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The Bullion Report For February 29, 2012: The Diluted Dollar

The Fed has recently reiterated their commitment to maintaining low interest rates. If that is not a reason to kick the economy into higher gear, it is not out of the question for more quantitative easing to appear, further diluting the dollar. Summary The gold standard was abandoned because it was not capable of providing the type of flexibility thought necessary in the global marketplace. That gold is immovable, or at least capable of serving as some kind of financial sentinel in tough economic times, may help support higher prices. The weaker US dollar and weakened currencies across the globe are spurring interest in commodity investment, which helped many markets break to fresh highs. The dilution of the dollar is going to be difficult to reverse - the Fed cannot take back money that was printed or stimulus that was given without affecting the whole system. This can only serve to benefit precious metals for now and the foreseeable future. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.  (Feb 29, 2012 | post #2)

Day Trading

The Bullion Report For February 29, 2012: The Diluted Dollar

For precious metal investors it is appealing to see gold and silver prices soaring to new highs for the year. Crude oil prices are also high, as are a number of other commodity markets. These price moves have captured the attention of the news media, along with the record high cost of gas that Americans are paying at the pump. Is it really that all these prices have gone up so much or is it that your dollars that are worth less? (Let’s hope it's a while longer before anyone is tempted to make a compound word from the last two.) http://futurespres s.com/imgndoc/bull ionreport/2-29-12% 20gc.jpg Past performance is not indicative of future results. ***chart courtesy of Gecko Software It may be a simple truth for some investors - the US dollar is not what it used to be. Seldom do investors see news stories pointing to the weakened dollar as the cause of these high prices in so many markets. However, it might work to explain a lot - as the dollar’s value gets diluted, things cost more. Most of the media maintains an active interest in associating the increased tensions in the Middle East and strong global competition for energy products with these high market prices. Sure, there are many things stirring the global pot, but it does not always lead to higher prices. News is often already priced into markets, leaving little incentive to push them any higher. For so many separate and diverse markets to be at, or near their highs simultaneously leads me to believe there must be a common thread at work. That thread is likely a much weakened dollar. While I see this weakness in the dollar as being a key driver of values, I do not intend to come off as some kind of “chicken little” suggesting that the “sky is falling” either. The economy is not falling apart. It is just reacting, as it should, to the influences of long-term monetary policy efforts put in place. From my perspective, the across the board increases traders have witnessed cannot solely be attributed to any single thing. However, the major reason gold, silver, oil, and gas are so high is that the real value and buying power of the US dollar has changed. The forces behind a devaluation of buying power have been at work for some time now, a primary reason why many investors have pointed to precious metals as a good store of value. It is my belief that they are seeing that function performed and validated. The situation that has developed should come as no surprise. It is obvious that the Federal Reserve has made it their focus to provide liquidity to the system, using such methods as forcibly maintaining artificially low interest rates and employing "quantitative easing." Although the initial reaction to this and other stimuli have been positivity for equities, in the long run they have served to undercut confidence in the dollar. The result is the now obvious devalued buying power of the US dollar. Some may argue that monetary policy such as this is not confined solely to the United States, putting currencies on equal footing where debasement is concerned. Globally, several central banks have taken a similar active stance. They too have resorted to an easy monetary policy. The trick to this current situation is that these commodities are priced in US dollars, so that weakness is reflected in the price value of the commodities. It is the outcome of creating “fiat dollars,” the impact of which is currently the biggest driver in the marketplace. Will the devaluation of the dollar continue? Certainly the country has had unspectacular economic growth, although several key economic indicators have been impressive as of late. Yet regular concerns regarding employment and a stronger rate of growth continue. The housing market remains in a lull, although stronger verbiage might be exploited here. The caveat to positivity in recent reports is that they are an improvement on a very bad set of years, coming off decade lows in some cases.  (Feb 29, 2012 | post #1)

Day Trading

The Bullion Report For January 22, 2012: Long Term vs Sho...

In this, expanding the use of platinum compounds help control the curing process, thus serving to broaden the uses of a product line that seems totally unrelated. It is truly amazing to see how many areas where potential demand growth for these metals exists. Summary Overall demand growth will be the key for the long-term picture for precious metals. Long after the heat from the global debt crisis has cooled, there should be many reasons to look to precious metals as part of a diversified portfolio. Applications will likely help to fuel a move from a post in the economic storm to a tool on the road to recovery. The demand for photovoltaic cells is growing globally. Who knows how many more ounces of silver will be required to meet that demand? In addition, factor in the ever-increasing technological applications for the members of the platinum group and the potential for simple retail items like gold jewelry to come back into vogue, and you have a mix for precious metals support in the long-term. 1. http://hansafx.net /blog/?p=6532 Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.  (Feb 22, 2012 | post #2)

Day Trading

The Bullion Report For January 22, 2012: Long Term vs Sho...

Last issue, this newsletter commented on Warren Buffet’s preference of stocks over both bonds and gold. “Gold is a ‘sterile’ investment,” he said, “stocks are not.” The Oracle of Omaha can and should be recognized for being an astute and savvy long-term investor, through which he has amassed his reputation. His question of timing is valid: what should investors look to in the short term, and what about the long term picture? Buffet says he now prefers stocks, but there are reasons to maintain a preference for gold and other precious metals. Presently, the atmosphere faced by investors is one in which stocks are potentially more vulnerable in the short term than precious metals on the downside. Investors should have nothing against investing in stocks; it may be prudent to take advantage of the fact that stocks have rallied and are at their highest levels in over a year. Of course they can keep moving up, but they also seem particularly vulnerable. Stocks, as a group, seem to be more susceptible to the gravity of the situation brewing in Europe. Regardless of the outcome of the continuing critical saga with Greece, it seems that there are even still more concerns about additional tentacles spread throughout the global financial community. Comparatively, metals have the discernible attraction of being used as safe havens during times of economic stress. In addition, several members of the precious metal complex: platinum, palladium, and silver, aren’t necessarily as “sterile” as one might think. They all have legitimate and proven applications that can stimulate demand in their own right from unexpected forces in the economic engine. This makes it worthwhile to consider the long-term potential for precious metals as a group. Take silver for example. How many of you are aware of silver’s usage in the manufacture of solar panels? The cost of solar panels is now half of what it was just five years ago. According to Bloomberg New Energy Finance, “Prices for solar cells have dropped about 27 percent this year and would be even lower if each panel didn’t require about 20 grams of silver.” (1) That’s right, solar panels require silver. Granted, as silver prices increase it could serve to impede developments in the solar industry, but oil prices are on the rise. With oil already at record prices this season, it makes sense to consider the possibilities of increased demand for alternative, renewable energy sources. Furthermore, much of the growth in demand for solar panels isn’t based on costs alone. Significant attitude changes resulting from government policy efforts have also influenced consumers. This response to the persistent “green” support provided by the government has resulted in a changing mind-set that make solar panels desirable for other reasons, such as tax credits and protecting the environment. The growing industrial use of silver in photovoltaic cells is only one side of the story. Most investors are already aware that platinum and palladium are used in catalytic converters in the automobile industry, how many know of the other, ever-increasing applications for those metals in industry? For example, platinum is used in many diverse manufacturing processes including those of plastics, synthetic rubber, and polyester fibers. Both platinum and palladium metals are considered platinum group metals and their use as catalysts improve the efficiency of a variety of reactions critical in many existing and prospective products. Palladium catalysts are used as a key element in the function of scrubbing equipment in the power industry. They help remove sulfur dioxides (SO2) and nitric oxides (NOx) gases emitted where coal is burned. In addition, all hard disks contain platinum in their magnetic layers. Demand for data storage capacity is always on the rise, and even specialty silicons are an area of creation for platinum demand.  (Feb 22, 2012 | post #1)

Day Trading

The Bullion Report For February 15, 2012: Gold Versus Stocks

Last week this newsletter addressed the topic of re-weighting a portfolio in difficult times. It is a topic that must be on many minds as Warren Buffet decided this past week to author an article in “Fortune” magazine entitled “Why stocks beat gold and bonds.” (1) In it, the Oracle of Omaha explains why he believes equities “almost” always beat the alternatives over time. While many may agree that now is not an opportune time to assertively direct investment funds into fixed income assets like bonds, I do not concur with his incentive regarding gold. Will Warren Buffet’s article deter investors from increasing the weight in a portfolio towards precious metals? Are precious metals going to be beaten by stocks? First consider that this piece was written by Buffet as a "preview " for his long-established annual letter to Berkshire shareholders. In it he concedes his aversion towards currency based investments, as he accepts a continued devaluation of the dollar. Buffet confirms this by saying, “I do not like currency-based investments.” Gold buyers are likely to agree. It is repeatedly suggested that gold investments are an indication of the lack of confidence in fiat currencies. This is based on the view that current aggressive fiscal monetary policies have sped up the process of currency debasement through the practice of printing more fiat money. What is fascinating is that this latest article’s stance is eerily similar to comments attributed to him previously. And Contrary to Buffet’s view, following the publication of those negative statements gold prices have advanced. While Buffet does state that what “motivates most gold purchasers is their belief that the ranks of the fearful will grow,” he also follows with, “During the past decade that belief has proved correct.” A decade seems fairly long-term, yes? While he also mentions both housing and internet stocks as having been involved in bubbles, he makes no similar statement regarding gold. Buffet is, and with good reason should be, admired for his investment prowess. To his credit, he has built a superior reputation for being an astute long-term investor. Therein lies the key: Buffet is speaking about investments held over the long-term. Exactly how has that changed in today’s marketplace? One need only look at the volatility investors now face to answer that question. Today’s markets are moving at a much more rapid pace than ever before., While it is certainly prudent to structure your investment portfolio for advancement and appreciation over the long haul, with today’s instability, portfolio adjustment is no longer a once in a year proposition. Investors would be wise to monitor markets more closely and frequently, and re-weigh their portfolios appropriately. Buffet attempts to build his case by defining investing as “forgoing consumption now in order to have the ability to consume more at a later date.” How much later is never made specific. The one example he relies upon to make his point about gold is to compare two investment piles. Pile A- which contains all the gold in the world and B- all U.S. cropland plus 16 Exxon Mobils. He then poses the question: “Can you imagine an investor with $9.6 trillion selecting pile A over pile B?” His decision to prefer pile B is not a realistic example to say the least, even for someone as well-heeled as Buffet. So what exactly is long-term, and does he specifically denounce precious metals as an investment? Warren Buffet has previously shown an active interest in precious metals as a viable investment, though he does not mention that critical feature in this particular article. Previously, Buffet has stressed that “assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment.” That phrase appears to echo the concept of physical ownership of precious metals.  (Feb 15, 2012 | post #1)

Day Trading

The Bullion Report For February 8, 2012: Tough Roads Ahead

Precious metals have had an active and positive start in 2012. Gold is trading at some of the best levels since November, and the precious metals sector as a whole has performed well since the New Year began. Now that January has ended, what can we expect for these markets as 2012 moves forward? Better yet, what adjustments might make sense for some investors’ portfolios moving forward? The age-old discussion of structuring an investment portfolio begins with evaluating and calculating an optimum investment selection mix, based on individual trading goals and risk tolerance levels. That frequently extends to precious metals in some form. The reason: precious metals tend to act as hedge, as a store of value, during times when other investments perform depressingly. Lately it seems that the bulk of investments are rising on a fresh wave of enthusiasm. There is every possibility that this is the result of forceful and repeated government stimulus. How long can that last? One bet is it will not last; not forever and likely not through 2012. After the crash in 2008, first came the Obama/Bush stimulus spending package, succeeded by Quantitative Easing (QE) 1, QE2, and Operation Twist. Following the most recent Federal Reserve Open Market meeting, Bernanke declared that interest rates would be kept low through 2014. So what came from all this? Slower growth, minor job creation, higher energy and commodity costs, (are commodities signaling inflation?), continued housing devaluation, and virtually no new business start-up entrepreneurship. What is left; more of the same? Both the U.S. and European governments have been extraordinarily aggressive at employing tactics to combat the economic slowdown, but could be running out of ammo. The accelerated monetary policy wielded to prevent a brutal recession has sapped the strength of the Fed. Consumers remain cautious, some even deeply frightened. Businesses have retrenched. The collection of creative recovery tools via fiscal and monetary that have been applied have proved relatively ineffective under the circumstances. It seems highly suspect for the pace of the monetary easing required to continue without an offsetting escalation in inflationary forces. Central banks may possess the ability to print money, but it is doubtful that they possess the resources and economic credibility to play as vigorously as they have been doing. The weaknesses may eventually be repaired, but their ammo is running out as quickly as investor confidence. This has changed the traditional conception of the American, and now global, marketplace. The global financial system has grown even more inter-related and lacks a smooth clean regulatory framework. Searching for stability, the U.S. and some European governments have made a dramatic shift towards nationalizing their financial sectors to such a degree that they are almost unrecognizable. The resulting sovereign debt has become the daily big issue. The role of government in the economy is larger than it has been in the average investor's lifetime, while the role of the private sector is far smaller. So what happens with such a tough road ahead for global economies? With such strong headwinds for stocks it may be that the average portfolio could look at reweighting itself toward more precious metals. Equities have been surprisingly resilient, but the framework still does not suggest the prospect for sustained growth in the immediate future. Certainly U.S. unemployment numbers, GNP, and other leading indicators have been better than expected and contributed to stock market gains, but markets do not just go straight up. Healthy markets tend to adjust and correct. Being an election year in the U.S., it is not altogether unusual for indicators to be received in positive fashion. Historically, with few exceptions, the modern economy has performed well during election years.  (Feb 8, 2012 | post #1)

Day Trading

The Bullion Report For February 1, 2012: To the moon Alice

How many remember that classic phrase from the Jackie Gleason’s “The Honeymooners”? That vintage TV sitcom has been a perennial favorite of many generations and still plays well during marathons and late night airings. With the Chinese Lunar New Year now over and with the end of the first month coming to a close this week, gold prices are up over $175 so far in 2012. What signal is that conveying? Does it indicate that gold prices will continue to advance? Could any of them justify a Gleason-like prediction “to the moon Alice, to the moon”? So far in 2012 precious metal prices have risen faster than most other investment sectors. While a rising trend requires fresh buyers to maintain momentum, precious metals seem poised to entertain that type of thrust from a variety of sources. Chief among stimulants for increased precious metal investment demand is monetary policy. Since the global economic collapse in 2008, the central banks of the world have aggressively embarked on an unprecedented policy of easier money. Even the quantitative easing efforts by the Federal Reserve serve to accomplish this, but all also have the effect of increasing the supply of fiat money. While accepted as suitable policies to stimulate the global economy, these methods also have the power to inflate. Somewhere in the neighborhood of 10 trillion dollars have been created as a result of these efforts. Yet, the global financial markets continue to not respond with solid growth. It is only a matter of time before those same policies erupt in inflationary forces. A good example of this was when metals received an assist in their ability to attract buyers following the Fed’s press conference last week. During that conference, Ben Bernanke gave the nod to low interest rates remaining in force until 2014. Additionally, hints were supplied that provided another Quantitative Easing (QE) plan may be in the works. As a result, metal prices soared, with gold gaining $68 for the week. With that in mind, just think: with Chinese buyers celebrating New Year physical buying was less active. What might happen once they return? The monetary policies being employed by the Fed are viewed by the financial community as accommodative and generally supportive for higher commodity values, including precious metals. Announcing their intention to extend the time frame through which the Fed plans to keep interest rates at record lows provides traders with a renewed incentive to invest in commodities. Low interest rates also apply pressure on the US dollar relative to other currency exchange rates. A weaker dollar tends to support higher commodity prices, as well as generally create a “risk on” atmosphere, not only for commodities but other assets that benefit from the promise of better returns. Economic indicators suggest that the US economy is showing constructive signs. Not that the economy is booming, but suggestive of a positive trend that may be “better than expected.” The 2011 4th quarter GNP growth was reported to be running at 2.8%, the highest since mid-2010. Housing data, typically a very influential component of the US economy, has been running more favorably than previously predicted. While unemployment is still a major issue, especially true with the presidential election campaign about to shift into high gear, there have even been a few encouraging signs seen among the jobless numbers. All in all, the US economy shows resilience and improvement rather than signals of a double dip recession on the horizon. At the same time the Euro zone crisis seems to be tapering off. The extent of the problems with sovereign debt issues have received encouragement from reports that Spain and Italy are actually finding buyers for new bonds. Now let’s look at China as a factor. As pointed out in a previous article, the Chinese traditionally buy gold as presents for gift-giving in the Lunar New Year.  (Feb 2, 2012 | post #1)