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Berichtdoor Gung Ho » 01 nov 2010 23:45

'The World Does Not Need to End'
A Gold Bull and His Prediction: $10,000 an Ounce

There are gold bulls. And then there is Shayne McGuire.

Blake Gordon for The Wall Street Journal
AU-DACIOUS? Shayne McGuire, at the Texas Capitol in Austin, says of his gold bet for the Teacher Retirement System: 'It's a return to normal.'

Like those who once boldly predicted $1,000 Internet stocks and a 36000 Dow Jones Industrial Average, Mr. McGuire is a lone voice among mainstream investors suggesting such an outsize price jump in gold's price.

Mr. McGuire's view isn't idle prognostication. He runs a $330 million gold portfolio at the Teacher Retirement System of Texas. Mr. McGuire's forecast, which he made in the recently released book, "Hard Money," makes him a very far outlier. Most on Wall Street consider the prediction outlandish.

"If you missed" gold's recent run-up "you have to come up with some pretty sophisticated reasons to buy" now, says Andy Smith, metals analyst with Bache Commodities, a unit of Prudential Financial Inc.

Mr. McGuire was early to the gold trade. In 2007, he and a colleague persuaded the $100 billion Texas fund, the nation's eighth largest, to move into the metal. It was a novel strategy that made it one of the few large U.S. pension funds to have a fund solely devoted to gold.

At the time, gold was trading at around $650, less than half its current price.

In his 2007 pitch, Mr. McGuire argued that gold was "the most underowned major asset, widely seen as an eccentric, anachronistic leftover from the pre-information age that is best for 'end of world' types."

Not everyone at the Texas fund felt the same way. In one meeting, a pension executive sarcastically asked if anyone else in the room thought "the world was going to end?"

Indeed, most pension funds still steer clear of gold, investing just a fraction of 1% on average of their assets in the yellow metal, according to Alan Kosan, of Rogerscasey, an investment-consulting firm. Most pension funds consider gold too volatile and therefore too risky.

So far, however, Mr. McGuire is in the money. With gold prices surging this year, his fund is up about 25% since its inception a year ago. For its fiscal year ended in June, the Texas pension fund was up 15.6% overall. The gold fund has half its assets invested in a gold exchange-traded fund, SPDR Gold Trust, and the rest invested in gold stocks.

Gold's historic run-up was spurred by uncertainty about currencies, fears of inflation and continued monetary easing by the Federal Reserve. Like dot-com stocks in that bubble, which were difficult to value because many companies generated no earnings, gold is hard to value because it produces no earnings or revenue and costs money to store.

"It doesn't do anything but cost you charges and stare at you," billionaire investor Warren Buffett said in a recent interview.

There are other gold bulls, of course, including prominent hedge-fund manager John Paulson, who has predicted gold could go to $4,000 an ounce by as early as 2013.

For his part, Mr. McGuire says gold is no longer only for those who think financial Armageddon is near. He expects gold to soar amid rising inflation, among other things. "The world does not need to end for gold to go hyperbolic," he says.

In his book, Mr. McGuire reasons that $10,000 gold is possible if enough other pension funds and big investors jump-start buying and move as little as 1% of total global stocks and bonds holdings into the metal. Such a migration into gold would equal enough demand to push prices up tenfold from their current level, he calculates.

Of course, the same argument would be true for nearly every other investment class. Mr. McGuire has confidence in his argument, however, because he believes inflation will return, which typically pushes gold prices higher.

He said he expects a series of fiscal crises to hit around the world. And then there is China, where he says that gold is "widely regarded as a basic savings asset."

Gold prices also are rising because of the ascendancy of exchange-traded funds, which are funds that track an index but are be traded like a stock. The largest ETF, under the trading symbol GLD, now invests $50 billion, an amount that Mr. McGuire believes could grow far higher if investors shift a small percentage of their investment funds into gold. At its current level, the stock-market capitalization of all gold ETFs is about $80 billion, roughly that of McDonald's Corp.

"Now that the value of modern money is becoming highly questionable, more and more people are turning to gold. It's not the new thing; it's a return to normal," he says.

The son of a foreign correspondent for Newsweek, Mr. McGuire grew up in Mexico and spends leisure time playing chess and reading history books.

He is a fan of the financial history of the 1930s, and quotes from Franklin Delano Roosevelt's first inaugural speech in 1933 about the importance of not overspending. Before joining the Texas pension fund in 2001, he was an analyst at Deutsche Bank and ING Barings.

His gold prediction is by far the most aggressive call he has made in his career, he says, but he says he ignores his doubters. "It seems like an aggressive call," Mr. McGuire says, "but it's really a comment on what governments have been doing to the monetary system."

Of course, the risks of such a big prediction can affect one's entire career, much as it did former stock analyst Henry Blodget, whose bullish call on Amazon.com was lambasted after shares plunged in the dot-com bust. "There are enough nutty-sounding gold targets out there that this one probably won't shock anyone," Mr. Blodget wrote in an email. "But it's certainly a nice big headline-friendly number."

Write to Susan Pulliam at susan.pulliam@wsj.com
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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Berichtdoor Gung Ho » 04 nov 2010 10:54

Gold to heading for $2,000+ on U.S. political and economic uncertainty
Republican control of Congress, plus more QE adds further uncertainty for the road ahead - and gold thrives on uncertainty.
Author: Jeffrey Nichols
Posted: Thursday , 04 Nov 2010


Gold thrives on political and economic uncertainty . . . and we've got plenty of that following the Republican victories this week and the Fed's Wednesday afternoon announcement that it is embarking on another large dose of monetary stimulus.
We reiterate our long-term forecast that gold prices will rise to $2,000 an ounce, then $3,000, and possibly higher over the next few years. Certainly, this week's U.S. Congressional election and the policy decisions just announced by the Fed only reinforce our confidence in gold's bullish prospects.
Now that the Republicans have overwhelmingly seized control over the U.S. House of Representatives, there will be plenty of rhetoric from Congressional leadership and the Obama Administration about "working together" to solve America's economic problems.
But, in the end, unbridgeable philosophic differences on the role of government suggest that the ship of state will remain rudderless -- at least with respect to fiscal policy -- until the next federal elections in two year.
Not only will the new Republican majority in the House confront a liberal Administration, but there could also be a titanic struggle for control within the Republican Party between its now-more-powerful conservative wing and party moderates and within the conservative wing between the traditionalists and the unconventional Tea Party bloc that has now won a seat at the head table.
It's hard to imagine we won't be faced with more gridlock and more acrimony on Capitol Hill -- in short, a dysfunctional government that is incapable of dealing effectively with America's serious economic problems.
One of the first big indicators of future fiscal policy -- or lack thereof -- will be the decision taken to extend or let expire the Bush tax cuts that run through the end of this calendar year -- or just possibly accept some sensible compromise that would extend the cuts another year or two for all but the wealthiest few percent of tax payers.
Rather than pursue what some consider appropriate counter-cyclical fiscal policy, failure to extend the Bush tax cuts will raise taxes at just the wrong time, taking money and spending power out of the household and small-business sectors.
Others argue the expiration of the Bush tax cuts is just the right medicine to reign in our outsized Federal budget deficit and borrowing requirement, a first step toward restoring confidence in the U.S. dollar both at home and overseas -- but fiscal restraint at this juncture could easily backfire, reversing or slowing the hoped-for economic recovery.
In any event, neither course -- raising taxes enough to achieve a quick and significant reduction in the Federal budget deficit, nor cutting taxes enough to greatly stimulate a sluggish economy is politically feasible given the deep divisions in Washington DC.
How this controversial fiscal-policy issue unfolds and its long-term effect on the health of our economy -- will be one of the big issues affecting gold and other world financial markets, not only in the weeks ahead but possibly for years to come.
Another important fiscal policy issue that will soon capture more attention on Capitol Hill and in the financial press is the insolvency of many state and local government entities across the nation. With the new, more conservative, majority in the House of Representatives the hoped-for bailouts from Washington may not be forthcoming.
Many states operating in the red (including California, Texas, New York, Michigan and others) must balance their budgets -- meaning further belt-tightening, service cuts, more layoffs of public employees (including teachers, policy, firefighters and office workers) and higher local taxes, all of which will be a further drag on the national economy.
With the Obama Administration and a more conservative Congress at loggerheads, it is likely that America's central bank will, by necessity, be the only agency capable of acting forcefully in the face of a continuing recession-like economic performance. And, all the Fed can do is print more money -- what economists and financial journalists call "quantitative easing" or simply "QE." The Fed accomplishes this magic trick by purchasing securities, usually Treasury notes or bonds, in the open market but pays via an electronic debit entry on its balance sheet.
Indeed, perhaps more important than this week's election outcome for the short-term direction of gold and other financial markets will be the decisions taken at this week's meeting of the Federal Open Market Committee (FOMC), the Fed's policy-setting forum.
In its policy statement released following Wednesday's FOMC meeting, the Fed stated it will buy $600 billion more in longer-term Treasury securities over the next two quarters -- or about $75 billion each month -- but the Fed has left the door open to make adjustments up or down in response to the unfolding economic indicators.
Fed Chairman Ben Bernanke may be doing the right thing by adopting more aggressive monetary stimulus. Without more action now, the economy will sink further, new job creation will slow or grind to a halt, and unemployment will surely rise.
Even with this new commitment to more aggressive monetary stimulus, I believe recession-like conditions with persistently high unemployment will continue for another few years -- and that additional tranches of quantitative easing by the central bank could raise the cumulative size of the Fed's monetary stimulus to two or three trillion dollars.
Printing more money may raise the hackles of sound-money advocates and surely won't be appreciated by foreigners holding U.S. debt -- but inflation may be just the potion that could ultimately restore economic equilibrium by devaluing our debt in real terms and reducing its burden the economy expands more quickly in nominal terms, reflecting not only real growth but also inflation. And, if wages rise with prices, a few years of moderate inflation here at home could be politically palatable.
Although the Fed is actually targeting a small rise in consumer price inflation, I believe they are well aware of the much greater inflationary potential arising from their program of quantitative easing.
The stagflation of the 1970s -- a period of sluggish economic growth and high unemployment -- demonstrates that inflation, led by a falling dollar and rising commodity prices, can take hold even with a high degree of economic slack and low rates of capacity utilization.
It's especially relevant to today's investors to remember that this was also a period of rapidly rising gold prices!
Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years. See www.nicholsongold.com and www.roslandcapital.com
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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Berichtdoor Gung Ho » 05 nov 2010 10:18

Ron Paul wants dollar backed by gold and silver
U.S. Rep Ron Paul, who is likely to chair the House subcommittee overseeing monetary policy, says he will also urge an audit of U.S. gold reserves and has called for the dollar to be backed by gold and silver.
Author: Andy Sullivan
Posted: Friday , 05 Nov 2010

U.S. Rep. Ron Paul on Thursday said he will push to examine the Federal Reserve's monetary policy decisions if, as expected, he takes control of the congressional subcommittee that oversees the central bank in January.
"I think they're way too independent. They just shouldn't have this power," Paul, a longtime Fed critic, said in an interview with Reuters. "Up until recently it has been modest but now it's totally out of control."
Paul is currently the top Republican on the House of Representatives subcommittee that oversees domestic monetary policy and is likely to head the panel when Republicans take control of the chamber in January.
That could create a giant headache for the Fed, which earlier this year fended off an effort headed by Paul to open up its internal deliberations on interest rates and monetary easing to congressional scrutiny.
Paul, who has written a book called "End the Fed," has been a fierce critic of the central bank's efforts to boost the economy through monetary policy.
"It's an outrage, what is happening, and the Congress more or less has not said much about it," he said.
Paul said his subcommittee would also push to examine the country's gold reserves and highlight the views of economists who believe that economic downturns are caused by bad monetary policy, not the vagaries of the free market.
Global organizations like the International Monetary Fund also will come under scrutiny, he said.
"Eventually we're going to have monetary reform. I do not believe the dollar can be the reserve standard of the world," said Paul, who has called for returning the United States to a currency backed by gold or silver.
Many economists say that the Fed's decisive actions during the 2008 financial crisis prevented the deep recession that followed from turning into a depression. But grassroots outrage over the bank bailouts and other Fed actions helped propel many Republican candidates to victory in Tuesday's congressional elections -- including Paul's son, Rand Paul, who will represent Kentucky in the Senate.
"With a lot of new members coming and the problems getting worse rather better, there's going to be a lot more people who are going to be looking for answers," Paul said.
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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Berichtdoor Gung Ho » 08 nov 2010 13:22

Zoellick seeks gold standard debate
By Alan Beattie in Washington
Published: November 7 2010 22:31 | Last updated: November 7 2010 22:31
Leading economies should consider readopting a modified global gold standard to guide currency movements, argues the president of the World Bank.

Writing in the Financial Times, Robert Zoellick, the bank’s president since 2007, says a successor is needed to what he calls the “Bretton Woods II” system of floating currencies that has held since the Bretton Woods fixed exchange rate regime broke down in 1971.

Mr Zoellick, a former US Treasury official, calls for a system that “is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account”. He adds: “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

His views reflect disquiet with the international system, where persistent Chinese intervention to hold down the renminbi is blamed by the US and others for contributing to global current account imbalances and creating capital markets distortions.

This week’s meeting of government heads in South Korea is likely to see yet more exchange rate conflict. A US plan for countries to sign up to current account targets has run into widespread opposition.

Wolfgang Schäuble, Germany’s finance minister, has raised the temperature by describing the US economic model as being in “deep crisis” and criticising the US Federal Reserve’s decision to pump an extra $600bn into financial markets. “It is not consistent when the Americans accuse the Chinese of exchange rate manipulation and then steer the dollar exchange rate artificially lower with the help of their [central bank’s] printing press.”

Currency wars

FT In depth: Unilateral currency interventions and manipulation threaten to raise tensions
Although there are occasional calls for a return to using gold as an anchor for currency values, most policymakers and economists regard the idea as liable to lead to overly tight monetary policy with growth and unemployment taking the brunt of economic shocks.

The original Bretton Woods system, instituted in 1945 and administered by the International Monetary Fund, the World Bank’s sister institution, comprised fixed but adjustable exchange rates linked to the value of gold. Controls to restrict destabilising shifts of capital from one economy to another buttressed it.

“The scope of the changes since 1971 certainly matches those between 1945 and 1971 that prompted the shift from Bretton Woods I to II,” Mr Zoellick writes. “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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Berichtdoor Gung Ho » 11 nov 2010 14:37

Thursday, November 11, 2010
Nouriel Roubini vs. the Mises Institute?

Nouriel Roubini
Roubini: Here's Why a Gold Standard Won't Work ... A gold standard would just make business cycles more extreme, according to economist Nouriel Roubini (left). ...What's more, a gold standard would make central banks unable to fight inflation or deflation, much less do anything to combat persistent unemployment, Roubini said in an interview with NetNet yesterday. "A fixed exchange regime, even if it is not a gold standard... that world just doesn't work. Because in that world, monetary policy by definition instead of being countercyclical becomes procyclical," Roubini told NetNet. Nouriel Roubini "Suppose you have a fixed exchange rate regime... it just exacerbates the business cycle." – NetNet/CNBC.com

Dominant Social Theme: Get this idea out of your heads! Gold is finished. It's nonsense. Only more fiat money can save us.

Free-Market Analysis: This is an important article from our standpoint because Nouriel Roubini has always been positioned (or positioned himself) as a practical thinker and "hawk" when it comes to monetary policy. This means that unlike many other economists, Roubini is always criticizing the Federal Reserve for being too soft on inflation. He wants higher interest rates and presumably less money printing in order to retain the value of the dollar. He is in other words a friend to those who are generally critical of the Fed and a protector as well of people's wealth. Or that is what we have been led to think.

But this article seems to reveal that much of Roubini's reputation is based on a kind of posturing. He is happy to pose as a protector of sound money, but as gold rises and the battered fiat dollar continues to unwind, Roubini is willing to come strongly to the defense of the current system. In our view (as we regularly state) central banking is a basic dominant social theme that the Western elite has promoted vigorously as a way to make sure that its efforts to set up world government are well funded. Roubini in this article supports that theme.

The article ends with the words, "Over to you Ron Paul and the Mises Institute!" While this is a surprising conclusion to find within a mainstream article, from our perspective, it is certainly appropriate. The von Mises Institute has in many ways provided us with the initial frame of reference to judge Roubini's statements. What Austrian hard-money economics gives us is a fully formed knowledge-base of how free-market money SHOULD work, and this is precious knowledge indeed, given it almost went extinct in the 20th century.

What Austrian economics shows us is that gold and silver are marketplace money and that only the marketplace itself can determine the volume of money and its value. There are differences, of course, between various hard money schools and the Mises Institute has always made a principled case for full-reserve banking. Here at the Bell we have explored private fractional reserve banking and have presented the Antal Fekete's rediscovery of Real Bills and their role within a private banking system. .

But the important point re-pioneered by the Mises Institute is that the MARKET decides on money; the state cannot. In fact the market might well decide on full-reserve banking. And in a crisis people's real views begin to emerge. This happened during the Bush years in America when the Republican party showed itself not as a Reaganesque-oriented party of the free-market and the entrepreneur but as a big-spending, big-war, big-state adjunct of the Democratic machine it supposedly opposed. Because of the financial crisis we are learning Roubini's real views. Here's a little more about him:

Nouriel Roubini (born 29 March 1959) is an American professor of economics at New York University's Stern School of Business and chairman of Roubini Global Economics, an economic consultancy firm. After receiving a BA in political economics at Bocconi University, Milan, Italy and a doctorate in international economics at Harvard University, Cambridge, Massachusetts, he began academic research and policy making by teaching at Yale while also spending time at the International Monetary Fund (IMF), the Federal Reserve, World Bank, and Bank of Israel.

Much of his early studies focused on emerging markets. During the administration of President Bill Clinton, he was a senior economist for the Council of Economic Advisers, later moving to the United States Treasury Department as a senior adviser to Timothy Geithner, who is now Treasury Secretary.

Roubini is today a major figure in the U.S. and international debate about the economy, and spends much of his time shuttling between meetings with central bank governors and finance ministers in Europe and Asia. Although he is ranked only 410th in terms of lifetime academic citations; he was #4 on Foreign Policy magazine's list of the "top 100 global thinkers." He has appeared before Congress, the Council on Foreign Relations, and the World Economic Forum at Davos.

We can see how smart Roubini is from this Wikipedia bio, but as we pointed out yesterday in our previous article on the gold standard, intelligence does not always equal wisdom. What Roubini is claiming in the article/interview excerpted above is that fixing money to a certain gold ratio does not give central banks enough room to maneuver (ie: print more money). This is a standard central banking argument against a formal "gold standard" as it is often presented.

But in our view, the interviewer at NetNet should have asked Roubini about free-market gold and silver. He could even have asked Roubini if he believed the free-market was capable of regulating money on its own and how central bankers know how much money is enough and how much is too much.

In fact, what is illustrated by Roubini's argument about a "gold standard" is that he conceives of it in statist terms (the state will set the ratio of gold to currency). Apparently, he has never contemplated the idea of a privately run full-reserve gold-and-silver system let alone one that utilizes a variant of free-banking as the United States attempted in pre Civil War days. Here's some more from the article on Roubini and gold:

Roubini seems to think a gold standard is a pretty awful idea. "There are many fundamental problems with any variant of a gold standard," he said. A general summary of Roubini's position on the issue would likely begin by saying that, generally speaking, a fixed exchange rate regime or gold standard limits the flexibility and range of actions that central banks can take to improve a nation's economy in fundamental ways. (For example, in a fixed exchange rate regime, central banks have less ability to maximize employment, stimulate growth and manage price stability.) And, as Roubini specifically pointed out to me, fixed rate regimes inhibit the ability of banks to provide lender of last resort support to an economy when necessary.

The point Roubini is making is simple. He believes that a handful of bankers in a room consulting together can set the price of money more effectively than the invisible Hand. This is a form of price fixing; and we would have liked the interviewer to ask Roubini if price-fixing is effective generally. If Roubini were honest he would answer that price fixing is not effective.

The interviewer could then have asked Roubini what was the dividing line between classical and neo-classical economics. If Roubini was honest, he would have had to answer "marginal utility," which changed the nature of economics forever. Marginal utility explains how the consumption of goods and services becomes less satisfying as they are consumed; in doing so, it emphasizes how only the free-market itself can determine the prices of these units. It is, in a sense, an elaboration of Adam Smith's "Invisible Hand" that regulates the marketplace via competition.

These are powerful concepts and yet the central banking ideology of the 21st still maintains that a few individuals can determine how much money an economy needs. It basically denies 300 years of accumulated economic knowledge.

The cognitive dissonance is startling, as is the realization that Roubini is held in such high esteem and has been named a top 100 global thinker. Roubini is supposed to be a hard-nosed proponent of the free-market, sound money and entrepreneurialism. But he is evidently and obviously a statist, a socialist who believes that groups of powerful people can make up prices for the market and then attempt to enforce them successfully. It would seem to be an economically illiterate position.

Not only that but Roubini does not even seem to understand monetary history generally or he would know that gold and silver have been considered money by cultures around the world for thousands of years. He would know that private market money – gold and silver – with or without free-banking has provided the backbone of many successful economies. He would know that these days gold can be digitalized endlessly and that supply is not even an issue when it comes to using gold to drive a free-market economy these days.

Perhaps we are being too hard on Roubini, and if so we apologize. The interviewer did a good job in many ways and a successful interview involves both parties. Roubini doesn't seem to have offered much that is not standard fare, so we are only reacting to what was said (or reported) in this interview. Roubini may well know all about monetary history (being a top-100 world thinker), but if he does, we wish he would have revealed it. As it is, we are left to wonder if he is avoiding mentioning what he knows, or if he doesn't know it.

As we mentioned above, the interviewer did write the following encouraging words at the end of the article: "Roubini's views challenge the Austrian economists where they live: at the intersection of monetary policy and the business cycle ... We eagerly await the response. Over to you Ron Paul and the Mises Institute!"

Conclusion: It would seem to us that the interviewer is aware that there is an alternative view and is eager to solicit it. It is very possible that it is becoming more fashionable for "mainstream" financial journos to acknowledge Austrian economics as a sign of a certain level of sophistication in their craft. We have noticed this elsewhere, mainly in the friendly reception that hard-money proponent Congressman Ron Paul often receives in mainstream financial interviews. Honest money seems to be coming back into vogue after a 100-year hiatus. We dearly hope this is a developing trend.
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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Berichtdoor Gung Ho » 15 nov 2010 17:11

Gold (GC : NASDAQ : US$1367.80), Net Change: -35.50, % Change: -2.53%, Volume: 280,024
Behold – the three-headed monster! Three dominating concerns had investors selling gold on Friday: 1) Worries that the Chinese government would further tighten money supply even after a series of measures in recent weeks to counter inflationary pressures. Credit Suisse Chief Economist for Non-Japan Asia Dong Tao said last week's reserve requirement ratio hike should not be read as a one-off tightening but the beginning of an accelerated process of monetary normalization. China's monetary authority appears to have placed “fighting inflation” as a higher priority against “boosting growth”; 2) The California State Teachers’ Retirement System (CALSTRs) is taking a wait-and-see approach. CALSTRs, the second-largest U.S. public pension plan, sharply scaled back plans to invest in commodities. CALSTRs plans to allocate $150 million to commodities; that's way less than the $2.5 billion rumoured to have been made; and 3) More rumours of margin hikes at the exchanges. Last week, the CME Group (CME), which runs COMEX, said it will raise margin requirements for silver futures. Minimum maintenance margin requirements for silver went to $6,500 from $5,000 per contract. David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, had one of the best quips of last week. He said, “We remain big fans of the yellow metal and still see potential for $3,000 an ounce in coming years as its hedging properties against the integrity of the global financial system are hardly going to subside. But the reality is that it has made such an asymptotic move in recent weeks, speculative fervour is evident in the Commitment of Traders report and the fact that gold is now a front-page story, makes it susceptible to a near-term pull-back. Nonetheless, it can correct all the way down to $1,213.52 per ounce (the 200-day m.a.) without violating any long- term trendline.”
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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Berichtdoor Gung Ho » 18 nov 2010 13:59

What Kind of Gold Standard?
Thursday, November 18, 2010 – by Staff Report

BY disclosing a plan to conjure $600 billion to support the sagging economy, the Federal Reserve affirmed the interesting fact that dollars can be conjured. In the digital age, you don't even need a printing press. This was on Nov. 3. A general uproar ensued, with the dollar exchange rate weakening and the price of gold surging. And when, last Monday, the president of the World Bank suggested, almost diffidently, that there might be a place for gold in today's international monetary arrangements, you could hear a pin drop. Let the economists gasp: The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it. It was simplicity itself. National currencies were backed by gold. If you didn't like the currency you could exchange it for shiny coins (money was "sound" if it rang when dropped on a counter). Borders were open and money was footloose. It went where it was treated well. In gold-standard countries, government budgets were mainly balanced. Central banks had the single public function of exchanging gold for paper or paper for gold. The public decided which it wanted. – James Grant, New York Times

Dominant Social Theme: Gold provides hope for the world. Let the government get out of the way. The proper function for the authorities is merely to set the standard and then leave it alone.

Free-Market Analysis: Money is being argued about again, which is a good thing. But as usual (or so it seems to us) the argument is being framed in terms of what "ought" to be done. This is a kind of promotion, a dominant social theme, whether or not one wishes to admit it. Even the argument over re-imposing a gold standard, as the excellent James Grant argues in the article excerpt above (and he is surely a fine financial journalist) is tendentious because it involves GOVERNMENT solutions, or at least government involvement, however marginal. It certainly gives us permission to think in terms of government solutions.

Of course in the current day, government is a given – a necessary reality that until recently has been accepted with the same stuporous acquiescence as one tolerates bodily functions. But we will predict, as we have throughout the lifecycle of the Bell, that acceptance of this most fundamental of all memes is beginning to shift. As the truth-telling of the Internet continues to have an impact, government mendacity is increasingly exposed and its logical fallacies are revealed, along with its false promotions.

For this reason, the "what should be done" argument could eventually retard social and cultural progress in our humble view – at least if one believes the truth-telling of the Internet is beginning to generate a kind of modest "New Enlightenment." Such suppositions (re-involving government) lend themselves, unfortunately, to Hegelian analysis. American cable news shows especially (mewling like mongrels at the thought of a real free-market) begin to hold debates between more or less authoritarian types and quasi-free-market proponents. The discussion is then over HOW MUCH should be done, not whether nothing should be done.

No, nothing SHOULD be done. That's the whole point. The more people argue about what SHOULD be done, the more of an environment is created where people (even very smart people) begin to believe more firmly that getting "something done" – presumably via government – is evidently and obviously the thing to do (even in an atmosphere of increasing freedom).

Money is private! It evolved privately thousands of years ago. This is evident and obvious. All that needs to be done is to help return it to that status and then leave it alone to interact with the market itself. This, too, is evident and obvious. This is why James Grant for all his tremendous sophistication and wit is somehow wrong in our humble view. He may not be wrong directly on the merits of his arguments, but he is wrong in the way he is FRAMING the argument.

Why slam the door on government money manipulation and then open it back up again at a different location? Let the market work. Get the government out of the money business. If a mint is needed, let it be a private mint. There is no reason that government needs to mint money or to establish a legal tender. Government is not a necessary part of the money equation. It never has been. There is nothing that EVER has been done by government that has not been done by the private sector first. We know this from observations of the way government operates.

That is why Ellen Brown's arguments (see her book Web of Debt) for national money are ultimately wrong-headed as well. She bases her arguments on the idea that money (specie) was first-produced by religious institutions (temples). The clear implication is that the value of money metals was discovered through this process as well. In fact, as we have argued many times, coined or not, money metals (gold and silver) were doubtless recognized as valuable long before anyone struck a coin. (Else why bother in the first place.)

Ms. Brown's arguments have merit in the sense that if the "people" (an elected and representative group) run the money presses and make the loans, it will be fairer and less exploitative process. But we have seen from history that government rarely if ever remains quiescent. It is like mercury – attracted to power – and flows to influence. So what happens? Wealthy people take over government processes over time via what we call mercantilism. They begin to pull the levers of government power for their own enrichment. Already there is a movement (presumably one with elements of disinformation, as we have pointed out in several articles), to replace the Federal Reserve and its functions with the US Treasury. This is like replacing Cyclops with a Titan – the manifestation remains.

Of course, to be perfectly fair to "Brownianism" it took a war in the US (the Civil War, or "War Between the States") to deconstruct the US Constitution and bring government to the fore. But even leaving aside the practicality of Brownianism and like philosophies, the constant harping on doing something ends up as a kind mind control. Again, nothing needs to be done. If the current system, worldwide, crashes through entropy (and it seems well on its way) then something will emerge from the market itself to take its place.

James Grant, too, need not argue about the merits of a formal gold standard. It is as constricting in its own way as the Brownian argument. It not only drags government back into the money business, it excludes the other historical money metal, which is silver. It was this exclusion, in fact, which crashed the gold standard that Grant recommends. Keep the government (and government force) out of it. if this takes place, we would suggest that what will emerge is a gold-and-silver based private metals standard alongside free-banking and, likely, Real Bills.

The truth-telling of the Internet is leading a revolution in thought. We would argue that even the specter of its presence more than a decade ago led the current Anglo-American power elite to speed up its push for world government – to put the necessary elements in place more quickly. But all this has done, in fact, is speeded up a fuller destruction of the system, which has then played out over the Internet.

Yesterday, we argued that the powers-that-be were consciously trying to introduce ruin into the world as they have done, apparently, in the past, in order (this time) to generate the implacable necessity of a single currency, worldwide, under the benevolent auspices of the International Monetary Fund. But as we also indicated we had some trouble with this analysis even as we were making it. We are still apt to conclude that if events continue to unfold as they have, and with such rapidity, the elite itself may have no choice but to take a step backward. In such a scenario, a New World Order would become far less likely; the global sociopolitical profile would reassume a more recognizeable shape, one driven by market forces rather than a 100-year-old conspiracy to centralize world power.

Is this over-optimistic? Possibly so. Logically, the power elite may well continue to scheme and conjure up more sociopolitical, economic and monetary manipulations, as it has throughout this past century. Power is hard to surrender, let alone possibilities for even greater wealth. But more and more we tend to believe that credibility is slipping away; soon in fact it may be too late for self-identified leaders to propose further "world saving" solutions. This time, as we have suggested, the solutions may come from the ground-up, from the marketplace itself, courtesy of the Internet and the education that has been continually provided for this past decade and longer.

The trouble the elite has in doing anything right now is that its actions and motivations are being viewed through an increasingly sophisticated frame of reference (thanks to a new communication technology) that includes its historical machinations and future actions. Increasingly, the actions of the elite seem circumscribed; their activities anticipated, their rhetoric pre-empted. This trend may not be brooked, necessarily, by Internet "off-switches" or much delayed by even the most Draconian governmental regulation.

Think back to the Renaissance or the Reformation or even the Enlightenment. These are large social movements driven by the instinctual desires of human pre-history and psychology. This is what the elite unknowingly unleashed on the world when DARPA's Internet invention combined with the personal computer and floppy-disc insights of two raggedy adolescents named "Steve" in a garage one summer.

Yes, one might as well fight the tide. The power elite can attempt to influence and manipulate what is currently taking place, but the new thinking being created by the truth-telling of the Internet may well have its way sooner or later. In fact, we would argue it already is. We have been astonished by the recent crumbling of numerous fear-based elite memes. What has occurred in the past two years we expected might take ten.

Objections we read all the time that the majority of people need to understand the confrontation between the elites and the age-old verities of larger truths now being unleashed on the world are not at all accurate from our point of view. It only takes a few percent, an enlightened few, so to speak – especially when one is dealing with a mass of six billions. And this is why we would like to see the argument turn toward the reasonable arguments of a Rothbard or Hoppe. Anarcho-capitalism – the extraction of government from human affairs – is a principled position.

Contrary to Grant's perspective, government need not be involved, even tangentially, in money. Nor in much else for that matter. We would like to see culture, society and private spirituality provide the morality for communal living. Certainly we would be in favor of market forces winning out over the elite's ruinous money fixing; and money-stuff reverting to private valuations.

Some more changes we'd like to see ... Let private justice and pre-British (and Roman) common law prevail once more. Let business function in an unregulated manner with competition as the discipline rather than state authoritarianism. Let people cure themselves of cancer with herbs and vitamins. Let the obscene fraud of regulatory democracy die a quick death in both America and Europe. Let peace prevail instead of the horrors of multiple wars and irradiating poisons. Let devolution overtake the European Union. Let history be told as it is, not the lies that have infected every part of civil society. Let the thuggish, terrorizing behavior of domestic and international intel agencies subside. Let the fear-based promotions of the elite disintegrate even more rapidly than the already are. Let human decency return to Western society even at the very top where it is obviously lacking.

Conclusion: Is this all so very radical? So were the results of the Gutenberg press, long ago. It begins, perhaps, with a new rhetoric.
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Berichtdoor Gung Ho » 29 nov 2010 19:19

Dear Mr. Buffett, Your Gold Comments Do Americans A Disservice
Drew Mason, 11.29.10, 12:00 PM ET
Dear Mr. Warren Buffett,

Your investment insights have gained you breathtaking wealth, and your successes surely will dwarf mine when our epitaphs are complete. However, your recent comments comparing gold to farmland and ExxonMobil are inappropriate and are inflicting harm on many Americans. Specifically, you suggested that productive assets such as agriculture and oil companies are comparable assets to gold, and you implied that there is no real benefit to owning gold in lieu of productive assets.

One insight I can provide you from being on the front lines of this issue is that your words have led many Americans to conclude gold is insignificant if not unattractive to portfolios. Because of your stature even investment professionals fail to recognize that you have compared two totally distinct asset classes with completely different risk profiles and objectives.

It goes without saying that oil companies and farmland can produce value--that is their raison d'être. Gold, on the other hand, is not a producing asset, and has a completely different raison d'être, namely to preserve wealth after producing assets have endowed owners with a form of wealth. The investment decision Americans need to make is whether to save wealth in unproductive paper dollars or unproductive gold.

Presumably the rational investor would store his wealth in the choice that has been more resilient over time--but not in America. Gold has retained nearly 100% of its owners' wealth as a currency since Christ walked the earth, when measured by the equivalent of minimum wage. The dollar, in contrast, has lost 90% of its value over the last 100 years alone.

Instead of deriding gold as a nonproducing asset and discouraging Americans from diversifying away from their dollars, you would serve your fellow citizens far better by pointing out that there is great utility in an asset that holds its value and is without liabilities. The issue Americans face today is Risk Management 101: Americans need to diversify away from complete allocations to the shriveling dollar held in savings accounts, bonds and so forth, and into a noncorrelated cash instrument such as gold.

If one looks through that prism, a more appropriate comparison may be with the dollar and the Titanic, as James Grant has made. Like the Titanic, the dollar was once in a class of its own, thought to be of lasting value. Today the dollar has taken on so much water (in the form of crushing debt) that it tragically cannot be saved in its current form.

Consider another comparison with the Titanic as it relates to passengers' and investors' behavior. At some point on that fateful voyage passengers realized the ship was going down and that there were not enough lifeboats to save everyone. Today markets are realizing there is simply not enough gold to protect everyone.

Immoralities aside, imagine if there had been an auction for lifeboats on the Titanic. How smart would it have been to bemoan that one had missed cheaper lifeboats when subsequent lifeboats were auctioned at higher prices as awareness spread? In hindsight it was prudent to pay up for a seat, especially since the cost of a lifeboat was a rounding error to a passenger's wealth.

Irrational behavior such as passing on a lifeboat because of price is what we see happening in the U.S. every day. While Asians, Arabs and the richest banks in the world are price-takers, repeatedly buying gold regardless of price, Americans lament having missed the move from $1,000.

To illustrate how immaterial the move in recent years is to protecting one's wealth, imagine if someone with a $5 million net worth wanted 5% of his wealth diversified into gold. At $1,000 per ounce he could have bought approximately 250 ounces of physical gold.

Suppose the investor is now fixated on buying 250 ounces of gold. If gold were at $1,500 today and the investor still wanted to buy 250 ounces, gold's 50% appreciation would still only cost him an incremental 2.5% of his net worth to buy his whole position. Conversely, if gold fell from $1,500 to $1,200 (as the whole world expects), buying the same 250 ounces would only save the investor 1% of his net worth.

The dichotomy of our time is the action of governments and the absence of rational American investment behavior. History tells us the dollar will not survive, and gold will preserve wealth, yet Americans keep virtually all of their net worth in dollars.

Americans forget that it is specifically because of gold's unique and long-standing history that it is globally accepted. As we look into the emerging next paradigm, gold's utility possesses characteristics that PayPal did during the emerging Internet in the 1990s: Whatever the business landscape ultimately looks like when it comes into focus, counterparties can take comfort that gold offers protection other mediums of exchange simply do not.

As it relates to the importance of gold as a currency, let us also not forget the words of your father, Rep. Howard Buffett:

Is there a connection between human freedom and a gold-redeemable money? ... When you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership of gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty. ... Various plans have been proposed to reverse this spiral of debt. ... All of these proposals look good. But they ... will not stand against [political] spending pressures.

Here at the twilight of your career you have sent a loud message to Americans that diversifying out of dollars and into gold is unnecessary. At the end of the day you have to know that such advice spits in the face of history and risk management. You don't want to be remembered for discouraging Americans from diversifying their worth, given the fate that now inescapably awaits the dollar. Come clean, Mr. Buffett, and explain to America that having gold exposure, uncorrelated to the dollar, is a sage use of capital.

Drew Mason is a member of Miles Franklin, bullion dealers and market makers.
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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Berichtdoor duro » 06 dec 2010 22:15

Silver Prices Hit 30-Year High

ByAndrea Tse, TheStreet Staff Reporter , On Monday December 6, 2010, 2:33 pm

(Story updated to reflect silver and silver stock price changes, more data from BullionVault)

NEW YORK (TheStreet) -- Silver prices reached a 30-year high as ongoing European debt-contagion fears and Federal Reserve Chairman Ben Bernanke's talk about a possible third round of quantitative easing brought out the sparkle in gold's cheaper alternative.

Silver for March delivery was testing $30 in midday trading. Silver prices were rising 68 cents to $29.96 as investors sought the inflation protection attributes of gold's "poorer cousin" and security from economic uncertainties. Speculators took advantage of the spike.

Most Recent Quotes from www.kitco.com

In an interview with CBS' 60 Minutes over the weekend, Bernanke signaled that the central bank could expand its $600 billion Treasury-purchase program to address the high unemployment rate, fueling inflation sentiment.

Spot silver prices were leading the precious metals complex during midday trading, rising more than 1%, according to Kitco's spot price index.

BullionVault's head of research Adrian Ash recently said that "silver's popularity is clearly spreading." BullionVault began offering silver bullion to its users in January and has witnessed new enquiries for silver rise by more than a fifth in one recent month. For the full year, online gold and silver trading at BullionVault grew nearly 29% by volume to $1.33 billion.

Shares of the iShares Silver Trust were up 2.6% to $29.33, while Silvercorp Metals fell 3.7% to $13.09 as the company announced it has agreed to sell to a syndicate of underwriters, led by CIBC and BMO Capital Markets, 8 million common shares at $12.70 a common share for aggregate gross proceeds of about $101.6 million. Silver Standard Resources was popping by 4.2% to $29.16 and Coeur d'Alene Mines was jumping by 4.1% to $26.96.
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Berichtdoor Gung Ho » 11 jan 2011 11:27

Gold rises slowly but premiums up at a 2-year high
Euro zone debt concerns pushed the price of the yellow metal higher in trade on Tuesday while investor-buying pushed gold bar premiums to two-year highs
Author: Lewa Pardomuan
Posted: Tuesday , 11 Jan 2011

Gold inched up on Tuesday on persistent worries about indebted euro zone countries, while purchases from investors and jewellers pushed up premiums for gold bars to their highest in two years.
Bullion's drop to its lowest in more than a month last week also helped lift premiums for gold bars, with demand picking up ahead of the Lunar New Year celebration in February. Gold bars were offered at a premium of $3 to the spot London prices in Hong Kong, matching a similar level seen in late 2008.
Spot gold rose $1.41 an ounce to $1,375.86 an ounce by 0411 GMT. Gold was well below a historical high of around $1,430 struck in December.
"There's a huge demand from China. Refineries just opened and there's not much stock around, so it's a bit tight," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
Investors will also closely watch the developments in Portugal, which is widely seen as the country next in line in the euro zone to need a bailout after Greece and Ireland, said Leung.
Gold will rebound into a range of $1,388-$1,392 per ounce as an upward wave "c" is advancing, according to Wang Tao, a Reuters market analyst for commodities and energy technicals.
The euro found a steadier footing on Tuesday, having clambered up from a four-month trough as some players took profits on bets against the single currency.
The focus this week is on whether Lisbon will be able to raise funds in the debt market on Wednesday or be forced to turn to the EU and IMF for financial aid.
U.S. gold futures for February added $2.1 an ounce to $1,376.2 an ounce.
The physical sector in Singapore was steady after seeing heavy buying from jewellers in Thailand on Monday.
"Trading is mixed this morning, with moderate trading volume," said a dealer in Singapore. "The market is currently short of physical supply. We have no available stocks to offer except for those who have booked in advance.
China's Lion Fund Management, which last month launched the first gold fund in the world's biggest producer of the metal, has met its goal of raising $500 million for the fund, the company said in a statement.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings rose to 1,272.682 tonnes by January 10 from 1,271.164 tonnes on January 7.
© Thomson Reuters 2011 All rights reserved
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Berichtdoor Gung Ho » 24 jan 2011 17:48

Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article - http://www.ft.com/cms/s/0/0a66232c-27af ... z1By3IFrRX

Gilts in line for worst fixed income investment

By James Grant
Published: January 24 2011 12:03 | Last updated: January 24 2011 12:03
Stiff is the early competition for “Worst Fixed Income Investment of 2011”. There’s much to be said for – or, rather, against – the obligations of the state of Illinois, the debts of the peripheral nations of the eurozone and the trillions of yen-denominated Japanese government bonds.

Better, however – or, rather, worse – is a dark horse. Gilts yield no more than the running rate of UK inflation. And they are denominated in an inflation-prone currency that has lost more than 99 per cent of its original gold value. With respect to the solemn obligations of Her Majesty’s Treasury, the balance of risk and reward favours the short-seller.

The underlying problem is that “gilts” are ungilded. And as the modern currency is virtually weightless, “pound” too is a misnomer. Not since 1931 has sterling (another misnomer) been exchangeable for gold at a fixed and statutory rate. Not since 1971 has any currency been even remotely tied to a fixed standard of value. In place of the gold standard, the world has put in place a Macroeconomic Forecasting and Price Index standard. In monetary governance, we have swapped the price mechanism for mandarin rule.

If you haven’t heard the creditors complain, it’s because they’ve had it their own way for so long. Since the inflationary nadir in the mid-1970s, 10-year gilts have rallied to 3.7 per cent or so from 15 per cent. Richard Sylla and the late Sidney Homer, in their standard volume, A History of Interest Rates, showed that bond yields have risen and fallen in generation-length intervals since the late 19th century. The past 30 years or so have comprised the falling portion of the cycle.

Whom should investors thank for this pleasant, persistent tailwind? The mandarins have modestly raised their hands. “Since the monetary policy committee was set up,” Governor Mervyn King of the Bank of England declared in 2007, “economic growth has averaged 2.8 per cent a year – a little above the postwar average rate – and there has not been a single quarter of negative growth. The average deviation of inflation from target has been just minus 0.08 percentage points.”

The monetary policy committee is, of course, the Bank’s interest-rate setting arm. It came into the world in 1997 as Gordon Brown cut the Bank loose from Treasury control. With this stroke, the then UK chancellor seemed to realise the hopes of the 20th century’s great economic rationalists, from Irving Fisher (author of seminal works on price indices as well as that ill-starred 1929 stock market call) to John Maynard Keynes. The Fishers and the Keyneses wanted to separate monetary value from the vagaries of mining. They wanted to separate domestic interest-rate policy from the ball and chain of exchange-rate policy. The wit of man was more than equal to the job of contriving a monetary system based on cold analysis.

In fact, the wit of man has shown rather poorly – and not only in the past five fiscal quarters in which the Bank missed its inflation target by a wide and widening margin. A one-paragraph history of modern monetary systems would take something like this form. The classical gold standard delivered point-to-point price stability, along with interim booms and busts and panics, in the 100 years to 1914. Its successor – a dog’s breakfast of monetary makeshifts, from the so-called gold exchange standard to the present-day mandarin method – has delivered chronic inflation, along with interim booms and busts and panics in the 97 years since.

Ultra-low interest rates were suitable enough during the classical gold standard, when the price level tended to fall in peacetime and rise in wartime. They are demonstrably unsuitable – certainly, for bondholders – under a paper-currency system. No longer are prices allowed to fall, even when the cost of production is falling. Rather, the Bank of England – along with most every other central bank under the sun – actually strives for debasement. In the UK, in December, the rate of inflation measured not 2 per cent, the Bank’s bullseye, but 3.7 per cent.

What should a gilt owner do? Sit tight, comes counsel from on high. The inflationary bump will pass, the central bankers insist. Mark it down to one-offs – in value added tax, in commodity prices – or the previous weakness in sterling. Notice, please, the apologists urge, the UK’s measured growth in wages and its abundant spare productive capacity. Observe, too, the lack of concern, let alone panic, in the market for inflation-linked bonds. In other words, trust the mandarins – this time – not to let a little inflation become too much.

As the future is a closed book, the apologists may be right. However, on form, they are wrong. In 1931, a pound bought almost a quarter ounce of gold. Today, it will buy 1/850th of an ounce. The 21st century model gilt is almost designed to depreciate. This year – in the world’s worst bond competition – it may just take first place.

James Grant is the editor of Grant’s Interest Rate Observer
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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Berichtdoor Gung Ho » 28 jan 2011 18:36

Gold (GC : NASDAQ : US$1,314.00), Net Change: -19.00, % Change: -1.43%
Gold set to test its 200-day moving average of US$1,280? With the economy supposedly improving, investors are asking why they still need a "safe haven" investment. After all, there is absolutely no fear in the market. No fear of inflationary pressures. No fear of political instability. No fear of economic uncertainty. The world is a perfect place. The truth is the world isn't a perfect place. And the fear will return. But for now, fear only lives in those who are long gold from higher levels. The 200-day moving average will definitely be gut check time for many. As David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates said, "The 200-day moving average is $1,280/oz and in the past, periodic corrections like this have proven to be nice re-entry points." We repeat the following to ourselves when our faith in gold sometimes wanders, "Macro-economic conditions in 2011 will continue to favour higher gold prices, including increasing global U.S. dollar liquidity, low real interest rates, global fiscal imbalances, sovereign debt concerns, and wavering faith in the U.S. dollar. The outcome of global financial stimulus efforts is broad currency devaluation, inflation and gold’s increases status as a reserve and investment asset. We continue to believe in the likelihood of further quantitative easing, which should further increases global liquidity levels from current record levels."
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Berichtdoor Gung Ho » 08 feb 2011 10:56

Silver to outperform gold in 2011 - Eric Sprott
Eric Sprott believes that silver is likely to be the investment of the decade and could easily get to $50 per ounce by the end of the 2011
Author: Marc Davis
Posted: Tuesday , 08 Feb 2011

Silver promises to become the next big buzzword among investors in 2011 and beyond, according to one of the investment industry's most prescient and successful experts on precious metals.
Eric Sprott is the founder of the Toronto-based investment firm, Sprott Asset Management LP. His renowned hedge fund, Sprott Hedge Fund LP, is heavily weighted in precious metals and has generated an estimated 23% annualized return over the past decade. Other similarly oriented funds under his stewardship have also been stellar performers in recent years.
He's now so bullish on silver that he launched the $575 million Sprott Physical Silver Trust in November of last year as he believes that: "Silver will be the investment of the decade."
"I think that silver could easily get to $50 this year," he tells BNWnews.ca.
This all bodes especially well for publicly traded companies that are already mining silver, he says. Likewise for ones that are developing primary silver deposits or gold deposits with plenty of silver as a byproduct.
"If the price of silver continues to go up, silver stocks are going to perform even better," Sprott adds.
Meanwhile, Sprott says the big catalyst for surging silver prices in the coming years will be exponentially increasing investment demand, which is already beginning to overwhelm existing silver supplies. The mining industry only produces around 800 tonnes of silver per annum. This is a relatively inelastic supply, regardless of silver prices, he adds.
As household investors are becoming increasingly jittery about the debasement of the U.S. dollar and other major currencies, they are loading up in record numbers on silver bars, coins and silver-denominated exchange traded funds, Sprott says.
However, there's also a quantum shift in investment demand taking place among big players in the precious metals market, including India (which is aiming to increase its imports by about 77 million ounces per annum), and of course China.
"China's net imports of silver were 112 million ounces last year. In 2005, they were net exporters of 100 million ounces," he says.
"That's a 200 million ounce shift in an 800 million ounce annual market that seldom ever grows because production hardly ever goes up. So where's it all going to come from? We don't know."
In fact, silver promises to outshine gold over the coming years, Sprott says. "Silver is the poor man's gold. Gold has had a great run for the past 11 years. But I absolutely believe that silver will outperform gold this year. Currently, there's more investment dollars going into silver than into gold."
Such a game-changing scenario should recalibrate the gold to silver pricing ratio in silver's favor, thereby eventually restoring it to its traditional level of about 16 to 1, he says. "It's the easiest call of all time."
"Silver as a currency always traded in a ratio of around 16 to 1 compared to gold, when it was a currency in the U.S. and the U.K. The current ratio is 48 to 1. If we go back to a 16 to 1 ratio, the implied price for silver would be $85.62 (per ounce)." he adds.
"On that basis, if gold goes to $1,600, then that would value silver at $100. And we certainly think that gold is going to $1,600. In fact, I'm willing to bet that this ratio will overshoot on the downside. It might even get to 10 to one."
The only reason why silver is still trading at a 48 to 1 ratio to bullion's spot price is that its price is being "manipulated" by big banks, Sprott says. That's because they don't want precious metals to become a popular alternative currency to Fiat money (currencies that are not backed by hard assets).
"Then there's also a huge short position out there on silver," he adds.
But time is on silver's side, he says, as the sovereignty debt crisis deepens in Europe and a continued policy of qquantitative easing in the U.S. continues to undermine the value of the greenback.
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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Berichtdoor Gung Ho » 09 feb 2011 00:11

Gold* (GC : NASDAQ : US$1351.30), Net Change: 2.30, % Change: 0.17%
Let's Get Physical, Physical. In his monthly Markets at a Glance, Eric Sprott says Asian demand for physical gold and silver is akin to a tsunami. We all know how the Chinese and Indians have never trusted paper investments as a store of value – that’s nothing new. Sprott highlights how demand for gold and silver is literally exploding in Asia, and it’s creating shortages of physical bullion around the world. China is buying so much gold for investment purposes that it now threatens to supersede India as the world’s largest gold consumer. Chinese demand in 2010 is expected to reach approximately 600 tonnes, just behind India’s 800 tonnes. Sprott highlights new investment products like gold accumulation plans which make gold more convenient to purchase in China. On April 1, 2010, the World Gold Council and Industrial and Commercial Bank of China (ICBC) announced a strategic partnership, introducing a completely new investment product for Chinese investors: The ICBC Gold Accumulation Plan (ICBC GAP). ICBC GAP allows investors in mainland China to accumulate gold through a daily dollar averaging program. The minimum investment required is either 200 RMB per month or 1 gram of gold per day (equivalent to approximately US$42). According to Sprott, some one million accounts have already been opened since the program launched on April 1, resulting in the purchase of over 10 tonnes of gold thus far. The ICBC GAP plan was taken up by a mere 20% of total depositors at ICBC, and was only launched in select Chinese cities during the test phase. The ICBC bank is the largest consumer bank on the planet with roughly 212 million accounts. You don't have to be smarter than a fifth grader to figure out how large a buy program could get just at ICBC bank alone. What if ICBC GAP plan was expanded to the next four largest Chinese banks? What if the buy program were extended to other large gold consuming countries such as India, Russia or Turkey? The implications of this demand for the gold market could truly be akin to a tsunami
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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Berichtdoor Gung Ho » 16 feb 2011 15:53

Love to push gold up $200, fear needed for anything higher - Holmes
Strong jewellery demand from Asia is likely to push gold up $200 in a normal fashion but, for significantly higher move, more QE would have to take place
Author: Geoff Candy
Posted: Wednesday , 16 Feb 2011

While fear did much of the ruling during the course of January, it is the love trade that investors should be paying attention to.
This is the view of Frank Holmes, CEO at US Global Investors, speaking on Mineweb.com's Gold Weeklyt podcast, Holmes explained that despite a 30% rise in the gold price during 2010, jewellery demand (what he calls the love trade) was remarkably strong in both India and China.
"What's really important," he says, is "that in China, 20 million migrant workers saw their income rise 24% - you didn't see that happen in Europe or in America.
That's the big issue in America, there is still no job creation for the typical construction migrant worker. But in China, they saw a 24% increase - and what do they do for the ones they love? They buy gold."
He adds, "Now there's a bank that allows you to buy a gram of gold every week on a silver dollar cost average programme, and they have 20 million customers. Just start putting that on the scale over time - it's important not to dismiss the love trade and put that in context for the total demand side equation for gold."
Asked about concerns around recent monetary policy in China and, the potential that recent interest rate hikes could see a decline in interest in gold, Holmes said that he did not believe this would be a significant issue.
"Money supply is still growing rapidly in China. It's off its 30% year-on-year growth rates but it's still very healthy and what people fail to recognise is that China has built more underground subways in 10 years than London has built in 150 years. They're now building subways throughout China... underground means fast transportation of people.
Car sales are still massively robust and those cars are paid with cash - there's not big lending. Sixty percent of housing is cash - not like in Europe, not like in the US where its massively leveraged and that's where the problems came from - so things are pretty good on a macro scale"
As a result of this and the expectation of continued deficit spending in the US, Holmes believes that it will be easy fore gold to rise $200 from current levels.
But, he cautions, a rise to $1,700 would be the equivalent of what happened in 2010 and, if that is to take place the world will need to see, continued economic growth in both China and India.
"For gold to go up $400 or $500/oz, you'd have to also have more QE2 - so it's being extended - those two factors would take gold to higher price levels. But it would be just normal for gold to slowly appreciate - as a laggard. It got so much attention last year, but palladium was a far better performer - platinum, copper - so there's too much focus on gold on a relative basis whereas there's been much more opportunity in these other commodities," he adds.
If you don't trust gold, the only asset with a 6000 year old track record, do you trust the logic of taking a $1,000 pine tree, cutting it up, turning it to pulp, putting some ink on it, and then calling it one billion dollars? Go Gata Go Gold Go Silver
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