bolster the case for owning the yellow metal.

Gold Prices to Rise with GDP Growth?

Posted: 02 Oct 2013 12:18 PM PDT

Stronger GDP will be good for gold prices. Or so says this 40-year investment veteran...
 
GOLD PRICES surge on bad economic news, according to accepted investment consensus. But Don Coxe disagrees.
 
With 40 years of institutional investment experience in Canada and the US, Coxe has been engaged at the senior level in global capital markets through every recession and boom since the onset of stagflation in 1972. The standard wisdom on gold prices is that they do well in times of economic bad news such as that. In the 1970s, gold rose from $35 per ounce to peak at $850 per ounce in 1980.
 
But this time, says Don Coxe – now heading up the Global Commodity Strategy investment management team, a collaboration of Coxe Advisors and BMO Global Asset Management – things are different. In this interview with The Gold Report, he explains why gold prices will rise when the economy improves...
 
The Gold Report: Are the days of easy money drawing to a close?
 
Don Coxe: I don't think so. Even if the Federal Reserve begins to taper quantitative easing, the front of the curve is going to stay at zero interest rates. A trillion Dollars is going through the Fed's balance sheet, which works its way through the system. As long as the Fed keeps interest rates at zero, it's easy money.
 
TGR: Will overt monetary inflation return any time soon?
 
Don Coxe: It will return when we have sustained economic growth. The Eurozone has been the big drag. It is definitely stronger than it was a year ago. The Eurozone has lots of problems, but it is experiencing economic growth despite the European Central Bank reducing its balance sheet in the last 12 months by almost exactly the same percentage amount that the Fed increased its balance sheet. This says that it has lots of firepower if it needs it. In addition, the Eurozone government deficits are lower than ours in terms of percent of GDP. The Eurozone actually, despite all its highly publicized problems, has improved its financial shape relative to ours.
 
Also, in the last 12 months, Japan, the world's third biggest economy, has gone from negative growth to strongly positive growth. It is doing that by printing yen at a prodigious rate. The days of easy money are going strong.
 
TGR: If inflation returns, will it first appear in goods or services?
 
Don Coxe: In goods. If I had to pick the one point at which we'll start to see the change, it's when the razor-thin inventory-to-sales ratio comes under strain. Corporations are controlled by people who learned in business school over the last 20 years that the first thing to manage is inventories. This way they don't have to worry about prices going up and don't use corporate cash to finance an inventory that may decline in value. Therefore, when things change, it will show up in the pressure that comes because companies have so little inventory on hand. Corporations will decide that they've got to invest in more inventory because they've got more demand.
 
TGR: Do you think that will shake loose the vast amount of capital that's being retained by the multinationals?
 
Don Coxe: It will shake loose some of it, but the big thing is it will come because prices are starting to rise. The two reinforce each other.
 
TGR: What do increases in monetary inflation and capital growth mean for gold prices?
 
Don Coxe: Gold rose along with the Fed balance sheet for years. The two have decoupled in the last two years. I believe the reason is people have just thrown in the towel that there will ever be inflation. If you're Waiting for Godot, at some point you can reach the conclusion that Godot may never come.
 
TGR: Should investors bet on gold's return to previous highs or something in that direction?
 
Don Coxe: I don't think we're going to see anything like the double-digit inflation that we saw back in the 1970s. The big difference was the tremendous power of unions then. They all had cost of living adjustments in their contracts; the Consumer Price Index (CPI) would rise in a quarter, then automatically wage rates would increase and the two fed off each other. The weakened power of unions today has meant that we don't have an automatic reinforcement right at the core of the system.
 
TGR: Let's talk about monopolies and competition and why does the focus of big investors shift from growth to income?
 
Don Coxe: I'm not convinced that we've got a lot of monopolies out there. OPEC is no longer able to control oil prices, for example, because its share is no longer large enough to give it freedom on pricing. I believe that oil fracking will gradually start spreading from the US to other parts of the world. We don't have that monopoly, which was the big one back in the 1970s that made it possible for OPEC to quadruple the price of oil. A quadrupling of the price of oil here is impossible because the global economy would collapse with a doubling of oil prices.
 
TGR: Are companies borrowing money at cheap rates to increase dividends and buy back stock? And, if so, how does that affect the system?
 
Don Coxe: Yes, companies are basically removing from the system what I believe is the core of capitalism, that corporate cash is used to grow a business. Investors pay a high price-earnings ratio for companies because they believe the companies can reinvest that cash and sustain their growth. When we see that corporate cash is being used to buy back stock and pay dividends, the decision-making force in the system becomes stockholders redeploying cash. In the past it was the corporations themselves through their retained earnings and effective reinvestment that drove the system.
 
If money that people got in dividends was invested in shares of companies that were issuing new stock in order to grow their business, then the whole system would not be losing the money. When you have a system where corporate treasurers do not assume strong future growth and they assume that these zero interest rates are going to continue for a long time, the incentive to retain earnings and plan on capital expenditures (capex) goes away.
 
Capex is putting money out at great cost, where companies get no immediate returns from it, whether it's building a new building or opening up a whole area of the country. When you take that out of the system, the result is that you turn the system on its head. It used to be that the companies would, when they had the cash, decide how much was needed for capex; after that they figured out how much they would payout in dividends. The decision makers within the companies are no longer focused on creating overall economic growth through capex and expanding production.
 
TGR: Are we in a triple dip or a quadruple dip recession here?
 
Don Coxe: No, I think we're coming out of it, but we've come out of it at a gigantic cost. The Fed had to quadruple its balance sheet, which raises all sorts of problems. We have no precedent in history of this kind of expansion of the Fed's balance sheet.
 
The ratio of paper wealth to GDP is so high at a time when it's going to be difficult for corporations to expand because, as I said, they will need a large amount of capex to meet rising demand at a time when there's all that money out there. I would regard that as a virtual guarantee that at some point we're going to see inflation.
 
This time inflation won't come from rising wages. It will come from rising demand and the inability of corporations to swiftly respond to that demand. The technology industry can expand in a hurry because it keeps coming out with new products, but for most of the rest of the economy, it takes a while to build a plant and get the machinery ready and test it out before there actually is any production. That period of time, if you've got strong demand because there's so much paper money, is the moment at which you will see inflation coming.
 
TGR: How will that affect gold prices?
 
Don Coxe: It will deal with the problem of faith in gold. When gold tracked the growth in the monetary base, which it did so well, there was a general conviction based on Milton Friedman's theories that expanding the monetary base too fast eventually translates into inflation. Inflation is harder to stop than it is to just watch start growing.
 
We will see that interest rates will have to rise because of another group that has not been heard from in a long time, bond vigilantes. They are threatened with extinction. It will be a combination of rising interest rates and rising prices that will get people to say, ah-ha, Milton Friedman was right after all, if you print the money eventually you're going to have the inflation.
 
TGR: When you talk about bond vigilantes are you talking about junk bonds or what's known as private equity?
 
Don Coxe: The bond vigilantes work primarily on government bonds because they are the ones they can trade most effectively. Junk bonds are a small part of the market. With inflation the bond vigilantes sell off their 30- and 10-year bonds and move down to the 2-year note. At that point the cost of capital for expansion rises through the system because corporations can use short-term cash for some of their work, but they tend to use long-term borrowing from banks and the bond market for major projects. The cost of building those projects increases because of the steep yield curve.
 
TGR: Do you consider yourself to be a bear or a bull on gold?
 
Don Coxe: I am neutral in the short term. I'm not a bear. I'm a bull in the long term because I believe it's not a question of if but when all this money printing eventually comes to haunt us. Gold as an asset class is so tiny in relation to the vast expansion of money around the world. With the printing that's gone on, China has had to expand its Renminbi supplies to prevent the currency from soaring relative to the Dollar.
 
TGR: You are appearing at the upcoming Casey Fall Summit. Are you going to talk about gold prices there and will it be more or less what you just said?
 
Don Coxe: Yes. I am going to point out that the big story for gold is up until now gold has been only a bad news story. The reason why it's in trouble right now is there always seems to be bad news in terms of inflation. People say if inflation hasn't come now with the quadrupling of the Fed's balance sheet, it's never going to come and the Fed is going to have to keep on pouring out more money because the economy isn't growing.
 
When the economy starts to grow all of a sudden because, as I said earlier, of the inventory cycle, we are going to start to see inflation. Gold will become a good news story in the sense it will be responding to strong economic news at a time of massive liquidity, which translates into inflation. The fact that we've had all that money printing, which has only prevented us from going down into a pit, at such time as this actually leads to good economic growth. That is the point at which we're going to see people wanting to have gold. It's because we didn't get the direct pass over of the money printing into rising prices that gave people a loss of faith saying, well, if it hasn't come with quadrupling the Fed's balance sheet, it's never going to come.
 
TGR: Given that, is it a good idea for investors to buy gold stocks while they're available at basement prices?
 
Don Coxe: I believe that everybody should have gold insurance now. The question varies from investor to investor. What we have is an extremely high-risk central bank policy in the world and it's high-risk based on monetarism. I believe monetarism will prove to be right because all past experiments with paper money eventually led to inflation and monetary collapse. At some point the fear of that will come. You need gold for insurance, but this time the payoff will come when the economy improves; in the past when everything was falling all around you, commodity prices were soaring out of sight. We had three recessions in the 1970s and gold went from $35 an ounce to $850. But this time, gold is going to appreciate when we start getting 3% GDP growth.
 
TGR: Thank you for your insights.

Gold Prices to Rise with GDP Growth?

Posted: 02 Oct 2013 12:18 PM PDT

Stronger GDP will be good for gold prices. Or so says this 40-year investment veteran...
 
GOLD PRICES surge on bad economic news, according to accepted investment consensus. But Don Coxe disagrees.
 
With 40 years of institutional investment experience in Canada and the US, Coxe has been engaged at the senior level in global capital markets through every recession and boom since the onset of stagflation in 1972. The standard wisdom on gold prices is that they do well in times of economic bad news such as that. In the 1970s, gold rose from $35 per ounce to peak at $850 per ounce in 1980.
 
But this time, says Don Coxe – now heading up the Global Commodity Strategy investment management team, a collaboration of Coxe Advisors and BMO Global Asset Management – things are different. In this interview with The Gold Report, he explains why gold prices will rise when the economy improves...
 
The Gold Report: Are the days of easy money drawing to a close?
 
Don Coxe: I don't think so. Even if the Federal Reserve begins to taper quantitative easing, the front of the curve is going to stay at zero interest rates. A trillion Dollars is going through the Fed's balance sheet, which works its way through the system. As long as the Fed keeps interest rates at zero, it's easy money.
 
TGR: Will overt monetary inflation return any time soon?
 
Don Coxe: It will return when we have sustained economic growth. The Eurozone has been the big drag. It is definitely stronger than it was a year ago. The Eurozone has lots of problems, but it is experiencing economic growth despite the European Central Bank reducing its balance sheet in the last 12 months by almost exactly the same percentage amount that the Fed increased its balance sheet. This says that it has lots of firepower if it needs it. In addition, the Eurozone government deficits are lower than ours in terms of percent of GDP. The Eurozone actually, despite all its highly publicized problems, has improved its financial shape relative to ours.
 
Also, in the last 12 months, Japan, the world's third biggest economy, has gone from negative growth to strongly positive growth. It is doing that by printing yen at a prodigious rate. The days of easy money are going strong.
 
TGR: If inflation returns, will it first appear in goods or services?
 
Don Coxe: In goods. If I had to pick the one point at which we'll start to see the change, it's when the razor-thin inventory-to-sales ratio comes under strain. Corporations are controlled by people who learned in business school over the last 20 years that the first thing to manage is inventories. This way they don't have to worry about prices going up and don't use corporate cash to finance an inventory that may decline in value. Therefore, when things change, it will show up in the pressure that comes because companies have so little inventory on hand. Corporations will decide that they've got to invest in more inventory because they've got more demand.
 
TGR: Do you think that will shake loose the vast amount of capital that's being retained by the multinationals?
 
Don Coxe: It will shake loose some of it, but the big thing is it will come because prices are starting to rise. The two reinforce each other.
 
TGR: What do increases in monetary inflation and capital growth mean for gold prices?
 
Don Coxe: Gold rose along with the Fed balance sheet for years. The two have decoupled in the last two years. I believe the reason is people have just thrown in the towel that there will ever be inflation. If you're Waiting for Godot, at some point you can reach the conclusion that Godot may never come.
 
TGR: Should investors bet on gold's return to previous highs or something in that direction?
 
Don Coxe: I don't think we're going to see anything like the double-digit inflation that we saw back in the 1970s. The big difference was the tremendous power of unions then. They all had cost of living adjustments in their contracts; the Consumer Price Index (CPI) would rise in a quarter, then automatically wage rates would increase and the two fed off each other. The weakened power of unions today has meant that we don't have an automatic reinforcement right at the core of the system.
 
TGR: Let's talk about monopolies and competition and why does the focus of big investors shift from growth to income?
 
Don Coxe: I'm not convinced that we've got a lot of monopolies out there. OPEC is no longer able to control oil prices, for example, because its share is no longer large enough to give it freedom on pricing. I believe that oil fracking will gradually start spreading from the US to other parts of the world. We don't have that monopoly, which was the big one back in the 1970s that made it possible for OPEC to quadruple the price of oil. A quadrupling of the price of oil here is impossible because the global economy would collapse with a doubling of oil prices.
 
TGR: Are companies borrowing money at cheap rates to increase dividends and buy back stock? And, if so, how does that affect the system?
 
Don Coxe: Yes, companies are basically removing from the system what I believe is the core of capitalism, that corporate cash is used to grow a business. Investors pay a high price-earnings ratio for companies because they believe the companies can reinvest that cash and sustain their growth. When we see that corporate cash is being used to buy back stock and pay dividends, the decision-making force in the system becomes stockholders redeploying cash. In the past it was the corporations themselves through their retained earnings and effective reinvestment that drove the system.
 
If money that people got in dividends was invested in shares of companies that were issuing new stock in order to grow their business, then the whole system would not be losing the money. When you have a system where corporate treasurers do not assume strong future growth and they assume that these zero interest rates are going to continue for a long time, the incentive to retain earnings and plan on capital expenditures (capex) goes away.
 
Capex is putting money out at great cost, where companies get no immediate returns from it, whether it's building a new building or opening up a whole area of the country. When you take that out of the system, the result is that you turn the system on its head. It used to be that the companies would, when they had the cash, decide how much was needed for capex; after that they figured out how much they would payout in dividends. The decision makers within the companies are no longer focused on creating overall economic growth through capex and expanding production.
 
TGR: Are we in a triple dip or a quadruple dip recession here?
 
Don Coxe: No, I think we're coming out of it, but we've come out of it at a gigantic cost. The Fed had to quadruple its balance sheet, which raises all sorts of problems. We have no precedent in history of this kind of expansion of the Fed's balance sheet.
 
The ratio of paper wealth to GDP is so high at a time when it's going to be difficult for corporations to expand because, as I said, they will need a large amount of capex to meet rising demand at a time when there's all that money out there. I would regard that as a virtual guarantee that at some point we're going to see inflation.
 
This time inflation won't come from rising wages. It will come from rising demand and the inability of corporations to swiftly respond to that demand. The technology industry can expand in a hurry because it keeps coming out with new products, but for most of the rest of the economy, it takes a while to build a plant and get the machinery ready and test it out before there actually is any production. That period of time, if you've got strong demand because there's so much paper money, is the moment at which you will see inflation coming.
 
TGR: How will that affect gold prices?
 
Don Coxe: It will deal with the problem of faith in gold. When gold tracked the growth in the monetary base, which it did so well, there was a general conviction based on Milton Friedman's theories that expanding the monetary base too fast eventually translates into inflation. Inflation is harder to stop than it is to just watch start growing.
 
We will see that interest rates will have to rise because of another group that has not been heard from in a long time, bond vigilantes. They are threatened with extinction. It will be a combination of rising interest rates and rising prices that will get people to say, ah-ha, Milton Friedman was right after all, if you print the money eventually you're going to have the inflation.
 
TGR: When you talk about bond vigilantes are you talking about junk bonds or what's known as private equity?
 
Don Coxe: The bond vigilantes work primarily on government bonds because they are the ones they can trade most effectively. Junk bonds are a small part of the market. With inflation the bond vigilantes sell off their 30- and 10-year bonds and move down to the 2-year note. At that point the cost of capital for expansion rises through the system because corporations can use short-term cash for some of their work, but they tend to use long-term borrowing from banks and the bond market for major projects. The cost of building those projects increases because of the steep yield curve.
 
TGR: Do you consider yourself to be a bear or a bull on gold?
 
Don Coxe: I am neutral in the short term. I'm not a bear. I'm a bull in the long term because I believe it's not a question of if but when all this money printing eventually comes to haunt us. Gold as an asset class is so tiny in relation to the vast expansion of money around the world. With the printing that's gone on, China has had to expand its Renminbi supplies to prevent the currency from soaring relative to the Dollar.
 
TGR: You are appearing at the upcoming Casey Fall Summit. Are you going to talk about gold prices there and will it be more or less what you just said?
 
Don Coxe: Yes. I am going to point out that the big story for gold is up until now gold has been only a bad news story. The reason why it's in trouble right now is there always seems to be bad news in terms of inflation. People say if inflation hasn't come now with the quadrupling of the Fed's balance sheet, it's never going to come and the Fed is going to have to keep on pouring out more money because the economy isn't growing.
 
When the economy starts to grow all of a sudden because, as I said earlier, of the inventory cycle, we are going to start to see inflation. Gold will become a good news story in the sense it will be responding to strong economic news at a time of massive liquidity, which translates into inflation. The fact that we've had all that money printing, which has only prevented us from going down into a pit, at such time as this actually leads to good economic growth. That is the point at which we're going to see people wanting to have gold. It's because we didn't get the direct pass over of the money printing into rising prices that gave people a loss of faith saying, well, if it hasn't come with quadrupling the Fed's balance sheet, it's never going to come.
 
TGR: Given that, is it a good idea for investors to buy gold stocks while they're available at basement prices?
 
Don Coxe: I believe that everybody should have gold insurance now. The question varies from investor to investor. What we have is an extremely high-risk central bank policy in the world and it's high-risk based on monetarism. I believe monetarism will prove to be right because all past experiments with paper money eventually led to inflation and monetary collapse. At some point the fear of that will come. You need gold for insurance, but this time the payoff will come when the economy improves; in the past when everything was falling all around you, commodity prices were soaring out of sight. We had three recessions in the 1970s and gold went from $35 an ounce to $850. But this time, gold is going to appreciate when we start getting 3% GDP growth.
 
TGR: Thank you for your insights.

RAISE IT THEY WILL

Posted: 02 Oct 2013 12:11 PM PDT

"Under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth… The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit… In the absence of the gold standard, there is […]

“Rick Rule: Leveraged Gold Longs Are Heading To The Sidelines–In Fear Of An October Financial Panic”

Posted: 02 Oct 2013 11:36 AM PDT

Rick Rule, Chairman, Sprott US Holdings

I had the opportunity yesterday to reconnect with legendary resource financier and investor, Rick Rule, Chairman of Sprott US Holdings.

It was a fascinating conversation as Rick spoke to the likelihood of (and his preparations for) an October "black swan" event, Sprott Asset Management's investment approach at this time, and what investors should keep in mind in order to successfully navigate today's resource market.

Commenting on the elements that suggest a coming October black swan surprise, Rick said, "If ever there was a set of

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

Stunning - China To Accumulate Another 5,000 Tons Of Gold

Posted: 02 Oct 2013 09:42 AM PDT

With huge volatility in the gold market, today acclaimed money manager Stephen Leeb stunned King World News when he said that his sources tell him the Chinese are looking to buy another 5,000 tons of gold. Below is what the acclaimed money manager had to say about this startling development.

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

Government Shutdown and Debt Ceiling Prompt a Gold Market Sell-Off and Rebound?

Posted: 02 Oct 2013 09:24 AM PDT

Precious metals are staging an impressive rebound today after yesterday’s drubbing that, once again, was initiated by a massive sell order that caused prices to plunge and stop loss orders to be executed, exacerbating the decline. This came at the market open, after the government had shut down at midnight the night [...]

Gold recovers half of yesterday’s $50 plunge

Posted: 02 Oct 2013 09:02 AM PDT

Gold rallied early Wednesday and rose back above $1300 as world stock markets slipped and the US government shutdown spread to new departments.

Read more….

Gold/silver investor uncertainty to grow in the next 17 days – Phillips

Posted: 02 Oct 2013 09:01 AM PDT

With both sides of the US Congress and Senate not backing off, Julian Phillips reckons over the next 17 days, investor uncertainty is likely to grow which will favour gold.

Read more….

September Auto Sales And ADP Payroll Report Confirm The Economy Is Tanking

Posted: 02 Oct 2013 08:59 AM PDT

I have to say, Barack Obama is probably the biggest political sell-out in the history of the United States.  Anyone who voted for him and still supports what he is doing is either tragically brain damaged or pathetically naive.  That's not to say the Republicans are a better alternative but Obama sold out his supporters like  plantation slaves in the 1800's.
Yesterday's auto sales report for September - led by GM's 11% plunge in sales and incredible bloating up of dealer inventory levels - confirms my view that the economy is tanking.  Today's ADP (Automatic Data Processing, Inc) Payroll report for September further confirms, as today's payroll report was nothing short of disaster, with a big miss of the consensus estimate AND the two previous month's reports revised downward sharply.  The dollar has lost the 80 level.  The world isn't buying into the story being reported in the media by Wall Street and the President that the economy is improving.

I review this data plus three other observations in this article:  September Auto Sales/Tanking Economy.

I further expect that housing sales will follow auto sales lower.  September home sales data will start coming in three weeks.

September Auto Sales And ADP Payroll Report Confirm The Economy Is Tanking

Posted: 02 Oct 2013 08:59 AM PDT

I have to say, Barack Obama is probably the biggest political sell-out in the history of the United States.  Anyone who voted for him and still supports what he is doing is either tragically brain damaged or pathetically naive.  That's not to say the Republicans are a better alternative but Obama sold out his supporters like they plantation slaves.
Yesterday's auto sales report for September - led by GM's 11% plunge in sales and incredible bloating up of dealer inventory levels - confirms my view that the economy is tanking.  Today's ADP (Automatic Data Processing, Inc) Payroll report for September further confirms, as today's payroll report was nothing short of disaster, with a big miss of the consensus estimate AND the two previous month's reports revised downward sharply.  The dollar has lost the 80 level.  The world isn't buying into the story being reported in the media by Wall Street and the President that the economy is improving.

I review this data plus three other observations in this article:  September Auto Sales/Tanking Economy.

I further expect that housing sales will follow auto sales lower.  September home sales data will start coming in three weeks.

The Daily Market Report

Posted: 02 Oct 2013 08:58 AM PDT

Gold Recoups Tuesday’s Losses


02-Oct (USAGOLD) — Gold has rebounded smartly, recouping all of the losses triggered by Tuesday’s big sell order on Comex. The dollar is falling, stocks are under pressure and gold and silver are on the rise. Price action across markets is a little more logical in light of the government shutdown and the looming debt ceiling battle.

With both sides of the budget confrontation still dug-in, perhaps there is a growing realization that the shutdown may last a while. The intransigence displayed by both sides in the much less significant budget matter is an ominous harbinger for the much more serious debt ceiling fight yet to come.

Much of the dollar weakness is attributable to continued strength in the euro, which set new 10-month highs against the greenback this morning. The ECB held steady on rates this morning and confirmed forward guidance, as was widely expected. However, ECB President Draghi cited persistent growth risks and characterized the eurozone recovery as “weak, fragile, uneven.”

Draghi said the central bank had discussed a rate cut and that all measures to ensure eurozone stability were still on the table. Draghi’s comments harkened-back to the now famous “whatever it takes” speech from July 2012, which put a floor under the euro. So while today’s ominous tone may have been designed to keep the single currency in check, it had the exact opposite affect, sending the EUR-USD above 1.3600 for the first time since January and bringing the 1.3711 peak from late-2012 within striking distance.

Meanwhile, the dollar index fell to a 10-month low, pushing convincingly below 80.00. So we have a weak dollar, a government shutdown, a looming debt ceiling debate and a central bank in full-on accommodation mode. Additionally, we have continued voracious demand for physical metal in emerging markets amid a tightening on the supply side. All the fundamentals for the yellow metal seem to be positively aligned…

The Smell of Collapse is in the Air - Part 3

Posted: 02 Oct 2013 08:21 AM PDT

We live in a world of exploding debt, unsustainable deficit spending, Quantitative Easing, corrupt politicians, and "forever" wars that benefit the political and financial elite. We will need help to survive the collapse of failing ... Read More...

Gold trading $1320.00, up more than $30 on the day. Right back where we were when that big sell order hit Comex yesterday.

Posted: 02 Oct 2013 08:02 AM PDT

Lies, Damned Lies, and Price/Earnings Ratios

Posted: 02 Oct 2013 07:14 AM PDT

The PE ratio of the S&P 500 is lying to you.

At 18.3x—about 14% above its historical average of 16x—it's saying: stocks are a fair deal. They're not cheap, but they're not expensive, either. They're certainly nowhere near the lofty heights of the dot-com bubble, when the PE ratio reached a sky-high 28x.

Don't believe it. As John Hussman, President of Hussman Funds will explain, the PE ratio is merely one data point. And in this case, it's wildly misleading. The rest of the data is nowhere near as rosy.

For example, corporate profit margins are a mind-numbing 70% above their historical norms. Profit margins are cyclical—meaning they will decline and undercut earnings. Margins can only go down, and it's a long drop back to the mean.

You'll read about that and several other sobering stock market statistics in today's guest article, which is part of John Hussman's Weekly Market Comment series. You'll also find John's well-reasoned projection for stock market returns for over the next 10 years. Fair warning: it's not pretty.

If you're not familiar with John, he's a fund manager with a penchant for parsing and explaining unfathomable amounts of data in easy to understand terms. If you'd like to read more of his material, visit Hussman Funds' website.

See you next week.

Dan Steinhart
Managing Editor of The Casey Report


Psychological Ether

John P. Hussman, Ph.D.

"It's quite possible that even a small taper will be too much for investors, but the alternative to tapering is to make an already precarious situation more precarious, while damaging the Fed's credibility in the process."

—Hussman Weekly Market Comment, "Baby Steps," September 16, 2013

Last week, the Federal Open Market Committee (FOMC) decided to go the alternative route. The Fed's decision does not seem intended to be a "reset" of perpetual quantitative easing. Instead, it appears to reflect the Committee's belief that QE has real economic effects, but that these economic benefits have not gained sufficient momentum. Notably, one member of the FOMC who voted in favor observed on Friday that the decision not to reduce the pace of quantitative easing was a "borderline decision." Another voiced concerns that the Fed now faces "challenges that come with issues of credibility" and that the inaction "discounts the potential costs of the policy tool with which we have limited experience."

In my view, the problem with quantitative easing is that its entire effect relies on provoking risk-taking by those who would otherwise choose not to do so; that the FOMC has extended and amplified financial market distortions without regard to the rich valuations and dismal prospective returns that financial assets are most likely priced to achieve; and that this distortion of financial asset prices has precious little to do with the presumptive goal of Fed policy, which is greater job creation and economic activity.

Unfortunately, even though the equity market has been rising on what we view as nothing but noxious psychological ether, the FOMC has—perhaps unintentionally—released another tank of the stuff. Quantitative easing only "works," however, to the extent that investors have no immediate desire to hold short-term, risk-free assets. In any environment where investors become eager to hold currency and other low-risk, default-free assets despite their low yield, I expect that both investors and the Fed will discover that quantitative easing is wholly ineffective in supporting the prices of risky assets. This is an experiment that has not yet run its course, and we have no intention of being the guinea pigs in that study.

The challenge at present is that last week's Fed decision does make an already precarious situation more precarious. So the question is how to respond. From the experience of the past few years, the risk is that enthusiasm that the Fed is "all in" could prompt a surge of further speculation and even greater financial distortions. At the same time, examining market cycles over a century of market history, present conditions cluster among the most negative 2-3% of data points in terms of average return and downside risk.

It's sometimes assumed that the views I express in these weekly comments are simply based on my personal inclinations toward the financial markets, but I exert far less discretion than one might imagine. The notable exception was the period between 2009 and early 2010, when I insisted on making our approach robust to Depression-era data as a fiduciary matter: though our existing estimation methods had proved successful, they were also based solely on post-war data, and events at the time were inconsistent with outcomes observed during that period. With that exception, our investment approach is generally driven by a full-cycle discipline of aligning our outlook with the expected market return/risk profile that we estimate at each point in time, based on well-defined methods and historical evidence (see "Aligning Market Exposure with the Expected Return/Risk Profile"). We pursue this approach because we are convinced of its long-term effectiveness and have a century of evidence to support that view, despite challenges that we've experienced in the unfinished half of the present extraordinary cycle. Some investors might trade by intuition or faith in the Fed that goes beyond anything that can be quantified historically. I have no idea how one could possibly test that approach over time.

Given the objective and unusually negative market return/risk estimates we observe at present, it follows that I continue to believe that present conditions warrant a generally defensive outlook. Still, the Fed's decision last week creates the possibility of a dangerous contingency over the next 6-8 weeks that a tapering decision might have avoided: the possibility of a short-lived but spectacular speculative blowoff (which would in turn add to the conditions for a fairly steep market collapse). My impression is that a slight amount of insurance against a speculative blowoff could be helpful in easing concerns on that front. Inexpensive, out-of-the-money call options can be useful instruments for that purpose.

From the standpoint of long-term stock market returns, the most important feature of valuations to note at present is the extreme level of profit margins, which are more than 70% higher than historical norms. This is well explained by the fact that the deficits of one sector must, in equilibrium, emerge as the surplus of another sector. As has been consistently evident in US economic data across history, large deficits in the combined government and household sectors are invariably reflected in mirror-image surpluses in corporate profits, as a share of GDP. This is not only true in terms of levels but in terms of changes. That is, the change in combined government and household savings over periods of, say, 3-4 years, is also closely mirrored by changes in corporate profits in the opposite direction. This isn't even a theory—it's largely driven by accounting identities and economic equilibrium.

Again, the difficulty with valuing stocks on the basis of raw price/earnings ratios is that corporate profits as a share of GDP are presently over 70% above their long-term historical norm. Though the actual course of corporate profits will be affected by numerous factors, including the extent to which extraordinary fiscal deficits normalize, we would expect corporate profits over the coming 3-4 year period to contract at a rate of somewhere between 5-15% annually. The practice of valuing stocks on the basis of current earnings or Wall Street's projections of "forward operating earnings" (which embed assumptions of even more extreme profit margins) has never in history been more reckless and misleading.

One hardly needs to accept any of these concerns to recognize that current equity valuations are consistent with the likelihood of dismal long-term returns. The historical record of reliable valuation measures should be sufficient. The chart below illustrates the relationship between the S&P 500 price/revenue ratio and subsequent 10-year nominal annual total returns for the S&P 500.

Last week, much was made of a remark by Warren Buffett that he was having difficulty finding any bargains in the current market. In our view, he did not go far enough, because even his more recent comments about valuation seem inconsistent with his own very accurate observations in the past. For example, Buffett noted in 1999 that "In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%." That assertion was clearly demonstrated by the clearly cyclical behavior of margins in the years that followed. It's an assertion that deserves particular attention today.

Likewise, Buffett observed in 2001 that the ratio of equity market value to national output is "probably the best single measure of where valuations stand at any given moment." On that front, the chart below shows the value of nonfinancial corporate equities to GDP (imputed from March to the present based on changes in the S&P 500). On this measure, the likely prospective 10-year nominal total return of the S&P 500 lines up at somewhere less than zero. Suffice it to say that our estimates using both earnings and non-earnings based measures suggest a likely total return for the S&P 500 over the coming decade of less than 2.9% annually, essentially driven by dividend income, and implying an S&P 500 that is roughly unchanged a decade from now—though undoubtedly comprising a volatile set of market cycles on that course to nowhere.

On the possibility (not expectation) of a speculative blowoff

With our longer-term valuation concerns on the table, let's move to the more immediate risks of the Fed's decision last week—the potential to extend an already strenuously overvalued market by triggering a speculative blowoff. This would only make the subsequent completion of the present market cycle that much worse. I should note that this near-term possibility does not significantly affect our broader investment outlook, and nothing discussed below represents a material basis of our general market analysis.

Keep in mind that our discipline is based on aligning our investment outlook with the return/risk profiles that we estimate on the basis of a century of evidence. In contrast, my view about the potential for a short-lived speculative blowoff is more tentative, best viewed as a hypothetical possibility instead of a data-driven estimate. This isn't a forecast—it's simply a near-term possibility that we're forced to consider because the Fed has suddenly created conditions that could support it.

My impression is this. Based on numerous past speculative episodes in the financial markets, we know that financial bubbles have often proceeded in an oscillating pattern featuring increasingly frequent cycles of advance, punctuated by gradually shallower declines reflecting an accelerating eagerness to buy dips. This can produce what Didier Sornette has called "log-periodic" oscillations (see "Increasingly Immediate Impulses to Buy the Dip"). Given the negative return/risk estimates we observed in April and early May, I believed that this series of oscillations was ending several months ago. In order to preserve a log-periodic pattern, further oscillations needed to exhibit an even faster alternation between steeply sloped advances and shallow declines. Yet despite the strongly negative return/risk estimates we already had in April and May, this is unfortunately what has unfolded. With the Fed's decision last week, we can't rule out one particularly extreme version of a log-periodic bubble that is consistent with price fluctuations to date. That version is pictured below, and would comprise an advance above 1,800 in the S&P 500 over a period of about six weeks. Again, this is emphatically not a forecast, but the conditions for a final wave of speculation may have been created by the Fed's decision last week, and it leaves us unable to rule out this admittedly hypothetical possibility—particularly in the context of what has been a classic Sornette-type bubble to date.

Whether or not this sort of outcome unfolds, the completion of the present market cycle appears likely to wipe out more than half of the market's gains from the 2009 lows, as even run-of-the-mill bear market declines have regularly done in market cycles throughout history.

Gold Prices Rally, "Key Level" at India's $1050 IMF Purchase Level Says LBMA Panel

Posted: 02 Oct 2013 06:37 AM PDT

GOLD PRICES recovered $25 in London Wednesday morning of yesterday's $50 plunge per ounce, trading as high as $1302 while world stock markets slipped as the US government shutdown spread to new departments ahead of this month's debt-ceiling deadline.
 
Commodities also recovered, and government bonds extended their gains, pushing US interest rates down to 2.62% on 10-year debt.
 
Gold prices for Euro investors rose less sharply than in Dollars, however, as the single currency jumped – and Italian bonds gained – after Rome's coalition government won a vote of confidence against former prime minister and convicted criminal Silvio Berlusconi.
 
Rising from near two-month lows today, gold prices will move to $1405 per ounce by November next year, according to the average forecast from delegates at this week's London Bullion Market Association conference in Rome, which ended Tuesday.
 
The best-attended LBMA annual conference to date, its final session saw 4 leading figures from the bullion market agree that $1050 per ounce is a "key level" for gold prices.
 
"Technically it's a good floor," said Marwan Shakarchi, chairman of refining group MKS Switzerland.
 
Prices at $1050 are also, he noted, where the Reserve Bank of India bought 200 tonnes of gold from the IMF in late 2009 – a move announced during the LBMA's conference, then in Edinburgh.
 
"Believe me," Shakarchi said, "the RBI technocrats will have analyzed every angle" before deciding to buy gold at those prices "as insurance".
 
"The RBI didn't take that decision lightly," agreed independent analyst Andy Smith. "And they really do know a thing or two about gold."
 
"It's a good call," agreed Jeremy East of Standard Chartered Bank and Philip Klapwijk, formerly GFMS and now running boutique consultancy Precious Metals Insights. But prices need to reach that level, the panel also agreed, to "clear out weak longs" from gold investments before a new bull phase can begin.
 
"One reason for pessimism short-term," said Klapwijk, "is that the surplus [of total supply over jewelry demand] remains high historically. Gold prices need to fall further to narrow the gap."
 
On his forecast, 2013 will see net gold investment worldwide fall dramatically from 2012 to $40 billion – "close to pre-financial crisis levels."
 
Elsewhere today, the shutdown spread across US government departments spread as the $17 trillion debt-ceiling drew nearer.
 
"There are no other legal and prudent options to extend the nation's borrowing authority," said Treasury secretary Jack Lew on Tuesday, again urging lawmakers to end the shutdown and avoid a possible US default on its debt repayments and spending by raising the debt ceiling limit.
 
Speaking at the LBMA conference's debate on gold prices Tuesday, "Detroit is not an outlier," said Andy Smith.
 
Defaulting today on $600 million of debt due for repayment, "The city has only half the debt per head of the US national average," Smith noted, comparing the devalued Dollar to the debasement of ancient Rome's currency, the Denarius.
 
"Can you imagine what would happen if the Fed sold what it's bought?" said Smith, noting the US Federal Reserve's vote last week not to "taper" its current $85bn of government purchases each month.
 
As the Fed's Treasury bond holdings come due, said Smith, "It will be called one arm of government forgiving another. But it will in fact be one giant step close to Weimar [hyperinflation]."

Gold Rebounds From 8-Week Low as Investors Weigh U.S. Shutdown

Posted: 02 Oct 2013 06:26 AM PDT


02-Oct (Bloomberg) — Gold rebounded after reaching an eight-week low in New York as investors weighed a U.S. government shutdown and the outlook for U.S. stimulus.

U.S. lawmakers still need to agree on raising the debt limit to avoid a default after Oct. 17, following the government's first partial shutdown in 17 years. The shutdown began after House and Senate lawmakers failed to agree on a spending plan for the fiscal year that started yesterday.

…"Between the U.S. government shutdown and Fed tapering, the risks to markets are nowhere near gone," Jordan Eliseo, chief economist at the Australian Bullion Co., said by phone from Sydney. "Some people still look to gold to hedge against economic uncertainty. The bigger issues are the debt ceiling debate and the month-to-month decisions by the Fed."

[source]

Gold near 2-month low after U.S. govt shutdown

Posted: 02 Oct 2013 06:24 AM PDT

02-Oct (Reuters) – Gold traded near two-month lows on Wednesday as the first U.S. government shutdown in 17 years kept investors on edge, stoking worries of further liquidation after a sharp 3 percent drop in the previous session.

Bullion posted its biggest daily percentage drop in more than two weeks on Tuesday following a massive Comex sell order and technical selling once prices fell below $1,300 an ounce. For the year, gold has shed about 23 percent of its value largely on fears over a U.S. stimulus cutback.

Gold’s safe-haven appeal is usually burnished by uncertain economy and geopolitical tensions. Prolonged politicking around the U.S. budget had initially prompted hopes that gold prices could rise, but safe-haven bids failed to emerge.

“If the government shuts down and people start to save money, why should it be supportive for gold?” said Dominic Schnider, an analyst at UBS Wealth Management in Singapore.

“You don’t want to own gold because the (shutdown) could negatively affect the economy and purchasing power is being impaired.”

[source]

PG View: Gold has rebounded to regain the $1300 level, but I would completely disagree with Mr. Schnider’s assessment. A negatively impacted economy is a very good reason to own gold, as it makes the central bank more likely to keep up — or increase — accommodations.

Rome, Dollar Debasement & Emperor Obama

Posted: 02 Oct 2013 06:19 AM PDT

Behold the mighty Dollar of Emperor Obama, sat alongside the currency debasement of ancient Rome...
 
US DOLLARS still rule the monetary world, writes Adrian Ash at BullionVault. So too did the Roman Denarius long ago, when Rome was in charge and its emperors chose who lived and died.
 
Hence the best slide, perhaps, of this week's London Bullion Market Association conference in Rome. It shows debasement in action, twice.
 
This slide certainly got the biggest laugh. But long-independent analyst Andy Smith's view of the Dollar – and the gold price as a result – was very serious.
 
"Inflation is neither sufficient nor necessary for gold prices to go higher," he explained in the closing day's panel debate.
 
"It's about psychology," Smith went on, saying that the current US outlook – of a shrinking tax base, but ever-more government dependents "who also vote" – will undermine confidence in the Dollar just as surely as Roman emperors cut the quantity of silver in the empire's Denarius coin. Faith is being debased just the same.
 
"Having failed to create inflation [to devalue US debts], asset theft will be next," he warned the conference (and again, to some but less laughter). And alongside inflation, savers will suddenly meet a heap of investment fears, over counter-party risk, higher taxation, and the return of capital, rather than the return on it.
 
Now, long-time gold investors and traders well know Mr.Smith's bearish stance of a decade ago (scroll near the end of that page). But it's worth noting, perhaps, that the pre-modernized, non-Western environments in which then he could only see gold appealing, now apply to his outlook for the rich West, most especially the States.
 
"Indians are eminently right to buy gold," he told the LBMA on Tuesday, "because they distrust government. We're moving to an India-type scenario in the West [and] we will learn very fast how sophisticated the Indians have been to buy gold."
 
Our own Miguel Perez-Santalla here at Bullionvault told a similar story last month about the shock of Lehmans' collapse. Because it showed how fragile and unsophisticated the modern US economy really is.
 
In sum? According to Andy Smith the empire cannot hold, not for savers and investors without gold. Because "more debtors than creditors vote." Just ask Emperor Obama.

Rome, Dollar Debasement & Emperor Obama

Posted: 02 Oct 2013 06:19 AM PDT

Behold the mighty Dollar of Emperor Obama, sat alongside the currency debasement of ancient Rome...
 
US DOLLARS still rule the monetary world, writes Adrian Ash at BullionVault. So too did the Roman Denarius long ago, when Rome was in charge and its emperors chose who lived and died.
 
Hence the best slide, perhaps, of this week's London Bullion Market Association conference in Rome. It shows debasement in action, twice.
 
This slide certainly got the biggest laugh. But long-independent analyst Andy Smith's view of the Dollar – and the gold price as a result – was very serious.
 
"Inflation is neither sufficient nor necessary for gold prices to go higher," he explained in the closing day's panel debate.
 
"It's about psychology," Smith went on, saying that the current US outlook – of a shrinking tax base, but ever-more government dependents "who also vote" – will undermine confidence in the Dollar just as surely as Roman emperors cut the quantity of silver in the empire's Denarius coin. Faith is being debased just the same.
 
"Having failed to create inflation [to devalue US debts], asset theft will be next," he warned the conference (and again, to some but less laughter). And alongside inflation, savers will suddenly meet a heap of investment fears, over counter-party risk, higher taxation, and the return of capital, rather than the return on it.
 
Now, long-time gold investors and traders well know Mr.Smith's bearish stance of a decade ago (scroll near the end of that page). But it's worth noting, perhaps, that the pre-modernized, non-Western environments in which then he could only see gold appealing, now apply to his outlook for the rich West, most especially the States.
 
"Indians are eminently right to buy gold," he told the LBMA on Tuesday, "because they distrust government. We're moving to an India-type scenario in the West [and] we will learn very fast how sophisticated the Indians have been to buy gold."
 
Our own Miguel Perez-Santalla here at Bullionvault told a similar story last month about the shock of Lehmans' collapse. Because it showed how fragile and unsophisticated the modern US economy really is.
 
In sum? According to Andy Smith the empire cannot hold, not for savers and investors without gold. Because "more debtors than creditors vote." Just ask Emperor Obama.

Rome, Dollar Debasement & Emperor Obama

Posted: 02 Oct 2013 06:19 AM PDT

Behold the mighty Dollar of Emperor Obama, sat alongside the currency debasement of ancient Rome...
 
US DOLLARS still rule the monetary world, writes Adrian Ash at BullionVault. So too did the Roman Denarius long ago, when Rome was in charge and its emperors chose who lived and died.
 
Hence the best slide, perhaps, of this week's London Bullion Market Association conference in Rome. It shows debasement in action, twice.
 
This slide certainly got the biggest laugh. But long-independent analyst Andy Smith's view of the Dollar – and the gold price as a result – was very serious.
 
"Inflation is neither sufficient nor necessary for gold prices to go higher," he explained in the closing day's panel debate.
 
"It's about psychology," Smith went on, saying that the current US outlook – of a shrinking tax base, but ever-more government dependents "who also vote" – will undermine confidence in the Dollar just as surely as Roman emperors cut the quantity of silver in the empire's Denarius coin. Faith is being debased just the same.
 
"Having failed to create inflation [to devalue US debts], asset theft will be next," he warned the conference (and again, to some but less laughter). And alongside inflation, savers will suddenly meet a heap of investment fears, over counter-party risk, higher taxation, and the return of capital, rather than the return on it.
 
Now, long-time gold investors and traders well know Mr.Smith's bearish stance of a decade ago (scroll near the end of that page). But it's worth noting, perhaps, that the pre-modernized, non-Western environments in which then he could only see gold appealing, now apply to his outlook for the rich West, most especially the States.
 
"Indians are eminently right to buy gold," he told the LBMA on Tuesday, "because they distrust government. We're moving to an India-type scenario in the West [and] we will learn very fast how sophisticated the Indians have been to buy gold."
 
Our own Miguel Perez-Santalla here at Bullionvault told a similar story last month about the shock of Lehmans' collapse. Because it showed how fragile and unsophisticated the modern US economy really is.
 
In sum? According to Andy Smith the empire cannot hold, not for savers and investors without gold. Because "more debtors than creditors vote." Just ask Emperor Obama.

Forget Drillers: Better Oil Plays On the Cheap

Posted: 02 Oct 2013 06:00 AM PDT

Investing in your favorite oil driller or gold miner is risky business.

Resource companies, like these, go to great lengths. Whether it be mining for gold hundreds (or thousands) of feet underground in South Africa or drilling for oil amidst the rolling sea-swells in the North Sea, it takes a certain ilk to profit in this business.

Investing in these plays harkens the same level of expertise.

Today I want to remind you of a safer approach to resource investing. This approach will keep you ahead of the pitfalls in the resource space and should far-outpace the S&P. Better yet, with more debt ceiling chatter, there may be a way to get in on the cheap…

…the U.S. midstream sector is one of the safest places to stock some investment cash.

I'm talking about "midstream" players. These are the companies that transport and process the oil and gas flowing profusely from America's shale patch. It's all part of the "harvest" phase that we've covered before.

Today there's mounting evidence that these players are going to continue to rake in money – by charging a fee for transport of oil and gas – and continue paying solid dividends.

The story is easy to follow, too. With each passing day the U.S. is producing more barrels per day. This simple up-tick in production is creating all sorts of opportunities around the country. All of a sudden there's an unexpected glut of oil in the U.S.

Who profits from this glut? The guys that can move and process the oil.

Same goes for natural gas. With so much of the stuff flooding the market there's plenty of opportunity to process and move it. Propane, Butane, Ethane… any company, from Texas to Pennsylvania, that can process this gas stands to make a buck. And better yet, pass some of that buck along to you!

Here's a few of my favorite midstream players (along with their current yield):

  • Access Midstream Partners LP (ACMP)* — 4.0%
  • DCP Midstream Partners LP (DPM) – 5.7%
  • Enbridge Energy Partners LP (EEP) – 7.1%
  • Enterprise Products Partners LP (EPD) – 4.4%
  • Plains All American Pipeline LP (PAA) – 4.5%
  • Williams Partners LP (WPZ) – 6.5%

[*Note, this is the former Chesapeake Midstream... a spin off from Chesapeake's ailing energy company]

With more oil and gas flowing – through pipelines, trucks and railways – these logistic companies are in the right spot of this budding market (and the list above is by no means exhaustive, either!)

Remember, production from many of the now-prolific shale plays in the U.S. is just ramping up. More oil and gas, regardless of price, will mean big things for the U.S. midstream sector.

That's great news for us. But it gets even better…

First, these midstream companies love to pay consistent dividends. At a time when the Federal Reserve is printing U.S. dollars like Chinese carry-out ads, these stable dividends couldn't come at a better time.

Second, with the latest installment of the debt ceiling taking center stage and a potential market pullback in the cards, now may be a great time to grab some of these companies on a pullback.

Indeed, if any of the midstream players listed above fall in price – due to the fumbling U.S. Congress – there could be a short window of time to pick em up on the cheap. That means lower entry price and higher dividend payout.

Getting back to our discussion above, the U.S. midstream sector is one of the safest places to stock some investment cash. A lot of the variables that can plague other resource sectors – dry holes, bad core results, high costs, and overzealous management – don't apply here. Simply put, these are some of the most straightforward resource bets you can make.

Keep your boots muddy,

Matt Insley
for The Daily Reckoning

P.S. If you're looking to stuff your portfolio with homegrown dividend plays, hopefully on the cheap, you'll want to keep an eye on the midstream guys. And one of the best ways to do that is to read The Daily Resource Hunter. In it, I relay specific, boots-on-ground info on the most exciting resource plays in the market. And it’s completely free. Don’t wait. Sign up for free, right here, and start getting the most up-to-date info on this thriving investment sector.

This article originally appeared at Daily Resource Hunter

Gold higher at 1302.10 (+13.12). Silver 21.40 (+0.285). Dollar and euro better. Stocks called lower. US 10yr 2.64% (-1 bp).

Posted: 02 Oct 2013 05:48 AM PDT

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