Subscribe for 12 months with recurring billing - $199

Buy 12 months of subscription time - $199

 

Search Gold Prices
Gold Price
[Most Recent Quotes from www.kitco.com]
Our RSS Feed

Gold Updates by Mail

Enter your email address:

Follow Us on Twitter
Sunday
Dec262010

Profiting from Policy

by David Galland, Managing Director, Casey Research

These days, it’s hard to draw any conclusion other than that the train is gaining speed on wobbly tracks perched over a rickety bridge.

Most notably, unemployment has again risen – to 9.8% from 9.6% – very much not the direction things should be headed given the amount of money the government has pumped into the economy. The latest data shows that this nation of 310 million souls managed to add just 39,000 jobs in November. That, unfortunately, falls short of even keeping up with a population growth of about 1% – doing just that requires generating a net of about 250,000 jobs a month. As for eating away at the millions of unemployed and the many millions more who are underemployed… oh, well.

Of course, the mainstream financial media wastes no time in pointing to this latest dismalia as proof positive that the Fed’s recent decision to energetically restoke the money machine with upwards of $100 billion a month was the right decision. This despite the clear evidence that adding debt to debt is having no real effect, except begetting more debt.

This is a lesson that, so far, appears to be making no headway in the cognitions of Washington’s policy makers, even with the latest election results delivering a sharp rap across the knuckles to the power elite.

Evidence of that truth came to me during a recent drive to do sundry errands. After flipping through the stations, I ended up listening to a program on National Public Radio with a moderator quizzing a couple of congresspersons – one still in power and the other dismissed by voters in the midterm elections.

In conversing with the latter, the reporter asked if the Democrat congressman’s loss wasn’t a clear sign of voter frustration. To which the ex-official blathered on about the number of filibusters threatened by the Republicans over the last couple of years as a reason why the Obama Congress was unable to get its business done.

But, interjected the reporter, the Democrat-controlled Congress passed all manner of legislation – healthcare, financial reform, environmental bills, etc., etc – so isn’t it more a case of voters being upset about the quality and scale of the legislation passed, and not the dearth of it?

Whereupon the ex-Con began to illustrate his point by spouting off about some wastewater bill that was turned back by the Republicans, even though it would have unleashed another $15 billion in federal spending “so important to putting Americans back to work.”

But wait, again interjected the reporter, wouldn’t many people listening to this program say to themselves, this guy just doesn’t get it? That we don’t want the federal government to keep spending billions of taxpayer money on these make-work projects?

Without missing a beat, the ex-Con flipped like a freshly landed mackerel and argued against his position of just seconds before, saying, “This isn’t about the money! It’s about clean water for all Americans!”

At which point the reporter cleared his throat and ended the interview.

Next up was an angry Democrat of some influence. The congresswoman’s anger was directed first at the findings of the Deficit Reduction Commission that the spending cuts must be widespread if they are to be sufficient, and then at the administration for even thinking about extending the Bush tax cuts for people earning over $250K.

Oh, how I wish I was able to do proper justice to her diatribe here – I can’t, but I will do my best.

In her world view, the poor huddled masses of America – being defined as anyone with an income of under $250,000 a year – had nothing to do with the financial crisis, and so why should they be held even a little bit responsible for helping to foot the bill? No, no – it was the greedy fat cats that brought this fresh hell upon us, and so it is they, and they alone, who should be made to pay… and pay.

Of course, nowhere in the discussion was there mention of the role that the many-tentacled government  played in all of this… of the loose money, the looser spending, the wars, the unbridled enthusiasm for a steady diet of pork, and… and...

If there were some mega-computer capable of fairly allocating the financial pain based on the contribution each of us has made to this mess, and then assess taxes accordingly, I suspect the end result would leave past and present members of the Fed living in cardboard boxes, and 97% of past and present members of Congress shuffling in gutters looking for cigarette stubs… at least when they weren’t fighting over discarded clothes with executives of the big financial institutions, NGOs, and the Treasury Department.

Having wiped all of those individuals out to the bone, the burden could then shift to the military-industrial complex that has so effectively pursued its symbiotic and very, very costly “Don’t Ask (where the money went), Don’t Tell (the truth)” policy for decades now.

It could then lay the hooks into anyone who ever took a government-backed loan – big or small – without first taking the time to do a serious calculation as to their ability to repay it, or the unscrupulous lenders who knew that the loans they were originating were going to end up in default with the tab ultimately being dropped on the government.

In fact, were such a mega-computer able to do the calculation, I strongly suggest it would only be after many further layers that the pain, fairly allocated, would reach the rank and file business community, the sole real engine of growth in this economy.

I refer, of course, to the very same individuals so steadily derided by the vote-seeking politicos, despite the fact that it is these long-suffering entrepreneurs who wake up every new day to risk everything in their efforts to create new jobs, despite the heavy glop of bureaucracy on their backs every step of the way. 

Yet it is the few that succeed, against all odds and a constant battering of taxes and regulations, that this particular congressperson sees as the villains. In other words, she has pretty much reversed the proper order of accountability – as one would expect in a system where all that matters is vote gaining.

When the talk turned to the administration’s apparent willingness to accept an across-the-board extension of the Bush tax reductions as part of a compromise to also extend unemployment benefits (at 42%, the situation of the long-term unemployed is becoming a serious problem), the congresswoman was almost apoplectic. In addition to the views just exposed, about the wealthy needing to pay for their many sins, she was astounded that anyone could hold up the unemployment extension, given the poor shape of the economy.

How can anyone argue against the direct benefits to our struggling economy of putting money in the pockets of people who most need it, she asked with dismay in her voice. Adding in support of her view that it should be obvious to all that the recipients of the money will turn right around and spend it on the necessities and that will give the economy just the boost it needs.

Hmm, I thought as I drove down the road. All we need to improve the economy is to give people money.

Why, it’s simplicity itself! And now that I get it, I think people should just quit their whining about fiscal probity and all of that, and just let ‘er rip. Don’t stop with small change, encourage the Treasury to start cranking out checks in princely sums to everyone!
Thousands, millions, even! In no time at all, America’s salad days will be back.

Of course I’m being cynical. But the point I’m trying to make is important, because while I am exaggerating, the economic concept so ardently championed by the congresswoman is accepted at face value by most of the government and all of the administration’s favorite economists.

More than that, because it is accepted, it is policy.

In this construct money is, at best, an abstraction: it has reached the point that the government, and most people, actually believe the stuff falls from the proverbial tree. Money is no longer a medium for saving or transacting with the fruits of one’s labor, but instead is a commodity – albeit unique in that it has unlimited supply.

It does not, however, enjoy unlimited demand. For now, the demand is certainly there. But as the supply increases, individuals and institutions are correctly wary of the effects of dilution… debasement… inflation, pick your term.

The alternative forms of money – the sound kind – are getting a lot of attention because more and more people actually “get it.” They are beginning to recognize the fictions that the politicians and bureaucrats believe in and are taking measures to protect themselves and to profit.

Before moving on, I would mention that I know someone who works as a manager in the Department of Motor Vehicles. A few days ago she told me that, other than a relatively brief flurry during the Cash for Clunkers program, the pace of car registrations has been slow ever since the crisis began and has shown absolutely no improvement since that program ended.

In fact, the only increase in the DMV’s workload has come from the processing of suspended driver’s licenses.

As the latest unemployment figures show and my friend’s first-hand observations confirm, this economy is not recovering. And, per the rise in license suspensions, the government is becoming increasingly aggressive in fine-generating enforcement actions. 
In relationship to the second of those data points, if you’re going to imbibe this holiday season, don’t drive.

Finally, please don’t misunderstand my comments above as being insensitive to the plight of the unemployed. I personally know far too many people in that situation whose prospects of ever regaining their prior lifestyles is now almost non-existent to be cavalier about the topic.

The only realistic way I can help – because I can’t and won’t put my own family’s future at risk by trying to help everyone – is doing my part to build and maintain a business that, by offering a tangible value to clients, is able to keep a lot of people productively employed.

Therefore, it angers me to no end to listen as the morons maintained in power by the equally moronic masses make rude noises about the entrepreneurial class and otherwise meddle in matters about which they have no actual understanding and, as a consequence, continue doing great damage to the economy.

Something has got to change… and will, before this is over.
----

[Though you can’t change the out-of-control spending habits of the government or the currency debasement they’re causing, what youcan do is protect yourself… with alternative forms of money, “the sound kind,” as David says. BIG GOLD is the go-to advisory for all things gold, silver, large-cap gold stocks and top-performing funds. Try it for only $79 per year – with 3-month money-back guarantee. Details here.]

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

Over in the options trading pit, we now have 59 winners out of 61 trades, or a 96.72% success rate and have opened 3 new positions.


sk chart 10 Dec 2010.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
Dec172010

Gold Stocks in a Failing Fiat Currency

The dollar since 1774 18 Dec 2010.JPG

By David Galland, Managing Director, Casey Research

As the U.S. dollar takes a nosedive and precious metals gain more and more attention from individual investors, the number of questions and concerns is increasing as well. The following reader email addressed to Casey Research is representative of so many inquiries that we decided to provide an in-depth response that may prove instructional to others as well.

I have been agonizing about getting metal after dumping paper metal I held and was reading the Daily Dispatch looking for investment clues. I was pondering the ratios of thirds that you mentioned in a recent Dispatch and the pursuing of metal stocks when an issue occurred to me that was not mentioned.

On the one hand, you discuss the dollar trap of investors running from one currency to another, away from the dollar and back to it. I fear that the dollar is doomed as are other fiat currencies, and time is getting short. So the question that came to mind is, what happens if one is invested in metal stocks or any vehicle that is denominated in a fiat currency, and that currency goes bust, blotto?

What value does that investment retain? Does it become a total loss? Redefined into the currency of the locality that operations are in? Converted into some other New World Order monetary unit, SDR's or nationalization of any regional assets by the locals? Is this impossible to plan for?

I realize I am probably speculating on a subject that can only be determined by psychics and crystal balls, or those with a sixth sense on the subject, but it is an issue I have not heard anyone ponder, except those who only beat the drum for physical metals.

 If I allocate away from physical into speculative investments denominated in fiat in the ratios you suggest, it might provide an additional boost if one’s timing is impeccable. But weighing that against being trapped in a depreciating currency unit, along with the possibility of physical metal becoming unobtainium, it does not seem to be a prudent decision.

 I would appreciate a further explanation for your ratios, and does the ratio vary with total personal asset amount? Is your ratio determined by finances or politics?

Chet

Here at Casey Research, our current rule of thumb suggests a portfolio allocation of approximately one-third in precious metals and related investments; one-third in cash (spread among several currencies), and one-third in “other” – namely deep-value stocks, energy, emerging market investments, etc. These ratios are meant entirely as a general guideline, as everyone’s circumstances will be different.

The concept is that the one-third dedicated to a mix of physical precious metals and stocks (the mix determined by risk tolerance) will offer you “insurance” against further currency debasement as well as some very attractive upside potential… with the amount of the upside determined by the amount of risk you are willing to take on

Which is to say, with the true Mania Phase of the precious metals markets still ahead of us, the micro-cap junior resource explorers still hold the potential for explosive profits. But they require being able to hang in there through periods of extreme volatility. Moving down the risk/reward scale, the larger producers will provide very handsome upside, but without the risk of being “trapped” in a thinly traded junior. And finally, for the precious metals component of the portfolio, the amount you hold in physical metals should be viewed as a core holding of “good” money.

The one-third dedicated to cash reduces overall volatility and gives you ammo to jump on new opportunities. By spreading the money across a number of better-managed currencies, as well as your native currency for general expenses and liquidity, your currency portfolio can preserve value better than a “red or black” bet on a single currency such as the U.S. dollar or euro.

Our subscribers have done well with the “resource” currencies of the Canadian dollar and the Norwegian krone. In time, as the purchasing power of the fiat currencies begin to decline, we’ll be looking to reduce this segment of the portfolio.

The final one-third is something of a catch-all, where we opportunistically follow some key themes such as energy, food, inverse interest rates, foreign real estate, and so forth.

Again, that particular allocation is necessarily general – with some focusing more heavily on the precious metals, others on the cash component, and others on more traditional stocks.

Now, as to the part of Chet’s question dealing with “what happens if one is invested in metal stocks or any vehicle that is denominated in a fiat currency, and that currency goes bust, blotto?”

To answer that, I adroitly hand the baton over to Terry Coxon, one of our Casey economists and editors.

Here’s Terry…

Not to worry.  You may be confusing “denominated in” with “quoted in.”

Every bond and every CD is denominated in a particular currency, which means that what it promises to pay you is a certain number of units of the currency. A U.S. Treasury bond, for example, promises you a certain number of U.S. dollars. An investment’s denomination is part of the investment’s character.

In most cases, an investment is quoted in a particular currency. Prices of U.S. Treasury bonds, to use the same example, are customarily quoted in U.S. dollars. But that is only a matter of customary practice. You could, if you found it convenient, quote the price of a U.S. Treasury bond in Swiss francs. For all I know, there are people in Zurich who do just that.

That’s the difference between denominated in and quoted in. The denomination is inherent in the investment. The currency used for price quotes is a matter of convention and can change.

By convention, stocks trading in New York are quoted in U.S. dollars, stocks trading in London are quoted in pence, and stocks trading in Tokyo are quoted in yen. Notably, some stocks are quoted in more than one currency, such as Canadian stocks that trade both in Canada and in the U.S. – a demonstration that the currency used for quoting a stock’s price is a matter of choice and not something inherent in the investment.

So in what currency is a common stock denominated? No currency at all. A share of common stock doesn’t promise to pay you a certain number of units of a particular currency. Instead, it promises to pay you a pro-rata portion of whatever money or other property the company distributes as a dividend. If all paper currencies lose all value, successful gold mining companies will still own their properties and can still operate profitably. But when they pay dividends, they won’t be paying out dollars or any other paper currency. They will be paying out whatever has replaced the paper currencies – perhaps gold itself.

Carefully chosen gold stocks won’t evaporate when paper currencies do. They will rise in value.
----
And no one chooses gold stocks more carefully than BIG GOLD editor Jeff Clark. Picked for asset protection as well as outstanding profit potential, his medium- to large-cap gold and silver producers are generating steady returns of 56.8%... 46%... even 187.9% for subscribers. And right now, if you give it a try, you can kill two resource birds with one stone: Pay just $79 per year for BIG GOLD, plus receive 12 monthly issues of Casey’s Energy Opportunities FREE. More here.

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

Over in the options trading pit, we now have 59 winners out of 61 trades, or a 96.72% success rate and have opened 3 new positions.


sk chart 10 Dec 2010.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.
Thursday
Dec162010

James Turk: $1800/oz Gold

James Turk 17 Dec 2010.JPG

Courtesy of Mineweb we have this interview James Turk who thinks there is a possibility of hitting $1500/oz by year end and $1800/oz in the first quarter of 2011.

GEOFF CANDY:  Welcome to this week's edition of Mineweb.com's Gold Weekly podcast.  Joining me on the line is James Turk, he's the founder and chairman of Gold Money.  James, the last time we spoke gold had just hit $1,300 and you were hoping for around $1,800 by year-end but you did admit that it was possibly a little optimistic or a little unlikely at that stage.  Given everything that has happened since that conversation, how has your forecast changed going into 2011.

JAMES TURK:  We are going to hit the $1,800 - it's just a question of time.  It will probably happen in the first quarter.  This is normally a seasonal strong time of the year and there are a lot of fundamental factors that are driving gold higher so we won't hit $1,800 before year end but we could hit $1,500 though even though we have a few weeks left, it's still a reasonable target but we should be looking for $1,800 in the first quarter of 2011.

GEOFF CANDY:  You mentioned fundamental factors, which in particular are the ones that you are focussing on?

JAMES TURK:  First of all the big blockbuster was the fact that China is importing so much gold now that even though the world's largest gold miner, the demand domestically is exceeding domestic production for the first time in quite some time, so as a consequence that's a major factor still rippling its way through the gold market in terms of that information - but then there are the other things, the sovereign debt crisis, rising commodity prices, all of these things are a precursor of inflation and I am actually of the view that the dollar is going to hyper-inflate which probably means a couple of other national currencies will hyper-inflate as well.  So I am always sensitive to signs that hyperinflation is near, aside from the commodity prices, which have been rising very strongly.  Last week we had another piece of the puzzle fall into place when long-term interest rates on US government paper put the Treasury bond and the Treasury note started surging.  Even though the Federal Reserve is buying $600 billion worth of paper, under their new quantitative easing programme, which is just a fancy name for money printing, US interest rates are rising which means that there are more people willing to get out of government paper than the Federal Reserve is standing ready to buy government paper and buying government paper and turning it into currency is a sure sign of hyper-inflation anyway.

GEOFF CANDY:  To play devil's advocate to some extent, there was an interesting piece of work done by Resource Capital Research coming out saying that at one level given its role as a safe haven at the moment, gold's fundamentals are less important right now than market psychology and expectations around what is going to happen around other asset classes and as potentially as other asset classes start to recover and their expectation is that that might happen later on next year, gold's safe haven qualities might loose their appeal to some extent and perhaps we might see a decline in the price.  What do you make of that?

JAMES TURK:  Sentiment is indeed very important and I follow that quite closely and as you know every bull market has three stages.  During the first stage you get apathy and neglect - very few people are paying attention.  That's the stage that gold was in for most of this decade.  It was up nine years in a row against the US dollar - double digit rates of appreciation against all of the world's major currencies and few people were paying attention, but when it went over $1,000 an ounce; that was a wake-up call.  Gold went into its second stage an in the second stage more and more investors are starting to pay attention to gold - they are starting to pay attention because of other things that are happening and other asset classes which is the point that you were making but the third stage which is the speculative stage is still way in the future - that's the last few months of 1979 and early 1980.

GEOFF CANDY:  One interesting point that I have noticed recently is there's been a lot of expectation around the Indian wedding season and what type of buying we might see, given the higher prices that we've seen over the course of the last couple of months and there seems to be almost an acceptance of higher prices from a jewellery point of view.  Would you go along with that and if so what does that mean for that sector of the audience.

JAMES TURK:  That's actually a very good observation.  Back in stage one the gold price would drop 10% to 20% before that kind of demand came back into the market but once we went over $1,000 an ounce that demand for physical metal has trailed very closely all the way up - so it suggests to me that the demand for physical metal, not just from India but from all sources is right there under the market.  You are not going to see these big corrections in gold like you did back in the earlier part of the decade.  The physical buyers are right there ready to get rid of their paper and go into physical metal.  I think that's another important trend.  It actually started over a year ago when Greenlight Capital announced that they were switching out of the ETF into physical metal and I think that had a lot of people scratching their heads back then as to what they were thinking but a lot of hedge funds and savvy investors are starting to understand that owning physical metal with this financial crisis and sovereign debt crisis and everything else continuing to brew, owning the physical, tangible asset is much safer than owning any paper representation of gold.

GEOFF CANDY:  There have been some discussions had - you've probably been involved in some of them around, the potential, or the difficulty some people have been having in actually obtaining delivery of that physical metal, is that something that people should be concerned about?  

JAMES TURK:  I think it is - gold is the bedrock asset in your portfolio.  You don't want to take risks with it so you have to be very careful how you store it and where you store it and thing that I always recommend is if you store it in a vault somewhere you always have to get third party independent verification that your gold and silver, if you own silver as well, are actually there in your name, recorded, not encumbered in any way and not loaned out by some bank.  So I don't recommend storing in bank vaults, I recommend storing in private vaults like we do in Gold Money - we use a large Swiss company, VIA MAT International to store our customers' gold.  So what you really want to do is be careful with your metal.  You don't want to take risks with it and storage is an extremely important part of that component. 

GEOFF CANDY:  On that topic of physical metal, I read a piece that you wrote I think it was last week, about the fact that gold futures are trading at lower levels than gold spot and you saw this as an indication that physical demand is very strong, could you perhaps take us through that thinking?

JAMES TURK:  Basically interest rates are out of whack.  Gold interest rates are higher than Libor and because interest rates are so out of whack there should be arbitrages coming into the market to bring interest rates back into their normal patterns.  The net result of this, because there are no arbitrages I don't really think arbitrage opportunity exists which means that the reported rates are not actually accurate and that gold is really in backwardation, it's not really trading in contango which is really what is happening in the physical market as well.  The demand for physical metal is very strong and as a consequence I really think there's a backwardation in the gold market and that the GOFO rate and the contango on the Comex are not really a true representation of prices at this moment in time. 
 
GEOFF CANDY:  If gold futures are trading at lower levels, is that not indicative of the fact that there are at least some people who think gold prices are going to go lower over the next couple of months. 

JAMES TURK:  No definitely not - because gold is not like other commodities.  Gold is in fact not a commodity it's money.  It's a tangible asset like other commodities but it is in a different asset class within this tangible asset group.  Commodities are consumed and they disappear, gold does not get consumed, it doesn't disappear, it continues to be accumulated every year, there's about 1.5% more gold added to the above ground stock of gold - and the reason why gold is accumulated in this way is because it's money and as a consequence it has an interest rate structure that is determined by the market, so gold should be in backwardation even though interest rates don't show it.

GEOFF CANDY:  Just to close off, if we look as we move into 2011, you are expecting gold to hit $1,800, how do you see it happening though in terms of the patterns of trading - where do you see the demand coming from and just in general how do you see the gold market playing out in 2011. 

JAMES TURK:  The demand comes from different places depending on what the circumstances are.  For example a couple of years ago there was a lot of demand coming out of the United Kingdom when sterling was falling against the euro and people were looking to gold as a hedge against currency fluctuations.  The past several months the demand for gold from Europe has been huge, ever since Mr Trichet broke his pledge not to buy government bonds and turn them into currency.  That was a wakeup call for people particularly in Germany and Holland, that the ECB is not being managed like the Bundesbank was and that it’s in fact under political control which usually means currencies are going to be debased so a lot of money coming out of the euro now into gold and silver.  Wherever the monetary problems arise that's where the demand flows from and there are so many different hot spots around the world in terms of potential monetary problems that you are going to see gold demand strong pretty much globally. 

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


Over in the options trading pit, we now have 59 winners out of 61 trades, or a 96.72% success rate and have opened 3 new positions.


sk chart 10 Dec 2010.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.
Wednesday
Dec152010

Insight from a Master

BIG GOLD interview with John Hathaway, Tocqueville Gold Fund

When John Hathaway spoke at the Casey’s Gold and Resource Summit in October, many of the audience came away feeling like they were listening to Doug Casey, with his contrarian views, bold statements, and laying much of the blame for our current problems at the feet of government. Read what John, a seasoned investment pro and manager of the famously successful $1.4 billion Tocqueville Gold Fund, has to say about gold, precious metals stocks, and the future of the U.S. dollar.

Jeff Clark: John, give us your big-picture perspective on why you're investing in gold.

John Hathaway: We launched the Tocqueville Gold Fund (TGLDX) in 1998 when it was a very contrarian idea. I always like to say it was the "Rodney Dangerfield" of investments at the time because a lot of people laughed at us and we didn’t get much respect. It was essentially a very contrarian investment theme, and we did it at a time when the markets were going nuts for dot-com stocks, which we thought was absolute lunacy.

Our thesis is basically related to the lack of faith that institutions, investors, and citizens have in paper money. That shift in opinion has come in fits and starts but is the core reason gold has risen to the extent it has. And until you have a significant restoration in terms of confidence in paper money, gold should do very well.

Jeff: Some are calling gold a bubble.

John: Many people – I'd say most people – are not on board. So to me it's not a bubble. Maybe it's on its way to being a bubble, but a bubble has to be pervasive and ubiquitous and in every fiber of every investment institution and every investor portfolio, as was dot-com and housing, and we simply have not reached that stage. The best line I've heard is, "A lot of people have had a first date with gold, but they still haven’t gotten to first base."

Jeff: [Laughs] That's good.

John: The fact is, people talk about it because it's newsworthy. The price is rising and making news, but so what? That doesn't make it a bubble. My thesis is that everyone should make a strategic allocation to gold because it's the counterweight to paper money that continues to lose credibility as a store of value.

Jeff: So the U.S. dollar is going a lot lower, in your view?

John: Yes. You're beginning to see a lot of bilateral trade deals between China and Latin American countries that have to be settled in renminbi. You're seeing similar moves on the part of other trading partners completely bypassing the dollar in international trade. You're seeing growing currency controls, particularly for capital flows – Brazil and Thailand are two countries that come to mind. At this point it's not chaotic, but these are precursors to what could become chaotic. It seems orderly right now, but it could become more accelerated.

I'm also very skeptical that QE2 is going to do any good. And if the economy is still stagnant a year from now, there's going to be QE3, QE4, and QE5. I just don’t see how anyone can not have some gold in this environment.

Jeff: We think inflation ultimately wins the battle over deflation. Do you agree?

John: For the most part, yes, but I don’t think you have to know which we'll get to decide if you should buy gold. If we have a deflationary morass, where we're stuck in a liquidity trap for the next five years, it will make the government do all kinds of crazy things that will undermine the value of money, which will ultimately turn out to be inflationary. This debate between deflation and inflation is always interesting, but I don’t think it matters if you're invested in gold. I think in either outcome, gold wins.

Jeff: Are you as bullish on silver?

John: When you're talking about monetary issues, silver will certainly benefit, particularly in an inflationary sequence. On the other hand, if we have a deflationary sell-off like we had in 2008, silver is going to underperform. So with silver I think you have to be more certain about the outcome. Silver is more dependent on inflation to do well. That's because silver has industrial uses, which would disappear or be greatly undercut in a deflation.

Jeff: What about the other precious metals, platinum and palladium?

John: Frankly, they’re not a big part of the portfolio right now. But we would consider them if we found good investment vehicles.

Jeff: Speaking of sell-offs, what odds do you put on us having another one like in 2008?

John: The potential is there. I don’t know where it would come from, but one possibility would be another sovereign debt issue in Europe. Another possibility is if the bond market had a serious setback and triggered a run to liquidity, although there aren’t that many places to go anymore. Turmoil in the currency markets is certainly a concern to policymakers. All of those things could bring about another worldwide margin call like we had in 2008.

Jeff: So should we avoid gold stocks right now due to the risks?

John: It depends on your risk profile. If you're conservative and don’t want to lose any sleep, I think you hold physical gold as a hedge against the rest of your portfolio. But if you're more of a risk-taker and see the macro-landscape as an opportunity, even though it's a negative view, you definitely want to have exposure to gold stocks. And if they’re good companies, they should outperform the gold price because they’re generating a lot of earnings and cash flow at these prices. Then there's M&A [Merger and Acquisition] activity, growth potential, and also dividends. So there are a lot of things that a gold stock can provide that a physical metal cannot, but it depends on the risk profile of the specific investor.

Jeff: It's interesting you bring up dividends, because gold and silver miners don't pay very high dividends. Do you think that could change given the high margins the industry is seeing?

John: Good point. The returns on capital as an industry have gone to very good levels, and if they’re sustained, which obviously depends on the gold price continuing to do well, they’re going to have too much cash to reinvest in the business. And the smarter companies will realize they have an opportunity to become core yield stocks that have the same panache as, say, Microsoft, IBM, Exxon Mobil, etc. If they play their cards right, they could become core holdings of bank trust departments and open the door to an entirely new audience of investors. That's how you'll get good valuations in the gold stocks.

Jeff: Which brings up the possibility that maybe we won't eventually sell all our gold stocks, if they start paying high dividends…

John: Right. If the macroclimate is favorable for gold and we don’t blow up into a crisis where it's the end of the world, but instead get a steady state of rising prices, then gold stocks could take on a completely different identity. They’re viewed now as mostly fringe investments, but there was a time, back in the '60s and '70s, when they were viewed as pretty standard stuff for an investment portfolio.

Jeff: How do you go about evaluating a mining stock?

John: We have a group of analysts here in New York who meet with management teams all year round. There isn't a day that goes by that we don’t have one,  two, three, or more companies coming to see us, and the reason is that the industry is generally capital intensive and needs money. So we're sort of the go-to "piggy bank."

In addition to that, our guys know rocks and travel far and wide to look at mine sites all over the world. I think we've logged over half a million miles in the last five years going to god-awful places – this is not a Club Med itinerary. So we're able to develop conviction about owning some of these earlier-stage junior mining companies that aren't on the radar screen of our competitors. In fact, our average market cap in the Tocqueville Gold Fund is 60% of our peer group, which would indicate a weighting towards earlier-stage companies.

Jeff: So the fund invests quite a bit in juniors.

John: Absolutely. We have to be careful with it, of course, because they're less liquid and riskier, but the fact that we have this sort of database of information from these meetings gives us a fair amount of success in terms of picking the good ones. Obviously there are plenty we've missed that are good, and there are plenty we've invested in that turned out not to be so great, so it's always a bit of a trial-and-error thing. But we have found that when we buy into a company at an early stage that meets its milestones and advances from A to B and then from B to C, they’ll need more money and we'll continue to finance them along the way. That is the single biggest source of our success.

Our turnover rate is very low – less than 10% – so we basically take a long-term investment view on what we think are the very best emerging mining companies. An example would be Osisko (T.OSK), which we started financing five or six years ago when it was a 50-cent junior, and now it's a $14 company, which will be producing gold within a year. That's the ideal progression we like to find.

Jeff: Any companies that look particularly undervalued to you right now?

John: We have a big position in International Tower Hill Mines (THM/T.ITH), which we feel is on the cusp of becoming recognized as one of the next big major mines in North America. I would put Osisko in the same sentence, though it's obviously much further along than ITH. I wouldn't necessarily run out and buy these today, but those are big holdings for us and have done very well.

Jeff: Any closing comments for gold investors?

John: Gold may go sideways for a while, which is my wish, but who knows what's going to happen? Things could blow up, so trying to trade in and out is a huge mistake, in my opinion. To me, the most intelligent view of gold has to be from a strategic point of view. Get over the fact that it's gone up a lot, then try to be as clever as you can about legging into it. The bottom line is, you've got to own gold in this environment.

Jeff: Good advice, John. Thanks for your time.

John: You're welcome.
----
[John Hathaway is only one of many fund managers who are betting on gold and major gold stocks now, and the investing crowd is starting to catch on as well. Get into the best of the best gold and silver producers now – and take advantage of the BIG GOLD Holiday Special. Sign up today for BIG GOLD at $79 per year and receive one year of Casey’s Energy Opportunities FREE. But hurry, this offer ends soon.Details here.]

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

Over in the options trading pit, we had a number of stops triggered , but we walked away with an average gain of 32.7% so we now have 59 winners out of 61 trades, or a 96.72% success rate.


sk chart 10 Dec 2010.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.


Tuesday
Dec142010

Gold Sleeper Trend You Must Know About

Gold casey 1 15 dec 2010.JPG


by Louis James, Senior Editor, Casey’s International Speculator



In the midst of any long-term trend, like the secular bull market for metals we’re in now, there will be trends within the trends. You could think of them as being like eddies, whorls, and side-channels in a great torrent. We see one such developing that could benefit junior gold stock investors in the near- to mid-term.

Here’s the basic idea: metals prices, especially precious metals prices, have been increasing at a faster rate than mining costs. Gold and silver are up 75.9% and 61.7% respectively over the last three years, while the cost of things like power, equipment, and wages have not risen as much (-1.0% for oil, and 5.1% for wages, as examples). Obviously, this is good for producing companies, and we have seen the market’s reaction in their share prices.
 

 
What may not be so obvious is that companies with major, low-grade discoveries in hand that are preparing economic studies on their projects may enjoy a particular window of opportunity. Sometimes 300-day trailing averages are used to project prices used in estimating mining project economics, sometimes 3-year averages are used. In either case, the top line is going to look great, especially since many costs have risen little or even gone down as a result of the crash of 2008.

Here at Casey Research, we’re predicting more economic turmoil ahead, as the global economy exits the eye of the storm. As that happens, many costs could drop substantially, with economic activity in general. That would hurt the top line for base metal projects (copper, nickel, etc.), but would probably drive it even higher for gold projects (and silver ones that don’t rely too heavily on base metal credits).

For instance, Osisko Mining (T.OSK), one of the big winners among our recent speculations was able to take advantage of the crash of 2008 to greatly improve its cost projections, and even to order big-ticket items at lower prices and with shorter wait periods. This added wind in the company’s sails and helped them to wow the market and raise the capital needed to build their mine with no hedging and little debt.

Of course, margins will look better for all projects studied during a period when revenues are rising faster than costs, but that improvement will be an added benefit for high-margin operations, whereas it could be the difference between life and death for lower-margin operations.

In other words, known large, low-grade deposits are being discounted because the grades make their economic viability questionable – and that discount will seem overdone while mining margins are unusually high.

For example, a company called Geologix Explorations (T.GIX) has a large but low-grade deposit in Mexico. The project has been around for a while, not getting much love from mine analysts – myself included – because the low grade didn’t seem to promise robust economics. However, the company reported a preliminary economic assessment recently, with a startling 28% internal rate of return (IRR) at $900 gold, and a terrific 49% IRR at $1,200 gold. The net present value (NPV) -5% figure came in at $258 million at $900 gold ($555 million at $1,200 gold), which was about 650% of the company’s market capitalization at the time. The market responded, and the company’s stock chart now looks like a hockey stick.

Now, over the life of a large mine, which can be 15, 20, 30, or more years, I doubt margins like those that can be reported at this time will be maintained. Does that make IRRs and NPVs published over the next year or two lies? Not necessarily; if the economics are good enough, the project might be able to pay back the capital expenditures needed to build the mine while margins are high. After that, even a low-grade operation might be able to continue operating profitably for decades.

And it must be said that whether or not a low-grade projects actually becomes a mine, its owner’s share price may still soar, if the company reports credible, robust, and substantial economics.

In today’s frothy market, in which the obvious winners are all getting huge premiums from the market, it’s hard to find anything worthwhile selling cheap. Large projects trading at discounts because of their low grades – but with chances of delivering exceptionally strong numbers while this window of opportunity is open – are just what the doctor ordered. Be careful, however, to do your due diligence, as not all low-grade projects will have what it takes, even with higher metals prices.
----
[“Due diligence” is Louis James middle name. For years, has been picking the best small-cap metals juniors as the Metals Strategist at Casey Research… beating the S&P 500 by more than 8 times and physical gold by 3 times for his subscribers. For a very limited time, you can save $300 on the annual subscription fee for Casey’s International Speculator– plus receive Casey’s Energy Report FREE for a year! To learn more, click here now.]

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

On www.silver-prices.net we have started an Accumulator, which is just for fun, so you may want to check in from time to time to have a chuckle as we wrestle with it.


Over in the options trading pit, we had a number of stops triggered , but we walked away with an average gain of 32.7% so we now have 59 winners out of 61 trades, or a 96.72% success rate.


sk chart 10 Dec 2010.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.
Monday
Dec132010

Best Wishes for Christmas and the New Year

Snoopy Chritmas 14 Dec 2010.JPG


Team,

We Wish you all a Sparkling Christmas and a Golden New Year. Have a really good break and come back full of beans and ready for action as 2011 will be volatile, exciting and explosive in the precious metals sector.

We are spending the week before Christmas and Christmas at a lakeside retreat, where along with a few friends we will have all of the team under one roof, which is not easy to do these days. We wont be doing any blogging over that period, but we are allowing one whole lap top to accompany us and we will keep an eye on things just in case.

We haven’t forgotten about The Accumulator and we may just make a move tomorrow, if you do decide to follow us in, then please only use a tiny, tiny amount of your funds as this is meant to be a 'fun' thing, thanks.

Merry Christmas and a Happy New Year to you all.

Monday
Dec132010

Not Many Shopping Days Left

You can make this purchase without even leaving your seat, its different, valuable, inexpensive and could prove to be beneficial to them for years to come.

Subscribe for 6 months - $499

 

Subscribe for 12 months - $799

 

Saturday
Dec112010

Chart of the Month: TSX-V Speaks Volumes - Gold Mania Still Ahead

Casey 1 12 dec 2010.JPG



by Andrey Dashkov, Casey’s International Speculator

With the gold price hitting nominal highs last month, there is a lot of “mania” and “bubble” ranting going on in the gold community. Should we start selling?

A bull market typically progresses through 3 phases: the Stealth Phase, in which early adopters start buying; the Wall of Worry Phase (or Awareness Phase), when institutions begin buying and every significant fluctuation makes investors worry that the bull market is over; and the Mania Phase when the general public piles on, driving prices beyond reason or sustainability.

This is followed by the Blow-off Phase, when the bear takes over from the bull and the herd gets slaughtered. Judging by the volume on the TSX Venture Exchange (TSX-V), where a lot of gold juniors are listed, we conclude that the next phase of our current gold bull market, the Mania, still lies ahead.

Have a look at the chart above:
 


If a mania were unveiling now, we would expect to see a sharp increase in investment capital entering the TSX-V, driving its trading volume upward. Over the last few months, the TSX-V daily volume has spiked upward sharply, but as the chart clearly shows, short-term volume is extremely volatile, spikes are common, and equally large drops are just as common.

Stocks of junior exploration companies are leveraged to gold, meaning they rise or fall by a greater percentage than does the yellow metal itself. So a spike in volume should be expected in reaction to an ascending gold price. A more reliable barometer is volume’s 10-periodmoving average that removes interim market gyrations. Using this measure, the TSX-V’s volume looks like it has returned to a slope of ascent similar to before the 2008 market crash, and the longer-term trend is steadily upward – steady being the key word.

More investors are entering our market, but the pace is not yet accelerating greatly, as we’d expect in a true Mania Phase. In other words, an early indicator of the mania in this bull cycle will be a sustained parabolic move upwards in the TSX-V’s average volume. And that is not happening yet.

Our other volume indicator, the GLD gold ETF, behaves in an interesting manner: it frequently moves counter to the TSX-V. An explanation for this might be that GLD is considered a “blue-chip” stock; a safer haven for investors who actively trade on the TSX-V and park their cash in GLD during periods when they consider juniors overly risky.

The moving average of GLD’s volume remains on a moderate multi-year ascent but has turned down recently. However, its daily volume is up in recent trading. Given the observed correlation between trading volumes of the TSX-V and GLD, this may point to a cooling-down in TSX-V trading activity in the near term.

Finally, the ^HUI gold miners index has tracked TSX-V volume as well, also having resumed a slope of ascent similar to that of the years before the 2008 crash. We see this as another indication that we are in an accumulation phase of the bull market.

We will continue tracking these parameters and updates when we see significant changes. For now, the bottom line is that even with the gold price moving sharply higher, the mania remains an anticipated future event.
----
[But when the Mania Phase does hit, there’ll be no stopping it. And the best leverage – beating the S&P 500 by more than 8 times – comes from the little-known “gold nuggets” that International Speculator  editor Louis James keeps digging up for his subscribers. For a very limited time, you can save $300 on the annual subscription fee – plus receive Casey’s Energy Report FREE for a year! To learn more,click here now.]


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

Over in the options trading pit, we had a number of stops triggered , but we walked away with an average gain of 32.7% so we now have 59 winners out of 61 trades, or a 96.72% success rate.


sk chart 10 Dec 2010.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.
Thursday
Dec092010

Gold Prices Update 10 December 2011

Gold Chart 10 Dec 2010.JPG


Gold prices almost returned to take tea with the 50dma after 2 down days, but today she just wasn't in the mood and gained a few bucks just to keep us all guessing at where next for gold. The RSI is now mid range, standing at 53.10 today, which bodes well for future higher gold prices. The STO is heading south so short term we may see gold go a tad lower, however, the MACD is no longer dancing on the ceiling, which takes some of the pressure off and leaves some room for gold to go higher.

Now, taking a scan of the air waves we have a couple items that just might capture your interest. The first is a few comments from Nick Barisheff of www.bmgbullion.com fame, during in an interview on BNN which you can watch in full by clicking this link.

Nick Barisheff 10 Dec 2010.JPG

He touched on China were gold imports were 50 tonnes last year, however, during the first nine months of this year they have imported 200 tonnes, so they are really stepping up to the plate. The worry for the Chinese people is inflation, where food is running at double digit figures, there is also a general distrust of the financial markets and real estate is experiencing a bit of a bubble. So precious metals are coming into focus as an alternative.

Nick also give his opinion of gold relative to global financial assets excluding real estate which is valued at $200 trillion.

The value of above ground gold is $6 trillion made up as follows:

$3.0 trillion in jewelry and religious items, such as those held in the Vatican, etc, which is unlikely to enter the market anytime soon.

$1.5 trillion is held by the central banks, who are no longer sellers of gold.

$1.5 trillion is held privately by wealthy families on a multi-generational basis and will probably remain in their hands.

Nick then posed the question: What if 10% of those who are currently holding global financial assets decided to move into gold?

The mind boggles at this point, we would have $20 trillion chasing just how much available gold!

Moving on, we have this snippet from King World News:

The contact out of London has updated King World News on the massive Asian buyers which have been accumulating both gold and silver.  The London source stated, 

“A bunch of the weak hands are now on the short side of this market.  We are very close to a floor because of the massive Asian buying.  People have to remember these Asian buyers are now controlling the gold and silver markets, it is not the little guy.” Money flowing out of bonds is going into precious metals.  So what they are doing is trying to paint the tape and make it look like a double-top in gold, with silver also retreating.  Open interest went up into the decline, this is a gift (the decline).  Asian buyers are laughing, we’re like a cartoon to them.  They cannot believe how orchestrated this is.”

What about gold?  

“As far as the gold market is concerned, gold will be $150 higher from here within five weeks.” 

So that would take us to $1536.00 by about the 15th January 2011.

A few things to chew on as you battle through your working day.


Over in the options trading pit, we had a number of stops triggered , but we walked away with an average gain of 32.7% so we now have 59 winners out of 61 trades, or a 96.72% success rate.


sk chart 10 Dec 2010.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.
Wednesday
Dec082010

Collection Call

By David Galland, Managing Director, The Casey Report

Hello, is this Japan I’m speaking to?

Yes. (tentative). May I ask who’s calling?

It’s the ACME collection agency. We’re calling today because of your outstanding obligations.

Is there a problem?

We’re hoping not, but your creditors are beginning to worry you won’t be able to keep up with your debt service.

Oh. Why the sudden concern?

It was an item in a recent RMB Currency Trader. And I quote:

The Land of the Rising Sun has the dubious distinction of sporting the highest debt-to-GDP ratio of any industrialized nation in the world. Now greater than 200%, Japan’s relative debt load is bigger than that of Greece, Spain, Portugal or the US. Japan needs to borrow over 50% of GDP this year just to stay afloat, according to the International Monetary Fund (IMF), and its financing needs are expected to reach almost 60% of GDP next year. (See graph below.) Its strength has been somewhat befuddling, especially considering this growing burden of debt.

Why has the Japanese currency been so strong? Because despite all of the yen’s problems, Japan runs a trade surplus. Traders view that surplus as a source of funding which can be used to pay down Japan’s skyrocketing debt, making the yen seem like a “flight-to-quality” currency despite appearances. However, Japan’s strong currency is beginning to affect Japan’s ability to export. Competition from China and rising Asian powers such as Vietnam is also beginning to take its toll. Japanese industrial output fell 1.9% in September after dropping 1% in August



Care to comment, Japan? Japan? Are you there? Hello? Hello?

Casey 1 8 Dec 2010.JPG

David again. As you can see from the chart, even though Japan has managed to stay off the radar of the mainstream financial media, the country’s economy is in a real mess. And, for the record, the U.S. is in no great shakes, either, not when you consider the neighborhood it’s in, in the above chart.

As we have discussed at length in The Casey Report, while the eurozone is back in the soup just now, Japan could very well be the next black swan to lay an egg on the global economy.

Heretofore, Japan has been able to avoid the worst consequences of its many debts and obligations – but that may soon change. In addition to the exports referenced above, the country’s high internal savings rates have provided crucial support for the Japanese government’s energetic issuance of debt at low rates. But as you can see in the chart below from our own Bud Conrad, those internal savings – like exports – are now in decline.
 
Casey 2 8 Dec 2010.JPG
 

The upshot of this is that the Japanese government will increasingly have to turn to external buyers to finance its many obligations. That, in turn, will require competing with sovereign debt offering better yields.

Japan’s extreme borrowing needs over the next couple of years are, at this point, locked in – which almost certainly means that Japanese interest rates will rise – potentially by a lot – relative to the near zero yields now on offer.

Yet it should be obvious from the IMF data that Japan simply can’t afford to have the cost of servicing its massive debt rise even a little, let alone a lot. Which is another way of saying that something has to break, and soon.

Another way to view the situation is by looking at the trend for yields being offered by Japan’s largest competitor for new borrowings, the U.S. As you can see in chart here – which ran in today’s edition of Things That Make You Go Hmmm – yields are clearly moving up.
 

 Casey 3 8 Dec 2010.JPG

It all begins to get a bit circular when you consider that Japan’s aggressive financing needs make it likely the country will have to dial back its participation in future auctions of U.S. Treasuries. It would not surprise me if they followed China’s lead in reducing the U.S. paper now held in reserve. That, in turn, could lead to even higher U.S. rates, and even higher rates for Japan. Or it could lead to more monetization of U.S. Treasury debt by the Fed, which in turn leads to Mr. Market demanding higher yields to compensate for the rising potential of inflation.

This Gordian Knot of the interconnected global financial system makes it essential for investors to not only monitor your own house for signs of fire, but to watch your neighbor’s as well. In the case of Japan, smoke is starting to leak out from under the door.

----

To figure out the correct moves for your investment portfolio, it is not enough to focus on the domestic economy. In today’s interlinked global economy, the troubles of one country can spread like wildfire to others. Every month, The Casey Report analyzes big-picture trends to glean the best profit opportunities for subscribers. Try it for 3 full months, with money-back guarantee.

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

Over in the options trading pit www.skoptionstrading.com had a number of stops triggered yesterday, but walked away with an average gain of 32.7%, so we now have 59 winners and out of 61 trades.



sk chart 19 Nov 2010.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?


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.