Upner report 38/2012

Calm week on gold and silver. To have just $200 and be rich? Monty was just joking. Fears of Germans. China wants to use a new weapon of mass destruction. 

Gold and silver were traded around $1762 and $34.20 per ounce at the beginning of the week. What precious metals lost during the Monday, they received on Tuesday. And similar pattern was possible to see during the whole week. If anybody was waiting for another big move on the end of the week, he had to be disappointed. Gold closed on $1773 per ounce what was $2.5 more than the last week. Silver finally closed on $34.52 per ounce what was $ 0.16 USD less than the last week. The gold/silver ratio is 1 to 51.36 (i.e. you could buy 51.36 gram of silver for 1 gram of gold, it was 51.05 week before). It shows us that silver was not more successful during the week compare to gold. Market was relatively calm in the meaning of the price movement during the week while volumes were quite high what indicates electronic trading activity by the HFT. The calm week was quite acceptable after soaring of prices last week when BenB announced unlimited QE3 and market positive reaction was on the table. Remarkable is that gold completed what is known as a “Golden Cross” and the same will be very likely true for silver in following days as well. It means that short term moving average (e.g. 50 days) rises above 200 day moving average. For gold it means that 50 day moving average is $ 1651 what is over $1645 – 200 day moving average. Silver is very close too. 50 days is $29.86 and 200 days is $30.47. These are important indicators of long term strength of precious metals. But we should be extremely careful not to be extremely optimistic. You should be aware that from the short term there is a huge possibility for smash down of prices of precious metals and especially for silver. Why? The price is set on the COMEX present time and JP Morgan and other bullion banks have pretty vast short position there. According to Ted Butler just JP Morgan is 27% short of the whole future silver market and in total the biggest 8 traders are short 53% of the whole future market. It could have just two consequences. Bullion banks once again over play the market and will move the price straight down. Or they will collapse. I feel that Ted Butler bet on the first possibility. The second one will come once but less probably present time. But who knows? We live in times when everything is possible. But what is for sure? There are no positive economic changes. Market fundaments for gold and silver price really stand unchanged from the long term point of view. If you invest do it with long term perspective. You will not be disappointed if there is some price correction.

Overview of the prices of gold and silver for the remaining periods:

News from the world of silver and gold

Lucky, unlucky man – Walter Samaszko who died in heart attack in Nevada has only $200 in his bank account but officials found in his house gold coins for more than $7 million worth. He was probably a one who did not believe in fiat currency any more. Or do you think contrary?

Another important story is from New York. 10 oz gold bar was full of tungsten as is reported by the Zerohedge.com. And why tungsten? It is simple. The tungsten has almost the same density as gold and therefore it is used as a suitable tool for counterfeiting. Interesting point is that the dealer bought this counterfeit bar from the merchant who sold him bars in the past as well. We will probably witness this kind of stories more frequently in the future as gold price will move higher. So be careful what you buy (buy lower weights – there is very impossible to counterfeit them) and what dealer you use.

Do you want to study on Harvard and earn some great pocket of money after studies? Forget it. South Dakota School of Mines & Technology is definitely better. Why? Because of the decade-long commodity bull market and higher demand from mining companies for workers in this field. The median salary after the leaving this college is about $ 56,700 and the Harvard one, where tuition is fourth time higher, is “just” $54,100. As we inform regular reader of upner.com it is difficult to find skilled and educated stuff for mining company. The consequence of this is boosting salaries in the industry and cost of production as well. Skilled workforce is one of the crucial conditions for the successful mining process.

South Korea Central Bank bought 16 ton of gold in July. According to the World Gold Council South Korea as the 4th biggest Asian economy has official gold reserves on the level of 70.4 ton. This means that gold portion of its overall foreign reserves ($ 316.88 billion) is 0.9%.

Investors are pretty optimistic about the future of gold and silver. As example Tom Fitzpatrick from City Bank provided interview to KWN with some analytical charts which suggest important levels for both gold and silver. Once Gold overcomes $ 1790 level it will head in to the $ 2055 area. Almost similar story is for silver. The crucial level is $ 37.48 area and from there it could go to $50. Better improvement is expected for silver because once gold overcome $ 1790 many will feel that train has gone and will enter silver market.

Influential news

Have you remembered the joke as Mario Monty declared that Italy is in a good shape and that Italy overcome crisis in the near future? Huups. The reality is quite different. Italy has announced some changes in its predictions. First, Italy has to increase its budget-deficit forecast from 1.7% to 2.6%. Second, they predict the fall of their GDP about 2.4% and the debt of the country will reach 126.4 % of GDP till the end of this year. Italian must pray to the ECB. Otherwise Italy would have not 5 % yield on the 10 Y government bonds.

And what is new in Spain? “Spain is considering freezing pensions and speeding up a planned rise in the retirement age as it races to cut spending and meet conditions of an expected international sovereign aid package,” sources with knowledge of the matter said. The retirement age will go up to 67 within 15 years. The package should save €4 billion per year. But you have to have on the mind that these are pretty unpopular steps which will meet with dissatisfaction of streets. And massive demonstrations are quite popular in Spain present time and the situation looks set to get worse in coming weeks after the Eurozone finance ministers meeting on Friday on Cyprus. The situation is not problematic only among general public but also among politicians. Politicians from Catalonia region, one of the most indebted regions in Spain, start to promote secession from Spain because Catalonians are not satisfied with the tax distribution mechanism among regions. Therefore, anybody should be skeptical about austerity declaration form Spain side. We will see how markets will react. 10 Y gov. bonds yields were 5.76 at the end of the week.

Greece will try to sell its properties in London, Belgrade and Cyprus. Plans are a part of the privatization efforts which should lead to the government spending cuts. In the meantime also Greek judges went on strike this Monday as a part of the strikes of state employees. And what is somehow positive news from the country? Their 10 Y gov. bonds yields has fallen under 20% for the first time since March 2012.

The last week decision of the German Constitutional Court about the ESM caused that 17 euro member plant to sign so called “interpretive declaration” by which GCC requirements will be met. It is planned that the ESM should start to operate on October 8th 2012 with the capacity of €500 billion and will replace the EFSF. But what should Germans be afraid more? China and automotive industry. We have to realize that Germans are third largest exporting nation and they should be much more afraid if China will lose appetite for their machine tools and cars. Cars are one of the top trading articles for Germans and they export more than 77% of all produced personal cars. And what are the main export destinations? UK, China and Taiwan. In other words they should be worried about these trends otherwise they will have not strong economy for funding any bailout program.

Do you know the book “Currency wars”? If not, you should read it. Author of the book describe new mass destruction weapons – economic weapons. One of them was suggested to be used by one of the Chines academics. He suggests attacking Japanese bond market to precipitate a funding crisis and bring the country to its knees as a respond to Japan/China quarrel about the Senkaku/Diaoyu islands in the East China Sea. Do you think it is a sci-fi? Not at all! It is possible. China is one of the biggest creditors of Japan (€230 bn). To use this power on the bond market means to create situation where anybody will not be sure if to borrow to Japan or not and country will be out of money in a few months. Just a small reminder. China has one of the biggest expositions to US bond market as well. Let´s change some threating news with some other. Positive one? I am not so sure. China PMI index slightly increased to 47.8 point from the August´s 47.6 points. It is still under 50 what means recession but it is improvement. The only problem is that it seems to be an outcome of easing of monetary policy than any real market improvement. But investors could be satisfied for a while.

As we have informed you two weeks ago current unemployment rate in the US is very probably not 8.1% as officials stated but double. “But the problem, says CEO of Richmond Asset Management in Hong Kong, Graham Bibby, is that the level of unemployment in the U.S. is probably worse than the Fed thinks it is, with the jobless rate probably closer to 16 percent when you look at other measures not used to compile the official number.“ Analysts also emphasize that otherwise the FED will not interfere in the market and does not state its aim to decrease unemployment.

Chairman of the Dallas FED branch Richard Fisher opposed FED decision and stated that a new program of long-term bonds purchases with open-ended purchases of $40 billion of mortgage debt every month will not help economy and employment. It increases more probably inflation which may scare markets. So as I see it, the only hope for the US is not to end like this girl with mobile phone from China:

http://www.youtube.com/watch?feature=player_embedded&v=m6TrHuvlf8o

Matus Posvanc, upner.com 

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