A surprise rally in gold and silver

By Jeb Handwerger
At the end of 2011, Merkel and Sarkozy got together for an unusual emergency meeting. They pledged to come up with economic salvation. Immediately the equity markets mounted a year end " Halleluyah" rally. Bernanke followed Europe's footsteps in 2012 and expanded the horizon of record low interest rates from Mid-2013 until Late 2014.

We respond judiciously to this euphoria. Politician's promises are usually a thin blanket for an upcoming cold night. We have concluded since October that a surprisingly potent rise may occur which would be in reaction to the application of the stimulative paddles.

The European resolution was a response to the Franco-Belgium travails of the widely held Dexia Bank, which has tentacles into France and Germany's economic foundations. If this were not enough, the chronic Greek malaise indicated that Zorba was in need of another oxygen mask to rouse him from his hedonistically induced torpor.

A potent upward move in  Gold  and  Silver  in addition to the oversold miners (GDX) is just beginning to occur. Our scenario was to maintain our long term core precious metal positions even though such a posture was temporarily painful as many analysts concluded wrongly that deflation, bonds and the U.S. dollar were the only safe harbors.

What about the U.S. dollar now? Note all the media hoopla that regaled us with strength of the dollar recently. News from Europe and Washington appears to be melting the U.S. Dollar under the cover of all of this stimulative warming. We have called for this surprise rally we are observing in the face of all this dollar and treasury hoopla. How uneasy must be the shorts who have been caught by this recent rise. Short sellers went into October's market with the largest short position since 2008. Such a one-sided posture is often punished as the shorts run to cover and thereby add to the upward move.

Technically there have been gaps from 2011 that need to be filled on the upside in precious metals and miners. We note that institutions have been hit hard by the gold's price decline. Hedge funds must've been selling stocks that they held in common in order to meet margin calls. Additionally this consideration may have influenced collateral damage among investors. Perhaps the current rise may indicate the recent downtrend has been broken to the upside.



Silver (SLV) appears to have found support at its 2011 lows. There are downside gaps that should be filled to the upside.  Silver  will encounter resistance around $38. Silver has reached a record oversold level indicated by the RSI and MACD in 2011. This indicated an interim bottom in silver. Monitor the bullish crossover on the MACD which confirmed the already constructive reversal on the stochastic and RSI.



Gold appears to be making a reversal at oversold and long term support levels breaking a 5 month downtrend. Notice the strong volume accumulation as The Fed announces negative interest rates until late 2014. This is bullish for precious metals. In early August through October we advised a hold and urged caution. Since it pulled back it provided two secondary buypoints where we said it is buying time while others preached that the  Gold  and silver market bull market had ended. Now gold appears to be bouncing off our buypoints similar to January 2011 and regaining its 50 and 200 day to the upside. Now the weak hands will come back at much higher prices.



Source:  SafeHaven 

Would return of the gold commission raise gold prices?

By Julian D. W. Phillips

Newt Gingrich
The answer to this question is threefold

It depends on him being elected to a position where he can put this into action.It depends on how serious he is on the matter.It depends on what his objective really is.

With trust in governments dropping to a new low according to some polls, the words of President Hoover come to mind,
" We have  Gold  because we cannot trust governments!"

And why should they trust governments, when they look at a residual value of the dollar at 15% of its value since the U.S. left the link to gold? It's this depreciation that is becoming more and more important. The importance of the issue has risen in line with the globalization of the dollar, particularly now that the U.S. is utterly dependent on the investment of foreign dollar surpluses being reinvested back into the dollar and U.S. Treasuries. Unless this is properly and effectively handled in time, there will be a day when foreign investors say that enough is enough. At the moment, foreign governments are working hard to neutralize the damage a dollar, lacking credibility, will do. So it's only a matter of time before a major dollar financial accident takes place. The invigoration of gold in the monetary system is long overdue, but now it is receiving some serious initial attention. Hopefully, it is not just a political ploy to take the wind out of Ron Paul's campaign?

What has happened by his raising the subject onto the political stage is that it is no longer a side-lined academic issue. From now on as it follows the fortunes of Gingrich and his success it will impact the gold price inside the U.S. of A.

Why Gold's return to the monetary system been blocked?
Government and bankers currently believe that gold places to great a restraint on them and their management of the monetary system. They will not accept a lump of metal at a fixed price limiting the money supply. The Gold Standard set a dollar price to gold that did not change from $20 an ounce to $35 an ounce until 1935. It held that level until 1971 when it was raised to $42 an ounce. Since then like the proverbial ostrich with it head in the sand, the gold price has been ignored in 'official' circles.

Today central bankers and government favour paper money as they use it to 'maintain price stability', to stimulate the economy through the expansion of the money supply, to pay import bills with freshly printed money, to increase money supply in line with global international trade -in its role as the reserve currency. Indeed if it had to pay for imports with gold, it would founder very quickly. The ability to print money is the principal reason why gold is to be avoided in anything like a repeat of the Gold Standard. With Gingrich's promise of a Gold Commission, will we see a serious attempt to return gold to the monetary system? Let's look at the last one.

The 1981 " Gold Commission"
Under Treasury Secretary Donald Regan, the subject came up, but as you can see from the following cutting from September 1981, the issue was not handled with a view to using gold again. It was a token gesture to proponents of gold to pacify them. Really it was just a sad mockery of the treatment of gold. Thereafter the subject was not treated seriously at all. It was not until the euro was created and limited gold sales were made by European central banks to help the establishment of the euro as a credible currency, was the subject of gold mentioned again.



In the Washington Agreement and successive agreements thereafter, gold was described as " an important element of global monetary reserves." It was at that point it ceased being mocked as " a Barbarous Relic" .

The Washington Agreement, despite its being an agreement to sell gold, was the most significant event responsible for gold's rising price. Once it became clear that the European central banks, who were the signatories to the agreements since the turn of the century, had lost their appetite for sellingGold  as the price started to rocket from 2005 onwards, even central bankers started to take gold seriously again.

The silence from the developed world on the subject is deafening now. Will this continue?

Politicians are adept at feeling out the public by leading from the front and Newt Gingrich is no fool. He has seen the public's reaction to the bait he threw out on the subject. Most Americans want to know that their dollar will hold its value in the future. They're fully aware that its current value is 15% of 1971's value and know that the Pension pay out they will get when they finish their working life may not be sufficient to cover their old age. So it's turning out to be a good electioneering ploy at least. But as the leader of the Republicans, can we really expect him to walk this road?

Gov't raising gold prices?
As one competent commentator projected, it will take a gold price of around $45,000 to compensate for the loss of value in gold and for it to be at a price that will allow the money supply to remain at present levels and for some time, sufficient to supply global dollar monetary needs.

Yes, it is a fact that if anything -like a return to a 'workable' gold standard--is to be contemplated then we will have to see a very substantial lifting of the gold price.

One of the neat tricks the Roosevelt government pulled back in 1935 was to expand the money supply by expanding its gold holdings quickly and massively. By not altering the dollar exchange rate against other currencies but devaluing the dollar by 75% against gold, the price of gold not only shot up in the dollar but in all other currencies as well. The bullion banks were quick to arbitrage the differential between the $20 exchange rate and the $35 price of gold and sell as much as they could find the world over to the U.S. So the U.S. bought in gold at $35 and boosted their gold reserves to around 26,000 tonnes. This was quite a coup and lifted the money supply to levels that lifted the U.S. out of its depression -while pulling in the developed world's gold ahead of the Second World War.

In the last few years we've seen a dramatic increase in the money supply in the developed world, but as is always the case with potential out-of-control inflation, money supply is increased this fast to fill the holes left by plummeting asset values in government and banking hands. The process can accelerate as the value of that money depreciates. This has and is happening now. Can this continue ad infinitum?

Of course not -even now emerging world central banks are buying annually, more than the Central Banks of Europe did at their most vigorous via the central bank gold agreements at 450 tonnes in 2011. Make no mistake -this is not just a swing away from the bloated dollar component of their reserves, but a counter to all currencies under the control of governments. It's more significantly an expression of central bank worries about currencies.

It will be recognized that this is not the gold price rising but the value of currencies (against gold) falling.

Gold confiscated again?
The second neat trick, before that, in 1933 under the gold standard, was to remove the danger of gold price manipulation by private gold owners by barring private ownership of gold. Thus gold became the sole domain of government. This was a key factor in the successful operation of gold's role in the monetary system.

It would have to be repeated in any future gold price dominated system, or would it?

But let's get one thing very clear -there is no chance of a repeat of the gold standard as it was in the past. Certain fundamental changes have taken place to prevent that from happening, so we have to look at a structurally-altered system for anything like the gold standard to work. Is that possible?



Source:  GoldForecaster 

Gold-S& P ratio indicates weak stocks and surging gold

Apple or Gold: what to buy now?

  By Eric McWhinnie

Gold is a very controversial object. Many investors view the precious metal as a storage of wealth and a hedge against uncertainty. However, critics claim  Gold  is a bubble and has no intrinsic value, especially since you can not eat it. The tech giant Apple Inc. also receives a fair amount of controversy, and unlike its name would suggest, you can not eat it either.

Last year, Apple made headlines when its cash and marketable securities position of $73.8 billion surpassed the operating cash balance at the U.S. Treasury.  The news magnified calls for Apple to deploy some of its idling cash hoard. At the time, analyst Katy Huberty from Morgan Stanley explained that Apple’s current and future cash flows “greatly exceed” its cash needs. After Apple’s most recent earnings report, the calls for deploying cash are increasing in volume.

Late Tuesday, Apple reported its financial results for its fiscal 2012 first quarter, which ended December 31, 2011. In addition to a blow-out earnings number, Apple’s cash position has grown to new earth-shattering records.  Apple generated a cash flow of $17.5 billion in the quarter, and finished 2011 with a whopping $97.6 billion in cash and equivalents. According to Zero Hedge, “Looked at otherwise, if Apple were a country, and its cash was equivalent to GDP, it would rank as the world’s 58th largest economy, above such countries as Slovakia, Iraq, Luxembourg and Syria.” In terms of market capitalization, Apple has now surpassed Exxon Mobil as the world’s most valuable company. In fact, Apple’s current cash position of nearly $100 billion is greater than the market cap of 474 of the S& P 500 companies.

The question then becomes,  what should Apple do with its massive cash hoard?  Conventional recommendations range from paying a dividend or buying back stock, to acquiring suppliers. While these are certainly worthy recommendations, it is hardly the unconventional thinking that has propelled Apple to the top of the podium. In addition to these recommendations,  Apple should also consider purchasing gold. A relatively small gold position in Apple’s portfolio could help the company further offset currency and monetary policy risks to its $97.6 billion stockpile. In November, Apple started accepting Chinese yuan for App Store downloads, but could benefit even more by diversifying into gold. A report by Oxford Economics last year recommends holding at least 5 percent of assets in gold. The report concludes that  Gold  is a good hedge against inflation, as well as deflation.

Companies investing in precious metals such as gold is not completely unthinkable. In 2009, life insurer Northwestern Mutual announced it purchased $400 million in gold.  It was the first time in the company’s 152-year history. Chief Executive Officer Edward Zore explained, “Gold just seems to make sense it’s a store of value. The downside risk is limited, but the upside is large.” Since his comments in June 2009, gold prices have increased from $950 per ounce to nearly $1,700.

Aside from gold’s monetary value to investors, gold also has a minor industrial value. According to the most recent data from the World Gold Council, technology gold demand in the third quarter of 2011 was 120.2 tonnes. The WGC explains, “According to the Semiconductor Industry Association, worldwide sales of semi-conductors (the major consumer of gold in tech) were $25.8 billion for the month of September, an increase of 2.7 percent from sales of $25 billion the prior month. Over the year to end-August, sales grew 2.2 percent year-on-year, partly as a result of rising demand in netbook and tablet segments. Industry analysts iSuppli estimates that worldwide tablet shipments will exceed 60 million units in 2011, with Apple accounting for 73.6 percent of those.” Keep in mind, this estimate was before Apple’s record breaking sale of 15.43 million iPads in the December quarter.

While some may think it would be out-of-the-question for Apple to purchase gold,  the precious metal would provide a hedge for the company and its shareholders. At the very least, Apple could use the gold in its technology products.  If Apple deploys just 5 percent of its $97.6 billion cash hoard to purchase gold, it would only have to part with $5 billion. This amount of cash flow was earned in just one month in the previous quarter. Although Apple has not announced new plans for its cash supply, it may be nearing a decision. The company’s Chief Financial Officer Peter Oppenheimer said, “We’re actively discussing uses of our cash balance, and have no specifics to share. In the meantime, we continue to be disciplined with cash, and are not letting it burn a hole in our pockets.”

Source:  wallstcheatsheet

Gold, silver rally sharply in wake of Federal Reserve FOMC statement

Gold reclaims $1,700 after FOMC statement signals Fed more dovish than thought

By Allen Sykora and Debbie Carlson
Gold rocketed above $1,700 an ounce Wednesday for the first time since mid-December when a statement from the Federal Open Market Committee suggested that policy-makers may be even more dovish than financial markets had expected.

Furthermore,  Gold  generated upward technical momentum with a so-called “outside day” reversal higher on the charts and also by closing the pit session above a number of moving averages.

The FOMC indicated that it intends to keep interest rates at “exceptionally low levels” until late 2014, compared to guidance of mid-2013 previously. Additionally, the FOMC signaled that further accommodation would likely come from adjustments to the balance sheet, said Nomura Global Economics.

February gold futures, trading at $1,658 an ounce on the Comex division of the New York Mercantile Exchange just minutes before the FOMC statement, have since shot as high as $1,704.50. This was their first time above $1,700 since Dec. 12. As of 2:32 p.m. EST, the February contract was up $35.30, or 2.2% to $1,699.80. Other precious metals also rose, with March  Silver  up $1.035, or 3.3%, to $33.01 an ounce. It hit a $33.32 high that was its most muscular level since Dec. 2.

Ahead of the meeting, a number of analysts said they envisioned a limited reaction by gold since the market has already factored in an expectation for low rates until mid-2014. But by pushing back their anticipated start of tightening to late 2014, policy-makers showed they are even more dovish than thought.

" We were all under the assumption that rates would be held at a low level until 2013, but now with the date extended to 2014, it's inherently bullish for gold,” said Ralph Preston, senior market analyst with Heritage West Financial.

Low interest rates help gold in a number of ways. They tend to weaken the dollar, which in fact fell after the FOMC statement. This helps demand for all commodities priced in dollars since it makes them cheaper in other currencies, plus some investors buy gold as a hedge against a weaker dollar. Low rates also hold down the so-called “opportunity cost” of holding gold, which means they are not losing out on higher interest earnings by holding a non-rate-bearing asset. Low rates are also seen as inflationary.

Mike Daly, gold and silver specialist with PFGBEST, said some participants might have wondered if rate hikes could come sooner than previously thought since the U.S. economy has shown signs of improvement lately.

“The FOMC basically came out and said they’re going to keep the rates low,” Daly said. “And if you read between the lines a little bit, there is probably the possibility of some easing coming down the road to help jump-start things.”

With the federal-funds rate already essentially zero, market participants in particular have been wondering if the Fed might undertake a third round of quantitative easing, which is the buying of Treasury securities in a bid to push down long-term yields.

“Basically, I think the bulls are back in control,” Daly said.

The Fed statement said unemployment remains “elevated,” growth in business fixed investment has “slowed,” the housing sector remains “depressed” and inflation is “subdued.” And, officials said they expect to maintain a “highly accommodative” stance on monetary policy.

“It seems like if the situation is sluggish, maybe they’ll throw more money at it,” Daly said.

Nomura, in a research note, said the FOMC made a “notable shift” in emphasis in the language describing options for future policy changes.

“Previous statements said that the Committee was ‘prepared to employ its tools’ to promote stronger growth,” Nomura said. “In contrast, today’s statement dropped the reference to ‘tools’ and shifted focus to using the balance sheet to promote stronger growth.”

More specifically, Nomura cited this sentence from the FOMC statement: “The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.”

Technically, Preston said, the  Gold  market needs a weekly close above $1,700.

“I'd like to see it close over $1,700 on Friday and then test that area next week,” Preston said. “It if can do that, then that's really bullish for gold. Then $2,000 might be in the cards.

" What's helped is that we're coming off of three months of selling. All the weak hands are out of the market. This could be new, fresh hands establishing positions, using the Fed as a springboard for higher prices."

Further, Daly said, traders who previously sold into the market are buying to cover their short positions.

Gold also generated technical momentum on a number of fronts, said Charles Nedoss, senior market strategist with Olympus Futures. “It’s all (because of) the Fed statement,” he said. “Technically, it’s a big ‘outside day’ through a bunch of major moving averages.”

The metal made an “outside day” higher by first trading down through the previous day’s low, then closing above the previous day’s high. This is normally seen as a bullish sign by chartists.

Furthermore, after a session low of $1,649.20 an ounce, February gold crossed above several moving averages. This includes the 10-day average around $1,659, the 50-day near $1,667 and the 150-day around $1,683. And whereas February gold at times has dipped back below the 100-day average of $1,697.20 in after-hours screen trading, it nevertheless closed the pit session above this with a settlement of $1,700.10 an ounce.

Gold often moves inversely to the dollar, and a technical chart shows the dollar index is “failing” after making an outside reversal lower, Nedoss said.

“Meanwhile, Preston said, if gold should fail at the $1,700 area, then “$1,650 has to hold” to retain a constructive technical picture. “A close under $1,640 encourages the bears. I'm bullish on gold unless it ends up closing under $1,620."



Source:  Kitco News