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SilverAndGoldShop.com - News
Silver `Looking Cheap' Lures Investors, Prompting Decline in Ratio to Gold ~ Bloomberg

August 28 , 2010

Issue 76


SGS Notes:
Thursday, Aug. 26th was the expiration date this month for Options…traditionally, gold and silver prices DROP on this day every month... The day began with silver priced just around $19/oz… price ROSE to almost $19.20 then closed the day at $18.92… some forecasters were watching this with interest as a sign that the long manipulation of precious metals is coming to a close.

Silver `Looking Cheap' Lures Investors, Prompting Decline in Ratio to Gold
Glenis Sim, Bloomberg
August 26, 2010

The ratio of gold to silver dropped to a three-week low after gold's rally to the highest level in eight weeks prompted some investors to buy the white metal.
An ounce of gold bought as little as 64.96 ounces of silver today, the lowest amount since Aug. 5, according to Bloomberg calculations. Silver has outperformed the yellow metal since Aug. 23, gaining 6 percent compared with gold's 1.4 percent gain, as investors bought the white metal because of its relative cheapness to gold.

"Silver is unique in that it is a precious metal and an industrial metal," Wallace Ng, executive director of commodities at ABN Amro Bank NV in Hong Kong, said today. "Gold is traditionally viewed as a safe haven but silver is never far behind as a second choice."

Silver for immediate delivery rose as much as 1.1 percent to $19.11 an ounce, the highest price since June 28, and last traded at $19.0525 at 3:33 p.m. in Singapore. Gold was little changed today after climbing as high as $1,241.50 an ounce yesterday, the highest price in eight weeks.

Holdings in the iShares Silver Trust, the biggest exchange- traded fund backed by silver, increased on Aug. 24 for the first time in six weeks. The metal doubles as a store of value for investors concerned about the economy and as a raw material. Industrial applications including electrical conductors and batteries account for about half of demand.

'Looking Cheap'

"Silver is looking cheap and we're seeing strong investment demand for small ingots, as well as good industrial demand from solar-panel makers," Dick Poon, Hong Kong-based manager of precious metals trading at Heraeus Ltd., said today. The solar industry will consume up to 1,500 metric tons (48 million ounces) this year, Poon estimates.

"Even if investors are expecting another downturn, there will always be demand for alternative sources of energy," said Poon. "We could see prices back up above $20 very soon." Silver last traded at more than $20 in March 2008.
Silver lagged behind gold this month through Aug. 23, losing 0.1 percent compared with the yellow metal's 3.8 percent gain in the period, as investors turned to bullion to preserve wealth on concerns that the global economic recovery was weakening.

"We're bullish on both silver and gold," said ABN's Ng. "Even though we've see more festival demand from India in the past few years because of higher gold prices, silver can never replace gold in that market. They may buy less, but they will still buy gold and that should keep prices supported."

The wedding season in India, the world's largest gold consumer, runs from November to December and from late March through early May.


Sale Continues at SGS!
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Other Articles of Interest

Mr. Obvious Hands a Blind Squirrel a Nut

Bullion As An Alternative
To Shorting - 1 of 3 part series

 


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Quote of the Week

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered . . . I believe that banking institutions are more dangerous to our liberties than standing armies . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

- Thomas Jefferson
 


This Week's Video

 David Morgan:  Time To Buy Silver!

 

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All That Glitters ~ Aden Sisters

Issue 75

 All That Glitters
Mary Anne & Pamela Aden
The Aden Sisters, from www.adenforecast.com
August 13, 2010

 

It was another action packed month. The volatility never seems to end, at least that's the way it's been for many months now… actually, for the past few years.
The markets have essentially been reacting to the news of the day for what seems like ages. When the news is good, they rise. When it's bad, or perceived to be bad, the markets get nervous, they become vulnerable and they decline. And investors simply don't know what to do. They're still edgy and uncertain. And as long as this continues, the entire outcome could go either way….

STAY WITH GOLD
So what's an investor to do? Stay in gold. Despite its recent volatility, it's the one investment that benefits during times of uncertainty. As you've seen, it does well during good times and bad. That's been true throughout history, and it still is.

The numbers back this up. Gold, silver and metals related investments have by far been our top performing sector since we first recommended them over the past decade. This year has not been an exception. Again, they've been the top performing group.

So where does that leave us? We're planning to keep most of our metals related investments for the long haul. Considering what's happening behind the scenes, we currently don't see a better alternative. That's especially the case for gold. Why?

There's an old saying that goes…. watch what they're doing, not what they're saying. So we're not being blind gold bugs because again, the numbers show what they're doing…

A SAD TALE...

Even though we've talked about this for years and we don't mean to sound like a broken record, but something very important is happening that you should be aware of…

This year, for instance, the U.S. national debt has already reached 87.5% of GDP. It's expected to hit 93% this year and over 100% of GDP within five years, a far steeper increase than almost any other country, says the IMF. And the aging baby boom population, along with their future needs, pretty much guarantees this.

The rule of the thumb is that over 90% of GDP a country stagnates and it doesn't move ahead. But the U.S. is not alone.

Italy and Japan are already over 100% and we know what's happened in Japan over the past couple of decades. Zimbabwe is an extreme case, at 240% and we know that terrible story too. Other countries, while still well below the U.S. number, are moving up too. It's a trend, most prominent in the developed countries.

This tells us that hard times are coming. If so, then what we've seen in recent years has been an intro to the years ahead. Yes, there will be ups and downs. There always are but things will be different. Stagflation, unemployment, inflation, global power shifts, recessions, higher taxes and lots of other repercussions will be the likely effects. As our dear friend Harry Schultz notes... Biflation - a simultaneous inflation and deflation - is yet another possibility.
This doesn't necessarily mean the end of the world is coming as some are suggesting. And here too, Japan and Italy provide examples.

Sure they've had serious problems but they're basically still plugging along, despite their repercussions. But again, things will be different and those who've been hoping for a return to the good ol' boom days will be sorely disappointed.
Considering that the U.S. is issuing new debt this year that's nearly equal to the rest of the world combined, the picture remains pretty dismal. So we need to be prepared for what's to come.

For now, central banks are buying more gold. And even some Wall Street types, who have traditionally shunned gold, are now starting to take note. This will continue as this new era, as we call it, intensifies.

HIGHER DEMAND

Gold is showing the world how it reacts to difficult times. Better said, it's showing how people and governments react during times of uncertainty.
Russia increased its gold reserves in May in the biggest one month increase ever, while Saudi Arabia is now saying they have twice as much gold as last reported.

Central banks were net buyers of gold in 2009, which is very powerful because it means they do not want to sell their gold like before.

You may remember the Central Bank Gold Agreement under which central banks were allowed to sell 400 tonnes of gold each year. Sales went on, but by 2008 sales were way down. In 2009 central banks were buying more than they were selling and 2010 will surely be similar, as we've been seeing.

Gold demand is building but gold fever is nowhere near. You will recognize it when it comes because there's no fever like gold fever.


Sale Continues at SGS!
The Prospector Round
1 Troy oz. 999 Fine Silver


Special Pricing through August 31
$.75 below other Rounds


Other Articles of Interest

Golds: Time Has Come
To Go For The Bubble


Gold & Deflation
Frank Holmes

The Golden Decade
Peter Schiff

Bubblemania: Part I
Defining a 'Bubble'

Jeff Nielsen


 


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Quote of the Week

"Until government administrators can so identify the interests of government with those of the people and refrain from defrauding the masses through the device of currency depreciation for the sake of remaining in office, the wiser ones will prefer to keep as much of their wealth in the most stable and marketable forms possible - forms which only the precious metals provide."

Elgin Groseclose
 


This Week's Video

Federal Reserve Debt
Monitization Explained

National Inflation Association

 


Well, maybe the tech fever in the late 1990s was close. Keep in mind though, the gold market is small compared to stocks and bonds, which means it could easily spike up once the fever hits.

The 1970s saw gold rise tenfold. Today gold has only risen about 400% in nine years. This good solid, steady and consistent growth provides a very bullish backdrop for a further rise in gold.

In fact, it's been almost two years now since we've seen a decent downward correction in gold. The March to November 2008 decline, when gold lost almost 30%, was the last great buying opportunity.

Gold's risen nearly 80% since that November low without more than a 14% decline. This super rise caused the bull market to move into a stronger phase last September when the gold price reached the first record high that was well above the $1000+ record highs of 2008-09 (see chart).

GOLD'S BIG PICTURE: VERY BULLISH
As you can see looking at gold's big picture since 1967, this rise since November 2008 came from a cyclical eight year low bottom that tends to precede good sized rises in gold. That's been another big plus in gold's favor, along with so many others.

The point is, despite normal ups and downs, gold remains very bullish. So again, stay with it… we strongly believe you'll be glad that you did.

 

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Monetizing Debt ~ Jim Sinclair Commentary

August 15 , 2010

Issue 74

 

Monetizing Debt
Jim Sinclair Commentary
August 12, 2010

Bloomberg announced the Fed is buying Treasuries on the open market today.
The process of a central bank buying the debt of the nation it represents is called "Debt Monetization."

The following is a reasonable review of what the process is and the results thereof. This time the form of the result will be "Currency Induced Cost Push Inflation."

Gold will trade at $1650 and above.

Monetizing debt

In many countries the government has assigned exclusive power to issue or print its national currency to independently operated central banks. For example, in the USA the independently owned and operated Federal Reserve banks do this.[1] Such governments thereby disavow the overly convenient 'slippery slope' option of paying their bills by printing new currency. They must instead pay with currency already in circulation, else finance deficits by issuing new bonds, and selling them to the public or to their central bank so as to acquire the necessary money. For the bonds to end up in the central bank it must conduct an open market purchase. This action increases the monetary base through the money creation process. This process of financing government spending is called monetizing the debt.[2] Monetizing debt is thus a two step process where the government issues debt to finance its spending and the central bank purchases the debt from the public. The public is left with an increased supply of high powered money.

Effects on inflation
When government deficits are financed through this method of debt monetization the outcome is an increase in the monetary base, or the money supply. If a budget deficit persists for a substantial period of time then the monetary base will also increase, shifting the aggregate demand curve to the right leading to a rise in the price level.[3]

To summarize: a deficit can be the source of sustained inflation only if it is persistent rather than temporary and if the government finances it by creating money (through monetizing the debt), rather than leaving bonds in the hands of the public.[4]

Examples
Monetizing the debt can be used as a component of quantitative easing strategies, which involve the creation of new currency by the central bank, which may be used to purchase government debt, or can be used in other ways.
However, there can be an insidious effect. As one observer noted:
When governments reach the point where they are borrowing to pay the interest on their borrowing they are coming dangerously close to running a sovereign Ponzi scheme. Ponzi schemes have a way of ending unhappily. To get out of the Ponzi trap, governments will have to increase tax revenues, or cut spending, or monetize the debt-or most likely do some combination of all three. [5]

SGS Notes: This is what many of the experts (NIA and others) have been saying for a long time will happen. This monetization will spark hyper-inflation…


On Sale Now at SGS!
The Prospector Round
1 Troy oz. 999 Fine Silver


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Other Articles of Interest

What Do We Learn
From History?


Inflationary Recession
& Nightmare German
Inflation of 1923


Bullion As A Superior
Investment


3 Reasons You Should
Buy Gold Right Now


An Inflation Primer

from Mises.org

 


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Quote of the Week
The Tyranny of a prince in an oligarchy is not so dangerous
to the public welfare as the apathy of a citizen
in a democracy.

Montesquieu,
Spirit of the Laws


This Week's Video

UBS Advises Take Delivery of
PHYSICAL Gold & Silver

 

 

 

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Deflation Threats Are Best Contrarian Indicator ~ National Inflation Association
August 8 , 2010
Issue 73

SGS Notes: Follow-up Article to last week's article on gold & silver capitulation…

Deflation Threats Are Best Contrarian Indicator
National Inflation Association

The amount of deflation rhetoric in the mainstream media has been continuing to surge this week. Yesterday there was an article in the Wall Street Journal entitled, "Defending Yourself Against Deflation" and on Monday Paul Krugman wrote an editorial in the New York Times entitled, "Why Is Deflation Bad?". We decided to do a simple Google News archive search to see when previous spikes in media chatter about the topic of deflation have taken place.

The largest spike this decade in articles about deflation came in May of 2003. At that time, the Dow Jones was 8,500, the price of gold was $350 per ounce, and the price of oil was $30 per barrel. The Dow Jones went on to rise for four years straight reaching a high in 2007 of 14,198 up 67%. Gold went on to rise for seven years straight reaching a high this year of $1,248 per ounce up 257%. Oil went on to rise for five years straight reaching a high in 2008 of $147 per barrel up 390%.

The second largest spike this decade in articles about deflation came in November of 2008. At that time, the Dow Jones was 8,000, the price of gold was $725 per ounce, and the price of oil was $50 per barrel. Since then, the Dow Jones has risen as high as 11,257 up 41%, gold has risen as high as $1,248 per ounce up 72%, and oil has risen as high as $88 per barrel up 76%.

NIA has come to the conclusion that the mainstream media talking about deflation is the most accurate contrarian indicator out there. The false threat of deflation in 2003 came at the beginning of the biggest rise in asset prices in U.S. history. The false threat of deflation in 2008 came almost exactly when stocks, precious metals, and commodities had reached their bottom. NIA believes that the threat of deflation today could mean that the biggest move to the upside for gold and silver in history is right around the corner.

Investors today are currently faced with a dilemma. It is becoming increasingly obvious that the U.S. economic recovery is phony, but the U.S. dollar is rapidly being debased. The U.S. dollar is no longer a safe haven and with the fundamentals of our economy continuing to deteriorate, stocks and Real Estate are no longer attractive investments. The only asset class suitable to protect investors from both inflation and our collapsing economy is precious metals.

The U.S. Dollar Index has been in free fall since early June and could be setting up for a crash. Yu Yongding, a former Chinese central bank adviser, wrote on Monday, "I do not think U.S. Treasuries are safe in the medium-and long-run." According to Yu, a "scary trajectory" of budget deficits and a growing supply of U.S. dollars has put the value of China's U.S. Treasuries at risk. Yu is concerned that China has no way to sell their U.S. Treasuries in a "big way".

Of course China has no way of selling their U.S. Treasuries in a "big way". China needs to continue buying larger amounts of new U.S. Treasuries in order to keep this ponzi scheme going. If China decided to sell in a "big way", the only buyer out there will be the Federal Reserve and we will see immediate hyperinflation.

With the U.S. dollar in rapid decline, the price of crude oil surged yesterday to over $82.50 per barrel. Surging crude oil prices will help contribute to across the board price inflation in the months ahead. The sentiment on Wall Street will quickly shift from fears of deflation to fears of massive inflation as soon as the bankers on Wall Street who are in control of the mainstream media are done accumulating their positions in precious metals.
 


Stagecoach Bars back in stock
Our Stagecoach Bars are back in stock this week, for those who have been waiting for them. Supplies are limited…
These popular bars are getting more difficult to obtain and carry a 6 week delivery time for us. We have no way to predict sales on them, and sometimes our inventory gets depleted; hence the wait when they are out of stock.

 

 


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"The collapse of the U.S. economy is a certainty - only the manner in which it will happen has yet to be determined. It is just a matter of time before the global derivatives bubble will produce the same result that has occurred to every other currency not backed by gold throughout history - those currencies, our 'money,' will become worthless."

Jeff Nielson
 


This Week's Video

 

 
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Gold Movements Suspect
By Patrick A. Heller
August 03, 2010
from Numismaster.com

A rough rule of thumb I follow is that once is a coincidence and twice is a pattern. There has been a run on COMEX silver inventories since June 16. Now there are strange developments with COMEX gold inventories.

There were unusual movements of COMEX gold inventories on July 28 and July 30 that 1) coincidentally roughly equaled what was needed for the sellers of contracts to meet delivery requirements, and 2) may indicate that unusually large quantities of COMEX gold will be withdrawn by the end of August.

The COMEX reports two forms of gold (and silver) inventories. All are stored in bonded warehouses. The first category is registered inventory, which are committed to delivering against open contracts. It is useful to think of this as dealer inventories as they really represent trading positions rather than investment holdings. The second category is eligible inventory.

Because they are in bonded warehouses, they are eligible to be delivered against COMEX contracts if the owner of the metal so chooses. However, the owner may also chose not to make this metal available to deliver against a COMEX contract and just use the bonded warehouse for only storage purposes. The advantage to an investor is that it gives him or her the flexibility to go in either direction. The eligible inventories are often referred to as customer inventories.

On July 28, there was a sizable withdrawal of 96,592 ounces from dealer inventories. This is relatively close to the 89,400 ounces of gold standing for delivery of maturing July contracts, which is not particularly remarkable by itself. However, on that day, there were still 112, 977 open August contracts, representing 11.3 million ounces of gold. This liability exceeds the entire COMEX registered and eligible gold inventories. What is unusual this time around is that normally contracts maturing within a month have long since been closed out or rolled over into future months. Though only a small percentage of these maturing August contracts are likely to be delivered, there is a strong likelihood that deliveries in the next month will be much higher than usual. If this is developing, the move on this day to deliver so much gold against maturing July contracts may have been a ploy to create the image that available physical gold is plentiful.

Owners of August long contracts would need to state by July 30 whether they were going to close out (by selling their contract), roll over, or stand for delivery of their contracts. If the delivery option is selected, the contract must be fully paid by that day.

On July 30, a massive 367,716 ounces of gold (3.2 percent of all COMEX registered and eligible inventories) were reclassified from customer inventory to dealer inventories. The same day, JPMorgan Chase issued delivery notices of 368,500 ounces, virtually identical to the amount that was reclassified.

Gold and silver COMEX contract prices went into backwardation on July 23. In normal commodity markets, the prices of future month contracts are higher than the current or “spot” month, typically by the amount of the interest rate and transaction costs. The standard condition is called contango. When the spot month price is higher than one or more future months, the market is said to be in backwardation. If spot month prices remain higher than the near future months for more than two or three days, that is a sign of a physical supply squeeze, which often foretells a near term rise in the price.

At the close on July 29, the COMEX July, August and September gold contracts settled at the exact same price. While not technically in backwardation, it is also not a normal contango market. The moves of COMEX gold inventories on July 28 and July 30 could be indicators of one or more of the following conditions:

• There is a supply squeeze where there just isn’t enough gold to meet delivery requirements; or,
• One or more dealers such as JPMorgan Chase may literally have no metal immediately available to meet delivery requirements; or,
• Much larger than normal amounts of gold will be withdrawn from COMEX warehouses in the next month.



These moves of COMEX gold inventories are the akin to the run on COMEX silver inventories since June 16. If both are happening at the same time, as I suspect, they will almost certainly result in much higher precious metals prices by September. Roughly two months ago, I thought there was a high probability for much higher gold and silver prices by the end of July. That did not happen. I think my conclusion as to the direction of the market is still valid, but the timing will take one to two months longer than I originally thought.

Another significant news development not covered by the mainstream American media:

On July 29, London’s Financial Times ran a story explaining what their researchers think was behind the huge gold swaps handled by the Bank for International Settlements this year.

The Financial Times reported that more than 10 banks based in Europe swapped gold to the BIS in order to obtain U.S. dollars. Among the participating banks named in the article are HSBC, Societe Generale, and BNP Paribas. Two central bank officials told the paper that the commercial banks needed the U.S. dollars to meet demands from depositors to withdraw funds from the dollar accounts. The article does not speculate why investors may want to liquidate their holdings of U.S. dollars, but I think the main reason is a concern about the future decline in the value of the dollar.

The article goes on to say that much of the gold used as collateral in the swap came from the unallocated accounts of private investors. Although these investors, in theory, own the gold in unallocated accounts, this gold is now subject to a prior claim by the BIS should the owners want to remove or sell their position. This very possibility is one of the reasons I have urged readers to close out their unallocated gold storage accounts and turn them into physical gold under their direct control. Other gold for the BIS swaps was leased from central banks in emerging nations.

These swaps emphasize what I have regularly stated – gold is a safe financial asset that is more desirable for collateral than any of the world’s currencies. The central banks may talk about this not being true, but their actions belie their words.

Here’s one story that did get mainstream media coverage:

The Houston Chronicle carried a recent story disclosing that the University of Texas Investment Management Co. had allocated $500 million to purchasing gold, nearly 3 percent of the university’s total investment fund of $22.3 billion. On Aug. 1, the Chronicle carried a story discussing the reasoning behind this change in investment direction. The first reason discussed was the growing U.S. debt crisis. UTIMCO’s CEO, Bruce Zimmerman, also mentioned fiscal and monetary stimulus programs as being a potential source of inflation, where gold would typically outperform other asset classes. About the growing federal budget deficit, the article even quoted former Federal Reserve Chair Alan Greenspan as saying, “Unless we start to come to grips with the long-term outlook, we are going to have major problems. I think we misunderstand the momentum of this deficit going forward.”