The Morgan Report Blog

Are Stocks & Commodities About To Start Another Rally?

Over the past couple months everyone seems to have been preparing for a sharp market correction. Crazy part is that the SP500 dropped about 10% from the high and that is a typical bull market correction. The thing is… the stock market has a way of slowly unfolding making it look and feel minor, then before you know it, the correction is over and it’s back to an uptrend. That is kind of how this one unfolded.

The good news is that we caught the low risk portion of the correction locking in a 4.5% drop, and we are now in a long trade and in the money by 2.5% with very little down side risk at this point. Time will tell if this up trend is sustainable or not…

Now, let’s take a look at the charts…

Dollar 60 minute intraday chart

As you can see below the dollar looks to have started a breakdown today. If there is continued selling pressure in the next couple days then expect to stocks and commodities to move higher as the US Dollar drops. It is important to know that when a bullish pattern fails we typically see a very strong reaction in the opposite direction (down) catching the majority off guard and they rush to the door.

SPY Broad Market ETF – Daily Chart

A couple weeks ago we watched the market go into a free fall creating a washout bottom. From there we saw prices bounce back and retake my key moving averages. This gave us a bullish bias and dips should be looked at as buying opportunities. I will admit that stocks still have a long way to go before the masses are convinced. I feel we need to see the February and March highs get taken out first.  Once they get taken out there should be strong buying as short covering (protective stops from traders who are short) causes a surge in buying pressure sending stocks sharply higher yet again.

My trading buddy David Banister at Active Trading Partners is starting to see small cap stocks come back to life. Money is starting to flow into these lucrative areas of the market and he is on top of things… This week’s trade is up 20% in less than 24 hours which is very exciting.

 

Gold Daily Chart

Gold has been moving up this year but the current price action is not really getting me excited to buy just yet. Recently we have seen strong selling volume and very light buying volume. My bias still favors higher prices but there is still a good chance we get another dip in the coming sessions.

 

Mid-Week Trading Conclusion:

In short,  I feel as though the dollar will trigger the next wave of buying in stocks and commodities for the next week or two… We should see the dollar make a clean moving in either direction shortly and that will help guide my analysis, positions and setups. I hope this analysis helps you to see the market from a different perspective.

If you would like to get my mid-week reports free please join my free newsletter here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

All That Glitters Is Silver

With industrial demand almost exclusively driving the price of silver for years, investing in the white metal used to be simpler. Now investment demand is competing with practical demand to push silver prices ever higher. Investor interest in silver from large U.S. funds could result in as many as 60 new silver plays entering the market this year. These are heady days for silver with a lot of upside in the cards—if played right. Find out how in this Gold Report exclusive.

Andrew Thomson, president and CEO of Soltoro Ltd. (TSX.V:SOL), a Toronto-based silver explorer with projects in Mexico, regularly receives calls from U.S. investors looking to buy a chunk of his silver play. One such investor with a net worth approaching $150 million recently asked Thomson if he could buy a block of 500,000 Soltoro shares. Thomson told him yes but that he would have to get them on the open market.

Times are good for silver juniors.

Thomson estimates there could be another 60 silver companies trading on North American bourses by the end of 2011 and says that’s due to cash-rich U.S. funds seeking northern exposure.

“U.S. players are starting to look at value propositions. They just want to be in silver, and they don’t want the physical metal; they want equity because they want to be able to trade it,” Thomson says. “It’s similar to what happened a few years ago when Chinese, Korean and Vietnamese investors came [to Canada] looking for hard assets. In this case, it’s the U.S. funds that are starting to look at our natural resources. It’s kind of ironic that it takes a strong Canadian dollar for them to start investing in our economy.”

But not all big U.S. funds are making the pilgrimage north or, if they are, the journey is often short-lived. On March 15, Barron’s blogger Murray Coleman reported that U.S. hedge fund managers were buying silver. A week later, however, he told readers “hedge funds in the past week were unloading positions in gold, silver, copper, platinum and palladium.”

“There’s a lot of confusion out there. There are funds that are dumping silver and there are funds that are buying silver. The funds tend to react to the news, and then become the news themselves when they dump large positions. If you watch those big funds’ positions, all you’re going to really see is a bobbing cork. I think net their positions are accumulative,” says James West, editor of the Midas Letter.

David Keating, managing director of equity capital research with Mackie Research Capital, a sizeable Bay Street player in junior mining financings, says the 60 companies figure is likely on the high side but that Thomson’s number is in the ballpark.

“Sixty sounds like a big number but it doesn’t strike me as outrageous,” says Keating. “There’s certainly lots of demand in the market for silver stories.”

Keating notes he’s getting more calls about silver and is currently looking to finance as many as five silver plays. “You’ve got U.S. funds and international funds looking at getting direct toeholds in some of these plays and they are prepared to put up the $5, $10 or even $15 million to get the exploration going. We’ve definitely seen that in the silver names and in the gold names,” he explains.

Keating explains that when you get sustained upward price movement in the underlying commodities, a lot of assets that wouldn’t have earned a second look at lower prices suddenly become attractive at higher prices. He adds, “Companies these days are able to raise capital, so exploration budgets are going up and you’re getting more and more exploration and development. And some of the assets that aren’t getting attention can be spun off into cleaner, pure plays.”

West, until recently, owned a stake in a precious metals mine in Peru and is connected to junior mining plays all over the world, especially those in Latin and South America. He often gets calls from the “who’s who” of Toronto merchant banks and brokerages seeking exploration-worthy assets for capital pool companies (CPCs) or corporate shells.

Brokerages source assets from people like West and—after filing a prospectus and raising seed capital—CPCs buy the assets via a “qualifying transaction,” which is needed to get a listing on the TSX Venture Exchange. It’s often a well-rehearsed dance between brokers and companies.

“If you look at any of the CEOs on the TSX Venture Exchange who have a track record of value creation in public companies, generally, you’ll find them aligned with one or two brokers with whom they do all their business. Usually these groups make money together and they tend to move forward under that arrangement until something goes sideways on a deal, somebody retires, somebody gets sued by their wife. . .whatever,” West explains.

When it comes to silver exploration plays, West says, it’s a seller’s market. “The (property) vendors are demanding a higher price and are willing to sit with their asset on the sidelines, confident that the price is only going to go up. And with every uptick in the silver price, people are willing to pay higher prices for these silver assets,” he says.

Leading the Charge

In early March, newly listed silver junior Argentum Silver Corporation (TSX.V:ASL) optioned Soltoro’s Coyote and Victoria silver-gold properties in a past-producing silver district near Jalisco, Mexico. Argentum paid CAD$255,000 in cash and 5 million shares. Soltoro kept a 3% net smelter royalty on any future production from either Coyote or Victoria.

“Effectively, there is an area play starting in Jalisco that’s been going on for about two years that includes Endeavour Silver Corp. (NYSE:EXK; TSX:EDR), Timmins Gold Corp. (TSX.V:TMM), Silver Predator Corp. (CNSX:SPD), Southern Silver Exploration Corp. (TSX.V.SSV; Fkft:SEG), Soltoro and Argentum Silver,” Thomson says. “It’s not only for silver, but silver is leading the charge.”

Indeed. Two years ago, on March 24, 2009, silver closed at $13.44/oz. And two years later, the white metal finished the day at $37.42/oz. on the NYMEX—a gain of 178%.

West believes we will see $40/oz. silver by the end Q211 and that the white metal could hit $50/oz. by year-end based on not only the typical industrial and investment demand drivers, but also what he refers to as “smart money” entering the space.

By “smart money,” West means the cash behind the big players like Toronto-based Sprott Asset Management. Eric Sprott, the firm’s bearish leader and chief investment officer, is staking his reputation on precious metals. He’s telling anyone willing to listen that gold will see strong resistance above $2,000/oz. and that, during this current bull market in precious metals, the silver:gold ratio—or the number of silver ounces it takes to buy 1 ounce of gold—will return to its historical norm of less than 20:1, perhaps even as low as 10: 1.

Others aren’t quite so bullish.

Riding the Ratio

“[Eric Sprott] is indicating that silver will go to $2,000/oz. I’m not in that camp, but there is a squeeze going on. There’s a lot of new equity traded funds and funds getting into the silver space that are drying up [silver] production, in terms of the delivery of actual physical silver, and that’s what’s driving the price up. It’s a bit of a manipulation from the perspective that it’s the investors who are stepping into [the silver space] and squeezing the supply for the end users. I think that’s very real and that’s why the [silver:gold] ratio is changing,” Thomson says.

The last time the silver:gold ratio closed the gap that much was in 1980 when brothers William and Nelson Hunt attempted to corner the silver market. The ratio peaked at 17:1 before the silver price collapsed on the ill-fated Silver Thursday, which occurred in late March, 31 years ago.

In 2003, when the current bull market in precious metals really started rolling, the silver:gold ratio was roughly 83:1. With silver now approaching $40/oz., the gap has closed to about 38:1 and is steadily narrowing.

“When you’ve got guys like Eric Sprott and Frank Holmes [CEO and CIO of U.S. Global Investors]—guys that are really recognized as ‘thought leaders’ in the space—predicting much higher silver prices, that in itself becomes a fundamental driver for the price,” West says.

Liquid Silver

Sprott put his money where his mouth was and further boosted silver demand by launching the Sprott Physical Silver Trust (NYSE.A:PSLV) in November 2010 at $10 per unit. It closed at $17.38 on March 24 with a market cap of $869 million. The trust trades at a premium to net asset value (NAV) and its silver bullion is tucked away safely in a Canadian vault, a task that took longer than expected. In November, the trust had contracted to purchase 22,298,525 ounces (22.3 Moz.) of silver bullion but by the end of 2010 had taken possession of roughly 21 Moz. The remaining 1.4 Moz. or so did not arrive until well into 2011. The delivery delay clearly demonstrated the tightness in the physical silver market.

“Frankly, we are concerned about the illiquidity in the physical silver market. We believe the delays involved in the delivery of physical silver to the trust highlight the disconnect that exists between the paper and physical markets for silver,” Sprott said in a January press release.

Sprott’s main competition, the iShares Silver Trust (ETF) (NYSE:SLV), has been trading in unprecedented volumes. On March 24, 27 million shares changed hands for a close at $36.12. The $13.2 billion trust is up 121% year-over-year (YOY) from its March 24 close of $16.29.

The Sprott Physical Silver Trust is just one prong in Sprott’s multipronged approach to precious metals investing. Sources close to the situation say he’s buying equity in just about every silver play coming to market and can’t write the checks fast enough. They estimate Sprott’s total bet on silver, including the trust, approaches $1 billion.

David Morgan, editor of the Morgan Report, a silver-focused newsletter, provided Sprott with some names to help him source his silver bullion. Morgan was in the market when silver’s last bull market ended in 1980. He knows what it’s like when the music stops, and he recommends caution.

“The problem with the gold-silver cycle is that it’s such an emotional market because the people who are in it—the gold and silver bugs—have an attachment to [gold and silver] being money. All markets that have a bull market go from undervalued, to fair valued to overvalued; and nothing gets to the extreme overvaluation level, at least in the last bull market, that gold and silver do. What happens at the top of the market—and we’re far from that now, mind you—is that anything with silver in the name of it will go sky high regardless of its merit,” says Morgan.

Thomson agrees but says good assets are good assets in bull and bear markets.

“I think it’s like anything. The museum-quality assets are going to rise to the top, and the stuff that’s smoke and mirrors will always be smoke and mirrors. And, at some point when the market falls apart, the quality will persist and the crap will fall by the wayside,” Thomson says.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Brian Sylvester of The Gold Report wrote this article. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the article are sponsors of The Gold Report: Timmins Gold Corp

The SPX Hangs in the Balance While Social Mood Deteriorates Further

“We crawl on our knees for you, Under a sky no longer blue 
We sweat all day long for you, But we sow the seeds to see us through
‘Cause sometimes dreams just don’t come true, Look now at what they’ve done to you.”

–          Rise Against: Re-Education (Through Labor)    –

Before getting into the broader markets, I thought it was pertinent to share with readers that recently I have noticed a trend in alternative music, also known as modern rock. As a fan of music in general, I have noticed that more modern and mainstream music is starting to underscore the deterioration in social mood. Mainstream songs are having a resoundingly similar lyrical undertone which outlines the “us against them”, “rich versus poor”, and the political class versus everyone else.

While I am not a sociologist nor do I have any real training in the area, the underlying tone in a lot of artistic mediums highlights the current chasm between the haves and the have-nots. While some might argue that it does not matter, if you as a reader, trader, or investor believe in behavioral finance you might agree that social mood matters a great deal. After all, the entire premise of technical analysis is an attempt to quantify market participant behavior at specific price levels.

Social mood is but one catalyst that can have a dramatic impact in price discovery, and thus must at the very least be monitored. Current music trends are literally screaming loud and clear that the average American can relate to the undertones and messages of song lyrics with the same resounding tone as the Rise Against lyrics listed above. Believe me, it may not matter right now, but it will matter and when it does it will likely be too late for financial markets.

Now that I have my little rant out of the way, why don’t we take a look at where the S&P 500 has been, where it is now, and where it might be going. Currently price action in the S&P 500 is sitting on the edge of a fence. We could be looking at an intermediate bottom or it could end up being a bull trap. As for me, my recent prediction for lower prices has indeed come to pass, but from hereon I have no real idea where price action is headed. Mr. Market is leaving a few clues behind which I will outline, but anything is possible. We have seen stocks climb a wall of worry for nearly two years now so there is precedent for a rally from this current point of indecision.

The daily chart of the S&P 500 listed below illustrates key technical levels on the daily chart, however readers will notice that we are currently caught between a ton of overhead resistance and a key support level. Until we see price move in either direction with volume confirmation, I will be sitting on the sidelines.

Another key chart to consider is the SPX weekly chart. A quick glance at the slow stochastic readings at the bottom of the chart reveal that the S&P 500 might have additional downside left before the market is able to form a solid bottom. If that is true, we could see the SPX test the 200 period moving average on the daily chart which would be around the 1186 price level. Additionally, the 50 & 200 period moving averages on the weekly chart correspond with the 1180 price level which is likely not coincidental. The level also corresponds with key resistance areas going back to the November 2010 lows. While a downward move that large seems a bit extreme to me at this point, anything is possible.

As can be seen from the chart above, price action is currently sitting above the 20 period moving average on the weekly SPX chart. Key support levels are around the 1225 and 1180 price levels. I would also point out that a Fibonacci retracement of the recent pivot high to the recent pivot low gives us a possible 1.618 retracement around the 1190 price level. Additionally, the slow stochastic on the chart above is eerily similar to levels that were seen on the weekly chart back in May of 2010. Will price action work lower? Will the weekly slow stochastic reading kiss the 20 level?

At this point, a few of you might think I’m outlining the case for lower prices in the equity market. I honestly have no idea where price is going from here, I’m just outlining some key aspects that I have found in my analysis to the downside. The upside is just as likely and we could see the SPX price bounce off of the 20 period moving average on the weekly chart and a challenge of the recent highs could play out. Should recent highs give way to breakout, the SPX would likely test the 1,400 price level at some point in the future.

If we look at the VIX for any clues, all that can be seen from that chart is a spike higher and a subsequent selloff as fear and uncertainty leave the marketplace. The VIX is currently arguing for higher prices in equities, however the financials represented by XLF are the fly in the proverbial ointment. The banks were unable to attract a bid on Monday’s strong advance and they experienced additional selling pressure on Tuesday. In fact, the XLF’s daily chart shown below reveals a key test and subsequent failure.

A quick look at the XLF daily chart and it is rather obvious that price action in XLF has been weak in the past two sessions. Price moved higher off of the recent lows, tested the 20 period moving average and rolled over. Price is currently below key support levels, but we could witness a reversal on Wednesday. I am going to be watching the financials (XLF) quite closely in coming days as I believe the banks will provide traders with clues as to which direction Mr. Market is favoring. Right now it would appear that Mr. Market is favoring lower prices, but that would seem a bit too easy from these eyes.

We could consolidate at these price levels for a period of time. The volume on Monday and Tuesday was light and we have non-confirming signals showing up in a variety of underlying indices. I am unwilling to accept any directional risk at this point. I will let others do the heavy lifting while I sit safely in cash and watch the price action play out.

The price action will eventually give us a confirming signal as to which direction prices will be heading, but right now I believe the prudent thing to do is remain in cash and wait for Mr. Market to signal which direction he favors. We are either sitting at the beginning of a major move higher or we are at a precipice and prices are about to plunge. Either way, risk remains high and the risk / reward is simply not there to warrant an entry. As I have said many times, sometimes the best trade is no trade at all!

Get My Trade Ideas Here: www.optionstradingsignals.com/profitable-options-solutions.php

JW Jones

Another Do or Die Point for Equities & Gold – Get Ready!

Equities and Precious Metals are on the edge of another rally and it could start as early as tomorrow.

On March 13th I posted some of my analysis online showing how the market was trading at a key pivot point and that a sharp price movement was about to unfold. I also provided everyone with the direction in favor which played out perfectly catching a 4.5% in three days.

As of today we are getting the same setup I saw on March 13th, but this time it’s pointing to higher prices. Take a quick look at the charts I was looking at for both the SP500 and gold and you will notice that the SP500 and gold both moved to the support levels before starting to bounce: http://www.thegoldandoilguy.com/articles/it%E2%80%99s-do-or-die-week-for-equities-and-gold/

While we caught the move down on the SP500 playing the SDS Double leveraged inverse fund we did not take part in falling gold prices. Reason being, there is so much fear in the market and the amount of surprise news popping up each week I don’t think shorting precious metals is a safe call. Rather I am looking for a pullback to cleanse the holders of the commodity then I will buy once price confirms the continuation pattern has completed.

Now, stepping forward to this week’s price action

SPY Daily Chart

We can see in the chart below that price is currently testing a key resistance level. Before the week is over we could see some big price movement equities. I need to see what happens tomorrow but I have a feeling we could see a breakout to the upside for a long position.

 

 Gold Miners Fund Daily Chart

Gold stocks have be under performing the price of bullion for a few months but it looks as though they could be starting a sizable rally. If gold stocks continue to move sharply higher out of this pattern, then it’s a positive sign that gold and silver bullion will both continue to move up.

 

Gold Daily Chart

Gold is testing a key resistance level and if it breaks above this pattern then expect much higher prices. I can see GLD moving up $5 from this level and gold futures moving up $60 per ounce fairly quickly.

 

Mid-Week Trend Report:

In short, stocks and commodities may have shaken the weak positions out of the market during the recent pullback in price. Things could be ready to start another multi month rally and trade setups. Keep your eyes on the charts…

Get these reports sent to your inbox each Sunday & Wednesday: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

We Love Silver But We Respect The Trends – Be Careful

We Love Silver But We Respect The Trends – Be Careful
March 17, 2011

We believe in investing in long term bull market trends.  To illustrate this point consider the following.  In theory, with only two trades and two and a half long term trends, an individual could have turned only $10,000 into more than $47.6 million dollars.

The above chart helps illustrate the power of identifying a long term trend when it comes to building wealth.  However, the following arguments could be made in regards to the above chart.

  1. The chart does not consider taxes paid or other investing fees.
  2. Hindsight is 20/20.  We can’t expect to pick the perfect day to trade.
  3. We don’t all have 30 years to invest.

Let us address these comments individually:

1)    The chart does not consider taxes paid or other investing fees.
The simple illustration above does not consider some costs such as taxes paid or trading costs, but it also does not consider the benefits of dividends from stocks or mining equities within a mutual fund.  To clearly illustrate our point we wanted to keep the math very simple and easy to understand so we left out external considerations that both increase and decrease the end number.

2)    Hindsight is 20/20.  We can’t expect to pick the perfect day to trade.
The above chart uses monthly price data and the profit would be larger if we had picked the perfect intra-month day to trade.  Additionally we recognize that we cannot pick the ideal day, week or month to trade all of our capital from one investment to another.  However, it may be reasonable to attempt to “dollar-cost-average” into positions over time near a perceived bottom, and “dollar-cost-average” out of a position near a perceived top.  We do not expect perfect results but instead we try to locate multi decade bull markets and avoid multi decade bear markets.

3)    We don’t all have 30 years to invest.
This is a valid statement as many individuals may not live long enough to invest for 30 years.  However, the above chart was meant to illustrate the power of the mega trends so we only used a modest initial investment of $10,000.  Over a lifetime, investors will most likely invest more capital than $10,000, and that would increase their profit potential within a shorter period of time.  Additionally, we try to identify intermediate term moves within the long term trends to help us identify lower risk entry and exit points within the mega trend.  Our goal here is to maximize our profit potential from the major trend.

Basically, in the above chart we are trying to illustrate the power of identifying long term trends, investing in the bull markets, and avoiding the bear markets.  In our opinion short term trading is a very difficult and time consuming skill to master.  At the same time the indefinite “buy and hold” strategy concerns us as investors ride multi decade long term bear markets.

Instead of trying to guess what will happen day to day and moment to moment, we want to identify the major bull market trend in the markets.  When we backup and look at the large macro moves, the smaller fluctuations seem rather trivial.  Imagine if you could build significant wealth and spend more time focusing on your career, relaxing and enjoying your family.  Imagine if you simplified your investment decisions instead of spending many hours of your day in front of a computer screen making various short term decisions.

So how about now?  Commodities are doing great!  Silver is up to about $36 from a low of around $4 in the early 2000’s.  You can’t lose by putting your money in commodities right?  Wrong.  Although we think precious metals are eventually going much higher we are careful not to forget about the intermediate down turns that all markets go through.

We get nervous when investing in one asset class or another gets “too easy.”  Silver, gold and commodities in general have been “spiking” in price.  Most people would agree that government money printing can only cause precious metals to rise further.  In our opinion, this seems too obvious to be right from an intermediate term perspective.  Additionally, the media has been focusing ever more attention on precious metals as they climb to new highs.  In recent months we have seen three different instances of characters on reality TV shows “hunting for precious metals”.  We are aware of at least one reality TV show solely based on gold mining.  Where was the media attention on precious metals in the 90’s or early 2000’s, when they were hitting lows?  In our opinion, the time to buy any investment is when it is out of the spotlight and on “sale”. 

We suggest that when the market appears to be too obvious and too easy to predict because it continues to advance in one direction, it often means that a turn in the opposite direction is nearing.

Are we long term bullish on precious metals and commodities?  You bet.  In fact, we are probably more bullish than most.  However, in the excitement of the current bull market move we are preparing for the new trend that will arrive sooner or later.

To learn more about our strategy and sign up to our free newsletter we invite you to visit our website at www.investmentscore.com.

How to Gauge the Equities Market so you don’t buy to Early!

Over the years I have found an indicator/trading tool which I find help spot intermediate trend reversals. I am going to quickly cover in this report. As most of you know the 20 simple moving average is a great gauge for telling you if you should be looking to buy the dips or sell the bounces. It’s an indicator I keep on the broad market charts like the SP500, Dow and NASDAQ.

The chart below shows the percentage of stocks trading above the 20 moving average. When this indicator falls below 20%, I make sure I start to protect my short positions with more aggressive protective stops and keep an eye on short term sentiment, volume ratios, options and price action as a bottom can take place at any time and very quickly. Bottoms tend to be more of an event happening quickly with a washout/panic selling day followed by a sharp rally, while intermediate market tops drag out taking weeks if not months to roll over and are very difficult to trade which is what we have been experiencing so far this year.

As you can see this indicator is currently trading in the lower reversal zone and I feel a bottom will form before March is over.

 

SP500 Daily Chart

The SP500 continued lower today, which is what I mentioned, would most likely take place in my pre-market video this morning. The trading session was a roller coaster with news on Japans reactors causing large waves of buy and selling throughout the day. I have not seen traders follow the news so close like this in some time… Everyone has their fingers hovering over the buy and sell button these days.

Looking at the bottom indicator which is my gauge of panic selling within the market, it has yet to close above 15 which is the minimum number I typically look for before I start zooming into the intraday charts for a long entry (market bottom). We still could see much lower prices before we see that.

 

Gold 4 Hour Chart

This chart is the same one I showed in my Sunday night report, which explained why gold should test the $1380-90 level in the coming days. We did see that unfold this week but now the chart is pointing to possibly even lower prices with a support range between $1360 -1380 taking place this week. Keep an eye on it as it should be swift if it does occur.

 

Mid-Week Trend Report:

In short, we are finally getting the correction everyone has been waiting for and now that it’s started and we are short, we must start watching closely for a bottom because they can take place very quickly.

My focus is still on playing the short side but I have my antennas up just in case signs of a bottom start showing up.

If you would like to get my free weekly reports please visit my website: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

The Silver Bullet And The Silver Shield

“The BEST article written on silver in Ten Years!”- Jason Hommel

“Article of the Week” at Silver Bear Cafe

The Ultimate FREE Silver Investors Guide.

Two of the most common questions I get inside of the Sons of Liberty Academy focus on two things:  how to turn back the tide of this increasingly corrupt system and how to financially prepare for a post-dollar world. This does not surprise me, since fear and greed are the two most powerful motivators known to man. What will surprise you is that for once, the answer to both questions is the same answer.

Buying physical silver is by far the greatest act of wisdom and rebellion any American can and should be doing right now. It is both a Silver Bullet to rebel against the Elite’s corrupt system and a Silver Shield to protect your family and wealth in a post- dollar world. Buying physical silver is non-violent, non-compliant resistance. Most importantly it works outside of the system and it cannot be stopped.

Read the rest of article here…
http://www.silver-investor.com/pdf/2-25-11-TheSilverBulletAndTheSilverShield.pdf

Sign up for The Morgan Report Today!
http://www.silver-investor.com/amember/signup.php

No Reason Today for Yesterday’s Executive Order 6102

No Reason Today for Yesterday’s Executive Order 6102

By Richard (Rick) Mills
Ahead of the herd

As a general rule, the most successful man in life is the man who has the best information

Current Federal Reserve System chairman Ben Bernanke believes a simple recession was turned into the Great Depression by the Federal Reserve of the day not doing enough while the money supply contracted 31 percent between 1929 and 1933.

This reduction in the money supply was caused by no less than three bank runs between late 1930 and March 1933. Bank deposits formed 92 percent of the money in circulation at the time and 10,000 banks failed with the loss of $2 billion in deposits.

The Fed failed to inject enough money into the system to sustain the desired minimum level of monetary aggregates. Because it failed to do this, the public run on banks resulted in a contraction in the money supply, which caused the Great Depression.” Milton Friedman

Bernanke, a monetarist like Friedman, believes if the Fed had provided enough money to the large banks and bought US securities then these banks would never of fallen. Bernanke is, today, putting what he believes to be the fix for our current economic woes into practice:

  • giving money to the banks
  • cutting the prime interest rate the Fed charges commercial banks
  • buying treasuries

The Federal Reserve is providing liquidity and increasing the money supply.

So why didn’t the Feds of the time simply increase the money supply by turning on the printing presses much like Ben “helicopter” Bernanke is doing today? Well, at that time the US was on the gold standard and the amount of credit the Federal Reserve could issue was limited by the Federal Reserve Act which required 40% gold backing of Federal Reserve Notes, paper money, issued. Back then if you had $10 in your pocket, you knew, that somewhere, there was $4 worth of gold backing that “promise to pay” in your wallet.

But the Fed’s back was up against the wall, they were running out of room to issue more notes. They had almost hit their issue limit on credit that could be backed by the gold in their possession – they needed more gold to issue more credit.

Their need was made worse because during the bank runs Federal Reserve paper money had been exchanged for Federal Reserve gold. Since the Federal Reserve was already hitting its limit on allowable credit, any reduction in gold in its vaults had to be accompanied by a greater reduction in credit. Something had to be done.

On April 5, 1933, President Roosevelt signed Executive Order 6102 making the hoarding of gold certificates, coins and bullion illegal. This order, by confiscating Americans gold, increased the amount of Federal Reserve owned gold thereby making an increase in the availability of Federal Reserve Notes or credit possible.

The reason gold was confiscated back then doesn’t exist today. Today no country is on the gold standard (the US cut the last ties to gold in 1971) and the US Federal Reserve’s ability, or any countries ability, to create credit, print money, is no longer tied to how many ounces of gold a country has.

The flip side of this unfettered creation of money is inflation – and this is of course exactly why someone might want to own gold and silver. But there is something potential gold buyers need to be aware of.

The Scam

Its true gold was confiscated in 1933 – but now you know the why and you also know that the reason for confiscation back then doesn’t exist today.

So the next time you read an article about how your government is going to confiscate your gold – all of it except rare collector numismatic coins – track it back to its original source. Too many times you will find that it has, as its originator, a gold numismatics merchant. The patter is always the same – “Your gold is going to be confiscated, buy rare collector coins because they won’t be confiscated.”

Gold numismatics were not confiscated in 1933. Order 6102 specifically exempted “customary use in industry, profession or art.”  The same paragraph also exempted “gold coins having recognized special value to collectors of rare and unusual coins.”

The US Constitution’s Eminent Domain Clause says – “nor shall private property be taken for public use, without just compensation.” When gold bullion was confiscated compensation payment at the official gold price of $20.67 an oz was considered just, after all, that was the price of an oz of gold.

But the confiscation of rare gold coins, called numismatics, would have been stealing private property. Legally just compensation would have had to been paid but for that to happen each gold numismatic would have had to been individually graded and priced – a huge and expensive time consuming task the government was unwilling to take considering the small amount of gold that would have been recovered.

So let’s revisit – “Your gold is going to be confiscated, buy rare collector coins because they won’t be confiscated.” We know the reasons Americans gold bullion coins were confiscated but gold numismatics weren’t. For today’s gold buyers, who still fear confiscation, the problem is: are the coins some gold dealers want to sell you actually gold numismatics and for a gold bullion investor – versus a coin collector – are they worth buying? Unfortunately the answers are maybe not and no.

Gold numismatics are rare collectors gold coins that trade at high premiums to their intrinsic gold content value. These coins are extremely rare, or one-of-a-kind, that collectors (there’s that qualification again) purchase for their historical and aesthetic qualities.

Gold merchants can sell rare gold coins for a healthy markup, sometimes as much as 25 percent and more. The fierce competition in the gold bullion coin market often limits profit margins to maybe 3% over the spot price of gold.

American Gold Eagles, the Canadian Maple Leaf and South Africa’s Krugerrand are all examples of gold bullion coins. Their value is derived entirely from their gold content. They are universally recognized and the value of these coins is easily verifiable. The reality is that too many coins sold as “numismatic” or “collectible” are ordinary gold bullion coins sold at high mark-ups to make fear mongering dealers extra profits.

If you want to own gold, the safest way is to buy one, or a mix, of the three gold bullion coins listed above, pay the 3% above spot and quit worrying about confiscation. Gold numismatics are not a store of value nor a better safe haven in a meltdown situation than gold bullion. Think about all the money you’ll save. Maybe you’ll buy some silver!

Conclusion

Gold bullion coins are a better store of value then gold numismatics – if social order breaks down and a collector needs to trade one of his collectables he’s going to receive the exact same amount of goods that I would receive using gold bullion. That’s because the transaction will be valued based on gold content and purity, not historical and aesthetic qualities.

Investors buy physical gold because it is a store of value – a way to protect your wealth from the relentless devaluation of fiat currencies – and a safe haven in times of turmoil. Your job as a retail investor, if you believe in gold and the ongoing devaluation of fiat currencies, is to buy as much potable, divisible gold with your dollars as you can. Buying gold numismatics is not the way to do this and buying gold numismatics that aren’t…well that’s being taken advantage of, to put it politely. Is this con game on your radar screen?

If it isn’t, and you’re a gold buyer, it should be.

Richard (Rick) Mills
rick.mills@aheadoftheherd.com
www.aheadoftheherd.com

If you’re interested in learning more about the junior resource market please come and visit us at www.aheadoftheherd.com.

Membership is free, no credit card or personal information is asked for.

 ***

Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell.com, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.

***

Legal Notice / Disclaimer 

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard Mills does not own shares of any company mentioned in this report.

No company mentioned in this report is an advertiser on his website aheadoftheherd.com.

The Morgan Report Blog