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Posted: 7 September 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news
GOLD
 
Gold prices punched through the $1900 level on Monday after falling by almost $200 an ounce in two days only two weeks ago. This rebound comes in spite of a series of margin hikes for gold futures by the CME, the Hong Kong Mercantile Exchange, the Shanghai Gold Exchange as well as the Thai Exchange. Obviously traders are confident that betting on the long side is worth the risk. I believe the initial leg of this rebound occurred almost as soon as gold hit $1702 an ounce. And, I see prices soon making new record highs in the short-term despite all the regular drivel made by the same usual gold critics. Only two weeks ago they were screaming their regular disparaging remarks and warning people of an impending bubble in the gold market. I wonder what they have to say now.
 
One interesting view came from analysts at Wells Fargo & Co led by Dean Junkans. According to the report, speculative demand from investors has pushed the gold market into a “bubble that is poised to burst” after prices surged to a record this year. “We have seen the economic damage” of past bubbles and “feel compelled to ring the warning bells,” Wells Fargo analysts said in a report dated August 16, 2011. . “There could be substantial risk to gold once the fear that the world is coming to an end subsides,” Junkans said in a telephone interview from Minneapolis. “We are worried about the downward risk.”
 
A week later, Erik Davidson, the deputy chief investment officer at Wells Fargo and one of the authors of the report, said in a telephone interview with Bloomberg, "The motions that you are seeing are now indications of a market pop."
 
In South Africa I have never seen so many so called “investment advisors” be so consistently wrong for so long. While they are entitled to their own opinion, it gets too much when they continue to denigrate gold. They have been doing this since it was less than $500 an ounce! Surely, by now they must wonder what is going on or at least recognize that the yellow metal has been and remains in a very strong bull market. It is a wonder why the presenters of the various TV business channels even bother to ask these pinheads for their opinion on gold anymore as it is abundantly clear that they know nothing about the gold market. Recently, I received calls from numerous clients who asked me if I heard one presenter on a popular South African radio channel completely slam gold. Evidently in his almost hysterical antagonism towards gold he warned his listeners against owning gold. Yet, while he continues to propagate misinformation about gold, the price keeps moving upwards. However, there is a plus to these individuals. You see sometimes these so called “experts” are so wrong so consistently they can act as a trading indicator. In order to have a successful trade, simply do the opposite of what they say. You don’t even need to look at a chart. You can even name your trading system after them.
 
Friday’s non-farm payroll report from the US was dismal and shows that the momentum in the US labour market has stalled. Non-farm payrolls showed zero growth in the job market disappointing all market expectations which were looking for a gain of around 90,000. The discouraging news raised expectations of market participants that the Fed will engage in some form of stimulus which will of course boost prices of precious metals. The unemployment rate was unchanged at 9.1%.
 
While fears of a deepening global recession continue to worry investors, the never ending problems in the Eurozone also give investors cause for concern. Yields on 10-year Italian bonds rose to 5.21% — well above the 5% level that is considered to be the top rate desired by policy makers. On August 08, the ECB purchased Italian and Spanish debt to help calm markets after 10-year rates had spiked to around the 6% level. And, once again Greece was in the spot light after a team of European and International Monetary Fund officials pulled out of Athens when they apparently disagreed over the country’s deficit figures and how to make up for a growing budget shortfall. An initial loan package, agreed to last year, has since been supplemented by a second bailout deal, but which now hangs in the balance amid demands by some Eurozone countries for guarantees from Greece in the form of collateral. Without that fresh aid, Athens could default on its obligations. The Greek Finance Minister Evangelos Venizelos denied that there was a rift with the auditors over the country’s ability to meet deficit reduction targets set by the foreign creditors. Mr. Venizelos said that Greece’s economy was expected to contract by “up to 5%” but would not give a figure for the Greek budget deficit, broadly expected to overshoot a deficit target of 7.6% for 2011 by up to one percentage point. Greece has been given ten days to come up with proposals to put the austerity plan back on track and the talk between Greece and IMF will resume on September 15.
 
Even though European bank stocks plummeted during August, the recent $200 drop in gold probably received more attention in the media. Yet, when the price of gold moves upwards, it goes almost unnoticed. In August Europe's banks were forced to accept losses of more than 20% on their Greek bonds, which were already trading down by approximately 50%. Royal Bank of Scotland's accountants decided to actually mark their bonds to the market and took a $1.2 billion loss. The stock collapsed as a result. However, most of Europe's banks didn't mark their Greek debt to the actual market price. They merely took losses of around 20%. Banks such as Societe Generale, Deutsche Bank, BNP, Unicredit and Belgium's Dexia for example have understated their real losses which mean that sooner or later, these banks are going to have to take additional losses on these assets, probably more than double the losses they've already taken. That alone would make some of them insolvent. Likewise, almost all of the Greek banks would be left insolvent by a 50% decline in the value of Greece's government bonds.
 
Perhaps now, you may understand why I have been so vociferous in my comments about the debt problems in the Eurozone and the US as well as the rhetoric that we constantly hear from leading political figures, policy makers and economists. Most of them have been wrong and they have failed to find a suitable solution to the current global monetary system. If something is not done soon, we will enter the point of no return and the only way from having your savings totally wiped out will be by owning gold. As investors turn to safe haven assets amidst this turmoil, we can expect to see higher gold prices. In addition, and while I do not recognise them as a safe haven investment, investors will turn to US Treasuries. And, when it comes to currencies unless the SNB intervenes in the currency market I believe we will see further gains in the Swiss Franc.
 
I have long advocated having at least 10% - 30% of your portfolio in physical precious metals. Since early 2003, this has turned out to be profitable advice, as gold and silver have outperformed most other asset classes. If you consider the state of the US economy, as well as the instability of global economies, burgeoning global sovereign debt, massive budget deficits of most major western governments and the fact that we are in a global currency crisis, I believe it is more important than ever for investors to own gold as a portion of their portfolios. Inflation, depression, and sovereign default are all possible scenarios I see on the horizon. And, if we see the collapse of the international dollar system, then gold and silver may be the only viable currency for global trade. I firmly believe that gold is your best insurance in today's turbulent markets. It is not about seeking yields, it is about protecting your wealth. Historically, it has been proven that gold is an effective preserver of wealth. It is the classic hedge against inflation and can provide a cushion of savings in even the most extreme economic environments. There is not a country on this Earth that doesn't demand gold, and if you still don’t own any now is the time. But, make sure you buy the physical bullion.
 
TECHNICAL ANALYSIS
 
Gold’s recent push through $1850/oz (blue circle) sets it up for a move that could take it to $1950/oz in the short-term.
 
SILVER
 
In the last seven sessions the price of silver has moved from $39 an ounce to just above $43 an ounce a move of around 10%. In the meantime gold rebounded from $1702 an ounce to $1922 an increase of around 12%. Usually, the moves in silver are larger than those in gold, but at the moment as gold takes center stage amid the global turmoil in the monetary markets, it is understandable that most of the action is in gold. However, with gold trading at around $1900 an ounce and silver at $43 an ounce, I believe that the price of silver is totally undervalued and is setting up to make a move to the upside and a another attack on the long-term resistance level set at $50 an ounce.
 
As I have written so many articles on why individuals should invest in silver, in this edition I have decided to write about something entirely different. I chose to do this because recently I have had a few clients ask me about silver limited edition medallions in particular the one ounce silver Mandela/De Klerk Medallion and the one ounce silver Mandela Robben Island Medallion.
 
Let me state categorically, that as far as I am concerned these are a total waste of money and offer no investment value whatsoever. When I was told that the one ounce Mandela Robben Island Medallion was being offered at R1400, I practically collapsed. This is equivalent to US$200 an ounce!!! The current price of silver is around $43 an ounce. This is not a “rare” coin, it has no history and has no recognized market overseas. Just because the Mint of Norway has minted a limited number of these medallions it does not meant that this medallion is rare. Usually rarity is determined by the surviving population from the original mintage, not because the company minting or selling decide to make a “limited” quantity. But, in any case even if there were only 1000 of these medallions minted, for R1400 I would prefer to buy 3 once ounce US silver eagles that is recognized all over the world and which had a mintage of 35 million last year. This is by far the better investment. Stick to bullion coins and bars and not “rares.”
 
Don’t make the mistake of being beguiled by some sales person into believing that these type of medallions offer great investment value. They simply don’t. However, if you are a collector and like to accumulate medallions, then go ahead.
 
TECHNICAL ANALYSIS
 
The price action for silver in the last 7 sessions has been very encouraging even though the volumes have been relatively average. Once the price of silver breaks through $44 an ounce, I believe we will see it move to re-test $50 an ounce.
 
David Levenstein

www.lakeshoretrading.co.za 


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Posted: 14 September 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

GOLD

 
Greece didn't default over the weekend, but it is quickly running out of cash with officials from the International Monetary Fund, European Union and European Central Bank returning to the country Wednesday to determine if Greece will qualify for its next bailout tranche after failing to meet deficit reduction targets. The probability of a Greek default in the next five years has soared to 98% as Prime Minister George Papandreou fails to reassure international investors that his country can survive the Eurozone debt crisis. The nation’s government now expects the economy to shrink more than 5% this year, which is considerably more than the 3.8% forecast by the European Commission. The risk of contagion beyond Greece pushed sovereign credit-default swap prices to record highs across the Eurozone. European bank debt risk also rose to the highest ever amid speculation French lenders will be downgraded because of their holdings of Greek bonds. The contagion impact of a default will be severe and Italy, Spain and Portugal will become the next victims of this crisis. And, that will impact negatively on the entire European banking sector. No wonder credit-default swaps on Portugal, Italy and France surged to records. In the meantime, in the latest move in the global currency war, last week, The Swiss National Bank shocked global markets on Tuesday by saying it would buy unlimited quantities of foreign currencies to prevent the franc from rising above 1.20 Swiss francs to the euro, as it fights to contain the meteoric rise of its currency that threatens its exports and economy. In a statement made on Tuesday, September 06, 2011 the Swiss National Bank (SNB) said the following:
 
With immediate effect, we [the SNB] will no longer tolerate a EUR/CHF exchange rate below the minimum rate of 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities." Immediately after the announcement, the Swiss Franc dropped by around 10% to the Euro and while this action may deter investors from ploughing additional money into the Swiss currency in the short-term ultimately, the SNB cannot control what happens to the economies in the rest of the world. And, unless there is an improvement in the economies of Eurozone and the US – which I can’t see happening anytime soon - it will be very difficult for the SNB to keep the Swiss franc from rising once again. While the Swiss franc is globally well-respected as a safe haven currency, the SNB do not have unlimited resources to continually intervene in the currency market and the currency cannot compare with the US dollar, euro or Japanese Yen, in terms of size and circulation. Thus, further interventions by SNB are rather limited. Even if the SNB had not intervened in the currency market, the deterioration in the Eurozone debt crisis and the U.S. economy's inability to create a single job last month will only increase investors’ concerns about global economic growth while at the same time decrease their confidence in paper assets in particular the world’s fiat currencies. After the SNB intervened in the forex market and as the debt crisis in the Eurozone deteriorated, the euro dropped more than 400 pips in two days against the greenback. Yet the price of gold remained relatively soft and very volatile. In light of the Euro debt crisis and a potential default by Greece, one would expect the price of the yellow metal to be much higher. As the fundamentals have not changed, and by looking at the price action of gold it is clear to see that the US bullion banks are once again attempting to drive prices lower by using the futures markets. In their all too familiar strategy of selling on the open of Comex yesterday’s price action seemed to follow this pattern perfectly. Additional downside action could also be attributed to the stronger US dollar; the possibility of margin calls as well as the liquidation of gold positions in order to cover losses in global stocks. Nevertheless, any market manipulation in gold will be short-lived and the lower prices will only attract prudent buyers of the physical metal as well as bargain hunters.
 
As much as the usual gold critics would like to see gold prices collapse, I think they are going to be in for another big surprise, not that this is will surprising, after all they have been consistently wrong for the last ten years or so; an achievement worth some acknowledgement as far as I am concerned.
 
With a potential Greek default looming resulting in massive losses for European banks, and, since the U.S. Treasuries lost their triple-A status in August by Standard & Poor's, and as German Bunds waver as investors ponder the cost to Germany for bailing out its neighbours, and the Swiss franc with limited upside, I find it surprising that the price of gold is not already trading back above $1900 an ounce. Since gold was less than $500 an ounce I have been continually urging individuals to own some physical gold. Gold has always been a safe-haven asset so named for the reassurance it offers investors when markets become unstable. In today’s global economic climate, it is more important to preserve your wealth than try to locate some high yielding low risk bond or equity. That is why it is essential to own precious metals in particular gold and silver.
 
TECHNICAL ANALYSIS
 
During the last week, the price action of gold was very volatile. It seems that gold is stuck between $1800 and $1900 an ounce. Long-term investors should buy on the dips as I see a break above $1900 level in the short-term.
 
SILVER
 
The price of silver still remains trapped between $38 and $44 an ounce, even though the fundamentals driving these prices have not really changed. The precious metals buying season has started in India, the world’s largest fourth largest consumer of silver. Both gold and silver play a significant role in the nation’s cultural festivals as well as the wedding season, a factor that greatly influences the seasonal price movements of these precious metals.
 
As any knowledgeable silver buff will tell you, the white metal’s strongest rallies of the year are usually in the northern hemisphere autumn and winter (2008 being an anomaly, of course). According to the seasonal analysis Adam Hamilton of Zeal Research conducted for the period between 2000 and 2009, “between early September and early December, silver tends to rally 11.4% higher on average.” After a dip in early December, “on average over the last decade, silver has surged 13.5% higher during January and early April.” Hamilton found that, statistically speaking, the best months for silver prices are November, January, February and May when “4% to 5% gains can be expected.”
 
However a multitude of factors can influence price movements in a given period. An important factor to consider in making projections about silver prices for September through April is an agriculturally healthy or poor monsoon season in India, where approximately 70% of gold and silver is purchased by rural farmers. The country is one of the world’s biggest producers and consumers of crops.
 
Cultural beliefs in the rural areas lead farmers to invest their money almost entirely in precious metals rather than hold it in a bank account. “They don’t trust banks, they trust their jeweler,” said Bhargava Vaidya, bullion expert and director of B.N. Vaidya & Associates, in a Wall Street Journal article earlier this year.
Preferring to buy jewelry, coins and bars, more and more farmers are turning to silver as an alternative to gold as prices for the yellow metal surge higher and higher. “Silver coins and bars have a very significant meaning to the rural community. We know of farmers who buy silver bricks in several kilos and lay them at a not-so prominent spot in their field, praying for a good harvest,” said bullion dealer Tanna Ghosal,
 
The June-to-September monsoon season is crucial for staple Indian crops including corn, cotton, rice, soybean and sugarcane as nearly 60% of farms depend on monsoon rains for irrigation. Too little rainfall means losses and therefore less money for farmers to invest in gold and silver, which could significantly impact prices in the months of January through April.
 
“Last year the monsoon was excellent,” said Prithviraj Kothari, president of the Bombay Bullion Association, leading to surging Indian demand for gold and silver in the winter months. (Source Silver Investing News).
 
TECHNICAL ANALYSIS
 
The price of silver continues to consolidate between $38 and $44 an ounce.
 
David Levenstein

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Posted: 28 September 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news
GOLD
 
The global economy is faltering and the world’s monetary system is looking exceedingly precarious, yet the price of gold has plunged in the last week. Soon after US Federal Reserve chairman, Ben Bernanke, announced Operation Twist, a policy intended to reduce borrowing costs, global markets plunged. The Fed's $400 billion plan, named "Operation Twist” is the latest in a series of steps aimed at reviving an economy that has very sluggish growth and high unemployment. In this new strategy, the Fed said it intends to sell shorter-term notes and then use those funds to purchase longer-dated Treasuries. It will also reinvest proceeds from maturing mortgage and agency bonds back into the mortgage market, in hopes that it will help an already battered housing sector. Frankly, I think this latest strategy will fail miserably. You don’t have to be an award winning economist to understand that if people do not have a source of income, no matter how low the borrowing rates, they are not going to embark in making a new house purchase. And, this policy is going to do absolutely nothing to stimulate the economy and generate new jobs.
 
Initially the market reaction was rather muted but then in a broad-based sell off that included equities, commodities and gold, the Dow Jones industrial average dropped by 283 points or 2.49% to 11,124.84. The Standard & Poor's 500 Index lost 35points, or 2.94%, to 1,166.76, and the Nasdaq Composite Index fell 52 points or 2.01% to 2,538.19. The selling continued for a few days as investors cut positions in equities and commodities. Evidently, when Bernanke mentioned the words 'significant downside risks," investors got spooked and worried that the Fed's latest plan will have little effect on lending in an economy that appears to be stagnating, which the Fed also noted. Investors sold practically anything to turn the proceeds into cash, the biggest beneficiary being the US dollar. Can you believe that? This is a doomed currency that it is only experiencing a bounce due to the weakness in its major rival the euro.
 
According to the International Monetary Fund, the European debt crisis has generated as much as 300 billion euros ($410 billion) in credit risk for European banks.
 
“A number of banks must raise capital to help ensure the confidence of their creditors and depositors,” the IMF wrote in its Global Financial Stability Report released Wednesday. “Without additional capital buffers, problems in accessing funding are likely to create deleveraging pressures at banks, which will force them to cut credit to the real economy.”
 
The IMF also cut its global growth forecast and predicted “severe’ repercussions if policy makers fail to stem the debt turmoil that’s threatening to spread to Italy and Spain. Moody's Corp cut the debt ratings of Bank of America Corp, Wells Fargo & Co and Citigroup Inc., saying the U.S. government is getting less comfortable with bailing out large troubled lenders. Moody's Investors Service downgraded eight Greek banks by two notches. National Bank of Greece SA (NBG), EFG Eurobank Ergasias SA (Eurobank), Alpha Bank AE (Alpha), Piraeus Bank SA (Piraeus), Agricultural Bank of Greece (ATE) and Attica Bank SA downgraded to Caa2 from B3. Emporiki Bank of Greece (Emporiki) and General Bank of Greece (Geniki) downgraded to B3 from B1. All of the banks' long-term deposit and debt ratings carry a negative outlook. The major shareholders of two of the banks namely Emporiki Bank of Greece and General Bank of Greece are owned by French banks Credit Agricole and Societe Generale respectively.
 
Meanwhile, the index of CDS on 25 banks and insurers in Europe jumped to new record high. CDS on Germany, France, Italy and Spain sovereign debt also rose to records. German two year yield dropped further to new record low of 0.25%. Major European indices reversed earlier gains and are deep in red at the time of writing while US stock futures point to another deep lower opening. Markets are in general still under much pressure. Last week Standard and Poor's cut its ratings on Italy by one notch, to A/A-1 from A+/A-1+ and kept its outlook on negative, sending the euro more than half a cent lower against the dollar. Under mounting pressure to cut its 1.9 trillion euro debt pile, the government pushed a 59.8 billion euro austerity plan through parliament last week, pledging a balanced budget by 2013. But there has been little confidence that the much-revised package of tax hikes and spending cuts will do anything to address Italy's underlying problem of persistent stagnant growth. On Monday September 19, yields on Italian 10-year bonds stood at 5.59%, within sight of above 6% they had reached just before the ECB intervention. The S&P downgrade, came at a time when the world's financial markets are on the edge, warily watching for a default by Greece with unknown contagion effects on the Eurozone financial system. In the meantime, the South Korean central bank surprised the markets on Friday with a $4 billion lightning intervention in support of the won, carried out in the last two minutes of trading. The day before, Brazil spent $2.75 billion selling dollars in the currency swaps market to stop the rapid decline of the real.
 
By the end of Friday, the won was still down 4.7% on the week, the Brazilian real 8.6% cent, and the Turkish lira by 3.6%. Bankers are now bracing for a Greek default. Bankers from major financial institutions, attending a conference on the side-lines of the International Monetary Fund/World Bank sessions fear that Greece defaulting on its 340 billion euros ($459.95 billion) in government debt would trigger widespread selling of Eurozone debt causing a much broader financial crisis. European banks are facing increasing difficulty in tapping short-term funding and Eurozone bank credit default swap spreads have doubled to about 300 basis points, and European bank stocks plunged nearly 30% since early August.
 
Eurozone policymakers accept that a combination of a much deeper Greek debt restructuring allied to coordinated bank recapitalizations and a bolstered rescue fund would make sense and might help the euro zone get on top of the crisis. But such a plan would require support from all 17 euro zone countries, and it takes time in the EU's decision-making structures to bring so many moving parts together at once. If you think that the above scenario is conducive for strong economic growth and a stable currency market, then you are a true Utopian, or you have completely missed the bigger picture. Even as investors turn to cash in the short-term, will be selling pressure on all commodities and of course gold. But, when logic prevails, and when investors come out of their current coma, they will realise that all these various programs and strategies will not resolve the global debt issues, and that the world is getting closer to a major currency collapse as countries in the Eurozone struggle with problems of insolvency and not liquidity.
 
As gold prices fall, I have no doubt that certain major players will be entering the market as this recent selloff is viewed as a major opportunity for investors to accumulate a more substantial position. By this I mean gold bullion; the physical metal. You can do this by adding gold bullion bars and/or gold bullion coins to your portfolio. (Please don’t consider limited edition medallions or commemorative medallions as gold bullion. They are not and as far as I am concerned they have no investment value whatsoever).
 
TECHNICAL ANALYSIS
 
The classic hammer candlestick pattern with the bottom of the shadow touching the 200 day moving average at $1520, indicates a trend reversal. I believe that we have seen the bottom of this correction and the price will edge upwards from here.
 
SILVER
 
Recently as the prices of silver have plummeted, some investors have expressed their concern about the performance of silver. So, let me state right off, I have not changed my opinion in any way whatsoever about silver and at the current price levels I am even more bullish than I was a few weeks ago as I believe that these lower prices offer an incredible buying opportunity. This last global sell-off impacted on equities, commodities, currencies except the US dollar. And, silver was probably the worst hit precious metal falling by more than 26%. And, by yesterday, all the gains made in silver in USD from the beginning of the year had been erased.
 
A price drop of this magnitude can cause a lot of pain to traders, and this is why I have always made a distinction between trading and investing. And, once again let me repeat what I have said hundreds of times.
 
“You must bear in mind trading is not investing. Trading is a short-term thing. You enter a position with the expectation of exiting it quickly. That can be anywhere from 30 seconds to 3 months depending on your strategy. Investing is a longer-term process, generally lasting years. In order to trade successfully you need a trading plan. You need to know your entry and exit levels as well as your stop-loss levels. And you must understand the arithmetic of trading.When you trade you need to be aware of the arithmetic ofleverage, and an understanding of this leverage—and howit works is absolutely essential to an understanding offutures trading.”
 
If you speculate (trade) and use leveraged position such as futures contracts and the price moves in the direction you anticipated, high leverage can yield large profits in relation to your initial margin deposit. But if prices move in the opposite direction, high leverage can produce large losses in relation to your initial margin deposit. Leverage is a two-edged sword.
 
So, if you were trading silver, and were long, I have no doubt that this drop has caused some losses, but for investors, while the sell-off may have caused the value of your holdings to drop, it is simply a matter of time before they go back to their previous levels. In other words, while you may be down at the moment, and provided you are not forced to liquidate, it won’t be long before prices rebound back to their previous levels.
 
With the price of silver trading at below $35 an ounce, I am certain that it will attract some major buying at these levels. As an investor, I see the current prices as an absolute bargain.
 
TECHNICAL ANALYSIS
 
Yesterday, the price of silver broke a support level just below $31/oz, but then soon rebounded. I believe that this break will be a false break to the downside, and that the price of silver will find good support above $30 an ounce.
 
David Levenstein

www.lakeshoretrading.co.za 


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