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Precious Metals Market Blog

China, Japan to Back Direct Trade of Currencies

Japan and China will promote direct trading of the yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said.

Japan will also apply to buy Chinese bonds next year, allowing the investment of renminbi that leaves China during the transactions, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday. Encouraging direct yen- yuan settlement should reduce currency risks and trading costs, the Japanese and Chinese governments said.

China is Japan’s biggest trading partner with 26.5 trillion yen ($340 billion) in two-way transactions last year, from 9.2 trillion yen a decade earlier. The pacts between the world’s second- and third-largest economies mirror attempts by fund managers to diversify as the two-year-old European debt crisis keeps global financial markets volatile.

“Given the huge size of the trade volume between Asia’s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations,” said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd.
Currency Swap

China also announced a 70 billion yuan ($11 billion) currency swap agreement with Thailand last week as part of a plan outlined in October to promote the use of the yuan in the Association of Southeast Asian Nations and establish free trade zones.

Central banks from Thailand to Nigeria plan to start buying yuan assets as slowing global growth has capped interest rates in the U.S. and Europe.

The move by China and Japan to strengthen market cooperation “benefits the ease of trade and investments between the two countries,” Chinese Foreign Ministry spokesman Hong Lei said today in Beijing. “It strengthens the region’s ability to protect against risks and deal with challenges.”

The yuan traded in Hong Kong’s offshore market gained 0.5 percent offshore last week and touched 6.3324 per dollar, the strongest level since trading started in July 2010. Its discount to the exchange rate in Shanghai narrowed to 0.1 percent, from a record 1.9 percent on Sept. 23.
Yuan Gains

The yuan gained 0.05 percent in Shanghai to 6.3330 per dollar today and was little changed at 6.3450 in Hong Kong. It strengthened 4.3 percent this year, the best-performing Asian currency excluding the yen. The currency is allowed to trade 0.5 percent on either side of that rate. The yuan is a denomination of the renminbi.

Japan exported 10.8 trillion yen to China in the year through November, and imported 12 trillion yen, according to Ministry of Finance data. The deficit with China widened to 1.2 trillion yen, from 418 billion yen in January-to-November 2010. About 60 percent of the trade transactions are settled in dollars, according to Japan’s Finance Ministry.

Finance Minister Jun Azumi said Dec. 20 buying of Chinese bonds would help reveal more information about financial markets in China. Noda said in September 2010, when he was finance minister, that Japan should be able to invest in China given that its neighbor buys Japanese debt. Japan holds $1.3 trillion of foreign-currency reserves, the world’s second largest after China’s $3.2 trillion.
Chinese Debt

Investing in Chinese debt has become easier for central banks as issuance of yuan-denominated bonds in Hong Kong more than tripled to 112 billion yuan ($18 billion) this year and institutions were granted quotas to invest onshore. Japan will start to buy “a small amount” of China’s bonds, a Japanese government official said on condition of anonymity because of the ministry’s policy, without elaborating.

China sold the second-biggest net amount of Japanese debt on record in October as the yen headed for a postwar high against the dollar and benchmark yields approached their lowest levels in a year. It cut Japanese debt by 853 billion yen, Japan’s Ministry of Finance said on Dec. 8.

Separately, the Japan Bank for International Cooperation, JGC Corp., Mizuho Corporate Bank Ltd., the Export-Import Bank of China and other Chinese companies will establish a $154 million fund to invest in environment-related businesses such as recycling and energy, the Japanese government said.

Read more here: http://libertycpm.com/2011/12/china-japan-to-back-direct-trade-of-currencies/

December 29, 2011 Posted by | Precious Metals | Leave a comment

We’ve Crossed the Rubicon

Do you suppose cows have any idea what’s coming as they’re marched down the chute? Or do they stare with bovine indifference at the tail and hind quarters in front of them, until they’re suddenly — and very briefly — startled by the man with the nail gun?

Perhaps Americans will — likewise too late — ask themselves what happened in the very near future. Perhaps just after the midnight knock comes and they are taken away into the night.

It is not an exaggeration.

America is now on the cusp of becoming a state that does exactly such things — things exactly like the things done by 20th-century horror shows such as National Socialist Germany or Stalin’s USSR. Literally. Not “this is where it might lead” or “the tendency is similar.” Exactly, literally, the same thing. The only difference is that it awaits being done on a mass scale. But the power to do it openly — brazenly — has been asserted.

And is about to be sanctified by law.

The National Defense Authorization Act will make it official. It will confer upon the executive branch and the military (increasingly, the same things) the permanent authority to snatch and grab any person, US citizens included, whom they decree to be a “terrorist” — as defined or not by the executive or the military — and imprison him indefinitely, without formal charge, presentation of evidence or judicial proceeding of any kind. These “detainees” will have neither civilian rights in the civil court system nor — crucially — even the minimal rights to due process and decent treatment conferred upon prisoners of war. (And we are allegedly “at war,” are we not?)

The language of the bill specifically includes American citizens “caught” within the borders of the United States — aka, the “battlefield.” It is claimed by sponsors that only those awful them — you know, the enemies of freedom the Chimp and his successors like to reference as they systematically gut our freedoms — need worry. But read the actual document, and be afraid.

The wording is such that any shyster lawyer for the government will be able to draw up a memorandum at some point in the near future equating, say, criticism of the federal government’s policies in the Middle East with “substantially supporting” the enemies of the United States. As defined by the United States.

That is, as defined by the government.

At its whim. At the personal discretion of whomever happens to be the Maximum Leader, or even one of the ML’s duly appointed minions.

As the always excellent Matt Taibbi of Rolling Stone recently observed, what happens when some nutjob who attended a few Tea Party meetings tries to bomb a federal building? Will the Tea Party itself — and anyone who “substantially supports” it — be thus transformed into an “enemy combatant”? How about the OWS protestors? How about this newsletter or website — and this author — which have on several occasions called b******* on the federal government’s usurpations and follies? How hard will it be, really, to describe such actions — such thoughts expressed in an article or an interview — as “substantially supporting” whatever the government decides amounts to “terrorism” or the threat thereof against itself?

Surely, the door is now wide open for such an interpretation by some John Woo or Dick Cheney waiting in the wings. Prospective jefe Newtie is practically turgid at the prospect of getting his hands on such power. And there is no longer (or soon won’t be) any legal means available to contest a one-way trip to Treblinka in Topeka — or wherever it is they will send you.

Taibbi writes:

“The really galling thing is that this act specifically envisions American citizens falling under the authority of the bill. One of its supporters, the dependably unlikeable Lindsey Graham of South Carolina, bragged that the law ‘basically says…for the first time that the homeland is part of the battlefield’ and that people can be jailed without trial, be they ‘American citizens or not.’ New Hampshire Republican Kelly Ayotte reiterated that ‘America is part of the battlefield.’”

Graham further stated:

“It is not unfair to make American citizens account for the fact that they decided to help al-Qaida to kill us all and hold them as long as it takes to find intelligence about what may be coming next. And when they say, ‘I want my lawyer,’ you tell them, ‘Shut up. You don’t get a lawyer.’”

The key thing being…it is entirely up to the government to decide what constitutes “helping” al-Qaida. It can be nothing more than a vague assertion. Indeed, no evidence of any kind whatsoever is necessary to “hold them as long as it takes” in order to “find intelligence” (not defined, either) by any means it wishes to employ.

As Taibbi notes:

“If these laws are passed, we would be forced to rely upon the discretion of a demonstrably corrupt and consistently idiotic government to not use these awful powers to strike back at legitimate domestic unrest.”

The Fuhrer (oops, President Obama) is about to sign this latter-day enabling act, and when he does, it will mark the moment that America’s coffin is nailed shut. The corpse has been on view since Sept. 11. But there was always some hope that, perhaps, it might be jolted back into life. Now we know the awful truth. Death is permanent.

And it’s coming for us.

Regards,

Eric Peters,
for The Daily Reckoning

Read more: We’ve Crossed the Rubicon http://dailyreckoning.com/weve-crossed-the-rubicon/#ixzz1hIHTgtQr

December 22, 2011 Posted by | Precious Metals | Leave a comment

Jim Sinclair – Why Gold Was Smashed Today & What’s Next

With gold trading down over $60 and silver lower by more than $2, today King World News interviewed legendary Jim Sinclair. When asked about the action in gold, Sinclair stated, “Statements made by Mrs. Merkel, in Germany, this morning, would have us believe that both the US Fed and Germany’s influence on the ECB would result in a willingness to accept a severe deflation, rather than willingness to accept a severe inflation. The selling (in gold) sent some of the fundamental guys out of their positions in gold, which affected the technicals.”
Read more here…

December 15, 2011 Posted by | Precious Metals | Leave a comment

DEUS EX MACHINA

by Egon von Greyerz – December 2011

With most of the world’s major economies as well as the financial system bankrupt, there is only one solution that can save the world economy. Like in the Greek tragedies, Deus ex Machina is now the only way that the world can avoid a total economic collapse. This would involve God being lowered down onto the world stage and miraculously saving the plot.

For those few who believe in this, may God bless them. But since this is a very unlikely solution most people will instead rely on governments and central banks to save us. But how can anyone possibly believe that totally incompetent and clueless politicians and central bankers could solve anything. They created the problem in the first place and are therefore totally unsuitable to play the role of Deus. The main objective of governments is to stay in power and thus to buy votes. Therefore they are incapable of taking the right decisions. And the opposition, aspiring to power is even less suitable since they will lie through their teeth and promise the earth in order to be elected. (We know that there are exceptions like Ron Paul, but the voters will most probably find his medicine too strong to swallow.)
What about central bankers, can’t they save us? Unfortunately any sensible person who becomes a central banker loses all his senses and becomes a prisoner of the political system.

Solution?
So if there is no Deus ex Machina and if governments or bankers can’t rescue the world, who can and what is the solution. Let us return to the wise von Mises to look at the options available now:
“THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS A RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION, OR LATER AS A FINAL OR TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED”
Ludwig von Mises
Mises is absolutely correct: “There is no means of avoiding a final collapse of a boom brought about by credit expansion”. Whatever politicians, bankers, economists or others experts say, there is no solution to this crisis.We have reached the end of the road and are now staring into the abyss.
The credit manufacturing system that started in 1913 when the Fed was founded, began its terminal phase in 1971 when Nixon abolished gold backing of the dollar. It has been clear to us for at least 20 years that the outcome was inevitable. It was never a question of “if” but only “when” it would happen. It is now clear to us that the false prosperity that the world has experienced by printing unlimited amounts of money will very soon come to an end. Thus the “if” and “when” conditions are now satisfied so the remaining question is HOW?
To try to answer this let’s return to Mises: “The alternative is only whether the crisis should come sooner as a result of voluntary abandonment of further credit expansion ….”
To stop the money printing and credit creation would be the only sensible way of ending the failed quasi-capitalist, socialist experiment which is in the process of destroying the structure of the Western world. For almost 100 years we have lived on a system based on debt. This has created a false prosperity as well as false values. The transfer of capital from private enterprise to government by massive taxation is approaching 50% in many countries (see table). The average for 18 industrialised countries is almost 40%. This means that on average 40% of the productive economy is transferred to a non-producing entity (government) which wastes most of the money in the process of redistribution. But not only that, since the state has taken over up to 50% of the economy in these countries, the desire to work, to strive, to take risk and to invent has been taken away from a major part of the population.
For a great many people it is now totally natural to rely on the state for their needs rather than on themselves. And the state needs to borrow/print ever increasing amounts to perpetuate this economy based on an illusion. This situation is totally untenable. Since any additional money printing will only exacerbate the crisis and make the final collapse so much greater, the swiftest solution would be let the financial system implode now. We need to reset the world to a level which is sustainable. The consequences of this implosion would be a collapse of the financial system and a reset of debt to zero. Although this is unthinkable to any government or politician, it would be by far the quickest way to get the world back on its feet with no major debts, minimal government interference, and no central bank that can print money. It would be like a forest fire getting rid of all the dead wood. Out of that would rise masses of green shoots in the form of strong unchequered growth. The transition will of course be traumatic and the current generation will experience enormous hardship. But not voluntarily abandoning the money printing now will just delay the inevitable and the consequences will be dramatically greater and affect many future generations.
Anyone who has followed my articles will know my view that governments worldwide are totally incapable of stopping the money printing. This is their only means of staying in power and buying votes. But not only that,this is the only method they know. This has been their patent solution to all economic problems in the last decades. Not that this is new in history. Most empires have resorted to diluting the value of money by reducing the gold/silver content of coins or printing paper money. But as far as I know it has never before been done by so many countries simultaneously to such an extent.
Since there won’t be any voluntary abandonment of credit creation what will the likely outcome be? Again let’s use Mises words: “…… a final or total catastrophe of the currency system involved”. The problem this time is that we are not talking about one currency or one country. No, we are talking about most of the world’s major currencies. We have been used to measuring currencies and economies on a relative basis i.e. against each other. But this is a total fallacy since all major currencies have been in a race to the bottom for the last 100 years. Most currencies have lost between 97% and 99% against real money –GOLD – since 1913. And since 1999, most currencies have lost 80% or more against gold. So paper money has been a very poor measure of wealth in the last 100 years. Governments are creating credit and paper money and consequently through their fraudulent actions “stealing” from the people whilst at the same time increasing the people’s dependence on the state. And the people does not understand that the value of paper money is declining continuously. But gold reveals the deceitful destruction of paper money. This is why governments do not like gold and try to suppress the gold price.
Endless Money Printing – QE
And how will the currency system collapse? The answer to this question is very simple – through endless money printing. There will be no lasting austerity programmes in any country that can print money. Governments are incapable of sticking to austerity measures since in the end that is a guaranteed way of losing power. As power is the main purpose of all governments, they will use any method to retain it. Within the Eurozone, individual countries can of course not print money but the ECB and the IMF will take care of that. So whilst world leaders are procrastinating and bickering in G8, G20 and all other “summit” meetings, it is absolutely guaranteed that the final outcome will be one QE package after the next. Governments and central banks know that without limitless money printing there would be a deflationary collapse of the banking system and world economy.
The table below shows the financing requirements of the PIGS countries in the next few years. Just Italy and Spain will require €1 trillion in the next 4 years and of that 1/2 trillion Euros in 2012. Only printed money will take care of that.
For many years it has been absolutely crystal clear to some of us (sadly a very small minority) that many major sovereign nations are bankrupt as well as the world financial system. Banks are only surviving because they, with the blessing of governments, are allowed to value trillions of dollars of toxic and worthless assets at full value. And on top of that there are more than $1 quadrillion outstanding in derivatives. These are outside the banks’ balance sheets and there are virtually no reserves against them. The banks are netting the value down to virtually nothing and then applying a miniscule reserve against this net amount. First of all, the netting is only valid when the counterparty pays. When there is a counterparty failure, which is very likely in the coming financial collapse, gross remains gross and the $1 quadrillion remains $1 quadrillion. Secondly, a major part of the derivatives are worthless or not protecting the investors as we have seen with for example Freddie Mac, Fannie Mae, Lehmans and lately MF Global. MF Global had bought CDs to hedge their investment in Greek debt. But they hadn’t understood what they had bought and it turned out it offered no protection at all.
Hyperinflation
The “final or total catastrophe of the currency system” will occur as a result of the QE or unlimited money printing that will very soon start in the EU, USA, UK, Japan and many more countries. And this currency destruction will lead to hyperinflation as I have stated for many years. Throughout history, substantial government deficits leading to money creation or printing have always been the cause of hyperinflation. Because hyperinflation is always the result of a collapsing currency and not of excess demand.
To any thinking individual, it is totally incomprehensible that governments and central banks believe that an insolvent world can be saved by debt issued by bankrupt nations and then bought by the issuers themselves as there is no other buyer. This is the perfect recipe for self-destruction and “total catastrophe of the system.”
IMF, EU and other failed monstrosities
Time and time again, the world creates massive costly, bureaucratic and unaccountable structures that have idealistic and totally unrealistic objectives.
Take the IMF for example. This is what their mission statement states: “The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”
If financial stability, high employment, sustainable economic growth and reducing poverty are the objectives of the IMF, then they have failed on every single point. So here we have an organisation that receives/borrows money from mainly bankrupt states and then lends the money to countries that cannot or will not ever repay the funds. And in order to carry out this totally futile task, the IMF takes a major cut in between to finance its costly and failed operation. The world does not need monstrous and costly structures that totally fail in their mission. Thus, the IMF should be closed.
Turning to the EU, they state on their website: “The main objectives of the Union are now to promote peace, the Union’s values and the well-being of its peoples”. There are other stated objectives such as: “sustainable development, based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment.”
The EU or the EEC as it was first called was created in the late 1950s. This was a prosperous period in the world economy based on real growth (not debt). As often is the case, politicians with illusions of grandeur create superstructures which only function in good times. The EU’s main objective of creating peace and well-being of the people is now being severely tested. If we for example asked Spanish youth (50% unemployed) about their well-being or Greek people or the Portuguese etc, we would get a tirade of abuse and complaints about the EU. Instead of “creating peace”, we are seeing major tension within the EU that could lead to serious conflicts. And as to “balanced economic growth and full employment”, this has all come to an end. The false prosperity, mainly based on debt, has also come to an end and the EU can only survive intact with the aid of endless money printing. But even that would only be a temporary reprieve. The EU is a failed experiment which is extremely costly and inefficient. The economic ruin of Ireland, Greece, Spain, Portugal, Italy, France etc would not have happened to the same extent without the EU. Like all artificial fiat currencies, the Euro was doomed to fail. Without the Euro, countries like for example Ireland, Spain or Greece would have recovered much faster.
Final or total catastrophe
So we are heading to the final stage or as Mises says a “final or total catastrophe of the currency system involved”. I don’t think that even Mises envisaged at the time that this could involve a major part of the world rather than just one country. This is why this catastrophe will be unprecedented in world history and have consequences that will affect the world economically, socially and geopolitically for a very long time.
Wealth Preservation – Gold
Since 2002 we have advised investors to put up to 50% of their assets into physical gold, stored outside the banking system. Gold has appreciated between 15% and 20% per annum since 2002 depending on the base currency. And most stock markets have declined 70-85% against gold in the last ten years. In spite of this most major investor groups (institutional, funds, asset managers or individuals) own no gold. Gold is money and reflects the total destruction of paper money. But most investors do not understand gold. Common arguments I hear is that “you can’t eat gold” or that “gold pays no return.” It seems that these investors prefer to eat paper money. And as to the argument that there is no yield on gold, who needs yield on an asset that has massively outperformed all major asset classes in the last 11 years. And if we look at 2011, gold has greatly outperformed stock markets in most major countries. Whilst stock markets are down between 1% and 24% in 2011, gold is up more than 20% against all major currencies. So in real terms (gold) all stock markets are doing very badly but still investors persist in riding these falling trends.
Stock markets will benefit temporarily from QE but it is still our view that they will fall another 90% against gold in the next few years.
The correction in the precious metals is now likely to be over and we should see the metals going to new highs in 2012. I had the pleasure of becoming acquainted with Alf Field at the recent Gold Symposium in Sydney where we were both speakers together with Eric Sprott, John Embry and Ben Davies amongst others. Alf is one of the few in the world, if not the only one, who knows how to apply the Elliott Wave principle successfully to gold. Alf’s next intermediate target is at least $4,500 and the ascent to this target could be rapid. That would probably mean a silver price of $150. These technical forecasts certainly confirm the fundamentals as outlined in this article.
The world is in a total mess and there is absolutely no solution to this unprecedented crisis. The hyperinflationary depression that we will experience in the next few years will totally destroy the majority of the credit based wealth that has been created in the last few decades.
In order to preserve wealth and keep capital intact, it is critical to keep a major part of investment assets in precious metals held outside the banking system. But for investors who continue to follow conventional wisdom, they will sadly find that their investment strategy was merely conventional and contained no wisdom.
6thDecember2011
Matterhorn Asset Management – Switzerland

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December 8, 2011 Posted by | Precious Metals | Leave a comment

Rick Rule – Fed Bailout of Europe Sends Gold Soaring

With news of the Fed bailing out the European banking system, today King World News interviewed one of the most street smart pros in the resource sector, Rick Rule, Founder of Global Resource Investments, which is now part of the $10 billion strong Sprott Asset Management. Rule had this to say about the situation, “Pretty amazing isn’t it? We’ve decided as American taxpayers that we don’t want to merely bail out brain dead American bankers, but we want to bail out brain dead European bankers too. Strange day, particularly from the point of view of a US dollar holder and a taxpayer.”“It makes near-term sense that the dollar would trade lower. It means that the European banks that have to roll over their US funding requirements won’t have to sell euros to buy dollars. They will be able to borrow discounted dollars. And it probably takes pressure off the euro in the sense that it gives the European banks more rope with which to hang themselves.

I keep harkening back, but I think it’s important, to telling your listeners that to increase the encumbrances on an over leveraged institution doesn’t help the institution long-term. It kicks the can down the road.

To use the example of the sovereign debtor Greece, the idea that somehow you improve the Greek situation by taking a country that can’t service the debts at 150% of GDP, and increasing their debts to 170% of GDP, it doesn’t seem to help.

And similarly, at least from my point of view, to the extent that Deutsche Bank, as an example, has too many short-maturing obligations in US dollars, the idea that you increase that level of obligation doesn’t appear to me to be helpful in the long-term.

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December 1, 2011 Posted by | Precious Metals | Leave a comment

Sarkozy: Europe’s “Liquidity Run” Has Begun Because There Is An Unsolvable $30 Trillion Problem

No, not that Sarkozy. His half-brother – the one who actually can use a calculator. In an interview on CNBC, the Carlyle group head had the temerity to tell the truth, the whole truth, and use math – that long-forgotten concept which one has to scour various backwater blogs to rediscover – to explain nothing but the truth which is that Europe needs many more trillions than either the EFSF or the ECB can afford to give. Actually, we take that back. The ECB can inject the needed €3-5 trillion, but after that concerns about localized episodes of (hyper)inflation, especially now that Kocherlakota has confirmed that the transmission mechanism between bank reserves and inflation may be broken, will be all too justified. In the meantime, Sarkozy on Europe math fail: “The math i’m working with is very simple. In the US banking sector, we had 3 trillion of wholesale funding that needed to be stabilized, got stabilized by the implementation of TARP which saw the US treasury buy $212 billion worth of preferred in the banking sector to stabilize that $3 trillion, give our banks the time to work through hair problem their problem assets. In Europe, that $3 trillion is $30 trillion. so if you multiply the $212 by 10, you get the $2.12 trillion. In my view, the issues on the European banks are bigger than the issues on the books of the US Banks. So if you want to stabilize that $30 trillion and in my view it’s not that you want to, it’s that you have to, you do not have a choice, you’re going to have to be at least at 2.1 trillion and i suspect it may need to be more.” Q.E.D. – there, the math wasn’t that difficult, was it?

Watch video here..

November 23, 2011 Posted by | Precious Metals | Leave a comment

Gold Falls Most in Seven Weeks as Equities, Commodities Slump on Euro Debt

Gold fell the most in more than seven weeks as commodities and equities slumped after Fitch Rating said U.S. banks face a “serious risk” from Europe’s debt woes. Silver tumbled.

The MSCI World Index of equities dropped for a fourth day, and the Standard & Poor’s GSCI index of 24 raw materials fell the most in eight weeks. Fitch said yesterday that “the broad credit outlook for the U.S. banking industry could worsen,” unless Europe’s woes are resolved soon. Before today, gold rose 25 percent this year on demand for a store of value.
“Apparent liquidation from fear of possible contagion from the European crisis has commodities, including gold, under continued pressure,” Miguel Perez-Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said in telephone interview. “This is a big collapse.”

Gold futures for December delivery fell 2.9 percent to $1,722.60 an ounce at 1:17 p.m. on the Comex in New York. A close at that price would mark the biggest drop for a most- active contract since Sept. 23.

Silver futures for December delivery plunged 7 percent to $31.455 an ounce on the Comex, heading for the biggest drop since Sept. 23.

Gold could retreat to $1,705, Perez-Santalla said, without giving a time frame. Prices touched a record $1,923.70 on Sept. 6.
‘Investors Move Out’

The lingering debt crisis means “investors move out of risky assets,” said Marcus Grubb, the managing director of investment research at the World Gold Council. “They move out of equities, they move into short-dated bonds and into cash, and they even move out of gold because they tend to take profit in it to shore up losses in the rest of their portfolio.”

Grubb spoke today on Bloomberg television’s “Countdown” with Owen Thomas from London.

Average physical-gold purchases in the past two weeks in India, the world’s biggest consumer, have been the lowest since mid-June 2010, UBS AG said in a report.

The dollar gained against a basket of major currencies for the fourth straight day.

“We have seen some selling in the past few sessions because of the dollar’s strength and the debt crisis in Europe,” David Meger, the director of metal trading at Vision Financial Markets in Chicago, said in a telephone interview. “However, it’s a matter of time before the safe-haven story is back.”

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net

November 17, 2011 Posted by | Precious Metals | Leave a comment

Why European Crisis Fears Slammed U.S. Stocks

The explosive moves in the stock market recently are testing the resolve of investors worldwide, and today there was no relief. The Dow Jones Industrial Average fell 389 points, or 3.2% to 11,781, the Nasdaq fell 3.88% to 2,622, and the S&P 500 fell 3.67% to 1,229.

The market opened lower this morning on concerns out of Italy and whether Prime Minister Silvio Berlusconi would truly resign his post due to his failure to stem the country’s debt crisis. As a response, Italian bond yields soared to crisis levels, rising above 7%. Later in the afternoon new details emerged that European officials are reportedly considering an overhaul of the European Union we’ve come to know. When leaders like German Chancellor Angela Merkel and French President Nicolas Sarkozy express ideas of potentially reorganizing the make-up of the EU, the world must listen closely.

Add it all up, and our market’s response today is quite rational, while the world is rather chaotic. The stock market is just trying to keep up with it. Investors may not like it, but anyone that cares about their financial well-being must pay attention to the situation in Europe.

The butterfly effect of global markets

Whether it’s kids swapping baseball cards or General Motors (GM) buying a million tons of steel, all trading is based on a common set of rules. Right now Europe has no real set of rules. As a result, German multi-nationals can’t do business with other companies because nobody involved knows the rules. With little kids that means a fight and some tears. With GM and Mercedes Benz it means billions and billions of dollars in trades that never happen.

We’re seeing the beginnings of a global economic seizure already. Germany is on the cusp of, if not already in a recession. Italy can’t issue bonds without paying yields normally reserved for third world nations. Just today Italian bond yields hit crisis levels rising above 7%. None of these things can be stopped without someone stepping in and laying out a plan of action for the European Union.

Without a plan, even a flawed plan, Europe will simply close for business on an International basis. If and when that happens, the whole world will freeze right along with it. The deeper we go into this disruption, the lower corporate earnings throughout the world will be. The lower the profits, the fewer the jobs, until no company on earth can predict with any certainty what their business will look like tomorrow.

The threat of such an outcome is very real and extremely scary. Tens of millions of jobs are at stake. The fate of the financial world as we know it hangs in the balance, and traders are going to bed every night wondering if the head of France will still be in power in the morning.

It’s ugly and it’s real. Not all fears are irrational. Sometimes there’s a monster under the bed and a boogeyman in the closet. This is one of those times.

That’s why the market is so volatile and that’s why it matters whether you own stocks or not.

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November 10, 2011 Posted by | Precious Metals | Leave a comment

This Year’s ‘Lehman Moment’ Might Occur Soon

This originally appeared in the Daily Capitalist and was written by DoctoRx who writes our market commentary. He has 30 years of investment experience.

The strangely-named MF Global is now the subject of the lead article of the online NYT, with the title Regulators Investigating MF Global for Missing Money.  Here’s the lede:

Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

One of the reasons for the stock market crash after Lehman is discussed in the article.  Innocent hedge fund money (if there is such a thing!) was lost to the rightful owners in the collapse.  If indeed there has been misappropriation of customer funds at MF, how many customers are going to withdraw their funds from other commodities accounts as well as from standard stock/bond brokers, after selling their holdings first?  Especially after the frustrating decade-plus we have experienced in the financial markets, why shouldn’t people just move to direct ownership of Treasurys and into FDIC-insured bank deposits?

The story could hardly be worse.  MF Global was not just any old futures firm.  It was run by a stalwart of the Democratic establishment and the former leader of Goldman Sachs.  If his firm was guilty of what would basically be akin to embezzlement of funds owned by the firms clients, whether or not Mr. Corzine was blameless, how could one trust a securities firm run by someone who had not been a high-ranking government official?

A major “risk-off” move could be in the making.

Remember,  physical gold and silver that you have in your possession has No counter party risk!

November 3, 2011 Posted by | Precious Metals | Leave a comment

Gold To Rise On Fiat Currency Crisis, Negative Real Interest Rates, Money Printing

A lot has been said as to what has fueled gold’s precipitous rise to all-time highs, from its characteristics as an inflation hedge to providing insurance against a deflationary recession.  While the recent, and tumultuous, correction from about $1,920 an ounce to almost $1,500, a 20% correction, shook market confidence confidence, the gold industry came together to express what will fuel the long-term bull in gold markets.

 

 

Speaking at the Argyle Executive Forum, hosted by the World Gold Council, gold investors and fund managers laid out their bull case for the yellow metal.  It rests on a series of interconnected causes stemming from the inherent weakness in developed economies.

“We’re in the middle of a gold bull market that’s been going on for ten years now,” explained Joe Foster, Van Eck’s head of actively managed gold funds, “this is not a bubble and we are nowhere near the end.”  Gold’s precipitous rise has come as a consequence of the fiat currency crisis, in which debt saddled countries have resorted to stimulative policies that involve money printing and competitive exchange rate depreciation.  This, in turn, has eroded purchasing power and fueled the rise of gold.

This argument can be made to fit practically any crisis situation.  Gold looks good in the face of mounting inflation, gold looks attractive as we approach a deflationary recession.  In reality, these gold bulls believe it doesn’t matter what’s causing the crisis, just that a crisis is coming. “Gold thrives on financial risk,” explained Foster, “the source of that risk doesn’t matter: inflation, deflation, currency crisis, debt crisis; and [current] financial stress is so acute that gold will thrive.”

And thrive it has.  After falling more than 20% to $1,500 and change an ounce, gold has rebounded strongly, rallying for at least four days straight on Wednesday to $1,721.24 an ounce, a nearly 7% gain.  Gold bulls point at the floor that formed at $1,500, were “organic demand came in,” in the words of the World Gold Council’s head of investment research, Juan Carlos Artigas.  UBS’ Edel Tully has supported Artigas’ claim, repeatedly noting the strength of physical demand the last couple of weeks.

Gold’s price action has responded, in part, to recent events.  Gold peaked after the crucial first two weeks of August, when the U.S. saw its credit rating axed by S&P and the ECB signaled it would begin purchasing Spanish and Italian bonds, a form of European QE.  Then gold tanked in late August and through September, as Fed Minutes revealed Bernanke faced a divided Fed and QE would be replaced by Twist, at least in the short term.

  Read more here….

October 27, 2011 Posted by | Precious Metals | Leave a comment

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