Via Pension Pulse.

Before discussing my latest topic, I want to bring something to your attention. Frederic Bettan, Managing Partner & CEO of Swing Capital contacted me to include their fund in my post on Quebec's Absolute Return Fund.
Along with his partner, Michel Nahmany, they claim to run one of the
largest F/X programs in Quebec (and maybe Canada). I edited my comment
and will add more funds that I missed (just contact me).

There is a lot of alpha talent in Quebec but the problem is capital is
scarce and forget seeding funds. We need more families like the Bass
family in the US to come up here and take a gamble on our alpha talent. I
would put some of our guys up with the best and brightest in New York
and London. Why are they living in Montreal instead of these big
financial centers? Because the quality of life is better here, not to
mention that we have some of the prettiest women in North America (you
notice them right away when the weather warms up!).

On Monday, I
had lunch with one of the best Canadian convertible bond arbitrage managers
in Canada, Marc Amirault, President and CIO of Crystalline Management Inc.,
a fund that has delivered high risk-adjusted returns. What I like about
Marc is that what you see is what you get. He lost weight, quit smoking
(excellent decision!), and looked a lot better than the last time I saw
him. He's a very experienced manager who is a straight shooter and
takes care of his clients.

I respect a guy like Marc who has made
it in Quebec a lot more than anyone of those hot shot hedge fund
managers in New York or London. If you can make it in Montreal, you can
literally make it anywhere. What I like about him is his background. He
worked many years at the Caisse de dépôt et placement du Québec,
so he understands the ins and outs of pension funds. He had to claw his
way to success when he ventured off on his own. Nobody handed him a big
fat cheque with no strings attached.

And when it comes to
convertible bond arbitrage in the Canadian market, very few managers have his
experience or track record. He told me all about 2008, "a tough year,"
and how crazy the US contagion got up here. "At one point there was no
market for Canadian corporate bonds. Barrick Gold bonds -- A rated --
were trading 15% above US Treasuries" (crazy!) . Some of his fund of
funds clients redeemed but his pension fund clients stuck by him, and
his fund recovered nicely.

I told him if I were a hedge fund, I would try to avoid fund of funds as
much as possible, especially the hot money out of Switzerland and
Middle East, and stick with patient capital like pension funds. Most
fund of funds redeem at the first sign of trouble. And unlike the US, a
fund in Quebec can't just put up a gate to stop redemptions (that's kiss
of death up here). I also told him that some of the best hedge funds in
the world got whacked hard in 2008, including Citadel. Back then many
investors were redeeming from Citadel and I told people on my blog to
jump on the opportunity to get into that elite hedge fund (those who
took my advice made great returns).

Crystalline Management Inc.
has some capacity left. The fund is small and Marc will cap the
convertible arbitrage strategy at a certain size. As he told me, "I'm
not into the asset gathering game, focusing all my attention on
performance, and I don't like how a lot of the pension consultants
operate, full of conflicts of interest"(tell me about it!). If you're a
small or large pension fund, I urge you to contact Marc directly
(mamirault@arbitrage-canada.com) and meet with him and his team. An
investment in a fund like his can pay off in many ways because you won't
just be getting high risk-adjusted returns, you'll be investing in an
experienced manager in a niche market who understands the importance of process over performance
(not all convertible arbitrage funds are the same, some use a lot more
leverage than others!). Just the knowledge leverage he and his team can
offer you is worth the investment and he's thinking of branching out to
more liquid strategies so he can become a top performing multi-strategy
fund.

Now, let me get to my latest topic. Bill Tufts of Fair Pensions For All brought to my attention a recent Stats Canada study. He wrote an op-ed in Digital Journal, Pension gap creating tension between haves and have-nots:

#000000;">Statscan released a report today on the status of pension plans in Canada. Most Canadians do not have a pension plan while government workers do. Now more government workers have pension plans that private sector employees.

In its report Statscan shows that pension plan membership in the private sector is falling and that most public sector employee have access to gold-plated plans. Membership fell 2.1% in the private sector as more employees were dropped from plans and the public sector on a hiring spree increased the number of employees on it's plans.

#000000;">The
recent troubles in the economy have forced more and more companies to
reevaluate the viability of pension plans. Many companies have either
changed plans to defined contribution, frozen plans to new members or
closed their pension plans completely.

A defined
benefit pension plans is one where the company or taxpayer guarantees
an income for the employee in retirement. This contrasts with the
defined contribution plan where the employees can only draw income
against the funds that have accumulated inside the pension plan.

The Labour Force Survey
done by Statscan shows employment numbers at the end of 2009. The
pension plan membership numbers were also as of the end of 2009. At that
time there were 3.4 million public sector employees and 10.6 million
private sector employees. Those with defined benefit pension plans
included 2.8 million public sector employees (82%) and 1.7 million
private sector employees (16%).

The private sector has suffered
hardship over the past three years but the public sector has remained
unscathed. There has not been much discussion around the disparity
between public sector employees with gold-plated pension and private
sector with much lower coverage.

Earlier this year the LA Times wrote an article called The pension haves vs. the have-nots.
The article asked "Can the substantial disparity between public and
private sector retirement benefits be sustained much longer? We think
that it probably cannot". It cannot be sustained financially or
politically.

There is the implicit promise in defined benefit
pensions that the employer or taxpayer will make good for any pension
shortfalls and will be responsible for guaranteeing the income stream
promised to the employees in retirement. Governments at all levels are
starting to face serious challenges from pension shortfalls. Although
the public sector pensions have been trying to suggest that the fall in
stock markets was the main reason for the pension shortfalls, this is
only a small part of the problem.

The number one determinant of
rising pension costs is skyrocketing wages. We saw this when Ontario
Teacher's Pension Plan reported it's performance for 2010, a record year for investment performance,
yet the pension shortfall grew even bigger. The same story is
happening across Canada in municipalities, universities and other
government organizations.
An irritant
for taxpayers is the fact that government are depositing ever
increasing amounts of tax dollars into the public sector plans in order
to shore them up. The report from Statscan shows the numbers.

Total
employer and employee contributions to RPPs in 2009 amounted to a
record high of $53.4 billion. Employers contributed 71% of the total,
up from 67% in 2008.

About 33% of the employer contributions,
roughly $12.6 billion, were for unfunded liabilities, more than twice
the amount in 2008.

#000000;"> Statscan does not show if the
shortfalls were paid into public sector plans or private sector ones.
We do know the $12.6 million for shortfalls was paid into defined
benefit plans because defined contribution plans cannot have an
unfunded liability. This means that just the unfunded liability
contributions averaged over $2,700 per employee. On top of that there
was the additional $40.8 billion paid into these plans, the major
portion of it by the employer.

Last
year over 60% of Canadians did not make a contribution into their RRSP
account, the largest majority stated a lack of funds was the major
reason for not making a contribution. That did not stop them however,
from contributing heftily to the pension plans of their neighbors in the
public sector. Ever increasing portions of taxes are going into these
plans.

In 2009 the total RRSP contributions for all Canadians were $33.0 billion down from $33.3 in 2008.

Did you hear that ‘snap’ last week? It was the noise of most
important stock indices finally breaking their supports. Around the
world, markets have entered their downward acceleration. Most indices
are quickly nearing in on their long term moving averages (at 200 days)…
as we expected.

Investors didn’t take the recent standpoint of the Fed all that well.
Bernanke wasn’t alluding to a next round of Quantitative Easing, the ‘Elixir of Life’
of the economic revival and the rise of stocks in general over the last
few years. Now that the systemic problems are picking up steam again,
the fear of a looming crash arises.

In reality, these kind of mood swings usually means ‘Sell’ on the
market floors. As most traders are about to push their sell-buttons, no
one cares for fundamentals anymore. Everything is just dumped en masse.

This is what we experienced in the recent smallish sell-off.
Everything was thrown out, the most profitable trades of the recent
months (banks, techs) ahead, but also less evident sectors, like gold
mining stocks, were removed from the ports.

Gold prices have been steady hovering above $1,500/ounce. Still, the
major gold stock indices, like the HUI of the AUX, lost more than ten
percent. Due to the fierce pullback, gold stocks are now trading at the
same level beginning 2008. With that difference, the price of gold was
trading $900 per oz back then!

So the setback of gold stocks versus gold isn’t recent phenomena. The ratio has been lame for years now!

So why in god’s name are investors avoiding this asset class?

Because, in the end, fundamentals for gold companies have never been
better: cash flows are going very strong, with profits exploding over
the recent quarters! This, of course, doesn’t come as a surprise, with
gold rising over 50% during the period.

We even looked at the rise of their input costs, but no dramatic
increases whatsoever. Moreover, the price of oil was shooting up towards
$150 a barrel back in those days, while today, oil is costing about 30
percent less!

Also external factors, like natural disasters, big accidents, failed
acquisitions, fraud, … nothing major happened to shock investors.  We
even noticed that gold mining companies recently lifted their dividends
to allure investors. But thus far brought little relief.

We fear that the major issue with gold stocks is still the negative
stance of the investment crowd. The sentiment is reserved ever since the
crash of 2008. This is starting to lead towards extreme low valuations,
with market leaders like Newmont Mining and Barrick Gold trading at expected price-earnings ratios of 11x and barely 9x respectively!

This mismatch between gold en gold stocks won’t last much
longer, and will have two potential outcomes: the price of gold is on
the eve of a violent correction, or gold stocks are about to take off!

As the matrix for gold – a negative real interest rate in
combination with sustained financial stress – hasn’t subdued, on the
contrary, things are getting worse by the day, we are betting the farm
on the second option. Prepare for fireworks in the gold stock arena in
the coming months, as the price of gold will be creeping higher!

>>> The Gold & Silver Report

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With insolvent governments across the world preparing to tax the living daylight out of each and every profitable "externality", also known as any industry with abnormal profits, it was only a matter of time before the perpetual laggard, Africa, caught on, only in this case it is implementing "excise taxes" first. Bloomberg reports: "African countries are moving to grab a bigger slice of their commodity wealth as rivalry for the world’s remaining reserves of iron ore, uranium and gold sap the bargaining power of companies such as Anglo American Plc. Tanzania’s proposal to study a so-called super tax on mines sent African Barrick Gold Plc, the East African nation’s biggest producer of the metal, to a record low in June. Ghana, Namibia, Guinea, Uganda, Mozambique and Gabon also are acting to increase their share of profits from mining." Translation: as the OPEC oil cartel dies with Saudi Arabia unable to balance its fealty to the US, and specifically Obama's reelection chances, with its requirement to act as a monopolist, another one is born, and one whose cartel behavior will see commodity prices surge as soon as the market realizes that producers are forced to pass on incremental taxes to end consumers. Ironically, what will be the West's loss, is about to become a windfall for the developing economies who are doing all they can to stock up their own commodity reserves, further shifting the balance of power from the US to emerging markets.

From Bloomberg:

The balance of power is swinging in favor of African governments as commodity prices soar and Brazil’s Vale SA (VALE5) and China’s Minmetals Resources Ltd. join Western companies bidding for contracts. At the same time, policy makers are looking to finance investment in roads, rail links and power supplies that they say is essential to maintain growth that has averaged 5.7 percent across the continent over the past decade.

“The fact that Chinese, Brazilian and Indian companies are becoming much more involved in the African mining space means that Western mining companies are feeling squeezed,” Chris Melville, a London-based African mining consultant at Menas Associates, said in a June 14 telephone interview. “When you have more suitors, you can afford to be a little bit more selective and a little bit more demanding.”

This is not just a vague warning. It is happening across the continent:

Companies may have little choice but to pay more. The copper belt running through Zambia and the Democratic Republic of Congo holds 10 percent of world copper reserves, while Congo alone has two-thirds of cobalt deposits. Botswana says it has 200 billion metric tons of coal reserves and Guinea is the world’s biggest exporter of bauxite, the ore used to make the main raw material in aluminum production. The continent also has some of the world’s richest seams of uranium, platinum and gold.

Kenmare Resources Plc (KMR), a Dublin-based producer of titanium minerals in Mozambique, dropped 8.1 percent yesterday after the government said it plans to revise the country’s mining law and will seek to give the state a share of projects in “strategic sectors” such as coal. Kenmare’s managing director, Michael Carvill, said by phone today that the plans won’t affect its existing operation in the southern African nation.

London-based African Barrick Gold slumped 7.8 percent on June 8 to the lowest price since the stock started trading in March 2010, after Tanzania’s planning commission recommended the government consider a super tax. The company said in a statement on June 9 that its tax obligations were fixed by existing contracts and could not be changed.

Worse, this scramble for excising is not isolated to Africa:

Countries outside Africa are also raising taxes. Australia estimates that its plan to impose a 30 percent levy on iron-ore and coal profits will earn A$7.7 billion ($8.2 billion) in its first two years, the country’s Treasury Department said last month. The tax, which will help pay for road and rail projects, is scheduled to start in July 2012 after the laws are passed by parliament.

Brazil is studying an additional tax on its most profitable mining projects, the newspaper Folha de S.Paulo reported on June 21, without saying where it got the information.

“There’s definitely more competition and the mining companies that want to be here in Africa in the long run have to revisit to some extent their strategy in terms of how they negotiate concession contracts,” Melville said.

And while customers of Western based mining companies are set to experience a pass through surge in prices as producers have no option but to offset this incremental taxation, China is profiting:

China Union Investment Ltd. is developing a $2.6 billion
iron-ore deposit in Liberia, while Cnooc Ltd. (883) is helping to
exploit oil deposits in Uganda. China also has a $6 billion deal
with Democratic Republic of Congo to build infrastructure in
exchange for minerals.

We expect it will take about 1-2 months before the realization of this latest unexpected event, whereby even lowly Africa is starting to flex its muscles, reaches the market and commodity prices react accordingly, resulting in another round of across the board inflation.

Submitted by Chris Martenson

Gold Surging: Buy Mining Stocks? Not So Fast, Says Frank Barbera

With the astonishing recent price rise in gold, many investors are asking themselves: is now the time to move capital into mining stocks?

Frank Barbera, respected precious metal mining stock expert and editor of the Gold Stock Technician newsletter, has a viewpoint that will likely surprise many. While extremely bullish in the longer term, Frank sees too many risks in the near term and advises smart money to wait.

He cautions:

"I’ve been watching the mining stocks since 1983 so a fair amount of time that I spent watching the group. I have a wide variety of unique technical indicators on the sector and as I started to see the stock market topping out over the last two to three weeks I wrote my readers a note to say the mining stocks are also very overbought. Mid July we saw one of the second most overbought readings on the XAU, on the arms index in five years. And that kind of reading is a big warning and so I’m not surprised to see them going down. The last letter I put out I told subscribers that I thought the mining stocks could get cut in half in here and I’m going to stick with that. I think we’re looking at a 30 to 50 percent decline over the next six months.

The XAU, which recently peaked out at around 220, I think you could see that close to 110 before this decline is complete.

So, now, why is that? Really, the truth seems to be that a lot of these assets have been very, very highly correlated and that mining stocks are a "risk on" asset. Now there are a lot of very competent analysts out there that have been strongly recommending them, pointing to the idea that the stocks are, quote, "cheap". When you look at Barrick Gold or Newmont Mining you see 13, 12 times earnings, multiples relative to cash flow that are near multi-decade lows. I don’t disagree with any of that. I think that the mining stocks are a great value on the fundamentals.

On the other hand the equity market looks like it could be heading for a very substantial decline and I think that mining stocks – they have not shown the ability, at least not yet, to decouple from the equity market. Now, clearly nothing is cast in stone and I sort of evaluate this day to day but, you know, if you look at the past data it really suggests that they’re going to get hit if the market goes down.

And, at some point I think what you’ll see is I’m looking for a bear market in equities over a period of a couple of months. I think during that period of time you will see gold go through the roof, the physical metal. I also think you’ll see some nice upward progress in silver. I’m in the camp where I think silver is going to act like a monetary metal. Sure they may pull back here in the short term but I think there’s a real opportunity there for silver to turn the corner especially if we get another Jackson Hole special come the end of August with Dr. Bernanke and more QE. I think silver will light up like a firecracker. But, the mining stocks, they need to simply fall to a bigger discount to the underlying metal. And, at some point then if we end up getting into a really strong dollar movement of the downside I think that’s when you might down the line a bit you see the mining stocks turn.

Now I also want to make another point that’s very important. I think that ultimately this shakeout in the mining stocks, we don’t have to put numbers on it but let’s call it a substantial decline. Once that decline is over I think they will reach a low probably into the first quarter of next year in 2012 and from that point I think you’ll see a multiyear bold market in the mining stocks where they play catch up to where they should be and then to where metal prices will be. So I think that it’s going to be very volatile and right now they’re decoupling and that decoupling may stretch out dramatically but then they’ll eventually catch up. So I still see an enormous opportunity there but I think that mining stock investors may have to wait awhile to capitalize on that opportunity."

Also in this interview:

• How the technical charts for the dollar are signalling increasing risk of a dramatic downside breakdown in the second half of 2011
• The growing risk of the European crisis to further roil the currency markets
• Multi-currency strategies for the individual investor

Click here to listen to Chris' interview with Frank Barbera (runtime 40m:45s):

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Or start reading the transcript below:

Chris Martenson: Welcome to another www.chrismartenson.com podcast. I am, of course, Chris Martenson and today we are talking with Frank Barbera one of the top experts on precious metal mining companies and editor of the very well respected Gold Stock Technician newsletter. In his analysis for investors, Frank overlays a macro outlook on top of a highly rigorous technical analysis and employs a market-timing approach to reduce the inherent volatility within this very high beta sector. So for many years now, Frank has also managed private equity capital most notably for the Caruso Fund with particular focus on precious metals, energy, currencies, all things of, I know, intense interest to our listeners here. Frank, we’re delighted to have you here. With all the recent action in gold, we have a lot to talk about.

Frank Barbera: You bet Chris. Thank you for having me.

Chris Martenson: Oh, my pleasure. Now, you know, gold’s up a 180 dollars an ounce since early July. What do you see as some of the key drivers behind this? You know, how much momentum does this run up have in your estimation?

Frank Barbera: Well, strangely enough, you know, I know there are a lot of people out there who are saying that gold could be a bubble and that maybe it’s going to come down sharply. Right now, I would strongly disagree with that. I think when you take a survey of what’s going on in the world and you look at Europe. Europe is in the midst of a major banking crisis, a banking crisis that could have widespread contagion from not only Europe but back to the United States through the credit default markets. And the U.S. also has, as we’ve seen now, major debt problems and a very difficult situation in terms of an economy that seems to be relapsing back into recession and that, once again, is putting massive pressure on the Federal Reserve to try and do something to ameliorate what looks like is shaping up to be another hard landing. You look at all of these factors and what it adds up to is gigantic uncertainty. And it is that uncertainty which is under painting the move higher in precious metals. Another important point which your listeners should really take into consideration is the fact that this is a climate where because global growth is slowing, short term interest rates especially here in the United States are really locked at zero.

Now, depending on what metric of consumer prices you want to look at – let’s say we take this fairly horrible CPI that’s constructed at 2% inflation. Right now you have negative real rates in the United States. And if you go back over a historic period of time and you look at negative real rates and the price returns on gold, gold does very, very well as long as short term rates are in negative territory. Now when short term rates are normalized and they move above the rate of inflation that at that point can become a problem for gold. I don’t see any way that that’s going to happen for the longest period of time especially when you start to look at some of the recent economic data that’s coming out of the States. We see very weak employment. We see GDP backward revisions as far as 2003; they went back just recently to downwardly revise the GDP data, the recent quarter coming in at about 0.38 with final demand at around 0.08. So you have a comatose growth situation here in the United States. No growth, chronically high structural employment - that is a situation where it’s impossible to see how short term interest rates are going to start to move up. So I think negative real rates are here to stay and gold will continue to surge.

Right now, Chris, the other thing that’s really amazing about all this is like you said, we’ve had this strong move up in precious metals prices, in gold prices. But remarkably, from a technical point of view we really have not seen any kind of bullish enthusiasm. It’s slowly starting to creep into the market over the last day or two but I look at dollar-weighted call-to-put options data each day and that tells me a lot about how much money is flowing into calls and how much money is flowing into puts. And, right now, even though we’ve gone to $1660 on the gold price we have not seen those call-to-put ratios move up to readings near two and a half or three to one, which would typically tell us we’re getting into a frothy market. They’ve been hovering around 160, 170, and that tells me that there’s still plenty of room to go. Also, on a momentum basis, if you look at moving average convergence, divergence, which is called MACD or RSI. We’re seeing strong momentum confirmation by the move up in the precious metals - outstanding relative strength. To me this tells me that gold could easily surge in coming weeks towards the 1800 level and I have really very little doubt in my mind that we’ll see 2000 over the next two to three months. So I think the price is going sharply higher from here.

Chris Martenson: So against that though we see that the USD is up about a full tick today, up almost 1.4% at 75. It looks like a decent pop for the day but it seems almost maybe stuck in a range. How are you looking at the dollar now which is the anti-gold?

Frank Barbera: Well, that’s a good point and I’m glad you brought that up. The one caveat I would have with gold in the short term is that you could see a very short-lived pull back. So this is not something that I think investors should really be terribly worried about but I could see something, for example, like the GLD pulling back towards maybe the 155 to 160. We’re at 160 right now but about the 155 to 156 area. So you could have a couple more days of strength in the dollar and you might get a few more days of short-term weakness in the gold price but I think within a couple of days were going to make another low in the gold market and then from there the price will turn higher and begin another large trending move to the upside. So in the very short term I do think we’re going to see a little bit more dollar strength. The dollar index is at about 75.02 as we speak here on a Thursday morning up about a buck. I think you could see a push up towards about 77.5 maybe 78 over the next four to five days.

And, now there’s one other little caveat. The dollar is showing a very, very weak pattern. When we talk about poor quality rallies this is really the textbook definition of a poor quality rally. So I’m not really that sure that we’ll even make a move to 77 but I’m allowing for the possibility that it could do that over maybe the next week or so. That could correlate to some kind of a short-term period of weakness in the gold price and at that point then I think we’ll probably start to see signs of a reversal back to the downsize in the dollar and a reversal back to the upside in gold. So, you know, one of the things I would really recommend to listeners is to not worry too much about short term moves. This is one of those times you really have to think big picture. If you’re very concerned about getting the best price, break up the capital that you have into smaller increments and dollar cost your way into the market in stage tranches because trying to put too fine a point on any of these markets right now is not the greatest idea. But, for what it’s worth I do think we’ll see a little more bounce in the dollar and short term pullback in gold and then I think gold will reverse higher. 

Click here to read the rest of the transcript.

Note: Listeners interested in the conclusions expressed within this interview will also want to read Chris' recent report on The Screaming Fundamentals For Owning Gold And Silver, which takes a deep dive into the data behind the supply and demand imbalances in the bullion markets.

For six years, SmartKnowledgeU has been revealing dirty secrets about the global commercial investment and banking industry and building considerable wealth for our clients at the same time. The key to earning positive returns in your portfolio during a horrible month for global developed stock markets around the world in August was to concentrate, not diversify, your assets. In fact, this has been the key to earning positive returns in your portfolio for years on end now. From the very first day I launched my newsletter in June of 2007, I have chosen to concentrate, not diversify, my newsletter portfolio in very few asset classes for my analysis for the past several years has told me that only a few asset classes will return significantly positive returns and that diversification is not only a waste of time, but a poor investment strategy. The commercial investment industry calls concentration short-sighted, risky, and foolish, but only because this means that the financial consultants that they hire actually have to be able to allocate portfolios intelligently rather than just spending the bulk of their time dialing-for-dollars to bring in the most fee-based income possible. In my world, concentration of assets is not only an intelligent strategy but one that is far more solid and far more rewarding to my clients.

In 2008, I publicly predicted that US markets would crash just 18 trading days before US markets started a slide that saw it lose about 50% of its value. That year, when major developed markets ended up losing 38% to 40%, we still returned positive returns to our investment newsletter clients precisely due to our strategy of concentration and our aversion towards diversification. For six years now, I’ve said that diversification is a sell-side strategy that fattens commercial investment firm executive’s wallets at their clients’ expense even as commercial investment firms continue to sell this rubbish strategy to their clients. My claim has drawn the ire of more than a handful of commercial investment financial consultants. However, convincing clients to believe in the “intelligence” of a diversification strategy that simply has ceased working for years is what puts food on the tables of many financial consultants and keeps food off of yours. Ask yourself, when was the last five-year period that diversification strategies helped you achieve a significantly positive cumulative return? Can’t remember the last 5-year period in which this has happened, can you?   Since I launched my investment newsletter, I have concentrated my newsletter’s portfolio in hard assets and commodity-based stocks every single year. Some years, my newsletter portfolio may contain almost nothing but gold and silver based assets while in other years, I may choose to hold some agricultural and energy based stocks as well. This type of strategy is anathema to all commercial investment industry financial consultants and advisers who are trained to believe that diversification is an absolute must. Of course if you choose to concentrate a portfolio in the wrong assets, you will lose the bulk of your clients' money every year. This is precisely why nearly all commercial investment industry consultants and wealth "advisers" choose not to concentrate. Diversification serves as a cover for the fact that the great majority of commercial investment industry employees know little more about markets than you do and are nothing but glorified salesmen and saleswomen in fancy suits and expensive cars, thanks to the large fees their clients pay them every year. Think about it. Did you really need a Private Wealth Manager to lose 35% to 40% of your portfolio's value in 2008? I'm sure most people could have done that on their own and saved the fees associated with being a client of a "prestigious" investment firm. When I used to work for a commercial investment firm before I walked out on the immorality of the industry, I was actually instructed to prime my clients to expect a portion of their portfolio to underperform every year.

I was trained to parrot to my clients that it was impossible to know what sectors would rise and what sectors would fall in the coming year and to support my dog and pony show with charts and data that would illustrate this point in order to legitimize it. But statistics can often be manipulated to prove a point, even when that point is wrong. Of course, in reality it was impossible for me to know what sectors would rise and what sectors would fall every year. Why? Not because I couldn't do it, but because the firm I worked for wanted me to spend all my time meeting with prospects and closing deals. Consequently, where in the world would I actually find time to analyze markets and formulate an intelligent opinion about which assets would rise and which assets would fall? When I worked for the commercial investment industry, I probably spent 95% of my time marketing and 5% of it studying markets. Since I left the industry many years ago to start my own firm, this ratio has completely reversed. Now I probably spend 5% of my time marketing and 95% of my time analyzing markets to ensure my clients stay very profitable throughout this deepening global economic and monetary crisis.  

Diversification is the big fat lie that the commercial investment industry desperately needs you to believe in, even as your portfolio size continues to shrink. Even famed investment guru Jim Rogers agreed with me two years ago and publicly declared that the diversification strategy, in his words, was a “scam” designed to bilk clients of money and enrich the executives of commercial investment firms. The job of anyone that works in the investment industry should be to determine what sectors will be up every year, what sectors to avoid every year, and how to maximize our client’s profits. This is what our clients pay us to do. However, this is not the goal of the commercial investment industry. The goal of the commercial investment industry is to maximize their bottom line even if it minimizes yours. This is why my investment newsletter has outperformed all diversified major global developed stock market indexes by 20% to 45% every single year. This is why from the launch of my newsletter until August 30, 2011, my newsletter has yielded a cumulative +226.61% return to my clients while the diversified S&P 500 index has yielded a negative 20.89% loss to its clients during the exact same investment period (in a tax-deferred account).

I realize that the level of brainwashing from the commercial investment industry regarding the "intelligence" of diversification is quite strong. I still, on occasion, receive emails, from a potential customer that chooses not to buy our investment newsletter after reading a couple of sample issues, due to his or her shock regarding our concentration strategy. A typical response from someone that has been brainwashed by the commercial investment industry would be the following: "I can not justify buying a newsletter that is so risky and so heavily concentrates its portfolio. When gold and silver crash, your portfolio will be wiped out. I will continue to diversify. Thanks but no thanks." The lie the commercial investment industry continues to spread about concentration is that it may lead to enormous gains at times, but that the enormous gains are only achieved with great risk. If this were true, then the most positive years I've achieved (a +63.32% yield in 2009) should have been offset by enormous losses in 2008. For if one is taking great risk to achieve very significant gains then during negative years, that great risk should translate into much worse performance as well. Instead, in 2008, when all developed global stock markets lost 35% to 40% for the year, I was still able to achieve positive gains that year as well. So much for the concentration is risky lie.  

For four years, I have chosen to heavily concentrate my newsletter’s portfolio in gold and silver assets among a few other very select asset classes. If one looks at the below chart of the AMEX HUI Gold Bugs Index, an index of gold mining stocks, one may wonder how in the world one could ever achieve enormous returns by investing in gold and silver mining stocks.    

From June 15, 2007 until August 30, 2011, the HUI, despite all the volatility that is evident in the above chart, the HUI has still returned a positive cumulative return of +81.69%, outperforming the S&P 500 and other various major global stock market indexes by more than 102% over the same time period. Take a look at the chart of the diversified US S&P 500 over the same time period. The commercial investment industry has worked their hardest to brainwash you to believe that diversification equals safety.   Does the chart of the very diversified S&P 500 index below look any less volatile to you than the chart of the gold miners index? Furthermore, if you have to endure such volatility, would you not rather endure such volatility and be sitting on a cumulative +81.69% gain (the HUI Gold Bugs Index returns) versus a -20.89% loss (the S&P 500 returns)?

Furthermore, the commercial investment industry fails to inform you that the very firms they work for deliberately create periods of massive volatility in gold and silver to the downside at times for the very purpose of confusing investors and preventing them from concentrating in the only assets that will save their financial well-being. For example, due to my understanding of banker manipulation of gold and silver prices, I have predicted intra-day price declines and rises in gold very accurately on my twitter account even though the information I provide through my tweets is only about 1% of the information I provide to my clients on a regular basis. Because much of the downside volatility in gold and silver is artificially induced and engineered by bankers to scare investors away from this asset, the commercial investment industry fails to inform its clients that one can actually leverage this volatility, as long as it is understood properly, to further enhance gains. Just check my article here, written just a few weeks ago, where I posted the below chart and informed all my blog readers that gold and silver stocks were a great buy because they were heavily undervalued. Since my post, gold and silver stocks have strongly risen.

For example, had you bought any number of gold mining stocks at the point I advocated buying on the chart above, as of yesterday’s market close, Newmont Mining has risen +12.91%, Barrick Gold by +10.89%, and Royal Gold by +20.77% in just the past several weeks just to name a few of the gold stocks that really took off higher in price. And had you entered gold mining stocks at the point I advocated just a few weeks ago, you would now be able to weather any subsequent correction in price in the mining stocks, should it develop over the next week, with little worry.   Artificial banker manufactured downsides in gold and silver assets always provide an opportunity to buy assets on the cheap at various points throughout the year. By using the volatility as an opportunity rather than being fearful of it, I was able to produce a +226.61% cumulative return to my clients during the same four-year period that the HUI Gold Bugs index returned a +81.69% return. So please don’t continue to be fooled by the commercial investment industry propaganda about gold and silver. Ensuring that you correctly view its volatility as an opportunity to enhance gains instead of viewing its volatility as a negative, and ensuring that you transform your belief about gold and silver from an erroneous belief that they are risky assets into a correct belief that they serve to protect your wealth may very well save your financial life in the next few years.  

About the author: JS Kim is the Founder, Managing Director & Chief Investment Strategist of SmartKnowledgeU, a fiercely independent investment research and consulting firm that seeks to expose the many fraudulent concepts of Wall Street, uncover the best ways to invest in gold and silver, and protect and grow the wealth of our clients.

Remarks By Chris Powell
Secretary/Treasurer, Gold Anti-Trust Action Committee
18th CLSA Investors' Forum
Grand Hyatt Hotel, Hong Kong
Wednesday, September 21, 2011

As gold price suppression grows more brazen, maybe Asia will defeat it

The speaker following me, George Clooney, will be able to tell you what it's like to be handsome, talented, rich, and famous. I could tell you what it's like not to be. But instead the conference has asked me to talk about gold, which at least might make you rich, or help you preserve some of whatever you've got.

This opportunity is full of risk, because the gold market long has been manipulated by Western central banks to restrain the gold price. The Western central banks are slowly losing control of the market but they are not giving up easily.

Why do Western central banks manipulate the gold market?

The gold market is manipulated because, despite Federal Reserve Chairman Ben Bernanke's insistence to Congress a few weeks ago that gold is not money, just "tradition," gold is indeed a currency that competes brutally with government-issued currencies and helps determine not only the value of those currencies but also interest rates and the value of government bonds.

Gold's competition with currencies was documented in an academic study published in June 1988 in the Journal of Political Economy written by Harvard economics professor Lawrence Summers and University of Michigan economics professor Robert Barsky. Summers and Barsky found that, in a free market, there is an inverse relationship between the price of gold and the real rate of interest:

http://www.gata.org/files/gibson.pdf

The Summers and Barsky study implied that if governments could get control of the gold price, they could also get control of interest rates. Of course Summers went on to become deputy U.S. treasury secretary and then treasury secretary, positions in which skill in rigging markets is a great asset.

Exactly how is the gold price rigged, and by whom?

It has been rigged openly through outright sales of gold by central banks, as it was rigged openly in the 1960s by the group of Western central banks that operated what became known as the London gold pool, and, following the gold pool's collapse in 1968, rigged both openly and surreptitiously through central bank sales and lending of gold and by bullion bank short positions and derivatives that are supported by access to Western central bank gold.

The Gold Anti-Trust Action Committee has documented this rigging from official sources whose admissions are compiled in the "Documentation" section of our Internet site:

http://www.gata.org/taxonomy/term/21

That is, the gold price suppression scheme is not what it is sometimes disparaged as being, "conspiracy theory." Rather it is a matter of the most extensive public record -- at least for those who want to look at the record.

These records include:

-- Public statements by Federal Reserve officials, officials of other Western central banks, and the International Monetary Fund.

-- Declassified Central Intelligence Agency memoranda.

-- The minutes of the Federal Reserve’s Federal Open Market Committee.

-- Filings and statements in three gold price suppression lawsuits in the United States; one brought by my committee’s consultant, Reginald H. Howe, against central banks and bullion banks in U.S. District Court in Boston in 2001; another brought by Blanchard Coin and Bullion against Barrick Gold Corp. in U.S. District Court in New Orleans in 2003; and the third brought two years ago by my organization against the Federal Reserve in U.S. District Court for the District of Columbia.

-- These records also include declassified or leaked U.S. State Department cables.

-- Statistical studies done by market researchers like Adrian Douglas in the United States and Dimitri Speck in Germany.

-- And testimony at the hearing about the precious metals markets that was held on March 25, 2010, by the U.S. Commodity Futures Trading Commission. That hearing produced testimony that led to the filing of a massive silver price rigging lawsuit against J.P. Morgan Chase. The revised complaint against J.P. Morgan Chase, filed last week in U.S. District Court for the Southern District of New York, contains pages and pages of extraordinarily specific detail, identifying trades, traders, and dates:

http://www.gata.org/node/10448

An especially incriminating document remains on the Internet site of the Federal Reserve Bank of St. Louis. It is a detailed plan from April 1961, discovered in the archive of the Fed’s longest-serving chairman, William McChesney Martin, for surreptitiously rigging the currency and gold markets worldwide, a plan that went so far as to propose the alteration, falsification, or withdrawal from publication of U.S. government financial reports that otherwise would be incriminating:

http://fraser.stlouisfed.org/docs/historical/martin/23_06_19610405.pdf

And:

http://www.gata.org/files/FedBlueprintForIntervention.pdf

My organization possesses and has posted these records on the Internet, and I would welcome an opportunity to examine and discuss them in detail, document by document, with any doubters in a public forum.

But the official record of gold price suppression is not merely historical. Thanks to my organization's work, it is very contemporary as well.

Two years ago, using the federal Freedom of Information Act, the Gold Anti-Trust Action Committee asked the Federal Reserve to provide access to its gold records, particularly its records involving gold swaps. Gold swaps are trades of gold between central banks, enabling one central bank to intervene in the gold market at the behest of another, keeping the other central bank's fingerprints off the intervention. Gold swaps are a primary mechanism of the gold price suppression scheme.

While the Fed refused to give us access to its gold records, in adjudicating our request internally the Fed did make, perhaps inadvertently, a sensational disclosure. On September 17, 2009, the member of the Fed's Board of Governors who was acting as the judge of our request, Kevin M. Warsh, wrote a letter to GATA's lawyer, William Olson of Vienna, Virginia, confirming the Fed's denial of access. Among the records being withheld from us, Warsh disclosed, were records about the Fed's gold swap arrangements with foreign banks, which, he wrote, "is not the type of information that is customarily disclosed to the public”:

http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

This admission that the Fed has gold swap arrangements with foreign banks plainly contradicted previous statements by the Fed that it was not involved in the gold market in any way.

As GATA was not willing to let Fed Governor Warsh's letter be the last word on access to the Fed's gold records, on December 31, 2009, we sued the Fed in U.S. District Court for the District of Columbia under the Freedom of Information Act. The Fed told the court that the Fed really couldn't find many records involving gold. Implausible as this was, the judge, Ellen Segal Huvelle, denied GATA's request to interrogate Fed officials under oath about what seemed to us to be their wholly inadequate search. Whereupon the judge reviewed, privately in her chambers, the few documents the Fed had submitted, and on February 3 this year she ruled that the Fed indeed could keep secret all but one of those documents. She ordered the Fed to disclose that one document to GATA within two weeks.

On February 18 this year, heeding the court's order, the Fed released the document -- the minutes of the April 1997 meeting of the G-10 Gold and Foreign Exchange Committee as compiled by an official of the New York Federal Reserve Bank. The minutes showed government and central bank officials from around the world conspiring in secret to coordinate their gold market policies:

http://www.gata.org/node/9623

Perhaps of equal importance, the Fed claimed not to be able to find minutes of any other meeting of the G-10 Gold and Foreign Exchange Committee. Either the the G-10 Gold and Foreign Exchange Committee has met only that once, in April 1997, or the Fed was not represented at any other such meetings, or such minutes were conveniently misplaced to keep them away from GATA's lawsuit.

Thus GATA's lawsuit established that, despite its public denials, the Fed has many gold secrets after all. Our lawsuit also managed to pry a couple of those secrets loose and publicize them -- first, that the Fed has gold swap arrangements, and second, that at a secret meeting in 1997 the Fed was conspiring with other central banks to coordinate their gold market policies and that there was never any announcement of this undertaking.

Almost as gratifying to us was that, since the court found that the Fed illegally withheld from us the minutes of the secret G-10 Gold and Foreign Exchange Committee meeting, the Fed was ordered to pay court costs to GATA, which the Fed did in May, sending us a check for $2,870.

But the Fed is far from the only central bank that has been proven to be involved in suppressing the price of gold.

In August 2009, while GATA was pressing its freedom-of-information claim against the Fed, our consultant, Rob Kirby of Kirby Analytics in Toronto, wrote to the German central bank, the Bundesbank, to confirm a news report that most of the German national gold was being kept outside Germany, particularly in New York, presumably at the New York Fed.

The Bundesbank replied to Kirby as follows:

http://www.gata.org/node/7713

"The Deutsche Bundesbank keeps a large part of its gold holdings in its own vaults in Germany, while some of its gold is also stored with the central banks located at major gold trading centres. This has historical and market-related reasons, the gold having been transferred to the Bundesbank at these trading centers. Moreover, the Bundesbank needs to hold gold at the various trading centres in order to conduct its gold activities."

So the Bundesbank says it keeps much of its gold at "trading centers" so that it may conduct its "gold activities."

Exactly what are those activities?

In late 2010 the German journalist Lars Schall sought to follow up with the Bundesbank, posing 13 questions about those "gold activities," particularly as to whether the Bundesbank has any gold swap arrangements with the United States. The Bundesbank replied to Schall as follows:

http://www.gata.org/node/9363

"In managing foreign reserves, the Bundesbank fulfils one of its mandated tasks as an integral part of the European System of Central Banks. We trust you will understand that we are not able to divulge any further information regarding this activity. Particularly with respect to the confidential nature of information about where gold holdings are kept, we are unable to go into any greater detail concerning exact locations and the quantities stored at each of these. Likewise, owing to the strategic nature of the activity, we are not at liberty to provide you with more detailed information about gold transactions."

That seems like a pretty good confession that the Bundesbank has undertaken gold swaps as part of what it considers "strategic activity."

Another confession of the secret maneuvers being played with gold by central banks came at the hearing held by U.S. Rep. Ron Paul's House Subcommittee on Domestic Monetary Policy and Technology on June 23 this year, a hearing I attended. The Treasury Department's inspector general, Eric M. Thorson, testified that he had been told that no part of the U.S. gold reserve was encumbered or compromised. But he did not say exactly who told him this, so his comment was only hearsay. And when Thorson was asked just where the gold pledged by the United States to the International Monetary Fund is kept and how it is accounted for, Thorson couldn't say:

http://www.gata.org/node/10037

Three years ago when GATA put similar questions to the IMF -- "Exactly where is your gold, and do you possess it directly or is it just a claim on the gold reserves of your member nations?" -- the IMF was at first evasive and then abruptly cut off the correspondence without answering:

http://www.gata.org/node/6242

But then most official gold data is actually disinformation.

For the six years prior to 2009 China reported to the IMF that it held 600 tonnes of gold. But in April 2009 China reported that its gold reserves had increased by 76 percent, from 600 tonnes to 1,054 tonnes. Had China obtained the new 454 tonnes only in the past year? Of course not; China had been accumulating gold steadily, through its foreign exchange agency, without reporting it for six years. Only in April 2009 was the gold transferred from China's foreign exchange agency to its central bank and reported to the IMF:

http://www.gata.org/node/7380

There is more confirmation of the false reporting of gold reserves. In June 2010 the World Gold Council reported that Saudi Arabia had increased its gold reserves by 126 percent since 2008, from 143 tonnes to 323 tonnes. But a few weeks later the governor of the Saudi Arabia Monetary Authority said Saudi Arabia had not been purchasing gold lately and that the 143 tonnes in question had been held all along in what he called "other accounts" -- exactly what China had done, holding gold in accounts not reported officially:

http://www.gata.org/node/9094

Thanks to diplomatic cables from the U.S. embassy in Beijing to the State Department in Washington, cables obtained by the Wikileaks organization and published this month, we now know that the Chinese government agrees with GATA that Western central banks suppress the price of gold to support their own currencies.

One U.S. Beijing embassy cable, dated April 28, 2009, summarizes a commentary attributed to the Chinese newspaper Shijie Xinwenbao (World News Journal), which is published by the Chinese government's foreign radio service, China Radio International. The cable's summary reads:

"According to China's National Foreign Exchanges Administration, China's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the United States and European countries. The United States and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the renminbi."

Two other U.S. Beijing embassy cables from the same period quote other semi-official Chinese commentaries to the same effect.

These cables also are posted in the "Documentation" section of GATA's Internet site:

http://www.gata.org/node/10380

http://www.gata.org/node/10416

Because central banks know that gold, far from being a quaint antique, is actually the determinant of the value of all other currencies, the true disposition of national gold reserves has become a secret more sensitive than the disposition of nuclear weapons. For gold is a weapon just as powerful -- a weapon crucial to the currency wars that flare up every few years, like the currency war that is raging now.

That is, gold is the secret knowledge of the financial universe. And while nuclear weapons can be used for blackmail, currency market rigging is a far more effective mechanism for looting the world.

Many of you have heard about the looting of Europe undertaken by the Nazi German occupation during World War II. But most of that looting did not take place as it is imagined, at the point of a gun. No, it took place through the currency markets.

This looting through the currency markets was spelled out by the November 1943 edition of a military intelligence letter published by the Military Intelligence Division of the U.S. War Department, a letter called Tactical and Technical Trends:

http://www.gata.org/node/10457

Of course the Nazi occupation seized whatever central bank gold reserves had not been sent out of the occupied countries in time. But then the Nazi occupation either issued special occupation currency that could not be used in Germany itself or, in countries that had strong banking systems, took over the domestic central bank and enforced an exchange rate much more favorable to the reichsmark. Or else the Nazi occupation simply printed for itself and spent huge new amounts of the regular currency of the occupied country.

It was this control of the currency markets that very efficiently drafted everyone in the occupied countries into the service of the occupation and achieved a one-way flow of production, a flow out of the occupied countries and into Nazi Germany.

For a few years Nazi Germany had a hell of a trade deficit -- and couldn't have cared less about it. For as it controlled the currencies of occupied Europe, Nazi Germany never had to cover that deficit, at least not as long as its military occupation continued.

Since the United States now issues the reserve currency for the world, the dollar, the United States now more or less occupies most countries economically, even those countries that have their own currencies, since even those countries choose to hold most of their foreign exchange reserves in dollars. Thus what we see now, the current one-way flow of production -- out of the rest of the world and into the United States.

This exploitation is not well-publicized but it is no secret.

In the 1960s France's finance minister called it an "exorbitant privilege" for just one country -- the United States -- to be able to issue the world reserve currency.

In 2004 the deputy chairman of the Bank of Russia, Oleg Mozhaiskov, told the London Bullion Market Association conference held in Moscow:

"Although there are several reserve currencies, the blatant lack of discipline is demonstrated by the U.S. dollar. I am leaving aside the main aspects of this problem, such as the social and economic injustice of a world order that allows the richest country in the world to live in debt, undermining the vital interests of other countries and peoples. What is important for us today is another aspect, which is connected with the responsibility of the state issuing the reserve currency and for the international community preserving that currency's buying power."

Mozhaiskov recognized the role of gold price suppression in maintaining the dollar's place as the world reserve currency. For the only words of English spoken by Mozhaiskov in that speech were "Gold Anti-Trust Action Committee." Mozhaiskov said gold price movements were often so "enigmatic" that the laws of market supply and demand did not seem to apply. The Bank of Russia long had been following GATA's work without our knowledge. With his speech in 2004 Mozhaiskov was telling the Western bullion bankers that Russia was on to them:

http://www.gata.org/node/4235

And just a few weeks ago Russia's prime minister, former president, and perhaps future president, Vladimir Putin, called the United States a "parasite" on account of its huge external debt and the international dominance of the dollar:

http://www.gata.org/node/10193

The gold price suppression scheme -- a dollar-support scheme -- can be exposed by any serious questioning of central bankers. My organization has found that central bankers refuse to answer the most ordinary specific questions about gold. But who else will ask the questions? The scheme survives in large part because of negligent journalism about gold.

The scheme has lasted so long because, with the assistance of Western central banks, the major Western bullion banks, investment houses that deal in gold, have developed a fractional-reserve gold banking system. They realized that they could sell a lot more gold than they really have, because many major gold buyers -- financial institutions and large investors -- never take delivery of their metal. These investors accept depository receipts instead. The fractional-reserve nature of the bullion banking system was confirmed in detail at last year's hearing of the U.S. Commodity Futures Trading Commission:

http://www.gata.org/node/8478

But this is changing.

The gold price spike that began just after GATA's Gold Rush 21 conference in Dawson City, Yukon Territory, Canada in August 2005 was probably caused by the withdrawal of the Russian gold reserves that had been on deposit with bullion banks in London.

You may have heard a few weeks ago that Venezuela is demanding the return of its gold reserves from deposit at the Bank of England and various U.S. bullion banks. The Venezuelan action seems to have given much support to the gold price.

Now there is constant public discussion in the most informed circles in China about the need for that country to obtain gold to diversify its foreign exchange reserves and support its currency.

Western gold reserves are being depleted as Eastern and developing-world central banks become gold buyers.

What is necessary to bring the gold fraud to an end is publicity that reaches financial markets around the world generally.

There is a big story here. For the falsity of the data about the gold market practically screams at financial journalists:

-- There is the omission from official gold reserve reports of leased and swapped gold.

-- There are the sudden huge changes in official gold reserve totals.

-- And there are the deception and conflicts of interest built into major gold and silver exchange-traded funds, since the custodians of their metal happen also to be the world's biggest gold and silver shorters:

http://www.gata.org/node/8600

The valid documentation about the gold market also practically screams at financial journalists:

-- There are the huge and disproportionate gold, silver, and interest rate derivative positions built up at just a few international banks, positions that never could be undertaken without the expressed or implicit underwriting of government, particularly the U.S. government.

-- There are the many official records, collected and publicized by GATA, demonstrating the explicit plans and desire of the U.S. government and its major allies to suppress and control the price of gold.

Most obvious is the question that should follow the common disparagement of gold, a question that somehow is never asked. You well may have heard this disparagement: that even with its recent rise in price, gold has not come close to keeping pace with inflation over the last 30 years. Oil has kept up, food has kept up, other metals have kept up, all the things that are used as measures of inflation have, by definition, kept up with inflation -- but not gold.

So why not? Why hasn't gold kept up with inflation?

It's because Western governments found ways of vastly increasing the supply of gold without having to go through the trouble of mining it -- to dishoard and lease it from central bank reserves and to issue certificates of deposit against gold that never existed in the first place.

"Why" is supposed to be a basic question of journalism. But it has fallen out of financial journalism when it comes to gold.

In recent years, and especially in recent months, I have spent much time explaining the gold price suppression scheme to leading financial journalists in the West. I have given them the documentation. Some of these journalists seemed interested. But none has ever reported anything about the issue. One writer who works for a major news agency in the United States was intrigued enough to call the Federal Reserve and ask about its gold swaps. She got a very telling "no comment." But unfortunately she could not get her editor's permission to write a gold story.

Frustrating as all this is, it is not too surprising. After all, who are the major advertisers in the Western financial news media and the major sources of financial news? The market manipulators and governments themselves. And journalists seem to take for granted that central banks operate in secret, particularly in regard to gold, so there's no point in questioning them -- even though central banking now determines the value of all capital, labor, goods, and services in the world, and does so in secret.

So here I am in Asia, which is a major victim of the gold price suppression scheme. Maybe there will be more curiosity and indignation about it here.

But Asia is not the only victim of this scheme. My own country may be the biggest victim. For this scheme has helped to corrupt the United States, destroying our once-free markets and the accountability of our government.

We in GATA do what we can, even though, from our beginning, we have wondered whether we could really presume to speak for gold. And not just for gold, of course -- we are not idolaters -- but for the economic and political liberty of individuals and the national sovereignty that gold serves and stands for. With gold always under attack precisely for what it represents, and with no others coming forward to defend it for what it represents, with even the gold mining industry’s main trade association refusing to acknowledge the attack, we have hoped that any presumption on our part might be forgiven.

We remain largely amateurs. At the outset we did not half understand what was going on and what we were setting about to do. Our name preserves that imperfect understanding. We thought we had discovered just another anti-trust violation. It was a while before we perceived that we were up against government policy and that most of what we were discovering had been discovered long ago, at least in principle, just not well taught, publicized, preserved, and made timely again.

Because it can work only through surreptitiousness and deceit, this government policy will be defeated when it is more widely understood -- and every day it is being better understood, because it is getting so brazen. It was more brazen than ever the other day when Switzerland devalued its franc, the world's leading "safe haven" currency, apparently leaving the "safe haven" field exclusively to gold. But just a few minutes before the Swiss franc's devaluation was announced, unidentified sellers dumped thousands of gold futures contracts on markets around the world, causing the gold price to plunge along with the Swiss franc. These sellers plainly did not aim to make a profit from their gold holdings; if they had intended to make a profit, they would have sold gradually into the market. No, they meant to knock the price down hard, and they did.

These sellers almost surely were central banks. But as far as I could tell, no Western journalist has yet put a question to any central banker about that strange and counterintuitive action in the gold market.

I ask for your help in forcing an end to the gold price suppression scheme. I ask in the cause of giving individuals, nations, and all humanity a chance at democracy, liberty, and limited government with a neutral, fair, and impartial international currency that serves not just one government or another or one class or another but rather the whole brotherhood of man.

Source: GATA

Today, gold and silver mining stocks offer the best value by far of any sector in any stock market anywhere in the world. Due to the recent massive volatility that bankers have introduced into the PM stock sector, and the fact that commercial investment advisers worldwide have erroneously re-educated millions of people with the concept that volatility equals risk, the majority of people worldwide will miss a massive opportunity in gold and silver mining stocks over the next several years due to their misguided belief that gold and silver mining stocks cannot escape the throes of banker manipulation.

There has been much acceptance of the theory that Central Banks and bankers perpetually manipulate gold and silver spot prices through the gold/silver futures markets due to strong circumstantial, non free-market evidence such as gold/silver futures prices being significantly higher in Asian futures markets versus Western futures markets for long stretches of time as well as out-and-out flagrant behavior such as the irrational raising of initial and maintenance margins on silver futures five times in nine working days into falling prices instead of into rising prices. For those not aware of the multitude of schemes Central Banks execute to suppress gold and silver futures prices, please refer to this article, JS Kim Uncovers Four Parallel Markets for Gold, when during the Wall Street collapse of 2008, bullion banks (controlled by Central Banks) routinely knocked the gold futures price down by $10, $20, $30 and sometimes even $40 an ounce usually right at market open of the NY COMEX at a time when gold was trading at less than $900 an ounce and such movements reflected 2%+ to 3%+ waterfall movements downward in price (comparatively speaking today, such percent movements would consist of $40 to $50 an ounce movements downward.

Since then, bullion banks have executed this scheme over and over, pulling bids at the market open of the NY COMEX to cause a waterfall decline in gold futures prices in a matter of a few minutes. Throw in for good measure that you can check all US holidays when the COMEX is closed for the past five years and you can find nary a day when gold is not higher or at least about even, simply for the reason that the NY Comex is closed and the Western banking cartel is non-operational in the gold/silver markets on these days. If this circumstantial evidence, literally the tip of the iceberg in the mountain of circumstantial evidence of banker price suppression schemes against gold and silver futures, is insufficient to convince the most stubborn of skeptics, then consider former US Federal Reserve Chairman Alan Greenspan’s statement in 1966 that:

“An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.”

Would not statists that support the doctrine of seizing centralized control over economic planning and monetary policy, not covertly and actively suppress the price of gold, if the most famous Central Banker himself stated that they possess “an almost hysterical antagonism” towards gold? Today, nearly half a century later, banker propaganda and re-education campaigns regarding gold and silver have been so successful that Greenspan’s accusation that many defenders of the laissez-faire doctrine fail to recognize that gold and economic freedom are inseparable still stands true. I’ve read numerous essays by those that argue for less government interference in business and monetary affairs and for stronger free markets but yet vehemently deny that bankers ever interfere in gold and silvers futures markets through active price suppression schemes.

However, as I’ve written extensively about this topic for six years at my investment blog theUndergroundInvestor.com and will address this topic further in two books I will release by year’s end, I do not want to stray from the main topic of this essay: Gold and silver mining shares offer tremendous value and tremendous upside right now due to the fact that bankers have worked very diligently to suppress the price of gold and silver mining shares for the past 12 months. I’ve always been surprised over the years by the lack of accusations from the CEOs of the mining world that one of the primary reasons, if not the primary reason, for the underperformance of their share prices in recent years are banker price suppression schemes enacted against the PM shares. I realize that many industry analysts refrain from making this accusation due to the fact that they are being afraid of labeled by their peers or superiors as “loony, conspiracy theorists” but who cares if someone at the CFTC or some top PM analyst at Goldman Sachs or Citigroup calls you a “loony”. Due to macro and micro-economic predictions that have the track record equivalency of Ben Bernanke, most of these guys have as much credibility as a talking dolphin, so to be discredited in an ad hominem attack by any of these guys should truly pose no worry. However, nearly all mainstream gold/silver analysts appear to still engage themselves in censoring the truth due to concerns of being ostracized by the mainstream financial industry. As far as I’m concerned, being ostracized by the criminal mainstream financial industry, in my opinion, should present one with the mark of credibility.

When I first started publicly speaking about the banker executed price suppression schemes against gold and silver futures prices six years ago, bankers tried to discredit and call me crazy back then, but now, six years later, such explanations for inexplicable movements downward in gold/silver futures markets when physical supply/demand fundamentals demand upward price movements are at times, even accepted by the mainstream media, or at a minimum, now reported by them instead of being ignored by them. These are huge steps forward in dispensing the red pill of truth to skeptics regarding the true reasons behind volatile price movements downward in the gold and silver markets. Furthermore, whenever I presented factual evidence of the manipulation in gold markets, most banking analysts that disagreed with me countered my arguments with simple ad hominem attacks that never once provided a solid refutation of, nor a credible argument against the evidence I presented, circumstantial and factual (in the form of Central Bank documents that specifically addressed their desire to suppress gold prices). I believe the same three stages of truth as described by German philosopher Shopenhauer, will also manifest itself in regard to PM mining shares just as they have manifested/are about to manifest with gold/silver prices: (1) First, truth is ridiculed; (2) Second, truth is violently opposed; and (3) Third, truth is accepted as self-evident. Finally, if people so widely accept now that bankers are interfering in suppressing much higher free-market prices from operating in gold and silver futures markets, is it really that much of a deductive leap to assume that they would also be interfering in suppressing free-market prices in gold and silver mining shares?

As is the case with the behavior of gold/silver futures markets, numerous illogical anomalies that manifest themselves with regularity in the gold/silver mining shares first made me suspect that bankers were routinely interfering with the prices of gold and silver mining shares. To illustrate my point, let’s look at the performance of a couple of flagship gold and silver mining shares versus the performance of some flagship retail and financial shares.

From the chart above, you can see that the mining shares either significantly outperformed or astoundingly outperformed non-mining industry companies with a similar market cap size in simple financial metrics except for share price appreciation in the last year, a category in which they astoundingly underperformed their competitors. I am not. In the case above, I have only provided a very basic example to illustrate how drastically undervalued share prices of producing gold and silver companies are right now. I fully realize that I am not comparing apples to oranges, but I merely wanted to illustrate how companies’ share prices with healthy earnings and revenues outside of the mining sector act, since bankers have targeted gold and silver mining shares as a sector for price suppression schemes. Thus, I had to look outside of the PM sector to provide examples of what should be happening with the PM mining share prices. And I only call the other company “competitors” of the mining stocks because the goal of commercial investment industry analysts is to prevent you from buying the most undervalued stocks in the entire market and to keep you invested in overvalued and overpriced stocks. After all, when gold and silver mining stocks finally get going in their next upleg, which may be very soon, investors will naturally want to also invest in physical gold and physical silver and thus dump the broad stock market index portfolios they may currently maintain. So in essence mining stocks are competitors of the retail and tech stocks though most would say they are not.

Furthermore, most would argue that substantially lower prices in the price component of PEG ratios are justified for the mining sector due to the typical volatility of mining shares, but this past year, this argument only serves to support my thesis regarding the fact that mining shares are the most undervalued sector and the most underappreciated sector in the market right now. Sectors that are viewed as volatile typically are expected to have lower share prices to compensate for the added risk of holding shares in that sector. However, this year, given that the broad stock market index of the S&P 500 has traveled an incredible 1,230+ points up and down since May 1st but has remained relatively unchanged in value, extra volatility of mining shares over components of broad stock market indexes does not justify lower share prices of the mining stocks. Furthermore, because banker attacks on gold and silver mining shares, whether achieved by indirect take downs of gold/silver futures prices and/or direct sell-offs of the shares during times of low volume trading, are responsible for the added volatility of PM shares, arguing that the volatility of the sector justifies lower PM share prices also loses credibility.

Even if we disregard this admittedly circumstantial argument, if we compare the trading ranges at which these four stocks traded at during most of the past 12 months, the volatility comparisons do not justify the huge differences in the PEG ratios of the past 12 months between the PM stocks and the stocks that trade on the broader stock market index. Chipotle traded between a range of $270 and $340, or a 25.93% spread for most of the year while Silver Wheaton traded in a range between $30 and $40 a share, or a spread of 33% most of the year, though both stocks traded both higher and lower than these ranges for short periods of time. Though this is but a comparison of two stocks out of hundreds of mining stocks and a couple thousand NYSE stocks, and though some may argue that Chipotle is overvalued at its current share price and PEG, many PM mining stocks across the board are flush with huge cash reserves, soaring revenues, double digit earnings growth for several consecutive quarters, but yet have experienced stagnant or even negative share price growth over the past 12 months. Again I am only comparing Chipotle to Silver Wheaton to highlight the massively manipulated state of flagship gold and silver mining companies and how company share prices that are not manipulated may behave in light of outstanding earnings over the past 12 months, and not because I believe a direct comparison is the most apropos one.

Besides the totally illogical performance of Barrick Gold and Silver Wheaton above when considering their PEG ratios and their massively positive earnings growth over the last year, I have witnessed numerous anomalies over the past decade that convince me beyond a shadow of doubt that bankers manipulate the prices of gold and silver mining stocks downward on a persistent and consistent basis to prevent the masses from understanding that ownership of physical gold and physical silver will liberate them from our current morally bankrupt, illegitimate and unconstitutional monetary and banking system. For example, during dozens of options expiration days over the past five years in particular, I have witnessed uptrends in the price of numerous mining stocks stall and shed 3% to 4% from the previous day’s market close on literally no negative news other than the fact that it was OpEx day. And usually the prices of mining stocks, on days when this happens, gap down significantly on market open. Then, the following Monday after OpEx day is finished, the uptrend in mining shares will resume. Yes, one can call this behavior coincidental but anyone that does so would be dismissing the laws of probabilities and calling for a new mathematical paradigm to apply only on OpEx days. The percent chance that attributes such regular and repeated price action behavior that occurs only on OpEx days to the probabilities of “random noise” would likely come in at less than a fraction of 1%.

For the first time I can recall in recent times, the CEO of a major PM mining company finally spoke out about the ridiculous and likely intervention of the banking cartel in suppressing the price of not only PM futures but PM share prices. Keith Neumeyer, the CEO of First Majestic mining, recently voiced his opinions behind the downward price volatility not only of gold/silver futures but of gold/silver mining shares: “I don’t think supply and demand has anything to do with the price [of silver], unfortunately. The world we live in today is a paper environment where silver is priced by financial circumstances. Banks, traders and investors around the world move markets to where they want them to be. Governments and commercials—big banks like HSBC and JP Morgan—all have a piece of the action. They alternately work together or sometimes against each other. All these forces price the metal. That’s one reason we’re seeing the volatility that we’re seeing today.” Dramatic silver volatility “has to do with the financial instruments that we trade in and with the fact that silver trades a billion ounces per day on the COMEX alone when there are 26 to 30 million ounces of silver available for delivery. With that kind of leverage, you just don’t have a proper market… The governments, regulators and bullion banks have let the silver market get more and more leveraged. We’ve seen a lot of wealth destruction as a result of this leverage and we’re going to see a lot more until, finally, the governments decide to change the system.” With these scathing comments about the casino like nature of banker-rigged gold and silver markets, Neumeyer hit the nail squarely on its head.

Unfortunately, governments, because they are partners with the bankers in this system of cronyism, will never voluntarily change the system. Thus, here is the billion dollar question if one understands the tremendous illicit activity of bankers in rigging gold/silver PM shares much lower than their free market prices: Why would you want to buy into these shares even if they are remarkably undervalued right now given massive banker desire to control and suppress their share prices? After all, all of this banker rigging convinced a few gold/silver technical analysts just two weeks ago to predict imminent collapses in the silver price to $20 an ounce in light of how bankers were “painting the charts” in gold and silver to keep investors fearful of these sectors. In fact, a look at the BPGDM (Gold Miners Bullish Percent Index) right now shows that bullish sentiment towards gold/silver stocks is practically non-existent though we are at a crossroads when people should be buying PM shares because of their current tremendous upside. So other than the fact that gold and silver mining shares offer great value right now, is there a reason to realistically believe that gold and silver mining shares will win their battle against banker initiated share price take downs any time soon? To answer this question, let me tell recall a couple of stories that will frame our current situation of negative sentiment about gold/silver mining shares in the proper perspective.

A couple of years ago, in April of 2009, I spoke in Asia to a group of investors at a time when bankers had knocked gold back down from the psychologically important $1,000 an ounce level for the fourth time in the about a period of 18 months. Back then, gold was trading at about $870 an ounce. The investors that attended my conference asked me back then why in the world they should buy gold at $870 if banker manipulation was one of the primary reasons responsible for the failure of gold to breach $1,000 an oz four consecutive times. Furthermore, they inquired, why couldn’t the bankers manipulate gold back down to $500 an oz if they could successfully prevent gold from breaching $1,000 on four consecutive occasions? I remember informing the investors that the banker manipulation schemes could only succeed short-term and that the bankers would fail long-term. Just as Central Banks' endless rounds of QE will spectacularly fail long-term and only serve to kick the can of global economic failure down the road, the Central Banks' price suppression schemes against gold and silver only kick the inevitable rises in gold and silver prices down the road as well. In addition, I informed my highly skeptical audience that the law of diminishing returns would apply to banker manipulation schemes that work against free market forces, and that each subsequent application of manipulation against free market forces would last a shorter time, as is evident in the chart above. Though there was a large gap of time between the second and third times that gold approached $1,000 an ounce after getting knocked backwards, the time in between the third and fourth time and the fourth and fifth time gold approached $1,000 an ounce was much more condensed. So those that remained skeptical and had more faith in banker amorality than in the belief they could defeat these banker manipulation schemes lost out on a 100% gain in the price of gold that has occurred between then and today.

If we look at the chart of the mining shares I presented above, the same pattern with the mining stocks that afflicted gold prices a couple of years ago is evident. The HUI Gold Bugs Amex has been turned back from the 600-610 level four consecutive times (with one false breakout in early September 2011) and each time bankers have rebuffed the index from this level, it has taken less and less time for the index to rebound to this level again as with the bankers’ attempt to defend the $1,000 an oz price level with gold. Though you may not recall, I remember many people being incredibly frustrated with the price action in gold from 2008 and 2009 and with some people selling all their gold as a result of the bankers’ intervention to control the price of gold, an action that ironically was the exact end goal of the bankers’ manipulation game. Today, despite the fact that we have history as a guide and the cliché that history always repeats itself, for some reason, I have seen many people become incredibly frustrated with the bankers’ rebuke of the attempts of gold and silver mining shares to climb higher and as I witnessed in 2009, I have seen people make the big mistake of dumping all of their gold and silver mining shares in the past couple of months due to frustration. In fact, after I scripted this article, Don’t Miss Out on One of the Best Investments of a Lifetime…Yet Again, on August 8, 2011 in which I advocated the HUI at 531.78 as a good low-risk, high-reward entry point to purchase some gold mining stocks, I received some comments that literally called me an “idiot” for writing this article after the HUI hit a low at market close of 502.92 in early October, even though this represented less than a 5.5% drop from the level I advocated buying mining stocks that past August.

As one can hardly legitimately call anyone an idiot for making a call that leads to a temporary 5% drop, I can easily guess the novice investor mistake that this irate person committed. Just as is the case today, as was the case on August 8, 2011, hardly any investors ever make a move when gold/silver assets are dirt-cheap. Instead they fall victim to the game of banker manipulation, and refuse to buy gold and silver assets when they present solid value as they fear a gold/silver crash. Consequently, they wait for significant rebounds before ever investing in gold/silver despite golden fundamentals at much lower prices that point to the strong possibility of much higher prices in the future. Even if much higher prices are followed by another round of manipulation and lower prices, interim volatility is irrelevant, as long as your decisions to enter gold/silver markets at the right time and prices are solid. I can only fathom that this person finally made the move to buy mining stocks after the HUI hit a short-term top of 635.04 one month after I advocated the buying of gold mining stocks. Thus, one month later, instead of being able to sit through a very manageable 5% drop, this investor likely panic-sold out of gold mining stocks after taking a 26% hit to his gold mining stock portfolio in little over a month. Though my call that PM stocks would be the best in class from that point forward to the end of this year has not yet come to fruition, I strongly believe that my long-term prediction about PM stocks moving much higher from that point forward will still prove correct, and that only the time frame of my prediction will be pushed out by several months. That is why I always provide timely guidance to my clients that distinguishes between the times we need to move into, or remain in cash, and the times we need to remain patient and fully committed. Furthermore, as all markets are dynamic and need to be analyzed weekly, and sometimes daily, any intelligent investor would realize that changes in short-term outlooks are apt to occur in such volatile environments (that I often discuss with my members but not in public forums). As I illustrated in my example above, timing can easily be the difference between easily waiting through a minor 5% correction or being stuck with a 26% loss after one month.

The short-term corrections of the HUI Gold Bugs index from the 600-610 level on four consecutive occasions has led to bullish sentiment being nearly non-existent for gold mining shares right now (and you could easily make the point that bullish sentiment in silver mining shares is even worse right now). Just as most investors committed the huge mistake of judging gold’s upside in 2009 as non-existent due to banker price suppression schemes, people are making the very same mistake in judging the upside of mining shares right now as non-existent. The banker price suppression scheme against gold and silver mining shares will fail, and I believe that the fifth approach of the HUI to the 600-610 level will be the time that the HUI breaks above this level for good and heads much higher. The last time I saw an opportunity better than our current one in the mining shares, I informed my clients to double down on their positions in Silver Wheaton at $3.45 a share in November of 2008. Today with Silver Wheaton trading at $33.52 a share, those that acted during a time when sentiment regarding PM shares was at an all-time low, have been rewarded with a 872% gain in little more than three years. Though I don’t expect mining shares to gain 872% in 3 years again, no doubt there may be more than a handful that return several hundred percent in gains in the next three years.

We must not let our fear of bankers’ amorality and their desire to suppress our freedom scare us away from buying assets that will free us from their illegitimate and unconstitutional monetary system. If one remains too fearful to buy gold and silver mining shares due to banker introduced volatility into this sector, consider at a minimum, purchases of physical gold and physical silver to replace your fiat paper currencies and to replace your paper silver SLV and paper gold GLD ETFs. Also consider that the global broad stock market indexes have been no less volatile than mining shares this year with MUCH greater risk as banks have manipulated broad stock market indexes higher and mining share indexes lower. And what if I’m wrong about mining shares heading much higher from this point forward? The aforementioned Keith Neumeyer, CEO of First Majestic Silver, provides perhaps the best answer to have faith that history will repeat itself with the mining stocks share prices eventually moving higher into their free market, non downward-manipulated prices:

“If I’m wrong (about free market forces winning the battle in gold/silver markets in the future), the banks will run the world, even more so than they do today, 10 or 20 years from now. God forbid that we ever get there because that’s a one currency, one government world that would absolutely be a disaster for the human race. There would be no freedoms at all to move or to invest. It would be like having shackles on our ankles. There is a movement to go in that direction, unfortunately. There are a number of very wealthy people that want to see that. I hope that we can find the politicians to prevent that type of world from coming to pass.”

About the author: JS Kim is the Managing Director, Chief Investment Strategist & Founder of SmartKnowledgeU, a fiercely independent investment research and consulting firm that has been providing contrarian, independent investment guidance to clients in 33 different countries since 2006. Despite the struggles of PM mining shares in 2011, his Crisis Investment Opportunities newsletter, since inception in June, 2007 to the end of September 2011 has yielded a cumulative +162.40% gain versus the -36.20% loss of the ASX200 and the -25.70% loss of the S&P 500 over the same investment period. Follow us here on twitter.

From GoldCore

2012 Gold Estimates Lowered By Banks - But Remain Bullish

Gold’s London AM fix this morning was USD 1,657.00, GBP 1,077.09, and EUR 1,290.80 per ounce.

Yesterday's AM fix was USD 1,662.00, GBP 1,080.34, and EUR 1,299.76 per ounce.

Cross Currency Table – Bloomberg 

Spot gold has swung between a low of $1,645/oz and a high of $1,660/oz in Asian and early European trading after rising another 1.25% yesterday. Gold spiked above €1,300/oz on continuing concerns about the Eurozone and the euro.

The yellow metal climbed to $1,667.90 yesterday its highest since December 13th and an increase of 6.7% in 2012, as the dollar fell. The dollar's weakness was attributed to poor US production and homebuilder data combined with Greece announcing it is nearing a deal on its debt. Prime Minister, Lucas Papademos is resuming private talks with the bondholders today.

Portugal will test investor appetite as it launches its debt auction today. Concerns about financial stability in Hungary and contagion risk in the Eurozone continue.

India raised its tax on imports of gold bars and coins (2%) and silver (6%) yesterday. This is a 90% increase on gold and double the previous amount charged on silver. Traders and analysts do not think that the increase will have an effect on the strong demand from Indian consumers. The increase in duty is not that large in rupee terms given the strong rise of gold in rupees in recent years. 

Current weakness in the market provides another buying opportunity and is a good time to accumulate a position for the long term.

Gold Spot (Euros) €/oz  - Daily 1/18/11-1/18/12 - Bloomberg

The world's biggest primary silver miner, Fresnillo, had flat silver production in 2011. Output is only expected to remain stable in 2012. 

African Barrick Gold said on Wednesday fourth quarter gold production fell 11% and missed its annual production targets.

Despite price rises seen in 2011, gold and silver mining is remaining static contrary to claims by gold bears that higher prices would lead to increased production and therefore increased supply.

Geological constraints may be impacting mining companies ability to increase production of the precious metals.

Standard Bank has said it lowered its average 2012 gold price forecast by 6 percent to $1,780 an ounce, but continues to expect prices of the precious metal to touch new highs in the latter half of this year.   

"We maintain that gold will reach new highs this year but, given our dollar view, we believe that these highs will be reached only in the second half of 2012," the analyst said in a note. Standard Bank expects the U.S. dollar to gain strength, especially against the euro, over the next quarter. 

A few other banks have recently lowered price forecasts for gold, including ANZ and Credit Suisse – however the majority remain bullish on gold’s outlook for 2012.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS
(Bloomberg)
Gold Climbs for Third Day as Dollar Weakens on Optimism Over Economic Data

(Reuters)
Gold off one-month high; euro zone eyed

(Financial Times)
Central banks increase gold lending

(International Business Times)
Turkey Adds 63 Tonnes of Gold Due to Acceptance of Metal as Reserve Requirement from Banks

(Economic Times)
Government changes import duty on gold to 2% of value, silver to 6%

COMMENTARY
(ZeroHedge)
World Bank Cuts Economic Outlook, Says Europe Is In Recession, Warns Developing Economies To "Prepare For The Worst"

(KingWorldNews)
Von Greyerz - Silver Shortages & Gold to Accelerate Higher

(FoxNews)
Ron Paul gives new life to an old issue: Gold Standard

(The Underground Investor)
Gold & Silver Banker-Cartel Prolonged Price Suppression Has Set the Foundation for an Explosive Move Higher in 2012

(The Market Ticker)
MF Global: There Is NEVER Only One....

(The Telegraph)
Hungary faces ruin as EU loses patience

• France to Lift Minimum Wage in Bid to Rev Up Economy (WSJ)... weeks after it cut the retirement age
• Merkel Urged to Back Euro Crisis Measures (FT)
• Monti lashes out at Germany ahead of summit (FT)
• Italy Official Seeks Culture Shift in New Law (WSJ)
• Migrant workers and locals clash in China town (BBC)
• Romney Would Get Tough on China (Reuters)
• Bank downgrades trigger billions in collateral calls (IFRE)
• Gold Drops as US Data, China Speculation Temper Europe (Bloomberg)
• Brazil Rate Futures Yields Fall to Record on Europe Debt Turmoil (Bloomberg)
• Brazil said to Boost Spending for Local Suppliers Amid Slowdown (Bloomberg)
• China's City Banks Still Barred from Listing (Reuters)
• India Spent $160 Billion for Crude Import in FY12 (Economic Times)

Overnight media digest:

WSJ

* Obama has managed to retain a narrow lead in his race for re-election despite a spate of bad economic news and surging GOP optimism about Romney's prospects, a new Wall Street Journal/NBC News poll finds.

* America will halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035 due to declining demand and growth of new petroleum sources, energy analysts say.

* Global commodities giants Xstrata Plc and Glencore International Plc are under intense pressure to amend their proposed merger as people close to the matter said it is becoming increasingly clear shareholders will block the landmark deal on its current terms.

* Samsung Electronics Co was dealt a blow Tuesday when a California judge issued an injunction banning sales of the company's Galaxy Tab 10.1 touchscreen tablet at the request of Apple Inc.

* News Corp board is set to decide Wednesday whether to proceed with a split of the media conglomerate into two companies, carving the bigger and more profitable entertainment businesses from the newspapers.

* Best Buy Co Inc founder Richard Schulze, who resigned from the company's board earlier this month, is working with Wall Street bankers to explore taking the electronics retailer private.

* Coca-Cola Inc plans to pour $5 billion into India by 2020. Despite a tumultuous history there and government policy flip-flops, the company sees potential in a fast-growing nation where average Coke consumption is just 12 bottles a year.

* Five years after Wal-Mart Stores Inc promised to open thousands of health-care clinics in its sprawling supercenters, it has fallen far behind its retailing rivals in what has become a race to provide basic medical care in stores.

* The U.S. Securities and Exchange Commission has voted to file a civil lawsuit against hedge fund manager Philip Falcone and his firm Harbinger Capital Partners LLC, according to people close to the investigation.

* Days before a U.S. bankruptcy judge is expected to rule on labor savings at American Airlines parent AMR Corp two unions indicated they are willing to resume bargaining over new contracts the carrier said it needs to successfully restructure.

* Boeing Co is abruptly changing the chief executive of its commercial unit on the eve of a major air show where the jet maker is expected to announce significant orders for a new version of its 737 Max aircraft.

* New car sales in the U.S. in June are expected to reach their highest point since 2007, according to a new survey.

* Nora Ephron, an essayist and screenwriter whose fixation on food, real estate and the relationships between men and women helped reinvigorate the Hollywood romantic comedy, dies at 71.

* Google Inc is expected this week to show off a tablet running its newest mobile software and a service for companies to rent computer servers to store data, according to people familiar with the matter.

* Facebook Inc acknowledged that it could have made a better effort to educate the social network's users about changes to the way email addresses are displayed with profiles.

FT

RBS LOOKS AT LEGAL ACTION AGAINST CA

Royal Bank of Scotland is discussing at a senior level whether to take legal action against U.S. software maker CA Technologies after a computer update caused a systems failure that left millions of customers without access to their bank accounts.

LATE EFFORTS TO SAVE GLENCORE-XSTRATA DEAL

The $65 billion merger between commodities trader Glencore and miner Xstrata was on Tuesday night on the verge of collapse after the sovereign wealth fund of Qatar, the second largest shareholder in the miner, opposed the terms of the deal.

MONTI LASHES OUT AT GERMANY AHEAD OF SUMMIT

Mario Monti has set the stage for a tough fight with Germany at the EU summit this week, insisting that he will continue to push Italy's proposal to use euro zone bailout funds in an attempt to stabilise financial markets.

LONDON PROPERTY HEADS FOR PRICE PLATEAU

The boom in London's high-end housing market is showing signs of petering out as the impact of the government's tough stamp duty measures begin to set in.

LONDON'S CITY FEARS CAMERON EU DEMANDS

The City of London has raised deep concerns over David Cameron's strategy in Europe, warning that the prime minister's wishlist of "safeguards" in December could actually have damaged its standing as Europe's financial centre.

NEWS CORP WEIGHS UP TWO-WAY SPLIT

Rupert Murdoch has abandoned his resistance to splitting his $50 billion media empire, agreeing to consider a spin-off of News Corp's tarnished UK newspapers and other publishing assets from its Fox, Sky and Star entertainment brands.

COKE'S $3 BILLION TO ADD FIZZ TO INDIA PRESENCE

Coca-Cola is escalating the beverage wars in India, announcing a $3 billion investment intended to help it overtake PepsiCo in one of the few countries where it trails its rival.

GLOBAL ROLE FOR CITI'S ASIA CONSUMER HEAD

Citigroup has underlined Asia's growing importance to the bank by naming its consumer banking head in Hong Kong as global head of retail banking, according to an internal email seen by the Financial Times.

NYT

- Top bankers, who took positions assessing global financial risk for the IMF, knew all about Spain's economic problems but they failed to sound the alarm.

- European Union prods Germany with fiscal plan. The 10-year plan calls for a more tightly knit union and more sharing of the region's debt burden.

- Before talks with lenders, Greece appoints Yannis Stournaras as finance minister. The prominent economist is expected to succeed Vassilis Rapanos, who resigned before he could be sworn in, citing health problems.

- News Corp Inc's proposal to sever publishing arm will be reviewed by the board on Wednesday and a decision could be made as early as Thursday.

- Broadband companies are moving toward a strategy called usage-based billing, which will charge tiers of pricing based on how much people use their Internet at home.

- NYSE Euronext asked regulators to allow it to create a market that is similar to the unregulated "dark markets," and Nasdaq said it had similar plans.

- Roche Holding AG, the Swiss pharmaceutical company, said Tuesday that it would shut down its site in Nutley, New Jersey, which served as its American headquarters for 80 years, in an effort to cut costs. About 1,000 jobs would be lost, the company said.

- The Federal Trade Commission charged Wyndham Worldwide and three hotel and resort affiliates on Tuesday with allowing three breaches of its corporate data files in two years, resulting in the electronic theft of the credit card data of hundreds of thousands of the hotel chain's customers.

Canada

THE GLOBE AND MAIL

- Ontario's Premier acknowledges that confusion and delays in the effort to reach possible survivors of a shopping mall roof collapse have raised concerns about the province's capacity to respond to serious emergencies.

Report in the business section:

- Goldcorp Inc. has won a court battle against larger rival Barrick Gold Corp. over ownership of the El Morro copper-and-gold deposit in Chile, a potentially massive deposit that could become a mine as early as 2017 and keep running for nearly 20 years.

FINANCIAL POST

- Canada and Israel signed an agreement on energy cooperation Tuesday that will allow for more collaboration over resource development projects and renewable power research. Joe Oliver, Canada's Minister of Natural Resources, signed the agreement along with Israeli Energy and Water Resources Minister Uzi Landau in Tel Aviv.

NATIONAL POST

- The chair of the Toronto Transit Commission will release on Wednesday a $30-billion transit expansion plan funded by a hike in property taxes. Karen Stintz hopes to funnel $45 annually from every household into the transit fund in 2013. In 2014, the tax hike would increase to $90 per household, then $180 in 2015.

European Economic Update:

• Germany Import Price Index (M/M/Y/Y) -0.7%/2.2% –lower than expected. Consensus -0.6%/2.3%. Previous -0.5%/2.3%.
• Spanish Retail Sales (Y/Y) (Real) -4.3%. Previous -11.3%. Revised -11.5%.
• Italy Business Confidence 88.9 – higher than expected. Consensus 85.5. Previous 86.2. Revised 86.6.
• Norway Unemployment Rate 3.0% – in line with expectations. Consensus 3.0%. Previous 3.0%.
• UK CBI Reported Sales 42 – higher than expected. Consensus 15. Previous 21.

From GoldCore

Spain The Latest Domino To Fall In The Eurozone Bailouts?

Today's AM fix was USD 1,571.50, EUR 1,298.12, and GBP 1,011.91 per ounce.
Friday’s AM fix was USD 1,583.00, EUR 1,291.30and GBP 1,007.83 per ounce.

Silver is trading at $26.98/oz, €22.36/oz and £17.94/oz. Platinum is trading at $1,396.00/oz, palladium at $564.80/oz and rhodium at $1,190/oz.

Gold climbed $2.90 or 0.18% in New York on Friday and closed at $1,583.90/oz. Gold initially traded sideways in Asia and then began to fall about 0.75% by the open of trading in Europe. 

Gold edged down on Monday due to the pressure from a stronger dollar, as worries about the Eurozone debt crisis grew after Spain looked like the next candidate for a sovereign bailout.

Spain has two regions seeking aid from the central government and El Pais reported that six Spanish regions may ask for aid from the central government while Spanish bonds yields continue to rise. As the 4th largest economy in the Eurozone Spain looks likely to follow Greece, Portugal and Ireland seeking an international bailout. 

Greece’s creditors meet this week as many doubt they will meet their bailout commitments. German Vice Chancellor Philipp Roesler said he’s “very skeptical” that European leaders will be able to rescue Greece.  China’s economic expansion may fall for a 7th straight quarter to 7.4% in the three months to September, said Song Guoqing, a member of the People’s Bank of China monetary policy committee.

Technical analysis suggested that spot gold would be neutral in the range of $1,567.34 - $1,597/oz said Wang Tao a Reuters market analyst.

Investors are favouring safe haven assets such as the dollar, yen and U.S. Treasuries while some just sit on cash until more clearer signals from the US Fed are given.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS
Dollar, yen rally on raging Greece, Spain fears - MarketWatch

Gold eases as heightened Spain worries boost dollar - Reuters

African Barrick gold production declines - MarketWatch

COMMENTARY
Special report: After Libor, where will the next scandal be? – The Independant

LIBOR Scandal And Its Effects On Gold And Silver Lease Rates – Seeking Alpha

The Economic Collapse For Dummies – Zero Hedge

Will the LIBOR scandal be the one to take down the banking system? - MSN

• Bundesbank Maintains Opposition to ECB Bond Buying (WSJ)
• Greek Budget Talks Stumble as EU Urges Samaras to Deliver (Bloomberg)
• Fortified by euro, Finns take bailouts on the chin (Reuters)
• China Job Market for Graduates Shows Stress on Slowdown (Bloomberg)
• China Exports Fade as Inflation Eludes Targets: Cutting Research (Bloomberg)
• Japan Falters as Ito Calls for Euro Buys to Rein in Yen: Economy (Bloomberg)
• Government weighs social insurance reforms (China Daily)
• Colombia’s Split Central Bank to Weigh First Rate Cut Since 2010 (Bloomberg)
• Government stresses quality for FDI, ODI (China Daily)

Overnight media Digest

WSJ

* Samsung Electronics Co Ltd said that its second-quarter profit jumped 48 percent to another company record as it increased smartphone sales and experienced cyclical recoveries in its chip and display component businesses.

* Investors sent Facebook Inc's shares down 10 percent in after-hours trading Thursday to their lowest level ever following the company's first quarterly report since its initial public offering.

* European Central Bank President Mario Draghi said that the ECB was willing to use its power to print money to preserve the euro, giving investors hope that the bank was poised to undertake massive purchases in euro zone bond markets if the region's crisis worsens.

* Twitter Inc said that failures in its computer-data centers were the cause of an outage that prevented some users from accessing the short-messaging service. The Twitter blackout lasted up to two hours.

* Irving Picard, the trustee assigned to the Bernard Madoff bankruptcy, asked a federal judge to allow him to make a $2.4 billion payout - more than double the amount released so far - to victims of the massive Ponzi scheme.

* Mutual-fund company Fidelity Investments is setting itself on a collision course with rivals by rolling out a pricing service designed to make the roughly $800 billion market for securities lending more transparent, according to people familiar with the firm's plans.

* Several large mutual-fund companies, including BlackRock Inc and Vanguard Group Inc, have launched internal investigations into whether their funds have been harmed by alleged interest-rate rigging by large banks.

* Lackluster second-quarter financial results from Exxon Mobil Corp's U.S. oil and natural-gas production cast a shadow on the record global profit the company reported.

* Google Inc officially thrust itself into competition with cable operators, saying its high-speed internet and TV service in Kansas City, Missouri and Kansas City, Kansas, will launch later this year.

* The management shake-up at Japan's Nomura Holdings Inc could upset the global ambitions of the investment bank. Nomura's incoming chief executive, Koji Nagai, said the company will review its global strategy and focus on select markets and business lines, concentrating on Asia.

* Amazon.com Inc continued to boost sales faster than many companies in the tech sector, but razor-thin margins may finally be catching up with the online retail giant. The company reported a 96 percent drop in second-quarter profit.

* Starbucks Corp reported a 19 percent rise in third-quarter earnings as the coffee giant expanded margins and saw strong sales in its Asian business. Still, its shares fell 8.5 percent after hours as results came in short of expectations and the company lowered its targets for the current quarter.

FT

NOMURA RETREATS TO FALTERING JAPAN

Nomura Holdings CEO Kenichi Watanabe resigned on Thursday over a widening insider trading scandal.

BO XILAI'S WIFE CHARGED WITH MURDER

Chinese authorities have charged the wife of Bo Xilai with the murder of British businessman Neil Heywood.

ECB 'READY TO DO WHATEVER IT TAKES'

The president of the ECB, Mario Draghi, said that the bank was "ready to do whatever it takes" to preserve the single currency.

LLOYDS HIT BY FURTHER 700 MLN POUNDS OF CHARGES

Lloyds took a further 700 million pounds ($1.10 billion) hit for mis-selling loan insurance in the first six months.

CHINA FUNDS NEAR DEAL FOR DEXIA UNIT

Two Chinese private equity funds are closing in on a deal to buy the asset management arm of Dexia.

BARRICK GOLD SLOWS DOWN EXPANSION

The world's largest gold producer has signalled a new restraint on expansion.

FACEBOOK SHARES HIT AS AD GROWTH SLOWS

Facebook shares have dropped to a new all-time low at about $24, against its $38 issue price.

UNIVERSAL IN TALKS TO HIVE OFF PARLOPHONE

Universal Music is in talks to sell most of Parlophone, one of the crown jewels of EMI.

S&P IN TALKS OVER SECURITISATION PROBE

Credit rating agency Standard & Poor's in discussions with US authorities investigating its role in the securitisation of structured products.

NYT

* Unhappy with Facebook Inc's first financial report as a public company, investors fled the stock in droves even as Chief Executive Mark Zuckerberg extolled its growth prospects to industry analysts. Facebook's stock lost 18 percent of its value Thursday.

* Congress intensified its focus on the interest-rate rigging scandal, as Timothy Geithner, the Treasury secretary, vowed that authorities would forcefully pursue criminal investigations into some of the world's biggest banks.

* Former senior Chief Operating Officer in Barclays Plc involved in the interest rate manipulation scandal is set to receive a $13.6 million payout, a compensation package that could add to the scrutiny of the British bank.

* President of European Central Bank Mario Draghi said that policy makers would do "whatever it takes" to save the euro zone, buoying global financial markets.

* While much of Wall Street is struggling with constant upheavals in the global market, two of the industry's independent investment banks - Lazard Ltd and Evercore Partners Inc - are faring better than their bigger rivals. The banks reported that their core mergers advisory businesses had held up well on the strength of several major transactions.

* Amazon.com Inc reported sales of $12.8 billion, up 29 percent, in the second quarter while it eked out net income of $7 million, or a penny a share. Those results essentially matched expectations.

* Two California mothers are suing General Mills Inc , claiming the giant food company has deceptively marketed its Nature Valley products as natural when they contain highly processed ingredients.

* To get European regulators to approve its $1.9 billion takeover of EMI, the Universal Music Group may do something once considered unthinkable - sell Parlophone Records, which releases the music of Coldplay and Radiohead and is the heart of EMI's holdings in Europe.

Canada

THE GLOBE AND MAIL

* Canada's premiers are taking the lead on health-care reform without direct leadership from Ottawa, a departure from the way the country's cherished but increasingly expensive system has long been managed.

NATIONAL POST

* At one point last week, Alex Chapman, the mercurial complainant in the case against Manitoba Associate Chief Justice Lori Douglas, abruptly announced that his interview with the Canadian Judicial Council investigator had been secretly taped by a former friend wearing "video glasses," bolted from the witness stand, retrieved the video and demanded it be watched immediately.

FINANCIAL POST

* Jamie Sokalsky hit the reset button for Barrick Gold Corp by slashing the company's long-term production targets and promising to focus on investor returns ahead of boosting output.

European Economic Update

• Swedish Retail Sales -0.4% m/m 0.9% y/y – lower than expected. Consensus 0.2% m/m 1.5% y/y.
• German CPI Saxony 0.4% m/m 1.8% y/y. Previous -0.1% m/m 1.7% y/y.

• JPMorgan provided rescue financing to Knight (WSJ)
• HSBC hands U.S. more staff names in tax evasion probe (Reuters), HSBC, Credit Suisse Sacrifice Employees to U.S., Lawyers Say (BBG)
• Hong Kong shares slide to two-week closing low, China weak (Reuters)
• Israel Would Strike Iran to Gain a Delay, Oren Says (Businessweek)
• Britain 'threatened to storm Ecuador's London embassy' to arrest Julian Assange (AP)
• You have now entered the collateral-free zone: Spain Said to Speed EU Bank Bailout on Collateral Limits (BBG)
• China Can Meet Growth Target on Positive Signs, Wen Says (BBG)
• Risk Builds as Junk Bonds Boom (NYT)
• Berlin maintains firm line on Greece (FT)
• Brazil unveils $66bn stimulus plan (FT)

Overnight Media Digest:

WSJ

* Apple Inc is in talks with some of the biggest U.S. cable operators about letting consumers use an Apple device as a set-top box for live television and other content, according to people familiar with the matter.

* Private-equity firm Carlyle Group LP and Getty Images management said they have formed a partnership to acquire stock-photo agency Getty Images Inc from buyout firm Hellman & Friedman for $3.3 billion.

* Zynga Inc has begun investing in state and federal lobbying efforts around gambling with real money, even as the social-gaming firm predicts the United States won't be an initial market for the potentially lucrative new line of business.

* Cisco Systems Inc reported a jump in quarterly profit and said it would pay a bigger dividend, continuing the networking-equipment giant's transformation from a fast-growing upstart to a more mature company.

* A U.S. bankruptcy judge said the parent of American Airlines couldn't scrap its pilots' contract and impose more draconian terms, further delaying AMR Corp's efforts to emerge from bankruptcy.

* The bankruptcy trustee, James Giddens, trying to recover money for U.S. customers of MF Global Holdings Ltd agreed to cooperate with lawyers suing the securities firm's former executives for damages related to its collapse last year.

* Chinese computer maker Lenovo Group Ltd said first-quarter net profit rose 30 percent from a year earlier due to strong growth in personal-computer shipments in emerging markets.

* Warburg Pincus LLC and TPG Capital Management LP , the private-equity owners, of Neiman Marcus Group Inc are looking for an exit after holding on to the company for an unexpectedly long seven years, people familiar with the matter said.

* Union leaders are split on the merits of a slightly revised pay offer made by Caterpillar Inc in an effort to end a strike that began May 1 at the company's plant in Joliet, Ill.

* Land prices in key U.S. farm states continued to soar in the second quarter, though the pace slackened as concerns over the drought pared down interest among farmers and other buyers, according to a new survey.

FT

STAN CHART SHARES BOUNCE AFTER SETTLEMENT

Standard Chartered's shares rallied on Wednesday after the bank settled allegations of wrongdoing with U.S. regulators.

UK EMPLOYMENT HITS LOWEST IN A YEAR

Unemployment in Britain fell to its lowest level in nearly a year in the second quarter.

REPUBLICAN DONOR URGES ROMNEY TO TIGHTEN BANK RULES

Paul Singer, the billionaire hedge fund manager who is one of the Republican party's most influential donors, is pressing Mitt Romney to tighten bank regulation.

RESOLUTION REVAMPS STRUCTURE

Resolution is to scrap its complex corporate structure in the face of regulatory pressure as part of revamp.

VIRGIN THREATENS TO GIVE UP ON UK RAIL

British billionaire Richard Branson attacked as "insanity" a decision to award a key mainline train service to a rival to his Virgin Trains.

BARRICK GOLD EXPLORES SALE OF AFRICA STAKE

Canada's Barrick Gold, the world's largest gold producer, has been exploring a sale of its 74 per cent stake in African Barrick.

BRAZIL UNVEIL $66 BLN STIMULUS PLAN

Brazil's government has unveiled measures to lure up to $133 billion reais ($66 billion) in private investment for road and rail projects.

FACEBOOK TRIES TO SPEED INSTAGRAM DEAL

Facebook is seeking to expedite the payout of its Instagram acquisition before the deal closes.

NYT

* The buyout firm, Carlyle Group LP, said that it would buy Getty Images, the big provider of high-quality images and video, from another private equity shop for $3.3 billion.

* Investors in Standard Chartered breathed a collective sigh of relief on Wednesday after the British bank agreed to a $340 million fine related to charges that it had laundered hundreds of billions of dollars in money with Iran and lied to regulators.

* Cisco Systems Inc, the world's largest maker of computer networking equipment, delivered quarterly results that slightly surpassed Wall Street's expectations in a challenging environment for corporate technology spending. Net profit rose to $1.9 billion, a 56 percent increase from the quarter a year earlier.

* Johnson & Johnson, which makes a range of personal care products like baby shampoo and acne cream announced plans to remove a host of potentially harmful chemicals, like formaldehyde, from its line of consumer products by the end of 2015.

* A group of big retailers, including 7-Eleven, Best Buy Co Inc, CVS Caremark Corp and Wal-Mart Stores Inc , said that they were forming a company that would offer a way for customers to pay for purchases with their smartphones.

* Caterpillar Inc and the International Association of Machinists said that they had reached a tentative six-year settlement that could end a 15-week strike at the company's hydraulics parts plant in Joliet, Ill.

* A criminal investigation into the collapse of the brokerage firm MF Global Holdings Ltd and the disappearance of about $1 billion in customer money is now heading into its final stage without charges expected against any top executives.

* The market for junk bonds, risky corporate debt that pays high interest rates, is red hot. Such debt, also known as high-yield bonds, has returned 10.2 percent year-to-date, according to a JPMorgan high-yield index. Junk bond funds are on a pace to take in a record amount of money this year.

Canada

THE GLOBE AND MAIL

* Foreign Affairs Minister John Baird has abruptly reversed course on his plan to get badly needed medical supplies into Syria by way of a Canadian aid organization.

Reports in the business section:

* Canadian mining major Barrick Gold is in talks to sell all or part of its 74-per-cent stake in African Barrick Gold to China's largest gold producer, just two years after the underperforming Tanzanian assets were spun off.

* Target Corp is primping to bring its U.S. discount model to Canada next year, but not necessarily at American prices.

NATIONAL POST

* Canadians are far from a consensus on what causes climate change, a new public opinion poll shows. Almost every Canadian surveyed in the online Insightrix Research poll said they believe climate change is happening, but a clear rift emerged on the more specific, and politically important, question of whether humans or natural factors, or some combination, is the catalyst.

FINANCIAL POST

* Quebec's finance minister says Canadians are "naive" in the way they are letting domestic corporate champions be bought by foreign interests and makes no apologies for intervening in U.S. home improvement chain Lowe's Cos' purchase offer for Rona Inc.

European economic update:

• UK Retail Sales -0.3% m/m 2.8% y/y – lower than expected. Consensus -0.1% m/m 1.4% y/y. Previous 0.8% m/m 2.6% y/y.
• Euro Zone CPI -0.5% m/m 2.4% y/y – in line with expectations. Consensus -0.5% m/m 2.4% y/y. Previous -0.1% m/m 2.4% y/y.
• Switzerland ZEW Survey -33.3. Previous -42.5.

• 'Pussy Riot' band members found guilty (Al Jazeera)
• Merkel Says Germany Backs Draghi’s ECB Aid Conditionality (Bloomberg)
• Now, the reverse psychology: Hilsenrath: Fed 'Hawks' Weigh In Against More Action (WSJ)
• London Firings Seen Surging As Finance Firms Add NY Jobs (Bloomberg)
• Facebook Second-Worst IPO Performer After Share Lock-Up (Bloomberg)
• Kocherlakota Says FOMC Goes Too Far With 2014 Rate Pledge (Bloomberg)
• China Said to Order Action by Banks as Developer Loans Sour (Bloomberg)
• Australian Treasury Dismisses AUD Intervention Calls (Dow Jones)
• Brevan Howard Loses Third Founder As Rokos Said To Leave (Bloomberg)
• Japan eyes end to decades long deflation (Reuters)... for 30 years now
• Ex-Morgan Stanley Executive Gets Nine Months in China Case (Bloomberg)

Overnight Media Digest

WSJ

* Facebook Inc's stock price plumbed a new low on Thursday as early investors were freed to sell some of their stakes, leaving the once-prized stock down nearly 50 percent from its debut and forcing executives of the young internet giant to pump up morale.

* Apple Inc's vision for a new device that can be used as a set-top box includes features designed to simplify accessing and viewing programming and erase the distinction between live and on-demand content, people briefed on Apple's plans said.

* Verizon Wireless won Justice Department approval of its $3.9 billion deal to acquire airwaves from Comcast Corp and other cable companies while agreeing to some relatively light conditions on the deal.

* In a statement, Eastman Kodak Co said discussions with buyers are active and that it isn't ready to announce a result. The company added that it might decline to sell some or all of the patents, depending on how the auction progresses.

* Barrick Gold Corp said it is in talks to sell a big chunk of its African assets to China National Gold Group Corp in a deal that analysts say could fetch as much as about 2.5 billion pounds ($3.94 billion) -the latest move by the world's largest gold miner to boost shareholder value.

* International Business Machines Corp said it would buy closely held Texas Memory Systems Inc for undisclosed terms.

* Best Buy Co Inc founder Richard Schulze pushed his takeover offer for the electronics retailer with a letter to the board requesting permission to form a group and conduct due diligence in order to present a fully financed offer for the company.

* Wal-Mart Stores Inc reported a 5.7 percent increase in second-quarter earnings on strong sales in its U.S. and international markets, but the discount retailer continues to see tough economic conditions around the globe.

* Gap Inc fiscal second-quarter earnings rose a better-than-expected 29 percent as the casual-apparel retailer reported stronger sales in North America and improved margins.

* Oracle Corp paid $2 million to settle Securities and Exchange Commission accusations that an Indian subsidiary of the company violated U.S. laws designed to prevent bribery overseas.

* The United States Food and Drug Administration ordered St. Jude Medical Inc to launch new studies gauging the scope of heart-device failures that have plagued the company for months.

* Former partners from defunct law firm Dewey & LeBoeuf LLP have agreed to give back at least $50 million in past earnings in exchange for immunity from lawsuits relating to the New York firm's demise.

FT

FACEBOOK SHARES HIT NEW LOW

Shares in Facebook fell sharply to a fresh record low on Thursday, as a lock-up period that had prevented some shareholders from selling expired.

MINE VIOLENCE FLARES IN SOUTH AFRICA

South African police fired on protesting mine workers on Thursday, in the worst violence to afflict South Africa's mining industry in recent years.

ROMNEY LINK TO UNION SUPPRESSION RULING

A company controlled by Republican presidential candidate Mitt Romney's Bain Capital ran an unlawful campaign to suppress a potential union in the 1980s.

BREVAN HOWARD CO-FOUNDER TO STEP DOWN

Christopher Rokos, co-founder of Europe's second largest hedge fund manager, Brevan Howard, is to leave the firm.

CHINA GOLD IN TALKS TO BUY AFRICAN BARRICK

Barrick Gold Corp, the world's top gold miner, is in talks to sell all or a part of its stake in its African arm to a Chinese buyer.

GOLD PRICE FALLS AS ASIA PURCHASES DWINDLE

Global demand for gold is seeing a significant slowdown as top consumers in India and China pare purchases.

BOE DIRECTOR BULLISH ON LATEST LENDING SCHEME

Paul Fisher, the Bank of England's executive director of markets, is confident the Bank's latest attempt to kick-start the UK economy will be a success.

NO SAFE PASSAGE TO ECUADOR FOR ASSANGE

The UK will not allow Julian Assange safe passage to Ecuador, after the South American country granted the founder of WikiLeaks asylum.

WORLDWIDE BUSINESS ARE BACKING OBAMA

Business executives across the world think it would be better for the global economy if Barack Obama remained U.S. president.

NYT

* The Facebook Inc slide on Wall Street continued on Thursday amid fears that early investors eligible to sell their shares would create a surplus on the market. Shares fell more than 6 percent, closing at $19.87 - its lowest close since the initial public offering in May.

* The United States Justice Department approved a deal struck by Verizon Wireless to purchase spectrum from the country's largest cable operators, but officials also required that the agreement be altered to protect against higher prices for consumers.

* The founder of Best Buy Co Inc, Richard Schulze, pressed his case for a takeover of the electronics retailer, again trying to prod the company into considering his offer.

* Gary Friedman, the chairman and co-chief executive of Restoration Hardware Holdings Inc, has stepped down from his positions after an internal inquiry into an intimate relationship he had with a 26-year-old female employee, according to people involved in the matter.

* On Thursday, Instagram rolled out the third version of its application. The update makes several improvements, including refreshing the look of profiles, smoothing out performance bugs and allowing users to mark comments as spam.

* A123 Systems Inc, a government-backed maker of batteries for electric vehicles, said it had reached a final agreement with the Wanxiang Group, one of China's biggest auto suppliers, that will provide emergency capital and eventually acquire a controlling stake.

* Former partners at Dewey & LeBoeuf agreed to return more than $60 million of their compensation to help pay the failed law firm's creditors.

* Federal regulators have accused Jim Donnan, a head coach of Marshall University and the University of Georgia during the 1990s, of running a Ponzi scheme that defrauded fellow coaches and his former players.

Canada

THE GLOBE AND MAIL

* The Ontario Liberal government has taken a hard line against teachers, threatening to bring in legislation that will block them from getting a hefty pay raise or going on strike.

Reports in the business section:

* Jamie Sokalsky has made his first big move as Barrick Gold Corp's chief executive officer, putting the company's high-cost Africa unit on the block as part of a larger shift in strategy.

* Canada is keeping its coveted membership in the shrinking club of countries with a stable triple-A credit rating. But in its annual report on Canada, Moody's Investors Service Inc warned Thursday that the country's heavy reliance on now-falling crude prices is likely to be a drag on the economy.

NATIONAL POST

* Radon seeping invisibly into some Canadian homes causes hundreds more lung-cancer deaths a year than previously thought, a Health Canada study based on a recent testing blitz has concluded.

FINANCIAL POST

* Alberta's oil sands producers have some very ambitious output forecasts that could see them producing about a sixth of what OPEC now pumps out on a daily basis by the end of the decade. But there are some potentially nasty roadblocks that could force the Canadian producers to slash millions of barrels per day from those targets, not the least of which is transportation.

European Economic Summary

• Germany Producer Prices 0.0% m/m 0.9% y/y – lower than expected. Consensus 0.3% m/m 1.2% y/y. Previous -0.4% m/m 1.6% y/y.
• Switzerland PES Unemployment Rate 4.6% - higher than expected. Consensus 4.5%. Previous 4.4%.
• Euro Area Current Account (sa) 15.7B. Previous -3.2B.
• Euro Area Trade Balance (sa) 5.0B – lower than expected. Consensus 10.5B. Previous 6.8B.

From GoldCore

“Gold Ponzi Schemes” Revealed - Physical Gold Favored Over Derivatives

Today's AM fix was USD 1,616.50, EUR 1,306.05, and GBP 1,028.57 per ounce.
Yesterday’s AM fix was USD 1,603.50, EUR 1,306.74 and GBP 1,021.34 per ounce.

Silver is trading at $28.19/oz, €22.94/oz and £18.03/oz. Platinum is trading at $1,460.50/oz, palladium at $587.30/oz and rhodium at $1,025/oz.

Gold rose $9.90 or 0.62% in New York yesterday and closed at $1,614.00/oz. Silver surged to a high of $28.275 and finished with a gain of 1.37%.

Gold continued gains on Friday receiving a boost from Angela Merkel’s comments saying she supported ‘Super’ Mario Draghi’s pledge “to do whatever it takes” to save the euro.  

While this sentiment lifted markets and some investors hope ECB action is sooner rather than later - it is also creates the risk of currency debasement and could lead to further falls in the euro.

At the beginning of August, the European Central Bank said that it might buy Spanish bonds if the government first applied for the European Financial Stability Facility (EFSF) support. The ECB has said that specific committees within the bank would design the appropriate mechanisms for the bond purchases in the coming weeks, suggesting a possible green light within a few weeks. 

EFSF bond purchases require the vote of all member states, including ratification by the German Parliament.  Many investors are waiting on the sidelines until more concrete news from the ECB and US Fed is conveyed. 

Certainly any more monetary stimulus is positive for gold as policy makers’ favourite choice for bolstering sagging economies risks devaluing currencies.

Barrick Gold Corp, the world's top gold miner, is currently in negotiations with China Gold Corp, China’s top gold producer, about selling part or all of its holdings in its African business. This shows how China is eager to secure a greater source of global supply in order to be able to supply the voracious Chinese market.

Mark O'Byrne, executive director of GoldCore, talked about the outlook for gold prices and the merits of purchasing the physical metal over derivative products with Linzie Janis on Bloomberg Television's "Countdown" today.

He warned regarding the various “gold ponzi schemes” that have come to light recently and advocated owning physical gold and if storing to own gold in an allocated or segregated manner.

The Bloomberg video ‘Physical Gold Favored Over Derivatives at GoldCore’ can be viewed below.

Cross Currency Table – (Bloomberg)

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWSWIRE 

(Bloomberg) -- Standard & Poor’s Warns Re South Africa Violence Spreading 

Standard & Poor’s is “concerned” about violent clashes between labor union members and police at South African platinum mines, which added to negative perceptions of the country, Business Day reported, citing Konrad Reuss, managing director of S&P South Africa.

S&P has no plans to revise its negative outlook for the country in the near term, Reuss told the Johannesburg-based newspaper. S&P reduced the outlook on South Africa’s BBB+ credit rating to negative from stable in March, following similar actions by Fitch Ratings in January and Moody’s Investors Service in November.

(PTI) -- China set to overtake India in gold imports in 2012

China is likely to overtake India as the largest importer of gold this year on the back of huge demand for the precious metal for jewellery and investment in the world's second-largest economy, World Gold Council (WGC) said today.

"In the first half, China's demand for gold stood at 417 tonne surpassing India's 383.2 tonne in the same period," WGC Managing Director (India and Middle East) Ajay Mitra told reporters here.

Looking at the current trends, WGC expects China to overtake India as the largest importer of gold.

In the first quarter of 2012 (January-March), China's gold import stood at around 136 tonnes, lower than India that imported 209 tonne in the same quarter.

"China is a much bigger economy than us and their demand, especially for jewellery and investment, is growing. The country's own supply will not be able to meet this demand growth and the imports will rise," he said.

The fastest-growing major economy in the world consumed roughly 761 tonne gold in 2011.

In the April-June quarter this year, China's jewellery and investment demand declined 7 per cent to 144.9 tonne from 156.6 tonne in the corresponding quarter of 2011, due to lack of direction of gold prices and slowdown in domestic GDP growth. However, steady growth in Chinese gold jewellery demand is expected to resume in the third quarter as economic growth is expected to pick up following monetary easing implemented during the second quarter.

China is the world's largest gold producer and mines about 350 tonne of the precious metal annually.

Gold Prices/Rates/Fixes /Volumes – (Bloomberg)

(Bloomberg) -- Turkey Raises Foreign Exchange, Gold Banks Can Keep in Reserves

Turkey’s central bank increased the proportion of required lira reserves lenders can keep in foreign exchange to 60 percent from 55 percent and the part that can be kept in gold to 30 percent from 25 percent.

The change for the foreign currency portion of lira reserves will be effective from Aug. 31 and the gold portion from Sept. 14, the bank in Ankara said in a statement on its website today.

The changes may add as much as $7.3 billion to the central bank’s foreign exchange reserves and supply up to 5.6 billion liras of liquidity to the market, it said.

NEWS
Gold Poised To Advance For Third Day On Stimulus Speculation - Bloomberg

Gold rises for 3rd day on hopes of ECB action - Reuters

Gold CEO Departures Fastest In Decade On Stock - Bloomberg

China National Gold considers big push into Africa - Reuters

COMMENTARY
Bloomberg: Physical Gold Favored Over Derivatives at GoldCore - Bloomberg

Puzzled investors should put some silver, wine, art and gold into their SWAG bag – The Independent

“Large buyers continue to accumulate ...providing fundamental support to gold above $1,500-$1,600 level” - MarketWatch

Keiser Report: Frankenmarkets and Austrian Economics – Max Keiser

Staring Down the Barrel of Bad Debt – Daily Reckoning

The Portuguese Run Out Of Gold To Sell – Zero Hedge

From GoldCore

LCH.Clearnet Accepts ‘Loco London’ Gold As Collateral Next Tuesday

Today's AM fix was USD 1,640.50, EUR 1,315.87, and GBP 1,038.49 per ounce.
Yesterday’s AM fix was USD 1,624.00, EUR 1,308.94and GBP 1,030.26 per ounce.

Silver is trading at $29.44/oz, €23.74/oz and £18.72/oz. Platinum is trading at $1,524.75/oz, palladium at $628.60/oz and rhodium at $1,025/oz.

Gold climbed $16.60 or 1.02% in New York yesterday and closed at $1,637.60. Silver surged to hit a high of $29.501 and finished with a gain of 1.6%.

Gold in USD – 50, 100, 200 Day Moving Average  (Bloomberg)

Gold briefly popped above the 200 day moving average at $1,643/oz this morning and remains near the 3 ½ month high set in the prior session. A break above the 200 day moving average, after similar breaks of the 50 and 100 day moving averages, will be bullish technically (see chart).

Market watchers are still optimistic that the ECB’s Mario Draghi will bring out the bazooka and unleash more euro paper in the form of the SMP program which would be the icing on the cake for what is an already very bullish gold scenario.

Recent news that the ECB has been creating alternatives to limit Spanish and Italian borrowing costs may have sent gold higher yesterday, increasing its inflation hedge appeal.

Later today the FOMC releases the minutes from its latest meeting and investors will search for clues on when QE3 will occur.

Gold’s remonetisation in the international financial and monetary system continues. 

LCH.Clearnet, the world's leading independent clearing house, said yesterday that it will accept gold as collateral for margin cover purposes starting in just one week - next Tuesday August 28th.

LCH.Clearnet is a clearing house for major international exchanges and platforms, as well as a range of OTC markets. As recently as 9 months ago, figures showed that they clear approximately 50% of the $348 trillion global interest rate swap market and are the second largest clearer of bonds and repos in the world. In addition, they clear a broad range of asset classes including commodities, securities, exchange traded derivatives, CDS, energy and freight.

The development follows the same significant policy change from CME Clearing Europe, the London-based clearinghouse of CME Group Inc. (CME), announced last Friday that it planned to accept gold bullion as collateral for margin requirements on over-the-counter commodities derivatives. 

It is interesting that both CME and now LCH.Clearnet Group have both decided to allow use of gold as collateral next Tuesday - August 28th. It suggests that there were high level discussions between the world’s leading clearing houses and they both decided to enact the measures next Tuesday. 

It is likely that they are concerned about ‘event’ risk, systemic and monetary risk and about a Lehman Brothers style crisis enveloping the massive, opaque and unregulated shadow banking system.

Overnight, Citigroup CEO Vikram Pandit warned in Singapore that risks are set to increase as non-bank financial systems expand, adding that it’s impossible for a regulatory body to “see everything.” 

Cross Currency Table – (Bloomberg)

LCH.Clearnet Group Ltd.  said it will accept loco London gold as collateral for margin-cover requirements on OTC precious-metals forward contracts and on Hong Kong Mercantile Exchange precious-metals contracts starting Aug. 28. Loco London gold are London Good Delivery Bars (roughly 400-ounce or 12.5 kilograms gold bar) held with LBMA members within the London bullion clearing system.

The clearing house has already been using gold bullion as collateral since 2011 but now will accept loco London gold as collateral.

The push to use gold as collateral follows similar steps from a growing number of exchanges and banks to increase the use of gold as an acceptable deposit and collateral reinforcing gold's renewed status as a safe haven currency.

Intercontinental Exchange Inc. (ICE) also has allowed the use of gold as collateral.

LCH.Clearnet limited the amount of gold that could be used as collateral to no more than 40% of the total margin cover requirement for a member across all products and at a maximum of $200 million, or roughly 130,000 troy ounces, per member group.

The move follows the initiative of the World Gold Council, who last year submitted evidence to the Basel Committee for gold to be included in banks’ ‘Tier 1’ assets by European banking regulators, recognising gold’s growing relevance as a high quality liquid asset.

David Farrar, Director, LCH.Clearnet said at the time that “market participants want greater choice when it comes to assets that can be used as collateral.  Gold is ideal; as an asset it typically performs well in times of financial stress, remains liquid and has a well established pricing mechanism.”

Gold Prices/Fixes/Rates/Vols – (Bloomberg)

We pointed out the importance of this development last year but it was ignored by most of the media and even much of the blogosphere.

The CME and LCH.Clearnet both allowing gold bullion as collateral is extremely bullish for the gold market.

With counterparty and sovereign risk remaining elevated, gold is no longer being seen simply as a commodity. Rather, it is increasingly viewed by market participants as an important asset and a currency with no counterparty risk.

We are gradually seeing the remonetisation and indeed the ’financialisation’ of gold, as gold is gradually being reincorporated into the modern financial and monetary system.

This should result in the coming months and years in markedly higher prices than those of today.

Keynes’s ‘barbaric relic’ is becoming less barbaric by the day. However, the man on the street remains completely unaware of this trend and continues to sell gold (jewellery) rather than buy gold (bullion) as clearly seen in the international phenomenon that is 'cash for gold'.

Huge developments in the gold market such as this continue to be ignored by non specialist financial media and its implications not realized by many so called experts. The "experts" and public consensus is that gold is a risky volatile commodity and may even be a “bubble".”

The truth, which is being seen more clearly by the day, is that gold is actually a finite currency and the safest form of money in the world.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWSWIRE
(Bloomberg) -- CME Clearing Europe to Clear London Silver Forwards from Aug. 28
CME Clearing Europe will start clearing London silver forwards from Aug. 28, it said in an e- mailed statement today.

The product will be physically-settled, it said.

(Bloomberg) -- Lonmin Says Marikana Worker Attendance Falls to 22% From 33%
Lonmin Plc said about 22 percent of the 28,000 workers at its Marikana mine in South Africa reported for duty today compared with 33 percent yesterday.

There probably won’t be any significant production restart this week, Susan Vey, a spokeswoman for the company said by phone from the mine today. The mine will be shut for a memorial service tomorrow, she said. “We’re hoping for a complete change” on Aug. 27, she said.

(Bloomberg) -- Peru’s June Gold Output Fell 5.9% to 13,094 Kg, Ministry Says
Peru’s gold production fell 5.9 percent to 13,094 kilograms in June from a year earlier on declines at Cia. de Minas Buenaventura’s La Zanja mine and Barrick Gold Corp’s Misquichilca mine.

(Bloomberg) – Platinum May Rise With Gold For Six Months
Platinum may rise with gold over the next two quarters, Daniel Brebner, an analyst at Deutsche Bank AG said.

Copper “continues to have problems on the supply side,” Brebner said.  Copper is probably going to a have a shortage this year, not a surplus as expected earlier in the year, he said.

(Bloomberg) -- Pandit Says Shadow Banking Is a Major Concern 
Citigroup CEO Vikram Pandit says risks to increase as non-bank financial systems expand, adding that it’s impossible for a regulatory body to “see everything.” He spoke at a speech in Singapore.

? Pandit says investors see opportunity in light regulation in shadow banking

? “Every piece of regulation we are talking about today has but one goal; to enhance the safety and soundness of the financial system. But this goal will not be achieved if all that we accomplish is to impose more requirements on the formal banking sector while leaving the non-bank financial sector relatively untouched.”

(Bloomberg) -- Commodities Enter Bull Market - Gaining 21% 
Commodities entered a bull market, gaining 21 percent from a June low, as grain prices surged after the most severe U.S. drought in half a century and as crude oil rallied amid increased tension in the Middle East.

The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 0.9 percent to end at 675.55 yesterday in New York. The gauge has jumped from this year’s lowest close of 559 on June 21. A gain of more than 20 percent is the common definition of a bull market. Crude accounts for more than 50 percent of index.

NEWS
Gold near 3-1/2 month high on ECB hopes - Reuters

Gold To Rally As Central Banks, Investors Buy, Coutts Says - Bloomberg

Shares slip after Japan exports fall, euro steady - Reuters

Gold Flat in Asia; FOMC Minutes in Focus – Wall Street Journal

COMMENTARY

Why a collapse of the Eurozone must be avoided – Hyperinflation - Vox

What 40 Years Of Gold Confiscation By The US Government Looks Like – Zero Hedge

Is Gold Money? LCH Accepts Shiny Yellow Metal As Collateral – Zero Hedge

Suicidal Skullduggery in the City & Unusually Small Heads on the Street – Max Keiser

Via Paul Mylchreest of Seymour Pierce,

Is Gold a Giffen good?

We are at a critical point for gold and the gold equities.

With regard to the latter, the long running underperformance versus bullion may be over for the time being with the recent double bottom in the chart of the HUH Index of large cap. gold stocks versus the gold price:

During the Summer, a portfolio manager from a large UK fund in a CNBC interview commented that "I wish I'd never met a gold miner." That kind of abandonment of hope can obviously be typical of market bottoms.

Time will tell, but the investment case for gold equities has received a boost from recent M&A transactions. This week saw the announcement of Minera Frisco's US$750m acquisition of the Mexican Ocampo mine from Au Rico Gold. Minera Frisco is majority owned by Carlos Slim, touted in the media as the world's richest man. Other recent announcements should have raised eyebrows due to the (very) obvious theme:

• 7 August 2012 - Zijin Mining, the largest Chinese gold miner, acquired a majority stake in the Australian gold miner, Norton Gold Fields, for US$180m;
• 16 August 2012 - China National Gold announced that it was in preliminary discussion regarding an offer for Barrick's 73.9 percent stake in African Barrick Gold;
• 4 September 2012 - China's SEFCO Group announced the acquisition of the Zara gold project in Eritrea for US$80m;
• 19 September 2012 - China's Shandong Gold announced the acquisition of a 51% stake in the Australian gold miner, Focus Minerals, for US$238m; and
• 27 September 2012 - Zhongrun Resources announced the acquisition of a 42% stake in the Australian gold miner, Noble Mineral Resources, for US$88 million.

Gold itself has had a strong move up since mid-August as the expectation of further QE became baked into expectations. We have moved into a new era of open-ended money printing across the developed world. Surprisingly, many people are prepared to believe that this will not be inflationary - but all in good time.

The failure of the gold price to breech US$1,800/oz so far can be attributed to aggressive short selling of various forms of "paper gold" by bullion banks. If we take the more transparent COMEX futures market, the CFTC's Bank Participation Report shows that between 7 August and 2 October 2012, almost the entire increase in open interest has been accommodated by an 86,486 contract increase in the net short position of the reporting banks. The total net short position is now 184,748 contracts, i.e. 18.47m oz of gold or 574.6 tonnes. The latter is the paper equivalent of 20.4% of world gold mine production and more than 50% of China's reported gold reserves...just on COMEX!

The London gold market (LBMA) is much bigger, but far more opaque. What most commentators fail to appreciate is that the convention for gold trading on the LBMA is in "unallocated" gold. This is an unsecured claim against a pool of gold held in the vaults of clearing members of the LBMA. In keeping with banking practice, it is a fractional reserve system. Smart money has been buying gold on the LBMA and specifying delivery of "allocated" bullion, i.e. where specific gold bars are segregated in the vault in the name of the purchaser, or (increasingly) removed by the purchaser from the banking system altogether.

In August 2011, S&P downgraded the US sovereign credit rating from AAA to AA+ which was the catalyst for the gold price to rise US$270/oz to hit an all-time high of US$1,920/oz on the morning of 6 September 2011. Beginning the following month, reports of heightened demand for physical gold in the London market began to filter through which have continued in 2012. For example:

21 October 2011 - King World News' "London Trader"
"We had a major, major physical buy order today. The Chinese bought a massive amount of physical today at the lows."

17 January 2012 - King World News' "London Trader"
"They (the Chinese) have recently taken another roughly 150 tons away from the Western central banks."

18 March 2012 - Jim Willie of the Hat Trick Letter
"My best gold trader source..The Chinese are the principal buyers, but he swears that China is not alone.. The battle is being won in the vaults, where the gold cartel is being depleted"

19 June 2012 - TF Metals Report
"London Good Delivery bars are being delivered to Eastern buyers. Instead of being vaulted inside the LBMA system, these bars are being sent directly to refiners. The bars are then being melted and recast in 1 kilogram sizes."

8 October 2012 - Egon Von Greyerz of Zurich-based Matterhorn Asset Management on King World News
"I would also note, Eric, that some of the refiners we are talking to, they are seeing business strongly increasing now, and in this environment they are actually increasing their margins and prices. So there is clearly an increase in short-term demand."

Whether the reported Chinese buying is "official" or not is unclear. However, it is worth remembering the surprise Chinese announcement in April 2009. This was from a China Daily news article at the time:

"China, owner of the world's biggest forex reserves, said Friday its gold reserves had risen to 1,054 tonnes by the end of 2008. China is now the fifth biggest holder of gold reserves in the world, with only six countries having a holding of more than 1,000 tonnes, Hu Xiaolian, head of the State Administration of Foreign Exchange, told Xinhua in an interview. The new figure represents an increase of 454 tonnes from 600 tonnes in 2003, the last time China announced an adjustment of its gold holdings."

What's happening in the gold market reminds me of something I speculated could happen back in 2007 i.e. whether gold would some day exhibit the characteristics of a "Giffen good"?

Economists (I am not one) define a Giffen good as one which violates the normal laws of supply and demand, i.e. instead of falling, demand rises as the price increases. Wikipedia explains the paradox as follows:

"In normal situations, as the price of a good rises, the substitution effect causes consumers to purchase less of it and more of substitute goods. In the Giffen good situation, the income effect dominates, leading people to buy more of the good, even as its price rises."

 

According to Wikipedia, the evidence for the existence of Giffen good is:

"limited, but microeconomic mathematical models explain how such a thing could exist."

Please note that Giffen goods should not be confused with "Veblen goods". This is Wikipedia on the latter:

"people's preference for buying them increases as their price increases (as greater price confers greater status)... decreasing their prices decreases people's preference for buying them because they are no longer perceived as exclusive or high status products."

Super cars and high-end luxury goods are examples of Veblen goods

In searching for examples of Giffen goods, the focus has normally been on low quality staple foods, i.e. as the price rises, people can't afford to buy better quality foods and are forced to purchase more of the staple.

For many years, the oft-cited example of a Giffen good was the potato during the Irish Potato Famine of 1845-52. When the famine broke out, approximately one third of the Irish population was believed to have been dependent on the potato as their major source of food. Subsequently, this example was discredited when it was realized that more potatoes could not have been consumed even by the poorest one third of the population since there was such a severe shortage of potatoes - at its nadir the potato blight caused an 80% reduction in the potato crop.

More recently, it has been suggested that rice and wheat in parts of China show the characteristics of Giffen goods. In "Giffen Behaviour and Subsistence Consumption", a 2008 paper by Robert Jensen and Nolan Miller of Brown and Harvard universities, the authors claim:

"This paper provides the first real-world evidence of Giffen behavior, i.e. upward sloping demand. Subsidizing the prices of dietary staples for extremely poor households in two provinces of China, we find strong evidence of Giffen behavior for rice in Hunan, and weaker evidence for wheat in Gansu."

The amusing thing is that I saw a real time example of "Giffen behaviour" on Bloomberg News last week without needing to analyse consumption surveys from the Chinese hinterland. Before I get to that, when Alfred Marshall first publicized the idea of a Giffen good in 1895 he noted that:

"As Mr. Giffen has pointed out, a rise in the price of bread makes so large a drain on the resources of the poorer labouring families and raises so much the marginal utility of money to them, that they are forced to curtail their consumption of meat and the more expensive farinaceous foods: and, bread being still the cheapest food which they can get and will take, they consume more, and not less of it."

In light of those remarks, let's turn our attention to the current hyper-inflation in Iran and a section from a Bloomberg News' article "Iranians Abandon Meat for Bread as Protests Flare" on 4 October 2012:

"Iran's free-falling currency is turning meat into a luxury, sparking overnight price surges and spurring shoppers to stockpile goods.

 

'Most of my customers just look at products behind the window and pass,' said Behrouz Madani, 42, who owns a butcher shop in northwest Tehran. 'I see them going to the next store, which is a bakery, to feed their families with bread."

This is a perfect example of Giffen behaviour, but what about gold?

The lows in the gold price - there was a double bottom in 1999 and 2001 - were in the range US$250-300/oz:

We are currently in the eleventh year of rising prices. What about demand for gold?

When it comes to the supply and demand for gold, many people don't understand that it is IMPOSSIBLE to measure accurately, as almost all of the physical gold ever mined is still available as theoretical supply in the form of bars, coins or (scrap) jewellery. This is reflected in gold's stock-to-flow ratio, i.e. the ratio of above ground stocks to annual mine production. The ratio for gold is between 60-70 and is FAR higher than any other metal or commodity. Silver is the only one other one which even troubles the scorers. While the high stock to flow ratio is one reason for gold's suitability as money, it also makes estimating supply and demand problematic:

The flows between the buyers and sellers of the existing above ground stock of gold held for investment purposes CANNOT be measured;

 

The supply and demand models created by the World Gold Council, industry consultants and banks are only estimates of the end demand for INCREMENTAL ANNUAL PRODUCTION; and

 

In some of these models, the demand for gold for "Investment" purposes is just a balancing figure.

The difficulties don't end there. It is well known that India's demand for gold is a significant factor impacting supply and demand for gold. This is Sandeep Jaitly in his October 2012 "Gold Basis Service" newsletter:

"India remains the largest market for gold and silver by many magnitudes. What is not commonly appreciated is that whilst the recorded numbers for gold imports are big, the unrecorded are far larger. The 'black economy' of India is larger than that of any other country. Reported gold transactions courtesy of the well-known bullion organisations should always be taken with a pinch of salt."

However, there are some objective measures of key components of overall gold demand. Firstly, the aggregate amount of gold held in all known gold Exchange Traded Funds (ETFs). Bloomberg data goes back to October 2003 and is summarized in the following chart:

The current level is an all-time high at 82.958m oz (2,580.3 tonnes) - which is consistent with Giffen behaviour - demand for gold rising as the bull market in gold plays out.

Another source of measurable demand is from central banks, at least in terms of their reported activity. These venerable institutions have had an almost Damascene conversion as they have changed from sizeable net sellers to sizeable net buyers. We probably shouldn't be surprised that a) they were late joining the party and b) the inflection point was in 2008 - when the Great Financial Crisis hit - 7 years into the bull market.

Once again, this is evidence of Giffen behaviour with respect to gold. The data above obviously doesn't take account of likely additional purchases by China's central bank as per the discussion above. I use the term "Giffen behaviour" deliberately. Some economists argue that there are three necessary pre-conditions for a Giffen good:

• Firstly, there should be a lack of close substitutes. This is certainly true for gold as there are only two monetary metals - the other being silver - and the latter is both a monetary AND industrial metal. In contrast, other types of money, like paper currency and electronic credit, have no intrinsic value;
• Secondly, it should be an "inferior good" - a good that people buy more of when their income goes down. Once again, gold scores well here as gold's attraction increases in response to a rise in inflation/inflation expectations which have a negative impact on real incomes; and
• Thirdly, the good should constitute a substantial percentage of the consumer's income. This is much harder to argue in gold's favour. There is no doubt that growing numbers of people are allocating a larger slice of their savings (past income/future consumption) to gold, but that's about as far as the argument can be taken.

While two out of three "ain't bad", we'll stop short of attaching the term Giffen good to gold and instead focus on clear evidence of gold's Giffen behaviour.

Another point which shouldn't go unnoticed is the growing roll call of portfolio and hedge fund managers who, like the central banks, have been high profile gold advocates since the Lehman collapse in 2008. Here are a few relevant quotes:

Kyle Bass on CNBC on 12 March 2012:
You can call it what you want to call it..I call it money creation out of thin air and, therefore, gold has a lot further to go."

 

From WSJ's Market Watch on 15 August 2012:
"Hedge-fund managers John Paulson and George Soros boosted their gold holdings during the second quarter"

 

The "paper king" Bill Gross of Pimco, the world's largest bond fund, on Bloomberg TV on 5 September 2012:
"I just think it (the gold price) would be higher than it is today and certainly a better investment than a bond or a stock which will probably only return 3-4% over the next 5-10 years."

 

Ray Dalio when asked by whether he owns gold on CNBC on 21 September 2012:
"Oh yeah. I do. ..There's no sensible reason not to have some. If you're going to own a currency, it's not sensible not to own gold."

 

David Einhorn in the Huffington Post on 3 May 2012:
"I will keep a substantial long exposure to gold -- which serves as a Jelly Donut antidote (his characterisation of Bernanke's QE strategy) for my portfolio. While I'd love for our leaders to adopt sensible policies that would reduce the tail risks so that I could sell our gold, one nice thing about gold is that it doesn't even have quarterly conference calls."

Besides avoiding the quarterly conference calls, two other factors spring to mind:

We are in the midst of the biggest debt crisis in history and there is only one financial asset which doesn't have COUNTER-PARTY RISK; and

 

From Philip Barton's "The Dawn of Gold":

"A stock of anything has to be started at a moment in time. A stock of 170,000 tonnes does not just suddenly appear. At some point, long ago, the decision was made to begin to hoard gold. No one hoards something that will not hold its value over time. No one would put a dozen eggs or an iron bar in the back shed and expect it to have value fifty years later. The crucial point to understand is that when the original decision was made to begin to acquire and hoard gold, it must have already been regarded as a store of stable value over time, otherwise the decision to store it would not have been made."

Imagine if in 2007, Ben Bernanke, Mervyn King, Jean Claude Trichet et al, had actually possessed the analytical foresight to see what was coming, organised a meeting with the world's media and explained how, using their collective wisdom, they would solve the problem.

"There's going to be a massive global crisis, but there's no need to worry. We're just going to print money."

 

"Is that it?"

How would most people have reacted then? I think they would have laughed out loud. Why are so many of us reacting differently now?

For some reason, what's happening reminds me of a skiing holiday years ago when one of my friends, after putting on skis for the first time, was persuaded to take the chairlift to the top of the mountain with the immortal words "Don't worry, you'll be fine." He wasn't.

The nature of markets is that they periodically forget the lessons of history. One of them is that low interest rates (how about ZIRP?) and extreme monetary stimulus cause financial bubbles. Confidence in the status quo seems as entrenched now as it was in 2007. In 2009, I remember talking to a former colleague and, having been bullish on gold, he had turned bearish, arguing that everybody was bullish and that it was a crowded trade. My response was that if that was the case, then "everybody" wasn't bullish enough. Needless to say, he wasn't convinced.

• Scope of Sandy's devastation widens, death toll spirals (Reuters)
• On Staten Island, cries for help replaced by a loss for words (Reuters)
• China responds to Japan’s provocation (FT)
• Japan governments open to compromise to avoid “fiscal cliff” (Reuters)
• It's Global Warming, Stupid (Businessweek)
• Sharps says there is "Material Doubt" about its ability to survive (Bloomberg)
• Thomson Reuters operating profit slips, trading faces pressure (Reuters)
• Germany's Schaeuble says debt reduction is global task (Reuters)
• The Luxury Repo Men (Businessweek)
• Deutsche Bank Faces Top Surcharge as FSB Shuffles Tiers (Bloomberg)
• Storm over ‘Lagarde list’ intensifies (FT)
• Greek, European Officials Dispute Budget Reprieve (WSJ)
• Rivals part ways over economy (FT)
• Fed’s Rosengren: Fed Should Buy Bonds Until Unemployment Hits 7.25% (WSJ)
• New Dutch finance minister promise cuts, tough line on euro zone (Reuters)
• Aussie Strength Allows Economy to Run Lower Rates, Swan Says (Bloomberg)

Overnight Economic Digest

WSJ

* On the lower east side, thousands of residents, many of them elderly, remained trapped in high - rise buildings with no water, power or heat - and limited phone service to call for help after hurricane Sandy hit the eastern coast, officials said.

* James Murdoch was re-elected to the board of British Sky Broadcasting Group Plc, with 95 percent of the vote.

* In a change that reflects a shifting balance of power between Europe and the developing world, many southern European companies that are struggling to raise financing at home are turning to their emerging-markets businesses for relief.

* Canadian oil companies are rethinking investment in one of North America's earliest and fastest growing "unconventional" oil frontiers-Alberta's oil sands.

* Sharp Corp posted a $3.12 billion loss and said it had doubts about remaining a "going concern," another sign of the problems gripping Japan's consumer-electronics makers. Sony Corp also reported a loss.

* China is marshalling its vast security apparatus ahead of a once-a-decade shuffle of party leaders, its first such transition in the era of social media, with half a billion Chinese swapping information online.

FT

BANK OF ENGLAND'S CULTURE ATTACKED

Excessive deference and hierarchy is damaging the Bank of England's effectiveness, according to three independent reviews that criticise the central bank's culture.

BANKS IN LINE OF FIRE OVER PPI FIGURES

The bill for UK banks for mis-selling payment protection insurance is set to hit 10.8 billion pounds on Friday when RBS sets aside another 400 million pounds.

SHARP ADMITS 'MATERIAL DOUBT' ON SURVIVAL

Sharp has admitted there is "material doubt" about its ability to stay in business as it warned of a second year of record losses.

SHELL WARNS REFINING BOOM TO END SOON

The refining boom that buoyed oil majors' third-quarter results could be shortlived, Royal Dutch Shell has warned.

EUROPEAN CORPORATE BUYBACKS HIT LOWS

Share buybacks by European companies have sunk to the lowest levels since 2009 as pessimism over business conditions spurs managements to hold on to cash.

POTASH IN TALKS TO BUY ISRAEL CHEMICALS

Potash Corp has approached the Israeli government for approval to buy rival Israel Chemicals (ICL ), which has a market value of $15 billion.

MOSCOW DEFENDS ROSNEFT MOVE ON TNK-BP

Igor Shuvalov, Russia's first deputy prime minister, has defended Rosneft's acquisition of TNK-BP as helping to speed the privatisation of the state oil group.

STORM OVER 'LAGARDE LIST' INTENSIFIES

Greece's parliament has been asked to investigate why two former finance ministers did not pursue possible tax evaders with Swiss bank accounts.

NYT

* Damages from hurricane Sandy double a previous forecast, with economists warning that it could shave a half percentage point off the nation's economic growth.

* The Federal Energy Regulatory Commission's broad crackdown is aimed at manipulation of energy prices.

* The Congressional Research Service withdrew a report that found no correlation between top tax rates and economic growth after senators raised concerns.

* Policy makers are being urged to address long-term unemployment before those looking for work decide to give up trying for good.

* Dragged down by advertising and circulation declines, Martha Stewart Living Omnimedia will lay off staff and reduce magazines.

* Sony Corp, Sharp Corp and Panasonic Corp have all reported significant losses, their boom years ended by global crisis and their own poor decisions

Canada

THE GLOBE AND MAIL

* Prime Minister Stephen Harper will land in India this weekend with a simple mission: rekindling a number of high-profile trade deals with this rapidly expanding economy that have either stalled or made slow progress.

* Just two days after vowing he would not hide from the corruption scandal that has swamped his city and brought an emergency ethics crackdown from the province, the mayor of Montreal Gerald Tremblay has left on a surprise vacation.

Reports in the business section:

* BCE Inc vowed to protect its dividend strategy and consider other takeovers if last-ditch efforts to rescue a C$3 billion bid for Astral Media Inc fail.

* The Andean gold project that is key to driving future growth at Barrick Gold Corp just got more expensive to build, and the company is still not done looking at costs.

The Toronto-based miner said the Pascua Lama project, set in the mountains between Chile and Argentina, will now cost as much as $8.5 billion to develop.

NATIONAL POST

* Toronto Mayor Rob Ford is defending his decision to leave another city hall meeting in order to coach his high school football squad, arguing that a game that ended early because of a dispute Thursday "could have gotten really ugly" if he hadn't been there to control his team.

* The Parti Quebecois government is introducing new anti-corruption measures in its first piece of legislation and will subject companies to increased scrutiny if they want public contracts.

FINANCIAL POST

* National Bank of Canada is cutting about 300 jobs, including 10 vice presidents, as the country's sixth biggest lender shakes up its organizational structure to tighten expenses.

* Crescent Point Energy Corp, Canada's No. 4 independent oil exploration company, said Thursday it has agreed to buy closely held Ute Energy Upstream Holdings LLC for $784 million in cash.

China

CHINA SECURITIES JOURNAL

-- China should encourage city commercial banks and rural banks to list on the stock market and may lower listing requirements for these banks, said Chen Dongzheng, president of the Shenzhen Stock Exchange.

-- Zhejiang Shibao Co Ltd abruptly changed its forecast for 2012 net profit on the night before listing on the Shenzhen Stock Exchange. The new forecast says net profits may drop 27-31 percent.

SHANGHAI SECURITIES NEWS

-- Baoshan Iron & Steel Co Ltd (Baosteel) said it had bought back 242 million shares in a price range of 4.51 to 4.65 yuan per share as of Nov. 4.

CHINA DAILY (www.chinadaily.com.cn)

-- Microsoft Corp has signed an agreement with the Shanghai government and 21Vianet to offer public cloud services to businesses in the city as well as to the government.

-- Tourists visiting the southern island of Hainan will have a higher duty-free allowance starting this week, in a bid to make the island even more popular as a tourist destination.

PEOPLE'S DAILY

-- In order to help rural residents renovate dilapidated houses, China's central government has already dispersed 15 billion yuan ($2.40 billion) originally budgeted for 2013.

• The Bild is now a source for EURUSD stop hunts: Germany eyes 'bundled' loan payment to Greece-paper (Reuters, Bloomberg)
• Congress comes back Tuesday to confront “fiscal cliff.”  (Reuters)
• Gen. John Allen ensnared in Petraeus scandal (Politico)
• FBI Agent in Petraeus Case Under Scrutiny (WSJ)
• Comcast's NBCUniversal unit lays off 500 employees (Reuters)
• University Fees Stoke U.K. Inflation (WSJ)
• Consumers Closing Wallets in Japan Add to Noda’s Woes (Bloomberg)
• John McAfee Wanted for Murder... and explaining bathsalt anal suppositories (Gizmodo)
• Europe Gives Greece 2 More Years to Reach Deficit Targets (Bloomberg)
• Where Spain Is Worse Than Greece (WSJ)
• Microsoft's Windows unit head, once a possible CEO, exits (Reuters)
• Xi Inherits an Economy That Needs Work (WSJ)
• Glitch stops NYSE trading in 216 companies (FT)
• The death of San Bernardino: How a vicious circle of self-interest sank California city (Reuters)
• Large European Banks Stash Cash (WSJ)
• Apple stores most productive US shops (FT)
• Treasuries See U.S. Falling Over Cliff as Yields Converge (Bloomberg)
• Bra-Bodysuits Make H&M One Hit Wonder as Zara Prospers (Bloomberg)

Overnight Media Digest

WSJ

* Steven Sinofsky, president of Microsoft Corp's Windows division and a 23-year veteran of the company, is leaving the software giant less than three weeks after the release of a revamped version of Windows he spearheaded.

* Jefferies agreed on Monday to sell itself to its largest shareholder Leucadia National Corp, a financial-holding company whose opportunistic investing approach and eclectic mix of businesses sometimes draw comparisons to Warren Buffett's Berkshire Hathaway Inc.

* With the ink barely dry on China Petrochemical's $1.5 billion investment deal with Canada's Talisman Energy, the state-controlled Chinese company's chairman says it is already exploring ways to widen the partnership.

* The British Broadcasting Corp's top news management was in tatters on Monday over its mishandling of sex-abuse coverage, as the broadcaster's news chiefs vacated their posts and it released an internal report detailing serious journalistic failings.

* U.S. President Barack Obama, as part of his effort to broker a deficit-reduction deal, will meet with a dozen of the country's top chief executives on Wednesday representing a number of business sectors.

FT

TORIES CALL FOR TOP BBC ROLE TO BE SPLIT

Members of the Conservative Party have backed calls for a radical shake-up of the BBC, endorsing a split in the director-general's role.

ROMNEY ADVISOR SUPPORTS TAX ON RICH

The U.S. Congress should agree to higher taxes on the wealthy to avoid the fiscal cliff, a top Republican economist has conceded.

FATHERS WILL SHARE PARENTAL LEAVE

The British government is preparing to announce proposals that will allow them to divvy up annual parental leave allotments with husbands or partners.

REGULATORS PROBE UK NATURAL GAS MARKET

British energy regulators are investigating claims made by a whistleblower that UK traders have manipulated wholesale prices on Europe's biggest gas market.

JEFFERIES TO PUSH LEUCADIA INTO SPOTLIGHT

On Monday, Leucadia National said it would buy Jefferies, the last independent broker-dealer of any significant size on Wall Street.

BLOOMBERG LAUNCHES ITUNES-STYLE PLATFORM

Bloomberg is launching a portal for applications to allow clients to incorporate their own software into the group's financial data terminals.

EXTENSION TO ADD 15 BLN EUROS TO GREEK BAILOUT

Extending Greece's bailout by two years will force lenders to come up with 15 billion euros ($19.07 billion) in new financing for Athens by 2014.

POSSIBLE DEMARCO EXIT SPURS MBS SELL-OFF

Investors in the U.S. are marking down the prices of securities backed by mortgages written before the financial crisis.

NYT

* Fake accounts and fraudulent "likes" are an especially acute problem for Facebook as it has sought to distinguish itself as a place for real identity on the Web.

* Microsoft has unexpectedly parted ways with Steven Sinofsky, the leader of one of its most lucrative businesses and an executive often mentioned as a possible successor to the current chief executive.

* The United States will overtake Saudi Arabia as the world's leading oil producer by about 2017 and will become a net oil exporter by 2030, the International Energy Agency said on Monday.

* A federal jury in Manhattan rejected the Securities and Exchange Commission's claim that Bruce Bent, the man credited with inventing a popular investment vehicle known as a money market fund, defrauded investors when his flagship fund failed in September 2008, sowing panic among ordinary investors.

Canada

THE GLOBE AND MAIL

* On Monday, the Ontario Secondary School Teachers' Federation gave the green light to 20 local unions, including teachers with the Toronto District School Board, Canada's largest, to launch strike action after it failed to reach an agreement with the province.

Teachers are not expected to walk out, but will limit their duties to exclude administrative tasks and supervision outside the classroom.

* Martha Hall Findlay is preparing to jump into the Liberal leadership race and will be supported by the team that helped propel Alberta Premier Alison Redford and Calgary Mayor Naheed Nenshi to power.

Stephen Carter, who was campaign manager for both Nenshi and Redford, issued notice Monday that Hall Findlay would make an announcement in Calgary on Wednesday.

Reports in the business section:

* Canada's largest diversified miner Teck Resources Ltd is planning a road trip - to India.

Eager to understand the Asian nation's growth potential more quickly and more completely than it did the explosive demand out of China over the past decade, Teck wants to judge for itself whether forecasts for massive growth in India are realistic.

* After numerous delays and disastrous financial results resulting from weak sales of current BlackBerry models, Research In Motion said it will hold the BlackBerry 10 launch event on Jan. 30 in various countries around the world.

On that day, RIM will unveil the first two phones - likely a full touchscreen device, as well as a touchscreen device that also has a physical keyboard - and announce their commercial availability. That could be a couple of weeks later, according to one source familiar with the plan.

NATIONAL POST

* The candidates to become the next Premier of Ontario have taken their cue from the departing one and spoken about the prospects of Liberal renewal at every step.

Eric Hoskins, the Toronto MPP who will make formal his leadership bid on Tuesday morning, described it not as a leadership bid but as "an important announcement about renewal in the Ontario Liberal Party."

FINANCIAL POST

* The International Energy Agency predicts the United States will be capable of meeting its own energy needs by 2035, but that doesn't necessarily mean its top crude supplier - Canada - has reason to panic.

* A key element of a U.S. regulator's case against Canada's largest bank may hinge on the interpretation of a series of internal emails.

An amended complaint filed by the Commodity Futures Trading Commission (CFTC) in U.S. District Court in connection with its "wash trading" case against Royal Bank of Canada includes excerpts from an email exchange between senior RBC employees.

The conversation appears to show dissent within the bank over what to tell U.S. regulators about the trading practices now at the center of the allegations.

China

CHINA SECURITIES JOURNAL

-- China could cut required trade settlement escrow deposits for brokerages by as much as 85 percent next year, said the China Securities Depository and Clearing Corporation.

-- China State Construction Engineering Corp Ltd said its sales from January to October rose 29.7 percent to 97 billion yuan ($15.57 billion).

SHANGHAI SECURITIES NEWS

-- China Taiping Insurance Holdings Co Ltd is considering an initial public offering after restructuring.

CHINA DAILY (www.chinadaily.com.cn)

-- The number of foreign companies using the yuan as their currency of choice has surged after rules introduced earlier this year allowed yuan settlement for Chinese traders. The number of French companies paying in yuan increased by 30 percent.

PEOPLE'S DAILY

-- China will start their national economic census in 2013, said the official website of Chinese government.

Fly On The Wall 7:00 am Market Snapshot

ANALYST RESEARCH

Upgrades

3D Systems (DDD) upgraded to Overweight from Neutral at Piper Jaffray
Air Products (APD) upgraded to Buy from Neutral at Goldman
Albermarle (ALB) upgraded to Buy from Neutral at Goldman
Apollo Commercial (ARI) upgraded to Outperform from Market Perform at JMP Securities
Dow Chemical (DOW) upgraded to Buy from Neutral at Goldman
Eaton Vance (EV) upgraded to Neutral from Underperform at BofA/Merrill
Energy Transfer Partners (ETP) upgraded to Overweight from Equal Weight at Barclays
F5 Networks (FFIV) upgraded to Buy from Neutral at Goldman
Kraton Performance (KRA) upgraded to Buy from Neutral at Goldman
NuStar Energy (NS) upgraded to Neutral from Underperform at Credit Suisse
Rockwood (ROC) upgraded to Buy from Neutral at Goldman
Sherwin-Williams (SHW) upgraded to Outperform from Underperform at CLSA
Stratasys (SSYS) upgraded to Overweight from Neutral at Piper Jaffray

Downgrades

C&J Energy (CJES) downgraded to Neutral from Overweight at JPMorgan
Lumber Liquidators (LL) downgraded to Sell from Hold at Stifel Nicolaus
LyondellBasell (LYB) downgraded to Neutral from Buy at Goldman
Molycorp (MCP) downgraded to Equal Weight from Overweight at Morgan Stanley
Regency Energy Partners (RGP) downgraded to Equal Weight from Overweight at Barclays
Synutra (SYUT) downgraded to Perform from Outperform at Oppenheimer
Westlake Chemical (WLK) downgraded to Neutral from Conviction Buy at Goldman
comScore (SCOR) downgraded to Underperform from Market Perform at Raymond James

Initiations

Berry Plastics (BERY) initiated with a Buy at Citigroup
Berry Plastics (BERY) initiated with a Buy at Deutsche Bank
Berry Plastics (BERY) initiated with a Buy at Goldman
Fairchild Semiconductor (FCS) initiated with a Positive at Susquehanna
Hittite Microwave (HITT) initiated with an Outperform at Wells Fargo
New Gold (NGD) initiated with an Outperform at Credit Suisse
PDL BioPharma (PDLI) initiated with a Neutral at Credit Suisse
Regal-Beloit (RBC) initiated with a Buy at Janney Capital
Regeneron (REGN) initiated with an Outperform at Credit Suisse
Seadrill Partners (SDLP) initiated with a Buy at Citigroup
Seadrill (SDRL) initiated with a Buy at Deutsche Bank
Seattle Genetics (SGEN) initiated with an Outperform at Credit Suisse
XOMA (XOMA) initiated with an Outperform at Credit Suisse

HOT STOCKS

Verizon Wireless (VZ, VOD): $8.5B in distributions to Verizon, Vodafone by year end 2012
Microsoft (MSFT) Windows and Windows Live President Steven Sinofsky to leave company
Fluor's (FLR) AMECO acquired Africa-based ServiTrade, terms not disclosed
Weatherford (WFT) maintains positive outlook for North American business in 2013
ESCO Technologies (ESE) sees FY13 revenue, EPS "second half weighted"
LLOG Exploration Co. L.L.C and Blackstone (BX) formed long-term, strategic partnership and will invest over $1.2B to expand LLOG’s offshore operations in the Gulf of Mexico.
China Mobile Games (CMGE), Disney (DIS) signed cooperation agreement
Moog (MOG) signed 10-year support contract with Hainan Airlines for its Boeing (BA) aircraft
NQ Mobile (NQ) acquired Feiliu
Syngenta (SYT) secured EU approval for next generation fungicide
Alnylam (ALNY) and Tekmira (TKMR) restructured relationship, settle all litigation
Akamai (AKAM) to acquire Verivue

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Home Depot (HD), Jacobs Engineering (JEC), AuRico Gold (AUQ), Gladstone Capital (GLAD), WuXi PharmaTech (WX), Country Style Cooking (CCSC), NetQin Mobile (NQ), Transcept Pharmaceuticals (TSPT), Vermillion (VRML), ESCO Technologies (ESE)

Companies that missed consensus earnings expectations include:
Tronox (TROX), Fontegra Financial (FRF), Cornerstone OnDemand (CSOD), Radiant Logistics (RLGT)

Companies that matched consensus earnings expectations include:
Hologic (HOLX), Einstein Noah (BAGL)

NEWSPAPERS/WEBSITES

Goldman Sachs Group (GS) will name the smallest number of executives in more than a decade to join its partnership ranks. The firm is expected to promote about 70 employees to partner, sources say, about a third smaller than in 2010, the Wall Street Journal reports
Euro zone finance ministers suggested that Greece should be given until 2022 to lower its debt/GDP ratio to 120%, but IMF head Lagarde insisted the existing target of 2020 should remain, Reuters reports
Rapid expansion across the energy business over the past decade has seriously leveled the global playing field, leaving the oil "majors" exposed to competition from big oilfield service firms in areas where they once reigned supreme, Reuters reports
German investor confidence unexpectedly fell in November as the euro area’s debt crisis affected the economic outlook. The ZEW Center for European Economic Research said its index of investor and analyst expectations declined to minus 15.7 from minus 11.5 in October, the first drop since August, Bloomberg reports
Gold discovery rates are decreasing even as exploration spending in the industry reached a record $8B in 2011, says Jamie Sokalsky, CEO of Barrick Gold Corp. (ABX), Bloomberg reports

SYNDICATE

MarkWest Energy (MWE) files to sell 8.5M common units
Proto Labs (PRLB) commences common stock offering of 3.6M shares

Diversify With Silver As Set To 'Increase 400% In 3 Years'

Silver remains the most under appreciated and under reported on asset in the world despite continuing positive fundamentals.

The Telegraph published an unusually bullish article on silver yesterday which suggests that silver might rise by over five times in the next few years.

Emma Wall interviews fund manager Ian Williams who says that "silver is about to enter a sustained bull market that will take the price from the current level of $32 an ounce to $165 an ounce and we expect this price to be hit at the end of October 2015."

"This forecast is based entirely using technical & cyclical analysis and is in keeping with the mathematical form displayed so far in the bull run that has taken silver from $8/oz in 2008 to its current price of $32 an ounce – having hit $50 an ounce in 2011."

Mr Williams noted that the silver price was more volatile than gold, but that he predicts silver to continue to dramatically outperform gold.

The Charteris manager said that macro fundamentals were supportive for the silver price, such as the re-election of President Obama, who supports Ben Bernanke's policy of quantitative easing.

"Strong demand for precious metals will remain as long as we have QE, which do well with each round of money printing. QE is bound to lead to inflation at some point and at that time, real assets will do best," he said.

"Investing in a fund that holds a range of precious metals gives you positive diversification and less reliance on just gold."

We have long been more bullish on silver than on gold and have said since 2003 that silver will likely reach its inflation adjusted high of $150/oz in the coming years. Indeed, we believe that the end of the precious metal bull markets may see the gold silver ratio return to its geological long term average of 15:1. 

Therefore were gold to trade at over its inflation adjusted high of $2,500/oz (as we believe likely) then silver  would be priced at $166.66/oz or $2,500/oz divided by 15.

We have also long suggested that owning both gold and silver was sensible from a diversification point of view. Gold is more of a safe haven asset and currency in general and is more of a hedge against macroeconomic and monetary risk.

Silver is similar, while more volatile, but continues to have the potential for far higher returns.  

For breaking news and commentary on financial markets and gold, follow us on Twitter.        

NEWSWIRE
(Bloomberg) -- Gold to Climb to $1,849, LBMA Survey Shows, as Outlook Cut
Gold will probably gain 7 percent to $1,849 by September, according to the average response in a survey of attendees at the London Bullion Market Association’s annual conference, who cut predictions during the two-day event.

Attendees said in a separate survey yesterday that the metal may trade at $1,914 an ounce by the LBMA’s next annual gathering in 10 months, according to Tom Kendall, head of precious-metals research at Credit Suisse Group AG, who presented the findings in Hong Kong today. Rallies were also forecast for silver and platinum, the results showed.

While gold is poised for a 12th year of gains as central banks including the U.S. Federal Reserve ramp up stimulus, it’s 10 percent below the all-time high reached last year. Gold may surpass $1,800 this year depending on further actions from the Fed, according to Kendall, the most accurate precious-metals forecaster in the past eight quarters tracked by Bloomberg. Goldman Sachs Group Inc. expects gold futures to gain to $1,940 an ounce in 12 months, according to a report dated Nov. 9.

“The price can trend a little bit higher,” Kendall said in an interview on Nov. 11. “It’s going to be a market that needs fresh stimulus or a new geopolitical headline to get investors really excited about gold again.”

Gold for immediate delivery declined as much as 0.4 percent to $1,721.55 an ounce and traded at $1,724.95 at 5:33 p.m. in Hong Kong. Spot gold reached an all-time high of $1,921.15 on Sept. 6, 2011.

Montreal Call
At the LBMA’s last annual gathering, held in Montreal in September 2011, the average response in the final survey was for a rally to $2,019 by the time of the Hong Kong meeting. After the results was released on Sept. 20 that year, the highest that gold reached was $1,816.70, touched the following day.

Silver will probably climb to $38.40 an ounce by September, according to the survey today, from $32.27 now. Platinum may advance 14 percent to $1,794.90 an ounce, while palladium may gain 18 percent to $724.70 an ounce, the results showed.

The Fed said on Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until 2015 to spur growth and reduce joblessness. The Bank of Japan expanded an asset-purchase program on Oct. 30 for the second time in two months and the European Central Bank has said that it is ready to buy bonds of indebted nations.

“Next year it’s reasonable to be talking about a gold price of between $1,800 and $2,000,” said Kendall. For the metal to reach the “top end of that range, it will require investors to become more engaged in the gold market again, particularly on the institutional side.”

Holdings in gold-backed exchange-traded products were unchanged at 2,594.6 metric tons yesterday after reaching a record 2,596.1 tons on Nov. 8, data compiled by Bloomberg show. They have risen 10 percent this year.

The LBMA is a London-based group that represents the wholesale market for gold and silver.

(Bloomberg) -- Gold Mining Breakeven Costs Are Increasing, Barrick CEO Says
The breakeven cost for mining gold is going up on so-called resource nationalization, a shortage of skilled labor, infrastructure access to remote mines and rising capital expenditures, Jamie Sokalsky, CEO of Barrick, said at a conference in Hong Kong today.

(Bloomberg) -- Gold Bull Market Shows No Signs of Reversing, Barrick CEO Says
The gold bull market shows no signs of reversing, Jamie Sokalsky, ceo of Barrick Gold Corp., said at a conference in Hong Kong today.

Mine supply hasn’t kept up with demand as production is declining in mature areas and costs are increasing, he said.

(Bloomberg) -- Russia’s Palladium Sales Seen Dropping to 250,000 Ounces in 2012
Sales from palladium stockpiles in the country may be lower or zero next year, Mark Danks, marketing manager at Johnson Matthey, says in Moscow. *NOTE: Russia’s palladium sales from stockpiles were 770,000 oz in 2011.

• What bread... What circuses... JPMorgan Chase Faces Full-Court Press of Federal Investigations (NYT)
• European Regulators to Charge Banks Over Derivatives (WSJ) ... but forgive us if we don't hold our breath
• Cyprus readies capital controls to avert bank run (Reuters)
• Cyprus Capital Controls First in EU Could Last Years (BBG)
• Damage ripples through Cypriot economy (FT)
• G4S readies guards as Cypriot banks prepare to open (Reuters)
• Global pool of triple A status shrinks 60% (FT)
• Customers Flee Wal-Mart Empty Shelves for Target, Costco (BBG)
• BOE Says U.K. Banks Have Capital Shortfall of $38 Billion (BBG)
• U.K. Banks Facing Capital Shortfall (WSJ)
• Berkshire to Pay Nothing to Be Among Top Goldman Sachs Holders (BBG)
• Cyprus Details Bank Revamp (WSJ)
• Kazumasa Iwata Joins Kuroda Naysayers as BOJ to Meet (BBG)
• BRICS Nations Need More Time for New Bank, Russia Says (BBG)
• Foxconn Plant in Peanut Field Shows Labor Eroding China Edge (BBG)

Overnight Media Digest

WSJ

* Leave it to Warren Buffett to find a way to get hold of 10 million Goldman Sachs Group Inc shares without handing over a penny. The billionaire chief executive of Berkshire Hathaway Inc accepted the stake in exchange for giving up his company's right to purchase a larger number of Goldman shares at a below-market price, according to terms of the deal announced on Tuesday.

* Barrick Gold Corp co-chairman Peter Munk signaled he is looking to pass the scepter at the gold-mining giant he founded about 30 years ago. His call comes amid a shake-up in the top ranks of the mining industry, where a raft of high-profile leaders have stepped down, or been replaced, amid shareholder revolts over overpriced acquisitions and generally poor share-price performance.

* CBS Corp acquired half of TV Guide Network and will enter a 50-50 partnership with Lions Gate Entertainment Corp for the entertainment channel and website.

* DuPont Co agreed to pay Monsanto Co $1.75 billion as part of a series of licensing agreements for genetically modified seed technology that spell a truce in the rivals' bitter patent disputes.

* Large global banks' legal tab is poised to soar beyond $100 billion as investors, insurers and municipalities pursue damages for actions tied to the mortgage meltdown, the financial crisis and the rate-rigging scandal.

* Facebook Inc Chief Executive Mark Zuckerberg is in the process of co-organizing a political advocacy group made up of top technology leaders that would push federal legislative reform on issues ranging from immigration to education, said people familiar with the development.

* Honda Motor Co Ltd expects its U.S. new-car sales to increase by 8 percent in March over a year ago, led by a surge in demand for its redesigned Accord sedan, a senior executive said on Tuesday.

* Health-care companies are circling around the $7 billion market for injectable drugs that are widely used by hospitals to treat conditions from cancer to pain - but which have often been in short supply.

* A highly productive informant has led U.S. federal prosecutors to another group of alleged insider traders, one that includes a hedge-fund analyst and the investment chief for Wyoming's retirement system.

* Mediaset SpA, Italy's largest private broadcaster, posted its first net loss since going public in 1996, as the company's slow response to new competition and a plummeting ad market in Italy takes its toll.

FT

Start-up banks in Britain will not need as much capital as their established rivals starting from April, Britain's Financial Services Authority (FSA) said.

The Federal Reserve has ordered Citigroup Inc to better police for the risk of money laundering.

Warren Buffett agreed to become Goldman Sachs Group Inc's biggest shareholders by converting his warrants into shares.

Deutsche Bank has provisioned for 500 million euros to cover possible fines for the alleged manipulation of Libor interest rates.

Britain's Kingfisher Plc reported sharply lower profits as cash-strapped consumers cut back on home improvements in the economic downturn. T-Mobile USA will eliminate device subsidies and two-year service contracts that are favoured in the mobile industry to sell expensive handsets.

NYT

* In a previously undisclosed case, prosecutors are examining whether JPMorgan Chase & Co failed to fully alert authorities to suspicions about Bernard Madoff, according to several people with direct knowledge of the matter.

* With time running out until Cyprus's devastated banks must reopen their doors to the public, Cypriot and European officials are scrambling to put in place a set of measures that would allow jittery depositors access to their savings while preventing many billions of euros from fleeing the country.

* CBS Corp announced on Tuesday that it had completed a deal to buy a half-interest in TVGN, formerly the TV Guide Network, fulfilling a longstanding goal of adding a general entertainment basic cable network to the company's media portfolio.

* American mobile carrier T-Mobile, which has struggled against rivals like AT&T and Verizon, will offer the iPhone 5 cheaper than the competition, and most important, customers would not have to sign a contract.

* DuPont Co will pay Monsanto Co at least $1.75 billion over 10 years for the rights to technology for genetically engineered soybeans that are resistant to herbicides.

* Gains in housing and manufacturing propelled the U.S. economy over the winter, according to reports released on Tuesday. Home prices rose 8.1 percent in January, the fastest annual rate since the peak of the housing boom in summer 2006.

* A squabble between a group fighting spam and a Dutch company that hosts Web sites said to be sending spam has escalated into one of the largest computer attacks on the Internet, causing widespread congestion and jamming crucial infrastructure around the world.

Canada

THE GLOBE AND MAIL

* More than a day after industrial waste water leaked from a Suncor Energy Inc site into the Athabasca River, the oil-sands giant and the province were still trying to determine which, if any, toxic materials were carried into the major Alberta waterway.

Reports in the business section:

* Suzuki Canada Inc will end its 30-year run of selling vehicles in Canada next year, the final withdrawal of Suzuki Motor Corp from markets it once thought so important that it manufactured vehicles here.

* Canadian and South Korean officials are playing down Finance Minister Jim Flaherty's assertion that a free-trade deal between the countries is imminent. Flaherty, who is on a four-day trip to drum up business in Asia, said Monday after a speech in Hong Kong that Canada is "very close" to wrapping up an agreement with South Korea.

NATIONAL POST

* Canadians continue to pay more to fund a "gold plated" parliamentary pension plan that spending watchdogs say has taxpayers ultimately contributing more than C$25 for every dollar from MPs. The federal government announced last fall it is overhauling the parliamentary pension plan - including tripling MP contributions and increasing retirement age - after the next election.

FINANCIAL POST

* Target Canada president Tony Fisher addressed Tuesday the sticker shock gripping some consumers who expected the retailer's prices would be on par with its U.S. stores when it opened outlets across the country this month.

China

CHINA SECURITIES JOURNAL

-- Net profits at 793 Shanghai- and Shenzhen-listed companies hit 1.05 trillion yuan ($169.05 billion) in 2012, according to data from Chinese firm Wind Information.

-- Poly Real Estate will keep its annual growth at 20 percent over the next seven years, said chairman Song Guangju. Property tightening policies should not change the firm's plans for growth and expansion, he added.

SHANGHAI SECURITIES NEWS

-- New loans from China's big four banks in March are estimated to have increased against previous months, and new loans from all financial institutions could reach 850 billion yuan ($136.85 billion), according to the official Chinese daily.

CHINA DAILY

-- A week-long drought in northwest China has hit 4.35 million people in Gansu province. The dry spell, expected to last until the end of April, has left 650,000 people facing water shortage and affected 398,667 hectares of farmland, according to the provincial civil affairs department.

PEOPLE'S DAILY

-- China will subsidise a total of 170 billion yuan to support grain farmers in 2013, the finance ministry told the official Chinese paper.

SHANGHAI DAILY

-- Global tech giant Apple is heading to court this afternoon for a pre-hearing related to a patent dispute over the U.S.-based firm's Siri voice-activated software. The pre-hearing will be held at Shanghai's No.1 Intermediate People's Court.

-- U.S. retailer Wal-Mart will close three stores in China in May to streamline its sales network. In a statement the firm said it would still continue to invest and open new stores in Shanghai, where it has over 20 currently.

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

AOL (AOL) upgraded to Overweight from Equal Weight at Barclays
Capital Product (CPLP) upgraded to Neutral from Underperform at BofA/Merrill
Cliffs Natural (CLF) upgraded to Neutral from Sell at Goldman
DSW (DSW) upgraded to Buy from Neutral at Citigroup
Genomic Health (GHDX) upgraded to Outperform from Market Perform at Leerink
Gol Linhas (GOL) upgraded to Outperform from Market Perform at Raymond James
Mattress Firm (MFRM) upgraded to Outperform from Market Perform at Raymond James
Sykes Enterprises (SYKE) upgraded to Outperform from Market Perform at Wells Fargo
Trulia (TRLA) upgraded to Buy from Hold at Deutsche Bank
VMware (VMW) upgraded to Strong Buy from Buy at ISI Group
ViroPharma (VPHM) upgraded to Overweight from Neutral at JPMorgan

Downgrades

Charles River Labs (CRL) downgraded to Market Perform from Outperform at Wells Fargo
Cliffs Natural (CLF) downgraded to Underweight from Equal Weight at Morgan Stanley
Enphase Energy (ENPH) downgraded to Underperform at Raymond James
Obagi Medical (OMPI) downgraded to Neutral from Buy at Roth Capital
Sun Bancorp (SNBC) downgraded to Underperform from Neutral at Sterne Agee
Western Alliance (WAL) downgraded to Market Perform at Keefe Bruyette

Initiations

Crimson Exploration (CXPO) initiated with a Hold at Canaccord
Fifth Street Finance (FSC) initiated with an Overweight at JPMorgan
MasTec (MTZ) initiated with a Buy at Lazard Capital
Vascular Solutions (VASC) initiated with an Overweight at Piper Jaffray
Weingarten Realty (WRI) initiated with an Equal Weight at Evercore
Western Digital (WDC) initiated with an Outperform at RBC Capital

HOT STOCKS

The BOE says U.K. banks have around GBP25B capital shortfall
CBS Corporation (CBS) and Lionsgate (LGF) entered into a 50/50 partnership for TVGN and the website TVGuide.com. The venture will combine CBS's programming, production and marketing assets with Lionsgate's resources in motion pictures, television and digitally delivered content
Venaxis (APPY) announced plans to accelerate European market development for its APPY1 appendicitis test
LogMeIn (LOGM) announced that a federal jury in Eastern District of Virginia found that LogMeIn products do not infringe on U.S.Patent No. 6,928,479, as asserted by 01 Communique
Shah Capital offered to acquire UTStarcom (UTSI) for $3.20 per share

EARNINGS/GUIDANCE

Companies that beat consensus earnings expectations last night and today include:
Anthera Pharmaceuticals (ANTH), SAIC (SAI), Landec (LNDC), Envivio (ENVI)

Companies that missed consensus earnings expectations include:
Mattress Firm (MFRM), Metabolix (MBLX)

NEWSPAPERS/WEBSITES

European authorities may soon bring a case against some of the region's big banks alleging collusion in the $27T market for credit derivatives, the Wall Street Journal reports.
Ericsson (ERIC) is in talks to buy Microsoft's (MSFT) IPTV business, Reuters reports.
Wells Fargo (WFC) said its online banking website was experiencing an unusually high volume of traffic that it believes stems from a denial-of-service cyber attack, reports Reuters.
J.C. Penney (JCP) CEO Ron Johnson has reportedly started to raise prices across the company's stores, the New York Post reports. According to sources, the hikes are "significant," with prices returning to previous levels before the "fair and square" initiative.

SYNDICATE

Access Midstream (ACMP) 9M share Spot Secondary being re-offered at $39.86
BioMed Realty (BMR) files to sell 15M shares of common stock
Francesca's (FRAN) files to sell 7.4M shares of common stock for holders
Garrison Capital (GARS) 5.333M share IPO priced at $15.00
NV5 Holdings (NVEE) 1.4M share IPO priced at $6.00
Towerstream (TWER) files to sell 433,673 shares of common stock for holders
Tumi (TUMI) files to sell 10.14M shares of common stock