Silver Flexing Some Muscle

Gold Silver Ratio Indicates Strong Demand for Silver in 2008

...in the last thirty years, the gold silver ratio has exhibited quite a bit of volatility. A higher ratio shows both gold strength and silver weakness. When the ratio declines-as it appears to be doing right now-it means silver is getting stronger. It should be noted that a declining ratio doesn’t mean the gold price is falling. It could mean that both metals are rising, but that silver is rising faster than gold.

http://www.dailyreckoning.com.au/gold-silver-ratio/2008/02/12/

Silver Is Leading

The price of gold and silver rarely move at the same rate. The reason for this outcome is that their respective demand is fundamentally different. To put it into economic terms, the demand for gold is inelastic, while that for silver is elastic. In other words, the demand for silver is very sensitive to changes in its price, while in contrast, the demand for gold is relatively insensitive to changes in its price.
The result is that in precious metal bull markets, the price of silver typically rises faster than the price of gold, and vice versa in precious metal bear markets.

http://goldmoney.com/en/commentary.php#current

Silver has been kicking sand in Gold's face the past four trading days. Often Silver will do this just prior to a top in Gold. Have we reached a top in Gold? NO! But no market goes straight up, and a "brief" rest for both metals has been warranted. I suggested in late January that February "could be" a frustrating month for the Bull camp, and that some consolidation was necessary to strengthen the Bull case. We won't know if that has occurred until the month comes to a close, but it's worth keeping an eye on. I note this particularly in the case of Silver...Buying "now" at these prices should be done with caution.

Why the rising gold price is a headache for G7

..."for almost a decade now central bank gold sales have been accompanied by higher gold prices, not lower," as the Bank of England can well attest. And if the G7 is looking to the IMF to sell, then it's reasonable to suggest that perhaps their own central banks have now sold as much they want -- or are able -- to. In any case, the United States would need to approve such sales, and has in the past opposed them.

So what should you do if the IMF does decide to sell? I imagine it'll be a good buying opportunity for the rest of us.

http://www.gata.org/node/5993

IMF Gold Sales - I s M oney F ake ?

The big news over the weekend is that "The Group of Seven rich nations on Saturday approved the sale of gold by the International Monetary Fund". The bigger news is that Gold and Silver Bulls didn't give a damn as both are higher this morning. Silver has hit a new 27 year high overnight. And the biggest news of all...when the IMF sells Gold, the price of Gold usually explodes higher. Let's check the headlines:

G7 approves IMF gold sales
TOKYO (Reuters) - The Group of Seven rich nations on Saturday approved the sale of gold by the International Monetary Fund from April as part of a broad reform of its budget, Italian Economy Minister Tommaso Padoa-Schioppa said.

"There was an acceptance among the G7 that resources should be raised by selling gold," Padoa-Schioppa, who is also the head of the IMF's steering committee (IMFC), told reporters after a meeting of G7 finance ministers in Tokyo.

"This is arguably a good time to consider selling some of these gold holdings and investing the proceeds in financial securities with positive yields," Morgan Stanley analyst Stephen Jen said.
http://in.reuters.com/article/businessNews/idINIndia-31847320080209

"Financial securities with positive yields?" I asked myself. What could have a more positive yield these days than Gold? What a brilliant idea, sell your Gold and by bonds with negative real rates of return. And we wonder why the World's financial markets are in shambles...wonder no more people.

Gold's path to $1,000 an ounce now clear?
This past weekend, yet again, the International Monetary Fund announced it would like to sell some gold. Since gold went bullish in 2002, official sector noises of this type have often appeared just as gold began an important move up. Further back, the IMF gold sales in 1978-80 heralded the great gold surge of that time.
http://www.marketwatch.com/news/story/golds-path-1000-ounce-now/story.aspx?guid=%7B397312DA-D203-4E77-83B6-47B7797D86DA%7D

The IMF sold just 50 million ounces between 1976 and 1980 and the price of Gold more than doubled in price. The IMF could sell all their Gold it it would not stop the inevitable in Gold. And bear in mind that NONE of this Gold will ever actually see the "gold market". It will all be bought by BIG buyers. Most notably and more than likely it will be bought by all the bullion banks that are either short Gold or owe the world's central banks Gold they borrowed. This is really probably just a big plan set in motion for the US to get back all the Gold they "used to have" in Ft Knox before they loaned and/or swapped it all out as part of the FAILED effort to supress Gold prices.

Mobilization of IMF gold just a sign of central bank desperation
Mobilization of IMF gold suggests that individual central bank gold reserves are nearing exhaustion or that individual central banks are no longer willing to dishoard what they have left.
http://www.gata.org/node/5986

The GATA post just above also raises several points pertaining to just how rediculous any IMF Gold sales would be relative to today's Gold environment. It should also be seriously noted:

The IMF's gold reserves are the third largest in the world after the United States of America and Germany.

The Fund is required under United States Law to gain support from the U.S Congress before selling any gold.

The US Congress would be hard to persuade on this issue, but should they buckle and allow the sales, we'll know that a lot of the Gold in FT. Knox has been on vacation, and the guardians would like to see it return home.

Bob Chapman, The International Forecaster, said it best in his post on Goldseek this weekend:
"...gold is not going to go through the ozone. Gold is not going into the stratosphere. Gold is not going to the moon. Gold is not going into the solar system. Gold is not even going intergalactic. Gold is going inter-dimensional as it passes through a wormhole and explodes past the Einstein-DeSitter radius at the outermost bounds of the visible universe!"
http://news.goldseek.com/InternationalForecaster/1202688718.php

Nevertheless, as Dow Theory Letters' veteran Richard Russell put it: "Gold only 10 bucks from its high, and so far it hasn't let any of the "profit-takers" back in at lower prices. Ah well, the danger of trading out in a bull market." And that's a fact Jack. Breakouts in Gold at 910 and Silver at 16.85 Friday might now be considered support, and "possibly" offer an opportunity to reestablish postions, or add to those already owned should those prices "appear" again. However, caution is advised as the daily charts of BOTH Gold and Silver continue to show a bearish divergence in price and RSI.

I have been trying to ascertain the reason for Gold's unusual reaction to interest rate announcements and "proclamations" by the ECB last Thursday. You'll recall that Gold rose in the face of a very strong bid in the US Dollar as the EURO got kicked in the shins by the "prospect" of interest rates in Euroland inthe near future. A very little reported news item Wednesday and Thursday of last week about US Treasury auctions may explain some of the resilience in Gold late last week.

Treasuries Fall as 10-Year Auction Draws Lowest Yield Since '78
``Do investors want to bear hug a 10-year note with these yields or a 30-year bond near lifetime lows?'' said William O'Donnell, a U.S. government bond strategist at UBS Securities in Stamford, Connecticut, one of the 20 primary dealer firms that trade with the central bank. ``We don't think so.''
http://www.bloomberg.com/apps/news?pid=20601087&sid=ak06w7ay93CU&refer=home

Investors will now turn to Gold. I think the crappy 10 year, and 30 year auctions the following day, are just the tip of the iceberg as investors begin to wake up to the inflation tsunami about to swamp the USA...and the World. Investment demand will soon over take supply concerns this year, and be the #1 driving force behind the rise in Gold and Silver prices.

IMF Fact Sheet: Gold in the IMF
http://www.imf.org/external/np/exr/facts/gold.htm

Investors Catching Gold's Scent?

Gold Traders see thru ECB’s “Smoke and Mirrors”

On Feb 7th, the ECB kept its repo rate steady at 4.00%, but Trichet placed equal stress the downside risks to the Euro zone economy, on par with worries over inflation. “Uncertainty about the prospect for economic growth is unusually high and the risk surrounding the outlook for economic activity lies on the downside. Looking ahead, the slowdown in the economies of some of the euro area major trading partners is likely to have an impact on euro area real GDP growth in 2008,” he said.

Trichet’s comments about a slowdown in the Euro zone economy were viewed as a sign of capitulation, and that the ECB is open to cutting its interest rates for the first time in almost five years. The Gold market knows what nobody knows, and understands that lower ECB interest rates will further inflate the Euro M3 money supply. The yellow metal jumped to a record 630 euros/ oz, during Trichet’s press conference, and is up roughly 16% over the past three months.

http://news.goldseek.com/GoldSeek/1202424042.php

Today's reaction in Gold to the ECB's decision to keep interest rates unchanged was a bit confounding. It was surmised by many, myself included, that should the ECB indeed cut rates today, there would have been a rush to the Dollar as the Euro reacted negatively to the rate cut..and thus Gold would fall. Many also surmised prior to the ECB rate announcement that should the ECB keep rates on hold but turn dovish on possible rate cuts going forward, the Dollar would catch a bid as the Euro fell...and thus Gold would fall. Going into this mornings proceedings then, most expected a hit in Gold. It never materialized. The Euro tanked, the Dollar rose, and strangely, Gold rose right along with it. Why?

The potential for inflation, roaring global inflation, that is why Gold rose today. Investors are slowing realizing the shortcomings of paper currencies, and the virtues of Gold. With Gold writing it's own script today, it was dificult to have the confidence to chase it. Sometimes when things don't go as planned it's a good idea to step aside and watch the proceedings. You never know what kind of traps dem Rat Bastids on the NY COMEX may be laying for Gold Bulls. Especially with the Asians on Holiday celebrating the Lunar New Year Thursday and Friday.

Both Gold and Silver have established support in this dip in price either at or near the congestion zones we pointed to earlier in the week. It may yet be a bit premature to give the all clear just yet. A retest of Gold support around 885 and Silver support around 16.25 remain a possibility. However, both may be working thru congestion here now, much as they did coming off the previous low on the way to new highs. A break higher from here may be considered a call for boarding passes.

Gold and Silver Sale - While Supplies Last

Bernanke Makes Bulls From Dollar Bears Seeing Growth
Feb. 4 (Bloomberg) -- Ben S. Bernanke's decision to lower interest rates 1.25 percentage points last month will end the dollar's two-year slide, according to the world's biggest currency traders.

``We're not chasing dollar weakness any lower,'' said Robert Robis, a fixed-income manager in New York at OppenheimerFunds Inc., which oversees $260 billion. ``The Fed's actions have avoided a long recession and we may start to see a recovery later this year.''

``If aggressive cuts by the Fed can stimulate the economy, then the U.S. will definitely lead the way in terms of economic recovery,'' Yu said. ``The ECB is behind the curve, so it's time to move back'' into the dollar, he said.

This is an example of why my father always told me, "don't believe everything you read". One of three things is going on here. It's 1984 and up is down, and down is up. Wishful thinking his replaced reality. They are smoking some serious wacky tabacy on Wall Street. "The Fed's actions have avoided a long recession..."? LOOOOOOOOOOOOOOOL! The Fed's actions haven't solved a damn thing. As a matter of fact, they will probably make things worse. Wall Street, and certainly not the US Government, haven't even acknowledged that the US is even in a recession YET. How could we have avoided one, at any length, if we haven't even acknowledged the existence of one. Of course, it doesn't take a genius to realize that not only has the US already entered a recession, it's going to be long AND ugly inspite of all the tricks the Fed tries to use to make it disappear.

The Dollar has caught a bid here, temporarily, on the "news" that growth may be slowing in the Eurozone. Folks, the ECB charter does not mandate shoring up growth as does the Fed's. The ECB's "focus" is on controlling inflation. That is job number one in the ECB. It is becoming increasing clear that the ECB is not going to be led around by the nose by the US Fed. This dollar bid today is all in anticipation of a rate cut by the ECB Thursday. The ECB will hold rates steady Thursday...and the Dollar will slump yet again. It would be very surprising were they to do otherwise.

Euro slides as PMI data ups ECB rate cut pressure
London, Feb 5 (Reuters) - The euro fell sharply on Tuesday as surprisingly weak euro zone service sector data increased pressure on the European Central Bank to cut interest rates to shore up growth.

The euro fell 1 percent on the day against the dollar after figures showed that the service sector growth across the 15-nation bloc slowed in January to its slowest rate in four and a half years.

The ECB meets to set interest rates on Thursday, and is widely expected to keep them on hold at 4 percent. But investors and analysts believe the services sector data can only force the bank to soften its tough stand on inflation, sharpen its focus on growth and bring forward the timing of its first rate cut.
http://www.reuters.com/article/usDollarRpt/idUSL0529643820080205

Yadda, yadda, yadda...pass the pipe. It's true that none of the World's central banks want to see the Dollar collapse. I believe it's also true that they are tired of Dollar hegemony as well. This interest rate issue with the ECB is merely a smoke screen to the REAL growing threat to the US Dollar. The OPEC nations are beginning to get very serious about cutting there local currency pegs to the Dollar. The Chinese have stated openly that if the Fed continues to lower interest rates, they will have to look elsewhere to invest their wealth. The diminishing demand for dollars is a serious problem.

Inflation is never pretty, and no matter what the ECB does with interest rates, or OPEC does with their Dollar Peg, or the Chinese do with their accumulated wealth...Inflation is on it's way in a GIGANTIC way, not only in the US, but around the globe...and it will be very bad for the US Dollar, the Euro, all the funny monies of the world...and very good for Gold.

Gold today has moved quite quickly into our first support zone of 880 to 890. Downside risk to the trendline at 870 grows. Silver has plumbed it's first line of defense at 16.48 and should Gold test it's trendline, Silver would quite likely visist congestion in the low 16s. Keep in mind the 50 day moving averages of both Gold and Silver. Gold: 849 Silver: 15.22 Both are rising steeply.

And what do we do when Gold and Silver are on sale? WE BUY MORE!

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