Archive for March, 2011

How potential nuclear fallout affects markets

Tuesday, March 15th, 2011

Fidelity Capital Markets Overseas Update

% CHANGE CHANGE LAST
S&P futures -2.15% -27.75 1257.25
Nikkei -10.55% -1015.34 8605.15
Hang Seng -2.86% -667.63 22678.25
Shanghai -1.41% -41.37 2896.26
ASX -2.11% -97.70 4528.70
Euro Stoxx -3.61% -102.98 2745.66
FTSE -2.72% -157.15 5615.44
DAX -4.38% -300.69 6548.62
CAC -3.54% -137.20 3736.71
IBEX -2.37% -246.60 10167.70
Gold -1.32% -$18.88 $1,408.57
Crude -1.75% -$1.77 $99.05
DXY 0.48% $0.37 $76.85
Euro -0.74% -$0.0103 $1.3873
Yen 0.16% -0.13 81.47
TYX (10y futures) 0.62% 3/4 121 7/64

Japans nuclear problems spooking worlds markets

Tuesday, March 15th, 2011

0746 Hours -6GMT  Overnight Japanese markets sold off with the Nikkei 225 (NKY) index posting its biggest two-day drop since 1987, Euro markets have also been hit and commodities are selling off as I write this.

Gold has sold off as much as $44 and then coming back a bit to sit now at $1387.20 for a current slide of 2.86%

Silver has sold off $2.23 and currently sits at $33.73 for a pullback of 6.2%

Keep in mind these are the immediate knee jerk reactions of the market trying to price in the recent events. Underlying fundamentals have not changed. A pullback into low $30 silver or even down to $27 I would view as positive as silver has been in need of a breather.

Japan may sell US Treasuries to invest in rebuilding

Monday, March 14th, 2011

Japan brings money home to rebuild

By Burton Frierson

NEW YORK (Reuters) – Shaken by the prospect of nuclear meltdown after a devastating earthquake and tsunami, Japanese investors will dump overseas assets on Monday and bring their money home to help finance reconstruction.

Positioning for this could send the dollar plummeting versus the yen on Monday and lead to a sharp slide in Treasuries since U.S. government bonds are a favorite asset of Japanese investors, market analysts said.

Stocks also are likely to come under pressure.

Japanese insurers will probably sell some of their most liquid foreign assets such as U.S. Treasuries so they can respond to the worst disaster since World War Two.

The crisis could lead to insured losses of nearly $35 billion, risk modeling company AIR Worldwide said, making it one of the most expensive disasters in history and nearly as much as the entire worldwide catastrophe loss for the global insurance industry.

Traders braced for just such an outcome on Friday, when the yen surged and Treasuries fell. The Bank of Japan probably will add money to the system to limit the liquidation of assets. But the big question remains of how much follow-through selling is yet to come.

Dan Fuss, the vice chairman of $150 billion Loomis Sayles, told Reuters on Sunday that his best guess is that Treasuries will continue to see losses.

Because Japan is the second-biggest holder of U.S. government debt and they have nearly $900 billion in dollar reserves, Fuss said Japan will likely use reserves for rebuilding.

“A big buyer of bonds is taken out of the market,” Fuss said, adding that Japan “will be less able to add to their reserves and less able to buy Treasuries.”

TAKING STOCK

Japan’s crisis may also provide a new reason to press on with the long-awaited retreat in stocks.

A lot will depend on the price of oil, which fell on Friday on concern that the Japanese earthquake would hit global economic sentiment. It came off recent highs reached on the revolts in North Africa and the Middle East, but upheaval in the region over the weekend continued — notably with a protest in Saudi Arabia.

Investors will also engage in the grim exercise of determining which companies will benefit from helping the world’s third largest economy rebuild.

“You could expect to see industrial infrastructure companies do better. As for the overall markets, I don’t see it having any long-term negative impact,” said Paul Hickey, co-founder of Bespoke Investment Group.

“I remember after the last big tsunami in Indonesia there was a widespread view that it would be devastating, but there were no big impacts. Granted this is a much more developed region and certain insurance companies will have bigger exposure than others but outside of that region business will continue to go on.”

Equities have generally remained relatively resilient amid a wide range of risk factors in recent weeks. World stocks .MIWD00000PUS have come off highs, but are still clinging to year-to-date gains, thanks primarily to the developed markets.

Prime Minister Naoto Kan described the crisis as Japan’s worst since 1945, as officials confirmed that three nuclear reactors were at risk of overheating, raising fears of an uncontrolled radiation leak.

The disaster may also put some pressure on the Bank of Japan, which said it was cutting short its upcoming two-day meeting to just Monday.

It can do little with rates per se, even if it wanted to, because the current target is just 0.05 percent. It has, however, promised to ensure market stability.

FIGHTING YEN STRENGTH

Many expect the Bank of Japan to pump even more liquidity into the system, and for the government to try to fight any rise in the yen. A strong yen would add to the economic woes of export-dependent Japan as it struggles to recover from the disaster.

“I believe we have reached a critical point where the disaster is so severe the BOJ will engineer liquidity mechanisms that will reduce the likelihood of forced selling in the Treasury market,” said Christian Cooper, head of U.S. dollar derivatives trading at Jefferies & Co. in New York.

Even if the BOJ does undertake massive liquidity injections, an action expected before the U.S. Treasury market opens on Monday, most analysts still expect to see further selling pressure on U.S. Treasuries, at least initially.

Japan’s stock market, meanwhile, has been something of a favorite with global investors this year. The broad TOPIX index was up more than 8.5 percent for the year in mid-February before the recent pullback and Friday’s quake-related sell-off.

Analysts suggested that companies based in and around the main damage area could suffer losses on Monday but that construction firms would get a boost.

Electronics giant Sony Corp has suspended operations at eight factories. Nissan Motor halted output at all four of its domestic a assembly factories and said restarting them could depend on whether it can get parts.

Losses could be limited though. Financial markets bounced back fairly quickly after the 1995 quake that devastated Kobe and caused $100 billion in damage.

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The Insidious Nature of Inflation

Saturday, March 12th, 2011

I recently ran across an excellent article regarding the nature of inflation.

It refutes common misperceptions about inflation such as:

1. Inflation Spurs Growth
2. Inflation Decreases Debt Burdens
3. Inflation Increases Asset Values
4. Inflation Offsets Unemployment
5. Inflation Promotes Exports

In my view, the only way to truly understand what is happening in the economy and more importantly how it affects your personal wealth, you must understand these principles.

You can read the article in it’s entirety here: You Call it Inflation, I call it Theft, by Bill Flax

Massive gold demand continues to break records in China

Saturday, March 12th, 2011

By Lawrence Williams, Mineweb.co.za

Latest reports out of China put consumer gold demand in the first 2 months of the current year at a phenomenal 200 tonnes – and buying momentum is still continuing.

LONDON – In amongst all the comment and analysis regarding the effects of the various Middle Eastern and North African power struggles on the gold price, the latest news on Chinese domestic gold demand has almost passed by unnoticed.  According to Peer Hickson, the global commodities strategist for gold-focused Swiss Bank, UBS, in a report by Bloomberg, Chinese gold demand hit no less than 200 tonnes in the first two months of the current year.  If that is extrapolated over a fill year – and the gold purchasing momentum caused by inflation-nervous purchasers suggests that there is even a possibility that demand could rise – this would mean that the Chinese consumer could be in line to buy close on 50% of global mined gold (and this does not include what the country’s Central Bank may be salting away as well.)

The 200 tonnes in two months figure is MASSIVE.  We recall that only a couple of months ago we were reporting that Chinese gold imports in the first 10 months of 2010 totalled 209 tonnes, itself a 500% increase on the previous year.  It now seems that demand by individuals is reaching almost frightening levels.  Not only is jewellery demand seen as being up by 70% year on year, but investment demand (coins and bars as opposed to jewellery, which has been the main outlet for gold purchases in the past) is also coming on strongly from virtually nothing a couple of years ago to a WGC estimate of close on 180 tonnes in 2010.  If the pace of growth continues investment demand alone could reach as much as 300 tonnes in 2011!

If the Chinese Central Bank is absorbing domestic production, as many believe then total Chinese demand this year could soar past India’s.  The potential is almost beyond belief.  Indeed Chinese offtake is more than matching any disposals from gold ETFs, and with the continuing justified worries about inflation in China the momentum is likely to continue regardless of the gold price elsewhere.

This area of demand is something which has only really come to life in the past two years, and it seems that many observers and analysts are just not feeding this information into their predictions.  As we’ve noted here beforehand this kind of demand level – particularly as it is not from a population which trades in and out on price, but holds its bullion and jewellery as insurance against really hard times – does tend to limit downside risk in the gold market.

But what of the Chinese Central Bank?  There is evidence that China is positioning itself to make the yuan at least a part of any new reserve currency package which might replace the still-declining U.S. dollar in global trade.  There is the strong suggestion that it needs to build its gold reserves as backing for this at least to levels approaching those of the biggest European Central Banks, which suggests a doubling of Chinese gold reserves at the very least in a relatively short space of time.  We know that China has been buying on gold price dips as various officials have confirmed this in the past, although we have no idea of the volumes involved.  Maybe the country will announce another revaluation of its reserves in the near future, even though it tends to be cagey about such announcements as it knows any significant increase will affect the global gold price and while it may be soaking up excess gold it still wants to buy it at what it may see as bargain prices!

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Precious Metals come in as top asset four out of five years, and the top asset of 2010 according to Lloyds TSB Assetwatch

Wednesday, March 9th, 2011

(Telegraph) – Precious metals were the top performing investment for the second consecutive year last year, with their value soaring by 42pc as people sought a safe haven from inflation, research has indicated.

It was the fourth time in the past five years that precious metals have topped the tables for the best asset class, as continuing uncertainty over the prospects for the global economy caused investors to flock to gold, silver and platinum, according to Lloyds TSB’s Assetwatch survey.

The report coincided with a new record high in the gold price. The metal reached $1,445.70 an ounce on Monday – a rise attributed by traders to the unrest in the Middle East.

The value of precious metals has surged by 365pc during the past 10 years, Lloyds TSB’s survey found, nearly double the increase for the next best performing asset during the same period – residential property, which made a gain of 198pc.

The steep increase in precious metal prices seen during 2010 was driven by silver, with its value jumping by 80pc, significantly outstripping the 29pc rise in the price of gold and the 20pc increase for platinum.

Lloyds said the price of silver had been boosted by pressure on the supply of the metal, as demand remained high from both investors and the industries which use it.

Commodities were the second best performing asset class during 2010, offering returns of 30pc, while they were the third best during the past decade, with a 176pc increase in value.

They were also the best performing asset during the first two months of 2011, driven by a 38pc jump in the price of cotton since the start of the year, owing to a combination or rising demand from Asia and falling supply as some of the major cotton producing countries were hit by flooding.

All nine asset classes produced a positive return during the past year, although people who held their money in cash would have seen it rise by just 0.6pc, while residential property did little better with a gain of 1.2pc.

UK shares and commercial property both returned 14.5pc, while the value of international shares increased by 10.6pc.

Suren Thiru, an economist at Lloyds TSB, said: “It is unsurprising that precious metals were the top performing asset class in 2010. Investors looked to protect the value of their investments amid the renewed uncertainty over the global economic outlook including the debt concerns in the eurozone and rising inflation.

“The level of demand from emerging economies, particularly from China and India, is likely to remain an important determinant of many assets prices as well as the pace at which the global economic recovery continues.”

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PIMCO Total Return dumps U.S. government-related debt

Wednesday, March 9th, 2011

This is no small development.

By Jennifer Ablan

NEW YORK (Reuters) – PIMCO’s Total Return Fund, the world’s biggest bond fund, has dumped all U.S. government-related securities, including Treasuries and agency debt, a source familiar with the fund’s holdings said on Wednesday.

In January, Pacific Investment Management Co.’s $236.9 billion Total Return fund slashed its U.S. government-related debt holdings to the lowest level in at least two years and increased cash and debt holdings from other developed nations.

Government-related securities include Treasuries, Treasury Inflation-Protected Securities, agencies, interest rate swaps, Treasury futures and options, and corporate securities guaranteed by the U.S. Federal Deposit Insurance Corp.

The Total Return Fund’s cash holdings had surged to $54.5 billion as of February 28 from $11.9 billion at the end of January. A PIMCO spokesman declined to comment for this story.

Bill Gross, the fund’s manager who helps oversee more than $1.1 trillion as PIMCO’s co-chief investment officer, has often railed against U.S. deficit spending and its inflationary impact. He has advocated buying bonds with “safe,” higher yields — such as corporate bonds — that can withstand possible erosion of returns by inflation.

In December, PIMCO said it may start investing up to 10 percent of its assets in “equity-related” securities, such as convertibles and preferred stock, after the first quarter of 2011.

“It’s certainly an important signal in the sense that they are allocating away from Treasuries in favor of a higher spread product,” said Christian Cooper, head of U.S. dollar derivatives trading at Jefferies & Co.

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The situation in the middle east is not getting better – prepare for higher oil prices (and gold and silver with it)

Tuesday, March 8th, 2011

It appears that the worlds largest producers of oil are continuing an ongoing process of socio-economic collapse.

This will likely affect oil as well as other commodities.

Most analysts miss the fact that energy is the primary cost input of so many of the commodities in the marketplace, including gold.

The middle east producers make up as much as 56% of the worlds known oil reserves.

This chart is from Jim Sinclairs excellent website www.jsmineset.com

World Oil Reserves

Saudi Arabia drafts in up to 10,000 troops ahead of protests

Desperate to avoid mass uprisings against the House of Saud, security forces have deployed in huge numbers across the region.

King Abdullah is also reported to have told neighbouring Bahrain that if they do not put down their own ongoing Shia revolt, his own forces will.

In response to the massive mobilisation, protesters are planning to place women on the front ranks to discourage Saudi forces from firing on them.

In Yemen, President Ali Abdullah Saleh set off a deadly battle for survival last night as he rejected an opposition peace proposal and ordered troops to fire on demonstrators, killing four. Efforts to suppress demonstrations by the key ally in the “war on terror” could jeopardise rising volumes of Western aid flooding into the country, diplomats warned.

President Saleh rejected an opposition proposal that would have brought demonstrations to a standstill in return for a promise to step down by the end of the year. Yemeni troops used rockets and machineguns to attack demonstrators in the north of the country, killing four and injuring nine.

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U.S. sets $223B deficit record

Tuesday, March 8th, 2011

Keep in mind that this deficit is being funded primarily through purchases of US Treasuries by the Federal Reserve. This is very negative for the USD over the long term.

Until this policy changes, it will force the price of all commodities up, including oil, gold and silver.

(Washington Times) -  The federal government posted its largest monthly deficit in history in February, a $223 billion shortfall that put a sharp point on the current fight on Capitol Hill about how deeply to cut this year’s spending.

That one-month figure, which came in a preliminary report from the Congressional Budget Office, dwarfs even the most robust cuts being talked about on the Hill, and underscores just how much work lawmakers have to do to get the government’s finances in balance again.

The Senate plans to vote Tuesday on competing proposals to cut spending, but Democrats have rejected GOP-backed cuts of more than $50 billion, and Republicans have ruled out Democrats’ cuts of less than $10 billion, meaning neither plan will draw the 60 votes needed to overcome a filibuster and pass.

“We’ve all done the math and we all know how these votes will turn out: Neither proposal will pass, which means neither will reach the president’s desk as written. We’ll go back to square one and back to the negotiating table,” said Senate Majority Leader Harry Reid, Nevada Democrat.

The two sides are facing a March 18 deadline, which is when the current stopgap funding bill expires. Without a new spending agreement by then, the government would shut down.

Glen Perkins delivers copies of the fiscal 2012 budget to the Senate Budget Committee hearing room in Washington on Feb. 14. (Bloomberg)**FILE** Glen Perkins delivers copies of the fiscal 2012 budget to the Senate Budget Committee hearing room in Washington on Feb. 14. (Bloomberg)

The House two weeks ago passed a bill that would cut $57 billion more from 2010 spending levels, including major reductions in a number of domestic programs.

Over the weekend, a top Senate Democrat said his party can accept no more than $6 billion in domestic cuts, and pointed to the proposal his colleagues introduced Friday that trims from several areas.

But a new set of numbers from the CBO indicates that Senate Democrats’ proposal actually totals only $4.7 billion when measured as reductions compared with the previous year’s spending.

So far, budget negotiations have not produced much visible progress.

President Obama designated Vice President Joseph R. Biden Jr. as his point man in the conversations, and Mr. Biden convened a meeting with congressional leaders last Thursday at the Capitol. But Mr. Biden is traveling in Europe this week on a long-planned trip to meet with foreign leaders.

White House press secretary Jay Carney hinted that Mr. Biden could still participate by phone, but declined to say whether anyone else was taking the lead in the talks in his absence.

“I’m not going to specify, simply to say that a variety of staff members, senior staff members, have been in conversations with folks on the Hill about this,” the spokesman said.

Republicans argue that Congress needs to tackle not only short-term spending, but long-term growth in the costs of Social Security and Medicare as well.

“Something must be done, and now is the time to do it. Republicans are ready and willing. Where is the president?” said Senate Minority Leader Mitch McConnell, Kentucky Republican. “Suddenly, at the moment when we can actually do something about all this, he’s silent.”

According to the CBO, the government has notched a $642 billion deficit for the first five months of fiscal 2011, which is slightly less than last year’s pace. Income tax revenues are rising faster than spending, which accounts for the marginally improved picture.

But interest on the debt continues to grow, reaching $101 billion through the end of February — a 12.5 percent increase over 2010.

The nonpartisan CBO’s February deficit number is preliminary. The Treasury Department will issue the final number later this week.

February is traditionally a bad month for federal finances. The previous two records were $220.9 billion, posted exactly a year ago, and $193.9 billion in February 2009.

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Former head of exploration for Saudi Aramco claims Saudi’s are overstating the size of their oil reserves by as much as 40%

Tuesday, March 8th, 2011


Global demand for oil continues to rise while it is clear global production is in jeopardy of further decline.

Even with new technology, the cost of extraction rises and therefore forces the price per barrel higher.

Higher oil = higher gold and every other commodity, as energy is the primary cost input.

WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

US diplomat convinced by Saudi expert that reserves of world’s biggest oil exporter have been overstated by nearly 40%

The US fears that Saudi Arabia, the world’s largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom’s crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.

The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Many analysts expect that the Saudis and their Opec cartel partners would pump more oil if rising prices threatened to choke off demand.

However, Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco’s 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached.

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as “peak oil”.

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.

One cable said: “According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray.”

It went on: “In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.

“Al-Husseini disagrees with this analysis, believing Aramco’s reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output.”

The US consul then told Washington: “While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered.”

Seven months later, the US embassy in Riyadh went further in two more cables. “Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period.”

A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. “Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018,” it said.

It also reported major project delays and accidents as “evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production.” While fears of premature “peak oil” and Saudi production problems had been expressed before, no US official has come close to saying this in public.

In the last two years, other senior energy analysts have backed Husseini. Fatih Birol, chief economist to the International Energy Agency, told the Guardian last year that conventional crude output could plateau in 2020, a development that was “not good news” for a world still heavily dependent on petroleum.

Jeremy Leggett, convenor of the UK Industry Taskforce on Peak Oil and Energy Security, said: “We are asleep at the wheel here: choosing to ignore a threat to the global economy that is quite as bad as the credit crunch, quite possibly worse.”

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Gold Buying in China Jumps as Inflation Flares, Boosting Demand, UBS Says

Thursday, March 3rd, 2011

200 tons of gold imported to China in the first two months of 2011. That is about 35% of the entire years imports for 2010. Projected out would be 2400 tons if it was consistent. I am not saying it will do that, I find it unlikely, but just putting it in perspective. Thats an entire years worth of mining supply, just about. 2011 is going to be an interesting year for gold.

(Bloomberg) Gold purchases in China, the world’s largest producer, climbed to 200 metric tons in the first two months of 2011 as faster inflation boosted consumer demand, according to UBS AG, which said the price may gain to $1,500.

“China is the big buyer,” Peter Hickson, global commodities strategist at Switzerland’s largest bank, said by phone yesterday, without giving a comparable figure for 2010. The estimate for the two-month period compares with full-year consumer demand from China of 579.5 tons for last year, according to the World Gold Council, a producer-funded group.

Bullion, which rallied 30 percent last year, surged to a record yesterday as uprisings in the Middle East, quickening inflation and currency debasement boosted global demand. China’s consumer prices rose 4.9 percent in January from a year earlier, exceeding policy makers’ 4 percent ceiling for a fourth month.

“Chinese interest is huge,” said Peter Tse, Hong Kong- based head of precious metals at Bank of Nova Scotia. “Demand for physical gold and imports has increased substantially” due to the Lunar New Year holiday, Tse said today, referring to the week-long break that began Feb. 2.

Immediate-delivery gold was at $1,429.05 an ounce at 5:08 p.m. in Singapore compared with yesterday’s peak of $1,434.93. Yuan-denominated bullion rose 0.5 percent to 303.58 yuan ($46.19) a gram in Shanghai, approaching the record 314 yuan, set Nov. 9.
‘Gold Is Attractive’

“Gold is attractive,” Hickson said. “The more the market becomes concerned about inflation or concerns about unrest in Africa, more and more people will look to gold.” The price may rise to $1,500 an ounce in the next six months, said Hong Kong- based Hickson, who’s worked for UBS since 1996.

Blackstone Group LP’s Byron Wien said in January that gold may rise to more than $1,600 this year “as investors across the world place more of their assets in something they consider ‘real’.” The price may reach $1,600 this year, Wayne Atwell, a managing director at Casimir Capital LP said the same month.

Protests partly linked to record food prices have erupted across North Africa and the Middle East this year, toppling leaders in Tunisia and Egypt and boosting oil prices. Libyan rebels braced for renewed clashes today with forces loyal to leader Muammar Qaddafi. Iranian protesters have clashed with security forces in Tehran, Al Arabiya reported.

Gold investment in China, the largest buyer of the precious metal after India, may gain 40 percent to 50 percent this year amid a lack of alternatives, Wang Lixin, China representative for the World Gold Council, said last month. He called that forecast a “conservative estimate.”
Bars and Coins

China’s investment demand in 2010 jumped 70 percent to 179.9 tons, surpassing Germany and the U.S., as buyers sought out bars and coins, the London-based industry group said. Consumption by the jewelry sector rose to a record 399.7 tons, it said. China imported more than 300 tons last year, People’s Bank of China Vice Governor Yi Gang said on Feb. 26 in Beijing.

China may be the “next big buyer” of gold, driven by institutional and retail demand, Credit Suisse Group AG analyst Tom Kendall said in Cape Town on Feb. 7. “If you’re sitting there in China with money in a deposit account, you’re losing between 1-2 percent a year through inflation,” Kendall said.

The boom in gold demand in China is driven by concern about inflation pressure and the poor performance of alternative investments, the producer-funded council has said. Premier Wen Jiabao pledged on Feb. 27 to boost food supplies to hold down costs, and to tackle surging property prices.

Spooked by Inflation

Jewelers at shopping malls across Beijing are witnessing a gold rush as residents spooked by inflation look to protect their money, the China Daily reported on Feb. 28.

Statistics from Beijing Caibai, the city’s largest jewelry store, show sales of gold and other jewelry have totaled about 4 billion yuan so far this year, a 70 percent increase from a year ago, the report said.

China displaced South Africa as the world’s biggest gold producer in 2007. Imports through last October rose almost fivefold to 209 tons from the total shipped in the previous year, according to the Shanghai Gold Exchange. Mine output reached a record 340 tons last year, the China Gold Association has said.

The Industrial and Commercial Bank of China Ltd., the world’s biggest lender by market value, started physical-gold linked savings accounts in December with the World Gold Council. Account openings have surpassed 1 million, with more than 12 tons of gold stored on behalf of investors, it has said.

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Buy now or wait for a pullback?

Wednesday, March 2nd, 2011

Hi Alex:

Hope you are well in spite of what’s happening in this crazy world.  I am liquidating some assets and plan on buying more gold.  The price today is above $1423 an ounce.  I check rapidtrends often, no new posting since early February – do you have a new information website I should be reading?  What’s your thoughts on the next 12-18 months?  Should I hold off a few weeks if you feel a correction back to around $1375 will happen soon?  How do you feel about silver, etc.

I sincerely appreciate your advise my friend.

John

***

Dear John, seasonal trend as well as SPX being supremely overbought suggests an SPX pullback which would cause gold and silver to pull back as well perhaps to mid March. If this happens seasonal strength would likely again exert upwards pressure coming out of March. This is a pretty big gamble however, because gold has just broken top channel resistance after consolidating in this range for a good while and is poised to jump to the next level which will be far beyond 1430.  If it doesn’t pullback and you choose to wait for a pullback which fails to materialize, you could be buying in at far higher prices. Tensions in the middle east are not showing signs of calming soon, and this is having a strong upward force on oil which sits at $100.71 as I write this. Higher oil = higher commodities in general over the longer term.

Aside from my commentary here we have a monthly newsletter you can sign up for at:  http://www.anglofareast.com/research/global-insider/

Kind regards,
Alex

Bernanke Claims there is not enough gold to support the US Currency system on a Gold Standard – total rubbish

Wednesday, March 2nd, 2011

As our regular readers know I have discussed this topic on a number of occasions. For Bernanke to say this is very disingenuous and is a clear indication of his motives because it is highly unlikely that he does not understand this concept…which means he is lying.

This is not rocket science. You do not need a PHD in economics to understand this. A 6 year old child with a calculator can divide the number of US Dollars in circulation¹ of roughly $1.8 Trillion USD by the number of ounces the US claims to own, which is 261,498,899.316 according to the US Treasury².

The number we arrive at is $6880 per ounce and some change. The problem is not that there isnt enough gold, its that having gold at $6880 per ounce would send a clear signal to the world that the Fed is actually totally incapable of managing the US economy, has a broken monetary policy, and that there is something seriously wrong with the US Dollar (assuming the government didn’t come right out and set us on a gold standard).

This is the typical argument presented by any Keynesian economist yet it is the weakest argument they have and takes very little logic to discredit it. For Bernanke to resort to this argument shows just how desperate and under pressure he may be.

WASHINGTON (Dow Jones)–Federal Reserve Chairman Ben Bernanke defended the central bank’s effect on the dollar Tuesday, pushing back at the idea that policy makers should consider alternative proposals like the gold standard.

Bernanke, appearing before the Senate Banking Committee, was pressed by Sen. Jim DeMint (R., S.C.) on the viability of a return to a gold-backed economy or the idea of the Treasury Department issuing bonds payable in gold. Bernanke, who has studied the issue, said a return to the gold standard wouldn’t work.

“It did deliver price stability over very long periods of time, but over shorter periods of time it caused wide swings in prices related to changes in demand or supply of gold. So I don’t think it’s a panacea,” Bernanke told DeMint.

Additionally, Bernanke said there were a number of practical issues that would prevent the return of gold as the world standard. Namely, there’s not enough gold in the world to effectively support the U.S. money supply.

“I don’t think that a full-fledged gold standard would be practical at this point,” Bernanke said, declining to opine on the gold-backed bond issue because he was not familiar with the idea.

Sen. Mark Kirk (R., Ill.) also engaged Bernanke on the currency issue, questioning whether the Fed’s $600 billion bond-purchase program is in effect monetizing the U.S. debt. Bernanke noted that the U.S couldn’t have currency outstanding if there were no Treasury securities to back it up, and that even the most steady economic times the Fed engages in the buying and selling of U.S.-backed securities.

Kirk, however, noted that the U.S. did have currency not backed by federal debt at one time in its history: under the administration of President Andrew Jackson, the nation’s seventh president.

Bernanke, appearing amused, was quick to respond.

“So this was before the Civil War, this was during the period where individual banks issued currency. We didn’t have a national currency,” Bernanke said.

Not to be outdone, Kirk asked whether it was possible for a country to have a currency without a trillion dollar debt. Bernanke said that was the case.

Article Source

¹Monetary Base

²US Gold Reserves

Gold and Silver both break new records

Wednesday, March 2nd, 2011

Gold prices settled at a new record high yesterday of $1,435/oz. Silver surged to new 30-year record nominal highs at $34.74/oz. Prices surged in dollars and all major currencies and look set to reach record highs in other currencies.

BE CAREFUL OF JUMPING ON THE NORTH AMERICAN VIEWPOINT BANDWAGON IN TERMS OF PHYSICAL SILVER SUPPLY

Tuesday, March 1st, 2011

The story about Silver being physically unavailable is reaching thunderous levels of rhetoric. Numerous analysts and commentators are crying, “There is no more physical Silver!!” Be careful about allowing your emotions to get the better of you in terms of your investment decisions. It has always been greed and fear that drives people to buy and sell anything. When there is much greed, it is likely that a particular investment may be due for a pullback. I am not suggesting that Silver is not a good investment. The long term fundamental facts of the Silver market are undeniable. I am saying that those who are invested in physical Silver (including me) will tend to want to believe the story that there is no physical Silver available for investment, because it means my investment will go well, and I was a smart investor after all.

The thing to keep in mind is that these views are usually expressed by analysts and commentators in North America and are often based on limited information from a regional perspective versus a global one. The supply demand equation in Silver is in fact a global one, so to assume that North American supply and demand equals global supply and demand may be a big mistake. Can you find a single analyst from Europe saying there is no physical Silver available? Do you see Chinese investors complaining that they can’t get any Silver? China’s imports of Silver have skyrocketed year over year without a single peep about difficulty getting it. Please bear in mind that being loud does not equal being correct.

The North American viewpoint is frequently accompanied by statistics drawn from COMEX and COMEX physical inventories. These stats are often used as the foundation of the viewpoint and proof that there is no physical Silver available to satisfy investor demand. The problem with taking this perspective is that COMEX settlements in physical Silver are a small fraction of the total global trade in physical Silver. Therefore, it’s not a good indicator of global availability of physical Silver, because there isn’t really incentive to maintain large stocks of physical for COMEX delivery. COMEX clearly states that settlement of futures can be done in cash versus the underlying physical asset. Do you really think COMEX is concerned about a physical default? According to their very own rules, they cannot default since they can settle in cash. This is the fact of the matter regardless of the importance that some analysts place on physical COMEX inventory. In the London Gold Pool of the mid 60s, the demand for physical settlement grew so intense that planeloads of Gold were being airlifted to London to satisfy demand. The London market actually closed for several weeks at one point because the demand could not be met, yet Gold still traded in Switzerland during this time. This reflects the fact that anything will continue to trade if there is demand regardless if the trading is occurring on the “loudest” market. To assume that COMEX will ever be a true indicator of the actual physical trade in Silver may be a big mistake.

Much of the commentary I read continually points to sourcing through bullion banks and ‘tightness’ when doing so. I am surprised that no one has caught onto the point that the bullion banks have a good deal of potentially conflicting interest here. They participate in the paper markets to a great degree and are in some cases the largest short sellers in paper while at the same time custodians of metal for some of the reported largest physical holders. One thing that has always caught my attention is that I have yet to see a single firm that goes directly to the largest refineries in the world (who isnt also a bullion bank) complaining about ability to access physical Silver. Yes, the bullion banks go directly to the refineries, but is it possible they stand to gain on the market activity associated with possible delays and claims that they can’t get metal? If the Royal Canadian Mint says their bullion banks are having a hard time sourcing metal, is it possible those bullion banks have an interest in having a hard time sourcing metal? Does it count if the retail outlets who source their small bars and rounds are all complaining about lack of product if it’s due to fabrication limits in the North American market? Do the fabricators in North America also go through these same bullion banks? In a recent interview with David Franklin regarding Sprott’s new physical Silver trust, he mentioned that a good portion of the Silver they had delivered came from overseas. Is this a coincidence, or does the tightness being reported have to do with regional availability or an incentive to profit by someone in the supply chain doing the delivering?

This idea that there is no physical Silver for investment is actually similar in character to the argument that we cannot have a Gold standard because there is not enough Gold. To be frank, that is ridiculous. The view I take is that of course there is enough Gold. The problem is that most people cannot wrap their mind around what price per ounce Gold would have to be to achieve an actual Gold backing, because that price per ounce is so much higher than it is right now (think on the order of $6000+ per ounce if you are talking American Dollars). Point being, if you wanted to buy 5 million ounces of Silver from me at $40 per ounce, do not think for a moment that it could not be sourced in the wink of an eye (or at least within a reasonable time frame if the eye-winking doesn’t actually conjure up the 5 million ounces).

Perhaps someday we will indeed reach the point where there is no more physical Silver for investment because of such amazing demand over supply and the fact that as we use Silver in industrial applications, it is used up and not economical to recover. That day however, is not today.

Kind regards,
Alex Stanczyk

Thanks to my readers

Tuesday, March 1st, 2011

Hello all, just a quick note to say thank you to all of you who have been emailing me lately asking about updates on Rapid Trends.

My apologies for the sparse updates as of late, I have been working on a pretty big project the last few months which has a huge portion of my priority in terms of time.

I promise I will be updating again soon.

Kind regards,

Alex


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