Tuesday, February 15, 2011

Gold, Silver And The Dow Jones Industrials Their Progress From The Lows Of The Credit Crisis

Mark J Lundeen
12 February 2011
Let's take a look at gold, silver and the Dow Jones from their lows of the Credit Crisis, starting with the Bear's Eye View and price charts for silver.

Of the three, silver is the star performer, gaining 244% from its October low of 2008. Not shown in the silver chart below is the 57% crash from its high of $20.69 on 05 March 2008, to its bottom of $8.69 on 28 Oct 2008. What happened there? Well, I don't believe I'm compromising national security by revealing that our financial markets are a sea of stagnant "liquidity." This being the case, the steady rise of gold and silver prices from 2001 to March 2008 might have confused some people to the point where they might no longer see the US dollar as the "World's Safest Asset" in the months leading up to the October 2008 credit crisis.

So, the "policy makers" crashed the precious metal bulls' party to prevent rising gold and silver prices from becoming a vote of no-confidence on the world's reserve currency, just before Doctor Bernanke more than doubled the size of the Fed's balance sheet by purchasing $1.37 trillion dollars worth of Wall Street's toxic mortgage sludge during a 14 week period (Sept - Dec 2008).

Then there was that situation where some of the Fed's "un-named, favored financial institutions", found themselves on the wrong side of the trade in the precious metals market, getting squeezed by rising gold and silver prices, just as they are now. In any case, starting in March 2008, as the credit markets began their relentless slide toward a crisis on a scale not seen since the Great Depression, Wall Street still had enough ammunition left to torpedo silver three years ago.

If you want to know why silver, even at $30 an ounce is still a once in a lifetime opportunity, the lowest risk, highest profit potential investment you will ever make, do yourself a favor and take 30 minutes of your time to listen to the interviews above.

But let's move on to my silver price chart.

You'll notice I placed a dashed square and two dashed ovals in the chart, as well as some arrows marking places where silver had made new post 1981 highs. These objects were inserted in the chart to help locate the corresponding areas in the Bear's Eye View chart below. Note the different start dates in the two charts. In the silver * price * chart above I wanted to include the decline to the 2008 low in the price of silver so I pushed the series start date back 20 trading days. The green dashed vertical line in the chart above shows the point where I began my BEV series, using the absolute daily low of 2008 as the starting point in the BEV chart below.

When comparing these two charts of silver (both charts are based on the same data), it's obvious that a BEV chart treats all increases in the price of silver, * Above a Previous All-Time High * the same: they are all equal to ZERO. But it's obvious from silver's price chart how these new highs in the box and ovals are very different. However, the Bear's Eye View of the silver market shows the world as Mr Bear sees it, and Mr Bear doesn't care how high the bulls take silver up, only how far he can take silver down. It is from this perspective we should understand a BEV chart.

It's interesting that * before * the 25 March 2010 CFTC hearing on manipulation in the silver market, Mr Bear forced silver into a series of increasingly steep +15% corrections. But note that after the CFTC hearings these deep declines ceased, and the price of silver began an impressive advance (see silver's price chart). The two ovals mark the two most recent attempts by Mr Bear to take the silver market down. The green oval marks a sharp six trading day, 13% decline in November. It took just 12 trading days for silver to recoup this loss and move on to ever higher prices (see price chart). The second Bear raid (red oval), started in early January, and took 15 trading days to shave 14% off the price of silver. Silver has rebounded strongly after its January 28th low and only ten trading sessions later is close to reaching a new post 1981 high (BEV Zero).

It's significant that twice in the past few months, Mr Bear could not take the price of silver below the BEV -15% line. Something has changed in the silver market since March 2010. All things considered, we should assume the bulls are still in control of the price of silver. I expect we'll soon be seeing new BEV Zeros appear in silver's BEV plot, as silver surges to impressive new highs.


All my charts for silver, gold and the DJIA were prepared Wednesday, Feb 9th, so things may change a bit by my publishing date of Feb 11th. But as of Wednesday night, gold and the Dow are about even in their post credit-crash advances. The Dow has advanced 87%, to gold's 89%. But the Dow gained its 87% in 23 months, while gold took 29 months to advance its 89%.

But despite the similarity in the Dow's and Gold's progress, there is a HUGE DIFFERENCE in the coverage given by the financial media to these two markets. For the last 2 years, the financial media has offered the public "expert commentary" spouting the party line that the Dow is in a bull market, while gold is overbought or in a bubble likely to pop at any moment. They can't pronounce an end to the 2001-11 precious-metals bull market as they never acknowledged it in the first place. But the plots for gold and the Dow speak for themselves and what the NUMBERS show is that since their credit crisis bottoms, there has been little difference in their performance from one to the other.

But this hasn't been a fair footrace, as the stock market is being supported by the "policy makers", while gold has had to frog-march backward uphill. Don't think so? Well, then what should we make of Doctor Bernanke's comment below?

"Policies have contributed to a stronger stock market just as they did in March 2009, when we did the last iteration of this. The S&P 500 is up 20% plus and the Russell 2000, which is about small cap stocks, is up 30% plus."

- Doctor Benjamin Bernanke, CNBC Interview with Steve Liesman 13 Jan 2011 (1:40 PM).

Call me a market "conspiracy theorist" for believing the stock market is actively managed upwards by the US Government, but what you would call Doctor Bernanke who freely admits he's manipulating the stock market? And what should we call those market "experts" who will continue to deny official sector involvement in the financial markets, even after Doctor Bernanke admitted on TV that his $600 billion, second sortie into "quantitative easing" was targeted at lowering long-term interest rates? Is there any doubt that he clearly takes personal satisfaction that his post March 2009 "policies" gave the stock market a double-digit goose, and expects his QE2 to do more of the same? It's obvious that market prices today are only "policy" statements, and price discovery is kaput.

Gold has been going up consistently since 2001, but not everyone takes satisfaction in its ten year 458% gain. In 1998 (13 years ago), Doctor Greenspan felt the need to warn everyone that gold would not go up unopposed by "central bankers."

"Central banks stand ready to lease gold in increasing quantities should the price rise."

- Alan Greenspan, Congressional Testimony 24 July 1998

Doctor Greenspan was issuing a warning to the gold bulls not to mess with the "policy makers" and their central bankers. And indeed the central banks did "lease" much of their gold reserves as the price of gold was increasing 458% over the past 10 years. How much gold the West's central banks actually have left is a question that currently the "policy makers" would rather not have asked them. But it can't be MUCH if they are now so desperate as to shake down pension funds for their gold bullion, as we are informed by this Associated Press news story.

Dutch Central Bank: pension fund must sell gold

Feb 10, 2011 3:36 PM CT
By The Associated Press

AMSTERDAM (AP) - A pension fund in the Netherlands says the country's central bank has ordered it to sell its gold holdings because it is overexposed to a fall in the value of the yellow metal.

- End AP Snippet -

The Dutch Central Bank's concern for the glassworkers' union is touching. No doubt the Dutch "policy makers" have also noticed that gold has climbed just as high as the Dow Jones has for the past two years, and don't like it one bit.

Let's take a look at the price chart of gold.

Gold's progress has stalled since last September. It's currently sitting under a little inverted bowl that spans from Sept to January. But all-and-all, this is not such a bad chart. So let's go on to gold's BEV Chart. Again, the Bear's Eye View displays something not so evident in the price chart. Before the CFTC's 25 March 2010 hearing, the corrections in the price of gold took the price of gold down just short of 14%. But I note that since March 2010, after two nice advances in the price of gold, the bulls gave less than 8% of their gains back to Mr Bear each time the market corrected.

Could this be a coincidence? Maybe. But me, and Holland's glassworkers have our own reasons to suspect that something changed in the metals market after the CFTC's March 2010 hearing. In any event, gold's BEV chart clearly shows that gold's latest correction was the smallest since its credit-crisis low two and a half years ago. Gold's BEV plot indicates that the gold bulls are still strong, while Mr Bear is weakening. So, unless the European central banks can find some new gold bullion hidden in some other union's pension fund, I expect to see new BEV Zeros sometime in the not-to-distant future.

The Dow Jones Industrials

Now for the price chart for the DJIA. If I liked the chart for gold, I can't say I hate the Dow's chart. But I do question the wisdom of the "policy makers" ratcheting the Dow up when it clearly should be going down. I think it's fair to assume that left to its own resources, the stock market would be at much lower levels than it is currently, *AND* this is also Doctor Bernanke's opinion as stated in his quote above. " --- in March 2009, when we did the last iteration of this." So, no "Policy", no Double Digit gains in the stock market according to a man who knows.

The DJIA's BEV chart is interesting. Gold saw 14% corrections before and 8% corrections after the CFTC's March 25th hearings, while the Dow Jones had 8% corrections before, and a 14% correction after 25 March. This reversal in the pattern of market corrections between gold and the Dow are not the bloody-fingerprints left at the scene of a crime, but are intriguing all the same.

To see Doctor Bernanke's fingerprints on the stock market, let's have a look at the NYSE's trading volume. I didn't want to clutter this chart by including a plot for the Dow, but who today doesn't remember the greatest Dow Jones Bull Market in history ran from August 1982 to January 2000? And just as you'd expect, trading volume increased during this 18 year bull as more and more people entered the casino looking for action.

To get some perspective on trading volume, let's take a quick look at the 1929-32 crash, and the best year in Dow history, (July 1932-July 1933). The top in the Dow occurred in August of 1929, and like the Crash of 1987, we saw people fleeing for their lives as volume exploded during the crash months of October & November 1929. But from mid-month November 1929, to the market bottom in July 1932, trading volume just faded away as the public exited the stock market. Note how the Dow's best-year-ever had two surges in volume, corresponding to the two price surges that took the DJIA up 158% in just 12 months.

The charts above are a good example of the 100 year correlation the Dow Jones had with trading volume from 1900 to 2000. But this all changed after Doctor Greenspan's high-tech bubble popped in January 2000.

I inserted a BEV plot of the Dow (Red Plot) in the chart to display the radical difference in trading volume patterns since the year 2000.

The Dow Jones saw a 38% decline in price from Jan 2000 to Oct 2002, as NYSE trading volume exploded. Who was the big buyer during those two and a half years? This isn't remotely similar to the Oct-Nov 1929 crash (two months), or even the few days of the October 1987 crash. From 2000 to 2002, trading volume INCREASED during the entire decline, AND VOLUME DIDN'T BEGIN TO DECLINE UNTIL AFTER THE DOW TOOK OFF AGAIN! During the entire period from 1900 to 2000, the stock market hadn't seen anything like this! But since 2000, the historically weird has become the everyday normal where trading volume is concerned. Just look at what happened to the Dow during the credit-crisis crash. This was the #2 Bear Market bottom since 1885, but once again volume didn't contract until * After * the March 2009 bottom. Seeing this violation of historical trading patterns happen ONCE might be considered a fluke, but not twice in one decade.

It's not like it wasn't obvious to everyone who the big mystery buyers were. Heck, during the October 2008 televised Congressional Investigation on the credit crisis, many members of Congress outright told Doctor Bernanke and Treasury Secretary Paulson to get out there and "STABILIZE" the damn stock market! How is that done? By overwhelming purchases of stocks by the PPT, at above market prices, financed with monetary inflation. We should all wonder how much of the stock market is currently held by agents of the US Government as a result of Doctor Bernanke's "policies?" It must be huge!

Two years ago I was predicting a decline in the Dow of something over 60% from its highs of October 2007. But a decline of that scope wasn't the "policy", so it didn't happen - yet! This is all going to end in tears for the stock market longs, because the current "bull market" in the stock market is as phony as the money used to support it. You had best move on to something real like gold and silver, before the bottom falls out of this insanely over-inflated stock market.

Mark J. Lundeen
12 February 2011

Keiser Report: Behind the scenes

To all the fans of The Keiser Report via this blog I thought I would post this behind the scenes view of Max & Stacey preparing to film the report. I suspect the desk and green screen are in their unit in Paris, very chic.

Silver Investors are all Smiles

James Turk
February 14th, 2011

"This chart shows a massive accumulation pattern, marked by the green lines. This pattern is a story of strong hands and weak hands, specifically, of silver moving to the former from the latter.

From its $50 high in January 1980 to its $3.50 low in February 1991, the weak hands were shaken out. At that point, the accumulation by strong hands – who were buying because the recognized that silver was an exceptional bargain – became the dominant force. Their buying power was stronger than the selling pressure of the weak hands, and the price of silver responded by starting to climb. It was classic stage one action, but here’s the important point.

Silver is still in stage one. It won’t advance into stage two until $50 is exceeded, just like gold did not enter stage two until its previous high of $850 was hurdled.

I expect that silver will exceed $50 this year, which is a point of view I first mentioned in my outlook for 2010

Admittedly, I was a little early with my forecast about when gold would enter stage two. So perhaps I will again be early by forecasting that silver will enter stage two of its bull market this year. Regardless of the accuracy of my timing, one thing is clear. Because it is still in stage one, silver remains good value."

Bahrain Riot Police Use Tear Gas as Protesters Demand More Freedom

From Bloomberg:

Bahraini riot police were deployed to break up protests across the island nation as demonstrators, inspired by revolts in Egypt and Tunisia, demanded more political freedom and jobs.

Police fired tear gas into crowds in the areas of Diraz and Bani Jamrah. Earlier, residents of the Shiite Muslim village of Nuweidrat said clashes broke out between activists and police after morning prayers. Police were present on the outskirts of Nuweidrat, where Shiite flags adorned buildings along alleyways.

”We were starting our peaceful protests when riot police attacked us with tear gas,” Nabeel Rajab, head of the Bahrain Center for Human Rights, said in an interview after the protest in Bani Jamrah was dispersed. “We will continue our protests until the government hears our demand.”

A group called “the Revolution of 14th February in Bahrain” used Facebook Inc. to promote the protests today and has more than 13,400 followers on the social-networking website. The date marks the anniversary of the establishment in 2002 of a second constitution, which provided an elected parliament in Bahrain, home to the U.S. Navy’s Fifth Fleet, and made the kingdom a constitutional monarchy.

The Arab world has been shaken over the past two months by anti-government demonstrations over economic hardship and corruption that drove Tunisian President Zine el Abidine Ben Ali from office on Jan. 14 and forced Egypt’s Hosni Mubarak to resign and cede his presidential powers to the country’s armed forces on Feb. 11. Bahraini Shiites, who represent between 60 and 70 percent of the population, say they face job and housing discrimination by the government.

‘Protests Accepted’

In Bahrain, “protests are accepted and sanctioned by the law,” Foreign Minister Khalid bin Ahmed bin Mohammed al-Khalifa said today in an interview in the capital, Manama, before the rallies began. “I don’t see any reason for violence from any side. This is something we aren’t seeing as a domino effect. Maybe some people will look at it because it happened in Tunisia, because it happened in Egypt, let us have one day in Bahrain. To have the same effect, no, it will not.”

King Hamad bin Isa al-Khalifa ordered an increase in food subsidies and social welfare payments as the government sought to ease the burden of rising food prices, the Bahrain News Agency said Feb. 3. He also ordered the payment of 1,000 dinars ($2,653) to each Bahraini family. The Information Affairs Authority began talks yesterday with the media on a new regulatory framework....read on

Obama sends $3.7 trillion budget to Congress

By Robert Schroeder, MarketWatch

WASHINGTON (MarketWatch) — Opening a protracted battle with congressional Republicans about the size and scope of the federal government, President Barack Obama on Monday sent Congress a $3.7 trillion budget for fiscal 2012 that pours billions of dollars into infrastructure, renewable energy and other investments while attacking the record U.S. budget deficit.

Landing halfway through the history-making president’s first term and facing a harsh reception from Republicans, Obama’s budget blueprint puts dollar figures on his State of the Union pledge to “out-innovate, out-educate and out-build the rest of the world” — while also putting in place a five-year freeze on non-military discretionary spending and reducing the deficit by more than $1 trillion over a decade. Read budget documents on White House web site.

“In an increasingly competitive world in which jobs and businesses are mobile, we also have a responsibility to invest in those things that are absolutely critical to preparing our people and our nation for the economic competition of our time,” Obama said in his budget message. Read Obama's budget message.

Inflation, Hyperinflation and Real Estate

By Gonzalo Lira:

"Hyperinflation accompanied by a housing collapse is simply impossible - by definition."
- None-too-clever financial blogger.

Most people in the advanced economies - including most economists - really don't have any idea what inflation and hyperinflation is. They don't have a clue because they haven't lived through it, or were children when it happened in the States and in Europe during the Seventies.

They think it's nothing more complicated than a rise in prices that ripples through the economy - like a spectator in a football stadium who stands up, obliging the people sitting behind him to also stand up, so that they too can see the action on the pitch, which in turn forces the people behind them to stand up too, until finally, the whole stadium is up on its feet.

That's what these people seem to think: Inflation - and the more severe hyperinflation - affects all goods and services and asset classes equally, in a rippling effect. Sort of like a rising tide.

Because of this very foolish fallacy, many economists and interested observers think that real assets - commodities, land, buildings, factories & machinery - all rise in price equally during an inflationary spell, whereas financial assets - bonds, stocks - uniformly fall.

But this is wrong: It is at best sloppy thinking, at worst dangerously stupid.

Inflation - and hyperinflation - affects two things immediately: Near-term necessities (such as food and fuel), and credit.

The effects on basic necessities is obvious - but the effects on credit are more subtle and complex.

How does inflation and hyperinflation affect credit? By driving up interest rates - obviously. But what is the effects of rising interest rates in an inflationary/hyperinflationary environment?

Real estate price collapse.

Lenders - on seeing prices rising and purchasing power deteriorating in an inflationary economy - naturally raise the interest rate they charge, on the future expectation of inflation during the period of their loan. Obvious: If I lend money for a year, and expect the inflation rate to be 10% for that year, I'll naturally lend out my money at 15% interest - or more, if I think inflation is accelerating.

Borrowers on the other hand - on seeing interest rates rise, while their wages and salaries are at best playing catch-up to rising prices - curtail their borrowing: They either borrow less, or don't borrow at all.

Therefore, real estate sellers - who depend on lenders to provide their buyers with credit in order to sell their properties - are forced to lower their prices, in order to attract buyers. Law of supply and demand: They cannot force up the price of their real estate to match the pace of inflation, because if they do, they will simply not have any buyers.

Thus, in an inflationary environment, real estate prices either remain static or indeed fall on a nominal basis, even as inflation is debasing the currency, because real estate sellers will not find buyers willing to take on usurious debt in order to buy the property.

Chinese Demand For Gold Surges To Around 25% Global Production

From Forbes:

It’s hard to believe that ordinary Chinese citizens are responsible for an increase in gold imports to China– some 5 times larger than in the recent past. But, that is what the Financial Times of London reported this past week.

For one thing China is already the globe’s largest producer. So, it has its own domestic supply of gold. Also, it suggests that possibly the Chinese are utilizing far greater amounts of their savings to purchase gold, rather than increase domestic consumption. Or that official figures of Chinese wealth are being under-stated.

Gold prices have been in a consolidation phase, trading between $1325 an ounce and $1375 an ounce for the past few months, as the dollar has been somewhat stronger in reaction to improving statistics on the US economy.

Another positive for gold is last week’s recommendation from the IMF that $2 trillion in the form of a new international currency be created out of a weighted average of several currencies to begin the replacement of the dollar as the globe’s chief reserve currency.

Gold experts point out that the recent weakness in gold has hit the price of the small mining company shares worse than the majors as speculation in gold has quieted down. The speculative interests in gold futures on the Comex has been substantially reduced. And net redemptions in the ETF GLD, has reduced its gold holdings by $2 billion or almost 4%.

So, you might say that the Americans are slightly retreating from gold as the Chinese holdings show record increases.

Confessions Of A "Conservative" Investor

Arnold Bock
Back in 2004 I made the momentous decision to sell my house in a real estate market that was still spiralling northward rather than wait for it to peak and then try to bail out as it declined. I knew that my cautious inclinations would cause me to miss out on further upside gains, but I saw the writing on the wall - two walls, in fact. I realized it was just a matter of time before the housing bubble burst and believed that commodities were about to take off.

Why Commodities are the Ideal Investment for a Cautious and Conservative Investor

So what did I, a conservative investor, do with the cash kitty from the sale of my house and my other savings? I bought precious metals...gold and silver bullion as well as major, mid tier and junior mining companies. Some exploration and development stage junior stocks and warrants were added for balance and growth. For diversification, I also acquired some energy...oil and uranium, a few select base metals miners as well as some agricultural grains and fertilizers.

Back then, when someone asked about my new investments, my response was guarded but it invariably engendered head shaking scepticism bordering on wonder...about my stupidity. 'Goldbug' was a term I think I heard. It meant that I was one of those true believers whose judgement was impaired.

I always justified my investment decisions on the need for a conservative investment stance. Suggesting that 'volatile' commodities and precious metals were conservative investments clearly proved my ignorance. My investments seemed bizarre, given unlimited consumer credit and multigenerational low interest rates available to anyone with a pulse, at the time. It was an unprecedented sweet spot for all consumers.

My explanation for investing in precious metals, and other select commodities, such as oil, uranium, agricultural grains and fertilizers, was that I wanted a stronger and longer term financial foundation and greater certainty with my investments. This comment was invariably met with mirth bordering on derision.

At that time the merits of residential real estate was the obvious 'no-brainer' investment. The wisdom of buying, and even flipping multiple houses, was clearly apparent, wasn't it? However, I used to respond that residential real estate was too risky for my delicate constitution.

What about a 'balanced' portfolio of DOW and S&P stocks? Surely they were the tried and true formula for asset growth and retirement freedom? Oh yes, since I was getting older and had already retired, conventional wisdom demanded that I shift ever greater percentages of my investments into 'safe' fixed interest rate assets comprised of money market funds, government and corporate bonds as well as bank term deposits.

Assuming one wanted to be less actively involved in the management of his treasured savings, the obvious answer was to call one's friendly neighbourhood Financial Advisor. You know, that nice man who remembers your birthday and who seems knowledgeable and confident... surely he wouldn't steer me wrong, would he? He was a master in getting his clients into 'balanced' and 'diversified' mutual funds which seemed to make sense since they covered what appeared to be the investment waterfront.

Upon closer examination there was precious little exposure to commodities, including precious metals, or emerging markets. Because these were 'buy and hold' investments, one needed only to sit back and watch his portfolio grow. If it didn't grow, your financial advisor advised you that your returns were no worse than the herd comprised of the comparator group of funds managed by the industry's leading money managers.

A conservative investor also looks at economic fundamentals and trends. Unfriendly governments and geopolitical conflicts, such as those in the mid east, must be central to one's investment strategy. Another festering factor is huge and growing government/sovereign debt. If debt can't be serviced, it won't be.

Unlimited money creation leading to devalued currency, price inflation and higher interest rates are the inevitable consequences. Cash and fixed interest rate securities such as bonds and CD's can be hazardous to one's financial health in these circumstances. (For more on my views on why it is imperative to invest in commodities today to withstand and prosper from the economic realities of tomorrow please go here.)

If the reasons which caused one to buy a specific investment or sector remain intact, the conservative investor remains firm and resolute. During a market correction, one should test his judgement by asking himself whether he would still buy the investments already owned, at their currently depressed prices. Above all, one should not pay attention to the chattering 'talking heads' on business television. They represent nothing but 'industry cheer leading' and 'trading noise' which frequently results in doubt and a loss of perspective.

How Well Has This Cautious and Conservative Investor Done?

Since I climbed on to the precious metals and commodities wagon gold bullion has not had a down year although some of the PM stocks have not been as consistent. The monster correction in the financial markets in 2008/09 was brutal, but most everything has recovered nicely since.

More particularly, I didn't allow myself to lose confidence in the fundamentals which caused me to invest as I have. I refused to lock in my losses in down market corrections, including the current one in precious metals. Most corrections have been short and shallow. In fact a correction is the pause that refreshes when one is in a secular bull market.

This conservative investor confesses optimism in the future direction of his precious metals, agriculture and energy investments...the best safe haven during the turbulence ahead. Above all, they allow me to sleep soundly.


Arnold Bock is a frequent contributor to http://www.FinancialArticleSummariesToday.com, "A site/sight for sore eyes and inquisitive minds", and www.munKNEE.com, "It's all about MONEY" of which Lorimer Wilson is editor.

LOL - Tungsten Outperforms Gold, Returns 70% In Last Year

From Zero Hedge:

The comedic value of the various interpretations of this chart is simply priceless. We leave it up to our readers to share their views on why Tungsten has almost doubled in the past year, and what that means for the cost-benefit analysis for central banks in substituting "one metal" with "another"...

Silver Bullion COMEX Stocks at 4-Year Low as Backwardation Deepens

From Goldcore:

Gold and silver are higher after last week’s 1% and 3.5% gains in dollars. Silver is particularly strong again this morning and the euro has come under pressure as bonds in Ireland, Spain, Portugal and Greece continue to rise. While Asian equity markets were higher, European indices have given up early gains.

Silver’s backwardation has deepened with spot silver at $30.16/oz, March 2011 contract at $30.13/oz and April’s at $30.00/oz. While spot silver has risen nearly 1% so far today, the July 2012 futures contract was down 0.187% to $29.81/oz.

The gradual drain of COMEX silver inventories seen in recent months continues and COMEX silver inventories are at 4 year lows. Total dealer inventory is now 42.16 million ounces and total customer inventory is now at 60.68 million ounces, giving a combined total of 102.847 million ounces.

The small size of the physical silver market is seen in the fact that at $30 per ounce, the COMEX silver inventories are only worth some $3 billion. The US government is now paying some $4 billion a day merely on the interest charges for the national debt. It is also the same value as Twitter’s new venture round of financing or Ford’s debt pay down in the first quarter.

Comex Silver Inventory Data GoldCore
Comex Silver Inventory Data

Talk of a default on the COMEX is premature but the scale of current investment demand and industrial demand, especially from China, is such that it is important to monitor COMEX warehouse stocks.

The Hunt Brothers were one of a few dozen billionaires in the world in 1979 when they attempted to corner the market. Today there are thousands of billionaires in the world, any number of whom could again corner the silver market. Also, today unlike in the 1970s, there are sovereign wealth funds and hundreds of hedge funds with access to billions in capital.

The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge as it did in the 1970s.

Note: The COMEX referred to in this article is a division of the New York Mercantile Exchange (NYMEX).

Geithner Quietly Tells Obama Debt-to-GDP Cost Poised to Increase to Record

From Bloomberg:

Barack Obama may lose the advantage of low borrowing costs as the U.S. Treasury Department says what it pays to service the national debt is poised to triple amid record budget deficits.

Interest expense will rise to 3.1 percent of gross domestic product by 2016, from 1.3 percent in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015, according to page 23 of a 24-page presentation made to a 13-member committee of bond dealers and investors that meet quarterly with Treasury officials.

While some of the lowest borrowing costs on record have helped the economy recover from its worst financial crisis since the Great Depression, bond yields are now rising as growth resumes. Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration’s adjusted 2011 budget.

“It’s a slow train wreck coming and we all know it’s going to happen,” said Bret Barker, an interest-rate analyst at Los Angeles-based TCW Group Inc., which manages about $115 billion in assets. “It’s just a question of whether we want to deal with it. There are huge structural changes that have to go on with this economy.”

The amount of marketable U.S. government debt outstanding has risen to $8.96 trillion from $5.8 trillion at the end of 2008, according to the Treasury Department. Debt-service costs will climb to 82 percent of the $757 billion shortfall projected for 2016 from about 12 percent in last year’s deficit, according to the budget projections......read on