Gold price tumble affects Silver prices

Fresh worries about the Euro resulted in an across the board sell-off in the single currency overnight – this in turn drove down prices in all commodities. The market has judged that the recent European Summit hasn’t actually addressed the crisis at all.

Gold fell hard as did Silver. This was probably due to traders liquidating winning positions to cover losses elsewhere.

There were also rumours in the market that a major hedge fund was a big seller in order to meet year end redemption requests.

All in all a pretty nasty shakeout, but our view is that the fundamentals for gold and silver are still firmly in place and there is no reason to suggest that a downtrend will develop. Governments will eventually have to get out the money pumps again because the people of the Western economies cannot and will not accept the pain of deflation. It may take time but the end game will be rampant inflation and only one way to protect your assets by investing in gold and silver.

Gold Imports Record

News of China's September Gold purchases has hit record highs – nearly 50% higher than the entire gold purchases for 2010!

Don't forget, September saw huge volatility in the Gold spot market, a record high of $1,920.30 per ounce was followed by a huge sell-off to reach a 3 month low in the same month. You can bet that smart investors were buying on the dips in anticipation of continued buying ahead of the Chinese New Year, which is typically a big Gold buying period in China.

Until 2010, China ranked as the world's second largest consumer of gold, behind India, but in the first quarter of 2011 it actually became number 1 in terms of imports. Estimates by analysts GFMS claim that China will have imported 350 metric tons of Gold by the end of 2011.

The following excerpt is from CNBC:

Data from the Hong Kong government showed that China imported a record 56.9 metric tons in September, a sixfold increase from 2010. Monthly gold imports for most of 2010 and this year run at about 10 metric tons, but buying jumped in July, August and September. In the three-month period, China imported from Hong Kong about 140 metric tons, more than the roughly 120 metric tons for the whole 2010.

The last two months of this year are likely to see China’s gold imports surge further ahead of Chinese New Year, supporting gold prices, according to Ms Kong. “We’ve noted a quite strong seasonality in gold prices, typically prices go up in the months before the Chinese New Year.”

Silver and Gold Only Going Up

As the demand for Gold surges, Silver follows close behind. In China all other asset classes are feeling the pinch. Property was in a bubble and is now on the edge of collapse, bank deposits have effective negative real interest rates and the stock market has taken a battering as a result of falling overseas demand.

We continue to find evidence of further reasons to invest in gold and silver for the long term in all economies around the world. As we have repeated time and again on the site, whether it's deflation, inflation or hyperinflation, the case for investment in precious metals remains rock solid.

Great Depression Mark II?

Reports on news channels continue to focus on the unfolding events in Athens and Rome as there seems no end to the eurozone debt crisis.

Volatility in the markets has been extremely high as investors try and figure out which side of the trade to be.

We may not be able to avoid a Great Depression, but we continue to argue here that either way Silver and Gold are destined to rise as investors seek safety, either from the decline of traditional asset classes that would occur in a depression, or from hyperinflation as governments continue to print money in desperate attempt to revive the economy and/or avert a depression.

Not just me who's thinking along the same lines, here's an article I read before the announcement by the Greeks that they were going to have a referendum on the latest bailout which caused the markets to tank yesterday.

Posted by Wealth Wire – Tuesday, November 1st, 2011

Last Thursday, October 20th, all was right in the world. We had rallied past every key technical indicator; Europe had announced that they had come to an agreement to save the default of Greece and Spain, and Italy and Portugal. Peace and prosperity would once aging reign in the land of Leonardo da Vinci, and the home of the greatest art ever created. The food is not too bad either…

Last Friday I think everyone took the day off as there was such relief from the news out of Europe that no one wanted to jinks it by showing up. Anyway it was Friday, Europe would be saved and we had a one month closing higher in the markets than we had in 40 years. We deserved a rest and Friday was the day.

Well what a difference a day makes. Last week’s passage of the Eurozone financial rescue plan impacted the markets as traders continue to evaluate its worth. The markets are also whispering and watching the Fed for any news about a QE3 initiative but the Feds steadfastly deny any such plan.

Initial relief over Europe's latest attempt to end its debt crisis faded fast yesterday (Monday) as investors fretted about the plan's lack of detail and grew more skeptical about Italy's turnaround effort.

One day after European leaders announced a series of measures aimed in part at enticing investors back to the region's debt markets, bond buyers demanded higher yields on Italian and Spanish debt. An auction of new Italian bonds was met with weak demand, forcing the nation to pay higher interest rates than in previous sales.

The response from bond markets underscores how challenging it will be for European leaders to convince financial markets that last Thursday's broad agreement is sweeping enough to enable troubled countries such as Italy and Spain to work their way out from mountains of debt. The plan calls for beefing up the region's bailout fund, recapitalizing banks and reducing Greece's debt burden.

At this point, it’s pretty obvious that this recovery is fake.

Since 2009, this recovery has been manufactured, bought and paid for by governments from here to the U.K.

Last week, the latest EU bailout plan was just another example of a government throwing money at their problems – and really putting off the real issues until next month or next year.

Today, I want to show you two questions you need to answer so you can navigate these perilous economic waters this year.

Ask yourself; is the Economy Growing or Shrinking?

As a trader, I’m always watching to see if an economy is expanding or contracting? What is the trend of the market? Are the people in this country confident and assured or are they afraid that today may be their last day at work?

To determine this, I found this chart of the U.S. GDP.

         A Government-Spending Induced Expansion Has Come!

The GDP figures show how the U.S. economy is faring. A negative number shows that there is an economic contraction. A positive number shows economic expansion.

Right now, we’re showing a positive number. But there’s just one problem with that. It’s not consumers who are promoting this growth – it’s the government. The politicians are stepping in to keep the economy afloat.

In other words, it’s not a healthy expansion. So I don’t expect it to last long.

The good news: even if these numbers show a false start to the economy, they still give me some insight on what traders are seeing. Long-term, I’m still cautious. I know the enormous sums of money that the government spent to get these economic results. They can’t keep that up forever.

Sooner or later, the economy will fall onto the backs of the consumer once again (as we saw in early August). When this happens, we’ll likely go back into an economic contraction.

This tells me that I can be bullish in the financial markets for short spurts here and there. But long-term, it also tells me to be cautious and to make sure I trade accordingly.

To prepare for this in my trading, I can always cut down my lot sizes for each trade. That will decrease my risk just in case the markets turn on me.

Also, if my trades are comfortably above their breakeven point, I’ll quickly move my stop-losses so I can assure myself of some gains just as soon as I feasibly can.

Finally, Should I Be On Offense or Defense?

The next thing to keep in mind is whether you should be trading offensively or defensively. Offensive plays involve buying the high-yielding equities and defensive plays are the “safe haven” currencies like the gold and silver that tend to rally when stocks fall. As of last week, the world markets seem to think this EU bailout plan is enough to force a market rally for a while. Therefore, the mood of the market can be favorable for taking a bit of risk during these times.

However, I would be cautious. Right now, we have economies drunk on tons of printed money. In my opinion, there’s no way this EU plan will hold up in the long-term. For now, it just looks like the EU is kicking the can down the road once again and saving their problems for another time. The problem is that every time we kick the can down the road it gets bigger and it’s beginning to hurt my foot.

Once the markets wise up to this fact, we’ll see the hangover from all this. Stocks will fall – and that’s when you’ll want to bring out your defensive team. Your defensive team will include a basket of both physical and paper gold and silver ETFs.

The trick is knowing which ETFs to buy. I own a basket of safe gold and silver ETFs. I own SPDR Gold Trust ETF (GLD), Sprott Physical Gold Trust (PHYS), iShares Gold Trust ETF (IAU) and I bounce in and out of ProShares Ultra Gold ETF (UGL). I also own iShares Silver Trust ETF (SLV), Sprott Physical Silver Trust (PSLV), Silver Wheaton (SLW) and I bounce in and out of ProShares Ultra Silver ETF (AGQ).

In conclusion if the market rallies gold and silver will move up modestly but if the markets will sell off (which is just a matter of time) gold and silver will be our safe ports in the storm. And if the FOMC whispers QE3 gold and silver will go parabolic. So while the market stages its rally I expect gold and silver to sell off and I will be a buyer on any pullbacks.    

Post courtesy of investingadvicebygeorge.blogspot.com.

Europe is Bust – Get Into Silver Now

I find it unbelievable that the stock market has had such a massive rally after the latest package of measures was announced by the Eurozone members. Is it a case of the Emperor's new clothes or are they genuinely blind to what's going on here?

Get into the detail of what has actually been agreed and you'll see what I mean. Nothing has really changed, all that has happened is European leaders have bought more time. The European Financial Stability Fund (EFSF) was created in May 2010 by the 27 members of the European Union as a bailout fund to provide assistance to Eurozone countries that got into economic trouble. This was a 440billion euro fund that was meant to be large enough to deal with any crisis which although has been able to assist Greece and Portugal, has been exposed as woefully inadequate when it comes to all the dodgy government debt out there, for example Italian bonds.

So where has all this 'new' money come from? Although the final terms of this deal have yet to be agreed, once again it seems to have been created out of thin air. Instead of increasing the 440 billion in the fund, what seems to have been decided is that instead of directly buying the bonds of countries in trouble, the EFSF intends to insure the first 20% of potential losses thus at a stroke leveraging the 'size' of the fund without actually putting any more actual cash in. There was after all the inconvenient issue of a German Court ruling that forbade their government of stumping up more cash, and since the Germans are the only ones with any cash there had to be a 'cunning plan'.

So now magically they reckon they can cover up to a trillion euros or so! That's all right then. We're saved! Erm, except that of course what happens when all this insurance money runs out? Well, who cares say the politicians, we'll all have been re-elected by the time it becomes a problem again 2 to 3 years down the road.

Consequences for Silver and Gold

Do not be fooled by all this. Nothing has been solved. The can has been kicked down the road again. This is good for Silver and Gold investors. The longer this all goes on, the bigger the eventual rise in precious metals as the citizens of eurozone countries see the value of their investments and savings eroded by foolish politicians.

What happens when the fund has paid out on the 20% losses, which it will have done down the line? The size of Italian, Spanish, Portuguese and Irish debt combined dwarfs the EFSF. It must surely go the same way as Greek debt, where the Eurocrats are proposing a 50% 'haircut'. The previous 'bailout' was about investors taking a 21% hit and this time around the IMF wanted a 75% cut.

This is a slow road to gradual disintigration of the Euro and possibly the whole European Project itself eventually.  Instead stick with the Silver and Gold project to protect your hard earned savings.

Silver and Gold To Rocket Now

So the world is saved by the Merkozy entity. European leaders have agreed on a plan to ‘solve’ the European debt crisis with banks allowed to write off 50% of Greek debt and have boosted the eurozone bailout fund to €1 trillion. Banking stocks also surged as the agreement meant the sector was set to be shored up against future collapse.

So what is known as the ‘Risk Trade’ (Equity markets, commodities, risk currencies) is back on. Stock markets worldwide have had their best day this year, the Dollar has been spanked, Euro has broken back through 1.40. We are all saved! Well, actually all that’s happened is that the can has yet again been kicked down the road, to re-emerge as an even bigger issue at a later date, but who cares eh! Well this bunch of spineless politicians doesn’t care anyway, all they care about is re-election. So governments keep borrowing from each other to prop each other up it seems to me. As I’ve said before, just where is all this money coming from?

It just makes the coming bust more deep and painful as will inevitably happen. Just how different is all this borrowing and re-financing to Bernie Madoff’s ponzi scheme? Can someone please enlighten me?

Get On Board the Silver Express

Notice how Silver has shot up in two days from $30.30 an ounce to over $35 as I write? That an approximate 16% rise! Very impressive! This is just the start. Now that we have an apparent ‘solution’ to the european debt crisis, focus will shift back to the US, which this blog predicts will eventually lead to further ‘stimulus’ sometime in the not too distant future, which in turn will further boost stock markets and commodity prices. These policies solve nothing, currencies are in a race to the bottom and hyperinflation is even more likely outcome. Please read our section on hyperinflation and the dire consequences for all asset classes. The only refuge will be precious metals. Ride the stock market boom while it lasts by all means, but it’s not too late to join the ‘wise’ who have invested in precious metals before prices go parabolic.

Silver Waits To Begin Breakout

Posted by Wealth Wire – Tuesday, October 25th, 2011

To 250 million people in 51 countries in the world the word for money is the same word as the word for silver. Silver literally means money. According to Noble Laureate Milton Friedman the majority of monetary metal throughout history has been silver, not gold. Gold is the money of kings while silver is the money of gentlemen.

Before we make a case for silver being money, let’s take a look at what is money? I believe money is the grease or oil that lubricates the supply lines that bring goods and services to where they are needed. Without money our economy would be reduced to barter. The problem with barter is that you would not only have to find someone that has what you want but he would also have to have what you want in return. Let’s face it, in this modern world of infinite goods and services this would be a complete disaster.

So no matter what we use as a medium of exchange be it gold, silver, paper or sea shells we need an unrestricted supply of money to keep the economy lubricated. Money is a unit of storage or a proxy for value that must be something completely different from what is being exchanged. This is why money must float freely in value to coincide with the law of supply and demand.

True Value Of Silver

What is the true value of silver? I have no idea. Silver like anything else will fluctuate with the laws of supply and demand. I do know this. If you are waiting for industry or the fiat printing of paper to send silver through the roof, you may be waiting a long time. That is because like a beautiful work of art is in the eye of the beholder the value of silver as money is perceived. It doesn’t come with an instruction manual.

So here’s where I come down on this. A dollar used to have stamped on it “Silver Certificate.”

They were produced in response to silver agitation by citizens who were angered by the Fourth Coinage Act. The Coinage Act had effectively placed the United States on the Gold Standard which was fine but with each subsequent act the value of the dollar was debased. So in 1878 Silver Certificates were printed. One silver certificate could be traded for a silver dollar. Well in 1960 silver was trading for $1.29 which meant that a silver dollar was worth more than a silver certificate. In March 1964 Secretary of the Treasury C. Douglas Dillon halted redemption of silver certificates for silver dollars and while you could still trade with Silver Certificates. The new currency was the Federal Reserve note which still exists today.

I like to buy on AMPEX so I was on their web site and it would take 37 one dollar Federal Reserve notes to buy one American Eagle One Dollar coin. Last Spring in the last week of April it would have taken over 50 one dollar Federal Reserve notes to buy one American Eagle One Dollar coin. So I ask you, in the long term, which way do you think silver will go? Let’s take a look at a chart of Spot Silver below (click to enlarge).

As you can see silver has been in a consolidation period for the last month. For those of you that like the market to move at warp speed let me save you the suspense. It doesn’t.

In conclusion, after the volatility that silver has gone through since January of this year I think it’s healthy for it to consolidate. When Silver breaks out again it will be to the upside.

*Post Courtesy of investingadvicebygeorge.blogspot.com.

Silver To Rise By Year End

Posted by Brittany Stepniak, Wealth Wire – Thursday, October 20th, 2011

Silver has outperformed all other precious metals this year, all while experiencing some wild volatility throughout: between losses of 2.8 percent and gains greater than 104 percent.

And, apparently, it’s still got a lot of climbing to do…

Based on predictions regarding the future of developing economies and the seemingly never-ending European debt crisis, silver has a strong potential to rebound from a bear market.

By the final quarter of 2012, silver will likely average around a record-breaking $42 per ounce – at least according Bloomberg’s median value produced from a group of 11 surveyed analysts.

When this happens, silver producers Fresnill Plc (FRES) and Pan American Silver Corp. (PAA) will achieve record-high profits.

This year alone, Pan American Silver will see $347.8 million in profits– more than double the $112.6 million the received in profit last year. Imagine what that exponential rate of profit-increase will look like when silver soars to record-highs…

From Bloomberg:

China, the biggest emerging-market user, is expanding at more than five times the speed of the U.S., driving consumption of the precious metal most used in industry. Demand is also coming from investors looking for an alternative to cash and gold, which costs about 50 times more than silver. The 30-week correlation coefficient between the two metals is now at 0.82, from as low as 0.47 in 2005, data compiled by Bloomberg show, with a figure of 1 meaning the two move in lockstep.

“Prices now look relatively cheap to where they have been recently,” said David Wilson, an analyst at Societe Generale SA in London and the most accurate silver forecaster tracked by Bloomberg in the two years through June. “The backdrop is still very supportive for gold and we think that silver will leverage off the back of that. Emerging markets are going to be important for demand for sure.”

Silver demand is here to stay.

Why?

Simple: it’s extremely multi-functional and used for a variety of purposes; coveted for its aesthetic beauty as well as its practical endeavors. These two qualities alone make it a top-seller in jewelry stores as well as an important commodity in construction and energy sectors. As the use of solar panels is transforming and dominating the energy market – with silver as a primary component in panels and film – silver demand has no where to go but up.

On account of these combined factors, overall silver gains this year are hovering right around 34 percent. Gold isn’t trailing far behind with gains right settling right at 24 percent. Platinum and palladium (amongst other metals) are the same fast-track to highest-ever annual averages.

Without any lasting solutions for the debt crisis, silver will continue to be of interest, especially to “newly industrialized countries.”

Why Inflation is Inevitable

Back in May 2011, the US Government reached the $14.3 trillion debt level that was allowed under the US Constitution, and had to get Congress to agree to raise this level or risk a default. Unthinkable that politicians from either side would allow such an eventuality to actually happen, but they took it to the brink and badly damaged the confidence and credibility of the world’s greatest economic power. Of course the ceiling was always going to be raised, it had been done by all previous regimes over many years. During his 8 years in office, President Bush added 4.3 trillion dollars to the national debt – but in his first 3 years President Barack Obama has added 4 trillion dollars alone. It’s fair to say he had no choice. This has led to some scary projections which say that by 2046, interest payments on this debt will amount to the entire revenue raised from taxes, which leaves exactly nothing to pay for anything else!

The US government clearly is living well beyond its means, and people who think otherwise are in denial, which sadly is the majority of the population because a cut in living standards is something they just don’t want to face up to. So we all know what that means – the US debt will just carry on rising! This is just fine so long as there is an appetite from investors for US debt.

This is not just America’s problem. There will come a day when the new kids on the block, China, India and Middle Eastern Oil-rich states, who have been funding this spending spree by holding their reserves in the form of US Treasuries (government debt) start to disbelieve that this debt is trustworthy or viable any more, in the same way that Sterling lost it’s credibility as the world’s reserve currency after the 2nd World War. This process has already begun with occasional murmurings from India and China about their concerns for the US dollar and their intentions to stock up on Gold. Back in May I reported that China would soon become the world’s largest holder of Gold reserves, overtaking the US (see article I posted on 11 May: China Building a New Fort Knox).

It’s not just the US that’s screwed. In Europe, the EU has been spending ever increasing time and effort to contain one Greek crisis after another. As I write Greece is facing another austerity vote in parliament and the country is in the middle of a 48 hour General Strike. European leaders, principally Sarkosy and Merkel are holding a Summit this coming Sunday to thrash out the details of a bailout fund to protect other Eurozone countries that would be vulnerable when Greece inevitably defaults. Italy and Spain are just too big to go down and the consequences are unthinkable.

The thing is, where is all this money coming from? Why does nobody in the media ever put this question to our dear leaders every time they emerge triumphantly from their latest crisis talks. Maybe it’s just me, be surely the facts are simple – nobody has any money, and everybody is just borrowing from everyone else! It’s not just the Americans that are in denial.

So, what are the choices for the Western Economies?

Well, firstly there is default. Unthinkable. Think of the riots going on now then multiply by 50 or more, as banks seize and all economic activity grinds to a halt, there’s only 2/3 days food supply in the stores at any one time. Desperate starving people do desperate things. Governments will never let this happen surely.

Secondly, Governments could slash spending in real terms, that means actually cut the size of government itself, including public service jobs, benefits, services, defence budgets, everything, including the number of politicians themselves and their fat salaries! I know what you’re thinking – AIN’T GONNA HAPPEN!

That leaves us with our third and only choice, INFLATION! Western governments need inflation, they need to pump money into the system to keep it going. In the US the was QE1 then QE2, Bernanke then boldly asserted there was no need any further QE, however, this did not turn out to be the case. Rather than lose face there was the recent announcement of ‘Operation Twist’ – QE3 by another name. This is the only choice the leaders of the western world have, there’s nothing else they have in their arsenal – turn on the money pump and hope for inflation.

Savings Will Be Destroyed

Interest rates will therefore stay low or even negative for the foreseeable future. It’s already happened in Japan for the last 20 years, where interest rates have been zero or negative in real terms in an attempt to kick-start their economy. Hasn’t worked. If the world’s leaders want inflation to inflate away their enormous debts, they will keep interest rates low, this will destroy wealth because savings are by default degraded in such a scenario.

Invest in Silver Now Before it’s Too Late

So if we accept that a lot of inflation is needed for governments to get out of the hole they’ve created, then there is only one refuge for your wealth – Gold and Silver. This is the one currency that not being printed with reckless abandon. Don’t be put off by the recent big sell-offs in Gold and Silver. I regard this time as an historic buying opportunity, particularly for Silver. Gold is, and will remain a fantastic investment but the upside for Silver in percentage terms is far greater. A lot of smart money has already gone into Gold – even smarter money is making it’s way into Silver. Be part of this historic transfer of wealth.

Everyone is feeling the pinch. Riots are becoming commonplace. Inflation is clearly rising in the developed World and elsewhere. In Europe it hit a two and a half year high in April. In the Middle East real inflation in terms of higher bread prices sparked rebellion. In the US the genie is well & truly out of the bottle. This is a global issue caused directly as a result of Quantitative easing.

The dilemma for policy makers is how to tackle it. Conventional wisdom is that you a) stop printing bank notes and b) hike base rates. But there is a bit of a problem. And it is threefold.

1. The Governments of the West have huge budget deficits and the only way to cut them in real terms is either to slash the size of Government or to default or to pump inflation into the system. What it means is that the leaders of this world actually need inflation and there is no rush to tackle the problem.

2. The West and Japan are fundamentally uncompetitive. This is for structural reasons (minimum wages, boardroom quotas, high taxes, armies of H&S regulators, Trades Unions, etc) and as such, rather than addressing fundamental supply side issues, there has been a conscious race to the bottom by the West to devalue their currencies. Hiking base rates would not help that race to the bottom.

3. Finally, while inflation may be creeping up there are still vast numbers of people across the West who have no jobs and even larger numbers who have rather large debt to income ratios. As such I expect real interest rates to remain negative for many years.

And so people across the globe are beginning to feel the pain. Inflation is destroying people’s wealth because it degrades your savings. Interest rates will rise but not dramatically and in real terms they will stay negative. It is still game on for Gold and Silver.

Buying precious metals is the best ways to protect against inflation – this is the one currency that is not being printed with gay abandon.

Gold and Silver have slipped back recently but this is merely a healthy correction. Speculators in the futures markets were cleared out by rising margin requirements for contracts. We have seen such retracements several times before as Gold and Silver have risen over the past few years in response to the debasement of the paper currencies. In real terms Gold remains well below its all time highs. We think it has a long way to go and will shoot through $2,000 before we are long into 2012. We regard the recent retracement as a fantastic buying opportunity. Silver we believe has further to go to the upside and has been predicted by Mike Maloney of Wealth Cycles to revert to its historical ratio of 17:1 which with Gold at $2,000 means a Silver price well in excess of $100 per ounce in the short term.