Thursday, September 30, 2010
From Gold Core:
Gold has remained well bid above the $1,300/oz level and silver has risen another 0.7% and looks set to challenge the $22/oz level. Participants at the LBMA conference see gold rising to over $1,450/oz over the next year due to concerns about central banks' reaction to the economic crisis. LBMA delegates forecast silver to trade at $24/oz in 12 months time which it is a conservative estimate given the very strong technical and fundamental situation.
Gold is currently trading at $1,308.98/oz, €961.14/oz, £829.10/oz.
Silver looks very well technically and the gold/silver ratio has fallen to below 60 (59.84 - 1308/21.86) with 55 and 50 looking potential targets in the coming months. The relative undervaluation of silver to gold and the fact that it remains less than half of its (nominal) record price in 1980 is leading to strong demand for silver internationally and in Asia particularly. A period of high inflation or stagflation as was seen in the 1970s would again be bullish for silver and it would likely again outperform gold.
NEW YORK, Sept 28 (Reuters) - The U.S. dollar and the British pound fell against the euro on Tuesday as speculation rose those countries' central banks would provide more stimulus to their economies, which sent gold to record highs.
The euro surged to a five-month high against the greenback and to a four-month high against the pound on expectations the Federal Reserve and the Bank of England were likely to pump more money into their anemic economies, a process known as quantitative easing.
Gold futures rose to $1,310 an ounce and silver hit a 30-year high as a weaker-than-forecast U.S. consumer confidence reading and a report that U.S. home prices dipped in July boosted the precious metals' safe-haven appeal.
European stocks fell after the early U.S. data showing weakness while Wall Street closed higher as investors rushed to buy up stocks with strong performance and positive outlooks to avoid missing out on the 9 percent rally in September, typically the year's worst month for stocks.
"For lack of a better term, it really is a 'classic QE day,'" said Tom Fitzpatrick, chief technical strategist at Citigroup in New York. "Bonds rally, equities rally, the dollar goes down and gold hits new highs. At this point, that is what's driving the markets."
The Fed is likely preparing a fresh round of quantitative easing measures to announce at the end of its Nov. 2-3 meeting, hedge fund adviser Medley Global Advisors said in a report on Tuesday, a market source told Reuters.
The Fed is also weighing a more open-ended, smaller-scale bond buying program, the Wall Street Journal reported.
The Bank of England's Adam Posen became the first of the central bank's policymakers since November to urge more credit easing for Britain in order to avoid the kind of slump Japan experienced in the 1990s.
"The growing realization that ultra loose monetary policies may debase currencies is leading to continuing safe-haven demand for gold," analysts at GoldCore said in a note.
The weak U.S. dollar and low bond yields reflect falling investor confidence in the strength of the recovery, analysts said.
Gold for December delivery GCZO reached an all-time high of $1,311.80 an ounce before slipping back to settle at $1,308.30, a rise of $9.70. Silver XAG= rose to $21.65, a three-decade high on the spot market after the U.S. data.
Shown above is the Australian $200 coin, produced by the Royal Canberra Mint in 1980.
It was minted from 10.0 grams of 0.9167 fine gold (22 carat) which converts to 0.2948 ounces of gold.
At the time the gold value of the coin was less than $200, and if memory serves me right it was sold to collectors for approx. $240.
Why I describe it as Australia's last true coin is that like the silver 50cent coin from 1966 it is true money every sense of the world. It is of a standard purity and weight and has most importantly has acted as a store of value.
Why do I say the $200 gold coin is a store of value? Well today that coin is worth $430, but a pile of ten $20 notes from 1980 are worth? yes that is right $200. So now the question is do you want to save your "money" in plastic notes or as a digital balance in your bank account, or would you rather trust gold and silver to protect your savings?
By Ambrose Evans-Pritchard:
Stimulus leaking out of the West's stagnant economies is flooding into emerging markets, playing havoc with their currencies and economies.
Brazil, Mexico, Peru, Colombia, Korea, Taiwan, South Africa, Russia and even Poland are either intervening directly in the exchange markets to prevent their currencies rising too far, or examining what options they have to stem disruptive inflows.
Peter Attard Montalto from Nomura said quantitative easing by the US Federal Reserve and other central banks is incubating serious conflict. "It is forcing money into emerging market bond funds, and to a lesser extent equity funds. There has truly been a wall of money entering many countries," he said.
"I worry that we are on the cusp of a competitive race to the bottom as country after country feels they need to keep up."
Brazil's finance minister Guido Mantega has complained repeatedly over the past month that his country is facing a "currency war" as funds flood the local bond market to take advantage of yields of 11pc, vastly higher than anything on offer in the West.
"We're in the midst of an international currency war. This threatens us because it takes away our competitiveness. Advanced countries are seeking to devalue their currencies," he said, pointing the finger at America, Europe and Japan. He is mulling moves to tax short-term debt investments.
Goldman Sachs said net inflows have been running at annual rate of $520bn (£329bn) in Asia over the last 15 months, and $74bn in Latin America. Intervention to stop it creates all kinds of problems so the next step may be "direct capital controls", the bank warned.
Brazil's real has been one of the world's strongest currencies over the past two years, aggravating a current account deficit nearing 2.5pc of GDP. The overvalued exchange rate endangers Brazil's industry, especially companies that compete with Chinese imports. The real has appreciated to 1.7 to the dollar from 2.6 in late 2008, and by almost the same amount against China's yuan.
"Everybody is worried that global growth is fading and they are trying to use exchange rates to protect exports. Brazil has watched as the Asians intervened and feels it can't stand by," said Ian Stannard, a currency expert at BNP Paribas.
Brazil has used taxes to slow the capital inflows but the allure of super-yields and the country's status as a grain, iron ore, and commodity powerhouse have proved irresistible. It is a textbook case of the "resources curse" that can afflict commodity producers.
A $67bn share issue by Petrobras has been a fresh magnet for funds, forcing the central bank to buy an estimated $1bn of foreign bonds each day over the past two weeks. Such action is hard to "sterilise" and can it fuel inflation.
Japan has begun intervening to stop the yen appreciating to heartburn levels for Toyota, Sharp, Sony and other exporters. A strong yen risks tipping the country deeper into deflation.
Switzerland spent 80bn francs in one month to stem capital flight from the euro, only to be defeated by the force of the exchange markets, leaving its central bank nursing huge losses.
Stephen Lewis from Monument Securities said the Fed is playing a risky game toying with more QE. There are already signs of investor flight into commodities. The danger is a repeat of the spike in 2008, which was a contributory cause of the Great Recession. "Further QE at this point may prove self-defeating," he said.
Meanwhile, Dominique Strauss-Kahn, managing director of the International Monetary Fund, tried to play down the fears of a currency war, saying he did not think there was “a big risk” despite “what has been written”.
By Jonathan Kosares:
With the number of financial bubbles inflating and bursting over the past decade and a half, it isn't surprising that financial analysts have their "bubble-dar" honed and active. What is surprising though is the large number who have resoundingly dubbed the gold market as "the next big bubble." But is it? Most gold owners reject claims that gold is in a bubble, but they might not be sure exactly why. The most concrete and convincing evidence against gold being in a bubble, though, is right in front of us.
In the last 15 years, there have been two generally acknowledged, easily quantifiable bubbles: NASDAQ's tech bubble in 1999, and the briefer Crude Oil bubble in 2008. (Many would say housing was also a major bubble, but doing so may prove erroneous. Extreme home value loss is limited to certain areas of the country, and is not nearly as conclusive as the tech stock and oil collapses.)
Two characteristics are consistently present in the formation of a bubble. The first is magnitude, and the second is velocity. Long-term advances in prices do not necessarily represent a bubble just because of the duration, and neither does volatility as long as it is within a reasonable range. However, when prices rise sharply in a short period of time, and then drop sharply in an equally short period of time, one can reasonably conclude a bubble formed, and then burst. In other words, when magnitude and velocity combine to cause extreme volatility, that market likely is in a bubble.
Market bubbles defined
This study seeks to define exactly the level of volatility that separates a bubble from a non-bubble. One effective method for quantifying price volatility is to compare the daily price performance of a market against its 200-day moving average......read on
In recent weeks gold and silver have broken through their multi-month consolidation levels, and investors are wondering where the precious metals are headed. On a short term basis both gold and silver are overbought and due for a correction that may retest the breakout levels of $1,250 on gold and $20 on silver.
$1,500 Gold and $30 Silver By 2011
On a longer term basis, gold is at an all time high and silver is at a 30 year high. These breakout levels were key because they removed any supply of sellers wanting to sell near their previous purchase prices. The result will be a vacuum in price discovery, because virtually any investor in gold and silver now has a profitable trade and the price will have to rise until enough of these investors decide to take gains. Projecting from the size of the consolidation in precious metals the next key level where sellers arise could be near $1,500 gold and $30 silver by 2011.
Gold and Silver Have MUCH Higher to Run
Gold has risen every year for 10 years in a row now, demonstrating a powerful bull market that began in 2000. Since gold bull markets tend to last 15 to 18 years, investors are wondering how much potential the precious metals have in them. Gold and silver have to move substantially higher to revert to their inflation adjusted highs. However further dollar devaluation could multiply the potential gains.
The above analyses are in keeping with the projections of 102 other prognosticators, the majority of whom see gold reaching a parabolic price peak of at least $5,000 (see here for the 102 individuals and their projections and here for comments on Jim Sinclair's $1 million dollar bet that gold will reach $1,650 by January, 2011), and silver going as high as $712 (see here for the rationale for such an extremely high price based on $10,000 gold and here for the reasoning behind James Turk's contention that silver is going to $400 by 2015 and gold to $8,000).
While most of these statistics use the 1980 highs in gold and silver as a proxy, there is much more potential for a greater move in precious metals now because currency and economic imbalances are not confined to the U.S. but are global. If the US dollar is devalued, it is likely that the Euro, Yen and other currencies would also be devalued. While the 1970's bull market in gold and silver was largely driven by U.S. buyers, a panic to buy precious metals within the next 5 years will be driven globally.
As I said in the opening paragraph, "gold is likely to exceed $5,000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher."
Given what you have read above would you not agree that you should buy some (or more) gold and/or silver at the first sign of any temporary weakness in price? I certainly think so!
By Mark J. Lundeen:
We should always keep in mind that the DJIA is only 30 blue chip companies, so it's not the stock market. But the Dow has told the market's story very well for 125 years.
The "Experts" are making much of the nice rise in the DJIA this week. But I don't see anything to get excited about. For one thing, the Dow has been stuck between its BEV -20% & -30% lines for almost 11 months now. That is a long time for the DJIA to be stuck in a 10% trading range. This is especially so when we consider this is an election year, a time when politicians want happy voters. Nothing makes voters happier than a rising DJIA!
Since 1993, dividend yields have been below 3%, except during the 2008-09 crash when yields spiked up to 4.74%. But who was buying stocks in March 2009? People with more guts than me! The point of the small dividend since 1993 is that people have been buying stocks for capital gains, not income. But since last November, there haven't been any capital gains. Puts on indexes have been losers too. Look at the chart below. With capital gains in the stock market so hard to find, no wonder trading volume is so low.....read in full
By Steve Saville:
An article entitled "How Hyperinflation Will Happen" has garnered a lot of attention. According to this article:
"...hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same -- because in both cases, the currency loses its purchasing power -- but they are not the same.
Inflation is when the economy overheats: It's when an economy's consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.
Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It's not that they want more money -- they want less of the currency: So they will pay anything for a good which is not the currency."
Except for the part about hyperinflation encompassing a loss of faith in the currency, the above is almost completely wrong. In particular, economies don't "overheat", economic growth causes prices to fall rather than rise, and hyperinflation is very much an extension of inflation. The author of the article doesn't even mention money-supply growth. Trying to explain inflation or hyperinflation without reference to growth in the money supply is like trying to explain why the moon orbits the Earth without reference to gravity.
All historical episodes of hyperinflation that we know of -- and we know of many -- have been step-by-step processes set in motion by, and sustained by, increases in the supply of money. After the supply of money grows at a rapid rate for a period of at least a few years, some people conclude that the inflation will be endless. These people act today in anticipation of tomorrow's money-supply-induced price rises. As time goes by, more and more people come to the realisation that the inflation will most likely be endless and begin to act (meaning: buy stuff immediately) in anticipation of future price rises, which eventually leads to the situation where prices are rising much faster than the supply of money.
At this point it would still be possible for the central bank to clamp down on the inflationary trend by stopping, or even just slowing, the expansion of the money supply, because rapidly rising prices throughout the economy would result in a money shortage unless the supply of money were given a substantial boost. At the same time, however, the central bank could be under considerable political pressure to accelerate the monetary expansion given that doing otherwise would lead to extreme short-term economic pain. This, in effect, is what happened in Germany during the early-1920s: at every step along the multi-year path from inflation to hyperinflation to the complete collapse of the currency it was deemed by the central bank to be less economically damaging to maintain or accelerate the inflation than to suddenly bring it to an end.
The point we are trying to make is that hyperinflation doesn't just happen 'out of the blue' one day when nobody expects it. Instead, it requires persistently high money-supply growth and evolves over many years due to a gradual increase in the awareness of the population. It is part of a PROCESS and definitely is an extension of inflation, but most episodes of inflation don't lead to hyperinflation because the authorities stop the monetary expansion before it's too late.
Lastly, it should be noted that while most episodes of inflation don't extend to the point where the economy experiences hyperinflation, all paper currencies eventually get inflated to oblivion. The reason is that circumstances finally arise whereby the most politically expedient move is to risk hyperinflation by continuing the monetary inflation way beyond 'normal' limits. In this regard, today's paper currencies won't be exceptions.