News and Views

With spot silver prices up almost 40% this year, compared to about 23% for gold, silver gained 3.4% on Wednesday to close at $23.93, and then extended its gains in early trading Thursday, dropping the gold/silver ratio to below 57, its lowest level since August 2008.  Last week James Turk predicted that “once you break 58, then you’re going to see the gold/silver ratio really drop.  I think we’re going to go down to at least 50 or 52.” Related Links: MarketWatch:  Gold settles at 16th record high in five weeks Mineweb:  Bulls beating bears on gold price direction Miningmx:  Demand for Kruggerands soars Stockhouse: Similarities to the ‘70s are likely to continue, with conditions propelling gold higher Business Insider:  Signs of schizophrenia in treasuries and gold The Atlantic:  Uncle Sam’s mysterious hoard Mineweb:  BIS taking in more gold – who are the counterparties this time? SafeHaven:  Correction in preciousContinue Reading
In July of this year Goldman Sachs issued a 12-month forecast of $1,355 gold and $22.60 silver.  Now, it has dramatically raised the forecast to $1,650 gold and $27.60 silver, in a new report to clients: “Our U.S. economic outlook suggests U.S. real interest rates will stay lower for longer with renewed quantitative easing an effective catalyst to carry gold prices higher.” The Financial Time’s Alphaville blog analyzes the report, noting Goldman’s incessant calls for QE2, and Zero Hedge calls Goldman’s thesis “a simple one, and fundamentally identical to what we have been saying for years: buy gold until the Fed begins to tighten. Which means forever and never.”  But it also cautions readers to “Recall which bank was getting its clients to go all in in crude 2008 when oil was $140+. We would be very cautious when Goldman is on ‘your’ side of the trade.” Related Links: CoinContinue Reading
October 12, 2010

In the Zone

“I don’t know what else you can be in besides gold, and silver today,” says Casey Research’s Doug Casey, in an interview with The Daily Bell.  “We are in a strange twilight zone right now, where there are no bargains in the world … everything seems to be overpriced. Gold itself is not cheap anymore, the way it was 10 years ago. But on the other hand, the gold bull market is intact and I think it is going significantly higher for a lot of reasons.” He also sees “One consequence of all this money being created is that other bubbles will appear. I feel confident that one of the bubbles will be in precious metals; it will be driven by both fear and greed, but also by prudence. That’s a powerful combination.”  But he emphasizes that gold’s “not something to make money, it is something to preserve the wealthContinue Reading
October 11, 2010

The Race to Debase

“Gold is far from topping, it’s just getting started,” declares Gold Scents‘ Toby Connor, pointing out that “the fundamental driver of this leg up in gold is the same driver that it’s been for the entire 10 year bull market.  Currency debasement, only now every country in the world is getting in on the race to the bottom. That being said it’s the dollar’s turn to collapse. The Euro had it’s spell earlier in the year and now that cancer has infected the world’s reserve currency.” And with the latest COT report, Trade Placer points out that the large commercial traders (above), such as JPMorgan, are beginning to cover their silver short positions, and Got Gold Report‘s Gene Arenberg says that “the largest commercial hedgers and short sellers are not acting like they think the metals are going lower.  When we see even the (COMEX) commercials getting out of theContinue Reading
Following gold’s increase of nearly one percent on Friday, a Bloomberg report quoted a metals trader as saying that “The uptrend in gold continues because the dollar just continues to lose ground.  There’s more downside in the dollar. The jobs number just reinforces the fact that we’ll see more quantitative easing.” And Patrick Heller makes the case that gold and silver prices were once again “suppressed” in advance of the “manipulated” job report. The above gold/dollar graph is from an article headlined “Fun with Numbers and Gold,” by Bullion Vault’s Adrian Ash, who notes the further mainstreaming of gold, when “the BBC news apparently quoted gold prices alongside its cursory glance at the FTSE and Dow last night.” As silver rose 2.3% on Friday, for its fourth straight weekly gain, and the SLV approached 10,000 tons of silver bars, the Pittsburgh Post-Gazette interviewed a coin dealer who “has seen a noticeable changeContinue Reading
October 8, 2010

QE2 More Like the Titanic?

The proliferation of “QE2 Quarterbacks” brings an argument that “We don’t need QE2,” and KAM LP’s Mike Krieger calls it possibly “the biggest ‘sell the news’ event in the history of the stock market.” “No one is smart enough to know how much QE is priced into the market, is it $500B?  $1 trillion?  $3 trillion?,” asks Krieger. “No one knows, but what we all do know is that the Fed through its non-stop yapping has now set up the ultimate moral hazard in financial markets… They must do QE2 at this point and they probably have to do it big.  The problem is, with the equity market up at the levels it is, I don’t think ANY amount of QE2 will cause a rally.” He also likens the process to Weimar Germany, but, “The big difference here is that it has happened to the country with the reserve currency. Continue Reading
In addition to appearing on CNBC Wednesday, where he separated the “accumulators” from the “trend buyers,” James Turk was mainstreamed by Reuters, which devoted an article to his thoughts on the economy, gold and silver.  He said the “only safe-haven currency today is gold,” and predicted that it will be several years before the U.S. economy recovers fully:  “We’re only halfway through this bust … I think we have another three to five years.” Turk also told Reuters that he’s more bullish on silver than gold because he thinks the gold/silver ratio will fall.  And in a just-released interview with King World News, he says that “once you break 58, then you’re going to see the gold/silver ratio really drop.  I think we’re going to go down to at least 50 or 52.” Related Links: The Street:  Spot gold prices sizzle on dollar’s relentless decline Mineweb:  Stepping upwards – goldContinue Reading
October 6, 2010

Familiarity Breeds Ascent

It was “a familiar sequence of events” that led to another record high for gold, reports the Los Angeles Times:  “Central bankers pledge new moves to flood the financial system with more money. The dollar weakens. Buyers pile into gold and other hard assets as an alternative to paper currencies.”  And “silver was even hotter Tuesday, up 70 cents, or 3.2%, to a new 30-year high of $22.71 an ounce.” Related Links: The Street: Spot gold prices, silver rage higher Zero Hedge: Morgan Stanley boosts gold and silver price target FMMF:  S&P 500 priced in silver and gold Patrick Heller: Gold and silver prices jump; buyers and sellers start to get a little crazy Bloomberg: Silver to gain on investment, industry use, Deutsche Bank says ETF Trends: Behind silver ETFs’ meteoric rise Seeking Alpha:  Why did Japanese traders load up on silver recently? Telegraph: IMF chief fears risk of currencyContinue Reading
October 5, 2010

Homing In on Gold

Pragmatic Capitalism features the above chart on the home/gold ratio to illustrate how far the real estate market has fallen in “real” money.  It currently takes 144 ounces of gold to buy the median single-family home, compared to 601 ounces in 2001. But hedge fund operator John Paulson is recommending both investments. According to a Wall Street Journal column, which points out that Paulson said gold could go to $2,400 an ounce based on the fundamentals, and that momentum could carry it to $4,000,  “Among the New York commentariat there’s been a lot of head-scratching about Mr. Paulson’s take—especially this contrarian stance on housing.” But it concludes that “The odds have to be on his side. The reason is simple: Inflation.” Which, is “on the horizon,” according to a Bloomberg report that cites record gold prices. Related Links: MarketWatch:  Gold closes modestly lower on stronger dollar CNBC:  Jim Rogers: CommoditiesContinue Reading
October 4, 2010

Shelter From the Storm

As the 2009 and 2010 gold rallies are compared, Gold Scents‘ Toby Connor argues that “Gold is likely now in a runaway move higher. Smart money is using any and all pullbacks to get in ahead of the inflationary storm that’s coming. We saw it in the action yesterday. Gold briefly traded down to the $1300 level and miners briefly tagged 500. Buying pressure immediately came in at those levels.” About that “storm,” he reminds that Fed Chairman Bernanke “clearly stated he would print money if the economy didn’t improve. We know there is no way the economy can improve because we still don’t have the next ‘new’ industry to drive job creation. Folks this one is a no brainer. The Fed is going to print. That is going to cause asset inflation. The dollar is going to drop down into a yearly and three year cycle low. And theContinue Reading
As both gold and silver gain for the third straight week, an analyst at BNY ConvergEx, reasoning that “one home for any potential gold/silver bubble must be jewelry and coin dealers,” takes a “Trip to the Center of the Gold ‘Bubble’,” New York City’s 47th Street Diamond District, “the toughest, most aggressive retail/wholesale marketplace for jewelry, gemstones, and precious metals in the world.” She comes away thinking that while “Bubbles are clearly punctuated – and driven to their final  demise – by bad behavior on the part of market participants. My short, but colorful, excursion to the heart of the physical precious metals market revealed no such excess. Is that enough proof to eliminate the possibility of a gold  bubble? Of course not. But I think it is enough to characterize recent calls for the demise of the gold/silver rally as very much premature.”Continue Reading
Laying out what he sees as “The next phase of gold’s meteoric rise,” The Midas Letter’s James West, who was recently interviewed by The Gold Report, takes issue with an article on CNNMoney.com that makes “The case against gold.” West sees it as “designed to undermine the determination of gold accumulators who are genuinely frightened about the purchasing power of their dollars as their government ‘quantitatively eases’ the economy back onto its feet.” Related Links: Coin News:  Gold and silver prices rally in September, soar in 3rd quarter GoldSeek:  Wall Street Journal finally notices gold’s bull market GATA:  Murray Pollitt: As intervention fails, only gold market has a pulse Gold Alert:  Gold prices and a trade war? Bloomberg:  Geithner says no threat of China trade war or currency wars Reuters:  Currency tensions rising ahead of IMF meeting Mineweb:  Über hedge fund billionaire Paulson envisages $2,400-$4,000/oz gold Daily Reckoning:  Investing inContinue Reading