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The Weekly Bullion Report

bullionfk · 25 · 5971

bullionfk

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on: Jul 21, 2011, 11:31 AM
Gold set a new record high this week, and as this market and other precious metals move higher, it tends to bring a lot of the critics out of the woodwork. The words bubble and overbought become linked to the markets in news headlines. There are probably plenty of analysts who are eager to be the ones to call a reversal in these markets, but I am here to remind you of all the things that are likely to support gold and silver in the coming months.


Past performance is not indicative of future results.
***chart courtesy of Gecko Software

The first thing to keep in mind is that gold and silver are far from being tarnished in the eyes of investors. Any reason for a strong sell off goes out the window when you take a look at the strong domestic and international demand for precious metals since 2008. The economic collapse and a lack of significant recovery have helped remind investors why metals are an option. They cannot be manipulated or undermined by one central bank or nation’s actions. Growth in investment demand was led by the explosion in ETF participation and is currently being fueled by expansion in China and India. The growth in developing industrial nations was sparked by disposable incomes allowing people to buy more jewelry – now it is led by people looking for a place to invest for asset preservation.

The growing middle class in both areas has been picking up the demand slack any time there is a significant pulling of interest from Europe or the US. The quarterly reports from the World Gold Council have shown that in action whenever ETF positions are pulled, or other holdings liquidated. What’s interesting is the current debt wrangling on both sides of the Atlantic, and how that might propel western and eastern alike into haven holdings. That is where precious metals markets are likely to find the next layer of support.

It used to be that the euro and US dollar were in a seesaw way with each other, one rising while the other fell. Since gold and silver are priced in US dollars, its strength spelled precious metal weakness. The debt contagion in the European Union and the debt ceiling issue in the US have spelled out one thing in big letters to all investors – there are no guaranteed winners in this situation. Both currencies are weakened and both areas are struggling with the burden of trying to balance inflation fears with the risk of stunting recovery. The European Central Bank opted to raise interest rates modestly (and the Federal Reserve may do the same), but there are no guarantees as members are still toying with the idea of additional stimulus. That means the potential for another round of quantitative easing will be on investor’s minds, propelling them towards the one hard currency they see – gold.

And inflation risks? They are definitely another potential supportive catalyst for price movements higher. China and India are already waging a battle with price increases, and that makes precious metals attractive there as a potential inflationary hedge. In the US, I can only imagine how gold and silver prices would react if the Fed felt moved to more stimulus. It might make $1,600 an ounce look like a value buy.

Think that sounds crazy? Even central banks have been reluctant to sell their gold as of late, with big names like Russia becoming net buyers. Even if you are among the faction who believes gold is just a simple commodity being pushed and pulled with the force of speculative interest, you have to acknowledge that supply and demand fundamentals present another potential layer of support. There are only so many mines at present, and it is not likely that a huge strike will be found to flood us with fresh supplies. Such discoveries certainly undermined the price of gold and silver in the past, but I don’t see that being a current threat. A genuine supply boost would come if a bank or other major holder decided to sell. Most of the big players agreed not to either by direct signature or association with the Central Bank Gold Agreement which caps gold sales. But as I see it, a big bank deciding to sell at this juncture wouldn’t be a big bear flag. Any reason to liquidate gold right now would probably be motivated by a push to raise money, and that kind of signal would underscore a bigger financial issue. Just like the debt problems, a fire sale on precious metals reserves would probably just add fear premium to the markets

Summary

There will probably be a genuine round of profit taking with every step higher in gold and silver prices. When these markets break fresh psychological price thresholds, there is always a reason to shake some longs loose. The real support for these markets comes from the intrinsic value that investors are seeing despite those dips lower. For every seller at these prices another buyer appears. With so much financial chaos in the air, I see no reason why gold and silver can’t reach for loftier heights.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #1 on: Jul 28, 2011, 10:35 AM
Big power and big responsibilities are nothing new for government. They are invested with the responsibilities to keep the engines in the machine running, and when they stall out, they need to kick start things again. Since the financial meltdown began circa 2008, there have been efforts to light a fire under the global economy. Unfortunately, it doesn’t seem to be getting us anything but more debt, debasement, and a whopping financial mess.


Past performance is not indicative of future results.
***chart courtesy of Gecko Software

Debasement isn’t an old trick. Emperors and kings used to do it with metal coins. Melt down gold and silver coins, add another cheaper metal like copper, and make fresh coins and more of them. Romans did it. The Tudor dynasty in England did it. Henry the Eighth was even known as Old Coppernose because the silver would wear off the high points on his coin – specifically his nose – revealing the base metal underneath. The reasoning behind the debasement of coinage was simple – it made more money. It made money for England to fight wars in Scotland and France just as it had made Rome more coin to fight wars or in times of uncertainty centuries earlier.

The weakening of gold and silver coins could have happened all at once or slowly depending on the condition of the country in question. The perversion of the precious metal coins was often linked to the financial well-being or strength of the nation. It could also depend on how limited the access was to metals, but seems to be inexorably linked to problems with state finances. Sound familiar?

Right now, several western nations are battling their own financial weaknesses. The slowdown in global growth took a big chunk out of the gross domestic product for many nations. That threw balance sheets into turmoil. The fat years spoiled us for the lean ones, and now everyone is trying to get things to tally correctly. Only it has become even more difficult since they are trying to wrestle other financial demons besides debt namely the inflation that comes on the heels of currency debasement.

The problem stems from so many banks adding more money to the system with multiple efforts at stimulus. Paper currencies have become devalued and that is leading the inflation charge. Central banks would normally implement a series of interest rate increases to try to control it, but that comes with its own risks. The low interest rates set by many banks at present are seen as a lynchpin for recovery. Raise them and you risk the whole thing coming down. Leave them as they are and consumers feel additional pain at the gas pump and the grocery store. Consumers who have to shell out more for life’s basics are potentially going to keep a steady hold of the savings they can, which can also unravel the pseudo-recovery. Throw in prolonged unemployment, underemployment, and just plain insecure employment, and you have a laundry list of things that can keep retail and home sales in check.

Summary

It was bad enough to know how little precious metal actually backed the US dollar and other foreign currencies. Now, the fallout from the credit crisis and housing disasters has led to a larger flood of additional funding from governments trying to re-ignite economic growth. To top it off, the current debt problems might amount to those currencies amounting to lots of money with nothing but vapors behind every piece of paper. If the credit ratings start to come down (or continue to be lowered, in the case of a few places in Europe) then then there is every reason to believe the US dollar will be devalued again. The bad news for investors is that there appears to be fewer places to perform a flight to quality. Precious metals are becoming more than just a port in the storm. Gold and silver are starting to look like the final place where people can aim to find some kind of asset preservation as all the old rules are broken. Bullion is serving as a potential inflation hedge following extreme currency debasement. It is also offering a hard alternative while so many nations come undone at the seams and fight to balance their ledgers. Gold has hit fresh highs, and doesn’t seem to be offering any signs of stopping, save a few profit takers here and there. Are gold and silver the alternative investments right now? You better believe it. Unlike the ancient ages of empires and kings, today’s precious metals markets can’t be melted down and debased as easily as other things can, making them all the more valuable in the current mess.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #2 on: Aug 04, 2011, 11:28 AM
It would be hard to pull a spotlight away from the debt issues in the US. Deals, credit ratings and financial shuffling are dominating the headlines. Will the big names in ratings wreck our reputation? It seems likely at this point, and that is helping drive another push in precious metals. Gold and silver are looking like attractive places for investors to wait out the storm even as they make fresh highs.

Past performance is not indicative of future results.
***chart courtesy of Gecko Software

Gold and silver have both been moving towards new high prices. Talk of financial weakness across the globe boosted the markets. Debt issues have supported them. Inflation concerns are driving them onwards. So where are things headed now?

There isn’t really an example of this kind of thing in market history. Sure, the recession has been so deep and long so far that it has frequently drawn comparisons to the Great Depression but there are a couple of key points that keep investors guessing. For starters, the monetary policies are a lot different now than they were in the early part of the twentieth century, so the moves from the Federal Reserve will have a different impact.

The other consideration is the true global marketplace. Imports and exports flowed at other points in history, but now everything seems so deeply linked. US exports are strongly dependant on the demands of China and other developing nations. Canada’s fiscal wellbeing is tied tightly to their neighbors to the south. The European Union leaves strong centers like Germany towing the line for weaker nations like Greece, Ireland, and Portugal. Damage to one financial sphere bleeds into the others and ups the risk for financial contagion.

The markets seem like a shell game of finding the best of the worst, and right now no one is sure who is winning things. One thing is clear, there is a strong push into precious metals even at higher prices. Many dealers are reporting strong sales ahead of the pivotal festival season in India. Normally, that market is seen as a big tell for gold. If buyers in India shy away from metals during this time, it is viewed as a possible signal of an overpriced market.

Prior to the collapse of the housing market and the economic smackdown of 2008, a lot of the growth analysis for investing in commodities was pointed squarely at India and China. That has not changed much. Both nations are deeply entangled in the demand side of the equation and now they have substantial inflation issues to reckon with. It definitely shifts the driver for their internal demand, but not the course they are traveling on.

The swelling ranks of the well-to-do middle classes were the circa 2006 rationale for increased demand from China and India. Every profitable industry with new workers with disposable incomes was cited as a potential catalyst for increased gold and silver (and even platinum) jewelry purchases. Now the arguments shift to the struggle for people to hedge against rising prices. Higher crop values also give some rural farmers the financial means to buy metals to try to store wealth. The latest demand report from the World Gold Council suggests that the growth in developing nations has been strong.

Despite high prices, even heavy hitters like banks have taken a shine to precious metals. South Korea’s Bank of Korea is the latest in a line of central banks to become net buyers of bullion. In the past two months, the bank has added 25 metric tons to their reserve as they diversify their holdings. This move is the first foray into gold purchases in about 13 years. This kind of move at these high prices makes a strong statement.

Summary

Debt problems and a resulting tarnish on the credit rating are a foregone conclusion. It isn’t out of the question that gold and silver prices might dip as investors digest each compromise and look for a positive spin on the situation. The thing to be aware of is the taint each currency now carries, the potential threat of delayed recovery and more stress on the global marketplace. Investors are going to need some pretty substantial evidence to support a sustained rally in equities or other markets. All the old rules seem to have been thrown out the window with the housing crisis. That has brought the even older demand for precious metals back from quaint retirement, and I see no reason to shelve either of them just yet.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #3 on: Aug 11, 2011, 10:31 AM
Gold keeps marching higher and breaking new ground. Fresh market highs have been built on the back of unprecedented fears and credit issues worldwide. Investors have been seeking out places to try to preserve their wealth while the chaos unfolds, but where is silver in all of this? Normally the precious metals markets can hope to ride the wave together, but silver has been a laggard. Why isn’t the silver market feeding off the same enthusiasm as gold, and where is it headed from here?


Past performance is not indicative of future results.
***chart courtesy of Gecko Software


Alternative investments have held onto some level of luster for the average investor as the debt crisis unfolds. The trouble with most of the markets traditionally been viewed as havens is that a lot of uncertainty follows them. There are genuine fears of “bubbles” or “overbought” situations. Basically, all the old rules have been thrown out the window and people are concerned that there are inherent weaknesses to some markets. Gold is able to propel itself forward on centuries of positive hard currency vibes. In an environment where key paper currencies are failing or looking pretty weak, gold gets that community of investors looking for a “safe haven”. Silver is not immediately thought of during moments like this. Unfortunately, the strong sell off in the market this spring seems to be a yellow flag right now. However, I think that is likely to change in the days and weeks to come.

Yes, silver sold off hard following a move to fresh highs earlier this year. That doesn’t mean that investors will stay gun-shy of this market forever. In previous precious metal rallies, gold has usually led the pack in strong moves higher. The catalysts for this latest run at historic highs are not going to be swept away easily. The rally that preceded the sharp correction in the spring was motivated by the debt fears spreading in Europe. At that time, there were plenty of other strong members of the European Union to bolster weaker neighbors. Now there is a debt contagion that is spreading to some of the biggest names in the Western World. The Standard and Poor’s downgrade of the US could just be the beginning of a mess that leaves many superpowers tarnished.  Investors are going to be looking for places to stash money while central banks scramble to find fresh ideas to deal with the mess.

One of those places will likely continue to be gold. The other place will be silver. I think this market is just starting to see renewed interest. There are a few things that silver has going for it that will help support moves higher.

The first is that its relative price per ounce makes it a viable option for industrial applications. Silver finds its way into plenty of manufactured goods and electronics. Computers, cell phones, and, more recently, solar cells all potentially call for silver in varying quantities. Even the field of medicine has applications for the anti-microbial properties of silver. That means demand falls into two categories: investment demand when the global economy fails and manufacturing demand when things are going well and people are making and buying things. Gold and platinum group metals also have a place in manufactured goods, but not to the apparent extent that silver can at a comparable bargain price.

Ounce per ounce, silver is cheap compared to the other metals in the sector. That is what makes the second point that I think will bring buyers into this market. At these price levels, gold is seen as out of some investor comfort levels or leagues. Silver offers an attractive entry price play into precious metals markets, moving assets away from things that might be riskier in the current chaotic mess of credit rating downgrades and overwhelming debt issues.

The third factor is the demand for silver in developing nations, fueled partly by interest that spreads to the metal when gold rises in price, and also from concerns over the inherent weakness of the US dollar. Dramatic price inflation in China and India also help drive physical demand for gold AND silver in many areas as alternatives to try to hedge against the issue.
 
Summary

Right now silver may not be making fresh highs at the same rate as gold. It might not steal the whole spotlight, and it can slip with the same profit taking that all markets see when significant gains are made. However, silver has significant potential to see further gains on this most recent spike in market volatility and investor fears. While the world waits to see how central banks will react to the situation in the US, investors are trying to find bargains out there, and it is not out of the question to imagine that many of them will find a place to roost in the silver markets.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #4 on: Aug 18, 2011, 10:22 AM
I have said it before - it always feels like analysts are looking to call a top in the gold market each time it reaches new heights. This latest stab at fresh highs is no exception. With so many fundamental and technical analysts looking for the potential for exit signs, I am here to remind you that there is plenty of support that I think makes calling a top a bit premature right now.



Past performance is not indicative of future results.
***chart courtesy of Gecko Software

Gold has been on the move since the housing market collapsed and the domestic economy went to pot. Throw in a little global slowdown, and there was a recipe for the first few price spikes above $800 an ounce. What stopped it in 2009 was a heavy combination of stimulus from banks and governments which helped bring hope and enthusiasm for potential recovery. Fast forward a couple of years and now the global investment sphere has the same troubles AND a giant hole of debt contagion that they are trying to fill with hot air. Where is the recovery?

A patchwork of problems that are just starting to come to light have helped gold march higher since that strong sell off. Investors fear that there are still too many questions and not enough answers, so why would people be trying to forecast a top in gold? The interesting thing is how widely varied the top dollar values really are.

At the end of 2010, George Soros was among those calling a top in gold, or at least a dubbing it a “bubble”. A member of Deutsche Bank echoed what Soros said about the price movement being rational at the beginning. He argued that it made sense with gold being a hedge against inflation stemming from quantitative easing. He suggested that gold could get to $1,450 in 2011 and up to $1,600 in 2012, but above $1,800 might be bubble territory. The caveat to this forecast was the examination of the fundamentals – would the world still be grappling with debt issues? Well, gold exceeded his forecast and the debt problems are still lingering on. (1)

Goldcorp’s CEO thought $1,700 was a reasonable price forecast for 2011. Other websites tout a move towards $4,000 and beyond. Will it be the collapse of fiat money or a sudden spike on hyperinflation? The trouble with all price forecasts that are looking for the upper limit in gold is that they are relying on data in gold’s past. Right now, the issues facing the global marketplace are unprecedented.

The Great Depression is about the only thing that people try to use to parallel the current events. There might be similarities in unemployment issues, but the world is a different place, and the kinds of goods and services and the sheer number of people across the world make it a new can of worms. Many developed nations rely heavily on services rather than goods for the bulk of their GDP. When confidence and a certain amount of disposable income disappeared with the housing market collapse, so did a good many of those jobs. I look at it this way: everyone was feeding off the fatted calf that was the housing market. There were construction companies, new residential builders, mortgage brokers, and all kinds of satellite jobs linked to housing that when things went south - a vacuum remained. There is nothing to really take the place of those jobs that were lost. I think the failure of the stimulus to create jobs is a testament to that. All the money that was created in two rounds of quantitative easing was sucked into that vacuum and all we are left with is a tattered US dollar. That is what continues to drive people into the gold market, and that is why there is little that officials can do about the debt problems on either side of the Atlantic. We can shuffle things around for only so long before someone notices that we are just moving chips around - not really gaining new ones.

Summary

Is gold ready for another sell-off? Maybe some light profit taking, but Europe’s latest round of woes will likely drive in more bargain hunters. Is there a ceiling at $1,800? I don’t see one. Whether you subscribe to the forecasts that suggest a potential bubble or you believe that inflation will continue to drive gold into the thousands of dollars per ounce level, the one things I see right now is a whole lot of problems and no solutions. That is just about the best fundamental and psychological support that this market can hope for with each price move higher.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #5 on: Aug 26, 2011, 11:09 AM
All the financial uncertainty swirling around the debt crises here and abroad have helped precious metals pull new price levels. Gold and silver have both broken out to high territory, with gold adding fresh high after fresh high. As the gold market piles on the new price records, it is worth reflecting on the milestones it is leaving behind.


Past performance is not indicative of future results.
***chart courtesy of Gecko Software

In the last issue, I looked at some of the potential high prices that people are looking for in gold. It feels like gold has been hurdling over more price forecasts set since 2008, when the financial crisis first began. There have been plenty of lows, too, but the levels reached in the 1990s (prior to the Central Bank Gold Agreement) look so far away at this point.

The high price milestones are varied, representing previous highs or psychological levels. The first big price hurdle presented itself around $850 per troy ounce. This was the spot (about $1,000 dollars ago) that the metal hit in 1980 following a mix of price inflation and geopolitical tensions centered on Soviet activity in Afghanistan. By 1999, gold was down to lows in the $200s on a confluence of rumors that central banks were going to sell their gold reserves. Fast forward a few years and gold was on its way higher ahead of US actions in the Middle East. Propelled on by a renewal of global uncertainty, it wasn’t long before gold was at the precipice of fresh decade highs again.

That key level of $850 was reached and beached at the beginning of 2008. The financial meltdown lit a fire under gold that has persisted through round after round of stimulus, recovery talk, and various ups and downs. By mid-March 2008, gold topped the key round number of $1,000 per troy ounce. The trading range built on the back of uncertainty in the equity markets was unprecedented. One day in September brought a $90 per ounce rise in spot gold prices. By October, it would revisit the high-$600s before jetting off again in subsequent months.

What fuels the movements for each new record? There seems to be a bottomless basket of things that have helped drive interest in gold. Inflation fears stemming from each fresh round of Federal Reserve quantitative easing; uncertainty in other investments; parking assets to protect against the debt issues in developed nations – a litany of things that have spurred interest in gold and silver alike (although to date, gold appears to have been the larger beneficiary). The traditional items that first moved the market over $850 an ounce haven’t disappeared either. Political tensions in the Middle East and uncertainty about the likelihood of global recovery appear to add a floor every time there are pundits calling for a top in the market.

Summary

There is no shortage of analysts trying to find weakness in the gold market or looking to shout, “Bubble!” with each new price point that is penetrated. The funny thing is there is still no shortage of people who think there is room for more records in gold. A recent informal poll/survey posted on the Wall Street Journal’s website (http://online.wsj.com/com...o-per?commentid=2950290) showed an underwhelming percentage of respondents thought gold had “topped out now” – only 13.6 percent as of the date I wrote this. Just over 19 percent saw $2,000 as the high target. 21.3 percent were aiming for $2,500, and the clear favorite was the simple answer to the question, “how high can gold go per troy ounce?” – “Higher,” said more than 46 percent of folks who participated. The message that even an unscientific poll on the internet shows is clear – the upside is apparently as expansive as ever. Like oil’s broad march over and above $100 per barrel, there seems to be a force that is seizing on the uncertainty gripping the average investor to help them overcome any fears or concerns with each high price point. Retracements are possible, profit taking is highly plausible, but there doesn’t seem to be a truly insurmountable price record for this market. Adding more fuel to the fire are rumors that are starting to build about possible continuing intervention from the Federal Reserve. Even though members were adamant that there would be no more bouts of quantitative easing, markets are looking at the possibility, which helps support prices further.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #6 on: Sep 01, 2011, 12:04 PM
No matter what the fundamental and technical picture in gold, there always seems to be a nod towards outside analysis. Big names in the investment world are watched, their actions and opinions on the precious metals market weighed separately as potential indicators. Just like central banks, their comings and goings from these markets can bring a lot of potential influence. Right or wrong, here is a small overview of name dropping in the world of gold and silver.



Past performance is not indicative of future results.
***chart courtesy of Gecko Software

I recently read a little note on investing that mentioned days before electronic trading when people always wanted to know what the floor traders were up to. That kind of search for information still proliferates news outlets even today. There is an intense level of scrutiny that some of the biggest names fall under as investors look for probable cues regarding their particular market view. Are they bullish or bearish? What are they seeing in charts that the rest of us might miss? Do they have a cadre of analysts who can seek out minute details and research that could put them ahead of the curve? There is no end to the kind of sifting through opinions that might occur when the name being dropped is big enough.

Probably the first name that comes to mind in recent news for gold is George Soros. He removed a large stake in SPDR Gold Trust in the second quarter of this year, along with Eric Mindich. Soros Fund Management LLC’s holdings in the “exchange-traded product” went from 49,400 shares to just over 42,000. Mindich’s Eton Park Capital Management LP went from 2.328 million to 813,000. John Paulson kept his stake, which totaled about 31 and a half million shares. (1)

When news broke about Soros exiting, there was a definite negative, even bearish turn, despite the fact that several fresh high prices for gold were just around the corner. Nothing had fundamentally changed about the bullion market, but the lack of continued maintenance of a position from a big name was enough to change the demand-scape for some investors.

Another big name that has occasionally shed a negative light on gold is Warren Buffett, arguably one of the bigger names in investing. He has been quoted as saying that gold buying is a waste of time because it doesn’t produce anything. If he did say that, and I don’t have a direct quote for it, he is missing the idea that has been driving people into gold since the recession began. Gold doesn’t fall under the same follies as other stocks or related investments. It hinges on other sets of demand functions, and is often viewed as a haven because it isn’t as deeply tied to manufacturing as a metal like platinum or weighed down with internal policies like foreign currencies. These are the things that have made gold, and to a certain extent silver, attractive to other investors. They aren’t looking to make money on interest payments; they are trying to find something in the financial chaos to try to protect their assets and money they have already made.

Other investors know this; among them is Phil Streible, a market strategist who has often been quoted with higher price forecasts for gold and silver. Ed Yardeni, the president and chief investment strategist for his own research firm said, “Gold is a great hedge against out-of-control governments and their reckless fiscal and monetary policies.” Dennis Gartman of The Gartman Letter called gold, “The world’s third most popular reserve currency behind the greenback and the euro.” Both Gartman and Yardeni cautioned against potential corrections in gold’s price in recent high moves but coupled it with kind words compared to Buffett’s possible bias.

I would be remiss if I left out one big name associated with investing. Jim Rogers is the name you will often hear in the commodity world. His bullish view on things like agriculture and gold are well-known, and hold few surprises for most people. He recently mentioned to reporters for the Economic Times of India that he saw gold prices going higher. (2)

Summary

All investing carries a risk of loss, and for many of these big names a slam dunk is never a guarantee. They are fallible and make mistakes just as easily as the rest of traders. That’s the key thing to remember every time an analyst or news network drops a big name in the middle of a report on gold or silver. That kind of reporting could probably be reserved for who is wearing what at some awards show. Right now, in the throes of unprecedented unemployment, housing issues, sovereign debt concerns, and a whole heap of other economic problems it seems the prudent thing would be to focus on tried and true fundamentals. That means a genuine reflection on the strength of the US dollar and the overall demand picture for gold and silver.

1. http://www.bloomberg.com/news/2011-08-16/soros-mindich-cut-stake-in-spdr-gold-holding-as-cohen-s-sac-adds-options.html

2. http://www.forbes.com/sites/kenrapoza/2011/08/10/jim-rogers-says-gold-going-higher-eu-deserves-downgrade/

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #7 on: Sep 08, 2011, 11:56 AM
Last week's unemployment report highlighted what many gold bugs were probably already eager to tell people - the economic troubles are likely far from being over. Issues with debt are hanging like a black cloud over the markets on both sides of the Atlantic. Growth in more than a couple of countries has slowed, recovery seems like a vapor of a dream, and persistent joblessness is undermining confidence levels for the average American. These things and more can start to affect another side of the supply of gold - scrap sales. Let's take a look at how that arena shapes up right now, and what impact - if any - it might have on prices.

Gold scrap - that's all the gold supply that comes from places other than mines. Plenty of people probably imagine chains or gold jewelry turning up at pawn shops, but lately there are plenty of places that deal exclusively in the purchase of old metals that people are prepped to part with. A lot of that probably stems from the years of higher gold prices seen since the onset of the current economic downturn. There are "We Buy Gold" signs all over the place with some shops even offering appraisal by mail services. Of course the whole point of these places is to buy your less-than-dear jewelry and turn it into a profit, often by paying less than the spot price for precious metals.

So how might this affect market prices for precious metals?

Like any market fundamental, there is an obvious shift in the supply if there are more people offloading their gold scrap. More sales means more supply and generally that would depress prices. The caveat for the last few years has been whether or not that additional supply on the market is enough to offset the growing investment demand or fresh jewelry sales.

In some cases, there are reports that the fresh highs in the gold market do encourage people to dig into their safe places and sell grandma's jewelry. It would seem to be a natural reaction. The official supply and demand picture from the World Gold Council shows the following numbers:


Recycled gold is definitely higher in this chart for 2010 versus 2008. The thing is that for every build in supply it looks like there is another substantial gain in the potential investment or physical demand for gold. In my eyes, that will remain in effect until there is a true and substantial recovery underway for the domestic and international economies.

During the month of August, India is often a focus of attention for gold investors looking for cues for their gold-demand centric festival season. Imports are key, but this season the impression of scrap sales amid high prices was also important. This year, there are hints that people are hanging on to their gold, anticipating that the bull run in gold is far from being over. (1)

Summary

The one thing I keep in mind about any kind of gold sale impact is the motivation behind it. I have already mentioned in previous newsletters that sales by central banks at this time would likely boost prices rather than degrade them over time. That's because the things forcing the sale are not likely to be confidence-boosting. Unlike the rumored sales in the 90s, nowadays banks would probably only sell to raise funds. Those old rumors were based on the idea that gold was a time or space waster, and that interest earning assets were better for reserves. With interest rates being held at low levels in many spots, gold and other perceived havens have a renewed sense of purpose - people and banks are looking to them as asset preservers. They are the precious metal life-raft in really volatile investing seas. When people are moved to sell them it is likely that things are bad or getting to a point where they need to be liquid. Sure, you can say that people will ditch their gold when prices get high enough to suit them, but with all the movement and volatility in prices lately, I would venture a guess that any people are hanging on to what they can for as long as they can, at least until there is a modicum of calm. And that kind of waiting, and agonizing to a certain extent, is likely to be a support for prices rather than a detriment, owing to the continuing macro uncertainty that brings buyers in on dips.

1. http://online.wsj.com/article/SB10001424053111903327904576523710092995294.html
For your FREE gold trading kit, call (888) 393-8288.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #8 on: Sep 15, 2011, 11:09 AM
The Bullion Report For September 14, 2011: Turning East

News of a potential Chinese bond purchase in the Euro zone sparked an awful lot of headlines to start this week. Amid investor speculation, there is no greater monkey wrench than fundamental news out of China or India. Why do I say that? Because with such a force of funds and population those two Asian nations can wield a lot of demand potential, and that has often held the power to sway prices of many things. Among the markets that can move to the beat of this news are precious metals.

I have mentioned India in previous articles because it is such a massive area of physical gold demand, especially this time of year when weddings or festivals could fuel increases in imports. In the US there are also distinct seasons we might consider key for jewelry purchases or gifts (think: Christmas, Valentine's Day, etc.) but not with nearly the scope that India does. In the last few years this trend of watching their imports has only strengthened I think, due in part to what many analysts have seen as the growth of the middle class. The development in India has enabled many families and individuals the benefit of a higher level of disposable income for buying gifts and precious jewelry.

Another analytical point I see brought up is that farmers in rural areas have been fetching higher prices for some crops, which in turn gives them a bit more income to buy gold and silver. In rural areas this can serve as a store of that harvest season wealth. Again, there is a strong cultural link to the ownership of precious metals.

China has similar fundamental fuels for its demand drive in precious metals.  These are not the only commodities that see a spotlight on Chinese demand. The main point on which the two countries seem to diverge is the interest in whether or not China is using gold as an alternative to the US dollar in its reserve. A recent release from Wikileaks seems to suggest that there is a concerted effort to do this at the expense of the US dollar. China may be among the top holders of gold in reserves, (number six, with over 1,000 metric tons according to the latest info from the People's Bank of China) but when looking at the size of their reserves, the actual percentage allocated to gold is much smaller than other developed nations. For example, the US has more than 74 percent of its reserves as the yellow metal. Germany has just over 71 percent. China's represents more like 1.6 percent. That isn't a lot considering they are the world's largest gold producer. If the central bank moves to add gold to their reserves, there is plenty of wiggle room in those ratios against foreign currencies. And that could mean plenty of upside potential just in bank demand.

Remember, just like in India, there is a decent amount of demand from regular citizens in China as well. India and China make up for more than 50 percent of the world's total physical investment demand (bars and coins), and more than half of the jewelry demand, according to the second quarter report from the World Gold Council. Continuing weakness on the global scene could easily propel more interest from these consumers. Inflation issues could also stoke the fires of demand in both nations as the growing middle classes move to preserve assets with precious metals as an inflation hedge, just like investors in western nations have been known to do.

Summary

It does seem to be redundant at this point to mention China and India as a hotbed of precious metal demand, but their needs and imports will likely impact prices and perceptions in the coming months. Europe and the United States continue to work to resolve their debt issues and economic trouble spots. China and India have to deal with price inflation. These things are what helped propel gold and silver to fresh market highs. Whether or not these two very populous locales continue to import and gain demand bases for both metals will likely provide key price support long after stimulus packages and job and morale boosting bills move through lawmakers' hands. Investors and everyday folks in urban and rural areas of Asia have probably seen their faith in traditional investments shaken as the global economy collapsed. That is the kind of fundamental nod that could keep prices finding footing on any sell-off.

For your FREE gold trading kit, call (888) 393-8288.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #9 on: Sep 22, 2011, 11:49 AM
The Bullion Report For September 21, 2011: Weight of the World


The precious metals sector has not really dimmed this year as credit and debt issues linger on. The global recession is far from over, and the ripple effects from the troubles that began in 2008 are still hitting financial quarters. As another credit downgrade hits the headlines, consider the possibility that the volatility in major currencies might bring a fresh shine to gold, silver, and the rest of the metals sector.

Italy, Spain, Portugal, Ireland, Greece, and the US - this is the current roster of global trouble spots where debt is weighing down potential recovery. In each of these areas, a major agency has downgraded the credit rating of the nation or at least cast a shadow of doubt by lowering the outlook for the same. These little checkmarks against a nation spell weakness and that has brought a slew of volatility to the markets once again.

The US dollar and Euro currency have shifted back and forth as investors try to gauge the severity, trying to find the best of the worst. One of the key weaknesses for the euro seems to lay in the potential for the whole of the euro zone to survive. The weakness in one economy, like Greece or Italy, could prove to be too much for stronger economies to remain resilient against. Places like Germany are leaned on for their apparent economic buoyancy. The dead weight of places that are getting weaker in the current poor economic environment could drag them under water. If it were limited to only one or two areas of weakness there might be a chance for things to work out well. Unfortunately, the more European nations make headlines with lowered credit statuses, the more investors will grow concerned. They will start to fear that the next headliner will become the proverbial straw to break the Euro's back.

The US dollar has also lost some of its luster as a reserve currency. The quantitative easing was a deliberate undermining of the currency that did not go unnoticed by central banks. In the latest GFMS Gold Survey paints an interesting picture of what I mean. In 2010 gold purchases by central banks were around 77 tons. This year they picked up over 200 tons so far and are forecast to add another 120 tons in the second half. The sales are to countries like Mexico, South Korea, and Russia, and seem to support a move away from the US dollar and other former "safe-haven" trades like US treasuries, German bunds, and the Japanese Yen. The Swiss Franc had seen a surge of haven interest, but their central bank has moved to intervene to keep the Franc down. That, and the potential for other banks to do the same, has kept gold on the radar for fresh acquisitions.

Unlike those interest bearing securities or national currencies, gold doesn't have to wait for a rating agency to potentially cut its outlook. Precious metals do not have to be weighed against bank interventions and changes in policy. Most of all, it currently enjoys a global appeal, especially in those centers of significant demand - China and India. In both Asian nations, gold investments have grown and enjoyed a certain level of additional buying support as each country struggles with inflation issues. Since gold is also able to serve as an inflation hedge, the perceived benefits in the midst of global uncertainty are two-fold. The US dollar and other foreign currencies just can't say the same thing right now.

Summary

The is likely no magic bullet to the debt problems facing developed nations. There are several areas of weakness that need to be addressed before any kind of real recovery will materialize. Depressing housing numbers and persistent unemployment are just the tip of the iceberg. The reduction in tax revenue at local, state and federal levels is probably keeping things it a tight spiral that will be tough to break out of. Both at home and abroad, there will still be tough times ahead. That is what keeps central banks and private investors looking for alternatives to major currencies. This is what will continue to drive support with every dip in gold and silver prices. There is not a quick fix for the global economy, but for those who are looking to diversify their reserves or try to engage in some level of potential asset preservation, there are precious metals.

For your FREE gold trading kit, call (888) 472-7188.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #10 on: Sep 29, 2011, 02:22 PM
The Bullion Report For September 28, 2011: Finding Bottom


Precious metals sold off and sold off hard last week. Gold saw one of the worst price declines in recent memory. Silver shed a large percentage of recent gains, echoing losses seen in the 1980s and sales from earlier this year. Is this the end of the road for these markets? Will this finish the gold and silver bulls? I think the answer is no.


Past performance is not indicative of future results.
***chart courtesy of Gecko Software

I see many reasons for a potential rebound in gold and silver, but first let's dispense with the key points that likely led to last week's plunge. Things are still a mess across the globe. There have been ongoing attempts to put the brakes on economies that are headed right over the cliff, Greece being the first name that comes to mind. All the chaos in the Euro zone and US spells trouble for investors as confidence plummets. Unfortunately, the tug-of-war between the currencies left many commodities as the real losers last week.

The financial uncertainty caused by debt issues is far from over. The long term picture remains really cloudy in most investors' eyes. How will exports be affected? Will the weakness in developed nations destroy demand for basic commodities? Will this latest round of bailouts and bargaining become a sticky mess that will stall recovery? These proverbial straws are piling up on the backs of equities and other markets and that weight finally pushed things lower last week. Confidence plummeted in markets both at home and overseas. The selloff in the Dow and S&P were just the tip of the iceberg.

Doom and gloom over Greek default led to the drop in the unified currency of the European Union - the euro. The US dollar benefits from that perceived weakness as investors shift into "less risky" foreign currencies. For that time, the US dollar was considered the best of the worst. Its strength was a red "x" on commodities, leading to a sector-wide liquidation of longs. That was only the start of trouble for precious metals.

The overall plunge in markets last week had a secondary effect. Investors and funds that lost money when things nosedived needed to get liquid fast to cover margin calls. Since some precious metals holdings are likely still up year-on-year, they become the go-to asset for selling when someone needs to raise cash. This was the probable cause behind one of the sharpest declines in gold prices since the 1980s. The same thing has happened on a micro level with consumers. Things have been so bad for so long, in terms of a delayed recovery from the initial collapse in 2008, that really only one place has stood as a temple in which to try to preserve assets. In my eyes, people are tapping into their final bastion of investment to hold on and cover other losses as financial chaos continues.

The other monkey wrench in the works was another round of margin rate hikes, one from the CME Group and at least one other on the Shanghai Gold Exchange. These performance bond increases can do two things: they can shake out smaller investors or weak longs, and they can serve as a potential motivator for profit taking, since the return-on-margin calculations might paint a less desirable picture. This is especially true when there are other clouds on the horizon - some funds and bigger investors might just want to sit on the sidelines as everyone works on their balance sheets.
 
Summary

Whatever the motivating factors, there seem to be more than a few people looking to dip their toes back in this week. Bargain hunting will be the name of the game and that is where markets like gold and silver can hope to find support. The weakness in both markets was not due to fundamental factors like a large gold sale from a central bank or a weakening demand scenario for physical bullion - they were just caught in the same downward spiral as other commodities. Has the gold haven been breached? I don't see it that way. In fact, the continuing volatility and bailouts and uncertain future make me think this is just another bump in the road - a healthy correction, if you will. The idea that most investors were pulling out to get cash to cover other losing assets just reinforces this notion. Gold and silver are probably going to recover from this, and that is more than I can confidently say about certain economic issues at the moment.

For your FREE gold trading kit, call (888) 472-7188.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #11 on: Oct 06, 2011, 04:20 PM
The Bullion Report For October 5, 2011: Inflation Nation


Inflation has long been the bane of the average consumer budget but a boon to private gold investment. The 2-3 years of troubling economic conditions have created a unique mix situation that some analysts fear will feed price hikes. In fact, there are some observers who believe certain policies are doomed to create an era of hyperinflation. With so many concerns about inflation at home and abroad, it is time to take another look at this topic and the potential effect on gold prices.


Past performance is not indicative of future results.
***chart courtesy of Gecko Software

Most investors should already be familiar with inflation basics. The ideal condition - according to most economists - is a low and steady rate of price increases. In a nutshell, they say that inflation is natural and healthy. This is fine and good, but right now there is an unprecedented build towards potential hyperinflation and that has been a very strong catalyst for higher prices in precious metals. This comes down to what I have discussed before: the systematic devaluing of the US dollar in an effort to promote/support/salvage the economy and try to stave off utter collapse.

The beginning of the economic crisis is officially recognized as 2008. However, there were a few spurts where news outlets made mention of economic recovery. Unfortunately, it seems like all of that was mere smoke and mirrors as some of the largest Western nations start to succumb to the enormity of their expenditures i.e. their giant hanging albatross of national debt. When we were in a boom time, the spending at a federal, state, and local level was bolstered by happy consumers with jobs, buying houses, paying taxes, and living the life. When all that went up in smoke during the crash of the housing market, all of that government revenue went "boom" too. Now, it looks like no one making the budgets got the memo, and they are now trying to bridge that gap. That looks to undermine domestic currencies even further, exacerbating inflation issues in some places.

When I say some places, that's because it isn't just the US economy that is fighting against the tides of rising prices. Sure, the average consumer here has fought to make ends meet while gas at the pump soared and that register at the grocery store kept ringing higher and higher, I don't dispute that. But we are not alone in this inflation fight. Some of the biggest issues are going on in those twin pillars of commodity consumption, India and China.

China's reported inflation rate in August was 6.2 percent. Compare this to 3.8 percent in the US. This is well outside their ideal level, and of concern to officials since that rate would limit their ability to react policy-wise if their economy falters amid poor global conditions. Basically, the US and Europe were not seeing as bad a level of inflation at the onset of the economic downturn, so they were able to crank up the printing presses, lower interest rates, and generally adjust policies (in some cases, almost overnight at emergency meetings) in an effort to keep things moving along or provide stimulus.

India isn't in any easier of a spot.

The central bank in that Asian nation has had eleven interest rate increases in the past year and a half in an effort to try to tame their price increases. This has kept the wholesale inflation rate just under double-digits - and more than doubles what is considered healthy. Despite strong economic growth, India risks falling into the same policy trouble-spot as China does if the global situation continues to deteriorate.

The Western Hemisphere has a trouble spot outside the US, too.

Brazil is fighting prices increases that topped 7 percent year-over-year. Their growth in the last decade has been phenomenal, fueled by strong export markets. Unfortunately, their price increases were spurred by an interest rate cut. Some observers feel the policy was loosened due to political pressures, but regardless of where it came from, most analysts feel it was a potential detriment to the domestic economic situation.
 
Summary

So what does all of this have to do with gold? Everything. This is an inescapable tie-in to the gold markets right now. Investors are juggling their risk aversion and no national stone will go unturned as they try to find good places to invest. The trouble is that battle is more about finding the best of the worst as currencies are deliberately undermined and growth grinds to a halt in many places. Gold and other precious metals will continue to be the standout options. They still offer a potential place for people to park assets to try to preserve them in an inflationary environment. Don't forget, these places battling higher prices are the same spots that saw a bump in the people with disposable incomes, a rise in the income of farmers when commodity prices boomed, and general growth that might even lead to a whole fresh group of willing investors with assets to preserve. If they can't do it in their own currencies, if the growth potential in the current global marketplace is dim, then gold and silver might be the ideal alternatives.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #12 on: Oct 13, 2011, 02:32 PM
The Bullion Report For Oct 12, 2011: More on Metals and the Euro Zone


The European Union is having a tough go of things this year. Debt issues in several areas have weighed heavily on any potential recovery. The world looks on, and questions bailouts and potential bankruptcy. Amid all of this uncertainty, there seems to be plenty of room for alternatives like gold and silver to find their way into investors’ portfolios. Let’s take a look at how gold demand is shaping up across the pond.


Past performance is not indicative of future results.
***chart courtesy of Gecko Software

A few months ago when the initial Greek struggle was in full swing, I analyzed the potential effect on euro zone demand for precious metals. Despite several attempts to prop up the economy of the Mediterranean nation, it doesn’t appear that there has been a significant change in the area’s fundamentals. In fact, things look like they are continuing to deteriorate. Around the time of my first dismal outlook on the area, Fitch Ratings had lowered the credit rating for Greece. Since then, the credit ratings and outlook for other members of the euro zone have dimmed as well.

The trouble seems centered on Greece, but Italy, Portugal, Spain, and Ireland have all had black marks on their records as well. Banks and policy makers have been able to shift and shuffle so far to preserve the perception of action, but how long can they go on? One of the biggest problems that has yet to be fully addressed at home as well as abroad is the bigger picture of economic support and eventual recovery. There were misty promises of things being back on the positive side, but so far the proof has not been in the pudding. The ripple effect from the troubling levels of unemployment, poor growth, and inflation have set in and eroded any of the initial gains from each round of stimulus. Unfortunately, the lower interest rates held by some central banks have limited the potential action that policy makers can take to prop up spending and business activity. It also gives them a rock and hard place to deal with whenever things are under threat from price inflation. Raise rates too soon and any feeble threads of recovery or growth collapse. Leave them too long and consumers and businesses struggle under the burden of the additional costs.

The latest inflation data out of the Euro zone showed that consumer price inflation spiked. Prices came in with a surprise 3.0 percent jump last month which marks the highest level since 2008. This was higher than forecasts, and led many analysts to sour on the prospects for a European Central Bank rate cut any time soon. In fact, last week’s central bank meeting saw the ECB leave its benchmark rate unchanged at 1.5 percent. No matter how much the Euro zone economy has faltered in recent months, they are almost in a position of having their hands tied.

The ECB is also doing battle with another tangled situation. That is their direct hand in bailing out Greece. At this point, so much of their balance sheet is tied up in Greece not collapsing completely that more energy is directed towards salvaging the area rather than stimulating it.

What does all of this hold for metals?

The truth is that nothing has really changed from my former assessment on the area. There are twin pillars of support that I still see lending good motivation for gold and silver buyers. One is the weakness that the euro currency shows with each bad news headline. The other is the drive for gold (and to some extent, silver) as inflation hedges while prices threaten to rise. The most recent gold demand trends digest from the World Gold Council notes that, “During the second quarter of this year, [ETF] demand was concentrated in Europe, again related to fears over European stability.” Many of the new price records in gold were set following the initial wave of fear over potential debt contagion. It is not unreasonable to imagine that demand for precious metals would go well beyond ETFs and similar products.

Summary

The final quarter of this year will likely continue to offer fresh news and chances to digest the changes in Europe. Other countries are probably following the example set by France, where investors switched to net buying of gold and other precious metals as debt fears spread. There is little to suggest that the fragile western economies are going to be healed any time soon. That kind of uncertainty and continuing unrest underpins every move higher in metals prices. The elevated demand noted in the Euro zone is unlikely to abate until complete recovery is assured. No false starts, no smoke-and-mirrors. Real growth and recovery of the weaker economic areas will determine the direction of demand and until then investors will seek out havens in which to park their assets. As I have said before, this normally comes down to gold and silver. And after a recovery? Who knows – there is ample reason to suspect that the fallout has changed investor attitudes, added fresh shine to precious metals, and redefined how portfolios are diversified.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #13 on: Oct 20, 2011, 02:23 PM
The Bullion Report For Oct 19, 2011: The Mechanics of Margin


Few people would argue that this year has been an important one for the precious metals trade. Gold approached and then marched through significant price milestones, making fresh highs before retreating on profit taking. Silver gained significant momentum and tried its hand at old price highs as well. Throughout all of this shifting price and volume, there were several changes made to the margin requirements for trading gold and silver futures. Let's take a look at these changes, and explore what the topic of margin is all about.


Past performance is not indicative of future results.
***chart courtesy of Gecko Software

In many markets an investor will be required to have margin in a trading account. This is a feature of contracts traded on exchanges, including those for futures on gold. The purpose of the margin is to act as a performance bond. The funds deposited are used for initial margin to open a trading position. Maintenance margin is a dollar value, or level, specified by the exchange as the price point at which the account must be maintained as long as the trading position is open. The amounts are normally set by an exchange, by some brokers or clearing firms might ask for more. Why is this important to precious metals? The value of this information is two-fold.

The first thing that makes margin relevant is that it allows investors to leverage themselves into precious metals markets. This can be extremely risky. The risk exists because the overall contract value is normally many times what the initial margin requirements are. What this means is that the investor can lose much more than what they deposit into an account in order to invest in a particular gold or silver position. The flip side is that the margin allows someone to control, basically buying or selling, something that is worth more than the deposit. What multiplies the risk also multiplies the potential rewards. That is what makes the leveraged positions in precious metals appealing to someone with the appropriate level of risk tolerance. That is what can amplify the speculator activity when fundamental or technical forces collude to increase awareness or interest in precious metals markets.

If a contract for 100 ounces of gold is accessible via a portion of risk capital deposited in a trading account, then it might be argued that it makes the trade more liquid and viable for some investors than trying to buy 100 ounces of physical gold and store it in a safe or a bank somewhere. Of course that leads me to the second point about margin and what makes it relevant to metals pricing.

Since the markets are reasonably liquid, and participation and demand have likely increased with the global recession, there can be substantial reactions when fundamentals - including margin values - are changed. Back in the spring when margin values on silver were lifted rather high, there was a near-exodus of longs from the market. Why might that spark a closing of positions? The potential risk/reward scenario changes if you change the margin, as does the risk capital being tied up in the open position. That can change the profile of a trade and make it more appealing to cover it and close out the open position. Raising margin requirements may sound counterintuitive to price discovery, but for most exchanges it is an important part of the risk management in volatile times. In reference to increases in gold and silver futures market margins, the CME Group recently called those moves a part of a, "normal review of market volatility to ensure adequate collateral coverage." This can hardly be considered a fault in light of the extreme volatility seen in both markets in 2011 alone.
 

Summary

Margin has its place in trading, and it evolves to meet the needs and respond to the changes in the marketplace. The last several months have brought out what I would consider a very needy marketplace, one where precious metals are helping to fill the demands of investors looking for a place to put assets in a very unstable macro picture. Since the start of the year, silver margins went from around $6,750 to $24,975 and gold has ratcheted up from $5,739 to $11,475. Those are significant numbers, no matter how you slice it. However, there is still demand for gold and silver to diversify portfolios, add to reserves, and purchase in physical forms like coins, bars, or jewelry. These increases protect the interests of the markets to provide some kind of performance guarantee when an investor opens a long or short position. They haven't scared people off this form of investment, but they may still give pause to prices whenever a change is announced. There can be a shakeout of short term positions as margin calls are made and position closed. Overall, the main feature will be the demand for gold in the big picture, and that is where people will look for cues.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


bullionfk

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Reply #14 on: Oct 27, 2011, 12:14 PM
The Bullion Report For Oct 26, 2011: Big Fish


Current headlines seem focused squarely on the economic situation in the United States and the Euro zone. There is no doubt that the lingering turmoil and the current plans to try to deal with and stimulate things are important. However, it would probably be a bad idea to forget that the demand picture for Asia might be at the helm of the Good Ship Recovery - let's take another look at the big picture from China.


Past performance is not indicative of future results.
***chart courtesy of Gecko Software

Consider the sheer size of China, and it is hard to imagine excluding them from any supply and demand talk. This goes for precious metals as well as any other basic commodities. From the CIA World Factbook, "in 2010 China became the world's largest exporter. Reforms began with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, creation of a diversified banking system, development of stock markets, rapid growth of the private sector, and opening to foreign trade and investment."

Currently, China sits on reserve holdings of foreign exchange and gold totaling about $2.8 trillion. (1) This is just an estimate, of course, but puts them squarely at the top of the country rankings. China has more than double the #2 on that list, Japan. Curious about other things that make this Asian nation a powerhouse of potential consumption?  Their gross domestic product (GDP) is ranked third in a list of countries ordered by purchasing power. The only two areas ahead of them are the European Union and the United States. GDP growth was previously estimated at more than 10 percent for 2010. More recent data shows that through September, this rate has actually held closer to 9.5 percent. Sound bad? Side-by-side it looks disappointing, but when you consider that the US is closer to 2 percent and forecasts for 2012 are less than 3 percent it helps put things in perspective. China still has a lot to offer.

The global slowdown has tempered a lot of growth across the globe, but so far it appears as though China is going to remain fairly resilient. Recent data suggests that the economic outlook for China remains positive, but there are plenty of debates in the headlines as to the sustainability of their present growth. Some critics suggest that negative outlooks for other developed nations will drag on the Chinese economy. This is due to China's status as a heavily export-dependent nation. They make the goods and ship them overseas. If Europe and the United States continue to slow down - or at least remain stagnant - it will likely result in fewer people buying less from China. On the sharper side of the argument, there have been several charges that the Yuan has been kept artificially low to boost exports. That would speak to the potential for changes in monetary policies from the People's Bank of China.

Even more sinister is the suggestion that the bank in China pumped in trillions of Yuan worth of financing during the onset of the global economic crisis, something that kept their economy from dipping into recession but might have far reaching consequences long-term. Does that mean that the current rate of growth is doomed? Perhaps, but that might not eat into the overall demand picture.

Summary

I would suggest that people look towards the growing middle class in China - the rural-turned-urban populous that has so often featured in recent commodity demand analysis. Recession or no, growing manufacturing and diet changes could continue to propel the situation in China long after GDP has sunk closer to the levels seen elsewhere in developed countries. The outlook on a global scale may seem grim, but for gold bugs and precious metal enthusiasts there are still reasons to look towards bullion investments. On one side you have the shift towards alternative investments in an uncertain landscape. On the other you have the big fish like China and India that are still capable of massive amounts of consumption and demand, just by sheer population size and buying power alone. Neglecting this side of the world to focus on woes in the other is not recommended. If recovery is going to happen any time soon, it is likely going to be led by one of these areas. Any pick up in manufacturing activity, consumer spending or growth will likely be driven by their citizens.

1. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2188rank.htm


Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.


 


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    Apr 04, 2019, 10:40 AM
  • sonny.wapak: Nakaka receive din ba kayo nito pag gawa ng new post? "Please try again. If you come back to this error screen, report the error to an administrator."
    Apr 03, 2019, 10:56 PM
  • leonine_zafiro: what product nun?
    Apr 01, 2019, 10:25 PM
  • dhondiex27: hi
    Mar 30, 2019, 10:55 PM
  • lusart: jayrob i agree 200%. hulog ng langit organico. legit na legit
    Mar 29, 2019, 09:08 AM
  • palemelch: Hi
    Mar 28, 2019, 04:08 PM
  • O.C.W._AK: Magandang Araw sa Lahat! Blessings! (",)
    Mar 28, 2019, 08:42 AM
  • thor15: hello everyone, newbie here
    Mar 25, 2019, 01:47 AM
  • captjaylo: present newbie here
    Mar 22, 2019, 10:06 AM
  • balboagilbert26: hello Guys .. Newbie here
    Mar 21, 2019, 10:55 PM
  • businesswoman2019: @jefsanity nag inquire na po ako pero di sila nagdidisclose. Yung branch po kasi na target ko, currently building pa.
    Mar 21, 2019, 04:27 PM
  • jefsanity: @businesswoman2019, much better inquire ka na lang sa admin nila.
    Mar 21, 2019, 01:51 PM
  • businesswoman2019: Hello! Any idea how much ang stall sa waltermart. 2m x 2m
    Mar 21, 2019, 08:28 AM
  • John Neil: Looking for an accredited iron foundry
    Mar 17, 2019, 03:19 PM
  • jayrob: Mark_Lee ung organico legit po yan..  Member din AQ..
    Mar 17, 2019, 12:57 AM
  • perlymelad: Hello po! Need advice, why my new MLM leaders failing?
    Mar 14, 2019, 08:51 PM
  • perlymelad: Present
    Mar 12, 2019, 07:53 PM
  • kennethmauricio: Hi saan po dito pwede mag post ng for sale properties?
    Mar 11, 2019, 07:58 PM
  • jefsanity: @mark_lee isipin mo anu passion mo at skills mo...
    Mar 11, 2019, 06:52 PM
  • sniperaj09: BAGO LANG
    Mar 10, 2019, 11:16 AM
  • mark_Lee: magandang investnent ngayon sa 30k suggest naman keo mga boss
    Mar 10, 2019, 03:07 AM
  • perlymelad: E-BOOK PO SIR @JEFSANITY
    Mar 09, 2019, 05:40 PM
  • perlymelad: @jefsanity Good Morning Po
    Mar 09, 2019, 05:39 PM
  • perlymelad: Good Day everyone
    Mar 04, 2019, 06:24 PM
  • jefsanity: anu ang small business na yan?
    Feb 28, 2019, 07:40 PM
  • perlymelad: Good Day Everyone
    Feb 28, 2019, 03:31 PM
  • perlymelad: Hello everyone, CAN ANYONE HELP ME SUGGEST ANY SIDE TOPIC  / PROBLEM OF  STARTING SMALL BUSINESS?
    Feb 28, 2019, 06:58 AM
  • perlymelad: Present, 1st time po
    Feb 25, 2019, 06:17 PM
  • jd2281: newbie po
    Feb 25, 2019, 12:26 PM
  • ejllantino: present... 1st time
    Feb 24, 2019, 07:14 PM
  • rheiel: present. first time
    Feb 24, 2019, 11:04 AM
  • MELVIE: thanks po
    Feb 24, 2019, 12:50 AM
  • steph123: hello po, ask lang po, ilang months po ba ang hihintayin after mo ma process ang mga documents para maitama ang mali sa NSO?
    Feb 11, 2019, 03:13 PM
  • Deborah: newbie here.thanks
    Feb 08, 2019, 02:17 PM
  • marj0503: hello im newbie here
    Jan 31, 2019, 10:53 AM
  • yan24: any one here planning to start a tesda skill training center
    Jan 26, 2019, 12:07 PM
  • manzjon: Forex trading forum
    Jan 25, 2019, 02:16 PM
  • Lizette Ramos: Pwede po bang patulong... Maganda po ba ang gasul retailing business?
    Jan 24, 2019, 09:14 PM
  • Imnobody: Hi sino naghahanap ng casino financer dito?
    Jan 16, 2019, 09:59 PM
  • Odlanyer22: Good day!
    Jan 16, 2019, 09:55 PM
  • maryen: at kung sakaling may somobra sa food na nailuto.. dapat po bang bayaran ng client un .. or ipapa take mo na sakanila?...
    Jan 16, 2019, 03:52 PM
  • maryen: HI! GOOD DAY! newbiz lang po... question lang po regarding sa catering.. if may 50pax po ako dapat lang po ba na sakto ang serving ng food?
    Jan 16, 2019, 03:50 PM
  • mark_Lee: cno na nag organico dito scam po ba yun or legit
    Jan 09, 2019, 03:04 AM
  • kuray08: Have a Prosperous New Year to all..
    Jan 06, 2019, 09:27 PM
  • ethan: Sino po may auto supply business dito? How profitable po ba ito in terms of monthly income? Lalo na kung meron na one or two na competition.
    Jan 04, 2019, 11:34 AM
  • Niel Jhacoubs: HAPPY NEW YEAR!
    Jan 02, 2019, 04:37 PM