post #61 of 307

6/5/12 at 8:13pm

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Gold Flag Flies At Half Mast

By: Stewart Thomson | Tuesday, June 5, 2012

Graceland Updates 4am-7am
June 5, 2012

In technical analysis, no price pattern implies a more violent move to the upside than a flag pattern.
Please click here now. There's a flag pattern in play on this gold chart, and it implies that a 2nd near-vertical jump could occur very quickly.
Today, G7 politicians and central bankers are holding a key telephone conference call amongst themselves to battle the crisis in Europe. Public statements made after that phone call is completed could be the catalyst that activates this pattern.
Gold stocks look even more powerful than gold. Please click here now. You are looking at a weekly chart of gold versus GDX (gold stocks). Against the dollar, gold looks powerful. Against gold stocks, gold looks terrible.
There's a rare island top formation on that chart, and almost every indicator and oscillator is on a sell signal.
If gold is potentially ready to maul the dollar, what is the potential for gold stocks?
Please click here now. That's a daily chart of GDX, and you can see a head & shoulders pattern is present. The head itself is a small h&s pattern, which is very bullish.
Against the dollar, GDX seems to be signaling it will rise to about $56. The right shoulder low could occur at around $45. Given the background of the flag pattern on gold and the G7 "emergency" conference call, it's possible that there is no pullback at all.
GDX also seems set to outperform the Dow. A week ago I suggested the Dow could crash against gold stocks, and a quasi-crash has occurred. Please click here now. The uptrend line is broken. Most of the indicators are signaling that the Dow could decline much further against gold stocks.
I realize that the idea of gold stocks "outperforming everything" seems almost impossible at this point in time, but the most dramatic market moves tend to occur when most investors have given up on their dream.
Friday's jobs report was a disaster. Many institutional money managers called it a "game changer" . Oil prices have suffered a severe decline. The price of oil appears to be trading in almost perfect lockstep with the Dow.
"Crude oil prices have plummeted 20 percent over the past three months, but the CEO of Europe's biggest oil company Royal Dutch Shell, Peter Voser, doesn't think global demand is "collapsing." He, however, expects further downside in oil prices in the second-half of the year as the market is well supplied." -CNBC News, June 5, 2012.
Both the Dow and oil charts now look a lot like the gold charts did when the Indian gold dealers went on strike; the lights are on but nobody's home!
Institutional investors have been shaken by Friday's terrible jobs report, declining demand for oil, and now by Ben Bernanke's silence. Money managers are becoming more vociferous in their calls for central bankers and governments to provide immediate stimulus programs of size.
They aren't going to be keen on applying risk capital into the general stock market until Ben Bernanke makes it clear that he stands ready to provide a new stimulus program. My professional opinion is that if Ben and/or the G7 don't say something concrete very soon, the stock market could crash. This is the type of environment where immense gold price spikes can occur.
Considering the fact that silver is an industrial metal as well as a precious one, it has held up remarkably well against the background of a deteriorating economy and declining stock market.
Please click here now. Silver doesn't look as impressive as gold, but that is normal during the beginning of a precious metals intermediate price move to the upside. In the beginning, gold tends to outperform silver. As the move matures, silver takes the lead.
Silver fans should be more-than-satisfied with the look of that price chart. There's a flag-like pattern in play, and HSR (horizontal support and resistance) just below $29.
A move above $29 could see silver start to really spike higher, particularly if the G7 makes powerful statements about printing money to provide stimulus to the economy.
"Citing a weaker outlook abroad and only modest domestic growth, the Reserve Bank of Australia cut its cash rate by 25 basis points to 3.5 percent." - CNBC News, June 5, 2012. All around the world, central bankers and politicians are pressing for more interest rate cuts.
Rate cuts do promote growth, but the price of gold seems "unconvinced" that this growth can alleviate the debt crisis. Outside of the gold community, few citizens really seem to understand that you can't grow your way out of a debt that can't be eliminated with a 100% taxation rate.
Most central bankers are mandated to promote a strong fiat currency. In the case of the US Federal Reserve, Ben Bernanke could be arrested if he started making statements about devaluing the dollar to end the debt crisis. He can speak hypothetically about devaluing the dollar to combat deflation, but he can't openly say he's planning to do so. Only the US Treasury is authorized to devalue the dollar. It can devalue the dollar itself, or mandate the Fed to do so.
Until Ben Bernanke gets instructions from the Treasury to begin aggressive gold buy programs, print money, or revalue gold against the dollar, he's limited to growth-focused programs like quantitative easing and lowering interest rates. Those programs are themselves bullish for gold, and I think most members of the gold community believe it's only a matter of time before the US Treasury orders the Fed to devalue the dollar.
The flag pattern on gold could indicate that some kind of massive stimulus is coming from the G7 today!

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post #62 of 307

6/6/12 at 9:51am

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Blame Gartman for surge in gold stocks, BMO advisor says

Peter Koven Jun 6, 2012 – 9:27 AM ET

Dennis Gartman, investor and creator of the Gartman Letter.

Is the resurgence in gold stocks largely due to the actions of one man? Don Coxe thinks it is.

‘It’s the Gartman effect’

The strategy advisor to Bank of Montreal and chairman of Coxe

Advisors LLP believes Dennis Gartman, an influential economist and market commentator in The Gartman Letter, has spurred gold company stocks since he started recommending them after a couple of years of urging investors to buy bullion ahead of equities.

Bullion prices since mid-May have climbed a modest 4%, while equities have caught fire with the S&P/TSX global gold index up 25%. Over the last few years, the biggest story in the gold mining industry has been the abysmal performance of equities compared to bullion.

“Many people have said that [gold stocks were due for a turnaround], but this is the moment it actually happened,” Mr. Coxe said in an interview to Toronto. “It’s the Gartman effect.”

Mr. Coxe noted that in the past few weeks there have been days when the price of gold declined and equities still went up — an unheard-of event in recent years.

‘Gold stocks are the cheapest they have been in the history of gold mining. That won’t last forever’

Mr. Coxe has argued that gold stocks are woefully undervalued. “Gold stocks are the cheapest they have been in the history of gold mining. That won’t last forever.”

In addition to pounding the table for gold stocks, Mr. Coxe remains a firm believer in senior mining companies that have reserves in secure parts of the world.

But the stocks of these companies have been hammered in the last year as investors showed their concern about the slowing commodity demand from emerging markets. A report released Wednesday from PricewaterhouseCoopers LLP shows just how bad the market carnage has been.

According to the study, The Growing Disconnect, the market values of the 40 largest mining companies plunged 25% in 2011, even though their combined net profits climbed 21% and returns to shareholders rose 156%.

The authors noted a big part of the “disconnect” is between the mining companies and their shareholders. Investors want miners to be disciplined with their capital spending and increase dividends, while companies are eager to invest in projects.

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post #63 of 307

6/6/12 at 10:14am

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The Hoarding Continues: China Purchases A Record 100 Tons Of Gold In April From Hong Kong

In the first four months of 2012, imports were 239,174 kilograms from 27,114 kilograms a year earlier, according to Bloomberg calculations. China doesn’t publish such figures." In other words: in the first four months of 2012, Chinese purchases have increased by an unprecedented 782% over the same period in 2011.

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post #64 of 307

6/6/12 at 10:16am

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Calls for a U.S. Gold Audit Miss the Point

By James Rickards

June 4, 2012

James Rickards is a hedge fund manager in New York City and the author of “Currency Wars: The Making of the Next Global Crisis” from Portfolio/Penguin.

For those who comment on the role of gold in the international monetary system, one of the most frequently asked questions involves the existence of the U.S. gold hoard. Officially the U.S. Treasury is in possession of 8,133 metric tons of gold stored mostly in two large depositories—Ft. Knox, Ky. and West Point, N.Y.—with smaller amounts on deposit at the Denver Mint and the Federal Reserve Bank of New York.

Yet, as a writer and speaker on the role of gold, the most frequent question I encounter is, "How do you know the gold is actually there?" or some variant. The suggestion is always that the United States long ago dumped its gold on world markets to suppress the price and that the vaults in Ft. Knox are actually empty or, at most, filled with tungsten bars lightly coated with gold paint.

Invariably these critics point to the fact that the Treasury will not permit an audit of the gold as proof of their suspicion. A proper audit would verify both the quantity and purity of the U.S. gold hoard. Ideally, each gold ingot would be individually numbered and tested and at the end a reputable nongovernment auditor such as a major accounting firm would attest a complete inventory of separately numbered ingots. This should be a fairly straightforward task. The failure to conduct the audit is perennially advanced as evidence that the gold does not exist.

Analysis should always be based on the best available evidence and not speculation. I have seen some evidence, gathered from military and Treasury officials, that the gold is where the government says it is. I have seen no evidence whatsoever that it is not. Based on this, I assume the gold is there. If I learn differently someday, I'll change my view, but until then I'll base my economic and monetary analyses on the fact that the United States is the proud owner of 8,133 metric tons.

But what about the audit? What harm can there be in that if the gold is where the Treasury says it is?

There are two powerful reasons not to do the audit even if the gold is in the vaults. The first has to do with the credibility of gold as a component of international reserves and monetary systems in general. Gold was officially demonetized by the International Monetary Fund in 1973 not long after President Nixon ended the convertibility of dollars into gold in 1971. Since then gold has been continually disparaged as a monetary asset, most recently in the remarks of Federal Reserve Chairman Ben Bernanke that the possession of gold by the United States was a mere "tradition." If that were so, why would the United States audit something so unimportant? An audit suggests that gold is somehow meaningful and deserving of respect. The official position is that gold is a legacy asset of no particular importance. In this context, refusing an audit makes sense. An audit would give gold too much credit and start to erode the official propaganda that gold is not a monetary asset. After all, no one audits the number of acorns in the national parks—they are too unimportant.

Another reason has to do with not calling attention to a host of ancillary questions. Assume the audit were conducted and everything was in good order, that the United States had the right number of ingots of 99.99 percent purity and everything was numbered and in its place. This would immediately lead to other questions. Is the gold leased? To whom? On what terms?

Some naively assume that if the gold is leased to commercial banks such as J.P. Morgan that the leasing bank backs up a truck and takes it away. That is not true. The gold can be leased in paper transactions without ever leaving Ft. Knox or West Point. The leased gold can then be rehypothecated by J.P. Morgan to other banks and so on until multiple parties all claim some title to the same physical gold. That gold goes on to support an even larger inverted pyramid of "paper gold" transactions in futures, options, forwards, swaps, and so-called unallocated storage. One reason not to do an audit is to avoid all of the awkward legal title questions that would arise once the physical existence issue was settled. The Treasury would rather ignore gold than open Pandora's Box.

Gold remains the 8,000 ton gorilla in the room; the thing that is too big to ignore but that no one wants to discuss. The international monetary system and the role of the dollar are in dire straits even if all of the gold is where it is supposed to be. It is not necessary to fantasize about phantom gold in order to see that a monetary crisis is imminent. The Fed and Treasury refusal to audit gold is part of their painstaking effort to deny that gold is still at the heart of the system. No more elaborate explanation is required.

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post #65 of 307

6/6/12 at 11:20am

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The Mystery of Monetary Gold
By: Julian D. W. Phillips

June 6, 2012

The main fundamental drivers of the gold price are central bank buying by the emerging nations together with Chinese and Indian retail demand. The motives behind this buying are very different from what we see in the developed world, with the exception of buying into gold Exchange Traded Funds. But buying gold for monetary reasons is a concept that usually doesn't come into the consideration of gold investors.

Monetary gold buying has a certain mystery about it, which needs to be understood well, in order to understand what lies ahead for gold. Many have a preconceived view of the use of gold to be the same as used by central banks in the past, but global financial conditions have changed radically since then, as has the acceptable ways in which gold can be used in today's global monetary system. We look at the difference between the private retail uses of gold and set it against the background of monetary gold to highlight the differences.

Developed World Retail Gold Buying

When a man in the U.S., Europe, or the United Kingdom goes out to buy gold, it's usually for a special present for his wife or girlfriend and he rarely thinks of gold jewelry as part of his financial assets that could be sold in an emergency. Sometimes, usually if he is a coin collector, he will buy a gold coin for safekeeping at home as an investment for the worst of times. Rarely does he plan a 'practical' actual use for it, depending only on the vague assumption that it will be useful when hard times hit.

Developed World Retail Investment Buying

For the much richer buyer, buying gold as an investment comes in the form of a bar of gold bought for investment and stored in his safe deposit box or to be held in an unallocated account in the vaults of his bank. The quickest and cheapest way he would buy to hold gold long-term is through the shares of a gold Exchange Traded Fund. Please note that in these two examples banks are tied into the transaction one way or another. This strikes emerging market buyers as strange because banks may prove to be the problem when push comes to shove. Holding it at home appears far safer and out of official sight.

Commercial Banks Holding Gold?

Despite proposals that will lead to Commercial banks buying gold as a Tier I asset, at the moment Commercial Banks do not hold gold to satisfy banking capital adequacy ratios because only 50% of its value is deemed of value in those terms.

So we turn to what we believe will be the main driver of the gold price in the years to come, which will be of such power that it will sideline private demand completely.

Global Central Bank Buying

Reserve Asset

Central Banks hold gold as an important reserve asset. This immediately separates them from private investors. The term 'reserve asset' somehow fails to convey either its value or its strategic nature. A previous Banque de France President (M. Noyer) put gold in national vaults this way saying, 'selling central bank gold reserves is like selling the family jewels.' It's a last resort, when all else has failed. Its overwhelming importance lies in the fact that it's what keeps international trade going when confidence in the country has gone.

Ask yourself, 'Why do central banks hold any reserves?' Central Bank reserves in essence are held to ensure that a nation can continue to trade internationally when all sources of funds have been exhausted. With the ease that a nation's central bank can issue new local currency, this seems strange. But then one has to reflect that a nation's currency is only as valuable as the foreign exchange markets think it is. National currencies have varying levels of liquidity and convertibility, but most importantly different levels of confidence, internationally.

Confidence Key

It's the level of international confidence in a nation, its economy, and its money that give rise to holding reserves 'just in case'. Right now the relatively new euro, now only 12 years old, is the subject of fears that it will not survive. The prospect of Greece returning to the Drachma is now a serious probability. The currency will garner no international confidence if it comes to that. Who would accept the currency outside Greece, once it has gone bankrupt? Even retaining the euro as its currency, it would need to impose Capital Controls to keep capital in that land because of the total collapse of confidence in the nation's economy relative to its indebtedness. It would be far better for continued convertibility for Greece to go bankrupt and keep the euro then start again with a clean slate, but with zero international trust. Its 111 tonnes of gold will go as this is already pledged against its repayment of debt (an unlikely prospect).

Take a look at any banknote in your possession and look at what it says. In most nations it says something like "I promise to pay the bearer one hundred dollars". What does this mean? It means that you can take your $100 note into the central bank and cash it in for another $100 note. It can be exchanged for nothing else. It's actually only as valuable as the confidence it inspires. In these days of so much financial uncertainty, huge national indebtedness and dwindling economic growth, confidence in all the developed world nation's currencies is dwindling at an accelerating pace.

Confidence in Gold

This is where gold comes in. Gold is internationally respected and valued. It is acceptable as money to all nations. It will be accepted as payment when currencies fail. There is no 'I promise to pay the bearer' on it. Whoever holds it and has control over it owns it. The only exception is where another central bank holds it, on behalf of another nation. This does imply risk because the holding bank is responsible to its government and could be instructed to take possession of it. That's why Venezuela repatriated its gold back to Venezuela.

Gold's New Virtues

But gold has gained another huge function that goes to the heart of the continuation of the global monetary system as we know it. On the back of the qualities of gold we have just described it has facilitated leverage in the form of a 'guarantee' function. Gold's lack of credit or counterparty risk, coupled with the deterioration of sovereign credit, has encouraged investors and global exchanges to increasingly use gold as a source of high quality collateral. Governments have done this too. In previous articles we have described how gold/currency swaps were used to facilitate loans between nations (via the B.I.S.) and to ensure that they were much cheaper than if the loan was not backed by such side transactions. The value that gold in this role has is considerably more than the dollar price of gold at the time.

This is why the central banks buying gold now are price insensitive. They are only interested in acquiring tonnages of gold. Whether they pay $1,000 per ounce or $1,500 an ounce makes no difference. It is the number of ounces a central bank holds that counts!

Now take this concept forward to the future. As the emerging world becomes more and more independent of the developed world and as emerging world currencies become reserve currencies themselves, the competition between currencies will undermine confidence more and more. The need for gold in facilitating loans and lowering interest rates will rise in line with this. It's more and more likely that central banks and governments feel they need more gold in their reserves. But there is nowhere near enough gold available in the markets to increase gold reserves significantly.

Edited by stoneranger - 6/6/12 at 11:40am

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post #66 of 307

6/6/12 at 8:15pm

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6/6/12 at 8:22pm

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Is the Table Set For A Mania In Precious Metals?

by Jeff Clark of Casey Research

June 6, 2012

Is The Table Set For A Mania In Precious Metals?

It may feel like I'm out of touch with the precious metals markets to broach the subject of a mania today, but I think the table is being set now for a huge move into gold and silver.

There are, however, very valid reasons to reasonably expect a mania in our sector. For one thing, manias have occurred many times before, but the main issue is that a mania in gold and gold stocks is the likely result of the absolute balloon in government debt, deficit spending, and money printing. Saying all that profligacy will go away without inflationary consequences seems naïve or foolish. Inflation may not attract investors to gold and silver as much as force them to it.

Now, one could make the argument that any rush into gold and silver will be muted if no one has any savings, especially given that demographers say a quarter of the developed world will soon be retired. But even if individuals are wiped out, the world's money supply isn't getting any smaller, and all that cash has to go somewhere.

I wanted to look at cash levels among various investor groups to get a feel for what's out there, as well as how money supply compares to our industry. Data from some institutional investors are hard to come by, but below is a sliver of information about available cash levels. I compared the cash and short-term investments of S&P 500 corporations, along with M1, to gold and silver ETFs, coins, and equities. While the picture might be what you'd expect, the contrast is still rather striking.

Naturally, not all this money or even a big chunk of it will be used to buy GLD, Barrick, or American Eagles, but it's clear that if any significant fraction of the cash sloshing around the economy were to be used to buy gold, it would have a major impact on the price of gold – which would trigger the mania I fully expect. Let's take a quick look at what kind of impact our sector could experience if just a small amount of available funds were devoted to various forms of gold and silver.

The entire worldwide value of all gold exchange-traded products (ETPs) currently represents just 2.1% of the cash and short-term investments held by S&P 500 corporations. If 20% of these companies decided to put a mere 5% of their available holdings into these precious metals vehicles, their value would more than double.
If just 1% of the physical currency (M1) floating around the system were used to buy gold Eagles, it would be 13 times more than the entire value of all coins purchased last year.
If corporations chose to invest 1% of their cash in silver ETFs, it would surpass the total current value of all such ETFs.
If corporations moved 5% of their "short-term investments" evenly into gold stocks, the market cap of every gold company would increase by 20%.
If they chose silver stocks, they'd each grow by a factor of six.
Five percent of M1 would increase the market cap of gold producers by 14%. The same fraction would be 3.4 times bigger than the entire current value of all primary silver producers.

This is just S&P 500 corporations – there are many more corporations in the world, as well as pension funds, hedge funds, sovereign wealth funds, mutual funds, private equity funds, private wealth funds, insurance companies, and other ETFs.

It's striking, when you really stop to think about just how big the impact could be if some significant fraction of the larger financial world started chasing the small niche market that is gold. Such cash inflows will send our industry to the moon.

In the meantime, keeping our eye on the big-picture forces that have yet to play out is the plan to follow. Sooner or later, though, I'm convinced the catalysts will kick in that will pull/push/drag/compel/force the mainstream into our sector. I suggest beating them to it.

And when the mania arrives, we'll all wonder why anyone doubted it in the first place.

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6/7/12 at 7:41pm

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Bernanke Strikes Again!

By: Ben Traynor | Thursday, June 7, 2012

Another big fall for gold as the Fed chairman appears before Congress...

Six days after they climbed back above $1600 an ounce, gold prices dropped back below that level on Thursday, as Federal Reserve chairman Ben Bernanke appeared before Congress at the Joint Economic Committee.

This is not the first time we've seen this. Back on February 29, gold fell $100 an ounce while Bernanke was testifying before the House Financial Services Committee. What on earth is the man saying to have such an adverse impact on gold prices?

Well, on the two occasions cited above, it wasn't what he said, but what he failed to say that did the damage. In short, Bernanke failed to make any explicit promises of further Fed quantitative easing.

Last Friday, gold shot up 5% in Dollar terms, following disappointing US jobs and manufacturing data. Clearly, some traders were betting that the Fed would respond by announcing further stimulus, a bet that failed to pay off. Bernanke's reticence in this regard is hardly surprising, though. It's what central bankers do: they say as little as they can get away with to keep as many options open as they can.

They also talk to each other, and it seems the major central bankers have agreed a common script, one which has as its central theme a focus on the failings of fiscal policymakers (i.e. politicians). Here is European Central Bank president Mario Draghi speaking on Wednesday:

"Some of these problems in the Euro area have nothing to do with monetary policy. That is what we have to be aware of and I do not think it would be right for monetary policy to compensate for other institutions' lack of action."

And here's Bernanke a day later:

"...under current policies and reasonable economic assumptions, the [Congressional Budget Office] projects that the structural budget gap and the ratio of federal debt to GDP will trend upward thereafter, in large part reflecting rapidly escalating health expenditures and the aging of the population. This dynamic is clearly unsustainable...fiscal policy must be placed on a sustainable path that eventually results in a stable or declining ratio of federal debt to GDP."

Translation: don't look at us.

Central bankers are trying to put pressure on their political masters to deal with problems that are beyond the scope of monetary policy. It is these problems, they argue, that are at the root of the current crisis.

It was put to Bernanke by JEC vice chairman Kevin Brady that the Fed itself is encouraging political inaction by keeping QE3, a potential third round of quantitative easing, on the table.

In other words, the belief that the Fed is on standby to combat any crisis makes a crisis more likely, reducing as it does the incentive to take difficult preventative action.

The trouble is, the Fed and other central banks daren't row too far back from talk of stimulus for fear that this will provoke a crisis. This is why Bernanke made it clear the option was on the table, while also saying "Look over there" and pointing at the so-called fiscal cliff - the combination of tax cut expiries and mandated spending cuts that await the US should lawmakers fail to reach agreements to prevent them (a genuine risk in an election year).

So we are at an impasse, meaning gold prices are susceptible to marginal sentiment and bets on what monetary policymakers will do next. This has been the case all year. For example, gold prices rallied in January after the Fed published projections showing its policymakers expected near-zero interest rates until late 2014. Gold also saw a jump in March as Bernanke reiterated the need for accommodative policies.

The truth is, though, that there has been little rhyme or reason to these moves. If you look at what Bernanke actually said on each occasion, it is pretty much a rehash of what he's said before. Fed statements since the start of the year have all broadly said this: "We're not out of the woods, we'll keep an eye on things, and we'll do as we see fit."

Details have changed, depending on the newsflow, but that's all. Here's an extract from Thursday's testimony:

"...the situation in Europe poses significant risks to the US financial system and economy and must be monitored closely. As always, the Federal Reserve remains prepared to take action as needed to protect the US financial system and economy in the event that financial stresses escalate."

Later on, Bernanke said there is "no justification" for fears that QE could spark inflation. Taking these comments together, one could make a case that the Fed are about to push the button marked 'More Stimulus'. But of course, traders had already jumped to that conclusion last Friday, and so were forced to 'unjump'.

The truth is, we don't know when or if we will see more QE, and we doubt anyone at the Fed does either. QE is not about economic stimulus. Not really. It may be packaged as a way of boosting growth, but in our view its real aim is to fight crises in the banking sector.

This is where it gets difficult for gold investors. It may be that the Fed, along with other central banks, are holding fire until the banking stresses in Europe become really acute. As we saw last November and December, a banking crisis can be accompanied by sharp falls in gold prices, as gold is sold or leased to raise Dollars, increasing its immediate supply and putting downward pressure on prices.

Indeed, along with the disappointment that Bernanke was note more dovish following last week's economic news, another possible explanation for gold's fall this week is that uncertainty over QE raises the risk of a sudden funding crunch.

Another factor to bear in mind is inflation expectations. Bernanke said on Thursday that these are "quite well anchored". But some argue that they are still too high to make QE an immediate prospect, with 5-Year breakeven rates - the difference in yield between inflation-linked and nominal debt - still too high:

There remains a significant chance we will yet see more Fed QE. But things may need to get quite a bit worse first. In the meantime, the only clues we are likely to get are those we can glean from the Orwellian radio static of central banker doublespeak.

Or, if you're a long run investor, you could just ignore the noise being made by gold prices and crack open a beer...

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6/7/12 at 7:45pm

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6/7/12 at 8:28pm

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Yamada - Gold & Silver at Crucial Points in This Cycle

June 6, 2012

With gold trading near the $1,620 level and silver approaching $30, today King World News is pleased to share with readers a piece of legendary technical analyst Louise Yamada’s “Technical Perspectives” report. This information is not available to the public and we are grateful to Louise for sharing her incredible work with KWN readers globally.

Gold: Bucking the Strong Dollar.

Gold spot price (GOLDS-1,624.10) had been hovering above the recent closing low at 1,539 and below the broken support (which became resistance) at 1,600; the 10- and 40-week MAs turned down and crossed negatively; the uptrend from 2008 was violated; and the weekly (see Figure 19, arrows) and monthly momentum studies are still on a Sell, with the downtrend in place. And then Friday’s pop through 1,600 (!) on the dollar retreat (and no doubt boosted by short covering).

During other equity market declines, Gold has generally also paused / corrected. (If an investor cannot sell other items, Gold has a tendency to be subjected to selling pressure.) Additionally, commodities generally move inversely to the U.S. dollar, which has been moving up until Friday when the first pullback in many days may have resulted in the pop for Gold.

Gold last week, however, has not followed through with further declines against the strong dollar, as oil has, which might bode better for the metal....

“The negative weekly momentum may try to stabilize on any follow through to Friday’s lift.

That said, there inevitably will be rallies (with or without short covering), and the move through 1,600 could carry up, as it did Friday (with the dollar pullback), toward the declining 10-week MA at 1,630, or even toward the broken 2008 uptrend in the 1,670 range. But unless the downtrend, roughly at 1,700 is sustainably penetrated, we would consider Gold to be continuing the corrective / consolidation process. Furthermore, the most important resistance remains at 1,800, the top of the former trading range. Between here and there remains consolidation in our view.

We remain currently agnostic on Gold, given the current technical observations and the sudden

confusion causing a rush out of Euros and into dollars and treasuries. The break below 1,600 had suggested potential downside risk toward 1,500 (and even 1,400) where there is support from the 2010-2011 consolidation.

It is not yet clear whether Friday’s advance is a kickback rally or the beginning of a complete reversal that could reinstate the uptrend. One day doesn’t make a trend but it can begin one. A reversal below the recent lows would suggest further work needed for Gold.

From the longer-term perspective, the negative real interest rates, against which Gold historically does well, remain in place, supporting the longer bull market view.

Silver: Approaching a Decision.

Silver spot price (SILV-29.51, see Figure 20) has been inching downward with Gold, close to but not yet violating the 2012 low or the 2008 uptrend line. While the momentum across timeframes remains negative, the MAs are on a Sell and declining and the downtrend remains in force, there is a potential positive divergence in the momentum which has not slipped to the 2011 low.

Note the developed descending triangle which suggests that were the strong support at 27 to be violated, breaking both the triangle and the uptrend, further downside could be in store toward 25 or 20. But, as with Gold, lifting through the declining MAs and the downtrend would be needed to suggest a more robust profile technically. The resistance at 30 has fended off rally attempts. To improve the pattern a sustainable lift through 30-32 would be needed. The profile is mixed.

As Managing Director and Head of Technical Research for Smith Barney, Louise was a perennial leader in the Institutional Investor poll, and was the top-ranked market technician in 2001, 2002, 2003 and 2004, before going independent.

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6/9/12 at 9:42am

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This is not a reply, but since I don't know how to post a new message I hit reply.

It's a great opportunity to buy into strategic metals now that they're trading down, because it's only a matter of time before they head north again, writes Gregory Dorsey of The Complete Investor.

Our mining stocks have struggled this year despite reaching a number of important milestones. Indeed, miners in general and junior miners in particular not only have underperformed the market, they’ve trailed the performance of the underlying metals by eye-popping margins.

The junior miners, for instance, are trading as if gold is at $1,000 an ounce. This makes them rare bargains in our eyes. And our stocks in the sector are among the very best.

New Gold (NGD)
A prime example of a mining company that is executing well even if its stock is not. Its output this year should exceed 400,000 ounces of gold, along with nearly 2 million ounces of silver and 35 million pounds of copper.

Ultimately, this low-cost mid-tier miner could be producing 1 million ounces of gold per year. Its New Afton project in British Columbia is slated to come on stream this month, while the world-class El Morro project in Chile, in which it owns a 30% stake, is targeting a 2017 start. New Gold’s Canadian Blackwater project also could become a strong contributor in the years ahead.

Recently, the stock sold off sharply after Chile’s highest court temporarily suspended El Morro’s environmental permit and ordered the mining companies involved to consult with the region’s indigenous people.

We view this as a modest hurdle that is more than discounted in the current share price. The stock trades at very reasonable levels relative to assets, earnings, and cash flow. We would peg fair value to be at least in the mid-teens.

Endeavour Silver (EXK)
Down Mexico way, Endeavour continues to grow its asset base via the shovel as well as the boardroom.

In this latter category, the company recently acquired the El Cubo silver and gold mine and the Guadalupe y Calvo exploration project from AuRico Goldfor $200 million in cash and stock and an additional $50 million pending achievement of certain milestones in the three years after closing.

The acquisition should increase Endeavour’s 2012 silver production by 12% to 4.8 million ounces and add to earnings right out of the gate. Management is confident that with additional exploration, the new properties could add substantially to the company’s reserves.

NovaGold (NG)
Now double the fun, having recently spun off its Ambler copper property as NovaCopper (NCQ). We think the spinoff is a smart idea, enabling investors to better value the companies’ underlying assets.

Ambler, you’ll recall, is a high-grade copper-zinc-gold-silver property with the potential for considerable reserve additions. While still several years from production, the mine is expected to eventually produce around 67 million pounds of copper a year at a cost of less than a dollar per pound, net of byproducts.

NovaGold will now focus on developing the Donlin Gold project (50% owned by Barrick Gold (ABX)). Donlin is one of the world’s largest undeveloped gold deposits, with proven and probable gold reserves approaching 34 million ounces.

NovaGold has put up for sale its 50% stake in the world-class Galore Creek copper project, which was not part of the NovaCopper spinoff. It should garner a hefty price, leaving the company well financed to develop Donlin.

We recommend holding onto both NovaGold and NovaCopper.

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6/9/12 at 10:25am

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Quote:

Originally Posted by handyman77

This is not a reply, but since I don't know how to post a new message I hit reply.

Handy...that confused me at first...hitting 'reply' just starts a new message. If you want to 'reply' to a specific message hit ("quote").

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6/9/12 at 10:28am

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Handy...NGD & EXK I am not familiar with but Nova (NG) is more a copper play and has HUGE debt. I will look into the other two.

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6/9/12 at 10:38am

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Golden Days Ahead: Dave Kranzler

TICKERS: EMX, ORE, RPM; RPMGF

Source: Peter Byrne of The Gold Report (6/4/12)

Savvy investors and central banks in Asia are accumulating physical gold, the most stable form of value. In an exclusive interview with The Gold Report, Dave Kranzler, founder of Golden Returns Capital, contrarian gold investor and newsletter writer, shares his investment outlook and explains what he looks for when investing in gold miners poised to profit from economic turbulence.

The Gold Report: You started your career, Dave, in the fixed income securities division of Goldman Sachs. And you worked as a junk bond trader before founding Golden Returns Capital. What prompted you to move into precious metals?

Dave Kranzler: After working as a bond trader on Wall Street, I was day trading. A friend suggested that I look at gold and silver. I initially poo-pooed that idea, as I was more interested in shorting technology stocks during the Internet bubble. I thought the tech valuations were based on nothing more than hopes and dreams, not on real wealth. The enormous growth in paper investments was driven by the incredible amount of money supply thrown into the system by Alan Greenspan's Federal Reserve.

But in late 2001, my friend finally convinced me to get serious about mining stocks. So I investigated the reasons why there had been a 20-year bear market in precious metals and why a long-term bull market was in the offing.

TGR: Why should we invest in gold instead of, say, Facebook?

DK: People like Warren Buffett, Charlie Munger and Bill Gates characterize gold as an investment. It's really not. It's a monetary metal. Gold represents the embodiment of real wealth. By contrast, Facebook has a sustainable business model based on revenues derived from advertising. But there's an extreme differentiation between what Facebook might be worth on the basis of long-term historical market capitalization measures versus what the market was willing to pay at its IPO. It quickly dropped in value, and it has a lot further to fall. Gold is more real.

TGR: How does gold as money differ from paper currency?

DK: Paper currency can be created at the whim of a central bank. The "fiat" currencies are politicized and based only upon the issuing entity's promise to pay. Gold is the world's oldest currency; it was used as a medium of exchange before the Roman Empire. Historically, gold replaced barter by providing the fungibility to enable widespread trade and commerce. Gold is very hard to produce, let alone counterfeit. It represents a true measure of wealth exchange.

TGR: You mentioned that gold is a medium of exchange, so it's a repository of value. It embodies a standard of value that represents the usefulness of other commodities, like a bushel of wheat. But if the gold itself is not the source of value, then what is the ultimate source of the value that it represents?

DK: Globally, the value of gold is rooted in supply. The supply of aboveground gold represents economic wealth, which is embodied in the price of gold, when there is a gold standard in place. A gold standard fixes the price of gold. Therefore, under a gold standard, the money supply can be increased by pulling more gold out of the ground. But if the price of gold is not fixed, then the price must rise and fall as new wealth is created or destroyed—regardless of the amount of aboveground gold in existence.

Unlike gold as money, paper currency is easy to reproduce. If the government wants to spend more money, it doesn't have to base that increase in spending upon incremental economic output. It can just decide to issue bonds and print money to pay for those bonds. Inflation occurs when the paper money supply is increased over and above marginal economic output.

TGR: So why is the price of gold volatile?

DK: The price of gold has steadily gone up every single year for 11 years. That's not really volatile; its one way, to the upside. The gold market is small and not very liquid. When someone wants to sell a lot of paper gold, and there are not many buyers, the price goes down, and vice versa to the upside. So we see large swings in price over short periods, but over the last 11 years, the price has only gone up. It has been less volatile than the S&P 500 over the last 10 years.

TGR: Large and institutional investors are showing some interest in gold. For example, George Soros has significantly increased his position. J.P. Morgan and other banks are investing in junior gold and silver mining companies, as are large mutual funds. Is this a significant change?

DK: Soros bought SPDR Gold Trust ETF (GLD:NYSE) shares, which is a derivative form of gold. It's not physical gold. SPDR Gold Trust is a decent way to index the price of gold over short periods, and I think that is what Soros is doing with his fund. But I'm also sure that Soros, himself, is accumulating physical gold.

A very, very small percentage of the institutional investment world is in gold—less than 1% of institutional funds globally. Very few of those institutions have taken physical delivery of gold. There are exceptions: Northwest Mutual took delivery of 400 million ounces (Moz) gold a few years ago; Texas Teachers Retirement keeps physical gold. There is a small institutional interest in accumulating gold via SPDR Gold Trust and other exchange-traded funds. But if you look at the three cycles of a bull market—smart money, the institutions and then the public—there is potentially a huge wave of institutional investing in gold yet to come.

TGR: Is J.P. Morgan's investment in Orezone Gold Corporation (ORE:TSX) a sign of increasing institutional interest in physical gold? Or is it just an aberration?

DK: We are starting to see some institutions wade into the world of junior mining stocks. If you look at the asset valuation of Orezone versus its market capitalization, it's very, very cheap. Its market cap is at a big discount in relation to its implied value.

TGR: What's the core investment strategy of Golden Returns Capital?

DK: My partner and I started Golden Returns Capital and our Precious Metals Opportunity Fund in 2008. We enable investors to accumulate physical gold and silver while also investing in a carefully selected portfolio of mining stocks. Our base case model is 50% physical metal and 50% mining stocks. We buy gold and silver bullion. It's either 1 ounce (oz) sovereign-minted coins like gold eagles or gold maple leaves, and we take delivery off the COMEX of gold and silver bars. We keep physical gold in a segregated account in a private, non-COMEX depository. Our fund directly owns the metal. The other half of the portfolio is invested in mining stocks. The breakdown is 50% large-cap mining stocks, like Goldcorp Inc. (G:TSX; GG:NYSE) and 50% junior mining stocks.

Importantly, when investors cash out, they can take delivery of their pro rata share of the gold and silver in the fund. If they want to cash out a couple hundred grand, and the breakdown is 50% bullion, 50% stocks, they have the option of receiving $100,000 in physical gold and silver. We'll deliver it, or we can arrange depository safekeeping.

TGR: But investors cannot cash out the value of the stocks as bullion, right?

DK: They could take delivery of the stocks, but it is easier to take the cash. The feature makes our fund unique. It's one of the few funds that have the ability to deliver bullion. Some of the ETFs can deliver, but an investor has to own a very high amount of shares—several million dollars worth.

TGR: What's the minimum investment in Golden Returns?

DK: Minimum investment is $100,000.

TGR: What metrics do you use to assess the value of junior mining stocks?

DK: We look at a range of firms: from companies poking holes in mineral lease claims to companies that have proved resources and are on the verge of becoming producers. I define a junior as a mining exploration company that's not producing and is depending upon the market for financing. I do not invest in evergreen companies. I look for a company that has a track record of drilling results. And, I want those results to come from areas that are proven producing areas, such as the Carlin trend in Nevada or the Durango silver belt in Mexico. Ideally, I like to see an NI 43-101–compliant mineralization report showing some Proved or, at least, Measured resources. I want a company to have on hand at least a year's worth of cash under normal operating and capital expenditure scenarios. Ideally, I want to see a large mining company as a sponsor. I want management to hold 5–10% of the equity. And the company must be operating in areas of relatively low political risk.

TGR: Are there are any junior firms that you like in particular?

DR: One of Golden Return Capital's largest positions is Rye Patch Gold Corp. (RPM:TSX.V; RPMGF:OTCQX). Management owns roughly 8% of the company. Kinross Gold Corp. (K:TSX; KGC:NYSE) owns about 15% of the equity. It has a little over 3 Moz in NI 43-101–compliant resources proved up. It is poking holes in the ground in a trend in Nevada that could potentially become the next Carlin trend. It has a $55–60 million (M) market cap. It trades around $0.60/share, and I see it as, at least, a $3/share stock down the road. It has about a year's worth of cash. The managers are experienced geologists, with a history of success in developing mining companies. Rye Patch is the perfect junior mining company model.

TGR: What about outside the United States or North America? Do you have any companies that you like?

DK: Orezone, which I mentioned, is in West Africa, a region that carries more political risk than Nevada. But the Chinese are buying up mining claims all over Africa. That lends the region stability. Orzone's market cap is about $136M. I have tentatively valued its crown jewel asset—the Bomboré deposit—north of $150M. Investors get the rest of the company for free, including a uranium exploration subsidiary that has a lot of upside. Management owns a decent amount of equity. It doesn't have a large-cap mining sponsor, per se, but various institutions own more than 50% of the equity. That's a stable investing base.

There may be some metallurgy risk regarding Orezone's ability to convert the resource into mineable gold at $1,700/oz, but I don't think that's a problem with the quality of its deposit. The company has already done a preliminary economic assessment (PEA); it is a couple of years away from putting in a mine. Management has a track record of developing a resource and then selling it. They just did that with one of its subsidiaries. It was a 450 Koz gold deposit, and Orezone sold it for the equivalent of about $45/oz in the ground. If I apply that metric to the Bomboré asset, I get an implied asset valuation of $155M versus the $136M current market cap. By definition, that's a value investment. That is why institutions are attracted to Orezone.

TGR: In March 2011, Orezone was trading at $5/share, and now it's roughly $1.75.

DK: It is a fact that the junior mining stock sector is down 60–70%. The whole sector has been beaten into the ground and, unfortunately, the babies are being thrown out with the bath water. We started accumulating Orezone when it was around $2.50/share. We are currently underwater, but we've been adding to the position as the price falls. When the pendulum swings back the other way, a lot of capital will flood into the juniors. I predict that junior gold stock prices will double and triple from their peaks a year and a half ago.

Let's say gold goes to $2,500/oz. What kind of market cap do you think investors are going to give companies with gold resources in the ground when gold is at $2,500/oz? If they're capping Orezone at $5/share when gold is at $1,500/oz, they're probably going to cap it at $10/share when gold is at $2,500/oz. If it gets back to $5/share in the next 12–24 months, we've had a hell of a return on our money.

This brings me back to what attracted me to precious metals back in 2001. In his newsletters, James Dines was pointing out that the total market cap of every publicly traded mining stock in the world in aggregate was less than the market cap of each of the Top 10 companies in the S&P 500. That's a staggering statistic. His thesis was that at some point, a massive wave of institutional money will flood into the precious metals sector, and it's going to be like trying to push Niagara Falls through a funnel. There will be a huge price explosion when that happens. We're probably a long way from that point. It's taken a lot longer than I expected, but I think eventually we'll get there.

TGR: What happens if we have Quantitative Easing (QE) 3?

DK: Some people would argue that the market's already pricing that in, and that's why the entire stock market hasn't gone lower right now. But there's a high expectation that the Fed will not do a QE3. If it does do it, gold and silver and the mining stocks will explode as they did when QE1 was announced in 2008 and QE2 in late 2010.

TGR: China, Russia, India and the Gulf States are accumulating massive amounts of bullion. How is that affecting the market?

DK: The Western central banks have been selling off bullion for the last 15 years. What I like to call the "Eastern Hemisphere central banks" have been accumulating that bullion. There has been a transfer of bullion from the Bank of England, the European Central Bank and the Fed to central banks in China, Russia and India. A lot of people don't realize that Vietnam is the fifth largest gold-importing country in the world. Obviously, the Gulf States have started accumulating it pretty aggressively. Recently, Mexico and some of the South American countries are showing up as large accumulators of physical gold, not through ETFs or any of the other paper forms, but actual physical gold.

TGR: How does that affect pricing?

DK: The steady climb of gold over the last 11 years reflects this accumulation by very wealthy interests in Europe and Asia. China has been voraciously accumulating gold. The International Monetary Fund sold 400 tons of gold a couple of years ago. But a lot of these central banks, instead of selling gold, are leasing it out. They rent their bullion to banks like J.P. Morgan and Deutsche Bank that turn around and sell it into the marketplace. That gold is going somewhere. It is going to these quiet accumulators of physical bullion. At some point and, again, it's impossible to measure when, the central banks and investors that have been buying physical gold will have to get more aggressive with what they are willing to pay. That will be the next stage in the bull market.

TGR: When you talk about leasing, these companies that lease the gold aren't actually taking physical possession of it?

DK: They're borrowing it. Then they go onto the London Bullion Market Association and sell it. It's a legal transaction, but it's a paper transaction.

TGR: Is it a form of derivative?

DK: That's correct. Say that you are J.P. Morgan and you've sold me some gold that you leased from a central bank. If I ask for delivery of the metal, you will have to find it and deliver it. That's where the problems are going to start.

TGR: That certainly could be a problem. Do you want to talk about any other junior mining firms that you're interested in?

DK: Our second largest junior position is Eurasian Minerals Inc. (EMX:TSX.V). It calls itself a project generator, but it's more analogous to the royalty model of companies like Silver Wheaton Corp. (SLW:TSX; SLW:NYSE) and Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX). Eurasian explores the world for properties that have been discarded by the larger mining companies because they did not contain enough mineralization to make it worth their while to develop at the time. For example, Eurasian has been accumulating land in Haiti. Up until a few years ago, Haiti was considered taboo because it was extremely politically unfriendly, unstable and corrupt. After a recent leadership change, Eurasian bought potential mining properties on the cheap. Then it sold a development interest in these properties to Newmont Mining Corp. (NEM:NYSE). Eurasian got its investment out of the properties, plus it retained a 30% interest in the Newmont properties. Also, Newmont owns 10% of Eurasian. It gets even better than that. The CEO of Eurasian, Dave Cole, worked for 18 years at Newmont. So you can probably see where this is going down the road.

Eurasian also has joint ventures in other properties around the world, including with Newmont. It has a huge potential copper deposit in Arizona that Vale S.A. (VALE:NYSE) is developing. I never thought Kazakhstan was a potential gold mining belt, but Eurasian has several properties there with the same type of deal.

TGR: You have described yourself as an investment contrarian. What is your parting advice on mining stocks?

DK: Mining stocks are at an extraordinarily cheap level vis-à-vis their historical valuations, especially when you measure them versus the price of gold. Large and small companies are basically trading at the same valuation levels in relationship to gold that they were when gold was at $400/oz back in 2003–2004. To me, it's the ultimate contrarian and value play to hold your breath and invest in these companies now. I think if you do it now, you're going to be rewarded with a lot of money down the road, especially if the fundamentals for supporting gold and silver only get stronger.

TGR: OK, Dave. Thanks for your time.

DK: Thank you, Peter.

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6/10/12 at 1:07pm

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08 June 2012

Gold Daily and Silver Weekly Charts - Monkey Shines

“What happened yesterday in the gold market was very interesting. One full hour before Bernanke's testimony, the bullion banks started selling. Over the next 4 hours, the bullion banks sold the equivalent of 515 metric tons of paper gold. This was in just 4 hours, and again, the selling started one hour before Bernanke’s testimony...

The real question here is, how could an entity begin selling such a massive amount of paper gold when there hadn’t been any news? (starting to sell before Bernanke's testimony)...

The bullion banks are ringing the register at both ends, while trying to extricate themselves from their short positions in the paper market. They are attempting to do this before transparency comes in to the market. They do not want a situation where the aggressive hedge funds actually get evidence that these bullion banks are naked short.

They are concerned that if it is discovered they are naked short gold and silver, those hedge funds will aggressively target those banks. This is what happened to JP Morgan, recently, when the London Whale got caught. As soon as Jamie Dimon was forced to admit a $2 billion loss, the sharks realized they were vulnerable and came in to attack. That has greatly magnified the size JP Morgan’s loss. The last thing powerful entities want to see is for this to occur in the gold and silver markets.”

London Trader at

King World News
One has to consider information such as this as input to be compared to other things, since we cannot directly view what the unidentified source is specifically seeing.

However, having watched the tape in real time and looked at the changes in Open Interest, it seems to be a credible description of what happened.

It also tracks closely with my own view of the game which we are in.

So as a further word of caution, if you cannot bear irrational volatility, do not trade the paper gold and silver markets. Take your positions according to your investment plans and then sit and wait.

I am perhaps not so sanguine that an end to the manipulation will come anytime soon as the London Trader seems to imply. Or perhaps this is just how I interpret what he says.

While Bart Chilton and the CFTC promise change and reform, it seems unlikely to happen anytime soon, at least before the national elections.

Still, one never knows. Change is in the wind.

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6/11/12 at 2:56pm

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Central Banks Back to Buying Gold

Big changes are afoot in the gold market. The short take: The new environment will favor long-term investors who buy and hold for years over speculators who try to trade day-to-day gyrations.

: Bloomberg News

For one thing, central bankers are back buying gold. Think it’s no big deal? The last time we saw the so-called official sector as such a consistent and major buyer was in 1965.

Central banks increased their gold hoards by 400 metric tons — each equal to almost 2,205 pounds — in the 12 months through March 31, up from 156 tons during the prior year, according to recent World Gold Council data.

The council “is now confident that central banks will continue to buy gold and has added official-sector purchases as a new element of gold demand,” writes Austin Kiddle in a report for London-based bullion dealer Sharps Pixley.

The recent data cement the fact that central-bank buying is here to stay. This stands in stark contrast to large-scale selling from 1966 through 2007. The majority of those years saw massive dumping of the metal by central bankers, punctuated by a few years of modest buying.

After the end of World War II, central banks had to hoard gold because it was the center of the global financial system. But as the Bretton Woods system, which relied on gold, collapsed in the late 1960s, the bankers no longer needed so much bullion. The system died in 1971.

Central banks started to warm to gold again during the 2008 financial crisis. The U.S. Federal Reserve began a campaign of money printing known as quantitative easing in 2008 to boost economic activity. In order to diversify away from greenbacks and other paper currency, central banks of emerging-market economies like Mexico started snapping up bullion. Central banks “will probably be continuous buyers of small volumes of gold for the foreseeable future,” says Jeff Christian, founder of New York–based commodities consulting firm CPM Group. By small volumes, he means 311 to 374 metric tons a year, or about 10% of the global supply.

So will that drive prices higher? Maybe, maybe not, says Christian.

He says that central bankers will avoid buying any quantity that dramatically affects the price. They know that the market is tiny, compared with the $4 trillion-a-day foreign-exchange market. Still, consistent buying of 10% of annual supply can’t but help keep the price elevated.

But that’s only one big change. The second: Short-term speculators have fled the market. Open interest of managed futures funds, considered a good proxy for all speculators, has dropped a staggering 28% since the beginning of September, to approximately 203,224 contracts as of June 5.

“I think we’ll see more volatility in gold because of the absence of speculators,” says George Gero, a precious-metals strategist at RBC Capital Markets in New York. Speculators often damp volatility because they add liquidity to markets.

The price of the metal, which closed up 0.2% Friday at $1,590.10 a troy ounce, could make major moves in very short periods, says Gero. In simple terms, the moves will be too big and too rapid for many short-term speculators to deal with.

“The best way to play gold is as a long-term investor as a hedge against loss of purchasing power of paper money,” says Gero.

See original post at Barron’s.

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6/11/12 at 8:30pm

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mjr...yeah..trying to trade gold stocks is really tough. Better to pick a few good ones and forget about it.

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6/12/12 at 9:04am

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Brave Enough to Buy Low

by Louis James

Casey Research

June 8, 2012

This time last week, I was at the Cambridge House World Resource Investment Conference in Vancouver, BC. Usually the show is quite hopping, but this time, while there was the usual mob and there was standing room only at several of the events Doug, the Casey crew, and I participated in, the mood was decidedly low-key.

But here's the interesting part: it was low-key, but not depressed.

In fact, with metals and related stocks having just had a particularly vicious few months in the markets, I was half-expecting an angry confrontation with a soon to be ex-subscriber... maybe more. But that didn't happen. People were quietly coming up to me and asking, "So, what are you buying?"

I subsequently heard from one subscriber who had followed our published advice to average down and after the June-first surge in gold, was overall in the black. This is no mean feat during a bearish turn of the market, but not really surprising when someone buys value when it's on sale.

Back at the show, I polled my workshop audience, as I often do. This was almost the last session of the last day of the conference. From out over the show floor, I could hear the sounds of the company promoters tearing down their booths. And yet, the hall filled to capacity, and there were people standing in the hallway outside by the end of my presentation. These were serious investors.

When I asked them how many were worried about gold's recent negative price movements, I was not surprised that only a handful put their hands up. When I asked them how many were excited by the opportunity, about three times as many put their hands up. That means most were unsure what to think, which is always the case, but I was pleased to see that there was a significant presence of people at the show who viewed the low energy level as a buying signal.

People brave enough to buy when others are not interested know the secret of how to "buy low and sell high" – they are true contrarians.

I know such people exist. I work with them every day here at Casey Research. But it's precisely because such investors are rare that contrarian investing is possible.

Quick reminder: to be a contrarian does not simply mean to do the opposite of what everyone else is doing. There can be wisdom in crowds – in a way, a market price is a distillation of mass judgment. And a broken clock can be right twice a day. No; it's not just about being ornery. A contrarian is a person who analyzes markets, finds trends she or he regards as very solid – solid enough to put financial weight on – and invests accordingly regardless of what others think, say, or do.

To maximize returns doing this, a speculator picks items that people must have, such as meat, oil, copper – and, yes, gold – when they are in relative disfavor and it's a buyers' market, then liquidates the positions when everyone else is jumping in with both feet and it's a sellers' market.

So, when a good chunk of my audience told me they were excited by the correction in the metals markets, and when individuals came up to ask about what we recommend buying, I was very pleased.

And I suppose it was actually a good thing that not everyone was a contrarian – or contrarianism would cease to be contrarian, and the profit would go out of it.

Fortunately, it's not easy to buy when the market is bearish and everyone is giving you 101 reasons why things can only get worse. Perversely, it's even harder to sell when everyone else is buying and congratulating you on how smart you were to lead the way to such a profitable investment strategy. Both take genuine courage and independent thought, neither of which are common traits.

I'm not worried.

But I am buying, on days like last Thursday (June 7), when more fearful investors will hit the bid at stupid-cheap price levels.

And I hope you are too, in whatever sectors you are investing in.

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post #79 of 307

6/12/12 at 9:06am

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Reserves in ground make gold stocks incredibly cheap - Coxe

During a recent conference call, BMO's Don Coxe stressed gold stocks are a solid investment-in the long run and that gold will gain in importance as banking crisis drags on.

Author: Dorothy Kosich
Posted: Monday , 11 Jun 2012

RENO (MINEWEB) -

In recent conference call to clients, BMO Global Strategist Don Coxe advised, "One way or another I think gold is going to be more important from now on than it is today, and I'd like to see you people share in that."

As the entire banking system in the Eurozone remains at risk from Eurozone crisis, Coxe doesn't "see a way of getting out of this without bringing gold back in somehow-I will applaud them if they can find a way to do that-- but in the meantime it's another reason for our continued support of investing in gold..."

However, Coxe believes "the best way to do this is no longer the bullion, it's the stocks, and we've given you a variety of reasons for it."

"The miners hold all the future gold," he observed. "The big advantage you have is you acquire unhedged reserves in the ground in politically secured areas of the world."

"Another way of looking at that is not to use the figures the gold mining companies use, (which they are required to) which is the average price of the metal over the last three years," Coxe advised. "It's better to use the gold futures curve, which is in contango and that if you could use that, and I am not saying legally you could, but you as an investor can say, "The contango is saying that gold prices are going to be stronger in the future than they are today, and I get all these ounces of gold when I buy a good mining company."

Coxe stressed gold stocks are a solid investment-in the long run...

"So not only are they incredibly cheap, (relative to their earnings) which means out of the current price of gold, but the real value relative to buying the GLD or just bullions is all those years and years of reserves in the ground," he noted.

Gold no longer four-letter word for elitists

"I believe the elites for a long, long time have regarded gold as irrelevant and a nuisance, but what is interesting is that despite that, these countries didn't dispose of their gold and in fact central banks have been nibbling away at adding to their reserves," Coxe observed.

"One way or another I think gold is going to be more important a year from now than it is today, and I'd like to see that you people share in that," he concluded.

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post #80 of 307

6/13/12 at 8:38am

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Louis James Says Financial Apocalypse May Be Coming

Senior metals analyst for Casey Research explains why he feels there is almost no limit to how high the yellow can rise, and why a 'Greater Depression' could also be forthcoming.

Mike Norman, Hard Assets Investor (Norman): Hi everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. Well, everybody has heard the name Doug Casey, the perma-bear. We don’t have Mr. Casey here today, but we do have Louis James, who works at Casey Research. He’s a senior metals analyst. Louis, thank you very much for coming on the show.

Louis James, senior metal analyst, Casey Research (James): Nice to be here.

Norman: I appreciate it. Now, I mentioned Doug Casey; he’s a well-known guy, wrote several books. Really, he mostly talks about Depression and Armageddon and very scary things. I think he has a new outlook right now, one calling for the Greater Depression. Is that right?

James: There’s not a new book out yet, but yes, that's the outlook right now, the Greater Depression.

Norman: So we had the Great Depression back in the 1930s. This is going to be, according to him, the Greater Depression?

James: The financial apocalypse now.

Norman: That does not sound good. Based on what? Granted, things are not so great right now, but why is he forecasting such a cataclysmic scenario?

James: The short version is, all the mega-trends that he likes to follow — demographics, economic trends, political trends, his “guru sense,” if you will — all come together and point in one direction. He believes that government policy over the last decades has really just kicked the can down the line. And he called for trouble in the 1980s. And it’s been put off. And now it seems to him that that’s at the end of the rope.

Norman: What kind of policy? Are you talking about basically the debt, the spending . . . ?

James: Debt, spending, money creation. I know we can disagree a little bit about what exactly constitutes that: the printing press, Bernanke and his helicopters and so on, all these things, the trouble in Europe, all converging, to believe that everything is fine, to believe that this recovery is real, that Obama has saved us, everything is going to be hunky-dory . . .

Norman: Well, I don’t think everybody believes that. I think there are many skeptics. And I think such things as the unemployment rate, or the sluggish nature of the economy would belie any claim that the economy has been saved. I think far from it.

James: So that’s bullish for both. If that’s the good news, that it’s a sluggish recovery, you’ve got Europe disintegrating — you’ve got to believe that the Germans are going to be happy to pay for France’s new socialism. That’s not a bet I want to take.

You’ve got to believe that the Chinese and the Indians are going to buy more of their own product — that’s not a bet I want to take. There’s a lot of bets that I really wouldn’t want to take to believe that we’re back to the boom years, things are going up, and that gold . . . what was it, a $1,900 peak last year, that was it. And it’s down here . . .

Norman: So I guess the main hedge against this forecast would be to buy gold? Is that it?

James: That would be the No. 1 hedge. Silver too. It’s the other monetary metal. And this is interesting, you put hedge against economic doom and gloom, that’s really the way to look at it. You buy gold for prudence — and this is Doug Casey speaking, I’m channeling Doug right now — to speculate on the vicissitudes of the market. You buy the stocks. Gold is for prudence. And ultimately, come heck or high water, an ounce of gold in your hand is some physical asset. Doug likes to say, “It’s the only financial asset that isn’t simultaneously somebody else’s liability.” And somebody will take that gold for something — 300 loaves of bread, gas for your car, something you need in the future. Gold is for prudence.

If you think you know which way markets are going to zig and zag, the gold stocks or the mining stocks in general are a great way to play that. Because whatever the underlying commodity does up and down, the stocks do even more.

Norman: Now you said basically you’re looking at a much weaker economic environment. Yet, if we look back just over the past year, when we saw growth in the United States go from a 3-percent-or-slightly-over rate, now down to 2 percent, maybe in the 1 percent handle this first quarter this year, gold has been going down. We haven’t seen a positive correlation with gold to the slowdown in the economy. So what makes you so sure that if the economy continues to slow that suddenly gold’s going to go back up?

James: I’d say two things. One is, gold did go up in 2011. And of course it hit its nominal peak, the $1,900 peak that we had last year.

Norman: Right, when the economy was expanding.

James: Well, it was also coincident with the debt ceiling crisis, right? A lot of fear went into this. And this is actually a really important point. There are some people out there that like to talk about the fundamental supply and demand for gold and what the price of gold should be. I think this is very silly. There is no “should be.” Because ultimately the supply of gold is almost infinite. Unlike silver or other metals, it doesn’t get used up. Most of the gold ever mined in history is still sitting on the surface of the earth in refined form.

Norman: But isn’t that fundamentally bearish. It’s not like oil, you burn . . .

James: That’s the point, yes. Hold that thought. So the gold is still there. Why isn’t it flooding into the market? Because of fear. People hold gold for prudence, as the fundamental safe-haven asset. So really the determining factor, the driving force for the price of gold, is not the supply and demand and mine supply — that’s all marginal. It’s a bottom-line fear barometer.

Norman: So you’re saying that people will never have to “monetize that.” They won’t have to sell it. It becomes money at some point which is used as a medium of exchange. Like if things get really bad, and you need to eat, somebody’s going to take your gold bars or your gold coins; is that what you’re saying?

James: That’s the ultimate backstop, yes. But between here and there, supposedly don’t go to Mad Max, right, driving around in the desert — it’s still an asset people will take.

Norman: How about this? If you have a tax liability — you live in the United States, right?

James: I do.

Norman: If you have a tax liability to the U.S. government, and you need to pay the IRS, and you go there with a bar of gold, or some gold coins, what’s the IRS going to do? They’re going to tell you, “Go sell that and give us U.S. dollars.” Are you saying that at some point down the road the IRS will say, “Forget about the dollars, we want your gold?”

James: The state of Utah passed legislation enabling . .

.

Norman: Right, but that’s not the federal government. States do that.

James: But it’s a bellwether kind of thing. That’s a striking strong wind, isn’t it? If a state government passes such a measure, doesn’t that sort of tell you something?

Norman: Personally I think it’s a silly measure because the gold standard, by the way it works, fixes the quantity of money. So if you think you’re going to grow your economy by fixing the quantity of money, then basically your economy becomes a zero-sum game where some people have the money and some people don’t.

James: I disagree.

Norman: It’s been that way for 5,000 years, until you went off it.

James: Well, no — it’s close, but not quite actually. There is mining. I said it was marginal, but there is mining. It’s an interesting thing: It turns out the natural growth rate of gold on the surface of the earth is about 3-plus percent. That’s what the mines in discovery over history have averaged out to.

And it turns out that if you’re trying to grow a stable economy, you’ve got a growing economy, you need more money in circulation to accommodate that.

Norman: Correct.

James: But that’s a pretty healthy level. That’s a manageable level . . .

Norman: I think the Chinese would argue differently. A 3 percent growth rate for China would be a Depression. But anyway, I guess it would be good for us. We were growing at 3 percent at one point last year.

James: I’m talking long-term historical averages. China had some very interesting peculiarities of its own . . . another conversation.

Norman: To be sure. So let’s talk about some price levels. Where do you see gold going, let’s say, in the next five years, in the next 10 years?

James: Oh wow, those are pretty long terms. Most of my subscribers want to know “what have you done for me lately; what should I buy now; where is it going next?”

It sounds crazy to say this, but there is almost no limit. If you were to actually go back on a gold standard, there are different calculations ranging from $10,000 to $40,000 an ounce . . .

Norman: Do you think that would ever happen?

James: . . . to back to dollar. Other countries have gone over the edge into hyperinflation, and people say, “It could never happen here.” But when you’re stuck between a rock and a hard place, very smart people do stupid things because they have no choice. And if such a thing were to happen where it became politically necessary to do something, what they do is . . . you’ve got the Yugoslavian currency going out of existence, and you’ve got to replace it with something — they replaced it with deutschmarks. When Zimbabwe had its hyperinflation, they basically said, “Hands off; you can use whatever currency you want.” So you replace what doesn’t work, what isn’t accepted, with something that is. So yes, I believe it actually can happen.

Norman: The problem with the examples you just gave is that when you start to denominate your debts in somebody else’s currency, or in some unit of convertibility, yes, that could happen. But the United States ... all of its debts are denominated in dollars. It’s . . .

James: It’s very interesting. It would be a tumultuous change. And this is why Doug is calling for the Greater Depression. These are not easy things. But just because it would be painful, just because the prescription, if you will, is chemotherapy and that’s serious business, it doesn’t mean you say, “Well, we’re just going to live with the cancer.” You don’t live with the cancer; you die with the cancer.

Norman: But despite the fact that since 2008, when the Feds starting to engage in these extraordinary monetary measures, etc., we have actually seen that the dollar itself has gone up. If you look at the dollar against a basket of currencies, the widely followed dollar index I think was something like 72, that index back in 2008 … it’s at over 80 right now. If you look at Treasury securities, they’ve been the best-performing asset out there. How do you square that performance with the argument — with the money-printing argument?

James: It’s interesting that in 2008, the Treasurys were the only asset — besides gold itself — that didn’t get just cratered, right? And gold did go down. It came right back up again.

Two sort of broad answers: One is, you have enormous advantages in being the reserve currency in the world. And you can basically export your inflation. And this is why we see the race to the bottom. You see Brazil trying to desperately devalue their real, and other currencies trying to do the same thing.

The Colombian peso of all things — they’re trying to inflate to keep up with the dollars that are flooding into their country.

Norman: That’s just bad policy, though. You don’t have to do that.

James: Well, I agree. But it’s the advantage of being the reserve currency of the world. Now, as that changes, your ability to do that changes. And as some of the time the Chinese start saying, “Well, maybe we should start doing business with Iran in something else besides dollars.”

The rules of the game are changing. It’s a very interesting time. So all these things that have been done since 2008 . . . you go back a couple hundred years, and the thing about economics is you have the seen and the unseen, the immediate and the delayed effects.

The off-the-charts responses of post-2008 have to have consequences: economic consequences . . .

Norman: I keep hearing this, like “Oh, there’s going to be hyperinflation, there’s going to be inflation.” That’s like me saying that one day the sun is not going to rise in the east. Yes, it won’t, because there won’t be a sun in 10 billion years. It’s useless information isn’t it?

James: No, ten billions years is a long time.

Norman: But look, in 1980, the national debt was $800 billion. Today it’s over $15 trillion. And interest rates have gone from 20 percent to zero. I mean, that’s 30 years we’ve been saying, “Watch out, watch out.” And it’s never happened. At some point don’t you just scratch your head and say the thesis is wrong?

James: If things were going two steps forward, one step back, and just kept going, maybe you can think that you can keep kicking this down the road. But so many charts of so many different economic indicators and figures have gone off the chart, one way or the other, since 2008. How can any sensible person look at that and conclude, “Yes, we can keep this up. This is the new normal. Trillion-dollar deficits, that’s the new normal.”

Norman: Well, that has been the normal for 234 years and longer. But I would agree with you on this: For any country that is not a currency issuer, if they’re a currency user, if their debts are denominated in somebody else’s currency, or if there’s some convertibility there, yes, that could be a huge problem. And that would absolutely apply to the eurozone countries right now. But I would say for countries like the United States or Japan or the U.K., or China for that matter, it’s not a problem. But anyway, $40,000 on gold, that is . . .

James: I didn’t say that was my target. I said that was one estimate.

Norman: That is very seductive. You might almost get me to buy gold right now.

James: That’s re-monetizing the dollar and something real backing it. Looking at the market and the way things are going and so on, I fully expect the fluctuations ahead of us to see $2,000 gold very easily, very easily. Can it go to $3,000, $4,000 before this bull cycle is over? Never mind monetizing the dollar, just the cycle, looking at it as “a” cycle and not the end of America or whatever, I can see $3,000-$4,000 gold, maybe $5,000 gold. But my near-term target is actually $2,000.

Norman: Well, we’ll have to see. Very interesting discussion, in any case. Louis James, thank you very much. That’s it for now, folks. We’ll see you here next time. This is Mike Norman, saying bye-bye.

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