Where are Gold and Silver going? More reading of the tea leaves

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Jim H's picture
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Where are Gold and Silver going? More reading of the tea leaves

Because the spot price is highly manipulated... it is hard to use anything but a very long term chart as a guide to where Gold (and Silver) price is going.  I am starting this thread because I read something that really stunned me today... anecdotal, yet from a reliable source (John Rubino, MBA Finance NYU, ex-Wall Street) this single sentence really captured my attention.  Maybe it's my vocation as an analytical chemist that causes me to be such a collector of information... it's very seldom in lab work that one method tells you everything you need or want to know about a sample... rather you build out the ID... the nature of the sample.. as you add data.  Similary, I think we need to find as many data sources as we can to continue to convince ourselves that the supply vs. demand situation is much more dire than the price action would have us believe.  If you run across such data.. I would appreciate if you could post it here.  Without further ado, here is the quote;

source:  http://dollarcollapse.com/precious-metals/tom-cloud-wholesale-gold-inven...

DollarCollapse: Good to talk to you again Tom. Let’s start with your observation that the major gold wholesalers don’t seem to have their usual level of inventory. Why the sudden tightness?

Tom Cloud: Of the seven or eight major wholesalers that send me price sheets, almost every one is having supply issues. Some [coins and bars] I can get right away, but most take between a few days and two weeks.

The wholesalers don’t necessarily know why this is, but some speculate that the 58 tons that China’s central bank purchased in September was responsible, and that [the Chinese] purchased at least that much more in October. When a big seller elects to sell something they don’t even put it in the market any more, they just call up China’s central bank, and we see the report four weeks later, if we see it at all.

And it’s not just China. Central banks in general are buying. Until 2011 central banks were selling gold but in the last two years hardly any are selling and many are buying. I’ve been doing this for 35 years and last month made my first sale to a central bank.

Did you catch that at the end there?  A US coin dealer was offered US dollars, by a (what I assume to be foreign) Central Bank.  Let's think this through, especially in light of the content in the reserve currency discussion thread that Doug started two days ago.  A central bank.. I don't care how small a country we may be talking about... a central bank is now competing with you and me for the available supply of coins and bars at a US retail coin shop.  WOW.  It won't take too many central banks making the same play before physical Gold becomes unavailable.

Did I mention that Japan added their latest salvo to the worldwide printfest today? 

source:  http://www.bbc.co.uk/news/business-20551432

Japanese lawmakers approved another stimulus package to revive growth, as the flagging economy becomes a key issue in the upcoming general election.

The money, totalling 880bn yen ($10.7bn; £6.7bn), will be used mainly to create employment and support small businesses, the cabinet said.

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Shocking

That's shocking to me to Jim.  Thanks for sharing.  Now my wheels are really turning.

I'm amazed the efforts to suppress the spot price are still so effective considering the immense buying pressure.  For now, every cent I get goes into gold.

Tom

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Price suppression via paper gold markets

Here's a perspective on how it's done.

http://www.zerohedge.com/news/2012-11-30/gold-and-potential-dollar-endga...

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Thanks Jim

Thanks for starting this thread.  It gives us an opportunity to take a look at gold and our reserve currency status in one place.  I've been doing a little surfing and have found some interesting info.

First, thanks to thc (hey, you're legal in Wash. State now) for the "gold and potential dollar endgame" article.  It started me on a mini-quest to find out more about China's apparent loss of interest in US debt and coincident binge of gold buying.  I haven't seen the two subjects discussed together, but have suspected for a while now that there is some big trouble for the US at the juncture of the two.  My dark suspicions are at least partially reinforced by this article:

http://www.resourceinvestor.com/2012/11/20/chinas-golden-plan

Quote:
When it comes to their economic future, China’s holdings of US debt and their covert gold investment program are two commonly discussed areas of China’s financial arrangements.

(I didn't realize it was commonly discussed, where have I been?)

Quote:
China has benefited hugely from crass, loose monetary policies in the West, most undoubtedly from the US from whom China holds over $1 trillion worth of debt. But they have been clever, not only do they hold the world’s biggest currency manipulators by the cajones, but they are also stocking up for when the US really screw up their currency.

Vendor financing is all good until the buyer/borrow’s debts get too big and interest burdens cripple their ability to keep participating.

The Chinese are wisely cutting down on US debt and they are buying gold.  (bold mine)

Holding the Stars & Stripes

With or without gold, Beijing has big plans for reforming the monetary system. They have been busy encouraging the use of the yuan in cross border transactions. This is not just to reduce transaction costs for trading partners, it has more strategic effects. Namely to reduce the ‘exorbitant privilege’ enjoyed by the US as a result of running the world’s reserve currency and favorable post-war economic conditions over 40 years.

Quote:
Earlier in the summer (2011) Reuters viewed documents which showed the PBoC had been given direct a computer link, by the US Treasury, to buy US debt in June 2011 as opposed to going via Wall Street.

But something else started happening in June 2011, China began to reduce its holdings of US Treasuries and has been doing so ever since; last month there appeared to be little buying interest at all with Japan’s US Treasury holdings set to overtake China’s.

Quote:

China are no longer as concerned with holding US debt as they once were, China has been fed up with the US’ treatment of the dollar for some time, their enthusiastic purchase of US debt in the past is the only reason the US has been able to keep going for so long. As the Communist country develops its infrastructure, education and industry a cheap yuan is no longer the only way to increase growth.

The reduction in US Treasury holdings by China is one of many on-going moves by Beijing to make their own and the international monetary system more stable and competitive.

Beat the Dollar with Gold Investment

Whilst demand for most commodities in China has been sapped somewhat thanks to the global slowdown, the same cannot be said for gold. And it is at the forefront of financial change in China.  In 2011, gold demand in China increased by 20% and accounted for 21% of global demand according to the World Gold Council. In the first half of this year the country overtook India as the world’s biggest gold consumer – with expectations that China will increasingly gap India as a gold buyer.

Quote:
Last week, as part of the fanfare around the Chinese Communist Party Congress the government announced it aims to double income per capita by 2020 from 2010 levels. This is likely to only be achieved by pursuing fiscal and monetary actions which may help growth and income in the short term, but in the long term will be highly supportive of precious metal prices and demand.

Alongside this increased income the government are also making it easier for citizens to invest in gold.

Eight years ago the PBoC Governor laid out a plan to integrate gold into the financial system. This was reiterated in Monday’s speech by the current general director of China’s central bank who reminded the audience of the ‘very important’ role played by gold in the formation of the financial market system.

Next month, the Shanghai Gold Exchange will launch an interbank market which will start with spot contracts before gradually offering forward contracts. On a more accessible level major Chinese banks allow investors to contribute a small amount of money each month in order to gradual accumulate gold and silver month by month. Eventually the investor is able to take physical delivery.

The International Gold-Backed Yuan

Much of the chatter since the LBMA conference this week has been around China’s desire to increase its gold reserves to levels similar to the US’. With levels of only 2% compared to the US’s 75%, the country will have a long way to go. If this is what they’re doing (it is) then who can blame them for keeping it quiet (they haven’t disclosed details on gold holdings since 2009). It would not be in their interest to announce a desire to buy a few thousand tonnes of gold, it would send the price of gold sky high and the value of  those US dollar denominated US treasuries into a black hole.

Quote:
China seems to be firmly on the path to global power, and they are working hard to make sure that path is paved with golden economic stability. They have achieved what they wanted to and they are now investing in gold, fully aware of the sharp edge Western economies are currently balancing on. Whether this results in an international reserve currency system, who can tell, but whatever happens China seem to be getting a better understanding of where to put their wealth compared to the rest of us.

Wouldn't it be interesting if the second largest economy on earth backs its currency with gold?  Is it any wonder that other CBs (excluding ours of course) have been buying gold?  It all seems to fit.

(somehow I wound up with quotes within quotes and can't seem to fix it, sorry)

Doug

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On China, and where Gold is now...

Doug said (highlight mine),

Wouldn't it be interesting if the second largest economy on earth backs its currency with gold?  Is it any wonder that other CBs (excluding ours of course) have been buying gold?  It all seems to fit.

I had posted this elsewhere.. but will repost here - a linear projection of current China growth and US shrinkage as a percentage of Global GDP yields the following;

source:  http://www.zerohedge.com/news/2012-11-28/cost-kidding-yourself

http://acrossthestreetnet.files.wordpress.com/2012/11/new-world-order.png

Who's got the power?  Who are the debtor nations? 

So China is a growing economic power.. and they are accumulating Gold, which is one of the important dynamics to be aware of. 

I am personally more interested in the signposts leading up to a revaluation of Gold based on true supply vs. demand.  I believe this event is coming, and I believe that if you don't have your position in Gold (and Silver) and miners before this event happens, you will be hardpressed to build one after the fact.  These signposts will be testimony to a lack of physical Gold available in the system... they will be testimony to the final failure of the many mechanisms in place now to mask the true supply vs. demand dynamics.  

Here is a comment by Harvey Organ in today's post;

source:  http://harveyorgan.blogspot.com/

The CME reported that we had only   71 notices  filed  for 7100 oz of gold on first day notice for December delivery month. The total number of notices filed so far this month is thus 71 notices or 7100 oz of gold. To obtain what will stand for December, we take the open interest standing for December (6999) and subtract out Friday's notices (71) which leaves us with 6928 contracts or 692,800 oz of gold.

Thus the total number of gold ounces standing for delivery in December  is as follows:

7,100 oz (served)  + 692,800 oz (to be served upon)  =  699,900 oz  (21.77  tonnes of gold).

As a point of interest this is perhaps the tiniest of notices filed for a first day delivery in a huge delivery month like December. It looks like the bankers are having troubles finding the necessary physical.

  

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Yes Jim, that is indeed a

Yes Jim, that is indeed a remarkable quote.  Do as the Central Banks do, not what they say.

BOB

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purchase/delivery lag up here too

A short time ago I put in an order for some silver bullion from Scotiabank, the main Canadian bullion dealer. It took almost a month to be delivered to me. I was concerned enough to call them to follow up and see what the scoop was and why it was taking so long. They did not have any answer. It was not a large order by any means... so that kind of ties in with what is being discussed here on this thread. If the average person has to start competing with sovereign central banks for bullion purchases, then make haste people. That is pretty heavy competition for ever decreasing supplies.

Jan

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Perspective from a (retail) gold bullion dealer

I asked a seasoned retail gold & silver dealer his opinion on the above. Here's his response:

The main reason some product, i.e., swiss PAMP bars, have dried up in the past few weeks is that the main USA distributor's/importer's NYC vaults & underground offices were flooded by Sandy. The clean up is still going on. New product is being shipped next week from a new location. Pandas are unavailable because the 2012 are done, sold out, and the 2013 a few weeks away.
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Buzzkill

Thanks a lot Adam. Just getting ready to retire and you had to find an explanation. angry

SS

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What is real?

Adam, I don't doubt what the dealer was told. 

The CME quickly declared force majeure when the Manfra (MTB) vault in NYC flooded... but they also said that this would not lead to any problems in Comex deliveries.  

source:  http://www.cnbc.com/id/49972188/Superstorm_Sandy_Floods_Gold_Vault_in_Ma...

Monday, the CME declared force majeure at a precious metals depository in New York, Manfra, Tordella and Brookes (“MTB”) effective immediately. This depository is one of five locations listed by the CME for the warehousing of physical gold.

“We moved the inventory after the vaults had flooded,” says MTB CEO Raymond Nessim.  We had water in the vaults but, “all inventory is intact and in good shape.”

MTB has relocated its inventory to a Brink’s depository near John F. Kennedy International Airport (“JFK”) according to Nessim.

The more conspiracy-minded among us might think that the CME wanted to have this excuse of force majeure at the ready in case they got caught with more December deliveries than they could handle.. .luckily though,  the bullion bank manipulation was successful in scaring away many potential December contract holders from getting delivery of actual, physical metal;

source:  http://truthingold.blogspot.com/2012/11/the-unmistakable-sign-of-illegal...

Wednesday right after the Comex opened, a total of 35,000 gold contracts were sold almost at once, with one order reported to be nearly 8100 contracts.  This is roughly 104 tonnes and 24 tonnes respectively.  It caused a "cliff-dive" in the price of gold/silver that was not cross-correlated with any other commodity market or equity/fixed income index. Why would someone, using paper, sell so recklessly and abruptly like this, flooding the market with an inordinately heavy supply of paper "gold."

and concluding;

Finally, the open interest in the December gold and silver front-month contracts has persisted at an unusually high level relative to the fact that today is first-notice day for December.  This means that any account that is long contracts is legally entitled to receive physical delivery of Comex gold bars from the counterparty who sold the contracts.  Usually the open interest starts declining starting a couple weeks before first notice as paper speculators either roll forward or exit the position.  But this time the open interest remained quite stubbornly high.

The success of this operation is evidenced by the fact that the uncharacteristically high open interest for the day before first notice of a little over 97,000 dropped precipitously by over 65,000 contracts. I can't recall seeing gold open interest this high the day before first notice or a percentage drop in open interest like this in one day. The 65,000 drop would cover the 35,000 contracts sold to trigger the raid plus account for 27.2k overall drop in open interest yesterday LINK.   From the standpoint of reducing the degree of delivery demand today, this illegal manipulation was a resounding success. There will come a time when it will fail...

While the gyrations at the Manfra vault could have led to some shipment delays, I don't think it explains much of what is going on in the physical Gold market ..  what is going on in the Gold market is that physical demand is slowly but surely outstripping supply, and as Dave says in the above quote, "there will come a time when it will fail".  We need only look at the US Mint's most recent AGE sales data to get further confirmation that this is about demand, not supply;

source: http://www.zerohedge.com/news/2012-12-01/chart-keeps-ben-bernanke-night

I remain secure in my conclusion that Gold is severly underpriced at present, and that the smoke signals of a commerical signal (delivery) failure are starting to become visible in the distance.... expect excuses like the flooded vault to be foisted on us in the meantime.       

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My $.02 worth.

http://www.zerohedge.com/news/2012-12-01/chart-keeps-ben-bernanke-night

BOB

OOPS! Jim beat me as usual, so good minds thinking alike?!

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Perhaps this is the reason
... I'm still waiting for my order to arrive.
 
Are there any dealers in the Midwest with decent prices where I can pick up in person?
 
I find large shipments through normal carriers nerve-wracking, especially when don't arrive in a timely fashion.
 
Les
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Ignore the noise or you will go deaf....

Quote:

Because the spot price is highly manipulated... it is hard to use anything but a very long term chart as a guide to where Gold (and Silver) price is going. 

The Daily and 233 minute charts gave you a fantastic downside trade (over $10) in gold from the first week of October to the first week in November.  Since the beginning of November there were two hugely profitable trade opportunities up and down.  Rather than try to focus on "where" gold is going, focus on trading opportunities as it's moving.

Quote:

Similary, I think we need to find as many data sources as we can to continue to convince ourselves that the supply vs. demand situation is much more dire than the price action would have us believe.  If you run across such data.. I would appreciate if you could post it here.

My choice is to focus on the price movement and entirely ignore multiple data sources that are trying to convince me "why" the price is moving a particular direction.  When you shoot at the whole covey of quail when they flush, you NEVER hit them.  When you focus on one, and do the same thing over and over again, you rarely miss.  Trade in the direction of the movement.  Ignore the noise.  Put option trade profits are just as good as Call option trade profits - and you don't have to get your bowels in an uproar over being green market biased and "why" something is moving in one direction or another.

You've all heard this before.  Nobody listens.

Good luck.......

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@ Dogs

Put option trade profits are just as good as Call option trade profits - and you don't have to get your bowels in an uproar over being green market biased and "why" something is moving in one direction or another.

Oprions were and still are a mystery to me.  I spent months trying to figure out how far in or out of the money I should be with a trade.  I got fixated on the delta and .75 as being a sweet spot for  call options as far as time value is concerned.  The other thing I could never figure out was how far out in time I should go - one, three, six or LEAPS.

Any words of wisdom would be appreciated.

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Lnorris wrote:Oprions were

Lnorris wrote:

Oprions were and still are a mystery to me.  I spent months trying to figure out how far in or out of the money I should be with a trade.  I got fixated on the delta and .75 as being a sweet spot for  call options as far as time value is concerned.  The other thing I could never figure out was how far out in time I should go - one, three, six or LEAPS.

Any words of wisdom would be appreciated.

Lnorris -

Options aren't all that tricky if you follow some basic rules.  As a rule, I almost ALWAYS purchase at or in the money strike prices and on occasion one strike price out of the money if the underlying stock is very volatile.  That is one key to eliminating the impact of time decay.

When purchasing option contracts I ALWAYS purchase at least 5-6 months of time.  The combination of buying 5-6 months out in time and buying at or in the money strike prices greatly reduces time decay.

Of course, you have to watch the trade to make sure it starts moving in the direction you thought it was going to go.  No point in waiting around for it to start moving and allowing time decay to start.  If it doesn't start going in the direction you thought it was, close the trade, minimize your losses and move on.

LEAPs are a lot of fun because you can sell covered calls against them.  If you do that right you can take all of the basis price out of the LEAP and then start trading with the market's money.

Here's where options can get really fun.  If you see a trade setting up where you would buy call options, consider selling naked puts.  You get paid for selling the puts right away.  Then buy the calls.  As the price starts to go up, the value of the call options goes up and the value of the put options drops - which is precisely what you want it to do.  In this case time decay on the puts is your friend.  Close the calls when the upward move is over and buy back the puts at a much lower price than you sold them for to close the naked position.  Done properly, you make twice the amount of money on a single move in the underlying stock price.

Couple of other absolutes for my approach.  Never take a trade through the company's earnings report, and always close the position by Tuesday or Wednesday of the week of expiration Friday.  Don't try to stick around for a few nickels more - take your profit and close the position.

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Dogs is saying

"A bird in the hand is worth two missed bushes."

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How will precious metals help?

Helo everyone!  I was wondering how would investing is a precious metal like gold or silver help me in the following senario:  lets say today I bought $40k worth of silver ($33/ounce).  A year from today Silver hits $100/ounce, now my investmentn yielded $121,212.  My question is, why should i be very excited at this point, wouldn't everything else cost more as well?  My guess is the only benefit is that I don't actually make money, but simply not lose money either.  For the sake of the argument, if the silver hit $1500 instead and now  my money is almost $1,800,000!!  Should I be excited because now I have almost $2 mil or because my  money is keeping up with the skyrocket price of everything ese, the most basic necessities of life if you would?  You take would be much appreciated! 

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It's better than holding $40k

It's better than holding $40k in cash that is being devalued on a daily basis.  We're at a point where you should be more interested in return of capital than return on capital.

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I read the same article

I read that article also.  Gold/Silver - a good question.  I have been picking up some silver us mint rounds here and there over the last year.  The slam down was amazing and I believe the gold/silver markets have been manipulated.  There is a lot of evidence to this effect.  Governments and central banks do not want a run on precious metals and they do not want people to start to think they are real money.  China has been using a bunch of their excess foreign reserves to buy a lot of gold.  Why ?  Why not ?  I am sure they would very much like to move their currency into wider global use in trade.

The US Federal Government is on an out of control spending spree and does not seem to be able to stop.  The Federal Reserve is buying all the US Fed Gov debt instruments the rest of the world will not buy.  If this continues for some time there will be serious trouble with the US dollar.  Then you will wish you had gold and silver.

I am not a doomsday type but it is starting to look like we are moving into a serious situation.

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Doug wrote: Thanks for

Doug wrote:

Thanks for starting this thread.  It gives us an opportunity to take a look at gold and our reserve currency status in one place.  I've been doing a little surfing and have found some interesting info.

First, thanks to thc (hey, you're legal in Wash. State now) for the "gold and potential dollar endgame" article.  It started me on a mini-quest to find out more about China's apparent loss of interest in US debt and coincident binge of gold buying.  I haven't seen the two subjects discussed together, but have suspected for a while now that there is some big trouble for the US at the juncture of the two.  My dark suspicions are at least partially reinforced by this article:

http://www.resourceinvestor.com/2012/11/20/chinas-golden-plan

Quote:
When it comes to their economic future, China’s holdings of US debt and their covert gold investment program are two commonly discussed areas of China’s financial arrangements.

(I didn't realize it was commonly discussed, where have I been?)

Quote:
China has benefited hugely from crass, loose monetary policies in the West, most undoubtedly from the US from whom China holds over $1 trillion worth of debt. But they have been clever, not only do they hold the world’s biggest currency manipulators by the cajones, but they are also stocking up for when the US really screw up their currency.

Vendor financing is all good until the buyer/borrow’s debts get too big and interest burdens cripple their ability to keep participating.

The Chinese are wisely cutting down on US debt and they are buying gold.  (bold mine)

Holding the Stars & Stripes

With or without gold, Beijing has big plans for reforming the monetary system. They have been busy encouraging the use of the yuan in cross border transactions. This is not just to reduce transaction costs for trading partners, it has more strategic effects. Namely to reduce the ‘exorbitant privilege’ enjoyed by the US as a result of running the world’s reserve currency and favorable post-war economic conditions over 40 years.

Quote:
Earlier in the summer (2011) Reuters viewed documents which showed the PBoC had been given direct a computer link, by the US Treasury, to buy US debt in June 2011 as opposed to going via Wall Street.

But something else started happening in June 2011, China began to reduce its holdings of US Treasuries and has been doing so ever since; last month there appeared to be little buying interest at all with Japan’s US Treasury holdings set to overtake China’s.

Quote:

China are no longer as concerned with holding US debt as they once were, China has been fed up with the US’ treatment of the dollar for some time, their enthusiastic purchase of US debt in the past is the only reason the US has been able to keep going for so long. As the Communist country develops its infrastructure, education and industry a cheap yuan is no longer the only way to increase growth.

The reduction in US Treasury holdings by China is one of many on-going moves by Beijing to make their own and the international monetary system more stable and competitive.

Beat the Dollar with Gold Investment

Whilst demand for most commodities in China has been sapped somewhat thanks to the global slowdown, the same cannot be said for gold. And it is at the forefront of financial change in China.  In 2011, gold demand in China increased by 20% and accounted for 21% of global demand according to the World Gold Council. In the first half of this year the country overtook India as the world’s biggest gold consumer – with expectations that China will increasingly gap India as a gold buyer.

Quote:
Last week, as part of the fanfare around the Chinese Communist Party Congress the government announced it aims to double income per capita by 2020 from 2010 levels. This is likely to only be achieved by pursuing fiscal and monetary actions which may help growth and income in the short term, but in the long term will be highly supportive of precious metal prices and demand.

Alongside this increased income the government are also making it easier for citizens to invest in gold.

Eight years ago the PBoC Governor laid out a plan to integrate gold into the financial system. This was reiterated in Monday’s speech by the current general director of China’s central bank who reminded the audience of the ‘very important’ role played by gold in the formation of the financial market system.

Next month, the Shanghai Gold Exchange will launch an interbank market which will start with spot contracts before gradually offering forward contracts. On a more accessible level major Chinese banks allow investors to contribute a small amount of money each month in order to gradual accumulate gold and silver month by month. Eventually the investor is able to take physical delivery.

The International Gold-Backed Yuan

Much of the chatter since the LBMA conference this week has been around China’s desire to increase its gold reserves to levels similar to the US’. With levels of only 2% compared to the US’s 75%, the country will have a long way to go. If this is what they’re doing (it is) then who can blame them for keeping it quiet (they haven’t disclosed details on gold holdings since 2009). It would not be in their interest to announce a desire to buy a few thousand tonnes of gold, it would send the price of gold sky high and the value of  those US dollar denominated US treasuries into a black hole.

Quote:
China seems to be firmly on the path to global power, and they are working hard to make sure that path is paved with golden economic stability. They have achieved what they wanted to and they are now investing in gold, fully aware of the sharp edge Western economies are currently balancing on. Whether this results in an international reserve currency system, who can tell, but whatever happens China seem to be getting a better understanding of where to put their wealth compared to the rest of us.

Wouldn't it be interesting if the second largest economy on earth backs its currency with gold?  Is it any wonder that other CBs (excluding ours of course) have been buying gold?  It all seems to fit.

(somehow I wound up with quotes within quotes and can't seem to fix it, sorry)

Doug

It is not possible for the second economy to get back its original place. Specially after the recession. The person who is really happy in this centuary is the one who sees gold, silver and stone with the same eye.

____

PPI Claims Made Simple

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industry fashion quite clearly does not consist purely.

industry fashion quite clearly does not consist purely of production of large companies taking advantage of clothing manufacturers. Huge number of decorative niche and artisanal producers are profitable too, so they do not do it?

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