Alan's Finance Blog

Silver Avoids 4th Straight Quarterly Loss, Gold Heads for Gains, India’s Imports “Overstate Trade Deficit”

U.S. DOLLAR gold bullion prices hit $1669 an ounce ahead of US trading, more or less in line with where they started the week.

Stocks and commodities edged higher and US Treasuries dipped, while the Euro gained ahead of today’s Eurozone finance ministers’ meeting in Copenhagen.

Silver bullion meantime rose to $32.61 – a gain of 1% from the start of the week.

Heading towards the end of the first quarter of the year, gold bullion prices looked set to record their highest ever quarter-end London Fix of in Dollars, Euros and Sterling.

Silver meantime avoided a fourth straight losing quarter, positing gains of 15% in Dollars, 11% in Sterling and 11.6% in Euros.

However, most of the net gains in gold and silver for Q1 came in the first week of January, with gold having fallen sharply since gold failed to break $1800 last month.

“The physical market has stopped playing an important supportive role,” one Singapore dealer told news agency Reuters this morning.

“There is so much physical material, yet we don’t see any good offtake, as people are worried that it’s not the right time to invest in gold now…we don’t expect to see real physical demand until prices drop below $1600.”

Many Indian gold dealers remained on strike Friday, having closed their stores for the past fortnight following the Union Budget on March 16 which doubled the import duty on gold bullion and introduced a 1% tax on gold jewelry sales.

India’s government has said it is reviewing the gold sales tax, but finance minister Pranab Mukherjee says the import duty hike will not be reversed.

India imported an estimated 969 tonnes of gold bullion in 2011, according to World Gold Council data.

Including gold bullion imports in its trade figures may be “overestimating” India’s current account deficit problem, according to Rajeev Malik, senior economist at Asia-Pacific investment group CLSA.

“Although it is technically correct to include gold imports and exports in the current account balance as per IMF guidelines,” Malik says, “we peg the ‘overestimation’ of the current account deficit due to net gold imports to be around 20 to 30%.”

“The close to $200 billion in imported gold over the past decade does not represent a drain on India’s resources,” adds Taimur Baig, chief economist India, Indonesia and Philippines at Deutsche Bank.

“Rather [it is] a diversification of India’s wealth into precious metals.”

One senior gold industry figure, Rajan Venkatesh of bullion bank Scotia Mocatta, suggested this week that the Indian government could encourage gold certificates and other measures to encourage people to deposit gold with the banking sector.

Turkey meantime, which like India has a current account deficit and satisfies much of its gold consumption via imports, is also considering proposals designed to encourage the growth of gold deposit accounts in its banking sector.

“Turkey has historically been affected by repeated currency crises and resultant inflationary pressures, hence households traditionally hold substantial amounts of gold,” says the latest precious metals note from French bank Natixis.

This week, Turkey raised the proportion of Turkish Lira reserves banks can hold as gold from 10% to 20% – while cutting the proportion of foreign exchange reserves that can be held as gold from 10% to zero.

Combined with the move to encourage gold deposits with banks, the moves represents “an easing of monetary conditions, as well as enabling the Turkish banks to bolster their balance sheets through the use of a cheap source of capital,” says Natixis.

Back to Friday, and “focus is firmly on the Eurozone,” says a note from Marc Ground, commodities strategist at Standard Bank.

“We expect precious metals to follow the gyrations of the Euro/Dollar as markets react to speculations and/or announcements on this front.”

Eurozone finance ministers were today expected to approve combining the €440 billion temporary European Financial Stability Facility with the €500 billion permanent European Stability Mechanism when the latter becomes operational in July.

The move is aimed at raising Europe’s so-called ‘firewall’ against sovereign debt contagion, which was identified at last month’s G20 meeting as a prerequisite for additional International Monetary Fund aid.

“If the investors deem the plan as sufficient in reducing near-term Eurozone liquidity issues, we believe risk assets including gold may benefit,” says a note from HSBC today.

Since many Eurozone policy announcements have already been leaked, however, any moves in gold and silver prices are likely to be “knee-jerk reactions, rather than signal a new longer-term trend” says Standard Bank’s Ground.

Spain, which was hit by a general strike yesterday, was due to unveil a so-called austerity budget Friday.

Norway’s $610 billion sovereign wealth fund meantime – which owns 2% of all European stocks – is to cut its exposure to Europe from 60% of its assets to 40%, the Financial Times reports.

Iran has been helping Syria to ship oil to China in defiance of Western sanctions, Reuters reported today.

Ben Traynor

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

The #1 Fund Manager to Beat Financial Crisis: UK Edition

How a lump of gold bullion beat the City of London’s brightest and best since 2007…

HOW QUICKLY time flies! The global financial crisis will mark its 5th birthday in 2012.

And now it’s out of short trousers, let’s see who coped best with the terrible toddler so far, starting with the City of London’s top fund managers…

Many analysts and advisors will rightly tell you to beware chasing yesterday’s winners. But physical bullion has proven to be uniquely suited to this financial crisis so far.

Over the 5 years to mid-December, gold bullion priced in Sterling returned 218% net of ongoing storage costs. Physical silver rose 175% after storage costs.

The best-performing UK-domiciled fund available to retail investors returned 120% over the same period, including dividends and ongoing fees. Funds in the best-performing sector, Greater China, averaged just over 70% growth.

Those China equity funds cost an average maximum of 4.6% in upfront charges. Buying gold or silver on BullionVault costs a maximum 0.8% in dealing fees.

So why gold and silver – so far, at least – for UK investors and savers since 2007…? Because they are physical property, rather than anyone else’s financial promise, gold and silver cannot go bust, unlike Britain’s ailing banks or even neighboring governments across the Channel. Silver and gold bullion are also rare and tightly supplied, unlike the flood of money from the Bank of England, franctically trying to prop up the UK’s banking system.

So despite all the experience and expertise of the UK’s fund management industry, in short, you would have done much better buying silver or gold on the eve of this crisis than entrusting your savings to the City.

US comparison to follow on Friday.

Adrian Ash

BullionVault

Keith Neumeyer: The Silver Market Lacks Integrity

The Hera Research Newsletter (HRN) is pleased to present an incredibly powerful interview with Keith Neumeyer, Chief Executive Officer, President and Director of First Majestic Silver Corp. (TSX:FR / NYSE:AG).  Mr. Neumeyer began his career at the Vancouver Stock Exchange and worked in the investment community for 26 years beginning his career in a series of Canadian national brokerage firms including McLeod Young Weir (now Scotia McLeod), then Richardson Greenshields and then Walwyn Stogell McCuthchen (which became Midland Walwyn).

Mr. Neumeyer moved on to work with several publically traded companies in the natural resource and high technology sectors.  His roles have included senior management positions and directorships in the areas of finance, business development, strategic planning and corporate restructuring.  Mr. Neumeyer, who has listed a number of companies on the Toronto Stock Exchange, has extensive experience dealing with financial, regulatory, legal and accounting issues.

Hera Research Newsletter (HRN): Thank you for joining us today.  Let’s begin by talking about silver supply and demand.

Keith Neumeyer: Silver mine production was around 736 million ounces in 2010.  Demand was around 1 billion ounces.  Scrap silver recycling and some government sales filled the gap.  We’re at historic lows in terms of above ground silver.  Eric Sprott recently said there are 1 billion ounces of triple nine silver left aboveground.  Unlike gold, silver gets used.  We’re at historic highs in supply when it comes to gold, but the exact opposite is true for silver.

HRN: Is there a deficit in terms of mine supply?

Keith Neumeyer: We’ve had a supply deficit for the past 13 years.  2009 was the first year we created equilibrium.  We only went into a surplus in 2010, in terms of industrial and jewelry fabrication demand.  The surplus mine supply was purchased by investors, obviously.  A lot of mining companies are showing lower production because a lot of silver comes from base metals and, with lower base metals prices, it’s becoming more difficult.  I don’t see any major supply drivers for silver in the next several years.

HRN: Do you expect more scrap silver to enter the market?

Keith Neumeyer: That’s what happened in 2009 when gold rallied over $1,200 and then corrected to below $1,100.  It was primarily caused by scrap gold entering the market.  I believe the same thing was happening for silver.  We’ll see that again as the metals make new highs.  It’s the same as a stock.  You replace part of the shareholder base at different levels.

HRN: Are you optimistic about future demand?

Keith Neumeyer: Yes, I’ve been optimistic about silver since 2002 because silver is a strategic metal.  I think it’s more important than gold.

HRN: Are there new applications that could increase demand?

Keith Neumeyer: We’re seeing all kinds of new applications.  A recent report by Barclays forecast that 120 million ounces of silver will be used for solar power generation in 2012 versus 40 million ounces in 2009.  The battery industry is growing as well.  Zinc-silver batteries provide very stable capacity—their output doesn’t degrade like lithium batteries—and they deliver 40% more energy compared to nickel metal-hydride batteries.  They’re safer than water-based chemical batteries because they don’t heat up or explode.  They’re also mercury free and 95% recyclable.  Lithium-ion batteries in cell phones, for example, need to be replaced after 12 to 18 months.  I’m very optimistic about battery technology.  There are also robotics and other applications on the horizon.

HRN: What’s your long term price target for silver?

Keith Neumeyer: Silver will reach a value based on its natural ratio of 15:1 with gold.  I expect to see at least $2,000 gold and most likely $3,000 in the next 3 to 5 years, so silver will be between $130 and $200.  It’s a big number from where we are today but that’s where I think we’re headed.  We’re dealing with a market that needs to be corrected.

HRN: Isn’t the price of silver set by supply and demand?

Keith Neumeyer: I don’t think supply and demand has anything to do with the price, unfortunately.  The world we live in today is a paper environment where silver is priced by financial circumstances.  Banks, traders and investors around the world move markets to where they want them to be.  Governments and commercials—big banks like HSBC and JP Morgan—all have a piece of the action.  They alternately work together or sometimes against each other.  All these forces price the metal.  That’s one reason we’re seeing the volatility that we’re seeing today.

HRN: How can supply and demand be irrelevant?

Keith Neumeyer: In short term trading, the price is financially driven.  Eventually, markets do correct themselves over time.  In the long run, supply and demand does have influence.  That’s why the price will ultimately return to its natural ratio of 15:1.

HRN: How is the price of silver financially driven?

Keith Neumeyer: It has to do with the financial instruments that we trade in and with the fact that silver trades a billion ounces per day on the COMEX alone when there are 26 to 30 million ounces of silver available for delivery.  With that kind of leverage, you just don’t have a proper market.

HRN: It has been reported that there are 100 ounces under contract for every ounce in the COMEX warehouse.

Keith Neumeyer: The governments, regulators and bullion banks have let the silver market get more and more leveraged.  We’ve seen a lot of wealth destruction as a result of this leverage and we’re going to see a lot more until, finally, the governments decide to change the system.

HRN: Isn’t the COMEX guaranteeing market integrity, by raising margins, for example?

Keith Neumeyer: I don’t buy the argument on margin hikes at all.

HRN: Don’t margin hikes prevent dangerous asset price bubbles?

Keith Neumeyer: It’s not up to them to decide what is parabolic.  They’re not investors themselves.  They don’t have money in the market.  They decide a bubble is going to happen if they don’t raise margins but no one knows when a bubble is forming.  It is only apparent after it’s already happened.  By hiking the margins, they create the appearance of a bubble bursting.  They create the bubble.  They create the proof that it was a bubble.  If they let it alone, the market would stabilize by itself.

HRN: What should the Commodities and Futures Trading Commission (CFTC) do?

Keith Neumeyer: The job of the regulators is to protect the retail investor.  That’s their only job.  It’s not to protect the banks or the brokerage firms.  The little guy is the primary taxpayer.  Why were the Securities and Exchange Commission (SEC) and the CFTC put in place?  They were put in place to protect retail investors.  Prior to regulation, the banks controlled the market.  Today, the banks control the market again.  Who should control the market?  Retail investors.  Who’s protecting them?  No one.

HRN: Are you saying that the CFTC does nothing while the COMEX caters to banks and brokerage firms?

Keith Neumeyer: Yes.

HRN: And the COMEX doesn’t serve retail investors?

Keith Neumeyer: No.  Absolutely not.

HRN: Do you foresee a return to a free market in the future?

Keith Neumeyer: I’m an optimist.  I believe one day that governments will rewrite the rules and force the regulators to protect investors.  That’s where we were back in the ‘70s and that’s where I think we have to be again to correct the problems that have arisen over the past 40 years.  Silver is being revalued.  It’s going to affect a lot of people along the way and it will change the financial system.  Ultimately, we’re going to have a new financial system and, hopefully, we’ll go back to natural markets, completely driven by supply and demand.  It may take another 20 years but I think it will happen.

HRN: A new financial system?

Keith Neumeyer: If I’m wrong, the banks will run the world, even more so than they do today, 10 or 20 years from now.  God forbid that we ever get there because that’s a one currency, one government world that would absolutely be a disaster for the human race.  There would be no freedoms at all to move or to invest.  It would be like having shackles on our ankles.  There is a movement to go in that direction, unfortunately.  There are a number of very wealthy people that want to see that.  I hope that we can find the politicians to prevent that type of world from coming to pass.

HRN: Thank you for your time and for your candor.

Keith Neumeyer: It was a pleasure.

After Words

Keith Neumeyer, Chief Executive Officer, President and Director of First Majestic Silver Corp. (TSX:FR / NYSE:AG) is an industry leader who analyzes the silver market with the gloves off.  In the wake of the failure of commodities trading firm MF Global, Mr. Neumeyer’s lack of confidence in the CFTC and in the integrity of the COMEX appears to be justified.

First Majestic Silver, which is one of a small number of primary silver producers, has consistently increased its production, cash margins and mineral resources while lowering production costs.  With three operating mines and a fourth mine under construction, the company is growing steadily from a junior producer to a mid-tier producer that expects to produce 10 million ounces of silver in 2012.

Editor’s Note: Hera Research, LLC or its Directors are shareholders in First Majestic Silver Corp.

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Hera Research, LLC, provides deeply researched analysis to help investors profit from changing economic and market conditions.  Hera Research focuses on relationships between macroeconomics, government, banking, and financial markets in order to identify and analyze investment opportunities with extraordinary upside potential. Hera Research is currently researching mining and metals including precious metals, oil and energy including green energy, agriculture, and other natural resources.  The Hera Research Newsletter covers key economic data, trends and analysis including reviews of companies with extraordinary value and upside potential.

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.

Why Silver Will Go UP for Years to Come!

(Floods of paper money!)

Silver Stock Report

1.  No nation on earth is using silver as a circulating medium of exchange.  The State of Utah is leading the way by making it legal tender.

2.  All nations on earth are using paper for money, which is about as wise as building houses out of straw.  The amount of paper money is uncountable, and is constantly soaring to new highs.  The USA stopped reporting the amounts of money in the banks back in 2006, and the banks in 2008 started depositing a lot of their bailout money with the Fed banks, making it even harder to track.  All of that marks the beginning of hyperinflation, which appears to be starting now.

3.  The Federal annual deficit, which is how much they spent more than they took in, is $1.66 trillion, or $830 billion for the first half of fiscal 2011.  Does that count QEII?  What was not counted in that?  How reliable are the figures?  If the figures are wrong, are the real figures likely to be bigger or smaller, and by how much?

http://tinyurl.com/3ozdljx (April 7th news item)

4.  The silver market remains tiny. “World investment rose by an impressive 40 percent last year to 279.3 million troy ounces (Moz), resulting in a net flow into silver of $5.6 billion, almost doubling 2009’s figure.”  How reliable are the figures?

http://www.silverinstitute.org/pr07apr2011.php (April 7th news item)

Recap:  New US Debt:  $830 billion in 6 months.
Recap:  New Silver buying:  $5.6 billion, all year.

Essay assignment, compare and contrast those two numbers.

Which one is bigger?  Which one is smaller?

What is likely to change?
What is likely to stay the same?

If the US government spends new paper money that it does not have, is that inflationary?  Will that make the new dollars tend to go down in value?  If so, by how much?

Are silver prices likely to go up, as new money buys silver to protect itself?  In your opinion, much new money will be likely to buy silver next year?  How much do you think the silver price will continue to be driven up, in the next year, by such buying?

Is the US government likely to suddenly balance the budget by next year, or will the spending like a drunken sailor be likely to continue?

If you convince your friends to buy silver, are they more likely to thank you, or not, as certain trends and fundamentals continue?

I strongly advise you to take possession of real gold and silver, at anywhere near today’s prices, while you still can.   The fundamentals indicate rising prices for decades to come, and a major price spike can happen at any time.

Sincerely,

Jason Hommel
www.silverstockreport.com

Silver Out-Runs Gold 3 Times Over as Libyan Civil War & Saudi-Oil Risks Drive Global Demand

By: Adrian Ash, BullionVault

London Gold Market Report

THE PRICE OF GOLD in US Dollars ticked higher to reach a new all-time record in London trade on Wednesday, touching $1436 per ounce as crude oil rose further above $100 per barrel and world stock markets fell for the eighth session in nine.

The US and other Western governments backed down from intervening in Libya’s civil war, while Colonel Gaddafi vowed to “fight until the last man and woman”.
Silver bullion broke new 31-year highs just shy of $35 per ounce, out-running gold’s 8% gain of the last month three times over.

Saudi Arabia’s stock market sank yet again on Wednesday’s, taking its losses since last week to 15.5%.

“Stability in Opec’s largest oil exporter seems to be more bought than fundamentally established,” says the Vienna-based JBC Energy consultancy, adding that “the recent unrest in [neighboring] Bahrain is therefore of particular importance…as the small country is surrounded by the vast majority of Saudi oil production.”

“The more the market becomes concerned about inflation or concerns about unrest in Africa, more and more people will look to gold,” reckons UBS global commodities strategist Peter Hickson, claiming that gold bullion sales to China topped 200 tonnes in the first two months of this year.

China’s total private purchases in 2010 reached a record 580 tonnes, according to London’s GFMS consultancy.

“Chinese interest is huge,” agrees Bank of Nova Scotia’s head of precious metals in Hong Kong, Peter Tse, saying that “Demand for physical gold and imports increased substantially” in the run-up to last month’s Chinese New Year celebrations – a traditional season for gift-giving and ‘auspicious’ investment.

On the official side, “Some have argued that we should buy oil, buy gold, buy iron ore, or even buy into companies and land,” said Yi Gang, head of the $2.85 trillion State Administration of Foreign Exchange, in a speech at Peking University today.

“[But] if we..buy commodities, we will immediately push up prices,” said Yi – repeating comments he made in March 2010. “These markets, compared to the size of our foreign exchange reserves, are too small.”

To cap the Yuan’s exchange-rate with the Dollar, the People’s Bank of China bought over $76 billion-worth of foreign exchange from commercial banks in Jan., new data showed Wednesday – a 24% jump from Dec., according to Reuters.

New data from the 17-nation Eurozone meantime showed industrial input-price inflation jumping to its highest level since Dec. 2008 at 6.1% in Jan.

Across the 27-member European Union, industrial input prices rose 6.5% year-on-year, unwinding the last of the near-10% slump from mid-2008′s record highs amid the global banking crisis.

“We remain bullish on gold and silver as we remain in a loose monetary policy environment,” says MKS Finance in Geneva’s daily note, “[but] we wouldn’t rule out a small correction due to the longs that must have accumulated in the market.”

“The total net long position” of speculative players in US gold futures “is at its highest since the week ending 4 January 2011,” says the latest Precious Metals Weekly from London’s VM consultancy.

A continued drop in physically-backed trust fund allocations, however – plus another fall in Tokyo futures’  positions – capped last week’s total rise in exchange-traded gold investment products to 1.4% on VM’s data.

Silver investment leapt 2.5% in contrast, led by ETF demand even as US futures’ positions were cut back.

“The Gold/Silver Ratio [of per-ounce prices] is approaching the 1998 low on its weekly chart,” says Mitsui’s dealing desk in London. So “it’s likely there was some buying of the ratio [on Tuesday]…That could explain gold’s rare outperformance of the grey metal.”

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Silver Outweighs Gold

By: Peter Schiff, CEO of Euro Pacific Precious Metals

In the world of precious metals, silver spends a lot of time in the shadow of its big brother gold.

Gold, with its high price-to-weight and distinctive yellow tint, has always occupied a special place in the human psyche. To many people across many ages, gold is simply the ultimate form of money – and, as a long-term, stable store of value for one’s personal wealth, I agree it’s hard to beat.

However, rare circumstances are aligning today that I believe will make silver the true champion of this bull run.

WHAT’S DRIVING PRECIOUS METALS?

Gold and silver are both benefitting from a perfect storm in the sector.

Dollar devaluation means that much of the ‘gains’ we see are really just losses by people holding dollars. In other words, if your dollars lose 50% of their value, it’s going to take twice as many of them to buy the same ounce of gold.

But the rally is based on more than simple inflation. Precious metals are regaining their role as the ultimate reserve asset. That means many, many more people are buying and holding these metals than at any time in the last thirty years.

Another factor is the rise of emerging markets and decline of developed markets. As billions of poor Asians, Africans, and South Americans lift themselves out of poverty by embracing the free market, the US is plunging itself into poverty by rejecting it. This means there are a mind-boggling number of new customers for jewelry, savings, and industrial products that require precious metals – and that we are becoming less and less able to outbid them for these resources with our dollars.

SILVER’S DRIVING FASTER

If the world were going to hell in a hand-basket, then I would expect gold to outperform silver. However, it is only the developed economies that are on the rocks – and only the US that faces true catastrophe. Thus, we have seen silver outperform gold for the last eight years.

The market is telling us that while uncertainty reigns supreme, the global economy will prosper in the years ahead. While gold most effectively insures the investor against economic devastation, silver offers both a shield against monetary turmoil and exposure to market growth.

THE KEY: INDUSTRIAL DEMAND

This is because silver is both a precious metal and an industrial metal. Gold is mostly precious, copper is mostly industrial, but silver strikes a fine balance between the two. And it seems as if this moment in history is perfectly suited to this balance. We are facing not only the prospect of the collapse of the international monetary order, but also the largest industrialization process the world has ever seen.

While in a past era, wood, steel, or oil would have been the most critical commodity, today silver is used in everything we hold dear: iPhones, flat-screen TVs, batteries, solar panels, etc. Asia – the new heart of the global economy – is accumulating gold, but they’re consuming silver. That makes both metals good bets, but likely gives silver the edge.

It’s safe to say the future depends on a steady supply of silver. This burgeoning demand is reflected in the latest figures: global demand for silver is about 890 million ounces a year, while global mine production is about 720 million ounces a year. We’re actually consuming scrap to make up the difference. And unlike gold, which tends to remain in a recoverable state as coins or jewelry, a large quantity of silver is ending up in trash dumps – where it is essentially lost forever.

As long as the emerging markets continue to trend toward freer markets, and consumers the world over continue to demand computers, electronics, and green tech, silver should only become more scarce – and thus more valuable. I think these assumptions are pretty safe to make.

CAN THE WORLD THRIVE EX-US?

Of course, if everyone agreed with me, silver would already be worth hundreds of dollars an ounce and there wouldn’t be any profit to be made on the trade. Fortunately, there are a couple of bogeymen in the financial media scaring the majority of investors away from silver so far.

First, some analysts still believe – bless their hearts – that the US is really going to pull through this time into a sustainable recovery. After being duped by dot-coms and then housing, they are all aboard the Treasury Express back to Bubbletown. Unfortunately, as in the previous two cases, the current low interest rate environment is merely masking an underlying economy that is vastly more rotten than it was even a decade ago. The unemployment rate is a key signal that this time, Bernanke’s magic medicine won’t work.

A second cohort sees that the US is doomed, but still thinks we will drag the rest of the world down with us. This is the school that holds that despite our persistent current account deficits and monumental external debt, the world economy “needs” the US consumer to drive growth. As I alluded to in my book, How An Economy Grows And Why It Crashes, this is like a plantation master claiming his slaves need him around to consume the fruits of their labor, or else they wouldn’t have anything to do. Well, the results are in: after an initial panic rush into dollar-based assets, emerging markets are back at full sprint while the US is still limping along.

SILVER IN A DOLLAR COLLAPSE

Just like a Hollywood celebrity, we in the US spent our time at the top of the world – and soon let our status get to our heads. And like a celebrity, our adoring fans the world over will be quick to forget us as we fall from the limelight and deal with our powerful addiction to partying and cheap money. To survive the next decade in America, you are going to want an asset that is in demand globally, but is also free from counterparty risk here at home.

I recently did an interview with a group that is making a film about living in America in the year 2019. The premise is that inflation is rampant, the economy is in shambles, and groups are springing up that do all their trading in silver rounds. While I think their timeline is quite generous, this is a fairly accurate picture of what lies ahead.

Not only does silver appreciate while sitting in your safe due to overseas demand, but it also comes in units that are ideal for use as a common trade unit. Two or three ounces of silver can buy you groceries for a week. By contrast, just try to eat an ounce of gold’s worth of vegetables before they spoil. There are fractional gold coins and bars, but they carry very high markups.

None of us have had to think about these things in our lifetimes, but it is not abnormal in history. Soon, understanding precious metals will be as much a survival skill as knowing how to change a car tire.

THE GOLDEN RATIO

I always say that every investor should have at least 5-10% of his portfolio in physical precious metals. Of that, the proportion allocated to gold vs. silver depends mainly on risk tolerance. Silver tends to be more volatile than gold, so silver investors must have the discipline not to liquidate their stash at the first sign of a correction.

I generally advise a ratio of 2:1 gold-to-silver in the average portfolio. More aggressive investors can push it to 1.5:1 or beyond.

Year-to-date, silver is up 5 percentage points more than gold, and I expect that trend to continue. It’s important to understand that in this fast-changing world, silver is no longer runner-up.

For the latest gold market news and analysis, sign up for Peter Schiff’s Gold Report, a monthly newsletter featuring original contributions from Peter Schiff, Casey Research, and the Aden Sisters. Click here to learn more.

Gold and Silver: Potential Price Target

The gold and silver markets rallied dramatically to the upside as concerns and worries over oil supplies, inflation, and general nervousness in the world markets pushed both metals into new high ground.

I have just completed a new short video where I share with you my upside target zones for gold. The video only takes a few minutes to watch and emphasizes how important technical analysis is in the gold market. Our weekly Trade Triangles have been long gold from $1,368 and it looks as though that position is going to work out well.

http://www.ino.com/info/683/CD3336/&dp=0&l=0&campaignid=3

We also refer back to a video that I made on September 20th last year, which underscores the importance of cyclic work in the gold market and, how if these same cycles hold true, can predict with a fair degree of certainty when the next cyclic high is going to occur.

I reveal all of this in this new short video that I think you’ll find both informative and educational. Take a look at the short video here:

http://www.ino.com/info/683/CD3336/&dp=0&l=0&campaignid=3

As always all our videos are free to watch and there are no registration requirements. If you’d like to share this video with your friends, please feel free to do so.

All the best,
Adam Hewison
President of INO.com
Co-founder of MarketClub

A Sound & Credible Currency

As a currency, the Euro doesn’t have to do much to equal its peers…

“SILVER HITS new all-time highs in Euro” proclaimed Zero Hedge on Monday.

Regular readers of the blog site won’t choke to know it was wrong, this time by only one third. Mistaking (and showing) a chart of month-end prices for a chart of daily silver prices, Zero Hedge’s pseudonymous host, Tyler Durden, missed the true Euro-equivalent spike to €32.80 per ounce of 18 January 1980 – hit in what was then the Deutsche Mark the very same day that silver priced in Dollars also hit its all-time high to date…some 44% above this week’s top.

Still, the point is near-enough made. Because silver, like gold, isn’t just about the Dollar, even though its latest surge coincides with the latest plunge in the US currency. Instead, silver has also caught a strong and growing bid over the last 5 years against the Dollar’s upstart challenger too. And since the Euro debt crisis really got started 12 months ago, the silver price has scarcely looked back…rising 108% from the start of 2010.

“The Euro as a currency is not in crisis. The single currency is sound and credible,” said European Central Bank president Jean-Claude Trichet in an interview with Paris newspaper L’Espresso earlier this month. Which, a little like Zero Hedge, is both premature and misleading. Because the Euro “as a currency” doesn’t have to achieve very much to retain the same credibility as its modern-day competitors.

Against the older monetary measures of gold and silver, on the other hand, the Euro looks just as weak as the other three “big four” reserve currencies – the Dollar, Sterling and Yen.

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Dead Cat Bounce – Bernanke Dumber Than Gold – Get Out Of Stocks

Hi everyone. I’ve got an interesting video I found on YouTube. It’s done by Mike Maloney of Gold and Silver Inc. and in this video he talks about how the current deflation in the monetary supply will very likely lead to a coming inflation and possibly even a hyperinflation as the Fed will over react to the shrinkage in the money supply by turning up the printing presses all the way to the max. Watch the video below:

Enjoy!

Cheers,
Alan