From Janet Tavakoli of Tavakoli Structured Finance
Today's Silver Scandal
Under-30 silver traders weren’t alive to see the billionaire Hunt Brothers bankrupted by silver trades, and those under-45 years old probably never read about it. The Hunts’ silver debacle occurred after the “soybean caper,” but before the CFTC fined them $500,000 in a July 1981 out of court settlement for blatant violation of commodities laws in their attempt to corner beans. The Hunts had borrowed money to buy silver and leveraged themselves in silver futures in an attempt to corner the market.
On March 14, 1980, the CFTC staff reported to their commissioners that the Hunt Brothers could handle their short-term losses as silver prices fell, because “they bought at low prices.” The CFTC was right about the low purchase prices (around $15 on average), but it was wrong when it thought the Hunt brothers could handle the losses.
Simultaneously, then Treasury Secretary Paul Volcker instituted a new directive to U.S. banks as part of his anti-inflation policy. It was a “special restraint” on lending to speculators with holdings in commodities or precious metals. The banks knew better than to mess with Volcker, and they immediately closed the lending spigot to speculators in gold and silver.
Within three days, the Hunt brothers’ cash had nearly run out, and they couldn’t meet a margin call. Two days later, they had to deliver silver instead of cash in order to meet the margin call. Other speculators were having trouble raising cash against their silver, and prices dropped like a stone.
BACK TO THE FUTURE
Some believe the recent general commodities pullback was triggered by the series of CME margin hikes on silver within the past week, after the recent exponential run-up in silver prices. Whether or not that is true, holders of leveraged long commodities positions should have warily watched the action in the silver market. Some silver speculators may not have seen the margin hike as a constraint on lending, but it should have been a red flag for any speculator with a leveraged long position. Moreover, after silver markets closed, silver prices were getting “banged” lower in what looked like suspicious market manipulation.
Speculators rushed in as prices recently soared and rumors swirled that there will be a delivery default at the CME including one of the TBTF banks with a huge short position that it cannot cover. Are the rumors true? I don’t know since those in charge of investigating these matters haven’t put evidence in the public domain, even after a senior member of the CFTC claimed there was blatant silver manipulation.
The fastest way to collapse a recent run up in prices is to choke off the ability of those with leveraged long paper positions to raise cash. Another way is to rapidly hike margins; those with insufficient ready cash will be forced to liquidate. As they liquidate to meet margin calls, prices fall, and it creates a cycle which feeds on itself. I have no explanation for the recent ramp up in silver prices any more than I have an idea of where spot silver prices eventually hit bottom.
This isn’t the first time there has been extreme price action and volatility in the silver futures markets, and it will not be the last. If anyone thinks that the Commodity Futures Trading Commission (CFTC) has the right stuff to regulate the commodities markets, look no further than its failure to check manipulation in the silver market.
The CFTC has the mandate to “regulate” tens of trillions of dollars in credit derivatives, but it is actually in the business of anti-regulation.
I highly recommend Stephen Fay’s book, BEYOND GREED (1982). A paperback version was titled THE GREAT SILVER BUBBLE (1982). It’s out of print but available through Amazon or Abe Books.
Friday, May 6, 2011
Thursday, May 5, 2011
Expect Vicious Bullion Selloff to Be Short-Lived
By Rick Ackerman on May 5, 2011 1:41 am GMT · 18 comments
Although some technicians we respect think bullion’s correction will stretch into summer, we think it will be over within a week. In our experience, powerful bull markets recoup violent selloffs with rallies that are just as violent. Silver’s correction has been violent indeed, savaging quotes by 25 percent in just a few days. The catalyst for this brazen shakedown was news Sunday night of Osama bin Laden’s death. Who needs bullion when the world is about to become an oasis of peace, right? Yeah, sure. When the revelers return to their senses the world will still be a dangerous place, the central banks will still be printing money by the trainload, and nothing will have changed to diminish the defensive appeal of precious metals.
Under the circumstances, we doubt that Silver will need much base-building to launch an assault on the supposed $50 “barrier.” We view that number not as impenetrable supply, but rather, as a fat carcass waiting to be picked clean by voracious buyers. Let J.P. Morgan and their ilk try to hold the line at $50. They’re going to be dead meat eventually, so why not now? In our years of experience on the trading floor, huge supply tends to coax forth huge demand. As traders like to say, opportunity moves to size. And while the bad guys may have deep pockets and the ability to create tons of “paper bullion” at will, any suspicion that they are trying to cap Silver at $50 is going transform otherwise docile, go-along buyers into aggressive opportunists. This will prove to be equally true for Gold, we are certain. The Chinese government, for one, has given its blessing to any citizen who wants to buy the stuff. Want to stand in their way?
From a technical standpoint, July Silver, currently selling for about 39.260, looks like it still has a ways to fall. To be precise, we see a turn from exactly 37.165, a “Hidden Pivot” support identified by our proprietary method of technical analysis. (Click here for detailed information.) However, if that support is breached on a closing basis, we’d infer that still more weakness awaits to as low as 35.390. Whatever the case, we’ll be speculative buyers at either number, using the “camouflage” entry technique that hundreds of Rick’s Picks subscribers have learned by taking the Hidden Pivot Webinar. With regard to Gold, look for the June Comex contract, currently at 1518.20, to turn decisively from exactly 1491.80. If the rally out of the hole is as strong as we expect, you’re going to see bears diving for cover by week’s end or early next.
Although some technicians we respect think bullion’s correction will stretch into summer, we think it will be over within a week. In our experience, powerful bull markets recoup violent selloffs with rallies that are just as violent. Silver’s correction has been violent indeed, savaging quotes by 25 percent in just a few days. The catalyst for this brazen shakedown was news Sunday night of Osama bin Laden’s death. Who needs bullion when the world is about to become an oasis of peace, right? Yeah, sure. When the revelers return to their senses the world will still be a dangerous place, the central banks will still be printing money by the trainload, and nothing will have changed to diminish the defensive appeal of precious metals.
Under the circumstances, we doubt that Silver will need much base-building to launch an assault on the supposed $50 “barrier.” We view that number not as impenetrable supply, but rather, as a fat carcass waiting to be picked clean by voracious buyers. Let J.P. Morgan and their ilk try to hold the line at $50. They’re going to be dead meat eventually, so why not now? In our years of experience on the trading floor, huge supply tends to coax forth huge demand. As traders like to say, opportunity moves to size. And while the bad guys may have deep pockets and the ability to create tons of “paper bullion” at will, any suspicion that they are trying to cap Silver at $50 is going transform otherwise docile, go-along buyers into aggressive opportunists. This will prove to be equally true for Gold, we are certain. The Chinese government, for one, has given its blessing to any citizen who wants to buy the stuff. Want to stand in their way?
From a technical standpoint, July Silver, currently selling for about 39.260, looks like it still has a ways to fall. To be precise, we see a turn from exactly 37.165, a “Hidden Pivot” support identified by our proprietary method of technical analysis. (Click here for detailed information.) However, if that support is breached on a closing basis, we’d infer that still more weakness awaits to as low as 35.390. Whatever the case, we’ll be speculative buyers at either number, using the “camouflage” entry technique that hundreds of Rick’s Picks subscribers have learned by taking the Hidden Pivot Webinar. With regard to Gold, look for the June Comex contract, currently at 1518.20, to turn decisively from exactly 1491.80. If the rally out of the hole is as strong as we expect, you’re going to see bears diving for cover by week’s end or early next.
Wednesday, May 4, 2011
CME Hikes Silver Margins By 17%: 4th Hike In 8 Trading Days
Nobody could have foreseen this. Nobody. At this point there is nothing left to comment on what is a concerted action to "mitigate" any and all risk in the commodity market but could as well be classified as executive order 6102.5. While we were joking before that soon one will have to post more cash than an silver contract is worth, we are now forced to reevaluate this sarcasm.
Update on Silver 05/04/11 5:20 p.m.
Submitted by: Francis Soyer 05/04/11
For those of you who like taking 10 or 20 ounces into possession for the safe like I do take note of the huge disparity in physical ounces versus paper ounces like JPM's SLV ETF, which is now almost 5 dollars below an ounce from a bullion dealer, no doubt by design for an arbitrage to occur for dealers to sell bullio they do not have, buy SLV ETF's t the discount to spot and then demand delivery from the SLV cutodian. Good luck to the dealers doing this though as JPM has maybe an ounce or two in their vaults to cover this arbitrage.
The big take away from my latest order was that I was informed that my order would be significantly delayed for delivery, I am probably looking at 6 weeks from Bulliondirect.com So the physical market for this metal is becoming very difficult. This is a sign of things to come for the paper silver markets. They will be going to zero to reflect the total fraud that they are. Like I mentioned in the earlier post PSLV is the only alternative that I have found that actually has the physical silver in the vault to cover delivery. SLV and the CME have squat, they will default in the coming days on delivery and they will go belly up. Best of luck to them, they are going to need it.
Silver update 05/04/11 SLV / PSLV after the close
Submitted by Francis Soyer: 05/04/11
We may have turned the corner after todays session. While we have heard many things over the past week or so none of which changed the thesis as to why to own and notice I say OWN (as appossed to rent or on margin in Chicago so you can bent over by the CME, CFTC and their partners in crime) have only improved as to why to own precious metal as a backstop to the USD losing its reserve currency status in the coming days. And NO SLV is not a safe vehicle, there will come a day when SLV ETF certificates will be worth the paper they are written on. If you doubt that then check the prospectus and you will see numerous get out of jail free clauses that basically say they can make delivery of physical silver whenever they dam well please. And for new investors in Silver the SLV ETF is managed by None other than JP Morgan, the same slime who have been artificially pushing price of Silver lower to get out of their short position. PSLV is the closest and only vehicle I have found for actually being able to take delivery when needed without getting robbed. And no Silver and Coin brokers that offer to store it on your behalf are not safe either. The Silver sneed to be in your hands, at your home and in a Safe. For a list of reputable bullion dealers email in the comments section and I will be happy to provide.
World Bank chief surprises with gold standard idea
Remember all moves of what the Global Monetary System is up to are telegraphed well in advance. This is an example of why metals are getting pushed lower artificially. The War is on and they will fight tooth and nail to get everyone out of Silver and Gold because they want it ALL.
World Bank chief surprises with gold standard idea
World Bank President Robert Zoellick speaks at the Development Committee news conference during the annual IMF-World Bank meetings in Washington October 9, 2010.
Credit: Reuters/Yuri Gripas
LONDON
Mon Nov 8, 2010 6:30am EST
LONDON (Reuters) - Leading economies should consider adopting a modified global gold standard to guide currency rates, World Bank president Robert Zoellick said on Monday in a surprise proposal before a potentially acrimonious G20 summit.
Writing in the Financial Times, Zoellick called for a "Bretton Woods II" system of floating currencies as a successor to the Bretton Woods fixed-exchange rate regime that broke down in the early 1970s.
The former U.S. trade representative, who served in several Republican administrations, said such a move "is likely to need to involve the dollar, the euro, the yen, the pound and (a yuan) that moves toward internationalization and then an open capital account.
"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," he added.
Analysts were cautious. "Going forward that would be something that we could look toward, but it's not going to happen within a short period of time," said Ong Yi Ling, analyst at Phillip Futures in Singapore, adding that gold prices barely reacted to the comments.
Gold briefly hit a record high of $1,398.35 an ounce in early trade on Monday on concerns of a continued weakening dollar trend after the U.S. Federal Reserve last week acted to resume buying Treasuries.
SUMMIT ACRIMONY?
That policy has fed acrimony among leading economies in the Group of 20 in the run-up to their summit in Seoul on Wednesday and Thursday.
China and Germany, major exporting nations, have both decried the Fed's quantitative easing -- effectively printing money -- which is weakening the dollar.
Investors are pumping dollars into emerging markets in search of higher yields, and the potentially destabilizing impact of this, along with big current account deficits and surpluses as well as China's reluctance to let the yuan appreciate faster, are set to dominate the G20 debate.
France, which takes over the G20 chair after this week's summit, says it plans to work on a new international monetary system to bring greater currency stability.
Beijing's central bank chief has suggested an alternative monetary system based on using the International Monetary Fund's Special Drawing Rights, a notional unit of value based on a basket of major currencies, instead of the dollar as the sole global reserve currency.
Zoellick was a senior official in the U.S. Treasury at the time of the 1985 Plaza and 1987 Louvre Accords on rebalancing currencies among major industrialized nations. He noted that that phase of currency coordination helped launch the Uruguay Round of world trade liberalization negotiations.
While his opinion article in the Financial Times did not represent either U.S. or World Bank policy, it may reflect a greater openness in Washington than in the last two decades to some form of international currency cooperation.
"The dollar is losing its relevance especially with the emergence of Asia economies, so a more neutral benchmark may be required. Gold, amid all the recent uncertainty, is proving its worth," said ANZ's senior commodity analyst Mark Pervan.
Gold retreated to around $1,390 an ounce by 1000 GMT as speculators booked profits.
Zoellick said a new monetary system would take time to develop and should be part of a package approach including possible changes in IMF rules to review capital as well as current account policies, and linking IMF monetary assessments to World Trade Organisation obligations.
The dollar rose sharply on Monday as unwinding of dollar short positions that began with solid U.S. jobs data snowballed, pushing down the euro to its lowest level since the Fed embarked on fresh easing last week.(Reporting by Lewa Pardomuan, Nick Trevethan and Paul Taylor; Editing by Ruth Pitchford)
World Bank chief surprises with gold standard idea
World Bank President Robert Zoellick speaks at the Development Committee news conference during the annual IMF-World Bank meetings in Washington October 9, 2010.
Credit: Reuters/Yuri Gripas
LONDON
Mon Nov 8, 2010 6:30am EST
LONDON (Reuters) - Leading economies should consider adopting a modified global gold standard to guide currency rates, World Bank president Robert Zoellick said on Monday in a surprise proposal before a potentially acrimonious G20 summit.
Writing in the Financial Times, Zoellick called for a "Bretton Woods II" system of floating currencies as a successor to the Bretton Woods fixed-exchange rate regime that broke down in the early 1970s.
The former U.S. trade representative, who served in several Republican administrations, said such a move "is likely to need to involve the dollar, the euro, the yen, the pound and (a yuan) that moves toward internationalization and then an open capital account.
"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," he added.
Analysts were cautious. "Going forward that would be something that we could look toward, but it's not going to happen within a short period of time," said Ong Yi Ling, analyst at Phillip Futures in Singapore, adding that gold prices barely reacted to the comments.
Gold briefly hit a record high of $1,398.35 an ounce in early trade on Monday on concerns of a continued weakening dollar trend after the U.S. Federal Reserve last week acted to resume buying Treasuries.
SUMMIT ACRIMONY?
That policy has fed acrimony among leading economies in the Group of 20 in the run-up to their summit in Seoul on Wednesday and Thursday.
China and Germany, major exporting nations, have both decried the Fed's quantitative easing -- effectively printing money -- which is weakening the dollar.
Investors are pumping dollars into emerging markets in search of higher yields, and the potentially destabilizing impact of this, along with big current account deficits and surpluses as well as China's reluctance to let the yuan appreciate faster, are set to dominate the G20 debate.
France, which takes over the G20 chair after this week's summit, says it plans to work on a new international monetary system to bring greater currency stability.
Beijing's central bank chief has suggested an alternative monetary system based on using the International Monetary Fund's Special Drawing Rights, a notional unit of value based on a basket of major currencies, instead of the dollar as the sole global reserve currency.
Zoellick was a senior official in the U.S. Treasury at the time of the 1985 Plaza and 1987 Louvre Accords on rebalancing currencies among major industrialized nations. He noted that that phase of currency coordination helped launch the Uruguay Round of world trade liberalization negotiations.
While his opinion article in the Financial Times did not represent either U.S. or World Bank policy, it may reflect a greater openness in Washington than in the last two decades to some form of international currency cooperation.
"The dollar is losing its relevance especially with the emergence of Asia economies, so a more neutral benchmark may be required. Gold, amid all the recent uncertainty, is proving its worth," said ANZ's senior commodity analyst Mark Pervan.
Gold retreated to around $1,390 an ounce by 1000 GMT as speculators booked profits.
Zoellick said a new monetary system would take time to develop and should be part of a package approach including possible changes in IMF rules to review capital as well as current account policies, and linking IMF monetary assessments to World Trade Organisation obligations.
The dollar rose sharply on Monday as unwinding of dollar short positions that began with solid U.S. jobs data snowballed, pushing down the euro to its lowest level since the Fed embarked on fresh easing last week.
The Last Great Opportunity in Silver and Platinum
The Last Great Opportunity in Silver and Platinum
by: Avery Goodman May 04, 2011
Share0 A rise in performance bond levels will usually cause a transient reduction in the price of any commodity, and silver is no exception. Most long buyers are undercapitalized and buy more than they can afford, no matter how huge their assets might be. Usually, they keep the minimum amount of the performance bond in their accounts.
Once a margin hike occurs, some are thrown out of their positions by margin calls. Many flee because experience tells them that the price is about to go down. And still others are flushed out because as a result of the first two situations noted above, their stop-loss orders are triggered. This usually ends with a steep price drop, depending on how high the performance bond levels are moved up.
We noted in previous articles that COMEX has been serially increasing margin requirements for holding silver futures contracts. This has happened three times in the last nine days now. Although some commenters claim that the hikes are happening because of the need to maintain leverage to a fast rising silver price, it was done, yet again, on May 2, 2011, when prices fell.
According to an article published in Zero Hedge, we've learned that MF Global hiked silver margins way beyond the official level, to roughly $25k per contract. Similarly, ThinkorSwim has raised margin requirements on SI $30,037.50 and $6,007.50 for the smaller 1,000 ounce contract? That is about two and a half times what the margin requirement was prior to last Friday's official COMEX performance bond increase. We have not been able to independently confirm this increase, but Zero Hedge has been accurate in the past.
If this is being done at those two broker-dealers, it is probable that the same thing is going to be done by many other futures dealers. MF Global is a very big futures broker and a big clearing member of the CME Group. ThinkorSwim is a broker which uses the services of a major futures clearing broker-agent who services retail brokerage houses. The ThinkorSwim margin requirement levels will be duplicated at dozens of other brokerages which use the same clearing house. We cannot help but wonder whether the proprietary trading divisions of MF Global and the clearing broker being used by ThinkorSwim are short silver? We don't know at at the moment, but it would be very interesting to find out.
Investors who do not want to be flushed out of their positions by an unexpected margin call need to regularly inquire with their brokers because, as the price continues rising, the margins are being constantly changed. The remaining open interest in silver would be inconsequential in normal times. However, right now, the demand for physical silver is so high and the inventory is so low that intense pressure is being put upon the silvers futures market. We tend to think that the real battle is in the form of OTC delivery demands being made upon London based dealers. To meet those demands, we are seeing, and we will continue to see financial institutions that participate in the ETF SLV continue to cash in their shares in exchange for baskets of physical silver. In our view, the reduction in the size of SLV's holdings is a result of this process and not any form of exit by average investors.
We don't know what is motivating the clearing brokers to dramatically raise performance bonds. The raises can only be justified if they were being applied to short sellers and new buyers who are buying their positions at the current prices. But they are being applied to all long buyers, including those who may have bought when the price was half of what it is now. We do know that these actions have but one effect. They force a transient long liquidation of silver futures positions, and that is exactly what happened on May 2, 2011. They drive down the so-called "spot" price for silver in a transient manner. This has also happened.
The "spot" price was once thought of as being the result of so-called "price discovery" at the futures exchanges and in the bullion market in London. The spot price is now viewed, by many, as a false price that is gamed. This is because on February 3, 2010, Andrew Maguire, a former Goldman Sachs commodities trader who is now independent, emailed the CFTC some valuable information about a “manipulation event”.
He described it with extraordinary detail, and predicted accurately what would happen just two days later. The emails have been released publicly and are now posted here. The extraordinary accuracy helps us understand what is happening in the silver market. Why prices are soaring, why prices are defying traditional technical analysis and why so many investors no longer give any credence to the so-called "spot" and "London fix" prices. The price of silver which, based on the emails has been artificially suppressed, is not really doing anything extraordinary. It is simply an asset that has been mispriced by the market for a very long time and is unwinding to fair market value.
The ongoing price drop represents an opportunity for people to buy silver at a price that is cheaper than it probably should be right now. We believe that this is exactly what a lot of smart people are going to do. A severe drop in spot prices created by the margin changes could last anywhere from a few hours to a few days- or even a few weeks- if they keep raising the bond levels. But the spot price is becoming increasingly irrelevant. If arbitragers believe that COMEX or the LBMA will deliver the silver promised in derivatives, they will buy there and sell in the physical market, forcing prices up again. Alternatively, if a COMEX or LBMA member bank default on silver lies ahead, the spot price will be discredited forever.
Trying to find the lowest price during a price dip is very difficult. Just be happy with buying at a "good" price, considerably lower than you would have had to pay just a short time ago. Sales in the physical market were bigger than ever, even when the spot price was driven close to $50 per ounce. So the exact price you pay now may not matter. You need to play it by ear as these events unfold. Our previous articles (I, II, III, IV) can help provide additional information.
There are huge opportunities for traders willing to take big risks in the silver market right now. This may represent a last great opportunity to buy silver at a cheaper price. The depth of this dip will largely depend on how fast over-leveraged long buyers can be flushed out of the futures markets; on how fast some of them can put in new orders after their stop-losses are triggered; on how many times the performance bond levels are raised; and on how fast people can wire in more money to their brokers to get back into the game.
Seemingly "managed" price drops usually last less than a week, and often no more than a day or two before running out of steam. After that, a shell-shocked, disspirited market is utilized, for the most part, to maintain a lower price for a longer period of time. In the aftermath of the McGuire emails, however, it is not likely that people will remain disspirited for a long time. People now know why silver is declining.
An ominous problem continues to be faced by silver shorts. For the first time, a lot of serious investors who are not undercapitalized are a part of the silver market. They opportunistically buy cash positions as leveraged longs are flushed out. Therefore, we are not likely to see a traditional "shell-shocked" market arising out of this. Even if peformance bonds are raised to 100%, the difficulty in finding silver to make deliveries into the OTC market will continue. That will force prices up again.
Conservative long term investors might also want to consider platinum. By our estimates, it will be in serious shortage in a year or two. JP Morgan Chase is buying physical bars of platinum like hotcakes. Platinum has a similar concentrated short position at the futures markets, having been subjected to the same type of behavior by big futures market players in the past. It also has huge "unallocated" storage ratios, and the mining supply each year is miniscule. The mining supply continues to be relatively stagnant, in spite of higher prices over the last few years. It is costing more and more for miners to extract what platinum is left in the S. African mines, and mining in Zimbabwe is being stymied by political issues.
A 5% shift in jewelry demand away from gold to platinum, as the price of gold and platinum head closer to parity, will lead to a need for 69 tons of additional platinum mining supply each year. The total mining supply, however, is only about 6.9 million troy ounces, or 214 metric tons. The metal is 14.7 times rarer in the earth's crust than gold. All mine production is already spoken for in 2011. Yet, new and important clean air regulations throughout the developed world will require catalytic converters on all new off-road diesel vehicles. That is expected to create about 15.5 tons of new demand. Add 15.5 tons of demand to an already tight market, and you will have a price rise. Add another 69 tons of demand (and perhaps much more) as gold continues to rise in price and be monetized by central bank buying, and you have the makings of a price explosion potentially much larger than what we have seen in the silver market.
When and if you speculate in silver, or in anything else, remember that nothing is a sure thing. We have bought the SIVR ETF on the dip. It is a good trading instrument, but not necessarily the best way to own silver long term. A calculated gamble with a small percent of your assets can be fun and profitable. Just don't put the house, the retirement assets or the "lunch" money at risk. Even if you make a big percentage profit, don't get carried away by it. Speculation by average people should be limited to what they can afford to lose in Las Vegas. Leave the heavy lifting to silver vigilantes.
That being said, you may want to take advantage of the current situation to buy as many beautiful silver coins and small bars as please your eye. They are beautiful and pleasant to look at, feel and hold. They will last as long as you live, and can be passed down to your children and your children's children, long after you are dead. They also happen to be a good long term investment.
Disclosure: I am long SIVR.
by: Avery Goodman May 04, 2011
Share0 A rise in performance bond levels will usually cause a transient reduction in the price of any commodity, and silver is no exception. Most long buyers are undercapitalized and buy more than they can afford, no matter how huge their assets might be. Usually, they keep the minimum amount of the performance bond in their accounts.
Once a margin hike occurs, some are thrown out of their positions by margin calls. Many flee because experience tells them that the price is about to go down. And still others are flushed out because as a result of the first two situations noted above, their stop-loss orders are triggered. This usually ends with a steep price drop, depending on how high the performance bond levels are moved up.
We noted in previous articles that COMEX has been serially increasing margin requirements for holding silver futures contracts. This has happened three times in the last nine days now. Although some commenters claim that the hikes are happening because of the need to maintain leverage to a fast rising silver price, it was done, yet again, on May 2, 2011, when prices fell.
According to an article published in Zero Hedge, we've learned that MF Global hiked silver margins way beyond the official level, to roughly $25k per contract. Similarly, ThinkorSwim has raised margin requirements on SI $30,037.50 and $6,007.50 for the smaller 1,000 ounce contract? That is about two and a half times what the margin requirement was prior to last Friday's official COMEX performance bond increase. We have not been able to independently confirm this increase, but Zero Hedge has been accurate in the past.
If this is being done at those two broker-dealers, it is probable that the same thing is going to be done by many other futures dealers. MF Global is a very big futures broker and a big clearing member of the CME Group. ThinkorSwim is a broker which uses the services of a major futures clearing broker-agent who services retail brokerage houses. The ThinkorSwim margin requirement levels will be duplicated at dozens of other brokerages which use the same clearing house. We cannot help but wonder whether the proprietary trading divisions of MF Global and the clearing broker being used by ThinkorSwim are short silver? We don't know at at the moment, but it would be very interesting to find out.
Investors who do not want to be flushed out of their positions by an unexpected margin call need to regularly inquire with their brokers because, as the price continues rising, the margins are being constantly changed. The remaining open interest in silver would be inconsequential in normal times. However, right now, the demand for physical silver is so high and the inventory is so low that intense pressure is being put upon the silvers futures market. We tend to think that the real battle is in the form of OTC delivery demands being made upon London based dealers. To meet those demands, we are seeing, and we will continue to see financial institutions that participate in the ETF SLV continue to cash in their shares in exchange for baskets of physical silver. In our view, the reduction in the size of SLV's holdings is a result of this process and not any form of exit by average investors.
We don't know what is motivating the clearing brokers to dramatically raise performance bonds. The raises can only be justified if they were being applied to short sellers and new buyers who are buying their positions at the current prices. But they are being applied to all long buyers, including those who may have bought when the price was half of what it is now. We do know that these actions have but one effect. They force a transient long liquidation of silver futures positions, and that is exactly what happened on May 2, 2011. They drive down the so-called "spot" price for silver in a transient manner. This has also happened.
The "spot" price was once thought of as being the result of so-called "price discovery" at the futures exchanges and in the bullion market in London. The spot price is now viewed, by many, as a false price that is gamed. This is because on February 3, 2010, Andrew Maguire, a former Goldman Sachs commodities trader who is now independent, emailed the CFTC some valuable information about a “manipulation event”.
He described it with extraordinary detail, and predicted accurately what would happen just two days later. The emails have been released publicly and are now posted here. The extraordinary accuracy helps us understand what is happening in the silver market. Why prices are soaring, why prices are defying traditional technical analysis and why so many investors no longer give any credence to the so-called "spot" and "London fix" prices. The price of silver which, based on the emails has been artificially suppressed, is not really doing anything extraordinary. It is simply an asset that has been mispriced by the market for a very long time and is unwinding to fair market value.
The ongoing price drop represents an opportunity for people to buy silver at a price that is cheaper than it probably should be right now. We believe that this is exactly what a lot of smart people are going to do. A severe drop in spot prices created by the margin changes could last anywhere from a few hours to a few days- or even a few weeks- if they keep raising the bond levels. But the spot price is becoming increasingly irrelevant. If arbitragers believe that COMEX or the LBMA will deliver the silver promised in derivatives, they will buy there and sell in the physical market, forcing prices up again. Alternatively, if a COMEX or LBMA member bank default on silver lies ahead, the spot price will be discredited forever.
Trying to find the lowest price during a price dip is very difficult. Just be happy with buying at a "good" price, considerably lower than you would have had to pay just a short time ago. Sales in the physical market were bigger than ever, even when the spot price was driven close to $50 per ounce. So the exact price you pay now may not matter. You need to play it by ear as these events unfold. Our previous articles (I, II, III, IV) can help provide additional information.
There are huge opportunities for traders willing to take big risks in the silver market right now. This may represent a last great opportunity to buy silver at a cheaper price. The depth of this dip will largely depend on how fast over-leveraged long buyers can be flushed out of the futures markets; on how fast some of them can put in new orders after their stop-losses are triggered; on how many times the performance bond levels are raised; and on how fast people can wire in more money to their brokers to get back into the game.
Seemingly "managed" price drops usually last less than a week, and often no more than a day or two before running out of steam. After that, a shell-shocked, disspirited market is utilized, for the most part, to maintain a lower price for a longer period of time. In the aftermath of the McGuire emails, however, it is not likely that people will remain disspirited for a long time. People now know why silver is declining.
An ominous problem continues to be faced by silver shorts. For the first time, a lot of serious investors who are not undercapitalized are a part of the silver market. They opportunistically buy cash positions as leveraged longs are flushed out. Therefore, we are not likely to see a traditional "shell-shocked" market arising out of this. Even if peformance bonds are raised to 100%, the difficulty in finding silver to make deliveries into the OTC market will continue. That will force prices up again.
Conservative long term investors might also want to consider platinum. By our estimates, it will be in serious shortage in a year or two. JP Morgan Chase is buying physical bars of platinum like hotcakes. Platinum has a similar concentrated short position at the futures markets, having been subjected to the same type of behavior by big futures market players in the past. It also has huge "unallocated" storage ratios, and the mining supply each year is miniscule. The mining supply continues to be relatively stagnant, in spite of higher prices over the last few years. It is costing more and more for miners to extract what platinum is left in the S. African mines, and mining in Zimbabwe is being stymied by political issues.
A 5% shift in jewelry demand away from gold to platinum, as the price of gold and platinum head closer to parity, will lead to a need for 69 tons of additional platinum mining supply each year. The total mining supply, however, is only about 6.9 million troy ounces, or 214 metric tons. The metal is 14.7 times rarer in the earth's crust than gold. All mine production is already spoken for in 2011. Yet, new and important clean air regulations throughout the developed world will require catalytic converters on all new off-road diesel vehicles. That is expected to create about 15.5 tons of new demand. Add 15.5 tons of demand to an already tight market, and you will have a price rise. Add another 69 tons of demand (and perhaps much more) as gold continues to rise in price and be monetized by central bank buying, and you have the makings of a price explosion potentially much larger than what we have seen in the silver market.
When and if you speculate in silver, or in anything else, remember that nothing is a sure thing. We have bought the SIVR ETF on the dip. It is a good trading instrument, but not necessarily the best way to own silver long term. A calculated gamble with a small percent of your assets can be fun and profitable. Just don't put the house, the retirement assets or the "lunch" money at risk. Even if you make a big percentage profit, don't get carried away by it. Speculation by average people should be limited to what they can afford to lose in Las Vegas. Leave the heavy lifting to silver vigilantes.
That being said, you may want to take advantage of the current situation to buy as many beautiful silver coins and small bars as please your eye. They are beautiful and pleasant to look at, feel and hold. They will last as long as you live, and can be passed down to your children and your children's children, long after you are dead. They also happen to be a good long term investment.
Disclosure: I am long SIVR.
Silver SLV / PSLV Update 05/04/11
Submitted by: Francis Soyer
Lets review the silver thesis and understand what the last couple weeks have been about:
1. Over the past 8 days the CME has raised margin rates three times being an 8%, 10% and then another 12% increase on Monday followed by another round of 100% increases in rates from large futures brokers in chicago yesterday.
2. This rampant increase in rates comes on the heels of Bernanke's testimony which triggered massive buying (a vote of no confidence and that the Fed is losing credibality) and is a vote of no confidence on the worlds reserve currency the USD.
3. Comes days after April 24th 2011 when China's Central Bank and Monetary Policy member Xia Bin announced that China will be dumping $2.3 Trillion of US debt nearly a two thirds of their holdings and went on to say that these will be shifted into "strategic resources" to diversify. The only thing strategic that I can see to replace money with money is Gold and Silver!
4. Comes shortly after Japan will need to raise $1 Trillion by dumping U.S. Debt to recover from their earthquake.
5. Comes after a series of margin hikes from the CME and Futures Brokers after the November announcement that China and Russia will commence trading in their own curriencies and dumping the U.S. dollar for trade with eachother. And yes this means they will be using their own currency to buy and sell OIL with EACHOTHER. For those who do not understand... The worlds oil trade settlement standard is the global the reserve currency the US Dollar. China and Russia have officially flipped the bird to the dollar in this announced move. http://www.ibtimes.com/articles/85424/20101124/china-russia-drop-dollar.htm
So lets try to quantify what this agreement means outside of the fact that China is also Dumping Two Thirds of their USD. The answer is that for 2010 China traded or purchased roughly 9 million barrels of oil per day. So lets multiply 9 x 365 and we get 3,285,000,000 barrels of Oil for the year or 3.285 Billion barrells of Oil.
Now lets assume according to the chart below that for 2011 on a conservative estimate that demand will be 10 million barrells a day for China which gives us 3,685,000,000 barrels of oil for the year or 3.685 billions barels. Now lets use another conservative estimate for oil in dollars for the year of 2011 and say the average price for the year woul be $100 per barrel. So for 2011 China in U.S. dollar terms will buy 3.685 billion x $100 on average giving us a dollar value of $365,000,000,000 or $3.65 Trillion that we will need to subtract from the value of the USD in terms of demand in settlement of Oil contracts from here on out. This is in addition to the $2 + Trillion that China announced it will be dumping of U.S. Dollars. Hence from estimate point of view we need to calculate $2 Trillion + $3.65 Trillion or $5.65 Trillion of additional debasement of the USD for 2011-2012! http://www.oilslick.com/Commentary/?id=2192&type=1
6. QE I and QE II (Quantitative Easing Program from the Fed which is printing money out of thin air and devalues the USD) QE I printed based on conservative estimates $1.5 Trillion and then launched QE II for $600 Billion and is expected to end in June. QE I began in November of 2008. The close price for UUP or the dollar index ETF closed on that day at $26.55. As of today May 4, 2011 with roughly six to seven weeks left of Money Printing out of thin air UUP is trading as of the close on May 3, 2011 at $20.97. So the total program of QE I and II of $2.1 Trillion or money printing which does not include any of the above mentioned and comming real influences on the debasement of the USD was a decrease in the value of the dollar by %21.01.The coming $5.65 Trillion in coming debasement is equal to 2.69 Times the total value of QE I and II. Thus by doing a simple calculation by assumption that if $2.1 Trillion is debasement or money printing equaled a decline of %21.01 then by reason we should calculate that another $5.65 Trillion or 2.69 Times %21.01 of continued debasement means the using UUP as an example 2.69 x Neg $21.01 gives us Neg %56.51 or a coming haircut of $11.85 per share on UUP which gives us an ending price using yesterdays close of UUP in the next year or so of $9.12!!! What is more concerning is in addition to the China Factor these numbers do not include Brasil or India two other large and growing economies that have made it clear that they are no longer willing to play with unclse same, are taking their ball and bat and going home.
7. So what does the above boil down to or how do we summarize what is occuring? The value of Money or currently but not for much longer the USD or the Global Reserve Currency is falling and rapidly so. That said we should ask well, what is Money?
Here is a basic rundown: http://en.wikipedia.org/wiki/Money
Medium of exchange
When money is used to intermediate the exchange of goods and services, it is performing a function as a medium of exchange. It thereby avoids the inefficiencies of a barter system, such as the 'double coincidence of wants' problem.
Unit of account
A unit of account is a standard numerical unit of measurement of the market value of goods, services, and other transactions. Also known as a "measure" or "standard" of relative worth and deferred payment, a unit of account is a necessary prerequisite for the formulation of commercial agreements that involve debt. To function as a 'unit of account', whatever is being used as money must be:
Divisible into smaller units without loss of value; precious metals can be coined from bars, or melted down into bars again.
Fungible: that is, one unit or piece must be perceived as equivalent to any other, which is why diamonds, works of art or real estate are not suitable as money.
A specific weight, or measure, or size to be verifiably countable. For instance, coins are often milled with a reeded edge, so that any removal of material from the coin (lowering its commodity value) will be easy to detect.
Store of value
To act as a store of value, a money must be able to be reliably saved, stored, and retrieved – and be predictably usable as a medium of exchange when it is retrieved. The value of the money must also remain stable over time. Some have argued that inflation, by reducing the value of money, diminishes the ability of the money to function as a store of value.[4]
Enter Gresham's Law
Gresham’s law, observation in economics that “bad money drives out good.” More exactly, if coins containing metal of different value have the same value as legal tender, the coins composed of the cheaper metal will be used for payment, while those made of more expensive metal will be hoarded or exported and thus tend to disappear from circulation. Sir Thomas Gresham, financial agent of Queen Elizabeth I, was not the first to recognize this monetary principle, but his elucidation of it in 1558 prompted the economist H.D. Macleod to suggest the term Gresham’s law in the 19th century.
Money functions in ways other than as a domestic medium of exchange; it also may be used for foreign exchange, as a commodity, or as a store of value. If a particular kind of money is worth more in one of these other functions, it will be used in foreign exchange or will be hoarded rather than used for domestic transactions. For example, during the period from 1792 to 1834 the United States maintained an exchange ratio between silver and gold of 15:1, while ratios in Europe ranged from 15.5:1 to 16.06:1. This made it profitable for owners of gold to sell their gold in the European market and take their silver to the United States mint. The effect was that gold was withdrawn from domestic American circulation; the “inferior” money had driven it out.
So what does the above mean in terms of Silver? It means that as Fiat Money depreciates Silver or Gold as a store of value, a commodity, than can be measured by units and is accepted as currency Silver and Gold Appreciates. Why? Because gold and silver is finite in supply and annual production. It is finite because most of it or 60% of it in Silvers case is used to make things like circuit boards, mirrors and computers and yes Jewelry too. So of the 40% of Silver every year that is not spoken for can be used as currency or Money. With more and more people buying Silver to replace crap money for good money or money that can not be printed out of thin air, do you think the CME by raising margin rates until they are %100 the value of contracts for delivery are doing so to protect you the Silver investor? That they are doing this in your best interest? Or do you think that they like any other governmental organization around the world say like China or Russia would rather have Silver or Gold in their vaults rather than paper and cotton USD notes that continue to devalue on a daily Basis? In my opinion the answer is simple. The CME, The Fed Reserve, the U.S. Goverment for that matter will do everything in its power legally and not to part people from their silver and gold. Why? Because it has value and that value will continue to rise so far beyond imagination that when we review this past few days one year from now we will be puking in our waste baskets wishing we had taken out a second mortgage on our house and bought every ounce of Silver asd Gold we could have gotten our hands on.
8. The above, is just one part of the picture as to why the CME and the governments that back them will do everything they can to drive you out of Silver and Gold. In part two I will discuss supply, demand and inflationary issues that are all also placing upside presurre on the two that the monetary part does not get into.
Think about it.
Francis Soyer
Rumormill around who is buying and selling precious metals is getting more ridiculous
The rumormill around who is buying and selling precious metals is getting more ridiculous than daily Radioshack LBO speculation. The latest comes from the WSJ which informs that based on "people close to the matter" Soros and Burbank are now dumping their gold and silver: "George Soros's big hedge fund, a firm operated by high-profile investor John Burbank and some other leading firms have been selling gold and silver, according to people close to the matter, after furiously accumulating precious metals for much of the past two years." Greg Zuckerman's conclusion, assuming a multi billion hedge fund will actually let its competitors know what it is doing concurrently as it is doing it, is merited: "Their selling suggested the sharp, nine-month run-up for precious metals could be entering more dangerous territory." Of course, something tells us that just like Goldman, whose prop desk has a nagging tendency to buy as its sellside "analysts" say sell, we would rather hold off until we see respective 13Fs on the matter. In the meantime, we fail to see where over the past week the central (pardon the pun) thesis has changed: namely that central banks will not print more linen/cotton when the time comes. And if the market is indeed starting to price in QEasing's end, then the deflationary scare will certainly see the RUT plunge and undo months of carefully executed (by NYU interns) POMO operations. For a Fed which equates the economy with the RUT, this is simply unacceptable.
More from the WSJ:
Yet silver, which has had a huge run, remains up nearly 38% in 2011. It rose 84% last year.
And some prominent investment pros continue to favor precious metals, among them hedge-fund manager John Paulson.
Last week an exchange-traded fund, or ETF, that owns silver bullion—the iShares Silver Trust—was the most active ETF on the U.S. market on some days, a sign of the rabid recent interest in silver.
"We haven't seen this much volatility in decades," said Robin Rodriguez, a metals trader in Charlottesville, Va. "We have such large profits built in," so some investors are taking their winnings, said Mr. Rodriguez, who remains bullish on the metal.
Interest in holding the silver ETF grew so intense it became hard to borrow shares to sell, as bearish traders need to do if they want to sell the metal short and bet on a decline.
All this helped set up the tumble, which started late Sunday, catching many by surprise. As sell orders flooded the market in Asia, brokers sought more collateral from investors who had bought on margin, even as they fielded calls from anxious investors who wanted to sell.
"Everybody wanted to get out," said Richard Digenan, an executive at R.J. O'Brien, a brokerage firm in Chicago.
The other side of the story, that of repeated margin hikes, is well known to ZH readers:
For those who invest in silver via the futures market rather than an ETF, exchanges and brokers have been raising margin requirements, the amount of collateral investors must leave with their broker to back a position.
CME Group, a commodity-exchange operator, has raised margin requirements three times in a week. It announced the latest increase Tuesday.
Many investors in silver futures make heavy use of borrowed money and were faced with either sending more collateral to their brokers or selling some contracts.
But back to the original story:
For nearly two years, Mr. Soros's hedge-fund firm bought gold and silver, becoming the seventh-largest holder of the biggest gold ETF, the SPDR Gold Shares. Some others with stellar records—including Mr. Burbank, of Passport Capital, and Alan Fournier, of Pennant Capital—also have been passionate about precious metals, giving encouragement to individual investors to follow.
Now they are selling, in each case for distinct reasons.
While many who buy gold do so to protect against future inflation, Soros Fund Management bought gold to protect against the possibility of the opposite—debilitating deflation, or a sustained drop in consumer prices.
But now the $28 billion Soros firm, which is run by Keith Anderson, believes chances of deflation are reduced, eliminating the need to hold as much gold, according to people close to the matter.
People familiar with Mr. Anderson's thinking said he believes the Federal Reserve's continuing to pump money into the system has reduced the likelihood of deflation.
The Soros team, meanwhile, isn't especially worried about a surge in inflation. Mr. Anderson has argued that by the end of this year the Fed will signal that interest-rate increases are in the offing, possibly early in 2012, according to someone close to the firm. Higher interest rates would tend to suppress inflation.
The Soros fund has sold much of its gold and silver investments over the past month or so, according to this person.
Mr. Burbank, a longtime gold supporter who predicts growing worries about the creditworthiness of the U.S. and some other nations, has trimmed some of his investments to lock in profits, according to someone close to the firm. This person added that Mr. Burbank remains a long-term gold bull and expects to buy more gold-mining shares after a decline.
Yes, this is the same Soros who bastardized Hayek a week ago, even as he admitted that the current monetary system is on the precipice.
As for the only guy who matters, and whose every move is studied under a microscope, he is not budging. In fact, he see gold at $4,000 in 3 years.
A number of high-profile investors remain huge holders of gold and silver, amid continuing concern about inflation and the dollar. Mr. Paulson, known for his lucrative bet against mortgages a few years ago, told investors he still has most of his personal money in gold-denominated funds operated by Paulson & Co.
Mr. Paulson told investors Tuesday morning that gold prices could go as high as $4,000 an ounce over the next three to five years, as the U.S. and U.K. flood the money supply. Gold settled in New York at $1,540.10 a troy ounce Tuesday.
Also, Wexford, run by Robert Rubin's right hand man from the Goldman arb desk days, and Mike Steinhardt protege, Chuck Davidson, doesn't appear to be going anywhere in a hurry either.
Wexford Capital, a $6.5 billion fund that has been a large buyer of silver over the past year, retains much of its metal positions, according to someone close to the matter.
Either way, a two day 20% correction, and everyone crawls out of the woodwork screaming bloody murder, even as silver has retraced to a price... from two weeks ago.
And once again we ask: will the Chairsatan stop printing? And what happens when the economy tumbles in Q2, as it will once the full hit from the Japanese economic collapse is felt, and Bernanke has no choice but to do in 2011 what he did in 2010? So yes, let silver drop to $30. Let it plunge to $20. The lower the better. Day traders on margin are advised to stay out. Everyone else, who has a personal vendetta with Bernanke however will find each incremental drop an even better opportunity to slam the stake in the heart of a failed monetary regime which is now in its last days.
Everything else is minute charts and irrelevant candles.
More from the WSJ:
Yet silver, which has had a huge run, remains up nearly 38% in 2011. It rose 84% last year.
And some prominent investment pros continue to favor precious metals, among them hedge-fund manager John Paulson.
Last week an exchange-traded fund, or ETF, that owns silver bullion—the iShares Silver Trust—was the most active ETF on the U.S. market on some days, a sign of the rabid recent interest in silver.
"We haven't seen this much volatility in decades," said Robin Rodriguez, a metals trader in Charlottesville, Va. "We have such large profits built in," so some investors are taking their winnings, said Mr. Rodriguez, who remains bullish on the metal.
Interest in holding the silver ETF grew so intense it became hard to borrow shares to sell, as bearish traders need to do if they want to sell the metal short and bet on a decline.
All this helped set up the tumble, which started late Sunday, catching many by surprise. As sell orders flooded the market in Asia, brokers sought more collateral from investors who had bought on margin, even as they fielded calls from anxious investors who wanted to sell.
"Everybody wanted to get out," said Richard Digenan, an executive at R.J. O'Brien, a brokerage firm in Chicago.
The other side of the story, that of repeated margin hikes, is well known to ZH readers:
For those who invest in silver via the futures market rather than an ETF, exchanges and brokers have been raising margin requirements, the amount of collateral investors must leave with their broker to back a position.
CME Group, a commodity-exchange operator, has raised margin requirements three times in a week. It announced the latest increase Tuesday.
Many investors in silver futures make heavy use of borrowed money and were faced with either sending more collateral to their brokers or selling some contracts.
But back to the original story:
For nearly two years, Mr. Soros's hedge-fund firm bought gold and silver, becoming the seventh-largest holder of the biggest gold ETF, the SPDR Gold Shares. Some others with stellar records—including Mr. Burbank, of Passport Capital, and Alan Fournier, of Pennant Capital—also have been passionate about precious metals, giving encouragement to individual investors to follow.
Now they are selling, in each case for distinct reasons.
While many who buy gold do so to protect against future inflation, Soros Fund Management bought gold to protect against the possibility of the opposite—debilitating deflation, or a sustained drop in consumer prices.
But now the $28 billion Soros firm, which is run by Keith Anderson, believes chances of deflation are reduced, eliminating the need to hold as much gold, according to people close to the matter.
People familiar with Mr. Anderson's thinking said he believes the Federal Reserve's continuing to pump money into the system has reduced the likelihood of deflation.
The Soros team, meanwhile, isn't especially worried about a surge in inflation. Mr. Anderson has argued that by the end of this year the Fed will signal that interest-rate increases are in the offing, possibly early in 2012, according to someone close to the firm. Higher interest rates would tend to suppress inflation.
The Soros fund has sold much of its gold and silver investments over the past month or so, according to this person.
Mr. Burbank, a longtime gold supporter who predicts growing worries about the creditworthiness of the U.S. and some other nations, has trimmed some of his investments to lock in profits, according to someone close to the firm. This person added that Mr. Burbank remains a long-term gold bull and expects to buy more gold-mining shares after a decline.
Yes, this is the same Soros who bastardized Hayek a week ago, even as he admitted that the current monetary system is on the precipice.
As for the only guy who matters, and whose every move is studied under a microscope, he is not budging. In fact, he see gold at $4,000 in 3 years.
A number of high-profile investors remain huge holders of gold and silver, amid continuing concern about inflation and the dollar. Mr. Paulson, known for his lucrative bet against mortgages a few years ago, told investors he still has most of his personal money in gold-denominated funds operated by Paulson & Co.
Mr. Paulson told investors Tuesday morning that gold prices could go as high as $4,000 an ounce over the next three to five years, as the U.S. and U.K. flood the money supply. Gold settled in New York at $1,540.10 a troy ounce Tuesday.
Also, Wexford, run by Robert Rubin's right hand man from the Goldman arb desk days, and Mike Steinhardt protege, Chuck Davidson, doesn't appear to be going anywhere in a hurry either.
Wexford Capital, a $6.5 billion fund that has been a large buyer of silver over the past year, retains much of its metal positions, according to someone close to the matter.
Either way, a two day 20% correction, and everyone crawls out of the woodwork screaming bloody murder, even as silver has retraced to a price... from two weeks ago.
And once again we ask: will the Chairsatan stop printing? And what happens when the economy tumbles in Q2, as it will once the full hit from the Japanese economic collapse is felt, and Bernanke has no choice but to do in 2011 what he did in 2010? So yes, let silver drop to $30. Let it plunge to $20. The lower the better. Day traders on margin are advised to stay out. Everyone else, who has a personal vendetta with Bernanke however will find each incremental drop an even better opportunity to slam the stake in the heart of a failed monetary regime which is now in its last days.
Everything else is minute charts and irrelevant candles.
Tuesday, May 3, 2011
Silver SLV\PSLV update 5/3/11
Submitted by: Francis Soyer
Over the last two days there have been numerous margin hikes for silver. This in my view is an act of desperation on behalf of the Fed Reserve which is in a state of controlled retreat into precious metals. Large commercial banks who are heavily short Silver going into OPEX for May and of course JPM who at this point has nothing to lose in shorting Silver naked in that they are already bankrupt from the losses from silvers rise since October (about a 100% return since then).
Seeing as dollar based assets which comprise just about everything EXCEPT precious metals and commodities will continue to lose value as the dollar continues it slide in the face of a U.S. default which is all but inevitable at this point Francis is using this as an opportunity to buy yes BUY More Silver. Simply put the fundementals of why Silver is a buy have not changed and Francis is happy to ride this out and add more in that this is not a sprint it is a 15 or so month marathon that only ends one way with Silver rediculously higher probably in the 150's low end and possible low 500's high end. Notice in the chart below over the last quarter there has only been three opportunities to buy at or near the VWAP (Volume weighted average Price)
Friday, April 29, 2011
GoldCore Questions On Comex Silver Default Due To Secret Buying By Russian Billionaire, Chinese Traders and People's Bank Of China
From Gold Core
Comex Silver Default Due To Secret Buing By Russian Billionaire, Chinese Traders and People's Bank Of China?
Gold rose to new record nominal highs at $1,540.85/oz in early Asian trading last night. Silver and gold remain very close to nominal highs today as the beleaguered U.S. dollar remains under pressure due to ultra loose U.S. monetary policies, deepening inflationary price pressures and concerns about the feeble economic recovery.
Gold has risen 8% this month and silver 28% due to the very poor U.S. monetary and fiscal position, the Eurozone debt crisis and in the background the Japanese nuclear crisis and geopolitical instability in the Africa and the Middle East. This is continuing to lead to diversification into the precious metals.
COMEX Silver Default?
A number of readers contacted us yesterday to comment critically on our advice to “as ever” . . . “ignore the daily noise and focus on the long term and the fundamentals driving these markets.”
They felt that it was linked to the paragraph above regarding a possible COMEX default and was suggesting that rumours of a run on COMEX depositories was “noise”.
We were not suggesting that and with hindsight the juxtaposition of this sentence in the immediate aftermath of the paragraph regarding the COMEX was unfortunate and ripe for misinterpretation.
Let us reiterate a COMEX default on delivery of precious metals and specifically of silver bullion bars is far from “noise”. It is of significant importance and that is why we have covered its possibility for some months. A COMEX default would have massive ramifications for precious metals markets, for the wider commodity markets, for the dollar, for fiat currencies and for our modern financial system.
Silver surged 3.4% yesterday to settle at a 31 year nominal high and rose by $1.55 on the day. Silver is up some 28% in April alone. The last time this happened is when Warren Buffett took a large stake in silver in 1987 and there were rumours of Buffett “cornering the market”.
Silver remains in backwardation and the possibility of a COMEX default cannot be ruled out – especially as silver bullion inventories are very small vis-Ã -vis possible capital allocations to silver in the coming weeks and months.
The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge to well over its inflation adjusted high of $140/oz.
Indeed, a recent article in the Financial Times suggested that private or state interests with very deep pockets are attempting to corner the silver market. Bizarrely, this massive story which mooted the possibility of Russian billionaires, Chinese traders and even the People’s Bank of China and other central banks secretly buying silver, has subsequently been barely reported or commented on.
There are now two “conspiracy theories”. One is the long side conspiracy theory which claims, a la the FT, that there are foreign private and state actors attempting to corner the silver market through secret buying.
The other is the more long standing short side conspiracy theory which has gained credence in recent months due to the CFTC’s investigation into silver manipulation by Wall Street banks, such as JP Morgan, who have massive concentrated positions. This theory has been backed up by some circumstantial evidence by GATA and has recently gone “viral” through the campaign of financial journalist Max Keiser.
The theories are not mutually exclusive and may be true. Indeed, Chinese, Russian and other private interests may be cornering the physical market in an effort to end manipulation of the silver market by Wall Street banks in order to ensure the silver price rises very sharply and creates significant profits on their silver bullion holdings.
Indeed, if the People’s Bank of China is involved – profit may not be the end game rather the positioning of the Chinese yuan as the new reserve currency through use of gold and silver bullion reserves.
Bloomberg Link Precious Metals Conference
The Bloomberg Link Precious Metals Conference heard a wide range of opinions from precious metal experts and mining executives. The vast majority believed that gold and silver’s strong fundamentals (especially due to anaemic supply and strong demand) should result in prices continuing to rise in the coming years.
The knowledge amongst the participants regarding the fundamentals is in stark contrast to many so called financial or market experts in the press who continue to be misinformed regarding the gold and silver markets (see news).
The knowledge amongst the participants is also in stark contrast to much of the western public (particularly in European countries), many of whom continue to believe that “cash is king” and remain unaware that they are very exposed to sovereign debt default risk, currency debasement and inflation.
The one participant who was bearish on silver was William Hamelin, the president of Ames Goldsmith Corp., who forecast a drop to $35.85 by year-end. Hamelin’s company processes silver for use in a number of consumer products, such as electronic components, batteries and photography.
Gold in Euros to Play Catch Up?
Gold’s recent rise has not been solely US dollar related as gold has risen to new record nominal highs in British pounds and yen. Gold has underperformed in euros recently and yet remains only 3.7% below the record nominal high of €1,072/oz seen four months ago in December 2010.
The euro’s strength is not due to German economic strength or due to positive fundamentals rather it is purely due to the fundamentals of the dollar, the pound, the yen and other fiat currencies being very poor. It also may be due to short covering as those short the euro are forced to buy back positions.
Gold’s continuing strength in euros suggests that the recent bout of euro strength versus the dollar and other fiat currencies will be short lived and the euro will come under pressure again in the coming months.
Gold in euros has risen 2% in April. It will be interesting to see if euro gold replicates the performance of April and May last year when Eurozone sovereign debt concerns saw gold rise to €825/oz to over €1,000/oz prior to a correction. Previous resistance at €1,000/oz gold looks to be strong support for gold.
NEWS
(Bloomberg) -- Silver May Jump to $62 an Ounce by Yearend, McGhee Says
Silver prices may climb to $62 an ounce by yearend, Frank McGhee, the head dealer at Integrated Brokerage Services, said today at the Bloomberg Link Precious Metals Conference in New York.
The current rally is “very different” from the jump in prices in the 1970s, and there is “no manipulation” in the market, he said.
(Bloomberg) -- Silver May Rise to $55 an Ounce by Yearend, Coeur’s Wheeler Says
Silver may rise to $55 an ounce by the end of year, Dennis Wheeler, the chief executive offer of Coeur d’Alene Mines Corp., the largest U.S. silver producer, said today at the Bloomberg Link Precious Metals Conference in New York.
“Silver has clearly become money,” Wheeler said. Industrial demand for the metal “continues to grow,” he said.
(Bloomberg) -- Silver Rally No Bubble as Price Will Top Record, Coeur Says
The rally in silver to a 31-year high in New York shows no sign of ending because tight supply and robust demand will send the metal to a record, according to Coeur d’Alene Mines Corp., the largest U.S. producer.
“We’re in a legitimate market driven by financial interest in silver and strong industrial demand,” Chief Executive Officer Dennis Wheeler said today at the Bloomberg Link Precious Metals Conference in New York. “Supplies are relatively inelastic.”
Silver has surged 162 percent in the past year, outpacing the 31 percent gain in gold. Investment demand for silver jumped 40 percent in 2010 as inflation rose, currencies lost value and Europe’s debt crisis escalated, said researcher GFMS Ltd. Industrial use gained 21 percent last year and may climb to a record this year, London-based GFMS said.
The rally is “very different” from the surge in the late 1970s, when the Hunt brothers tried to corner the market, and in 1980, when prices touched a record $50.35 an ounce, Frank McGhee, the head dealer at Integrated Brokerage Services, said at the conference.
“There is no manipulation going on in this market,” McGhee said. “It does not take a lot to stop the market until this market decides to go. I’d like to categorize silver as a freight train.”
Silver futures for July delivery rose $1.554, or 3.4 percent, to close at $47.541 on the Comex in New York. Silver reached $49.845 on April 25.
Older Mines
Discovering new deposits has become more difficult, while “older mines cease production at a time when demand continues to grow,” said Wheeler, whose company is based in Coeur d’Alene, Idaho. High prices are not “a short-term phenomenon,” and the metal may jump to $55 by the end of 2011, he said. Integrated Brokerage’s McGhee predicted $62.
Not everyone is bullish on silver. William Hamelin, the president of Ames Goldsmith Corp., forecast a drop to $35.85 by year-end. Some manufacturers are “leaning” toward using more substitutes, including copper and nickel, after prices surged, he said.
Coeur d’Alene, which is based in the Idaho city of the same name, fell 51 cents, or 1.6 percent, to settle at $31.70 in New York Stock Exchange composite trading. The shares have jumped 84 percent in the past year, compared with a 19 percent gain for the Russell 2000 Index.
(Bloomberg) -- Emerging Market Nations to Buy Gold, World Gold Council Says
Emerging market nations will be major purchasers of gold in the coming years, George Milling- Stanley, managing director for government affairs at the World Gold Council, said today at the Bloomberg Link Precious Metals conference in New York.
“China and the BRICs in general” are “the kind of countries we expect to see as gold buyers going forward,” Milling-Stanley said. China’s imports have risen “dramatically” in the last 12 months, he said.
(Bloomberg) -- Central Banks, IMF Gold Sales at 53.1 Tons in Current Accord
European central banks and the International Monetary Fund sold 53.1 metric tons of gold so far in the current central bank gold agreement which began September, the World Gold Council said.
Euro zone banks sold 0.9 ton of the metal in the period, the council said today in an e-mailed report.
(Bloomberg) -- Money Creation Will Boost Gold Prices, Cuggino Says
Money creation, increasing liquidity and the global macroeconomic environment will continue to boost gold prices, Michael Cuggino, the president and portfolio manager of Permanent Portfolio Family of Funds, said today at the Bloomberg Link Precious Metals Conference in New York.
(Bloomberg) -- Gold Will Climb to $1,650 an Ounce by Yearend, Rhind Says
Gold prices will climb to $1,650 an ounce by yearend, William Rhind, the head of sales and marketing at ETFS Marketing LLC, said today at the Bloomberg Link Precious Metals Conference in New York.
Most retail investors are still “not participating” in the gold market, and more buying would be “bullish” for the market, Rhind said.
(Bloomberg) -- Gold Will Climb to $1,575 an Ounce by Yearend, Anderson Says
Gold prices will climb to $1,575 an ounce by yearend, Thomas Anderson, the vice president and global head of ETF strategy and research at State Street Global Advisors, said today at the Bloomberg Link Precious Metals Conference in New York.
Investors are purchasing the metal for “wealth preservation” and to take “risk out of” their overall portfolios, Anderson said.
(Bloomberg) -- Lots of ‘Bullish’ Fundamentals for Gold, Arrowhawk’s Fan Says
There are lots of “bullish” fundamentals that will continue to support gold prices, and negative real interest rates make the metal “attractive,” Jennifer Fan, a partner and senior portfolio manager at Arrowhawk Capital Partners, said today at the Bloomberg Link Precious Metals Conference in New York.
(Bloomberg) -- Casimir Capital’s Sands ‘Very Bullish’ on ‘Going Higher’ Gold
Richard Sands, president and chief executive officer at Casimir Capital LP, said he is “very bullish” on gold. “We think it’s going higher,” Sands said during the Bloomberg Link Precious Metals conference in New York.
Earlier, George Gero, vice president-global futures at RBC Capital Markets, said the precious metal’s recent purchasers were “weak buyers” who bought the commodity for “momentum reasons.” The metal functions as an “additional, alternate currency,” Gero said.
(Bloomberg) -- Platinum May Climb to $3,000/Oz, Stillwater’s Mcallister Says
The price of platinum may climb to $3,000 an ounce and palladium prices to between $1,500 and $2,000 an ounce over the next five years, Francis McAllister, chairman and chief executive officer at the Stillwater Mining Company, said today at the Bloomberg Link Precious Metals conference in New York.
While platinum will remain the more expensive of the two metals, the gap between their prices will narrow, he said. Demand for the metals from the auto industry, particularly in China, will drive prices, he said.
(Bloomberg) -- PGM Supply Can’t Keep Up With Demand, CPM Group’s Rannestad Says
Platinum group metals supply can’t keep up with demand, Erica Rannestad, commodities analyst at CPM
Group, said today at the Bloomberg Link Precious Metals conference in New York. “The fundamentals are really tight,” she told the audience.
(Bloomberg) -- PGM Demand to Outstrip Supply on Auto Demand, TMR’s Lifton Says
Demand for platinum group metals will continue to outstrip supplies as long as the auto industry uses catalytic converters, Jack Lifton, founding principal of Technology Metals Research LLC, said today at the Bloomberg Link Precious Metals conference in New York.
(Bloomberg) -- Gold Luring Central-Bank Buyers May Extend Record Rally in Price
Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.
As developing countries accelerate purchases, gold may reach $2,000 an ounce this year, compared with a record of $1,538.80 yesterday in New York, said Robert McEwen, the chief executive officer of producer U.S. Gold Corp. Euro Pacific Capital’s Michael Pento, who correctly predicted gold’s highs for the past two years, forecast a 2011 high of $1,600.
Prices reached a record 14 times this month on demand from investors seeking an alternative to the dollar after the currency slumped to the lowest since 2009, U.S. debt widened, and the Federal Reserve signaled April 27 that borrowing costs will remain near zero percent for an extended period. The economy in China, the biggest foreign holder of U.S. Treasuries, grew 9.7 percent in the first quarter.
“China is out to have more gold than America, and Russia is aspiring to the same,” McEwen said yesterday in an interview in New York. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the U.S.”
In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in official-sector purchases by countries including Bolivia, Sri Lanka and Mauritius, according to World Gold Council data. China, with more than $3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.
China’s Gold Reserves
China, which has just 1.6 percent of its reserves in gold, may invest more than $1 trillion in bullion, Pento said. “China wants to be an international player, and they need to own more gold than they currently have.”
The U.S. Treasury Department projects the government could reach its debt ceiling of $14.3 trillion as soon as mid-May and run out of options for avoiding default by early July. The Fed has kept its benchmark rate between zero percent and 0.25 percent since December 2008 to help stimulate the economy, driving the dollar down 11 percent against a basket of six major currencies during the past year.
“Until monetary policy changes, you’re going to continue to see gold go up,” said Michael Cuggino, who helps manage $12 billion at Permanent Portfolio Funds in San Francisco.
“Ultimately the best thing we can do to create strong fundamentals for the dollar in the medium term is first, keep inflation low, which maintains the buying power of the dollar, and second, create a stronger economy,” Fed Chairman Ben S. Bernanke said on April 27.
U.S. Reserves
As of April, China was the sixth-largest official holder of gold, with 1,054.1 tons, according to World Gold Council estimates. The U.S. has the most, with 8,133.5 tons, or 74.8 percent of the nation’s currency reserves, council data show.
Central-bank buying may have the same impact on gold as the introduction of exchange-traded funds, Cuggino said. Prices have more than tripled since the SPDR Gold Trust, the biggest ETF backed by bullion, was introduced in November 2004.
Central banks in emerging markets may aim to hold 2 percent to 8 percent of their foreign-currency reserves in gold, Francisco Blanch, the head of commodities research at Bank of America Merrill Lynch in New York, said in an interview.
Gold is “close to” its cyclical high, said Blanch, who expects the metal to average $1,500 this year.
Gold’s Enemies
“The enemies of gold are rising interest rates and a balanced budget,” said Pento of Euro Pacific Capital in New York. “I look for a summer swoon once Bernanke exits the bond market. You’re going to have a temporary rise in real interest rates.”
The Fed said it would buy $600 billion in U.S. Treasuries through June.
The Federal Funds rate would have to rise to “Volcker” levels before gold enters a bear market, said Gold Corp.’s McEwen, who expects the metal to rise to $5,000 over three to four years.
Prices have advanced 7.7 percent this year, extending a decade of gains in which gold jumped sixfold from a low in 1999. The all-time inflation adjusted record is $2,338.92, based on the value on Jan. 21, 1980, according to a calculator on the Web site of the Federal Reserve Bank of Minneapolis.
Former Fed Chairman Paul Volcker ended gold’s rally to a then-record $873 by raising borrowing costs to 20 percent in March 1980.
Silver Adjusted for Inflation – (U.S. Urban consumers price index) – April 1971 to April 2011
(Irish Times)-- Stock Take - Proinsias O'Mahony: Silver Linings
A fortnight ago, this column warned that silver, trading at $40, had “seldom looked so expensive”. It almost touched $50 on Monday.
Mea culpa? No. Such parabolic moves are typical of bubbles, which tend to unwind just as rapidly. Having traded more than 26 per cent above its 50-day moving average – no other commodity was remotely as overbought – the metal finally sold off, quickly falling below $45 on Tuesday. Silver has risen by almost 150 per cent over the last year and by 50 per cent since January. The gold:silver ratio, having this month fallen below 40:1 for the first time since 1983, fell to 32:1 on Monday.
Trading volumes, which hit record levels this week, have tripled over the same period. Leveraged exchange-traded funds, which allow traders to bet against silver, are also seeing record trading volumes. The huge volatility has resulted in a rise in margin requirements for speculators. Silver trading, it appears, is best left to those with strong stomachs.
(Editors Note: A little knowledge is a dangerous thing. This superficial analysis of silver purports to analyse the silver market and yet completely ignores the fundamental driver of prices in the silver market and other markets – supply and demand. It also completely ignores the fact that silver is near record nominal highs and well below real inflation adjusted highs of $140/oz (see chart above). It talks about “silver trading” being best left to “strong stomachs”. This is true however trading and speculation is in large part why wealth has been decimated in recent years and passive allocation and diversification into safer assets would be more prudent advice then superficial analysis regarding trading silver. The article is indicative of the lack of understanding about gold and silver as safe haven diversifications. As the old expression goes some “know the price of everything but the value of nothing”.)
(Miningweekly.com) – Old gold fundamentals are 'passe' – Peter Munk
The traditional supply and demand fundamentals that have determined the gold price in previous decades no longer apply, Barrick Gold chairperson and founder Peter Munk asserted on Wednesday.
Gold prices, which reached record highs above $1 520/oz on Wednesday, are being driven by investors looking for security, and looking to protect wealth, he said at the annual shareholders meeting of the world's biggest gold company.
Investment demand exceeded jewellery demand for gold in 2010 for the first time, and some analysts have suggested this puts the market in a precarious position, as prices could fall sharply if investor demand growth slowed or reversed.
But Munk insisted that the old dynamics of physical demand have lost their importance.
“Gold today is no longer related to a normal economic cycle of supply and demand, jewellery and Indian wedding seasons...” he said.
“All those things are passe, forget about them.”
Gold is being driven by “a fundamental, global and growing insecurity, a fundamental, global and growing lack of confidence of the world in everything they were brought up to believe in”.
All this means that “gold's future is assured”, Munk said.
“Because ultimately more and more people every day looking for security and looking to protect wealth are driven to gold.”
Speaking earlier, CEO Aaron Regent said Barrick remains very positive on the outlook for gold, which is proving to be the “currency of choice as the ultimate store of value”.
Barrick reported a 22% increase in first-quarter net profit on Wednesday, thanks mainly to higher bullion prices
Comex Silver Default Due To Secret Buing By Russian Billionaire, Chinese Traders and People's Bank Of China?
Gold rose to new record nominal highs at $1,540.85/oz in early Asian trading last night. Silver and gold remain very close to nominal highs today as the beleaguered U.S. dollar remains under pressure due to ultra loose U.S. monetary policies, deepening inflationary price pressures and concerns about the feeble economic recovery.
Gold has risen 8% this month and silver 28% due to the very poor U.S. monetary and fiscal position, the Eurozone debt crisis and in the background the Japanese nuclear crisis and geopolitical instability in the Africa and the Middle East. This is continuing to lead to diversification into the precious metals.
COMEX Silver Default?
A number of readers contacted us yesterday to comment critically on our advice to “as ever” . . . “ignore the daily noise and focus on the long term and the fundamentals driving these markets.”
They felt that it was linked to the paragraph above regarding a possible COMEX default and was suggesting that rumours of a run on COMEX depositories was “noise”.
We were not suggesting that and with hindsight the juxtaposition of this sentence in the immediate aftermath of the paragraph regarding the COMEX was unfortunate and ripe for misinterpretation.
Let us reiterate a COMEX default on delivery of precious metals and specifically of silver bullion bars is far from “noise”. It is of significant importance and that is why we have covered its possibility for some months. A COMEX default would have massive ramifications for precious metals markets, for the wider commodity markets, for the dollar, for fiat currencies and for our modern financial system.
Silver surged 3.4% yesterday to settle at a 31 year nominal high and rose by $1.55 on the day. Silver is up some 28% in April alone. The last time this happened is when Warren Buffett took a large stake in silver in 1987 and there were rumours of Buffett “cornering the market”.
Silver remains in backwardation and the possibility of a COMEX default cannot be ruled out – especially as silver bullion inventories are very small vis-Ã -vis possible capital allocations to silver in the coming weeks and months.
The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge to well over its inflation adjusted high of $140/oz.
Indeed, a recent article in the Financial Times suggested that private or state interests with very deep pockets are attempting to corner the silver market. Bizarrely, this massive story which mooted the possibility of Russian billionaires, Chinese traders and even the People’s Bank of China and other central banks secretly buying silver, has subsequently been barely reported or commented on.
There are now two “conspiracy theories”. One is the long side conspiracy theory which claims, a la the FT, that there are foreign private and state actors attempting to corner the silver market through secret buying.
The other is the more long standing short side conspiracy theory which has gained credence in recent months due to the CFTC’s investigation into silver manipulation by Wall Street banks, such as JP Morgan, who have massive concentrated positions. This theory has been backed up by some circumstantial evidence by GATA and has recently gone “viral” through the campaign of financial journalist Max Keiser.
The theories are not mutually exclusive and may be true. Indeed, Chinese, Russian and other private interests may be cornering the physical market in an effort to end manipulation of the silver market by Wall Street banks in order to ensure the silver price rises very sharply and creates significant profits on their silver bullion holdings.
Indeed, if the People’s Bank of China is involved – profit may not be the end game rather the positioning of the Chinese yuan as the new reserve currency through use of gold and silver bullion reserves.
Bloomberg Link Precious Metals Conference
The Bloomberg Link Precious Metals Conference heard a wide range of opinions from precious metal experts and mining executives. The vast majority believed that gold and silver’s strong fundamentals (especially due to anaemic supply and strong demand) should result in prices continuing to rise in the coming years.
The knowledge amongst the participants regarding the fundamentals is in stark contrast to many so called financial or market experts in the press who continue to be misinformed regarding the gold and silver markets (see news).
The knowledge amongst the participants is also in stark contrast to much of the western public (particularly in European countries), many of whom continue to believe that “cash is king” and remain unaware that they are very exposed to sovereign debt default risk, currency debasement and inflation.
The one participant who was bearish on silver was William Hamelin, the president of Ames Goldsmith Corp., who forecast a drop to $35.85 by year-end. Hamelin’s company processes silver for use in a number of consumer products, such as electronic components, batteries and photography.
Gold in Euros to Play Catch Up?
Gold’s recent rise has not been solely US dollar related as gold has risen to new record nominal highs in British pounds and yen. Gold has underperformed in euros recently and yet remains only 3.7% below the record nominal high of €1,072/oz seen four months ago in December 2010.
The euro’s strength is not due to German economic strength or due to positive fundamentals rather it is purely due to the fundamentals of the dollar, the pound, the yen and other fiat currencies being very poor. It also may be due to short covering as those short the euro are forced to buy back positions.
Gold’s continuing strength in euros suggests that the recent bout of euro strength versus the dollar and other fiat currencies will be short lived and the euro will come under pressure again in the coming months.
Gold in euros has risen 2% in April. It will be interesting to see if euro gold replicates the performance of April and May last year when Eurozone sovereign debt concerns saw gold rise to €825/oz to over €1,000/oz prior to a correction. Previous resistance at €1,000/oz gold looks to be strong support for gold.
NEWS
(Bloomberg) -- Silver May Jump to $62 an Ounce by Yearend, McGhee Says
Silver prices may climb to $62 an ounce by yearend, Frank McGhee, the head dealer at Integrated Brokerage Services, said today at the Bloomberg Link Precious Metals Conference in New York.
The current rally is “very different” from the jump in prices in the 1970s, and there is “no manipulation” in the market, he said.
(Bloomberg) -- Silver May Rise to $55 an Ounce by Yearend, Coeur’s Wheeler Says
Silver may rise to $55 an ounce by the end of year, Dennis Wheeler, the chief executive offer of Coeur d’Alene Mines Corp., the largest U.S. silver producer, said today at the Bloomberg Link Precious Metals Conference in New York.
“Silver has clearly become money,” Wheeler said. Industrial demand for the metal “continues to grow,” he said.
(Bloomberg) -- Silver Rally No Bubble as Price Will Top Record, Coeur Says
The rally in silver to a 31-year high in New York shows no sign of ending because tight supply and robust demand will send the metal to a record, according to Coeur d’Alene Mines Corp., the largest U.S. producer.
“We’re in a legitimate market driven by financial interest in silver and strong industrial demand,” Chief Executive Officer Dennis Wheeler said today at the Bloomberg Link Precious Metals Conference in New York. “Supplies are relatively inelastic.”
Silver has surged 162 percent in the past year, outpacing the 31 percent gain in gold. Investment demand for silver jumped 40 percent in 2010 as inflation rose, currencies lost value and Europe’s debt crisis escalated, said researcher GFMS Ltd. Industrial use gained 21 percent last year and may climb to a record this year, London-based GFMS said.
The rally is “very different” from the surge in the late 1970s, when the Hunt brothers tried to corner the market, and in 1980, when prices touched a record $50.35 an ounce, Frank McGhee, the head dealer at Integrated Brokerage Services, said at the conference.
“There is no manipulation going on in this market,” McGhee said. “It does not take a lot to stop the market until this market decides to go. I’d like to categorize silver as a freight train.”
Silver futures for July delivery rose $1.554, or 3.4 percent, to close at $47.541 on the Comex in New York. Silver reached $49.845 on April 25.
Older Mines
Discovering new deposits has become more difficult, while “older mines cease production at a time when demand continues to grow,” said Wheeler, whose company is based in Coeur d’Alene, Idaho. High prices are not “a short-term phenomenon,” and the metal may jump to $55 by the end of 2011, he said. Integrated Brokerage’s McGhee predicted $62.
Not everyone is bullish on silver. William Hamelin, the president of Ames Goldsmith Corp., forecast a drop to $35.85 by year-end. Some manufacturers are “leaning” toward using more substitutes, including copper and nickel, after prices surged, he said.
Coeur d’Alene, which is based in the Idaho city of the same name, fell 51 cents, or 1.6 percent, to settle at $31.70 in New York Stock Exchange composite trading. The shares have jumped 84 percent in the past year, compared with a 19 percent gain for the Russell 2000 Index.
(Bloomberg) -- Emerging Market Nations to Buy Gold, World Gold Council Says
Emerging market nations will be major purchasers of gold in the coming years, George Milling- Stanley, managing director for government affairs at the World Gold Council, said today at the Bloomberg Link Precious Metals conference in New York.
“China and the BRICs in general” are “the kind of countries we expect to see as gold buyers going forward,” Milling-Stanley said. China’s imports have risen “dramatically” in the last 12 months, he said.
(Bloomberg) -- Central Banks, IMF Gold Sales at 53.1 Tons in Current Accord
European central banks and the International Monetary Fund sold 53.1 metric tons of gold so far in the current central bank gold agreement which began September, the World Gold Council said.
Euro zone banks sold 0.9 ton of the metal in the period, the council said today in an e-mailed report.
(Bloomberg) -- Money Creation Will Boost Gold Prices, Cuggino Says
Money creation, increasing liquidity and the global macroeconomic environment will continue to boost gold prices, Michael Cuggino, the president and portfolio manager of Permanent Portfolio Family of Funds, said today at the Bloomberg Link Precious Metals Conference in New York.
(Bloomberg) -- Gold Will Climb to $1,650 an Ounce by Yearend, Rhind Says
Gold prices will climb to $1,650 an ounce by yearend, William Rhind, the head of sales and marketing at ETFS Marketing LLC, said today at the Bloomberg Link Precious Metals Conference in New York.
Most retail investors are still “not participating” in the gold market, and more buying would be “bullish” for the market, Rhind said.
(Bloomberg) -- Gold Will Climb to $1,575 an Ounce by Yearend, Anderson Says
Gold prices will climb to $1,575 an ounce by yearend, Thomas Anderson, the vice president and global head of ETF strategy and research at State Street Global Advisors, said today at the Bloomberg Link Precious Metals Conference in New York.
Investors are purchasing the metal for “wealth preservation” and to take “risk out of” their overall portfolios, Anderson said.
(Bloomberg) -- Lots of ‘Bullish’ Fundamentals for Gold, Arrowhawk’s Fan Says
There are lots of “bullish” fundamentals that will continue to support gold prices, and negative real interest rates make the metal “attractive,” Jennifer Fan, a partner and senior portfolio manager at Arrowhawk Capital Partners, said today at the Bloomberg Link Precious Metals Conference in New York.
(Bloomberg) -- Casimir Capital’s Sands ‘Very Bullish’ on ‘Going Higher’ Gold
Richard Sands, president and chief executive officer at Casimir Capital LP, said he is “very bullish” on gold. “We think it’s going higher,” Sands said during the Bloomberg Link Precious Metals conference in New York.
Earlier, George Gero, vice president-global futures at RBC Capital Markets, said the precious metal’s recent purchasers were “weak buyers” who bought the commodity for “momentum reasons.” The metal functions as an “additional, alternate currency,” Gero said.
(Bloomberg) -- Platinum May Climb to $3,000/Oz, Stillwater’s Mcallister Says
The price of platinum may climb to $3,000 an ounce and palladium prices to between $1,500 and $2,000 an ounce over the next five years, Francis McAllister, chairman and chief executive officer at the Stillwater Mining Company, said today at the Bloomberg Link Precious Metals conference in New York.
While platinum will remain the more expensive of the two metals, the gap between their prices will narrow, he said. Demand for the metals from the auto industry, particularly in China, will drive prices, he said.
(Bloomberg) -- PGM Supply Can’t Keep Up With Demand, CPM Group’s Rannestad Says
Platinum group metals supply can’t keep up with demand, Erica Rannestad, commodities analyst at CPM
Group, said today at the Bloomberg Link Precious Metals conference in New York. “The fundamentals are really tight,” she told the audience.
(Bloomberg) -- PGM Demand to Outstrip Supply on Auto Demand, TMR’s Lifton Says
Demand for platinum group metals will continue to outstrip supplies as long as the auto industry uses catalytic converters, Jack Lifton, founding principal of Technology Metals Research LLC, said today at the Bloomberg Link Precious Metals conference in New York.
(Bloomberg) -- Gold Luring Central-Bank Buyers May Extend Record Rally in Price
Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.
As developing countries accelerate purchases, gold may reach $2,000 an ounce this year, compared with a record of $1,538.80 yesterday in New York, said Robert McEwen, the chief executive officer of producer U.S. Gold Corp. Euro Pacific Capital’s Michael Pento, who correctly predicted gold’s highs for the past two years, forecast a 2011 high of $1,600.
Prices reached a record 14 times this month on demand from investors seeking an alternative to the dollar after the currency slumped to the lowest since 2009, U.S. debt widened, and the Federal Reserve signaled April 27 that borrowing costs will remain near zero percent for an extended period. The economy in China, the biggest foreign holder of U.S. Treasuries, grew 9.7 percent in the first quarter.
“China is out to have more gold than America, and Russia is aspiring to the same,” McEwen said yesterday in an interview in New York. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the U.S.”
In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in official-sector purchases by countries including Bolivia, Sri Lanka and Mauritius, according to World Gold Council data. China, with more than $3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.
China’s Gold Reserves
China, which has just 1.6 percent of its reserves in gold, may invest more than $1 trillion in bullion, Pento said. “China wants to be an international player, and they need to own more gold than they currently have.”
The U.S. Treasury Department projects the government could reach its debt ceiling of $14.3 trillion as soon as mid-May and run out of options for avoiding default by early July. The Fed has kept its benchmark rate between zero percent and 0.25 percent since December 2008 to help stimulate the economy, driving the dollar down 11 percent against a basket of six major currencies during the past year.
“Until monetary policy changes, you’re going to continue to see gold go up,” said Michael Cuggino, who helps manage $12 billion at Permanent Portfolio Funds in San Francisco.
“Ultimately the best thing we can do to create strong fundamentals for the dollar in the medium term is first, keep inflation low, which maintains the buying power of the dollar, and second, create a stronger economy,” Fed Chairman Ben S. Bernanke said on April 27.
U.S. Reserves
As of April, China was the sixth-largest official holder of gold, with 1,054.1 tons, according to World Gold Council estimates. The U.S. has the most, with 8,133.5 tons, or 74.8 percent of the nation’s currency reserves, council data show.
Central-bank buying may have the same impact on gold as the introduction of exchange-traded funds, Cuggino said. Prices have more than tripled since the SPDR Gold Trust, the biggest ETF backed by bullion, was introduced in November 2004.
Central banks in emerging markets may aim to hold 2 percent to 8 percent of their foreign-currency reserves in gold, Francisco Blanch, the head of commodities research at Bank of America Merrill Lynch in New York, said in an interview.
Gold is “close to” its cyclical high, said Blanch, who expects the metal to average $1,500 this year.
Gold’s Enemies
“The enemies of gold are rising interest rates and a balanced budget,” said Pento of Euro Pacific Capital in New York. “I look for a summer swoon once Bernanke exits the bond market. You’re going to have a temporary rise in real interest rates.”
The Fed said it would buy $600 billion in U.S. Treasuries through June.
The Federal Funds rate would have to rise to “Volcker” levels before gold enters a bear market, said Gold Corp.’s McEwen, who expects the metal to rise to $5,000 over three to four years.
Prices have advanced 7.7 percent this year, extending a decade of gains in which gold jumped sixfold from a low in 1999. The all-time inflation adjusted record is $2,338.92, based on the value on Jan. 21, 1980, according to a calculator on the Web site of the Federal Reserve Bank of Minneapolis.
Former Fed Chairman Paul Volcker ended gold’s rally to a then-record $873 by raising borrowing costs to 20 percent in March 1980.
Silver Adjusted for Inflation – (U.S. Urban consumers price index) – April 1971 to April 2011
(Irish Times)-- Stock Take - Proinsias O'Mahony: Silver Linings
A fortnight ago, this column warned that silver, trading at $40, had “seldom looked so expensive”. It almost touched $50 on Monday.
Mea culpa? No. Such parabolic moves are typical of bubbles, which tend to unwind just as rapidly. Having traded more than 26 per cent above its 50-day moving average – no other commodity was remotely as overbought – the metal finally sold off, quickly falling below $45 on Tuesday. Silver has risen by almost 150 per cent over the last year and by 50 per cent since January. The gold:silver ratio, having this month fallen below 40:1 for the first time since 1983, fell to 32:1 on Monday.
Trading volumes, which hit record levels this week, have tripled over the same period. Leveraged exchange-traded funds, which allow traders to bet against silver, are also seeing record trading volumes. The huge volatility has resulted in a rise in margin requirements for speculators. Silver trading, it appears, is best left to those with strong stomachs.
(Editors Note: A little knowledge is a dangerous thing. This superficial analysis of silver purports to analyse the silver market and yet completely ignores the fundamental driver of prices in the silver market and other markets – supply and demand. It also completely ignores the fact that silver is near record nominal highs and well below real inflation adjusted highs of $140/oz (see chart above). It talks about “silver trading” being best left to “strong stomachs”. This is true however trading and speculation is in large part why wealth has been decimated in recent years and passive allocation and diversification into safer assets would be more prudent advice then superficial analysis regarding trading silver. The article is indicative of the lack of understanding about gold and silver as safe haven diversifications. As the old expression goes some “know the price of everything but the value of nothing”.)
(Miningweekly.com) – Old gold fundamentals are 'passe' – Peter Munk
The traditional supply and demand fundamentals that have determined the gold price in previous decades no longer apply, Barrick Gold chairperson and founder Peter Munk asserted on Wednesday.
Gold prices, which reached record highs above $1 520/oz on Wednesday, are being driven by investors looking for security, and looking to protect wealth, he said at the annual shareholders meeting of the world's biggest gold company.
Investment demand exceeded jewellery demand for gold in 2010 for the first time, and some analysts have suggested this puts the market in a precarious position, as prices could fall sharply if investor demand growth slowed or reversed.
But Munk insisted that the old dynamics of physical demand have lost their importance.
“Gold today is no longer related to a normal economic cycle of supply and demand, jewellery and Indian wedding seasons...” he said.
“All those things are passe, forget about them.”
Gold is being driven by “a fundamental, global and growing insecurity, a fundamental, global and growing lack of confidence of the world in everything they were brought up to believe in”.
All this means that “gold's future is assured”, Munk said.
“Because ultimately more and more people every day looking for security and looking to protect wealth are driven to gold.”
Speaking earlier, CEO Aaron Regent said Barrick remains very positive on the outlook for gold, which is proving to be the “currency of choice as the ultimate store of value”.
Barrick reported a 22% increase in first-quarter net profit on Wednesday, thanks mainly to higher bullion prices
Thursday, April 28, 2011
Wal Mart CEO: "Shoppers Are Running Out Of Money"; There Is "No Sign Of A Recovery"
Submitted by Tyler Durden on 04/28/2011 11:12 -0400
When a month ago the CEO of Wal Mart Americas told the world to "prepare for serious inflation", the Chairman laughed in his face, saying it was nothing a 15 minutes Treasury Call sell order can't fix (granted net of a few billions in commissions for JPM). 4 weeks later the Chairman is no longer laughing, having been forced to hike up his inflation expectations while trimming (not for the last time) his economic outlook. "U.S. consumers face "serious" inflation in the months ahead for clothing, food and other products, the head of Wal-Mart's U.S. operations warned Wednesday talking to USA Today. And if Wal-Mart which is at the very bottom of commoditized consumer retail, and at the very peak of avoiding reexporting of US inflation by way of China is concerned, it may be time to panic, or at least cancel those plane tickets to Zimbabwe, which is soon coming to us." In light of that perhaps today's words of caution from Wal Mart CEO Mike Duke will be taken a tad more seriously (yes, even with the $50 billion in "squatters rent" that the deadbeats spend on iPads instead of paying their mortgage: that money is rapidly ending). Warning is as follows: "Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried. "We're seeing core consumers under a lot of pressure," Duke said at an event in New York. "There's no doubt that rising fuel prices are having an impact." Tell that to Printocchio please.
From Money:
Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in.
Lately, they're "running out of money" at a faster clip, he said.
"Purchases are really dropping off by the end of the month even more than last year," Duke said. "This end-of-month [purchases] cycle is growing to be a concern.
Also remember that long-running joke from the NBER short bus that the recession ended in late 2009? Turns out they were just kidding, as well as blatantly lying.
Wal-Mart which averages 140 million shoppers weekly to its stores in the United States, is considered a barometer of the health of the consumer and the economy.
To that end, Duke said he's not seeing signs of a recovery yet.
With food prices rising, Duke said Wal-Mart is charging customers more for some fresh groceries while reducing prices on other merchandise such as electronics.
Wal-Mart has struggled with seven straight quarters of sales declines in its stores.
Here's an idea: how about we let someone with actual business experience, who runs the one company employing more people than even the Federal Reserve, Mike Duke, control US monetary policy for a few months and see what happens? Surely it can't get worse than what that other insane sociopath is doing, as with each passing day we are now moving closer and closer to a hyperstaglfationary conclusion, and even the collective cheerleading crew of Cottonelle bearing monkeys, half of whom were reading "Monetary Policy for TV Reporters" (just two steps down below idiots), from yesterday's FOMC conference are finally starting to realize this.
When a month ago the CEO of Wal Mart Americas told the world to "prepare for serious inflation", the Chairman laughed in his face, saying it was nothing a 15 minutes Treasury Call sell order can't fix (granted net of a few billions in commissions for JPM). 4 weeks later the Chairman is no longer laughing, having been forced to hike up his inflation expectations while trimming (not for the last time) his economic outlook. "U.S. consumers face "serious" inflation in the months ahead for clothing, food and other products, the head of Wal-Mart's U.S. operations warned Wednesday talking to USA Today. And if Wal-Mart which is at the very bottom of commoditized consumer retail, and at the very peak of avoiding reexporting of US inflation by way of China is concerned, it may be time to panic, or at least cancel those plane tickets to Zimbabwe, which is soon coming to us." In light of that perhaps today's words of caution from Wal Mart CEO Mike Duke will be taken a tad more seriously (yes, even with the $50 billion in "squatters rent" that the deadbeats spend on iPads instead of paying their mortgage: that money is rapidly ending). Warning is as follows: "Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried. "We're seeing core consumers under a lot of pressure," Duke said at an event in New York. "There's no doubt that rising fuel prices are having an impact." Tell that to Printocchio please.
From Money:
Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in.
Lately, they're "running out of money" at a faster clip, he said.
"Purchases are really dropping off by the end of the month even more than last year," Duke said. "This end-of-month [purchases] cycle is growing to be a concern.
Also remember that long-running joke from the NBER short bus that the recession ended in late 2009? Turns out they were just kidding, as well as blatantly lying.
Wal-Mart which averages 140 million shoppers weekly to its stores in the United States, is considered a barometer of the health of the consumer and the economy.
To that end, Duke said he's not seeing signs of a recovery yet.
With food prices rising, Duke said Wal-Mart is charging customers more for some fresh groceries while reducing prices on other merchandise such as electronics.
Wal-Mart has struggled with seven straight quarters of sales declines in its stores.
Here's an idea: how about we let someone with actual business experience, who runs the one company employing more people than even the Federal Reserve, Mike Duke, control US monetary policy for a few months and see what happens? Surely it can't get worse than what that other insane sociopath is doing, as with each passing day we are now moving closer and closer to a hyperstaglfationary conclusion, and even the collective cheerleading crew of Cottonelle bearing monkeys, half of whom were reading "Monetary Policy for TV Reporters" (just two steps down below idiots), from yesterday's FOMC conference are finally starting to realize this.
Hedge Fund Insider Trading Cases Claim 21st Guilty Plea
The good news is that it appears the case with Galleon is coming to an end. The mass media has beat this story like a dead horse to showcase what regulators are doing to clean up Wall Street. The bad news is that Galleon is a small fish and in the larger picture what we have in our global markets is nothing short of criminal cabal of governmental officials, bankers and oil tycoons that commit murder and outright treason on a daily basis.
The SEC's (MO) is to conduct meaningless enforcement actions against small fry defendants and then claim victory. For their efforts I offer a paper bag of dog shit as a thank you. I have spare time....
Silver update 4/28/11 SLV /PSLV
Submitted by: Francis Soyer 4/28/11
Well... That didnt last long did it? As a follow up to yesterdays post on using this pullback to buy more silver lets review what happened. On Tuesday PSLV / SLV came into us roughly 5 to 6%. This was an opportunity to leg into silver and add. Why? If you look at silver from a 6 month point of view notice that pullbacks of this nature are few and far between. Why are these pullbacks few and far between? Because silver, unlike paper money can not be printed on a printing press, is considered to be money like gold and has been since humans began trading with eachother using something other than teeth for toolmaking, will be the new currency reserve after fiat money blows up the global economy, is a real hard asset that has industrial use other than being considered money, is what foreign governments are scrambling to acquire along with gold and is a safer heaven than paper backed assets. Remember, gold and silver are what humans buy when they lose confidence in governmental systems. I think at this point to restate the obvious that confidence is governement systems or lack thereof is still in the early innings maybe first or second if we were to scale it to a baseball game. I think most would agree that the governmental systems around the world are broken and badly so.
Back to the tactical issue: Looking at the 6 mth also take note of volume. Notice strong volume on the upside followed by a slowdown / cool off and then resumption of the trend. This is a classic supply demand scenario where demand is stronger than supply for bull moves. Strong volume on upside means bears are on the defensive and the opposite applies for bear markets.
Now look at the three day, notice how quickly shares were snapped back to the upside. Leaving barely more than one trading session to react and add to the position. We may still get lucky and hopefully see some fear creap in for newer investors who do not understand the fundementals and are simply looking for the quick trade from a technical point of view. One of the reasons for failing trades in that your short term view should agree with your long term view.
From the three day point of view the pull back on tuesday which went below VWAP volume weighted average price was our signal and will continue to be our signal to add. I do not see silver fundementals changing any time within the next 15 to 18 months so as the days pass by we can keep vigil and be ready to react.
Cheers
Francis Soyer
P.S. New investors to silver should really watch the video posted the other day from the silver producers point of view and the other videos on the blog from Eric Sprott and Max Keiser to get up to speed.
Wednesday, April 27, 2011
Update on Silver PSLV / SLV 4/27/11
Submitted by Francis Soyer 4/27/11
Yesterday SLV and PSLV dipped by roughly 5%. My thoughts on this are the following.
1. I agree with a statement and do believe that 95% or more of the new investors in Silver have not one iota of knowledge regarding the fundementals of this metal.
2. Nothing moves in a straight line ever. It is a simple fact of the universe that there will be randomness in anything and everything.
3. JPM as a heavy short seller of Silver at this point has nothing to lose by shorting Silver naked in a suicide mission. After all the Fed, nor the CFTC places any Margin requirements on them only on every other investor so they can tip the favor of the game into the Banks hands as a loyal puppet of the Fed Reserve. JPM has already lost this battle against every one else and as a company is a zero. Like Enron we will see JPM's 180+ Billion market cap go to zero in one day. When that day will be will depend on how long they can maintain the lie that they are financially sound. With the mainstream media in their pockets it could be a while so its not worth it rite now to pick a top to short JPM. What is worth it is:
4. Buy the dip, looking over the past six months of trading Silver has not presented an opportunity to add like yesterday / today. These opportunities are far and few between so alot of people and even a friend or two who have been waiting for a pull back to leg in here is your opportunity. Remember this is not a sprint, it is a marathon that only ends one way. That way is Silver on top currencies and paper money at the bottom.
5. For those who are clueless as to the fundementals of Silver, lets review and this time from the producers point of view.
Monday, April 25, 2011
BOSTON (MarketWatch) — The International Monetary Fund has just dropped a bombshell, and nobody noticed.
For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China.
And it’s a lot closer than you may think.
According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.
Put that in your calendar.
It provides a painful context for the budget wrangling taking place in Washington, D.C., right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.
According to the IMF forecast, whomever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.
Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s.
But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates.
That’s a largely meaningless comparison in real terms. Exchange rates change quickly. And China’s exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets.
The comparison that really matters
The IMF in its analysis looks beyond exchange rates to the true, real terms picture of the economies using “purchasing power parities.” That compares what people earn and spend in real terms in their domestic economies.
Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and rising.
Just 10 years ago, the U.S. economy was three times the size of China’s.
Naturally, all forecasts are fallible. Time and chance happen to them all. The actual date when China surpasses the U.S. might come even earlier than the IMF predicts, or somewhat later. If the great Chinese juggernaut blows a tire, as a growing number fear it might, it could even delay things by several years. But the outcome is scarcely in doubt.
This is more than a statistical story. It is the end of the Age of America. As a bond strategist in Europe told me two weeks ago, “We are witnessing the end of America’s economic hegemony.”
We have lived in a world dominated by the U.S. for so long that there is no longer anyone alive who remembers anything else. America overtook Great Britain as the world’s leading economic power in the 1890s and never looked back.
And both those countries live under very similar rules of constitutional government, respect for civil liberties and the rights of property. China has none of those. The Age of China will feel very different.
Victor Cha, senior adviser on Asian affairs at Washington’s Center for Strategic and International Studies, told me China’s neighbors in Asia are already waking up to the dangers. “The region is overwhelmingly looking to the U.S. in a way that it hasn’t done in the past,” he said. “They see the U.S. as a counterweight to China. They also see American hegemony over the last half-century as fairly benign. In China they see the rise of an economic power that is not benevolent, that can be predatory. They don’t see it as a benign hegemony.”
The rise of China, and the relative decline of America, is the biggest story of our time. You can see its implications everywhere, from shuttered factories in the Midwest to soaring costs of oil and other commodities. Last fall, when I attended a conference in London about agricultural investment, I was struck by the number of people there who told stories about Chinese interests snapping up farmland and foodstuff supplies — from South America to China and elsewhere.
This is the result of decades during which China has successfully pursued economic policies aimed at national expansion and power, while the U.S. has embraced either free trade or, for want of a better term, economic appeasement.
“There are two systems in collision,” said Ralph Gomory, research professor at NYU’s Stern business school. “They have a state-guided form of capitalism, and we have a much freer former of capitalism.” What we have seen, he said, is “a massive shift in capability from the U.S. to China. What we have done is traded jobs for profit. The jobs have moved to China. The capability erodes in the U.S. and grows in China. That’s very destructive. That is a big reason why the U.S. is becoming more and more polarized between a small, very rich class and an eroding middle class. The people who get the profits are very different from the people who lost the wages.”
The next chapter of the story is just beginning.
U.S. spending spree won’t work
What the rise of China means for defense, and international affairs, has barely been touched on. The U.S. is now spending gigantic sums — from a beleaguered economy — to try to maintain its place in the sun. See: Pentagon spending is budget blind spot .
It’s a lesson we could learn more cheaply from the sad story of the British, Spanish and other empires. It doesn’t work. You can’t stay on top if your economy doesn’t.
Equally to the point, here is what this means economically, and for investors.
Some years ago I was having lunch with the smartest investor I know, London-based hedge-fund manager Crispin Odey. He made the argument that markets are reasonably efficient, most of the time, at setting prices. Where they are most likely to fail, though, is in correctly anticipating and pricing big, revolutionary, “paradigm” shifts — whether a rise of disruptive technologies or revolutionary changes in geopolitics. We are living through one now.
The U.S. Treasury market continues to operate on the assumption that it will always remain the global benchmark of money. Business schools still teach students, for example, that the interest rate on the 10-year Treasury bond is the “risk-free rate” on money. And so it has been for more than a century. But that’s all based on the Age of America.
No wonder so many have been buying gold. If the U.S. dollar ceases to be the world’s sole reserve currency, what will be? The euro would be fine if it acts like the old deutschemark. If it’s just the Greek drachma in drag ... not so much.
The last time the world’s dominant hegemon lost its ability to run things singlehandedly was early in the past century. That’s when the U.S. and Germany surpassed Great Britain. It didn’t turn out well.
Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for The Wall Street Journal.
And it’s a lot closer than you may think.
According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.
Put that in your calendar.
It provides a painful context for the budget wrangling taking place in Washington, D.C., right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.
According to the IMF forecast, whomever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.
Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s.
But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates.
That’s a largely meaningless comparison in real terms. Exchange rates change quickly. And China’s exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets.
The comparison that really matters
The IMF in its analysis looks beyond exchange rates to the true, real terms picture of the economies using “purchasing power parities.” That compares what people earn and spend in real terms in their domestic economies.
Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and rising.
Just 10 years ago, the U.S. economy was three times the size of China’s.
Naturally, all forecasts are fallible. Time and chance happen to them all. The actual date when China surpasses the U.S. might come even earlier than the IMF predicts, or somewhat later. If the great Chinese juggernaut blows a tire, as a growing number fear it might, it could even delay things by several years. But the outcome is scarcely in doubt.
This is more than a statistical story. It is the end of the Age of America. As a bond strategist in Europe told me two weeks ago, “We are witnessing the end of America’s economic hegemony.”
We have lived in a world dominated by the U.S. for so long that there is no longer anyone alive who remembers anything else. America overtook Great Britain as the world’s leading economic power in the 1890s and never looked back.
And both those countries live under very similar rules of constitutional government, respect for civil liberties and the rights of property. China has none of those. The Age of China will feel very different.
Victor Cha, senior adviser on Asian affairs at Washington’s Center for Strategic and International Studies, told me China’s neighbors in Asia are already waking up to the dangers. “The region is overwhelmingly looking to the U.S. in a way that it hasn’t done in the past,” he said. “They see the U.S. as a counterweight to China. They also see American hegemony over the last half-century as fairly benign. In China they see the rise of an economic power that is not benevolent, that can be predatory. They don’t see it as a benign hegemony.”
The rise of China, and the relative decline of America, is the biggest story of our time. You can see its implications everywhere, from shuttered factories in the Midwest to soaring costs of oil and other commodities. Last fall, when I attended a conference in London about agricultural investment, I was struck by the number of people there who told stories about Chinese interests snapping up farmland and foodstuff supplies — from South America to China and elsewhere.
This is the result of decades during which China has successfully pursued economic policies aimed at national expansion and power, while the U.S. has embraced either free trade or, for want of a better term, economic appeasement.
“There are two systems in collision,” said Ralph Gomory, research professor at NYU’s Stern business school. “They have a state-guided form of capitalism, and we have a much freer former of capitalism.” What we have seen, he said, is “a massive shift in capability from the U.S. to China. What we have done is traded jobs for profit. The jobs have moved to China. The capability erodes in the U.S. and grows in China. That’s very destructive. That is a big reason why the U.S. is becoming more and more polarized between a small, very rich class and an eroding middle class. The people who get the profits are very different from the people who lost the wages.”
The next chapter of the story is just beginning.
U.S. spending spree won’t work
What the rise of China means for defense, and international affairs, has barely been touched on. The U.S. is now spending gigantic sums — from a beleaguered economy — to try to maintain its place in the sun. See: Pentagon spending is budget blind spot .
It’s a lesson we could learn more cheaply from the sad story of the British, Spanish and other empires. It doesn’t work. You can’t stay on top if your economy doesn’t.
Equally to the point, here is what this means economically, and for investors.
Some years ago I was having lunch with the smartest investor I know, London-based hedge-fund manager Crispin Odey. He made the argument that markets are reasonably efficient, most of the time, at setting prices. Where they are most likely to fail, though, is in correctly anticipating and pricing big, revolutionary, “paradigm” shifts — whether a rise of disruptive technologies or revolutionary changes in geopolitics. We are living through one now.
The U.S. Treasury market continues to operate on the assumption that it will always remain the global benchmark of money. Business schools still teach students, for example, that the interest rate on the 10-year Treasury bond is the “risk-free rate” on money. And so it has been for more than a century. But that’s all based on the Age of America.
No wonder so many have been buying gold. If the U.S. dollar ceases to be the world’s sole reserve currency, what will be? The euro would be fine if it acts like the old deutschemark. If it’s just the Greek drachma in drag ... not so much.
The last time the world’s dominant hegemon lost its ability to run things singlehandedly was early in the past century. That’s when the U.S. and Germany surpassed Great Britain. It didn’t turn out well.
Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for The Wall Street Journal.
Market Manipulation: A Recipe in Three Parts
Market Manipulation: A Recipe in Three Parts
Price Manipulation and its cousin “mismarked books” are as much a product of systemic
dysfunction as they are of unethical individual behavior. The 3 part series we have planned is educational in nature and aims to outline those system-wide imperfections at the highest level.
For today we must focus on what is shaping up to be a rare opportunity to watch a pitched battle between major players in Gold. In short, we are interrupting your regularly scheduled program.
Current Events: The Potential Pin in Gold Options Tomorrow
Right now there is a war in Gold options. It is between the May 1520 longs, who mostlikely are unhedged, and their short option counterparts, who most likely are hedged.One would think the longs intend to sell futures at some point, perhaps 1520, perhaps1540 we do not know. It is also possible that they intend to take delivery, but that isunknowable for the moment. The shorts are probably delta hedgers and have no desireto see this market go above 1520, much less move at all.
The Players
The Longs- have accumulated over 5,000 lots in a two week period and wewould assume they are bullish. They are patient dip buyers and seem to havelittle fear of the Bullion Banks that are often accused of manipulating PM priceslower or keeping prices range bound at expiration.The Shorts- are Bullion Banks, market-making firms, locals and possibly somehedge funds. There is no collusion implied here. In fact, these firms are usually atodds with each other in terms of option open interest. The majority of the shortstrade options from a non-directional point of view. That is, they are professionalswho, when short an option do not want the market to move either way.Conversely, when they are long an option, they want the market to move quicklythrough or away from the strike they own.
The Play
We feel the Longs were betting that once the gravitational pull of the $1500 strike wasbroken, that the market would move quite easily to the strike with the next largest openinterest, the $1520 strike. They may be privy to large order flow in futures, they mayhave large futures order flow, or they may simply be speculating with nothing other thantheir wallets and the ability to read market behavior through price action. They can spota market that is lopsided in one direction when they see it.
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