Tuesday, February 8, 2011

Fiat Food

Day Of De-Bottom

Warren Bevan
5 February 2011
Friday was to be a day of departure for Egypt's Mubarak, but it wasn't yet to be. It won't be long now imagine though as many countries are joining together and are ever closer to asking and even forcing him to leave now.

While de-parture didn't occur, de-bottom seems to have for Silver and Gold. Even US indices are shedding off all the calls for a correction in what is an unprecedented run higher. Markets don't work like this unless they are being propped up.

It looks like our move to a bearish posture was incorrect and we are now slightly offside's. It's never fun, but it will be made back quickly and with Gold and Silver breaking out trading profits are never far away.

Metals review

Gold rose 1.02% this past week and more importantly moved above the uptrend line on a closing basis. Gold also closed the week above the 21 day moving average, but just shy of the 100 day average.

I don't yet know if Gold's move lower is finished for this correction, but it appears to be and we will know for sure very soon. The US Dollar is rising, and at times they correlate oppositely so we'll have to see how the next few days or so play out.

The GLD ETF volume was nothing special at all this week which makes me still slightly suspect of the supposed break higher here. It only takes a few minutes to decide on and initiate a position though so things can change very quickly.

Silver rose 4.10% for the week and looks much better than Gold. It has closed the week above all moving averages and seems to have established a new uptrend channel here.

As you know, I would have much preferred a larger correction, but such is life. After this past week, a trading position in Silver is warranted.

I looked at the monthly chart recently and I didn't like what I saw. It's too parabolic and appears to have the look of a blow-off top in the making. But fundamentally Silver has so much further to go that I am not worried yet.

If we were closer to $200 an ounce and the monthly chart looked similar I may consider dishoarding a portion of my physical holdings, but that's a long ways away yet.

The SLV ETF's volume was slightly above average but nothing to write home about whatsoever. I'm slightly suspect of the move higher here, but have no choice than to be in a trading position.

Platinum rose a very nice 2.74% for the week after holding the lower end of the channel and horizontal support as well as the all important 21 day moving average.

Bam!! Platinum is unstoppable...for now!

It looks like we will see a pop out of the uptrend channel and possibly up to test 2008 resistance near $2,000. It wasn't long ago that Gold and Platinum were trading in tandem. Early 2009 in fact, Gold was even a bit more expensive!

If anyone tells you Gold is in a bubble ask them if Platinum is. You rarely hear of Platinum being in a bubble. It's actually rarer than Gold, but not nearly as significant as Gold in monetary terms.

When Gold rises they correlate it to financial crisis therefore the authorities do not want it, and have it talked down in the media. If Platinum rises, it's just simple supply/demand and there is nothing at all wrong.

The PPLT ETF's volume was huge on Tuesday as price gapped higher. Weak volume the remainder of the week is fine as this metal just keeps powering higher and only seems to get big volume on major highs and lows.

Palladium was basically flat falling only 0.08% on the week. It's uptrend is very intact still but the rising wedge pattern here is slightly troubling. These patterns usually lead to lower prices once the are resolved, but only time will tell us for sure.

A break of the downtrend line or 21 day moving average would be the sell signal here. Until that occurs you can continue to buy the dips.

The PALL ETF's volume was completely average all week with a very slight uptick on Fridays move lower. As a result there are no revelations from volume at all this week.

Fundamental Review

China has reportedly imported up to 200 tonnes in the last three months which would be roughly 8% of yearly worldwide Gold production. The heavy importing was said to have been in advance of Chinese New Year, which began February 3rd. Usually red envelopes are stuffed with cash and exchanged during the Chinese New Year, but apparently Gold is being put into the envelopes this year.

It's not my fault that China is taking over the world in many respects, so please don't berate me with hate mail. The facts are they are smart, have a long-term plan and are executing it. Western governments let it happen with their debt based system.

It doesn't matter if you agree with me on this or not, it's fact and the sooner you understand it the better off and more prepared you'll be. No point in being stubborn. Look at the facts honestly and decide for yourself.

What I'm working around to is that while the Chinese are far from perfect, they have done a lot more right lately than the West. They are buying Gold as quickly as they can at whatever price they can. I suggest you follow their lead in terms of Gold buying, whether you like their reasons for buying it or not.

A report was received recently where it was said that the Chinese Central Bank is going to increase their Gold reserves, and Silver as well. It was said that they would be using the recent weakness as an opportunity to buy both metals. It doesn't surprise me to hear this about Gold, and I may not have even mentioned it here. But to hear this about Silver is stunning.

Many societies, including China, have been on Silver standards in the past, and while it is industrial, it is also precious and can be argued as to have many of the same monetary values and features as does Gold. In the past Gold was used more for wealth storage, while Silver was used in day to day transactions due to it's cheaper price.

It's beyond what I can put into words how positive this is for Silver, if true. I guarantee if China begins buying Silver as reserves, many other countries will follow.

It's no secret that I've been much more bullish Silver than Gold for years and my portfolio reflects that tremendously. Last year was amazing to say the least. And better years are ahead!

$200 Silver may seem cheap in a few years. No joke.

Turkey's January Gold imports also rose to 11.12 tonnes of the good stuff. That is quite a bit, and a trend that should continue. January 2010 only saw 60 kg imported!

Three banks failed this SuperBowl weekend and joined 2011's list of biggest losers. Once again, they were announced after all was said and done for the week, late Friday evening.

Ben Bernanke issued a stern warning that if the debt limit ceiling failed to be raised promptly there could be catastrophic consequences. This is true. And there is no practical solution to a continued debt limit increase which will eventually lead to the failure of the United States Dollar as we know it.

His warning came during his appearance at the National Press Club where he told so many lies that I won't even go into it . I know I woke up the next day to glorious headlines of peace, love and prosperity, all lies if you even bothered to read past the headlines, let alone dig into the real numbers and truths.

Forget about it. Just buy some physical Gold, Silver, or nickels and sit back and ignore as much of it as you can.

The national debt in the US jumped an impressive $105.8 billion in January alone. That's about $3.14 billion per day. But if you break it down it's only about $10 a day for every man women and child in the US. The median US family size is 2.59 so it's only an extra $803 per average family per month added to the national debt at this rate.

No big deal. Who doesn't have an extra $800 a month to throw around right?

I know I don't!

My word that is a lot of cash, and it's likely to only grow over time. Stop the madness!

Apparently scams out of Sierra Leon still occur in regards to "cheap gold". Investors actually trusted these scammers and handed them large sums of money for cheap gold which was never delivered or only contained copper shaving. I get many emails from scammers every single day, most from small African nations.

**Note. If you've sent me an email starting with Dear Sir, or Kind regards from Africa and you didn't get one back I may have deleted on first site out of habit!

Gold is not cheap. The cheapest way to buy Gold is on the futures market. Other than that, you have to look at the charts and look for good entry points and shop around for the smallest premium. That is the only way to get a "deal" on Gold.

Silver sales have been soaring lately. 1 oz silver coins have broken sales records in January at the US Mint. Sales of 6.42 million coins were 50% more than any other year in the US Mint's 26 years of published data. At least they have the Silver so far.

The second highest monthly sales ever just occurred in November 2010, then 2010 supply basically ran out in December so we could well be at the start of back to back record breaking sales months.

It won't take too many of those types of months until we hear the "we ran out of blanks" excuse. Get the metals while you can because there will be a day when paper price and physical price has a huge spread. There is already a spread, but it's small compared to what's coming.

Here's a great one to finish on and consider. A rich investor bought twenty million nickels in order to profit from the coming fiasco. Anything that will hold value, including small coins with metal content, is a good investment. Apparently the nickel is actually worth $0.07 today and I'll bet you a nickel, a nickel will be worth even more over the next few years.

Enjoy the Super Bowl and the coming week. It should be a great one.

Warren Bevan

In my free, nearly weekly newsletter I include many links and charts which cannot always be viewed through sites which publish my work. If you are having difficulties viewing them please sign up in the left margin for free at www.preciousmetalstockreview.com or send an email to warren@preciousmetalstockreview.com with "subscribe" as the subject and receive the newsletter directly in your inbox, links and all. If you would like to subscribe and see what my portfolio consists of please see here.

What Do the Chinese Know That We Don't?

By Richard Russell:

February 4, 2011 - What do the Chinese know that we don't? According to my favorite newspaper, the Financial Times, the Chinese people are buying gold like there's no tomorrow. According to the Times, "Precious metals traders in London and Hong Kong said on Wednesday they were stunned by the strength of Chinese buying in the last month. The demand is unbelievable. The size of the orders is enormous. . . . . Official data shows China importing 209 tonnes of gold during the first ten months of last year: vs. 333 tonnes for India the entire year. . . . Traders say China will overtake India as the largest consumer of gold this year."

Russell Comment - China and India, between them, have a combined population of 2.6 billion people or near one half of the planet's entire population. China's leaders have been urging China's people to buy gold. India's population needs no urging, gold is built into the DNA of most Indians.

In answer to the question, "What do the Chinese know that we don't?" The Chinese know that all fiat paper eventually ends worthless. They also know that through the ages gold has been a store of value. The Chinese see their government getting out of dollars, and they are following their government's example. The Chinese people's alternative choice vs. fiat paper is gold.

The American people see that the Fed is now the world's largest holder of Treasuries. Treasuries are denominated in dollars. Americans are following the Fed's example. Americans are staying with Federal Reserve notes, still mislabeled as "dollars."

A dollar was originally defined in terms of specific weights of gold and silver. There is no definition for a Federal Reserve note. A Federal Reserve note can only be defined in terms of other fiat currencies.

So where are we? My studies show that the primary trend of the stock market remains bullish. Therefore, I recommend pilot positions in DIAs and more if there's a correction.

My studies indicate that the bull market in gold is still intact. The ideal position in gold is to hold the actual physical metal (hide it where you want). Otherwise, own "paper gold, GLD or SGOL.

I believe the world has "had it" with the Fed, the US Treasury and the US dollar. Swap your dollars for either of the above.

Sell your Treasuries, your munis, and all bonds. Sure they'll pay off, but they'll pay off with shrunken dollars.

A decent loaf of bread may cost you two bucks today. Ten years from now, the same loaf of bread may cost you ten shrunken dollars.

It will still be a decent loaf of bread, and they'll still call a dollar "a dollar." But that dollar will have lost maybe 90% of its purchasing power. No wonder the Valley Girls are screaming OMG. They're thinking about the future of the dollar.

Come to think of it, when I was a kid it was considered a sin to take the name of the Lord in vain. OMG! But who cares about sins here in 2011?

Richard Russell
email: Dow Theory Letters

© Copyright 1958-2011 Dow Theory Letters, Inc.

Richard Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.

He offers a TRIAL (two consecutive up-to-date issues) for $1.00 (same price that was originally charged in 1958). Trials, please one time only. Mail your $1.00 check to: Dow Theory Letters, PO Box 1759, La Jolla, CA 92038 (annual cost of a subscription is $300, tax deductible if ordered through your business).


JP Morgan to accept physical gold bullion as collatera

From Gold Core:

JP Morgan announced today that from now on they will accept physical gold bullion as collateral. This is a sign of gold’s further remonetisation in the global financial and monetary system. It may signal that JP Morgan is having difficulty in securing gold bullion in volume. JP Morgan is the custodian for many of the gold and silver exchange traded funds. They will not accept ETF trust gold as collateral.

In October, the clearing house of global exchange CME Group – CME Clearing – announced it will now accept gold as collateral for trades on the exchange. Gold bullion can be used for margins for CME trades, ranging from crude oil, gold, grains, equity indexes and Treasury bonds.

Given the current monetary, macroeconomic and geopolitical risk gold is an attractive alternative to debt, equities or other paper assets as collateral.

JP Morgans’s move shows how gold bullion’s fungiblity and tangibility as an asset makes it attractive and shows gold’s increasing importance in the financial system.

Interestingly, the CME is storing their collateral gold at JP Morgan Chase Bank in London. The exchange said it hoped to add additional depositories in the future but there has been no announcement of developments in this regard.

Silver prices remain in backwardation, showing that buyers are willing to pay a premium for silver delivered sooner rather than later.

Both gold and particularly silver are vulnerable to a short squeeze that propels prices beyond their recent record nominal highs. In the gold market that are some 80,000 short contracts which is more than 30% than the average short position in 2010.

The concentrated shorts who the CFTC has been investigating will be nervous and given the strong fundamentals in the bullion market may be forced to buy back their positions in order to protect themselves from significant losses.

The REAL Reason Ben Bernanke Leaves a Paperweight on the “Print” Button When His Finger Gets Tired


We’ve been over the numerous BS excuses that US Dollar destroyer extraordinaire Ben Bernanke has made for QE enough times that today I’d rather simply focus on the REAL reason he continues to funnel TRILLIONS of Dollars into the Wall Street Banks.

I’ve written this analysis before. But given the enormity of what it entails, it’s worth repeating. The following paragraphs are the REAL reason Bernanke does what he does no matter what any other media outlet, book, investment expert, or guru tell you.

Bernanke is printing money and funneling it into the Wall Street banks for one reason and one reason only. That reason is: DERIVATIVES.

According to the Office of the Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.

Five banks account for 95% of this. Can you guess which five?

Looks a lot like a list of the banks that Ben Bernanke has focused on bailing out/ backstopping/ funneling cash since the Financial Crisis began doesn’t it? When you consider the insane level of risk exposure here, you can see why the TRILLIONS he’s funneled into these institutions has failed to bring them even to pre-Lehman bankruptcy levels.

Ben Bernanke is a stooge and a fraud, but he is at least partially honest in his explanations of why he wants to keep printing money. The reason is to try to keep interest rates low. Granted he’s failing miserably at this, but at least he understands the goal.

Of course, Bernanke tells the public and Congress that the reason we need low interest rates is to support housing prices. He doesn’t mention that $188 TRILLION of the $223 TRILLION in notional value of derivatives sitting on the Big Banks’ balance sheets is related to interest rates.

Yes, $188 TRILLION. That’s thirteen times the US’s entire GDP and nearly four times WORLD GDP.

Now, of course, not ALL of this money is “at risk,” since the same derivatives can be traded/ spread out dozens of ways by different banks as a means of dispersing risk.

However, given the amount of money at stake, if even 4% of this money is “at risk” and 10% of that 4% goes wrong, you’ve wiped out ALL of the equity at the top five banks.

Put another way, Bank of America, JP Morgan, Goldman, and Citibank would CEASE to exist.

If you think that I’m making this up or that Bernanke doesn’t know about this, consider that his predecessor, Alan Greenspan, knew as early as 1999 that the derivative market, if forced into the open and through a public clearing house would “implode” the market. This is DOCUMENTED. And you better believe Greenspan told Bernanke this.

In this light all of Bernanke’s monetary policies and efforts are focused on doing one thing and one thing only: trying to shore up the overleveraged, derivative-riddled balance sheets of the Too Big to Fails.

The fact that the bank executives taking this money and using it to pay themselves and their employees record bonuses only confirms that these folks have NO interest in taking care of shareholders or their businesses. They’re just going to take the money and run for as long as this scheme works.

I don’t know when this will come unraveled. But it WILL. At some point the $600+ TRILLION behemoth that is the derivatives market will implode again. When it does, no amount of money printing will save the Too Bloated To Exist banks’ balance sheets.

At that point, it’s game over for Wall Street and the Fed.

Best Regards,

Graham Summers