Wednesday, June 29, 2011


“Summer Doldrums,” The Biggest Load of C–p Ever! [entertaining and insightful read]

By Andrew C. Hoffman, CFA
As for the summer doldrums, I agree that in the general equity markets (at least before the PPT took
over daily support operations), it is common for indices to languish in the summer months due to
reduced trading volumes. Moreover, given that nearly all American investors – retail, institutional, and government – have lost money in essentially every market they’ve traded in since 2008, and that we are currently in the early stages of the “Greater Depression”, it is certainly reasonable to believe that stock trading will decline this summer, with no reasonable expectation for higher prices any time soon (outside of additional “QE” turbo boosts).

But in gold and silver?

You’re kidding, right?

Gold and silver are not “investments”, they are MONEY, and simultaneously INSURANCE against the horrific stagflation and economic collapse that currently plagues the entire Western World, at an
accelerating rate of speed each day, I might add. Imploding economic data, soaring inflation, the
imminent collapse of the Euro, Japanese economic catastrophe, rocketing U.S. debts (not to mention
breaching the debt limit), and a dozen other “black swans” threatening to destroy the financial system at any time, etc., etc., etc., to the point that the great Jim Sinclair THIS WEEK stated that a currency crisis could commence any MINUTE...

And yet, even distinguished gold “analysts”, including one very famous one whom I won’t name so as to avoid a conflict, are already attributing this week’s decline (actually, gold and silver were very strong until OPERATION POST FED PM/OIL ANNIHILATION on Thursday) to the beginning of summer doldrums, and that we could see more pain until the “seasonal” start kicking in in August.

I can’t find words to describe my anger at this garbage, which only serves to further the Cartel’s attempt to create FEAR in the PM community. I can GUARANTEE that NO ONE, ANYWHERE ON EARTH, sold ANY material amounts of PHYSICAL GOLD AND SILVER in response to the Fed announcement, or to the IEA oil announcement. This was purely a Cartel attack on PAPER gold and silver, and per the charts at the same times of day as always. Not to mention, per the table above this was a MAJOR CARTEL OFFENSIVE to ensure that the Fed’s money‐printing announcement would not appear to be gold bullish, just as the SUNDAY NIGHT PAPER SILVER MASSACRE last month, which occurred, not coincidentally, two trading days after a Fed money‐printing announcement caused gold and silver to rocket to new ALL‐TIME HIGHS!

Attributing “seasonality” in gold is as archaic and ridiculous as any concept in the investment world. For example, many “analysts” point to the Diwali festival in India, which occurs each fall, as some type of  "catalyst” for gold prices, as Indians tend to buy a lot of jewelry during this period. So JEWELRY DEMAND is now cited as a major catalyst for gold prices, in a market in which INVESTMENT DEMAND accounts for 75%+ of all global buying? Only the retarded/evil World Gold Council and GFMS (Gold) and CPM Group (Silver) are supposed to make such silly projections regarding jewelry, or even industrial demand, in an asset class with 5,000 years of evidence suggesting it is MONEY, NOT an INVESTMENT! But no, we even get our most famous “allies” spouting the same bulls—t as well.

Seasonal Gold Price Trends Favor Summer Purchases
By Jonathan M. Kosares

The combination of the escalating sovereign debt crisis in Europe, the unknown future of the Fed’s quantitative easing program, the ongoing debt ceiling debate, the early warning signs of inflation, especially in food and commodities (as illustrated in our latest newsletter), and ongoing geopolitical instability promise to make the second half of 2011 very interesting for the gold market. Whether or not a meaningful pullback will manifest in the next two months is unknown, but the past ten years do make one thing abundantly clear: If you’re looking to add gold to your portfolio, taking advantage of the summer doldrums can be a reliable and rewarding strategy.

GOLD Seasonal 40 Years
Looks like up to me!

Gold Price "Got to Be a Bubble"
By Geoff Candy, Bullion Vault
Joining me on the line to discuss this today [Mon 20 June 2011] is the head of research at BullionVault, Adrian Ash. You recently wrote a piece that looked to explode a few of the gold bubble myths. Why would you say that gold isn't in a bubble given its rise over the last 10 years?

Adrian Ash: You can understand why journalists and commentators who don't follow the gold market very closely look at it and see there's a bubble. We have just had the second highest weekly close ever in US Dollar terms and the highest ever weekly close in both Euro and Sterling terms – but what a lot of people get confused, I think, is they look at the gold rise over the last 10 years and particularly over the last five years and they confuse longevity with speed. Bubbles really are about that parabolic rise, that parabolic blow off but most typically what you are also looking for is for that to be happening at the same time as the fundamentals no longer hold true.

Aside from whether one thinks gold is a good investment for the long term or whatever, there are just a couple of points which people who look at it and say "It's got to be a bubble because it's gone up" are really missing. The first as I say is that it's steady, it's been rising by about 16% year-on-year for Dollar and Sterling and new investors over the last half decade. That's hardly parabolic. In terms of volatility you anticipate a bubble top, a bubble blow-off being very volatile. But gold's volatility is incredibly low at the moment and it has been over the last few years. Every time it's taken out a new level – whether its $1200, $1300, $1400 or $1500 – volatility on gold on a daily basis has been very low. Right now its running below 11% and that's versus a four decade average of 16.5%. Compare that with silver where you've currently got daily volatility after the big top of last month running over 45% and that compares to silver's average daily roll over the last four decades of 29%. So silver looks a bit hotter, theres no denying it.

Another reason that people say gold must be a bubble is that they then start looking for what's going to blow it up. What's going to take it down – and my favourite really – is when people say "When the economy settles down, gold will come off." You've got to love that when first of all, but more germane is the fact is that gold doesn't have anything to do with GDP. If you look at it against US GDP, the Dollar price versus US GDP, the correlation is slightly negative but it's not specifically significant. The same is true of Chinese growth. Chinese GDP shows zero correlation with the Gold Price. The Indian economy has a slight positive correlation with the Gold Price, but again it's not really specifically significant. The bottom line is, because gold is not an industrial metal, gold's use is social not industrial, and its social use is as a store of value, a store of wealth when people need it – gold's not exposed to the economic cycle. It's not like crude oil or copper or even silver to an extent. It's not exposed to industrial demand.

Geoff Candy: I suppose the corollary to that is the fact that people were perhaps concerned about the rise in Gold Investment demand and the fact that it happened at the same time as perhaps a fear about the global economy and I suppose the concern was whether or not, if that investment demand came off, there would be enough fundamental demand for gold to sustain the higher prices. That does seem to be happening at the moment. What is your view on that?

Adrian Ash: You have to look at what is driving that demand. Yes – fears about prolonged stagflation, fears of a true depression, which we may or may not have been through over the last couple of years (it's been impossible to tell with the amount of money which governments have thrown at it and particularly central banks have thrown at the problem as well). But what is really driving demand there, it's not about GDP, it's about real interest rates. Very boring but it happens to be true with gold.

Obviously people Buy Gold when they fear the inflation ahead and personally [I believe] they are right to do that. But on a big boring and technical level it is about negative real interest rates so when the return on cash is below zero after you account for inflation people will Buy Gold. It's just a fact. It is what happened in the 1970s and its what's been happening progressively over the last decade and particularly in the last three or four years now. The reason that happens is because obviously – the word savings – that still means cash in the bank for most people and if you're getting less than zero, if you know if you put money on deposit today that it will lose purchasing power, including the interest rate over the next 12 months, eventually you start to get sick of this. People need to find something else; I need to find a better way of storing value and gold is a stand-out candidate for that, primarily because of its use across five thousand years of history.

Wherever gold's been discovered in the world and throughout time, it has been used as the ultimate store of value par excellence. People again are doing that today. They are looking at something which is rare, it's tightly supplied, and it's indestructible – and that really makes it stand aside from cash, and debt instruments, bond investments where those are paying you less than inflation.

Why GDP Is Useless and Deceptive: There Was No Recovery
by Econophile, via Zero Hedge
The concept of GDP was developed during the New Deal by economist Simon Kuznets, a pioneer in econometrics. The New Dealers liked the concept because, as advocates of central economic planning, they believed they could control the economy and needed something to measure the efficacy of their meddling. Austrian theory economics rejects the notion of "national accounts" and the government's ability to "manage" the economy. This argument goes back almost 200 years, but let's say that history has not been very kind to economic meddlers. Especially to Keynesians.

What it all comes down to is the Keynesian belief that a lack of spending is what ails the economy, and conversely, spending, any spending, is good for the economy. If we consumers aren't spending enough, according to this idea, it is the duty of the government to spend in our stead. And if the government doesn't have the money, it is OK to borrow and spend.

Economic growth doesn't start with spending: it starts with saving and production and ends with spending. And that is why we should not rely on GDP to measure the health of the economy.

If spending were the key to economic growth, then, after running Federal deficits of more than $4.8 trillion since 2008, why haven't we recovered? According to Keynesian theory, at least as defined by Paul Krugman, Brad DeLong, Ben Bernanke, Larry Summers, and Tim Geithner, it should have worked. Of course Krugman would say that we haven't spent enough, but he always says that when evidence shows that it doesn't work.

So when the conventional wisdom says that the economy recovered in June 2009, it didn't.

The Strategic Petroleum Reserve Release Has Now Been Fully Priced In As Crude, Gasoline Surge
By Zero Hedge
Remember how 4 very long days ago, the 60 million barrel SPR release was vaunted as being the reason for the second consumer renaissance after it was largely expected it would lead to sub $90 crude, and low $3/gallon gas, and result in every Joe Sixpack going out and buying 3 houses at least? Well, so much for that: the IEA's action has now been fully priced in and WTI is back to precisely where it was before the IEA announcement on Thursday. Which means that what some said was a shadow QE (and don't get us started on all the mainstream media "journalists", among which Bloomberg and CNN, who continue to confuse QE Lite with something they call QE 2.5) had a half life of just over 3 days. Expect future intervention half lives to continue declining, as the criminal banking cartel's ammunition is now down to just one thing, the only thing, printing.

IEA's Big Mistake [MUST READ]
Commentary from
Reportedly the reserve release was decided upon after high-level discussions with Saudi Arabia. After the OPEC meeting failed to change the output quotas Saudi, Kuwait and the UAE said they would immediately increase crude production by a total of 1.5 million barrels per day over the coming months in order to offset the expected 1.5 mbpd production shortfall in the third quarter. Oil demand increases in the summer and fall thanks to summer driving and the use of oil to generate electricity in places like Saudi Arabia in order to run air conditioners in the sweltering hot summer temperatures. Saudi Arabia alone is expected to burn as much as one million additional barrels per day to generate electricity for cooling. This is a temporary three month demand period but it is still demand.

Saudi can pump its own oil to burn for electricity. In theory it has the additional capacity to produce up to 12.5 mbpd. That theory has never been tested until now. In May Saudi claimed it produced 8.8 mbpd and would boost that to 10.0 mbpd in July. On the surface that sounds like a significant increase but after subtracting their additional demand of up to 1.0 mbpd for electricity the actual amount of new oil to market is a very small 200,000 bpd. Add in Kuwait and the UAE, which are expected to increase production by possibly as much as 200,000 bpd and the net gain for the market was only 400,000 bpd despite all the bluster and big promises.

I am sure the "high-level" discussions with Saudi covered what additional oil would (could) actually be produced and of what flavor. In the initial Saudi comments after the OPEC meeting they said the extra oil would be sour crude and be sold to China where EPA rules are less stringent. China's demand has increased by something on the order of 800,000 bpd since the same period in 2010.

The IEA ran the numbers and saw a shortfall of light sweet crude. Libya's missing 1.6 mbpd of oil production is light sweet crude. There are no other countries other than the U.S., Canada and Brazil with any material new production of light crude. In every other country the supply is dwindling so the loss from Libya is serious. The IEA believes some production will be resumed once Qaddafi is gone but that as much as 1.0 mbpd may not be back online until 2015. Nigeria has some excess light capacity but they are constantly suffering outages from terrorist attacks and work stoppages. The situation is so bad the international companies like Shell are attempting to sell their operations in Nigeria to avoid the problems. A successful sale will only make matters worse because companies in Nigeria currently bidding on the assets don't have the expertise to grow operations.

The IEA has been warning for months of the impending shortage in world production in Q3. Nobody has been listening. They repeatedly begged OPEC to increase production to head off high prices. OPEC refused either because they did not want to push prices lower or because they don't really have any excess capacity that does not belong to Saudi, Kuwait and the UAE.

The IEA saw the impending collision of increased demand meeting insufficient supply and panicked. You have to wonder just how much information Saudi Arabia actually gave the IEA to push the group to make such a big decision. The IEA really can't fix the problem. This is only a band-aid on a wound that will eventually fester and become infected. Oil supplies are declining, OPEC does not have the excess capacity it claims and global demand is growing.

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