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Thursday, December 29, 2005

Numbers Supporting Future High Prices for Gold and Silver

A year or two ago Jason Hommel put together a list of numbers that indicate the extent of future demand for gold and silver. They are quite striking. They put the worlds of

1.) money (something that is nobody's liability)
2.) currency (a note, financial contract, financial instrument)
3.) government fiat tokens (paper and digital bits temporarily used as money
and currency) (in the history of the world, there has never been a token that did not become worthless)

in perspective relative to each other and more specifically to gold and silver, and gold and silver shares (stocks).

Here is a sampling of 35 numbers that Jason has put together:

1.) $200,000,000,000,000: Estimated total derivative exposure of all banks in the entire world. (20 x U.S. GDP)
Warren Buffett, founder of Berkshire Hathaway, has refered to otc derivatives as "financial weapons of mass destruction". James Sinclair (jsmineset.com) has referred to them as the "greatest criminal activity in the history of mankind".

2.) $118,000,000,000,000: World Global Capital Markets (Stocks, Bonds, &?) Feb 2005 McKinsey Global Inst.

...

14.) $1,860,000,000,000: World "official" gold mined in all of history, 145,000 T (4.6 bil oz.) @ $400/oz. http://www.gold.org/discover/knowledge/faqs/index.html

...


27.) $288,000,000: 40 mil oz. of "registered" COMEX silver bullion (1-05-05) @ $7.5/oz. http://www.nymex.com/sil_fut_wareho.aspx


...

At http://www.silverstockreport.com/ Jason has a link to his "FREE Silver Stock Report Archive" where you can get the rest of the numbers. The "Silver Stock Report" is a very long .html page/file and is well worth the read. There is also a long list of silver producers and explorers if you are looking for candidates.



There is a money manager, Monty Guild (Guild Investment Management), out there who is starting to think publically in his unscheduled news letter about the over all demand and supply picture of gold and silver. This is what he is figuring so far. He is still working on
estimating the current market capitalization of the gold producing industry.

"A recent survey of institutional money managers by Barclays Capital confirms the subjective ad hoc research that my contacts in the institutional investment world have provided me.

In conversations over recent weeks, my contacts have said that they plan to put 5% of their massive pension fund, mutual fund and hedge fund assets into gold. Independently, it came to my attention today that Barclays Capital did a survey of their institutional clients and 70% of them said they would have 5% of their assets in gold in three years time.

This is extraordinary, and would require a huge price rise of existing gold mining shares to accommodate all of that money. For example, Newmont Mining has a market capitalization today of about $23 billion dollars, Barrick Gold about $15 billion, and these are the big companies in the public gold mining sector. I am researching the total market capitalization of all public gold mining companies but it cannot be very high. Certainly, it is a great deal smaller than $460 billion dollars.

The total investment capital in the world is rumored to be about $46-$50 trillion. Now 5% of $46 trillion is $2.3 trillion and 1% of $46 trillion is $460 billion. If the amount of gold shares purchased over the next three years equals even $460 billion it will cause the total value of all listed gold shares to skyrocket."


[It sounds to me that these institutional "money" managers, as they are called, are late already and are going to be even later getting their customers fiat tokens properly positioned for the current gold and silver bull markets] [But, what do you expect from the herd of "money" managers in the world? They are, after all, part of "the crowd". And "the crowd" is always wrong or very late.]


There are more numbers / statistics / graphs at this digital gold currency exchanger's site: anygoldnow.com

Friday, December 23, 2005

Increasing Demand for Metal at the COMEX

The number of COMEX contracts standing for delivery of gold metal rather than USD has about doubled for the December gold contract versus the October gold contract.

The number of COMEX contracts standing for delivery of silver metal rather than USD has increased about 6 -7 times for the December silver contract versus the October silver contract.

You can see this data in chart form here:
http://www.financialsense.com/editorials/conrad/2005/1222.html

Both gold and silver have broken their short term down trend lines. Another sign that their reaction to the down side is over.

Saturday, December 17, 2005

Tidbit From the "Cafe"

From Le Metropole Cafe, that is:

"Just saw Martin Renneke of Bridgewater Associates on Bloomberg TV. He is a European with a Swiss accent and a senior investment strategist at that firm. He says there is essentially no limit to how high gold can go in this environment. He says that in Weimar Germany the annual inflation rates moved yearly from 6% to 20% to 600%, to 18,000% to a couple of billion percent inflation. He quotes a study by S&P that concluded that most of the developed world's bond paper will be junk in 30 years. There is 25 Trillion of US treasury paper out there and all the gold ever mined is worth about 2.5 trillion, of which only a tiny percent is available for transaction. He says inevitably bond money will go into gold for security. He said it was highly significant that "Helicopter Ben" Bernanke [his words ONSCREEN--ho ho ho] will be beginning his reign with the elimination of M3 data. He says gold will outperform all other asset classes and there is essentially NO CEILING on how high it might go."

The Cafe's subscription price is just this side of stealing.

Bridgewater's Hennecke Comments on Gold

Bridgewater's Hennecke Comments on Gold, U.S. Bond Market
2005-12-16 00:09 (New York)

By Paul Gordon and Meggan Richard

Dec. 16 (Bloomberg) -- Martin Hennecke, a senior manager at independent investment adviser Bridgewater Ltd. in Hong Kong, comments on gold prices, silver demand, and the U.S. bond market. Gold dropped below $500 an ounce in Asia, pacing a decline on the Tokyo Commodity Exchange after the bourse raised the cost of trading bullion to curb speculative buying.

Gold for immediate delivery fell to $495.05 an ounce, its first dip below $500 since Dec. 1.

Silver for immediate delivery declined for a fourth day in five, to $8.48 an ounce as of 1:40 p.m. in Tokyo.

...

``The immediate reason why we had the drop is the market had crossed $540 in Japan. The Japanese government increased the margin requirements for trading there, that took a little bit of the momentum off in gold.

``In the short-term, always many, many things can happen. There are a lot of banks who are also on the short side. Often even central banks are leasing a lot of gold. They've been trying to put a bit of a lid on gold prices for a long time.

``For the medium- to the long-term, precious metals are the one asset class with the most striking potential of all.''

...

``Silver is almost all used for manufacturing. This rise in demand over the last 15 years, demand for silver has almost doubled for the industrial side. With gold, you'd be surprised how much there's continued demand from the industrial side.''

...

``There will be a huge move probably out of the U.S. bond market into gold and precious metals because the deficits in the U.S. have become totally unsustainable. The U.S. government can hardly serve even the interest on their government bonds, only new money coming in that can serve the interest for existing bondholders out of tax income.''

--With reporting by Leslie Tan in Singapore. Editor: White.

-END-

Gold and Silver Bottoms

It sure looks like gold and silver have bottomed here.

Some type of a reaction should be expected after gold goes up for 8 days in a row and silver goes up 7 days in a row. These many days in a row are unusual.

Gold almost made it down (in the US, overnight) to the Fibonnaci retracemment level of 61.80% or about 490 and 1/2. Prices can come close to Fib levels or over shoot them a little bit . The spot low was 493. Good enough in my book. Silver did the equivalent to the 50% Fib level. Many newsletter writers think that gold has put in a major intermediate top. What they do not understand is the large amount of gold that central banks have to sell or lease to their compatriots/partners in crime,
the money center/investment/bullion banks. And, that central banks are runnning out of gold to lease or sell, and, that some central banks are beginning to seriously question selling or leasing gold, and, that some central banks are now buying gold. That there are monster short positions that have to be covered (which takes buying).

Give gold a couple of weeks at this level and it is up and away again.

The AMEX's HUI gold and silver stock index is saying that, too.
Here is a 6 month chart of the HUI
Where is the panic in the HUI? All the HUI did was make a slight retracement.

The HUI just recently broke up and out of a 2 year consolidation. And it held above it during this gold and silver reaction. That is a huge positive for not only the shares but for the metals themselves.
Here is a 3 year chart of the HUI

Those short gold, silver and the shares have got to be scared silly at this point.

Tuesday, December 13, 2005

The US Dollar

Yesterday, December 13, Monday, the US dollar broke down below its 3 1/2 month long uptrend line. This should be quite disturbing to the dollar bulls.
Which can be seen in this 6 month daily price bar chart

Here is a good detailed 8 month long chart of the top of the last bull market in gold.
http://news.goldseek.com/GoldSeek/1134140466.php

Tuesday, December 06, 2005

Tidbit from Le Metropole Cafe

Bill Murphy at Le Metropole Cafe ( www.lemetropolecafe.com ) has nailed down what the gold market has been all about for a fair number of years, since the late '90s. Here is a little about what has been recently going on in the gold market from Monday's market wrap up:

"The reasons why gold is doing what it is have been brought to your attention in recent MIDAS commentary. A quick review of some and some adds:

*New physical market buyers are overwhelming The Gold Cartel’s ability to keep the price from rising.

*Many of the gold shorts who used to trade along with The Gold Cartel are running for the hills as fast as they can.

We know this to be the case based on the latest COT [Commitment of Traders Report from the Comex] and gold open interest numbers. This was CONFIRMED again today as the gold OI [open interest on the Comex] fell 6125 contracts on Friday to 335,165. Thus, you have traditional shorts trying to cover as physical market buyers attempt to fill their own orders. Both are competing against each other on the buy side to get long and cover shorts.

The ramifications of this development are somewhat staggering. As mentioned for some time now, there is room for 100,000 new spec longs [IO on the Comex is about 100,000 less than it has been at the last previous high in Gold] to come pouring in on the buy side to send the price sharply higher from these levels. Many of the would-be buyers are just watching, not doing anything yet. Many WILL when gold takes out its 1983 high in the $510/$511 area (could do so tonight). Gold could explode from there as more of the shorts PANIC!

*As veteran commodity traders fully appreciate (any market for that matter), the best bull markets are when a market makes a substantial move to the upside and few in the investment world understand what is really going on. As Café members fully know by now, that is the case with gold … the worst reported on and least understood market in history. 90% of the material written on gold does not even reach the 6th grade level in terms of content. It is truly nauseatingly pitiful.

*Gold is moving on its own. When it receives a serious tailwind from a falling dollar, etc., it can only support the already advancing price. We received a little of that today. Oil finished up 59 cents per barrel at $59.91. The CRB gained 2.06 to 325.44 (not far off multi-decade highs even with a comatose grain market). The dollar dropped .43 to 91.45 and the euro rose .79 to 118.01."

**************

GATA (Gold Anti-Trust Action Committee) has the full story on the multi-year suppression of the price of gold. Once you understand the full story of gold, you will realize the enormous upside potential that gold and silver has.

Sunday, December 04, 2005

Catastrophe Theory and Snipits and Tidbits

It appears that catastrophe theory can be applied to financial markets and economics.

Rene Thom (1923- ) and Catastrophe Theory
"Originated by Rene Thom, catastrophe theory, a special branch of dynamical systems theory, studies and classifies phenomena characterized by a surprising production of big changes in behavior from small changes in circumstances."

Excerpt from Friday's LeMetropoleCafe's market wrapup:

"I wrote an article about Catastrophe Theory on the café along time ago. This is a well established but quite modern branch of mathematics. You can model catastrophes. If you imagine a surface that has a two levels which are connected by a gentle sloping ramp and also an overhanging cliff. You can travel between the two different levels by going up and down the ramp and nothing extraordinary happens. You can even go from the lower level to the upper level by climbing up the cliff. If, however, you go from the upper level to the lower level over the cliff you have a catastrophic drop. You can see this in many things where seemingly the same thing happens again and again but then almost the same thing happens again but with catastrophic results. Imagine approaching a dog sitting in the middle of a yard. You can probably approach him many times and stroke him and nothing happens. Now if that same dog is in the corner of the yard closed in by a wall when you approach him he suddenly bites you. The event was only slightly different but that makes the transition over the cliff instead of down the ramp.

Many market changes can be modeled by catastrophe theory. The discussion of high dollar reserves have been going on for years. It could be that they will descend down the ramp very gently and diversify very slowly and all will be fine. However, it only takes a slightly different route to make the change go over the cliff and become catastrophic. The elitist know this and this is why Greenspan is always talking about "potential problems" like today he is talking about reducing the deficits. Their hope is that nothing will then seem like an unplanned event that creates a sudden rush away from the planned smooth market trajectory to an over-the-cliff route. They are always talking about "expectations" and managing expectations. Surprises will trigger catastrophes."


Knowledgable smart cookies on the future of the US economy:

Peter Schiff, President/Chief Global Strategist, Euro Pacific Capital, Inc.
"Nowhere will the fallout [from higher long-term interest rates & the average maturity of the eight trillion dollar national debt is now under three years] be greater than in the United States, where the economy is more vulnerable than any other to the crippling effect of higher interest rates. As the world's biggest debtor, America will be forced to pay higher interest rates to creditor nations. The resulting drain on America's national income and strain on consumer spending will plunge its economy into a severe recession."

Bill Buckler of The Privateer
"In realistic practical terms, there is no way that the US economy can deliver these sums [enormous US federal debt and unfunded liabilities in the tens of trillions of US dollars] to the US Treasury so that it can, in turn, deliver them to the American public. If done through a direct increase in taxation, the result would be a public rebellion and an enormous economic depression. If done through direct inflation of the quantity of US Dollars in circulation, it would be a version of what the Weimar Republic did in the early 1920s. And the end result would be the same. ... Being unsustainable, exponential rates of change in economics are self-correcting. They correct with an enormous change of direction - always out of the blue. This is what now is on the horizon for the US."

John Williams' Shadow Government Statistics www.shadowstats.com/
"Risks of the current circumstance evolving eventually into a hyperinflationary
depression remain extraordinarily high."

Axel Weber, Chief of the Bundesbank and also ECB council member
"The current trend of the US current account deficit is unsustainable, ... An abrupt unwinding of the current imbalances could mean - massive exchange rate and interest rate movements - and, of course, a shake-up of the global economy"

Antal E. Fekete, Professor Emeritus, Memorial University of Newfoundland
"For over sixty years after the Green Silver Act [1943], America has been fortunate enough to escape that fate. This should not give it comfort. America has never been closer to fully-fledged financial bankruptcy than it is right now, an event for which the banks, businesses, and the people at large are ill prepared, making the coming shock even more devastating. The economists’ and financial journalists’ profession bears responsibility for failure to forewarn and forearm the public. Short of a miracle, America cannot avoid its fate: credit collapse, the vanishing of the value of dollar and all dollar-denominated assets such as bank notes, deposits, bonds, insurance policies, and pension rights."

Peter Warburton, in 2001, Author of Debt & Delusion
“What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.”

Paul A. Volcker, chairman of the Federal Reserve from 1979 to 1987
An Economy on Thin Ice
Article is adapted from a speech in February, 2005 at an economic summit sponsored by the Stanford Institute for Economic Policy Research
"Yet, under the placid surface, there are disturbing trends: huge imbalances, disequilibria, risks -- call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot.
...
I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand now, it is more likely than not that it will be a financial crises rather than a policy foresight that will force the change."

David Jenson, principle of Jensen Strategic
"To be clear: we face the possibility of an epic economic correction."
This quote is from DECEPTIVE WARNINGS, Nearing Economic Disruption, the Fed Distorts Perception which can be read here:
http://www.financialsense.com/fsu/editorials/2005/1208b.html#_ednref3



The USD:

One reason that has been put forth for the dollar rally is that US entities are in trouble at home and are cashing in foreign investments and repatriating the proceeds (converting their cash foreign fiat token proceeds to [buying] USD tokens).

Another reason put forth is the Homeland Investment Act which started at the beginning of 2005. It allows US companies with foreign earnings to repatiate them at a tax rate of 5.25% versus the normal tax rate of 35%. It is due to expire at the end of December, 2005.

Saturday, December 03, 2005

Silver Users Fear Silver Shortage

Press Release

Source: SilverStockReport.com

SilverStockReport.com: Silver Users Fear Silver Shortage
Thursday October 27, 3:49 pm ET

GRASS VALLEY, Calif., Oct. 27 /PRNewswire/ -- The Silver Users Association (SUA), a group devoted to the conflicting goals of keeping silver prices low and keeping silver available for users, stunned the silver investing community last month by repeating the claims made by silver investors and analysts, including SilverStockReport.com (http://www.silverstockreport.com), that the silver market is very tight and that any significant investor demand will create a shortage of silver.

The SUA made the bullish case for silver when asking the Securities and Exchange Commission (SEC) to deny Barclays' petition for a Silver Exchange Traded Fund (ETF). The Silver ETF will require Barclays Global Investors to buy up to 130 million ounces of silver prior to the approval of a silver ETF, in anticipation of investor demand for the silver ETF. But the COMEX division of NYMEX only has 117 million oz. of silver in all warehouse stock categories combined. Furthermore, COMEX market participants, through approximately 140,000 silver futures contracts at 5000 ounces each, already have claims of up to 700 million ounces of silver -- silver that may not exist.

more at:
http://biz.yahoo.com/prnews/051027/clth528.html?.v=8

Asian central banks likely to increase gold reserves



President Vladimir Putin holds a gold bar at a mineral resources exhibition in
Madagan in the Russian Far East, Nov. 22, 2005. Itar-Tass photo.

http://english.peopledaily.com.cn/200512/01/eng20051201_224958.html

" ...

Russia, Argentina and South Africa have decided this month to increase their gold reserves, which reversed the selling trend in six years by world central banks, especially European ones.

It is only a question of time for Asian central banks to follow and buy in gold: they hold 2.6 trillion US dollars in foreign exchange reserves, and able to change more of them into gold as a hedge against US dollar falls.

...

Meanwhile, they don't like holding too much dollars, so one of the way outs is simply to have more gold.

... "

True, but it will not be something to do "simply".

2.6 trillion US dollars of foreign exchange reserves can buy 5,200,000,000 billion ounces of gold (@ USD 500/oz). (USD 2.6 trillion divided by USD 500 = 5,200,000,000 ounces)

Total world new gold mine supply per year is about 2,500 tons or about 80,000,000 ounces. So if all new annual gold production was bought by all central banks, they would only be replacing about 1.5% of their government fiat token reserves with gold, for the first year of gold buying. (80,000,000 divided by 5,200,000,000,000 = 1.5)

New world gold production of 80,000,000 ounces at USD 500/oz equals USD 40,000,000,000, a small fraction of USD 2.6 trillion of cental bank reserves.

If just USD 40 billion tried to go into the physical gold market and started buying, there would be a price explosion. These central banks know they need to buy gold but they know they can not do it in any practical way that gets the job done. They are screwed.

And this is just central bank demand.

And then there are probably a couple or few central banks that may be thinking of beating the rest of the central banks to the physical gold buying.

Just another reason that the price of gold can become explosive.