Managing Editor

Gold 1, Oil Analysts 0

You can now monitor the deflation/inflation cylcle in real time. The monetary inflation rate will be updated daily as a headline in each Brad's Desktop article on Hard Assets Investor (www.hardassetsinvestor...).

On Nov 16 08:02 PM otbricki wrote:

> Gold has nowhere to go but down from here. We are in a deflationary
> spiral for the next year because of massive deleveraging destroying
> money faster than the Fed can force-feed it into the economy.
>
> Longer term though the pendulum will swing the other way and gold
> become a good investment as oil skyrockets and the dollar tanks.
>
>

Golden Opportunities?

It's important to look at commercial NET interest in a commodity to properly ascertain hedge sentiment.

For gold, net shorts topped out as prices reached their spring peak. Sellers, thus, locked in the market's highest prices through futures. Commercial net short interest has since been lightened to a level not seen in years,


On Nov 03 04:31 PM Smarty_Pants wrote:

> If commercial open interest is declining then another upleg is about
> to start shortly. Maybe it won't be the onset of the "big one" but
> prices are very likely to move higher from here.
>
> If commercials are reducing their net positions it means that the
> current prices are too low. They will be much more likely to wait
> for another rally in price back to 'realistic' levels before taking
> any more positions on the short side for future delivery.
>
> The commercials aren't stupid. They close out their short positions
> when prices get "too low" and re-establish them when prices are "too
> high". It's their business to know what they're doing. When they
> all do the same thing, it's telling you something (or it ought to
> be).
>
> Of course pinpoint timing is another story. Commercial Open interest
> figures will tell you which way the big boys are leaning though.
> Keep your eyes open.

Gold Stocks Rebound

Rebound? Yes, Paultaut, the rebound that caused the overextended GLD/GDX ratio to drop so precipitously.

Note the cautionary tone that was sounded in the piece : "...investors shouldn't forget that gold mining issues are still highly correlated to bullion. As gold goes, so goes - more or less - mining shares. The correlation of daily price returns between GDX and GLD, in fact, stands at 73%, even after counting the seemingly disparate performance records this year."




On Nov 06 05:07 PM paultaut wrote:

> Looks like gold is on its way to the low to mid $600 range, this
> appears to coincide with the last cautionary statement:
> .... have growth and can fund that growth ...
>
> What rebound? The Bear market bounce, is that what you are talking
> about?

Gold 1, Oil Analysts 0

The relationship, I'm afraid, cannot be annuled. Goild and oil are wed for life. Bottoming in the gold/oil ratio, in fact, is a herald of impending economic slowdowns.

The last five US recessions followed 20 to 30 percent declines in the gold/oil ratio from then-recent highs. The current market got followers of the ratio particularly nervous. The ratio nearly 50% from its February 2007 high to a trough at 6.4-to-1. If nosedives in the ratio are indeed predictive, the recession forecast then would figure to be a real whopper.

And why would a dip in the ratio predict bad times to come? Put simply, rising oil prices – relative to a monetary constant like gold -- slows industrial and consumer demand, choking off economic growth.




On Nov 13 08:10 PM The hand wrote:

> maybe it is time for gold to leave its relationship with oil. this
> marriage should annulled as they have little in common except a coincidental
> relationship that has little love.
>
>

Jeffrey Christian: Gold and Silver Could Spike

Jake -

Keep in mind the format of this article was an INTERVIEW, not an analysis. The "star" in an interview is the interviewEE, not the interviewER.

An interviewer's goal is to get the interviewee to offer his/her insights and opinions.

There's plenty of analysis elsewhere on HAI. As examples, I direct your attention to "Consumers Buy Into Inflation" at www.hardassetsinvestor... and "Venti-Sized Gains For Coffee" at www.hardassetsinvestor....


On Nov 16 01:31 AM Jake2 wrote:

> "HAI: Everyone I talk to is bullish on gold. I wonder: What could
> go wrong? What could keep gold prices down?"
> You"ve been talking to the wrong people. What's wrong is no one is
> buying. Didn't someone tell you? Gold is down 14% in the past few
> weeks. How about some hard headed analysis from Hard Assets once
> in a while instead of tendentious twaddle.

Using Futures to Buy Metals Wholesale

Faith -

Platinum, yes. Diamonds no. Platinum trades in 50-ounce contracts on the New York Mercantile Exchange.

Using Futures to Buy Metals Wholesale

Mark -

It's not just proof set gold coins that are considered "numismatic items" under 31 USC 5112 which, in pertinent part, states:

(q) Gold Bullion Coins.

(1) In general.— ...the Secretary shall commence striking and issuing for sale such number of $50 gold bullion and proof coins as the Secretary may determine to be appropriate, in such quantities, as the Secretary, in the Secretary’s discretion, may prescribe ...

(7) Treatment as numismatic items.— For purposes of section [2] 5134 and 5136, all coins minted under this subsection shall be considered to be numismatic items.

I can't presume to get inside Secretary Paulson's head.

Suffice to say that the Secretary is constrained in obtaining gold for coin making. He must first obtain bullion only from domestic, not worldwide, sources produced within 1 year of the month in which it was mined, but pay no more than the average world price.

Then he must direct the bullion to be alloyed to exacting standards for blanking, recut dies and schedule minting at the sole venue permitted for gold coin production.

All that takes time.

Using Futures to Buy Metals Wholesale

Rumpole -

Option on gold futures are just that: options on FUTURES, not physical metal. The exercise of these options results in the "delivery" of futures into the holder's account (long futures if a call is exercised, short futures if a put is exercised).

Upon exercise of a call, you'd then have to await receipt of a delivery notice to acquire actual metal as outlined in the article.

Using Futures to Buy Metals Wholesale

Think again, Mark -

Gold coins are deemed "numismatic items" under the controlling section of the USC (Title 31, Section 5111) which states:

The Secretary of the Treasury—

(1) shall mint and issue coins described in section 5112 of this title in amounts the Secretary decides are necessary to meet the needs of the United States;

(2) may prepare national medal dies and strike national and other medals if it does not interfere with regular minting operations but may not prepare private medal dies;

(3) MAY [emphasis added] prepare and distribute numismatic items; and

(4) may mint coins for a foreign country if the minting does not interfere with regular minting operations, and shall prescribe a charge for minting the foreign coins equal to the cost of the minting (including labor, materials, and the use of machinery).

The section you cite merely prescribes the conditions under which the coins must be minted and distributed IF the Treasury Secretary deems their production is in the interest of the United States.

Using Futures to Buy Metals Wholesale

Mark -

Not wrong about specie coinage. Read the code: it says the Treasury "may," not "shall" mint gold coins.

Using Futures to Buy Metals Wholesale

Mark -

Have you contacted Lind-Waldock? The larger clearing FCMs (futures commission merchants) have delivery departments; introducing brokers and nonclearing FCMs don't.

As mentioned in the article, very few futures are settled by delivery, so most commodity representatives haven't had much experience in dealing with physical settlements.

You should understand, as well, that you're not exactly the kind of customer most commodity reps want. You want to open the account, purchase a single contract, then remove all assets from the account upon delivery. The rep wants a customer who'll trade. You, in essence, have a selling job to do to get the rep to want you as a customer.

Ask upfront about the costs and fees associated with delivery. They'll vary from firm to firm. The article references the common costs. Costs for small lot delivery will seem high because, of course, the business is geared for WHOLESALE transactions.

Keep in mind that the U.S. Mint is not obliged to manufacture anything but general circulation coinage. Specie coins minted optionally.

Gold Liquidity Play a Setup?

If you stood for delivery in the Dec contract you'd have no problem getting metal. The squeeze potential lies further down the road.

When you talk about the physical metals market in comparison to COMEX, make sure you pit apples against apples. There's ALWAYS been a difference between retail, small-lot metals transactions through a middleman and warehouse receipt transfers at COMEX-approved warehouses. Those really are different markets.

Gold Liquidity Play a Setup?

No recommendation. Just an observation and ther presentation of a potential scenario. As I said, there are a lot of "ifs" in the set-up. We clearly need more Windex

A Chart From Our Anxiety Closet

OIL is an exchange-traded note that provides LONG exposure to crude. You'd need to SHORT the note for the gold/oil ratio trade.

A Chart From Our Anxiety Closet

Amplification: Short crude exposure CAN be obtained through other vehicles. The PowerShares DB Short Crude Oil exchange-traded notes (SZO for -100% exposure to the Deutsche Bank Liquid Commodity Index – Optimum Yield Oil, DTO for -200% exposure), however, convey credit risk as they are unsecured debentures of Deutsche Bank AG's London branch. The MacroShares portfolios, made of up Treasuries and repos, don't impart such exposure, no do they directly rely upon oil futures.