Silver Soaring as Paper Folding

As a result of active “demonetization” efforts by the IMF and its member central banks, gold and silver have experienced the type of volatility that has given conservative investors reasons not to perceive the metals as dependable cash alternatives. Instead gold and silver have become known as the asset class to hold as a hedge against inflation.

However, during the 1990’s, when inflation was in general much higher than it has been since the turn of the millennium, gold and silver prices drifted lower and stagnated. However, since 2000, gold and silver have risen by over 400 and 700 percent respectively. Remarkably, this has occurred over a time frame during which, by most accounts, low inflation has prevailed.  How can this be explained?

In 1944 when the U.S. dollar was considered ‘as good as gold,’ it was made the international reserve currency. This unique status is the reason that Fed Chairman Ben Bernanke was recently able to say that, “The U.S. Government has a technology, called the printing press that allows it to produce as many dollars at it wishes at essentially no cost.”

Today, with the Federal Reserve treating the greenback as a never ending lottery ticket for deficit spending politicians, many investors feel the U.S. dollar is good for nothing. As a result there is an increasing international pressure to remove the U.S. dollar’s reserve status. Given that there is no widely accepted alternative to the dollar (the euro has many problems of its own), this is creating fears of an international currency crisis, which has fueled interest in precious metals. So metal prices have risen even with low inflation expectations.

In order to paper over the effects of the financial collapse, central banks around the world are printing as fast as their presses can manage. But unlike prior periods of monetary inflation (like the 1970’s), some major powers (China) are withdrawing liquidity. In addition, emerging market manufacturers are holding down prices even as currencies lose value. This may explain the strong performance of metals despite seemingly manageable inflation. But if higher prices emerge into the light of day (as they already have in commodities), currency uncertainty combined with high inflation should intensify the market for precious metals. The question then becomes how to play the market.

Gold has always been the reserve asset of choice for central banks and major private investors. But now, as smaller investors become aware that paper dollars are under threat, many are looking towards silver.  Taken in aggregate, these smaller investors have enormous buying power. Through ETF’s and mining stocks they are not bound by government restrictions on holding precious metals in retirement funds. In contrast to gold, central banks do not hold much silver. They are therefore less able to push down the price of silver by dumping inventory when rising metal prices undermine currency confidence.

Indeed, so far this year, silver is up nearly 50% while gold is up only about 6%. Given these figures, investors may be forgiven if they feel that the big move in silver may be over. Technical analysis may provide comfort.

According to the U.S. geological survey silver is about 17.5 times more abundant than gold in the earth’s crust.  This ratio has long been appreciated by civilizations throughout history. Thus, in 1792 the newly formed U.S. Congress passed the First Coinage Act, which legally set the valuation ratio of gold/silver at 15 (it was raised to 16 in 1834). In the early 1990’s, with silver out of favor with investors, the ratio approached 100. At the beginning of this century gold stood at some $250 an ounce and silver at $4, putting the ratio at about 62. Today, with gold at around $1,500 an ounce and silver at $45, the ratio has closed to around 33.  But this is still far higher than the ratio seen in the late 1980’s (silver’s last mega spike), and if far higher than the natural proportions of gold and silver would suggest.

The demand for physical silver also remains strong, which supports the market for spot silver. Smaller investors may find gold too expensive at $1,461 an ounce, but may be nevertheless prepared to buy several ounces of silver for much less. Potentially, this ‘poor man’s gold’  market may help drive silver prices far faster than gold.

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Silver Rising $1 a day

Not content with rising by a dollar during all recent regular work days, silver is now up a buck on a holiday. Doesn't make much sense, but we'll take it.

And for something actually relevant, below is yesterday's Gold options reports from FMX Connect, whose calls so far have been spot on.

Summary

June Gold settled at $1503.80 per troy ounce, a gain of $4.90 for the day. Gold continued to trend higher ahead of a long, holiday weekend. Options trading was steady and a continuation of yesterday’s activity. Volatility was slightly lower going into a long weekend.

Commentary & Analysis:

Today’s futures activity was a repeat of yesterday’s. The options activity also mirrored yesterday but at a lower volume of interest. In this article, we’d like to lay out what we think will happen to gold over the next 6 days. Before we do let’s discuss the futures activity. Today, as in the last 4 or 5 days, the market was very orderly. It traded new all-time highs overnight. While futures came in higher on the Comex, they traded in a  tight range, approaching but never piercing the overnight high. The range has consistently been between 1495 and 1507. Every day it moves up a couple dollars. Today it was 1500-1510, with most of the day spent between 1501-1507. We’ve seen this behavior before. When you combine this activity with a big holiday weekend and a specific type of options open interest you have a setup for a $20 move higher.

There were 6800 lots of open interest in the May 1500 call going into today and  interest has remained at that level for some time. Market making firms and locals are long, while banks are playing from the short side. Banks have the deeper pockets and one might assume that the strike will be pinned if he is a student of history. And so here we are, hovering around the strike, ripe for a pin.

Enter the May 1520 call buyer. Over the last 3 days large volumes of the 1520 call have been purchased. with approximately 6400 contracts trading on Tuesday alone, almost all of them purchased near the days’ lows. These are not impulsive buys; on the contrary, they seem well thought out. We believe the long is strong and once the May 1500 gravity is broken, as is happening slowly, a nice pop in the market will occur. Finally, take note of the market’s opening schedule reposted here and its implications for futures liquidity:

•    April 21st, Holy Thursday: day before a holiday 
•    April 22nd: Good Friday: CME Closed
•    April 23rd,Easter Saturday: Markets Closed
•    April 24th,Easter Sunday: Markets Closed
•    April 25th, Easter Monday: LME Closed (Largest Physical Bullion Exchange Worldwide) 
•    April 26th, Tuesday: May Options Expiration CME
While everyone we speak with is worried about the 1500 strike being pinned we think the 1520 is more significant. If we go to the 1520 strike money will change hands in a spectacular fashion, whether we pin it, progress through, or fail.

As for the other months, August calls were bid, specifically the 1600 strike. This was a different type of buyer from the 1700 call buyer yesterday but both were bullish. June calls were also bid but found sellers in the futures selloff and never quite recovered. August, however, remained firm. June at-the-money options were lower from two types of sellers, retail liquidating 1500 calls for a profit and speculative bulls selling naked puts the 1500-1480 area. As stated many times before, if this market continues to bid call skew then puts will have to give up, and we are finally starting to see that in the December 1300-1200 area. There were sellers of the December 1200 put in outright and spread form today. If this continues we will have seen the continuation of the skew transformation. Finally, December 1700 and 1800 calls are untouchable.

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The Coming Gold Tsunami

With gold and silver continuing on their historic run, the Godfather of newsletter writers Richard Russell had this to say in his latest commentary, “Gold -- The desperate battle to keep gold below 1500 continues. I watched the erratic action of gold near yesterday's close. I'm fascinated to see whether June gold can close above 1500 or whether the anti-gold contingent can manage to knock gold down (again) below 1500. 

The action is now so blatant that it literally screams of manipulation. At its high yesterday, June gold sold at 1506.50. At yesterday's close, June gold was trading at 1498.10. It's almost embarrassing to watch the action. What we're seeing is the anti-gold crowd and the manipulators vs. the great primary trend of gold.”

“I've tried to emphasize this, but the key here is PURCHASING POWER. When the dollar price of a loaf of bread rises from $1.90 to $2.10 that means something to the average American. But when the Dollar Index drops from 75 to 73.97 the average American doesn't understand it and isn't the least bit interested. 

Why the battle to keep gold below 1500? Markets tend to stop at big even numbers. Many of us old timers remember the battle of "Dow one thousand." We remember how the Dow fought month after month to close decisively above 1,000. Then, once above 1,000 the Dow was on its way to 2,000, 3,000, 4,000 and finally 5,000. From there the Dow battled to move above 5,000 -- on its way to 10,000.

The battle about gold closing above 1500 is that once above 1500, technically gold will be on its way to 2,000. And from there 5,000 will be the target. So 1500 is a psychological barrier that, from the bull's standpoint, must be bettered. But from the anti-gold crowd's standpoint, gold must be held (on a closing basis) below 1500. 

The answer: As I see it, the primary trend of gold remains bullish. In due time, gold will gather the strength to close above 1500. The gold-bears will be defeated. It's only a matter of time. 

The Coming Gold Tsunami -- We're moving nearer and nearer to the edge of the hurricane. I can feel it in my bones. Every newspaper now carries an ad for gold. 

Is there a gold bubble? Are you kidding me? Here's an ad that somebody paid for suggesting that people should turn in their gold (!!) for Federal Reserve Notes. They're not telling you to buy gold during one of the greatest bull markets in history -- hardly, they're asking you to throw parties in which the object is to get ignorant people to SELL their gold. 

I can feel them caressing my face -- the early breezes. They are blowing gently and hinting of the forthcoming gold hurricane that will sweep across the US and the planet with all the force and power that was seen when gold was first discovered at Sutter's Creek during the California gold rush of 1849. The gold rush of the 2000s is in the wings. The old phrase is ringing in my ears again (I haven't heard it since the late '70s), "There's no fever like gold fever."

If the temperature of full gold fever is a hot 106, we're only at 99 now, but I can feel it, I can tell you that the temperature is rising.

The panic to buy gold will override everything else. It will be one of the greatest financial phenomena that most of today's investors will ever see. It will blot out everything else like a cloud blotting out the sun.

After the calm, comes the storm. We've been watching ten years of gold climbing amid an atmosphere of calm. The great gold tsunami lies ahead. It will be historic.” 

In the twilight of Russel's career, this old timer once again pulled a rabbit out of his hat by nailing this secular bull market in gold in the early stages.  He’s kept his subscribers long while many others have been bucked off of this golden bull.  I guess maybe Russell learned a thing or two over more than half a century of writing about the markets.  Russell is correct, when this gold bull finally crescendos it will be one for the history books.   

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Expect The Gold To Silver Ratio To Hit Single Digits

You know silver's doing well when the commentators start giving it the 'gold' treatment. Silver's recent rise has been so spectacular that it's caught many investors off guard. It's natural to be sceptical when you don't know the fundamentals driving strong performance, and many pundits and commentators have been quick to downplay it as a result - much like they do towards gold when it enjoys a run. Silver is also an awkward metal for them to categorize. Is it a commodity, a monetary metal, or both? And which side is driving demand? If it's industrial demand, that's ok, because that's bullish. But if it's investment demand for silver as 'money', well then that's sort of bearish, isn't it? 

The fact remains that most commentators have failed to grasp the monetary shifts that silver is signaling today, and in doing so they've failed to appreciate just how high it could actually go.

The financial media's failure to grasp the benefits of precious metals ownership continues to perplex us, and it's not just the commentators who are prone to perpetual disbelief. The sell side analysts are equally as irresolute. According to Bloomberg, the 'expert' consensus silver price forecast for 2011 is $29.50, representing a 31% discount from the current spot price. This same group of analysts also predicts prices will decline another 25% in 2012 and a further 9% in 2013 to $20 an ounce. When you consider that the silver price has appreciated by over 21% annually over the past 10 years, these forecasts suggest a very dramatic change in the long-term trend. Will this reversal come true? Probably not. These were the same analysts who predicted that spot silver prices would average $18.65 this year - so they've missed the mark by over 100% thus far.

We don't mean to bash the silver analyst community, and there are several whom we highly respect, but it is important for silver investors to appreciate that these price forecasts are being plugged into financial models that dictate equity valuations. These models are used by traders, bankers, analysts, and portfolio managers to derive valuations for silver stocks and create asset allocations for portfolios. To anyone questioning current silver equity valuations, we would ask: what price assumptions are you using? 

Of course we as allocators of capital are thankful for this phenomenon, as it allows us to buy our favourite silver stocks on the cheap, knowing full well that the herd will be following behind in due course as those backward-looking forecasts get ratcheted higher.

How can we be so confident that the price of silver will continue on its upward trajectory? Our thesis is premised on the most rudimentary of economic principles - supply and demand.

One of the key indicators that we've been monitoring is the gold/silver ratio. Much has been written about the ratio of late, and we won't go into great detail on the subject, other than to note that the last time money was synonymous with defined amounts of gold and silver, the ratio was set at 16-to-one. In fact, for most of the past millennium, one ounce of gold would have been convertible to somewhere between 10 and 16 ounces of silver - an amount roughly in line with the relative occurrence of each mineral within the earth's crust.¹ For the better part of the past century, due to the world's abandonment of bimetallism and then the gold standard, the gold/silver ratio has fluctuated widely, twice reaching lows near the 15-to-one mark and a high of 100-to-one back in the early 1990's. The most recent high reached in the latter part of 2009 was nearly 80-to-one. Since then the ratio has been tumbling to where it stands now at 35-to-one - which reflects the incredible outperformance of silver over that time period. In our opinion, this ratio will continue to move lower, driven by nothing more than basic supply/demand fundamentals.

The US Mint, which is the world's largest silver and gold coin manufacturer, recently reported that it had sold 13 million ounces of silver coins and 370 thousand ounces of gold coins on a year-to-date basis.² This means that the US Mint is now selling roughly equal amounts of silver and gold in dollars so far this year. Furthermore, bullion dealers like Sprott Money and GoldMoney have confirmed with us that they are now selling more silver than gold in dollar terms. For additional confirmation of this investment trend, just look at the flows for the two largest gold and silver ETFs. Investors have withdrawn approximately $3 billion from the GLD so far this year while the SLV has seen net inflows of $370 million over the same period. Dollar for dollar, investors are allocating as much if not more money to silver than to gold. And why shouldn't they? Silver is much more of a "precious" metal than the current ratio of 35-to-one would suggest.

To explain, we must first address mine supply. In 2010, the world mined approximately 736 million ounces of silver and 85 million ounces of gold.³ The world also produced an additional 215 million ounces of silver and 53 million ounces of gold from recycled scrap.⁴ Adding both together brings us 951 million ounces of silver and 139 million ounces of gold supply, for a ratio of nine ounces of silver to one ounce of gold.

Interestingly, this 9-to-one ratio is very similar to the ratio of available in-situ silver and gold reserves. The U.S. Geological Survey estimates that there are current in-situ reserves of approximately 16.4 billion ounces of silver versus 1.6 billion ounces for gold, or about a 10-to-one ratio.⁵

The case for silver is even more compelling when one considers the ramifications of its dual role as both an investment and industrial metal. Last year, non-investment demand for silver (which includes industrial, photographic, and silverware demand) totaled approximately 610 million ounces.⁶ This represents approximately 64% of primary supply, leaving approximately 341 million ounces to satisfy investment demand.⁷ On the gold side, industrial usage totaled 13 million ounces, or about 10% of primary supply, leaving approximately 125 million ounces left over for investment demand.⁸ So, after netting out the industrial usage the primary supply left over for investment demand is about 2.7 times that for gold. However, if we convert those ounces to dollars at current prices, we're left with $15 billion worth of silver available for investment versus $186 billion worth of gold, or a one-to-13 ratio of silver to gold! This means that in terms of primary supply, silver only has 8% of the capacity for investment that gold does despite having equal if not more dollars flowing into it.

Now, it's true that another potential source of supply is the very silver that investors already own - and at the right silver price these inventories of silver and gold bullion may be sold into the market to supplement any supply shortfalls. As we've noted previously, however, due to decades of underinvestment, the amount of silver bullion inventories are actually extremely small, even compared to those of gold.⁹ Recent estimates suggest that reported silver bullion inventories stand at roughly 1.2 billion ounces versus 2.2 billion ounces of gold bullion, or roughly a 0.5-to-one ratio.¹⁰To put that amount in perspective, consider that at present there is only $52 billion worth of silver bullion/coins and over $3.3 trillion worth of gold in inventory which could potentially be recirculated into the market. Converting this to a ratio, you get a one-to-63 ratio of silver to gold inventories. So how is silver still priced at 35-to-one?!

All indications lead us to believe that there is now roughly an equal amount of investment flowing into silver and gold on a dollar-for-dollar basis. 

And although the price ratio of silver to gold has fallen substantially since the highs of 2009, our analysis strongly suggests that this ratio must move lower to restore a fundamental balance between supply and demand. Only time will tell how much lower it will go, but we would not be surprised to see it hit single digits before settling into a more sustainable equilibrium.

What the so-called silver 'experts' neglect to account for in their models and projections is that the fiat money experiment has failed. And in this context, we believe the Market has assigned world reserve currency status to gold - not USD, not EUR, and not JPY. In our opinion, gold's continued appreciation vis-à-vis every currency is assured because the great flight from fiat has only just begun. Like gold, silver also has a long monetary history, and as such, investors are now also buying silver as protection from the ravages of fiat currency debasement. Yet, when compared to gold, it is silver that offers the most attractive value proposition by virtue of the gross mispricing of its scarcity, which, we might add, has existed for many years. Thus, in our opinion, as this new bimetallic standard takes root, silver investors will continue to be justly rewarded with marked outperformance. We truly believe that this is the investment opportunity of a lifetime, and increasingly so, others are taking heed. What is clear to us is that with equal investment dollars now flowing into silver and gold, the current 35-to-one ratio is unsustainable and has only one direction to go: lower.

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One Country Two Economies

There are two economies--the real one, which is in decline, and the "let's pretend" one touted by the State and corporate propaganda machines.


Children love to play "let's pretend." Let's pretend the economy is "recovering."Why does this "recovery" remind me of an addict who's conning his caseworker? (Yes, I'm really in recovery--those aren't tracks, they're insect bites....)

Let's play pretend that jobs are really really coming back, so please ignore this chart, or turn it upside down:



Also ignore that Big U.S. Firms Are Shifting Hiring Abroad.

Let's pretend that households, corporations and government are reducing their debt. To do that, we have to ignore that the debt-junkie (i.e. the U.S.A.) hasn't kicked the monkey off its back, it just keeps feeding it more debt. David Stockman dismantled all that propaganda about corporations sitting on trillions in cash--they're sitting on even bigger piles of debt: Federal Reserve’s path of destruction. He also takes out the claim that "consumers are deleveraging." Consumer debt has barely budged.

Never mind, let's pretend we're deleveraging. So please ignore this chart:



Excuse me but that cute little debt monkey on your back is actually an 800-pound gorilla.

Let's pretend that wages are rising. Except they aren't--household income is getting creamed. Real wages are back to the pre-dot-com bubble days of 1996--only the debt load on households and the nation have skyrocketed since then.



Courtesy of the always insightful Oil Empire and Peak Oil, here is a chart of the ratio of wages to gasoline:



Put another way: this is your wage priced in gasoline. Notice how wages tanked when oil hit $140/barrel in the summer of 2008, and how the brief plunge in oil around Q1 2009 caused a spike in the ratio. Now that the Fed is destroying the U.S. dollar, then oil is back over $100 and well on its way to $120 and higher.

Let's pretend your purchasing power isn't in a free-fall. Have you eaten an iPad recently? Yum, crunchy!

Let's pretend unemployment is falling. The only way to make losing 7 million jobs look good is to ignore this chart of the ratio of civilian employment to population. The ratio is back to the 1970 level, back before Mom, Sis and Aunty all went to work. This means there are fewer people working to support the population. Fewer workers means higher taxes on those still standing, and higher debt loads on them, too, as they have to service household debt, student loans, underwater mortgages and a Federal debt that's exploded higher by $1 trillion a year just since the "end of the recession."



Let's pretend corporate profits are the most important metric of our financial well-being.

Who benefits from the surge of corporate profits to record levels around $1.6 trillion, or 11% of GDP? The 21 million employees of global Corporate America certainly do, but then they represent about 16% of non-farm employment, roughly in line with government employment (22 million).





Too bad Global Corporate America is hiring where the growth is faster and the wages lower, i.e. overseas (Big U.S. Firms Are Shifting Hiring Abroad).

Let's pretend those great profits trickle down to the greater good. Only they don't. Corporate taxes (around $330 billion annually) cover less than 10% of Federal expenditures (Federal Budget 2009) and despite those record profits--surprise, Corporate Tax Receipts Plunge 31% in Q1.

The tax avoidance Panzer divisions of Global Corporate America are simply unstoppable forces of Nature, it seems. Corporate welfare queens never had it so good.

But let's pretend those profits increase the wealth of a broad spectrum of citizens.Oops, the top 5% of households collect 72% of the corporate profits.



In Who Rules America?, Sociologist G. William Domhoff draws an important distinction between the net worth held by households in "marketable assets" such as homes and vehicles and "financial wealth." Homes and other tangible assets are, in Domhoff's words, "not as readily converted into cash and are more valuable to their owners for use purposes than they are for resale."

Financial wealth such as stocks, bonds and other securities are liquid and therefore easily converted to cash; these assets are what Domhoff describes as "non-home wealth" on his website Wealth, Income, and Power.

As of 2007, the bottom 80% of American households held a mere 7% of these financial assets, while the top 1% held 42.7% and the top 20% held fully 93%.

Never mind that, let's pretend the corporate profits trickle down via the "wealth effect" to pension funds that benefit workers everywhere. Too bad that according to the Fed flow of funds data, this rousing, raging Bull Market in stocks fueled by stupendous corporate profits has only brought total pension fund assets back to their 2007 level: $13.3 trillion in 2007 and $13.1 trillion in 2011.

Adjusted for inflation (as measured by the Bureau of Labor Statistics), the pension assets would have to be over $14.3 trillion just to stay even with their value in 2007. So pension funds have actually declined by over $1 trillion in real dollars in the Great Bull Wealth Effect.

So the wage earner's pension assets have actually fallen. We got your wealth effect right here, buddy, right next to the "recovery." And the check's in the mail, we promise.

How much longer are we willing to play "let's pretend"? Eventually we'll have to return to the grown-up world and deal with reality.

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Gold Reaches New Highs as Dollar Sinks

LONDON – Gold prices hit record highs for a fifth session on Thursday and silver rallied to its strongest since 1980 as the dollar slid to a three-year low against a basket of major currencies.

The action in the currency markets added fuel to a rally sparked by concerns over the U.S. economic outlook, rising inflation, worries over euro zone debt and historically low interest rates in the United States, analysts said.
Spot gold was bid at $1,502.10 an ounce at 1322 GMT, against $1,498.15 late in New York on Wednesday, having earlier peaked at $1,508.75 an ounce. U.S. gold futures for June delivery rose $3.90 an ounce to $1,502.80.
Silver was bid at $45.71 an ounce against $45.20.
"We've seen the U.S. dollar weaken pretty much across the board this morning, even against the yen," said Credit Suisse analyst Tom Kendall.

"The carry trade is back in force and so we are looking at the .DXY breaking down through 74, making new lows for the year, and that is certainly playing into precious metals."

Gold prices have risen 5.4 percent so far this month and are on track for a sixth straight week of gains, reflecting strength across the commodity markets.

The Reuters-Jeffries CRB index, a global benchmark for commodities, posted its biggest one-day rise in a fortnight on Wednesday.

Many have been helped by losses in the dollar, which slid to its lowest since early 2008 against a basket of major currencies on Thursday.

Brent crude rose above $124 a barrel as U.S. crude stocks fell unexpectedly last week and the dollar weakened, though it later pared gains.

Investors have rushed into risky assets due to strong U.S. corporate earnings and signs the global economy is chugging along even as the Federal Reserve stays very cautious about when it will start to unwind its super-loose policy.

TIGHTER POLICY EYED
A tightening of U.S. monetary policy and eventual rise in interest rates are still viewed as the biggest risk factors for gold, which as a non-interest bearing asset has a lower opportunity cost when rates are depressed.

But for the moment the precious metal is proving resilient above $1,500 an ounce.

"We still expect dips to be viewed as buying opportunities, with gold and silver viewed favourably by investors seeking to hedge against inflation and debt jitters," said FastMarkets analyst James Moore.

On the supply side of the market, African Barrick Gold said its output fell 2 percent year-on-year in the first quarter, but said it was on track to meet its full-year production target.

Gold is much less a hostage to traditional supply and demand fundamentals than commodities that are physically consumed like oil, but these factors can still have an impact on price.

"An ongoing supply/demand imbalance underpins the market as good demand for gold jewellery and investment bars and coins in Asia outweighs mine supply," said Fairfax analyst John Meyer.

Among other precious metals, platinum was at $1,811.99 an ounce against $1,791.15, while palladium was at $763 against $767.97.

Anglo Platinum, the world's number one producer of the precious metal, kept its full-year production target on Thursday despite a 5 percent fall in first-quarter output attributed to safety stoppages.

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We Live on the Edge of Chaos, Dollar to Plummet

With gold and silver hitting new highs and the dollar breaking to new recent lows, today King World News interviewed James Turk out of London.  When asked about the US dollar decline Turk stated, “Here we are right at the lows and in fact we are actually now probing the November 2009 lows on the dollar index.  The interesting thing is that the low in 2009 on the dollar index that is when the Greek crisis started to unravel and people went into the dollar as a safe haven.”

“And here we are right at those lows again, the Greek crisis is reemerging because apparently they are going to have to restructure those debts and there are going to be some losses taken, and no one is going to the dollar as a safe haven.  To me that suggests that we are very close to this waterfall decline in the dollar that we have been talking about.”

When asked what will precipitate the waterfall decline in the dollar Turk replied, “Ultimately it’s going to be the loss of confidence in paper currency and the promises from Bernanke that he’s going to fight inflation when it occurs, and everybody knows that there’s a lot of inflation that they are not fighting.

The politicians unwillingness to cut spending or have any kind of discipline forced on them, the S&P credit rating, putting the US government’s AAA rating on negative credit watch, cumulatively all of these things like one stone at a time or one straw on the camel’s back, eventually the camel’s back is going to break.  

That’s why when I talk about a waterfall decline, I think we are really at that stage where this is going to go all at one time.  The Scottish historian Niall Ferguson has a very good description he says, ‘We live on the edge of chaos’, and what he means is that if you keep putting bits of sand on top of a pile, one grain of sand at a time it looks really pretty until you have one grain of sand too much and the pile collapses. 

It’s the same thing here with the dollar, the news is just continually bad.  There is nothing being done to put the dollar on the right course and we are going to have one little news item whether it’s Greece, Portugal, budget deficits in the US, who knows what?  Chinese unwilling to buy US debt securities, can’t really forecast what that one little news item is going to be but that will break the confidence and then you are going to see that waterfall decline.”

When asked about silver specifically Turk replied, “I don’t see the shorts panicking yet.  I think we are getting to the stage though where people are afraid to add new shorts into the markets simply because of what’s been happening with the price.  So I’m still looking for my $50 target and when we were speaking on Monday I said it could happen in a couple of weeks but we’ve gone up a couple of bucks in just the last couple of days.

So yeah, you are going to get that short covering and you are going to get the panic and it’s going to take things higher.”     

Turk covers tremendous ground in this interview, it is available now and you can listen to it by CLICKING HERE.

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JP Morgan Massive Short Position Causing Silver Spike

With gold hitting new all-time highs and silver new multi-decade highs and the dollar breaking to new recent lows, today King World News interviewed John Embry, Chief Investment Strategist of Sprott Asset Management.  When asked about gold clearing $1,500 Embry remarked, “It’s interesting you ask because I would have thought there would have been a real battle.  An individual who I have an enormous regard for as you know, Jim Sinclair, said that he did not think there would be much of a battle at $1,500.  He thought it would go through clear and probably make a run at $1,650 which is from his perspective a bigger resistance point.”

“So I’m not terribly surprised, the fundamentals are so powerful.  I mean there are just so many things coming out that are supportive of higher gold prices, the latest by the University of Texas, they took a $1 billion worth of gold bullion off the market.  I thought that was extraordinarily significant and I think that might be contributing to the action.”

When asked about the relentless climb in silver Embry stated, “Well there are three factors I think.  We’ve talked in the past about this massive short position that is held by JP Morgan Chase in particular.  I mean this is becoming I think a huge millstone around their neck and if you don’t understand that I don’t think you can appreciate the upside thrust in this.

Now you superimpose that on the fact that the investment demand and the industrial demand are robust and are outrunning the available supply, so you’ve got a great supply/demand situation.  And then you put that against the backdrop of monetary debasement which I think is probably ongoing and probably intensifying and you’ve got the perfect storm.  I mean these people that are trying to pick tops for silver I think are making a mistake, I think it could go anywhere on the upside at this point.”

When asked about the continued decline in the US dollar Embry replied, “The dollar is seriously over-owned.  They’ve just sent so many dollars out into the world and because they were the reserve currency people accepted them.  And suddenly now, particularly with the S&P coming out and suggesting they are going to put the US on credit watch, maybe it isn’t the safe haven that people have always believed it was.

In that case there is an awful lot of dollars that may be looking for the exit so that is why it could plunge at some moment.”    

The liquidation risk is present at all times on the US dollar.  It is not in the best interest of those holding the dollar to have panic selling, but it could emerge regardless if a country or region breaks ranks.

The KWN interview with John Embry will be released shortly and you can listen to it by CLICKING HERE.

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Rampant Aussie dollar eyes 108 US cents

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After punching through the 106 US-cent mark yesterday the Australian dollar barely stopped for breath on its way past 107 US cents early today - and kept going. By 1pm, it had begun eyeing off 108 US cents.

• Australia won't 'manipulate' the dollar: Rudd

At 6am, the Aussie was still hovering around the 106.9 US cents after hitting 106.94 US cents against its US counterpart as stocks and commodities both rallied on demand for assets linked to growth.
But in recent trade, the dollar pushed through 107.50 US cents to hit 107.72 US cents about 12.25pm, according to Bloomberg data, after the latest production inflation figures came out higher than expected.
Market watchers were left considering whether the Aussie could touch 108 US cents later today, a level not seen since January 1982, almost a full two years before the dollar was floated.
Producer prices rose 1.2 per cent in the March quarter from the previous three months, compared with the 1 per cent pace expected. From a year earlier, prices were up 2.9 per cent versus the 2.7 per cent tipped by economists.

Record run
The latest high continues a record-breaking run for the unit as investors dump the greenback on worries about debt levels in the US.
Those concerns, though, did not stop money from flooding into stock markets with Wall Street and other major markets posting some of their best gains of the year overnight. The Australian sharemarket has followed suit, building on yesterday's 1.4 per cent gain, to advance almost another 1 per cent in early trading.
Rochford Capital managing director Thomas Averill said the dollar could trade at 110 US cents over the next couple of months.
"It’s not just increased risk appetite, it’s a general aversion to holding US dollars at the moment which looks set to continue in the medium term," he said.
Traders would need to see higher US Federal Reserve interest rates in order to send the Aussie lower, Mr Averill said.
Also, the Fed’s quantitative easing program designed to spur economic growth in the US by pumping cash into the economy - which has weakened the US dollar in recent months - is set to end in June.

Commodities jump
GFT director of currency research Kathy Lien said the US dollar was being savaged and, as a result, commodities - which typically are priced in US dollars - and high-yielding currencies such as the Aussie dollar had benefited significantly.
"Weak US growth combined with the Federal Reserve's relaxed attitude towards monetary tightening kept interest rate differentials in favour of the euro, Aussie and other currencies," she said.
"Cap that off with the credit quality concerns raised by Standard & Poor's and there is very little reason for investors to hold, let alone buy, US dollars," Ms Lien said.
The Aussie was also stronger against the yen, up about 1.2 per cent to 88.060, and was up almost 1 per cent against the British pound, buying 65.2 pence.
Australia continues to benefit from its relatively large dependence on the fast-growing economies in Asia. Those countries' appetite for iron ore, copper, coal and other raw materials has helped push up the value of the Australian dollar.
"Economies globally seem to be recovering in a sustainable way," said Marito Ueda, senior managing director in Tokyo at FX Prime, a foreign-exchange margin company.
"Sentiment may be 'risk on', so high-yielding currencies [such as the Aussie dollar] could be bought."
Australia's export price index climbed 5.2 per cent in the three months through March, the Bureau of Statistics said in Sydney. Economists surveyed by Bloomberg estimated a 5 per cent increase. Import prices rose 1.4 per cent.
The MSCI World Index of stocks climbed 1.9 per cent overnight and the Thomson Reuters/Jefferies CRB Index of raw materials increased 1.3 per cent.

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$1,000 OUNCE SILVER IS CONSERVATIVE

Triple Digit Silver in 2011

Jim Rogers commented on the recent move by the University of Texas to take delivery of $1 billion in gold, saying the decision is long overdue, and has only occurred because everyone else is now buying thereby taking metal out of circulation. 

He adds: "But where were these guys five, ten years ago?  That’s when they should have been doing all of this." Indeed the momentum chasers never show up until it's too late. Then Rogers had some words of caution for silver bulls: "If silver continues to go up like it has been over the past 2 or 3 weeks, yes, then it would get to triple digits this year.  And then we’ll have to worry.  It’s not parabolic yet.  I hope something stops it going up in the foreseeable future and we have a correction. " 

There is one caveat: "maybe the US dollar is going to become confetti in 2011, and if that’s the case and silver goes to $150, then obviously I wouldn’t sell my silver.  It would be the US dollar which is collapsing.  But if silver goes up the way you’re talking about without currency collapse, I would be very worried." So as usual, those long Precious Metals should not hate the Chairsatan but to urge him on to continue doing what he is doing so well: converting that once valuable combination of 75% cotton and 25% linen into "confetti."

Financial Survival Radio:  We just read that the second-largest university investment fund here in the US is buying physical gold.  The University of Texas, which is where I live, is putting aside $1B worth of gold in a New York vault.  Some have called this move a tipping point for the precious metals market.  Do you agree?

Jim Rogers:  Well, tipping point?  Gold’s been going up for ten years in a row.  I’d hardly call this a tipping point.  Silver’s been skyrocketing…

FSR:  Maybe a tipping point where we see more institutional mainstream demand.

JR:  Well, again, that has been happening.  If suddenly all the pension funds wake up and say, I’ve got to own gold, they may start thinking about it more and more.  But the thing that’s been getting people’s attention is the fact that gold has been going up so much.  That’s the wrong way to invest.  Look, I own gold.  I own silver.  But where were these guys five, ten years ago?  That’s when they should have been doing all of this.  Unfortunately for all of us, most investors don’t notice something until there’s a good, nice bull market in place, such as with gold and silver.  After ten years of price rises in gold, people are starting to notice.  That’s what they’re noticing more than the fact that the University of Texas is buying gold.  I’m glad they did, I own gold.  And yes, there will be more people buying gold.  Eventually, everybody’s going to be owning gold, and then we’ll all have to sell our gold.  But that’s a long way from now.

FSR:  Silver in particular has been of great interest to my family.  It looks like $50 silver is going to happen very soon.  But Jim, will we see a triple-digit silver price in 2011?

JR:  If it does, we’ll all have to sell, because then you’ve got a bubble, a parabolic move and all parabolic moves end badly.  I certainly hope it doesn’t happen because I own silver and want to buy more.  My hope is, silver and gold and all commodities will continue to go up in an orderly way for another ten years or so, and eventually the prices will be very, very high.  Yes, we’ll have triple-digit silver, but if it happens this year, Jay, I would probably start to think about selling.

FSR:  But what we’ve seen so far, you wouldn’t consider parabolic?

JR:  No, not yet.  But I’m worried about silver.  If silver continues to go up like it has been over the past 2 or 3 weeks, yes, then it would get to triple digits this year.  And then we’ll have to worry.  It’s not parabolic yet.  I hope something stops it going up in the foreseeable future and we have a correction.  There’s never one in history that hasn’t popped. 

Now, maybe the US dollar is going to become confetti in 2011, and if that’s the case and silver goes to $150, then obviously I wouldn’t sell my silver.  It would be the US dollar which is collapsing.  But if silver goes up the way you’re talking about without currency collapse, I would be very worried.

FSR:  So that’s the bottom line, those who have been holding on to precious metals for the long term need to watch where the Dollar is to decide whether it’s time to sell.

JR:  That’s certainly part of it, yes.  And you have to watch the price action.  I remember when gold went parabolic in 1980.  I shorted gold when it went parabolic in 1980, and it went higher for another two weeks after I shorted it. But it eventually collapsed.  Silver eventually collapsed.  All parabolic moves throughout history, there’s never been a parabolic move which hasn’t collapsed in any asset. 

Silver and gold, yes, will be a bubble someday, Jay.  There’s no question in my mind that all commodities will be a huge bubble someday.  But I don’t think that bubble is going to happen in 2011.  I think it’s going to be more likely 2017, or 2018…you know, a few years from now.  I’m not picking a year, just saying it’s a few years away.  It could happen sooner, but I hope not.

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China Government Says 'Buy More Assets In Other Countries'

China's huge stockpile of foreign exchange reserves, the world's largest, have become excessive and the government must diversify investments using the reserves, Zhou Xiaochuan, governor of the People's Bank of China, said in comments published on Tuesday.

The country's foreign exchange reserves swelled by nearly $200 billion in the first quarter of this year to more than $3 trillion, indicating hefty capital inflows, and the government has so far focused on investing mainly in U.S. dollar assets, including U.S. Treasures. 

"Foreign exchange reserves have exceeded our country's rational demand, and too much accumulation has caused excessive liquidity in our markets, adding to the pressure of the central bank's sterilization," Zhou was quoted by the official Shanghai Securities News as saying. 

"The State Council has required a cut in excessive accumulation and good management of the funds accumulated, including diversification of investments," Zhou was quoted as telling forum at Tsinghua University in Beijing. 

To keep the yuan exchange rate stable in a capital account control system, the PBOC injects huge amounts of yuan into the banking system by buying foreign currencies from commercial banks.    

The central bank then soaks up the excess yuan in the system via open-market operations and higher bank deposit reserve requirements. This is to prevent the money from flowing into the economy and fuelling inflation. 

The newspaper did not quote Zhou as giving any details on  the diversification of foreign exchange reserve use, although Chinese economists have urged the government to buy more assets in other currencies, such as euro and yen, as well as to invest in strategic goods such as oil and non-ferrous metals. 

Commenting on other aspects of China's economy, Zhou was quoted as saying that the central government was considering letting local authorities issue municipal bonds for the first time as the main avenue for future financing of regional infrastructure construction. 

Local governments have so far relied mainly on sales of land for such financing, supported by quasi-treasury bonds issued by the central government on their behalf or special funds. 

That has helped inflate China's real estate prices and caused strong resistance from regional authorities to steps from the central government to cool the property market, among other problems. 

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