Captain Hook: Canadian Junior Mining Shares Ripe For The Picking

Canadian Junior Mining Shares Ripe For The Picking

by Captain Hook

The opportunities in Canadian junior mining shares has never been better. And now is the time to get in before prices skyrocket higher in my opinion. As mentioned the other day in pointing out the precious metals sector is turning higher, when the Canadian $ heads over parity against the Greenback, American investors will be looking for a home for excess cash they wish to hold in Loonies. And as they work their way down the food chain, eventually they will arrive at junior mining shares, a group that has been all but forgotten by the institutional types because either company or trading characteristics don't meet desired models at this time.
That is to say the shares are in the pennies, generally illiquid, and have been heading in the wrong direction (down) for some time now, a characteristic set definitely outside of the desired formula most momentum chasing behemoths (hedge funds) are chasing these days...

To read the rest of this article, click HERE

Peter Grandich talks about gold to Al Korelin

Peter Grandich interviewed by Al Korelin:

Dan Norcini: Gold and Dollar Market Summary

Latest on gold from Jim Sinclair's Mineset.

Friday, July 27, 2007, 6:27:00 PM EST
By Dan Norcini

Gold and Dollar Market Summary

Dear CIGAs,

I mentioned last week that the commercial shorts (aka the perma gold shorts or the bullion banks) would have to absorb a tremendous amount of buying to keep gold from surging to $700 since the fund net long position was comparatively small by recent historical standards. Well guess what? They did exactly that.

As you all know by now, the COT data only includes the action from Wednesday of the previous week thru Tuesday of the current week. If you recall, on Friday of last week and Tuesday of this week, gold had strong upside price action in which it ran to $687.50 on Friday and $688.40 on Tuesday. In both cases it was pushed down by the close just shy of $4.00 from the intraday high by aggressive selling which literally ate through the huge influx of incoming bids. Friday alone witnessed a massive increase in open interest of nearly 17,000 contracts – an almost unheard of number for one day with Tuesday’s surge higher being met with an additional increase of nearly 7,000 contracts. Clearly, some powerful entity was opposing the price rise with a vehemence that has not been seen for some time.

Those of us who have seen this drill for the last 6 years know exactly who that entity is and it was again confirmed today as the COT data was released. Once again, the INCREASE in the new shorts came from the commercial category, which by and large are dominated by the bullion banks. That group alone added a whopping 29,327 new short positions. Folks – this is the LARGEST WEEKLY INCREASE IN THE NUMBER OF NEW SHORTS IN ONE WEEK’S TIME since June 2005!

In other words, this same group, which was determined to hold the gold price under $450 two years ago and threw everything but the kitchen sink at it back then, apparently felt the need to ensure that the gold price did not reach the magical $700 level this past week. Even last year’s surge in May which saw the price of gold blast through the $730 level did not engender the amount of new selling by the bullion banks and their friends. Clearly someone is extremely concerned about a rising gold price given the current economic environment and the implications that such a price rise would raise.

One thing that I might mention to provide some solace for the friends of gold – yesterday’s collapse in the gold price come on the heels of the largest volume traded for a single day on the Comex that my records going back 6 years indicate. Nymex reported a mind-numbing 257,914 contracts traded hands yesterday during the rout that hit the gold market from the fallout of the rush into liquidity. That is humungous! The good news for gold’s friends is that such huge volume days that occur either on the way up or the way down typically tend to portend exhaustion waves when it comes to the futures markets. During such times, blind panicked buying or selling is the order of the day. People want out at any and all costs and simply do not care about anything else except to “GET ME OUT!” In the case of yesterday, it was terrified longs bailing out in droves. The result was a SHARP DROP in the open interest of nearly 20,000 contracts. The previous day’s down leg was marked by a drop of 15,000 contracts. In just two day’s time, we have cleaned nearly TWO MONTH’s worth of buyers since that is the last time open interest was near the current levels.

Again, while I hate to be prematurely optimistic given the current climate of fear and confusion, it is difficult for me to see how much more downside is left in the gold market especially seeing how well it held up today after yesterday’s exhaustion day. Even as stocks continued tanking later this afternoon, gold held rock steady. Just as what happened yesterday, its price descent down into the lower nether regions of the mid $650’s brought out strong buying which took the market back up into the plus column at one time during the day. Not too bad all in all considering how the currency crosses were getting whacked today and how the dollar was experiencing another dead cat bounce.

While the gold shares did not fare as well being caught up in the general market downdraft, the bullion price appears to be making an attempt at stabilizing here. I repeat from yesterday – I am of the opinion that the metal will lead the shares out of the bear’s woodshed.

Stay tuned as we all watch history unfold. What stories we will have to share with our children and grandchildren about these days!

Dan

Click HERE for charts (in pdf) with commentary by Trader Dan Norcini

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The gold carry trade (must read)

From GATA's newesletter:

Dear Friend of GATA and Gold:

Agora Financial's free daily letter, Whiskey and Gunpowder, yesterday carried an excellent essay by Nick Jones about the manipulation of the gold market, "The Gold Carry Trade." It is appended but needs two corrections.

First, Jones writes that the gold carry trade will end when the gold leased from central banks has to be repaid to them. In fact, most central banks do NOT want their leased gold back, since calling it back would create a short squeeze, explode the gold market, and destroy the financial houses that were encouraged by the central banks to short gold on the understanding that the central banks would cover for them if necessary. That's what the constant Western central bank gold "sales" are about -- the writing off of leased gold at current prices.

This is no mere speculation; it has been confirmed by the biggest gold shorter among the mining companies, Barrick Gold, which admitted in U.S. District Court in New Orleans in 2003 that it was the agent of the central banks in the gold market --

http://www.lemetropolecafe.com/img2003/memoformotiontodis.pdf

-- and which proclaimed that its gold leases had 15-year terms and were "evergreen," always allowed to be extended for another year so that they might never have to be repaid.

So the gold carry trade will end not when central banks call their leased gold back but simply when they decide to stop dishoarding their diminishing reserves, or when they simply exhaust those reserves.

Secondly, Jones writes that Barrick's bullion bank, JPMorgan Chase, has admitted to manipulating the gold market along with Barrick. Morgan Chase has admitted nothing in this respect; the only admission about manipulation was Barrick's as cited above. But of course Morgan Chase cannot be ignorant of what's going on; like the other Wall Street financial houses that serve as U.S. government agents in the markets, Morgan Chase is well-rewarded with inside information on government policy that will move the markets.

Nevertheless, Jones has provided a good outline of the gold-price suppression scheme and its purposes. It's below.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Whiskey & Gunpowder
July 25, 2007
By Nick “Child Prodigy” Jones
Minneapolis, Minnesota, U.S.A.

The Gold Carry Trade

On July 24, 1998, Alan Greenspan stood before the House Committee on Banking and Financial Services and said, “Central banks stand ready to lease gold in increasing quantities should the price rise.”

That is exactly what the gold carry trade consists of. It is the process in which central banks lease out gold bullion to be sold on the open market to suppress prices.

Here’s the thing: The large majority of these transactions take place on the London Bullion Market (LBM). This is an over-the-counter (OTC) market in which there is little-to-no transparency. A number of organizations have conducted studies on the amount of gold lending that takes place. Some of the organizations include Gold Fields Mineral Services (GFMS), the World Gold Council (WGC), and Virtual Metals (VM). As a result of the lack of transparency, the numbers reported in regard to gold leasing vary slightly from one another. For the sake of argument, I will be using the most conservative figures reported.

This may be the most significant piece of the gold bull puzzle that will push gold to $2,000 and beyond. I will dig in and share my in-depth research with you, starting with how the process is carried out, then going into the market impacts of the gold carry trade, and concluding with the future of the market for gold leasing.

How Does the Gold Carry Trade Work?

Gold leasing takes three different forms: direct leasing, central bank swaps, and forward hedging.

Direct Leasing

I am going to run through this in a simple step-by-step process. Central banks don’t directly take their bullion to the market and lease it out. They use a vehicle called a bullion bank (BB).

Although bullion banks are numerous, some of the more well known are Barclays, Goldman Sachs, JP Morgan, Bank of America, UBS, and Citibank.

The central banks loan gold to the BBs at a rate of approximately 1%. The BBs take it to the LBM and sell it on the open market. The BBs take the cash from selling the bullion and in turn buy Treasuries.

So if the story were to end here, the bullion banks would just walk away with a net 4% return. But it doesn’t end, because they only have the leased gold for a certain length of time. They eventually have to give the gold back to the central banks, but now they are at risk of price swings in a very volatile market.

The answer to their problem is to go long the futures market. Essentially, they buy futures contracts to hedge their risk. In other words, they secure gold for delivery at a specific price, on a specific date in the future. Once they buy their futures contracts, it doesn’t matter what the price action of gold is.

In a perfect scenario, after the gold lease rate and price risk hedging, the bullion bank will walk with a modest 1–2% gain. The central banks will receive a return on their gold, keep the price of gold suppressed in order to keep real inflation suppressed, and get a boost in the demand for Treasuries. It’s a win-win situation for both the bullion and central banks.

Gold Swaps

Gold swaps are very similar to direct leasing. The difference is that gold swaps usually take place between two central banks. These types of transactions occur in two different forms.

The first is very simple. Essentially, two central banks swap gold reserves and then carry out the action of direct leasing of each other’s gold. The reason for this is that it just adds more confusion for the accounting of the leased gold.

The second is slightly different. This transaction occurs when one central bank exchanges gold for currency with another central bank. Like gold leased to the BBs, a future date and price are set for the redelivery of the gold back to the initial central bank.

The IMF says of this type of gold swap, “Typically, both parties will treat the transaction as a collateralized loan.” Or the CB leasing the gold doesn’t remove the gold from its balance sheets, and the CB receiving the gold doesn’t add it to its balance sheet. As far as accounting goes, no transaction has even taken place. The gold market is flush with new supply and would beg to differ that a transaction hasn’t taken place.

In other words, the CB receiving the gold loans it out on the market while it is still on the balance sheet of the initial central bank. One might refer to this practice as double-counting the reserves.

Forward Hedging

Forward hedging is a form of gold leasing practiced by gold producers. The most famous of these is Barrick Gold, but there are many other producers who partake in forward hedging.

Forward hedging is when a producer presells gold on the spot market that has yet to be extracted from the earth. Most of the buyers want delivery of physical gold. So the producer leases gold from a CB, with the idea that it will pay the CB back with future production.

The problem is that these producers often sell their gold at suppressed prices on the spot market and they often sell more gold then they can produce.

On the note of Barrick, did I mention that it has recently been sued for price fixing and price manipulation of the gold market? Barrick and its bank JP Morgan have admitted to price manipulation and that they have worked with the central bank in this process.

Implications of the Gold Carry Trade

The gold carry trade has one main goal, and that is to add huge amounts of supply to the market in order to suppress the price of gold. Although there are other added bonuses along the way for the participants, the main reason for suppressing the price of gold is so the world doesn’t know the true value of worthless fiat currencies.

I would like to use some statistics to inform you as to the implications of gold leasing on the market for gold. Remember that I will use the most conservative numbers I could find.

In 2005, according to GFMS, gold leasing was estimated to have added 2,970 tonnes of supply to the market. In that same year, jewelry demand was 2,700 tonnes, world investment was 736 tonnes, and official central bank sales were 656 tonnes. Over the last 10 years, average mine production has run at an estimated 2,500 tonnes per annum. So the amount of leased tonnage exceeded all of the above-mentioned statistics.

Remember that central banks are not required to report at all on their transactions of loaned gold. So those 2,970 tonnes of extra supply were also counted in central bank reserves, or they were double-counted.

Central banks are the largest holders of gold tonnage, estimated to have around 30,000 tonnes. So they have loaned out approximately 10% of their total reserves.

How Long Can This Go On?

If you are looking at this in a practical way, you probably came up with the exact questions I did when I first started to read about the gold carry trade. When the gold enters the market via a BB, it all has to be bought back at the end of the lease contract. Doesn’t that put us back at square one with the amount of supply in the market negating any long-term implications?

The answer would be yes if there were just a couple of transactions. But there are several gold leasing contracts signed every day. All the supply is constantly being recycled in and out of the market and there is always fresh gold being leased into the market.

The length of a gold leasing contract can extend anywhere from one month to several years. This allows for the central banks to analyze these markets and best time their transactions and how long they will be, in order to suppress the price of gold.

So can this go on forever? Definitely not, and the implications of the gold carry trade coming to end will bring with it the most spectacular price actions ever seen in the gold market.

Let me tell you why the gold carry trade will not be sustainable forever. It’s very simple. All we have to do is look at the step where bullion banks have to buy back the gold sold on the spot market in order to pay back the central banks.

In order for this to be profitable for the BBs, the price of gold has to experience very limited gains during the time the gold is leased out. Or the price of the futures contract purchased by the BB has to be near enough to the price of gold when the bullion bank initially unloaded the leased bullion on the spot market. If the price of gold heads too high, it will not be profitable for BBs to partake in being the intermediary for such transactions.

All we have to do is look at the fundamentals for gold and we realize very quickly that the price of gold is definitely going to go higher one way or another, which will disallow future leasing in the gold market. You are probably well aware of the fundamentals: Every one of the major economies of the world printing money at a rate of over 10% per annum; the Mount Everest of debt from both budget and trade deficits; an inevitable recession here in the U.S.; the inability of the U.S. to raise interest rates, due to the complete mess of the housing market; rising energy costs putting downward pressure on the U.S. dollar and increasing inflation in every other aspect of the economy; mine supply at historic lows; a possible U.S. policy that would include trade protectionism against China; and, last, but definitely not least, a U.S. Federal Reserve whose main goal is to create credit by keeping interest rates below the rate of inflation (negative real interest rates).

Fundamentals are fundamentals, but there has been some action in the International Monetary Fund (IMF) recently on this very topic. Before I go any further, I just want to let you know that I don’t trust the IMF any further than I can throw it. And I don’t really expect any timely results from its actions. What is important is that the notion of the gold carry trade is coming forefront. Here’s what’s going on in the IMF.

Hidetoshi Takeda of the IMF’s statistics department recommended in early 2006 that all loaned gold be excluded from the central bank’s reserve figures. The IMF’s committee on reserve assets considered Mr. Takeda’s paper and came to the conclusion that a new definition of gold reserves excluding loaned gold needs to be officially documented. It also stated that unallocated gold loans should be disallowed. Nothing recommended in Mr. Takeda’s proposal was rejected. Full details of his report can be read here.

The IMF continued its research regarding the issue and made another report with a similar conclusion. What does this all mean? Well, the IMF is currently working on another official proposal to be worked through the system making it necessary to make all loaned gold public information and to exclude loaned gold from reserve accountings. The IMF currently “encourages” central banks to record gold loans/swaps, but does not “require” the recording.

If everything goes perfectly, and I don’t believe that it will, we could see these actions implemented by the IMF at the end of 2008. As I said, it seems like a far reach, but the more people become aware of the gold carry trade, the sooner it will come to an end. And I don’t like to put my bets on the IMF to make progress with in the accounting of leased/swapped gold, but it DOES have the power to change how central banks report the reserve holdings of gold.

The eventual unwinding of the gold carry trade, whether it be from the IMF or just market fundamentals, will bring amazing action to the gold market. Remember that gold leasing didn’t begin until after the precious metals run from 1979–1980. For the bull market in gold to continue, it will need to overcome the barriers set by central banks’ leasing of gold. But when this does occur, the floodgates will open and we can expect to see the price of our favorite yellow metal skyrocket.

Mortgage defaults already coming from good-credit borrowers

By Alex Veiga,
Associated Press,
via Yahoo News
Wednesday, July 25, 2007

LOS ANGELES -- Here's a scary thought about the latest bad news on housing:

A surprising increase in late loan payments and defaults among home owners with good credit is so far coming from traditional woes, like divorces, job losses, and unexpected medical bills.

The next and biggest wave of problem loans could come as monthly payments soar for both prime and subprime borrowers who took out adjustable-rate loans with little or no documentation, or who used so-called piggyback loans on top of their first mortgages to make up for small down payments, analysts said.

These exotic loans were the only way many borrowers -- even those with good incomes and sterling credit histories -- could afford to get into the housing market as home prices soared in the last decade. But now those decisions are looking suspect.

That was one of the messages that sent a jolt through the mortgage industry and the stock market on Tuesday after Countrywide Financial Corp. reported its second-quarter profit shrank by nearly a third as softening home prices led to rising delinquencies and mortgage defaults.

Countrywide, whose shares have lost 11.7 percent of their value in the last two days, laid part of the blame for the uptick in delinquencies on borrowers with good credit who had taken out prime home equity loans.

Analysts said the trend could continue, particularly in areas of the country that have been hardest hit by job losses in general or seen a decline in speculation-driven construction, such as South Florida, parts of California and Las Vegas.

"As housing values weaken broadly and the job market slows in these areas that we're focused on, all borrowers will be touched," said Mark Zandi, chief economist at Moody's Economy.com.

He said subprime borrowers, those with spotty credit records, will likely show the greatest number of defaults. "But even prime, fixed-rate first mortgage borrowers will experience more credit problems," Zandi said.

The problems are expected even though the U.S. unemployment rate is currently at 4.5 percent, still low by historical standards.

More signs of the housing slowdown surfaced Wednesday as the National Association of Realtors reported that sales of existing homes fell by 3.8 percent in June to the slowest pace in more than four years.

In reporting its earnings, Calabasas-based Countrywide, the top U.S. mortgage lender, said it was forced to take impairment charges as it braced for the possibility of more people failing to make their mortgage payments on time.

The company said borrowers becoming unemployed or divorcing were the leading reasons why many borrowers with prime loans were falling behind on payments. And company officials told analysts on a conference call that the uptick in missed payments was not due primarily to borrowers seeing their loans' interest rate reset, triggering higher monthly payments.

Still, the mortgage industry anticipates that it could face a rash of defaults in coming months as many adjustable mortgages originated in 2005 and 2006 during the height of the housing market frenzy begin to reset to higher interest rates.

The loans, initially attractive options for buyers because of their cheaper "teaser" interest rates, can adjust higher after as little as two years. Even a small percentage increase can translate into a payment shock.

"The losses are just beginning," said Christopher Brendler, an analyst with Stifel Nicolaus & Co. Inc.

"Housing is increasingly a problem, prices are likely to go down, and so these loans underwritten in the best of times will now season in the worst of times," he said.

The mortgage industry has already tightened lending standards in response to the jump in defaults by subprime borrowers.

With fewer first-time buyers entering the market, homeowners in the mid-tier of the market, who tend to be among the most creditworthy, prime borrowers, are having a tougher time selling their homes.

"The same problems you saw in the subprime sector that caused the big meltdown in March is now a broader industry problem that's hitting the prime sector," Brendler said.

* * *

Central banks seen rescuing dollar with more gold sales

As expected, the "usual suspects" acted timely (while gold stocks last) and saved the US$'s butt (once again) from the below 80's precipice (read relevant post):

Gold Falls as Central Banks May Increase Sales

By Claudia Carpenter, Bloomberg News Service
Wednesday, July 25, 2007

LONDON -- Gold fell in London on speculation European central banks will increase sales of the precious metal. Silver also dropped.

The European Central Bank said yesterday three members of the Eurosystem of national banks sold 288 million euros ($397 million) of gold last week, equal to about 18 metric tons and up from 88 million euros the week before. European central banks may sell 157.6 tons in the next nine weeks, or an average of about 18 tons a week, according to World Gold Council figures.

"We may need to get very used to the fact that 18 metric tons of gold are going to become commonplace for the next two- and-a-half months," Dennis Gartman, trader and editor of the Virginia, U.S.-based Gartman Letter, said in his daily report today. That amount will "make it difficult for gold."

Gold for immediate delivery dropped $4.41, or 0.7 percent, to $676.59 an ounce at 2:17 p.m. in London. Silver fell 10 cents, or 0.8 percent, to $13.14 an ounce. On the Comex division of the New York Mercantile Exchange, gold futures for August delivery fell $8.20, or 1.2 percent, to $676.60 an ounce.

European central banks have sold 342.4 tons of gold as of July 20 under an agreement that caps annual sales at 500 tons through Sept. 26, London-based World Gold Council investment research manager Natalie Dempster said. That includes 13.9 tons sold by Switzerland in June, she said. They were the biggest sales by the Swiss National Bank since March 2005, according to figures on the bank's Web site.

The Eurosystem comprises the ECB and the national central banks of the countries using the euro.

* * *

Why Gold is going up amidst summer doldrums...

Here's a couple of well educated guesses (firmly anchored in fundamentals) for gold price resilience during this "shopping season".

"The countries of the Far East have had a strong historical appetite for gold and this past month, for citizens of two of them, ownership just got easier.

In China, the Shanghai Gold Exchange is launching individual gold bullion trading through a partnership with the Industrial Bank.

This follows last year’s establishment of special bank accounts that let holders trade in virtual gold. Now they can buy the real thing, with only a 100-gram minimum. And investors can take home the bullion at lower prices than those charged by jewelers and coin makers.

Since the Chinese have traditionally kept gold bullion as a safe haven to hedge against currency mismanagement, political crisis and as a symbol of good fortune, we can expect demand to track that country’s growing wealth.

Perhaps sensing this, the Chinese government in mid-July moved to ramp up domestic supply by allowing overseas firms, “with the latest and best technology,” to bid for exploration rights at the country's largest potential gold deposit, the Yangshan in Gansu Province. Yangshan has at least 5,120,000 ounces of gold in proven reserves.

Meanwhile, in Japan, the Osaka Securities Exchange announced that it will list Japan's first exchange-traded gold fund in August. The minimum trading lot for the ETF will be 10 units, with each unit equal to one gram of gold. While this new product makes it simple for individuals to participate in the gold trade, it could be also be attractive for Japanese institutional investors, as it is denominated in yen while its price will be linked to the gold fix in London.

Japanese demand for gold was over 200 tons in the year ended March 31, but 85% of that went for industrial uses. Some analysts estimate that, with the introduction of the ETF, that number could double, or more. If that sounds optimistic, consider that the holdings of streetTRACKS, the largest U.S. gold ETF, is closing in on 500 tons."

Furthermore

"In the past month alone, the dollar has experienced about a 3% slide in value against the euro, and nearly as much versus the British pound and Canadian dollar. The closely watched dollar index is now at lows not seen since December of 2004 and, before that, 1995.

The decline is not limited to only industrialized countries, it has lost ground against the currencies of emerging markets, as well. In a year, the dollar has tumbled 15% against the Brazilian real, 13% against the Indian rupee, and 5% versus the Chinese yuan.

Things have gotten so bad that the Russians are actually trading their dollars for once-spurned rubles. The amount of U.S. dollars held by private Russian citizens has purportedly plunged, from $35 billion in 2002 to less than $12 billion as of July 1 of this year, according to a statement from the Russian Central Bank in mid-July.

Shamelessly, the Federal Reserve continues to put the blame for inflation on, believe it or not, us. Or, our expectations, to be more exact. In the recent words of Chairman Ben Bernanke: “Undoubtedly, the state of inflation expectations greatly influences actual inflation and thus the central bank's ability to achieve price stability.”

That’s right, it’s not the flood of dollars deluging the market that is pushing down the buck’s value both here and abroad. No, it’s our fault for worrying about inflation.

Bernanke may think we’re stupid enough to buy this foolishness, but he can’t deny that foreigners are increasingly unwilling to accept it anymore. Moreover, those holding dollars are turning not only to euros and rubles, but to gold. A couple of weeks ago, the Qatar Central Bank reported that it had quadrupled its gold holdings between January and the end of April. Though Qatar’s vault is small, this is an indication of where the Middle East, and much of the rest of the world, is heading."

Ambrose Evans-Pritchard: When will gold go ballistic?

By Ambrose Evans-Pritchard
The Telegraph, London
Monday, July 23, 2007

A lot of readers have asked why I duck the issue of gold when talking about the dollar crisis and the M3 monetary blow-off.

So here we go:

I started buying gold mining shares in September 2001, missing the bottom by four months. I still hold some shares (mostly duds, since I am the village idiot when it comes to picking stocks). Gold's 15-to-20-year upward cycle is alive and well.

For those who don't follow bullion, gold hit $252 an ounce in the spring of 2001 in a final capitulation selloff when Gordon Brown began his Treasury sales. It rose to a peak of $730 in May 2006.

Gold has languished since, in part because of sales by the Spanish and Belgian central banks. I remain very wary in the short to medium-term.

What unnerves me is the way gold has tended to move in sympathy with global stock markets. Whenever risk appetite rises, it rises. When investors shun risk, it falls. In other words, it has become correlated with all the speculative trades -- notably the yen and franc carry trades -- responding to abundant global liquidity. This liquidity is now being drained as the Bank of Japan, European Central Bank, Swiss National Bank, Bank of England, Riksbank, and Chinese Central Bank, et al., turn off the tap. So be careful.

While the pattern appears to have changed over the last couple of weeks, this is not long enough to establish a "paradigm change," excuse the ghastly term. My concern is that gold will fall hard along with everything else (except the yen and the Swissie) in any market crash/correction.

At some point it will decouple, as it did during the 1987 crash when it fell hard, found a ledge, and then recovered hard, while the Dow kept falling. But, I would rather hold Swissies or yen until gold finds that ledge in a downturn, resuming its old role as a safe store of value. This may happen quite quickly in a crisis. (Of course, I may also be left behind right now in an accelerating rally, but that is a risk I accept.)

Ultimately, gold will surge, once it becomes clear that the euro lacks the staying power to serve as an alternative to the dollar. To restate a point I have made many times, the euro-zone is an ill-assorted mix of 13 unconverged national economies -- with national treasuries, debt structures, taxes, pensions, and labour laws -- that are not ready to share a currency and are drifting further apart by the day.

(Lest anybody forgets, the motive behind monetary union was PURELY political. The economists at the European Commission warned that the project could not survive over time if it included a Latin bloc of countries with an unreformed culture of high inflation, rising wage costs, and an export base exposed to Asian competition [unlike Germany's, which is complimentary] -- unless it were backed by a full superstate. They were ignored. Indeed, any future crisis was to be welcomed as the "beneficial crisis," a chance to force through full political integration that would otherwise have not been possible, as Romano Prodi so candidly admitted when he was commission chief.)

At some point it will become clear to everybody that: the Club Med group cannot compete at an exchange rate of $1.40, $1.45, $1.50, or whatever it reaches; their credit booms are tipping over; they will soon need stimulus more than the US.

Goldman Sachs, by the way, is already "shorting" Italian and French bonds, while going "long" on German bunds to play the divergence (the opposite of the euro-zone "convergence play" that made the banks rich in the 1990s).

We may have a situation where sharp dollar falls caused by impending rate cuts by the Fed set off a systemic crisis for Euroland. If so, politics will quickly take over from economics and begin to dictate events in Europe. The ECB will have to stop raising rates (whatever Berlin wants), and the euro will become a structurally weak currency tilted to the need of the weakest players. If it doesn't, the European Union itself will blow up. So the ECB will have to change tack to support the union. And the European Court will interpret the treaties in such a way as to force the ECB to do so.

Gold will fly once investors can see that neither of the two reserve currency pillars (euro and dollar) is on a sound foundation, and once the pair are engaged in a beggar-thy-neighbour devaluation contest to stave off a slump (if necessary with the use of Ben Bernanke's helicopters, meaning mass purchase of Treasuries, mortgage bonds, stocks, or assets of any kind to support the markets). This would amount to a partial breakdown of the monetary system. Gold will not stop at $800. It might well go beyond $2,000.

We are not there yet. Timing is not my forte, but 2008 looks ripe. Watch the Spanish housing market. Watch the French trade data. Watch Chinese inflation. And, of course, watch the US jobs market -- the bogus prop to the alleged US recovery. (On that, more later.)

* * *

Summer Doldrums Over?

The HUI has signalled a decisive breakout right in the middle of the "Shopping Season" spoiling everyone's vacation:




It remains to see if gold will confirm following suit behind the stocks and propped by the weakening US dollar (Which is looking very precarious at 80-something points. It shouldn't surprise us if the buck "stages" a temporary comeback..):

The US Dollar: On the Edge of the Abyss

By Sam Kirtley
Jul 17 2007 9:42AM
www.gold-prices.biz

We are literally about half a point from seeing the US Dollar break its single most important support level. Here, eighty is the magic number, watch the USD fall below 80 and you have witnessed the beginning of the end of the dollar and the dawn of a terrific run in gold prices that will take the yellow metal to an all time high in a surprisingly short period of time.

Over the last year, as the chart below demonstrates, we have watched the dying dollar make lower lows and lower highs. The USD occasionally makes a pathetic attempt to break its 200dma, but that has only happened a couple of times over the last year. Indeed, the USD has not been above its 200 day moving average since the 50dma crashed down through the 200dma in early April 2006.

The USD has fallen over two points in the last fortnight or so, and this rate of decline will continue if it breaks the support level at 80. When the USD was testing this support at the beginning of 2005, it went on a terrific run to 92.63 but somehow we do not think that the dollar will be able to pull another rabbit out the hat as it did then. More and more investors are coming around to the fact that the USD is dead and people do not want to hold this rapidly devaluing paper anymore. When the USD breaks 80, the whole world will see a big sell signal and this influx of people dumping dollars will send the greenback down into the abyss and its anyone’s guess how far it can fall, but it will fall…a lot.

However there is one fan of the USD, a fan that will try and keep the dollar up or at least “manage” its invertible collapse. That of course is the US Government. Armed with Ben Bernanke’s Plunge Protection Team, you can bet you bottom dollar (although shortly it might not be worth much) that they will do everything possible to make sure their currency does not have a full blown crash. They would rather that USD gradually floated down in a way that would benefit US exporters. Trying to manipulate the market is a dangerous game, as no person, company or government is bigger than the market and eventually the market will fight back and win.

In fact the more an entity tries to suppress something, whether this be the financial market or something as simple as an idea, the more drastically the suppressed force will fight back. Therefore all the Plunge Protection Team are doing by trying to prop up the dollar or the stock market is delaying the invertible and making the backlash reaction all the more dramatic. You can try to push the bad times back, but this will just make the bad times worse when they eventually come around.

It is crucial to remember that the United States on America is not the only government with an interest in which way the dollar goes. With their hands on over $1.2 trillion dollar bills, the Chinese Government must also be watching the USD like hawks having lost $100 billion of value in less than a year. The government in China is very concerned at keeping “social unrest” at a minimum so how do you think the Chinese people will react if the USD continues declining further and further down bringing their foreign currency reserves closer and closer to worthlessness. China must be looking to transfer their dollars into something that retains its value or perhaps even increases in value, after all isn’t that what investments are supposed to do?

China will look to get out of dollars and into anything that isn’t falling as fast as the USD. The private equity group Blackstone, made the biggest US IPO of the year recently and Beijing swiftly swooped in and bought a 9.9% stake in the company, using $3 billion of its foreign exchange reserves. It is likely that we will see more examples like this of China buying companies, commodities and whatever they can to get out of the dollar. Gold and silver bullion or the mining companies in the precious metals industry are obvious candidates for a piece of China’s USD pie as they move up and as the greenback moves down so they are the most logical hedge against a declining dollar.

If China and other countries holding large USD reserves shift even a small proportion of their dollars into the precious metals, it will have massive effect on gold prices and silver prices. Governments aside, individuals around the world will be looking to trade any dollars they have for a piece of gold or some gold stocks rapidly increasing in value.

So do we think the USD will break 80 in the next few days?

No. The PPT will probably buy it back up a couple of points but then it will drift down again to test the eighty level and will probably break it in the coming months. However now is the time to buy gold and silver and gold stocks and silver stocks.

For ideas on which gold stocks to invest in, subscribe to the Gold Prices newsletter at www.gold-prices.biz completely free of charge.

Sam Kirtley
www.gold-prices.biz
bob@gold-prices.biz

Dollar Deception: How Banks Secretly Create Money

DOLLAR DECEPTION: HOW BANKS SECRETLY CREATE MONEY

by Ellen Brown

"It has been called "the most astounding piece of sleight of hand ever invented." The creation of money has been privatized, usurped from Congress by a private banking cartel. Most people think money is issued by fiat by the government, but that is not the case. Except for coins, which compose only about one one-thousandth of the total U.S. money supply, all of our money is now created by banks. Federal Reserve Notes (dollar bills) are issued by the Federal Reserve, a private banking corporation, and lent to the government.1 Moreover, Federal Reserve Notes and coins together compose less than 3 percent of the money supply. The other 97 percent is created by commercial banks as loans..."

Read the rest of Ellen Brown's enlightening article HERE (must read)

Puru Saxena: Summer Sale!

...I believe that every investor should take advantage of this correction in metals and allocate a meaningful portion of their net-worth to the resources sector. Rather than buying the physical commodities through index-tracker funds (due to the negative impact of contango), I suggest investors allocate their hard-earned capital to resource-producing companies which in this raging bull-market are still trading at bear-market valuations!

To read Puru Saxena's article please click HERE

Reuters: Average gold price seen up 10 pct in 2007 and silver to outperform

A Reuters global poll of 33 analysts predicts average gold prices will continue to move upwards and that the silver price will outperform the gold price.

Author: Atul Prakash
Posted: Wednesday , 11 Jul 2007
LONDON (Reuters) -

Average gold prices will jump nearly 10 percent this year and gain further in 2008 as a weaker dollar outlook, less aggressive sales by central banks and physical demand will boost investor interest, a Reuters poll showed on Wednesday.

The global poll of 33 analysts and traders conducted over the past month arrived at a median price for gold of $670 a troy ounce, up from an average of $612.10 in 2006 and about three percent higher than the figure from a poll in January.

Gold is forecast to rise to an average of $681.00 in 2008, up four percent from the January poll for the same year. That compares with a 23 percent surge in 2006 and 18 percent in 2005 .

Spot gold was trading at around $665 on Wednesday.

Other precious metals are expected to perform more strongly than gold, with the average for silver seen surging by nearly 14 percent this year, platinum gaining more than 11 percent and palladium rising by over 13 percent.

"We believe the medium-term environment remains constructive for the gold price outlook," said Michael Lewis, global head of commodities research at Deutsche Bank in London.

"A further depreciation of the dollar, low real U.S. interest rates, the possibility of more skittish equity markets ahead as well as strong fabrication demand suggest to us that the recent correction in the gold price will be short lived."

Gold fell to a three-month low of $638.90 on June 27 before recovering, compared with last year's 26-year high of $730.

DRIVING FACTORS

Sentiment was expected to be bullish as the metal was likely to remain a part of the portfolio of funds and investors.

"The forces that have driven commodity prices higher in the past couple of years remain largely in place," said Donald W. Doyle, Jr, chairman and chief executive of U.S.-based Blanchard and Company, a precious metals dealer.

"Global economic growth is strong, liquidity is plentiful, investors appear to still have an appetite for risk and the demand for commodities will continue to grow in emerging Asia as the region industrialises and wealth grows," he said.

Analysts said physical demand, which suffered last year because of volatile prices, was seen increasing due to a reduction in sharp price fluctuations, which might underpin the metal.

"From a fundamental perspective, fabrication demand has shown signs of stabilising and, barring another surge in price and volatility, we expect demand to remain positive over the year," said Suki Cooper, precious metals analyst at Barclays Capital in London.

Forecasts for continued dollar weakness, strength in oil prices, a tense geopolitical environment and expectations of gold sales by European central banks falling below their annual target of 500 tonnes remained positive for gold, but other factors had turned bearish, analysts said.

The pace of closing hedge positions that entailed gold sales for delivery at a future date was expected to slow down, while there had been some reduction in the metal held by exchange traded funds (ETFs) in recent months.

"If this were a mid-term school report for gold, it might have read -- Does well with limited resources, needs to pay better attention to what is going on," Ross Norman, managing director of TheBullionDesk.com, said.

SILVER TO OUTPERFORM

Silver is seen stronger than other metals, with the average 2007 price surging 14 percent to $13.30 an ounce. But it is forecast to fall to $13.00 in 2008, against its spot price of $12.95 and a 25-year high of $15.17 in May last year.

"Silver remains somewhat linked to the fortunes of gold but we believe increasing investor demand will see silver prices outperform gold over the next 6-12 months," said Daniel Hynes, commodities analyst at Merrill Lynch in London.

Analysts said silver would need support from investments in ETFs as the market was expected to end 2007 in surplus on rising mine supply.

Platinum is forecast to rise 11 percent to $1,267.50 an ounce this year before falling to $1,250 in 2008, but will still be above last year's $1,138 and the January's forecast of $1,125. Spot was last quoted at around $1,305, far below its record high of $1,395 in November.

Palladium was predicted to track other metals, with prices seen rising 13 percent to $363 an ounce in 2007 and then to $380 in 2008.

Qatar's gold reserves up 1,500% in year

From Qatar News Agency
via The Peninsual, Doha, Qatar
Friday, July 13, 2007

DUBAI, United Arab Emirates -- Qatar Central Bank gold holdings more than quadrupled between January and the end of April, data on the central bank's website showed yesterday.

Qatar, which said last year it wanted to diversify its foreign exchange reserves away from the dollar, held 702.8 million riyals ($193.1 million) of gold at the end of April, compared with 158.1 million riyals at the end of January. The central bank's total assets reached 21.1 billion riyals at the end of April.

The current gold holdings are equal to about 9 tonnes of gold at current market prices.

The bank's gold holdings are up more than 15 times since April 2006.

Qatar's Central Bank said last April it was buying euros as part of its diversification programme.

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James Turk: Bernanke explains why Fed must rig gold price

GoldMoney founder James Turk, editor of the Freemarket Gold & Money Report and consultant to GATA, analyzes Federal Reserve Chairman Ben Bernanke's inflation speech this week and finds the Fed's rationale for manipulating the gold price.
It is, Bernanke said, a matter of controlling inflationary "expectations." That is, if you believe Bernanke, the public causes inflation by expecting it; the Fed doesn't cause it by increasing the money supply far out of proportion to the productivity of the economy.
Turk's new essay is titled "Controlling Inflationary Expectations" and you can find it at Kitco HERE

Dan Norcini: Gold price cappers aren't fooling anyone anymore

By Dan Norcini
JSMineset.com
Tuesday, July 10, 2007

Today was one of the most blatant capping efforts I have seen in gold in some time, and that is saying something. With the dollar breaking through major support and with crude oil moving up along with the CRB index, to see gold struggle to keep its head above water would have been almost comical if it wasn't so obvious as to what is going on.

You have to wonder what it is about the number "666" that the enemies of gold are so obsessed to hold gold below that price. We could not make this stuff up!

The official sector is so terrified of letting the gold price get away from them that they are making fools of themselves, since even the most obtuse are beginning to realize that something stinks to high heaven in the gold market.

My own view of this is that anyone -- and I do not care how well-respected or how well known he is -- who denies that there is official-sector intervention to keep the price of gold down is willfully blind and has forfeited any right to be listened to.

I have been a trader for nearly 20 years now and have seen all manner of markets trade and all manner of price action and will state categorically that no other market on the planet trades like the gold market. The price action in gold cannot be explained in any other way than by official-sector intervention.

Market commentary from the usual nitwits to explain gold's weak price action was encapsulated in the view that gold traders were waiting to see what Fed Chairman Bernanke would be saying in his speech at 1 p.m. ET. Oh, sure, I get it: Traders are concerned about the dollar's reaction to any talk of Fed action on the interest rate front. Meanwhile the dollar falls into a black hole! And to think that some people actually get paid to produce this sort of swill.

The friends of gold can rest assured that those who are vainly expending energy and resources in suppressing it are spitting into a hurricane. They should give it up since they are no longer fooling anyone. Once a ploy becomes widely known, it no longer serves any useful purpose. Screwing around with a yardstick does not mean that one can alter the fact that there are 36 inches in that yard.

In the same manner, attempts to alter the barometer of gold have zero affect on the conditions that are calling for its inexorable rise higher.

* * *

Sell in May: Was it a good idea?

Sell in May: Was it a good idea?

Posted By Silver Prices On July 9, 2007 @ 1:36 pm

The old adage of ‘Sell in May and Go away’ has served many investors well in the past but we ask “was it a good idea this year”?

Read more »

Ron Paul interviewed by G. Stephanopoulos

Presidential candidate Ron Paul, U.S. representative from Texas, was interviewed at length on ABC television's "This Week with George Stephanopoulos." Stephanopolous seemed amused and surprised that a politician who has adhered so closely to his professed principles has survived for so long, and the interviewer expressed his willingness to bet all the cash he was carrying (he didn't say how much that was) that Paul has no chance of winning the presidency.

Paul acknowledged that the odds against him are long but added that he was never expected to win election to Congress either, and now has served there for almost 20 years in three stints. Perhaps most interesting was Paul's explanation of his surprising success so far in the campaign for the Republican presidential nomination, particularly with fund raising. Paul attributed it to a simple desire among Americans for freedom from ever-more-pervasive government.

You can find at YouTube HERE

Kitco's Nadler overlooks the biggest parts of the gold market

Interviewed Friday by Michael Kane on the "Market Morning" program on Canada's Business News Network, Kitco senior market analyst Jon Nadler disparaged suggestions that the gold market might be manipulated.

First Nadler said jokingly that, yes, the gold market IS manipulated -- "by the people who write about manipulation."

Getting serious, Nadler offered only one argument against a belief in manipulation of the gold market. He said that "retail investors globally" now control more gold than all central banks combined. The gold market, Nadler said, is "controlled by individual investors, not sinister forces behind the scenes."

That private parties now may hold more gold than central banks never has been disputed by GATA. Indeed, it may have been GATA consultant Frank Veneroso, now global market strategist for Allianz Dresdner, who first observed a few years ago that women in India, with their collection of monetary jewelry, had just about cornered the gold market and made it impossible for the huge short positions in the gold market to be unwound gracefully.

But this situation does not disprove manipulation, for it does not disprove that the central banks remain huge players in the gold market. And the best estimates are that central bank dishoarding is responsible for a quarter to a third of annual gold market supply, since gold demand long has been running so far ahead of mine production and the recycling of scrap gold.

Since the central banks acknowledge -- no, PROCLAIM -- that they coordinate their gold sales and leases (that's what the Washington Agreement on Gold is about), even as the other parties in the market do NOT coordinate their activity, the central banks are by far the overwhelming influence on the gold price in the short term.

Besides, in counting only real gold, Nadler misses the bigger part of the gold market -- derivatives, futures, and options, PROMISES to supply gold. These derivatives rather than the exchange of gold itself constitute most daily trading in the gold market, and hundreds of billions of dollars' worth of derivatives are counted by the Bank for International Settlements. Those derivatives are assuredly NOT the work of the "individual investors" Nadler says are in charge of the gold market. To the contrary, they are mostly the doing of central banks and the major financial institutions fronting for them.

Maybe if Nadler had been given more time on BNN on Friday he could have addressed these crucial aspects of the gold market. In any case NOT to address them is dishonest.

For a few more days you can watch Nadler's interview at the BNN program archive here:

http://www.bnn.ca/shows/past_archive.tv

It's in the Friday section at 10:10 a.m.

The Fed's Role in the Bear Stearns Meltdown

Jul 02, 2007 - 01:25 AM
By: Mike_Whitney

The Bank for International Settlements issued a warning this week that the Federal Reserve's monetary policies have created an enormous equity bubble which could lead to another “Great Depression”. The UK Telegraph says that, “ The BIS--the ultimate bank of central bankers--pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

The IMF and the UN have issued similar warnings, but they've all been shrugged off by the Bush administration. Neither Bush nor the Federal Reserve is interested in “course correction”. They plan to stick with the same harebrained policies until the end...

Please click HERE to read the article

e-rooster blog: Big Governments, Big Errors

America's founding fathers were thought to be against big governements. They held that a necessary evil of government is corruption, and the greater the government the more extensive the corruption. The role of the state should be to regulate the operation of the free market, and act as the enforcer to punish those who break the law, also deterring others from breaking it.

Much later Milton Friedman stipulated that "government is the will of the individual to live at the expense of others". Taken literally this may seem somewhat excessive. But in countries with large governments it is surprisingly accurate: individuals expect the government "to take care of things", and the perenial complaint is that the "government should do something". Government becomes the deus ex machina that will save us all by remedying problems through bloated, expensive bureaucracies...
Please read entire article at the e-rooster blog