Alan's Finance Blog

Gold & Silver Beyond The Limit

By Peter Schiff

Perhaps the debt ceiling should be renamed the “national debt target,” for it seems Washington is always trying to reach it. One could say it’s their only reliable, time-tested achievement. And without fail, upon reaching their national debt target, they promptly extend it further in order to discover how quickly it can once again be attained!

While I have little doubt that the ceiling will be raised, my readers have been curious as to the implications for gold in each of the debt and “default” scenarios possible after August 2nd. This month, I’ll outline how each outcome could affect the price of gold and silver.

BEARISH GOLD CASE #1: DEBT CEILING NOT RAISED – ENOUGH CUTS MADE TO AVERT DEFAULT

My readers know that this scenario is actually what the US government should do. The debt ceiling should not be increased and massive cuts must be made. We know this outcome is extremely unlikely – it would require not only a resolute steadfastness to sound money, but also a 180-degree change of philosophical beliefs by the majority of Congress (and the American public) overnight.

Yet in our fantasy world, if this did occur, it would be bearish for gold. It would mean the US government was shrinking, that debts were being paid, that the entire US economy was becoming more solvent and viable. Gold would be less important to own, as the risk of both currency crises and sovereign debt crises would be lower.

BEARISH GOLD CASE #2: DEBT CEILING RAISED – FEDERAL BUDGET BALANCED

If the debt ceiling is raised in order to avert imminent default, but the spare time is used to truly bring the federal budget into balance, the US economy might still be saved. But when I say “balanced,” I mean it. This would mean not only eliminating the entire $1.5 trillion deficit, but also leaving enough of a surplus to cover all outstanding debt and unfunded liabilities. For perspective, Senator Rand Paul’s proposal to but $500 billion a year, widely considered more radical than landing a man on Mars, would only address 1/3 of the annual deficit – it would take cuts many times that for the US to return to solvency.

But let’s be optimistic: if the budget could be balanced, then the fact that the debt ceiling was being increased yet again would not be so awful. Since the US government’s fiscal policies would be completely reversed, we could expect to start seeing a strengthening of the dollar (so long as Bernanke stopped the printing presses too) and a weakening of gold and silver.

However, this is just as much of a pipe dream as the first scenario. No government in history has dug itself out of the hole we now face without defaulting. If Congress even tried to enact a plan like this, people would be rioting in the streets over their lost entitlements. And we’d suddenly have millions of unemployed soldiers. Not exactly a recipe for peace and prosperity.

BULLISH GOLD CASE #1: DEBT CEILING NOT RAISED – US DEFAULTS ON TREASURY DEBT

This is the scenario that President Obama and Secretary Geithner are threatening. They claim that if the debt ceiling is not raised, they will have to immediately begin defaulting on Treasury interest payments. This is rather unlikely, as interest payments make up only 10% of spending, but let’s say they stop paying anyway.

If they do this, market interest rates for US debt would skyrocket, meaning the only buyer left at rates the Treasury could afford would be the Fed. In other words, if they default on August 2nd, QE3 will start on August 3rd. Of course, a default would be absolutely devastating to the dollar and a boon for gold and silver. Global confidence in the invincibility of the United States would be shattered, and the underlying problem of excessive spending would still remain to be addressed.

Another interesting scenario would be if Congress didn’t raise the debt ceiling and the Treasury just kept borrowing anyway. It’s not like the Executive Branch follows laws scrupulously nowadays. What if they just ignored it? Someone could challenge the act in federal courts, but the odds are often in the President’s favor. In this case, gold and silver might experience less of an initial spike, but their long-term prospects would be elevated as the world recognized that we were one step closer to becoming a banana republic.

BULLISH GOLD CASE #2: DEBT CEILING RAISED – SYMBOLIC CUTS IN SPENDING

This scenario is by far the most likely outcome of the debt talks in Washington; they will raise the debt ceiling and make spending cuts which sound substantial, but which only mange to slow the accumulation of new debt.

The plans on the table suggest cutting a couple trillion in cumulative spending over the next decade. In other words, they propose cuts that only reduce deficits by about 10-20%; they do nothing to reduce actual debt levels. So if these talks are successful, then instead of a $1.5 trillion deficit each year, perhaps we only suffer a $1.2 trillion deficit. Meanwhile, the debt continues growing. This is “success” in Washington.

Clearly, this is bullish for precious metals. It means more of the same – more spending, more debt, and necessarily more money-printing.

THE EMPIRE HAS NO CEILING

Over the past 50 years, the US debt ceiling has been raised over 70 times. In other words, there is no ceiling at all – it is as fictitious as the idea that central planning works, or that the US has anything resembling a “free market.”

So, I guess it stands to reason that regardless of the debt ceiling increase, it is likely that the US will be downgraded by one or more ratings agencies. The effect will be massive because the world’s largest pension, mutual, and sovereign wealth funds typically mandate investment only in AAA-rated securities. A downgrade of US debt means those funds must immediately sell off their primary reserve asset. The effect of this cannot be overstated, and gold would be the first and best refuge for an onslaught of orphaned capital.

Despite gold once again hitting new highs, I can only recommend my readers continue to keep a healthy portion of their portfolio in precious metals. Given the sad realities of the US fiscal and monetary situation, it’s prudent to assume that nothing will be solved by August 2nd.

Peter Schiff is CEO of Euro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known bullion coins and bars at competitive prices. To learn more, please visit www.europacmetals.com or call (888) GOLD-160.

Gold, silver and rare earth; which is right for you?

Gold, silver & rare earth

Which has the strongest trend right now?

In today’s video we will be looking at the gold market, analyzing the silver market, and finally, checking into the rare earth market.

Before you look at the video, you may want to consider doing this as an exercise: Write down which market has the strongest trend – up or down. Then rate the markets. Number 1 ……..Number 2 …….Number 3 ……. Once you see the video it will become clear to you how we rate these markets. It might surprise you.

http://www.ino.com/info/670/CD3336/&dp=0&l=0&campaignid=3

If you’re using MarketClub’s “Trade Triangle” technology the answer is simple and you’ll discover it in a matter of seconds. If you haven’t used our “Trade Triangle” technology, this will be a good exercise for you to look and see just how powerful this technology is and how it can help your trading.

http://www.ino.com/info/670/CD3336/&dp=0&l=0&campaignid=3

We all know that gold has had a big move, but so have silver and rare earth stocks. So what’s next?

I hope this video helps outline some ideas that you can put to good use in the future.

As always our videos are free to watch and there are no registration requirements. All we ask in return is that you Tweet about us and share this video with your friends. Also, please feel free to comment on our blog.

http://www.ino.com/info/670/CD3336/&dp=0&l=0&campaignid=3

Enjoy the video and every success in trading,

Adam Hewison
President of INO.com
Co-founder of MarketClub

The 3 Best Ways to Invest in Gold

Why is gold the most popular investment hedge against any economic, political, or social crises? Because it is self contained, liability free, and universally valued. Few other assets can compare.

While today’s market offers many ways to invest in gold, current economic conditions set a few gold investments apart from the rest. With this in mind here are the three best ways to invest in gold.

Investment #1: Gold Bullion

Physically owning the metal is the most direct and traditional method of investing in gold. In some countries, gold bullion can be bought and sold at major banks. In most regions, however, bullion dealers provide the services necessary to purchase physical gold.

Gold bullion is generally sold in two main forms, bars and coins.

Gold bars are available in various weights, generally ranging from one ounce to one kilogram. There are approximately 100 active gold refiners around the world whose bars have earned “good delivery” status from one or more of the associations and exchanges. Johnson Matthey, Pamp Suisse, and Credit Suisse are among the most popular.

Gold coins are another way to invest in physical gold.  Priced according to their weight and purity, coins often carry a slightly higher premium than gold bars. Among the most popular are the American Gold Eagle, American Gold Buffalo, Canadian Gold Maple Leaf, Australian Gold Nugget, South African Krugerrand, Chinese Gold Panda, and Austrian Gold Philharmonic. All of these coins contain one troy ounce of gold— except the American Gold Eagle, which is only 91.67% pure gold.

Both gold bars and gold coins are priced according to their weight and purity, but they always carry a premium above spot gold prices. We recommend investing in gold bars because the premiums are always lower than coins.

Another popular but somewhat different way you can physically own gold is to buy via a gold storage custodian such as BullionVault or GoldMoney. Granted this is not the same as physically holding the metal, but it gets pretty close. Your gold is held under name in a secure vault in London or Switzerland. The advantage of this method is that you can buy gold in a variety of amounts , for example from as small as 1 gram to as large as 1 kilogram and beyond.

There are also gold backed e-currencies but I won’t get into them at the moment. Suffice it to say that these two bullion storage providers are the most popular and the most trusted so far, so it may be a best bet to stick to them over any digital gold currencies if all you’re looking for is to invest in gold.

Investment #2: Gold ETFs (Exchange Traded Funds)

If you’re not comfortable owning and storing the physical metal, gold Exchange-Traded Funds (ETFs) are your next-best bet.

Gold ETFs are special types of exchange-traded funds that track the spot price of gold and are traded on major stock exchanges such as New York, Paris, Zurich, Tokyo, and London.

The main drawback is the management fee charged by the issuing company. On average, a commission of 0.4% is charged for trading in gold ETFs, in addition to an annual storage fee.

U.S.-based transactions are a notable exception, where most brokers charge only a small fraction of this commission rate. Annual expenses such as storage, insurance, and management fees are charged by selling a small amount of the gold represented by each certificate— a process that gradually diminishes the value in each certificate. In some countries, gold ETFs represent a way to avoid the sales tax or VAT which would apply to physical gold coins and bars.

In the United States, revenue from the sale of a gold ETF is treated as a sale of the underlying commodity. Thus, it’s taxed at the 28% capital gains rate rather than the 15% long-term capital gains rate for non-collectibles.

Investment #3: Gold Production Stocks

These do not represent gold at all, but rather are shares in gold mining companies.

If the gold price rises, the profits of the gold mining company could be expected to rise. As a result, the share price may rise. However, there are many factors to take into account, and a rise in the price of gold will not always lead to a rise in the price of a share.

Unlike gold bullion, which is regarded as a safe haven asset, unhedged gold shares and funds are considered to be higher risk, more volatile investments. This instability is a result of the inherent leverage in the mining sector.

For example, if you own a share in a gold mine where the costs of production are $250 per ounce, and the price of gold is $750, the mine’s profit margin will be $500. A 10% increase in spot gold prices to $825 per ounce will push that margin up to $575, which actually represents a 15% increase in the mine’s profitability and a potential 15% increase in the share price. Conversely, a 10% fall in spot gold prices to $675 will decrease that margin to $425, which actually represents a 15% drop in the mine’s profitability and a potential 15% decrease in the share price. The amplification of gold mining profits during periods of rising prices can cause a gold rush in mining exploration.

In order to reduce this volatility, many gold mining companies hedge the gold price up to 18 months in advance. This provides the mining company and investor with less exposure to short-term gold price fluctuations, but reduces potential returns when the gold price is rising.

Good Investing!

Preserve Your Wealth with Precious Metals

“I’m not so much interested in the return on my money
as I am the return of my capital.” --Will Rogers

In this extraordinary environment, preserving your personal wealth becomes priority one. Before you make another major financial decision, it is imperative to understand the big picture by recognizing and understanding three critical issues. First, we are in a secular bear market for financial assets (stocks and bonds). Second, the consequences of the global bailouts will likely be highly inflationary. Third, we are at a pivotal point in the long-term investment cycle. Let’s examine each of these three keys in more detail.

KEY 1: WE HAVE ENTERED A SECULAR BEAR MARKET

In a secular (long-term) bear market, stocks plunge in value, single digit price/earnings ratios become the norm, and they can stay that way for decades. The secular bear we are experiencing now actually began when the stock markets crashed in 2000-2001, but few investors noticed because in 2003 the markets were artificially propped up by massive amounts of easy money from the US Federal Reserve under Chairman Alan Greenspan. This was not a new monetary policy. Greenspan’s response to every financial “crisis” he faced  starting with the stock market crash of 1987 all the way through to and past 9/11  was to pour money into the system. The system was never allowed to self- correct, allowing a variety of asset bubbles to form.

During a secular bear market such as this one, stocks habitually move down or sideways. But there are occasional and sometimes violent bear market rallies to the upside that suck in naïve investors hopeful of a quick market turnaround. The most recent example is the spring/ summer 2009 rally in which the S&P TSX, the Dow and the S&P 500 has risen between 48 and 56 percent from their March lows. Since we are just in the early to middle stages of this secular bear market for stocks, investors still have time to rebalance their portfolios into negatively correlated assets. That means selling stocks and bonds (which will decline when interest rates rise) and buying an asset class that will thrive in this uncertain market: precious metals

Cash may seem to be a safe haven but it won’t protect against rising inflation. Bonds did well in 2008 because interest rates were slashed to zero. But rates have nowhere to go but up, which means adding or keeping bonds in your portfolio is likely to produce a negative return. It is important to note that bonds no longer provide true diversification protection because stocks and bonds have become positively correlated, meaning they generally move in the same direction.

Buy and Hold Doesn’t Work In A Secular Bear Market

Following traditional bull market mantras such as ‘Buy-and-Hold’ and ‘Stay the Course’ is a recipe for disaster in a secular bear market. Because secular trends last for years, they also take years to break. The most recent examples are the1966-1982 bear market in equities which, on an inflation-adjusted basis, investors lost nearly two thirds of their value during this period.  As Warren Buffett points out “During these 17 years, the stock market went exactly nowhere.”

During this current bear market, the DOW has been negative over the past ten years, the MSCI World Index is only marginally positive, yet precious metals have soared over 200 percent (Figure 1). If inflation is taken into account the stock indices would be in significant negative territory, while volatility has been extreme: many of the stocks that formed the DOW in 1999 are no longer even in existence. One more fact: if you are counting on stock dividends to help you get through this downturn, consider this: at the time of writing, companies are cutting dividends at the fastest and deepest pace in at least 50 years.

KEY 2: MASSIVE BAILOUTS WILL TRIGGER MASSIVE INFLATION

As Merrill Lynch economist David Rosenberg wryly points out, “the new growth engine for the economy is government spending.” We are in the early stages of a global government spending spree of unprecedented proportions which, coupled with zero percent interest and extraordinary money supply growth, will be hugely inflationary. Financial assets will continue to lose purchasing power in this kind of environment, but gold and precious metals will hold theirs because they are a proven hedge against an investor’s two worst enemies — inflation and economic turmoil.

In recent years, the US money supply has been growing at an alarming rate. In 2008, despite a slowdown in lending and credit, money supply still grew dramatically with M3 (the broadest measure of money supply) increasing at about 11 percent, as Figure 2 shows.  In 2009 the money supply is still growing at approximately 9 percent on an annualized basis. Over the long term, M3 increases have been the best leading indicators of future increases in the price of goods and services.

Most people think of inflation as a rise in the price of goods and services but in actuality price rises are the effect, not the cause, of inflation. As famed economist Milton Friedman pointed out many years ago, “inflation is always and everywhere the result of an increase in the money supply”.
Precious metals are the only currency to own when central bank printing presses are debasing global currencies at unprecedented rates. Because they are a proven store of value, precious metals are likely to be the only asset class that will preserve the purchasing power of your savings as we enter into a prolonged period of ‘–flation’: deflation, stagflation or inflation (one of the latter two being much more likely).

KEY 3: RIDE THE INVESTMENT CYCLE

A buy and hold strategy might work if it weren’t for the existence of cycles that drive bull and bear markets. A good way to understand the investment cycle is to look at what is called the Dow:Gold ratio. The Dow:Gold ratio (Figure 3) calculates the number of ounces of physical gold bullion it would take to ‘purchase’ one share of the Dow Jones during any given time period. When the ratio rises, as it did in the 1920s, 1960s and 1990s, it tells us that portfolios should be overweight stocks. When the ratio slumps, as it did in the 1970s and today, it tells us that portfolios should be overweight precious metals bullion.

The last three major stock market bubbles ended with the Dow:Gold ratio above 18:1, while the last two major bear markets (1932 and 1980) ended with the ratio near 1:1 At the height of the equities bull market in 1999, the Dow:Gold ratio peaked at over  40:1. But now the current ratio is below 10:1 and falling. It is certainly not too late to increase your allocation to gold and precious metals.

Precious metals preserve wealth
Precious metals have successfully preserved wealth for thousands of years because, unlike stocks and bonds and paper currencies, they are not someone else’s promise of performance and they are not someone else’s liability. Massive credit expansion has put US debt at over $11 trillion, but if the $60 trillion in unfunded pension liabilities and Medicare obligations that the US owes its citizens, actual debt is approaching a staggering 500 percent of GDP.

America’s spiralling debt crisis is leading many experts to consider the previously unthinkable: that the US might become the next Argentina, which famously defaulted on its debt ten years ago. To learn more about the debt crisis, visit www.ChrisMartenson.com. Dr. Martenson has created a superbly researched video called the “Crash Course” which explains in layman’s terms how massive debt is destroying investors’ wealth.

Precious metals are a safe haven

In 2008, stocks lost 30-70 percent of their value, while gold increased about 5 percent in US dollars. But equally significant, in a year of record-setting volatility, gold’s volatility was reassuringly low. At its lowest point, gold was only down 14 percent and at its highest it was up 21 percent. Both Goldman Sachs and UBS see the price of gold rising, and UBS expects investment demand for gold to pull the price of silver and platinum up along with it. Citigroup is calling for gold to rise above $2,000.

Precious metals protect against depreciating dollars
Since gold and precious metals are priced and traded in US dollars, they surge in value when the US dollar declines. As trillions in new money is printed, the dollar and other currencies will fall precipitously relative to gold. In an environment where the dollar is already weak and other currencies are weaker, investors seeking to preserve and grow their wealth must understand the impact of declining currencies on their portfolios.

Figure 4 shows the Canadian and US dollars have lost approximately 84 percent of their purchasing power since 1970. The world’s other currencies have fared no better. Not coincidentally, 1971 was the year the link to the gold standard was cut. Only gold, along with its two precious metals brethren – silver and platinum – will hold their value in periods of severe deflation and inflation.

Physical bullion versus proxies

Few investors are aware of all the precious metals investment options available to them. Some precious metals investments such as futures contracts and options are better suited for speculation and a higher tolerance for risk. But certificates, pooled accounts, ETFs and mining stocks also have higher risk. Only physical, bullion stored on a fully allocated, insured basis can guarantee peace of mind because it gives the investor exclusive title to the safest and lowest risk precious metals investment of all.

For absolute security, physical bullion should always be stored in allocated and insured form. If not, investors take the risk that their bullion may be lent out without their knowledge or consent or may not be there at all. Today, buying and storing physical, allocated bullion has never been simpler. You can privately and securely purchase bars of gold, silver and platinum in large bar sizes and have them insured and stored for you at a registered LBMA vault without ever breaking the Chain of Integrity. Visit www.bmgbullionbars.com to learn more or read our BMG Special Reports on how to invest in precious metals at: www.investinpreciousmetals.ca and www.goldmyths.com

It’s time to preserve your portfolio’s purchasing power

A minimum 10 percent allocation in precious metals is considered adequate in a bull market, but a much larger allocation of 20 percent or more is suggested for protection in a secular bear market.  If you have not already done so, now is the time to rethink your investment strategy and preserve your hard-earned wealth. Physical bullion will keep its value regardless of whether the economy is headed for inflation, deflation or hyperinflation.

For the first time in history, the central banks have an unlimited ability to print as much money as they need. Precious metals are the only currency that will survive intact in this environment, because while governments can print infinite amounts of money, they cannot “print” more precious metals. More and more investors and institutions are turning to precious metals, because this secular bear market is expected to last for many years, eating away at investors’ hopes and dreams and portfolios along the way. Don’t let your portfolio be one of them. Now is the time to make an investment in your future, because the future is precious metals bullion

Nick Barisheff is President and CEO of Bullion Management Group Inc., a bullion investment company that provides investors with a cost-effective, convenient way to purchase and store physical bullion. Widely recognized in North America as a bullion expert, Barisheff is an author, speaker and financial commentator on bullion and current market trends.  For more information on Bullion Management Group Inc., BMG BullionFund and BMG BullionBars visit: www.bmginc.ca.

The Stealth Gold Bull Market is Back But Americans Love Silver

Silver Stock Report

by Jason Hommel, September 17th, 2009

One trouble with Americans is that we think we are the center of the world.  We do have about 5% of the world’s population, and use up about 25% of the resources.  That’s mostly a function of being significantly “wealthier” than the rest of the world.  But that’s mostly paper wealth.  Will it last?  Only if we buy at least 25% of the world’s silver and gold.  Do we?  Not in gold, but we do in silver!  Let’s get to the facts.

Worldwide, the world buys about 80 times as much gold as silver, for investment.  The world annually purchases gold worth $80 billion (about 80 million oz., or 3500 tonnes).  If American-led Central bank selling did not help meet demand and add to mine supply, then the gold price would go up faster than it already has.  Remember, central bank selling is a manipulative and unsustainable supply source.

The annual silver investment market is only $1 billion.  Annual production is about 600 million oz., but only about 50-100 million oz. is purchased for investment.

These figures show that the world is buying 80 times as much gold as silver, for investment.

American investors seem to buy more silver than the rest of the world.  Why?  I would guess that we seem to know more about the supply/demand statistics, and know that the silver market is much smaller, and know that the silver/gold ratio shows that silver is cheaper.  Maybe it’s because we recently used silver in our currency as late as 1964, and many other nations don’t have such a recent history of using silver as money?

Sales of American Gold and Silver Eagles show that Americans are purchasing about only 3 times as much dollar volume of gold Eagles as Silver Eagles per year.

Production figures:
http://www.usmint.gov/mint_programs/american_eagles/index.cfm?action=sales&year=2009

Show that for 2009, from January to September, the US Mint has produced:
903,000 Gold eagles, and
19,364,500 Silver Eagles.

At an average price ratio of 60 to 1, at about $15 for silver and $900 for gold, we have dollar volumes of:

Silver Eagles: $290,467,500
Gold Eagles: $812,700,000

The last figure, the ratio of 812/290 shows that Americans buy about 2.8 times as much dollar volume of gold Eagles, than Silver Eagles.  That’s dramatically different than the world ratio of 80 to 1, and thus, heavily skewed towards silver!

But do Americans buy 25% of the world’s gold and silver?  Not in gold.  Gold Eagles are about 1/100th of the overall world gold market.  Silver Eagles are just over 1/5th of the world silver investment market (20/100 million oz.!)!

Wow, I never realized that American investors favored silver that heavily.  Congratulations, America!

And many silver buyers buy silver other than in Silver Eagles!  So, perhaps Americans are buying up to 1/2 of all silver investment demand.  Fantastic job America!  That implies great news for the future wealth for America.

Unfortunately, the $300 to $600 million that Americans spend on silver is only a tiny, tiny, tiny fraction of the overall investable wealth of Americans.  If the word gets out about silver to the majority of Americans, silver prices have no choice but to explode.  Imagine if Americans spent ten to one hundred times as much money on silver each year!  It’s possible, and perhaps even likely, as the truth about every thing tends to be exposed and get out at some point.

Nevertheless, given current national actions, I tend to think that the average coin shop would carry 3 times as much gold as silver, to match overall market demand.

But knowing what we know about silver, we do the opposite, fortunately, for our own future capital gains, and for our customers.

We carry about 3 times as much silver, as gold!  And fortunately, our customers buy about the same dollar volume of silver and gold.

Americans are not driving this bull market in gold.  In a sense.

What I mean is that Americans are not buying enough gold in significant quantities, as Gold Eagles are 1/100th of the gold market.  But rather, American politics, which requires massive printing of US Dollars (Sorry, Federal Reserve Notes), is, indeed, driving gold prices higher.

Americans are not buying enough gold to drive gold prices up.

Americans, over the past decades, have elected politicans whose policy decisions require printing more paper money, and that’s driving gold prices up, as other nations see our foolish action of priting up too much money, and other nations are wisely buying gold.

Since I have started dealing silver and gold, maybe I have better observations about the silver and gold markets, and perhaps less time to write about them.

Over the last 6 weeks, we have bought and sold about the same amounts of precious metals to and from our customers, and we have accumulated a bit more gold from the public selling gold for silver.  We have not had to order very much from our wholesalers, or other mints.  Enough people been cashing out their silver and gold, enough to balance out our trade.

Americans buy less gold than other nations (1/100th of the world market?), and much more silver (40% of the world market?), but could still buy much, much, much, much, much, much, much, much, much, much more of both.  This bull market in precious metals is barely getting started.

Brought to you by Alan’s Finance Blog:

http://alansfinanceblog.com

Has Gold’s Long-term Uptrend Resumed?

Gold’s rally accelerates after breaching 1000. The December contract surges to as high as 1009.4, the highest level since March 2008. A close above 1000 should provide more evidence that the long-term uptrend has eventually resumed.

Why isn’t a confirmation, but just ‘more evidence’? Jewelry contributes more than 50% of total gold demand. Over the past few years, strong rises in gold price have been accompanied by strong demand for gold jewelry. Although in 1Q09, when the yellow metal surged to 1007.9, jewelry declined on both quarterly and annual basis, we saw robust physical investment on coins and gold bars during the time. However, both jewelry demand and physical investment remain weak so far. Although capitals have been flowing into ETFs again, we would feel more convinced if there’s pickup in purchases in jewelry, coins and gold bars.

Fear for inflation seems to have returned after G-20 leaders said the time for tightening has not arrived yet. Rather, more stimulus measures are required to ensure sustainable economic recovery. The chart below shows that inflation expectation has risen over the past few days. While gauge is quite volatile, it can provide certain explanations on gold’s strong rise these days.

Silver soars to as high as 16.86, the highest in 13 months. Price has jumped almost +50% since the beginning of the year and has outperformed gold’s rally of around +14%.The white metal gains both on revival of world economy (silver is mainly for industrial uses) and gold’s strength as safe haven asset. At 60, current gold/silver ratio has returned to a more appropriate level.

Crude oil price rises above 69 in European morning as driven by rally in gold and weakness in the dollar. Currently trading at 69.5, the benchmark contract may recapture 70 again amid robust sentiment in the commodity markets. Event to watch is API’s inventory report after market close as it serves as a predictor on the US Energy Department inventory data.

Saudi Arabia’s oil minister Ali Naimi said that crude oil market is ‘in good shape’ and current price level is good for both consumers and producers. His comment is shared by Kuwait’s oil minister, Sheikh Ahmed al-Sabah, who stressed yesterday that the OPEC group is not going to low the production target.

Stock markets edge high as driven by encouraging economic data. In the UK, industrial production rose +0.5% mom July, compared with consensus of +0.2%, after rising +0.6% in the previous month. On annual basis, the gauge compacted -9.3% during the month while June’s reading was also revised up to -10.7%. UK’s FTSE 100 Index gains +0.5% to 4959. In Germany, trade surplus widened to 13.9B euro in July from 12.1B euro in June. This beat market anticipation of a decline to 11.3B euro. Although industrial production in Germany surprisingly contracted -0.9% mom in July, the DAX index adds +0.5% to 5491.