Source:Gold Prices Soar on Dollar Drop (TheStreet.com)

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Plastic Rap
Bankrate.com (blog)
Consumers can submit a variety of coins, including American Eagles, Austrian Philharmonics and South African Krugerrands. Silver says a minimum deposit …

Source:Plastic Rap – Bankrate.com (blog)

Panning for nuggets of Gold Mining and other mineral production insight, however, is getting ever harder says Kaiser Bottom-Fish Report editor John Kaiser, interviewed here by the Gold Report on the last day of March 2010’s PDAC conference.

The Gold Report: You’re a long-time participant in the annual PDAC convention. Any compelling stories or particularly interesting tidbits that you learned this year?

John Kaiser: In the past few of the 20 years I’ve been going to this conference – and this year is no exception – it has become increasing difficult to pick up any prominent buzz, be it about a sector being red hot or be it about a major new discovery.

TGR: Why do you suppose that’s happening?

John Kaiser: The reason is simple; this conference has become so big, so global. What in 1994 would have been the big Voisey’s Bay’s buzz that everybody was talking about or Bre-X in the following year, even if something like this did come along now, the collective size of 400 companies exhibiting would dwarf it. There are several hundred trade show exhibitors; numerous talks covering everything from country-focused issues to deposit models to new discoveries and so on. It’s very difficult for any single thing to stick out.

Even worse, because it is now so large and dispersed, you do not have that intensity of networking of the past, the random networking where you would bump into people you hadn’t seen for a long time and hear about this or that. By the end of the conference you had all these bits and pieces gelling in your head and you could say, "Oh, yeah, this was what was interesting." No, now it’s the more you know in advance what you’re looking for; you make the sessions; you track down those companies, and you have the face-to-face you planned with these. So, the old aspect of serendipity of bumping into stuff and stuff floating to the surface just does not happen in this environment.

TGR: Did you have any specific goals for your newsletter or your personal business that you were able to accomplish at the conference?

John Kaiser: I always take in the commodity talks on Sunday. This year I found that very helpful, and one theme that did emerge is the growing role of hard assets as a target for managed money. Martin Murenbeeld [of DundeeWealth Economics] emphasized that $40 trillion of about $117 trillion worth of financial assets in the world is so-called managed money. In other words, fund managers are running one-third of it. And of this $40 trillion, only about $200 billion is in what you would call hard assets such as gold, silver, copper, commodity ETFs, futures…the sorts of instruments linked to raw materials.

Martin suggests that the trend is going from this relatively small sum to nearly $1.3 trillion; in other words, 3% of the managed money going into this category. Should this happen, there’s nowhere near enough Gold at the current prices.

In another talk on copper, a similar theme was raised. When you look at a 50-year chart, copper has historically followed this pattern when inventories in the warehouses build up – which is usually during a business cycle downturn such as we’ve just been in – the price of the commodity collapses along with it until all the inventories have been drawn down. And then they spike upwards.

After the spike downwards in 2008, copper prices are back almost where they were before the collapse. Warehouse levels – while not as bad as they were at the end of the ’90s when inventories were very high and copper was at 60 cents – are about halfway there. Yet we have the higher inventories and higher prices tracking each other. The analysts are attributing this to the movement of investor capital into these hard assets that Martin was talking about, and they say that the inventories aren’t just stuff parked in the warehouse because there’s nobody to buy it. Instead, it’s already allocated to investors speculating on higher prices down the road or even treating it as a hedge against a debasement of the currencies and so on.

TGR: So we’re seeing that kind of growth not just in the precious metals space, but also in base metals. Did anybody address the idea of that kind of big money investment or fund investment in other metals besides even just base metals and Gold?

John Kaiser: Yes, for example, nickel is really not supposed to be back at $9 because the old pig-iron nickel, which helped bring nickel back down from the $22 levels, was working at $11 and $12. Now they’re able to make it work at $7 and $8, so there’s plenty of nickel supply coming into the system. Still, nickel has managed to climb back to $9, while inventories are very, very healthy.

TGR: So it’s affecting copper, nickel and Gold.

John Kaiser: We are seeing it in all the categories. Even zinc, which is in surplus this year and is supposed to say in surplus next year, but then is expected to go into deficit. At that point, suddenly demand is greater than the supply. It is a $1 or higher and has bounced back significantly from the low reached during the 2008 meltdown.

TGR: Did you observe a lot of activity at the conference that you hadn’t seen before, with fund managers sniffing around for compelling plays to work in what you’re basically describing as a groundswell of money being diverted into these hard assets?

John Kaiser: I polled exhibitors as to what kind of traffic they were getting, and yes, they are receiving a lot of inquiries. They’re coming from a range of sources, from the traditional European and North American institutional fund managers to a lot of overseas Asian-style managers. Of course, there’s also interest from the end-user crowd.

A big theme has been China’s movement to convert some of its foreign reserves into hard assets in terms of ownership of physical deposits. That’s why we have seen buyouts and significant investments or large equity stakes in a number of important projects stranded during the 2008 meltdown. That was the nature of feedback I got from exhibitors.

TGR: Do you then anticipate more of the global relationships blossoming and developing as we saw last year with a major Asian investor – actually Japanese rather than Chinese – coming in as a strategic partner with a North American company?

John Kaiser: There was no irrational exuberance at all at this conference. In fact, it’s a bit like a teeter-totter poised to go either way. There is hope that China will pull the global economy back on track and reinvigorate Europe and the United States. On the other hand, there also is concern that this will fall apart, and that as the fiscal stimulus packages come to an end interest rates start to rise that we will see a double dip recession in the North American markets. And if that happens to coincide with a problem in China, which has been going hell-bent at an incredible pace thanks to its $585 billion fiscal stimulus program, there is concern that his could end very badly.

So we are almost in the eye of a hurricane, and everybody’s wondering where we will be next year.

TGR: Which way are you leaning?

John Kaiser: My own feeling is that if we come out of this with the global economy back on track and the disparate signs of life that we see in the North American economy are actually more than just flickers, next year we should see the super-cycle that dominated the talk at this conference from ‘03 to ‘08. This time it will be taken seriously, and massive amounts of money will flow into the sector. But as I say, it all hinges now on where the global economy goes.

TGR: In that context, it’s interesting to see a lot of the money still going into the hard assets as we wait for the global economy to recover.

John Kaiser: We may have to stumble for a couple of years; in which case commodity prices will sag. But if that happens, all the talk about fiscal austerity and so on will go out the window. Every nation in the world will start to print money to reflate their economy and through brute force get liquidity in the economy going again.

And when that happens, because of the conservatism that on the mining side – the supply response – there is now money ahead of that curve saying, "Okay, we don’t really need to buy copper right now. We need to buy a copper development story and put up the capital and give them the money to push it closer to the feasibility stage. Then, when we have greater clarity on the direction of the economy, we plunk down the billion dollars or whatever is needed to put this asset into production."

That’s actually a very bullish sign for the companies exhibiting at the conference because it’s a shift away from just, say, buying physical gold to buying the ounce-in-the-ground companies. Pierre Lassonde, in his talk ("Is $1,000 Gold Sugar Coating Peak Gold?"), had an interesting chart that plotted the average cost per ounce, which had been rising steadily for the past two decades. But in the last year, that cost per ounce flattened even as the price per ounce of gold went up significantly. Now, what he’s saying is that a real margin is reappearing. It’s not as if the companies are finding higher-grade deposits; they are not. They have simply been able to contain costs in the aftermath of this meltdown.

TGR: What made that possible?

John Kaiser: This meltdown was very different from past economic busts because the industry had spent the entire cycle worrying that this would happen. As a result, when it finally did happen, their supply response was immediate. They cut marginal operations; they laid off people; they stopped it on a dime. This has made the cost structure quite robust, and the producers are set to benefit significantly if the metal prices stay where they are and/or perhaps go even higher.

For investors seeking larger returns, these development projects look quite good at these current prices in terms of ounces or pounds in the ground, but the companies are not reflecting valuations that take these prices seriously. These types of projects are attracting capital on the basis of speculation that today’s higher commodity prices stay and go higher in the long run.

TGR: Bargain shopping.

John Kaiser: In a sense, but it’s speculative bargain shopping. It’s speculating that your particular Beanie Baby that is cheap now is going to be very dear three or four years from now.

TGR: That takes us back to what, the ’90s? Back to the future now, what else caught your eye at the PDAC this year?

John Kaiser: I was checking out the rare earth space. Quite a few of the rare earth companies were represented, there were several rare earth receptions and a whole morning devoted to talks about the rare earth deposits, geology, market and so on. These were surprisingly well attended for a Wednesday morning, when traditionally 90% of the delegates are still in bed. So that is actually a pretty good indicator of the interest in this space.

Particularly with the assistance of one of the stocks listed going up during the days of the conference, I would say that the rare earth space is probably on the threshold of achieving a whole new level of serious attention from investors.

TGR: Any companies in that space that you find particularly interesting?

John Kaiser: The interest has been a lot of talk and a lot of tire-kicking, but not really a lot of money going into the treasury. This may change in the not-too-distant future, though.

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Source:"Nowhere Near Enough Gold"

At the time, US job losses were running in excess of 700,000 per month, and fear was rife that the US banking system was on the verge of being nationalized. American factories and miners were using 68% of industrial capacity, the lowest level since records began in 1948. Corporate profits fell sharply for the seventh consecutive quarter, the longest losing streak since the 1930s. The second coming of the "Great Depression" looked imminent.

In a final act of desperation to stop the carnage, the infamous "Plunge Protection Team" – the nickname given in the 1980s to the President’s Working Group on financial markets – unleashed the most powerful weapons in its arsenal, resorting to accounting gimmickry and nuclear Quantitative Easing.

Injecting $1.75 trillion into the coffers of the Wall Street oligarchs, the PPT sought to turn the bearish tide. Bankers were set free of mark-to-market accounting, and instead, were allowed to value their toxic assets at "mark-to-make-believe" prices, leading to a strong recovery in the financial sector.

Over the course of the next four-weeks, the Dow Jones Industrials climbed 1,500 points to close at 8,083 on April 9th, 2009. Still, there was great skepticism about the sustainability of the so-called "green-shoots" rally, the third such rally since the horrific crash of Sept-October 2008 that followed the default of Lehman Brothers and the bailout of American International Group (AIG).

Before hitting the ultimate bottom at 6,500, previous Dow rallies ended as "bear traps" that fizzled out before the market turned sharply lower again. There was a 1,500-point run-up during the week that culminated in the election of Barack Obama as US president, after which the Dow lost 2,000 points over the next three weeks.

The Dow Industrials staged another 1,500-point gain in December, triggered by Obama’s selection of Wall Street favorite Timothy Geithner as Treasury chief, before plunging 2,500 points during the first two months of 2009.

Since the Dow Industrials hit rock-bottom on 9 March 2009, US stocks have staged a $5.3 trillion recovery, one of the very biggest percentage gains since the Great Depression.

When viewed through the prism of Gold Bullion, however – and thus measured in "hard money" terms – one can see that the performance of the Dow Jones Industrials was less than stellar. The blue-chip indicator has been locked within a narrow trading band for the past 11 months, fluctuating on both sides of 9.5 ounces of gold since April 2009. (Learn more about the Dow/Gold Ratio here…)

The "green shoots" rally is, therefore, an optical illusion, simply reflecting the side-effects of the Fed’s hallucinogenic "quantitative easing" drug. Utilizing the chart above, one could argue that the value of the Dow Industrials is artificially inflated by about 2,500 points, engineered by the Fed’s monetization scheme and ultra-low interest rates. An ocean of liquidity is buoying the Dow Industrials above the 10,000-level, designed by the PPT to bolster household confidence, since the valuations of 401k retirement funds and investor portfolios can influence the propensity to spend.

Still, there are huge worries about unrelenting job losses, multi-trillion Dollar budget deficits for years to come, and the "Volcker rule", which could put the shackles on the Wall Street oligarchs, and force the liquidation of widely held stocks and commodities. But for now, the market’s climb above the 10,000-level means the possibility of a "double-dip" recession is more remote, and instead, trying to short-sell stock indexes, is like trying to push a helium balloon under water.

The broader-based S&P 500 Index of US stocks has rocketed 62% higher over the past year, a gain that would normally take five years to realize on modern trends.

The speed and strength of the stock market’s recovery caught many bond traders off-guard, and knocked US Treasuries for their worst annual losses since 1978. Most notably, the yield curve – the gap between short-term interest rates and longer-term government bond yields – rose to its widest level ever. The spread between yields on the Treasury’s 30-year bond compared to the one-year T-bill rate hit 440-basis points in December, the widest in history.

Traders reckon that the size of the US national debt – now exceeding $12.3 trillion – is weighing on bond prices, and a huge avalanche of debt still lies ahead. The Treasury is expected to issue $1.6 trillion in new debt in 2010, and $1.3 trillion the following year. Chinese central banker Zhu Min has warned it would become more difficult for foreigners to buy Treasuries when the US government has to fund its deficit by printing more Dollars. China slashed its holdings of Treasury securities by $34.2 billion in December, after months of complaining about the Fed’s Quantitative Easing scheme.

The extreme widening of the yield curve also reflects expectations that in the next phase of the Fed’s interest rate cycle, the central bank would be lifting short-term interest rates to contain an outbreak of inflation.

"When you have zero rates that go on indefinitely, you are inviting future problems," warned Kansas City Fed chief Hoenig on March 2nd. "Maintaining excessively low interest rates for a lengthy period runs the risk of creating new kinds of asset misallocations, more volatile and higher long-run inflation," Honeig said on Jan 7th.

However, the Fed is sending multiple messages to the media, that it’s determined to hold the fed funds rate steady at 0.25% through the remainder of this year. "Even though the recession appears to be over, it does not mean that we are where we want to be. Even with my moderate growth forecast, the economy will be operating well below its potential for several years," said San Francisco Fed chief Janet Yellen on Feb 22nd.

"If it were positive to take interest rates into negative territory I would be voting for that," she told reporters.

The Obama administration hailed the latest employment report, which showed a smaller-than expected loss of 36,000 jobs – and the 25th monthly decline in net jobs in the last 26 months – as a vindication of its economic policies.

For its part, the Dow Jones Industrials roared above the 10,500 level, buoyed by the "exploitation of labor" that is still widening company profits. So far then, the recovery in the economy has been limited to Wall Street’s oligarchs and S&P multi-nationals, which are profiting from trillions in taxpayer bailouts, virtually unlimited and cheap credit, exports to growing emerging markets, and the use of mass unemployment to slash the wages of Americans working in the service sector, which accounts for 85% of the US economy.

Meanwhile, top Wall Street firms paid their employees a record $145 billion in compensation last year, while social programs for the elderly, such as Medicaid and Medicare are being slashed, and millions of other jobs wiped out. The banking oligarchs, whose greed and speculation caused the crisis, refuse to expand lending to the private sector, but instead utilize zero-percent funds at their disposal to gamble in the markets, and all with the backing of government-financed guarantees.

Stock market rallies often climb along a "wall of worry". Yet despite persistent fears of a relapse into a "double-dip" recession, the most amazing aspect of the "Green Shoots" rally is the upward parabolic trajectory, was punctuated by only two brief corrections that barely caused a dent in the year-long bull market. The first correction in June 2009 was triggered by a sharp rise in 10-year Treasury yields to as high as the psychological 4-percent level. Yields have subsequently tumbled to 3.70%, far out of danger’s way, as far as market bulls are concerned.

The second correction, in January 2010, was triggered by China’s surprising hike in bank reserve ratios, plus Obama’s backing for the "Volcker rule" – banning risky trading by Wall Street Oligarchs – and a surge in crude oil prices above $80 per barrel.

However, Plunge Protection officials quickly put a safety net under the stock market, by promising to leave the Fed’s $2.2 trillion balance sheet untouched, and to maintain zero-percent borrowing costs for the biggest banks, for the rest of the year.

Thus, the Wall Street Oligarchs were able to return to the gambling table and re-engage in the most hazardous and riskiest forms of speculation. However, one of the consequences of the Fed’s ultra-easy money policies is a surge in crude oil prices above $80 per barrel, further reducing the purchasing power of Americans’ shrinking wages. And now that oil prices have latched onto the stock market’s joy ride, any attempt by the PPT to catapult the S&P Index rally above the January highs runs the risk of jettisoning crude oil into the $85-to-$90 region.

On March 10th, Saudi Arabia’s deputy oil minister, Prince Abdulaziz bin Salman, told reporters that a oil price of around $70-to-$80 per barrel was a satisfactory price for energy companies to invest in oil production capacity, and low enough for consumers that burn the fuel. Saudi Arabia, the Opec oil cartel’s largest producer, has shouldered most of the 4.2 million barrels-per-day of supply cuts adopted in late-2008. However, compliance to Opec’s output quotas, outside of the Saudis, Kuwait and the UAE, has fallen to 53%, which means the cartel is cheating by 2 million bpd.

"Energy demand is likely to continue to grow, led by rising consumption in Asia and the Middle East," bin Salman said, and the US Energy Information Agency predicts it could grow by 1.5 million bpd this year.

China, the world’s second largest oil guzzler, meantime imported 4.8 million bpd in February, the second highest tally on record. If oil prices surge to $90 per barrel – with "carry trade" speculators bidding-up prices using zero-per-cent loans from the US central bank – Riyadh could quietly increase its oil output without much fanfare to cool the market, or China’s central bank might be forced into tightening its monetary policy again.

Surging oil prices could thus ignite an "Oil Shock" for the global economy, and the Plunge Protection Team would be forced into action again, intervening in the stock index futures markets in order to limit the fallout. The PPT could also instruct the Fed to buy more T-bonds, so as to prevent yields from rising higher due to inflationary pressures emerging in the commodities markets.

And at that point, "hot-money" flows could once again pour into the precious metals markets, sending Gold Prices to record heights.

China’s manufacturing exports are growing again, up 45% from a year ago, and "hot-money" inflows are rising, adding to the pool of cash sloshing about the Chinese economy.

China’s stash of foreign exchange reserves has mushroomed to $2.4 trillion. And at the same time, in order to keep the Yuan tightly pegged to the US Dollar, the People’s Bank is buying vast quantities of US Dollars, Euros and Yen for its FX reserves, simultaneously printing equal amounts of Chinese Yuan to buy those currencies off local export companies, thus blowing bubbles in the Shanghai commodities pits and buoying the gold market.

Beijing is nurturing fertile ground for the Shanghai gold market, which has already risen 54% against the Yuan since the central bank opened the money spigots in November 2008. Gold demand in China grew by 14% to around 450 tonnes in 2009, outstripping 315 tonnes of supply. Speculation is rife that Beijing is Buying Gold from state-owned miners to avoid sending the international open-market price sharply higher.

Beijing has several "ideas and tool kits to manage inflationary expectations," warned Liu Mingkang, chief of the China Banking Regulatory Commission, on March 9th.

"Don’t get into too much of a panic or be afraid about inflation. China’s consumer and producer price index may rise slightly, but there’s only a small chance that inflation will be more than moderate," he said.

China’s consumer inflation rate surged to 2.7% in February, and factory-gate inflation surged to 5.4% last month. Thus, China’s inflation rate now exceeds the 2.25% interest rate on 12-month certificates of deposit, encouraging savers to withdraw their cash from banks and Buy Gold bars.

With food and energy accounting for half of China’s consumer price basket, soaring commodity prices are a ticking time bomb for social unrest. Yet Beijing is loath to further tighten its monetary policy, for fear of undermining the Shanghai stock market…

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Source:Gold & the Dow's "Optical Illusion"