Wednesday, 13 April 2011
Monday, 29 November 2010
There is too much money being printed. No rocket science is needed to reach that conclusion. The markets are giving us a clear message.
For example, gold is trading at a record high, while silver has reached a 30-year high. Those new high prices are happening for a reason. The precious metals are sensitive to changes in inflation, both actual as well as future expectations.
Rising precious metal prices tell us that there is a lot of inflation in the pipeline, but they are not alone in giving us this message. More generally, look at the trend in commodity prices over the past few months in the following chart of the CRB Continuing Commodity Index, which is based on the price of 19 different commodities.
On June 4th the CRB Index closed at 450.24. Here we are just 3-1/2 months later, and the CRB Index closed Friday at 530.24, up 17.7%. That is a HUGE jump in prices in such a short period of time. To put this price rise into perspective, it is a 61.8% annual rate of “appreciation” – though we should call it by what it really is, namely, “price inflation”.
Commodity prices are not rising because of good economic activity, which remains in the doldrums with high unemployment throughout most of the world. Commodity prices are rising because too much money is being printed. But the Federal Reserve reports that M1, a narrow measure of the total quantity of dollars in circulation, rose only by a 9.1% annualized rate in the three months from May 2010 to August 2010, and M2 rose by even less. So why are commodity prices rising by an even faster rate than money growth? There are two reasons.http://www.federalreserve.gov/releases/h6/current/h6.htm
1. Because too much money has been printed for years, not just over the past three months, which can be illustrated by comparing M3 to the total US population. In 2000 there were $26,977 in circulation, as measured by M3, for every man, woman and child in the United States. That amount has ballooned to $46,538, a 7.1% annual rate of growth, which is more than 7-times the 0.9% annual rate of population growth during this period.
2. Demand for money is usually ignored, but it is an important part of the equation. Unfortunately, demand cannot be measured, so we again need to rely on observations of market prices to determine the prevailing trend in the demand for dollars at any moment. So, for example, let’s look at the US Dollar Index, which measures the dollar’s rate of exchange against a basket of currencies. While commodities have been rising since June 4th, the Dollar Index has been falling. It is down 7.9% over this period, a 27.6% annualized rate of decline. Given that people are opting to hold other currencies in preference to the dollar, as evidenced by the dollar’s falling exchange rate, it is clear that the demand for the dollar is falling.
Thus, the dollar is being hit by both rising supply and falling demand. We know from Economics 101 that this condition results in falling prices, which when applied to money means declining purchasing power, or what today is usually called “inflation”. If monetary policy is not corrected and inflation is not reversed, in time hyperinflation will be the inevitable result.
I have been warning about hyperinflation since March 2, 2009 when I wrote that the dollar was on the cusp of hyperinflation. I noted that “the federal government has embarked on a course of runaway spending, and it is runaway government spending that causes runaway inflation”, which if left uncontrolled leads to hyperinflation. The trend has not changed for the better.
From February 28, 2009 to August 31, 2010, runaway federal government spending has resulted in a $2.57 trillion increase in the national debt. But over this period GDP increased by about $0.5 trillion, and the increase in economic activity is even less after adjusting for inflation. So clearly we need to ask ourselves, what have the bailouts and stimulus programs really accomplished?
The answer is very little in terms of economic activity, but there is an ominous consequence from this foolish binge by policymakers of soaring debt and reckless money creation. Given that these dollars are not being used to generate economic activity, they are now sloshing around the globe looking for a safe home. Tangible assets are one of the safest places to be to protect your wealth from a currency whose purchasing power is eroding.
The result is that the commodity markets are on fire. Prices are not rising because of a shortage of commodities, but rather, there is a surfeit of dollars. Too much currency has been created, relative to current economic activity.
Without an abrupt about-face to end the wrongheaded policies being followed by policymakers, there can be only one conclusion. The dollar is headed toward hyperinflation. The new record highs in gold and silver, an across-the-board rise in commodity prices and the renewed downtrend in the dollar's rate of exchange are the “writing on the wall”..
by James Turk,
September 20th, 2010
Gold is a precious chemical element
Gold, like silver, platinum and other precious metals is a natural chemical element, which means it cannot be manufactured. Gold's chemical symbol is Au, which is short for the Latin word for gold, 'Aurum' (meaning 'Glowing Dawn'). Gold has a melting point of 1064 degrees centigrade and a boiling point of 2808 degrees centigrade. The word 'gold' is derived from the Indo-European root 'yellow'.
Interesting features of gold are that it is an element remarkable for its rarity (gold is extremely rare), density, softness, and its very good electrical conductivity. It is also largely inert, and therefore is almost totally immune to decay, and thus can be stored cheaply for long periods.
Gold is a very dense metal with a density of 19.32 g/cm3 which gives it a very heavy atomic weight of 196.9665 g/atom. In practical terms, this means that a litre carton of gold weighs 19.3 kg, so it's nearly 20 times heavier than water. A one tonne cube of gold would have edges of around 37 centimetres - a bit over a foot. It would store value of well over $12 million in very little space.
It is so distinctively heavy that solid gold offers its own immediate qualitative verification in the hand. Gold's heaviness is also important in that it means large amounts of gold can be stored in relatively small spaces, like bank vaults, in which the same value of gold can be stored in one hundredth of the space which would be required for silver.
Gold weights and measures
By tradition gold is quoted and traded in troy ounces, these having been adopted by the U.S. Mint for the regulation of coinage in 1828. Unlike 'normal' pounds and ounces, there are 12 troy ounces to the troy pound rather than 16. But a troy pound weighs less than in imperial pound ( 0.82 British/US pounds). In short, a troy ounce is approximately 0.031kg or 31 grams.
The following table gives an approximate conversion between traditional and metric weights:
LONDON (Oct 12) Gold eased in Europe on Tuesday as the dollar rebounded on the back of uncertainty over the extent of quantitative easing expected from U.S. authorities, denting interest in the metal as a haven from weak currencies.
Spot gold was bid at $1,343.25 an ounce at 0911 GMT (5:11 a.m. EDT), against $1,352.95 late in New York on Monday. U.S. gold futures for December delivery fell $10.10 an ounce to $1,344.30.
Prices rallied to a record $1,364.60 an ounce last week as expectations the Federal Reserve would move toward further quantitative easing to bolster the flagging U.S. economy undermined the dollar.
Standard Bank analyst Walter de Wet said there had been a response to higher prices as holders of scrap jewelry were being tempted to sell gold back onto the market.
"There is some dollar strength, (with) strong support for the dollar at $1.40 against the euro," he said. "But we also continue to see scrap coming to the market."
"Despite strong investment demand, the physical market is providing resistance to the latest move higher."
The dollar rose to a one-week high versus the euro on Tuesday, extending gains that began in the previous session as investors worried the U.S. currency had fallen too far, too quickly.
Analysts said the currency market had already priced in aggressive U.S. monetary easing, and if the Fed does not press ahead with such a policy at its November 21 meeting, the dollar is likely to rebound.
"Today's focus will be on the release of the latest Federal Open Market Committee minutes for any further insight into the central bank's thinking on further stimulus measures," said CMC Markets analyst Michael Hewson in a note.
"But given that the U.S. dollar has declined 10 percent against the euro since the September lows, one has to wonder how much quantitative easing may already be priced in."
SPDR ETF HOLDINGS DECLINE
Investment interest in gold-backed exchange-traded funds was soft, meanwhile, with holdings of the world's largest, New York's SPDR Gold Trust, declining by just under 1 tonne on Monday to 1,287.327 tonnes.
The trust's holdings have dropped nearly 7.5 tonnes so far this month, despite a 2.6 percent rise in gold prices.
Gold demand from major consumer India also softened as the rupee hit a one-week low against the dollar, making the metal more expensive for local buyers. "Many are still waiting for lower levels," said one Mumbai-based dealer.
Among other precious metals, silver was bid at $22.98 an ounce against $23.29, while platinum was at $1,676.50 an ounce against $1,683,15.
Tuesday, 28 September 2010
The conference gives participants a chance to talk about the markets, network and attend a number of panel presentations about various topics relating to precious metals.
Keynote speakers at the opening session Monday morning include William White, chairman of the Economic and Development Review Committee with the Organization for Economic Cooperation and Development, and George Magnus, senior economic adviser with UBS.
A program later that morning is titled “Precious Metals Investment – New Paradigm.” It will include Shayne McGuire, director of global research and global fund manager for the Teacher Retirement System of Texas; Graham Birch, former head of natural resources for Blackrock; and Diarmuid O’Hegarty, deputy chief executive of the London Metal Exchange.
The early-afternoon program, “Response from Traditional Markets,” includes GFMS Executive Chairman Philip Klapwijk; Sunil Kashyap, managing director for Bank of Nova Scotia – ScotiaMocatta; and Wolfgang Wrzesniok-Rossbach, head of sales and marketing for Heraeus.
A late-Monday session is titled “Precious Metals Investment – Bubble?” The panel includes Paul Burton, managing director of GFMS World Gold Ltd; Jeffrey Rhodes, CEO of ILNTL Commodities DMCC; and Matthew Turner, precious-metals strategist with Mitsubishi Corp. International (Europe) Plc.
Tuesday morning begins with a program on the Platinum Group Metals. Speakers include Michael Wagner, head of commodities trading for Volkswagen; Emma Townshend, analyst with Renaissance Capital BJM; and Michael Jansen, head of metals research with JPMorgan.
The late-morning program is titled simply: “Presidential Style Debate.” It includes David Gornall, global head of precious metals trading for Natixis; Gerry Schubert, head of precious metals with ABN AMRO Bank N.V.; and Jeremy East, head of metals trading with Standard Chartered Bank.
Ritter said Heraeus watches prices closely because the company is in a manufacturing business in which precious metals are used. He said at this time industry consumption does not reflect the higher prices of gold.
“On the other hand, investment has become the major theme around the precious metals for the past couple of years,” said Ritter, noting that is a different environment. “It is always a risk when the interest is coming too much from one side of the market.”
Ritter was in Berlin for the 2010 London Bullion Market Association Conference and was interviewed on the sidelines of the conference.
Ritter said that investment surge could change very quickly, but he doesn’t see that happening in coming months. Higher interest rates could be the key, he said.
“That’s not going to happen in the next couple of months and probably not in the next 12 months, Ritter said. Investment will continue to be one of the prime drivers of gold, he said, because there are few places for investors to put their money.
Ritter doesn’t think gold is in a bubble because prices have been moving higher slowly. He also said it looks as if much of the metal that has been bought is in strong hands and is not moving out that quickly because of the economic uncertainty.
On a cautious note, however, Ritter said once investors start to get out of gold, a price decline “could come much faster than the increases we have seen over the past 24 months.”
Heraeus is a global precious metals and technology group with headquarters in firm roots in Hanau, Germany, near Frankfurt. The company is involved in precious metals trading, in materials and technologies, sensors, biomaterials and medical products as well as dental and pharma, quartz glass, and specialty light sources.
in September 2011