Central Banks "Leasing" Gold

When short term gold lease rate turned negative in the second part of 2011 (Chart 1), we started to see price manipulation in the gold market. Each time the gold lease rate started to spike downwards, we saw a big decline in the gold (GLD) (PHYS) and silver (SLV) (PSLV) price afterwards. Low gold lease rates mean that lenders want to lend out their gold at all prices. High gold lease rates mean just the opposite, you will have to find more profitable investments to put that leased gold into use.

Why did gold prices go down and how does this connect to central banks leasing gold? What are Eric Sprott, Mike Maloney and Reginald H. Howe's take on this?

Find out by reading my article:
Rising Gold Lease Rates Indicating Easing of Price Manipulation.

Eric Sprott

Mike Maloney

Financial Sense Newshour: Marc Faber

Today we have an update from Marc Faber. 

Cyclical stocks are doing miserably: commodities, gold, silver. While equities have been going up, that's where people are putting their money now.

When oil prices would spike, the economy could dive. But Marc Faber says that Ben Bernanke would flood the money with even more money. So it's unlikely that markets will go down. He sees oil prices as a tax on the consumer.

So we get a weakening economy, but with rising equity prices.

For gold, Marc expects a further correction to the 1500 $US/ounce level.

The reason why gold mines went down is because governments want a share of these mines. Exploration companies have zero cash flow and many gold mines have gold only as a by product, while the other part of their revenue, namely industrial metals like copper, are weak.

Another Correlation: Interest Rates and P/E Ratios of Gold Mines

In the Peter Schiff Show on the 5th of April, Peter talked about how low the P/E ratios of the gold mines are, compared to the interest rate. He said: "the lower the interest rates are, the higher P/E ratios will be".

This correlation is intuitively correct. As the interest rate is low, you won't get any return by putting your money in treasuries or in the bank. So where do you put your money, if not in cash and bonds? You will put your money in the stock market where you get a higher return. That's why stocks will have a higher valuation and consequently a higher price. A higher price will result in a higher P/E ratio. Conversely, when interest rates are high, the P/E ratio will be low.

For example: if the interest rate were 15% like in year 1981, investors will likely put their money in bonds with a 15% return per annum, rather than putting their money in risky stocks.

To show this correlation I will give historical evidence and show why Gold Miners are very cheap.
Go here to check out my analysis.

Peter Schiff's Lecture

We don't get many lectures from Peter Schiff, so enjoy this one to the fullest!

A Look at the Balance Sheets of the U.S. Banks

During the financial collapse of 2008, the problem of the banks was their balance sheet. Banks were highly leveraged compared to their equity. On average, the assets held by the banks was 10 times their equity. This means that a 10% decrease in asset value at constant liability levels could bankrupt the whole company.

The first problem was debt (liabilities on the balance sheets) and the solution was deleveraging. Banks needed to reduce the size of their assets and reduce the size of their liabilities. The second problem was liquidity and the solution was increasing reserve ratios. This article will summarize and analyze what happened during these 3 years after the financial collapse in 2008.

Purchasing Manager Index: U.S. VS Eurozone

As I learned how the PMI correlates with GDP Growth Rate in my previous article, I wanted to see how the U.S. and the Eurozone are doing (Chart 1). It looks like the Eurozone is starting to contract, while the U.S. is still increasing in GDP growth speed.

A pretty big divergence is going on and it started all in late 2011. Remember that? The period where the ECB printed trillions of euros in a few months?

It's obvious that printing money doesn't help the economy and this contraction is the absolute evidence of that.

Chart 1: U.S. VS Eurozone PMI

Believe China or HSBC?

Today on Zerohedge, I learnt that the official China PMI was 53.1 in March 2012, while the HSBC China PMI was 48.3. This has been the second highest divergence since 2008. I wonder why this big difference is occuring and who is to believe. China or HSBC?

To find out, go to: Divergence in China PMI.

Chart 1: China PMI VS HSBC PMI

Investing In Gold & Copper in the Philippines

Investors have been losing interest in gold mining stocks over the last year. I pointed out in my previous article that gold mining stocks are now a bargain at these levels. In this article I will shed light on investment opportunities in the Philippines.

The reason why I chose this country is because I like its fundamentals. The Philippines are one of the most mineralized countries in the world and ranks first in proven mineral resources in South-East Asia (Figure 1). It ranks in the top 5 in gold, nickel, copper and chromite reserves. Its two greatest gold and copper deposits are Tampakan (Indophil Resources (IRN) ) and King-King (St. Augustine Gold & Copper  Ltd. (SAU) ). The production growth in the Philippines is enormous. The country is now 2nd in global mining production just after Russia.

To see why these 2 companies are a good bet go to: M&A Activity in the Philippines.

Figure 1: Mining Exploration Activity in the Philippines