As events are constantly changing almost on a daily basis, sometimes on an hourly basis, it is difficult to keep abreast with the latest issues. The price of gold can change in an instant, and some of the moves can be substantial. Many of these price changes are becoming a daily occurrence. One day the price is down $50 an ounce and then before you know it, it is back up.
During this phase of volatility, it is important to keep focused on the bigger long-term picture and remind yourself why you own gold bullion. One of the main reasons we invest in precious metals, in particular gold and silver is that they are an alternative to fiat money. If you believe as I do that the global monetary system is looking precarious and if you have doubts about the solutions suggested by our financial leaders, then it is essential to have a portion of your investment portfolio in gold and silver. Nothing has improved regarding the deteriorating state of our global monetary system, and while the current demand for US dollars is pushing the greenback higher, this cannot be sustained In last three weeks the US dollar has gained approximately 7% as measured by the Dollar Index, and during the same time the price of gold has dropped 16%. The reason for this sudden rise of the dollar can be attributed to a move out of global equities, commodities and certain currencies in particular the euro and into the perceived safety of the US dollar. I use the term “perceived safety” because in the long-term there is nothing safe about the US dollar.
As investors panicked when the prices of many assets plunged they simply sold everything, even assets that have medium to long-term growth opportunities. The recent selling of gold was related to panic from hedge funds needing to raise money for redemptions as well as a tightening of margin requirements. This was not selling pressure based on any fundamental change in the global gold market. And, it is important to realise that at times, price discovery has little to do with supply and demand, and has much to do with speculative trades as those transacted on the futures markets, in particular Comex.
Practically the all the trades on Comex are merely leveraged “paper” trades in gold and only a very small percent of all deals ever end in physical delivery. And, due to the nature of leverage, the volumes can be massive but totally unrelated to the real supply and demand equation. Nevertheless, as the physical spot market and the futures market are linked to each other, the futures market can have a huge impact on the prices in the spot market. Personally, I believe that the sell-off in these futures contracts had a lot to do with the recent price fall in gold.
When the gold price plummeted on September 23, at one time the price of spot gold was down by $122 an ounce from the daily high of $1750 an ounce. When the US session on Comex closed, spot gold was down $79/oz on the day at $1657/oz. But, what was interesting was the volumes traded on Comex. They were enormous; around 340,000 contracts…roughly equivalent to 33% of the annual production output in one session! None of these contracts will result in delivery and yet these paper trades can have a significant impact on prices. Once the speculative interest has waned and investors realise that the current global monetary crisis is not any better than it was a few weeks ago, I bet that we will see a resurgence of demand for the yellow metal. We are experiencing the results of half a century of debt-fuelled "growth" that is becoming increasingly difficult to sustain. Banks grew so big that their collapse would have brought down the entire global economy. To prevent this, they were bailed out with huge tranches of public money, which in turn is precipitating social crises on the streets of western nations. The European Union has grown so big, and so unaccountable, that it threatens to collapse in on itself. Corporations have grown so big that they are overwhelming democracies and building a global plutocracy to serve their own interests. But now with the Eurozone debt crisis, US debt, currency wars, poor economic growth, high unemployment, the global monetary system looks increasingly precarious. While the Eurozone sets up an amicable separation from Greece, the euro remains under pressure resulting in a stronger dollar.
On Monday October 03, 2011 the Greek government said it won‟t meet its deficit target this year and agreed to additional austerity measures demanded by international lenders ahead of a meeting of Eurozone finance ministers. Greece‟s 2011 deficit is now expected to be 8.5% of gross domestic product, falling short of a target of 7.6%. The deficit will be reduced to 6.8% of GDP in 2012, but still short of the 6.5% target. The Greek finance ministry said the targets will be missed because the nation is suffering a much deeper-than-projected recession. The economy is now expected to contract 5.5% in 2011 compared to the 3.8% contraction projected in June. Frankly, we all know that the situation in Greece is dire and that they have no hope to pay back any of these loans. I believe that despite the political rhetoric of government leaders, the leaders of the Eurozone are setting up for an “orderly” default by Greece due to the impossibility of Greece being able to service an ever expanding debt mountain. While their package will protect the banks from collapsing, it will also necessitate the monetization of the debts of the PIIGS meaning very simply printing more money. As the value of the euro declines, individuals will look to preserve their savings and turn to gold.
Gold prices are beginning to consolidate above $1550/$1600 level after the recent drop. I believe that this period of consolidation will not take more than a few weeks.
As investors try to evaluate the impact reduced industrial demand may have on the silver market they have not considered many of the various emerging sectors for silver that are experiencing a rise in demand. Silver is used in more industrial applications than any other commodity apart from oil.
In addition to increasing investment demand, one sector that is forecast to have a rise in demand is the rising use of nano-silver. According to industry analyst firm NanoMarkets, the total market for nano-silver materials and coating products is expected to grow in value from about $290 million in 2011 to around $1.2 billion by 2016. The firm‟s most recent report, entitled “Nano Silver Markets — 2011,” cites the rising use of nano-silver in electronics and transparent conductor applications and the emergence of nano-silver materials in antimicrobial consumer goods or medical products as catalysts for growth.
Nano-silver is created through nanotechnology which manipulates matter on an atomic or molecular scale to create super-small particles of silver—a nanometer is equal to a billionth of a meter— which are then used in applications such as pastes and adhesives for printed circuit boards as well as food packaging, clothing and medical devices.
The fastest growing nano-silver sector for now is in the creation of antimicrobial products which take advantage of silver‟s antiseptic properties. The silver ion, Ag+, in sufficient concentration kills bacteria by damaging the enzyme systems in cell membranes. The use of silver as antimicrobial agent is nothing new. For centuries silver or silver-containing vessels have been used to store water, milk and wine.
The ancient Greek physician, known as the father of medicine, Hippocrates was the first to note silver‟s healing and antimicrobial properties. Today, the medical field is increasingly using products containing silver — including wound dressings, urinary catheters, endotracheal breathing tubes, bone prostheses, and cardiac devices — to help contain the spread of infection.
Consumer goods related industries have begun harnessing the antimicrobial power of nano-silver in a broad range of value-added products including appliances, clothing, paints, children‟s toys and cosmetics.
Many in the scientific community agree that silver‟s antimicrobial properties are very useful in the field of medicine, but its silver‟s growing use in everyday consumer products that is drawing the most fire. The fear is that unrestrained use of nano-silver may lead to potentially harmful concentrations of silver in our bodies and our water systems. While silver is not believed to be harmful to humans except in high concentrations, the scientific community is still debating whether or not shrinking substances like silver to nano-size has any impact on their properties and if so, whether such changes pose a danger to public health and environmental safety. The search for the answer has led to several research studies from around the world.
Due to its antimicrobial properties, silver can pose a threat to bacteria, fungi and other micro-organisms and that may have a detrimental impact on various ecosystems. There is also concern that Nano-silver may enter the food chain via fertilizers processed from wastewater, although some studies show that sulphide present in the wastewater treatment process binds with silver nanoparticles to form non-toxic silver sulphide nanoparticles.
NanoMarkets identified the US Environmental Protection Agency (EPA) and the European Union‟s Registration, Evaluation, Authorization and Restriction of Chemical substances (REACH) as two “important regulatory bodies that are having a direct, significant impact on Nano silver‟s commercialization.”
Both the EPA and REACH have not imposed any formal regulations on nano-silver-containing products. “However,” points out the NanoMarkets‟ report, “the EPA does require waste release reporting for metallic silver in „inhalable‟ particle sizes fewer than 100 microns, and the agency is likely to require regulation of nano-silver as a pesticide under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA).” This means that any company manufacturing products boasting antimicrobial properties will have to register the product as a pesticide with the EPA. In the EU, it‟s anticipated that regulators may require companies “to provide extensive stability, human safety, and environmental data” on such products.
The “growing regulatory barriers to the use of Nano silver,” says NanoMarkets, “could cool sales significantly in the coming years.”
Even though the price of silver has sliced through the long-term 200 day MA, inflicting some technical damage on the silver chart, it appears that prices are building support around $30/oz. As a trader, I would remain neutral but as an investor I would use this lower price to add to my position.
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With regard to the recent sell-off in gold, I am absolutely certain that there is a great deal of truth to the commentaries that suggest that this sell-off was engineered by central banks and their agents the bullion banks, in an attempt to thwart the upward momentum in gold and thus take the spotlight away from gold.
In a blatant attempt to drive the price of gold down, some large sell orders came onto the futures market during the time when the market was least liquid. You have to ask the question, why would anyone sell at the most illiquid times? The seller was obviously determined to move the market in the direction they wanted and was not interested in the least in attempting to liquidate at the best possible price. Then, as the prices of equities, commodities and most currencies plunged, it appears that certain hedge funds that were taking a beating in their stock positions used the profits made in gold and silver to cover those losses. This added to the downward momentum. The cherry on the top of the cake was the action taken by the CME. They hiked the margin for gold by 21% and in a falling market! Yet, while the S&P plummeted, the CME reduced margins for this contract by 33%! And, interestingly, although the price of gold tumbled, very few buy orders for physical gold were actually filled at the lower prices.
When it comes to precious metals especially gold and silver I find the actions of the CME very questionable. While they may proclaim their actions are taken to prevent market volatility, when it comes to gold and silver their actions actually cause much of the volatility. And, since it seems that their actions always favour the short position, I wonder what understanding they have with the bullion banks who have constantly attempted to suppress prices.
In the meantime those banks who have purchased high yielding government debt are now squealing that they don’t want to take their losses. Slightly more than a year ago, these banks purchased high-yielding Greek government bonds and then touted them to their clients as one incredible investment opportunity. All they were looking at was the high yield. The risk involved which was clearly obvious at the time was completely overlooked. And, now as the bonds become worthless, those banks don’t want to lose money. Can you imagine if you told you stock broker that you were not prepared to take the loss on the shares you bought a year ago?
In recent years, the amount of bank fraud going on, particularly in the USA, is unbelievable. Well-known banks are being sued for securities fraud, mortgage backed securities fraud, insider dealing, lying to clients… the list of claims is endless.
In June of 2007, Morgan Stanley agreed to pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, when in fact it was alleged that Morgan Stanley wasn't physically storing their gold and silver at all.
Last April, the Securities and Exchange Commission (SEC) targeted Goldman Sachs in a civil fraud case. The lawsuit alleged Goldman sold investors a synthetic collateralized debt obligation (CDO) linked to the performance of certain mortgages without disclosing that John Paulson's hedge fund, Paulson & Co., helped design the CDO (named Abacus) and was shorting it. As mortgage prices collapsed, the buyers of Abacus – including ACA Financial and German bank IKB – lost nearly $1 billion.
On July 15, 2010, Goldman settled with the SEC for $500 million. The bank neither admitted nor denied the allegations. It said the marketing materials for Abacus contained "incomplete" information.
JP Morgan Chase was fined $228 million for a bid-rigging scheme involving municipal bonds. The Chase ruling is the latest to come down in a series of fines involving a number of banks, including Bank of America and UBS. This scam that Chase, Bank of America and UBS were involved with was no different in any way, really, from old-school mafia-style bid-rigging scams.
What these banks did is they got together and carved up territory between them, arranging things so that they wouldn’t be bidding against each other in municipal debt auctions. That means the 18 different states involved in these 93-odd deals all got screwed out of the best prices, leaving the taxpayers in those places severely overcharged for their public borrowing.
A few months ago, the Federal Reserve slapped an $85 million fine on Wells Fargo & Co for allegedly steering borrowers into high-cost subprime mortgage loans even though they qualified for safer loans. The fine is the largest civil monetary penalty the Fed has ever assessed in a consumer-protection enforcement action, the central bank said.
Only last week, Harry Markopolis the man who brought down Bernie Madoff’s $65 billion Ponzi scheme, told King World News that, “Bank of New York is going to go down, Eric. Between Bank of New York Mellon and State Street, these two institutions have stolen between $6 to $10 billion from tens of millions of Americans retirement savings accounts. It’s been a hell of a crime spree for the bank, but now they are being brought to justice.” Markopolos has led the team that spearheaded this investigation from the beginning. Harry and his team were the first to expose this fraud. Markopolos also told KWN, “The New York Attorney General filed suit on Tuesday (against Bank of New York Mellon) for stealing money from pension funds on currency transactions. This theft has been from tens of millions of Americans, policemen, firemen, librarians, municipal workers, judges and the list goes on and on and they’ve been doing it for decades.
Banks all around the world were coerced by US regulators into introducing the most meaningless, stupid and irritating law in banking history. Suddenly, clients old and new were regarded as terrorists, money launderers, arms and drug dealers unless of course they could prove their whereabouts! Overnight banks around the world wanted copies of documents relating to your physical address, identity documents and a history of all your financial dealings going back a few life-times. Of course, the authorities claimed that these new laws were necessary to prevent the flows of funds to terrorist organisations. However, there is a very big difference between the individual who happened to have a few thousand dollars in cash and someone else walking into the bank with suitcases of cash. Yet, despite the obvious difference the little guy who merely wanted to deposit a few thousand dollars in cash was instantly flagged. But, if you agreed to sign a string of documents admitting that the money actually belonged to you and nobody else, then the bank called off the raid by the local SWAT team. This act has done nothing but violate every single persons right to privacy.
When this law was introduced in South Africa under the name Financial Intelligence Centre Act of 2001 (FICA) people who had houses, and cars financed with a bank suddenly had to identify themselves??? The mere fact that they were known to the bank for years was beside the point. There is not one piece of intelligence in this law and enough is enough. By judging at what is happening with the banking system and as far as I am concerned it should be the client asking questions about the bank and not the bank asking questions about the client. If the global monetary system collapses, you can be assured of one thing. Any money you had deposited in a bank will be wiped out and you won’t have any recourse.
This law also gave the US government an excuse to attempt to destroy what was and still is the most efficient and honest banking system I have ever come across. I refer to what is known as offshore banking. My message is simple. Don’t accept whatever you hear and see on the media. Politicians are corrupt and financial leaders and bankers have lied to us. Take steps to protect your own wealth. The two important things that anyone can do is to first own some gold and silver bullion. And the second is to have an offshore bank account. Every single person that has some money deposited in a financial institution should allocate a portion of this money to gold and silver bullion and store it far away from any bank.
The price of gold continues to consolidate between $1600/oz and $1655/oz. I expect prices to trade with an upward bias. Interestingly, the recent drop represents a 61% retracement of the move that began in May at $1462 and ended in September at $1924.
For the year to date, the United States Mint has now sold 34,673,500 American Silver Eagle bullion coins, which exceeds the record annual sales achieved last year. This will mark the fourth consecutive year of record breaking sales for the popular one ounce silver bullion coins.
The American Silver Eagle was introduced in 1986 as a one ounce 99.9% pure silver bullion coin, with its weight, content, and purity guaranteed by the U.S. government. The obverse design features Adolph A. Weinman’s Walking Liberty design used on the circulating half dollars struck from 1916 to 1947. The reverse features a heraldic eagle designed by John Mercanti. When the coins were first available in November and December 1986, the US Mint recorded sales of 5,096,000.
In the following year, when the coins were available throughout the year, sales reached 9,420,000. Annual sales registered lower for the next twelve years, bottoming with annual sales of only 3,466,000 coins in 1996. In 2002, sales exceeded 10 million for the first time and set an annual sales record at 10,475,500.
Demand for Silver Eagle bullion coins rose to new heights in 2008, which resulted in periodic suspensions and order rationing imposed by the US Mint. Despite these obstacles, annual sales achieved a new record at 19,583,500.
In 2009 and 2010, new annual records were achieved at 28,766,500 and 34,662,500, respectively. During these years, the US Mint continued to periodically ration sales to the small group of authorized purchasers that are able to buy the coins directly.
For the current year, sales have reached 34,673,500 with still more than two months to go. Monthly sales have averaged about 3.7 million coins, an amount which exceeds the annual sales totals for two separate years of the program.
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After another meeting of finance ministers and central bankers of the G-20 major economies, European leaders have until this Sunday's (October 23) summit of the 27 EU leaders, their sixth attempt this year to resolve the Eurozone debt crisis. Finance ministers and central bankers of the Group of 20 major economies who met over the weekend said they expected an October 23 European Union summit to "decisively address the current challenges through a comprehensive plan". French Finance Minister Francois Baroin, who chaired the meeting, said Berlin and Paris, the leading Eurozone powers, were well on the way to agreeing a plan to reduce Greece's debt, stop contagion and protect Europe's banks. The strategy proposed will involve plans to recapitalize banks, make Greek's debt mountain more sustainable and ramp up the firepower of the bloc's rescue fund. British finance minister George Osborne told reporters his continental Eurozone colleagues "will have left Paris under no misunderstanding that there is a huge amount of pressure on them to deliver a solution to the crisis". Treasury Secretary Timothy Geithner told reporters he was encouraged that the latest EU moves toward an overall strategy to tackle the two-year-old crisis contained the right elements, notably a recapitalization of European banks. Geithner said the IMF already had very substantial financial firepower and Washington would support committing more of the existing resources to supplement a well-designed European strategy with more euro zone funding.
Financial leaders of the Eurozone have also agreed to “strengthen the EFSF (bailout fund) in order to address contagion". EU officials said the most likely option was to use the 440 billion euro fund to offer partial loss insurance to buyers of stressed member states' bonds in a bid to stabilize the market. German Finance Minister Wolfgang Schaeuble said, "Our G20 partners welcomed that the representatives of the euro zone have kept their word: the decisions on strengthening the EFSF have passed through parliaments in all member states." "We will solve the problems in the euro zone in the same way. We are determined to present further decisions in Cannes." "We will make sure that European banks have a sufficient amount of capital. We will find solutions for Greece. We will start initiatives to improve governance in the euro zone and this will contain changes in EU treaties." In the meantime ECB President Jean-Claude Trichet said. "As regards our SMP (Securities Markets Program), as you know, as with all other non-standard measures, they are designed to be commensurate with distortion of markets and in order to help restore a better transmission of our monetary policy. The SMP decision has been taken by the governing council of the ECB on the basis of the understanding that the 17 heads of states had decided on 21 of July to have an EFSF which will be able to intervene on the secondary market in order to restore financial stability in the euro are." "Our working assumption is that when we have, thanks to the new flexible EFSF, financial stability, we do not have to help restore a better transmission of monetary policy." With regard to the Eurozone crisis EU Economic Affairs Commissioner Oli Rehn said. "In order to break the vicious circle ... we put last week on the table a comprehensive plan, a road map. I am pleased to say this plan received a warm welcome from our G20 partners." "We need to maximise the effective lending capacity of the EFSF to expand its firepower. It's a work in progress." He also said. "We need to have to have a solution which is indeed lasting and durable and will facilitate the recovery of Greece and the servicing of the Greek debt. "We will certainly work on the basis of the July 21 agreement and will likely do some technical revision due to change in market circumstances. This is now a work in progress. So we are not reopening the deal, we're rather revisiting the deal." Recently Spanish and Italian borrowing costs were driven so high that the European Central Bank had to intervene in August in order to buy those countries' bonds and force yields down. And, only last week Standard & Poor's cut Spain's credit rating for the third time in three years as slowing growth and rising defaults threaten banks and undermine efforts to contain the sovereign-debt crisis in the Eurozone. The ranking was reduced by one level to AA-, S&P’s fourth- highest investment grade, with the outlook remaining negative, the rating company said in a statement. Fitch Ratings downgraded Spain to the same level on Oct. 7, when the company also cut its rating on Italy.
In another sign of stress on European banks, UBS AG, Lloyds Banking Group Plc, and Royal Bank of Scotland Plc. had their long-term issuer default grades cut by Fitch Ratings, which put more than a dozen other lenders on watch negative as part of a global review. Only a week ago, Fitch downgraded Italy's creditworthiness from AA- to A+. And the move came after Moody's Investors Service downgraded Italy's bond ratings to A2 with a negative outlook from Aa2. No matter what the political rhetoric, the Eurozone is in a mess, and It seems that no one really knows what the impact on the European banking system will be if Greek bondholders are asked to write off the correct loss of their bonds. But, the impact would certainly be felt on US banks as well. While there is no specific figure, it seems that it would require more than $2 trillion to save Europe. No wonder the leading finance ministers of the world's leading economies are now asking the International Monetary Fund to play a bigger role in fighting the Eurozone's escalating debt troubles as Europe cannot afford to bail out Spain or Italy should they run out of money.
While policymakers hope to stabilize the Eurozone bond market by using the EFSF to offer partial loss insurance to investors buying new Spanish or Italian bonds, the debt crisis in this region is far from being resolved. Over the weekend cities all over the world saw protests as tens of thousands of individuals got together to denounce capitalism, inequality and the economic crisis. Whatever, their complaint, the fact remains that there are very serious problems in our financial and monetary system and as the world’s financial leaders apply the same remedy time and time again without any success, things are only going to get worse. The main driving force behind gold prices will not be the short-term speculative demand, but will be the demand emanating from long-term buying interests seeking risk protection for their savings due to depreciating worldwide currencies. And while, some may still turn to the US dollar and US Treasuries for the moment, most prudent investors will eventually turn to gold and silver as the only true safe haven for their savings.
Gold prices continue to consolidate with an upward bias. A decisive break above $1700 an ounce would suggest that some of the upward momentum has returned to the market.
Many people don’t understand the relationship between the physical market and the paper market especially when it comes to silver and all the other traded commodities. Briefly, the “paper market” or the futures market was originally intended to stabilize massive price fluctuations.
The business of trading commodities is nothing new. It began in the 1800’s and then in 1848, 82 merchants formed a centralized marketplace to trade grain, and this was the beginning of the Chicago Board of Trade - more commonly known as the CBOT, the oldest futures exchange in the world. Today it is one of the largest futures exchange in the world.
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As expected, Greece was granted another €8bn (£6.95bn) aid package while discussions on how to save the rest of the Eurozone continue.
A meeting of the Eurozone finance ministers – the so-called Eurogroup – held over the weekend in Brussels agreed on another bailout package for Greece. The group said: “We have endorsed the disbursement of the next tranche of financial assistance to Greece. The disbursement is expected to take place in the first half of November.”
Confirmation that Greece will not run out of money next month came with a warning from the finance ministers. “We note the macroeconomic situation has deteriorated since the fourth review and that economic challenges remain large,” they said, adding a second bail-out remains necessary “to ensure debt sustainability”. This will involve “additional new official financing and private sector involvement”.
The current crisis in the Eurozone is better than any soap opera, but sadly the events are true. Every day there is enough action to keep you glued to the TV. And, it is impossible to know what is going to happen in the next episode. Yet again, Europe stands on the brink of abject disaster, apparently unable to resolve its differences. In addition to country downgrades, banks and financial institutions have also been downgraded. Only last week 24 Italian banks were downgraded. Among the worst capitalized banks in Europe is Unicredit, Italy’s largest bank. And now that we have politicians meddling with the monetary system, history is bound to repeat itself, and the end game will be total collapse.
Recently, global financial markets have been very choppy with a 200 point daily fluctuation now accepted by the market as a normal move. Investors seem at a loss for a solution. One day things appear to be improving, the next they look worse than they did a few days before. Even though gold prices have not really responded to the on-going Eurozone debt crisis, and simply remain lackluster, I am certain that prudent investors are using these low prices as another buying opportunity. The price of gold will continue to increase in value over the coming years as investors around the world purchase gold bullion as a way to preserve their wealth. And, in addition to these individuals, many central banks are increasing their holdings of gold. They are not concerned about short-term price swings, and their growing distrust of fiat currencies has not abated simply because the ECB or the US Fed come up with another plan for extending their respective currencies regional as well as global influence. Last week the situation with the European debt crisis remained unclear. Originally, European leaders promised the world that they were going to offer a form of resolution no later than Sunday 23. But, suddenly on Thursday night the plans to “decisively address” the debt crisis over the weekend were plunged into chaos when European leaders were forced to announce another "summit" next week amid political deadlock between France and Germany.
The second summit delay sent shockwaves around the world. Politicians and financiers have been banking on repeated pledges from France and Germany to "decisively address" the crisis by Sunday. The first summit began on Friday afternoon with a meeting of finance ministers. It now seems that the Franco-German partnership which lies at the heart of the European project is fracturing as never before, with deep divisions over almost every aspect of the grand rescue plan.
In all probability at the summit which has now been billed as the summit to end all summits – leaders will be unable to agree on anything of importance. Few have any confidence that a separate meeting on Wednesday will do much better. Whatever is agreed is almost guaranteed to fall short of expectations.
The details of the disputes over bank bail-outs and the scale of the European rescue fund are extremely complex. French President Nicolas Sarkozy even suggested that the most effective way of leveraging the EFSF is to turn it into a bank which could then access funding from the European Central Bank, but both the Frankfurt-based institution and the German government oppose this. I wonder how he was going to establish a bank overnight. But, the underlying problem is really political. Europe’s political elites know that for the euro to survive in its present form, it must move towards full fiscal and political integration. Yet national leaders, and the voters they answer to, are as yet unwilling to accept the loss of sovereignty, and indeed the shared liabilities, that such a revolution demands.
Meanwhile, former Prime Minister Gordon Brown has said that failure by European leaders to quickly resolve a growing financial crisis risks sparking “havoc” as Europe’s troubled banks tip the continental economy into recession.
“The truth is that European banks are in a worse state than American banks, that they never really recapitalized even though they said they would,” Mr Brown said. “They didn’t write off their toxic assets. They’re not lending, and they’ve been trying to disguise the extent of the problems they face.” (Finally, Brown has said something that makes sense). You don’t have to be an award winning economist to see that the European crisis is far from over. Greece will require another bailout and banks will be under pressure when they finally accept their losses for acquiring worthless government bonds. . Recently, while all the focus has been on the Eurozone debt crisis the spotlight has been taken off the US. But, things there are not much better and are for the moment being ignored. The US fiscal position simply worsens by the month with a $1.6 trillion deficit projected for the fiscal year 2012. And, while global attention has turned to the Eurozone, the latest updated projections reveal that the US will reach a 100% debt to GDP ratio before the end of this month. With such a bleak scenario for the global monetary system, it is difficult to comprehend why the price of gold is so stagnant. Perhaps the answer lies in the strong dollar. However, don’t be fooled, this is not going to last. The US dollar’s recent gains have been due to the poor fundamentals concerning the euro and the British Pound both major competing fiat currencies. Frankly, even if the price of gold does slip further, this is a mere aberration. There is good physical demand for the yellow metal and as soon as investors realise that no matter the political rhetoric regarding the euro and the greenback, both currencies look exceedingly precarious and any solution seems to indicate further monetary expansion –printing more money. This will push gold prices higher. In January of this year, when asked for my year end prediction, my analysis suggested that we could see a price of between $1700/oz and $1750/oz. I still believe that the price of gold will end the year at around these figures.
Gold prices remain range bound between $1600/oz and $1700/oz.
Many investors are showing signs of impatience when it comes to silver, mainly because prices have been pretty much stagnant since the big fall from the recent highs. Yet, they overlook the fact this price drop was not exclusive to silver. Global equities and commodities also got caught up in this downdraft. But, as I have stated countless times, this does not change my outlook in any way whatsoever. While this price drop was more severe than I envisaged, as far as I am concerned the price of silver has a long way to go before peaking.
Investors around the world are nervous. Every time they buy something, a day later it seems to drop in price. So, the most commonly used phrase I hear at the moment is “I am waiting for lower prices.” While, there is a chance of prices falling further, it is difficult to precisely time these market dips. And, besides, if you are not a trader, you should be focusing on the longer-term picture and simply accumulate silver whenever you can.
What we have seen in the last few years in the global monetary system is massive volatility chaos and continual uncertainty. Most of this extreme volatility has its roots in the expansionary monetary policies of the various central banks around the world. They simply create money by printing more as well as extending massive loans and bailouts to banks and financial institutions that have made bad investment decisions in the past. And, while these policies cause all sorts of problems in the global monetary system, many investors look to the precious metal market in order to have an alternative to fiat currencies. While gold is always in the forefront, mainly because it is known as a monetary metal, many investors tend to forget that silver used to play the same role. And, as the global crisis worsens, more and more investors will purchase silver. This can already be seen by the sales of silver bullion coins and bars as well as holdings in silver ETF’s.
Physical demand for silver remains very robust. According to Prithviraj Kothari, the president of the Bombay Bullion Association, “silver imports by India-the largest consumer-may rise by 50% year-on-year in the October/December quarter.” Kothari expects imports of silver to be between 230 – 300 tons which will push total imports for the year in excess of 4000 tons.
While investors are concerned that demand for silver will fall if we enter another global recession, what they don’t consider is the multitude of applications for silver. Silver is used in more applications than any other commodity apart from oil. And, one sector where demand is increasing is in the medical field.
According to the Silver Institute silver usage has grown exponentially in medicine and health-related products. The high efficiency of silver – its effective concentration is in parts per million or less, the difficulty microorganisms have in developing resistance to silver, and its long history of use as an antimicrobial are all highly positive factors for predicting increased growth in the use of products containing silver for healthcare, explained Michael DiRienzo, Executive Director of the Silver Institute. He said that silver’s use in hygiene and medicine is expected to reach over six million ounces by 2015 – up from nearly one million ounces in 2010. “Silver is increasingly used in hygiene, including its incorporation into socks, air purifying sprays, hair dryers, sportswear, hospital gowns, door handles, counter tops, bed rails, and paints and lacquers. Clearly, medical and hygiene professions are looking to silver to help control bacteria and prevent infection,” said DiRienzo. Among the silver-containing items exhibited at an APIC conference were textile products such as operating gowns, mattress covers and bed linens. Wound-care products also make major use of antimicrobial silver. With respect to wound dressings, studies have shown that dressings containing silver increase the comfort level for burn patients by minimizing adhesion between wound and dressing, thereby reducing pain when changing dressings. Antimicrobial-silver sprays are also used to protect surfaces likely to collect infectious organisms and silver-based coatings are also increasingly used in medical devices such as catheters and tubing to prevent surgical-site infections. The antimicrobial effects of silver have been known since ancient times, but only within the last five years has silver been used more extensively to control hospital-acquired infections (HAIs). This has been in response to efforts by the Centres for Disease Control and by legislative mandates forcing hospitals to prevent the occurrence of HAIs.
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