I was doing some research on the Central Fund of Canada (ticker: CEF), which is a form of “paper” Gold and silver with a long track record and a much better counterparty risk profile than dangerous Gold ETFs like GLD. Now, CEF generally holds about 60% Gold and 40% silver, so it is not a “pure” Gold fund. I don’t recommend paper Gold to anyone before they have established a physical position in Gold as an insurance policy that can always be cashed in when needed. I am not affiliated with nor am I recommending for or against CEF - you must due your own due diligence!

However, I discovered a potentially useful buy and sell signal in the precious metals markets using the premium/discount levels of CEF relative to the Gold price. There is no guarantee this will work in the future, but I found it fascinating and wanted to share it. It seems to actually work best with the silver price, but also works fairly well with Gold and the Gold mining indices.

There are times when CEF trades at a “premium” to the Gold price and times when it trades at a “discount” to the Gold price. When speculative juices and interest in the precious metals patch are running high, a premium tends to develop for silver relative to Gold (and CEF usually only holds around 60% Gold and the other 40% in silver). A lack of speculative interest in the precious metals sector tends to cause the opposite. In a way, then, this is a sort of Silver:Gold ratio. However, there is also a component of “froth” or disinterest in the CEF built into this CEF:Gold ratio, as the fund can trade at a premium or discount to the NAV of the underlying metals held by this instrument. Other factors I haven’t considered may also be important. Regardless of why it works, its record is impressive so far in this secular silver and Gold bull market.

As with most ratio charts or indicators, extreme measurements tend to have the most predictive value. Plotted below is an 8.5 year chart to encompass the entire silver bull market that began in late 2001. The blue area plot is the CEF divided by the Gold price (i.e. CEF:$GOLD ratio chart) and superimposed is a black linear price chart of silver ($SILVER).

And here’s the CEF:$GOLD ratio chart (blue area plot) versus the $XAU Gold mining index (black linear plot) over the same time period:

Will the current signal, which is the 4th strongest of the ongoing secular silver bull market, be proven valid or will it fail here? Those who have read my rants lately know where I stand. I think we’re set for another big bull run and I remain stubbornly bullish here. For more bullish data, look here. The breakout over $1000 was an historic psychological moment in the Gold secular bull market and the new psychological floor for the Gold price is $1000/oz.

People who say that silver has been lagging and thus the current Gold bull move is suspect don’t understand silver at all and should be ignored. Silver makes big, fast moves at the end of a precious metals run and can play catch up quickly - VERY quickly. We haven’t hit the CEF:$GOLD ratio levels that have ended previous big moves in silver or Gold. I think we will before this bull thrust completes.

After a breakout following an 18 month consolidation at and below the $1000/oz level, a 3 month rally of 20% in the Gold price ain’t enough of a run. There’s more to come in my opinion before a significant longer-term correction will occur. I predict new highs in Gold, Gold mining indices and silver before the spring is over. All surprises should be to the upside in the precious metals patch.

Of course, I am all in on precious metals and mining shares from the long side and thus as biased as possible…

Visit Adam Brochert’s blog:
http://goldversuspaper.blogspot.com

by John Browne, Senior Market Strategist, Euro Pacific Capital | February 26, 2010

The world is currently in the eye of an economic hurricane. The leading edge of the storm, which made landfall in the second quarter of 2008, raged until the first quarter of 2009, and nearly demolished the world’s financial system. By sand-bagging with trillions of freshly-printed paper currencies, fudging accounting rules, subsidizing key financial houses and markets, and calming the masses with half-baked rhetoric, a worldwide collapse was averted.

But the calm is deceptive.

Because of the lull, Western governments have allowed our structural deficits to fester. Now, their spokesmen are predicting sunny skies for the foreseeable future. The Federal Reserve Chairman speaks of “exit strategies” and President Obama asserts that his stimulus package has prevented a second Great Depression. This inability to see past the horizon means our politicians have squandered our final chance to build sturdier shelters in advance of the hurricane’s trailing edge.

Last week, the International Monetary Fund (IMF) announced that it would dump a further 200 metric tons of gold onto the market. With temporary strength in the U.S. dollar and economic recession still threatening in America and Europe, such news should have caused gold to break below key support levels of $1072 and $995. But the price of gold fell only slightly before resuming its upward trend. Why was the gold so resilient given the arrival of all this new supply?

As we have mentioned in previous commentaries, gold is not, as is widely believed, merely a hedge against inflation. Gold is also an insurance against catastrophe. Clearly, based on global fiscal and monetary profligacy, we all have rising consumer prices in our future. But before that gets out of hand, the Western world will be hit by the second half of the storm that struck in ‘08. Although the Associated Press has officially designated our current environment as “the Great Recession” by the end of 2010 our economy may be more accurately described as a depression. If so, gold would be expected to plummet in value (along with other asset prices). But this assumes that the economy will behave as if it were supported by a sound currency. That assumption no longer applies, so we must adjust our expectations accordingly.

On this frightening occasion, we are at sea in a currency of paper backed only by the hot air of political bluster and dishonest accounting. Today, for the first time in modern history, it is not just individuals and private companies that face destitution, it is entire nation-states. Furthermore, it is not only minor players like Greece and Italy, but major pillars of the global market like the United Kingdom and the United States.

The re-introduction of the Health Bill in the U.S. Congress, albeit amended, illustrates vividly that Washington’s entitlement regime shows no sign of corrective discipline whatsoever. If, following the papering over of the Greek problem, international investors resume their selling of U.S. dollars and the underlying Treasury securities, the U.S. dollar may lose its reserve status - and the United States will, for the first time in living memory, face the possibility of default.

It may take years for this to happen. In all probability if downgrades are forthcoming, the United Kingdom will be the ‘canary in the coal mine’ and will be marked down in advance of its larger, and more indebted, progeny across the Atlantic. It is likely that such shocks will initially trigger U.S. dollar strength before the panic selling sets in. But what are cautious investors to buy when the world’s reserve currency is no longer safe, and its chief competitors, the euro and yuan, are not stable or transparent? The answer is precious metals. Conservative investors are making this move early, beginning a secular bull market in this asset class.

On the sovereign scale, those countries, possibly including China, India and Switzerland, that are positioned to pull their wealth to the sturdy shelter of gold stand to survive the hurricane, battered but viable. Those countries, like the UK, which have squandered much of their real wealth and productive capacity, will likely subject their citizens to an era of unnecessary privation.

Copyright © 2010 John Browne
Editorial Archive

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc. Mr. Brown is a distinguished former member of Britain’s Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher’s government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown’s advocacy, Thatcher famously pronounced that Gorbachev was a man the West “could do business with.” A graduate of the Royal Military Academy Sandhurst, Britain’s version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

In addition to careers in British politics and the military, John has a significant background, spanning some 37 years, in finance and business. After graduating from the Harvard Business School, John joined the New York firm of Morgan Stanley & Co as an investment banker. He has also worked with such firms as Barclays Bank and Citigroup. During his career he has served on the boards of numerous banks and international corporations, with a special interest in venture capital. He is a frequent guest on CNBC’s Kudlow & Co. and the former editor of NewsMax Media’s Financial Intelligence Report and Moneynews.com. He holds FINRA series 7 & 63 licenses.

More importantly take action to protect your wealth and preserve your purchasing power before it’s too late. Discover the best way to buy gold at www.goldyoucanfold.com, download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com, and subscribe to my free, on-line investment newsletter.

By Jeff Clark, Casey’s Gold & Resource Report

How many IMF officials does it take to change a light bulb?

As you probably read, the International Monetary Fund announced they would proceed with selling the remaining 191.3 tonnes of gold from the 403.3 tonnes planned. The money is to be used for lending to poor countries. Lending implies the money will be repaid, which, in the case of the IMF, is a joke that isn’t funny. But that’s a topic for another day.

The IMF stated that sales will be conducted in the open market, which is interesting because until now, gold has only been made available to central banks. While the IMF remains open to central banks buying some of the gold, sales will be conducted “in a phased manner over time” to avoid disruptions to the open market.

So, will IMF sales depress the gold price? Well, remember the price rose with the first sale, when it was announced India was buying 200 tonnes of the 212 for sale. But that was an offtake deal, not an open market sale, so the question is legitimate.

One way to look at it is this: global mine production was 80.9 million ounces in 2009, so the IMF’s 6.7 million ounces could be a market-jolting 8.2% addition if dumped all at once. And an 8.2% load would indeed upset a market if we were talking about strawberries or anything else that people buy only for the purpose of consuming.

But most gold isn’t bought for the purpose of using it up. It’s bought for the purpose of holding it. So the relevant comparison for the IMF’s 6.7 million ounces isn’t annual mine production. Instead, we should compare it to the world’s existing stockpile of gold, which is roughly 2 billion ounces. The IMF sale would add just 0.3% to global inventory – hardly a market trasher.

Further, we’ve been down this road before with the IMF. When they sold gold in the 1970s, the price dropped upon the announcement of the sale, but then rose when actual sales took place.

And the dirty joke is this: when the IMF sold gold in the 1970s, it marked a bottom in the price. The late Jerome Smith advised always betting against the government: “When they’re unloading an asset, it’s time to buy.”

The IMF provides some very cushy jobs for the right people, along with a perpetual series of exquisitely catered conferences for the politically connected and politically correct. These people are not exactly known for being the brightest economic decision-makers. However noble their cause, the fact that they’re selling at all in the current environment, given the enormity of the monetary crisis that will only worsen as time goes on, tells me I want to be doing the opposite.

And that’s why the answers to my light bulb joke are as follows:

How many IMF officials does it take to change a light bulb?

None. Doesn’t gold glow in the dark?

One, but only if the ladder is padded.

Two. One to screw it in and one to screw it up.

Three, but nobody can find them.

Four, to form a panel to discuss which way to turn the bulb.

Five. One to change the bulb and four to buy the wine to celebrate.

Nine, to provide a quorum to vote on incandescent vs. fluorescent.

Eleven. One to hold the bulb, and ten to turn the house.

All of them. But only after dinner at L’Arpège (the most expensive restaurant in Paris).

While we’re convinced gold is headed much higher, is the recent correction over, signaling its time to jump in? Get our answer in the new issue of Casey’s Gold & Resource Report, which you can try risk-free here…

– Posted Thursday, 25 February 2010 | Digg This Article | Source: GoldSeek.com

By Andy Hoffman

Today’s announcement by the Chinese government that they plan to buy the remaining 191 tonnes of IMF gold (if it even exists) is possibly the most important event in the ten-year gold bull market, and perhaps could turn out to be the inflection point from when the public believes the propaganda about gold and starts to disbelieve, yielding the commencement of the latter stages of the PM bull and the early stages of American economic, political, and social chaos.

China is the only entity on earth with the financial backing to take on the U.S.-government led gold Cartel, with the ability at literally any moment to take them out and cause the price to soar to unimaginable levels.  Until now, they have been very coy about their statements about gold, as given their huge hoard of roughly $2.5 trillion dollars (largely held in U.S. Treasuries), they are very concerned about a dollar (and frankly all fiat currency) crash.  In fact, they were complicit in creating the dollar bubble by pegging the yuan to the dollar and thus creating massive, artificial U.S. consumer demand for Chinese products via the creation of massive U.S.-based debts to purchase Chinese manufactured goods.  Thus, no one is more aware of the precarious state of their dollar holdings, and what is likely to occur to them in the coming years.

Given this sensitivity, China has NEVER made public statements about its intentions in the gold market, until about six months ago when it announced (no surprise to us “goldbugs”) that they had acquired 450 tonnes of gold over the past five years, bringing their total holdings to 1,054 tonnes (only about $40 billion worth).  That statement spoke volumes about Chinese intentions, particularly when they shortly afterward starting making PSA’s to the Chinese population encouraging (no, URGING) them to buy physical gold and silver.  The Chinese are quite aware that “REAL MONEY” was getting ready to break away from the U.S. government-led rigging that has suppressed them for years (and thus propped up the dollar), and you can be sure they do not want their population stuck in fiat dollars (not to mention pounds, Euros, etc.) when “REAL MONEY” retakes over its historic role.

When the IMF announced that it would sell 403 tonnes of gold in December (only a measly $12 billlion worth), it was widely believed the Chinese would swoop in and take it all, as the last remaining “large chunk” of gold available for sale anywhere.  Whether the IMF actually owned any gold (I still believe it is not real), or whether they really intended to use the proceeds to help poor countries (Bu—s—t, the goal was to try and scare the gold price lower) didn’t matter.  The key point is that it probably is the “last remaining large chunk” of available gold, real or imaginary.  Gold supply worldwide has been declining for a decade thanks to a combination of capital starvation (care of the Gold Cartel suppression) and supply challenges (care of Peak Gold), and now that the Washington Agreement signatories (France, Italy, Germany, etc.) are no longer sellers, there is simply no way of buying that kind of size without pushing the market significantly higher and causing an avalanche of fear about the future of fiat currencies.  Trust me, if the Chinese put in a market order to buy 200 tonnes of physical gold today, the price would be $1,500+ by tonight.

Thus, when the Indian government outflanked them and bought 200 of the 403 IMF tonnes (at an average price of $1,049/oz), that must have really ticked them off, and likely shows that they were too conservative in their bidding given the rising amount of competition for that gold coming into the market (India, Russia, Middle East, etc.).  So when an article surfaced yesterday stating that the Indians would be happy to buy the other 191 tonnes (Sri Lanka and Mauritius already bought 12 tonnes), you can bet the Chinese government had an emergency meeting and decided it was time to be more aggressive, for the first time ever.  With their $2.5 trillion horde, there is simply no way they will let themselves get outbid for the last chunk.

As the great Jim Sinclair notes, IMF gold sales were major catalysts of the final gold move from $100 to nearly $900 in 1980, and once again, contrary to what was intended, this dopey announced IMF sale (made solely to knock the gold price down before the February COMEX options expired) could be what once and for all puts gold “in play” among retail investors, corporate investors, and central banks alike.  Do you think George Soros, who announced last week that he now owns $600 million of gold, is going to lose out on this trade, after fighting and eventually beating the U.K. government 20 years ago on his short pound trade?  I think not.

Ladies and Gentlemen, the fabric of the U.S. is collapsing rapidly, economically, politically, and socially.  The only thing that has kept it from turning REALLY UGLY has been the U.S. government’s fraudulent activities centered around manipulating the stock, bond, currency, and commodity (read: gold and silver) markets to maintain the PERCEPTION that things are manageable.

But they are most certainly not, and all you need to do is read the paper to see.  Just this week, it was announced that foreclosures hit an all-time high, consumer confidence a multi-year low, new home sales an all-time low, and the PPI (inflation) a near record monthly high.  Not to mention an additional $1.9 trillion increase in the Federal “debt limit” to $14 trillion, which will likely be surpassed by year-end.

Please PROTECT YOURSELF, and do it AS SOON AS POSSIBLE.  The situation is becoming more dire each day.  Paper currency is going down in value (gold at an all-time high against nearly all currencies), and REAL GOODS and REAL MONEY are going up in value.

NOW!

Andy

Source: Jeffrey Nichols, NicholsOnGold.com  02/24/2010
“Gold’s positive fundamentals, the high level of investor interest in key geographic markets and global monetary economic developments promise to push the yellow metal much higher,” according to Jeffrey Nichols, managing director of American Precious Metals Advisors. In this Gold Report exclusive, the leading precious metals economist outlines the reasons for gold to continue its upward trajectory—not the least of which include the ailing USD and foreign central banks’ reluctance to keep buying U.S. government debt.

Regardless of the near-term prospects for gold, the long-term fundamentals promise substantial appreciation later this year and beyond. We remain firm in our conviction that gold prices will touch or surpass $1,500 in 2010— and continue to move higher in subsequent years.

Opportunity Knocks

Gold at recent price levels offer investors and savers without a “core” position in the physical metal an opportunity to buy insurance against the very real possibility of future stock and bond market declines, accelerating inflation and a shrinking dollar, and turmoil in U.S. and world financial markets.

In contrast to what most “mainstream” economists believed only a few weeks ago, the industrial world economy is not improving. Instead, new cracks in the foundation are appearing. Moreover, as we have discussed in recent reports, the U.S. and other industrial economies will soon be heading into a “double dip” with declining business activity, declining consumer spending, declining employment, and declining equity markets.

This is a recipe for stagflation—a prolonged multi-year period of low growth with high inflation. And, as we saw in the decade of the 1970s, the coming stagflation will again be accompanied by a sustained and significant appreciation in the price of gold and its sister metals, silver and the PGMs, to levels that most cannot yet imagine.

All in the Same Ship—Syncing Together

Just look at the sovereign bankruptcies now spreading across Europe: Does anyone really think that countries like Greece, Portugal, Spain, and others can possibly repay their public-sector debts on schedule without a dole from the European Central Bank?! Even the most well-intentioned policies—raising taxes and cutting expenditures to lower government deficits—are doomed to fail because they would only push these economies into deeper recessions while provoking public unrest from unemployed workers and the politically powerful labor unions.

At some point, sooner or later, the European Central Bank (ECB), for all its talk of monetary restraint, will be forced to circumvent the prohibition barring purchase of member-country public debt. Like the Fed in the United States, the ECB will be forced to monetize the public-sector deficits of its most fiscally profligate members.

Here in the United States, private rating agencies are warning that America’s own “triple A” rating on Federal debt is at risk. Meanwhile, states ranging from California to New York are in shoddier shape fiscally than Greece. . .and, it remains to be seen, how Washington policymakers will bail out individual states that, by law, may not run budget deficits.

Just imagine how much worse America’s fiscal dilemma will be as U.S. interest rates (and, hence, U.S. Treasury borrowing costs) begin to rise, either from a tightening of monetary policy or, more likely, as rising inflation expectations are reflected in higher nominal interest rates.

In today’s jittery world financial environment—with large-scale currency traders and speculators betting one way or another—the yellow metal is not immune from further price erosion. Certainly, if gold declines further in the next few days or weeks, we would be “scale-down” buyers.

As we have said repeatedly, today’s perception of the greenback as a “safe haven” preferable to gold, the “ultimate” safe haven, makes no sense. At some point, sooner or later, gold will disassociate itself from the dollar’s exchange rate against the euro and other industrial-country currencies—and begin appreciating against all of these currencies.

The fact of the matter is that all of these countries are all in messes of their own making, messes that cannot easily be cleaned up, messes caused by years (if not decades) of imprudent policies and excessive spending by both governments and households. . .and all face the same stagflationary consequences: an erosion of living standards, diminished personal wealth for most, and rising living costs for all.

Selling Paper, Not Physical Gold

Importantly for gold, most of the selling in recent weeks has been by institutional traders and speculators who, for the most part, lack any long-term allegiance to gold nor understand the metal’s intrinsic worth as an enduring store of value, as an insurance policy against the risks that threaten other forms of savings and investment, and as portfolio diversifier for individuals, institutions, and central banks.

And, importantly, much of the selling has been of gold derivatives (futures and forward contracts) and other “paper” gold products (like ETFs)—not physical metal itself.

At the same time, most long-term gold investors have not participated in the recent spate of selling—but, if anything, have bought more metal, mostly in physical form, at lower prices. Read More…

By: Jordan Roy-Byrne, CMT

How can we tell if a market is about to go parabolic? Trendlines are one way. Another way is to look at the length of corrections. How long is it taking the market to correct? Are the corrections becoming shorter and shorter?

In the case of Gold/Euro, we see a market that is ready to go parabolic. The market has had four major corrections and each one has been shorter then the last. See the chart below.

Gold/Euro went from having a 15-month consolidation to an eight-month consolidation to a recent five-month correction. After emerging from that correction, the market gained 27% in two months. Notice that the market has formed a very bullish flag or pennant, which implies that we’ll see a similar move after breakout. Furthermore, the black trendlines confirm that the trend is set to accelerate even more.

I should mention that I am looking for a bounce in the Euro and some US$ weakness. While we should get a decent rally in the Euro, I doubt it affects the prognosis for Euro/Gold.

Gold/Foreign Currencies compared to Gold in US$

Here we show Gold/UDN on top of Gold. Gold/UDN is Gold against the currencies in the US$ index. As we’ve noted before, at key points in this bull market Gold/foreign currencies has been leading Gold. Here we are just showing the last few years.

Notice how Gold/UDN made its major breakout in January while Gold achieved its breakout in September. If the relationship continues then we’d expect Gold to trade in a tight range for about four months and then begin a new advance to new highs.

Conclusion

The strongest moves in Gold occur when the market is rising against all currencies. While this is a “duh” statement, I bet most analysts neglect to track how Gold is performing against the major currencies. We are tracking it and you can see how bullish Gold/Euro looks and how Gold/UDN is showing a positive divergence compared to Gold in US$. With Gold so strong against all currencies, it will not fall to $950-$1000. In periods of US$ strength, Gold is holding up better and better as its gaining significant strength against the Euro and the other currencies.

For more forecasts on Gold, Silver and coverage of numerous gold and silver stocks, consider a no risk 14-day trial to our premium service. You can learn more by going here: http://thedailygold.com/newsletter/

Jordan Roy-Byrne, CMT

Trendsman@Trendsman.com

http://www.thedailygold.com

The U.S. dollar was up last week against the euro out of fear of how debt problems in Greece and elsewhere in Europe will be resolved, and as a result gold had a tough week.

The dollar’s rally appears to be a short-term safe haven move, rather than a response to improving economic conditions in the U.S.

In fact, Friday’s report of a net loss of 20,000 jobs in December (the expectation was for a net gain in employment) and that many thousands more would-be workers have given up looking for jobs is evidence that the economy remains somewhat weak.

This weakness makes it less likely that the Federal Reserve will play it safe by not raising interest rates, and more likely that Congress and the Obama administration will pump more financial stimulus money into the system.

Both keeping rates near zero and expanding the monetary base are negative for the dollar, and thus positive for gold. We’ve seen that after a period of money-supply tightening in December and January, it appears that money is loosening again.

The federal deficit is pegged at more than $1 trillion this year and more than $8 trillion through 2019-this will slowly weigh on the dollar. On top of that, the TARP money being repaid by banks is not being removed from the monetary base-we shouldn’t be surprised if that money is used as a stimulus booster shot ahead of the 2010 midterm elections.

Our gold-dollar oscillator (above) shows that the dollar is approaching being overbought over the past 60 trading days, while the gold is showing signs of being oversold.

The magnitude of the current spread between gold and the dollar typically means that both could be close to a price reversal-dollar heading back and gold back up toward the mean.

In the 1990s, a strong dollar was associated with a strong U.S. economy, but the current one-month dollar rally has been accompanied by a drop in the S&P 500. With most of the world’s economic growth coming in emerging markets, many U.S. companies are relying on overseas sales to drive revenue and profit growth. A stronger dollar hurts U.S. companies trying to thrive in the global marketplace.

This is clearly evident in the illustration below. Here you can see that the world has changed and a strong stock market is aided by a weaker dollar.

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.