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David Nichols: Expect to See $2,750 – $3,000 Gold By June 2013 – Here’s Why

Editor — Thu, 02 Feb 2012 20:43:12 +0000

The interim peaks in gold have been spaced 21 months apart over the past 6 years and have seen gains from 80.2% to 97.3%. As such, given the fact that the low of this last correction came in at $1,524 four months ago, we can expect gold to reach a new peak price of $2,750 to $3,000 in 17 months time (i.e. June/July 2013). [Let me explain in more detail.] Words: 976

So says David Nichols (www.fractalgoldreport.com/) in paraphrased remarks from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Nichols goes on to say, in part:

The last recession in 2008, with its accompanying financial crisis, caused a massive bout of deflation, which slaughtered gold and other financial assets, while triggering a major run up in the dollar so it’s critical to know if a similar bout of deflation is coming now. And gold is a highly sensitive barometer on this. If we pay careful attention, gold will give us the accurate forecast.

I want to take a minute to briefly discuss deflation and de-leveraging, because these are terms that are bandied about a lot, but perhaps not with optimal clarity, as there is a certain glaze-over factor with this type of economic jargon.

The main idea is that when a debt is written down — or “marked to market” — it tightens the money supply, which in turn causes deflation. For example, if your neighbor has an $800,000 mortgage, and because of declining real estate values he negotiates to have it lowered to $600,000, that is $200,000 wiped from the money supply. [As such,] if a recession triggers another round of debt write-downs - because people and companies don’t have the cash-flow to cover debt payments - it can cause a massive contraction in the money supply. This type of deflation makes the value of the dollar skyrocket, because suddenly there are fewer dollars floating around, and the scarcer something becomes, the more valuable it gets. This is what happened during the financial debacle in 2008.

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It’s absolutely critical for gold bulls to realize that this type of de-leveraging, with the accompanying deflation, is just terrible for gold. Gold gets creamed in this macro-environment, along with just about everything else.

It’s also important to understand how this relates to the Fed, and its efforts to re-flate the economy. The reality is the beleaguered Fed can’t create new dollars quickly enough to keep up with the dollars being wiped out by bad debts. This is why the Fed can pump trillions of dollars into the economy and not cause hyper-inflation – [and why] it’s a big deal when the Fed tells us it’s going to keep fighting deflation into “late 2014.” That’s nearly 3 years from now. There are a lot of trillions between now and then.

Essentially, the Fed just [said] that they - along with every other politician and central banker out there, in…[North America], Europe and Asia - will continue to make the easiest, most expedient policy decisions that carry the least amount of potential “blowback” on their own careers and future earnings. The fix-it-as-best-you-can macro-environment will continue, as it always does.

[True,] there are “Black Swans” and “Derivative Risks” and a bunch of scenarios that could cause another bad crisis, but here’s the thing: the gold market is not sensing any black swans – and it always gives plenty of warning if it does.

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This is a long-winded way of establishing that gold is free to soar right now. In fact, if this latest correction is over, then there is a juicy 17-month window of opportunity for gold to really, really soar…because the interim peaks in gold are spaced 21 months apart [as can be seen in the graph below].

21 is a very important number for market timing cycles, in every time-frame. I won’t go into the details on why right here, but I do discuss the cycles in depth in my daily reports. It’s a simple thing to do the arithmetic on the size of each move up during these 21-month cycles, measuring from the corrective low to the Month 21 peak.

These 21-month cycles took gold up:

97.3%
89.4%
80.2%
84.2%

The low of this last correction came in at $1,524, so that is the starting point for the forward projection on the next 21-month peak.

If we go ahead and make the not-so-difficult assumption that gold is launching into another 21-month cycle to the upside — thank you Fed, thank you ECB — the target for this move is $2,750 to $3,000, with the next peak scheduled to arrive in June 2013, [early July at the latest]… (These projections…are subject to revision as real-time data comes in to confirm or refute. The key is to remain aware of the big road-map, but flexible if events don’t unfold as expected.)

*http://seekingalpha.com/article/333272-the-next-17-months-for-gold?source=email_macro_view&ifp=0

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Related Articles:

1. Leeb: Gold Going to $3,000 Before the End of 2012!

The Fed is [going to] keep interest rates at zero until the end of 2014 [and that] is as aggressive as it gets and as bullish as it gets for gold. Inflation will be let out of the bag, maybe for the next three to four years. In this environment gold and silver are the best investments around…We are really talking about the next leg higher in this bull market…This is the leg I expect to take gold to $3,000 before the end of 2012.

2. Goldrunner Called $1,920 Gold High Exactly; Now Expects $3,000 – $3,500 by Mid-Year

Short-term volatile moves in Gold, as we have seen over the past few months, do not affect our projections for the future price of Gold based on our fractal (pattern) “model” off the late 70′s Gold Bull. Just as we correctly projected the $1,920 high in our April article entitled Goldrunner: Gold on track to Reach $1860 to $,920 by Mid-year (gold reached $1,917.20 in late August and $1,923.70 in early September, 2011), our current analysis indicates that Gold will enter a range between $3,000 and $3,500 by mid-year 2012. Words: 975

3. Contracting Fibonacci Spiral Puts Gold Near $4,000 by 2013 and $7-10,000 by 2020

Gold is operating on a smaller Contracting Fibonacci Spiral Cycle that is in synch with the larger Contracting Fibonacci Spiral the markets are in. Adding together the sum of parts… the price of gold will move up in price in 2013, 2016, 2018, 2019 and 2020, with each subsequent leg moving less in percentage terms than the prior move. Gold advanced 4 foldish from 1999 until 2008 ($252/ounce to $1046/ounce) suggesting that gold should top out below $4000/troy ounce by the end of January, 2013…[on its way] to $7,000 and $10,000 per troy ounce by 2020. [Let me explain.] Words: 834

4. These 8 Analysts See Gold Going to $3,000 – $10,000 in 2012! Here’s Why

Back in 2009 I began keeping track of those financial analysts, economists, academics and commentators who were of the opinion that it was just a matter of time before gold reached a parabolic peak price well in excess of the prevailing price. As time passed the list grew dramatically and at last count numbered 140 such individuals who have gone on record as saying that gold will go to at least $3,000 – and as high as $20,000 – before the gold bubble finally pops. Of more immediate interest, however, is that 8 of those individuals believe gold will reach its parabolic peak price in the next 12 months – even as early as February, 2012. This article identifies those 8 and outlines their rationale for reaching their individual price expectations. Words:1450

5. New Analysis Suggests a Parabolic Rise in Price of Gold to $4,380/ozt.

According to my 2000 calculations, if interest rates and inflation stay constant over the next 2 years, we could expect to see (with 95.2% certainty) a parabolic peak price for gold of $4,380 per troy ounce by then! Let me explain what assumptions I made and the methods I undertook to arrive at that number and you can decide just how realistic it is. Words: 740

Alf Field Sees Silver Reaching $158.34 Based on His $4,500 Gold Projection!

Editor — Thu, 02 Feb 2012 04:37:09 +0000

This article was prompted by a question enquiring what the silver price might be if my gold forecast of $4,500 proved to be correct [see my article entitled "Alf Field: Correction in Gold is OVER and On Way to $4,500+!" and I have settled on] a target price of $158.34 for silver. [Let me explain how I came to that specific price.] Words: 850

So says Alf Field in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Field goes on to say, in part:

The quick answer to the question of what the silver price will be when gold gets to $4,500 is to pick your favorite silver/gold ratio and divide it into $4500. The current ratio incidentally is about 51. If you choose the lowest ratio achieved since 2001 of 32 that would produce a silver price of around $140 ($4500 divided by 32).

This is not a satisfactory answer, so I decided to approach the Elliott Wave analysis of silver from a different angle. Instead of working upwards using the analysis of the minor waves, which was the technique used in the gold calculations, what if we worked backwards in silver starting with the larger waves?

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Gold and silver tend to move in tandem, not in an exact synchronization, but enough to suggest that the Major waves of both metals should coincide from a time perspective. We know that in gold the Major ONE wave peaked in March 2008 at $1003 and that Major TWO declined to $680 in November 2008.

Silver also had a peak in March 2008 at $20.68 and declined to an important low of $8.77 in November 2008. If we assumed that the peak at $20.68 in March 2008 was the end of Major ONE and the decline to $8.77 the end of Major TWO, how would the various percentages work out? When I did these calculations I was astonished at the relationships and wave counts that emerged.

The chart below is the monthly spot silver price shown in log scale so that the percentage changes are visible. The bull market started in November 2001 at a price of $4.02. From that point to the suggested peak of Major ONE at $20.68 there are five clear waves visible, marked 1-2-3-4-5. The prices at the various turning points are also displayed.

It is evident from the above chart that silver has completed the same shaped bull market as gold has and that it is at the same stage in its development. Thus silver has probably also completed the first intermediate up wave of Major THREE, in this case from $8.77 to $49.52, a gain of +$40.75 or +464% and has also completed intermediate wave 2 of Major THREE, being the decline from $49.52 to $26.39 or -47%.

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How does this decline of -47% measure up in terms of EW relationships? As with gold, where the corrections in Major THREE were shown to be larger than the corrections in Major ONE, the same applies to silver. The corrections in Major ONE shown in the chart above were close to -34%. If we multiply 34% by another Fibonacci relationship of 1.382 we get 47%! This is mind-blowing stuff for an analyst who did not believe that EW applied to silver!

Silver, as with gold, is starting intermediate wave 3 of Major THREE, which should be the longest and strongest wave in the bull market. It should certainly be longer than intermediate wave 1 which was the gain from $8.77 to $49.52, or +464%, as shown above.

Thus the gain in wave 3 of Major THREE should be larger than +464%. It should be a gain of at least 500%. Starting from the $26.39 low, a gain of 500% would produce a target price of $158.34 for silver. That is the number which equates with the $4500 price forecast for gold and produces a silver to gold ratio of 28.4 ($4500 divided by 158.34).

The gain in gold was forecast to be 200% for this move while the forecast rise in the silver price is 500%. Silver is again predicted to perform better than gold based on these EW calculations.

A word of caution is appropriate at this stage. All EW studies are based on probabilities. While the wave counts may provide a high degree of confidence in the forecasts, one cannot be 100% certain of any forecast. It is necessary to have a point at which it is obvious that the forecasts are wrong. In the case of this silver study, the line in the sand is at $26.00. If the silver price drops below $26.00 the odds are that the above calculations will not work out…

*http://www.24hgold.com/english/news-gold-silver-what-about-silver-.aspx?article=3795923432G10020&redirect=false&contributor=Alf+Field&mk=1

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2. Goldrunner: Gold, Silver and HUI Index to Bounce Back to Major Highs by May 2012

With the present major correction in gold, silver and the mining sector it is important to look at the big picture and see what the charts are saying from a technical fractal relationship with what happened back in 1979 when the last truely major bull run occurred. To date the situation is, frankly, no different than it was back then unfolding just as it should. As a result we can expect MAJOR upward price action in physical gold and silver and in their mining (producers, developers, explorers and royalty streamers alike) in the next few months on their way to their respective parabolic peaks in the years ahead. Read on. Words: 1604

3. SILVER is Ready for Take Off! These 7 Charts Show Why

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5. What Do Gold Measurements “Troy” Ounce and “Karat” Really Mean?

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6. Silver: The Party Isn’t Over Yet

Investing is often a study of inconsistencies and contradictions. If it weren’t, the markets would be a simple game and there would no back and forth between buyers and sellers, greed and fear and technical analysts, fundamentalists and momentum players. Our experience with silver since the end of last year illustrates this [but] we [still] think it makes sense to get exposure to the metal. [Let us explain.] Words: 820

7. History Says Silver Could Become the Next 10-Bagger Investment! Here’s Why

If you concur with the 159 analysts (see below) that maintain that physical gold is going to go parabolic in price in the next few years to $3,000, $5,000 or even $10,000 or more then you should seriously consider buying physical silver. Why? Because the historical gold:silver ratio is so way out of wack that silver should appreciate much more than gold as it goes parabolic in the years to come. Indeed, silver could easily reach $100 – $200 per troy ounce, maybe even $300 and conceivably in excess of $400 depending on how high gold goes. The aforementioned may be hard to believe but an analysis below of the historical price relationship between silver and gold suggests that such will most likely occur if gold does, indeed, go parabolic. Take a look. Words: 1423

Leeb: Gold Going to $3,000 Before the End of 2012!

Editor — Mon, 30 Jan 2012 22:16:57 +0000

So says Stephen Leeb* (www.leeb.net) in edited excerpts from an interview he had recently with King World News entitled “Leeb – Fed Game Changer Sparks 2nd Leg of Gold & Silver Bulls” where it can be read in its entirety.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) edited ([ ]) and abridged (…) the opening paragraph for the sake of clarity and brevity. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Related Postings:

1. Egon von Greyerz: Gold & Silver to Accelerate Higher

With gold closing above the critical $1,650 level and silver above $30, my view is that we have bottomed and we are on the way to much higher levels. We are seeing a bit of sideways action here, but it’s sideways to upward and I think that will continue. I like the pace, the fact that it’s not going up too fast, but I think we will see an acceleration to the upside in short order. Words: 924

2. Goldrunner Called $1,920 Gold High Exactly; Now Expects $3,000 – $3,500 by Mid-Year

3. Contracting Fibonacci Spiral Puts Gold Near $4,000 by 2013 and $7-10,000 by 2020

4. These 8 Analysts See Gold Going to $3,000 – $10,000 in 2012! Here’s Why

5. Buy Gold NOW Ahead of Further QE – Here’s Why

Due to high unemployment and a weak recovery world central bankers are focused on weakening their currencies to boost exports. [As such,] I think [even more] quantitative easing and other currency intervention is in our future…[and this will further increase]…both inflation and the price of gold. Let me explain with a few charts.] Words: 350

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*Dr. Stephen Leeb: Chairman & Chief Investment Officer of Leeb Capital Management and the author of “Red Alert: How China’s Growing Prosperity Threatens the American Way of Life” which has just released and can be ordered from Amazon CLICK HERE.

Dr. Stephen Leeb: Chairman & Chief Investment Officer of Leeb Capital Management and the author of “Red Alert: How China’s Growing Prosperity Threatens the American Way of Life” Just released, to order from Amazon CLICK HERE.

Bock and Rickards Agree: Governments Want Gold to Go Higher!

Editor — Sun, 29 Jan 2012 17:46:38 +0000

James G. Rickards, author of the current best seller Currency Wars, is so informed and articulate that he is almost scary in his clarity. He is the only person who essentially says what I have been saying about the “hidden” intent of the US Treasury and Central Bank - to deliberately weaken the US dollar and to cause price inflation, all in the interests of improving US competitiveness and to pay debt through financial repression. Ergo…they indirectly want and will cause the price of precious metals to escalate. Words: 398

So said Arnold Bock in a personal email to me today.

Lorimer Wilson is editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds). The views and conclusions of the email are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

1. Below is a link to Bock’s article on governments’ need for a much higher gold price:

Governments Will Want – Will NEED – Much Higher Gold Prices! Here’s Why

That governments will want – and will NEED – much, much higher gold and silver prices in the future is counter intuitive, given that they have done everything within their power to throttle back and to keep a lid on bullion prices. Let me explain why. Words: 1300

2. Below is a link to Rickards’ comments on King World News recently:

Rickards: Gold May Super Spike as We See the End of the Dollar

They (the Fed) really want to trash the dollar. Contrary to what a lot of people think, the Fed wants gold to go higher. They just want it to go up in a controlled way, they don’t want to see a super-spike. We may get a super-spike anyway just because of panic buying.

3. Bock’s article on “financial repression” is linked below:

“Financial Repression” May Soon Become Our Worst Nightmare! Here’s Why

A new financial policy initiative known by the label “Financial Repression” may soon become our worst nightmare. ‘Repression’ rhymes with ‘depression’ which could be what we have to look forward to as rampant price inflation and permanently lower living standards take hold. Get ready to be conscripted into a citizen army assembled for the greater cause of saving the nation from being swamped by a tsunami of debt. Let me explain. Words: 1585

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Governments Will Want – Will NEED – Much Higher Gold Prices! Here’s Why

Editor — Sun, 29 Jan 2012 05:18:58 +0000

That governments will want – and will NEED - much, much higher gold and silver prices in the future is counter intuitive, given that they have done everything within their power to throttle back and to keep a lid on bullion prices. Let me explain why. Words: 1300

So says Arnold Bock in an article written for www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!). Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Bock goes on to say:

Although we have seen eleven consecutive years of gold bullion price rises, such increases have been incremental, measured and at levels which make the remainder of the commodities and equities markets look volatile – and anemic. Governments have used their preferred bullion banks as agents in the paper futures markets and their central banks, in conjunction with their respective Treasury bureaucracies, to limit the inexorable rise in precious metals prices as much as possible to keep gold – the only ‘real money’ – from drawing unfavorable attention to their own failing fiat currencies and uncontrolled sovereign debt.

Recently central banks have become net purchasers of gold bullion after many years being net sellers. In 2011 central banks purchased 430 tonnes of gold, five times more than in 2010 and the highest since 1964. Much of this new demand has come from ‘emerging markets’ central banks like Mexico, Russia, Turkey, South Korea and of course China and India.

This makes one speculate as to why governments would suddenly, however quietly, turn into buyers rather sellers of gold.

Could it be that gold is the only ‘real money’ in a world comprised of paper money backed up only by faith and confidence, or lack thereof?
Are ‘paper money bugs’ losing their confidence and swagger?
Are governments positioning themselves for a period when paper money loses its value faster than they can create additional digital versions of it?

COUNTRIES WANT TO CHEAPEN THEIR CURRENCIES

The owners of the globe’s respective currencies, especially the important and freely traded currencies, are constantly, deliberately and competitively devaluing their currencies against those of other nations. They don’t admit that is what they want and are doing, which is to make their goods and services more competitive in international markets, because voter reaction would be too politically unpalatable, yet they must exploit every opportunity.

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Even more important, now and in the future, will be the need for governments to be able to meet the promises made to their own citizens for pensions and health care as well as payments for past debt to bond holders. What better way than to pay debts than with nominal devalued dollars, euros, yen and pounds?

Financial repression (see my article entitled “Financial Repression” May Become Our Worst Nightmare! Here’s Why) is a tried and true public policy mechanism designed to take care of the massive debt following WWII. It works its magic simply by keeping prevailing interest rates lower than the real rate of inflation. Well managed, it allows for the imperceptible and inexorable devaluation of the currency. Implemented with precision and stealth by governments and their central banks, it works magically over a relatively short period. It allows governments to pay for their promises and obligations with constantly devaluing money…almost unnoticed.

Given the role of price inflation in the process, citizens may even think they are getting wealthy as the nominal value of their investment assets increase. Instead, it is form of taxation and confiscation invisible to the average person. Government statistics using arcane methodologies such as seasonal adjustments, ‘headline’ and ‘core’ inflation numbers, hedonic adjustments and substitution are all facilitators of this deception.

A NEW GLOBAL RESERVE CURRENCY IS COMING

The US dollar is in the process of losing its special status as the means of pricing and paying for the goods and services traded internationally. This is happening daily with special bilateral arrangements between trading partners which use something other than the US dollar for political and financial reasons. Before long:

the US dollar will be replaced by a basket of currencies, appropriately trade weighted, including International Monetary Fund SDR’s (Special Drawing Rights).
gold will also be a featured element of this new multipronged global reserve currency. Given that gold remains the only real money in a world of the crumbling paper variety, a thick veneer of gold is essential. Member nations of this new global reserve currency, of course, will not want the constraints or discipline of a full-blown gold standard, only its appearance for reasons of credibility.
the new global reserve currency will no longer be American which will be a big win for the internationalists and globalists who value multinational alliances and who will no longer have to defer to one dominant nation, namely America.
better yet, any institution comprised of several members will make it extremely difficult to assign blame, which in academic language means responsibility and accountability. Clearly a global currency used in foreign trade, operated by a committee of nations, will be perfect for dispersing blame.
all nations will continue with their own faltering currencies for all internal pricing and transactions. National fiscal and monetary policy will remain with individual nations thereby avoiding untenable constraints currently faced by countries such as Greece and Portugal in the Euro zone.
interest rates will invariably rise from their current arbitrary, market manipulated and unprecedented low levels in response to the growing concerns of bond holders about risk.
individual nations will point their fingers accusingly at other nations and especially at the global committee of nations responsible for the new reserve currency.
political scapegoating will become national pastimes designed to justify high taxes, lower currency values, price inflation and low economic growth all resulting in much lower living standards of the citizens. Confused citizens will be inundated with multiple reasons for their deteriorating circumstances.

HIGH GOLD PRICES WILL DEVALUE NATIONAL CURRENCIES SIGNIFICANTLY

National governments almost universally want their currencies to devalue versus those of other nations primarily to protect their competiveness in international markets. They also want cheap currencies to make good on their obligations to their own citizens for pension and health care promises too. Cheapening currencies make paying off bond debts easier since the currency today is worth less than when the debt was originally incurred.

Ever higher gold prices, the only real money, have the effect of devaluing national paper currencies in relative terms. This again is custom made for politicians and governments to point their fingers in blame, rather than assuming responsibility and accountability for their own profligate financial behavior and decisions. (Read a previous article of mine entitled America’s Political Process Guarantees Another Financial Crisis!)

HIGH GOLD PRICES WILL BECOME THE PREFERRED PUBLIC POLICY

Nations which have stocked up on gold will occupy the catbird seat. Their large foreign exchange holdings comprised of gold place them in a particularly advantageous position. Is it any wonder that nations such as China, India and Russia, as well as many other emerging nations, are feverishly working to acquire as much gold as they can afford while it is still available and cheap?

A WINDFALL PROFITS TAX WILL LIKELY BE IMPOSED ON GOLD

Private investors, institutional and individual, will become wealthy simply by being invested in gold in this environment. Stupendous capital gains with gold priced at USD $5,000, $10,000 or $15,000 or more per troy ounce should be expected – but should we assume that hugely indebted governments, whose citizens are struggling with ever lower living standards, will stand idly by while investors reap what will be characterized as unwarranted and unearned capital gains? Not very likely! I can already hear populist calls for a Windfall Profits Tax to confiscate these unwarranted gains in the name of fairness and equity. Owners of gold, therefore, might be wise to take appropriate evasive action which anticipates this eventuality.

Why spend time surfing the internet looking for informative and well-written articles on the health of the economies of the U.S., Canada and Europe; the development and implications of the world’s financial crisis and the various investment opportunities that present themselves related to commodities (gold and silver in particular) and the stock market when we do it for you. We assess hundreds of articles every day, identify the best and then post edited excerpts of them to provide you with a fast and easy read.

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1. Get Ready for Financial Crisis 2.0 in 2012 – It’s Inevitable! Here’s Why

This analyst sees the perfect storm of converging criteria almost perfectly timed and aligned with the 2012 election cycle. When the moment arrives, the financial earthquake will rapidly demolish the existing highly precarious financial system. Government will stand by helpless, unable to shield itself, much less its vulnerable citizens or private financial institutions from the tsunami of debt and currency destruction. 2012 is shaping up to be the blockbuster main event of the ongoing financial crisis. Massive amounts of new debt, vast quantities of additional digital dollars and the spark of higher interest rates will set off version 2.0 of the credit-driven financial implosion. Let me explain. Words: 1443

2. “Financial Repression” May Soon Become Our Worst Nightmare! Here’s Why

3. America’s Political Process Guarantees Another Financial Crisis!

A perfect storm of converging criteria is almost perfectly timed and aligned with the 2012 election cycle. When the moment arrives, the financial earthquake will rapidly demolish the existing highly precarious financial system. Government will stand by helpless, unable to shield itself, much less its vulnerable citizens or private financial institutions from the tsunami of debt and currency destruction. Let me explain. Words: 2055

It’s Time to Buy Gold/Silver, Hide It, and Wait For the Smoke to Clear! Here’s Why

Editor — Thu, 26 Jan 2012 03:34:08 +0000

There has been so much talk about gold and so little understanding of the reality behind the move in the price of the yellow metal over the last 90 plus days that I think it’s necessary to separate the wheat from the chaff. I want to discuss what gold has done, where it’s at now, and then end with where it’s going from here and postulate why it’s going to do what it will do. Words: 1083

So says Giuseppe L. Borrelli (www.unpuncturedcycle.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Borrelli goes on to say, in part:

Gold in a Major Bull Market

Gold is beginning the twelfth year of major bull market; perhaps the most unprecedented bull market in our lifetime. [Below is] a quick snapshot of what that bull market has looked like since the 1999 bottom and the 2001 retest of that bottom. From the point of view, as an investor, this is about as beautiful as it gets.

Gold has posted gains in each and every year [of its bull market run]. Below I have listed gold’s closing price on the last day of each year:

2000 — $273.60
2001 — $279.00
2002 — $348.20
2003 — $416.10
2004 — $438.40
2005 — $518.90
2006 — $638.00
2007 — $838.00
2008 — $889.00
2009 — $1096.50
2010 — $1421.40
2011 — $1566.80

Gold Price Corrections

Now I want to look at the same time period but from a different perspective, this time in terms of corrections, because every primary bull market of any duration experiences secondary corrections. Every significant move in price has reactions and there is no way around it; you just have to be smart enough to recognize it for what it is, a reaction, and sit tight. So here it is:

Gold Has Bottomed In Price

If you include the current reaction, the eleven year old bull market is now in its seventh correction and the previous six have run anywhere from 12.1% on the low side to 28.9% on the high side. The current reaction that has led to all the negative rhetoric is stuck right in the middle at 17.2% and yet the media trips over itself to call a top, just like they did the other six times. I would like to point out that they were wrong then and they are even more wrong now, if that’s possible, and here is why.

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[Below] I have drawn a very simple nine-month daily chart of gold and I’ve put in the only two lines that matter. The top line is downward sloping and represents resistance while the bottom line is also downward sloping and represents support…:

One of the reasons I believe we’ve seen the bottom has to do with the 90-day cycle, one of the most dominant cycle’s in the markets over the last decade. Gold topped with an all-time closing high of 1,900.60 on August 22nd and then declined to a closing low of 1,548.70 exactly ninety days later. That in my opinion is not a coincidence. Since then gold has rallied to [in excess of $1,700/ozt.].

COMEX Days Are Numbered

Perhaps the most important development in the world of gold has to do with the fact that China, one of the world’s largest importers of gold, is no longer content to buy their precious metal [on] the floor of the COMEX or London metals exchange. Why? There are two principal reasons:

The COMEX has more than US $86 billion in contracts (obligations) floating around at any one time. Yet in storage they have slightly less than US $3 billion. So the COMEX is not only woefully short of supply should there be a run, they are allowing large traders to flood the market with paper gold in an effort to suppress the price. If you’re China and you’re building your inventory, that’s not in your best interest.
There are questions regarding the purity of the metal sold by the COMEX and London metals exchanges.

I should mention that a number of larger players, like Sprott and Kyle Bass, are following in China’s footsteps and are now going straight to all the large mining companies and are inking deals to buy all their production right from the source! That means that the flow of physical into the COMEX will slow to a trickle and eventually dry up altogether and the end result will be a default by the COMEX and a collapse of the paper system.

Price of Gold Has Not Topped

Finally, all of those calling for an end to the gold bull market seem to forget one important thing. All major bull markets end with a spike up based on greed and euphoria and not a top molded out of fear and despair, as would be the case today…

Gold has not topped…and if I am right that the bottom is in then we are about to embark on the third and final phase of our bull market, and that’s the phase where the general public finally piles into the gold market. It is almost always the most lucrative phase and it is the phase that always caps a major bull market.

Conclusion

The third phase will take gold up and through US $4,000 with fewer interruptions than most could imagine. My advice is to buy gold (silver) here and hide it some place until all the smoke clears.

*http://www.top40goldstocks.com/article-Gold-Bottom-Targets-Trend-To-4,000.html

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Related Articles:

1. Alf Field: Correction in Gold is OVER and on Way to $4,500+!

There is a strong probability that the correction in the price of gold [down to $1,523] has been completed. The up move just starting should be…the longest and strongest portion of the bull market…at least a 200% gain… [to] a price over $4,500. The largest corrections on the way to this target, of which there should be two, should be in the 12% to 14% range. [Let me explain how I came to the above conclusions.] Words: 760

2. Rebound Ratio Suggests New High for Gold By Mid-year

[While] some investors are frustrated,, and a few are worried that gold seems stuck in a rut [such a] stall in price has happened before…[but has] always eventually powered to a new high…[Let's] examine the size and length of past corrections and how long it took gold to reach new highs afterward. Words: 740

3. Buy Gold NOW Ahead of Further QE – Here’s Why

4. Goldrunner Called $1,920 Gold High Exactly; Now Expects $3,000 – $3,500 by Mid-Year

5. Contracting Fibonacci Spiral Puts Gold Near $4,000 by 2013 and $7-10,000 by 2020

6. These 8 Analysts See Gold Going to $3,000 – $10,000 in 2012! Here’s Why

7. Gold Will Reach $3,000/$4,000/$5,000 Before This Bull Market Is Over! Here are 12 Factors Why

I believe that the price of gold will… reach… $3,000, $4,000, and even $5,000 [per troy] ounce…during the course of this long-lasting bull market, a bull market that still has years of life left to it…[although] prices will remain extremely volatile – with big swings both up and down along a rising trend…The future price of gold is a function of past and prospective world economic, demographic, and political developments [and in this article] I review some of these developments and trends – so that you can come to your own “golden” conclusions. Words: 3800

8. New Analysis Suggests a Parabolic Rise in Price of Gold to $4,380/ozt.

9. When This Pullback in Gold is Put into Perspective It’s No Big Deal – Here’s Proof

Daily and monthly gyrations in the price of gold are nothing to fret over…The price will recover and, in time, fetch new highs…Here’s proof. Words: 264

Silver Will Go to $50 and Then Explode Dramatically Higher! Here’s Why

Editor — Thu, 26 Jan 2012 02:31:37 +0000

There is a massive amount of energy underlying the silver market, and when it is ready to unleash, we will see price/value increases that will stun even the most ardent silverbugs…The real power of this expected move is likely to be released only some time after the price of silver has surpassed the $50/ozt. level. [Let me explain.] Words: 685

So says Hurbert Moolman (www.hubertmoolman.wordpress.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

There are some similarities in the current silver market compared with the 1970s….[as can be seen below when] the silver price chart of January 1978—August 1979 [is compared] to the period from January 2009—present (charts generated at barchart.com). I [have chosen] those timeframes because price broke out of the significant high (for the relevant decade) around those periods. I have drawn a blue line at the level of the relevant significant high.

Note [above] how the run-up to the blue line is visually similar in both cases. After going through the blue line, price rallied significantly until it peaked at point b (in both cases). It then corrected/consolidated forming a flag/pennant type formation.

[Also] note [above] that in the 70s and in the current chart, price corrected to just above the blue line. It does not mean it cannot still move to the blue line, since, to stay valid, it just needs to stay at or above the blue line…Currently, I do not see any evidence that we will still go lower than the $26 level. The comparison suggests that we should now rally towards point d and eventually go higher than point b ($50).

The flag pattern forming currently is significantly bigger (in price movement) relative to that of the 1970s. This is possibly indicating that this fractal pattern is growing significantly, which could mean, going forward, bigger price increases relative to the price increases of the 1970s.

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The move from point a to point b, on the bottom chart, was remarkable. It took silver from about $17.50 to about $50, a 185% increase. Compare that to the 1970s move of 33.33% (from about $6 to $8). To me, this signals that silver has changed gears (big-time) relative to the 1970s.

Below is a graphic that compares the gold chart [top] from 2007 to today, to the silver chart [bottom] from 2008 to 2010 in which I have highlighted how similar patterns exist on both charts. On both charts are ascending triangles out of which price broke out to the upside. After the breakout, price increased significantly from where both formed a consolidation pattern.

The ascending triangle for silver (roughly 30 months) is much bigger than that of gold (roughly 19 months) [while] the consolidation patterns for both charts took roughly the same amount of time to form, relative to their ascending triangles (about half the time of the triangles). Based on this comparison, it would seem that silver was at point 0 on 29 December 2011, and it is now busy making its way toward the blue line and will eventually pass the $50 level, just like the comparison to the 70s chart suggest.

Also, if you compare the price movement for silver after it broke out of the triangle to that of gold’s movement, you will notice that there is a huge difference. Gold moved from about $1000 to $1227 (a 22.7% increase), whereas silver moved from about $21 to about $50 (a 138% increase). This, to me, says that there is a massive amount of energy underlying the silver market, and when it is ready to unleash, we will see price/value increases that will stun even the most ardent silverbugs.

The kind of movement we’ve seen since silver has moved out of the triangle is normally associated with moves at the end of a big move. So, either that move was the end of silver’s big move, or it was just an unusually big beginning of a really big move, which suggests we will have an unusually big end of a big move (still to come). Again, I see no evidence to suggest that anything we’ve seen so far was the end of the silver bull market, so I am expecting the latter (i.e. a very powerful upleg yet to unfold).

The real power of this expected move is likely to be released only some time after price has surpassed the $50 level.

*http://hubertmoolman.wordpress.com/2012/01/18/silver-price-forecast-2012-silver-likely-to-make-explosive-move-at-some-point/

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Related Articles:

1. Egon von Greyerz: Gold & Silver to Accelerate Higher

2. Goldrunner: Gold, Silver and HUI Index to Bounce Back to Major Highs by May 2012

3. SILVER is Ready for Take Off! These 7 Charts Show Why

4. The Dollar is Toast! The Future is Silver

Psychologists tell us that there are five stages of grief over loss of whatever kind, usually death, or breaking up with a loved one, which are: denial, anger, bargaining, depression, acceptance. I’ve applied these to the loss of the dollar, as I see most people today are still stuck in denial, and here’s how to deal with that. Words: 1100

5. Silver: The Party Isn’t Over Yet

Alf Field: Correction in Gold is OVER and on Way to $4,500+!

Editor — Wed, 25 Jan 2012 18:35:40 +0000

So says Alf Field in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Field goes on to say, in part:

There is a strong probability that the correction in the price of gold has been completed. In EW terms, [read Gold Bounce Confirms Bull Market Intact on Its Way to $3,000 – $10,000 for another analysis] the correction consists of three waves, an A wave down, a B wave rally and a final C wave decline. There is usually a relationship between the A and C waves. Often they are equal or have a Fibonacci connection. The chart below is of the gold price using PM fixings:

In this case, the A and C waves are equal in percentage terms at 14.5% and 14.7%. The overall decline from $1895 to $1531 is -$364 or -19.2%. In my speech to the Sydney Gold Symposium last November, [which was edited into 2 articles, namely: Alf Field: Gold Going to $4,500/ozt. in Next Wave Towards Parabolic Peak and Alf Field is Back! The “Moses” Generation and the Future of Gold] showed that the largest corrections in the previous Intermediate wave from $700 to $1895 were about 12% in PM fixings. The forecast was that the current correction from $1895 would be one degree of magnitude larger than 12%. A decline of 19.2% qualifies as one degree larger than 12%.

An interesting observation is that if 12% is multiplied by the Fibonacci relationship of 1.618, the result is 19.4%, very close to the actual 19.2% decline for the correction. [Read Contracting Fibonacci Spiral Puts Gold Near $4,000 by 2013 and $7-10,000 by 2020] The chart below is of the gold price in Comex 2mth forward prices:

The Alf Field: Gold Going to $4,500/ozt. in Next Wave Towards Parabolic Peak portion of the Gold Symposium speech suggested that the correction would be between 21% and 26% in spot gold prices. The actual decline was from $1920 to $1523, a loss of -$397, or -20.7%. This is just below the target range but qualifies as one degree larger than the 14% corrections in the previous up move from $680 to $1913 [per troy ounce. Read What Do Gold Measurements “Troy” Ounce and “Karat” Really Mean? for a full understanding of the difference between an ounce and a troy ounce.]

The C wave of the correction in the chart above reveals some symmetrical subdivisions which confirm that the C wave was completed at $1523 on 29 December 2012. With all the minor waves in place and with the correction being of the correct size, that should be the end of both the correction and Intermediate Wave II.

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The probability of this analysis being correct is high, perhaps 75%. Smaller probabilities allow for: (i) this to be an A wave of a larger magnitude correction; (ii) the current correction becoming more complex, perhaps reaching the lower price targets (e.g. -26%); and (iii) the possibility of deflation, defaults and depression emerging, also testing lower price targets.

The up move just starting in gold should be Intermediate Wave III of Major Wave THREE, the longest and strongest portion of the bull market. The gain in Intermediate Wave I from $680 to $1913 was 181%. The gain in Intermediate Wave III should be larger, at least a 200% gain. A gain of this magnitude starting from $1523 targets a price over $4,500. The largest corrections on the way to this target, of which there should be two, should be in the 12% to 14% range.

To achieve the EW target of $4,500/ozt. on the next upward move [in gold] will require something to trigger substantial new buying of gold. What could that event be? By definition, it will be a surprise to all market participants, a “black swan” event. That doesn’t prevent us from making a guess [and] one likely area from which problems could emerge…[would be] derivatives. [I explain why that might well be the case in my article Alf Field: Will Derivative Losses Be Black Swan Event Propelling Gold to $4,500?.]

*http://www.24hgold.com/english/news-gold-silver-gold-correction-is-over.aspx?article=3766990104G10020&redirect=false&contributor=Alf+Field&mk=1

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Related Articles:

1. Alf Field: Gold Going to $4,500/ozt. in Next Wave Towards Parabolic Peak

Once this present correction in gold has been completed it should [undergo] the largest and strongest wave in the entire gold bull market…to around $4,500 with only two 13% corrections along the way. [Let me explain how I came to that conclusion.] Words: 1900

2. Alf Field is Back! The “Moses” Generation and the Future of Gold

I have come out of retirement for this one off, once only, speech to warn that the good ship “Life As We Know It” is sinking. You have the choice of getting into a life boat now or going down with the ship. The life boats consist of precious metals and other assets that will survive the coming currency destruction. [Let me explain.] Words: 1400

3. Alf Field: Will Derivative Losses Be Black Swan Event Propelling Gold to $4,500?

To achieve the EW target of $4,500/ozt. on the next upward move [in gold that I laid out in my article Alf Field: Correction in Gold is OVER and on Way to $4,500+!] will require something to trigger substantial new buying of gold. What could that event be? By definition, it will be a surprise to all market participants, a “black swan” event. That doesn’t prevent us from making a guess [and] one likely area from which problems could emerge…[would be] derivatives. [Let me explain why that might well be the case.] Words: 591

4. Gold Bounce Confirms Bull Market Intact on Its Way to $3,000 – $10,000

With what is happening in the price of gold these past few weeks/months it is imperative to take a look at the big picture and in doing so it shows that we are still very much in a long-term bull market. Let’s take a look at some charts that clearly outline where we are currently and where we could well be going. Words: 925

5. New Analysis Suggests a Parabolic Rise in Price of Gold to $4,380/ozt.

6. Deja Vu? Is Gold Just in a Correcting Phase on Its Way to Parabolic Peak of $4,294?

The current volatility in the precious metals market doesn’t necessarily indicate a change in secular direction. [In fact,] if today’s gold price was to rise by the same degree over the next 14 months [as it did from the beginning of 1979 into 1980, it would hit $4294/ozt. by Jan 2013! Let me explain.] Words: 420

7. Goldrunner Called $1,920 Gold High Exactly; Now Expects $3,000 – $3,500 by Mid-Year

8. What Do Gold Measurements “Troy” Ounce and “Karat” Really Mean?

9. Gold is NOT a Perfect Inflation Hedge! Here’s Why

Almost any traditional inflation hedge [such as gold, silver as well as real estate, stocks or whatever,] has difficulty in reaching the break-even point on an after-inflation and after-tax basis when we take into account the pervasive problem of hidden “inflation taxes”…If our future is one of high inflation, then whether and how you deal with inflation taxes may be one of the biggest determinants of your personal standard of living for decades to come… Why? Because government fiscal policy destroys the value of our dollars and government tax policy does not recognize what government fiscal policy does, and this blindness to inflation means that attempts to keep up with inflation generate very real and whopping tax payments, on what is from an economic perspective, imaginary income. [Let me illustrate that fact with three examples and suggest some remedial measures.] Words: 3085

10. Contracting Fibonacci Spiral Puts Gold Near $4,000 by 2013 and $7-10,000 by 2020

Other Articles by Alf Field:

1. Where Is This Unprecedented Global Financial Crisis Headed? A Retrospective from Alf Field

Everyone must be wondering where this “unprecedented global financial crisis”, (the World Bank’s words), is heading. What follows, for what they are worth, are my cogitations on this crisis. Words: 1641

2. Alf Field’s 7 “D’s” of the Developing Disaster Revisited

When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…[Let me explain this further by reviewing the 7 major problems facing the U.S. (and thus the world) and how they all will lead to problem #7 - devolution.] Words: 1520

3. America’s Current Account Deficit Causing World’s Financial Crisis! Here’s Why

The onset of the world’s worst financial crisis in many decades is one of the most important factors (if not the most important factor) currently influencing investment decisions. The crisis has created chaos and confusion. Not many people understand how the world has arrived at this unfortunate situation. This report endeavours to identify the underlying causes of the crisis and explains why the USA current account deficit has been the main destabilising force in world finance. Words: 3806

How Did This “Stealth” Rise In Gold Happen?

Editor — Tue, 24 Jan 2012 06:56:50 +0000

We are seeing a big turnaround in the gold market. Who’s buying? It is not who you think…So what happened? How did this “stealth” rise in gold happen? Words: 1200

So asks Sara Nunnally (www.insideinvestingdaily.com) in edited excerpts from her original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Nunnally goes on to say, on part:

Governments…[bought] five times more…gold bullion in 2011 than in 2010…[and] now have more than 30,788.9 metric tons…in [their] vaults – and… [it is anticipated that they will] buy another 190 metric tons (more than 6.7 million [troy] ounces) is in the first half of 2012. At yesterday’s opening spot price for gold, that means governments could spend $11.56 billion on gold in the next six months. That’s $64.2 million a day, every day until the end of June!

[It is the] emerging markets who have been buying gold:

Turkey added 63 metric tons of gold between October and November 2011
Thailand bought 52.9 metric tons in 2011
South Korea bought 40 metric tons, and
Russia bought 65.2 metric tons
China bought 85 metric tons in October with an estimated 100 tonnes in November

Together these countries make up more than half of all the gold buying in 2011. That is a huge statistic. Think about this for a second. If Thailand [bought] all that gold on the spot market today, it would spend $3.22 billion, or nearly 15% of its entire GDP growth in 2011…

Meanwhile developed economies have been selling gold.

Germany dumped almost 166,000 ounces last October and more than 169,000 ounces in 2010.
France sold 56.7 metric tons of gold in 2009, worth at today’s price $3.45 billion.

I bet they wish they had that back now, eh?

[The chart below] is gold’s spot price over the past 30 days…The low on Dec. 29, 2011, was gold’s lowest point in six months, and represented a drop of more than 19% from its record price above $1,900 an ounce. [Why?] Because everybody was selling gold – [people such as] billionaire hedge fund manager John Paulson [who] dumped one-third of his holdings in GLD last fall [even though] he had been calling for gold at $4,000 back in May 2011, when George Soros sold his gold holdings – and [all] that weight led to investors turning a blind eye to gold in this first month of 2012.

Now, [however,] big names are swaying bullish for gold this year. Morgan Stanley thinks gold will average $1,845 an ounce in 2012, while Goldman Sachs thinks gold will hit a new record of $1,940 this year. [Then there those who think gold will go dramatically higher in 2012 - read These 8 Analysts See Gold Going to $3,000 – $10,000 in 2012! Here’s Why]

According to Morgan Stanley gold could see $2,175 in 2013 [and many others see gold going even higher than that as per these articles: $10,000 Gold is Coming in 2012/13! Here’s Why and Contracting Fibonacci Spiral Puts Gold Near $4,000 by 2013 and $7-10,000 by 2020 and New Analysis Suggests a Parabolic Rise in Price of Gold to $4,380/ozt.]

There are plenty of reasons why gold is going to be a major investment again in 2012, and emerging markets, particularly China, are going to play a big part in that. China bought 454 metric tons between 2003 and 2009 and one analyst is projecting China’s total gold imports for 2011 [to exceed that] at 490 metric tons — more than all the gold the world’s central banks added for the entire year last year! [Indeed, according to Eric Sprott - Aggressive Chinese Buying Will Spike Gold Price]

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We’ll know soon enough but how [should we] to play it? [May I suggest you read this article for some insights on how to do just that: There is a MUCH Better Way to Own Gold Than Via ETFs and ETRs – Here’s How]

*http://www.insideinvestingdaily.com/

Why spend time surfing the internet looking for informative and well-written articles on the health of the economies of the U.S., Canada and Europe; the development and implications of the world’s financial crisis and the various investment opportunities that present themselves related to commodities (gold and silver in particular) and the stock market when we do it for you. We assess hundreds of articles every day, identify the best and then post edited excerpts of them to provide you with a fast and easy read.

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Related Articles:

1. These 8 Analysts See Gold Going to $3,000 – $10,000 in 2012! Here’s Why

2. Goldrunner Called $1,920 Gold High Exactly; Now Expects $3,000 – $3,500 by Mid-Year

3. $10,000 Gold is Coming in 2012/13! Here’s Why

I am increasingly confident that the consequences of fragile sovereign debt, precious metals market manipulation, insufficient physical supply, and the need for a safe haven investment refuge, will contribute to rampant price inflation and drive precious metals bullion and mining stock to a parabolic peak price of $10,000 sometime in 2012 or 2013 at the [...]

4. Contracting Fibonacci Spiral Puts Gold Near $4,000 by 2013 and $7-10,000 by 2020

5. New Analysis Suggests a Parabolic Rise in Price of Gold to $4,380/ozt.

6. There is a MUCH Better Way to Own Gold Than Via ETFs and ETRs – Here’s How

Late last year the Royal Canadian Mint intoduced an Exchange Traded Receipt (ETR) in another long line of paper-gold investments that are now trading on securities exchanges worldwide. It, like all of the other programs, comes with a slew of fees and risks. [Why not take personal physical possession of your gold or silver, store it in an allocated and secure non-government vault, be able to have any or all of it shipped to you immediately upon request - and for dramatically less than any ETF or ETR? Let me explain how easily it is to do just that.] Words: 1601

The “Ins” and “Outs” of Investing in Commodities

Editor — Tue, 24 Jan 2012 06:55:49 +0000

Commodities have obvious appeal to active investors looking to generate profits from short-term price movements [but while] the volatility of this asset class is ideal for risk-tolerant individuals who actively monitor their positions…commodities may also have appeal to the long-term, buy-and-hold crowd…These potentially appealing attributes come with plenty of risk, [however, as] the path to commodity exposure is full of potential obstacles and pitfalls that can erode returns and lead to a less-than-optimal investing experience. Here are ten rules of thumb that will help you achieve a more successful experience investing in commodity markets. Words: 2871

So says Michael Johnston (www.commodityhq.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Johnston goes on to say, in part:

Investor interest in commodities has surged in recent years, the result of both a prolonged rally in natural resource prices and the development of new vehicles that facilitate access to this asset class. Specifically, the launch of a robust lineup of exchange-traded products (ETPs) that utilize both physical commodities and commodity futures contracts has brought commodities to the masses; they’re no longer reserved for the largest and most sophisticated investors.

Here are the ten rules:

1. Recognize That ETNs Do NOT Usually Mirror Spot Prices

Perhaps the most common–and most dangerous–misconception about commodity ETFs and ETNs is that these products offer investors exposure to the spot prices of the underlying commodities.

While some physically-backed precious metals ETFs such as IAU and SLV do hold physical bullion, the vast majority of commodity exchange traded products on the market achieve the targeted exposure through the use of futures contracts. That is very important to note, because it means that the returns generated will ultimately depend on three factors:

Changes in spot price of the commodity
Slope of the futures curve
Interest earned on uninvested cash

It’s not uncommon for the second point on the list [above] to be the driving force, and the reason why returns on commodity ETPs can deviate significantly from a hypothetical investment in the spot commodity.

2. Consider ETPs That Avoid Contango

For an investor who solely invests in futures contracts, contango [that is, when the futures price is above the expected future spot price the price will decline to the spot price before the delivery date] may not be as big of an issue but given the fact that commodity ETPs have soared in assets in recent years, there are a large…[number] of people who rely on these products for their commodity exposure, and it is highly likely that a number of them have been burned by contango.

A futures-based ETP follows a strict process which, when combined with contango, slowly but surely destroys a position. When futures are contangoed, this forces the particular fund to sell the contract low, and buy the next contract for a higher price, erasing value with the blink of an eye. When this process is dragged out over several months, these funds have a nasty habit of producing some rough returns.

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To keep away from such a common anomaly use first-generation futures funds, like UNG and USO, as trading instruments. Their automated roll process will always fall prey to a contangoed environment, and therefore it is not often wise to establish a long term position in such a fund. Instead investors should measure their holding periods of these products in days and hours, rather than weeks and months, to help avoid the pitfalls of the auto-roll.

For those who are uncomfortable with actively trading a fund, there are now a wide variety of ETPs that are focused on eliminating contango. These next-generation products will often hold several futures contracts at once and their roll process does not always involve buying the next month’s contract, but rather one that matures further into the future.

The most popular kind of commodity ETP is a first generation futures fund; one that simply invests in front-month futures and features an automated roll process…When an ETP’s contract is about to reach maturity, the fund executes an automated roll process so as to avoid delivery.

A quick glance at the index description of a futures-based fund will tell you if it is utilizing the dangerous front-month strategy, or if it is using alternative means to avoid contango. Also note that investors can use physically-backed products to avoid this issue, though that space is generally limited to precious metals…

3. Recognize the Difference Between Commodity ETFs and ETNs

Most investors are aware that there are distinctions between ETFs and ETNs; ETFs hold a basket of underlying securities and may experience tracking error, while ETNs are debt securities that will expose investors to the credit risk of the issuing institution…

Most investors tend to gloss over the differences between these two product types, since they generally function in almost identical fashion. When it comes to accessing commodities, however, the differences between these two product structures can be significant. For starters, tracking error can become a big issue with products that regularly “roll” futures contracts to avoid taking physical possession; ETFs that are continuously buying and selling futures contracts are likely to deviate slightly from their target index. ETNs don’t have that concern, since there are no underlying holdings; the value of these securities simply moves along with the index.

It should be noted that ETNs can also avoid the fees that come along with rolling futures contracts and implementing a futures-based investment strategy. ETFs incur costs in the form of brokerage commissions whenever they sell or buy futures contracts; ETNs simply calculate the change in value of the underlying index, and the value of the note adjusts accordingly…

Basically, it is worth doing your homework into the various structures at your disposal for accessing commodities; the choice you make can have a potentially significant impact on your credit risk, tax liabilities, and tracking error. Most investors look at ETNs with skepticism, wary of the credit risk contained. That risk component certainly shouldn’t be ignored completely, but it is worth noting that there are some appealing attributes of the ETN structure as well.

4. Recognize the Difference in Commodity ETF and ETN Tax Obligations

The difference between a commodity ETF and a commodity ETN can translate into sizable discrepancies in tax obligations. Most commodity ETPs that actually hold futures contracts–meaning the non-ETN segment of the universe–are structured as partnerships for tax purposes. That means that these securities are taxed at a blended rate between short-term and long-term capital gains (the 60/40 split results in an effective rate of about 23%). Moreover, these securities incur a tax liability annually regardless of whether shares were sold…[and] require [financial] advisors to fill out a K-1, which can be an administrative headache to some.

Compare all of [the above] to the simplicity of commodity ETNs, which are generally only taxed upon sale at the applicable short-term or long-term rates. Moreover, commodity ETNs are reported of a form 1099; there’s no K-1 to deal with on these products.

[Also]…keep in mind that physically-backed precious metals ETFs, such as the ultra-popular GLD and IAU, are subject to being taxes as collectibles.

5. Avoid an Energy-heavy Portfolio

When it comes to commodity investing, many investors commit the sin of energy bias, whereby the majority of their commodity holdings fall under the umbrella of an asset like crude oil or natural gas. To be fair, energy products are among the most popular in the commodity world, but exhibiting a bias towards these investments can have some adverse effects on your portfolio.

Energy products are quite often highly correlated to the movement of general markets, meaning that they will move closely in line with something like the S&P 500. One of the main reasons that commodity exposure is essential to a portfolio is the low correlation and diversification benefits that these investments offer. An energy-heavy portfolio will likely only steepen your losses on bad days which may not be enough to be erased by days in the black.

Energy investments are obviously very important, as the majority of these commodities offer relatively inelastic demand because we cannot survive without them in our daily lives, but with these futures and products being particularly volatile, committing a bias may only hurt you in the long run. Instead, it is important to remember to keep vital energy holdings in check with other commodities like precious metals or softs. This way, a portfolio will still reap all of the benefits offered from energy, but will also gain the diversity of commodities tied to vastly different price drivers that offer sometimes zero correlation to major benchmarks.

6. Research the Least Expensive Way to Gain Exposure

Commodity investing can be an expensive venture, and if one is not careful, it can be easy to erase value through expenses like commissions and other fees associated with trading. One of the first things every investor should do is take a look at their strategy and then research if there is a cheaper way to gain the exposure. Often times, there is a corresponding ETP to a futures-based strategy that can offer a much more enticing expense structure. The constant shifting of positions required by commodity investing can quickly eat away bottom-line returns, as commission fees rack up quickly, not to mention the capital gains on a short term trade. Failing to consider one’s expenses is essentially allowing the markets to steal from you.

When considering your commodity trading strategy it is important to see the bigger picture. Is there a fund that trades the same contracts for a lower price? Is there a company that offers good exposure to a commodity that doesn’t require the constant movements that are needed for futures investing? Most important of all, is there a cheaper way to employ the same strategy? While a few measly basis points may not seem like a lot, consider a portfolio of $1,000,000. Let’s say that each year that portfolio is subject to fees of 1% of total assets (not an uncommon expense for active traders). If one were to eliminate 0.25% from that figure, you could save $2,500 every year. Drag that out over ten years of trading and you have an extra $25,000 sitting in your pocket. Commodity investing can be expensive, but there are plenty of ways to beat the fees, it simply takes diligent and careful research.

7. Consider “Indirect” Positions In Commodities

Investing in commodities can be done through 3 means:

holding the actual physical natural resources (generally gold or another precious metal),
holding futures contracts that are linked to the commodity,
holding stocks of companies whose operations revolve around the exploration, extraction, and sale of commodities.

[Regarding #3 above,] stocks of gold mining companies can be seen as an indirect investment in gold [as they] tend to exhibit relatively strong correlations to the underlying resources… because the profitability of these companies generally depends on the market price for the goods they sell. In the case of a gold miner, higher gold prices will generally translate into higher earnings since they will receive more money for each ounce of the metal they uncover and sell. Similarly, oil stocks tend to perform well when crude prices climb and timber stocks do well when lumber prices are elevated. The benefit of this approach is that stocks don’t exhibit contango that is common in commodity futures contracts–often to the detriment of positions in these securities.

It should be noted, however, that stocks of commodity-intensive companies will not always exhibit perfect correlation with the underlying natural resource. These stocks are, after all, stocks – meaning that they will be impacted by movements in broad global equity markets. That may diminish one of the appealing attributes of commodities; the potential for diversification benefits and a low correlation with stocks and bonds.

8. Understand the Nuances of the Different Commodity ETP Strategies

The old saying is that there is more than one way to skin a cat. That’s certainly applicable when it comes to investing in commodities; there are a number of different ways to tap into this asset class. Even in a futures-based approach to investing in natural resources, there are multiple options for crafting a commodity position. The details of an investment in commodities may seem insignificant, but they can actually end up having a meaningful impact on bottom line returns and volatility.

For any given commodity, there are generally multiple futures contracts that are distinguished by the maturity date. For example, there are crude oil contracts traded on the NYMEX expiring each month of the year. Other futures have four or five maturity points in each calendar year, and in many cases there are contracts listed for years in advance (it is possible to, for example, to invest in a crude oil futures contract that expires in 2015).

Exchange-traded commodity products can generally be categorized into three groups, depending on which type of futures contracts they hold:

Front Month Futures
Rolling 12-Month Futures
“Dynamic” Futures

Many of the commodity ETPs on the market focus on front month futures contracts, rolling exposure as the contracts approach expiration and using the proceeds to invest in the second month futures contracts. The benefit of this strategy is that front month futures tend to exhibit the strongest correlation to spot prices in the short term, meaning that products such as USO and UNG are optimal for those expecting to be in a position for a short period of time.

The downside is the potential for the adverse effects of contango. Products that focus on front month futures must roll holdings on a monthly basis [and, as such,] they are vulnerable to more frequent return erosion resulting from an upward-sloping futures curve. ETPs that spread exposure across 12 months of futures contracts, on the other hand, may not experience the same degree of return erosion since only a fraction of the portfolio changes each month. In return for that benefit, these products might not exhibit quite the same correlation to spot prices.

Finally, there are a growing number of ETPs that don’t stick to a predetermined roll strategy, instead examining observable market prices to determine which contracts are optimal for minimizing the adverse impact of contango or maximizing the benefit of backwardation.

While these approaches and the products that employ them may seem similar, they can lead to very different results. Make sure you understand the nuances of each strategy before jumping in to a commodity ETP.

9. Recognize That Some Commodities are Better Inflation Hedges Than Others

Investing in commodities…is generally assumed to be an effective way to protect investor portfolios from the adverse impact of inflation. Because inflation, by definition, means an increase in prices, this can obviously be a boost to natural resource prices and rising prices for energy, metals, and agriculture results in a higher consumer price index (CPI). While inflation is generally bad for fixed income and can have an adverse impact on stock prices as well, the conventional wisdom is that this phenomenon is a big positive for positions in commodities.

It is important to understand, however, that not all individual commodities are equally effective as inflation hedges. Some exhibit a very strong correlation with indications of rising prices such as the CPI, while others are not nearly as effective. That means that for investors concerned primarily with protecting their portfolios from the ravages of inflation, picking the right commodity (or commodities) is a key consideration.

10. Actively Monitor Your ETP Positions

Though estimates vary, as many as 90% to 95% of commodity investors report losses from their trading activities. Commodities are volatile, difficult to predict, and as such, can be extremely frustrating investments. One sure way to lose money is to simply neglect a position. While it seems fairly obvious that a lack of monitoring is a poor choice, the recent influx in commodity ETPs has made this asset class more readily accessible to those who may not be used to keeping a watchful eye on their positions.

A commodity position will typically be measured in hours and days rather than months and years. Prices can be extremely volatile with seemingly insignificant events having a major trickle-down effect on the underlying investment, so the need for active monitoring is vital to the commodity space. Note that this piece of advice is most applicable to futures-based investments; there are a select few physically-backed commodity ETPs as well as equity investments that can be used for longer term strategies.

If you do not have the time to watch your position through out the day, you probably have no business making the investment in the first place. Other than VIX contracts, commodities can be some of the most volatile investments available today and investors need to proceed with caution.

On the flip side, actively monitoring will not only avoid losses, but it will typically lead to gains. Those who keep one ear to the ground so to speak, will have a much better chance of hopping in and out of trends intraday and turning a quick profit from the momentum of commodity markets. Commodity trading is meant to be volatile and for those who are unable to stomach the risk, it can be a brutal investing process. As a more general piece of advice, have a profit objective for each position and be willing to accept your losses when you were wrong. A sound and stable mind combined with good risk management will lead to smarter and more effective commodity trades.

*http://commodityhq.com/2012/the-ten-commandments-of-commodity-investing/

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