Dollar Vs. Gold

May 3, 2012

The RSS feeds that I review regularly are becoming more and more frenetic about the loss of faith in the US Dollar.

Also, I noticed in today’s New York Post an article “How US debt risks dollar doomsday”, which notes that investors are shunning US bonds and notes.  Apparently the lack of buyers caused the Federal Reserve to buy a stunning 61% of the total net issuance of US government debt during 2011.

Worse still are the number of countries that are leaving the sinking dollar for the Chinese Yuan. For instance:

In December 2011, Japan and China agreed to trade in yen and yuan.

In January 2012, the 10 nations of the Association of SouthEast Asian Nations finalized a non-dollar credit agreement equivalent to $240 billion.

Also in January China signed a currency swap agreement with the United Arab Emirates, which holds 7% of the world’s oil reserves.

And now that Iran is locked out of the SWIFT system for international payments between banks, it has agreed to accept Rubles, and Yuan in trade with Russia and China. And is also trading oil for gold with India.

In late March, The China Development Bank agreed with Brazil, Russia, India and South Africa to deliberately avoid dollar lending and to extend credit to each other in their own currencies.

As less and less dollars are used around the world for commercial transactions, the lower the “value” of the US dollar, compared to the price of an ounce of gold.

Gold Dividends vs. Bullion ETF

April 18, 2012

I predict that gold stocks that pay a dividend are going to be the “utility stocks” that everyone will want to own in the future.

Peter

From Bloomberg:

Dividends ‘Best Defense’ Against Bullion ETF, Kirkland Gold Says

By Thomas Biesheuvel and Tim Barwell.

Gold miners should pay more in dividends if they are to compete with exchange-traded funds as two years of record buyouts eroded shareholder value, Kirkland Lake Gold Inc. (KGI) Chief Executive Officer Brian Hinchcliffe said.

Precious metal producers spent a record $53 billion on deals in 2010 and a further $43 billion last year as all-time high gold prices spurred deals. That led to writedowns that are an admission of overpaying when cash could have been returned in dividends to lure investors from increasingly popular ETFs.

“The generalist investor is not going to be attracted to an industry that is not judiciously allocating capital, whether it’s in the context of making acquisitions or in the context of dedicating capex,” Hinchcliffe said. “ETFs are a major competing alternative for investment. I’m talking about a 5 percent to an 8 percent dividend policy, that is the best defense against the ETF.”

The 16 members of the benchmark Arca Gold BUGS Index will pay an average dividend yield of 1.5 percent this year. That compares with an average dividend yield of 4.2 percent by companies in the STOXX Europe 600 index, according to data compiled by Bloomberg.

ETF Holding Surge

Gold stocks are trading at the cheapest levels in at least nine years as profits reached record levels on near-record bullion prices. The NYSE Arca Gold BUGS Index (HUI) that includesBarrick Gold Corp. (ABX), Newmont Mining Corp. and AngloGold Ashanti Ltd. (ANG) ended last week at 14.7 times profit, the lowest since at least November 2002 and below a five-year average of 36 times as gold stocks fell 5.2 percent in the first quarter.

Holdings of the metal through ETFs have more than tripled in the last five years and reached a record 2,410.2 metric tons on March 13, valued at about $140.3 billion, according to data compiled by Bloomberg.  More

The $291 Trillion In Derivatives

April 17, 2012

Written by Avery Goodman and published by www.seekingalpha.com, this is an excellent article.

Details Of The $291 Trillion In Derivatives To Which American Taxpayers Are Exposed

The entire US GDP is less than $15 trillion each year. The gross notional amount of derivatives issued in the USA is more than $291 trillion. Does that sound like a lot? Apologists for derivatives dealers don’t like it when we talk about derivatives in terms of the notional totals. Large numbers, like these, discussed publicly, frighten too many people. According to the apologists, gross “notional” is misleading, because it does not include “hedges,” offsets and the limits on interest rate risk.

In fact, the total amount of derivatives cannot be accurately presented in any other form but gross notional obligations. The risk to society cannot be judged in any other way. That’s why the FDIC, US Comptroller of the Currency and the Bank for International Settlement (BIS) all use gross notional.

Final net obligations can only be determined when and if derivatives are triggered. The net can be significantly lower, but neither we, nor the banks themselves actually know exactly what that is. It depends upon the balance sheets of every counter-party, and the extent to which interest rates will change in the future. Not even the banks have full information about either topic..

There is another number called the “net current credit exposure” (NCCE) that some erroneously claim represents the risk imposed by derivatives. According to the Office of the Comptroller of the Currency (OCC), the NCCE for American bank derivatives amounts to about $370 billion. That’s a huge amount of money, but it’s not $291 trillion.

Unfortunately, NCCE provides no information about ultimate exposure to loss. It merely measures the net cost of unwinding the contracts, before the occurrence of any trigger event. NCCE is the current market value of the contracts, and nothing more.

There are also a number of “value at risk” calculations that the banks provide. These are not standardized, and are based upon vastly different models and assumptions, from bank to bank. Unfortunately, a very high level of inconsistency and lack of any standards for measurement causes such models to be highly unreliable. For example, during the 2008 credit crisis, similar proprietary models used to determine subprime credit risk failed, in the infinitely smaller subprime mortgage market.

In reality, it is impossible to know the true risk of $291 trillion in New York issued derivatives (ignoring the additional $417 trillion issued out of London). A sudden very large increase in interest rates, alone, could trigger trillions of dollars in payments. One could argue that the Federal Reserve could force interest rates down at any time, but that is not entirely true.

If the US dollar came under heavy selling pressure, for an extended period of time, as has happened to the British pound, Chinese yuan, Japanese yen, German mark, Austrian shilling, Argentine peso, and a host of other currencies in the course of history, the Fed would be able to defend the dollar only at the risk of inducing widespread systemic failure.

That is why interest rates cannot rise for many years, regardless of whether that destroys its status as the world’s reserve currency, and/or creates extreme levels of inflation or hyperinflation. It is also one more reason for the government to lie about the true inflation rate, to avoid pressure to raise interest rates (see shadowstats.com.)

All the too-big-to-fail (TBTF) banks, with the exception of Morgan Stanley (which uses its SIPC-insured division) are using FDIC-insured depository divisions to house derivatives. That provides them with lower collateral requirements because FDIC depositary units usually have higher credit ratings than investment banks and/or bank holding companies. It also means that, ultimately, the American people will pay for losses.

While no one can determine the exact exposure, it is safe to say is that the risk is astronomical, and imposes a grave risk upon American taxpayers. It is not surprising that FDIC staff is not thrilled with US bank derivative exposures. In fact, Sheila Bair, who until recently ran the FDIC, is as disgusted with the Federal Reserve slush fund and the banking cartel as you and I. A few days ago, she penned a satirical article heavily critical of Fed policy and published it in the Washington Post.  More

Manipulation and Gold Silver Charts

April 9 2012

Manipulation!!

This last week has made the manipulation in the metals markets obvious to many more people. Ted Butler was interviewed a couple of days ago and has provided a very insightful picture of how the silver market is manipulated and how the major players instigate the selling that occurs. (Link) I highly recommend that you read this article.

We know that the precious metal markets are heavily manipulated. This makes short term (day to day) technical analysis hard or impossible to do. However, one can still use the weekly and monthly charts to determine the long term trends in place that are a lot harder (and costlier) to manipulate.

So let’s take a look at the weekly charts for gold and silver:

We still have a reverse head and shoulders pattern being formed. The left shoulder took 7 weeks to form.  The right shoulder so far has taken 6 weeks. Could we see some positive action this week? This may be early as the slow stochastic indicator is still in a downward trend. (See the red circle, because both lines are pointing downwards, we do not yet have an uptrend in the gold price).

There is round number support at 1600, and strong support at 1550.

Silver looks somewhat similar:

The reverse head and shoulders pattern is still tracing out nicely in silver. However, it only took 5 weeks to form the left shoulder and we are already entering the 7th week for the right shoulder. As in gold, the slow stochastic indicator has not shown that an uptrend has started in silver. We have support levels at 30, 28 and 26 in silver.

Remember to keep the fundamentals in mind. The dollar is losing steam as the reserve currency of the world. As more and more transactions take place in currencies other than the dollar, we are going see the dollar weaken – and gold and silver will go up.

Gold and Silver Charts March 22 2012

Gold and Silver Charts – Why Gold and silver look bullish. Hint: Look at the Dollar chart and the 30 Year Bond Chart.

Time To Accumulate?

March 18, 2012

One method I use to see whether gold is a good buy or not is the 125 daily moving average (dma).  For the last 10 years, each time gold had dropped below its 125 dma, it has been a good time to accumulate the metal. This is because the price of gold has been higher some months later and has gone on increasing in price.

I use the following graph to indicate times that are good to accumulate, and also, times where one might reduce your holdings, (but only if you are a trader).

The blue line is the price of gold at the pm fix in London. The red line is the 125 dma. Inspection of the chart shows that each time that gold has touched or gone below its 125 dma has been a good time to purchase.

The green line is shown solely for traders and is the 125 dma multiplied by 1.15. This provides an indication of when one might consider lightening up on positions if you are a trader. However, this would not have been wise during the late 2007 – early 2008 period.

At present, gold’s 125 dma is 1691.68. Friday’s pm fix was at 1658.

Of course, you need to do your own due diligence, but I find that charting the 125 dma for gold is very useful.

HUI and GDX ready to bounce back?

March 18, 2012

So far, for the past 18 months, both the HUI Index and the Goldminers fund, GDX, have bounced off the blue internal trendline that I’ve indicated in the two charts below.

The chart for GDX looks the same:

We know that gold and silver are in a long term uptrend. Both GDX and the HUI are underperforming the metals. The blue internal trend line has acted as support for the last 18 months. It is likely to act as support right now. However, do note that following the chart for gold shows that a reverse head and shoulders pattern is likely forming. This would be very bullish:

Often the shoulders are of a similar size. Should this be the case, technically, gold could possibly drop to around the 1600 level to trace out a similar sized right hand shoulder.  Fundamentally, however, there is an article in this weekend’s Financial Times detailing large purchases by the world’s central banks during this week, especially on Friday. With willing central bank buyers of large size, it is hard to envisage gold dropping further.

Perhaps a look at the dollar chart will give us some clues – remember, the best indicator for what is likely to happen to gold, is to look at the US Dollar chart:

The dollar has just entered a down trend, which is confirmed by the slow stochastic indicator (as both the red and blue lines of the stochastic indicator are pointing downwards). It is likely then, that gold will increase in value from here. Thus, the HUI and GDX have most probably bottomed out and are likely to increase in value again.

And just to finish this post off, let’s take a look at what silver is doing:

Silver, like gold, also seems to be tracing out a reverse head and shoulders pattern which would be very bullish. And a strong plus with silver, is that the right shoulder has already dropped as far from the neckline as the left shoulder did. Silver should find considerable support at this level, so it should only be a matter of time until it finishes forming its right shoulder.

China Offers Renminbi Loans to Bric Nations

March 8, 2012 

China: RMB credits for the Brics     By: Harry Sender

As the demand for US dollars declines around the globe, so does the value of the US dollar. This is going to contribute to a far lower exchange rate for the US dollar.

Please see this Financial Times article describing the Chinese lending currency in the the Bric countries.

More…

Gold is below its 125 DMA

March 8, 2012

It’s currently 10h45am East Coast time, and Gold is sitting at 1693.10.  Gold’s 125 DMA is currently 1700. If you inspect the following chart, you’ll see that whenever gold has traded below its 125 dma, that it’s a good time to purchase some metal.

The blue line is the gold price in $ at the time of the London PM fix. The red line is the 125 day moving average. The green line is the 125 day moving average multiplied by 1.15.

And if you were a trader, then lightening up in positions when gold price is at or above the 125 dma plus 15% could also be a good idea. Currently, the chart is indicating that it’s buy time.

Now let’s look at the daily chart for gold to try to see what’s most likely to happen:

It looks like the right shoulder of an inverse head and shoulders pattern is being formed. If that is the case, often the two shoulders are of similar size. If that occurs, then we could expect some more weakness in gold down to the 1600 level and that it will only touch the neckline towards the end of May. Of course, the shoulders do not have to be of equal size, but at least this gives us some food for thought.

Note that the slow stochastic indicator has crossed (ringed in red), which indicates a warning. Both stochastic lines are not yet pointing upward, when that happens, then the trend in the gold price is likely to be up. So watch out for this indication.

Gold and Silver Charts for Tuesday

After the bashing that we took last week, I thought that it would be useful to review where we are on Monday night. Actually, last week wasn’t too bad overall. Oil, Gold and Silver each dropped about 3%, the 30 yr bonds dropped 2% and the US dollar closed up 1%.

So on Monday night, gold has got good solid support at 1680, and below that at 1650 too.  It’s going to start running into some resistance at 1720 to 1725, before it can move on to 1750. As mentioned in my last video though, don’t be surprised if it drops a bit lower to say 1650 to trace out that right shoulder of a bullish reverse head and shoulders pattern. However, the slow stochastic indicator, (Not included on this chart), has only issued a warning and has not yet confirmed a downward move is imminent.

Silver

Silver has also has support at both 34 and below that at 33. It looks like a lot of buyers turn up each time the price dips, so it could stay in a trading range between 33.5 to 35.5, and possibly as high as 37.5.  However, any bad news could give it a knock lower…

US Dollar

The US Dollar is currently in an uptrend, as confirmed by the trend line and the slow stochastic indicator. With the dollar in an uptrend, it will make it harder for gold and silver to work their way higher.