TradePlacer.com Blog - gold tag

Precious Metals Investments Have the Most Bullish Fundamentals than Anytime During the Entire Bull Market

Mon, 26 Dec 2011 16:04:00 GMT

2011 was a volatile transitory year for most markets as the primary monetary concern shifted from asset inflation to asset deflation. Sentiment in gold and silver trended lower throughout the year as speculative positions were liquidated and money managers poured money into US government treasuries yielding record low interest rates both nominal and real. This trend can easily be seen in the under performance of platinum, which price has fallen below the price of gold despite the fact that it is 30 times more rare.

Gold has been up every year since its bull market began in 2001. Gold is the most stable of the precious metals. Takedowns are limited as central banks compete in bidding to accumulate it.

Silver had an intermediate top in the end up April, and suffered from several massive engineered hits. In addition, nearly 600,000 ounces of silver was stolen from small investors by MF Global, and transferred to JP Morgan. The result has been a collapse in open interest, as investors abandon the idea that paper silver can protect them from pending global hyperinflation. The default by the COMEX to protect investors using the exchange has proven that money invested in futures and even exchange allocated gold and silver is not safe.

As of last December 20th, the well documented net commercial short silver position was a mere 14,825. As we anticipated earlier this year, the commercial short banks have covered nearly all of their short position in the $26-32 range. They will soon convert to net long in anticipation of the next round of dollar devaluation.

Silver is not the only market that commercial traders have dominated. The commercial banks were massively short the Euro this spring prior to its collapse. Now that the collapse has occurred, commercial traders are now massively long the Euro as dumb money piles into the US dollar and treasuries that pay zero or even negative interest rates. The prevailing belief is that a further collapse of the Euro will lead to a deflationary crisis in which the US dollar trumps all assets. Commercial banks, which almost always win, are strongly betting against this belief as they pile into the Euro and precious metals.

While physically owned precious metals have held their value, leveraged speculators in futures and options have been demolished. If three-day take downs and volatile price movements didn’t ruin them, outright theft of their assets from MF Global and the COMEX did. Silver and junior mining stocks suffered a similar fate and are now swinging in the desert wind. If mining itself wasn’t risky enough, 2011 proved that everything from government confiscation of mining assets, illegal shorting selling attacks, naked shorting, to outright theft qualify as categorical risks. Producing silver miners such as PAAS, SSRI, and SVM lost roughly half their value during the trading year. PAAS and SSRI were plagued by socialist policies of Argentina including new capital controls, and an illegal short selling scheme lead by an anonymous trader known Alfred Little attacked SVM. In the meanwhile actual earnings and cash flow for these companies grew at double and triple digits. The result has been a massive PE compression in which companies growing at double and triple digit rates now have PE ratios of less than 10 – which are based on the current low metals prices. Many of the miners are also using part of their cash flow to increase dividends and stock buy backs in addition to their operational expansion programs.

	PAAS	SSRI	SLW	SVM	AUY
EPS	2.68	0.03	1.63	0.56	0.98
Revenue Est	894M	181M	767M	271M	2.2B
year ago revenue	632M	112M	423M	167M	1.7B
2012 Est	3.11	1.06	2.43	0.72	1.27
price	22.33	13.46	29.58	6.42	15.08
pe	8.33	448.67	18.15	11.46	15.39
pe 2012	7.18	12.70	12.17	8.92	11.87
yoy earnings growth	16.04%	3433.33%	49.08%	28.57%	29.59%
peg	0.52	0.13	0.37	0.40	0.52

While the timing can’t be predicted, confidence in the global financial system continues to wane. Guaranteed negative interest rates for at least the next two years, also guarantees positive fundamentals for precious metals. Gold and silver are clearly in multi-month consolidations, which is natural given that they were the best performing assets of 2010. The inevitable further devaluation of global currencies will continue to facilitate a bullish environment for the metals. Investors with a long-term outlook have an excellent opportunity to accumulate gold, silver, and especially profitable dividend paying gold and silver producers that must increase by multiples to fulfill their potential value.

Silver Miners Are Much Cheaper Than Internet Stocks

Mon, 07 Mar 2011 17:05:00 GMT

With gold and silver prices surging higher, some investors are questioning whether mining companies are entering their own valuation bubble. Despite the fact that some silver miners are up three or even ten-fold from their 2008 lows they are much cheaper on a relative basis to popular darling Internet stocks.

Amazon.com currently sports a PE ratio of 69, with a 2012 expected PE ratio of 38 – which is quite high considering it has had negative earnings growth over last year. Another Internet favorite, Apple, has a PE of 17 and 2012 expected PE of 14 with earnings growth of 58 percent.

Silver mining companies on the other hand are seeing year-over-year revenue and earnings growth rates well north of 100 percent. With such rapid growth rates, one might expect their PE's to also be enormous, yet they are fairly low. Pan American Silver has a current PE of 18, and Silver Wheaton has a PE of 26. Projected estimates of silver miners are using lower prices, so if the price of silver rises further these companies will dramatically exceed estimates for next year and beyond.

Despite a large run-up, investors are discounting the earnings power of silver miners especially when compared to other sectors. There are still opportunities to accumulate positions on pullbacks of quality companies that are expanding their ounce production while precious metals prices appreciate further.

Is This Time Different for the Dollar?

Mon, 24 Jan 2011 18:39:00 GMT

The recent correction in precious metals and miners has led some investors to question whether they missed the ultimate top in the bull market for gold and silver. Conversely, this would lead to the question of whether the dollar and other fiat currencies have bottomed.

According to a study of 775 fiat currencies by DollarDaze.org, there is no historical precedence for a fiat currency that has succeeded in holding its value. 20 percent failed through hyperinflation, 21 percent were destroyed by war, 12 percent destroyed by independence, 24 percent were monetarily reformed, and 23 percent are still in circulation approaching one of the other outcomes.

The average life expectancy for a fiat currency is 27 years, with the shortest life span being one month. Founded in 1694, the British Pound Sterling is the oldest fiat currency in existence. At a ripe old age of 317 years it must be considered a highly successful fiat currency. However, success is relative. The British pound was defined as 12 ounces of silver, so it's worth less than 1/200 or 0.5 percent of its original value. In other words, the most successful long standing currency in existence has lost 99.5 percent of its value.

Given the undeniable track record of currencies, it is clear that on a long enough timeline the survival rate of all fiat currencies drops to zero. Fiat currency bulls will probably not argue with this fact, but the remaining argument to hold fiat cash is that the decline of fiat currencies is manageable to such an extent that the loss in purchasing power will have a minimal or unnoticeable impact. The purchasing power of the British Pound has eroded by a seemingly manageable 3 percent average annual rate.

The US Dollar was taken off of the gold standard in 1971 when it was 1/35th an ounce of gold. At 40 years old, it has already lost 97 percent of its value. Yet it has lasted longer than the average fiat currency so perhaps its performance should be labeled "better than expected". The US Dollar has fallen by an average 9 percent annually over this 40 year period when measured against gold. As such, investment advisers may want to readjust their inflation expectations when projecting dollar based investments. The S&P 500 appreciated at 7 percent over the same 40 year period - not even keeping pace with the decline in purchasing power of the dollar.

Gold and silver have outperformed the S&P 500 and held their purchasing power since the inception of the US dollar fiat currency. Despite this excellent track record, the question remains as to whether this trend will continue. While investors can be confident that over a lifetime, precious metals will hold their value most are wary of volatility in the markets that may take gold and silver years to recover from. The obvious example of this is the commodity bear market that began in 1980 with gold peaking at $800 and falling to $250. This leads to the only remaining argument against precious metals investing based on the premise that currency flaws can be prolonged into the future:

Yes, the dollar will continue to lose substantial purchasing power and is terribly flawed. However it will bounce for several years through austerity measures and in the process push precious metals prices lower for an interim period. After all, currencies have bounced as they stair step lower over the years.

In order for such an event to occur Federal budgets would have to be reduced by $1 trillion annually and Paul Volcker, or a new version of him, would have to raise nominal interest rates above inflation rates such that real interest rates are positive by multiple percentage points. In 1981, federal funds rates exceeded 19 percent. Since the US dollar and economy is much further along its terminal decline it would take even more extreme action to create a recovery for the dollar. Considering that Volcker has resigned from being an economic adviser to the White House, and that the federal funds rates ate flat lined at zero, the odds of any such action are astronomical. The financial industry and economy clearly could not sustain such an interest rate shock today. Any rise in interest rates would exponentially increase US debt carrying obligations pushing it even further into insolvency and have the reverse effect on the currency by devaluing it at an even faster pace. Europe is a living example of this.

The implication from the above is that the worst case scenario for gold and silver would be a 2-5 year correction followed by even higher prices. The fiat currency decline will become increasing pronounced until a resolution event occurs such as a replacement of the dollar or reinstatement of an asset backed currency.

Is this time different? We don't think so.

9 Market Predictions for 2011

Mon, 10 Jan 2011 19:26:00 GMT

The bear market in bonds will be confirmed globally. While interest rates likely bottomed in 2010, a significant rise in rates during 2011 will confirm a bear market trend for smart money investors. This bear market will continue until the global currency market is restructured.

Precious metals will surprise on the downside in the first half and surprise on the upside in the second half. Gold will top $1650 and silver will top $50. This will confirm the third phase of the bull market in precious metals.

A return to the energy sector in a big way. Energy companies have disappointed since 2009 due to a softening in US demand and the BP disaster. Oil will exceed $100 and capital will start flowing into energy investments as it did in 2007 and 2008. Natural gas and alternative energy will also rebound.

Global stock markets will correct in the first half but end higher for the year. June and July will be a pivot point for stock markets. Capital flows from bonds to equities will accelerate and investors will begin to view the stock market as an inflation hedge rather than value proposition. The S&P 500 will top 1400.

Increase in political rhetoric and class warfare leading up to 2012 elections in the US. Capitalists will continue to increase their wealth while laborers in developed nations will suffer from stagnate wages and rising expenses.

QE3 will be announced at the rate of at least $100 billion per month. This will continue indefinitely in order to finance trillion dollar deficits.

The dollar and US investments will outperform other currencies for the first half of the year lead by a fall in the Euro. However, by the fourth quarter, the dollar will begin a slide to new lows as it becomes evident that the Federal government must bail out state and local governments.

A retirement trend will begin to become mainstream in baby boomers looking to reduce costs. Instead of taking on a second job to live in retirement, some will look to retire in cheaper counties. Mexico, Costa Rica, and Panama will be the primary beneficiaries.

Proposed tax overhaul including legislation for a VAT tax along with an extension in the reduction of social security taxes. There will also be additional capital controls and asset reporting legislation.

What Was the Top Performing ETF and Sector of 2010?

Fri, 03 Dec 2010 15:03:00 GMT

Contrary to popular opinion the inflation trade came back with a vengeance in 2010. Year to date, the ultra silver ETF ranks the highest performing ETF up 88 percent. Second place? Cotton, up 65 percent. The silver mining ETF, SIL went public in the summer, so it is at a disadvantage when comparing year to date returns. Using its holdings to project year to date returns it would have been the second best performing ETF up about 81 percent year to date.

Not surprisingly, precious metals were the best performing sector, as quantitive easing acts as rocket fuel for hard assets. A dubious runner up was real estate which benefited from an increase in farmland, forestry and raw land values as well as higher rental rates with lower purchasing costs. In line with themes which TradePlacer has focused, the other top sectors were agriculture and Latin America led by Colombia as a top performer. Latin America will become a leading exporter of agricultural products and other natural resources in the coming decade.

ETF
AGQ	ProShares Ultra Silver	88.05%
BAL	iPath DJ-UBS Cotton TR Sub-Idx ETN	65.28%
BHH	B2B Internet HOLDRs	64.53%
GXG	Global X/InterBolsa FTSE Colombia 20 ETF	62.26%
DRN	Direxion Daily Real Estate Bull 3X Shrs	55.04%
IIH	Internet Infrastructure HOLDRs	53.64%
THD	Diversified Emerging Mkts	52.38%
JJT	iPath DJ-UBS Tin TR Sub-Idx ETN	51.70%
DGP	PowerShares DB Gold Double Long ETN	48.64%
UGL	ProShares Ultra Gold	46.21%
SIVR	ETFS Physical Silver Shares	46.00%

Sector
Commodities Precious Metals	33.44%
Real Estate	26.50%
Latin America Stock	24.54%
Commodities Agriculture	20.40%

Mainstream money managers and analysts continue to ignore the inflationary trend at their own embarrassment. Investors may review these performance numbers and ask their financial advisers whether they have investments in gold, silver, and agriculture and if not, Why? Most don't have any. Investors should consider working with money managers that actually anticipated these trends rather than acted as bystanders.

The Federal Reserve has two buttons on the money printing machine. The Off button - which will lead to immediate economic meltdown, and the On button which will push capital into the inflation trade led by precious metals, agriculture, land, other commodities and emerging markets. There is no third button and using either button ensures that a currency breakdown is inevitable.

The power of the bull market in precious metals has steadily increased over the last decade. Gold has appreciated every single year for ten years and silver has begun a powerful move with intent on visiting its all time highs. The final phase in this raging bull market is approaching as the greed of making returns in dollars turns to absolute fear of holding any fiat currency in any amount.

To Learn how to invest in gold, silver and agriculture visit TradePlacer.com

Precious Metals Patterns

Tue, 16 Nov 2010 17:47:00 GMT

Precious Metals Patterns Gold and silver markets have finally reverted to their normal behavior as the CME has announced additional margin increases and commercial shorts have increased their buying on the downside. This is good news because the federal government and banks are financing excellent opportunities for investors that are paying attention.

At first glance it seems that the commercial traders are the best on the street as they have reduced their net short positions to 50,000 contracts in silver - about 25 percent off their peak short position two months ago. Indeed this is impressive. However a bigger picture view shows that the net commercial short position has fallen to levels seen in late July. During that time, silver has risen from $18 to $25 created an estimated loss of $1.75 billion for the commercial shorts and an equivalent gain for counterparty long investors. While these traders can be commended for their tactics, their strategy of thrashing has proven to be pointless.

On the other side of the trade, bulls have won on multiple points. The recent correction has unwound sentiment and overbought technical indicators, yet gold and silver remain much higher than they were even two months ago. In addition, those wishing to buy more have been given another chance. It is much easier to accumulate profitable positions during corrections rather than while chasing prices higher. Silver could easily correct to $22 or even its breakout level of $20 before resuming higher. Gold could correct to $1320 or its breakout level of $1260 before resuming higher.

Traders that follow the actions of banks and governments rather than words and positions can see pristinely clear opportunities. Over the last two months, the Federal Reserve has begun to monetize treasury debt, and banks have increased their efforts to consistently buy as much gold and silver as they can. Nothing could be more bullish.

Why Silver Margins Should be Higher

Thu, 11 Nov 2010 18:52:00 GMT

There has been a lot of confusion over the announcement by the CME to increase the margin on silver futures contracts by 30 percent. Several articles have claimed that it was the cause of the recent selloff in silver because it forced buyers to cover their positions. This notion is completely false, and in fact the market would be better off with higher margins.

While a 30 percent increase in margin requirements sounds like a lot, the truth is that the increases was $1500 per contract where each contract is currently valued at $136,500. On the day that the price of silver was up over $1, the margin maintenance was increased by 30 cents. This means that no long holder would have had to put up any more money (until the selloff) and any investor that was holding long positions from before September is still holding gains of $8 per contract. If anything, raising margin requirements should have squeezed short positions more since the price has increased substantially in recent weeks.

Even now, the margin requirements of silver are 4.7 percent of the contract value. That means that a trader's equity will be completely wiped out in a 4.7 percent move. Professional metals traders are well aware that this is too low of a margin and any successful trader will hold much more capital per contract than required. The result is that investors self-impose their own higher margin requirements by reducing leverage far below the theoretical exchange defined requirement.

Margin requirements should be higher on silver contracts, especially for short sellers because silver has already increased by more than 5 percent in a day and is at risk of gapping higher at any time. This introduces the risk of default by a large trader that fails to meet margin requirements and makes the entire exchange less stable. Exchange risk is not priced into the precious metals markets, however it eventually will be when it is understood that the probably of default is approaching 100 percent. The margin increase is a reminder that the exchange can and will change the rules when commercial shorts are squeezed into default.

For more precious metals analysis and charts visit TradePlacer.com

Did You Miss Out on Gold and Silver?

Tue, 09 Nov 2010 17:53:00 GMT

With gold up over 25 percent and silver up more than 64 percent year to date many investors are wondering if they missed out on the bull market in precious metals. Even if you already had a substantial allocation towards precious metals it's easy to kick yourself from not buying more. Silver has tripled since its 2008 lows and some stocks such as SLW have risen 10 fold in a short two years.

While smart money and early investors have enjoyed large gains over the decade long bull market in precious metals, the big money and mania money is yet to be made. The bull market is now in the institutional phase, also known as phase two, where hedge funds, banks and pension funds are bidding up prices of metals and miners. As the bull market has matured, investment strategies should be modified to accommodate the phase two bull market, with a pending phase three mania.

Phase two and Phase three bull markets are driven by increasingly larger volumes of incoming capital flows. This can be seen in the rising trend of open interest as well as stronger bids on corrections. Price movements upwards will get larger and corrections will become shallower in duration as can be seen in the October precious metals correction. This presents challenges to both new and veteran investors.

Investors already in the market will have a tendency to want to take gains, but should resist the temptation to sell everything. As Jesse Livermore once said, "throughout all my years of investing I've found that the big money was never made in the buying or the selling. The big money was made in the waiting." The fundamentals are still in favor of much higher gold and silver prices and until that changes the long term trend will remain upwards. Real interest rates are in double-digit negative territory, and money supply growth is still in double-digit positive territory.

Despite the real possibly of waking up tomorrow to find that silver has doubled or gold is up $200, investors new to precious metals would be prudent to avoid buying in a lump sum. Both gold and silver are technically overbought and could succumb to a sharp correction. Thus the best strategy kept by professionals is to accumulate using small orders over a period of time and keep on buying where cash flow permits. If prices do correct, then increase the size of the planned purchase by pyramiding orders based on price.

Investors should also consider diversifying the type of precious metals investments that they hold. While the physical metal has outperformed gold stock indexes in recent years, this is expected to change. The financial meltdown of 2008 left many companies unprofitable, and without the credit to continue business. PAAS, SSRI, AUY and others are still well below their 2008 highs despite gold prices of $1400 and silver prices of $28. Price premiums were shifted from explorers and junior producers to large, well capitalized, producing miners. Now that credit is more available, and metals prices are much higher, capital has just begun to flow into the smaller juniors and explorers as investors realize that they hold the future supply.

While the easy money in gold and silver has been made the largest gains are still ahead. Long term investors should sit tight and continue to accumulate, and those who consider gold and silver insurance should not even consider selling as the global decline in fiat currencies is just beginning.

Quantifying Quantitative Easing

Thu, 04 Nov 2010 20:06:00 GMT

Many investors are struggling to understand the ramifications of the recently announced QE2 plan. Quantitative easing, or more simply known as money printing, is a dilution transaction similar to issuing more shares for a stock. The dilution has two primary affects: a decrease in the value of the initial shares and a redistribution of wealth from the original owners to the new owners.

The most significant difference between stock dilution and currency dilution is of course that publicly traded companies tend to use the funds raised through dilution to add value by investing those funds - whereas governments don't add value by diluting a currency.

In this case, $900 billion will be diluted to purchase US treasuries so the primary benefactor of the quantitative easing will be the US federal government and the financial institutions selling that debt. However, capital flows can rarely be controlled and the newly created money will find its way into other markets and asset classes.

Interestingly, the $100 billion per month figure that has been mentioned as the target rate for QE is almost exactly what is needed to rollover maturing treasuries coming due - so it could be argued that the plan is to effectively finance the US Federal debt which would eventually lead to a complete monetization of the treasury market. Supporting this argument is the recent projection made by ZeroHedge that the Federal Reserve will own more treasuries than China by the end of November.

In an attempt to measure these affects, we can compare the size of the quantitative easing plan to the size of several markets.

	Outstanding	$900B as Percent of Market	Diluted value of $900B entering market
US GDP	$14,500.00	6%	$0.94
US Federal Debt	$14,500.00	6%	$0.94
M2	$8,750.00	10%	$0.91
M1	$1,800.00	50%	$0.67
Currency	$900.00	100%	$0.50
Treasuries	$11,030.00	8%	$0.92
Municipal	$2,670.00	34%	$0.75
MBS	$8,860.00	10%	$0.91
ABS	$2,600.00	35%	$0.74
Money Market	$3,900.00	23%	$0.81
Corp Bonds	$6,720.00	13%	$0.88
Silver	$24.30	3703%	$0.03
Gold	$2,475.00	36%	$0.73

If the QE2 funds went into the currency market, its value would fall in half. However, $900 billion is roughly 6 percent of US Federal Debt. Inflation is defined by the growth in the money supply. If using M2, the QE2 plan would dilute the money supply by 10 percent. $900 billion represents 36% of the world’s gold supply, so an equivalent move upward in price could be seen if the money finds its way into the gold market. QE2 is 37 times the size of the world’s estimated silver supply so a flow of capital into the silver market could be explosive.

A dollar on November 1st is now worth 92 cents if measured in treasuries or 91 cents if measured with the money supply. It can be seen that inflation as measured by the growth in money supply is projected to increase by 10 to 20 percent on an annualized basis.

The result will be a double digit real negative interest rate and a carry trade opportunity to sell treasuries and other US dollar secured paper at a cost of near 0 percent while accumulating real assets such as precious metals and other resources that cannot be diluted.

For more Precious Metals News, Charts, and Analysis visit Tradeplacer.com

Not a Good Time to be Short Silver

Sat, 30 Oct 2010 15:38:00 GMT

The pressure on silver shorts has been relentlessly increasing on a daily basis. On the heels of CFTC's statement of intention to actually enforce antitrust regulations in the silver market, two lawsuits were filed against JPM and HSBC for manipulating the silver price. With the testimony of whistleblower Andrew Macguire and admission that there has been fraudulent activity in the silver market by CFTC Commissioner Bart Chilton, these lawsuits have a much larger chance of success than just a year ago.

One of those lawsuits is seeking group or class action status if enough investors sign up. Silver investors who suffered from losses in 2008 and are interested in joining the lawsuit can contact the law offices of Christopher Lovell at 212-608-1900.

While lawyers and regulators are pressuring the banks by taking legal action, the suffering for the silver shorts is just beginning. Whether or not the plaintiff's prevail in their legal actions, evidence that JPM and other banks have cornered themselves into enormous naked short positions on physical silver is coming to surface to the mainstream. The lawsuits are blood, and sharks are circling the market itself. Profit is profit and few people will shed tears for the commercial banks should they be squeezed.

Sprott Asset Management has announced that it is planning to raise $500 million for a publicly traded silver ETF that will only invest in physical bullion trading under the symbol PSLV. Sprott already has a similar gold ETF that trades at a large premium to the price of gold - perhaps because investors truly believe that it is backed by the physical metal. Both the gold ETF (GLD) and silver ETF (SLV) have been questioned for their ownership of the physical gold and silver bullion. Interestingly, JPM is the custodian of the SLV silver ETF. Given Sprott's solid record, there is a possibility of mass redemption from the questionable SLV ETF by investors who reallocate into PSLV.

Demand for physical silver has increased such that the US Mint announced on September 30th that it will increase its premium for silver eagles by a third.

Over the last few weeks, silver has oscillated between $23 and $25 as the commercial shorts have been thrashing in an attempt to find a weakness in bids. There is no weakness, and the $2 correction may already be over. Every 50 cent or $1 takedown is met with a wave of bids, and the commercial shorts are trapped. Thus far, the bids have remained unaggressive with most buying fulfilled on intraday dips. It is only a matter of time before the big money starts to aggressively buy.

Opening a Can of Worms - Do You Have a Mortgage?

Tue, 05 Oct 2010 18:34:00 GMT

Millions of Americans have already or will likely soon receive a letter from a legal firm representing their mortgage bank asking for help. I received such a letter myself, so I know this is real. The letter will be an admission that the bank has either lost or never had the proper documentation with your signature proving that you actually owe a mortgage balance bound to the property. This document, known as a note, is the legal instrument that secures a real property to a debt owed to a bank. The letter is a clear sign of desperation.

When a home owner is forced into foreclosure, the case is presented to a judge for approval. Historically if uncontested, a foreclosure has quickly led to a judgment in favor of the bank - to evict the owner and confiscate the property. However, in the last few years a growing number of homeowners have been contesting the foreclosures and demanding proof of the note - or ownership of the mortgage. In many cases, the note can't be located and the foreclosure is not approved due to lack of documentation.

The issue is so serious that last week, Bank of America halted foreclosures in 23 states due to findings that it doesn't have the necessary documentation to foreclose on owners and has been foreclosing on homes without proof of the note. JPM Chase and GMAC have also already halted foreclosures in a similar move. In order to successfully foreclose, the banks will need to hire legal firms to litigate and re-establish their legal right to collect the value of the mortgage. However, this could be time consuming, costly, and the debt may be shifted from being secured by the property to unsecured by judgment.

Fraud based on Fraud based on Fraud.

Whether you have a mortgage that can be enforced is now in question, and by default so are the derivatives based upon the mortgage. The financial engineering and success of mortgage backed securities was based on the idea that mortgages could be pooled and sold to investors. It is now estimated that between 1/3rd and 2/3rds of all mortgage backed securities are not backed by a physical mortgage. Banks are simply unable to tie their products to the underlying mortgages. The result is that pensions, banks and other investors of even "high quality" mortgage backed securities may be holding near worthless paper. The derivatives based upon non-backed mortgage securities - based upon quasi-enforceable mortgages - based upon fraudulent, undocumented, or lax-documented standards are theoretical at best. Interestingly, this is represented by US dollar deposits.

Banks will sue homeowners for defaulting, homeowners will sue banks for deception, and investors in the mortgage backed securities will also sue for fraud. Pension holders will in turn sue the investment companies holding the worthless paper. The lawsuits have just begun. Ambac recently filed a $16.7 billion lawsuit against Bank of America, claiming that 97 percent of its securitized mortgages didn't conform to lending underwriting guidelines.

With roughly $14 trillion in mortgages outstanding in the US, and more than $8 trillion in mortgage securities, a large amount of capital is now at risk – especially if those mortgage backed securities are considered leverageable deposits. The consequence could be a halt in mortgage processing for several months, and shutting of title insurance companies which would effectively close the mortgage market. The most likely outcome will be the complete monetization of the industry.

Jim Sinclair was one of the first to bring this issue to light when he warned that many of these cases could not be dragged through the court system because they are completely based upon fraud. There may not be enough lawyers, judges, and courts in the world to ever untangle the chain of fraudulent derivatives based on other fraudulent derivatives. The lesson is clear; if you don’t own real assets then you don’t really own anything. The stampede into gold and silver will continue as investors seek protection from the largest distribution of wealth in history.

Alternative Investments Should be Your Core

Sat, 02 Oct 2010 18:54:00 GMT

With interest rates flat lined near zero, investors of all types are competing with each other to chase yields ever lower in desperation of cash flow. Although bond buyers may think they are conservative they are really speculators as buying an asset far above its intrinsic value with the idea that someone else will pay even more is the basic definition of speculating. Even if yields don't fall from here, there isn't much to be made waiting 10 years for a 2 percent yield or less - ignoring that inflation is higher than that. This aberration has extended into the corporate bond market where large cap companies are now financing using debt that pays less than their dividends. The end result is that millions of people who lost money over the past decade in stocks and housing are now buying bonds, annuities, and other fixed deposit credit based investments that are guaranteed to disappoint.

Traditional investment managers will continue to give you losing advice until your capital under management falls below the level at which they say it isn't worth their time to "service" you anymore. This is because their goal is to charge a commission for selling securities, rather than preserve and increase your wealth. While there isn't enough room for everyone to exit bond and equity markets, there remains opportunities in alternative investments that should be the core of a portfolio. If managed correctly, they will offer sustainable cash flow much higher than what banks or governments are willing to provide. This is especially important for people who are entering or already in retirement and need some stable income to live off of, as well as capital preservation.

Gold and Silver - Ironically the biggest argument wall street and the mainstream media will use against precious metals is that they don't pay a yield and can't provide cash flow like bonds can. Now that yields are zero for all practical purposes, that reasoning vanishes. There is no longer an opportunity cost of owning precious metals over bonds or cash. Most importantly, real interest rates are negative, and as long as they are gold and silver will have a powerful wind at their backs. Precious metals can be included in the cash and insurance portion of an allocation, and miners can be included in the equity portion. In addition to rising every single year, gold has appreciated at an annual rate of 18 percent over the last decade.

Farmland - Farmland particularly in the Midwestern US has increased over recent years, however there are still opportunities to purchase properties which provide stable income and protection from inflation. A successful investor can expect to lease the land to a farmer for a 4-6 percent annual yield, and historically land values have also appreciated by about 4-6 percent. Effectively the investor could earn an inflation adjusted 5-8 percent with little risk if it isn't leveraged by debt. Over the last decade, farmland prices appreciated at a rate of 7 percent while the S&P 500 had a negative return. Farmland performed even better when factoring rental or operating income.

Lumber/Timber - Money does grow on trees when evaluating timber. Investors in forestry have the potential to earn a steady return from the growth of lumber as trees are always growing. Timber is also historically known for being a great inflation hedge. The land itself also appreciates in addition to the lumber. From 1990 to 2007, the National Council of Real Estate Investment Fiduciaries (NCREIF) Timberland Index had an annual return of 12.88 percent - higher than the S&P 500's annual return of 10.54 percent and with less volatility. Investors could buy stock in timber companies such as Plum Creek (PLC) and Rayonier(RYN) that have dividend yields of more that 4 percent, or they could invest directly in land and lumber projects.

Arbitrage - Although much more lucrative in the 1970's and 1980's, there remain several arbitrage strategies that provide cash flow consistent better than a treasury with less inflation risk. Merger arbitrage funds ARBFX and MERFX have appreciated by an average rate of 4 percent over the last 5 years and investors aren't dependent on interest rates falling to make a profit.

Foreign real estate and businesses - While the US, Europe, Japan, and other developed countries are expected to see stagnating economies for the foreseeable future, there remains investment opportunities in developing economies. Real estate and other businesses in developing nations were much less affected by the credit crisis of 2008 because they didn't use the same degree of leverage as the US, Europe, and Japan. For this reason they will recover faster and offer higher returns.

By focusing on alternative investments, it is still possible for investors to achieve cash flow and annual returns between 4 to 10 percent. The key is to avoid overvalued stocks and bonds, and accumulate investments backed by tangible assets and special opportunities.

For more charts, news, and analysis visit Tradeplacer.com

What Happens Now that Gold and Silver Have Broken Out? Is 5000 ounce gold realistic?

Sun, 26 Sep 2010 14:44:00 GMT

In recent weeks gold and silver have broken through their multi-month consolidation levels, and investors are wondering where the precious metals are headed. On a short term basis both gold and silver are overbought and due for a correction that may retest the breakout levels of 1250 on gold and 20 on silver.

On a longer term basis, gold is at an all time high and silver is at a 30 year high. These breakout levels were key because they removed any supply of sellers wanting to sell near their previous purchase prices. The result will be a vacuum in price discovery, because virtually any investor in gold and silver now have a profitable trade and the price will have to rise until enough of these investors decide to take gains. Projecting from the size of the consolidation in precious metals the next key level where sellers arise could be near $1500 gold and $30 silver by 2011.

Gold has risen every year for 10 years in a row now, demonstrating a powerful bull market that began in 2000. Since gold bull markets tend to last 15 to 18 years, investors are wondering how much potential the precious metals have in them. Gold and silver have to move substantially higher to revert to their inflation adjusted highs. However further dollar devaluation could multiply the potential gains.

Gold
Current SGS inflation adjusted high 2015 with 6% inflation	$ 10,226
Nasdaq 1995-2000, 6.66 factor	$ 8,658
Gold 1975-1980	$ 7,949
Current SGS inflation adjusted high	$ 7,689
1980 dow to gold ratio of 1.5 to 1	$ 7,240
80% dollar devaluation	$ 6,500
1930's dow to gold ratio of 2 to 1	$ 5,430
Nikkei 5yr 1985-1990, 3.63 factor	$ 4,719
Adjusted by growth in money supply/gold supply	$ 4,697
Current CPI adjusted high 2015 with 6% inflation	$ 3,168
Current CPI adjusted high	$ 2,382
Average	$ 6,241.64

Silver
Current SGS inflation adjusted high 2015 with 6% inflation	$ 594
Current SGS inflation adjusted high	$ 447
1980 dow to silver ratio of 25 to 1	$ 434
80% dollar devaluation and return to 1/16 gold	$ 410
Adjusted by growth in money supply/gold supply	$ 276
Silver 1975-1980	$ 200
Current CPI adjusted high 2015 with 6% inflation	$ 184
Current CPI adjusted high	$ 139
Nasdaq 1995-2000, 6.66 factor	$ 136
80% dollar devaluation	$ 102
Nikkei 5yr 1985-1990, 3.63 factor	$ 74
Average	$ 272.36

Taking into account 11 key measurements based on historical movements and price ratios, gold is likely to exceed $5000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher.

While most of these statistics use the 1980 highs in gold and silver as a proxy, there is much more potential for a greater move in precious metals now because currency and economic imbalances are not confined to the US but are global. If the US dollar is devalued, it is likely that the Euro, Yen and other currencies would also be devalued. While the 1970's bull market in gold and silver was largely driven by US buyers, a panic to buy precious metals within the next 5 years will driven globally.

Do Industrialized Economies Support Growth?

Fri, 24 Sep 2010 15:20:00 GMT

The book "For Good and Evil: The Impact of Taxes on the Course of Civilization" by Charles Adams is a must read for those interested in learning how taxation has both created and destroyed civilizations. Over the course of history, governments have tried every tax strategy and tax rate imaginable from flat income taxes to taxes based on how many windows a building has. Students of history will find a clear pattern. Low and fair tax rates have fueled the creation of massive expansive empires, and repressive unfair tax rates have destroyed countries to the point at which they are no longer recognizable.

During the Pyramid age, Egyptian peasants paid 20 percent of their crops to the Pharaoh. Historically, medieval serfs and farmers revolted when tax rates exceeded 30 percent. European empires such as France and the Netherlands collected tax rates between 15 and 20 percent during the 1600's and prospered. However when those rates increased, it led to French Revolution in the late 1700's. The Roman Empire began as a free trade state, in which revenue was collected from 1 to 3 percent in property or sales taxes. However, in the last years of its decline, tax rates and inflation were so repressive that many peasants welcomed barbarians.

Although capital is often taxed at capital gains rates, global economic activity is largely defined by income derived from labor. In this spirit, it can be argued that capital will tend to flow into countries with low income tax rates and enough perceived economic and political freedom to conduct business transactions in the pursuit of happiness.

One reason why economies are able to grow is because workers are able to specialize in a particular skill and trade that skill for other services or products. This concept, known as division of labor, enables increased productivity because producers can focus on what will create the most economic value. For example suppose apples and oranges cost the same amount, but farmers are specialized in growing one or the other and can produce twice as much product in their field. The apple farmer can produce two apples and trade one with the orange farmer who produced two oranges so both would end up with more value than they could individually produce. However, if tax rates exceed 30 percent then this division of labor breaks down because the apple farmer wouldn't produce enough apples to pay the tax and trade for an orange. If tax rates exceed 50 percent, then the farmers would have to be 300 percent more productive in their specialization to make it worthwhile.

It is not a coincidence that the three largest economies have effective tax rates higher than 50 percent (including social security and other income taxes), zero economic growth, near zero interest rates, and are past the point of no return in insolvency.

Country	GDP	Currency	% of Currency Exchanged Market	Unfunded Liabilities as Percent of GDP
EU	$16.4 Trillion	Euro	42.45%	434%
US	$14.2 Trillion	Dollar	19.55%	854%
Japan	$5 Trillion	Yen	9.5%	227%
Total	$35.6 Trillion		71.5%	574%

The three largest economies in the world are in structural decline and represent 61 percent of the global economy, measured by GDP estimated at $58 trillion. Their currencies also account for 71.5 percent of the global foreign exchange market. The Swiss Franc, and British pound account for an additional 9.65 percent of the market which leaves only 20% of the remaining foreign currency market from a long list of countries.

Currency "investors" and traders are really just gamblers unless they are only seeking to hedge another business transaction. There is no fundamental basis for 80 percent of the market, and no reason why Jim Sinclair or others will be right that the US Dollar index will fall to 50 or below because all major currencies are priced against each other. However, compared to any tangible asset a severe decline in currencies is inevitable. If hyperinflation does occur, it will likely be in all major fiat currencies and be witnessed in all countries except those with a completely closed economy.

With virtually every major industrialized nation insolvent, using repressive taxation and unsound fiat currencies the implication is clear. No matter how bullish the prospects are for emerging economies – they are not large enough to sustain positive global economic growth nor do they have an alternative currency that could be used to replace foreign exchange at current levels. The reality of peak oil and other resources will cap emerging economy growth as well.

Because these global imbalances are structural, capital will continue to flee industrialized economies in favor of higher returns and lower taxes. The result will be overnight boom towns, and planned cities, but it's arguable whether much of this money will be misallocated. Precious metals could also undergo a historic revaluing as holders of majors currencies seek alternatives. It is unlikely that capital, or people anywhere in the world will be left unaffected by the ongoing and inevitable devaluing of all major currencies.

Are Banks Closing their Shorts on Gold and Silver?

Wed, 22 Sep 2010 17:43:00 GMT

In the past few weeks gold and silver have both broken out of their year-long consolidating trading ranges. This breakout came shortly after the announcement that JP Morgan and other banks would close their proprietary commodity trading desks in order to comply with a new "Volker Rule" which states that banks can either trade their own capital or their client's capital, but not both. This news has led to speculation that JP Morgan and others would be forced to close their short positions in gold and silver which has been well documented.

This speculation is overly optimistic, and the evidence proves to the contrary. From August 24th to September 14th the net commercial short position has increased from 82,158 to 94,825. This short position has most likely increased even more since then although it hasn't been reported yet. Gold's net commercial short position also increased from 436,829 to 464,388.

As most gold and silver traders know, this pattern is a typical setup for a takedown that occurs a few times every year. The banks that consist of the commercial category in the chart will continue to sell into the rising strength of the metals until it causes a sharp drop allowing them to cover at a profit.

If the commercial banks actually begin to reduce their gold and silver short positions as the price rises then it will be an indicator that they are exiting the market as some believe. The result would be dramatic as hedge funds would likely try to front run the banks and sellers would vanish. The structure of paper precious metals markets have made this outcome increasingly likely, however it is not probable that the commercial shorts will simply walk away without a fight. The inevitability of the long run is the least likely outcome in the short run because neither the government, nor commercial banks, nor accumulating smart money want gold or silver to spike higher.

Silver analyst Ted Butler was one of the first to bring this structure to the daylight however he is far too optimistic that government regulation or limiting trading positions will lead to this event. It is more likely that the futures market is closed than banks voluntarily ending their game. They may close their proprietary desks and move the positions to another legal entity.

One reason to be cautious is that gold has not touched its 200 day moving average in over a year. This simply means that the gold price has been very strong, but indicates an extended move. However extended moves can be life changing events. Gold's formation above its moving averages is beginning to look like Potash circa early 2007 which was the beginning of a 10 fold move in its price.

Historical evidence indicates that the precious metals will most likely see a sharp correction in the coming weeks. However, if they don't then Jim Sinclair could be collecting money on his $1 million bet early.

For more news and articles about investing in gold and silver visit Tradeplacer.com

A Japanese Styled Economy is the Chosen Path

Fri, 03 Sep 2010 20:17:00 GMT

Large global imbalances both between and within nations have been well documented over the last decade and have continued to become more misaligned. While most commentators have argued why a Japanese style stagflationary reversion to the mean is unlikely, it is both the most wanted and mostly likely outcome of current imbalances. It is most wanted by policy makers and most likely for the reason that it's being targeted.

The Japanese economic model over the last 20 years is the best alternative for the Federal Reserve and other government policy makers because the alternatives are too great and terrible to imagine. If the government discontinued its intervention, the credit expansion created during the last 30 years would be completely reversed resulting in massive defaults to the point at which banking as a whole would discontinue. This is the natural force of the market. On the other hand, if the economy stalls and the government intervenes with too much force too quickly, then confidence in currencies would collapse and global hyperinflation would ensue. Either of these scenarios would risk a breakdown in society and likely change in government regime.

The Goldie-locks path would be to intervene just enough such that the dollar slowly depreciates, and financial firms slowly rebuild their balance sheets over decades. In this scenario society as a whole may slowly change, but change would be less drastic. The wealthy and powerful would benefit the most from this outcome as they would maintain their control. Meanwhile, the middle class would slowly disintegrate as pressures from all sides erode any remaining wealth and income. Make no mistake, the only deflation the Japanese have suffered is in asset prices not monetary supply. Costs will inflate including commodities, energy, transportation, and of course taxes. At the same time, income will stagnate at best or more likely fall. Interest income will remain below inflation and traditional investment performance will remain subpar. Businesses will operate with lower margins and lower returns. There will be near 0 economic growth, with near 0 interest rates, and near 0 employment growth.

Just as in Japan, the population will age and require more care. At the same time the number of children born will continue to fall, and immigration will decline as foreigners look elsewhere for opportunities. The result will be a declining population, with lower quality of services provided to them at a higher cost.

Investment Strategies for the Japanese Style Reversion to the Mean

Just as there has been over the last decade and last few weeks (depending on your perspective), there will be plenty of bull and bear markets with rallies and slides. Some traders may be able to time these correctly, but most won’t. On a grander perspective, equities will oscillate with no trend and no significant returns for long term investors. Even if bond investors aren’t slaughtered by higher rates, the best they will achieve is 2 percent return from government bonds. While commodities will rise, producers will also experience similar increases in production costs led by energy and construction. The result will be much higher commodity prices with little or no benefit to the producers. Stocks will be pressured lower by a decrease in PE ratios, stagnate dividends, and an aversion to risk. All asset classes will experience selling pressure from a change in demographics as workers retire and begin selling whatever assets they have to live off of.

Investors may seek to capitalize on the dollar carry trade by borrowing dollars and investing in other assets with higher expected returns. However, overuse of leverage could become detrimental as it did in 2008 even with undervalued assets.

Emerging markets would likely become a core component for successful investors as both the equities and bonds will likely outperform US or European based investments. Commodities will most likely continue to perform well, although their producers may not. Resource companies will have to dig and drill farther and farther into the ground to obtain less and less. Physical commodities will retain their value, but many can't be purchased and stored in large amounts. While it is feasible to buy physical gold and silver, buying soft commodities such as wheat and sugar are not practical investments for most people so it will be difficult to capture their gains. Commodity ETF's and futures will contango and slippage so they won’t track spot prices accurately. This can already be seen by comparing DBA to its underlying commodities and UNG to natural gas. Farmland itself will likely appreciate, however so will fertilizer and gas, so owning and operating a farm would not likely be as lucrative as investors expect. Precious metals will continue to outperform in this environment, because there simply isn’t any competing asset class. With interest rates near 0, there is no opportunity cost to carry gold or silver. Risks of large takedowns and possible impunitive taxes or capital controls will remain, however.

Investors may have to plan for a Japanese style reversion of imbalances that stretch into the next decade, as it is the chosen path by policy makers. Overall, profits will be harder to make and harder to keep, but they will still be available.

$1 Million From 5 Months in Gold

Mon, 09 Aug 2010 19:28:00 GMT

In April 2008, legendary gold investor Jim Sinclair made a $1 million bet that gold would exceed $1650 by January 14th 2011. At the time, Sinclair had stated that he believed his bet was conservative and that gold would probably be much higher. However, with gold hovering near $1200 the market is betting against him and there are only 5 months remaining. Intrade, a predictive betting market, currently has the odds of gold exceeding 1550 by the end of 2010 at 5 percent. This implies that anyone willing to take Sinclair's bet today from the long side is unlikely to win - but also that the payoff would be enormous if payouts were based on the perceived odds using call options.

A $450 increase in gold would be an increase of 37.5 percent, a rate of $90/month or roughly $4 per trading day for 5 months. On an annual basis, this would be near a 100 percent return. Perhaps there is something that Sinclair knows and others don't.

Projecting an exponential moving average, gold would be around $1300 by January. However, gold tends to have larger seasonal moves during the August to January timeframe. Comparing the change from August lows to January highs over the last 10 years, gold rose by an average of 20 percent. Using this average, gold would be roughly $1440 by January. This isn't enough to win the bet, but few investors would be disappointed with such a move. Once in the last 10 years, the 37.5 percent increase was exceeded. From August 2007 to January 2008, gold rose by 40 percent from $657 to $924. The second largest move was between August 2005 and January 2006 when gold rose by 32 percent from $431 to $569.

Given the above data, the odds of gold topping $1650 by January still seem low - perhaps near 20-25 percent. However, Sinclair may be factoring in the likely hood of an event that could launch gold higher. If any of the events below occur, gold could easily top $1650:

War/and or Oil Crisis - Increased tensions in various strategic locations throughout the world could cut off the supply of oil to the US. Potential locations include Iran, Iraq, Pakistan, Venezuela, and Russia.

Major Currency Devaluation - This could be either the US dollar, Euro, or Yen. It could happen over night or over a weekend. Gold would likely gap much higher on such news, just as when it was revalued in 1933 from $20 to $35 an ounce overnight.

Quantitative Easing 2.0 - The Federal Reserve could initiate another round of financial asset purchases. This would not have the same effect as the first round. Equity markets would likely see little gain; however precious metals would be given a stronger dose of buying.

While it is difficult to estimate the odds of these events, they are more likely than most perceive. Perhaps Sinclair will win his $1 million after all. However, if he proves to be wrong on his bet then investors should be grateful that they have more time to buy gold on dips.

Silver Spikes and Power Struggles

Fri, 06 Aug 2010 17:11:00 GMT

Silver has a history of undergoing massive spikes that look more like a heart rate chart than a stock or commodity chart. Due to silver's conductive and reflective properties, it has been considered a strategic metal for industrial uses since the introduction of electronics. It is the only commodity that has a users association lobbying for the organizations that consume it. Industrial use of silver has been relatively stable; however it is important to note that industrial use of silver has been greater than or near equal to production - which has thinned the market probably more than any other commodity. The reason for this is that both mining supply and industrial production have been near equal and stable. What is left at the margin are investors and speculators which are setting the price - not based upon 600-800 million ounce in global production or consumption but 50-100 million that is the remaining marginal amount that buyers and sellers can get their hands on. When investors aren't buying, the silver market is calm as a pool of stagnate water. However, when investors seek protection from inflation investors line up in a very thin market to produce shock waves.

1980

During the inflation panic of the 1970's the Hunt Brother accumulated a position of around 100 million ounces of silver. They started by taking physical delivery, however they continued buying futures contracts until the price of silver spiked to $50 in January of 1980. The COMEX, then changed the exchanges rules to only accept liquidation orders, and the price of silver subsequently collapsed to the $4 area. Gold trader Jim Sinclair was involved in the liquidation for the Hunt Brothers and still seems fearful of what he witnessed.

1983

Global central banks eased the money supply and credit in reaction to a recession in the US. This led to a return of inflation fears, and silver spiked from $5 to $14.72 in 1983. In the aftermath it fell back to the $4 area.

1987

A decrease in global silver supply, along with economic concerns led to another spike from $5 to $11. It once again fell to the $4 area.

1995

According to reports by Martin Armstrong, and an anonymous trader on ZeroHedge, PhiBro, a trading arm of Solomon Smith began to accumulate futures, and exercise out of the money call options to take delivery through Republic Bank. The CFTC approached PhiBro, and demanded to know the buyer. PhiBro never revealed the buyer, but was quickly forced to reverse the trade. The net effect was a small blip of the silver price in the $5 area. Although it wasn't revealed, there are reports that the buyer was Warren Buffett.

1997-1998

In a similar replay to 1995, Phibro began entering large call option orders through Republic Bank, except this time the buyer takes delivery in London, out of the jurisdiction of the COMEX. In both 1995 and 1998 out of the money calls were purchased and later exercised. The word was leaked that the buyer is Warren Buffett and other traders begin to accumulate positions. Armstrong claims that Republic Bank tried to make it look like he was the buyer; however US regulators tracked the positions to London and discovered it was indeed Warren Buffett who had taken delivery of 87 million ounces with intent to take nearly another 42 million ounces. Buffett publicly announced the investment stating “In recent years, widely-published reports have shown that bullion inventories have fallen very materially, because of an excess of user-demand over mine production and reclamation.” Silver spiked from $4 to 7 and fell back to $4 again.

Buffett never spoke of silver again until 2006 when he admitted he sold it shortly after buying it in when he was quoted as saying “I bought it very early, I sold it very early. Other than that it was perfect”. It is believed that regulators strong armed Buffett into selling the silver back with the threat of being targeted as a manipulator. It is not believed that Buffett had the intent to flip silver for a small profit, nor that he was attempting to manipulate the price.

2000-2008

Given the fundamentals of a long term supply deficit and depletion, in conjunction with negative interest rates, silver could no longer be held at $4 an ounce when it cost $6-$8 to produce it as pointed out in a previous article. An inflationary boom launched all commodities into a bull market. This time though, buyers were not a billionaire or large hedge funds. Instead small investors and smart money bought silver based solely on its fundamental value. Price spikes were mitigated such that both gold and silver rose in a measured slope.

In early 2008, the financial markets began to collapse with the dollar. Speculators were beginning to attack the world's reserve currency and silver hit a peak of 21. It remained at high level until the summer of 2008 when a large amount of silver was shorted. Numerous reports indicate that these trades were being made through JP Morgan, which is also the custodian of the SLV silver ETF. Gold was also shorted in conjunction with a swap of Euros for dollars. The effect was an immediate reversal of a large dollar short trade, collapse in precious metals and the subsequent crash of 2008. Silver fell to the $8 level.

-present

Inflationary policies quickly pushed gold to new all time highs, and silver back up to the $19 level. The structure of the precious metals markets have changed substantially from small value buyers and smart money to larger and more influential institutions and hedge fund managers such as John Paulson and George Soros. This is the classic description of the second phase of the bull market. However, the focus of these funds remains gold.

The word is out amongst large investors on the street to avoid buying silver or be made an example of. There is one thing common amongst billionaires - they all have a lot to lose and must maintain a co-existence with governments and bankers.

As Armstrong has pointed out, no one has survived a run on silver. The Hunts were bankrupted, and Buffett only escaped by immediately closing out his positions. Buffett won't speak of it again, and two of the best known gold traders – Jim Sinclair and Martin Armstrong not only avoid trading it, but even discussing it. It is unlikely that another billionaire will attempt to take delivery of 50 or 100 million ounces of silver again. However, the recent bull market has clearly been base building, similar to what was seen in the 1970's prior to the 1980 silver spike. The larger the base, the larger the spike - and the 1970's silver base pales in comparison to the 2000 base. When the next silver spike does occur there may only be one short seller, but there will be thousands of marginal physical buyers that have simply lost confidence. There will be no Hunt Brother or Warren Buffett to call up and threaten or strong arm, and there will be no one to reverse the trades on. It will be the public, or small retail investor acting in panic.

Some Mining Investors are Already Witnessing Hyperinflation

Wed, 28 Jul 2010 20:37:00 GMT

Some Mining Investors are Already Witnessing Hyperinflation Over the last decade, investors seeking protection from inflation have been accumulating gold and silver mining shares. Gold and silver have appreciated by more than 300 percent from their lows, so it would be logical to assume that mining shares have performed even better given their inherent leverage in earnings potential. Ironically, some of these investments have already suffered from their own hyperinflation in the form of share dilution. Just as governments have mismanaged their budgets and printed too much money; some mining companies have done the same to the detriment of their shareholders.

Coeur d' Alene (CDE), an American silver miner, is one such company. It has diluted its shares so much that on May 27, 2009 it had a reverse 10 for 1 stock split. This article will use post split adjusted figures. Governments often do the same thing with their failed fiat currencies. In the wake of Germany's Weimar Republic hyperinflation, a new Rentenmark was created that was equal to 1,000,000,000,000 of the old German Marks. While not as bad, CDE's shares outstanding have risen from 2.4 million in 1999 to over 80 million in 2009 - a factor of more than 33.

The majority of miners do issue shares in order to raise capital that is invested in projects with double digit returns; however this hasn't proven to be the case for CDE. $1000 invested in CDE in 1999 would now be worth only $440, while an investment in silver would have grown to $3300, and PAAS would have grown to $4220. Clearly not all precious metals investments are the same, and not all mining companies track the price of gold or silver over the long run.

Despite the all time highs seen in gold and a large increase in the price of silver, CDE was unprofitable in 2009 and the share price continued its long term trend downwards. Management's compensation was able to hit a new high though.

	2005	2006	2007	2008	2009
Executive Compensation	2,325,837	3,254,007	5,677,971	5,064,010	5,997,589
Dennis Wheeler, CEO of CDE	1,459,901	1,897,946	2,560,960	2,245,362	2,527,319

It is possible to be right about a major bull market, but still lose money if the wrong investments are chosen. Investors should be careful to only invest in mining companies that restrain themselves from over-dilution. Furthermore, if mining companies such as CDE lose half their value in a 10 year bull market due to share dilution, there is a significant risk that they won't survive a bear market in precious metals.

Where is The Silver?

Tue, 20 Jul 2010 18:18:00 GMT

With the price of gold hovering near 67 times the price of silver, a logical deduction must be that silver is much more abundant, and easy to acquire than gold. To the contrary, evidence proves otherwise. In fact there is very little silver to be found anywhere.

Known Above Ground Silver Holdings
Form	Ounces
Silver ETF SLV	295,313,780
US Eagles Minted	240,418,077
COMEX Warehouses	114,102,049
Estimated Private Bullion (non eagles or maples)	120,000,000
Central Fund of Canada	75,209,103
LBMA Estimated stocks	75,000,000
Canadian Maples Minted	21,303,000
Silver ETF ZKB - SWISS	7,397,885
BMG Bullion Fund	5,033,609
Total	953,777,503

There is nearly twice as much gold as there is silver in the form of investment grade above ground bullion and coins, and that ignores that fact that 52 percent of the worlds gold is kept in jewelry. While there is an 953 million ounces of above ground silver, there is an estimated 1,803 million ounces of above ground gold in bullion form.

It is important to note a few structural differences in the holdings of gold and silver as well. Approximately half of the above ground gold bullion is held by governments. There are no known silver reserves held by governments. While governments have historically sold their gold to finance their budgets and keep the gold price contained there is no similar readily available entity that could sell silver bullion. Precious metals investors often hold onto their precious metals for time periods measured in years, decades, and lifetimes. Most private investors will not sell their bullion for a 10 percent or possibly even a 100 percent gain. Therefore, even if there are nearly 1 billion ounces of silver in existence, the question remains on how much of that is actually for sale at anywhere near today’s prices.

The implied dollar value of all the silver bullion is tiny compared to gold, or other assets. In fact, measured in dollar value, silver is 1/127th of gold. Many investment funds have more than $16.88 billion however gold is more readily available to purchase in larger dollar amounts. Silver may be one of the most neglected and unloved assets of this century. Perhaps, the reason why silver is so cheap, is ironically because it is too rare to be invested in by asset managers. Or is it?