Wednesday, June 14, 2006


'Shell Shocked' Investors Look For Alternatives

Some reports on money and metals from this mornings markets. "Comex gold and silver have managed a bounce so far, but metals remain vulnerable after Tuesday's $44.50 sell-off in August gold. This is particularly true with expectations for another Fed rate hike later this month, suggests Leonard Kaplan, president of Prospector Asset Management."

"'Everybody is shell-shocked,' he says. 'We did go lower overnight and have come
back. But a $2 rally in gold is not really impressive after a $44 drop,' says
Kaplan. August gold is up $2.20 to $569 and July silver is up 20.5 cents to

"Shares of silver miners rose Wednesday amid price increases for the precious metal, as investors looked past worries of higher inflation and interest rates, which usually hurt metals prices by increasing costs for miners to expand production."

"Among big silver miners, Coeur d'Alene Mines Corp.'s stock rose 17 cents, or 4 percent, to $4.12 in morning trading on the New York Stock Exchange. The Idaho-based company's stock has traded between $3.30 and $7.37 over the past year, reaching its peak in April."

"Silver Wheaton Corp. shares gained 33 cents, or nearly 5 percent, to $7.15, after trading between $3.07 and $11.75 over the past year. Apex Silver Mines Ltd. added 1 cents to $12.86 on the American Stock Exchange. Meanwhile, shares of Canada-based Silver Standard Resources Inc. rose 36 cents, or 2.2 percent, to $16.71 on the Nasdaq. The stock has traded between $11.05 and $24.12 over the past 52 weeks."

"The US dollar is off its lows for the year but is likely to depreciate further to the point where it tests critical technical support levels, Louise Yamada, founder and managing director of Technical Research Advisors, said on Tuesday. 'The dollar is very distressing because it has been testing a 28-year support level,' Yamada said at the Reuters investment summit in New York."

"The dollar has fallen more than 5 percent this year against an index of major currencies, to 86.2. Indeed, were it not for a sharp rebound since the start of the month, the dollar index would likely be back below 84, at the one-year lows plumbed recently and much closer to the critical 80 level, Yamada said."

"'Eighty is really a critical support that goes all the way back through the history of the dollar,' Yamada said. 'I suspect it's not going to go through immediately but..the dollar is set to become less valuable.'"

"The greenback has rebounded a bit, last week registering its best gain in the past year as investors shed risk by parking money in cash. But the dollar faces significant pressure and competition from other currencies, which could turn it around again. 'What has happened since 2002 is what I've been calling the laissez-faire devaluation of the dollar,' Yamada said."

"She said the dollar is also poised to see far more competition from rivals such as the euro and China's yuan. 'You've got Venezuela that won't accept dollars for oil, you've got Iran that is going to have a euro board for energy, Russia is starting to consider only accepting euros for oil, and it is happening in a very slow fashion so that people are not putting together the negative effect this can have.'"

"'One of the things that bothers me the most is I think the dollar is starting to lose its reserve status,' Yamada said.".

"Central banks are planning to diversify foreign exchange reserves away from U.S. government debt into higher-yielding assets, including mortgage bonds, through 2007, according to a UBS Securities survey."

"Almost all of the 90 central banks polled by the unit of the world's biggest wealth manager now have the authority to spend reserves on bonds other than Treasury debt, the poll found. Just 3 percent said they only invest in Treasuries, down from 31 percent four years ago, it said."

"The month-long slide in global stocks has wiped out at least $2 trillion in wealth, leaving investors few alternatives to preserve their holdings aside from bonds and money markets. Investors have been dumping stocks, commodities and emerging market assets on growing concerns that economic growth will suffer from higher inflation and interest rates."

"'It is essentially one consistent story worldwide, starting here in the U.S. There is a fear that the Fed's repeated commitment to limiting inflation demonstrates a willingness to risk economic activity,' said Christopher Low, chief economist at FTN Financial in New York."

I guess people haven't been in this market for long. didn't gold and silver drop pretty big in early 2004? if I remember correctly, PAAS was down near 40%. I also remember watching in "awe" as silver "zoomed" to $8. then it fell to near $6.
I am calling the bottom for gold. Hope I am not going to fall on my face.
Question for the other regulars:

I've seen a couple articles by Theodore Butler re: a looming (and massive) default in the silver market on COMEX. Any thoughts on this? Seems to me many of his larger conclusions aren't fully supported, but if true, well... it sure would be interesting for holders of physical. (For holders of paper, I'm not sure exactly what happens in the event of a default.)

Is he on to something, or is this wild speculation? I'm not familiar enough with the workings of COMEX to be able to rationalize his conclusions.
The last time I was in my bullion dealers office, they indicated something big would be happening in Silver and had purchased a large quantity (price was still in 12-13 range). Comex Silver manipulation is quite believable and probably likely.
Also, someone posted on HB blog, Arabs encouraged to buy gold:

I'm still reeling from the last few days, but reminded myself that when the housing crash goes into full swing, and it will, BB and his fellow Fed buddies and buddiettes won't be able to set foot in public without some angry homeowner trying to take their heads off. I predict a resumption of easy money or else it's the end of the world as we know it.
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