Gold, Silver & Other Precious Metals 01 (May 08 - Oct 08)

[kennynah]

deepavali also no give gold price any boost upwards....jia lat lah....

[millionairemind]

MARK HULBERT
Deflation vs. inflation
Commentary: Deflation is more likely than many assume
By Mark Hulbert, MarketWatch
Last update: 11:59 p.m. EDT Oct. 30, 2008Comments: 24

ANNANDALE, Va. (MarketWatch) -- Is the gold market sensing deflation?

It's important to ask this question, because something is most definitely bothering the gold market. Between Oct. 8 and Oct. 23 alone, for example, bullion dropped by some $225 per ounce. It dropped $15.50 per ounce on Thursday as well.

No doubt there are lots of factors that are conspiring to bid gold down. One that I mentioned in a column a couple of weeks ago is sentiment among gold timing newsletters. See Oct.16 column

I was prompted to consider deflation as another factor by recent developments in the Treasury market. That market is many orders of magnitude larger than the gold market, and its collective judgment cannot be dismissed lightly.

And right now, the Treasury market considers inflation to be a far lower threat than it was just a couple of months ago.
Consider the yields on regular nominal, Treasuries and those that prevail for the Treasury's Inflation Protected Securities, or TIPS. The primary difference between these two kinds of Treasuries is that TIPS' yields are protected against changes in the inflation rate. Theoretically, at least, this means that the difference in these yields will reflect the bond markets' expectation of future inflation.

As of Thursday night, the yield on 10-year regular Treasuries stood at 3.95%, according to the CBOE's 10-Year Treasury Yield Index . The yield on 10-year TIPS, in contrast, stood at 3.03%. The difference of 0.92 percentage points implies that the bond market is betting that the CPI will average less than 1 percent annually over the next decade.

Inflation over the next decade of less than 1%? That seems incredible.

To be sure, the flight to quality in recent weeks has undoubtedly skewed this number downwards. The market for regular Treasuries has received a disproportionate share of that flight to quality, artificially depressing the yields on 10-year Treasuries.

Economists at the Cleveland Fed have devised an econometric model that estimates the degree to which the spread between nominal Treasuries and TIPS is skewed downward by these liquidity considerations. That model recently calculated this bias to be around 0.5 percentage point, suggesting that the true message of the bond market right now is that inflation would average around 1.4% year over the next decade.

That's still incredibly low, given that the CPI over the past 12 months was up 4.9%. It's unlikely that the CPI can start at nearly 5% and nevertheless average 1.4% over the next decade without it actually turning negative along the way.
And that in effect means the bond market is betting on deflation.

This puts into perspective the federal government's efforts in recent months to pour huge amounts of money into the financial arena. That would otherwise be quite inflationary.

But not if the forces of deflation are as large as the bond market is evidently assuming them to be.
And judging by the recent performance of both the bond and gold markets, it would appear as though deflation still has the upper hand.

[winston]

THE GOLD-TO-COPPER RATIO IS SOARING by Brian Hunt

Real estate investors look at the ratio of rent they can earn versus the cost of a property. Stock investors look at the earnings per share of a company versus how much one share costs. But we'll guess most folks haven't looked at the gold-to-copper ratio...

As we've covered several times in the past, copper is used in cars, electronics, plumbing, and everything else around you. This "in everything" aspect makes the metal rise and fall with global economic health.

Gold, on the other hand, has an "oh, crap" component in its price. It tends to rise when investors get scared. It also tends to rise when governments create lots of new money out of thin air to pay for things like wars and mortgage bailouts.

The gold-to-copper ratio displays how many pounds of copper one ounce of gold will buy. Right now, gold is holding steady and copper is collapsing. So as you can see from today's chart, this ratio is soaring in favor of gold. It's a classic sign that "economic growth" investments are underperforming "oh crap" investments.

[winston]

I turned bullish on precious metals and the metal stocks a couple of weeks ago.

After all, with the U.S. government and all the governments of the world printing currencies faster than ACORN prints phony voter registrations, precious metals had to rally. Of course, my timing could not have been worse. As soon as I said "buy," the dollar shot higher and the metals fell.

But I've stuck with the trade because logic is on my side. And despite all the emotion in the marketplace, logic eventually wins.

[On Wednesday], the currency markets took a giant leap in the direction of rational thought. The U.S. dollar suffered its worse one-day loss in eight years. Gold and silver both rallied.

There is no guarantee this one-day downtrend will continue. After all, logic hasn't spent a lot of time hanging around Wall Street lately. But you're more likely to find it there than in Washington D.C.

– Jeff Clark
Growth Stock Wire

[winston]

Why Didn't Gold Soar? By Dr. Steve Sjuggerud

"If gold didn't soar in the last year, then when will it?"

A few weeks ago, Jack Crooks asked a crowd of currency speculators why gold had fallen from over $900 to $725 in less than a month.

What a great question!

The crowd – a room full of gold bugs – didn't know what to think. They hadn't considered this yet.

They knew Financial Armageddon was here. Many of them had been waiting for it for decades. And they knew the only possible outcome: a soaring gold price and a crash in the dollar.

Well, they got the crisis right. But they were wrong on the way to profit.

The price of gold has fallen by over 25% from its highs earlier this year. And as Jack predicted back in July, the dollar has soared.

It all started because of credit, of course. Many large investors (like hedge funds) borrowed a mountain of money to speculate. But the banks called in those loans. So these funds were forced to sell their investments.

Investors who held these funds got scared and asked to get their money back. So funds got hit with a double whammy – redemption requests and the need to pay back borrowings. The funds were forced to sell, at any price. Prices of everything – including gold and gold stocks – spiraled lower.

Investors around the world, in turn, sold everything to get out of the way of falling prices. U.S. Treasuries were the one "safe" place everyone flocked to, which supported the U.S. dollar.

Jack believes the dollar will continue to rise, as money comes out of assets like gold and into the world's most liquid investment... the U.S. dollar.

Jack expects the U.S. will fare far better than most of the rest of the world. This is contrary to most forecasters, who expect the U.S. economy to weaken dramatically.

Jack expects the emerging markets that export heavily will get hit the worst, as the credit problems are unwound and consumer demand in America declines. Europe's recession will be much more severe than in the U.S., according to Jack, as European banks are much more exposed than the U.S. to emerging markets.

In the end, Jack believes "the U.S. will maintain its vast capital market advantage and will emerge from this crisis in much better shape than its competitors as a result."

I've known Jack for many years. We used to sit close to each other at an investment firm, hashing out ideas. Jack is as honest as they come, and he thinks for himself. His thoughts on the dollar were right on. I don't know anyone else who thought this way.

Jack believes this trend of a higher U.S. dollar and lower gold prices will continue for longer than anyone thinks.

While the Great Deleveraging continues, I believe Jack will be right about the dollar. And I believe that, once the Great Deleveraging is over, the Great Inflation will come. Gold should soar then. So I'm not selling my gold just yet.

Either way, you can always count on Jack for a different view.

But think about this... if you follow the average path, you'll have average returns, at best. Extraordinary thinking can lead you to extraordinary returns.