Gold, Silver and Other PMs

http://www.caseyresearch.com/crpmkt/crpS...

Top 552. Nov 6, 2005 2:05 PM

» Normxxx - The Practice of Speculation

The Practice of Speculation

By Doug Casey | 6 November 2005

“There’s no certain way to gauge the proper time to enter a market, but there are certain rules that will likely be just as good in the future as they have in the past because they’re based on human nature, and that hasn’t changed much over the thousands of years.”

I’ve listed five signals that should be present before you enter a market. You may never find a situation where they’re all there, but the more that are, the more the odds are tilted in your favor. The five rules are equally applicable whether you’re buying or selling (with obvious adjustments), but I’ve skewed them toward the buyer. Since the long-term bias in the years ahead is going to be toward higher prices in the resource stocks, most of the time you’re going to be buying more aggressively than you’ll be selling.

1. A Climactic Bottom

People tend to get carried away with greed after an investment has treated them well and by fear when the market’s been bad. The same herd instinct that causes a crowd to gather when someone stares up in the sky, or causes a stampede if someone yells “Fire!” in a crowded theater, causes markets to overrun themselves at both major tops and bottoms. Price moves typically become very radical and unpredictable at the point where a market is searching for either a top or bottom after a panic. If you can keep your head (easier said than done), those conditions present— or at least foreshadow— the ideal time to buy or sell.

“Blood in the streets” selling climaxes aren’t the only time to buy, and manic blow-offs aren’t the only time to sell, but they’re certainly the best times. In 2000 was a classic speculative opportunity in the better resource stocks…even gold company executives didn’t want to know about gold. Climactic bottoms, in particular, are often followed by a period of exhaustion, which can give you a chance to appraise the market coolly.

2. Period of Accumulation

After a climactic bottom, a market becomes exhausted. With prices low, a lot of money has either been wiped out or has left the market. Like an athlete after defeat, the marketplace takes a while to recuperate.

It takes a sharp— and lucky— trader to catch a market that turns on a dime and heads the other way. It’s more prudent to let it plateau, stabilize, and establish a new equilibrium level before buying. The gold shares, which had a decent run in the mid-90s, have only just started to come alive again. But, as pointed out earlier, the mainstream punter is still looking elsewhere. The plateau is often characterized by a “low volume” of trading.

3. Relatively Low Volume

Low volume, with few buyers or sellers, means few people are really interested in what’s going on; a good speculator looks where nobody else does, to afford a better chance of finding bargains. When there’s a high volume of trading, it’s a sign that a lot of people are paying close attention, and that can lead to radical swings for purely psychological reasons. Successful speculators never allow themselves to be rushed or panicked, and a low-volume market offers leisure to make up one’s mind. Today, most gold shares still trade at a volume that is just a fraction of their mainstream counterparts.

4. Historically Low Prices

Nothing is eternal in the markets. What seems like a “high” price one year may turn out to be a “low” price the next; it’s all very relative. Speculators who get the bargains are patient.

The bottom of a bear market comes about cyclically, with years or even decades between peaks. Smart buyers sit tight until the odds are loaded in their favor. Only amateurs, pathological losers, and bank trust departments are in the market all the time.

Commodities can be considered “cheap” when they are selling for less than production costs and close to historical lows in real (after inflation) terms while there’s a prospect of higher inflation. In inflation-adjusted terms, gold is currently selling at considerably less than half the high it reached in 1980.

There are plenty of exceptions around all the time. But successful speculators play a waiting game; blood isn’t in the streets every day.

5. Pessimism in the Market

After a long bear market, the stock or commodity has established a “poor track record” and is perceived as a “bad investment,” with no future. That is the view that most mainstream investors currently have of gold after it’s long bear market…using terms such as “archaic” to describe the stuff. That is, of course, usually the best time to buy.

Buying when no one else is interested in an investment is hard on the nerves, but rewarding.

If it were easy, everyone would be a professional speculator, and that obviously wouldn’t do. And, don’t forget, as the gold market— and especially the leveraged gold stocks— take off toward the moon, there will come a time when everyone is saying to buy…which is when you should be heading for the exits. I will be.

Of course, this is meant to be a quick summary. It’s not easy to lay down hard and fast rules for successful speculation. There are plenty of others I could repeat here, but the important point is to adopt a bias towards speculation. Done right, which today means building positions in the quality gold stocks, can result in returns that will surprise even you on the upside in the months and years just ahead.

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

Top 553. Nov 15, 2005 3:34 PM

» Normxxx - Gold Market Update

Gold Market Update

By Clive Maund | 15 November 2005

Gold has held up well considering the strength of the dollar and even staged a plucky little rally a few days ago, that has resulted in it losing virtually no ground despite the dollar's breakout. This is not surprising as the September breakout was an important technical development which established a sizeable reservoir of support beneath the current price. It was pointed out in the last update that should the dollar break above 90 - 91, gold would be expected to break below $460 and retreat towards its 200-day moving average, and this is what has happened.

The current reactive phase in gold can be expected to continue until the dollar rally has run its course, although as the limited retreat so far and the rally a few days demonstrate, the strong underlying support can be expected to prevent a serious decline. The worst case, in the event of continuing dollar strength, would be a retreat to the vicinity of the 200-day moving average, i.e. to the $445 area, which would be regarded as a buying opportunity in expectation of a renewed uptrend. However, as we will see later when we look at the long-term chart, there is an important long-term uptrend that must hold to keep the bull market in gold alive.

The 1-year chart shows the small top area that developed in late September and October and the reactive phase that is now underway. On this chart we can also see the impressive body of support that now underpins the price - the September rally took the price sufficiently above the preceding lengthy trading range for sellers in that range to rue their decision to sell and want back in, as near to where they sold as possible, thus generating potent underlying support. The 50-day moving average is out of whack with the 200-day - way ahead of it, as a result of the overbought condition that had developed by mid-late September, and this is an important reason for the corrective phase that we are now in.

We will now look at the dollar chart in an attempt to gauge how far the current rally is likely to get, for despite gold's intrinsic strength at this time, this can be expected to determine the extent of the current short-term reaction in gold. Observe that a 2-year timeframe has been selected for the dollar chart, so that we can pinpoint the origin of important dollar resistance.

About a week ago the dollar broke out from a menacing looking potential double-top formation, and it is very clear on the 2-year chart that the strong rally in the dollar this year had stalled out beneath resistance arising from the multiple peaks around the 90 level that occurred during 2004. Examining the action in 2004 we can see that this resistance continues right up to the high for that year, which is at about 92.3. Now, given that the dollar is now becoming extended and overbought relative to its moving averages, which incidentally are now in decidedly bullish alignment, and as shown by its short-term oscillators, following the strong break higher a week or so ago, it is viewed as highly unlikely that it will succeed in breaking above the 2004 highs just above the current level on this run, without first consolidating/reacting. However, the dollar breakout above the potential double-top was, on the face of it, a decidedly bullish development, and after some consolidation in the 92.3 area it could break higher again, and if it does it will be this that pushes gold down towards its 200-day moving average. However as we will see at the end of this update, the dollar COT charts suggests that the dollar is about to top out, at least for the short-term, very soon.

With the retreat from the October high a potentially bearish wedge pattern has appeared on the long-term 5-year gold chart. In the light of the latest dollar strength this will need to be carefully watched. A break of the lower trendline will obviously be bearish, and it will take a break above the top line to obviate the implications of this pattern.

To end on a positive note - for gold, that is, not the dollar, the dollar COT chart should strike dread into the hearts of those long the dollar, at least short-term; it shows the Commercial short positions and the Large Spec long positions going off the scale. This is normally the precursor to an abrupt reversal.

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 554. Nov 23, 2005 1:17 PM

» permabear - Gold Trades Near 18-Year High on Talk of Central Bank Buying

Gold Trades Near 18-Year High on Talk of Central Bank Buying

Nov. 22 (Bloomberg) -- Gold traded at its highest level in almost 18 years in Asia as investors bought the precious metal amid speculation central banks may add to their reserves and jewelers stocked up to meet rising demand.

Russia's central bank may double its gold reserves, Maria Guegina, the bank's head of external reserves, said Nov. 15, while the central banks of South Africa and Argentina have said they may also increase their gold holdings. Gold may reach $500 an ounce, UBS AG said, up from a close of $491.76 yesterday.

``Gold settled at its highest mark in nearly 18 years, boosted by speculator buying, as the market eyes a move to the psychological level of $500 an ounce,'' David Thurtell, a commodity strategist at Commonwealth Bank of Australia, said in a report today. ``Talk of central bank buying and stronger retail interest also boosted the market.''

Gold for immediate delivery rose as much as $1.01, or 0.2 percent, to $492.76 an ounce, the highest since December 1987. It traded at $492.36 at 11:32 a.m. Sydney time.

``In addition to the speculative interest relating to the $500 level, gold found support on talk of stronger retail interest in the precious metal and central bank reserve additions,'' NM Rothschild & Sons (Australia) Ltd. said in an e- mailed report today.

Gold for December delivery rose as much as $3.70, or 0.8 percent, to $493.20 an ounce in after-hours trading on the Comex division of the New York Mercantile Exchange. It traded at $492.50 at 11:32 a.m. Sydney time

-- posted by permabear

Top 555. Nov 26, 2005 1:10 PM

» permabear - For the sake of balance, here's a bearish view

November 24, 2005

How Old is the Gold Bear?
by Eric Noel

There is no question that early 1980 was the birth of the Gold Bear. I still remember the mania leading up to it; my mother telling me to save all pre - 1969 quarters as they were "pure silver" and they would be "worth a fortune" someday. The public was going nuts for the shiny metals. After the first big move down and massive counter trend rally over the summer of 1980, the Gold Bulls got even more bullish saying that NOW it was really going to over 1000 dollars but the Gold Bear had been born and was just cutting his teeth. Alas, he never reached back to his all-time highs.

We know the story since then. There have been a series of rallies and sell-offs between approximately 250 and 500. Each rally brought out the bulls and each sell-off shut them down.

Enter 2001, when the Gold Bear turned a Fibonacci 21 years old. At the time, NOBODY was bullish on gold and most Gold companies were completely hedged. But the rally over the past 5 years has been no different than the past; it has brought the bulls out of retirement and a raft of fundamental arguments in favour of 3000 dollar Gold such as: 1) rapid devaluation of the US Dollar; 2) hyperinflation; 3) conspiratorial manipulation by the central banks, which can not be sustained; 4) world shortages; 5) Gold is the only "real money"; yadda; yadda; yadda. I don't know a thing about these "fundamentals". For all I know maybe they have merit. From what I have seen, however, markets rule central banks and not the other way around. Just take a look at the bond market chart along side the Fed. interest rate changes and you will soon notice that they are nothing but trend followers. In short, they seem, to me, to be irrelevant.

The gold bulls will now tell you that the Gold Bear died at the age of 21. Now is the last chance to get in before the price of gold crosses above the DOW price! Even my local bank is trying to sell me on the notion of stocking up on gold bullion these days as it is "the time honoured store of value". Now, if Gold had quadrupled in the last 15 months like GOOG, I might be able to understand the bullish sentiment but it is wheezing to get back to its December 1987 high. What gives?

Enough about fundamentals. The charts of GOLD since 1980 tell me that the Gold Bear is alive and well and he is toying the with Bulls as he approaches 500, a level not seen since late 1987, a LUCAS 18 years ago. Further, he shot out of a multi-month triangle last summer and is on the cusp of completing 5 rally legs up from that triangle. Triangles are penultimate moves as Elliott observed, with few exceptions, as noted by Neely. Overall, the move since 2001 has been non-impulsive, indicating that it is not the beginning of a new bull market but yet another bear market rally. Had it been impulsive with everyone still saying: "there goes GOLD again . . . back up to the top of the trading range" I would be buying it.

The cruelest joke the Gold Bear might play on the bulls would be to pierce the 500 dollar mark by 5 dollars and get the public to jump in both feet first before he heads south back to 250. If he bottoms out in 2009, that would make him 29 years old (also a LUCAS number). For some reason the Gold Bear loves to reverse on LUCAS numbers, in all time frames.

So to answer the question posed: almost 26 years old (double fibo of 13). But he seems to me like the kind of guy who just won't live past 30. See you in 2009 when everybody is bearish. We'll use our short profits to load up the truck!

Eric Noel
LL.B., LL.M.

-- posted by permabear

Top 556. Nov 29, 2005 10:44 AM

» permabear - Gold hits $500 amid inflation fears

Gold hits $500 amid inflation fears
Tue Nov 29, 2005 12:12 PM ET
By Atul Prakash

LONDON (Reuters) - Gold spiked above $500 an ounce for the first time in 18 years on Tuesday and platinum surpassed $1,000, the highest in more than two-and-a-half decades, fueled by heavy fund buying.

The metals then retreated from their highs, but growing demand, supply constraints and plans by some central banks to buy more gold were expected to support prices, dealers said.

"Technical trends are looking very strong and people find it very risky to go short right now. I think that's why the rally has been continuing," said Yingxi Yu, precious metals analyst at Barclays Capital.

The positive sentiment was still intact and bearish factors such as easing oil prices and low physical demand at higher prices were being ignored in a bull market, she said.

Spot gold retreated to $497.00/497.80 an ounce by 1654 GMT from as high as $502.30 an ounce in Asia. It closed in New York on Monday at $498.20/499.00.

Analysts said investment funds were increasing their exposure in commodities for better returns, and the trend was likely to continue despite huge speculative long positions.

Gold has risen more than 14 percent so far this year.

"Over time, over history, it has always been a market that people have turned to when there has been an element of uncertainty in other asset classes," said Mark Keenan, fund manager at UK-based MPC Commodity Fund.

"It's a question of diversification."

Robin Edwards, president of Saber Fund Management, said people were getting interested in gold as there were inflation fears, though it was hard to say whether that would be realized.

He said gold prices could soar up to $800 an ounce over the next couple of years as the metal had supportive fundamentals.

"The investors are diversifying portfolios. There is a feeling that currencies and equities are not necessarily reliable and they are adding to commodities because they see the returns are greater there," said Peter Hillyard, head of metals sales, at ANZ Investment Bank.

Industry players said jewelry manufacturers and buyers may need time to adjust to the high prices.

The World Gold Council said this month that global demand for gold in the third quarter totaled 838 tonnes, a rise of 7 percent from the same quarter a year ago, as surging investment demand helped offset a slowdown from the jewelry sector.

GOLD VULNERABLE

Some analysts said gold prices could fall to as low as $475 an ounce on liquidation by investment funds to book profits.

The latest weekly Commitments of Traders report issued by the Commodity Futures Trading Commission on Monday showed the speculative net long position in New York's COMEX gold were closer to record high levels.

But the rally was also helped by reports that Russia, Argentina and South Africa had decided to increase the amount of gold in their reserves, reversing a six-year trend of central bank sales, mainly from Europe.

Platinum stood at $992/995 an ounce after spiking earlier to $1,002. It closed in New York at $989/993.

Refining and chemical company Johnson Matthey (JMAT.L: Quote, Profile, Research), which provides fundamental analysis of platinum group metals, said in a recent report that 6.71 million ounces of platinum would be used in 2005, exceeding supply of 6.59 million ounces as demand rises from the auto sector and other industries.

Silver inched down to $8.26/8.28 an ounce from $8.35 on Tuesday. A breach of $8.43 would make the price highest in 18 years. Silver finished in New York at $8.35/8.37.

Palladium rose to $263/267 from $261/264.

(Additional reporting by Lewa Pardomuan in Singapore and Hari Ramachandran in New Delhi)

-- posted by permabear

Top 557. Dec 4, 2005 9:56 AM

» Normxxx - A Startling Coincidence?

What's Moving All The Markets Higher?

By Dr Richard Appel, | 4 December 2005

November 27, 2005— In the brief period since President Bush announced his choice for the new Federal Reserve Board Chairman, a number of major financial markets have been dramatically affected. The purpose of this essay is to explore whether the hand of Alan Greenspan or his likely replacement, Ben Bernanke, were behind them. Or, are the forces driving these normally divergent markets in the same direction simply the result of the investment community's expression of support and agreement at the change of guard at the Fed, or is some other force at work?

It has been four weeks since October 24. This was when Ben Bernanke was named the president's choice to ascend to what is arguably the most powerful position in our nation if not the world. No sooner did President Bush recommended his replacement for the departing Alan Greenspan, than four of the most significant markets began to react. The boldest and most persistently strong one has been the U.S. stock market. At the time, the Dow Jones Industrials were in the midst of a decline. It began about five weeks earlier from about 10,700, and had taken the Dow to its pre-announcement level of about 10,300. On the day of his recommendation, the Industrials appeared to greet Bernanke and strongly rose 170 points. The Dow then proceeded to fall for the next few days but has since climbed nearly vertically to Friday's 10,931 closing price. This places its upward assault within striking distance of an all-time high.

The US Dollar Index was trading at about 89.50. After a brief three day set-back it soared in lock-step fashion with the Dow. Within three weeks it touched 92.50. When it bumped into strong resistance at the 92.50 level it paused temporarily, but is now working to overcome it.

Bonds were in a sustained decline since late August. After President Bush's announcement the bond market severely reacted, and in three days lost 225 basis points. It then proceeded lower for several more days, sharply reversed course, and then joined common stocks and the dollar in their upward climb.

The gold market is the final market of this quartet. After Bernanke's nomination it rose strongly for a few days and then fell sharply. After posting a 458 nadir it then reversed direction and exploded in price. It now rests on the doorstep of a major milestone, above the 500 level.

Since Ben Bernanke's nomination, the world has experienced a rarely witnessed event. What is so amazing is the fact that these major markets are driven by varying and opposing forces, yet they are together trending higher. I cannot state that it is unprecedented. However, after each had sufficiently digested the news, these four crucial markets moved higher in tandem. By acting in this fashion they are defying both historical market relationships, conventional wisdom, and common sense.

The U.S. dollar and gold tend to move in opposition to one another. This is due to gold's historic negative correlation with the dollar. U.S. common stocks and bonds were in defined downtrends. Yet, Bernanke's nomination seemed to virtually simultaneously put wind behind the sails of all of these primary American markets. This may only be a fleeting phenomenon, but if not, how and why are we witnessing this seemingly surreal event?

One belief is that Alan Greenspan orchestrated the market advances. Given his long tenure as Fed chairman I am certain that he would like to leave his watch with the markets calm. Stronger equity, bond and dollar markets that carried through his departure, would certainly make his exit more fitting for what the American Public would expect of the Maestro. It would also please Greenspan as it would give future historians few negatives to discuss when describing his legacy.

In a similar fashion, it would be to Dr. Bernanke's benefit if the markets appeared to rejoice in his ascendency to the chairmanship of the Federal Reserve System. If this transpired it would certainly comfort the market's participants and onlookers on the eve of Greenspan's stepping down.

There are a plethora of potential crisis generating conditions that are lurking in the wings of both our nation and the world's financial and economic systems. An easy transition from a Greenspan to a Bernanke Fed would act to mitigate and assuage many lingering fears.

After all, the derivative monsters that envelop not only the currency and equity markets, but also the bond, credit and various other markets, has the potential to bring down the entire financial system if an accident emerges. This nearly occurred in 1998, with Long Term Capital Management, and possibly with the recent apparent insolvency of Refco. The break-up of the latter company appears to be under control. However, potential derivative or undisclosed losses may yet surface and create havoc in the markets. Little information has been reported by the regulators or the media to reasonably explain the speed with which the company is being dismantled. Further, no one in the company seems to be objecting.

Other potential dangers surround the fate of common stocks and real estate. Despite their recent impressive strength, equities may shortly experience a continuation of their secular Bear Market decline. Numerous indicators are signaling warnings of their impending weakness. Additionally, the housing market may be taking a breather, but the future of its Bull Market appears tenuous at present. If either of these markets soften substantially, it has the potential to snowball and not only damage the underpinnings of the other, but also the general economy. Additionally, how long will the rest of the world continue to desire the fiat dollars that our Federal Reserve System creates at will? Given our unsustainable balance of trade, payments, and budget deficits, the United States NEEDS the rest of the world to continue to accept our dollars and purchase our Treasuries. If they eventually rebel, it will devastate our economy and unleash a likely inflationary firestorm when their dollars return to our shores.

[Normxxx Here: Which would be immediately followed by a disabling DEflation, as our immense debt structure collapsed in the wake of such an inflation.

Not to mention the precipitate collapse of the entire post-WW II international financial system, which the rest of the world (including China) is acutely aware of. But how long can we rely on this threat? ]

The possibility of these and other potential disasters will soon consume the waking hours of Dr. Ben S. Bernanke. If the markets do not appear to accept him when he takes control of the Fed, he may be forced to endure a test of fire.

This would not be unique. Both former Fed chairmen Paul Volker and Alan Greenspan were greeted by major economic convulsions shortly after they each took their oath of office. Volker watched short term interest rates soar to 20% and a recession unfold, and Greenspan presided over the devastating stock market crash of October, 1987.

The classical methods that Alan Greenspan can utilize to foster rising bond, stock and dollar markets are not foreign to long-term observers of the Fed in action. The problem is that all of these markets can't be simultaneously stimulated with these means. The Federal Reserve routinely purchases U.S. Treasuries in the open market. This acts to strengthen the bond market, reduces interest rates, and allows the Fed to immediately inject a substantial number of dollars into the banking system. Or, Greenspan can lower the Federal Reserve member banks' reserve requirements. This action gives the banks the capacity to expand their lending ability, which through a multiplier effect also increases the money supply. The Fed can also manipulate the Federal Funds and Discount rates lower, thereby suppressing interest rates. All of these actions increase our domestic liquidity and have been primary drivers of higher stock prices.

As for the dollar, rising interest rates tend to buoy its strength while falling rates weaken it. Also, Federal Reserve open market sales of Treasuries withdraw dollars from the monetary system thus increasing dollar desirability on the world's markets. If fewer dollars exist, by supply and demand, the remaining ones will ultimately experience an increase in their purchasing power. However, these standard market influencing Fed actions all take time to work their way through the system. Further, as you can see they conflict with one another in the varying effects that they have upon these markets. They could not simultaneously, positively influence the bond, stock and U.S. dollar markets, let alone gold prices.

While Dr. Bernanke has not yet been installed as Fed chairman he may be operating behind the scenes with Greenspan's guidance.

[Normxxx Here: I'm sure he is; dropping the reporting of M3 in the same month BB takes over is obviously BB's ploy. ]

Bernanke essentially came from out of nowhere in 2002, and uttered numerous highly controversial statements. Then, earlier this year found himself appointed to the lead post of President Bush's personal economic advisors. In this position he was likely being personally groomed for his future Federal Reserve position.

I believe that it is reasonable to assume that Alan Greenspan's replacement by Ben Bernanke was made long before the official announcement. It certainly appears that he caught President Bush's attention with his 2002 statements if not earlier.

Unfortunately, given the fact that he will likely be our next Fed chairman I think it was a mistake to broadcast his intentions in advance. This will limit their effectiveness if and when they are implemented.

If he used the conventional Fed methods to effect monetary policy as I described above, Dr. Bernanke would have no greater ability than Alan Greenspan to move these markets higher in concert. For this reason, if classical Federal Reserve techniques were solely utilized, I believe that one can eliminate Greenspan and Bernanke as the influencing forces behind the concurrent rises in these markets.

Where does this leave us in determining the causative forces behind the simultaneous uptrends in all of these markets? It could be a coincidence. Yet, a few days or even one week would be one thing, but three weeks is a different story.

If It's Not Greenspan, Bernanke Or A Coincidence, Then What?

Upon further evaluation of this puzzle, a thought occurred to me. It took me back to Dr. Bernanke's November, 2002 statements when he was a relative unknown. He stated that the Fed had the ability to create dollars at will by various unconventional means. In this regard I truly believe him.

I personally do not believe that the markets are sufficiently convinced that Dr. Benjamin S. Bernanke will be an able replacement for Alan Greenspan. He very well may be, but he is as yet unproven. From my long experience observing and studying the markets, I have found that they typically react negatively to any form of uncertainty! And, to my mind, any replacement of the revered Alan Greenspan, would be looked upon with a questioning eye by all national leaders and anyone concerned about the markets.

If I am correct, the uncertainty generated by any untested, new Fed chairman would at best cause the markets to pause if not decline. I believe that the bond market's initial sell-off was and should be the typical response. Then why would stocks, bonds, the dollar and gold instead simultaneously rise? To my mind, the only logical explanation would be a concerted market intervention effort.

I for one believe in free, uncontrolled markets. I also believe that our government recognizes the unwelcomed fashion in which the markets greeted both Paul Volker and Alan Greenspan upon their appointments as Fed chairmen. For this reason it seems likely that they would do their best to smooth the path for the January, 2006, Fed chairman transition. This truly would be to the benefit of all Americans. While I do not agree with this action, I do understand the reasoning behind it if this is indeed what is occurring. And, I am certain of their ability to execute these effects, at least in the short term.

But, why would they want a strong gold price? The answer is that they wouldn't! That to me is the most telling market performance produced by Dr. Bernanke's nomination!

I believe that gold's powerful, positive reaction indicates that a number of world governments and important market players also believe Bernanke. They realize that when he implements his stated actions the result will be an extended, substantial decline in the dollar's value. Further, I am convinced that the Fed's recent decision to withhold future changes in the broad measure of the U.S. money supply, M3, has confirmed that belief in the minds of many government and other influential leaders. Much has occurred in the four weeks since Ben Bernanke's nomination!

On November 10, the Fed announced that M3 is costly to produce and is no longer significant in determining our nation's monetary policy. They gave these as the reasons for its discontinuance effective on March 23, 2006. Additionally, they will simultaneously cease to publish future changes in Eurodollar and repurchase agreement balances.

I suspect that this statement was internationally viewed as a method for our nation to cloak a likely massive future explosion of U.S. dollar credits. Further, I believe that Dr. Bernanke's nomination and this announcement that shortly followed it, were the primary influences behind the recent strength of gold that quickly took it to a new Bull Market high. If my reasoning is sound, the stage is now set for an increasing number of important national and international dollar holders to begin moving into gold. As time passes, this will benefit not only gold and gold shares, but numerous commodities and other tangible items. This will be the result of a flight from the dollar into these investments!

I sincerely hope that doesn't come to pass. However, if Dr. Bernanke makes good on his word, he will likely go down in history as the Fed chairman who was responsible for creating the greatest flood of dollars, and the most damage to its domestic and international purchasing power in history. In this event, gold and gold related items will be the savior of the common man.

The above was excerpted from the December 2005 issue of Financial Insights © November 27, 2005.

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 558. Dec 5, 2005 11:30 AM

» Normxxx - Return of the Gold Bugs

The Return of the Gold Bugs

By Robert J. Samuelson, Newsweek | 5 December 2005

The run-up in prices above $500 an ounce seems driven by investors and speculators. Take your pick of which anxiety is likely motivating them.

Dec. 12, 2005 issue— The price of gold passed $500 an ounce last week, its highest level since the late 1980s. This is either an ominous development— or it isn't. You can make the case that higher gold prices (up 23 percent from 2004's average) warn of worsening inflation. Gold has long served as an inflation hedge, and when U.S. inflation reached double-digit levels in the late 1970s, gold hit a record high of about $850 in early 1980. But you can also argue that the present run-up has little to do with inflation and mostly reflects that old economic standby: the law of supply and demand.

It's precisely because gold has so much history that we still watch its price. In his illuminating book

<img align="left" src="http://images.amazon.com/images/P/0471003786.01._PIdp-schmooS,TopRight,7,-26_SCMZZZZZZZ_.jpg" border="0"> The Power of Gold : The History of an Obsession
by Peter L. Bernstein

he notes that "Egyptians were casting gold bars as money as early as 4000 B.C." Later in Europe, gold enabled kings to pay armies and bribe rivals. In 1511, Spain's King Ferdinand exhorted his conquistadors: "Get gold, humanely if possible, but at all hazards, get gold."

If you'd lived a century ago, gold would have been the basis of your money. Great Britain dominated the global gold standard; its currency, the pound, was freely convertible into gold. So were many other monies. In the United States, about $610 million of gold coin in 1900 constituted nearly 30 percent of America's currency. All the rest— paper notes and silver— could be exchanged freely for gold, notes economist Michael Bordo of Rutgers University. But the gold standard's very rigidity led to its collapse in the Great Depression. Too little gold fostered banking and currency crises

[Normxxx Here: periodically, as trade had to be sharply curtailed to fit the available 'money supply,' and severe recession or depression resulted. ]

On April 5, 1933, President Franklin D. Roosevelt ordered Americans to surrender their gold coin; the country effectively went on a paper-money standard.

[Normxxx Here: And, once we put the '30s depression behind us, we never had another severe recession/depression of the kind that was 'normal' in the 19th century. Even the inflationary disaster of the '70s was eventually contained with much less pain than the former depressions. Much to the chagrin ot the 'gold bugs.' ]

Even stripped of its [official] role as money, gold retains an economic mystique. About 85 percent of annual consumption goes for jewelry and, to a much lesser extent, other commercial uses, mainly electronics and dental work. But the recent price run-up seems driven by the remaining 15 percent: investors, speculators and hoarders. These include commodity funds, hedge funds and wealthy individuals. Especially in Asia and the Middle East, the rich hoard gold bars. In the first nine months of 2005, the investment and speculative demand for gold rose a perky 62 percent, reports the World Gold Council, an industry group.

Except for the belief that gold will go higher, just what motivates these buyers isn't clear. Take your pick of anxiety, says analyst Philip Newman of GFMS, a consulting firm: inflation, financial crisis, terrorism, general global disorder. Because holding gold can be an alternative to holding dollars, rising American inflation and a falling dollar on foreign-exchange markets are often cited as reasons for higher gold prices. But the dollar has recently strengthened on foreign-exchange markets, and the evidence of increasing inflation is thin. True, oil temporarily made it worse. But excluding erratic food and energy prices, inflation has remained at about 2.5 percent since early 2004. Perhaps gold buyers glimpse dangers not apparent in the statistics.

Or maybe the real culprit is true scarcity. Copper is now selling for about $2 a pound, up from about 70 cents four years ago. At $60 a barrel, oil has doubled since late 2003. In each case, global demand— influenced heavily by China and India— has squeezed available supplies. Gold could be the same. After the 1980 peak, gold prices went on a two-decade slide that bottomed in 2001 at an average of $271 [and as low as just under $250]. Low prices discouraged exploration and the opening of new mines. In 2004, global mine production dropped 5 percent or 128 metric tons, the largest absolute decline in 71 years, according to Newmont Mining Corp., the world's biggest gold producer.

Meanwhile, growing wealth in India, China and the Middle East has revived jewelry demand; that's up 12 percent this year after a 5 percent increase in 2004. Jewelry is often more than adornment; it's also a store of wealth. Consider India. "For thousands of years, [gold jewelry] has been a means of savings," says George Milling-Stanley of the World Gold Council. "Seventy percent or more of consumption is among the [Indian] rural population. They don't have access to banks, stocks or bonds. They don't trust government or paper currency."

Higher demand collides with constricted supplies; wham, prices rise. That stimulates more speculative demand, but it also enlarges supply by causing past investors in bars or jewelry to sell and take profits. Governments also have large gold stocks; their sales and purchases influence prices, too.

[Normxxx Here: Government stockpiles are enormous, relative to demand. They could bash the market in a day (and have, in the past). ]

Though new mines often require a decade to bring into production,

[Normxxx Here: But re-opening shut-in mines would only take months; the mine operators have played this game for three-quarters of a century, ]

supply could ultimately overtake demand. Or prosperity in India and China might multiply by many times the world's gold bugs. They may regard gold as a more trustworthy form of saving than any currency, even though gold investments don't pay interest or dividends. Whatever happens, the fears and anxieties that give gold its speculative appeal could intensify or dissipate. Gold is an unending mystery, because its value lies [not] in what it does for us (it is not like sugar, copper or oil) [but mostly] in what it symbolizes. It is almost as unfathomable as the human drama itself.

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 559. Dec 7, 2005 10:34 AM

» Normxxx - It's all nuts to me

It's all nuts to me, Mr Bush

By William Rees-Mogg, TheTimes | 7 December 2005

An elementary lesson in supply and demand, from the fruit of the palm to the soaring price in gold

MONEY IS ONLY a specialised form of barter. In the middle of the 19th century, Mademoiselle Zélie, a singer of Théâtre Lyrique in Paris, made a professional tour around the world and gave a concert in the Society Islands in French Polynesia. In exchange from an air from Norma and a few other songs, she was to receive a third part of the receipts.

“When counted, her share was found to consist of three pigs, 23 turkeys, 44 chickens, 5,000 coconuts, besides considerable quantities of bananas, lemons and oranges.” In Paris, these goods would have been worth about 4,000 francs, generous remuneration for half a dozen songs.

Mademoiselle Zélie’s experience was told and retold by 19th-century economists to illustrate the principle that currencies operate like any other form of exchange. What matters is relative scarcity; in her case the relative scarcity of popular songs and coconuts, in present day usage, the relative scarcity of different currencies, such as the dollar and the euro. Or, indeed, the relative scarcity of gold, the one definition of value that stands outside the fluctuations of national paper currencies. One could say that gold provides the coconuts of our monetary system.

On January 22, 2001, two days after George W. Bush was inaugurated as President of the United States, the price of gold was $265.90 an ounce. Last week the gold price broke through the $500 dollars an ounce level; that means the dollar has been devalued in terms of gold by almost 50 per cent in the four years and ten months of this presidency.

That does not reflect well on Gordon Brown, who as British Chancellor of the Exchequer sold a large part of Britain’s gold reserve at a price that was way below the present level. It reflects even worse on President Bush. He is ultimately responsible for the management of the dollar. It has halved its gold value on his watch.

The rise in the gold price does not come as a surprise. Many commentators, including myself, had forecast that gold would rise to these levels. My forecast was that gold would reach $500, and when it broke through $500 would move on towards $1,000 an ounce. It would now require a radical change in US financial policy to stabilise the dollar; I do not think such a change is at all likely. So far, President Bush has been very reliable as an agent of dollar devaluation.

There are technical reasons, both on the supply and demand side, that make it probable that the gold price will continue to rise. Yet it was not these technical market reasons that led some of us to forecast the higher price, but the underlying weakness of the financial policy of the United States.

Alan Greenspan, the retiring Chairman of the Federal Reserve Board, deserves his own considerable share of responsibility, all the more so because he saw the risks of combining large budget deficits with growing trade deficits and loose monetary conditions. That is a classic recipe for depreciating a currency. From time to time Alan Greenspan has sounded a warning; he has been willing to blow the whistle, but he has never been willing to pull on the brakes.

Last week, he made his farewell speech to the G7 finance ministers in London, and gave another belated warning. “If the pernicious drift towards fiscal instability in the United States and elsewhere is not arrested, and is compounded by a protectionist reversal of globalisation, the adjustment process could be quite painful for the world economy.”

The phrase “pernicious drift towards fiscal instability” is an amazing statement of any chairman of the Fed about any president, all the more extraordinary when it comes from as cautious a man as Alan Greenspan about a President whom he still serves. Incidentally, it applies just as much to Gordon Brown as to George Bush. “And elsewhere” refers to the “pernicious drift” in UK policy.

No doubt the fall of the dollar could have been matched by a rise in the euro; it is possible for people to switch between currencies, rather than into gold. But the euro itself is now a suspect currency. Many people doubt whether it will be possible for Italy to remain inside the euro straitjacket. Gold is better than the dollar, and better than the euro as well.

The rise in the gold price is a natural consequence of the inflationary fiscal and monetary policies of the United States. That has produced a very widespread inflation in the value of real assets, an inflation that is apparent in the global housing market, most of all in the British and American housing markets.

Gold is a natural alternative investment for the Asian countries, particularly China, India and Japan. These countries have a stronger tradition of investing in gold; their economies are growing much faster than those of the West. They already have more dollars than they really want. It has been probable for a long time that they would increasingly invest their surplus dollars in buying gold. That must make sense for them. Now there is far more private wealth in China and some of that is being invested in gold. Central banks may have a reason for supporting the dollar. Asian billionaires want profits.

One can go back to the basic logic of exchange markets, to Irving Fisher’s equation of exchange, or to Mademoiselle Zélie’s experience in Polynesia with coconuts. The US has created too many dollars; the twin US deficits are pumping out more of them all the time.

The wise still have gold, but the foolish, like our own Chancellor, sold most of it years ago. The age-old discipline of supply and demand leaves the dollar with only one way to go. Gold will continue to rise in value so long as the United States is at war, the US budget is in deficit, the US trade account is in deficit and George Bush is in the White House. You can bet 5,000 coconuts on that.

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 560. Dec 7, 2005 5:21 PM

» gadget767 - Re: Another Gold Opinion

In response to Another Gold Opinion posted by Normxxx:

"My highest target is at $525, and it's more likely gold will top out well below that, somewhere between $500 and $525— probably just over $500— or whenever the gold bugs decide it's clear sailing to $1000 or higher. This top over $500 in gold— wherever it comes— should be the end of the line, and gold will come way back down in 2006 as the bond markets start to soar."

So Norm....now that gold hit $520 or so, are you out? Just curious.

-- posted by gadget767