May 31, 2007

Europe central banks to miss gold sale quota again

Reuters, Thu May 31, 2007 6:10AM EDT

Unlike previous occasions, gold prices have not fallen sharply despite heavy selling by central banks in the past weeks, as the market has discounted these sales, analysts said.

"The market is used to central bank sales at the levels of recent years, but it still takes a lively interest in what central banks are doing and their actions can have an effect on sentiment," said Jill Leyland, economic adviser to the World Gold Council, an industry-funded organization.

Gold prices have fallen about four percent in the past one month on a rise in the dollar and central bank gold sales.

"The market has adjusted to the increased supply from the standpoint that prices aren't tanking. The more and more they sell now without the price getting hurt too badly, the less and less they will be able to affect the price in future," said Neal Ryan, director of economic research at Blanchard & Co.

Read the entire article HERE

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May 29, 2007

Peter Grandich on gold

The snippet below is taken from today's Peter Grandich Special Alert newsletter.

...I haven’t witnessed a more pronounced bearish mood in the gold market given the least amount of price decline since this secular bull market began five years ago. Not a day goes by where I don’t read yet another formerly bullish forecaster painting a gloomy outlook for gold for the foreseeable future.

The mood among retail speculators is so thick with pessimism you can cut it with a knife. Yet, here we sit this morning with gold still north of $650 and above key support of $640.

One shouldn’t simply discard this marked increased in bearishness. For starters, gold is now in the historically weakest seasonal period of May through August. It’s also been absolutely hammered – not only by aggressive central bank selling, but by a continuing pattern of strange selling on the Comex that almost always is concentrated around the 11 a.m. time frame. The fact that this is when most of the physical buying worldwide shuts down until later in the evening in Asia is no coincidence.

It’s easy to see why gold bulls like me may be scratching their heads wondering why the bullish boat has thinned out, especially when you read so much double-talk like we are currently hearing from a so-called gold expert on one of the most read gold bullion websites. This gentleman can not only talk well from both sides of his mouth, but I often wonder if he and I are looking at the same market?
Make no mistake about it; we remaining gold bulls are on the defensive until such time that gold breaks above the all-important $700 level. Gold must hold above $640 or we are all but certain to see a test of $600 or even $575. (Please put down the gun).
But even if that were to occur (though extremely unlikely), the fundamentals remain solid for gold and by sometime in 2008 (if not sooner), we should be testing the old highs of around $875.

I continue to like the bullish side of silver, platinum, palladium, uranium and cobalt. I’m now firmly on the bearish side of most base metals.

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May 28, 2007

James Turk: Central bank dishoarding isn't breaking gold

GoldMoney founder James Turk, editor of the Freemarket Gold & Money Report and consultant to GATA, writes in commentary posted today that the recent huge increase in central bank gold dishoarding has failed to break the gold price appreciably in any major currency. That dishoarding will pass as gold consolidates, Turk writes, and soon gold will be reaching record levels in all currencies.

Gold From Different Perspectives

European central banks continue to dump gold. A new report by Don Doyle and Neal Ryan of the Blanchard Economic Research Unit observes: "ECB banks have not sold this much gold in such a short time period in the life of the 2nd Central Bank Gold Agreement. In the last ten weeks, ECB banks have sold over 120 tonnes of gold into the market ($1.9 billion in euros or $2.55 billion in dollars). In the previous six months, ECB captive banks sold only 112 tonnes into the market." Their full report is at this link:

Clearly, central banks are lining up to keep gold from climbing higher, and to keep it below the critical $700 level. Central banks, however, are only buying time. They are fighting a tidal wave of money fleeing from fiat currency into the safety and security of gold, which is the only money not dependent on some government's or a central bank's promise. This observation brings up an important point.

Because central banks can through their monetary policy control the buying power of their domestic currency, it is easy to accept the notion that they can control the value of all money, including gold. This notion, however, is incorrect because gold and national currencies are fundamentally different.

Central bank balance sheets show that national currencies are their liability, while gold they own is an asset. One does not have to be a chartered accountant to appreciate this difference. Central banks can control the value of their liabilities (i.e., their national currency) in various ways. But they cannot determine the value of gold, anymore than they can determine the value of a Picasso painting or any other tangible asset. Only the market can determine the usefulness of a tangible asset, and therefore its value.

Central banks can influence the market process, and right now by dumping their reserves, they are trying to convince the market that gold's value is questionable. But the following charts show that the central banks aren't fooling anyone. Gold is in a bull market, and in order to better appreciate the magnitude of the bull market that central banks are fighting, it is useful to look at gold in terms of different currencies.

Gold is not just rising in terms of US dollars. Gold is rising against all of the world's major currencies. There hasn't been anything like this since the great 1960-1970's bull market in gold, or to phrase that period another way, the great 1960-1970's bear market in fiat currencies.

Importantly, though gold has retreated somewhat as a result of recent central bank selling, the above charts show the impact from this central bank dishoarding has been minimal. As large as central bank intervention has been, gold prices have hardly flinched. They remain within the pennant formations formed over the past year that are consolidating the tremendous gains gold achieved from August 2005 through to May 2006.

This current bout of central bank selling will eventually pass. When it does, we'll look back at it as we now look back on British chancellor Gordon Brown's decision in 1999 to sell one-half of that country's gold reserves, and describe this selling as Mr. Brown's decision is now being described - a colossal blunder.

So I continue to expect that gold will soon exceed US$700, and for that matter, it will also exceed C$800, £350, EUR510, SFr 840, ¥83,000, A$850 and R30,000.

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May 24, 2007

Jason Hommel: Why Silver will Soar

Jason Hommel: Why Silver will Soar

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May 23, 2007

Blanchard Research: Gold market having problems digesting high ECB sales levels

Recent weakness in the gold price has been due in part to sales levels from ECB banks which have totalled over 120 tonnes in the past ten weeks.

Author: Neal Ryan
Posted: Wednesday , 23 May 2007

NEW ORLEANS (Blanchard & Co.) -

It's always tough to work on a lag in the markets, but sometimes with the flow of information in the physical side of the metals markets, that's the way it has to be for investors.

So we know last week that 16 tonnes of gold came tumbling out of the GLD ETF...and we now know that ECB banks sold nearly 18 tonnes of gold the same week. The ECB updated yesterday that two captive banks in the system sold 17.7 tonnes of gold last week (or $280 million euros).

It appeared that maybe the increased selling was slowing down last week with sales of only about 1.5 tonnes, but in reality, the ECB captive banks have yet to finish the massive increased selling into the market that began in March of this year.

Forget about prudent timing, the market is having trouble digesting these sales.

The market isn't collapsing, but the price is certainly being kept from rising as the injection of supply is sopping up the increased demand in the marketplace. For a point of reference, ECB banks have not sold this much gold in such a short time period in the life of the 2nd CBGA. In the last ten weeks, ECB banks have sold over 120 tonnes of gold into the market ($1.9 billion in euros or $2.55 billion in dollars). In the previous six months, ECB captive banks sold only 112 tonnes into the market.

The gold cascading out of the central bank vaults is also helping to explain why all of the rampant dehedging in the marketplace hasn't caused prices to jump considerably. With five months to go in order to fill the annual sales quota of 500 tonnes, ECB banks are still roughly 268 tonnes short of filling the quota. We still strongly believe that even with the ramped up selling in the past three months, the annual quota will not be met this year, the second time in the last two years.

On to another topic...sometimes the market analyst crew gets very cushy sending out missives without listening to what the miners think. While miners and executives rarely give price targets or clear market prognostications, it's important to hear what they have to say about the markets because in the end, they are the ones that find the product and without their efforts, the whole analyst crew would be out of a job. Pierre Lassonde, former Newmont President and Chairman of the World Gold Council, is quoted as saying the gold price will hit $750 before the year end and then Gold Fields Chief Executive Ian Cockerill, speaking in Perth, made some pretty bold statements about hedging practices, exploration efforts and the like.

These are the guys exploring and producing. If they're saying that there are no major new mineral finds and exploration budgets are still paltry...maybe they deserve a listen. It's going to be their actions that dictate the prices over the coming years.

Neal Ryan is Vice President and Director of Economic Research for Blanchard Economic Research Unit (

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May 22, 2007

Derivatives grow explosively, BIS reports

It's been four years since Warren Buffett warned that the global financial system was held hostage to ticking "time bombs" and at risk of a "megacatastrophe".

He was of course talking about financial derivatives, i.e. the options, swaps, forwards and more-exotic investment tools that have blossomed into a $400 (plus)-trillion global market. He warned they had created a "daisy chain risk" that one Long Term Capital Management-style pratfall would topple the whole global house of cards.

Well, here's a related "ominous" newsitem.

Credit Default Swaps Spur Fastest Derivatives Growth

By Hamish Risk
Bloomberg News Service
Monday, May 21, 2007

LONDON -- The global derivatives market grew at the fastest pace in at least nine years during 2006 as the amount of contracts based on bonds more than doubled to $29 trillion, the Bank for International Settlements said today.

Derivatives covering bonds and loans rose by $15 trillion last year, the Basel, Switzerland-based bank said on its Web site. The total amount of over-the-counter contracts whose value is derived from price changes of bonds, currencies, commodities, and stocks, or events like interest rates or the weather rose 39.5 percent to $415 trillion, the biggest jump since the BIS began compiling the data.

Morgan Stanley, Bear Stearns Cos. and Deutsche Bank AG depended on credit derivatives to report first-quarter profits that beat analyst forecasts. Federal Reserve Chairman Ben S. Bernanke said last week that the contracts "increased the resilience" of financial markets, while warning that they may be exploited by investors to profit from insider trading.

"Derivatives are now a major contributor to investment bank earnings," said Jerry Del Missier, co-president of Barclays Capital in London, the biggest underwriter of European bonds last year. "Credit derivatives will continue their high growth path for a long time yet, and that growth rate will be higher than any other market."

The actual money at risk through credit derivatives increased 93 percent to $470 billion last year, the BIS said. The amount at stake in the entire derivatives market is $9.7 trillion, according to the BIS, which was formed in 1930 to monitor financial markets and regulate banks.

The market, started by Salomon Brothers Inc. in 1981 when the firm arranged for International Business Machines Corp. and the World Bank to swap debt payments in Swiss francs and German marks for dollar obligations, has become Wall Street's most- profitable activity.

Morgan Stanley, the world's second-biggest securities firm by market value, said a jump in revenue from credit products helped spur a 70 percent increase in first-quarter profit to an all-time high. Bear Stearns, the fifth-biggest U.S. securities firm, said credit derivatives trading contributed to an 8 percent increase in first-quarter profit. Deutsche Bank reported record revenue from trading debt and credit derivatives, helping lift first-quarter profit by 30 percent.

Contracts on bonds took off in the 1990s when New York-based JPMorgan Chase & Co. led banks creating credit-default swaps. The contracts allow bond investors to hedge against the risk of a company or country defaulting on interest payments or speculate on its creditworthiness.

Derivatives helped investors hedge their risks and contained a decline in bond prices during 2005 when the credit ratings on debt of Ford Motor Co. in Dearborn, Michigan, and Detroit-based General Motors Corp. was reduced to below investment grade.

The contracts also limited the fallout from Greenwich, Connecticut-based Amaranth Advisors LLC's record $6.6-billion loss last year and this year's slump in the U.S. subprime mortgage market, said Anshu Jain, head of global markets at Deutsche Bank in London.

"We have been through several market corrections in the past few years and in each case, markets have recovered," Jain said in an e-mail. "In retrospect, people think the market has been characterized by calm, continuous, and even benign conditions. Derivatives are a big part of explaining that phenomenon."

In a separate report, a group of central bankers, finance ministries, and financial regulators known as the Financial Stability Forum called on hedge funds to improve risk management to prevent shocks to the financial system. The group's secretariat is based at the BIS.

The forum's report, dated May 19, said there has been "some erosion in counterparty discipline recently," citing the competition among banks for hedge fund business. The world's more than 9,000 hedge funds move money in and out of markets faster and in larger quantities than mainstream funds, raising concerns about the stability of global markets.

Banks and hedge funds say it's cheaper and easier to use credit-default swaps than buying or selling the underlying securities. Investors who buy the contracts are paid the face value of the underlying debt in exchange for the defaulted notes should the company fail to adhere to debt agreements.

Interest-rate swaps remain the biggest part of the derivatives market, growing 15 percent to $292 trillion, compared with 38-percent growth the previous year, the report said. The contracts allow companies to switch between fixed-rate and floating-rate interest payments.

Growth in the overall derivatives market outpaced the previous record increase of 39.2 percent in 2003.

Foreign-exchange derivatives rose 28 percent to $40.2 billion in 2006. Contracts based on commodities such as gold and oil expanded by 27.7 percent to $6.9 trillion.

The BIS surveyed 62 institutions for its semi-annual report.

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May 21, 2007

China is Uranium Hungry!

China shops for foreign uranium properties as possible domestic shortage looms

The possibility of domestic uranium shortages has the China National Nuclear Corp., the nation’s largest nuclear power plant builder, in discussions with numerous foreign uranium explorationists.
Author: Dorothy Kosich
Posted: Monday , 21 May 2007


China's largest nuclear power plant builder said it is in discussions with companies in Australia, Kazakhstan and Mongolia because of a potential domestic uranium shortage.

The Wall Street Journal reported Sunday that London-based UraMin (AIM, TSX: UMN) has been negotiating with China National Nuclear Corp. (CNNC). Lui Xuehong, Vice President of the CNNC's overseas uranium exploration unit, told the Power & Alternative Energy Summit that discussions are also ongoing with companies in Canada, Niger and Algeria.

Liu specifically referred to UraMin's "good assets in Africa," which include acquired or pending mineral rights in Namibia, South Africa, Mozambique, Botswana, Chad and the Central African Republic.

"We will participate in overseas exploration of uranium by buying mining rights of deposits or taking a stake in a particular project," Liu told the conference.

Shanghai Daily reported that China needs to add two reactors a year to meet its target of generating 4% of its power from nuclear plants by 2020. China National Nuclear plans to spend US$52 billion to build domestic reactors by 2020.

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Billionaire Buffett’s Berkshire Hathaway to finally invest in gold…jewelry

Billionaire Warren Buffett’s Berkshire Hathaway intends to create the largest U.S. gold jewelry manufacturer, the new Richline Group.
Read article HERE


May 20, 2007

Hugo Salinas Price: The silver bridge

Posted at the Silver Owl
Hugo Salinas Price: The silver bridge

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May 18, 2007

Gold and silver slump - what's a precious metals investor to do?

Gold and silver slump - what's a precious metals investor to do?

Neal Ryan of Blanchard & Co looks at the factors behind the recent gold and silver price correction and offers advice for the precious metals investor
Author: Neal Ryan
Posted: Thursday , 17 May 2007

NEW ORLEANS (Blanchard & Co.) -

After rising over $3 and $0.10 in Asian trading, gold and silver began getting thumped anew on Thursday at the London open which led to prices taking another sharp turn lower at the NY open.

The market has started trading on technicals rather than any fundamental news, with sell side pressure and shorts currently in control of the market.

So what's an investor to do?

First and foremost, recognize that a precious metals investment isn't a day trade. We hammer on this issue to the point of exhaustion because people (present company included) get frustrated, upset, emotional and so on when the prices don't react the way we believe they should over a short time frame. Step back and look at the larger picture.

Precious metals are a medium to long term investment that is meant to be a meaningful diversification method against paper assets. But no one wants to invest in something that doesn't earn some return on ca pital. It's not like someone investing in a car that loses 40% of it's value when you peel off the lot hoping that if you wait 25 years it'll have a vintage appeal. The last five years, gold has shown an average annualized return of 19% each year, proving itself to be not only a diversification hedge, but an asset earning a return on investment at the same time. Not too shabby. Prices are up about 4% this year (or 9% if you mark the clock at Jan. 5th instead of Jan. 2nd).

What's next?

It's always tough to go out into the market with a prediction. We were wrong about the $700 level in weeks. Not because the fundamentals don't support that type of move - the fundamental picture for the market is more bullish today for increasing prices than it was just two years ago at $400 per ounce, but the market isn't trading on fundamental news at present. If it were, news like South African production being down 9% in a quarter compared to the year earlier period would send prices higher; instead the market continued trending downward.

Investment demand has cooled off in the last quarter according to the World Gold Council, but overall demand was still 4% higher. So at a time like this when fundamentals aren't in control of the market and the little golden bull is having his cart loaded up with a lot of paper to carry forward, investors need to take a step back and look at some larger market trends...

Mine Supply

We are believers that mine supply possibly peaked in 2001, at least until we see materially higher prices closer to 4-digits. Will supply increase off of these current levels? Maybe, sure. But we're still more than 7 million ounces short in annual production from equaling 2001 production levels. South African Mine spokespeople and Chief Executives of South African companies have publicly stated this past week that these trends aren't reversing. At this same time, the mega-mines like Grasberg, Yanacocha, and Goldstrike (all outside of South Africa) have gone from annual production figures of over 8 million ounces a year in 2004 between them to 5 million ounces of production annually. There are a few mega-mines waiting in the wings to come in and fill the role of a Goldstrike or Grasberg, but until those mines go online, nothing can be counted on as a given in the mining industry.


We're heading into another potentially bitter round of wage talks between the South African mining companies and the labor unions. Much like 2004 when a strike took down their production numbers considerably, those in the industry have expectations at present that the new round of talks could have a similar affect. There are also rumblings that Newmont's Yanacocha mine in Peru could be heading offline as the South African talks begin. Also, the world's largest platinum miner, AngloPlat, is having similar issues with their labor force, threatening to cause another round of strikes within the platinum producer ranks.

And this is just the crew digging the material out of the ground. A much larger concern is appearing on the horizon in mining offices around the globe with the current set of geologist, engineers and the like approaching a retirement age without any new blood entering the ranks to assume their place.


Dehedging was expected to slow down considerably in 2007 after having added nearly 13 million ounces of unexpected demand to the market in 2006. In reality, the exact opposite has taken place in the market with a spate of announcements in the first and second quarter about close outs and book reductions having added nearly 4.2 million ounces of demand to the market and pushing up overall expectations of hedge book close outs in 2007 to 11 million total ounces from estimates of 6-8 million ounces previously.

While there is no longer an 80 million ounce reduction that can take place in the market (thankfully!), there are still 38 million ounces sitting on books waiting to be dehedged. We believe this number will be cut down to 15 million ounces over the coming 2-3 years. Producers will always keep a nominal amount of project hedges on the book to be prudent, but millions of ounces hedged in the $300s while spot is kicking around $660 is neither prudent nor price protection. Investors have finally been able to press this view upon mining company executives.

Official Sector activity

Despite a strong reversal in selling trends for the calendar year of 2006-2007 in the last two months, it looks like ECB captive banks are still going to be short in terms of overall sales for a second year in a row. In the eight years of the CBGA agreements so far, that was the first time banks had failed to sell their full quota. 2007 looks like it will be the second. The last year has also seen central banks making 31 tonnes of purchases in the market. A fairly insignificant amount to be sure, but nearly 1 million ounces of purchases, is still nearly 1 million ounces of purchases.

According to the IMF, changes set to be implemented into the marketplace in 2008, investors will also begin getting a much larger appreciation for the lease and swap operations that take place inside of central banks. This market, which is estimated to be larger than mine supply, central bank sales, investment demand and scrap activity, will no longer be left to guesswork and estimates. Is the gold really in vaults in London or has it been leased out to fabricators and turned into trinkets in India and 18 carat necklaces in WalMart in Iowa? No one knows.

Current estimates target that there is currently 10% to 30% of central bank gold loaned or swapped into the marketplace. (estimates from GFMS, Virtual Metals and James Turk). When this information is no longer just estimates, but hard audited data, there will be an added transparency to the marketplace that has never previously been experienced. When the markets really know how much physical is in vaults versus IOU slips, that's when things will start to get interesting.

The trends above are the ones that precious metals investors need to grasp and understand, not the day trading noise out in the market. Take a position, have a long term outlook and understand the fundamental factors that influence the market, not the technicals that are currently controlling the price.
Neal Ryan is Vice President and Director of Economic Research for Blanchard Economic Research Unit (

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Jason Hommel: Fraud vs. Truth

Silver Stock Report
by Jason Hommel, May 17, 2007

Major Frauds of the U.S. Monetary System.

  • 1. The dollar is a broken contract to repay with gold or silver.

  • 2. Unrestrained creation of money increases an already unpayable debt to the public.

  • 3. Banks don’t possess the fraudulent paper money they say is in your accounts.

  • 4. The FDIC is a lie; they don’t have the money to cover the accounts either.

  • 5. The central banks only possess half the gold they say they do, the rest is leased out.

  • 6. Bonds are a paper promise to pay more fraudulent paper promises.

  • 7. Inflation indexed bonds adjust by using a false rate much lower that the real rate.

  • 8. More futures contracts are sold, than silver or gold exists.

  • 9. Options are a bad gamble on leveraged futures, and most expire worthless.

  • 10. Position limits on longs attempt to control the market by limiting buyers' purchases.

  • 11. COMEX silver delivery delays are market defaults.

  • 12. Bank hold times on checks defraud you of access to your money.

  • 13. Legal tender laws prevent people from using gold and silver as money.

  • 14. Taxes on gold and silver purchases are illegal since it is only one tender for another.

  • 15. Income tax was to be temporary from WWII; it's fraudulent and unconstitutional.

  • 16. The social security system, medicaid, and medicare is a pyramid scheme and will collapse.

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NYPost prods Treasury for answers on government's rigging stock market

Maybe This Will Help Treasury Move Faster

By John Crudele
New York Post
Thursday, May 17, 2007

We'd love to help the U.S. Treasury comply with our request for information about the Working Group on Financial Markets.

So The Post's lawyer is sending the following letter, reminding the government of its legal obligations under the Freedom of Information Act.

* * *

Hugh Gilmore
Director, Disclosure Services
U.S. Treasury

Dear Mr. Gilmore:

I write to protest the failure by the Department of Treasury to process Mr. Crudele's request for documents relating to the Working Group on Financial Markets.

As you would be aware, under the Freedom of Information Act, the Department is required to process such requests within 20 working days: See 5 U.S.C. S. 552 (a).

Mr. Crudele lodged his request for documents almost 10 months ago. Yet he has yet to receive any document from the Department of Treasury or any explanation for the Department's failure to produce documents. ...

* * *

There's more to the letter, signed by the Post's lawyer, that I won't quote here.

But it essentially recaps that in my last column I showed how the Treasury's FOIA bureaucracy said it wanted to respond to my request "ASAP," even though our original letter seeking information about the secretive Working Group was sent nearly a year ago.

I know about internal discussions only because I was recently given documents detailing how Treasury was supposedly all worked up over the fact that my request had somehow "fallen through the cracks."

It's not that I think the notes and minutes of Working Group meetings will be arriving on my doorstep anytime soon.

What I do think is that Treasury "ASAP" will turn down my request and give me directions on how to appeal the decision.

Hey, I'm not naive. But I am persistent.

I understand how the game is played, especially since I'm after the innermost thoughts of a group whose nickname is the Plunge Protection Team.

The team was formed by a directive of President Reagan back in the late 1980s, right after the stock market had had some embarrassing sinking spells.

This was also when Robert Heller, who had just left his post as a Federal Reserve governor, proposed very publicly that the Fed should be allowed to rig the stock market in times of emergency.

That's all well and good -- and probably in the public interest.

But I'm now attempting to determine whether the Plunge Protection Team's powers have been expanded in recent years to situations that aren't necessarily emergencies.

I'd also like to know who, exactly, is being drawn into the consultations of the team.

Does it still consist of just top government officials like the Fed chairman and Treasury secretary?

Or have big shots from Wall Street firms -- the kind that could make money knowing the workings of the clandestine government operations -- also been recruited?

In that last column I documented how George Stephanopoulos, who was Bill Clinton's right-hand man, mentioned that the Plunge Protection Team is ready to unofficially act in the event of stock market problems.

Stephanopoulos said that the PPT already has acted during the crisis caused by the failure of Long Term Capital Management, which disintegrated in 1998 and nearly took the U.S. financial system down with it.

And I also know firsthand that such actions were discussed right after the terrorist attacks in 2001.

But the government has been coy about the Team.

Rep. Ron Paul, R-Texas, last year questioned Fed Chairman Ben Bernanke -- who was under oath -- about the Plunge Protection Team.

All the Fed chief would say is that the Team met "irregularly," was mostly advisory, and prepares reports.

"Irregularly": Like when the stock market needs a boost?

"Advisory": Like answering the question, "How can we get stock prices up?"

But I'm not so sure that the meetings are spaced that widely apart.

There have been stories in the press lately that the team is now having frequent meetings under Treasury Secretary Hank Paulson, who took over that position last summer after being the chairman of Goldman Sachs.

That's why we are sending another letter to remind Treasury of its legal obligations not to act in secret.

I think it's time for the government to be more responsive.

And just as an insurance policy I'm also reaching out to some members of Congress who I believe share that view.

Stay tuned.

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May 17, 2007

Central bank dishoarding strains to meet industrial demand for gold

Gold Glows on Back of Clean-Air Movement

By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, May 17, 2007

Gold is coming of age as an industrial metal in a host of uses from car catalysts to air conditioning and health care, adding 451 tonnes to global demand last year -- roughly offsetting sales by central banks.

The World Gold Council is counting on a future surge in demand for use in diesel catalysts following the invention of a new technology by the US firm Nanostellar that is more efficient and cheaper than platinum.

Gold costs $663 an ounce, while platinum has soared to $1,320 as car companies scramble to meet stricter clean-air rules.

James Burton, the WGC's chief executive, said the design could cut noxious emissions by 40 percent more than existing platinum catalysts. "With the diesel automobile market continuing to grow strongly across the globe, this is very exciting," he said.

For now, however, investment demand remains the key hope for gold bugs waiting to see the metal break out of its lacklustre trading range.

Rob McEwen, chief executive of US Gold Corp, predicted that gold would soon smash through its 25-year peak of $730 in May 2006. "I expect it to test $850 by the end of 2008, and by the end of 2010, north of $2,000, possibly $5,000," he said, insisting that dollar troubles would eventually prompt a flight to the safety of bullion.

Yesterday, however, the dollar was in fighting form after robust housing data in the US, sending gold tumbling $12 an ounce to $661. The shares of Peter Hambro Mining sank 11.2pc in London on fears of a fresh dispute with the Russian government over stated reserves.

The WGC said consumer demand in India and China was the key impetus for growth of the gold market in the first quarter of 2007. India's thriving middle class drove up sales by 50 percent year-on-year, snapping up jewellery in advance of the Akshaya Thritiya festival.

In China, the Year of the Golden Pig has boosted Chinese demand by 31 percent, with affluent city buyers opting for 24-carat bars of pure gold.

The red-hot flow of funds into Exchange Traded Funds has slowed to 36 tonnes, suggesting that western investors are becoming sated with holdings after accumulating nearly 700 tonnes in ETFs since 2003.

One of the properties of gold is that it can serve as a catalyst at low temperatures. Japanese toilets now use gold filters to break down smelly nitrogen compounds, purifying the air. Gold particles can clear smoke in air conditioning systems in buildings, or in gas mask respirators to prevent CO2 poisoning down mine shafts or in airplanes.

The pharmaceutical company CytImmune has developed a new cancer treatment using gold nanoparticles to target tumours, a treatment that appears to reduce toxic side effects.

* * *


Spain risks crisis over vanishing FX and gold reserves

By Ambrose Evans-Pritchard
The Telegraph, London
Wednesday, May 16, 2007

Spain's foreign reserves have plummeted to wafer-thin levels, leaving the country exposed to a possible banking crisis if the property market swings from boom to bust -- despite membership in the eurozone.

The Banco de Espana's holdings of foreign currencies and gold have fallen to E13.2 billion (Β£9.02 billion), equivalent to 12 days of imports.

Over the past two months the Banco de Espana has sold off 80 tonnes of gold, flooding the world market with enough bullion to dampen the usual spring rally
. The bank has reduced its holdings of US Treasuries, British gilts, and other investments at a similar rate.

Total reserves have now fallen by two thirds from E41.5 billion in early 2002. Greece and Portugal have seen a similar drop.

By contrast, the overall reserves of the eurozone system have remained stable. France (E76 billion), Germany (E86 billion), Italy (E59.5 billion) have all kept holdings at full strength since the launch of the euro.

The Banco de Espana refused to comment on the sales, leaving it unclear why reserves have fallen so low or where the money has gone.

It appears the bank has been draining the reserves to help finance the current account deficit, which has ballooned to 9.5 percent of GDP, reaching E8.6 billion in January alone.

"The current account is completely out of control," said Alberto Mattelan, an economist at Inverseguros in Madrid.

"We have the worst deficit in our history and worse than any other country in the western world. It has not yet become a 'street concern', but I can assure you that it is of great concern to us economists. This will turn bad over the next 18 months," he said.

It is often assumed that reserves no longer matter once a country has joined the euro, but this ignores a crucial element in the workings of the EMU system. It is responsibility of the 13 national central banks to act as lender of last resort in a crisis, even though they have no control over interest rates.

"Where this gets serious is if there is a property collapse in Spain and the banks get into trouble," said Prof Tim Congdon, an expert on monetary policy.

The first signs of a housing slump are emerging as the ECB raises interest rates, already up seven times to 3.75 percent since December 2005. The shares of Valencia builder Astroc have fallen 77 percent since February, setting off a sharp slide across the sector, with knock-on effects on banks with mortgage exposure.

Morgan Stanley said construction accounts for 17.7 percent of GDP, even higher than the 15 percent peak reached in Germany after reunification -- a boom-bust saga that left German banks prostrate for years.

Spain's private sector has amassed $600 billion (Β£300 billion) in foreign debts. Corporate borrowing is 100 percent of GDP. The overall stock of mortgages has increased sixfold in a decade. Household debt has reached 120pc of disposable income, largely on floating rates.

Prof Congdon said Japan was able to uphold its banking system in the post-bubble slump of the 1990s because the government could guarantee deposits. "You can't do that in the eurozone because there is no government to turn to," he said.

Each country is on its own. The ECB may interevene only if the crisis spreads across the eurozone, and it is forbidden from bailing out the member states. The International Monetary Fund warns that the structure leaves EMU exposed to "systemic financial risk."

Reserves are a key defence for each state, hence the EMU quirk that national banks retain the lion's share of reserves. The ECB has a token 13 percent.

For now Spain is still looking rosy: growth was 4 percent in the first quarter; the budget surplus is 1.8 percent of GDP; and export share is holding up reasonably well.

However, the party is ending after a near tripling of house prices since 1995. In a report, "The End is Nigh," Jamie Dannhauser from Lombard Street Research said Madrid is now making matters worse with a new law to hit property speculators.

"This screams of closing the stable door after the horse has bolted. House price growth has clearly peaked and is decelerating quickly. Speculators appear to have got out already, sensing the dangers that lie ahead," he said.

The government cannot devalue its way out of trouble, so it will have to deflate. "Pain seems to be on Spain's doorstep," he said.

* * *

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James Turk: The battle for $700

James Turk, founder of GoldMoney, editor of the Freemarket Gold & Money Report, and consultant to GATA, has written what may be the clearest recent explanation of the manipulation of the gold market by the central banks and their agents, the Wall Street investment house bullion banks. It first appeared in the latest issue of FGMR and now has been posted in the clear at Jim Puplava's Financial Sense Internet site.
It is headlined "The Battle for $700" and you can find it HERE

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John Crudele: No freedom of info on Plunge Protection Team

By John Crudele
New York Post
Tuesday, May 15, 2007

May 15, 2007 -- MY request for information about the actions of the secretive Working Group on Financial Markets at the Treasury Department "seems to have fallen through the cracks," according to the wording of an internal government document I just got my hands on.
That document, dated April 5, 2007, indicates that the Treasury's Disclosure Services division spent quite a lot of time discussing the request I made last summer under the government's Freedom of Information Act.

In fact, "Spotlight on New York Post FOIA Request" is the final issue on a seven-item agenda. And the 13-page PowerPoint presentation titled "Bottom Line" devotes a page and a half to The Post's request.

One of the "lessons learned and the way ahead," according to this presentation, is to "process and respond to Mr. Crudele's requests ASAP."

It's now more than a month since that meeting and I still haven't received documents or even an official letter. I guess ASAP might mean something other than "as soon as possible" in government lingo - perhaps "as soon as pigsfly."

For those of you who haven't been following this saga, let me fill you in.

Back when Goldman Sachs Chairman Henry Paulson took over as Treasury secretary nearly a year ago, I did a multi-column investigation of the Working Group on Financial Markets, which is also endearingly nicknamed the Plunge Protection Team.

As far as I can tell, variations of the group have been in existence since the late 1980s. The PPT operates in that shadowy space between the government's desire to keep the market safe for national security reasons and Wall Street's desire to keep prices up for selfish reasons.

Other newspapers have since reported that - unlike his predecessors - Paulson calls frequent meetings of the Plunge Protection Team, which now seems to include Wall Street big shots as well as top officials such as Federal Reserve Chairman Ben Bernanke and New York Stock Exchange Chairman John Thain.

It's nice that all these folks have time to get together. And it is wonderful that the naive media think these meetings of government and finance brains are innocent. But I'm suspicious.

Of what?

I believe the Plunge Protection Team has emergency powers to protect the stock market if the situation warrants it. (Incidentally, I wholly support such action.)

But I also believe that the Plunge Protectors - left unchecked - could ultimately cause a tremendous loss of confidence in our financial markets. And they could create the very national security problems they think are fixing.

That's why I've asked for the minutes of meetings of the Plunge Protection Team on very specific dates when the stock market pulled a couple of rabbits out of its hat.

I didn't want to get greedy, so I kept the scope of my search narrow.

But, apparently, I must have guessed right and asked about sensitive enough issues because the Treasury ignored that first request and hasn't been any more obliging in response to follow-up letters.

It was only after I wrote an open letter to Paulson and published it in this column on April 3 that Treasury seemed to get the message. Two days later I was on the agenda of its FOIA Operations Overview.

At that meeting it appears that the folks at Treasury decided that my "request does not meet the criteria for an expedited request and asked the OGC [Office of General Counsel][for] concurrence on April 4."

Expedited! The request for this information was made last July!

I also got the impression when I spoke with a Treasury official last week that my request was about to be turned down.

A spokesman at Treasury told me that the government was trying to determine who the "appeals officer" was for this case - an indication, I imagine, that I'm going to be asked to beg someone else for the information to which we are legally entitled.

I'm not surprised. Congress has tried to crack the mystery of the Plunge Protection Team and failed.

After my first FOIA request was filed, Rep. Ron Paul (R-Texas) last fall asked for the very same things I did - the minutes of the Working Group's meetings.

"An informal inquiry to Treasury from our office yielded nothing. They claim such minutes are not taken and don't exist," one of Paul's people told me in an e-mail last September.

Very interesting! This intriguing group of government officials and private financiers meets regularly under Paulson and nobody keeps a record of what they discuss or do.

Why am I so interested?

If the Plunge Protection Team is doing what I suspect - namely, coming to the rescue of stocks whenever it deems it necessary - this would not only change the entire nature of investing in this country but would be the biggest financial story ever.

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May 15, 2007

CanAlaska Primed for a Big Uranium Discovery in Athabasca

Article from

CanAlaska Primed for a Big Uranium Discovery in Athabasca

By Andrew K. Burger
12 May 2007 at 09:18 PM GMT-04:00

DAMMAM, Saudi Arabia ( -- With the spot price of uranium rising at exponential rates, uranium miners are flying high following decades of depressed prices and little new mine development or exploration activity. Shares of Denison [TSX:DML; AMEX:DNN] and Energy Metals Corp. [TSX:EMC; NYSE:EMU] jumped 5% last week following rumours that they were on the acquisition radars of Cameco [TSX:CCO; NYSE:CCJ] and France's Areva, two of the world's largest uranium miners.

When it comes to high quantities of high-grade and relatively easily accessible uranium ores, Canada's Athabasca Basin is geologically unique in the world. Encompassing an area of some 100,000 square kilometres in northern Saskatchewan and a small portion in Alberta, the region is the source of approximately 30% of the world's uranium.

Looking to follow the path blazed by Cameco and Dension, CanAlaska Uranium Ltd. [TSX-V:CVV] may be on the verge of becoming the third major uranium producer in the region. The company on May 7 announced that it had signed a Memorandum of Understanding (MoU) with a consortium of South Korean companies led by the Hanwha Corp. to negotiate investment terms for the exploration of CanAlaska's Cree East Project.

Please click HERE to view entire article

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May 13, 2007

Business News Network interviews Peter Grandich

Peter Grandich, publisher of The Grandich Letter, was interviewed for an hour Friday on "Market Call" on Business News Network in Toronto, where he paid moving tribute to our friend the late "Market Call" host Jim O'Connell, reviewed the prospects for a large number of mining companies, and mentioned the manipulation of the gold market. You'll be able to watch the program at BNN's Internet archive here:

(Πατήστε το Play ξανά μετά τη σύντομη διαφημιστική εισαγωγή)

(Press the Play button once again after the brief adverisment)

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May 11, 2007

Blanchard Research: Spain is latest to try to clobber gold

The Bank of Spain announced yesterday on their website that they have sold 2.6 million ounces of gold (approx. 81 tonnes) into the market over the past two months, giving no update on if those sales were expected to continue or not.
This figure means that Spain has sold off 20%(!) of their total gold holdings. The motivation behind or timing of the sales are not important. What is important is that we have this data now which gives a firm explanation of why the market is having trouble moving higher.
Unfortunately, the market will continue to come under this supply increase pressure until it becomes clear that the selling has slowed down. The real positive to take away from these increased sales is that the market is struggling to consume the additional physical supply, but it's not breaking underneath this pressure.
May of 2006, the market broke under less pressure. We're not seeing that at present. Below is a quote from Bill O'Neill at Logic Advisors from an article yesterday about the increased sales.

Sales by central banks in Europe in the second quarter have kept gold from breaching $700, O'Neill said.

``I don't think they're going to violate their agreement,'' O'Neill said. ``Their selling has put a little bit of a top on the market in front of $700.''

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Gold Spot price slides once more, but...

Excerpt from FN Arena News
May 11 2007

"..The gold market had got itself very long. Every man and his dog was calling gold to break through US$700/oz as the US dollar bounce lost traction and central bank gold selling started to wane. When the US dollar rallied yesterday there was a slip. Last night there was a slide. Below US$675/oz lay a vacuum.

Gold fell US$14.20 or 2% to US$665.70/oz. Stop-losses were set off at US$675 and US$670. Gold is now resting precariously on a shelf – roughly a 50% retracement of the recent rally.

Adding to the problems have been large June Comex longs – over 220,000 contracts – which need to be rolled over in the next few weeks (gold futures trade mostly on quarterly roll-overs). This means selling the near month (June) and buying September, although not necessarily simultaneously. Market commentators suggested banks had started their rollovers yesterday and funds chimed in last night.

Adding to general fear has been the extent of central bank selling. While all and sundry had assumed the European central banks would ease off on their quotas in 2007, as they had done in 2006, the recent level of sales had started the market wondering.

Kitco bullion dealer Jon Nadler suggested the banks were simply showing a sense of good timing. What they didn't sell last year at lower levels they are now selling at higher levels. However this still doesn't answer the question of just how much they intend to sell. Either way, that US$690/oz figure remains formidable.

And there are always the accusations of gold loans, swaps and other derivative transactions being carried out every time gold looks like threatening US$700/oz – deals that ensure gold does not break out and the US dollar remains supported.

It hasn't helped on the demand side that traditional Asian holiday periods – those in which it is customary to give gold as a gift – had come to an end. There were no hungry buyers stepping into the breach. Jewellery makers may, however, start looking at this lower level as a good price to buy ahead of the next round of gift-giving later in the year.

One thing is certain, and that is there won't be a burst of gold supply coming out of South Africa. Last night figures showed gold production had fallen 9.5% in March from February, and 10.8% from March 2006. However, the new kid on the block is China, which is in the process of becoming the world's largest gold miner in the next decade. New gold projects are opening up in China at a mere fraction of the cost of Western gold mining operations.

But China has also become the world's largest consumer of gold, and that consumption increases as Chinese wealth increases. The Chinese central bank is also holding little gold, and has recently made noises about addressing that.

A fine balance indeed.

Perhaps the lesson from this recent collapse back from the brink – something that's becoming all too regular – is that like a shy child, gold is not going to go barrelling through resistance when everybody wants it to.

The day that gold breaks US$700/oz will most likely be when everyone is looking in the other direction

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May 10, 2007

Jay Taylor on Uranium and CanAlaska (CVV.V)

Click HERE for the the latest views of noted resources analyst Jay Taylor regarding uranium and his views on CanAlaska Uranium (pdf file -you'll need Adobe Acrobat).
It should be noted that since the publication of Jay's comments, the spot price of uranium has risen a further US$7 to US$120 per pound.

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Why the Silver Price is Set to Soar!

Precious metals remain the most undervalued of all the asset classes. Precious metals, and particularly silver, remain the most undervalued of all the commodities. Silver is even more undervalued than gold and is undervalued when compared to other strategic commodities such as oil and uranium.
Silver is currently trading at just below $14 per ounce. Gold Investments continue to believe that silver will surpass $20 per ounce in 2007, its non inflation adjusted high of $48.70 per ounce before 2012 and its inflation adjusted high of some $130 per ounce in the next 8 years.

The fundamentals reasons for our very bullish outlook on silver is due to continuing and increasing global macroeconomic and geopolitical risks; silver’s historic role as money and a store of value; the declining and very small supply of silver; significant industrial demand and most importantly significant and increasing investment demand.

Silver price: global macroeconomic and geopolitical risks

Property markets and equity markets in the western world are near or at all time record highs. There is increasing macroeconomic and geopolitical uncertainty in the form of the sharp slowdown in the US housing market, increasing trade friction between the US and one of their prime creditors China (the negative impact of the introduction of US trade tariffs on Chinese paper products and the US’ WTO piracy claim may not have been fully realised by and priced into the financial media and the markets) and the continuing geopolitical tensions with Russia, Venezuela and in Iraq, Iran and the wider Middle East. These factors look set to at least curb returns in most property and equity markets.

Indeed these and other significant risks such as record debt levels in the western world, the huge and unprecedented US trade, budget and current account deficits and the massive fiscal profligacy of the Bush administration are not subsiding. These factors have ramifications for the predominant global reserve currency of recent times – the US dollar.

The IMF, World Bank and OECD have warned that the global economy faces increasing "downside risks" including rising oil prices, falling stock markets and trade imbalances. The IMF’s semi-annual World Economic Outlook (released April 5th 2007) said an economic slowdown in the US would have only a modest global impact if it were confined to the property sector.

The IMF report warned, however, that the shock to the global economy could be more significant if the property downturn spread to consumer spending and business investment. This seems likely as the US consumer is more indebted now since 1933 with little or no savings whatsoever. The Comptroller Auditor General of the US, David Walker stated “last year (2006) was the first year since 1933 that Americans spent more money than they took home and, as you probably recall, 1933 was not a good year for the United States.”

The US’ national gross debt is $8,883,212,488,519 trillion ($8.8 trillion) and growing. When George Bush came to power US’ national gross debt was $5.7 trillion. Even the most sanguine, tunnel-visioned bull would have to admit that the fundamentals of the US economy are bad and deteriorating.

Other long term risks and challenges facing the global economy come in the form of the threats posed by a bird flu pandemic, peak oil and global warming.

Silver price: historic role as a store of value

Thus the monetary metals and safe haven assets of gold and silver are likely to continue to outperform other asset classes. Also they are likely to outperform other commodities such as the base metals, oil and uranium. These commodities would be likely to experience a fall in price were there to be a significant slowdown in the global economy which would create demand destruction.

Because of their historic and continuing role as monetary or currency metals and as safe haven assets gold and especially silver are likely to outperform. This is because they are not simply commodities but also currencies which cannot be debased like our modern fiat paper and electronic currencies.

Gold and silver has been used as money in more regions and countries and for longer periods of time than the relatively modern use of paper currencies. Interestingly, silver has been used in more regions and countries and for longer periods of time as money than gold. Nobel Laureate Milton Friedman, said of silver "The major monetary metal in history is silver, not gold.” In Mexico today, there is a movement to return to using silver as money with a bill being put before by the Mexican Congress by Hugo Salinas. The currency of India is the rupee and it comes from the Sanskrit word ‘raupya’ which meant silver or coin of silver. The French word for money is ‘argent’ which came form the Latin argentum meaning silver. The franc was established as the national currency by the French Revolutionary Convention in 1795 as a decimal unit (1 franc = 10 decimes = 100 centimes) of 4.5 g of fine silver.

Most countries in the world used silver for smaller denomination coins in the 19th Century and through the 20th Century up until the 1950’s, 1960’s and 1970’s when currencies were gradually debased. Debase means to degrade, dilute or devalue. For instance, in the US up until 1965, silver dimes and quarters were made of 90% pure silver. In 1965, the US government debased and devalued the currency and reduced the silver content to 40% pure silver. These legal tender silver bags are still bought today by savvy investors.

Silver price: declining supply

Before looking at the demand side of the silver equation it is important to consider the supply side.

In 1900 there were 12 billion oz of silver in the world. By 1990, the internationally respected commodities-research firm CPM Group say that figure had been reduced to around 2.2 billion ounces of silver. Today, that figure has fallen to about 300 million ounces in above ground refined silver. It is estimated that 95% of the silver ever mined has been consumed by the global photography, technology, medical, defence and electronic industries. This silver is gone forever.

CBS Marketwatch published an article in March 2007 entitled ‘Silver may shine brightest among metals’, in which Kevin Kerr wrote that “Due to current supply/demand trends, the amount of silver above ground is projected to shrink to a critically low level in 2010. As supply shrinks, prices will keep rising steadily to new highs. Many in the investment world are unaware of this part of silver's story. Industrial demand has been outstripping mining supply for the past 15 years, driving above ground supply to historically low levels.”

Silver production was flat this year and is expected to be flat again next year. Incredibly, the amount of mined silver has been less than its demand every single year for the last 15 years. This hasn't resulted in significantly higher prices yet because the world has been able to fill the gap from inventories and official government stockpiles.

However, today the U.S. government's stockpile is all but gone, and sales from other official sources, such as China, Russia and India, are declining, too. The decline in refined silver stocks, from around 2.2 billion ounces in 1990 to around 300 million ounces today means that silver stocks are near an all time low.

The supply of silver is inelastic. Silver production will not ramp up significantly if the silver price goes up. Supply didn't increase in the 1970’s when silver rose 35 fold in price – from $1.40/oz in 1971 to a high of nearly $50/oz in 1980. Importantly, silver is a byproduct metal and some 80% of mined silver is a byproduct of base metals. Higher prices for silver will not cause copper, nickel, zinc, lead or other base metal miners to increase their production. In the event of a global deflationary slowdown demand for base metals would likely fall thus further decreasing the supply of silver.

There are only a handful of pure silver mines remaining. This inflexible supply means that we cannot expect significant mine supply to depress the price after silver rises in price. It is extremely rare to find a good, service, investment or commodity that is price inelastic in both supply and demand. This is another powerfully bullish aspect unique to silver.

Silver price: significant and increasing industrial demand

Another important factor as to why silver is likely to outperform other asset classes and commodities besides the declining silver supply is increasing industrial demand.

Why is this indispensable metal in such demand? The reasons are simple. Silver has a number of unique properties including its strength, excellent malleability and ductility, its unparalleled electrical and thermal conductivity, its sensitivity to and high reflectance of light and the ability to endure extreme temperature ranges.

Silver has the highest electrical conductivity of all metals, even higher than copper. It was used in the electromagnets used for enriching uranium during World War II (mainly because of the wartime shortage of copper). Silver has the highest thermal conductivity and optical reflectivity of all metals. Silver’s unique properties restrict its substitution in most applications.

Non investment demand for silver is based primarily on industrial demand including electrical, medical and photography and also in jewellery and silverware. Together, these categories represent more than 95 percent of annual silver consumption. In 2005, 409.3 million ounces of silver were used for industrial applications, while over 164.8 million ounces of silver were committed to the photographic sector, and 249.6 million ounces were consumed in the jewellery and silverware (‘don’t sell the family silver’) markets. Jewellery and silverware are traditionally made from sterling silver. Sterling silver is 92.5 % silver, alloyed usually with copper.

Industrial applications for silver have always been significant but have increased significantly in recent years. Industrial applications for silver have increased since 2001 to a record in 2005, according to London-based researcher GFMS Ltd. In their most recent report, they predict a 6% growth rate in industrial applications of silver in 2007. Silver is used in film, mirrors, batteries, medical devices, electrical appliances such as fridges, toasters, washing machines and uses have expanded to include cell phones, flat-screen televisions and many other modern high tech devices.

Increasing industrial demand for silver is forecast due to strong economic growth in China, India, Vietnam, Russia, Brazil and other emerging economies in Eastern Europe, Asia and the world. Growing middle classes are now demanding the quality of life and standard of living enjoyed by many in the West and thus the demand for silver will increase.

Silver is known as the healthy metal and has many and increasing medical applications. While silver's importance as a bactericide has been documented only since the late 1800s, its use in purification has been known throughout the ages. "Born with a silver spoon in his mouth" is also a reference to health as well as wealth. In the early 18th century, babies who were fed with silver spoons were healthier than those fed with spoons made from other metals, and silver pacifiers found wide use in America because of their beneficial health effects.

Today silver is used in many health-care products. Specifically, the ‘silver bullet’ is used by nearly every hospital in the world to prevent bacterial infections in burn victims and allow the body to restore naturally the burnt tissue. Increasingly, wound dressings and other wound care products incorporate a layer of fabric containing silver for prevention of secondary infections. Surgical gowns and draperies also include silver to prevent microbial transmission. Other medical products containing silver are catheters and stethoscope diaphragms.
In a world that is showing increasing concern about the spread of diseases and pandemics such as bird flu, silver is being increasingly tapped for its biocidal properties. Research is ongoing on the use of silver and its compounds for therapeutic uses and on its potential use as a disinfectant in hospitals and other medical facilities.

Silver has many unique properties which make it ideal and indeed essential in global industry – especially in the global photography, technology, medical, defence and electronic industries. Yet, silver is a finite resource and the supply of silver is increasing only very incrementally.

Silver price: significant and increasing investment demand

According to the CPM Group, there are some 300 million ounces of refined silver in the world. That means that with silver priced at $14/oz., there is about $4.2 billion (300 million oz x $14) dollars worth of silver in the world. This means that the total silver market capitalisation is a very small $4.2 billion.

The increasing demand caused by investment demand is very compelling. Especially due to a number of key investment factors - the introduction of the iShares Silver ETF, the huge short position, the global liquidity bubble, the significant growth in the global money supply, the proliferation of millionaires, ultra high net worth individuals and billionaires, the proliferation of hedge funds and the exponential growth in derivatives.


Investment demand for silver has also been rising rapidly the past few years with investors hedging themselves against rising inflation, possible currency devaluations and geopolitical and macroeconomic risk.

The silver market is currently in a transitional period where investment demand is starting to have a real impact on silver prices. Much of the new demand comes from iShares Silver ETF launched in April 2006. The fund has so far attracted 120 million ounces of silver investment. It is up nearly 30 million ounces since the start of 2007. It's important to remember that the silver market is very small - only some 300 million ounces.That means the ETF alone now accounts for more than one-third of the global silver market, and growing investment into the iShares ETF should drive prices much higher. If even a small amount of money flows into the silver market from investors, ultra high net worth individuals (ultra-HNWIs), hedge funds, pension funds and institutions around the world, silver will almost certainly reach the nominal non inflation adjusted high it reached in 1980 of nearly $50 per ounce.

Huge short position

Perhaps the foremost analyst of the silver market today is Mr Theodore Butler. He believes that gold and particularly silver are the laggards in the commodity complex due to price manipulation. At over 300 million ounces, the largest 8 traders on the COMEX are short more silver bullion than exists in total known world inventories, including total SLV holdings and total COMEX inventories.

Butler sums it up succinctly, ”If there is one thing that separates silver from any other asset class, or any other item in any asset class, it is the presence of an unprecedented concentrated short position in COMEX silver futures. It is the existence of this concentrated short position that will, at some point, launch the silver price to the heavens. This short position has grown so large, and is held by so few entities, that it no longer matters how it will be resolved. It must be resolved and, whether that resolution involves default or buying by short covering, it will have the same bullish impact on price. You don’t have to look any further than the concentrated COMEX short position as to why silver has not outperformed every other commodity. Just as it explains price under performance, it is telling you why there must be overperformance in the future. At some point, the price of silver must accelerate upward to price levels that are truly shocking.”

Money Supply

There is some $50 trillion worth of bonds and $40 trillion worth of paper money in the world.
Money supply is increasing at extremely high levels globally. The annualised growth of some national broad money supplies are United States M3 up 10%, Eurozone M3 up 9.0%, UK M4 up 13%, China M2 up 15.9%, South Korea up 10.6%, Australia M3 up 13%, Russia M2 up a staggering 48%.

This has given rise to increasing inflationary pressures, a huge liquidity bubble and to ripe valuations in many stock and property markets.

Huge Increase in Billionaires, Multi Millionaires and High Net Worth Individuals

There has been an unprecedented increase in wealth amongst a tiny segment of the population in recent years. The number of millionaires in the world is multiplying very rapidly and there are now approximately 9 million millionaires in the world. There are approximately 70,000 ultra-HNWIs who have a net worth of more than $30 million.

Forbes recently estimated that there are now a record 946 billionaires in the world. In 2006, there were 178 new billionaires. These included 19 Russians, 14 Indians, 13 Chinese and 10 Spaniards, as well as the first billionaires from Cyprus, Oman, Romania and Serbia. Bill Gates and Warren Buffet are worth some $51 billion and $40 billion respectively. One man’s net worth increased in one year by multiples of the total value of all silver in the world. Carlos Slim Helo, is a Mexican of Lebanese origin whose net worth increased from $20 billion in 2006 to almost $50 billion in 2007 or by some $30 billion.

All the billionaires' combined net worth increased by $900 billion to reach $3.5 trillion. There are a total of 8.7 million millionaires around the world, representing a total wealth of a mind boggling $33.3 trillion. A trillion is an extremely large number and difficult for most to comprehend. It is one million million or 10 to the power of 12. It is an absolutely huge number and it is important to remain conscious of the sheer size of this number.

Conversely, the total value of all above ground stock of silver is a very small $4.2 billion.

If only a tiny fraction of these millionaires, ultra-HNWIs and billionaires decided to diversify out of their extensive property and stock portfolios and invest even a very small amount of their portfolios in silver it would result in the silver price increasing in price exponentially. Given the extremely strong investment fundamentals of silver this seems likely.

Hedge Funds

Globally, hedge fund’s speculative capital have doubled to more than $2 trillion (or two thousand billion) in the last three years. Some hedge funds have started moving into the silver market. Charles Supapodok of Artemis Capital Management is seeking to raise a $300 million hedge fund to invest mainly in silver. Artemis Silver Fund, advised by Artemis Capital Management, will put 80 percent of the fund's holdings in silver.

Again due to the incredibly small size of the global silver market if even only a percentage of the roughly 9,000 to 10,000 hedge funds in the world decide to take positions in the silver market the price will increase in value by multiples.


The Bank for International Settlements has estimated that the total value of derivatives contracts was $450 trillion at the end of 2006 (up from $260 trillion in June 2006) and is increasing exponentially.

There is still a debate as to whether derivatives are a good or a bad thing. Ben Bernanke and most in the financial industry believes they are good as they create liquidity and help spread risk throughout the system. Greenspan was a little more sceptical and warned that they could create ‘moral hazard’ as they did when LTCM collapsed in 1998 sending shockwaves through the financial system. He also warned that they could lead to "cascading cross defaults."

Warren Buffett is similarly not as sanguine: “Charlie [Munger] and I believe, however, that the macro picture is dangerous and getting more so. Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one other. The troubles of one could quickly infect the others. . . . Linkage, when it suddenly surfaces, can trigger serious systemic problems.”

“The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Knowledge of how dangerous they are has already permeated the electricity and gas businesses, in which the eruption of major troubles caused the use of derivatives to diminish dramatically. Elsewhere, however, the derivatives business continues to expand unchecked. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts.”

For this reason Buffett has called derivatives “financial weapons of mass destruction.”
The systemic risk posed by the near infinite creation of hundreds of trillions of dollars of derivatives means that the finite currencies and safe haven assets of gold and silver are likely to be diversified into increasingly.

If only a tiny fraction of the humongous derivatives market was to reallocated into the silver market, silver would increase in value exponentially.

Silver's price history

Silver remains historically undervalued. Despite the incredibly bullish fundamentals outlined silver has so far underperformed nearly all the other commodities. Silver has gone from below $5 to some $14 and is up some 190% in the last 7 years.

This seems like a lot but when compared to other commodities and metals it is very little:

Oil is up from $10 to $63 or 600% and more than 6 fold.

Zinc from $.35 to a high of $2.00,. now $1.50/lb or nearly 5 fold.

Copper, from $.75 to a high of $4.00, now $3.58/lb or nearly 5 fold.

Lead from $.20 to $.90/lb or nearly 5 fold.

Nickel from $3 to $22/lb or more than 7 fold.

Indium, Molybdenum, Selenium, Cobalt are all up 1000% or 10 fold and more.

Uranium is up a phenomenal 1300% or 13 fold.

Many commodities are up between 5 and 13 fold.
Silver is not even up 3 fold. If silver were to catch up with these other less rare and less precious metals, it would have to increase in value by some 500%. From the bottom at some $5/oz in 2001, that would result in silver being valued $25.

Silver reached $50 briefly in 1980 when just one billionaire Bunker Hunt (one of a handful of billionaires in the 1970’s) attempted to corner the silver market causing the price to surge (in conjunction with many investors seeking to hedge themselves from the stagflationary 1970’s). A lot of technical orientated analysts, investors and hedge funds are looking at this figure and as nearly all the other asset classes and commodities are all at near all time records there is every reason that silver will do likewise in the coming years.

Silver is priced at some $14/oz today. The average price of silver in 1979 and 1980 was $21.80/oz and $16.39/oz respectively. In today’s dollars and adjusted for inflation that would equate to an inflation adjusted average price of some $60 and $44. It is for this reason that we believe silver will be valued at over $50 in the next 3 to 5 years.

Why silver is the investment opportunity of a lifetime

Finally, it is important to put today’s total value of all above ground refined silver in the world - $4.2 billion – in context.

$4 billion worth of Boeing planes was bought by Ryanair in 2005. $4 billion was the cost of stamp duty tax on Irish property in 2006. €8 billion worth of overseas commercial property was bought by Irish investors in 2006. Scottish Ministers are in charge of £2 billion (some $4 billion) of tax revenues. Macquarie, the Australian bank, recently acquired the O2 Airwave police radio business for £2 billion. The 2006 Sunday Times Rich List UK estimated that there were 20 people with a minimum wealth of £2 billion (some $4 billion) residing in the UK.

Further context is provided in the fact that the actor Will Smith has had a worldwide career box office of $4.4 billion. Microsoft is growing revenues at over $4 billion a year. In March and April of 2007, just two months, one man’s wealth increased by $4 billion. Since Forbes calculated its 2007 wealth rankings, they recalculated that in two months the Mexican tycoon Carlos Slim’s fortune rose $4 billion to $53.1 billion.

Rarely are there 'no brainers' in life and very rarely are there ‘no brainer’ investment opportunities. Invariably, ‘too good to be true’ investments turn out to be just that.

However, this is not the case with silver. It remains the investment opportunity of a life time.

Silver is unique in terms of being both a monetary and an industrial metal and having the highest optical reflectivity and the highest thermal and electrical conductivity amongst all metals. Silver industrial and investment demand is increasing very significantly and meanwhile supply is falling. The fact that the huge majority of the investment public and financial services industry remains ignorant of the fundamentals in silver means that the bull market in silver remains in it’s early stages. Silver remains probably the most undervalued asset class.

How to Speculate in Silver

• Silver options and futures
• Silver ETF
• Silver mining stocks
• Spread bet silver

How to Invest in Silver

• Perth Mint Government Silver Certificates
• Allocated and unallocated silver accounts
• 1000 troy oz bars – (weigh some 31 kgs) These bars are COMEX good delivery bars.
• 100 troy oz bars – (weigh some 3.11 kgs) These bars are among the most popular with retail investors. Popular brands are Engelhard and Johnson Matthey.
• 90% Silver Bags
• 40% Silver Bags
(Pre-1970 U.S. legal tender 90% and 40% silver coins, which were used as money until they were replaced by the precious metal free coinage introduced in 1970 and used today. Bags of U.S. dimes, quarters, half-dollars containing 90% silver or 40% silver are traded based on their precious metal silver weight.)

Silver bars and silver bags can be taken delivery of but due to the volume, weight, difficulty to store securely and cost of insured delivery most investors buying silver in volume opt for unallocated and allocated silver accounts or government silver certificates due to their being no annual and ongoing storage/ insurance fees.

Mark O'Byrne is the Managing Director of Gold and Silver Investments Limited, Ireland's Asset Diversification and Wealth Preservation Specialist ( ). He is regularly quoted and writes in the financial media and was awarded Ireland’s prestigious Money Mate and Investor Magazine Financial Analyst of 2006.


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May 8, 2007

James Turk: The pressure is building

GoldMoney founder James Turk, editor of the Freemarket Gold & Money Report and consultant to GATA, writes today that the gold market is a pressure cooker, ever-more suppressed by central bank dishoarding. But, Turk writes, the price chart suggests that gold is on the verge of breaking upward as it has done several times before since its bear market ended in 2001.

The Pressure is Building

Sometimes the markets can be compared to a pressure cooker. We're at one of those moments.

For months the pressure has been building. Gold is clearly undervalued and therefore its price needs to climb higher to bring the market into balance. This balance will occur when new mine production meets the demand for physical metal.

James TurkPresently, the demand for physical metal is greater than new mine production, and this imbalance creates the pressure. A higher gold price is needed to reduce demand.

Gold undoubtedly wants to go higher, but is being prevented from doing so. Central banks fear a rising gold price because it is a widely watched signal that inflation is rising. So rather than let its price rise to reduce demand, gold's price is being capped to make inflation appear tame. The present exceptional demand for physical metal is being met by dishoarding from gold's aboveground stock.

It is of course impossible to precisely measure supply and demand. There are just too many participants in the market, and most don't disclose their activity. The exception of course is central banks. But central bank gold reporting is unreliable, with some banks announcing their dishoarding well after the actual event. Further, they do not report how much gold they lend to bullion banks. This borrowed gold is then sold, thereby putting more physical metal into the market. In any case, here is what we do know.

Over the past seven weeks European central banks have markedly stepped up their dishoarding, clearly indicating that they want to cap the gold price below $700 per ounce ($22.50 per goldgram). They dishoarded 90 tonnes of gold, which is more than one-fourth of the gold newly mined during this same period. It is this price capping that has put gold in a pressure cooker.

In fact, the lid on that pressure cooker is rumbling. Whether it blows sky-high or not depends on who will blink first. If it is the buyers of physical metal, demand subsides and gold will remain under $700. If it is the central banks, their supply disappears with the consequence that gold will soar to a new multi-decade high above $715. I fully expect the central banks are ready to blink, and when they do, gold will soar higher to relieve the pressure that has been building.

Actually, the following charts indicate that central banks have already blinked. They are losing the battle for $700. Both gold and silver are breaking out to the upside from the triangle consolidation pattern formed in recent months. And look what happened to each metal the last time they broke out to the upside from the other triangle patterns shown on these charts. Both gold and silver began a major uptrend.

These charts show that buyers of physical gold are overpowering the dishoarding by central banks. That is the first step to a higher gold price.

The second step is for gold to be pushed higher by "hot money" stepping off the sidelines, where it has been parked for months as gold traded within the range that has confined it for the past year. This new buying will put central banks in a dire position, and I suspect they are unwilling to step up the dishoarding necessary to keep capping the price.

Most central bankers have I think learned a lesson from "Brown's Blunder", the badly timed decision by British Chancellor Gordon Brown to dishoard one-half of Britain's gold stock at the bottom of the market, an event for which he is still being roundly criticized. They don't want to repeat his mistake. But there is also another possibility.

Perhaps the central banks are incapable of dishoarding gold at a higher pace because of their active gold lending and dishoarding in the past. In other words, they may be scraping the bottom of the vault, so to speak, and are running out of gold they are willing to dishoard at today's price. This possibility is worth pondering.

I would like to conclude this alert with the same words I ended the last one: "Both of the precious metals remain in uptrends. Most importantly, both look ready to break above their multi-decade high set one year ago. So in the coming weeks I expect to see gold and silver exceed their May 2006 high."

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