Thursday, March 24, 2011

March Market Madness: McDonald’s (MCD)

As we mentioned earlier, this month we are going to be looking at the stocks that make up the DJIA. . Next up McDonalds (MCD).

Two All Beef patties, Special Sauce Lettuce… You know the rest. Most of us reading this will have been at least once to the Golden Arches – others may call it home.

The most recent outlook from management was not taken well by investors. While the company had been performing very well, shares hit a snag back in November 2010. Debt is high and the PEG is way over 1. These and other fundamental factors are some of the reasons for the low score in this department.

The reason for the technical score should be obvious by looking a the chart. By all measures the shares have been in a downtrend and will need to break above $$75.65 in order to show signs of breaking that trend.

Note that the volume pressure is starting to climb. Watch to see any breakouts occur on above average volume in order to confirm the new trend.

MCD 20110322

Guest Post: Investment Legends - “Dollar Collapse Inevitable”

What will happen to the U.S. economy and the dollar in the near term? Will inflation increase dramatically? What is the outlook for gold, and where should you put your money? BIG GOLD asked a world-class panel of economists, authors, and investment advisors what they expect for the future. Caution: strong opinions ahead...

Jim Rogers is a self-made billionaire, author of the best-sellers Adventure Capitalist and Investment Biker, and a sought-after financial commentator. He was a co-founder of the Quantum Fund, a successful hedge fund, and creator of the Rogers International Commodities Index (RICI).

Bill Bonner is the president and founder of Agora, Inc., a worldwide publisher of financial advice and opinions. He is also the author of the Internet-based Daily Reckoning and a regular columnist in MoneyWeek magazine.

Peter Schiff is CEO of Euro Pacific Precious Metals ( and host of the daily radio show The Peter Schiff Show ( He is the author of the economic parable How an Economy Grows and Why It Crashes and the recent financial bestseller The Little Book of Bull Moves: Updated and Expanded. He’s a frequent guest on CNBC, Fox Business, and is quoted often in print media.

Jeffrey Christian is managing director of CPM Group ( and a prominent analyst on precious metals and commodities markets. CPM Group produces comprehensive yearbooks on gold, silver, and platinum group metals, and provides a wide range of consulting services. Jeffrey publishedCommodities Rising, an investors’ guide to commodities, in 2006.

Walter J. "John" Williams, private consulting economist and “economic whistleblower,” has been working with Fortune 500 companies for 30 years. His newsletter Shadow Government Statistics ( provides in-depth analysis of the government’s “creative” economic reporting practices.

Steve Henningsen is chief investment strategist and partner at The Wealth Conservancy in Boulder, CO, assisting clients interested in wealth preservation. Current assets under management exceed $200 million.

Frank Trotter is an executive vice president of EverBank and a founding partner of, a national branchless bank that was acquired by the current EverBank in 2002. He received an M.B.A. from Washington University and has over 30 years experience in the banking industry.

Dr. Krassimir Petrov is an Austrian economist and holds a Ph.D. in economics from Ohio State University. He was assistant professor in economics at the American University in Bulgaria, then an associate professor in finance at Prince Sultan University in Riyadh, Saudi Arabia. He is currently an associate professor at Ahlia University in Manama, Bahrain. He’s been a contributing editor for Agora Financial and Casey Research.

Bob Hoye is chief financial strategist of Institutional Advisors and writes Pivotal Events, a weekly market overview. His articles have been published by Barron’s, Financial Post, Financial Times, and National Post.

BIG GOLD: A lot of economists, including the government, believe the worst is behind us economically. Do you agree? If not, what should we be on the lookout for in 2011?

Jim Rogers: It is better for those getting all the government largesse, but the overall situation is worse. More currency turmoil. State and local problems, plus pension problems.

Bill Bonner: None of the problems that caused the crises in Europe and America have been resolved. They have been delayed and expanded by more debt and more money printing and will lead to more and worse crises. Deleveraging takes time. 2011 will, most likely, be a transition year... not unlike 2010. But the risk is that one of these latent crises will become an active crisis.

Peter Schiff: To me, it's like watching someone walk into the same sliding glass door again and again. Wall Street must know by now that large infusions of liquidity from the Fed spur present consumption at the expense of investment for the future. We are an indebted family going out for an expensive meal to celebrate getting approved for a new credit card. It might feel good (at the time), but we're still simply delaying the inevitable.

Jeffrey Christian: We believe the worst is behind us economically, in the short term. The recession ended in late 2009, and 2010 saw U.S. economic growth in line with what CPM had expected, but higher than the more pessimistic consensus had been. In 2011 we expect continued expansion. We think some economists and observers are too enthusiastic about economic prospects right now.

For the U.S. in 2011, we are looking for real GDP of 2.5% - 2.8%, inflation to remain low, and for the economy to avoid deflation. Interest rates are expected to start rising, perhaps significantly in the second half of 2011. The dollar is expected to be volatile, rising somewhat against the euro but continuing to weaken against the Canadian and Australian dollars, the rupee, yuan, rand, and other currencies.

European sovereign debt issues will continue to plague financial markets, but market reactions will be less severe than they were regarding Greece in April 2010.

John Williams: An intensifying economic downturn – what formally will be viewed as the second dip of a double-dip depression – already has started to unfold. The problem with the economy remains structural, where household income is not growing fast enough to beat inflation, and where debt expansion – encouraged for many years by the Fed as a way to get around the economic growth problems inherent from a lack of income growth – generally is not available, as a result of the systemic solvency crisis. Accordingly, individual consumers, who account for more than 70% GDP, do not have the ability, and increasingly lack the willingness, to fuel the needed growth in consumption on which the U.S. economy is so dependent.

Steve Henningsen: The governments worldwide (I don’t pay much attention to economists) want us to believe that the worst is behind us because the financial system is built upon the foundation of trust and confidence. Both of these were battered badly when it was shown that much of the world’s prosperity over the past few decades was simply a mirage that, once dispersed, left behind only debt with no means of future production. Now they want us to believe that they fixed the problem via more debt.

What I will be watching for this year is sovereign and U.S. municipal debt corpses floating to the surface sometime in the months ahead.

Frank Trotter: Right now I have a somewhat dark but not dismal outlook. I think that over 2011, we will continue to experience a Jimmy Carter-style malaise that combines continuing high unemployment, tentative business investment, rising prices, low housing numbers when looked at on an absolute basis, and creeping interest rates.

As a very large mortgage servicer, we are not seeing significant improvements in payment patterns that would indicate the worst is fully behind us, and with mortgage rates moving upward, we see less ability for current mortgage holders to refinance and reduce payments.

Krassimir Petrov: No, the worst is yet to come. No structural changes have been made, no problems have been fixed. Printing money, a.k.a. Quantitative Easing, is a quick fix that has postponed the problem, yet also made it a lot worse. I would say that we are still in the early stages of the crisis and have another 4-8 years to go.

Bob Hoye: The worst of the post-bubble economic adversity is not behind us.

BG: Price inflation is creeping up, but the enormous amount of money printing hasn't really hit the system yet. Does that happen in 2011, further down the road, or not at all?

Jim Rogers: It is happening. The U.S. and CNBC lie about it. Most other countries do not lie and acknowledge it is worsening.

Bill Bonner: Most likely, substantial consumer price inflation will not show up in 2011. The explosion of money printing is being contained by the bomb squad of deleveraging. That will probably continue in 2011. But not forever.

Peter Schiff: 2010 was the year that China began cutting back its Treasury purchases in favor of gold, hard assets, and emerging market currencies. The Fed has stepped in as a major purchaser of Treasuries. This represents a new phase on the path to dollar collapse, and it will manifest in 2011 in the form of more "unexplainable" inflation – as we are now seeing in the prices of everything from corn to gasoline.

Jeffrey Christian: We are now beginning to see some increases in monetary aggregates, suggesting that some of the monetary accommodations are beginning to filter into the economy. We expect this trend to accelerate over the course of 2011. This will bring some increase in inflation, but we expect the major manifestation will be through higher U.S. Treasury interest rates as the Fed and Treasury seek to sell bonds to sterilize the inflationary implications of the monetary easing and to finance ongoing massive federal deficits.

John Williams: The problems of the money creation will become increasingly obvious in exchange-rate weakness of the U.S. dollar. Related upside pricing pressure already is being seen on dollar-denominated commodities such as oil. There is high risk of consumer prices rising rapidly before year-end 2011, setting the stage for a hyperinflation. The outside date for the onset of a U.S. hyperinflation is 2014.

Steve Henningsen: My guess is further down the road, as the deleveraging cycle continues with deflationary-housing winds in our face and the banks still hoarding money like my 9-year-old daughter stockpiles American Girl doll paraphernalia. I still expect inflation to continue in areas such as energy, bread, circuses, and whatever else provides sustenance to the Romans – I mean people.

Frank Trotter: Most research has shown that over time the increase in money supply is not a short-term economic stimulus, but rather has a moderate effect in the 18- to 36-month range. In addition, this theory contends that a growth in the monetary base – which is what has happened so far – only increases economic activity when accompanied by a decent multiplier; this is not occurring. The real risk is that with rising rates and continued soft economy, the Fed will feel obliged to continue to QE3, QE4, and so on, all of which may have a significant inflationary impact.

I am more concerned about general price inflation here in the U.S. and the potential it has to reduce global growth.

Krassimir Petrov: This is a tough one. I would have thought that price inflation would have been raging by now, but this is obviously not the case. I have the feeling that 2011 will be a repeat of early 2008, with commodity prices (CRB) making new all-time highs. A falling dollar will trigger a rush into commodities as a hedge against inflation. I am really tempted to make a totally outrageous forecast that oil could make a run for $200 as QE3 unleashes another dollar scare, or maybe even a dollar crisis.

Bob Hoye: Massive "printing" has been widely publicized and is "in the market."

BG: The U.S. dollar ended 2010 about where it started; does it resume its downtrend in 2011, or are fears about its demise overblown?

Jim Rogers: No, but further down the road.

Bill Bonner: No opinion. But there is more risk in the dollar than potential reward.

Peter Schiff: It's hard to pinpoint exactly when the dollar will collapse, but it will take a miracle to avoid that outcome in the near term. It really depends on when the creditors of the United States realize that they are not going to get their principal returned to them in real terms, but rather in grossly devalued dollars. We have already seen the average duration of U.S. Treasury debt drop below that of Greece. No one wants to buy a 30-year bond with negative real interest rates as far as the eye can see.

Jeffrey Christian: We expect the dollar to be volatile against most currencies in 2011, but that its demise has been prematurely predicted. The dollar may move sideways to slightly higher against the euro, yen, and pound, while continuing to deteriorate against the Canadian and Australian dollars, the rupee, yuan, rand, and other emerging economy currencies.

John Williams: There remains high risk of a dollar selling panic unfolding in the year ahead, as the U.S. economy tanks anew, as the Fed continuously expands its easing, and as dollar holders dump the U.S. currency and dollar-denominated paper assets. Such would be a precursor to the inflation problem.

Steve Henningsen: Similar to my thoughts last year, I still believe the dollar is headed down long-term, but it could bounce around over the next year. If sovereign debts become a problem again, like I think they will later this year, then everyone will go running back to “Mother Dollar” once again for one last hug before she lies back down on her sickbed.

Frank Trotter: As the economy waffles and the global investing community's attention is drawn from one crisis to the next, I expect the U.S. dollar to bounce up and down in the current range. After that, however, my analysis suggests that measured by the key factors of fiscal and monetary policy, combined with a significant trade deficit, the U.S. does not look as good as our major trading partners, and I thus expect the dollar to decline, perhaps significantly, in the intermediate term. Big geopolitical events may accelerate this or create a flight to U.S. dollar quality, so hold on to your hats.

Krassimir Petrov: I think the dollar resumes lower. I expect QE3 and QE4 – a dollar-printing fest that will eventually sink the dollar. Sure, all fiat currencies are in deep trouble and prone to overprinting, but the reserve status of the dollar actually makes it more vulnerable now. Whether the dollar sinks against other currencies is a fool's game not worth playing. It is like being in the hospital, where all patients are suffering from cancer, and trying to guess who will feel best at the end of next year, or trying to guess who will succumb first. That's why it is so much safer to play the dollar against gold.

Bob Hoye: Fears of the dollar's demise have been widely discussed and are "in the market." The dollar, itself, will not be repudiated – just the mavens that have been "managing" it.

BG: Gold has risen 10 years in a row, so some are calling it a bubble, yet it's roughly $1,000 below its inflation-adjusted high. What's your outlook for the metal in 2011?

Jim Rogers: It is hardly a “bubble” when very few own it still. Who knows? Overdue for a correction, but who knows?

Bill Bonner: The smart money is in gold. It will stay in gold until the bull market that began 10 years ago finally reaches its peak. It is extremely unlikely that the top will come in 2011; it's probably years in the future. In the meantime, gold is bound to have a losing year or two. Don't worry about it. Buy gold. Be happy.

Peter Schiff: The funny thing about a bubble is that when it's real, no one can see it. The same commentators who were blind to the tech bubble, the housing bubble, and now the Treasury bubble are quick to call gold a bubble. The truth is that many of them have a personal aversion to gold because they directly benefit from our fiat money system. Goldman Sachs was paid 100 cents on the dollar in the AIG bailout, which never would have happened in a gold-based system. It's a lot easier to print a billion paper dollars than dig up a million ounces of gold.

Gold will continue to climb in 2011 as the currency war continues and investors continue to seek stability. Unless there is a major sea change in the way the U.S. does business, I think the gold trade is a safe one.

Jeffrey Christian: A price of $1,550 is possible, although given the enormous investor buying pressure, prices could spike to almost anywhere. After that, we expect prices to fall back, initially to around $1,340 or $1,380. We expect gold prices to stay above $1,280 or so for most of 2011, and to average around $1,369 for the full year.

John Williams: As the U.S. dollar increasingly is debased, and where gold tends to preserve the purchasing power of the dollars invested in it, the upside to gold in the year ahead is open-ended, restricted only by any limits to the massive downside potential for the U.S. dollar. Any intermittent gold price volatility, extreme or otherwise, will be short-lived. There is no bubble – only increasing weakness in the U.S. dollar – with the gold price fundamentally headed much higher in the years ahead.

Steve Henningsen: I believe gold will once again prove the bubble-boys wrong and end the year positive (I have no idea by how much and don’t really care). However, I think this year will be more volatile and that Gold Bugs better remain seated on the precious metals express or they might get squished.

Frank Trotter: I still think that with price inflation on the rise and big political events occurring, there may be room to continue to rise. If stock markets take off, then there will be a reduction in appreciation or even a significant decline, but based on the factors I mentioned above, I don't see that as highly likely.

Krassimir Petrov: Gold still has outstanding fundamentals. I believe that over the course of 2010, the fundamentals have strengthened significantly: (1) "No Exit [Strategy] for Ben" as he unleashed QE2, and will likely unleash QE3, QE4, etc., (2) no more central bank selling of gold, (3) more central banks become buyers of gold, and (4) trial balloons for a global gold-backed currency.

I have no idea how people could even claim that gold is in a bubble – barely 1 out of 100 people have any idea about investing in gold. During the real estate bubble, every second person was involved in it. Maria "Money Honey" Bartiromo has yet to report from the COMEX gold pits; gold fund managers and analysts have yet to obtain rock-star status; and glamorous models are not yet dating the gold guys. Who is the Henry Blodget [co-host of Tech Ticker] of the gold sector, do we have one yet?

Yes, gold will eventually become a bubble, but that feels 5-8 years away.

Bob Hoye: In 2011, gold's real price will resume its uptrend.

BG: What's your best investment advice for 2011?

Jim Rogers: Buy the rmb [renminbi, the Chinese currency].

Bill Bonner: We are in a period much like the period following WWI, in which the great debts and losses of the war had to be reckoned with. It is an era of great risk. The U.S. faces many of the same challenges faced by Germany and England after WWI. Like England, it has huge debts. It is a waning imperial power. And it has the world's reserve currency. And like Germany, it is attempting to fix its problems by printing more money. This is not a good time to be long either U.S. stocks or U.S. bonds.

Peter Schiff: Don't be suckered into the idea that recovery is just around the corner. The current climate is like living in a hurricane or earthquake zone; it's important to stay vigilant because you never know when disaster will strike. Physical gold is the financial equivalent of a flashlight, first-aid kit, and store of canned goods. It's a basic way to protect yourself from any eventuality. From there, if you're looking for returns, there are plenty of foreign markets with strong fundamentals, as well as commodities that feed those markets.

Investing in the U.S. is now driven largely by force of habit. It's a habit you should resolve to break.

Jeffrey Christian:Do not invest based on what you believe, but on what you know. Gold is a market, like other markets. It rises and falls. You probably want to stay long gold on a long-term basis, but may want to cull the weaker gold assets from your portfolio in the first quarter, and put some hedges in place to protect a long-term core long gold position against the potential of significant price weakness over the next two years or so. Such a period of weakness would be an excellent time to add to one’s gold assets.

John Williams: As an economist, I look for the U.S. dollar ultimately to lose virtually all of its current purchasing power. Accordingly, for those living in a U.S. dollar-denominated world, it would make sense to move to preserve wealth and assets over the long-term. Physical gold is a primary hedge (as is silver). Holding some stronger currencies outside the U.S. dollar, as well as having some assets outside the United States, also may make sense.

Steve Henningsen: Dramamine (for volatile markets), a stash of cash (for potential investment opportunities), and move some of your assets offshore if you haven’t already.

Frank Trotter: My advice is first to look at the other side of your balance sheet – the liability and risk equation – before seeking out absolute gains. What are your goals, what resources do you already have to meet those goals, and what events (health, income stream, upheavals) might impact these risks? Place some assets to hedge these risks directly, then look to diversify globally into markets with higher growth potential than we see here at home, and that may balance your global purchasing power risk. Almost like a religion, we have had the phrase "Stocks are the only legitimate hedge against inflation" beaten into our heads. I say, look at assets that define inflation like commodities and currencies and evaluate where these fit into your risk portfolio.

Krassimir Petrov: Last year I recommended silver, and I would stick to silver again, despite the phenomenal run in 2010. Then it gets tricky. I usually don't recommend diversification, but now I would again recommend a broad portfolio of commodities. Investing in 2011 should be easy: stay out of real estate, out of bonds, out of fiat currencies, and out of stocks; stay fully invested in commodities, overweight gold and silver.

What to watch in 2011: stay focused on the sovereign debt crisis and bond yields. Spiking yields will trigger the next stage of the crisis.

Bob Hoye: Once past the early part of 2011, the best returns are likely to be obtained from the junior gold exploration sector.

[These world-class experts are right to bank on gold and silver – because the U.S. dollar keeps losing more and more of its value. Watch this eye-opening video on how China and Russia are plotting to dump the dollar… why you should be worried… and what to do about it.]

Mining Stock on the Rebound Coeur d'Alene Mines is bouncing off its near-term trendline

Coeur d’Alene Mines Corporation (NYSE: CDE) — This mining company engages in the operation, ownership, exploration and development of silver and gold properties in South America, Mexico, the United States and Australia.

Ford Equity Research rates the stock a “buy” and is projecting that it will outperform the market over the next six to 12 months. EPS has increased from a loss of 60 cents to a gain of $1.17 over the past five quarters.

Technically, CDE broke from a triple-top on Feb. 28, hitting a new high at $36, and then pulled back to its near-term trendline at $30. It is now rebounding from that line, making it one of my current top stock picks. The trading target for CDE is $38.

Trade of the Day - Coeur d'Alene Mines Corporation (NYSE: CDE) Chart

Looking at the VIX

VIX is the ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30 day period. The VIX Index was introduced by Prof. Robert Whaley in 1993 while he was at Duke University.

Russell Note -- implied volatility is the amount of change that option traders foresee during the 30-day period ahead. When traders become fearful, they foresee volatility rising, which is why, when the VIX rises, it's generally considered an indication of a falling market ahead. Falling markets are usually associated with rising volatility.

The chart below follows the VIX back to 2001. From 2003 to 2007 the VIX headed down as volatility turned lower. Starting in 2007, option traders foresaw volatility heading higher, and by the peak in 2009 the VIX had rocketed to a high of almost 80 as the vicious bear market set in.

From there, the VIX declined to a low in late-2010, only to be followed by a sharp rise to 40 in March of 2010. The VIX then sank to a low of just above 15 during February-March of 2010. The latest move of the VIX was a rise to 31 in March (this month), and then a decline down to 20.


The latest VIX action shows the VIX surging to 29 during this month of March, then most recently sinking down to 21 again. This suggests a nervous market, but based on up-to-the-minute reading, option traders don't see trouble ahead with the VIX back at the 20.12 level.

vix 2

Meanwhile, my eyes are fastened on the US Dollar Index. The Index is down around the critical 50 level, and as this occurs -- gold rises.

As I write April gold is selling at 1432.50, only 5 points from its record high of 1437.

If the dollar continues to slide, its status as the world's reserve currency will run into trouble. If the US dollar loses its "crown" as the world's reserve currency, it's a game-changer and a new ball game.

Will JPMorgan Now Make and Take 'Delivery' of Its Own Silver Shorts? CEF, JPM, PAAS, PALL, PGM, PLAC, PLG, PPLT, PSLV, SLV

There is nothing inherently wrong and certainly nothing "illegal" about J.P. Morgan Chase (JPM) gaining a vault license for storing and taking delivery of gold/silver/platinum/palladium from the futures markets known as NYMEX/COMEX. However, the speed, timing and manner in which the exchanges just granted it troubles us.

The process of being approved as a licensed vault or weigh-master/assayer for the NYMEX/COMEX futures exchange usually involves a careful security inspection of the vaults, a full report of that inspection, and a completely transparent package submitted to the U.S. Commodity Futures Exchange Commission (CFTC) for approval. This process will ordinarily consume considerably more than 45 days. Apparently, such correct and careful practices apply only to banks and independent storage facilities that are not J.P. Morgan Chase.

Some vault operators are more equal than others. JPM appears immune from processes that everyone else must suffer through. On March 15, 2011, the Commodity Exchange (COMEX) and the New York Mercantile Exchange (NYMEX) advised the CFTC that they had approved J.P. Morgan's application to become a licensed vault facility, using a "self-certification" process. The newly licensed vault, located at 1 Chase Manhattan Plaza, NY, NY, is ready to roll as both “weighmaster” and depository, for delivery of gold, silver, platinum and palladium contracts, as of March 17, 2011, two days later.

As a smaller player, the NYSE-Liffe exchange uses COMEX licensed depositories for delivery and storage of its metals. The new JPM vault, therefore, will also qualify to accept delivery of metal coming from the maturity of NYSE-Liffe gold and silver futures contracts, including the smaller 1,000 ounce silver contract.

Departures from usual practices, and special treatment in favor of some over others are events that lawyers describe as having "the appearance of impropriety", if nothing more. J.P. Morgan is a huge player in the London precious metals market, especially in derivatives. It has always been a very important player at NYMEX/COMEX, especially if you include its Bear Stearns division. The bank is heavily involved in infamous "unallocated storage" schemes in London. A more complete description of London-style storage can be found in my previous article.

JPM is one of six big bank owners of the London Precious Metals Clearing Limited (LPMCL) which clears, “delivers” and sets standards for “storing” precious metals allegedly “sold” at the London Bullion Market Association (LBMA) and the London Platinum and Palladium Market (LPPM). Unallocated storage is the norm at LPMCL member banks, including J.P. Morgan Chase.

Allocated storage, however, is the norm for precious metals vaults licensed by NYMEX and COMEX. The two futures exchanges have approved a small group of vault operators, who provide allocated storage to clearing members and their customers. This has given greater legitimacy to the NY exchange traded precious metals venue than the LBMA now has. It is true that NYMEX/COMEX warehouse supplies are wholly insufficient to cover the number of short contracts the exchange allows its clearing members to write. However, at least the numbers are transparent and published. That is more than can be said for the storage facilities that participate in the secretive LPMCL in London.

Allocated storage, under the common law, is known as a "bailment." When precious metal is allocated, the vault is the "bailee" and the owner is the "bailor". The bailee is keeping the property safe for the bailor and, in return, it charges a fee for its services, but the property belongs to the bailor at all times. The property cannot be legally leased, loaned, borrowed or used in any way without overt consent by the bailor. Whereas unallocated metal is an asset that is seized by a vault's creditors in bankruptcy, allocated metal is immune from this.

A bailment cannot be legally seized or encumbered by the bailee's creditors. Some of the NYMEX/COMEX vaults require a written bailment contract, setting out all rights and responsibilities of the customer and vault. Others operate in the old fashioned way (though the handshake is now often electronic) and, in such cases, the agreement between bailor and bailee is governed by traditional common law standards with no need to sign anything.

There are two storage categories in the NYMEX/COMEX scheme, known as “registered” and “eligible”. Regardless of the category, all bars are allocated by title, and are always of a size, weight and composition that would satisfy "good delivery" if the owner decided to deliver it. An exception to the idea of "global" allocation may occur if "registered" metal is kept in the name of a clearing member, but the bars actually belong to a customer.

This might happen when and if the clearing broker uses the bars as a form of "collateral" to back up performance bonds in a customer account. In such a case, the "bailment" (and allocated storage) would exist between the vault and the clearing member. I use the word "collateral" loosely because true collateral would remain titled to the debtor. In the NYMEX/COMEX scheme, registered bars are always titled in the name of a clearing member of the exchange, whereas eligible bars can be titled in the name of a customer or a clearing member.

In order to be delivered, eligible bars must be transferred into the registered category. This involves nothing more than an electronic entry, "wrapping" the correct number of units into what is called a warehouse "warrant." Each warrant constitutes a "good delivery" unit of metal sufficient to satisfy one short contract obligation. "Good delivery" means that each bar must be of a standard weight sufficient to meet the rules of the exchange and must be numbered and weighed. Each storage facility must always keep a "chain of title" history record for each bar.

Delivery at NYMEX/COMEX is first made to any licensed vault facility. Once the unit of metal arrives, title is transferred to the new owner. The new owner can do whatever he wants with his property. He can remove it from the bailment and take it into his own personal possession. He can transfer to a different vault. Or, he can keep the metal at the initial point of delivery. In many cases, the last option is chosen, so, often the bar never leaves the delivery vault until it is eventually resold and, usually, not even then. Bars can be delivered, and title transferred, without ever having left the vault.

Until now, JP Morgan did not have a NYMEX/COMEX vault license. They had to send silver, for example, to HSBC, Brinks, Scotia Mocatta and/or the Delaware Depository in order to "deliver" it on COMEX. Those vaults have been NYMEX/COMEX licensed for a very long time. But now J.P. Morgan has its own vault license, and the manner in which it seems to have obtained it, is troubling. The bank can now, potentially, deliver short obligations to itself. Yes, you read that correctly. The bank itself, if it still holds short silver positions, and/or the hedge funds/related financial institutions who may have taken over the positions, can now deliver the alleged metal to J.P. Morgan's own vault.

The American legal standard requires us to maintain a presumption of innocence until guilt is proven. That doesn't mean Americans are stupid. Only a fool would ignore the testimony given at the CFTC hearing held on March 25, 2010, or the fact that J.P. Morgan Chase is being sued, in two different class actions, accused of being a racketeering and corrupt influenced organization (RICO). Both lawsuits claim that the bank is using allegedly immense silver short positions in various venues, including COMEX, to manipulate prices.

If a short seller must deliver a commodity, and the commodity is not readily available, there is no better way to buy extra time than to be able to deliver into its own vault. Most of the metal will never leave the vault, and most delivered metal that will leave the vault won't leave right away. Indeed, paperwork tasks of transferring title can consume a few days. Thus, a late delivery may not be noticed if it is to the short seller's own vault if the vault operation staff chooses to remain silent.

Why was JPM awarded a vault license almost overnight, avoiding the lengthy vetting process others must undergo? Why did it happen in the middle of a major COMEX silver delivery month, during a massive worldwide silver short squeeze, at a time when physical silver is in severe shortage? We do not know the answers to these questions. The exchange rules should prohibit proprietary trading divisions, hedge funds and other closely associated or controlled financial institutions, from delivering to vaults owned or controlled by their own family of companies. Yet, no such rules exist.

Does the licensing of a NYMEX/COMEX JPM vault reflect short-seller panic? Paper money can be printed, of course, ad infinitum and endless reams of it can be borrowed from the Fed. The issue is how much paper money is needed to pry sufficient physical silver loose from the hands of its owners. We believe that an equilibrium level of about $52 per troy ounce would be sufficient. Assuming that the holdings of the various ETFs are not the scam that some have claimed, there is a huge potential supply right there.

Large delivery requirements can be met by cashing in on "baskets" of ETF shares for silver. There is also a huge supply of hoarded bars outside of ETFs, waiting for the right price to set them free. If supply problems continue, the price must rise further until sufficient selling occurs. Most owners of ETF shares, as well as holders of real physical silver, are not momentum chasers. They buy low and sell high in a traditional manner. Momentum chasers are irrelevant because they generally have only paper, and no real metal to deliver.

Remember, your bars can be transferred from one licensed facility to another very quickly. If any storage facility imposes a significant delay, that should be publicized, and met with resolute opposition. Neither silver nor other metals must be stored at licensed vault. They certainly need not be left at the first point of delivery. If you intend to use silver, for example, in commerce (such as a jeweler or industrial user might) or if you expect to keep it off the market for 20 years or so as a retirement fund, it is economically more efficient to physically remove the metal.

If anyone has any positive or negative experiences with the newly licensed J.P. Morgan vault, we would be very interested in learning about them.

McAlvany Weekly Commentary

The Land of the Rising Yen

A Look at This Week’s Show:
-The Japanese crisis does not explain why the Yen is appreciating.
- Why the G7 nations intervened on behalf of the Yen – the real reason.
- What is carry trade and why should you care.

$36 Silver- The Bankster’s Waterloo?

March is setting up to be a very interesting month for silver. There is a tight and violent action between $36 and $34 silver. This is a battle between the Aware and the Banksters. Sooner or later someone is going to scream uncle, and the Silver Door will be shut for good.

On the floor of $34 silver is the Aware that get the paper manipulation of silver. They include you and me, who no longer trust the dollar, stock market, bond market, ETFs, money market, 401k, IRA, pension, Social Security, FDIC, and any other piece of paper with counter party risk. Hell, even PIMCO does not seem to trust the US T bill anymore.

The Aware also includes countries like China that have trillions in our fiat paper debt. China used to be the biggest exporter of silver 5 years ago, and now are the biggest importer of silver. In January, Chinese President Hu Jintao has said the international currency system dominated by the US dollar is a “product of the past”. In February, China imported 245 tons of silver. Follow the money folks.

There are hundreds of reasons to buy silver and very few reasons to sell silver. And for every reason to buy silver, there are thousands of people who will buy and hold. The more physical silver in the strong hands of the Aware, the higher and stronger that floor goes.

The ceiling of $36 silver consists of the banksters trying desperately to control the price of silver. The Elite have all of their power tied to the perceived value of their dollar. They use same old tactics of paper manipulation shorting, leasing and ETFs to keep the price under control.

They also don’t want people to take physical delivery this month, which adds even more pressure to the battle. They only have 40,000,000 ounces in the registered category at the CRIMEX. $1.5 Billion takes away the whole ball of wax. That is literally nothing in this quadrillion-dollar dream world we live in.

There are rumors that the banksters cannot even deliver 20,000,000 ounces of silver this month. Harvey Organ wrote a piece about Blythe Masters paying off contracts at an 80% premium for contract holders NOT to take delivery. This physical default of silver would rock the world more than the Japanese earthquake, because it would expose the bankster’s illusion of money.

The Banksters are already short 150 days of global silver production. What are they going to do lump on another couple months of phantom production into the market and drive the price down, just as the silver feeding frenzy is getting going? Can you imagine what would happen now if they hammered silver down 60% like they did in 2008? There would be such a mad rush to buy the real physical silver that it would empty the shelves of all inventory. Finally, all of the silver will then be in the hands of the Aware who will not sell until a new day of justice comes.

There are rumors that the Banksters could suffer exponential loses above $36 Silver through derivatives. A short squeeze or a delivery failure would make the biggest of the too big to fail banks admit that they are insolvent.The Federal Reserve might bail them out, but that money would only add to the current inflationary pressure out there, fueling the silver fire further.

The US Mint is apparently no longer going to produce Silver Eagles after months of record sales. They have even started to inquire the public about what other materials we would like to see in our coins. I suggested we make aluminum tokens just like Chuck E. Cheese uses in my article, “In Pizza We Trust.”

It will be interesting to see what happens in the final stretch of this month. Right now we are $13.75 away from my $50 prediction I made in January. This is only possible if there is a physical delivery default at the CRIMEX. So if you have a CRIMEX contract, stand for delivery and fire that Silver Bullet in to the Achilles Heel of the Elite that enslaves humanity with their debt/money.

Gold Cup and Handle Breakout

It’s very difficult for a trader to stick to a plan and not let news events dictate decisions. But every once in awhile there are news items that come along and attempt to trip investors up, forcing some to take their eye off the big picture. Many of us understand the long-term potential of precious metals and commodities, but the emotions — either unbridled enthusiasm or gloom and doom — of the herd often affect our decisions negatively at short-term turning points. This past week the news out of Japan (iShares MSCI Japan Index (EWJ)) affected the majority of investors, who liquidated their positions and ran to the US dollar and to long-term Treasuries as safe havens, which I believe was a mistake as the G-7 came to the support of Japan. Margin calls were issued and the fire sale intensified due to the hysteria produced by the doom-and-gloom media. It is important not to become influenced and to not allow news-related items to shake one off a long-term trend. Staying the course during times of great fear or news-related reactions is very difficult, but is necessary if one wants to ride a secular bull trend. You must not allow the news background to take your eye off the ball. Already, I heard from some that they want to give up and throw in the towel, and this is normal during sell-offs. When the times are easy and stocks are breaking new highs everyone wants to buy and it is great to be in the stock market, but when there is a sell-off and when companies pull back to key support, many want to throw in the towel and never want to trade again. Be careful of following this behavior as these sell-offs often turn out to be buying opportunities.

I believe the positions that we are in with precious metals and commodities will continue to maintain its two-year trend. The situation in Japan will force them to print yen (FXY), putting more pressure on fiat currencies as deficits soar. I believe the geopolitical issues in the Middle East, combined with the Japanese earthquake relief has pushed off any tightening measures from US Central Banks and may even push Bernanke into expanding QE2 into QE3. The rebuilding efforts and monetary stimulus should be beneficial for gold (UGL), silver (AGQ), base metals (DBB), and commodities (DBC).

The US equity market (SPY) is reaching oversold levels not seen since my buy signal in August of 2010. The Japanese earthquake correction may be reaching a climax and a point of capitulation. The S&P has reached oversold levels on the RSI and stochastics. Each time it has reached this level a reversal has occurred. This should benefit mining stocks that have seen forced liquidation due to margin calls. As the 200-day moving average is moving higher, one needs to stay the course and trust the trend.

SPDR Gold Shares (GLD) has paused for two weeks as investors cover margin calls. Selling has occurred across the board and this may signal forced liquidation. As the equity markets stabilize so too should gold and a breakout into new highs may occur shortly as it appears to be setting up for a cup-and-handle breakout, which is indicative of a major move.

Beware of trading on fear rather than facts. It is easy to become distracted by news stories around us. A cold day in July does not mean that autumn is here. A 9.0 earthquake doesn’t mean that Japan is over as many are predicting or that secular trends have reversed. Japan will begin rebuilding as it has done repetitively in the past following natural disasters. Do not be incorrectly drawn to the conclusion that the trends in precious metals or commodities are reversing. We must step back and separate the wood from the forest. Pullbacks in precious metals should be times to add to positions.

$105 oil: 'It's the perfect storm'

(CNNMoney) -- Tensions in the Middle East and Libya show no signs of abating. Japan is dealing with post-earthquake rebuilding and major nuclear issues. And the U.S. is entering prime driving season.

At the same time, crude prices have surged, crossing $106 a barrel - a level not seen since Sept. 26, 2008. Gas prices aren't faring much better. Many drivers are already paying $4 a gallon.

Oil traders are wondering what's next.

"It is truly the perfect storm right now," said James Cordier, president at Liberty Trading Group. "I've never seen anything like it -- the news just isn't stopping."

The benchmark U.S. contract, West Texas Intermediate, rose 78 cents, or 0.7%, to settle $105.75 a barrel for May delivery. Earlier, prices climbed as high as $106.34 a barrel. The May contract became the front-month contract on Wednesday.

"The next 90 days are the huge driving season for the U.S., which creates a major demand situation," Cordier said.

And crude is spiraling higher quickly. U.S. oil prices have surged more than 20% since mid-February, when pro-democracy movements reached Libya, Africa's third-largest oil producer.

But the nation contributes only about 2% of the 87.5 million barrels of oil the world consumes every day. So traders' concerns are more about whether the regional unrest will spread to other nations.

Pro-democracy protests have already forced out leaders in Tunisia and Egypt, and unrest has swept Yemen, Bahrain and Syria. Traders are worried about what happens to global supplies if the turmoil reaches oil-rich areas in the Persian Gulf.

Oil prices had retreated earlier this month. But they resumed rally-mode on Monday after the United States and its allies launched air attacks on Libya's defense systems over the weekend. The mission, called Operation Odyssey Dawn, continued Wednesday.

Meanwhile, there's also been some concern about whether Japan would need to import refined products. Many of the countries refineries were shut following the devastating earthquake and tsunami.

ExxonMobil said Wednesday that it had restarted all of its Japanese refineries for the first time since the March 11 earthquake so that crisis may be averted for now.

Supply report and gasoline: A report Wednesday morning from the Energy Information Administration said inventories of crude oil rose 2.1 million barrels last week. But gasoline stockpiles fell by 5.3 million barrels, much more than expected.

Meanwhile, the nationwide average price for a gallon of regular unleaded gasoline slipped 0.1 cent to $3.548 on Wednesday, according to the motorist group AAA. The most expensive gas is in Hawaii, at an average of $4.145 a gallon, while the cheapest is in Wyoming at $3.327. To top of page

Is the Market Topping Out?

Louis James: Crisis Creates Opportunity with Junior Miners

Good rocks and good people are the core building blocks of successful junior miners. Casey Research Senior Editor and Mining Strategist Louis James wants to see the mineralization close up and talk to geologists to verify the powerful upside potential that may be in these stocks, which are also vulnerable to staggering corrections. In this exclusive interview with The Gold Report, Louis reveals how to benefit from the combination of geopolitical and domestic uncertainty and growth potential in the ground.

The Gold Report: You are a fundamental investor and as such you don't look at macroeconomic trends quite so closely. As you say in one of your reports, you "kick the rocks." But, are you still bullish on gold?

Louis James: I don't think those two are necessarily antipodes, nor is there any tension at all between keeping an eye on the big picture while looking for value in a specific opportunity. The one is the context for the other. I look at the overall picture, and the basic idea is to find a trend that's going to be your friend and place your bets accordingly. But, of course, you want your bets to be the best possible ones. A rising tide may lift all ships, but you don't want to bet on a leaky one. So, yes, I go out and kick the rocks to try to pick the best ones.

To answer the question—yes, I am very bullish on gold. Gold is in the midst of a $25/oz. retreat as we speak, and I love days like that. That actually helps us to buy gold or gold stocks from weaker hands that are shaken by such moments.

The reasons for the bull market in gold haven't gone away; in fact, they've only gotten worse—or better, depending on your perspective. We were amongst the few contrarians that were calling for a financial crisis leading to a currency crisis, before the crash of 2008. Anybody can look back at our publications to verify that, and the reasons for those predictions are still in full force. If anything, they've been made worse by quantitative easing (QE), Bernanke's non-printing printing of money (he has claimed both that the Fed is and is not printing money) and all the other things governments are doing that are, as our founder Doug Casey likes to say, not only the wrong things but the exact opposite of the right things to do. And what's bad for fiat currencies is good for gold, so, yes, we're very, very bullish on gold. That said, one we should never forget that we'll be taking one step back for every two steps forward.

TGR: You believe there are fundamentals in global economies that are acting as catalysts for inflation?

LJ: That is correct. And, not just inflation but, political. . .

TGR: Catastrophe?

LJ: Trouble. Look at the protest in Wisconsin from the government trying to balance the budget there. Unlike the federal government, state governments can't print money. So, at some point, they have to cut somewhere or they won't have anything to pay the bills. The huge response in Wisconsin is quite interesting—part of a bigger trend that is much, much deeper than trouble in the Middle East. There's a lot of trouble on many different fronts. We don't think it's a coincidence that you see political unrest at times of economic difficulties. Look at the price of food and cotton and other commodities. These are things that have immediate and direct impact on the lives of the masses—the transmission belt between economic trouble and political trouble—and eventually social upheaval.

TGR: Were you implying that the Wisconsin protests are similar to the anti-austerity protests and rallies that we saw in Europe, particularly in Greece and Spain?

LJ: I'm saying just that. Belt tightening is never popular, and it's just getting started. Americans are still relatively comfortable compared to people in other places. You framed your question about Europe in the past tense. That's just the warm up. The musicians tuned their instruments, and we heard the overture. All the ingredients for significant social turmoil are there, as the concert goes into full swing. The implications are quite significant and they're global.

TGR: You have written about black swans.

LJ: Yes. A black swan is any unexpected event that upsets your projections. Many people were expecting Arab-Israeli tensions to increase, but weren't expecting the collapse of Arab despotisms. I can't say that we saw that specific thing coming either, but I can say that we have stated in print that such despotisms eventually have to go the way of the dodo bird. Actually, it wasn't so long ago that Doug Casey did a report on Egypt wherein he said it was basically a caldron that was waiting to bubble over. But those are just examples of certain kinds of black swan—anything can come and upset the apple cart. If, for example, some U.S. state is suddenly unable to pay its bills and the lights go off, a lot of people will call that a black swan—though it should be no great surprise. Or it could be China, India or Japan. It could be the Koreas shooting at each other. I just think the climate is right; it's a black swan-friendly environment.

TGR: Given that you're a bit cautious currently, you were recommending a dollar-cost-averaging strategy to enter new long positions that your readers didn't already own.

LJ: Yes.

TGR: If we are in a rising market, a dollar-cost-averaging strategy is a negative. It hurts investors.

LJ: I disagree completely. This is not investing. This is speculation.

TGR: Ok. Go ahead.

LJ: To be able to sleep at night has enormous value. Of course, that's just a rubric for a larger financial concept here. We are dealing with serious risk, and I think it is very dangerous to imagine that you're investing when what you're really doing is speculating. These two are not the same thing.

The junior resource sector, our focus at Casey Research, is without question the most volatile market on earth. These stocks all correct. They all fluctuate. Even market darlings and great success stories frequently will retreat 50% or more, even without a 2008-style crash, before they go on to new heights. So, there's always reason to be careful, to deploy wisely, to wait for days when the markets pull back to buy, to take cash off the table when you accumulate gains.

Going all-in is a gambler's game. I can't stress this enough to people. Gains are not gains until you realize them. At Casey Research, when we report a track record it includes realized gains—not just high-watermarks stocks reach after we recommend them. We include the profits we've taken off the table, which we do routinely.

TGR: Back in the fall, you visited some mining operations in Colombia. It was a due diligence trip. What do you do on these trips? You're fluent, or at least conversant, in multiple languages and I'm sure that's a big help to you. What are you looking for?

LJ: I use what we call the "8 Ps," Doug Casey's formula for resource stock evaluation. As the words "due diligence" imply, my function is to verify all of the Ps, as much as I can. But it does tend to boil down to a few things. One is to go and physically look at the rocks and see if they match what management is saying. They don't always. You can go down the ladder of the mine and look at the vein on one level, see that the vein continues on levels below and reasonably conclude that there's mineralization between. That's the kind of physical verification I do.

Particularly crucial is the first "P"—people. I meet with management and the technical people who will actually do the work that adds shareholder value. Do they seem to know what they're doing? What kind of experience do they have? Is it relevant to the task at hand? Will they look me in the eye when I ask them questions? Sometimes that's the most important thing. You could call it the smell test. And yes, the languages help.

TGR: So, you want to get away from the guided tour. What happens when you feel like there's a discrepancy between what you're seeing with your eyes and what management has said?

LJ: It's rare to get a flat out lie. It's more common for something to be not quite as rosy as described. Typically, when there's some kind of discrepancy, I discuss it with management and give them a chance to explain. I'm not interested in conflict, and we don't generally report negatively on companies. If something doesn't make the grade, we just move on to the next opportunity.

TGR: What about takeover targets? Antares Minerals is gone. Newmont Mining Corp. (NYSE:NEM) is picking up Fronteer Gold Inc. (TSX:FRG; NYSE.A:FRG). Ventana Gold Corp. (TSX:VEN) is in the process of being taken over. What are some of the good opportunities left for investors, particularly in Colombia?

LJ: In Colombia, one obvious candidate would be Sunward Resources Ltd. (TSX.V:SWD). It's developing a new project that has big multimillion-ounce potential, but the company hasn't finished drilling it off yet. There's still a lot of work to do. It's a new story, gathering a lot of interest.

The other obvious one in Colombia would be Galway Resources Ltd. (TSX.V:GWY), which is immediately on strike from Ventana. It's got more going for it than just the proximity—good drill results show that Ventana's mineralization does indeed continue onto Galway's property. On the other hand, Galway did not get taken out with Ventana; so you have to ask yourself: If Brazilian billionaire Eike Batista is not in a hurry to take Galway over, is there any reason for us to hurry to own the stock?

Colombia is perhaps my favorite jurisdiction in Latin America. The country is now headed in the right direction with new free-trade agreements and a population that wants to work and is very focused on rebuilding the economy. There are environmental issues, particularly the high-altitude P├íramo ecosystem protection legislation with which Greystar Resources Ltd. (TSX:GSL) has run into trouble recently. It's important for people to understand that this was not a new regulation slapped onto Greystar. It was an existing regulation that the government never had the power to enforce before because they were in a war for 40 years or more. The government did not start changing the rules on the company—that was always a risk there.

In line with that and your question about disciplined buying, we like to recommend that people buy in tranches. Buy a first tranche, maybe just 20% of your ideal position to make sure you don't miss the boat. Then, when it corrects—and they always do—buy another 20%. That gives you 40%. Then, if you get a big reversal without any bad news from the company—things go on sale periodically in our sector—back up the truck and buy a big block at low prices. That would be the sort of approach I would recommend with something like Sunward, which already has seen a great deal of share price appreciation in advance of the anticipated results. I also like Colombian Mines Corporation (TSX.V:CMJ).

TGR: Colombian Mines is down 20% over the past 12 weeks, while Sunward is up 24% over the same period.

LJ: Yes. Sunward has had some good drill results. It drilled into thicker and higher-grade mineralization than previously at its Titiribi Project, which is known for being big but low grade. The new results are not high grade—but higher-grade, which is important for a big bulk-tonnage project like this. It makes sense for SWD shares to appreciate.

Colombian Mines hasn't had a game-changer like that yet. The company has identified a gold porphyry at its Yarumalito project. It's big and potentially could be a company-maker; but so far, the drill results haven't really sewn that up. There are assays pending that may bear on that. We'll have to see. Colombian also has the higher-grade El Dovio project, which is earlier stage but potentially very rich for the company. CMJ also has joint ventures (JVs) on some of its projects. I like using OPM (other people's money) on high-risk exploration, so I like Colombian Mines. We already own the stock and are happy with our position. We'd like to see the company gain some traction on these projects before we buy anymore.

Miranda Gold Corp. (TSX.V:MAD) is a newcomer in the region, but I know the management and I like them a lot. In spite of the good people and prospective properties, Miranda hasn't had a lot of luck with its projects yet. That does happen sometimes; even with the best geologists, Mother Nature isn't always cooperative. So, I like the company but I'm waiting for it to have the tiger by the tail, or at least some indications of a company-maker on hand.

TGR: What about others?

LJ: Pulling back to the global picture looking for takeover targets, one of my favorites is Premier Gold Mines Ltd. (TSX:PG). That's Ewan Downie's spin out of Wolfden Resources Inc. with projects that are all potentially big, high grade and in top mining jurisdictions. Most are within spitting distance of Goldcorp Inc.'s (TSX:G; NYSE:GG) producing assets. Premier is working to proving up significant high-grade, multimillion-ounce potential targets—it has takeover written all over it. I don't know when it will happen, but I think it will. Goldcorp might be happy to see Premier spend its money and do a lot of work for it, but if Goldcorp starts thinking that somebody else may come in and scoop them up, I would expect it to move aggressively.

An earlier-stage one we've mentioned in our publications would be Bayfield Ventures Corp. (TSX.V:BYV). It has a continuation of the Rainy River deposit called the Burns block. This has graduated from being just "the property next door" to having a high-grade gold shoot immediately on the Bayfield side of the property line. And you know that high-grade pocket is not going to be left hanging in the wall of an open pit. Somebody's going to want to produce that gold—it's just crying out for a takeover.

Trade Winds Ventures Inc. (TSX.V:TWD) is a similar situation but not quite as extreme. It's got a multimillion-ounce gold resource growing on trend from Detour Gold Corporation's (TSX:DGC) Detour Lake deposit. The project is a 50/50 JV with Detour already, so there's a natural synergy there and potential for takeover, but it could get big enough to justify a stand-alone operation.

TGR: Any other companies you might be able to discuss?

LJ: Because you're interested in Colombia, I could mention Mercer Gold Corp. (OTCBB:MRGP). I like the company, I like the people and I like this particular model, which is to try to explore on the other side of the mountain from the famous Medoro Resources Ltd. (TSX.V:MRS) project in the Marmato district. Marmato is an infamous environmental disaster zone in Colombia with hoards of illegal miners dumping cyanide down the mountainside, and Medoro is the company that's working to clean that up. There aren't any swarms of illegal miners on the other side of the mountain; in fact, there are only five miners and they're all in an association with which Mercer has formed an alliance. There's no established gold resource on Mercer's side, however, and so far, Mercer's drill results have not produced any company-making discovery holes. It has the right kinds of rocks, so it's got potential but it's early stage. Medoro's riskier at this point but certainly has a great deal of upside if the company hits what it's looking for.

TGR: Louis, are there any closing comments you'd like to leave with our readers?

LJ: Yes. We see a great deal of possibility for correction ahead. If the trouble in the Middle East settles down, and if the economy seems to be continuing to recover and the fear factor recedes, we could see gold retreat significantly. The retreat we had in January was only about 5%, which is really quite small as far as gold corrections have gone during this cycle. Gold has retreated as much as 25% in this cycle before going on to new highs. We really haven't seen a major retreat in gold since the big ramp-up last year; so, we are urging people to be cautious. If you do buy anything now, make it a first tranche and keep some powder dry for lower prices ahead. If that doesn't happen, and if the market doesn't correct, the market may go really manic, inflating a major gold bubble. If that starts happening, you'll be able to see it and there will be time to redeploy into that bubble. So, we do urge caution right now.

TGR: Many thanks, Louis.

LJ: You're very welcome.

A Warning Sign From an Overlooked Index

In contrast to the blocks of buyers at the opening bell that we had seen for three successive days, yesterday opened with a whimper. Trading was very slow and confined to a narrow range as slightly more than 800 million shares were traded on the NYSE. Mild profit-taking put sellers in charge for the entire day, and so the advance was halted at major technical barriers.

Daily Stock Market News

Dow: -18 points at 12,019
S&P 500: -5 points at 1,294
Nasdaq: -8 points at 2,684

Volume and Breadth

NYSE: 823 million shares traded; decliners ahead 1.3 to-1
Nasdaq: 437 million shares traded; advancers ahead 1.5-to-1

Futures and Related ETFs

May Crude Oil: +$1.88 at $104.97 per barrel; Energy Select Sector SPDR (NYSE: XLE) -17 cents at $77.51
April Gold: +$1.20 at $1,427.60 per ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU) +1.15 points at 209.75

What the Markets Are Saying

A lack of dramatic headline news, and the wall of sellers at the technical barriers of Dow 12,000 and S&P 1,300, left the major indices shy of important technical resistance zones. The Dow turned away from its 50-day moving average, now at 12,043, and the S&P 500 has yet to penetrate its 50-day, which closed last night at 1,304.

Even during the three-day rally in which the Dow scored two triple-digit days, the Nasdaq has not forged ahead with the vigor that characterized its advances in January and February. Volume for the Nasdaq has lagged on both up and down days. Yesterday, the Nasdaq traded just 437 million shares, its lowest volume since Jan. 25. This could mean that volume will improve if the other two major indices surmount the technical barriers just above yesterday’s close.

But the low volume on both the Nasdaq and NYSE could also mean that institutions are reluctant to make bets at price levels that in the past month have failed to sustain upward momentum. Those levels are not Nasdaq’s or the Dow’s, but rather the important 50-day moving average of the S&P 500 at 1,305, and its January peak of 1,302.

Michael Ashbaugh of MarketWatch points out: “After breaking down last week, the U.S. markets have rallied respectably from the March lows. In the process, a technical divergence has emerged that’s worth considering. Namely, both small and mid caps are showing signs of a pulse, while the broadly based market benchmarks — which are technically more important — continue to lag behind.”

He noted that the small- and mid-cap stocks, as measured by the iShares Russell 2000 Index (NYSE: IWM) and the SPDR S&P MidCap 400 (NYSE: MDY) have edged above their 20-day and 50-day moving averages.

In other words, there is a non-confirmation of small and mid caps versus the broad market and especially the big stocks. One index that covers over 98% of all stocks traded is the seldom-watched Russell 3000 Index (RUA), which yesterday closed under both its 20-day and 50-day moving averages after touching both on Monday. This is not encouraging for the bulls since momentum in the 3000 was rising for three days and now has turned down again. And, most important, the 20-day moving average is crossing through the 50-day moving average — a short-term sell signal!

Russell 3000 Chart