By Nicholas Larkin - Feb 25, 2011 8:01 AM GMT+0800 Gold, trading near a record high, may climb as violence in Libya and concern that inflation will accelerate boost demand for an alternative asset, a survey found. Sixteen of 20 traders, investors and analysts surveyed by Bloomberg, or 80 percent, said the metal will rise next week. Four predicted lower prices. Gold for April delivery was up 1.8 percent for this week at $1,414 an ounce at 11 a.m. yesterday on the Comex in New York. Futures reached a record $1,432.50 in December.
“Unrest in Libya and the potential for it spreading to other key Arab areas is fueling the advance,” said Jim Pogoda, an investor in Summit, New Jersey, and a former precious-metals trader for Mitsubishi International Corp.
Libya is the latest country in the region to be rocked by protests that toppled presidents in Tunisia and Egypt this year. Opponents of Libyan leader Muammar Qaddafi consolidated control over the oil-rich east while he clamped down on Tripoli, using tanks to block highways and security forces to attack residents, witnesses said. Oil surged to $100 a barrel in New York for the first time in two years.
“The situation in Libya continues to create jitters over oil supplies, which in turn could stoke inflation,” James Moore, an analyst at TheBullionDesk.com in London, said in an e- mail. Some investors buy gold as a hedge against rising prices. The attached chart tracks the results of the Bloomberg survey, with the red bars derived by subtracting bearish forecasts from bullish estimates. Readings below zero signal that most respondents expect a decline. The green line shows the gold price. The data are as of Feb. 18. The weekly gold survey that started more than six years ago has forecast prices accurately in 200 of 351 weeks, or 57 percent of the time. This week’s survey results: Bullish: 16 Bearish: 4 Neutral: 0
To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.
Source: http://www.bloomberg.com
Friday, February 25, 2011
Quantum Jump For Metals As Gaddafi To Destroy Pipelines To Mediterranean
Gold up $1410.00… Silver over $33.00… Oil over $94.00… and intensifying against another hostile global dilemma! As the world awaited speech from Gaddafi, “vowing to fight the growing rebellion until his “last drop of blood,” today, he ordered security services to start sabotaging oil facilities. They will start by blowing up several oil pipelines, cutting off flow to Mediterranean ports. This sabotage, according to the insider, is meant to serve as a message to Libya’s rebellious tribes: It’s either me or chaos.” Sources tell Time’s Robert Baer: “the already terrible situation in Libya will get much worse. Among other things, “Qaddafi (we say, Gaddafi, you say Qaddafi,) has unequivocally declared his intention to massacre his own people,” said Shadi Hamid, director of research at the Brookings Doha Center in Qatar. And, to cut off, even partially, the US military and naval Persian Gulf forces … or to cut off the flow of nearby pipelines, the world will feel a major economic strap.
In Washington, U.S. Secretary of State Hillary Clinton said the Obama administration is watching events with “grave concern,” and called on Libya to “end the violence.” She said the U.S. will take “appropriate steps,” which she did not describe.
Hardly anyone in Libya could imagine standing up to, let alone overthrowing, Qaddafi just a few weeks ago, but Tunisia’s Zine El Abidine Ben Ali and Egypt’s Hosni Mubarak turned out to be much more vulnerable than anybody expected. The fear that so grips the hearts of the Middle East’s peoples is breaking…this is the quantum rise that will take us for a ride in oil and Gold. However, “While I do believe gold and oil offer both short and long-term investment opportunities,” says Sprott Resource Corporation, I am not depending on the problems in the Middle East alone to move prices higher. Governments continue to print money, which should support gold prices for the foreseeable future, and there seems to be no end of course, in sight for the world’s thirst for oil.” “As long as the central banking system stays intact globally gold and silver will rise indefinitely” says Ron Fricke president of Regal Assets in a recent conference.
“During such times of geopolitical tensions and economic crisis hitting countries around the world,” says noted investment advisor Marc Faber, “it is wise to hold gold and silver.” Faber, who is famous for his prediction of the US stock market crash in 1987, said that commodities, especially gold and silver will be the wisest investment options for people in the wake of rising inflation and troubled economies around the world. Gold and silver would continue to provide safety as increasing demand for oil in emerging Asian economies and recovering US demand could lead to increasing geopolitical tensions in the Middle East.
He also said that the US dollar could rebound in the next few months, but in the long term it would depreciate as the Fed is likely to expand its money-printing measures beyond the $600 billion already announced up to the middle of this year.
The $64,000 question is, since oil has been spiking on fears of a Libyan disruption, and today, the country declared force majeur, effectively canceling oil contracts, will it affect gold? Contrarians are betting that it will take the yellow metal into high territory. The HGNSI currently stands at 45.3%, just half of its all-time high of 89.6%. In other words, despite gold being only a few dollars shy of its all-time high, the average gold bug is still allocating more than half of his gold portfolio to cash. That doesn’t guarantee that gold will go up, of course. But it does mean that there is a lot of sideline cash ready at a moment’s notice to be shifted into the gold market to propel gold higher.
This week, the World Gold Council (WGC) said, Gold will be interesting to watch as a barometer of good and bad government policies pop its face. In countries such as China, where the embrace of free market principles has ushered in economic growth, gold demand levels should remain strong. This is what makes today’s gold market different from the 1970s. Back then, today’s emerging market powerhouses, such as China and India, had no global economic impact. Now, these countries aren’t just at the forefront of the gold market, they are global leaders in economic growth. As a note, it is by no coincidence that 30 years after Deng Xiaoping took office in China and began instilling the concepts of free markets; the country has grown to become the world’s second-largest economy behind the U.S.
In reality, gold is standing the test of time once again! In terms of its purchasing power during other known human history, war, political unrest, and financial dilemmas, it has caused people to turn to Gold as value store. And, while the global economy runs on oil, and much of that oil gets shipped through seven narrow straits, when there’s even a rumor of a choke point getting blocked, people will turn to gold…And there have been many rumors in Egypt.
Source: http://goldcoinblogger.com
In Washington, U.S. Secretary of State Hillary Clinton said the Obama administration is watching events with “grave concern,” and called on Libya to “end the violence.” She said the U.S. will take “appropriate steps,” which she did not describe.
Hardly anyone in Libya could imagine standing up to, let alone overthrowing, Qaddafi just a few weeks ago, but Tunisia’s Zine El Abidine Ben Ali and Egypt’s Hosni Mubarak turned out to be much more vulnerable than anybody expected. The fear that so grips the hearts of the Middle East’s peoples is breaking…this is the quantum rise that will take us for a ride in oil and Gold. However, “While I do believe gold and oil offer both short and long-term investment opportunities,” says Sprott Resource Corporation, I am not depending on the problems in the Middle East alone to move prices higher. Governments continue to print money, which should support gold prices for the foreseeable future, and there seems to be no end of course, in sight for the world’s thirst for oil.” “As long as the central banking system stays intact globally gold and silver will rise indefinitely” says Ron Fricke president of Regal Assets in a recent conference.
“During such times of geopolitical tensions and economic crisis hitting countries around the world,” says noted investment advisor Marc Faber, “it is wise to hold gold and silver.” Faber, who is famous for his prediction of the US stock market crash in 1987, said that commodities, especially gold and silver will be the wisest investment options for people in the wake of rising inflation and troubled economies around the world. Gold and silver would continue to provide safety as increasing demand for oil in emerging Asian economies and recovering US demand could lead to increasing geopolitical tensions in the Middle East.
He also said that the US dollar could rebound in the next few months, but in the long term it would depreciate as the Fed is likely to expand its money-printing measures beyond the $600 billion already announced up to the middle of this year.
The $64,000 question is, since oil has been spiking on fears of a Libyan disruption, and today, the country declared force majeur, effectively canceling oil contracts, will it affect gold? Contrarians are betting that it will take the yellow metal into high territory. The HGNSI currently stands at 45.3%, just half of its all-time high of 89.6%. In other words, despite gold being only a few dollars shy of its all-time high, the average gold bug is still allocating more than half of his gold portfolio to cash. That doesn’t guarantee that gold will go up, of course. But it does mean that there is a lot of sideline cash ready at a moment’s notice to be shifted into the gold market to propel gold higher.
This week, the World Gold Council (WGC) said, Gold will be interesting to watch as a barometer of good and bad government policies pop its face. In countries such as China, where the embrace of free market principles has ushered in economic growth, gold demand levels should remain strong. This is what makes today’s gold market different from the 1970s. Back then, today’s emerging market powerhouses, such as China and India, had no global economic impact. Now, these countries aren’t just at the forefront of the gold market, they are global leaders in economic growth. As a note, it is by no coincidence that 30 years after Deng Xiaoping took office in China and began instilling the concepts of free markets; the country has grown to become the world’s second-largest economy behind the U.S.
In reality, gold is standing the test of time once again! In terms of its purchasing power during other known human history, war, political unrest, and financial dilemmas, it has caused people to turn to Gold as value store. And, while the global economy runs on oil, and much of that oil gets shipped through seven narrow straits, when there’s even a rumor of a choke point getting blocked, people will turn to gold…And there have been many rumors in Egypt.
Source: http://goldcoinblogger.com
Tuesday, February 22, 2011
Gold at $1400 again, silver at 31 year high. Where next?
After the early January sharp setbacks, which had many observers yet again shouting ‘the bubble is bursting', gold and silver have made strong recoveries with the gold price again touching $1400 (at the time of writing) and silver breaching a new 31-year high. Other precious metals have been benefitting too with palladium hitting a new 10-year high and platinum trading up also.
The gold price advance will have been helped by the unrest in Arab states in the Middle East and North Africa which is creating huge uncertainty in the region, as well as creating global nervousness. Certainly gold purchases have been on the increase in the Middle Eastern souks, but it is probably continuing high Asian demand, particularly in India and China which is the true driver of the market at the moment. This is particularly relevant given there has been substantial disinvestment from the world's biggest gold ETF, SPDR Gold Trust (GLD), where gold holdings have fallen to a nine-month low, although still very substantial at 1,223 tonnes. Investment in silver ETFs per contra seem to be rising. However the SPDR Gold Trust sell-off seems to be stabilising and as steadier heads prevail may start to pick up again once the implications of current global developments really begin to sink in.
Much of the SPDR Gold Trust disinvestment appears to be because investors in the West feel the general stock market will continue to offer better returns, although the Arab situation should be beginning to engender a note of caution here. If the flow of Middle Eastern oil is interrupted, or oil prices rise substantially, this could have a devastating effect on markets, despite their being buoyed up by governmental/central bank, Quantitative Easing programmes. Remember the OPEC oil crisis of 1973/74 and the corresponding market crash! The possible change to more hostile-to-the-West governments among the major oil producers in the region should ring a few warning bells.
Meanwhile buying of gold and silver bullion in the East currently seems to be soaking up any metal which may be being sold off by investors in the West, which is underpinning the precious metals markets at the moment. Silver in particular seems to be in a short squeeze with backwardation (when futures prices are lower than current ones) still in evidence. Indeed some observers caution on silver reckoning it may be overbought, but if the squeeze continues there could yet be further gains to be seen.
The gold silver ratio at the time of writing is 41.95, down from over 60 only a few months ago. This gives a little more credence to those predicting a $50 silver price, although for this observer this would seem unlikely without a further substantial rise in gold (which could be on the cards if momentum picks up further). $1400 gold is a bit of a tester here - if gold can move through this level and stay above it, then a new high in the mid-$1400s may not be too far away.
Source: http://www.mineweb.com
Why Are Gold & Silver Breaking Out?
Reflections on what could happen
We are living in a world of consequences, all of them unforeseen, yet caused by the faulty structure of the financial world laid down decades ago. The 'credit crunch' that rippled into the banking crisis then sovereign debt crisis was a reflection of greed and the 'live now, pay later' way of life in the developed world. Each of the consequences of each stage of these crises was unforeseen. Yet each was a consequence of the sanctioning of debt leverage in all walks of financial life.
Energy prices are much higher than pre-credit crunch levels and set to go higher. At that time, so much was written about ensuring that oil supplies needed to accommodate both the developed world and the rapidly emerging Asian world, which accounted for half the world's population. Have oil supplies been expanded to accommodate such Asian growth? No they haven't! So there is an oil crisis in the pipeline. The governments of the oil producing Middle East have long been secured by the main developed world powers to protect the vital interest of oil supplies. The fact that they were corrupt and kept their own people in poverty was ignored. It was a matter of time before that crisis erupted. Food and energy inflation provided the trigger. Will the new governments in these countries continue to support the dollar pricing policies on oil or will they accept all currencies and review their priorities concerning which customers to favor. Will we see prices like $145 if Libya falls [they supply 2% of global oil supplies]? If Bahrain falls, will it bring down the eastern area of Saudi Arabia? If so, the shape of the oil world will have to be re-sculptured. In turn the economic future of the developed and emerging world will change and cause pressures between the different trading blocs that have not even been contemplated. [In our series on "Financial Earthquakes' featured in our Gold Forecaster and Silver Forecaster newsletters we looked at several areas of potential, global, economic, structural crises we might see in 2011] 2011 is already the most dramatic year of this century and still has ten months to go.
Changes are a' coming…
It is in our nature to want our national, political, financial and economic environments not to change, leaving us to get on with our lives in a somewhat myopic way. Change when it does come is surprising every time. It shouldn't be but we tend to be so focused it always is. As with the credit and subsequent crunches we tend to feel everything will come right eventually, it's just a case of waiting. Well it hasn't and here we are suffering the next set of structural crisis consequences.
So what should we do?
- We, at Gold Forecaster, have always followed a policy of extrapolation, taking the events and structures of today and taking them forward to the future. Hope is not part of this exercise, only realities that are present and real now.
- We do not wait until statistics from the past confirm our viewpoint. We need to be able to take the factors unwinding now, knowing that statistics will confirm our conclusions later. This takes us to the front from the back of the queue. For instance we were confirming central banks had turned sellers of gold nearly two years ago. It is now being confirmed by statistics delivered now.
- We need the correct perspective in order to weigh the different market influencing factors in a balanced way. For instance we don't see gold in a 'bull' market, but paper currencies in a 'bear' market after their 'bull' market last century from 1971.
- We need to accept that the gold and silver markets are now global markets. Asian markets are the most vigorous in this regard so they are now in the center of the market. They are investors who do not buy for profit. In the developed world investors buy for profit, but are having a diminishing effect on the gold price itself. Yet western investors continue to believe they are the main influence on the gold price. They will sincerely believe that the level of U.S. interest rates will dictate the future of gold prices. The average Asian buyer doesn't even know what these are. Yet, it is the Asian buyer that is having and will have the greatest impact on the gold price.
- Our last two articles on Technical analysis highlighted the dwindling influence of Technical factors on the gold price too. The fundamentals are the main influence with technical factors clarifying short-term moves.
- We must accept that the world financial climate has darkened and that the storms of consequences are fundamentally destructive. Like adjusting to winter from summer our expectation have to be tempered by this reality. This allows us to protect ourselves from the coming storms. Where we are optimistic, we have weighed the pertinent realities before reaching that conclusion. We then act on that. We may well find that the realities of crises have given us tremendous opportunities both for profit and to protect those profits.
How will all this affect the gold and silver markets?
The fulcrum of the gold and silver markets at the moment remains rapidly growing Asian demand. Following this is the inability of the supplies of gold and silver to accommodate this growing demand. A factor that will grow in the days to come will be the change in the developed world to holding gold rather than selling it when prices indicate a correction. The corrections we have seen in the last few years have shortened and become shallower than the previous one. Just as central banks in the developed world have stopped selling, [but not yet turned to buying] so private investors are holding far longer than has been the case in the past. Asian demand is totally different in that investors there buy to hold as financial security, just as we used to buy houses. We expect to see this trend start to grow in the west as the developed world declines economically and the East rises.
Source: http://www.financialsense.com
Saturday, February 19, 2011
How Much More Demand Can Silver Handle
The numbers for silver demand are starting to make some market-watchers nervous. The U.S. Mint sold over 6.4 million silver Eagles in January, more than any other month since the coin’s introduction in 1986. China’s net imports of silver quadrupled in 2010, to 122.6 million ounces, roughly 13.7% of global production. Meanwhile, mine production can’t meet worldwide demand; the only way demand gets fulfilled is from scrap supply.
That is some very hungry demand. Which raises the question, how long can this pace continue?
This is important for various reasons, starting with how demand contributes to price. If demand falls off, our investments could, too.
While I’ve discussed the concern regarding the lack of supply before, which has its own implications for the silver market, let’s focus on investment demand. Frankly, is there room for it to continue to grow? After all, how long can investors continue to set records?
There are a number of ways to measure this – the amount of money available to invest, its percent of total financial assets, its contrast to demand in the last bull market, etc. – but I think the bottom line to answering the question is to compare the biggest silver investments to some popular equities. If they rival that of the stocks we always see on the news and analysts constantly talk about and every fund manager wants to own, then it might be reasonable to assume demand could be nearing its pinnacle.
So how do the world’s largest silver ETF and one of the biggest silver producers compare to the more fashionable equities?
The largest silver ETF, iShares Silver Trust, has net assets of $9.6 billion (as of February 4). This pales in comparison to the more popular stocks trading in the U.S. In fact, SLV has roughly 3% the market cap of Apple. It would have to grow over 43 times to match Exxon Mobil.
Pan American Silver, the largest pure silver producer trading on a major U.S. exchange, has a market cap of $3.72 billion. This is 4.7% the size of McDonald’s. The market cap would have to increase more than 53 times to match Walmart. It is over 62 times smaller than Microsoft.
This isn’t to suggest SLV and PAAS will match the market cap of these other companies, but clearly the masses are still demanding much more of them than the biggest of silver’s investment vehicles.
So how much more demand can silver handle? As much as it takes to make it the household name I’m convinced it will be before this is all over. When SLV is a favorite of fund managers. When Silver Wheaton is a market darling of the masses. When Pan American is Wall Street’s top pick for the year.
Imagine what those bars on the right will look like when most everyone you know is talking about poor man’s gold. The rise could be breathtaking.
Remember that silver rose over 3,646% from trough to peak in the last precious metals bull market; it’s up about 630% in our current run. A return matching the 1970s advance would push the price to $152. This price level is further supported by the fact that this is about where it would be when inflation-adjusted for its 1980 peak.
When you look at the potential growth in market cap of the world’s biggest silver investments, it becomes easy to view any downdraft in price as nothing but a buying opportunity. I know I do.
Source: http://news.silverseek.com
Wednesday, February 16, 2011
Inflation In Both China And India To Bolster Gold Prices
No Pedal to the Metal! Gold to gain steam! Inflation in India and in neighboring China, estimated to be at a 30-month high, will help gold to jump ahead once again! Traders insist that the stage is set for a conducive environment that will push bullion prices higher. Some analysts forecast that gold will be subject to a tug-of-war between profit-minded sellers and bargain-hunters who will buy the metal on dips, a combination that promises to trigger volatility.“The bullishness that has been shown by China in buying and hoarding gold will have a big effect on the global gold market,” said Dhaneshwar Jadhav, a bullion retailer in Mumbai. He went on to add that inflation in China in November 2010 had jumped to a two-year high of 5.1%, dragging year-on-year growth up to 9.6%.
“There is news that China’s wheat crop is under threat from below average rainfall,” said Chandrasekhar Bhatt, bullion analyst at a broking firm here.
“Wheat flour prices are ruling 16% higher than a year ago, driven by fears of drought. Though the Chinese government has announced a $1.96 billion relief package, food prices are bound to touch record levels. And that will set the stage for an upward revision in the price of gold,” he added.
For some time now gold prices have been on a roller coaster, buoyed by the turmoil in Egypt. According to some experts, the high – 18.5% – rate of inflation in Egypt has been termed a major factor in the uprising that dislodged Hosni Mubarak. Moreover, if China reports a high inflation number as is expected, the spike in gold will follow, insist traders.
Trying to combat inflation in the best way possible, China raised its lending and deposit rates by 25 basis points each around the Chinese New Year. This is a second increase in just over a month. The move was meant to tame inflation.
Most analysts are expecting at least one more rate hike, closer to the second quarter of the year. The move has raised concerns in the market that a slowdown in China’s economy could have a ripple effect. Soon enough and a heartbeat after the rate hike was announced in China, oil prices slumped. Analysts say it is a pointer and could cool China’s economy.
Inflation in India
With India too battling with high levels of inflation, many traders have forecast that all of this has profound implications on the price of gold. Gold will soon gain steam in the international markets, as a higher-than-expected inflation readings expected from China will prompt a rush into the metal,” said a bullion analyst at an international broking house here.
In a note to his clients, Paulo Gracias of Reliable Gold Securities said that fears of inflation had driven demand for gold as a retail investment in China, with the country reportedly importing over 200 tonne over the last three months.
As inflation continues to increase, the buying of physical gold by the Chinese will send the price of gold skyrocketing, he said, advising customers to stay invested. Moreover, with India looking to raise key interest rates after its December inflation reading jumped to 8.43% versus a year ago, traders insist gold is being used as a store of value by consumers in India to protect against rising inflation. Official data showed that food prices surged 18.3% in the week ended December 25, the highest rate since July, as onion prices soared 80%.
“Strong industrial growth in urban India and expansion in the rural market is literally putting cash into farmers’ hands. Though better harvests will ease inflation in the coming months, there is concern that tightening by the central bank in India, the Reserve Bank of India is a signal that India will join China in moves to dampen growth rates. Both the economies are worried about overheating,” said a precious metals analyst at DBS Bank.
Traders also point to record imports of gold, which they maintain is another case in point. India is said to have imported around 800 metric tonnes from 557 tonnes in 2009, and exceeded the previous all-time high of 769 tonnes in 2007, according to Ajay Mitra of the World Gold Council. He reportedly said that price was no longer a factor – “Our assessment is that demand will continue to be strong”, for investment demand for gold in India grew faster than the 62% gain in jewelry demand in the same period.
Mitra noted that it has been demand driven with investment in mind. “Though a lot of consumers in India buy gold in the form of jewellery, the core proposition really is security for the future, which is the investment angle for buying into gold,” Mitra added.
Moreover, with the country going in for its annual budget at the end of February, the government has already set the ball rolling. On Friday, the government liberalized norms for the import of precious metals – gold, silver, platinum and palladium – by select nominated agencies.
Inflation is coming our way, make no mistake about it
Inflation has soaked up the dollar’s purchasing power, forcing millions of Americans to slash discretionary spending. Furthermore, the U.S. Federal Reserve, through its lax monetary policy, has been exporting inflation to the rest of world. The resultant price increases in commodities have hit the wallets – not to mention the bellies – of many consumers, including those in the United States. A particular note about the U.S.–related factors: they will become more influential as the year progresses. The U.S. faces an extensive political debate about debt reduction this year that begins in earnest with President’s Obama’s rollout of his fiscal year 2012 budget request to Congress this week. All agree that government spending must be trimmed, but negotiating real reductions will be challenging. If the U.S. can’t meaningfully cut the federal budget, the failure will become more apparent in the third quarter, as politicians scramble to make a deal before the federal government’s fiscal year begins on October 1, just when the Indian wedding season demand for gold is ramping up. In regards to the 2012 budget Ron Fricke president of Regal Assets stated “The US administration submitted their budget for 2011 and with $3.7 trillion in mind it is up $1.54 trillion from 2010 clearly showing the flailing economy and no sign for recovery”
Unless the U.S. experiences a recovery so strong that increased government tax revenue will ease deficit concerns or U.S. political leaders make a genuine deficit-reduction breakthrough, there is a logical thesis for gold and gold-related assets to appreciate in the second half of 2011 that is compounded by seasonal Indian factors.
Source: http://goldcoinblogger.com
“There is news that China’s wheat crop is under threat from below average rainfall,” said Chandrasekhar Bhatt, bullion analyst at a broking firm here.
“Wheat flour prices are ruling 16% higher than a year ago, driven by fears of drought. Though the Chinese government has announced a $1.96 billion relief package, food prices are bound to touch record levels. And that will set the stage for an upward revision in the price of gold,” he added.
For some time now gold prices have been on a roller coaster, buoyed by the turmoil in Egypt. According to some experts, the high – 18.5% – rate of inflation in Egypt has been termed a major factor in the uprising that dislodged Hosni Mubarak. Moreover, if China reports a high inflation number as is expected, the spike in gold will follow, insist traders.
Trying to combat inflation in the best way possible, China raised its lending and deposit rates by 25 basis points each around the Chinese New Year. This is a second increase in just over a month. The move was meant to tame inflation.
Most analysts are expecting at least one more rate hike, closer to the second quarter of the year. The move has raised concerns in the market that a slowdown in China’s economy could have a ripple effect. Soon enough and a heartbeat after the rate hike was announced in China, oil prices slumped. Analysts say it is a pointer and could cool China’s economy.
Inflation in India
With India too battling with high levels of inflation, many traders have forecast that all of this has profound implications on the price of gold. Gold will soon gain steam in the international markets, as a higher-than-expected inflation readings expected from China will prompt a rush into the metal,” said a bullion analyst at an international broking house here.
In a note to his clients, Paulo Gracias of Reliable Gold Securities said that fears of inflation had driven demand for gold as a retail investment in China, with the country reportedly importing over 200 tonne over the last three months.
As inflation continues to increase, the buying of physical gold by the Chinese will send the price of gold skyrocketing, he said, advising customers to stay invested. Moreover, with India looking to raise key interest rates after its December inflation reading jumped to 8.43% versus a year ago, traders insist gold is being used as a store of value by consumers in India to protect against rising inflation. Official data showed that food prices surged 18.3% in the week ended December 25, the highest rate since July, as onion prices soared 80%.
“Strong industrial growth in urban India and expansion in the rural market is literally putting cash into farmers’ hands. Though better harvests will ease inflation in the coming months, there is concern that tightening by the central bank in India, the Reserve Bank of India is a signal that India will join China in moves to dampen growth rates. Both the economies are worried about overheating,” said a precious metals analyst at DBS Bank.
Traders also point to record imports of gold, which they maintain is another case in point. India is said to have imported around 800 metric tonnes from 557 tonnes in 2009, and exceeded the previous all-time high of 769 tonnes in 2007, according to Ajay Mitra of the World Gold Council. He reportedly said that price was no longer a factor – “Our assessment is that demand will continue to be strong”, for investment demand for gold in India grew faster than the 62% gain in jewelry demand in the same period.
Mitra noted that it has been demand driven with investment in mind. “Though a lot of consumers in India buy gold in the form of jewellery, the core proposition really is security for the future, which is the investment angle for buying into gold,” Mitra added.
Moreover, with the country going in for its annual budget at the end of February, the government has already set the ball rolling. On Friday, the government liberalized norms for the import of precious metals – gold, silver, platinum and palladium – by select nominated agencies.
Inflation is coming our way, make no mistake about it
Inflation has soaked up the dollar’s purchasing power, forcing millions of Americans to slash discretionary spending. Furthermore, the U.S. Federal Reserve, through its lax monetary policy, has been exporting inflation to the rest of world. The resultant price increases in commodities have hit the wallets – not to mention the bellies – of many consumers, including those in the United States. A particular note about the U.S.–related factors: they will become more influential as the year progresses. The U.S. faces an extensive political debate about debt reduction this year that begins in earnest with President’s Obama’s rollout of his fiscal year 2012 budget request to Congress this week. All agree that government spending must be trimmed, but negotiating real reductions will be challenging. If the U.S. can’t meaningfully cut the federal budget, the failure will become more apparent in the third quarter, as politicians scramble to make a deal before the federal government’s fiscal year begins on October 1, just when the Indian wedding season demand for gold is ramping up. In regards to the 2012 budget Ron Fricke president of Regal Assets stated “The US administration submitted their budget for 2011 and with $3.7 trillion in mind it is up $1.54 trillion from 2010 clearly showing the flailing economy and no sign for recovery”
Unless the U.S. experiences a recovery so strong that increased government tax revenue will ease deficit concerns or U.S. political leaders make a genuine deficit-reduction breakthrough, there is a logical thesis for gold and gold-related assets to appreciate in the second half of 2011 that is compounded by seasonal Indian factors.
Source: http://goldcoinblogger.com
Tuesday, February 15, 2011
Silver Long Term Update
I have been a bull all my life and I will continue to remain a silver bull all my life. But silver has the tendency to fall much faster than any other metal in the event of a bear run. It is this tendency which scares low risk investors away. However silver’s performance in 2010 has a lit a fire in the mind of retail investors that he needs to invest in silver. I am now being asked by a huge amount of people whether they can invest at current prices. A few years ago I used to tell the same people to invest in silver but they ignored my advice.
- There have been three major corrections in silver since 2000. I am very sure that the fourth one will happen over the next two years.
- It will not be one way traffic for silver. There will be wild swings and consolidation phases.
- Silver can rise to $5498 and $8203 as long as it trades over $1774.20 on weekly closing basis.
- There is just one silver exchange traded fund. If more silver exchange traded funds come up then silver prices will zoom twenty percent in the short term and forty percent in the medium term to long term.
- The risk to my bullish view in silver is that of a reduction in global liquidity and global economic fundamentals.
- In the event of a crash in silver I do not foresee silver falling below $1400 in the long term.
- As far as long term investment in silver at prices is concerned, I will prefer to wait and invest around $2800 till $2100.
Losing Faith in Paper Money
I was planning to go into a bizarre and irrational rant against JP Morgan for its obvious scam of manipulating the silver market by massive naked-short positions, and including in my Loud Mogambo Diatribe (LMD) the scumbag government and “regulators” who are supposed to keep this kind of fraud out of the commodities markets.
Preparing myself by taking a long pull on a bottle of tequila, rehearsing every curse word I could remember and loosening up the vocal cords (“Mi mi miiiiii! Get out of my yard, you stupid kids! Yo, Adrian!”), I was almost ready when I got a copy of an email from David Bond, in his role as First Lord of the Treasury for the Island Kingdom of Colemania, who reports the news that JP Morgan has announced that they will accept gold as collateral for margin loans.
The part that saved me from denouncing JP Morgan is when he went on that “Whilst JP Morgan is pleased to now to accept physical gold as collateral for credit, it will NOT ACCEPT equivalent value (or any value) of shares in its own gold ETF in lieu thereof.”
Even I, jaded and cynical after a lifetime of watching one thieving bastard after another foist a screw-job on me, and watching one incompetent, corrupt government moron after another let them, I think that it is all encapsulated in his sentence that the lesson is that “Ergo (or is it ipso facto?) JP Morgan has great faith in physical gold, but concurrently has no faith in its own gold-backed paper.”
Its own ETF! JP Morgan runs an Exchange Traded Fund for gold, giving it complete control over the gold deposited there, and yet doesn’t trust its own fund? Has JP Morgan actually sold the gold that the ETF buyers were told was in there? Hmmm! That would make ME lose faith in it paper, too!
And as far as depositing gold with JP Morgan, Chris Powell of the Gold Anti-Trust Action Committee seems as cynical as I when he says, “Good luck getting it back.”
But suddenly everybody wants gold, especially as the Federal Reserve created more credit (which turns into money when somebody borrows it) last week, and Total Fed Credit went up last week by $19 billion. As to how much actual money this turned into is anybody’s guess since the fractional-reserve multiplier used by banks ranges from here to, literally, infinity.
But $18.4 billion of it turned into cash! I know this because the Fed used $18.4 billion of it to buy government securities to fund the loathsome Obama administration’s deficit-spending insanity!
And, in December, more money was created when revolving debt climbed by $3.5 billion.
And more money was created to allow total personal debt to shoot up $6.1 billion in December, too.
All in all, seemingly impossible amounts of money are being created, which means seemingly impossible amounts of inflation, which means seemingly impossible amounts of capital gains from buying gold and silver rising in price, which seemingly explains why I am seemingly always saying, “Whee! This investing stuff is easy!”
Source: http://news.goldseek.com
Preparing myself by taking a long pull on a bottle of tequila, rehearsing every curse word I could remember and loosening up the vocal cords (“Mi mi miiiiii! Get out of my yard, you stupid kids! Yo, Adrian!”), I was almost ready when I got a copy of an email from David Bond, in his role as First Lord of the Treasury for the Island Kingdom of Colemania, who reports the news that JP Morgan has announced that they will accept gold as collateral for margin loans.
The part that saved me from denouncing JP Morgan is when he went on that “Whilst JP Morgan is pleased to now to accept physical gold as collateral for credit, it will NOT ACCEPT equivalent value (or any value) of shares in its own gold ETF in lieu thereof.”
Even I, jaded and cynical after a lifetime of watching one thieving bastard after another foist a screw-job on me, and watching one incompetent, corrupt government moron after another let them, I think that it is all encapsulated in his sentence that the lesson is that “Ergo (or is it ipso facto?) JP Morgan has great faith in physical gold, but concurrently has no faith in its own gold-backed paper.”
Its own ETF! JP Morgan runs an Exchange Traded Fund for gold, giving it complete control over the gold deposited there, and yet doesn’t trust its own fund? Has JP Morgan actually sold the gold that the ETF buyers were told was in there? Hmmm! That would make ME lose faith in it paper, too!
And as far as depositing gold with JP Morgan, Chris Powell of the Gold Anti-Trust Action Committee seems as cynical as I when he says, “Good luck getting it back.”
But suddenly everybody wants gold, especially as the Federal Reserve created more credit (which turns into money when somebody borrows it) last week, and Total Fed Credit went up last week by $19 billion. As to how much actual money this turned into is anybody’s guess since the fractional-reserve multiplier used by banks ranges from here to, literally, infinity.
But $18.4 billion of it turned into cash! I know this because the Fed used $18.4 billion of it to buy government securities to fund the loathsome Obama administration’s deficit-spending insanity!
And, in December, more money was created when revolving debt climbed by $3.5 billion.
And more money was created to allow total personal debt to shoot up $6.1 billion in December, too.
All in all, seemingly impossible amounts of money are being created, which means seemingly impossible amounts of inflation, which means seemingly impossible amounts of capital gains from buying gold and silver rising in price, which seemingly explains why I am seemingly always saying, “Whee! This investing stuff is easy!”
Source: http://news.goldseek.com
Silver Is The Next Big Buzzword Among Investors In 2011
Look what’s creeping back up: Precious Metals! And, we’re a breath away from $31 an ounce for silver. Silver promises to become the next big buzzword among investors in 2011 and beyond, according to one of the investment industry’s most prescient and successful experts on precious metals. Sprott Hedge Fund LP, is heavily weighted in precious metals and has generated an estimated 23% annualized return over the past decade. Other similarly oriented funds under his stewardship have also been stellar performers in recent years. He’s now so bullish on silver that he launched the $575 million Sprott Physical Silver Trust in November of last year as he believes that: “Silver will be the investment of the decade.” “I think that silver could easily get to $50 this year,” This all bodes especially well for publicly traded companies that are already mining silver, he says. Likewise for ones that are developing primary silver deposits or gold deposits with plenty of silver as a byproduct. “If the price of silver continues to go up, silver is going to perform even better,” Sprott adds. One company that’s on the front lines of the drive to ramp-up the world’s silver supply is Vancouver-based Extorre Gold Mines. This high flier benefits from a resource base of 27 million ounces of silver and 550,000 ounces of gold at its development-stage Cerro Morro property in southern Argentina.
Extorre Chairman Yale Simpson says that the investment appeal of his company’s gold assets are beginning to take a back seat to the value of its silver inventory. “We’re continuing to find bonanza grade (very high grade) silver sites, including the Escondida Vein, which averages over 23 ounces per ton of silver. So if silver prices rise further, as so many industry observers forecast, the economics are in favor of this becoming a very low cost mine are enhanced very dramatically,” he says.
“This means that companies like ours no longer have to think of silver as a mere by-product to our gold mining. Instead, the silver component becomes the dominant economic driver and we could well begin quoting silver equivalent valuations, instead of the converse.”
Meanwhile, Sprott says the big catalyst for surging silver prices in the coming years will be exponentially increasing investment demand, which is already beginning to overwhelm existing silver supplies. The mining industry only produces around 800 tonnes of silver per annum. This is a relatively inelastic supply, regardless of silver prices, he adds.
Meanwhile, Sprott says the big catalyst for surging silver prices in the coming years will be exponentially increasing investment demand, which is already beginning to overwhelm existing silver supplies. The mining industry only produces around 800 tonnes of silver per annum. This is a relatively inelastic supply, regardless of silver prices, he adds.
As household investors are becoming increasingly jittery about the debasement of the U.S. dollar and other major currencies, they are loading up in record numbers on silver bars, coins and silver-denominated exchange traded funds, Sprott says.
However, there’s also a quantum shift in investment demand taking place among big players in the precious metals market, including India (which is aiming to increase its imports by about 77 million ounces per annum), and of course China, Sprott says. China’s net imports of silver were 112 million ounces last year. In 2005, they were net exporters of 100 million ounces. That’s a 200 million ounce shift in an 800 million ounce annual market that seldom ever grows because production hardly ever goes up. So where’s it all going to come from? We don’t know.
In fact, silver promises to outshine gold over the coming years, according to Sprott. Silver is the poor man’s gold. Industrial demand for silver, excluding photography, will rise 18 percent to 478 million ounces this year, according to UBS, Switzerland’s biggest bank. Investors will buy 450 tons of gold through ETPs this year, the Zurich-based bank forecasts. One-ounce silver coin sales from the U.S. Mint jumped to a record last month. Ex Oriente Lux AG, based in Reutlingen, Germany, will start adding the metal to its U.S. ATMs that sell gold in banks, shopping centers and jewelry stores this month.
But with photography alone utilizing 128 million ounces of silver yearly, and other industrial operations accounting for another 312 million ounces, the world’s total obtainable silver (both produced and hypothetical) is steadily – and irretrievably decreasing. Thus while gold is continuously being transferred based on price imbalances and demand alone, silver, as an element, is really vanishing. Gold has had a great run for the past 11 years, and now it seems to be silver that is out performing gold. Currently, there’s more investment dollars going into silver than into gold.
Such a game-changing scenario should recalibrate the gold to silver pricing ratio in silver’s favor, thereby eventually restoring it to its traditional level of about 16 to 1, he says. “It’s the easiest call of all time.”
Sprott adds: Silver as a currency always traded in a ratio of around 16 to 1 compared to gold, when it was a currency in the U.S. and the U.K. The current ratio is 48 to 1. If we go back to a 16 to 1 ratio, the implied price for silver would be $85.62 (per ounce).
On that basis, if gold goes to $1,600, then that would value silver at $100. And we certainly think that gold is going to $1,600. In fact, I’m willing to bet that this ratio will overshoot on the downside. It might even get to 10 to one. The only reason why silver is still trading at a 48 to 1 ratio to bullion’s spot price is that its price is being “manipulated” by big banks, Sprott says. That’s because they don’t want precious metals to become a popular alternative currency to Fiat money (currencies that are not backed by hard assets). Ron Fricke president of Regal Assets says “Silver is the most undervalued metal as gold is breaking through its high from the early 1980’s of $850.00 an ounce silver still has not caught up to its high which is $50 an ounce.”
But time is on silver’s side, he says, as the sovereignty debt crisis deepens in Europe and a continued policy of quantitative easing in the U.S. continues to undermine the value of the greenback. Finally, while silver had a tumultuous January after hitting highs in late December of over $31 per ounce; the market has since undergone a correction. The price of silver at closing on Feb. 1 was $28.620 per ounce, up $0.570 on the day, in New York. The strength of the dollar may have been a factor in the slide over the last month but that is changing. The US Dollar Index is at a 12 week low, which has helped the upward bounce in the overall correction pattern.
The most positive factor for the increased demand for silver going forward is still the Chinese. Looking to increase the relative value of the Yuan, reports show the desire of China to increase it holdings of precious metals. The Chinese central bank, the People’s Bank of China, is chalking out plans to buy gold and silver reserves these days. While the exact figures of China’s silver reserves are hard to come by, reports indicate China is the number one producer and consumer of silver, and any increase in demand from the central bank will surely influence prices of metals going north worldwide.
Friday, February 11, 2011
China to drive gold toward $2,000 by 2015
CAPE TOWN -
But what happens in China is critical. The rise of consumers in that country, as well as costs like wages will be transformative, Hale says. This poses tests for commodity markets. But in the long there is a demand for gold and other commodities that is, for now, unstoppable.
Global economist David Hale discusses ‘the state of the world' and theorises on how global economic conditions will impact inflation and monetary policies and how these will impact the price of commodities, in particular gold.
He is predicting a rise in the price of gold - to as much as $2,000 per ounce by 2015. The factors driving this rise are economic and geo-political. The biggest driver of gold prices, he says, is China, and to a lesser extent, Africa.
Much depends though on the risk of inflation and its impact on growth in the developed and developing world. In the developed world, he says, inflation risks are benign and most countries are following an expansionary monetary policy to stimulate growth. But, in the faster growing developing world, inflation risks are rising. Monetary policy is tight, with many developing countries, including China, raising interest rates as they try to stave off inflation - how they manage this will impact commodity prices.
In the US the corporate profits are up thanks to unprecedented cost cutting and productivity improvements. US businesses are now hypercompetitive and very profitable. But economic growth is likely to remain at a subdued 3,5% for this year. So interest rates, he says, are unlikely to rise in the medium term and the monetary policy is likely to remain expansionary for the next 12 to 18 months.
Similarly, the inflation outlook in Europe is also benign. "People are concerned about food inflation, but that is a transient problem". Instead economists are watching events like the current round of wage negotiations in Germany for signs of an inflation push. So far there are no ominous signs. "The first big agreement, at Volkswagen, was settled at 2,5%."
The European Central bank remains constrained by Greece, Ireland and Portugal and other, as yet unseen, problems. "I don't think Jean-Claude Trichet [the president of the European Central Bank] will want to raise interest rates this year. It is too uncertain."
Japan's export led economy showed initial signs of recovery, but slowed again last year. Interest rates are unlikely to change and the government will support an expansionary fiscal policy. "So the Bank of Japan cannot raise interest rates."
Around the world the possibility of monetary tightening is very slim.
But the picture is quite different in emerging markets - which now account for 50% of global output. "There we may have tightening." China could raise interest rates by another 75 basis points this year. Inflation concerns are growing. A bubble in the property market remains a risk. Wage pressure is another concern. In eastern China there is a labour shortage of 20m workers. "We are talking wage gains of 20% to 30%," Hale says.
China is shifting its strategy of export-led and investment-driven growth to a more balanced pattern of economic development, one more dependent on Chinese consumption. As a result, China's growth rate may be lower - around 6% - but more sustainable.
At the same time the Chinese government is pushing to internationalise the Chinese currency and reduce its reliance on a weakening US dollar. "It is not yet a fully convertible currency, so it's not yet a rival to US dollar." says Hale. But it could be in the near future.
The upshot of this, as well as of the depreciation of the US dollar, is that China will want to increase its gold reserves. The Chinese central bank has been quietly buying gold for the two to three years, but last year it upped its purchases, buying 450 tons. (So too did Russia, India and Mauritius, but in smaller quantities). China now has more than $2400bn of foreign exchange reserves, but a fraction of this is invested in gold. The IMF projects that China will run a current account surplus of $2600bn during the next five years. If it does, Hale says, its forex reserves could rise to the $5000bn-$6000bn range. And even if it keeps the gold share of its reserves constant, it will have to buy another 1000-1500 tons. In fact, some in the Chinese government have suggested that the central bank should increase its gold reserves to 10 000 tons. "This would give China larger gold reserves than Fort Knox."
The massive expansion of China's foreign exchange reserves has resulted in faster monetary growth and helped drive China's inflation rate up. This triggered a rise in the private demand for gold. Private holdings have rocketed from nothing three years ago, to 300 tons now. "This could easily increase to several hundred tons, with China rivalling India as the largest private buyer of gold in the world."
But where are the other emerging economies in this?
They too are facing inflationary pressures. Brazil's growth rate was 8% last year. There are signs of monetary tightening in Peru and Chile. Indonesia and Thailand are raising interest rates. "This is a balancing act as no one wants to see their currencies appreciate."
The World Bank forecasts growth of 5% in Africa for the next two to three years too. Growth and capital investment in infrastructure will drive demand for natural resources and will support commodity prices.
Long term, in Africa's favour is its labour force: While European, Japanese and US labour forces are in decline, and China's will decline from 2016, Africa has a large and growing pool of labour, and consumers. "Africans will either move to work in Europe or business will move to this continent."
Hale predicts the latter. "I can see China moving textile factories here. They cannot remain competitive in China, wages are just too high."
The emerging markets are the global growth story. But what happens in China is critical. The rise of consumers in that country, as well as costs like wages will be transformative, Hale says. This poses tests for commodity markets. But in the long there is a demand for gold and other commodities that is, for now, unstoppable.
Gold Prevails As The Fed Takes On The US Debt Issues
“Fed passes China in Treasury holdings,” says The Financial Times. So, who’s the biggest holder of US debt? The Fed! And since the Fed doesn’t have any real money to speak of, how did it get all those US bonds? It simply created the money to buy them, out of thin air. In other words, the US didn’t really borrow the money at all. It just printed money. Isn’t that what Zimbabwe and Reichsbank did, and what Banana Republics do…just before they go bust? They can’t pay their expenses honestly, so they just print up some extra currency and hope nobody notices. But people do notice, eventually. And they dump the currency. Well, maybe this time it is different? But that hope is dashed. The Fed just keeps printing money. It has a mandate I remind you to buy $600 billion of US Treasury debt in the first half of this year.And surely that isn’t just noise, is it? No, it’s something important. Something we all need to pay attention to. It’s something that affects the value of every dollar we’ve ever managed to save. Maybe it’s why commodities are so high. And maybe it’s why the euro is back up to $1.38. And maybe it’s why the smart money is in buying gold .
Gold is what you buy when you fear the authorities are up to no good. But so far, very few people own gold. Ask your friends and neighbors. Many will have never considered buying gold…and they’ll look at you as though you were a kook for suggesting it.
In the average man’s mind – he trusts the government, because government is a good thing. It is there to ease his suffering…it will make sure that the rich don’t get too rich…and that he will have a retirement pension, public libraries, fire departments, and food tasters. If his car has a defect, he’ll count on the feds to make sure it gets called in and fixed too.…and his money? Despite the evidence of 100 years of Fed stewardship – in which the dollar lost 97% of its purchasing power – he still believes that the feds are on the case, and that they’ll make sure the US dollar is a valuable and reliable way to store wealth.
And if he’s wrong? Well, then the feds will turn out to be less reliable than he believes. And he’ll be out beaucoup dollars. The average man has a foggy view of the government…a bit of Mystic Knights of the Sea combined with the Rights of Man, Democracy, and supporting the home team. To say that he doesn’t think clearly about it is misstating the situation. He doesn’t think about it at all. And why should he? He has better things to do – like earning money and watching television.
Today’s modern governments have struck a bargain with the common man. They keep order, of course. But there is more to it than that. Keeping order doesn’t cost very much. And governments today, as Paul Krugman puts it, are “big, ambitious and expensive.” No gimmick will ultimately eliminate the currency crisis trade, but it buys the Fed some time with the public before they lose confidence in the central bank. A quote from Reuters: The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability…”Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible,” said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.
And, recently, the Wall Street Journal Found a hedge fund that had liquidated a massive spread of contracts. These positions resulted in a net 100% loss to the hedge fund manager, and he just decided it was time to cut his losses. The selling appeared to panic jittery longs, cascading into more selling.
So is this the end of the great gold bull? I don’t think so.
Yesterday, the euro had the trap door sprung underneath it, while most of the other currencies traded in a tight range. At one point in the day, I looked up, and noticed that gold had turned around… I was excited that gold had just moved $20 in 10-minutes! WOW! I laughed, semi-seriously, that gold must have reached a low enough price to entice the Chinese to buy! I mean who else could buy enough gold to move the price that quickly and by that much? In the face of today’s economy, for those that experienced the risk assets that have prevailed the first two days of this past week, this has taken a breather, and that’s OK… Even after the worst January for precious metals in two decades, investors still have a $102 billion bet on higher prices, hoarding more gold than all but four central banks and more silver than the U.S. can mine in almost 12 years.
The five analysts ranked by Bloomberg as the most accurate over two years expect silver to rise as much as 23 percent before the end of 2011 and gold 20 percent, the median of their estimates show. UBS AG predicts the strongest industrial demand for silver since at least 1990 and the second-highest sales of exchange-traded gold products on record. Once written off as demand for photographic film waned, silver found new uses in everything from solar panels to plasma screens, making it the precious metal most used in industry. As stocks rose 9 percent and Treasuries returned 67 percent since the end of 2000, gold surged fivefold and silver sixfold.
“I had to chuckle when I saw reports that it was over for gold,” said Michael Cuggino, who helps manage $10 billion at Permanent Portfolio Funds in San Francisco, and has about 20 percent of his assets in gold. “Some investors have taken money off the table after a significant run-up in 2010. If you look at the macro environment, the instability around the world, the worldwide currency devaluation, these factors all bode well.”
Gold has had bigger monthly slumps four times in the last decade and plunged 34 percent from March to October 2008, before jumping 47 percent in the following four months. Silver posted larger monthly declines nine times over the same period and plummeted 57 percent over three months in 2008. It rallied 73 percent in the next four months.
Silver will climb as high as $36 an ounce this year, from $29.235 now, and gold will reach $1,620 an ounce, from $1,350, according to the Bloomberg survey of analysts. “Silver is the most undervalued metal and 2011 will be the year for it to shine” states Ron Fricke President of Regal Assets. “Investors of silver saw it grow as much as 50% in 2010 alone and the luster for silver has just begun”. “Gold is going quiet,” said Pete Sorrentino, who helps manage $13.8 billion at Huntington Asset Advisors in Cincinnati, Ohio. “It’s good and healthy and characteristic of gold’s stair-step rally.” “I don’t see any resolution to the debt crisis when the Fed is buying debt again and again,” said Thorsten Proettel, an analyst at Landesbank Baden-Wurttemberg in Stuttgart. “Most people will be loyal to their investments in gold and silver, because the fear doesn’t evaporate.”
Chinese Silver Buying Just Beginning
Just a few decades ago, China the Giant was barely a mortal. It produced most of what it consumed, and the corporate mega-producers installed during the darkest days of Asian freedom and democracy produced all the commodities the country might need within its own borders.
One such commodity was the one we all love: silver. In fact, China produced so much that it couldn’t use all of it, nor was it interested in holding onto the metal. The country was a net exporter until four years ago, when at the height of the most recent credit bubble, net imports materialized. Today, China consumes more silver than it ever has in history.
It’s not that China isn’t still producing silver—it is, but it’s consuming and hoarding more of it. Through 2010, net imports increased some 15%, while exports fell by nearly 60%. Such a fast swap from exporter to importer means additional strain on the silver markets. From 2009 to 2010, total net imports surged three hundred percent in just one year.
Demographic Complexity
Of the more than one billion people who live in China, most live at or near poverty, while only recently a select few have been moving to middle class. While the number of people advancing through society in raw percentage terms is declining, the number of people who are achieving greater purchasing power is exploding in nominal terms.
If, for example, only 5% of the Chinese population were to rise to the ranks of “middle class,” it would be the equivalent of one out of five Americans doing the same. Such an increase is mild, to say the least, but it commands even more from an already limited silver market. Imagine what happens when many millions or even billions of newly middle-class Chinese demand cell phones, personal computers or other electronic devices. Each contains silver, and each is a hot commodity in the developing world.
Rising Middle Classes
As has been covered previously, not all of the new demand is purely consumption. As gold continues its rise, silver is slowly becoming the new “poor man’s gold,” a trend that appears not only in the developing world, but in the developed world as well. In fact, it is becoming increasingly common for jewelry to contain diluted gold to reach consumer-level price points. What are jewelers using for such dilution? Silver.
Asian societies, governments, and populations have always had respect for gold and silver that is perhaps unmatched by any other geographic region. For centuries and for many millennia, gold and silver were used exclusively for trade, as a currency and store of value. Even through modern times, gold and silver are appreciated for their beauty and significance of wealth.
It would be wise to expect that any net increase in tangible wealth in the Asian markets will be met with nearly equal shifts in the consumption or savings of precious metals. Timing is of the essence here. With both India and China expected to achieve nearly double-digit growth rates, many millions more people are soon to join the growing class of silver stackers.
The Rarest Earth
Those who keep up with business news will have no doubt read about the recent developments in the category of minerals known as rare earth elements (REE’s). These are minerals that are vital to modern industrial applications, ranging from lasers, batteries, alternative energy, and superconductors to all sorts of important high-tech applications. There are 17 minerals classified as REE’s with exotic names like scandium, yttrium, lanthanum, cerium, and praseodymium. Don’t worry, this is not a technical discussion and this will probably be the only time I write about rare earth elements.
Actually, these minerals are not all that rare, in the strictest sense of the word. Many are quite abundant in the earth’s crust. What makes them rare is that they are generally not concentrated in ore bodies offering economically feasible extraction. The first rare earth mineral was discovered around 1800, in a village in Sweden named Ytterby, and several REE’s are named after that village. Up until about 1950, most rare earth production came from India and Brazil. In the 50’s, South Africa was a big producer, then California took the lead from 1960 through the 1980’s. Then, China came to be the dominant producer by far, and currently produces 97% of world production.
Due to booming world demand, production has strained to keep pace. This was recently exacerbated by China’s new export restrictions, due to falling ore reserves and environmental concerns. This sent the price of rare earth elements soaring by hundreds of percent, prompting a world-wide effort to ramp up production. However, you just don’t flip a light switch and begin new mine production. It can take years to develop a mine and begin production. In the meantime, industrial consumers must compete for available supplies by bidding up the price. This is the essence of the law of supply and demand.
Since I’m not a REE expert why am I writing about them? The answer has to do with silver. Silver shares many characteristics with the rare earth elements and there is a lot to learn from them in our analysis of silver. In fact, the purpose of this article is to make the case that silver is the rarest of all the rare earth elements.
One of the common characteristics between silver and the rare earth elements is that many REE’s are mined in conjunction with other minerals, the same as silver with its by-product mining profile. Mining for both tends to concentrate on the easiest to exploit properties first. Consequently, the remaining properties tend to be lower-grade and more expensive and difficult to develop. Both silver and REE’s have seen the emergence of China as the chief producer of each. (In the case of silver, the production reliance includes the processing of scrap material not mined in that country.) Silver production from China is nowhere near 97% of world production, as it is in the rare earth elements, but it still is significant. Environmental issues and restrictions inhibit the production of both silver and the REE’s. And with both, higher prices don’t automatically guarantee immediate new production. For instance, last year on an 80% increase in silver price, the mine production of Peru (the world’s largest miner) declined 7% or 12 million ounces. That’s a million silver ounces less per month than from a year earlier. Recently, the price of REE’s skyrocketed, due to China’s sharply curtailed exports. Should any major silver producing country sharply restrict the export of silver, the price would soar.
In most industrial applications, there is a small, but necessary amount of silver and rare earths used which is resistant to substitution. The chemical properties of silver and rare earth elements are usually unique in the specialized industrial applications which mandate their use. Generally, the consumption of silver and rare earth elements is price-inelastic, meaning sharply increasing prices of each do little to discourage consumption, due to the lack of substitutes. As was seen recently in the rare earth elements, the industrial users panicked when the supply was curtailed. This will also happen in silver, as I have long predicted.
Where do I get off with the statement that silver is the rarest earth element of them all? This point is the easiest of all to make and should prompt you to rush out to buy silver immediately. What separates silver from the REE’s is the one stark factor which is unique to only silver. You can actually buy and hold silver in its purest elemental form, unlike other rare earth elements. Try calling some dealer to invest in pure yttrium, or promethium or gadolinium. And if by some miracle you can find someone to buy from, try to imagine how you could possibly sell or determine a fair price?
The thing that separates silver from all other REE’s is that you can invest in it directly. Sure, you can buy stocks in companies that mine silver or REE’s, but only silver has the dual role of basic investment asset and industrial material. That’s what makes silver the rarest of the rare. What separates silver from any other natural resource is thousands of years of primal attraction, held by man as a form of wealth, and simultaneously a vital and strategic industrial material necessary to modern life. It’s just not practical for the average investor to buy a pound of a rare earth, a barrel of oil, or a bushel of corn for investment purposes. I suppose a case can be made about investing in platinum or palladium, both important industrial metals, but there has never been any evidence of a world-wide rush to buy these metals as there has been in silver. Buying or selling an ounce or a pound of actual silver is as easy as falling off a log. The United States Mint sells Silver Eagles by the millions of ounces every month. And while many invest in gold, it doesn’t have that investment asset and industrial material dual role unique to silver. That’s what makes silver so rare.
The amazing thing is how few of the world’s potential investors appreciate the uniqueness of silver’s rare dual role. The ease of investing in silver is taken for granted by the world. Just a few decades ago, silver was in common coinage. This explains why people have difficulty comprehending how such a formerly abundant material could be considered rare today. How many people know that world silver stockpiles are down 90% since 1940? That’s precisely what creates the investment opportunity of a lifetime – seeing something before the crowd.
It seems preposterous that a material like silver, which the common man carried in his pocket for bus fare or a newspaper could somehow transform itself into a rare material about to enter into a profound shortage. That shortage is virtually guaranteed by silver’s unique dual role. The coming rush into silver by investors seeking profits and industrial users looking to stockpile a vital manufacturing component makes a shortage almost certain. There is no way production can ramp up nearly as quickly as the combined force of investment and user demand.
For all intents and purposes, silver has been the best investment over the past decade. Those investors who studied the facts objectively and bought silver, have reaped multiples of their original investment. Silver will likely be the best investment of the next decade as well. Those who study the facts and act on them by buying silver will be generously rewarded. There is no way anyone can turn the clock back to single digit silver. Those days are long gone. But in some ways, the more exciting time lies ahead.
Ten years ago, it was difficult to convince people to buy silver. The stock market was flying high and real estate was just entering a major bull market. Crude oil was sliding towards $20/barrel and most commodities were flat. Silver was under $5, gold under $300, and the term rare earth was mostly unknown. Anyone investing in natural resources needed to have their heads examined. Even though silver was in a deficit consumption pattern, there was little interest in buying it as an investment.
Today, things are different. Natural resources are more widely appreciated, in light of burgeoning world populations and the growth in living standards. Now it is a question of which natural resource will experience the next supply and demand crunch, rather than will there be any crunches.
In the last decade, silver rose due to the cumulative effect of a 60 year deficit and the start of net investment demand. This decade, it will be investment demand driving silver higher, along with the end of the short selling manipulation. This termination appears underway. Thanks to great price performance, more investors will be drawn to silver. Thanks to the Internet, a great manipulative force that restricted the price cannot last much longer. While it may be hard to achieve the 7-fold increase in price from the extreme lows of ten years ago, the gains will still be spectacular and should come quickly. At some point the buying momentum will overwhelm those shorts trying to hold back the tide. The big shorts look tired of the manipulation and appear ready to stand aside on the next big rally.
How many neighbors and friends and relatives and fellow citizens do you know that have made a serious investment in silver? I doubt you can discover one in a hundred, or one in a thousand. Despite the impressive price gains over the past 5 or 10 years, silver is still vastly under-owned and under-appreciated. The investment flows into silver, compared to any other investment class, have been tiny. However, the amount of real silver available for investment is so small that the small investment flows to date have been sufficient to power silver higher. As more investors become aware of the silver story, the money coming into silver will only increase, propelling the price to levels once thought impossible. Importantly, the money flowing into silver appears to be for physical buying and not margin. Bubbles only occur when people are so enamored of an investment that they recklessly borrow to buy as much as possible. We’re a very long way from that in silver. That’s yet to come.
There are now $2 trillion in assets in hedge funds (the pre-financial crisis levels). This is hot money that comes into any promising investment theme in a flash. It is big money, always on the prowl for a good investment idea. To my knowledge, there has been no rush yet into silver by the hedge fund sector. Remarkably, silver recorded an 80% gain last year and a 170% gain over the past two years with no visible participation from the biggest and hungriest investors of all. There is no doubt in my mind that before the silver price saga is finished, the hedge funds will have come into silver in a big way. If silver can climb 80% and 170% without them, what can it climb with them knocking down the doors to get in? The silver story is just getting out. Please take the time to study the facts and act before the big surge.
Yesterday's Top Story: Silver to outperform gold in 2011
Author: Marc Davis
Posted: Tuesday , 08 Feb 2011
Posted: Tuesday , 08 Feb 2011
VANCOUVER B.C. (WWW.BNWNEWS.CA ) -
Silver promises to become the next big buzzword among investors in 2011 and beyond, according to one of the investment industry's most prescient and successful experts on precious metals.
Eric Sprott is the founder of the Toronto-based investment firm, Sprott Asset Management LP. His renowned hedge fund, Sprott Hedge Fund LP, is heavily weighted in precious metals and has generated an estimated 23% annualized return over the past decade. Other similarly oriented funds under his stewardship have also been stellar performers in recent years.
He's now so bullish on silver that he launched the $575 million Sprott Physical Silver Trust in November of last year as he believes that: "Silver will be the investment of the decade."
"I think that silver could easily get to $50 this year," he tells BNWnews.ca.
This all bodes especially well for publicly traded companies that are already mining silver, he says. Likewise for ones that are developing primary silver deposits or gold deposits with plenty of silver as a byproduct.
"If the price of silver continues to go up, silver stocks are going to perform even better," Sprott adds.
Meanwhile, Sprott says the big catalyst for surging silver prices in the coming years will be exponentially increasing investment demand, which is already beginning to overwhelm existing silver supplies. The mining industry only produces around 800 tonnes of silver per annum. This is a relatively inelastic supply, regardless of silver prices, he adds.
As household investors are becoming increasingly jittery about the debasement of the U.S. dollar and other major currencies, they are loading up in record numbers on silver bars, coins and silver-denominated exchange traded funds, Sprott says.
However, there's also a quantum shift in investment demand taking place among big players in the precious metals market, including India (which is aiming to increase its imports by about 77 million ounces per annum), and of course China.
"China's net imports of silver were 112 million ounces last year. In 2005, they were net exporters of 100 million ounces," he says.
"That's a 200 million ounce shift in an 800 million ounce annual market that seldom ever grows because production hardly ever goes up. So where's it all going to come from? We don't know."
In fact, silver promises to outshine gold over the coming years, Sprott says. "Silver is the poor man's gold. Gold has had a great run for the past 11 years. But I absolutely believe that silver will outperform gold this year. Currently, there's more investment dollars going into silver than into gold."
Such a game-changing scenario should recalibrate the gold to silver pricing ratio in silver's favor, thereby eventually restoring it to its traditional level of about 16 to 1, he says. "It's the easiest call of all time."
"Silver as a currency always traded in a ratio of around 16 to 1 compared to gold, when it was a currency in the U.S. and the U.K. The current ratio is 48 to 1. If we go back to a 16 to 1 ratio, the implied price for silver would be $85.62 (per ounce)." he adds.
"On that basis, if gold goes to $1,600, then that would value silver at $100. And we certainly think that gold is going to $1,600. In fact, I'm willing to bet that this ratio will overshoot on the downside. It might even get to 10 to one."
The only reason why silver is still trading at a 48 to 1 ratio to bullion's spot price is that its price is being "manipulated" by big banks, Sprott says. That's because they don't want precious metals to become a popular alternative currency to Fiat money (currencies that are not backed by hard assets).
"Then there's also a huge short position out there on silver," he adds.
But time is on silver's side, he says, as the sovereignty debt crisis deepens in Europe and a continued policy of qquantitative easing in the U.S. continues to undermine the value of the greenback.
Source: http://www.mineweb.com
China, Inflation, Gold
China created paper money and paper money then created inflation
Ralph T. Foster in his invaluable book, Fiat Paper Money, The History and Evolution of Our Currency, writes that paper money made its first appearance in Szechwan, a remote province of China early in the 11th century.
Because of a shortage of copper coins, provincial officials had begun circulating iron coins; but the difference in value and weight between the two metals caused unexpected problems.
As Foster writes: [housewives needed] one and one-half pounds of iron [coins] to buy one pound of salt…Paper was the answer. People began to deposit their iron money in money shops and exchanged deposit receipts to transact business.
The money shops’ deposit receipts then began circulating as money. But the money shops soon issued more deposit receipts than their supply of coins and by 1022, confidence had eroded in both the notes and the supporting iron money [and] government authorities closed the private note shops.
When the Chinese government intervened, the government quickly discovered the advantages paper money—at least to the issuers. The Sung dynasty immediately banned the issuance of paper notes by private money shops and on January 12, 1024, the Sung court directed the imperial treasury to issue national paper money for general use.
In the beginning, the imperial treasury backed its paper notes with cash coins equal to 29% of the paper money issued. Eventually, however, the Sung, like each succeeding dynasty, would print far more money than it actually possessed in backing.
The consequent loss of confidence in paper money caused Chinese scholars to question the nature of money...Ye Shi (1150-1223) spoke out against excessive amounts of what he called “empty money” when he observed how paper inflation hurt the economy; and scholar Hu Zhiyu (1127-1295) concluded that only backing gave paper value and blamed the retreat from convertibility for the loss of public confidence.. paper money, the child, is dependent on precious metals, the mother. Inconvertible notes are therefore “orphans who lost their mother in childbirth”. (page 19)
For the next 600 years, succeeding dynasties would each attempt to utilize the advantages of paper money and avoid its disadvantages. Not one dynasty was able to do so. All attempts to use paper money ended in runaway inflation and dynastic collapse.
By 1661, China finally learned its lesson and the new Qing dynasty officially outlawed paper money. Regarding China’s 600 year experiment, Foster writes:
Over the course of 600 years, five dynasties had implemented paper money and all five made frequent use of the printing press to solve problems. Economic catastrophe and political chaos inevitably followed. Time and again, officials looked to paper money for instant liquidity and the immediate transfer of wealth. But its ostensible virtues could not withstand its tragic legacy: those who held it as a store of value found that in time all they held were worthless pieces of paper. (page 29)
Today, almost 1,000 years after paper money first appeared and 350 years after China banned its use, China’s is again issuing excessive amounts of paper money; and, once again, paper money’s initial prosperity is about to give way to inflation and economic chaos in the celestial kingdom.
Southern Weekly, a Chinese language publication, recently noted:
China has not only been the country that prints money at the fastest rate but also been the country with the largest money supply in the world in the past decade. China’s M2, a broad measure of money supply, was up 19.46% at the end of November from a year earlier...This compares with 3.3% and 2.5% of annual M2 growth in the US and Japan respectively over the same period…
China's money supply, M2-to-GDP ratio over the past decade is the highest in the world. The nation with the longest history of excessive money printing and consequent inflation has clearly forgotten its past. The past, however, has not forgotten China.
2011: CHINA, INFLATION & THE PRICE OF GOLD
Asian nations, China and India in particular, have a long history with gold. Precious metals as a hedge against chaos is deeply embedded in Asian cultures and when chaos takes the form of inflation, gold is the default hedge; and, today, inflation is on the rise.
China raised interest rates for the third time since mid-October ahead of a report forecast to show inflation accelerated to the fastest pace in 30 months.
February 8, 2011, Bloomberg News
February 8, 2011, Bloomberg News
This has profound implications for the price of gold. As inflation continues to increase, the buying of physical gold by the Chinese will send the price of gold skyrocketing. In fact, it has already begun.
On February 2nd, the Financial Times reported: Fears of inflation have also driven demand for gold as a retail investment… Precious metals traders in London and Hong Kong said on Wednesday they were stunned by the strength of Chinese buying in the past month. “The demand is unbelievable. The size of the orders is enormous,” said one senior banker, who estimated that China had imported about 200 tonnes in three months.
On February 8th, Karen Maley in Australia’s Business Spectator discussed this growing phenomenon in her article, China’s gold tsunami: It’s not hard to understand the growing Chinese enthusiasm for gold. Officially, China’s inflation rate was 4.6 per cent in December, but many believe the actual inflation rate is considerably higher. But Chinese savers earn a paltry interest rate of 2.75 per cent on one-year deposits, which means that they face negative real interest rates.
Faced with these dismal returns, Chinese households and businesses have been pouring money into physical assets, such as food, real estate, and commodities as a hedge against inflation. Chinese authorities are now trying to quell property market speculation by making it more difficult for buyers to get bank finance for their second and third investment properties, and have begun experimenting with property taxes in some cities.
This has caused Chinese investors to turn to gold. According to the Sprott newsletter, China, which is already the world’s largest gold producer, imported more than 209 metric tons of gold in the first ten months of 2010 alone. This compares with the estimated 45 metric tons it imported in all of 2009.
DON’T WORRY ABOUT 2012, 2011 IS HERE
The response to the 2008 global collapse set in motion an even greater danger—runaway inflation. In 2009 world governments attempted to offset the global collapse in demand with historic levels of liquidity. The excessive printing of money has now led to higher prices.
Prices, especially food prices are rapidly rising. Tyler Durden, ZeroHedge, makes this point with stunning clarity:
One of the benefits of America finally seeing what Zimbabwe went through as it entered hyperinflation, ignoring for a second that the Zimbabwe stock market was the best performing market, putting Bernanke's liquidity pump to shame, is that very soon everyone will be naked, once companies finally realize they have no choice but to pass through surging input costs. And while some may be ecstatic by the S&P's modest rise YTD, it is nothing compared to what virtually every single agricultural product has done in the first month of 2011. To wit: Corn spot up 7.76%, wheat up 5.63%, Rice up 10.08%, Hogs up 10.16%, Sugar up 5.64%, Orange Juice up 3.33%, and cotton.... up 17.08%. That's in one month!
Rapidly rising food prices have already contributed to governments falling in Tunisia and Egypt. Other governments, well aware of the risk that inflationary food prices pose to their continued rule, are now stockpiling food to prevent further protests.
This buying will only drive the cost of food even higher: Jim Gerlach, of commodity brokerage A/C Trading, said: "Sovereign nations are beginning to stockpile food to prevent unrest." "You artificially stimulate much higher demand when nations start to increase stockpiles."
"This is only the start of the panic buying," said Ker Chung Yang, commodities analyst at Singapore-based Phillip Futures. "I expect we'll have more countries coming in and buying grain.
Telegraph
Telegraph
INFLATION & THE FUTURE PRICE OF GOLD
Even the hardened paper boys on Wall Street are aware of inflation’s impact on the price of gold. The meteoric rise of gold in the late 1970s was caused by rapidly rising prices. In the last decade, however, gold began moving steadily higher as did all commodities in a disinflationary atmosphere. That, however, is about to change.
With gold already moving higher, the increasing inflationary impetus will send the price of gold far beyond its present price. Gold’s spectacular ascent in the 1970s is now about to be dwarfed.
Last night, I, Ralph T. Foster, our wives and another couple had dinner together and the topic turned to the future price of gold. There was agreement that while its ascent was certain, gold’s ultimate price was a matter of pure conjecture since the reference points used to value that price would be virtually worthless pieces of paper money.
History is the context within which our present circumstances present themselves. Of late, change has been so rapid that many believe the past is merely that which preceded the present. They are wrong.
History is about to repeat itself, albeit in a new iteration. Paper money’s journey to the west and back again is about to reach its fatal climax. Paper money’s ten-century drama is almost over; and while a new and better era will replace it, the collapse of the present era will be unprecedented in magnitude.
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