Thursday, September 22, 2011

Are you ready for the annual Christmas Rally in Gold and Silver?

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During 18 of the last 22 years, gold has rallied between US Labor Day and Christmas.  Will the pattern this year follow the historical pattern?  We will analyze the fundamentals, look at some charts and try to draw a conclusion.  The charts in this report are courtesy Stockcharts.com unless indicated.
·         First a quote by President Andrew Jackson:  “Gentlemen, I have had men watching you for a long time, and I am convinced that you have used the funds of the bank to speculate in breadstuffs of the country.  When you won, you divided the profits among yourselves, and when you lost, you charged it to the bank.  You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families.  That may be true, but that is your sin!  Should I let you go on, you will ruin fifty thousand families, and that would be my sin!  You are a den of vipers and thieves.  I intend to rout you out and by the Eternal God, I will rout you out.” (Spoken to a delegation of bankers requesting the extension of the 1832 Bank Renewal Act).
 
Several news items during the past ten days were very bullish for gold.  The first was an announcement by the Swiss National Bank that they were planning to buy Euros with Swiss Francs.  This action effectively removes the Swiss Franc as a convenient alternative to gold, and it moves the SNB into the camp of the money printers.
 
The second item concerns an announcement by five major central banks (FED, ECB, SNB, BOJ and BOE), to provide dollar liquidity for a number of European banks that suffer from exposure to Greek banks.
 
This dollar liquidity operation will last until the end of the year and will enable dollar funding for European banks, which were struggling.  It shows that the Federal Reserve, the ECB and also British, Swiss and Japanese banks have the will and the ability to cooperate at sensitive times, whenever they feel the system needs a ‘nudge’.
 
Another factor that is very bullish for gold is the current ‘negative real interest rate’ environment.  Regardless of whether we believe the ‘official’ CPI numbers, or the more realistic numbers provided by Shadowstats.com, anyone with money in the bank, or holding short-term Treasury notes, is losing money to price inflation.
10-year Treasuries are paying a miserly two percent. With inflation at 4.8%, these ‘so-called investments’  are losing 2.8% of their value over 12 months.
According to J. M. Keynes, and many other economists, whenever ‘real interest rates’ turn negative, gold will rise.  Keynes called this “Gibson’s Paradox”, and stated that there are no exceptions.
Finally, the most bullish facilitator of rising gold and silver prices is the supply of money (see chart below).
 
This chart courtesy Mises.org shows the True Money Supply continues to rise exponentially.  A rising money supply is bullish for gold and silver, as it increases the amount of money available for the purchase of precious metals.  As long as the Central Banks keep the banking system supplied with money, the banking system will survive.  This principle is far more important to the Central Banks than the integrity of the currency.
Historically, ‘monetary inflation’ always causes ‘price inflation’.   The U.S. consumer-price index (CPI) increased 0.4% in August. That’s an annual inflation rate of 4.8%!
The TMS chart also shows that, according to the people as Mises.org, the recession is ongoing (grey area).  During recessions, there is less money coming in to government, while expenses such as unemployment benefits, food stamps, welfare payments etc. increase.  This in turn causes deficits to rise, and deficits provide energy for gold prices to rise.
 
Featured is the daily gold chart.  Price is carving out a bullish pennant.  The supporting indicators are at levels where they have found support many times in the past.  The fact that the 50DMA is in positive alignment to the 200DMA (green oval), while both are rising, is bullish.  A breakout at the blue arrow will mark the beginning of the next rally.  
According to the weekly Kitco survey of gold analysts, a minority 32.1% of the analysts are bullish for this week, 53.6% are bearish and 14.3% neutral.  From a contrarian point of view that is bullish for gold!                                                                                                 
 
This chart courtesy Cotpricecharts.com shows commercial traders reduced their ‘net short’ position to 215,000 from 228,000 last week.  The ‘up-to-date number’ will likely be even lower since the gold price dropped for two days since data for the report was compiled.  At 215,000 the commercial traders are at the lowest level since July 8th.  On that date gold traded at $1544 and over the next few months price rose up to $1924.
 
  
Featured is the GDX gold producers ETF.  Price broke out from beneath the 64 resistance level last week (blue arrow), and since then a test of the breakout is the result as the bears press their case.  Price appears ready to try again and a close above the green arrow will confirm the breakout and thereby turn the trend bullish.  The SIs are positive.  The fact that GDX outperformed GLD on Friday is bullish.
 
Featured is the weekly silver chart.  Price is carving out a bullish pennant.  The supporting indicators (green lines) are positive with a lot of room on the upside.  A breakout at the blue arrow sets up a target at the green arrow.  The 50WMA is in positive alignment to the 200WMA (green oval) while both are rising.
 
Summary:  Gold and silver are less expensive today than they were in 1980 due to the fact that there is far more paper and digital money in existence today than was the case in 1980.  According to the inflation calculator provided at USinflationcalculator.com (using data supplied by the US government), the price of gold would need to rise to $2336, to match the inflation adjusted price of $850 (the 1980 peak).  In the case of silver the price would need to rise to $137 to match the inflation adjusted price of $50 (the 1980 peak).
The most bullish fundamental for gold and silver is the fact that there are now 2.5 billion people who were not around in 1980.  Most of these people live in China and India.  By coincidence these people live in a country where the economy is growing and furthermore they love silver and gold!
Conclusion:  Based on the observations presented in this report the expectation is that the annual Christmas rally in gold and silver is ‘right on course’.
Source: http://news.goldseek.com/GoldSeek/1316453532.php

Tuesday, September 13, 2011

The case for gold and silver investment gets stronger and stronger

Day by day, the case for holding gold and silver seems to get stronger as global economies remain mired in recession and the centre of precious metals demand moves ever eastwards.
Author: Lawrence Williams
LONDON - 
Every day the case for investing in gold and silver would appear to get stronger and stronger as worse economic news follows bad.  Gold and silver prices may get hit by stringent margin increases on some exchanges, yet still they bounce back.  It seems that whatever ammunition the gold bears (whoever they may be - and suspicion falls on ‘official' channels and major banks holding short positions here among others) throw at it the ‘monetary' precious metals regroup and bounce back after a perhaps initial sharp retreat.  It may well be that the bears are running out of ammunition!  Gold and silver may lose the odd battle but they are certainly winning the war.
As has been pointed out in these pages time and again over the past several months, or even years, the centre of gravity for gold demand is moving ever further eastwards, which means that whatever western institutions (and I use this term in its widest sense) may try to do to curb its enthusiastic breakout they are ultimately doomed to failure.  The Chinese, Indians and other eastern investors who are psychologically hard-wired into gold as the ultimate survival currency when times are bad - a factor which equally affects their government attitudes to the yellow metal - will call the tune and any splurge of western sales quickly provokes an even stronger purchase response from the East.
Silver will continue to be dragged up on gold's coattails, and given the far smaller market here we are likely to see more volatility - although it has been interesting to note silver's recent relative resilience to the occasional sharp gold price downward moves each time some obstacle is driven into  its advancing path.  It really cannot be too long before the magic $50 level for silver is surpassed and after a likely hiccup around this level, the floodgates could open.  I am not a believer in the Gold:Silver ratio falling down to 16 or even less - at least not in the foreseeable future, but 30 does not seem unreasonable and that would put silver at comfortably over $60 at the current gold price level.
Another boost to silver is also an indirect consequence of gold's strength.  Increasingly the small investor who wants some precious metal insurance against hard times ahead is being priced out of buying gold - and then silver becomes a real alternative.  Do not be surprised to see silver demand continuing to increase strongly, particularly in the emerging nations as at least some growth here sees more and more people becoming part of the middle classes - and middle class aspirations in many of these nations will include holding some precious metals against a rainy day.
It is also becoming increasingly apparent - in part through the demand patterns noted above - that any truly speculative element in gold (and silver) purchasing is probably relatively minor in its impact and the demand for the key precious metals is coming from holders who will only sell as a last resort - not to make a quick buck.  The radical difference in psyche between the Western speculator and the Eastern accumulator is paramount in the price advances we are seeing now.  But now there is also an increasing element of western accumulation as a wealth protector too.  With other safe havens like the Swiss Franc, and perhaps the Japanese Yen, even more prone to government intervention to balance domestic competitiveness in world markets, the role of gold as an insurance policy is getting stronger by the day. And this insurance is likely to remain in strong hands until the world is seen as coming out of recession - which looks to be years ahead still.
Add to the above the almost daily news items that various central banks are increasing their gold holdings - many by buying their own country's outputs (Bolivia is the latest of these) - and it would seem that the amount of gold becoming available to prospective purchasers may be diminishing by the day.  Indeed there is wide belief that other Central Banks from gold producing nations - China being by far the largest of these - are also purchasing all their domestic outputs, but placing this in accounts which are not reported as part of their official holdings until such time as it becomes politically expedient to do so. 
Meanwhile higher prices have not yet been able to stimulate any significant increase in mined output due to declining grades and end of mine lives counterbalancing any new output that may be coming on stream, which is further restricting supplies.  With growing demand, which looks unlikely to diminish in the near future, the squeeze on precious metals prices looks almost certain to drive the gold price onwards and upwards.
Gold miners, on the other hand, do not appear to have been reaping the benefits of the advancing gold price - at least as far as their stock prices are concerned.  But, with gold's price rise so far this year of over 30% in dollar terms, many miners will be showing massive Q3 profit increases when they come to report which may well really begin to stimulate precious metals mining investment interest at a time when the general stock market is appearing increasingly shaky.
All in all it seems to this observer that gold and silver are nowhere near their peaks yet.  $2000 gold and plus $50 silver have to remain as definite possibilities even this year and there is likely much higher to come ahead as the global economy seems nowhere yet near coming out of its severe downturn.  While continuing lack of global growth may not bode well for the short to medium term price patterns for industrial commodities it could well see gold and silver rise to ever increasing heights.
Source: http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=135114&sn=Detail&pid=102055

Avoid Losing Everything in the Coming Collapse

Doug Casey's four step plan to preparing for the Greater Depression...
EVEN IF you already consider yourself wealthy, it is worthwhile giving some thought to make and keep money, writes Doug Casey, founder of Casey Research.
What would you do if some act of God or of government, a catastrophic lawsuit or a really serious misjudgment took you back to Square One? 
One thing about a real depression is that everybody loses. As Richard Russell has quipped, the winners are those who lose the least. And as far as I'm concerned, the Greater Depression is looming, not just another cyclical downturn. You may find that, although you're far ahead of your neighbors (you own precious metals, you've diversified internationally and you don't believe much of what you hear from official sources), you're still not as prepared as you'd like.
I think a good plan would be to approach the problem in four steps: Liquidate, Consolidate, Create and Speculate.
Step 1: Liquidate
Chances are high that you have too much "stuff." Your garage, basement and attic are so full of possessions that you may be renting a storage unit for the overflow. That stuff is costing you money in storage cost, in depreciation and in the weight of psychological baggage. It's limiting your options; it's weighing you down. Get rid of it.
Right now it has a market value. Perhaps to a friend you can call. Or to a neighbor who might buy it if you have a yard sale. Or to some of the millions of people on eBay. A year from now, when we're out of the eye of the financial hurricane and back into the storm, it will likely have much less value. 
But right now there's a market. Even if most people are no longer wearing those "He who dies with the most toys, wins" T-shirts that were popular at the height of the boom, there are still buyers. But the general standard of living is dropping, and mass psychology is changing. In a year or two, you may find there aren't any bids and the psychology of the country has changed radically. People will be desperate for cash, and they'll all be cleaning out their storage units (partly because they can't afford the rent on them).
Liquidate whatever you don't actually need – clothes, furniture, tools, cars, bikes, collections, electronics, properties, you-name-it. You'll be able to re-buy something like it, or better, cheaper. Just as important, you'll feel light and mobile. Unburdened by a bunch of possessions that own you and weigh you down. It will definitely improve your psychology, which is critical to the next stage. And the cash it generates will be helpful for the rest of the plan.
Step 2: Consolidate
Take stock of your assets. After Step 1, that should be a lot easier, because you'll have less junk but a lot more cash. You'll already feel more in control and empowered. And definitely richer. But your main assets aren't money or things. It's the knowledge, skills and connections you possess. Take stock of them. What do you know? What can you do? Whom do you know? Make lists and think about these things, with an eye to maximizing their value.
If you're light on knowledge, skills and connections, then do something about it – although if you're reading this, you probably already live life in a way that builds all of those assets daily. But there's always room for improvement. Think the Count of Monte Cristo. Or, if you're not so classically oriented, think Sarah Connor after she met the Terminator.
Part of this process is to look at what you're now doing. The chances are excellent there's a better and more profitable allocation of your time. Even successful rock stars tend to reinvent themselves every few years. You don't want to get stale. That leads to Step 3.
Step 3: Create
Remember, the essence of becoming wealthy is to produce more than you consume and save the difference. But it's hard to maximize value working for somebody else. And when you're given a job, it can be taken away for any number of reasons. There is cause and there is effect. You don't want to be the effect of somebody else's cause. You want to be the cause for everything in your life. That implies working for yourself. At least turn your present employer into a partner or an associate.
Perhaps go through the Yellow Pages (while they still exist), page by page, line by line, and see what you can provide as a service for the businesses advertising there. I promise you, they're all looking for someone to come along, kiss their world and make it better. Think like an entrepreneur at all times. Remember that there is an infinite desire for goods and services on the part of the 6 billion other people on the planet. Find out how you can give them what they want, and the money will roll in.
I've said many times that I believe you could airdrop me naked and penniless into the heart of the Congo, and by the time I emerged, I'd not just have survived, I'd come out wealthy. And, believe me, I don't think wealth is by any means the most important thing in life; it's important but should be considered a convenience, not an imperative. Not that I'd want to be airdropped into the Congo at the moment; I've gotten a bit lazy, I have other interests, and you can't be everywhere and do everything.
But now that I think about it, if I wanted to make a real fortune today from a small base, I might prefer Africa to any other continent. As an educated Westerner, you can quickly meet anyone, on an equal level, much more easily than you could at home. If you have a reason that makes any sense at all, you can be in the office of the president within a week. These countries are all plagued with incompetence and corruption, they need everything, and they're full of untapped resources and talent. This all inures to the great advantage of a foreign entrepreneur.
Here's an idea. For your next vacation, book a trip to Cameroon, Togo, Gabon, Zimbabwe or Angola. Go through the Yellow Pages in the capital and meet everybody who is anybody. The chances are good you'll come up with several deals in the first week alone. If you can't find the time, send your kid who's just out of school and idiotically thinks he may want to misallocate time and money getting an MBA. This idea alone should be worth a million Dollars. Or, as I would prefer to think of it, 700 ounces of gold.
But to an economist, money, like all goods, has "declining marginal utility." In other words, the more of something you have, the less you need or want the next unit. Of course more is always better, but it's unseemly, even degrading, to pursue anything beyond a certain point.
When I was in Toronto a couple months ago, I spoke with a Chinese friend who, I believe, is worth at least $250 million. As he waxed philosophic, he allowed that he didn't feel he really needed more than 30 extra-large to live exactly as he liked. I agreed, in that meals in the best restaurants, the finest clothes, cars and houses only cost so much. And it's well within a conservative return on that capital, without ever even touching the principal. Is it worth it to get more? Perhaps not, unless your interests in the rest of life are entirely too narrow. The point of money is to allow you freedom, not make you crazy with getting more.
That doesn't rule out speculation as an avocation, however. More – everything else being equal – is still better.
Step 4: Speculate
You've got money. Now you have to keep it and make it grow, because staying in the same place amounts to going backwards. That's partially because the world at large will continue getting wealthier, even as the Dollars you own lose value.
In the past, I've discussed why a lot of old rules for success are actually going to prove counterproductive over the next few years. Saving with Dollars will be foolish as they dry up and blow away. Investing according to classic rules will be very tricky in a radically changing economy. Most people will try to outrun inflation by trading or gambling. The markets, which are the natural friend of productive people, will perversely prove very destructive to them in the years to come.
You'll know when the final bottom in the stock market has come: The average guy won't want to hear about the stock market, if he even remembers it exists. And if he does, he'll want it abolished.
Instead of becoming a victim of inflation and other politically caused distortions in the marketplace, you can profit from these things. Rational speculation is the optimum approach.
What to Do If You're Already Wealthy?
Perhaps, however, you've already covered all the financial bases to your satisfaction. Quo vadis? I have several thoughts on the meaning of wealth. You may find some of them of value as prices of everything fluctuate radically in the years ahead.
First, recognize that wealth is a high moral good. Don't feel guilty about having it or about wanting more.
If you've already accumulated and deployed enough capital to allow you to jump off the golden treadmill, congratulations: chances are high that you are an exceptional human being. I say that because the moral value of being wealthy is underrated. I don't mean that in a Calvinistic way, in that Calvin believed Yahweh rewarded the righteous by making them rich. But I do believe that productive people – people who work hard to provide goods and services for others – definitely tend to be wealthier than unproductive people. They deserve to be. And since we don't live in a malevolent universe, people generally get what they deserve. So, yes, wealth is definitely one indicator of moral excellence.
Sure, some wealthy people got that way by lying, cheating and stealing. But they're exceptions. It's much easier to become wealthy if (in addition to having virtues like diligence, competence and judgment) you are known to be truthful and honest. Those who automatically think ill of the rich are, at best, paranoid fools. Put it this way: Rich people may lack some virtues, but they definitely have at least a few that made them rich. Poor people, on the other hand, will certainly lack some virtues, and they'll definitely have some vices that kept them poor.
I'm a fan of some aspects of Gurdjieff, the late 19th to mid 20th century Russian mystic, who was also a merchant adventurer at some points in his colorful life. He said that anyone who successfully employed at least 20 other people must be considered at least partially enlightened and a type of guru. That viewpoint always resonated with me. Self-made wealthy people may not be saints or mystics or intellectuals or even especially thoughtful or moral. But they've proven they're better than the average bear in at least one important way: they can create and conserve wealth. And they've thereby eased everyone's path to further accomplishments. 
Second, figure out your purpose in having money.
Sure, money makes life easier. And it's nice how it enables you to assist people you like with material things. But I strongly suggest that you not take too short a view on this matter. Accelerating advances in medical science are not only lengthening human life expectancy, but new developments now in the works have the potential to vastly improve your capability and health as well.
Is it possible to live to age 200, with all the wealth, knowledge and wisdom that implies, while maintaining the body of a 30-year-old? Not yet. But the prospect is on the horizon. It will, however, be available only to those who can afford it. Ray Kurzweil makes a case that the Singularity is near, and I buy his reasoning. It would be tragic indeed if anyone frittered away his wealth, thinking he wouldn't live very long, and then succumbed to a self-fulfilling prophecy, not because of medical difficulties, but because of financial difficulties.
Third, don't give your money to charity.
Entirely apart from showing a lack of both imagination and foresight, it's a complete waste of good money, pure and simple. Contrary to popular opinion, it rarely does any good; it often does great harm. The whole concept of charitable giving is corrupt and desperately in need of a complete rethinking.
Fourth, if you do care about posterity (who knows, you might be reincarnated…), and on the chance you don't make it to the Singularity, carefully consider how to dispose of your estate.
For one thing, there's no reason to automatically leave anything to your children – unless they deserve it. The notion that someone should inherit just because he shares your genes is flawed and thoughtless. The example of Marcus Aurelius leaving the Roman Empire to his worthless son, Commodus, should be instructive. Wealth should be left to someone who is most capable of increasing it – at least if you want to benefit humanity in general. And, yes, I'm quite aware that humanity in general may deserve absolutely nothing.
At a minimum, consider that memes are far more important than genes. It's wiser, therefore, to leave your wealth only to individuals (related to you or not) who will carry forth values you hold dear and are worthy of the wealth. If nothing else, make sure you disinherit the government.
Also consider that dividing wealth dissipates it and generally makes it less useful. If you have a million Dollars, you could leave a thousand Dollars to each of a thousand people. But apart from the fact that it's unlikely anyone knows a thousand worthy people, that much money is only enough for a modest vacation or a few baubles. The larger the pool of capital, the more ways it can be used, the more creative power it has, and the more likely it will be conserved and used creatively. I favor the Roman system, in which one could adopt children of any age – but always after you could see what their character was. You might want to do that if your own kids don't make the grade.
The Bottom Line
If you want serious money, you have to get serious about money. You need to understand these fundamentals and never forget them. Don't let all the garbage reported in the financial media you read, see or hear confuse you about what money really is. Don't consume more than you make: save! Don't spend: invest!
Source: http://goldnews.bullionvault.com/survive_the_collapse_090620111