by David Cottle
(The Wall Street Journal) — Why shouldn’t cash-strapped European countries be forced to liquidate their gold holdings, German politicians have been asking.

Prices, after all, are close to historic highs. Moreover, bullion is the ultimate hedge against an economic rainy day, and it’s certainly pouring down in Greece, Portugal and Ireland.

… Portugal’s holding would be worth $18 billion at current market rates, which would be a handy offset to the €78 billion ($108 billion) bailout it has just accepted from the European Union. On the face of it, there is an absurdity here. How many of us would toss a dime to a beggar if we knew he had an ingot or two stashed under his sleeping dog?

… Unfortunately for the pair, market economics are never quite as simple as they look, even when considering arguably the simplest asset of all. …… Moreover, as one gold dealer said: “Selling reserves has a finality about it; you never get them back. Governments can tell their people that there is some benefit at the end of austerity and reform, but not at the end of selling gold to plug a debt hole.”

… Monument Securities strategist Marc Ostwald is one analyst who doubts a straight gold sale is likely from either nation… But there is no reason, he said, why the gold of debtor states shouldn’t be used as collateral in repurchase agreements, lent out and bought back later at a small premium, which would represent the interest on the cash paid.

“I think some sort of repo deal using gold might make sense,” he said, “although of course this would really be no more a long-term solution to these countries debt problems than the bailouts are.”

[source]

RS View: For a better context, Ostwald’s rough suggestion should be read in conjunction with today’s news item (and following comment) regarding the use of gold as earmarked collateral. To the extent that Greece (or Portugal or Ireland) has gold with some remaining valuation headroom (that is to say, an excess of Mark-to-Market value of the gold reserves against which specific monetary liabilities (i.e. euros) of the Eurosystem have not been issued), then there is precious little standing in the way of a exploring the utility of properly secured gold-collateralized repos through an agent (specifically the Bank for International Settlements) that would be harmonious with the normal course of affairs in the pro-expansive forex market and equally harmonious (i.e., non-derivative, non-expansive in terms of supply) with the rational gold market.

By Claudia Assis and Sarah Turner, MarketWatch
May 6, 2011 (MarketWatch) — Midsession gains for silver were short-lived on Friday, with the metal extending this week’s rout in its worst five-day period since 1980. Gold futures settled higher, but under $1,500 an ounce.

The thinly traded front-month silver contract had its worst week since late March 1980. Silver for May delivery dropped 27% in the five-day period — its largest percent drop since that date.

… Data from recent Commitment of Traders reports suggest that hedge funds and other large managed funds had left the silver trade long before the week’s rout.

Gold for June delivery rose $10.20, or 0.7%, to $1,491.60 an ounce. Gold lost 4.2% on the week, as it had settled [last] Friday at a record $1,556.40 an ounce.

The yellow metal failed to settle above $1,500, but its ending just in the black gave investors some hope gains could resume next week, according to Adam Klopfenstein, a senior market strategist with Lind-Waldock in Chicago. “It gave investors hope we’re near the bottom for the near term,” he said.

… The earlier leg up for precious metals was mainly due to “oversold” conditions and expectations a mixed jobs report on Friday would cause federal officials to keep loose monetary policy going, said Tom Pawlicki, a metal analysts with MF Global in Chicago.

[source]

By Wallace Witkowski
SAN FRANCISCO (MarketWatch) — Greece’s Ministry of Finance said late Friday a news article saying that Greece was considering an exit from the euro zone was “completely untrue.” On Friday, Germany’s Spiegel Online reported that Greece was considering the move and officials were holding secret talks with representatives of the European Commission and other euro zone countries in Luxembourg. “Such articles are not only provocative but also highly irresponsible as they undermine Greece’s efforts and those of the Eurozone and serve only the interests of speculators,” the ministry said in a statement.

[source]

PG View: I wouldn’t be surprised to find that the Greece story that has dominated the financial press today was floated to rest more favorable terms from the EU for a potential restructuring of Greek debt. However, it’s also worth noting that recent euro strength was likely to have a negative impact and German manufacturing, so they benefit as well from the shellacking the euro took this week.

May 6, 2011 (IBTimes) — PIMCO’s Bill Gross, who runs the world’s largest bond fund, said on Friday the only way he would reverse his “short” position on U.S. government-related bonds is if the United States heads into another recession.

… Asked Friday Gross told Reuters: “Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations.”

[source]

NEW YORK — The double-header may be an endangered species in baseball, but a double-header of a different sort last night swept Manhattan, where nearly 1,000 people swarmed into an auditorium on the Upper West Side to hear luminaries debate the question of the gold standard and across town a packed auditorium heard a billionaire investor liken fiat paper currencies, including America’s, to toilet paper.

“The gold standard wouldn’t have allowed forty years of deficits . . . Nations were compelled to live within their means. . . . The gold standard was an honest regulator of Wall Street greed . . . nor did we [in upholding a gold standard] punish people who invested in savings accounts.”

He called the current monetary system a “collectivist top-down tyranny . . . The clever and the nimble play this system for what it is worth.” Gold he referred to as “the people’s money” and the dollar as “America’s credit card.” Said Mr. Grant: “We need a debit card not a credit card.”

[A] return to a gold standard and that a return to a gold standard would translate into $9,421 an-ounce gold based on world reserves and $3,500-an-ounce gold based just on existing currency supply.

“All paper currency,” said Mr. Kaplan, is “toilet paper currency”; the dollar is, on occasion, “double-ply.”

Said Mr. Hathaway, “When someone says to me, ‘I’m trying to make money [in investing in gold], I say, ‘You’re trying to protect your money.’. . . Gold is the best defense . . . That’s the reason to be in metals.”

[source]

by Bill Fleckenstein
May 6, 2011 (MSN Money) — I have spent a fair amount of time in this space writing about gold. And for the most part, when I do so, I am implicitly including silver, because my reasons for owning both are inextricably related.

While the investment cases for gold and silver may be two sides of the same coin, as it were, recent action in the silver market illustrates that the experience of owning them can be very different.

For those who don’t follow this particular asset, the silver market went on tear recently, touching an all-time high price on April 25 — then losing a big chunk soon after.

… Silver is guaranteed to become even more volatile, especially given the fact that a lot of folks who are now involved probably would have a hard time reciting any fundamentals regarding the metal, let alone articulating why they own it, other than the fact that it is moving higher rapidly.

For some reason, I can’t get the analogy out of my head that riding silver these days is somewhat akin to tow-in surfing. It looks spectacular from the beach, but actually doing it is extraordinarily difficult, and can be quite dangerous.

… In addition to pushing up prices, money-printing also distorts capital markets. Thus, in the 1990s we found people forming companies whose business strategy was garnering “eyeballs,” while in the mid-2000s, many homeowners believed they could take money out of their houses forever. Now we are back to an Internet-oriented mania at the same time we have raging inflation.

Thank you, Alan Greenspan, Ben Bernanke and all of the central bank counterparts who have followed your lead.

[source]

By Nicholas Larkin and Pham-Duy Nguyen
May 6 (Bloomberg) — Silver futures fell, capping the biggest weekly plunge since at least 1975, on mounting sales by investors following increases in Comex margin requirements. Gold rebounded, halting a three-day slide.

Silver tumbled 27 percent this week after CME Group Ltd., the Comex owner, boosted the cash amount needed for a speculative position by 84 percent in two weeks. Yesterday, holdings of the metal in exchange-traded products dropped the most in three years. Gold had the largest weekly drop in a year.

“At the close of business on Monday, silver’s got another bump in margins,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Gold doesn’t have the technical breakdown that silver’s had. All gold has to do is hold its value when everything else crumbles around it.”

… “Gold below $1,500 is a line in the sand,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “There’s a scramble for gold because a lot of people don’t want to miss the move up.”

The metal reached a record $1,577.40 on May 2.

Barclays Capital recommended buying gold after the 4.9 percent drop in the previous three days.

[source]

by Rachel Beck
Friday, May. 06, 2011 (AP) — In the boardroom, it’s as if the Great Recession never happened. CEOs at the nation’s largest companies were paid better last year than they were in 2007, when the economy was booming, the stock market set a record high and unemployment was roughly half what it is today.

The typical pay package for the head of a company in the Standard & Poor’s 500 was $9 million in 2010, according to an analysis by The Associated Press using data provided by Equilar, an executive compensation research firm. That was 24 percent higher than a year earlier, reversing two years of declines. Executives were showered with more pay of all types – salaries, bonuses, stock, options and perks. The biggest gains came in cash bonuses: Two-thirds of executives got a bigger one than they had in 2009, some more than three times as big.

CEOs were rewarded because corporate profits soared in 2010 as the economy gradually got stronger and companies continued to cut costs.

… Separately, the bull market has left CEOs enormous paper gains on stock and options they were granted as part of pay packages in 2009 and 2010.

… For companies that the AP analyzed, revenue grew about 12 percent, according to data provider CapitalIQ. That helped lift earnings, as did companies’ ability to hold down costs. Companies could limit raises for rank-and-file workers because of the weak labor market.

The bigger profits helped push up the typical cash bonus given to a CEO by 39 percent in 2010… Meanwhile, pay for workers grew 3 percent in 2010, to an average of about $40,500. The percentage increase was twice the rate of inflation, but the average wage was less than one-half of one percent of what the typical CEO in the AP analysis made.

[source]

RS View: As a shareholder, the question comes back around to this — what is the value that you are reaping in return for this risky investment? If it shapes up to look like little more than a crap shoot, or even worse — a rigged game, then consider consolidating your portfolio into a more personally rewarding form of wealth in which the cream isn’t forever taken off the top. Choose gold — what’s yours is yours.

by Bruce Hextall
Friday, 06 May 2011 (Retuers) — Gold may resume its record-breaking run, despite falling more than $100 an ounce off its high in just four days as countries build more reserves of the precious metal while the U.S. dollar remains weak, a Sydney-based fund manager said on Friday.

Andrew Kaleel, chief executive of H3 Global Advisors, a boutique value fund manager with around A$600 million under management, said the correction came as no surprise as the dollar gained strength. “Our view is gold will continue to move higher but within that you will see 10 to 15 percent draw downs along the way,” Kaleel said. “Gold has had a pretty spectacular run – we’ve seen it just shy of $1,600.”

Gold partially recovered on Friday from a 3 percent fall on Thursday that was sparked by silver slumping 12 percent after another margin call by the CME Group. Spot gold rose by more than 1 percent to $1,489.26 an ounce before easing to $1,484.11 an ounce. It is headed for a 5 percent drop from a week earlier, its worst week since March 2009.

Kaleel said his firm was maintaining its position in gold, betting that the precious metal would reach $1,700 an ounce by the year-end.

H3 Global Advisors bases its view that the dollar will remain under pressure until the United States sorts out it debt problems and countries around the world will shift more of their reserves into gold. … “Gold will move higher as countries diversify away from the dollar as a reserve currency,” said Kaleel.

“The most interesting thing we saw this week was (U.S. value investor) GMO releasing a quarterly newsletter which appears to show that the firm has done a total U-turn on commodities.” said Kaleel. — “Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a paradigm shift – perhaps the most important economic event since the Industrial Revolution,” GMO said in its newsletter.

Kaleel said it was a view his firm took two years ago.

[source]

RS View: Two years??? Silly me… I’ve been barking (more or less publicly in various forms) up that tree since the mid 1990′s. Small wonder my voice has grown increasingly hoarse, spent. Time to move aside and make room for the fresh young dogs…

by Julian Phillips
Friday, 06 May 2011 (Mineweb) — We have seen new surprising and strong demand from global central banks in the last week. This demand occurred over the last two months and had to compete with other strong demand from all sides of the gold market. As we move into the quiet season for gold and have experienced a short sharp correction so far how will central banks react? This week we received news that Latin America has now joined Asia, Russia, the Middle East and the Far East in buying gold for the national gold and foreign exchange reserves.

… Bolivia reported an increase of 7 tonnes of gold, taking its gold holdings to 35.3 tonnes, last week. While Bolivia has not made any public comment on this increase, it is very likely that the central bank has simply decided to restore its gold holdings relative to its growing foreign currency reserves, similar to other recent emerging market central bank purchases.

… Mexico’s buying of gold in February and March amounted to 93.3 tonnes of gold, is one of the most rapid programs of accumulation on record. With reserves now just over 100 tonnes in total, the market is holding its breath to see if it is an ongoing buyer.

Mexico’s vigorous purchase of gold over the last two months surprised the market by its speed and size. For any central bank to buy 93 tonnes in this market is a clear statement that faith in the U.S. dollar is falling fast. We do expect other emerging Central and South American nations to follow suit over time, alongside many of the world’s emerging economies.

… Buying programs by central banks usually follow a particular pattern. Central banks buy to hold, not to trade or profit from. They are a monetary asset held for the most extreme of national economic crises. This affects the way they buy for their reserves. The most preferred manner is to buy their own local production, as this is done away from the markets that really do make the gold price… [albeit while curbing the marketable physical] supply through the absence of that country’s production.

… What is clear throughout the world is that Central Banks remain determined to keep their gold and foreign exchange reserves balanced with gold an integral part of those reserves. The cessation of European central banks sales nearly two years ago confirmed this, as do the ongoing purchases by Russia and China. Even in the Middle East oil producing nations are ensuring that they have gold in their reserves. This is a practice that is unlikely to end in the future. The days when the market feared Central Banks unloading all the gold they had are far gone.

… This makes the sudden sell-offs we saw this week and the subsequent recovery so interesting. We won’t be informed of whether it was central banks which picked up the gold coming onto the market, but we do expect them to be one of the buyers.

[source]

RS View: Julian offers some timely insights, although could have more firmly emphasized against the context of his focal point of the CB’s physical gold reserves that the downdraft in pricing this past week has been largely a superficial artifact of the derivatives market — one of price but without any substance.

May 6, 2011 (Times of India) NEW DELHI — Friday saw gold rush in Delhi, with buyers thronging jewellery shops after prices of the precious metal dipped by around Rs 500 per 10 gm, coinciding with the auspicious occasion of Akshaya Tritiya.

The Akshaya Tritiya festival is one of the two most auspicious days of the year to buy gold. Hindus believe they can get lasting prosperity by buying precious metals on the day. The other festival is Dhanteras two days before Diwali in October or November.

“The response is just overwhelming, we are catering to a huge rush at all our showrooms across the country. The mood is upbeat. It seems that those who had not even planned have also turned up today looking at the dip in the prices,” Balram Garg, managing director and chief executive of the Delhi-based PC Jewellers’ Group, told IANS.

“With such a demand, we expect the business today to rise by 30 to 40 percent as compared to Akshaya Tritiya last year,” he added.

[source]

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government’s actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area’s finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.

Greece’s economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency.

[source]

PG View: The euro is plunging in reaction, despite vociferous denials of the story from some officials in Europe. One thing is for certain, I’d much prefer holding physical gold as a “place holder” of wealth during the transition process rather than euros. Fiat paper for fiat paper conversions never seem to work out too well for people.

Gold and silver are tentatively higher after their 2% and 8% falls yesterday. In silver, speculators on the COMEX continue to liquidate on mass after margin was increased a massive 84% and various stop loss levels are hit, leading to further falls in the futures market.

Absolutely nothing has changed regarding the fundamentals driving the gold and silver markets and this will likely be another correction in gold and another sharp correction in silver.

Gold and silver’s rise is likely to continue until we return to a world of healthy economic growth, low inflation and positive real interest rates.

[source]

Gold Rebounds on Better Than Expected NFP Headline

Gold is recouping some of its recent corrective losses and silver has caught a bid as well. We could see a simple reversal day in silver if the white metal manages to close higher on the day, which would mitigate the bearish implications of the overnight breach of the 100-day moving average. The Chinese have reportedly been aggressive buyers of silver on this dip and Indian buyers were taking advantage of this week’s retreat to lock in favorable gold prices. They should both send flowers to the CME Group for providing them with the buying opportunity via the recent dramatic hikes to margin requirements.

Rumors continue to circulate about even more margin hikes, so we can expect silver in particular to remain quite volatile. Recent action in the silver market reinforces our position that gold is a much better asset choice for the purposes of wealth preservation.

Nonfarm payrolls rose a much better than expected 244,000 in April, yet the unemployment rate crept higher to 9.0%. One might expect that the perception of greater prospects for employment might be luring job seekers back to the labor pool, but that doesn’t seem to be supported by the data. The labor force participation rate remained flat in April near its 25-year lows, suggesting that there were indeed job losses in Apr, rather than an expansion of the labor pool. Meanwhile the household survey was more consistent with the low participation rate, showing a loss of 190,000 jobs.

The dollar remains underpinned by renewed weakness in the euro, which gained some impetus today with a story in Der Spiegel that reports Greece is contemplating withdrawal from the eurozone. Der Spiegel says there is a secret crisis meeting scheduled in Luxembourg tonight, which was quickly denied by some eurozone officials. The IMF declined to comment on the story and an official from the French Finance Ministry would neither confirm or deny that a “secret meeting” was planned. That suggests that there may indeed be something to this story. The FX market seems to think so, with EUR-USD off more than 5 big figures, or 11% from Wednesday’s 17-mo high.

This is an interesting turn of events. An exit from the EU might in fact offer the best hope for Greece to revive its economy. Certainly there will be a price to pay in converting from the euro back to its own currency and one would reasonably expected a rather significant devaluation. And a possible default on their debt. If I were Greek, facing a conversion back to the drachma, I’d much rather be holding gold as a store of wealth during the transition period than euros.

The Greeks may also be using the threat of an exit from the EMU as leverage to negotiate better terms for another bailout/restucturing of their debt. Germany and the rest of the deep pockets in the eurozone will have to do some quick cost/benefit analysis. If Greece leaves, does it make the euro area stronger? And even if the answer to that question is “yes,” does it establish a precedent and mechanism for the rest of the PIIGS to flee the union as well? If the dominoes start tumbling, it could conceivable undermine the EU as a whole, with negative splash-back impacting governments and central banks across the Continent.

May 06, 2011 (Reuters) MUMBAI — India’s formal gold loan market is growing at 30 to 40 per cent annually and attracting global interest. Abu Dhabi Investment Authority and a Goldman Sachs fund are among investors in Muthoot Finance, India’s largest specialist gold lender, which starts trading on Friday after a popular $200 million IPO.

The opportunity is clear: Indians have traditionally used gold as a store of wealth and hold 10 per cent of the global supply, much of it in jewelry. At the same time, more than half of Indian adults operate outside of the formal financial sector, according to the Reserve Bank of India.

The risk for the industry is that high interest rates and margins and the potential excesses of accelerating competition will draw a regulatory backlash of the sort that has crippled India’s once-soaring microfinance sector.

Although gold is currently trading at more than $1,500 an ounce and hit a record $1,575.79 on Monday, a plunge in gold prices would erode the value of collateral held by lenders and undermine demand as borrowers receive less cash. The short loan tenors involved in gold loans mitigate risk. The longer the term, the lower the loan-to-value ratio, which is typically 75 per cent for three months.

Gold loans are safe if branches are secure and the lender properly appraises the collateral, which can be liquidated in case of default. Sentimental value means default rates are low. Non-performing assets accounted for less than half a per cent of Muthoot’s retail loan book in recent years. Its gold loans stood at $2.9 billion at the end of November, about six times their total in March 2008, a listing document showed.

[source]

RS View: Provided the gold items are indeed truly sequestered under lock and key while serving as collateral for the duration of the monetary loan (thus allowing these same items to be returned essentially non-fungibly(!) at the completion of the cash repayment), then what you are seeing take shape here is one aspect of the retail/customer side of the new face of the evolving gold-centric banking system in which gold (as store-of-wealth, as reserves) co-exists in a sustainable floating paradigm with the common national currency. For more of the big picture, simply review everything I’ve said over the past decade concerning central banks and the paradigm shift toward mark-to-market gold reserves — particularly well exemplified by the very deliberate yet quiet forefront actions and accounting structure of the ECB.

[Whereas this article dealt with commercial operations, a tangentially related item to gold collateralization as applied to governments can be viewed in a article subsequently posted here.]

Gold rebounds from recent corrective move, leaving the 50-day moving average intact. Some are viewing this morning’s bigger than expected rise in nonfarm payrolls as being an inducement to put their inflation trades back on. Payrolls jumped 244k in Apr.

While the preponderance of recent data suggest the economic recovery is sputtering, the headline NFP number gives some pause. However, there is further reason for concern if one digs a little deeper into the data. Certainly the rise in the unemployment rate is troubling, but apparently that’s not the result of workers being drawn back into the ranks of those actively seeking employment. The participation rate remained flat in Apr, near the recent lows, but the actual number of people not in the labor force hit a new all-time record of 86.248 million.

The dollar is maintaining a decent bid at this point, underpinned by euro weakness stemming from a significant shift in the ECB’s tone amid rising concerns about the health of the eurozone economy. Nonetheless, there is little to suggest this bounce in the dollar is anything more than a correction.

by Steven M. Sears
May 5, 2011 (Barron’s) — Silver is now radioactive. … The implied volatility of SLV’s options is up some 11% Thursday, indicating that even the options market, which is expert in pricing risk, is unsure how to price silver.

Back when silver broke toward $50 in the late 1970s, and then declined, the metal only traded in the futures market. Since then, the Securities and Exchange Commission has allowed financial engineers to create exchange-traded funds that hold commodities like gold and silver. This has made it possible for anyone to invest in commodities in the stock market without opening a separate futures trading accounts.

Commodity investing is now as easy as buying stock. But the decline in silver is proving that is not really true.

Silver’s price is influenced by futures, equity derivatives and stock trading. The action in all the different markets weighs heavily on silver’s price. Selling pressure now stretches across three markets — the futures, stock and options. The selling is exacerbated by an ultrashort exchange-traded fund loaded with derivatives that sharply increase in value if silver prices decline.

[source]

By Claudia Assis and Sarah Turner
May 5, 2011 (MarketWatch) — Gold and silver futures notched steep losses Thursday as the main U.S. metals exchange announced two additional increases in trading requirements for silver.

Silver for July delivery declined $3.15, or 8%, to $36.24 an ounce on the Comex division of the New York Mercantile Exchange.

… CME Group Inc., which owns Comex and Nymex, late Wednesday announced two additional margin-requirement increases, effective at the end of close Thursday and Monday. Higher margin requirements, or the money needed to put up to trade silver, have ignited wholesale selling of the metal that started on Monday and has pulled down other commodities with it. The exchange has announced margin increases four times since April 26. … The exchange had already increased margins three times in recent days, squeezing out those unable or unwilling to put up more money to trade the metal.

… At the close of Thursday, initial margin requirements for silver will cost $18,900 per contract, and maintenance margins will cost $14,500 per contract. They cost $8,700 and $11,745, respectively, before April 26. All told, CME has announced margin requirement increases six times this year, including Wednesday’s double whammy. By the time the latest round of increases becomes effective on Monday, initial and maintenance requirements will have increased 84% to $21,600 and $16,000, respectively.

… “The ending of a tulip-mania style move in silver will put more caution into those who would speculate in commodities markets, limiting the harm commodity price increases will cause the economy,” said emailed comments from Tony Crescenzi, a strategist and portfolio manager at bond giant PIMCO. “ [Therefore...] it will keep the game going for longer because the urgency for central bankers to move quickly has diminished somewhat now that commodity prices have hit a much needed speed bump.”

Gold for June delivery retreated $33.90, or 2.2%, to $1,481.40 an ounce. That was the lowest settlement for a most-active gold contract since April 14, and the biggest one-day percentage loss since mid March. “We may pull back below ($1,500 to $1,450 an ounce) before recovery sets in,” said George Gero, a vice president at RBC Wealth Management, in emailed comments.

[source]

by Jack Farchy
May 5, 2011 (FT) — The reversal of fortunes for silver –- which until this week’s 25 percent drop had been up 56 percent since January –- has led a wider sell-off in commodities markets, which were heading towards one of their worst one-day falls on record.

“The silver market has become even more unhinged as the week nears an end, with no sign yet that the nervous selling momentum is near petering out,” said Edel Tully, precious metals strategist at UBS. “This has paved the way for a wider commodity slump,” she added.

On the spot market in London, silver fell as much as 9 percent on Thursday to a six-week low of $35.82 a troy ounce.

… Sales of silver coins surged to record levels as retail investors, particularly in North America, bought the metal as an expression of dissatisfaction with the perceived profligacy of the Federal Reserve and the US government and the faltering US dollar.

The tumble in silver has led the price of other precious metals lower. However, gold has managed to remain relatively unscathed compared with its poorer cousin. Since hitting an all-time peak on Monday, the yellow metal is down 5.9 percent at $1,483 an ounce.

[source]

by Pater Tenebrarum
May 5, 2011 (SeekingAlpha) — The action in the precious metals space has been so fast-moving this week that updates are usually out of date the moment they are written, but we feel nonetheless compelled to comment yet again. … The CME has decided to increase margins for silver futures traders a fourth time. While it is true that such margin hikes tend to exacerbate the pressure on a collapsing bubble, it is not true that this is done out of some nefarious intent as some commentators are claiming. Commodity exchanges always hike margin requirements when the underlying commodity rises sharply and begins to exhibit extreme volatility – regardless of whether it is silver, corn, hogs or whatever. There is no exception from the rules for silver.

… Another news item that has hit the wires yesterday was that George Soros and John Burbank were getting out of their gold and silver positions – allegedly because they now think that there is a lower probability for deflation. Say what?

According to Marketwatch:
—Traders were also digesting a Wall Street Journal report that said George Soros’s hedge fund, a firm operated by investor John Burbank, and some other investors have sold much of their gold and silver because there’s less chance of deflation.—

The point seems to be that if there is no deflation (in the sense of falling consumer prices), then the Fed will at some point in the future no longer pump as much money into the economy.

The problem with that idea is of course – as we noted yesterday – that the Fed is in a box. The moment it stops pumping, the very deflationary forces that Soros fund manager Keith Anderson now declares as no longer representing a threat will swiftly reassert themselves. The Fed is probably well aware of this, which is why we just got another ultra-dovish speech from Boston Fed president Eric Rosengren, arguing that the rising prices of energy and other commodities have absolutely nothing to do with monetary pumping by the central bank, but instead represent a ‘supply shock’ that should not keep the Fed from further pursuing its extremely loose policy.

So there you have it from the horse’s mouth – easy money is going to be with us for a good while longer.

… it seems highly unlikely that the crash in silver has altered anything with regards to the long term outlook for both gold and silver (gold has of course declined in sympathy with silver, but it has held up much better in relative terms, as always happens in correction phases).

[source]

By Carole Vaporean
Thu May 5, 2011 (Reuters) — Silver prices, down 20 percent from peaks hit last week, have abruptly collapsed into bear market territory, and chartists say further losses are likely before investors are lured back in.

While for now deemed a correction rather than a return to the languishing market that characterized silver in the 1990s, the speed of the collapse after its parabolic rise this year has shocked even long-term traders accustomed to its volatility, and at times has rattled adjacent markets.

For those who study charts for price trends, silver looks unlikely to quickly revisit the all-time high of $49.51 an ounce it touched on April 28, and will probably slide much further before finding its footing.

… Once support breaks at the 50-day moving average near $38.50, said CitiFX chief technical strategist Tom Fitzpatrick, silver lacks additional support before the 200-day moving average between $28 and $31. “There could possibly be a short-term pause, but this really looks like something that could melt down even further.”

… “I would let it fall. The real thing that has been moving silver prices since it went over $25 an ounce, in our judgment, is mostly speculative demand,” said Tom Winmill, portfolio manager of the Midas Fund. Winmill stuck by his projection of $35 an ounce at year end.

… “Where the bottom lies, only time will tell. But, we are in the midst of a correction that presents a buying opportunity for sure,” said Joseph Foster, portfolio manager, at Van Eck International Investors Gold Fund in New York.

[source]

Silver could top the precious pack in 2011 – GFMS
by Amanda Cooper
Thu May 5, 2011 (Reuters) — Platinum is drawing investment as a financial asset and palladium boasts an enviable market balance but silver could top the precious pack this year as its latest fall offers a chance to buy, GFMS’s Philip Klapwijk said.

The managing director of the metals consultancy, which on Thursday released its 2010 Platinum and Palladium market survey, said that once the current price decline from last week’s record above $49 an ounce has petered out, silver has enough favour among investors to return to these levels.

“If we see silver drop, perhaps down close to $30-mark then, (it) would look a pretty decent buy, because through to the end of the year, you’ve got the possibility of 40 to 50-percent price gains,” Klapwijk said in an interview with Reuters.

“I’m not sure that silver would get above $50 but would we see it in the upper $40′s again? Quite possibly. I don’t see that scale of increase probably out there for gold and for platinum and probably not for palladium either,” he said.

The silver price , which is still up about 22 percent so far this year at $38 an ounce, is set for its largest weekly decline in nearly 30 years, led by selling after a series of sharp rises in margin requirements to hold U.S. silver futures, as well as hefty outflows of metal from the world’s largest exchange-traded funds.

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by Rita Nazareth and Nikolaj Gammeltoft
May 5 (Bloomberg) — Commodities plunged the most in two years, stocks worldwide posted the biggest three-day drop since March and the dollar rallied after American jobless claims unexpectedly rose and the European Central Bank signaled it will wait until after June to raise interest rates.

The Standard & Poor’s GSCI index of 24 commodities sank 4.8 percent at 12:10 p.m. in New York and has lost 8.1 percent this week. Silver tumbled 7.4 percent, extending its decline since April 29 to 25 percent, and oil sank 5.9 percent. … The dollar gained 1.6 percent against the euro, making commodities quoted in the greenback more expensive for holders of other currencies.

… “Both equities and commodities had a big run,” said Mike Ryan, the New York-based chief investment strategist for Wealth Management Americas at UBS Financial Services Inc., which oversees $741 billion. Following the U.S. jobs report, “anyone wanting to take some profits now has an excuse to do it.”

The S&P measure of commodities prices had surged 20 percent in 2011 through April 29. The MSCI stock gauge closed at the highest level since June 2008 on May 2 after rallying 8.2 percent since Dec. 31

… “The economic outlook is looking more challenging,” said Jason Brady, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, which oversees about $84 billion in assets. “People have been crowding into stocks and commodities, but with the additional slowdown in the U.S. and the more difficult employment situation, there’s suddenly more uncertainty.”

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By Andrew Mickey
May 5, 2011 (WallStreetPit) — Gold and silver have been setting new high after new high. Gold is up $100 and silver’s up more than $10 since President Obama ruled out significant spending cuts in his mid-April budget speech and the Fed chairman noted inflation will be “transitory.” The strong uptrend, however, showed its first signs of weakness in months this week. Gold has fallen for three straight days and silver is down nearly 20% from its highs.

If the downswing continues, it could be enough to send the hot money crowd running for the exits and set off a long-awaited (and healthy) correction.

… The current “story” driving gold is a simple and very widely spread one. Government spending is out of control. The federal deficit is well over $1 trillion and both sides are nowhere close to agreement on how to close it (and won’t be until after the next election or until the next debt crisis suddenly hits). China has stopped by U.S. government bonds. Bill Gross, a.k.a. the Bond King, has sold out of U.S. Treasuries. There’s nowhere to go but down for the dollar over the long run.

And any hopes of a return fiscal sanity have been quickly dashed. The last round of $38 billion in phantom spending cuts have done nothing to reduce the trajectory of federal spending growth.

… Gold prices have risen due to many factors. One catalyst, however, has outweighed them all. … there have been three periods of sustained negative interest rates in the past 80 years. Each period of negative interest real rates coincided with rising gold prices and/or extremely high inflation.

… And this period of negative real rates is not going to end anytime soon. …… at this point, we’ve got at least another year and a half left (probably even longer) to go for gold prices as real interest rates are going to be held below zero. And if history is a reasonable guide, gold prices will continue their uptrend and any correction will be short-lived.

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by Richard Cowan and Thomas Ferraro
May 5 (Reuters) – U.S. House Speaker John Boehner said on Thursday that Republicans will not vote to raise the U.S. debt limit without budget reforms and spending cuts totaling trillions of dollars.

Boehner said he was optimistic that bipartisan talks led by Vice President Joe Biden would “lead somewhere” in an effort to allow the government to continue its borrowing activity…

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by Steve Schaefer
May 5, 2011 (Forbes) — Don’t look now, but it appears the U.S. employment picture isn’t just improving slowly it’s actually showing signs of fresh weakness. The weekly unemployment snapshot from the Labor Department showed initial jobless claims jumped to 474,000 last week, from an upwardly revised 431,000 the week prior. That’s not good news ahead of Friday morning’s April jobs report and led traders to flee from risk assets almost across the board.

The four-week moving average, meant to smooth out volatility, is back up to 431,250, while continuing claims rose back over 3.7 million. Much like Wednesday’s weak reading on the services sector from the Institute for Supply Management’s non-manufacturing index, Thursday’s employment figures rattled investors and produced a flight to safety.

Major U.S. equity indexes slumped. … Much has been made of late about the debt and deficit burdens facing the U.S., but Uncle Sam is still a port in a storm for investors and the yield on 10-year Treasuries dropped to 3.19% Thursday morning.

… Across the pond, European Central Bank President Jean-Claude Trichet said he remains mindful of upside inflation risks after the bank held steady on its benchmark interest rate after hiking last month. Trichet did not seem to indicate another increase in June, but left the door open for a further hike in July from the current 1.25% level.

That’s compared with a 0-0.25% range for the Federal Reserve’s target rate for federal funds, a number that likely will remain untouched for some time.

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Gold and Silver Extend Corrective Losses

Gold has fallen back below the 1500.00 level, weighed by the ongoing rout in silver. Silver has tumbled about 27% since peaking on 25-Apr at 49.77. By comparison, the correction in gold has been much more modest at just about 6%. Recent activity in silver has been a wild ride to be sure, but it’s just a reality of the market. Silver is a much smaller, more thinly traded market than the gold market. Consequently the volatility in silver is much higher than it is in gold. We began suggesting a “measure of caution” was warranted with regard to silver in early-April when the market exceeded 50% above its 200-day moving average. At its peak, silver was more than 80% above the 200-day MA.

As speculators continued to rush into silver in recent weeks, the COMEX inventory of deliverable silver was shrinking to a record low of just 33 million ounces. The exchange faced a dilemma, shake out the specs or face a potential force majeure and the loss of confidence in the exchange that would likely result. With the recent market volatility providing the necessary cover, the CME Group began a succession of margin hikes directed at erasing the massive overhang of paper silver obligations that simply could not have been delivered at recent lofty prices.

As the cost of maintaining open long positions went up, some traders were forced to liquidate all or part of their positions to cover those additional expenses. Margin requirements on silver rose 84% in the last 8-days alone. Once the ball is rolling downhill and stops start getting triggered, it can become a self-sustaining retreat. However, in raising margins again last night, with Singapore following suit, and amid rumors that another COMEX hike is in the cards, clearly the CME Group is not yet content to kick-back and watch the carnage unfold.

And there in lies a fundamental difference in physical silver and gold, versus those ‘paper obligations’: If the exchange that clears that paper doesn’t like an impending outcome, they can change the rules of the game. It’s like the home football team being able to successively increase a fee the visiting team must pay as they drive deeper into the red zone. How bad do you want to score? Well, pony up…

Word that billionaires George Soros and Carlos Slim have been selling gold and silver have added further impetus to the recent declines. While Slim is reportedly selling to hedge the production of his mining operations, Soros’ intent is not as clear. Was he simply reacting to the severely overbought condition in silver and taking profits? Or was he actively shorting gold and silver? Or like other hedge funders before him, is he exiting paper representations of metal with the intent of buying physical with the proceeds? There has been some whispers to that affect in the market, but if Soros does have an intention to buy physical, he would be well served to play his cards very close to the vest.

Today’s reported plunge in German factor orders seems to have prompted a more dovish tone from ECB President Trichet. If the last economic engine firing on all cylinders in Europe is starting to sputter under the strain, expectations of further ECB rate hikes will deteriorate. That does indeed appear to be happening as the euro plunged dramatically during Trichet’s press conference, off nearly 8% from yesterday’s 17-month high.

The euro’s swoon, along with a weaker Swiss franc and the ongoing commodity deleveraging has provided the first decent bid in the dollar. However, today’s unexpected surge in US initial jobless claims in conjunction with yesterday’s horrible ISM print, also reinforces the Fed’s über-easy policy stance. That certainly doesn’t translate to dollar strength, yet the dollar could correct further based on further euro weakness and darkening prospects for economic recovery.

Basically, the underling fundamentals remain broadly constructive for gold. Rising growth risks may mitigate some of the recent price risks, largely associated with soaring food and energy costs, but it increases the likelihood that central banks will once again goose the economies with yet another dose of liquidity. This is a particular risk in the US, where Republicans and Democrats are waging a pitched battle on budgets, deficits and and the debt ceiling.

Gold and silver extend corrective losses. Silver has been hit particularly hard by a succession of margin hikes as COMEX in particular looks to erase the massive overhang of paper silver obligations that simply could not have been delivered at recent lofty prices. The COMEX inventory of deliverable silver was recently reported at a new record low of 33 million ounces. Margin requirements on silver are up 84% in just the last 8-days. As a capper, Singapore raised silver margins by 18% last night.

The BoE and the ECB have held steady on rates. While this was widely expected, ECB President Trichet seems to have a decidedly more dovish tone at the press conference. Perhaps this is in light of the 4% plunge in German factory orders in March and a downward revision to the February data. As the prospects of an ECB rate hike appear to be evaporating, the euro is tumbling from its recent 17-month highs.

US initial jobless claims unexpectedly surged 43k to 474k in the week ended 30-Apr, well above market expectations. The previous week was revised higher as well.

by Robert Campbell
May 4 (Reuters) – Mexico’s central bank said on Wednesday its recent purchases of gold were part of its normal policy for managing the country’s international reserves.

The bank bought over $4 billion in gold in the first quarter…

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RS View: This tiny comment should set the stage for a very comfortable peace of mind. In the wake of a financial climate that has seen innumerable central banks engage in a very wide variety of new behaviors that were subsequently articulated as being “extraordinary measures” (i.e., the implication being that such activities were undesirable yet unavoidably excusable,) it is distinctly auspicious that this particular example of newish activity is hereby being described as part of “normal policy”.

Think long and hard about that.

got gold? Get you some.

Wednesday, 4 May 2011 (CNBC) — Billionaire Carlos Slim has been selling silver futures for “weeks” in an effort to actively hedge the production of his silver mine, a spokesperson confirmed to CNBC Wednesday.

Slim, recently designated the world’s richest man by Forbes magazine, has been selling futures contracts dated out two to three years, a spokesperson also confirmed.

Speculation that Slim was participating in the market has circulated for some time, traders told CNBC.

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By Claudia Assis and Polya Lesova, MarketWatch
May 4, 2011 (MarketWatch) — Silver and gold futures fell Wednesday on a newspaper report that high-profile investors George Soros and John Burbank have sold precious metals, with silver still reeling from an exchange decision to increase trading requirements.

… A spokesman for Soros declined to comment.

… “Well-heeled” investors leaving the trade “put fears in people’s minds,” said Adam Klopfenstein, senior market strategist with Lind-Waldock in Chicago. Unlike gold, bought by large investors, funds and central banks, silver is mostly dominated by individual investors. Silver could trade as low as $36 an ounce in the next few weeks, he added.

Gold for June delivery fell $25.10, or 1.6%, to $1,515.30 an ounce on Comexin the biggest one-day percentage drop since March 15. The metal dropped 1.1% on Tuesday.

Goldman Sachs analysts, though, said in a recent note that gold remains “one of [their] preferred commodities,” with price trends still skewed to the upside.

“Uncertainty in currency markets and medium-term inflationary risk are likely to support investment demand,” according to Goldman. “Recent high-profile investments by prominent institutions … confirm that institutional money is now adding to an investment trend that has hitherto been dominated by retail money.” Geopolitical tensions in North Africa and the Middle East were also supporting gold prices, according to Goldman Sachs.

… Also, gold’s status as a currency alternative to the dollar was boosted by news that Mexico’s central bank had bought nearly 100 metric tons of gold in February and March, according to a Financial Times report citing a Bank of Mexico report and International Monetary Fund data.

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