Critical Juncture For Silver and Gold

With the Fed's latest iteration of QE, the question many are asking is whether risk assets continue their bullish move or if the market will once again shrug as it did following QE3.  An an interpreter of price, the question is best answered through relative movement, and by considering what the Fed wants – nominal growth.  What that means is that the Fed wants some combination of actual inflation and actual growth to push the economy into escape velocity mode.  Of course, just because the Fed wants it does not mean it will happen, but that seems to be the goal of monetary policy now.

So does price think it's going to work?  It seems plausible, particularly when considering the relative behavior underway in markets.  Take a look below at the price ratio of the iShares Silver Trust ETF (NYSEARCA:SLV) relative to the SPDR Gold Trust Shares (NYSE:GLD).  As a reminder, a rising price ratio means the numerator/SLV is outperforming (up more/down less) the denominator/GLD.

The ratio now is at a critical juncture given that it has crossed its own 20-day moving average, but is still within what appears to be an uptrend of leadership.  If a breakout in silver's strength occurs, it might mean that further risk-sentiment is likely in markets, which is likely to make gold rally, but not to the same extent as silver and other more industrial-sensitive commodity plays.

Silver is often referred to as “poor man's gold,” but the truth is it is an imperfect substitute for the yellow metal.  Silver tends to be much more sensitive to industrial demand, while gold is less so on a relative basis.  As such, when silver outperforms gold, it means money is starting to bet on an increase in industrial production and global reflation.  Note that the ratio rallied in January and February during the best first quarter for equities in a decade, underperformed throughout the corrective period of April-May, bottomed in early June as the melt-up began, and has since fought higher.
 

Gold Tests $1,700 On Discount Buying, Possible European Rate Cut

Gold has once again fallen victim to global economic concerns, dropping to a four-week low this week on the back of US budget talks and the ever-looming threat of the fiscal cliff. Investors engaged in another commodities sell-off, sending gold to $1,686 on Wednesday, its lowest price this week. But what goes down must, at some point, come back up — and after a two-session decline, gold investors can breathe a little easier: Thursday saw spot gold prices back to toying with highs above $1,700 per ounce.

As volatile as gold has been of late, investors buy it up whenever the price is right. The yellow metal’s discounted price has presented investors with a good buy, and many were taking advantage of that on Thursday.

On Tuesday, Bart Melek, head of commodity strategy at TD Securities, told Bloomberg, ”gold is being sold along with just about everything else in commodities with the worries on the fiscal cliff.” Gold, which is widely known as a safe haven asset, is just as susceptible to economic concerns as other commodities, as has been showcased by “knock-on effects” brought on by the threat the fiscal cliff poses to the global economy.

Gold investors are waiting with bated breath for Friday’s release of the non-farm payroll data and the upcoming Fed meeting slated for next week, where hopefully a resolution will be reached regarding the fiscal cliff. If the US is unable to save itself from falling off the cliff, “the possibility that a $600 billion package of tax hikes and spending cuts due to kick in in the New Year could push the world’s biggest economy back into recession,” according to Reuters.

Also helping gold shake off some of its losses is renewed interest in safe-haven buying spurred by European Central Bank (ECB) President Mario Draghi’s comments at a press conference. Draghi hinted further interest rate cuts may be put in place to boost economic growth in Europe. The ECB has cut its growth forecast for the year, anticipating a contraction of 0.5 percent, 0.4 percent higher than originally expected. Low interest rates are considered inflationary and therefore bullish for precious metals.

Household Investments In Gold Are Not Irrational

Gold is fantastic. Gold is a problem. Depending on who you are, you will choose one of these statements. For Indian households gold has emerged as the investment destination of choice. After declining over the first half of calendar year 2012, third quarter data shows an uptick in demand despite high prices and a higher customs duty. Not only is gold demand up, but that for coins and bars is growing faster than that for jewellery. Coins and bars demand grew 12% over the third quarter of 2012 over 2011 (for calendar year), while that of jewellery grew 7%. Coins, bars and exchang-traded funds are investment vehicles while jewellery is more of a traditional store of wealth for women.

A cash-fuelled run-away real estate market (it seems the Delhi real estate market rose 25% after the Commonwealth Games to soak all the cash the over-invoiced bills threw off) has priced real estate so high that the average household sees a large part of the disposable income get eaten up by the monthly mortgage payment. Food and other living cost inflation (caused by supply side blocks that the government has chosen not to address) has seen spending more than double over the last few years reducing the surplus left for discretionary spending and for savings. If the supply side of savings has shrunk, the behaviour of banks and financial product manufacturers and sellers has caused a breakdown of trust causing households to switch their investment vehicles. For example, over Rs.1 trillion have been lost by retail investors in just life insurance products due to sharp sales practices and trap-like products. Grumpy stock markets have added to the retail disenchantment with financial market-linked products while gold returns have been good. 

Investment in the metal, either buying it directly or through aa exchange-traded funds (ETFs) has seen Rs.1 lakh grow to Rs.3 lakh  over the last five years. Over the same period, the Sensex has turned  that Rs.1 lakh into Rs.94,000. If this was not reason enough, add the  overall atmosphere of uncertainty about the future of India and the rush towards gold is explained. Household money has run towards safety. And therefore to gold. To blame the household for causing a balance of payment crisis is uneducated.Since India does not have enough gold we import it. Tonnes of it. About 700-800 tonnes are imported each year. Dollars are paid out and 2011-12 saw $62 billion or 3% of the gross domestic product (GDP) flow out of the country to purchase gold. This outflow of hard currency makes our balance of payments a mess. Payments for gold explain a large part of the current account deficit (the shortfall between imports and exports of goods, services, transfers and investment flows) of 4.2% of the GDP. 

Recent press statements by the Reserve Bank of India and the ministry of finance suggest that the government will announce a gold-linked deposit scheme soon to allow investors the benefits of holding gold without actually buying the metal, potentially reducing pressure on the balance of payments. Opinion pieces and reports on this gold rush of households are condescending in parts—the financially illiterate household knows no better and buys gold. But I don’t think the Indian household is making an irrational choice given the situation that the average household finds itself in. For the un-banked anyway gold has been the only way to accumulate money, but I refer to the switch that household savings have made towards gold and real estate.

35 Ways To Market Your Property

In order to become a successful real estate investor there are certain skills that must be mastered. One of these skills is marketing. The following list is a great way to insure your marketing program is successful and make sure that your investment home does not sit empty and drain your bank account while you wait for a buyer. Make an effort to do several of these action items each day until your investment home sales, rents, leases, or you are forced to move in: 1. Put signs in yard (be sure phone numbers are readable): For Sale. Flexible Seller. Motivated Seller. "0" down.

2. Check out & fix mail box if needed.

3. Plant colorful flowers & add mulch.

4. Replace front light fixtures as needed.

5. First look inside must be a positive.

6. Soft music playing is good idea.

7. Make sure house is very clean (especially kitchen and bathrooms).

8. Take good pictures inside and out.

9. Check tube every few days (keep filled with fresh new colored flyers).

10. Replace directional signs (as needed every few days).

11. Run “For Sale” ads in newspaper.

12. Get an 800# with number capture feature.

13. Place ad with FSOB.com.

14. Trade leads with others home sellers.

15. Post house on real estate association sites.

16. Blanket the neighborhood with flyers (include the finder’s fee).

17. Promote open houses with:

Ads.

Directional signs.

Big balloons.

18. Have a lunch at home for realtors the week of the open house.

19. Make up a realtor flyer, offer free lunch $ door prizes. 

20. See that landscaping looks great. 

21. Clean driveway if needed.

22. Paint and repair front door as needed.

23. Replace house numbers as needed.

24. Make house smell like apple cinnamon.

25. Keep the inside of the house looking bright.

26. Put lock box on door for showing.

27. Put tube on main sign with flyers.

28. If local laws permit--place directional signs from main streets.

29. List for sale & lease on MLS with pictures.

30. Run “For Lease” ad in newspaper (be sure ad gets listed on net).

31. Run long term rent to own ad in tabloids (like The Greensheet and Penny Saver).

32. As calls come in keep good notes (for this and future sales).

33. Post ads on free real estate listing sites.

34. Visit neighbors and talk it up (offer a finder’s fee).

35. Have open house every other week (each better than the last).

European Economic Recession Worse Than Expected, Leaders Say

Europe's economy is still reeling and unemployment could remain high for years despite the progress made in solving the debt crisis, the European Union warned Wednesday, as it downgraded next year's forecasts for the 27-country bloc. 

The commission had previously expected the 17 countries that use the euro to find its footing next year, with 1 percent growth. Now it predicts only a 0.1 percent uptick. The report also suggests that unemployment won't start falling until 2014 -- and then only slightly. "Europe is going through a difficult process of macroeconomic rebalancing and adjustment, which will last for some time still," Olli Rehn, the EU's economic and monetary affairs commissioner, told reporters. "Market stress has been reduced but there is certainly no room for complacency." 

The eurozone has made progress this year toward resolving its debt crisis, which has been dragging down economies throughout the EU and beyond. Countries that use the euro have slashed spending and promised to keep their deficits in check; they've vowed to better protect their banks by improving how they're regulated and supervised; and the European Central Bank has put in place a plan to help countries struggling with high borrowing costs, the hallmark of the crisis and the reason some have sought bailouts.

This commission's predictions for this year reflect that grim reality. It expects the EU's economy to contract by 0.3 percent, rather than remaining flat as it forecast in the spring. It also predicts that the eurozone GDP will fall 0.4 percent, against a previous expectation of a 0.3 percent drop.

Official third-quarter GDP figures -- which will show whether the eurozone has entered recession as economists suspect it has -- are due to be released on Nov. 15. A recession is defined as two quarters in a row with negative growth.

The commission's report also confirms that the crisis is not sparing even Germany, Europe's largest economy and the traditional motor for growth.

It predicted that Germany would eke out just 0.8 percent growth in 2012, compared with its earlier forecast of 1.7 percent. ECB President Mario Draghi warned Wednesday that "the latest data suggest that these developments are now starting to affect" the German economy.

In a speech given in Frankfurt, Draghi called on governments to back up the ECB's plans to help countries with their borrowing costs by cutting debt and improving growth through cutting excessive red tape.
"Across the whole euro area, governments are making determined efforts to reverse economic imbalances," he said. "They are implementing reforms to redress the misguided policies of the past and to create sustainable long-term growth. It is a difficult road and there is still a long way to go. But the early signs are encouraging." 

The Key To Your Long Term Success In The Real Estate Business

Now, granted, this is not some earth shattering revelation, but let me tell you how important I believe this is to our business. I always strive to do more than is expected. Below are some examples of how we do more with the different players in our investment model.

Doing More than is Expected With Your Real Estate Business

Real Estate Agents Or Sellers:

Whenever I call a new agent, I do so with a specific property in mind and I ask a couple of key questions about the deal. During the call I let them know what I am looking for and a little bit about our track record.

Whenever I call a new agent, I do so with a specific property in mind and I ask a couple of key questions about the deal. During the call I let them know what I am looking for and a little bit about our track record.

Investors:

My model relies on recycling capital through private investors, and that is why we have created our unique model that is very investor friendly. We want our investors to have enough security where they actually wish we don’t pay them. First, we only look to secure investor capital after we have repaired and leased units. We do not believe in asking investors to lend on distressed assets. We want them to have security in a leased and producing property.

Next, we offer double digit interest rates on the investor capital as we don’t buy “skinny deals”. Our minimum expected return is 20%+ and thus we are happy to pay double digits on repaired and leased properties. We have leveraged this model successfully for several years now. It’s no surprise that investors who have lent money at double digit rates with tremendous security will talk about it with their friends. Once our investors understood our model they started talking to their friends about the double digit returns they were earning on repaired and leased properties. At that point we had more investors calling to learn about our model and the momentum just keeps building.

So there you have it; the key to this business is ALWAYS doing more than is expected!!!

Silver’s Need For Rescue Increases As Price Fall Continues

Downward pressure in the silver market has not abated. Friday’s action provided a clue as to what was in store this week. Silver was pushed below its 50-day moving average and though it could not be kept down at that level for the close, the metal lost $0.75. As North America slept Sunday night, pressure was again applied to the market, setting silver up for a week that saw it touch new lows.

A market focal point this week was a two-day Federal Open Market Committee meeting that appears to have produced nothing especially meaningful for the silver market — except perhaps disappointment for those wanting more action from the Fed. The benefits of QE3 are rapidly disappearing and US economic data continues to improve. That is not only weighing on hopes that the Fed will be prompted to act more aggressively, but is also leading to speculation that its current program may not continue as long as many would like.

More market participants are starting to draw the conclusion that instead of expecting to thrive on monetary policies, investors are going to have to get used to the idea of markets driven by fundamentals. For silver, that could be a reason for concern.

Scotiabank, a major market participant, has quickly changed its bullish tune. “We are bearish so long as silver trades below $33.40,” the firm said in a market comment.

News of a 2.8 percent decline in Chinese silver imports in September was also a source of pressure on silver this week. Furthermore, HSBC warned that future Chinese demand for silver may be curbed due to an oversupply of solar panels. The bank referred back to its belief that silver demand for solar panels is also declining for two other major producers: the US and Germany.

The latest Commitments of Traders report reveals continued erosion of net speculative length and open interest for COMEX silver. Two weeks ago, silver ETF investors dropped 25.5 metric tons. Last week, the outflows more than doubled, with 54.6 metric tons of silver sold.

The Close:

An improvement of sentiment was seen in the markets Thursday. Silver was able to draft support from rising gold prices and speculation about forthcoming monetary policy from the Bank of Japan. December silver on the COMEX was about $0.50 higher at $32.12 after the US day session closed. The final New York spot price was $32.11, a $0.38 gain.

Silver needs more than an up day here and there. Market participants continue to warn that silver bulls must step their game up as silver’s risks of falling solidly into bear territory are increasing.