Thoughts on Markets

Friday, July 09, 2010

States Fight Back - Mining Stocks - Currencies - Gold - Silver

Welcome to Friday in the markets. The first article is very important. There is no other way to change this nation and return back to a Constitutional government. Our founders did a good job of applying God's word to the foundation of our nation. The way back begins with a return to our Sovereign God.


States Fight Back Against Federal Tyranny and Abuse

Amidst the Obama administration's crusade to consolidate power in Washington at the expense of the very sovereignty of the states and our liberties, we should be encouraged that states are fighting back.

Consider just three very recent examples.

Have you heard about the administration's propaganda campaign to adorn each federal "stimulus" project with taxpayer-funded signs to remind us that these projects have been bestowed on us by the beneficence of the Obama administration? The signs read, "Project funded by the American Recovery and Reinvestment Act."

In the first place, they're not funded by any act, but by the American taxpayer. This type of government self-promotion is eerily reminiscent of dictatorial governments in modern history that not only deprived their citizens of freedom and private property but also demanded to be glorified for the morsels they doled back out to them.

Rep. Aaron Schock, R-Ill., isn't taking this outrage sitting down. He has put forth a proposal to prohibit funding for the $20 million that has been spent nationwide (and more than $650,000 in Illinois alone) on these "useless" signs, which haven't created "one single job" and which serve no purpose beyond touting the administration's supposed benevolence.

Folks, this is important! To replace or remove an unconstitutional government, we need the states as an intervening lesser magistrate. Under the Constitution that is their job. We have been pleased to see Arizona move to close its borders to illegals, Montana and Tennessee protect their gun dealers, and several states enact 10th Amendment resolutions. We must push more to begin to fulfill their primary roles. Read the article HERE.  


European gold buying still strong - Nicholas Brooks - Head: Research and Investment strategy - ETF Securities

'his last week, even as the price of gold was falling quite sharply, we saw around $90 million flow into our gold ETCs'

See the POD cast HERE.


BIS gold swap - best news to hit gold in 30 years.

As the reported BIS gold swap transaction effectively represents back door remonetisation of gold, it is extremely positive for the yellow metals future path.


In its 2010 annual report, the Bank of International Settlements said that "gold, which the bank held in connection with gold swap operations, under which the bank exchanges currencies for physical gold," stands at 8,160.1 million in special drawing rights, equivalent to 346 tonnes this year, up from nil in 2009."   Apparently this amount has now climbed to 382 tonnes since the report was issued.
Swaps - What are they and who does them?
Swaps are financial instruments that allow for the exchange of one asset for another, in this case, gold for currency.   They are not gold leasing, futures or options [which the 1999 and 2004 Central Bank Gold Agreement states would not be increased - The 2009 did not contain the statement].   Swaps could be undertaken by the signatories of the CBGA.  as these were not included in any of the three Agreements. This is an important read. Do not pass by. HERE.


Strategic case for gold as a Central Bank reserve asset

Global macro-economic risks make a good case for gold being held as a strategic element in Central Bank foreign reserves.


The World Gold Council (WGC) has today published a research paper examining how gold can help a central bank meet its foreign reserve management objectives.  The study looks at gold in three contexts: strategic asset allocation and the maximisation of risk-adjusted returns in the investment portfolio; as a tactical overlay to hedge against current global macroeconomic risks; and as a high-quality liquid asset in periods of distress, the time when central banks most need their reserves.
In the former, portfolio optimiser models are used to show that the efficient frontier of a typical developing or emerging market central bank can be enhanced by adding gold. How much gold depends on a central bank's risk appetite: an allocation to gold of between 2.4% and 8.5% is optimal for a bank with around a 5% risk tolerance. At a risk tolerance of 8.3%, the optimal allocation to gold increases to 29%. HERE.


Gold stocks ready for breakout - Chen Lin

Since December 2002 Chen Lin has turned slightly more than $5,000 into nearly $1M through value investing and exceptional market timing. Now he believes gold producer shares are poised for a breakout. Gold report interview.

Read the interview HERE.


Sell Bonds, Buy Precious Metals, Rice on Supply Shortages, Jim Rogers Says

Investors should sell bonds and buy commodities like silver and rice as a “refuge” as the world economy may continue having problems, Jim Rogers, chairman of Rogers Holdings said.
“Bonds are not a good place to invest in,” Rogers said at a conference in Kuala Lumpur today. “You should own commodities because that’s your only refuge” whether it’s silver or rice, said Rogers, who predicted the start of the global commodities rally in 1999.When Jim Rogers speak, it is wise to listen. Read it HERE.


Economy in U.S. to Cool as Consumers Spend Less, Survey Shows

Economists trimmed their U.S. growth forecasts through the middle of next year, though not enough to show the recovery is in danger of faltering.
Growth in the world’s largest economy will average 2.8 percent from the current quarter through the second quarter of 2011, according to the median estimate of 52 economists surveyed from July 1 to July 8, down 0.1 percentage point from last month. HERE.


U.S. Global's Holmes Interview About Gold Strategy

Hear Frank Holmes of US Global Investors (based in San Antonio, TX) HERE


More Power for the Fed

By Ron Paul

Last week I was pleased to see my Republican colleagues take up the cause to fully and completely audit the Federal Reserve by including my language from the Federal Reserve Transparency Act in a Motion to Recommit the financial regulation reform bill. Although this effort was defeated by the Democrat majority, there were many good reasons to support it.

The Federal Reserve Transparency Act would eliminate restrictions on GAO audits of the Federal Reserve and open Fed operations to Congressional oversight. Additionally, audits could include discount window operations, open market operations, and agreements with foreign central banks, such as the ongoing dollar swap operations with European central banks. Read it HERE.


Avoid Paying the 'Hype Premium' for Gold: Buy Gold Mining Stocks Instead

It has become easier than ever to own gold these days and with the poor performance of stocks and the economy in turmoil, it has become almost fashionable to admit that you are parking your cash in Gold. With the exception of a few misled folks buying gold coins and other physical forms thanks to a barrage of television commercials, most investors buy gold just like a stock using ETF's. The SPDR Gold Trust ETF (GLD) is the most popular and it tracks gold at 1/10'th the price of an ounce, and is backed up by physical 400 ounce gold bars. For those less adverse to risk, the Proshares Ultra Gold ETF (UGL) is designed to double the percentage moves of gold prices. 

With gold remaining near all time highs for several years now, it seems prudent to wonder just how much of a safe haven gold really is for your cash, especially for a large chunk of it. How much of a hype premium are you paying for something that used to be more boring than Government Bonds. A better way to play the gold boom right now might be to buy gold mining stocks. This way you can put a lot less capital at risk and still obtain somewhat of a hedge against the economy. The Market Vectors Gold Miners fund (GDX) is an ETF that mirrors the NYSE Arca Gold Miners Index.  

I have been concerned about the high premiums we are charged in buying gold and silver coins. The premiums have almost doubled in the last year. We do have alternatives, but owning and possessing the coins is a comforting feeling. I do use the Canadian ETF (CEF), because it holds both silver and gold and seems to be reliable. In addition to the GDX mentioned in the article, there is the GDXJ which covers less well known and some start up miners with a potential of more bang for the buck when the prices jump. Read the article HERE.


Gold Seasonality Charts: Time to Buy?

In statistics, many time series exhibit cyclic variation known as seasonality. In my market research days, seasonality was a very important and accurate predictive indicator of future sales for my clients. This data was used to determine production, inventory, sales forecasts and strategically to determine the best times to promote products or offer price discounts.

In the precious metals market, analysts often mention gold’s seasonality and refer to the Summer doldrums as a buying opportunity and the Winter months at the high season. To verify gold’s seasonality and look for opportunities to profit from the trends, I decided to compile that data and create some charts. The charts are good. A good read HERE.

The Miners from

The Currencies from

Notice that, once again, gold is up against virtually all currencies. It does not seem to be as dependent upon the dollar as was once the case. The international value and safe haven of the dollar has become the concern of many central banks since the financial crisis began. 

Some Prices: FVITF 1.95; SSG 17.1697; SDS 34.74; TLT 99.47; TBT 36.83; Gold up 10.50 to 1209; Silver up 0.12 to 18.08; DOW up 10.45 to 10149.59 (Not a lot of activity here, but it is still early in the day).  

Looks to be another exciting day that the Lord has made. We will rejoice and be glad in it. His people rest securely in His providential  care knowing that all things work together for our eventual good. After all, all power and sovereignty is invested in King Jesus by His Father. Praise the Lord for His mercy and grace toward us. 

Best to each, Doug 



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