Friday, June 24, 2011

June Update

Historically the summer months have been quiet in the Precious Metals markets, but this is no ordinary summer, a loss of confidence, a 'black swan' event, could easily trump the expected seasonality of the metals, and send it off, time will tell.

I know that some bought near the recent high of $50, (most well below $30) if I had a crystal ball I would have suggested waiting, which is why I when I am asked about near term price action, I always point to the long term picture, as that is clear, the fundamentals of supply/demand are clear, the short term anything is possible, especially in a manipulated leveraged paper market. Some recently said to me 'I hope the market moves the way you want',  I do want and expect the price to go up, however honestly I am happy for an extended period below the nominal high of $50, as I hope to be able accumulate more, and help as many others to do the same.

Thus for me the plan, is still the same, continue to accumulate precious metals that will be revalued many multiples higher in the future.

Fundamentally nothing has changed, we are now only circling the proverbial toilet drain faster, with turmoil in the middle east, Europe's debt problems leading to riots and protests, debt ceiling limits reached in the U.S., and the end of the FED's money printing program QE2 (ending June 30th), it should make for a very hot summer.

Re: QE I have no doubt there will be QE3, it'll come, but it’s a matter of timing at this point, if/when the world markets tank then nearly everyone will clamor for more printing,

There are also many articles out there explaining how the present balance sheet of the FED is so huge (nearly 3 trillion USD) that just reinvesting the maturing debt back into the market will be another form of QE, AND they can re-arrange their portfolio, by changing the debt maturity levels at any time, for example if the 10 year note gets out of hand (rising interest rates) they can move specially into that one, at the expense of the 30 year, etc.

Anyway as the 'beauty' pageant for the ugliest fiat currency continues, the EURO has taken the lead, and many are pulling out of that fiat currency favoring a higher dollar, but the smart ones and going to Precious Metals;

Gold has made new Highs this last month priced in both the U.K. Sterling and the EURO;

(GBP Chart)

(Euro Chart)

I full expect a new EURO to be born out of this crisis, one based, at least partially, on tangibles; gold/silver/oil/grains etc.

I also expect that Greece will default (after that maybe Portugal, Spain, and Ireland), and go the way of Iceland (just say no to repayment) and perhaps reinstate the drachma (which they can then devalue against other currencies and climb their way out).

There comes a point where if the ECB prints too many Euro's (to 'help' the PIIGS Portugal, Ireland, Italy, Greece & Spain) that the very integrity of the EURO is questioned,

Unless they use the 'golden bullet' and re-price the gold they hold reserves at much higher multiples. --a step was made recently moving Gold from Tier 3 Capital (50% discount) to Tier 1 Capital see here for details, this would have a huge impact on Gold/Silver
But the Paper Precious Metal markets are full of counter party risk, and at the end of the day what a central bank has in it's vaults may not be the central banks.  A prime example ---The Belgian Bank admits 41% of reserves lent out

S&P restates political threat to U.S. AAA Rating (dollar negative/PM (Precious metal positive).

There are many who say that when the silver price was rising earlier this year, that futures contracts where settled in cash, some at 30% premium over spot.

All the while silver inventory available at the COMEX continues to leave their depositories.

The commercial shorts added about 1500 contracts to their 'presold' ledger according to the June Bank Participation report (as of June 10th), however non-U.S. bank went from short 3,600 in May to long 66 in June, which is positive. The Bank Participation report when released gives the clearest view of the market positions as it is up-to-date when released, the weekly Commitment of traders report released every Friday, only gives a snap shot of Tuesday--Tuesday action. COT reports after the June 10th Bank participation report continued to show liquidation by the commercials, but as explained in previous posts they want to do this on falling prices, at all costs (literally!).

Here is the June Bank Participation Graph;

Here is the 'days to cover' chart;

Asians & other Creditor Nations continue to accumulate precious metals;

(Russian Central Bank)

China has to issue more gold/silver coins to meet continued strong demand;

India imports of gold/silver soar 222%

Vietnam is worlds 2nd Largest gold hoarder;

Frank Holmes Discussing Gold & Oil -the Fear and the Love trade

-Fear trade; Negative real interest rates, deficit spending, political policy fighting deflation

-The Love trade, Asians give gold as gifts and many of these nations were not around in the 1980's market, and the worlds population has doubled since then.

-Central Banks will continue to be buyers, and with Basel 3 capital requirements being implemented in the Fall, gold will no longer held on their balance sheets at a 50% discount to market value, making it more attractive to hold.

On the regulatory front; CFTC's Gary Gensler says 'public not protected'

Dive in Silver Price a 'set up' says Sprott

On this note, one must realize that fiat money has it's own 'market' characteristics as well, based on supply and demand, and events as seen in the May silver 'Crash' when the CME raised margin requirements over and over, or the FED ending QE2, they in essence created a demand for cash, and squeezed leveraged paper participants. Being able to take advantage of any drops in price would be ideal, the flip side to having 'attack capital' available, is that when the S***T hits the fan, you'll have some fiat money that will be late (maybe too late) for the inevitable take off of Precious Metals. -At this point I am conflicted as many probably are, I have to keep some in fiat for this and other business going, taking stock of your own plan and re-evaluating every now and then is probably the only way to go. Savings I feel differently about.

Why anyone would want to trust their savings, storing their purchasing power in the USD (or other fiat currencies), controlled by the FED (or other centrally planned/issued currency) is beyond me,

10:20 minutes into Ben Bernanke's most recent conference

he said "We don't have a precise read on why this slower pace of growth is persisting."

he should know;

I tend to agree with Peter, he's trying to save the debtor's by debasing the currency in which their debt is denominated, he's said they want at least 2% inflation, do some compounding math on 2% per year, and you'll find it doesn't take too long take to take the value of something to 0!

What's a guy to do?

Well you can buy the EURO, just buy the right type, we have the Philharmonic which is the 2nd most purchased coin worldwide available right now.

How's that for a shameless plug?  ---But really, I don't care where you get it, just continue to get some when you can.

Have a good summer.

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