Deflationists would argue that the huge credit bubble that has been building must eventually end in some sort of deflationary bust. They would say that even in an easy-money environment, governments cannot push banks to lend forever and eventually a credit crunch would ensue. Finally, those who make the “both” argument would triangulate and say that the price of “stuff” would inflate while the prices of paper securities (stocks, bonds & perhaps mortgages) would deflate.

Fund managers know they need to post superior returns in order to justify their fees as The New York Times and The Wall Street Journal have spilled plenty of ink recently detailing the high fees resulting in several freshly minted hedge fund billionaires over the last year. A recent Times article quoted an investment advisor saying that he didn’t mind paying the high fees as long as the performance was there. That seems fair enough, but it reminds us of an environment where baseball players were encouraged to use steroids and other drugs in order to break home run records. Evidence has come out that owners, coaches, players and reporters knew what was going on, but mouths were kept shut for the good of the game in terms of television ratings. On Wall Street, the steroid known as leverage is 100% legal and its use is encouraged by investment banks and institutional investors all over the world.

Alchemy, in a nutshell, is taking something that is abundant and trying to transform it into something that is scarce. While the laws of nature may have prevented medieval scientists from turning lead into gold, we do think a modern-day sort of alchemy has been working and is destined to succeed further.

You see, after peaking at $720 an ounce on the yellow metal and $15 an ounce for the poor man’s gold, the two metals have come under a great deal of selling pressure. We think this correction is due to a number of factors. The first being that the precious metals likely got a little ahead of themselves (gold was up 40% less than 5 months into the year and silver was up 75%). The second reason for the correction has likely been the continued resilience of the U.S. Dollar. For most of the year this was due in large part to the fear that “Gentle” Ben Bernanke might actually grow a backbone and would ratchet rates up a great deal more than originally anticipated to break the back of inflation. Bernanke is by no means Paul Volcker having revealed his true stripes long ago. So late this summer, the rest of the market learned that Bernanke was done and curiously gold and silver have not been able to rally since. With the intense correction in the commodity complex, it appears that the black box traders (who can from time to time dominate gold and silver markets) are selling gold and silver simply because they are going down. Selling has continued to beget more selling and the fact that a clearly weakening U.S. economy only supports the case for gold and silver is overlooked. (Remember, gold and silver should be looked at as “money” rather than plain commodities.)

The graveyard of CNBC television programs includes classics such as ‘Open Exchange’, ‘Dennis Miller’, ‘Checkpoint CNBC’, ‘McEnroe’, ‘Bullseye’ and many others. In early 2005, desperate for ratings, CNBC launched ‘Mad Money’ where viewers were treated to a loud and obnoxious Jim Cramer running around a studio screaming at viewers to buy Google, Hoku, and other momentum names. Because the market was rising and Cramer is a charismatic salesman, the show took off. CNBC even ventured into real estate when they recorded a few prime time specials about the housing boom.

The same trend of “a declining metal price, but increased ETF assets” can be seen in the silver ETF (SLV). Silver started the year at $8.85/oz. It subsequently rose 70% to $15/oz, before correcting by $5.50 to near $9.50 an ounce. The silver ETF began life on April 28th with silver at $12.55/oz. The silver ETF reached a peak of 73 million ounces in its vaults around the time physical prices peaked. With the aforementioned sell-off, silver ETF assets declined to 67 million ounces, but have since begun heading back upwards to a near peak level of 72-73 million ounces in the trust.

The continued accumulation of gold and silver ounces in the ETFs likely means that savvy individual and institutional investors (who are driven by fundamentals) are eagerly accumulating the metals after their sharp pull back – a bullish sign. At the same time, the price has been weak in all likelihood because leveraged black-box technical types at CTAs and hedge funds are liquidating.

He was born and raised in Pittsburgh, Pennsylvania and graduated from Gettysburg College and the Duke University School of Medicine, before proudly serving as a flight surgeon in the U.S. Air Force during the 1960s. He and his wife Carol moved to Texas in 1968, where he began his medical practice in Brazoria County. Dr. Paul is the author of several books, including Challenge to Liberty, The Case for Gold, and A Republic, If You Can Keep It.

Not so fast.

While not the most scientific of polls, the data below is quite informative.

TEHRAN, Iran - Iranian president Mahmoud Ahmadinejad shocked the world today when he, all of the sudden, decided to wind down his country’s nuclear program and make peace with the West. “Today I have decided to replace our plans for nuclear energy with eco-friendly wind power. Furthermore, I look forward to my upcoming trip to Tel Aviv where I will introduce a free trade agreement for the greater Middle East.” Markets reacted immediately sending oil back down to $40/bbl and gold to $300/oz as tensions in the region have evaporated.

The preceding scenario is obviously fictitious, but you wouldn’t guess it based on the mainstream media’s reaction to rising commodity prices, especially gold. For the past few weeks, as gold has inched its way closer to an all-time high set over two decades ago, the talking heads have cited events in Iran as the catalyst for precious metal price increases. If tensions were to suddenly cool down, then everything would be hunky-dory in the world of rising commodity prices.

Mad Money reminds us of those 3am sports betting forecast shows where so-called experts give you their predictions on the week’s games. Hearing Jim Cramer scream “Buy Google]]> Wed, 05 Apr 2006 03:44:34 -0400 Texas Hedge Report Todd Stein & Steven McIntyre (The Texas Hedge Report) submit: CNBC is not in the news business; rather, they are all about high ratings. Their highest rated show these days is none other than Mad Money, which is basically one hour of Jim Cramer screaming at viewers to buy this and sell that.

Mad Money reminds us of those 3am sports betting forecast shows where so-called experts give you their predictions on the week’s games. Hearing Jim Cramer scream “Buy Google
Complete Story »]]> Texas Hedge Report http://seekingalpha.com/article/7816-just-how-high-can-gold-and-silver-go?source=feed 7816 Todd Stein & Steven McIntyre (The Texas Hedge Report) submit: The question we are always asked is, “Just how high do you think gold and silver will go?]]> Fri, 17 Mar 2006 04:43:17 -0500 Texas Hedge Report Todd Stein & Steven McIntyre (The Texas Hedge Report) submit: The question we are always asked is, “Just how high do you think gold and silver will go?
Complete Story »]]> Texas Hedge Report http://seekingalpha.com/article/7355-don-t-ignore-the-silver-jump-etf-slv?source=feed 7355 Todd Stein & Steven McIntyre (Texas Hedge Report) submit: So after a quarter of a century, silver finally returned to double-digits. While we aren’t fans of following day-to-day moves, the recent zoom past the $10/oz mark is noteworthy. It seems that the precious metals community is anticipating the launch of the silver ETF – so perhaps this is what is causing the grey dog to bark. Maybe that’s the case, but we certainly don’t think that abnormal amounts bullion are being gobbled up by Barclays in anticipation of the ETF’s launch. Nor do we think that the public is suddenly hoarding silver.

Now that a little more than one year has passed since the gold ETFs were introduced, let’s take another look at just how much demand for silver could be impacted.