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Wednesday
Mar302011

China TV reports gold sales ‘going through the roof’

Chinese Gold Buyers 31 March 2011.JPG
China is one of the world's top gold markets, owing to its growing middle-class consumption and reliance on gold as a traditional hedge

This article was kindly sent to us by Lawrence Williams of Mineweb regarding the increase in demand for gold in China, it also contains a short video clip of just over one minute which may interest you.


It appears that Chinese gold demand continues to run at a very high level with fabricators reporting difficulty in obtaining sufficient supplies for their businesses.  China's English Language TV station, part of state-owned CNTV, reports that gold demand is going ‘through the roof' despite the post Chinese New Year period usually being a slack one for gold sales and China itself nowadays being the World's top gold producer.

One gold fabricator interviewed on the television program reckoned his business has been increasing by 20% a month over the past two years, while the sellers noted that they were having to ration sales due to the gold shortages.

While the newsreader got her statistics wrong on both supply and demand (probably by a factor of 1,000 in each case) it does appear from the report that demand is currently exceeding supply by around a little under two times.

Last year Chinese demand for gold seemed to accelerate month by month as the year progressed and then appeared that it may have peaked immediately ahead of the Chinese New Year in early February.  The latest report, which was aired last week and  which can be viewed here

suggests that the end of the New Year celebrations has not signified an end to this seemingly ever-growing demand.

The Chinese authorities are worried about importing inflation, largely as a result of Quantitative Easing programs in the U.S. and Europe and indeed reports from that country already report to an escalation in prices of consumables in particular.  While the country's economy continues to grow at around 10% a year the government may be able to keep a lid on any resulting unrest but should the economy slow substantially, this may not continue to be the case.  Meanwhile the ever-growing Chinese middle classes, which have a penchant for saving, seem to be putting their money into precious metals rather that trusting in the domestic stock markets which are seen by many as over volatile.

There is little doubt that thus China is an ongoing driver of gold demand and of the price, replacing to an extent the huge volumes of investment gold purchased in Western nations - notably in the form of gold ETFS - over the past couple of years.  One should not underestimate the effect on the global gold market of the Chinese middle classes' purchasing power - an element in gold demand which was not with us at all as recently as only a couple of years ago.

So there you have it, the insatiable demand continues in China, where a huge population is encouraged to invest in gold, soon be pushing towards and through $1500/oz.
….........................................................................................


Over in the Options pit, our model portfolio has managed an average return of 41.23% per trade, 68 closed trades, 66 closed at a profit, or a 97% success rate. Average trade open for 42.76 days.


A gentle reminder for those of you who are still thinking about it, prices will double as of 2nd April 2011, but will remain 'as is' for existing subscribers, join us now while this bargain lasts.


SK Chart with profits re-invested 29 March 2011.JPG


The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today, before we decide to cap membership.

Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

China map 31 March 2011.JPG




Tuesday
Mar292011

Looking for Hui

HUI Chart 30 March 2011.JPG

We have been patiently looking for the HUI to explode to the upside for some time now, however, the HUI continues to flirt with the sub 600 level and the breakout remains as elusive as ever. Taking a quick look at the chart we can see that the possibility exists for the formation of three higher 'Lows" which would be positive for the gold producers. The RSI and the MACD are middling for now, but have the room to go higher if gold breaks out of its current trading range.

(The HUI is the AMEX Gold BUGS (Basket of Unhedged Gold Stocks) Index represents a portfolio of 14 major gold mining companies.The Index is designed to give investors significant exposure to near term movements in gold prices - by including companies that do not hedge their gold production beyond 1 1/2 years.)

The end of the month, end of the quarter etc, brings an end to book squaring and the generation of reports for those 'high net worth' clients that need to be serviced. Once into next week we should see a gaggle of profit hungry fund managers on the prowl for the next entry point into the precious metals market. That entry point requires an ignition of some sort, whether it be the dollar's fall through the '76' level, another unsavory world event, the raising of the debt ceiling in the United States, we just don't know what it will be, but the there are a number of venues that could host such an event.

Whilst you are pondering the debt ceiling, have a read of this clip from www.zerohedge.com :

Tyler Durden.JPG

Like clockwork, the Treasury placed $35 billion in 5 year bonds with the usual suspects. While the high yield was the highest since May 2010, at 2.26% there was nothing particularly notable about this auction, which saw a 2.26 Bid To Cover, continuing the trend of a gradual trendline ever higher, with Direct bidders taking down 11.2%, the highest since November, Indirects jumping to 42.4% from 34.2% last month which was the lowest in two years, and Primary Dealers eating up the balance. The bond came with a 1.5 bps tail to the When Issued which had been hugging 2.246%. What is far more eventful is that with yesterday's $35 billion 2 Year auction, today's $35 billion in 5 Years, and soon, tomorrow $29 billion in 7 Years, total US debt subject to limit will be $14.258 trillion: just one auction away, or $35 billion, from breaching the debt ceiling. Also, the total debt, not just that subject to the ceiling, could pass the legal threshold as early as tomorrow (pro forma for settlement).

So, maybe we are already there on this issue, to extend the debt ceiling or not to extend the debt ceiling, that is the question!

You may also want to take a look a debt clock to see the grand total and the speed at which it is moving along with a number of other fast moving figures such as the debt per citizen, etc. We not saying that this clock is correct about everything but it sure projects a scarey picture, – try this link


….........................................................................................


Over in the Options pit, our model portfolio has managed an average return of 41.23% per trade, 68 closed trades, 66 closed at a profit, or a 97% success rate. Average trade open for 42.76 days.


A gentle reminder for those of you who are still thinking about it, prices will double as of 2nd April 2011, but will remain as is for existing subscribers, join us now while this bargain lasts.


SK Chart with profits re-invested 29 March 2011.JPG


The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today, before we decide to cap membership.

Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.






Tuesday
Mar292011

Agnico-Eagle Mines Limited: Poor Performance

aem chart 28 march 11.JPG


Agnico-Eagle Mines Limited (AEM) heads south as Gold prices head north. Also note the possibility of a crossover by the 50dma down through the 200dma, which is sometimes known as the cross of death as its a rather negative sign for the stock. The trend is down at the moment so Agnico-Eagle needs to pull out of this nose dive soon before investors start looking elsewhere.

Looking at the news stream this news release regarding a set back at Meadowbank due to a fire does not help matters with the knock on effect of lower production and a higher cash cost. Although not a severe blow it does add to the general downward pressure on this gold producer at a time when they should be going gang busters on the back of rising gold prices.







The news release is as follows:


Agnico-Eagle Mines Limited reported on March 10, 2011 that the kitchen and associated facilities at its Meadowbank mine were destroyed in a fire. The following is an update on current operations at the mine with estimates of the impact of Meadowbank on full year gold production for the Company.
Since the fire, the mine has been operating with a substantially reduced workforce at a reduced production rate.  Over most of this period, the plant has been processing lower grade ore from stockpiles due to the reduction in workforce.  The Company expects to return Meadowbank to normal staffing levels of approximately 450 people by the end of April. Temporary kitchen facilities have been delivered to site and are currently being prepared for use.  The Company expects a permanent replacement kitchen to be installed during the fourth quarter of 2011.
As a result of the fire, and due to unusually difficult winter weather conditions encountered earlier this year, daily throughput at Meadowbank during the first quarter of 2011 is expected to average approximately 6,900 tonnes per day at lower than reserve grade.  Accordingly, the Company now expects total cash costs per ounce1 at Meadowbank to be significantly higher in the first quarter of 2011 than the previously forecast average of $600 for the full year.  First quarter financial and operating results are expected to be released on April 28, 2011.
The mining and processing rates are anticipated to begin to improve during the second quarter as staffing levels increase. Grades are also expected to improve in the second quarter as full mining operations in the pit resume and less low grade stockpile material is processed.
During the third quarter of 2011, a permanent secondary crushing unit is expected to be commissioned which is projected to allow the mill to reach its design throughput of approximately 8,500 tonnes per day for the second half of 2011.
Agnico-Eagle now expects full year gold production at Meadowbank to be approximately 310,000 ounces, at total cash costs of approximately $700 per ounce with approximately 60% of this production coming in the second half of the year.  This compares to Agnico-Eagle's previously announced full-year guidance for Meadowbank of approximately 360,000 ounces at cash costs of approximately $600 per ounce.
Incorporating the recent events at Meadowbank, Agnico-Eagle now expects Company-wide gold production in the first quarter to be approximately 245,000 ounces.  Full year 2011 gold production is now expected to be between 1.08-1.15 million ounces, split approximately 45% and 55% between the first and second halves of the year, respectively.  This compares to Agnico-Eagle's previously announced (December 15, 2010) full year production guidance of between 1.13-1.23 million ounces.
Full year, Company-wide, total cash costs are expected to be negatively impacted by approximately $25 per ounce, resulting in a new range of $445-$495 per ounce2. This compares to Agnico-Eagle's previously announced guidance of$420-$470 per ounce.

We are wrestling with this one at the moment as the stock price has been battered and we could be looking at a buying opportunity here. There are also a number of eminent gold bugs predicting gold prices to go much higher, which we concur with, so Agnico-Eagle could be one of those heavyweights to lead the charge. However, before we buy we will need to see some positive signs that it has turned the corner and is not on the verge of taking a financial bath.

Agnico-Eagle Mines Limited trades on the NYSE under the ticker symbol of AEM and on the Toronto Stock Exchange under the symbol of AEM.TO.

Agnico-Eagle has a market capitalization of $11.18 billion, a 52 week trading range of $54.12 - $88.20, a rather high P/E ratio of 32.35 on volume of 1.3 to 2.7 million shares traded per day and closed yesterday at $66.20.





PS: Over at www.skoptionstrading.com we have just closed another winning trade in the options market, banking a profit of 38.66% on this trade in just 13 days.

Our model portfolio is up 140.79% since inception, Average return of 41.23% per trade, 68 closed trades, 66 closed at a profit, or a 97% success rate. Average trade open for 42.76 days.

A gentle reminder for those of you who are still thinking about it, prices will double as of 2nd April 2011, but will remain as is for existing subscribers, join us now while this bargain lasts.


SK Chart with profits re-nvested 29 March 2011.JPG


The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today, before we decide to cap membership.

Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.






Saturday
Mar262011

Twenty ozs of Endeavour Silver has been Won

EXK Logo 16 Mar 2011.JPG


Our competition to win 20ozs of Endeavour Silver has now come to an end with the last trade and winning number being $0.85 as shown on the table below.

The winner is, wait for it, patience is a virtue, we're sure that your Mum must have taught you that when you were young, oh all right then, here we go:

EXK Chart Options 26 March 2011.JPG

The winner, being first with the correct entry is 'Jerry' with a spot on guess/estimate/calculation of $0.85 being the last trade on Friday for the Endeavour Silver Corporation (EXK) May series, Call Options with a strike price of $10.00.

There were others who arrived at the same conclusion, however, as the rules go, first up, best dressed.

We hope that you enjoyed this tiny bit of light relief from the hectic world we live in and hope that Jerry can find a nice place to display his hard won prize.

We would also like to say a mega THANK YOU to Hugh Clarke, VP Corporate Communications and all of the team over at Endeavour Silver Corporation for playing their part in this bit of fun, by providing us with the prize of 20ozs of silver all the way from their own mines in Mexico.

It was interesting to see such a wide range of estimates for a competition of such a short duration, which just goes to show how volatile things are just now. Our own in-house instinct was that a much higher price would take the prize. But then, those who make the rules changed them regarding the margin requirements for trading silver – bang in the middle of our competition!!!!! some people have no sense of decorum.

So, that's it from us, but stay tuned as the next competition includes no less than four empty bottles of Merlot and a ticket for a night in at your house.


PS: Over at www.skoptionstrading.com we have just closed another winning trade in the options market, banking a profit of 38.66% on this trade in just 13 days.

Our model portfolio is up 140.79% since inception, Average return of 41.23% per trade, 68 closed trades, 66 closed at a profit, or a 97% success rate. Average trade open for 42.76 days.

A gentle reminder for those of you who are still thinking about it, prices will double as of 2nd April 2011, but will remain as is for existing subscribers, join us now while this bargain lasts.

sk chart 25 March 2011.JPG



The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today, before we decide to cap membership.

Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

Friday
Mar252011

Austerity Debate Fells Portugal’s Premier

New York Times logo 17mar09.JPG

Another European government fell victim to the politics of austerity on Wednesday when the prime minister of Portugal resigned after opposition parties rejected his last-ditch attempt to push through a package of spending cuts and tax increases.

The failure of Prime Minister José Sócrates to complete a fourth round of painful financial measures within a year led to the government’s collapse and pushed the nation closer to a bailout from Europe and the International Monetary Fund.

Because its financing in the bond markets has become so costly, Portugal is expected to become the third country in the euro zone to be forced to accept public funds, following Greece and Ireland. It is a blunt reminder that last year’s debt crisis has not gone away. Ireland’s government also collapsed after its tough austerity measures failed to persuade investors to provide it financing at affordable rates.

The euro slid against the dollar after the announcement on Tuesday. European leaders were preparing to meet at the end of the week to discuss bolstering their rescue fund and the possible prospect of further bailouts.

Though the financial markets have long anticipated that Portugal would need assistance, that its government had to fall first sends a dire warning to other European economies like Spain, Greece and Britain. Those countries are trying to persuade impatient voters to accept reduced public services, lower wages for government workers and higher taxes.

As they did earlier in Greece and Ireland, protesters have taken to the streets in bitter opposition to the Portuguese government’s program.

“The opposition removed from the government the conditions to govern,” the prime minister said in a televised address. With this vote by Parliament, he added, “I am convinced that Portugal today has lost, rather than won.”

The collapse of Portugal’s government comes at a particularly awkward time for theEuropean Union. An attempt to increase the size of the union’s 440-billion-euro rescue fund has been resisted by more prosperous European countries like Finland and Germany.

Europe’s leaders are set to meet on Thursday and Friday to complete plans for broadening this fund — a step aimed at giving investors confidence that Europe is prepared to handle more emergencies not just in Portugal, but perhaps also Spain.

Once again, however, tensions among Europe’s faster-growing economies and its debt-plagued periphery is creating a bureaucratic paralysis, feeding investor fears that divisions on the Continent have not yet healed.

Portugal needs to borrow about 20 billion euros this year, with most of that refinancing to be done before the summer. Many analysts have been predicting an imminent bailout because Portugal’s borrowing costs have reached a level in recent weeks that its finance minister described as unsustainable in the medium or long term.

“What has really triggered this political crisis is the perception that all the efforts that were made over the past year to solve our financial problems have come to nothing and that we would not be able to avoid going the same way as Greece and Ireland,” said Rui Ramos, a political analyst and professor of political history at the University of Lisbon.

Ahead of the vote, Mr. Sócrates had warned that parliamentary rejection of his latest austerity measures would prompt him to quit. The main Social Democratic opposition party, however, had warned it would oppose an austerity package that would inflict further pain on Portuguese citizens, notably by raising taxes for pensioners.

Instead, the Social Democrats demanded a snap general election, possibly opening the door for the formation of a coalition government between Portugal’s main parties.

In the end, lawmakers from all five opposition parties rejected further austerity measures, leaving 97 Socialist lawmakers to vote in favor the plan, out of 230 members of Parliament. The Socialist government of Mr. Sócrates had been in power for six years, but was governing without a parliamentary majority.

It will now be the president’s task to dissolve Parliament and call a general election, probably in about two months.

“The electorate is now very divided, so there is a real risk that an election will not give any party an absolute majority and bring the political clarity that we really need,” said Pedro Lomba, a lawyer and political columnist for Público, a Portuguese newspaper. “A new government must be strong enough to implement the measures that these difficult financial circumstances require.”

In recent weeks, the yield on Portugal’s benchmark 10-year bonds has stayed above 7 percent — a level that Fernando Teixeira dos Santos, the finance minister, told lawmakers earlier this month would prove unsustainable for Portugal in the medium and long term.

The government had said that a further austerity package — blending spending cuts with tax changes — would be sufficient to avoid emergency financing and meet the government’s goal of cutting its budget deficit from an estimated 7.3 percent of gross domestic product last year to 4.6 percent this year. Portugal has been among a handful of euro nations in investors’ line of fire for the last year after posting a record deficit of 9.3 percent in 2009.

This week, the Socialists laid the blame on the opposition Socialist Democrats for escalating tensions just ahead of a European Union summit meeting that was supposed to help ailing euro economies like Portugal avoid emergency financing.

Concerns had been growing about Portugal’s economic outlook. Portugal is struggling with a record unemployment rate of 11.2 percent, and the Bank of Portugal recently forecast that the economy would contract 1.3 percent this year. Further, the government’s plan prompted hundreds of thousands of Portuguese to take to the streets this month, as evidence of rising social unrest.

Another domino falls, keep an eye on the rest!

PS: Over at www.skoptionstrading.com we have just closed another winning trade in the options market, banking a profit of 38.66% on this trade in just 13 days.

Our model portfolio is up 138.05% since inception, Average return of 41.27% per trade, 68 closed trades, 66 closed at a profit, or a 97% success rate. Average trade open for 43.21 days.

A gentle reminder for those of you who are still thinking about it, prices will double as of 2nd April 2011, but will remain as is for existing subscribers, join us now while this bargain lasts.


sk chart 25 March 2011.JPG


The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today, before we decide to cap membership.

Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

Friday
Mar252011

SK OptionTrader Banks 38.66% Profit In 13 Days

Our premium options trading service, SK OptionTrader, today closed a trade banking a profit of 38.66% in just 13 days. This brings our trading record to 66 winning trades from 68, a 97% success rate, but more importantly our average return per trade is now 40.89% with the average trade being held for 41.32 days.

Subscribers to SK OptionTrader are able to see our model portfolio, where we give suggested capital allocations to risk in each trade. Our model portfolio is up 139.98% since inception in August 2009, without reinvesting profits.

This closed trade involved the purchase of SLV Jul 16 '11 $40 Calls for $1.19 on 10th March 2011, which we closed in trading today for $1.65, a 38.66% profit in 13 days.

Often potential subscribers are worried that there will not be time for them to execute their trades, or there will be selling by other subscribers that will give them a less favourable price. This is simply not the case.

The options that we trade are liquid and our signals do not have any significant or even noticeable effect on prices. The graph below shows the prices for SLV Jul 16 ‘11 $40 Calls throughout trading on the 23rd March 2011.


SLV Jul 40 Call Option Chart

As the graph shows there was plenty time for subscribers to also sell and in fact many of them would have got a better price than we did! If silver prices remain where they are between now and tomorrows open, it will probably be possible to get $1.65 for these calls tomorrow as well.

However in order to maintain our quality of service we are raising our subscription prices as of April 2nd 2011. Current subscribers, or those who subscribe before April 2nd, will be able to renew at the original prices of $99 and $179 and be unaffected by this price change. It is only those who subscribe after April 2nd that will have to pay our new rates of $199 per six months or $349 per year.

To subscribe now, please feel free to click one of the subscribe buttons below or visit our website www.skoptionstrading.com for more information.

Subscribe for 6 months - $499

 

Subscribe for 12 months - $799

 

Wednesday
Mar232011

Investment Legends: “Dollar Collapse Inevitable”

Jeff Clark, BIG GOLD

What will happen to the U.S. economy and the dollar in the near term? Will inflation increase dramatically? What is the outlook for gold, and where should you put your money? BIG GOLD asked a world-class panel of economists, authors, and investment advisors what they expect for the future. Caution: strong opinions ahead...

Jim Rogers is a self-made billionaire, author of the best-sellers Adventure Capitalist and Investment Biker, and a sought-after financial commentator. He was a co-founder of the Quantum Fund, a successful hedge fund, and creator of the Rogers International Commodities Index (RICI).

Bill Bonner is the president and founder of Agora, Inc., a worldwide publisher of financial advice and opinions. He is also the author of the Internet-based Daily Reckoning and a regular columnist in MoneyWeek magazine.

Peter Schiff is CEO of Euro Pacific Precious Metals (www.europacmetals.com) and host of the daily radio show The Peter Schiff Show (www.schiffradio.com). He is the author of the economic parable How an Economy Grows and Why It Crashes and the recent financial bestseller The Little Book of Bull Moves: Updated and Expanded. He’s a frequent guest on CNBC, Fox Business, and is quoted often in print media.

Jeffrey Christian is managing director of CPM Group (www.cpmgroup.com) and a prominent analyst on precious metals and commodities markets. CPM Group produces comprehensive yearbooks on gold, silver, and platinum group metals, and provides a wide range of consulting services. Jeffrey publishedCommodities Rising, an investors’ guide to commodities, in 2006.

Walter J. "John" Williams, private consulting economist and “economic whistleblower,” has been working with Fortune 500 companies for 30 years. His newsletter Shadow Government Statistics (shadowstats.com) provides in-depth analysis of the government’s “creative” economic reporting practices.

Steve Henningsen is chief investment strategist and partner at The Wealth Conservancy in Boulder, CO, assisting clients interested in wealth preservation. Current assets under management exceed $200 million.

Frank Trotter is an executive vice president of EverBank and a founding partner of EverBank.com, a national branchless bank that was acquired by the current EverBank in 2002. He received an M.B.A. from Washington University and has over 30 years experience in the banking industry.

Dr. Krassimir Petrov is an Austrian economist and holds a Ph.D. in economics from Ohio State University. He was assistant professor in economics at the American University in Bulgaria, then an associate professor in finance at Prince Sultan University in Riyadh, Saudi Arabia. He is currently an associate professor at Ahlia University in Manama, Bahrain. He’s been a contributing editor for Agora Financial and Casey Research.

Bob Hoye is chief financial strategist of Institutional Advisors and writes Pivotal Events, a weekly market overview. His articles have been published by Barron’s, Financial Post,Financial Times, and National Post.
                                 
BIG GOLD: A lot of economists, including the government, believe the worst is behind us economically. Do you agree? If not, what should we be on the lookout for in 2011?

Jim Rogers: It is better for those getting all the government largesse, but the overall situation is worse. More currency turmoil. State and local problems, plus pension problems.

Bill Bonner: None of the problems that caused the crises in Europe and America have been resolved. They have been delayed and expanded by more debt and more money printing and will lead to more and worse crises. Deleveraging takes time. 2011 will, most likely, be a transition year... not unlike 2010. But the risk is that one of these latent crises will become an active crisis.

Peter Schiff: To me, it's like watching someone walk into the same sliding glass door again and again. Wall Street must know by now that large infusions of liquidity from the Fed spur present consumption at the expense of investment for the future. We are an indebted family going out for an expensive meal to celebrate getting approved for a new credit card. It might feel good (at the time), but we're still simply delaying the inevitable.

Jeffrey Christian: We believe the worst is behind us economically, in the short term. The recession ended in late 2009, and 2010 saw U.S. economic growth in line with what CPM had expected, but higher than the more pessimistic consensus had been. In 2011 we expect continued expansion. We think some economists and observers are too enthusiastic about economic prospects right now.

For the U.S. in 2011, we are looking for real GDP of 2.5% - 2.8%, inflation to remain low, and for the economy to avoid deflation. Interest rates are expected to start rising, perhaps significantly in the second half of 2011. The dollar is expected to be volatile, rising somewhat against the euro but continuing to weaken against the Canadian and Australian dollars, the rupee, yuan, rand, and other currencies.

European sovereign debt issues will continue to plague financial markets, but market reactions will be less severe than they were regarding Greece in April 2010.

John Williams: An intensifying economic downturn – what formally will be viewed as the second dip of a double-dip depression – already has started to unfold. The problem with the economy remains structural, where household income is not growing fast enough to beat inflation, and where debt expansion – encouraged for many years by the Fed as a way to get around the economic growth problems inherent from a lack of income growth – generally is not available, as a result of the systemic solvency crisis. Accordingly, individual consumers, who account for more than 70% GDP, do not have the ability, and increasingly lack the willingness, to fuel the needed growth in consumption on which the U.S. economy is so dependent.

Steve Henningsen: The governments worldwide (I don’t pay much attention to economists) want us to believe that the worst is behind us because the financial system is built upon the foundation of trust and confidence. Both of these were battered badly when it was shown that much of the world’s prosperity over the past few decades was simply a mirage that, once dispersed, left behind only debt with no means of future production. Now they want us to believe that they fixed the problem via more debt.
 
What I will be watching for this year is sovereign and U.S. municipal debt corpses floating to the surface sometime in the months ahead. 

Frank Trotter: Right now I have a somewhat dark but not dismal outlook. I think that over 2011, we will continue to experience a Jimmy Carter-style malaise that combines continuing high unemployment, tentative business investment, rising prices, low housing numbers when looked at on an absolute basis, and creeping interest rates.

As a very large mortgage servicer, we are not seeing significant improvements in payment patterns that would indicate the worst is fully behind us, and with mortgage rates moving upward, we see less ability for current mortgage holders to refinance and reduce payments.
Krassimir Petrov: No, the worst is yet to come. No structural changes have been made, no problems have been fixed. Printing money, a.k.a. Quantitative Easing, is a quick fix that has postponed the problem, yet also made it a lot worse. I would say that we are still in the early stages of the crisis and have another 4-8 years to go.

Bob Hoye: The worst of the post-bubble economic adversity is not behind us.
 
BG: Price inflation is creeping up, but the enormous amount of money printing hasn't really hit the system yet. Does that happen in 2011, further down the road, or not at all?

Jim Rogers: It is happening. The U.S. and CNBC lie about it. Most other countries do not lie and acknowledge it is worsening.

Bill Bonner: Most likely, substantial consumer price inflation will not show up in 2011. The explosion of money printing is being contained by the bomb squad of deleveraging. That will probably continue in 2011. But not forever.
Peter Schiff: 2010 was the year that China began cutting back its Treasury purchases in favor of gold, hard assets, and emerging market currencies. The Fed has stepped in as a major purchaser of Treasuries. This represents a new phase on the path to dollar collapse, and it will manifest in 2011 in the form of more "unexplainable" inflation – as we are now seeing in the prices of everything from corn to gasoline.

Jeffrey Christian: We are now beginning to see some increases in monetary aggregates, suggesting that some of the monetary accommodations are beginning to filter into the economy. We expect this trend to accelerate over the course of 2011. This will bring some increase in inflation, but we expect the major manifestation will be through higher U.S. Treasury interest rates as the Fed and Treasury seek to sell bonds to sterilize the inflationary implications of the monetary easing and to finance ongoing massive federal deficits.

John Williams: The problems of the money creation will become increasingly obvious in exchange-rate weakness of the U.S. dollar. Related upside pricing pressure already is being seen on dollar-denominated commodities such as oil. There is high risk of consumer prices rising rapidly before year-end 2011, setting the stage for a hyperinflation. The outside date for the onset of a U.S. hyperinflation is 2014.
Steve Henningsen: My guess is further down the road, as the deleveraging cycle continues with deflationary-housing winds in our face and the banks still hoarding money like my 9-year-old daughter stockpiles American Girl doll paraphernalia. I still expect inflation to continue in areas such as energy, bread, circuses, and whatever else provides sustenance to the Romans – I mean people.

Frank Trotter: Most research has shown that over time the increase in money supply is not a short-term economic stimulus, but rather has a moderate effect in the 18- to 36-month range. In addition, this theory contends that a growth in the monetary base – which is what has happened so far – only increases economic activity when accompanied by a decent multiplier; this is not occurring. The real risk is that with rising rates and continued soft economy, the Fed will feel obliged to continue to QE3, QE4, and so on, all of which may have a significant inflationary impact.

I am more concerned about general price inflation here in the U.S. and the potential it has to reduce global growth.

Krassimir Petrov: This is a tough one. I would have thought that price inflation would have been raging by now, but this is obviously not the case. I have the feeling that 2011 will be a repeat of early 2008, with commodity prices (CRB) making new all-time highs. A falling dollar will trigger a rush into commodities as a hedge against inflation. I am really tempted to make a totally outrageous forecast that oil could make a run for $200 as QE3 unleashes another dollar scare, or maybe even a dollar crisis.

Bob Hoye: Massive "printing" has been widely publicized and is "in the market."
 
BG: The U.S. dollar ended 2010 about where it started; does it resume its downtrend in 2011, or are fears about its demise overblown?

Jim Rogers: No, but further down the road.

Bill Bonner: No opinion. But there is more risk in the dollar than potential reward. 

Peter Schiff: It's hard to pinpoint exactly when the dollar will collapse, but it will take a miracle to avoid that outcome in the near term. It really depends on when the creditors of the United States realize that they are not going to get their principal returned to them in real terms, but rather in grossly devalued dollars. We have already seen the average duration of U.S. Treasury debt drop below that of Greece. No one wants to buy a 30-year bond with negative real interest rates as far as the eye can see.

Jeffrey Christian: We expect the dollar to be volatile against most currencies in 2011, but that its demise has been prematurely predicted. The dollar may move sideways to slightly higher against the euro, yen, and pound, while continuing to deteriorate against the Canadian and Australian dollars, the rupee, yuan, rand, and other emerging economy currencies.

John Williams: There remains high risk of a dollar selling panic unfolding in the year ahead, as the U.S. economy tanks anew, as the Fed continuously expands its easing, and as dollar holders dump the U.S. currency and dollar-denominated paper assets. Such would be a precursor to the inflation problem.

Steve Henningsen: Similar to my thoughts last year, I still believe the dollar is headed down long-term, but it could bounce around over the next year. If sovereign debts become a problem again, like I think they will later this year, then everyone will go running back to “Mother Dollar” once again for one last hug before she lies back down on her sickbed.

Frank Trotter: As the economy waffles and the global investing community's attention is drawn from one crisis to the next, I expect the U.S. dollar to bounce up and down in the current range. After that, however, my analysis suggests that measured by the key factors of fiscal and monetary policy, combined with a significant trade deficit, the U.S. does not look as good as our major trading partners, and I thus expect the dollar to decline, perhaps significantly, in the intermediate term. Big geopolitical events may accelerate this or create a flight to U.S. dollar quality, so hold on to your hats.

Krassimir Petrov: I think the dollar resumes lower. I expect QE3 and QE4 – a dollar-printing fest that will eventually sink the dollar. Sure, all fiat currencies are in deep trouble and prone to overprinting, but the reserve status of the dollar actually makes it more vulnerable now. Whether the dollar sinks against other currencies is a fool's game not worth playing. It is like being in the hospital, where all patients are suffering from cancer, and trying to guess who will feel best at the end of next year, or trying to guess who will succumb first. That's why it is so much safer to play the dollar against gold.

Bob Hoye: Fears of the dollar's demise have been widely discussed and are "in the market." The dollar, itself, will not be repudiated – just the mavens that have been "managing" it.
 
BG: Gold has risen 10 years in a row, so some are calling it a bubble, yet it's roughly $1,000 below its inflation-adjusted high. What's your outlook for the metal in 2011?

Jim Rogers: It is hardly a “bubble” when very few own it still. Who knows? Overdue for a correction, but who knows?

Bill Bonner: The smart money is in gold. It will stay in gold until the bull market that began 10 years ago finally reaches its peak. It is extremely unlikely that the top will come in 2011; it's probably years in the future. In the meantime, gold is bound to have a losing year or two. Don't worry about it. Buy gold. Be happy.

Peter Schiff: The funny thing about a bubble is that when it's real, no one can see it. The same commentators who were blind to the tech bubble, the housing bubble, and now the Treasury bubble are quick to call gold a bubble. The truth is that many of them have a personal aversion to gold because they directly benefit from our fiat money system. Goldman Sachs was paid 100 cents on the dollar in the AIG bailout, which never would have happened in a gold-based system. It's a lot easier to print a billion paper dollars than dig up a million ounces of gold.
Gold will continue to climb in 2011 as the currency war continues and investors continue to seek stability. Unless there is a major sea change in the way the U.S. does business, I think the gold trade is a safe one.

Jeffrey Christian: A price of $1,550 is possible, although given the enormous investor buying pressure, prices could spike to almost anywhere. After that, we expect prices to fall back, initially to around $1,340 or $1,380. We expect gold prices to stay above $1,280 or so for most of 2011, and to average around $1,369 for the full year.

John Williams: As the U.S. dollar increasingly is debased, and where gold tends to preserve the purchasing power of the dollars invested in it, the upside to gold in the year ahead is open-ended, restricted only by any limits to the massive downside potential for the U.S. dollar. Any intermittent gold price volatility, extreme or otherwise, will be short-lived. There is no bubble – only increasing weakness in the U.S. dollar – with the gold price fundamentally headed much higher in the years ahead.

Steve Henningsen: I believe gold will once again prove the bubble-boys wrong and end the year positive (I have no idea by how much and don’t really care). However, I think this year will be more volatile and that Gold Bugs better remain seated on the precious metals express or they might get squished.

Frank Trotter: I still think that with price inflation on the rise and big political events occurring, there may be room to continue to rise. If stock markets take off, then there will be a reduction in appreciation or even a significant decline, but based on the factors I mentioned above, I don't see that as highly likely.

Krassimir Petrov: Gold still has outstanding fundamentals. I believe that over the course of 2010, the fundamentals have strengthened significantly: (1) "No Exit [Strategy] for Ben" as he unleashed QE2, and will likely unleash QE3, QE4, etc., (2) no more central bank selling of gold, (3) more central banks become buyers of gold, and (4) trial balloons for a global gold-backed currency.

I have no idea how people could even claim that gold is in a bubble – barely 1 out of 100 people have any idea about investing in gold. During the real estate bubble, every second person was involved in it. Maria "Money Honey" Bartiromo has yet to report from the COMEX gold pits; gold fund managers and analysts have yet to obtain rock-star status; and glamorous models are not yet dating the gold guys. Who is the Henry Blodget [co-host ofTech Ticker] of the gold sector, do we have one yet?

Yes, gold will eventually become a bubble, but that feels 5-8 years away.

Bob Hoye: In 2011, gold's real price will resume its uptrend.
 
BG: What's your best investment advice for 2011?

Jim Rogers: Buy the rmb [renminbi, the Chinese currency].

Bill Bonner: We are in a period much like the period following WWI, in which the great debts and losses of the war had to be reckoned with. It is an era of great risk. The U.S. faces many of the same challenges faced by Germany and England after WWI. Like England, it has huge debts. It is a waning imperial power. And it has the world's reserve currency. And like Germany, it is attempting to fix its problems by printing more money. This is not a good time to be long either U.S. stocks or U.S. bonds. 
Peter Schiff: Don't be suckered into the idea that recovery is just around the corner. The current climate is like living in a hurricane or earthquake zone; it's important to stay vigilant because you never know when disaster will strike. Physical gold is the financial equivalent of a flashlight, first-aid kit, and store of canned goods. It's a basic way to protect yourself from any eventuality. From there, if you're looking for returns, there are plenty of foreign markets with strong fundamentals, as well as commodities that feed those markets. 

Investing in the U.S. is now driven largely by force of habit. It's a habit you should resolve to break.

Jeffrey Christian:Do not invest based on what you believe, but on what you know. Gold is a market, like other markets. It rises and falls. You probably want to stay long gold on a long-term basis, but may want to cull the weaker gold assets from your portfolio in the first quarter, and put some hedges in place to protect a long-term core long gold position against the potential of significant price weakness over the next two years or so. Such a period of weakness would be an excellent time to add to one’s gold assets.

John Williams: As an economist, I look for the U.S. dollar ultimately to lose virtually all of its current purchasing power. Accordingly, for those living in a U.S. dollar-denominated world, it would make sense to move to preserve wealth and assets over the long-term. Physical gold is a primary hedge (as is silver). Holding some stronger currencies outside the U.S. dollar, as well as having some assets outside the United States, also may make sense.

Steve Henningsen: Dramamine (for volatile markets), a stash of cash (for potential investment opportunities), and move some of your assets offshore if you haven’t already.

Frank Trotter: My advice is first to look at the other side of your balance sheet – the liability and risk equation – before seeking out absolute gains. What are your goals, what resources do you already have to meet those goals, and what events (health, income stream, upheavals) might impact these risks? Place some assets to hedge these risks directly, then look to diversify globally into markets with higher growth potential than we see here at home, and that may balance your global purchasing power risk. Almost like a religion, we have had the phrase "Stocks are the only legitimate hedge against inflation" beaten into our heads. I say, look at assets that define inflation like commodities and currencies and evaluate where these fit into your risk portfolio.

Krassimir Petrov: Last year I recommended silver, and I would stick to silver again, despite the phenomenal run in 2010. Then it gets tricky. I usually don't recommend diversification, but now I would again recommend a broad portfolio of commodities. Investing in 2011 should be easy: stay out of real estate, out of bonds, out of fiat currencies, and out of stocks; stay fully invested in commodities, overweight gold and silver.

What to watch in 2011: stay focused on the sovereign debt crisis and bond yields. Spiking yields will trigger the next stage of the crisis.

Bob Hoye: Once past the early part of 2011, the best returns are likely to be obtained from the junior gold exploration sector.

[These world-class experts are right to bank on gold and silver – because the U.S. dollar keeps losing more and more of its value. Watch this eye-opening video on how China and Russia are plotting to dump the dollar… why you should be worried… and what to do about it.]








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SK model portfolio 14 March 2011.JPG



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Sunday
Mar202011

Why Gold Is No Longer An Effective USD Hedge

During the first nine years of this gold bull market, gold prices moved with a near perfect inverse relationship to the US dollar. Indeed, in the early years gold was only really moving up against the greenback, it was only after a few years that it began to appreciate against all currencies. The game plan was simple; the dollar is going down, so gold in USD terms is going up with some leverage factor. Gold worked well as both a USD hedge and as a tool to speculate on a USD decline. This is no longer the case.

USD Gold 2001-2009 SK Options Trading

Nothing lasts forever and over the past two years or so this inverse relationship has broken down significantly. The gold story is no longer simply a USD devaluation play.

USD Gold 2009-2011 SK Options Trading

As the above chart shows, although there are times when the inverse relationship remains intact, there are long periods where gold and the USD move together.

The most significant reason for this is that the Euros are a lot less desirable than they were a few years ago. Since all currencies trade on a relative basis, it doesn’t matter if the USD has poor fundamentals; if the picture for the Euro is worse relative to the USD, then the greenback will make gains against the Euro. During periods where the Eurozone debt crisis has been the focus of market attention, gold and US dollars have been bought since both are preferable to Euros and provided a safe haven.

The key point of this article is not to say that gold will not rise is if the US dollar falls, it is to point out that gold is no longer as effective as a USD hedge. To show this we present a scatter plot of the closing prices for the USD index and gold over the last 2 years.

Gold USD Closing Scatter

Although the trend line has a slightly negative slope it is hardly convincing, and the R-squared value of 0.0188 further diminishes the creditworthiness of gold as a USD hedge. For those unfamiliar with this, the R-Squared value is a statistic that indicates how good one variable is at predicting the other. For our purposes it is a measure of how good a decline in the USD index is at predicting a rise in gold. If the R-Squared value is 1 then given the value of one variable, one can exactly predict the value of the other. If R-squared is 0 that means that knowing the value of one variable does not help you predict what the other variable will be. So the higher the R-Squared value the better one variable is at predicting what the other may be and therefore the stronger the implied relationship is between them. An R-squared value of 0.0188 is extremely poor, and almost indicates no predictive abilities between the movements in the USD and gold.

However to get a fairer picture we should look at the relative returns of the USD and gold.
Gold USD Daily Returns


This does give us a higher R-squared value at 0.0946, but it is still very low and hardly convincing that gold has been an effective hedge against declines in the USD over recent years. Repeating the above exercise for silver and the USD index yields similar results, with R-squared values of 0.0844 and 0.1269. Although these are slightly higher than gold is it is still nothing to write home about, let alone base a trading or investment strategy on.

Silver USD Closing Scatter

Silver USD Daily Returns

To give you an idea of what a strong relationship between two assets should look like, we have repeated the above exercise for gold against silver, a relationship which is much stronger.

Gold Silver Closing Scatter

Gold Silver Daily Returns

Although gold and silver obviously have a positive correlation versus the negative correlation between gold and the USD and silver and USD, we are not looking at whether the relationship is positive or negative, we are only concerned with the strength of any such relationship.

Furthermore when we calculate the correlation coefficients for gold and the USD we get -0.137 and for the USD and silver we get -0.290; both of which imply a very weak negative correlation. Compare this with the very strong positive correlation between gold and silver of 0.905.

Therefore statically speaking, over the past two years gold has been a very poor hedge against a declining USD. Of course this situation may change, and just because the relationship has been weak over the last couple of years doesn’t mean that there were not periods where the USD and gold exhibited strong negative correlations. If the USD index were to fall out of bed we would be expecting gold prices to rise, however over a broader horizon or when moves are more moderate or contained within a range, don’t count on gold moving the opposite direction to the greenback.

In our opinion, if you hold a view that the USD Index is going to fall, then short the USD index rather that taking a long position on gold. You are running the risk that gold and USD could move together, and you are not being compensated for that risk by any leverage factor in gold. If you cannot trade futures, there are ETN’s that allow you to gain exposure to the USD index, such as the PowerShares DB US Dollar Bullish Fund (Symbol: UUP) and the PowerShares DB US Dollar Bearish Fund (Symbol: UDN). Options are traded on these funds as well if you wished to use options to play a move in the USD index.

In conclusion we hope to have shown that gold simply isn’t a clean hedge against the USD any more. When trading one should aim to tailor positions to match your view and optimize the risk/reward dynamics. If you think that the USD is going to fall, short it. If you think gold is going to rise, then buy gold. Taking a long position on gold purely since you think the USD index is going to fall is not really statistically justifiable due to the weakness of the relationship between the two. At SK Options Trading we are constantly refining trading techniques to ensure we are optimizing our risk/reward and tailoring our position using options to fit our view. Our model portfolio is up 138% since inception so if you would like more information on subscribing to our premium options trading service SK OptionTrader feel free to visit our website www.skoptionstrading.com

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Thursday
Mar172011

The World’s Best Gold Experts: “Buy and Hold!”

Jeff Clark, BIG GOLD

In January, Jeff Clark of Casey Research’s BIG GOLD advisory set out to get opinions from some of the smartest, most accomplished investors in the gold industry – where is the gold price going to go, how volatile will the markets be, what’s the outlook for precious metals stocks? Read on for some of the most insightful answers you’ll see anywhere…

Rick Rule is the founder of Global Resource Investments (www.gril.net), now part of Sprott, one of the most acclaimed and sought-after brokers in the natural resource industry. Rick has spent 30 years in the sector and is a regular speaker at investment conferences in the U.S. and Canada. He and his staff have an extraordinary record of success in resource stock investing.

James Turk is the founder and chairman of GoldMoney.com. He’s authored two books on economic topics, published numerous articles on money and banking, and is co-author ofThe Collapse of the Dollar. He’s a widely recognized expert on precious metals.

John Hathaway is portfolio manager of the Tocqueville Gold Fund, the third best-performing gold mutual fund in 2010. He is a Harvard grad with 41 years of investment management experience.

Charles Oliver is senior portfolio manager of the Sprott Gold and Precious Minerals Fund (and several others). Charles led the team at AGF Management that was awarded the Canadian Investment Awards’ “Best Precious Metals Fund” in 2004, 2006, and 2007.

Adrian Ashruns the research desk at BullionVault, one of the world's largest online gold ownership services. A frequent guest on BBC News in London, his views on the gold market are regularly featured in the Financial Times, The Economist, and many others.

Ian McAvity has been writing the Deliberations on World Markets newsletter since 1972. He was a founder of the Central Fund of Canada (CEF), Central Gold Trust (GTU), and Silver Bullion Trust (SBT.U).

Ross Normanis co-founder of TheBullionDesk.com, an online provider of precious metals news, analysis, and prices. Ross has won several awards from the London Bullion Market Association for his price forecasting, winning in 2002 and 2006.He now runs Sharps Pixley (www.sharpspixley.com), which sells bullion in the UK and continental Europe.
 
BIG GOLD: Gold was up 30% in 2010; to what do you attribute its rise?

Rick Rule: Gold is unique, in that both primary investment psychology motivators – greed and fear – drive the price. Gold markets ricochet between greed and fear buying, and we are starting to see that in the markets now. The fiat currency weakness, both the dollar and the euro, are the motivators for the fear buyer, and the momentum caused by fear buyers is the motivation for the greed buyer.

James Turk: Two things. First, policies like zero interest rates and quantitative easing are eroding the purchasing power of all the world's currencies, so it is no surprise that commodity prices – which are always sensitive to currency problems – are soaring.

Second, as people increasingly recognize the difference between owning paper gold and physical gold, the demand for physical continues to climb. Given that it is a tangible asset, physical gold does not have counterparty risk and therefore protects wealth when stored properly. It is the ultimate safe haven.

John Hathaway: Growing distrust of fiat currencies. 

Charles Oliver:In reality, the true value of gold does not change. What has changed is the decrease in value of the fiat currencies used to measure the gold price. In 2009 and 2010, the U.S. debased its currency via direct money printing and a massive quantitative easing program where the government purchased $1.5 trillion of mostly its own bonds. 

The U.S. government will buy another $600 billion of its bonds in 2011 concurrent with running the largest deficit in its history. With this in mind, it is no surprise that the gold price rallied.
Adrian Ash: Last year's eurozone debt crises gave only a foretaste of the sharp spikes in physical demand we could see as the single-currency experiment unravels, while the Fed's fresh dose of debt-monetization (aka QE) lit a fire under institutional gold buying. China's surging demand continued to make gold a strong emerging-Asia play, too.

The underlying cause, however – boring but true – was negative real interest rates. Cash in the bank now means certain losses, failing to keep pace with inflation as badly as in the late 1970s. So once again, cautious savers are choosing hard assets instead of government-controlled currency, and gold is the stand-out alternative because it's tightly supplied, indestructible, debt-free, and truly stateless.

Ian McAvity: I believe gold's rise should be recognized as a devaluation of the three major currencies in gold terms – the U.S. dollar, euro, and yen. That focused global attention on gold as the oldest and most credible currency in its traditional role of a store of value. This trend is now a decade old and may be entering the phase for acceleration, now that the major currencies and sovereign debt issues are both coming under the microscope.

Ross Norman: Really, it was more of the same from the previous 10 years – but particularly so the economic-related issues from the last two. The gold price fundamentally reflects the debasement of currencies – gold is not expensive, but the currencies you buy it with are worth less simply because we are printing so many of them. If you genuinely believe that global growth is established, that debt repudiation will be carried through (the public will willingly take their fiscal medicine), and that economic stability will be restored without a hiccup, then don't buy gold. The trouble is, few believe that story, and hence the 30% gain in gold.
 
BG: What forces will move gold this year? And what's your price projection for 2011? 

Rick Rule: I suspect that this year will give us extraordinary volatility across all markets, including bullion. I think the eventual direction is higher, because of the well-catalogued failures of collectivism. But I suspect we will have some event-driven spike in metals prices, although I couldn't forecast which of many possible events will occur.

I have no earthly idea where gold will close, but to be a good sport and play the game, I'll say $1,750.

James Turk: The same forces will move gold higher this year, which I expect will reach $2,000, probably in the first half.

John Hathaway:A reversal of spreading distrust of government policies, central bankers, and paper currencies can only be accomplished by high real interest rates. The secular direction of the gold price will remain higher, and conversely, the valuation of paper currencies will trend lower, without a restoration of respectable real interest rates, which in my opinion, would be in the neighborhood of 4% on a sustained basis. In the absence of such a change, there is no telling where the price of gold, in U.S. dollar terms, could go.

In my opinion, gold is no different than any other market in that it assesses current fundamentals and discounts the future. Just exactly what it is reflecting at any given moment is the real challenge. In my opinion, the gold market has only partially reflected the monetary debasement that has taken place since the credit implosion of 2008, and it has not yet begun to assess the damage yet to come. 

Without knowing what further convoluted and extreme measures yet to be implemented by this administration and the Fed, it is impossible to place a number on the future price.

Charles Oliver: Global currency debasement will continue in 2011.  The European sovereign debt crisis continues to unravel in slow motion, and it looks highly likely that the Europeans will magically create lots of money to backstop the debt of the next European government that finds itself on the verge of bankruptcy. I expect this backdrop will help propel gold to around $1,700 by yearend. 

This level is supported by an upward trend channel that commenced in 2008 with a 2011 yearend range of $1,550 to $1,750. I also believe gold could break through the upper boundary of these trend-lines should some unexpected event occur.

Adrian Ash: Headline debt crises aside – Portugal, Spain, California, take your pick – 2011 will see negative real interest rates force ever more cash savers to choose gold (and also silver) instead. Simply extrapolating the current bull run's annual gains would see 2011 end with gold some 20% higher at $1,695 per ounce, averaging $1,450 across the year. Even on the official CPI measure, U.S. savers have now been underwater for 24 of the last 36 months after inflation.
But no one at the Fed, not even sole dissenter Thomas Hoenig (no longer a voting member in 2011), wants to see positive real returns paid to cash. The ECB, Bank of Japan, and Bank of England all look stuck near zero interest rates, too. And while Beijing might hike Chinese lending rates, it fears sucking in yield-hungry money from the West. With China's deposit rates left untouched at barely half the pace of inflation, the early gold-demand spike around Chinese New Year (Feb. 3rd) could prove dramatic.

Ian McAvity: I don't do specific forecasts in my work, but I think there's a prospect of gold pushing into the $2,000-$2,400 range this year, or perhaps 2012. This presumes an element of monetary panic relating to the U.S. dollar or euro during the year. A gold price of $2,400 would be the CPI-adjusted equivalent of 1980's $850 in current dollars, so this is not an unrealistic number.

Ross Norman: After 10 successive years of price strength during which gold rose fivefold, it is tempting to ask if prices are now peaking; we think not, and fresh all-time highs of $1,850 are in prospect. The list of forces on the buy side remains as long as your arm. But on the sell side there are potentially miners reentering hedging/forward-selling programs, central bank disposals, and possibly some contrarians – these are unlikely to be significant and, in short, with few sellers the scales should continue to weigh very significantly in favor of the bulls.

With gold’s entrenched trend line to draw on, the adage "The trend is your friend" seems likely to hold true. A twenty-something percent increase looks likely for the year, and the gold chart should maintain a steady 45-degree climb after a period of consolidation during Q1.
Our outlook for gold in 2011: Average $1,513; high $1,850; low $1,350.
 
BG: How volatile do you expect gold to be? What's your low price that would present a good buying opportunity? 

Rick Rule: Volatile on steroids! If we have a replay of the liquidity crisis of 2007-2008, gold could crack $1,000 on the downside. I don't time these things; I build cash when values in other sectors are not available, and bullion for me is a form of cash.

James Turk: I do not expect gold to be volatile. It looks to me that the gold price is ready to accelerate to the upside, and I do not expect there to be any significant price corrections because the demand for physical metal is just too strong. There is always a lot of money on the sidelines ready to buy any dip. 

Any price below $1,500 represents a good buying opportunity because I do not expect gold to remain below that price much longer.

John Hathaway:If the Fed announces an end to quantitative easing, gold could drop $200. In the greater scheme of things, such an announcement would change nothing.

Charles Oliver: I expect volatile currencies and governments for the next several years. Which means that gold and other hard assets priced in U.S. dollars will remain volatile. The current bottom of my gold trend channel is $1,300, so if it dropped that low, I think it would make a great buying opportunity. If gold broke below $1,300 (which I do not expect), then you might see it test the $1,000 level. That level was resistance for several years, but now it is a major support level, one I believe may never be breached again.

Adrian Ash: Gold volatility actually fell in 2010, hitting 5-year lows even as the dollar price took out new record highs above $1,400. So while gold keeps making headlines, it's more overreported than overinvested, and that's likely to keep any dips shallow, especially as larger investment institutions in the West look to steadily build their positions. Demand from Indian households – the world's No.1 physical buyers – is again adjusting to new rupee highs, too.
That said, keep an eye on the start of new quarters (April, July, Oct.) as investment funds will hold on to winning positions to impress their clients, only to take profits the very next day (witness July 1, 2010 and New Year 2011 already).

If you're trying to pick the bottom of a pullback, it's worth noting that gold hasn't fallen vs. the dollar for more than two months running since 2001.

Ian McAvity: Volatility will be much greater. India paid $1,045 for 200 tonnes of gold from the IMF – that's a critical level and would be a great crash-scenario buy point, but I doubt we'll see it. The last important breakout occurred at $1,260 and should be support and an attractive buy level; below that, $1,160 to $1,200, if it's part of a general market wipeout. I'd bet that gold comes screaming back from such a decline if Bernanke and the ECB proceed with QE3 or QE4 to fight it.

Ross Norman: Fear and uncertainty are running high, and that should almost certainly translate into greater price volatility. I think we are close to the low for the year (we see that at $1,350), and it is quite healthy to see some of the excessive speculative froth being blown off the market just now. It makes a more compelling case a month or so from now.
 
BG: Gold stocks as a group did not outperform gold in 2010 – will that change in 2011? And if the broader markets sell off, will gold stocks fall along with them or trade on their own? 

Rick Rule: Interesting point; the stocks did not outperform bullion, even as the companies actually began to feel the positive impacts of higher gold prices and massive capital programs.
I do think select stocks will broadly outpace the bullion markets in 2011. The senior producers are doing something they have not done for decades – earning good money! Their reinvestment options are constrained because most of them have already launched and funded major capital programs for whatever internal growth is available to them. Surplus capital can go to increasing dividends, buying back stock, and to acquisitions. Juniors who make attractive discoveries that can reduce depletion charges and lower a major's overall cash costs will be bought at startling prices.

If broader markets decline as a consequence of an event, particularly a liquidity-driven event, the gold stocks will decline with them. If a broader market decline occurs as a consequence of debt and equity overvaluation and earnings disappointments, the markets will decouple as they did in the late 1970s.

James Turk: The mining stocks will continue to outperform in 2011, but by a much larger margin than last year, and are still relatively cheap compared to bullion. Remember, the mining stocks were in a bear market from the collapse of Bre-X in 1997 to the collapse of Lehman Brothers in 2008. After Lehman, even the best quality mining stocks were unbelievably cheap. It was a capitulation low, where emotion prevailed over logic, which is how all bear markets end. This new bull market will drive the mining shares to what will probably be unbelievable heights when we look back a few years from now.

John Hathaway:Gold stocks are generally cheap relative to bullion. The XAU [Philadelphia Gold/Silver Index] trades at roughly 15% of the bullion price vs. a historical norm of more than 20%. Gold stocks could do fine even if gold is flat, something I don't expect. If we have another 2008 style sell-off, gold stocks will be hurt again in the short term, but the stage would be set for much higher highs for the metal and the stocks.

Charles Oliver: In 2010, the large-cap stocks that dominate the weighting in most gold indexes underperformed the gold price. However, the mid-cap stocks had a great performance in the first part of 2010. In the latter part of the year, the small-caps roared to life and outperformed most other groups. 

I expect that 2011 will initially be similar to the end of 2010; however, in the second part of the year, I am concerned that the general stock market may be due for a correction that could impact all stocks and sectors. If there is a modest, orderly pullback, gold stocks could rally (much like they did in 2002), though you may see an increased focus on the bigger, more liquid names first. With this in mind, and the relatively cheap large-cap stocks, I have been increasing my weighting of larger-cap names.

Adrian Ash: So long as deflation (i.e., default) threatens credit markets, unencumbered gold is going to appeal more than geared production, especially to those cautious savers now being forced out of cash by negative real rates. Yes, you've got to expect the kind of gold mania that Doug Casey has long forecast to light a fire under the broader gold mining sector. But another broad sell-off in world equities in 2011 would only compound the last decade's disillusion with risk investments.

Ian McAvity: The major gold stocks have not performed well against gold since 2003. They will get decent spurts, but long-term reserve replacement and premium-priced M&A [Merger and Acquisition] takeovers dilute their shareholders. The lows for gold stocks may be governed by the magnitude of any crash-like decline in the stock market. If the S&P or Dow falls 20% or more within a 3-month or less window, the margin clerks will sell every bid on anything. I prefer the metal to the major miners.

Ross Norman:I would not anticipate a broader equities sell-off. It does seem that most asset classes are performing strongly, and that may be a secondary consequence of QE. Broadly, I take a similar, and positive, view of mining equities as I do for gold. Should there be an equities correction, then in all likelihood mining shares will also retrace to some extent in the same way that a rising tide lifts all boats.
 
BG: Silver was up 81.9% in 2010, but is still below its 1980 nominal high. What's your outlook for silver in 2011?

Rick Rule:The near-term outlook for silver is very bullish, as a consequence of physical supply shortages. Longer term could be problematic as a consequence of Indian dishoarding, an event last seen in earnest in 1997.

James Turk: I expect silver to reach $50 in Q1 2011. It may then take a breather, but eventually – and probably later in 2011 – silver will climb above $50.

John Hathaway:More volatility than gold.

Charles Oliver: In the earth's crust, the ratio of silver to gold is 17:1. For most of the last 650 years (except the last 100) the monetary exchange rate was also around 17:1. In fact, when the United States was on a bi-metallic reserve standard, the U.S. government mandated "The Coinage Act of 1834," putting the gold/silver ratio at 16:1. In 2010, the ratio moved from around 60 to below 50. I expect this trend to continue in 2011 and think the metal could trade up to and beyond $50 in the not-too-distant future.

Adrian Ash: Silver's primary use is industrial, rather than as a store of wealth like gold. So it should be more vulnerable to the economic cycle (see the post-Lehman price collapse), and you could argue it's simply tracking the huge rally in base metal and energy prices. But looking at that 1980 high – forced by the Hunt brothers' speculative corner, rather than a jump in use – I think something else is going on, and silver is being remonetized by private wealth in the same way gold has been remonetized since hitting "trinket" prices in the late 1990s.

A much smaller and tighter market than gold, silver is both more attractive and responsive to sudden inflows of cash. As with gold, silver's volatility fell in 2010, but it was more than twice the average level (daily basis) of the last four decades. Price-wise, another year like 2010 would see the $50 peak taken out. The biggest surprise is that the mainstream press hasn't stoked the idea of a "silver bubble" like it has done for gold since 2009.

Ian McAvity: If gold runs above $2,000, I expect the silver/gold ratio to reach the 36:1 level, which would mean a price somewhere between $55 and $66. I view that ratio as a material driver of the silver price, trading off its long monetary metal history, apart from its attractive supply/demand profile. The 1980 spike to $50 was a very brief spike that isn't really a meaningful measuring point, in my view. The monthly average London Fix for January 1980 was $39.27, and gold's monthly average peak was $675.31; those are more realistic prior peak levels to measure against.

Ross Norman: After the 2010 rally, it might seem churlish to expect much more in 2011 for silver. Early 2011 profit taking has seen silver decline more than most assets, underlining the strong speculative element in the recent price run, and this also confers some weakness to its case. However, the investment community has taken silver to heart, and contrary to its modestly attractive fundamentals, the market prices are likely to overperform again. Unlike in 2010, we expect silver's price action to conform more closely to that of gold – firmer, but a little more rational.

Our outlook in 2011 for silver: Average $37; high $44; low $27.
 
BG: What's your best advice for precious metal investors in 2011?

Rick Rule: Be prepared for the most volatile market of your life, and use that volatility to your best advantage.

James Turk: It is the same advice I have been giving for more than a decade; continue accumulating the precious metals, and if you are inclined to take the investment risk, the mining stocks as well. We need to recognize one salient fact: national currencies are being destroyed and their purchasing power eroded by misdirected government policy. Consequently, gold and silver are safe havens and the best way to protect your wealth.

John Hathaway: Have at least 10% of your liquid assets in precious metals and related mining stocks. Keep your bullion outside the U.S. A good way to do so is through Gold Bullion International, which can be accessed through their website. Unless you want to spend a lot of time researching the gold mining industry, consider investing in a well-managed precious metals mutual fund. There are a number, but I am partial to the Tocqueville Gold Fund, one of the top performers last year.

Charles Oliver: All the fundamentals – excessive government debt, high budget deficits, runaway healthcare costs, growing Social Security payments, demographic trends – lead to one conclusion: Governments are bankrupt and are going to debase their currencies via money printing, quantitative easing, off-balance-sheet transactions, and whatever other tricks they can pull off. The bull market in gold is alive and well and has a heck of a lot further to go. Buy it. 

Adrian Ash: Next to overtrading, the biggest profit killer in gold this last decade has been to trust clever hedge funds trying to beat the metal. Sure, the best mining stock funds have delivered fantastic returns, but they struggled to outperform gold in 2010, and there's no certainty that will continue. But if you're right to buy gold for defense, then it’s best to simply buy and hold until the prime drivers – abysmal monetary and fiscal policy across the West – are reversed. Oh, and of course, be sure to visit BullionVault for a free gram of gold, too!

Ian McAvity: For individual investors, don't go crazy with leverage or portfolio concentration. No matter how much of a gold bug you are, keep in mind we're in a period where the mistakes (QE2 is one of them) will compound the second half of the ongoing financial disaster that started in 2007. 

Ross Norman: For followers of cycles, 2011 looks like the year that the Kondratieff Winter begins to bite – a period normally associated with debt repudiation, trade wars, and firm commodity prices. A winter that puts Europe into hibernation, and the smart money acquires a protective coat. This is to say, buy gold, including the leveraged 2:1 ETFs.

[These world-class experts are right to bank on gold and silver – because the U.S. dollar keeps losing more and more of its value. Watch this eye-opening video on how China and Russia are plotting to dump the dollar in the near term… why you should be worried… and what to do about it.]



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Our model portfolio is up 138.05% since inception, Average return of 41.27% per trade, 67 closed trades, 65 closed at a profit or a 97% success rate. Average trade open for 43.21 days.


SK model portfolio 14 March 2011.JPG



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Thursday
Mar172011

SK OptionTrader: New Pricing Structure

This is a quick note to inform that a new pricing structure is being introduced and will come into effect on the weekend of the 2nd April 2011. For those of you who are already subscribers we will do our best to hold your subscriptions as is, the new prices will only apply to the new members. This is due to the great demand we have had for the service and we are raising prices to limit numbers and ensure that we maintain our high level of service to each and every subscriber.

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