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Steve Forbes Joins Ron Paul’s Call For Gold Backed Currency

June 24, 2011 by Leave a Comment

Steve Forbes, CEO of Forbes Magazine, said the U.S. should return to a gold backed currency to prevent further debasement of the U.S. dollar.  Mr. Forbes joins a growing chorus of intellectually honest Americans who view the Federal Reserve as the greatest danger to the American economy and way of life.

The quest to preserve the value of the U.S. currency and rein in the Federal Reserve has long been championed by Rep. Ron Paul.  Apparently, Ron Paul’s message is beginning to make sense to more and more Americans as they watch the purchasing power of their dollars decline daily.

http://youtu.be/3CG9UVagFQ0

Bloomberg is reporting that the public approval rating of Fed Chairman Bernanke has dropped to the lowest level in two years. Bernanke has an approval rating of only 30% compared to 41% in late 2009.  Bernanke’s response to every problem has been to lower interest rates and print money, which have done little to improve the fundamental financial health of consumers or the government.

According to Bloomberg, the public has grown increasing skeptical of increased debt and money printing since unemployment is still near 10%, home values are still in a free fall and the declining purchasing value of the dollar has lowered the standard of living for most Americans.  The Bloomberg Poll showed that a resounding two thirds of Americans think the country is on the wrong track, with 55% expecting their children to have a lower standard of living.

Professor Bernanke can wax eloquent on the benefits of “quantitative easing” but the average American is smart enough to know that a country that needs to print money to pay its bills is in desperate financial condition.

Steve Forbes noted that the ability of the government to print money encourages reckless spending since money can be created out of “thin air.”  According to Mr. Forbes, if the country returned to a gold standard, unlimited spending could not occur.  Ironically, the ability to expand credit and print money is exactly why the government abandoned the gold standard.  The concept of a Federal Reserve and a gold backed currency have become almost mutually exclusive concepts.

 

Filed Under: Featured, Gold, US Debt Crisis Tagged With: , , , , ,

Silver ETF Holdings Decline Again As Gold ETF Holdings Gain

June 23, 2011 by Leave a Comment

Holdings of the iShares Silver Trust (SLV) declined again this week by 106.14 tonnes after a decline of 248.69 tonnes in the previous week.  The year to date decline in silver holdings by the SLV now totals 1,362.19 tons.

The decline in holdings of the SLV from its all time high of 11,390.06 tonnes on April 25, 2011 now totals 1,830.68 tonnes, or a decline of 16.1%.  There is not a direct and timely correlation between the price of silver and the holdings of the SLV as evidenced by the fact that silver has declined in price by a much larger percentage than holdings in the iShares Silver Trust.  From its high of $48.70 on April 28th, silver has had a price correction of 35.6%.

The holdings of silver by the SLV are structured in a complex manner.  The trust is set up so that the SLV price correlates closely to the price of silver.  This is accomplished by allowing Authorized Participants to arbitrage against a premium or discount of the SLV to the trust’s underlying net asset value  (see How Wall Street Made Huge Profits On Silver ETF Crash As Small Investors Sold).

As measured by the closing London PM Fix Price, silver closed today at $35.91, up slightly from last Wednesday’s close of $35.26.  Silver has been consolidating in the mid 30 range after the early May sell off.

As of June 22, 2011, the SLV held 307.3 million ounces of silver valued at $11.0 billion.

 

SILVER - COURTESY KITCO.COM

Silver seems to be building a base in the mid $30’s and presents a buying opportunity for long term investors.

GLD and SLV Holdings (metric tonnes)

June 22-2011 Weekly Change YTD Change
GLD 1,209.14 +9.09 -71.58
SLV 9,559.38 -106.14 -1,362.19

Holdings of the SPDR Gold Shares Trust (GLD) gained by 9.09 tonnes on the week after a decline of 11.52 tonnes in the previous week.   The GLD currently holds 38.88 million ounces of gold valued at $60.3 billion.

As measured by the closing London PM Fix Price, gold closed on Wednesday at $1,552.50, a new closing high on the year.  The price of gold remains in a solid uptrend supported by huge physical demand from investors and central banks.

 

GOLD - COURTESY KITCO.COM

 

Filed Under: Featured, Gold, Silver, Statistics Tagged With: , , , , , , , ,

Russia Joins China In Rejecting U.S. Debt, Buys Gold Instead

June 20, 2011 by 2 Comments

China, the largest foreign holder of U.S. debt, has been concerned about the safety of its U.S. treasury debt holdings for years.

In March 2009, Chinese Premier Wen Jinbao warned Washington that “We have lent a huge amount of money to the U.S.  Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.”

Premier Jinbao’s  was right to worry about the safety of China’s U.S. debt holdings.   Since March 2009, the U.S. debt has increased by more than $3 trillion and Congress is now being pressured by the Federal Reserve and the Treasury to increase the national debt limit by another $2 trillion.  The parabolic increase in U.S. debt, along with recent downgrade warnings on U.S. debt from the credit rating agencies, must be keeping the Chinese up at night.

On Saturday, the Wall Street Journal reported that Russia also decided that holding U.S. debt has become too risky.  In comments to Dow Jones, Arkady Dvorkovich, chief economic adviser to Russian President Medvedev, said “The share of our portfolio in U.S. instruments has gone down and probably will go down further.”  According to the Wall Street Journal, Russia has already reduced its holdings of U.S. debt from $176 billion last fall to $125 billion in April of this year.

Besides diversifying into other currencies such as the Canadian and Australian dollar, Russia has also been substantially increasing its purchases of gold.  Recent reports from the World Gold Council and IMF show that Russia recently bought 50 tons of gold bringing its total gold holdings to almost 670 tons.

If Russian economic advisor Dvorkovich looks at the above chart of U.S. debt, he may well decide to run to the exits and dump all of Russia’s U.S. debt holdings.

The United States has truly entered the Bizarro stage of national finance.  As the exponential increase in U.S. debt moves the Nation ever closer to a debt crisis, Fed Chairman Bernanke and Treasury Secretary Geithner are predicting dire consequences if Congress does not increase the U.S. debt limit.  Should it really be a surprise that two of the world’s biggest holders of U.S. debt are heading for the exits?

 

BIZARRO WORLD -COURTESY COMICTREADMILL.COM

 

 

 

 

 

Filed Under: Featured, Gold, US Debt Crisis Tagged With: , , , , ,

Gold Gains Slightly On Week While Silver, Platinum and Palladium Decline

June 18, 2011 by Leave a Comment

Precious metals had a tough week as silver, platinum and palladium all declined, while gold registered a small gain.

As measured by the closing London PM Fix Price, gold gained $8.25 on the week after declining by $10.75 in the previous week.  Gold remains in a solid long term uptrend.  Since early 2009, gold has remained above its 40 day moving average and every dip to the 40 day moving average has followed with rallies to new highs for gold.

Gold’s last decline to the 40 day moving average in January of this year was subsequently followed by a rally of over $220 per ounce.  A correction to the 40 day moving average would bring gold back to the $1,400 level.

 

GOLD - COURTESY STOCKCHARTS.COM

Gold has held above $1,500 as world financial markets, oil and other commodities have declined substantially over economic worries.   As the European Central Bank struggles to prevent a Greek default that could trigger a series of other sovereign defaults, debt yields are soaring not only in Greece but also Spain, Portugal, Italy and Ireland.

Markets are beginning to reflect the unavoidable truth that we are reaching an end game where sovereign governments have become the new systemic risk to the financial system.  As debt burdened governments face the prospect of financial collapse and political unrest, the only option will be to sell new debt to the central banks who will buy the debt with newly printed money.  As central banks worldwide compete with each other in massive currency debasement, gold will soar to new highs beyond predictions of the boldest gold bulls.

As the slow motion collapse in Europe unfolds, investors in the U.S. seem resolute in the belief that “it can’t happen here, we are not Greece.”  This argument is rejected by Bill Gross who runs Pimco, one of the largest bond funds in the world.  According to Gross, who recently announced that he would stop buying U.S. Treasury debt, the U.S. is actually in worse shape than Greece.

The total debts of the U.S. government, including off balance sheet obligations for open ended social programs, totals $100 trillion.  Gross notes that “To think that we can reduce that within the space of a year or two is not a realistic assumption.  That’s much more than Greece, that’s much more than almost any other developed country.”

Critics who dismiss the warnings of Bill Gross point to the current level of low yields on U.S. treasury debt.  Why would the U.S. be able to sell its debt at such low rates if the finances of the United States are worse than Greece?  The answer is that crises develop in a linear fashion.  Investors don’t worry about credit risk until the crisis is upon them and suddenly everyone wakes up and panics.

Carmen Reinhart of Harvard and formerly of the IMF correctly predicted that a sovereign debt crisis would follow the financial crisis of 2008.  In a study of bond markets as a forecasting tool, Reinhart showed that rates are a poor forecaster of  repayment risk.  According to Reinhart, “Very often, interest rates are a coincident, rather than a leading indicator” of a looming financial crisis.

Preserving wealth during the next financial meltdown will require taking steps before the inevitable crisis develops.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,537.50 +8.25 (+0.54%)
Silver $35.39 -1.99(-5.32%)
Platinum $1,751.00 -78.00 (-4.26%)
Palladium $754.00 -61.00 (-7.48%)

Platinum had a volatile week, declining by $78 on the week to $1,751.00.  After moving up by $650 per ounce between July 2009 and May 2010, platinum has been consolidating its gains.  During 2011, platinum has remained in a narrow but volatile trading range between $1,700 and $1,850 per ounce as traders try to sort out whether the predominant demand for platinum is industrial usage or investor demand.

PLATINUM - COURTESY STOCKCHARTS.COM

Palladium had the biggest decline in the precious metals group, falling by $61 per ounce for a loss of 7.48%.  After reaching a high on the year of $858 in February, palladium has been correcting in a sideways pattern.

 

PALLADIUM - COURTESY KITCO.COM

Silver declined by $1.99 on the week to $35.39 after a gain of $2.19 in the previous week.  After the sharp decline in early May, silver has been building a base in the $34 to $38 range.

 

SILVER - COURTESY STOCKCHARTS.COM

Filed Under: Featured, Gold, palladium, Platinum, Silver, Statistics Tagged With: , , , , , ,

Silver and Gold ETF Holdings Both Decline On Week

June 15, 2011 by 3 Comments

Holdings of the iShares Silver Trust (SLV) declined by 248.69 tonnes for the week after declining by 27.12 tonnes in the previous week.  The year to date decline of silver held by the SLV is 1,256.05 tonnes.

The holdings of the SLV hit an all time high on April 25, 2011 at 11,390.06 tonnes and the decline from this high now totals  a substantial 1,724.54 tonnes.  Total holdings of the SLV have declined by 15.1% from the high of April 25, while the price of silver has declined by 27.6%  from its high of $48.70 reached on April 28th.

Silver closed today at $35.26 (as measured by the closing London PM Fix price), up $8.58 from the low of the year at $26.68 reached on January 28th.  Shares of the SLV closed today at $34.88, down $13.47 from the high of the year at $48.35.

 

SLV - COURTESY YAHOO FINANCE

The iShares Silver Trust currently holds 310.8 million ounces of silver valued at $10.95 billion.  At the start of 2011, the SLV held 351.1 million ounces of silver valued at $10.9 billion.  The holdings of the iShares Silver Trust does not directly track the price movement in silver due to the manner in which it is structured.  For a discussion of how SLV shares are created or redeemed by Authorized Participants, see How Wall Street Made Profits On Silver ETF Crash.

According to the iShares website, the SLV closed yesterday at a premium of 2.54% to the fund’s net asset value.  On rare occasions when silver is exhibiting large price swings, the premium or discount to net asset value has been as large as 6%.

GLD and SLV Holdings (metric tonnes)

June 15-2011 Weekly Change YTD Change
GLD 1,200.05 -11.52 -80.67
SLV 9,665.52 -248.69 -1,256.05

Holdings of the SPDR Gold Shares Trust (GLD) declined on the week by 11.52 tonnes, after declining in the previous week by 1.30 tonnes.  The GLD currently holds 38.58 million ounces of gold valued at $59.0 billion.  The all time record holdings of the GLD was 1,320.47 tonnes on June 29, 2010.

Gold traded in a narrow range over the past week, declining by $8 per ounce.  Gold has stayed above the $1,500 level since May 20th and has gained $141.25 since the beginning of the year.

Shares of the SPDR Gold Trust closed at $149.12, up $0.45, not far off the year’s high of $153.61.

 

GLD - COURTESY YAHOO FINANCE

Filed Under: Featured, Gold, Silver, Statistics Tagged With: , , , , , , ,

Why A Gold Backed Currency Is No Longer Possible

June 14, 2011 by Leave a Comment

It is ironic that one of the most eloquent proponents of a gold standard did the most to ensure that we will never have one.  Alan Greenspan’s 1966 paper entitled “Gold and Economic Freedom” expounded on the role of a gold backed currency in protecting wealth against inflation by restricting the amount of money that could be produced.

Greenspan notes that the creation of the Federal Reserve was based on the premise that a central bank could supply increased reserves to banks when necessary and thereby offset natural turn downs in the business cycle.

“But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913.”

It was not long before the Fed’s ability to allow unchecked credit expansion by banks laid the groundwork for the economic collapse know as the Great Depression.  Greenspan states that in an attempt to offset a mild business contraction in 1927, massive amounts of new bank reserves fostered a speculative boom ending with the Wall Street Crash of 1929.

“When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage… The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.”

Fast forward 75 years and we are looking at an eerily similar situation.  Unlimited credit creation by the Fed creates multiple asset bubbles that precipitate an economic crash and the dawn of Great Depression II.

Greenspan goes on to explain why there was ardent opposition to the gold standard despite the catastrophic results of unchecked  credit creation by the Fed in the 1920’s and why deficit spending is equivalent to the confiscation of wealth.

“But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state).

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold…The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

Ironically, the man who best understood the merits of a gold backed currency became the driving force behind the unlimited credit expansion that lead to the largest financial crisis in U.S. history.

Greenspan’s compromise of principles is beyond reproach for a man who understood the consequences of  ultra easy monetary policies, yet allowed himself to be corrupted by lobbyists, bankers and politicians.  Does anyone expect a better performance from current Fed Chairman Ben Bernanke, a man who blatantly prints money in an overt attempt to further debase the U.S. dollar?

Incredibly, Alan Greenspan disingenuously initiated another discussion on the need for a gold standard earlier this year.  In an interview with Fox News in January 2011,  Mr. Greenspan had the temerity to say:

“We have at this particular stage a fiat money which is essentially money printed by a government and it’s usually a central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or a currency board or something to that nature, because unless you do that, all of history suggest that inflation will take hold with very deleterious effects on economic activity.”

http://youtu.be/yRJs5yL62BA

Three conclusions can be reached regarding a U.S. gold standard:

1.  Mr. Greenspan should cease talk about a U.S. gold standard and the dangers of unlimited credit expansion – his previous record  speaks for itself.

2.  The ability of the U.S. to adopt a gold backed currency has been overwhelmed by the debt and leverage which now threaten to bring on a deflationary collapse.  Ben Bernanke knows this which is why he has been printing money on an unprecedented scale.

Ironically, the creation of new credit may be the only factor preventing us from sliding into a deflationary depression  triggered by massive debt defaults.  Ben Bernanke’s prescription of inciting inflation and curing excessive debt with more debt may be the only poor policy option remaining to forestall an unimaginable economic nightmare.  With the global economy tottering on the edge of another financial crisis,  the adoption of a gold standard by the U.S. remains a very remote possibility.

3.  Since the government is not interesting in preserving the value of our currency, individual initiative becomes necessary.  Ten years of rising gold prices tells us the smart money is not waiting for a gold backed currency but instead is turning directly to gold.

Filed Under: Featured, Gold Tagged With: , , , , , , ,

Gold Down Slightly On Week While Silver, Platinum and Palladium Advance

June 11, 2011 by 1 Comment

Gold pulled back slightly on the week while silver, platinum and palladium registered strong gains.

As measured by the London PM Fix Price, gold gave up $10.75 on the week, while silver advanced by $2.19 for over a 6% gain.  Gold remains in a solid uptrend while silver has traded in a narrow range in the mid to high $30’s after the early May sell off.

Platinum continued its winning ways with a $22 dollar gain after picking up $21 in the previous week.  As noted last week, platinum sells below the price at which new mine expansion is profitable.   A price of $2,100 per ounce in necessary in order to motivate platinum miners to expand exploration and production.

In addition, the platinum to palladium ratio is only 2.2 compared to a historical ratio of 3.0 to 4.0, suggesting that platinum is undervalued relative to palladium. Platinum prices have been in a narrow price range between $1,500 and $1,840 since the beginning of 2010.   A breakout above $1,900 could lead to sharply higher prices.

After advancing by $13 per ounce last week, palladium jumped by $45 on the week.  Palladium had a huge run from 1996 to 2000 when the price moved up from $100 to $1,100.  During the worst part of the financial crisis in 2008, palladium dipped below $200 but has since been in a strong uptrend.

 

Palladium - Courtesy kitco.com

Although some might have expected gold to move up strongly in the face of steep sell offs in the financial markets and the looming threat of a debt ceiling stalemate, the uptrend in gold remains intact.

Anyone doubting the long term value of gold as a store of value versus the paper dollar can reflect on this week’s USA Today column  disclosing the precarious state of U.S. government finances.  Unfunded and off balance sheet financial commitments of the U.S. for government pensions, social security and medicare amount to $527,000 per household.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,529.25 -10.75 (-0.70%)
Silver $37.38 +2.19(+6.22%)
Platinum $1,829.00 +22.00 (+1.22%)
Palladium $815.00 +45.00 (+5.84%)

The Government has clearly made promises that are economically unfeasible.  What will happen when millions of people, with a strong sense of entitlement and blind belief in the Government, suddenly stop receiving benefit checks?  Or if the checks do keep coming (by virtue of the printing press) of what value will they be?

Filed Under: Featured, Gold, palladium, Platinum, Silver, Statistics Tagged With: , , , , ,

Gold and Silver ETF Holdings Decline On Week

June 8, 2011 by 1 Comment

Silver holdings of the iShares Silver Trust (SLV) declined for the week by 27.12 tonnes after being unchanged in the previous week.  The price of silver, as measured by the closing London PM Fix Price has declined by $1.73 or 4.6% since June 1st.

After reaching a high of $48.70 per ounce on April 28th, silver has declined by $12.48 or 25.6% based on today’s closing price.  From the low of $32.50 on May 12, silver has seen a price recovery of $3.72.

The iShares Silver Trust has seen a substantial reduction in silver holdings of 1,007.36 tonnes since the beginning of the year when silver traded at $30.67.  The decline in holdings by the SLV from late April have been even more dramatic.   The SLV hit an all time high for silver holdings on April 25, 2011 of 11,390.06 tonnes.  The decline in SLV holdings from the all time high registers at 1,448.73 tonnes or 46.6 million ounces of silver valued at $1.7 billion.

The iShares Silver Trust currently holds 318.7 million ounces of silver valued at $11.5 billion.  On April 27th, the value of silver held by the SLV was $16.1 billion.

At today’s closing price of $36.03, shares of the SLV traded at a premium of $0.71 or 2.0% to the net asset value of the Trust.  Since the beginning of the year, the SLV has gained 20.2% and over the past year has increased by 115.4%.  For a discussion on why silver prices may see a quick recovery to all time highs see – How Soon Will Silver Hit New Highs?

GLD and SLV Holdings (metric tonnes)

June 8-2011 Weekly Change YTD Change
GLD 1,211.57 -1.30 -69.15
SLV 9,914.21 -27.12 -1,007.36

Holdings of the SPDR Gold Shares Trust (GLD) were little changed on the week, declining by 1.3 tonnes, after a decline of 1.21 tonnes in the previous week.  The GLD currently holds 38.95 million ounces of gold valued at $59.9 billion.  Holdings of the GLD hit at all time record high of 1,320.47 tonnes on June 29, 2010.

Gold prices gained slightly on the week, closing up $4.00 per ounce from the June 1 close.  Gold has now gained $149.25 since the beginning of the year, up 10.75%.  Gold has remained in a narrow trading range for several months, consolidating its early year gains.  Gold has remained above the $1,500 level since May 20th when it closed at $1490.75 per ounce.

Filed Under: Gold, Silver, Statistics Tagged With: , , , , ,

A Large Cap Gold Stock That Could Double In Price

June 7, 2011 by Leave a Comment

Many small cap gold mining companies have seen significant price gains, while large cap gold stocks have underperformed.  With fundamentals driving the price of gold steadily higher, many large cap gold mining companies are perfectly positioned to see large earnings increases that will propel their stock prices higher.

One large cap gold mining company that could be on the verge of doubling in price over the next few years is Newmont Mining Corporation (NEM).   The stock has underperformed other large cap gold mining companies despite the fact that the company’s fundamentals have dramatically improved over the past few years.  The improved fundamentals, once recognized by the market, are likely to push Newmont’s stock price much higher.

Newmont Mining is one of the world’s largest gold producers with operations in Ghana, Indonesia, Nevada, Australia, New Zealand, Peru, Canada and Mexico.  For the past three years, Newmont Mining has been positioning itself for future growth through financial and operational restructuring and is now poised for additional significant growth in revenue and profits.

Revenues have grown from $6.1 billion in 2008 to $9.5 billion for the year ending December 31, 2010.  During the past three years, gold production increased by only 3.7% from 5.2 million ounces in 2008 to 5.4 million ounces in 2010.  The majority of revenue increases over the past three years were driven by increased gold prices, but Newmont is forecasting an increase in gold production of 35% over the next six years to 7 million ounces annually.  The combination of increased gold production and higher gold prices could result in explosive earnings growth.

Newmont Mining has proven and probable gold reserves of 93.5 million ounces, equivalent to $285 per share.   Newmont is also a major copper producer with proven and probable reserves of 9.4 billion pounds, equivalent to 19.1 pounds per share.   The value of copper reserves is worth approximately $78 per share.   In 2010, Newmont produced 327 million pounds of copper.

Gold reserves are expected to increase based on the Company’s global portfolio and continual exploration efforts.

The Company paid shareholders a cash dividend of $0.50 per share in 2010 and expects to increase this by $0.20 per share for every $100 increase in the price of gold.

Newmont Mining has an extremely strong balance sheet with $5.6 billion in cash at year end 2010.   According to the Company’s annual report, Newmont offers investors the “best per-share gold-price leverage in the industry.  Every $100 increase in gold price translates into approximately $350 in additional after-tax operating cash flows, or approximately $0.70 per share.  We deliver better gold price leverage than any of our competitors.”

Newmont Mining’s stock price of $53.44 at today’s close is actually lower than five years ago when it traded at about $55 in early July 2006.

 

NEWMONT MINING - COURTESY YAHOO FINANCE

Newmont Mining trades at a low price earnings ratio of 12 and pays a 1.5% annual dividend.  Based on the Company’s recent results and bright prospects for future revenue and profit growth, it is only a matter of time before investors drive the stock price higher.  Many other major gold producers have price earnings ratios in the low 20’s or higher.  If Newmont Mining sold at a PE ratio in the low 20’s, the stock’s price would be over $100 per share.

Filed Under: Featured, Gold Tagged With: , , , ,

Gold Advances On Week, Silver Retreats As Financial Crisis II Looms

June 3, 2011 by Leave a Comment

Gold, platinum and palladium all advanced on the week while silver gave up most of the previous week’s gains.

As measured by the London PM Fix Price, gold gained $7 on the week to $1,540.00 while silver pulled back by $2.50 to $35.19.   Platinum moved up by $21 to $1,807.00 and palladium gained $13 to $770.00.  After the London close, prices of precious metals moved up strongly in New York trading, especially silver, which last traded at $36.39, up $1.20 from the earlier London closing price.

Financial markets worldwide pulled back sharply as the stock traders finally began to acknowledge the fragility of the world’s paper back financial system.  Governments that have borrowed and spent trillions of dollars to stimulate economic growth and support a fragile banking system now find themselves reaching the limits of their borrowing capacity.

It is becoming obvious that the financial crisis of 2008 was just a warm up act to the real financial nightmare that is looming ahead.  Despite trillions of dollars in stimulus spending, coordinated with a money printing campaign by world central banks, the economies of the U.S. and Europe have not recovered.  Unemployment continues to grow, real estate values continue to plunge, debt levels have reached unsustainable levels and real incomes for the majority of workers continue to decline.

There are numerous events that could trigger the second financial crisis  There is no way of knowing which specific event will trigger the next crisis,  nor does it matter.  What does matter is the manner in which Financial Crisis II will be dealt with by world governments and central banks.  Unable to raise taxes or take on trillions more in borrowing, monetary authorities will exercise the last resort option of money printing on a massive scale to avoid a total collapse of the world monetary system.  The gold market is already reflecting this scenario as one of the few safe havens against paper currencies that have little intrinsic value.  When Financial Crisis II gets under way, uninformed talk of a “gold bubble” will quickly disappear as investors will buy gold at any price to preserve their wealth.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,540.00 +7.00 (+0.46%)
Silver $35.19 -2.50(-6.63%)
Platinum $1,807.00 +21.00 (+1.18%)
Palladium $770.00 +13.00 (+1.72%)

Will platinum, which has lagged the price rallies in other precious metals, start to play catch up?  According to the Wall Street Journal, due to rising production costs for platinum, a price of $2,100 per ounce is necessary to encourage increased mine production.

The historical price ratio of platinum to palladium also suggests that platinum prices could rally significantly.  The Wall Street Journal notes that when palladium reached $860 per ounce in February, the ratio was 2.15 compared to 2.12 today.  The historical average of the platinum/palladium ratio is 3.0 to 4.0, suggesting that platinum is undervalued.

 

PLATINUM - COURTESY STOCKCHARTS.COM

Filed Under: Featured, Gold, palladium, Platinum, Silver, Statistics Tagged With: , , , , ,