-- Posted Sunday, 7 March 2010 | | Source: GoldSeek.com
The following are some snippets from the most recent issue of the International Forecaster. For the full 25 page issue, please see subscription information below.
US MARKETS
Sovereign debt hangs like an albatross around the necks of too many countries. There are 17 medium-size to large countries that are close to, or are bankrupt. Many are being kept solvent by using two sets of books and by marking to model. As you know we expect these bankruptcies to take place by the end of 2011. That will be accomplished at meetings such as we saw in the 1970s at the Smithsonian, the Plaza Accord of 1985 and the Louvre Accord of 1987. There will be a realignment of currencies.
America, like many other nations is mired in an inflationary depression, and even if the economy were to return to where tax revenues accelerated, we would still have a deficit of 6% to 8% of GDP. In order to have real recovery we need a public debt to GDP ratio of 3%. The problem is government refuses to cut deficit spending. Such policies curtail investment and lasting productivity growth. An economy cannot long endure a government that represents 24% of GDP. In the late 1960s we had government spending at 20% of GDP. There was a run on our gold dollar backing and on 8/15/71 gold backing had to be abandoned. Thus, you can see how difficult today’s problems are. In fact during the depression it was only 10%. As you can see what we have today is a monstrous situation. Government is destroying our country and worse yet our debt can never possibly be repaid. A federal deficit of 10% of GDP cannot long be tolerated. Quantitative easing is supposed to end this month. If it is not foreigners will probably totally stop buying dollar denominated assets. That means more Fed secret buying, more monetization and more inflation to accompany the M3 increase of 29.5% in money and credit. Those actions surely will put pressure on America’s AAA credit rating. America has joined the ranks of nearly bankrupt or bankrupt nations. America’s finances are a giant fraud and over the next two years it will be plain for all to see.
The three best plays investment wise is to be long gold and silver related assets and to be short the general stock market, as well as bonds. Over the past two years the treasury and the Fed have spent $12.7 trillion and are liable for $23.7 trillion, so says our inspector general. Things are not getting better they are getting worse. What does government do after the stimulus and quantitative easy ends? If they do more of the same the problem will just worsen. They have no permanent solution. They are like a ship without a rudder in a stormy sea and the rocks are not far away.
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GOLD, SILVER, PLATINUM AND PALLADIUM
Last week in the pits at the Comex buyers showed a net preference for silver over gold. Mining shares were steady as they led gold and silver upward. The pros are still significantly short the dollar, gold and silver and the shares. Currency debasement continues apace as all currencies continue to fade versus gold. The long-term trends for a lower dollar and higher gold and silver prices are still firmly in place.
GLD lost 0.61 tons of gold to be net long 1,106 tons worth $39.4 billion. The big increase in holdings came prior to March 2009, when gold traded below $950. It has been a push since then. The five gold ETFs collectively fell 1.68 tons to 1,293.44 worth $46.1 billion. Over the past year inflow has been static, probably a reflection of some public opinion that GLD does not have the physical gold it says it has. Physical availability for off take has not existed in the markets over the past year and we believe they have been using derivatives and futures and have been lending gold to the government and speculators. Another salient fact is that long-term holders are not sellers. GLD, mostly for professionals, is a hedge and we believe those who view GLD as a substitute for a gold backed currency are dead wrong.
The silver ETF SLV increased by 30.51 tons to 9,476.91 tons worth $4.9 billion. The size of SLV has not changed much over the past four years. That can be in part attributed to the strangle hold the giant shorts. JP Morgan Chase and HSBC have had on the metal and the lack of regulation by the CFTC. Their futures and derivative participation are a large reason as well. Due to both these factors many have taken physical delivery and some have bought silver shares. Irrespective from an historical viewpoint gold and silver, as we have often said, are the only safe places to keep your wealth in today’s climate of un-backed fiat currencies. As time goes on this trend will accelerate as sovereign debt problems persist and currencies fall in value versus both these metals.
Commercial traders reduced their silver shorts by 475 contracts to be net short 41,395, as OI fell 1,158 contracts. That is a net short of 71.9% almost all held by Morgan and HSBC.
In gold, the COT commercials report we see net shorts were increased by 18,166 to 219,878, to 238,044, or up 8.3%. Since then gold has rallied up to $1,145.00, which puts them thus far on the wrong side of the trade. In that process OI increased by 63 contracts that some of the shorts may have covered and gone long. The net short position rose from 47.1% to 51%.
In silver collective net shorts increased 1,544 contracts, or 4% from 38,226 to 39,770, as OI fell 2,790 to 117,376. That was almost an exact reversal of the previous week. The net short rose from 31.8% to 33.9%.
On Wednesday, spot gold rose $5.80 to $1,142.70, as April rose $2.00. For several days spot prices have finished higher than the outside month, which means physical sales are very strong and efforts by government to suppress prices with futures and derivatives is not being successful. Spot silver rose $0.26 to $17.31 and April rose $0.15. Gold open interest rose 9,950 contracts to 482,786 and silver OI rose 175. The XAU rose 2.32 to 170.28 and the HUI gained 6.73 to 428.36. Indian gold imports in February were 34 tons, up from 7.9 tons y-o-y and down from 37 tons in January.
Russia may buy the IMF gold that is being offered. Russia holds 582 tons or 5% of foreign reserves. Generally banks hold 10% of reserves in gold if they have backing at all. In three years their holdings are up 57% and 22% y-o-y.
Again the ECB sold no gold for the 4th week in a row. This is a new record for non-selling.
You have all seen the German TV film from Argor Heraeus gold refinery in Germany, which was sent to them for refining. We took a lot of flack for months for sticking by Rob Kirby’s story that tungsten filled gold bars, that the Chinese received, were just that. Now an un-intimidated German refiner outside Frankfurt has broken the conspiracy of silence by central banks. I know the city well; I have been there often in the past.
The question now is how many of these bars exist and who created them? Those holding bars have to be very nervous. We see new testing procedures in the future. We do not see this being a problem for coins. They are too easy to spot.
Silver production hardly will grow in 2010 and silver should break out from its previous high of $20.78. The four banks, which have been manipulating the silver market will soon lose their grip on the price as bullion and coin purchases rise. JP Morgan Chase and HSBC will bite the dust this year.
Over the past ten years silver has only risen 219% whereas gold is up 295%. It is important to know that over the last 110 years 94% of above ground supplies have been used up. The net supply of above ground stocks fell 14% in 2008, and sales had fallen 27% in 2008.
Physical demand continues to climb and rumor has it that SLV is short 200 million ounces. If true, that factor could drive prices higher as owners call for delivery. Higher inflation is on the way, which will be followed by the deflation of the sovereign debt crisis. Thos events should provide some very positive upside action.
Silver stockpiles continue to be depleted. If so much silver is lying around why are contracts being settled for cash at a premium? Why the long delays for delivery? Silver lease rates remain in negative configuration. Why are we looking at silver and gold prices continually in backwardation? (the spot month selling higher than the outside contract month) Why has it taken a year for the CFTC to tell us the major commercials, banks, are rigging the prices?
The Dow closed up 9 to 10,397; S&P rose 4 and Nasdaq fell 1 Dow point. The yen rose .0034 to $.8834; the euro rose .0100 to $1.3700; the pound rose $0.0145 to $1.5093; the Swiss franc rose .0071 to $1.0678; the Canadian dollar rose .0045 to $.9698 and the USDX fell .53 to 79.98. The 10-year T-note was 3.62%.
Oil rose $1.27 to $80.95; gas rose $0.05 to $2.25 and natural gas roses $0.06 to $4.77. Copper rose $0.02 to $3.41; platinum rose $3.50 to $1,579.50 and palladium rose $8.80 to $452.25. The CRB Index rose 2.58 to 277.71.
In euros gold hit a record high of 836.72 euros an ounce, up from 823.66 on Monday. Gold priced in British pounds hit a record of 759.86 pounds an ounce, up from 744.85.this will tell you why you need to be in gold and silver related assets and not in currencies.
Let’s look at gold’s performance versus some major currencies since 2008. In 2008, gold lost 1% versus the dollar; in 2009, it lost 24.7% and y-t-d in 2010, gold has risen 24.3%. Versus the euro the losses were 5.7%, 21.8% and 16.9%. Versus the pound it was 37.8%, 11.9% and 8.9%, and versus the Canadian dollar it was 25.7%, 7.3% and 7.8%. Even versus the Chinese renminbi, gold fell 5.4% in 2008, but in 2009 gold gained 24.6% and y-t-d it is up 24.3%. Again, anyone investing in assets in dollars is foolish. The only place to be is in gold and silver coins and shares.
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