Topic du Jour

May 20 - Gold $1508.80 up $16.60- Silver $35.08 up 16 cents

Gold Makes A Strong Statement, Rocketing Higher Out Of Nowhere

"A nickel ain't worth a dime anymore" … YOGI BERRA

GO GATA!

It doesn’t get any wilder than today. With the euro weak gold managed to rally above $1500 (so much for the gold/dollar bit again). Then, both gold and silver got trashed for no apparent reason. Gold was bombed to $1486, once again breaking its downtrend line of a wedge formation. Silver tanked to $34.05. Then, as the euro weakened further, gold exploded to the upside out of nowhere and silver followed. This was as wacky a gold/silver trading day in a single Comex trading session as I can recall.

The AM Fix was $1502.75, during an early bout of gold strength. There must have been a physical seller of size who showed up as gold dropped all the way down to $1490.75 for the PM Fix. Then somebody of bigger size wanted all the gold they could get in the derivatives market and took the price sharply higher. Either that, or The Gold Cartel wanted to do some serious covering.

What was today all about? Hard to say, but it seems the third time down below $1488 was a charm. When it held and gold began to rally back as the euro was getting hit hard, it unleashed a horde of buyers who were waiting in the weeds. The move fed on itself and really gained steam when it took out its previous high of the day and climbed to $1516. Silver just went along for the ride.

Gold is now $1514.50 in early Access Market trading.

Today was a pleasant gold surprise, but how typical. The Café Sentiment Indicator collapsed the past five days. There was little interest out there to keep on top of the gold and silver markets. It has been the perfect scenario for gold to rocket higher like it did today.

How wild was today? Here’s how gold looked early on, right before its first breakout to the upside...

Then, look what happened…

I checked to see about upside daily reversals in gold and silver. Gold checked its low of yesterday and then took off, blowing through yesterday’s high by a substantial margin. Silver easily took out yesterday’s low by around 50 cents. However, it failed to come close to take out yesterday’s high.

Wonder how much effect this news had on gold?

Fitch downgrades Greece's long-term foreign and local currency issuer default ratings to 'B+' from 'BB+'

* * * * *

The gold open interest fell 2038 contracts to 509,970, while the silver open interest rose 641 contracts to 122,613.

Silver

*The large specs increased longs by 3,303 contracts and increased shorts by 2,748.

*The commercials increased longs by 2,816 contracts and decreased shorts by 4,503.

*The small specs decreased longs by 2,262 contracts and decreased shorts by 994.

Gold

*The large specs decreased longs by 13,554 contracts and decreased shorts by 1,818.

*The commercials increased longs by 10,695 contracts and decreased shorts by 3,937.

*The small specs decreased longs by 4,187 contracts and decreased shorts by 1,291.

The increase in longs by the commercials in both precious metals was a bit of a standout.

Funnily enough, gold began to roar up shortly after I received this brilliant letter by James McShirley to the CFTC…

Bill,
Just sent this off to the CFTC. I don't expect any results, but at least they know we're expecting BIG things after three years of waiting. I also want to keep hammering on the gold manipulation and not let them off the hook on that either.

Sirs, Madam,

As you are aware we are now approaching the third anniversary of what has become your epic CFTC investigation into silver manipulation. Additionally well over a year has passed since the CFTC hearings into silver manipulation on Mar 25th, 2010. You, and all of us, heard the damning testimony by JPM whistleblower Andrew Maguire, and further compelling testimony from William Murphy and Adrian Douglas. Obviously with so much time and effort obviously expended by the CFTC to date expectations are high to say the least. Way back on September 25th, 2008 the CFTC was quoted in the Wall Street Journal (regarding the silver manipulation investigation) as saying:

"We take the threat of manipulation in the futures and options markets very seriously,

Mr. Obie implied the tools and methods at your disposal are formidable. Monitoring potential silver manipulation for the better part of 3 years should have by now produced a treasure trove of evidence. I have far more meager means to identify what I believe is blatant interference in free markets, but have observed the peculiar nature of Comex trading, although in this instance it is gold.. As I have previously mentioned you cannot look at silver alone without also including gold in any manipulation investigation. I have compiled data for the first 96 trading days for gold in 2011, which is from January 1st to May 19th. These are highly suspicious anomalies which I hope you too have identified.

Total Comex trading days: 96

Trading days above 2% gains: ZERO

Trading days with a close above 1% gains: 5 (5.2%)

Trading days with rallies stopped near 1% gains: 33 (35.4%)

Trading days with a sharp AM selloff: 84 (87.5%)

Total PM fixes at least $10 higher than AM fix: ZERO

Total PM fixes at least $5 higher than AM fix: 12 (12.5%)

Total PM fixes at least $10 lower than AM fix: 9

These trading patterns are so extreme that they are impossible in a freely traded market. As you can see gold is virtually never allowed to close above 1%, and in fact over 35% of the rallies STOP at or near 1%. Additionally there is over an 87% chance of an early Comex selloff, and also an 87% chance that the PM fix is either lower, or no higher than $5. Clearly there is a motivated short during Comex trading relentlessly "painting the tape". That someone would need deep pockets, HFT computers, and a disregard for true price discovery. With those parameters it narrows down the suspects considerably I'd say.The gold tape painting entity/entities are also likely to be the silver manipulators.

We eagerly await a CFTC ruling on silver manipulation. Three years would suggest there are serious problems. Since prevention is also one of your stated mandates you must also be concerned that the past three years have been (so far) a free pass for the concentrated silver short(s). I assume therefore that in any prosecution phase penalties will be commensurate to the damage inflicted on injured silver investors during that time. The CME clearly has had no desire to police themselves. They must be sweating bullets at what's coming out of three years of CFTC sleuthing. We await BIG things. I can't imagine handing out any wrist-slaps or exoneration at this point. If that were the case the investigation should have been wrapped up 2 1/2 years ago. To say silver investors, and the world is watching is not overstating the situation. The recent tightness of physical silver supplies are certainly cause for alarm. The increase in Comex cash settlements for silver contracts also looks like trouble could be brewing. These are classic signs of a broken price discovery system. A ruling, and as soon as possible, now seems highly appropriate.

Sincerely,
James C. McShirley

The GATA camp is hitting the CFTC every which way, as this email came my way minutes after the one from James Mc…

From: Richard Guthrie
Sent: 20 May 2011 15:55
To: Chilton, Bart
Subject: RE:

Bart,..
This Comex gold market has become an absolute den of thieves,..

Do you realize that since early November the price of gold has been capped on any open pit daily session,.. There have only been 2 days to my knowledge where the price has been allowed to rise by more than $20 on any single day, one of which was by $22 and the other by $25!.. over 6 months and the price has not even had one 2% up day!..

Of course what is good for the goose is not good for the gander,.. There have been numerous days in the same time frame where the price has been allowed to fall by well over $30-35 in a single session,..

As ever, the insiders are robbing the public,.. Essentially there is little difference between this and a street mugger snatching a handbag off an old lady,.. Only the mugger gets prosecuted if caught,.. As yet the financial police have not administered even a wrist slap to these Crimex bandits,,..

Would someone in the CFTC please get on top of this,..

Yours faithfully,..
Richard

Behavioral Finance Report

*The yield on the 10 yr T note is back to 3.16%.

*An UPDATE from a very savvy Café member…

Bill,
I am shocked by the rolling over of the economy, I had thought it was stagflation until QE2 ended then we would repeat last year> stock market would fall >economy would sputter and then QE3. The way I see it is they can’t risk a drop in the stock market now or we have 2008 squared.

The organized rally in the $ and raid in all commodities was clearly an attempt to play the deflation card. It all started as unemployment claims started to surge. One more counterintuitive manipulation.

Reading the TICS data it is clear foreign official sources have stopped supporting the Treasury. Banks own dollar liabilities kept the $ from breaking. Thus as evil speculators were betting against the $, the banks kept it from breaking. Was the organized $ rally > bashing of commodities a cover to reduce the bank’s exposure to the announcement of QE3 from the banks dollar long commodity short exposure?

For the past few weeks the $ rallied on weak economic news. Today that changed. Is the dead cat bounce over?

My best guess is the Silver crash will look like the Dow crash of 87. Ten years later it will be a blip in the charts. Hope so I put my position back on. Eric Sprott’s analysis on $’s invested in Silver vs Gold compared of size of supply convinced me.

I still have the largest percentage exposure to the equities vs bullion ever 75-25. I am counting on cash flows> internal financing of projects. The industry appears to be able to support itself finally. The wild card being China is clearly doing their due diligence. IMO a couple of Chinese mining financings will be the catalyst for multiple expansion.

What is happening fundamentally in the grain market could be epic. If the weather doesn’t change their will be shortages of corn & soybeans and possibly wheat. Taking them down when they should be going up to ration supply is something you would expect out of the old Soviet Union and will lead to a worse situation in the future.

It appears crude is a similar disaster waiting to happen.

Unless something changes here and now fundamentally with the economy, this thing appears to be ready to blow wide open. If the Fed does not extend we have 08 squared. If the Fed does extend Asia has to de peg or face hyper inflation with us.

Wow and to think the Gold stocks have discounted financial sanity and the stock and bond markets have discounted support to infinity. My bet is stocks and bonds know they have Helicopter Ben on their side. The $ appears to be the fall guy.

Volatility is only going to increase!

***

Crude oil rose $1.05 per barrel to $99.49.

The CRB gained 2.26 to 341.56.

Gold refuses to slide

The CME Final for Wednesday showed that on volume of 166,911 lots, 18.57% above estimate, open interest rose 2,844 lots, 8.85 tonnes or 0.56%, to 512,008 contracts. Considering that gold was up 0.72% basis stock market close and spent most of the NY session trying to go even higher, this is a modest increase. Some some short covering was probably included. Silver, which was up 3.66% at the stock market close, saw an open interest increase of only 0.86%: unquestionably there was short covering there.

On Thursday gold never managed to recover the up $3.80 high in the June contract seen during the Asian day. MKS rather ominously noted some "solid selling" at the highs. However, having made a low of down $10 in June around 10-50AM NY time gold did reverse, helped somewhat by the onset of $US weakness - and interestingly taking leadership back from silver. Having settled down $3.40 at $1,492.40 gold gained another $1.60 to stand 5c higher at 4PM than gold at the stock market close on Wednesday. Silver on this basis was down 4c.

Gold shares had a quiet day, with the HUI and XAU making lows similar to gold’s, of down 0.6% and 0.7%, and closing up 0.29% and down 0.05% respectively. The GDX/GDXJ ratio slightly favored the seniors, +0.38%/+0.23%.

PHYS managed to rise to a 1.99% premium to NAV but CEF slipped back to a 2.8% discount (Wednesday 1.58% and (0.4%)). The GLD ETF reported no change in stated gold holdings of 1191.34358 tonnes.

MarketVane’s Bullish Consensus for gold was unchanged at 70% but silver’s slipped a point to 64%. The HGNSI was unchanged at 7%.

Early on Friday morning local Vietnam gold matched world gold at $1,495.05 (Thursday ($3.36)/$1,498.15).

This evening gold is higher both in $US and Euros, but volume is light.

There is currently no strong technical reason for gold to go down - or up for that matter.

***

Friday, May 20, 2011

A Gartman effect or a Euro effect?

Indian ex-duty premiums: AM $6.92, $PM $($6.07) with world gold at $1,495.90 and $1,502.30. Well above, and well below, legal import point. The rupee stared firm but ultimately finished weaker at $1= R45.01 (44.97). The stock market closed up 1.02%.

World gold was moving rather violently around the Indian close. This may have distorted the PM reading. Nevertheless, it is questionable if gold over $1,500 is popular in India at present.

As noted last night, local Vietnam gold was flat to world gold of $1,495.05 this morning (Thursday($3.36)/$1498.15).

Shanghai gold closed at a premium of $4.77 to world gold of $1,498.94 on volume equivalent to a moderately heavy 8,789 NY lots (Thursday $3.87/$1,494.80). The Yuan made an unusually abrupt move in the context of this tightly controlled currency, rising to a 5.14% post $US "depegging" appreciation (Thursday 4.95%).

The TOCOM public reversed course. On day session volume equivalent to only 5,961 NY lots (unusually, less than Shanghai) the public added 1.465 tonnes (3.8%) to its net long, and open interest rose by 1.023 tonnes (329 NY). The active contract lost 16 yen but world gold gained $3.40 during the session to go out $4.40 above the NY 4PM level.

Toward the end of the TOCOM session this morning gold began surging, ultimately peaking up $11.90 in the June contract around 4AM NY time. A serious $9 slump around 6-30AM was completely reversed going into the NY floor session and gold made a secondary high around 9AM. It then staged a spectacular $16+ plunge to make a low for the day (so far) of down $6 in June, from which it is now recovering.

Early this morning, The Gartman Letter announcing itself very impressed by the action in gold (which of course looked very well at the time) added two "units" of gold, one each in $US and Yen. This brought TGL’s model portfolio to 7/11ths gold.

There was a time, earlier in the bull move, when action in gold by this influential publication was not infrequently followed by abrupt contrary moves in the metal. JBGJ believes this is why TGL has ceased to name stops in gold trades. The possibility of a repeat of this pattern has to be considered.

However, the other feature of the morning was an extremely violent sell-off in the Euro, staring about 5AM. Gold in Euro terms however has surged. Therefore JBGJ sees the morning as roiled by cross currency factors, rather than hit by malign action – the latter being the great dread in the gold market.

CARTEL CAPITULATION WATCH

RG:

Bill,..
Am on the hop so can't add graphs to commentary, but something seems to be seriously amiss with our friends at Goldman,.. I note shares down another 2+% today to circa 135!.. Given it reached a high of some 190 post Lehman's and this is now only some 15 dollars from Warren B's 'deal of the century' warrant rights Thingy-Ma-Jig,.. Something is seriously amiss,.. There seems to be some momentum gathering behind Rolling Stone writer Matt T's latest?.. Is Warren still riding this rigged bet?.. Given how front loaded that whole deal seemed to be, how satisfying would it be if he was to end up holding worthless options on this financial shark!..
Best,..
Rich

U.S. economic news:

Two top Fed officials say easy money still needed

CHICAGO (Reuters) - The U.S. labor market is improving, but not at a fast enough pace to require the Federal Reserve to reverse its super-easy money any time soon, two top Fed officials said on Thursday.

The economy has "a considerable way to go" before it meets the Fed's dual mandate of full employment and price stability, New York Federal Reserve Bank President William Dudley said.

While rising headline inflation figures are "troublesome," Dudley told students in New Paltz, New York, overreacting by raising interest rates would risk "bad consequences" for economic activity and employment.

Chicago Fed President Charles Evans, who, like Dudley, is known for his dovish views on fighting inflation, echoed that sentiment in Chicago, telling a business group that still-high unemployment is keeping inflation under wraps.

Moderate economic growth will trim the unemployment rate, which was 9 percent in April, only slowly, Evans said. Inflation will crest this year at between 2 percent and 2.5 percent before returning to below the Fed's informal 2 percent target, he said.

New information, such as stronger-than-expected GDP growth or evidence that wage pressures are boosting inflation, could force the Fed to reassess its policy, Evans said.

"Contemplating such adjustments in advance will help prepare us for the eventual time when a change in the stance of monetary policy will be necessary," he said. "Despite recent improvements to the outlook, we are not yet at that point."

The Fed has kept interest rates near zero since December 2008. By June, it will have bought $2.3 trillion in long-term securities to bolster the recovery by pushing borrowing rates still lower.

Dudley and Evans, both considered among the Fed's strongest doves, said recent soft economic data is unlikely to persist, as is a recent commodity-price-driven increase in inflation.

They are both voters this year on the Fed's policy-setting committee, and their views mirror those of Chairman Ben Bernanke, who shortly after the Fed's last policy-setting meeting in April signaled he was in no hurry to tighten policy.

Evans did suggest the central bank may signal a change of heart later this year.

Asked whether the Fed could by year's end start letting maturing securities roll off its balance sheet, Evans said it "will be a point of discussion."

Any decision will depend on the pace of economic growth and the inflation outlook, he said, and doing so would only be a first step in the tightening process.

"It is not one that demands action within a timeframe after that, but I think once that begins, markets will start to wonder about what we are doing."

Other Fed officials, such as Minneapolis Fed President Narayana Kocherlakota, have made the case that interest rates should rise by year's end, given improvements in employment and inflation compared with last year.

That view appears to be in the minority.

Dallas Fed President Richard Fisher, one of the Fed's most strident inflation hawks, said on Thursday he was still not sure when might be the right time to begin pulling back on the stimulus.

High gasoline prices are dampening U.S. economic growth, he said, adding, "(The economy) is gathering steam, but robust is not a word I would use."

But Fisher, speaking in the Texas border town of McAllen, did indicate he already felt the central bank should not do any more (to stimulate the economy) and indeed, had gone a bit too far.

"We've gone from too little liquidity to too much," Fisher said.

-END-

Cost to hedge U.S. default highest since January

NEW YORK, May 20 (Reuters) - The cost to hedge against a U.S. government debt default rose on Friday to its highest level since January ahead of the government's sales of $99
billion in securities next week.

Worries persist over Washington's struggle to reach a deficit-cutting deal and to raise its $14.3 trillion legal borrowing limit, which was hit on Monday.

Anxiety over sovereign creditworthiness has been manifested in a rise in credit default swaps on the government debt of Japan and European countries as those regions face their own fiscal problems.

"It's a general disdain against these sovereign problems.

Despite the higher cost to hedge against a U.S. default, Ahrens expects the U.S. Treasury Department will have little trouble selling next week's supply of two-year, five-year and seven-year notes.

Earlier this week, the yield on benchmark 10-year Treasuries touched 3.09 percent, the lowest level since December. This signaled a strong appetite for U.S. debt despite concerns over United States' unwieldy debt load, analysts said.

In the sovereign credit default market, which is lightly traded, the five-year cost to protect a U.S. Treasury default was last quoted at 51.167 basis points , up from 48.401 basis points on Thursday, according to Markit.

The five-year Treasury CDS was at its highest since late January when it reached 51.443 basis points.

-END-

Debt fears nick U.S.'s safe-haven appeal

* Sovereign fears raise questions on US credit-worthiness
* U.S. 5-year CDS highest since January; 1-year CDS jump
* If U.S. misses payments, it will hurt safe-haven status
* But market impact from CDS positions seen limited
* Benchmark yields hover at 5-month lows before auctions

NEW YORK, May 20 (Reuters) - Growing worries over the credit-worthiness of sovereign debt have nicked the safe-haven appeal of U.S. Treasuries just as the government plans to sell $99 billion in securities next week.

The cost to hedge against a U.S. government debt default rose on Friday to its highest since January, while its borrowing costs are hovering at their lowest in five months.

"All sovereign risk is rising and we're facing the rising tide floating all boats effect," David Keeble, global head of interest rates strategy with Credit Agricole Corporate and Investment Bank in New York, said on Friday.

In the sovereign credit default market, which is small and mainly used by speculators, the five-year cost to protect against a U.S. Treasury default was last quoted at 51.167 basis points , up from 48.401 Thursday, according to Markit.

The five-year Treasury CDS was at its highest since late January when it reached 51.443 basis points.

The one-year protection cost on U.S. obligations jumped 15 basis points on the day to 40 basis points, analysts said.

Worries persist over Washington's struggle to reach a deficit-cutting deal and to raise its $14.3 trillion legal borrowing limit, which was hit on Monday.

If the debt ceiling is not raised by Aug. 2, the Treasury Department may run out of maneuvers to avoid skipping interest payments on U.S. obligations. Although the amount of Treasury debt affected will be small, such a move could rattle investor confidence in holding U.S. government securities.

Last month, Standard & Poor's revised down its outlook on the United States, raising the risk it may drop its prized AAA-rating if Washington does not make substantial cuts to the deficit.

While the United States' debt predicament is troublesome, it is in comparatively better shape than Greece, Spain and other weaker members of the euro zone, analysts said.

Anxiety over all sovereign credit-worthiness has been manifested in a rise in credit default swaps on the government debt of Japan and European countries as they face their own fiscal problems.

"It's a general disdain against these sovereign problems.

The five-year cost to insure against a Greek default was quoted at 1,226.409 basis points, up 4 percent on the week, while the five-year CDS price on Japanese government debt was last quoted at 82.678 basis points, up 1 percent from a week earlier, according to Markit.

Even German Bunds, which are seen as the safest sovereign debt by some investors, could not escape the upswing in CDS prices. The five-year price to insure them was last quoted at 24.108 basis points, up 4 percent on the week.

SPECULATION ON DEBT POLITICS

Most analysts downplayed the rise in U.S. CDS as any kind of sign that investors fear the United States will become insolvent. Instead they see the move driven by speculative bets
on whether the Treasury will miss interest payments, which would constitute a "technical" default, if U.S. lawmakers do not increase the debt ceiling by the August deadline, they said. A technical default would trigger payments to CDS holders.

"People are looking for cheap ways to play the U.S. political fears and if the U.S. were to technically default somehow you could get paid a lot," said Ira Jersey, interest rate strategist at Credit Suisse in New York.

If the Treasury were to miss interest payments, the CDS holder could be paid the face value of the credit default contract and deliver cheapest U.S. debt to the CDS insurer. But any market impact stemming from CDS positions will likely be limited, analysts said.

There are $3.9 billion worth of U.S. CDS outstanding, which is a fraction of the trillions in government debt in the market, according to the Depository Trust and Clearing Corp.

Despite the higher U.S. CDS prices, UBS' Ahrens expects the U.S. Treasury Department will have little trouble selling next week's supply of two-year, five-year and seven-year notes.

This week, the yield on benchmark 10-year Treasuries touched 3.09 percent, the lowest since December. This signaled a strong appetite for U.S. debt despite concerns over the United States' unwieldy debt load, analysts said.

-END-

10 GS Goldman Sachs to receive subpoenas on mortgage business - WSJ
The WSJ, citing people familiar with the situation, reports that Goldman executives expect to receive the subpoenas from US prsecutors for documents and other information possibly within a few days. Bloomberg reported 3-May that the Senate report on the mortgage market was referred to the SEC, claiming Goldman had misled clients, the SEC and the DoJ -
Hong Kong

Middle-Class Americans More Productive, But Earning Less: Report

The Huffington Post Janell Ross Posted: 05/20/11 01:30 PM ET

American workers' productivity has soared over the last 30 years, but that extra output hasn't translating into higher earnings for the American middle class,

A 40-year-old male high school graduate earned less in real terms in 2009 than he would have in 1980, according to the report by the Employment Policy Research Network, a collective of labor, management, economics, employment and sociology researchers from 50 universities brought together by the nonpartisan nonprofit Labor and Employment Relations Association.

As middle-class Americans have lost out economically over that 30 year period, productivity, corporate profits and the incomes of America's rich have all soared, the report said. By 2009, 1 percent of the population lived on 21 percent of the nation’s total annual earnings.

The study warned that the average middle-aged man can no longer expect or assume his children's economic situation will be better than his own.

Declining middle-class wages have also helped erode the federal government's solvency, the study's authors said. It might even be causing a decline in the marriage rate.

"As the link between productivity and wages broke down, families and the government turned to borrowing and credit to support living standards," Frank Levy, one of the study's authors and a Massachusetts Institute of Technology professor of urban economics said in a statement. "These options are no longer sustainable."

Starting in the 1970s, a series of economic challenges -- inflation being most prominent -- left companies scrambling to reduce costs, according to the study's authors. Workers, their pay, their unions and their legal protections, along with laws limiting the way that companies could do business, all became the target of corporate attack.

Soon enough, companies slashed employees and wages and developed new products and services that could often be produced by cheaper workers overseas, the study's authors said. The demand for American blue-collar workers, in short, fell far behind their supply.

Executives who conceived of and managed corporate restructuring efforts -- job cuts, taking on and managing debt and wringing more work for what was effectively less pay from workers -- have been rewarded handsomely, the report found. At the same time, the middle class has been asked to do more while receiving less pay, shoddier benefits and no assurance that their jobs will not be sent abroad in the next round of corporate restructuring.

Median weekly compensation of 34-44 year old men working full time:

-END-

Australia’s Nick Laird…

Hi Bill
Silver is just the same with the backwardation as strong as ever.
Cheers Nick

Dear Bill
Hello from Dubai

You might remember that I wrote a while back about rediscovering a 2500 year old Archimedes methodology and its successful application to investing in precious metals.

Good to see so much buzz about Silver. It’s certainly a welcome change from earlier days when most commentators referred to it in an afterthought as "(and silver)".

Some of the commentary has been so virulently negative that you’d think the integrity of the writer’s mother was in question at the very least.

I know I’m speaking to the chorus here but thought you might want to hear some arguments from a different perspective than the usual so here goes:

To start, it must be pointed out that Silver has ALWAYS had a large industrial component always much larger than Gold. Going back in history, and in parallel to it being used as money, Silver was first jewelry, ornaments, ceremonial artifacts and mirrors in ancient times to which later were added more religious artifacts with the proliferation of churches in the western world as well as tableware and cutlery later on during the industrial revolution and Victorian era followed by photography, appliances, hi-fi, accessories and finally electronics which became ubiquitous and affected every aspect of modern life. Note that these applications vary over time but are cumulative so that today Silver is used in ALL the previously described applications as well as many new high-tech ones and that is why some call it the INDISPENSABLE metal.

So the claims that Silver has somehow magically transformed itself lately into an industrial metal is just bunk.

Second, there are some people out there claiming that tons and tons of Silver are lurking in homes as tea-sets and formal dining room silverware waiting for the critical price that will trigger a flood of supply into the market. This is a completely silly argument. How many people do you know that have solid Silver teapots or cutlery ??? Last I checked everyone bought their tableware from IKEA ! And even if you were the lucky one among all the grandchildren to have inherited your great-grandmother’s antique Silver tea-set would you sell it for scrap when a large number of nice upper middle-class ladies from Mumbai or Shanghai would love to acquire it at a premium ?

That argument is obviously a load of nonsense.

Third, those that rant against the monetary nature of precious metals are on the losing side of history. Since the beginning of civilization usually defined as the start of the first Olympic games in 776 BC the world has operated on a bi-metallic precious metals monetary standard and often tri-metallic if you include copper. The first coins minted about 2700 years ago in the kingdom of Lydia in Asia Minor by king Midas’ neighbor, Sadyattes, who was the grandfather of the famous king Croesus and were made of a metal called Electrum which is actually a natural mixture of Gold and Silver. Soon thereafter the metals were separated and coins of Silver began to circulate as currency alongside Gold coins which were used for larger transactions. Ever since that time both precious metals have been used as money worldwide. The ONLY exception to this rule is that for the last 40 years since Nixon’s little gambit in 1971 the world has operated on an "official" fiat currency standard. But has it really ?

During those past 40 or so fiat currency years PRECIOUS METALS HAVE RISEN FOR OVER 20 YEARS AGAINST FIAT CURRENCIES. That’s over 50% of the total fiat currency era !

The governments and central banks of this world may think they have decreed fiat currencies to be the only real money but somehow people seem to think and vote otherwise. End of argument.

Many commentators, including some very prominent ones, question the ability of Silver to perform as money even as they are wildly bullish about Gold. Now, if they took basic economics 101 they would have learned about SUBSTITUTES. Hotdogs and hamburgers are substitutes. Coke and Pepsi are substitutes. Corn and wheat are also substitutes. Champagne and Spumante as well. If the price of one rises too much people buy the other instead.

Gold and Silver are, simply, MONETARY substitutes and for practical purposes they have always been so.

The only thing that varies over time, which in this case spans thousands of years, is the degree to which they are substitutes. So the relationship is elastic but it is undeniably there and can therefore be quantified.

The quantification of that relationship can be expressed by the Gold / Silver PRICE ratio. Over the past centuries this ratio has varied from as low as about 10 to as high as 100. However only on a couple of periods each lasting about 15 years and both in the past century did it go above 50 due to some very exceptional circumstances but for the most time it has remained well below 40. So, really, only now are we starting to get back to the norm.

This price ratio should not be confused with the geologic ratio in the Earth’s crust of around 17 that we so often hear about but that ratio is not of any practical relevance. There is a big difference between what is the theoretical amount of metal in the crust compared to the amount in the ores being mined and in turn compared to the final metal PRODUCED from the smelters. You can NEVER get 100% recoveries.

The actual Gold /Silver ratio that should matter to us is 8.65 which is 735 million ounces of Silver versus 85 million ounces of Gold PRODUCED in 2010. All else is just theoretical rhetoric, just like the amount of Gold that you could extract from the Earth’s oceans. This 8.65 is probably close to the best ratio it will ever get for the foreseeable future since we are using the latest technology to squeeze the most out of the ores being extracted today.

As Gold and Silver continue to appreciate against fiat currencies, due to Silver’s substitution elasticity, it will tend to appreciate faster and THE PRICE RATIO WILL TEND TOWARDS THE PRODUCTION RATIO OF 8.65.

Furthermore, It doesn’t matter that the big boys want or believe that only Gold will be monetized because only Gold is held by central banks. What really matters is what people choose.

To illustrate this let me take you back 30 years or so to the early days of the personal computer in the very late 70s and early 80s. The big boys with deep pockets which included the government, the military, the multinationals, the banks, etc...only wanted mainframe computers and tolerated minicomputers (small mainframes really) in large branches or departments. PCs were viewed with derision and contempt by the establishment and used by geeky hobbyists and some universities to alleviate valuable mainframe time. Then PCs started to proliferate with a plethora of small producers starting up in their basements or garages to great joy from a small band of enthusiasts and early adopters but dismay by the bureaucratic establishment. Eventually PCs started sneaking through the backdoor of large corporations and pretty soon mighty IBM threw in the towel and was reluctantly forced to come up with their own version fast and so it had to use off the shelf components, processors and operating system to the great delight of Intel and Microsoft respectively . And the rest, as they say, is history...

The PC won because it was THE CHOICE OF THE PEOPLE. Whatever people chose will win in the end. IF THE PEOPLE CHOOSE IT SILVER WILL WIN. It’s as simple as that.

Oh, and by the way don’t think that "the people" is only you and your friends and neighbors in the good old USA and maybe Western Europe like it was in the past. It’s not anymore.

Just like the WTIC has become irrelevant to the international price of oil, "the people" that matter to the price and choice of precious metals are in China and India and Brasil and Russia and Mexico and Africa and the Middle East.

They are the ones that will decide the fate of this precious metals bull market and as far as I can tell they don’t seem to give a damn if central banks only want to hold Gold or not.

Finally, I noted, as I’m sure you did too, that Silver has recently punched through the $35 level reaching for its all-time high of $50 and has come back to test the $35 support level again where an interesting battle seems to be developing. Somehow it seems that this $35 level is morphing into something more important than I first realized.

It got me thinking... and then I remembered : THE LAST TIME A MONETARY PRECIOUS METAL BLASTED THROUGH $35 WAS 40 YEARS AGO; AND IT CONTINUED ALL THE WAY TO $880 PER OZ !!!

Just a thought...
All the best
DFK

From The World Gold Council who receives this information from GFMS, who has never taken into account the gold price suppression scheme and the ramifications of the real gold/supply demand numbers … which is why GFMS has been so wrong about what the gold price would do over the years. Nevertheless…

We have recently published the latest issue of Gold Demand Trends first quarter 2011.

( AND SILVER )

· Prevailing global socio-economic conditions will continue to drive investment demand for gold. These include: continued uncertainty over the US economy and the dollar, ongoing European sovereign debt concerns, global inflationary pressures and continued tensions in the Middle East and North Africa.

· Sustained momentum in Chinese and Indian jewellery demand will underpin growth in the jewellery sector throughout 2011. Strong demand in India during the recent Akshaya Tritiya festival and the beginning of the wedding season, alongside extensive purchasing on dips in the gold price, underlines the strength of the Indian market.

· Net purchasing by the official sector is expected to continue in 2011 as central banks turn to gold as a means of diversifying their reserves into an asset with no credit or counterparty risk.

Gold Demand Statistics for first quarter 2011:

· Global gold demand in the first quarter of 2011 totalled 981.3 tonnes, up 11% year-on-year from 881.0 tonnes in the first quarter of 2010. In value terms, this translated to US$43.7bn, compared with US$31.4bn in the first quarter of 2010, an increase of almost 40%. This was largely attributable to a widespread rise in demand for bars and coins, supported by an improvement in jewellery demand in key markets.

· The quarterly average gold price hit a new record of US$1,386.27/oz (London PM Fix), its eighth consecutive year-on-year increase. Despite a period of price consolidation in the early part of the quarter, it climbed to record highs throughout March and has continued to achieve new highs in April and May.

· During the first quarter of the year, investment demand grew by 26% to 310.5 tonnes from 245.6 tonnes in the first quarter of 2010. In value terms, investment demand was US$13.8bn. The main growth came from bar and coin demand which increased by 52% year-on-year, to 366.4 tonnes. In value terms, this represented a near-doubling of demand to US$16.3bn from US$8.6bn in Q1 2010.

· ETFs and similar products witnessed net outflows of 56 tonnes ($2.5bn). Redemptions were concentrated in January. Despite the outflows, the collective volume of gold held by global ETFs by the end of the quarter was in excess of 2,100 tonnes equating to more than $95bn.

· Jewellery demand in the first quarter of 2011 registered a gain of 7% from year earlier levels of 521.3 tonnes to reach 556.9 tonnes. This equated to a record quarterly value of US$24.8bn. India and China, the two largest markets for gold jewellery, together accounted for 349.1 tonnes or 63% of the total, a value of US$16bn. China’s jewellery demand reached a new quarterly record of 142.9 tonnes ($6.4bn) up 21% from 118.2 tonnes in the first quarter of 2010.

· Technology demand remained steady in the first quarter at 113.8 tonnes ($5.1bn). A revision to the fourth quarter figures now means that 2010 was the highest year on record for gold demand in electronics at 326.8 tonnes or $12.9bn.

· In Q1 2011, gold supply declined by 4% year-on-year to 872.2 tonnes from 912.1 tonnes in the first quarter of 2010. This decline was due to a sharp increase in net purchasing by the official sector and a fall in the supply of recycled gold, which was down 6% on year-earlier levels to 347.5 tonnes from 369.3 tonnes in the first quarter of 2010. Mine production increased by 44 tonnes year-on-year, a growth rate of 7% from year earlier levels, with negligible net producer de-hedging.

· Central bank purchases jumped to 129 tonnes in the quarter, exceeding the combined total of net purchases during the first three quarters of 2010.

-END-

GATA’s good friend, Eric Lemaire of 24hgold.com…

Dearness of mining stocks to gold ratio

Dear Bill,
In case this might be of interest to you, I just added an indicator and a graph on www.24hGold.com whose purpose is to show the dearness of gold mining stocks compared to Gold.

This graph presents the XAU to Gold ratio, in other terms how much grams of Gold are necessary to purchase one XAU. This ratio is useful to measure the dearness of Gold mining stocks compared to Gold. You will find it here below, in real time since 1983 :

ratio is also presented on the home page as the following small indicator, with a link to the graph. Today's value is 4.15, a very low level.

As you can see, this shows clearly that gold mining stocks are historically undervalued compared to Gold, which means something will have to give. Either Gold crashes, or mining stocks fly. There is also a third possibility, of course, that "this time it is different" and that mining stocks have changed their trading pattern compared to Gold, thus meaning that the market assigns them a much higher risk and discounts them a lot more .

I hope you will find this helpful.

With my best regards
Eric

Dave from Denver…

Friday, May 20, 2011

Yaaaaaa Baby! U2 In Denver Tomorrow!!!!

I can't wait to see them! I saw them last in NJ at the Meadowlands in 1997 - the Pop Tour. So I'm doing an abbreviated post today. Besides, I'm spending most of my morning taking taking profits on the mining stocks I loaded up on near the close yesterday and adding to our junior mining positions at ridiculously cheap prices. Some of the ones I bought yesterday are up over 5% right now as I write this!

It's my view that silver/mining stocks are washed out to the downside. Gold never even really had much of a correction since the attack on commodities three weeks ago. Today's action convinces me that bullion banks and Fed will have trouble taking the metals lower.

It's no coincidence that the hit on silver occurred AFTER Europe and Asia went home for the weekend, leaving only the paper thiefs in NYC to try and hammer down the price of metals. They took a shot at silver on the heels of TWO voting FOMC members stating today that they can't take away the easy money anytime soon:

Today’s gold action was extremely powerful, especially in terms of outside market action. The move up today as the euro was getting hit hard was stunning. There was no way for The Muppets to account for today. Yes, they will say it was safe haven buying, but if the price were down, they would be saying it was because of the stronger dollar or that gold is not a safe haven anymore. Once again, this is why it is so important to know what GATA knows. The last takedowns in gold and silver were nothing more than Gold Cartel orchestrated raids. The GATA camp knows these raids don’t last for long and that is why we have been right about the prices of gold and silver for 11 years.

The fundamentals of gold and silver have never been better. The stage is set for both to rally into new all-time high ground.

GATA BE IN IT TO WIN IT!

MIDAS

Appendix

Robert McTeer..Former President of Dallas Fed

Bill.... My response to McTeers comment that "that gold and silver were in a bubble and that if he had any money he would short them. "

I have three questions for Robert - can I call him "Bob" for short?:

1. If Bob is shorting gold and silver, and 1.2 billion Chinese are buying, along with the Chinese government, how does he think that trade will play out?

2. If China starts scaling out of US Treasuries, as they have PROMISED TO DO, how will holding US dollars fare against holding gold and silver? a. worse: how will shorting gold with US dollars pan out?

3. How will shorting gold work out when China, the largest gold mining country in the world, has stated that via the People's Bank of China, "they will be supporting large scale mining producers in overseas expansion, primarily by issuing lines of credit and backing them financially and in other ways" -Gold and Energy Advisor May 2011.

4...I know, I know, I said 3, but I can't resist one more:
As former president of the Dallas Fed, is Bob not aware that Brazil, Russia, India, Africa, Uzbekistan, New Zealand, South Korea, Belarus, Malaysia, Indonesia, Singapore, Iceland, and Argentina have made arrangements to be able to trade with China, WITHOUT USING US DOLLARS AS A GO-BETWEEN?
George C

Cartels

Hi Bill, for some reason the link did not work in yesterdays Midas. The reason I send it again is because I think it is important when we talk about the Cartel we should know how powerful and manipulative they are. Their big weakness seems to be that they do not have any large quantity of silver and if they want some they will pay a lot more than the current price. Try this link to Charles Savoie superb expose of these guys

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More gold goodies:

Thursday, May 19, 2011