The King World News Weekly Metals Wrap

We have added new segments to the KWN Weekly Metals Wrap covering gold, silver, trading and a plethora of other factors affecting the precious metals markets. I am giving King World News listeners globally access to what has long been my secret weapons in researching where gold and silver are headed directionally along with the COT Report. We Cover the Commitment of Traders Report in detail as well as a number of other factors which can influence the gold and silver market price action.


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Technically Precious with Merv

For week ending 18 February 2011

Well, it was up, up all week long for gold. However, there seemed not to be any enthusiasm behind the move and trends do not last long without enthusiasm. Maybe it will enter this coming week.

GOLD

LONG TERM

Over the past few weeks I had mentioned that my long term P&F chart gave a bear signal BUT that there was still one more support level on the chart that needed to be breached for that bear signal to have meaning. Well, as we have seen, that support has held and we have been in a rally for the past three weeks. The big question now is, is this only a rally or are we in for a new bull move? I’m not very good at predicting the future. It’s enough effort just to understand where we are right now least of all where we will be next week or month. So, where are we right now?

From a long term perspective, although it does appear as if gold has been in a several month topping and turning mode it remains above its positive sloping moving average line. The long term momentum indicator has been moving lower and lower since October but is in one of its upward turns. It is still in its positive zone and now above its long term trigger line. The trigger line has also turned upwards which is a very positive sign. The volume indicator has been moving sideways since December and is very close to breaching into new high ground. During this sideways period its trigger line has moved right up to the indicator and has flattened out but still is in a very, very slight up slope. Everything is still looking okay for the long term. The rating remains BULLISH.

INTERMEDIATE TERM

The intermediate term perspective is also okay. Gold has crossed above its intermediate term moving average line during the week and the line itself has turned to the up side. The intermediate term momentum indicator was in its negative zone for a few days but has once again crossed into its positive zone. It is also above its positive sloping trigger line. The volume indicator is slightly positive and above is positive trigger line. All in all the intermediate term rating remains BULLISH. This rating is confirmed by the short term moving average line crossing above the intermediate term line.

There are many, many technical indicators one can look at to assess where we are but these simple indicators tell us the trend, strength of the trend and interest by speculators in the trend. What more do we need? We wouldn’t be right all the time but I hope we are right most of the time. More importantly, we should not be wrong for any length of time to cause major financial losses. We do not blindly hold as the trend goes against us. That is the sign of an amateur.

SHORT TERM

The short term has been great for the past few weeks but could be coming to an end. We are inside an upward trending wedge pattern. These patterns unfortunately are most likely to be broken on the down side. The strongest move would come when the price is two thirds along its way towards its apex point. As it continues closer and closer to the apex the strength of any break becomes less and less. So, we are not yet at the strongest location should the price break below the lower support line. That would still take a couple more weeks of steady up trend within the confines of the wedge. From here, that does not look probable, so, we should get a break soon but not one that is of any great strength (or longevity).

For now the short term position of gold remains basically positive. Gold has been above its short term moving average line for over two weeks and remains above. Its moving average line remains sloping in an upward direction. As for its short term momentum indicator, well that is comfortably in its positive zone and above its positive trigger line. Only the daily volume action leaves a lot to be desired. During its entire few weeks of price rally the daily volume has remained relatively low. It had remained below its 15 day average value throughout the advance. This does not bode well for longevity of the rally. However, despite the poor volume showing the short term rating remains BULLISH with the very short term moving average line confirming by remaining above the short term line.

With events as volatile as they are in global politics I wouldn’t even try to guess the immediate direction for gold. The direction of least resistance, however, seems to be getting closer and closer to the down side. The Stochastic Oscillator remains in its overbought zone and can’t stay there for much longer. The next turn to the down side by the SO should also see gold turn lower.

SILVER

Silver continues to put in a great performance versus gold. This past week gold advanced by 2.1% while silver advanced 7.7%, almost 4 times the weekly performance. The chart shows that silver has entered new bull market highs and is heading towards its all time high in the low $40s way back in January of 1980. Depending upon the chart one uses the all time high in silver was about $41.50.

A few weeks back silver gave a P&F bear signal, however, I had mentioned a support just below the break that needed to be breached before really going bearish. That support held and silver quickly moved higher. We need to go back to the P&F chart of 17 Dec 2010 where I still had projections to $32.50 and $34.00 that were not met at that time. Well, the recent sharp rally has met the $32.50 projection. Now, on to $34.00. However, with the latest move a new projection can be calculated, to the $42.00 level, just $0.50 above silver’s all time high. One thing all these projections seem to say is that there is still more upside potential for silver.

Without going into details, one can guess that the ratings for silver in all three time periods is BULLISH.

For a cautionary note it is interesting that silver price is now butting up against the previous support up trend line, which can now be considered as a resistance line. Couple this along with weakness in both the momentum and volume indicators and we have the prospect of a reaction very soon. I would suspect that any reaction off that resistance line would not stop at the very narrow up trending channel lower support but break below it also. Just something to be aware of.

PRECIOUS METAL STOCKS

All precious metal stock indices had a good week, some better than others. The silver stocks were, of course, the better weekly performers as is noted by the Indices that have silver stocks as their major components. Although the Indices had a good week ONLY the Merv’s Penny Arcade Index made it into new all time high territory. Go pennies GO. This is one of my best indicators that the major long term bull market in precious metal stocks is not yet over and still has more to go. During the last bull market top when the major Indices (and gold and silver stocks) topped out in early 2008 this Penny Arcade Index topped out a year before the majors. I don’t expect the same year’s notice but I do expect that the pennies will top out before the universe of precious metal stocks top out and therefore we should have this advance warning.

The Penny Arcade IS weakening as far as the momentum (strength) of the recent move is concerned. Although the Index has made new highs the momentum indicator is still below its previous recent high. This is not yet a serious concern as the indicator is very strong, above the 80% level so a slight weakness is not a big deal, but it is so far a weakness in the latest move. Something to watch.

Merv’s Precious Metals Indices Table

Oil soars on Libya violence, WTI shorts cover

Brent crude oil prices hit $108 a barrel for the first time since 2008 on Monday on fears that spiraling violence in Libya could lead to wider supply disruptions from the OPEC member.

U.S. oil prices led the rally to jump by more than $5, the most in over two years, as traders also rushed to cover short positions in the key Brent/WTI spread, which had blown out to a record $16 a barrel. The April spread narrowed to $10 during the day, but widened to over $12 in after-hours trade.

The focus was on deadly clashes in Libya, where one oil firm was shutting down some 100,000 barrels per day (bpd) of production and others evacuated staff. The leader of the Al-Zuwayya tribe threatened oil exports to the West would be cut off unless authorities stopped violence.

"The market is on edge about the potential for Middle East and North Africa supply disruptions," said Mike Wittner, head of commodities research, Americas, at Societe Generale.

"If you've got reports that actual disruptions are starting to occur, it's going to have a supportive impact. A lot of it is high-quality crude and that is important as well."

The increasingly violent protests that appeared to put Muammar Gaddafi's four decades of rule in jeopardy were the realization of weeks of mounting concerns that Egypt-inspired unrest would seep into nearby oil producers.

Brent oil futures, which have climbed more than $10 this year largely due to the increasing geopolitical risk premium, jumped $3.22 a barrel, or 3.2 percent, to settle at $105.74 a barrel. They jumped another $2 to trade as high as $108 in after-hours dealing, the highest since September 4, 2008.

The March U.S. crude oil contract, which expires on Tuesday, surged $5.22 a barrel to trade at $91.42 a barrel in late-afternoon activity -- the highest in two weeks.

Overall trading volume was less than one-third the 30-day average due to the U.S. Presidents Day holiday, and the U.S. market won't issue an official settlement until Tuesday.

The more-active April contract jumped as much as $5.75 to a high of $95.47 a barrel, at one point narrowing the Brent/WTI contract by nearly $3 to $10 a barrel as traders covered short positions built up as the spread ballooned from about $3 in January to a low of $16 last week.

Brent's after-hours rally forced the spread back out to $12.40 a barrel. (more)

Silver Bankers May Be Sitting on Big Derivatives Losses and the Fed May Be Funding Them

My question is simple. What are bankers like J.P. Morgan and HSBC doing playing in such size in this market? What is the economic and productive benefit? Perhaps there is a good answer. The taxpaying public certainly deserves to know. The CFTC says they have looked into this, but the detailed results of their findings remain less than forthcoming.

IF this is legitimate hedging for producers then all well and good, but then there is no justification for secrecy. If these are trading positions held by the bank, or by the bank as agent for speculators, then there may be a greater reason for secrecy, but the magnitude of the shorts is far out of bounds in size. Ten years of production is not a short position, but the entire market and then some.

The CFTC certainly appears to be acting poorly as the market regulator for the people. Given the regulatory failures of the past ten years that lead to the financial crisis, it would be useful if the Congress were to make very pointed inquiries regarding this situation. But given the performance of the Congress, and their affinity for the deep pockets and big contributions of the financial sector, that may be too much to hope for.

I think it is worth noting that the BIS data, which I use myself, is very good, but normally six months in arrears or more. I tend to use it to track the float in eurodollars which the Fed stopped publishing when it also halted the production of M3 data. But this is not Harvey's fault, but merely another sign of the opaque nature of the US markets. There is no reason not to demand monthly disclosure. Investors and depositors are always expected to make informed decisions, and then they are denied the information from large market participants using their positional advantage.

The comment and analysis below is from Harvey Organ's most recent commentary.

"The huge rise in silver price has caught the silver bankers totally offside on the silver banking. The BIS data released in November (www.goldexsextant.com) shows that the G 10 bankers have collectively sold forwards and swaps to the tune of 4 billion oz and short naked calls for another 3 billion oz. The total, 7 billion oz represents 10 years of production. If you just do the forwards, then it is 7 years of annual silver production.

Let us say the average cost of acquiring these derivatives and forwards equate to $15.00 for silver. Thus collectively the entire G10 bankers are feeling massive pain (losses) to the tune of:

7 billion oz of silver( 32.30-15.00) = 7 billion x $17.30 = 121.1 billion dollars of losses.

This is in a market of only 14 billion dollars. It begs the question to what economic need was this done.This is still off balance sheet.

If you include only the forwards or swaps (the lending of actual metal to which nothing has come back yet) then the losses are:

4 billion x 17.30 or 69 billion dollars.

Regardless how you look at it, the bankers are in serious trouble with this huge rise in silver prices. I hope you understand the severity of the situation."

This situation merely highlights Obama's failure as a reformer, and the general failure of both parties to act in positions of trust for the American people, rather than the special interests that provide them money and sincecures after they leave office.

As I noted on my own silver chart, I am no longer will to forecast anything but intermediate targets for silver, given what appears to be widespread imbalances and crisis-inducing leverage in the market, especially given the strong demands on the bullion market from the sovereign and individual buyers in the BRIC countries.

It is never pretty when a fraud collapses, and this one in particular is difficult because it seems to encompass those stewards of the market upon whom one generally relies for information and some measure of confidence in the data.

The market will clear when it clears, and seems to be defying 50% margin requirements increases and well placed disinformation campaigns in the process.

Shorting Eurodollars Before the Liquidity Bubble Pops

Below is the long term chart of the eurodollar (ED) yield, showing the effects of a decade of money printing and bubble blowing. In the last two years this has created what I have called the central bank or Wizard of Oz bubble. This bubble and all its correlated bubbles were caused by the willingness of central bankers to purchase, lend against and then hold trillions of dollars of overvalued securities. This bill of goods was sold as 'emergency measures,' and investors remain convinced that the mere 33 basis point interest rate reflected in the eurodollar market will and can be supported by a continuation of the emergency.

Conventional thinking is that purchases of inflated securities and money printing that goes with it are just business-as-usual instead of a freak show. In addition, it's assumed that trillions in kick-the-can-down-the-road private debt maturities, for sure trillions more of debt sovereign debt offerings, and maturities are on the way. Oz has a heavy burden to carry indeed.

The blowback to all this activity should be apparent to any thinking person: a bagunca (mess) of destabilizing global inflation starving returns of prudent savers down to nothing; real, defacto or implied bailouts of too-many-to-count toxic basketcases; and an incredible return of moral hazard behavior and speculation. Of course you are going to see artificial maladjusted economic activity from this, at least for a short while. It is all a trap.

The logical end of the line for horrific 'temporary emergency' policies will be a chain reaction of sovereign defaults, insolvencies, debt restructuring, and losses for bond holders . Although this hasn't happened formally, bondholders who bought 10-year Treasuries in Portugal eighteen month ago now have a 24% loss on principal. These are not reflected on bank balance sheets. Simply put, the yields on PIGGS sovereign debt (and elsewhere) are not about liquidity and confidence - they are about debt trapped insolvency.

Blow ups will come when players at various points along the daisy chain take big losses that can't be supported by the Wizard of Oz or governments. In fact Oz itself will suffer big losses once the Ponzi chain breaks. The uninitiated can start here (If Only PIGGS Could Fly) for an understanding of just some of the various candidates for sovereign defaults. Historically, because of the linkages, these will come in bunches.

Portugal

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Ireland

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Greece

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Ever since QE2 began I have been eying a short of the ED. True, there is a carry cost to shorting them. But with the implied yield at about 33 basis points (bp), that carry is now reduced to less than .275 bp per month (about $275 on a million contract). It is important to understand that this is a financial future, not a currency - you are not shorting the euro.

Eurodollars are foreign dollar deposits outside the U.S. banking system in foreign banks. Despite the name, these are not just European banks, although those would constitute the majority. Some are in the Middle East in places such as Bahrain (Forces Fire on Protesters). So in essence, eurodollars are dollar deposits in non-U.S. banks.

One contract tracks the 3-month London Interbank Offer Rate (LIBOR) on million-dollar offshore deposits. LIBOR is the rate that the commercial banks charge each other for overnight lending in the international market and is considered to be a global benchmark for short term interest rates. Contract specifications are laid out here. For risk management purchases, I would collaborate about $2,000 as the loss per contract, which would put the ED yield at 15 BP, and cover a month's carry.

So what would make this trade work? Traditionally it has traded as a Fed policy instrument; now it seems monopolized by it . When the Fed eases or is active, traders bid up EDs. Therefore if Oz is forced by the howls of inflation to climb off the cliff, or waffles on QE3, this market will sell off. If Oz (the Fed) actually moved to tighten, it will sell off even more so. Although I assign a higher probability of this happening than conventional wisdom, I am not counting on this element. As far as being inflation fighters, Oz has an incredible capacity to call inflation such as the MIT billion price survey 'temporary' or irrelevant just like their emergency measures were temporary. Regardless, once the party ends, Oz will permanently lose what little creditability it never should of had. That is another reason I don't see any market downturn as temporary.

But I digress, as the real appeal to this trade is not Fed-watching but elsewhere. How much lower can the ED yield go? Stranger things are happening, but will deposits stay in foreign banks if yields are 25 bp, or 20 bp? Bizzarro world at this stage is a manageable risk - it is not like we are dealing with 400 bp of downside to zero. Of course the trade might just sit there for a while, like watching paint dry.

However, in the short term I would point out a two day spike in emergency borrowings from the ECB, an event which in normal times with fewer Oz-induced comatose market participants would get more attention. More importantly though, are corporate CFOs and Treasurers sitting at their terminals with hair triggers ready to blow this popsicle stand (a bank run) once the wheels come off these European or Middle Eastern banks. It could just as easily be a state or local U.S. blowup that triggers it.

Who in their right mind accepts 33 basis points - Oz-backed returns in an insolvent banking system dependent on expensive government interventions? Numb to the risk, markets are counting on more bailouts and money printing in Europe, with estimates of 400-500 billion euros for the next round. In reality a lot could hit the fan over the next month. There is an election in Ireland on Feb. 25, and likely winners aren't bank friendly.

“We believe that Ireland may be left with no option, in the absence of a renegotiated deal, but to write down the value of the bonds in the Irish banks or face the prospect of a hugely damaging sovereign default”- Fine Gael, Irish Opposition Party, February 2, 2011

There are four German regional elections over the next month, and anti-bailout political sentiment is high. The last European meeting failed to reach consensus on a resolution mechanism. In the midst of it all a special eurozone debt crisis summit is scheduled for March 11th. And finally a boatload of debt is maturing in Europe over the next month.

Disclosure: I am short March eurodollars

Editor's note: Investors may want to consider the following international interest-rate ETFs as a proxy for eurodollars: IGOV, ISHG, BWX, BWZ

US Economic Calendar for the Week

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior	Revised From
Feb 22	9:00 AM	Case-Shiller 20-city Index	Dec	-	-2.2%	-2.4%	-1.59%	-
Feb 22	10:00 AM	Consumer Confidence	Feb	-	67.0	67.0	65.6	60.6
Feb 23	7:00 AM	MBA Mortgage Index	02/18	-	NA	NA	-9.5%	-
Feb 23	7:00 AM	MBA Mortgage Purchase Index	02/18	-	NA	NA	-9.5%	-
Feb 23	10:00 AM	Existing Home Sales	Jan	-	5.40M	5.23M	5.28M	-
Feb 24	8:30 AM	Initial Claims	02/19	-	410K	410K	410K	-
Feb 24	8:30 AM	Continuing Claims	02/12	-	3900K	3900K	3911K	-
Feb 24	8:30 AM	Durable Orders	Jan	-	3.6%	3.0%	-2.3%	-2.5%
Feb 24	8:30 AM	Durable Orders ex Transporation	Jan	-	-0.2%	0.6%	0.8%	0.5%
Feb 24	10:00 AM	FHFA Housing Price Index	Dec	-	NA	NA	0.0%	-
Feb 24	10:00 AM	New Home Sales	Jan	-	335K	310K	329K	-
Feb 24	11:00 AM	Crude Inventories	02/19	-	NA	NA	0.86M	-
Feb 25	8:30 AM	GDP - Second Estimate	Q4	-	3.4%	3.3%	3.2%	-
Feb 25	8:30 AM	GDP Deflator - Second Estimate	Q4	-	0.3%	0.3%	0.3%	-
Feb 25	9:55 AM	Michigan Sentiment - Final	Feb	-	75.5	75.1	75.1	-

Confiscation of Gold and Silver by the U.S. Government ?

RED ALERT email between Metal Experts - about Confiscation of Gold and Silver by the U.S. Government - Potentially this year for a New World Currency - from Multiple High Inside Sources.

I received an email with the words "RED ALERT". I received this from someone heavily involved and an expert in the metals and mining. I highly respect both men involved, as they know and always telling the truth about what is happening in the world of metals.

David Morgan

David Morgan of Silver-Investor, an absolute expert in silver and the mining field and has a wonderful and very insightful news letter. I am a member and get the newsletter due to the amount of his knowledge of silver/gold and mining. In fact, David Morgan has given me the green light to post bits of information from his paid subscription newsletter. I am thankful he is allowing that, as there is information in it that is not found any where else on the internet. His newsletter gives investment information of metals and mining as no other person I have read. I believe many benefit from the newsletter and I hope what small blurbs I reproduce here will also help others in keeping the value of their money as it is (but it is dropping fast every day - so action needs to be taken by all - in my opinion). I will start doing some postings with his insight within days. But I encourage anyone who wants to be on top of silver and mining and ahead of the game, subscribe to his newsletter!

Roger Wiegand

David Morgan passed on to me a "RED ALERT" email he received from Roger Wiegand. Roger Wiegand is someone else I follow in regards to the truth about the gold and silver markets. I love reading his articles on Kitco and his website -WeBeatTheStreet. I have had his website as a bookmark for years on my computer. A site for radio interviews with Roger, besides others like Jim Willie (who I follow, also) is Korelin Economics Report. In my opinion this is another bookmark needed for those who follow what is happening in metals closely.

I highly respect Roger Wiegand's articles and information and highly recommend everyone to follow him!

Both David Morgan and Roger Wiegand are about Truth of the metals market and do not sensationalize their information. So when I received this Red Alert email, I have confidence in this actually being very real in potential.

Roger Wiegand sent out a RED ALERT email to other metal experts/analysis, due to information from multiple high level inside sources of his, of the potential of confiscation of gold and silver from the American Public, this year for a new world currency.

Roger and I have exchanged a couple of emails regarding this Red Alert, with my asking permission to publish it. He has given me the green light to release this to the public, as long as I made sure to say this is not absolute, but a potential from his high placed inside sources.

This is the email sent out - without any changes and exact!

RED ALERT

Editor: There is a plan to use the IMF (AKA US Treasury and Wall Street) to be the front man for the new world order and one currency.We also got disturbing news yesterday from an impeccable source that when gold touches $2,000 it’s confiscated in the USAfor about $200. Then it’s to be reissued by the Treasury for $10,000 per ounce to back the new IMF world currency using SDRS in 2011. Large physical gold is being moved to Canada. money.cnn.com/2011/02/10/markets/dollar/index.htm

I very much thank both David Morgan and Roger Wiegand for allowing me to post this information as I believe it will help all who read it to become aware of what is being discussed as a potential of future events.

The article in the email links to the IMF calling for a new trading currency in place of the U.S. dollar. The writing is on the wall. I just have to ask, has everyone been paying attention? Also when an email like this goes out from a very well respected metals expert to other experts in the field, everyone should sit up and pay attention!