By Claudia Assis and Deborah Levine
May 3, 2011 (MarketWatch) — Silver futures slid Tuesday, dragging down gold and other commodities after the main U.S. metals exchange again announced higher margin requirements to trade silver.

Silver for July delivery fell $3.50, or 7.6%, to settle at $42.59 an ounce on the Comex division of the New York Mercantile Exchange…. The metal has lost 12% since Friday.

“A selloff of this magnitude was inevitable,” said Bill O’Neill, a principal with Logic Advisors in New Jersey. Silver had soared in recent months, hitting a string of 31-year highs, and posted record trading volume last week. “We haven’t recommended it to our clients in more than a year” due to the volatility “and I don’t expect to recommend it anytime soon,” O’Neill said.

Gold for June delivery also ended lower, down $16.70, or 1.1%, to $1,540.40 an ounce. That was gold’s biggest one-day drop since March 15.

… CME raised silver’s initial margin requirements to $16,200 per futures contract from $14,513 per contract…. Maintenance margins were set at $12,000 from $10,750 a contract. … The revised margin requirements will take effect from the close of trading Tuesday, CME said. … The recent increases have forced small investors to liquidate positions, analysts have said.

Besides the increase in margin requirements, however, several analysts saw silver prices due for a correction on fundamentals and rapid gains this year. The metal was also left vulnerable after it failed to top $50 an ounce and take down a January 1980 record in recent sessions. “Silver has been pulled between weak underlying fundamentals and strong retail investment demand, with investor demand residing in the driving seat,” analysts at Barclays Capital said.

…In contrast, analysts see the rise of gold futures, which have hit a string of records this year, as more orderly and sounder. … “Gold is set to remain well supported as the combination of a weak dollar, elevated commodities and higher U.S. inflation expectations support demand for inflation hedges,” analysts at Brown Brothers Harriman said in a research note.

[source]

by Christopher S. Rugaber
May 3, 2011 (AP) — Manufacturing activity grew for the 21st straight month in April, fueled by a weak dollar that has made U.S. goods cheaper overseas. But the cost of raw materials rose for the fifth consecutive month, a growing concern for many companies.

The Institute for Supply Management, a trade group of purchasing executives, said Monday that its index of manufacturing activity dipped to 60.4 in April. That’s down slightly from March and February, the fastest month for expansion in nearly seven years. A reading above 50 signals growth. … The index has topped 60 for four straight months, evidence that manufacturing remains one of the strongest components of the economy. The index bottomed out during the recession at 33.3 in December 2008, the lowest point since June 1980.

Factories have benefited from growing overseas demand for machinery and other goods. … Export orders rose sharply last month, the ISM survey found. The dollar has fallen 8 percent this year against a basket of six other currencies. A major reason for the weak dollar is the Federal Reserve has kept short-term interest rates at record low levels near zero. Central banks overseas have begun to increase interest rates to ward off inflation, which makes their currencies more attractive to investors seeking higher returns.

[source]

Inflation Worries Keep Gold Underpinned

Gold is consolidating above Monday’s corrective low, underpinned by good buying interest in the physical market. While markets in general are still trying to determine exactly how much the death of Osama bin Laden is likely to affect the overall global risk situation, the underlying driving forces behind gold and silver remain largely unaffected. Boiled down, the primary impetus for recent gold and silver gains has been — and remains — the massive proliferation of paper. Paper in the form of bonds (debt) and paper in the form of fiat currencies.

One of the biggest impending concerns is of course how quickly the US is going to be able to issue even more paper, given the current proximity to the $14.3 trillion debt ceiling. As of Monday, the US debt clock stood at $14,287,630,052,323.12. There was an expectation that the debt limit could be reached as soon as this month, but Treasury Secretary Geithner announced yesterday that by implementing “extraordinary measures” (ie accounting gimmicks) that date could be pushed back to 02-Aug.

Quoting the CBS News article: The Treasury Secretary pledged, too, that, as of May 16, he would declare a “debt issuance suspension period” under the statute governing the Civil Service Retirement and Disability Fund, “permitting us to redeem existing Treasury securities held by that fund as investments, and to suspend issuance of new Treasury securities to that fund as investments.” He also said he would “suspend the daily reinvestment of Treasury securities held as investments by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan.”

I don’t think their is any question that the debt ceiling will be raised, it just becomes a question of how much in spending concessions the Republican controlled House can rest from the Obama Administration and the Democrat controlled Senate. There is certainly a risk that a compromise won’t be reached in a timely manner, I’d guess that they take this right down to the wire. A moving wire, that apparently now stands at 02-Aug.

The other big concern that is supporting the precious metals is the trajectory of the dollar, and the inflation that springs from a devaluing currency. When Fed Chairman Bernanke announced a new round of quantitative easing last August (QE2), oil was at $75 bbl and the dollar index was trading above 80. Today, with the end of QE2 approaching, oil stands at $123 bbl and the dollar index recently set new 34-month lows below 73.00. That’s a 64% rise in the price of oil and nearly a 9% decline in the dollar over the past 9-months. In recent months Bernanke dismissed the inflation risk out of hand, citing the low core CPI as reported by the BLS, which strips out volatile food and energy prices. Food and energy may be volatile, but it is something generally consumed by every one. As prices continued to rise and Bernanke’s position became untenable (I can’t eat an iPad!), the Fed’s began saying that inflation was “transitory.” As a recent Forbes article pointed out: The Fed can no longer assert “inflation” is a nonissue. So the line now is that it’s a “temporary” one.

People who fill up shopping carts and gas tanks feel the bite of inflation. As an increasing percentage of income must be diverted to the essentials, it leaves less income available for discretionary spending, the life blood of our consumer driven economy. The contraction in Q1 preliminary GDP to an anemic 1.8% y/y pace, from a less than stellar 3.1% y/y pace in Q4-10 is reflective of this reality. If the recovery stalls and the US slips back into recession, one would reasonably expect the Fed to continue with its über-easy policy stance: zero percent interest rates and potentially more quantitative easing. Add to that the threat of political gridlock on the budget and the debt ceiling and the Fed may have no choice but to flood the market with more dollars, even at the risk of more inflation. And that explains — at least in part — why corrective activity in gold has been limited in recent months.

Recovery?

by Tom Jennemann
May 03 2011 (Fastmarkets) — Gold on the Comex division of the New York Mercantile Exchange has recouped some of the morning’s losses caused by an short-lived dollar rally and a surprise interest rate hike by India.

… Gold was pressured downwards by a stronger dollar, which rebounded briefly to 1.4753 against the euro, and by India’s central bank unexpectedly raising its lending rate by 0.5 percent to 7.25 percent.

“India is trying to head-off inflation and this [rate increase has] worked against precious metals this morning. We know they’re concerned about inflation but it was surprising that they were this aggressive,” Sterling Smith, an analyst with Country Hedging, said. Nevertheless, gold was able to pare some of those losses as the dollar erased earlier gains against the euro to now trade at 1.4867. “We have managed to bounce off a pretty vicious low and we are now finding some degree of support for gold,” Smith added.

… Meanwhile, Comex silver continues to take a beating. The July contract was recently down $2.509, or 2.5 percent, at $43.575 an ounce and earlier fell as low as $42.975.

“Silver is again deflating and is trying to work its way back into a better alignment with gold,” said Smith, who noted that the closely-watched gold/silver ratio last week fell to a 28-year low of about 31:1.

[source]

RBCCM delves into the vexed issue of why listed gold stocks seem to be underperforming the extended bull market for gold bullion and comes up with some cost-heavy answers

by Barry Sergeant
Tuesday, 03 May 2011 (Mineweb) — In a truly useful piece of research, “Capital Punishment – Part III ‘Inflation Returns’ “, focused mainly on North American Tier I gold miners, RBC Capital Markets analysts have gone a considerable way to providing insights to why the prices of listed gold stocks seem nervous and hesitant, even as dollar gold bullion continues to extend a decade-old bull market.

The stock price of Barrick, the world’s biggest gold miner, breached $50 a share early in 2008, when gold bullion breached $1,000 an ounce. Today, with gold above $1,500 an ounce, Barrick is trading at just under $50 a share. What gives? And why did Barrick recently bid for Equinox, a copper miner?

One take-away from this latest RBCCM report is that since November 2009, gold miner capital and operating costs have risen by 21% and 17% respectively; RBCCM forecasts a 15% increase for both capital and operating costs in 2011 over 2010, “with additional upside pressure if oil prices remain elevated”. The good news is that at current gold prices, “the gold industry remains healthy; however, cost inflation has clearly returned pressuring operating margins and capital allocation decisions”.

[source]

By Murray Coleman
May 3, 2011 (Barron’s) — Silver prices are continuing to fall this morning after the CME Group (CME) said that initial margin requirements for silver contracts are going up for a third time in a just over a week.

… The CME’s initial margin requirements will increase to $16,200 per futures contract, up from $14,513. Maintenance margins were increased to $12,000 from $10,750. The changes are effective after the close of business today.

[source]

ALSO…

Morning Note: Silver Trade Over?
by Catherine Holahan
Tuesday, 3 May 2011 (CNBC) — Is the silver trade over? That was a question for Fast Money Traders Tuesday morning as silver futures continued to weaken, falling below $44 per ounce intra day less than one week after hitting a 31-year high of $49.84 per ounce. Silver futures have fallen nearly 10% in the past couple days.

“The selling in silver has been relentless since Sunday evening,” wrote Fast Money Contributor Dennis Gartman in this morning’s Gartman Letter.

New margin requirements by the CME Group appeared to be fueling the selloff. … [T]he third increase in one week … go into effect after the market close today.

Fast Money’s Guy Adami of Drakon Capital was betting that the long silver trade was done for the time being. “Volatility will now take over and you are just going to get chopped up,” said Adami. “A couple months from now, silver could be forgotten like it had been ten years prior.”

[source]

ALSO…

Silver Demand Theory Debunked
by Nigam Arora
May 3, 2011 (SeekingAlpha) — … The same models that got us in to silver heavily at $17.73 are now flashing sell signals with silver near the all-time high.

The silver bulls are predicting that the present trajectory of silver’s run will continue. … I am hard nosed about being driven by cold hard data and in the process forsaking all prejudices, opinions, preconceived notions. Estimates of silver demand over the years have varied widely, depending on the source. … Unfortunately, for the silver bulls, the data does not support any of their six arguments.

… In this article, I will answer the more urgent question of what is driving silver prices up now, not a month or two ago. The answer is American speculators – it is not industrial demand or India and China or inflation.

… Those who study historical patterns will find that even in extreme circumstances, investors drive prices linearly. A good example of a steep linear movement is the resent price of gold. Please see the chart to compare the price movement of of gold and silver. From the tulip mania to the internet bubble, when prices rise parabolically, it has always been the speculators and not the investors.

[source]

Tuesday, 3 May 2011
(Reuters) — The Federal Reserve’s easy money policies risk causing inflation unless the Fed scales them back soon, Kansas City Fed Bank President Thomas Hoenig said Tuesday. “If you pump dollars into the system at a rapid pace … eventually you will see prices rise,” Hoenig said in a speech to a community group.

… Hoenig has persistently opposed the Fed’s ultra-loose monetary stance, dissenting 8 times against it when he was a voter on the Fed’s policy-setting panel in 2011.

The central bank last week affirmed it is not hurrying to reverse interest rates near zero and bond buying programs that have pumped $2.6 trillion into the financial system to date.

… Hoenig also said legislation introduced by Representative Barney Frank that would curtail the role of the 12 regional Federal Reserve banks in setting monetary policy would be a mistake because it would diminish the influence of voices outside Washington and New York in monetary policy.

“We have institutions across the country … who have local boards of directors, including bankers and businesses, consumers, labor, who have grass roots input into the process,” he said.

[source]

by Amanda Cooper
May 3, 2011 (BusinessDay) — Gold fell on Tuesday from record highs above $1570 an ounce the previous day, as the dollar rose and as safe-haven buying of the metal lost some momentum following the death of al Qaeda leader Osama bin Laden. Spot silver also came under selling pressure after hitting a near two-week low of $42.58 an ounce on Monday, when the precious industrial metal saw its biggest one-day drop in 29 months.

… The dollar held above three-year lows as a build-up of bets to sell it based on loose US monetary policy ran out of steam, though gains against the euro were capped by good demand on dips for the shared currency.

… “The US dollar is significant in the price development of the precious metals,” said Quantitative Commodity Research analyst Peter Fertig. “With the divergence of monetary policy in the US and the euro zone in particular, I expect the dollar is going to weaken further in the medium term,” he said, referring to market expectations for US rates to remain unchanged and euro zone rates to steadily rise.

… The death of bin Laden accelerated spot gold’s drop to a session low of $1534,15 from a record high of $1575,79 on Monday, although Fertig said the impact of the al Qaeda leader’s death would be limited. “I don’t expect this to be a lasting factor, terrorism remains a threat to Western society and for that reason, there is no convincing argument to abandon gold as a safe-haven if one has bought it as a safe-haven against terrorism,” he said.

Gold might have lost some safe-haven appeal after bin Laden’s death, but the bullish trend is intact as fundamentals of the market remain supportive, said traders and analysts. Concern over rising global inflation and ongoing unrest in the Middle East and North Africa may also continue to attract investors to bullion.

[source]

May 3, 2011 (IBTimes) — The Central Banks of developing countries will Buy Gold at an increasing rate in coming years, with China being a leading player, according to a major industry figure.

Rob McEwen, founder and former head of Goldcorp, now the world’s fifth largest Gold Mining company, believes central bank purchases could help push the price of gold to $2000 an ounce by the end of the year.

“China is out to have more gold than America, and Russia is aspiring to the same,”said McEwen, who is now chairman and CEO of junior miner US Gold. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the US.”

… A survey by Central Banking Publications revealed this month that over 70% of reserve managers expect central banks will remain net gold buyers.

[source]

By Ethan Smith
(The Wall Street Journal) — Eike Batista, chairman of Brazilian conglomerate EBX Group, predicted Monday that the price of gold will hit $2,500 an ounce.

Mr. Batista’s remarks came during a lunch-time discussion at the annual Milken Institute Global Conference. The panel was moderated by The Wall Street Journal’s Paul Gigot.

Mr. Batista didn’t give a timeframe for his prediction.

[source]

“I can’t eat an iPad.” This could go down in history as the line that launched the great inflation of the 2010s.

Back in March, the president of the New York Federal Reserve, William Dudley, was trying to explain to the citizens of Queens, N.Y., why they had no cause to worry about inflation. Dudley, a former chief economist at Goldman Sachs, put it this way: “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful. You have to look at the prices of all things.” Quick as a flash came a voice from the audience: “I can’t eat an iPad.”

Dudley’s boss, Ben Bernanke, was more tactful in his first-ever press conference on Wednesday of last week. But he didn’t succeed in narrowing the gap between the Fed’s view of inflation and the public’s.

I respect Bernanke. As an expert on the financial history of the 1930s, he was one of the very few people in power back in 2008 who grasped how close we were to another Great Depression. But if we’ve avoided rerunning the 1930s only to end up with a repeat of the 1970s, the public will judge him to have failed.

[source]

PG View: Clearly inflation feels anything buy “transitory” out here in the real world.

Gold and silver are consolidating and the dollar is slightly better as the market continues to digest the killing of Osama bin Laden. However, ongoing concerns about the greenback, inflation, budgets, deficits and the debt ceiling are underpinning the metals.

The Reserve Bank of India hiked its rep rate by 50bps to 7.5% amid ongoing inflation worries. The hike was twice what the market was anticipating.

Treasury Secretary Geithner said the necessary hike in the debt ceiling can be forestalled until 02-Aug if his department takes “extraordinary measures” such as the suspension of SLGS (State & Local Government) issuance. That is expected to take effect on 06-May, and while it kicks the Federal debt ceiling can down the road, it may put some state and local governments in very dire straights.

KC Fed’s Hoenig says you can’t have extreme accommodation without inflationary pressure. He remains worried that easy monetary policy could create more asset bubbles. Yet he’s also worried that the rapid withdrawal of accommodation could shock the financial system.

By Claudia Assis and Kate Gibson
May 2, 2011 (MarketWatch) — Silver prices fell more than 5% Monday after the main U.S. metals futures exchange increased for the second time in a week the amount of cash needed to hold speculative positions in the metal.

Gold, which started floor trading in the red after hitting a record intraday high in electronic trading, turned positive as the dollar weakened and settled modestly higher.

Silver for July delivery fell $2.52, or 5.2%, to $46.08 an ounce on the Comex division of the New York Mercantile Exchange. That was silver’s largest one-day percentage drop since early January.

Gold for June delivery advanced 70 cents to $1,557.10 an ounce. The metal traded as high as $1,577.40 an ounce earlier, an intraday record. It got support from a weaker dollar, and some modest safe-haven bidding on fears of attacks in retaliation to Osama bin Laden’s death.

Silver gathered most of the attention on Monday trading , however, as it plunged as much as 13% to $42.20 an ounce earlier. Monday was the first full session after the increase in margin requirements. Initial margin requirements for silver increased to $14,513 per silver futures contract, from $12,852. Maintenance margins increased to $10,750 from $9,500.

[source]

by Michael Pettis
May 2, 2011 (WallStreetPit) — The week before last on Thursday the Financial Times published an OpEd piece I wrote arguing that Washington should take the lead in getting the world to abandon the dollar as the dominant reserve currency.

… Reserve currency status is a global public good that comes with a cost, and people often forget that cost.

Just as importantly as a public good it requires a number of characteristics. At a minimum these include ample liquidity, central bank credibility, flexible domestic financial markets, minimal government or political intervention, and very deep and open domestic bond markets. …… And no other country, not even Europe, will be willing to pay the cost. If there is any chance that the dollar’s status declines in the future, it will require that Washington itself take the lead in forcing the world gradually to disengage from the dollar.

Ironically, this is exactly what Washington should be doing….. the global use of the dollar has become bad for the US economy, and because of the global imbalances it permits, bad for the world.

… In practice, dollar liquidity, limited Washington intervention, and the size and flexibility of US financial markets ensure that these [other] countries always stockpiled dollars. There is no real alternative to the dollar, and most other governments would anyway actively discourage massive purchases of their own currencies because of the adverse trade impacts. If foreigners accumulate euros or yen at anywhere near the rate they accumulate dollars, they would force Europe and Japan into massive current account deficits, and neither Europe nor Japan has any interest in seeing this happen.

… The massive imbalances that this system has permitted are destabilizing for the world because they permit large and unstable debt buildups both in countries that over-produce, like China and Japan, and those that over-consume, like the US. If the world were forced to give up the dollar, there is no doubt that there would be a cost – it would reduce global trade somewhat and it would probably spell the end of the Asian growth model – but it would also lower long-term economic costs for the US and reduce dangerous global imbalances. … The cost of maintaining sole reserve currency status has simply become too high in the past three decades and is leading inexorably to rising American debt and worrying global imbalances.

[source]

RS View: While this commentary on the whole is usefully sound, I would hasten to take exception with the remark, “There is no real alternative to the dollar…”

In the context of this commentary and all surrounding discussion, it isn’t the CURRENCY (invoicing&payment) aspect of the dollar’s international function that is under scrutiny (because that is merely incidental,) but rather it is the RESERVE aspect that is on the chopping block. And to be sure, there is — quite literally — a very REAL alternative to the dollar in the international monetary capacity as a reserve asset. Gold. As such, gold uniquely would endure an inexorable rise, floating independently higher against all national currencies such that countries need no longer play ‘hot potato’ with the burden of any given national currency bearing the special forces of international reserve usage. Physical (underivatized) gold alone can take the elevating heat and pressure and with it shine all the more as a reliable public and private good in providing that specialized monetary utility. This path becomes ever more discernible with the march of progress. For the sake of your future wealth and well-being, get yourself intellectually and financially firmly on that road.

For the year 2011 so far, 39 banks have gone into FDIC receivership — 13 in the month just ended.

NEWLY FAILED
April 29
Community Central Bank – - – - Mount Clemens, MI
The Park Avenue Bank – - – - Valdosta, GA
First Choice Community Bank – - – - Dallas, GA
Cortez Community Bank – - – - Brooksville, FL
First National Bank of Central Florida – - – - Winter Park, FL

April 15
Heritage Banking Group – - – - Carthage, MS
Rosemount National Bank – - – - Rosemount, MN
Superior Bank – - – - Birmingham, AL
Nexity Bank – - – - Birmingham, AL
New Horizons Bank – - – - East Ellijay, GA
Bartow County Bank – - – - Cartersville, GA

April 8
Nevada Commerce Bank – - – - Las Vegas, NV
Western Springs National Bank and Trust – - – - Western Springs, IL

by Josh Funk
Monday May 2, 2011 OMAHA, Neb. (AP) — Warren Buffett and Jack Welch, two respected business leaders, said Monday the death of Osama bin Laden won’t end the threat of terrorism and might not boost markets.

The pair appeared together Monday on CNBC. Buffett’s interview had been scheduled to discuss the economy and last weekend’s Berkshire Hathaway shareholders meeting, but international relations became a prominent topic because of the bin Laden news.

… Buffett said he felt good when he heard of bin Laden’s death, but he still worries about terrorist attacks. “The desire to do us harm exists in too many people around the world,” Buffett said.

But Buffett doesn’t expect the bin Laden news to affect business much. “I don’t think this is a big market factor,” Buffett said on the Fox Business Network. “The American people feel wonderful today — all of us — but in terms of earning power of American business, I don’t think that factor should change dramatically because of this.”

… Buffett and the Berkshire officials were also asked again about the actions of a one-time Berkshire executive who resigned last month after details emerged about a questionable investment he made. … Buffett called Sokol’s behavior inexcusable, but said he doesn’t think many changes are needed at Berkshire. His friend, [Bill] Gates, supported that view.

“Berkshire has very good compliance rules,” Gates said. “The fact is that no compliance rules are going to stop somebody from making a mistake.”

Buffett and Berkshire Vice Chairman Charlie Munger both said the Sokol situation is a sad one for him and for Berkshire because Sokol did so many good things for the company over the years. “I saw it instantly as tragedy,” Munger said.

[source]

by Jean Folger
May. 2 2011 (Forbes) — Gold has been considered a currency, commodity and investment for thousands of years. Sought after for both its beauty and worth, gold continues its rally to reach new daily highs. There is speculation among anxious investors about just how high gold could go. While no one knows for certain, there is a strong argument in favor of gold climbing even higher.

… Central banks keep paper currency and gold in reserve. For the first time in decades, central banks have begun buying more gold than they are selling, according to the World Gold Council. As these banks move away from paper currencies and towards gold, they in effect remove a significant of supply from the international gold market, driving the price of gold higher.

… Gold and the U.S. dollar have an inverse relationship…. when the dollar is weak and during times of economic uncertainty, more investors look to gold as a safe haven for their investment activity.

… On April 18, 2011, Standard & Poor’s downgraded its credit outlook for the United States…. In addition to worldwide instability, this particular downgrade, coupled with the threat of further ratings cuts, will likely increase gold’s attractiveness to already skittish investors.

… Investors worldwide seek gold as a means to protect wealth and hedge against uncertainty. [Also...] As economies develop and salaries increase in emerging markets, the demand for gold is expected to increase. …… Gold is still far from its January 1980 inflation-adjusted high of $2,300 per ounce, indicating that it can undoubtedly go higher. Also, the fact that gold has been a solid performer over the past decade does not automatically guarantee its near-term failure: gold is not necessarily in a bubble that is about to pop; rather, it could very well continue for some time to reach new highs. How long is not known, but today’s economic and political environment, coupled with increased demand in emerging markets, points to gold’s continued rise.

[source]

by David Levenstein
Monday, 02 May 2011 (Mineweb) — Last week gold prices ended on a high note. The price of spot gold hit another record high of $1570 an ounce and the upward momentum looks set to continue. Gold has risen to new record nominal highs as the dollar continues to be sold in international markets. Gold has eked out smaller gains in other fiat currencies but remains close to record nominal highs in euros, yen and pounds.

While the US Federal Reserve Chairman, Ben Bernanke was giving his first regular conference the price of gold edged higher and the dollar’s down trend accelerated breaching the 73 level on the Dollar index to make a new three year low at 72.83. Almost everything else climbed against dollar….

… Central banks control the supply of the monetary base by buying and selling assets. Purchases of assets, of any type, increase the monetary base when the central bank pays for such assets with currency or increased central bank deposit liabilities. Similarly, central bank sales of assets, of any type, reduce the monetary base when the purchaser surrenders currency or central bank deposit liabilities in payment. From 2008 until now, the US monetary base has increased from a base of around USD800 billion in 2008 to more than USD2.4 trillion. The consequence of such action has led and will lead to the further debasement of the US dollar as well as higher inflation.

… According to Bernanke the current escalation of commodity prices was due to increased global demand. … In a recent interview on King World News, Peter Schiff had this to say. “Ben Bernanke may deny that there is a causal relationship between his monetary policy and rising prices but the market knows differently. In fact when Ben Bernanke denies the relationship, then the expectation is that he is going to continue on his current monetary policy course which is the green light to buy gold, buy silver, buy oil, buy commodities, sell the dollar and that’s exactly what’s happening. That’s why the dollar is hitting new lows today.”

[source]

By Aaron Task
May 2, 2011 (DailyTicker) — Calling David Sokol’s actions “inexcusable”, Warren Buffett sought to distance himself from his former protégé at this weekend’s Berkshire Hathaway annual meeting.

By admitting he made a mistake with his original handling of the situation, Buffett hoped to silence his critics and move on from an issue that has damaged his previously sterling reputation. But Buffett failed to put the matter to rest, according to Paul Argenti, an expert in crisis management and professor of corporate communications at Dartmouth’s Tuck School of Business.

“I don’t think he was as ruthless as I would have expected,” Argenti says. “The unfortunate reality is he’s getting away with something most executives would not be able to get away with.”

… Furthermore, the professor thinks “The Oracle” missed an opportunity to turn the Sokol affair into a “teachable moment” and reaffirm Berkshire’s commitment to ethical behavior. Merely admitting errors in the initial handling of the Sokol matter is “not enough,” Argenti says. “[Buffett] needed to really come down hard and make an ethical example of this and he didn’t do that.”

[source]

RS View: “Et tu, Buffett?” Increasingly spongy ethics in the business world and the resulting difficulties for ensuring and securing square treatment in this trust-dependent economic realm will continue to weigh on the credibility value of every form of promissory derivative. The bankable handshake of bygone years has been reduced in modern times to little more than a quaint notion to be held only by patsies. Until this deteriorating financial climate begins to improve, (as yet inconceivable,) for enduring well-being the savvy saver will wisely keep those handshakes at full arms’ length while keeping his gold much, much closer than that.

By Myra P. Saefong and Virginia Harrison, MarketWatch
SAN FRANCISCO (MarketWatch) — The U.S. dollar traded modestly lower against its major currency rivals Monday morning after U.S. President Barack Obama announced that Osama bin Laden has been killed.

The dollar index, which measures the U.S. unit against a basket of six major currencies, was at 72.869, down from 72.960 in North American trade late Friday.

“Although the death of bin laden is giving all Americans an emotional high, it will have no affect on the financial markets after the first few hours of trading,” said Keith Springer, president of Springer Financial Advisors in Sacramento, Calif.

[source]

bin Laden’s Death and Margin Hikes Don’t Change the Fundamentals for Gold

Silver sold-off dramatically in overseas trading after the CME Group raised margins on COMEX silver futures contracts once again. Margin requirements on silver have risen 241% in the past year. Spot silver plunged 10% and futures were down 13%, dragging gold lower in the process — albeit much more modestly so. Gold fell just 0.5% from Friday’s close to the overseas low and has subsequently rebounded to establish new all-time highs.

Arguable news that Osama bin Laden had been killed by US special forces in Pakistan played some role in the metals’ correction, based on the perception that the global terrorism risk had been reduced in some meaningful way. The ‘Osama factor’ is being widely heralded as the reason US stocks opened higher this morning. However, as one threat is mitigated, others seem to escalate. The situation in Libya took a decided turn for the worse over the weekend after foreign embassies in Tripoli were attacked by mobs loyal to strongman Muammar Gaddafi. The attacks came on the heels of the reported death of one of Gaddadi’s sons from a NATO air-strike. Iran is also reporting that Israel is preparing for air-strikes, presumably on Iran’s nuclear facilities.

It’s not surprising to see gold and silver come charging back from the overnight corrective activity. There continues to be strong buying interest below the market — particularly for physicals. The death of bin Laden and the hike in the margin requirements for silver don’t change the fundamentals that have driven the precious metals higher in recent weeks, months and years. Most recently, it has been persistent dollar weakness. The dollar index fell to new 34-month lows in early US trading, bringing the DX within about 3% of its all-time low. The fresh dollar losses probably deserve more credit for today’s higher equity prices than does the death of Osama bin Laden.

But let’s give credit where credit is due: Ben Bernanke’s recent press conference, where he confirmed that the Fed would maintain its zero interest rate policy for the foreseeable future, is the one that truly lit the fire on gold and silver…and tanked the greenback. Bernanke continued to dismiss inflation as “transitory” and even hinted that if Congress starts cutting spending and it negatively impacts economic growth prospects, the Fed might ease further. With rates at 0%, that translates into more quantitative easing.

by Jim Cramer & Debra Borchardt
Mon 05/02/11 (TheStreet) – - Silver margin requirements shake out weak hands. Jim Cramer still likes silver story.

[source]

ALSO…
Cramer: Dollar Will Stay Weak
NEW YORK (TheStreet) – - Jim Cramer thinks Bin Laden’s death is a psychological boost, but not for dollar.
[source]

By Pham-Duy Nguyen and Jason Scott
May 2, 2011 (Bloomberg) — Silver futures plunged as much as 13 percent, the biggest intraday drop since October 2008, as CME Group Inc. raised the amount of cash that traders must deposit to trade [-- margins for speculative positions now up to $14,513 from $4,500 a year ago]. Gold touched a record before paring gains.

“Silver just got out of control on the upside, and it was only a matter of time before it came down,” said Matt Zeman, a strategist at Kingsview Financial in Chicago. “The higher margins are going to squeeze out the little guys. We’ll see the spread between silver and gold close and a little more buying in gold.”

… Silver also may have fallen after failing to top $50 last week, Zeman said. The Comex record is $50.35 in January 1980. “Silver takes three cracks at $50 and doesn’t make it,” Zeman said. “That’s an excuse to take some profits.”

… Speculators cut their net-long positions in New York silver futures by 26 percent in the week ended April 26, according to U.S. Commodity Futures Trading Commission data.

… Traders may be unwinding long-silver and short-gold positions, said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter.

“Gold is now a currency,” Gartman said. “It will supplant the yen as the third-most-important reservable currency amongst the industrialized world’s central banks. We shall use this morning’s weakness in gold from its highs to suggest to those not long to get so.”

[source]

ALSO…
Gold back above $1570; hits record high at $1575
Monday
May 2, 2011 (FXstreet) — After a brief US dollar rebound earlier in the day, which led gold to taste daily lows near $1540/oz, the yellow metal has managed to regain the upside, erasing previous losses.

Gold has gained as much as $35 an ounce from lows on Monday, matching its record high set last Friday a few cents above $1575/oz. Currently the precious metal is at $1570 an ounce, posting a 1.03% daily gain.

[source]

By Jason Scott
May 2 (Bloomberg) — Silver futures plunged as much as 13 percent on the Comex in New York on investor selling as CME Group Inc., the Comex parent, increased the minimum amount of cash that traders must deposit for speculative positions.

Silver for July delivery dropped to $42.2 an ounce before trading at $44.37 an ounce at 8:56 a.m. in Singapore. The CME increased the so-called initial margin by 13 percent to $14,513 per contract from $12,825 after the close of business on Friday. Margins were $4,250 a year ago.

[source]

PG View: Recent margin hikes have made for a wild ride in silver, but they don’t change the underlying fundamentals that have been underpinning the metals for years. The United States and much of the world is grossly in debt, fiat currencies are being devalued as a result, leading to heightened concerns about inflation. It’s worth noting that volatility in the gold market has been significantly lower.

It was a volatile overseas session in the metals, particularly silver, which fell 10% before rebounding about 5%. The initial drop came on the news that the CME Group was raising margins on COMEX silver futures for the second time in a week. The moves in gold weren’t quite as dramatic and the trend their remains decisively bullish. Persistent weakness in the dollar and the resulting inflation expectations have been the primary drivers behind the metals in recent weeks and that has not changed.

The big overnight news of course is the killing of Osama bin Laden by US special forces in Pakistan. US stocks are called higher this morning and oil is lower, perhaps based on the notion that the general terrorist threat to America has been significantly diminished. That however is probably not the case. In fact, the US is presently on a heightened state of alert in anticipation of possible retaliation for the killing of bin Laden.

Finland’s nationalist True Finns reject Portuguese bailout. If the True Finns are included in the Finnish coalition government, there is a chance that Finland could veto further EU aide for the PIIGS.

By Pham-Duy Nguyen
April 29 (Bloomberg) — Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.

As developing countries accelerate purchases, gold may reach $2,000 an ounce this year, compared with a record of $1,569.80 today in New York, said Robert McEwen, the chief executive officer of producer U.S. Gold Corp. Euro Pacific Capital’s Michael Pento, who correctly predicted gold’s highs for the past two years, forecasts a 2011 high of $1,600.

[source]

Fri, Apr 29 2011 (FXstreet.com) — The yellow metal skyrocketed on Friday, rising more than $30 within the last hours, and establishing a fresh absolute high at $1569.35 an ounce.

[source]

by Hibah Yousuf
April 29, 2011 (CNNMoney) — Gold and silver prices are surging and the U.S. dollar is slumping. While that’s not great for consumers, investors are loving the dynamic.

“The Fed has made it crystal clear that it is not going to do anything to stop the dollar from falling,” said Kathy Lien, director of currency research at Global Forex Trading, adding that central bank’s unwavering message gives investors the green light to keep adding high-yielding assets to their portfolio.

By borrowing and then selling the greenback, investors are able to take advantage of the cheap currency by using the proceeds to buy up higher yielding assets, such as the euro, gold, silver and even oil. The so-called carry trade has pushed the dollar index … to three-year lows.

… Earlier this month, the European Central Bank raised its benchmark interest rate. And China’s central bank has already hiked rates four times since the end of the financial crisis to combat inflation and prevent asset bubbles.

But the Fed isn’t pulling the plug yet. On Wednesday, the central bank reiterated plans to keep interest rates low, invest the interest earned on its current asset holdings and complete its $600 billion bond buying program in June, as expected.

All of that, of course, deteriorates the value of the dollar.

[source]

By Myra P. Saefong and Chris Oliver
April 29, 2011 (MarketWatch) — Gold futures settled at a record Friday, jumping more than $25 by the close while silver climbed over 2% as weakness in the U.S. dollar and concerns about inflation helped lure investors to precious metals.

“The planet will continue to diversify its sovereign debt holdings into materials and stocks regardless of inflation,” said Richard Hastings, a macro strategist at Global Hunter Securities, adding that gold could approach $1,750 over the next two months.

Gold for June delivery climbed $25.20, or 1.7%, to settle at $1,556.40 an ounce on the Comex division of the New York Mercantile Exchange. That was the biggest one-day dollar gain for gold futures since Nov. 4, 2010, according to FactSet Research. Prices ended the week 3.5% higher and finished out the month with an 8.1% gain.

… Gold is considered the ultimate storer of wealth and as such gains when investors fear price increases and U.S. dollar debasement. Hastings said he would “caution” those who believe the gold market is “toppy and speculative” and poised to fall. That’s not true, he said, “because the amount of money available from big banks globally looking to diversify their sovereign debt positions creates massive waves of speculative money available for materials in spots and stocks and forex.”

… Silver’s July contract also closed up $1.06, or 2.2%, at $48.60 an ounce after trading as high as $49.21 overnight…. silver futures were 5.5% higher for the week, up 28% for the month. … Even so, some analysts are calling a short-term top on silver prices, given its impressive gains. Year to date, futures prices are more than 50% higher.

Ned Schmidt, editor of the Value View Gold Report, said silver prices could drop $5 to $7 on Monday. “Monday-Wednesday will be a bloodbath in silver,” he said. At the same time, gold is benefitting, he said. “Money will move from silver into gold.”

[source]

by Frank Tang
April 29, 2011 (Reuters) — Precious metals rose further after data showed U.S. consumer spending rose in March as households stretched to cover higher costs for food and gasoline, with inflation posting its biggest year-on-year rise in 10 months.

“Gold is showing a text-book bull market behavior, a steady ascent without major spikes. It’s the continuation of the same theme, as the Fed’s posture seems to be fairly dovish still,” said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.

[source]