Tuesday, September 6, 2011

Late-August Update

Sorry for the delay in getting this meager update out, I had meant to have this out at the end of August. We enjoyed a busy summer vacation and are happy to have the older children back in school.

Here are some interesting articles, and points about the gold/silver market.


First off is a short clip which accurately explains why gold is not in a
bubble, not even close! I have used many articles that talk about gold, as
what relates to gold most always also relates to silver. In some cases even more so, both are monetary metals, however the situation in silver is even more acute
through the depletion of world inventories because of the industrial uses of
silver (the 2nd most used commodity with over 10,000 uses) so that it is now
even more 'rare' than gold!  It is a smaller market (market capitalization),
there is more commercial bank short selling concentration in silver than
gold. We are still in the very early innings of the precious metals bull
market. But as we experienced in May this year, it's not going to be a one
way street, plenty of volatility.

So here is the video link CLICK HERE

GOLD/SILVER --the physical scramble begins

Gold has been the story for August, Chavez has formally requested his 211
tons be brought to Venezuela from the U.K. setting off a scramble for the
physical. At the same time he is moving his countries cash to Russia, China
and Brazil. --this is a similar step that Iran took years ago. CLICK HERE

Remember at the CFTC hearings (march 25th 2010) Jeffery Christian testified when being questioned by Chairman Gensler that there is about100 paper claims/trades for every 1 oz of physical.  If you've never seen this clip, the whole piece is good, but the part about the ratio 100-1 is at the end, start around the 4min mark.

Chavez is also nationalizing his countries gold mines. China has already done this to an extent, as they are buying up all the locally mined gold (under market prices).
Kazakhstan is also giving it's central bank preferential buying power from
it's countries mined gold. CLICK HERE

I believe a very important change has occurred in the metals markets, particularly the silver/gold, while all other equity markets and commodities were crashing these held steady to higher, taking on the role of 'currency' as they should. --a trend that is likely to strengthen.


Meanwhile on the currency front the world's 'safe haven' currencies (Yen/Swiss Franc) are sick and tired of taking the brunt of the rest of the worlds governments orchestrated devaluations. Everyone wants to try and export their economies out of problems, Obama's stated he wanted to double exports in 5 years, the only way to really do that in such a quick time frame is by devaluing the currency "even the playing field". The problem is everyone can't do it as the same time.

The Japanese implemented their a solo intervention of $55 billion since the G20 intervention (aka devaluation attempt) after the March 11th disaster, allowing many multinational Japanese corporations to unload their foreign earnings for more yen,  this helped for only about a week, as you can see from this chart below

As that only lasted a week they set up a new $100 billion dollar facility CLICK HERE for the express purpose of devaluing the yen, it will take some time (and perhaps a Japanese Government funding crisis) to effectually devalue the yen, but running the printing presses (and their electronic equivalents) will eventually do it. --The race to the bottom continues. or should I say 'easing' CLICK HERE On that note I have to wonder if the Japanese Government went out of their way to get a downgrade from Moody's rating agency, the same agency that wouldn't downgrade the U.S. recently.

Here is a great picture putting the unsustainable U.S. debt into perspective for the average Joe

Anyway back to currency's the Swiss have intervened, threatened to peg to the euro, put negative rates on deposit, where is a investor supposed to go now when no one wants to have a strong currency?

Th FED is trying to fill to fill the bath tub with the faucet while the drain is open. People deleveraging, paying down debt removes money in circulation (m3 through fractional reserve banking) is the drain unplugged in the tub, and the FED increasing the money supply (QE, QE2 and the most recent promise to keep interest rates low for 2 years etc)  is adding money to the system from the faucet. If the FED did not do this then there would be a collapse, as only through continuously adding more debt to the economy does it enable growth and repayment of the formerly created debt. -- a true ponzi scheme.

Other articles;

Former FED chairman Greenspan, correctly states that the U.S. can never
technically default as the "U.S. Can Pay Any Debt It Has Because We Can
Always Print Money" http://www.youtube.com/watch?v=fbI_6m75wZU

Greenspan's gold is not a bubble (scroll down to the end of this article)
Greenspan began his work with a very different frame of mind towards gold,
here is a link to his past article explaining freedom and gold. http://www.usagold.com/gildedopinion/greenspan.html

Obama's approval ratings are down, 'job creation' has grounded to a halt in
the U.S. The FED has promised 2 years of low rates, once again hurting the
savers and protecting borrowers. The FED will have a 2 day meeting coming up
in mid-September to discuss the tools to use to get the U.S. Economy growing
again. Some say they will announce QE3, others say that they may change to zero
the .25% interest they currently pay on Bank Reserves held at the FED,
'forcing' banks to look for yield, thereby unleashing bank credit through
fractional reserve lending. Others say we may have higher explicit inflation targeting.

Here is a good articles that explains the upcoming expansion of US bank credit

The Euro zone has two main sources of problems; 1. the resistance (riots etc) to
the 'austerity measures' by the would be recipients of the ;bail outs; in
(PIIGS Portugal Ireland, Italy, Greece & Spain) and 2. the resistance to the
assistance (bail outs/money printing) given by the creditor nations'
populations, particularly Germany the most important in this equation. Next
week the German constitutional court plans to rule on whether German
participation in the EFSF (bail outs) is legal. This could have huge
ramifications. One must remember though that the Euro was created as a political tool to unite a fractious warring continent, that is first and foremost in the minds of the Euro politicians, thus saving the Euro is very important, but as it is currently set up, it is set up for failure.

Recently Finland demanded some collateral for it's participation in the next bailout of Greece and now many other countries are scrambling/threatening to demand collateral, and Greek/Italian/Spanish Gold is in the conversation, although of course they haven't been willing to give over at these prices. But of course all of these countries will be solvent when Gold is re-valued in the future.

Here are a couple of articles;

Finland, where the anti-European True Finns party scored well in recent
elections, has demanded that Athens put up collateral against the Finnish
share of the latest loan.

German Chancellor Angela Merkel no longer has enough coalition votes in the
Bundestag to secure backing for Europe's revamped rescue machinery,
threatening a constitutional crisis in Germany and a fresh eruption of the
euro debt saga.

Criticism of Angela Merkel is nothing new. This week, though, it was
ex-Chancellor Helmut Kohl who found sharp words for his erstwhile protégé.
With her foreign minister also under fire, things are not looking good for
Merkel in upcoming state elections.

Germany fires cannon shot across Europe's bows. German President Christian
Wulff has accused the European Central Bank of violating its treaty mandate
with the mass purchase of southern European bonds.

And I'll leave you with a video by Jim Rickards, one of my favorite analysts

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