Thursday, July 16, 2009
We've seen oil rising in tandem with inflation expectations and the weakening of the dollar even when there is a glut of oil on the market due to the SHELLACKING that consumers pocket books have been taking. Investors have been using oil as an inflation hedge as oil being priced in dollars is the only thing that is providing value to the dollar. This of course confuses many consumers who wonder why oil and gas are priced so high if there's so much of the stuff.
Two critical points to be aware of when considering oil:
1) Academic and former U.S. government adviser Philip Verleger states that crude will drop to $20 a barrel due to deteriorating economic conditions and a vast surplus of oil on the market....source. Typically as the dollar rallies the price of oil will go down. Or as the price of oil goes up the dollar declines. Which is it? That's important to understand but that's for another time. The point here is that hedge fund managers and investors use oil for their inflation speculation and it causes illogical price gains. On a side note, when/if the price of oil does drop people will say, "deflation, deflation". That will not be the case. It will be a supply/demand issue.
2) The CFTC recently announced that they are going to seriously consider placing limits on contract speculation in oil and other energy commodities and silver and gold as well. This is very important to consider. If oil's function as an inflation expectation is diminished the logical recipients of the inflation play will be silver and gold, as it should be. The only reason oil is used as a hedge now is because of its inherent usefulness. The stale old thought of silver and gold being impractical because it doesn't pay interest or dividends and sometimes has storage fees associated with it is soon about to change. This thinking persists though even as silver's uses as a commodity keep rising. Silver, as with oil, is fundamental to our way of life but who knew?
As I just stated, oil speculation may be curbed in the near future and silver and gold will be the beneficiaries of this. But I also just stated that position limits may be placed on silver and gold as well so what gives? Well, this is where reality kicks in, where the rubber meets the road. You see, the hedgies who are using oil as a speculative tool are buying contracts, not the physical oil. The same with silver and gold for the most part. So if investors are limited in their ability to buy oil and silver and gold contracts, why, they must buy the physical instead. But do you think they will go out and fill tankers up with a bunch of oil? JP Morgan might (is) but the typical investor will not. No, their attention will be diverted to the physical silver and gold, equities and ETF's.
Just recently a very interesting thing happened. Greenlight Capital just switched over all their gold holdings in the SPDR ETF to PHYSICAL bullion, 4.2 million shares. Think about that. If the big boys would rather hold physical, do you want to hold paper?
So what's a small fish supposed to do in a very big fish bowl? Well I think the answer is quite obvious, buy some silver. Buy some gold. If you're intersted in the oil play still I would personally recommend the USO fund. It follows the price of oil pretty closely and if oil is indeed going to $20, when it does, you will want to load up on USO. Oil at $20 is a real problem for humanity. I won't get into that too deeply here but suffice it to say that cheap oil is destructive to production and will cause a supply shortage in the future even though there's a surplus now. This WILL happen regardless of whether or not oil goes to $20. I consider $60 oil cheap.
So be very alert. There are many factors that are steering thinking towards silver and gold. This will happen naturally as the markets needs are met but it does appear that there will be some catalysts along the way. We can only speculate as to the motivations and intentions behind these catalysts and we'd probably be wrong but one fact is undeniable. Big money is moving into silver and gold. What will your money do? It's your decision and you will be responsible for action and inaction alike.
Tuesday, July 14, 2009
I think more people would be fascinated if the SLV ETF came out and announced, "We're out of shares, simply ran out of paper." I assure you the cost of paper would skyrocket even though the transactions can all be handled digitally. Such is the logic of the world today. But when silver and gold suffer different types of shortages, people instead turn to paper forms of said metals. Madness, simply put.
The following excerpt is from an article posted on Mineweb.com by Dorothy Kosich:
"Unprecedented demand, a shortage of blanks, and restrictive policies and regulations continue to exacerbate what is almost becoming a chronic shortage of gold and silver coins authorized by the U.S. Mint.
The U.S. Mint has again "temporarily" suspended sales of almost all of its gold uncirculated and proof coins, along with nearly all of silver uncirculated coins because of the limited availability of blanks.
The U.S. Mint Online Product Catalog says production of the American Eagle Gold Proof and Uncirculated Coins has been temporarily suspended due to the "unprecedented demand" for American Eagle Bullion Coins for which all available 22-K gold blanks are being allocated.
In the catalog, the government says it will resume the American Eagle Gold Proof and Uncirculated Coin Programs "once sufficient inventories of gold bullion blanks can be acquired to meet market demand for all three American Eagle Gold Coin products."
Read more....US Mint
Tuesday, July 7, 2009
"Given the risk of central bank gold activity to the gold price, Deutsche Bank anticipates "the ongoing out-performance of silver relative to gold."
"Indeed we believe the production cuts that have occurred across the industrial metals complex may have important implications for silver," the strategists asserted. "We find that of total silver production, more than 60% is mined as a by-product with other industrial metals such as zinc, lead and copper.
"We believe silver production could face similar challenges to the ones likely to occur across the industrial metals complex as a result of the significant decline in capex spending that has occurred over the past two years," they said."
Consider: The US is approaching nearly 400% debt to GDP. If you do not know someone wading in the quagmire of debt you probably do not want to know them. Sad but true. It happens to be our way of life. Not saying it's the best way but there it is. Don't like it? Change it.
Sometimes on my way home from work I see this guy stopped on the side of the road. He's wearing old, dirty clothes and his tired and worn looking truck (surely paid off) is not far behind. Certainly it's there to store the bags of yummy grasses and weeds and whatever other edibles he's picking up. He's been doing this for years. Looks like a nice enough chap. Perhaps he could invite you to dinner. You could feast on "vegetable" soup and imbibe copious amounts of dandelion wine. And at what price? FREE! The stuff's everywhere!
See what I mean? So back to the point. What if the Fed was devaluing the currency in order to preserve power, not gain it? You see, me personally, when I look at my debt situation and look at the situation of others, I don't possibly see how this can be sustained. If more and more people keep getting further and further in debt and keep looking out further into the future and there's nothing there for them but servitude, how inspired will you be to serve your debt masters? You need more debt just to keep up with inflation. When does this break? Perhaps now? Perhaps.
I suggest that the Fed is devaluing the currency in order to give folks a way out of debt and protect their own froggy, reptilian throats from the lynch mob's noose. How will you escape debt? Well that depends on how much Silver and Gold you own. It's being telecast everywhere. If you don't pick up on it you will stay in debt becuase you are not one of the ones the Fed is worried about. You won't do anything to protect yourself now so why should you ever do anything to put yourself in danger? Revolt with the others? Ha!!!! Nay you say, read this article by Howard Katz and see what kind of images it conjures up.
On to the article......
"Why The Fed is Depreciating the Currency", by Howard Katz.
Monday, July 6, 2009
This is exactly one of the reasons why I stopped investing and went to the metals for solace and refuge.
Read the latest outrage from Alternet regarding the new trading rules on the NYSE. And yes, Goldman Sachs is involved.