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Markets “Comfortable Again with Gold”, Euro Falls After “Soft” Italian Debt Auction

BullionVault — Fri, 13 Jan 2012 20:02:15 +0000

BullionVault
Friday 13 January 2012, 08:45 EST

Markets “Comfortable Again with Gold”, Euro Falls After “Soft” Italian Debt Auction

SPOT MARKET Dollar gold prices dipped to $1637 an ounce Friday morning London time – a 1.4% fall from Thursday’s high – as the Euro fell against the Dollar following a successful-yet-disappointing Italian bond auction.

In contrast to Dollar gold prices, the gold price in Euros gained throughout Friday morning, hitting €41,326 per kilo (€1285 per ounce) around lunchtime.

Silver prices dipped to $29.69 – 3.3% below yesterday’s peak – while stocks and commodities were mostly flat and government bond prices gained.

“We feel the market is once again comfortable with gold,” says Scotia Mocatta’s latest technical analysis report, “but will liquidate on a break of $1605.”

Heading into the weekend, gold prices are up 1.5% in Dollar terms, while on a fortnightly basis gold is looking at a gain of 4.7%. Based on PM London Fix prices, this would be gold’s biggest two-week gain since the fortnight ended 4 November.

Italy successfully auctioned €4.75 billion of 3-Year government bonds this morning, paying an average yield of 4.83% – down from 5.62% paid at a similar auction two weeks ago.

“On the whole [however] the auction results are mixed to soft,” cautions Rabobank strategist Richard McGuire, adding they were “certainly far from the humdinger we saw in Spain yesterday.”

“It doesn’t defeat the notion that the [European Central Bank] extraordinary liquidity provisioning will support peripheral debt but it perhaps tempers expectations as to what degree these operations will support.”

ECB president Mario Draghi argued yesterday that last month’s 3-Year longer term refinancing operation – at which European banks borrowed close to €500 billion – had averted a potentially disastrous funding crisis.

“The ECB can be rightly justified in saying that the Armageddon we were facing toward the end of last year does seem to have been addressed,” reckons James Nixon, chief European economist at Societe Generale.

Speaking at a press conference following the announcement that the ECB would leave interest rates on hold, Draghi said that “the [ECB's] monetary stance is and will remain accommodative”.

“Further rate cuts,” says SocGen’s Nixon, “will only be forthcoming if, for example, we see signs of an outright credit crunch.”

The decline in the Euro in the second half of last appears to have boosted the Eurozone’s trade balance.

The 17-nation Eurozone saw its external trade surplus grow strongly in November – rising to €6.9 billion from €1.0 billion a month earlier – data published Friday by Eurostat show. However, the full 27-member European Union still ran an external trade deficit of €7.2 billion, though this was less than half that run in October.

The Euro ended December around 12% below its 2011 peak against the Dollar, and currently trades around $1.28.

“With a rate of $1.29 or $1.30 … [the Euro] is still too high,” said French president Nicolas Sarkozy back in January 2011.

Hungary – whose government debt is now rated as junk by all three major ratings agencies – must show “strong commitment” to economic reform before the International Monetary Fund will consider opening negotiations on a bailout, IMF managing director Christine Lagarde said Thursday, following a meeting with Hungarian officials.

“We fully understand and agree with the experts from the IMF,” said Tamas Fellegi, the Hungarian minister appointed to negotiate with the IMF.

Hungary’s prime minister Viktor Orban said this morning however that “there are areas where views differ significantly” between his government and the IMF.

China meantime saw its foreign exchange reserves fall to $3.18 trillion in the fourth quarter of last year, a period that included the first consecutive monthly fall (in December) since early 2009.

“The decline in foreign exchange reserves in Q4 is consistent with the sharp reversal in capital flows out of emerging markets in general and the region in particular,” reckons Andy Ji, economist at Commonwealth Bank of Australia.

The news “might also be contributing to gold’s downward movement,” reckons Standard Bank commodity strategist Marc Ground.

“This can be explained in terms of the negative effect that a slowing down in Chinese foreign-exchange reserve accumulation would have on global liquidity and the ability of governments, especially those of developed nations, to borrow.”

Copper and gold provide “the best value opportunities” for investment this year, according to a report published by Goldman Sachs on Friday.

The Goldman report also argues that there was a “wedge” between gold prices and real interest rates towards the end of last year. Short-term gold lease rates – the difference between the return on lending cash and the return on lending gold – were negative for much of 2011, falling towards the end of the year.

“Demand for US Dollars drove the gold lease rates to unprecedented negative levels as US Dollars became increasingly more valuable than gold,” the report says.

“This new demand for Dollars was mostly from European banks using the gold market to source US Dollar liquidity when their funding from the US money markets dried up, which created a significant amount of gold selling.”

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

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Economic and Gold Stock 2012 Outlook

Neil Charnock — Fri, 13 Jan 2012 00:38:38 +0000

www.goldoz.com.au

Firstly let me wish everybody a happy, healthy and prosperous New Year.   I also apologize to the gold sites and public readership for being off air the past few months as I buried myself in research, forum exposure and membership delivery work on my own site.

I also had the privilege of being asked to report on three exceptional opportunities last year and these in-depth reports can be found for free on the front page (top section) of GoldOz now if you wish to visit. One of the stocks is a re-start of a large mine in Ghana set for first quartile cash costs; it was left behind by a major when gold prices were circa $500 per ounce.   Another is located in the central Kalgoorlie gold belt and currently valued well under mill replacement cost. With 6M ounces in this location this is hard to imagine. The third is a major growth play spread across three operational centres in WA and flying under the radar of most investors, over 4M ounces and in a growth phase ramping up at several mines at once.

The expected break out on gold stocks failed to eventuate in 2011 as market leader NCM headed south during September. Most gold equities here finished the year weak and ready for a bounce. The elite stocks held in our Educational Portfolio (as higher weightings) did exceptionally well however, yet the sector performance dragged back the overall results for 2011.

The tone for 2012 was set in 2011. The Euro and Euro backed paper are currently trading at a discount in banking circles and Europeans are saving in gold or fleeing wherever possible. The world is in a deflationary period for many asset classes due to deleveraging. Histories largest debt bubble is deflating.   Europe emerged as the epicentre of the financial storm in 2011 and this now continues. I do not use these words flippantly, this is extremely serious.

We also find ourselves in a liquidity trap and therefore, against all logic austerity is currently the wrong solution. The time for austerity and balanced budgets was during the growth years, during the building of the debt bubble not now. This horse bolted long ago.

Liquidity traps are characterised by:

failure of stimulus (QE, Twist etc.) to create growth
low interest rates failing to stimulate growth
private and corporate savings rise in response to fear; money hoarding
expansion of the money base fails to translate into inflation
unlimited demand for money – in this case mostly in the Government sector for Public Sector payrolls, QE in various forms, debt servicing and debt roll overs

The US Fed has changed their definition of a liquidity trap and if anybody can make sense of their document on the subject they are doing extremely well. In my understanding; if a thesis is not succinct and easily understood it is not worth the paper it is written on. In my end of year briefing to clients I explained all this and stated that “it quacks, walks and looks like a duck – therefore it is a duck”. Yes we are in a liquidity trap. Right now the government sector demand for borrowings is choking off growth and so many B list clients fail to get funding. The A list gets the cash and the B list doesn’t sending some companies to the wall. We are seeing more of this now and it will continue in 2012. Gold stocks that are not funded to production are at increased risk although I have noticed an unsurprising ability for solid gold stocks and even exploration plays to attract adequate funds in this economic environment.

Due to the existence of the liquidity trap and associated economic conditions it seems obvious that low interest rates and various incarnations of QE will need to continue. Of course the spread paid by lower class borrowers, over and above the Fed rate can grow larger pushing up stress levels for these borrowers. Continued capital destruction will offset new cash creation which will be soaked up by government demand. This creates all sorts of challenges and extreme risk of major upheaval, not just default as sovereign borrowing costs soar.

We also have a banking crisis due to sovereign debt exposure in this sector in addition to the deleveraging process itself. As certain asset values fall loans flip to negative equity. As the spread on loans increase for SME’s and other clients the debt servicing stretches the business or individuals to the limit. This is not a good environment for business expansion and jobs growth.

What does this have to do with gold? Everything.   Gold was sought as a safe haven and will be again. As upheaval increases the environment for gold improves. Then you have negative real interest rates.   The interest rates are lower than cost inflation even if many asset prices are falling (deflation). Inflation for energy and food combines with deflation to create stagflation. Negative real interest rates are great for gold.

The current stagflation will be met by QE, read that as money printing which will also be needed to fund government debt roll over. Governments will not unwind this it has to blow up first; this has been the way of history and I see no change due here.

I interviewed an officer of a major London bank who confirmed this ‘distress and deleveraging’ thesis recently. They are offloading assets and talking clients into allowing same. They are taking 50%+ haircuts and glad to get this level of return while they can. Their view on the coming few years is for a protracted period of deleveraging and default. Other costs are rising, which combines to increase foreclosures and bankruptcies which are still very high and this will continue also.

The Ratings agencies faced a major change to their business model (legal and in effect operational) in 2010 so they are now forced to apply more honest assessments on their own clients and financial products. This was seen as disruptive, for instance USA down grade from AAA mid last year and the recent threat of a down grade on France and several banks.   However they have no choice so expect this to continue to create ‘news headline volatility’ and reflect risk more appropriately.

There was also serious trouble in the Credit Default Swap markets in 2011 as Greece was classified as a voluntary restructure which the banks decided did not trigger payouts ‘on default’ to bond holders. This caused bond yields to rise and increased doubt in the inherently risk adverse debt markets. Debt markets are in a bubble in the stronger economies as capital was hoarded in this asset class for ‘safer’ keeping during 2011. A major top has been formed or is forming signalling the end of this Bull Run for this asset class.

This no longer remains safe when rates are at record lows – nothing but down side risk for bond holders. This can create a massive wave of capital and disrupt the debt roll over process forcing monetization of national debt to continue. This can be classified as QE. Defaults and haircuts will result in massive capital destruction. The question is where can the wave of capital go? We have a banking crisis and therefore bank deposits seen as low risk aren’t what they seem to be. First tier banks are a safer option, choose carefully and spread savings here and across asset classes.

These bank deposits are nothing more than unsecured loans, in many cases to questionable institutions who have not maintained loan book valuations at realistic market value. As an asset class real estate requires demand (in a falling price environment?) and supply of loans by banks to flourish.   Yet banks are trying to balance bad debt write offs, rising unemployment / fresh loan defaults , tighter loan qualification measures and the looming Basel3 capital adequacy requirements. This last measure forces tighter management of reserve ratios and higher reserve levels on this sector; thus restricting their loan book growth and freedom.

Equities may just surprise investors in this environment. The balance sheets of some corporations and their current earning spread across China and emerging economies make them attractive safer havens. Earnings multiples are low however caution; research will show you that earnings will also fall for some companies. Many opportunities exist in emerging markets and the equities in general and this will start the capital flow in this direction once the bottom is found.

Here lies the quandary for 2012; where is the bottom? The C wave down appears to be a foregone conclusion as deleveraging gathers steam. The capital requirement for the USA and Europe, just to roll over old debt is staggeringly high.   This sucks capital away from business.

Gold has been correcting after a large rise which failed to stimulate more than the most elite gold stocks in Australia. Demand for gold and silver in Europe is high and it is growing in China and in many other areas. Investment demand will soon re-emerge as investors seek a new safer haven other than the USD and US Government or other sovereign Bonds.

For now there is downside risk for gold however this is limited, in part because of the already mature 20% correction. Gold and silver can both put in major upside this year due to Europe and so can the other white metals on disruption in Africa. I am following gold short term for clients and decline to make a prediction at this stage.

Europe will falter and if this spreads and becomes disorderly (understatement) then we can see a forceful deleveraging event pushing the metals to short term lows ahead of a resumption of the upward trend. If this is not as disorderly then gold can trend sideways along the lines of the step up fractal pattern which has characterised the rally since 2001. The outcome will determine the action on the gold stocks and Australian dollar.

Some Australian and ASX listed gold and precious metal stocks appear to show signs of a turn around here. A full run down of Larger Producers and the Mid-Tier Producers list now follows for subscribers…
Good trading / investing.
Neil Charnock
www.goldoz.com.au
GoldOz has now introduced a major point of difference to many services. We offer a Newsletter, data base and gold stock comparison tools plus special interest files on gold companies and investment topics. We have expertise in debt markets and gold equities which gives us a strong edge as independent analysts and market commentators. GoldOz also has free access area on the history of gold, links to Australian gold stocks and miners plus many other resources.
Neil Charnock is not a registered investment advisor. He is an experienced private investor who, in addition to his essay publication offerings, has now assembled a highly experienced panel to assist in the presentation of various research information services. The opinions and statements made in the above publication are the result of extensive research and are believed to be accurate and from reliable sources. The contents are his current opinion only, further more conditions may cause these opinions to change without notice. The insights herein published are made solely for international and educational purposes. The contents in this publication are not to be construed as solicitation or recommendation to be used for formulation of investment decisions in any type of market whatsoever. WARNING share market investment or speculation is a high risk activity. Investors enter such activity at their own risk and must conduct their own due diligence to research and verify all aspects of any investment decision, if necessary seeking competent professional assistance.

Euro-Gold Makes “Impulsive Move Higher”, Silver Breaks $30/Oz, as “Growth Replaces Inflation” as #1 China Worry

BullionVault — Tue, 10 Jan 2012 22:31:04 +0000

Tues 10 Jan., 08:35 EST

Euro-Gold Makes “Impulsive Move Higher”, Silver Breaks $30/Oz, as “Growth Replaces Inflation” as #1 China Worry

THE WHOLESALE LONDON spot gold price touched a 3-week high against the US Dollar in London on Tuesday morning, trading just shy of $1640 an ounce as world stock markets and industrial commodities also rose.

Silver bullion prices jumped above $30 per ounce, rising more than 4.5% from last week’s close, as German government Bunds eased back but other Eurozone bond prices ticked higher, edging interest rates lower.

Ahead of Thursday’s meeting of the European Central Bank – widely expected to cut interest rates across the 330 million-citizen currency zone below 1.00% – the Euro currency edged up to its highest level since Friday lunchtime at $1.28, some 1¢ above Sunday night’s 16-month low vs. the Dollar.

“Precious metals are benefiting from a broad-based buying across asset classes,” says Marc Ground at Standard Bank.

“The 2008-11 uptrend line at $1532.62 underpins the spot gold weekly chart,” says Axel Rudolph, technical analyst at Commerzbank.

Looking at spot gold in Euros, an “Impulsive move higher is being witnessed,” Rudolph adds, saying that for Eurozone investors “it will take an unexpected reversal…for the current bullish momentum to be thwarted.”

The gold price in Euros today touched a 1-month high above €41,000 per kilo.

Latest data from the International Monetary Market on Friday put the size of speculative bets that the Euro will weaken further “at an all time high” according to HSBC’s Global Markets team today.

“We have seen good physical demand emerge below $1610 for two days in a row,” said a Hong Kong gold bullion dealer in a note on Tuesday.

“There is some buying, but we haven’t seen a substantial pickup in physical demand before the Lunar New Year,” says Dick Poon, manager of refinery group Heraeus’ Hong Kong operations, quoted by Reuters.

The Chinese New Year will fall on January 23rd, marking a week of national holidays now associated with heavy household demand for physical gold coins, jewelry and other products.

“People are worried about the Eurozone, and concerned if China can maintain its growth,” says Poon.

German chancellor Angela Merkel will tonight follow Monday’s meeting with French president Sarkozy by meeting Christine Lagarde, head of the International Monetary Fund, to push ahead with the 50% writedown on Greek government debt agreed at a summit last October.

Italian bond prices rose Tuesday morning, trimming interest rates on Rome’s 10-year debt to 7.14%. That’s still more than five percentage points higher than Berlin pays, however.

New data from China meantime showed the pace of import growth falling sharply from 22.1% year-on-year in November to 11.8% last month – a two-year low.

“Domestic demand is slowing down very quickly,” says Zhang Zhiwei of Nomura in Hong Kong. “The first quarter is going to be very tough.”

November saw China cut its banking reserve requirement – the amount of savers’ deposits which must be kept back, rather than lent out – for the first time in three years.

“Growth has [now] replaced inflation as Beijing’s top policy concern,” says Qu Hongbin, co-head of Asian economics research at HSBC, forecasting 3 cuts to China’s banking reserve requirements by July.

“Gold shipments certainly haven’t gone from nought to sixty like they did last year,” said a senior logistics executive by telephone to BullionVault this morning.

“But there’s still a tremendous amount of material going there,” he went on, adding that Chinese gold imports leapt in September, and have remained at strong levels since.

“The worry is India. November’s flow was dead, the worst since 2008.”

The Reserve Bank of India today granted approval to four more banks for the import of gold bullion and other precious metals. That takes the total number of banks licensed to import gold and silver to India – the world’s heaviest consumer market – up to 35.

“It’s not because they foresee huge demand coming up,” Reuters quotes a bullion dealer, noting that 2011 gold imports to India – which has no domestic mine supply – are estimated to have fallen by 9% from 2010′s all-time record high.

“They are just trying to open up for more competition in the market and customers will have more choices.”

Adrian Ash
BullionVault

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(c) BullionVault 2012

Mining Stocks in for a Move Up

Sunshine Profits — Tue, 10 Jan 2012 22:15:16 +0000

Based on the January 10th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

This may be the year that weaker member-states are booted from the euro. Will the continent fix its financial troubles or spiral out of control affecting not only the U.S. economy, but the global economy? The answer rests with Europe’s leaders. The sacrifices and austerity needed to preserve the currency zone and prevent a global financial collapse could become too heavy a burden for the political systems of one or more of the European nations. The whole house of cards is perched on thin ice. One wrong move and the world financial system would be in peril in the same way it was in fall 2008.

In the words of Dave Barry: “Moody’s announced that it has officially downgraded Greece’s credit rating from “poor” to “rat mucus” following the discovery that the Acropolis has been repossessed.”

But seriously, more eurozone troubles this year could mean more dollar (and gold!) buying even though there is no way to know how the euro will react in the short-term to such threats that may already be priced into the market. There is no doubt that the eurozone will be stronger without its weaker members. The problem is that the act of removing anyone from the eurozone will cause instability and will be a bullish factor for gold. If the European recession turns out to be mild or nonexistent, it could create a stock market rally and boost confidence worldwide.

For a funny look at the Eurozone problem we again turn to Dave Barry, who wrote that this past year “the economic crisis continues to worsen in Europe, especially in Greece, which has been operating under a financial model in which the government spends approximately $150 billion a year while taking in revenues totaling $336.50 from the lone Greek taxpayer, an Athens businessman who plans to retire in April. Greece has been making up the shortfall by charging everything to a MasterCard account that the Greek government applied for — in what some critics consider a questionable financial practice — using the name ‘Germany.’”

But Europe is not the only part of the world that has been troubled by recent economic conditions. Troubling signs suggest that the Chinese growth juggernaut, an anchor for the tumultuous past few years, could be slowing down, which raises risks for the global economy.

Can Chinese leaders guide their economy, the second largest in the world, to a soft landing making some overdue economic changes without halting growth? China’s growth has been fueled by exports of manufactured goods and real estate investments. Exporters could be hampered by the likely European recession, and the Chinese housing market is showing signs of trouble, a bubble about to burst. Now the question remains if China can shift to domestic demand for consumer goods and services, and away from exports and housing, without a major recession that could endanger global growth? That answer will help determine the health of the global economy in the coming year.

However, we do not need a fortune cookie to know that China will continue to buy gold, as much as it can get its hands on. China has every motive to move some of its massive $3 trillion-plus reserves into gold, the only currency that no other country can control. At the moment, the richest Western countries, including the United States, Germany, Italy, and the Netherlands, hold between 60% and 80% of their entire reserves in gold. The figure for China is less than 2%. The rest is simple math.

To see if this is translated into a bullish outlook for precious metals in the short-term is another thing. Our focus today will be on mining stocks. Let’s begin the technical part with the analysis of the Amex Gold Bugs Index (ticker HUI; charts courtesy by http://stockcharts.com.)

In the long-term HUI Index chart, we see that the index bottomed at the final support line and quickly rallied back above the 500 level. At this point, it appears to have reached the final bottom of this consolidation period. Gold stock prices are likely soar much higher. It seems that a breakdown back below the support line is very unlikely now as the index level is significantly above it.

In the short-term GDX chart, we see that the rally has paused somewhat in the last couple of days. The sharp move higher on significant volume was followed by a low volume pause. Consequently, it appears be just a pause and another rally is likely to be seen next. This is reinforced by the bullish situation for precious metals themselves, as argued in our last essay on the possible rally in silver:

(…) we see that the cyclical turning point worked perfectly as prices reversed sharply right at that point and then began to rise. These moves further increase the odds that we have seen a major bottom and it could very well be years before silver’s price is as low as it has been recently (or we may never see silver price as low as we just did).

This is by no means a sure bet, but twice previously, when silver bottomed at cyclical turning points in 2004 and 2010, we have seen an ultimate low – lower prices never followed. The long-term charts suggest that at least a medium-term rally is underway at this time.

The Gold Miners Bullish Percent Index chart has recently indicated good buying opportunities. This did not mean that a final low had been reached. It simply was a good time to buy. Gold stocks have since moved a bit lower but are now higher and apparently acting on the buy signal over the past couple of weeks would have been a good idea.

In the GDX SPY ratio chart, a bottom is seen and the ratio is still close to the 2010 lows. Precious metals have been extremely oversold and the RSI levels confirm this. Although the recent rally may seem sharp, it is truly not significant from a medium or long-term perspective. There is still a lot of room to the upside.

Summing up, the outlook for gold and silver mining stocks appears to be bullish, similar to the situation for gold and silver.

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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Euro Hits New Lows, Swiss Franc Bounces: What Does That Mean For Precious Metals and Commodities?

Jeb Handwerger — Mon, 09 Jan 2012 19:02:48 +0000

Commodities In Characteristic Selloff

Once again at the end of 2011 we heard the voices of negation sounding the fear of the bursting of the commodities bubble. The naysayers come out with their Cassandra calls whenever commodities go into a characteristic and salubrious selloff. They never really learn to respect the importance of gold (GLD) and silver’s (SLV) role in the long range secular multiyear ongoing rise.
We emphasized the importance of avoiding knee jerk reactions when precious metals experience healthy pullbacks. The first week of January 2012 saw commodities (DBC) rising across the board as they return from the premature grave to which the naysayers have assigned them.
One wonders how the short sellers are enjoying this periodic resurrection in vital metals such as gold(GLD), silver(SLV), rare earths (REMX) and uraniums(URA).

Transparent Horizon Of Record Low Interest Rates
Attendant to a new rise in these vital commodities, the economic base should be prepared to receive them. On January 24th-25th the Federal Open Market Committee will be meeting once again in Washington. One of the areas on which they will be focusing is the travails of the U.S. Housing Market and new methods to bring down the high unemployment rate. The Fed is promising a transparent horizon of record low interest rates to provoke the banks to lend money.
It is important that the Eurozone malaise undergo corrective measures in order to restore Europe to health. Recently Christine Lagarde, Head of the International Monetary Fund, has expressed broad generalities toward the need of fiscal reforms. It is hoped that Lagarde will not be a laggard in the birth of the “EuroTarp” by whatever stimuli to be applied.

Euro Hitting New Lows
The weak Euro is attracting foreign capital to purchase cheap European natural resource assets. Our research team is looking for undervalued gold assets in the Eurozone as these countries are looking to rapidly develop mines to provide high paying jobs and growth. The Euro has broken the 2011 lows as Merkel and Sarkozy meet to rescue the moribund Eurozone economy.
It is important that a coherent plan of attack be formulated rather than the indiscriminate printing of Euros(FXE), which we are currently witnessing. The Euro is rapidly losing value. This procedure of currency devaluations is counter-productive unless corrective measures are instituted such as serious spending restraints, permanent tax rate cuts and regulatory relief. In plain language, the Europeans and the Americans can’t print more dollars (UUP) without building on a base of budgetary restraint.
Recovery In Rare Earths, Uranium and Precious Metals
How does this affect our selected precious metals stocks(GDX), rare earths (REMX) and uraniums(URA)? This week the rare earths are emerging from their second half 2011 slumber. It is felt that they will lead the upcoming recovery. This week certain of the rare earths are producing impressive percentage gains as an augury of things to come.
China is playing a dual role not only for their own domestic needs but in establishing a quota system for exports to other nations. This emphasizes the importance for the West and Japan to establish an independent role in their own destiny. No matter what happens in the pending appeal with China at the World Trade Organization, The West has learned a valuable lesson in geopolitics as the external industrial nations recognize the importance of rare earth independence.
The uranium sector is enjoying a profitable week as well. No other area has had to come up from taking a count so many times. The press has obscured, misrepresented and sensationalized the true story about the role of nuclear energy(NLR) in a modern, industrial world. The media has relegated uranium mining to the status of selling newspapers and TV commercials. The truth be damned. Imagine when the true story is finally told. Not once have the talking heads mentioned that reactors that are being built are portable, economical and safe. The truth can not be suppressed forever.
Swiss Franc Scandal Highlights Investing In Tangible Assets
Important news is just coming over the wire. The Swiss National Bank Chief has resigned in shame after it is revealed his wife was selling Francs (FXF) to buy U.S. Dollars (UUP) long before the central bank sold Francs to slash the value. The Swiss franc is rising against the dollar. One wonders how many others were involved in that trade to push the weak dollar higher?
In conclusion, our sectors and recommendations are once again emerging from their long bases. Reiterating the long ascendance of these sectors especially in light of all the bullish forces, patience is paramount albeit painful. We have been advising our readers that this correction in commodities would be far from terminal and that it represents a classic buying opportunity.
Stay tuned to my free newsletter by clicking here…
Disclosure: Long GLD, SLV, GDX

Gold Up 5% on Week in Euros as “Recession Data” Hit Europe, US “Can’t Decouple” from Eurozone Crisis Despite Positive Jobs News

BullionVault — Fri, 06 Jan 2012 23:11:42 +0000

Friday 6 January 2012, 09:00 EST

Gold Up 5% on Week in Euros as “Recession Data” Hit Europe, US “Can’t Decouple” from Eurozone Crisis Despite Positive Jobs News

THE DOLLAR cost of buying gold hovered around $1620 an ounce Friday morning London time – becoming a bit more volatile following the release of US employment data but failing to establish a definite direction – while stocks and commodities edged higher.

Silver prices meantime eased around lunchtime, hitting $29.15 per ounce.

On currency markets the Dollar rallied – pushing the Euro down further – after the nonfarm payrolls release showed the US economy added 200,000 private sector non-agricultural jobs in December.

The US unemployment rate fell from 8.7% in November (revised up today from 8.6%) to 8.5%.

From its high above $1.30 on Tuesday, the Euro meantime has since fallen 2.5% against the Dollar.

By Friday lunchtime the price of buying gold in Euros – which touched a 4-week high of €40994 per kilo (€1275 per ounce) looked set for a weekly gain of over 5%.

The Dollar cost of buying gold meantime was headed for a weekly gain of around 3.6%.

“A close above the 200 day moving average at $1632 is needed to shift the market [for buying gold] to Neutral from Bearish,” reckons Russell Browne, technical analyst at bullion bank Scotia Mocatta.

“While gold is pushing towards its 200 day moving average at $1633, we are not convinced that it can sustain a break above this level yet,” adds Standard Bank commodities strategist Walter de Wet.

“Liquidity remains locked up as the European interbank market continues to malfunction…in the physical market, we continue to see steady buying of gold. But this demand is more likely to provide support for gold on dips below $1600 rather than push it substantially higher.”

Friday’s Asian trade saw demand for buying gold in physical form, according to one Shanghai trader.

“Liquidity is back in the market,” said the trader.

“With the Europe outlook still grim, investors would prefer to put their dollars in some safety assets, such as gold.”

In the US, however, the volume of gold to held to back shares in the world’s largest gold ETF, the SPDR Gold Trust (GLD), has not changed since before Christmas.

This contrasts with the world’s biggest silver ETF, the iShares Silver Trust (SLV), where steady outflows since the middle of last month has seen the volume of silver bullion held fall to its lowest level since September 2010.

“We expect silver demand to slow during [2012],” says the latest precious metals note from French bank Natixis, citing “reduced investment demand alongside the current weakness in global industrial demand.”

“There have been good data out of the US,” said Jeremy Friesen, Hon Kong-based commodity strategist at Societe Generale, speaking ahead of today’s nonfarm payrolls release.

“But ultimately the US can’t decouple from the European crisis…there are going to be enough reasons to be worried about global growth and the financial system in the next quarter or two, and gold should benefit from that.”

German factory orders fell 4.8% between October and November last year, Bundesbank figures published this morning show.

Retail sales for the 17-nation Eurozone as a whole meantime fell 2.5% in the year to November – compared to a 0.7% y-o-y drop to October – according to official European Union data, while the European Commission’s economic confidence indicator hit its lowest level in over two years last month.

“This data has recession written all over it,” says Martin van Vliet, Eurozone economist at Dutch bank ING.

A report in French newspaper Les Echos suggests the governments of France, Belgium and Luxembourg are considering fully nationalizing Dexia. The three governments pledged last October to guarantee for a decade €90 billion of the bank’s loans, nationalizing its Belgian division.

In Switzerland meantime Phillip Hildebrand, head of the Swiss National Bank – which last year pegged the Swiss Franc to the Euro – has refused to resign after it emerged that his wife bought US Dollars three weeks before the peg was announced.

Here in the UK – where the Pound this morning hit a 15-month high against the Euro – oil company Shell has announced it will close its final salary pension scheme, the last FTSE 100-listed company to do so.

The Sterling price of buying gold hit £1052 per ounce Friday lunchtime in London – 4.6% up on the start of the week.

Hungary’s leader Viktor Orban has expressed support for central bank governor Andras Simor as the government prepares to renew negotiations with the International Monetary Fund and the European Union over a possible bailout. The IMF and EU last month walked away from negotiations after Orban’s government refused to repeal new legislation seen as threatening the central bank’s independence.

Ben Traynor
BullionVault

Gold value calculator | Buy gold online at live prices

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

Gold Hits 6-Month Low, Breaches “Lehman’s Uptrend”, on Euro Interbank Crisis, Forced Japanese Sales

BullionVault — Thu, 29 Dec 2011 21:22:58 +0000

Thurs 29 Dec., 06:20 EST

Gold Hits 6-Month Low, Breaches “Lehman’s Uptrend”, on Euro Interbank Crisis, Forced Japanese Sales

The WHOLESALE MARKET gold price fell further on Thursday in London, hitting its lowest London Gold Fix since 8th July at $1537.50 per ounce – 19% below Sept’s record high – on what dealers called “long liquidation” and “pressure” from the Eurozone debt crisis.

New laws in Japan were also blamed for forced sales during Asian trade, with bullion dealers obliged to report all physical transactions above ¥2 million ($25,600) to the tax authorities starting New Year’s Day.

Physical gold bullion flows in Europe are “very light – unsurprisingly for this time of year,” says Swiss refinery and finance group MKS.

“[A] few accounts [were seen] bailing out on the break of $1570″ on Wednesday, MKS says, with “the rest of the move driven by illiquidity and forced sellers pushing themselves out as they push [the gold price] lower.”

On a closing-price basis, “Support sits at the trendline off the October 2008 low, currently at $1543,” says Russell Browne’s technical analysis for Scotia Mocatta, pointing to the uptrend in the gold price starting with the collapse of Lehman Brothers 3 years ago.

That support level is “followed by the September [2011] low around $1533,” reckons Browne.

The Euro sank 1.5¢ on Wednesday after new data showed the European Central Bank’s balance-sheet swelling to €2.7 trillion last week on making the first of its “unlimited” three-year loan offers to commercial banks.

Thursday morning the single currency fell again to a 10-year low against the Japanese Yen.

“The market reaction is slightly incomprehensible,” reckons economist Jens Kramer at Germany’s NordLB in Hanover. “After that record liquidity injection it would follow that the balance sheet would swell.”

European stock markets crept higher this morning after finishing yesterday lower, but in the banking sector “The main problem…is not a lack of liquidity, but a lack of trust,” says Commerzbank’s Christoph Rieger, head of fixed-income strategy in Frankfurt.

“There are no central bank tools that would force banks to extend credit lines among themselves.”

“The interbank market remains broken,” agrees Richard McGuire at Rabobank’s London office, also speaking to Bloomberg.

“The amount of peripheral government debt banks hold raises questions about counterparty risks.”

Pushing higher on its official “benchmark” level again on Thursday, the interbank lending rate known as LIBOR is now suffering the widest gap between the lowest and highest interest rates charged since the peak of the first financial crisis in March 2009.

After Wednesday’s surprising low interest rate charged by investors to hold new short-term Italian debt, the yield demanded on a fresh €7 billion of 10-year bonds stayed high, just two basis points below the 7.00% level which analysts believe is “unsustainable”.

“We maintain that a liquidity squeeze brought on by the ongoing debt problems in the Eurozone would be one of the greatest threats to commodities,” says Marc Ground at Standard Bank today.

“Gold, along with the other precious metals, succumbed to the downward pressure from concerns over Eurozone liquidity.”

“Risk-off conditions in the short term are putting pressure on the gold price,” says another London dealer in a note, “but plenty of the insurance reasons to be long of gold remain in place – and look set to remain so in January.”

Silver prices today flirted with 12-month lows beneath $26.80 per ounce, as base metals fell with agricultural commodity prices.

US crude oil held just shy of $100 per barrel as the US Navy warned Tehran it will “not tolerate” any disruption of shipping through the Strait of Hormuz, which Iran has threatened in retaliation at new international sanctions.

Ten-year UK government bond yields slipped again below 2.00% – the record low breached for the first time ever last week.

Adrian Ash
BullionVault

Gold price chart, no delay | Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

Rhetoric versus Reality at the ECB

BullionVault — Wed, 21 Dec 2011 19:28:53 +0000

Wednesday 21 December 2011

This week, the gap between what the European Central Bank says and what it does became very noticeable indeed…

I know they’re stolen, but I don’t feel bad.
I take that money, buy you things you never had.
‘Free Money’, from the album ‘Horses’ by Patti Smith

THROUGHOUT THIS CRISIS, the European Central Bank has stuck to the mantra that its job is to ensure price stability above all else.

It has, for example, objected to suggestions that it might fund the European Financial Stability Facility, the Eurozone’s ‘temporary’ bailout mechanism that now looks like it may hang around a bit longer than first anticipated (whether it will have much money to lend to troubled Eurozone governments is another matter).

There are signs, though, that its attitude may be changing. A considerable gap has opened up between the ECB’s rhetoric and its action, with central bankers talking tough on inflation while pursuing ever looser policies. This disconnect was plain to see on Monday when ECB president Mario Draghi addressed the European Parliament in Brussels.

“The Governing Council of the ECB,” said Draghi, “is determined to ensure that inflation expectations continue to be firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term.”

So far, so anti-inflationary.

“The latest monetary data reflect the heightened uncertainty in financial markets. Looking beyond short-term volatility, the monetary analysis indicates that the underlying pace of monetary expansion remains moderate.”

Draghi is not wrong. The chart below looks at money supply in the Eurozone, the UK and the US over the last two years. The vagaries of money supply data mean the comparisons are not exactly like-for-like. The US Federal Reserve, for example, stopped publishing its M3 broad money measure in 2006. The Bank of England meantime does publish an estimate of M3 for the UK, following the methodology used to calculate Eurozone M3, but by necessity it involves a degree of estimation.

Nonetheless, if we index each series we can see that Eurozone money supply (the blue line) has been more stable than that of both the US (green line) and Britain (red line):

US money supply appears to have merrily grown throughout the period, while the effects of the UK’s first dabble with quantitative easing in March 2009 can be seen coming through nine months later (and, of course, though the effects are not known yet the Bank in October expanded its QE program, and may do so again if the latest Monetary Policy Committee minutes are anything to go by).

The problem for the ECB and its pursuit of price stability is that its “moderate” pace of monetary expansion may well be a key reason why the Eurozone has ended up as the epicenter of the global financial crisis. Because while the Fed and the Bank of England have gone to historic lengths to get funds to where they are desperately needed – the banking sector and (whisper it) government – the ECB has lagged behind.

There is a phrase we use here at BullionVault to sum up what we believe to be the most likely ways out of the ongoing crisis: Default or Devalue. In the absence of meaningful economic growth, existing debt burdens will either be defaulted on, or they will be repaid once their real values have been sufficiently eroded by inflation.

By standing in the way of the latter, the ECB has arguably made the former seem much more likely – hence the Eurozone debt crisis.

But things have changed. Now that Old Man Trichet has shuffled off into retirement, Super Mario can finally open the spigots and (he hopes) prevent liquidity-starved Europe from collapsing into a morass of sovereign defaults and bank failures. This would explain why, as well as restating the ECB’s anti-inflation priorities, Draghi was keen to tell the European Parliament about “the latest non-standard measures” from the ECB.

These include a €40 billion covered bond purchase program, a reduction in the amount of cash banks are required to hold at the ECB and a “temporary expansion” of the list of collateral that banks can put up when borrowing from the ECB (banks, it would seem, are running low on decent assets – or else they just don’t want to risk them. So the ECB will accept collateral of ever-more questionable value, including the very Eurozone government bonds that have caused it – and its balance sheet – such grief already).

And, on Wednesday, we had the Big One. The first of the ECB’s three year Longer Term Refinancing Operations (LTROs) – whereby Europe’s banks could borrow money for three years at interest rates of 1%, and against iffy collateral to boot.

“This is basically free money,” one banker in Germany said before the result of the LTRO was announced.

“The conditions are unbeatable. Everybody who can will try to get a piece of this cake.”
He was not wrong. A total of 523 institutions borrowed €489.191 billion – higher than most analysts had predicted (and more than the original lending capacity of the EFSF, which maybe tells you something about politicians’ and technocrats’ ability to appreciate the full scale of a crisis).

The announcement saw stock markets sell off – possibly because it is an indication of just how bad a state Europe’s banking system is in. The Euro’s recent rally against the Dollar also went into reverse, while gold prices – which have moved closely with the Euro in recent days – also fell from their week’s high.

It seems very much as if Europe’s central bankers are now looking to catch up with their Anglo-Saxon peers, choosing (whether consciously or otherwise) the Devalue option rather than run the risk of Default. But it will probably be a while until the rhetoric changes.

Earlier this week, Germany’s Bundesbank grudgingly agreed to contribute an additional €41.5 billion to the International Monetary Fund, but only on condition that the money was not earmarked for Europe.

The Bundesbank is fooling no one. It must realize there’s a very good chance that, some time in 2012, a phone will ring at the IMF’s Washington headquarters:

“The Lagarde residence, the lady of the house speaking…Oh it’s you Spain, how can I help…Hang on one moment, I’ve got Italy on the other line…”

Still, the central bankers get to say, with as straight a face as they can manage, that they are not directly financing government debt.

If it turns out that the world does become awash with fresh Euro liquidity then, unless gold decouples from the single currency, this could be a bearish development for the yellow metal.

Eventually, though, investors must surely realize that there is a world of difference between a tangible asset value for thousands of years and a political project that looks like it could come undone after little more than ten years.

The debt crisis shows little sign of coming to an end. And history shows us that when debt crises are eventually resolved, it tends not to be good news for the creditors.

Ben Traynor
BullionVault

Gold value calculator | Buy gold online at live prices

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.

Flaring Debt Fears Propel Gold Prices – Gold soon to set record

Rick Murphy — Tue, 11 Oct 2011 05:48:08 +0000

As the Euro zone debt crisis flares fears among the consumers, gold hits a record high level emphasizing the fact that it is a safe haven for most investors. The much talked-about credit downgrade and the raising of the debt ceiling are the 2 most happening financial events that have had a global effect on the world economy. The US government is drowning in a sea of national debt and so are the consumers. They’re running to debt settlement, debt consolidation and credit counseling agencies for debt help. However, with the debt ceiling being raised, Obama has promised to lower the spending floor of the government so that there is an immediate recovery within the nation.

Apart from the debt crisis in the US, the sovereign debt fears in the Euro zone fumed the worries about the global economy sleepwalking into yet another recession. However in the month of October, as the equities gained strength after the fresh new efforts of the European government to resolve the debt crisis, gold headed for its biggest weekly gain that has been ever recorded. Although the rare metal gained in value, trading was slow after the release of the non-farm payrolls which clearly shows that the world’s largest economy is recovering gradually and is not slipping back into a double-dip recession.

In the very first week of October, 2011, gold gained 1% to reach a high of $1,665.99 an ounce and stood at $1,659.10, up by $9.85. Bullion has already hit the record of $1,920 in early September, 2011. According to most recent reports, the number of jobs that are created within the economy influences the value of the currency and therefore it also indirectly influences the price of gold. The payroll numbers may jostle the prices of metals only if the level rises above the expectations of the financial analysts. The bullish trend of the gold market will rest on factors like recapitalization of the European banks, number of payrolls generated and also on slow economic growth.

The physical sector where gold is bought physically by the jewelers was also abuzz with lots of activity after the prices went through record high levels. Steady purchase of gold by jewelers and investors across Asia led to a tight supply of god bars in Hong Kong, Singapore, keeping the premiums at a high level since February, 2011. The premiums must stay high for a certain period of time and the present ones are as high as $2-$4 for immediate delivery of the metal. You may get gold bars at premium rates of $2 but you may have to wait for a long period of time.

Gold gains also come as the European stock future rose following a bounce in the Asian shares and the euro also saw gains from a 2 cent-rally after the euro zone policy makers shored up struggling banks in order to fend off a financial crisis. As the euro tumbled on worries of the debt crisis, the gold bullion jumped to a record level last month but as soon as the equities plunged, most investors sold off this metal to cover the losses, thereby lowering the price.

Therefore, the nervousness of the US economy, followed by the constant debt fears within the European economy is the main factors that are pushing up the price of gold. If you’re an investor, don’t forget to diversify your portfolio and invest in god as there’s nothing better than having a safe haven that can act accordingly in all kinds of economic conditions.

Rick Murphy
Market Analyst and personal finance writer

Will Gold and Silver Move Lower Together?

Sunshine Profits — Thu, 22 Sep 2011 08:04:18 +0000

Based on the September 16th, 2011 Premium Update. Visit our archives for more gold & silver analysis.

Ever wonder what it would take for Greece or the other debt ridden nations to leave the euro? According to a UBS report there are no such provisions. It appears that the only way that a country could leave in a legal way is to negotiate an amendment to create an opt-out clause. That would likely take a long time and would require a negotiation with the entire European Union with possible referenda to be held in some of the countries.

According to the UBS report: “While enduring the protracted process of negotiation, which may be vetoed by any single government or electorate, the potential secessionist will experience most or all of the problems we highlight …(bank runs, sovereign default, corporate default, and what may be euphemistically termed ‘civil unrest’).

Leaving abruptly would result in a lengthy bank holiday and massive lawsuits and require the willingness to simply thumb your nose in the face of any European court, as contracts of all sorts would have to be voided. The Greek government would have to “conveniently” pass a law that would require all Greek businesses to pay back euro contracts in the “new drachma,” giving cover to their businesses, who simply could not find the euros to repay.”

After that hurdle one would wonder who outside Greece would want to take the “new drachma” in exchange for goods that Greece does not produce on its own?

According to the World Gold Council, gold demand, which dropped in the second quarter of this year, is expected to strengthen by the end of 2011 driven by jewelry buying in India and China and recovery in investment demand. Jewelry buying in India and China, which together account for 55 percent of global jewelry demand, remains strong in the short and longer term as the number of wealthy people is expected to grow,

“In the third quarter, we are going to see strong investment numbers, because of the European crisis, the debt downgrade in the United States and poor economic figures coming from the United States, which have created a concern in investors’ mind that we may be heading back to another recession,” WGC Managing Director for Investment Marcus Grubb told Reuters. Economic worries have fueled investment into gold bars and coins on the western markets in the third quarter, he said.

Central banks, which have purchased 198 tons of gold to boost reserves in the first six months of this year, have kept buying in the third quarter and are expected to continue this trend later in the year.

In addition, it is unlikely that the heavily indebted European counties will sell their gold reserves because the reserves are merely a pittance when compared to their mountain of debt – at least at today’s prices.

To see how this price might change in the future, let’s move to the technical part of today’s essay. We will begin with the analysis of the yellow metal (charts courtesy by http://stockcharts.com).

In the short-term GLD ETF chart above, we see that price levels have moved below the rising support line. There has been a breakdown below the support line based on daily closing prices, but this has not yet been seen with respect to the support line based on intra-day lows. A breakdown below this second support line also appears likely however.

In this week’s long term chart for silver, RSI levels indicate that we are likely seeing the beginning of a bigger downswing towards the 50–week moving average. This is presently close to the $34 level and at this point appears to be a valid downside target. It appears most likely at this time that this local bottom is a few weeks away.

In the short-term SLV ETF chart, we see that a breakdown is visible but it has not yet been confirmed. The situation is clearly more bearish than it has been for the past month. The breakdown which is indicated here has also been confirmed by silver’s long-term chart.

If you consider the signals coming from the market, you will surely notice that the outlook for both gold and silver is bearish. At the moment, we believe that the situation might get exacerbated by the action in currencies. We discussed this on September 13th, in our essay on the U.S. dollar and gold. To remind just a few points we made:

(…) the situation in the USD Index is bullish this week and quite the opposite is true for the Euro Index. (…) The influence of these currencies is likely to be very visible throughout the precious metals sector. It appears that the key signal to watch for this week is whether the USD Index can retain its upside potential. This would greatly increase the probability of lower precious metals’ prices in the weeks ahead.

This confirms the bearish signals from the precious metals sector itself.

Summing up, the situation in gold is bearish for the short term and is certainly more bearish than it appeared at the beginning of the week. Such a sentiment is now confirmed by the gold market. The current situation for silver is very much the same as it is for gold, which is quite bearish for the short term. Additional confirmation comes from the recent action in both the Euro Index and in the U.S. Dollar Index.

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

P. Radomski
Editor
www.SunshineProfits.com

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By reading Mr. Radomski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.