MEADOW BAY GOLD REPORTS DRILL RESULTS INCLUDING 56 METERS OF 3.9 G/T GOLD FROM ATLANTA GOLD PORPHRY AND 105 METERS OF 2 G/T GOLD IN SHEAR ZONE IN NEVADA

Meadow Bay Gold Corp. has provided assay results from five reverse circulation and one core drill hole at its Atlanta gold mine project, Lincoln county, Nevada.

Drilling in 2011 discovered porphyry-hosted gold mineralization to the west of the historic Atlanta open pit. The porphyry-hosted mineralization is distinctly different from the gold-silver mineralization within jasperoid breccias in the Atlanta fault that were mined previously. After the discovery was made, drilling was redirected to explore the extent of the porphyry mineralization and determine if gold mineralization extends farther northward.

Gold mineralization has been identified in all five of the porphyry holes for which results have been received to date. This includes hole DHRC-11-RCN03 on northern extent of the Atlanta porphyry, and hole DHRC-11-RCN05 which is close to the centre of the porphyry. Hole DHRC-11-RCN06 also intersected porphyry-hosted gold mineralization but recovery was poor within the target interval. Holes DHRC-11-15C and DHRC-11-RCN07 intersected low-level gold mineralization. The significant intercepts are listed in the table.

Assay results were also received for hole DHRC-11-RCN02. This hole intersected the jasperoid breccia northwest of the Atlanta pit and hit an unusually long intercept of gold and silver mineralization. This hole is 50 m northwest of hole DHRC-11-07C which also encountered a long mineralized intercept but failed to reach the target depth. Results for DHRC-11-07C were previously reported.

The results obtained to date show that gold mineralization occurs within the Atlanta porphyry over approximately 300 metres in an east-west direction and 400 m north-south. The southern margin of the porphyry is terminated by the same east-west high-angle fault that truncates the jasperoid breccia-hosted mineralization in the Atlanta fault. The porphyry butts up against the Atlanta fault on the east and appears to be cut by another high-angle fault to the west. The northern limit of the porphyry has not yet been tested by drilling.

Robert Dinning, chief executive officer, commented: “Following the discovery of porphyry-hosted gold mineralization last fall, the question in the back of our minds was whether we would find gold north of the discovery holes. Confirming that mineralization extends the length of the porphyry has resolved a fundamental uncertainty. Our current focus is gaining a better understanding of the distribution of precious metals within the Atlanta porphyry. On the exploration side, we are looking at areas with similar geophysical characteristics with the intent of finding additional gold-bearing porphyries within the Atlanta district which we control in its entirety.”

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Listen to the empty words of the last bailout for Greece. Credibility with the Jackass was lost back on the third bailout, well over a year ago, out of the six bailouts in total. Perhaps it is seven comprehensive final bailouts. The pattern is clear. The politicians, without popular support, forge agreements on debt coverage with the Greek officials. The deals fall through, hit the ground, and expose the lack of support even from the European bankers, led by the Germans. The pattern has been vividly clear for over a year, enough for my dismissal of new accords right away on the basis that the German bankers will not conform and agree to the deals struck. The political leaders in France (Sarkozy) and Germany (Merkel) are due to lose their offices, yet they continue to march around at useless summits attempting to cut last ditch agreements that mean nothing. The people are not willing in Germany to hand over any more than the $3 trillion to date, from the start of the common Euro currency experiment. The bankers, like at the Bundesbank, should attend the summits, but that would be too obvious on where the majority of power is held. What is unfolding is a comprehensive Greek Govt debt default from the inability to contain the situation, the impracticality of the austerity budgets put in place, the wreckage that has come to the Greek Economy, and the intractable solution.

My view is the entire charade for two years has been a grand delay to enable the big banks to sell out of their bonds and dump them on the Euro Central Bank. Almost every bailout has been of bank assets in some sort of redemption, not budget assistance. The biggest question posed and not answered is: HOW ANGRY ARE THE OWNERS OF THE FEDERAL RESERVE AND EURO CENTRAL BANK TO ACCUMULATE AND OWN SUCH A MOUNTAIN OF TOXIC PAPER?? My German banker source says the Germans will make what seem like agreements or permit the politicians to make them, but the bankers will consistently obstruct them. He steadily stresses how Germany has wasted $300 billion in savings each year, is exhausted, and no longer is willing or able to provide national welfare for Southern Europe. They will write no more checks except what will successfully grab collateral prize properties. It has become obvious the Greeks will not hand over much of any property without lighting the city on fire. It is the end of the bailout road. A few months ago my firm position, stated in the newsletter, that the bailouts would end when the riots amplify. They have amplified. Conclusion: GAME OVER.

Next comes a planned or unplanned default. Let’s see how inequitable they will make it. Obviously it will be inequitable, since all accords have greatly favored the bankers. The TARP Fund was the most egregious, but it only disguised the bigger multi-$trillion grants with zero cost to the many banks, both central bank and private bank. The upshot of the Financial Regulatory Bill is that the USFed must open its books, but only after such loans take place, not to be reversed. Back to Greece. For a few months, some clarity and realism has entered the discussions and analysis concerning the burning nation of antiquity. The new theme has been that Greece will default, must default, and cannot avoid a default. Exactly. So the challenge is to avoid the horrendous collateral damage that will come. The central bankers, regional commissars, and technocrats have been working overtime, but Davos was a missed opportunity for forging potential solutions or at least elements.

A great comment came out of the World Economic Forum in Davos. The comment came from one of the few Economics Nobel Winners who makes any sense at all. The recent parade of prize winners seems either clownish in support of the status quo in disaster mode, or abstruce to the point of irrelevance. Joseph Stiglitz uttered perhaps the only wisdom or story worth reporting from the forum, a country club gathering of bankers and their investment fund cohorts whose mission is to defend the failing system. Stiglitz said, “European leaders repeat the same kind of platitudes, [like] we need to get growth going, [like] austerity will not be enough, but no country has policies that will achieve growth. I have not heard a single thing here in Davos that has convinced me that the European leaders have any sense of what they need to do and will do. Nobody knows who owes what to whom, where the risks of a Greek default are.” It reminds me of a premise that the first step in a reconstruction, remedy, and solution is to liquidate the big insolvent banks. But that is precisely where the power lies in controlling the USGovt. If not the banks, the agencies that have evolved into a private sprawling enterprise control much hidden power.

BLUEPRINT FOR DAMAGE CONTROL

One must be serious and grounded in reality. No solution exists for Greece without liquidation of their debt, its restructure with huge writedowns if not total wipeout loss, a return to the Drachma currency, recapitalization of their banks, and a hands off to carpetbaggers. Almost none of these measures will be done, except blockage of the foreigners intending to exploit. Talk is clear about a 70% bond haircut, which does not seem enough even though it is brutal. The biggest practical impediments to the Greek Economy are the austerity plan and the absent ability to devalue the currency. Every single austerity plan to date has been a failure, in every nation attempted. They result in worse economic slowdowns, greater job loss, broad cancelation of projects, reduced pension security, and much wider deficits. Yet they continue in a grand procession of ruin. One must wonder if ruin is the goal, so that another technocrat can be put in power, unelected and with allegiance only to the syndicate. Who selected Papademous and Monti?

The absent path to a currency devaluation hits as the central flaw of the common Euro region. The weakest cannot compete against the strongest. In time the strong nations refuse to provide the higher standard of living at their own domestic expense. The German standard of living has fallen badly, angering many of its citizens. The normal evolutionary path calls for a troubled nation to do debt restructure, to enact broad reforms, to devalue the currency, and to stimulate the economy. The path taken for two years has been to dance around the debt table. No action at all on devaluation, since removal from the Euro currency umbilical would mean enormous debt writeoffs for the major European banks. This is the same obstructive dynamic at work in the United States. Greece needs to go back to the Drachma, devalue it by 30% or more, and enjoy some stimulus. Their list of export items is not in great volume. The austerity budgets are the exact opposite of stimulus. Lunacy has taken root, like with an entire class of public contract workers must work for no pay. The power center of the big banks prevents solutions. So the next phase will be full of risk and intrigue, if not treachery.

LAYERS OF RISK

Big Bank losses: The big banks in Europe face staggering losses. The attempts to make a mere 35% bond loss haircut in past deals was so unworkable as to be laughable. They fooled nobody. Reality has entered the room, as a 70% writedown figure has been proposed on current bailout deals. The big banks are already reeling from credit portfolios damaged by property like home mortgage and commercial mortgage. They are hurt by sovereign debt generally, not just from Greece. The Italian and Spanish Govt debt losses will be higher in volume, lower in percentage loss. The big bank exposure extends also to private debt within the Greek Economy, like with mortgages and commercial loans. They are all at heavy risk. The Basel II rules have forced de-leveraging as a warmup process that weakened many banks. The big European banks should enter failure from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Contagion to Banks outside Europe: The interwoven nature of Western banking does not add to its strength, like in integrated plywood sinews, but rather exposes its weakness. The London banks own a huge amount of Southern Europe sovereign debt. The New York banks own a sizeable portion also. A recent conversation with a sturdy German banker revealed that Citigroup owns an enormous amount of debt in Greece, Italy, and Eastern Europe in the mortgage sector. Most will be written off with big losses. The amount of PIGS sovereign debt owned by banks in France is enormous, well detailed, but under-reported. The cross pollenation will come to the fore as the ripples are felt. The German banks own too much sovereign debt. The big banks outside Europe are at great risk, just like those throughout the Continent. Many non-European banks should enter failure from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Euro Central Bank: Like the US Federal Reserve, these two central banks have served as the buyer of last resort for toxic bonds that both nobody wants and have nearly worthless value. Their owner lords (think castles in London and Switzerland) must be pushing back hard. The new EuroCB head Mario Draghi at first stated a firm position of not wishing to buy Southern European sovereign bonds, since badly impaired. When the Italian and Spanish Govt Bond yields rose toward or past the 7% magic mark, he relented. The stability returned in the bond market, but at the high cost of further wrecking the EuroCB balance sheet. It is hard to know which is more ruined, loaded with toxic paper, the EuroCB or the USFed. Both in my view are wrecked entities and control towers. Neither can serve adequately as a central bank when acting like a proxy for the entire banking system. They must remove the bank reserves held as hostage from private banks. The major central banks should face severe insolvency from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Credit Default Swaps: The bond insurance market is even more corrupt than the mortgage market. At least the  mortgage arena contained some hint of regulatory oversight. The derivative market has none at all. Some fine analysts like Chris Whalen stated two and three years ago that without the derivative trade, the US banks would have keeled over dead long ago. They took in huge fees on contracts whose legitimacy and effectiveness are unclear. The ISDA has issued rulings on bond debt default that seem corrupt to the core. The next round of Greece Govt Bond writedowns apparently will feature CDSwap insurance responses in the form of awards in exchange for bond ownership, the inherent asset swap. Like the SEC and CFTC, the ISDA is loaded with bankers from the everpresent Wall Street revolving door. They will serve the banks at the expense of the system and economy. The interwoven nature of Western banking does not add to its strength, but rather exposes its weakness. The claimed offset on derivative ownership is nonsense, as Bank A holds derivatives that cover Bank B, and vice versa. They do not cancel out for net neutral. Both banks are killed, neither able to aid the other. The payouts for Credit Default Swap contracts being enforced should cause tremendous additional damage to the entire financial system, from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Exposure of Profound Fraud again: The strain from any imposed default skein will expose the derivative market. The cast of counter-parties is too diverse. The obligations are too unclear. The nature of the contracts is too untested. The enforcement by the ISDA rulings are too subservient. Like with the mortgage sector, liquidations reveal the seriously putrid underbelly. With mortgages, no widespread liquidation of mortgage bonds could be done, since the process would reveal bond fraud to the extreme. Its mortgage contract fraud is in the open for full view. So patchwork was done, even nationalization of Fannie Mae and AIG under the USGovt wing. The fraud is contained supposedly, but without the basis of a solution. Hyper monetary inflation goes down a Black Hole. So also is the nature of the derivative market. Liquidations will reveal the seriously corrupted core of the business. After the recent MFGlobal, JPMorgan, and COMEX episode, one more log on the raging fraud bonfire. The system’s foundation of integrity is burning. The CDSwap contract award process should expose profound fraud in the system from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Recapitalize domestic banking systems: The banking system has operated in the Western nations amidst deep insolvency for three years or more. When the Greek default is begun, that insolvency will be much worse. Some banks will fail. The dominos will fall. The impact will be understood quickly. The need to rebuild the banking system will be an obvious and very painful realization, but the volume will result in shock. The big banks serve as the core for the domestic credit engines, the machinery to pump credit into the many businesses. That engine is sputtering badly. Some measures will be done to enable new Euro Bonds to take senior position, but expect it to backfire since bond dealers and bond funds will resist the favored treatment and retreat. Several $trillion will be needed to recapitalize the banking systems, not just a few banks. With the dependence upon newly printed unbacked money, the banking systems should lose further integrity from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Debt Rating Agencies: Since the autumn months of 2008, the agencies have acted more responsibly. The Standard & Poors downgrade of the USGovt debt was a wakeup call of unprecedented manner. However, the Moodys and Fitch agencies did not follow suit. Worse, the S&P chief executive was forced out of office, probably by a Wall Street phone call, replaced by a Citigroup veteran. In the last several months to perhaps 18 months, the debt rating agencies have been doing their job reponsibly, but their focus is entirely on Europe. They have ignored the United States, even ignored the embattled insolvent US States. They are piling on with European sovereign downgrades, European bank downgrades, even European stability fund downgrades. Instead of putting the debt rating agencies at greater risk from an imposed Greek Govt debt default and restructure, the pressure will be on them as a group to focus more attention on the USGovt and the US States. Their collective financial condition is equally bad as Greece.

Economies suffer from Austerity: The impact of every austerity plan is to put in place what appears to be a more rigid spending process. But the dependence of the domestic economies is so great upon the public sector for jobs and projects and grants and subsidies, that the damage is instant and deep. No austerity budget plan has resulted in improved finances in the first two years of emplacement. None! The economists seem blind to the effect. The politicians seem ignorant. The corporate leaders are frustrated. No solution exists for remedy short of a five year period. Many economies in the West should suffer even worse and more painful recessions from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Amplified Inflation Risk: All solutions proposed involve the disposition of new money, either from outright printing without backing or from grander fiscal deficits. The austerity plans result in worse deficits, thus worse pressure on inflation. Any banking system recapitalization would be the crown jewel of monetary inflation. Imagine the effect of $1 trillion or $2 trillion in recapped banks, only to find they require another $1 trillion several months later. The inflation impact could be enough to push the water level over the bunker banker walls. Those walls have prevented the staggering hyper monetary inflation from spilling over into Main Streets across the nation. The bank sector has enjoyed 98% of the bailout benefits. The public has been told to tighten belts and to eat cake. Look for the bank recapitalization project, if it occurs, to finally push the inflation process in such a way that price inflation hits the USEconomy in force. Refer to rising wages and rising prices, not just costs. Tremendous pressure should come on systemic price inflation from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Interest Rate Swap Risk: If price inflation rises in unexpected fashion, the pressure put on the USTreasury Bond market will be greater than any time in the last ten years. So far, the abuse of the Interest Rate Swap contract has provided outsized leverage in keeping down the USTBond yields generally, by creating artificial bond demand. The financial press is totally oblivious to this phenomenon. Investors do not flock to USTBond as safe haven. The Wall Street leverage machinery has created bond demand from the basement working overtime for over two years. The smoking gun was the 1Q2011 report on derivative growth by the Office of the Comptroller & Currency. It revealed $8 trillion in notional derivatives put on by Morgan Stanley alone. So much for investor bond demand and contradiction of the S&P downgrade of USGovt debt. What a clever tactic. However, the Greek Govt debt unraveling could place tremendous strain on the IRSwap device, even to expose it during a time of increased foreign creditor isolation. The US sovereign bond market inner circle hidden devices should be brought into the open from an imposed Greek Govt debt default and restructure. The Greek losses will strain the system to the hilt.

Unintended Consequence Risk: The last risk to cite is the risk of the unknown, the unexpected, that which cannot be properly planned. The potential unintended outcomes and pressures emanating from a comprehensive planned Greek Govt debt default defy description. In my view, it is like herding 100 cats freed from bondage on a truck in an open field. The Jackass loves cats, but never have they been captured in a yard when attempted. They jump fences, crawl under fences, disappear in holes under houses, even hide in car engines. They are fast and elusive, changing directions with extreme quickness and agility. So will be the consequences to a planned Greek demolition of their indebted edifices. The Powerz must realize the challenge that lies ahead, and look upon each with some trepidation.

GOLD & SILVER

The battle has been waged in the 1750 to 1800 price corridor for almost a full month. It is critically important. A smaller battle to overcome the 1650 mark was a success, thus making the Gold price recovery firm and recognized. As a solution is worked out in Greece, or the absence of one with another in a series of grand missteps, watch the Gold price cast a vote. The system’s integrity lies in the balance. The pressure points are across the entire financial and economic systems. The solutions are elusive since the basic initial step of big bank liquidation is refused, too much damage to be doled to the banks that control the power. The zinger is the recapitalization of the banking system, an urgent need and requirement, the understood impact from the imposed Greek comprehensive solution. Expect more favored treatment to the banks. However, as they are put back on solvent feet, a process only possible with vast hyper monetary inflation directed specifically at the banking pillars, the retribution from within the system will possibly be the first serious price inflation leakover. For over three years, the monetary inflation leakover has been contained, to the detriment of the economy.

The anticipation of that systemic price inflation event could be seen in the Gold price. The direct response to the imposed Greek debt solution could be some sort of capitulation, a recognition that the Western financial and monetary system cannot be fixed. Any perception that bank system reconstruction would assure another powerful bout of price inflation as the heavy cost could be a major unintended consequence. The Gold price could explode past $2000 per ounce if that were to occur. If the planned demolition of the Greek Govt bond building does not go according to plan, look to the Gold price for a powerful upward response. The list of unintended consequences and collateral damage is very long indeed. The risk is staggering acute and not easily measured. Gold should serve as the effective pressure valve. Most every attempt to push down the Gold price in the last few weeks with yet more naked shorting has been thwarted and opposed by the Eastern Coalition, their new project.

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Silver has been its normal restless self this last year, but holders of silver bullion might not feel adequately rewarded. The metal of the moon has witnessed soaring highs to within touching distance of $50/ounce, two vicious chops, but the silver price crucially sits only a few per cent higher than in February 2011. Volatility is part and parcel of silver investment, but silver investors have not been rewarded this last 12 months with the price appreciation they might have hoped for. The gold silver ratio now sits just below 52.

Why no gains in the silver price?

In early November 2011 we wrote an article about how silver might resemble a rocket ready for launch. So what happened to the Silver Rocketship? Was the ship not fuelled? Was the launch cancelled before the countdown?

We cannot know for sure, but silver investors are still waiting. And, while we wait silver is getting less air time and focus it seems. Maybe after achieving the headlines amongst the precious metals, silver is waiting for its golden big brother to lead the next leg higher in terms of price discovery.

Dr Stephen Leeb sees the precious metal complex just waiting for the right kick higher. When talking to King World News, Dr Leeb commented that “I think the world right now is extraordinary complacent and that complacent attitude could come to an end at any point in time. When it does, gold will begin to fly.  New highs will come very, very quickly and beyond that we will be in another leg of this bull market”. Dr Leeb is watching for the right spark to ignite the gold price.

It is true that sometimes gold leads and silver follows more erratically behind. For large parts of 2010 and early 2011 silver led gold. Some commentators wait for gold to move into a new trading range higher before the silver price will be able to push through technical resistance in the mid 30 dollars per ounce range. It would be good to see silver spend some time trading with conviction above $40/ounce. Last time silver ran at $50/ounce it went to fast and too early.

China in the silver market

Given China’s claimed role in silver price moves from $16/ounce to the price levels of today, it was interesting to see some recent market commentary about a recent lack of buying activity from China over the short to medium term. If you subscribed to the theory that China had been stockpiling silver, you might have taken Standard Bank’s recent findings as validation for your thinking and useful context for the stalling of silver’s potential up-trend. We know the aforementioned Dr Leeb has been talking about Chinese stockpiling of silver for some time.

Perhaps the Chinese had decided to draw down some of their inventory of silver bullion? Analysis from South Africa’s Standard Bank suggests as much, and that the silver price will not be able to push through $35/ounce until Chinese buying power returns to the market.

Familiar face to the silver market, Walter De Wet, Standard Bank’s London based strategist, commented that “as long as China does not import silver, the price is unlikely to rally on a sustainable basis”. Mr De Wet continued that their estimates suggest Chinese warehouses hold enough silver to supply industrial activity for 15 months, having risen from 12 months in 2011. This contrasts to Chinese stockpiles of only 4 months industrial demand in 2009. The takeaway is that Standard Bank believes Chinese silver stockpiles need to fall below 10-12 months industrial supply “in order for demand-pull pressure to build”.

This makes some apparent sense, and perhaps adds some context to the last year in the silver price. A large part of the bid has simply not been present in the market.

Walter De Wet adds some extra context finding that China’s new demand for silver “is not very strong at the moment” when one considers that the premiums that previously existed in the Shanghai market over the London silver price have subsided. These premiums at times reached $5/ounce in summer 2011, yet in February 2012 have been more regularly below 50 cents. Demand for physical silver bullion from China has clearly been lower, so the Chinese are now less willing to pay over the spot silver price to source silver bullion.

Where to next for silver?

If the up-trend in the silver price has lost its main stimulant in lack of Chinese participation over the last six to nine months, then perhaps silver’s price action is not as disappointing as first felt. Some market commentators have even been pleased with silver’s resilience in recent months of trading.

Silver investors with an understanding of this peculiar market understand silver’s moods and emotions. Holding a silver investment this last 12 years for a gain of over 650% has not necessarily been easy, but then neither was holding Apple shares over the last 13 years. Between February 1998 and February 2012 shares of Apple have appreciated over 85 times, from 5.9 to 502 dollars, but investors were tested by vicious corrections and some lack of direction in the share price that at times extended into the medium term.

Whilst the silver price bides its time, silver remains a legitimate part of a portfolio. Gold and silver can still be considered some of the most rational investment assets in this type of fracture financial environment. Precious metals are no one’s liability, and this attribute continues to make them stand tall. Silver is still underpriced in historical terms, and the gold silver ratio has some way to go before returning to the long term average of 15.

During Apple’s 85 times appreciation the period from February 2007 to February 2009 was one of these trying periods. We find some similarities for silver investors here, but if Standard Bank is right we should see a silver price on the move again later in 2012 when Chinese buying power returns to the market. No one, including ourselves, can tell you exactly when silver might begin to reward investors again but the fundamentals that got silver moving in 2000 are still there in force. We need to understand the nature of silver investment, and silver’s tricky and volatile nature, if this experience for investors is to be more educational and less frustrating.

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Fear is a word that is tossed around all too often when ignorant commentators and analysts have to justify a rise in Gold. They can’t say its a bull market. They can’t say its supply and demand. They can’t explain the fundamentals. Fear is an incomplete explanation.

Fear should refer to fear or concern about the value of reserve currencies, not other asset classes. This is not rocket science. The developing world understands the value of Gold as various currencies under the weight of financially weak governments lost significant value throughout the 20th Century. Do you think the Pound or the Dollar has a bad track record? Consider the history of currency destruction in Eastern Europe, Latin America and Southeast Asia. It is multiples worse.

Generally speaking Buffet is right: stocks or businesses are a better investment than Gold. They make sense. They produce something, they earn profits. They grow. Even considering the survivorship bias, the trend for stocks historically is always higher. Gold is a speculation and always will be. However, Buffet fails to note the long-term cyclicality between stocks and Gold. The inverse relationship is clear and Gold’s time is now.

The current case for Gold is all to simple. The leading nations of the world must monetize current and future debts to prevent a potentially catastrophic deflationary depression. In a debt crisis, currencies lose substantial value. We are in a global debt crisis and ground zero is the developed world.

But Gold is a bubble! It’s gone up 10 years in a row and the public is in. Right?

Did you know the Dow Jones Industrial Average from 1985-1999 only had one year in the red and it was only a decline of 4%? Did you know the global allocation to Gold and gold-related investments is barely more than 1%? Furthermore, if Gold were in a bubble, we wouldn’t be seeing the large cap stocks trading at 12x trailing earnings (see GDX) nor would we see junior exploration companies trading at multi-year lows relative to Gold.

Clearly Buffet doesn’t understand Gold. He doesn’t mention its appeal as an inflation hedge or as a currency. He falsely assumes its rise is a result of only wild speculation and a disdain for everything else. He has no idea how under-owned Gold is nor is he aware of the valuations of the shares.

However, you can’t fault his reasoning for wanting to own stocks. He believes he can invest in companies that will benefit from inflation or continue to earn profits that will outpace inflation. He has investments in energy companies and agriculture companies. To some degree, those companies are affected by commodity prices. Why not consider an investment in Silver Wheaton or Franco Nevada? There has to be someone in Buffet’s camp that is intrigued by the precious metals royalty companies. They don’t have mining risk. They earn profits and pay a dividend.

In the long run Buffet will be right. Gold and gold shares will probably flame out in spectacular fashion. The public will get killed. However, this is closer to ten years away than one or two years in the future. Many were calling stocks a bubble in 1995. Not 1999. 1995! That was when the bubble was just getting started. The next breakout in the gold equities and the metals themselves will serve as a recognition move to the masses. It will be a springboard to an eventual bubble. This is a very volatile, cyclical sector so one must do Buffet-like due diligence in picking stocks. If you’d be interested in professional guidance in uncovering the best mining stocks for 2012, then we invite you to learn more about our service.    

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

Although it is a long way from being a mainstream view, over the past two months we’ve read several comments along the lines of: the financial world will soon be immersed in another 2008-style crisis, only worse. In some cases the commentator went as far as to suggest that the next crisis, which will probably soon begin, will make 2008 look like child’s play. What, then, do we think are the odds of a 2008 repeat?

There’s a high probability of another major financial crisis happening within the next three years. It is almost inevitable, because debt levels are higher now than they were in 2007 and because governments and central banks have stymied the corrective process with their many interventions. However, there is almost no chance that the next crisis will be similar to the last one, for the reason we cited a number of times during the course of last year in response to the “2008 repeat” forecasts that kept cropping up. Just to quickly recap, the monetary backdrop all but eliminated the potential for a 2008-style crisis last year.

The current monetary backdrop all but eliminates the potential for a 2008-style crisis anytime soon. In fact, a good argument could be made that the probability of a 2008 repeat is even lower now than it was at any time last year. The reason is that up until a couple of months ago the ECB was still implementing a tight monetary policy, thus partially negating the Fed’s ultra-easy stance. The ECB has recently fallen into line with the Fed, which should pave the way for a large increase in the rate of euro inflation over the months ahead.

The following chart from Michael Pollaro’s blog shows the contrast between the relatively slow rate of global monetary inflation that preceded the 2008 crisis and the current much-higher rate (the chart shows year-over-year rates of change in US$ supply (TMS2), euro supply and Yen supply). The rate of euro inflation is clearly still low, but as noted above it looks set to ramp up over the next few months due to the ECB’s recent policy shift.

Based on the February 17th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

We like Warren Buffett. We respect Warren Buffett. We’d love to sit and have lunch with him one day. As an investor, Warren Buffett is in a class all of his own. But the Oracle of Omaha just keeps bashing gold at every opportunity.

In an article published in Fortune Magazine, based on his upcoming annual Berkshire Hathaway shareholder letter, Buffett again dismissed the yellow metal. It is hard to argue with a man whose bank balance is a zillion times bigger than yours. Obviously he has been right plenty and has the bank balance to prove it.

But meantime, all the while that he has been bashing gold, it has bulldozed its way up and gold bugs have been laughing all the way to the bank.

Buffet attacks gold with the usual weapons in the anti-gold arsenal: gold has no inherent value; it underperforms stocks over time and has merely become a self-inflating bubble in its long climb to record highs.

Buffett observed in a 1998 speech at Harvard that “Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

At the time of his Harvard speech, the price of gold hovered at around $300 an ounce. If Buffett had invested just one of his many millions in gold that year, he would have $5.7 million today, that’s an average return above 13% a year.

And yes, it does make sense to keep gold in a vault. It’s valuable and rare. You keep it safe from theft– it keeps you safe from inflation, banking collapses and the devaluation of fiat currencies.

Since we’ve touched on currencies, let’s begin the technical part with the analysis of the USD Index. We will start with the very long-term chart (charts courtesy by http://stockcharts.com)

Our first chart is the very long-term USD Index chart. There is basically no change this week as the daily index movements have been too small to be visible from a 20-year perspective. The situation is still somewhat unclear for the long term but appears to be more bearish than not.

The short-term situation, however, is not that bearish. The USD has been moving slowly higher in the past days and this trend may continue for some time.

In the long-term S&P 500 Index chart, we see that a local top may already be in or is about to be reached. The significant rally of the past month without a meaningful correction increases the likelihood of a local top being formed soon. Markets simply cannot continue to move higher indefinitely without corrections.

As we compare recent trading patterns with the 2010 upswing, similarities are still in place. A continuation of this anomaly would imply that a correction is quite possible soon and we are near a local top now. Although it can’t be seen on the above chart, the Dow Jones Industrials and the Japanese Nikkei have both reached important resistance levels as well, a fact which also points to an end to the recent rally (or at least a pause) for these markets and the likely formation of a local top.

In the Broker Dealer Index (proxy for the financial sector) chart, we have some bullish implications, but it must be kept in mind that these are for the medium term, not the short term. At this point, we could still see a correction in the main stock indices and a verification of the breakout here. The financials then could move back to the previously broken declining resistance line based on several 2011 highs.

The situation in the general stock market is bearish for the short term, as important resistance lines have been reached or are now close at hand. After a significant rally without a meaningful correction, a downturn would be in tune with previous trading patterns and current investor sentiment.

The financial headlines across the Internet have generally shown that the media is very bullish for stocks at this time (General Motors’ profits highest in years!). Combining this fact with our bearish technical indicators suggests that a local top is very close.

The Correlation Matrix is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector. The metals and currency markets are negatively correlated while gold and the general stock market show a positive correlation. The pending local top in the general stock market is therefore likely to be bearish for the precious metals sector.

This is also in line with our previous comments from our essay on the short-term bearish outlook for gold (February 14th, 2012):

So, will gold decline from here? Most likely yes, but not very far. The additional confirmation of the short-term bearish case comes from the general stock market, as gold has been recently moving in tune with stocks. Consequently a turnaround in stocks could ignite a move lower in gold as well.

Summing up, the two main short-term drivers of the precious metals sector, stocks and currencies are both providing rather bearish influences at this time. Although the long-term fundamental picture is the most important (and the long-term trend for gold and silver are up), the short term columns here should not be ignored when the coefficients show significant strength with precious metals and other markets.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It’s free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
www.SunshineProfits.com

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All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

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WHOLESALE MARKET gold bullion prices held above $1730 an ounce in Monday morning’s London trading – roughly in line with where gold has been for much of February – while European stocks and commodities edged higher amid hopes that policymakers might finally approve Greece’s second bailout. US markets are closed for a holiday.

Silver bullion prices were also fairly flat this morning around $33.50 per ounce.

Earlier on Monday, gold bullion prices jumped $14 an ounce in Asian trading after China’s central bank eased its monetary policy stance over the weekend.

“The rally lasted only for a very short period of time,” says one gold bullion dealer in Hong Kong.
“Once we traded [higher], resting [sell] orders took over and stabilized the market. It seems despite various bits of precious-positive news, the market is still in a consolidation phase.”

The People’s Bank of China announced Saturday that it is cutting the reserve requirement ratio – which dictates the amount banks must hold in reserve as a proportion of their assets – by half a percentage point. Large commercial banks will see their RRR fall to 20.5% as a result.

The cut “reflects that stimulating economic growth is currently the government’s priority” reckons HCBS economist Ma Xiaoping, who adds that it will “help release liquidity” to the tune of around 400 billion Yuan ($63.5 billion).

Elsewhere in China, the Shanghai Gold Exchange announced Monday it is cutting its gold trading fees on a number of contracts. It follows last week’s announcement by the Shanghai Futures Exchange that it was lowering its margin on gold futures contracts with effect from the start of next month.

Singapore meantime will make investment grade gold bullion exempt from a 7% sales tax with effect from October, Reuters reported Monday, citing industry sources.

“I think this is really going to change the landscape in Singapore,” says one gold dealer.

“Asset managers will [be] very excited. The trend in the last three years is that people are moving to physical hard assets from paper.”

Eurozone finance ministers are meeting in Brussels today to discuss putting the finishing touches on Greece’s €130 billion second bailout.

“All the elements are in place,” France’s finance minister Francois Baroin told French radio this morning.

Reports suggest there remains uncertainty over how the entire package will be financed. For example, the Financial Times reports that the European Central Bank has been asked to make up a €6 billion shortfall by agreeing to forego some profits on its Greek bond holdings – bought at below-face-value prices on the open market – which would have the effect of easing Greece’s debt burden.

However, “the gut feeling is that this is going to go through” one Eurozone official tells newswire Reuters.

“Everyone feels the pressure this time to deliver… I don’t see anybody wanting to be responsible for pulling the plug on the deal at this late stage.”

“There is [though] scope for events to disappoint,” warns Neil MacKinnon, London-based global macro strategist at VTB Capital.

Economists at Citigroup say they expect today to bring agreement on a bond swap to reduce Greece’s debts, but that final approval of the complete package may be delayed until after the next European leaders’ summit on March 1.

The International Monetary Fund will only contribute €13 billion to a second Greek bailout – equivalent to 10% – the FT reports, much less than its contribution to previous Eurozone bailouts. Relative to its IMF contribution, Greece already holds the all-time record for the amount borrowed from the IMF, the FT points out.

Iran has ceased its oil exports to Britain and France, its oil ministry announced Sunday. The move follows the imposition of sanctions by the European Union. Monday’s FT reports that Iran is struggling to find buyers for its oil and may have to resort to cutting its output or storing it in tankers, so-called floating storage.

The US Congress Friday approved a bill extending a payroll tax cut and unemployment benefits through to the end of 2012.

“Given that it had until February 29 to do this it was not a bad effort from policymakers,” note Standard Bank currency analysts Steve Barrow and Jeremy Stevens, who add that while the extension adds $100 billion to the US deficit, not extending the tax cuts and benefits could have costs the economy up to one percentage point in growth this year.

In New York meantime the difference between bullish and bearish contracts held by Comex gold futures and options traders – the so-called speculative net long – fell over the week ended last Tuesday for the first time since the week ended January 3.

The drop in the spec net long “may mark a consolidation phase in the gold rally in the absence of new price drivers,” says the latest note from precious metals consultancy VM Group.

The volume of gold bullion held to back shares in the world’s largest gold ETF, the SPDR Gold Trust (GLD), rose to its highest level since December 14 last week. By contrast, the iShares Silver Trust (SLV), the world’s biggest silver ETF, saw its silver bullion holdings decline slightly.

Ben Traynor
BullionVault

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

(c) BullionVault 2011

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

David’s Bio:

Seduced by silver at the tender age of 11, David Morgan started investing in the stock market while still a teenager. A precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the Silver-Investor.com website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems ahead and reasons for investing in precious metals. David considers himself a big-picture macroeconomist whose main job as education (educating people about honest money and the benefits of a sound financial system) and his second job as teaching people to be patient and have conviction in their investment holdings. A dynamic, much-in-demand speaker all over the globe, David’s educational mission also makes him a prolific author having penned “Get the Skinny on Silver Investing” available as an e-book or through Amazon.com. As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. Additionally, he provides the public a tremendous amount of information by radio and television.