What is next for Gold & Silver? (obsolute prices now removed)

[nirakar]

“… {The National Inflation Association} believes that a AAA rating should be reserved for countries that have budget surpluses, low levels of debt that could easily be paid off without printing money, and low levels of inflation.

They would say that but the ratings are supposed to reflect default risk, not inflation risk and the ratings are not supposed to be a way of scold bad governments unless the bad governments are creating default risk.

If US government debt is not AAA then 95% of the AAA rated corporate debt is also not AAA and should be downgraded.

There has alway been a bizarre double standard between the way S&P, Moody's and Fitch rate municipal bonds compared to how they rate corporate bonds. In observable history lower rated municipal bonds have substantially less default risk then higher rated corporate bonds. I have not heard and explanation for why the ratings agencies rate some municipal bonds irrationally low. I guess the reason why the ratings agencies rate some corporate bonds irrationally high is because those corporations are paying the ratings agencies.

I read an article that said the ratings agencies stopped being competent in about 1990.

 

[nirakar]

Almost everyone believes China has no choice but to buy US bonds and that ugly as it is, the dollar is the least ugly currency available as a “safe haven” and for international reserves.

What would happen if China decided to buy US Stocks and real estate instead of buying US bonds?

The US dollar being the safest haven may be true but it is pathetic. What about a basket of other currencies including the Brazilian Real? As soon as foreign investors stop pouring huge quantities of positive net investment into the USA the dollar will collapse so how safe is the safe haven of the dollar

I think China's need to invest large sums of money into the US is more about needing the USA as a partner for suppressing their currency than it is about needing acess to the global trading currency (the dollar) or seing the US dollar as a safe haven. The Dollar is only a safe haven because China props up the dollar. Most nations would get angry at China if China propped up their currency but the USA likes China propping up the dollar because that allows Americans to maintain their standard of living and allows American to believe that the US economy is fundamentally healthy. Other nations would not their currency propped up necause that would hinder their ability to export competitively in global markets. The USA does not know that it has to compete. American triumphalism just assumes everything will always be OK because Americans believe that the American people are superior to everyone else in the world and the American way of doing things is superior to every other nation's ways of doing things.

 

[Billy T]

...
If US government debt is not AAA then 95% of the AAA rated corporate debt is also not AAA and should be downgraded. ...
I read an article that said the ratings agencies stopped being competent in about 1990.

I agree with you and your article. If AAA means zero probability of default, then few should be so rated. The existence of a debt ceiling makes it possible for the US to be able to default, even with high capacity printing presses, as we also have a low capacity Congress.

 

[Billy T]

What would happen if China decided to buy US Stocks and real estate instead of buying US bonds? ...

First let me note I agree with rest of your post.

The main effect upon Americans would be to expose the fact that the US's fate is already in China's hands. China would be more secure as it would be getting things of lasting value it could use like coal fields, farm lands, trans continental railroads, shipping ports etc. for the iPods etc. it sends to Americans instead of paper.

That would not lessen the number of jobs for Americans, only make it the rich of China, instead of the rich of America*, who would be getting richer, while Joe American would still be getting black lung disease in the coal mines, agricultural toxins in the fields, killed in port and train accidents, etc.

For both reasons given in first pargraph, the US politicians do not permit significant buying up of the US by China. Recall China tried to buy UniCal (think that is the name) oil company a few years ago as it had large in ground oil reserves for its size.

*As one blatant example of the American rich getting richer, I point to the ~100 members of the Cargill family. - The private owners of one of the world's largest companies (many years it is the largest private company in the world, listed in Forbes’s report) Middle class tax payers send more than 100 million dollars each year as best as I have been able to compute, in farm subsidies to these 100 owners in their huge mansions on a Michigan lake. (I think that lake is private - owned by them too.) They are the seventh generation of the Scottish sea Captain founder, and also hold the record for length of corporation ownership within one family.

 

[cosmictraveler]

First let me note I agree with rest of your post.

The main effect upon Americans would be to expose the fact that the US's fate is already in China's hands. China would be more secure as it would be getting things of lasting value it could use like coal fields, farm lands, trans continental railroads, shipping ports etc. for the iPods etc. it sends to Americans instead of paper.

That would not lessen the number of jobs for Americans, only make it the rich of China, instead of the rich of America, who would be getting richer, while Joe American would still be getting black lung disease in the coal mines, agricultural toxins in the fields, killed in port and train accidents, etc.

For both reasons given in first pargraph, the US politicians do not permit significant buying up of the US by China. Recall China tried to buy UniCal (think that is the name) oil company a few years ago as it had large in ground oil reserves for its size.

Once China is able to buy businesses and property they will then send their own people over to work on that land and in those offices.

 

[Billy T]

Once China is able to buy businesses and property they will then send their own people over to work on that land and in those offices.

Nonsense. They will not even get into the US - No "green cards" etc. Even very desirable, well educated professional, can't get in.

 

[charles brough]

"... BVN, headquartered in Lima, Peru since it started operating in 1953, currently enjoys amazing fundamental growth. It owns a 43.65% stake in Yanacocha, Latin America 's largest gold mine and most profitable in the world, and is also involved in the production of silver, copper, zinc and lead.

The metals-price surge and increased sales in gold and copper helped push Buenaventura's second-quarter net income to $204.2 million, up 83% from the same quarter in 2010. Total second-quarter revenue was $343.3 million - up 52% from the same period a year before - with 70% generated from precious metals. The company generated $1.4 billion in revenue in the last twelve months. ..

. . . interesting post. . . Too bad you didn't buy it at $10 a share! I note how it has followed the price of silver rather well. Most silver stocks are hedged. Is this one? Anyway, I prefer the penny ones. I like extreme volitility!

brough
http://civilization-overview.com
I hate nit-picking!

 

[Billy T]

. . . interesting post. . . Too bad you didn't buy it at $10 a share! I note how it has followed the price of silver rather well. Most silver stocks are hedged. Is this one? ...

Most precious metal miners were heavily hedged five or more years ago. Part of the reason they have not done as well as the metal itself, is they have almost all bought their hedges back. -That is a loss mechanism in a rising price market. Now they will probably enjoy greater gains than the metals as their gain is the value of the metal less their production cost which rises only like inflation.

I don't know for sure that BVD is unhedged now. I have shares in about a dozen precious metal miners and one "silver streamer" which is doing very well. I have listed them all in prior posts. As far as my 100 sh of BVD is concerned, here is my buying and selling record:

Cost Basis 100sh = $1447.50 After selling 100sh at $29.92* on 19May09, Still have 100 sh BVN at $14.425 due to 2 for 1 split 23July08 (Bought 100sh BVN at $28.85 on 5/5/06 + one commission).

I don't follow daily as own too many companies to do so, but I just looked and BVD is at $41.75, just now.

* I have always been a sucker for selling half what I own when the stock price more than doubles. With the profits I typically cancel it with loss sales so the IRS gets none. I have such large profits in some shares that I can't afford to sell - I will die owning them and let my heirs get to mark up the cost basis when they inherit them.

 

[Pinwheel]

The stock markets are tanking, Gold and Silver are climbing.

Gold/Silver ratio hovering around 45.

 

[Pinwheel]

Golds' long term parabola....where will it end?

 

[quantum_wave]

One thing to take note of is the risk of leveraged paper gold like DGP 2X that moves at 200% of the change in gold price. It is an ETN, exchange traded note, backed by the full faith and credit of Deutsche Bank.

Not that I expect the bank to fail, but there are several risks associated with an ETN that you don't have with an ETF or with bullion (and coin) and the risk is a possible 100% loss of your investment if something happens to Deutsche Bank.

FYI, holders of the Lehman ETN's have lost all or have it tied up in litigation that will take years to settle at pennies on the dollar, if that. Be aware that with an ETN you are an unsecured creditor of the issuing bank.

But the ride up in DGP over the past three years was great, lol.

 

[Billy T]

Interesting facts:

"... The WGC estimates that Indian women as a group own more gold than anyone - about 18,000 tons - mostly in the form of jewelry. To put that number in perspective, the U.S. Federal Reserve only owns about 8,000 tons.

What Does the Weather in India Have to Do With Gold Prices?

India is one of the world's largest importers and consumers of gold bullion, mostly in the form of jewelry. Roughly 70 percent of India's annual gold purchases are made by rural farmers. Much of that is for wedding gifts. It's estimated by the Bombay Bullion Association that about 300 tons of gold per year are purchased as wedding gifts in India.

So when a healthy monsoon season rewards Indian farmers with bountiful crops, gold purchases soar. ..."

Billy T comment: And silly me thought it was China buying!

 

[Billy T]

Probably much of gold's >$100/oz drop today is due to:

" CME's initial margin requirements for gold futures were increased by 27% (from $7425 to $9450 per contract). Maintenance margin requirements were increased to $7000 from $5500. The move is effective at the close on August 25th. "

If so, expect more tomorrow as others sell to meet the new margin call, before it drops even more.

 

[Billy T]

A little off thread, and not meaning any endorsement, but does any one know anything about InterBank FX? They just sent me an Email offering their FX trading software which promises "one click" FX trading.

I do very little of that and only by using dollars I have physically brought to Brazil to buy Real. I am scard to even give them a try. - They may just be a scam that collects from my credit card and gives me nothing, etc.

 

[quadraphonics]

There has alway been a bizarre double standard between the way S&P, Moody's and Fitch rate municipal bonds compared to how they rate corporate bonds. In observable history lower rated municipal bonds have substantially less default risk then higher rated corporate bonds.

I saw it pointed out somewhere that a portfolio strategy based on betting against Moody's ratings (in government bonds only) would present a positive expected value of return. And vice-versa - if you put your money into the ones Moody's says are "safe," then you lose money.

 

[quadraphonics]

Nonsense. They will not even get into the US - No "green cards" etc. Even very desirable, well educated professional, can't get in.

?What are you talking about?

The USA gives out over 1 million green cards every year. Immigrants from Asia account for about 40% of those. Immigrants from China specifically are about 7.5% (second biggest share after Mexico) - around 75,000 Chinese people become permanent US residents every year. Most of those, are educated professionals.

Moreover, the size of this permanent-resident inflow has been on a steady growth trend since 1940.

http://www.dhs.gov/xlibrary/assets/statistics/publications/lpr_fr_2010.pdf

 

[Billy T]

?What are you talking about?

The USA gives out over 1 million green cards every year. Immigrants from Asia account for about 40% of those. Immigrants from China specifically are about 7.5% (second biggest share after Mexico) - around 75,000 Chinese people become permanent US residents every year. Most of those, are educated professionals. ...

Probably true, but irrelevant to the discussion about Chinese buying US companies and then bringing in from China workers to destroy jobs for Americans.

{post 265, in full}: Once China is able to buy businesses and property they will then send their own people over to work on that land and in those offices.

{post 266, in full}: Nonsense. They will not even get into the US - No "green cards" etc. Even very desirable, well educated professional, can't get in {and do that, implied}.

Thus it should be very clear “what I am talking about.”

I correctely said that Chinese cannot come to work in the US, not even for a US firm, and displace American workers. If it were Chinese firm trying to get workers into the US who would steal US worker's jobs – well that is the “snow ball in hell chance.” Here is the law /proof:

“…The Employment-Based Green Card Application is a 3-Step Process:

1. Labor Certification
Labor certification proves that there are no qualified United States citizens or permanent residents suitable for the position that has been offered to you.

2. Green Card Employment Petition
The petition proves that you qualify for a Green Card and that a job has been offered to you.

{Billt T insert: I.e. not only are there no Americans who can do the job, but you are qualified and can. Many, if not most, Chinese who can meet both (1) and (2) requirements come as teachers of Chinese language}

3. Green Card Employment Application
The Green Card application itself.…”

From: https://www.usimmigrationsupport.org/greencard-employment.html

Also:
“… the employer must legally prove that it has a need to hire an alien for a specific position and that there is no minimally qualified U.S. citizen or LPR available to fill that position, hence the reason for hiring the alien. Some of the requirements to prove this situation include: proof of advertising for the specific position; skill requirements particular to the job …”

From: http://en.wikipedia.org/wiki/Permanent_residence_(United_States)

SUMMARY: That you don't know what I am talking about in my post 266 reply to post 265, seems to indicate you have a reading comprehension problem.

 

[Billy T]

"...Gold rose above $1,900 an ounce on speculation that economic growth will slow and Europe’s debt woes will worsen, boosting demand for a protection of wealth.

European equities dropped after an election loss for German Chancellor Angela Merkel’s party spurred concern that support for bailing out Europe’s indebted nations may fade.

Bullion jumped 3.1 percent on Sept. 2, the most in almost four weeks, as data showed the U.S. jobs market stalled in August, prompting renewed speculation that the country’s economy may be headed for a recession...."

From: http://www.bloomberg.com/news/2011-...ope-economic-concerns-drive-haven-demand.html

Billy T comment: The are a lot of economic "black clouds" gathering now, but as is often said: "Every cloud has a gold lining."

I know its "silver lining" but silver is not keeping up with gold now - possibly as central banks are buying gold by the ton now, not silver.

 

[Me-Ki-Gal]

That is scary Billy . Not good not Good at all

 

[Billy T]

This news is a strong boost up for the price of gold:

"... Switzerland's the central bank announced it was pegging the national currency at 1.20 francs per euro in an attempt to rein in the export-sapping appreciation of the currency. ..."

I.e the gains to be made by buying the Swiss Frank are over. The rush for protection against decline in fiat money's value now will focus even more on commodities, especially gold.