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Posts Tagged ‘gld’

Marc Faber: It Will End Either Through War Or Financial Collapse

July 30th, 2013

marc faberWell known contrarian economist Dr. Doom Marc Faber weighs in on the state of the global economy and current events. Read more…

Consumer, Economy, Government, World News

UNPRECEDENTED Shortages Of Ammunition, Physical Gold and Silver

April 25th, 2013

gold silver coinsAll over the United States we are witnessing unprecedented shortages of ammunition, physical gold and physical silver.  Recent events have helped fuel a “buying frenzy” that threatens to spiral out of control.  Gun shops all over the nation are reporting that they Read more…

Commodities, Economy, Gold, Government, Markets

4 Financial Resolutions for 2013

January 2nd, 2013

This is the time of year for making New Year’s resolutions. And I have four that are guaranteed to make your portfolio bigger, fatter and wider a year from Read more…

Uncategorized

Why We Expect To See $2,300 Gold Prices By January 2014 (GLD, IAU)

October 21st, 2012

Jeff Clark: While many of us at Casey Research don’t like making price predictions, and certainly ones accompanied by a specific date, it’s hard to ignore the correlation between Read more…

Commodities, ETF, Gold, Precious Metals

Gold Investors: Your Guide To Physical Gold Bullion

October 17th, 2012

Gold is one of the rarest metals in the world, and has a long history as a valuable and intensely sought-after element. The precious metal has served as the basis for physical currency for thousands of years, and many monetary systems throughout human history have utilized a gold standard Read more…

Commodities, Gold, Investing Guide, Precious Metals

Experts Say That A Stock Market Crash Is Coming (JPM, BAC, GS)

October 10th, 2012

In the financial world, the month of October is synonymous with stock market crashes.  So will a massive stock market crash happen this year?  You never know. The truth is that our financial system is even more vulnerable than it was back in 2008, and financial experts such Read more…

Economy, Financials

Raising the Margin Requirements

May 3rd, 2011

Well… There sure are a bunch of different opinions about what the effects of Bin Laden’s death will be… Yesterday, it sure seemed as though it was a good thing to happen to the dollar, right about the time the dollar was about to head to doomsville…especially against gold and silver… I guess all those people selling their metals yesterday thought that by killing our #1 enemy the geopolitical problems of the world just went away… I’m afraid and sorry to say that the geopolitical problems of the world are not going away; and if anything, I would think that they are now heightened… We could see a spark of retaliation… I mean, didn’t we get very upset when we saw “them” dancing in the streets after 9/11?

OK… So… Silver really got sent to the woodshed yesterday after having to go out, find its own switch, and then get whipped with it! (Used to happen to me on the farm!) You see, silver saw its margin requirement raised, which was really a blow to the metal. The commodities exchange announced yesterday that they were raising the minimum amount of cash that must be deposited when borrowing from brokers to trade futures, from $14,513 to $16,200…

I’m not saying this just to fill space here, folks… But the folks at the commodities exchange sure put the “speculative element” to bed for silver, eh? Now… When I came in this morning, the silver price had gained back $1.50 of the $5 it lost yesterday… But as I write, the recovery in silver is fading fast…

You know… Many years ago, I banged on Fed Chairman Big Al Greenspan for not raising the margin requirements on equities, especially after his “irrational exuberance” statement… But, that’s water under the bridge…

So… This morning we’re looking at one of those “risk off” days, with the dollar, yen (JPY), and Swiss franc (CHF) all in rally mode. US Treasury yields are heading back down again, or have headed back down I should say… Which makes no sense to me… The Fed’s buying program is winding down, which underpinned yields, and kept them from rising too much, but with that going away, one would think that with the main buyer gone from the markets, that Treasuries would be getting weaker, and weaker… But NOOOOOOOOO! Instead they are getting stronger and stronger… Where are the bond vigilantes? And, isn’t the US still trying to figure out their debt ceiling? I thought so!

So… A dollar rally going on this morning… With very little in the way of data in the cupboard for us to chew on… We will see the color of factory orders, but that’s it…

I see where US Treasury Secretary Geithner extended the debt-ceiling deadline to August 2nd. Apparently, Treasury Secretary Geithner paid his taxes this year, because he mentioned that tax receipts were better than expected! HA! So the deficit spending flag wavers are now dancing in the streets, because this just means that now the US can continue to deficit spend even longer without facing the music! I shake my head in disgust…

Well… There was good news in the world that wasn’t tied to OBL… And it came from Brazil… Yes, the country that has done nearly everything they possibly could to stem the appreciation of the real (BRL), saw a very strong trade surplus, which leads me to ask the question, “Why penalize the currency when the strength of the currency isn’t hurting exports?” Brazil’s trade surplus reached $5.03 billion in the first four months of this year, a 132% increase from the comparable period last year, the government announced. This year, exports from Brazil totaled $71.4 billion, while imports were worth $66.67 billion.

Remember last week, when I explained the interest rates on non-deliverable currencies, like China, Brazil and India? I told you that speculators drive the interest payments that could be paid, down, by making it so expensive to buy the currency forward? Well… That’s what we’re seeing in Brazil right now… Everyone wants a piece of Brazil these days…and that might not be a good thing… But as long as you’ve listened to these warnings about only using the speculative portion of your investment portfolio to buy reals, you’ll ride the waves…

Chris Gaffney gave me his Economist from last week to read on the plane ride home on Sunday, and I found a piece in the magazine on Greece and their debt situation… I was reading it, and thinking to myself… This is the same stuff I wrote about a couple of weeks ago! You don’t think? Nah… Just a co-inky-dink… But, to repeat… Here’s my thought from the April 19th Pfennig

When is Europe going to restructure the Greek debt once and for all? Rather than have these problems continue to come back and bite them in the rear every time it looks like the Eurozone is ready to move forward… Again, I’m feeling quite regal this morning, and once again, if Chuck were king… Look, most of the Greek debt is either held by the ECB or Greek Banks… So take the hit on a maturity extension and get it over with! Greece has this maturity schedule: 2011: 39.7 billion, 2012: 45.2 billion, 2013: 40.6 billion…

Yes… That was me! And now The Economist agrees… Extend the maturity on the debt, forego some payments of interest and be done with it! And then maybe, just maybe, we could go six months without hearing about Greek debt!

I’m reading my friend John Mauldin’s new book, Endgame, and he sure spends a lot of time talking about and referring back to Greece and their debt… I’m only part way through the book, but so far, I like it…

The Reserve Bank of Australia (RBA) left rates unchanged last night (no surprise here), but maintained a clear tightening bias… I think the thing that stung the Aussie dollar (AUD) – bringing it back to $1.08 after hitting an all-time high of $1.1012 yesterday – was the statement by the RBA after the rate announcement that… “The Australian dollar strength was exerting additional restraint on the trading sector”… I would have to say I agree with them… It’s not like I didn’t enjoy seeing the Aussie dollar rise to $1.10, it just didn’t look right to me… And like the RBA said, the level was adding additional restraint… There’s a time and place for A$1.10, but I don’t think we’re there yet… So, I think seeing profit taking is healthy…

Then there was this… You know… The number one question I’m asked all the time, is “Do I think that the government will confiscate everyone’s gold like they did in the ‘30s?” And I always have the same answer… While I wouldn’t put it past this government to attempt to do it… I doubt they would… You see, in the ‘30s gold was a part of our money, tied to the dollar… If the US wanted to increase their debt spending, they had to have the gold to back it, so they took/stole/confiscated everyone’s gold. But gold isn’t a part of our money any longer, and so, why would the government need to take everyone’s gold again? Besides, there are too many of us that now own gold, and the pitchforks and rakes would be raised!

Well… I see where the great mind, Richard Russell, had something to say about this question of whether the government would take people’s gold again…

I’ve thought about this at length, and I’ve arrived at what I believe to be the correct answer. The answer is – No, the government will definitely not call in the gold. The simple reason is that a tremendous amount of gold is held in very powerful hands. Gold (GLD) and gold bullion is held by pension funds, university endowment funds, large powerful hedge funds, corporate reserves, and state treasuries.

In other words, my thesis is that gold is now in such powerful hands (much of it even political) that there’s no way that the US government would call in gold. Furthermore, what purpose would it serve if the US did call in the gold? In 1933 Roosevelt called in privately-held gold and then raised the price of gold from $20.22 to $35 an ounce, this in an effort to reinflate the depression-laden economy.

Thanks to Richard Russell…one of my fave writers!

To recap… Experts are debating the Bin Laden effect with varying opinions… But, in Chuck’s eyes, the geopolitical problems of the world continue to ramp up, with the fear of retaliation. It’s a risk off day, with dollars, Treasuries, yen, and francs all rallying… Silver saw a huge loss yesterday after the CME raised the margin requirement for the metal. Brazil’s trade surplus widened, which makes one wonder why the Brazilian government has spent so much on trying to keep the real from getting strong!

Chuck Butler
for The Daily Reckoning

Raising the Margin Requirements originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
Raising the Margin Requirements




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Making Friends With Precious Metals

April 15th, 2011

The stock market continues wobbling today, as gold and silver continue soaring – gold has jumped almost $30 an ounce over the last two days to a new all-time high of $1,485.00, while silver has popped almost two dollars to a new three-decade high of $42.75 an ounce.

And the show is probably not over yet…

Your editors here at The Daily Reckoning have been long-standing – and sometimes long-suffering – fans of gold and silver. And yet, even they are amazed by the robust price action in the precious metals pits. Like watching a hotdog-eating contest, you know ahead of time what you’re going to see. But when you actually see it up close and personal, the images before your eyes are still hard to believe.

Most financial market observers say the precious metals are “way overbought.” This hotdog-eating contest is over, they insist, and the folks who have gorged themselves on gold and silver are likely to suffer severe indigestion.

Your editor’s disagree. The precious metals markets will certainly digest their gains. But indigestion is the fate that awaits Treasury-bond buyers and dollar-holders, not gold-holders.

“The trend is your friend,” as seasoned investors like to say…and few trends are friendlier at the moment than the upwardly sloping trend of precious metals prices.

Ironically, this friendly trend results directly from one of the unfriendliest trends of all: the dollars in your pocket are losing value as quickly as a freshman Congressman loses credibility.

The dollar’s bearish trend is well established…and actively nourished by the Federal Reserve itself. Ben Bernanke has promised to erode the dollar’s value…and we believe him. So does billionaire hedge fund manager, John Paulson.

Gold will continue to rise, Paulson predicts, “in proportion to the creation of paper dollars… In these times of uncertainty for paper based currency, I feel more secure in holding gold; [it] offers good protection against the paper currencies devaluation and even the possibility of generating a return.”

Putting his money – and his clients’ money – where his mouth is, Paulson has amassed sizeable positions in various precious metals investments.

The Paulson Fund’s number one holding, representing 15% of its assets, is the SPDR Gold Trust (NYSE:GLD). The fund holds more than 31 million shares of GLD, along with 41 million shares of Anglogold Ashanti (NYSE:AU) and large positions in Gold Fields Ltd., Kinross Gold Corporation (NYSE:KGC), Novagold Resources Inc. (AMEX:NG), $40 Million of Randgold Resources (NASDAQ:GOLD), and Barrick Gold Corp. (NYSE:ABX).

Importantly, Paulson is not trading his gold positions, he is simply amassing them. Perhaps there is a lesson there.

The high day-to-day volatility of the precious metals tempts some of us non-billionaire investors to trade in and out of them. Probably, that is a temptation worth resisting.

Recently, an acquaintance made one of the best investment calls of his life…and one of the worst trades of his life. He did both things at the same time in the same market.

Sometime around last Halloween, this acquaintance concluded that silver was poised for a major move to the upside. The move he anticipated was so major, in fact, that he decided to purchase call options on silver, rather than just buying and holding some silver.

He loaded the boat on call options – buying various strikes with various expiration dates between November 2010 and April 2011. He established his largest position in far-out-of-the-money April calls. Hold that thought.

The friend booked small profits on his November and December options. But then his fortunes turned south. After hitting about $31 an ounce in early January, the silver price tumbled toward $26.

This sharp, swift correction wiped out his January and rendered his February calls almost worthless. He lost a lot of money. He panicked. As silver rebounded from its February lows, he salvaged what he could from his disastrous trade by unloading his February options for a large loss and his April options for a small loss.

Silver continued rallying…and rallying…and rallying. The friend watched. (Perhaps he cried privately). Today, the April options he sold for no gain are worth about eight times his original purchase price.

Too bad he traded silver, instead of simply buying it.

Your editor’s friend is a big boy. He won’t rue his unfortunate trade for long. But most of us probably would.

Bottom line: Silver, like gold, is money. Silver and gold are hedges. They are “anti-dollars.” So if it’s anti-dollars you want to own, just own them.

Eric Fry
for The Daily Reckoning

Making Friends With Precious Metals originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

Read more here:
Making Friends With Precious Metals




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

OPTIONS, Uncategorized

Quick Checking the Band of Support in Gold GLD at New Highs

April 5th, 2011

As of this moment, Gold and GLD are threatening another poke-out to new lifetime highs this morning, so let’s zoom-in to the daily chart and see the current chart picture and current levels to watch for positioning.

GLD Daily:

Getting straight to the point, there is a clean horizontal band of lower support in the highlighted region from $137 to $139.

That’s the level you should watch closely if trading long – gold should not breakdown under the $137 confluence level of the 50d EMA, lower daily Bollinger Band, and horizontal support level unless something went terribly wrong.

Otherwise, the $139 level is the upper pivot that would flash a caution sign should GLD breakdown under $139 soon.

Barring those ‘bearish’ or ‘non-confirmation’ developments, GLD and Gold appear poised to push for another try at lifetime highs again.

It’s been puzzling that Gold can’t impulse powerfully higher as it breaks to new high territory, but that’s just part of the current chart-scape we need to watch closely and without blind bullish (or bearish) bias.

The $141 level in GLD is the breakout pivot – or alternately short-term “Triple Top” pattern of tests outside, and rejections beyond, the upper Bollinger Band.

I’d like to see volume a bit higher given the ETF is at new highs but that’s yet another sign of caution to monitor that should prevent rampant, unchecked bullishness at this very moment.

Here’s the simple chart picture for Gold itself:

Without getting into too much detail, the daily “Band of Support” rests between $1,400 (a very obvious level) and $1,420.

The minor $20 band above that is where we are now – $1,440 to $1,420.

Any move soon under $1,420 (20 day EMA and band of support) is a caution/warning sign, and anything back under $1,400 for more than a day or so is a very big warning sign.

Note the long lower shadows of ‘rejection’ or buying tails in mid-March under $1,400 – a bear trap.  Always monitor real-time developments when price breaks a critical support (or resistance) area for anything suspicious or out of place.

Big buying tails (lower shadows) at the 50d EMA is indeed suspicious and as you can see, the minor break was just a mean Bear Trap that resulted in a push to new highs.

Keep these levels – particularly the Daily Band – in mind as you position or trade into Gold and GLD.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Quick Checking the Band of Support in Gold GLD at New Highs

ETF, Uncategorized

Quick Checking the Band of Support in Gold GLD at New Highs

April 5th, 2011

As of this moment, Gold and GLD are threatening another poke-out to new lifetime highs this morning, so let’s zoom-in to the daily chart and see the current chart picture and current levels to watch for positioning.

GLD Daily:

Getting straight to the point, there is a clean horizontal band of lower support in the highlighted region from $137 to $139.

That’s the level you should watch closely if trading long – gold should not breakdown under the $137 confluence level of the 50d EMA, lower daily Bollinger Band, and horizontal support level unless something went terribly wrong.

Otherwise, the $139 level is the upper pivot that would flash a caution sign should GLD breakdown under $139 soon.

Barring those ‘bearish’ or ‘non-confirmation’ developments, GLD and Gold appear poised to push for another try at lifetime highs again.

It’s been puzzling that Gold can’t impulse powerfully higher as it breaks to new high territory, but that’s just part of the current chart-scape we need to watch closely and without blind bullish (or bearish) bias.

The $141 level in GLD is the breakout pivot – or alternately short-term “Triple Top” pattern of tests outside, and rejections beyond, the upper Bollinger Band.

I’d like to see volume a bit higher given the ETF is at new highs but that’s yet another sign of caution to monitor that should prevent rampant, unchecked bullishness at this very moment.

Here’s the simple chart picture for Gold itself:

Without getting into too much detail, the daily “Band of Support” rests between $1,400 (a very obvious level) and $1,420.

The minor $20 band above that is where we are now – $1,440 to $1,420.

Any move soon under $1,420 (20 day EMA and band of support) is a caution/warning sign, and anything back under $1,400 for more than a day or so is a very big warning sign.

Note the long lower shadows of ‘rejection’ or buying tails in mid-March under $1,400 – a bear trap.  Always monitor real-time developments when price breaks a critical support (or resistance) area for anything suspicious or out of place.

Big buying tails (lower shadows) at the 50d EMA is indeed suspicious and as you can see, the minor break was just a mean Bear Trap that resulted in a push to new highs.

Keep these levels – particularly the Daily Band – in mind as you position or trade into Gold and GLD.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Quick Checking the Band of Support in Gold GLD at New Highs

ETF, Uncategorized

Chart of the Week: Flight to Safety ETPs

February 28th, 2011

It has already been an interesting year for students of market sentiment, volatility and geopolitical influences on financial markets. We have seen revolutions of various sizes and shapes in the likes of Tunisia, Egypt and Libya, with smaller uprisings in Bahrain, Algeria and elsewhere in North Africa and Middle East. For the most part, volatility in the equity markets has been rather muted prior to the Libyan revolution and its influence on crude oil prices.

In this week’s chart of the week, I examine the year-to-date performance of five exchange-traded products (ETPs) that are central to the flight-to-safety trade. They include volatility (VXX), gold (GLD), oil (USO), the dollar (UUP) and U.S. Treasuries (TLT).

Note that with the exception of crude oil, the political unrest in North Africa and the Middle East has not been disruptive enough to make these trades profitable ones in 2011, though there has been an uptick across the board since violence heated up in Egypt on January 25th and in Libya starting on February 15th. The VXX chart does an excellent job of capturing the nature of the VXX gambit. Even with the geopolitical turmoil and spike in crude oil prices, this ETN is still down 16.2% on the year. The volatility spikes have provided VXX longs with very short-lived opportunities to capitalize on heightened market anxiety, with the chart reflecting the continued downward trend and high volatility in this ETN. [As an aside, a similar chart swapping VXZ for VXX would show very little difference in terms of performance.]

So the next time you think about a long volatility position in the context of a geopolitical crisis, give some strong consideration to some alternative flight-to-safety plays.

Related posts:

[source: ETFreplay.com]
Disclosure(s): long VXZ, short VXX, USO and TLT at time of writing



Read more here:
Chart of the Week: Flight to Safety ETPs

ETF, Uncategorized

The Biggest Resource Stories for 2011…and Beyond!

January 11th, 2011

I’m going to countdown three of 2010’s biggest resource stories – not to reminisce about profitable investments from the year gone by, but to highlight what I believe will be very profitable investments in the year ahead…

No. 3: The Continuing Gold Rush

The gold price soared nearly 30% last year – punctuating a spectacular decade-long run that has seen the gold price quintuple! So has gold finally reach a “bubble phase?” Is the great gold bull market on its last legs?

In a word, No!

If gold is in a bubble, then it’s one heck of a bubble. Not even the 2008, economy-wrecking market crash could pop it. Gold is not in a bubble; it’s in a big bull market, plain and simple.

As stories about quantitative easing and other forms of overt currency debasement crossed the newswires last year, investors became increasingly concerned about the value of the paper they call “wealth.” Increasingly, these concerned investors have been shifting some of their wealth from paper to gold…and other hard assets.

Plus, it’s easier than ever to “own” gold (so to speak) via the rise of exchange-traded funds (ETFs) like SPDR Gold Trust (NYSE:GLD). With a click of your mouse, you can buy into the new gold rush – although in many respects it’s better to buy real gold and take delivery, a point that I’ve made over and over.

At the same time, the world’s gold buyers are chasing declining mine output. That is, despite the rising price of gold, the world is likely past the point of Peak Gold output. All the output from new mines isn’t replacing the decline in output from older mines.

But demand is the main story in the gold market…demand for real money, not the paper kind. The monetary universe is changing in a fundamental way, with the price of gold serving as the barometer, thermometer and inclinometer. The cozy old economic order – post World War II, with the US dollar as the world’s reserve currency – is passing away, and things won’t ever go back to the long, lost “good old days.”

I’ve had endless discussions with skeptics about “why gold prices are rising.” Of course, the skeptics can deny, up and down, the meaning of rising gold prices. But at the end of the day, investors and savers around the globe are becoming increasingly fearful of holding paper currencies.

I won’t even go into the monetary problems that national governments across the world are facing with fiat currencies. Just accept the fact that mankind’s monetary default position is gold, and that’s been the case for 5,000 years or more. Don’t fight history.

Here at Agora Financial, we’ve been recommending that readers buy gold since the late 1990s, when it was selling for under $300 per ounce. We still like it at $1,375 an ounce.

When it comes to gold, there’s one key idea to take into 2011: Gold is money. And gold makes better money than the government-issued kind. The big risk of owning currency and bonds is that any Tom, Dick & Harry – OK, the politicians and bankers – can create as much of it as they want. This year and next, your biggest risk is in not understanding that concept.

No. 2: The Shale Gas Revolution

Just a few years ago, the energy investment idea du jour was to build liquefied natural gas (LNG) terminals to handle future imports to the voracious US hydrocarbon market. Remember Cheniere Energy, once the darling of newsletter writers? Now there’s talk of re-tooling some of America’s LNG systems for the exportation of natural gas. Instead of bringing foreign gas to our shores, the newest idea is to liquefy natural gas in North America and export it to Europe and China. In terms of gas, the world has turned upside down.

The world energy landscape has changed with new developments in extracting natural gas from shale beds and tight sands. Innovative extraction technologies have dramatically altered the economics of natural gas extraction in North America. South Africa’s Sasol Corp., for example, is teaming up with Talisman (NYSE:TLM) to turn otherwise stranded gas into liquid fuel in northern British Columbia. It’s a truly revolutionary process – a point that The New York Times made a few days after I mentioned this joint-venture to the subscribers of Outstanding Investments.

Companies like Consol Energy (NYSE:CNX) and MarkWest Energy (NYSE:MWE) are also benefitting from US, Canadian and now global shale gas development. Even our friends the Chinese are coming to the US, to learn how we’re cracking shale for gas, so they can duplicate the effort back in the Motherland.

At the same time, the technology for freeing shale gas is finding its way into the oil patch, with companies like Venoco (NYSE:VQ) working to turn California’s Monterey Shale into a vast new oil resource. There are a lot of hydrocarbon molecules out there. The trick is to harvest them.

Forward-looking investors should not ignore the fact that shale gas development will provide enormous opportunities for the oil service guys, particularly Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI).

There’s much more to come with the shale gas revolution. We’re just in the early innings on this one. There’s plenty of good investing ahead, and a lot of hydrocarbon molecules yet to be sucked out of the crust.

No. 1: The Rare Earths Boom

Rare earths are a group of exotic elements of the Periodic Table (Lanthanides, mostly), with unique electrical, magnetic, optical and other properties. Without them there’s basically no clean tech, green tech, advanced electronics, electric cars, and much more. It’s not that rare earths are geologically “rare.” It’s more that they’re so darned hard to process in industrial quantities, and into high tolerance end products. That is, the end products are mostly in the nature of “designer molecules.”

Thus, doing the rare earths gig is far more than basic exploration, mining and crushing. Doing rare earths correctly involves being really good in chemistry and chemical engineering as well. There’s nothing easy about it.

The big rare earths story for 2010 was how an otherwise obscure sector of the mining and processing industry became a destination point for billions of dollars of new investment. As 2010 drew to a close, we were in a market mania, in some respects, with some rare earth stocks “melting up.” The story was driven by China and its precipitous reductions in export quotas – front page news across the globe.

You may have seen the statistic that China controls about 97% of the world’s rare earths supply. Let’s not quibble about the exact number – a few fractions one way or the other. And when China ratcheted down its rare earths quotas during 2010 – part of a long-range strategic industrial policy, I must add – it shook the Western world to its industrial foundations. It’s all been a shock to the global trading system.

This shock has produced some shockingly large gains in the shares of rare earth mining companies. A lot of these stocks have become very volatile and frothy. So caution is warranted. But the rare earth story is very real and very exciting.

Don’t miss this one!

Regards,

Byron King
for The Daily Reckoning

The Biggest Resource Stories for 2011…and Beyond! originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The Biggest Resource Stories for 2011…and Beyond!




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, ETF, Uncategorized

How to Short Gold…If You Dare

October 13th, 2010

With the price of gold hitting new highs seemingly daily, one would have to be rather daring to swim against the tide.  But if you’re looking to take up a contrarian position against continued gold price increases, there are a few ways you could do so.  First, let’s look at what’s driving the current price action.

What’s Driving Gold Prices?

  • Inflation? Historically, people flocked to gold as an inflation hedge.  Since the value of a dollar (or whatever the local currency is) was losing value in the marketplace, gold was attractive as an anchor currency – a hard asset.  In times of inflation, hard assets like real estate and precious metals increase since their supply is viewed as finite while governments can manipulate currencies to either tame or stoke inflation (given enough time).  This time’s different though.  We are not in a period of inflation.  In fact, we may very well be looking at deflation (examples of deflation investments).
  • Fiat Currency Collapse – No, rather than the specter of hyperinflation driving gold this time around, many attribute the rise in price to a virtual race to the bottom in all currencies.  As governments around the world continue to print more currency to stimulate their economies, the fiat currency model is becoming suspect to the point that people are beginning to lose faith in the true value of their local currency.  Gold is now being viewed as a virtual currency replacement – something that the government can’t simply flip a switch and produce more of.
  • Bubble? – Humans find a good bubble too hard to resist.  From tulips to internet stocks to real estate propped up by liar loans, when it starts to look like easy money is being made and you’re left out, the urge to jump on board is often too much to resist.  For the first time in decades, late night infomercials, radio ads and even respected talk shows are now touting the benefits and safety of gold, with people even setting up Gold IRAs. This was unheard of when gold was at $300/ounce, but one cannot help but notice the current frenzy.  After all, it’s the only asset besides bonds (see how to short bonds too) that’s performed well over the prior decade.

Why Gold Prices Could Fall

  • Correction – Even during periods of bubble formation, assets do decline temporarily, and then they drop precipitously in the end.  Given the pause in the $1000-$1100 range previously and then the rapid ascent to $1370, it’s entirely plausible that gold prices have gotten ahead of themselves and could fall an easy 10% – 20% within a couple months.  After all, the financial system didn’t collapse and Europe didn’t implode.  In fact, the Euro is now rallying against the US dollar – which is good for commodity prices in terms of the USD, but also assures us the world is not coming to an end.
  • Politics – Not to get all political on you, but many view the current administration as somewhat loose with the budget and fear further massive entitlement programs and stimulus packages which would further weaken the US dollar and add to the $13.5 Trillion deficit.  If we get a reversal in momentum at the mid-term elections and Democrats lose their majority, there will be gridlock in Washington with a right-leaning Congress.  Gridlock is often good for stocks and may not be so good for spending programs which would require cooperation amongst the House, Senate and Obama.

How to Short Gold

  • Basic Approach: Short (GLD) – GLD is the most popular gold ETF with plenty of volume and a small bid/ask spread.  By shorting shares, you’d benefit from a downside move.  Note however that this opens you up to unlimited losses and if gold really spikes, this could be a dangerous trade.
  • Basic Approach #2: Long PowerShares DB Gold Short ETN (DGZ) – DGZ would be a means to limit your losses by buying the inverse and benefitting from a decline.  ETNs have some risks including issuer solvency risk and futures roll losses (see ETF 7 Deadly Sins for more on what to watch for).  There is no inverse ETF though, so this may be your only choice for a loss-capped 1X approach.
  • Buy Inverse ETF: Long (GLL) – This ETF seeks to replicate 2X the inverse return of gold daily.  This would amplify both your gains and losses.  Note however that leveeraged ETFs tend to lose value over time regardless of the underlying asset performance due to daily resets.
  • Naked Calls: Sell Out of Money Calls on GLD – This is also a risky strategy, but a means to capture some option premium on a rolling basis if you believe gold won’t breach the strike price you choose.  If GLD is at $134 and you sell a call for $140, as long as GLD doesn’t breach $140 by expiry, that option expires worthless and you keep the premium.  It’s risky though, as your losses are unlimited should GLD exceed the strike.
  • Naked Puts: Buy Out of Money Puts on GLD – This is an option to benefit from a drop in gold prices while limiting your loss.  With GLD at $134, you can buy a put option at 130 strike, Dec expiry for around $3 premium (at a cost of $300 for the contract of 100 shares).  Therefore, if GLD drops below $127 by expiry, it’s all profit from there and you’d have capped your loss at $300.
  • Pairs Trade: A nifty trend to watch for is when the premium on the Sprott Physical Gold ETF (PHYS) gets ahead of historical norms and you can simultaneously short PHYS while going long GLD.  See my recent gold pairs trade result, which was the best risk/return money I’ve made in a long time.

Bear in mind that most options expire worthless, leveraged ETFs lose value over time and opening yourself up to unlimited risk can be catastrophic.  Additionally, different methods have different tax liabilities (see gold taxes for differentiation).  But these are some avaialable tools nonethless.  I make no predictions on where gold is headed from here but I do own a small portion of my trading portfolio (full portfolio holdings/performance) due to the trend, hedging, and belief the we may see further currency devaluations for years to come.  Should you decide to go with the drain and go all-in on the gold trend, there are actually some ETFs beating gold worth a look – silver, platinum and others that have industrial utility as well.

Disclosure: Long GLD.

ETF, OPTIONS, Real Estate

Four ETFs To Cash In On Gold’s Rally

September 28th, 2010

According to a poll amongst analysts, bankers and producers at the world’s largest gathering of the gold industry, the shiny metal is expected to reach $1,450 per troy ounce this year, providing positive price support to the SPDR Gold Shares ETF (GLD), the iShares Gold Trust (IAU), the PowerShares DB Gold Fund (DGL) and the ProShares Ultra Gold (UGL).

One driver behind gold’s expected increase is the fact that numerous central banks are utilizing it as a monetary asset.  Nations such as Russia, China, India and the Philippines, who have traditionally been known as net sellers of the precious metal, have all recently increased their gold holdings to shore up their balance sheets and protect against the potential of a falling dollar.  As a result, these nations are now net purchasers of gold, which is further bolstering demand. 

A second driver supporting gold is the overall fear of a potential double-dip recession in the United States continues to prevail.  In fact, the Conference Board recently reported that its index of consumer confidence fell to 48.5 in September from a revised 53.2 in August, primarily driven by a weak job market and concerns that the job market will fail to significantly improve.  Traditionally, a declining trend in consumer confidence indicates weaknesses in consumer buying patterns, which could be detrimental to overall US GDP growth as that consumer spending accounts for nearly 70 percent of the US economy.

Furthermore, fears of further monetary easing by the US Federal Reserve to further stimulate its economy are providing positive support to the precious metal.  The Fed continues to keep interest rates at near-record lows, and is likely to continue to do so for the remainder of the year, and could potentially further boost money supply.   These policies are likely to lead to inflation and a weaker US dollar. 

Lastly, gold appears to be trading much lower than its inflation-adjusted 1980 prices indicating that there is plenty of upside potential in the metal.

In a nutshell, the overall outlook on gold remains bullish and is expected to remain so in both the near future and the long-term.  As noted earlier, some easily accessible ways to play gold include:

  • SPDR Gold Shares ETF (GLD), which is the most commonly traded gold ETF
  • iShares COMEX Gold Trust (IAU), which is backed by physical gold bullion
  • PowerShares DB Gold Fund (DGL), which holds futures contracts in gold.
  • ProShares Ultra Gold (UGL), which is a leveraged security that seeks to replicate twice the performance of gold bullion

Disclosure: Long GLD

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Four ETFs To Cash In On Gold’s Rally




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10 ETFs To Play Deflation

September 18th, 2010

As deflationary concerns continue to make headlines among investors, dividend paying investments, interest-bearing investments and cash become more appealing.

Weak economic figures, a decline in money supply and fiscal tightening around the world are a few reasons why falling prices could be in the near future. Other factors that could lead to a drop in prices include tight credit markets, declines in consumer spending and high unemployment – all of which lead to a reduction in the demand for goods. Declines in the demand for goods eventually result in excess supply, which further leads to a decline in prices to bring supply and demand in equilibrium.

A fall in prices can be detrimental to an economic recovery if businesses and consumers become reluctant to spend and decide to hold on to any disposable cash. This decrease in money supply is most devastating to economies that are highly dependent on consumer spending, such as the United States. Other results of deflation include erosion of consumer confidence and amplification of the burden of both household and public-sector debt.

Signs of deflation in the US appear to be prevailing. According to the Bureau of Labor Statistics, the consumer price index (CPI) increased a mere 0.3%, which translates to nearly 3.6% annually.  However, when stripping out the volatile food and energy sectors inflation was zero in August.  Furthermore, consumer confidence continues to remain weak.  Although a slight increase in the consumer confidence was seen in August, overall consumers remain pessimistic

has been dropping over the last three months. In June, CPI dropped by 0.1%, in May by 0.2% and in April by 0.1%, pushing the price index below its January 2010 levels. In general, as CPI declines, deflation looms. Additionally, the Federal Reserve recently reported that consumer credit decreased at an annual rate of 4.5% in May 2010 and revolving credit decreased at an annual rate of 10.5% during the same time period. These declines in credit utilization contributed to a 1.2% decrease in consumer spending, a trend prevalent in times of deflation because consumers believe that dollars will be worth more in the future and are postponing purchases.

Generally, cash is the best investment in times of deflation; however, one could also consider investments with a steady cash flow stream that shoot off generous dividends and interest payments or precious metals like silver and gold.

Some deflationary plays, which give diversified access to the dividend-paying stocks, include:

  • PowerShares HighYield Dividend Achievers (PEY), which boasts a yield of 4.64%
  • WisdomTree Dividend ex-Financials (DTN), which has a yield of 4.01%
  • iShares Dow Jones Select Dividend Index (DVY), which has a yield of 3.79%
  • SPDR S&P Dividend (SDY), which has a yield of 3.59%

As for interest-paying ETFs, one could consider the following:

  • iShares Barclays 1-3 Yr Treasury Bond (SHY), which yields 1.18% and primarily holds bonds with a AAA rating.
  • Vanguard Short-Term Bond ETF (BSV), which yields 2.34% and allocates nearly 76% of its assets to bonds with a AAA rating, giving investors a little more return for risk.
  • iShares Barclays 20+ Year Treas Bond (TLT), which boasts a yield of 3.48% and primarily holds bonds with a AAA rating. This is more of a long-term play on deflation, but generates a healthy stream of income.

When it comes to precious metals, it seems like the historical relationship between precious metals and the US dollar has been broken primarily because many are using precious metals as a global currency and the inherent safe haven characteristics that precious metals entail are likely to prevail in the near future.  Some ways to play precious metals include:

  • SPDR Gold Shares ETF (GLD)
  • iShares Silver Trust (SLV)
  • PowerShares DB Precious Metals (DBP), which gives exposure to both gold and silver through futures contracts.

To further preserve capital, it is important to consider the risks that are involved with investing in these ETFs.  To help protect against these risks, the use of an exit strategy which identifies specific price points at which downward price pressure could be seen is important.  Such a strategy can be found at www.SmartStops.net.

Disclosure: Long SLV

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10 ETFs To Play Deflation




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