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President Obama Signs an Executive Order Allowing for Control Over Natural Resources

Some disturbing news came out of Washington on March 16th. The President of the United States has decided to expand upon the 1950 Disaster Preparedness order. This order gives the President of the United States total control over all natural resources in the country during war time or emergencies. The new order has expanded the power of the President to control everything from food, transport, production, energy, materials and water. I say how can this be possible? I see the possibility of abuse here. What could go wrong? Should we let our natural resources be controlled by a handful of people? Here is the order.

Section 101.  Purpose.  This order delegates authorities and addresses national defense resource policies and programs under the Defense Production Act of 1950, as amended (the “Act”).

(b)  assess on an ongoing basis the capability of the domestic industrial and technological base to satisfy requirements in peacetime and times of national emergency, specifically evaluating the availability of the most critical resource and production sources, including subcontractors and suppliers, materials, skilled labor, and professional and technical personnel; - White House

Additionally, each cabinet under the Executive Branch has been given specific powers when the order is executed, and include the absolute control over food, water, and other resource distributions.

Sec. 201.  Priorities and Allocations Authorities.  (a)  The authority of the President conferred by section 101 of the Act, 50 U.S.C. App. 2071, to require acceptance and priority performance of contracts or orders (other than contracts of employment) to promote the national defense over performance of any other contracts or orders, and to allocate materials, services, and facilities as deemed necessary or appropriate to promote the national defense, is delegated to the following agency heads:

(1)  the Secretary of Agriculture with respect to food resources, food resource facilities, livestock resources, veterinary resources, plant health resources, and the domestic distribution of farm equipment and commercial fertilizer;

(2)  the Secretary of Energy with respect to all forms of energy;

(3)  the Secretary of Health and Human Services with respect to health resources;

(4)  the Secretary of Transportation with respect to all forms of civil transportation;

(5)  the Secretary of Defense with respect to water resources; and

(6)  the Secretary of Commerce with respect to all other materials, services, and facilities, including construction materials.

(e)  “Food resources” means all commodities and products, (simple, mixed, or compound), or complements to such commodities or products, that are capable of being ingested by either human beings or animals, irrespective of other uses to which such commodities or products may be put, at all stages of processing from the raw commodity to the products thereof in vendible form for human or animal consumption.  “Food resources” also means potable water packaged in commercially marketable containers, all starches, sugars, vegetable and animal or marine fats and oils, seed, cotton, hemp, and flax fiber, but does not mean any such material after it loses its identity as an agricultural commodity or agricultural product.

How do I translate this? Is the Executive branch telling us that an expanded war is on the horizon, and that they are worried about shortages? How will the American people respond to another war? Spring has arrived in America, how will Occupy 2012 play out?

If there is war I do believe it will bring instability to an already unstable market and world economy. During war time nations tend to spend huge amounts of money causing increased inflation. This translates into everything costing consumers more. Oil prices will continue to rise as well as anything you purchase at the market.

What can you do to prepare for the increased costs ahead?

  1. Plant yourself a garden and learn how to can to keep your grocery bill under control.
  2. Buy some Precious Metals like Silver and Gold. My choice is Silver.
  3. Buy yourself a small portable Solar unit.
  4. Buy a sturdy bicycle with a rack on it. My Trek is a great bike. Ride it!
  5. Find like-minded individuals in your community.
  6. Make sure you have access to water or store some.
  7. If you are adventurous like myself, expatriate to another country and start a new life.

I was raised by a family who taught me to always be prepared for the unknown. My family always had reserves for times of emergency. Do you want to rely on the government when instability arrives? It looks to me like the government is preparing for something big, maybe you should do the same.

By: Randy Hilarski - The Rare Metals Guy

The Silver Stage has been set for Grand Performance in 2012

HISTORY – Silver is the most electrically conductive of all elements and has the highest thermal conductivity of any metal. Its atomic number is 47.

Silver has long been valued as a precious metal, and it is used to make ornaments, jewelry, high-value tableware, utensils (hence the term silverware), and currency coins (the only country today that still uses silver coins in circulation is Mexico, while the US ceased using silver as currency in 1965, though several more coins with lesser silver content were produced until 1969). The US mint began producing silver bullion coins in 1986 and silver proof versions of the half-dollar, quarter and dime (along with conventional metal dollars, nickels and pennies) in 1992 and continues to make the silver bullion and silver proof versions of currency today.

Today, silver metal is also used in electrical contacts and conductors, in mirrors and in catalysis of chemical reactions. Its compounds are used in photographic film, and dilute silver nitrate solutions and other silver compounds are used as disinfectants and microbiocides. While many medical antimicrobial uses of silver have been supplanted by antibiotics, further research into clinical potential continues.

Much of the two previous paragraphs was gathered from under silver and credit is hereby given.

SILVER AS CURRENCY – One of the earliest known uses of silver as currency was as used in Electrum, a gold-silver alloy utilized by the Lydians (which would now be part of Turkey) in 700BC. The British currency, pound sterling, reflects the fact that it originally represented the value of one pound of silver. Similarly the French Livre has a similar etymology while plata in Spanish means both silver and money.

The earliest silver US coin was the flowing hair dollar in 1794. Although silver coins had been accepted as currency in the colonies at least 40 years earlier as the Spanish eight reale also called “pieces of eight.”

MODERN SILVER PRICE ACTION – The Hunt bothers, Nelson Bunker and William Herbert borrowed a great deal of money in addition to their substantial fortune in 1980 in an attempt to corner the market in silver. They succeeded in driving the price to $49.45 per ounce but ended up losing a fortune in their attempt. Considering the effect of inflation, that peak equates to somewhere between $137 and $150 per ounce today. That peak (on an absolute basis) was surpassed on April 25, 2011 when cash silver reached $49.752 per ounce.

CURRENT PRICE OUTLOOK - Since then silver has failed to continue the preceding sharp uptrend and reached a relative low of $26.046 on September 26, 2011. Little more than three months later on December 29, 2011 the price bounced from $26.151. Since this was not a major bottom but rather a bounce off support in a secondary reaction, thus it was not a double bottom, but a spectacular trade opportunity nonetheless. Within two months to the day (2/29/12), silver topped out at $37.430.

The price action since the new high in April of 2011 has formed a flag. The base of that flag is the rally that began in December of 2008 at a price near $11. The bottom of the flag is about $33. Thus the anticipated breakout outside the top of the flag is $33-$11 or $22. Assuming we breakout of the top of the flag at a price of $38, that anticipates a move to $60. Since this pattern has been forming for 3-1/4 years it would not be surprising for it to take a like period to make the anticipated price target.

The most recent price run-up was the move from $26.151 on December 29, 2011 to $37.43 on February 29, 2012. Many traders tout Fibonacci retracements as trading strategies and the most reliable of those retracements is 50%. There is a book that has been written regarding trading 50% retracements and it is titled, “The Trading Rule That Can Make You Rich”, by Edward D. Dobson © 1979 Trader’s Press, Inc.® The 50% retracement that results from those two points is $31.79. This perceived bounce could occur at any time.

By CD Hopkins Metals Division

Silver Eagles Soar!

In World War I severe material shortages played havoc with production schedules and caused lengthy delays in implementing programs. This led to development of the Harbord List – a list of 42 materials deemed critical to the military.

After World War II the United States created the National Defense Stockpile (NDS) to acquire and store critical strategic materials for national defense purposes. The Defense Logistics Agency Strategic Materials (DLA Strategic Materials) oversees operations of the NDS and their primary mission is to “protect the nation against a dangerous and costly dependence upon foreign sources of supply for critical materials in times of national emergency.”

The NDS was intended for all essential civilian and military uses in times of emergencies. In 1992, Congress directed that the bulk of these stored commodities be sold. Revenues from the sales went to the Treasury General Fund and a variety of defense programs - the Foreign Military Sales program, military personnel benefits, and the buyback of broadband frequencies for military use

American Silver Eagle

The American Silver Eagle is the official silver bullion coin of the United States. It was first released by the United States Mint on November 24, 1986 and is struck only in the one troy ounce size.

The Bullion American Silver Eagle sales program ultimately came about because the US government wanted, during the 1970s and early 1980s, to sell off what it considered excess silver from the Defense National Stockpile.

“Several administrations had sought unsuccessfully to sell silver from the stockpile, arguing that domestic production of silver far exceeds strategic needs. But mining-state interests had opposed any sale, as had pro-military legislators who wanted assurances that the proceeds would be used to buy materials more urgently needed for the stockpile rather than merely to reduce the federal deficit.” Wall Street Journal

The authorizing legislation for the American Silver Eagle bullion sales program required that the silver used for the coins had to be from the Defense National Stockpile. By 2002 the DNS stockpile was so depleted of silver that if the American Silver Eagle bullion sales program was to continue further legislation was required.

On June 6, 2002, Senator Harry Reid (D-Nevada) introduced the Support of American Eagle Silver Bullion Program Act to “authorize the Secretary of the Treasury to purchase silver on the open market when the silver stockpile is depleted.”

2002 - 10,539,026 Bullion American Silver Eagles were sold.

2003 - 8,495,008 Bullion American Silver Eagles were sold, silver averaged $4.88 an ounce for the year.

2004 - 8,882,754 Bullion American Silver Eagles were sold. For 2004 the average cost of an ounce of silver was $6.67.

2005 - 8,891,025 Bullion American Silver Eagles were sold. Silver averaged $7.32 an ounce.

2006 - 10,676,522 Bullion American Silver Eagles were sold. Silver averaged $11.55 an ounce.

2007 - 9,028,036 Bullion American Silver Eagles were sold.

2008 - 20,583,000 Bullion American Silver Eagles were sold. Silver averaged $14.99 an ounce and almost 80% more Bullion American Silver Eagles were sold then in any previous year.

The US Mint suspended sales of the silver bullion coins to its network of authorized purchasers twice during the year.

In March 2008, sales increased nine times over the month before - 200,000 to 1,855,000.

In April 2008, the United States Mint had to start an allocation program, effectively rationing Silver Eagle bullion coins to authorized dealers on a weekly basis due to “unprecedented demand.”

On June 6, 2008, the Mint announced that all incoming silver planchets were being used to produce only bullion issues of the Silver Eagle and not proof or uncirculated collectible issues.

The 2008 Proof Silver Eagle became unavailable for purchase from the United States Mint in August 2008.

2009 - 30,459,000 Bullion American Silver Eagles were sold

On March 5, 2009, the United States Mint announced that the proof and uncirculated versions of the Silver Eagle coin for that year were temporarily suspended due to continuing high demand for the bullion version.

On October 6, 2009, the Mint announced that the collectible versions of the Silver Eagle coin would not be produced for 2009.

The sale of 2009 Silver Eagle bullion coins was suspended from November 24 to December 6 and the allocation program was re-instituted on December 7.

Silver Eagle bullion coins sold out on January 12, 2010.

The average cost of an ounce of silver in 2009 was $14.67


No proof Silver Eagles were released through the first ten months of the year, and there was a complete cancellation of the uncirculated Silver Eagles.

Production of the 2010 Silver Eagle bullion coins began in January instead of December as usual. The coins were distributed to authorized dealers under an allocation program until September 3.

In 2010 the US Mint sold 34,700,000 Bullion American Silver Eagle Coins.


According to the USGS’s most recent Silver Mineral Industry Survey, silver production fell to 37 tonnes in October - compared to 53 tonnes year over year (yoy).

In 2011, the United States produced approximately 1,054 tonnes of silver – down from 2010’s production of 1,154 tonnes and down from 2007’s production of 1,163 tonnes.

The US imported 6,600,000 oz of silver for consumption in 2011 – up from 2007’s imports of 4,830,000 oz.

In 2011 the US Mint sold 39,868,500 Bullion American Silver Eagle Coins.

2011 was the first year in which official coin sales will surpass domestic silver production.

Jeff Clark of Casey Research writes “For the first time in history, sales of silver Eagle and Maple Leaf coins surpassed domestic production in both the US and Canada. Throw in the fact that by most estimates less than 5% of the US population owns any gold or silver and you can see how precarious the situation is. A supply squeeze is not out of the question – rather it is coming to look more and more likely with each passing month.”

The US Mint is required by law to mint the bullion Silver Eagles to meet public demand for precious metal coins as an investment option. The numismatic versions of the coin (proof and uncirculated) were added by the Mint solely for collectors.


United States Mint Authorized Purchasers (AP’s) ordered 3,197,000 Bullion American Silver Eagle Coins on January 3rd, the first day they went on sale. That opening day total catapulted January Bullion Eagle sales higher than half of the monthly totals in 2011.

As of January 25th 2012, 5,547,000 Bullion American Silver Eagle Coins had been sold.

Bullion Silver Eagles are guaranteed for weight and purity by the government of the United States and because of this the US government allows bullion Silver Eagles to be added to Individual Retirement Accounts (IRAs).


The twin policies of zero interest rates and the continual creation of money and credit being enacted today, by all governments and central banks, means that the purchase of precious metals is the only way to protect the value of your assets.

“Mark my words, if the interest rates on U.S. government debt truly reflected both the real level of inflation in this country and the rising risk of some form of default, rates would already by sky-high and the U.S. would resemble a massive Greece.” John Embry, Chief Investment Strategist, Sprott Asset Management

Investors are currently risk adverse and mining stocks are not well understood by the general investing public, but at least one thing is going to become very apparent to most - the best way to hedge yourself against inflation could be owning silver.

Junior resource companies offer the greatest leverage to increasing demand and rising prices for silver. Junior resource companies are soon going to have their turn under the investment spotlight and should be on every investors radar screen. Are they on yours?

If not, maybe they should be.

*Post courtesy of Richard Mills at where he covers the junior resource sector.

Buy Silver…Now!

Silver is an amazing metal…which is why it’s likely to soar over the coming years…

You see, silver has more than 10,000 uses. It’s one of the world’s best conductors of heat and electricity. Inventors filed more patents on silver uses than any other precious metal in the world. And when silver is used for most industrial and technological purposes, it is used up forever… It simply costs too much to try to recycle the tiny bit of silver from every cell phone or casino chip.

I’m not saying industry is going to use up all the world’s silver. That simply can’t happen. But scarcity is a real issue.

Our rapid consumption of silver leaves very little to meet any uptick in demand from investors. A spike in interest will send prices spiraling higher…

Here’s a breakdown of the silver market. The table below shows the percentage of the total amount of silver consumed by each category over the past four years…

As you can see from the table above, only 12% of the silver supplied to the market made it to bullion in 2010. That means only a little more than 100 million ounces of silver became bullion for the entire investing world.

That’s a tiny fraction to sop up all the investment interest in the world.

Of that silver, about 43 million ounces went to exchange-traded funds like the iShares Silver Trust (SLV) and the Sprott Physical Silver Trust (PSLV).

That means you could buy all the extra silver bullion for about $2 billion. We could buy all the surplus silver bullion from the last four years for about $10 billion.

That’s the same as the market value of the iShares Silver Trust today. If you wanted to build another silver fund, you couldn’t. There just isn’t enough silver bullion out there to fill the order.

Even trying to amass that much physical silver would send the silver price soaring. It’s a simple market fact… When there is more demand than supply, it drives the price up.

And the economic problems confronting Europe and the United States have increased interest in precious metals… Silver gained a colossal 174% from August 2010 to April 2011.

In May 2011, however, the price collapsed 31% in just four weeks. The bull market simply ran up too far, too fast… and the decline wiped out many highly leveraged silver traders.

The big money is tiptoeing back into silver.

Last month, commodity trading advisors, pool operators, and hedge funds — the “big money” — weren’t interested in silver AT ALL…

But as they move back into the market, silver prices could soar. Let me show you what I’m talking about…

Jason Goepfert created SentimenTrader, a service that tracks investor sentiment toward various asset classes. According to Jason, silver just bounced off its most pessimistic reading in four years.

The so-called “commitment of non-commercial traders” hit 10,352. That’s incredibly low. The last time sentiment numbers were that low was in August 2007. Six months later, the price of silver was 59% higher. It rose from $12 per ounce to $19 per ounce.

I went all the way back to 2002 and found that silver sentiment bottomed near 10,000 six times… On average, the price of silver rose 33% in the next six months and 54% over the next year. This chart shows the last four times it bottomed…

Here’s how the silver price performed after each of the last four times silver sentiment bottomed out…

The best return came after Bottom No. 2, which coincided with the US banking/credit crisis. Silver soared an eye-popping 405%, including its parabolic rise in 2010.

As those numbers indicate, silver is one of the most volatile assets in the world. Over the last year, silver has seen massive price swings, including an 81% rally and two 30% drops. That forced many traders to liquidate their silver holdings in order to meet emergency short-term requirements. (Plus, the debacle at commodity broker MF Global has scared many folks out of the market.)

But the long-term drivers of gold and silver’s uptrends are still in place. Enormous and growing Asian economies like China and India are getting richer…and they have deep cultural affinities for precious metals. Plus, the Western world has lived way beyond its means for a long time…the debts and liabilities it has taken on can only be paid back with devalued, debased money. This is bullish for “real money” assets like gold and silver.

With sentiment so negative toward silver (and just beginning to turn back up), it’s a great time to take a position in this long-term bull market.

If gold and silver prices are nearly certain to rise over the next few years (and probably rise dramatically), the simplest way to play that trend is to buy bullion…real, hold-in-your-hand silver coins.

And I recommend everyone do just that… Buy some silver and store it away.


Matt Badiali ,
for The Daily Reckoning

Buy Silver…Now! originally appeared in the Daily Reckoning. The Daily Reckoning provides over 400,000 readers economic news, market analysis, and contrarian investment ideas.


China Buying Silver to $100 Plus an Ounce

Chinese demand to Buy Silver for solar panel manufacture will push the price to three digits, says this fund manager…

MANAGING big-cap growth stock market funds since 1999, Stephen Leeb ,chairman and chief investment officer of Leeb Capital Management,€“ has recently been a big proponent of silver, calling for the Silver Price to rise above $100 an ounce, despite its record price being half that.

Here Stephen Leeb talks to Hard Assets Investor’s managing editor Drew Voros about why he believes demand to Buy Silver, particularly from China, will push the commodity up to three-digit prices.

Hard Assets Investor: You have declared that silver is a “three-digit” commodity. Why?

Stephen Leeb: I think there are two crucial fundamentals. One, silver’s a monetary metal, although not as widely recognized as a monetary metal as gold right now. But it certainly has a history of being a monetary metal. People will price it for that. You have a race to the bottom in terms of all the current reserve currencies, like the Euro and the Dollar. The action in gold is certainly evidence of that. The fact that silver’s price [has been] holding in the upper 30s is pretty good. There’s a lot of downside protection in silver because of its monetary component.

On the industrial side, silver is critical. Silver has properties that cannot be duplicated on many levels. It is the best thermo-conductor of anything that’s found. It conducts heat better than anything else. It conducts electricity better than copper or anything else. And, it’s one of the best reflectors. Is it really surprising then that silver is a critical component on most solar applications? China right now is spending about $1 trillion a year on alternative energies. China controls the solar industry. They have at least 50% market share. They’ve been underbidding, undercutting everybody in the development and acquisition of polysilicon. After which comes silver. In order to build these solar panels, you need silver.

You have a potential, utter squeeze coming on silver, a monetary metal with critical industrial applications. The Silver Price is trading around $39 and hasn’t even come down 10% since the market started sliding. It’s a great hedge in deflation. You’re going to have demand for silver coming from two places, which I don’t think you’re going to be able to satisfy, given that silver production today is rising at a much slower rate than it was in 2010, despite the fact that Silver Prices are higher. That dictates dramatically higher prices for silver.

HAI: Do you think the solar element is something that is being overlooked in terms of the demand?

Leeb: Totally. China will start Buying Silver much more aggressively and start accumulating it. There’s very little doubt in my mind that China will be accumulating massive amounts of silver.

HAI: For silver to achieve three digits in price, would it be a slow, steady march, or something that would rocket up?

Leeb: I don’t think it would be a single event. I wrote a book, The Oil Factor, and in it I made the call for $100 [a barrel] oil. I said “three digit oil”. When the book was published in 2004, oil was around $30 or so, about the same price as silver is now. It took about three years to get to three digits. But there was no event that triggered the big jump in oil prices. There has been no event that has triggered the big jump in Euros, other than the gradual realization that there are no reserve currencies in the world that are worth a darn. The same realization will keep silver in a strong, long-term uptrend. I think people are going to be very surprised, very surprised, when the Silver Price just goes past $50.

HAI: Is $50 the figure that, once it breaks through that, it can take off, or is it further up the line?

Leeb: No, people make too much of these breakout points. If it goes to $50, it’s likely to go to $51 pretty quick. I’m sort of being funny. I don’t think that it’ll tick at $50, and then the next tick will be $80. If it goes to $50 it will likely get a little pop, maybe low $50s or mid-$50s and walk around there for a while and then go up again.

HAI: Do you think that that would happen independent of gold?

Leeb: It will be independent of gold. I think all commodities are going to have to go a lot higher. I just don’t think there are enough commodities out there to build out renewal or alternative energies. I don’t think China realizes it. I mean, you’ve got peak [price] coal, you’ve got peak oil, peak everything. Silver, even without the monetary component, would make it into three digits.

HAI: You seem to have a bullish sense of growth; global growth as well?

Leeb: I wouldn’t say global growth. I’m bullish on Chinese growth. China’s a wicked enemy of ours. They’re monopolizing resources. They’ll continue to do that because I think they’re looking out for their own. It’s hard to have a totally bullish outlook on growth when you’re looking at resource scarcities that are going to affect China as well.

HAI: Do you think that gold and silver are in the same asset class?

Leeb: They’ve never been in exactly the same asset class. There’s no industrial use for gold. It’s become ever-more recognized as a possible reserve currency. Silver does have industrial uses. It’s industrial vs. nonindustrial. They’re totally different classes. But silver overlaps. In a diagram, you would have silver in both sets: the industrial set as well as the monetary set.

HAI: What fundamentals of silver do you worry about? What would change your opinion?

Leeb: A lot of it has to do with China. What would change my opinion? If we found other ways of creating solar energy that did not involve silver, and I don’t see any on the horizon, that certainly would merit reconsideration. If China collapsed, then the calculus surrounding the world totally changes, including silver, but not just silver.

HAI: How should a retail investor approach silver as an investment?

Leeb: I would approach precious metals as an asset class in and of itself. As an asset class, you try and diversify within the class. There are the commodities themselves, which you can buy through an ETF or you can buy through coins. There are lots of ways of participating. There are senior miners. There are junior gold miners, like NovaGold, which happens to be one of my favorites. Not only does it mine gold, it has a lot of copper. There are going to be seniors like Goldcorp., like Barrick.

HAI: What would you suggest for an asset allocation in precious metals?

Leeb: It makes sense to weight it at least on the same level as you would weight stocks. Whatever your highest allocation is, precious metals should be higher than that allocation.

22 August 2011

Gold and Silver Imports in India Surge 222% Amid Worry Over Currency Devaluation

Gold was marginally higher in most currencies Tuesday and on the verge of making new nominal highs in dollars, euros and pounds.

It is holding near record highs as there is no quick end in sight to economic turmoil in Europe after Greece was told to approve brutal new austerity measures to avoid defaulting on its debt. This would threaten the solvency of many western banks and the European Central Bank’s Fernandez Ordonez (member of the ECB’s governing council) warned Tuesday morning that the Greek crisis could have “€˜transcendent consequences€™”.

Further evidence of continuing very significant and robust demand from Asia and from China and India in particular was seen in massive Indian gold and silver imports. The figures released overnight showed a huge surge of 222% in May 2011, compared with May 2010.

Cross Currency Rates

Imports of gold and silver were a staggering $8.96 billion in May, a growth of 500% over the previous month and 222% over last year.

Official inflation rates in India have surged to 8.65% and people on the Indian sub continent are concerned about the devaluation of the rupee and the erosion of the purchasing power of their savings.

While the rupee has maintained its value against the beleaguered U.S. dollar it has fallen sharply against gold and silver and against oil and the other food and energy commodities.

Gold has always been seen as a store of value against currency debasement, inflation and hyperinflation in Asia. This is especially the case in India and we appear to be witnessing an acceleration in the recent trend of Indians opting to buy gold and silver bullion in order to protect their savings.

India’s central bank, the Reserve Bank of India, bought 200 tonnes of gold from the IMF in the months preceding an announcement in November 2009. Given its huge dollar reserves it is likely that it is continuing to diversify foreign exchange holdings and further announcements of increased gold reserves are likely in the coming months.

Despite the increase in reserves its gold holdings remain paltry when compared with the U.S. and European gold reserves.

Most creditor nation central banks in the world are now diversifying out of the major currencies, the dollar and the euro, and into gold. These include the People’s Bank of China, the Russian central bank and central banks in Sri Lanka, Bangladesh, Mauritius, Mexico, Iran and Saudi Arabia.

News came Monday that Russia’€™s central bank again increased its gold holdings to 26.7 million troy ounces last month, from 26.5 million at the end April. The Bank of Rossii said its gold reserves were valued at $41 billion as of June 1, compared with $40.7 billion a month earlier.

It is interesting that the Reserve Bank of India has granted licenses to seven more banks to import gold and silver bullion and this is indicative of the favorable view of gold and silver in India – both amongst the public and at the official level.

Indian banks are thus likely contributing to the massive increase in demand for gold and silver. Chinese banks are also catering to the increased demand of Chinese people for gold bullion for investment and savings purposes.

This is in marked contrast to their western banking counterparts, the vast majority of which, do not offer gold or silver investments at all.

As of the start of 2011, some 30 banks in India have been granted permission to import gold and silver. New additions to the list were Karur Vysya Bank, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, Punjab and Sind Bank, South Indian Bank, State Bank of Mysore and State Bank of Travancore.

Since the start of 2011, India’s benchmark stock index, the Bombay Stock Exchange Sensitive Index, is down by more than 14% while gold in rupee terms is up 9%. The Sensex is essentially flat in the last year and the last 3 years despite soaring inflation.

The increased demand from India and wider Asia is sustainable and one of the fundamental reasons that gold and silver’€™s bull market remain very much intact.

Importantly, China was expected to surpass India as the world’€™s largest gold importer this year. After the most recent Indian import figures this is now not certain.

Chinese investors more than doubled their purchases of gold during the first quarter in 2011, compared with the same period last year. China invested $4.1 billion into gold bars and coins during this first quarter of 2011.

China’s investment demand increased to 90.0 metric tonnes (40.7 tonnes in the year prior), compared with India’s 85.6 tonnes.

Gold in Australian Dollars Breaking Out?

In a report Tuesday, the Australian Bureau of Agricultural and Resource Economics and Sciences conservatively estimated that bullion may average $1,500 an ounce this year. The metal has averaged $1,445 so far in 2011.

“€œUncertainty about the ability of many developed economies to stimulate economic growth and control growing budget deficits is expected to encourage investment demand for gold as a lower risk, or safe haven, asset,”, the Canberra-based agency said.

Despite some calling the Australian dollar a “€œsafe haven”€ currency, the Australian dollar has been sold recently and gold appears to be in the early stages of breaking out in terms of Australian dollars.

This is another indication of the global nature of gold’€™s bull market and the fact that all fiat currencies are now vulnerable to currency debasement and devaluation. Focusing on gold solely in U.S. dollar terms remains simplistic and misleading.

Gold’s consolidation in recent months in all currencies and gradual gains since late January suggest that we may be on the verge of a break out in all currencies and a powerful move upward in the next leg of the precious metal bull markets.

Piling Back Into Silver for the Long Haul

The silver market has been even more spectacular on the way down as it was on the way up. Since I claimed that silver was in a blowoff top on April 25, silver has lost 25% of its value. However, due to long-term fundamentals as well as shorter-term technical considerations, we believe it is time to begin scaling back into silver long positions.

Here is a link to a chart of silver with aggregate open interest on silver futures on bottom.

Note how open interest swells and peaks during silver rallies, and bottoms during the bottom of corrections. The reason for this is that the open interest on silver futures rises or falls with the amount of speculators in the market. For example, the recent sharp dropoff in open interest indicates that many long speculators were liquidating their positions, causing a sharp fall in the number of open contracts.

However, silver’€™s rally on Friday brought a renewed uptick in open interest, which we believe may mean a return of Managed Money to silver. As denoted by the white dotted line, the aggregate open interest in silver futures appears to be in a long-term uptrend, albeit with a bumpy ride along the way. We have been waiting for Managed Money to return to their previous high of net length, but the recent silver rally was fueled almost entirely by retail ETF and physical buyers. Managed Money’€™s prescience in staying away from the silver rally after September 2010 was uncanny, but we believe the long-term fundamentals of the silver market will eventually draw them back in.


Ironically, while commodity markets sold off this week, bullish fundamentals for commodities actually strengthened. Jean-Claude Trichet’s dovish statements indicating that further rate increases were unlikely is further affirmation that developed economies have extremely limited ability to raise interest rates. The fact that even Trichet, the most hawkish developed economy central banker, is unwilling to raise rates more than nominally indicates the growth dilemma that the world’€™s major economies face: either maintain low interest rates, fuel speculative asset bubbles and fan inflation, or raise interest rates and risk renewed recession.

The US dollar’€™s recent weakness against the euro provided much of the last legs of the upward surge in commodities, but the unexpected US dollar rally on Thursday was too much for commodities to bear. The euro falling by 2% against the dollar unleashed the floodgates on selling by weak longs. However, going forward I firmly believe that both commodities as well as the dollar index will rally. While the dollar will continue to lose value against commodity and emerging currencies such as the Australian dollar, Canadian dollar, and Brazilian real, the dollar should do well against the euro, pound and yen due to the superior economic position of the US. In such a manner, the dollar as measured by the dollar index can rally along with strengthening commodity prices.

If further dollar index rallying causes more short-term pain for commodities, I would advocate being a heavy buyer of commodities, as fundamentals are only getting more bullish. As the market realizes that long-term fundamentals of commodities are unrelated to the dollar index, both can rally in tandem.

Trade Recommendation

We would recommend scaling into a long futures position in silver, as well as the sale of put options. However, due to the extreme volatility inherent in an ongoing correction, investors should not take out their full position at once, but instead be ready to buy more in case of further correction. We view $30/ounce as a hard floor on the price of silver, and the purchase of silver futures anywhere between 30-35 as an attractive long-term entry point.

As a trade, an investor could buy the July silver futures contract for 36.145 and sell the June 40 call for $1. The net effect of the trade would be an entry price on silver of $35.145. The $30 strike price puts should be sold on silver during corrections, going out as far as the December 2011 expiration. The purchase of bull call spreads can also be explored by traders who wish to gain greater upside leverage to silver prices.

We continue to favor investment in SLW as the premier silver equity. Due to the high implied volatility of SLW and recent massive underperformance of SLW compared with silver, we view the sale of put options against SLW as a highly attractive trade. The January 2012 $35 put options could be sold for $6.25, giving an investor the effective entry price of $28.75 for SLW stock. On a long-term basis, $28.75 is an excellent entry point for SLW stock, and the investor will profit handsomely if SLW is above $35 upon expiration.

May 11th, 2011
By Anathan Thangavel

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