Upner report 35/2012

Gold and silver was waiting till Friday´s Jakson Hole conference, nothing special was said but then prices skyrocketing. Gold Standard as mainstream topic. War in the European monetary elite environment. US debt has reached $16 trillion.

Gold and silver were traded around $1663 and $30.70 per ounce at the beginning of the week. It was the diminishing week on gold. Every day of the week gold lost some gains from the previous week. It was more at the beginning of the week and less as we were heading towards the end of week. Silver price was the different one. First three day just oscillated between $30.8 but closed every day lower and it was seem to be impossible for it to overcome $31. There was a bigger smash down on Thursday but silver price remains over $30. Friday. It was one big move on both precious metal prices on Friday. Gold closed on $1691.60 per ounce what was about almost $21 more than the last week. Silver closed on $31.74 per ounce what was about 0.92 USD more than the last week. The gold/silver ratio was 1 to 53.29 at the end of the week (i.e. you could buy 53.29 gram of silver for 1 gram of gold, it was 54.2 week before). It shows us that silver was once again more successful during the week compare to gold. It seems to be the High frequency trading algorithms as only traders in both precious metal markets during the week awaiting a Jakson Hole conference – annual meeting of central bankers. Many analysts were expecting that helicopter Ben (Bernanke) hints some QE3 or any other monetary stimulus on the Friday´s speech. The prices should go anywhere after the “Word of Ben”. Up if he announces or hints something; down if not.

Some expected that the price especially in silver will be radically smashed down if he says nothing and it would be a good opportunity for big bullion banks which are pretty short to cover their position once and for all. He did tell something but anything special, just confirmed that the FED will support the economy if it is needed and emphasized that a new round of bond purchases is an option. If there is any smashed down in precious metals prices it will be the most probably in two weeks when the FED´s committee meeting is or we will see the JP Morgan lost because of their vast short positions on precious metals. But please be aware! Whatever happens in the short run, the economic situation is not changed. And this is the real reason why fundaments for gold and silver price really stand unchanged from the long term.

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

News from the world of silver and gold

It seems to me that everything in this world is about the politics. Once the Republican Party announced gold standard considering, many bloggers and main stream media commentators also here in Europe start to think about it. Gold standard is not the new idea but it is not the effective idea as well. It is just a better idea than the present fiat money system. Gold standard, if it is respected, just keeps politicians and central bankers to be more careful in their running debt and market monetary fixing policies. It is one crucial step further which is necessary to implement – demonopolization of money creation which means competition also in money issues which will lead the most probably into the gold – silver – platinum – palladium – copper money competition based on cultural, sociological, geopolitical and historical context. And as Peter Schiff pointed out: “Well, discussing and doing are two different things.  But eventually we will be back on a gold standard, not because politicians want it, but because the public demands it and the situation require it.

In the meantime in India, There are more and more smuggling gold activities before the Indian´s wedding season as Indians start to buy gold presents. The reasons are threefold. The first is that the price of gold reached records in Indian rupee. The second is that the government increased import duties almost four times this years and the last seems to be connected with black money. Some people are afraid of the future turmoil but do not want to buy by official channels. Intelligence officers claim that nearly 10% of the overall Indian demand would be covered by smuggling.

Why gold price have been rising since 2001? One explanation could provide following chart which describe correlation between the gold price and rising incomes in India and China.

Ok and what about investors? Sean Boyd, who is the CEO of $8 billion Agnico Eagle mining company, predicts $3000 gold after the implementation of planned stimulus from China and possible stimulus from the FED and the ECB. It was the same situation in 2008 and gold was $700 that time and moved to $1900. We could expect the same at present time. Keith Barron, who consults with major gold companies around the world, would not be surprised to see gold on $2000 till the end of the year and $2500 in the first quarter of 2013 and Cesar Bryant from Gabelli & Company stated that September would be good for gold because of the support from Europe (German Constitutional Court decision, Netherland elections, and the ECB meeting).

Influential news

Frau Merkel was in China and she tried to persuade its counterpart Mr. Wen Jiabao to help the Eurozone by buying European bonds. Chines prime minister has promised (once again in a few months with no future anticipated action of course) that China will do everything what is necessary to help Euro currency and Europe because it belongs to the one of the most important China export markets. The outcome will be probably as usual. No bond purchases, no Euro rescue activities. Chines have their own problems and they want to see their Yuan as the future reserve currency, not the Euro, not the US dollar. In the meantime, Greek prime minister announced (of course once again) that Greek government finished its €11.5 bn. austerity plan and he stated that it is the last one for Greece. „The Greek economy can take no more,“ he emphasized. The only problem is that it would be probably one another plan and its implementation will be something different. The EU Commission plans to implement banking union legislation by which the ECB will have more extensive powers to supervise and intervene in the European banking system. It means very simply that every bank in the zone will be responsible for every other. Is not it familiar to you from the socialist times? There is a war in the European monetary elite environment: Draghi (governor of the ECB) vs. Weidman (governor of the Bundesbank; allegedly the man who wants to destroy the euro). Who will be the winner? I bet on Draghi or in other words on the inflationary policy, direct bond purchasing, financing governments directly via the ECB. It is much more interesting for the political elites in the EU than the austerity, market reforms and at least responsible monetary policy. And it is not so hard to guess. If you are opposing any European idea you are the enemy. Dot and the end Mr. Weidman.

And here is the scariest chart of the Spain: Total deposits outflows from Spain banks. As very precisely stated “One look at the chart below confirms that nobody in Spain got the June 29 Euro summit memo that „Europe is fixed„:


Solvency problem is starting to spread all over the China´s industry especially in fields like the machinery, coal and steel and there is a persisting risk of spreading this contagion into other sectors. Customers are taking more and more time to make payment what is the consequence of sluggish economy. To support economy China is preparing 8 trillion Yuan stimulus (€ 640 bn.). Export of the country is suffering because of the anemic demand from Europe and US while imports consistently rose. Some of Chines provinces, therefore, announced their projects to support the economy. But many of them are simply old commitments without any indication how they will be funded.

Due to the oppositional political trick to force present Japan government to announce a new election, the country has reported some public spending cuts because it could run out of money in October. Some local governments and state-run universities will be cut by half of the promised budget because it is not possible to pass the bill which enable further deficit financing of the country. Japan as one of the most indebted countries in the world could became a real black swan event in the very near future.

And what are the most indebted US states in the USA? First of all, the debt of 50 US states is in total $4.19 trillion. The Primacy is hold by California. Its debt is astonishing $ 617 bn. the second one is New York State ($ 300 bn.) and third one is Texas ($ 287 bn.). And please do not forget. US federal debt has reached $ 16 trillion on August 28th just 286 days after the November 16th 2011 when debt was $ 15 trillion.

Do not be unhappy. This is much worse:

Matúš Pošvanc,

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About matus.posvanc

Trhu so zlatom a striebrom sa venujem od roku 2011. Prešiel som rôznymi fázami a pohľadmi na problematiku. "Trh je manipulovaný. To je jasné!" Inak by cena zlata predsa nešla dole. "Zlato na úrovni 100 tis. USD? Žiaden problém." Najneskôr do pár rokov. "Futures trh je najväčšie zlo a tzv. papierové zlato je nutné zakázať". Nuž, po dlhom štúdiu tejto problematiky, som hlúposti a táraniny opustil. Ostalo to, čo považujem za podstatné. Význam zlata je veľký. Avšak bez pochopenia trhu okolo neho, sa sám od seba znovu neobjaví. Kúpiť zlato ako časť svojho portfólia má zmysel. Snažiť sa na zlate zbohatnúť? To je iný príbeh. Jednu jeho časť nájdete na mojom blogu.
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