Thread: Gold "Incredible", Silver "Phenomenal",

Gold "Incredible", Silver "Phenomenal", Short Sellers Squeezed

Commodities / Gold and Silver 2010
Nov 09, 2010 - 08:00 AM
By: Adrian_Ash

THE PRICE OF PHYSICAL GOLD continued to surge in London on Tuesday, taking out fresh all-time highs for US, Canadian and UK investors as European stock markets reversed yesterday's drop and the Euro rallied from a 1-week low on the currency market.

Commodity markets added up to 1.5%, while German Bunds rose but US and UK debt slipped, nudging the 10-year gilt yield back above 3.0%.

Silver prices meantime broke above $28 per ounce, gaining nearly 7% vs. the Dollar from Monday's start.

Priced in British Pounds, the silver price hit its highest level since 24 Jan. 1980 at £17.65.

"Incredible momentum," says one London dealer of the precious metals market.

"Silver's rally has been phenomenal," says another.

"Our Hong Kong office reports that many large speculative shorts out of China have been forced to stop out over the past several days," says a third.

"The short position started to build in July," says a bullion bank analyst, noting the four-fold rise in to early October's peak. Since then, the short position in Comex silver futures has shrunk by almost one fifth.

Silver prices have risen by 25%.

"Selling is absent" in the physical gold market, says Standard Bank today, despite last weekend's finish to the Indian Diwali festival and "despite the temptation of high prices, with participants expecting further upside still to come."

The gold price in Euros today rose further above €1000 per ounce, coming within 3% of June's all-time Euro peak at €1051.

UK investors wanting to buy gold today saw the best offer rise above £878 per ounce in each of BullionVault's live online markets for New York, London and secure Zurich-vaulted bullion.

For gold investment, "The upward trend remains in place, and as it beds down, QE2 will probably boost demand," says the latest Precious Metals Weekly for ABN Amro Bank from London's VM consultancy.

"The need for safe-havens has never been greater," agrees market-making bullion bank Scotia Mocatta in its November Metals Matters.

"Given the fact governments are [so highly active] in monetary and fiscal policy, as well as looking to change the 'rule books' on such things as naked short-selling and large speculative position, it is not surprising that gold is being bought as a means of holding something of value outside the clutches of any one government.

"Even if deflation in mature economies does underpin their currencies, we feel the uncertainty associated with deflation will mean gold will remain sought after, especially as its buying power increases in a deflationary environment."

Monday saw bond-insurance group Ambac Financial file for Chapter 11 bankruptcy protection in the United States, after it failed to raise much-need capital, leaving the former "monoline" giant with $1.6 billion in debt but only $0.4bn in assets.

Ambac's stock more than halved to 20¢ in after-hours trading last night.

It peaked above $95 in spring 2007.

"The loss of confidence hitting Ireland will have major implications for the way investors perceive Irish sovereign and private sector risks," says Jacques Cailloux, chief European economist at RBS Bank. "The contagion effects to other peripheral countries will start playing out again.

"We look for the ECB to be forced to intervene more aggressively in coming weeks," he adds, after the European Central Bank said it made its first return to buying Euro-government bonds last week, with a €711 million purchase.

Ahead of this week's G20 summit of developed and emerging-economy politicians in London, "We feel that [the US Fed's decision to launch QEII] did not recognize its responsibility to stabilize global markets or the impact of excessive liquidity on emerging markets," said China's vice-minister for finance, Zhu Guangyao, on Monday.

"Russia will insist...that such actions are taken with preliminary consultations with other members of the global economy," said Arkady Dvorkovich, a Kremlin official.

"The Fed's mandate, my mandate, is to grow our economy," countered US president Barack Obama this morning on his trip to India. "That's good for the world as a whole.

"The worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth."
By Adrian Ash

BullionVault.com

http://www.marketoracle.co.uk/Article24152.html

Fed Pushes U.S. Economy into an Inflationary Death Spiral

Economics / Inflation
Nov 09, 2010 - 03:42 AM

By: Michael_Pento

It seems the Fed has given up on the idea that the country can build a viable and stable economy through the conventional means. Instead, our central bank has resorted to once again growing GDP and increasing employment by the creation of asset bubbles. This is a dangerous game that no one, least of all the Fed, knows how to play.

We learned this past Wednesday that the FOMC decided to increase its purchases of longer-dated Treasuries by $600 billion within the next eight months. That means the Fed is on course to fund about 75% of our annual deficit! Such figures are the stock in trade of banana republics. While most of the rest of the world is fighting inflation and strengthening their currencies, we are doing everything in our power to end the dollar's status as the world's reserve.

Canada, China, India, Brazil, and Australia have all recently taken steps to raise interest rates and/or curtail bank lending. Compare that to the US, which has left interest rates at near-zero for almost two years. While other central bankers are tamping down expansionary rhetoric, Fed Chairman Bernanke is on record saying that he will do everything in his power to push up inflation (which he considers too low) and dilute the dollar. Foreign central banks and other investors may soon reconsider their plans to park cash in dollar-denominated assets. In fact, there has been a series of angry statements from top economic policymakers in Beijing, Berlin, Moscow, and Sao Paolo that show rising discontent with Washington.

The Fed rationalized its decision to upset the global monetary order in a November 4th op-ed by Chairman Bernanke entitled, "What the Fed did and why." Here's an excerpt:

"Although asset purchases are relatively unfamiliar as a tool of monetary policy, some concerns about this approach are overstated. Critics have, for example, worried that it will lead to excessive increases in the money supply and ultimately to significant increases in inflation. Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits. Nor did it result in higher inflation. We have made all necessary preparations, and we are confident that we have the tools to unwind these policies at the appropriate time. The Fed is committed to both parts of its dual mandate and will take all measures necessary to keep inflation low and stable."

But the facts contradict Bernanke's claims that monetary policy has not pushed up inflation. The Fed began the current round of accommodation in September of 2007 with a 50 basis point reduction in the Fed funds rate. At that time, the M2 money stock was $7.40 trillion. It has since jumped 18.5% to $8.77 billion. This increase is showing up in the form of higher prices.

The 19 commodities that make up the CRB Index have soared 55% since the beginning of 2009. Unless the Chairman desires to return to an environment where oil is trading at $147 a barrel, these surging commodity prices are already placing consumers and corporations under inflationary duress.

Here's where the danger lies ahead. Before the recession began in 2007, the ratio between M2 and the monetary base was about 10:1. If the Fed sticks to its announced schedule, the size of the base should grow from $1.96 trillion to about $2.6 trillion by June of 2011. Once banks start lending again and expanding base money through the fractional reserve system, M2 could increase exponentially. An increase in the money supply to $26 trillion (in line with the historic 10-to-1 ratio) would result in a major inflationary shock. However, even if the money multiplier were to remain much lower, the M2 money stock would still be much higher than today. In fact, the compounded annual increase of M2 in the last 4 weeks is currently over 9%.

Unless Bernanke has a "road to Damascus" moment, the money supply will continue to grow and inflation will accelerate over the course of the next few years. To make matters much worse, the interest expense on the nation's debt could reach over 40% of all revenue by the year 2015.

Faced with negative real interest rates, rapidly rising inflation, and a chronically weak dollar, foreign holders of US Treasury debt and other dollar-denominated holdings may begin to lose their nerve. They may start to repatriate their savings and thereby send Treasury yields soaring. The Fed - which is the Treasury's buyer of last resort - will then be faced with a perilous decision. The central bank will have to either join foreign sellers of US debt in sending interest rates higher (in the hopes of giving the dollar some footing and allowing high rates to encourage the return of real buyers) or ramp up the printing presses to keep the long end of the yield curve from spiking. It should be obvious that the Fed has already made that decision. They will never allow rates to rise. The debt will be monetized.

I have no doubt that Bernanke will be remarkably successful in his stated goal of driving inflation higher. I simply disagree with his nonchalance about the long-term consequences. There is currently no easy exit strategy for the Fed. There is only the prospect of Americans suffering through either a deflationary depression or hyperinflation. To survive such storm requires careful planning. If only we could convince the big chief to stop doing his rain dance...

For in-depth analysis of this and other investment topics, subscribe to The Global Investor, Peter Schiff's free newsletter. Click here for more information.

By Michael Pento
Euro Pacific Capital
http://www.europac.net/

http://www.marketoracle.co.uk/Article24136.html

Fed Creates Parabolic Move In Gold And Silver, Climax Top?

Commodities / Gold and Silver 2010
Nov 09, 2010 - 02:37 PM

By: Jeb_Handwerger

After trading through both bull and bear markets and witnessing hysterias and panics I have learned that whatever method you use to buy stocks, you must have a discipline to sell. When I buy I look for support levels and oversold conditions so that a reversal could bring about a major gain and the downside risk is calculated. As I wrote in my buy signal in gold in late July, the conditions were ideal for a major move to the upside. Now the conditions are reaching the extreme opposite, it is overbought and surpassing measured moves and upper resistance lines which mark prior turning points.



The majority of traders become reckless at extremely overbought levels and are often stuck when markets correct to find support. They abandon their methods as their accounts grow in value and do not factor in how events may change. Right now gold is the easy trade as most of the reports from the media outlets are bullish for gold and silver in light of QE2, but is it the prudent trade? Could events trade in Washington or globally which could put short term pressure on commodity prices?

The most dangerous trade is the painless trade, when siding with the consensus. People have a herding desire when coming to the market. They feel most comfortable when others are doing the same. This is the characteristic which is the downfall for most traders as the market humbles the greatest number of people. The best trades are the uncomfortable ones, when you go against the crowd. The best way to remain emotionless is sticking to a plan. If one has a method he can avoid the psychological challenges that the markets present during panics or hysterias. Although it may not be popular, it eventually works out as the panic subsides.

Many investors are now buying precious metals aggressively and borrowing on margin, which I believe is too late and dangerous. Many are concerned that they have missed the boat and are panicking into the gold and silver market. It is important to have a technical mechanism to move to the sidelines as late comers chase the market higher. The volume on the Silver ETF (SLV) is reaching record highs and I am concerned of a climax top. It is very hard to sustain a move of this magnitude without a major correction. Although it takes courage taking profits during a bubble, I have learned through many experiences how important it is to stick to a method and sell into strength. There is significant risk of a correction and limited potential on the upside short term.

After being in the precious metals markets for years, I have learned its volatility. I have seen great euphorias followed by panics. Gold and silver is reaching a euphoria level, so stay tuned for any signs of weakness which may trigger sell signals on any of our core mining positions.

Please check out my blog and free newsletter at http://goldstocktrades.com where I post up to the minute observations.

By Jeb Handwerger
http://goldstocktrades.com

http://www.marketoracle.co.uk/Article24159.html