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More Clueless Mainstream Commentary on Gold
Why Silver is a sizzling investment
By Jeff Clark
Jun 09, 2010
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During a week when almost everything went wrong, the gold market went very right. In fact, gold has been going very right for more than a decade. The gold price has more than quadrupled during the last ten years. So is it too late to buy the stuff?
My short answer is, “No.”
Admittedly, gold is not like any other investment. It is not merely a financial asset; it is the ultimate form of money. But that doesn’t mean it is always a good investment. Many investors make a case for gold laden with ideological fury over the government’s printing press. These investors are always saying buy gold. Their arguments are timeless, but not always timely.
If you bought gold in the 1980s and 1990s, your return was abysmal. So, as with all assets, there are times when gold is a really good buy and there are times when it is not. Sounds obvious, but many people seem to want to think that gold is an exception to the order of things. It isn’t.
But how do you know if gold is cheap? Well, intelligent people usually advance a couple of arguments:
1) On an inflation-adjusted basis, gold is 30% less than its all-time high in 1980. Okay, that’s true, but it’s not particularly timely because by that measure gold has been cheap for three decades. And who’s to say that the 1980 gold price is a benchmark we should pay attention to anyway? By that way of thinking, the NASDAQ is a bargain, too, because it trades at a big gap from its 2000 high. But is it? I think not.
2) The other point often advanced by the “gold is cheap” crowd is the old monetary base argument – that gold’s price tends to track the monetary base over long periods. The monetary base is essentially bank deposits and currency. It’s like the seedlings of inflation.
This second argument is a little more interesting. Yet, as the government has added huge piles to the monetary base in the last year or so, the gold price has responded in a muted way.
The hedge fund QB Partners really likes this argument. QB writes:
“True capital has already begun to flow where it is being treated best – to capital-producing economies and to global stores of wealth, from paper money and financial assets to hard money and hard assets…We think gold is cheap by a factor of almost 7 times.”
If a gold price of $7,000 an ounce doesn’t strike you as implausible or absurd, QB’s next comment might. QB says, “The gold price could move higher than [$7,000 an ounce] if it experiences a blow off top, like all other bull markets tend to do before exhausting themselves.” So, $7,000 an ounce, you see, is just some kind of base case.
Maybe it’s not so implausible. Strange stuff happens all the time in markets. If I had told you on 6 May that Accenture – a $40 stock with a $29 billion market cap – would trade for a penny a share the next day, you would have thought I was nuts. Yet, on 7 May it did just that, if only for a second.
As investors, we tend to think too narrowly within the confines of what seems probable. Yet, the really big money lies in the outlying events. As QB puts it:
Special FREE report from MoneyWeek magazine: When will house prices bottom out – and how will you know?
Why UK property prices are going to fall 50%
When it will be time to get back in and buy up half price property
Most investors allocate to the markets by playing the odds, which by definition gravitates capital to the middle of a bell curve of possible outcomes. This fools the investor into thinking that the probability of future events is somewhat predictable. Of course, history is rife with startling social, economic and political “tail” events. Stuff happens – things like earthquakes, the bombing of Pearl Harbor, the 1980 US Olympic hockey team, the demotion of Pluto, dotcom bubbles, liar loans and even periodic global economic failures and the re-assertion of gold as money.
This is essentially the familiar “black swan” argument made popular by Nassim Taleb. This is really the best argument for gold in my view. It is a hedge against really bad stuff happening. And when really bad stuff happens, gold holds up.
Of course, over the last decade, it has more than held up. Gold has been the best-performing asset class from December 1999 to December 2010.
People often invest by looking in the rearview mirror. They feel better investing in stuff that has done well. Even professionals feel this way. Money follows performance, which is why so many investors get mediocre results. They hop into the hot fund or sign up for the hot newsletter just as it is about to go cold. They abandon apparent losing strategies and sell poor-performing stocks just as they are about to turn up.
But the gold market is different because it’s so small. Even a small amount of interest in gold will send it up a lot. Just imagine if people decide a small sliver of that tall bar of financial assets should be in gold. We’re talking about some serious pressure on the gold price.
The gold market is still tiny
Frankly, the gold market is set up perfectly these days. You couldn’t design it better. Bad stuff is happening – see the crisis in Europe. And you can surely bet more bad stuff will happen, given all the debt and leverage that still remains in the system. Even if you don’t know exactly what will happen or when it will happen, you know a monetary crisis is good for gold.
As an added bonus, gold has a track record, which will attract fans soon enough. And when it does, it can’t really accommodate many buyers because the market is small. This means the chance of the gold price spiking upwards are pretty good. It’s like being in the lifeboat business on the Titanic. No price will seem too high!
• This article was written by Chris Mayer for the free investment email The Daily Reckoning
Updated: 5:01 p.m. ET June 7, 2010
© 2010 MSNBC.com
Gold Sales to Europe Jump on Crisis, Perth Mint Says (Update1)
By Jason Scott
June 4 (Bloomberg) — Gold sales to Europe from the Perth Mint surged in May as the Greek sovereign-debt crisis triggered a flight to haven investments, draining stockpiles at the producer of 6 percent of the world’s bullion.
Buyers from the continent accounted for 69 percent of gold- coin purchases last month compared with 51 percent a year ago, said Ron Currie, sales and marketing director. Individual German investors also bought silver, seeking to protect their wealth with “poor man’s gold,” Currie said from Western Australia.
Greece’s fiscal crisis roiled financial markets worldwide, driving the euro lower. Gold reached a record in May as sovereign-debt risks escalated. The mint is working at full capacity with 20 percent more staff than a year ago, Currie said.
“As soon as it was announced the European Commission was bailing out Greece, the German population decided they’d better hedge their euros by buying precious metals,” Currie said in an interview yesterday. “We had stock before this blip in the market, then it all went.”
Spot gold traded at $1,205.94 an ounce at 9:54 a.m. in Singapore today compared with last month’s record of $1,249.40 and $1,096.95 at the end of last year. The precious metal has gained for nine straight years. Silver, which peaked this year at $19.8275 an ounce on May 13, traded today at $17.9425.
‘Safety of Gold’
“Anyone throughout Europe who understands how the euro is being debased is seeking the safety of gold,” said James Turk, founder of GoldMoney.com, an online gold-buying and storage service that has passed $1 billion of customer assets. The metal may advance further next week, a Bloomberg survey showed.
European leaders have proposed an almost $1 trillion loan package to contain the region’s fiscal crisis, including funds from the International Monetary Fund. The euro has declined against all 16 major counterparts in the past three months, dropping the most against the dollar, with a 12 percent fall.
“The gold market in Europe, and particularly in Germany, has just taken off,” Currie said from the 111-year-old mint, which was founded on the back of a gold rush in the state that accounts for 62 percent of the nation’s mineral production.
“People in Germany are buying silver, which leads me to believe it’s the moms and pops stocking up on ‘poor man’s gold’,” said Currie. “They could be storing it in their homes or burying it in their gardens.”
The mint, controlled by the Western Australian government, has 300 staff and doubled capacity in the past 18 months, Currie said, declining to give a total output figure for coins and bars, or the value of the bullion stored on behalf of buyers. Investors can opt to buy and store gold at the mint, or buy coins to hold themselves.
‘Greeks Changed Everything’
“We came off the highs of the global crisis, we were rolling along at a steady pace for a while and the Greeks changed everything,” said Currie. Standard & Poor’s cut Greece’s rating to junk status on April 27.
The rush for bullion in May at the Perth Mint was matched overseas. The U.S. Mint sold 190,000 ounces of American Eagle gold coins last month, the most since December. Rand Refinery Ltd., the world’s largest gold-smelting facility, has raised weekly production of Krugerrand coins to a 25-year high, Treasurer Debra Thomson said yesterday.
CME Group Inc., the world’s largest futures market, said gold-futures trading rose to a record in May. Gold trading on the Comex unit was 4.82 million contracts, exceeding the 4.57 million record set in January, the Chicago-based CME said June 2.
“Sales have come off the highs of the global financial crisis, but they haven’t fallen anywhere near to where they were before the crisis,” Currie said. In the 12 months to June 30, sales of the mint’s 1-ounce Kangaroo and other gold coins may fall by about 16 percent to about 350,000 ounces from the year before, Currie said. Silver will match that drop even as sales of that metal spiked in the past two months, he said.
“It’s a volatile market and you can’t pick what’s going to happen from day to day,” Currie said. “The Indian market isn’t what it was, jewelry sales are down, but the ETFS are up and the overall gold price is still high. Our assumption is that volatility will continue.”
Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, rose to 1,289.84 tons yesterday. India’s gold imports may reach a 12-month low of 15 tons to 17 tons in May as rising prices slowed imports, the Business Standard reported yesterday, citing Suresh Hundia, president of the Bombay Bullion Association.
Western Australia produces 6 percent of the world’s gold, valued at A$5 billion in the year to June 30, 2009, according to state government figures. The mint processes all the gold mined in Australia as well as imports of scrap from overseas, Currie said.
To contact the reporter on this story: Jason Scott in Perth at email@example.com
Last Updated: June 3, 2010 22:22 EDT
‘Poor Quality’ Coin Designs Lamented
By Debbie Bradley, Numismatic News
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This article was originally printed in Numismatic News.
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The quality of coin designs presented recently by the U.S. Mint is being criticized by the Commission of Fine Arts and Citizens Coinage Advisory Committee.
“The issue of coin design quality is a real one and it needs to be addressed,” said Gary Marks, chairman of the CCAC. “The committee’s dissatisfaction was very apparent at the last meeting.”
In recent weeks the CCAC and CFA have reviewed designs for two sets of commemorative coins proposed for issue in 2011, one for the Medal of Honor and one for the United States Army. For some coins, both groups were unable to find any design proposals acceptable.
“We are getting pictorial decorative art,” said CCAC member Donald Scarinci. “We aren’t getting anything bold or inspiring or new or innovative. The only time those four words get used are in Director (Ed) Moy’s speeches. And the speeches have no bearing with reality.”
In a letter addressed to Moy, the CFA expressed “overall disappointment with the poor quality” of the alternatives presented for the 2011 commemoratives.
“…The quality of designs remains embarrassingly low, both in the often amateurish character of the artwork and in the generally poor compositions,” CFA secretary Tom Luebke wrote on behalf of the commission.
The coins and medals should distill the subject to its essence, Luebke wrote, “rather than present a confusing collage of multiple elements.”
Marks said the designs are more storyboard than allegorical and fail to use symbolism, which has always been a major device in portraying ideas in medallic art.
Take, for example, the Saint-Gaudens $20 gold piece, Marks said. Meant to depict a young nation that is strong, he used symbolism rather than multiple images of people doing tasks.
“Saint-Gaudens gave us an allegorical symbol of Liberty pictured as very strong, walking toward us as if coming into the future with some powerful allegorical symbols in her hands. It was that symbolism that made the design great. What we often see now is the storyboard approach.”
Recent designs for a coin honoring the U.S. Army had images of people stacking sandbags, looking through a microscope and working in an Army command center.
“Those are just not designs that are appropriate for a coin, particularly a small coin that is little more than an inch in diameter,” Marks said.
The CFA concurred, noting that “the U.S. Mint should approach the design process as the creation of small pieces of sculpture to be held in the hand.”
Luebke questioned how much the Mint participates in the formulation of the actual narratives that are adopted by Congress in the coin and medal authorization process.
“In some cases it may be the narratives themselves that are too restrictive and complicated that lead to these overwrought compositions,” Luebke said.
Just don’t blame the artists for the designs presented for consideration, Scarinci said, calling them probably the most talented group of artists at the Mint since the turn of the (20th) century.
“What’s frustrating me is I know what these artists are capable of and I know what they’ve done,” Scarinci said, naming artists including John Mercanti, Don Everhart, Joe Menna and Phebe Hemphill.
“I agree with Donald,” Marks said. “This isn’t about the skill or ability of our artists. This is about the process that produces these designs. But I’m not going to point a finger. We are all in this together and need to find a solution together.”
Director Ed Moy said he’s ready to make that happen.
“While we have wonderful artists on staff, and have brought in outside ideas via the Artistic Infusion Program, we know we can do better,” Moy said. “I have laid out a vision, and we are working to make sure that the right infrastructure and resources are in place to nurture creativity along.”
But Scarinci is not convinced.
“The fact that the CFA and the CCAC only rarely see great coin and medal designs is not the fault of John Mercanti or the artists who work with him,” Scarinci said. “The fault, unfortunately, is with the Director himself. The standard of excellence that Director Moy set for himself and his staff in 2007 (at the FIDEM convention) is the standard that history will use to judge his directorship.
“By his own standard, Ed Moy has failed.”
But beauty can’t be forced, Moy said.
“The only American renaissance of coin design occurred because of a committed President and one of the best artists our country has ever had,” Moy said. “Absent that, beauty cannot be forced to happen nor created by a recipe book.
“I’m also in the process of contracting for the services of expertise in arts management to further cultivate artistic excellence, to help lay the foundation for the Mint and inspire some breakthroughs.”
The process followed to produce the designs may be part of the problem, Marks said.
“We’re at the end of the process and are presented finished designs and asked to recommend them,” Marks said. “We need more of a dialogue and to be in touch with each other so the product at the end can be something people are excited about.
“I don’t want just good. I want outstanding and exceptional,” Marks said. “Other nations are doing it, and I feel we can, too. And we will get there.”
But that won’t happen without drastic changes, Scarinci said.
“I think it is long overdue for the President to replace the Director, and thereby replace the senior staff,” Scarinci said.
The Mint is being run as a manufacturing facility by public employees “obsessed with deadlines, marketing concerns and a passion to avoid controversy and public discord,” Scarinci said. “The art that comes from the sculptors is mere decoration, and the input by the CFA and the CCAC is not sought, but tolerated because Congress requires it by law.”
Luebke noted that a study of design decisions for coins and medals over the past five years showed that the choice the Mint made was consistent with CFA recommendations slightly less than half the time.
What Gold Can (and Can’t) Do For You
By Ben Baden
Posted: May 18, 2010
It wasn’t so long ago when the Euro was flying high and some experts were predicting that the dollar could be replaced as the world’s reserve currency because of the United States’ ballooning deficit. Now, there are fears that Greece could default on its debt and even the Euro may cease to exist. The dollar has made gains against the Euro, but the real winner in this debt crisis can’t be printed by central banks. It must be harvested by miners: gold.
While the Euro has taken a hit, gold has shot up to all-time highs, above $1,200 per ounce. Investors must decide for themselves whether or not commodities like gold belong in their portfolio, but for those who want to know what all the fuss is about, here are a few things to know:
It has never been easier to invest in gold. Exchange-traded funds have revolutionized investors’ access to commodities. “The ease and liquidity of ETFs have really opened up commodities in general as a new asset class for investors,” says Tom Lydon, editor of ETFTrends.com. “In the past, for investors to buy gold, they either have to buy the coins or the bullion, and now in the form of ETFs there’s a whole variety of options,” Lydon says. In addition to buying gold through futures contracts, investing in physical gold—bars in underground vaults—through ETFs is now possible.
[See The Appeal of Gold ETFs.]
Gold can diversify. A small amount of gold can limit the overall volatility of your portfolio because it often performs differently from mainstay investments like stocks and bonds. “Gold and some other types of commodities are what you call non-correlating assets, so they tend to move independently of overall moves in the market,” says John Diehl, senior vice president in the retirement division at the Hartford. Gold sometimes reacts differently to market selloffs, which can help offset losses in stocks.
Gold as a reserve currency. The past few weeks have been a roller coaster ride for stock investors, punctuated by steep falloffs and strong rallies. The market’s behavior is partly due to worries that debt problems in some European countries like Greece could spread to other parts of the European Union and damage the Euro. The dollar has rallied somewhat in responses, but the United States has debt problems of its own.
The world’s primary reserve currency—the most commonly held currency by central banks around the world—is still the dollar, but when fear strikes the market, many investors flock to the safety of gold. “It’s not irrational that people are buying more gold right now because in the past, you had two reserve currencies, potentially, then you were down to one with the Euro, and now you may be down to none for a while, so gold is really the ultimate reserve currency,” says Paul Zemsky, head of asset allocation for ING Investment Management. “It’s the only thing that holds its value even if central bankers and governments are eroding the value of their own currency.” When there are global concerns about monetary policy, Zemsky says, gold will benefit from a flight to quality.
It has been a good, long run. The shiny metal set record highs last week. Diehl says he is worried that some investors who are new to commodities may not know what they’re getting into. “If fear in the market is at a high and everyone you talk to is saying, ‘Hey, you should put your money in gold,’ as a contrarian investor, that should be somewhat of an alarm to say, ‘Is this really the right thing to do? When everybody says, ‘Now is the right time to buy anything,’ you can generally feel fairly confident that it probably isn’t,” he says. A general rule of investing, Diehl says, is to look for asset classes that seem to be undervalued, and gold could be reaching its peak price.
Gold can be extremely volatile. Gold can provide diversification, but investors should be aware of the risks of investing in commodities. “Gold is really a precautionary hedge and not something your whole portfolio should be in,” Zemsky says. He recommends that investors only have 3 to 5 percent of their overall portfolio in gold. Diehl is even more cautious. “A singular bet on gold is, at its core, still a singular bet,” he says. “Just as emotions are volatile, the price of gold is a pretty volatile asset.” He suggests finding a fund that invests in a broad basket of commodities and not just in gold alone. Two popular choices are PIMCO Commodity Real Return Strategy Fund (PCRAX) and PowerShares DB Commodity Index Tracking Fund (DBC).
By Patrick A. Heller
With all the financial turmoil in Europe over the past week, the U.S. dollar has risen in value against almost all other world currencies. Even with the $1+ trillion rescue package (including significant assistance from the U.S. government – meaning U.S. taxpayers) set up to assist Greece and other European countries with their sovereign debt crises, currencies like the euro are shaky enough that investors are scurrying to get out of it.
Most mainstream investors think in terms of which currency into which they will park their investments. Generally, they don’t think of gold (or silver) as representing an alternative currency at all. Among all the paper currencies, the U.S. dollar looks to be the “least bad” right now. Therefore, in the past few days, investors are flooding into U.S. Treasury debt and other dollar-denominated paper assets
All of this positive news for the value of the U.S. dollar is just temporary. In reality, the U.S. government has grown the size of its debt and budget deficits past the point of no return. According to David M. Walker, the former comptroller general (chief accounting officer) of the federal government, and others, the U.S. government’s actuarial liabilities and debt now exceeds $100 trillion. This is so large, more than six times the size of the U.S. economy, that it can never be paid off except through hyperinflation of the U.S. dollar into becoming worthless.
The size of the “official” federal government budget deficit for the 2010 fiscal year is forecast to be $1.4 trillion dollars. This is the much smaller “cash-flow” figure rather than the correct “actuarial” deficit which would include all the commitments that the U.S. government is now incurring but postponing payment into the future. Even using the smaller number, the size of the deficit is so huge that, at current gold prices, the deficit could purchase more than 30 percent of all gold mined worldwide over the past 5,000 years.
Keep in mind that this is just the “smaller” deficit figure for just one nation for just one fiscal year. Future federal budget deficits are projected by President Obama and his staff to continue on this scale for at least the next several years (which I consider to be hopelessly optimistic).
As more investors realize that the U.S. dollar is no more stable in the long run than other currencies, the demand for physical precious metals will inevitably continue to rise. So, even though the dollar may look somewhat strong at the moment, it is destined to collapse in value. Unfortunately, as we saw with the Dow Jones Industrial Average last Thursday, the value of the dollar could suddenly plummet so quickly that the average investor has no opportunity to get out “just in time.” With such a high risk of being hit with a sudden loss for holding U.S. dollars and dollar-denominated paper assets like stocks and bonds, the sensible step is to get out of the dollar right now – at a time when it looks to be temporarily overvalued.
In years past, value of the U.S. dollar typically had an inverse relationship with the price of gold. If one was rising, the other was declining. That has not been true for the past week or two. It is entirely possible that the current temporary jump in the value of the dollar could lead into a much higher gold price in the coming weeks.
Other news notes:
1. The investigation into JPMorgan Chase’s silver trading practices is expanding. Commodity Futures Trading Commission officials have unofficially announced they are conducting a civil investigation of JPMorgan Chase. The Anti-Trust Division of the Department of Justice has now sent e-mails stating that it has started a criminal investigation against the company. The investigations would include trading conducted on the London Bullion Market Association by the bank’s London office. JPMorgan Chase does not yet face any charges from either agency.
In the fourth quarter of 2009, JPMorgan Chase’s derivatives position in the silver market increased by 220 million ounces. I am confident that most of this was unleashed to help hold down the price of silver.
As JPMorgan Chase is the lead trading partner executing the orders of the Federal Reserve, it is hard for me to think that the ultimate results of these investigations will severely cripple the bank. However, just the existence of the investigations could be enough for the price of silver (then gold) to shoot upwards.
2. Most major international financial conferences are arranged a year or more in advance. On May 11, the International Monetary Fund and the Swiss National Bank will be co-hosting a meeting of a number of the world’s major central banks, financial companies, and market analysts to discuss the current global currency crisis. That this meeting was only announced on April 23 is a sign of the urgency and depth of the crisis that is now affecting global markets. I’m not sure how it will be possible to come to any kind of agreement on such short notice that would reassure investors in stocks, bonds and currencies. If this meeting completely fails, you know, I suspect that there will be a lot of pressure for the media to not even report on it. In my judgment, the results of this meeting will give a good indication of where paper asset and precious metals markets are heading in the next couple of weeks.
3. With the nearly panicked reaction in European and other markets late last week, and the loss of trillions of dollars in the value of paper assets, it was almost certain there would be a major effort to prop up European currencies and all stock markets on Monday. That is just what has happened, with European stock markets up 5-9 percent on May 10, and almost all other stock markets up by a lesser degree. The market manipulation required to pull off this accomplishment almost looks like it cost more than $1 trillion dollars. These amounts are so large that the central banks simply cannot afford to commit to this level of resources very long. Even with stronger markets for paper assets, gold and silver are not retreating. I think that any sign of weakness in any paper assets could be sufficient impetus to start a flood of investor money into precious metals, accompanied by quickly rising prices.
4. I constantly complain that the mainstream media is totally ignoring what has really gone on in the world financial markets in general, and in the precious metals markets in particular. That is changing. “The New York Post” is the source of the inside information on the CFTC’s investigation of JPMorgan Chase. Last Friday, the “Los Angeles Times” included a glowing story on the prospects for owning gold. It even included the fresh information that European demand for physical gold is so strong that it is already almost impossible to find any to purchase (which I consider a sign of what is likely to occur in the U.S. within two weeks).Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at www.libertycoinservice.com. Other commentaries are available at Coin Update (www.coinupdate.com) and Financial Sense University (www.financialsense.com).
JP Morgan’s Alleged Manipulation of the Silver Market
A Modern Day Metals Conspiracy Theory
By Adam Sharp
Monday, May 10th, 2010
On Friday, something strange happened in silver markets.
I was sitting at my desk, eating some Fritos and daydreaming about the weekend.
Suddenly, silver spiked 5% and I was jolted out of my pleasant daze.
The move happened fast and silver barely budged for the rest of the day. Clearly, something happened. Action like that shown in the chart below doesn’t just occur naturally in the market.
The red line shows 1-day silver prices for Friday (chart courtesy of kitco.com).
I walked over to my colleague Ian Cooper’s desk. “What the hell’s going on with silver?” I asked.
He didn’t know. Nobody did. A news search turned up zilch.
Gold was near flat and ended the day up less than 1%. The dollar was down, but only by 0.5% or so. So the silver move was isolated.
The price jump was a mystery, apparently — the good kind of mystery, if you own silver miners and bullion like I do.
I didn’t think anything else of it.
But this weekend, I came across an article that may shine some light on the spike.
Saturday’s NY Post had a story about JP Morgan’s (NYSE: JPM) possible role in silver market manipulation. According to The Post, the CFTC and Justice Department have launched both civil and criminal investigations into the matter.
JP Morgan has long been accused of depressing silver prices, along with several other “bullion banks.” Some theories say they are acting as agents of the Treasury Dept., keeping metal prices down makes the dollar more attractive as a reserve currency. Some think they’re just doing it to reap huge profits by moving entire markets.
But this is the first we’ve heard of an official investigation with the possibility of criminal charges being filed.
Gold & Silver Conspiracy Theorists Vindicated?
Organizations like GATA (Gold Anti-Trust Action Committee) have been sounding the alarm about manipulation of precious metal markets for years. They accuse big banks like JP Morgan of holding “naked” shorts on silver and gold — meaning they are promising something they could never actually deliver.
GATA and other goldbugs have been dismissed as tinfoil-hat wearing morons all along (much like those who said Goldman Sachs was engaged in fraudulent sub-prime schemes… and we know how that turned out).
Now it appears that these “kooks” may have been onto something. They’re not vindicated quite yet, but their story is starting to look a lot more credible. The non-believers among us may have to don tinfoil hats and do some grovelling before this is all over.
Because this doesn’t appear to be your typical wrist-slapping exercise, where the SEC fines a bank some percentage of the profits they reaped from the illegal act, and nobody is forced to admit fault.
We’re talking about a full-blown criminal investigation by the Justice Department here. This could be huge.
Apparently Obama is taking notice of his abysmally low approval ratings. As a result, he’s desperate to kill the widely-perceived notion that he’s in bed with the banks.
Just a thought — but perhaps Obama shouldn’t have stacked his appointees with banksters in the first place…
Regardless, it’s clear that the administration is putting pressure on financial regulators. The regulators, in turn, are putting the screws to the biggest (and most reviled) financial firms. We heard last week about the SEC’s fraud case against Goldman Sachs.
And just this weekend, Moody’s revealed that the SEC may revoke their status as an officially-recognized ratings firm.
Like all horribly-embarrassing corporate announcements, Moody’s was made after the close of trading on a Friday. Evidently Moody’s execs hoped everybody would forget about it by Monday. Not so, as shares are currently trading down 8%.
But the JP Morgan investigation could turn out to be the biggest case of all.
JPM is the largest financial firm in the United States, boasting $2 trillion in assets. They’re also the largest hedge fund manager in the States, with $53 billion under management.
If it turns out they have been illicitly shorting billions worth of silver contracts, as some allege — and they’re forced to buy bullion to cover that position — the result would be staggering.
Implications for Silver Prices
We don’t know exactly how this investigation will affect silver prices going forward. But if the allegations prove true and banks are forced to cover massive short positions, a relatively thin silver market could see a big squeeze — and far higher prices.
But cutting out market manipulation is only one factor that may work in silver’s favor.
Bernanke’s printing press is the other big one. With interest rates likely to remain near 0% for years, inflation will inevitably rear its ugly head. Plus, you can forget about the Fed shrinking their balance sheet any time soon…
All that “exit strategy” talk is nothing more than bluster. I think the Fed is far more likely to expand buying programs further before they consider ditching the garbage on their books. As Milton Friedman pointed out, there’s nothing so permanent as a “temporary” government program.
In the long run, American reliance on Fed easing will push precious metals prices higher. Ignore scare talk about deflation — it simply isn’t allowed to happen in modern times.
In the Great Depression deflation was absolutely an issue — but the dollar was tied to gold back then. Bernanke will dump enough cash to drown Wall Street before deflation is ever allowed to occur. It would simply crush the big banks, and these institutions are too connected to fail.
How High Can Silver Fly?
More and more respected analysts are calling for $50 silver.
David Rosenberg, respected former head economist at Merrill Lynch, recently predicted gold would go to $3,000 over the next few years. If it does, I expect silver to outperform percentage-wise. The historic ratio of silver/gold is out of whack, and silver is due for a huge bull run.
If these scenarios play out, the best way to play it is with junior silver miners. These companies are highly-levered to underlying metal prices.
Well-chosen mining picks could easily see rise four times more than the metal itself does. If silver goes up 200%, a good mining pick could go up 800% or more.
My colleague Luke Burgess, editor of Hard Money Millionaire, has a report detailing his top three ways to play the silver bull market.
Luke gives his top silver mining pick, plus the best way to buy silver bullion — and details on how to invest in a unique security with the potential to generate 4-digit returns over the coming years. Learn how to cash in on monster silver bull-market here.
And stay nimble out there… This market has danger written all over it.
Analyst, Wealth Daily
P.S. Our free $5,000 stock-picking contest starts today. If you haven’t signed up yet, go ahead and do so now. It starts today and runs until June 8th. Go here for the full details. Got friends who like picking stocks? Send them here to sign up. Good luck, and have fun!
By Bob Hoye
The current tension in financial markets is providing an additional lift to gold prices. Targets based upon the 1980 to 2007 consolidation continue to point to levels above $2,000.
In the short term, the mid-March bottom suggested strength would be seen through late-May or early-June with a pause at the 7/8th speedline.
Previous April-May rallies have concluded with daily RSI(14) readings of 79 to 85 (currently 72) or upside Exhaustion Alerts caused by a solid week of urgency in buying pressure.
The pullback to test the breakout of $1160 on May 4th and 5th alleviated the ‘urgency’ leaving the market free to rally once again.
Upside targets for the next few weeks start at $1236 with the most common advance being 19% ($1290) from mid-March, but surprises could be to the upside so we recommend waiting for overbought readings before lightening up on trading positions.
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