Friday, February 22, 2013

Extreme Capitulation

Gold discoveries from 1990 to 2011 have replaced only 56% of the gold mined during that same period  -  Metals Economic Group
Think about that statistic for a minute in the context of the fact that over the last two years eastern hemisphere Central Banks have been accumulating collectively more than half of the mined supply of gold in those two year.   China and India combined account for about 50% of the mined supply over the last two years, and that assumes the published numbers from China are accountable.  Most observers are certain China understates its published import numbers for gold (I can't imagine any Government not telling the truth).

The past couple of weeks have left many precious metals investors bordering on terrified.  The good news is that, based on long term sentiment indicators which have proved to be 100% accurate buy signals over the last 12 years, this price correction is largely over:
My view is that the precious metals and mining stock sector is forming a big bottom and is getting ready to start a move that ultimately will culminate with new highs for gold, silver, and the mining stock indices. I would be so bold as to say that next to October 2008 and early 2001, this is probably the single best entry point that investors will get during the course of the precious metals bull market.
You can read that entire commentary and see some incredible charts that show just how dismal the investor sentiment with regard to the precious metals has become here:   Extreme Capitulation

The bottom line is that the fundamental factors supporting the relative value of the precious metals in relation to paper currencies become stronger by the day.  To give you and idea of a possible price target for the price of gold over the next 12-24 months, here is a superb chart from The Daily Market SummaryLINK:
(Click on chart to enlarge)


  1. and the balance sheet will get bigger, by crook or hook.........

    Power Grab at the Fed

    Are you ready for a good laugh?

    The head of the New York Fed wants Congress to grant the Central Bank extraordinary new powers to deal with future financial system emergencies like the bank run that followed Lehman Brothers collapse in September 2008. Here’s the story from the New York Times:

    “[William] Dudley’s concern is about a little-noticed piece of the 2010 Dodd-Frank Act that actually reduced the central bank’s authority in one crucial area: its ability to provide emergency funding to strapped financial firms.

    The author seems genuinely puzzled by the fact that our democratic system is not supposed to proffer unlimited “power of the purse” to the swinish agents of the robber class at the central bank. The system has gotten so convoluted that journalists cannot even recall earlier times when policy was set by the elected representatives of the people and the banks played a subordinate role. Today, that all sounds like sentimental gibberish about “America’s idyllic past”. Here’s more from the Times:

    “Many – myself included – have drawn from the financial crisis the conclusion that government safety nets should be drawn tightly so that only a very few, very tightly regulated firms get as little liquidity support as possible,” Karen Shaw Petrou, a close watcher of financial regulation who drew my attention to Mr. Dudley’s speech, wrote to clients of her firm, Federal Financial Analytics.

    A more inclusive policy, she continued, “will open the safety net, wide, wide open to all sorts of actors who, smiling sweetly, will rob us blind.” (NYT)

    Ms. Petrou is a dreamer. The Fed does what it wants, when it wants”. It answers to no one, which is why their books still remain closed to public inspection despite the myriad legal challenges to pry them open.
    Repeat: “Culpable”, “collusion”, “aiding and abetting Lehman in accounting fraud and Sarbox violations.” And these are the guys who want unlimited power to bailout anyone at anytime regardless of the cost?

    Don’t make me laugh!

    What Dudley really wants is the power to put out the fires which the serial arsonists at the Fed have started with their shabby, easy money policies and “light touch” regulation. They need to get their own house in order before they go asking congress for more favors.

    Here’s a novel idea: Why not just fix the system? Why not create regulations that actually work, that increase stability and make the system safer?

    Nah, that would cut into profits, so it’s a non-starter. Isn’t that what’s going on here; Dudley’s trying to shrug the costs onto taxpayers so he doesn’t ruffle feathers on Wall Street. It’s all about the bottom line.

  2. My issue with the gold miners is, we need a much higher gold price for "real" profitablity, $2000 oz is not enough in most cases, I think the CEO of Barrick says $3000 is really the level when the company would think about being ready to expand.

    Same with silver miners, 30 oz is break even for the best producers, much higher for the others, 50 oz silver would be a start, but still nothing great.

    Most pros are using long the metal and short the miners spread trade, they are not about to switch, they know the miners are nothing more than a charity business for the most part.

    The TPTB will not let the "shares" really rally too much, who knew, many of us should just have bought the SP 500 index after QE in 2009, it would have been a better investment.

  3. World's Biggest Gold Storage Company Dumps US Citizens

    ViaMat, a Swiss logistics company that has been safeguarding precious metals since 1945, is literally the gold standard in secure storage.

    They have vaults from Switzerland to Hong Kong to Dubai, and they count among their clients some of the largest mining companies in the world. They know what they’re doing.

    And now they’re dumping US citizens.

    ViaMat does a great deal of business within the United States. As such, the company is heavily exposed to the insane US regulatory environment.

  4. Dave, you forgot to mention in your article that India also understates her gold import. Gold smuggling has been rampant since India raised tariff last year. By and by, some big player is seemingly defending silver right now. After the Fed minutes were raised on Wed, gold got terribly blow-torched and sexually abused but silver didn't move much. The open interest seems to support this.

  5. If you really wanted to right now , you could go out on the internet and find any piece of information in order to back up what you want to believe regarding gold and silver. Pro or con , it's out there. Advice ,recommendation , graphs,bar charts,pictures,you name it.

    So who and what to believe ?

    The one rule of thumb that seems to always prove positive in these kinds of cases is to follow the money.

    Present day central banks around the world are buying physical gold at a feverish pace. Not so with physical silver . There's not enough of it available , or so it seems...

    1. believe people like Mishkin b/c they're all bought and paid for....??this is what you get day after day on MSM....

      Fred Mishkin's "Outside Compensation" List Revealed

      So for all those curious who Fred Mishkin has received money from in the past 8 years, here is a partial list:

      Federal Reserve Bank of New York, Lexington Partners; Tudor Investment, Brevan Howard, Goldman Sachs, UBS, Bank of Korea; BNP Paribas, Fidelity Investments, Deutsche Bank,, Freeman and Co., Bank America, National Bureau of Economic Research, FDIC, Interamerican Development Bank; 4 hedge funds, BTG Pactual, Gavea Investimentos; Reserve Bank of Australia, Federal Reserve Bank of San Francisco, Einaudi Institute, Bank of Italy; Swiss National Bank; Pension Real Estate Association; Goodwin Proctor, Penn State University, Villanova University, Shroeder’s Investment Management, Premiere, Inc, Muira Global, Bidvest, NRUCF, BTG Asset Management, Futures Industry Association, ACLI, Handelsbanken, National Business Travel Association, Urban Land Institute, Deloitte, CME Group; Barclays Capiital, Treasury Mangement Association, International Monetary Fund; Kairos Investments, Deloitte and Touche, Instituto para el Desarrollo Empreserial de lat Argentina, Handelsbanken, Danske Capital, WIPRO, University of Calgary, Pictet & Cie, Zurich Insurance Company, Central Bank of Chile, and many, many more.

    2. "... you could go out on the internet and find any piece of information in order to back up what you want to believe regarding gold and silver. Pro or con."

      I agree. Considering the plethora of info written about the Fed and metals market manipulation... fundamentals have become temporarily insignificant.

      Gold has found support at ~1530 [9/12, 12/12, 3x in 5/13]... and much more support has been found above 1550. I question if a bottom has formed or if support is only a respite from the decline.

      I agree with those who think gold and gold miners may be the trade of 2013. I am very wary of confirmation bias and always looking at how the trade is wrong...

      1) If I can identify support then everyone can identify support therefore how strong is support if I identified support correctly?
      2) Martin Armstrong doesn't see a bottom in gold until next month [at the earliest] ~1400 and the real move won't start until 3Q15.
      3) The strength of currencies is relative. If the USD is perceived as stable and better than alternatives, then the POG may decline longer and further than anyone anticipates.
      4) Central banks need to cap POG. Legal restrictions can always be implemented to reduce gold demand as well as other creative measures.
      5) Where is the line between being too early [to the right trade] and wrong?

    3. Even in the dark days of the fall of 2008 gold was not as oversold as it is right now-- any contrarian is jumping in with both feet.
      Justin from Canada

  6. has Mishkin written a book yet?

    Being a public servant is not quite what it used to be. And the frustrating thing is most all of then have made things worse.

    you or I screw up a company we get fired for cause, no severance. Pols screw up a country and they write books and go on lecture circuit (see the latest will Hilary).

    Sarah Palin is the big winner-never holding a national office she went right to the lecture circuit.

  7. Columbia Business School Dean Glenn Hubbard's Outside "Consulting And Advisory Relationships"

    Yesterday we showed you the "outside compensation" list of Columbia's Fred Mishkin.

    Today, it's the turn of Columbia Business School dean and Mitt Romney's "go to economist", Glenn "You have three more minutes, give it your best shot" Hubbard. Here they are:

    Consulting or Speaking Engagements at Some Point During the Past Five Years: U.S. Department of Justice, Airgas, Alternative Investment Group, American Century, America’s Health Insurance Plans, ApexBrasil, Association for Corporate Growth, Bank of America, Bank of New York Mellon, Barclays Services Corporation, BNP Paribas, Capital Research, Citigroup, Deutsche Bank, Fidelity, Franklin Resources, Freddie Mac, Goldman Sachs, Intel, JP Morgan Chase, Microsoft, National Rural Utilities Cooperative Finance Corporation, NMS Group, Oracle, Pension Real Estate Association, Real Estate Roundtable, Reynolds American, Royal Bank of Scotland, Visa, Wells Fargo, Nomura Holdings America, Laurus Funds, Ripplewood Holdings

  8. Citigroup’s Man Goes to the Treasury Department
    Rubin Connection

    Lew was director of the Office of Management and Budget during President Bill Clinton’s administration, after which he worked at New York University as an executive and a professor. He joined Citigroup in 2006 as chief operating officer of its global wealth-management division. Lew was recommended by former Treasury Secretary Robert Rubin, who at the time was chairman of Citigroup’s executive committee. (There seems to be an unwritten rule that every Treasury secretary must have deep ties to Rubin.) He became chief operating officer of the bank’s alternative-investments unit in January 2008.

    Lew’s employment agreement with Citigroup said his “guaranteed incentive and retention award” wouldn’t be paid if he quit his job, with limited exceptions. One was if he left Citigroup “as a result of your acceptance of a full-time high level position with the United States government or regulatory body.” This applied if he left “prior to the payment of any incentive and retention award for performance year 2008 or thereafter.” Such an award wasn’t guaranteed but would be consistent with the company’s practice, the document said.

    A similar provision concerned his stock-based compensation. If Lew left in 2008 or afterward to accept a high-level U.S. government position, all of his outstanding equity awards, including restricted stock, would vest immediately, the document said. Alternatively, Citigroup had the option of paying Lew the cash equivalent of any shares he forfeited upon leaving. The terms didn’t mention other kinds of public-service work, such as a midlevel U.S. government job, a position in municipal or state government, or working at a nonprofit organization such as a university.

    Lew stood to receive $250,001 to $500,000 worth of accelerated restricted Citigroup stock when he left the company, according to a disclosure report he filed in January 2009. The same document listed $1.1 million of “salary and discretionary cash comp” from Citigroup. Lew said at last week’s hearing that his salary for 2008 was $350,000.

    Lew was named a deputy secretary of State in 2009, Office of Management and Budget director again in 2010, and then became President Barack Obama’s chief of staff in 2012. Now he’s up for Treasury secretary, where he would play a critical role in overseeing the U.S.’s financial industry and rescuing it should another crisis ensue. Citigroup couldn’t have planned this better if it tried, which raises the natural question: Did it try?

    We don’t know the whole story, except that Lew’s agreement clearly attached unique value to the possibility that he might get a top U.S. government position someday. Should that be of concern to the public? It ought to be.

  9. Has the U.S. Economy Dodged a Recession?

    Lately it seems that all economic releases are coming up roses – even last month’s slightly negative GDP report was widely hailed as the best-looking contraction one would ever see. Similarly, many felt the latest employment report held green shoots for job growth, despite an uptick in the jobless rate and weaker-than-expected payroll job growth. A higher-than-expected PMI number further cheered the consensus, who saw in it signs of an increasingly upbeat industrial growth outlook. Indeed, it seems that all news, good or bad, becomes good news.

    Encouraged by this apparent improvement in the economic data coupled with the Fed’s promises to keep monetary policy extraordinarily accommodative for years to come, the stock market has soared recently. Under the circumstances, a key question is whether the U.S. economy is genuinely getting better, or whether the stock market, buoyed by Fed money-printing, has decoupled from economic reality.