Addison Wiggin – August 11, 2011
- The great gold pullback! New margin requirements on gold knock the price back to… Tuesday’s levels…
- On the contrary, “everything the gold bulls predicted is coming true”: why gold is set to push far past $1,800…
- Dramatic chart: Gold stocks finally make their move… and why it’s only the beginning…
- Stocks rally on less-awful jobs report, banks defy gravity: One bank we’re still keeping on insolvency watch…
- A misunderstood protest, we sympathize… answering your questions about silver… and a special invitation you won’t want to miss….
Early in the evening yesterday, the Chicago Mercantile Exchange jacked up margin requirements to buy gold futures by 22%.
The minimum amount traders must keep on deposit was $6,075 per contract yesterday. Today it’s $7,425. A $100+ spike in gold in less than 72 hours made the increase nearly inevitable.
Fear of a bubble in gold is on the rise.
The effect of the margin hike, however, has been muted. After topping $1,800 for a few minutes yesterday, gold is down to $1,757 as we write — still a solid $100 above where it was at this time a week ago.
You don’t have to look far for the reasons.
“Everything the gold bulls predicted is coming true,” Mitsubishi precious metals strategist Matthew Turner tells the Financial Times. “The eurozone is under severe stress, government debt from Greece to the U.S. is being called into question and most central banks see the solution as expanding the money supply.”
“The race to debase currencies is on,” James Dailey of TEAM Financial Management tells Bloomberg. “Gold will continue to appreciate until there is a fundamental shift in government policies.”
“Physical gold is the ultimate collateral because it has no credit risk,” adds a report from Merrill Lynch. Um… unlike Merrill’s parent company… but that’s another story we’ll get to later.
“100 Ingots to Win: Today You Can Get Gold With Bild” reads the main headline today on Germany’s top-selling newspaper, Bild. The front page has forsaken its usual topless model in favor of gold bars… which the paper is giving away all day.
“It is one of the safest investments in times of crisis — and perhaps the prettiest!” the paper explains inside. It cites a recent headline in the considerably more staid business daily Handelsblatt to make its case: “Gold is going to be the reserve currency.”
Bild is giving away ten 20-gram bars every hour — just under ¾ of an ounce each — between 8 a.m. and 6 p.m. today to readers who call in and answer the following stumper about the Midas metal:
In which James Bond movie did gold play an important role?
Woe to the Bild reader who gets it wrong…
“It is our duty to not only to remain long gold,” advises Dennis Gartman, “but to buy more on corrections as they occur.”
Gartman points to Tuesday’s Fed statement, locking in near-zero interest rates for “at least” two more years.
“This is perhaps the most important statement by a central bank of this consequence in our memory,” our Vancouver alum writes “save of course for when Chairman [Paul] Volcker changed the entire method of the Fed’s operation during the days of the Carter administration.
“In a world where gold has become a currency, and the search is on for a reservable currency that shall rank second behind the dollar, with the dollar ranking first simply because it is the most liquid and because of the U.S.’ consistent military strength, gold wins.”
“This is a case where the horse has left the barn and he’s going to run for a while,” adds GoldMoney’s James Turk, in an interview with King World News. “The gold market really has some momentum behind it.
“This is not an opportunity to take profits, because I think there is more to come. Don’t be misled by the jump in Treasuries and the sideways action of the U.S. dollar.”
Last week, the gold stocks acted like all stocks… they fell.
But over the weekend came the S&P downgrade. And the scramble in Europe to support Spanish and Italian government bonds, rather, to support the banks that were foolish enough to buy them.
On Monday, gold stocks reversed faster than Lindsay Lohan . Check out a chart of the GDX gold stock ETF… and the S&P 500.
“Gold mining stocks are long overdue for an extraordinary rally,” writes Strategic Short Report’s Dan Amoss. “Their cash flows are going to be spectacular in an environment of $1,700-plus gold prices.”
“Oil is falling,” adds Chris Mayer, pinpointing another support for the gold stocks. “Oil is a gold miner’s biggest expense.
“So if gold at $1,700 sticks, gold miners are going to make a lot of money. And all the problems that led to $1,700 gold aren’t going away anytime soon. Gold ought to move higher.
“Given the problems with the rest of the economy and the market, this is a good opportunity in select gold stocks.”
We’ve been anticipating this run-up in gold and precious metals for years…. Our editors are poised, ready and champing at the bit ready to seize the opportunity.
With that in mind, we’re assembling their best gold plays… Dan’s looking at it through the macroeconomic prism… Chris with his eye for deep value… Byron King, with his ability to talk shop with geologists in the field… Alan Knuckman with his experience in the trading pits.
We’re also convening an “emergency summit” teleconference with our editors next week to address the collapse in the stock market and the breakout we’re expecting in metals… to make sure you’re positioned right for big market moves… in either direction.
We’re offering access to both the metals report and the teleconference as a package deal.
The only way you’ll have access is by exclusive invitation… and the only way to assure you’ll receive the invitation is by signing up here. We’ll be sending it out next week. We can accept only 300 people… so it’s best to make sure you get on the list right away. And please let us know if you’re a Reserve member.
Silver is retreating along with gold this morning. At last check, an ounce was fetching $38.39. But a long-term bull story remains in play here, too.
“As confusion continues,” says our resource trader Alan Knuckman, “alternative assets to the stock market and the dollar are more attractive… money has to go somewhere. This has renewed the energy in the silver market.”
Last year, “silver had an obvious high probability to take out the 2008 $21 highs,” Alan suggests, “when gold was leading the bullish march and making new all-time highs.” It did exactly that, and Alan’s Resource Trader Alert readers took silver gains of 84%… 100%… and 206%.
Right now, silver remains 20% below the $50 level necessary to eclipse the 1980 record highs.
“The rubber band has been stretched again,” says Alan with a gleam in his eye, “and a snap to new height is much more likely than not.” If you want to juice your metal gains… without taking unnecessary risks like buying on margin… you owe it to yourself to check out Alan’s strategy, right here.
Stocks moved up to begin the day. A better-than-expected number on first-time unemployment claims has been good enough to push the Dow back above 11,000.
The number, by the way, was 395,000. We recall two weeks ago we got a sub-400,000 number only to see it revised upward the following week. Think we’ll withhold the applause for now.
Bank stocks are moving up even stronger than the broad market. Bank of America, which sank below $6.50 Monday on a trifecta of bad news, is back above $7. Which means it’s still trading about half of book value.
“The fundamentals are so much better in our country and in our company and in our industry than they were four years ago, when the financial crisis hit,” said BoA CEO Brian Moynihan during a conference call yesterday.
Naturally, he believes the wave of litigation hitting his firm over Countrywide’s mortgage practices won’t force him to go raise new capital, no sirree.
“BAC is a too-big-to-fail zombie created by the Obama administration and the Fed to protect U.S. financial markets,” says Institutional Risk Analytics’ Chris Whalen, delivering a splash of cold water, “but is now so vast and unstable that it threatens the global economy…
“Millions of payroll deductions, property tax payments and remittances flow through BAC daily. But losses from acquisitions such as Countrywide, Merrill Lynch as well as hundreds of other operating entities threaten to bring the bank down.”
We still don’t know if Bank of America will prove the catalyst for the crisis we’ve been forecasting… but it seems like a fine candidate.
“Long thought to be a relic of the 19th century, debtors’ prisons are still alive and well in Michigan,” declares a press release from the ACLU — which has taken up the case of a man who went to jail because he couldn’t scrape together the money for a $215 fine.
Kyle DeWitt was ticketed and fined last spring for fishing smallmouth bass out of season. He disputes the charge, but he doesn’t have the money to hire a lawyer. In fact, having lost his job last year and trying to support his fiancee and 9-month-old son, he didn’t even have the money to pay the fine and make it all go away.
He offered to pay $100 upfront and the rest later… but the judge refused and sentenced him to three days in jail.
We’re guessing the cost of Mr. DeWitt’s incarceration exceeded that of the fine. But that’s the way it goes now, when you can be nicked $275 so a fire inspector can look at the solar panels on your home… or fined $200 for allowing a single recyclable can in your trash… or fined $600 for allowing rainwater from your parking lot to wash into the storm sewers.
We’ll just add Mr. DeWitt’s case to the list. If the tax, fee and fine police haven’t shown up on your doorstep, and you somehow think you’re exempt… you’ll think differently after you see this.
A woman, outraged over the debt ceiling charade in Washington, hired a small plane to fly a banner over the Capitol.
“Thanks for the downgrade,” the banner reads, “you should all be fired.”
So far, so good.
“I thought that is something I could do that wouldn’t cost a million dollars and maybe someone would listen to me,” Lucy Nobbe, a broker and single mom from Kirkwood, Mo. said, justifying her plan.
The plane and sign cost her $900. The company she hired was so impressed with the idea, they gave her a discount.
The plan seemed to be going just fine. Until…
Oops, following Sept. 11, a “no-fly zone” was imposed over the Capitol.
Mrs. Nobbe hires a plane to fly the same sign around Lower Manhattan.
Thus did the blogosphere erupt yesterday with the idea that sign was directed at Standard & Poor’s… not the “professional politicians” whose actions made the downgrade inevitable.
“I originally wanted to fly it over Washington, D.C., but learned that you can’t do that. So I chose Wall Street instead. I didn’t specifically intend it to fly over S&P. I’m just a mother from St. Louis who feels the only reason we got downgraded was people in politics.”
Nice try, Lucy. We hear you, though.
“So,” a reader writes after seeing yesterday’s video clip, “what Mr. Ratigan is suggesting is President Obama should go to the people and ask to be given temporary absolute power, ignoring Congress, the Senate and the rest of the carefully crafted checks and balances, so that he can clean up the nation and get rid of the corruption in Washington.”
“I seem to remember there was another famous leader many, many years ago that asked for the same sort of powers, which were granted. I think his name was Adolf. Be very, very careful to travel down that road, there be dragons.”
“And for those that don’t remember their history so well, that was basically the plot in Star Wars: Episode I — the Phantom Menace. Create an enemy, create a panic, ask for temporary powers, assume total power, destroy the republic, create an empire, become emperor, take over the universe and become really, really evil.”
“All for the good of the people.”
The 5: Ratigan rants about a bought Congress. But what “authority” in Washington could clean up the mess who isn’t bought… a megalomaniac… or both?
“I agree with this outburst,” writes another reader. “However, I think that the only way to do something is to revolt with our vote by voting for qualified third-party candidates of the largest third party in each state.”
The 5: Perhaps, but ultimately, politics — politicians and their fatuous promises — is not the answer at all.
“The reason for silver not following its brother gold,” a reader suggests, “is the bankers (J.P. Morgan) are controlling it by constantly shorting it with paper shorts.
“The real physical is being bought by the people who know it’s money. When the scheme is outed, the banks will be in real trouble and silver will fly.”
The 5: There’s not much outing to do… unless they get their ass handed to them in a short squeeze.
“Yes, silver is an industrial metal, too,” writes another, responding directly to what we said yesterday. “But it is still a monetary metal, in a way that even platinum is not. Would love to see you comment more in depth.”
The 5: Again we turn to our friend to James Turk: “Silver has been caught in some crosscurrents,” he explains. “On the one hand, we are seeing a repeat of the pattern where silver falls when a financial crisis heats up. On the other hand, gold should be a magnet pulling silver higher.”
As evidence of the latter, he points to silver moving up on Monday while oil got crushed.
“Don’t get discouraged,” Turk recommends. “Silver is building a base for a breakout above $42. Once that occurs, it will in all likelihood shoot straight to $50.”
“Similar to the reader that did a refi on an apartment building,” writes a charter Reserve member, we just did one on a house in SoCal. We’d purchased the house a year ago on a short sale and got a fantastic price and interest rate.
“Now, the bank offered us an even lower interest rate and agreed to cover all the refi costs. Is this a trick question? We accepted and now save a couple hundred in monthly payments.”
“I’ve followed you for a couple of years now and never sent a reply — time I did,” writes a reader from the U.K. “I’m not wealthy — not close — but am wealthier for following your advice — so cheers! Your publication is pithy and informative and is my essential daily read.”
“Long may you continue to publish!”
The 5: Cheers, back atcha.
Agora Financial’s 5 Min. Forecast
P.S.Gold is pulling back a little bit more now — $1,745 as we write.
Remarkably, shares of the gold ETF, GDX, are up more than 1% today: That means gold stocks are rising with gold on days that gold is up, and rising with stocks on the day stocks are up. Those are the ingredients for one powerful bull run.
Once again, we’re assembling our editors’ very best gold plays… and at the same time we’re planning an “emergency summit” teleconference to take advantage of all the opportunities taking shape right now as stocks swoon and precious metals power ahead.
Keep an eye out for an exclusive invitation next week. It’ll offer you access to a report detailing our editors’ best gold plays… and access to our editors’ emergency summit.