USA government is lying to you about gold - StockHouse

Sometime in the past 10 years, you've probably heard the serious claim that the government "manipulates" the price of gold. 
The basic claim is that the government fears unusual spikes higher in the gold price. If gold spiked too high, too fast, it would alert global bankers and the U.S. population that something has gone terribly wrong with our monetary system. So the government either dumps gold or loans its gold out to sell into the market... which keeps the price depressed. 
These claims often come from groups the investment industry describes as "on the fringe"... or "conspiracy theorists"... and they've done plenty to earn that label. But over the past several years, one of the world's most respected and successful investors has made headlines as a believer in gold manipulation. His name is Eric Sprott. 
Sprott is the founder and CEO of Sprott Asset Management. He's one of the most respected names in natural resource investment. While Eric has been a successful investor and business owner for decades, his fame and fortune have exploded in the past 10 years. Folks who invested in his funds made huge returns from his bullish outlook on precious metals, agriculture, and energy. When his company went public in 2008, Eric was reportedly worth more than $1 billion. Some folks call him the "Warren Buffett of Canada." 
Eric Sprott believes the U.S. government has manipulated gold... which has huge implications for gold investors... 
So last month, I spent 45 minutes on the phone with Sprott to get his take on what's happening. Sprott is certain the prices of gold and silver are being manipulated. He told me the evidence strongly suggests central banks have suppressed the price of gold. 
Consider... in 2000, global gold production totaled about 2,600 tons. Central banks sold about 400 tons. So central bank gold made up 13.3% of the market – a big chunk. The central banks maintained that rate of selling for most of the decade. In some years, the banks sold even more gold. Looking back, those trades look criminally stupid. The price of gold rose from about $275 per ounce in 2000 to $1,100 per ounce by 2009. 
Now realize... during that period, the value of all paper assets fell. Meanwhile, central banks were telling the world they were selling tons of gold. 
Sprott argues the banks feared that, as paper currencies declined in value, people would rush to buy gold... So they kept selling it and shouting their intentions to the high heavens.
"You wouldn't announce it unless you were trying to suppress the price of gold," Sprott told me. "There's no doubt they were trying to suppress gold as an alternative to fiat currency. There's no doubt in my mind that's what the philosophy was."
And the banks' strategy succeeded... partly. During the last decade, gold enjoyed a one-day spike of more than 6% only three times...

• September 11, 2001: Terrorists attack the U.S.
• September 17, 2008: The U.S. government bails out Lehman Brothers.
• March 19, 2009: The U.S. government details the $275 billion recovery act.

Those days were big emotional events. It's predictable they would trigger big trading days for gold. But what about the rest of the time? Is gold's trading pattern atypical? Let's compare it with what a few other commodities have done over the last 10 years... 


Gold's trading is suppressed compared to its peers in the commodities complex. It's clear from these numbers either gold is the most sober commodity out there, or someone's manipulating the market...
"Even though the gold market's one of the most emotional markets there should be, it never acts emotionally on the upside, which is very bizarre," Sprott said. 
"Gold should be more emotional than oil, for example, or corn or wheat, but it's not... [The central banks] just don't want it to flare up too much so there's no mania that develops. If you and I saw the gold price up $100 in one day, we'd say, 'What the hell is going on? Is there a war? Is there a financial crisis?' Because gold is the canary in the [coal mine]... So it just never is allowed to do that." 
Here's the thing: Even with day-to-day manipulation, the gold price rose 425% over the last decade. According to Sprott, a lot more is yet to come... 
In a January 2011, report titled "Gold Tsunami," Sprott and co-author David Franklin point out demand is on the rise in India and China. Both countries encourage their citizens to buy gold. 
Chinese demand for gold rose 70% from October 2009 to September 2010, equal to 168.6 million tons of gold. And according to the report, ICBC, the largest bank in China, set up "gold accumulation" accounts. Customers can accumulate small amounts of gold on a regular basis. It went on to say Chinese demand alone could increase global demand by 330 tons per year.
Also, Sprott believes we could see central banks create an 800-ton swing in the gold market... from selling 400 tons to buying 400 tons. Remember, only 3,000 new tons enter the market each year. Exploding demand plus lack of new supply equals much higher prices. 
I have to admit. I used to disregard talk of gold manipulation. But Eric is a brilliant guy... and one of the most respected investors in the world. He makes a convincing case, and gold's unusually low volatility to the upside is suspicious. 
Yes, gold has become more of a currency these days than a commodity, but it's still an asset that tends to trade on emotions. As central banks reverse their policy of selling gold... and more people wake up to the fact that something has gone wrong with our paper money... it's going to trade a lot higher.
 

ABOUT THE AUTHOR

Matt Badiali, DailyWealth

DailyWealth is free daily investment newsletter focused on the best contrarian investment opportunities in the world. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments. http://www.dailywealth.com/
 
Source: http://www.stockhouse.com/Columnists/2011/Apr/15/Government-is-lying-to-you-about-gold

The World’s Best Gold Experts: “Buy and Hold!”

The World’s Best Gold Experts: “Buy and Hold!”

Jeff Clark, Editor: BIG GOLD

In January, Jeff Clark of Casey Research’s BIG GOLD advisory set out to get opinions from some of the smartest, most accomplished investors in the gold industry – where is the gold price going to go, how volatile will the markets be, what’s the outlook for precious metals stocks? Read on for some of the most insightful answers you’ll see anywhere…

Rick Ruleis the founder of Global Resource Investments (www.gril.net), now part of Sprott, one of the most acclaimed and sought-after brokers in the natural resource industry. Rick has spent 30 years in the sector and is a regular speaker at investment conferences in the U.S. and Canada. He and his staff have an extraordinary record of success in resource stock investing.
James Turkis the founder and chairman of GoldMoney.com. He’s authored two books on economic topics, published numerous articles on money and banking, and is co-author ofThe Collapse of the Dollar. He’s a widely recognized expert on precious metals.
John Hathawayis portfolio manager of the Tocqueville Gold Fund, the third best-performing gold mutual fund in 2010. He is a Harvard grad with 41 years of investment management experience.
Charles Oliveris senior portfolio manager of the Sprott Gold and Precious Minerals Fund (and several others). Charles led the team at AGF Management that was awarded the Canadian Investment Awards’ “Best Precious Metals Fund” in 2004, 2006, and 2007.
Adrian Ashruns the research desk at BullionVault, one of the world's largest online gold ownership services. A frequent guest on BBC News in London, his views on the gold market are regularly featured in the Financial Times, The Economist, and many others.
Ian McAvityhas been writing the Deliberations on World Markets newsletter since 1972. He was a founder of the Central Fund of Canada (CEF), Central Gold Trust (GTU), and Silver Bullion Trust (SBT.U).
Ross Normanis co-founder of TheBullionDesk.com, an online provider of precious metals news, analysis, and prices. Ross has won several awards from the London Bullion Market Association for his price forecasting, winning in 2002 and 2006.He now runs Sharps Pixley (www.sharpspixley.com), which sells bullion in the UK and continental Europe.

BIG GOLD: Gold was up 30% in 2010; to what do you attribute its rise?
Rick Rule: Gold is unique, in that both primary investment psychology motivators – greed and fear – drive the price. Gold markets ricochet between greed and fear buying, and we are starting to see that in the markets now. The fiat currency weakness, both the dollar and the euro, are the motivators for the fear buyer, and the momentum caused by fear buyers is the motivation for the greed buyer.
James Turk: Two things. First, policies like zero interest rates and quantitative easing are eroding the purchasing power of all the world's currencies, so it is no surprise that commodity prices – which are always sensitive to currency problems – are soaring.
Second, as people increasingly recognize the difference between owning paper gold and physical gold, the demand for physical continues to climb. Given that it is a tangible asset, physical gold does not have counterparty risk and therefore protects wealth when stored properly. It is the ultimate safe haven.
John Hathaway: Growing distrust of fiat currencies.
Charles Oliver:In reality, the true value of gold does not change. What has changed is the decrease in value of the fiat currencies used to measure the gold price. In 2009 and 2010, the U.S. debased its currency via direct money printing and a massive quantitative easing program where the government purchased $1.5 trillion of mostly its own bonds.
The U.S. government will buy another $600 billion of its bonds in 2011 concurrent with running the largest deficit in its history. With this in mind, it is no surprise that the gold price rallied.
Adrian Ash: Last year's eurozone debt crises gave only a foretaste of the sharp spikes in physical demand we could see as the single-currency experiment unravels, while the Fed's fresh dose of debt-monetization (aka QE) lit a fire under institutional gold buying. China's surging demand continued to make gold a strong emerging-Asia play, too.
The underlying cause, however – boring but true – was negative real interest rates. Cash in the bank now means certain losses, failing to keep pace with inflation as badly as in the late 1970s. So once again, cautious savers are choosing hard assets instead of government-controlled currency, and gold is the stand-out alternative because it's tightly supplied, indestructible, debt-free, and truly stateless.
Ian McAvity: I believe gold's rise should be recognized as a devaluation of the three major currencies in gold terms – the U.S. dollar, euro, and yen. That focused global attention on gold as the oldest and most credible currency in its traditional role of a store of value. This trend is now a decade old and may be entering the phase for acceleration, now that the major currencies and sovereign debt issues are both coming under the microscope.
Ross Norman: Really, it was more of the same from the previous 10 years – but particularly so the economic-related issues from the last two. The gold price fundamentally reflects the debasement of currencies – gold is not expensive, but the currencies you buy it with are worth less simply because we are printing so many of them. I
f you genuinely believe that global growth is established, that debt repudiation will be carried through (the public will willingly take their fiscal medicine), and that economic stability will be restored without a hiccup, then don't buy gold. The trouble is, few believe that story, and hence the 30% gain in gold.

BG: What forces will move gold this year? And what's your price projection for 2011? 
Rick Rule: I suspect that this year will give us extraordinary volatility across all markets, including bullion. I think the eventual direction is higher, because of the well-catalogued failures of collectivism. But I suspect we will have some event-driven spike in metals prices, although I couldn't forecast which of many possible events will occur.
I have no earthly idea where gold will close, but to be a good sport and play the game, I'll say $1,750.
James Turk: The same forces will move gold higher this year, which I expect will reach $2,000, probably in the first half.
John Hathaway:A reversal of spreading distrust of government policies, central bankers, and paper currencies can only be accomplished by high real interest rates. The secular direction of the gold price will remain higher, and conversely, the valuation of paper currencies will trend lower, without a restoration of respectable real interest rates, which in my opinion, would be in the neighborhood of 4% on a sustained basis. In the absence of such a change, there is no telling where the price of gold, in U.S. dollar terms, could go.
In my opinion, gold is no different than any other market in that it assesses current fundamentals and discounts the future. Just exactly what it is reflecting at any given moment is the real challenge. In my opinion, the gold market has only partially reflected the monetary debasement that has taken place since the credit implosion of 2008, and it has not yet begun to assess the damage yet to come.
Without knowing what further convoluted and extreme measures yet to be implemented by this administration and the Fed, it is impossible to place a number on the future price.
Charles Oliver: Global currency debasement will continue in 2011.  The European sovereign debt crisis continues to unravel in slow motion, and it looks highly likely that the Europeans will magically create lots of money to backstop the debt of the next European government that finds itself on the verge of bankruptcy. I expect this backdrop will help propel gold to around $1,700 by yearend.
This level is supported by an upward trend channel that commenced in 2008 with a 2011 yearend range of $1,550 to $1,750. I also believe gold could break through the upper boundary of these trend-lines should some unexpected event occur.
Adrian Ash: Headline debt crises aside – Portugal, Spain, California, take your pick – 2011 will see negative real interest rates force ever more cash savers to choose gold (and also silver) instead. Simply extrapolating the current bull run's annual gains would see 2011 end with gold some 20% higher at $1,695 per ounce, averaging $1,450 across the year. Even on the official CPI measure, U.S. savers have now been underwater for 24 of the last 36 months after inflation.
But no one at the Fed, not even sole dissenter Thomas Hoenig (no longer a voting member in 2011), wants to see positive real returns paid to cash. The ECB, Bank of Japan, and Bank of England all look stuck near zero interest rates, too. And while Beijing might hike Chinese lending rates, it fears sucking in yield-hungry money from the West. With China's deposit rates left untouched at barely half the pace of inflation, the early gold-demand spike around Chinese New Year (Feb. 3rd) could prove dramatic.
Ian McAvity: I don't do specific forecasts in my work, but I think there's a prospect of gold pushing into the $2,000-$2,400 range this year, or perhaps 2012. This presumes an element of monetary panic relating to the U.S. dollar or euro during the year. A gold price of $2,400 would be the CPI-adjusted equivalent of 1980's $850 in current dollars, so this is not an unrealistic number.
Ross Norman: After 10 successive years of price strength during which gold rose fivefold, it is tempting to ask if prices are now peaking; we think not, and fresh all-time highs of $1,850 are in prospect. The list of forces on the buy side remains as long as your arm. But on the sell side there are potentially miners reentering hedging/forward-selling programs, central bank disposals, and possibly some contrarians – these are unlikely to be significant and, in short, with few sellers the scales should continue to weigh very significantly in favor of the bulls.
With gold’s entrenched trend line to draw on, the adage "The trend is your friend" seems likely to hold true. A twenty-something percent increase looks likely for the year, and the gold chart should maintain a steady 45-degree climb after a period of consolidation during Q1.
Our outlook for gold in 2011: Average $1,513; high $1,850; low $1,350.

BG: How volatile do you expect gold to be? What's your low price that would present a good buying opportunity? 
Rick Rule: Volatile on steroids! If we have a replay of the liquidity crisis of 2007-2008, gold could crack $1,000 on the downside. I don't time these things; I build cash when values in other sectors are not available, and bullion for me is a form of cash.
James Turk: I do not expect gold to be volatile. It looks to me that the gold price is ready to accelerate to the upside, and I do not expect there to be any significant price corrections because the demand for physical metal is just too strong. There is always a lot of money on the sidelines ready to buy any dip.
Any price below $1,500 represents a good buying opportunity because I do not expect gold to remain below that price much longer.
John Hathaway:If the Fed announces an end to quantitative easing, gold could drop $200. In the greater scheme of things, such an announcement would change nothing.
Charles Oliver: I expect volatile currencies and governments for the next several years. Which means that gold and other hard assets priced in U.S. dollars will remain volatile. The current bottom of my gold trend channel is $1,300, so if it dropped that low, I think it would make a great buying opportunity. If gold broke below $1,300 (which I do not expect), then you might see it test the $1,000 level. That level was resistance for several years, but now it is a major support level, one I believe may never be breached again.
Adrian Ash: Gold volatility actually fell in 2010, hitting 5-year lows even as the dollar price took out new record highs above $1,400. So while gold keeps making headlines, it's more overreported than overinvested, and that's likely to keep any dips shallow, especially as larger investment institutions in the West look to steadily build their positions. Demand from Indian households – the world's No.1 physical buyers – is again adjusting to new rupee highs, too.
That said, keep an eye on the start of new quarters (April, July, Oct.) as investment funds will hold on to winning positions to impress their clients, only to take profits the very next day (witness July 1, 2010 and New Year 2011 already).
If you're trying to pick the bottom of a pullback, it's worth noting that gold hasn't fallen vs. the dollar for more than two months running since 2001.
Ian McAvity: Volatility will be much greater. India paid $1,045 for 200 tonnes of gold from the IMF – that's a critical level and would be a great crash-scenario buy point, but I doubt we'll see it. The last important breakout occurred at $1,260 and should be support and an attractive buy level; below that, $1,160 to $1,200, if it's part of a general market wipeout. I'd bet that gold comes screaming back from such a decline if Bernanke and the ECB proceed with QE3 or QE4 to fight it.
Ross Norman: Fear and uncertainty are running high, and that should almost certainly translate into greater price volatility. I think we are close to the low for the year (we see that at $1,350), and it is quite healthy to see some of the excessive speculative froth being blown off the market just now. It makes a more compelling case a month or so from now.

BG: Gold stocks as a group did not outperform gold in 2010 – will that change in 2011? And if the broader markets sell off, will gold stocks fall along with them or trade on their own? 
Rick Rule: Interesting point; the stocks did not outperform bullion, even as the companies actually began to feel the positive impacts of higher gold prices and massive capital programs.
I do think select stocks will broadly outpace the bullion markets in 2011. The senior producers are doing something they have not done for decades – earning good money! Their reinvestment options are constrained because most of them have already launched and funded major capital programs for whatever internal growth is available to them. Surplus capital can go to increasing dividends, buying back stock, and to acquisitions. Juniors who make attractive discoveries that can reduce depletion charges and lower a major's overall cash costs will be bought at startling prices.
If broader markets decline as a consequence of an event, particularly a liquidity-driven event, the gold stocks will decline with them. If a broader market decline occurs as a consequence of debt and equity overvaluation and earnings disappointments, the markets will decouple as they did in the late 1970s.
James Turk: The mining stocks will continue to outperform in 2011, but by a much larger margin than last year, and are still relatively cheap compared to bullion. Remember, the mining stocks were in a bear market from the collapse of Bre-X in 1997 to the collapse of Lehman Brothers in 2008. After Lehman, even the best quality mining stocks were unbelievably cheap. It was a capitulation low, where emotion prevailed over logic, which is how all bear markets end. This new bull market will drive the mining shares to what will probably be unbelievable heights when we look back a few years from now.
John Hathaway:Gold stocks are generally cheap relative to bullion. The XAU [Philadelphia Gold/Silver Index] trades at roughly 15% of the bullion price vs. a historical norm of more than 20%. Gold stocks could do fine even if gold is flat, something I don't expect. If we have another 2008 style sell-off, gold stocks will be hurt again in the short term, but the stage would be set for much higher highs for the metal and the stocks.
Charles Oliver: In 2010, the large-cap stocks that dominate the weighting in most gold indexes underperformed the gold price. However, the mid-cap stocks had a great performance in the first part of 2010. In the latter part of the year, the small-caps roared to life and outperformed most other groups.
I expect that 2011 will initially be similar to the end of 2010; however, in the second part of the year, I am concerned that the general stock market may be due for a correction that could impact all stocks and sectors. If there is a modest, orderly pullback, gold stocks could rally (much like they did in 2002), though you may see an increased focus on the bigger, more liquid names first. With this in mind, and the relatively cheap large-cap stocks, I have been increasing my weighting of larger-cap names.
Adrian Ash: So long as deflation (i.e., default) threatens credit markets, unencumbered gold is going to appeal more than geared production, especially to those cautious savers now being forced out of cash by negative real rates. Yes, you've got to expect the kind of gold mania that Doug Casey has long forecast to light a fire under the broader gold mining sector. But another broad sell-off in world equities in 2011 would only compound the last decade's disillusion with risk investments.
Ian McAvity: The major gold stocks have not performed well against gold since 2003. They will get decent spurts, but long-term reserve replacement and premium-priced M&A [Merger and Acquisition] takeovers dilute their shareholders. The lows for gold stocks may be governed by the magnitude of any crash-like decline in the stock market. If the S&P or Dow falls 20% or more within a 3-month or less window, the margin clerks will sell every bid on anything. I prefer the metal to the major miners.
Ross Norman:I would not anticipate a broader equities sell-off. It does seem that most asset classes are performing strongly, and that may be a secondary consequence of QE. Broadly, I take a similar, and positive, view of mining equities as I do for gold. Should there be an equities correction, then in all likelihood mining shares will also retrace to some extent in the same way that a rising tide lifts all boats.

BG: Silver was up 81.9% in 2010, but is still below its 1980 nominal high. What's your outlook for silver in 2011?
Rick Rule:The near-term outlook for silver is very bullish, as a consequence of physical supply shortages. Longer term could be problematic as a consequence of Indian dishoarding, an event last seen in earnest in 1997.
James Turk: I expect silver to reach $50 in Q1 2011. It may then take a breather, but eventually – and probably later in 2011 – silver will climb above $50.
John Hathaway:More volatility than gold.
Charles Oliver: In the earth's crust, the ratio of silver to gold is 17:1. For most of the last 650 years (except the last 100) the monetary exchange rate was also around 17:1. In fact, when the United States was on a bi-metallic reserve standard, the U.S. government mandated "The Coinage Act of 1834," putting the gold/silver ratio at 16:1. In 2010, the ratio moved from around 60 to below 50. I expect this trend to continue in 2011 and think the metal could trade up to and beyond $50 in the not-too-distant future.
Adrian Ash: Silver's primary use is industrial, rather than as a store of wealth like gold. So it should be more vulnerable to the economic cycle (see the post-Lehman price collapse), and you could argue it's simply tracking the huge rally in base metal and energy prices. But looking at that 1980 high – forced by the Hunt brothers' speculative corner, rather than a jump in use – I think something else is going on, and silver is being remonetized by private wealth in the same way gold has been remonetized since hitting "trinket" prices in the late 1990s.
A much smaller and tighter market than gold, silver is both more attractive and responsive to sudden inflows of cash. As with gold, silver's volatility fell in 2010, but it was more than twice the average level (daily basis) of the last four decades. Price-wise, another year like 2010 would see the $50 peak taken out. The biggest surprise is that the mainstream press hasn't stoked the idea of a "silver bubble" like it has done for gold since 2009.
Ian McAvity: If gold runs above $2,000, I expect the silver/gold ratio to reach the 36:1 level, which would mean a price somewhere between $55 and $66. I view that ratio as a material driver of the silver price, trading off its long monetary metal history, apart from its attractive supply/demand profile. The 1980 spike to $50 was a very brief spike that isn't really a meaningful measuring point, in my view. The monthly average London Fix for January 1980 was $39.27, and gold's monthly average peak was $675.31; those are more realistic prior peak levels to measure against.
Ross Norman: After the 2010 rally, it might seem churlish to expect much more in 2011 for silver. Early 2011 profit taking has seen silver decline more than most assets, underlining the strong speculative element in the recent price run, and this also confers some weakness to its case. However, the investment community has taken silver to heart, and contrary to its modestly attractive fundamentals, the market prices are likely to overperform again. Unlike in 2010, we expect silver's price action to conform more closely to that of gold – firmer, but a little more rational.
Our outlook in 2011 for silver: Average $37; high $44; low $27.

BG: What's your best advice for precious metal investors in 2011?
Rick Rule: Be prepared for the most volatile market of your life, and use that volatility to your best advantage.
James Turk: It is the same advice I have been giving for more than a decade; continue accumulating the precious metals, and if you are inclined to take the investment risk, the mining stocks as well. We need to recognize one salient fact: national currencies are being destroyed and their purchasing power eroded by misdirected government policy. Consequently, gold and silver are safe havens and the best way to protect your wealth.
John Hathaway: Have at least 10% of your liquid assets in precious metals and related mining stocks. Keep your bullion outside the U.S. A good way to do so is through Gold Bullion International, which can be accessed through their website. Unless you want to spend a lot of time researching the gold mining industry, consider investing in a well-managed precious metals mutual fund. There are a number, but I am partial to the Tocqueville Gold Fund, one of the top performers last year.
Charles Oliver: All the fundamentals – excessive government debt, high budget deficits, runaway healthcare costs, growing Social Security payments, demographic trends – lead to one conclusion: Governments are bankrupt and are going to debase their currencies via money printing, quantitative easing, off-balance-sheet transactions, and whatever other tricks they can pull off. The bull market in gold is alive and well and has a heck of a lot further to go. Buy it.
Adrian Ash: Next to overtrading, the biggest profit killer in gold this last decade has been to trust clever hedge funds trying to beat the metal. Sure, the best mining stock funds have delivered fantastic returns, but they struggled to outperform gold in 2010, and there's no certainty that will continue. But if you're right to buy gold for defense, then it’s best to simply buy and hold until the prime drivers – abysmal monetary and fiscal policy across the West – are reversed. Oh, and of course, be sure to visit BullionVault for a free gram of gold, too!
Ian McAvity: For individual investors, don't go crazy with leverage or portfolio concentration. No matter how much of a gold bug you are, keep in mind we're in a period where the mistakes (QE2 is one of them) will compound the second half of the ongoing financial disaster that started in 2007.
Ross Norman: For followers of cycles, 2011 looks like the year that the Kondratieff Winter begins to bite – a period normally associated with debt repudiation, trade wars, and firm commodity prices. A winter that puts Europe into hibernation, and the smart money acquires a protective coat. This is to say, buy gold, including the leveraged 2:1 ETFs.
[These world-class experts are right to bank on gold and silver – because the U.S. dollar keeps losing more and more of its value. Watch this eye-opening video on how China and Russia are plotting to dump the dollar in the near term… why you should be worried… and what to do about it.]

See A Gold Correction, Grab The Opportunity

By Shyamal Mehta
MUMBAI (Commodity Online): US dollar becoming weak against major currencies lifted dollar denominated commodities higher last week as weak USD makes dollar denominated commodities less expensive for other currency holders.

Currencies
US dollar index lost 0.96 % on Friday last week while on weekly basis it fell by approximately 1.3%. While against Euro, the dollar fell by 1.4% for the week ended on 8th April, 2011. Dollar traded weak throughout the week against basket of major currencies. Euro became strong against US dollar as expected 25 basis point rate hiked by (ECB) European Central Bank. The ECB hiked interest rate from 1% to 1.25%.

The reason for decline in USD was mainly because of investors unwinded their positions from USD and shifted their focuss on riskier commodities on growing optimism of global economic recovery.

Even better than expected US jobless claims data could not provide support to the greenback.

Bullion
Gold prices were going up constantly in the last week. Gold future prices rose by approximately one percent on Friday last week while on weekly basis it settled at 1474.1 USD per ounce higher by more than three percent. Gold prices went up as dollar became weak which boosted the metal’s demand as an alternative asset and also because of inflation hedge as Crude also went up last week by approximately 4.5 percent.

Gold prices were rising in the last week on the back of speculative and investment demand and physical demand of Gold was not seen picking up in the last week.

Silver prices has tested multi year high levels above $40 per ounce and last traded at $40.6 per ounce. Silver prices gained by 2.6% on last Friday and more than 7.5 percent in the last week. Silver continued outperforming Gold from last three months and likely to give better returns in the coming months also as compared to Gold. Silver gained by more than 45% in last three months while Gold gave return of more than 10 percent in the said period. Silver prices are seen rising further and heading towards 44 dollar per ounce mark.

Gold and silver prices have risen in recent past was also because of investment demand from hedge fund houses where Silver prices have risen with abnormal speed which may trigger sell off and may fall on profit bookig and correct by 15-20 percent in near term.

Any correction in bullion prices is a good long term investment opportunity for investors as Gold and Silver prices are still in medium and long term uptrend. Gold prices are seen rising in next couple of years and may touch $1800-2000 per ounce. And Silver could test $ 55 per ounce levels in the next couple of years.

Long term investors can buy silver somewhere around $ 33-35 per ounce keeping a stop loss of 29 dollar mark and can wait for the targets of 48-55 levels in long term.

Energy
Crude settled on Friday at 112.79 USD per barrel up by 2.25 percent. Crude prices rosse because of improved global economic outlook. Also, oil producing countries wish to see Crude prices rising as US dollar becomes weak which reduces the revenues of Oil producing countries and so by this way they can offset their currency loss from the sell of oil. As weak dollar makes Crude oil cheaper for other countries whose currencies is appreciating against the dollar.

IMF also sees Crude prices are well supported and may rise further because of supply constraint and rising demand from emerging markets mainly from China.

Traders may see volatility in international currency and commodities markets in the weeks ahead.

Base Metals
Base metals traded strong and settled higher on LME during last week with gains ranges from approximately three to eight percent. Aluminium prices rose by more than three percent last week. While Copper, Lead and Zinc settled higher with gains of more than five percent. Nickel was the highest gainer with gain of approximately eight percent.

Fund buying was seen in all industrial metals across the board.

USD was trading weak against Euro and other major currencies in the last week which makes dollar denominated commodities cheaper for buyers of other currencies.

Euro became strong against US dollar as expected 25 basis point rate hike by ECB (European Central Bank).

Moreover, the greenback was under pressure on government shutdown news also because of dispute between Democrats and Republicans on cutting budget deficit.

Base metal prices have risen also because of expected reconstruction demand from Japan after earth quake and Tsunami last month. Prices went up on hope of global economic optimism indicates that metals demand from China, the major metal consumer will continue to rise. So if circumstances change then market may witness heavy sell off in base metal complex.

Copper inventories at LME went up by 1.2 percent in the last week ended on 08th April, 2011. Inventories levels of Lead and Nickel at LME fell by 1.4 and 2.2 percent respectively. While Aluminium stocks at LME fell by 0.22 percent for the last week. Inventories from LME witnessed decline last week was because of investment demand of metals.

Better than expected jobless claims data from US also played a good role in sending base metal prices northward.

However, according to some analysts, the current rally in base metals is not sustainable and metals are vulnerable for profit booking because of geopolitical concern in Middle East and Euro-zone sovereign debt issues.

Aluminium and Lead traded near three years high while Copper last traded at $ 9875 per tonner moving to its all time high near $ 10150 per tonne touched couple of months back. While 3 Months Lead and Nickel on LME last traded at USD 2850 per tonne and USD 27600 per tonne respectively. At LME, 3 Month Aluminium last traded at 2713 USD a tonne. Zinc 3 Month LME contract last traded at 2532 USD per tonne.

More monetary tightening from China to tame inflation may also reduce investment demand of industrial metals expecially Copper. Another headwind for base metals is high Crude prices which last traded near 113USD per barrel which is at 30 months high.

Metal prices are likely to find its direction from global stock markets and currency movements in the short term. Traders are waiting for series of economic data from US in next week like Federal Budget Balance, Retail Sales, Business Inventories, PPI, Unemployment Claims and Industrial Production.

Source: http://www.commodityonline.com/news/If-you-see-a-Gold-correction-grab-the-opportunity-38056-3-1.html

Gold is always as Money $$$ not investment

Bullish Gold PriceMasks Problem With Paper Money

Michael Trifunovic

April 13, 2011

It helps to consider gold as cash rather than an investment only, writes Michael Trifunovic.

The debate rages as to whether gold will continue its bull run or whether its bubble is about to burst.

Over the past decade gold has risen against every currency every year as well as outperforming most other asset classes.

Assertions of a bubble are flimsy. According to the CPM Gold Yearbook 2010, despite 10 years of rises, gold constitutes only 0.7 per cent of the world's financial assets. Indeed, in the late 1960s gold comprised 5 per cent of assets, and in 2000 it was 0.2 per cent. A bubble cannot exist if something is so sparsely held.

The bull market case makes a stronger argument due to continued investment appetite, debasement of the US dollar and relative value.

Gold is being viewed through the prism of it being an "investment", and "cash" as the base measure.

A more appropriate way to look at gold may be not as an investment but as what it has always been, money.

Gold has functioned as money for thousands of years, going back to the Egyptians and Mesopotamians. It has been the cornerstone of the monetary order for most cultures and empires throughout history.

It is imbedded in the human psyche and belief structure. Gold is in our vernacular pertaining to concepts of value and wealth as well as a descriptor of high worth, merit and standards.

At the very least it has the qualities of scarcity, durability and integrity, fitting characteristics of money.

Gold has always been money, the ultimate means of payment and store of value.

But if gold is money and thus a currency, it is not an investment.

We can argue definitions, but consider our present currency medium, cash - one cannot invest in cash per se but instead we use cash as a starting point to invest for the purposes of value creation and return. The success or failure of that investment is then judged according to how much cash the "investment" will revert into.

The whole investment industry operates around this principle.

Indeed, even an "investment" into a bank account or term deposit is not a "cash investment". Instead it is a creation of a "loan" to the bank, which compensates you via an interest payment and return of original capital.

But cash money derives its value from gold.

Cash arguably began in the middle ages with the Knights Templar, who ran a basic form of bank that held gold and silver but issued coded "chits" that could be redeemed for gold and silver coin.

Goldsmiths took this a step further by developing what we know today as fractional reserve banking. They figured that not everyone who deposited their gold would come and claim it, and therefore they could extend credit via pieces of "paper", creating money many times the value of the gold stored.

It was a confidence trick and worked because people believed in the "paper" they issued. Indeed, financial alchemy was achieved in creating money out of nothing via faith. But it only worked as long as the goldsmith was not audited and dependent on a certain ratio of gold being held. If either of these were violated the house of cards would crash. This is modern banking.

With the cessation of the "gold standard" in 1971 and Federal Reserve Notes (aka US dollars) becoming the reserve currency, financial alchemy was achieved via a declaration or "fiat" and the subsequent acceptance of this faith in the value of these notes. Money created out of nothing and backed by nothing.

Its value only exists in our minds and to the extent that we are prepared to accept it for real goods and services. It is a mammoth confidence game.

Rather than arguing that gold is rising and in a bull market, a more appropriate argument is that it is not rising at all, but that the fiat cash currencies are collapsing versus gold. Cash is no longer functioning as a store of value.

This has big implications in terms of the value of our financial system.

When we price goods, commodities and stockmarkets in terms of gold, we do not observe inflation.

In a speech at the Council on Foreign Relations last September, the former Federal Reserve chairman Alan Greenspan argued that currencies move in relation to gold and that currencies are themselves a zero sum proposition as they net out. He then went on to argue that if gold was rising it points to a "problem with respect to currency markets globally". He goes on to describe gold as a canary in a coalmine.

He is not the only one who seems to recognise the trouble ahead.

Last month the state of Utah passed a bill to allow gold and silver back into circulation and to be recognised as legal tender. Other US states are looking to follow. Mexico is debating the reintroduction of silver money.

In a 1966 essay, Gold and Economic Freedom, Greenspan, argued that gold stood in the way of welfare statists using the banking system for an unlimited expansion of credit and the resultant wealth confiscation via the associated inflation. Gold stands as the protector of property rights.

It appears gold is reasserting this function.

Alchemy is the word often used to describe the art of transforming something of value from nothing, a practice of mind over matter. In the realm of money, it essentially is a confidence trick, where one gets others to believe something is

of value.

The confidence trick around our currencies is unravelling.

In contrast, gold seems to be standing the test of time.

Michael Trifunovic is a portfolio manager and writer.

Source: http://www.smh.com.au/business/world-business/bullish-gold-price-masks-problem-with-paper-money-20110412-1dcmz.html

THIS Is Why The US Is Printing Money - BullionVault

THE US FEDERAL RESERVE, America's central bank, is printing money to purposely create inflation, writes Dr. Steve Sjuggerud in his Daily Wealth email.

Meanwhile in Europe, the central bank is doing the opposite. It's taking actions to prevent inflation from ever appearing.

So who is doing the right thing?

The problem is essentially the same in America and in Europe. Why – when faced with the same problem – are the US and Europe pursuing opposite solutions?

I think I have the answer...

Each central bank is trying to prevent a repeat of its worst mistake in history. Let me explain...

The Great Depression was the worst economic crisis in American history. The big issue in the Great Depression was DEFLATION – falling prices. The US central bank is typically given the blame for the Depression, for not fighting deflation hard enough – for not printing enough money.

Ben Bernanke, the head of our central bank, has made it his life's mission to prevent a repeat of the Great Depression. Bernanke is a student of the Depression. He will do everything in his power to prevent falling prices from happening.

Bernanke won't stop once inflation appears... because he knows a deflation "aftershock" could hit. Inflation started to rise again in the mid-1930s... then a deflation "aftershock" hit. The chart shows the story:

Bernanke believes this was the worst policy failure by the US central bank. He won't let it happen again. So expect inflation to arrive at some point. And expect it to stay, to ward off a potential deflation aftershock.

The European Central Bank (the ECB) is also well aware of its greatest economic failure of all time. That was hyperinflation in the early 1920s.

Inflation in Europe just hit 2.6%, above the ECB's acceptable rate of 2%. So last week, the ECB raised interest rates. The goal was to contain inflation.

While Europe is raising interest rates to slow the risk of inflation, the US is expected to keep interest rates where they are for the foreseeable future. The US is also continuing its "quantitative easing program" which is essentially printing money, by another name.

So what can you do with this knowledge?

If Bernanke won't stop, you can expect more of the same... higher commodities prices (particularly gold and silver) and a lower value for the US Dollar and US government bonds.

This conclusion isn't shocking... What is shocking is just how far these trends will go if Bernanke keeps his promise to prevent deflation.

In short, in the US, asset prices could soar higher and the Dollar and government bonds could fall lower than most anyone can imagine.

Source: http://goldnews.bullionvault.com/US_printingmoney_041220112

Gold To Hit $1,500 & Silver $50 As Early As Summertime

Elizabeth Kraus If true prosperity is the result of acting on confused information, as the old adage goes, “a fool and his money are soon parted,” the behavioral research data tells us that the bankers, the politicians and Wall Street are more likely to represent the perfect opportunity to do just that. But the brutal reality is, that with all the turmoil within the Middle East, disasters in Japan, the massive infusion of newly-printed currencies, the devaluation of the US dollar, while were to swallow how great the US income data is, and that “Gold pares loss after U.S. spending income data,” it’s a great opportunity to purchase gold and silver as a safe haven and protection hedge before it hits new heights as early as this summer!It was recently discovered that the magnetic properties of gold nanoparticles are the subject of a new benefit for gold. “Unexpected magnetism in gold nanostructures: Making gold even more attractive,” by Professor Simon Trudel, University of Calgary, explains the cause of the unexpected magnetism in gold and explores how these properties could lead to potential applications in catalysis, medicine and data storage. “The possibility of chemically turning on magnetism in gold nanostructures is a unique feature. One can envisage how gold based sensors could be designed whereby detection of a substance could lead to the onset of magnetism. Such sensors might be used in medical testing for example.”
So whilst gold has a long and fascinating history in technology, new research continues to open up stirring and innovative applications for the metal as its unexpected magnetism demonstrates cutting-edge developments. With such great developing news in gold, it is an additional exciting times for the metal ahead in the hand today. And, while I’m a great believer in the American entrepreneurial spirit, in fact, the U.S. economy stands or falls on our ability to provide enough space to allow small folks to have big-time dreams too, when times get ruff and difficult, some little folks might end up under the bus – along with their dreams. Therefore, to remain abreast of the geopolitical unrests and rising inflation fears, as it continues to bombard the world, to see great new research in gold, it is necessary to look and see how the trend in the metal is reaching new highs in esteem, a respect that will subdue those heavier concerns on the road ahead.
There’s a distinct possibility the U.S. stock market could plunge as much as 6,000 points if the U.S. continues to rack up record amounts of debt, causing the dollar to lose its reserve currency status, says Daily Ticker favorite Howard Davidowitz, and that “the dollar has never been at greater risk,” he says, being confident that if Washington doesn’t cool its spending habits, interest rates will spike and inflation will soar. Look at the value of the dollar, and the crisis is already brewing, with foreigners and sovereign nations diversifying away from dollar-denominated assets, he says. What’s an investor to do in this scenario but buy hard assets, he suggests. Davidowitz says investors should own physical gold, silver and diamonds. He also thinks land is a winning bet, even suggesting young adults buy and work farmland. “I think investment in farmland with water on it is a great investment. Finance will be less important,” in the future, he says, but gold, most important. Amidst the cacophony of news bulletins, the autocratic rule that has dominated the Middle East for decades and continues to unravel the volatility in the global oil markets points toward another overriding concern: How can we maintain an oil-flow balance in the face of such escalating uncertainty as oil prices are posting their highest levels? And will continue to do so! To combat the bad to good news: There isn’t any stopping silver! Traders favor the gray metal as being a risk aversion play because it is seen as being less expensive option says Ron Fricke president of Regal Assets. One only need to look at the record higher investment within the iShares Silver Trust, the world’s biggest silver-backed exchange-traded fund, silver has had an incredible run, up 84% in 2010 and up another 20% Y.T.D. so far in 2011.
All in all, we can anticipate that gold will hit $1,500 and silver to hit $50 extremely quickly, perhaps as early as this summer time, says Gold News…”Now could be an excellent time to make investments in gold and silver.” Gold has yo-yo’d very little. It broke upward the resistance at $1,440/oz after many failed attempts. “After having reached the new all-time high, however, Gold has sharply fallen of $20 ca, then coming back to the support at $1,431/oz and corrected some more on Monday.” But, while the Libyan crisis stays tense with NATO now in charge of policing the no-fly zone, whilst the planet continues to warily view the specific situation at Japan’s Fukushima nuclear plant, with the European sovereign financial debt problem rising once more with Portugal most likely needing help, the intermediate and long-term view for gold is bullish, but that does not imply the metal cannot consider a little step back for investors buy.
Source: http://goldcoinblogger.com/gold-to-hit-1500-silver-50-as-early-as-summertime/#more-2935

 Oil’s March Madness a Boost for Refiners

March 07, 2011

March Madness is still a few weeks away for college basketball fans but the madness of March is in full swing for the oil sector. Turmoil in the Middle East sent oil prices up more than 6 percent last week. We also happen to be entering a time of year that has historically been good for energy prices and energy equities in recent decades.

Going back nearly 30 years, March has been the best month for crude oil. By the end of the month, the price of oil is nearly 4 percent higher on average than the closing price on the last trading day of February.

One reason for this increase relates to the demand pull created by refiners ramping up in advance of the summer driving season. You can see in the above chart that crude prices generally spike in March then continue at a lesser pace through the early summer before picking up again in the late summer. There is typically a big decline from September to October and weak price performance through year end.

This year, oil prices jumped the gun on the seasonal rise because of the unrest in Libya and fears that it may spread to key producers such as Iran, Algeria, Nigeria and Saudi Arabia. Crude oil prices reached $104 per barrel on March 5 and we expect this near-term volatility to continue as the geopolitical situation works itself out.

Short-term volatility aside, oil market supply/demand fundamentals were tightening before the turmoil in the Middle East began and we think historically high oil prices are here for the long-term. On Tuesday, the International Energy Agency’s chief economist Fatih Birol supported this opinion when he indicated that “the age of cheap oil is over.”

PIRA, an oil industry analyst, is forecasting West Texas Intermediate (WTI) oil prices will hover around $104 per barrel in 2011 based on tighter oil supply/demand fundamentals, strong medium-term fundamentals and increased financial investment. The firm expects oil demand to grow by 1.6 million barrels per day in 2011 as global GDP growth averages 4.3 percent. Meanwhile, OPEC’s crude output is only expected to increase by 960,000 barrels per day.

Refiners are one of the energy sub-sectors that could benefit the most from higher oil prices. Historically March marks the end of a five-month stretch in which monthly crack spreads (value of refined products minus the prices of the crude oil feedstock) tends to increase. Spreads are generally 4 percent wider in March than February.

This year, some refiners are getting an added bonus because of the significant price difference between WTI and Brent crude oil. Currently, Brent is trading about $15 a barrel higher than WTI, which means that some refiners are buying their oil $15 below global prices. This adds to the profitability of each barrel.

The discount may remain wide for the time being because crude oil supplies from Canada and the mid-continental region of the U.S. have risen faster than demand. These supplies travel to storage facilities at the delivery hub in Cushing, Oklahoma, which makes it difficult to be exported overseas. This creates a supply glut unique to the region.

This is a very positive development for a sub-group that has struggled over the past few years. You can see from the chart that refiners have lagged the rest of the oil and gas sector over the past three years. While the S&P Energy Index is returning to peak 2008 price levels, the S&P Oil and Gas Refining and Marketing Index is barely halfway back.

During this madness of March, the increased profitability gives refiners some catch-up potential with the rest of the energy sector. For these reasons, refiners remain an area of focus for the Global Resources Fund (PSPFX).

high oil price = higher gold price

Why High Oil Prices Are Likely Here to Stay

A number of forces continued to push oil prices higher last week, reaching their highest levels in the U.S. since September 2008.
One factor fueling the run has been the continued decline of the U.S. dollar. You can see from the chart that oil and the dollar historically are negatively correlated. This means that a rise in oil prices generally coincides with a decline in the dollar, and vice versa. The U.S. dollar has seen a dramatic decline since the beginning of the year as oil prices have moved some 30 percent higher. This could be due to fact that roughly two-thirds of the U.S. trade deficit is related to oil imports.

Despite the run up, oil’s upward rate of change is still within its normal trading pattern over the past 60 trading days. Accordingly, this may imply that it isn’t a spike and we haven’t crossed into the extreme territory like we experienced in 2008 and 2009.

Conversely, oil prices are positively correlated with gold prices, which also saw a bounce this week. Looking back over the past one- and 10-year periods, oil and gold have roughly a 75 percent correlation. This means that three out of four times, when prices for one go up, prices for the other increase as well.

Another factor pushing prices higher is the seasonal strength that oil prices historically experience leading into the summer driving season. This chart shows the five-, 15- and 28-year patterns for oil prices. You can see that prices historically bottom in February before rising through the end of the summer.

We discussed in detail how these seasonal factors affect oil prices a few weeks ago.  read “Oil’s March Madness a Boost for Refiners.” from previous post.

Rising oil prices are also a result of what the Financial Times calls the “new geopolitics of oil.” The FT says three elements creating this new environment are becoming clear:

1. Young populations with high unemployment rates and a skewed distribution of income are a volatile combination for the people in power.
2. To placate these groups, oil-producing countries are increasing public expenditures.
3. Governments are also to extend energy subsidies to shelter the country’s consumers from rising energy prices.

A Deutsche Bank chart plots the share of population under the age of 30 for selected North African and Middle Eastern countries against the unemployment rate of this group. You can see that large oil producers such as Saudi Arabia have a high level of unemployment among youth populations.

This is why King Abdullah of Saudi Arabia has announced a total of $125 billion worth (27 percent of the country’s GDP) on social programs for the public. For King Abdullah, this is the cost of keeping peace but has driven up the breakeven price for Saudi oil production to $88 per barrel, according to the FT.

Keeping these young populations happy and working is not only domestically important for these governments but for global oil markets as well. You can see from this chart that a significant portion of the world’s oil production comes from the Middle East.

With the unrest in Libya—a top-20 oil producer—essentially knocking out the country’s entire production, any further unrest in another country could threaten global supply. Upcoming elections in Nigeria have the potential to disrupt production for the world’s fifteenth-largest producer.

But it’s not just geopolitics that is threatening production. Natural decline rates from mature fields such as Mexico’s Cantarell oil field are starting to make a dent in global production. Reuters reported this morning that Norway, the world’s eleventh-largest oil producer, is experiencing a significant slowdown in production from the Oseberg oil field in the North Sea. Production is expected to be cut by 26 percent in May to only 118,000 barrels per day.

Meanwhile, oil demand has been picking up significantly in both emerging and developed markets. Oil demand in China and the U.S. has been rising since mid-2009, well before the uprisings began in the Middle East.

In China, a big driver has been growth in the Chinese automobile market. Auto sales increased 2.6 percent in February, and March data released by the Chinese Auto Association over the weekend shows auto sales grew 5.36 percent on a year-over-year basis in March.

The G7 economies have been in an up cycle since last year. In the U.S., employment rates and consumer spending have been steadily improving. Oil prices rising too fast remains a threat to this recovery but BCA Research estimates that oil prices need to rise above $120 per barrel before “significantly undermining consumer and business confidence.”

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

By Frank Holmes,CEO and Chief Investment Officer
U.S. Global Investors