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Sunday
May152011

The Gold-Silver Ratio – Another Look

c1 14 May 2011.JPG

by Andrey Dashkov, Casey International Speculator

The gold-silver ratio (GSR) measures how many ounces of silver one can purchase for an ounce of gold, on a certain date.

Reference to the ratio has a long history. One of the first mentions was that upon the death of Alexander the Great, the ratio was 12.5 to 1. During the Roman Empire, the ratio was set at 12. By the late 19th century, the ratio had risen to 15.

Interestingly, these historical ratios roughly reflect geologists’ estimates that silver is 17 times more abundant than gold in the earth’s crust. This gives many investors a reason to believe that 17 is the natural balance between these elements, and that eventually the GSR will return to it.

Monitoring the GSR is quite popular among gold and silver investors. It seems that whenever it makes a big move, many start drawing conclusions about the direction of the prices of its underlying metals.

Here at Casey Research, we stick to the dictum that the GSR “suggests a lot but proves nothing.” Indeed, the GSR is determined by the price action of gold and silver; the price action of gold and silver is not determined by the GSR. Rather, each metal’s price is influenced by various fundamental factors. What complicates any analysis of interactions between gold and silver prices is that the two metals have different markets, each with peculiar supply and demand structures.

Briefly reviewed, the gold market is characterized by a large above-ground supply as the vast majority of gold ever mined still exists in refined form, and annual mine supply represents only a small fraction of that volume. Demand is mostly for jewelry and investment. Gold is not widely used for industrial purposes.

Silver demand, by contrast, is mainly for industrial fabrication of things like electronics and batteries. The metal is consumed during the process and removed from above-ground stocks. The other major areas of demand are jewelry, investment, photography, coins and household silver, in that order. Supply comes mainly from mining and scrap recycling.

From this picture comes one conclusion: over time, supply and demand for the two metals has been fluctuating in response to industrial and technological advancements, shifts in monetary systems and market turbulence. Today, as investment and jewelry are the primary sources of gold demand and most of the silver goes into industrial and related applications, it is no surprise that the gold-silver ratio is different than the historical average of 17. The above chart shows how the ratio has fluctuated since 1968.



The GSR was extremely volatile over the past five decades and averaged 53.5 from 1968 to April 2011; during the last ten years (since April 2, 2001), the ratio averaged 61.8.

The ratio has been falling for several months, however, as shown on the chart above. Counterintuitively, however, rumors that a low GSR signals undervalued silver started spreading. We say counterintuitively here since it is unclear why a falling GSR should signal undervaluation after silver gained over 80% within a year. Appeals to the mega-long-term GSR of 17 alone do not seem to provide enough basis to think that silver will continue to soar indefinitely.

As of April 1, the GSR stands at 37.7. We, however, do not think that it is going to fall to 20 or 15 from this point: history shows that high volatility is the ratio’s essence. After a plunge, there usually follows a rapid surge. That happened in 1980 when gold reached its inflation-adjusted peak, and in 1987 and 1997. We don’t know how steep the current plunge in the ratio will be, of course, but using history as a guide, we do not expect the ratio to continue its decline for much longer.

Uncertainty about the economic recovery in the Western world and the growth of developing countries can result in slowing industrial output and hence falling demand for silver that would hinder the price. These conditions also create a favorable environment for gold driven by safe-haven demand. In such circumstances, the ratio may climb.

History shows that the GSR tends to rise significantly during a recession and create an interim peak on the way. See the chart below.


c2 14 May 2011.JPG

We believe that the measures taken by the current administration to battle the recession are largely counterproductive, temporary, and will be unable to prevent the onset of another major economic decline. It is difficult to judge when the turmoil might start, but the odds of it happening soon get higher as the levels of government debt increase and the dollar is debased. When push comes to shove, the GSR can react quickly and create a fluctuation of an unpredictable magnitude.

In times of recession, as we discussed above, gold and silver behave in a quite different manner. Have a look at the following charts.

c3 14 May 2011.JPG

c4 14 May 2011.JPG






Note that it is not quite statistically sound to plot a ratio against one of its components, but for the purpose of illustration we find it quite useful.

As you can see, in 1980 gold and silver both peaked on a historically low GSR. This may imply that a low ratio can take place not only when silver appreciates faster than gold (as it did in 2010 and so far in 2011), but also when fundamental and speculative conditions influence both metals. Of course, the 1980 silver peak happened while the infamous Hunt brothers were massively accumulating the metal.

Conventional opinion attributes silver’s rise to the Hunts, but we are skeptical. It cannot be determined to what degree the metal would have otherwise risen absent the Hunts in the market. In any case, attempts to influence markets are nothing new – today, major investment banks are accused of manipulating the silver market by holding huge short positions that cause artificial price suppression.

Returning to the charts and how gold and silver behaved in the last recession, we can see that silver moved counter to the GSR while gold moved in a mixed, sideways pattern. Because of this, many see a lot of upside potential for silver, but we should not forget that silver is the denominator in the ratio. So absent strong fluctuations in gold – and gold was on an ascent since the beginning of 2009 – the GSR would to some extent simply mirror silver price movements.

The silver price was also influenced by hopes that the global economy is reviving and that industrial demand is going to last. In 2010, silver gained more than 80% while gold added less than 30%. The difference resulted in the GSR falling throughout 2010. Will that performance be repeated? We cannot say. Speculators should remember that the GSR is merely a ratio of two prices often driven by different forces. It has limited, if any, predictive power.

With that in mind, we will finish by juxtaposing the ratio against the Toronto Venture Exchange (TSX-V) index, and it reveals an interesting picture: it seems that the TSX-V has been negatively correlated with the ratio for the last ten years. Again, statistically it’s arguable if a ratio should be compared to an index, but looking at various combinations of time series, and the stunning correlation, we couldn’t help ourselves.

c5 14 May 2011.JPG

It would be easy to conclude that there is a strong – and negative – correlation between the index and the ratio. However, this correlation does not provide any sort of guidance on whether the metals themselves look expensive or not, or where mining stocks are headed. An interesting image, that’s all it is.

Conclusion

The gold-silver ratio attracts a lot of attention nowadays, but it is not a reliable tool in an investor’s toolbox, and we don’t think it can predict future price movements. But the reality is that nothing does. Those who look at GSR charts, including ours above, should not forget to analyze all the fundamentals behind the price movements of both gold and silver. We advise you to be extremely cautious and not get caught in the trap of believing that a single number or ratio, or a set of them, can provide you with a crystal ball.


Identifying an opportunity for future profit based on facts and a reasonable amount of risk is another thing. This is what we do day in and day out – just not based on the GSR.
Ed. Note: Since this article was first drafted, there has been a significant correction in gold and silver that has affected the GSR. As of May 12, it stands at 45.8, having increased as predicted in this article.

[Developed by Doug Casey, the “8Ps of Resource Stock Evaluation” – People, Property, Price, Politics, Promotion, Paper, Phinancing, and Push – are the Casey Metals Team’s best tool for discovering small-cap mining companies with outstanding profit potential. And with great success: in 2010, the International Speculator portfolio beat the S&P 500 by an incredible 8.4 times. Read more about the “gold nuggets” Senior Metals Analyst Louis James keeps finding in flyblown corners of the world… and how you can cash in on them.]


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Regarding www.skoptionstrading.com, please note that our winning streak of 59 profitable trades in a row came to an end this week when we closed a trade for a loss of 34%. We will update the stats and the chart shortly.

Over in the Options pit, our model portfolio has achieved an average return of 41.92% per trade, 78 closed trades, 76 closed at a profit, or a 97.43% success rate. Average trade open for 46.45 days.


sk chart 04 May 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.

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.


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Thursday
May122011

The Fall of the U.S. Empire and the Breakup of the Geopolitical Matrix





Casey Report Interview with Richard Maybury

With everything going on in the world today, we thought it a good time to catch up with the views of longtime friend Richard Maybury, a low-key but highly respected author, lecturer and analyst. In addition to his work consulting with businesses and high net worth individuals on strategic planning, Richard is the editor of the U.S. & World Early Warning Report, a monthly service that helps readers see the world as it is, versus how the media and the officialdom would like you to see it. Richard is widely regarded as one of the finest free-market writers in America today. His articles have appeared in the Wall Street Journal, USA Today and other major publications.

David Galland: You’ve been steadily warning your readers for years about the coming chaos in what you call “Chaostan,” yet another forecast of yours that is coming true today. Before we get to current events, could you define Chaostan for readers who aren’t familiar with it.

Richard Maybury: In Central Asia, the word "stan" means "land of." Therefore Kazakhstan is the land of the Kazakhs, Kurdistan is the land of the Kurds, and so forth. I coined the word Chaostan in 1992, the land of chaos, to refer to the area from the Arctic Ocean to the Indian Ocean and Poland to the Pacific, plus North Africa.

To understand why I call this area Chaostan, you have to first understand the two fundamental laws that make civilization possible. The first being “You should do all you have agreed to do,” which is the basis of contract law. The other is “Do not encroach on other persons or their property,” which is the basis of tort law and some criminal law.  

Where you find these laws most widely obeyed, especially by government, you find the most peace and prosperity and economic advancement, especially peace. In areas where they are less obeyed, you find chaos.

The area that I refer to as Chaostan never developed legal systems based on those two laws, at least not legal systems that the governments feel obligated to follow. I should point out those two fundamental laws provide the foundation for the old British common law, which was the basis of our Declaration of Independence and Constitution – essentially the legal documents that make America what it is or, rather, what it was.

So that's the essential thing, that Chaostan is the primary area that never developed rational legal systems, or at least not rational legal systems that governments are required to obey. As a result, throughout history they have suffered, and will continue to suffer, political, economic and social upheaval… chaos.

DG: Which brings us to the present, with a real flare-up going on in Chaostan. As Doug Casey has often said, "The thing that gets you is the thing you don’t see coming." Other than you and Doug, no one else I’m aware of anticipated the current trouble in places like Tunisia, Egypt and Libya. One day, things are quiet, the next we've got all sorts of major oil-producing countries – countries that people believed would never really change – up for grabs. What are your general thoughts on the situation?

RM: Since you’ve read Early Warning Report for so many years, you know that there is nothing going on today that surprises me or my readers. That's the direction I thought Chaostan would go. I'm just surprised that it took as long to get to this point as it did. In that regard, I have often used a quote from Doug…

DG: "Just because something is inevitable doesn’t make it imminent”?

RM: That too, but I was thinking of this quote to the effect of, "The nasty things that you think are coming always take longer to arrive than you think they will, but once they get here, they make up for their tardiness by being worse than you thought they’d be."

I think that's a fantastic observation, and it sure does apply here. I've always been convinced that this mess was going to happen, but will confess to being amazed that it is all happening at the same time, and that it's occurring in such a short period of time.

DG: What do you attribute the upheaval to?

RM: There are two big things going on: One is the fall of the U.S. Empire, and that is leading to the second, which is the breakup of the geopolitical matrix. In the case of the latter, I am referring to the many relationships the governments of the world have with each other and with their own people.

This matrix of relationships and political structures are called countries, most of which have existed for a long time, but that's breaking up now, in part because, in most cases, the borders between these countries were drawn a long time ago by people who knew nothing about the local populations.

While the breakup is starting in North Africa, I think it's going to spread across most or all of Chaostan. And it will have effects even in North America and South America. While it's almost impossible to predict exactly how, it’s my view the world that we grew up in is going away, and it will be replaced by some new political matrix.

These changes will only be exacerbated by the fact that the U.S. Empire that we grew up with is crumbling very fast. As the U.S. Empire collapses, all sorts of relationships will die, leading to yet more chaos. You can see this with Obama calling up Mubarak and ordering him to resign, so I think chaos is the only word that fits.

As far as I know, nothing on this scale has ever happened before in world history, and for people who don’t understand it and are not paying close attention, it's going to be hell. But for those who do understand it, it's going to be one of the biggest money-making opportunities in all of world history.

I don’t know what to say other than just look out.

DG: We'll get back to the money-making opportunities momentarily. First, however, a bit more on the crumbling U.S. Empire, an assessment we agree with. The administration was clearly caught flat-footed by what happened in Egypt. First it supported Mubarak’s regime and then, as you noted, it flipped and Obama demanded he go. It seems like right now the U.S. government really doesn’t even know whom it should be talking to, let alone supporting, in these various countries. 
This is no small matter seeing that for decades much of U.S. foreign policy has been directed at ensuring a steady supply of oil by creating relationships in the Middle East, including setting up and supporting various despots. With these relationships now at risk, the U.S. government has to be seriously concerned that it will see a steep degradation of its influence in the Middle East. Would you agree?

RM: Yes, I think U.S. government influence in the area is probably almost completely gone. The only real influence they have is within, let's say, a hundred miles of any given aircraft carrier. I don’t think Washington is taken seriously by anybody anymore, except for its military power.
The simple fact is, and you saw this in the Bush administration as well as in the Obama administration, it's clear to everybody that they don’t know what they’re doing. They have absolutely no understanding of the things that they’re meddling in.

I remember watching a television interview with Condoleezza Rice right after 9/11, when she said "Nobody in the White House knew where Afghanistan was." And that after the Twin Towers came down, they all gathered in the Oval Office and had somebody bring in a globe so that they could all find out where Afghanistan was.

DG: Of course the region really only matters to the U.S. because of its oil, and I think right now something like half of Libya's production is off line. Do you see the situation region-wide affecting supplies on a sustained basis?

RM: Let me push back a bit on your comment that "The only reason it's important to the U.S. is because of the oil." I would modify that a little bit by saying, "The only reason the region is important to you and me is because of the oil."

But to the U.S. government, the region is a place they have exerted their power, and that is what drives the U.S. government – a lust for power. You have a whole lot of people who spend their adult lives trying to acquire power, and once they get it, they want to use it on somebody, and one of the groups of people that they have used it on are those in the Mideast.
The American founders understood that. It’s why they created the Constitution as they did, as an attempt to limit the use of power, but the Constitution stops at the border. So U.S. politicians, almost right from the beginning, have gone outside the country to exert their power because it's a whole lot easier to do it in other countries than it is to do it in this country, and we have to keep that in mind.

While the oil is definitely a big factor, more of an excuse, for the U.S. government’s involvement over there, it's the exercise of power that they draw satisfaction from and that's the reason they have meddled in these countries for so many decades.

Now as far as what's going to happen with the oil, my guess is that there will be more uprisings, and Washington will try to establish new relationships with whatever regimes rise up out of that. In the end, as you know, fundamentally whoever owns the oil can't do anything with it except sell it, and so they will sell it and we will buy it.

DG: Might the Chinese, for example, move in there and take these opportunities to redirect more oil in their direction?

RM: Sure, but you’ve got to pay for the cost of the extraction, and there will be all sorts of governments, probably already are, sending agents in there to try to steer things in directions favorable to them, and they will try to use whatever oil they get control of as a weapon against their enemies.

I'm not talking about anything that hasn’t, in essence, been going on for centuries. That's how governments behave. I have no idea how it's going to shake out in the end, other than to say that ultimately whoever owns the stuff is going to sell it to somebody. They may not sell it directly to the United States or to U.S. oil companies, but they’ll sell it somewhere in the world, and that will increase the general world supply, and the U.S. will then buy oil from somebody.
I think that a whole lot of politics will be tangled up in these transactions, but I guess maybe the main factor to keep in mind is how much of the oil infrastructure is going to be destroyed while these governments are maneuvering against each other over there. While it’s too early to say, if a lot of that infrastructure isn't destroyed, I'll be very surprised.

DG: With the U.S.'s long relationship with Israel and support for all sorts of despots in the region, is the guy on the streets in the Middle East anti-American at this point?
RM: I've heard of a few incidents here and there, but the impression I get is that people around the world generally like the individual American, because we are a personality they have never run into before.

In most countries, if you tell an insulting joke about the government, everybody looks over their shoulders to find out if somebody overheard. An American never looks over his shoulder when he tells a political joke, and they find that fascinating. We speak with confidence and openly and about subjects that they will never talk about in public. So they’re captivated with our personalities as individuals, but they really hate and fear our government, just like many Americans do.

To illustrate that point, just think about the sick feeling you get in your gut when you go to your mailbox and find a letter with a return address for the IRS. Now imagine what it's like being, let's say an Iranian, and looking out your kitchen window and seeing an American guided missile cruiser sitting out there in the water.

DG: I remember when I lived in Chile being shocked to see U.S. soldiers jogging in double lines up the roads. This was a regular sight. It doesn’t take much imagination to figure out how people in the U.S. would react if Iraqi troops were a regular sight in their towns.

Back to the question of oil, the big players in the region are Iraq, Iran and Saudi Arabia. Do you think Saudi Arabia, in particular, will be in play before this is over?

RM: They already are in play in the sense that they’re trying to steer events in directions that are favorable to them. Maybe we should explain to the readers where Saudi Arabia came from. This is not a natural country. It is a country created by the government of Britain. Britain went into Arabia and picked the Saudi tribe as the one that ought to run the place as a surrogate of the British government. They supported the Saudi tribe so the Saudi tribe could conquer the other tribes, and that's essentially what Saudi Arabia is today.

It's as if someone went into Texas and picked the Jones family to run Texas and renamed the place Jones Texas. That's what Saudi Arabia is, and the other tribes don’t enjoy being dominated by the Saudi tribe, so there is inherent tension in that country all the time. The way the Saudi tribe tries to avoid violence is by buying off the population. They just keep pumping money into the population in an attempt to keep them fat, dumb and happy, but the population is getting tired of the whole scam, and that ancient hatred of the Saudi tribe is always there, just under the surface. There is a horrible resentment in the population.

When the ocean of oil is poured into the mix, yielding unimaginable riches for the Saudi rulers, it’s a nitro and glycerin combination that people have been writing about for decades. I'm one of them. I'm amazed Saudi Arabia is still there. I thought it would have blown up a long time ago, but it could be the uprisings spreading all across the Islamic world now that light the fuse on their overthrow.

Saudi Arabia is the big prize, and this means a lot of people want it and they’ll be likely to fight over it – and where it is going to go, I don’t know. This may be the greatest level of uncertainty since World War II.

DG: It would be logical that the U.S. military-industrial complex is going to use all this instability as an excuse to rationalize continuing with the huge levels of military spending, which is a big problem in terms of reducing the deficit. Do you see the U.S. military remaining as big as it is, or is there a change coming as the empire continues to dwindle down?

RM: I think there will be some token cuts to the military, but I can't see anything serious because all you need to do to get the American people to support a larger military is to just scare them a little bit. And that's easy to do – in this present situation it is very easy to do.
So I would tend to think that all you’ve got to do is announce that we need more aircraft carrier battle groups, because the oil supply is threatened, and the typical American on the street is going to say fine, build more aircraft carriers.

A point here to keep in mind is that, yes, the U.S. has by far the largest military force in the world, but Washington has taken unto itself the largest military obligation in the world – namely the responsibility of policing the whole planet. There is no other country that thinks it has the obligation to police the earth, so in terms of fire power versus territory that is being controlled, Washington is actually very weak and its enemies know this.

DG: Recently the U.S. Secretary of Defense Gates told cadets at West Point that we may never fight another large ground war. Do you believe that? I mean, if Saudi Arabia gets really unstable, do you think we are going to put boots on the ground there?

RM: Yes, definitely. This idea that you can fight a war without the use of ground forces is ridiculous. It shows a lack of understanding of what government is. A government is an organization that has control over a given piece of territory, and to control it you’ve got to have infantry standing on the ground. The phrase "boots on the ground" is a very good one for that.

The place has to be occupied by soldiers with rifles, and if you don’t have the ability to do that, then you can't control the place. You can just bomb the heck out of it, but eventually you’ve got to put troops on the ground.

DG: Yet in his speech to the cadets, Gates said that wars like Afghanistan are not likely and in fact he would advise against it. I have a copy of the article here, and I quote; "In my opinion, any future defense secretary that advises the president to again send a big American land army into Asia or into the middle of Africa should have his head examined."

RM: What he's saying is absolutely true, that you should not get involved in foreign wars, but I think it's a naïve idea to assume that they won't do it, because after all it's a government. It wants to use its power. It's going to use its power on somebody, and it will get into more wars, because the people who run the government are power seekers and they want to use their power. Until there is an amendment to the Constitution that says the U.S. government can't meddle in other countries, we're going to have wars in other countries.

DG: Speaking of foreign entanglements, Israel has got to be watching all this stuff with great concern.

RM: Yes, if I were the Israelis, I'd be pretty scared, and certainly they are also working secretly to try to steer events in directions favorable to them. I don’t know what to say about it other than the old phrase, "The situation is fluid."

It sure is fluid, no doubt.

DG: Returning just for a moment to your contention that governments need to exercise power. Is this just a psychological aberration amongst power seekers, or is there more to it than that?

RM: I regard it as a mental illness. People such as you and me and our readers are generally wealth seekers. We want to live a prosperous, comfortable life and we seek wealth in order to do that. By contrast, people who rise to the top in government are power seekers. They get their satisfaction from forcing other people to do what they want. They are essentially bullies.
Let's offer a little proof here. Practically every piece of legislation enacted in the last 100 years has involved the use of force on persons who have not harmed anyone. Anybody who wants that privilege has to have something wrong with them, so I think it's a given that when you're dealing with a high-level politician or a high-level bureaucrat, you're dealing with somebody who likes to push other people around, and that's the fundamental factor that the American founders were looking at when they created the Constitution. They understood that political power corrupts the morals and the judgment.

DG: A moment ago, you mentioned that one way the government can get people to go along with its schemes is to scare them, and history supports that this isn’t a new tactic. Yet, a lot of Americans look at 9/11 as proof that Muslim extremists are after us and we have to defend ourselves, and see that as sufficient rationale for the U.S. military to take action in the Middle East. Even from our readers, we hear things like "Kill them all and let God sort them out." How would you respond to that?

RM: I know a lot of people that seem to need somebody to hate, and when the government gives them somebody to hate, they’re grateful. I've known a lot of people like that. They enjoy despising whole classes of people, painting them all with the same brush, even the children.
DG: Yet people would argue that the U.S. government did not give us the Arabs to hate. They blew up the World Trade Center. There is clear evidence that in fact somebody does hate us, and so we should hate them back.

RM: Yes, well, as Ron Paul has pointed out, and I think this is a direct quote from Ron, "They didn’t come over here until we went over there."

DG: And we've been over there an awfully long time at this point.

RM: That's right. You can go back 200 years, if you want, which I do. The original war between the U.S. and Muslims was the Barbary Wars back in the early 1800s, and that was essentially an extension of the Crusades. The Europeans were fighting the Muslims, and the Europeans hoodwinked the American politicians into joining the war on their side.

When you hear the Marine Corps hymn "From the Halls of Montezuma to the Shores of Tripoli," to the shores of Tripoli refers to the Barbary Wars in which the U.S. came into the Crusades against the Muslims on the side of the Europeans.

So you can go back 200 years when the Europeans manipulated us into this thing, or you can count the modern onset as being in the 1940s when Roosevelt made an agreement to support the Saudis. There has never been a case where an Islamic government sent armies into the United States, but the U.S. has done it in the Mideast numerous times.

DG: Speaking of being manipulated, it is always remarkable to me how the British were up to their necks in Israel, as were the French in Vietnam, and presto chango, they’re out of the picture, replaced by the Americans. How we ended up as Israel's number one benefactor is amazing, just as it is amazing to me that we ended up losing 50,000 men in Vietnam after the French left. It makes no sense to me, but I guess it’s to be expected once you start getting drawn into foreign adventures. 

What else are you following for your readers? What sort of themes are you getting into?
RM: In terms of economics, we've been writing about the decline of the dollar for years now. But actually, as of the March issue, I'm making a turn and going back to a much deeper geopolitical orientation, because I think what's going on in the Islamic world now is going to be at least as dominant as the fall of the Soviet Empire was back in the 1990s.

Jim Powell has made an interesting point. He said that it won't be very long and we will all be looking back and referring to life before Tunisia and life after Tunisia, and I think that is true. The Tunisia uprising will be viewed akin to the attack on Pearl Harbor or the assassination of Archduke Ferdinand in 1914 where life was totally different after that incident happened. I think we're in that situation now.

DG: And I take it for granted that you think oil is going a lot higher.

RM: Yes, not that it isn’t going to have corrections along the way, but I've been predicting for a long time we are going to see oil at $300 a barrel. I don’t know when, but I'm sure it's coming.

DG: And gold is a core holding at this point?

RM: Absolutely, gold and silver. I think they still have a long way to go, which is to say the dollar still has a long way to fall.

DG: Any other quick investment ideas that you would share?

RM: I still like Fidelity Select Defense and Aerospace Fund. The symbol is FSDAX. I think the military industries are going to be selling a lot of weapons, and so why not invest in it?
Our newsletter is based on what I regard as the two carved-in-granite long-term economic trends; one of them being the decline of the dollar and the other one being war. I think those are locked in, and so I recommend people buy investments that do well during wartime or during periods of currency debasement, which we have. Those two trends – war and currency debasement – are essentially what Early Warning Report’s whole strategy is at this point. Buy whatever does well during war and currency debasement.

DG: A final question. Do you see the government pulling out of Afghanistan more or less on schedule?

RM: I doubt it, but given how fluid the situation is, who knows? Gates' comment was very revealing. It is amazing he would admit in public that it was a stupid thing to go into Afghanistan. If U.S. officials can divert the public's attention enough with what's going on in North Africa, maybe they can pull it off – maybe they can cut and run, and let the Afghan government fall without the American public noticing the lives that were wasted propping it up.
The one thing I can tell you for sure is that if you want to keep track of what's really going on in the world, you have to watch the aircraft carriers. The U.S. has 10 aircraft carriers – the big super-carriers – and they are always an indication of what Washington is really serious about.
DG: So when you read that a carrier is being moved into a certain area, then that's a tip-off that something’s about to go on?

RM: Yes. The position of carriers is a tip-off. Google “Positions of U.S. Aircraft Carriers.” Secondarily, Washington uses amphibious warfare ships as substitutes for the big carriers, so you want to keep an eye on those as well.

[Every month, The Casey Report dissects current U.S. and geopolitical events, economic and market trends – using in-depth, big-picture analysis to discover the best profit opportunities for investors. Learn all about crisis investing, and how to beat rampant inflation by acting smarter. Free report here.]




We recently reported that www.skoptionstrading.com had closed another two trades for profits of 108.52% and 116.67% respectively, this was followed with two more profitable trades so the chart and stats have been updated accordingly.

Over in the Options pit, our model portfolio has achieved an average return of 41.92% per trade, 78 closed trades, 76 closed at a profit, or a 97.43% success rate. Average trade open for 46.45 days.



sk chart 04 May 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.

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
May102011

Gold and Merino Wool as seen at a fashion show

Dr Kerstin Lucas models the dress dyed with gold nanoparticles.JPG
Dr Kirsten Lucas Tiffany Kong's Merino Gold design

One of our readers very kindly brought this item to our attention which is a use for gold that we have not seen before, a combination of Merino wool and gold through nanotechnology used as a fabric by fashion designers. The fashion show took place in February this year.

The talents of Victoria University chemists and Massey fashion designers combine to bring you the Merino Gold Fashion Show. Using wool fabric bonded with clusters of gold atoms, students are competing for the opportunity to visit the fashion houses of Italy.



MacDiarmid Institute

The 2011 International Year of Chemistry, in honour of Marie Curie, the first woman Nobel laureate, was launched in style at the Michael Fowler Centre on Wednesday night.

The launch event – a merino gold fashion show – was hosted as part of the MacDiarmid Institute’s international conference in Wellington this week.

A collaboration between MacDiarmid Institute chemists at Victoria University and fashion designers at Massey University resulted in a fashion collection based on the unique properties of pure merino wool coloured by bonded clusters of gold atoms.

The luxury wool has attracted interest and requests for samples from top fashion houses in Europe. The designer of the winning collection, Greer Osborne from New Plymouth, will have the opportunity to travel to the UK and visit and work with a number of leading fashion designers.

The visits have been organised by the British Society of Interior Design and Wools of New Zealand (UK).

The technique for forming and bonding the gold clusters to wool is just one of many applications of nanotechnology – working with material on tiny scales of one billionth of a meter – and illustrates the technical skills and creativity of New Zealand chemists and physicists working in the field. Nanotechnology is a meeting place of chemistry, physics and biology.

Well there we go, another useful application for gold to add to the list.



We recently reported that www.skoptionstrading.com had closed another two trades for profits of 108.52% and 116.67% respectively, this was followed with two more profitable trades so the chart and stats have been updated accordingly.

Over in the Options pit, our model portfolio has achieved an average return of 41.92% per trade, 78 closed trades, 76 closed at a profit, or a 97.43% success rate. Average trade open for 46.45 days.


sk chart 04 May 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.

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.

And something for the chaps!

Dr John Watt models Kerry Wong’s Merino Gold design.JPG
Dr John Watt models Kerry Wong's Merino Gold design




Tuesday
May102011

A Word on Corrections

By David Galland, Managing Director, Casey Research

David Galland 11 May 2011.JPG



Today I’d like to share a couple of thoughts on the matter of the correction in commodities about which we have been so vocally warning, and which has now occurred.

After having written in early April about the possible market response to the end of QE2, specifically about it knocking the legs out from under the overbought precious metals and other commodities, the metals continued higher, causing some readers to express concern that we had led them astray. And any number of analysts opined that the market had already priced in the end of QE2 and thus, even after Bernanke's press conference, had decided it was go, go, go for higher commodity prices.

Yet, I think it is always a mistake to credit "the market" with any real predictive value.

Reactive, yes. Predictive, no. Benjamin Graham had it right when he first penned the profile of Mr. Market as being a maniac, as likely to overpay for an asset as he is to sell too soon.

Put another way, if Mr. Market were actually in possession of a crystal ball, then gold would already be at $2,000 and silver at $75, and higher – because that's where the underlying fundamentals of the economy will eventually drive them. Just not quite yet.

So, what do I think about the current sell-off? First off, it was way overdue, and anyone who wasn't leveraged to the wrong side of the sell-off and who had built some cash should be thrilled that it has happened.

Silver, in particular, has been hammered – down over 30% at one point. Now that's what I call a proper correction. Is it safe to go back into the water? I have to believe that the speed and depth of the sell-off makes it all the more likely that we'll see a pretty quick bounce back.

While no one can know when, or perhaps because no one can know when (and we still have yet to see the actual economic consequences of the end of QE2), my suggestion would be to start buying in weekly or bi-monthly tranches of somewhere between 25% and 33% of the total cash you intend to reinvest in the metals and related investments. Already, the metals appear to stage something of a comeback, but that doesn't mean it's all blue sky from here.
By buying in tranches, you might not hit the exact bottom – but trying to hit the bottom is a fool's game.

If you didn't raise cash as the metals spiked higher over the month of April, or even paid up for gold, silver etc., don't kick yourself (unless you were leveraged to the upside, in which case I can only empathize and wish you luck). Even if you paid $50 an ounce for your last ounce of silver, you will come out just fine in the end, because the monetary system of the U.S., and the world, is corrupt and degraded beyond redemption. It will falter and likely fail, and in time everyone will be scrambling to pick up their precious metals at substantially higher prices.

We'll have more on this topic, and on what the future holds, in the brand-new edition of The Casey Report, which will be released this week. Renowned financial experts like John Williams of ShadowStats, James G. Rickards, Mike Maloney and others give their take on what to watch for. You can read it fresh off the press with your risk-free 3-month trial, with full money-back guarantee.

.........................................................................

We recently reported that www.skoptionstrading.com had closed another two trades for profits of 108.52% and 116.67% respectively, this was followed with two more profitable trades so the chart and stats have been updated accordingly.

Over in the Options pit, our model portfolio has achieved an average return of 41.92% per trade, 78 closed trades, 76 closed at a profit, or a 97.43% success rate. Average trade open for 46.45 days.


sk chart 04 May 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.

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.






Monday
May092011

The Dead Cat Dollar

USD Chart 10 May 2011.JPG


This is a classic dead cat bounce by the US Dollar as it appears to fight desperately to avoid dropping below the much watched '72' level. We say fight, but the real situation is not a fight at all, its a managed decline by the United States to lower the value of their currency and ultimately inflate away the mountain of debt that it realizes is impossible to ever re-pay.

The difficulty in getting the value down is that just about all of the other major currencies are in the same race and are also hoping to inflate away their debts. The penetration of '72' lies just ahead of us and once a meaningful break through has been achieved, then the fall will be calamitous to say the least, as those who are holding dollars will battle to get through the exit with great haste. However, the 'managed' downward trend will resume shortly. Also of note on the chart above is that after only two days of trading, the dollar rose from an oversold position, where the RSI was sitting at sub '30' just days ago, to stand at 52.18 today. In our humble opinion those who are calling for a dollar bounce of some significance and going to be rather disappointed. The political will to do the hard yards is just nowhere in sight as the pressure mounts to raise the debt ceiling a tad in order to keep things sweet.

It is said that nothing goes down in a straight line and as we can see with the bounce by the USD it is also capable of generating small rallies from time to time, which is quite normal. We can also observe this behavior in the way that silver prices rose dramatically and then corrected severely. Again this correction is normal and short term corrections are par for the course in a bull market.

The main beneficiaries of weaker currencies are both gold and silver, both of which cannot be printed and therefore the supply is limited by the skills of the mining sector to find and mine these precious metals. Now, as a form of exposure to precious metals the mining sector offers the possibility of leverage to the underlying product. So let us take a quick look at the gold bugs index, the HUI, which consists of 14 major gold mining companies which mostly do not forward sell their product and as such offer exposure to metal prices.

HUI Chart 10 May 2011.JPG

Note that stock prices have returned to take tea with the 200dma, a correction that we have seen many times before. This recent pull back in the mining sector has taken around 80 points off the HUI or about 8.5% of its value, which is pretty good haircut. The technical indicators are still oversold, however, they are on the turn, suggesting higher prices ahead. With gold at $1500/oz and silver at $35/oz, the quality miners are in clover, as evidenced by the results which are headlining with record production, record profits, etc. They are operating in the right sector at the right time and as new all time highs are made by both gold and silver we should see this index take off in spectacular fashion. Why it hasn't done so already remains a bit of a puzzle, however, there are other distractions for the investment dollar such as the metal itself, the ETFs, futures trading and options trading. And so the tug of war continues.

One day a government with its head screwed on will turn their backs on the fiat currency system and convert to an asset backed currency whereby its paper is exchangeable for some sort of hard asset. It could be a mixture of gold, silver, oil, uranium, etc, the details are anyone’s guess. However, if the currency is big enough, the Chinese Yuan for example, then the rush would be on for one and all, to trade in that currency. Implausible! Well cast your mind back to the start of the banking crisis, just when all the European banks were trying to hold the line, Ireland stepped up and guaranteed bank deposits. This action saw billions of Euros emigrate to Irish banks in a matter of hours, forcing the rest of the banks to also guarantee their deposits. A case of the tail wagging the dog and China is longer a small time player, it is getting bigger and stronger by the day and they are capable of going it alone. However, as they hold the thick end of three trillion dollars in their reserves, they will no doubt do everything they can to transfer out of dollars and into the hard assets before contemplating such a move.

For now we can only conclude that we will stick with gold, silver, a few quality producers and some well thought out options trades. We will try hard to avoid the blather and the white noise that accompanies every event regardless of its importance or magnitude.

The year will end with much higher gold and silver prices, so will the year after and the year after that, so get into position and hold on tight it will be a white knuckle ride.

RIP: USD.


We recently reported that www.skoptionstrading.com had closed another two trades for profits of 108.52% and 116.67% respectively, this was followed with two more profitable trades so the chart and stats have been updated accordingly.

Over in the Options pit, our model portfolio has achieved an average return of 41.92% per trade, 78 closed trades, 76 closed at a profit, or a 97.43% success rate. Average trade open for 46.45 days.


sk chart 04 May 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.

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.






Sunday
May082011

SK OptionTrader Banks Gains of 116%, 108% on GLD Calls Before Gold Correction

Recently gold prices endured a drop of over $100 in a sizeable correction following a strong rally. Those simply buying and holding for the longer term are perhaps not too worried by this, but at SK Options Trading we aim to avoid these corrections in an attempt to maximise our profits.

GLD Jun 155 C 116

We successfully avoided this correction in gold, selling our positions in GLD June calls for significant gains before gold prices really started to plunge.

The highlights of our performance was banking profits of 116.67% and 108.52%.
However, in total we had eight positions in GLD June calls, all of which were closed at a profit with an average gain of 50.29% per trade.

If we still held these trades they would be showing significant losses, so we are pleased we managed to sell at much higher prices.

GLD Jun 150 C 108

Our model portfolio is up 337.77% since inception, an annualized return of 132.42%. This model portfolio is provided to all subscribers and gives suggested capital allocations with every trade, so that overall portfolio performance can be seen in a realistic manner and subscribers can make better use of our trading signals.

A $10,000 model portfolio would have grown to $43,779.52 before commission costs following our trading signals since inception.

skot 10000 port

So let us go into a little more detail about these recently closed trades. We bought call options on GLD, which means we thought gold prices would increase substantially. We bought these calls when gold was around $1350 and $1425 and sold them when gold was close to $1550, so our view was correct there.

The reasoning behind these trades was as follows:

From a technical perspective when gold was around $1350 we thought it was oversold and there was limited further downside. Gold prices fell to around $1310 after our initial buy but this did not bother us as we knew such a scenario was possible and it did not change our overall view. We signalled to buy more calls when gold was breaking above $1425 since we saw this as a key technical resistance level. Once gold had broken through this level we were of the opinion that it would rally significantly in the short term. We had also been studying the weekly Bollinger bands on gold, which are a measure of volatility. When the bands narrow that means volatility is less than when the bands are wider.

We sent the chart below to SK OptionTrader subscribers on March 2nd to share our thoughts.

Gold Weekly BBs 020311

We explained that the chart indicated to us a large move was about to begin in gold. The bands were narrow, which we interpreted as the calm before a storm. We felt the storm would take gold much higher and indeed it did.

On the 2nd of March in the same update we wrote to subscribers saying that “gold should rally past $1500 in the next couple of months” and gold hit $1500 one and a half months later.

We firmly believe in having “skin in the game” and “putting our money where our mouth is” and therefore we execute trades on our own account in accordance with the trading signals of SK OptionTrader and aim to replicate the model portfolio. However sometimes we go one step further and this year we offered a special deal to subscribers. Anyone who signed up for a year in January 2011 would get a full refund if gold prices did not reach $1500 in 2011. In other words we were saying, if we are right then you have paid for our services but if we are wrong then our services haven’t cost you anything.

We offered a similar deal in August 2010 saying "In fact we are so confident if you sign up to a 12 month subscription before September 1st 2010, we will refund your $179 fee if gold prices do not make a new all time high in 2010”. We have no plans to make any further special offers in the immediate future and in fact raised our prices on April 2nd to ensure we maintained a high level of service to all subscribers.


We also detailed in this update how we intended to buy more GLD June calls, and then in a separate email we signalled the trade and doubled our position in GLD call options:

Having closed above $1425, gold appears to have broken out and could now run to $1500. Whilst we need a second close above $1425 to confirm this breakout, we are confident enough to warrant adding to our long positions in the next trading session. We will be targeting OTM GLD calls, looking at June 2011 expiration with strikes above $150, most probably $150 & $155.

We intend to close our current position in the $145 calls when GLD reaches $145, in favour of calls with higher strikes that are therefore more leveraged to the gold price.

In addition to the breakout above $1425, the weekly Bollinger Bands are looking very bullish for gold. The attached chart shows weekly gold with its Bollinger Bands and we have overlaid the BB width to further demonstrate our point. These bands (a measure of volatility) often tighten before a rally and at recently they have tightened considerably, having just now turned wider. If we are correct in our interpretation of these signals, gold should rally past $1500 in the next couple of months. In fact, $1500 is our most conservative estimate; $1550+ is more where we are expecting gold to go, however we will err on the side of caution.


gold 2011 gld calls chart

So that was our technical reasoning, now for the fundamentals. Firstly there are the usual, standard reasons underpinning this gold bull market. The US dollar is terminally ill, the US economy is on shaky ground whilst inflation is rising, gold is an inflation hedge and a hedge against USD devaluation, therefore one should own gold. However these reasons have existed for some time and whilst they are useful from an investment perspective with a longer term time horizon, as a trading operation we have to do better than that.

What we like to do is look at is US real rates. This is the nominal yield, minus inflation expectations, on US government debt. We view it as a barometer of US monetary policy and therefore a key determinant in the price of gold over the short-medium term. For more information on this relationship you may wish to read our November article on the subject entitled: The Key Relationship between US Real Rates and Gold Prices. Basically gold prices have an inverse relationship with US real rates and the yields on US real rates were suggesting to us that gold prices should be a lot higher, which added to the argument to buy calls on GLD.

Now that we have covered our reasoning for opening these trades, we will now cover why we decided to close the trades a take our profits just prior to gold prices correcting.

1. Gold itself was overbought according to the indicators we look at, such as the RSI which was above 80.

2. Secondly the USD was oversold with its RSI below 30 and looked ripe for bounce back, especially when one considered the massive rally in the Euro which we believed was slightly overheated and the market had over-reacted to the ECB rate hike by instantly building in further hikes at following meetings.

3. The relationship between US real rates and gold did not make a strong case for higher gold prices in the intermediate term.

4. The target of $1500+ that we had set based on our analysis had been achieved and indicators such as the weekly Bollinger Bands we discussed previously, were not showing as strong a case for higher gold prices.

5. There was the seasonality of the markets to consider. The old adage of “sell in May and go away” often still applies and precious metals can often be weak or at least have limited upside during the summer months.

6. The calls we were holding expired in June. As options draw closer to expiration the decay of their time premium (Theta) accelerates and if gold simply went sideways or only increased moderately the call options may lose value as those who believe they will expire worthless begin selling aggressively given the shorter time until expiration.

7. We thought that the market positioning suggested that June calls could be sold heavily. We suspected that a lot speculators had bought June calls and were now sitting on significant gains (as we were) which they would like to take since expiration was now quite close. We thought June calls would go into liquidation mode as these players dumped gold options both on GLD and on Comex/Globex and we did not want to be caught on the wrong side of this.

GLD Jun 150 C 53

Closing these trades brings our total number of closed trades to 78, 76 of which have been closed at a profit providing subscribers with a success rate of 97.43%. The average gain per trade is 41.95% and each trade is held for 46.45 days on average.

That means that $1000 invested in just one average trade would have paid for a six month subscription twice over, or more than paid for an annual subscription.


We have now closed 59 winning trades in a row.

skot port 080511

So if you would like to join us then you can sign up below, we are currently planning our trading strategy going forward having taken significant profits, so now may be a good time to get on board.

Subscribe for 6 months - $499

 

Subscribe for 12 months - $799

 



Our full trading record can be viewed on our website, www.skoptionstrading.com
Thursday
May052011

When a Gold Necklace Isn’t Jewelry

By Jeff Clark, BIG GOLD



When it comes to supply and demand, what you’ve been told about gold jewelry is wrong. That’s a strong statement, but I’ve got a firsthand account to back it up.

Most industry organizations separate jewelry from investment when they tally the numbers on the uses for gold. This makes sense, of course, because one is a coin or bar purchased as a store of value and the other is something designed to be worn. But what if large populations around the world view them as serving the same purpose?

My friend Jayant Bhandari, who’s worked for Casey Research in the past and is now a consultant to an institutional investor, has told me for years that excluding gold jewelry from investment demand is inaccurate because there are many Asian cultures where a gold necklace is considered, in all practical uses of the word, an investment.

I’ve often wondered to what extent that’s true. Do Indians, for example, really see a gold necklace as a preserver of wealth? Gold adornments are so widespread in their society – it’s hard to find a picture of an Indian bride who’s not wearing numerous gold accessories – that it seems obvious the use is, in fact, primarily as jewelry. But is something else going on here that escapes our Western view of the precious metal?  

I decided to go the source. Jayant arranged an interview with me and his mother Shanta, who has lived in India her entire life. If anyone knows, it would be her. With Jayant translating, I learned some things I think you’ll find fascinating and perhaps make you reconsider how you view gold…

Shanta's relatives at a party. The nose piece is called a "Nath," and a "Tikka" is on the forehead. Both are worn by married women, though increasingly unmarried women wear them as well
 
Jeff: Shanta, why do Indians buy a lot of gold?

Shanta: Indians feel deep in their hearts that gold is the best way to preserve and invest wealth. Indians have always felt that whenever they need money, they can sell their gold to generate cash. This is the way we have always done it.

Every mother wants to give her daughter gold because the wealth can be saved on her body. And the mother is secure in knowing the gold will stay with her. Even the mother-in-law thinks this way. That’s why it's commonly given during weddings.

Jeff: I understand that gold is very important to Indian women.

Shanta: Gold is the wealth of the women and is extremely important to them. Men don't give or receive much gold. It is transferred from woman to woman, from generation to generation. Men are usually not involved. Gold is preserved by the women so that if they have a crisis, they can use it.

Women consider gold to be their biggest security. Indian women have started working in the last decade, but the young working women are still passionate about gold.

Jeff: So gold jewelry is something more than just a pretty necklace?  

Shanta: I do not think of gold as a necklace or a bracelet. Indian women think in terms of how much gold is to be given to their daughter or daughter-in-law. So it is not viewed as jewelry but as a basic store of value.

Every Indian likes to have gold. This is true whether they’re Muslim or Christian.

Jeff: How much gold do Indian families like to have?

Shanta: For the middle class, I would say roughly 20% of their total wealth is in gold. In the past it was more like half. Fifty years ago, they had no other option but to keep their wealth in gold. Now they can buy other things, too.

Jeff: Are some forms of gold more desirable than others?

Shanta: In the past women preferred to have jewelry, but there is a trend to keep some of it in brick form now. Some women reach the limit of jewelry they want to hold, so they buy coins or bricks. Even if the woman doesn’t wear the jewelry, she will still keep it.

Jeff: How do Indians acquire it?

Shanta: In the past you would take your gold to the jeweler, tell him what you wanted, and he would make it for you. The modern-day woman will pick something out from the jeweler.
Old jewelry keeps getting recycled. Every family has a lot of gold – four or five generations or more. Eventually you lose the emotional connection with certain pieces and will have them made into something else.

Jeff: Where do Indians typically keep their gold?

Shanta: Historically, Indians would hide their gold or bury it. These days they use bank lockers. But no one likes to talk about their gold.

Jeff: Would you and other Indians ever sell your gold jewelry?

Shanta: Gold is given as collateral, so you would only sell it if you had no other way to raise money. We prefer to keep it and won’t sell it unless there is a crisis.

Jeff: How is gold used as collateral?

Shanta: Gold is seen as a store of value and is only used when you really need money. So we would use it as collateral for a surgery or other emergency, a wedding, or maybe in an extreme case, a house. We would not use it for a TV or car or anything like that. We might sell some for education, so only for very important things.

Jeff: Might you sell some because the price is high?

Shanta: We typically would not sell gold just because the price is high. Gold is not an investment; it is a store of value.

Jeff: Is there much interest in buying silver?

Shanta: The key is gold. The rich and middle class normally buy gold, not silver. Silver is very common among the poor class, so if you are not rich, then you will buy silver. The poor people buy silver for the same reason the middle class buy gold.

Jeff: Do other factors affect why Indians buy gold?

Shanta: The stock market has recently fallen from a lot of corruption cases, so the people are increasingly interested in gold.

Jeff: Would it bother you if the price dropped?

Shanta: It would not bother me because I still have my gold. If gold makes a new high, I am not inclined to sell it, either. Of course, I would be happy if the price goes up.

Jeff: Thank you, Shanta.

Shanta: You are most welcome.

As Shanta makes clear, gold jewelry in India is more than a fancy adornment; it’s a store of value and preserver of wealth. It’s not even an investment; it’s more important than a rising brokerage statement.

In India and many other Asian countries, the form gold comes in is less important than how many ounces you own. If you lived in India, gold would represent about 20% of your assets.
So the next time you hear a report about gold jewelry in India, remember that Shanta and others aren’t wondering how good a gold bracelet will look on their wrist, but rather are seeing it as a vehicle for storing wealth.

I think there’s a lesson in this for us North Americans. How do you view the gold you own – is it a pretty coin, an investment, or a store of value? Given the obscene abuse most fiat currencies are undergoing, I think we’d be best served viewing it as not just a potential money maker but as protection against the rabid inflation that will damage our economy and dilute our pocketbooks.

[The U.S. dollar is tanking as we speak, and gold and silver have been shooting to never-before-seen heights. And thanks to out-of-control money printing and rapid currency debasement by the Federal Reserve, more and more countries – China being the most prominent – are planning to dump the dollar. Read more here.]

We recently reported that www.skoptionstrading.com had closed another two trades for profits of 108.52% and 116.67% respectively, this was followed with two more profitable trades so the chart and stats have been updated accordingly.

Over in the Options pit, our model portfolio has achieved an average return of 41.92% per trade, 78 closed trades, 76 closed at a profit, or a 97.43% success rate. Average trade open for 46.45 days.



sk chart 04 May 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.

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.






Wednesday
May042011

Kinrosss Gold Corporation: Revenues Up, However…

KGC Chart 05 May 2011.JPG


The first quarter figures are out and look good however the performance of the stock price for Kinross Gold Corporation (KGC) over the last three years has been dismal as this stock drifts lower and lower. The share price is somewhat of a puzzle to us as Kinross has made some interesting acquisitions over the years and our expectations were maybe a tad too high.

On November 11th, 2010 we sold our shares in Kinross Gold writing the following :

This is a brief history of our how we traded Kinross in the past:

Kinross Gold (KGC) we originally acquired Kinross at $10.08, Kinross then went through a bit of a pull back so we signaled to our readers to “Add To Holdings” at those discounted levels of around $11.66. We also gave another ‘Kinross Gold BUY’ signal when we purchased more of this stock on the 20th August 2007 for $11.48. On 31st January 2008 we reduced our exposure to this stock when we sold about 50% of our holding for an average price of $21.96 locking in a profit of about 93.60%. On the 24th July 2008 we doubled our holding with a purchase at $18.28 giving us a new average purchase price of $14.50.

We sold Kinross Gold today for $18.69 today, for a profit of 26%.

Today the share price is sitting at $15.51 at a time when gold prices are much higher, so we have no regrets about our disposal of this stock. Maybe we are missing something, but we would certainly need to see some signs of recovery before we would think about buying into this gold play. If you are fan please let us just what it is that we are missing and you can see.



Without more ado here are the highlights of the first quarter results:




Revenue increases by 42%; adjusted net earnings increase by 81%

Production(2) in the first quarter of 2011 was 642,857 gold equivalent ounces, an 18% increase over Q1 2010. The Company has increased its full-year production forecast from 2.5-2.6 million to 2.6-2.7 million attributable gold equivalent ounces as a result of increasing its ownership in the Kupol mine to 100%.

Revenue for the quarter was a record $937.0 million, compared with $657.6 million in the first quarter of 2010, an increase of 42%, with an average realized gold price of $1,327 per ounce sold compared with $1,065 per ounce sold in Q1 2010.

Production cost per gold equivalent ounce(3) was $543 for Q1, compared with $456 for Q1 2010.  The full-year production cost per ounce forecast remains consistent with previously-stated guidance, despite industry-wide pressure on input costs. Production cost per gold equivalent ounce on a by-product basis was $471 in Q1, compared with $412 in Q1 2010.
Kinross' attributable margin per ounce sold(4) was a record $784 in Q1, compared with $609 in Q1 2010, a year-over-year increase of 29%.

Adjusted operating cash flow(5) for Q1 was $397.6 million, a 67% increase over Q1 2010.

Adjusted operating cash flow per share was $0.35 in Q1, versus $0.34 for Q1 2010.

Adjusted net earnings(1,5) were $180.3 million, compared with $99.7 million in Q1 2010, an increase of 81%. Adjusted net earnings per share were $0.16 in Q1, versus $0.14 per share for Q1 2010. Reported net earnings1 were $255.5 million, or $0.23 per share in Q1, compared with $181.3 million, or $0.26 per share, for Q1 2010.

The Tasiast feasibility study is 62% complete and remains on schedule for completion in mid-2011. A total of 135,000 metres have been drilled since the beginning of the year and results continue to meet or exceed expectations. Reconnaissance drilling has yielded encouraging results at two different targets along the Tasiast trend outside of the main Tasiast deposit.

Kinross' growth projects remain on schedule. At Fruta del Norte, construction of the portal high wall for the underground exploration decline has commenced, and negotiations with the Ecuadorian government on an exploitation agreement are proceeding. At Lobo-Marte, exploration on the Valy prospect has produced encouraging new results, including discovery of two new mineralized zones. At Dvoinoye, construction of the mine portal is complete, and development of the exploration decline advanced 100 metres in Q1. At Paracatu, the third ball mill is 98% complete, with commissioning continuing through the second quarter.

On April 27, 2011, Kinross' 75%-owned subsidiary, Chukotka Mining and Geological Company (CMGC), completed the purchase of the 25% of CMGC that Kinross did not already own for a total gross consideration of approximately $350 million, giving Kinross 100% ownership of the Kupol mine and the Kupol East-West exploration licences.

On March 23, 2011, Kinross completed the sale of its approximate 8.5% equity interest in Harry Winston Diamond Corporation for net proceeds of $100.6 million.

On March 31, 2011, Kinross announced that it had amended its unsecured revolving credit facility, increasing the available credit from $600 million to $1.2 billion. Kinross' cash and cash equivalents were $1,560.8 million as at March 31, 2011.

Kinross has appointed Paul H. Barry as Executive Vice-President and Chief Financial Officer, effective April 4, 2011. Mr. Barry replaces Thom Boehlert, whose departure as CFO was announced earlier this year.

To read the results in full please click here.

So there you have it.


Yesterday we reported that www.skoptionstrading.com had closed another two trades for profits of 108.52% and 116.67% respectively, well today we closed two more profitable trades and have updated the chart and stats accordingly.

Over in the Options pit, our model portfolio has achieved an average return of 41.92% per trade, 78 closed trades, 76 closed at a profit, or a 97.43% success rate. Average trade open for 46.45 days.



sk chart 04 May 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.

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.






Wednesday
May042011

Yamana Gold Inc Good Results, But!

AUY Chart 04 May 2011.JPG

Going back a few moons we were fans of Yamana Gold Incorporated (AUY) but our patience ran out and we reduced our exposure to this stock. As we can see from the above table AUY did well until 2008, however since then it has failed to make a new high despite gold setting new records. Maybe this set of results will provide the catalyst to give this gold producer a boost and better days are ahead. We apologize for not being more enthusiastic about Yamana Gold, but that is how we feel at the moment.

The first quarter results for 2011 are as follows:


PRODUCTION INCREASED 11%, REVENUES INCREASED 37%, CASH FLOW INCREASED 73% AND ADJUSTED EARNINGS INCREASED 110%


YAMANA GOLD INC. (TSX:YRI; NYSE:AUY; LSE:YAU)

HIGHLIGHTS FOR THE FIRST QUARTER 2011

- Production of 267,368 per gold equivalent ounce (GEO)(1)(3)at cash
costs of $14/GEO(1)(2)
- Gold production of 221,489 ounces
- Silver production of 2.3 million ounces
- Generated cash margin of $1,373 per ounce(4)

- Significant financial and operational increases over the first
quarter of 2010
- Production increased 11% to 267,368 GEO with record production
from El Penon
- Revenues up 37% to $476 million
- Net earnings up 11% to $0.20 per share
- Adjusted earnings(1) up 110% to $0.21 per share
- Cash flow generated from operations(1) up 73% to $0.38 per share

- Cash balance increased to $460 million from $330 million, a 39%
increase since 2010 year end

- Announced value enhancing deal with respect to Agua Rica with Xstrata
and Goldcorp

"Yamana's first quarter results continued to demonstrate our commitment to, and focus on, the delivery of predictable and reliable production and costs. We delivered production growth in the first quarter and record production from El Penon. Our cash costs continued to be one of the lowest in the industry" commented Peter Marrone, Chairman and CEO. "We continue to advance our new projects, the first of which, Mercedes, is expected to start production by the middle of 2012. C1 Santa Luz and Ernesto Pau-a-Pique will begin contributing by the end of 2012 and Pilar is expected to be in production in early 2013. All of the projects can be fully funded directly from our cash flow. These projects will contribute to our 60% production growth expected in the next three years."

To read this news release in full please click this link.


…............................

Yesterday we reported that www.skoptionstrading.com had closed another two trades for profits of 108.52% and 116.67% respectively, well today we closed two more profitable trades and have updated the chart and stats accordingly.

Over in the Options pit, our model portfolio has achieved an average return of 41.92% per trade, 78 closed trades, 76 closed at a profit, or a 97.43% success rate. Average trade open for 46.45 days.



sk chart 04 May 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.

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
May032011

Despite recent events gold prices remain a dollar play

gold chart 03 May 2011.JPG

The dash from $1425/oz to $1563/oz came to a halt today on news that is perceived to be good for the USD. The technical indicators are firmly in the overbought zone so a breather was on the cards. Note that the RSI had peaked well above the '70' level and has now come back slightly, to sit at 73.50, still oversold, so this correction may continue for a few more days.

Apart from the chart status of gold prices there have also been not one, but two events that have played their part in capping golds progress. The first is the announcement by President Obama, that Osama Bin Laden has been killed. This initially gave the US Dollar a much needed boost with the oscillations continuing as we write. The bounce by the dollar had a negative effect in gold and so gold prices have corrected by around $20/oz, which is nothing to write home about. This news item is a one off event and will soon pass with the spotlight being re-focused on the plight of the dollar.

The second event was market intervention by the powers that came in the form of a rule change regarding the purchase of silver as follows:

Investors in the standard '5,000 Ounce Silver Futures Contract', had the initial deposit required to purchase a contract increase to $12,825 from $11,745.

This rule change is in effect a margin call for for those investors who own silver futures contracts, so they had to either put up more cash or reduce their exposure by selling some of their contracts. This is not a one time event as the rules can be changed at a moments notice as we have experienced in the past. However, the effect on silver prices, a $4.00/oz correction, also casts a shadow on gold prices as any market intervention creates an air of uncertainty for all concerned.

For now we will allow the dust to settle and look to see if there is a bargain of a buying opportunity out there somewhere.

…............................

Today we are pleased to report that www.skoptionstrading.com has closed another two trades for profits of 108.52% and 116.67% respectively.

Over in the Options pit, our model portfolio has achieved an average return of 42.10% per trade, 76 closed trades, 74 closed at a profit, or a 97.36% success rate. Average trade open for 45.30 days.


sk chart 03 May 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.

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.