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Gold & Precious Metals

WHAT YOU DON'T SEE BEHIND THE SCENES


Posted by Equedia

on Monday, 12 March 2012 06:13

Most people have no idea what is taking place behind the scenes of the precious metals market - in particular, the silver market.

For many of you, much of what I am about to say may seem like Déjà vu. But because of the timing and the way I see the charts moving, I find it to be my duty to go over this once again.

Most of what is determining gold's price is paper trading - which is fundamentally flawed. The amount of paper gold and silver contracts that trade on the futures and equities exchanges easily outweigh the amount of actual physical trading that takes place.

That means it's the paper markets setting the price discovery for gold. It means that short term sentiment - and manipulation - are the causes of both gold and silver's volatility and not the actual fundamentals of gold and silver themselves.  

For example, in a report published last year (see Before it's Too Late), Eric Sprott and Andrew Morris pointed out the significant discord between paper and physical supply on the Comex relating to silver:

"...Over 800 million ounces traded each day in April on (the Comex). Further, consider that as at the end of April there were only 33 million ounces of registered inventories to back up all of that paper trading. Just imagine if a mere 5% of all of that buying actually stood for delivery; the entire inventories would be more than wiped out."

Over a year ago, I published a letter that revealed how most of the gold that is traded in the markets are not actually fully backed by the actual metal itself, as many believe (see The Silver Conspiracy):

For years, most people have assumed that the London Bullion Market Association (LBMA), the world's largest gold market, had actual gold to back up the massive "gold deposits" at the major LBMA banks. But it doesn't.

This was confirmed during the CFTC hearings when Jeffrey Christian of the CPM Group said that the LBMA banks have approximately 100 times more gold deposits than actual gold bullion. This means that for every ounce of gold traded in these markets, 99 of them appear from thin air. Has gold and silver been converted into a fiat currency in these markets?

In the LBMA market, for example, an average of 19.6 million ounces of gold was traded per day in July. The world has produced on average approximately 2,497 tonnes per year over the last several years - which is just over 80 million troy ounces.

That means the LMBA, trades nearly a year's worth of worldwide gold production in less than a week.

In October 2010, we published another letter proving our theory and why silver will climb to new highs (see Enron Lives On?). Silver more than doubled in value since that time, as it nearly reached an all-time high of $50.

In both letters, I mentioned how the trading of both silver and gold is not only highly leveraged, but easily manipulated - especially on the silver side. Many of the shorts used to manipulate the price are both naked and heavily leveraged.

But what happens when these shorts need to cover? What happens when the actual fundamentals of driving gold and silver up reveals its true colours?

Back on July 2011, I wrote a piece on the South Rare Precious Metals Spot Exchange in China, as well as The Gold Exchange.

Here is the excerpt:

In brief, the Pan Asia Gold Exchange features a market-driven mechanism and provides two basic services: a physical gold purchase and distribution network and innovative products based upon physical gold - for anyone. 

In short, that means simpler, quicker, and more cost-effective transactions between all parties for gold-related transactions. But more importantly, it means a new wave of capital injection for the gold market. 

Here's a video about the Pan Asian Gold Exchange (Make sure you watch it): 

Even whistleblower Andrew Maquire (see The Silver Conspiracy), who is no stranger to shorts and leverage employed by the banks against precious metals, was seen featured in the video. He says the exchange promises better price discovery, less leverage, and should in-time dilute the effects of short-side concentration in both gold and silver.  

We all know what happens when shorts have to cover...

The Pan Asian Gold Exchange could very well help send the price of gold into new territories.  

A New Wave of Capital

The Pan Asian Exchange has signed an agreement with The Agricultural Bank of China (ABC), integrating its customer account information system with their platform.  

That means the exchange will have direct access to the accounts of 320 million retail customers, 2.7 million corporate clients, and nearly 24,000 branches. ABC is China's third largest lender by assets. When it went public last year, it became the world's biggest ever initial public offering. It currently ranks No.8th among the Top 1000 World Banks and Forbes Global 2000 named it the 25th-largest public company in the world.

This is where it gets big. Real Big.

Imagine buying gold through your bank with the click of a mouse. The Pan Asia Exchange has now created the first ever rolling spot contract that will allow Chinese banking clients to buy 10 ounces (the minimum transaction) of gold contracts in RMB, through their account, and directly linked to the exchange. If you have an account with ABC, you can instantly buy gold, or gold contracts.  

Think about it: 320 million retail customers and 2.7 million corporate clients, all with the same Chinese appetite for precious metals (see Age of America Over?); all now able to buy gold in 10 ounce increments with the click of a button.   

Once more of these international contracts go live, we're going to see a strong demand for physical gold as the drawdown of physical gold begins to meet the obligations of the contracts. Buying gold directly from your bank account - that's real demand. It's essentially like the SPDR Gold Trust, or GLD, with much stricter leverage guidelines and 100% backed by gold.  

Because of the massive short positions against silver, and gold, every physical ounce of the precious metals taken out of the physical market and into the new Chinese exchange will force a massive short squeeze as leveraged short sellers have to cover their positions in the paper market.

There's no doubt these highly leveraged shorts are extremely vulnerable and can easily be taken out by physical demand. When you go from trading paper to actual physical metals, that's when the prices of these metals will skyrocket as the supply can't keep up with demand.

This new exchange has just slowly begun to trade in local Chinese communities. But they're going to be fully operational within 6 months. That means in less than 6 months, more than 320 million retail Chinese customers and 2.7 million corporate clients can buy gold online that is 100% backed by bullion - not leveraged pieces of paper.  

Eventually, the exchange will be opening its doors to foreigners.   

The US did it...why not Europe?  

The world's central banks have been printing a tidal wave of newly created paper money right under our noses over the past few years. And as I have stressed over the past couple of months, they won't stop.

Since December, the ECB has provided more than €1 trillion of new loans in two separate tranches. In the latest tranche, 800 banks grabbed €529.5 billion of new loans at 1% for three years using almost any form of collateral.   

While it may not directly be Quantitative Easing, the outcome is the same. Just like the US, this type of negative real interest rate loan is just another form of QE. It's another way of injecting money without spooking the world, and without violating any charters.   

This, in effect, means the banks effectively decide how much money is created. Because the ECB
does not directly monetize the debt of the weak sovereigns, which it is prohibited from doing by charter, it instead gives the commercial banks the ability to take their newly borrowed money and use it to buy sovereign debt.  

In other words, it's as if the ECB purchased sovereign debt through the commercial banks and is effectively "printing" new money without "technically" violating its charter.

We know currency is being devalued as a result. The amount of money being created is more than we've ever experienced - and the record breaking amounts won't stop.   

Gold WILL be above $2000 before the year is over and silver easily topping $50.  

The opportunities to participate are mounting.

Until next week,

 

Ivan Lo

Equedia Weekly  



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Timing & trends

5 Reasons Why The Euro Crisis Not Solved & 2 Actions To Take


Posted by Larry Edelson - Uncommon Wisdom

on Monday, 12 March 2012 06:05

Many already think that the European sovereign debt crisis is passing. That the latest bond deal and bailout for Greece solves everything.

But as far as I’m concerned, nothing could be further from the truth.

First, severe austerity measures do not create growth. So there’s no way Greece can grow its way out of its debt morass, even after the latest debt write-downs.

The proof is simple math. Before the Greek crisis flared up, debt-to-GDP in Greece stood at 120%. Today — and I repeat, even after all the write-offs — Greek debt-to-GDP stands somewhere north of a whopping 160%.

That’s more than 40% higher than it was at the beginning of the crisis — and the austerity measures are literally causing the Greek economy to implode, creating some of the worst social chaos we have seen in modern times.

Second, Italy, Portugal and Spain still remain vulnerable dominos. Each and every one of them is in hock way over their heads. And each and every one of them is just beginning to feel the impact of austerity measures.

Unemployment among youth is as much as 25%. Corporate and personal bankruptcies are surging. Social discontent is on the rise again. And tensions between countries within Europe are as high as ever.

Third, European banks themselves don’t buy any of the solutions. They show no confidence in Europe’s ability to survive the crisis.

That’s why Europe’s banks are holding on to money for dear life. Rather than lend into the economy, these banks are hoarding their cash, stashing droves of it at the European Central Bank (ECB) …and even scrambling to deposit hundreds of billions with Western central banks for safe-keeping.

Fourth, Europe’s economy as a whole is sinking. The ECB’s latest economic projections show the economy may contract 0.1%. That may not sound like much, but the previous forecast was for 0.3% positive growth.

Worse, that’s not going to help Europe’s internal financing needs this year. Italy and France alone have over $795 billion in debt that will have to be rolled over this year. With growth sharply slowing, plus uncertainty about which dominoes will be the next to fall, there’s a very real chance of a massive bear market collapse in European debts this year that takes down the entire European Union.

Fifth, high energy prices are making matters all that much worse. It would be one thing if we were seeing $35-a-barrel oil and cheap gasoline prices. But we’re not. So, high energy prices are certainly not helping the situation in Europe. Period.

Neither is inflation. With austerity measures squashing growth all over Europe and inflation on the rise, Europe is facing a double whammy in the months ahead. More hits to economic growth, more trouble rolling over debt and, soon, another renewed rise in social discontent.

In short, nothing, and I mean nothing, has been solved in Europe. There may be a lull in the crisis, but it will soon return with a vengeance.

As for the United States — don’t kid yourself. The U.S. economy looks better only because Europe looks so bad. In reality, the U.S. debt mountain is in even worse shape. And when it falls, it will fall hard.

Fortunately, we have some time before it crumbles. But not much. And as long as Europe’s crisis worsens, the U.S. will look like the better place to invest.

Which is precisely why the U.S. dollar is starting to rally again.

My suggestions …

A. Keep most of your liquid funds in cash, ready to be deployed on a moment’s notice, but as safe as can be right now. The best way: A short-term Treasury-only fund in the U.S., or the equivalent.

B. Hold on to all long-term gold holdings. You do not want to let go of those. Gold is heading to well over $5,000 an ounce over the next few years.

In the short term, however, I would not be surprised to see gold — and silver — move lower.

For one thing, as the U.S. dollar strengthens again, some of the shine will come off of the precious metals, even as Europe’s problems fester.

For another — and very importantly — both gold and silver failed to give monthly buy signals on Wednesday, February 29.

In fact, they failed miserably, with gold plunging more than $100 an ounce, more than 5.5%, in a single day and failing to take out the monthly buy signal at $1,789.

Silver, meanwhile, plunged almost 10% on February 29 and failed to close above its monthly buy signal at $35.85.

These are significant failed signals that strongly suggest that my forecast for lower metals prices — before they truly break out to the upside — remain on target.

Indeed, the next important levels of support for the metals — which I expect to see tested in the weeks ahead — are now at the $1,490 level in gold and the $29 level in silver. If those levels give way, even lower prices could be seen in the short term.

So if you’ve acted on any of my recent suggestions for light speculative bearish positions in gold and silver via inverse ETFs such as the ProShares UltraShort Gold (GLL) and ProShares UltraShort Silver (ZSL), I suggest you continue to hold those positions.

Ditto for my suggestion for bearish speculative positions on the euro via the ProShares UltraShort Euro (EUO) …and for the stock market via inverse stock index ETFs such as the ProShares UltraPro Short S&P 500 (SPXU).

EU-crisis-First-image

Don’t overtrade them, though. Those are speculative positions and I cannot help you via this column with precise timing and risk management. So keep that in mind.

Best wishes,

Larry

P.S. I’m just putting the finishing touches on the March issue of my Real Wealth Report. If you’re already a member, be sure to check your inbox this Friday, March 16, for my latest forecasts and a lot of news about how Real Wealth is going to help you get positioned for profits. If you’re not a member, this is a fantastic time to get started.

To join for the year, click here now. It will be the best money you spend this year. I repeat, click here now.

Larry Edelson has nearly 33 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Resource Windfall Trader (weekly) provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

For more information on Real Wealth Reportclick here.
For more information on Resource Windfall Traderclick here.



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Stocks & Equities

Market Buzz – The Highly Misused and Misunderstood Capital Allocation Strategy – Share Repurchases (Buybacks)


Posted by Ryan Irvine: Keystocks

on Saturday, 10 March 2012 00:00

Over the years, we have discussed the various ways that companies utilize their free cash flow to generate a return for their shareholders. In our small-cap universe, we have traditionally focused on companies that reinvest their earnings back into the business to generate sustainable growth. More recently the markets have started focusing on companies that payout their cash flow to shareholders in the form of dividends or distributions. Even better are those companies that generate so much cash that they can afford to invest in growth as well as pay a dividend. But there is also a third method of allocating capital that is often misused and even more often misunderstood – share repurchases (buybacks).

The consensus is mixed on whether or not share repurchases are in fact a viable strategy for generating shareholder returns. When a company has excess cash and they believe their shares are undervalued, they will often issue a normal course issuer bid which allows them to purchase and cancel a predetermined maximum number of shares of their own company. The idea is that if you believe that your own company will provide you with the best risk-adjusted return on your capital then why would you invest your capital anywhere else.

Warren Buffet recently said in his 2012 letter to shareholders (http://www.berkshirehathaway.com/letters/2011ltr.pdf) that in addition to generating strong earnings growth he also typically hopes that the stock prices of the companies he purchases languish in the markets for several years after he buys them. Using an example of IBM, he explained that if the company were to spend $50 billion over a 5 year period to repurchase its shares that his current interest of 5.5% in the company would growth to 7% if the share price were to average $200 over the period, but only 6.5% if the share price where to average $300. Since Warren has no intention of selling his shares during that period his best case scenario would be if the cash flow remained strong but the stock price plummeted. This is a wide diversion from the mentality of many retail investors who require constant validation from the market in the form of appreciating stock prices.

The reason that share repurchases are often criticized is because they are very commonly misused. Very often companies will publicly disclose that they have received exchange approval to proceed with a share buyback but then fail to repurchase any shares. The hope is that the announcement alone will garner investor interest. The more common problem is when share repurchases are made by companies that are not undervalued. Warren Buffet said, “I favor repurchases when two conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated. We have witnessed many bouts of repurchasing that failed our second test.” The CEO and Board of Directors commonly have a tendency to view their own company as undervalued, particularly if it has suffered a large decline in the share price. This bias can lead firms to repurchase stock when it is in fact overvalued, an activity which has the impact of destroying shareholder value.

The key to assessing a share repurchase strategy is to analyze the metrics of the individual situation. Does this company have the available liquidity to repurchase shares? Is the company clearly undervalued on the basis of free cash flow and will a share repurchase have the intended impact of improving performance on a per share basis? If the answer to these questions is yes then a share repurchase may be a very viable strategy for creating shareholder value long term.

dollar signs_pile


KeyStone’s Latest Reports Section




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Gold & Precious Metals

Time To Sell Gold?


Posted by James Bianco via The Big Picture comments by Marc Faber & Mark Leibovit

on Friday, 09 March 2012 14:27

Not if you've Mark Leibovit who argues that "Gold retraced into the mid 1600s as hoped, silver did not quite reach the desired 30-31 level. Meanwhile, should spot gold clear 1792 and spot silver clear 37.60, fasten your seat belts – a moon shot will then likely unfold before our eyes."

Screen shot 2012-03-09 at 1.43.03 PM

Screen shot 2012-03-09 at 1.43.30 PM

The Financial Times – Bernanke’s QE silence a blow to gold price

The 5 per cent fall, gold’s largest daily drop in more than three years, has triggered a nervous reappraisal of the precious metal among some investors: how strong can the fundamentals of the market be, they ask, if a non-denial from the Federal Reserve chief can have such a marked impact? The nervous shake-out has continued this week with gold on Tuesday dipping below its 200-day moving average, a technical indicator closely watched by traders, for the first time since mid-January to touch a low of $1,664 a troy ounce. Many analysts and investors believe the eventual shift to monetary policy tightening by the Federal Reserve will mark the end of gold’s decade-long rally, which has lifted prices from less than $300 an ounce in 2001 to almost $2,000 last year. By promising to keep rates at zero until 2014, therefore, the Fed has pushed back the gold price peak, which many analysts had expected to come in late 2012 or early 2013. “The consensus within the Fed to extend the zero interest rate policy to beyond 2013 does, all other things being equal, imply an extension of the gold bull market,” says Philip Klapwijk, head of metals analytics at Thomson Reuters GFMS, a leading precious metals consultancy. “Maybe in the short term QE3 matters,” agrees a gold specialist at a large hedge fund. “The more important thing is that rates are on hold and I don’t think that is going to change.”

Marc Faber Gold Far From Bubble Phase: Marc Faber

With more than 40 years as an economist to his credit and claiming gold as the "biggest position in my life," Gloom Boom & Doom Report Publisher Marc Faber assures us that gold is nowhere near a bubble phase, but cautions that corrections of 40% are not unusual in a bull market. At the end of March, Faber will share his secrets for surviving corrections at the World MoneyShow in Vancouver. In advance of that appearance, he sat down with The Gold Report  for this exclusive interview where he discusses his bias for portfolio diversification in terms of geographies as well as asset classes.

Also from Marc Faber March 9th/2012 -Marc Faber : Gold Price may not exceed the $1,922/oz in 2012

"This year the Gold Price may not exceed the $1,922/oz high that we reached on Sept. 6. Maybe it will. I'm not a prophet. I'm just telling people that I'm Buying Gold and holding it. I don't speculate in gold. If you Buy Gold, you better understand that the price could always move to the downside. If you don't understand that, don't invest in gold—or in anything."
 

Mark Leibovit’s Daily Gold Comment (More on Mark’s services is available at http://www.vrtrader.com/login/index.asp including a Trial Offer. Mark was  #2 Gold Timer for 2011 and the #1 Gold Market timer for the 5 year period ending in 2010)

Mark Leibovit's Daily Gold Comment via Don Vialoux's Timing the Market:

-GOLD – ACTION ALERT – BUY (Continue to look to take delivery of the physical metals)

Short-term, gold and silver are continuing to bounce off oversold positions. While gold retraced into the mid 1600s as hoped, silver did not quite reach the desired 30-31 level. Meanwhile, should spot gold clear 1792 and spot silver clear 37.60, fasten your seat belts – a moon shot will then likely unfold before our eyes. The sell-off was clearly ‘engineered’ and the scoundrels could easily engineer another one at a moment’s notice. This is why I encourage ‘stacking’ silver and gold. In other words, using weakness to accumulate the physical metal and put it in a place where government can’t get it or find it. I’ve been asked when will be the time to sell silver or gold. Will it be when it hits a particularly high price such as $11,000 in gold or $500 in silver? I cannot answer that question with any great certainty this morning, but my gut feeling is the time to sell will likely be when THE ENTIRE STRUCTURE OF THE WESTERN FIAT BANKING SYSTEM COLLAPSES AND SOMETHING ELSE IS ABOUT TO REPLACE IT!

Recent recommendations by Mark include purchases of Taseko (TGB), Smith & Wesson(SWHC), Market Vectors Gold Index(GDX), North American Palladium(PALL) and the High Yield Bond ETF(JNK)

 
 




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Timing & trends

What’s hot, what’s not and loving volatility


Posted by Mickey Fulp: The Mercenary Geologist

on Friday, 09 March 2012 00:00

bullish-exchange-320

MINING.com editor Andrew Topf sits down with mining analyst Mickey Fulp, who topped the site’s list of recommended mining bloggers and newsletter writers. In this brief interview on the sidelines of the PDAC convention in Toronto, Fulp touches on gold stocks, current market volatility, and two metals he likes best right now: uranium and graphite.

Andrew Topf: What metals are you bullish on right now?
Mickey Fulp: Copper, gold and uranium, and I’ll put graphite into that too.
Andrew Topf: Right, graphite seems to be the belle of the ball right now.
Mickey Fulp: It is, it’s the next big thing it reminds me very much what happened with REEs in 2009. We’re building a bubble in graphite, every snake oil salesman, shark and charlatan is swimming aorund in Coal Harbor in Vanouver right now. Every Vancouver promoter is scurrying around trying to find a shell to throw a graphite project in, so it looks very much like the next big thing. Like other area and commodity plays the juniors will rush in and 95% of them will fail and the ones with good deposits and good business plans will succeed.

.....read the entire interview HERE

 



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On Monday from the morning high to the afternoon low the DJIA dropped over 900 points, then bounced over 300 points to “only” close down...

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