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>COMEX Default Or Hunt Brothers Redux? COMEX Silver Inventories Drop To 4 Year Low


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COMEX Default Or Hunt Brothers Redux? COMEX Silver Inventories Drop To 4 Year Low
zero hedge
The small size of the physical silver market is seen in the fact that at $30 per ounce, the COMEX silver inventories are only worth some $3 billion. The US government is now paying some $4 billion a day merely on the interest charges for the national debt. It is also the same value as Twitter’s new venture round of financing or Ford’s debt pay down in the first quarter.

From GoldCore
Silver Bullion COMEX Stocks at 4-Year Low as Backwardation Deepens
Gold and silver are higher after last week’s 1% and 3.5% gains in dollars. Silver is particularly strong again this morning and the euro has come under pressure as bonds in Ireland, Spain, Portugal and Greece continue to rise. While Asian equity markets were higher, European indices have given up early gains.
GoldCore
Silver’s backwardation has deepened with spot silver at $30.16/oz, March 2011 contract at $30.13/oz and April’s at $30.00/oz. While spot silver has risen nearly 1% so far today, the July 2012 futures contract was down 0.187% to $29.81/oz.

The gradual drain of COMEX silver inventories seen in recent months continues and COMEX silver inventories are at 4 year lows. Total dealer inventory is now 42.16 million ounces and total customer inventory is now at 60.68 million ounces, giving a combined total of 102.847 million ounces.
The small size of the physical silver market is seen in the fact that at $30 per ounce, the COMEX silver inventories are only worth some $3 billion. The US government is now paying some $4 billion a day merely on the interest charges for the national debt. It is also the same value as Twitter’s new venture round of financing or Ford’s debt pay down in the first quarter.

Comex Silver Inventory Data GoldCore
Comex Silver Inventory Data

Talk of a default on the COMEX is premature but the scale of current investment demand and industrial demand, especially from China, is such that it is important to monitor COMEX warehouse stocks.

The Hunt Brothers were one of a few dozen billionaires in the world in 1979 when they attempted to corner the market. Today there are thousands of billionaires in the world, any number of whom could again corner the silver market. Also, today unlike in the 1970s, there are sovereign wealth funds and hundreds of hedge funds with access to billions in capital.

The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge as it did in the 1970s.
NEWS:

(Financial Times) Gold ETF outflows and shifts in investor sentiment
Large outflows from precious metals exchange traded funds since the start of the year have left some analysts questioning if investor sentiment towards gold and silver could be shifting.

“Heavy redemptions from the gold and silver ETFs in early 2011 may be a sign of things to come,” said Daniel Major, precious metals analyst at the Royal Bank of Scotland.

A decline in safe haven buying interest for gold and the prospects for interest rates returning to more normal levels in the US and Europe could mean that “positive sentiment towards [gold and silver] ETFs may be fading”, according to Mr Major.

He added that if ETF inflows were to dry up or reverse, then it would be difficult for gold and silver prices to make further gains and the silver market would be “particularly vulnerable to a price correction”.

Mr Major said he did not expect “large scale selling” but he estimated that the value of holdings in all precious metals ETFs has dropped almost $10bn so far this year with withdrawals mainly coming from the gold and silver products.

Other analysts acknowledge that ETF outflows have weighed on sentiment but say that the fundamentals supporting the gold price remain intact.

Suki Cooper, precious metals analyst at Barclays Capital said that the gold market was facing “short-term headwinds”.

However, Ms Cooper also said that longer-term investment demand remains intact, given low interest rates, concerns about currency debasement, inflationary risks and rising geopolitical tensions as demonstrated by the situation in Egypt.

According to Barclays, holdings in gold ETFs ended 2010 at $98bn, a record, even though last year’s inflows at 330 tonnes were down by almost half compared with 614 tonnes in 2009.Total gold ETF holdings were 2,142 tonnes at the end of 2010, slightly below the all-time high of 2,155 tonnes reached in the middle of December.

The latest available data suggests total gold ETF holdings have fallen to around 2,166 tonnes after a record monthly outflow in January.

With the gold price down around 4 per cent so far this year, the value of gold ETF holdings has retreated to around $90.4bn.

Michael Lewis, commodity strategist at Deutsche Bank said that the rally in gold prices has gradually run out of steam over the past five months due to concerns about a turn in the global interest rate cycle.

But Mr Lewis also said these concerns were overdone and that ongoing weakness in the US dollar and further diversification by central banks should sustain a positive outlook for the gold market.

Edel Tully, precious metals analyst at UBS, noted that outflows from gold ETFs were “relatively modest” so far in February, in contrast to the heavy selling seen in January.

“This suggests to us that the bulk of the ETF holders who wanted to exit gold have already done so,” said Dr Tully.

She also warned against assuming that outflows from gold ETFs represented “absolute selling” as there was evidence to suggest that some institutional investors had been switching their exposure from ETFs into “allocated” gold (numbered bars held in bank vaults in a separate allocated account).

“The picture painted by recent persistent ETF outflows is not wholly accurate,” cautioned Dr Tully.

(Bloomberg) — Investors Boost Bullish Gold Bets as Egypt Turmoil Fuels Demand
Hedge funds are piling back into New York gold futures and options as turmoil in Egypt sent bullish bets on the metal to the highest since April 2010, government data show. Holdings in silver also increased.

Managed-money funds held net-long positions, or wagers on rising prices, totaling 145,846 contracts on the Comex as of Feb. 2, U.S. Commodity Futures Trading Commission data showed on Feb. 11. The holdings jumped 17 percent, after five straight weeks of declines.

Gold rallied 0.8 last week, the biggest price gain since December, as protests in Egypt forced President Hosni Mubarak to flee the country after 30 years in power. In January, the metal dropped 6.1 percent as an improving world economy eroded gold’s appeal as a haven investment. Prices have rallied for 10 straight years, touching a record $1,432.50 an ounce on Dec. 7.

“You’re seeing a renewed interest in gold from speculative money who put the brakes on the metal earlier this year,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “There’s turmoil in Egypt, and inflation is heating up. Investment advisers and money managers are ready to put their money back to work. People are more comfortable jumping back into gold after a correction.”

Gold futures for April delivery settled on Feb. 11 at $1,360.40, after rallying to a three-week high of $1,369.70 during the session.

Investments in exchange-traded products backed by gold fell to 2,019.4 metric tons as of last week, down 0.6 percent since January, when holdings plunged 3.1 percent, the biggest decline since April 2008, data compiled by Bloomberg show. ETPs trade on exchanges, with each share representing metal held in a vault. They accounted for 21 percent of investment demand last year, according to GFMS Ltd., a London-based research firm.

Silver Holdings
Bullish silver holdings by managed-money funds totaled 29,742 contracts, up 27 percent from the previous week and the highest total since November, CFTC data show. Silver settled Feb. 11 at $29.995 an ounce on the Comex, capping three straight weeks of gains.

This year, silver rose to $31.275 on Jan. 3, the highest in 30 years, before dropping as low as $26.30 on Jan. 28.

“We’re more bullish on silver than gold because of its industrial component,” said Barry James, the president of James Investment Research Inc. in Xenia, Ohio, which manages about $2.5 billion.

“After silver’s dipsy doodle, it’s creeped right back to where it started the year,” said James, who has reduced the fund’s holdings of silver and gold to about 2.5 percent from 7.5 percent in the fourth quarter. “We’re more neutral than bullish on gold and don’t expect it to pick up steam and race to a new record. The dollar will probably recover and show some strength.”

Managed-money positions include hedge funds, commodity- trading advisers and commodity pools. Analysts and investors follow changes in speculator positions because such transactions may reflect an expectation of a shift in prices.

(Bloomberg) — Gold Stalls in ‘Tug of War’ Moving Average: Technical Analysis
Gold, which has rebounded this month from the worst January since 1997, is stalling near a key moving-average, signaling a “tug of war,” said Matthew Zeman, a trader at LaSalle Futures Group.

April gold futures have closed near the exponential 50-day moving average for four straight days as a move below or above this level may signal the metal’s next direction, Zeman said by telephone from Chicago. The average is near $1,361 an ounce.

If the commodity can “breach” the level by closing higher, it can climb above the record $1,432.50 reached on Dec. 7, Zeman said. If prices don’t rally above the resistance, they will likely fall to the 200-day moving average near $1,291, he said.

“Technical traders will initiate short positions below this level, and gold can’t stage a rally until it vaults above this level,” said Zeman. “Gold is staging a tug of war.”

The last time gold posted consecutive closes near the average was in early January. After falling below the level, the metal tumbled 6.1 percent that month, the worst start to a year since 1997. Prices have rebounded as unrest in Egypt spurred investors to buy gold, historically used as a hedge against geopolitical risk.

On Feb. 11, prices erased early gains after Hosni Mubarak stepped down as president of Egypt and handed power to the military, bowing to the demands tens of thousands of protesters who have occupied central Cairo.

Gold futures for April delivery dropped $2.10, or 0.2 percent, to $1,360.40 on Feb. 11. The metal was still up for a third week, gaining 0.8 percent.

Economic Outlook
Bullion has dropped 5 percent since touching the all-time high in December, partly as improving U.S. economic data eroded demand for the precious metal as an alternative to equities.

“Gold is getting a lot of competition from other products,” Zeman said. “Equities are at multiyear highs, and interest rates and the dollar continue to rise.”

The metal jumped 30 percent in 2010, a 10th straight annual gain, as escalating European and U.S. debt boosted haven demand. The decade-long surge attracted fund managers from John Paulson to George Soros, and is now spurring central banks to add to their reserves for the first time in a generation.

Prices have also been able to stay above the 150-day moving average, near $1,315, even after the January slump, a signal that the decline was a “a healthy break,” not the start of a bear market, David Hightower, the president of the Hightower Report, said last month.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. The exponential moving average is a technical indicator that displays the average value of a security over a specified period of time, giving more weight to recent data.

(Bloomberg) — Gold Investment Demand in South Korea May Climb, Hyundai Says
Investment demand for gold in South Korea may advance as investor awareness increases and the price climbs to a record, according to the manager of the nation’s first gold-backed exchange traded fund, or ETF.

Investors “want it as a store of value with governments in advanced countries still having fiscal-debt problems,” said Cha Jong Do, chief fund manager of the alternative investment team at Hyundai Investments Co. The Hyundai Hit Gold ETF, which listed in November 2009, is worth $5.3 million.

Bullion soared 30 percent in 2010, advancing for a 10th year, as investors sought a haven from the European sovereign- debt crisis and weakening currencies. Lion Fund Management Co. said last month it raised $483 million for China’s first gold fund to be invested in overseas exchange-traded products.

“South Korean demand for gold-related investment products will gain steadily, and we expect gold ETFs to become a major investment product,” Cha said in a Feb. 11 interview. Gold may advance to $1,600 an ounce this year, Cha said.

Gold for immediate delivery was little changed at $1,357.63 an ounce at 10:45 a.m. in Seoul. The price, which touched a record $1,431.25 an ounce on Dec. 7, has dropped more than 4 percent this year amid signs of a global economic recovery.

Exchange-traded funds allow investors to hold assets such as precious metals without taking physical delivery and they trade like stocks on exchanges. Holdings in the 10 gold ETFs tracked by Bloomberg have dropped 3.7 percent this year.

(Forbes) — Chinese Demand For Gold Surges To Around 25% Global Production
It’s hard to believe that ordinary Chinese citizens are responsible for an increase in gold imports to China– some 5 times larger than in the recent past. But, that is what the Financial Times of London reported this past week.

For one thing China is already the globe’s largest producer. So, it has its own domestic supply of gold. Also, it suggests that possibly the Chinese are utilizing far greater amounts of their savings to purchase gold, rather than increase domestic consumption. Or that official figures of Chinese wealth are being under-stated.

Gold prices have been in a consolidation phase, trading between $1325 an ounce and $1375 an ounce for the past few months, as the dollar has been somewhat stronger in reaction to improving statistics on the US economy.

Another positive for gold is last week’s recommendation from the IMF that $2 trillion in the form of a new international currency be created out of a weighted average of several currencies to begin the replacement of the dollar as the globe’s chief reserve currency.

Gold experts point out that the recent weakness in gold has hit the price of the small mining company shares worse than the majors as speculation in gold has quieted down. The speculative interests in gold futures on the Comex has been substantially reduced. And net redemptions in the ETF GLD, has reduced its gold holdings by $2 billion or almost 4%.

So, you might say that the Americans are slightly retreating from gold as the Chinese holdings show record increases.

(FT Money) — Silver set for gains
I suggested on October 23 – when silver was trading at around $23.50 – that $31.75 was one obvious place for its next sell-off to begin, with December 22 a likely date for turns. The semi-precious metal peaked at $31.28 on January 3, within seven trading sessions of my target date.

While I would have preferred its subsequent sell-off to have gone deeper, I retain my view that silver is in for substantial gains. I reiterate my targets of $39.62 and perhaps $45.69.


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JP Morgan confirms its dominant position in Copper


JP Morgan confirms its dominant position in Copper

Making the rounds this morning. Dominant position could be as high as 90% of LME Warehouse inventories!
JP Morgan confirms its dominant position in Copper
The head “raw materials” of JP Morgan acknowledged that his bank has invested $ 1.1 billion on stocks of copper on the London Metal Exchange
Copyright Reuters
Copyright Copyright Reuters Reuters

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      One speaker monopolizes the mysterious Copper LME
    
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      Handling, there’s nothing to see on the copper

Ian Henderson, chairman of JP Morgan Global Resources, has strong convictions about the copper market. He confirmed on Tuesday morning in a meeting for investors in Paris that “JP Morgan had bought more than half of stocks of copper on the London Metal Exchange to $ 1.1 billion. A dominant position which has fueled speculation on the red metal, since it makes the physical metal CCAEC more difficult. In total, the bank now owns about 122,222 tonnes of copper.

For two weeks the market questioned the idendity the holder of these stocks. According to figures published by the London Metal Exchange, a player had between 50 and 79% of reserves in the marketplace, which has warehouses all over the world. Among the potential holders of the metal, the BlackRock fund and ETF Securities, working in prevalence of Exchange Traded Funds on copper, had been cited. The name of JP Morgan also circulated. This is the first time that the bank recognizes.

The manager explained this decision by solid fundamental reasons. “We met there is little the leaders of Codelco, the largest copper producer in the world with 12% market share. They explained that their production would have to be halved in five years,” says the specialist, who has over thirty-five years of experience in commodities. With $ 70 billion of assets under management, JPMorgan Global Resources is the first strike force in the world for raw materials.

Gold showing its safe haven properties – INDEPENDENT VIEWPOINT | Mineweb


Gold showing its safe haven properties

The yellow metal is currently testing the resistance at $1425. A break above this level could establish a new trading zone for gold

Author: David Levenstein
Posted: Tuesday , 07 Dec 2010
Mineweb.com – The world’s premier mining and mining investment website

JOHANNESBURG
One major reason investors look to gold as an asset class is because it will always maintain an intrinsic value. Gold will not get lost in an accounting scandal or a market collapse. Economist Stephen Harmston of Bannock Consulting had this to say in a 1998 report for the World Gold Council, “…although the gold price may fluctuate, over the very long run gold has consistently reverted to its historic purchasing power parity against other commodities and intermediate products. Historically, gold has proved to be an effective preserver of wealth. It has also proved to be a safe haven in times of economic and social instability. In a period of a long bull run in equities, with low inflation and relative stability in foreign exchange markets, it is tempting for investors to expect continual high rates of return on investments. It sometimes takes a period of falling stock prices and market turmoil to focus the mind on the fact that it may be important to invest part of one’s portfolio in an asset that will, at least, hold its value.”
Today is the scenario that the World Gold Council report was referring to in 1998.
A bad economy can sink poorly run banks. Bad banks can sink an entire economy. And, perhaps most importantly to the rest of the world, the integration of the global economy has made it possible for banking and economic failures to destabilize the world economy. As banking crises occur, the public begins to distrust paper assets and turns to gold for a safe haven. When all else fails, governments rescue themselves with the printing press, making their currency worth less and gold worth more. Gold has always increased in value when confidence in government is at its lowest. Isn’t this the current scenario in the world?
And, although not evident as yet, but soon to become apparent, a number of factors are conspiring to create the perfect inflationary storm: extremely expansionary monetary policies of the major Western governments, a long term decline in the dollar and the euro, higher oil prices, a mammoth trade deficit in the US, and America’s status as the world’s biggest debtor nation.
The early 1980s presented an once-in-a-lifetime opportunity to buy stocks. Today, economic and political conditions appear to offer a similar opportunity in tangible assets. The macroeconomic and political landscape has not looked like this since the hard asset bull markets of the 1970s. The global economic and financial market climate looks increasingly precarious. Financial imbalances have never been greater. Many countries have experienced housing bubbles and now have huge budget deficits as well as burgeoning national debt. Global trade imbalances are at unprecedented levels. The U.S. has no ability whatsoever to pay back its enormous debt, which has been stated at around $50 trillion plus dollars and not the $14 trillion the government state. If this is true, then the interest payments alone on the US debt are unsustainable. To make matters worse the biggest buyers of US debt no longer want this paper and instead are trying to cut their exposure.
The US national debt has grown so huge that the only way to pay for it is to borrow more, just like a huge Ponzi scheme. In the coming decade, we may witness one the greatest meltdowns in monetary history, as the dollar and euro decline in value. And, as this happens gold will become an important component in the global financial system.
The recent $600 billion quantitative easing plan is simply hiding the fact the US economy doesn’t have the economic base to grow its way out of this mess. And, as far as I am concerned it is not going to help reduce the high rate of unemployment either. If the latest non-farm payroll figures are anything to go by, then one can clearly see how ineffective the Fed’s program of quantitative easing has been regarding the reduction of the high level of unemployment in the US. The latest figures that were released on Friday, showed an expansion in employment of only 39,000 in November compared to markets expectations of 142,000. And, overall unemployment also jumped sharply from 9.6% to 9.8%. Even if the US economy was able to add say 50,000 new jobs per month, it would take around 15 years to get back to the levels that were last seen before this financial crisis that began in August 2007.
Furthermore as the U.S. maintains its low interest rate policy and billions of dollars flow to other countries around the world for higher returns, we will see a wave of reactive monetary policies from other countries in order to protect their currencies from increasing in value as the dollar continues to weaken. This chain reaction will send the dollar lower, but it will also make gold’s $1,400 an ounce price look like a bargain by the end of next year.
If you think this scenario is bad, think again. It gets worse when we consider the conditions prevailing in the Eurozone. Only last week the European Union warned that the turmoil over Eurozone debt is now a threat to growth, which will slow next year. The EU Commission said growth in the 16-nation Eurozone economy will slow to 1.5% next year from 1.7% this year but then pick up to 1.8% in 2012. It also adjusted radically downwards Ireland’s growth forecast, to 0.9% next year, from 3%.
Last week as borrowing costs for Ireland, Portugal and Spain soared, spreads on Italian and Belgian bonds jumped to a post-EMU high as the selloff extended beyond Ireland, Portugal, and Spain, raising concerns that the crisis could start to turn systemic.
While I do not want to appear as a doctor of gloom, the reality of the current situation is not good. We have massive government budget deficits, burgeoning national debt, expansionary monetary policies that will not rectify the high levels of unemployment but will debase the value of the US dollar and euro, and slow GDP growth in most western countries. We also have governments falsifying economic data, and price manipulation in gold and silver. We also have bank bailouts as well as country bailouts. And, we have politicians who are not trustworthy, corrupt bankers, traders and government officials, not to mention geopolitical tensions. In such a scenario, one would be well advised not to be hoodwinked by the usual political rhetoric and take precautionary measures to protect your wealth. The one sure way to do this is to own gold and silver.
TECHNICAL ANALYSIS

Since October, the price of gold has held above $1325 an ounce. Now, it is testing the resistance at $1425. A beak above this level could establish a new trading zone for the yellow metal.
About the author
David Levenstein began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients. www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.

Mineweb.com – The world’s premier mining and mining investment website Gold showing its safe haven properties – INDEPENDENT VIEWPOINT | Mineweb

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(BN) Copper Faces 2-Year Shortage, Peak Over $10,000, Trafigura Says


(BN) Copper Faces 2-Year Shortage, Peak Over $10,000, Trafigura Says
2010-12-07 09:29:56.282 GMT

By Claudia Carpenter
Dec. 7 (Bloomberg) — Copper supplies will lag demand for
at least the next two years, with prices peaking over $10,000 a
metric ton in the second quarter next year, according to
Trafigura Beheer BV, which considers itself the world’s second-
largest trader of industrial metals.
Copper will move from a balanced market this year to
shortages of 800,000 tons in both 2011 and 2012 at current
prices, Simon Collins, head of refined metals at Trafigura in
Lucerne, Switzerland, said in an interview yesterday. That’s
even before demand climbs as exchange-traded funds backed by the
metal are introduced, he said.
Such funds “will result in higher prices, which in turn
will affect price-sensitive demand and price-sensitive supply,”
Collins said. “Consumers are concerned about an ETF.
Inventories are already relatively low.”
Copper prices are up 21 percent this year, and reached a
record $8,973.50 a ton today, partly as manufacturers and other
buyers who anticipate shortages build inventories to meet demand
for next year, Collins said. Imports into China, the world’s
largest consumer, typically are strongest in the second quarter,
helping to boost copper prices and leading gains in lead, nickel
and aluminum, he said. Copper stockpiles tracked by the London
Metal Exchange have slid 30 percent this year.
In 2006, the copper market was also forecast to have a
large deficit when higher prices brought the market further into
balance than originally estimated, Collins said. If prices rise,
next year’s deficit may be only 400,000 tons, he said.
Copper Trading
Trafigura trades about 1 million tons of copper a year,
Collins said. Glencore International AG is the largest trader of
industrial metals, according to Trafigura estimates.
Trafigura is preparing for more metals demand by customers
and increasing its warehouse capabilities through its subsidiary
NEMS, with plans to expand in the U.S. next year for the first
time with storage facilities in Baltimore and New Orleans, as
well as in China, Collins said. He declined to give an estimate
of the investment.
Copper demand may rise if JPMorgan Chase & Co., BlackRock
Inc. and ETF Securities Ltd. start ETPs backed by the metal, in
line with plans announced by all three companies in October.

For Related News and Information:
Top commodities: CTOP <GO>
Top shipping: SHIP <GO>
Searches: NSE <GO>
Commodity curves: CCRV <GO>
–Editors: Dan Weeks, John Deane.
To contact the reporter on this story:
Claudia Carpenter in London at +44-20-7330-7304 or
ccarpenter2@bloomberg.net
To contact the editor responsible for this story:
Claudia Carpenter at +44-20-7330-7304 or
ccarpenter2@bloomberg.net

Gold extends rally to Globex, trades above $1,410 Metals Stocks – MarketWatch


Metals Stocks
Dec. 5, 2010, 9:33 p.m. EST

Gold extends rally to Globex, trades above $1,410

By Myra P. Saefong, MarketWatch
TOKYO (MarketWatch) — The most-active futures contract for gold climbed as much as $10 an ounce on Globex by Monday morning in Tokyo, poised to extend last week’s rally as investors sought refuge in the precious metal against a backdrop of uncertainty surrounding sovereign debt and U.S. dollar weakness.

The most-active February gold contract climbed as high as $1,416.70 an ounce in electronic trading on Globex. It then pulled back a bit to $1,412.80, trading $6.60 higher in late morning dealings.
The contract had posted a 3.2% gain last week after tacking on nearly $17 on Friday to end at $1,406.20, just short of a fresh closing record. The record close for a front-month contract was $1,410.10 seen in early November. See Friday’s metals story.
The front-month December gold contract was last up $7 at $1,412.40.
“Metals rallied last week as the U.S. dollar turned lower, fears of the sovereign debt crisis intensified after Ireland agreed to a bailout, and some good economic news boosted hopes for increased demand,” Mark Leibovit, chief market strategist for VRTrader.com, said in his VR Gold Letter report dated Monday. “All this uncertainty is driving precious metals higher.”
“Of course, the money creation by the [Federal Reserve] and [European Central Bank] is driving their currencies down and, thus, commodities are rising,” he said.
Adding fuel to the rally was news last week that China’s securities regulator has given the green light to a mutual fund to invest in foreign exchange-traded funds backed by gold. Read more about the gold fund of funds.

Gold extends rally to Globex, trades above $1,410 Metals Stocks – MarketWatch

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Supply Squeeze of Physical Gold and Silver May Be Heating Up | Coin Update News


Within the past 48 hours, as gold and silver have broken to new highs (ignoring inflation), there are some indications that demand for physical precious metals may be on the rise.

Supply Squeeze of Physical Gold and Silver May Be Heating Up

My company does not deal with the customers who make purchases of tens to hundreds of millions of dollars at a time. Such buyers normally deal direct with the major brokers in London or New York. Instead, our median purchaser of gold and silver bullion-priced products probably spends less than $5,000 per transaction. We do have a number of customers who regularly spend five or six figures and the occasional seven figure deal, but my company’s total volume is unimportant when compared to total global precious metals trading.
Still, we are in constant communication with several primary distributors of products for the US Mint and other world mints that issue bullion products. We also keep in touch with a number of other wholesalers across the country. If there is a change in product availability or price level, we learn about it quickly.
Today my company enjoyed one of its five highest retail sales days of the past 30 years. As we were contacting wholesalers to replenish our inventories, we picked up what may be significant indicators that a supply squeeze of physical gold and silver could be heating up.
Three different wholesalers who are primary distributors for the US Mint told us that they have experienced a sharp increase in demand for physical silver coins and ingots in the past 48 hours.
When we tried to purchase a quantity of South Africa 1 Ounce Gold Krugerrands, we were also in for a shock. Yesterday, these coins were available pretty much everywhere, with wholesalers competing to sharpen their pencils to shave their ask price. Today, two of the wholesalers were completely out of Krugerrands for live delivery. Our cost to purchase these coins increased almost 0.5% more above the gold value than they did just the day before!
One more indicator of a potential supply squeeze is the “spot” price quoted by wholesalers. For protection in volatile markets, wholesalers often use two different spot prices, depending on whether they are buying or selling. For our last large silver order today, the distributor used an ask silver spot price that was eight cents higher than its bid spot price. Previously this company had used the same spot price for both buying and selling or had a maximum spread of just four cents for silver.
Our suddenly zooming retail demand and reports that this may be happening across the country, if it continues for a few more days, could spark another buying frenzy such as we experienced in late 2008. Two years ago, availability was so tight that it was not unusual for customers to have to wait at least a month after making payment to receive their merchandise. In 2008, premiums soared for just about any live physical gold and silver. At the peak, bags of US 90% Silver Coins were selling retail for about 40% above their intrinsic metal value!
Along with my expectations of higher gold and silver prices, I have also predicted that supplies of physical metals would dry up. This may be now occurring. However, we cannot be sure until we see the pattern continue for another couple of days. Should this pattern continue through next Tuesday afternoon, I would recommend not waiting any longer to establish your position in precious metals. To be extra safe, you may now want to wait even that long.

Supply Squeeze of Physical Gold and Silver May Be Heating Up | Coin Update News

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In which phase of the gold bull market are we?


In which phase of the gold bull market are we?

Gold is seen as transitioning from phase 2 to phase 3 in an ongoing bull market which still has some way to run

Author: Ronald Stoeferle
Posted:  Friday , 25 Jun 2010 

VIENNA (Erste Bank) – 
A central pillar of the Dow Theory is the description of the phases of a bull market. According to Dow the three phases reflect the confidence of the investors:  
– 1. Accumulation 
– 2. Participation of the public 
– 3. Distribution  
The first phase is dominated by a drawn-out process. We think that this phase was happening in 1999 to 2003. At the beginning, only “early adaptors” are invested. The fundamental picture tends to be bleak, and there is a selling overhang. The longer this phase takes, the stronger the development in phases 2 and 3. For example, the oil price was traded within a bandwidth of USD 10-35 for more than 25 years. In 2004 it broke out of this range and increased to USD 147/barrel within four years. Something similar happened on the equity markets. The Dow Jones index traded within a bandwidth of 600 to 1,000 points from 1962 to 1982. The outbreak was followed by 18 years of bull market, which took the index to 11,700 points or +1,400% (annualised performance 16.5%). This is the nature of a bull market.  
The second trend phase is characterised by improved fundamentals, higher confidence, and new groups of investors. And lastly, phase 3 is the euphoric phase that culminates in a “blow-off”, i.e. in a parabolic increase. At the end of each cycle the smart money is distributed.  
The following chart, depicting the sharply rising volume of contracts at the COMEX, highlights the soaring interest that is integral to a bull market.
From our point of view we are currently located at the transition from phase 2 to phase 3. Gold is getting gradually more accepted as an investment vehicle. Legendary investors such as Paul Tudor Jones, John Paulson, and David Einhorn have reported purchases of gold, the turnover is increasing, and numerous new products are being launched. In addition, gold is becoming more and more important in the asset allocation of institutional investors. We think that the passing of the “magic” USD (or EUR) 1,000/ounce mark heralds the imminent start of the trend acceleration phase. We saw a similar situation when oil increased above USD 100/barrel.
If we compare the current bull market to the most recent big gold rush, we can see a pronounced distribution phase that ended in a parabolic “blow-off”. The finale phase ended in January 1980 at a high of USD 850/ounce. In the course of the previous ten trading days the price increased by 35%, in the previous six weeks the price had almost doubled (+94%). The same thing might occur in the final phase of the current bull market.
 “Buying the dips” seems to be the motto of the current phase. Within the corrections, gold moves from weaker to stronger hands. Consolidations in the current bull market have become shorter and less pronounced in terms of the underlying trend. We have seen this very development since the beginning of 2009. As soon as the corrections turn really small, the market will probably make the transition to its final phase. The transformation definitely has psychological reasons. The unshakeable myths and misunderstandings (gold does not pay interest, buying physical gold is expensive, gold is speculative and volatile…) are being de-mystified. Given that many of such arguments, defamations, and convictions were deeply engrained after a 20-years’ bear market, the change of heart is accordingly drawn-out and tedious.
Gold is a gauge for risk, and thus the currency of fear. In that sense, both fear and greed can trigger the often-quoted “irrational exuberance” and thus the parabolic increase in the final phase.   
It is a fact that gold is certainly no contrarian investment anymore, as opposed to 2000, although investors are still sceptical, and the same old arguments still abound in the market.
Having a closer look at the sentiment, we find that we are far from anything like euphoria, so gold is definitely no mainstream investment. In comparison with the Nasdaq at the beginning of 2000, gold is certainly more of a dark horse. If one were to ask ten people for names of three gold mining shares, chances are they would not know any. This is a stark contrast to the situation a couple of years ago when the vast majority of people were talking about technology shares and invested in highly speculative start-ups, or US consumers who were taking out mortgages, hoping to benefit from continuously rising property prices.   
The numbers, too, substantiate the notion that the parabolic phase of gold should still be ahead of us. For example, the Nasdaq 100 index increased by 85% in 1998 and by even 102% in 1999. It rose by an additional 27% in 2000 before collapsing at the end of March. At the end of the bull market, 30 shares had gained more than 1,000% by 1999. Is the comparison of trends in different asset classes admissible? We certainly think so, given that human behaviour patterns and emotions in extreme phases are the same. Greed and fear determine the beginning and the end of bull markets. Therefore we assume that gold and gold shares could show a similar performance to the one of the Nasdaq at the end of the 1990s.
The last bull market came to an abrupt end in 1980. The then chairman of the Federal Reserve, Paul Volcker, increased the key lending rates to 20% within only a few months. Could this be possible today? Definitely not! In 1980 the USA was one of the biggest creditor nations in the world and had a positive trade balance. On top of that, the financial industry was substantially smaller in terms of the GDP, and excessive debt was neither in the private nor in the public sector an issue.
The above article is abstracted, with permission, from the Erste Bank 85-page analysis of gold and the gold market prepared by Ronald Stoeferle and entitled Special Report Gold – In Gold we trust (2010)

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