Monday, May 23, 2011

Got Gold Report - Gold Miners Signal Support

“We have very strong support in the (Mexican) Congress for the monetization of the silver ounce … it might happen this year. ” – Hugo Salinas Price on KWN

HOUSTON (Got Gold Report) – With people and central banks worldwide apparently reluctant to trade their gold metal for fiat currencies; a fact borne out by the relatively tame pullback just exhibited by the metal of kings; and with the largest of the largest commercial hedgers and short sellers of gold and silver futures in New York apparently positioning NOT as though they sense imminent precious metals weakness, but instead as though they sense the opposite; and with the bigger, more liquid and better financed miners finally showing some relative strength, even while the world’s reserve currency has been gaining on the other sick members of the fiat currency leper colony, we here at Got Gold Report have to conclude that the markets are setting up for a gold and silver rally.

Whether or not we get one, (and if truth be known we would prefer a further leg down on both), that’s what the data is telling us major players and Big Money are jockeying for shape to game just ahead. That’s of course if none of the many black swans that are circling overhead decide to land anytime soon.

ETFs to Shares, a New Trend?

Yes, that flies in the face of the very public get-outs of gold ETFs by famous socialist-leaning currency manipulators (read George Soros), but we had to note in Mr. Soros’ 13-Fs that he more or less traded his gold ETFs for mining producers.

Holding gold metal or gold ETFs is one bet on gold becoming dearer on the one hand and a play that has great insurance value in case something goes wrong on the other. Holding gold miners is a longer-term version of the same bet, just with less “coverage” on the latter part, is it not? Just a thought.

More in a moment, but first, here is this week’s closing table and comments.


Table comments: Negative liquidity environment, gold outperforming silver – risk off for now. Silver near flat, but failed to cut a new low for the week. No big changes in open interest for futures. Hi-lo spreads contracting harshly for silver suggests much lower volatility and a potential change in direction. ICE commercials now fully net short the greenback. Miners outperforming suggests bargain hunting and dip buying in full swing. Some positive money flow for gold ETFs, but strongly negative money flow for silver ETFs – (a bullish contrary indicator there? We’ll see soon enough.)

The gold/silver ratio is struggling to make it to our upside target of 46 ounces to one ounce of gold, but it is up a teeny. The most bullish of the signals we see this week comes from the COT data. Much more about that below for subscribers.

Back to the introduction: We here at Got Gold Report believe that one of the issues holding mining shares back since 2008, and a reason that the miners have not answered the new all time highs for gold, is the idea that the world economy has been dependent in large part on the hand of government since 2008, through stimulus. Always in the back of investor’s minds was/is the idea that at some point the U.S. Fed would remove the uber-cheap money punchbowl, and always was the notion that this is not a real market.

Silver’s Answer is a Bona Fide Signal

Another reason that the miners have not traded better relative to gold as they “should” have is that up until just recently silver had not shown a willingness to “answer” gold’s new all time highs – a blatant non-confirmation. As long as silver lagged and underperformed, being bearish on mining equities had both cover and evidence to support it. Now, silver still has yet to cut new all time nominal highs, but it did get very close on a parabolic romp in April and the propensity of investors, even bearish bettors to say that silver no longer “wants” to answer the precious metals bull market, has been reduced.

Now, with unsavory, but nonetheless brilliant investors taking positions in the miners instead of the metal itself, we have to wonder if they have deduced that the final stages of the game are upon us now, or will be soon, … or if they are merely positioning in mining shares at what will prove to be well in advance of the 1970s-style high-inflation-currency-collapse-fears phase that will ignite the mining share rocket launch into the stratosphere.

Crystal balls seem cloudy at times; especially the ones out of warranty, but the indicators are suggesting more strength than weakness if we are reading them correctly here.

Great Walls … of Worry

Moving to a different window on this observation platform in Texas, we can see the general worry in the stock markets of North America in the ratio of insider sellers to buyers of common shares of public companies in the U.S., which, at 29:1 in April is not a record, but it is certainly very high. Insider selling is not a new story, but for some of us it tends to be more of a contrary indicator when the market is trending (such as now for the Big Markets when viewed on long-term monthly charts). At high extremes it is much less of a “lock” contrary indicator, and at low extremes the opposite. That is to say that heavy relative insider buying, tends to be a strong signal of an impending reversal at low extremes – we think. It is difficult to quantify or build a meaningful ratio of it, but it does add to the overall impression for traders. Insider selling adds to the “wall of worry” all great bull markets must climb. Even cyclical bulls inside great bear markets, such as the one we think we are in now.

Lazy, Hazy, and Potentially Very Crazy Days Ahead

We keep hearing about the upcoming “dawg days” of summer, as if there is not that much going on this year and analysts expect a sleepy vacation period just ahead. Well, we think that is just plain wishful thinking.

With Goldman in the government crosshairs, Mr. Obama jilting Israel and “B.B.” Netanyahu (or “Buffalo Ben” as some of us affectionately refer to him here in Texas) giving Barack Hussein Obama “the finger” right back without delay; with the U.S. election cycle moving into the critical 15-month period before a presidential contest; with The Fed unable to see the inflation (and people’s expectations of it) they have already caused, while locked into a have-to-print straightjacket; … and while the E.U. faces immensely difficult internal, potentially fatal structural issues as the ECB tightens the thumbscrews on big-spending Greece (Drachmas anyone?); … and with Japan rocked into full-blown recession by an act of God (mostly), and desperately needing a weaker yen (and finally getting it); … the “hits” just keep on coming: IMF sex scandal, bad weather, major food shortages, unsettling turmoil in formerly “peaceful” North African countries, civil war in Lybia and on, and on… well, friends and Vultures, suffice it to say that this summer could be a sleepy one, but it sure isn’t shaping up to be that way – so far. To the contrary.

Real Money Currency Ascending

From our observation platform, it appears to us that the world has spontaneously chosen gold as the one “currency” that will survive whatever upheaval or stress shall occur in our current economic and social systems. We surmise that once the yellow metal crossed the $1,500 Rubicon, it had then become clear that we were no longer involved in a speculative rush higher, but something else entirely. People, governments and central banks have chosen real money as the safe haven and ultimate store of value come what may, just as we said it would when we began sharing these commentaries privately eleven years ago (publically six years ago). We don’t see that changing anytime soon, and indeed the news this past week of Mexico’s acquisition of nearly 100 tonnes of gold pretty much confirms it. Mexico is a modus ponens of official gold demand for observers of the metals markets.

Now some heavy hitters are moving out of gold ETFs and into the gold/silver/copper equities? Really? How about that? Perhaps it is time to begin deploying portions of the Bargain War Chest into a few of our “faves” now that they are really on sale. We sure hope so … because we already are, as Vultures already know.

Oh, we are still in a negative liquidity environment, no doubt about it. We might be jumping the gun here, no argument. It’s just that some of the same signals that warned us that the negative liquidity period was coming late in 2010 and early 2011 are now attempting to signal us that the negative liquidity period may be about to have run its course. Only time will tell, of course, but if we don’t heed the signals we try so hard to keep up with, then why bother keeping up with them?

Vultures will see what we mean by that as get a little deeper into this week’s full report.

Got Gold Report

First things first, the Got Gold Report – the full report – is published biweekly at least 24 times per year. Between reports we communicate more regularly on the GGR web log, which is always free and open to the public, or in our COT Flash reports and Vulture Bargain Hunter reports reserved exclusively for subscribers. COT Flash reports appear on off weeks for the Got Gold Report when there are what we consider important changes in the commitments of traders reports which cannot wait until the next full report. Vulture Bargain offerings appear ad hoc as there are developments we feel merit comment for and in the resource company issues we track closely.

Our aim is to briefly summarize our positioning for the gold and silver markets, and also to highlight a few of the dozens of indicators, ratios and graphs we keep in constant touch with. Vultures, after logging in, please see the commentary in our even-dozen technical charts now located in their own section of the password-protected subscriber pages. We update most of the Got Gold Report linked charts each week, even the weekends when we don’t publish the full report. Changes to the linked charts are almost always completed by 6:00 pm ET on Sunday evening (except when Monday is a holiday) and occasionally during the week itself as events unfold.

Smart Money - June 2011

Smart Money - June 2011
PDF | 99 pages | 38.1 Mb | English

SmartMoney comes to you straight from the editors of the Wall Street Journal, the best financial reporters in the business. Every issue brings you the information you need to know to deal with markets and protecting your wealth. Turn to SmartMoney for no-nonsense advice you can put into action.

Victor Sperandeo Talks About Precious Metals & World Economy With James Turk

In this video, renowned Wall Street trader and financial commentator Victor Sperandeo and James Turk, director of the GoldMoney Foundation, discuss whether or not gold is still a good buy at these prices, and some of the macroeconomic trends that have powered the gold and silver bull markets. Victor and James also talk about the dire fiscal position the US government is in, and some of the political and economic pressures that could affect the 2012 US presidential campaign.

They talk about the prospect of international investors forcing up the US government's borrowing costs, and how interest payments are forming an ever-growing part of the Federal government's budget. They also discuss what the tipping point will be for the US economy, the dollar and the US government. In Trader Vic's view, Ben Bernanke and the Fed are hoping to inflate away the government debts and liabilities.

They speak about the European sovereign debt crisis affecting countries like Greece and Ireland, and whether or not the euro and the European Union will survive in their present forms. At the end they discuss the recent movements in the silver price, and whether or not the recent Comex margin hikes were justified. Trader Vic also comments that given central banks efforts to debase paper currencies and keep real interest rates negative, investors should buy tangible inflation-proof assets such as precious metals and commodities.

Why – and How Best to Play – a Major Stock Market Correction is Imminent

With bullish analysts predicting the S&P 500 index will finish above 1500 this year the recent pullback may [well be] be just a blip. On the other hand, here are seven reasons U.S. indicies could lose 20% or more in the next two months. Words: 719

So says Danny Furman in an article* which Lorimer Wilson, editor of, has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Furman goes on to say:

1. Conclusion of QE2:

Marc Faber, Austrian economist and leading market forecaster, aptly likens fiscal policy to narcotics abuse – always destructive in the end, though it may have social benefits early on – that, over time require more and more of the “good” stuff.

Americans are no longer net savers and depend, along with every corporation that uses credit or relies on consumer spending, on government jobs and welfare more so than ever before. QE1 supported investment until it was finished. A sell off post-QE2 will be preempted by investors large and small, which may explain recent trading sessions closing in the red.

2. Commodities leading down:

Commodities markets are smaller and less subject to speculation than stock markets, which is why experienced investors refer to them as leading markets. Oil, silver, sugar, copper and other staples for both consumers and producers have fallen severely in price of late. The selling may still be escalating.

3. Uncle Buck is back:

Currency markets are also referred to as leaders to stocks. Trading volume is huge, but more driven by governments and billionaires than pension plans and gamblers. The first few weeks of May have witnessed a long-unseen affinity for the U.S. dollar, which has gained 2-5% versus most currencies. This may signal the beginning of a flight to safety.

4. Leading stocks looking ugly:

From economic bellwethers such as Bank of America and KB Homes to highly profitable market-changers like Apple and OpenTable, downward moves have been drastic. Companies like these are growth-drivers of the economy.

5. Defensive stocks outperforming:

The best performers lately include utility companies American Water Works and Consolidated Edison, consumer staples companies Procter & Gamble and General Electric, and pharmaceutical conglomerate Pfizer. Outperformance by stocks that operate low-risk, low-growth businesses indicates defensiveness by investors or an apparent lack of value elsewhere in the market.

6. Global growth stifled:

In 2009 and 2010, bullish arguments were largely focused on a “good enough” United States and an emerging market boom. With Middle Eastern sociopolitical turmoil taking center stage in that region, Japan in shambles, Europe using Scotch tape to fix budgets, and inflation crippling economies worldwide, from where is growth to come?

7. No bottom in sight for U.S. housing:

[Housing] is one of the largest asset markets, and one that affects everyone, in the world’s largest economy. Still, even buyer incentives and suppressed interest rates haven’t stopped prices from sliding. A growing population and falling housing prices are basic and clear signs of economic recession.

What to do:

Investors looking to hedge portfolios or even flip net-short have endless choices thanks to:

  • inverse ETFs,
  • leveraged ETFs (which inherently lose value over time and are best for day-traders looking for highly-liquid, diversified ways to capture quick moves),
  • short individual stocks or ETFs directly (which allows for less potential upside than a leveraged play but, in doing so, you avoid paying a time premium) or via
  • options while
  • betting on increased volatility via VXX will also yield profits if markets sell off.

My preferred method is to short indexes via put options. During significant sell offs, stocks generally fall in unison, while diversified ETFs garner lower options premiums than more volatile individual stocks. Technology, homebuilders, retail and financial sector ETFs as well as broader ones (SPY) offer appealing prices on the massive leverage that comes with options.

As Greece Has Less Than Two Months Of Cash Left, An Insolvent ECB Sees A Widening Rift With Germany

Today's EUR trading session which begins in about 4 hours, may be rather violent. While on one hand we have bond-negative news out of Spain, the biggest news once again comes out of theSwiss journal NZZ, which citing greek newspaper Kahtimerini, discloses that insolvent Greece has less than two months of cash left, or enough to last it until July 18, unless a new installment in the bailout tranche is approved for the country by the now headless IMF, and the suddenly insolvent ECB. Insolvent, because as Spiegel will report in its headline article tomorrow, and as we have noted many times before, the bank is "suddenly" finding itself lending out money collateralized by now virtually D-rated bonds: something not even Trichet will be able to spin off to the increasingly malevolent media. Per Dow Jones: "Skeleton risks amounting to several hundreds of billions of euros are on the balance sheet of the European Central Bank, magazine Der Spiegel writes in a preview of its edition to be published Monday. Those risks arise because banks, above all from Greece, Ireland, Portugal and Spain, have provided as collateral asset-backed securities that are unfit for central bank loans as their debt rating is low or non-existent, the magazine says." Alas, the European central bank's dirty laundry is being exposed just as a rift between the bank and Germany: its most solvent backer, is starting to develop. Also from Dow Jones: "German Finance Minister Wolfgang Schaeuble cautioned in an interview published Sunday that there shouldn't be a conflict with the European Central Bank over a possible restructuring of Greek debt. "If in the end it should come to an extension of bonds, of course, we need the approval of the IMF and above all of the ECB. Under no circumstances should it come to a conflict with the ECB," Schaeuble told Bild am Sonntag. "I advise all of us to use restraint in public debates about this question." Several ECB officials have rejected a restructuring of Greek debt and have warned of possible catastrophic consequences, while European finance ministers are slowly warming up to the possibility of some kind of restructuring as a last resort." Thus the crunch time for Europe's latest kick the can down the road round, once again centered on a bankrupt Greece, may be coming fast, and this time with a rather furious Germany.

From NZZ:

If experts from the EU, the International Monetary Fund (IMF) and the European Central Bank (ECB) do not give the go ahead for the next installment of the bailout package totaling 12 billion euros by the end of June give, then Greece will become insolvent on July 18, as the conservative Journal "Kathimerini" reported.

In the coming days Athens will fast track an aggressive privatization program. According to media reports, real estate should be taxed higher than before.

Further cuts in wages and pensions in the public sector and pensions are no longer excluded. In addition, state-run enterprises are privatized and will sell real estate, they said. The new savings program should be approved by parliament in early June.

Prime Minister Giorgos Papandreou noted in an interview with the Sunday edition of the newspaper "Ethnos" denying any form of debt restructuring. This would be no debate. Greece will repay all his debts, he said.

The head of the Euro Group, Jean-Claude Juncker, has proposed the privatization of state property Greece after the German model of trust. I would appreciate it if our Greek friends would start following the example of the German Treuhand privatization agency, a non-governmental, "Juncker said in an interview with the magazine" Der Spiegel ". This institution should be staffed with foreign experts. "The European Union will support the privatization program in the future as closely as we would conduct themselves," Juncker announced.

The potential revenue he estimated at "significantly more than the 50 billion proposed by the Greek government." The EU is also expected from Greece, "that the two major political groupings in the country put aside their petty disputes," said the euro-group leader: "Government and opposition parties should jointly declare that they are committed to the reform agreements with the EU . 'Only when Greece had consolidated its budget, one could initiate a "soft debt restructuring." Then we can consider to extend the maturities of public and private loans and interest rates lower, "said Juncker.

And regarding the €50 billion privatization prgoram by the Greek government, Alex Gloy of Lighthouse Investment Management asks:

Re: EUR 50bn privatization by Greek government – has anybody dared to ask:

  • Who exactly is going to purchase those state-owned assets? Domestic buyers? Those are busy trying to get their Euros out of the country (‘s banks) before it’s too late. Foreigners? Which foreigner would fork over dear Euros now only to find a Drachma-denominated (and quickly depreciating) asset shortly afterwards?
  • Who would invest in a country whose entire banking system is hanging on a thread (which the ECB is threatening to cut)?
  • Why buy assets that could be nationalized when a populist / communist government takes over after Greeks are (rightly) enraged about suffering endless austerity?
  • Why not ask Deutsche Telekom what they think about their 30% stake in OTE (Hellenic Telecom), bought for EUR 3.8bn (at EUR 27.50-29 per share, now: EUR 7.60). Buyer’s remorse came at the end of 2011. Deutsche Telekom hat to write off EUR 1.3bn on their Greek (and Romanian) investment. DTE management must hate themselves for having given the Greek government a put option for additional 10% stake until end of 2011. Why hasn’t the Greek government exercised yet? Don’t they need the cash? Only explanation: the Germans are twisting some Greek arms to try to make that put option “expire”. Full deal structure here.

All great questions, most of which bring even further credibility to the Andrew Lilico-proposed next steps for Greece.


US Economic Calendar For The Week

DateTime (ET)StatisticForActualBriefing ForecastMarket ExpectsPriorRevised From
May 2410:00 AMNew Home SalesApr-290K300K300K-
May 257:00 AMMBA Mortgage Index05/20-NANA+7.8%-
May 258:30 AMDurable OrdersApr--2.0%-2.0%4.1%2.9%
May 258:30 AMDurable Orders -ex TransportationApr-0.5%0.6%2.3%1.8%
May 2510:00 AMFHFA Housing Price IndexMar-NANA-1.6%-
May 2510:30 AMCrude Inventories05/21-NANA-15K-
May 268:30 AMGDP - Second EstimateQ1-1.8%2.0%1.8%-
May 268:30 AMGDP Deflator - Second EstimateQ1-1.9%1.9%1.9%-
May 268:30 AMInitial Claims05/21-400K400K409K-
May 268:30 AMContinuing Claims05/14-3700K3700K3711K-
May 278:30 AMPersonal IncomeApr-0.5%0.4%0.5%-
May 278:30 AMPersonal SpendingApr-0.5%0.5%0.6%-
May 278:30 AMPCE Prices - CoreApr-0.2%0.2%0.1%-
May 279:55 AMMichigan Sentiment - FinalMay-72.672.472.4-
May 2710:00 AMPending Home Sales