I have to confess that – deep down – this makes me smile. The reason: I know that the real question to ask is “When will gold go on to set new highs?”

So let me cut right to the chase. This breakout run in gold prices will last.

The “Golden Staircase” tells us so.

After bottoming out about $250 an ounce about nine years ago, such key fundamental catalysts as increasing demand, lower supply, inflationary fears and a flight to safety have been driving the price of gold northward.

But gold is like any other financial asset in that prices don’t rise in a straight line – especially if they’re rising a long way. But they follow a clear and discernable pattern.

As asset prices rise, they often initially overshoot. Then they “correct” – fall back a bit. Then they “consolidate,” or trade sideways, usually for a period of six to 18 months, but sometimes for even longer.

It’s this period of sideways trading that creates the horizontal “step” in the “Golden Staircase” – a technical-analysis tool that lets us “see” the foundation for the next step up in the long-term uptrend in the price of gold.

The formation of the newest “step” in the staircase was started in mid-2007. That’s when the $1,000 price level was first breached. On Tuesday, Sept. 8, when gold prices eclipsed that key barrier on Tuesday, Sept. 8, it was the fifth time they’d attempted to do so.

Each of these attempts has helped define $1,000 as a ceiling.  But in a “Golden Staircase,” the ceiling eventually becomes a new floor.  So once the $1,000 price point is eclipsed in a decisive manner, it will become a key “support level” for gold prices.

You can also think of it as the top surface of a new step.

And that’s precisely the juncture where gold finds itself right now. [Editor's Note: Please see accompanying graphic: "Gold 'Steps' Toward New Highs"].

From a technical standpoint, the outlook for gold is bright, indeed. But the fundamental picture is even more bullish.

Barrick’s Bullish ‘Bought Deal’

Now, I realize it was probably pure coincidence that the world’s largest gold miner, Barrick Gold Corp. (NYSE: ABX), announced it would raise $4 billion on the same day gold flirted with $1,000.  But the conspiracy theorist in me likes to believe otherwise.

For Barrick Chief Executive Officer Aaron W. Regent, this so-called “bought deal” was a conscious strategic move. Barrick has a reputation for wisely using hedges to its own advantage.  The strategy served the company well in its copper-production business. And when gold prices fell in the late 1990s, Barrick turned to this strategy again – and again benefited nicely.

Recently, however, Barrick’s bankers have been coaxing the company’s leaders to ditch the hedges in order. The reason: In an environment of rising gold prices, hedged bets dampen profits. Removing those hedges, by contrast, elevates profits. But it also elevates the company’s risk.

So when a company such as Barrick makes a strategic decision to raise equity capital in order to close a large portion of its infamous hedge-book, that’s a highly bullish sign for gold prices.

When Central Bankers Become Gold Buyers

A third Central Bank gold agreement has recently been ratified. And, interestingly, it’s a weaker version of its two predecessors.

New limits will allow for only 400 metric tons to be sold annually, down from 500 metric tons in the previous deal.  The deal is bullish on its face. And, even better, this more to it than meets the eye.

You see, the last 10 years of these agreements have seen some 4,000 metric tons unloaded into the market.  And even into the face of the $80-billion-selling headwind these divestitures created, gold has managed to stage a rise from $250 an ounce to the current $1,000.

And story gets better, still: According to the World Gold Council, the world’s central banks became overall net buyers of gold as of this year’s second quarter – the first time that’s happened since 2000.

China Goes For the Gold

In the post-financial crisis global economy, China is quickly becoming the proverbial “800-pound gorilla” – the player that has to be courted, but that can’t be tamed.

And now, in a signature move, China has decided to take a remarkable step, choosing to take control of its own gold.

Just this month, in fact, Hong Kong announced that it would bring all its gold bullion back home, recalling the reserves from depositories in London. Hong Kong has just completed construction of a high-security depository at the city’s Chek Lap Kok Airport (Hong Kong International Airport), and plans to market the facility as a safe storage option to other Asian central banks, commodity exchanges, precious metals refiners, commercial banks, and exchange-traded funds (ETFs).

This development can (and will) be spun in all sorts of ways, but what it really means is that China has lost confidence in the West.  After last fall’s near-meltdown of the global financial system – a financial cataclysm due almost entirely to major missteps by Western economic powers – China’s Beijing-based leaders want much greater control over its own assets.

And who can blame them?

China’s Ravenous Gold Appetite

At more than $2.3 trillion and counting, China’s foreign currency reserves have become the stuff of legend in recent years. But here’s the rest of that story, with apologies to the late Paul Harvey: According to a late August Financial Times report, “Beijing recently revealed that it had been secretly buying gold for years in order to diversify its foreign reserves, and has almost doubled its bullion holdings.”

China’s official gold reserves now run 1,054 metric tons. That means its holdings have doubled in just six years.

And when you consider the risk China faces on its $2.3 trillion in paper (foreign currency) reserves – much of them U.S. dollar denominated – it’s understandable that China has been ardently seeking shelter.  In a late-July special report for Money Morning called “The Three Triggers of the Global Gold Bubble,” I told readers:

“All it would take is a loss of faith in the greenback. It’s important to understand that dollars are nothing more than paper and ink, backed by the full faith and credit of the U.S. government.  In a year in which the budget deficit could easily top $2 trillion, this does not reassure me.

The dollar holds its value only as long as the greenback’s holders maintain their faith in the currency. The moment people decide they don’t want your dollars, they become worthless, or at least worth much less.  In that case, it will take a lot more dollars today to buy the same thing you bought with many fewer dollars only yesterday.”

For China, this is a very real concern. Especially when it comes to the Beijing’s concerns about the loose-credit stance of the U.S. Federal Reserve. China’s Cheng Siwei, former vice chairman of the Standing Committee of the Chinese Communist Party, recently told Great Britain’s Telegraph newspaper that “If [the Fed] keep[s] printing money to buy bonds, it will lead to inflation, and after a year or two, the dollar will fall hard. Most of our [Chinese] foreign reserves are in U.S. bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen and other currencies.”

In an exciting addendum, Siwei noted that while gold is solid alternative, “when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets.”

This statement tells us a lot. For instance, there’s definitely an upward price bias contained within gold’s recent price consolidation. And don’t expect gold’s price “floor” to fall too far below the $1,000-an-ounce level: China will almost certainly step in to scoop up all it can.

Meanwhile, it seems that China’s populace is catching on to the ideas of its central government.  In the just-mentioned FT article, the newspaper said “the rising tide of wealth among middle-class Chinese has made China the second-largest gold jewelery market in the world since 2007, behind only India.”  The article goes on to say “Total gold demand in China last year was nearly 400 [metric tons], up by 21% from 2007.”

The lesson here is clear: China’s growing appetite for gold is a powerful trend that will benefit gold investors for years – even decades – to come.

Warning: The IMF Is Now The World’s Central Bank

This fundamental bullish sign for gold is perhaps also the most ominous for the world’s financial well-being.

In an August maneuver that somehow stayed off the radar screens of most global investors, the International Monetary Fund (IMF) Board of Governors “voted” to create new “money” in the form of Special Drawing Rights, or SDRs.

As Money Morning told readers back in April, SDRs have been a unit of account used by the IMF since 1967, and denominated in a basket of currencies, including the dollar, pound, yen, and euro.

But now they’ve become a convertible asset.  China, Russia, and Brazil will begin purchasing SDR bonds later this year, with China’s share starting at a whopping $50 billion.

As Bloomberg News reported, “the allocation … will not increase the fund’s pool of money available for lending [but] will provide members with an additional method to obtain hard currencies.”

And that’s scary, because the implications are enormous.

The IMF has become the world’s central bank.

The IMF can create SDR debt instruments out of thin air, without having hard assets to back them.  The IMF’s own Web site explains the basic process, noting that “SDR allocations provide each member with a costless asset.”

Sorry, but I have to ask.  What in the world is a “costless asset?” How can you “create” an asset that has no cost to either produce or acquire? And if it costs nothing to create, how can it have any real value?

It’s outrageous. And it would even be comical – laughable, even – if the implications weren’t so dangerous.

The IMF no longer has to depend on borrowing – much less on contributed assets – to increase the funds it has available to lend.

So a new international fiat currency has just been created and added to the long list of national fiat currencies already in use.  Like most of its brethren, this “currency too an this one, too, can be expanded at will by a handful of un-elected officials. And, as one writer recently stated, “hyper-inflation is the terminal stage of any fiat currency.”

Consider yourselves forewarned. Worldwide inflation is now a bigger threat than ever. Expect the IMF to embark on its own monetary printing spree. A tidal wave of inflation could be headed our way.

Folks, this is going to get ugly.

The Next Bubble?

I have said in the past, that gold could very well be the next bubble.

Now, it seems, that idea is gaining acceptance.

In a recent interview with Canada’s BNN (Business News Network), Canada’s serious business program, Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research (NYSE: MHP), said that “if we end up with concerns about the U.S. dollar, we could probably end up with a bubble in gold prices.”

I rest my case.

How to Play Your ‘Golden’ Opportunity

So what can you do to protect yourself?  Well, it seems that even former U.S. Federal Reserve Chairman Alan Greenspan knew the answer to that question.  In May 1999, while testifying before the U.S. House Banking Committee, Greenspan actually said that “gold will always remain the ultimate form of payment in the world.”

That’s one piece of Greenspan-given advice that I believe investors should take.

As the price of gold advances, gold-miners will be the “go to” stocks to play. They will benefit from leverage as the yellow metal advances in price.

To measure the health of gold stocks, an often-used proxy is the Amex Gold Bugs Index (HUI), a weighted benchmark composed of 15 of the world’s largest gold-and-silver mining companies. However, the HUI only includes those companies who don’t hedge their gold production beyond 1.5 years. That was done on purpose. The index was designed to provide significant exposure to near-term movements in gold prices. In an environment of rising gold prices, these stocks tend to be much more profitable.

To then gauge whether gold stocks are a relative bargain, we look to the HUI-to-gold  relationship.  By dividing the HUI “price” by the price of gold (HUI/gold price), we get a ratio that’s a very useful value indicator.

From mid-2003 until mid-2008, this ratio held around the 0.50 range, meaning the HUI bought about 0.50 ounces of gold.

In last fall’s stock panic, we saw this relationship insanely stretched to 0.20.  In late October 2008, the HUI only bought 0.20 ounces of gold.  That was totally irrational and unsustainable.

Gold stocks were trading at levels not seen in nearly two decades.  Extremes like this simply cannot last.

Today, we’ve seen that gap close as I had predicted in January.  To see how the HUI-to-gold relationship looks now, check out the graphic below.

This chart provides a ratio that tells us the “buying power” that gold stocks have to buy gold. The ratio had improved from the 0.20 ratio of last fall and was recently as 0.42. Expect that to continue to shift toward the 0.50 level. In fact, it will most likely overshoot, running up to 0.65, before settling back to the historical norm in the 0.50 neighborhood.

The message here is that spectacular gains are still in store for gold and silver stocks.

The biggest bang-for-buck still lies with the junior gold sector.  The best proxy for this is the S&P/TSX Venture Composite Index (CDNX), otherwise known as the Toronto Venture Exchange. It consists of about 75% resource stocks.

The CDNX has been steadily carving new highs almost uninterrupted since March, now posting a whopping 80% gain since its December 2008 low.  That’s an impressive performance. Remember, this is an index.

The players in this sector promising the best returns are the junior gold-and-silver companies either already producing, or with near-term production.

In the next 12 months, some will likely throw off returns of in the multiple hundreds of a percent, or even multiple thousands of a percent. Major miners really need them to replace depleted production and to grow their reserves. So many will be takeover candidates.

And with gold breaking and sustaining the $1,000 barrier, junior gold and silver miners are the place to be for explosive returns.  Just hold onto your hat.

Source: The ‘Golden Staircase’ Points to Record Prices for Gold

“It’s nothing but bullish for gold,” says our resident mining watchdog, Byron King. Barrick evidently believes that the future price of gold is heading up. So Barrick wants to eliminate the drag of lower-priced hedges, presently covering 9.5 million ounces of future output.

“The math works out to about $370 per ounce, hedged. Barrick must think that it’ll make it all back in the future, out of higher gold prices — $1,350 per ounce and more.

“The other side of this golden coin is that Barrick still has to buy smaller mines and miners with which to replace its annual gold output of about 8 million ounces. There’s no way that Barrick can ‘discover’ this quantity of gold every year, using its own, decimated in-house geological and engineering talent.

“In other words, Barrick has to drill for gold on Wall Street and other stock exchanges of the world.

“I have nine suitable candidates for Barrick takeouts in the Energy & Scarcity Investor portfolio. And if Barrick doesn’t buy one or more of these guys, well… they’re all good companies going forward, digging and selling gold.”

Source: A Serious Bet on $1,350 Gold

High-flying Ventana Gold appointed Stephen Orr to the position of president and chief executive officer effective September 1. Mr. Orr was chief executive officer of OceanaGold and prior to that he was vice-president of North American operations, then managing director of Australia and Africa for Barrick Gold (NYSE:ABX). Ventana ended the day up C$0.01 at C$5.20.

Following the Colombian gold theme, Ventana’s neighbor Greystar Resources ended the day up C$0.35 at C$4.30.

Shares of Keegan Resources (AMEX:KGN) added C$0.24 to close at C$3.03 after the company reported drill results that included 10.31 grams gold per metric ton over 22 meters at its Esaase property in southwest Ghana.

Investors in junior resource stocks are eagerly anticipating the next batch of drill results with favorable ones driving the share price higher and disappointing ones causing a run for the exits. In other words, all appears to be right with the world. We shall see what Thursday trading has in store.

Source: Resource Stock Roundup:Thursday, July 23rd, 2009

I find it highly suspicious that the Dow hit its high of the day and the US$ hit its low of the day at precisely the same moment that the vertical gold and silver price rallies were cut off at the knees around 10:30 New York time. You can read into that whatever you want.

click to enlarge

Open interest changes for Thursday’s trading are as follows. In gold, open interest rose 1,307 contracts to 361,418. Volume [including switches] was a respectable 100,278 contracts. Silver o.i. rose another 721 contracts to 95,439. Volume was on the lighter side…15,326 contracts.

Well, the contents of Friday’s Commitment of Traders report [for positions held at the end of trading on May 12th] was no surprise, as it confirmed the price action of the last week or so. As I mentioned yesterday…it’s the ’same old, same old’ routine. Neither Ted Butler nor myself were happy about the numbers. In silver it showed that the technical funds in the Non-Commerical category had increased their net long position by 3,696 contracts…and ditto for the small traders in the Nonreportable category [those traders holding less than 150 silver contracts], as they increased their net long position by 1,432 contracts. Going short against them, as usual, were the bullion banks in the Commercial category. They increased their net short position by the same amount…the total of these two numbers…which is 5,128 contracts. Don’t forget, there has to be a short for every long. The link to the full-colour graphics-intensive silver COT chart is here.

It was basically the same in gold. The technical funds in the Non-Commercial category increased their net long position by 8,886 contracts…while the small traders in the Nonreportable category increased their net long position by 1,849 contracts. The bullion banks in the Commercial category took the short side of all those trades to the tune of 10,735 contracts. The gold COT graph is linked here.

Even though the net short position in silver by the Cartel is deteriorating, it’s still pretty low when you look at past history. But what concerns me the most, as I’ve been harping on for the last couple of months, is the large [and growing] short position in gold by the same crooks. Right now in gold, the Gold Cartel is net short 17.1 million ounces in the Commercial category of the COT. During the last twelve months or so, the Gold Cartel’s net short position has varied between 6.9 million ounces when the gold price was at its lows late last year…and 25+ million ounces when the gold price was at its highs early in 2008. So there’s lots of room for the gold price to run to the upside…and even more room for silver. But will JPMorgan (NYSE:JPM) et al, allow it?

I see in a mineweb.com story that Anglogold Ashanti (NYSE:AU) cut their hedge book by another 154,000 ounces during the last quarter and pledges to cut another 150,000 ounces out of its hedge book in the current quarter. As of the end of March, the company had a hedge book of 5.84 million ounces. Between them and Barrick (NYSE:ABX), these two companies hold at least two thirds of world’s remaining forward sales. JPMorgan is the counterparty to a large portion of their respective hedge books. The entire story is linked here.

The Comex Delivery Report for Friday showed that 101 gold contracts were delivered. In silver a very large 782 contracts were delivered…finally! The big deliveries were by Goldman Sachs (NYSE:GS) [220 contracts] and JPMorgan [562 contracts]. The big stopper was Bank of Nova Scotia (NYSE:BNS) with 556 contracts accepted.

I also noted yesterday that the U.S. Mint updated their gold and silver eagles numbers. Friday is a strange day for them to do it. Anyway, the changes weren’t large. One ounce Gold eagle mintings rose a smallish 6,000…and silver eagles rose 55,000 to 1,089,500. My coin dealer [and the usual N.Y. gold commentator] both mentioned yesterday that lots of silver was available now and that premiums on just about everything were falling rapidly. There were no changes in either GLD or SLV yesterday…and Comex-approved silver warehouse stocks rose again…this time a smallish 265,915 ounces.

While the stock market is up sharply since early March, the economy as well as corporate earnings continue to suffer. Today’s chart helps provide some perspective as to the magnitude of the current economic decline. It illustrates that 12-month, as-reported S&P 500 earnings have declined over 90% over the past 20 months [with over 90% of S&P 500 companies having reported for Q1/09], making this by far the largest decline on record [the data goes back to 1936]. In fact, real earnings have dropped to a record low and if current estimates hold, Q3/09 will see the first 12-month period during which S&P 500 earnings are negative. I thank P.S. for sending this along. The graph below tells all…

click to enlarge

I only have three stories today. The first is a GATA dispatch from last weekend entitled “Is U.S. buying back gold pledged to IMF for $100 billion?” It’s a very interesting spin on the ongoing saga of IMF gold and who really physically owns it…or those who may have paper claims on it. The link is here.

The next item is from the Finance and Economics section of The Economist dated May 7, 2009. “But do not mistake the bottom for a vigorous rebound. Consumption may be growing again, but there is every chance it will remain depressed in coming years because of weak income growth, depleted wealth and tightened credit.” That’s the understatement of the year, in my opinion. I thank P.S. for sending the story along. It’s entitled “Off their trolleys” and the link is here.

Lastly is commentary from Eric Sprott over at Sprott Asset Managment in Toronto. He and David Franklin address the question of the derivatives market in an article entitled “The Elephant in the Room”. It’s definitely worth the read, and the link to the pdf file is here.

My momma always told me, the bucket brings up what’s in the well. – J.C. Watts

Today’s blast from the past needs no introduction whatsoever. It’s by the late, great Roy Orbison…and that should tell you all need to know. Turn up your speakers and then click here.

So what will happen to gold and silver next week? Beats me. However, the wonderful set-up that existed a couple of weeks ago in both metals has diminished somewhat…as it is obvious that the bullion banks are [again] going short against all longs in this rally. How long will this current rally last? Don’t know that either. But what I do know is that until the bullion banks stop doing what they’re doing, nothing will change…and they will remain firmly in control of the precious metals market…until they either give up, or are blown up.

Source: And Then There’s This…Monday, May 18th, 2009

Barrick Gold (NYSE:ABX) saw its first-quarter profit fall 28 percent thanks to higher costs and weaker copper prices. The world’s top gold producer posted a profit of $371 million, or $0.42 a share in the three months that ended March 31. Gold production came in at 1.76 million ounces with cash costs soaring to $484 per ounce from $395 per ounce recorded in the same period a year earlier. Copper production tallied 95 million pounds and revenues hit $1.8 billion. Barrick ended the day up C$0.05 at C$35.65.

Diversified miner and energy player, Sherritt International posted a loss of $42.9 million or $0.15 per share in the first quarter down from a $89 million profit recorded in the first quarter of 2008. Sherritt ended the session at C$4.95 for a C$0.02 gain.

Minera Andes’ 49 per cent owned San Jose mine in Argentina produced 1,299,000 ounces of silver at a cash cost of $4.99 per ounce and 16,560 ounces of gold at a cash operating cost of $357 per ounce in the first quarter. Minera ended the day down C$0.05 at C$0.65.

Capstone Mining tabled more impressive drill results from areas south of its Minto open pit mine in the Yukon. Highlights included 2.7 per cent copper and 7.8 grams gold per tonne over 8.1 metres. Capstone ended the day up C$0.04 at C$1.89.

Shares of Kootenay Gold added C$0.12 to close at C$0.62 after the junior reported that grab samples returned up to 45.6 grams gold and 298 grams silver per tonne along strike on the Dorotea structure on its Promontorio property in Mexico.

Premier Gold Mines cut 15.97 grams gold per tonne over 32.1 metres at its Hardrock project in Ontario. Premier ended the day up C$0.31 at C$2.38.

The junior board continues to hurdle the 1,000 point mark with the future direction remaining uncertain. However, abnormally strong trading activity bodes well for the near term. We shall see what Thursday trading has in store.

Source: Resource Stock Roundup: Thursday, April 30th, 2009

Platinum was also tightly rangebound, between $1080 and $1100, but managed to end at the high end, adding $4, to $1095. Overnight, platinum is trending higher.

Silver was dead flat until the mid-point of the London session, then pushed slowly and steadily higher through the Comex and first hour of the Globex, before easing slightly into a close at $12.80/oz., up 31 cents. Overnight, silver is sharply lower. (Click here for charts)

The precious metals all staged a comeback yesterday, with silver performing especially well and the usual suspects providing a bit of lift, with oil rising and the dollar falling against the common currency.

Also factoring in was the GDP number released yesterday.

“The abysmal GDP data for the first quarter dented the dollar and sent a fresh platoon of safe-haven buyers toward the shining shelter offered by gold,” said Kitco’s Jon Nadler.

“Some participants feel that the GDP numbers may elicit fresh actions by the Fed,” Nadler said before the bank’s pronouncement of the day (it didn’t). “Maintenance of the $900 level is still critical for gold in light of the rather anemic performance it has exhibited prior to recent days.”

It may be that the GDP report proves to be “the catalyst which moves the dollar lower and gold higher,” in the words of Brian Kelly, of Kanundrum Research.

But the technicians remain skeptical, as “the metal is expected to run into further technical resistance, with a break above $916 still required to break the current down-trend,” according to James Moore, of TheBullionDesk.com.

In company news, Barrick Gold (NYSE:ABX), the world’s largest producer, said first-quarter profit fell 28% as costs rose and prices for the precious metal declined. The company said it produced 1.76 million ounces of gold in the first quarter at a total cash cost of $484 an ounce, up from $395 a year earlier. That compares with fourth-quarter output of 2.11 million ounces at costs of $471.

“[Barrick is] moving into higher-grade material and looking to start production at lower-cost mines that will help bring down costs per ounce,” said Kerry Smith, an analyst at Haywood Securities in Toronto.

Source: Precious Metals Advance

Platinum was flat through Hong Kong then off to the races starting about 8 a.m. in New York and managed to tack on an impressive $65.00 before all was said and done, ending at $1123/oz. Overnight, platinum is down slightly.

Silver’s path tracked gold to a T. The precious metal gained 68 cents on the day to close at $13.57/oz. Overnight, silver is trending higher. (Click here for charts)

It was a second straight day of big gains for the precious metals. While gold didn’t fare quite as well as the day before, silver and platinum were up even more.

Bullion’s sharp rise on Thursday is once again attributed to the continuing dollar decline following the U.S. Federal Reserve’s not so surprising announcement a day earlier that it intended to buy long-dated U.S. Treasuries along with U.S. mortgage and agency debt in a big way.

In addition, the SPDR Gold Trust (NYSE:GLD) said its holdings rose to a record 1,103.29 metric tons by March 19, up 18.96 tons, or 1.7%, from the previous day.

“The underlying bullish outlook remains firmly intact with the past 4 weeks’ major corrective phase now fully confirmed to be complete,” Newedge said in a report. “Expect values to head back towards the February peaks in and around the $1,005-$1,010 zone in the days and weeks ahead.”

In company news, Barrick Gold Corp (NYSE:ABX) said on Thursday it will issue $750-million in debt and use the proceeds to fund new mine construction and invest in the company’s subsidiaries, and for general corporate purposes.

Barrick, the world’s top gold producer, said it had entered an underwriting agreement to issue 6.95% notes due 2019 through a syndicate of underwriters led by Morgan Stanley (NYSE:MS), J.P. Morgan (NYSE:JPM) and Citigroup (NYSE:C). The offering is expected to close on March 24. The issue comes as several gold miners have raised funds — most through equity issues — to take advantage of strong demand for gold assets in an otherwise weak market.

In a statement just after Barrick announced the news, Moody’s Investors Service assigned a Baa1 senior unsecured rating to the notes, and said it expects Barrick will use the funds to finance moderate size strategic acquisitions and to fund projects such as the Pascua Lama deposit in South America. Moody’s also said Barrick has $1.4 billion in cash and an unused revolving credit facility worth $1.5 billion.

Source: Precious Metals Have Another Big Day

The U.S. Federal Reserve had been expanding the money supply more rapidly than output for more than a decade, since a policy change in early 1995. That’s why the U.S. economy underwent a series of bubbles, from stocks in 1996-2000 to housing in 2002-2007 to commodities in 2006-2008. Then, when the inevitable crisis hit in September 2008, the Fed began expanding the money supply even more rapidly.

In the six months to March 2, the St. Louis Fed’s measure the St. Louis Fed’s Money of Zero Maturity (MZM), the nearest we can get to the old M3, rose at an annual rate of 16.2%, while the M2 money supply rose at an annual rate of 15.9% (the Fed has stopped reporting the old M3, the best measure of broad money growth). Since price inflation was low during that period and the economy was contracting, almost all that extra money has been pumped straight into the economy.

While the global economy is collapsing, all the extra money will have little inflationary effect. In the United States, however, evidence is building that the economy is approaching the bottom. Consider, for instance, that:

• After several months of decline, the Institute for Supply Management indices were more or less flat in the current month;

• February retail sales – excluding automobiles – were up 0.7%; January non-auto retail sales also being revised upwards to plus 1.6%. We may still have a few months of decline to go, but it seems increasingly likely that the U.S. economy will bottom out around the middle of the year – although the ongoing banking problems and huge budget deficits are virtually certain to prevent a rapid economic rebound. As we’ve said repeatedly, once the economy bottoms out, however, the additional infused capital is likely to serve as a serious inflationary catalyst.

Since September, U.S. Federal Reserve Chairman Ben S. Bernanke has repeatedly warned of the dangers of sustained deflation – and not just a few months of falling prices (which we got in the latter part of last year, thanks chiefly to declining commodity prices), but overall price declines over a prolonged period.

What’s the Market Telling Us?

Recent price statistics make it abundantly clear that deflationary dangers just don’t exist. Both the core consumer price index and the core producer price index were up 0.2% in February, and are well above their levels of February 2008. Notably, one of the major factors was a 1.3% jump in the price of apparel, one import that has been holding prices down for the last decade. In other words, rather than the sustained deflation Bernanke warned about, the latest price figures suggest that we should actually be concerned about inflation, which is clearly starting to accelerate.

Indeed, both the unprecedented budget deficits and the very rapid money supply growth point to an inflation rate of perhaps 10% per annum by the middle of 2010. The latest price-and-output figures suggest that any contrary tendency has disappeared. And that points to a strong likelihood that gold may be due for an additional upward run, which may be quite sharp and happen quite quickly.

The gold market underscored the veracity of my scenario in a very clear fashion yesterday (Thursday): Gold posted its biggest gain in six months after the Fed’s plan to buy debt hammered the U.S. dollar and reignited inflationary fears. Gold futures for April delivery actually jumped $69.70 an ounce, or 7.8%, to reach $958.80.

The yellow metal reached a record high of $1,033.90 an ounce on March 17, 2008 – a year ago this week – when U.S. rate cuts sent the greenback to an all-time low against the euro. Gold prices subsequently declined in concert with most other commodities. It’s up 8.4% so far this year, according to Bloomberg News.

If the hedge funds pile into gold, they will overwhelm the physical gold market, in which 2008’s mine output of 2,407 tons and other supply of 1,061 tons had a value of only about $98 billion at recent prices of approximately $900 per ounce. Gold’s peak price in 1980 of $875 was equivalent to $2,300 in today’s money; it is by no means impossible that the price of gold could soar well beyond that level.

Hedge fund interest in gold was demonstrated Tuesday by the hedge-fund billionaire John A. Paulson, who was probably 2007-2008’s most successful investor, thanks to a strategy to short housing assets that generated profits of more than $10 billion. Now Paulson has gone and bought 11.3% of gold miner AngloGold Ashanti Ltd. (ADR: AU) for $1.28 billion. Paulson’s on a hot streak, so there must be a good chance some of his rich buddies will follow him into the sector; that will inevitably shift the market considerably.

The Yellow Metal Hat Trick: Three Ways to Score From Gold’s Gains

There are three ways to play gold, and you should look at all of them:

• Go for the Gold: Of the three ways to play gold, the first is to buy gold outright, either in bars, or though the gold-linked, exchange-traded fund (ETF) SPDR Gold Shares (GLD). Today, GLD itself holds more than 1,000 ounces of gold, and has a market capitalization of $31 billion. The fund’s price fluctuates in concert with the price of gold, which adds a small mount of risk. On the other hand, however, buying this ETF is more convenient than buying gold bars directly, because the fund dispenses with the accompanying storage problems that comes with actually owning physical gold.

• Bet that Silver Sizzles: The price of silver generally moves in line with gold, but is currently at around $13.50, below its normal historic relationship to the gold price of about 1:30, and therefore possibly offers more upside potential (in 1980, silver peaked at $50 per ounce, equivalent to about $140 in today’s money.) That can be done through the iShares Silver Trust (SLV), which works in a similar manner to GLD, and which has a market capitalization of $3.5 billion.

• Go Deep: Third, you can follow Paulson and buy gold mining shares. I actually don’t like Paulson’s choice much; AngloGold made a loss in 2008 because of inept hedging and is mainly in South Africa, whose political risk I don’t care for. However, your big advantage over Paulson is that you’re presumably not so rich that you have to deploy your money $1.28 billion at a time. Thus, you can buy on the ordinary share market some of the other mines that are cheaper, rather than having to do a special deal with a company like the Anglo American PLC (ADR: AAUK), the British mining giant that sold Paulson the AngloGold shares from its own stake in that company.

A Look at Two Top Miners

Gold mines had a 2008 that was less profitable than you might expect. The price of gold was essentially flat over the year, while the price of oil soared to a peak in July, affecting miners’ costs badly, since fuel represents 25% or more of a mining firm’s total expenses. Only in the fourth quarter, as fuel prices declined and gold prices rose, did mining economics improve – but, even then, many miners were badly affected by write-offs in their copper operations, where prices had collapsed after a long bull market.

However, the good news is that gold prices have risen by almost 10% in the 2009 first quarter from the final quarter of last year, while fuel prices have declined even more; hence, the quarterly results to be announced in April and May could be surprisingly juicy.

So if you’re going to look at actual miners, here are two to consider carefully:

Barrick Gold Corp. (ABX) is the largest and financially strongest gold producer, with a market capitalization of $29 billion, reserves of 124.6 million ounces of gold (plus copper and silver), and operations in North America, South America, Australasia and Africa. It took a fourth-quarter charge of $779 million – because of its copper operations – but was otherwise profitable in 2008, with revenue rising 10%. For 2009, it should benefit from rising gold prices and declining costs; it currently sells on a prospective Price/Earnings ratio of 13.7, but of course as gold prices rise, earnings will rise on a leveraged basis.

Yamana Gold Inc. (AUY) is an expanding gold producer with a $6.8 billion market capitalization that made an unexpectedly good profit in the fourth quarter of 2008, and that is expanding both production and reserves (currently 19.4m ounces) with operations in Canada and Latin America. Its expansion increases its likely benefit from rising gold prices; Yamana’s shares currently trade at a forward P/E of about 12, but earnings should rise sharply if gold prices rise.

Source: Three Ways to Profit as Inflation Causes Gold Prices to Increase

With some notable exceptions, gold is never allowed to rise into, or during, an FOMC meeting.

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Silver’s path was similar…and one could be forgiven if one thought that Tuesday’s price action looked suspiciously similar to Monday’s. Silver’s trading volume was extremely light.

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Monday’s gold activity brought a decline in open interest of 5,741 contracts. Silver o.i. actually rose 30 contracts. Cut-off for this Friday’s COT is today, so whatever o.i. changes are reported later this morning, should be in Friday’s report…fingers crossed. In Comex gold deliveries yesterday, there were 110 contracts delivered. The big issuer was Prudential Bache [92 contracts] and the big stopper was the Bank of Nova Scotia (NYSE:BNS) [89 contracts]. In silver, only 20 contracts were delivered, which isn’t very many. F.C. Stone was the issuer and JPMorgan (NYSE:JPM) was the biggest stopper. The Comex-approved warehouses reported that 425,031 ounces were withdrawn. The U.S. Mint didn’t update their gold or silver eagle mintings yesterday either…and GLD and SLV were both unchanged.

With this week’s price declines in both metals, it’s possible that we may revisit the 50-day moving averages in each. Gold spent part of one day below it last Tuesday…which is why we had a big improvement in last Friday’s Commitment of Traders report. I would be happier if we broke it again…say down to $890/$895…and stayed there for a couple of days. That would flush out the rest of the tech longs in the Non-Commercial category. I do not wish to contemplate the thought that we might revisit the 200 day m.a…as I don’t think that number [currently $859.07] is in the cards. In silver, we haven’t broken the 50-day moving average at all during this price decline…and if JPMorgan et al decided to drop the silver price another two bits to flush the tech longs there too, I wouldn’t be surprised…or disappointed. [We're already below the 200-day m.a.] If this, in fact, does pan out…then it will be by design…not by chance. We’ll see. The 3-year silver graph is below to put things into a longer-term perspective.

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In other precious metals news, the usual N.Y. commentator has the following…”Tuesday’s European Central Bank weekly statement of condition indicates that the group shed €105 million [5.25 tonnes at the present book value] in ‘gold and gold receivables.’ The previous week’s quantum was 1.85 tonnes; the week before that was 10.86 tonnes.”…the fall is once again attributed to a sale by one CB and ‘a purchase of gold by another Eurosystem central bank.’ It is a long time since any European CB bought significant amounts of gold…The Gartman Letter, expressing disgruntlement about the sluggishness of gold, has begun to mutter about shorting gold–probably against grains, which TGL likes.” [Note to Dennis: I'll be delighted to take the long side of that trade! - Ed]

In a story from Reuters posted over at Bill Murphy’s lemetropolecafe.com yesterday…”Holdings of Julius Baer’s gold-backed ETF [Switzerland] rose 149,200 ounces, or 20%, in the week to March 17th, the bank said in its weekly statement. The amount of gold the fund holds to back its exchange-traded securities had climbed to a record 877,775 ounces by Tuesday, from 728,575 ounces a week before, it said.” In a Reuters story that Ted Butler sent me, I see that Anglo American sold the rest of its stake [11.3%] in AngloGold Ashanti (NYSE:AU) to super rich [and super successful] hedge fund, Paulson and Co. Yesterday I mentioned that Bad Boy Barrick Gold (NYSE:ABX) had been whacked by the courts for lying to their shareholders about hedging not hurting profits as gold prices rose. Well, in a Bloomberg story posted yesterday, they [at least their insurance company] got the bill for $24 million….”There is no admission of liability” in the settlement, said Barrick spokesman, Vince Borg. We at GATA know just how guilty these ‘fine folks’ really are…and have all the numbers to back it up.

As an aside, and with thanks to the King Report, here’s a graph from economicdata.com that shows who got paid [and how much] by AIG… from the public funds that were given to to bail them out. I can see why one U.S. Senator thought that AIG executives should “go Japanese” and either resign or commit suicide. As Eliot Spitzer said in a piece over at slate.com…”The real scandal at AIG is not the bonuses…it’s that AIG’s counterparties are getting paid back in full.”

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Here’s another take on what’s going on at over at AIG. This commentary [again courtesy of the King Report] is posted over at agonist.org. It’s entitled “The Real Story Behind Those Greedy AIG Bankers”. I’ve read it carefully…and I feel that you should do the same. The link is here.

The next story is from The Telegraph in London. The headline reads “IMF poised to print billions of dollars in ‘global quantitative easing’. They will do this with what I referred to yesterday as Special Drawing Rights [SDRs]. It’s an electronic currency made up out of thin air by the IMF for use between member countries. You can be forgiven if you think you’ve entered “The Twilight Zone” on this one. The very short article is linked here.

Posted at Reuters is this story headlined “Credit Card Defaults at 20-Year High.”…with losses particularly bad at Citigroup (NYSE:C) and American Express (NYSE:BAC). “Analysts estimate credit card chargeoffs could climb to between 9 and 10 percent this year. In that scenario, such losses could total $70 billion to $75 billion in 2009.” You can’t stay in the credit card business long with losses at these levels. How soon will it be before the government [and the U.S. taxpayer] is covering those debts as well. The link is here.

The last piece today is from marketwatch.com. In it, Mark Hulbert asks “Where have all the gold bugs gone?…Huge shift among gold timers from bull to bear”…”Contrarians therefore believe that gold’s recent decline is more likely to prove a correction within a longer-term up move than the beginning of a major bear market.” Your humble scribe agrees with that assessment 100%. Let’s hope that JPMorgan et al agree as well…as they have an iron grip on gold and silver prices. The link is here.

I think we may still have a rally [in the S&P] until about the end of April, and probably then a total collapse in the second half of the year sometimes, when it becomes clear that the economy is a total disaster. – Marc Faber, CNBS, 17 March 2009

The U.S. equity markets ‘enjoyed’ what can only be described as a short covering rally yesterday. There certainly weren’t any fundamentals driving it, as the U.S. economy is collapsing in ruins at breathtaking speed. No amount of money…Special Drawing Rights notwithstanding…will save the world now. The existing debt must be cleansed from the system. Trying to save the world by creating more of what got us into this mess in the first place, is totally counterproductive. I’ll be 61 years young on my next birthday…and with the way things are going at the moment…I’ll be a very old man before this newly-born bear market breathes its last.

See you tomorrow.

Source: And Then There’s This…Wednesday, March 18th, 2009

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Silver, as usual, was more volatile. It lost about 20 cents from the opening of trading in Sydney until the Hong Kong close…and then rose until shortly after the London silver fix [12:00 noon in London]. From there it came under fairly substantial selling pressure. It dropped 25 cents in two hours, but was off like a rocket [along with gold] at 9:00 a.m. Its peak price of the day came a little later than gold’s…before its price was capped as well.

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Open interest for Wednesday showed that gold o.i. dropped another 1,558 contracts to 369,763. In silver, o.i. shrank a smallish 379 contracts to 91,881. These aren’t big numbers, but as Ted has pointed out to me on several occasions, the true decline in the bullion banks’ short positions can be masked by spreads and the purchase of long contracts instead of covering their short positions. The COT report at 1:30 Eastern will tell us a lot. Ted Butler also pointed out to me yesterday, that Thursday was the third or fourth day in a row where March silver has been in slight backwardation to the May contract. It was two cents the ounce on Tuesday…but has narrowed to a penny and a half since then. It’s something that both he and I will be keeping an eye on as the month progresses.

In March Comex deliveries, there were only 89 gold contracts delivered and none at all for silver. Currently there are 135 contracts in gold still to be delivered in March…plus a rather healthy 827 contracts to be delivered in silver. This precludes any other deliveries in either metal that may be added between now and the end of the month. Over at the U.S. Mint, another 8,500 one troy ounce gold eagles were stamped out, bringing the March total so far to 55,500. There was no reported change in silver eagles. Silver inventories at Comex-approved depositories rose a smallish 116,887 ounces yesterday. The GLD ETF added 108,000 ounces yesterday to a new record high of 1,041.53 tonnes. The SLV ETF was unchanged. And the precious metals stocks put in a respectable performance yesterday.

The usual N.Y. commentator had the following things worth sharing yesterday…”An ongoing oddity in the world of gold recurred today with a Chinese announcement carried by Reuters that the country produced 60.461 tonnes of gold in February…up 107.6% from January. The Chinese Statistics Bureau said Jan/Feb ‘09 output was 14.3% above ‘08.” Then there was this…”This morning in a curious remark, The Gartman Letter, which is currently out of gold [Dennis dumped his remaining long positions on Tuesday. - Ed], said: ‘We are flat and we are nervous. We are nervous in that we fear always that gold shall simply choose to stand up and rush higher, leaving us behind. Why we are that nervous is another question for another time, but suffice it to be said that we are…and we give voice to that concern here this morning.‘…which casts an interesting light on this morning’s sudden $24+ jump.”

Yesterday was the second day in a row that gold pulled a little further away from the 50-day moving average. Is the bottom in? I wish I knew. Ted and I have had some rather lengthy discussions about this during the last couple of days. The big drops in gold and silver prices over the last two weeks have made no appreciable impact on the huge short positions carried by the ‘4 or less’ bullion banks in the Commercial category of the COT…so obviously there was no massive liquidation of long positions by the tech funds/small traders either. We don’t know if the bullion banks either can’t do it…or aren’t putting a lot of effort into the attempt. Maybe they’ve painted themselves into that proverbial corner and are really trapped this time. Ted postulates that maybe the players have changed in the Non-Commercial category…and these new players, instead of being ‘black box’ types that sell on moving averages, have been replaced by other participants with longer-term investment horizons. We shall see, as they say, in the fullness of time.

I note in a Dow Jones story [posted at Kitco] that January gold production in South Africa was down 8.7% from the same month in 2008. In a story about fourth quarter gold dehedging posted at miningweekly.com…”the value of the global hedge book fell by 2.13 million ounces, according to GFMS. Dehedging was concentrated among four main companies, led by AngloGold Ashanti (NYSE:AU) and Barrick Gold (NYSE:ABX). For the year as a whole, 11.52 million (delta adjusted) ounces were removed from the global hedgebook in 2008…leaving 15.52 million ounces left at the end of 2008…of which AngloGold Ashanti and Barrick hold two thirds of the remaining total.” GFMS went on to add that “Gold dehedging will slow in 2009, and a return to hedging is unlikely.” [Note to GFMS: "Unlikely"...ya figure? You guys certainly have a keen grasp of the obvious, as hedging was the stupidest idea ever invented. - Ed] And lastly, in a Bloomberg story headlined “Geithner Seeks ‘Forceful’ G-20 Action, More IMF Funds”…comes this old canard…”The Obama administration soon will also push Congress for legislation that allows the IMF to ‘mobilize’ its stockpile of gold, Geithner said yesterday.”

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Because my Thursday rant disappeared into cyberspace yesterday [mostly my own doing] I have quite a few stories today. On Wednesday, the Bank of England announced that it was buying ‘gilts’…British government bonds…so monetization is on in earnest in Britain. Today’s first story is from the Financial Times in London and was posted after the New York market closed yesterday. The headline reads “Swiss action sparks talk of ‘currency war’.” It appears that, in beggar-they-neighbour fashion, the Swiss National Bank has moved to weaken the Swiss franc by monetizing SFr corporate bonds. I thank Craig McCarty for the story. The link is here.

In a Bloomberg story from yesterday comes this headline…”China New Yuan Loans More Than Quadruple on Stimulus”. “M2, the broadest measure of money supply, climbed 20.5 percent from a year earlier, the fastest pace in more than five years, after growing 18.8 percent in January.” This is hugely inflationary. Once again I thank Craig McCarty for this story…and also the next one as well. The link is here.

And in yet another Bloomberg story comes this headline…”ECB Approaches Zero Rates by Stealth With New Weapon” “Trichet is allowing the ECB’s deposit rate, which lenders earn on overnight deposits with the central bank, to usurp the benchmark refinancing rate and become the main driver of short-term borrowing costs. At just 0.5% percent, the deposit rate matches the Bank of England’s key setting and is only a step away from the zero-to-0.25% range the Federal Reserve uses.” The link is here.

The last two stories are ones that disappeared into cyberspace in the wee hours of Thursday morning. The first is a Reuters story filed from Zurich. The headline read…”Swiss investors pile in on money markets, gold”…”data also shows that the fund with the highest inflows was the Zuercher Kantonalbank gold ETF which pulled in 523 million francs. The next major beneficiaries of inflows were individual money market funds. Julius Baer physical gold funds, ZKB silver and ZKB platinum also saw strong inflows. [These Swiss ZKB funds are the ones that I report the changes on every week on Monday or Tuesday. - Ed] The link is here.

In a story posted at platts.com is this headline…”Central banks were January net buyers of 1.1 million oz of gold: CPM”. It’s only five short paragraphs. The last paragraph is of interest, where the CPM spokesperson says “It seems highly unlikely that such large net purchases of gold by central banks will continue…” and then in the next sentence he goes on to say “Others are buying small volumes and considering larger purchases…” So is CPM bearish or bullish? [Note to CPM Group: So, Jeff...which is it? - Ed]. The link is here.

When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see money flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed. – Ayn Rand, Atlas Shrugged (1957)

So…here we are. The die is cast. First the British, now the Swiss of all people…and soon all central banks…will be monetizing debt. The printing presses [or their electronic equivalent] will be running white hot. Save yourself while there’s still time. Buy all the physical gold and silver you can find…and afford. The hyperinflation of Zimbabwe is in our future somewhere.

All of us at Casey’s Daily Resource Plus look forward to seeing you here on Saturday.

Source: And Then There’s This…Friday, March 13th, 2009