LGMR: Low Volatility Gold “Outperforms Stocks & Commodities”, Hits New Euro Highs

London Gold Market Report
from Adrian Ash
BullionVault
08:45 ET, Mon 26 April

Low Volatility Gold “Outperforms Stocks & Commodities”, Hits New Euro Highs as Greek Bail-Out Stalls

THE PRICE OF WHOLESALE gold bullion hit fresh record highs vs. the Euro early on Monday, holding onto Friday’s late gains for US investors as the single currency fell on the forex market.

World equities rose, as did commodities. Silver prices were little changed, remaining inside what bullion-bank Scotia Mocatta’s technical analysts call “a two-month up channel.

“[Silver] now looks poised to trade higher.”

Greek government debt meantime fell hard after Germany’s finance minister warned Athens that tough budget savings are “an absolute prerequisite” of the Greek bail-out – estimated at €30-80 billion, and now being discussed by Eurozone and IMF officials in Washington.

Over in Asia, Seoul’s defense minister said “a heavy torpedo [was] the most likely cause” of last month’s sinking of a navy patrol boat near the maritime border with nuclear-armed communist dictatorship North Korea.

“Gold is benefiting from both investors’ preference for a safe haven and to some extent a recovery in risk appetite,” said one Tokyo fund manager to Reuters earlier.

“Despite high prices, physical selling was lacking in gold and surprisingly light two-way business was seen in platinum,” says a Hong Kong dealer in a note.

Recording an AM Gold Fix in London more than 1.2% higher from Friday afternoon for both US and Euro investors, the price also rose to a fresh 30-year high against the Swiss Franc early Monday.

Briefly touching CHF 40,000 per kilo today, gold peaked at CHF 43,600 on 21st Jan. 1980.

“The market is still extremely thin and is therefore susceptible to sharp moves,” says Swiss refinery group MKS in a note to clients.

“Until fresh news on Greece gives gold fresh direction, the yellow metal is likely to remain volatile.”

Gold remains less volatile than both world and US stock-markets, however, as well as less volatile than all major traded commodities, according to new analysis from mining-backed marketing group the World Gold Council.

“On a risk-adjusted basis, the yellow metal outperformed compared with the broader commodity complex and international equities” during the Jan. to March period, write analysts Juan Carlos Artigas and Louise Street.

Gold investment demand “remains high by historical standards,” they continue, noting lower but strong demand for coins and small bars in the first quarter of 2010, as well as “a moderate increase” in wholesale bullion positions adopted by investment funds and institutions.

“Gold’s strong performance in 2009 coupled with other considerations such as its portfolio diversification and inflation-hedge characteristics were likely behind the fresh wave of allocations that occurred at the beginning of 2010.

“Most of the [large 400-oz bar] activity has been in the form of ‘plain vanilla’ rather than structured products, in particular in the form of allocated gold positions” held securely for investors inside market-approved vaults. [Want to join the professionals in buying and owning the safest gold at the lowest prices? Go to BullionVault now…]

Back in Monday’s action, major developed-world government bonds rose together with equities and broad commodities as crude rose back above $85 per barrel.

Ten-year yields on Greek government debt leapt however as prices sank, hitting a new 13-year record above comparable German debt at 9.58% while the Euro currency dropped half of Friday’s late-rally from 11-month lows to the Dollar.

The Euro also fell to a new 8-month low vs. the Pound. UK investors saw gold drop 0.7% from last week’s finish as Sterling rose, but the metal still recorded its best London Gold Fix since the morning of 16th April – just before the US government’s legal action against Goldman Sachs sparked a sharp drop in prices.

Latest data from US regulator the CFTC says that hedge funds and other large speculative players in Comex gold futures and options cut their net betting on higher prices by more than 1 contract in every 20 in the week-ending last Tuesday.

Small speculators, in contrast, extended their “bull ratio” slightly, taking it to a 21-month high of nearly 74% of all Comex gold contracts they held.

“Gold has seen a decline in speculative activity. So has silver,” note Leon Westgate and Walter de Wet at South Africa’s Standard Bank today.

“As a percentage of open interest (OI), the net long speculative position stands at 34.4%…well below the 42% of OI hit in Sept. 2009 and slightly less than the average 35.8% seen over the past 12 months.”

With speculative pressure in the gold market lower than in either silver or crude oil, “We favor gold,” says Standard.

Adrian Ash
BullionVault

Gold price chart, no delay | Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Douglas French on Ludwig von Mises and the Advancement of Free-Market Thinking

Sunday, April 25, 2010 with Scott Smith

Douglas French The Daily Bell is pleased to present an exclusive interview with Douglas French (left).

Introduction: Douglas French is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply. He received his Masters degree in economics from the University of Nevada, Las Vegas, under Murray Rothbard with Professor Hans-Hermann Hoppe serving on his thesis committee.

Daily Bell: Can you give us some background about yourself? Where did you grow up and how did you become interested in Austrian economics?

Douglas French: I grew up in Abilene, Kansas and like Dwight D. Eisenhower, was an average student at Abilene High School. Sports was my primary interest in school. I lettered in three sports, and went on to play football at Washburn University in Topeka, Kansas.

I dropped out of college in my third year out and worked as a bartender and bar manager for ten years. During that time I returned to college to finish my undergraduate degree with a major in economics and finance.
After moving to Las Vegas in 1986, I took an entry-level job at a bank and ultimately worked in the banking business in Nevada for 22 years. In the fall of 1989 I decided to enroll at the University of Nevada at Las Vegas (UNLV) and pursue a masters in economics. In the fall of 1990 I took “History of Economic Thought” with Murray Rothbard and my life was changed forever. I took “U.S. Economic History” with Murray as well and wrote my masters thesis under his direction. While researching and writing my thesis on early speculative bubbles I became interested in Austrian Economics, especially Austrian Business Cycle Theory.

Daily Bell: Tell us what you do at the Mises Institute and how you came to your important free-market role.

Douglas French: I serve as the President of the Institute. Lew Rockwell and the late Burt Blumert asked if I would come to work for the Institute in the fall of 2008. Along with being a student of Murray’s I had been a donor to LvMI and had attended a number of events as well as speaking at a few conferences. So I feel like I’ve been closely involved with LvMI’s mission for a number of years.

Daily Bell: You studied under Murray Rothbard and with Professor Hans-Hermann Hoppe. Can you give us some background and anecdotes about them? What has made them such famous proponents of free-markets and human action?

Douglas French: Murray was the happiest person I’ve ever met. Especially considering that the UNLV economics department did all it could to discourage students from take his classes and classes from Hans. He was generous with his time and his students would wait long periods just to chat with him. Thankfully, someone eventually found a chair and put it outside his door so we didn’t have to keep sitting on the hard tile floor in the hallway.

The first night of class I remember Murray walking through the door and he started talking immediately about the crazy politicians wanting to fix gas prices. Anyone who has taken classes with Murray will tell you he was a walking bibliography. His lectures were filled with endless reading suggestions. And not just book titles but author, publisher, date published. Of course, as a thesis advisor he was the best: references, strategist, and cheerleader.

Of course Murray selected the rest of my thesis committee for me and professor Hoppe was at the top of his list. However, I never had the opportunity to take classes from him.

My thesis defense lasted for more than a couple hours as I remember. Sitting through my oral defense had to seem like the longest two hours of my committee members’ lives. But none of the Keynesian faculty members who dropped by to comment chose to stick around long enough to critique me.

Since I had no background in Austrian economics or Libertarianism, at the time, I had no idea how lucky I was to be studying under the man who is considered the father of the modern libertarian movement and was the dean of the Austrian school until his death, not to mention having one of the most important scholars of our time and the current dean of the Austrian school as a thesis committee member.

Daily Bell: Give us a historical economic framework for Ludwig von Mises. How did his thinking evolve?

Douglas French: When Mises went to college he described himself as a statist “through and through” like most of his fellow classmates. However, he was anti-Marxist, writing that the “platitudes of Marxist literature repelled me.” Mises believed that all the Marxist scholars he met were mediocre, except Otto Bauer.

By his fifth semester he began to have doubts about government interventionism. His work on housing conditions in Austria revealed to him that taxation hindered capital investment and limited supply leading to higher rents. But, reductions in these taxes didn’t reduce rents and led the government to impose other taxes to replace the taxes that landlords had been paying: early insight that one government intervention leads to a series of others due to the unintended consequences of this intrusions.

In 1903 Mises read Carl Menger’s Principles of Economics and from that book, he wrote, “I became an economist.” Mises attended Eugene Böhm-Bawerk’s seminar in Vienna until 1913 and witnessed continuous debates between Böhm and Bauer over Marxist theory. Mises applied Menger’s marginal utility theory to money and the business cycle and these were the subjects of the seminar the last two winter semesters that he attended. The finished manuscript for The Theory of Money and Creditwas in the hands of the publisher in early 1912.

Daily Bell: Mises is one of the greatest men who ever lived for his insights into what he called “human action.” How did the concept of human action evolve in his mind and why is it one of the most profound statements about the human condition ever uttered?

Douglas French: It was actually Carl Menger who developed a complete theory of social institutions arising from interactions among humans, each with his own subjective knowledge and experiences. It is the spontaneous evolution of these human actions that create institutions whereby individuals discover certain patterns of behavior that aid each person in attaining his goals more efficiently. Menger, and then Mises, applied this insight to the development of money which in turn makes the division of labor possible and satisfaction of wants attainable. This reasoning is the bedrock for understanding how societies and human progress advance. Conversely, this same understanding reveals how government intervention causes society to devolve.

Daily Bell: Can you summarize his great work, Human Action for our readers? Can you recommend some other books by von Mises?

Douglas French: I remember Murray talking about Human Action in class. He said that after he had read it, someone asked him what the book was about, he replied, “Everything!” So, can I summarize a book about everything? Not adequately. To quote from the Introduction to the Scholar’s Edition, Human Action is “a comprehensive treatise on economic science that would lay the foundation for a massive shift in intellectual opinion that is still working itself out fifty years after publication.”

Mises explained why he wrote Human Action:

Economics does not allow any breaking up into special branches. It invariably deals with the interconnectedness of all phenomena of acting and economizing. All economic facts mutually condition one another. Each of the various economic problems must be dealt with in the frame of a comprehensive system assigning its due place and weight to every aspect of human wants and desires. All monographs remain fragmentary if not integrated into a systematic treatment of the whole body of social and economic relations.
To provide such a comprehensive analysis is the task of my book Human Action , a Treatise on Economics. It is the consummation of lifelong studies and investigations, the precipitate of half a century of experience. I saw the forces operating which could not but annihilate the high civilization and prosperity of Europe. In writing my book, I was hoping to contribute to the endeavors of our most eminent contemporaries to prevent this country from following the path which leads to the abyss.

Bob Murphy, writing in the preface to his, Human Action Study Guide, “Suffice it to say, one cannot really claim to be an Austrian economist certainly not a Misesian! without reading Human Action.

In an essay written about Mises, Murray wrote that Human Action is “one of the finest products of the human mind in our century.”

One can’t go wrong reading any books by Mises. For those interested in booms and busts, I leaned extensively on a book that is now titled The Causes of the Economic Crisis when writing my thesis. For those who wonder why intellectuals and opinion makers hate capitalism, The Anti-Capitalist Mentality is very revealing. Want to understand big government? Read Bureaucracy. Theory and History was Mises’s favorite next to Human Action.

Of course the big three are Human Action, Socialism, and The Theory of Money and Credit.

Daily Bell: Tell us how Mises and FA Hayek expanded and finalized the concept of the business cycle.

Douglas French: As I mentioned, Mises applied marginal utility analysis to the money and the problem of the business cycle which became Austrian Business Cycle Theory (ABCT). As Murray Rothbard wrote in an essay about Mises, “At long last, economics was whole, an integral science based on a logical, step-by-step analysis of individual action. Money was fully integrated into an analysis of individual action and the market economy.”

Mises exposed the fallacies of the quantity theory of money and Irving Fisher’s “equation of exchange.” Mises put individual choice into monetary theory and dispensed with the “distorted concentration on mechanistic relations between aggregates.” Mises’s Regression Theorem showed that money can only be established by the market, beginning with barter, not by government construct. This of course has been proved right as every fiat currency in history has ultimately been made worthless.

Mises formulated his ABCT during the 1920s out of three elements; the boom-bust model from the Currency School, Swedish “Austrian” Knut Wicksell’s delineation between bank interest rates and the “natural” rate, and Böhm-Bawerk’s capital and interest theory.

“Mises’s remarkable integration of these previously totally separate analyses showed that any inflationary or created bank credit,” wrote Rothbard, “by pumping more money into the economy and by lowering interest rates on business loans below the free market, time-preference level, inevitably caused an excess of malinvestment in capital goods industries remote from the consumer.”

Hayek’s ABCT work continued from Mises’s explaining the origin of the business cycle in terms of bank-credit expansion.

Daily Bell: Did John Maynard Keynes know Mises? Keynes knew Hayek, but we wonder if he avoided Mises somehow or was in some way reluctant to engage him.

Douglas French: I can’t find any evidence that Keynes knew Mises personally. But Keynes did review the German version of The Theory of Money and Credit for the Economic Journal and dismissed it as being unoriginal. But as Donald Boudreaux pointed out in a letter to the Wall Street Journal, “in his 1930 book Treatise on Money, [Keynes] confessed that ‘in German, I can only clearly understand what I already know so that new ideas are apt to be veiled from me by the difficulties of the language.'”

Daily Bell: Were there differences between Hayek and Mises intellectually and otherwise. Was Hayek Mises’ favorite pupil?

Douglas French: Hayek attended Mises’s Privateseminar, be he didn’t necessarily consider himself a student of Mises. He wrote in the introduction to Mises’s Memoirs that he was closely associated with Mises. But he came to Mises, “not as a student, but as a fresh Doctor of Law and a civil servant, subordinate to him, at one of those special institutions that had been created to execute the provisions of the peace treaty of St. Germain,” Hayek wrote. “The letter of recommendation by my university teacher Friedrich von Wieser, who described me as a highly promising young economist, was met by Mises with a smile and the remark that he had never seen me in his lectures.”
Murray writes in Keynes, The Man that Hayek was charmed by Lord Keynes but he didn’t succumb to Keynes’s ideas. However, Hayek never wrote a critique of The General Theory. And Mark Skousen speculates that Hayek backed off of Keynes in the 1940’s not wanting to interfere with Britain’s financing of the war effort.

So while Hayek may have been politically pragmatic, Mises never was. Mises’s widow Margit described her husband’s character, quoting the words Mises wrote about Benjamin Anderson. “He never yielded. He always freely enunciated what he considered to be true. If he had been prepared to suppress or only soften his criticism of popular, but obnoxious policies, the most influential positions and offices would have been offered to him. But he never compromises.”

“Of all the Misesians of the early 1930’s, the only economist completely uninfected by the Keynesian doctrine and personality was Mises himself,” Rothbard wrote. “And Mises, in Geneva and then for years in New York without a teaching position, was removed from the influential academic scene.”

Hayek was able to secure teaching positions at the London School of Economics and the University of Chicago, and in 1974 was awarded the Nobel Prize. Mises would never secure such positions, was driven from his own country and had to fight for students and a chance to teach at all. While Henry Hazlitt wrote in Barron’s, “If ever a man deserved the Nobel Prize in economics, it is Mises,” he of course was never awarded the prize.

Daily Bell: Mises was a proponent of a gold standard was he not?

Douglas French: He was, and wrote: “The superiority of the gold standard consists in the fact that the value of gold develops independent of political actions.”

Daily Bell: We have an interest in free-banking here at the Daily Bell (see Selgin interview). We think any kind of financial system is allowable in a free-market and that competition will sort them all out so long as government is not involved and we do think in a free-market that a gold and silver private market standard would evolve as it has historically. Do you think this is an intellectually defensible position?

Douglas French: Certainly freely competitive banking is far better than the state regulated, fractional-reserve, fiat currency, central bank cartelized banking system we have now. However, in practice, in a free market, I don’t believe that the market would accept fractional reserves. It would be regarded as embezzlement at best and fraud at worst. Fractional reserve systems have fallen apart since the ancient goldsmiths issued more gold receipts than they had gold for. I can appreciate the theorizing, but when the rubber meets the road, the sternest task master the market would just not allow it.

Fractional reserve banking depends upon hope and prayer: Hope that not everyone shows up for their money all at once and pray that the borrowers pay their loans back. That’s not a sound basis for a banking system and requires the force of government to keep propped up.

Daily Bell: Do you think Mises position might have evolved toward free-banking if he was alive currently? Was Rothbard’s position evolving toward free-banking before his untimely death?

Douglas French: Murray wrote in an article that now is the Appendix to his book The Mystery of Banking “Ludwig von Mises was one of those believing that free banking in practice would approximate a 100 percent gold or silver money.” Mises believed “that demand deposits, like bank notes beyond 100 percent reserves, are illicit, fraudulent, and inflationary as well as being generators of the business cycle.” I believe this was also Murray’s view when he passed away.

Daily Bell: Is there anything wrong with fractional reserve/fiat-money in a free-market environment?

Douglas French: You couldn’t have fractional reserves and fiat money in a free-market. It would not last one day. Fractional reserves require a central bank to cartelize the banking system. In a free market demands on deposits would instantly shut down banks who engaged in fractionalized banking, by lending our their customers deposits.

No one would except paper money with no backing but for the power of government to require people accept it through legal tender laws.

Daily Bell: Regardless of the money standard argument, what was it about von Mises that made him utter such profound truths?

Douglas French: Mises was the rare combination of a dazzling brain, indefatigable work ethic and uncompromising courage.

Daily Bell: What can come after a genius like von Mises? Has everything been said that needs to be said?

Douglas French: There is always intellectual work to do. But all Austrians stand on the shoulders of Mises. Mises himself believed there was little room for economic theorists. “In every field there are very few who can make actual contributions to its intellectual treasury,” Mises wrote. “If academic positions were contingent upon independent contributions to economics, barely a dozen professors could be found throughout the world.”

Daily Bell: What are your preoccupations going forward from an intellectual standpoint? What are you exploring, researching and writing?

Douglas French: I’m still very interested in speculative bubbles, banking, the effects of inflation and applying Austrian Business Cycle Theory to current economic events (and there is plenty of that to do).

Daily Bell: You are receiving a million visits a month or more at the Institute, online. What has made the Institute such a success under your leadership? What have you been doing to make it grow so fast?

Douglas French: As Lew Rockwell has said, the Institute has been talking for 28 years and now people are finally listening. So, it’s not really anything I’ve done. I just happened to become part of the staff just after the financial crash. Because the Austrian explanation for the financial meltdown is the credible one people are paying attention and interested in the Austrian view. What we do day-to-day is try to make use of every communication avenue we can to spread the message and expose more students (young and old) to the teachings of Mises, Rothbard, Hayek and the other great Austrians. As technology opens more of these avenues, we reach more people and grow quickly. Technology is the greatest weapon that the freedom movement has ever had. Now, time and space cannot limit ideas, and ideas change the world.

Daily Bell: Did you ever dream of the impact that you and Lew Rockwell would be having? You’ve truly started an international free-market movement.

Douglas French: I didn’t start anything. The man I studied under Murray Rothbard his friend Lew Rockwell and many others started this modern free-market movement . I’m just honored to be a small part of it.

Daily Bell: Is the Austrian economic movement now starting to catch on at colleges and universities? Will it ever exceed Keynesianism?

Douglas French: Austrian economics is only starting to gain a toehold at a handful of colleges. But the future of education is changing. How long will state governments and parents be able to afford paying for four, five or six years of partying, football games, and sorority dances, with a few classes from out-of-touch tenured professors sprinkled in? The university system sells pieces of paper-diplomas-that have value to employers who use these pieces of paper to making hiring decisions. Eventually, technology will allow employers to test an applicants skills and knowledge and not depend on these expensive pieces of paper. The value of diplomas are depreciating like the value of fiat currency. Because there is nothing (no real education) backing it.

Anyone who wants to learn Austrian economics can do so online, for free, at mises.org. There are hundreds of books, thousands of articles and hours of audio and video material made available due to the generosity of our donors. What we learn best is knowledge that we seek for ourselves, that we are passionate about. We have a generation that is teaching themselves economic truth, no matter what they hear from the talking heads on TV or the tenured Keynesians babbling nonsense about aggregate demand in the classrooms.

Daily Bell: What is planned for outreach? And what’s next for you? Can you recommend some articles or books you have written for our viewers?

Douglas French: As I mentioned before, we try to take advantage of every communication portal there is. I believe that based upon the initial response to the first class in the Mises Academy (over 200 enrolled), this program will expand. Our intent is to make all of our books and publications available in ePub formats. Our Mises Circle events held around the country are very popular and we will continue and expand the number of events we hold. Homeschool programs at the Institute have also proved to be very popular and I hope that these one-day programs can eventually be held in other cities. Mises University, the Austrian Scholars Conference and the Summer fellows programs will also continue and to expand. And we will continue to publish books through our publications department and reprint classic works through on-demand avenues, as well as the Quarterly Journal of Austrian Economics. We also host Libertarian Papers, a scholarly journal being managed so well by Stephan Kinsella, on mises.org and many of the great libertarian publications from the past.

Much of what I’ve written is on mises.org. Just type in my name and click on the link to my archives. The thesis I wrote under Murray’s direction is online, and for sale at Ludwig von Mises Institute – Homepage.

Daily Bell: Thank you for your time and the great work you do.

We are extremely fortunate to be able to bring this wonderful interview with Douglas French, the head of the world-renown Mises Institute. We can remember vividly the early 1990s when the Mises Institute was not well known. If the Internet has given Austrian economics a kind of rock-star-band appeal, especially for younger people, then von Mises is surely the lead axe-man.
We have been fortunate enough to interview several individuals close to the Mises Institute including its founder Lew Rockwell who, along with Murray Rothbard, could be said to have sparked the most influential intellectual movement of the late 20th and 21st century. Sure, free-market Austrian economics had been around for several hundreds years and was in fact the most influential economic discipline in the sense that the powers-that-be were constantly reacting to it and trying to restrict its influence.

Mises was hardly mentioned for much of the 20th century and when he came to America after World War II, he had trouble finding a job. Academic texts were dismissive of both Mises and the Austrian school so named by German economists who believed in statist bromides and could not, like many others of statist stripe, stomach the truth-telling of free-market economics.

The power elite, which the Bell regularly comments on, couldn’t abide either Mises or the larger thrust of Austrian economics. At the heart of Austrian economics are some of the most profound insights ever voiced about the current human condition. The idea of marginal utility that only the market itself could determine fluctuations in price makes every law and every regulation a kind of price fix.

What appears to be the most sublime and significant insight into the human condition belongs to the modest and beleaguered professor from Austria, Ludwig von Mises. His insight into economics (building on the great Menger’s initial insight) that it was basically an explanation of the humanity’s vital spark and should acknowledge people’s capacity for human action at all times is perhaps the most profound statement about humanity since the Sermon on the Mount.
Not only is the concept of human action extraordinarily significant, it is also in its magnificent simplicity a rebuttal to every falsification and fabrication put forward by would-be dictators to justify their petty schemes and tawdry rapine. Statists will always maintain that a small elite is necessary to guide society toward a better future.

In fact, human action shows us that no matter what leadership is provided by a governing elite, it will never come to fruition as planned. That’s because individuals seeing outcomes of which they either approve or disapprove will take human action long before the results of the statist scheme are realized. Humans are pro-active. People, in aggregate, take care of themselves and their families and do so far in advance of any of the dangers that an elite might predict, and often arrive at personal solutions far in advance of solutions offered by the state.

Adam Smith’s Invisible Hand, marginal utility and human action, stand as a kind of holy trinity of free-market economic thought. (There is also the profound Misesian analysis of the business cycle, but that is of slightly less consequence than the three concepts just mentioned.) Taken together they are a devastating rebuttal to statists everywhere and certainly to the absurd and soul-destroying policies by most of the nations in the world today, including Western ones.

Thanks to the Internet and to the hard work of committed free-market thinkers such as Doug French and the legendary Lew Rockwell, Austrian free-market concepts are now well known to millions around the world. The proverbial cat is “out of the bag” and this is one reason why the Daily Bell has been so confident about predicting that the elite and its plans for global dominance, as currently configured, will become less effective over time, at least for the foreseeable future. This happened before, when the Gutenberg press launched a communication revolution some 500 years ago that resulted in the Renaissance and the Reformation. We think this is, generally, good news for anyone who believes in freedom and free markets.

Finally, this afterthought would not be complete without a word about the gold standard and free banking, which Doug French commented on his interview above. We think interview itself contains a very good description of Doug French’s Misesian position and we have already addressed this issue, previously, in an interview with free-banking proponent George Selgin. Click Here to read the Selgin interview. Between the clear pronouncements of Doug French, and the equally clear approach of George Selgin, we think we have done readers a service in illuminating these issues in a way not often accomplished in the general press. Granted, the Bell is not “mainstream” but these issues are compelling and actually of great import, even though they might not seem to be in the current environment. We are confident they will be, just as we were confident that Misesian thought would eventually sweep the world. Thanks to Doug French, Lew Rockwell and others dedicated to free-market thinking. More changes are coming.

Client Update – Watershed Event For Evolving Gold

The following is automatically syndicated from Grandich’s blog. You can view the original post here
April 22, 2010 03:43 AM

As I’ve noted for weeks, EVG’s management has recognized a perception by the market regarding its management abilities and has taken a giant step by announcing R. Stuart (Tookie) Angus has taken over as Chairman of the Board. I believe this can prove to be a watershed event for EVG.

For starters, I believe current and potential EVG shareholders ability to sleep at nights with Mr. Angus steering the ship has increased at least ten-fold. I also believe it’s very fair to assume other changes can occur once Mr. Angus has had a chance to get a grip of the wheel.

I’ve stated over and over again that unlike 99% of its peers, EVG had the rarest of opportunities to have not one, but two, potential world class projects in its stables. With Mr. Angus now at the helm, that factor should shine even brighter.

http://www.grandich.com/
grandich.com

The Best Investments I’ve Ever Made

By Chris Weber, editor, The Weber Global Opportunities Report Thursday, April 22, 2010

Each middle of April, I mark a sort of anniversary. It was at this time nine years ago, in 2001, when I bought what was for me a large percentage of my assets in gold and gold stocks.

At the time, I saw that gold was looking very good on the charts: its recent lows were for the first time higher than the previous lows. Then there was just a feeling I was getting that the 20 year bear market was over. At the time, the idea of buying gold or gold stocks was regarded as laughable, a relic from another generation.

At the start of 2002, I first talked about gold with my readers, recommending some gold stocks. I had to be careful even then, because writing investment newsletters as I have since 1974, I learned long ago that you can’t get too far ahead of your readers. If you suggest something that is totally off of their radar screens, they will not be happy.

“Give people what they want… Tell people what they want to hear”: that was the advice I’d always been given by other newsletter writers. And it is true, most people only hear and believe what they want to hear and believe. It has been said before, but if there is ever to be a change in anything, “the minds of men must first be fitted to it.”

Also, between the time when I first bought the gold area in April 2001 and the time I first mentioned it in February 2002, I told three people what I had done. First was my brother. He looked at me with an expression of pity and sympathy. Next was my neighbor and good friend. He looked at me like I was crazy. Finally was a friend of mine in the gold mining industry itself. He told me I was much too early, that he saw no end to the 20 year bear market anytime soon.

I relate this to say that the best investments I’ve made have been at the time when most everyone else thinks you are deranged for even talking about them.

Even today, I get letters from readers who have not bought gold, silver, or platinum. Then I get letters from people who have bought lots of metals years ago and are sitting on paper profits so large that they are nervous.

I can tell them that most of them will sell too early: That’s just the way bull markets work. The number of people who can get into a bull market near the start and hold until near the end has always been small. I’d be surprised if it is as much as 5%.

And I know that nothing I can say will stop them from selling. At least they bought and got some of the benefit from their investment. That’s more than nearly everyone else can say.

Going on from that, I still ask people I meet, when investments come up, if they own gold, silver, or platinum. Nearly no one does. The most I have gotten is “I have about 5% of my money in it, mostly in the stocks.” Since most people’s biggest asset is their house, then taking it from a total net worth basis, this becomes less than the 5% mentioned.

Truly, the precious metals are far from being in bubbles. During bubbles, everyone you meet is telling you how much they made in a certain asset. Ten years ago, the guy who cleaned my swimming pool was giving me Internet stock tips. Five years ago, when I lived in Europe, people were telling me how much they had made on Spanish property. When I would come to the U.S., everyone I knew in Florida, Arizona, and Las Vegas was telling me how much they had made.

Now they are living with the hangover from that heady time. I know one man in Palm Beach… he owns five houses either there or in Aspen, Colorado. Only one of them is rented out. He has to pay the electric bills each month, and the property taxes each year. Money is flying out, but not much is coming in. He wants out, but he doesn’t want to sell at any price below what he paid. There are a lot of people like that. When they bought, real estate was in a bubble: Everyone thought they could buy and then flip the property to someone else.

How many people today think that way about gold or the other precious metals? Precious few. In fact, I know a couple of economists from decades ago. One of them visited me recently. He’s reached a high level of fame and influence in his profession, but he doesn’t understand investments. In fact, I could have started a very successful fund based solely on doing the opposite of what he thought was a good investment over the last 15 years or so.

His question to me: “Don’t you think gold is in a bubble?” To be fair, he thought the same thing back when gold was $700.

No, gold is not in a bubble. What’s happening is what has been happening since 2001.

Governments around the world have decided the way to get ahead is to cheapen their currencies. When all of them do it, it takes more of them to buy the same amount of gold.

Just recently, gold went to record prices in terms of the euro, the pound, and the Swiss franc. If gold rises just 5% more in U.S. dollar terms, it will be in new record territory here as well.

Gold has been going up for nine years now.

Imagine what would happen if your local stock market or real estate market had a chart that looked like this. People would be piling in and talking about little else at cocktail parties.

But when was the last time you attended a gathering of people you know who rattled on about how much they were making in platinum or gold? For me, it hasn’t been since 1979.

Regards,

Chris Weber

EVEN THE HOMEBUILDERS ARE REFLATING

Our colleague Frank Curzio was right… the government’s incredible homebuilder bailout is sending stock prices higher.

Back in March, Frank told readers of the Growth Stock Wire about a huge new tax rule that would boost homebuilder earnings and share prices to new highs. Most people can’t stand the thought of owning these stocks, so a contrarian had to be interested in the idea. How’s it working out?

As today’s chart shows, it’s working out well. The big homebuilder fund XHB is trending higher… and just struck a new 52-week high. Even the fundamentals we track (like homebuilder sentiment and months of current housing supply) are improving.

The improving homebuilder conditions, plus the incredible price strength, prove that when the government wants to “reflate” a sector, chances are excellent that in the short-term, it’s going to get it done.

Cash Futures, Physical Forwards, and London Gold’s “100-to-1 Leverage”

by Paul Tustain
BullionVault
Wednesday, 21 April 2010

A note on the LBMA, gold futures and forwards, and “100-to-1 leverage” in London’s wholesale gold bullion market…

SOME COMMENTATORS are alarmed that the amount of ‘physical’ gold in London is not sufficient to meet the immediate demands of the market.

This concern is based on a simple misunderstanding. Read what follows and you will have a much better idea of how gold futures, forwards, the spot and physical markets interact.

Professionals who trade gold over the counter use a convenient standard for specifying the form of the gold they will deliver between each other. The standard is written and maintained by the London Bullion Market Association (LBMA).

This standard is the Good Delivery bar which weighs about 400 troy ounces, and is traded 100% fine (i.e. gross bar weight * purity). A Good Delivery bar must have been manufactured by a recognized refiner which subjects itself to rigorous and ongoing scrutiny by LBMA referees. All their output is carefully assayed.

Professional gold dealers, and they are mostly banks, trade both these bars, and notional contracts which are underpinned by these bars, i.e. ‘derivatives’ of the bars. These are things like gold futures, forwards and options.

Gold Forwards
The demand for forwards comes from volume buyers of physical metal – like gold dealers who wish to supply jewelry manufacturers – while the volume sellers are often gold mines and refiners. Both will make very specific forward settlement dates and conditions for the bullion delivery on a forward trade.

Private individuals would struggle to trade on their own account on the forward market, because they lack the settlement facilities – like vaulting accounts at the accredited vaults – which enable them to take and make delivery of Good Delivery bars. But a miner might go to an LBMA bullion bank and open a forward sale, and then arrange its gold to be shipped from a registered refiner direct to the buying bank.

So forwards are deals in physical gold, but not necessarily for immediate settlement.

Gold Future Contracts
Futures are different. Everyone – including private investors – can speculate on gold futures very easily. So is there physical gold behind futures trades?

A few Clearing Members of futures exchange will have a depository account with some real gold in it, though Ordinary Members would be unlikely to, and therefore cannot usually settle with their customers in gold.

Clearing Members’ gold sits in the depository vaults, and title to it rests with warrants which are passed between Clearing Members on the occasions there is a net settlement of gold between them. (Several years ago BullionVault spent quite a while trying to find a way of owning gold in a Comex Depository Vault, through a Clearing Member, but we never found a satisfactory way. Perhaps someone else has been more successful. If they have we’d be happy to learn how, and publish the details.)

Because there is not ordinarily access to gold via futures markets the huge majority of Ordinary Members of the futures exchanges, and their customers, settle cash, not gold. The cash amount they settle is calculated by reference to a specific price formula which becomes very relevant when a future contract expires.

Futures & Forwards Together
Futures and forwards work hand-in-hand. Futures give the bank the opportunity to approximately hedge out any price risk they have taken on a specific forward trade. Futures are standardized, highly liquid and easily traded in volume. The beauty of futures is that all the gradual liquidity of three months of forward deliveries on specific dates can be concentrated in a standardized futures contract which you can deal with any trader, because all the contracts expire on the same day and with the same terms, regardless of which trader you choose. This exchangeability is the source of their liquidity.

Forwards, on the other hand, are hopelessly illiquid. Each was custom built ‘over the counter’ for a specific settlement day. But forwards really are deals in physical gold – which will settle as Good Delivery bars, on almost every day of the year. So the flow of forwards through the vaulting system is smoother than the flow of futures through a futures exchange, which rush to close en-masse at expiry.

Adrian Douglas’ Misunderstanding
The key concern that Adrian Douglas (a director of the Gold Anti-Trust Action Committee (GATA), who attended the recent CFTC hearing) seems to have is that there is a giant physical exposure which remains undelivered. Let me explain why that is confused, while granting that there was no good explanation given by Jeffrey Christian (managing director of CPM Group, a New York commodities-market consultancy), who was in the hot-seat of a CFTC hearing. It is easier for me with the written word.

Forward contracts are priced according to two things: the price of gold, and the cost of money to the forward date of settlement (i.e. interest rates). Forward prices of gold stretch out into the future for months and years, forming what’s called the forward curve.

The entire length of that forward curve is what the LBMA member’s trader calls ‘physical’. For them this differentiates it from the cash-only-equivalent of a futures contract. So, when they talk about ‘physical’ or about the open ‘physical’ position they are talking about a whole lot of forward deliveries which sellers are under no obligation to deliver today, and which the buyers neither immediately want nor can demand.

Those forwards will fall due for delivery a day at a time without causing more than a ripple in the market. But being extended into a series of physical settlements stretching out on that curve for years, the open physical position is of course much, much larger than the amount of gold which happens to be in the various London vaults today. That’s no big deal, it’s where gold mines and aeroplanes come in.

So when a professional market analyst like Mr Christian says the open physical position exceeds the amount of gold in the vaults all he is saying is that the gold which is due for physical settlement next week or next month has not necessarily been shipped in yet. But he knows (even if he does not express it very clearly) that the seller of a forward is on the hook for making the gold available on the appointed settlement date. And of course the seller will incur a severe financial penalty for failing to settle, which is why forward sellers don’t sell gold without being very sure they can deliver it.

Mr Douglas seems to have made an understandable and honest mistake caused by the slightly confusing language which is used by traders. I hope you now see that the LBMA’s open physical position on its forward curve – far from being a risk – is a genuine benefit to the gold market’s smooth operation. It defines the daily rate at which real bars are needed into the future, and firmly places responsibility on the seller to make sure the gold arrives in good time. This helps keep the world of real bars settling efficiently.

At BullionVault we and all our customers benefit from this, because it means we can buy real bullion a few thousand ounces at a time from an LBMA dealer who keeps bars on hand to satisfy our modest demands. We don’t have to organize the shipments. We settle 48 hours after dealing, by sending a bank transfer and getting ViaMat (our recognized vault operator) to collect the bars. This is called spot trading, which is, in effect, the nearest 2 days of that long forward curve.

How Banks Use the Forward Curve
When novices jump into the spot market and buy up all the immediately available stock (and this happens from time to time) the result is a spike in spot prices which reflects a lack of sellers capable of making immediate delivery. It may not represent a fundamental shift in the value of gold; there might – for example – be plenty of gold arriving next week, and all of it available at a cheaper price.

What a trader will do is look at the shape of the forward curve. If he sees that the curve has developed a lump at 48 hours, caused by that aggressive novice’s buying, it will be profitable for him to sell his spare gold at spot, and buy forward by a week. He can deliver his bullion bank’s on-hand gold which will be replenished next week when the aeroplane arrives. And he will make money from the aggressive buyer who has paid a premium price for urgent settlement.

Meanwhile, as he buys one week forward in anticipation of the aeroplane’s arrival the effect is to distribute the novice’s order along the curve, and to smooth it out again. You may have read of gold bugs who put huge orders into the spot market to prove the gold is not there. Well now you understand why no-one sells it to them!Selling physical gold which you cannot deliver on time is a big mistake which professionals don’t make. If the gold bugs ordered 2 months forward – allowing time for sourcing and shipments – there would be plenty of sellers happy to take their business.

BullionVault Gold
So where does this leave the private investor? Using BullionVault, you can buy ‘Good Delivery’ gold from stock which is already in the vault. You are not even waiting for spot markets to settle.

The unusual rule on BullionVault is that a seller’s gold must be on-hand, in the vault, for settlement; and the buyer’s cash must be cleared in the bank. That’s why we host the only gold market in the world which offers instantaneous settlement at the point of trade, and on a 24/7 basis. Thereafter, BullionVault simply looks after your gold. It’s your property. It isn’t available for any selling when the spot market goes to a premium, and we have neither the right nor the wish to play the curve the way a bullion bank does.

You can see this proven, each day, on our Daily Audit. If we were delivering gold out to make a few dollars on the forward curve our bar lists would show we were short of physical gold in our vault. This is why we regard it as so important to publish our bar lists, and their reconciliation to all customers’ holdings, on a daily basis. So far as we know we are the only gold business in the world which does this.

We hope this has cleared up any confusion about the amount of gold in London vaults. Now we’d like to finish with a quick look at who is manipulating the futures market, and how.

Gold Futures Manipulation
Futures brokers here in the UK routinely tell their new customers that 9 out of 10 private customers lose money by dealing in futures. We understand the regulators require this as part of the necessary risk warning.

Part of the reason – which has recently been alleged by GATA – is that it is quite likely that there is some price ‘manipulation’ of futures contracts at expiry. This sort of thing is not a gold problem. It is a problem relating to futures markets in general.

Imagine you are a professional futures market seller – not necessarily of gold, but of anything – and you have the ability to settle the underlying commodity, while private investors do not. You sell the futures whenever they appear to be at a premium over your forward curve, which will happen as the speculators get into a buying frenzy on the futures market.

Suppose that at expiry the futures price is low against the forward curve, which is quite likely if lots of private investors are on the long side and are rushing to close out their near contract. You – the professional – will be perfectly happy to buy the future back, so long as the discount to forwards remains worth it, because then your physical stock won’t have to be delivered out, and you won’t need to buy a new forward to arrange a relatively expensive new delivery of physical stock into your depository account. So you see private investors will only find buyers for their urgent sales if the buyers get a discount to fair value. The professionals are in the box seat because they can settle.

Now suppose the opposite: that at expiry, the future is at a premium over the forward curve (which is what happens when lots of short sellers who can’t settle have been dominating the speculator’s market, and are now rushing in to buy to close before expiry). Now the professional will act as the seller, but only if the future is offering him a premium over the forward curve, otherwise he’ll run his open long to settlement. So once again the professional has the whip hand over a crowd all trying to do the same thing to avoid settlement. Whichever way the market moves the professional is in the driving seat if he can sort out settlements, which is the position few (if any) private investors are in.

It gets worse. Rolling over to the new futures contract doubles the opportunity for the professionals to profit.If, having just sold at a discount, lots of private investors are rolling forward to buy the new futures contract for the next quarter then that future will offer the professionals a premium over the smooth forward curve, and the professional will willingly sell it to them as soon as the premium is sufficient to make it profitable.

So you see even when private investors are offered rollover at apparently attractive terms (e.g. at middle prices and half the commission) the reality is that they are selling the old at a discount and buying the new at a premium. Wherever your trade is in the same direction as a large number of market participants who lack the ability to run their position until settlement you will probably lose out in this subtle way.

This is where the artificiality of futureswrings profit out of un-sophisticated investors who wish to speculate. Who’s to blame? It’s hard to accuse a seller of price manipulation when he runs his two month old trade to settlement, and it’s very hard to blame the opportunist professional buyer for supporting a low price by buying at a discount at expiry! The only people who can really be blamed for the expiry and rollover costs are the people who bought futures without both the money and the storage facilities to settle, and that’s usually those private investors who are its victims; which is ironic.

That’s futures, and it’s ultimately each investor’s own choice. If you choose to play you are dealing in a marketplace which may force you to trade at the time of your maximum disadvantage.

At BullionVault our position is that you might cautiously use futures for short term speculation. But we think you’d do better to avoid them for long term capital preservation, which for many is what buying gold is about.

Instead, you should choose physical gold through services like ours, where there are no artificial barriers placed in the way of smoothly continuous trading and settlement. All you need to do to avoid an unfair price dip in futures at expiry is buy the real thing, and although that’s difficult with pork-bellies, with gold it’s easy.

Paul Tustain
BullionVault

Paul Tustain is founder & CEO of BullionVault, the world’s largest store of privately-owned investment gold bullion.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Another 1.47 Million Ounces Withdrawn From SLV

It was a quiet trading session in both the Far East and London on Friday… and gold was only down a few dollars when New York opened for business. Almost from the open, gold was under selling pressure. But once the London p.m. gold fix was in at 10:00 a.m. Eastern time, gold quickly rallied back to it’s Comex opening price. But a few minutes after 10:30 a.m. the news broke about the “Giant Vampire Squid”… and the bullion banks hit the gold price immediately.

Under ‘normal’ circumstances, news such as this would be extremely gold friendly… but ‘da boyz’ were there to make sure that that didn’t happen. It wouldn’t surprise me in the slightest if they had been told in advance and were lying in wait. The powers that be wanted to make sure that everyone would see that bad financial news is a negative for gold… and a positive for the U.S. dollar… which was rallying at the same time.

Anyway, by the time the smoke cleared at gold’s low of the day… which occurred at precisely 12:00 noon Eastern time… gold was down $30 from its Thursday close. Then the selling pressure disappeared, volume evaporated… and gold gained back about $8 from it’s low… which was $1,129.30 spot.
Mission accomplished!

Of all the precious metals, it was silver that was singled out to really get pounded. This, dear reader, should be no surprise to you by now. Like gold, silver’s price was basically unchanged at the Comex open… but was under pressure immediately upon the open. I wonder if someone in the know was establishing a small short position in silver [and gold too] knowing what was coming in a few hours time. It wouldn’t surprise me a bit if that was the case.

Anyway, once the p.m. gold fix was in at 10:00 a.m… silver rallied a dime only to get slammed along with gold shortly after 10:30 a.m. The major portion of the selling in silver was also over at noon… but the absolute low of the day [$17.59 spot] was a brief spike down that occurred a few minutes before 2:00 p.m. From it’s absolute N.Y. high to its absolute N.Y. low… silver was down 85 cents… but finished down only 70 cents.

The U.S. dollar was totally unfazed by what happened to Goldman Sachs yesterday… and gained about 35 basis points. Needless to say, the dollar didn’t have any impact on precious metals prices on Friday.

I suppose you would think that it could be hard to be cheerful about a 2.35% loss in the HUI. But considering the deliberate stomping of the entire precious metals complex on Friday… and the big down day on the Dow… the gold and silver shares held up surprisingly well, all things considered.

Thursday’s open interest numbers were very similar to Wednesday’s numbers. Gold o.i. dropped another 2,157 contracts. Final volume was reported as a smallish 109,795 contracts. Total open interest in gold as of Thursday was a very large 524,716 contracts.

Silver’s open interest rose another chunky 2,560 contracts on volume of 31,570 contracts. Both Ted and I agree that this was probably spread related, as neither the volume nor the price action indicated anyone going long… or short. Total open interest in silver is back up to 128,188 contracts. Friday’s crucifixion certainly dropped open interest in both silver and gold substantially… but we won’t find out how much until late Monday morning Eastern time.

The CME Delivery Report on Friday showed that 61 gold and 3 silver contracts are posted for delivery on Tuesday. The GLD showed no change once again… and surprise, surprise… another big chunk of silver was pulled out of SLV once again. This time it was ‘only’ 1,470,729 troy ounces. 17.9 million ounces of silver have been withdrawn since February 26th… 12.5 million of that was in April. Ted Butler and I spent a lot of time talking about this on the phone yesterday.

The U.S. Mint had no report… and the Comex-approved depositories showed that a tiny 12,733 ounces of silver were taken into their collective inventories on Thursday. That number is slightly deceiving… as there was, once again, lots of activity in and out of most of the warehouses… and you can view Thursday’s ‘action’ here.

Well, yesterday’s Commitment of Trader report was no surprise in silver… as the bullion banks increased their net short position by another 3,703 contracts. The ‘4 or less’ bullion banks are short 260.9 million ounces of silver… and the ‘8 or less’ traders are short 328.9 million ounces. This is a staggering amount considering that the net short position in the Commercial category… where all these bullion banks reside… currently sits at 276.9 million ounces. So the ‘4 or less’ traders hold 94.2% of the net short position in silver all by themselves. The ‘8 or less’ hold 118.7% of the net short position. The full-colour COT graph for silver is linked here.

In gold, the bullion banks increased their net short position by 18,578 contracts… which wasn’t as bad a number as Ted Butler was expecting. The Commercial net short position currently sits at 263,484 contracts… which is 26.3 million ounces of gold. The ‘4 or less’ traders are short 18.8 million ounces of that… and the ‘8 or less’ traders are short 24.0 million ounces. The full-colour COT gold graph is linked here.

Here’s the usual weekly King World News interview with silver analyst Ted Butler. Needless to say it’s worth listening to… and you should stop reading at this point and click here.

I can’t think of anyone [can you, dear reader?] that isn’t in rapture about the charges that were filed against Goldman Sachs yesterday. All of the major Wall Street brokerage firms are part of this organized crime syndicate that’s basically raping the world with no one to stop them. So I’m kind of glad to see the SEC finally grow big enough gonads [as Ted Butler so succinctly put it] to take on one of the big boys. Can JPMorgan be far behind? Ted hope that this action against GS will empower the CFTC to take some concrete action themselves. Anyway, I have one story about it, and it’s a piece posted over at yahoo.com that’s headlined “SEC accuses Goldman Sachs of defrauding investors”… and the link is here.

The next story highlights Congressman Ron Paul [R – Texas]. As Obama’s star continues to fall… Ron Paul is now being seen in a different light. I think I stole this story from yesterday’s King Report. It’s posted at the washingtonexaminer.com… and the headline reads “Hating the government finally goes mainstream”… and the link is here.

This story… and the next one… are both from yesterday’s King Report. The first is a piece from The Telegraph in London. It is, of course, by Ambrose Evans-Pritchard. The headline is startling… but not surprising. It reads “Morgan Stanley fears German exit from EMU”… “Morgan Stanley has warned that the Greek debt crisis is setting off a chain of events that may prompt German withdrawal from the eurozone, with grim implications for investors caught off-guard.” It’s not a particularly long story, but it is worth reading… and the link is here.

Israel and Iran are back in the news again. Russia has just announced that it will allow Iran’s nuclear reactor located in Bushehr to go ‘hot’ in August. This puts Israel up against it. What will they do… with, or without, American approval? The story is posted over at worldpress.com… and is headlined “Will Israel Strike By August?” That’s a good question, which is now within 100 days of resolution. This is a must read story… and the link is here.

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Earlier this week I ran a story about the Russian-encouraged ‘revolution’ in Kyrgyzstan… and it’s implications in the 21st century version of the “Great Game”. Posted over at oilprice.com is a 3-part exposé on this issue… not only on how it affects geopolitics in the region… but Washington’s response, or lack thereof. The first paragraph pretty well sums up the tenor of the essay… “The extraordinary events of last week in Kyrgyzstan, which saw the overthrow of President Kurmanbek Bakiyev’s administration by a popular uprising and its replacement by a provisional government have been portrayed by many in the “Beltway-istan” (Washington, D.C.) as the latest tussle betwixt Russia and the U.S. in the ‘Great Game” for influence in the post-Soviet space.” The truth is considerably more complex, however… and the further one digs, the more the complex realities of the situation emerge. It’s a microcosm of what’s going on at the outer edges of the American Empire empire… and it’s goal of Full Spectrum Dominance. The headline reads “The Truth Behind the Recent Unrest in Kyrgyzstan”. Part 1, Part 2… and Part 3. All three parts should take about a half hour of your time. I thank Australian reader Wesley Legrand for bringing them to my attention… and now to yours.

If the history of welfare teaches us anything, it teaches us that government money is as addictive as any narcotic. – Michael D. Tanner

Today’s ‘blast from the past’ is known by all… so turn up your speakers and click
here

.

Whether or not the U.S. bullion banks try to press their advantage further on Monday is a big unknown. They certainly have the ability if they wish to do so… but will they? Ted doesn’t know for sure, either… but feels that whatever sell-off we do get next week shouldn’t last too long, nor go too deep. I’ll reserve judgment for the time being.

However, ‘day boyz’ did provide another buying opportunity for those who have not made their investments in either the precious metals or their respective shares… and if I wasn’t already ‘all in’… I would certainly be in the market on Monday… and physical metal would also be part of my purchase.

As I mentioned yesterday, Casey Research has this $199 super-special deal on until midnight tomorrow. You can subscribe to our flagship Casey Report for a full year for just $199 [which, on a monthly basis, is just $16.58… a pittance] and receive both Casey’s Gold & Resource Report and Casey’s Energy Opportunities free for one year! You save over $300!!! This is a heck of a deal, dear reader, so please click here to learn more.

Here’s the 1-year gold graph. You can see that the 50-day moving average is just a chip shot away if the bullion banks want to press their advantage. But silver has a long way to go from its current price. Both metals are now in ‘market neutral’ territory… at least according to their respective RSI’s. We also have options expiry coming up shortly. May is not a delivery month for gold… but it certainly is for silver… so I’m going to be watching next week’s price action in both metals very carefully.

The CME has posted their preliminary volume numbers for both precious metals… and it shows that gold volume yesterday was a monstrous 212,247 contracts… of which very little was roll-overs. Silver’s volume was equally stunning… with 63,365 contracts traded. Only about 20% of that was switches… so there was a lot of tech fund long liquidation in silver on Friday. I can hardly wait to see what the drop in open interest is for both metals when they’re posted on Monday. Of course the bullion banks can mask their short covering by going long… and it wouldn’t surprise me if these crooks did exactly that.

That’s all for this week… but don’t forget about Casey Research’s $199 “Tax Day Deal” Subscription Special which ends tomorrow night! Click here.
See you on Tuesday morning.

James Turk: Conditions Are Ripe For a Short Squeeze in the Gold Market

Gold gapped up… and the dollar gapped down at the Sydney open in early Monday trading yesterday morning. Gold’s high of the day [a hair over $1,170 spot] occurred a little over an hour later… but most of the price advance was beaten back… and from there, it was a slow, but gentle, slide into the London p.m. gold fix. Once the ‘fix was in’… gold rallied back into positive territory for a few hours in New York… but got taken down hard by a not-for-profit seller starting just before the Comex stopped trading for the day. By the time that electronic trading was through in New York on Monday afternoon at 5:15 p.m. local time… gold was closed almost at its low of the day.

Silver had a slightly different kind of day. It’s high was at 3:00 p.m. in Hong Kong trading, before it began its decline. That decline ended at 9:00 a.m. Eastern time… and the subsequent rally back into positive price territory ended shortly before lunch in New York. But, as they say, it was all down hill from there, with silver’s absolute low price [$18.15 spot] coming minutes before 4:00 p.m.

Monday morning’s 50 basis point gap down in the U.S. dollar at the Sydney open was the second gap down open of some consequence in the last little while. The absolute low [80.076] came at 3:00 a.m. in Hong Kong’s afternoon… which just happened to be silver’s high price spike of the day. From that low, the dollar rallied about 50 basis point… and reached its high price around 8:00 a.m. in New York. The dollar basically sat at that price [80.60] for the rest of the trading day… and beyond. But if you look at the gold and silver price graphs above, you’ll not that both gold and silver [after their respective morning lows in New York] go hammered flat for no apparent reason. I guess the U.S. bullion banks weren’t too amused that gold and silver were heading back into positive territory, despite a flat dollar… and engineered a sell-off in both metals… plus a lot of other things… except the Dow, which the PPT finally got to close over 11,000. Happy days are here again!

The precious metals shares acted in a predictable manner… but it could have been worse… as the HUI only finished down only 1.39%.

Gold open interest rose again on Friday. This time it was up 3,096 contracts. Final volume for the day was reported as 147,981 contracts. In silver, the volume was a pretty chunky 41,282 contracts… with about 15% of the being swaps. Silver’s open increase was chunky as well… up 2,404 contracts. As I’ve mentioned every day since last Wednesday… this rally in both gold and silver is being resisted with a ferocity that I haven’t seen in a quite a while… and it doesn’t bode well for the current rally.

The CME Delivery Report for Monday showed that 449 gold and 12 silver contracts have been put up for delivery on Wednesday. In gold, the ‘4 or less’ traders that are mega short both gold and silver on the Comex, are all present and accounted for in Monday’s report. See for yourself… as the link is here.

There were no reported changes in GLD’s alleged stocks yesterday… but, once again, there’s been another huge withdrawal from the SLV. This time it was 1,470,852 ounces. Since February 26th… 11.07 million ounces of silver have been withdrawn from SLV in seven consecutive tranches. Not one ounces of silver has gone into the SLV since that date. However, in GLD, there have been ten deposits and one withdrawal since February 23rd… with a net total of 1.1 million ounces of gold added. Ted Butler is very bullish about this ongoing withdrawal from SLV… and is probably even more so after Monday’s withdrawal. It should be obvious to all but the most brain dead, that silver [in size] is just not available anywhere at any price… so the ‘authorized participants’ are satisfying demand out of the SLV ETF. One can only imagine what the price would do to if they went and tried to access this sort of silver from the Comex.
The Zürcher Kantonalbank in Switzerland provided their weekly update for their precious metals ETFs on Monday. There was no change reported in their gold ETF… but their silver ETF recorded an increase of 387,770 troy ounces. I thank Carl Loeb for those numbers.

The U.S. Mint had nothing to say yesterday… but over at the Comex-approved depositories, they reported another silver withdrawal there. This time it was 325,982 troy ounces.

Well, there were a lot of stories over the weekend… and I was tempted to put out a commentary yesterday morning, just to ease the reading load today. I didn’t… and now regret it.

Today’s first story is an item from Friday’s edition of The Wall Street Journal. It appears that 18 major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York. And, according to an SEC report… quarter-end loan figures sit 42% below peak, then rise as the new quarter progresses. More ‘book cooking’ to keep the American public in the dark about how bad it really is. The headline reads “Big Banks Mask Risk Levels”… and I thank T.J. from North York for sending me the story… and the link is here.

Goldmoney.com’s James Turk has two offerings today. In his first story, James says his chart suggests that gold will reach $1,200 soon, in large part because GATA’s work has persuaded the market that the investment houses that are suppressing the gold price with the help of central banks, are running a very vulnerable naked short position. Turk’s commentary [along with an excellent graph] is headlined “Gold Hurdles Above $1,140″… and the link is here.

There were a few main-stream stories in the press about Andrew Maguire… the ex-Goldman Sachs trader who blew the whistle on JPMorgan’s silver price management scheme. The first came from the Sunday edition of the New York Post. The headline reads “Metal$ are in the pits: Trader blows whistle on gold & silver price manipulation”… and the link is here.

Two other stories… one in Australia’s largest newspaper… Friday’s edition of the Melbourne Herald Sun. The notice came in a column by John Beveridge headlined “More Bull than Bullion” and was accompanied by a great cartoon. The Herald Sun does not seem to have posted the material on its Internet site but thanks to a friend in Australia we have a pdf image of the article itself… and the link to that is here.

And lastly… many Chinese Internet sites on financial topics have picked up on GATA’s presentations at the March 25 meeting of the U.S. Commodity Futures Trading Commission. Here’s one — Popular Financing — that has posted its commentary in English as well as Chinese. It’s headlined “Two U.S. Dollar Signposts and Gold, Silver Stealth”… and the link is here.

Interviewed this week by Eric King of King World News, mining entrepreneur Rob McEwen acknowledges the likelihood that the U.S. government manipulates the gold market. “The government,” McEwen says, “is involved in manipulating many asset prices in the marketplace, and it’s their function and mandate to do so. I wouldn’t put it past them to have checked the gold price and other commodity prices. They have large strategic supplies.” The interview is linked here.

Jeff Christian of CPM Group continues to step in crappy paper as he tries to explain how the gold and silver markets really are just fine… as long as gold and silver buyers don’t actually take delivery of their metal. ZeroHedge.com has just analyzed Christian’s latest presentation, an interview on Jim Puplava’s Financial Sense News Hour, and you can read the Z.H. analysis, headlined “Jeffrey Christian Has a Second Chance to Disprove the Gold Ponzi Scheme, Fails,” here. [If Christian is the best the central banks and bullion banks can muster as a defense of the gold and silver price suppression schemes as those schemes begin to draw major media scrutiny, the market rigging may be nearing its end.] This article is definitely worth the read.

Not that I want to beat this particular dog to death, but here’s another take on whistleblower Andrew Maguire. This is an article by Mark Mitchell over at deepcapture.com. The headline reads “Manipulating Gold and Silver: A Criminal Naked Short Position that Could Wreck the Economy” It will take a little more than 5 minutes to run through this piece… and the link is here.
Casey Research’s own Jeff Clark, Senior Editor of Casey’s Gold & Resource Report has issued an article on silver bearing the headline “Why Are Silver Sales Soaring”. The link to this short article is here.

Peter Brimelow over at marketwatch.com had a gold-related story in his commentary yesterday. The headline reads “Winning week for gold leaves bugs hopeful, wary: After highs, gold’s Wall of Worry is close, and steep”. The link is here.

And lastly… finally… GoldMoney founder James Turk, editor of the Free Gold Market Report and consultant to GATA, writes that conditions are ripe for a short squeeze in the gold market. He adds that he expects gold to reach $8,000 per ounce by 2015. Turk’s commentary is headlined “Another Short Squeeze in the Precious Metals” and you can find it linked here. Needless to say, it’s very much worth the read.

It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong. – Thomas Sowell

Well, I certainly wasn’t happy with Monday’s turn of events. As you know, dear reader, the open interest has been skyrocketing over the last four business days… and if you tack that deterioration onto last Friday’s Commitment of Traders report… we’ll, it doesn’t look very pretty.

However, there’s still more room for upside price appreciation… if the bullion banks allow it… so we’ll just have to wait it out. But maybe it really will be different this time… if the short squeeze in gold that James Turk speaks of… along with Ted Butler’s short squeeze in silver… all pan out.

Both gold and silver were under a little pressure in Far East trading earlier this morning… and that has continued right into the London open. Gold volume is just under 19,000 contracts… and silver volume is around 2,700 contracts when you take out the roll-overs from May into the July contract.

The CME has posted volume numbers for Monday. Gold’s volume was reported as 134,881 contracts… and silver’s o.i.. was a largish 40,691 contracts. But a hair over 20% of that number was roll-overs from the May contract into future months… mostly July.

Tuesday should be an interesting day in the gold and silver pits during Comex trading.

See you tomorrow.

A Simple Experiment to Disprove the Alleged Gold/Silver Price Suppression Schemes

As long as man has lived, man has always been keen to commit grand acts of deception on his fellow man. Joseph Goebbels, Hitler’s Propaganda Minister said, “The bigger the lie, the more it will be believed.” The theory of global warming caused by carbon emissions is likely to be another one of these great lies. Over the past several years, as the global monetary crisis has unfolded, men that have repeatedly been caught in a web of their own lies, deceit, and gross misrepresentations include the most prominent of all financial leaders Alan Greenspan, Tim Geithner, Ben Bernanke, Robert Rubin, Sandy Weill, Lloyd Blankfein, Henry Paulson et al. But the greatest big lie of all, in my opinion, is our global monetary system and the suppression of gold and silver prices to perpetuate this lie.

The beauty of the argument between the believers and non-believers regarding the price suppression of gold and silver is that non-believers can discredit those they view as gold/silver conspiracy buffs and put a rest to this argument with a simple little experiment that will require very little time or effort. But more on that in just a little bit.

Over the years, my interest in this topic has led me to conduct my own research regarding this matter, a very small portion of which has been outlined below.

IMF Gold Sales v. the Alchemy of Gold Futures What’s the Impact on Gold Prices? Feb 18, 2010

Gold and Economic Freedom, Reinterpreted for the 21st Century, May 8, 2009

Bankers and Economists Say Gold is a Bubble. Here’s Why You Should Ignore Them., Dec 28, 2009

Will CFTC Chairman Gary Gensler Really Curb Manipulation Schemes in the Futures Markets, or is it Another Smoke & Mirrors Game? July 10, 2009

JS Kim Uncovers Four Parallel Markets for Gold: Asia Futures, NY Futures, Physical Bullion, Physical Coins, Oct. 16, 2008

The GLD and SLV: Legitimate Investment Vehicles or Not? July 15, 2009
Is Gold Expensive at $791 an Ounce? Why Gold Will Continue to Soar Much Higher, November 2, 2007

Gold’s Speculative Stigma is Unwarranted, Sept. 11, 2006

The lies about gold and silver bandied about by bankers and gladly disseminated by the mass media have persisted for years. Even when gold was trading at $500, $600, $700 and $800 an ounce over the past several years, at each one of these junctures, the mass media disseminated numerous stories that quoted “metals experts” from various global financial institutions about gold being a bubble just waiting to pop. And of course, the next time gold steeply corrects, and it will, the same “metals experts” will be quoted by the mass media again that proclaim the “end of the gold bull” without a peep of the behind-the-scenes actions taken by the big bullion banks in the gold/silver futures markets in London and New York to manufacture these steep declines.

Of course, this discussion would be incomplete and near irreverent without a mention of the tireless efforts of GATA’s Chris Powell and Adrian Douglas to uncover the most damning available evidence of government-directed bullion bank price suppression schemes. GATA, of course, is the OG of the gold/silver price suppression scheme theories, having sorted through mountains of documents to find evidence of a banking cartel that artificially suppresses gold/silver prices in order to convince the world to continue subjecting itself to a fraudulent fiat currency monetary system that is led by the US dollar:

GATA Chairman Murphy rebuts defense of gold lending, April 7, 2010
If everything’s manipulated, does that make it OK? April 1, 2010

A London trader walks the CFTC through a silver manipulation in advance, March 25, 2010

Can’t manipulate Treasuries market? But that’s the point of rigging gold! March 25, 2010

Adrian Douglas: More Fed minutes document gold market manipulation, March 14, 2010

Gold is decade’s best-performing investment, March 6, 2010

Most recently, Zero Hedge chimed in with a criticism of CPM Group Managing Director Jeffrey Christian’s take of why the gold futures markets exist:

Jeffrey Christian Has A Second Chance To Disprove The Gold Ponzi Scheme, Fails, April 10, 2010

Given that the number of non-believers far outnumber the number of believers regarding gold and silver price suppression schemes despite the growing-by-the-minute mountain of evidence, here is my challenge to the non-believers, many of whom own considerable dollar/euro/yen amounts of unallocated (and allocated, for what that’s worth) paper gold and silver certificates and gold and silver paper ETFs. Over the years, as I educated myself further regarding certain topics, my views regarding some widely-accepted theories have radically changed, including my views regarding the carbon-emission based theory of global warming (I have long stopped believing this particular theory).
So here is a simple experiment that I challenge all non-believers to engage in that will not hurt you in the tiniest of manners yet provide a massive benefit if your current beliefs are proven to be wrong.

If you currently own any of the physical gold or silver paper ETFs, if you are long in gold/silver futures contracts, and if you own paper gold/silver certificates, sell just a small portion of these holdings (10% or so) and replace them with physical delivery of that gold and silver instead. For this experiment to work, you must encourage every single person you know that is in this same situation (holding a derivative gold/silver product or paper certificate as a proxy for physical gold/silver) to also convert a tiny 10% of these holdings into physical gold and silver. If this simple experiment can spread across the globe, we will discover if those of us that endorse a gold/silver price suppression scheme are right or if those of you that endorse holding paper ETFs like the GLD and SLV as a sound financial practice are right.

For example, if the holders of all paper gold and silver followed Greenlight Capital David Einhorn’s lead and converted just 10% of their paper gold and silver into physical gold and silver (actually we’re not asking you to execute the same actions as Einhorn as he converted 100% of his paper GLD holdings into physical gold last year), and this caused the price of gold to increase significantly, then this would prove that the gold futures market contributes absolutely nothing to the free market price of gold in which supply and demand leads to price discovery.

If the banking cartel has not set up a fractional reserve system for gold and silver that they use solely to manipulate prices, and if most paper gold and paper silver is 100% backed by physical gold and silver as they claim (sans the futures markets), then the conversion of 10% of all paper gold and silver into physical gold and silver should not cause any increased demand in the physical supply of gold and silver that would send prices higher. In fact, the conversion of 50% of all paper gold and paper silver into physical gold and physical silver should have a negligible effect as well if indeed bankers have set up an honest system for gold and silver in which supply and demand currently set prices.

However, if this act causes an increase in gold and silver prices, then one should question the very purpose of paper gold/silver derivative products. If such a small act can create a huge disturbance in gold/silver prices, and physical supply and demand for gold and silver are not the market forces that set prices in today’s gold and silver markets, then what is the very purpose of the gold/silver futures markets in London and New York? (for even though the futures markets allow producers to hedge against future fluctuations in the prices of the commodities they produce, the hedging action shouldn’t be so skewed in one direction that it massively skews the price from the price a free market would determine for a prolonged period of time, aka, years and years).

The more significant accompanying question then becomes this: If the prices set in the gold/silver futures markets in London and New York are not determined by physical supply and physical demand of gold and silver, then are the prices not being set in these markets entirely fraudulent?
So take the Gold and Silver Challenge, non-believers. Take physical delivery of just 10% of your paper gold/silver derivative products and encourage everyone you know to do the same. Even if you consider yourself the greatest skeptic of all regarding gold/silver price suppression schemes, you have absolutely NOTHING TO LOSE and EVERYTHING TO GAIN from participating in this simple experiment. And if it just happens that you discover that your faith in gold/silver paper ETFs and derivative products was wrong, well, you may just make this discovery in time to exchange these paper products for physical gold and silver before it is too late.

Daily Dispatch: Going Nuclear

April 09, 2010 | www.CaseyResearch.com Going Nuclear

Dear Reader,

Glancing at the calendar this morning, a nagging sense of something left undone crept into the back of my cranium.

Something that one should remember to do this time of year. Let’s see…

Send annual extortion money to “Uncle” Sam down at mob headquarters. Check.

Begin a rigorous regime of stomach and back exercises to prepare for the pending golf season. Check.

Clean up the dog droppings revealed by the melting of snow in the front yard of Chez Galland. Check.

Sell in May and go away. That’s it!

But does that time-worn adage, familiar to all experienced investors, hold water? Or is it just another myth of the sort that arrives in the email box with painful regularity these days?

While I am no Bud Conrad, maestro of charting skills and detailed data analysis, I managed to hobble together some charts that may be of use in coming to an answer.

The first chart below shows the S&P 500 over the last five years. As you can see, in three of the five years, selling in May and going away until September would have been the right move. In one of the five years you might have missed modest profits, but in only one 2009 during the extreme bounce back from the chasm of 2008 would you have missed substantial gains.

Treating 2009 as the anomaly it was, one would have to say at least when it comes to the broader stock market that the notion of selling in May holds up.

What about gold stocks?

This next chart shows the XAU index of large-cap gold and silver miners. For the same five-year period, we see that, had you held on to your stocks in May, you would have been a big winner in two years, up marginally in one (but only thanks to a last-minute rally) and down in two one sharply in the 2008 crash. While you would have done better, on the whole, in the gold stocks, it seems pretty clear that, in a typical year, you wouldn’t have missed much by selling in May and going away.

With a few caveats the most important being that once you exit the market, inertia could set in and cause you to stay out of the next big leg up. Given where we think gold stocks in particular are headed over the next five years, that would be most unfortunate. In addition, buying and selling involve tax considerations and transaction fees. (Though, don’t forget that capital gains taxes are going up at the end of 2010.)

Gold Bullion

With my charting engine all revved up, I decided to take a look at physical gold. The chart below is of the London Gold Fix. Interestingly, despite the clear big-picture bull trend that has seen the price of gold more than doubling over the period, you can also see that selling in May and going away would have been a good move for gold bullion over the last five years… provided, of course, you took advantage of the summer doldrums to buy back in.

So, what to make of all this?

Nothing particularly profound. If you know what you own and why you own it, then, generally speaking, the odds are decent that even if there is some weakness over the summer, you’ll regain lost territory and move up in the fall. In all the charts, with the exception of the anomaly of the 2008 crash, September to January tends to be a pretty good period for most asset classes.

But there are clearly some years where selling in May makes sense, and this could very well be one of those years. With a veritable flock of black swans swirling overhead, and the U.S. equity markets overvalued by almost every measure, if you are overweight in any single investment or sector, consider lightening up, and sooner rather than later.
Personally, I am unconcerned about the price of gold, and the resource stocks I own, I own for a very specific reason and so would look to buy more on any correction. But taking a moment to step back and reflect on one’s portfolio is never a bad idea.
And, based on the limited data I’ve shown here, doing so in April just about now, in fact seems a pretty good time to do so.

Going Nuclear: Obama’s Green Machine Is Ready to Go
By Marin Katusa , Senior Market Strategist, Casey’s Energy Opportunities

Over the Easter weekend, seven nuclear reactors throughout the United States stopped operations, and natural gas prices skyrocketed by over 20%. And this was when most of the country was enjoying mild weather and businesses were shut for the long weekend.

Now, with the new workweek starting, traders are out in force looking for the cheapest possible power ahead of rising demand, and the power markets are heading one way: up.

No Homer Simpsons Allowed Here!

It is unfortunate that nuclear power plants are still linked in our minds to the Three Mile Island and Chernobyl disasters. While these were some truly horrific events, we’re failing to realize one very important fact: we’ve learnt from our mistakes. The next generation of nuclear plants are better designed and more safety measures have been put into place than what was there in the plants from the 1960s and 1970s. There is always some operational risk, but that is present in every power plant, be it coal, natural gas, geothermal, or nuclear.

Currently, the United States houses roughly 24% of the world’s nuclear reactors, and they account for about 20% of the power generated in the country. That’s one in every five homes being powered by nuclear energy. This number is a lot higher for some states, with New Jersey getting almost more than 50% of its power from nuclear energy. With renewed interest in nuclear power in the U.S. and President Obama guaranteeing loans for two new reactors this February, it’s pretty clear that the nuclear share in the energy pie is set to increase.

It’s Clean, It’s Green, It’s the New Obama Nuclear Machine

Though they vary in design, nuclear reactors operate on the same basic principle: the energy released by nuclear fission heats water to produce steam, which turns the turbines that generate electricity. The silver lining: no fossil fuels are burnt at any stage, so almost no greenhouse gases are produced. They are, however, expensive to build and it can take years. But once in operation, fuel costs are very low, which translates to low maintenance costs, and each plant can easily operate for up to 60 years. Running at around 90% capacity, nuclear power plants are workhorses that shut down only once every 18 months for refueling and maintenance.

The fact that they emit almost no greenhouse gases also makes nuclear power plants safe from the threat of potential emissions caps. Once these are introduced, and they are certainly going to be introduced, the costs of producing electricity at coal and natural gas-fired plants will noticeably escalate. In fact, the high energy yield of nuclear fuels, the carbon dioxide emitted during the mining, enriching, fabrication, and transportation of uranium is very small compared to the carbon dioxide emitted by fossil fuels.

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The push to restart the uranium mining industry started up in 2001 and by 2006, America’s yellowcake production had increased by 70%. The Casey Research team was out scouting the market, and we knew which junior uranium mining company was going to explode. On our recommendation, our subscribers saw their stocks that they bought at under US$0.25 shoot up to over US$4 per share in less than a year.

Today, America’s nuclear industry is ready to expand again and has all the political and economic support necessary to do so. Consuming almost 30% of the world’s uranium, America’s uranium mining industry is looking to jumpstart itself again and at Casey Research, we know all the inside details. Click here for your free trial today and find out who will win the prize and who will miss out.

Liberal Arts and the iPad
By Bud Conrad

Steve Jobs said that the new iPad was developed by merging liberal arts with technology. Through my engineering eyes, I think of these technical breakthroughs as the result of combining hardware and software.

I saw an hour-long interview by Charlie Rose of Walt Mossberg and David Carr showing the function and features of this new device and became so enamored, I decided to go buy one the next day. Unfortunately all three nearby stores had sold out, but I prevailed a day later, like mothers buying scarce Cabbage Patch dolls in the 1980s.

Boy, does Apple know how to market! That one-hour TV slot was an infomercial that Apple could never have paid to get. There has been hype in the community for three months, and they know how to capture attention. It’s been five days, and hundreds of thousands of $500 machines are flowing to the masses.

I remember the to-be-shown-only-once 1984 commercial for the Mac: zombies, red running shorts, and smashing the Big Brother screen! No product features. Only anticipation that something to shake up the world was coming to bring information to the dull masses. How prophetic.

Here I am less than a day since I bought one, trembling from the outsized purchase that may be too new to work or not interface with my PC properly, and finding limitations on availability of WiFi.

But I hark back to that time in 1984 when I bought the second version of the Mac (which got beyond being just a toy) and grew into a Mac bigot, creating a developer’s relationship between then Fortune 500 “Big Iron” Amdahl and Apple. (What a culture clash as we drove to Apple in our Mercedes and suits, and they were late to the meeting, with beards, yellow Ethernet cables hanging from the ceiling, giving a sense of a Montessori school.)

It took a month for me to learn that mouse and visual interface, and there were plenty of people that said they would never need a mouse back then. The mouse, as developed by Doug Engelbart and demonstrated at the 1968 Fall Joint Computer conference had come alive. And computing became more accessible to the masses.

I have a similar feeling about the new interface demonstrated by the iPad. I loved my iPhone the last two years, (my contract expired a few months ago, so I know), and I have fond feelings toward how many new things I learned with that device. I hear small children love to play with smartphones.

That isn’t a fluke: one of the original human interface developers from Xerox PARC was Alan Kay, who at an early MacWord gave us bit-fiddler engineers a lesson in human development, discussing Piaget’s observation that the primitive child brain can recognize parents’ faces, and that communication by pointing and clicking on icons was from a more basic part of our brain.

The iPad develops a new paradigm in how we will interface with our information. It is enchanting. It is a mouse killer. We will see more. This is the wave of the new things to watch, along with services like iTunes that will replace traditional information sources.
The cost of delivering a new paradigm is high, which is why most Asian producers merely copy. For example, I sat through a class for an hour and a half, with six of us in the store that must have cost $200 to put on, and I badgered several floor people when the WiFi crashed twice. But “There’s an app for that” can make more money than the box.

In the early days of the Internet, I gave a talk at Harvard Business School where I gave my sense of where the Internet was going, saying things like “Remember when we had milk delivered to our door? That is what is going to happen to the newspaper.”

I pushed a bit further saying “Think of the future when we will be saying ‘Remember when we had newspapers? Remember when we had books? Do you remember movie theaters? Those libraries were kind of quaint. Perhaps, when we meet again in the future, we won’t have to travel because we can meet in virtual Internet space.’”

We are close to that vision. The features for book reading with this device are revolutionary, and I can say with confidence that Amazon and the iPad will bring the demise of the biggest Barnes and Noble.

Bricks and mortar are going the way of the milk man. Clicks are replacing bricks just as the human genome has superseded our competition. This is a new wave. (Ed. Note: The single best way to stay on top of big changes happening in tech is with a subscription to Casey’s Extraordinary Technology service. Through a comprehensive monthly letter and special alerts, the CET keeps you up-to-date and in the groove on everything you need to know about profiting from new technologies. A three month, 100% guaranteed, trial subscription is yours for the asking. Details here.)
The persistently elevated unemployment level continues to drain the federal and states’ unemployment insurance systems. The number of states forced to borrow from the Federal Unemployment Trust Account (FUTA) to continue sending out weekly unemployment checks has grown 50% from 22 to 33 over the last six months. And the total amount borrowed has surged 100% from $19.2 to $38.5 billion. Not exactly the “stabilizing” in employment that the government officials like to claim is underway.

FUTA was intended as a self-funded system via a yearly, per-employee tax paid by employers. However, the federal budget for fiscal year 2010 allocated “advances” to the fund specifically earmarked for “loans to states.” So, it appears that the bankrupted state programs are using FUTA as another backdoor bailout, with Uncle Sam’s loyal taxpayers footing the bill.

Relying on Big Brother for your economic analysis is a dicey proposition at best. At Casey Research, we monitor all the trends that impact your life and your money. Start getting the objective and independent analysis needed to position your portfolio to profit from the unfolding trends by accepting a no-risk, no-hassle, 100% satisfaction-guaranteed subscription to The Casey Report. Get started now by clicking here.

Friday Funnies

A man is walking down the streets of Washington DC one night. All of a sudden a mugger sticks a gun in his ribs and says, “Give me all your money!” He replies, “Do you realize I am an important member of Congress?”

The robber says, “In that case, give me all my money!”

Light Bulb Jokes

How many Californians does it take to change a light bulb? Six. One to turn the bulb, one for support, and four to relate to the experience.

How many LA cops does it take to change a light bulb? Five: One to screw in a new bulb, and four to beat the crap out of the old one.

How many mystery writers does it take to screw in a light bulb? Two, one to screw it almost all the way in and the other to give it a surprising twist at the end.

How many statisticians does it take to change a light bulb? One — plus or minus three

How many doctors does it take to screw in a light bulb? That depends on whether it has health insurance.

How many accountants does it take to change a light bulb? What sort of answer did you have in mind?

How many rock drummers does it take to change a light bulb? Ten. One to hold the bulb, and nine to drink until the room spins.

Mahatma Gandhi, as you may know, walked barefoot most of the time, which produced an impressive set of calluses on his feet. He also ate very little, which made him rather frail, and with his odd diet, he suffered from bad breath. This made him… a super callused fragile mystic hexed by halitosis.

Husband and wife go to the doctor’s

A woman accompanied her husband to the doctor’s office.

After his checkup, the doctor called the wife into his office alone. He said, “Your husband is suffering from a very severe stress disorder. If you don’t follow my instructions carefully, your husband will surely die.”

“Each morning, fix him a healthy breakfast. Be pleasant at all times. For lunch make him a nutritious meal. For dinner prepare an especially nice meal for him.”

“Don’t burden him with chores. Don’t discuss your problems with him; it will only make his stress worse. Do not nag him. Most importantly, make love to him regularly.”

“If you can do this for the next 10 months to a year, I think your husband will regain his health completely.”

On the way home, the husband asked his wife, “What did the doctor say?”
“He said you’re going to die,” she replied.

MiscellanyA Case for Expatriation. Following is the opening bit from an article titled “America the Grim Truth” I received this week by one of our researchers.Americans, I have some bad news for you: You have the worst quality of life in the developed world by a wide margin.

If you had any idea of how people really lived in Western Europe, Australia, New Zealand, Canada and many parts of Asia, you’d be rioting in the streets calling for a better life. In fact, the average Australian or Singaporean taxi driver has a much better standard of living than the typical American white-collar worker.

I know this because I am an American, and I escaped from the prison you call home.

I have lived all around the world, in wealthy countries and poor ones, and there is only one country I would never consider living in again: The United States of America. The mere thought of it fills me with dread.
While the author comes across as a something of a socialist, his overall message has a lot of truth to it. My personal experience and my interactions with dozens of expats over the years confirm it’s a big, beautiful world out there, with abundant rewards available and not just of the monetary sort for those willing to break free of the confines of their national identity. You can read the full article here.Ohio Phyle. Matthew D. will be taking over the reins on the Ohio phyle. If you are in Ohio and would like to join the group or even if you have previously joined drop us a note at phyle@CaseyResearch.com and we’ll get you set up for the next meet-up.
And with that, I will sign off, thanking you as I do for spending time with us this week, and for being a subscriber to a Casey Research service. Glancing at the screens, I see that gold is breaking to the upside and is now up over $1,160. While it is impossible to say whether the gold price will take out its former (nominal) high, a lot of support for the metal is coming from the increased media coverage on the insolvency of sovereign debtors.

In the end, as the fiat currencies head for their intrinsic value (correctly calculated in calories i.e., the heat they produce when burned), only the precious metals, or currencies directly linked to precious metals, will remain viable.
We live in interesting times, and they are going to get a lot more interesting before this is over.

David Galland
Managing Director
Casey Research

Steve Palmer: Rare Earth Opportunities

Source: Tim McLaughlin and Karen Roche of The Gold Report 04/09/2010

New technologies are pushing up the demand for rare earths. Steve Palmer, president and CEO of AlphaNorth Asset Management, says the rare earth space is currently his favorite place to invest in the resource sector. In this exclusive interview with The Gold Report, Steve also talks about where he sees the markets headed in 2010, and shares how he tries to limit the downside when investing.

The Gold Report: Your fund finished 2009 with gains of about 160%. What’s the outlook for 2010?

Steve Palmer: It’s unrealistic to expect a repeat of 2009 this year. However, we’re seeing many attractive opportunities still and we’re optimistic that 2010 will also be a strong performance year.

TGR: Can you talk about some of the attractive opportunities you’re looking at?

SP: We buy a lot of private placements. We like to get in on situations that have minimal downside with lots of leverage to the upside. When we buy a private placement, we usually get a half or a full warrant, and if the company executes on the business plan we can have significant gains. We’re still seeing lots of attractive private placements.

TGR: And you think that there are still some of those opportunities at this point?

SP: I’m trying to focus my new investments a little bit more away from the resource space. Our fund is relatively balanced between resources and other sectors. The “other” would include technology, special situations and biotech, mostly. Given the strong returns that the resource sector has had in the last year versus some of the other sectors, I just prefer looking at the other sectors at this stage.

I’m not implying that we’re not making any new investments in resource companies. I have just kind of skewed my interest level to the non-resource sectors at the moment.

TGR: Why have you chosen biotech as opposed to several other sectors? What’s unique about this sector that you see upside potential?

SP: In the small cap space in Canada, outside of resources and technology, there are not many opportunities in the other sectors such as financial, telecom, real estate, etc. I prefer companies that have more return potential than a typical financial company would have. The high-return potential is usually in some of the technology names and biotech. The resources obviously have big potential, too. Of sectors in the middle, there are not that many names in those sectors, and they typically don’t have the same return profile.

TGR: Are you restricting all your investments to Canadian-based small caps?

SP: Not all of them are Canadian-based. The majority are. There are enough companies in Canada to look at without having to look at other countries.

TGR: In your February commentary for your fund’s investors, you said you thought it was unlikely that equities would be able to make any significant gains over the summer months. There was a bit of a pullback in late January/early-February. Do you expect that to happen again in the near term?

SP: It’s quite possible that a pullback like that would happen sometime in the summer or late in the spring. Summer’s generally not a good time for small caps. Some people use the saying, “sell in May and go away.” It didn’t apply last year, but it may this year.

TGR: If there was that sort of a pullback, do you think things would start to pick up again in the fall?

SP: If there was a pullback I would be a buyer.

TGR: Do you see it as a summer doldrums sort of thing?

SP: It could be a little worse than summer doldrums. The markets have been quite strong over the last 12 to 16 months, so it wouldn’t be unusual to have a 10% or 15% setback.

We could go higher in terms of the TSX before there is a meaningful correction. It’s at 12,100 right now. Last year it was up 35%. It’s up 3% or 4% so far this year. It could go to 13,000. I only say 13,000 because I do some technical work and to me that would be a strong resistance level and right now we have a lot of positive momentum in the markets. We could see for the next couple of months the Canadian markets continue to go up, but I think they’d be hard pressed to go much farther than 13,000 this year.

TGR: So you’re thinking it won’t hold that 13,000 level if we get to that point?

SP: Correct. Because with the 35% return last year and another strong year this year, the odds are against it going higher than that in 2010.

TGR: Do you see any scenarios that it might move beyond that 13,000 level?

SP: Move beyond? I don’t know. There are lots of things that unfold that we can’t foresee. We have another nine months to go. Most of the news on the economic front has been fairly positive over the last few months. It’s not always going to be positive.

TGR: We talked earlier about some of your moves to more biotech and technology companies. In your January 2010 fund review, you said your current bias was toward non-resource companies. Can you highlight for our readers the reasons that you felt it was necessary to rebalance the portfolio?

SP: The relative weighting of resources in the portfolio actually hasn’t come down that much. In March, we had a couple of resource names that had very significant price appreciation, which is kind of making it difficult to reduce the resource weighting.

TGR: Is that a problem?

SP: Well, it’s a good problem to have. We had Cline Mining Corp. (TSX:CMK) go from $.30 to $1.75 in the last two months. This contributed to the increase in our resource weighting. One I’ve mentioned before is Colossus Minerals Inc. (TSX:CSI), which has been very strong lately also. We have a sizeable position in both of those companies. Even though our new investments have been more in the non-resource side, our existing investments are more than making up for that. So the relative weighting hasn’t really changed that much, which is fine.

TGR: When you’re looking at resource companies, do you look primarily at Canadian resource companies?

SP: Yes, primarily Canadian. The TSX is the primary exchange for resource companies in the world. The TSX Venture [index] for the juniors and the TSX composite as the broader index. When I do look at the resources, I have a bias to some of the more obscure areas like the rare earth space. That’s probably my favorite place to invest in the resource sector at the moment.

TGR: That seems to be a hot topic for many people. What caused you to look at rare earths and where do you see the primary opportunities there?

SP: There’s a very strong demand for rare earths in all the new technology, whether it’s related to solar, wind, batteries and so on. China produces the majority of the rare earths. China recently put some restrictions on what they export. The rest of the world has to scramble now to ensure that they have supply because China will likely put further restrictions on exporting their rare earths in coming years. There’s a huge demand for them and the price has gone up fairly substantially for many of these rare metals.

There are not that many companies that have rare earth assets. I see the opportunity for significant gains in that space. It’s similar to uranium several years ago. There was an investment thesis being made about all the nuclear reactors being built and how much uranium demand there was going to be and there wasn’t enough of it around. All these companies started up with uranium exploration projects and assets. Before they imploded in 2008, there were well over 100 juniors pursuing uranium assets.

If you look at the rare earth space, you have a similar thesis in terms of fundamentals, yet there’s nowhere near that many companies with rare earth assets. I have only 17 companies on my watch list in the rare earth space.

There have been several uranium companies that have refocused and now they’re rare earth companies.

TGR: In another interview we did recently, it was suggested that those who come to the market first with rare earths will quickly satisfy most of the demand. Consequently, the real key in investing in the sector is investing in one rare earth property and in one that can be brought into production quickly. Do you have the same observation?

SP: That’s partly true, but the demand is growing fairly significantly. China produces more than 80% of the world’s rare earths. If they shut that off to export, we would have to find a lot of rare earth production outside of China to make up for that.

TGR: Do you see that mostly coming from Canadian companies?

SP: Primarily Canadian companies. Not necessarily with a Canadian rare earth asset, but many of the junior rare earth companies are listed in Canada.

TGR: Do you have anybody in particular?

SP: My favorite one is Stans Energy Corp. (TSX.V:RUU). Their asset is in Kyrgyzstan. I like that one because they’ve acquired a property that has a proven resource of rare earths. It’s worth $2 billion in the ground. It’s the former mine that made up 80% of Russia’s rare earth production. It’s been shut down and under care and maintenance for many years. They’ve acquired it very cheaply and they’re going to do some confirmatory work on the resource. They’ve also got an option to buy the old processing facility. So not only do they have a resource, they could have a processing facility and known metallurgy.

One of the biggest challenges in mining rare earths is separating all the various elements out or the metallurgy. This operation has proven metallurgy, which is a huge step. Most of the other juniors will have to figure this out and it’s quite tricky.

It’s quite often very different for each deposit. Each deposit has different mixes of these metals and it’s quite a challenge to effectively separate them all.

TGR: Is Stans in production?

SP: No, they’re not in production yet. They just acquired the asset in December, so not many people even know about it. They’re just starting to do some IR now and get the story more widely known.

TGR: Do you have other rare earth companies that you’re looking at?

SP: There’s another very early-stage company that has a rare earth interest as well as interests in some other assets like molybdenum and a gold-copper exploration property. It’s Bolero Resources Corp. (TSX.V:BRU).

There is also a private company called Spectrum Mining with a property in British Columbia. They had some very good drill results for rare earths. Bolero was quick to stake some ground around that property. In the next couple of weeks, they’re going to be sending a team of geologists up there to do some initial work. Hopefully they’ll be in a position to drill it later in the year.

I like that company because it’s got a very low market cap of about $7 million. They have a very prospective rare earth play. They’ve got a very prospective copper-gold play that is also in B.C. alongside Imperial Metals Corp. (TSX:III), which has had very good results on their property. They have this molybdenum asset in Montana. It’s 360 million pounds of moly. So it’s got multiple chances of success, each of which could be a company maker.

TGR: Are you looking at primarily exploration companies or producers or a combination of both?

SP: I prefer the exploration companies. With producers you don’t generally get as high a return potential and the commodity price becomes more of a significant factor. When you start introducing the macro factors, it makes it harder to predict. It’s harder to predict where the commodity price is going to go month to month.

TGR: Is there anybody in the energy sector that you’re watching at this point?

SP: There hasn’t been a big focus on the energy sector. It’s been more on the metals side. Although we do have a few investments in the energy sector. Quetzal Energy Ltd. (TSX.V:QEI) is one that I like. They’re drilling a property in Colombia. They also have very small production in Guatemala. One of the properties in Colombia is surrounded by producing oil properties. It’s very prospective ground.

Colombia has been a very hot area to invest in recently. There have been many big wins over the last year with companies with gold properties and oil properties in Colombia. So it’s a very hot area. A lot of investors are looking for the next big winner in Colombia. I think this could be one of them.

TGR: You mentioned earlier buying warrants. Is purchasing warrants a big part of how you look at these companies?

SP: With the private placements, they are usually structured as a unit that you buy. It’s a share and half-warrant or sometimes a full warrant. So I like to buy those because if it works, you have additional leverage to the upside. If it is a full warrant, it effectively doubles your leverage and thus your return if it works out.

TGR: In your November fund review you stated, “It remains unclear how much further the gold bubble will inflate before the gold bugs are silenced yet again.” What’s your feeling about gold and the precious metals in general at this time?

SP: I’m not as negative now on gold as I was when it made that parabolic move up to $1,200. I’m somewhat indifferent at this point. It’ll have a hard time getting past $1,200 again in 2010. I don’t necessarily think it’s going to decline that much either from current levels. My previous comment was a result of the euphoric sentiment by almost everybody that gold was going materially higher. Anytime you get a situation where everyone is just in total agreement on something, it’s usually time to go the other way. My technical indicators also pointed to a short-term top which proved correct, and we executed a very timely trade shorting gold. We have since covered with a nice profit.

TGR: We talked to somebody recently who was saying because of inflationary pressures and additional demand worldwide for gold that he could see scenarios where gold would approach possibly $1,375. Are you thinking that’s beyond where gold might head this year?

SP: I don’t see much in the way of inflationary pressures. The U.S. CPI was up 0.2% in both December and January. Core prices fell by 0.1% in January. The last time core prices fell was in 1982. I don’t know where the inflation is. I’ve heard that argument for the last 10 years about inflation around the corner. That argument has been wrong for 10 years. At some point it will be right, but I don’t see it being right in the near term.

TGR: Isn’t the big hubbub around it now the fact that the U.S. specifically has done all the big bailouts and is trying to re-inflate the economy to an extent it has not done before? Do you see that causing the inflationary pressures?

SP: The bottom line is I don’t see how you can have inflation if you have excess capacity everywhere, and you have people that have no capacity to spend. Inflation results when everybody tries to buy stuff and you can’t make enough of it, so the prices are going up. That’s not at all the situation right now in the U.S. The primary driver of gold prices is the correlation with the U.S. dollar.

TGR: Do you expect the dollar to decrease because of the fact that the U.S. is increasing their money supply?

SP: Yes. Over the long term, I expect the U.S. dollar to trend lower. However, a lot of countries are increasing their money supply also so the U.S. will have many periods of strength.

TGR: Steve, your approach to making money is looking at the small caps. These are the companies that have opportunities to increase in size. Can you give our readers your viewpoints on what you’re looking for in a small cap? Is it specific properties? Is it management? Previous successes?

SP: Management is important. I’m looking for opportunities where I can invest where the downside is fairly limited and the upside is significant. I’m always trying to optimize the risk versus reward.

TGR: How do you limit that downside? Is it price per stock that limits the downside or something else?

SP: A couple of things. One of the biggest risks of investing in small cap companies is having the company run out of cash. That’s a particular risk in the junior resources because they have to spend a lot of money on exploration, etc. Then they have to get back to the market for the next round of drilling or whatever. If it’s a time when it’s very difficult to raise money, it could be a lot of dilution that occurs for the company to move forward or they may not be able to raise money at all. That’s why I buy a lot of private placements, because not only do I get the leverage of a warrant with the deal, but I’m also purchasing at a time when the company is raising money. This eliminates the risk in the short term of the company running out of money. Quite often, private placements are done at a discount to market price, which is another benefit. Another factor I use is technical analysis. This helps time my entry and exit points.

TGR: Thank you for your time.

Steve Palmer and Joey Javier, an investment team since 1998, took three key assets—their excellent track record, their experience and their belief that exploiting inefficiencies in the Canadian small-cap universe would produce superior long-term equity returns—to AlphaNorth Asset Management, launching the Toronto-based investment management firm in August 2007. AlphaNorth currently manages the AlphaNorth Partners Fund, a long biased small cap focused hedge fund and the AlphaNorth 2010 Flow-Through LP.

Steve, who is a Chartered Financial Analyst, earned his BA in Economics at the University of Western Ontario. After starting in the investment community as a research associate, he moved to a major financial institution in mid-1998, where he met Joey and built his career. As Vice President of Canadian Equities, he managed assets of approximately $350 million, including a pooled fund that focused on small-cap companies.

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DISCLOSURE:
1) Tim McLaughlin of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None
2) The following company mentioned in the interview is a sponsor of The Energy Report or The Gold Report: Colossus Minerals.
3) Steve Palmer: I personally and/or my family own shares of the following companies mentioned in this interview: None. Funds managed by Steve Palmer at AlphaNorth Asset Management own shares of all of the companies mentioned in this interview. I personally and/or my family are paid by the following companies: None.