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All paper currencies are considered ugly against Gold Bullion – the king of currencies…

TRYING TO PICK a winning trade in the foreign exchange market is similar to judging a "reverse beauty" contest, writes Gary Dorsch, editor of Global Money Trends.

In other words, one must be able to identify the least ugly currency among its peers, at any given moment in time. Because all paper currencies are considered to be ugly when compared to the "king of currencies" – Gold Bullion – since central bankers are apt to print vast quantities of fiat currency at the behest of government officials who have appointed them to run the printing presses.

"By this means, government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft," observed the late John Maynard Keynes, the father of modern macro-economics.

In the arcane world of foreign exchange, the old axiom that "the trend is your friend" is a very valuable piece of advice. Trends in currency pairs can extend for many months, or even years, often leading to double-digit returns. And while the Australian Dollar is among the most volatile of currencies, due to its tight linkages to base metals and other commodities – and so is now viewed as a global barometer for risk-taking – the Euro has also been exceptionally volatile this year, plunging by as much as 20% against the US Dollar.

Hitting a four-year low of $1.1875, the Euro fell on Europe’s festering debt troubles, giving traders flashbacks to the Lehman Bros bankruptcy, when paralyzed bank lending nearly triggered a global depression. Traders are now worried that European banks could face huge losses on some of the $1.3 trillion of loans extended to banks and private institutions in Greece, Spain, and Portugal.

The hysteria over the solvency of the Club-Med countries – Greece, Portugal and Spain – was whipped into a frenzy, with questions being asked about the long-term viability of the Euro itself.

There was speculation that the 11-year-old currency could collapse if Athens defaults on its debts and opts out of the Euro, in return for setting up its own central bank and regaining the ability to print Drachmas at will.

Concern quickly spread beyond a possible default by Greece, with Portuguese and Spanish bond yields also turning sharply higher. Private-sector debt in the Club-Med countries is a further worry, because when governments must pay more for financing, so must corporate and private borrowers. Sharply higher interests can deepen an economic downturn, and lead to more corporate defaults. And already, the 16-nation Eurozone’s M3 money supply measure has been stagnant for six months, with Eurozone bank loans to the private sector stalled at 0.3% growth from a year ago.

Analysts estimate that European banks have lent about €2.2 trillion to Greece, Spain, and Portugal, with about €567 billion plowed into government debt, €534bn to companies in the private sector, and €1trn to other banks. While Greece is the weakest debtor, much more was lent to Spain and its private sector, about €1.5trn, compared with Greece’s €338bn.

The European Central Bank estimates that the Eurozone’s largest banks will write-off €123bn (US$150bn) for bad loans this year, and an additional €105bn in 2011. According to the credit default swap markets (where debt-holders can insure their bonds against default by the issuing country), Greece is the most likely candidate to default. One-year CDS rates catapulted upwards to a record 1,325 basis points (bps) in April and June (equivalent to 13.25% of the bond’s value), after hovering around 80 bps last year.

In the foreign exchange market, the US Dollar index turned higher against the Euro, British Pound, Swiss Franc and other currencies (with the exception of the Japanese Yen), tracking the upward spike in Greek CDS rates.

The US Dollar, a heavily inflated and debt-ridden currency itself, was utilized as a temporary "safe haven" – a depository for scared money fleeing the uglier looking Euro. A violent shakeout in industrial commodities, triggered by the sharp slide in Shanghai’s red-chip stock market, also swept the Aussie and Canadian petro-Dollars lower.

The US Dollar index continued to surge higher towards the 88-level, tracking the Greek CDS market. At the same time, the US Dollar’s surge made American goods less competitively priced in world markets, meaning the US trade deficit widened to $42.3 billion in May, the highest level in 18 months.

The deficit with Europe rose to $6.2 billion as imports rose by 3.2%, outpacing a 1.9% rise in US exports to the single currency region. Still, the biggest "culprit" behind the widening US trade deficit was China. The US-Sino deficit jumped 15.4% in May to $22.3 billion, and now equals 53% of the total US shortfall.

Thus, the US Dollar’s most glaring overvaluation is against the Chinese Yuan, perhaps by as much as 40%. On a trade-weighted basis, the US-Dollar index looks increasingly vulnerable to a sustained decline. However, the primary driver behind the US Dollar index is capital flows into and out of global bonds and stocks, while trade flows generally have little influence.

European and International Monetary Fund officials took quick steps to guarantee Club-Med’s debts, unveiling a €750 billion lending facility for weaker nations to raise capital at affordable interest rates.

Teetering on the edge of default, Europe’s banking oligarchs thus averted catastrophe with another short-term fix. The latest bailout is a wealth transfer from taxpayers that flows directly to German, French and other foreign banks, which are creditors of Greek, Portuguese, and Spanish debt. Among the biggest winners are Banco Santander, BBVA, Société Générale, BNP Paribas, and Unicredit.

As part of the Euro-IMF rescue, Eurozone central banks – including the Bank of Italy, Bank of France, the Bank of Finland, the Slovenian central bank, and the German Bundesbank – started to buy government bonds on May 10th, reversing the ECB’s long-held resistance to full-scale asset purchases. ECB chief Jean "Tricky" Trichet gave no indication of how much the ECB’s agents were prepared to buy. Boosting its firepower further, the ECB restarted a US Dollar swap program with the Federal Reserve, in order to inject emergency US Dollar liquidity in the global money markets.

To date, the ECB’s efforts to contain the wildfire in the Greek and Spanish bond markets are starting to show signs of sustained success, and in turn, aiding the recovery of the Euro currency to $1.30 this week. The "shock-and-awe" effect of the rescue operation, initially drove yields on Greece’s 10-year bond sharply lower, from a record high of 17.35%, to as low as 7.43% in a single day!

Since then, Greek bond yields have drifted upwards, but are now contained within a narrow range between 10.50% and 11.50%. Greek CDS rates are still dangerously high, but have tapered off dramatically from that record 1,325 bps on June 30th, down to as low as 960 bps by mid-July and indicating much less fear of a Greek default or restructuring. Likewise, Spain’s 10-year bond yield has been capped at 5%, and Spanish CDS rates have also tumbled 80 bps in recent weeks.

Spain, however, remains the biggest ticking time bomb in the Eurozone. On the surface, Spain’s debt load appears manageable. Its government debt relative to gross domestic product is 54%, compared with 120% for Greece and 80% for Portugal. But Spain’s private sector debt is 178% of GDP, and it is heavily dependent upon fickle foreign investors for financing. Spain has €225bn in debt coming due this year, an amount that is about the size of Greece’s entire economy.

Following Standard & Poor’s decision to slash Greece’s debt rating to BB+ in May, otherwise known as "junk" status, the Euro began to cascade lower, losing 10% of its value in an orderly fashion, within five weeks time. The impetus for the Euro’s devaluation were heightened expectations that the ECB would unleash its nuclear option of "Quantitative Easing" (QE), or printing vast quantities of Euros on its electronic printing press in order to monetize the debt of the Eurozone’s biggest borrowers and delinquents.

The climax of the Euro’s selling spree was reached on June 4th, when it skidded below $1.20 after a spokesman for Hungarian prime minister Viktor Orban told reporters that Hungary’s public finances were in a much worse shape than previously thought, and said there was only a slim chance that Budapest could avoid a Greek-style scenario. However, as fate would have it, the deep-seated pessimism engulfing the beleaguered Euro would soon dissipate, as the ECB took remedial action.

Whereas the currency markets were bracing for the ECB to open up the floodgates of Euro liquidity – with massive purchases of bonds, similar to the actions of the Fed, Bank of England, and Bank of Japan – just the opposite began to happen.

"These purchases of bonds will be very limited. Their only goal is to restore the efficient functioning of bond markets and the monetary policy transmission mechanism. The liquidity which would be introduced, would again be sterilized," said Bundesbank chief Axel Weber, on May 10th.

Yet few traders trusted Weber’s vow at the time.

The ECB’s bond buying spree, which began with a flurry of €16.5 billion in the first week of operations, was whittled down to only €1bn in the week ended July 7th. Some top ECB policymakers are already hinting at an early end to the QE-scheme amid signs that Greek and Spanish bond markets are stabilizing. The ECB has bought a total of €60bn-worth of sovereign bonds so far, but has also drained €60bn in cash from the banking system by offering to pay 0.56% on one-week deposits held at the central bank – a move known as "sterilization" to offset any potentially inflationary risk from the bond-buying.

Amid signals that the ECB is winding down its QE-scheme by an earlier than expected date, short-term German Schatz bond yields have begun to shoot higher, climbing from a record low of 43 basis points on June 8th to 77 basis points one month later.

Schatz traders were pricing in the likelihood of a half-point ECB rate cut to 0.50% by year’s end, but now, that speculation looks far fetched. In a separate operation, the ECB drained €200bn out of the banking system on July 13th, lifting short-term interest rates higher in the open market, and giving an extra boost to the Euro currency.

Since the Euro hit bottom at $1.1875 on June 7th, the interest rate spreads between Germany’s benchmark 2-year Schatz and the US Treasury’s 2-year note have widened significantly in the Euro’s favor. Germany’s 2-year Schatz now yields 15 basis points more than comparable US Treasury notes, far higher than the minus 35 bps of a few weeks prior. The 50-basis point swing in favor of German Schatz yields lifted the Euro by roughly eleven US cents, taking it to a high of $1.30.

Another reason for the Euro’s recovery is that, while the ECB appears to be winding down its mini-QE campaign – and is sterilizing its bond-buying program by withdrawing equal sums of cash from the banking system – the Federal Reserve is now starting to send the opposite signals to the marketplace.

At the late-June meeting of the Fed’s policy board, the consensus opinion agreed that further policy stimulus (QE) might become appropriate, if the economic outlook were to worsen appreciably.

Long-term holders of Gold Bullion – the king of currencies – have suspected for quite some time that the Fed would eventually re-activate its nuclear QE weapon, in order to monetize Washington’s debts and those of state governments, which are going broke.

On July 13th, Boston Fed chief Eric Rosengren warned that the Fed hasn’t run out of ammunition just because the federal funds interest-rate is now at zero.

"There are several policy options if we think the economy is weaker than we would like," he said.

Rosengren added that he was nervous about the prospect of a deflationary spiral…

"The risk of deflation has gone up and is more of a risk than I would like to see at this point."

The prospect of more money printing by the Fed continues to buoy the Gold Bullion market, at least on the longer-term view. But in the short-term, a rebounding Euro, an up-tick in German Schatz yields, and a sizeable slide in Greek CDS rate, have all conspired to knock gold off its all-time highs.

Eurozone politicians are trying to refurbish the Euro’s stature, by adopting fiscal austerity measures to reduce their bloated budget deficits. At the same time, the ECB has begun to tweak its monetary policy, by jigging-up German Schatz rates and sterilizing its debt purchases. Looking ahead, the Euro could look less ugly compared to the US Dollar, especially if the Fed cranks up its money-printing operations.

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Source:The King & His "Beauties"

Gold-Silver Ratio rises to 70 as gold outperforms silver amid the "fiat currency" crisis…

WE HAULED OUT the "caution" flags in our Got Gold Report four weeks ago, writes Gene Arensberg in Houston, Texas, because of the ominous signals then showing in the data, charts and ratios we follow closely here at GotGoldReport.com.

The subtitle of that subscriber report said, "Rig for heavy weather and hope we don’t get it!" We then wondered whether "we [were] about to enter the eye of the storm or the eye wall itself…"

Since then the world has given us all a heavy dose of anxiety, precious little to be bullish about, and we all have seen even less from our political "leadership" which might cause even the hint of increased confidence in them.

About the only thing we have seen enough to be bullish about is Gold – because it is now so darn easy to be bearish of most all fiat currencies longer term and even more bearish of the poorly chosen elitist, vote-pandering, freedom-stealing, Big Government-loving narcissist cast and crew currently in charge in Washington.

As bad as that seems, we sense it is patently good for Gold Investment longer term, but everyone already knows what is in the news. Let’s look at what some of the indicators are telling us.

Looking at last week’s price action – and with the HUI index of gold and silver mining stocks running red – we have to note the extremely high Gold/Silver Ratio, now standing near 70. While gold turned in both a higher high and high low last week, silver could not answer. Short-term the table sends us a confused and more mixed up message than we like, but long-time readers know we view a GSR over 70 as an opportunity to Buy Silver (More about that below…)

Longer term, we still see nothing which undermines the secular bull market thesis for gold metal. With the short-term trading portion of our money, we plan to stay opportunistic for gold, waiting like patient vultures for a juicy opportunity to redeploy our short-term trading ammo, glad that we hold long-term physical metal in our arsenal.

We will have more about our positioning in the linked charts below and likely on the web log later this coming week. As we like to say, we are like a bird dog on point waiting for a re-entry sign.

Gold bounced at the very top of the zone we thought might be former resistance morphing into current support, but it has so far not managed to get into our "wheelhouse" (the purple box target). Demand has just been too strong, even in US Dollar terms. As strong as it has been in greenbacks, it has been even stronger in terms of Euros.

We will continue to tentatively mark the high $1150s as potential support for gold – with resistance now near $1250 – until proven otherwise on both counts.

Silver is a little different as far as we are concerned. Commitment of Traders data, released by US regulator the CFTC on Friday, does not suggest that the Big Sellers (BS) have been aggressive on the short side of the second most popular precious metal. Despite some modest negative money flow from the largest silver ETF, we sense that demand for physical silver in bar form has ramped up considerably over the past two weeks. We are privy to rumblings in the rumor mill of plans by "major players" to accumulate substantial amounts of the white metal – most likely through the Comex in New York, but probably also in the London physical camp.

This is not the first time such rumors have circulated. We heard similar stories in April and again in May. It is not the silver accumulation story that we are interested in so much as its longevity. Rumors that don’t die are usually not just rumors.

As for Gold Futures, while gold added $21.59 or 1.8% per ounce to $1,225.62 as of last Tuesday’s reporting day, Comex commercial traders – meaning "gold industry" players who are typically bearish on prices, since they are in the business of selling it – actually reduced their combined collective net short positioning (LCNS) by a small 756 contracts or 0.3% from 268,379 to a still high 267,623 contracts net short.

The overall open interest in US Gold Futures meantime plunged by 37,410 contracts from a very high, near record 591,360 to 553,950 contracts open.

So, as the number of open contracts was dropping largely and quickly, the LC’s were not really the ones doing the dropping, so to speak. Nevertheless, when we see a decrease in the LCNS on a substantial increase for the price of the metal, we don’t normally view that as a bearish signal. Had we seen an increase in the LCNS with the increase in the price of gold, it would have "seemed" normal. What we got instead was the opposite – a little.

Here’s the nominal LCNS graph for Gold Futures:

Since last Tuesday, gold met with dogged resistance in the upper $1220s, but a very determined sell-down attempt on Friday, June 4 during the post non-farm payroll disappointment rush to liquidity – one which drove gold below $1200 briefly – was met with equally determined bidding.

Gold actually closed at $1,219.83, well above the Friday open near $1207 an ounce, despite briefly trading to $1,197.15 thanks to the short covering.

Remember that the LC’s net short positioning barely changed even though the open interest plunged. When compared to all contracts open, the relative commercial net short positioning (LCNS:TO – the most important graph we track) therefore rose sharply from 45.4% to 48.3% of all Comex Gold Futures contracts open.

Here’s the LCNS:TO graph for gold:

Since last week’s report gold is $21 higher, the LCNS is a little lower, but the open interest dropped considerably.

As of Thursday the open interest had fallen a bit more to around 548,000 contracts, meaning there is more bull-side "horsepower" potentially than there was a week ago. The flip side of that Gold Coin is that it also means some of the buy-side has pulled in their bets.

We don’t like being on the sidelines with our short-term ammo on gold, but since we believe gold is in a long-term secular bull market and more likely to surprise to the upside than the opposite, we have but three possible positions. Long, leveraged long or flat – never short in a bull market (except to hedge). Thus, our current stance at the GotGoldReport of waiting patiently for opportunity with gold for our short-term ammunition.

Ready to buy gold today…?

Source:Gold Outperforming Silver

Gold’s "failed break-out" fails to materialize despite the Goldman Sachs’ price drop…

GOLD TOOK an honest (or dishonest?) shot at giving the gold bears a failed breakout on Monday last week, following the SEC vs Goldman Sachs news, writes Gene Arensberg in his Got Gold Report.

But each time gold attempted a run into the $1130s, the yellow metal met with determined bidding. We can believe that technically minded traders all noticed the support which formed there. So moving on from here, we will mark the high $1120s as potential support with potential resistance well above in the $1160s – until proven otherwise on both counts.

Once again we reiterate our longer-term view that the world will most likely continue down a path of fiat currency debasement, weakening confidence in all fiat currencies. We see the setup as long-term very bullish for gold metal and extraordinarily bullish for silver looking well ahead – if the world "holds it more or less together."

Looking at the Goldmans case, and as the United States Congress mulls a bill to create yet another regulator and another oversight bureau, opponents of even more government regulation were given a shot in the arm by news that, apparently, some SEC employees were caught with their pants down so to speak.

Amid the worst financial slump since the Depression, it seems about 30 of the regulators’ staff spent their daytime watching porn on our dime (with at least one filling up his computer hard drive with graphic images) instead of doing the people’s business. Going after guys like Bernie Madoff and Alan Stanford just isn’t as interesting as watching hard-core video and such, apparently, to name just the most recent high-profile cases of government regulator fumbling.

At least we have more information now to understand what SEC rank and file consider as high priorities during a sure-enough financial crisis. Why does Elliot Spitzer come to mind now? He didn’t even work for the SEC.

Normally we wouldn’t "schtupp" so low as to bring it up, but dog-gone it, we just don’t need another regulator in the US. We don’t need more regulations and more big government. We have plenty already, thank you very NOT. What we do need, in contrast, is for the agencies and regulators we already have to, oh, maybe actually do the work they are paid to do and oh, maybe enforce the regs already in place…

Still, with the SEC split about whether or not – and how – to go after Goldman Sachs, the Big Sellers of gold and silver got chance to knock the weakest of the longs out of the game – until now.

With that, uh, "short" intro, let’s take a look at what the largest of the largest traders of gold and silver futures in New York did right after that sneak attack on the House of Blankfein, aka Goldman Sachs. The latest Commodities Futures Trading Commission (CFTC) weekly commitments of traders (COT) report is for the close of trading as of Tuesday, April 20.

Today, the Got Gold Report is focused on the changes in positioning of the largest futures traders in that report – the traders the CFTC classes as "commercial". We refer to those commercial traders in US Comex Gold Futures as "LCs" for "Large Commercials".

Gold Prices dipped a net $10.34 or 0.9% to $1,140.56 for the week-ending Tues 20 April. Over that time, which included the Goldman Sachs sell-off, commercial traders reduced their combined collective net-short positioning (LCNS) by a smallish 6,088 contracts or 2.3% from the week before. The total open interest fell by a slightly higher 7,518 contracts to 521,338 contracts open.

Remember that is as of last Tuesday’s close, before the Goldman damage control stories were put out and before we learned that the decision by the SEC to take on Goldman Sachs was anything but unanimous. All we’d had was the sharp drop in prices.

Yet not really very much changed in the "commercial" players’ positioning. And when compared to all contracts open, the relative commercial net short positioning (LCNS:TO – the most important graph we track) actually fell about half a percentage point from 49.82% to 49.37% of all Comex gold contracts open.

The LCNS:TO really didn’t move very much on the SEC shot across Wall Street’s bow in other words. We cannot point to either aggressive selling or short-covering in this report…

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Source:Gold Positioning Unchanged by Goldman

Use TME for an MDZOS to escape SFOO. Oh, and Buy Gold to escape the FDIC, says the Mogambo…

PEOPLE SEEM TO think that Daily Reckoning publisher Addison Wiggin is just another talented, intelligent, pretty face who secretly thrills to hear people say things like, "You’re a lot better looking than The Mogambo!" says the Mogambo Guru himself in, ummm, The Daily Reckoning.

"And you’re younger and smarter, too!" they tell him. Yet he is much, much more than that.

His story starts off that "The FDIC is even more broke than it was three months ago" to which most people rudely say, "Welcome to the club! Waddya think, we got some kind of picnic at the beach going on out here in the real world while you pretty-face hotshots talk about who is smarter and about some idiot named Mogambo who must be an idiot because otherwise he would not have such a stupid name!"

Mr. Wiggin goes on undaunted, perhaps buoyed by the knowledge that no matter what happens, he’ll still be better looking than The Mogambo. And smarter, too. And younger.

Maybe that’s why he did not seem to be registering horror at the news of the bankruptcy of the FDIC. And, as if to underscore my suspicions, you can almost hear the confidence in his voice as he explains:

"The fund the FDIC uses to ‘insure’ your [US] bank account went $20.9 billion in the red during the fourth quarter of 2009. That’s more than twice the deficit reported when the fund first entered negative territory in the previous quarter."

Naturally, if these were the old days when the money supply was more-or-less constant, this would cause panic:

"Our bank deposits are uninsured! Yikes! The Mogambo said we’d be wiped out and here it is, and he said to buy gold, silver and oil, and we didn’t, and now look at us! Oh, woe!"

But nowadays? Relax! We have a fiat currency that the Federal Reserve can, literally, create at will, at a stroke, all the money necessary to make sure that every Last Freaking Dollar (LFD) dollar in your account is fully protected against actual nominal loss; you had an electronic or paper buck, you will still have and electronic or paper buck!

Unfortunately (and you can tell there is a "catch" by the way the soundtrack suddenly turns gloomy and there seems to be the sound of somebody, in the distance, throwing up into a toilet) this huge, sustained increase in the money supply guarantees – guarantees! – that you will lose buying power in every one of your precious dollars, so you are kind of screwed, either way, when you stop and think about it, by Federal Reserve policies.

My Sensitive Mogambo Nose (SMN) detects (sniff, sniff, sniff!) detects panic. So, desperate for money, I look to prey on the superstitious, and suggest that maybe you should just send all of your "tainted" money to me so that my hoodlum friends and I can have a big ol’ party, where we will raise our glasses in a long series of toasts to you, to your health, and to your good luck because – hey! – attracting the attention of deities, paranormal powers, transcendental influences and cosmic forces could, conceivably, work!

Mr. Wiggin is not enthusiastic about my latest rip-off scam, which I suggest only because I am out of ideas and I am desperate for money. He suggests a perfectly legal and good way to get some money, which is, "As long as banks can continue to borrow from the Fed at 0.25% and park it in 10-year Treasuries for nearly 3.7% (and leverage it up, of course), we don’t see this changing."

He’s right, of course, but before you rush out to start a bank and get your piece of this Federal Reserve stupidity, perhaps you should consider something along the lines of buying gold, silver and oil in some kind of wild, paranoid, knee-jerk reflex as a small, small part of a whole constellation of symptoms known collectively as Screaming Fear Of Outrage (SFOO) of the inflation that will be caused by such massive increases in the money supply, now additionally caused by the needs of the FDIC, but he goes on that it will get worse than that, as, "On top of that, the FDIC’s list of ‘problem banks’ grew during the fourth quarter from 552 to 702" he says! Yikes!

A long, haunting howl of dismay escapes my lips, perhaps not unlike the sound of ravenous, starving wolves howling, "oooOOOOOOooooooooh!" as they close in on your bloody trail as you crawl along, dressed in rags, wounded, bleeding, in the snow, at night, in the mountains, in a snow storm, with freezing sleet, and you realize that you can’t buy them off with your paper fiat money, but with a flash of True Mogambo Enlightenment (TME) that has come tragically too late, you realize that with the heft of a kilogram of gold in your hand, you can beat the living hell out of anything that comes near you that is metaphorically wolf-like in economic nature, or, with literal wolves, something spewing out .45 caliber bullets in a semi-auto fashion, putting us one more leg-up (as if we needed it!) on wolves of the literal kind, with politicians being of the metaphorical kind of ravenous wolves, thus mixing up literal with figurative, back and forth, up and down until you are in a panic, all confused and bewildered, wondering what’s real and what’s not, and your first instinct is to just start blasting, blasting, blasting until your trigger finger is bloody and cramped, and you manage to clear out a "Mogambo Dead Zone Of Safety (MDZOS)" all around you.

And you probably would have, too, if you had not remembered that you bought a lot of gold, silver and oil just to take care of situations like this! And it’s working perfectly! Ahhh!

But this thing about how the "FDIC’s list of ‘problem banks’ grew during the fourth quarter from 552 to 702" is, as I notice with alarm, not only a number that is a huge (almost 50% higher in just one quarter), a statistic which sets my Sensitive Mogambo Senses (SMS) tingling, some kind of Trend Of The Ugly Kind (TOTUK), to which I am particularly alert ever since I noticed that the entire freaking course of human history in the world, a world you call Earth, is the sad, stupid story of one stupid country after another borrowing money and getting into debt that they can’t repay, which is always resolved with inflation in prices, a bankruptcy of assets, and a ruinous war with somebody as we attempt to shift the cost of victim-hood from ourselves to foreigners so that there is, indeed, a free lunch for us.

Mr. Wiggin is not impressed with my penetrating analysis, which is in line with what everyone else agrees is pretty stupid and not worth reading or even admitting that they had even read, even in part, but I notice that he immediately takes up on my idea of "trend" that just I mentioned, and – surprise! – he finds, "Hmmm, let’s see. The number grew 27% in just one quarter. At this pace, every bank in the country will be on the problem list by the fourth quarter of 2012."

An involuntary "Yikes!" escapes my lips. That’s a trend!

I, as are most normal people who understand how this "economics thing" works, am horrified by all of this, and the only saving graces were that I had gold, I had silver, I had oil, and I had enough firepower – within reach! – to provide calming relief to an otherwise paranoid, screaming, hysterical man, such as myself, pumping adrenaline from every pore in his primal outrage at the sheer terror that is being created by the Federal Reserve.

For some reason, I can actually feel your scorn, as you deride what you think is just another paranoid gold-bug gun nut Loonie-Tunes weirdo since the Federal Reserve can just create all the money and credit that the FDIC needs, so why don’t I, as I asked my kids, just shut up?

With that, I thought it was all over, until he went on, "Another tidbit from the FDIC’s report: Bank lending last year dropped at the biggest clip since 1942", which was the year after we entered World War II, which seems important, but was a long time ago, and we don’t get to watch watching terrific war footage with things blowing up and – blam blam blam blam! – guns are firing! Things are on fire! It’s all exciting as hell!

Instead, we will note, much more soberly, that this is today we are talking about, not some ancient yesterday, and Americans are not the "good guys" bravely freeing Europe by destroying it all so that our industrial advantages are completely spared, but are, instead, the biggest bunch of feel-good, hyper-leftist morons that the world has ever seen where, despite a national emphasis on education, ample historical evidence, and the Constitution of the United States requiring that money be only of gold and silver, the citizens have allowed a pure fiat money and every kind of slimy flim-flammery that such unbridled money supply would allow, which was, as you would guess, anything you could imagine.

The bad news is actually beyond that of mere bank lending being down, since nobody (except governments) wants to borrow money, since nobody has the money to buy anything anybody makes, so why invest money to make something that nobody will buy. The worse news is that bank lending is how money is created.

Money is, by definition, being destroyed, so that there is less money around with which to pay debts.

You know, without me telling you, that all this ain’t good! And these are the times when you are glad that you are safely invested in gold, silver and oil, and the only thing you have to worry about is, for instance, the usual stuff of keeping an eye out for party-killing suspicious strangers who may know your wife or boss, checking for suspicious pods growing near where you sleep, and protecting yourself against vampires, werewolves, and other blood-suckers, which leads us back to politicians deficit-spending, which leads us back to the Federal Reserve creating more money, which leads us back to Buying Gold, silver and oil in fearful response, which leads me back to, "Whee! This investing stuff is easy!"

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Source:Screaming Outrage at the FDIC

Unlike Gold ETFs, the largest silver ETF shows continued money inflows…

EXCHANGE-TRADED FUND investors are showing a preference for silver over gold lately, writes Gene Arensberg from Houston, Texas in his Got Gold Report for the Gold Newsletter.

At least, we are seeing more buying than selling pressure in the silver ETFs while Gold ETF money flow is flat – and has been for a year.

We think it could be pointing to an opportunity looking ahead. Bottom line? We remain long gold and silver here at the Got Gold Report, after re-entering the gold market two weeks ago.

Once again we reiterate our longer-term view that the world will most likely continue down a path of fiat currency debasement, weakening confidence in all fiat currencies. We see the setup as long-term very bullish for gold metal and extraordinarily bullish for silver looking well ahead – if the world "holds it more or less together."

Please Note: This offering of the Got Gold Report was originally filed Sunday, February 28, and delivered to Gold Newsletter subscribers shortly afterwards. For more information or to subscribe visit the Gold Newsletter home page.

Meantime, the SPDR Gold Shares Trust (GLD), by far the largest gold exchange traded fund, reported a very small reduction of 0.61 tonnes to 1,106.99 tonnes of gold bars held by a custodian in London for last week. As of the Friday, February 26 close, GLD’s metal holdings were worth $39.4 billion. 

The chart just below shows GLD’s metal holdings relative to the price of gold for about the last year.

To a technical analyst, it resembles a triangular consolidation. Putting the last year of GLD metal holdings in context, the next chart goes back four years to February of 2006.

It’s interesting to see the latest consolidation in context over that 4-year period, isn’t it? As Gold Prices increased from roughly the $560s as high as the $1200s or roughly 114%, GLD’s allocated gold metal holdings increased from roughly 330 tonnes to about 1,100 tonnes, an increase of roughly 233%.

Notice, however, that all or most all of the increases in metal holdings for GLD occurred by March of 2009 with gold at or below the $950s. (For reference, GLD first reported holding more than 1,100 tonnes on March 19, 2009 when it reported 1,103.29 tonnes with gold then trading at $956.50). Since then, and taking a rather broad view, buying and selling pressure for shares of the Gold ETF have been more or less balanced as reflected in a much narrower range of metal additions and reductions.

We want to call attention to the very substantial difference in recent metal holdings level for the largest Gold ETF and the largest silver ETF. It may be pointing to an opportunity as investors are converting Gold ETFs into silver ETFs at the margin, perhaps taking advantage of higher gold/silver price ratios.

The iShares COMEX Gold Trust (IAU), reported a reduction of 0.76 tonnes to show 76.68 tonnes of gold held in Comex warehouses. And all five of the Gold ETFs sponsored by the World Gold Council collectively recorded a very small decline of 1.68 tonnes of gold metal, to a combined 1,293.44 tonnes (41,585,270 ounces) worth about $46.1 billion as of Friday’s close.

The authorized market participants for Gold ETFs add gold (and increase the number of shares in the trading float) in response to more buying pressure than selling pressure and vice versa. And although we continue to see very marginal negative money flow for Gold ETFs, it is neither material nor volatile, suggesting that investors are holding their Gold ETFs through Gold Price volatility. Moreover, the recent minor negative money flow for Gold ETFs is somewhat offset by continued positive money flow into silver ETFs.

Metal holdings for BlackRock’s iShares Silver Trust (SLV) increased last week by 30.51 tonnes to a reported 9,476.91 tonnes of 1,000-ounce allocated silver bar inventory. As of the Friday close, the largest ETF silver hoard in the world was worth $4.9 billion or about 10.7% of the value of the largest Gold ETF.

The chart just below shows the changes in allocated silver metal holdings for SLV over about the last year. Please compare this graph to the one-year version for GLD above.

Like GLD, the authorized market participants for SLV add silver (and increase the number of shares in the trading float) in response to more buying pressure than selling pressure and vice versa.

In contrast to GLD, we note consistently more buying than selling pressure for the largest silver ETF over the past year, even as silver prices trended higher on balance. 

Below is a graph showing the additions of metal held for SLV since its April, 2006 inception – roughly the same period as the longer-term chart of GLD above for comparison.

Believe it or not, silver prices are not far from unchanged since SLV got underway in 2006. What HAS changed is that over 9,000 tonnes of the world’s available bar silver in London has been removed from the market over the period.

We are of the firm opinion that silver ETFs are closing in on a supply inflection point, but that’s a subject for a future report. Clearly, for now, there has been consistently more buying than selling pressure for the world’s largest silver ETF, with only minor pauses in investor accumulation since SLV first began trading four years ago.

That continued popularity comes despite the brutal, panic-rush to liquidity in Q3 of 2008 which is the dominant feature of the SLV trading record above.

To repeat: There has not been material positive money flow for the largest Gold ETF for about a year now. We expect that to change in the near future as this higher price region for gold is further digested and accepted by the collective global market. Although anything is possible over the short term, we seriously doubt that investors will gain substantially more confidence in the world’s ailing, debt-strangled, policy abused and overly inflated fiat paper promises – or that investors will suddenly lose confidence in the only universally accepted store of wealth and value for over four millennia.

We also note that the Gold/Silver Ratio is still quite high historically speaking, and some investors may be taking advantage of the higher gold price to convert some Gold ETF holdings into silver ETFs.

If we stand back from the day-to-day metals price battlefield for a minute and take a wide-angled view, so to speak, what might this divergence be hinting to us? Well…

• If we accept the theory that Gold ETFs have become a substitute for and a haven from under-backed and brittle government fiat paper currencies (for at least some investors);
• If we subscribe to the notion that wealth is and will be seeking similar vehicles to securely ride out the contemporary tempest raging in the global forex markets;
• When we consider that both silver and gold have historically been used and universally accepted in their absolute forms as a storehouse of wealth (money) since right after Day One;
• And then we add in what more and more people believe is the potential for scarcity in the amount of available physical silver looming just over the investing horizon…

Then it makes perfect sense that we have seen consistently more buying than selling pressure for the largest silver ETF even as Gold ETFs have treaded water relatively speaking.

In the simplest terms, investors want somewhere to park some of their wealth in something that is backed by something tangible and out of their country’s debased fiat paper unit of exchange. The obvious conclusion is that investors see silver as a relative value compared to gold presently and it wouldn’t surprise us in the least if that were to continue over time – if the world more or less holds it together.

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Source:Silver ETF Flows Beating Gold