Monday, September 19, 2011

CDNX at 2003 Levels Despite ‘High’ Metals Prices

From the Chart Book. The view from 30,000 feet of the Canadian Venture Exchange Index or CDNX reveals a startling fact. Today, in September of 2011, the CDNX is trading at levels first reached eight years ago despite gold being more than $1,400 higher and silver being more than $35 higher in price.

The chart just below brings the notion into bright focus.


(CDNX, 10-year, monthly. If any of the images are too small click on them for a larger version.)


The CDNX is home to, and indicative of, many of the smaller, less liquid and more speculative miners and explorers that we love to ‘game’ here at Got Gold Report.

By comparison, the larger, more liquid and better capitalized mining shares have done a better job of maintaining their relative-to-gold value in this Great Gold Bull market, but nearly all analysts agree the big miners are undervalued relative to metals prices. Just below is a similar chart of the Amex Gold Bugs Index or HUI for comparison.


(HUI, 10-year, monthly.)

With so much anxiety and concern about the future; with mind bogglingly difficult challenges facing policymakers both here in North America and in Europe amid festering discontent by the voters; with the memory of the 2008 Panic still fresh enough to be a huge drag on investor confidence, we reckon there are ample ‘reasons’ for the small mining company shares to be so inexpensive at the moment.

The 24-carat question looking ahead is if the small miners will remain so bloody cheap on a relative basis, or if they are instead staging for a reversion to the mean. Until we start to see more investor confidence, however, there are excellent bargains to be had. That goes for ordinary investors as well as for the larger predatory mining companies looking to purchase future feed stocks from the beaten-down juniors.

When we look at a simple ratio of the CDNX and the HUI, the two charts above merge into the depressingly weak ratio below.


(CDNX:HUI Ratio, 10-year, monthly.)

Clearly the small mining companies we often refer to as “The Little Guys” have been mistreated by a scared and troubled market.

We think just as clearly the Little Guys offer tremendous, compelling opportunity for traders and investors looking ahead, if, that’s IF, the world manages to hold itself more or less together. As it is the smaller companies seem to be discounting a bleak tomorrow, if relative price is any guide. Over time, however, we expect that the world will find ways to resolve the issues that have it so vexed at the moment. And, we figure that gold will continue to play a very important role as a store of value and as the best-respected international “currency.” We see more demand for gold not less.

Therefore we view now as a time for accumulation of undervalued resource company bargains in anticipation of a less-fearful investing public sometime in the future.

American Powder Keg: Black Panther Chairman Declares “The Hour of War Is At Hand”

Race war, class war, anti-government riots – you name it. All of it is headed our way.

The sentiment across the nation, as Michael Bloomberg suggested in a recent interview, is that Americans know something is wrong in this country. For every individual and the groups with which they affiliate it’s different. For the black panthers it’s racism and poverty. For unions it’s benefit cuts, wage cuts and free market solutions. For Tea Party members it’s an intrusive and socialist government.

The majority of America is not happy and they’ve lost hope, because regardless of what group you identify with, what color you are or what way you lean politically, you’re losing jobs, falling behind on essential bills, having difficulty putting food on the table and are constantly being accosted by government on all levels.

When the riots start – and they will – the core motivators for individuals who hit the streets will be similar. Where the difference will arise is who each person or group will blame. Those elites in the upper echelons of our command and control apparatus thrive on hate, confusion and panic, and they will use our own ignorance against us.

When we discuss the coming civil disobedience and unrest in America, we may find ourselves visualizing protests where the people join together to oust a tyrannical government. Be forewarned. This is not the most likely outcome – at least not at the outset. With so many different ideologies in this country, every one of us interprets the problems and directs blame a different way. These differences will be used against us; they’ll be used to turn us against each other.

As you watch the following short speech from Black Panther National Chairman Malik Shabazz, consider that, while you may disagree with his solutions to the problems or where he places some of the blame, his core message is very similar to those of others that are fed up with what’s going on in this country.

Our message to the State Department, our message to the CIA, our message to Homeland Security, our message to the government today, is that your enemy is not our enemy.

Your enemy in Afghanistan, your enemy in Iran, your enemy that you are bombing in Libya today – those are not our enemies. Our enemies are right here in the United States of America. Our battle is not against Ghaddafi. Our battle is against police brutality right here at home. Our battle is against budget cuts right here at home…

A message to the President, Barack Hussein Obama. We elected you. But we did not elect you to bomb your homeland. We did not elect you to bomb Africa. We are pleading with you Mr. Obama.

You cannot make a compromise with the devil. The bible says resist the devil, and the devil shall flee from you. You can’t cut a deal with Satan, Mr. Obama. You got to stand up for God…

We have to fight. Gird up your loins college students. Gird up your loins young black man and young black woman, for the hour of war is at hand.

America is a powder keg. The fuse has been lit.

The Dutch Ask Their Central Bank: "Where Is Our Gold?"

Think Ron Paul is the only person asking questions about the actual gold supposedly backing the currency in circulation. Think again: the "ask your central banker where his gold is" tour just went global after the Dutch the Dutch Socialists Party (SP)’s spokesman for financial affairs, Mr. Ewout Irrgang, asked the Dutch Secretary of the Treasury 10 detailed questions about the gold supposedly held by the Dutch Central Bank. Questions vary from: where is the gold? why are gold and gold receivables one line item? how much gold is loaned out? As Dutch website points out, "This is potentially a big breakthrough for global awareness on how central banks hide crucial info from the public and the disastrous effects central banks have on society." Is Belgium next to ask the same question in a vain attempt to understand just how much of its gold is permanently "lent out"? And after Belgium, everyone else with a central bank perhaps?

The Questions:

1 Did the Dutch Central Bank (DNB) loan part of their gold? If yes, how much and to whom?

2 Why are gold and gold loans stated as one line item in the annual report 2010 instead of mentioned as 2 separate items?

3 Can you give an overview of the yearly yields of the gold loans during the past years?

4 Where IS the physical gold of DNB? At which locations and how much is where? What is the reason that the gold is still at these locations?

5 What was the most important reason for DNB to sell the gold in the past? Are the storage costs a reason? What are the actual costs to store the gold?

6 Can you confirm that since 1991 of the 1700 tons of gold about 1100 tons have been sold? Is the remark of journalist Peter de Waard correct that because of these historic sales there is a loss of about 30 billion euro? If not correct, what is the right amount?

7 How much of the National Debt has during the past 20 years been paid off with the proceeds of the gold sales? Are you of opinion that the sustainability of the national debt will be improved by paying off the debt and at the same time selling the gold?

8 What is in your opinion the present function of the gold stock?

9 What is the relation between the size of the market of the gold stock and the size of the market of gold derivates? What are the possible consequences of this?

10 Can you confirm that recently a number of countries have even enlarged their physical gold stock? Do you have an explanation for this development?

Technically Precious With Merv Burack

Strength: As gold broke below that second FAN trend line on Thursday gold’s short term momentum indicator moved into its negative zone. On the Friday bounce the momentum moved back above its neutral line but the indicator remains just below its negative sloping trigger line. Of concern is the fact that even though gold bounced upwards on Friday the short term momentum remains below its level from the previous August low although gold is above its August low.

Volume: The daily volume action remains low and below its average 15 day volume value.

The short term rating, at the Friday close, is now a full BEARISH rating. This is confirmed by the very short term moving average line which is now below the short term line.

As for the immediate direction of least resistance, that should be to the up side as the latest price move seems to be in that direction and the Stochastic Oscillator is also turning upwards BUT I just think that the price will hit the resistance of the second FAN line and not go any further. For that reason I will go with the lateral direction until the second FAN line is decisively breached or gold turns back to the down side.


As with gold, silver couldn’t seem to make any headway this past week. It continues to show weakness despite the Friday advance.


Trend: On the long term silver continues to trade above its positive sloping long term moving average line.

Strength: The long term momentum continues to move in a basic sideways direction but above its neutral line in the positive zone. It has, however, dropped below its long term trigger line and the trigger is sloping downward.

Volume: The volume indicator was not able to make any headway this past week in keeping with the price trend. It remains just above its positive sloping trigger line.

At the Friday close the long term rating remains BULLISH.


Trend: Silver dropped below its intermediate term moving average line on Thursday but moved back above the line on Friday. The line itself is still in a gentle upward slope.

Strength: The intermediate term momentum indicator remains in its positive zone but had dropped below its trigger line with the trigger now pointing downward.

Volume: Although the volume indicator is basically moving sideways it did drop below its intermediate term trigger line with the line sloping downward.

On the intermediate term at the Friday close the rating remains BULLISH but is in a very precarious state. This bull is still confirmed by the short term moving average line being above the intermediate term line.


As with gold, silver is not in all that good shape from the short term standpoint.

Trend: Silver dropped below its short term moving average line early in the week and has remained there all week. The line itself is now sloping downward.

Strength: The short term momentum indicator was in its negative zone for most of the week but did cross into the positive zone by just a hair on Friday. It remains below its trigger line and the line is pointing downward.

Volume: The daily volume action is very low as could be expected when the price action is towards the down side.

Putting it all together at the Friday close the short term rating was BEARISH. This is confirmed by the very short term moving average line tracking below the short term line.

Merv’s Precious Metals Indices Table

Well, that’s it for this week. Comments are always welcome and should be addressed to

Merv Burak, CMT

Deep Thoughts From Currency Guru John Taylor On The Massive Risks From The Swiss Intervention

John Taylor of hedge fund FX Concepts takes on the recent Swiss intervention, and discusses some of the massive risks the Swiss National Bank has now opened itself up to.

Last week, when the Swiss National Bank announced that they would support the euro against the
Swiss franc at the 1.2000 level for the foreseeable future, they took a bold and risky step. By buying all currencies offered, presumably the vast majority will be euros, the Swiss have lost control of their
money supply. This is the ultimate in quantitative easing. The Eurozone has a population of over 325 million while the Swiss have under 8 million. The Swiss can easily be swamped and capsized by a large flow into their banking system, as only a few percent of the European M-3 would more than double the balance sheets of all Swiss banking institutions, and primary among those would be the Swiss National Bank which would be forced to absorb all the offered currencies, adding them to its reserves. Don’t think that this flood of money will be deterred by anti-tax avoidance restrictions because this money will be ‘white’ money, with all taxes paid, and will be almost entirely conservative, non-hedge fund money that is looking to protect itself against a euro collapse. The primary movers will probably be Swiss and European corporations that will park their excess cash in the franc rather than in the euro, which pays a fraction of a percent more. Speculative money will go elsewhere, like Norway or Canada, as there is absolutely no quick profit to be made owning the Swiss against the euro because the two are pegged together.

Looking ahead, our more positive view sees the Eurozone racked by crises on an erratic time schedule as the various countries have continuing problems with the restrictions applied by the troika of the IMF, EU, and ECB. Those sporadic crises could force the SNB to support the euro multiple times in the next two years, continuously adding to Swiss currency reserves. A more negative view would argue that the euro will begin its collapse and money will flood into Switzerland, forcing the Swiss to give up their peg.

The Swiss National Bank is at an increasing level of risk as their currency reserves grow in size relative to the domestic economy. Already the Swiss have lost over 5% of the GDP when marking their reserves to market. If the euro continues to decline against the Swiss, the number would quickly
become problematic. However, if the peg holds, this loss will not occur as the Swiss franc will decline
equally with the euro. Because of this, the Swiss can get away with this risky peg. If the Swiss keep all of their reserves in euros, they will never lose anything against the euro – nor gain anything either.

The Swiss will still be at risk for the amount of their reserves that they leave denominated in dollars, or
pounds, or yen. Because of this need to protect itself, it is clear that the SNB should move all of its
reserves towards the euro. If the SNB chooses to do this, their only risk is a nasty blow-up of the euro
which would make some parts of it worth much less than others. For instance, if the Swiss invested in
Greek government paper and Athens were to be forced to leave the euro, the SNB would lose much of
its capital. This being the case one can be assured that the SNB will not be investing in Greece.
Drawing this point to its logical conclusion, the Swiss should invest only in German government paper,
or that of the Netherlands, Austria, or Finland, as it is clear that they will be among the strongest parts
of the euro if a break-up or internal division were to occur. By lashing themselves to the side of the
German boat, the Swiss can assure themselves that they will not flounder in these stormy seas. The same positive outlook can not be drawn for the euro-central banks. Although they are not loaded with government paper from dicey countries, their banking systems are and they must rescue them. Even the Bundesbank has to worry about the euro-paper held by its banks, and the German government must stand behind the whole structure – the final bill will fall on the German taxpayer. Iceland and Ireland are examples of what could go wrong. The European central banks are at increasing risk.

The US Entitlement System Is “Morally Bankrupt” and “Theft,” Says Ayn Rand Disciple Brook

The U.S. entitlement programs, namely Social Security and Medicare, aren't just financially bankrupt, they're "morally bankrupt." They're also funded by money stolen from hard-working, responsible Americans.

That's the conclusion of Yaron Brook, the president of the Ayn Rand Institute.

The author of Atlas Shrugged, The Fountainhead, and other books, Ayn Rand is famous for espousing free markets and self-reliance. Yaron Brook, a former finance professor, shares these beliefs.

Brook believes that our society should eliminate social programs so we encourage citizens to stand up and take responsibility for themselves. He also argues that Social Security and Medicare are "theft" because the money to pay for them is stolen from those who don't believe in or need the programs.

The entitlement programs were created by elected representatives, of course--representatives who could presumably eliminate them if citizens decided they no longer wanted them. So I asked Brook whether the money to pay for the military, police, and other government programs is also stolen.

Brook said no. There is a role for government in our society, he says--protecting the people from crooks and outside attacks--so the money is being put to proper use.

But if the money for Social Security is being stolen from citizens who don't believe in it, why isn't the money to pay for the military also being stolen from pacifists who don't believe in war?

Because, says Brook, the collection and spending of the latter money is in everyone's interests and is therefore justified.

Hmmm. Social Security certainly has its problems, as does the United States as a whole. But it seems inconsistent to suggest that some money collected and spent by the government is "stolen," while other money isn't.

The question about how much emphasis our society should place on self-reliance is a different one. Many Americans still abhor the idea of Social Security, along with minimum wages, Medicare, and other programs designed to extend the wealth and benefits of America to as many Americans as possible.

U.S. Government — Tracking Cash Cards?

The U.S. government has found another way to invade privacy in the name of fighting terrorism by proposing legislation that would track prepaid debit cards. As usual, the real losers would be, not terrorists who won’t comply anyway, but innocent Americans, or travelers, and card issuers burdened with yet another layer of record keeping and compliance procedures. The Financial Crimes Enforcement Network (FinCEN), a branch of the Treasury Department, has drafted rules, taking effect Sep. 27, to establish a “more comprehensive regulatory approach for prepaid access.”

It’s important to distinguish between these prepaid debit cards and the debit cards attached to your bank account. Once known as “stored-value cards” the cards will be renamed “prepaid access cards” — because they aren’t tied to a bank account, the money paid for them in advance could be anywhere, currently outside the reach of monitoring by the government. Which is precisely the point. An assessment of financial security threats in 2005 by the Treasury Department noted that the 9/11 hijackers opened bank accounts, signed signature cards and received wire transfers, which left a financial trail. The assessment noted: “… had the 9/11 terrorists used prepaid … cards to cover their expenses, none of these financial footprints would have been available,” according to last week.

FBI Director Robert Mueller even called the use of prepaid cards a shadow banking system. The Treasury Department's assessment urged action to crack down on misuse of prepaid access cards, saying it was convinced that the shuttling of criminal proceeds across the border, "whether in the form of bulk cash or stored value" (on prepaid cards), poses "a significant threat to national security."

ACI Worldwide of New York creates and manages electronic payment systems for banks and major retailers. Senior product manager Jim Schlegel said the new rules are well-intentioned, but he questioned just how big a problem money laundering through prepaid cards really is. In an interview he said:

It's "such a small percentage of the overall problem, and attempts to propose very heavy legislation and requirements around it put a drag on an otherwise growing and profitable sector."

Agencies and bank regulators claimed that there’s no way to know how much money moves undetected across U.S. borders via the use of these cards, but according to a Government Accountability Office report from October 2010, it’s estimated that criminals smuggle $18 billion to $39 billion a year in bulk cash across the southwest border.

But, according to MSNBC, criminal organizations load prepaid cards with amounts just under the $10,000 minimum that must be reported, then cards are sent across borders and/or to associates who can convert the amounts to cash — effectively a form of money laundering. The Financial Action Task Force (FATF) reported last year in an examination of the cash cards that the United States is the biggest user of prepaid cards and that by 2017 will account for 53 percent of the worldwide market.

The traditional problems of smuggling large amounts of cash are almost eliminated with the use of prepaid access card.

Jasbir Anand, a senior consultant at ACI, said the funds represented on such cards, which you can easily buy online, could:

travel across borders without limitation. The net impact of these rules would be an increase in the overall cost of debit cards for consumers for record-keeping and storage and so on that will eventually trickle down to fees on the debit card and a limitation on features.

MSNBC continued, “Even as it warns about the potential money laundering threat, the [FATF] also acknowledges that tight restrictions on prepaid cards could have a significant impact on lower-income people unable to ‘take full advantage of mainstream financial service providers’ because they have a poor credit record, for example, or because they have no permanent address and can't qualify for a bank account. That's more than 17 million Americans, the Federal Deposit Insurance Corp. says, and for them, prepaid cards can be the only way they can gain "ready access to services."

The new rules could cause another problem. Overseas companies and banks that wish to continue doing business here might comply, but U.S. rules can’t be imposed on the thousands of merchants in other countries.

And what about traveling with large amounts of cash? Three Senators — Amy Klobuchar (D-Minn.), Tom Udall (D-N.M.), and Jeanne Shaheen (D-N.H.) — introduced legislation last month to close that loophole. It would require travelers to declare "prepaid cards totaling more than $10,000" when they enter or leave the United States, just like cash. But then entities issuing prepaid cards are placed at a competitive disadvantage to traditional or other standard bank cards if travelers find the prepaid cards less attractive. And trying to determine a card’s balance while in flight, or at a gate is burdensome.

FinCEN is developing regulations, as required by the Credit CARD Act of 2009, to address gaps in regulations related to the use of stored value for criminal purposes, but much work remains. And even more vigilance on the part of Americans trying to hold on to both their privacy and their cash.

US Weekly Economic Calendar

DateTime (ET)StatisticForActualBriefing ForecastMarket ExpectsPriorRevised From
Sep 1910:00 AMNAHB Housing Market IndexSep-151515-
Sep 208:30 AMHousing StartsAug-575K592K604K-
Sep 208:30 AMBuilding PermitsAug-575K588K597K-
Sep 202:15 PMFOMC Rate DecisionSep-0.25%NA0.25%-
Sep 217:00 AMMBA Mortgage Index09/17-NANA+6.3%-
Sep 2110:00 AMExisting Home SalesAug-4.50M4.70M4.67M-
Sep 2110:30 AMCrude Inventories09/17-NANA-6.7M-
Sep 212:15 PMFOMC Rate DecisionSep-0.25%0.25%0.25%-
Sep 228:30 AMInitial Claims09/17-412K417K428K-
Sep 228:30 AMContinuing Claims09/10-3710K3730K3726K-
Sep 2210:00 AMFHFA Housing Price IndexJul-NANA0.9%-
Sep 2210:00 AMLeading IndicatorsAug-0.0%0.1%0.5%-